Option Investor
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Daily Newsletter, Wednesday, 08/15/2001

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The Option Investor Newsletter                Wednesday 08-15-2001
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       8-15-2001          High      Low     Volume Advance/Decline
DJIA    10345.95 - 66.22 10469.74 10340.76 1.06 bln   1625/1449	
NASDAQ   1918.89 - 45.64  1975.18  1918.74 1.44 bln   1541/2128
S&P 100   603.02 -  4.00   609.40   602.50   Totals   3166/3577
S&P 500  1178.02 -  8.71  1191.21  1177.61
RUS 2000  478.95 -  1.24   481.19   476.50
DJ TRANS 2833.66 - 25.50  2865.30  2830.74
VIX        23.77 +  0.76   24.01    23.05
Put/Call Ratio      0.74
******************************************************************

Buffett Bids, Others Offer

Apathetic is perhaps the most appropriate adjective to describe
the market's current state.  But that much makes sense; after all,
it's still August.  Not even the revelation that the Oracle of
Omaha had been sniffing around in equities was enough to pique
the interest of buyers Wednesday.  Yet volume remained terribly
low, indicating a lack of conviction on the part of sellers.  But
the price action across the broad market averages indicated
otherwise.







The lack of enthusiasm from Applied Materials' (NASDAQ:AMAT)
and BEA Systems' (NASDAQ:BEAS) earnings reports Tuesday night
resulted in weakness in the Semiconductor (SOX.X) and Software
(GSO.X) sectors of the Nasdaq.  (AMAT was one of only five
Nasdaq-100 stocks that finished higher Wednesday.)  These two
sectors are the largest and most influential in the Nasdaq,
and further weakness in these two will most certainly lead the
Nasdaq lower.

The merger & acquisition news in the telecom space, which is
of concern to the Nasdaq, failed to morph into bids for
beleaguered carrier shares.  Alltel (NYSE:AT) proposed to acquire
CenturyTel (NYSE:CTL) late Tuesday evening.  And although
CenturyTel rejected the offer, its shares jumped $4, or about
13 percent on the news Wednesday.  While this story is still
unfolding and has already taken many twists and turns, it may
lend to a coming wave of consolidation in the telecom business
among carriers.  Consolidation within the carrier group is
welcomed by the tech/telecom companies such as Cisco
(NASDAQ:CSCO), Nortel (NYSE:NT), PMC-Sierra (NASDAQ:PMCS), and
hundreds of others.  A wave of consolidation among carriers
could result in a boost to margins and, in turn, an increase in
capital expenditures.

One man who's been spending recently is Warren Buffett, according
to an SEC filing released late Tuesday.  Reportedly, Buffett and
his empire known as Berkshire Hathaway (NYSE:BRK.A) bought a
chunk of Office Depot (NYSE:ODP) and Honeywell (NYSE:HON) in the
first- and second-quarter of this year.  The former ended Wednesday
lower on the news, while the latter edged higher.

I recall that a few months ago Buffett opined that the stock
market, as a whole, remained grossly overvalued and that very few
favorable opportunities were present at the time.  As it turns out,
as revealed by the SEC filings, Buffett acted on those "very few"
opportunities.  That tells me that Buffett is positioning for a
bull market in select pockets of the market, or at the very least
select shares of companies.  Granted, Buffett's timeframe and
discipline are unique, but his actions reinforce that money can
be made buying stocks in good times or bad.  That is, there's
ALWAYS a bull market somewhere.

Recently, the bull market has been in shares of companies impacted
by the U.S. dollar.  The dollar has been in retreat recently, and
its slide began accelerating following the Beige Book release last
week.  The greenback hit a five-month low versus the euro Wednesday
and a two-month lower versus the yen.  Without going into too much
detail, the dollar's decline is a positive for the large,
multi-national companies that export goods overseas, such as Merck
(NYSE:MRK), Procter & Gamble (NYSE:PG), DuPont (NYSE:DD), Pepsi
(NYSE:PEP), and the like.

However, the dollar's decline is a double-edged sword.  While it's
of benefit to the multi-nationals, it may also lead to inflation.
And the U.S. economy doesn't need inflation.  But, what asset does
benefit from inflation?  The answer is gold.  And here's the
kicker: Gold is a dollar denominated asset so it also benefits from
the sliding greenback because central banks, especially European,
buy gold in dollars.

I don't mean to focus too much on gold, but this story gets more
interesting.  Aside from the sliding dollar, what else contributes
to inflation?  The answer is rising energy prices.  Enter The
American Gas Association (AGA) report Wednesday afternoon.  The
AGA reported a far lower-than-expected rise in natural gas
inventories for last week, which sent natural gas futures higher
by 37 percent.  The energy-related sectors of the market all
advanced smartly: Oil Service (OSX.X), Oil Index (OIX.X), and
the Natural Gas Index (XNG.X).  Not by surprise, the Gold and
Silver Index (XAU.X) was in rally mode, too.

There are several economic reports slated for release in the next
two days that may sway the dollar one way or another.  Of the
reports, the market will probably give the most credence to
Housing Starts slated for release Thursday morning.  The housing
market has been the one area of the economy that has held up
during this downturn, and any signs of deterioration in that
segment may embolden the sellers of stocks.  Estimates are
around 1.62 million.  In addition to the Housing number, the CPI
and Jobless numbers are set for release Thursday morning.
Friday, Consumer sentiment and Q2 GDP revised numbers are
slated for release.

In addition to the economic releases, there are several big
earnings reports due out Thursday.  CIENA (NASDAQ:CIEN) is
slated to release numbers before the bell, while Dell
(NASDAQ:DELL), Hewlett-Packard (NYSE:HWP), Analog Devices
(NYSE:ADI), and Maxim (NASDAQ:MXIM) are set to release after
the bell.  Away from tech, The Gap (NYSE:GPS), Kohl's (NYSE:KSS),
Tiffany (NYSE:TIF), and Nordstrom (NYSE:JWN) should make for
interesting trading in the Retail sector (RLX.X).

In the after hours, Brocade (NASDAQ:BRCD) reported numbers that
met previously lowered expectations.  The company added that
it expected a slight increase in sales during its next quarter.
The stock initially traded higher on the report, but pulled back
at the time of this writing.  Futures were ever-so slightly
higher, and it remains to be seen if the BRCD report will be
met with buying Thursday morning, keeping in mind that CIEN
reports between now and the open Thursday.

The psychology of the market seems to be somewhere north of
fear, west of misery, and two clicks from apathy.  Wednesday's
2.3 percent clip in the Nasdaq Composite (COMPX) felt like it
took a little bit more out of the bulls.  For the most part,
the support levels across the broader market averages are
intact, but they're just a few ticks away from breaking down.
And the ole' Arms Index ($TRIN) 10-day moving average is
hinting towards a near-term bottom.  Whether or not the
psychology has grown negative enough for a reversal remains
to be seen Thursday.  And the economic and earnings reports
over the next two days factor into the psychological equation.
But for a rebound to transpire, there needs to be a reason
to buy.

Eric Utley
Option Investor


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

Stocks Explode
By Jeffrey Canavan

Oil service and natural gas stocks exploded, everything else
fizzled out. Tech sectors lost over three percent, and the Nasdaq
finished down 2.32% at 1918.  The Nasdaq has tested this level
before, but has always been able to bounce off support.  Today's
lack of a bounce has the index below 1920 for the first time in
four months.  The Dow held up a little better, losing only 0.63%.
Most of the Dow's strength came from companies that would benefit
from a weaker dollar such as Coke, McDonalds, and Kodak.

Natural Gas Index Daily Chart



The American Gas Association reported a 3 billion cubic foot rise
in natural gas inventories, well below analysts estimate of 63
billion.  Natural gas futures exploded and natural gas
stocks went along for the ride.  Before jumping into natural gas
stocks, be aware that this was most likely a one-week anomaly due
to the heat wave that hit the east coast.  The Natural Gas Index
(XNG.X) also met resistance at the 50-day moving average, and has
overhead resistance at 220. If the index can close above that
level, perhaps natural gas stocks will start to heat up.

Internet Index Daily Chart



One index that has cooled off lately is the Internet Index
(INX.X).  Internets have been declining for six straight days,
and are now within eight points of the dreaded April low.  The
key to this sector is eBay.  Should eBay lose support at $59,
this sector is in trouble.

Computer Technology Index Daily Chart



With Dell and Hewlett Packard reporting earnings after the bell
tomorrow, the Computer Technology Index (XCI.X) could be tested
tomorrow.  The index is currently sitting at a 61.8% retracement
of its April to May gains, and meager earnings or outlooks from
two of its bigger components could push XCI below support.

Lastly we have homebuilding stocks that could cave in if housing
starts and permits come in weaker than anticipated.  With today's
knee-jerk reaction to a false profit warning from Vitesse
Semiconductor, it doesn't look like investors need much of a
reason to start selling.  We also get CPI data, export sales, and
unemployment claims to stir the pot.  Should any of this data
come in negative, it will indeed be interesting to see how the
market reacts.

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

            Support                Close              Resistance
DJIA       |10,200  |      |10346 |      |      |      |  10,600|
NASD       | 1,890  | 1919 |      |      |      |      |   2,125|
S&P 500    | 1,170  | 1178 |      |      |      |      |   1,240|
Rus 2000   |   465  |      |      |  479 |      |      |     495|
Semis      |   535  |      |  573 |      |      |      |     660|
Biotech    |   473  |      |      |  503 |      |      |     550|
Internet   |   121  |      |  130 |      |      |      |     160|
Networking |   300  |      |  310 |      |      |      |     365|
Software   |   166  |      |  171 |      |      |      |     200|
Banking    |   650  |      |      |  673 |      |      |     685|
Retail     |   858  |      |      |  883 |      |      |     920|
Drugs      |   380  |      |      |  397 |      |      |     410|

Support Alerts: Nasdaq, Software
Resistance Alerts:
            _______________________________________________
           |   Long    |   Short   | Strength  | Relative   |
           |   Term    |   Term    |    of     | Strength   |
           |   Trend   |   Trend   |  Trend    | vs S&P 500 |
DJIA       |  Bearish  |  Bearish  |   Weak    |  Neutral   |
NASD       |  Bearish  |  Bearish  |   Weak    |  Negative  |
S&P 500    |  Bearish  |  Bearish  |   Weak    |    --      |
Rus 2000   |  Bearish  |  Bearish  |   Weak    |  Neutral   |
Semis      |  Bearish  |  Bearish  |   Weak    |  Neutral   |
Biotech    |  Bearish  |  Bearish  |   Weak    |  Neutral   |
Internet   |  Bearish  |  Bearish  |   Strong  |  Negative  |
Networking |  Bearish  |  Bearish  |   Weak    |  Neutral   |
Software   |  Bearish  |  Bearish  |   Gaining |  Negative  |
Banking    |  Bullish  |  Bullish  |   Gaining |  Positive  |
Retail     |  Bullish  |  Bearish  |   Weak    |  Neutral   |
Drugs      |  Neutral  |  Neutral  |   Weak    |  Positive  |

            _____________________________________
           | Short-Term  |          | Point and |
           | Overbought/ | Momentum |   Figure  |
           | Oversold    |          |   Signal  |
DJIA       | Neutral     |  Flat    |   Sell    |
NASD       | Neutral     |  Flat    |   Sell    |
S&P 500    | Netural     |  Flat    |   Sell    |
Rus 2000   | AP OB       |  Flat    |   Sell    |
Semis      | Neutral     |  Flat    |   Buy     |
Biotech    | AP OB       |  Rising  |   Sell    |
Internet   | Oversold    |  Falling |   Sell    |
Networking | Oversold    |  Flat    |   Buy     |
Software   | Oversold    |  Flat    |   Sell    |
Banking    | Neutral     |  Flat    |   Buy     |
Retail     | Oversold    |  Falling |   Sell    |
Drugs      | Overbought  |  Flat    |   Buy     |
             AP OB = Approaching Overbought
             AP OS = Approaching Oversold

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


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

Trade Management - The Key To Trading Success
By Mark Phillips

Disciplined entry techniques are critical to trading success as
we have seen recently in the LEAPS Portfolio.  Good entries
allow us the flexibility to exit on an adverse move without
incurring huge losses.  Sloppy entries in a choppy market
virtually guarantee a losing trade, as the market seeks to
humiliate the maximum number of traders.  We've spent the past
2 weeks covering the fine points of how to line up those
high-odds entries and then pull the trigger.  But entering the
play is only half the battle in our pursuit of profits.

Most traders have heard the advice, "Have your exit plan in
place before you enter", but defining that exit plan requires
the application of Technical Analysis combined with a plan for
money management.  While we don't have space to address money
management here today, some of the questions that need to be
addressed are:

What is my long-term trading goal?
What is my short-term trading goal?
What annual return do I want to achieve?
How much risk am I willing to assume to achieve that return?
How actively do I want to manage my trades?
How will I measure my success to see when I need to adjust
the plan?

And on each and every trade, we need to decide what we expect
the stock to do and in what time frame.  There are other issues
involved in a complete money management plan, but I could write
a series of articles on just the questions listed above.  But
that isn't the focus of our discussion here today.  We want to
talk about the details of setting up our exit strategy for a
specific play and then watching how it is executed in the real
world.

My preference in this column is to focus our discussions on
stocks that are current (or recent) residents of the LEAPS
Portfolio or possibly the Watch List, as I think it is more
useful.  Up until yesterday's close, I was having a hard time
finding the right stock to focus on as the broad markets
continued to meaner in their recent range.  Although it is an
unpleasant development in the LEAPS Portfolio, I was thankful
to see Sun Microsystems (NASDAQ:SUNW) violate its $15.50 stop
this morning.  This play embodies most of the issues I want to
cover on the topic of exit points, so let's get to the charts.




Remember when we took our LEAPS entry on SUNW as it bounced from
$14.10 on July 24th?  It was a near-perfect setup, as the stock
was bouncing from major support and both the daily and weekly
Stochastics were showing us bullish ascent patterns.  We were
able to set a fairly tight stop at $12.50, setting up a limited
risk and attractive reward play.  A quick look at the weekly
chart makes it clear that the stock would have a hard time
clearing and holding above $20 due to the resistance the stock
encountered there during late April and early May.  While SUNW
did manage to trade as high as $23.50 in May, there was no
follow through.

That seems to indicate that until Tech buyers start to return
in droves, SUNW could be restricted to a $14-23 range.  But a
$9 potential range on a $14 stock should provide plenty of
trading opportunities for disciplined traders.  Prior to
entering the play, we had to decide whether we would enter the
play with a Buy-and-Hold strategy in mind, or whether we would
target a short-term profit and then wait for another opportunity
to repeat the process.  As a further twist, we could have
decided that we would buy a LEAP for the long term and reduce
our cost basis by writing short-term calls against it.  This
last decision will affect the strike price selected, as Covered
Calls writers would want to purchase an In-The-Money LEAP to
provide greater flexibility in when and what strike to sell for
the covered call.  So you can already see why it is important
to understand how we will manage the play before we even take
our entry.

Pure LEAPS investors would have targeted the $15 Jan-03 (Jan-04)
LEAP, symbol VZX-AC (LSU-AC), which traded between $4.20-4.80
($5.50-5.70) on the day of entry.  So now that you are in the
play, are you going to take a short term profit when the daily
Stochastics reaches overbought with price challenging the $20
level?  Or are you going to hunker down for the long haul,
simply relying on your stop loss to prevent a loss from getting
out of control?

Investors choosing to implement a Buy-and-Hold strategy combined
with selling short-term calls against the LEAP would have
targeted the $12.50 Jan-03 ($10 Jan-04) LEAP, symbol VZX-AV
(LSU-AB), as it traded for $5.50 ($7.70-8.00) on July 24th.
Once the entry was taken, we just had to set our stop at $12.50
and wait for the stock to move up to resistance as the daily
Stochastics ascended into overbought territory.  We detailed
the setup for selling the covered call in last week's column,
so I won't rehash it here.

But the setup for selling the covered call forced our fictional
Buy-and-Hold investor to make some important decisions.  SUNW
had run up north of $18 by August 2nd and there were some solid
profits in both the '03 and '04 LEAPS.  Short-term traders
would have been looking to take profits as the second probe of
the $18 resistance level appeared weak, complete with the daily
Stochastics starting to fall out of overbought territory.  Just
in case the emerging profit-taking changed to all-out selling,
we protected ourselves in the Portfolio by raising our stop to
$15.50.




Sure enough, the sellers gained momentum the past couple days,
with SUNW plunging through our stop today and we'll be writing
a drop for the play in the weekend edition.  Each individual
trader would need to evaluate their own positions, based on
their answers to the questions listed above.  If they tightened
up their stops as we did, then they are out of the play tonight,
near break-even.

Traders that took profits on the initial weakness are looking
pretty smart today, as they are in a position to consider
playing the stock again as it bounces (hopefully) from the lower
end of its range.  The 2003 $15 LEAP traded as high as $6.70
before beginning its descent, offering a maximum profit of 40%.
The 2004 $15 LEAP ran as high as $8.00, also offering a 40%
short-term profit.  That's not bad for a short-term play using
LEAPS!

I'm out of time for today, but I want to cover the nuances of
how the LEAPS Covered Call trader would have handled the recent
drop in shares of SUNW.  Tune in next week and we'll do just
that - Same Bat Time, Same Bat Channel.

The important point to take from this discussion is to develop
your plan and stick to it.  If you can keep emotions out of
the decision-making process, success will follow in the long
run.

Questions are always welcome!

Mark Phillips
Contact Support


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

No new call plays


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

No new put plays


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

ABT  - call
Adjust from $51.50 up to $52

ELNT - call
Adjust from $33 up to $34

IMPH - call
Adjust from $43 up to $44

CHKP - put
Adjust from $43 down to $41

PSFT - put
Adjust from $43 down to $42

VRTS - put
Adjust from $41 down to $38


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

QQQ $39.10 -1.50 (-1.18) With its settlement below our stop at
$39.30, we're dropping coverage on our QQQ play.  The contract
traded poorly throughout Wednesday's action in adherence with
the sloppy action in the GSO and SOX.  There's still the
possibility of a bounce in the coming days, and we may have
been a bit too early to the trade.


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

No dropped puts for Wednesday


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**********************
PLAY OF THE DAY - CALL
**********************

ELNT - Elantec Semi $36.69 +0.41 (+0.07 this week)

Elantec is a designer, manufacturer and marketer of high
performance analog integrated circuits, which provide specific
analog solutions to manufacturers in the high growth markets for
video, optical storage, communications and power management
products.

Most Recent Write-Up

All things considered, ELNT's still trading relatively well and
its progress appeared to be halted by the pullback in the SOX
Tuesday.  Although, we would've like to see the stock participate
a little more during Monday's advance in chip issues.
Furthermore, bullish traders should note that ELNT's simple
10-dma is currently at $38.43, dually noting that its relative
high around $41 two weeks ago was, at the time, at the 200-dma.
Therefore, it might be safe to assume that if ELNT clears its
200-dma, then the stock might get a nice pop to test its highs
around $41.  As such, bullish traders might practice patience
and wait for an advance in the SOX above the 610 level before
getting long ELNT calls.

Comments

ELNT asserted its relative strength yet again Wednesday in the
face of weakness in the SOX.  If we could just get the COMPX
and SOX to rebound, ELNT feels like it wants to advance.  Traders
can search for entry points either on bounces from the $36
level or an advance past $37.50.

BUY CALL SEP-35 UET-IG OI=101 at $5.10 SL=3.50
BUY CALL SEP-40*UET-IH OI= 50 at $2.85 SL=1.50
BUY CALL NOV-35 UET-KG OI=611 at $7.80 SL=5.75
BUY CALL NOV-40 UET-KH OI=355 at $5.20 SL=3.50

Average Daily Volume = 521 K



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

No Interest In The Stock Market...

The major equity indices retreated today as investors displayed
new concerns over the outlook for share values and the potential
for a recovery in corporate earnings.  Buyers of cyclical issues
limited the losses in industrial stocks but the technology group
remained under pressure as analysts continued to suggest that a
rebound in revenue and earnings growth would not occur until the
first or second quarter of 2002.  The Dow Industrial Average was
pulled lower by shares of Hewlett-Packard (NYSE:HWP), American
Express (NYSE:AXP), Boeing (NYSE:BA), Disney (NYSE:DIS), United
Technologies (NYSE:UTX), Intel (NASDAQ:INTC) and Philip Morris
(NYSE:MO).  Among the stronger issues early in the session were
Coca-Cola (NYSE:KO), Caterpillar (NYSE:CAT), Honeywell (NYSE:HON),
McDonald's (NYSE:MCD), Kodak (NYSE:EK), and International Paper
(NYSE:IP).  In the technology segment, Internet stocks were weak
with AOL Time Warner (NYSE:AOL) among the worst performers and
other sector bellwethers encountered selling pressure including
Yahoo (NASDAQ:YHOO) and Amazon.com (NASDAQ:AMZN).  Issues in the
software segment retreated in sympathy with a continued decline
in shares of BEA Systems (NASDAQ:BEAS).  The software giant was
in the news after posting a second-quarter profit of $0.10, which
topped consensus estimates by a penny.  However, BEAS also said
that due to the slowing economy, it expects flat revenue in the
third quarter and warned that it sees minimal sequential growth
in the fourth quarter.  Software makers Microsoft (NASDAQ:MSFT)
and Oracle (NASDAQ:ORCL) also slumped on the news.  In the chip
sector, Advanced Micro Devices (NYSE:AMD) was a big loser, down
almost 5% and Motorola (NYSE:MOT) led the communications-chip
segment lower after announced it's closing two manufacturing
lines in Arizona as it strives to contain costs.  One of the few
upside surprises was seen in the data storage sector as Network
Appliance (NASDAQ:NTAP) moved higher after announcing a quarterly
profit from operations of $0.01 a share, in line with consensus
estimates.  Network Appliance also said it expects the upcoming
quarter to be profitable and UBS Warburg announced that company
management is starting to see some improvements in its business
outlook.  In the broader market, investors picked through shares
of oil service, pharmaceutical, gold, insurance, chemical and
consumer products issues while losses were seen in the utility,
natural gas, retail, biotechnology and transportation sectors.


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  64.42    $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  46.50    $0.55   9.3%
NVDA    AUG    70    69.20  85.95    $0.80   7.9%
MU      AUG    33    31.95  36.45    $0.55   7.3% key moment
PDLI    SEP    40    39.00  50.39    $1.00   5.7%
BRL     AUG    65    64.10  84.35    $0.90   5.0%
GMST    AUG    35    34.40  34.59    $0.19   2.0% close or own?

* GMST is apporaching a Key moment - the May and June lows.

Positions closed: PLMD, TARO

Sell Strangles:

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

IMCL    AUG    35    33.85  43.20    $1.15  11.5%
IMCL    AUG    60    60.80  43.20    $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  64.57    $0.90  10.0%
BBOX    AUG    70    70.60  49.16    $0.60   5.3%
NVDA    AUG   100   100.80  85.95    $0.80   5.1%

Credit Spreads:

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

TEVA  $68.79  $71.00   AUG60p/65p  $0.80   $64.20  $0.80  Open
ADI   $50.00  $47.12   AUG40p/45p  $0.75   $44.25  $0.75  Exit?
BRCM  $46.23  $42.02   AUG35p/40p  $0.75   $39.25  $0.75  ALERT!
HIT   $88.30  $89.79   AUG80p/85p  $1.25   $83.75  $1.25  Open
AHC   $76.73  $78.90   AUG85c/80c  $0.80   $80.80  $0.80  Exit?
COCO  $49.79  $49.83   SEP40p/45p  $1.00   $44.00  $1.00  Open
NKE   $48.00  $48.75   SEP40p/43p  $0.40   $42.10  $0.40  Open
IVGN  $63.99  $67.27   SEP80c/75c  $0.75   $75.75  $0.75  Open

Positions closed: STJ, SZA - both positive now (Murphy's Law?)

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 *
CLS   AUG45c/45p   $3.60  $4.15   $2.85   ($0.75)   Open ?
LLTC  AUG45c/45p   $3.70  $4.25   $2.90   ($0.80)   Open ?
VIA   AUG50c/50p   $2.25  $2.60   $2.60+   $2.60+   Closed
SNE   SEP50c/50p   $5.75  $7.48   $4.85   ($0.90)   Open

*  The DST straddle traded over $9 and the CVS straddle traded as
high as $5.  The VIA straddle traded near $4 and the profit target
was met.  Both the LLTC and CLS straddles may offer favorable exit
opportunities by Friday's expiration as they appear ready to test
the July lows.  SNE appears to be bracing for a rally, which may
bode well for the September straddle.

Positions closed early: EMR


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

***************
BOW - Bowater  47.32  *** Paper Sector ***

Bowater (NYSE:BOW) is engaged in the manufacture and distribution
of newsprint, uncoated ground-wood specialties, coated ground-wood
paper, market pulp, lumber and timber.  The company operates a
number of facilities in the United States, Canada and South Korea
and manages or possesses cutting rights for 16 million acres of
timberlands to support these facilities.  The company markets and
distributes its various products in North America, South America
and overseas.

Traders have been asking for positions in stocks that are less
affected by the broad-market selling pressure and while candidates
in that category are difficult to find, we have managed to uncover
a few issues in the "safe-haven" sectors such as Pulp and Paper,
Utilities and Consumer Products.  Based on the bullish technical
indications and the recent buying support near the sold (short)
strike price, this position in BOW offers a favorable risk-reward
outlook for investors who expect continued upside activity in the
cyclical industries.

BOW - Bowater  47.32

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-40  BOW-UH  OI=31  A=$0.35
SELL PUT  SEP-45  BOW-UI  OI=30  B=$1.00
INITIAL NET CREDIT TARGET=$0.70-$0.75  PROFIT(max)=16%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=BOW

*****

CHV - Chevron  $93.01  *** Oil Sector ***

Chevron (NYSE:CHV) manages its many investments in, and provides
administrative, financial and management support to, United States
and foreign subsidiaries and affiliates that engage in integrated
petroleum operations, chemicals operations, coal mining and energy
services.  Chevron operates in the United States and many other
countries around the world.  Their petroleum operations consist of
exploring for, developing and producing crude oil and natural gas;
refining crude oil into finished petroleum products; marketing
crude oil, natural gas and the products derived from petroleum,
and transporting crude oil, natural gas and petroleum products by
pipelines, marine vessels, motor equipment and railway.  Chevron's
chemicals operations include the manufacture and marketing of
commodity petrochemicals, plastics for industrial uses and fuel
and lubricating oil additives.

Shares of Chevron have rallied in recent sessions in conjunction
with the recovery in oil service stocks and investors are now
looking forward to the upcoming vote on the merger with Texaco
(NYSE:TX).  San Francisco-based Chevron agreed to buy Texaco in
October of last year, in a deal now worth about $38 billion.
Under the terms of the merger, the new company will be renamed
ChevronTexaco and holders of Texaco common stock will receive
0.77 shares of ChevronTexaco for each share of Texaco they own.
Chevron and Texaco have recently signed a consent order with the
Federal Trade Commission, outlining the terms they expect to meet
in order to gain regulatory approval for the merger.  In addition,
the two companies expect their shareholders to vote on the merger
on October 9, at which time they hope to have received regulatory
clearance for the deal.

Analysts are bullish on the new company and Henry Cavanna, senior
equity portfolio manager at JP Morgan Fleming Asset Management,
thinks the company's stock is reasonably priced at these levels.
He recommends it for confident, long-term investors, based on the
fact that Chevron is well positioned to benefit as the economy
recovers and overall industry spending increases.

CHV - Chevron  $93.01

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-85  CHV-UQ  OI=1827  A=$0.40
SELL PUT  SEP-90  CHV-UR  OI=2319  B=$1.05
INITIAL NET CREDIT TARGET=$$0.70-$0.75  PROFIT(max)=16%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=CHV

*****

KMI - Kinder Morgan  $54.33  *** Utility Sector Hedge! ***

Kinder Morgan (NYSE:KMI) is an energy services provider that
operates through three principal business units.  Natural Gas
Pipeline Company of America and certain affiliates comprise an
interstate natural gas pipeline and storage system.  Retail
natural gas distribution, the regulated sale of natural gas to
residential, commercial and industrial customers and non-utility
sales of natural gas to certain utility customers operate under
the Choice Gas Program.  Power generation, the construction and
operation of natural gas-fired electric generation facilities
together with various other activities not separately managed or
reportable business segments, is the third unit.  The operations
of Kinder Morgan Energy Partners include liquids and refined
products pipelines, transportation and storage of natural gas,
carbon dioxide production and transportation and bulk terminals.

This week, diversified pipeline operator Kinder Morgan said it
is on track to deliver 40% earnings-per-share growth in 2001 and
now plans to repurchase $300 million of its stock.  The company
also said in a statement that its earnings per share should rise
30% to 35% in 2002, with $300 million in free-cash flow generated
both this year and next.  Chairman and CEO Richard Kinder noted
that the stock buyback program is a tax-efficient way to return
some of KMI's value to shareholders and at the current levels,
its stock appears to offer compelling value.  The CEO also said
the company is producing significant cash flow, with Kinder Morgan
Energy Partners (NYSE:KMP) serving as the primary driver of KMI's
earnings.  He suggested that, "Strong cash flow, combined with our
strengthened balance sheet, allows us to implement this repurchase
program and still be in a position to pursue additional expansion
projects."

That sounds like a very positive outlook and traders who want to
speculate on the recent recovery in the issue can do so in a
conservative manner with this bullish, combination position.

KMI - Kinder Morgan  $54.33

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-45  KMI-UI  OI=0   A=$0.25
SELL PUT  SEP-50  KMI-UJ  OI=40  B=$0.80
INITIAL NET CREDIT TARGET=$0.60-$0.70  PROFIT(max)=$14%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=KMI

*****

OPMR - Optimal Robotics  $50.01  *** Rally Mode! ***

Optimal Robotics (NASDAQ:OPMR) provides self-checkout systems to
retailers in the United States.  The company's principal product
is the U-Scan, an automated self-checkout system that enables
shoppers to scan, bag and pay for their purchases with little or
no assistance from store personnel.  The U-Scan system is equipped
with a convenient, intuitive touch screen interface, and provides
automated voice instructions that guide the shopper through the
entire checkout process, from scanning the first item to removing
the receipt after payment.  The company's latest products, U-Scan
Carousel and U-Scan Solo, have been designed to extend the retail
applications of its U-Scan self-checkout technology.  Much like
the U-Scan Express, each of these applications allows customers
to scan, bag and pay for their purchases with no assistance from
store personnel.  Another product developed by the company is the
Optimal 6300 POS System, a cash-register system for supermarkets.

The share value of Optimal Robotics has moved steadily higher in
recent weeks, even in light of the broad-market weakness, and
traders say it's because of Optimal's unique product and solid
earnings outlook.  In early August, Optimal Robotics announced
record results for the second quarter of 2001 with revenues of
$31,084,738, compared to $16,123,099 for the same period of 2000.
Operating income for the quarter was a record $6,169,947, well
above the $1,139,133 recorded in the year-ago period.  Operating
margin for the quarter was 19.7%, much higher that the 7.1% for
the same period of 2000.  Net Earnings for the quarter were a
record $4,247,881, an increase of 107%.  The company's co-CEO,
Holden L. Ostrin, said Optimal exceeded expectations on every
level, including revenue, gross margin, operating income and net
income.  He also noted the overwhelming demand for self-checkout
systems, particularly in difficult economic times, and believes
that as the market leader in the industry, Optimal Robotics is
well-positioned to capitalize on future growth.

Traders who want to own a unique company in an expanding market
segment should consider using the target position to establish a
discounted cost basis in the issue.

OPMR - Optimal Robotics  $50.01

PLAY (sell naked put):

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

Sell Put  SEP 40   OQG UH  208       0.65    39.35     5.0% ***
Sell Put  SEP 45   OQG UI  291       1.70    43.30     8.4%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=OPMR

*****

SNPS - Synopsys  $54.35  *** Earnings Rally? ***

Synopsys (NASDAQ:SNPS) is a global supplier of electronic design
automation software to the global electronics industry.  Their
products are used by designers of integrated circuits, including
system-on-a-chip ICs, and other electronic products (such as
computers, cell phones, and internet routers) that use such ICs
to automate significant portions of their chip design process.
ICs are distinguished by the speed at which they run, their area,
the amount of power they consume, and the cost of production.
The company's products offer its customers the opportunity to
design ICs that are optimized for speed, area, power consumption
and production cost, while reducing overall design time.  The
company also provides consulting services to assist customers
with their IC designs, as well as training and support services.

Shares of Synopsys have been in a recovery mode since early July
when the company announced a merger agreement providing for the
acquisition of all outstanding shares of IKOS (NASDAQ:IKOS) and
a new stock repurchase program under which Synopsys common stock
with a market value up to $500 million may be acquired in the
open market.  The news produced an end to the recent slump and
now investors are speculating on the company's upcoming earnings
report, due on August 22.  Traders who believe the announcement
will be favorable can profit from that outcome with these bullish
positions.

SNPS - Synopsys  $54.35

PLAY (sell naked put):

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

Sell Put  SEP 45   YPQ UI  569       0.95    44.05     5.9% ***
Sell Put  SEP 50   YPQ UJ  1136      2.05    47.95     8.7%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=SNPS
***************

Neutral Plays - Straddles & Strangles

***************
NVDA - Nvidia  $85.95  *** Premium Selling! ***

Nvidia (NAADAQ:NVDA) designs, develops and markets 3D graphics
processors, graphics processing units and related software that
set the standard for performance, quality and features for every
type of personal computer user, from professional workstations to
low-cost PCs.  The company's 3D graphics processors are used in a
wide variety of applications including games, the Internet and
industrial design.  Its graphics processors were the first to
incorporate a 128-bit multi-texturing graphics architecture
designed to deliver to users of its products a highly immersive,
interactive 3D experience with compelling visual quality, with
realistic imagery and motion, stunning effects, and complex object
and scene interaction at real-time frame rates.  The company sells
its products to major OEMs such as Compaq, Dell, Gateway, Hewlett
Packard, IBM, micronpc.com, NEC, Packard Bell and Sony and add-in
board manufacturers such as ASUStek, Creative Labs, Elsa, Guillemot
and Leadtek.

We continue to receive new requests for (neutral) credit-strangles
but with the historically low levels 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 relative option premiums and the underlying issue's technical
background.  NVDA is one of the best candidates, as it has a well
defined trading range and the options have robust premiums, due to
their recent earnings report and the announcement of an upcoming
stock split.  On Tuesday, the graphics chip designer said second
quarter earnings rose 50% year-over-year and they raised estimates
for the next two years, based on expected strong sales in its new
product lines.  NVidia also announced that its board has approved
a 2-for-1 stock split effective August 28.  The new shares will be
distributed by September 11, giving NVDA 143 million outstanding
shares.  Traders are buying "out-of-the-money" options to speculate
on the issue's movement and we can take advantage of that activity
with these "premium-selling" positions.  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.

NVDA - Nvidia  $85.95

PLAY (aggressive - neutral/credit strangle):

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

Sell Put  SEP 60   RVU UL  1612      1.00    59.00     4.5% ***
Sell Call SEP 105  RVU IA  1188      1.40   106.40     6.2% ***

- or -

Sell Put  SEP 65   RVU UM  1433      1.55    63.45     6.8%
Sell Call SEP 100  RVU IT  2478      2.10   102.10     7.7%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=NVDA
***************

BEARISH PLAYS - Naked Calls & Combinations

***************
BSC - Bear Stearns  $55.50  *** Technicals Only! ***

The Bear Stearns Companies (NYSE:BSC) is a holding company that,
through its subsidiaries, Bear, Stearns & Co. Inc., Bear, Stearns
Securities (BSSC), Bear, Stearns International Limited (BSIL) and
Bear Stearns Bank plc (BSB), is an investment banking, securities
trading and brokerage firm serving corporations, governments and
institutional and individual investors worldwide.  BSSC provides
professional and correspondent clearing services, in addition to
clearing and settling the company's proprietary and customer
transactions.

The trend in brokerage issues is decidedly bearish and with the
recent slump in overall market trading activity, the road to
share value recovery for this group will be long and hard.  In
addition, the technical outlook for many of the stocks in the
sector is quite worrisome.  The price pattern in BSC has become
negative over the past few days and the current trend reflects a
pronounced divergence from an intermediate-period moving average.
In addition, the decline in early August came on increased volume
and a recent support level near $57 was violated.  Now that area
becomes "resistance" and it appears BSC's share value has little
chance of reaching our sold position in the coming month.

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-65  BSC-IM  OI=485  A=$0.25
SELL CALL  SEP-60  BSC-IL  OI=265  B=$0.75
INITIAL NET CREDIT TARGET=$0.60-$0.65  PROFIT(max)=14%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=BSC


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