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Daily Newsletter, Sunday, 08/19/2001

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The Option Investor Newsletter                   Sunday 08-19-2001
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        WE 8-17          WE 8-10           WE 8-3          WE 7-27
DOW    10240.78 -175.47 10416.25 - 96.53 10512.78 + 96.11  -159.98
Nasdaq  1867.01 - 89.24  1956.47 -109.86  2066.33 + 36.60  +   .36
S&P-100  593.87 - 17.54   611.41 - 12.24   623.65 +  3.39  -  5.33
S&P-500 1161.97 - 28.19  1190.16 - 24.19  1214.35 +  8.42  -  4.92
W5000  10760.09 -234.36 10994.45 -248.49 11242.94 + 76.94  - 46.37
RUT      475.65 +   .13   475.52 - 11.63   487.15 +  2.13  -  2.91
TRAN    2824.65 - 36.12  2860.77 - 53.25  2914.02 +  4.14  - 55.78
VIX       26.74 +  3.93    22.81 +   .42    22.39 -  2.34  -   .24
VXN       52.02 +  3.50    48.52
TRIN       2.67 +  1.64     1.03
TICK        201
Put/Call   1.07              .72              .76              .47 
******************************************************************

Ford Crashes Into the Dell at the Gap!
by Jim Brown

That was a really bad play on words but then so was the trading week.
I tried to get "burnt Ciena" in there as well but could not make it
work. Obviously these symbols were the top stories as the week ended
and each portrayed another sector in crash and burn mode. Ford was
the biggest negative factor for the markets on Friday with a massive
earnings warning but Ciena, Dell, The Gap and others had already set
the tone. Ford was simply the spark that set off the explosion and
Microsoft fueled the fire.


 


 

Ugly, very ugly. There is just no other way to paint this picture.
We all know about the close of earnings season this week with Dell,
Ciena and the Gap leading the list of losers. Bad news on top of
bad news interspersed with only snippets of barely optimistic hope.
Friday the headliner was Ford which said they would take almost a
$1 billion charge to layoff another 5000 workers and miss earnings
estimates by a mile for the year. Another layoff would not be such
exciting news but the underlying reasons were lower sales due to a
continuing decline in the economy. What, you mean the consumer is
not buying cars on cheap interest? OOPS! Has the consumer finally
reached into their wallet and come up empty? 

With Ford following The Gap's news that same store sales in each
of their four major divisions fell below prior levels due to
slowing retail buyers, investors finally decided that maybe the
economy was not rebounding yet. Investors are always optimistic 
until the end and refuse to accept bad news until it blows up in
their face. Almost every major sector rolled over this week and
appeared headed for a retest of previous lows. About the only
sectors showing even minimal strength were the drugs and consumer
stocks like Proctor & Gamble and Gillette. Purely defensive moves
by investors who refuse to bail out of the market completely.

Suddenly bonds have taken center stage as the market starts
breaking critical support levels and the previously invincible
dollar began crumbling on world markets. With treasuries hitting
new highs and the Fed meeting next week there was still no real
reason to buy stocks given the current market weakness.

Bonds are rocketing to new highs as the markets head for old
lows but that is not the entire story. Argentina has come
back into the spotlight and some analysts said they could
self destruct as soon as Monday and throw the world capital
markets into turmoil. Country risk factors soared on Friday
as the IMF made a clear statement that new aid for Argentina
was not imminent. The IMF said new funds were under discussion
and it was inconceivable that there would not be a new deal
in the next few weeks. "Weeks!" Argentine traders had hoped
for an announcement before trade is resumed on Tuesday since
their market is closed on Monday for a holiday. U.S. Treasury
Secretary Paul O'Neill said "Argentina is now in a very slippery 
position". Great news for a shaky U.S. market!

Add to the market scenario I described above was a negative ruling
on one of the biggest stocks in the Nasdaq and the Dow and you
have a recipe for a Friday thunderstorm in August. A federal 
appeals court rejected Microsoft's bid to delay the penalty
proceedings until after the Supreme Court decides to take or
reject the case. This clears the way for a judge to be picked
by a random computer selection process within the next week.
With the appeals court ruling against any delays in the penalty
phase it is entirely possible there could be another decision
before the Windows XP release. Very bad news for Microsoft and
the stock dropped -2.74 and fell below its 200 DMA. There is
another round of bundling of previously separate products in
the XP release and the Justice Dept is sure to bring this up
in the penalty phase as a lesson not yet learned and a reason 
to exact more than a pound of flesh from the giant.

The market internals were understandably weak. Volume was not
strong on Friday but was more than traders wanted to see on
a down day. The NYSE managed just a shade under one billion
and the Nasdaq logged 1.28 billion for the fifth slowest day
of the year. Art Cashin said about the volume, "ships can
sink in quiet seas and it appears that sellers are more
motivated than buyers." Advancers beat decliners more than 2:1 
for most of the day and only the short covering bounce at the 
close improved those numbers slightly. On the bright side the
VIX has started to rise, closing at 26.74 on Friday. Far from
the March/April highs of over 40 but still an indication that
investors are starting to worry again. The put/call ratios
have climbed significantly and closed at 1.07 on Friday 
indicating significantly more put activity. The Arms Index 
or TRIN soared to a high of 3.87 on Friday, levels not seen
since the March/April lows. 

The point I am trying to make here is that summer complacency
is rapidly giving way to fear as different political and 
economic factors fuel the continuing drop in the markets.
The broker/analyst hype about a bottoming economy with a
rebound in the 3Q/4Q quarter is quickly being dismissed as
earnings warnings for the third quarter are approaching record
numbers. As of Friday 326 companies have warned compared with
only 55 for this time last year. Analysts are now starting to
discount Intel's "optimistic" outlook for a seasonal bounce.
Consumers are simply not buying computer equipment and the
current price wars are hurting margins on what few computers
are actually being sold. Replicate this same story in the
retail sector, autos, consumers, etc. Prices are falling as
companies compete for the few dollars being spent and once
the prices stop falling the consumer will have no further
reason to part with what little cash they are hoarding. 

That brings us to the Fed meeting next Tuesday. You are not
going to believe this but when asked the majority of analysts
said the best outcome on Tuesday would be "no cut". This
would mean that the Fed had data that showed the economy was
really showing signs of recovery and they saw no need to cut
again. While this is contrary to conventional wisdom it shows
the fear that analysts have that the slowdown may still be
worsening. If the Fed cut 50 points, which is only a 15%
possibility as evidenced by the Fed funds futures, it could
actually be a disaster. Institutional traders could worry
that Alan and company saw things coming that analysts had
not yet seen and those things were bad. The markets could 
actually tank on a strong cut. Talk about a quandary. Futures
say there is a 100% chance of a 25 point cut. Even if the 
Fed wanted to cut more to jump start the economy they have
their hands tied to some extent. 

For next week we need to keep looking over our shoulders for
the implosion in Argentina, expect a 25 point cut from the
Fed and try not to get burned on the beach or in the markets. 
There is a flood of retail earnings next week and traders
will get to see if there are signs of strength or weakness
in the consumer sector. ANY signs of weakness and we will
be headed lower. ANY signs of strength and we should at least
slow the rate of drop if not rebound slightly. Both major
indexes are in oversold territory. The Nasdaq has broken 
below support but the Dow rebounded from a -200 dip to close
over support at 10200. Each could fall more on any further
bad news. I said on Thursday that a Nasdaq close under 1900
could be a serious problem and that came to pass. There is
only the thinnest support for the Nasdaq at 1865 dating back
to April 17th and any slight hiccup could take that out. 
The economic calendar for next week is a wasteland with no
serious problems other than the Tuesday FOMC meeting and 
the FOMC minutes from the last meeting on Thursday. 

The good news? The third quarter earnings warning season 
does not start officially for two more weeks! That is 
actually the good news! It means summer will be over and 
traders and volume will return. Yes, it is a good news/bad 
news joke that they will return just as warning season begins 
but who could possibly warn that would surprise anybody? GM, 
Citicorp, IBM, Krispy Kreme Donuts? Never mind, forget I even 
posed that question. Let me be the first to welcome you back 
to Fall trading. You remember how to trade Fall, right? You
know, September, the worst month of the year and October,
known for the biggest drops. Hey, if trading was easy 
everybody would make money. You know, like in 1999! 
Welcome to reality and a return to "value" investing! 

Several new speakers for the November Stock and Option Trading
Expo joined the team this week. Leading the list is Sherman
McClellan, developer of the McClellan Oscillator and Summation
Index. He has ranked in the top 10 list of market timers more
than 15 times since 1995. He will be speaking on using market
cycles to determine entry points for both short and long term
traders. We are pleased to add Sherman to our distinguished
list of instructors. Bring those laptops as WE WILL ALSO HAVE 
INTERNET ACCESS AVAILABLE FOR ALL ATTENDEES so you can follow 
our speakers and trades as well as trade yourselves. If you 
have not yet registered click here to reserve your seat:

http://www.premierinvestorseminars.com/expos/oi_fall01.asp

Definitely, enter passively, exit aggressively!

Jim Brown
Editor


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**************
Editor's Plays
**************

Insurance

I told you there was a buying opportunity on the way! Buying
calls in August can be bad for your financial health, unless
you buy insurance. 

Insurance for a call player is a short term put. Usually it 
makes sense to buy a longer term call option than you would
normally buy and then offset the risk and expense with a
short term put. 

The short term puts are cheaper and while it increases the cost
of the entire play it does reduce your risk substantially.

Buying both the call and the put protects you from major losses
while allowing you to profit from any big moves when the market
recovers.

Using the IBM call play from last week, which is still looking
good by the way, you could add insurance like this.

IBM - $104.50 - Jan-$110 call $7.00 

 

Using the IBM example above I have profiled two different puts.
With the $100 put for $1.80 you are protected from a catistrophic
loss but you could still lose several dollars should the stock 
fall under $100. The put would gain in price but not quite as
much as the call would lose in premium. I would guess that you
could lose as much as $3 depending on the stock price and timing
on the exit.

Using the $105 put it would be very hard to lose much money. 
Should the stock fall under $105 the put would increase in 
value almost dollar for dollar for every dollar the stock lost.
The call play because of the time remaining until January would
not lose premium as fast as the stock dropped.

The downside to the $105 put is the increased cost. Spending
$3.50 on insurance that you never hope to use basically increases
the cost of your call to $10.50 instead of $7.00. Nobody will
care if IBM hits $115-$120 by December since the call premium
will escalate sharply. If however the stock drags and does not 
hit $110 until December then the $10.50 implied premium will
work against you. 

The whole concept here is to hopefully pick volatile stocks
that can move up quickly when the market finally recovers.
For a stock like IBM it may make more sense to pick an even 
longer term call in order to diffuse the impact of the higher
priced $105 put.

What happens if the stock has not moved up or even moved down
by the time the put is due to expire? Two choices. Sell the put
and the call and pick another stock. OR, if you really believe 
in the stock, sell the put and use the money to buy another
insurance put for the next month. You may have to put some
more money with it since you are adding another month to the
time horizon but if you are a believer then go for it.

Personally, if the stock is not moving in my direction after
two weeks then I would close BOTH positions and pick another
stock. You could also just sell the call and continue riding 
the put down if your charts indicate the bottom has not been
reached.

What if the stock drops $10 before the first expiration? OR,
what if my put has gone up in value significantly and the call
has dropped to almost nothing. Sell them both and pick another
stock OR if you are a believer, sell the put for a big profit
and use SOME of the money to double up on the calls. Since
everything moves in cycles you can capture the profit on
the downside and POSSIBLY profit on the upside as well when/if
the stock recovers. A critical point here is the stock only
has to gain half of its loss to make your calls profitable
since you now own twice as many. You can either close at the
halfway point or set a stop and try for a home run.

Why can't you just use stops on a long call instead of buying
insurance? You can but in today's market stocks are so volatile
that you could easily be stopped out for a loss only to have
the stock rally the next day. By using an insurance put you
have no risk of a wide intraday swing closing your play. You
only need to worry about closing the play if you see a major
trend change over several weeks. Intraday swings are no longer
a factor.

This works on volatile stocks best but can also work on stocks
with very high volumes which make options cheap.

Take GE for instance:


   

Options on GE are very cheap compared to stocks like BRCM or
JNPR. You can buy the March $45 call for $2.50 (or less next 
week) and buy the Sept $40 put for only $1.50. Support is at 
$40 which makes a rebound likely from there. The total cost of 
the play is only $4.00 and a rebound by GE to $50 by expiration
is profitable. Considering there is almost zero risk on this
trade it is almost a gimme! Buying the March $40 call for $4.80
increases the price by $2.30 but decreases the profit point to
$46.30 at expiration.

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

Check out the combination play possibilities on stocks you like
and take some of the risk out of your August plays. If you have
stock in your portfolio you can also buy insurance puts as well.
If the stock drops another $10-$15 you can sell the put for a
profit and still have the stock at long term capital gains rates.
The key is you did not lose any more money.


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

Trade smart this week, not hard!

Good Luck

Jim Brown


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

Ursus Liberalis 
By Jeffrey Canavan

I should have known something was up when a bear was spotted two 
blocks from my Denver office on Monday.  Apparently a spring 
frost has killed off the berries and acorns necessary for bears 
to fatten up for their winter hibernation, and they have ventured 
into urban areas in search of food.  According to the Colorado 
Division of Wildlife, "This is an active time for bears."  
Hmmmmmm.

East coast bears ventured onto Wall Street to feed on shares of 
Ford.  The company announced they would cut 5,000 jobs, and miss 
their full-year earnings estimates.  When the feeding frenzy 
ended, Ford stock was 7.54 percent lighter.

Microsoft also provided some bear fodder after a federal appeals 
court refused to delay the start of the software giant's 
antitrust case.  Throw in Dell's poor outlook, and it was just 
too much for bullish traders to handle on a summer Friday.  Even 
an improvement in consumer sentiment couldn't stop the slide.

Nasdaq Composite Daily Chart


 

The Nasdaq tried to hold above support at 1890, but finished the 
day 23 points below.  Now we get to play the game of where's 
support, and much like the game of Where's Waldo, you have to 
look hard to find it. Support could be the April 12th and 16th 
lows that the Nasdaq closed at today.  Or perhaps it's the nice 
round number of 1,800, or just below the gap that formed on April 
10th at 1,757.  When I have to look that hard to find it, it's 
hard to put a lot of faith in it.  Let's call support 1800ish.

Dow Jones Industrial Daily Chart


 

Then we have the Dow where support abounds.  The industrials were 
able to climb high enough off their lows today to get back above 
the 50% retracement at 10,236.  Below there we have a series of 
lows that could support at drop down to 10,120.  Then we have 
61.8% retracement at 9,970, or more likely the psychological 
10,000 level.  Just to reiterate the fact that the Dow has held 
up better than the Nasdaq lately, I've place a relative strength 
comparison of the Dow and Nasdaq at the bottom of the chart.  
From May to July it's been a draw, but the Dow has gained the 
upper hand in August.  Unfortunately that just means the Dow 
could fall less than the Nasdaq.  Should the Nasdaq continue to 
slide, the Dow will be dragged down with it.

Next week Alan Greenspan will attempt to tame any bears with a 
25cc, or perhaps 50cc, tranquilizer dart, but will it have any 
affect?  While the economy may still be in need of some infusion, 
Wall Street appears to have grown numb to rate cuts, and now 
wants to see results.  As was the mantra during earning's season, 
it's not how the numbers come in, but what they say about the 
future.  Investors do not want to hear, "the risks would seem to 
remain mostly tilted toward weakness in the economy."

If that's the tone that comes out of the Fed meeting, sellers 
should continue to have the upper hand.  Buyers are relying on an 
oversold market that is due for a bounce, but could they could be 
waiting for a while.   The bear that was roaming around Denver 
was shot with four tranquilizer darts, but still managed to 
scamper through yards and jump fences before finally succumbing 
to the drugs.  The bear that is approaching Wall Street will need 
to be injected with some positive economic news and good earnings 
to sustain anything more than a bullish bounce.  Unfortunately, 
we don't have a lot of darts to throw at it next week, other than 
the Fed.

Before I leave the safety of my office and venture into the bear 
infested parking lot, I leave you with some stats from Trim Tabs.


Year to date inflows into equity funds -      $36 billion
Year to date inflows into savings accounts - $210 billion

-----------------------------------------------------------------

Market Volatility

VIX   26.74
VXN   52.02

-----------------------------------------------------------------

          Put/Call Ratio  Call Volume   Put Volume
Total          1.07        707,510       759,709
Equity Only     .96        625,699       601,738
OEX            1.62         38,351        62,176
QQQ            1.16         43,667        50,599

3 of the four put/call ratios are overly bearish, but options did 
expire on Friday.

-----------------------------------------------------------------

Bullish Percent Data

           Current   Change   Status
NYSE          34       -      Bear Confirmed
NASDAQ-100    30     -10      Bear Confirmed
DOW           36       -      Bull Alert
S&P 500       54       -      Bull Confirmed  
S&P 100       40      -6      Bull Correction  

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

-----------------------------------------------------------------


 5-Day Arms Index  1.52
10-Day Arms Index  1.66
21-Day Arms Index  1.41
55-Day Arms Index  1.29

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 
points.

-----------------------------------------------------------------

        Advancers     Decliners
NYSE      1145           1914
NASDAQ    1221           2382

        New Highs      New Lows
NYSE      161             59
NASDAQ     90            138

        Volume (in billions)
NYSE      .978
NASDAQ   1.297

-----------------------------------------------------------------

Advisory Sentiment 

Bullish  Bearish  Correction   Net   Change 
  46.0%    27.0%     27.0%    19.0%   +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: 08/14/01
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
No significant changes (refer to graph at the bottom of the page).  
Since this is the most heavily traded contract, it tends to carry 
the most weight.

Commercials   Long      Short      Net     % Of OI 
7/31/01      335,532   409,352   (73,820)   ( 9.91%)
8/07/01      331,881   406,210   (74,329)   (10.07%)
8/14/01      337,327   411,504   (74,177)   ( 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
7/31/01      129,648     54,552   75,096     40.77%
8/07/01      128,454     53,191   75,263     41.43%
8/14/01      130,432     55,750   74,682     40.11%

Most bearish reading of the year:  36,513 - 5/01/01
Most bullish reading of the year:  91,122 - 3/06/01
 
NASDAQ-100
The net bearish position of commercial traders continues to 
improve.  Breaking the 7,000 level would be even better.
 
Commercials   Long      Short      Net     % of OI 
7/31/01       28,009     39,613   (11,604)  (17.16%)
8/07/01       28,867     38,956   (10,089)  (14.88%)
8/14/01       29,909     37,822   ( 7,913)  (11.68%)

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
7/31/01       11,216     8,938    2,278      11.30%
8/07/01        9,715     8,098    1,617       9.08%
8/14/01       11,165     9,508    1,657       8.02%

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

DOW JONES INDUSTRIAL
Commercial are slowly adding more long positions, and improving 
their net bullish stance.

Commercials   Long      Short      Net     % of OI
7/31/01       17,748    13,669    4,079     13.0% 
8/07/01       18,644    13,733    4,911     15.2%
8/14/01       21,652    15,856    5,796     15.5%

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
7/31/01        5,049     9,079    (4,030)   (28.52%)
8/07/01        4,841     9,909    (5,068)   (34.36%)
8/14/01        4,441     8,528    (4,087)   (31.51%)

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

Graphs of Commercial Net Positions
Chart=




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***************
ASK THE ANALYST
***************

Give Me Shelter
By Eric Utley

The housing market has remained relatively unscathed during the
recent economic downturn.  Even Greenspan commented on the housing
market's resiliency during his last testimony.  But last weekend,
Barron's published a rather negative article on the housing market
which added to the sector's recent weakness.  Some of the bigger
names in the sector include Beazer Homes (NYSE:BZH), Centex
(NYSE:CTX), and Pulte Homes (NYSE:PHM).  I don't have much insight
into this particular sector, but I thought I'd pass along
something I experienced last week.

My partner in crime, Jeffrey Canavan, and I spent last Thursday
morning searching for lofts in downtown Denver.  The first
agent we spoke with was more than willing to cut a deal in an
attempt to get either Cananvan or I to sign on for a space.
For instance, through the duration of our tour, which consisted
of viewing four floor plans, the agent continued reducing the
price of each space.  And as Canavan and I were leaving the
office, the agent threw in free parking, which amounts to about
$150 per month in Denver.

I found the agent's offerings curious, and I tried to get a
hold on the supply and demand of spaces in this particular
building.  But for some reason, the agent was reluctant to
pass along that information.  Now, a loft isn't a house, but
my experience was rather disconcerting as it relates to
the economy and the market.

Finally, I frequently try to keep things fresh in this column.
And in that spirit, I went with something a little different
this weekend.  As always, if you like it or don't, please let
me know.

Please send your questions and suggestions to:

Contact Support 

----------------------------

Strategy Session

NTAP, AFCI how would you play them, support, resistance, short 
term, longer term. - Thank you, Chris

Thanks for the detailed question, Chris.

Let's shake things up a little bit this weekend.  Let's
hypothetically say I was going to trade Network Appliance
(NASDAQ:NTAP) and Advanced Fibre Communications (NASDAQ:AFCI).

My first goal is to get a handle on the risk/reward dynamic
in a stock.  I do this by using a retracement bracket.

NTAP - 

NTAP staged a big run-up earlier in August after Wit Soundview
said some nice things about the company.  But the stock
couldn't get above the $16 level, where supply finally equalized
the demand for the stock.  Because there was obviously a
meaningful seller at the $16 level, I choose to anchor a
retracement bracket to that level, with the lower end of the
bracket locked on $10 - NTAP's relative low.  With the
retracement bracket in place, I now have a feel for the levels
in the stock.  And by levels, I mean where the risk/reward
dynamic lies.

(The chart below is a 60-minute interval, which is a timeframe
that I like to use for shorter term trading.  When trading
options, I don't like to hold a position any longer than three,
maybe four days due to time decay.  And I've found that the
60-minute interval is most conducive to my style and strategies,
although I'm very cognizant of price over multiple timeframes.)


 

At first glance, I notice that NTAP has been trading around its
levels pretty closely.  Either a market maker is using this
particular retracement to control risk, or some other market
participant(s) is using it.  I observe that NTAP is bouncing
around the $12.25 level, which is the site of its 61.8 percent
retracement level.  In addition, the 200-period moving average
is reinforcing the stock at current levels.  At this point, it's
apparent that someone is defending the stock at its current
levels.  I also notice that NTAP has yet to print $12.00 during
its recent slide lower...

After noting that Stochastics on the 60-minute chart is in
oversold territory, I use my levels, noting that the risk to the
upside is around $13 - the 50 percent retracement level.  The
risk to the downside is a bit more difficult to quantify.  It
could lie at $12, it could lie at $11 - a nice, round, whole
number - or at the low-end of the retracement bracket at $10.
In order to get a better handle on the risk in the stock, I turn
to its sector in the form of the Hardware Index (GHA.X), of which
NTAP is a component.  I observe that the Hardware Index fell to
a new 52-week low last Friday, which doesn't help me a whole lot.
And the reason it doesn't is because the Hardware Index could
either be heading for a new distribution (Read: Lower) or its
drop Friday could've marked a relative low.  But I can surmise
that the Hardware Index is at a new 52-week low and NTAP is not...


 

After assessing risk the best I can, I turn to NTAP's point &
figure chart to get a better feel for supply versus demand.
Currently, supply is overwhelming demand as indicated by NTAP's
column of O's.  This has me a little more bearish on the stock
for the simple fact that it's in a column of O's (supply).  But,
like the Hardware Index, NTAP could be at a relative low on its
point and figure chart.  The future is unknown, so I can't
just assume that NTAP is going lower because it's in a column of
O's.  Before leaving the point & figure chart, I also notice that
despite its reversal, NTAP is still on a buy signal...


 
NTAP Short-Term Summary:

NTAP is holding at its 61.8 percent retracement level, which
is also the site of the stock's 200-period moving average.  And
its Stochastics reading is in oversold territory.  The Hardware
Sector is at a new 52-week low but NTAP is not.  Finally, NTAP
is currently in a column of O's (supply overwhelming demand) but
still on a buy signal.  I'm left scratching my head, because this
is not the easiest situation in which to have conviction; there's
a lot mixed signals.  I have to weigh my observations against
one another.

I choose to BUY the stock at current levels.  In the current
market environment, I'm much more comfortable buying stocks at
support rather than shorting stocks at support.  And the reason
for that is because I can quantify risk - especially in this case 
- much more easily.  If I short a stock at support, I run the
risk of being whipped out by a sharp short covering rally.  So I
buy the stock, with a stop set at $11.99.  If I'm wrong, I'm out
6 cents, while my upside is defined by either $13 - the 50 percent
retracement level - or $14.50, which is potentially the site of a
three-box reversal from current levels on NTAP's point & figure
chart.

Some readers may disagree with my logic in NTAP.  But let me
offer the following.  Traders, in my very humble opinion, are
risk managers and nothing more.  In the case of NTAP, I could
speculate that the stock is going lower and short it at current
levels.  But how would I manage risk?  Would I set a stop at
$12.50, its intraday high last Friday?  How difficult would it
be to manage my emotions after shorting the stock at current
levels if it began to advance?  I would much rather short the
stock against resistance, like NTAP's 50 percent retracement
level, than at its support.  And I'd rather that Stochastics
were overbought when shorting, especially in this market
environment.  By buying NTAP at support I can, with little
effort, define a solid stop at $11.99 and remove virtually all
emotion from the process.

AFCI - 

(AFCI is a stock that is trading incredibly well for being a
company related to the telecom business.)

To repeat my process, I use a retracement bracket to get a handle
on AFCI's risk/reward dynamic.  But instead of merely measuring
from a relative high to a relative low when anchoring my bracket,
I toy around for a bit and discover an interesting "fit."  In
mid-May, AFCI couldn't get above roughly $24.50, and again in
late June the "seller" re-emerged around that level.
Additionally, the stock wouldn't stay below the $20 level during
that same period of time.  Interestingly enough, the 38.2 and
61.8 percent retracement levels of the bracket on the daily chart
below line up pretty closely to $20 and $24.50, respectively.
What's more, when the stock gapped higher following the company's
positive guidance and earnings report in late July, it opened
right at $24.50.  I come to the conclusion that $24.50 is, for
one reason or another, significant.


 

After establishing my levels with the retracement bracket on the
daily chart, I'm going to reduce AFCI down to the 60-minute chart
to get a better short-term view.


 

After breaking down AFCI to its 60-minute chart, I get a severe
case a deja vu.  It's a very similar story to NTAP; AFCI is
near support and oversold according to Stochastics.  The risk
to the downside is around $22, while the upside risk is up
around $28 - its relative high.  And the stock hasn't printed
$24.50 since July 27...

(I'm skipping the sector reference in the case of AFCI because
it's almost identical to the NTAP scenario and doesn't offer a
whole lot of insight.  Although it's not a component, I would
most likely reference AFCI to the Networking Index (NWX.X).)

Jumping over to AFCI's point & figure chart, I notice a couple
of very interesting developments.  The stock, like NTAP, is in
a column of O's but at the same time still on a buy signal.
Furthermore, the $25 level is double-bottom for the stock.  And
the $25 level was a triple top before the stock went on a buy
signal with its gap higher on July 27.  The current top is
marked by the double X's at $28.  I also notice that AFCI
has a bullish support line, which currently sits at $22...


 


AFCI Short-Term Summary:

AFCI is holding at its 38.2 percent retracement level, not too
far from its relative high.  And Stochastics is oversold.  Its
sector is U-G-L-Y.  And the stock is at a double-bottom on its
point & figure chart, but still on a buy signal.

If I have to do something right away, I'm going to buy the stock
with a stop just below $24.50 - maybe $24.25 or thereabouts - 
with an upside target of $28.  Again, risk is pretty darn easy
to measure in this case.  But if I get stopped out around $24.50,
I'm going to be ready to short the stock on a print at $24.  And
here's why.  If AFCI breaks down below $24.50, the risk dynamic
shifts to the downside.  So a decline below $24.50 has me on
alert.  Thinking back to the point & figure chart, AFCI will go
on a sell signal with a print at $24, taking out its last column
of O's.  If that happens, that tells me that supply is starting
to measurably overwhelm demand.  Note, AFCI MUST print $24 for
the sell signal to transpire.  Merely trading below $24.50 won't
cut it.  It MUST print $24!

So there's the double-whammy!  A shift in risk/reward and supply
versus demand all around the same price.  If AFCI prints $24 in
the coming days, it's going to be a good indication that the
stock is going lower; it would be a high probability trade.  My
downside target, should I short AFCI at $24, is $22 - the site
of its 50 percent rertacement level and also the site of its
bullish support line on the point & figure chart (Coincidence?).
If I get short AFCI, I will manage risk by setting a stop at
$24.50 - its old support - which gives me a pretty darn good
potential reward-to-risk ratio.  I'll take the combination of 
high probability with a good reward-to-risk ratio any day.

***Sorry, Chris, I ran out of time and space to cover the
longer term views of these two companies.

----------------------------

DISCLAIMER:
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.


*************
COMING EVENTS
*************

Now that earnings season is officially "over" investors now
focus on the upcoming FOMC meeting.  The latest word on the
street is a 100% chance of a 25 basis point cut from the
Fed.  Many market pundits feel that a 50-point cut would be 
seen as very negative for the stock market.  Buyers will 
likely remain cautious as we approach "warnings" season for
the third quarter.


Date                          Forecast     Previous

Monday, 08/20/01
Leading Indicators                0.3%         0.3%


Tuesday, 08/21/01
FOMC Meeting                 25 bps cut


Wednesday, 08/22/01
 - n/a -


Thursday, 08/23/01
Initial Claims (August 18th)      N/A          380K
FOMC Minutes for June 27th


Friday, 08/24/01
Durable Orders (Jul)             -0.5%       -2.0%
New Home Sales (Jul)             910K         922K


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The Option Investor Newsletter                   Sunday 08-19-2001
Sunday                                                      2 of 5

To view this email newsletter in HTML format with embedded
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********************
THE PLAYS OF THE DAY
********************

Call Play of the Day:
*********************

BGEN - Biogen, Inc. $57.78 (+0.18 last week)

See details in sector list




Put Play of the Day:
********************

CPN - Calpine Corporation $29.28 (-2.81 last week)

See details in sector list




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**************************
PICKS WE DROPPED THIS WEEK
**************************

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.


CALLS

WAG $36.01 (-1.31) With the broad markets re-entering descent
mode in earnest, WAG has continued to weaken, riding the 50-dma
lower.  While we haven't yet taken out our stop, with the daily
Stochastics heading lower, it looks like the ascending trend is
in danger of being broken.  WAG has continued down for the past
week, without giving us a hint it wants to head back up, so
we'll take our leave of the play this weekend.


PUTS

No dropped puts this weekend


***********
DEFINITIONS
***********

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.

RISKS of SELLING PUTS:
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.


**************
NEW CALL PLAYS
**************

CNXT - Conexant Systems $9.93 (+0.44 last week)

Conexant provides semiconductor products and system solutions for
a wide variety of communications electronics.  Conexant delivers
semiconductor integrated circuit products and system-level
solutions for a broad range of communications applications.  These
products facilitate communications worldwide through wireline voice
and data communications networks, cordless and cellular wireless
telephony systems.

Not too many chip stocks finished last week's trading with a gain.
But CNXT was one that did.  The stock has been steadily working
higher, albeit slowly, since late since after retesting its 52-week
low at $6.90.  The stock has been flirting with decidedly breaking
and staying above the $10 level for the past few weeks and looks
like it could happen next week with a little help from the
Semiconductor Sector Index (SOX.X).  This is another play on
relative strength versus the stock's index.  And CNXT has been
steadily out performing the SOX since June, and we're looking for
this pattern to persist into next week's trading.  In fact, the
stock charged out of the gates last Friday.  And although it
finished with a loss on the day, it closed just 7 cents from its
day high, which was a far cry from where the SOX and COMPX
settled relative to the day highs.  Because the price of CNXT is
so low, it's paramount to gain a solid entry point in the play.
And that probably means entering on a pullback near solid
support.  If CNXT's pattern of relatively higher lows is going
to continue, the stock should find support around the $9.20
level.  Any weakness down to that level would offer a good risk
versus reward entry as our stop is in place at $9.00.
Conversely, bullish traders who prefer the momentum strategy
instead of entering on a pullback may use a breakout above
$10 early next week as an entry point, although risk may be a
bit more difficult to manage at that level.  Just make sure
to confirm volume and the direction in the SOX and COMPX
before entering on a breakout.

BUY CALL SEP- 7.5 QXN-IZ OI=  62 at $2.80 SL=1.75
BUY CALL SEP-10.5*QXN-IB OI=4903 at $1.00 SL=0.50
BUY CALL OCT-10.0 QXN-JB OI=8749 at $1.55 SL=0.75
BUY CALL OCT-12.5 QXN-JV OI=1116 at $0.70 SL=0.25

Average Daily Volume = 3.13 mln



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


**********
DISCLAIMER
**********

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


**************************************************************
ADVERTISING INFORMATION

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or any Premier Investor Network newsletter please contact:

Contact Support




The Option Investor Newsletter                   Sunday 08-19-2001
Sunday                                                      3 of 5

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/7130_3.asp


************************Advertisement*************************
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!

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


******************
CURRENT CALL PLAYS
******************

MRK - Merck & Co. $69.15 (+0.12 last week)

Merck is a global research-driven pharmaceutical company that
discovers, develops, manufactures and markets a broad range
of human and animal health products, directly and through its
joint ventures, and provides pharmaceutical benefit services
through Merck-Medco Managed Care.

MRK pulled back in concert with the broader drug sector, as
measured by the DRG.X, last Friday.  The weakness in MRK, as
well as the drug sector, was probably a combination of three
factors.  First, the dollar staged a bit of a rebound.  Second,
the 151 point loss in the Dow could've been partially
responsible.  Finally, traders may have been book profits in
the drug sector ahead of the FOMC meeting next Tuesday, possibly
squaring positions.  Nevertheless, MRK did once again find support
at its 10-dma, which is now located at $68.83.  At this point in
the trade, MRK may be due for a period of consolidation.  The
stock has had a nice run-up since early July, so bullish options
traders should be on alert.  Now, we're betting on MRK advancing
above the $70 level in the short-term, possibly reaching as high
as $74.  But we still need to properly assess the risks in this
position.  And the risks at this time, at least for options
traders could be just that: time.  We don't want to get stuck
in a sideways position and watch time premium decay in our play.
In order to combat time decay, bullish traders can continue to
pursue the strategy of entering calls on weakness and selling
positions when MRK approaches resistance, which now appears to
be just above the $70 level.  Bullish traders can of course trade
calls if MRK breaks above its relative high at $70.77, but only
after confirming a breakout in the DRG.X above 395, if not
higher around 400.  Also, it may be wise to wait until the dollar
heads back down lower before entering MRK calls.  In terms of
support, bounces from $68 may be buyable, as that is the site of
OI's stop.

BUY CALL SEP-65 MRK-IM OI=1896 at $5.00 SL=3.50
BUY CALL SEP-70*MRK-IN OI=3914 at $1.70 SL=1.00
BUY CALL OCT-65 MRK-JM OI=3861 at $5.70 SL=4.00  
BUY CALL OCT-70 MRK-HN OI=7196 at $2.70 SL=1.75

Average Daily Volume = 5.48 mln



ELNT - Elantec Semi $37.11 (+0.49 last 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.

Unfortunately we didn't get any follow-through in ELNT last
Friday.  The stock had a nice pop Thursday, but the SOX's prevalent
weakness Friday dragged our play back down to the $37 level.  For
its part, the SOX is approaching a BIG support level at 550.
Bullish traders in ELNT should keep a close watch on the SOX early
next week.  If it falls below the 550 level, it may be wise to
snug up stops in ELNT and start playing defense in this play.
Conversely, the 550 level may be the site from which the SOX finally
rebounds after its recent slide.  As such, relatively low risk
entries may be offered if the SOX bounces from 550 and ELNT finds
support around $37, or lower around $36.  In either case, consider
your risk preference and trading strategy before attempting to
enter new call plays in ELNT.  We would like to see ELNT hold
above the $37 level early next week as that would help to reinforce
the stock's recent relative strength.  Additionally, traders may
want to monitor the stock's intraday trading activity.  Volume
should be the key driver; what we want to see is advancing volume
in conjunction with advancing price and declining volume in
conjunction with declining price.  Finally, our stop remains in
place at the $35 level, but like we previously mentioned, bullish
traders with open positions should consider their own risk
tolerance when determining an appropriate stop level.

BUY CALL SEP-35 UET-IG OI=116 at $5.30 SL=3.50  
BUY CALL SEP-40*UET-IH OI= 64 at $3.00 SL=1.50
BUY CALL NOV-35 UET-KG OI=611 at $8.00 SL=5.75
BUY CALL NOV-40 UET-KH OI=355 at $5.40 SL=3.50

Average Daily Volume = 521 K



PG - Procter & Gamble $74.75 (+2.25 last week)

Procter & Gamble manufactures and markets a broad range of
consumer products in many countries throughout the world.  The
company's products fall into five business segments: Fabric
and Home Care, Paper, Beauty Care, Health Care, and Food and
Beverage.

PG's relative strength is most impressive.  The stock was one of
only five Dow Jones Industrial Average (INDU) components to 
finish in positive territory last Friday.  The stock edged ever
so closer to our short-term, upside price target at the $75 level
last Friday.  In fact, the stock closed right on its day high.
Meanwhile, the Dow plummeted 151 points lower!  Part of PG's
strength Friday may have been a product of August options
expiration.  Although it's difficult to say for certain, its
gravitation towards the $75 strike price may have been somewhat
artificial.  We concede that it's only speculation, but it's
something to consider early next week for those with open
positions in PG.  The stock may be due for a pullback early
next week, and bullish traders who've captured last week's
advance should be thinking of at least capturing some partial
gains.  Our stance of waiting for a pullback for a new entry
point remains the same this week.  There's just too much risk
in chasing the stock higher while the Dow plummets.  As such,
a pullback to support may be a better bet.  And in terms of
support, bullish traders can look for bounces first at $74,
lower near $73.50, and finally around the $73 level, which is
the site of our raised stop.

BUY CALL SEP-70 PG-IN OI=1101 at $5.60 SL=3.50
BUY CALL SEP-75*PG-IO OI=5203 at $1.90 SL=1.00
BUY CALL OCT-70 PG-JN OI=8525 at $6.40 SL=4.75
BUY CALL OCT-75 PG-JO OI=7434 at $2.95 SL=1.50

Average Daily Volume = 2.82 mln



NVDA - NVIDIA $83.74 (-0.90 last week)

NVIDIA designs, develops and markets graphics processors and
related software for personal computers and digital entertainment
platforms.  NVIDIA provides a "top-to-bottom" family of
performance 3D graphics processors and graphics processing units
that, in the company's opinion, has set the standard for
performance, quality and features for a broad range of desktop
PCs.

Although NVDA violated our stop at the $84 level last Friday, we're
maintaining bullish coverage this weekend.  And the reason we're
not dropping the play is because the stock didn't take out its
relative lows around $83.  As a result, we're lowering our stop
down to the $83 level this weekend.  The majority of NVDA's
weakness last Friday appeared to be market and sector related.  For
its part, the SOX shed almost 5 percent and this, in turn, weighed
heavily on NVDA.  The stock's weakness could've allowed for bullish
traders to gain a favorable entry point going into next week's
trading.  But before traders decide to pursue dips any further, it
would be wise to wait for a bounce in the SOX before entering new
call plays in NVDA.  The SOX is nearing support at the 550 level
and may rebound next week, with a little help from the Fed.  Also,
a smart advance back above the $84 level may allow for a momentum
based entry point into new NVDA call plays in advancing market
and sector (SOX).

BUY CALL SEP-80 RVU-IP OI=1262 at $ 9.60 SL=7.00
BUY CALL SEP-85*RVU-IQ OI=1455 at $ 6.90 SL=4.50
BUY CALL SEP-90 RVU-IR OI=2499 at $ 4.50 SL=2.25
BUY CALL DEC-90 RVU-LR OI= 320 at $11.90 SL=9.00
BUY CALL DEC-95 RVU-LS OI= 358 at $10.10 SL=7.50

Average Daily Volume = 4.60 mln



ABT - Abbott Laboratories $52.29 (+0.01 last week)

Abbott Laboratories is engaged in the discovery, development,
manufacture and sale of healthcare products and services.
ABT's pharmaceuticals and hospital products (accounting for
more than 40% of sales) include antibiotics, synthetic hormones,
and drugs such as Norvir, which is used to treat HIV.  Its
products are sold directly to retailers, wholesalers,
healthcare facilities, laboratories, and government agencies
throughout the world.  

Still struggling to break out of its narrow range, ABT is once
again resting right on its ascending trendline, which has risen
to $52.25.  An attempted rally on Wednesday was turned back
right at $53.50 resistance as the wedge continues to narrow.
For the first time in over a month, ABT broke below the
trendline on an intraday basis, but stubborn bulls managed to
bid it back from the abyss to close the week with a paltry one
penny gain.  The Stochastics are flashing a warning sign again
as well, rolling over without entering overbought territory.
Bounces from the $52 level (also the site of our stop) are
still buyable, but we'll cut bait if ABT closes below this
point.  Another cautionary sign was the weakness in the
Pharmaceutical index (DRG.X) over the past 2 days, and that
uptrend is in danger of being broken.  If the DRG falls below
$391, ABT will have a hard time bucking the bearish sector
trend.  The high odds approach will likely be to wait for
increased buying volume to push ABT through the $54 level
before taking on new positions.

BUY CALL SEP-50*ABT-IJ OI= 567 at $3.30 SL=1.75
BUY CALL SEP-55 ABT-IK OI=1825 at $0.75 SL=0.00
BUY CALL NOV-50 ABT-KJ OI=2888 at $4.40 SL=2.75
BUY CALL NOV-55 ABT-KK OI=6401 at $1.65 SL=0.75

SELL PUT SEP-50 ABT-UJ OI=1008 at $0.50 SL=1.25
(See risks of selling puts in play legend)

Average Daily Volume = 3.42 mln



BGEN - Biogen, Inc. $57.78 (+0.18 last week)

Biogen is a biopharmaceutical company primarily engaged in the
business of developing, manufacturing and marketing drugs for
human healthcare.  BGEN currently derives revenues from sales
of its Avonex product for the treatment of relapsing forms of
multiple sclerosis and from royalties on worldwide sales by
the company's licensees of a number of other patented products.
Other products include certain forms of alpha interferon,
hepatitis B vaccines and hepatitis B diagnostic test kits.  In
order to maintain its leadership role in the industry, BGEN
continues to have an active research and development program.

With the Biotechnology index (BTK.X) falling in unison with
everything technology-related on Friday, it was amazing to see
BGEN end the day relatively unscathed.  Losing less than a
dollar and holding well above the $57 support level was pretty
encouraging, especially with the BTK once again under the
pivotal $500 level.  The wedge is continuing to narrow, with
ascending support right on the 20-dma ($56.53) and resistance
firm at $59.25.  Target new entries on a pullback between
$56-57, but keep stops firmly in place at $55.  A drop below
that level would firmly break the ascending trend and we don't
want to stick around if that should come to pass.  A breakout
over resistance is a viable entry signal as well, but we want
to be aware of the 200-dma, lying in wait at $60.10.  This will
be the real test of our play, and a rally through that level on
strong volume would indicate the bulls are gathering strength.

BUY CALL SEP-55 BGQ-IK OI=1430 at $5.00 SL=3.00
BUY CALL SEP-60*BGQ-IL OI=1606 at $2.30 SL=1.25
BUY CALL SEP-65 BGQ-IM OI= 673 at $0.95 SL=0.00
BUY CALL OCT-60 BGQ-JL OI=3298 at $3.70 SL=2.25
BUY CALL OCT-65 BGQ-JM OI=4072 at $2.05 SL=1.00

SELL PUT SEP-55 BGQ-UK OI=1178 at $1.80 SL=3.50
(See risks of selling puts in play legend)

Average Daily Volume = 2.89 mln



IBM - International Business Machines $104.59 (-0.36 last week)

International Business Machines uses advanced information
technology to provide customer solutions.  The company provides
value to its customers through a variety of solutions including
technologies, systems, products, services, software and
financing.  IBM's three hardware product segments are comprised
of Technology, Personal Systems and Enterprise Systems.  Other
major operations consist of a Global Services segment, a
Software segment, a Global Financing segment and an Enterprise
Investments segment.

The tug-of-war between the bulls and bears continues unabated,
with the bears gaining the upper hand on Friday after DELL cast
a dark cloud over the PC sector with its less-than-inspiring
earnings report.  Despite widespread selling in the broad
market, IBM managed to keep the damage to a minimum, losing
just over $1, albeit on slightly higher than average volume.
The mild uptrend is still intact, and the trendline is now
resting at $103.50.  But the stock's inability to hold above
the 200-dma ($104.74) is a bit disconcerting.  The market
meltdown on Friday may be warning of a limited lifespan to our
play though, especially with daily Stochastics rolling over
without even entering overbought this time.  Support has been
building near $102.75 and aggressive bulls might want to target
an intraday dip near this level for fresh entries, so long as
buyers continue to defend the stock.  Our stop is currently at
$102, as a drop below that level would bring IBM below its early
July lows.  Resistance is still resting in the $106.50 area and
a strong (read:volume) move through that level can also be used
for initiating new positions.

BUY CALL SEP-100 IBM-IT OI=19321 at $6.90 SL=5.00
BUY CALL SEP-105*IBM-IA OI= 5000 at $3.70 SL=2.25
BUY CALL SEP-110 IBM-IH OI= 6897 at $1.55 SL=0.75
BUY CALL OCT-105 IBM-JA OI= 3659 at $5.90 SL=4.00
BUY CALL OCT-110 IBM-JB OI=10046 at $3.50 SL=1.75

SELL PUT SEP-100 IBM-UT OI= 8320 at $1.75 SL=3.50
(See risks of selling puts in play legend)

Average Daily Volume = 6.76 mln



IMPH - IMPATH, Inc. $45.98 (+1.39 last week)

Applying their broad knowledge and research capabilities, IMPH
specializes in providing patient-specific cancer diagnostic
and prognostic information, with a particular expertise in
difficult to diagnose tumors, prognostic profiles in breast
and other cancers, and lymphoma/leukemia analysis.  The
company currently works with more than 7400 physicians
specializing in the treatment of cancer patients and their
database currently contains more than 550,000 patient profiles.
In addition IMPH can link its information with that of its
tumor registry business to provide data on the full continuum
of care, from diagnosis through treatment and outcomes on many
patients.

Using the 200-dma at $46.28 as their rallying point, the bears
stopped IMPH in its tracks on Friday.  Trading mostly sideways
throughout the day, the stock fell below the aggressive
ascending trendline (currently $46.30) and now we need to look
to the longer-term trendline at $45.35 for support.  Volume was
thankfully light (70% of the ADV) on Friday and our play didn't
succumb to the heavy selling pressure in other Biotech issues as
the Biotechnology index (BTK.X) once again fell below $500.
Support looks solid between $44.50-45.50, and a bounce from that
region should afford us another attractive entry point.  But
only if the selling volume remains light and the BTK doesn't
suffer further technical damage by falling below $480.
Resistance at $46.50 will be reinforced now by the aggressive
trendline, which is now overhead.  Look for a volume-backed move
above $47 before initiating new positions on a breakout.  Keep
stops in place at $44

BUY CALL SEP-45*QPH-II OI=323 at $3.90 SL=2.50
BUY CALL SEP-50 QPH-IJ OI= 66 at $1.60 SL=0.75
BUY CALL OCT-45 QPH-JI OI=242 at $5.10 SL=3.00
BUY CALL OCT-50 QPH-JJ OI=281 at $2.90 SL=1.50
BUY CALL OCT-55 QPH-JK OI=407 at $1.45 SL=0.75

Average Daily Volume = 242 K



NTIQ - NetIQ Corporation $34.29 (-2.11 last week)

Operating in the e-Business marketplace, NTIQ is a provider of
eBusiness infrastructure management software that enables
organizations to optimized the performance and availability of
Windows 2000 and Windows NT-based systems and applications.
Its AppManager suite detects and identifies bottlenecks, lags
in e-mail response time, and other network problems; the
software then makes the necessary corrections and issues the
appropriate reports.  NTIQ's customers include AT&T, Dell
Computer, Charles Schwab, General Electric, Pfizer, and
Microsoft.

Along with the rest of the Technology market, NTIQ had another
rough day on Friday, losing $1 and closing below the 20-dma
($34.71) for the first time since July 25th.  On the positive
side, the selling came on absolutely anemic volume, barely a
third of the ADV.  Support at $34 is still intact, surviving
another test in the morning.  With price still headed down at
the close on Friday, it appears likely that sellers will test
this level again on Monday morning.  This is a critical support
level and the stock's behavior around it will determine our
course of action from here.  Another bounce, accompanied by
stronger volume will give us another entry point.  A drop below
our $34 stop and we'll cut the play loose and target healthier
plays.  There is now some significant overhead resistance at
$35, and more cautious investors will want to wait for NTIQ to
push above that level before opening new positions.

BUY CALL SEP-30 CQT-IF OI= 12 at $6.30 SL=4.25
BUY CALL SEP-35*CQT-IG OI= 67 at $3.40 SL=1.75
BUY CALL SEP-40 CQT-IH OI=361 at $1.70 SL=0.75
BUY CALL OCT-35 CQT-JG OI=207 at $4.90 SL=3.00
BUY CALL OCT-40 CQT-JH OI=105 at $3.10 SL=2.75

SELL PUT SEP-30 CQT-UF OI= 16 at $1.50 SL=3.00
(See risks of selling puts in play legend)

Average Daily Volume = 1.04 mln



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The Option Investor Newsletter                   Sunday 08-19-2001
Sunday                                                      4 of 5

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/7130_4.asp


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*************
NEW PUT PLAYS
*************

EBAY - eBay $59.00 (-2.09 last week)

eBay is a United States dynamic pricing online trading platform.
eBay developed a Web based community in which buyers and
sellers are brought together in an efficient format to buy and
sell items, such as collectibles, automobiles, high-end or
premium art items, jewelry, consumer electronics and a host of
practical and miscellaneous items.

EBAY broke below its long standing support level last week at
$60 and looks to have further downside over the short-term.
It's been one of the better performing stocks in the Nasdaq this
year and looks due for some "catch-up" selling.  In addition,
the CBOE Internet Index (INX.X) fell ever closer to its 52-week
and ALL-TIME low last Friday.  The INX's 52-week lost is at
120.97 and its all-time low is at 119.41.  If the INX breaks
below those levels next week the selling in EBAY should
accelerate.  In terms of new entry points into this play, bearish
traders can look for a rollover near the 10-dma, currently at
$61.62 following any short covering rally.  Lower, EBAY could
also find resistance at the $60 level.  To begin with, our stop
is in place at the $64 level.  In terms of entering new put plays
into weakness, bearish traders can look for a breakdown below the
$58 level on high volume in conjunction with weakness in the
broader market (COMPX) as well as the INX.  For a downside price
target, we'll turn first to the $55.50 level for a possible
bearish objective.  If that level is reached in short order, we'll
revisit the topic of downside targets.

BUY PUT SEP-60*QXB-UL OI=3865 at $5.00 SL=3.75
BUY PUT SEP-55 QXB-UK OI=1444 at $2.90 SL=1.75

Average Daily Volume = 5.70 mln



CLS - Celestica $39.47 (-5.73 last week)

Celestica, Inc. provides a range of electronics manufacturing 
services including design, prototyping, assembly, testing, product 
assurance, supply chain management, distribution and after-sales 
services. For the 3months ended 3/31/01, revenues rose 67% to 
$2.69B. Net income totaled $54.8M, up from $26.1M. Revenues 
reflect growth in communications, servers & storage. Net income 
also reflects improved gross margins and higher interest income.

Closing at a triple bottom of about $39.50, CLS has seen four 
consecutive days of strong selling that have subtracted more than 
-12% of the stock's value.  A dip below this level and sellers 
could amass at the front lines to unload CLS.  And why not?  
Considering that PC makers continue to announce lagging demand in 
the face of price reductions and cell phone makers are unable to 
provide forward guidance, what justifies a P/E of 43 in CLS?  
Short-term traders should look to the gap up that occurred on 
April 18th as an area of respite.  If shares fall through support 
at $39.50, we would look to a price of $35.00 as an appropriate 
exit price.  A longer term perspective suggests that there could 
be even more downside potential.  The next area of significant 
support rests just under $30.00.  We'll use $44.00 for our stop 
loss.

BUY PUT SEP-40*CLS-UH OI=1266 at $3.60 SL=2.00
BUY PUT SEP-35 CLS-UG OI=1311 at $1.70 SL=1.00

Average Daily Volume = 2.50 mln



LEH - Lehman Brothers $64.00 (-5.20 last week)

Lehman Brothers Holdings is engaged in global investment banking, 
raising capital through underwriting and placements, merchant 
banking, corporate finance services, securities trading, and 
commodities. For the 3 months ended2/28/01, total revenues rose 6% 
to $6.75B. Net income applicable to Common fell 22% to $375M. 
Results reflect higher revenues from interest and dividends, 
offset by higher operating expenses as a percentage of sales.

The Financial sector has been hit hard over the course of this 
year and with floundering trading levels and a dry underwriting 
business, it doesn't appear that things will improve anytime soon 
for LEH.  Eight of the last eleven days have been to the downside 
for the stock, losing key support levels like the 200 DMA along 
the way.  And the downside volume has been rather brisk.  All this 
bad news going into a Fed meeting where the FOMC is very likely to 
lower rates by 25 basis points.  Short-term downside resistance 
exists at $62.75 and a push through this level could portend 
additional declines.  Look to $60.00 as the best exit point for 
those with a short-term perspective.  If you're interest lies in a 
longer term holding, look to $58.00 as your exit point.  As 
always, make sure to protect your trade with a stop loss at 
$68.00.

BUY PUT SEP-65*LEH-UM OI= 1150 at $4.10 SL=2.75
BUY PUT SEP-60 LEH-UL OI= 1408 at $2.05 SL=1.25

Average Daily Volume = 2.20 mln



*****************
CURRENT PUT PLAYS
*****************

CHKP - Check Point Software $36.17 (-3.03 last 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 slid lower last Friday in the wake of continued selling
across the Nasdaq Composite (COMPX) and the Software Sector
Index (GSO.X).  Further weakness early next week in the two
aforementioned should result in CHKP taking out its relative
low around the $35 level.  If that scenario plays out and
CHKP doesn't take out its lows, it may be a sign of inherent
relative strength in the stock, so bearish traders with open
positions should be on alert for that situation.  The stock
did bounce from the $36 level Friday, so we'll need to see
further weakness below that level to confirm that the sellers
remain in control in CHKP.  But we would urge bearish traders
with open positions to use any further weakness to go ahead
and book gains in this play.  What we don't want to happen is
see a short covering rally early next week, which causes
bearish traders with open put positions to sell into strength,
resulting in diminished gains.  Keep your wits about you!  We're
lowering stops down to the $39 level as that price looks like
solid resistance.

BUY PUT SEP-40 KEQ-UH OI=2332 at $6.00 SL=4.25
BUY PUT SEP-35*KEQ-UG OI=1284 at $3.20 SL=2.25

Average Daily Volume = 10.5 mln



PSFT - PeopleSoft $35.85 (-2.99 last week)

PeopleSoft designs, develops, markets, and supports a family of
enterprise application software products for use throughout large
and medium sized organizations.  These organizations include
corporations, higher-education institutions and federal, state,
provincial and local government agencies worldwide.

PSFT continues to trace relatively lower lows which has the
stock below its near-term support levels.  But there is a
retracement level just below current levels around the $35
price which may serve as support early next week if the Software
Sector Index (GSO.X) stabilizes.  For its part, the GSO is
below virtually all of its meaningful support levels except
for its 52-week low at 153.54.  The index appears headed for
that level, but it is growing oversold so bearish traders in
PSFT should be on the watch for any forthcoming short covering
rally.  On the other hand, further deterioration in the GSO
should at least lead PSFT down to the $35 level.  At any rate,
bearish traders with put positions on at higher prices should
be thinking about locking in some of those gains after last
Friday's $2.34 drop.  For those who entered put plays when we
picked up coverage on PSFT up around $40, any further weakness
below current levels would allow for a sound exit point.  If
a short covering rally does transpire next week, look for PSFT
to rollover near resistance around the $38.25 level, which was
our pivot point that we had been gaming.  We're lowering stops
to $39.

BUY PUT SEP-40*PQO-UH OI= 793 at $6.30 SL=4.50
BUY PUT SEP-35 PQO-UG OI=1076 at $3.30 SL=2.25

Average Daily Volume = 7.67 mln



GMST - Gemstar-TV Guide $33.53 (-2.42 last week)

Gemstar-TV Guide is a global media and technology company focused
on developing, licensing and providing products and services that
simplify and enhance consumer entertainment.  Many of the company's
products have a special emphasis on television oriented
technologies and services, in particular, program guidance
products including those marketed under the TV Guide name.

GMST continues to impress us with its weakness following its post
earnings rollover early last week at the $38 level.  The stock 
continues to trade below the $35 level and further deterioration
in the Nasdaq market should lead GMST down towards the $32 level
which is its next major support level.  The stock spent most of
last Friday gyrating between roughly the $32.25 and $34.50 levels.
We'd like to see this consolidation pattern break to the downside
early next week and that should happen if the COMPX keeps falling
to new relative lows.  Conversely, any short covering rally in
GMST should be halted around the $35 level, which is the next site
to look towards for a rollover and entry point.  Additionally, a
breakdown below the $32 level should offer momentum traders new
entry points into weakness.  Our stop has been moved down to the
$35 level.

BUY PUT SEP-40 QLF-UH OI=1453 at $7.90 SL=5.75
BUY PUT SEP-35*QLF-UG OI=1598 at $4.40 SL=2.75

Average Daily Volume = 3.70 mln



AIG - American International Grp. $79.21 (-2.47 last 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 took a lot of patience to wait this one out, but on Friday
AIG finally gave us the breakdown we have been waiting for.
With the Insurance index (IUX.X) breaking below its $726 support
level, AIG had no choice but to follow suit.  Selling volume was
heavy (nearly 50% above the ADV) as the stock fell as low as
$78.50 before a late-day recovery.  It looks like the stock may
have now fallen into a lower trading range, and we'll look for
the $80-81 level (previous support) to act as resistance.  Lower
stops to $81 and target any failed rallies below this level
(possibly at $80.25) for new entries.  Should the breakdown
continue on Monday, look to step into the play on a volume-backed
drop below $78.50.  Below that, support lies first at $77 and
then $76.  The daily Stochastics still has plenty of room to
fall, so it wouldn't be surprising to see AIG test the $74 level
before the bulls get interested again.

BUY PUT SEP-80*AIG-UP OI= 6984 at $3.00 SL=1.50
BUY PUT SEP-75 AIG-UO OI=13961 at $1.45 SL=0.75

Average Daily Volume = 4.46 mln



CPN - Calpine Corporation $29.28 (-2.81 this week)

Calpine Corporation is engaged in the generation of electricity
in the United States and Canada.  Involved in the development,
acquisition, ownership and operation of power generation
facilities, CPN also sells the electricity and its by-product,
thermal energy, primarily in the form of steam.  The company
has ownership interests in and operates gas-fired cogeneration
facilities, gas fields, gathering systems and gas pipelines,
geothermal steam fields and geothermal power generation
facilities.  Each of the generation facilities produces and
markets electricity for sale to utilities and other
third-party purchasers.

That didn't take long, now did it?  When we initiated coverage
of CPN on Thursday, we were looking for a drop through $30 and
more importantly the January lows near $29 to provide for fresh
entries.  While we aren't there yet, the stock fell to $29.11
on strong volume on Friday, and it looks like the bears are
determined to drive the stock into the mid-$20s before they are
finished.  After barely poking above the oversold line, daily
Stochastics are diving lower again.  While there is some mild
support near $28, a bounce from that level will likely only
serve to provide us with fresh entry points.  We are lowerin
 our stop to $32, and will target a weak bounce between $30-31
for new positions.  Support is strong at $24 and dates back to
June of 2000, so that looks like a good target for locking in
profits.

BUY PUT SEP-30*CPN-UF OI=5458 at $2.90 SL=1.50
BUY PUT SEP-25 CPN-UE OI= 485 at $0.85 SL=0.00

Average Daily Volume = 5.04 mln



VRTS - Veritas Software $32.95 (-5.71 this week)

As an independent supplier of storage management software,
VRTS develops and sells products that protect against data
loss and file corruption, allowing rapid recovery after disk
or computer system failure.  The company's products provide
continuous data availability in clustered computer systems with
shared resources. This enables IT managers to work efficiently
with large file systems, making it possible to manage data
distributed on large computer network systems without harming
productivity or interrupting users.  VRTS provides products for
most popular operating systems, including UNIX and Windows NT,
as well as a full range of services to assist its customers in
planning and implementing their storage management solutions.

Amidst weakness in the Technology market, not to mention heavy
selling in the Storage-related stocks, VRTS gave us a quick drop
as low as $31 before buyers started to appear.  They helped to
provide some support, but based on the weak buying volume and
the long-term chart, it seems unlikely that VRTS is done
falling.  The next major support rests at $26.50, followed by
$23.  The recent ABN Amro downgrade was accompanied with a price
target of $26-30, so we would look at $26 as a good target for
taking profits on open positions.  For traders still on the
sidelines, the buying volume seems to have run out of steam near
the $33.50 level the past two days and a failure to move up
through there will set us up for another attractive entry.  On
the other side of the coin, renewed weakness will give us a
solid entry as the price drops through the intraday lows at $31.
Keep an eye on volume for gauging your entries.  Lower stops to
$35.

BUY PUT SEP-35*VIV-UG OI=4752 at $4.90 SL=3.00
BUY PUT SEP-30 VIV-UF OI=1953 at $2.40 SL=1.25

Average Daily Volume = 12.40 mln



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


*****
LEAPS
*****

It's Time To Get More Aggressive!
By Mark Phillips
Contact Support

And I'm not talking about taking on more risk on our plays.
Quite the contrary.  I want to make sure our excellent entry
points actually lead to excellent exit points as well.
Translation: It's time to get more aggressive in the application
of our stops so that we can regularly harvest profits.

Looking through the Track Record file this week, I was depressed
to see the abysmal performance of the LEAPS portfolio over the
past several months.  While some of those losses came from my
error of actually chasing entry points higher, the vast majority
of those plays were at some point significantly profitable.
Many of those negative numbers would be positive had I only
elected to be more aggressive with the stop losses.  That's the
plan from here on out, until the markets show us they want to
move outside of this tedious range.

From the entries that have materialized over the past 5 weeks,
you can see that we are doing a great job of grabbing attractive
entries into our plays, but the exits have left a lot to be
desired.  So we are going to be far more aggressive in
harvesting profits in the near-term.  While this is not how I
prefer to trade LEAPS (I like to hold them for a longer period
of time), short term plays are the way to make money in this
market.  The advantage of using LEAPS for this type of trading
is the relative insensitivity of the position to both the
passage of time and the variations in volatility.

As you peruse the current Portfolio, you'll notice that we have
tightened up many of our stops to just below the current price.
Like we have done with Washington Mutual (NYSE:WM), I am
refusing to give back any of our recent gains and am daring the
market to trigger those stops taking us out of the plays.  We
even brought the stop on WM higher to $42, fractionally below
the close on Friday.

Note: Traders using the LEAPS Covered Call strategy may want to
keep the original stop in place as they take in premium on a
monthly basis.  For instance, those writing covered calls on
SUNW would have sold their call near the $18 peak and would
still have their stop in place at $12.50, right where it was
when we originally took our position in late July.  They got to
watch those August calls expire worthless and provided SUNW
doesn't trade to new lows, will be in a position to repeat the
process as the stock heads back to the upper end of its range.

One of my faithful readers pointed out an error in the Portfolio
last weekend.  When I moved Philip Morris (NYSE:MO) into the
Portfolio, I inadvertently entered the wrong strike symbol into
my quote sheet, which then propagated into the Portfolio.  My
apologies and thanks for the heads up, Skip!  For the record, I
originally listed the $40 JAN-03 LEAP (VPM-AH).  The problem was
that I labeled it as the $45 LEAP.  The problem has been
corrected and I now show the correct symbol for the $45 LEAP

I was confronted with quite a dilemma on our Nasdaq-100
(AMEX:QQQ) play early last week as it traded higher on Monday.
Although it cleared the $41 level (just barely), the action at
the end of the day just wasn't very convincing.  Volume was only
about 75% of the ADV, significantly lower than the past 3 days
and the buying pressure was abating towards the end of the day.
I opted to wait one more day and look for some follow-through
and Boy, am I ever glad I did.  Tuesday gave us a classic
"Gap-and-Crap" before resuming its downward slide.  By Friday,
numerous support levels had given way, with the QQQ trading as
low as $37.71.  It looks like there could be some additional
weakness, based on the weekly Stochastics, so I'm lowering our
entry target accordingly.

The weakness in the markets this week was focused strongly on
Technology stocks of every stripe, resulting in another handful
of drops.  Broadcom (NASDAQ:BRCM), Cisco Systems (NASDAQ:CSCO),
Dell Computer (NASDAQ:DELL), and Sun Microsystems (NASDAQ:SUNW)
all bit the dust as sellers ruled the week over on the NASDAQ.
Our new, aggressive stop strategy would have had all of them
(except DELL) closed out at solid profits in recent weeks,
rather than the small losses that got logged in the Track Record
file.  I still like BRCM, CSCO and SUNW for LEAPS candidates and
I'll be watching for their respective weekly Stochastics
oscillators to once again enter oversold territory, at which
time they'll likely find their way back onto the Watch List, so
long as they don't set new lows.

There were some interesting developments this week in our Energy
sector plays, the most positive of which was a new entry for
Global Marine (NYSE:GLM).  On the heels of the American Gas
Association reporting a sharp decline in Natural Gas
inventories, all the Energy sectors including the Oil Service
index got a nice pop, allowing us to step into the play as GLM
cleared $16 on heavy volume.  There has been a bit of
retracement over the past couple days, so we'll have to watch
this one for a couple weeks to see if our entry was prudent.

Calpine (NYSE:CPN) and Enron (NYSE:ENE) continued to deteriorate
this week, keeping us from even getting close to an entry point.
CPN has reached the $29 level, where the stock found support in
January, but if the charts can be believed, this support level
is not likely to hold.  Accordingly, I have lowered our entry
target to $24-25, and expect we'll be offered an attractive
entry near that level in the weeks ahead.  ENE slid sharply this
week after news of the CEO's resignation.  The $40 support level
is now just another area of resistance that will need to be
climbed in the future, and it looks like the next likely support
level is $34-35, dating all the way back to late 1999.  

While the descent in these stocks has been severe, I am looking
at the continued weakness as a gift.  We'll eventually get into
these plays and when the excessive pessimism that has engulfed
them dissipates, we'll be in an attractive position for the
recovery.  Fundamentally, I think they are great, as the
perceived excess of supply and dearth of demand is a temporary
aberration that will soon correct itself.

Did anybody take the entry on Barrick Gold (NYSE:ABX) that we
reported on last week?  Precious metal stocks have staged quite
a comeback during this latest market downturn as investors have
sought a safe haven for their capital, and I wouldn't be
surprised to see more of the same in the weeks ahead.  With our
great entry, we've now got almost a 50% gain in our 2003 LEAP,
so it should come as no surprise that we have really tightened
up the stop there as well.

While not shooting to the moon, MRK is staging a nice recovery,
now testing the $70 level.  Consistent with our new stop loss
strategy, we are raising our stop to $68.  As we noted above
with the SUNW play, we could have harvested profits (40%) at the
peak and then stood aside waiting for a fresh entry to repeat
the process.  Instead, we posted a small loss.  We don't want to
repeat that process with MRK (or any of our other winning
plays), so we are getting more aggressive with our stops until
the market as a whole demonstrates a propensity to advance.

I want to focus my limited market commentary this week on the
CBOE Volatility Index (VIX.X), as I think it provides some
interesting insight into the recent market behavior.  Back on
August 3rd, the VIX hit a low of 22.26, just kissing its lower
Bollinger band at the same time that the S&P500 (SPX.X) began
to rollover from its declining 50-dma (then at 1227.50).  This
rollover began just a day after the SPX traded within 3 points
of the upper Bollinger band.  Recall the heavy bearish slant to
my commentary that week, where I took issue with the bullish
analyst comments.  From both a technical and sentiment
standpoint, playing the downside at that point in time was the 
high-odds choice, as has been proven over the past 2 weeks.
It's too bad I didn't have my stop-loss epiphany sooner, as I
could have harvested some gains from the Portfolio.  Isn't
hindsight great!?

This week the VIX gave us some interesting indications as well.
I was stunned early in the week as the major indices were
selling off, yet the VIX was showing no desire to trade higher.
In fact it still closed Thursday's session at a mere 23.83.
What we had was a falling market and a definite lack of fear,
but that disparity was reconciled on Friday, as the sharp drop
across virtually every sector got investors' attention.  The
NASDAQ has now broken below the 1934 support level and the DJIA
is once again testing the 10,200 level.  By the way, I don't
expect 10,200 to hold on this test -- I think this time we will
break the neutral wedge on the daily charts to the downside.
And then there is the SPX, closing Friday's session at 1161.97,
it's lowest close since April 10th.  Be very careful targeting
new entries, as it looks to me like there may yet be some life
in the bear.

I can't resist throwing one little barb at the analyst community
again this week.  Besides, I wouldn't want to disappoint you!
So, "Hey Abby!  Are you ready to revise those year-end price
targets yet?"  For those of you new to my weekly rant against
disingenuous analysts, Ms. Cohen is still calling for the S&P500
to reach 1550 and the DJIA to reach a lofty 12,500.  Since she
reiterated those targets a couple weeks ago (near the recent
highs, by the way), the markets have drifted even further away
from those lofty goals.  The point is, the analysts DO NOT KNOW
when the economy and market will improve.  As my colleague Buzz
Lynn over at Index Skybox is fond of pointing out, when you
start to see improvement in your own financial situation, then
you will know that the worst is truly behind us.  Until then, be
stingy about throwing your money out in the cold, cruel market.

Have a great week!


Mark Phillips
Contact Support



LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

CLX    03/13/01  '03 $ 35  VUT-AG  $ 6.10  $ 7.10   16.39%  $36.50
WM     03/22/01  '03 $33.8 OBN-AY  $ 6.13  $11.70   90.86%  $ 42
FON    04/09/01  '03 $ 25  VN -AE  $ 4.40  $ 3.60  -11.36%  $22.50
VRSN   06/12/01  '03 $ 60  OVX-AL  $20.40  $13.80  -32.35%  $ 42
IBM    07/11/01  '03 $110  VIB-AB  $17.70  $15.20  -14.12%  $102
                 '04 $110  LIB-AB  $23.70  $22.40  - 5.49%  $102
MRK    07/09/01  '03 $ 70  VMK-AN  $ 7.40  $ 9.30   25.68%  $ 68
MO     07/30/01  '03 $ 45  VPM-AI  $ 6.10  $ 5.90  - 4.92%  $ 40
ABX    08/06/01  '03 $ 15  VBX-AC  $ 2.75  $ 4.10   49.09%  $16.25
                 '04 $ 15  LBX-AC  $ 3.70  $ 5.10   37.84%  $16.25
GLM    08/15/01  '03 $ 20  OML-AD  $ 3.30  $ 2.85  -13.64%  $ 14
                 '04 $ 20  KLW-AD  $ 4.70  $ 4.30  - 8.51%  $ 14




LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

ORCL   06/24/01  $14           JAN-2003 $ 15  VOC-AC
                            CC JAN-2003 $12.5 VOC-AV
                               JAN-2004 $ 15  LRO-AC
                            CC JAN-2004 $ 10  LRO-AB
CPN    07/08/01  $24-25        JAN-2003 $ 25  OLB-AE
                            CC JAN-2003 $ 25  OLB-AE
                               JAN-2004 $ 30  LZC-AF
                            CC JAN-2004 $ 30  LZC-AF
ENE    07/29/01  $34-35        JAN-2003 $ 35  VEN-AG
                            CC JAN-2003 $ 35  VEN-AG
                               JAN-2004 $ 40  LYN-AH
                            CC JAN-2004 $ 30  LYN-AF
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  $37           JAN-2003 $ 40  VZQ-AN
                            CC JAN-2003 $ 35  VZQ-AI
                               JAN-2004 $ 40  LRI-AN
                            CC JAN-2004 $ 35  LRI-AI
GE     08/12/01  $38-39        JAN-2003 $ 40  VGE-AH
                            CC JAN-2003 $ 30  VGE-AF
                               JAN-2004 $ 40  LGR-AH
                            CC JAN-2004 $ 30  LGR-AF


New Portfolio Plays

GLM - Global Marine $16.60

Things were looking grim for shares of the Oil Service
companies, including GLM a little over a week ago, as we watched
the price continue to deteriorate.  By midweek, GLM was looking
a little better though, after numerous bounces from just above
$15.  Then came the American Gas Association (AGA) report
Wednesday afternoon, showing a much greater decline in Natural
Gas inventories than expected, launching all the energy-related
sectors higher.  Gains in the Oil Services index (OSX.X)
propelled shares of GLM through $16 and as high we saw a bit of
follow-through on Thursday morning as Morgan Stanley upgraded
the stock to Strong Buy.  It looks like it was a bit too much,
too soon though, and GLM pulled back for the remainder of the
day, ending just above the $16 level.  This provided a better
entry point for those that missed the rally on Wednesday.  This
play won't rocket higher from here, but we are looking for GLM
to work back up to the $18 resistance level in the days ahead.
Nimble traders can consider taking some short term profits near
that level, but I'm looking for a bit more upside before
considering taking profits.  Look for GLM to advance to the
$19.50-20.00 area before the profit taking starts in earnest. 
For now, we are placing our stop at $14, just below major
support, last tested in late 1999.

BUY LEAP JAN-2003 $20.00 OML-AD $3.30
BUY LEAP JAN-2004 $20.00 KLW-AD $4.70


New Watchlist Plays

None


Drops

BRCM $37.06 Despite signs that key areas of BRCM's business are
starting to see an increase in demand, the stock couldn't dodge
the major selloff in Semiconductor stocks this week.  It looked
like BRCM might be saved by support Thursday as it dipped to
just under our stop before recovering throughout the day.  Alas,
it looks like the bounce was just short-covering as the decline
was renewed on Friday.  Our $40 stop got taken out at the open
and then we watched as the stock continued to deteriorate.  BRCM
was one of the last plays to survive our poor entry discipline
(chasing entries higher) in June.  While it provided a modest
gain at its peak and we could have posted a gain by dramatically
tightening that stop 2 weeks ago, the odds of a winning play
were further stacked against us with our less than ideal entry.
BRCM still looks like it will be one of the winners in the
Networking and Semiconductor sectors, but we need to stand
aside until the technical picture improves.  With our
improvement in both entry and exit discipline, we'll do much
better when we play BRCM again.

CSCO $17.00 Like our SUNW play, CSCO is a great example of what
we want to target in the LEAPS portfolio.  We got in right at
$16 with daily and weekly Stochastics recovering from oversold
territory and rode it up to just over $20 before the sellers
took control.  By the time we went to press 2 weeks ago, we were
looking at better than a 50% gain in our 2003 LEAP.  We
tightened our stop to the $17 level and then watched the long,
slow decline until our stop was triggered on Wednesday
afternoon.  CSCO closed right on our $17 stop, letting us out
of the play for a small loss.  Continuing with our theme this
week, we should have gotten aggressive with our stop, bringing
it up to $19.  That would have had us out with a juicy profit
and have us looking to put our profits to work elsewhere.  

DELL $23.00 Our DELL play has been struggling for months now,
with each attempted advance stopped cold by eager sellers.
Investors were carefully watching for the company to say
something positive in their earnings report last Thursday, and
when it didn't happen, selling volume shot up and the price
plunged through our $24 stop.  It is now looking like investors
will have to wait until the first or second quarter of 2002
before the PC sector begins to get healthy again.  DELL is
likely to be the winner in the ongoing PC war, but it is going
to take some time.  In the meantime, we'll step to the sidelines
and wait for that weekly Stochastic to flatten out in oversold
territory before we play the stock again.

SUNW $14.77 This play is a perfect example of a picture perfect
entry point into a play that did exactly what we expected, yet
resulted in a loss.  What went wrong?  After rallying north of
$18, there was a 40% profit in the play and I should have
tightened the stop significantly more than I did.  Although I
did bring it up to $15.50, I really should have been stingy and
brought it all the way up to $17.  Sure, it would be a virtual
guarantee that we'd be stopped out, but we'd be out with a
profit.  As long as these markets remain rangebound, holding on
for fatter profits is likely to be a frustrating and losing
game.  For the record, SUNW crashed through our $15.50 stop on
Wednesday, coming to rest for the day at $14.77.  Because we
take our entries and exits on the closing prices, you would
likely do better than we did.  While we entered at $14.90 and
exited at $14.77, those actually trading the position could have
managed a solid entry at $14.50 and an exit just as the stock
fell through $15.50, keeping enough extra premium to turn a
slight loss into a slight profit, despite our less than ideal
stop loss.  Next time will be better!


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The Option Investor Newsletter                   Sunday 08-19-2001
Sunday                                                      5 of 5

To view this email newsletter in HTML format with embedded
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*************
COVERED CALLS
*************

Trading Basics:  Selling "Short" In A Bearish Market
By Mark Wnetrzak

One of our new subscribers asked for an explanation of "selling
short" and with the recent downward trend in share values, this
strategy has become very popular among retail traders.

Selling short is a technique that seeks to sell high and buy low,
the reverse of what most investors seek to do.  To participate in
this strategy, an investor sells borrowed stock in anticipation of
a drop in price.  A broker supplies the stock in a loan to your
margin account.  If the stock falls below the price at which it
was sold, it is repurchased and eventually returned to the broker
as a replacement for the stock that was originally borrowed.  The
profit is the difference between the sale price and the purchase
price.  While this technique may seem easy, short selling is one
of the most misunderstood of all types of securities transactions
and is often considered unscrupulous.  But, when properly executed,
selling short can preserve capital and be very profitable.

Traders who "short" stocks are subject to strict operational rules.
All short sales must be made in a margin account, generally with
stock borrowed from another customer of the brokerage firm.  If
the shorted stock is in great demand, your broker may have to pay
a premium for borrowing it; usually $1 per 100 shares per business
day.  All dividends on shorted stock must be paid to the owner and
for that reason, most short-sellers concentrate on stocks that pay
minimal or low dividends.  As a borrower, you are not entitled to
any rights or other benefits of ownership.  In most cases, short
sales must be made on the up-tick or zero tick; the last price of
stock must be higher than that of the previous sale.  One exception
is that a broker may sell at the same price, provided the previous
move in the price was upward.

The risks of short-selling are many but the most obvious problem
is that when you are "short," your potential loses are infinite.
Short-sellers lose when the stock price rises, and a stock is not
limited on how high it can rise.  In addition, selling stocks short
involves margin (borrowed money), thus it's easy for losses to get
out of control quickly.  You must maintain an adequate collateral
amount in your portfolio at all times or you will be subject to a
margin call.  One final concern is the dreaded "short squeeze," a
situation in which a lack of supply and excess demand in an issue
tends to force prices upward rapidly.  There are instances of this
phenomenon regularly and if a heavily shorted stock starts to move
higher, its share value can escalate without warning when sellers
try to close their positions.  If enough short sellers try to buy
the stock in a short period, the overwhelming demand can drive the
price to extreme levels and traders who are forced to cover simply
exacerbate the situation.

As a general rule, the best "short" candidates are stocks which
have increased in value quickly, without any fundamental basis for
the change in character.  Over the past few months, Internet and
other glamorous technology stocks were the most common candidates
in this group.  Volatile issues in the broader market can also be
very prosperous when correctly selected through chart analysis and
market timing.  After reaching a technical peak or "top" formation,
these types of stocks can fall rapidly as traders unload positions
in favor of more popular plays.  Issues that decline more severely
than other companies in similar industries and those stocks that
under-perform the major market averages are also potential "short"
candidates.  Some of the best historical indicators for evaluating
short-selling issues include Relative Strength and Insider Selling.
When knowledgeable people in the company sell more stock than they
buy, a decline in share value price is generally forthcoming.  Of
course, there are many other factors that affect stock prices and
since short-selling is widely misunderstood by the average trader,
the technique is one that should be thoroughly understood before
it is included in your arsenal of investing strategies.

Good Luck!


SUMMARY OF PREVIOUS CANDIDATES
*****
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  19.85   AUG  17.50  2.15  *$  1.59   8.7%
SPCT   15.49  16.00   AUG  15.00  1.25  *$  0.76   7.7%
ILUM   30.95  30.79   AUG  30.00  1.95  *$  1.00   7.5%
NMTC   27.85  28.87   AUG  25.00  3.60  *$  0.75   6.7%
NFLD   18.45  18.16   AUG  17.50  2.20  *$  1.25   6.7%
MCAF   14.31  16.17   AUG  12.50  2.70  *$  0.89   6.7%
HTCH   17.80  19.25   AUG  17.50  1.45  *$  1.15   6.1%
NBTY   15.45  17.48   AUG  15.00  1.05  *$  0.60   6.0%
VNT    24.22  20.03   AUG  20.00  5.10  *$  0.88   5.0%
CLPA    6.08   5.88   AUG   5.00  1.40  *$  0.32   5.0%
TERN    6.12   4.88   AUG   5.00  1.60   $  0.36   4.9%
AHAA   34.80  31.70   AUG  30.00  6.10  *$  1.30   4.9%
PHTN   38.17  38.34   AUG  35.00  4.30  *$  1.13   4.8%
DSPG   23.21  23.23   AUG  22.50  1.65  *$  0.94   4.7%
POWI   22.22  21.75   AUG  20.00  2.85  *$  0.63   4.7%
GZMO   12.80  11.13   AUG  10.00  3.40  *$  0.60   4.6%
RCGI   31.16  31.25   AUG  30.00  2.35  *$  1.19   4.5%
NFLD   17.51  18.16   AUG  15.00  3.10  *$  0.59   4.4%
ELNT   38.08  37.11   AUG  35.00  4.10  *$  1.02   4.3%
LU      7.61   6.34   AUG   7.50  0.75   $ -0.52   0.0%
CFLO    5.20   3.77   AUG   5.00  0.90   $ -0.53   0.0%
RFMD   29.33  23.01   AUG  25.00  5.20   $ -1.12   0.0%
CY     26.16  22.99   AUG  25.00  1.95   $ -1.22   0.0%

HLIT   16.04  15.04   SEP  15.00  2.20  *$  1.16   6.1%
IGEN   32.28  30.40   SEP  30.00  4.50  *$  2.22   5.8%
ISSI   15.00  14.96   SEP  15.00  1.25   $  1.21   5.5%
PMCS   34.40  30.99   SEP  30.00  6.50  *$  2.10   5.5%
SPCT   15.85  16.00   SEP  15.00  2.05  *$  1.20   5.4%
PHTN   39.97  38.34   SEP  35.00  7.70  *$  2.73   5.3%
APCS   18.36  18.52   SEP  17.50  2.00  *$  1.14   5.0%
NTIQ   36.40  34.29   SEP  30.00  8.10  *$  1.70   4.4%
NTIQ   38.60  34.29   SEP  35.00  6.50   $  2.19   4.2%
SEAC   23.55  19.85   SEP  20.00  4.70   $  1.00   3.8%
PTEC   15.05  14.36   SEP  15.00  1.20   $  0.51   2.7%
NETA   16.36  14.45   SEP  15.00  2.45   $  0.54   2.4%

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

Comments:

An interesting expiration week, to say the least.  The broader
Market continues to slide down an increasingly slippery slope
and it appears that a test of the April lows is forthcoming.  
Some of the more speculative issues such as Cacheflow (NASDAQ:
CFLO), Terayon Communications (NASDAQ:TERN), or Lucent (NYSE:LU)
may offer favorable adjustments (rolling forward/down), depending
on your risk-reward tolerance.  Still, it may be best to cut any
losses early and just move on if capital preservation is of
paramount concern.  Within the current bearish environment, 
many of the September positions are entering consolidation 
phases and testing their support areas.  Seachange International
(NASDAQ:SEAC) is at a key moment on weakening technicals and 
using any short-term oversold bounce to exit the position may
be wise.  If your anxiety level is rising as the Market indices
drop, reducing exposure should offer a less stressful existence.
There is always tomorrow, next week, next month, etc.  

Positions Closed: Boston Communications (NASDAQ:BCGI), Digimarc
(NASDAQ:DMRC), Cytogen (NASDAQ:CYTO), Corvas (NASDAQ:CVAS),
Pacificare Health Systems (NASDAQ:PHSY), Network Peripherals
(NASDAQ:NPIX), and F5 Networks (NASDAQ:FFIV).

Note: BCGI and FFIV were both positive; this month's Murphy's
Law candidates.


NEW CANDIDATES
*********

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

ARTC   31.67  SEP 30.00   ARU IF  3.50 68    28.17   35    5.6%
CCRD   10.20  SEP 10.00   UCD IB  1.15 54     9.05   35    9.1%
CCUR   11.60  SEP 10.00   URC IB  2.15 3244   9.45   35    5.1%
DAVX   10.26  SEP 10.00    VQ IB  0.75 4      9.51   35    4.5%
FFIV   14.59  SEP 12.50   FLK IV  2.85 56    11.74   35    5.6%
NMTC   28.87  SEP 25.00   QEK IE  5.10 413   23.77   35    4.5%
PHTN   38.34  SEP 32.50   PDU IZ  7.50 6     30.84   35    4.7%

Sequenced by Target Yield (monthly basis)
*****
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

CCRD   10.20  SEP 10.00   UCD IB  1.15 54     9.05   35    9.1%
ARTC   31.67  SEP 30.00   ARU IF  3.50 68    28.17   35    5.6%
FFIV   14.59  SEP 12.50   FLK IV  2.85 56    11.74   35    5.6%
CCUR   11.60  SEP 10.00   URC IB  2.15 3244   9.45   35    5.1%
PHTN   38.34  SEP 32.50   PDU IZ  7.50 6     30.84   35    4.7%
DAVX   10.26  SEP 10.00    VQ IB  0.75 4      9.51   35    4.5%
NMTC   28.87  SEP 25.00   QEK IE  5.10 413   23.77   35    4.5%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even 
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

*****
ARTC - ArthroCare  $31.67  *** Expanded FDA Clearances ***

ArthroCare (NASDAQ:ARTC) is a medical device company that develops,
manufactures and markets products based on its patented Coblation
technology.  ArthroCare's soft-tissue surgery systems consist of a 
controller unit and an assortment of single-use disposable devices
that are specialized for specific types of surgery.  The company
believes its Coblation technology can replace the multiple surgical
tools traditionally used in soft-tissue surgery with one multi-
purpose surgical system.  Coblation technology is applicable across
many soft-tissue surgical markets.  ArthroCare rallied strongly at
the end of July after announcing that U.S. regulators granted
expanded clearance to sell its surgery devices for new uses
including orthopedic indications in the knee, shoulder, wrist, 
ankle, elbow and hip.  The company said it believes the expanded
FDA clearances will allow it to aggressively market its products
for use in all cleared indications.  We simply favor the bullish
chart (especially in the current market conditions) and a cost
basis close to technical support.

SEP 30.00 ARU IF LB=3.50 OI=68 CB=28.17 DE=35 TY=5.6%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=ARTC
*****
CCRD - Concord Communications  $10.20  *** Bottom Fishing ***

Concord Communications (NASDAQ:CCRD) is an industry leader 
in automating technology management of the internet infra-
structure.  With its eHealth Suite(TM), Concord offers the 
only solution to combine real-time information with historical
context for integrated fault and performance management across
systems, applications and networks.  This end-to-end view 
provides the critical insights needed to power day-to-day 
business and e-commerce operations for some of today's most
successful service providers and corporations worldwide.  
Concord Communications has been forming a Stage I base
for over a year.  We simply favor the recent bullish trend
and the move above the 150-dma.  A reasonable speculation
play that offers a cost basis close to technical support.

SEP 10.00 UCD IB LB=1.15 OI=54 CB=9.05 DE=35 TY=9.1%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=CCRD
*****
CCUR - Concurrent Computer  $11.60  *** Break-out! ***

Concurrent Computer (NASDAQ:CCUR) is a leading provider of high
performance computer systems, software, and servers.  Concurrent 
Computer's XSTREME Division is a leading supplier in the emerging 
digital video server marketplace which includes broadband/cable,
corporate training, education, hospitality, and in-flight 
entertainment industries.  Concurrent rallied strongly in July
after announcing that it will exceed its previous 4th quarter
revenue guidance of $18 million and either meet or improve upon
its previous estimate of a $.02 loss per share.  The company 
also completed a private placement financing of $25.9 million.
The stock has broken out of a year-long base on heavy volume 
and still has some room to move before hitting significant
near-term resistance.  With earnings due next Wednesday, this
play offers a reasonable cost basis from which to speculate on
the company's future.

SEP 10.00 URC IB LB=2.15 OI=3244 CB=9.45 DE=35 TY=5.1%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=CCUR
*****
DAVX - Davox  $10.26  *** A Return To Profitability ***

Davox (NASDAQ:DAVX) is a proven provider of customer interaction
management solutions that help companies more effectively manage
customer interactions via telephone, email, and the Internet.  
Davox solutions are used by more than 1,000 companies worldwide,
including banks, telecommunications firms, utilities, and retailers,
to provide premium customer service, and to successfully establish
and build valuable customer relationships.  In July, Davox reported
revenues of $25.6 million for the 2nd quarter of 2001, and a net 
income of $0.6 million or $0.05 per diluted share.  The company
said that its improvement in operating results was driven primarily
by an increase in revenue coupled with a continued focus on sound 
fiscal management by controlling operating expenses.  The company
was able to return to operating profitability one quarter ahead of 
schedule.  We simply favor the recent bullish move back above 
the 150-dma (on increasing volume) and the improving fundamental
outlook for the company.

SEP 10.00 VQ IB LB=0.75 OI=4 CB=9.51 DE=35 TY=4.5%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=DAVX
*****
FFIV - F5 Networks  $14.59  *** What's Up? ***

F5 Networks (NASDAQ:FFIV) is the leader in Internet Traffic and
Content Management (iTCM), and delivers application aware networks
through its open Internet Control Architecture.  F5 features the
industry's leading set of integrated products and services that 
manage, control and optimize Internet traffic and content.  Their
products remove bandwidth congestion and optimize the availability 
and speed of mission-critical Internet servers and applications, 
including web publishing, content delivery, e-commerce, caching,
firewalls and more.  The stock is showing new technical strength
after reporting earnings in line with estimates, considering
the current economic conditions.  More recently, the stock has
rallied on increasing volume and moved back above its 30-dma.
With no news to explain the mid-August move, F5 is signaling
a positive change of character.  With the changing technical
outlook and the positive test of the May support area, this
"revenge" play offers an acceptable cost basis in the issue.

SEP 12.50 FLK IV LB=2.85 OI=56 CB=11.74 DE=35 TY=5.6%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=FFIV
*****
NMTC - Numerical Technologies  $28.87 *** 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 some new products and the move above the May
and June highs, which now becomes technical support, bodes well
for the issue.

SEP 25.00 QEK IE LB=5.10 OI=413 CB=23.77 DE=35 TY=4.5%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=NMTC
*****
PHTN - Photon Dynamics  $38.34  *** 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 32.50 PDU IZ LB=7.50 OI=6 CB=30.84 DE=35 TY=4.7%

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

*****************
SUPPLEMENTAL COVERED CALL CANDIDATES
*****************

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

GSPN   13.63  SEP 12.50   GLQ IV  2.25 18    11.38   35    8.6%
NTAP   12.05  SEP 10.00   NUL IB  2.70 10424  9.35   35    6.0%
AFFX   22.00  SEP 20.00   FIQ ID  3.30 71    18.70   35    6.0%
IMNX   15.95  SEP 15.00   IUU IC  1.85 4858  14.10   35    5.5%
PEGS   11.68  SEP 10.00   PUG IB  2.20 195    9.48   35    4.8%
GAP    19.99  SEP 20.00   GAP ID  1.05 10    18.94   35    4.8%
NTIQ   34.29  SEP 30.00   CQT IF  5.80 12    28.49   35    4.6%


*****************
NAKED PUT SECTION
*****************

Market Trends: Looking For A Bottom...
By Ray Cummins

One of the most important parts of being a successful trader is
understanding the cycles that occur as a natural part of market
growth.  The recent slump in technology stocks is one of a number
of great examples of a historically repetitive rhythm in price
action and the necessary process of a "correction" is healthy for
stocks in the long-term.  To avoid major losses, you must be able
to discern the broader rhythms of the market and approach trading
in a counterintuitive manner.  In simple terms, you should be a
"contrarian" investor.  One who goes long in the closing stages
of a bearish movement, when everyone else is pessimistic on the
market's prospects, and takes profits after a bullish rally, when
the public is confident that the trend is will continue forever.

The first step in adopting this attitude is to learn the various
stages of the market.  Using the NASDAQ Composite as an example,
the first phase of significant bullish activity began back in
October of 1999.  That's when technology stocks started to become
popular and Wall Street established a premium valuation on the
most dominant companies in the best, long-term growth industries.
Many of the limiting factors of the previous "range-bound" trend
were still present and most investors were worried that the rally
would be short-lived.  As we moved through the Y2K scare and into
January, traders became gradually more bullish, even though some
were afraid to enter the market at those extreme levels, feeling
that they had already missed most of the rally.

At that point, a change in market sentiment occurs.  The majority
of investors had previously waited for small corrections to open
new positions but with the continuation rally in early February,
almost everyone becomes convinced that a bull market is underway.
Looking back, the technology group has been moving up for months
and the bears have been wrong time and again.  Investor optimism
is industry-wide and almost every sector enjoys bullish activity.
Even the mediocre issues are priced as if they are the dominant
companies in their respective market space.  During this period,
the media is full of positive stories and the major brokerages are
upgrading every stock in their portfolio, regardless of its price
or fundamental outlook.  The few remaining pessimists are still
chanting "correction" but nobody is listening any more.  In fact,
many of them succumb to the pressure of the masses and eventually
issue a bullish forecast for the market.  At this stage, the wise
trader must avoid the impulse to buy at the height of the rally,
just because the market is popular and everyone is talking about
their successes.  As the trend begins to reach its apex, trading
becomes choppy and even the leading stocks encounter weakness in
buying support.  The primary technical indicators start moving
sideways and the index fails to achieve new highs.  As concerns
over stock valuations begin to creep into the daily news, traders
with experience quietly distribute their holdings, placing the
profits in a conservative money market account until a new trend
is established.

In March 2000, the speculative bubble finally bursts.  Technology
stocks fall sharply and the decline continues much further than
even the most negative analysts had forecast.  The brutal collapse
is exacerbated by the fact that heavily leveraged portfolios are
being "called" and investors must liquidate to cover the losses.
As the first bottom is established in mid-April, the majority of
traders are afraid to participate in any of the recovery rallies
and the lack of conviction becomes apparent.  Everyone is fearful
of the dreaded "dead cat bounce."  Soon the downtrend is renewed
and a new 2-year low is achieved early in 2001.  After a fleeting
respite, the selling pressure resumes and panic eventually drives
the public to capitulate near the technical bottom in early April,
at the worst possible time.  When the rampant selling finally
begins to subside, nobody is left to buy at the "bargain" prices.
The market activity becomes subdued, trading volumes are scant
and bearish traders keep any rallies in check by contending that
the downward momentum will continue, ultimately terminating with
a repeat of the previous sell-off.

Strangely enough, the final stages of bearish activity are often
the most difficult to identify.  The challenge is to buy during
this hysteria, when it appears the market is at its worst.  Of
course, that is indeed the case, and it is the primary reason you
should be buying while everyone else is selling.  The basis for
this type of thinking is a fundamental element of the contrarian
viewpoint; one that opposes the views of the collective majority.
By approaching the stock market in this manner, you can avoid the
tendency to react emotionally in the heat of the moment and rely
instead on sound and sensible investment methods, based on proven
trading strategies and effective analysis.

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.


SUMMARY OF PREVIOUS CANDIDATES
*****

Stock  Price  Last   Call  Strike Price   Gain   Potential
Symbol Picked Price  Month Sold   Picked  /Loss  Mon. Yield

PPD    20.16  21.09   AUG  17.50  0.70  *$  0.70  24.9%
HLIT   15.08  15.04   AUG  12.50  0.40  *$  0.40  15.0%
PMCS   36.57  30.99   AUG  30.00  0.55  *$  0.55  13.9%
KOPN   15.01  13.25   AUG  12.50  0.35  *$  0.35  13.2%
ESST   13.95  14.52   AUG  12.50  0.25  *$  0.25  12.4%
SAGI   15.41  17.75   AUG  12.50  0.30  *$  0.30  12.2%
IDTI   36.14  31.08   AUG  30.00  0.70  *$  0.70  11.2%
NMTC   24.34  28.87   AUG  20.00  0.45  *$  0.45  11.1%
DTHK   14.21  12.70   AUG  10.00  0.30  *$  0.30  10.4%
NMTC   22.84  28.87   AUG  17.50  0.45  *$  0.45   9.7%
NMTC   23.00  28.87   AUG  17.50  0.55  *$  0.55   9.3%
OEI    19.68  19.72   AUG  17.50  0.25  *$  0.25   9.1%
APCS   16.93  18.52   AUG  15.00  0.55  *$  0.55   8.9%
SEAC   22.00  19.85   AUG  17.50  0.35  *$  0.35   8.0%
NTIQ   34.14  34.29   AUG  25.00  0.65  *$  0.65   7.6%
ICST   18.54  19.00   AUG  15.00  0.35  *$  0.35   7.2%
AFCI   26.30  24.98   AUG  22.50  0.35  *$  0.35   7.2%
AHAA   33.47  31.70   AUG  25.00  0.55  *$  0.55   6.6%
PHTN   33.18  38.34   AUG  25.00  0.40  *$  0.40   6.2%
ZRAN   32.97  34.35   AUG  25.00  0.60  *$  0.60   6.0%
ILUM   30.30  30.79   AUG  25.00  0.40  *$  0.40   6.0%
CTXS   33.53  30.83   AUG  25.00  0.45  *$  0.45   5.5%
PCL    28.49  29.25   AUG  25.00  0.60  *$  0.60   5.1%
BRCM   41.00  37.06   AUG  25.00  0.40  *$  0.40   5.1%
MRVL   33.32  26.85   AUG  27.50  0.50   $ -0.15   0.0%
SEAC   27.18  19.85   AUG  22.50  0.40   $ -2.25   0.0%

PPD    20.50  21.09   SEP  15.00  0.80  *$  0.80  11.8%
MDCC   20.50  20.96   SEP  17.50  0.95  *$  0.95  11.2%
CENT    8.98   9.20   SEP   7.50  0.35  *$  0.35  10.3%
AFCI   25.75  24.98   SEP  22.50  0.90  *$  0.90   8.2%
ISIL   39.20  36.51   SEP  30.00  0.90  *$  0.90   7.5%
IMCL   44.89  45.50   SEP  30.00  0.70  *$  0.70   5.2%
PWAV   18.14  14.50   SEP  15.00  0.75   $  0.25   3.7%

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

Comments:

The downward trend in NASDAQ issues continued this week but
fortunately, there was only one new victim of the bearish
activity.  Seachange (NASDAQ:SEAC) enjoyed buying pressure
Monday morning however, it was relatively short-lived and the
issue eventually slumped to a recent low near $20 on Friday.
Marvel (NASDAQ:MRVL) was a surprise loser, falling from a
high near $33 on Tuesday amid high volume after announcing
that net revenue for the second quarter of fiscal 2002 was
$68.7 million, an increase of 113% over the second quarter of
fiscal 2001 and a 7% sequential increase from net revenue for
the first quarter of 2002.  That is definitely not negative
news and yet the stock slid quickly into the abyss with other
semiconductor issues.  On the bright side, there was ample
opportunity to close the (short) Put position for a profit
during Friday's session.  One of the stocks that had little
hope of recovering in the wake of the broad market sell-off
was Silicon Laboratories (NASDAQ:SLAB).  SLAB moved higher
early in the week but eventually retraced its gains to close
almost exactly where it finished the previous Friday.  In
last week's selection of new plays (September expiration),
Powerwave (NASDAQ:PWAV) appeared to be bracing for a test of
the yearly highs but some negative outlooks issued by the
bellwethers of the telecom equipment industry put an abrupt
end to the rally.  The position was closed Thursday, in the
interest of capital preservation, as PWAV fell through recent
technical support near $16.

Closed Plays: Amazon.com (NASDAQ:AMZN), AremisSoft (NASDAQ:AREM),
Plug Power (NASDAQ:PLUG), Silicon Laboratories (NASDAQ:SLAB).


NEW CANDIDATES
*********

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

ALLY   36.45  SEP 30.00   AQL UF  1.00 43    29.00   35    9.5%
APCS   18.52  SEP 15.00   CUT UC  0.30 0     14.70   35    6.2%
GERN   14.50  SEP 12.50   GQD UV  0.55 221   11.95   35   11.0%
NEM    21.48  SEP 20.00   NEM UD  0.55 1573  19.45   35    6.2%
PPD    21.09  SEP 15.00   PPD UC  0.40 562   14.60   35    7.5%
PRGX   13.75  SEP 12.50   FPQ UV  0.30 0     12.20   35    5.7%
SAGI   17.75  SEP 15.00   UEJ UC  0.40 30    14.60   35    7.3%

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

GERN   14.50  SEP 12.50   GQD UV  0.55 221   11.95   35   11.0%
ALLY   36.45  SEP 30.00   AQL UF  1.00 43    29.00   35    9.5%
PPD    21.09  SEP 15.00   PPD UC  0.40 562   14.60   35    7.5%
SAGI   17.75  SEP 15.00   UEJ UC  0.40 30    14.60   35    7.3%
APCS   18.52  SEP 15.00   CUT UC  0.30 0     14.70   35    6.2%
NEM    21.48  SEP 20.00   NEM UD  0.55 1573  19.45   35    6.2%
PRGX   13.75  SEP 12.50   FPQ UV  0.30 0     12.20   35    5.7%


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).

*****
ALLY - Alliance Gaming  $36.45  *** On The Rebound! ***

Alliance Gaming (NASDAQ:ALLY) is a diversified, worldwide gaming
company that designs, manufactures and distributes machines and
computerized monitoring systems for gaming; owns and operates a
significant installed base of gaming machines; owns two casinos;
and in Germany, is a full-service supplier of wall-mounted gaming
machines and amusement games.  Operating under the name Bally
Gaming and Systems, the company is a global business in designing,
manufacturing and distributing gaming machines, having marketed
over 75,000 gaming machines during the past five years.  It also
designs, integrates and sells highly specialized computerized
monitoring systems that provide casinos with networked accounting
and security services for their gaming machines.  ALLY reported
quarterly earnings last week and the company set new highs for
EBITDA, operating income, net income and earnings per share and,
after four years of combined operations since its acquisition of
Bally Gaming International, the company has posted a significant
fiscal year profit.  The company is also planning to split its
common stock 2-for-1 on August 20, 2001.

SEP 30.00 AQL UF LB=1.00 OI=43 CB=29.00 DE=35 TY=9.5%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=ALLY
*****
APCS - Alamosa Holdings  $18.52  *** Entry Point! ***

Alamosa Holdings (NASDAQ:APCS) is a holding company, and through
its many subsidiaries, provides wireless personal communication
services (PCS) in the Southwestern, Northwestern and Midwestern
United States.  The company is a network partner of Sprint PCS,
and through affiliates, provides wireless services in more than
4,000 cities and communities across the United States.  Alamosa
offers products and services throughout its territories under the
Sprint and Sprint PCS brand names, and its services are designed
to mirror the service offerings of Sprint and to integrate with
the Sprint PCS network.  Though APCS reported a net loss of $34.3
million, it said total revenues rose to $83.5 million from $17.6 
million.  The company was also upbeat about its subscriber base
which rose 21% to about 316,000 at the end of the second quarter.
The recent rally ended Friday and with a consolidation likely to
follow, we will target-shoot a cost basis in the issue with this
conservative position.  Plan to initiate the order with a higher
premium, to allow for a brief pullback in the issue.

SEP 15.00 CUT UC LB=0.30 OI=0 CB=14.70 DE=35 TY=6.2%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=APCS
*****
GERN - Geron  $14.50  *** Stem Cell Research! ***

Geron (NASDAQ:GERN) is a biopharmaceutical company focused on
discovering, developing and commercializing therapeutic and
diagnostic products for applications in oncology and regenerative
medicine, and research tools for drug discovery.  Geron's product
development programs are based upon patented core technologies:
telomerase, human embryonic stem cells and nuclear transfer.  By
activating telomerase, the company seeks to increase the lifespan
of normal cells, which have prematurely aged in the body to treat
chronic degenerative diseases.  By inhibiting telomerase, Geron
also hopes to kill cancer cells where telomerase is abnormally
turned on and to diagnose cancer by measuring telomerase activity.
Stem cell research has been in the news lately and Geron is one
of the companies involved in the debate.  Geron financed much of
the work of University of Wisconsin researcher James Thomson, who
first isolated human embryonic stem cells, which many scientists
believe can be used to cure Alzheimer's and Parkinson's disease,
spinal cord injuries and other disorders.  Geron has licensing
rights to six types of cells that can be made from those original
lines but there is a dispute over whether the company can add
cell types to its license agreement.  Due diligence is a must
with this position.

SEP 12.50 GQD UV LB=0.55 OI=221 CB=11.95 DE=35 TY=11.0%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=GERN
*****
NEM - Newmont Gold  $21.48  *** Broad Market Hedge! ***

Newmont Mining (NYSE:NEM) is engaged in the production of gold,
the exploration for gold and the acquisition and development of
gold properties worldwide.  Last year, the company produced gold
from mines in Nevada and California, as well as outside of the
United States from operations in Peru, Indonesia, Mexico and
Uzbekistan.  The company also produced copper concentrates from
a copper/gold deposit at a second location in Indonesia.  As a
result of the merger with Battle Mountain, the company now has
gold production from mines in Canada, Australia and Bolivia.  In
both 2000 and 1999, approximately 65% of its gold production came
from North American operations and 35% from overseas operations.
Gold is always a popular hedge when the broad market turns south
and on Friday, gold futures prices rose by more than $4 an ounce
reaching their highest level in 12 weeks.  The trend will likely
continue in the near-term and conservative investors can benefit
from that activity with this bullish position.

SEP 20.00 NEM UD LB=0.55 OI=1573 CB=19.45 DE=35 TY=6.2%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=NEM
*****
PPD - Pre-Paid Legal  $21.09  *** 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 in early August when PPD announced it will not pursue 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.  In addition, the company remains debt free, cash flow
positive and serves a large, growing market with a unique product.
Without the concerns of a negative earnings surprise, the issue
should remain comfortably in its current trading range.

SEP 15.00 PPD UC LB=0.40 OI=562 CB=14.60 DE=35 TY=7.5%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=PPD
*****
PRGX - Profit Recovery Group  $13.75  *** Rally Mode! ***

The Profit Recovery Group (NASDAQ:PRGX) is a provider of recovery
audit, expense containment and knowledge application services to
large and mid-size businesses having numerous payment transactions
with many vendors.  The company's specialists use sophisticated
proprietary technology and advanced recovery techniques and other
methodologies to identify overpayments to specific vendors and tax
authorities.  In addition, the specialists review clients' current
practices and processes related to procurement and other expenses
in order to identify solutions to manage and reduce expense levels,
as well as apply knowledge and expertise of industry practices to
assist clients in improving their business efficiencies.  With the
profit levels falling in almost every industry, PRGX has a unique
product that can be used almost universally.  The recent rally may
be due to the fact that the U.S. Federal Trade Commission and the
U.S. Justice Department have granted an early termination of the
necessary waiting period with respect to PRG's planned acquisition
of Howard Schultz & Associates International.  Regardless of the
reason, this issue appears poised for future gains.  Target-shoot
a slightly higher premium initially, to allow for a consolidation
in the issue.

SEP 12.50 FPQ UV LB=0.30 OI=0 CB=12.20 DE=35 TY=5.7%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=PRGX
*****
SAGI - Sage  $17.75   *** Second Chance Entry! ***

Sage (NASDAQ:SAGI) is a leading provider of digital display
processors, enabling superior picture quality for a variety of
consumer technology and PC-display products ranging from web
appliances to TVs and flat panel monitors.  Sage is developing
products that bring the home theater experience to the mass
consumer and PC-display market through digitally enhanced TV,
projection displays, DVD players and internet appliances.  NEC
Corporation has recently selected Sage's Jaguar processor for
their new Valuestar monitors.  SAGI made another powerful move
last week, closing at a yearly high amid a bullish outlook for
their niche industry.  Sage also recently announced sales growth
of 21% compared to last quarter and an increase in IC revenue of
49% sequentially.  On Monday, SAGI reported that Sharp Electronics
Corporation, a world leader in LCD technology, has entered into
volume production using Sage's Jaguar ASM display processor and
FLI2200 deinterlacer in Sharp's 15" XGA flat panel LCD monitor.
This position offers a favorable cost basis in the issue at a
price near recent technical support.

SEP 15.00 UEJ UC LB=0.40 OI=30 CB=14.60 DE=35 TY=7.3%

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

*****************
SUPPLEMENTAL NAKED PUT CANDIDATES
*****************

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

LGTO    9.13  SEP  5.00   EQN UA  0.35 53     4.65   35   14.0%
ISIL   36.51  SEP 30.00   UFH UF  1.10 49    28.90   35   10.4%
CYGN    9.28  SEP  7.50   YNQ UU  0.25 400    7.25   35   10.0%
PMCS   30.99  SEP 22.50   SQL UX  0.60 173   21.90   35    7.7%
ESST   14.52  SEP 12.50   SEQ UV  0.35 10    12.15   35    7.4%
FMKT   18.26  SEP 12.50   FAQ UV  0.30 1     12.20   35    6.6%
SMTC   33.10  SEP 27.50   QTU US  0.60 164   26.90   35    6.3%


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************************
SPREADS/STRADDLES/COMBOS
************************


The Sell-Off Continues...

******************************************************************
                         - MARKET RECAP -
******************************************************************
Friday, August 17, 2001

U.S. stocks retreated again today as disappointing earnings news
weighed heavily on investors.  The NASDAQ retreated 63 points to
1,867 amid a sell-off in computer hardware and telecom equipment
shares.  The Dow Jones industrials finished 151 points lower at
10,240 with Intel, General Motors and Microsoft leading the blue
chip average lower.  The broader market also succumbed to renewed
selling pressure, with Ford and The Gap among the biggest losers.
The S&P 500 index was down 19 points to 1,161.  Trading volume on
the Big Board reached 970 million shares, with declines outpacing
advances 19 to 11.  Activity on the NASDAQ was relatively light
with only 1.3 billion shares traded and losers topping winners 23
to 12.  In the bond market, the U.S. 30-year Treasury was up 26/32,
pushing its yield down to 5.424%.
      

Portfolio Activity:

The Spreads section enjoyed an outstanding month with a number of
big winners in the Straddles portfolio.  Positions that profited
from this week's increased volatility included Alpha Industries
(NASDAQ:AHAA), AOL-Time Warner (NYSE:AOL), Cirrus (NASDAQ:CRUS),
and Amdocs (NASDAQ:DOCS).  The lone credit-strangle; Electronic
Data Services (NYSE:EDS) finished at maximum profit and among the
synthetic plays, Altera (NASDAQ:ALTR) and Compuware (NASDAQ:CPWR)
provided acceptable gains.  In the credit-spreads category, the
Genzyme (NASDAQ:GENZ) position was our only major disappointment
and the bullish position required an adjustment (down and forward)
to a lower strike price in September.  Medtronics (NYSE:MDT) also
offered a similar opportunity but the closing loss was negligible
and we did not see any reason to track the play further.  Most of
the issues in the calendar spreads section were older positions,
but they all offered profitable opportunities while in play and
the best performing stock was John Hancock Financial (NYSE:JHF),
which finished the expiration period exactly at the sold strike
price.  One play we are following closely is United Therapeutics
(NASDAQ:UTHR) as the underlying issue has been very volatile and
there is excellent potential for upside activity in the coming
sessions.

 
Summary of Monthly Positions (as of Friday, August 17):

******************************************************************
			      - DEBIT STRADDLES -
******************************************************************
Stock  Pick    Last    Position    Debit    M/V     G/L    Status

AHAA	$34.90  $31.70  AUG35C/35P   $2.75   $4.50   $1.75   Closed
AOL	$44.31  $39.70  AUG45C/45P   $4.25   $6.50   $2.25   Closed
BK	$45.20  $44.00  AUG45C/45P   $2.65   $2.75   $0.10   Closed
CRUS	$17.20  $14.01  AUG17C/17P   $1.60   $2.85   $1.25   Closed
CWP	$16.22  $14.54  AUG17C/15P   $0.95   $1.10   $0.15   Closed
DOX	$45.37  $37.80  SEP45C/45P   $7.30   $8.50   $0.80 	Open
DL	$17.44  $16.95  AUG17C/17P   $1.10   $1.20   $0.10   Closed
EMC	$20.01  $16.50  AUG20C/20P   $2.20   $4.10   $1.90   Closed
JEC	$58.90  $60.50  SEP50C/50P   $8.25   $8.10  ($0.15)	Open
LOW	$38.90  $35.04  AUG40C/40P   $2.90   $4.75   $1.85   Closed
SRCL	$50.65  $49.92  AUG50C/50P   $4.95   $9.00   $4.05   Closed
SYMC	$40.11  $42.99  AUG40C/40P   $7.20  $10.50   $3.30   Closed
VRTY	$17.65   $9.50  AUG17C/17P   $3.50   $9.00   $5.50   Closed

          M/V = Maximum Value  G/L = Potential Gain or Loss

Note: The CWP straddle offered a much higher profit for traders
who exited the bearish portion of the play when the credit from
the sale of the put paid for the entire position.

A debit-straddle is profitable when the closing credit in the
position exceeds the initial cost.
******************************************************************
			    - CREDIT SPREAD SUMMARY -
******************************************************************
Stock  Pick    Last     Position   Credit   C/B     G/L   Status

BBY	$60.05  $59.28   SEP75C/70C  $0.70 	 $0.00   $0.70   Open
FDC	$69.35  $67.46   AUG60P/65P  $0.60 	 $0.00   $0.60  Closed
FNM	$84.40  $84.35   SEP75P/80P  $0.60 	 $0.00   $0.60   Open
GENZ	$58.75  $52.14     SEP-50P   $0.70 	 $0.00   $0.00   Open
KSS	$56.00  $56.64   AUG65C/60C  $0.75 	 $0.00   $0.75  Closed
MDT	$48.58  $44.35   AUG40P/45P  $0.50 	 $0.65  ($0.15) Closed
MHP	$65.96  $61.00   AUG75C/70C  $0.65 	 $0.00   $0.65  Closed
MSFT	$66.89  $61.88   AUG75C/70C  $0.40 	 $0.00   $0.40  Closed

Note:  The bullish spread in GENZ was rolled forward and down to
the SEP-$50 Put for a small credit.  MDT was also a candidate for
adjustment and a reasonable credit was available for the move to
the SEP-$40 Put.

A credit spread is profitable if the underlying stock finishes the
expiration period beyond (below call/above put) the sold option
in the position.
******************************************************************
			 - CALENDAR SPREAD SUMMARY -
******************************************************************
Stock   Pick    Last    Position    Debit   Value    G/L   Status

CLRS	 $8.20   $7.38   NOV-10 Call  $0.50   $0.50   $0.00  Closed
CLCI  $10.00   $8.17   JAN-10 Call  $0.85   $0.25  ($0.60) Closed
JHF   $39.61  $40.00   SEP-40 Call  $0.00   $1.40   $0.90  Closed
NCC   $28.14  $31.85  OCT30C/SEP30C $0.25   $0.25   $0.00  Closed
SBGI	 $9.00  $10.33   SEP-10 Call  $0.60   $0.75   $0.15  Closed
UTHR  $12.30  $13.88   SEP-15 Call  $0.90   $0.85  ($0.05)	Open

Note: Most of these positions were previously closed but all of
them offered at least a small profit.  JHF was best performer in
the category and UTHR has excellent potential for upside activity
during the next few weeks.

The calendar (or time spread) is profitable if the value of the
position exceeds the initial debit (or cost-basis) at the end of
the expiration period for the long position.  However, because we
track the plays based on the current closing cost/value, the gains
for time spreads will rarely be reflected until the play closes.
Each month, as we sell a new option against the long position, the
net cost should decline or the position value should increase.
******************************************************************
			    - CREDIT STRANGLES -
******************************************************************
Stock   Pick     Last    Position    Credit   Cost   G/L   Status

EDS	 $62.96   $60.27 	AUG65C/60P   $1.15   $0.00  $1.15  Closed

A credit-strangle is profitable if both positions remain OTM until
expiration.  The cost-to-close price can be used to compare the
initial opening credit to the current spread value.
******************************************************************
			    - SYNTHETIC POSITIONS -
******************************************************************
Stock  Pick     Last     Position    Credit  Value   G/L   Status

ALTR	$31.16   $28.08   SEP40C/25P   $0.20   $0.60  $0.80  Closed
CPWR	$13.68   $12.49   SEP15C/12P   $0.10   $0.50  $0.60  Closed
ISIP	$13.61   $10.06   OCT15C/12P   $0.10   $0.00 ($2.34) Closed
PTEC	$15.05   $14.36   SEP17C/12P  ($0.05)  $0.00 ($0.05)  Open

A synthetic position is profitable when both the short and long
options can be closed for an overall premium that is higher than
the initial cost basis in the play.

Questions & comments on spreads/combos to Contact Support
******************************************************************
                           - NEW PLAYS -
******************************************************************
AAS - AmeriSource Health  $59.06  *** Break-Out? ***

AmeriSource Health (NYSE:AAS) is a holding company and primarily
all of its operations are conducted through its direct wholly
owned subsidiary, AmeriSource Corporation.  The company is a
leading wholesale distributor of pharmaceutical products and
related healthcare solutions in the United States.  It provides
services to health systems (hospitals and acute care facilities),
alternate site customers (mail order facilities, nursing homes,
clinics and non-acute care facilities), independent community
pharmacies and chain drugstores.  The company's broad range of
solutions are made to enhance the efficiency and effectiveness
its customers' operations, allowing them to improve the delivery
of healthcare to patients and consumers.

Amerisource Health shares surged Friday on heavy volume in the
wake of two major upgrades.  Last week, WR Hambrecht initiated
coverage on the healthcare service company with a "buy" rating
and a target of $75.  Analysts at Bear Stearns also issued a new
"buy" rating on the stock and the technical indications point
to higher share values in the near future.  Conservative traders
who want to speculate on that outcome should consider this
position.

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-50  AAS-UJ  OI=123  A=$0.25
SELL PUT  SEP-55  AAS-UK  OI=273  B=$0.80
INITIAL NET CREDIT TARGET=$0.65-$0.70  PROFIT(max)=14%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=AAS
******************************************************************
EDS - Electronic Data Systems  $60.27  *** Range-bound! ***

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.

EDS was a recent candidate in the premium-selling category and
having watched the issue for two weeks on a regular basis, we
noticed that a bearish trend is developing after months of
range-bound activity.  The issue has failed to move above $66
for the third time over the last 180 days and it is now testing
a key support area.  Based on the current outlook, EDS appears
to have little chance of breaking through the overhead supply
at our sold strike price and the weakening technicals suggest
potentially lower share values in the coming weeks.

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-70  EDS-IN  OI=3028  A=$0.30
SELL CALL  SEP-65  EDS-IM  OI=3163  B=$0.95
INITIAL NET CREDIT TARGET=$0.70-$0.75  PROFIT(max)=16%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=EDS
******************************************************************
                       - READER'S REQUEST! -

One of our new readers asked for some bullish credit-spreads on
issues that may benefit from a favorable interest rate decision
next week.  These two candidates have great technical patterns
and excellent upside potential.  Both plays offer a favorable
risk-reward outlook but they should be evaluated for portfolio
suitability and reviewed with regard to your strategic approach
and trading style.

******************************************************************
FITB - Fifth Third Bancorp  $63.59  *** Financial Sector ***

Fifth Third Bancorp (NASDAQ:FITB) engages primarily in commercial,
retail and trust banking, data processing services, investment
advisory services and leasing activities, and also provides credit
life, accident and health insurance, discount brokerage services
and property management for its properties.  FITB's subsidiaries
provide a full range of financial products and services to the
retail, commercial, financial, governmental, educational and
medical sectors, including a wide variety of checking, savings
and money market accounts, and credit products such as credit
cards, installment loans, mortgage loans and leasing.

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-55  FTQ-UK  OI=20    A=$0.25
SELL PUT  SEP-60  FTQ-UL  OI=1134  B=$0.80
INITIAL NET CREDIT TARGET=$0.65-$0.70  PROFIT(max)=14%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=FITB
******************************************************************
FRE - Freddie Mac  $69.00  *** Mortgage Industry ***

Freddie Mac (NYSE:FRE) is a stockholder-owned corporation that
was established by Congress in 1970 to support home ownership
and rental housing.  Freddie Mac purchases single-family and
multifamily residential mortgages and mortgage-related securities,
which it finances primarily by issuing mortgage passthrough
securities and debt instruments in the capital markets.  FRE
guarantees these securities and mortgage lenders sell their
loans to Freddie Mac and use the proceeds to fund new mortgages,
which in turn increases the money supply to homebuyers.  The
company does not make loans directly to homebuyers, but puts
private investor capital to work for homebuyers in general.

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-60  FRE-UL  OI=88   A=$0.25
SELL PUT  SEP-65  FRE-UM  OI=883  B=$0.75
INITIAL NET CREDIT TARGET=$0.60-$0.65  PROFIT(max)=12%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=FRE
******************************************************************
                   - STRADDLES AND STRANGLES -
******************************************************************
SRNA - SERENA Software  $12.45  *** Speculation Only! ***

SERENA Software (NASDAQ:SRNA) is a major provider of e-business
infrastructure software change management (SCM) solutions.  The
company's products and services are used to manage and control
software change for organizations whose business operations are
dependent on managing information technology.  SERENA develops,
markets and supports a full suite of mainframe SCM products for
managing and controlling change within the software application
life cycle.  SERENA's product offerings support the industry
standard IBM mainframe platforms.  In addition, SERENA develops,
markets and supports an SCM product suite for the distributed
systems environment to support Microsoft Windows 95/98/NT, UNIX,
LINUX and HP e3000 platforms.

SRNA emerged this week on a list of stocks that have inexpensive
option premiums, a history of adequate price movement and future
events or activities that may generate volatility in the issue
or its industry.  This selection process provides the foremost
combination of low risk and potentially high reward however, news
and market sentiment will have an effect on the issue so review
the play thoroughly and make your own decision about the future
outcome of the position.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  SEP-12.50  NHU-IV  OI=49  A=$1.65
BUY  PUT   SEP-12.50  NHU-UV  OI=98  A=$1.65
INITIAL NET DEBIT TARGET=$3.00-$3.10 TARGET PROFIT=20%

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


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