Option Investor

Daily Newsletter, Wednesday, 08/08/2001

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The Option Investor Newsletter                Wednesday 08-08-2001
Copyright 2001, All rights reserved.                        1 of 1
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MARKET WRAP  (view in courier font for table alignment)
        08-08-2001        High      Low     Volume Advance/Decline
DJIA    10293.50 -165.24 10479.64 10267.97 1.11 bln   1193/1885 
NASDAQ   1966.36 - 61.43  2038.64  1958.67 1.64 bln   1224/2447
S&P 100   607.53 - 11.18   619.86   606.36   totals   2417/4332
S&P 500  1183.53 - 20.87  1206.79  1181.27
RUS 2000  472.62 -  7.71   481.73   471.54
DJ TRANS 2882.04 - 39.42  2931.05  2876.98
VIX        24.36 +  1.71    24.62    22.54
Put/Call Ratio      0.55

Beige Blues

Cisco's (NASDAQ:CSCO) report didn't do much to inspire the bulls.
But the Fed's Beige book certainly piqued the interest of the
bears.  Make it four in a row for the Nasdaq.

Cisco's conference call Tuesday night and its CEO's subsequent
appearance on CNBC did little in the way to appease market
participants.  The company delivered results that were dismal and
offered guidance that was equally dismal.  Bulls had been betting
on Cisco to deliver the catalyst that would perpetuate the Nasdaq's
advance up through last week.  OI was in on that bet, playing Cisco
last week as it advanced above the $20 level.  But the company's
failure to deliver the proverbial shot in the arm to the tech
sector resulted in a loss of bids Wednesday.  In addition, analysts
across the Street who'd been itching to upgrade the stock instead
opted for reducing future revenue and earnings estimates.  The
ramifications of Cisco's failure to deliver were spread from shares
of its suppliers such as Xilinx (NASDAQ:XLNX) to its competitors
such as Lucent (NYSE:LU) and Nortel (NYSE:NT).  Referring to the
latter, Cisco chief, John Chambers, made it clear that his company
was flush with cash and steadily taking market share from its
competitors, which makes Cisco a long-term winner.  In the
meantime, the consensus among market participants is that there's
no real compelling reason to buy the stock at current levels.

The market's inability to hold onto its gains early Wednesday, in
the wake of the Cisco effect, was made worse following the Fed's
release of its Beige Book.  The Beige Book is in essence a
nationwide survey of the economy that is released eight times per
year.  The Fed's report revealed further deterioration in the
manufacturing segment of the economy, along with continued
sluggishness in the retail sector.  The latter of which is most
disconcerting because the U.S. consumer has been adopted as the
backbone of the economy.  Even Chambers commented Tuesday night on
the need for the U.S. consumer to continue spending in order for
the economy to stay afloat.  The Beige Book reported that weakness
was seen across the broader spectrum of the retail sector, with
discount merchants fairing marginally better.  Furthermore, some
reported that orders for inventory were running lower than last
year due to lower forecasted demand during the holiday season.

The Beige Book's suggestion of a weakening consumer was enough to
scare the bulls and inspire the bears Wednesday afternoon, which
was part of the reason for the rapid sell-off across the broader
market averages Wednesday.  One needs only to look at an intraday
chart of bond yields to gauge the rapid flight from equities
following the release of the Beige Book.  Granted, there was an
$11 billion government offering of 10-year notes Wednesday that
received the most investor interest witnessed in eight years.
The demand for the new issue, in turn, precipitated a large short
covering rally in bonds.  And some of that capital to cover bonds
could've come from the equity markets, exacerbating the slide in
stocks.  Moreover, the underlying theme of tame inflation as
reported by the Fed also contributed to the rally in bonds and
the inverse decline in yields.

With that all being the case, perhaps the most disconcerting
aspect of the bond market rally Wednesday was that is suggested
market participants are growing increasingly risk averse.  (Of
course that much is only disconcerting to the bulls in stocks.)
Short covering, huge demand for new issues, and falling yields
all point to market participants' preference for bonds over
stocks, at least over the short-term.

On the other hand, the one positive that can be taken away from
the Beige Book and, indeed, the bond market rally Wednesday is
that inflation remains a moot point.  And because of that along
with the continued deterioration of the U.S. economy, the Fed
may be more willing to lower rates beyond 3.5 percent, which
seems to be the current consensus for the final resting place
of Fed Funds during this cycle of benign monetary policy (Fed
Funds are currently 3.75 percent).  As we approach the August 21
meeting, the topic of further rate cuts could act as a catalyst.
Then again, up until this point, the Fed - and its rate cuts -
has been a moot point.

Investors' collective aversion to risks in equities was furthered
with Merrill Lynch's downgrade of several European telecom
carriers, including heavyweights Deutsche Telecom (NYSE:DT) and
France Telecom (NYSE:FTE), both of which trade as American
Depository Receipts (ADRs) on the NYSE.  The downgrade, on top
of the Cisco impact, resulted in continued selling in those
stocks closely tied to the telecom business.

In other tech-related mishaps, Emulex's (NASDAQ:EMLX) warning
Tuesday night impacted shares of data storage companies, ranging
from the 600 lb gorilla in Emc (NYSE:EMC) to software maker
Veritas (NASDAQ:VRTS).  And Nortel announced after the bell that
it would sell $1 billion in convertible notes, which should
pressure shares as arbitrageurs take hold.

But not all news was of the negative nature Wednesday.  Waste
Management (NYSE:WMI) reported numbers that were more or less
inline with estimates.  Analysts voiced concerns over the
impact of a slowing economy on Waste Management's revenue growth,
which may have attributed to its shares modest dip.  But I see
an awful lot of those big green and yellow trucks driving around
the streets of Denver, so maybe Waste Management will continue
to deliver solid earnings.  At any rate, its stock has performed
relatively well recently, up about 30 percent from its April

Despite the Beige Book's suggestion of a weakening consumer,
there were a handful of retail stocks that reported otherwise.
Land's End (NYSE:LE) recorded 10 cents per share in profits,
while consensus estimates had the company pegged to earn 1 cent
per share.  The finished almost 5 percent higher.  And, Ralph
Lauren (NYSE:RL) reported numbers that were inline with
estimates in addition to reaffirming its previous guidance.
Shares of Ralph Lauren finished over 8 percent higher.

But despite the positive reports from the two aforementioned
retailers, the Retail Sector Index (RLX.X) finished lower by
more than 1 percent.  In fact, of the 25 sectors I follow on
a daily basis, only one finished in the green Wednesday: Gold
and Silver Sector Index (XAU.X).

The widespread weakness across the vast majority of narrow
based indexes caused the major market averages to fall below
key support levels.  For its part, the Dow closed below 10,300
and has support below around 10,230.  The Nasdaq closed below
the psychologically significant 2000 level, but bounced from
its support zone around 1950.  Traders will be watching that
general area closely Thursday for further signs of weakness in
the tech laden index.  What's more, the internals of both the
NYSE and Nasdaq markets echoed the negative price action
of the indexes.  And volume increased with Wednesday's
weakness, which can be viewed as a cause for concern.

As Jim suggested Tuesday, the Nasdaq will remain in a basing
mode as long as the 1950 level holds.  And that in itself could
be enough for the bears to capitulate.  Otherwise, a retest of
April's lows could be in the cards.  Without a compelling
reason to buy stocks, the market averages could be headed for
further weakness in the short-term as the economy continues to
churn through this period of post excess.

Eric Utley
Option Investor


The Old One-Two Punch
By Jeffrey Canavan

Cisco delivered a left hook to market's chin right at the opening
bell.  The market was a little dazed and confused, but managed to
stay on its feet.  Stocks even managed to fight back, and deliver
a few bullish blows themselves. But then they looked down for a
second, and the Fed landed a haymaker that knocked stocks to the

The Fed's haymaker was the latest edition of its beige book,
which is a survey of economic conditions that the Fed uses for
setting interest rates.  The gist of the book is that this
economic downturn is going to make the great depression look like
a picnic.  Okay, it wasn't nearly that bad, but when investors
are as nervous as a long-tailed cat in a room full of rocking
chairs, it doesn't take much to start a selling spree.  The Fed
basically said that manufacturing continues to weaken, that
weakness is starting to spill over into other sectors, and retail
sales are sluggish.  For the full story go to:

If retail sales were in fact sluggish, we should find out
tomorrow when July retail sales are released.  Should the numbers
confirm that consumer spending is waning, retail stocks, and the
rest of the market, could be in for a rough day. Retailers
weren't the worst sector today, but the Retail Index did lose
2.5% in the last two hours of trading.

What was the worst sector of the day was oil service, followed
closely by software, networking, and semiconductors.  Internet
and biotechnology was also bruised and battered, and the only
sector left standing at the end of the day was gold and silver.

So is the market down for the count?  It might need a standing
eight count, but there are a lot of rounds to go.  The question
is whether the market has the chin of Rocky Balboa or Trevor
Berbick.  After suffering a second round knockout at the hands of
Mike Tyson, Trevor Berbick was asked by a report what he thought
of the fight.  His response was, "I like eggs."  Hopefully the
market can take a punch better than that.


We are continually looking for ways to improve upon our
product.  In that vein, we'd like to hear from our readers
about what they'd like to see in the Market Sentiment section
of the newsletter.  Questions, suggestions, and complaints
are encouraged:


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

            Weekly   Daily     Overbought    Support  Resistance
            Trend    Trend      Oversold

DJIA        Bearish  Bearish    Neutral      10,200   10,600
NASD        Bearish  Bearish    Neutral       1,940    2,125
S&P 500     Bearish  Neutral    Neutral       1,170    1,240
Rus 2000    Neutral  Neutral    Neutral         465      495

The daily trend of DJIA and NASD have been changed to bearish
after dropping below their 25-day moving averages, and breaking
their up trends.  Overbought/Oversold status is neutral, but
rapidly approaching oversold.

            Weekly   Daily     Overbought    Support  Resistance
            Trend    Trend      Oversold

Semis       Neutral  Neutral    Neutral         535      660
Biotech     Bearish  Bearish    Oversold        490      550
Internet    Bearish  Neutral    Overbought      140      170
Networking  Bearish  Neutral    Neutral         300      365
Software    Bearish  Bearish    Oversold        180      200
Banking     Bullish  Neutral    Overbought      640      675
Retail      Bullish  Neutral    Neutral         875      920
Drugs       Neutral  Neutral    Neutral         380      410

Keep and eye on software and biotechnology tomorrow.  Both
sectors are sitting right at support.  Semiconductors broke
through their support level today.  Internet and networking
continue to trade sideways, thus their neutral trend ranking.

               Percent Change
            Last    Last    Last    Rel Strength   Point and
           5 Days  10 Days 30 Days   vs S&P 500   Figure Signal
DJIA       (0.6%)    2.1%   (0.4%)    Neutral         Buy
NASD        0.0%     3.5%   (1.1%)    Neutral         Sell
S&P 500    (0.6%)    2.8%   (1.2%)      N/A           Sell
Rus 2000   (0.9%)    1.3%   (0.8%)    Neutral         Sell

Semis       1.5%    12.1%    2.1%     Positive        Buy
Biotech    (3.0%)    3.6%  (11.6%)    Neutral         Sell
Internet    4.1%    (1.1%) (16.2%)    Negative        Sell
Networking  2.0%     8.8%    0.3%     Neutral         Buy
Software   (1.0%)    4.8%  (11.0%)    Neutral         Sell
Banking     1.0%     4.1%    2.8%     Positive        Buy
Retail     (1.0%)    2.6%    3.8%     Neutral         Sell
Drugs      (1.2%)    3.3%   (0.5%)    Neutral         Buy



More on Entry Points - The Covered Call
By Mark Phillips

As the month of August meanders along, it is becoming
increasingly clear that we are in an ever-tightening rangebound
market.  Either we will continue along the current
sleep-inducing course, or we will break out of the pattern.
Profound, huh?  If I were an analyst for Merrill Lynch or
Prudential, that insightful statement would earn me a fat 6 or
7-figure salary.  In all seriousness, the rangebound market has
to break eventually -- the question that is on all of our minds
is WHEN?

If we knew that, we could move our investments into cash, take a
relaxing vacation until just before the glorious day arrived,
return and make a killing.  Hmmmm...have you noticed the anemic
trading volume lately?  Maybe that is precisely what the pros
have done this month...just a thought.  But as long as this
rangebound market endures, conservative strategies like writing
covered calls are likely to shine for us.  But when the market
or stock we are following trade in such a narrow range, entry
points must be precise and well-considered.

To that end, we spent our time together last week detailing the
ingredients necessary for opening the long leg of our LEAPS
covered call position.  Using the recent LEAPS Portfolio entries
in Cisco Systems (NASDAQ:CSCO) and Sun Microsystems
(NASDAQ:SUNW) as examples, I think we built a model of how we
can play even beaten down Technology stocks profitably.  In a
nutshell, we wait for weekly and daily Stochastics to bottom in
oversold and for the daily Stochastics to emerge from oversold
as the stock bounces from major support.  Sounds simple, huh?

Actually it is, as we showed last week, but it requires
patience, a quality in short supply (at least in my house) as we
wait for our entry parameters to be satisfied.  If you missed
last week's article, I would recommend taking a look before
proceeding with the remainder of tonight's article.  It can be
accessed from the following link:  More on Entry Points

Proving its utility, the daily Stochastics gave us solid
long-term entries on both CSCO and SUNW, letting us into the
plays at $16 and $14, respectively.  Then all we needed to do
was wait for the daily Stochastics to rollover from overbought
territory, accompanied by price weakness.  With plenty of time
available in our 2004 LEAPS, we are in no hurry to initiate the
sale of the near-term calls and can wait for conditions to be

We got a decent opportunity on CSCO last Monday as the daily
Stochastics rolled down out of overbought territory, but a look
at the big picture would have kept me on the sidelines for a wee
bit longer.  Although the price was showing some weakness, I had
my eye on the company's earnings report set for yesterday.  I
was looking for one more push higher before the much-awaited
announcement and was rewarded 3 days later on August 2nd.  The
price spiked through $20.50 before the sellers emerged and they
stepped up their efforts earlier this week ahead of the
company's earnings report.  That gave us an aggressive entry
(labeled:A) on the daily chart, and shown with multiple
possible entries on the hourly chart.

The high odds (read:conservative) entry would have been to wait
for the rollover to commence before selling our calls and that
event occurred this Monday as the price dropped back under $20.
By that time, we could see declining peaks on the hourly
stochastic, confirmed by the daily stochastic dropping out
of overbought territory.

So now that we are ready to sell those calls, the big question
is "which ones to sell?".  AUG or SEPT?  $20 or $22.50?  While
there is obviously more premium available in the $20 strike, we
need to keep in mind that we don't want to have to worry
constantly about whether our sold call is going to expire in
the money.  That is enough to push me out to the $22.50 strike,
as it appears highly unlikely (especially so, now that we have
seen the market's reaction to the company's earnings report)
that CSCO will move above that level in the near future.  But
looking at the current quotes (as of Monday), there just isn't
premium in the AUG contract as there is less than 2 weeks
until expiration.  So by default, we find ourselves pushed into
using the SEP-22.50 Call.  Checking the quotes, we find that we
can sell the calls for $0.65.  Not a fortune, but it is more
than 10% of what we paid for the 2004 LEAP and the first step
on our long path to getting those CSCO LEAPS for free.

In hindsight, we can see that we would have done much better
selling the AUG-20 calls, but that was a more aggressive posture
than we are currently targeting in our discussion here.  In the
end, strike selection comes down to a matter of personal
preference.  Since we are covering the details of entry points,
let's move on to our next example and see what other lessons we
can learn.

SUNW also gave us a great long-term entry, when it fell to and
bounced from the $14 level a couple weeks ago.  This popular
Tech stock helped to lead the NASDAQ on its recent assault on
the 2100 level, and gave us a couple chances to sell covered
calls this week as well.  Note that the one-day dip last Monday
wasn't severe enough to drag the daily Stochastics out of
overbought territory, thus preventing us from taking a premature
entry.  But since then, the picture has improved significantly
for call-sellers, giving us an aggressive entry last
Thursday/Friday.  A more conservative opportunity materialized
today as the NASDAQ rebound fell apart and SUNW rolled over once

After pushing through the $17.50 resistance level last Thursday,
bulls starting hoping for the NASDAQ to continue its rebound
through 2100.  Aggressive traders could have sold calls on that
late-day spike (circled on the hourly chart), but the
conservative approach would have been to wait and see whether
the stock was able to power through the next level of resistance
at $18.25.  Prices fell back at the open on Friday, but those
aggressive traders had to sweat a little bit as the stock
consolidated above the $17.50 level.

This week has seen several attractive entry points, with the
pullbacks from the $17.50 level early on Monday and Tuesday and
the rollover today from just below $18.  With the daily
Stochastics in full roll now, we could have used any of the
hourly stochastic rollovers as an opportunity to sell our
calls.  Obviously, today's rollover provided the best balance
of risk and reward...isn't hindsight great?  More than likely,
I would have been in the play on Tuesday's morning rollover, so
would have had to endure a bit of nervousness as prices surged
ahead of CSCO's earnings report last night.

Again, we have to go through the strike selection process and
have almost the same limitations faced in the CSCO trade -
namely August strikes have too little time premium to allow us
to collect any meaningful premium without selling a strike that
would be in danger of expiring in the money.  But let's approach
this one from the more aggressive perspective for educational
purposes.  Since time is on our side with only 2 weeks until
expiration, let's target a near-the-money strike in August.
Checking our quote service, we find we can sell the selected
option for $0.60 as well, taking the first step towards
financing that LEAP we bought a couple short weeks ago.

While there are quite possibly better plays out there and many
of you might have eked out a better entry than the potential
ones I have outlined here, I think it should give you a good
idea of what we are looking for in terms of entries for both
legs of our LEAPS Covered Calls positions.  We'll revisit both
of these paper trades in the future and see how we fared in
the light of history.

It's hard to apply pure directional strategies in a rangebound
market, but hopefully I've shown you how to use the tools at
your disposal to carve out a modest profit center while we wait
for the days of trending markets to return.  The specific trades
I have outlined in recent weeks are not really the important
point.  I really feel like I've accomplished something when
I hear stories from you detailing how you have taken the lessons
I provide and used them to create your own profitable trades.
When you can do that consistently on your own, you will know you
have graduated to the level where you are well equipped to
direct your own financial future -- and that is a truly
liberating place to be.

Learn the lessons, do the research and then take the trade with

Contact Support


No new calls tonight


No new puts tonight


ADBE - put
Adjust from $37 down to $36

CHKP - put
Adjust from $46 down to $43


JBL $29.11 -2.39 (-3.88) Investors ran from JBL Wednesday as the
tech sector sank.  The stock dipped below our stop at $31 early
in the day and proceeded to trade and close below the $30 level.
If its slide below $31 didn't allow for exit points, bullish
traders with open positions should use any strength above $30
Thursday to get out of call plays.

LXK $45.50 -3.71 (-1.13) Our recently added play on LXK didn't
even get a chance to work for us.  The stock gapped lower
Wednesday morning and continued to trade lower throughout the
day, ultimately closing below our stop at the $46 level.  We
actually would've liked to hold the play if it would've stayed
above $36, in an attempt to gain a favorable entry point.  But
the fact that it closed below our stop is reason enough to
drop coverage this evening.


JEC $55.17 +0.87 (+0.27) JEC managed to buck the broader market
weakness Wednesday.  The stock edged above our stop at the $55
level near the close of trading and, as such, we're dropping
coverage on the play.  Bearish traders who didn't get out of
put plays Wednesday can use any weakness below the $55 level
early Thursday to exit plays.


CHBS - Christopher & Banks Corp. $24.24 +0.72 (-0.51 this 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.

Most Recent Write-Up

The decline has lost some of its momentum in recent days, but
CHBS continues to be a favorite of the bears.  Driven by the
fledgling rollover in the Retail index (RLX.X), shares of CHBS
fell through the $24 support level on Monday and despite a
modest recovery in the RLX today, the stock posted another
fractional decline.  The bulls managed to reverse the opening
drop this morning, but then the stock spent the rest of the
day in slow descent, unable to reclaim the $24 level.  Use any
weak intraday rallies to $24 or $25 as attractive entry
opportunities and lower stops to $26. Alternatively, wait for
selling volume to pick up, pushing the stock below $23 before
adding new positions.


CHBS got a bounce from some favorable earnings news from the
retail sector Wednesday.  But the enthusiasm may be short
lived following the Fed's findings in the Beige Book.  Bearish
traders can monitor the Retail Sector Index (RLX.X) for signs
of weakness early Thursday and consider entering new put plays
if CHBS rolls over near $25.  Additionally, a breakdown below
the $24 level may offer momentum traders entry points if the
broader markets and RLX are declining.

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

BUY PUT AUG-25*URH-TE OI=318 at $1.80 SL=1.00
BUY PUT SEP-25 URH-UE OI=159 at $2.70 SL=1.50

Average Daily Volume = 554 K


Stocks Retreat Amid Concerns About The Slumping U.S. Economy...
By Ray Cummins

The major equity averages retreated again today after a sobering
report on the sagging manufacturing sector increased investor's
worries over the future of corporate profits.

The recent bearish activity in the market has generated some
familiar questions among our readers and today's narrative
concerns a popular subject; exits and adjustments in credit

Dear OIN:

I am currently participating in a bullish credit spread offered
in one of the previous editions of the newsletter.  If the issue
turns bearish or the technical outlook becomes unfavorable, what
are my alternatives for closing (adjusting) the play?



Regarding exit strategies with credit spreads:

As far as (put) credit spread adjustments, the most important
fact to remember is that any action relative to an exit/roll-out
strategy needs to be initiated when the issue is near (or moves
through) the sold strike.  After that, the alternatives are few.
The simple options are: close the spread near maximum loss; roll
it down and forward to a future spread or naked put; sell the
long option for the current premium and accept assignment of the
underlying shares in anticipation of future upside activity (or
writing covered calls); or simply wait for a potential recovery.

The most common methods used by experienced traders to exit or
cover a losing (put) credit spread include "legging-out," rolling
down and out to a longer-term spread or "shorting" the underlying
issue to cover the sold Put.  First, you can simply close the
position at a debit and register the loss.  There is also Jim's
popular technique; covering the short position as the stock moves
through the sold strike.  This is a great method for bailing out
on an issue that has unexpectedly reversed course, but you must
also be prepared to buy it back in the event of a recovery.  You
can also buy an "in-the-money" put (a put-debit spread), if you
anticipate additional downside activity but prefer not to short
the issue.  Another option is to "leg-out" of the spread for a
small profit (or at least a break-even basis).  To leg out of a
credit spread, place an order to close the short position anytime
the stock trades (and preferably closes) below technical support
or an established trend line (or moving average) on heavy volume.
There are other, more precise exit signals that can be used to
initiate the trade but this technique is based on the historical
probability that once a primary trend is reversed, the issue will
continue to move in the new direction for at least a short period.
After the sold (short) position is repurchased, wait for the stock
to lose momentum and sell the long position to close the entire
play.  It is a difficult technique to perform when emotion enters
the formula but it works well once you become experienced with it.
The key to success is using the method at known support levels or
after obvious reversal signals.  Otherwise, you are really just
speculating about the stock's next move.  Of course, there are
other, more complex adjustment strategies but they usually include
too much downside risk (or too many trade/commissions) to warrant
their use.

In all cases where an attempt to recover a losing play is made,
you must be prepared for further draw-downs and have thorough
knowledge of the strategy.  As with any technique, it must also
be evaluated for portfolio suitability and reviewed with regard
to your specific experience level and trading style.

Good Luck!

Summary of Previous Candidates:

Covered Calls: (Margin not used in calculations)

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

MSCC    AUG    50    46.00  65.67    $4.00   7.1%

Naked Puts:

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

MXIM    AUG    40    39.45  47.00    $0.55   9.3%
NVDA    AUG    70    69.20  86.25    $0.80   7.9%
MU      AUG    33    31.95  39.25    $0.55   7.3%
GMST    AUG    35    34.40  35.93    $0.60   6.2% *
BRL     AUG    65    64.10  80.40    $0.90   5.0%
TARO    AUG    38    36.88  37.60    $0.23   3.0% Adj 2-1 Split *

* GMST is apporaching a Key moment - the May and June lows.
* TARO is a looking worrisome now that the up-trend has been
  broken and the stock has made a "lower" low.

Positions closed: PLMD

Sell Strangles:

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

IMCL    AUG    35    33.85  44.50    $1.15  11.5%
IMCL    AUG    60    60.80  44.50    $0.80   8.3%

Naked Calls:

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

ENZN    AUG    75    75.90  64.96    $0.90  10.0%
BBOX    AUG    70    70.60  51.45    $0.60   5.3%
NVDA    AUG   100   100.80  86.25    $0.80   5.1%

Credit Spreads:

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

STJ   $69.94  $63.30   AUG60p/65p  $0.60  $64.40 ($1.10) Closed
SZA   $57.49  $53.14   AUG50p/55p  $0.70  $54.30 ($1.16) Closed
TEVA  $68.79  $68.77   AUG60p/65p  $0.80  $64.20  $0.80  ALERT!
ADI   $50.00  $46.00   AUG40p/45p  $0.75  $44.25  $0.75  Exit?
BRCM  $46.23  $42.79   AUG35p/40p  $0.75  $39.25  $0.75  ALERT!
HIT   $88.30  $89.40   AUG80p/85p  $1.25  $83.75  $1.25  Open
AHC   $76.73  $75.10   AUG85c/80c  $0.80  $80.80  $0.80  Open

Debit Straddles:

Stock  Position    Debit  Target   Value    Gain    Status

DST   AUG55c/55p   $5.75  $7.19   $7.19+   $1.44+   Closed *
CVS   AUG40c/40p   $3.25  $4.06   $4.06+   $0.81+   Closed *
EMR   AUG55c/55p   $4.35  $5.44   $2.30   ($2.05)   Closed *
SNE   SEP50c/50p   $5.75  $7.48   $5.15   ($0.60)   Open

*  The DST straddle traded over $9 and the CVS straddle traded as
high as $5.  The EMR straddle offered an acceptable exit after the
Tuesday morning (AUG 7) earnings report and with no additional
news-driven impetus prior to expiration, it was time to go.

New Candidates:

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


BULLISH PLAYS - Covered Calls, Naked Puts, & Combinations

COCO - Corinthian Colleges  $49.79  *** Smart Trading? ***

Corinthian Colleges (NASDAQ:COCO) is one of the largest private,
for-profit, post-secondary education companies in America.  The
company currently operates 45 colleges in 18 states and they offer
a variety of master's, bachelor's and associate's degrees and also
diploma programs through two operating divisions.  The company's
Corinthian Schools division operates diploma-granting schools in
the healthcare, electronics and information technology fields and
seeks to provide its students a solid base of training for a wide
variety of entry-level positions.  The company's Rhodes Colleges
division operates degree-granting schools mainly in the business,
healthcare and information technology areas and provides its
students with professional education to succeed in today's
competitive workplace.

We searched far and wide for an issue that might avoid some of
the selling pressure in the NASDAQ and we may have found a
viable candidate in this stock.  Corinthian Colleges is a unique
educational institution serving the large and growing segment of
the population seeking to acquire career-oriented education to
become more qualified and marketable in the current demanding
environment.  The collective colleges recently reported record
growth in total student population and student starts for the
fourth quarter and fiscal year and in the second half of fiscal
2001, they acquired three campuses, opened three new branches
and integrated the campuses acquired in the second quarter into
their operations.  COCO officials expect these investments to
achieve their full earnings potential in upcoming quarters and
investors are apparently optimistic about the company's future
share value as they recently propelled it to a new, all-time

COCO - Corinthian Colleges  $49.79

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-40  UCS-UH  OI=1  A=$0.60
SELL PUT  SEP-45  UCS-UI  OI=2  B=$1.40



NKE - Nike  $48.00  *** Retail Sector Rally! ***

Nike (NYSE:NKE) designs, develops and markets quality footwear,
apparel, equipment, and accessory products.  Nike is the largest
seller of athletic footwear and athletic apparel in the world.
The company sells its products to almost 20,000 retail accounts in
the United States and through a mix of independent distributors,
licensees and subsidiaries in approximately 140 countries around
the world.  Virtually all of its products are made by independent
contractors.  Most of its footwear products are produced outside
the United States, while apparel products are produced both in the
United States and abroad.

Retail stocks rallied today as hopeful investors energized the
group on the eve of the July sales reports.  Over the last few
sessions, a number of top companies have reported an increase
in comparable store sales for the most recent period and traders
are speculating that much of the tax rebate checks arriving this
week will be spent in America's most popular retail outlets.  In
addition, Adidas-Salomon AG recently reported second quarter net
profit of $21.1 million, up 22.2% from the same period last year.
Adidas is the world's #2 sportswear and equipment maker by sales
after Nike and the company said second quarter sales rose 10%,
beating analysts' expectations.  Adidas also reiterated that it
expects 2001 sales growth of 3-5% and 15% growth in earnings.

Traders who agree with a bullish outlook for stocks in the retail
apparel and footwear industry can profit from that activity with
this conservative position.

PLAY (very conservative - bullish/credit spread):

BUY  PUT  SEP-40.00  NKE-UH  OI=0   A=$0.45
SELL PUT  SEP-42.50  NKE-UV  OI=84  B=$0.75



PDLI - Protein Design Labs  $55.79  *** Entry Point? ***

Protein Design Labs (NASDAQ:PDLI) is engaged in the development
of humanized monoclonal antibodies for the prevention and basic
treatment of disease.  The company has licensed certain rights
to its first humanized antibody, Zenapax, to Hoffmann-La Roche
and its affiliates, which markets Zenapax for the prevention of
kidney transplant rejection.  The company is also testing Zenapax
for the treatment of autoimmune disease.  In addition, PDLI has
several other humanized antibodies in clinical development for
autoimmune and inflammatory conditions, asthma and cancer.  The
company has fundamental patents in the United States, Europe and
Japan, that cover many humanized antibodies.  Eleven companies
have licenses under these patents for humanized antibodies that
they have developed.  The company receives royalties on sales of
the three humanized antibodies developed by other companies that
are currently being marketed.

Protein Design Labs recently reported mediocre second-quarter
earnings amid higher costs and lower royalty revenues, but said
it expects nearly break-even results for full-year 2001.  The
company said it posted net income of $3.1 million, or $0.07 per
share, compared with net income of $5 million a year ago.  The
revenues for the second quarter rose to $21.6 million from $20.4
million in the same 2000 quarter and the total includes $12.7
million in royalty revenues from sales of products using patents
licensed from the company.  Analysts say the level of operating
revenues combined with the fact that there are no major catalysts
for the stock in the next few months have conspired to keep its
share value relatively low.  The next key event for PDLI will be
the unveiling of clinical trial results for its experimental
leukemia and lymphoma treatments later this year and the expected
approval of Genetech's asthma drug Xolair, the sales of which are
eventually expected to generate royalties for Protein Design.

PDLI's current price is near the bottom of a recent trading range
and the target position offers a discounted cost basis in the
issue for traders who are bullish on the outlook for the company.

PDLI - Protein Design Labs  $55.79

PLAY (sell naked put):

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

Sell Put  SEP 40   PQI UH  238       1.00    39.00     5.7% ***
Sell Put  SEP 45   PQI UI  2233      1.95    43.05    10.0%
Sell Put  SEP 50   PQI UJ  1017      3.50    46.50    12.1%


Neutral Plays - Straddles & Strangles

Readers have been asking for more debit-straddle candidates.
In today's search, we identified a number of favorable issues
for short-term positions and based on analysis of the historical
option pricing and technical background, these stocks meet the
fundamental criteria for potential straddle plays.  As with any
recommendation, each position should be evaluated for portfolio
suitability and reviewed with regard to your strategic approach
and trading style.


CLS - Celestica  $45.16  *** Big Mover! ***

Celestica (NYSE:CLS) is a provider of electronics manufacturing
services to original equipment manufacturers worldwide.  The
company targets OEMs primarily in the computer and communications
sectors.  Celestica provides a variety of products and services
to its customers, including the manufacture, assembly and test of
complex printed circuit assemblies, and the full system assembly
of final products, primarily on a build-to-order basis.  Celestica
also provides a broad range of EMS services, including design,
product selection and procurement, prototyping, product assurance,
assembly, test, failure analysis, full supply chain management,
worldwide distribution and after-sales support.  Last year, the
company acquired Primetech Electronics, an provider of electronics
manufacturing services based in Kirkland, Quebec.

CLS - Celestica  $45.16

PLAY (speculative - neutral/debit straddle):

BUY  CALL  AUG-45  CLS-HI  OI=1525  A=$1.90
BUY  PUT   AUG-45  CLS-TI  OI=921   A=$1.75



LLTC - Linear Technology  $44.15  *** Volatile Sector! ***

Linear Technology (NASDAQ:LLTC) designs, manufactures and markets
a line of standard high performance linear integrated circuits.
Applications for the their products include telecommunications,
cellular telephones, networking products and satellite systems,
notebook and desktop computers, computer peripherals, video -
multimedia, industrial instrumentation, automotive electronics,
factory automation, process control, and military/space systems.
The company emphasizes standard products to address larger markets
and to reduce the risk of dependency upon a single customer's
requirements.  Linear Technology targets the high performance
segment of the linear circuit market.

LLTC - Linear Technology  $44.15

PLAY (speculative - neutral/debit straddle):

BUY  CALL  AUG-45  LLQ-HI  OI=3056  A=$1.35
BUY  PUT   AUG-45  LLQ-TI  OI=3286  A=$2.35



VIA - Viacom  $49.69  *** Probability Play! ***

Viacom (NYSE:VIA) is the number one platform in the world for
advertisers, with preeminent positions in broadcast and cable
television, radio, outdoor advertising, and online.  With its
varied programming content, Viacom is a leader in the creation,
promotion, and distribution of entertainment, news, sports, and
music.  Viacom's well-known brands include CBS, MTV, Nickelodeon,
VH1, Paramount Pictures, Infinity Broadcasting, UPN, TNN, CMT,
Showtime, Blockbuster, and Simon & Schuster.

VIA - Viacom  $49.69

PLAY (speculative - neutral/debit straddle):

BUY  CALL  AUG-50  VIA-HJ  OI=179  A=$1.05
BUY  PUT   AUG-50  VIA-TJ  OI=551  A=$1.30


BEARISH PLAYS - Naked Calls & Combinations

IVGN - Invitrogen  $63.99  *** Range-Bound? ***

Invitrogen (NASDAQ:IVGN) develops, manufactures and markets more
than 10,000 products for the life sciences markets.  The company's
products are principally research tools in reagent and kit form,
biochemicals, sera, media, and other products and services, which
they sell to corporate, academic and government entities.  IVGN
focuses its business on two principal segments: Molecular Biology
Products and Cell Culture Products.

This play is based on the current price of the underlying stock
and its recent technical history.  Invitrogen's short-term rally
appears to be failing at resistance near $70.  In addition, the
weakening technical indications and inability of the stock to
sustain an upward movement suggests further consolidation or a
test towards support near $55 will be required before the issue
can return to a bullish trend.

IVGN - Invitrogen  $63.99

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-80  IUV-IP  OI=80    A=$0.70
SELL CALL  SEP-75  IUV-IO  OI=2160  B=$1.30



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