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Daily Newsletter, Sunday, 09/02/2001

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The Option Investor Newsletter                   Sunday 09-02-2001
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        WE 8-31          WE 8-24          WE 8-17          WE 8-10
DOW     9949.75 -473.42 10423.17 +182.39 10240.78 -175.47  - 96.53
Nasdaq  1805.43 -111.37  1916.80 + 49.79  1867.01 - 89.24  -109.86
S&P-100  577.40 - 29.31   606.71 + 12.84   593.87 - 17.54  - 12.24
S&P-500 1133.58 - 51.35  1184.93 + 22.96  1161.97 - 28.19  - 24.19
W5000  10515.09 -433.32 10948.41 +188.32 10760.09 -234.36  -248.49
RUT      468.56 - 12.25   480.81 +  5.16   475.65 +   .13  - 11.63
TRAN    2813.41 - 40.98  2854.39 + 29.74  2824.65 - 36.12  - 53.25
VIX       27.85 +  5.56    22.29 -  4.45    26.74 +  3.93  +   .42
VXN       52.86 +  5.16    47.70 -  4.32    52.02 +  3.50    48.52
TRIN        .71              .70             2.67             1.03
TICK        -74              351              201
Put/Call    .82              .56             1.07              .72 
******************************************************************

Summer Rally is Officially Dead! Is The Labor Day Rally Next?
by Jim Brown

The summer rally theory is officially dead at least for this year.
The next major urban legend to enter the spotlight is the Labor
Day rally and measured by Friday's results it is off to a bad
start! While the stock traders almanac shows that historically
the first three trading days of September are typically bullish
it does not take into account current conditions. Apparently the
markets were not impressed by past history in 2000 because the
results were far from exciting. On Sept 1st, 2000 the Nasdaq
touched 4259 as the high and then sold off to 3054 only 30 days
later. The Dow hit a high of 11401 on Sept 6th, 2000 and then
dropped -1745 points to the October lows on 10/18. So, is the
Labor Day picnic this year going to be hosted by the bulls or 
the bears?


 

 

As relief rallies go, Friday was a two on a scale of 10. I got
the feeling that we were saved by the bell not a minute too soon
as bulls and bears alike went flat over the weekend. The Dow
soared at the open on better than expected economic news to 
10036 and traders were ready to pop the Labor Day bubbly only
to watch those gains fade again to close just under 9950. This
was the second time in two days that the Dow closed under that
psychologically important level. The Nasdaq also rallied at
the open but then traded sideways to down the rest of the day.
Short covering was not as heavy as expected with stocks like
SUNW only adding $.38 on one third of Thursday's volume. If 
shorts decided to hold over the weekend then the odds of a 
market rebound next week just got slimmer.

The Nasdaq and Dow posted the worst August since the Asian
crisis in 1998. This was the third worst August for the Nasdaq
in its 30 year history. August has gone into the history books
as the worst month of the year for the last ten years. September
holds that record however if you include the last 30 years. 
Not an exciting possibility for the market going forward if 
the market fails to rally off good economic news in a period
that is historically bullish, Labor Day.

The good economic news came in the form of a better than expected
Factory Orders report. They posted a miniscule +0.1% gain but
much better than the -0.3% loss that was expected. The inventory
to shipment ratio did fall to 1.38 from 1.40. Negative internals
included a drop in semiconductor orders of -26.1%. Consumer goods
including household appliances and autos posted increases. The
Chicago PMI index increased to 43.5 in August which was up from
last months 38 but extending the decline to eleven straight months.
This shows that manufacturing is still contracting and there is
no sign of a recovery at the basic level. While the number improved
slightly the backlog of orders remained weak. 

The headline numbers spurred the markets at the open but any loud
noise could have spiked the markets from their oversold conditions.
The earnings news and the anticipation of the September warnings
period has caused buyers to become catatonic and it may take a
flood of positive news before buyers actually believe it. There
is considerable reason to be worried about next weeks reports.
The NAPM is due on Tuesday along with Construction Spending.
Productivity on Wednesday and Wholesale Inventories and Jobs
Report on Friday. A drop in spending, increase in inventories
or a serious change in the employment numbers along with the
expected flurry of early warnings could shock the markets back
to the April lows. The U.S. economy may be on life support and 
maintaining a pulse as evidenced by the +0.2% GDP number but
the global economy is still falling. Japan's Nikkei 225 index
fell another -225 points on Friday to 10713, a number not seen
since August of 1984 when our Dow was only 1200. Japan is the
second largest world economy and analysts say a sub 10,000 Nikkei
will seriously cripple an already sick banking system. Remember
the Asian crisis of 1998? Get ready for 2002 if something does
not happen quickly. Japan may be the most visible but there are
problems in most European and Asian markets as well. The ECB
cut rates for only the second time this year with a statement
that the severity of the U.S. problems caught them by surprise.
Congratulations, they caught the Fed by surprise as well!

The Fed chairman himself opened the Jackson Hole conference on
Friday and in his speech he expressed concern over the net
worth of the U.S. consumer. He said the capital gains from
their homes was continuing to fund spending and holding the
economy just above recession. He did express concern that
the average household net worth had soared in the last ten
years and fueled the rapid growth but that same net worth
had "retraced some of its earlier gains." In English it means
most households are now on the verge of broke after losing
all of their money in the Nasdaq bubble. They are having to 
sell their homes to pay off bills and taxes incurred when the
markets were hot. Yes, there is cash to be spent when homes
are sold but I don't think distressed selling is the way to
support the economy. He danced around the subject as always 
and said the Fed was developing some new indicators for future
policy changes. In English, they got caught raising interest
rates aggressively while the economy was going through cardiac
arrest from an overdose of irrational exuberance. All of this
points to a Fed that will cut rates again on October 2nd but
nobody will care. After seven rate cuts the markets are still
tanking and showing a growing resistance to the rate cut
antibiotic. Several noted analysts have suggested in public
recently that Greenspan may have passed his prime and new
blood may be needed to inspire confidence in investors that
the Fed is in control.

The positive ending for the markets on Friday came on very weak
volume. The NYSE only managed 900 million and the Nasdaq 1.2
billion. Advancers only barely beat decliners and the amount
of the average advance was only a few cents. Definitely not
a buying frenzy. When deciding what the markets will do next
week you have to think about the psychology of fund managers
and institutional traders when they come back from their holiday.
What has changed to make them want to buy? There was no 
capitulation sell off this week. Despite the three days of
triple digit drops on the Dow it was on only moderate volume.
Earnings have not improved overnight. Warnings still continue
daily and the biggest warning from Friday night was of all
things a chip stock. LRCX warned that it was cutting another
10% of its workforce and implementing company-wide shutdown
days along with voluntary pay cuts. LRCX makes equipment for
chipmakers and they said the slowdown in orders was continuing.
So much for chips leading any recovery next week. Intel will
also keep the lid on any chip rally with its version of the 
SUNW business update on Thursday. They will tell analysts
how business is progressing and tout new products. They could
take this opportunity to warn as SUNW did and set the tone 
for September at an early date. Hitachi announced another 15000
layoffs this week due to slowing global demand and Intel could
be facing the same order pressures.

For next week traders should be very careful. Even on good years
September tends to favor sellers after the first couple of days.
There has been no capitulation on the down side and we are still
quite a ways from touching the April lows. There is a growing
group of analysts that think those lows will not hold due to 
the worsening global economic environment. Not a pleasant thought!
Still as option traders we should "trade what we see, not what
we believe." Just because we believe the market is oversold 
and the mythical Labor Day rally is about to break out all over,
we should still only place those trades when we see it come
to pass. Many traders from the last three years are employees
again because they just "knew" the market was going to bounce
soon. Many retirees are rejoining the workforce because the
"market always goes up". As investors we need to trade the
trend or not trade at all. Literally billions have been lost
over the last three months because of the old adage, "don't
fight the Fed." Whenever the Fed cuts rates the market goes
up, or so the saying goes. You probably remember the various
charts that analysts used on stock TV several months ago to 
illustrate the gains after specific numbers of rate cuts. Have 
you seen any recently?

The point I am trying to make here is that market history is
just that, market history. The market is alive and well and
deciding its own direction on a daily basis as news and events
by the thousands color investor decisions. Opinions are as
numerous as analysts and change with the wind. My opinion is
September will be difficult. We are at the point economically
where ANY further negative news will send the remaining stock
traders running into bonds. Sorry, that is already happening!
Any further negative news will push the Fed's economic plan
over the cliff and all the kings men will not be able to put
it back together again. The fate of the U.S. economy may not
even be in our own hands. If Japan continues to spiral down
into economic oblivion the whirlpool will take many others
with it including the U.S. As bear markets go this one has
already overstayed its welcome. Since the market top in March
of 2000 we have seen 17 months of drops which included dozens
of bear trap rallies. What has changed in the last week that
will cause September to perform different than August? What
will make it break the 30 year pattern as the worst month of
the year? in my opinion, nothing! 

You hear all the bullish analysts saying this year is different.
The sell off has already run its course and we have no where
to go but up. They say this is not a normal year and the bargains
will lure buyers out early in anticipation of the 4Q rally.
Some are actually putting their money where their mouth is.
Commercial traders are actually net long and approaching the
most bullish numbers of the year. This may be contrary to
current market direction but shows they are "buying stocks
when nobody else wants them", another market adage. This is
a positive sign but when added to the other indicators it
means less. The VIX is holding just below 28 and the put/call
ratio is only .82. The TRIN fell from very oversold at 2.28
on Thursday back down to a normal reading at .71. These are
not rally numbers but they also are not pointing to a major
drop on Tuesday. The answer to this puzzle is likely a continued
down trending market until some real evidence of a recovery
appears. This means we need to trade the trend or wait patiently
for the trend to change. We loaded the play list this weekend
with puts after watching the market rebound fail on Friday.
Hopefully history will repeat and we will get some follow
through to the upside on Tuesday and give us some good entry
points for those puts. Trade the trend or don't trade at all! 
       
Remember these charts from last Sunday? I was making a point
that the VIX was indicating a possible sell off in the making
for the Dow. History is a good teacher is we choose to learn.
The Dow dropped -473 points for the week.


 


Definitely, enter passively, exit aggressively!

Jim Brown
Editor


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

Put Players Paradise

The markets failed to hold their gains on Friday and shorts
did not cover. This scenario sets up the possibility that we
could see a weak follow through on Tuesday/Wednesday, if at all,
and then more selling. The correct way to play this is to target
some weak stocks and buy puts on any strength in anticipation 
of a roll over.

The following list is some stocks I scanned which could be
potential put candidates. This is not a recommendation but
simply some stocks that could continue to fall if the market
continues down.

TSG - Sabre Holdings
HCR - Manor Care 
PHA - Pharmacia
SBC - SBC Communications
HWP - Hewlett Packard
CPQ - Compaq
BA  - Boeing
JPM - JP Morgan
MMM - 3M
GD  - General Dynamics
VRTS - Veritas
MOLX - Molex
QLGC - QLogic Corp
ARNA - Arena Pharm
SEBL - Siebel Systems
CERN - Cerner Corp


I chose these three as good possibilities. Please look for
a market bounce to enter these plays. The market is still
oversold and we could see some follow through on Tuesday
before we start down again.
 

GD - General Dynamics


 

The September put at only $.80 would make a good lottery play
but chances are only 50/50 that it will appreciate before
the Sept expiration. The October put has time to use any 
Sept drop or the always exciting October period for profit.
At $1.65 there is not much risk and plenty of opportunity
for reward. Support is at $75 which is sure to be tested
and any break of support could be a home run.

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

CERN - Cerner Corp

 

Cerner appears due for a bounce back to $50 which would provide
a great entry point for the Oct $45 put at less than the current
$2.25 price. Support is at $40 and the July spike still needs
to be refilled. When the markets drop again the higher dollar
stocks will suffer the most and a stock like CERN with low volume
could drop quickly if one or two big sellers decided to leave.

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

TSG - Sabre Holdings Group

 

Sabre is a software and technology company that deals with
airline bookings. With travel in a downward spiral the commissions
and software sales are likely to be falling as well. Support is
at $38 which makes the $40 put the best play. Again, I like the
October which gives it plenty of time to test that support.


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

Trade the trend or do not trade at all! That would be my
admonition for this week. Use any strength to enter the 
put plays instead of just buying on a whim.

Good Luck

Jim Brown


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

Good Riddance

August has historically been a bad month for Dow and S&P 500, and 
this year was no different.   The Dow closed 5.45% lower than it 
started the month, and the S&P 500 fell 6.41%.  The Nasdaq lost 
10.94%.  At least we finished the month on a slightly positive 
note.

Stocks were able to stop a four-day slide thanks to a Chicago 
Purchasing Managers Index that came in better than expected.  
38.0 was the consensus estimate, but the number came in at a 
surprising 43.5.  A reading below 50 means that manufacturing is 
contracting, but at least August was an improvement. Factory 
orders rose 0.1%, which helped to minimize the damage of a worse 
than expected University of Michigan Consumer Sentiment.

Dow and Nasdaq-100 Daily Charts


 

At one point on Friday the Dow had managed to climb back above 
10,000, but once the economic report euphoria wore off, there 
just wasn't enough buyers around to keep it there.  9,970 and 
10,000 remain points of resistance for the Dow.

The Nasdaq-100 Tracking Stock gained 1.27%, and actually managed 
to climb back above last week's low.  IF the Nasdaq-100 can 
continue to rally, perhaps at test of 40 could happen next week.  
Holding above $36.50 wouldn't be bad either.

So now we have August out of the way.  No more talk of summer 
doldrums, vacations, and light volume.  It's time to get back to 
business.  What might September hold?

Wall Street will start September with $6 billion less to work 
with as equity mutual funds had yet another week of net 
withdrawals.  Most of those withdrawals stemmed from investor 
fears about the economic and corporate outlook.  With warning 
season shifting into high gear, Investors will have plenty to 
worry about.  Barring a string of positive surprised, rallies 
still look to be better suited for shorting.

Speaking of rallies, September usually opens up strong as traders 
come back rested from a long weekend.  That's the highlight of 
the month, since statistically September is the worst month for 
the Dow and S&P 500.

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

Market Volatility

VIX   28.05
VXN   52.86

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

          Put/Call Ratio  Call Volume   Put Volume
Total           .82                 

*Data not available

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

Bullish Percent Data

           Current   Change   Status
NYSE          34       -      Bear Confirmed
NASDAQ-100    24       -      Bear Confirmed
DOW           30      -6      Bear Confirmed
S&P 500       46      -2      Bull Correction
S&P 100       36      -2      Bear Confirmed

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  1.28
21-Day Arms Index  1.45
55-Day Arms Index  1.27

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      1691           1368
NASDAQ    1982           1561

        New Highs      New Lows
NYSE      105             53
NASDAQ     35             96

        Volume (in millions)
NYSE       918
NASDAQ   1,228
-----------------------------------------------------------------

Advisory Sentiment 

Bullish  Bearish  Correction  Net   Change 
  46.9%    30.2%    22.9%    16.7%   -3.2%

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: 08/28/01
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

Commercial traders increased their net bearish by 6.9%.  This 
isn't a drastic move, but (79,126) is the most bearish commercial 
traders have been since 3/13/01.

Commercials   Long      Short      Net     % Of OI 
8/14/01      337,327   411,504   (74,177)   ( 9.91%)
8/21/01      342,332   416,372   (74,040)   ( 9.76%)
8/28/01      342,742   421,868   (79,126)   (10.35%)

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
8/14/01      130,432     55,750   74,682     40.11%
8/21/01      134,280     58,785   75,495     39.10%
8/28/01      141,046     58,001   83,045     41.72%

Most bearish reading of the year:  36,513 - 5/01/01
Most bullish reading of the year:  91,122 - 3/06/01
 
NASDAQ-100

Commercial traders didn't add any long positions, but did dump a 
few short positions, so the net bearish position improved 
slightly.

Commercials   Long      Short      Net     % of OI 
8/14/01       29,909     37,822   ( 7,913)  (11.68%)
8/21/01       30,348     38,964   ( 8,616)  (12.43%)
8/28/01       29,255     36,551   ( 7,296)  (11.09%)

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
8/14/01       11,165     9,508    1,657       8.02%
8/21/01       10,499     7,576    2,923      16.17%
8/28/01       11,131     9,694    1,437       6.90%

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

Last week commercials came close to the most bullish reading of 
the year, but have pulled back this week.  

Commercials   Long      Short      Net     % of OI
8/14/01       21,652    15,856    5,796     15.5%
8/21/01       22,710    14,625    8,085     21.7%
8/28/01       22,141    14,959    7,182     19.4%

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
8/14/01        4,441     8,528    (4,087)   (31.51%)
8/21/01        5,059    10,410    (5,351)   (34.59%)
8/28/01        5,240     9,835    (4,595)   (30.48%)

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

COT Commercial Net Position Charts


 


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

Die Kontrartheorie
By Eric Utley

I stopped by the mall last week to pick up a few necessary
items ahead of the holiday weekend.  By the way, it was about as
crowded with people as the North Pole.  Anyway, I ran into a
couple of interesting characters when I entered Banana Republic
(NYSE:GPS).  Much to my surprise, Faust and Mephistopheles were
meandering through men's wear.  So, I thought it wouldn't hurt
to get their respective opinions of the market.

I walked up to Mephisto and firmly asked, "Hey, Mac, what say
you?"

Mephisto replied, "All is still downright bad, I find.  Man in
his wretched days makes me lament him; I am myself reluctant to
torment him."  He then strolled towards the dressing room with
a lot of denim slung over his shoulder.

"What's with that guy?," turning to Faust, "What about you, good
doctor, how do you size up the current state of affairs?"

Faust checked to see if his partner was behind the dressing
room door then said, "To the abyss, by greed and frenzy headlong
pressed."

"Look, Faust, I appreciate the terms of your 'agreement' with
the big guy, but is that really what you think?  I mean, things
are bad and getting worse; people are losing their jobs, 401(K)
accounts have been whacked, and retirements postponed."

Through a grin, Faust chuckled, "To the abyss."

"I know you're not a vestal one, Faust, but easy on the
doom speak.  Say, didn't you once suggest that having an
opinion in the minority is better than agreeing with the
majority?" 

As if I was implying some sort of superiority on his part,
Faust smiled with arrogance, "Yes."

"Faust, would you not consider the crowd fearful?," I asked.

Again, he smiled, "Yes.  The crowd..."

But before he could finish, Mephisto charged out of the
dressing room sporting a nice pair of boot-cut jeans.  After
taking several turns in front of the mirror while demanding
our attention, Mephisto opined, "Sell rallies."

I then asked, "Would the two of you consider yourselves
smart money?"

Without turning his focus from the mirror, Mephisto replied,
"No, just smart."

Please send your questions and suggestions to:

Contact Support 

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

Veritas Software - VRTS

Is this a good time to take a position in VRTS?  Do you see more
downside? - Thanks, Krishna

Thanks for the question, Krishna.

Veritas (NASDAQ:VRTS) started under performing the broader
software sector back when it was trading around $39.  The
stock continues to trade rather poorly relative to its sector
and indeed the broader tech sector.  Furthermore, the software
sector itself, as measured by the GSO.X, is under performing
tech in general.

I think that Veritas' underperformance versus the broader
software space stems from its association with the data
storage business.  Both Emc and Sun Micro are getting hammered,
and both are large customers of Veritas'.  So if those two
are having difficulty, I can't imagine that it will be too
much longer before Veritas says some bad things about its
business.

The point & figure chart below clearly displays that demand
for Veritas has been measurably overwhelmed by supply recently.
At this stage in the dynamic, it's not even a contest!

The stock only recently went on a buy signal for the first
time since the high $60's, but that buy signal proved to be
a bull trap.  The stock subsequently broke down below a triple
bottom last week and looks terrible.

To be perfectly clear, Krishna, I do not think that it's a
good time to take a long position in Veritas.  It just doesn't
make sense to buy a weak stock in a weak group.  If you're
going to be bullish, think strength in both sector and stock.


 

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

Krispy Kreme - KKD

Can you please advise on the future prospects of this stock?
Jim had once admired this company and their product some time
back.  Look forward to your comments.  Do you think this stock
is a good buy now? - Thanks, Sunil

I always look forward your comments, too, Sunil.

Fortunately, I have a high metabolism, which helps to mask
the large quantities of Krispy Kreme (NYSE:KKD) doughnuts that
I consume.

In my very humble opinion, I think that there's going to be
an inflection point with Krispy Kreme that causes a sharp
sell-off in the stock.  These food fads never end well; I'm
reminded of Snapple.  I don't think Krispy Kreme is there
yet, but traders should be on the lookout for that turning
point.

Currently, the stock isn't giving much indication of which
direction it wants to take.  It's been quite volatile, and
hinting of indecision.  After its big run-up early this
summer, however, the predominant trend has been lower.

There's something rather interesting on the point & figure
chart below.  KKD hasn't tested its bullish support line,
which currently lies at the $27 box.  However, a test of that
line would result in a sell signal at the $27 box.  But with
that support line yet to be tested, I'd be hesitant to short
KKD on a print at $27.  That's because stocks, more often
than not, bounce from their bullish support lines on the first
test as Jeffrey Canavan often reminds me.  But it would be
awful tempting to lean on the stock if it subsequently broke
its bullish support line and printed $26.


 

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

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.


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


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

Recession or not, few investors will quarrel that the economy 
will be slow to recover.  Next week is shortened but the economic 
reports coming out could pack a punch. 


==============
Event Calendar
============== 

For the week of September 03, 2001


Monday
======
Labor Day - Market Closed


Tuesday
=======
Auto Sales             Aug  Forecast:   6.2M  Previous:  6.1M
Truck Sales            Aug  Forecast:   7.1M  Previous:  7.3M
Construction Spending  Jul  Forecast:   0.0%  Previous: -0.7%
NAPM Index             Aug  Forecast:  43.2%  Previous: 43.6%


Wednesday
=========
Productivity-Rev.      Q2  Forecast:    2.0%  Previous:  2.5%


Thursday
========
Initial Claims      09/01  Forecast:   395K   Previous:  399K
NAPM Services         Aug  Forecast:  49.1%   Previous: 48.9%


Friday
======
Nonfarm Payrolls      Aug  Forecast:  -50K    Previous:  -42K
Unemployment Rate     Aug  Forecast:  4.6%    Previous:  4.5%
Hourly Earnings       Aug  Forecast:  0.3%    Previous:  0.3%
Average Workweek      Aug  Forecast:  34.2    Previous:  34.2
Wholesale Inventories Jul  Forecast: -0.2%    Previous: -0.2%


Week of September 10
===========================
Sep 10 Consumer Credit
Sep 12 Current Account
Sep 13 Initial Claims
Sep 13 Export Prices ex-ag
Sep 13 Import Prices ex-oil
Sep 14 PPI
Sep 14 Core PPI
Sep 14 CPI
Sep 14 Core CPI
Sep 14 Retail Sales
Sep 14 Retail Sales ex-auto
Sep 14 Industrial Production
Sep 14 Capacity Utilization
Sep 14 Mich Sentiment-Prel


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The Option Investor Newsletter                   Sunday 09-02-2001
Sunday                                                      2 of 5

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**************
BROKERS CORNER
**************

Extreme Trading
By Robert J. Ogilvie

Calendar Spreads are a form of combination that consist of a
long-term option and a short-term option.  Most traders use
them to take advantage of leverage versus owning the underlying
security.  The most common form is to buy a longer-term call
(long position) and sell a shorter-term call (short position) at
the same or higher strike price.  Why would anyone buy a call in
these conditions?  Well, the overall trend may be down, but
there are still buying opportunities.  "Buy when they’re cryin’
sell when they’re yellin’."

It is as if because the old leaders of just 18 months ago are in
severe downtrends that there aren’t any other companies that are
posting growing EPS quarter after quarter.  There are just fewer
to choose from and finding them is a little harder than just
throwing a dart at the IBD or punching any combination of four
letters on the keyboard.  The one thing I know is that there are
some great buys that we won’t know until after they have moved
up and the economy has gotten better.  My harsh response to the
doubters on the street on “when is the market/economy going to
bottom” is we’ll know after the fact.

We are looking for strong companies that are consistently growing
their revenue and earnings and also look like they will continue
to do so.  The market has a way of camouflaging good
opportunities when the economy is slow.  We want to use our
infrared scope to locate the hot spots.  I like using the IBD’s
daily graphs to narrow the list down to a few candidates (you
can also use the actual paper).  This is done fast by only
looking a companies with EPS and Relative Strength Ratings above
80 and Accumulation/Distribution of B or higher.  The stock has
to have average daily volume greater than 200,000 shares and
trade options.  The options filter really narrows it down.

Assume we narrowed the thousands of stocks down to a manageable
list of 15.  Now check the news for pending earnings or other
viable information that could affect the stock (i.e. mergers,
splits, pre announcements, shareholder meetings, etc.).  Check
the daily chart to determine the price in relation to the 50
DMA 200 DMA.  The 50 DMA is a good level to monitor on
candidates as well as stocks you own because many funds use a
break of this level as a sell signal.  Then determine where the
price is in relation to the 10 and 40 DMA.  I prefer to buy
stocks above their 40 DMA because a break of the 40 DMA is
sometimes an early indication that the 50 DMA will be broken.
I would rather be early than late.  If I am looking to buy a
call option or stock, I want to have an uptrending or at least
consolidating stock.  Buying above the 40 DMA confirms some
strength.

The next scan is to determine the stock’s price in relation to
the Bollinger Bands.  If I want to buy low, I will look to
enter the long-term call at the lower band.  As the recent
sections on Bollinger Bands suggest, the angle of the band can
help determine the degree to the conviction of the stock’s
change in direction.  A flat or uptrending lower band is
preferable when buying a long-term call.  The next scan is to
determine if the Stochastics are also indicating if oversold
extremes have been reached.  Therefore, we want to try to buy
above the 40 DMA with the price nearing the lower band without
piercing and the stochastics at oversold levels.

Assuming we bought at the right time and the stock actually went
up a little, we can look to sell the short-term call. This is
actually more aggressive, but we can always sell at the same time
the long-term call is bought.  The reason is because the stock
has is at oversold levels and can move up.  If the stock moves
up, the premium received may pale in comparison to the premium to
buy if the stock breaks the strike price level.  Another reason
it may be more aggressive is that at lower levels, we generally
sell the option strike that is closer to the current strike
price.  If we wait until the stock moves up a little, we may get
more for the same call or we may be able to sell a higher strike
price.  Selling the next higher strike price when the stock
reaches overbought levels decreases the chances in the near term
that the strike’s price level will be exceeded.  Note: chance
decreased not assured.

The most common form of a calendar spread is buying a long-term
call and selling the same or higher strike price call with less
time until expiration. 

Example:

XYZ Currently $68
Buy XYZ JAN 2003 70 Call
Sell XYZ OCT 2001 75 Call

If the short call’s strike price is exceeded, note the time until
expiration.  It may not be necessary to close out he short call
if the stock appears to be overbought and may be coming down soon
enough yet without enough time to rebound again into the money.
It can be complicated.  Another strategy that may be implemented
if sufficient time until expiration is to buy the short call to
close if the stock price drops to oversold levels.  This frees up
the long position to either sell if support is broken or the
stock price rebounds to overbought levels and a call can be sold
again.

Treating the long-term call like a stock is good.  This means sell
if the support level is broken, sell the position.  Just because
there is time left, don’t hold on hoping the stock bounce back.
If you owned the stock, you would sell it and it has more time
left than the option (except for bankruptcy or takeover).  If the
stock breaks the short strike’s price level and appears to have
more room, buy the call to close.  Either roll up to the next
strike price or close out the entire position.  I keep referring
to stocks going up and breaking resistance.  It is happening!
The selection process I covered is just one of many scans that
can find candidates.  Some of the old leaders are still strong
corporations and may be oversold.  In conclusion, the common
thing to think is that because the old leaders aren’t going
straight up, there isn’t any money to be made.  I think that is
wrong.  I say trade the extremes or sell deep in the money calls
or sell out of the money puts or credit spreads.  Buy (the
longer-term call) low, sell (the shorter-term call) high.  If
there is any confusion, email me to clarify. As a full service
options broker, I am happy to discuss your current holdings and
possibly aid you in determining whether to sell or hold or
reposition entirely in another strategy.

Happy trading!

Robert J. Ogilvie, ROP
Cutter & Company, Inc.

I am an Options Broker and ROP that trades for and educates
investors on many strategies.  Please contact me at 
Robert.Ogilvie@verizon.net if there are any questions.

Neither Cutter & Company, Inc. nor Robert J. Ogilvie makes any
representation as to the accuracy, reliability or completeness
of any charts, formulas, and /or research opinions presented
herein. This article is intended solely for educational purposes.
Nothing herein should be construed as an offer or solicitation to
buy or sell any securities. Cutter and Company is a Member of the
NASD, MSRB, and SIPC. Please read the OptionInvestor.com’s
Disclaimer: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html.


********************
THE PLAYS OF THE DAY
********************

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

TSM - Taiwan Semiconductor $12.98 (+0.98 last week)

See details in sector list




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

VZ - Verizon $50.00 (-2.11 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

ELNT $38.00 (-1.90) The relative strength we've been gaming in
ELNT may have disappeared last Friday, noting the stock's
weakness in light of the advance in the SOX.  As such, we're
dropping coverage this weekend.  Any lift from current levels
early next week, after the holiday, would offer traders with
open positions a favorable exit point.


PUTS

EBAY $56.23 (-2.78) EBAY's follow-through into Friday's
session last week gave us pause.  The stock has been stair
stepping higher in the last few sessions, which has us on
alert.  Instead of taking unnecessary risks, we're bailing
early on the play and booking any gains that may have been
earned during the duration of this play.

IMPH $43.00 (-0.78) After delivering a solid gain as it fell
through the $44 support level earlier in the week, IMPH has been
acting bullish the past couple days.  Support materialized just
above $40 on Thursday, and despite an early dip Friday morning,
IMPH moved right up to the $43 level at the close.  With daily
Stochastics having crossed solidly into bullish mode, it looks
like it is time to get while the getting is good.


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

VOD - Vodafone $20.15 (+0.95 last week)

Vodafone Group Plc is a wireless telecommunications company 
with worldwide operations through its subsidiary, joint venture 
and associated undertakings. Vodafone also has interests in 
wireless telecommunications businesses in the Middle East and 
Africa. The Company provides a full range of wireless 
telecommunications services, including cellular, personal 
communications services, paging and data communications. Vodafone 
has interests in 25 countries across five continents. Based on 
venture customers at March 31, 2000, Vodafone had more than 39.1 
million customers, excluding paging customers, and served markets 
covering a total population of around 411.8 million people 
worldwide.

The telecom stocks have been beaten and battered to a pulp.
That includes those companies across the Atlantic.  European
shares have performed especially poorly because of the excessive
debt levels that many of the companies are operating with.  But
select issues are showing signs of strength recently, which may
signal a turning point in the group.  Shares of Vodafone fall
into that camp as the stock has been on the mend recently.  Just
last Friday, VOD closed back above the psychologically significant
$20 level, which may by itself signal a rebound in the stock.
There's only a bit of minor resistance above VOD's current
levels at the $20.19 level - the site of a opening gap a few
weeks back.  Beyond that level, VOD could see smooth sailing
up to the $22 level, market conditions permitting.  If a
full fledged rebound is in the works, VOD could make its way
all the way back up to the $25 level over the next month or
two.  For pullbacks, look for support to materialize around
the $19 level, where an entry may also be found on any future
weakness.  Our stop is at $18.50.

BUY CALL SEP-17.5*VOD-IW OI= 335 at $3.00 SL=1.50  
BUY CALL SEP-20.0 VOD-ID OI=5212 at $0.95 SL=0.00
BUY CALL OCT-20.0 VOD-JD OI=1034 at $1.70 SL=0.75
BUY CALL OCT-22.5 VOD-JX OI=1558 at $0.75 SL=0.00

Average Daily Volume = 5.64 mln



TSM - Taiwan Semiconductor $12.98 (+0.98 last week)

Taiwan Semiconductor Manufacturing Company Ltd. is a 
dedicated semiconductor foundry. As a foundry, the Company 
manufactures semiconductor designs using its advanced production 
processes for its customers based on their own or third parties' 
proprietary integrated circuit. The Company offers a 
comprehensive range of wafer-fabrication processes, including 
processes to manufacture CMOS logic, mixed-signal volatile and 
non-volatile memory BiCMOS chips.

TSM has traced a peculiar pattern in price over the past two
weeks.  The stock has formed somewhat of a short term base and
appears poised to breakout above its recent lid.  That lid
currently resides right around the $13 level - TSM's intraday
high last Friday was as the $12.99 level.  Moreover, the relative
lows in the stock are getting higher and higher, evidenced by
the dip buyers stepping up last week around the $12.50 level.
At this point, a breakout could happen early next week if the
Philadelphia Semiconductor Sector Index (SOX.X) follows through.
Otherwise, any pullback from current levels may offer traders
a chance to enter near support, that way being ahead of any
future breakout attempt.  If the stock's pattern of higher lows
holds, the buyers should next step up to the plate around the
$12.50 level, or possibly slightly higher around the $12.75
level.  Initially, we're setting our stop at the $11.75 level,
which is just below TSM's relative lows.  That way, we can
protect against any further deterioration in price.

BUY CALL SEP-10.0*TSM-IB OI=  50 at $3.10 SL=1.50  
BUY CALL SEP-12.5 TSM-IV OI=3198 at $1.15 SL=0.00
BUY CALL OCT-10.0 TSM-JB OI=  31 at $3.30 SL=1.50
BUY CALL OCT-12.5 TSM-JV OI= 563 at $1.55 SL=0.50

Average Daily Volume = 4.70 mln



************************Advertisement*************************
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Anything else is too slow!

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


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

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


**************************************************************
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The Option Investor Newsletter                   Sunday 09-02-2001
Sunday                                                      3 of 5

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/3178_3.asp


**************************Advertisement**************************
MR. STOCK:  Your Expert Guide to the Dynamic World of Options 
Trading Options aren't easy.  We know.  That's why, with over 
20 years of trading experience, we've designed a website 
specifically for options traders.  With fast executions, the 
ability to place complex orders online, and option trades 
starting at only $15.50, we have the tools you need to 
implement your strategies.  To find out more or open an 
account, visit our site at www.mrstock.com.
Click Here:
http://mojofarm.mediaplex.com/ad/ck/565-1407-1875-1
*****************************************************************


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

CNXT - Conexant Systems $11.91 (+0.30 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.

CNXT charged back Friday after the selling subsided across the
broader market.  As we've been detailing, any signs of strength
in the Semiconductor Sector Index (SOX.X) has allowed CNXT to
trade higher, which is exactly what happened again Friday.  On a
percentage basis, the stock actually had a great day Friday, which
reinforces that there's a big buyer in this stock that's visible.
The stock did trade right back up to the $12 level Friday, where
it finally stopped advancing.  Going into next week's trading, a
solid breakout on high volume above that level would allow for
traders to gain new call entries into this play.  But those who
attempt trading any breakout should only do so after confirming
strength in the broader market and sector.  In the case of CNXT,
that means the Nasdaq Composite (COMPX) and SOX.  If weakness
does, however, resurface again next week, bullish traders may
again turn to the $11 support level to gain favorable entries on
weakness.  In terms of exit points over the short-term, CNXT
could make its up to the $13 level, which is only a $1 move from
current levels.  Therefore, the low dollar value of the stock
necessitates trading higher delta option contracts.

BUY CALL SEP- 7.5 QXN-IZ OI=  76 at $4.50 SL=2.75
BUY CALL SEP-10.0*QXN-IB OI=5468 at $2.15 SL=1.50
BUY CALL OCT-10.0 QXN-JB OI=8918 at $2.60 SL=1.75
BUY CALL OCT-12.5 QXN-JV OI=1978 at $1.15 SL=0.25

Average Daily Volume = 3.13 mln



FFIV - F5 Networks $15.82 (-0.94 last week)

F5 Networks, Inc. is a provider of integrated Internet traffic 
and content management solutions designed to improve the 
availability and performance of mission-critical Internet-based 
servers and applications. The Company's products monitor and 
manage local and geographically dispersed servers and 
intelligently direct traffic to the server best able to handle a 
user's request. Its content management products enable network 
managers to increase access to content by capturing and storing 
it at points between production servers and end users and ensure 
that newly published or updated files and applications are 
replicated uniformly across all target servers.

FFIV bolted higher last Friday, following through with its
exceptional advance during the previous day's trading.  Looking
forward, bullish traders in this play need to see the Networking
Sector Index (NWX.X) strengthen if FFIV is going to have any
change of working substantially higher over the short-term.  For
its part, the Networking Sector continues hovering around the 280
level.  In fact, it finished fractionally lower last Friday, which
is a testament to its relative weakness.  As such, bullish
traders need to see somewhat of a lift in the group, and that
means stocks such as CSCO, CIEN, JNPR, and others need to rebound.
That will therefore allow FFIV to trade higher over the short-term.
In terms of entry points, bullish traders who confirm strength in
the NWX early next week can use an advance above $16 to gain new
entries into call plays.  Otherwise, a pullback down around the
$15.25 level, or lower around $15 may offer solid entries.

BUY CALL SEP-15.0*FLK-IC OI=440 at $1.75 SL=0.75
BUY CALL SEP-17.5 FLK-IW OI=368 at $0.85 SL=0.25
BUY CALL OCT-15.0 FLK-JC OI=324 at $2.70 SL=1.00
BUY CALL OCT-17.5 FLK-JW OI=216 at $1.50 SL=0.50

Average Daily Volume = 622 K



STJ - St. Jude Medical $68.80 (-0.45 last week)

St. Jude Medical, together with its subsidiaries, is engaged in
the development, manufacturing and distribution of medical
technology products for the cardiac rhythm management, cardiology
and vascular access, and cardiac surgery markets.

Shares of St. Jude pulled back on continued profit taking during
Friday's session.  The stock's weakness may have also been a
product of rotation back into the offensive areas of the market,
such as tech and finance.  The nature of St. Jude's business is
such that it's relatively immune from the broader economy and
the ramifications of the slowdown.  As such, the stock is
defensive in nature and oftentimes pulls back when other sectors
of the market are performing.  That being said, the essence of
this play is for those who prefer playing only calls.  That
way, if the market is tanking next week, STJ may actually pop
higher out of capital rotation back into defensive sectors.  In
terms of execution, bullish traders can be looking for entries
at current levels as STJ closed right on its ascending support
line last Friday at the $68.75 level.  It may very well ride its
support line higher next week if the buyers return.  And because
the stock is so close to its long standing support line, bullish
traders who enter at current levels can use relatively tight
stops to mitigate risk.

BUY CALL SEP-65*STJ-IM OI= 32 at $4.60 SL=3.50  
BUY CALL SEP-70 STJ-IN OI=163 at $1.40 SL=1.00
BUY CALL OCT-70 STJ-JN OI=395 at $2.90 SL=2.00
BUY CALL OCT-75 STJ-JO OI=137 at $0.95 SL=0.50

Average Daily Volume = 622 K



ADVP - AdvancePCS $74.96 (+4.72 last week)

AdvancePCS is a provider of health improvement services in the
United States.  As a pharmacy benefit management company,
AdvancePCS currently serves more than 75 million health plan
members and manages more than $21 billion in prescription drug
spending on an annualized basis on behalf of the company's
health plan sponsors.

After an early morning pullback last Friday, ADVP rebounded and
finished the day on a solid note, despite the stock's drop of
$1.16 for the day.  At this point, ADVP has a solid, steady
ascending trend that has been in place for about two weeks.  That
support level currently resides at the $74 level, which not by
coincidence was the level from which ADVP bounced last Friday.
Going forward, bullish traders can use any weakness down to that
level to enter new call positions, market conditions permitting.
Those who prefer the momentum type entry can shoot for a strong
advance back above the $75 level early next week, confirming any
such rally attempt with strength above the $76 level.  Just
keep in mind that the stock's relative and 52-week high lies
just above the $76 level.  And for that reason, entries on
weakness may be the "better" course of action to take when
attacking this play.  Volume has been on a steady rise during
the month of August while ADVP was trading higher.  So it's
important to confirm heavy volume on any higher prices from
current levels as a sign that the buyers remain committed to
this stock.

BUY CALL SEP-70 QVD-IN OI=323 at $6.70 SL=5.50
BUY CALL SEP-75*QVD-IO OI=820 at $3.40 SL=2.50  
BUY CALL SEP-80 QVD-IP OI=268 at $1.30 SL=0.25
BUY CALL OCT-75 QVD-JO OI= 11 at $5.60 SL=4.75

Average Daily Volume = 898 K



DNA - Genentech $45.90 -2.05 (-0.60 last week)

Genentech is a biotechnology company that uses human genetic
information to discover, develop, manufacture and market human
pharmaceuticals that address significant unmet medical needs.
The company manufactures and markets nine protein-based
pharmaceuticals and licenses several additional products to other
companies.

The AMEX Biotechnology Sector Index (BTK.X) pulled back in
typical profit taking fashion last Friday.  The good news is that
the index stopped right at the 528 level, which is a significant
support level for the index.  But because of the wide sector
weakness in the biotechs, perhaps rotation out of the sector, our
new call play in DNA pulled back in concert with its sector.
However, DNA's $2 dip put the biotech stalwart right back at its
ascending support line we detailed in our initial write-up last
Thursday.  The ascending support line, depending upon your anchor
point, currently lies around the $46 level.  Although on the
surface DNA's weakness may have been discouraging, its pullback
down to its ascending support line may have offered dip buyers
an excellent opportunity to get into this play with limited
downside risk.  From current levels, risk can be relatively
easily managed with a tight stop just below the trend line.  In
addition, the BTK's support level below its current levels makes
the task of managing risk all the easier.  If DNA and the
biotech sector do rebound early next week, we'll focus on the
$48 level for a short-term exit point for entries at current
levels.

BUY CALL SEP-45*DNA-II OI=2110 at $2.65 SL=1.50  
BUY CALL SEP-50 DNA-IJ OI=4290 at $0.65 SL=0.00
BUY CALL OCT-45 DNA-JI OI= 893 at $4.10 SL=3.75
BUY CALL OCT-50 DNA-JJ OI= 785 at $1.90 SL=0.50

Average Daily Volume = 2.33 mln
 


BGEN - Biogen, Inc. $60.36 (-0.43 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.

Falling with the broader markets, BGEN gave us a good entry
mid-week as the stock bounced right on the ascending trendline
near $58.50 and recovered back over the 200-dma (currently
$60.16).  Even the Biotechnology index (BTK.X) has been
weakening the past few days, it is holding above the $530
support level.  If the bulls can successfully defend this
support level next week, it could give BGEN the shot of
confidence it needs to push higher.  The ascending trendline
is now resting at $59.50, and there is some solid support
between $58-59.  Any low-volume dip near this area would
provide for good entries, but only if the BTK can keep from
breaking down.  Waiting for the breakout over the $62
resistance level may be the more prudent entry strategy, as we
wait for confirmation that buyers will return next week.  Keep
stops in place at $58.

BUY CALL SEP-60*BGQ-IL OI=2167 at $2.70 SL=1.50
BUY CALL SEP-65 BGQ-IM OI=1157 at $0.75 SL=0.00
BUY CALL OCT-60 BGQ-JL OI=4620 at $4.40 SL=2.75
BUY CALL OCT-65 BGQ-JM OI=9330 at $2.15 SL=1.00
BUY CALL OCT-70 BGQ-JN OI=4730 at $1.00 SL=0.50

Average Daily Volume = 2.92 mln



IBM - Int'l Business Machines $99.95 (-7.04 last week)

IBM provides customer solutions through the use of advanced
information technology. These solutions include technologies,
systems, products, services, software and financing. For the 3
months ended 3/31/01, total revenues rose 9% to $21.04B. Net
income applic. to Common rose 15% to$1.75B. Revenues reflect
higher Global Services, Hardware, Personal and Printing Systems
and Enterprise Systems revenues. Net income also reflects
improved margins.

Dismal news from SUNW on Wednesday had a depressing effect on
shares of IBM, driving the stock below the critical $100 support
level for part of the day on Thursday, before a slight rebound
at the close.  Friday's action wasn't much better, as the stock
fell to close below $100.  The criticality of this level can't
be overstated.  IBM needs to rally and hold above this level
next week if we are going to have a decent play here.  We have a
tight stop in place at $97.75, which is just below support at
$98.  This is clearly an aggressive play where we are looking
for IBM to lead any broad rebound in the markets.  Aggressive
traders can try to game a bounce from the $98 support level, but
the better approach will be to wait for a volume backed move
through $102, the first of several overhead resistance levels.
Strong volume and strength in the broad markets will be
necessary for our play to be successful.  And remember, the
rebound is likely to be short-lived, so we want to take profits
when they are offered.

BUY CALL SEP-100*IBM-IT OI=25452 at $3.60 SL=1.75
BUY CALL SEP-105 IBM-IA OI=11041 at $1.50 SL=0.75
BUY CALL OCT-100 IBM-JT OI= 8587 at $5.80 SL=4.00
BUY CALL OCT-105 IBM-JA OI= 6008 at $3.40 SL=1.75
BUY CALL OCT-110 IBM-JB OI=14461 at $1.75 SL=1.00

SELL PUT SEP- 95 IBM-US OI=19865 at $1.50 SL=3.00
(See risks of selling puts in play legend)

Average Daily Volume = 6.89 mln
<


IWOV - Interwoven $8.15 (+0.17 last 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.

Narrowly avoiding a breakdown earlier this week, IWOV bucked the
market trend and bounced from the $7 support level mid-week and
cautiously advanced into Friday's close.  Will the relative
strength last?  Inquiring minds want to know.  Volume hasn't
been anything stellar the past 3 days, coming in around half the
ADV, so the price advance could be subject to a bearish attack
next week.  But on the bullish side, it was nice to see the
stock move through the 20-dma (currently $7.38) and keep most of
its intraday gains on Friday.  It all depends on the mood of
investors when they return from their long weekend.  As long as
they don't come back with a severe hangover, IWOV should
continue its gradual ascent, with the occasional rest stops for
consolidation.  We'll target renewed intraday dips into the
$7.00-7.50 area for new entry points.  Momentum players will be
looking for IWOV to rally through $8.35 on increasing volume to
trigger their entry into the play.

BUY CALL SEP- 7.5*IUW-IU OI=1221 at $1.15 SL=0.50
BUY CALL SEP-10.0 IUW-IB OI= 574 at $0.35 SL=0.00
BUY CALL OCT- 7.5 IUW-JU OI= 179 at $1.70 SL=0.75
BUY CALL OCT-10.0 IUW-JB OI= 139 at $0.85 SL=0.25

Average Daily Volume = 3.28 mln



LLTC - Linear Technology Corp. $41.08 (-1.35 last week)

Linear Technology designs, manufactures, and markets a broad
line of standard high performance linear integrated circuits.
These circuits translate analog data (such as sound, pressure,
temperature, and speed) into digital information that can be
used by electronic devices, and to regulate and control power
and voltage.  The company's amplifiers, regulators, interface
circuits, and other chips are used in a wide variety of
products, including cellular phones, radar systems, satellites,
computers, and factory automation systems.  Primarily through
its distributor network, LLTC sells its products to more than
15,000 manufacturers, with more than 50% of sales generated by
non-US customers.

Investors shrugged off the NVLS warning from Thursday night,
and the broad markets all managed to close in the green.  While
there were no stellar gains to speak of, it was encouraging to
see the Semiconductor sector (SOX.X) firm near the $550 level,
helping our LLTC play to continue its rebound.  Restating our
comments from Thursday, we are looking for LLTC to lead any
rebound in the chip sector due to their impressive relative
strength this week, holding above the $39 support level.  This
is in contrast to many stocks in the sector that have recently
fallen to fresh lows.  With the general weakness in the markets,
looking for a rebound is an aggressive strategy, and with it
comes higher risk.  Those that choose to play will want to
harvest profits when they are offered.  Ideally, we'll get
another dip to the $39-40 level to provide an attractive entry
point, as the first level of resistance will be encountered at
the descending trendline ($42.50).  Should a rally with legs
materialize, a breakout over this trendline could also provide
solid entries - but only if volume is strong.  Stick to your
stops...ours is at $38.

BUY CALL SEP-40*LLQ-IH OI=1574 at $3.20 SL=1.50
BUY CALL SEP-45 LLQ-II OI= 985 at $1.15 SL=0.50
BUY CALL OCT-40 LLQ-JH OI= 126 at $4.80 SL=2.75
BUY CALL OCT-45 LLQ-JI OI= 186 at $2.65 SL=1.25
BUY CALL OCT-50 LLQ-JJ OI= 399 at $1.25 SL=0.50

Average Daily Volume = 4.40 mln



UNH - UnitedHealth Group $68.06 (-0.5 last week)

Providing a broad range of resources to help people improve
their health through all stages of life, UNH forms and operates
markets for the exchange of health and well being services.
The company's Health Care Services segment consists of the
UnitedHealthcare and Ovations businesses.  UnitedHealthcare
coordinates network-based health services on behalf of local
employers and consumers in six broad regional U.S. markets.
Ovations is a business dedicated to advancing the health and
well-being goals of Americans over the age of 50.  Additionally,
the company's Ingenix business operates in the field of health
care data and information, analysis and application.

Can you say "Uh-Oh"?  UNH gave us a scary dip on Friday morning,
falling as low as $67.50 before buyers showed up to provide
support.  The relative strength we were seeing when we started
the play is starting to weaken, and daily Stochastics are
starting to roll over.  While UNH did manage a bit of a rebound
in the afternoon, it is perched precariously above $68.  Volume
has been heavy the past 2 days as the price has fallen, and that
is never a good sign.  Any resumption of the selling action will
quickly drive it through our $67.75 stop, bringing the play to a
premature end.  The Healthcare index (HCX.X) suffered a serious
breakdown last week, falling through its ascending trendline at
$818.  In order for UNH to return to its bullish behavior, we'll
need to see the HCX stop falling and head north again.  Consider
new positions on a volume-backed bounce from $68, or else wait
for the stock to power through the $70 resistance level.

BUY CALL SEP-65*UHB-IM OI=2066 at $4.00 SL=2.50
BUY CALL SEP-70 UHB-IN OI=2475 at $1.05 SL=0.50
BUY CALL OCT-65 UHB-JM OI= 182 at $5.10 SL=3.00
BUY CALL OCT-70 UHB-JN OI=  78 at $2.30 SL=1.00

Average Daily Volume = 1.65 mln



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The Option Investor Newsletter                   Sunday 09-02-2001
Sunday                                                      4 of 5

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

BA - Boeing $51.20 (-2.43 last week)

The Boeing Company, an aerospace company, operates, together 
with its subsidiaries, in three principal segments: Commercial 
Airlines Operations, Military Aircraft and Missiles, and Space 
and Communications. Commercial Airplanes Operations is involved 
in the development, production and marketing of commercial jet 
aircraft. The segment also provides related support services, 
principally to the commercial airline industry worldwide. The 
Military Aircraft and Missiles segment is involved in the 
research, development, production, modification and support of 
military aircraft, including fighter, transport and attack 
aircraft; helicopters; and missiles.

With the global economy slumping, Boeing's probably selling a
lot less airplanes.  The stock has been reflecting that much
recently.  What's even more interesting about the stock is that
Boeing is the nation's largest exporter.  And during the recent
decline of the dollar, Boeing's stock price has sagged, at a
time when other exporters' stocks got a nice boost from the
weakening currency.  That alone is reason enough to take
a closer look at Boeing for a short candidate.  Not only that,
but the stock's technical picture is growing weaker and looks
as if it wants to get worse.  The stock has some support around
the $50 level, which is a most psychological support level.
But not even that may be enough to hold the stock up if the
selling pressure persists.  As such, bearish traders can look
for a breakdown in BA below the $50 level early next week for
an entry point into the play.  Just make sure to confirm
heavy volume with any further weakness in price as a sign that
the longs are still liquidating and the shorts are still
leaning.  In terms of an entry near resistance, the 10-dma
may be a good site to look for rollovers.  The 10-day is
currently located at $52.  Our stop is just above that level
at the $53.75 level.  Bearish traders can keep tabs on the Dow
when trading BA.

BUY PUT SEP-50*BA-UJ OI=7632 at $1.10 SL=0.25
BUY PUT SEP-45 BA-UI OI= 312 at $0.25 SL=0.00

Average Daily Volume = 3.27 mln



VZ - Verizon $50.00 (-2.11 last week)

Verizon Communications Inc. provides communications 
services. The Company has four reportable segments, which it 
operates and manages as strategic business units and organizes by 
products and services. Domestic wireline communications services 
principally represent the Company's 16 operating telephone 
subsidiaries that provide local telephone services in over 30 
states. Domestic wireless products and services include cellular, 
Personal Communications Services, paging services and equipment 
sales.

Since tracing a double top around the $57 level in mid July, VZ
has been descending at an increasing pace.  The stock dropped
below the $50 level for the first time since early April last
week.  That technical breakdown may very well portend further
weakness in price over the coming weeks.  The stock did,
however, bounce from the $49.50 level in Thursday's and Friday's
session last week, so bearish traders will want to keep an eye
on that level, too.  For sector confirmation, bearish traders
can reference the Wireless Sector Index (YLS.X), which hasn't
been up to par as of late.  The index broke to a new 52-week
low just last week and looks to be heading much lower.  That
pressure alone from the broader sector should keep shares of
VZ under pressure and possibly push them lower.  Bearish traders
can take new entries at current levels early next week if the
YLS continues dropping.  Rollovers near resistance at the $52
level may also offer favorable entry points into this play.
Just make sure to confirm any strength from current levels with
weak volume as a sign that it's no more than short covering.
Our stop is initially in place at the $52.45 level, which is
just below the stock's 200 day moving average.

BUY PUT SEP-50*VZ-UJ OI=4124 at $1.35 SL=0.75
BUY PUT SEP-45 VZ-UI OI= 749 at $0.35 SL=0.00

Average Daily Volume = 4.40 mln



TSG - Sabre Holdings $42.18 (-2.78 last week)

Sabre Holdings Corporation markets and distributes travel 
through its SABRE computer reservations system (the SABRE 
system). In addition, the Company provides outsourcing and 
software solutions to the travel and transportation industries. 
The SABRE system creates an electronic marketplace where travel 
providers display information about their products, and warehouse 
and manage inventory. Travel agents can choose interfaces that 
range from simple, text-based systems to feature-laden graphical 
systems. The Company also has an approximate 70% ownership 
interest in Travelocity.com Inc., a provider of online travel 
services to consumers.

The weak domestic and foreign economies is causing consumers
to travel less.  Furthermore, the consumer is losing confidence
as measured by the recent readings.  And that much is not a
good thing for Sabre Holdings, which specializes in travel
services.  The company's stock has been in a slump for some
time now and really picked up steam to the downside last week.
It looks to be heading lower over the short term and we're
looking to game that speculation.  Below current levels, the
stock has minor support at the $40 level.  But below $40,
there's not much to hold TSG up.  That's because the stock
gapped on March 14 from the $37 level and has yet to fill
that gap.  If TSG falls below the $40 level, it could then
easily make its way $3 lower over the short-term, making this
play a good consideration.  But before we worry about TSG
below $40, we should address the stock at its current levels.
Buyers showed up late last week at the $42 level.  The stock
didn't, however, bounce at all from that level, which may
indicate that a rollover from current levels is in the cards.
Bearish traders can look for weakness in the broader markets
and consider entering new plays on weakness from current
levels, confirming any such weakness with a decline below the
$41.85 level.  If the stock does rebound, look for a rollover
around the $44 level.  Our stop is in place initially at the
$44.75 level.

BUY PUT SEP-45*TSG-UI OI=53 at $3.50 SL=2.00
BUY PUT SEP-40 TSG-UH OI= 8 at $0.75 SL=0.25

Average Daily Volume = 716 K



PHA - Pharmacia $39.60 (-2.21 last week)

Pharmacia Corporation is a pharmaceutical company that 
operates in three segments: Prescription Pharmaceuticals, 
Agricultural Productivity, and Seeds and Genomics. The 
Prescription Pharmaceuticals segment involves the business and 
activities engaged in, supporting or related to the research, 
development, registration, manufacture and sale of prescription 
pharmaceutical products. The Agricultural Productivity segment 
consists of crop protection products, animal agriculture and the 
environmental technologies business lines.

The drug sector is no longer a place of refuge, at least
according to the price action in the DRG.X last week.  Not
even this defensive sector is immune from the bears in this
market.  PHA followed the path of the DRG last week, rolling
over and picking up speed to the downside.  Concerns over
major drugs coming off patents have plagued the sector recently
and looks to stay that way for some time to come, with generic
makers taking market share from the big boys.  The DRG is
reflecting that much, with its string of five consecutive
down days last week.  The index doesn't have support until the
375 level, which gives it plenty of downside from current levels.
PHA has fared far worse recently, as it has gone down for more
than two straight weeks.  That's right, the stock hasn't had
a positive day in over two weeks!  As such, this is clearly a
momentum play at this point and only those with a strategy
conducive to momentum should proceed.  For execution, new put
plays can be entered at current levels on further weakness in
price and confirming weakness in the DRG.  Our stop is initially
in place at the $41.50 level, which did serve as some support
during PHA's recent trip lower and should serve as resistance
on any rebound higher.

BUY PUT SEP-45 PHA-UI OI= 163 at $5.60 SL=3.75
BUY PUT SEP-40 PHA-UH OI=2168 at $1.50 SL=0.75

Average Daily Volume = 4.44 mln



JPM - J.P. Morgan Chase $39.40 (-1.53 last week)

JPMorgan Chase & Co. is a global financial services firm 
with operations in over 60 countries. The Company's principal 
bank subsidiaries are The Chase Manhattan Bank, Morgan Guaranty 
Trust Company and Chase Manhattan Bank USA, National Association. 
Its principal non-bank subsidiaries are its investment bank 
subsidiaries, Chase Securities Inc. (CSI) and J.P. Morgan 
Securities Inc. (JPMSI). The bank and non-bank subsidiaries of 
JPMorgan Chase operate nationally, as well as through overseas 
branches and subsidiaries, representative offices and affiliated
banks.

The recent price action across the financial sector of the
market implies that the Federal Reserve is about done cutting
rates in this cycle of monetary policy.  That may spell trouble
for the big money central banks.  The smaller regional banks
and thrifts have performed rather well over the last year in
light of the Fed's interest rate cuts, but the bigger banks
with overexposed loans and the risks of defaults have not
done as well.  And if the Fed is about done cutting rates, the
banks are going to be left with a lot of debt still on the
balance sheets, which is going to hamper earnings for some time
to come.  What's more, those banks that are heavily involved
in the securities business, such as JPM, are especially
exposed due to the decrease in demand for securities services
such as underwriting and the decrease in trading activity due
to the bear market.  These aforementioned attributes of JPM
make the stock a solid short at current levels, especially if
the Fed's done cutting rates.  Bearish traders can look for the
BKX to break below 845 next week as a sign that JPM is heading
lower, which may allow for new entries at current levels.
Otherwise, wait for a breakdown below the $38 level.  Our stop
is initially in place at the $40.25 level.

BUY PUT SEP-45 JPM-UI OI=13549 at $5.80 SL=3.75
BUY PUT SEP-40 JPM-UH OI=22946 at $1.55 SL=0.75

Average Daily Volume = 6.53 mln



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

CHKP - Check Point Software $31.99 (-1.89 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.

Although CHKP finished modestly higher last Friday, the stock is
still mired in a long standing descending trend.  Furthermore,
it continues to gyrate around the $32 level with little progress
being made in either direction.  It was surprising to see CHKP
not trade higher last Friday when the GSTI Software Sector
Index (GSO.X) had a decent day.  That leads us to believe that
CHKP has further downside, especially if the GSO and COMPX
once again turn south next week.  But if CHKP does advance
next week, it may allow bearish traders the entry point they've
been waiting for while on the sidelines.  The stock has
significant resistance at the $35 level, and a rollover from
that site would offer a mighty fine entry point into new put
positions.  Then again, a breakdown below the $30.50 from
current levels would offer bearish momentum traders an
excellent opportunity to enter new put plays, especially if
the stock consolidates further next week.  The longer CHKP
trades sideways, the better the entry point on a breakdown
as the stock works off its oversold condition.

BUY PUT SEP-35*KEQ-UG OI=3620 at $4.40 SL=2.55
BUY PUT SEP-30 KEQ-UF OI=4171 at $1.55 SL=0.75

Average Daily Volume = 10.5 mln



GMST - Gemstar-TV Guide $29.66 (-3.25 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's rolling pattern of lower lows prevailed last week as the
stock shed another $3 and change.  Its dip down below the $28
level may have allowed for traders to book some tidy profits
last week.  However, its rally last Friday was in accordance
with the advance in the broader market, specifically the Nasdaq
Composite (COMPX).  The pop higher felt more like short covering
than anything, and may result in yet another rollover next week
if the bears return from the beaches to sell stocks.  In terms
of rollover points, bearish traders can look for a light
volume advance up to the $32 level and subsequent rollover as
an ideal entry point.  Above there, GMST could see sellers
re-emerge at the $34 level.  There's not much support beneath
current levels to speak of, but bearish trades should keep an
eye on the $28 level going forward.  Below that, GMST shouldn't
see much in the way of buying support until the $25 level, which
in this case is both psychological and technical support for
GMST.

BUY PUT SEP-40 QLF-UH OI=1601 at $10.90 SL=7.75
BUY PUT SEP-35*QLF-UG OI=1913 at $ 6.30 SL=4.75

Average Daily Volume = 3.70 mln



QCOM - Qualcomm, Inc. $58.85 (-7.26 last week)

Based on its proprietary CDMA technology, QCOM is engaged in
developing and delivering digital wireless communications
services.  The company's business areas include integrated
CDMA chipsets and system software and technology licensing.
QCOM owns patents that are essential to all of the CDMA
wireless telecommunications standards that have been adopted
or proposed for adoption by the worldwide standards-setting
bodies.  Currently, QCOM has licensed its CDMA patent portfolio
to more than 80 telecommunications equipment manufacturers
around the world.

Even the reflexive market bounce on Friday couldn't help QCOM,
as the stock posted another loss, even though it was a
fractional one.  The Wireless sector is still reeling from the
latest round of negative new pronouncements focusing on the
continued slowdown in the handset market.  QCOM is once again
below the $62 support level (also the site of the 50-dma), which
should now transform back to resistance.  Failed rallies near
this level or even $63.50 (the level of our stop) will give us
attractive entry points to the downside, as the bears set their
sights on taking out support at $56 and then $52.  A drop
through Friday's intraday low near $58 will provide
opportunities for momentum traders to step into the play, but
only if volume remains robust.

BUY PUT SEP-60*AAO-UL OI=11075 at $4.30 SL=2.75
BUY PUT SEP-55 AAO-UK OI= 7395 at $2.15 SL=1.00

Average Daily Volume = 11.3 mln



QLGC - QLogic Corporation $30.01 (-4.31 last week)

Somebody has to make the equipment that lets your computer talk
to all its peripheral equipment, and QLGC does it well.  A
leading designer and supplier of semiconductor and board-level
input/output (I/O) management products, QLGC has been providing
SCSI-based connectivity solutions to this market sector for over
12 years.  QLGC's I/O products provide a high performance
interface between computer systems and their attached data
storage peripherals, such as hard disk and tape drives,
removable disk drives and RAID (redundant array of independent
disks) subsystems.  The company is also the market share leader
in Fibre Channel host bus adapters, a market segment that is
receiving tremendous attention from investors.

We were expecting a bit of a bounce on Friday, and we got it.
After trading as low as $28 on Thursday, QLGC rose above $31
Friday morning before erasing most of those gains by the close
of another week.  Underscoring the weakness of the "rally" on
Friday was the fact that the stock couldn't even get near the
10-dma ($32.33), which has been providing resistance for the
past 3 weeks, before the bears reasserted their control.
Investors are waiting to see which way the broad markets move
after the long weekend, and that direction is likely to give us
the guidance we need in establishing new positions or closing
open ones.  New positions look attractive either on a rollover
from the 10-dma or a strong drop through the $28 support level,
as the bears set their sights on taking out the $25 support
level.

BUY PUT SEP-30*QLC-UF OI=10126 at $2.80 SL=1.50
BUY PUT SEP-25 QLC-UE OI=  999 at $0.95 SL=0.50

Average Daily Volume = 7.29 mln



SEBL - Siebel Systems $21.60 (-1.93 last week)

Siebel Systems is a provider of eBusiness applications.  The
company's products enable organizations to sell to, market to,
and service their customers across multiple channels, including
the Web, call centers, resellers, retail, and dealer networks.
SEBL's eBusiness applications are available in
industry-specific versions designed for the pharmaceutical,
healthcare, telecommunications, insurance, energy, apparel,
automotive, and finance markets.  Through SEBL's applications,
companies can create a single source of customer information
that sales, service, and marketing professionals can use to
tailor product and service offerings to meet each of their
customer's unique needs.

Bearish traders loosened their grip on Software stocks a bit on
Friday, and shares of SEBL posted a fractional gain, to the
relief of the bulls.  But don't go running out to buy the stock
just yet.  SEBL hit a new yearly low on Thursday and even after
today's rise, the stock is still pinned under the $22 lows from
earlier this month and the $23 lows from early April.  That's
some serious technical damage that was inflicted last week and
it will take a lot of bullish enthusiasm to break above this new
resistance.  The 10-dma (currently $23.09) is continuing to cap
any bullish intraday moves and provide fresh entry opportunities.
While we can target fresh positions as the stock drops below
$20.50, the more prudent approach will likely be to fade any
weak rallies that stall near the 10-dma.

BUY PUT SEP-22.5*SGQ-UX OI=7949 at $2.35 SL=1.25
BUY PUT SEP-20.0 SGQ-UD OI=2157 at $1.20 SL=0.75

Average Daily Volume = 14.6 mln



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*****
LEAPS
*****

Vindication is a Mixed Blessing
By Mark Phillips
Contact Support

As long-time readers know, I've been tilting further and further
towards the bears camp these past few months, railing against
the foolish and irresponsible comments from the "Wizards of Wall
Street".  Probably my favorite foil is Goldman Sachs' chief
cheerleader, Abbey Joseph Cohen.  It seems her forays into the
limelight are becoming less frequent now that the great bull
market is dead.  In fact, the timing of her appearances can be
useful for those of us with our eyes open.  Don't get me wrong;
I don't have anything special against old Abbey (at least no
more so than any of these other self-proclaimed experts), its
just that she demonstrates the most blind arrogance of all the
analysts that parade across the screen of CNBC.

Abbey, the Emperor of the great bull market had just had herself
decked out for the great celebration as the markets rocketed to
new highs, and stubbornly refused to accept that it wouldn't be
coming along any time soon.  Until just recently, she was
calling for the DJIA to top 12,500 and the S&P 500 to clear 1550
by the end of this year.  Maybe someone pointed out to her that
the bull is dead, because she recently dropped that S&P target
all the way to 1500.  Wow!  Fifty whole points...now with the
50 point drop in the index this week, we are only 367 points
away from that target.  A mere 32% in 4 months?  No problem!
That might have been possible back in the good old roaring 90's,
but Ms. Cohen has got to wake up to the fact that the market
conditions that made her look like a genius in years past had
the same effect on all of us individual traders as well.

Without that buoyant effect, she has been reduced in the eyes of
the public to what she always was, a blindly optimistic fool...
just like the rest of us.  But somehow we are learning from the
experience, while she refuses to come out and just admit she was
wrong.  Or maybe she figured out her bullish clothes don't
really exist, and is afraid to face her public now that she
knows they can see "The Emperor has no clothes".

Ok, I'll get off my soapbox and get to the business at hand.

As I have been expecting for some time now, as past
commentaries will attest, the broad market indices all shattered
recent support and we are quite likely to test the April lows
as September earnings warning season approaches.  Yep, it is
here again!  With conditions so weak, can we rename it to "Loss
forecast season"?  I think it might actually scare investors
less when the warnings actually do come out.  At any rate, we
are at a critical juncture, with some important support levels
now just memories.  Remember NASDAQ 1900? It's resistance now.
How about DOW 10,000?  More resistance.  And the real market,
the S&P 500, has taken out numerous levels of support and is
dangerously close to a test of the 1100 level.

Fortunately the VIX finally started behaving in a rational
manner again this week.  Why?  Because investors got scared.
They should have been scared before, but the precipitous drop
we saw this past week had the desired effect of driving the VIX
back up to 28.  Not yet in the buy range, but at least it is
heading in the right direction.  Falling market and rising VIX
go hand in hand.  It is nice to see that order has been restored.

That's the good news.  The bad news is that the LEAPS column
operates best in a bullish market environment, and it doesn't
take a rocket scientist to see that our Portfolio has been
taking a beating lately.  Sure we've had some winners, but we're
having to work awfully hard for those.  How bad is the damage,
you ask?  Just look at the Portfolio...only 4 plays left and the
GLM and QQQ positions are frighteningly close to their stops.
Any resumption of the downward trend next week and those two
will be toast.

I've had a few requests lately to provide candidates for LEAPS
Puts in this column, and rather than dismiss it out of hand, I
want to put it up to a vote of sorts.  I'll tell you my thoughts
on the topic and you can weigh in with your opinions.  If there
is enough interest and I can find some attractive candidates, we
may be able to incorporate some plays to the downside just in
case this decline becomes even more protracted.

While LEAP Puts would have been a great idea a year ago (isn't
hindsight great?), I'm not sure it is the best course of action
right now.  In order to profit from buying a long-term Put, we
need the stock in question to continue heading down over the
long term.  Unfortunately, the stocks that I have looked at that
I think should have trouble over the next several months to a
year, just don't appear to have much further to fall.  On the
other hand, if the market turns, they could post some impressive
gains.  I don't expect any great bullish moves from the likes of
GLW, JDSU, JNPR, YHOO, CIEN or any of the heroes of yesteryear
to go up anytime soon.  But how much more downside is there?
Not enough for my money.  We need fresh candidates that have had
impressive runs to the upside and are either starting to enter a
secular downturn or at least haven't yet fallen to the floor.

The other problem we have to deal with is that we can only work
with the list of about 300 stocks that have LEAPS available.
The CBOE has a comprehensive list available for any of you that
are interesting in doing some digging on your own.  I look at
the charts of most, if not all of those stocks every week
searching for attractive candidates.  What I see are stocks that
are severely beaten down, and most are showing no signs of life.
But I really don't see many that look like they could give us a
profitable ride to the downside.  Notable exceptions in the
NASDAQ-100 are AMGN, BGEN, QCOM, ERTS, MSFT and GENZ.  I looked
at the charts, and I just don't see great potential for a
protracted decline in any of the stocks.  Perhaps there are
others worth considering, or your thoughts will inspire me with
some bright ideas.  If you've got any thoughts on the subject,
or possibly some LEAP Put candidates, drop me an email.  Who
knows, together we may stumble across something profitable in
the journey.

So how about the plays?  Well, with 4 drops again this week,
the Portfolio is getting pretty thin.  And as I mentioned above,
half of the current residents are close to being evicted.  Only
CLX and MO are looking healthy, and that could change by the
open on Tuesday as well.  As the markets approach their April
lows, we may be setting up for a decent trading rally.  But I'll
believe it when I see it.  For now, I'm not excited about adding
new plays, hence the fact that there are no new entrants for the
Watch List.  I have lots of candidates, but I want to see how
low they can go first.

We did take a position in DIS this week and ENE is right in our
target zone.  But for the most part, I'm trying to stay on the
sidelines.  I really expect to see a retest of the April lows
and will feel a lot more sure of new plays once we see how the
market handles that challenge.  In the meantime, take the
entries that come to you, but don't get emotionally attached to
the position.  If a profit is offered, I would recommend you
take it.  Unless Abbey proclaims the death of the bull, that is.
That might be the mother of all contrarian indicators, signaling
to us that it is time to buy.  Barring an unlikely event like
that or Greenspan sending interest rates to zero over the long
weekend, I think the smart place to be is on the sidelines.

Let the risk-takers try to game the bottom in this market.  I'd
rather wait until the dust settles and we have some stable
support under our feet before aggressively chasing new plays.
Have a safe and enjoyable weekend and let's hope for a healthier
market when we return.

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  $ 7.30   19.67%  $36.50
MO     07/30/01  '03 $ 45  VPM-AI  $ 6.10  $ 7.50   22.95%  $ 43
GLM    08/15/01  '03 $ 20  OML-AD  $ 3.30  $ 2.05  -37.88%  $ 14
                 '04 $ 20  KLW-AD  $ 4.70  $ 3.40  -27.66%  $ 14
QQQ    08/22/01  '03 $ 40  VZQ-AN  $ 7.00  $ 6.40  - 8.57%  $ 36
                 '04 $ 40  LRI-AN  $ 9.30  $ 9.00  - 3.23%  $ 36
DIS    08/30/01  '03 $ 30  VDS-AF  $ 2.05  $ 2.60   26.83%  $22.50
                 '04 $ 30  LWD-AF  $ 3.60  $ 4.20   16.67%  $22.50


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CPN    07/08/01  $29-30        JAN-2003 $ 30  OLB-AF
                            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  $75-76        JAN-2003 $ 75  VIL-AO
                            CC JAN-2003 $ 70  VIL-AN
                               JAN-2004 $ 80  LZE-AP
                            CC JAN-2004 $ 70  LZE-AN
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
PCS    08/26/01  $21-22        JAN-2003 $ 25  VVH-AE
                            CC JAN-2003 $ 20  VVH-AD
                               JAN-2004 $ 25  LVH-AE
                               JAN-2004 $ 20  LVH-AD


New Portfolio Plays

DIS - The Walt Disney Company $24.63

Helped along by the precipitous broad market decline this week,
DIS fell right to our targeted entry on Thursday.  While it
wasn't a rapid rebound, there was no question that buyers were
starting to nibble on the stock at the perceived bargain price.
Even though the stock fell through the December and March lows
before finding support (this is what we were looking for), it
did bounce at the long-term ascending trendline that we mentioned
in the original write up.  This is what we are trying to target
for new positions; weekly Stochastics beginning to recover from
oversold, daily stochastics bottomed in oversold and turning up,
while the stock is bouncing from major support.  Friday saw a
bit of buying come into the stock, driving it above $25 again.
But I am inherently suspicious of this buying at the end of
another big down week...it has the earmarks of short-covering
again.  Latecomers may want to look for another dip near our
entry to initiate new positions next week, as we have stepped
in for what we think should be a long, if somewhat sedate
recovery.  Just in case we jumped too soon, we are placing a
tight stop at $22.50, right at the 1998 low.

BUY LEAP JAN-2003 $30.00 VDS-AF $2.05
BUY LEAP JAN-2004 $30.00 LWD-AF $3.60



New Watchlist Plays

None


Drops

ABX $16.46 Gold stocks started to lose their lustre a couple
weeks ago, and with the gains built into our play, I tightened
our stop to guarantee a positive conclusion to the play.  Sure
enough the stock continued its modest descent, and we got a
favorable exit on Monday.  Daily stochastics are almost
oversold, but the weekly has now risen near overbought and is
looking a bit top-heavy.  Now is the time to step away from ABX
and wait for that attractive trade setup before we take another
hit-and-run approach at the precious metals sector.

MRK $67.14 Things were a bit dicey the first week after we added
MRK to the Portfolio, but the stock was kind enough to hold at
support and give us a modest rise to the $70 resistance level
before really beginning to lose altitude.  The Pharmaceutical
index (DRG.X) fell out of its ascending trend on Tuesday, and
the downward pressure triggered our $68 stop on Wednesday.
While it isn't a stellar gain, we'll take any positive
conclusion to our plays as a huge success in this market.  MRK
will likely be back to the Watchlist in the future, but only
after giving us another attractive risk/reward setup.

ORCL $12.00 Whack! Ouch, that hurt!  And that is precisely why
we have to play with stops.  We took our entry on ORCL last week
with the volume-backed bounce at $14 and promptly got stopped
out this Thursday as the stock fell through $13.  In retrospect,
we might have foregone the entry last week due to our
expectation that the one-day rally had the looks of
short-covering, and not buying.  But we had no way to convey
that to you mid-week and instead had to follow the gameplan we
had laid out the week before.  ORCL has now fallen to levels not
seen since October 1999 and we're going to have to see some of
the recent damage repaired before we venture into this pool
again.

VRSN $38.69 The last of my ill-conceived entries from the spring
rally, VRSN is a perfect example of what happens when emotions
invade your decision-making process.  Our initial entry target
was $42-44, and as we failed to get filled I gradually ratcheted
up our entry target until we took an entry at $58!  What was I
thinking?  That's right, just as I was starting to worry about
never getting filled on the play, the market was figuring out it
had run far enough.  And VRSN began its long slow descent shortly
thereafter.  Hoping that support would hold and keep us in the
play until the recovery got underway, I made the mistake of
setting a loose stop to avoid a quick and early loss.  The Great
Humiliator strikes again!  I have been properly chastised by the
market for allowing my emotions to creep into this play, and in
the process I think I have provided you with an ideal example of
why we can't afford to chase stocks higher in the current market
environment.


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The Option Investor Newsletter                   Sunday 09-02-2001
Sunday                                                      5 of 5

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

Stock Selection: Analysis Techniques
By Mark Wnetrzak

One of the most common questions we receive from new readers is,
"Why do you focus primarily on technical analysis, as opposed to
a fundamental evaluation of the candidates in the Covered-Call
section?"

There are three primary types of information that investors use
to determine a bias or opinion on a specific stock.  The first is
"fundamental" analysis: income statements, balance sheets, and
the future projections for revenues and earnings.  The second is
"sentiment" analysis (which is a form of technical analysis):
investor expectations of the market and of individual stocks,
news or upcoming events, and other potential activities such as
mergers and stock splits.  The final category is "technical"
analysis or "charting."  This method relies on the actual history
of trading and price in a specific stock, commodity, or index.

Most analysts believe that charts will reflect all of the known
information and public opinion surrounding a particular stock or
security.  As market opinions change, so do the prices of the
underlying instruments.  When the prices are plotted, historical
patterns and formations evolve.  This concept allows a technician
to forecast how the current market will perform, based on how it
reacted to similar conditions in the past.  There are also methods
that attempt to identify price formations within seemingly random
movements.  Some technical studies, such as repetitive or rhythm
analysis, believe prices tend to follow a predetermined pattern.
Technicians that subscribe to the Elliott Wave Theory believe that
collective trading behavior is predictable enough to project waves
of price movement.  Proponents of cyclical analysis suggest there
is a regularity in the way specific instruments perform at certain
times in the year.

Charts are constructed in various time frames and different types
of indicators are displayed on price histories.  Moving averages,
support/resistance lines, envelopes, Bollinger bands, and momentum
curves are all common indicators.  Price, time and volume are
all inputs into these indicators.  Price reflects the level of change
in the attitude of investors.  Time measures the cycle or period
of change and volume (relative to its past history) measures the
intensity of that change.  Various systems have been developed to
help investors form an opinion based on the chart patterns and
predict future turning points, and direction in the underlying
issue.  Analysts begin by determining the strength and direction
of a trend.  The basis for future predictions is supported by the
fact that once a trend is in motion, it will continue in that
direction until a change in character occurs.  Successful traders
will study many different indicators from contrasting perspectives
to help identify signals that forecast upcoming changes or trend
reversals.

In short-term option trading strategies, the most important factor
in selecting profitable positions is the technical health of the
underlying issue.  To determine the future trend or character for
any financial instrument, you must be able to identify the most
common historical patterns and understand the implications of
basic technical indicators.  When you can do this accurately on a
regular basis, the quality of your stock selections will improve
substantially and that's the key to consistent profits for traders
who participate in the Covered-Call strategy.

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

CCRD   10.20   9.95   SEP  10.00  1.15   $  0.90   8.6%
GSPN   16.24  15.77   SEP  15.00  2.30  *$  1.06   8.3%
PRIA   17.89  18.02   SEP  17.50  1.55  *$  1.16   7.7%
CTIC   31.39  30.32   SEP  30.00  3.20  *$  1.81   7.0%
HLIT   16.04  15.00   SEP  15.00  2.20   $  1.16   6.1%
ISSI   15.00  15.13   SEP  15.00  1.25  *$  1.25   5.6%
FFIV   14.59  15.82   SEP  12.50  2.85  *$  0.76   5.6%
PMCS   34.40  30.75   SEP  30.00  6.50  *$  2.10   5.5%
SPCT   15.85  15.58   SEP  15.00  2.05  *$  1.20   5.4%
ARTC   31.67  29.90   SEP  30.00  3.50   $  1.73   5.3%
PHTN   39.97  35.96   SEP  35.00  7.70  *$  2.73   5.3%
CCUR   11.60  11.00   SEP  10.00  2.15  *$  0.55   5.1%
NETA   16.36  15.85   SEP  15.00  2.45  *$  1.09   4.9%
PHTN   38.34  35.96   SEP  32.50  7.50  *$  1.66   4.7%
NMTC   28.87  28.45   SEP  25.00  5.10  *$  1.23   4.5%
ANSR    9.01   9.09   SEP   7.50  1.80  *$  0.29   4.4%
NTIQ   36.40  32.20   SEP  30.00  8.10  *$  1.70   4.4%
WBSN   19.19  17.89   SEP  17.50  2.35  *$  0.66   4.3%
PTEC   15.05  13.95   SEP  15.00  1.20   $  0.10   0.5%
IGEN   32.28  27.97   SEP  30.00  4.50   $  0.19   0.5%
NTIQ   38.60  32.20   SEP  35.00  6.50   $  0.10   0.2%
DAVX   10.26   9.46   SEP  10.00  0.75   $ -0.05   0.0%
VICL   12.96  11.60   SEP  12.50  1.05   $ -0.31   0.0%
APCS   18.36  15.73   SEP  17.50  2.00   $ -0.63   0.0%
IART   31.30  27.01   SEP  30.00  2.80   $ -1.49   0.0%

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

Comments:

Crash!  That sound was the broader Markets breaking through their
support areas.  They may slide further though they are within the
proximity of the April lows.  A final washout on high volume to
set the bottom?  Next week should be interesting!  Netiq Corp.
(NASDAQ:NTIQ) has now violated its 30- and 50-dmas. Time to exit
or roll-down?  Monitor Photon Dynamics (NASDAQ:PHTN) closely as
the technicals continue to weaken.  A test towards support at
$32 may be forthcoming.  Well, IGEN International (NASDAQ:IGEN)
is testing its March - June trend-line; definitely a key moment!
Alamosa Holdings (NASDAQ:APCS) continues to act worrisome as it
again retests support.  Keep a close watch on Network Associates
(NASDAQ:NETA) as it again tries to overcome resistance at the May
and July highs.  Phoenix Technology (NASDAQ:PTEC) may test its
April - July trend-line.  Davox (NASDAQ:DAVX) is testing a key
support area and could signal an exit soon.  Vical (NASDAQ:VICL)
has pulled back on declining volume - evaluate your long-term
outlook.  Very few stocks have been immune to the general Market
malaise, including Integra LifeSciences (NASDAQ:IART).  The stock
has begun a consolidation phase and may be signaling a change-of-
character by moving through its 30-dma.  Exiting the position on
further weakness may be prudent.

Positions Closed: 

Seachange International (NASDAQ:SEAC) - a Murphy's Law Candidate?


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

BPUR   22.36  SEP 20.00   QPU ID  3.10 138   19.26   20    5.8%
GERN   16.01  SEP 15.00   GQD IC  1.60 685   14.41   20    6.2%
INTU   37.78  SEP 35.00   IQU IG  3.70 2504  34.08   20    4.1%
LCBM    6.35  SEP  5.00   OLQ IA  1.75 95     4.60   20   13.2%
PRGN   26.18  SEP 25.00   GQP IE  2.70 2746  23.48   20    9.8%
R      22.59  SEP 22.50     R IX  0.65 93    21.94   20    3.9%
SCTC   13.33  SEP 12.50   YQS IV  1.20 63    12.13   20    4.6%

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

LCBM    6.35  SEP  5.00   OLQ IA  1.75 95     4.60   20   13.2%
PRGN   26.18  SEP 25.00   GQP IE  2.70 2746  23.48   20    9.8%
GERN   16.01  SEP 15.00   GQD IC  1.60 685   14.41   20    6.2%
BPUR   22.36  SEP 20.00   QPU ID  3.10 138   19.26   20    5.8%
SCTC   13.33  SEP 12.50   YQS IV  1.20 63    12.13   20    4.6%
INTU   37.78  SEP 35.00   IQU IG  3.70 2504  34.08   20    4.1%
R      22.59  SEP 22.50     R IX  0.65 93    21.94   20    3.9%


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).


*****

BPUR - Biopure  $22.36  *** Blood Substitute ***

Biopure (NASDAQ:BPUR) develops, manufactures and markets Oxygen 
Therapeutics.  Its products are Hemopure, for human use, and Oxy-
globin, for veterinary use.  Biopure is developing Hemopure as 
an alternative to red blood cell transfusions as well as for use
in the treatment of other critical care conditions.  A Hemopure 
pivotal Phase III clinical trial in the U.S. has completed patient
enrollment and follow-up.  On Monday, Biopure released new results
which the company said shows Hemopure is comparatively safe.  Of
course, there is some speculation on the safety of Biopure's
blood substitute, which recently sent the shares into a tailspin.
This position offers a reasonable cost basis for those investors
wishing to add Biopure to their portfolio.  Thoroughly researching
this company is a prerequisite to opening any position.

SEP 20.00 QPU ID LB=3.10 OI=138 CB=19.26 DE=20 TY=5.8%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=BPUR

*****

GERN - Geron  $16.01  *** 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.
Stem cell research has been in the news lately and Geron is one
of the companies involved in the reports.  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.  Geron's rights to six cell
types is also important because President Bush has said federal
funding will be permitted for research only on cell lines that
are already in existence.  Shares of the biotechnology company
rallied recently amid optimism rivals will have to pay it a fee
to develop certain cell types that could be used to treat a range
of diseases.  Research this one carefully before initiating any
new positions!

SEP 15.00 GQD IC LB=1.60 OI=685 CB=14.41 DE=20 TY=6.2%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=GERN

*****

INTU - Intuit  $37.78  *** Rally Mode! ***

Intuit (NASDAQ:INTU) offers a variety of small business, tax 
preparation and personal finance software products and related 
products and services that enable people and small businesses 
to revolutionize how they manage their activities.  The Company's 
products and services include QuickBooks, Quicken, Quicken TurboTax,
ProSeries and Lacerte desktop software products, as well as an 
expanding array of Internet-based products and services, including
QuickBooks Deluxe Payroll service, QuickBooks Internet Gateway 
services, the Site Builder website tool, Quicken TurboTax for the
Web, Quicken.com, Quicken Loans and QuickenInsurance.  Intuit
reported earnings last week, posting a fiscal 4th-quarter pro-forma
loss but also reaffirming guidance for fiscal 2002 and announcing
a workforce reduction.  Prudential Securities raised their rating
on the issue to "buy" from "hold" with a new price target of $44.
The stock has been forging a Stage I base for most of the year and
has recently rallied back above its 150-dma - a bullish indication.

SEP 35.00 IQU IG LB=3.70 OI=2504 CB=34.08 DE=20 TY=4.1%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=INTU

*****

LCBM - LifeCore Biomedical  $6.35  *** Cheap Speculation ***

LifeCore Biomedical (NASDAQ:LCBM) develops, manufactures, and 
markets biomaterials and surgical devices through two divisions:
the Hyaluronan Division and the Oral Restorative Division.  The 
Hyaluronan Division principally is involved in the development
and manufacture of products utilizing hyaluronan, a naturally 
occurring carbohydrate that moisturizes or lubricates the soft 
tissues of the body.  The Oral Restorative Division markets a 
comprehensive line of titanium-based dental implants for replace-
ment of lost or extracted teeth.  LifeCore has a meeting with the
Medical Devices Dispute Resolution Panel September 6, 2001 in 
Washington, D.C.  That meeting will address scientific issues 
that are in dispute between Lifecore and the FDA in connection 
with Lifecore's pending PMA application, as amended, for its 
ferric hyaluronan product, GYNECARE INTERGEL(a) Adhesion 
Prevention Solution.  This position offers a favorable cost
basis from which to speculate on the outcome.  The current
bid on the call option is $1.55 but the spread is large and a
cost basis of $4.60 or lower should be attainable - after your
due diligence.

SEP 5.00 OLQ IA LB=1.75 OI=95 CB=4.60 DE=20 TY=13.2%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=LCBM

*****

PRGN - Peregrine Systems  $26.18  *** Raising The Bar! ***

Peregrine Systems (NASDAQ:PRGN) is a global provider of software
and services that are designed to reduce the frictional cost of
doing business for its client's organizations.  The Company
offers products and services to address three principal domains: 
infrastructure resource management, employee relationship 
management (or self-service) and e-commerce technologies and 
services.  The Company offers software products, services and 
technologies that permit businesses to eliminate points of 
friction in their business processes and to improve their 
returns on capital and investment in their infrastructure 
assets and electronic business investments.  The stock rallied
this week after Peregrine forecast higher-than-expected revenues
and earnings for fiscal 2003, resulting in three brokerages 
raising their earnings estimates for Peregrine.  We simply
favor the technical support area near our cost basis as Peregrine
continues to show improving technical strength.

SEP 25.00 GQP IE LB=2.70 OI=2746 CB=23.48 DE=20 TY=9.8%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=PRGN

*****

R - Ryder System  $22.59  *** Upgrade Into Rally Mode! ***

Ryder System (NYSE:R) operates in three business segments, Fleet
Management Solutions, Supply Chain Solutions and Dedicated Contract 
Carriage.  Fleet Management Solutions provides full-service leasing,
commercial rental and programmed maintenance of trucks, tractors 
and trailers to customers, principally in the U.S., Canada and the 
United Kingdom.  Supply Chain Solutions provides comprehensive 
supply chain consulting and lead logistics management solutions 
that support customers' entire supply chains, from in-bound raw 
materials through distribution of finished goods throughout North
America, in Latin America, Europe and Asia.  Dedicated Contract 
Carriage provides vehicles and drivers as part of a dedicated 
transportation solution, principally in North America.  Ryder
Systems exploded out of its short-term base in August after
Morgan Stanley Dean Witter boosted its rating on the Miami-based 
trucking company.  Analyst James Valentine upgraded the shares to 
"outperform" from "neutral," set a price target of $25 on the 
stock, and raised his earnings estimates for the company.  We
simply favor the technical strength of Ryder Systems, which
suggests further upside potential.  Can a "break-out" above the
long-term base be far behind?

SEP 22.50 R IX LB=0.65 OI=93 CB=21.94 DE=20 TY=3.9%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=R

*****

SCTC - Systems & Computer Tech.  $13.33  *** Record Sales! ***

Systems & Computer Technology (NASDAQ:SCTC) provides technology
and business solutions for higher education, utilities and 
process manufacturing.  SCTC works collaboratively with its 
clients to deliver software and service solutions tailored to 
their needs.  Industry expertise in each of the company's 
markets enables SCTC to maximize its clients' customer 
relationships and achieve significant, measurable improvements
for their organizations.  SCTC announced in July that it had 
achieved an all-time high in total revenue for the 3rd-quarter,
which ended June 30, 2001. The education business unit had
the highest 3rd-quarter ever in software sales and commissions,
which included $2.7 million in shares of WebCT, earned by signing
institutions with cumulative enrollments totaling one million 
students.  We simply favor the bullish chart, especially with
the current market conditions, as SCTC appears ready to break
out of an ascending triangle.

SEP 12.50 YQS IV LB=1.20 OI=63 CB=12.13 DE=20 TY=4.6%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=SCTC

*****

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

CTIC   30.32  SEP 30.00   CUC IF  2.20 667   28.12   20   10.2%
SANG   15.35  SEP 15.00   QDY IC  1.10 80    14.25   20    8.0%
REGN   30.12  SEP 30.00   RQP IF  1.25 69    28.87   20    6.0%
RFMD   25.46  SEP 22.50   RFZ IA  3.80 827   21.66   20    5.9%
IM     15.00  SEP 15.00    IM IC  0.45 1148  14.55   20    4.7%
NSM    33.05  SEP 30.00   NSM IF  3.80 1566  29.25   20    3.9%



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


Trading Basics: A Plan For Success!
By Ray Cummins

There are a number of fundamental guidelines that can help a new
trader profit in the market.  These rules, along with a system for
money management and a proven trading strategy will provide any
investor with the basis for consistent profits.

The first rule is: Know the market, its condition and the future
economic outlook.  Use that knowledge to place trades that conform
with the direction given by the fundamentals.  The equity market
anticipates the movement of the economy and shows us in advance
what we can expect with regard to corporate health, unemployment,
interest rates and other financial trends.  Understand there is
an economic reality to which the market will inevitably converge
and it is far easier to profit from positions that are in harmony
with that trend.  Stay in touch with the "tone" of the public and
learn to anticipate swings in investor sentiment.  News and major
events should evoke the proper response.  For example, a strong
market will shrug off bearish developments and respond vigorously
to favorable conditions.  When a specific sector or industry group
encounters adverse circumstances, but does not decline in reaction
to the occurrence, then it will likely outperform the majority of
issues in that segment of the market.  In addition, when reviewing
specific companies, remember that fundamental analysis is the
principle activity of brokerages and public investors and that is
the most common manner in which the outlook for share values is
reflected in financial reports and future performance forecasts.

The second important axiom is: Trade the primary trend and focus
on issues or groups that are performing the best in the current
environment.  There are many ways of expressing this idea but the
simplest approach is "buy rising markets and sell falling markets."
This theory seems paradoxical, because common sense would suggest
that the best way to make money is to buy low and sell at higher
prices.  Of course, this is true from an abstract point of view
but it has nothing to do with "trend" or "momentum" trading.  In
fact, buying a market that is in a downtrend is often the quickest
way to lose money.  While the issue may appear to be a bargain at
the reduced levels, chances are it will likely become even cheaper.
A well known trading adage suggests, "The best time to pick up a
falling knife is after it has hit the floor!"

One way to determine the primary trend is use a moving average.
Obviously, there are many types of moving-average analyses, all of
which are basically equivalent.  Some traders monitor crossovers
while others concentrate on the direction of the moving average,
or the slope of its ascent or descent.  After the major bias is
established, use relative-strength analysis to identify the groups
or sectors that are leading the movement.  The relative-strength
comparison helps determine which individual issues or industries
are outperforming the broader market.  The basic premise of this
type of approach that you should buy only the strongest stocks
in the top performing sectors and liberate your portfolio of the
laggards.

The most important guidance that new traders should adhere to is
the need to outline an entry-exit strategy, before you initiate a
position, to eliminate emotional decisions.  Using predetermined
targets for profit and loss addresses a number of points.  First,
it eliminates the need for judgment under fire.  Second, it keeps
you from selling too soon, depriving yourself of potential upside
profits.  Finally, an exit strategy will help you retain previous
gains rather than exposing the position to a possible loss.  Most
techniques for limiting losses (and taking profits) are based on
a prearranged goal, or a trailing stop, which is moved up as the
issue advances.  For example, traders commonly use a percentage
trailing stop, such as 5% or 10% and in most cases, the trailing
stop is placed a fixed distance below the highest price attained
by the issue since the position was initiated.  As the instrument
moves higher, the stop is adjusted upwards to "lock-in" profits.
Wise traders know it is prudent to initiate a stop-loss system
(mental or mechanical) with any new position and those who comply
with this principle are certain to improve their success in this
vicious game that is the Stock Market.

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    20.50  22.28   SEP  15.00  0.80  *$  0.80  11.8%
MDCC   20.50  22.69   SEP  17.50  0.95  *$  0.95  11.2%
GERN   14.50  16.01   SEP  12.50  0.55  *$  0.55  11.0%
VPHM   35.59  31.05   SEP  30.00  0.95  *$  0.95  10.7%
CENT    8.98   9.14   SEP   7.50  0.35  *$  0.35  10.3%
GERN   17.40  16.01   SEP  15.00  0.45  *$  0.45   9.8%
PLXS   36.19  34.82   SEP  30.00  0.80  *$  0.80   9.6%
ALLY   18.23  19.71   SEP  15.00  0.50  *$  0.50   9.5% Adj 2-1 split
AFCI   25.75  24.25   SEP  22.50  0.90  *$  0.90   8.2%
LBRT   15.35  14.32   SEP  12.50  0.25  *$  0.25   7.7%
PPD    21.09  22.28   SEP  15.00  0.40  *$  0.40   7.5%
ISIL   39.20  37.53   SEP  30.00  0.90  *$  0.90   7.5%
SAGI   17.75  17.98   SEP  15.00  0.40  *$  0.40   7.3%
URBN   15.04  15.99   SEP  12.50  0.25  *$  0.25   7.3%
NEM    21.48  20.74   SEP  20.00  0.55  *$  0.55   6.2%
APCS   18.52  15.73   SEP  15.00  0.30  *$  0.30   6.2%
ILXO   29.15  29.95   SEP  25.00  0.45  *$  0.45   6.1%
PRGX   13.75  14.35   SEP  12.50  0.30  *$  0.30   5.7%
IMCL   44.89  51.40   SEP  30.00  0.70  *$  0.70   5.2%
AFCI   27.90  24.25   SEP  25.00  0.70   $ -0.05   0.0%

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

Comments:

The recent bearish market activity has rekindled memories of the
the "Crash of 87" and the month of August saw key market indexes
precariously close to the two-year lows hit in April.  The Dow
Jones industrial average fell below the psychologically important
10,000 mark and the NASDAQ slid almost 11% during the past 30 days.
The sell-off in the broader market was halted only by new economic
reports that showed the recession-strapped manufacturing sector
may be improving.  Among technology issues, almost every industry
group is suffering from a glut of inventory and a lack of demand
for new products.  In addition, the worldwide economic slowdown is
just beginning to affect American companies and it's unlikely we
will see a recovery in U.S. equity values until the global outlook
improves.  Our portfolio has held up fairly well considering the
downward market trend and only a few issues are on the watch-list
this week.  Advanced Fibre Communications (NASDAQ:AFCI) has moved
to the bottom of a month-long trading range and any further descent
should signal an early exit in the (SEP-$25 Put) position.  Alamosa
Holdings (NASDAQ:APCS) is showing indications of a "failed" rally
and it may be prudent to close the position now, while the loss is
minimal.  As we noted last week, "A move through $16 should be seen
as a potential exit signal" and that unfortunate event occurred on
Friday.  Viropharma (NASDAQ:VPHM) is consolidating after recent
gains and the support level near $29 will be the first test of its
technical strength.  Those of you in the Newmont Mining (NYSE:NEM)
hedge play (Precious Metals Sector) may have noticed that December
Gold was down again Friday amid profit-taking ahead of the Labor Day
weekend.  Stochastics and RSI are signaling that Gold futures will
likely continue sideways into early September, with a slight bias
to the downside.  Of course, any recovery in the broader markets
might also weigh on gold values so watch that one closely in the
coming weeks.

Positions Closed:

Powerwave (NASDAQ:PWAV), which is currently positive.


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

CTXS   32.95  SEP 27.50   XSQ UY  0.35 5790  27.15   20    6.6%
HDL    15.46  SEP 15.00   HDL UC  0.40 55    14.60   20    9.9%
ILUM   33.20  SEP 30.00   ILU UF  0.60 7     29.40   20    8.5%
KDE    28.00  SEP 25.00   KDE UE  0.50 156   24.50   20    8.7%
LBRT   14.32  SEP 12.50   IEY UV  0.25 204   12.25   20    9.1%
PPD    22.28  SEP 20.00   PPD UD  0.50 632   19.50   20   10.7%
SPF    23.47  SEP 22.50   SPF UX  0.40 365   22.10   20    6.9%

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

PPD    22.28  SEP 20.00   PPD UD  0.50 632   19.50   20   10.7%
HDL    15.46  SEP 15.00   HDL UC  0.40 55    14.60   20    9.9%
LBRT   14.32  SEP 12.50   IEY UV  0.25 204   12.25   20    9.1%
KDE    28.00  SEP 25.00   KDE UE  0.50 156   24.50   20    8.7%
ILUM   33.20  SEP 30.00   ILU UF  0.60 7     29.40   20    8.5%
SPF    23.47  SEP 22.50   SPF UX  0.40 365   22.10   20    6.9%
CTXS   32.95  SEP 27.50   XSQ UY  0.35 5790  27.15   20    6.6%


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).

*****

CTXS - Citrix Systems  $32.95  *** Entry Point! ***

Citrix Systems (NASDAQ:CTXS) develops, markets, sells and supports
comprehensive application delivery and management software that
enables the effective and efficient enterprise-wide deployment and
management of applications, including those designed for Microsoft
Windows operating systems and UNIX Operating Systems.  Their
products operate by executing the applications on a multi-user
Windows NT, Windows 2000 or UNIX server and provide end users
access to the server from a variety of client platforms through
the company's ICA protocol.  The company's primary market for its
products and services is large and medium-sized enterprises that
require the ability to securely deploy, manage and access business
applications across the extended enterprise.  Citrix also targets
application service providers that need products and technologies
to deliver the largest number of applications to the broadest array
of computing devices with minimum bandwidth requirements.  Citrix
is one of the smaller companies in the software industry but they
are succeeding in the tough economy with a unique, diverse product
line.  Traders who want to establish a discounted cost basis in
the issue should consider this position.

SEP 27.50 XSQ UY LB=0.35 OI=5790 CB=27.15 DE=20 TY=6.6%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=CTXS

*****

HDL - Handleman  $15.46  *** Own This One! ***

Handleman (NYSE:HDL) is a holding company that conducts business
through two subsidiaries: Handleman Entertainment Resources and
North Coast Entertainment.  H.E.R. is a category manager and
distributor of prerecorded music to mass merchants in the United
States, United Kingdom, Canada, Mexico and Brazil.  H.E.R. manages
a broad assortment of titles required to optimize sales in retail
stores and provides direct-to-store shipments, marketing of the
selections, in-store merchandising, and product exchange.  NCE has
three companies in its portfolio: Anchor Bay Entertainment, an
independent home video label that markets a collection of titles
ranging from horror to exercise to children's classics; Madacy
Entertainment, an independent record label that markets music and
video products with a catalog spanning all genres; and The Itsy
Bitsy Entertainment Company, a provider of early childhood
entertainment, both on and off the screen, to the youngest of
children and their caregivers.  Philip Handleman, who's late
grandfather founded the Handleman Company, is on a mission to
rejuvenate the slumping share value of HDL and investors appear
to favor his new ideas.  Consider this position for a long-term
portfolio holding.

SEP 15.00 HDL UC LB=0.40 OI=55 CB=14.60 DE=20 TY=9.9%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=HDL

*****

ILUM - Illuminet Holdings  $33.20  *** Break-Out! ***

Illuminet Holdings (NASDAQ:ILUM) operates an unaffiliated Signaling
System 7 network in the United States, and provides complementary
intelligent network and SS7 services to telecommunications carriers.
The majority of the company's products and services are directly
related to its SS7 network, as either part of the connectivity,
switching and transport function of the network or as intelligent
network services.  In addition, the company provides clearinghouse
services and licenses specially designed software for measuring
network usage.  On July 19, the network services provider reported
that second-quarter earnings more than doubled as core database and
wireless roaming services business remained strong.  Revenues rose
30% in the second quarter to $47 million up from $36 million a year
ago.  The company expects revenues to grow 23-25% year-over-year,
with operating income margins of about 30% and they are comfortable
with First Call's consensus estimate of $0.28 earnings per share in
the third quarter.  In addition, ILUM recently agreed to purchase
BellSouth's International Wireless Services (BSI-WS) unit, which
provides roaming services that connect wireless telephone carriers
in 23 countries in the Americas and the Caribbean.  The move to a
recent high on heavy volume bodes well for the future share value
of the issue.

SEP 30.00 ILU UF LB=0.60 OI=7 CB=29.40 DE=20 TY=8.5%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=ILUM

*****

KDE - 4Kids Entertainment  $28.00  *** On The Move! ***

4Kids Entertainment (NYSE:KDE) is a vertically integrated
entertainment-based company.  The company provides a comprehensive
range of services including toy design and development, domestic
and international merchandise licensing, media buying and planning,
international and domestic television and movie distribution and
television, music and film production.  The company primarily
operates through four wholly owned subsidiaries, Leisure Concepts,
Leisure Concepts International, The Summit Media Group, and 4Kids
Productions.  The recent rally in KDE has been supported by robust
trading volume and the issue appears poised to a achieve a new,
52-week high.  Traders can profit from continued bullish activity
with this conservative position.

SEP 25.00 KDE UE LB=0.50 OI=156 CB=24.50 DE=20 TY=8.7%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=KDE

*****

LBRT - Liberate  $14.32  *** AT&T Deal! ***

Liberate Technologies (NASDAQ:LBRT) is a global provider of a
comprehensive software platform for delivering content, servies
and applications to a broad range of information appliances.
Information appliances, which include television set-top boxes,
game consoles and personal digital assistants, are devices that
are enhanced by Internet capability.  Network operators, such as
telecommunications companies, cable and satellite television
operators and Internet service providers, can use the company's
server software to deliver Internet-enhanced services to numerous
information appliances and millions of consumers.  Information
appliance manufacturers can use its client software to enable
their products for Internet use.  Liberate has signed an agreement
to develop an interactive television delivery system with an AT&T
cable subsidiary and investors believe it will be the key to their 
success in the near-term.  The deal opens the door for Liberate to
power as many as 6 million digital set-top boxes already in the
market, including AT&T's 3 million digital cable subscribers, and
it also marks an opportunity in a highly competitive market that
is expected to rebound up after years of dismal consumer interest.

SEP 12.50 IEY UV LB=0.25 OI=204 CB=12.25 DE=20 TY=9.1%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=LBRT

*****

PPD - Pre-Paid Legal  $22.28  *** Next Leg Up! ***

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.
PPD has climbed steadily higher in recent weeks and now the issue
appears ready to test the yearly highs near $25.

SEP 20.00 PPD UD LB=0.50 OI=632 CB=19.50 DE=20 TY=10.7%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=PPD

*****

SPF - Standard Pacific  $23.47  *** Construction Sector! ***

Standard Pacific (NYSE:SPF) is a geographically diversified builder
of single-family homes targeted toward a broad range of move-up
homebuyers.  The company has operations throughout metropolitan
areas in California, Texas, Arizona and Colorado and sells homes
in Los Angeles, Orange, Riverside, San Bernardino, San Diego and
Ventura Counties in Southern California, and the San Francisco Bay
area in Northern California.  In addition to its core homebuilding
operations, Standard Pacific provides mortgage financing and title
services to its homebuyers through its many subsidiaries and joint
ventures.  The Housing Construction sector is generally a favorable
broad-market hedge and this position offers investors a reasonable
cost basis in a long-term portfolio issue.

SEP 22.50 SPF UX LB=0.40 OI=365 CB=22.10 DE=20 TY=6.9%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=SPF

*****

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

JBL    23.11  SEP 17.50   JBL UW  0.40 1177  17.10  20    12.1%
FSII   15.76  SEP 15.00   FQH UC  0.45 0     14.55  20    11.4%
NSM    33.05  SEP 30.00   NSM UF  0.70 1326  29.30  20     9.8%
BCGI   17.05  SEP 15.00   QGB UC  0.30 16    14.70  20     9.0%
MU     37.61  SEP 32.50    MU US  0.45 2077  32.05  20     6.6%
MNTR   30.00  SEP 25.00   MNQ UE  0.25 0     24.75  20     5.2%




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


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

The Market Needs A Holiday!
By Ray Cummins

******************************************************************
                         - MARKET RECAP -
******************************************************************

Friday, August 31

The recent slump in equity values ended today as U.S. stocks
rebounded amid investor optimism over favorable manufacturing
data.  Factory orders rose 0.1% in July, topping expectations,
and although trading volumes continued to be light, some traders
were willing to make bullish bets ahead of the holiday weekend.
The Dow Jones industrial average closed up 30 points at 9,949
and the NASDAQ Composite index was up 13 points at 1,805.  The
S&P 500 index was up almost 5 points to 1,133.  Volume on the
Big Board reached 907 million, with winners beating losers 16
to 13.  NASDAQ volume was thin with 1.2 billion shares changing
hands.  Technology advances topped declines by almost 4-3.  In
the bond market, the 30-year Treasury rose 2/32, pushing its
yield down to 5.37%.


Last week's new plays (positions/opening prices/strategy):

Fluor       (NYSE:FLR)    SEP35P/40P  $0.65   credit   bull-put
Shire Ph.   (NSDQ:SHPGY)  SEP55C/50C  $0.70   credit   bear-call
Stericycle  (NSDQ:SRCL)   SEP55C/50C  $0.60   credit   bear-call
Teradyne    (NYSE:TER)    SEP35C/35P  $4.00   debit    straddle
SouthWest   (NYSE:SWS)    OCT22C/20P  $0.10   debit    synthetic

Our new group of credit spreads offered acceptable entry prices
during the week and most of the underlying issues are performing
as expected.  Stericycle experienced a surprise rebound Friday
on reports the company had raised its service prices and although
the issue is still trading comfortably in a recent range, we will
watch it closely for a move through resistance at $50-$51.  The
speculative straddle in Teradyne was easily opened at the target
debit and on Thursday, the position offered a small overall credit
($0.50) as technology stocks slumped to recent lows.  Southwest
Securities enjoyed a nice rally through the early portion of the
week but eventually consolidated amid the bearish market trend.
The synthetic position traded at a $0.50 credit on Wednesday, as
the issue climbed to a recent high near $22 and the bullish play
is currently profitable.


Portfolio Activity:

The bearish positions in our portfolio performed very well this
week as the market slumped to yearly lows.  The top plays were
Best Buy (NYSE:BBY) and Electronic Data Systems (NYSE:EDS) and
both underlying issues are well below the sold (Call) strike
prices.  Among the bullish plays, Amerisource (NYSE:AAS) was in
the news, announcing it has completed its merger with Bergen
Brunswig (NYSE:BBC) to form a new company with $36 billion in
revenues.  AmerisourceBergen (NYSE:ABC) is the name of the new
company and on Thursday, the stock began trading with the "ABC"
symbol on the New York Stock Exchange.  Under the terms of the
merger agreement, each share of Bergen Brunswig common stock was
converted into 0.37 of a share of AmerisourceBergen, which now
has approximately 103 million shares outstanding.  The company
also joined the S&P 500 because of the merger.  The Straddles
section has not seen much activity recently and this week was
no different as almost every issue moved in a relatively small
range.  Amdocs (NYSE:DOX) has achieved profitability but both
Serena Software (NASDAQ:SRNA) and Jacobs Engineering (NYSE:JEC)
have yet to hit the break-even points.  These positions will
begin to lose time value exponentially after the long holiday
week-end so consider the risk-reward potential of remaining in
those plays beyond the next few sessions.  The bullish synthetic
position in Phoenix Technologies (NASDAQ:PTEC) appears to have
run out of gas near $15 but the issue should trade comfortably
above the sold strike at $12.50, allowing the (short) option to
expire without obligation.  The adjusted position (SEP-$50 Put)
in Genzyme (NASDAQ:GENZ) is still profitable and with the issue
mired in a range near $55, there is little potential for loss
prior to the September options' expiration.

Questions & comments on spreads/combos to Contact Support

******************************************************************
                           - NEW PLAYS -
******************************************************************

POSS - Possis Medical  $14.61  *** Cheap Speculation! ***

Possis Medical (NASDAQ:POSS) is a developer, manufacturer and
marketer of medical devices.  The company's products include the
AngioJet Rheolytic Thrombectomy System, the Perma-Seal Graft, the
Perma-Flow Coronary Bypass Graft, and the ePTFE Synthetic Vascular
Graft.  The company is now focused in the further development and
marketing of the AngioJet system.  The company markets this system
to interventional cardiologists, interventional radiologists,
vascular surgeons, and to physician specialty groups, including
vascular, cardiovascular and thoracic surgeons in the U.S. and in
other countries.

This position is based on recent increased activity in the stock
and its underlying options.  POSS rallied almost 10% Friday and
the current technical indications suggest there is additional
upside potential.  At the same time, historical resistance near
$15 has affected the share value in the past and may again be a
factor in the coming months.  The issue is a great candidate for
a bullish calendar spread with an excellent risk/reward outlook.
However, the position should also be evaluated for portfolio
suitability and reviewed with regard to your strategic approach
and trading style.

PLAY (conservative - bullish/calendar spread):

BUY  CALL  JAN-15.00  UPQ-AC  OI=102  A=$1.90
SELL CALL  SEP-15.00  UPQ-IC  OI=250  B=$0.65
INITIAL NET DEBIT TARGET=$1.10-$1.20 TARGET PROFIT=50%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=POSS

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

NSM - National Semiconductor  $33.05  *** Reader's Request! ***

National Semiconductor (NYSE:NSM) designs, develops, manufactures
and markets a wide array of semiconductor products, including a
broad line of analog, mixed-signal and other integrated circuits.
The company is organized by various product line business units,
which are grouped to form three organizational units: the Analog
Group, the Information Appliance Group and the Network Products
Group.  The Analog Group develops and manufactures building block
products, such as: high-performance operational amplifiers; power
management circuits; data acquisition and interface circuits; and
circuits targeted toward leading-edge monitor applications, such
as ultra-thin flat-panel displays.  The Information Appliance
group delivers component and system solutions targeted heavily
towards the emerging information appliance market.  The Network
Products Group offers a line of Ethernet products that address a
range of applications.

One of our readers suggested that we offer a bullish position in
the semiconductor group, to take advantage of any oversold rally
in technology issues.  NSM is a good candidate in this respect,
based on the current technical indications and with the company's
upcoming earnings report (9/6/01), there is an additional catalyst
for a potential rally.  Target a smaller debit initially, to allow
for the daily volatility in the issue.

PLAY (conservative - bullish/synthetic position):

BUY  CALL  SEP-35  NSM-IG  OI=4084  A=$1.00
SELL PUT   SEP-30  NSM-UF  OI=1675  B=$0.70
INITIAL NET DEBIT TARGET=$0.10-$0.15  TARGET PROFIT=$0.50-$0.60

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $1,100 per contract.

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=NSM

******************************************************************
                       - TECHNICALS ONLY -

These plays are based on the current price or trading range of
the underlying issue and its recent technical history or trend.
However, current news and market sentiment will have an effect
on these issues, so review each play individually and make your
own decision about the future outcome of the position.

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

CTX - Centrex  $43.80  *** Hot Sector! ***

Centex Corporation (NYSE:CTX) is a multi-industry company with
operates in six principal business segments.  Conventional Homes
operations involve the construction and sale of single-family
homes, town homes and low-rise condominiums, and the purchase
and development of land.  Investment Real Estate involves the
acquisition, development and sale of land, and the development
of industrial, office, retail and mixed-use projects.  Financial
Services operations involve the financing of homes, home equity
and sub-prime lending, and the sale of various types of insurance
coverage.  Construction Products involves cement production and
distribution, and the production, distribution and sale of gypsum
wallboard, readymix concrete, aggregates and recycled paperboard.
Contracting and Construction Services involves the construction
of buildings. Centex HomeTeam Services is involved in pest and
termite control, lawn and landscape care, electronic security,
alarm monitoring and homewiring services.

Stocks in the Materials and Construction segment are currently
in favor and this position in CTX is an excellent candidate for
conservative spread traders.  The company is one of the leaders
in its industry and the technical indications suggest the issue
is comfortable in a trading range near $40.  In addition, the
recent upside activity is in opposition to the broader market
and will likely propel CTX to a test of the yearly highs.  Those
of you who like to participate in conservative combination plays
should consider this bullish position.

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-35  CTX-UG  OI=20   A=$0.30
SELL PUT  SEP-40  CTX-UH  OI=515  B=$0.85
INITIAL NET CREDIT TARGET=$0.60-$0.65  PROFIT(max)=14%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=CTX

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

WHR - Whirlpool  $66.02  *** Failed Rally? ***

Whirlpool Corporation (NYSE:WHR) is a worldwide manufacturer and
marketer of major home appliances.  The company manufactures in
13 countries under 11 major brand names, and markets products to
distributors and retailers in more than 170 countries.  Whirlpool
manufactures and markets a full line of appliances and related
products, primarily for home use.  Whirlpool's principal products
are home laundry appliances, home refrigerators and freezers,
home cooking appliances, home dishwashers, and air-conditioning
equipment, mixers and other small household appliances.  They also
produce hermetic compressors and plastic components, primarily for
the home appliance and electronics industries.

Stocks in the retail industry have begun to reflect signs of the
slowing U.S. economy and companies that offer the "big-ticket"
items such as major appliances will also suffer from the reduced
consumer wealth in America.  The recent slump in WHR may be due
to that effect and with the well-established resistance near our
sold strike price, this position offers an excellent risk/reward
outlook for traders who are bearish on the underlying issue.

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-75  WHR-IO  OI=220   A=$0.25
SELL CALL  SEP-70  WHR-IN  OI=2201  B=$0.75
INITIAL NET CREDIT TARGET=$0.55-$0.60  PROFIT(max)=12%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=WHR

******************************************************************
                   - STRADDLES AND STRANGLES -
******************************************************************

PDLI - Protein Design Labs  $58.79  *** Probability Play! ***

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

Based on analysis of historical option pricing and technical
background, this position meets the fundamental criteria for a
profitable debit straddle.  These positions are relatively easy
to uncover and there are three rules for identifying favorable
conditions for a straddle purchase.  First, the trader should
select options that are undervalued.  Next, the underlying issue
must have the potential to move (high or low) enough to make the
straddle profitable.  Finally, the underlying stock should have
a history of multiple movements through a sufficient range in the
required amount of time to justify the overall risk/reward of the
position.  Target a slightly smaller premium initially, to allow
for smaller option premiums after the long holiday week-end.

PLAY (conservative - neutral/debit straddle):

BUY  CALL  SEP-60  PQI-IL  OI=4554  A=$3.30
BUY  PUT   SEP-60  PQI-UL  OI=562   A=$4.30
INITIAL NET DEBIT TARGET=$7.40-$7.50  TARGET PROFIT=15-20%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=PDLI




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