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Daily Newsletter, Wednesday, 09/05/2001

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The Option Investor Newsletter                Wednesday 09-05-2001
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
      09-05-2001          High      Low     Volume Advance/Decline
DJIA    10033.27 + 35.78 10066.69  9885.88 1.36 bln   1248/1874 
NASDAQ   1759.01 - 11.77  1782.50  1715.86 1.92 bln   1319/2308
S&P 100   578.89 +  0.85   581.01   568.92   Totals   2952/3750
S&P 500  1131.74 -  1.20  1135.52  1114.86
RUS 2000  462.51 -  4.45   466.95   458.78
DJ TRANS 2835.17 -  0.48  2842.22  2812.12
VIX        28.96 +  0.30    30.50    28.58
Put/Call Ratio      0.75
******************************************************************

April Lows Bring Retest Woes

There's been a lot of hype circulating through the financial media
recently concerning the "need" for the major market averages to
retest their respective April lows.  Call it a self-fulfilling
prophecy, but the major market averages slid ever-closer towards
their yearly lows Wednesday.  Of course the afternoon rebound
helped to ease the fears of capitulation, but earlier weakness
allowed the bears to print increasingly larger amounts of
profits.

The Nasdaq-100 (NDX.X), a market cap weighted index of the largest
100 Nasdaq-listed issues, fell as low as 1371 Wednesday - a mere
23 points from its April low of 1348.  The tech and biotech heavy
index is oversold according to Stochastics and Bullish Percent
readings.  And although oversold markets can grow more oversold,
a short-term bounce is possible as buyers step in around the April
lows.  Of course the duration of any future bounce is the variable
as we enter third-quarter warnings season.  Furthermore, attempting
to trade from the long side should be done only with the strictest
of risk management.



When searching for bullish trades in an attempt to game any
forthcoming bounce in the NDX, it makes sense to focus on the
strongest sectors within the Nasdaq.  And the two strongest
sectors currently are the Semiconductor (SOX.X) and Biotech
(BTK.X) sectors.  A simple, rudimentary glance of where the two
sectors are in relation to their April lows reveals their
respective relative strength.

Intel (NASDAQ:INTC) will hold its mid-quarter update Thursday,
after the bell.  And rumor has it that the company will
reaffirm its guidance, which may induce some short covering in
chip-related issues.  So there's one potential catalyst.

The potential driving force behind the Biotech sector is the
possibility for earnings out performance in the third- and
fourth-quarters of this year.  Biotechs are relatively immune
from the economy, so we won't be hearing a lot about slumping
demand and excessive inventories from the likes of Biogen
(NASDAQ:BGEN) nor Amgen (NASDAQ:AMGN).  Furthermore, there's
the potential for about six new drugs to receive approval from
the FDA in the coming months - a friendly FDA has the propensity
to boost biotech issues.

Conversely, when searching for bearish trades in the Nasdaq, I
think that it makes sense to focus on the weakest links.  In no
particular order, the weakest links in the Nasdaq are Software
(GSO.X), Networking (NWX.X), Internet (INX.X), Hardware (GHA.X),
and Telecom (XTC.X), (YLS.X).  A quick glance over the charts
of these sectors reveals a predominant theme: Fresh 52-week
lows.

The Compaq (NYSE:CPQ) - Hewlett-Packard (NYSE:HWP) merger
revealed how dismal things are in hardware.  And the Merrill
downgrade of Motorola (NYSE:MOT) proved once again that anything
related to telecom is buried in a mire, or worse.

In terms of points and percentage, the S&P 500 (SPX.X) didn't
come as close to its April low as the NDX did.  But the broad
market index appears technically pathetic nonetheless.  I'd been
monitoring the 1125 level as support for the SPX, but the index
easily violated that level early Wednesday.  However, it did
manage to close back above 1125, which is about the only
constructive attribute that I can think of concerning its price
action Wednesday.  And like the NDX, the SPX's Stochastics are
in oversold territory.  But, unlike the NDX, Stochastics have
already crossed over, which reinforces the slight relative
strength of the S&P over the NDX, in my mind at least.



The finance space - the largest component of the S&P 500 -
traded rather poorly Wednesday.  Traders can monitor this
complex with the Brokers (XBD.X), Insurers (IUX.X), and the
Banks (BKX.X).  All three broke down below key support levels
Wednesday, and the idea of the Fed nearing the end of its
benign policy could continue to pressure the group so long as
credit quality concerns float around.

UBS Warbug attempted to boost the Brokers Wednesday morning
with an upgrade, but the failed rallies in shares of Goldman
(NYSE:GS), Lehman (NYSE:LEH), and Morgan (NYSE:MWD) proved to
be no more than a solid entry point for the bears.

The strongest complex among S&P-related issues is the drug space.
Both the Health Care (HCX.X) and the Drug (DRG.X) sectors finished
higher, which may have been a product of defensive positioning.
The trouble with these two sectors, along with the Biotech sector,
is that each are at or very near significant resistance.  Barring
a breakout in any of the health care-related sectors, it's hard
to argue a bullish case as they approach resistance.

With the broad market averages and narrow-based sector indexes
sliding ever-lower, pessimism is growing among market participants.
But it's not to a capitulatory level yet.  The Market Volatility
Index (VIX.X), Nasdaq-100 Volatility Index (VXN.X), and QQQ Implied
Volatility Index (QQV.X) have all gone near-parabolic over the last
five trading days.  But they don't smell of real fear as they did
back in April.  Indeed, the recent advance in the aforementioned
fear gauges supports the idea of a short-term bounce across the
broader market averages, but by no means indicate that a bottom
is being traced.  A bottom, I'm reminded, is a function of time
not price.  And in this trader's very humble opinion, there's a
lot of time between now and The bottom.

Another event that supports a bullish short-term view was the
sell-off in bonds Tuesday.  Now, I appreciate that a lot of
our subscribers don't like reading about bonds.  But bonds
foreshadowed the massive rally from April's lows, so I think
it's worth writing about the debt market.  With that said, the
sell-off in bonds Tuesday was one of the largest in recent
history, and had nothing to do with inflationary fears.  The
capital that was raised from selling bonds Tuesday has to be
put to work somewhere, and I'm willing to bet that some of that
money makes its way into stocks if it hasn't already.  I think
that traders looking for a bounce in stocks would do well to
monitor the yield of the 10-Year Treasury Note (TNX.X) over
the coming days.  Let's keep this simple: If the TNX advances
in the coming sessions, there's a better chance for stocks to
advance.  Look for an advance above 50.00.



There are several signs pointing towards a short-term bounce,
including the oversold conditions of the SPX and NDX, the
bullish readings of the ARMS Index, the spike in volatility,
and the increasingly negative nature of the crowd.  While the
market could very well roll higher from current levels, it's
my belief that trading from the long side should be approached
lightly.  And in the spirit of adaptability, and for what it's
worth, my sense is that the NDX will ultimately take out its
April lows, and then some.  The SPX may fare a bit better,
however.

It's not my role to tell readers what to do nor how to trade.
But I think it's worth realizing that there's been a lot of
money made in this market trading the downside.  And until
bearish traders are proven wrong through losing money, they'll
continue leaning on fundamentally and technically weak stocks
and shorting rallies.

Eric Utley
Option Investor


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

Microsoft Confirms, Manugistics Warns

The day started out with Merrill Lynch lowering estimates and
downgrading anything that had to do with wireless technology.
The selling then spread over to Internet stocks after concerns
were raised about Amazon's ability to reach profitability.  Cisco
CEO John Chambers didn't help the situation by saying that half
the Nasdaq-100 might not be around in five years.  Granted he
meant consolidation as well as bankruptcy, but it didn't help the
situation.

Retailers Sears, Kohls, and Costco reported increases in same
store sales, but retailers still sold off, as investors remain
concerned about consumer spending.

Early on Biotechnology stocks were the best performing sector,
but finally succumbed to selling.  Defensive sectors drugs and
gold finished as today's top sectors.

Microsoft helped the Dow finish in positive territory, and kept
the Software Index from melting down.  Speaking at an SG Cowen
Technology Conference, CFO John Conners reaffirmed that Microsoft
was on track to meet fiscal forecasts.

While Microsoft should carry more weight, an atrocious warning
from Manugistics (MANU) might hurt the software sector tomorrow.
The company was expected to earn $0.03 per share, but they now
believe that a $0.14 loss is more likely.

Texas Instruments confirmed its Q3 guidance, and should help the
semiconductor index in its quest to hold at support.

Retail should be the sector to watch tomorrow, since the
remainder of August chain store sales will be released.  Wall
Street is anxious to see how back to school sales went.

Sectors should continue to see chopping trading as they try to
dodge a minefield of warnings, downgrades, and economic reports.
Intel's mid-quarter update tomorrow after the bell is the biggest
potential bomb on the horizon.


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

            Support                Close              Resistance
DJIA       | 9,865  |      |10033 |      |      |      |  10,450|
NASD       | 1,710  | 1759 |      |      |      |      |   2,000|
S&P 500    | 1,100  |      | 1132 |      |      |      |   1,200|
Rus 2000   |   455  |      |  463 |      |      |      |     481|
Semis      |   535  |  535 |      |      |      |      |     660|
Biotech    |   473  |      |      |  528 |      |      |     575|
Internet   |   105  |  106 |      |      |      |      |     125|
Networking |   217  |      |  254 |      |      |      |     330|
Software   |   130  |      |      |  150 |      |      |     175|
Banking    |   625  |      |  639 |      |      |      |     685|
Retail     |   822  |      |  841 |      |      |      |     880|
Drugs      |   380  |      |      |  392 |      |      |     410|

Support Alerts: Dow, S&P 500, RUS 2000, Internet, Networking,
Software, Retail

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

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


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

NEWS FLASH - It's Still A Bear Market!
By Mark Phillips

For students of the equity markets, there are numerous lessons
available for our continuing education every day.  The challenge
we face is determining where the important lesson of the day or
week lies.  It can be something as simple as learning about a
new technical indicator and how it performs in specific market
conditions or as complex as learning a new and advanced trading
strategy.  Of course the really important lessons are those that
teach us what to do (or not do) to keep our account balances on
the rise.

We have been talking about the LEAPS Covered Calls strategy in
this column for 10 weeks now, and now that we have covered most
of the nuances of the strategy, you should be getting a feel for
how to utilize it in your arsenal of trading tools.  For those
just joining us, a quick review is in order.

The Covered Call strategy is ideally suited to a sideways market,
whether we are speaking of the broad market, a specific sector
like Semiconductors, or a specific stock like Intel
(NASDAQ:INTC).  The first step is to establish a long position
in the stock (in our case, by purchasing a LEAP) as the stock
recovers from a major support level with both daily and weekly
Stochastics recovering from oversold.  With a sideways market,
we are looking to establish the long position so that we can
profit when the stock begins to appreciate in the future.  But
if that isn't likely to happen in the near term, we can reduce
our cost basis month after month by selling short-term calls,
at or above the LEAP strike, each time the daily oscillators
begin to fall back from overbought territory.

As options combination strategies go, Covered Calls on LEAPS is
fairly straightforward.  Not simple, but a very usable strategy
for accomplished options traders.  The biggest problem that
arises with the strategy is trying to fit it into an unfavorable
trading environment.  Although there were signs in recent weeks
that the markets would trend sideways until a bullish catalyst
(like improving profits) appeared, recent market action
(particularly in the techs) has dragged many stocks to new
yearly lows, breaking support levels that were established in
the March/April timeframe.  While it doesn't invalidate the idea
that we are in a sideways market, it forces us to evaluate what
that trading range will be.  And we now have to wait for a new
base to build so that we can determine logical levels at which
to enter new long term positions.  We all make errors in judgment
in the markets from time to time, but the critical question we
all need to ask is, "Did I learn anything from the experience
that will help me make a better decision next time?".  If you
can answer in the affirmative every time you trade, then you are
on the right path.

To that end, I thought I would focus today on the demise of the
Sun Microsystems (NASDAQ:SUNW) trade we have been following
lately.  After building what looked like a solid base through
the month of July, SUNW looked like it would likely be trapped
in a $14-23 trading range, a good candidate for LEAPS covered
calls.  So after deciding to play the stock in the LEAPS
Portfolio, I decided to use it as a case study for our Covered
Calls discussions in this column.  I won't rehash our entries
into either the LEAP or Covered Call sides of the trade --
interested readers can access those articles via the following
links: Trade Management - The Key To Trading Success and
LEAPS Covered Calls Trade Management - Target:SUNW.  Rather, I
think the important thing to cover here is how we would have
exited the play last week when the company disappointed
investors with its dismal mid-quarter conference call.

When we initiated the Portfolio play on SUNW in late July, we
set our stop at the $12.50 level, just below the April lows.
The thinking that went into that setting was that if SUNW were
to break the April lows, it would be a very negative technical
development; one that would clearly motivate us to be out of the
play.  As covered in the above-referenced articles, the first
cycle on the Covered Call strategy went off without a hitch,
allowing us to keep the accumulated premium and leaving us in a
holding pattern as we waited for the price to pop up from the
$13.50 level and give us another opportunity to sell calls.

That's where we were last week as SUNW issued their mid-quarter
update...a conference call that was far from stellar.  Since we
didn't have an open Covered Call, the trade management only had
to be applied to our SUNW LEAP.  If our stop was violated, then
we would want to exit the play, and that is exactly the situation
we were faced with the day after SUNW's conference call.  The
stock opened well under $12 and proceeded lower from there.
Holding onto the stock below that level falls into the category
of Blind Hope, which has no relationship with good money
management.

This is the important point to realize about the Covered Call
strategy.  While the premium received from the sold call can
mitigate the damage, it can't protect you from a large selloff
in the underlying stock.  Now that SUNW has declined to new
yearly lows, trying to game a bullish trade in the stock is
dicey, at best.  I went back and looked at the charts available
to us up through the time our August Covered Call expired
worthless, and there really is nothing to tell me that I made
an error in judgment.  Other than expecting that the stock would
not decline to new yearly lows, that is.

This is one of those trades that looked good on every front,
except perhaps from the standpoint of the underlying
fundamentals, which were still unknown due to the unknown global
economic picture.  That picture has continued to worsen over the
past 6 weeks, and as we have seen the bears take apart one stock
after another, pushing them to new yearly lows.  SUNW has not
been any worse in this respect than its high-tech brethren, but
it hasn't been immune either.  There are some possible
treatments to keep your investment account healthy in an
unhealthy market environment.  The first is to actively utilize
stop losses to cut your losers short.  That's a no-brainer and
nothing new to you, my faithful readers.

The second possible way to protect your trading account is to
harvest profits aggressively.  This could have been applied to
the SUNW trade by selling the LEAP as the stock began to weaken,
eschewing the Covered Call strategy and instead focusing on
locking in short-term profits.  Of course that leaves one more
key strategy that we can apply from a LEAPS standpoint -- LEAP
Puts.  That's right, we can buy LEAP puts to capitalize on
extended moves to the downside.  While I think we may be a bit
late to this game for the current cycle, in the interest of
education, we'll take a detailed look at how we might take that
instrument next week and apply it to our goal of growing our
investment accounts.  In fact, we can use Spread strategies with
LEAP Puts to put option premium in our account.

Tune in next week for a lower risk approach to trading the
upside using LEAP Puts.  I'm sure we'll all discover a couple
nuggets of wisdom in the process.

Questions are always welcome!

Mark Phillips
Contact Support


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

VOD  - call
Adjust from $18.50 up to $19.50

GMST - put
Adjust from $31 down to $30

QLGC - put
Adjust from $32 down to $30

QCOM - put
Adjust from $59 down to $57

JPM  - put
Adjust from $40.25 down to $40

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

No dropped calls tonight


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

No dropped puts tonight


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

VOD - Vodafone $20.96 +0.95 (+0.81 this 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.

Most Recent Update

VOD charged above its relevant resistance at the $20.19 level
early Tuesday only to be dragged lower by the broader market in
typical bull trap fashion.  The stock's subsequent weakness was
discouraging, to say the least.  Ideally, we'd like to see the
$20 support level prop VOD up in the coming sessions.  If not,
the stock's pattern of higher lows should morph into support
around the $19.50 level.  A bounce from either $20 or $19.50
would offer an entry point on weakness and the employment of
an extremely tight stop in order to manage risk.

Comments

Mo-Mo is a rare commodity in this market.  But VOD keeps on
truckin' higher despite the weakness in the broader markets.
The stock solidly settled above the psychologically
significant $20 level and could trade higher into Thursday's
session with any relief across the markets.  Look for entries
at current levels if the Nasdaq is advancing.

BUY CALL SEP-17.5*VOD-IW OI= 338 at $3.60 SL=2.50
BUY CALL SEP-20.0 VOD-ID OI=5460 at $1.50 SL=0.75
BUY CALL OCT-20.0 VOD-JD OI=1106 at $2.10 SL=1.25
BUY CALL OCT-22.5 VOD-JX OI=1636 at $0.90 SL=0.25

Average Daily Volume = 5.64 mln



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

Gloom And Despair Plague the Market
By Ray Cummins

Stocks ended the session mixed today amid new profit fears and
concerns that September will bring another downpour of profit
warnings.  A bearish report from telecom-gear supplier Alcatel
(NYSE:ALA) and a downgrade of cellular phone giant Motorola
(NYSE:MOT) helped spur additional selling by investors that
were already concerned third-quarter profits will not meet
expectations as the lagging economy takes a toll on sales.
Technology shares were hardest hit, extending declines from
Tuesday after analysts expressed disapproval of the proposed
merger between Hewlett-Packard (NYSE:HWP) and Compaq Computer
(NYSE:CPQ).  HP's Chief Executive Carly Fiorina defended her
company's plans to acquire their rival, even as the shares of
both stocks plummeted, reducing the deal's value by over 25%.
Fiorina said the deal shouldn't have surprised Wall Street,
given the increasing demands for more products and services
from computer customers, but investors were less than pleased
and both Hewlett and Compaq shares have slumped since it was
announced.  Adding to the day's troubles was data indicating
that U.S. retail sales have slowed recently, suggesting the
government's $38 billion tax rebate aimed at boosting the
economy has yet to spur a consumer spending spree.  Analysts
say consumer spending is a vital component of the economy as
it struggles to regain momentum amid weak business investment
and meager economic growth in other major world economies.
Policy-makers expected the recent government tax rebates to
stimulate consumer spending, which represents about two-thirds
of U.S. economic activity, and help stir the sputtering market.
But some economists now fear that economic weakness might be
spreading and with unemployment rising, consumers may keep a
tighter grip on their wallets.  The loss of jobs in technology
companies has been a concern among analysts and a private firm
projected Wednesday that the steady rate of industry layoffs
would continue in the coming months.  On the bright side, the
chief economist at Banc One Investment, Anthony Chan, says he
expects factories, which have aggressively laid off workers in
recent months, to see a marked rebound in productivity soon.
Productivity growth, and the contribution it receives from new
technology, has been a key issue for Federal Reserve Chairman
Alan Greenspan in recent years.  Greenspan has hailed the gains
in productivity that have enabled the economy to grow without
inflation.  Unfortunately, a recent report said, "There is no
evidence indicated by any industry that anything that could be
called a significant sustainable rebound is on the horizon for
this year or even early next year."  That's not an optimistic
outlook, no matter how you view it...


Summary of Previous Candidates (as of 9/4/01):

Covered Calls: (Margin not used in calculations)

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

GILD    SEP     50   48.06   60.69   $1.94    4.1%
CBST    SEP     40   38.70   43.10   $1.30    4.4%

Naked Puts:

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

PDLI    SEP    40    39.00   58.87   $1.00   5.7%
GILD    SEP    45    44.20   60.69   $0.80   6.3%
CCMP    SEP    55    54.15   66.52   $0.85   5.6%
CBST    SEP    40    38.70   43.10   $1.30  10.9%
CCMP    SEP    55    54.40   66.52   $0.60   5.1%
SNPS    SEP    45    44.05   45.48   $0.95   5.9%
OPMR    SEP    40    39.35   42.20   $0.65   5.0%
ADI     SEP    40    39.40   45.30   $0.60   5.1%

Synopsis (NASDAQ:SNPS) was closed last week in the interest
of capital preservation however, the original position is
still positive.  Optimal Robotic (NASDAQ:OPMR) was also
closed (although positive) and ADI is now on the watch-list
for a potential exit on any further weakness.


Sell Strangles:

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

NVDA    SEP    60-P  59.00   78.82   $1.00   4.5%
QCOM    SEP    55-P  53.70   54.30   $0.60   3.4%

NVDA    SEP   105-C 106.40   78.82   $1.40   6.2%
QCOM    SEP    70-C  71.25   54.30   $1.25   6.2%

Qualcomm (NASDAQ:QCOM) may become a portfolio holding if
if the NASDAQ does not recover prior to the September options
expiration.


Naked Calls:

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

NVDA    SEP    95    96.20   78.82   $1.20   6.6%


Credit Spreads:

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

COCO  $49.79  $34.99   SEP40p/45p  $1.00   $44.00 ($2.50) Closed!
NKE   $48.00  $50.75   SEP40p/43p  $0.40   $42.10  $0.40   Open
IVGN  $63.99  $68.59   SEP80c/75c  $0.75   $75.75  $0.75   Open
BOW   $47.32  $47.60   SEP40p/45p  $0.75   $44.25  $0.75   Open
CHV   $93.01  $91.35   SEP85p/90p  $0.75   $89.25  $0.75   Open
KMI   $54.33  $55.74   SEP45p/50p  $0.70   $49.30  $0.70   Open
BSC   $55.50  $52.26   SEP65c/60c  $0.65   $60.65  $0.65   Open
BAC   $64.65  $61.91   SEP55p/60p  $0.60   $59.40  $0.60  Closed?
POT   $64.00  $64.21   SEP55p/60p  $0.90   $59.10  $0.90   Open
EBAY  $56.91  $54.45   SEP70c/65c  $0.75   $65.75  $0.75   Open
LEN   $42.50  $45.09   SEP35p/40p  $0.75   $39.25  $0.75   Open
UDS   $51.82  $51.90   SEP45p/50p  $0.65   $49.35  $0.65   Open
VGR   $42.70  $45.00   SEP35p/40p  $0.75   $39.25  $0.75   Open
IBM  $104.13 $101.49   SE115c/110c $0.70  $110.70  $0.70   open

COCO (NASDAQ:Corinthian Colleges) slumped on Thursday after the
close amid news its fiscal fourth-quarter net income rose 67%
compared with the prior year, as revenues rose 44%.  Hmmm?!?
USB Piper Jaffray didn't help matters, downgrading the issue to
a "Buy" on valuation and estimate changes.  The cost to close
the spread on the day of the announcement was $3.50; a $2.50
loss overall.  Ouch!


Debit Straddles:

The Sony (NYSE:SNE) debit straddle (SEP-$50) was closed early at
a "break-even" exit but the original position eventually yielded
a favorable profit.


New Candidates:

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

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

BULLISH PLAYS - Covered Calls, Naked Puts, & Combinations

***************
AHC - Amerada Hess  $78.15  *** Bullish Sector! ***

Amerada Hess (NYSE:AHC) explores for, produces, transports and
sells crude oil and natural gas.  These global exploration and
production activities take place in the United States, United
Kingdom, Norway, Denmark, Gabon, Algeria, Azerbaijan, Indonesia,
Thailand, Malaysia, Brazil and other countries.  Amerada also
manufactures, purchases, transports, trades and markets refined
petroleum and other energy products.  The company owns 50% of a
refinery joint venture in the United States Virgin Islands, and
another refining facility, terminals and retail outlets located
on the East Coast of the United States.

As we noted last week, refining companies have found favor with
investors and analysts say these firms are popular again because
they have real earnings, cash flow, and assets.  In addition,
the balance between gasoline supply and demand has also moved in
favor of fuel refiners in recent weeks and in a report published
last Wednesday, the Energy Information Administration noted a
decline in current gasoline inventories, confirming the earlier
American Petroleum Institute figures.  The news was bullish for
stocks in the Oil Refining group and Lehman Brothers analyst Paul
Cheng raised his investment rating on the refining and marketing
industry to "overweight," based on the increased industry demand
as oil companies press to churn-out gasoline while trying to add
to inventories of heating oil and other distillates before winter
arrives.

Traders who want to speculate on the performance of a popular
issue in the Oil Refining sector should consider this position.

AHC - Amerada Hess  $78.15

PLAY (moderately aggressive - bullish/credit spread):

BUY  PUT  SEP-70  AHC-UN  OI=785   A=$0.25
SELL PUT  SEP-75  AHC-UO  OI=1142  B=$0.85
INITIAL NET CREDIT TARGET=$0.65-$0.75  PROFIT(max)=15%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=AHC
***************
CHIR - Chiron  $47.80  *** Nice And Steady! ***

Chiron (NASDAQ:CHIR) is a biotechnology company that applies
leading scientific approaches to discover and develop innovative
healthcare products to prevent and treat cancer and infection.
The company brings products to the healthcare market through
collaborations with major healthcare companies and through three
growing segments: biopharmaceuticals, vaccines, and blood testing.
Chiron acquired PathoGenesis Corporation, a biotechnology company
developing drugs to treat infectious diseases and particularly
serious lung infections, where there is significant need for
improved therapy.  The company also established an alliance with
Novartis AG, a life sciences company headquartered in Basel,
Switzerland.

The biotechnology sector is performing well, considering the
overall decline in equity values and CHIR is one of the leading
companies in the industry.  In addition, the fundamental outlook
for Chiron is excellent and analysts believe that the company's
ability to benefit from new products and future drug developments
is still not fully reflected in the current share value.  From a
technical viewpoint, the issue has a solid support area near $40
and has enjoyed recent buying pressure, both factors that lead us
to a bullish position in the issue.  The robust premiums in the
options help provide a low risk cost basis with a reasonable
expectation of profit.

CHIR - Chiron  $47.80

PLAY (sell naked put):

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

SELL PUT  SEP 45   CIQ-UI  1108     0.65    44.35      7.3% ***
SELL PUT  SEP 47.5 CIQ-UT  878      1.45    46.05     13.6%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=CHIR
***************
TECD - Tech Data  $41.32  *** Solid Outlook! ***

Tech Data (NASDAQ:TECD) is a provider of IT products, logistics
management and other value-added services, and is the second
largest based on worldwide sales.  The company distributes
microcomputer hardware and software products to value-added
resellers, corporate resellers, retailers, direct marketers and
Internet resellers.  The company and its subsidiaries distribute
to more than 70 countries and serve over 100,000 resellers in
the United States, Canada, the Caribbean, Latin America, Europe
and the Middle East.

Shares of Tech Data soared last week after the distributor of
microcomputer products topped analysts' second-quarter profit
expectations and raised its outlook for the third quarter.
The worldwide provider of printers, modems and other computer
peripherals reported a second-quarter profit of $13.9 million,
or $0.25 per share, lower than last year's earnings, but above
expectations after "special" charges.  CS First Boston analyst
Kevin McCarthy said in a research note that, "The company is
executing very extremely well given the industry conditions" and
Merrill Lynch analyst Steve Fortuna said he continues to believe
that Tech Data is well positioned to benefit from the return of
IT demand.  The better-than-expected results were driven by tight
costs controls, reduced debt and improved gross margins and the
company projects it will earn $27 million to $31 million in the
third quarter, above the latest range predicted by analysts.

Apparently, investors are pleased with the news as the issue has
shown new signs of a bullish trend and this position offers a way
to speculate conservatively on the company's future share value.

TECD - Tech Data  $41.32

PLAY (sell covered call or naked put):

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

SELL CALL SEP 40   TDQ-IH  690       2.65    38.67      6.5%

SELL PUT  SEP 40   TDQ-UH  474       1.15    38.85     13.4%

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

Neutral Plays - Straddles & Strangles

***************
ENZN - Enzon  $64.63  *** Range-Bound? ***

Enzon (NASDAQ:ENZN) is a biopharmaceutical company that develops
and commercializes enhanced therapeutics for life-threatening
diseases through the application of its two proprietary platform
technologies: polyethylene glycol (PEG) and single-chain antibody
(SCA).  Enzon applies its PEG technology to improve the delivery,
safety and efficacy of proteins and small molecules with known
therapeutic efficacy.  Enzon applies its single-chain antibody
technology to discover and produce antibody-like molecules that
offer many of the therapeutic benefits of monoclonal antibodies,
while addressing some of their limitations.

Enzon is a popular candidate for "premium-selling," due to the
issue's technical background and robust option premiums.  ENZN
has a relatively stable trading range and having reported their
quarterly earnings in August, there are no (expected) upcoming
events that will substantially affect its fundamental outlook
prior to the September expiration.  Technically, ENZN continues
to move laterally in a Stage I base within a near-term trading
range from $50 to $70.  The short-term indications suggest the
current trend will continue but news and market sentiment will
have an effect on the position, so review the play thoroughly
and make your own decision about its outcome.

ENZN - Enzon  $64.63  *** Range-Bound? ***

PLAY (moderately aggressive - neutral/credit strangle):

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

SELL PUT  SEP 55   QYZ-UK  175       0.55    54.45     6.2%
SELL CALL SEP 70   QYZ-IN  4516      1.00    71.00     8.8%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=ENZN
***************
TEVA - Teva Pharmaceutical  $69.46  *** Probability Play! ***

Teva Pharmaceutical Industries (NASDAQ:TEVA) is an integrated
global pharmaceutical company producing drugs in all major
therapeutic categories.  In the area of proprietary drugs, Teva
has focused on products for central nervous system disorders,
primarily the development of their first globally marketed
branded drug, Copaxone, a treatment for relapsing-remitting
multiple sclerosis.  Teva also owns significant manufacturing
operations for active pharmaceutical ingredients (API).  Teva
Pharmaceuticals USA, Teva's principal United States subsidiary,
is a generic drug company in the United States.  Teva makes 137
generic products in 210 generic forms, which are distributed and
sold in the United States together with 15 additional generic
products in 29 dosage forms manufactured by third parties.  Teva
manufactures over 270 generic products in 600 dosages, which are
sold primarily in the Netherlands, the United Kingdom and Hungary.

Traders have been asking for more volatility plays, where the
underlying issues have cheap option premiums and the potential
to move significantly during the daily market activity or upon
announcements of unexpected developments.  Here is a favorable
candidate, based on analysis of the historical option pricing
and technical background.  In addition, the stock has a history
of multiple movements through a sufficient range in the required
amount of time to justify the overall risk of the straddle.  As
always, review the play thoroughly and make your own decision
about the future outcome of the position.

TEVA - Teva Pharmaceutical  $69.46

PLAY (conservative - neutral/debit straddle):

BUY  CALL  SEP-70  TVQ-IN  OI=1101  A=$1.70
BUY  PUT   SEP-70  TVQ-UN  OI=611   A=$2.05
INITIAL NET DEBIT TARGET=$3.50-$3.65 TARGET PROFIT=20%

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

BEARISH PLAYS - Naked Calls & Combinations

***************
BBY - Best Buy  $58.72  *** Retail Slump! ***

Best Buy Company (NYSE:BBY) is a specialty retailer of consumer
electronics, home office equipment, entertainment software and
appliances.  The company operates retail stores and commercial
Websites under the brand names Best Buy (BestBuy.com), Media Play
(MediaPlay.com), On Cue (OnCue.com), Sam Goody (SamGoody.com),
Suncoast (Suncoast.com) and Magnolia Hi-Fi (MagnoliaHiFi.com).
Best Buy stores offer customers a broad selection of name-brand
models consisting of approximately 6,000 products and they
account for 68% of the company's total retail square footage.

Best Buy came up today on a list of potential "failed rally"
candidates and indeed, the issue continues to suffer from the
recent selling pressure in the retail group.  However, since it
is somewhat oversold on a near-term basis, it may be best to
initiate a limited-risk position that allows for a small amount
of upward movement in the coming sessions.  We can also use that
activity to improve the position credit and the potential for a
successful (technical) recovery is significantly affected by the
resistance at the sold strike price; a perfect condition for a
bearish combination play.

BBY - Best Buy  $58.72

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-70  BBY-IN  OI=5518  A=$0.25
SELL CALL  SEP-65  BBY-IM  OI=3770  B=$0.60
INITIAL NET CREDIT TARGET=$0.40-$0.50  PROFIT(monthly)=15%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=BBY
***************
GS - Goldman Sachs  $78.55  *** Bearish Broker! ***

The Goldman Sachs Group (NYSE:GS) is a global investment banking
and securities firm that provides a range of services worldwide
to a substantial and diversified client base.  Goldman operates
offices in over 20 countries and the company's activities are
divided into two segments, Global Capital Markets, and Asset
Management and Securities Services.  Goldman also has a Global
Investment Research Department that provides research on world
economies, debt and equity markets, commodities, industries and
companies on a worldwide basis.

Brokerage stocks retreated again today after a brief rally in
early trading that could not be sustained due to concerns that
business will not significantly improve for the industry until
sometime in 2002.  Investors had initially "bid up" the sector
following optimistic comments from a UBS Warburg analyst, who
said "The big players are poised for a recovery, but still have
some pain to work through."  UBS's Dianne Glossman announced in
a report to clients that she expects the group to "bottom out"
in the third quarter and expects improvement into the first half
of 2002.  While raising her ratings on brokerage stocks, she
also lowered her earnings estimates for the companies saying,
"We expect near-term news to fall into the negative column due
to a continued weak operating environment."  The analyst lowered
her estimate for Goldman's third-quarter earnings per share and
says she expects the most negative news at Goldman Sachs to come
out of the Investment Banking division.

The short-term technical indications are bearish and the recent
resistance levels near $82 and $85 should limit the probability
of a significant upward move in the coming sessions.

GS - Goldman Sachs  $78.55

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-90  GS-IR  OI=2596  A=$0.25
SELL CALL  SEP-85  GS-IQ  OI=5309  B=$0.60
INITIAL NET CREDIT TARGET=$0.40-$0.50  PROFIT(monthly)=15%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=GS
SEE DISCLAIMER
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