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Daily Newsletter, Wednesday, 08/29/2001

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The Option Investor Newsletter                Wednesday 08-29-2001
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       8-29-2001          High      Low     Volume Advance/Decline
DJIA    10090.90 -131.13 10267.70 10075.61    966 K   1427/1690	
NASDAQ   1843.17 - 21.81  1879.76  1833.65 1.44 bln   1525/2060
S&P 100   586.34 -  7.79   597.34   585.63   Totals   2952/3750
S&P 500  1148.56 - 12.95  1166.97  1147.38
RUS 2000  473.34 -  0.86   475.51   471.25
DJ TRANS 2827.87 -  3.26  2840.86  2803.82
VIX        25.73 +  1.71    26.30    24.16
Put/Call Ratio      0.66
******************************************************************

Grossly Desperate (Bullish) Participants

Of course the other meaning of the acronym GDP is gross domestic
product.  But the former sums up Wednesday's tape pretty well.
Although GDP figures came in slightly higher than consensus
estimates, the number failed to stabilize the market, let alone
lift it.  Advanced Micro Devices' (NYSE:AMD) lowering of guidance
didn't help.  And traders weren't feeling bullish ahead of Sun
Micro's (NASDAQ:SUNW) mid-quarter update after the bell.  Just
another long, hot summer day.







The Nasdaq managed to hold support, no thanks to the Semiconductor
(SOX.X), Networking (NWX.X), and Internet (INX.X) sectors.  The
latter of which fell to a four-year low Wednesday.  All three of
the aforementioned sectors broke down below key support levels,
while only the Biotech (BTK.X) sector managed to hang tough.
Despite the weakness across the sectors, the Nasdaq Composite
(COMPX) didn't fall below its relative low at 1817.  And neither
did the Nasdaq-100 (NDX.X), which is near a critical support level
at 1485.  Insofar as support concerns the COMPX, bids might begin
appearing between the 1785 to 1800 range, while sellers should
exert force at the 1890 level.

The Dow Jones Industrial Average ($INDU) and the S&P 500 (SPX.X)
did, however, take out their relative lows.  The Dow should now
face resistance during any forthcoming bounce around the 10225
level, which had propped it up for some time.  In terms of
support, the Dow's next major level is...gasp...10,000.  For the
S&P, the area between 1155 and 1170 is congested, while the
upper-end of that range serves as meaningful resistance.  And
for support, the S&P has help starting at 1135.

The much-hyped release of revised second-quarter GDP figures
Wednesday morning may have been partially responsible for the
breakdowns in the S&P and Dow.  Although the number came in a
tick better than expected, the equity markets were reminded that
the economy remains mired in a slowdown.  Equity futures
rallied after the Commerce Department released its revised
figures, but stocks began weakening right after the opening
bell, which reinforced the fact that sellers remain in control
of this market.

In its revised report, the Commerce Department reinforced that
the biggest contribution to the economy was coming from the
U.S. consumer and its spending habits during the second-quarter.
The biggest change in the revised report came from updated
inventory figures, which showed a measurable decline during the
second-quarter, which is actually a good thing.  But, perhaps
the most disconcerting aspect of the report was the revelation
that business investment remained extremely weak, specifically
investments in equipment and software.  (The 0.2 percent
annual growth rate, by the way, is the lowest in the last eight
years.)

After digesting the report, market participants opted for debt
securities for their relative "safety."  In other words, the
ongoing flight to quality pushed treasury bonds ever-higher
Wednesday, which drove the yield in the 30-year Treasury Bond
(TYX.X) to a five-month low.  As long as this dynamic continues -
the high correlation between yields and stock prices - the
buying of bonds necessitates raising capital elsewhere (Read:
Selling Stocks).

Of course the continued deterioration in corporate earnings isn't
helping the demand side of the equation for equities.  Advance
Micro guided to the low-end of its previous range Wednesday
afternoon, which was the main source of the SOX's excessive
weakness.  During its second-quarter earnings report in early
July, Advance Micro warned of continued weakness in its flash
memory business and guided to a drop in total revenues by
between 10 and 15 percent quarter-over-quarter.  Wednesday
afternoon, an AMD official essentially reiterated the weakness in
the flash memory business and directed investors towards the
lower end of its previous guidance of a 15 percent slide in
sales.  As a result, shares of AMD shed a more than 4 percent.

Those traders who avoided buying Sun Micro ahead of its
mid-quarter update Wednesday afternoon were for the better.
The company reported that it didn't expect to breakeven during
its fiscal first-quarter, while consensus estimates ahead of
the meeting were calling for a 2 cent per share profit.  In
addition, the company did not give further revenue guidance.
Apparently, things in Asia/Pacific and Europe have grown
worse.  Shares shed about 60 cents in the after hours
session.

In other after hours news, Altera (NASDAQ:ALTR) reaffirmed
its previous guidance, which wasn't very good to begin with
and Corning (NYSE:GLW) announced another 1,000 job cuts.  The
overall tone of the after hours news was negative, with a
drop in futures - both NDX and SPX - indicating that much.

With the breakdowns in the Dow and S&P Wednesday, along with
the negative after hours news, there's reason to believe that
the market will continue sliding into Thursday's session.  But
consider that the Dow and S&P - through Wednesday's session -
have fallen in the past three days.  More importantly, the two
haven't fallen in four consecutive days since mid-June.  By
technical measures, neither the S&P nor the Dow is oversold.
But three big down days may be enough to induce another round
of short covering.  So, don't go out with reckless abandon
shorting stocks; make sure a plan is in place!

Furthermore, volume, as if it weren't light enough already, is
sure to dry up in the coming days as market participants head
out for one last summer retreat.  The lack of participation is
going to create an illiquid environment, which will make gaming
price action all the more difficult.  So if you must trade ahead
of Labor Day, it may be prudent to go with half positions.

Finally, the European Central Bank (ECB) is conveying Thursday.
This event may act as a catalyst for the U.S. markets, whether
it's a positive or negative catalyst most likely depends upon
the ECB's actions.  Up until this point, the ECB has been rather
stingy with its monetary policy due to concerns over inflation
across the Atlantic.  And many feel that the ECB has been
pursuing the wrong policy in light of the global economic
weakness, which was clearly present in Sun's guidance during its
conference call.  Needless to say, the pressure is on for the
ECB to cut rates.  If it does, shorts may have a reason to cover
their bearish bets.  If the ECB doesn't cut rates, which would be
a huge disappointment to European and American markets, the
recent weakness may be exacerbated to the downside.  Either way,
those trading Thursday should be aware of the ECB's decision on
rates.

For Option Investor readers getting an early start on the Labor
Day weekend, have a safe and happy reprieve from this mania we
call the market!

Eric Utley
Option Investor


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

GDP Ekes Out a Gain

Revised gross domestic product was expected to be flat or
possibly negative for the second quarter, but managed to grow
0.2%.  While the economy grew more than expected, it was still
the worst performance in eight years.

Short sellers took advantage of the situation, and pushed the Dow
and S&P 500 through recent support levels.  The weakness in
equities spurred buying in bonds, which pushed the yield on the
5-Year Note beneath the March 2001 low of 4.382%.

Semiconductors were today's worst performing sector after
Advanced Micro Devices (AMD) reported they see an operating loss
and lower revenues for Q3.  Sales of flash memory products are
expected to fall 30%, which will cause to total revenue to fall
15%, which will lead to an operating loss for the quarter.
Lehman Brothers is also expecting Cypress Semiconductor (CY) to
lower guidance after experience a weak August.

The Software Index came under pressure after shares of video game
publisher Take Two Interactive Software (TTWO) reported lower
third quarter profits.  Computer Associates stock also fell 2%,
even though Charles Wang and the rest of CA's board fended off a
challenge from Texas billionaire Sam Wyly.

The Internet Index (INX.X) fell to a three year low on the
weakness of Yahoo (YHOO) and Amazon (AMZN).  eBay had been down
$1.48 earlier in the session, but managed to rally to an 8 cent
loss.

Biotechnology was one of the few sectors that finished the day in
positive territory, managing a 0.55% gain on the strength of
CORR, PDLI, VRTX, and GENZ.

Oil, forest product, and insurance stocks also finished the day
in positive territory.

Technology could be in for another rough day tomorrow after Sun
Microsystems warned they are struggling to break even in the
first quarter due to declining order rates.  Corning also
announced that 2001 fiber optic growth is well below forecast,
and will be cutting 1,000 jobs.

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

            Support                Close              Resistance
DJIA       |10,000  |      |10091 |      |      |      |  10,450|
NASD       | 1,710  |      |      | 1843 |      |      |   2,000|
S&P 500    | 1,133  |      | 1149 |      |      |      |   1,200|
Rus 2000   |   465  |      |      |  473 |      |      |     481|
Semis      |   535  |      |  570 |      |      |      |     660|
Biotech    |   473  |      |      |      |  542 |      |     575|
Internet   |   121  |      |      |      |  118 |      |     125|
Networking |   300  |      |      |  294 |      |      |     330|
Software   |   158  |  161 |      |      |      |      |     175|
Banking    |   650  |      |  639 |      |      |      |     685|
Retail     |   858  |      |  847 |      |      |      |     880|
Drugs      |   380  |      |  388 |      |      |      |     410|

Support Alerts: Dow, S&P 500, Internet, Banks, Retail
Resistance Alerts: Resistance levels have been lowered.
            ____________________________________________________
           |   Long    |   Short   |   Strength    | Relative   |
           |   Term    |   Term    |     of        | Strength   |
           |   Trend   |   Trend   |    Trend      | vs S&P 500 |
DJIA       |  Bearish  |  Bearish  |     Weak      |  Neutral   |
NASD       |  Bearish  |  Bearish  | Strengthening |  Negative  |
S&P 500    |  Bearish  |  Bearish  | Strengthening |    --      |
Rus 2000   |  Bearish  |  Bearish  |     Weak      |  Rising    |
Semis      |  Bearish  |  Bearish  |     Weak      |  Neutral   |
Biotech    |  Bearish  |  Neutral  |     Weak      |  Positive  |
Internet   |  Bearish  |  Bearish  |    Strong     |  Negative  |
Networking |  Bearish  |  Bearish  | Strengthening |  Negative  |
Software   |  Bearish  |  Bearish  |    Strong     |  Negative  |
Banking    |  Neutral  |  Bearish  |   Weakening   |  Negative  |
Retail     |  Bearish  |  Bearish  |     Weak      |  Negative  |
Drugs      |  Neutral  |  Bearish  |     Weak      |  Positive  |

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


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

The Virtue of Sin
By Mark Phillips

You won't find Philip Morris (NYSE:MO) in the holdings of the
relatively new crop of socially responsible mutual funds due to
the fact the company is a major player in the tobacco and
alcohol (through Miller Brewing Company) businesses.  If MO had
a stake in adult entertainment, they would have a lock on the
"Big Three" marketable sins - hence the fact that it is commonly
referred to as a 'Sin Stock'.  Despite its politically
unfavorable nature, discerning investors would do well to
seriously consider the stock as an addition to their investment
portfolios.

The big issue confronting the stock in recent years has been the
rash of smoker-related lawsuits, which threaten billion-dollar
udgments against the company.  While some of these suits have
actually resulted in judgments against the company, the amounts
of the actual awards have been (and will likely continue to be)
chump change compared to the piles of cash MO brings in and
awards to its shareholders in the form of beefy dividends.
That's right...dividends.  Long time readers may be shocked to
hear me utter that word, especially since we can't have a piece
of that action through the purchase of LEAPS...or can we?  More
on that a little later.

An important point overlooked by many investors is that MO's
business consists of far more than just smokes and booze.
Heavily involved in the food business through its Kraft unit,
MO derives income every time I get a craving for Oreos,
Cheeze-Its or need to cover up that indiscretion with a couple
of Altoids, those "curiously strong mints".  How about
Grey-Poupon mustard?  A1 Steak sauce and the Bulls-eye BBQ
concoction?  Yep, they get a piece of that action as well.  And
even after the recent Kraft IPO, MO retains over 97% ownership
of its Kraft division.

Of course, we can't forget the company's Financial arm, which
invests in leveraged and direct finance leases, along with other
tax-oriented and third-party financing transactions.  As of the
end of 2000, total assets of this division were $8.4 billion.
That's nothing to sneeze at!

The point is that MO makes the bulk of its income through
methods that J. Paul Getty would have loved.  The wealthy
industrialist once said that the road to wealth is to sell
products that either go up the smokestack, down the drain, or
out the tailpipe.  While he was referring to industrial America,
MO has applied that advice to the billions of "biological
factories" that are walking around this little ball of dirt we
call Earth.  The company provides the products to keep us fueled
up in our day-to-day lives, as well as satisfy whatever legal
vices we each may happen to have.  And the best part is, we keep
coming back for more!

Demand for MO's products are relatively insensitive to gyrations
in the economy too.  Have you noticed that your concerns about
the economy have you purchasing fewer boxes of Kraft Macaroni &
Cheese?  How about your smoker friends?  Have they cut back
their use of this dangerous and controversial product over the
past couple years -- a period of time which has seen the price
of a pack of cigarettes increase by nearly 100%?  Of course not.
And that demand side of the equation is what keeps MO's cash
flow on the rise.  The company consistently delivers a portion
of that cashflow to its investors in the form of dividends.
This morning, MO delivered their usual dividend increase to
shareholders, raising the annual dividend to $2.32.  That
equates to a dividend yield of 4.88% at the stock's recent
price of $47.50.

Which brings me back to the subject of dividends and the fact
that we don't get to participate in them as LEAPS investors.
But that doesn't mean we can't profit from a stock BECAUSE it
has a hefty dividend.  As the economy has continued to weaken,
investors have fled equities and much of that money has been
finding its way into the bond market.  What is the current yield
on the 5-year government bond?  4.36%!  Even the 10-year bond
is yielding only 4.79%, and only the 30-year bond is yielding
more than 5%.  Corporate bonds will yield a greater return, but
at an increased risk...just like the risk/reward dynamic in
equities.

So we have a company that is providing a stable and growing
revenue stream in an economic slowdown (ok, I know it is REALLY
a recession...).  How many earnings warnings has MO issued in
the past 18 months?  Answer:none.  And the yield from dividends
is at least competitive with interest rate vehicles.  That means
MO is a likely safe haven for investor dollars in the current
environment.  How does it help us?  I thought you'd never ask!

The stability in MO's revenue stream and dividend yield limit
the downside risk in the stock, making it both an attractive
LEAPS candidate during a sharp pullback (like we got a few weeks
ago), and a lucrative Covered Call play (as we see setting up at
this time.  This allows us to profit from near-term
directionless movement (rangebound between $43-53), as well as
our expectation for long-term appreciation.

Here's the MO entry we took in the Portfolio back on July 30th.



Weekly Stochastics were looking a bit weak, but the daily was
looking like it was near a bottom and we got a nice solid bounce
from the $43 support level.  Given the solid fundamental picture
we took the position and were almost immediately rewarded.



Three days later, we got a shot at taking in some premium by
selling the August $47.50 call, although this was a fairly
aggressive entry.  But we're setting up for another opportunity
to sell calls as of this writing.  The aggressive approach will
be to sell the September $47.50 (actually in the money right
now) or the October $50 call, which is likely to expire
worthless due to significant overhead resistance.

This is another sedate LEAPS covered call play for your
consideration, with relatively cheap premiums, making it an
attractive prospect due to the ease with which we can work our
cost basis down to zero in the months ahead.  The advantage of
MO over several of the other plays we have talked about in
recent weeks is the underlying fundamental picture, which should
help to support the stock, giving us a nice steady appreciation
in the LEAP over the longer term.

So maybe there is some virtue to sin -- at least for discerning
investors.  There are always attractive investment opportunities.
With the current economic weakness, we just have to dig a little
deeper to find them.

Questions are always welcome!

Mark Phillips
Contact Support


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

QLGC - put
Adjust from $36 down to $35

SEBL - put
Adjust from $26 down to $25

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

VRSN $38.69 -5.95 (-8.32) Talk about a beating!  VRSN was one
of the largest point losers on the NASDAQ on Wednesday,
extending its 2-day loss.  We recently tightened our stop to
$43.75 due to our concerns this could happen and we were taken
out of the play shortly after the opening bell.  Continued poor
economic news sent the major markets into a tailspin early
today and with daily Stochastics starting to point south, VRSN
was in no condition to rebuff the bears' advances.  Not only
did the stock not recover, but fell through the $40 level for
the first time since April 10th.

PG $74.02 -0.97 (-2.98) The profit taking pullback we witnessed
Tuesday continued into Wednesday's session, as weakness inspired
by the Dow and S&P inspired weakness in PG.  The stock looks
like it's reversing trend, and closed well below our stop.  In
addition, the rebounding dollar isn't helping PG too much.  As
such, we're dropping coverage this evening and those traders
with open positions can use any relief rally early Thursday to
exit open positions.


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

No dropped puts tonight


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

IWOV - Interwoven $7.47 +0.27 (-0.51 this week)

Interwoven, Inc. provides software products and services that
help businesses and other organizations manage the content of
their Websites. Interwoven operates in the Internet industry
engaged in Web content management. The Company's flagship
software product, TeamSite, is designed to help customers
develop, maintain and extend large Websites that are essential to
their businesses. Using TeamSite, the Company's customers can
manage Web content, control the versions of their Websites,
manage Website contribution and content approval processes, and
develop e-business applications.

Most Recent Write-Up

Our bottom-fishing play on IWOV may be in trouble after failing
for 2 days in a row to hold above the 20-dma (currently at $8.03).
Stochastic are weakening and we saw selling volume on Tuesday in
excess of the ADV.  Broad market weakness may have been largely
responsible for the sharp drop in price, but we need to see the
stock hold above support to keep the play alive.  Look for a
bounce from the vicinity of $7.00, and note that our stop is
just below that at $6.85.  More conservative traders will want
to wait for renewed strength in the stock before taking a
position.  If that fits your investment style, look for IWOV to
push above the $8.00 resistance level on strong volume.

Comments

IWOV rebounded in style Wednesday, despite the broader market
weakness.  The stock rebounded from roughly the $7 level and
held a steady trend throughout the majority of the session.
Any relief really in the Nasdaq Thursday could set IWOV up for
a good day.  Look for bounces from $7.40, or an advance above
$7.60 in a strong market.

BUY CALL SEP- 5.0 IUW-IA OI=  36 at $2.75 SL=1.50
BUY CALL SEP- 7.5*IUW-IU OI=1171 at $0.85 SL=0.25
BUY CALL SEP-10.0 IUW-IB OI= 774 at $0.25 SL=0.00
BUY CALL OCT- 7.5 IUW-JU OI= 138 at $1.35 SL=0.75
BUY CALL OCT-10.0 IUW-JB OI= 139 at $0.65 SL=0.25

Average Daily Volume = 3.33 mln



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

A Dismal Outlook!
By Ray Cummins

The stock market slumped again today as worries about the sluggish
economy and weak corporate profits overshadowed favorable GDP data.
The gross domestic product increased by 0.2% in the second quarter,
slightly ahead of the expected 0.1% but well below the previously
reported 0.7-percent growth rate.  The prime source of growth in
the second quarter was consumer spending and inventories dropped
$38 billion, a positive for GDP growth going forward.  Investors
had feared that GDP data would come in negative for the first time
in eight years, which would have boosted recession fears.  Experts
say one of the keys to future economic growth is consumer spending,
since corporate investment is unlikely to recover until profits do,
and it's critical that households continue to borrow and expend
their incomes at a robust pace.  At the same time, analysts suggest
the decline in wealth is putting pressure on households to save
rather than spend and most experts agree that additional rate cuts
are needed to offset that influence.  Despite the bearish outlook,
trading volume was light in today's session, due to the upcoming
holiday weekend.  The Dow Industrial Average was the weakest of the
major indices, enduring a triple-digit drop amid poor performances
from United Technologies (NYSE:UTX), Alcoa (NYSE:AA), Caterpillar
(NYSE:CAT), Minnesota Mining (NYSE:MMM), Hewlett-Packard (NYSE:HWP),
J.P. Morgan Chase (NYSE:JPM) and Home Depot (NYSE:HD).  Technology
stocks were battered by renewed selling in the semiconductor group,
which faltered after a revenue warning from Advanced Micro Devices
(NYSE:AMD).  The company noted at the Wit Soundview Semiconductor
Conference that it sees sequential revenues declining at least 15%
and expects the revenue shortfall to result in an operating loss
for the third quarter.  In the networking group, Juniper Networks
(NASDAQ:JNPR) slumped after Merrill Lynch lowered its quarterly
earnings estimates on the company and issued cautious comments on
the sector, indicating that business trends for high-end routers
continue to be lackluster.  Merrill also said that the overall
market in the networking industry may contract by up to 10% in the
third quarter.  In the broader markets, oil, paper, insurance and
gold stocks were among the few upside movers while airline, retail,
financial, and chemical issues generally retreated.  On the bright
side, CIBC World Market's Subodh Kumar announced his target is for
a 25% earnings recovery in 2002 and long-term earnings growth of
7.5 to 8%, as future earnings cycles propel the equity markets.
Kumar also suggested that efficiency-driven capital spending will
rebound with rising industrial production and that leverage in
future earnings cycles lies in the cyclical areas and technology
and communications.


Summary of Previous Candidates:

Covered Calls: (Margin not used in calculations)

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

GILD    SEP    50    48.06  61.55    $1.94   4.1%

Naked Puts:

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

GILD    SEP    45    44.20  61.55    $0.80   6.3%
SNPS    SEP    45    44.05  46.21    $0.95   5.9% Closed?
PDLI    SEP    40    39.00  60.18    $1.00   5.7%
CCMP    SEP    55    54.15  74.30    $0.85   5.6%
ADI     SEP    40    39.40  48.76    $0.60   5.1%
OPMR    SEP    40    39.35  44.55    $0.65   5.0%

SNPS has broken down and will be shown closed. A $10 drop to
the next support area is possible if SNPS fails to hold near
$45.
OPMR has broken its recent 3-month trend and is now testing a
key technical support area at its 50 dma.  Monitor the positon
closely.

Sell Strangles:

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

NVDA    SEP    60p   59.00  84.28    $1.00   4.5%
NVDA    SEP   105c  106.40  84.28    $1.40   6.2%

QCOM    SEP    55p   53.70  62.72    $1.30   7.3%
QCOM    SEP    70c   71.25  62.72    $1.25   6.2%

Naked Calls:

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

None this week.

Credit Spreads:

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

COCO  $49.79  $52.42   SEP40p/45p  $1.00   $44.00  $1.00  Open
NKE   $48.00  $50.25   SEP40p/43p  $0.40   $42.10  $0.40  Open
IVGN  $63.99  $71.05   SEP80c/75c  $0.75   $75.75  $0.75  Open
BOW   $47.32  $47.05   SEP40p/45p  $0.75   $44.25  $0.75  Open
CHV   $93.01  $91.76   SEP85p/90p  $0.75   $89.25  $0.75  Open
KMI   $54.33  $56.45   SEP45p/50p  $0.70   $49.30  $0.70  Open
BSC   $55.50  $53.62   SEP65c/60c  $0.65   $60.65  $0.65  Open
BAC   $64.65  $60.05   SEP55p/60p  $0.60   $59.40  $0.60  CLOSE?
POT   $64.00  $63.42   SEP55p/60p  $0.90   $59.10  $0.90  Open
EBAY  $56.91  $53.90   SEP70c/65c  $0.75   $65.75  $0.75  Open

BAC broke through its 50 dma and a move towards its 150 dma at
$57.50 appears likely.

Debit Straddles:

Stock  Position    Debit  Target   Value    Gain     Status

SNE   SEP50c/50p   $5.75  $7.48    $4.00   ($1.75)   Closed?

The put side of the SNE straddle was offered as high as $4.50
last week, which would have allowed for a break-even exit on
Friday's rally.  With less than 4 weeks left to expiration and
a holiday weekend approaching, we will show the play closed
as time erosion is increasing exponentially.  More aggressive
players may choose to remain in the bullish portion of the play
(SEP-$50 call) in expectation of an oversold rally.


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

***************
CBST - Cubist Pharmaceuticals  $42.50  *** Rally Mode! ***

Cubist Pharmaceuticals (NASDAQ:CBST) is a specialty pharmaceutical
company focused on the research, development and commercialization
of novel antimicrobial drugs to combat serious and life-threatening
bacterial and fungal infections.  Cidecin (daptomycin for injection),
the company's lead product candidate and the first in a new class
of antimicrobial drug candidates (lipopeptides), has demonstrated
the ability, in vitro, to rapidly kill virtually all clinically
significant Gram-positive bacteria, including those that have
become resistant to current therapies.  The company expanded its
current product pipeline by announcing the development of an oral
formulation of daptomycin, and by acquiring the worldwide rights
to research, develop, manufacture and sell oral ceftriaxone, an
orally active version of Rocephin, an intravenous antibiotic.  Each
of these programs is in the pre-clinical stage of development.

Shares of CBST rallied last week after another drug manufacturer,
Isis Pharmaceuticals (NASDAQ:ISIP), rocketed almost 50% following
its announcement of a strategic alliance with Eli Lilly (NYSE:LLY).
The stock rose to a high near $15 after Lilly committed more than
$200 million in funding to Isis over a four-year period.  The drug
giant has agreed to make a $75 million investment in Isis through
the purchase of ISIP stock, issuing a $100 million loan and paying
$25 million in licensing fees.  Cubist investors were pleased with
the news as the drug maker is now seen as a potential candidate
for outside funding and since the announcement, the issue has shown
new signs of a bullish trend.  These positions offer a method to
speculate conservatively on the company's future share value.

CBST - Cubist Pharmaceuticals  $42.50

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 40   UTU IH  983       3.80    38.70     4.4% ***

Sell Put  SEP 40   UTU UH  4         1.30    38.70    10.9% ***

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=CBST
***************
CCMP - Cabot Microelectronics  $74.30  *** Performing Well! ***

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.

Last week, shares of Cabot Microelectronics responded positively
to the stronger-than-expected semiconductor equipment data and
the stock is still performing well, even in the midst of a recent
market slump.  CCMP also has solid near-term support near $68 and
a well-established trading range at $60, which should provide
ample protection for our target cost basis.  Based on the current
price of the underlying issue and its recent technical history,
these positions offer reasonable speculation for traders who are
bullish on the issue.

CCMP - Cabot Microelectronics  $74.30

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  217       0.60    54.40     5.1% ***
Sell Put  SEP 60   UKR UL  574       0.85    59.15     6.9%
Sell Put  SEP 65   UKR UM  694       1.60    63.40     9.6%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=CCMP
***************
LEN - Lennar  $42.50  *** Solid Industry! ***

Lennar (NYSE:LEN) is a homebuilder and provider of residential
financial services.  The company's homebuilding operations include
the sale and construction of single-family attached and detached
homes, as well as the purchase, development and sale of residential
land directly and through its partnerships.  The financial services
operations provide mortgage financing, title insurance and closing
services for Lennar homebuyers and others.  They also package and
resell residential mortgage loans, perform mortgage loan servicing
activities and provide high-speed Internet access, cable television
and home monitoring services to residents of Lennar communities and
others.

Stocks in the Materials and Construction segment are currently in
favor and this position in LEN is another excellent candidate for
a broad market hedge.  The company is one of the leaders in its
industry with homebuilding operations in 14 states and their new
home orders for the month of July 2001 totaled 2,020 homes, well
above the 1,882 homes in the same period in 2000.  In addition,
orders for the past eight months totaled 17,330 homes, compared
to 10,666 homes in the same period last year.  The success of LEN
has helped the issue remain bullish even in the current economic
environment and traders who like to participate in conservative
combination plays should consider this bullish credit spread.

LEN - Lennar  $42.50

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-35  LEN-UG  OI=45    A=$0.25
SELL PUT  SEP-40  LEN-UH  OI=3698  B=$0.85
INITIAL NET CREDIT TARGET=$0.65-$0.75  PROFIT(max)=14%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=LEN
***************
UDS - Ultramar Diamond Shamrock  $ 51.82  *** Hot Sector! ***

Ultramar Diamond Shamrock Corporation (NYSE:UDS) is a refiner
and retailer of high-quality refined products and convenience
store merchandise in the central, southwest and northeast regions
of the United States and eastern Canada.  Their operations consist
of refineries, convenience stores, pipelines and terminals, a home
heating oil business and petrochemical and natural gas liquids
(NGL) operations.  UDS owns and operates seven refineries, with a
combined throughput capacity of 850,000 barrels per day, located
near its key markets, Amarillo and San Antonio, Texas; Los Angeles
and San Francisco, California; central Oklahoma; eastern Colorado,
and in northern Quebec.  Earlier in 2001, Valero Energy (NYSE:VLO)
and UDS entered into an agreement and plan of merger, which is
expected to close in the fourth quarter of this year.

Refining companies have again found favor with investors and
analysts say these firms have real earnings, cash flow, and
assets.  The balance between gasoline supply and demand has also
moved in favor of fuel refiners in recent weeks and in a report
published Wednesday, the Energy Information Administration noted
a decline in current gasoline inventories, confirming earlier
American Petroleum Institute figures.  The news was bullish for
stocks in the oil refining group and Lehman Brothers analyst Paul
Cheng raised his investment rating on the refining and marketing
industry to "overweight" while Merrill Lynch raised its rating on
Valero, the merger partner of Ultra Diamond, to a near-term "buy."
Traders who want to speculate on the performance of a popular
issue in the refining sector should consider this position.

UDS - Ultramar Diamond Shamrock  $ 51.82

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-45  UDS-UI  OI=305  A=$0.20
SELL PUT  SEP-50  UDS-UJ  OI=413  B=$0.70
INITIAL NET CREDIT TARGET=$0.55-$0.65  PROFIT(max)=12%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=UDS
***************
VGR - Vector Group  $42.70  *** Icahn Investment! ***

Vector Group (NYSE:VGR) is engaged principally in the manufacture
and sale of cigarettes in the United States through its subsidiary
Liggett Group; in the development of new less hazardous cigarette
products through its Vector Tobacco subsidiaries; and also in the
investment banking and brokerage business in the United States,
and the real estate business in Russia through its majority-owned
subsidiary New Valley Corporation.  Vector holds these businesses
through its wholly owned subsidiary, BGLS Incorporated.

Shares of Vector Group, the holding company for tobacco makers
Liggett and Vector Tobacco, have rallied recently as financier
Carl Icahn disclosed that he boosted his stake in the company.
Icahn announced that his investment group, High River Limited
Partnership, had purchased 1.5 million common shares of Vector
for $32 per share, or $48 million, raising his total holdings to
6.4 million shares, or 21.5% of the company.  VGR has exploded
on the news, climbing above resistance near $38 (which becomes
support) on heavy volume.  Though the stock is oversold in the
short-term, the bullish technical indications suggest future
upside potential and traders who agree with that outlook should
consider this combination position.

VGR - Vector Group  $42.70

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-35  VGR-UG  OI=17  A=$0.25
SELL PUT  SEP-40  VGR-UH  OI=26  B=$0.90
INITIAL NET CREDIT TARGET=$0.70-$0.75  PROFIT(max)=15%

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

BEARISH PLAYS - Naked Calls & Combinations

***************
IBM - International Bus. Machines  $104.13  *** Rangebound? ***

International Business Machines (NYSE:IBM) uses information
technology to provide customer solutions.  The company operates
using several segments that create value by offering a variety
of solutions, including, either singularly or in some combination,
technologies, systems, products, services, software and financing.
Organizationally, IBM's 3 hardware product segments are comprised
of Technology, Personal Systems and Enterprise Systems.  Their
other major operations consist of a Global Services segment, a
Software segment, a Global Financing segment and an Enterprise
Investments segment.

From a purely technical viewpoint, IBM has failed to move above
its 150-dma after "breaking down" in the beginning of July.  The
long-term view of IBM shows a stock in a 2-year, Stage III "top"
with support near $90 and overhead supply at $110.  The current
short-term trading range from $109 to $102 may resolved to the
downside in the current bearish environment.  Traders who agree
with a neutral to bearish outlook for IBM can profit from that
activity with this conservative combination position.

IBM - International Bus. Machines  $104.13

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-115  IBM-IC  OI=45250  A=$0.30
SELL CALL  SEP-110  IBM-IB  OI=23212  B=$0.85
INITIAL NET CREDIT TARGET=$0.60-$0.70  PROFIT(max)=14%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=IBM
***************
NVDA - Nvidia  $84.28  *** Premium Selling! ***

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

NVDA continues to be one of the top candidates for premium-selling,
as it has a well-defined trading range and the options have robust
premiums, due to their recent earnings report and the announcement
of an upcoming stock split.  Earlier in the month, the graphics
chip designer posted quarterly earnings that were 50% higher than
last year and they raised estimates for the next two years, based
on expected strong sales in its product lines.  NVDA also announced
a 2-for-1 stock split effective August 28.  The new shares will be
distributed by September 11, giving NVDA 143 million outstanding
shares.  Aggressive traders continue to purchase "out-of-the-money"
options to speculate on the issue's movement and we can benefit
from that activity with these premium-selling positions.  Current
news and market sentiment will have an effect on the position, so
review the issue thoroughly and make your own decision about its
future movement.

NVDA - Nvidia  $84.28

PLAY (aggressive - sell naked call):

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

Sell Call SEP 90   RVU IR  5365      2.35    92.35    10.2%
Sell Call SEP 95   RVU IS  2462      1.20    96.20     6.6% ***

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


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