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Daily Newsletter, Wednesday, 08/22/2001

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The Option Investor Newsletter                Wednesday 08-22-2001
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       8-22-2001          High      Low     Volume Advance/Decline
DJIA    10276.90 +102.76 10305.13 10134.50 1.06 bln   1625/1449	
NASDAQ   1860.01 + 28.71  1860.02  1817.70 1.44 bln   1541/2128
S&P 100   594.68 +  4.41   596.48   587.49   Totals   3166/3577
S&P 500  1165.31 +  8.05  1168.56  1153.34
RUS 2000  477.18 +  4.94   477.19   470.63
DJ TRANS 2801.92 + 21.41  2806.01  2771.16
VIX        25.09 -  0.90    26.72    24.78
Put/Call Ratio      0.56
******************************************************************

Lucky Numbers

While punters across the country were busy scrambling for winning
Powerball numbers, the Nasdaq Composite (COMPX) was forming an
intraday double bottom at the 1817 level Wednesday.  From that
oversold level the COMPX solidly advanced into the close.
Meanwhile, the Dow Jones Industrial Average (INDU) once again
attracted buyers below the 10,200 level, who ultimately carried
the blue chip index back above that key support area.  The
catalysts for Wednesday's rally: An absence of negative earnings
and economic news combined with a smear of positive reports.

The financial media has given extra attention recently to support
levels across the broader market averages during this meltdown.
None of which, in retrospect, have provided support.  So what was
lucky about the 1817 level Wednesday, insofar as the COMPX is
concerned?  My best explanation is that short-term supply finally
subsided around 1817, where demand equalized the selling, in turn,
resulting in a capitulation to the upside on the part of the
shorts.  In other words, a dead cat bounce.  Although volume was
a bit more active Wednesday, it still didn't reveal real buying
by institutional market participants, which strengthens the case
for a short covering-induced rally and weakens the case for 1817
providing future support for the COMPX.

Instead, the 1800 level could attract buyers for its whole, round
nature.  And if that psychological level doesn't hold, very
significant technical support lies at 1755.  If the COMPX falls
below 1755, it's my belief that the April lows will not only be
tested, but taken out.  In the meantime, it's worth noting that
the daily Stochastic reading for the COMPX remains oversold
even after Wednesday's advance.  And by that metric alone, one
could surmise that the COMPX has the potential to follow-through
into Thursday's session if the shorts stay panicked.  If that
scenario plays out, traders should be aware of the significant
overhead resistance that exists between the 1890 to 1900 area.




The Dow also traced a double-bottom Wednesday, but its bottom is
on a much different timeframe: Daily.  The Dow fell to 10,120 on
July 11 and its intraday low was 10,134 Wednesday.  So it wasn't
exact, but 14 points is close enough for me.  Unlike the COPMX's
1817 level, I think that the 10,130 area is a bit more significant
to the Dow.  If that level is lost, the Dow should see 10,000 in
short order, which is both a psychological and technical support
level.  In terms of resistance, the Dow's daunting descending
trend line currently resides around the 10,400 area.




The Semiconductor Sector, not by surprise, led the COPMX to its
1.56 percent gain.  The chip sector received a double dose of
positive news after the bell Tuesday.  First, an industry
group reported that bookings rose by 5 percent during the month
of July, over June's numbers.  That in turn boosted chip equipment
shares such as Novellus (NASDAQ:NVLS), KLA-Tencor (NASDAQ:KLAC),
and Applied Materials (NASDAQ:AMAT).  Other stocks within the
group ended with substantial gains thanks in part to Semtech
(NASDAQ:SMTC) and Triquint Semi (NASDAQ:TQNT).  Semtech reported
numbers that beat estimates Tuesday evening and lifted guidance
for its third-quarter.  Triquint, who is a chip company that
caters to the wireless markets, reported Tuesday night that it
saw signs of a recovery in the mobile phone market by the end of
year.  Shares of Semtech and Triquint ended 20 and 15 percent
higher, respectively.

The Biotechnology Sector also played a large role in the COMPX's
rise Wednesday.  The Biotechnology Sector Index (BTK.X) rose by
4.8 percent amid favorable news on the FDA front and continued
merger and acquisition activity within the group.  For its part,
the BTK broke above the 500 level led by gains in shares of
Amgen (NASDAQ:AMGN), Biogen (NASDAQ:BGEN), Human Genome
(NASDAQ:HGSI), and Millennium (NASDAQ:MLNM).

Despite a positive showing from Intuit (NASDAQ:INTU), the Software
Sector under performed the broader tech sectors Wednesday.  Intuit
reported after the bell Tuesday, with results coming in better
than expected.  On top of its upside surprise in earnings, the
company reaffirmed its guidance for 2002 and its shares received
an upgrade from Prudential.  The stock finished a whopping 22
percent higher Wednesday!

But despite that boost from Intuit, the Software Sector Index
(GSO.X) only finished 2.5 percent higher.  While it was a decent
gain, the GSO did under perform the Semi and Biotech sectors.
Within the Software group, bellwethers such as Microsoft
(NASDAQ:MSFT), Check Point (NASDAQ:CHKP), and Verisign
(NASDAQ:VRSN) finished lower, which may hint towards inherent
weakness in the sector.

In the positive category for the day, the American Gas
Association reported weekly natural gas supply figures, which
rose by 86 billion cubic feet in the last week.  The number
was higher than expected and resulted in a sell-off in the
energy market.  The majority of energy-related equity issues
finished lower as well, evidenced by the slides in the Oil
Service Index (OSX.X) and the Natural Gas Index (XNG.X).  The
lower energy prices fall, the better for consumers, businesses,
and the economy!

One stock that could benefit from lower energy prices is
General Motors (NYSE:GM).  After seeing its shares plummet during
the past few sessions, GM officials reaffirmed guidance after
the bell Tuesday, which stabilized its stock.  Shares ended the
day about 3 percent higher, but are well off their relative high
around $67 traced about a month ago.

The beleaguered box makers were dealt another blow in after
hours.  Standard & Poor's cut their rating on Gateway's (NYSE:GTW)
debt to junk status.  S&P based its downgrade on the competitive
condition in the box maker business and Gateway's declining
revenue base.  The downgrade is unfortunate for Gateway because
it will raise the company's borrowing costs.

Looking forward, there are a few economic reports to look out for
in the coming days.  Thursday morning will see the release of
Jobless Claims.  New Home Sales and Durable Goods Orders are set
for release Friday morning.  And in the case of each of these
reports, good news is good for the market at this point in the
cycle.

With the broader markets, especially the Nasdaq, in relatively
oversold territory, there's the potential that Wednesday's
advance has some legs.  But the heavy resistance overhead in
each of the indexes is going to require some serious buying
to clear.  The catalyst to induce institutions to pull the
trigger could come in the form of positive economic news in
the next two days.  But any further signs of deterioration in
the economy would cause the broader market averages to
rollover from their current levels.  There's no denying that
the markets remain difficult to game; just when the COMPX
looked like it was going to breakdown and capitulate to the
downside Wednesday, buyers emerged at the 1817 level to prop
it up.  My best advice is for readers to stick with their
strategies and stay disciplined!  And in the worst case, drop
a few dollars on a lottery ticket.  They tell me the odds
of winning the Powerball jackpot are 1 in 80 million.  I
wonder what the odds are of picking the bottom in the market?

Eric Utley
Option Investor


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

Roller Coaster

The day started with some positive news from GM, Intuit, and
Triquint.  Throw in an improving semiconductor book-to-bill
ratio, and it had the makings of a nice day for bullish traders.

The first half hour started out that way, but the markets quickly
reversed and we once again found ourselves on the brink of losing
key support levels.  Buyers regrouped around 3:00 PM and were
able to push most sectors back to their daily highs.

Semiconductor Index Daily Chart




The semiconductor book-to-bill ratio came in at .67, which still
indicates a weak industry, but the fact that the number improved
for the third straight month was enough for traders to push the
Semiconductor Index (SOX.X) up 5.16%.

At least that's the way it finished.  Around 11:00 AM it looked
like the SOX was getting ready to plunge through support at 537,
but rallied past resistance at 552 in the final two hours.  The
question now is can we but some kind of streak together?  Look at
the price action over the past two weeks - up three days, down
two, up one, down one, up one, down one, up one.  Pass the
Dramamine please.  Resistance at 583 and the 50-day moving
average will be the SOX's first order of business, that is if it
can put together two or three positive days.

Internet Index/eBay Daily Charts




It was America Online (AOL) who announced they were cutting 8% of
their workforce, but it was eBay (EBAY) that got pummeled.  At
one point eBay was down $4.68, but rallied to only close down
$1.01.  While they get an A for effort, the fact remains that the
stock is below recent support at $59.  We'll see if this area
presents as much resistance as it did support.

While eBay was tanking, the Internet Index (INX.X) was dipping
below the April low at 120.97.  By the end of the day the index
closed up 1.70%, but three-month downtrend is sitting close by.
That line must be broken or it will push the Internet Index to
new lows.

Sectors to watch tomorrow?  Oil stocks had an odd day.  After
being up over 3% on some bullish inventory data, the Oil Index
(OIX.X) closed up a paltry 0.55% and Oil Service (OSX.X) closed
down 0.50%.  If crude oil futures are lower before the stock
market opens, oil stocks may follow suit.

The Mortgage Bankers Association's index of mortgage applications
rose a minuscule 0.3%, and that was mostly due to refinancing.
The new purchase component declined for the second straight week.
Applications remain strong, but based on the performance of
housing stocks today, investors may be getting wary about the
decline over the past two weeks.

On the retail front Longs Drug (LDG) and Ross Stores (ROST) beat
earnings, Galyan's (GLYN) met, and Big Lots (BLI) and Restoration
Hardware (RSTO) missed.  With the Retail Index (RLX.X) sitting
dangerously close to support at 585, tomorrow could be a crucial
day.

The Software Index (GSO.X) is within 7 points of breaking support
at 158, but perhaps a positive earnings announcement from J.D.
Edwards (JDEC) will help to boost the sector.

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

            Support                Close              Resistance
DJIA       |10,200  |10277 |      |      |      |      |  10,600|
NASD       | 1,710  |      | 1860 |      |      |      |   2,125|
S&P 500    | 1,150  | 1165 |      |      |      |      |   1,240|
Rus 2000   |   465  |      |      |  477 |      |      |     495|
Semis      |   535  |      |  565 |      |      |      |     660|
Biotech    |   473  |      |      |  510 |      |      |     550|
Internet   |   121  |  124 |      |      |      |      |     160|
Networking |   300  |      |  290 |      |      |      |     365|
Software   |   158  |  165 |      |      |      |      |     200|
Banking    |   650  |      |      |      |      |  681 |     685|
Retail     |   858  |  864 |      |      |      |      |     920|
Drugs      |   380  |      |      |  398 |      |      |     410|

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

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

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



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

LEAPS Covered Calls Trade Management - Target:SUNW
By Mark Phillips

Last week we focused on what I think is the key to trading
success - trade management after we have entered the position.
We want to have an exit strategy laid out before we actually
jump into a position, but more importantly, we need to stick to
that strategy when our exit conditions are satisfied.  Greed,
fear and hope are the enemies that are constantly plotting to
drag us off our carefully crafted course to profits.

Because it provides an excellent example of the issues we are
faced with in many trades, I'm going to continue to focus on our
recent SUNW trade.  And as I promised last week, I'm going to
address the trade from the perspective of an investor who wanted
to hold the position for a longer period of time, writing
covered calls in order to consistently lower their cost basis.
So let's start with a brief review of how we entered the long
leg of the trade.  The following excerpt and chart are from last
week's column:

"Remember when we took our LEAPS entry on SUNW as it bounced
from $14.10 on July 24th?  It was a near-perfect setup, as the
stock was bouncing from major support and both the daily and
weekly Stochastics were showing us bullish ascent patterns.  We
were able to set a fairly tight stop at $12.50, setting up a
limited risk and attractive reward play."




We noted at the time that based on recent trading history, SUNW
would likely trade in the $14-23 range until a concrete reason
to buy Tech stocks emerged.  And even though the stock did
briefly test the $23.50 level in May, $20 looks like the real
ceiling we should be focusing on.  On the downside, SUNW
shouldn't take out its spring lows unless the NASDAQ completely
melts down, allowing us to place a fairly tight $12.50 stop
loss.

So we had our long position and just had to wait for the daily
Stochastics to roll over from overbought territory to give us
our Covered Call entry.  The first week of August delivered just
what we were waiting for, as the stock lost its upward momentum
and looked to be headed south from the $18 level.  On August
7th, aggressive traders could have sold the AUG-17.5 call
(SUQ-HW) for $0.50-0.60, while more conservative traders would
have targeted the SEP-20 call (SUQ-ID) for $0.40-0.50.  While
not a huge premium, it is a start for those looking to pay off
their 2004 LEAPS over the next several months.  Afterall, they
still have 28 months of time before expiration in January 2004.




While straight LEAP traders (those uninterested in Covered Calls)
would have been tightening up their stops or just taking profits
as SUNW fell back from the $18 level, Covered Calls traders have
a different objective...long-term appreciation of a LEAP where
the cost basis has been whittled down to zero.  Accordingly, for
the Covered Call players, the smart move would be to leave their
stop at the $12.50 level.

As the stock has continued to decline, they have watched all the
short-term gains in their LEAP evaporate, but last week's
weakness resulted in a stress-free worthless expiration of their
August calls.  Now the stock is once again trading near
(actually just below) the $14 level and we now have to bide our
time until the daily stochastics once again reach overbought.
Then it will be time to watch for another opportunity to sell
short-term calls and take in a bit more premium.




As a matter of fact, traders that missed the first LEAPS entry
could be looking at a fresh entry opportunity into the play
with the stock actually trading below our initial entry point
and daily stochastics deep in oversold.  The one concern here
(and the primary reason SUNW didn't go right back onto the Watch
List last weekend) is the weekly stochastics (not shown), which
is still declining.  The next high odds entry point for SUNW
LEAPS will come as both the weekly and daily stochastics rise
from oversold territory, so long as the $12.50 level isn't
violated on the downside.  In keeping with our theme of
following a trading plan, we need to stick to that stop loss
level.  It is there to keep us out of the situation where a
slight loss grows into a devastating loss.  Ignoring our stop
and hoping that it will come back is a dangerous practice and
one destined to fail over the long run.  Should our stop be
violated, then we'll have to buy back our short-term call and
then sell the LEAP, likely for a small loss.  I don't think
that is where the trade is headed (otherwise I wouldn't use
SUNW as an example), but if I end up being wrong, you'll get
another educational example with the nitty-gritty exit
details in a future column.

Similar to our detailed treatment of the AOL Covered Calls
trade in June, I'll continue to follow the SUNW trade in the
interest of continuing education.  Right now it looks like it
could go either way.  It could be a long-term winner, or we may
be forced to cut our losses on an additional sharp drop in Tech
stocks.  I'm currently leaning to the winning side, but stay
tuned for the adventure.  SUNW could be locked in this trading
range for several months, and so long as it doesn't break out in
either direction, it should be fertile ground for selling
premium and whittling away at our cost basis.

Here's a quick bonus that caught my attention today.  I was
browsing through the plays currently sitting in the LEAPS
portfolio and noticed that our ABX play is looking a little
weak.  Stochastics have topped out on the daily chart, and while
I'm not wild about tightening up our stops just yet, it looks
like a good opportunity for selling some premium.  This is
another one with cheap options, so to overcome the commission
costs associated with selling front-month calls we need to do
the trade in volume.  Take a look at the chart below and see if
you see what I do.




Due to the cheap premiums, I'd look to sell the calls on an
intraday surge above $17, and use the $17.50 strike.  It looks
like the stock is going to need some more horsepower to clear
that level and we can take in some premium in the meantime.

As always, lay out your gameplan in advance of entering the
play.  Then when your conditions are satisfied, you can take
the entry or exit with confidence, knowing that your decision
is based on a sound logic, not the greed, fear and hope of the
moment.

Questions are always welcome!

Mark Phillips
Contact Support


***********************************************************
Stop-Loss Adjustments
***********************************************************

CNXT - call
Adjust from $9 up to $9.50

BGEN - call
Adjust from $55 up to $56

CHKP - call
Adjust from $39 up to $37

GMST - put
Adjust from $35 down to $34

EBAY - put
Adjust from $63 down to $62

AIG  - put
Adjust from $80 down to $71


***********************************************************
DROPS
***********************************************************

calls
^^^^^
No Dropped Calls for Wednesday


puts
^^^^
CPN $30.85 +0.95 (+1.57) Shares of Calpine were on the mend
Wednesday, after the stocks recent and precipitous slide.  The
company announced further plans of its expansion efforts, which
seemed to scare the bears enough into covering their shorts.
The stock closed above our $30 stop and as such we're dropping
coverage.  Bearish options traders with open put positions can
use any weakness down to the $30 level in the coming days as
an exit opportunity.


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

LH - Laboratory Corp. of America $83.00 +0.80 (+1.35 this week)

Laboratory Corporation of America Holdings (LabCorp) is the #2
clinical laboratory service in the world, behind Quest
Diagnostics.  LH performs 2000 types of tests for more than
100,000 clients, including health care providers, pharmaceutical
firms, physicians, government agencies and employers.  With 25
major laboratories and some 1200 service sites nationwide, the
company emphasizes specialty and niche testing such as allergy
tests, HIV tests, blood analyses, and substance abuse
screenings.

Most Recent Write-Up

In the search for stocks to play to the upside, Medical
diagnostic stocks like LH and DGX keep rising to the top, even
with the markets continuing to deteriorate.  The most likely
reason is their insensitivity to weakness in the economy and
the fact that we continue to have more and more medical tests
done in our endless pursuit of health.  After falling back from
its attempted breakout above the $90 level in late July, LH
looks like it is gathering its strength for another attempt.
It has been finding support near $80, right along the 5-month
ascending trendline.  Daily Stochastics are turning around from
above the oversold zone, setting up a nice bullish divergence
situation.  We're setting a tight stop at $79, so we can target
intraday dips near $80 for new positions and still limit our
risk to acceptable levels.  Should the bulls get moving in the
near-term, consider using a breakout over the $84 resistance
level as a trigger for new positions as well.  Watch for signs
of sector strength by keeping an eye on competitor DGX.  If the
#1 and #2 stocks in the medical diagnostic business are in rally
mode, that seems like a good place to be.

Comments

LH worked steadily higher throughout Wednesday's session and
looks poised to test $85 in the short-term.  Bullish traders
can look for an advance above $84 early Thursday for an entry
point.  Or a dip back down to the $82 level for bounces.  Watch
the Biotechnology Sector (BTK.X) and the broader Health Care
Sector (HCX.X) for confirmation of direction.

BUY CALL SEP-80 LH-IP OI=126 at $6.20 SL=4.00
BUY CALL SEP-85*LH-IQ OI=298 at $3.50 SL=2.25
BUY CALL SEP-90 LH-IR OI=461 at $2.10 SL=1.00
BUY CALL NOV-85 LH-KQ OI=110 at $6.70 SL=4.25
BUY CALL NOV-90 LH-KR OI=114 at $4.60 SL=2.75

Average Daily Volume = 539 K



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

A Technical Bounce? Maybe, Maybe Not! Only Time Will Tell...

The major equity averages experienced some unexpected bullish
activity after a string of losing sessions.  The rally came on
the heels of an upbeat report from General Motors (NYSE:GM),
which affirmed its financial targets for the coming quarter.
The company said it expects third-quarter earnings to be above
consensus estimates and it sees strong sales for the full year.
Renewed buying pressure in financial, cyclical and oil service
components also helped the Dow recover from the recent sell-off.
The best "old economy" performers were Eastman Kodak (NYSE:EK),
Alcoa (NYSE:AA), Walt Disney (NYSE:DIS), Dupont (NYSE:DD), and
Minnesota Mining (NYSE:MMM).  Leading the decliners were SBC
Communications (NYSE:SBC) and International Paper (NYSE:IP).
In the technology group, semiconductor stocks were the biggest
upside movers as analysts and traders reacted favorably to the
better-than-expected July bookings data for the chip-equipment
industry.  A report from Semiconductor Equipment and Materials
International revealed that North American-based manufacturers
of semiconductor equipment posted $764 million in orders last
month and a book-to-bill ratio of 0.67.  A book-to-bill of 0.67
means that $67 worth of new orders were received for every $100
of product shipped for the month.  SEMI suggested the bookings
numbers provide some indication that capital equipment orders
may have reached bottom, though most companies remain cautious
given the existing uncertainties in the global economy.  Among
the other hi-tech groups, networking shares enjoyed excellent
gains while computer software and hardware issues ended the day
with more modest gains.  The software segment was buoyed by the
quarterly report from Intuit (NASDAQ:INTU), which posted a loss
from operations of $0.08 a share, slightly lower than the First
Call estimate.  The company also affirmed its outlook for 2002,
which includes operating income growth of 25 to 30% and revenue
growth of 15 to 20%.  Buying activity in the broader market was
seen in oil service shares amid data from the American Petroleum
Institute showing a drop in inventories of as much as 5 million
barrels in the latest week.  However, natural gas issues turned
lower late in the session due to the weekly AGA report, which
revealed a bigger-than-expected climb in natural gas inventories.
Other popular industries were utility, cyclical, transportation,
brokerage and biotechnology while continued selling occurred in
paper, natural gas and airline shares.  One analyst noted that
stocks are oversold in the short term and thus due for a bounce,
but the downside momentum has not yet abated.  At the same time,
most of the bellwether technology issues are bottoming and have
much less risk at these levels.  Lets hope there's some truth to
that statement!

Summary of Previous Candidates:

NOTE:  AUGUST prices as of Friday's Expiration

Covered Calls: (Margin not used in calculations)

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

MSCC    AUG    50    46.00  59.75    $4.00   7.1%

Naked Puts:

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

MXIM    AUG    40    39.45  46.21    $0.55   9.3%
NVDA    AUG    70    69.20  83.77    $0.80   7.9%
MU      AUG    33    31.95  36.10    $0.55   7.3%
BRL     AUG    65    64.10  85.20    $0.90   5.0%
GMST    AUG    35    34.40  33.53   -$0.87   0.0%
PDLI    SEP    40    39.00  50.60    $1.00   5.7%
SNPS    SEP    45    44.05  51.15    $0.95   5.9%
OPMR    SEP    40    39.35  48.07    $0.65   5.0%

Positions closed: PLMD, TARO

Sell Strangles:

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

IMCL    AUG    35    33.85  45.50    $1.15  11.5%
IMCL    AUG    60    60.80  45.50    $0.80   8.3%

NVDA    SEP    60    59.00  84.79    $1.00   4.5%
NVDA    SEP   105   106.40  84.79    $1.40   6.2%

Naked Calls:

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

ENZN    AUG    75    75.90  65.20    $0.90  10.0%
BBOX    AUG    70    70.60  48.01    $0.60   5.3%
NVDA    AUG   100   100.80  83.77    $0.80   5.1%

Credit Spreads:

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

TEVA  $68.79  $70.15   AUG60p/65p  $0.80   $64.20  $0.80  Expired
ADI   $50.00  $47.66   AUG40p/45p  $0.75   $44.25  $0.75  Expired
BRCM  $46.23  $37.06   AUG35p/40p  $0.75   $39.25 ($2.19) Expired
HIT   $88.30  $84.02   AUG80p/85p  $1.25   $83.75  $0.27  Expired
AHC   $76.73  $77.20   AUG85c/80c  $0.80   $80.80  $0.80  Expired
COCO  $49.79  $49.20   SEP40p/45p  $1.00   $44.00  $1.00  Expired
NKE   $48.00  $48.90   SEP40p/43p  $0.40   $42.10  $0.40  Open
IVGN  $63.99  $66.43   SEP80c/75c  $0.75   $75.75  $0.75  Open
BOW   $47.32  $46.50   SEP40p/45p  $0.75   $44.25  $0.75  Open
CHV   $93.01  $91.95   SEP85p/90p  $0.75   $89.25  $0.75  Open
KMI   $54.33  $55.00   SEP45p/50p  $0.70   $49.30  $0.70  Open
BSC   $55.50  $53.20   SEP65c/60c  $0.65   $60.65  $0.65  Open

Positions closed: STJ, SZA - both ended positive (Murphy's Law!)

Debit Straddles:

Stock  Position   Debit  Target   Value    Gain     Status

DST   AUG55c/55p   $5.75  $7.19   $7.19+   $1.44+   Closed
CVS   AUG40c/40p   $3.25  $4.06   $4.06+   $0.81+   Closed
CLS   AUG45c/45p   $3.60  $4.15   $4.15+   $4.15+   Closed
LLTC  AUG45c/45p   $3.70  $4.25   $3.60   ($0.10)   Closed
VIA   AUG50c/50p   $2.25  $2.60   $2.60+   $2.60+   Closed
SNE   SEP50c/50p   $5.75  $7.48   $4.20   ($1.55)    Open?

The DST straddle traded over $9, the CVS straddle traded as high
as $5, and the VIA straddle traded near $4.  Both the LLTC and
CLS straddles offered favorable exit opportunities by Friday's
expiration with the CLS straddle trading well over $5.00.  The
LLTC straddle traded over $4.00 on Thursday but only offered
a break-even exit if you held through Friday.  The EMR straddle
was closed early after the company reported earnings and the
stock failed to move.  As for the SNE straddle, the put side
of the straddle was offered at $4.00 during yesterday's open.
Is it time to get aggressive with an exit as September nears?

Positions closed early: EMR


New Candidates:

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

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

BULLISH PLAYS - Covered Calls, Naked Puts, & Combinations

***************
ADI - Analog Devices  $47.64  *** Bullish Outlook? ***

Analog Devices (NYSE:ADI) is engaged in the design, manufacture
and marketing of high-performance analog, mixed-signal and digital
signal processing (DSP) integrated circuits (ICs) used in signal
processing applications.  The company offers a generic list of
approximately 2,000 products, with the highest revenue product
accounting for approximately 4% of its revenue in fiscal 2000.
Analog also designs, manufactures and markets a range of assembled
products.  Applications for its products include communications,
cellular telephones, computers and computer peripherals, consumer
electronics, automotive electronics, factory automation, process
control and military and space systems.

Semiconductor stocks rallied today after the latest report on
improved July bookings for computer chip-equipment products
suggested the battered industry may be near a bottom.  SEMI, a
popular industry group, reported that the three-month average of
worldwide bookings in July rose to $764 million, up 5% from June.
In addition, ADI benefited along with other companies related to
the wireless chip industry after Triquint (NASDAQ:TQNT) said it
saw signs that mobile telephone orders would pick up a bit by
year-end.  Triquint executives said they were comfortable with
Wall Street profit forecasts for the third and fourth quarters
and SG Cowen, which reiterated its "strong buy" rating on TQNT,
said the comments should benefit several chipmakers.  Analyst
Charles Boucher at Bear Stearns reiterated said the "bad" news
was ending as inventory correction in the wireless markets has
come to an end and new product programs have begun to drive
demand for semiconductor components.  Merrill Lynch recently
raised its opinion on the global semiconductor group and upgraded
its recommendations on 12 chip stocks worldwide.  In a research
note, the brokerage said a combination of more realistic earnings
projections, a drop in spending on chip-making equipment, and an
expected recovery in chip sales make many semiconductor stocks a
good buy.  The Merrill analysts heaped their greatest praise on
companies that manufacture chips for mobile telephones, analog
chipmakers, and the foundries that are contracted to build chips.
Analog Devices was included in this select list of stocks and
conservative traders can profit from future bullish movement in
the issue with this combination position.

ADI - Analog Devices  $47.64

PLAY (sell naked put):

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

Sell Put  SEP 40   ADI UH  2401      0.60    39.40     5.1% ***
Sell Put  SEP 45   ADI UI  1146      1.95    43.05    10.8%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=ADI
***************
BAC - Bank of America  $64.65  *** Finance Sector ***

Bank of America (NYSE:BAC) is a well-known bank and financial
holding company.  Through its banking subsidiaries and various
non-banking subsidiaries, the company provides a diversified
range of banking and non-banking financial services and products,
mainly throughout the mid-Atlantic, including Maryland, Virginia
and the District of Columbia; the Midwest, including Illinois,
Iowa, Kansas and Missouri; the southeast, including Florida,
Georgia, North Carolina, South Carolina and Tennessee; the desert
southwest, including Arizona, Arkansas, New Mexico, Oklahoma and
Texas; the northwest, including, Oregon and Washington; and the
west, including California, Idaho and Nevada, and in selected
international markets.  The company operates in four business
segments: Consumer and Commercial Banking, Asset Management,
Global Corporate and Investment Banking and Equity Investments.

Traders have been asking for positions that might benefit from
lower interest rates and large-cap financial issues such as the
global banks and money centers offer a favorable outlook in that
regard.  After the recent rate-cut announcement, analysts at
Sanford Bernstein said in a research note that they continue to
expect improving bank credit quality next year and remain of the
view that the economy will begin to recover before the end of the
year.  Bernstein expects revenue to rebound in the fourth quarter
from the seasonally depressed third-quarter levels and they have
projected a 10 to 12% recovery in the banking segment.  Bank of
America is one of their top picks in the financial sector and
traders who agree with a bullish outlook for the group can profit
from that outcome with this conservative position.

BAC - Bank of America  $64.65

PLAY (very conservative - bullish/credit spread):

BUY  PUT  SEP-55  BAC-UK  OI=370    A=$0.25
SELL PUT  SEP-60  BAC-UL  OI=13044  B=$0.70
INITIAL NET CREDIT TARGET=$0.55-$0.60  PROFIT(max)=12%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=BAC
***************
CCMP - Cabot Microelectronics  $72.64  *** Rally Potential? ***

Cabot Microelectronics (NASDAQ:CCMP) is a global supplier of high
performance polishing slurries used in the manufacture of the most
advanced integrated circuit devices, in a process called chemical
mechanical planarization.  The company supplies slurries to IC
device manufacturers worldwide.  Most of the company's slurries
are used to polish insulating layers and the tungsten plugs that
go through the insulating layers and connect the multiple wiring
layers of IC devices.  The company is developing and selling new
slurries used to polish copper, a new metal used in wiring layers
of IC device fabrication.  Also, the company has developed and has
begun sales of new CMP slurries designed for polishing several
components in hard disk drives, specifically rigid disks and other
magnetic heads.  In addition, Cabot has recently begun producing
and selling polishing pads used in the CMP process.

Analysts noted that shares of Cabot Microelectronics responded
well to the stronger-than-expected semiconductor equipment data
issued on Tuesday evening and the stock appears poised to move
higher in the coming sessions.  CCMP has demonstrated favorable
relative strength on an intra-day basis, as well as through the
recent technology slump and having closed above resistance near
$70, the next test should be the 6-month high at $80.  Traders
who believe the issue is destined for a future rally can profit
from upside movement with these positions.

CCMP - Cabot Microelectronics  $72.64

PLAY (sell naked put):

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

Sell Put  SEP 55   UKR UK  179       0.85    54.15     5.6% ***
Sell Put  SEP 60   UKR UL  320       1.60    58.40     9.0%
Sell Put  SEP 65   UKR UM  151       2.50    62.50    10.6%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=CCMP
***************
GILD - Gilead Sciences  $54.96  *** On The Rebound? ***

Gilead Sciences (NASDAQ:GILD) is an independent biopharmaceutical
company that seeks to provide accelerated solutions for patients
and the people who care for them.  Gilead discovers, develops,
manufactures and commercializes proprietary therapeutics for
challenging infectious diseases (viral, fungal and bacterial
infections) and cancer.  Gilead also has expertise in liposomal
drug delivery technology.  Currently, Gilead markets AmBisome
(amphotericin B) liposome for injection), an antifungal agent,
DaunoXome (daunorubicin citrate liposome injection), a drug
approved for the treatment of Kaposi's Sarcoma, and VISTIDE
(cidofovir injection) for the treatment of cytomegalovirus (CMV)
retinitis.  Roche markets Tamiflu (oseltamivir phosphate) for the
treatment of influenza, in a collaborative agreement with Gilead.
In addition, Gilead is developing products to treat diseases
caused by human immunodeficiency virus and hepatitis B virus,
bacterial infections and cancer.

New buying interest in shares of Gilead Sciences began Tuesday
after the company said that a U.S. Food and Drug Administration
panel is scheduled to review Viread, the company's drug intended
to treat HIV infection, on October 3.  Viread is a single tablet
taken once daily and works by blocking an enzyme crucial to the
replication of HIV.  The company filed a New Drug Application for
Viread earlier in the year and the agency issued priority review
status that could allow for action by the FDA by November 1.  In
addition, Gilead said today that Degussa had agreed to buy its 49%
stake in their Proligo joint venture for approximately $14 million
in cash.  Proligo is a manufacturing joint venture between Gilead
and SKW Americas, a Degussa unit.  After the sale, Gilead said it
will post a third-quarter gain of about $7 million to $9 million.
Apparently, investors are pleased with the news as the issue has
shown new signs of a bullish trend and this position offers a way
to speculate conservatively on the company's future share value.

GILD - Gilead Sciences  $54.96

PLAY (sell covered call or naked put):

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

Sell Call SEP 50   GDQ IJ  1596      6.90    48.06     4.1% ***

Sell Put  SEP 45   GDQ UI  427       0.80    44.20     6.3% ***
Sell Put  SEP 50   GDQ UJ  156       1.80    48.20     9.7%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=GILD
***************
POT - Potash Corporation  $64.00  *** Chemical Segment ***

Potash Corporation of Saskatchewan (NYSE:POT), along with its
direct and indirect subsidiaries, is an integrated fertilizer
and related industrial and feed products companies.  Their main
customers for fertilizer products are retailers, cooperatives,
dealers, distributors and other fertilizer producers.  Their
primary customers for industrial products are chemical product
manufacturers.  The majority of Potash's purified phosphoric
acid is sold directly to consumers of the product, with the
balance sold through an authorized non-exclusive distribution
network.

Stocks in the Basic Materials segment are currently in favor
and this position in POT is an excellent candidate for a broad
market hedge.  Traders who like to participate in conservative
combination plays should consider this bullish credit spread.

POT - Potash Corporation  $64.00

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-55  POT-UK  OI=166  A=$0.25
SELL PUT  SEP-60  POT-UL  OI=34   B=$1.05
INITIAL NET CREDIT TARGET=$0.85-$0.90  PROFIT(max)=20%

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

Neutral Plays - Straddles & Strangles

***************
QCOM - QUALCOMM  $63.75  *** Premium Selling! ***

QUALCOMM (NASDAQ:QCOM) is engaged in developing and delivering
digital wireless communications products and services based on
the company's CDMA digital technology.  The company's business
areas include integrated CDMA chipsets and system software;
technology licensing; Eudora email software for Windows and Mac
computing platforms; satellite-based systems including portions
of the Globalstar system and wireless fleet management systems,
OmniTRACS and OmniExpress.  QCOM owns patents that are essential
to all of the CDMA wireless telecommunications standards that
have been adopted or proposed for adoption by standards-setting
bodies worldwide.  The company has licensed its essential CDMA
patent portfolio to more than 80 telecommunications equipment
manufacturers worldwide.

Here is another candidate for premium-selling, based on the
underlying issue's technical background.  QCOM has a relatively
stable trading range and no (expected) upcoming events that will
substantially change its fundamental or technical character prior
to the September expiration.  Technically, QCOM continues to move
laterally in a Stage I base within a near-term trading range from
$56 to $68.  The short-term indications suggest the current trend
will continue as the stock nears the apex of a ascending triangle
(from March to August).  Current news and market sentiment will
have an effect on the position, so review the play thoroughly and
make your own decision about its outcome.

QCOM - QUALCOMM  $63.75

PLAY (aggressive - neutral/credit strangle):

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

Sell Put  SEP 55   AAO UK  6395      1.30    53.70     7.3% ***
Sell Call SEP 70   AAO IN  14626     1.25    71.25     6.2% ***

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

BEARISH PLAYS - Naked Calls & Combinations

***************
EBAY - eBay  $56.91  *** Rolling Over? ***

eBay (NASDAQ:EBAY) is a dynamic pricing online trading platform
located at www.ebay.com.  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.  The eBay dynamic
pricing (auction-style) format permits sellers to list items for
sale, buyers to bid on items of interest and all eBay users to
browse through listed items.  eBay's service is fully automated,
topically arranged and easy to use.  Through its wholly owned and
partially owned subsidiaries and affiliates, the company operates
web-based trading platforms in the United States, Germany, the
United Kingdom, Australia, Japan, Canada, France, Austria, Italy
and South Korea.  The company is expanding its online trading to
include Spain, the Netherlands, Belgium, Portugal, Sweden and
Brazil.

Shares of eBay have struggled after a report that recent studies
of prices, listings and users cast a cloud over the bullish case
that investors and some analysts make for the company.  Traders
say the statistics derived from the study suggests that stellar
growth rates in use, sales and profit will be tough to maintain.
In short, eBay's pricey stock isn't factoring in a slowdown and
it now appears that investors are beginning to have doubts about
the company's ultra-optimistic future.  From a purely technical
viewpoint, Ebay continues move lower off the June highs and is
now at a "key" moment as the stock tests its 150-dma.  Any rally
will need to break through technical resistance at the 30- and
50-day moving averages near $62. The short-term technicals are
bearish and long-term, the stochastics have given a sell signal,
further reducing the probability of a significant upward move.

EBAY - eBay  $56.91

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-70  QXB-IN  OI=1934  A=$0.55
SELL CALL  SEP-65  QXB-IM  OI=3126  B=$1.10
INITIAL NET CREDIT TARGET=$0.65-$0.75  PROFIT(max)=15%

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


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