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Daily Newsletter, Sunday, 07/14/2002

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The Option Investor Newsletter                   Sunday 07-14-2002
Copyright 2002, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

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Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        WE 7-12          WE 7-05          WE 6-28          WE 6-21
DOW     8684.53 -694.97  9379.50 +136.24  9243.26 - 10.53  -220.42
Nasdaq  1373.50 - 74.86  1448.36 - 16.58  1464.96 + 24.01  - 63.79
S&P-100  458.91 - 33.75   492.66 +  2.54   490.12 +   .70  - 12.34
S&P-500  921.39 - 67.64   989.03 -   .79   989.82 +   .69  - 18.14
W5000   8711.50 -601.90  9313.40 - 70.63  9384.03 -  5.95  -159.74
RUT      413.28 - 27.64   440.92 - 21.74   462.66 +  1.59  +  2.00
TRAN    2480.14 -172.50  2652.64 - 77.68  2730.32 - 25.32  + 82.50
VIX       38.33 +  8.12    30.21 +  1.08    29.13 -  2.15  +  1.35
VXN       66.00 +  9.72    56.28 -  1.67    57.95 -  1.35  +  3.63
TRIN       0.89             0.28             1.18             2.01
Put/Call   0.64              .77              .66             1.27
******************************************************************

 
Back in the Red Again!  
by Jim Brown


After a one week pause the Dow resumed it downward trend with 
the worst performance since the week after 9/11 The spectacular
+323 point gain from last Friday was wiped out with a huge -694
point drop for the week. (-6.8%) The Nasdaq, although more 
resilient, also dropped another -74 points. This was the worst 
showing for both indexes in some time. The bad news still remains 
more downside risk ahead. 

Chart of the Dow


 

Chart of the Nasdaq


 


After the Dell guidance on Thursday and JNPR beating estimates, 
GE announced earnings on Friday and met street estimates on the 
surface. GE affirmed estimates going forward but cautioned that
the good times had not yet returned. Analysts were quick to point 
out that GE earnings only increased +5.5% after special items
were discounted. Not the +14% headline number, which was reported. 
The opening bounce was blunted by the Retail Sales report, which 
beat the consensus on the surface with a +1.1% gain but a closer 
look revealed that ex-autos it was only +0.4%. This is still good 
but left spoiled traders wanting more. 

The big rally blunting news was the Consumer Sentiment report
which showed a drop to 86.5 from Junes 92.4. June had also dropped
from 96.9 to 92.4. This represents a -10.4 drop in the last two
months. The expectations component dropped a spectacular -9.4
points in the first half of July alone. The 78.5 reading is the 
lowest since last November. Analysts blamed the markets, worries 
over corporate finance and continued rises in unemployment as the
reasons. The drop in sentiment is a leading indicator for a drop
in consumer spending and analysts fear an indicator of the 
coming second dip. Economists swear a double dip recession is
not probable but the signs are creeping back into the economy.

Corporate problems were again in the headlines. Duke Energy 
and El Paso Energy acknowledged that they were under investigation
for energy trading schemes. This tanked the energy sector again
and helped push the Dow utilities close to a new low. 

News reports repeated the claim that Ebbers knew about the fraudulent
transaction for at least a year and the SEC announced they had
issued dozens of restraining orders and asset seizures. They said
they are also pursuing vigorously and quickly to prosecute the 
guilty corporate officers. Expect the WCOM officers to be on the
top of that list. Investigators said that there was absolutely no 
doubt that many more people at WCOM were aware of the problems. 
While the news is good long term for the market the short term 
impact was psychologically negative. 25 banks filed suit against 
WCOM on Friday for defrauding them of $2.5 billion six weeks 
before disclosing the $3.6 billion scam.

After the bell the Wall street Journal reported that Qwest was 
going to restate their 2001 results and erase more than $1 billion
in revenue from transactions under investigation by the SEC. The
"swap" transactions were used by several telecom firms to inflate
revenues when there was actually no financial benefit. Qwest has
$26 billion in debt and its credit rating has been cut to junk. 
This may not be the end and it is seen as a preemptive event
but one that the SEC could see as not strong enough. 

In an effort to avoid investor flight FNM and FRE decided to 
register their stock with the SEC but the agreement stopped short
of requiring them to register their debt and mortgage bonds with 
the government. FNM CEO said it has not issued stock since the
1980s but makes 1,500 debt issuances and more than 40,000 mortgage
backed security releases annually. SEC chief Pitt endorsed the
arrangement in lieu of proposed legislation that would repeal
their exemptions from reporting to the SEC. FRE and FNM have more
then $1.3 trillion in debt and Congress had introduced legislation
to cancel their exemptions in reporting on that debt. The companies
have resisted calls for normal mandatory disclosure requirements. 
Wonder why they are so strongly against it? Enquiring minds want 
to know.

An era passed into history on Friday. Investment banker Robertson
Stevens closed their doors for the last time. It was announced 15
min after the market closed that Fleet Boston had given up on 
trying to sell the company and issued the order to close the it.
Tough times when well known and highly reputable companies with 
over 850 remaining employees are shut down due to lack of interest.
Fleet paid $700 million for RS in 1998 to capitalize on the technology
boom and the IPO frenzy. They anticipate a charge of nearly $500
million for the shutdown. I wonder if they are going to auction off
the 2,000 flat panel monitors they were showing in their trading 
room? Give me a dozen at $250 please!

TrimTabs.com reported that nearly $6.3 billion flowed out of equity
funds in the holiday shortened week ended Wednesday. While this 
compares favorable on the surface with the $10 and $9 billion prior
weeks we need to remember it was really only three days. The bottom
line is that investor sentiment has not changed and with the huge
drop in the markets this week the number next Friday could be 
significantly higher. However, we are reaching the law of diminishing
returns. $1 billion withdrawn from the markets a month ago was when
stocks were selling at much higher levels. $1 billion next week could
actually represent $1.25 billion the prior week and even $1.5 billion
a couple weeks earlier. With new lows far outpacing new highs every
day the loser stocks are getting much cheaper. An average of 436 
stocks made new lows every day last week. How much does every billion 
withdrawn from equity funds next week really represent when it was 
first invested? Something to think about.

First Call went on record again with the prediction that earnings
for the second half could be rocky and analysts estimates are far
too aggressive. I have mentioned this before so I will be brief.
They claim the economic possibilities are far too grim for the 
current optimistic projections for the last two quarters. When 
analysts estimated earnings for the full year back in late 2001
they were operating on the assumption that the recovery would be
stronger than it has been. Therefore the expectations are too 
optimistic. They have been too slow to revise them in hopes they
would not have to look like idiots to the public. The closer we
get to the 3Q the more drastically they will have to reduce them.
To put it bluntly, after the reduced expectations are seen in the
current earnings cycle the forecast for 3Q/4Q will drop quickly 
and with it the stock prices.

This earnings estimate inflation and the possibility of negative
disclosures does not bode well for the earnings cycle that moves 
into full speed next week. With the push to prosecute, freeze, 
confiscate assets, fire and ride executives out of town on a rail 
in full view of the press, the urge to "under report" and "over 
disclose" will be strong. What good is it to report pumped up 
earnings if you only have to restate when pressured by the SEC 
and investor watchdogs? It is a self defeating prospect and 
everyone will think twice before doing it this quarter. This is 
the primary reason the markets are in free fall. Fear of the 
unknown! They can no longer count on the estimated earnings being 
right or even close and the only protection is to move to cash 
until the smoke clears. 

This week we have Intel leading the way on Tuesday. Widely expected
to guide lower their guidance will be critical for techs. Should they
miss estimates the blow would be even worse. IBM follows on Wednesday
and you know I expect trouble there. IBM not only may miss estimates
but could rock the markets by disclosing any number of negative 
events. Nobody will want to be long the market when they announce.
Microsoft will announce on Thursday and could actually beat estimates
if the switch to a new licensing scheme produced a buying rush before
it took effect on July-1st. All three of these are Dow components and
a drop to disaster levels by the first two announcements could see a
rebound on positive Microsoft news. If MSFT were to guide lower I
do not even want to consider the result. Sound bearish enough? I am
just trying to be realistic and paint the picture graphically enough
for everyone to understand the complications. 

The Dow may have dropped -694 points for the week but there are those
technical analysts that are predicting much worse. There are numerous 
"experts" now pointing out their version of a head and shoulders top
and predicting dire results. While I do not give the very long term
theory much credence and would rather base my assumptions on current
events I feel the need to point out this projection.



 

For more information on this pattern click here;
http://www.stockcharts.com/education/What/ChartAnalysis/headShouldersTop.html 

Personally I think the earnings event risk from next week coupled 
with a desire to stand aside until the September bottom is tested
by the Dow is a strong enough reason to expect something in the 
8100 range soon regardless of what technical pattern you lay over 
it. Technicians have a habit of ignoring news events and assuming
their chart patterns will lead them. I agree to some extent but the
charts don't know who will confess next or how bad IBM will miss
earnings. Real investors are standing aside because they are fed 
up with the current situation and fear the future. The charts are
the speedometer which indicates the speed of the crash and will 
tell us later how bad it was. The bottom line to me is "why buy?"

If you are an investor today you may be thinking about picking 
up some "cheap" stocks for the eventual recovery. The problem is
still cheap by what yardstick? Price, PE, historical valuations?
What if, like WCOM, they admit they falsified $3.6 billion in 
earnings over the last two years? Can they suddenly become 
overpriced? The point of course is that literally millions of 
investors are considering the risk of being in the market today
and deciding cash looks better every day. Before I scare you out 
of being an investor completely just remember that when the smoke 
clears over the next 90 days the real bargains will appear. Those 
that are patient will profit handsomely. The market is NOT going 
to run away from us over the next week or two. Despite any 
short-term relief rallies the mother of all call opportunities 
will still be in our future.

Be sure to check out the Traders Corner by Mike Parnos today.
http://www.OptionInvestor.com/indexes/traderscorner.asp

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


Was this commentary helpful to you? Yes/No?
I appreciate your comments.  Jim@OptionInvestor.com



Editors note: 

If you feel you have a specific trading style, technique,
indicator, market view or anything that would benefit our 
readers, please email me and lets give everyone the benefit 
of your experience. Everybody has a different view of the 
same market and how to profit from it. We will review it 
and publish the best ones in the newsletter. They don't 
need to be pretty or professional, just well thought out 
with enough documentation to prove your case. If you are 
a successful trader in this market then others want to 
know your secrets! Email jim@OptionInvestor.com


********************
INDEX TRADER SUMMARY
********************

WHAT NEXT?
by Leigh Stevens

TRADING ACTIVITY AND OUTLOOK - 

A big earnings week this week - many stocks are quite oversold 
but buyers are few, so what does the market do? Maybe goes 
sideways for a day or two (or three) in an "indecision" pattern, 
until/unless a big gun company wows us with earnings either well 
above or below expectations.  

You have the Dow making a minor double bottom (8600), but with 
the average still well above its September low at 8062, relative 
to this week's close at 8684 - and a very weak close at that, 
relative to last week's open at 9375. Last weeks Dow loss from 
open to weekly close was 691 points or 7%! Like a famous senator 
once said, a few billion dollars here a few billion there and 
pretty soon you're talking about real money. 

You have the Nasdaq 100 (NDX) and its tracking stock, QQQ, 
starting to trade sideways as key Nasdaq stocks mark time, 
waiting for earnings and due to being more oversold than the Dow 
stocks. 

The Nasdaq Composite (COMP) was down 66 points or 4% on the week 
- a real switch relative to when tech was leading the market 
lower over past weeks and months. Hey, the market metes out 
"equal opportunity" punishment sooner or later - it was the turn 
of the Dow darlings last week!   

What's a poor trader to do?  Maybe, not much, until we see some 
more market moving news!   
 
S&P 500 (SPX) Index - Daily/Hourly charts:


 

The market is oversold, oversold, oversold - but, so what! The 
market was overbought, overbought, overbought at the 2000 top.  
The "overbought"/"oversold" concept is only meaningful in a 
"normal" market or in trading range - in other words it’s a 
relative concept, that does not provide useful help in trading 
strategies in "extreme" markets like this one.  Being oversold 
does not necessarily mean that there is huge risk in shorting the 
market on rallies. 

A rally back to 953 in SPX, at the upper envelope line on the 
hourly chart, or to the 965 area, at the top of the downtrend 
channel would warrant a bearish play.  If there was a close above 
965, that would be an area to exit puts and look to re-short/buy 
puts again in the 980 area, at the 21-day day moving average. 

On the downside, I'll be looking at buying calls if SPX gets back 
to the 900 area, especially if the index shows an oversold 
reading again on the two hourly oscillators.  

S&P 100 (OEX) Index - Daily/Hourly charts:


 

The weekly playbook is the same here as in the "500" index, only
the numbers are different. Resistance implied by the upper 
envelope line is in the 475 area. Above this level, even stronger 
resistance is implied by the upper channel line in the 490 area - 
doubly so with the 21-day moving average at around 480 currently.    

447-449 is where I anticipate near support. I would be inclined 
to buy on a dip into this area or possibly on a breakout above 
the recent high at 466 - what I don't like about this strategy, 
is that OEX will likely then soon run into overhead resistance. 
Better to wait to buy puts again on a rally if the prior 466 high 
is exceeded. 

Dow Index (1/100: $DJX.X) - Daily/Hourly charts:


 


Nasdaq 100 ($NDX.X) Weekly chart:

It's pretty simple - when NDX breaks out above 1089, resistance 
implied by the prior high and the long-term down trendline, this 
would be a "breakout" and potential major turnaround, at which 
point we can maybe buy and hold the NDX options and the QQQ stock 
and options for longer than a couple of days - maybe, even a 
couple of weeks!  



 


Nasdaq 100 Trust Stock (QQQ) Daily/Hourly charts:

The QQQ pattern represents what can happen in a very oversold 
market - sellers stop pressing the short side, but buyers may 
still be lacking. Result: a narrowing of the price range, a type 
of "compression".  Which way it will go, no one knows - until it 
"breaks" out either way.  We have a cluster of 3 lows in the Q's 
at 23.5 to 24.4. On the upside, there are 4 (up) swing highs 
ranging from 25.5 to 26.5-26.8. The distance between this current 
trading-range is relatively narrow.



 

Of course, what came before this recent narrowing of the price 
range, is the unrelenting downtrend that is so apparent on the 
daily chart.  The lower envelope line has generally "contained" 
the lows, but the stock has "walked" down along the lower 
envelope line, and the trend is steadily down.  At best there are 
occasional rallies to the centered 21-day moving average.  The 
recent minor double bottom low does give pause to pressing the 
short side below 24.  

I suggested on our Market Monitor to short the stock/buy QQQ puts 
on the move up toward the upper channel line on Friday. I'm short 
the stock at 24.90, but have suggested a tight stop at 25.15 in 
case the Q's break out above the down trendline that has again 
started to form on the intraday charts.  

Its possible that the Nasdaq will continue the pattern of moving 
to ever new downswing lows. At a minimum I anticipate a pullback 
to the 24 area. The likelihood seems greater for the stock to 
move a dollar lower than a dollar higher, from Friday's 24.8 
close.  

On the other side, a close above 25.5 is a bullish turn - if this 
develops, it may signal a further move up to the more significant 
resistance at and above 26.  

INTC (Intel) reports after the close on Tuesday; IBM on Wednesday 
and MSFT (Microsoft) on Thursday. Hang on to your hats folks! 
Earnings surprises, either plus or minus, should move QQQ out of 
this current range.  If their reports are "neutral" only or in 
line, my expectation is that the Nasdaq is more inclined to rally 
on the absence of (more) bearish news.  

The S&P and Dow stocks, lately showing more weakness than the 
Nasdaq market, will also be an influence. The Dow was down 7%, 
but Nasdaq was still down 4% last week so one market will still 
weigh on the other.         

Leigh Stevens
Chief Market Strategist 
lstevens@OptionInvestor.com


------------------------------------------------------------
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 • optionsXpress voted Favorite Options Site by Forbes  
 • Easy screens for spreads, collars, or covered calls
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Note: Options involve risk. Risk disclosure: 
http://www.optionsxpress.com/welcome_risk_index.htm
------------------------------------------------------------


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

Not Even Close!

Both of the put plays from last week never even got close
to their execution triggers. The market failed to follow 
through on the Friday rally and dropped like a rock. End
of story. Despite my butchering of the option symbol on
the QQQ July-26 put there were several readers who figured
it out and were able to enter the trade at the $1.00 target
based on the option price. That put traded over $2.50 on 
Thursday. Congratulations guys! Unfortunately nobody was
able to get into the DJX-95 put for the target of $1.50,
the low was $2.65, and it traded well over $8.0 on Thursday.


Expiration and earnings in the same week!!! Wow!

I thought I would suggest some plays based on the strategy
Mike Parnos outlined in Sunday's Traders Corner. He is 
suggesting straddles on the big name earnings events using
90 day or longer options. With multiple big names this week it
was not hard to find some candidates. 

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

Intel on Tuesday. Intel is expected to guide lower and could
drop several dollars if this comes to pass. However because
everyone expects negative news any positive events will be
a serious shock to the shorts. At this point the bad news is
already priced in and the good news is absent. 

Using the October options the OCT-17.50 straddle with Intel
at $17.99 would cost $5.35. ($2.95 call, 2.40 put) Because
option premiums decline slower farther away the losing side
will not lose as much as the winning side is likely to gain.
Hard core straddle players will look at the cost of the July
17.50 straddle at $2.00 and wonder why anybody would pay the
cost for the October premiums. First, because with July
options you only have three days before they expire. The 
premium on the losing side will evaporate before the open
on Wednesday with no time value left. The $1.25 call could
be bid a nickel at the open with any kind of negative news.
That same negative news may not be enough to knock Intel
below $16.50 initially and the put will never reach $1 in
value. The lesson here, when in doubt buy time. If you know
for sure then you don't need the straddle or the time and
can just buy the correct option. That "knowing for sure"
thing has always been a problem for me.....



 


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

ITG on Wednesday (time unknown)

No, not IBM. I was going to profile IBM but the options were nearly
$14 for the straddle. I ran across ITG instead which according to
Yahoo, announces on Wednesday as well. ITG options are much less
expensive and have the ability to move just as much. ITG is in the 
business of providing automated equity trading services and 
transaction research to institutional investors. They are currently
acquiring HOEN which has some substantial trading losses which are
potentially covered by insurance. ITG is being forced to put $2.4
million of the acquisition price in escrow in order to continue
fighting the insurance company for payment of these claims. The
disclosure process could be interesting on ITG if there are any
skeletons in their closet or in the HOEN closet.

The October $30 straddle is $5.80 with the $30 put already $1.05
ITM. The July straddle is only $2.05 with the put $1.05 ITM. Any
negative surprise could be really exciting! 



 


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

EMC on Thursday (BTB)

This is my favorite. The trend is up and EMC has been so battered
it would be hard for them to say anything bad enough to take them
much below $7.00. This means any really sharp drop could accelerate
the price of the put to a breakeven and leave you with a free call
for October.  The cost of the entire straddle is only $2.80 and
the possibility of EMC trading over $10 by October is good.

!!!! For an even cheaper play, buy the July $7.50 put instead for
$.15, yes fifteen cents. If it is going to crash it will be on
Thursday (they announce before the open) and that put could be
cheap insurance on your long call. If they do not crash and say
something good instead then the fifteen cents is nothing to the 
gain on the call.



 


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


Remember, these are high risk plays and should only be made
with risk capital.

Good Luck

Jim Brown    


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

You Know The Feeling
by Steve Price

You know the feeling you get as the roller coaster levels off 
after a steep drop; that split second feeling of relief, which is 
suddenly gone as you feel yourself shaking toward the next 
plunge. That pretty much describes the past week in the stock 
market.  

Thursday's rebound was just that - a temporary reprieve before 
the next drop. This took place Friday in the Dow, which was 
dragged down by a weak consumer confidence report and by the 
retailers after home Depot was downgraded by Merrill Lynch to a 
"neutral" rating, from a "strong buy," shedding 7.4% percent of 
its value and bringing Wal-Mart and Lowes along for the ride. The 
nearly 10% drop in the retail index this week mirrored losses in 
the broader markets.  Retail sales appeared to beat expectations 
with a 1.1% increase, versus the expected 0.6% increase, however, 
after a 3.4% spike in auto sales was stripped away, the number 
reflected only a 0.4% increase versus an expectation of 0.5%.  
The University of Michigan Consumer Sentiment Index came in at 
86.5, a fall from June's 92.4 level, reflecting the public's 
jitters from corporate scandals that continue to seep out week 
after week.  These will no doubt be fueled by the Justice 
Department's probe of Duke Energy's trading operations. The Dow's 
loss of more than 7% since last Friday's close was its worst one-
week drop since immediately after September 11, as it appears to 
be playing catch up to the S&P 500 and Nasdaq.  This loss was 
underscored by the cyclicals, which gave up almost 8% for the 
week.

Dell helped maintain the Nasdaq's Thursday closing level, which 
had already suffered a 5.2% drop for the week, when it announced 
after Thursday's bell that market share gains would allow it to 
surpass second quarter revenue and profit targets. Juniper also 
released encouraging news with better than expected second 
quarter results. Still, the tech sector continues to seek out new 
lows.

On the positive side, the CBOE's put/call ratio dropped from the 
80% range it had maintained all week into the 60% range on 
Friday, reflecting less panic put buying as a percentage of total 
options traded.  Next week there are some big shots releasing 
earnings, most notably Intel, IBM and Microsoft, which should 
keep that feeling of anticipation as we come out of the latest 
drop and rattle toward the next turn.

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

Market Averages

DJIA ($INDU)

52-week High: 11350
52-week Low :  8062
Current     :  8684

Moving Averages:
(Simple)

 10-dma: 9046
 50-dma: 9655
200-dma: 9823



S&P 500 ($SPX)

52-week High: 1316
52-week Low :  901
Current     :  921

Moving Averages:
(Simple)

 10-dma:  954
 50-dma: 1030
200-dma: 1097



Nasdaq-100 ($NDX)

52-week High: 2071
52-week Low :  946
Current     : 1000

Moving Averages:
(Simple)

 10-dma: 1003
 50-dma: 1145
200-dma: 1390



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

Retail Index ($RLX)

The RLX, which had shown the relative strength of consumer 
spending, has finally given in amid wilting consumer confidence 
and a big downgrade to one of its heavies.  

In the front of the toboggan sat Home Depot (NYSE:HD), followed 
by WalMart (NYSE: WMT),BJ's Wholesale Club (NYSE:BJ), Federated 
Department Stores (NYSE:FD), and Lowes (NYSE:LOW). The sector 
hasn't seen this level since October and appears to be in the 
process of finding out just how steep the hill below it will be.   

52-week High: 367
52-week Low : 251
Current     : 296

Moving Averages:
(Simple)

 10-dma: 315
 50-dma: 337
200-dma: 332

---

Light Sweet Crude Oil (CL02Q, August contract), 
Oil Index ($XOI), Oil Service Sector ($OSX)

How interesting!  The Oil Index ($XOI) and Oil Service Sector 
Index ($OSX) have been pummeled over the last week, while Light, 
Sweet Crude Oil (CL02Q) continues its upward trend.  Is it all 
Cheney's fault?  Have the problems in refining and marketing only 
caught up in the last week? Could it be weakness in jet fuel demand 
that has been lingering since September.  Hmmm.

 
Moving Averages:
(Simple)

Light Sweet Crude:
Current:  27.48
 10-dma:  26.73
 50-dma:  26.14
200-dma:  23.40

Oil Index:
Current:  501.79
 10-dma:  532.47
 50-dma:  539.85
200-dma:  524.56

Oil Service Sector:
Current:  83.66
 10-dma:  88.97
 50-dma:  99.78
200-dma:  89.24


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

Market Volatility

The VIX continues to trade in 40 range, trading over 41 intraday 
on Thursday and just under 40 on Friday.  It's chart shows it 
possibly rounding off, but this could be due to option sellers 
trying to capture premium decay over the weekend.  Sellers 
frequently come into the option pits on Friday afternoon with 
their palms out (selling) when volatility reaches high levels. 
The sellers hope any loss from their short gamma position due to 
a market move on Monday doesn't overcome the three days worth of 
time decay profit over the weekend.

The VXN gave back a couple of points as the Nasdaq hung in after
positive announcements from Dell and Juniper.

CBOE Market Volatility Index (VIX) - 38.09 –0.55
Nasdaq-100 Volatility Index  (VXN) - 66.38 -2.61

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.64        644,723       415,399
Equity Only    0.55        507,321       279,681
OEX            0.61         39,952        24,470
QQQ            0.46         72,256        33,260

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

Bullish Percent Data

           Current   Change   Status
NYSE          41      - 0     Bull Correction
NASDAQ-100    21      + 6     Bull Alert
DOW           23      - 0     Bear Confirmed
S&P 500       26      - 0     Bear Confirmed
S&P 100       23      - 0     Bear Confirmed

Bullish percent measures the number of stocks in an index 
currently trading on a buy signal on their point and figure 
chart.  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  1.43
10-Day Arms Index  1.42
21-Day Arms Index  1.41
55-Day Arms Index  1.39

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.

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

Market Internals

        Advancers     Decliners
NYSE       1252          1874
NASDAQ     1561          1769

        New Highs      New Lows
NYSE        32            182
NASDAQ      75            102

        Volume (in millions)
NYSE     1,865
NASDAQ   1,687

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

Commitments Of Traders Report: 06/25/02

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

Commercials gave back only 700 of their net short positions, a 
small percentage change, maintaining a bearish position.  Small 
Traders added back a couple of thousand contracts to their long 
position.

Commercials   Long      Short      Net     % Of OI 
06/18/02      437,530   487,956   (50,426)   (5.4%)
06/25/02      378,214   438,775   (60,561)   (7.4%)
07/09/02      396,321   456,164   (59,843)   (7.0%)

Most bearish reading of the year: (111,956) -   3/6/02
Most bullish reading of the year: ( 36,481) - 10/16/01

Small Traders Long      Short      Net     % of OI
06/18/02      181,178    88,517    92,661     34.3%
06/25/02      134,380    62,792    71,588     36.3%
07/09/02      145,017    71,402    73,615     34.0%

Most bearish reading of the year:  36,513 - 5/01/01
Most bullish reading of the year: 114,510 - 3/26/02
 
NASDAQ-100

Commercials added only slightly to their net short position, 
maintaining the status quo. Small Traders reduced their net long 
position by over 40%.

Commercials   Long      Short      Net     % of OI 
06/18/02       54,816     49,169     5,647    5.4%
06/25/02       27,238     35,926    (8,688) (13.8%)
07/09/02       31,227     39,592    (8,725) (12.3%)

Most bearish reading of the year: (15,521) -  3/13/02
Most bullish reading of the year:   9,068  - 06/11/02

Small Traders  Long     Short      Net     % of OI
06/18/02       20,883    29,153    (8,270)   (16.5%)
06/25/02       14,749     7,570     7,179     32.2%
07/09/02       12,520     8,348     4,175     20.0%

Most bearish reading of the year: (10,769) - 06/11/02
Most bullish reading of the year:   8,460  -  3/13/02

DOW JONES INDUSTRIAL

Dow Commercials brought their long positions back up to their 
previous levels, adding almost 2,000 contracts. Small Traders 
maintained their previous bullish levels. 

Commercials   Long      Short      Net     % of OI
06/18/02       25,995    19,115    6,880     15.1%
06/25/02       18,016    13,255    4,761     15.2%
07/09/02       20,761    14,122    6,639     19.0%

Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
06/18/02        5,379    11,813    (6,434)   (37.2%)
06/25/02        6,414     6,597       183     1.40% 
07/09/02        6,831     6,623       208     1.50%

Most bearish reading of the year:  (8,777) - 10/12/01
Most bullish reading of the year:   1,909  -  1/16/01

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


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

Midway Point
By Eric Utley

Well, we’re about half way through what are known as the summer
doldrums.  But I have to confess that the last few weeks have
been anything but dull.  And the action should continue to at
least provide entertainment, if not a few profits.

Granted, we’re entering into the worst months for the Nasdaq,
historically speaking of course.  But the seasonality comes
at an interesting time for this intermediate-term cycle, which
has some of the more important indicators of the market
pointing towards some upside.

Still, it’s hard to remain too attached to the screens.  What
with all the fishing to be done this summer.  See ya’ on the
river!  

The point and figure charts that appear in this column were
created using www.Stockcharts.com.

Please send your questions and suggestions to:

Contact Support 

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

Tyco (NYSE:TYC)

I was wondering with all that has gone on what your thinking was
for TYC.  I’ve been thinking about buying the stock for a bottom
fishing play, what are your thoughts? – Thanks, Roger

Thank you for the question, Roger.

Obviously TYC, the stock and the company, has been through a lot
in the last six months.  I’ll spare you the details, and save
those for the journalists who have been covering this story as
it unfolds.  After all, it’s still being written.

The biggest loss at TYC was its credibility, which takes time
to restore in the marketplace.  That’s my sense with TYC, just
from a feeling.  Moreover, there’s been a lot of technical
damage done, which itself needs time to repair.  The two,
credibility and price, go hand in hand in my opinion.

Though TYC has a long road ahead of it, there have been some
short-term improvements in its technical position in the last
few weeks.  For one, the stock is back on a buy signal which
is why I consider its current technical position improved.

The rally off of the most recent leg lower carried TYC up to
the $16 level, putting the stock back on a buy signal and
paving the way, perhaps, for further upside work.

What I find interesting is the sideways, narrowing consolidation
that has been put in place in the last month.  The stock
held the $11.50 level twice now, which makes it a double
bottom and reference point for short term support.  If the
stock can breakout above its most recent relative high at the
$16 level, then I think there could be some decent upside to
TYC.  But of course you need to play it with a smart stop,
which I think is at the $11 level.  Obviously the closer you
can get the stock to that level, the better because of the
reduced risk near support.



 

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

Ford (NYSE:F)

What are your thoughts on F?  Where do you see it going and
Where do you see support and resistance? – Thanks, Chuck.

Good question, Chuck.  Thank you.

The broader auto sector, including the manufacturers and the
parts makers, were trading incredibly well coming out of the
September 11 event and into the early part of this year.
The zero percent financing offered up by the manufacturers
caused a huge boost in sales, which trickled down through the
entire sector.  It was only two months ago that the leaders
in the sector were trading at yearly highs.  Just take a look
at the daily of General Motors (NYSE:GM), which looks now
like it has fallen off of a cliff.  So what happened?

I’m not quite sure the exact reasons, but I think the
discontinuation of the zero percent financing was disliked
by the market as it hurt sales.  Plus the growing concern
over the strength of the consumer is hurting the auto sector.
Last week’s sentiment numbers pretty much confirmed what we’ve
been seeing the consumer sensitive sectors of the market
such as the autos.

The shift in sentiment in the auto sector about two months
ago really hurt the weak players in the group, which F is
one of.  Just looking at the GM chart versus F up until the
last two months showed just how weak F was to the rest of
the leaders.  Again, GM was at a yearly high, yet F was
trading down near a multi year low.

Still, F had shown some technical improvements since last
fall, but I’m beginning to believe that the improvements in
F were only related to the sector sentiment, and not
specific to the company itself.  The reason being because of
the stock’s relative weakness.

The shift in sentiment was all that was needed to break F
from its slight upward trend, and down to new lows in last
week’s session.  The stock lost all that it had built in
the last six months with the recent breakdown, and I think
it really helps to confirm just how bad business has gotten
on F.  I think that the stock is a good short for fundamental
reasons, if only you can get it at a good risk management
level near resistance.  Even though it’s a low priced stock,
I have the feeling that it’s going to become a lot cheaper.
F is not necessarily a great short where it is now, only
because it’s had a big downside move in the last three days.
But if it were to come back up into short term resistance,
then I think that you can jump all over this thing.



 

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

DISCLAIMER:
This column is an information service only.  The information
provided herein is not to be construed as an offer to buy or
sell securities of any kind.  The Ask the Analyst picks are not
to be considered a recommendation of any stock or option but an
information resource to aid the investor in making an informed
decision regarding trading in options.  It is possible at this
or some subsequent date, the editor and staff of The Option
Investor Newsletter may own, buy or sell securities presented.
All investors should consult a qualified professional before
trading in any security.  The information provided has been
obtained from sources deemed reliable, but is not guaranteed
as to its accuracy. 


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

==================================================
Market Watch for the week of July 15th
==================================================

------------------------
Major Earnings This Week
------------------------

Symbol  Company               Date           Comment      EPS Est

------------------------- MONDAY -------------------------------

BAC    Bank of America        Mon, Jul 15  -----N/A-----     1.39
BRE    BRE Properties         Mon, Jul 15  After the Bell    0.68
CSL    Carlisle Companies     Mon, Jul 15  After the Bell    0.77
CTSH   Cognizant Tech Sol     Mon, Jul 15  After the Bell    0.36
CBSS   Compass Bancshares     Mon, Jul 15  -----N/A-----     0.60
ETN    Eaton                  Mon, Jul 15  -----N/A-----     1.20
FNM    Fannie Mae             Mon, Jul 15  -----N/A-----     1.52
FTN    First Tennessee Ntl    Mon, Jul 15  Before the Bell   0.67
FBF    FleetBoston Financial  Mon, Jul 15  Before the Bell   0.71
HIB    Hibernia Corporation   Mon, Jul 15  -----N/A-----     0.38
HU     Hudson United Bancorp  Mon, Jul 15  -----N/A-----     0.56
GMH    Hughes Electronics     Mon, Jul 15  Before the Bell  -0.16
RX     IMS Health             Mon, Jul 15  After the Bell    0.23
JBHT   JB Hunt Transportation Mon, Jul 15  -----N/A-----     0.27
MYG    Maytag                 Mon, Jul 15  After the Bell    0.85
MHK    Mohawk Industries      Mon, Jul 15  -----N/A-----     1.11
NTRS   Northern Trust         Mon, Jul 15  Before the Bell   0.57
PKG    Packaging Corp of Am   Mon, Jul 15  Before the Bell   0.12
PP     Prentiss Properties    Mon, Jul 15  After the Bell    0.85
SKM    SK Telecom             Mon, Jul 15  Before the Bell    N/A
SKFR   SKF AB                 Mon, Jul 15  Before the Bell    N/A
SWBT   Southwest Bancorp TX   Mon, Jul 15  After the Bell    0.42

------------------------- TUESDAY ------------------------------

AL     Alcan Inc.             Tue, Jul 16  -----N/A-----     0.41
ALS    Alstom SA              Tue, Jul 16  Before the Bell    N/A
ASO    AmSouth Bancorporation Tue, Jul 16  Before the Bell   0.41
AAPL   Apple Computer         Tue, Jul 16  After the Bell    0.09
ONE    Bank One               Tue, Jul 16  Before the Bell   0.68
COF    Capital One Financial  Tue, Jul 16  After the Bell    0.86
CAT    Caterpillar            Tue, Jul 16  Before the Bell   0.73
CEC    CEC Entertainment      Tue, Jul 16  -----N/A-----     0.52
CNT    CenterPoint Prop Trust Tue, Jul 16  After the Bell    0.99
CYN    City National          Tue, Jul 16  Before the Bell   0.88
CNB    Colonial BancGroup     Tue, Jul 16  -----N/A-----     0.30
CPWR   Compuware              Tue, Jul 16  After the Bell    0.05
FBAN   F.N.B. Corporation     Tue, Jul 16  After the Bell    0.52
FITB   Fifth Third Bancorp    Tue, Jul 16  Before the Bell   0.68
FULT   Fulton Financial       Tue, Jul 16  After the Bell    0.32
GCI    Gannett                Tue, Jul 16  Before the Bell   1.13
GM     General Motors         Tue, Jul 16  Before the Bell   2.42
GNTX   Gentex                 Tue, Jul 16  -----N/A-----     0.25
GSB    Golden State Bancorp   Tue, Jul 16  Before the Bell   0.87
GPT    GreenPoint Financial   Tue, Jul 16  Before the Bell   1.28
HDI    Harley-Davidson        Tue, Jul 16  After the Bell    0.44
HCN    Health Care REIT       Tue, Jul 16  After the Bell    0.66
HNI    Hon Industries         Tue, Jul 16  Before the Bell   0.29
HCBK   Hudson City Bancorp    Tue, Jul 16  After the Bell    0.23
INTC   Intel                  Tue, Jul 16  After the Bell    0.11
JEF    Jefferies Group        Tue, Jul 16  Before the Bell   0.64
JNC    John Nuveen            Tue, Jul 16  Before the Bell   0.31
JNJ    Johnson & Johnson      Tue, Jul 16  Before the Bell   0.58
KEY    KeyCorp                Tue, Jul 16  Before the Bell   0.57
LLL    L-3 Comm Hldg          Tue, Jul 16  Before the Bell   0.47
MDC    M.D.C Holdings         Tue, Jul 16  Before the Bell   1.11
MEG    Media General          Tue, Jul 16  Before the Bell   0.65
MEL    Mellon Financial Corp  Tue, Jul 16  -----N/A-----     0.47
MER    Merrill Lynch          Tue, Jul 16  Before the Bell   0.58
MLNM   Millennium Pharm       Tue, Jul 16  After the Bell   -0.19
MIL    Millipore              Tue, Jul 16  After the Bell    0.46
MOT    Motorola               Tue, Jul 16  After the Bell   -0.04
MLI    Mueller Industries     Tue, Jul 16  Before the Bell   0.55
NXTL   Nextel Communications  Tue, Jul 16  Before the Bell  -0.25
PPP    Pogo Producing         Tue, Jul 16  -----N/A-----     0.38
PII    Polaris Industries     Tue, Jul 16  Before the Bell   0.81
PCP    Precision Castparts    Tue, Jul 16  Before the Bell   0.77
RJF    Raymond James          Tue, Jul 16  -----N/A-----     0.50
RFMD   RF Micro Devices       Tue, Jul 16  After the Bell   0.00
COL    Rockwell Collins, Inc. Tue, Jul 16  Before the Bell   0.32
RDC    Rowan Companies        Tue, Jul 16  Before the Bell  -0.11
PHG    Royal Philips          Tue, Jul 16  Before the Bell    N/A
STT    State Street           Tue, Jul 16  Before the Bell   0.52
SYK    Stryker                Tue, Jul 16  After the Bell   0.40
TDS    Telephone Data         Tue, Jul 16  Before the Bell   1.02
TER    Teradyne               Tue, Jul 16  After the Bell   -0.30
NLS    The Nautilus Group     Tue, Jul 16  After the Bell    0.64
NYT    The New York Times Co  Tue, Jul 16  Before the Bell   0.52
TRMK   Trustmark Corporation  Tue, Jul 16  -----N/A-----     0.48
TSS    TSYS                   Tue, Jul 16  -----N/A-----     0.15
USM    U.S. Cellular          Tue, Jul 16  Before the Bell   0.60
USB    US Bancorp             Tue, Jul 16  During the Market 0.45
VRTS   Veritas Software       Tue, Jul 16  After the Bell    0.14
WM     Washington Mutual      Tue, Jul 16  After the Bell    0.99
WFC    Wells Fargo            Tue, Jul 16  Before the Bell   0.82
WABC   Westamerica Bancorp    Tue, Jul 16  -----N/A-----     0.64
WHR    Whirlpool              Tue, Jul 16  Before the Bell   1.46

-----------------------  WEDNESDAY -----------------------------

AMD    Advanced Micro Devices Wed, Jul 17  After the Bell   -0.45
ALEX   Alexander&Baldwin      Wed, Jul 17  After the Bell     N/A
ATI    Allegheny Technologies Wed, Jul 17  Before the Bell  -0.07
ADS    Alliance Data Sys Corp Wed, Jul 17  After the Bell    0.13
ABK    Ambac Financial        Wed, Jul 17  Before the Bell   1.12
ASD    American Standard      Wed, Jul 17  -----N/A-----     1.67
APH    Amphenol               Wed, Jul 17  -----N/A-----     0.45
AMR    AMR                    Wed, Jul 17  -----N/A-----    -2.99
ASML   ASML Holdings NV       Wed, Jul 17  Before the Bell  -0.11
ADP    Automatic Data Prcsng  Wed, Jul 17  After the Bell    0.47
BK     Bank of New York       Wed, Jul 17  Before the Bell   0.51
BA     Boeing                 Wed, Jul 17  Before the Bell   0.80
BOKF   BOK Financial          Wed, Jul 17  -----N/A-----     0.56
BCR    C.R. Bard              Wed, Jul 17  After the Bell    0.82
CSG    Cadbury Schweppes      Wed, Jul 17  Before the Bell    N/A
CDWC   CDW Computer Centers   Wed, Jul 17  After the Bell    0.48
CLS    Celestica              Wed, Jul 17  After the Bell    0.27
CD     Cendant                Wed, Jul 17  After the Bell    0.37
CTX    Centex Corporation     Wed, Jul 17  Before the Bell   1.26
CERN   Cerner                 Wed, Jul 17  After the Bell    0.31
CNF    CNF Inc.               Wed, Jul 17  After the Bell    0.36
CCE    Coca-Cola Enterprises  Wed, Jul 17  Before the Bell   0.39
CMA    Comerica               Wed, Jul 17  Before the Bell   1.00
DCN    Dana                   Wed, Jul 17  -----N/A-----     0.43
DPH    Delphi                 Wed, Jul 17  Before the Bell   0.39
DOV    Dover                  Wed, Jul 17  After the Bell    0.31
DSL    Downey Financial       Wed, Jul 17  Before the Bell   1.10
ET     E*TRADE                Wed, Jul 17  After the Bell    0.11
EXTR   Extreme Networks       Wed, Jul 17  After the Bell    0.03
FMBI   First Midwest Bancorp  Wed, Jul 17  -----N/A-----     0.46
F      Ford Motor Company     Wed, Jul 17  Before the Bell   0.26
FRX    Forest Laboratories    Wed, Jul 17  Before the Bell   0.58
GD     General Dynamics       Wed, Jul 17  Before the Bell   1.27
GENZ   Genzyme                Wed, Jul 17  Before the Bell   0.25
GPN    Global Payments        Wed, Jul 17  After the Bell    0.31
GGG    Graco                  Wed, Jul 17  Before the Bell   0.41
GBBK   Greater Bay Bancorp    Wed, Jul 17  Before the Bell   0.58
HET    Harrah`s Entertainment Wed, Jul 17  Before the Bell   0.70
HON    Honeywell              Wed, Jul 17  Before the Bell   0.55
HMT    Host Marriott REIT     Wed, Jul 17  Before the Bell   0.35
HI     Household Intl         Wed, Jul 17  Before the Bell   1.08
IDPH   Idec Pharmaceuticals   Wed, Jul 17  After the Bell    0.19
IBM    Intl Bus Machines      Wed, Jul 17  After the Bell    0.83
ITG    Investment Tech Grp    Wed, Jul 17  -----N/A-----     0.42
JPM    J.P. Morgan Chase & Co Wed, Jul 17  Before the Bell  0.65
KMI    Kinder Morgan          Wed, Jul 17  -----N/A-----     0.57
KRI    Knight-Ridder          Wed, Jul 17  Before the Bell   0.88
KFT    Kraft Foods Inc.       Wed, Jul 17  After the Bell    0.54
LEG    Leggett & Platt        Wed, Jul 17  After the Bell    0.31
LECO   Lincoln Electric       Wed, Jul 17  Before the Bell   0.46
LIN    Linens `n Things       Wed, Jul 17  Before the Bell   0.11
MAN    Manpower               Wed, Jul 17  Before the Bell   0.25
MDG    Meridian Gold          Wed, Jul 17  After the Bell    0.15
MEOH   Methanex               Wed, Jul 17  -----N/A-----     0.07
MCHP   Microchip Technology   Wed, Jul 17  After the Bell    0.15
NCF    Ntl Com Fncl Corp      Wed, Jul 17  During the Market 0.38
NATI   National Instruments   Wed, Jul 17  After the Bell    0.15
NAP    National Processing    Wed, Jul 17  Before the Bell   0.28
NYCB   New York Com Bancorp   Wed, Jul 17  Before the Bell   0.51
NOC    Northrop Grumman       Wed, Jul 17  Before the Bell   1.46
NUE    Nucor                  Wed, Jul 17  -----N/A-----     0.52
ODP    Office Depot           Wed, Jul 17  Before the Bell   0.20
PFE    Pfizer                 Wed, Jul 17  -----N/A-----     0.32
PPDI   Phar Product Dvlopmnt  Wed, Jul 17  After the Bell    0.31
PCL    Plum Creek Timber      Wed, Jul 17  After the Bell    0.26
PLCM   Polycom Incorporated   Wed, Jul 17  After the Bell    0.13
PGR    Progressive            Wed, Jul 17  After the Bell    0.80
PFGI   Provident Fnl Grp      Wed, Jul 17  Before the Bell   0.58
PEG    Public Service Ent Grp Wed, Jul 17  Before the Bell   0.68
RTN    Raytheon Co.           Wed, Jul 17  After the Bell    0.54
RSLN   Roslyn Bancorp         Wed, Jul 17  -----N/A-----     0.43
SIB    SI Bank & Trust        Wed, Jul 17  After the Bell    0.37
SEBL   Siebel Systems         Wed, Jul 17  After the Bell    0.09
SKYF   Sky Financial Group    Wed, Jul 17  -----N/A-----     0.39
SII    Smith International    Wed, Jul 17  After the Bell    0.27
SON    Sonoco Products        Wed, Jul 17  -----N/A-----     0.40
SOTR   SouthTrust             Wed, Jul 17  -----N/A-----     0.45
STJ    St. Jude Medical       Wed, Jul 17  Before the Bell   0.35
SWK    Stanley Works          Wed, Jul 17  Before the Bell   0.72
SYMC   Symantec               Wed, Jul 17  After the Bell    0.32
SNV    Synovus Financial      Wed, Jul 17  After the Bell    0.29
TCB    TCF Financial          Wed, Jul 17  Before the Bell   0.76
TFX    Teleflex               Wed, Jul 17  After the Bell    0.86
TLAB   Tellabs                Wed, Jul 17  Before the Bell   0.01
TIN    Temple Inland          Wed, Jul 17  -----N/A-----     0.37
KO     The Coca-Cola Company  Wed, Jul 17  Before the Bell   0.52
TBL    Timberland             Wed, Jul 17  Before the Bell   0.11
UB     UnionBanCal            Wed, Jul 17  After the Bell    0.80
UTX    United Technologies    Wed, Jul 17  -----N/A-----     1.20
UHS    Universal Health Srvcs Wed, Jul 17  After the Bell    0.64
VLY    Valley Ntl Bancorp     Wed, Jul 17  -----N/A-----     0.38
VFC    VF                     Wed, Jul 17  Before the Bell   0.63
WES    Westcorp               Wed, Jul 17  After the Bell    0.55
ZION   Zions Bancorp          Wed, Jul 17  After the Bell    0.90

------------------------- THURSDAY -----------------------------

ATR    AptarGroup             Thu, Jul 18  After the Bell    0.50
ACI    Arch Coal              Thu, Jul 18  -----N/A-----    -0.08
ARM    ArvinMeritor Inc.      Thu, Jul 18  Before the Bell   0.83
AF     Astoria Financial      Thu, Jul 18  Before the Bell   0.72
ATML   Atmel                  Thu, Jul 18  -----N/A-----    -0.05
ALV    Autoliv                Thu, Jul 18  Before the Bell   0.47
ACLS   Axcelis Technologies   Thu, Jul 18  After the Bell   -0.04
BXS    BancorpSouth           Thu, Jul 18  After the Bell    0.36
BAX    Baxter International   Thu, Jul 18  Before the Bell   0.48
BGEN   Biogen                 Thu, Jul 18  Before the Bell   0.30
BCC    Boise Cascade          Thu, Jul 18  Before the Bell  -0.05
BRCM   Broadcom               Thu, Jul 18  After the Bell   -0.07
BR     Burlington Resources   Thu, Jul 18  Before the Bell   0.36
ELY    Callaway Golf          Thu, Jul 18  After the Bell    0.43
POS    Catalina Marketing     Thu, Jul 18  After the Bell    0.18
CX     Cemex, S.A. de C.V.    Thu, Jul 18  -----N/A-----     0.73
CEN    Ceridian               Thu, Jul 18  Before the Bell   0.16
CF     Charter One Financial  Thu, Jul 18  After the Bell    0.63
CHRT   Chartered Semi Manu    Thu, Jul 18  After the Bell   -0.76
CFBX   Com First Bankshares   Thu, Jul 18  Before the Bell   0.48
ED     Consolidated Edison    Thu, Jul 18  -----N/A-----     0.50
CTB    Cooper Tire & Rubber   Thu, Jul 18  Before the Bell   0.48
CR     Crane                  Thu, Jul 18  After the Bell    0.41
CY     Cypress Semiconductor  Thu, Jul 18  Before the Bell  -0.07
CYT    Cytec Industries       Thu, Jul 18  After the Bell    0.42
DCX    DaimlerChrysler        Thu, Jul 18  Before the Bell   0.72
DHR    Danaher                Thu, Jul 18  -----N/A-----     0.65
DAL    Delta Air Lines        Thu, Jul 18  Before the Bell  -1.39
DLX    Deluxe                 Thu, Jul 18  Before the Bell   0.75
DL     Dial                   Thu, Jul 18  Before the Bell   0.32
DO     Diamond Offshore Drill Thu, Jul 18  Before the Bell   0.10
DOL    Dole Food              Thu, Jul 18  Before the Bell   1.01
EBAY   eBay                   Thu, Jul 18  After the Bell     N/A
ELUX   Electrolux Ab          Thu, Jul 18  -----N/A-----     0.77
LLY    Eli Lilly              Thu, Jul 18  Before the Bell   0.61
EMC    EMC                    Thu, Jul 18  Before the Bell  -0.02
ESV    ENSCO International    Thu, Jul 18  Before the Bell   0.13
FIC    Fair Isaac &Co         Thu, Jul 18  After the Bell    0.41
FMER   FirstMerit             Thu, Jul 18  Before the Bell   0.52
FO     Fortune Brands         Thu, Jul 18  Before the Bell   0.87
FCX    Freprt-McMoRan Cop/Gld Thu, Jul 18  Before the Bell   0.03
GTW    Gateway                Thu, Jul 18  After the Bell   -0.17
GPC    Genuine Parts          Thu, Jul 18  -----N/A-----     0.55
GP     Georgia-Pacific        Thu, Jul 18  Before the Bell   0.44
GDW    Golden West Financial  Thu, Jul 18  -----N/A-----     1.41
GDT    Guidant                Thu, Jul 18  After the Bell    0.49
HSC    Harsco Corporation     Thu, Jul 18  Before the Bell   0.69
HBAN   Huntington Bancshares  Thu, Jul 18  Before the Bell   0.32
ITW    Illinois Tool Works    Thu, Jul 18  Before the Bell   0.85
IR     Ingersoll-Rand Co. Ltd Thu, Jul 18  Before the Bell   0.72
IP     International Paper    Thu, Jul 18  Before the Bell   0.20
JEC    Jacobs Eng Grp Inc.    Thu, Jul 18  Before the Bell   0.50
JCI    Johnson Controls       Thu, Jul 18  Before the Bell   1.80
LM     Legg Mason             Thu, Jul 18  During the Market 0.68
LVLT   Level 3 Communications Thu, Jul 18  Before the Bell  -0.83
LIZ    Liz Claiborne          Thu, Jul 18  Before the Bell   0.35
LMT    Lockheed Martin        Thu, Jul 18  -----N/A-----     0.57
MAT    Mattel                 Thu, Jul 18  Before the Bell   0.05
MCDTA  McDATA Corporation     Thu, Jul 18  After the Bell   -0.07
MERQ   Mercury Interactive    Thu, Jul 18  After the Bell    0.14
MSFT   Microsoft              Thu, Jul 18  -----N/A-----     0.42
NBR    Nabors Industries      Thu, Jul 18  -----N/A-----     0.18
NCC    National City          Thu, Jul 18  Before the Bell   0.61
GAS    Nicor                  Thu, Jul 18  After the Bell    0.65
NOK    Nokia Corporation      Thu, Jul 18  -----N/A-----     0.17
NT     Nortel Networks        Thu, Jul 18  -----N/A-----    -0.09
OO     Oakley                 Thu, Jul 18  Before the Bell   0.31
PTEN   Patterson-UTI Energy   Thu, Jul 18  Before the Bell  -0.03
PBCT   People`s Bank          Thu, Jul 18  After the Bell    0.20
PSFT   PeopleSoft             Thu, Jul 18  After the Bell    0.13
MO     Philip Morris          Thu, Jul 18  -----N/A-----     1.23
PBI    Pitney Bowes           Thu, Jul 18  After the Bell    0.59
PMCS   PMC-Sierra             Thu, Jul 18  After the Bell   -0.08
PSD    Puget Sound Energy     Thu, Jul 18  After the Bell    0.22
QLGC   QLogic                 Thu, Jul 18  After the Bell    0.23
RATL   Rational Software      Thu, Jul 18  After the Bell    0.03
RHI    Robert Half Intl       Thu, Jul 18  After the Bell    0.02
RG     Rogers Communications  Thu, Jul 18  Before the Bell    N/A
TSG    Sabre Holdings Corp    Thu, Jul 18  Before the Bell   0.56
SANM   Sanmina-SCI Corp.      Thu, Jul 18  -----N/A-----     0.02
SCHL   Scholastic             Thu, Jul 18  -----N/A-----     1.25
SFA    Scientific-Atlanta     Thu, Jul 18  After the Bell    0.25
SEIC   SEI Investments        Thu, Jul 18  Before the Bell   0.30
SHW    Sherwin-Williams       Thu, Jul 18  Before the Bell   0.67
SIVB   Silicon Vly Bancshares Thu, Jul 18  -----N/A-----     0.33
LUV    Southwest Airlines     Thu, Jul 18  -----N/A-----     0.11
SOV    Sovereign Bancorp      Thu, Jul 18  After the Bell    0.31
FON    Sprint (FON Group)     Thu, Jul 18  Before the Bell   0.33
PCS    Sprint (PCS Group)     Thu, Jul 18  Before the Bell  -0.07
STU    Student Loan           Thu, Jul 18  After the Bell     N/A
SUNW   Sun Microsystems       Thu, Jul 18  After the Bell    0.01
SUP    Superior Industries    Thu, Jul 18  Before the Bell   0.71
SBL    Symbol Technologies    Thu, Jul 18  After the Bell    0.04
TE     TECO Energy            Thu, Jul 18  Before the Bell   0.54
TXT    Textron                Thu, Jul 18  -----N/A-----     0.76
MNI    The McClatchy Company  Thu, Jul 18  Before the Bell   0.77
TKR    Timken                 Thu, Jul 18  Before the Bell   0.27
TMK    Torchmark              Thu, Jul 18  Before the Bell   0.87
TAC    TRANSALTA CORP         Thu, Jul 18  -----N/A-----      N/A
TRB    Tribune                Thu, Jul 18  Before the Bell   0.45
TRW    TRW                    Thu, Jul 18  Before the Bell   1.09
UNP    Union Pacific          Thu, Jul 18  Before the Bell   1.06
UPC    Union Planters         Thu, Jul 18  After the Bell    0.62
UIS    Unisys                 Thu, Jul 18  After the Bell    0.13
UNH    UnitedHealth Group     Thu, Jul 18  Before the Bell   0.95
SLM    USA Education          Thu, Jul 18  Before the Bell   1.10
UTSI   UTStarcom              Thu, Jul 18  After the Bell    0.22
VRTX   Vertex Pharmaceuticals Thu, Jul 18  -----N/A-----    -0.28
WB     Wachovia               Thu, Jul 18  Before the Bell   0.69
WTNY   Whitney Holding        Thu, Jul 18  -----N/A-----     0.54
WL     Wilmington Trust       Thu, Jul 18  -----N/A-----     0.50
XLNX   Xilinx                 Thu, Jul 18  After the Bell    0.12

------------------------- FRIDAY -------------------------------

AKS    AK Steel Holding       Fri, Jul 19  -----N/A-----     0.02
AVP    Avon Products          Fri, Jul 19  Before the Bell   0.63
AVX    AVX Corporation        Fri, Jul 19  Before the Bell  -0.01
CUM    Cummins Inc.           Fri, Jul 19  -----N/A-----     0.19
ERICY  Ericsson LM Telephone  Fri, Jul 19  -----N/A-----    -0.03
FSS    Federal Signal         Fri, Jul 19  Before the Bell   0.24
MRK    Merck                  Fri, Jul 19  Before the Bell   0.76
PEP    Pepsico                Fri, Jul 19  -----N/A-----     0.52
VC     Visteon                Fri, Jul 19  Before the Bell   0.56
WPO    Washington Post        Fri, Jul 19  -----N/A-----     4.50
WIT    Wipro Limited          Fri, Jul 19  -----N/A-----     0.20
ZBRA   Zebra Technologies     Fri, Jul 19  Before the Bell   0.53

----------------------------------------------
Upcoming Stock Splits In The Next Two Weeks...
----------------------------------------------

Symbol  Company Name              Ratio    Payable     Executable

KRB     MBNA Corporation          3:2      07/12       07/15
SBCF    Seacoast Banking Corp.    3:1      07/12       07/15
ERES    eResearchTechnology       3:2      07/16       07/17
REXL    Rexhall Industries        2:1      07/18       07/19
ANFI    American National Fin Inc.5:4      07/18       07/21
DSWL    Deswell Industries        3:2      07/22       07/23
CHS     Chicos FAS                2:1      07/26       07/29

--------------------------
Economic Reports This Week
--------------------------

While there is a full house of economic reports this week
they will all take a back seat to the flood of Q2 earnings
reports that will hit Wall Street.  Big boys like INTC on
Tuesday, IBM on Wednesday and MSFT on Thursday will be 
headliners.

==============================================================
                       -For-           

Monday, 07/15/02
----------------
Business Inventories(BB)May  Forecast:  -0.1%  Previous:    -0.2%

Tuesday, 07/16/02
-----------------
Industrial Prduction(DM)Jun  Forecast:   0.4%  Previous:     0.2%
Capacity Utilization(DM)Jun  Forecast:  75.8%  Previous:    75.5%

Wednesday, 07/17/02
-------------------
Housing Starts (BB)     Jun  Forecast: 1.680M  Previous:   1.733M
Building Permits (BB)   Jun  Forecast: 1.660M  Previous:   1.676M

Thursday, 07/18/02
------------------
Initial Claims (BB)   07/13  Forecast:    N/A  Previous:     403K
Leading Indicators (DM) Jun  Forecast:  -0.1%  Previous:     0.4%
Philadelphia Fed (DM)   Jul  Forecast:   18.0  Previous:     22.2

Friday, 07/19/02
----------------
Trade Balance (BB)       May  Forecast:-$35.5B  Previous: -$35.9B
CPI (BB)                 Jun  Forecast:   0.1%  Previous:    0.0%
Core CPI (BB)            Jun  Forecast:   0.2%  Previous:    0.2%
Treasury Budget (DM)     Jun  Forecast: $25.7B  Previous:  $31.9B


Definitions:
DM=  During the Market
BB=  Before the Bell
AB=  After the Bell
NA=  Not Available


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**********************
INDEX TRADER GAMEPLANS
**********************

WEEKLY SECTOR TRADER: Sunday, 7/14/02

THE SECTOR BEAT - 7/14
by Leigh Stevens

The slowing of downside momentum and the trend toward more of a 
sideways move in the Nasdaq, is reflected in some of the key tech 
sectors like (Computer) Boxmakers, Internet, Networking, 
Semiconductors, Software and even the Telecom sector - these 6 
"ugly duckling" sectors are all featured in the "Highlights" 
section below.

There are in every market cycle a rotational nature to market 
corrections as sectors that were leaders fall out of favor - fund 
managers especially tend to book profits on stock groups that are 
"fully priced" (relative to fundamental outlook for the companies 
involved) and start to "probe" other stock groups that are the 
current ugly ducklings - in this group are the Defense, Financial, 
and Gold stocks.  These 3 are also featured in this week's 
Highlights section.    

UP THE MOST on Friday -


 

DOWN THE MOST on Friday - 


 


SECTOR TRADE RECOMMENDATIONS & REVIEW -

NEW TRADE RECOMMENDATION(S) -

NONE

OPEN TRADE REC(S) -

NONE


OPEN POSITIONS - 

Long HHH at 21.50  
(Internet HOLDR's)
Stop: 20.00

Long SMH at 28.30   
(Semiconductor HOLDR's) 
Stop: 27.00 

Long IJS at 81.60 
(S&P 600 Small Cap Value fund iShares)

CHANGE STOP TO: 78.50, from 79.50


 

While I would liked to see IJS move up from the first "touch" of 
the low end of its downtrend channel, it is holding in this area, 
which is the key thing.  However, my exit/stop point is too close 
the most recent low and I have lowered it by one point. 

I think that after the current correction has run its course, 
there is upside potential for the "small caps" over the coming 
months - I continue to view this segment of the market as offering 
better upside potential than the big cap S&P and Nasdaq stocks. 

 

TRADE LIQUIDATIONS -
 
NONE

SPECIFIC SECTOR HIGHLIGHT(S) -

Boxmaker Index - Computers ($BMX.X) 
STOCKS: AAPL; CPQ; DELL; GTW; HWP; IBM; SNE; SUNW; UIS; VRTS  


 

The computer makers, as a group are more or less holding above, 
especially on a closing basis, the sector index's Sept. low. If 
this continues, look at the individual stock charts for similar 
patterns, suggest looking at call possibilities for some of these 
stocks. 
UPDATE: 7/14

Defense Index; Amex ($DFI.X)
STOCKS: ATK; BA; COL; DRS; EASI; EDO; ERJ; ESL; FLIR; GD; INVN; 
ITT; LLL; LMT; NOC; OSIS; RTN; SSSS; TDY; TTN; UIC


 

I estimated that DFI would fall to 565 at a "minimum". Now, it 
looks even as though the sector could fall all the way back to the 
early-year relative low around 508.  The sector index needs to 
close above 565 to make it look like the sector was no longer in 
free fall and could rebound. 
UPDATE: 7/14

Financial Index; NYSE ($NF.X)
STOCKS: This index is composed of all the financial stocks on the 
NYSE; e.g., banks, insurance, etc. 


 

The Financial Index has completed a 62% retracement of its Sept. 
to spring run up. Now what? It's generally been the case in past 
down markets, that there is little hope for a NYSE/S&P type rally 
until and unless the financial stocks are participating - this 
sector tends to function as a "bellwether" for the NYSE market.  
If 535 does not hold and a rebound begin, there is a potential 
next for the NF index to fall to the 520 area - 517 is the 75% 
retracement level. (If 517 is exceeded, I anticipate a retest of 
the prior low at 483.) 
UPDATE: 7/14

Gold & Silver Sector Index ($XAU.X)
STOCKS: ABX; AEM; AU; FCX; GOLD; HGMCY; MDG; NEM; PD; PDG; SIL


 

I thought that perhaps XAU was regaining its footing and would 
have another up "leg", but the pattern continues to have a bearish 
cast. The recent (up) swing high reversed at a level below the 
previous rally peak - and, this top appears to be "contained" by a 
down trendline off the XAU top at 89.  I am inclined to sell 
rallies until and unless the above trendline is decisively 
penetrated. 

The gold bulls must not be looking at the charts or seeing what 
I'm seeing - plus, those who favor gold as a political uncertainty 
hedge, forget that the cessation or subsiding of these threats 
always leads to gold sinking back to where its fundamentals 
justify the price to be, which appears to be at and under $300 the 
oz. Absent significant INFLATION, gold has no higher fundamental 
justification for sustained high prices. 
UPDATE: 7/14

Internet Index; CBOE ($INX.X)
AMZN; AOL; CHKP; CMGI; CNET; CSCO; DCLK; EBAY; ELNK; EXPE; FMKT; 
HLTH; HOMS; INKT; INSP; JNPR; OVER; RNWK; TMCS; YHOO


 

The Internet stock sector index has "leveled" off and is trending 
more sideways now, than lower.  Whether this will lead to another 
rally back to resistance at the upper end of its downtrend 
channel, but it’s a possibility.  

If you look at some of the individual stocks, they appear to be 
doing the same - perhaps most everyone who wants to/is going to 
sell these stocks has done so for the most part. 
UPDATE: 7/14

Networking Index ($NWX.X)
STOCKS: ADCT; ADPT; ALA; AV; BBOX; CIEN; CMVT; COMS; CSCO; EXTR; 
FIBR; GLW; HLIT; JDSU; JNPR; LU; NT; ONIS; RBAK; RSTN; SBL; SCMR; 
SONS; TALX; TLAB


 

Technology and networking in a "wired" world are still important 
businesses. The recent rebound in the Networking stocks as a group 
is either a "dead cat" bounce or the cat has a few "lives" left. 
However, resistance at the upper trend channel boundary and as 
implied by the 50-day moving average at 179.9, is about the 
maximum I can see NWX doing for a while.  

140 is near support and the "pivotal" point - a move to below this 
level would suggest that the stocks are again sinking due to too 
little buying interest still.   
UPDATE: 7/14

Semiconductor Sector Index ($SOX.X)
STOCKS: AMAT; AMD; CMOS; CREE; IDTI; INTC; KLAC; LLTC; LSCC; 
LSI; MOT; MU; NSM; NVDA; NVLS; PMCS; RMBS; TER; TXN; XLNX


 

Same comments - A close above 400-405 is needed to suggest that a 
more substantial turnaround (than short-covering) in the SOX 
was underway. However, the recent rebound does appear to have 
gotten a bit of traction as the market anticipates perhaps a 
better earnings picture presented by Intel and other chip makers 
in the earnings reporting period ahead. Intel reports on Tuesday. 
Stay tuned! 
UPDATE: 7/14

Software Index; Goldman Sachs ($GSO.X)
STOCKS: ERTS; INFA; INKT; INTU; ISSX; ITWO; IWOV; JDEC; MANU; 
MENT; MSFT; MUSE; NATI; NOVL; NTIQ; ORCL; PMTC; PRGN; PRSF; PSFT; 
RATL; RETK; REY; RHAT; RNWK; SEBL; SNPS; SY; SYMC; TIBX; VIGN; 
VRTS; WEBM; WIND; YHOO


 

We're still seeing the minor bullish price/RSI divergence with the 
RSI indicator as it trends higher during which prices fell and 
then moved sideways. Meanwhile, the software HOLDR's have been 
trending sideways in possible "basing" action. Time will tell on 
this.  

The "lead" for GSO may come from Microsoft this week, which 
reports on Thursday after the close. A move in the sector stock 
SWH above $30 would be a bullish breakout.  Conversely, if 25.00 
is penetrated, especially on a closing basis, more weakness would 
appear to lie ahead.
UPDATE: 7/14

Telecoms Index; No. American ($XTC.X)
STOCKS: AT; BLS; FON; LU; LVLT; MCIT; NT; NXTL; Q; SBC; T; TMX; 
VZ; WCOM


 

Well, every dog has its day and this is no exception.  Telecom has 
been in an unrelenting downtrend, but there is usually a price 
reached that reflects a "value" proposition.  Maybe this group is 
somewhat "fairly" priced now, perhaps it’s a short-covering bounce 
- but there is either a rally here that makes more shorting 
attractive or the sector is going to have a bit more upside follow 
through, say back up to resistance implied by its 50-day moving 
average at 473.  This is a key area - every prior approach to this 
level was followed by a reversal this year.
UPDATE: 7/14


Leigh Stevens
Chief Market Strategist
lstevens@OptionInvestor.com


***********************************************************
DAILY RESULTS
***********************************************************

Please view this in COURIER 10 font for alignment
*************************************************

CALLS              Mon    Tue    Wed    Thu   Week    

ESST     17.65    0.31  -0.79  -1.09   1.48  -0.32  Dropped, top
MSFT     51.86   -1.98   0.29  -0.97   0.66  -3.04  Dropped, weak
INTU     47.76   -2.36  -0.63  -0.24   1.32  -2.33  Ready for highs
NVDA     19.90    0.66  -0.96  -0.51   1.84   1.00  Confirmed at 21
ORCL      9.68   -0.74   0.08  -0.42   0.44  -0.37  Dropped, roll?
MMM     120.87   -0.72  -1.15  -4.00  -2.60  -9.00  Holding support
EMC       8.55   -0.17   0.25   0.13   0.35   0.96  Holding up well
OMC      52.44    2.78  -0.56  -0.38   2.77   7.66  Nice break out


PUTS               

LXK      50.51    1.17  -1.91  -3.12   0.88  -1.49  Short covering
XL       78.75   -0.12  -2.11  -2.02   0.45  -3.25  Close to entry
LLY      50.26    1.47  -2.11  -1.80   1.52  -0.36  Dropped, bounce
AMGN     34.30   -1.84  -1.33  -2.40   1.95  -3.75  Beat biotech
LM       43.25    0.17  -1.95  -2.23   0.36  -3.25  Bad business
MRK      45.75   -1.05  -2.06  -2.18   0.71  -3.31  Unhealthy stock
RE       51.36   -1.16  -2.54  -1.84   1.09  -3.44  Insurance blues
PHCC     19.50   -1.32  -0.25  -0.81  -1.48  -3.85  At entry point?
BJ       36.50   -0.05  -0.81  -0.41   0.82  -1.95  New, sentiment
SBC      26.94   -0.09  -1.03  -0.57   0.64  -2.06  New, buy WCOM?
VZ       35.30   -0.34  -1.18  -1.26   1.50  -3.59  New, Little support

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

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

MMM – Minnesota Mining and Mfg. $120.87 (-9.00 last week)

See details in play list




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

SBC – SBC Communications $29.64 (-2.06 last week)

See details in play list





**************************
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
^^^^^

MSFT $51.86 (-2.99)Try as they might, the bulls just couldn't get
any positive action going in MSFT last week.  Sure, the broad
market weakness didn't help matters, but we were looking for the
stock to lead the market higher on hopes of a positive earnings
report this week.  Instead, the stock continued to decline all
week, coming to rest just below $52.  While still above our
stop, the prospects don't look good for a bullish run ahead of
the company's earnings report on Thursday, so we're going to
drop the play this weekend to clear the deck for better plays.

ESST $17.65 (-0.32) ESST can get out of its own way.  The
stock is having trouble with short term congestion and since
it can’t get moving higher, we fear that it will fall back
to earth.  The stock is topping out around the $18 level with
little sign of showing follow through.  If in open plays,
look to set a tight stop to protect against further downside,
or look to exit on an early pop higher in next week’s
trading.

ORCL $9.68 (-0.37) ORCL didn’t follow through to the upside
as much as we had expected in last Friday’s session.  The
stock is showing signs of weakness, which we want no part of.
Look to exit open plays on an advance up to or above the $10
level next week, or look to set a stop below the most recent
relative low at the support trend line at the $9.42 level.


PUTS
^^^^

LLY $50.26 (-1.99) You know the saying that all good things
must come to an end.  Well, that is the case with our LLY play,
as it appears the downward momentum has come to an end.  We got
a nice little ride out of LLY after it broke down under the $55
level and traded as low as $47.10 this week.  However, the past
2 days have seen solid, albeit small, gains from the stock
despite the continuing broad market weakness.  Even the DRG
index has spent the last 2 days in the green, so you can see
how the momentum has slowed.  The bulls are trying to put in a
bottom here and that means further downside progress is going to
be hard to come by.  Time to take our gains off the table and go
hunting for more easy pickings elsewhere.


***********
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.


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**********

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The Option Investor Newsletter                   Sunday 07-14-2002
Sunday                                                      3 of 5


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

None

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


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

MMM – Minnesota Mining and Mfg. $120.87 (-9.00 last week)

Commonly known as the maker of the ubiquitous, adhesive-backed
Post-It Notes, MMM is also a leading manufacturer of a variety
of industrial, consumer, and medical products.  Reflective
sheeting on highway signs, respirators, spill-control sorbents,
and Thinsulate brand insulations are just some of the company's
industrial products.  MMM also makes microbiology products,
making it easier for food processors to test for the
microbiological quality of food.

Traders that were looking for MMM to come in a bit for an
attractive entry point on Friday were certainly not disappointed.
We've pointed out the stock's recent propensity to bounce from
the $120 area and Friday's session provided 2 such opportunities;
the first at the open and the second in the final 30 minutes of
the day.  But we really want to see a bounce with some conviction
to tell us that MMM wants to run higher.  The morning bounce ran
out of steam before 11am ET and the afternoon rebound was likely
just a bit of short-covering ahead of the weekend.  We need to
see some real enthusiastic buying and we're expecting to see that
come into the stock ahead of the company's earnings report a week
from Monday.  The company recently raised its earnings guidance
(on July 1st), so it seems a fair bet that there aren't any
negative surprises waiting to be released.  The big question is
whether the improved earnings picture is due to cost-cutting,
sales growth or the beneficial impact of the falling dollar on
this multi-national company.  Whatever the case, as long as the
$120 level holds as support, then rebounds from this area look
attractive for new entries.  Traders looking for some
confirmation before playing will want to wait for MMM to power
through the $124 resistance level before taking a position.
Stops remain set at $119.

*** July contracts expire next week ***

BUY CALL JUL-120 MMM-GD OI=3587 at $3.10 SL=1.50
BUY CALL JUL-125 MMM-GE OI=4236 at $1.00 SL=0.50
BUY CALL AUG-120 MMM-HD OI= 104 at $6.00 SL=4.00
BUY CALL AUG-125*MMM-HE OI= 418 at $3.40 SL=1.75
BUY CALL AUG-130 MMM-HF OI=1438 at $1.70 SL=0.75

Average Daily Volume = 1.84 mln


INTU – Intuit $47.76 (-2.33 last week)

Intuit, Inc. is a provider of small business, tax preparation and
personal finance software products and Web-based services that
simplify complex financial tasks for consumers, small businesses
and accounting professionals. The Company's principal products
and services include Quicken, QuickBooks, Quicken TurboTax,
ProSeries, Lacerte and Quicken Loans. Intuit offers products and
services in five principal business divisions, which include
Small Business, Tax, Personal Finance, Quicken Loans and Global
Business.

It was a volatile week for INTU last week.  The stock traded
lower in the early part of the week after running to a new
yearly higher in the week prior.  The stock traded down to its
ascending support line which has held the trend higher since
early March, more specifically since the beginning of early
May for the particular trend line that we’re using.  The
pullback to support in last week’s trading may have offered
what turns out to be an excellent entry point into this strong
technology stock.  INTU broke back above its short term
congestion in Friday’s session and continued higher to punch
through its then overhead 10-dma.  The stock is now poised
to retest its relative highs up around the $50 level in next
week’s trading.  The biggest factor will be the broader
market, and specifically the Nasdaq.  If the tech sector can
find its legs in the next few days, then INTU has a very
good shot at retesting its highs.  Such a move could offer a
very short term trader a quick scalp from the entry taken near
ascending support in last week’s session.  Otherwise, a more
aggressive trader might look to hold onto positions upon a
break above relative highs, which could also be used for an
entry point into new call plays into strength.

BUY CALL JUL-45 IQU-GI OI=3686 at $3.50 SL=2.75
BUY CALL JUL-50*IQU-GJ OI=5571 at $0.65 SL=0.75 
BUY CALL AUG-50 IQU-HJ OI= 797 at $2.55 SL=1.50
BUY CALL AUG-55 IQU-HK OI= 497 at $1.05 SL=0.75

Average Daily Volume = 3.21 mln
 

NVDA – NVIDIA $19.90 (+1.00 last week)

NVIDIA Corporation designs, develops and markets graphics and
media communication processors and related software for
personal computers (PCs), workstations and digital
entertainment platforms. The Company provides an
architecturally compatible top-to-bottom family of
performance 3-D graphics processors and graphics processing
units (GPUs) that set the standard for performance, quality
and features for a broad range of desktop PCs. They range
from professional workstations to low-cost PCs and mobile
PCs, and from performance laptops to thin-and-light
notebooks. NVIDIA's 3-D graphics processors are used for a
wide variety of applications, including games, digital
image editing, business productivity, the Internet and
industrial design.

NVDA finally punched through its overhead resistance at the
psychologically and technically significant $20 level in
last Friday’s session.  But the breakout didn’t come as we
had quite expected.  The stock gapped higher in Friday’s
session on the strength in the pre market futures, but then
proceeded to trade lower into the close of the stock,
actually closing back below the $20 level by a fractional
amount.  But the breakout above the $21 level confirmed
our bullish thoughts on this stock, and we actually view the
pullback as a good opportunity to pick up new call entries
on weakness.  Aggressive traders can look to take new plays
at current levels early next week so long as the semi
sector confirms, as does the Nasdaq.  In a positive market,
NVDA should be able to gain some momentum and continue up
to its next level of overhead congestion, which sits just
below the $25 level.  Traders can confirm such momentum with
a break above last Friday’s intraday high at the $21.08
level, or higher.  The curling 10-dma now at the $18.28
level should offer support on any pullback and entry
opportunities as well.

BUY CALL JUL-17*UVA-GW OI=2798 at $2.85 SL=1.25
BUY CALL JUL-20 UVA-GD OI=5848 at $1.20 SL=0.50 
BUY CALL AUG-17 UVA-HW OI=3492 at $4.10 SL=2.50
BUY CALL AUG-20 UVA-HD OI=1810 at $2.55 SL=1.75

Average Daily Volume = 11.2 mln


OMC - Omnicom Group Inc $52.44 +3.05 (+7.66 for the week)

Omnicom is a leading global marketing and corporate 
communications company. Omnicom's branded networks and numerous 
specialty firms provide advertising, strategic media planning and 
buying, direct and promotional marketing, public relations and 
other specialty communications services to over 5,000 clients in 
more than 100 countries. (Source: company press release)

OMC enjoyed a robust day.  After a pullback from its initial 
break over $50, OMC rallied for the remainder of the day, 
reaching a high of $53.40 before settling back at $52.44 for a 
gain of over $3 (worth 6.17%). OMC continued the strong upward 
trend from the last couple of weeks, in spite of the overall 
market's weakness, which is a good sign for this play.  While a 
$3 per day move may be too much to expect from this stock on a 
regular basis, there is obviously a feeling of relief among 
investors after the company reassured them with a 48 page 
explanation of accounting practices and other financials earlier 
in the week.  This financial transparency could help bring in new 
money while shorts are probably scrambling for cover now that OMC 
has broken the psychological $50 barrier.  Believe it or not, the 
PnF chart for OMC is showing a fresh triple-top breakout.  The 
current vertical count is projecting a bullish price target of 
$70.  Of course, there could still be resistance around $55, 
however it appears the next significant resistance point is in 
the $58 range, where shares ran out of steam in late June.  
Traders should also note that after two big up days, OMC could be 
due for a small pull back.  We'd look for a dip to $51 or even 
$50 should the broader markets continue to tank next week. We 
will raise our stop on OMC to $49.45, just below Wednesday's 
high.   

BUY CALL AUG-50 OMC-HJ OI=3334 at $6.10 SL=3.00
BUY CALL AUG-55*OMC-HK OI= 563 at $3.20 SL=1.50 
BUY CALL OCT-50 OMC-JJ OI= 202 at $8.80 SL=5.50
BUY CALL OCT-55 OMC-JK OI= 456 at $5.40 SL=3.00

Average Daily Volume = 3.62 mln


EMC - E M C Corp $8.55 +0.40 (+0.96 for the week)

EMC Corporation is the world leader in networked information
storage, information management software and the provider of
information storage infrastructure. Major customers include the
world's largest banks and financial services firms,
manufacturers, telecommunications providers, airlines,
transportation companies, Internet providers, retailers,
educational institutions, pharmaceutical companies and regional
and national government agencies.  (Source: company website)

On a relatively flat day for the tech sector, EMC continued its 
slow and steady rise after breaking above the $8 mark yesterday.  
The stock opened above yesterday's high by a nickel, rose to a 
high of $8.70 and then settled back into the $8.50 range, where 
it stayed most of the day. EMC's eventual close at $8.55 is above 
the first resistance level of $8.50 we identified in the original 
play call. The next likely resistance point will be the $9.00 
round number line.  We will point out that today's rally was on 
strong volume of 23.4M shares, a little less than yesterday, but 
still a lot more than the average daily volume.  There is 
obviously some short-covering that is occurring now that EMC is 
over $8.00 but it could be, dare we say it, new money coming in 
to this beaten down stock.  Maybe value buyers are placing some 
bets in electronic storage, of which EMC is the king.  Another 
idea to keep in mind is EMC has been up strongly two days in a 
row.  If you are looking for a new entry point we'd probably wait 
for a pull back to the $8.00 to $8.25 area.  Gap trading fanatics 
will look at this morning's gap and expect EMC to fill it.  It's 
rather small so we're not so sure this gap "has" to be filled.  
Keep in mind EMC's earnings release is next Thursday morning and 
we'll probably close this play on Wednesday afternoon.

BUY CALL AUG- 7.50 EMC-HU OI= 9634 at $1.50 SL=0.65
BUY CALL AUG-10.00 EMC-HB OI= 4470 at $0.35 SL=0.00
BUY CALL OCT- 7.50*EMC-JU OI= 8304 at $1.80 SL=0.80
BUY CALL OCT-10.00 EMC-JB OI=11569 at $0.75 SL=0.00

Average Daily Volume = 16.6 mln



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

VZ - Verizon Communications $35.30 -$2.30 (-3.59 for the week)

Verizon Wireless is the nation's leading provider of wireless 
communications. The company has the largest nationwide wireless 
voice and data network and 30 million customers. Headquartered in 
Bedminster, NJ, Verizon Wireless is a joint venture of Verizon 
Communications and Vodafone (NYSE: VOD). (Source: company press 
release)

Verizon opened down and continued its drift lower rather quickly 
today, setting yet another 52 week low today.  This stock has 
been in a descending channel since the end of May and shows very 
little support going forward.  It actually appears that VZ could 
fall through the bottom of this short-term seven-week old channel 
just as it has fallen through the bottom of its longer-term July 
2001 through June 2002 descending channel.  VZ has not seen this 
price level since May of 1997.  It has swooned along with the 
rest of the telecom sector, however it failed to follow the 
sector's small rebound today.  J.P. Morgan dialed down its 
expected earnings per share growth estimates for 2003 for the 
Baby Bells (VZ, SBC, BLS), to 1 percent, versus current 
expectations of 4 percent. Morgan also predicted the Bells would 
need to reduce their workforce by an additional 4 percent beyond 
already announced reductions in order to protect the bottom line.  
Verizon was the hardest hit of the three and shows little promise 
of a rebound. There has been heavier than normal volume during 
VZ's recent slide, not a good indication for the stock.  OI will 
consider a move under $35.00 as our trigger to go short.  In 
addition to the bad news on VZ, Telus, which is 24% owned by 
Verizon and is Canada's number two phone company, recently saw 
its debt ratings cut by Dominion Bond Rating Service, which 
warned the ratings could eventually be cut to "junk" status.  
This move could be just what the bears need to drive the stock 
further south.  Traders can place an initial stop at 37.75, just 
above VZ'z upside resistance of the last couple of days.  Once 
we're triggered we'll probably adjust our stop a bit lower to 
reduce risk.  The current vertical count on VZ's PnF chart is 
pointing to a target of $29.00.  We're going to aim for the $30 
area (probably $30.50) as our profit target.

BUY PUT  AUG-40*VZ-TH OI= 1246 at $5.50 SL=3.20
BUY PUT  AUG-35 VZ-TG OI= 1580 at $2.40 SL=1.20
BUY PUT  OCT-40 VZ-VH OI= 8422 at $6.80 SL=4.50
BUY PUT  OCT-35 VZ-VG OI=15970 at $4.00 SL=2.75

Average Daily Volume = 6.58 mln



BJ – BJ’s Wholesale Club $36.50 (-1.95 last week)

BJ's Wholesale Club, Inc. is a warehouse club operator in the
eastern United States. As of February 2, 2002, the Company
operated 130 warehouse clubs in 15 states, and had
approximately 6.9 million members. Warehouse clubs offer a
narrow assortment of brand name food and general merchandise
items within a wide range of product categories. In order to
achieve high sales volumes and rapid inventory turnover,
merchandise selections are generally limited to items that are
brand name leaders in their categories. Since warehouse clubs
sell a diversified selection of product categories, they
attract customers from a wide range of other wholesale and
retail distribution channels, such as supermarkets,
supercenters, department stores, drug stores, discount
stores, office supply stores, consumer electronics stores,
automotive stores and wholesale distributors.

The University of Michigan reported last Friday morning that
its index of consumer sentiment plunged during July.  The drop
was attributed to fear over the impact of corporate scandals
on the economy.  The index fell to 86.5 during July, well
below June’s readings and estimates for that matter.  The
University of Michigan concluded that the sharp drop off in
consumer sentiment could result in much lower spending in the
second half of the year.  That spells trouble for the major
retailers who have been trading relatively well this year
versus the steep drop off in the broader market and especially
in technology shares.  However, the retail sector is showing
signs of weakening in the last few weeks, which could lead to
a lot more downside given the recent shift in the sentiment of
the consumer.  Discount retailers such as BJ are exposed to
just as much risk as the high end luxury retailers.  For its
part, BJ has been trending lower since this spring.  The stock
has been consolidating its most recent sell off in the last
month, between the $36 and $39 levels.  But it appears as if
the stock is ready to breakdown from its short term
consolidation on the heels of last week’s consumer numbers.
Breakdown/momentum traders can look for a decline below the
$36 level early next week on heavy volume and further
weakness in the retail sector index.  Confirm such a move with
weakness in the broader market.  Our stop is initially set at
the $40 level.  A relief rally up to, but below the $40 level,
can be used to enter put plays near resistance.

BUY PUT JUL-35 BJ-SG OI=30 at $0.50 SL=0.00
BUY PUT AUG-35*BJ-TG OI= 5 at $1.30 SL=0.75

Average Daily Volume = 664 K


SBC – SBC Communications $29.64 (-2.06 last week)

With 61 million phone lines in 13 states, SBC is the #2 local
phone outfit in the United States.  It's not just a local
operation either, as the company has stakes in Telecom
operations in 23 other countries around the world.  The
services and products that SBC offers vary by market, and
include local exchange services, wireless communications, long
distance services, Internet services, cable and wireless
television services, security monitoring, telecommunications
equipment, messaging, paging, and directory advertising and
publishing.

There should be no doubt by this point that the Telecom business
is a tough arena in which to make a buck.  Worldcom is soon to
arrive on the scrap heap, AT&T is trading for a mere $10 and most
of the suppliers to this group are trading in single digits.
Even for the stronger companies in the Telecom Services arena are
starting to feel the pinch.  Witness shares of SBC, which until
fairly recently, were holding above multi-year support near $35.
That support gave way last month and now the stock is chipping
away at the $29-30 support level dating back to 1997.  Judging
from the pattern of one violated support level after another,
this support will fail too, leading SBC down to the next
meaningful support in the $23-25 area.  All we need is the right
catalyst to get the bears motivated and we think we've got just
the ticket.  SBC has been mentioned as a possible bidder for
either Worldcom or Qwest.  In its eagerness to have the problems
of these failing Telecoms dealt with, the FCC has said it would
be open to any bid.  Needless to say, with the huge debt overhang
of both companies, the winning bidder would inherent significant
problems.  Additionally, the company is set to release earnings
on July 23rd, and we're looking for weakness to prevail leading
up to the announcement.  With the tentative breakdown under the
$30 level, this is shaping up as weak resistance and another
failure to rally through this level can be used for new entries.
A better entry point would be a failed rally near the $31 level.
Due to the overwhelming weakness in both the stock and the
sector, we can set a tight stop at $31.25.

*** July contracts expire next week ***

BUY PUT JUL-30 SBC-SF OI=6532 at $1.10 SL=0.50
BUY PUT AUG-30*SBC-TF OI=2001 at $1.95 SL=1.00
BUY PUT AUG-25 SBC-TE OI=1721 at $0.55 SL=0.25

Average Daily Volume = 7.92 mln



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

XL - XL Capital $78.75 (-3.25 last week)

XL Capital Ltd., formerly EXEL Merger Company, is a provider of
insurance and reinsurance coverages and financial products and
services to industrial, commercial and professional service
firms, insurance companies and other enterprises on a worldwide
basis. The Company provides property and casualty insurance on
a global basis. XL Capital generally writes specialty coverages
for commercial customers. Specific lines of business written
include third-party general liability insurance, environmental
liability insurance, directors and officers liability insurance,
professional liability insurance, aviation and satellite
insurance, employment practices liability insurance, surety,
marine insurance, property insurance and other insurance covers,
including program business and political risk insurance. 

It was another great week for put players in the insurance
sector.  The group continues to lose strength as the trend of
selling remains very strong.  For its part, XL shed another $3
and change for the week, adding to its losses from the prior
week.  The majority of the stock’s losses came in the early
part of the week when the broader market was having trouble
finding support.  The should be the key to this play moving
forward in that we want to see further deterioration in the
broader market to bring weakness in to XL.  In the last two
sessions, the stock has caught a bid on what appears to be
routine short covering in a longer term descending trend.  It
wouldn’t be such a bad thing to see the stock tick slightly
higher in next week’s session so as to offer another good
entry point into put plays.  Traders seeking new entry points
can look for a rally up to and rollover from the downward
sloping 10-dma, which finished last week at the $80.90 level.
The 10-dma should come down further in next week’s trading
and offer entry points at slightly lower prices.  Look for
that rollover upon a return of weakness in the major market
averages.

BUY PUT JUL-85*XL-SQ OI=359 at $6.70 SL=4.50
BUY PUT JUL-80 XL-SP OI=200 at $2.80 SL=1.00

Average Daily Volume = 871 K


LM – Legg Mason $43.25 (-3.23 lat week)

Legg Mason, Inc. is a holding company, which, through its
subsidiaries, is principally engaged in providing asset
management, securities brokerage, investment banking and
related financial services to individuals, institutions,
corporations and municipalities. The Company's principal
asset management subsidiaries are Legg Mason Funds Management,
Inc., Western Asset Management Company and Western Asset
Management Company Limited, Perigee Investment Counsel Inc.,
Brandywine Asset Management, Inc., Batterymarch Financial
Management, Inc., Legg Mason Capital Management, Inc.,
Bartlett & Co., LeggMason Investors Holdings plc, Barrett
Associates, Inc., Gray, Seifert & Co., Inc. and Berkshire
Asset Management, Inc. The Company's real estate finance
subsidiary is Legg Mason Real Estate Services, Inc., and
Legg Mason Wood Walker, Incorporated is its primary
broker-dealer subsidiary.

The brokerage sector took it on the chin in last week’s
trading as it has done for the last several months.  The
growing pessimism surrounding corporate America and the
stock market is wreaking havoc on these companies.  As one
corporate scandal after another comes to light the public
continues to lose its trust of the market, which is causing
more and more players to leave the game.  In an already
weak economic and market environment, the exodus of the
individual investor into safer cash type investments and
real estate is leaving the major brokers with a smaller
pool of revenue opportunities.  LM is no exception and is
one of the harder hit because of its heavy exposure to the
individual investor aspect of the money business.  The
stock precipitously dropped in last week’s trading to the
tune of losing more than $3 on the week.  The losses could
continue piling up, which means profits for put players.
The stock rebounded in the last two days on relatively
lighter volume, which hinted at short covering instead of
any meaningful buying.  We’ll be looking for a rollover
once that short covering loses steam to the upside.  Traders
can start looking for rollovers from current levels, or at
slightly higher levels such as between the $44 and $45
levels.

BUY PUT JUL-45*LM-SI OI= 85 at $2.40 SL=0.75
BUY PUT AUG-45 LM-TI OI=975 at $3.90 SL=1.50

Average Daily Volume = 390 K


MRK – Merck $45.75 (-3.31 last week)

Merck & Co., Inc. is a global, research-driven pharmaceutical
company that discovers, develops, manufactures and markets a
broad range of human and animal health products, directly and
through its joint ventures, and provides pharmaceutical benefit
services through Merck-Medco Managed Care, L.L.C. (Merck-Medco).
The Company's operations are managed principally on a products
and services basis and are comprised of two business segments:
Merck Pharmaceutical, which includes products marketed either
directly or through joint ventures; and Merck-Medco. Merck
Pharmaceutical products consist of therapeutic and preventive
agents, sold by prescription, for the treatment of human
disorders.

Investors are running from the major drug makers at an
increasing rate as one problem after another drags down the
sentiment in the group.  MRK has been among the hardest hit
and for good reason.  The company has had an extremely
difficult time getting its Medco IPO off of the books and
raising capital in the markets.  The continued delay of that
IPO should continue translating into further weakness in
shares.  And the longer the delay, the lower MRK is likely
to travel.  The stock is growing increasingly technically
weak, as was demonstrated during last week’s sharp sell off
which saw the stock lose over $3 on the week.  In the last
two days however the stock has rebounded on what appears to
be classic short covering, in a pattern that we’ve seen in
this stock since the beginning of its steady drift lower
since mid May.  The stock may have another day or two of
short covering in it before the downward trend resumes to take
MRK to a new relative low.  Look for the buying pressure to
abate early next week, and watch for a rollover from short
term resistance as an entry point into new put plays.  The
stock has short term congestion between current levels and
overhead to the $47 mark.  Any weakness in between there can
be used as an entry point into new plays.

BUY PUT JUL-45*MRK-SI OI=3807 at $1.10 SL=0.75
BUY PUT AUG-45 MRK-TI OI=2380 at $2.35 SL=1.00

Average Daily Volume = 6.92 mln


RE – Everest RE Group $51.36 (-3.44 last week)

Everest Re Group, Ltd.'s principal business, conducted through
its operating subsidiaries, is the underwriting of reinsurance
and insurance in the United States, Bermuda and international
markets. The Company underwrites reinsurance both through
brokers and directly with ceding companies, giving it the
flexibility to pursue business regardless of the ceding
company's preferred reinsurance purchasing method. The
Company underwrites insurance principally through general
agency relationships.

The insurance sector is coming under increased amounts of
investor scrutiny, and from several different directions.
The negative sentiment is no more apparent in the insurance
sector than in shares of RE.  The stock has been on a steep
slide since this spring, and there are no signs that that
trend is nearing an end.  Other stocks in the insurance
industry, such as the fellow put play on XL, reveal a very
similar technical picture.  In the last two days, like most
everything else on the put list, RE has rebounded on short
covering so as to work off some of its short term oversold
condition.  The stock had grown quite oversold through last
Wednesday’s relative low, so it was only a matter of time
before the stock rebounded for a relief rally.  That’s
exactly what the stock is in the middle of going through
Friday’s close.  What we have to do now is get ready for
another entry opportunity upon a rollover from short term
resistance.  We believe that the pattern of relatively
higher lows will continue into the next week as RE remains
under heavy institutional distribution.  The stock should
start to weaken near the $52 to $53 level, where
conveniently the 10-dma now sits and should offer pressure
from the upside.  Put players can look to take new plays
near those levels with a tight stop just above short term
resistance above the $55 level which held strong during
the early part of last week’s trading. 

BUY PUT JUL-50*RE-SJ OI=10 at $0.85 SL=0.50
BUY PUT AUG-50 RE-TJ OI= 5 at $2.55 SL=1.50

Average Daily Volume = 582 K


PHCC – Priority Healthcare $18.22 (-3.85 this week)

Priority Healthcare Corporation (PHC) is a national distributor
of specialty pharmaceuticals and related medical supplies to the
alternate site healthcare market, and is a provider of patient-
specific, self-administered biopharmaceuticals and disease
treatment programs to individuals with chronic diseases. The
Company sells over 3,500 SKUs (stock-keeping units) of specialty
pharmaceuticals and medical supplies to outpatient renal care
centers and office-based physicians in oncology and other
physician specialty markets. PHC offers value-added services to
meet the specific needs of these markets by shipping refrigerated
pharmaceuticals overnight in special packaging to maintain
appropriate temperatures, offering automated order entry services
and offering customized distribution for group accounts.

Goldman Sachs upgraded shares of PHCC this morning.  The brokerage
firm raised its rating to a trading buy from an outperform
investment rating.  Goldman based its upgrade on the stock’s
valuation and the confidence in the company’s fundamental
position.  The analyst that issued the upgrade reiterated his
belief in second quarter estimates for 23 cents in earnings.
We’re just not quite sure what a trading buy recommendation is,
but the market didn’t seem to know either.  Granted, PHCC did
stage a mini rebound during the session, but the stock didn’t
display any real relative strength for the day.  Instead, its
strength appeared to be a function of the rebound in the
broader market, and not necessarily the upgrade.  Moreover,
it’s feasible that more than a few shorts may have been caught
on the wrong side of the upgrade.  More than anything, we
view the upgrade as an opportunity to gain better entry points
into this weak healthcare play, and certainly not a change or
reversal in the trend that has been in place since early this
year.  The stock has technical resistance coming up at the $21
level which is reinforced by the downward sloping 10-dma, which
closed just below there in last Friday’s session.  The stock
wasn’t even able to close above the key $20 level in last
Friday’ sessions, so we may even begin to see further failures
at that level which would serve as entry points on a rollover.
If entering into strength doesn’t suit your strategy, then
wait for a breakdown and look for entry points into weakness
below the $18 level.

BUY PUT JUL-20*UHP-SD OI=46 at $1.40 SL=1.05
BUY PUT AUG-17 UHP-TW OI=90 at $1.15 SL=0.75

Average Daily Volume = 393 K
 

AMGN – Amgen, Inc. $34.30 (-3.77 last week)

The biggest of the Biotech big guns, AMGN makes and markets
therapeutic products for hematology, oncology, bone and
inflammatory disorders, as well as neuroendocrine and
neurodegenerative diseases.  Anti-anemia drug Epogen and immune
system stimulator Neupogen account for about 95% of sales.  Its
Infergen has been commercialized as a treatment for hepatitis C,
and Stemgen is approved for stem cell therapy in Australia,
Canada, and New Zealand.  The company has a strong pipeline of
new drugs in various stages of development as well as research
and marketing alliances with Hoffman-La-Roche and
Johnson & Johnson.

Despite Friday's modest rally (+2.5%) in the Biotechnology sector
(BTK.X), eager bulls were unable to stave off the sharp afternoon
selloff.  Market-wide in its scope, it dragged the index down near
its opening value before mercifully permitting a bit of a bounce
in the final hour.  As expected, AMGN rallied with the BTK in the
morning, but weakness started cropping up here much earlier.  The
high of the day was posted by 11am and then the remainder of the
day was a series of lower highs and lower lows.  Despite the
late-day rebound off the lows, AMGN finished fractionally lower,
showing some bearish divergence from the BTK.  It is interesting
to note that the stock found resistance right at the $35 level
before rolling over, giving us clear confirmation that the bears
are still in charge.  Even if another round of short-covering
surfaces next week, AMGN has some formidable resistance looming
at $36, which will be unlikely to fall to the bulls without a
solid broad-market rally.  Use failed rallies at $35 or $36 to
initiate new positions, keeping stops set at $37.  A
volume-backed drop below $32.25 will be required to satisfy
entry requirements for momentum traders.

*** July contracts expire next week ***

BUY PUT JUL-35*AMQ-SG OI=5134 at $1.80 SL=0.75
BUY PUT JUL-32 AMQ-SZ OI=1256 at $0.75 SL=0.25
BUY PUT AUG-32 AMQ-TZ OI=1135 at $2.40 SL=1.25

Average Daily Volume = 14.0 mln


LXK – Lexmark International $50.51 (-1.79 last week)

Wrapping its arms around the entire life-cycle of printers, LXK
develops and manufactures a broad range of laser, inkjet and dot
matrix printers for the office and home markets.  The company is
also the exclusive source for new print cartridges for the laser
and inkjet printers it manufactures.  Additionally, LXK provides
supplies for IBM printers and offers after-market laser
cartridges for the large installed base of a range of laser
printers sold by other manufacturers.

Just when it looked like the positive DELL news was going to help
power our LXK play through the $51.50 resistance level on Friday,
salvation arrived in the form of another broad market selloff.
LXK reversed right at the $51.50 level, providing another
attractive entry for eager bears.  Unfortunately, the late day
rebound off the lows prevented the stock from dipping back under
the $50 level at the close.  LXK is set to report earnings a week
from Monday, and based on DELL's comments there shouldn't be any
reason to rejoice when LXK provides its results.  According to
DELL, the quarter is looking strong, but not due to demand growth.
The growth driver for its PC business is the company's claim that
it continues to take market share from competitors.  To try and
compensate for that loss of market share, HPQ could try to
increase their market share in the printer arena by slashing
prices.  Of course LXK would likely follow suit and then we'd
have a price war on our hands.  And that would necessarily cut
it profit margins, resulting in lower earnings.  It's a tough
business environment out there and right now everything is
pointing to price weakness for the likes of LXK.  Use repeated
forays into the $51 area to initiate new positions as the
rollover commences.  Alternatively, a drop below $49.75 (the top
of Friday's gap) can be used for aggressive entries, as it would
likely lead to a filling of that gap down to the $49 level,
providing a bit of breathing room while waiting for a breakdown
to lower levels.

*** July contracts expire next week ***

BUY PUT JUL-50 LXK-SJ OI=1351 at $1.70 SL=0.75
BUY PUT AUG-50*LXK-SK OI= 123 at $3.70 SL=2.25
BUY PUT AUG-45 LXK-SK OI=1114 at $1.85 SL=0.75

Average Daily Volume = 1.43 mln



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*****
LEAPS
*****

Bears Still Firmly In Control
By Mark Phillips
mphillips@OptionInvestor.com

I remember commenting last weekend that we needed to be extra
careful because there were likely plenty of surprises ahead.  I
couldn't have been more right!  If only I could figure out what
those surprises were going to be in advance.  Here's just a
sampling of the surprises that caught my attention:

PG got hit by the wave of accounting-related rumors that have
been plaguing the market.  Despite the company denying the
veracity of the rumors, PG ended the week at its lowest level
since late February.  Needless to say, that one is a drop this
weekend.

Another of our plays got stopped out this week in the wake of
negative news.  XOM fell hard after the chairman announced plans
to sell 50,000 shares.  The reaction was swift and violent,
driving the stock to its lowest level since September.

Wednesday's CSCO upgrade was a breath of fresh air to the bulls,
and that was probably a big part of what lent strength to the
Semiconductor and Networking sectors throughout the remainder
of the week.

Noted perennial bear Barton Biggs dragged the markets back from
the abyss on Thursday when he stated he was getting cautiously
bullish.  He's not expecting this is THE bottom, mind you.  But
he does think we are getting set up for the next bear-market
rally.

The VIX briefly topped 40 for the first time since September.
All right, that last one wasn't a surprise, as I've been expecting
this for quite a while.  In fact, that foray over 40 looks like
the first volley in my MOCO strategy that I've been rambling on
about for several weeks now.

Of course, Abbey Joseph Cohen hasn't acknowledged the existence
of the great bear yet, so the end is likely not in sight.  We'll
all know that the bottom is at hand when perennial bulls like Ms.
Cohen throw in the towel and abandon their ridiculously bullish
estimates for the market.

In the meantime, it looks like more feeding for the bear.  We are
just now entering the July earnings season and there are some
heavy weights kicking things off next week.  Look for markets to
move in the wake of announcements from MSFT, INTC and IBM among
others.  GE managed to assuage investor concerns a bit with their
in-line earnings report on Friday.  In fact, GE is our new Watch
List Call play this weekend.

Given the recent price stability (holding above $16) level, I was
tempted to initiate the INTC play this week, but opted for the
path of safety.  Earnings are next week, and I think the better
course of action is to wait and see what they have to say first.

WMT is still on hold due to its weak price action, QQQ is trying
to put together a decent base and BBH is meandering near a
potential tradable bottom.  In retrospect we just missed the high
odds entry on the BBH play as the Biotech sector was falling
apart.  Right on direction, wrong on timing.  I don't see a strong
recovery for the industry anytime soon though, and I'm keeping the
play alive a bit longer on expectations that we could get a nice
entry if the NASDAQ manages to stage a decent rally.  I'll provide
more details on my thinking next week.

The only other noteworthy item in the Playlist this week is the
change to our BA Watch List play.  As another surprise surfaced
last week, BA broke down pretty hard, and it looks like a test of
the September lows is in the cards.  I've lowered the entry target
to $32-33 based on the bearish price target on the PnF chart, $32.
It's time to take a wait and see approach here, as well.

Looking at the broad markets, it is rather interesting that the
strongest area right now is Technology.  Could that have anything
to do with the fact that the NASDAQ-100 Bullish % reversed into
Bull Alert last week?  As for the DOW and S&P500, its still full
bear ahead.  I'm not looking for the NAZ to be able to lift the
rest of the market on its shoulders, but it is encouraging to see
a bit of internal strengthening.  Speaking of internal
strengthening, how about that BRCM?  What a champ!  Needless to
say we FINALLY took a position on that one; it took long enough,
don't you think?

Yes, the S&P500 finally got a bounce from the $900 level on
Thursday, which is the site of one support zone dating back to
1997.  Don't look for that level to hold long term though.  The
DOW appears intent on retesting its September lows and it still
has about 600 points to go based on Friday's close.  If the DOW
does retest, then it is a sure bet that the S&P500 trades much
lower.  I've heard the 850 level postulated as important support,
but my money is still on either $800 or possibly even $740.  The
deciding factor will be the words of wisdom coming out of this
earnings season.  If the CEOs and CFOs have some good news about
an improvement in the profit picture for investors, then I could
be all wrong.  Don't forget the other risk of this earnings
season.  With the increased scrutiny on corporate accounting, it
is a sure bet that if a company has any accounting-related
skeletons in their closet, the CEOs are going to err on the side
of caution and tell all.  I don't imagine there are too many
company officers that are looking forward to repeating the trial
by fire that the officials of Enron, Imclone and now Worldcom
have experienced.

In summary, there are a lot of risks in the current market and
unless earnings provide some positive surprises (I'm not holding
my breath on that score), there is very little good news for
investors to pin their hopes on.  Hmmm, being the contrarian
that I am, maybe that lack of encouraging news will be just what
we need to see the capitulation to send us on our much hoped for
summer rally.  Hey, I can hope can't I?

Whatever you do, be very careful out there!


Mark


LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
MSFT   05/13/02  '03 $ 55  MSQ-AK  $ 5.90  $ 6.00  + 1.69%  $48
                 '04 $ 55  LMF-AK  $10.20  $11.20  + 9.80%  $48
QQQ    06/26/02  '03 $ 28  OZC-AB  $ 2.45  $ 2.05  -16.33%  $22.50
                 '04 $ 28  LRI-AJ  $ 4.50  $ 4.10  - 8.89%  $22.50
BRCM   07/10/02  '03 $ 20  RCQ-AD  $ 3.10  $ 5.30  +70.97%  $16
                 '04 $ 20  LGJ-AD  $ 6.00  $ 8.50  +29.41%  $16


Puts:
None


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
WMT    03/31/02    HOLD        JAN-2003 $ 55  VWT-AK
                            CC JAN-2003 $ 50  VWT-AJ
                               JAN-2004 $ 55  LWT-AK
                            CC JAN-2004 $ 50  LWT-AJ
INTC   06/16/02  $16-17        JAN-2003 $ 20  NQ -AD
                            CC JAN-2003 $ 15  NQ -AC
                               JAN-2004 $ 20  LNL-AD
                            CC JAN-2004 $ 15  LNL-AC
BA     06/30/02  $32-33        JAN-2003 $ 35  BA -AG
                            CC JAN-2003 $ 30  BA -AF
                               JAN-2004 $ 35  LBO-AG
                            CC JAN-2004 $ 30  LBO-AF
                               JAN-2005 $ 40  ZBO-AH
                            CC JAN-2005 $ 30  ZBO-AF
GE     07/14/02  $27.50-28.00  JAN-2003 $ 30  VGE-AF
                            CC JAN-2003 $ 27  VGE-AY
                               JAN-2004 $ 30  LGR-AF
                            CC JAN-2004 $ 25  LGR-AE


PUTS:
BBH    06/09/02   $80, $85     JAN-2003 $ 85  GBZ-MQ
                               JAN-2004 $ 80  KOV-MP
                               JAN-2005 $ 85  XBB-MP
GD     07/14/02   $100-102     JAN-2003 $ 95  GD -MS
                  $107-108     JAN-2003 $100  GD -MT
                               JAN-2004 $ 90  KJD-MR
                               JAN-2004 $100  KJD-MT
                               JAN-2005 $ 90  ZZJ-MR
                               JAN-2005 $100  ZZJ-MT


New Portfolio Plays

BRCM - Broadcom Corp. $17.06 ** Call Play **

Sometimes relative strength builds over a long period of time and
sometimes it springs forth out of thin air.  The latter seems to
be the case with shares of BRCM, as the stock vaulted
substantially higher at the end of last week.  Looking under the
surface though, reveals several factors that contributed to the
impressive move through the $20 level on Friday.  First off, the
NASDAQ Bullish % reversed into bull alert after hitting a low of
8.  The Semiconductor index (SOX.X) continues to be the go-to
sector for Technology bulls and that can be seen in the SOX's
outperformance last week.  Additionally, there were positive
comments made about CSCO, painting Networking stocks with a
slightly bullish tint and BRCM benefited from that information as
well.  But that is just the background.  I considered taking an
entry the week before when the stock gapped higher from just below
the $16 level, but expecting that gap to fill, I opted to wait.
What really got my attention this week was the fact that even
with weakness apparent in most areas of the market (even the SOX),
BRCM simply refused to drop into that gap.  See how the $16.50
level repeatedly held the price up on Monday, Tuesday and
Wednesday?  After 3 days of this action, with the broad market
in decline, I opted to pull the trigger and in retrospect, I am
really glad I did.  Thursday and Friday saw strong gains in BRCM
and it closed on Friday above the $20 level for the first time in
almost a month.  The picture has now turned bullish, with the
stock generating a fresh buy signal on the PnF chart, accompanied
by a bullish price target of $28.  That target may grow depending
on the near-term price action, but for now, a drop to $18.75
(bottom of Friday's gap) or $17.00-17.50 (resistance from early
last week) can be used for initiating new positions.  Stops are
set at $16, just below the top of the gap on July 5th.

BUY LEAP JAN-2003 $20 RCQ-AD $3.10
BUY LEAP JAN-2004 $20 LGJ-AD $6.00


New Watchlist Plays

GD - General Dynamics $96.31  **Put Play**

For month now, there has been no arguing with the impressive
strength in the Defense sector, as the Defense Industry index
(DFI.X) has risen to one new high after another.  One of the
most impressive stocks in the sector has been General Dynamics,
which has been in an extended bull run since early 2000.  With
the current bidding war over TRW, shares of all the companies
in the running to acquire the firm have become favored targets
of the bears.  The action of the past 3 weeks has been
decidedly bearish, resulting in several negative technical
developments.  The PnF chart printed a double-bottom breakdown
as the stock fell below the $102 level.  The vertical count is
now pointing to a downside target of $78.  The weekly Stochastics
have rolled over again and this time are giving us one of my
favorite setups, that of bearish divergence.  Note that the most
recent high in price resulted in a lower high in the Stochastics.
That is a strong signal of inherent price weakness.  Adding more
emphasis to the picture shown on GD's chart is the damage that
has been done to the overall sector, with the DFI index breaking
down in a big way, falling all the way to its resistance from
the December-January timeframe.  To be sure, the stock is breaking
down out of a strong and mature bullish trend, and after the big
selloff in the past few weeks, there is almost certainly a
significant rebound in the near future.  But when that rebound
has run its course, it should allow us some attractive entries
into the play.  Look for a rally to and then rollover from the
$100-102 resistance area to provide high odds entries for the
next powerful leg down.  We could see a rally up to the $107-108
area before GD rolls over again, although I think that is a much
lower probability.  Regardless of where the oversold rebound runs
out of steam, I think it is clear that the high odds direction
over the intermediate term is down.  We'll use daily Stochastics
to help time our entry, and then set a stop according to where we
enter the play.  Tentatively, I expect to place a stop at $106 if
filled on the lower entry and $111 if filled at the higher target.
One other note: if the higher entry target is the one that
provides entry, the recommendation will be to use the $100
strikes.

BUY LEAP JAN-2003 $ 95 GD -MS
BUY LEAP JAN-2003 $100 GD -MT
BUY LEAP JAN-2004 $ 90 KJD-MR
BUY LEAP JAN-2004 $100 KJD-MT
BUY LEAP JAN-2005 $ 90 ZZJ-MR
BUY LEAP JAN-2005 $100 ZZJ-MT


GE - General Electric $28.60  **Call Play**

We've noted in the past that GE tends to trade in lockstep with
the DOW, making it an excellent proxy for playing the broader
market.  The stock has continued to be under significant selling
pressure over recent months as the bears have relentlessly pushed
the stock down to test the September lows and more importantly
achieve the bearish PnF price target of $27.  It should come as
no surprise that GE rebounded strongly after achieving that target
late last week, trading as low as $26.40.  We're initiating this
play on two premises.  With the VIX tracking as high as 41 last
week, it is looking like we are getting close to a tradable market
bottom.  Not THE bottom, but one that could produce a decent
summer rally.  Additionally, now that GE has achieved its price
target, it makes downside risk that much easier to quantify and
control.  Make no mistake, GE has some work to do before it is a
strong bullish candidate, as it needs to build a fresh buy signal
on the PnF chart, but it looks like we are getting ready to start
that rebuilding process.  Of course, we also need to point out
that the company posted in-line earnings results on Friday and
reaffirmed its full year earnings targets.  This would have been
a perfect opportunity for the company to reveal any accounting
skeletons in its closet and the fact that nothing material was
mentioned is a good sign.  Bouncing sharply higher on the news,
GE created a bit of a gap on the daily chart and we're looking
for that gap to fill over the next week or so.  Look to initiate
new positions on a dip and rebound from the $27.50-28.00 area and
set a tight stop just below last week's intraday lows.

BUY LEAP JAN-2003 $30 VGE-AF
BUY LEAP JAN-2003 $27 VGE-AY  For Covered Call
BUY LEAP JAN-2004 $30 LGR-AF
BUY LEAP JAN-2004 $25 LGR-AE  For Covered Call

Drops

PG $87.90 As it turned out, the initial break of the lower channel
line was the warning signal to get out of the PG play.  After a
mild rebound right to the bottom of that channel on Monday, the
bottom fell out on Tuesday.  That reversal was our cue to get out
and now it is clear that the market was nervous about something;
telegraphing that through the resultant price action.  Rumors
surfaced late in the week of accounting problems, which sent the
stock reeling as low as $82 on Friday.  Despite the fact that the
company has stated that there is no foundation for the rumors, the
technical damage has been done.  There's little hope for the bulls
here over the near-term.  Yet again, we are provided with a
reminder of why we must use stop losses!

XOM $38.23 Our XOM play was looking pretty solid right up until
last Tuesday.  While a bit of weakness was evident in the daily
chart, it looked like nothing buy participation in the overall
market decline and it was encouraging to see the stock holding
above the $39 level.  But then the news hit that the chairman had
filed to sell 50,000 shares, setting off a wave of selling over
the next 3 days.  Needless to say, Wednesday's drop kicked us out
of the play, with our violated stop at $38.50.  A look at the
subsequent decline after our exit underscores the importance of
using stop losses.


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

Are You A "Millionaire" or "The Weakest Link?"
by Mike Parnos, Investing With Attitude 

During the bull market investors were playing "Who Wants To Be A 
Millionaire?" and were winning on a regular basis. It was a no-
brainer. There was no need to phone a friend or even ask the 
audience. 

When the market turned and it was time to actually use brains, the 
name of the game changed to "The Weakest Link" -- and we found out 
who the weakest links were. 

Early in life, in kindergarten, children learn the art of finger 
painting. A piece of paper, a tube of blue, a tube of red, a 
smudge here, a smudge there and, before you know it, there's a 
masterpiece attached to a refrigerator door. 

As children become "adults," they learn the time-honored tradition 
of not taking responsibility for much of anything. Instead of 
finger painting, the great American pastime has become finger 
"pointing." 

Today, in our litigious society, people seek to fund their 
retirement with compensation from large corporations or insurance 
companies whenever anything goes wrong in their life. They don't 
search for remedies - they search for excuses. 

A few years back a woman sued McDonalds when she spilled some 
coffee on her lap. She claimed the coffee was too hot. McDonalds 
caved in and gave her a nice chunk of money to go away as part of 
a nuisance settlement. She was a klutz with a coffee stain. Now 
she's a klutz with money. 

For decades the tobacco industry has been deluged with lawsuits by 
those who foolishly ignored the Surgeon General's warning. This 
brought finger-pointing to a new level. It has become an art form 
as smokers try to place the blame on anyone handy - especially if 
the pockets are deep and the nuisance value is high enough. How 
does this pattern apply to recent stock market developments? 

In the past few years, individual investors have lost trillions of 
dollars as the stock market declined. Those are a lot of zeroes 
and commas -- and a bitter pill to swallow. Nest eggs and 
retirement accounts evaporated a lot faster than they had been 
accumulated. Inexperienced investors had trusted their money to 
"financial professionals" to invest or tried on their own to jump 
on the money train before it derailed. 

Individuals had to just suck it up and take responsibility for 
their own poor judgment of investments and/or advisors. Their 
fingers were poised to point, but had no specific direction. 

But now, it appears the game may have changed. There are some deep 
pockets to go after. Let the games begin. 

Not long ago, brokerage firm Merrill Lynch & Co. was sued by a 
former client who claimed he was misled by a bullish stock 
recommendation. Merrill Lynch agreed to pay Debases Kanjilal, a 
46-year old pediatrician, $400,000 to settle a case filed with the 
New York Stock Exchange. 

Kanjilal suffered a loss of $500,000 after having invested in 
Infonet, an Internet stock, based upon the buy recommendation of 
prominent technology analyst Henry Blodget. 

Merrill Lynch's caving in may have opened Pandora's box. It's just 
what losing investors were looking for - someone else to blame. 
They now have a direction to point their finger. They may have 
found a way to be absolved of their own ignorance. 

These same brokers and analysts were heroes when the market was 
skyrocketing and the profits piling up. In the midst of the 
euphoria, as a money manager, it was tough to be wrong. 

Now it's the brokers, financial planners, analysts, accountants, 
and anyone who has ever voiced an opinion or generated a quarterly 
report are in the sights of securities attorneys - and no 
silencers are being used. 

Ambulance chasers could become portfolio chasers. In the "slip and 
fall, give me a call" tradition, a former broker, Robert Magnan, 
has taken the torch and is championing the cause of losing 
investors everywhere. He portends to want to help recover losses. 

However, Magnan has a cloudy past of his own. In 1997, as a 
broker, he pleaded guilty to five counts of securities fraud. He 
now maintains his current mission is to "make amends for my 10 
years in the brokerage business." 

He had a "backlog" of over 300 clients with a total of about $40 
million in losses. Magnan, whose form employed 15 telemarketers, 
anticipates 6,085 new cases from his referral network of 13 
lawyers. A case can probably be made against your neighborhood 
full service investment professionals. They sat idly by - not 
advising or explaining to clients, who didn't know any better, to 
either sell or how to insure their portfolios. 

Maybe I've watched too many courtroom dramas, but the concept of 
"depraved indifference" -- usually applied to murder cases – 
could logically be applied to the investment world. 

To parallel the legal definition of "depraved indifference" – 
"Circumstances would indicate a depraved indifference to a 
portfolio of investments exists when one engages in conduct (a 
stock recommendation or an overlooked business expense) that 
creates a grave risk of loss to another person's portfolio and 
thereby causes substantial losses." Let the legal community chew 
on that for a while. 

You can take responsibility for your finances -- or not. You can 
take responsibility for your life - or not. You can possibly 
become a millionaire or you can continue to be the weakest link. 
Remember, it's the weakest link that goes home with nothing. 

Finger pointing is the highest form of weakness. When you choose 
to blame anyone but yourself for your problems, you ARE the 
weakest link. 

Mike Parnos
Mparnos@OptionInvestor.com 



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


Strategy Du Jour
It seems a number of readers are interested in pursuing their 
degree, so here's another strategy -- direct from the Couch Potato 
Trading Institute. 

For those of you who watch cable, you may have seen the new series 
The Shield. It's the story of a rogue cop who, along with his 
special task force, operates both inside and outside the law to 
ultimately resolve situations and end up with something that 
occasionally approximates justice. The only thing that is 
predictable is that it is unpredictable. If 10 minutes of an 
episode go by without anything outrageous happening, you can bet 
that the next 10 minutes will be wild. Well, I like my stocks the 
same way - wild and unpredictable. And in the wonderful world of 
options, I discovered a way to take advantage of these situations 
with minimal risk. It's a variation of the Straddle. 

What's the best part of using a Straddle? You don't have to pick a 
direction. If you know the direction a particular stock (or index) 
will move, you've probably been hiding under a desk at the FDA or 
know the same little voice that whispers in Martha Stewart's ear. 

I don't hear voices and it's been awhile since I could fit under a 
desk, so, like you, I have to do a little homework. In true couch 
potato tradition, this can be easily done while watching a 
baseball game - a game in which they spend twice as much time 
scratching and spitting as playing. 

First, we have to look for a stock that's current volatility is 
lower than its historical volatility. Maybe the stock has been 
consolidating for a while, has an upcoming earnings announcement 
or simply has a history of large spikes. 

For example, Microsoft (MSFT) has been a bit of a sleeping giant, 
trading in the $50-$55 range since late April. On Tuesday, MSFT 
was trading at about $54.50. Looking out about three months, let's 
buy the October 55 put for $5.00 and the October 55 call for 
$5.20. We've invested a total of $10.20 in this straddle, but 
we're not risking $10.20. Why? Because we're going to hold the 
position for the maximum of a month. If, in four weeks, MSFT 
hasn't made a substantial move, we will exit the position. 

The reason for selecting an option at least three months away is 
that, during the first month, there will be minimal erosion of 
premium - usually 15% or less. For this example, we'll use 15%. 

Therefore, if we close out the MSFT position in a month, we'll 
actually be risking only 15% of the $10.20 - about $1.50. That's 
the worst-case scenario. 

I like it when my risk is defined. Like I know that when I eat two 
Twinkies, the most weight I can gain is the actual weight of the 
Twinkies. For me, that's an acceptable risk. 

The way we profit in our straddle position is that, when a major 
move occurs, the side of the straddle that is increasing will go 
up faster than the opposite side will go down. 

If MSFT were to announce an earnings warning next week, it's not 
unrealistic to expect the stock to dip 5-7 points. If MSFT tanked 
by $5.00, the October 55 call could be worth about $8.10 and the 
October put could be worth about $3.00. The total is $11.10. 
Sudden major moves are usually accompanied by an increase in 
volatility and a subsequent increase in option premiums. So, it's 
likely that the $8.10 could turn into $8.25 and the $3.00 could be 
$3.10. Now, as we liquidate the position, we've taken in $11.35. 

What did we pay to enter the position? $10.20. We've made the 
difference between $11.35 and $10.20 -- $1.15. 

What did we risk? $1.50. Our return on our risk is 76.7% ($1.10 
divided by $1.50). 

Straddles are also functional in that they consist of the purchase 
of options and can be used by option traders who don't yet have 
trading approval to trade spreads. 

This isn't an exact science and the above numbers are projections 
that are close enough to get the point across -- straddles, if put 
on selectively and treated with loving discipline, can be a couch 
potato's dream trade. 

Ain't life sweet? What more could you ask for? A gourmet dinner, 
orchestra seats at the theater, a night of unbridled passion and a 
profitable trade. You can have it all. But, without the profitable 
trade, you probably might not be able to afford it. Your evening 
might consist a Gilligan's Island rerun, a TV dinner, and a 
response of "You've Got To Be Kidding". 

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

P.S. At Thursday's close, the MSFT spread described above could 
have been closed for $11.00. MSFT only moved down two points, but 
the volatility of the entire market spiked - and option premiums 
went along for the ride. Liquidating at $11.00 would have provided 
an $.80 profit in three short days with virtually no time erosion 
exposure. Occasionally the market gives you a gift, but don't hold 
your breath waiting for the next one! 

mparnos@OptionInvestor.com


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*************
COVERED CALLS
*************

Option Trading 101: Covered-Call Basics
By Mark Wnetrzak

One of our readers had some great questions about the covered-call
strategy and our popular (and free) option trading calculator.


Attn: Mark - Covered-Calls editor
Subject: Covered-Call Calculator    

Mark,

I was going through some old newsletters trying to learn about
covered calls and I noticed that (the 4/7/2002 newsletter) you
have created an Excel-based CC calculator.  I checked on the OI
website but came up empty.  Could you send me a copy (or the OI
link) of it.  I think a CC calculator would help me understand
when I have a profit/loss and the amount time necessary to stay
in a trade.

I like what I know about CC's, the strategy of consistent, low
risk profits.  The thing I am most confused on is the length of
time necessary to be in the trade.  And other questions like:
When can I get out of the trade?  Do I always have to wait for
expiration?  How does my profit vary with the price of the stock?

For example, if I buy a $20 stock and sell a $5 call, is my
profit the same down to $15 and then I start to lose money
below $15?

I know I have a lot of questions in this email.  If you could
just point me in the right direction, I'd appreciate it!

Thanks,

JW

JW,

First, I have attached a copy of the OIN calculator file.  It is
really nothing special but it works well (requires MSExcel-95
or higher).  There is a brief explanation at the bottom of the
screen for each column and there are six strategy tabs to choose
from for various option trading techniques.  As far as potential
yields and return on investment calculations, the formulas and
explanations can be found at:

http://members.OptionInvestor.com/archive/readerswrite/2000/060800_1.asp

With the covered-call strategy, we favor a short-term approach,
which isn't predicated on forecasting a stock's (or the market's)
directional movement.  Still, whether the covered write strategy
is applied short-term or longer term using LEAPS, it requires a
neutral to slightly bullish outlook on the underlying equity and
the overall market.  Generally, professionals will vary the length
of the sold calls as well as use different strike prices to balance
their risk with the potential return on investment.  The approach
you take will depend on your personal preference and risk-reward
tolerance.  "Options: As A Strategic Investment" is an excellent
resource for new traders and it explains all aspects of the covered
write strategy.  The book is available at the local library or the
OIN bookstore.

Regarding the length of time necessary to be in the trade, you can
buy back the calls (American style options) any time you want as
long as your stock hasn't been assigned (called away), and then
sell the stock or even write new calls against it.  If you aren't
worried about keeping the stock, then having it called away early
is not a problem and will actually increase your target yield by
providing the maximum return in a shorter time frame.  As far as
position adjustments, technical analysis is used by many traders
to identify areas of support or resistance, which can assist in
establishing the correct exit points.  There are various stop-loss
methods an investor can employ in position management: a fixed
percentage of one's overall portfolio, a specific dollar amount, a
violation of a technical trend-line, etc.  Whether it is automatic
or mental doesn't really matter, the real key is that the system is
adhered to because the ability to limit losses is paramount to a
profitable portfolio.  The book, Secrets for Profiting in Bull and
Bear Markets by Stan Weinstein, is an excellent reference for new
traders and should help provide a basic understanding of technical
analysis of stocks and the financial markets.

Best regards,

Mark W.
OIN

Editors Note: The issues offered in this section are provided to
supplement your search for profitable trading positions.  As with
any investment, you must decide if the published selections meet
your personal criteria for profitable covered-call plays.  The
strategy we utilize in selecting these candidates is based on the
"total return" concept originated by option guru Larry McMillan.
With this conservative approach, an investor considers the covered
write as a single entity and is not interested so much in stock
ownership or bullish movement in the underlying, but in obtaining
a consistent (monthly) return on investment.  In evaluating plays,
we are only interested in the stock remaining above our cost basis
for the duration of the position; we are not concerned about the
issue's upside potential.  Since we utilize "in-the-money" options,
the maximum gain is established upon entry, and additional bullish
movement, beyond the sold option's strike price, is meaningless.
Of course, it is still good advice to only purchase stocks you
wouldn't mind owning, as that is always a possibility with this
strategy.  With that fact in mind, it is imperative that investors
perform their own due diligence and only enter positions that meet
their personal risk-reward tolerance.


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

EXTR   10.01  10.67   JUL  10.00  0.85  *$  0.84  19.9%
EXTR   10.09  10.67   JUL  10.00  1.00  *$  0.91  14.5%
EMC     7.59   8.55   JUL   7.50  0.50  *$  0.41  12.6%
RIMM   13.35  13.82   JUL  10.00  3.80  *$  0.45  10.2%
MCDT    8.90   9.76   JUL   7.50  1.75  *$  0.35   7.1%
IVGN   31.30  29.42   JUL  27.50  4.60  *$  0.80   6.5%
HPLA   13.95  15.21   JUL  12.50  2.40  *$  0.95   6.0%
REV     4.96   4.73   JUL   5.00  0.45   $  0.22   5.3%
CANI   11.26  10.30   JUL  10.00  1.85  *$  0.59   4.5%
MCDT    8.99   9.76   JUL   7.50  1.90  *$  0.41   4.2%
COB     5.35   4.57   JUL   5.00  0.70   $ -0.08   0.0%
MCAF   14.26  11.91   JUL  12.50  2.25   $ -0.10   0.0%
JDEC   12.65  11.23   JUL  12.50  0.85   $ -0.57   0.0%
JBHT   31.05  28.10   JUL  30.00  2.15   $ -0.80   0.0%
FBR    12.73  11.08   JUL  12.50  0.75   $ -0.90   0.0%
ABFS   25.48  23.00   JUL  25.00  1.45   $ -1.03   0.0%
STAR   22.70  20.89   JUL  22.50  0.65   $ -1.16   0.0%
NCEN   31.85  27.05   JUL  30.00  3.40   $ -1.40   0.0%
QSFT   13.50  10.11   JUL  12.50  1.50   $ -1.89   0.0%
QSFT   14.53  10.11   JUL  12.50  2.40   $ -2.02   0.0%

DRIV    9.19   8.44   AUG   7.50  2.25  *$  0.56   5.0%
ZIXI    5.48   4.28   AUG   5.00  1.20   $  0.00   0.0%

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

Comments:

Boy, is it "bearish" or what?  Hey, I couldn't take it anymore
and grabbed a few QQQ calls just for kicks.  As for the Covered
Call section, the extended downward move is forcing a continued
culling of worrisome issues.   As we said last week, Manhattan 
Associates (NASDAQ:MANH) was at a key moment and Retek (NASDAQ:
RETK) helped push it over the edge with its earnings warning
after the close on Monday.  Investors who didn't exit on Monday
had little opportunity to salvage the position after Tuesday's
gap-down open.  The effect is also obvious in both Quest Software
(NASDAQ:QSFT) positions, which will be shown closed next week.
Several other stocks suffered technical or fundamental break-
downs and will be shown closed:  McAfee.com (NASDAQ:MCAF), Lone
Star Steakhouse (NASDAQ:STAR), and New Century (NASDAQ:NCEN).
With one week to go, several of the other positions could also
be closed if they break technical support or move to new relative
lows.  As always, there is the 'option' to adjust positions that
you desire to keep by rolling forward and/or down, depending on
your outlook.  As for our August positions, we will be monitoring
Zixit (NASDAQ:ZIXI) for a break below the June low (on a closing
basis) as an exit signal.

Positions Closed: 

PETsMART (NASDAQ:PETM), Mirant (NYSE:MIR), Manhattan Associates 
(NASDAQ:MANH) and Impax Laboratories (NASDAQ:IPXL).



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

AMLN   10.00  AUG 10.00   AQM HB  0.90 31     9.10   35    8.6%
BRCD   18.50  AUG 15.00   BQB HC  4.40 477   14.10   35    5.5%
BRCM   20.39  AUG 17.50   RCQ HW  3.90 2003  16.49   35    5.3%
EXTR   10.67  AUG 10.00   EXJ HB  1.70 867    8.97   35   10.0%
NPSP   17.11  AUG 12.50   QKK HV  5.60 170   11.51   35    7.5%
PCS     6.02  AUG  5.00   PCS HA  1.40 2366   4.62   35    7.1%
SNDK   14.40  AUG 12.50   SWQ HV  2.85 108   11.55   35    7.1%

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

EXTR   10.67  AUG 10.00   EXJ HB  1.70 867    8.97   35   10.0%
AMLN   10.00  AUG 10.00   AQM HB  0.90 31     9.10   35    8.6%
NPSP   17.11  AUG 12.50   QKK HV  5.60 170   11.51   35    7.5%
PCS     6.02  AUG  5.00   PCS HA  1.40 2366   4.62   35    7.1%
SNDK   14.40  AUG 12.50   SWQ HV  2.85 108   11.55   35    7.1%
BRCD   18.50  AUG 15.00   BQB HC  4.40 477   14.10   35    5.5%
BRCM   20.39  AUG 17.50   RCQ HW  3.90 2003  16.49   35    5.3%


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).

*****
AMLN - Amylin Pharmaceuticals  $10.00  *** New Partnership? ***

Amylin (NASDAQ:AMLN) is a biopharmaceutical company engaged in the
discovery, development and commercialization of drug candidates for
the treatment of diabetes and other metabolic disorders.  Amylin
has exclusive rights to two drug candidates that are in late-stage
development for the treatment of diabetes, SYMLIN (pramlintide 
acetate) and AC2993 (synthetic exendin-4).  The company has a third
drug candidate, AC3056, in early stage clinical trials, and main-
tains a focused research and development program to discover and
in-license additional drug candidates for metabolic diseases.  
Amylin recently presented favorable SYMLIN and AC2993 results at
the 62nd annual scientific sessions of the American Diabetes 
Association.  Amylin's CEO has said that the company is currently
in discussions with a potential AC2993 partner.  Investors looking
to add a biopharmaceutical company to their portfolios can obtain
a favorable entry point with this play.

AUG 10.00 AQM HB LB=0.90 OI=31 CB=9.10 DE=35 TY=8.6%


*****
BRCD - Brocade  $18.50  *** At Long-Term Technical Support ***

Brocade Communications Systems (NASDAQ:BRCD) is a provider of 
infrastructure for storage area networks (SANs), offering a 
product family of Fibre Channel fabric switches that provide an
intelligent networking foundation for SANs.  The company delivers
and enables hardware and software products, education and services
that allow companies to implement highly available, scalable,
manageable and secure environments for business-critical storage 
applications.  Companies can leverage Brocade's SAN infrastructure
solutions to connect servers with storage devices and scale them 
independently, consolidate and share servers and storage resources,
centralize data management, share valuable backup resources across
the enterprise, and provision and manage more storage without
increasing personnel resources.  On Wednesday, Morgan Stanley said
it raised its rating on Brocade to "over-weight" from "equal-weight"
based on expectations that the company's new computer storage area
networks could add to profits.  Though the analysts are cautious
on the sector, they still retained a $25 price target for the stock.
This play takes advantage of the current bullish momentum and offers
reasonable cost basis in the issue.

AUG 15.00 BQB HC LB=4.40 OI=477 CB=14.10 DE=35 TY=5.5%


*****
BRCM - Broadcom  $20.39  *** Earnings Rally Equals Relief? ***

Broadcom (NASDAQ:BRCM) is a provider of highly integrated silicon
solutions that enable broadband communications and networking of
voice, video and data services.  Broadcom designs, develops and 
supplies complete system-on-a-chip solutions and related hardware 
and software applications for every major broadband communications
market.  Broadcom's diverse product portfolio includes solutions 
for digital cable set-top boxes and cable modems; high-speed local,
metropolitan and wide area and optical networks; home networking;
Voice over Internet Protocol; carrier access; residential broadband
gateways; direct broadcast satellite and terrestrial digital broad-
cast; digital subscriber lines; wireless communications; SystemI/
OTM server solutions, and broadband network processors.  Analysts
recently said that they expect Broadcom to meet targets for the 
June quarter and are expecting some growth for next quarter.  The
company will report earnings this week on July 18.  We simply favor
the rally this week on increasing volume in the face of a declining
market.  Investors who believe the stock has made a successful test
of the September low can use the recent technical strength to obtain
a relatively low risk cost basis in the issue.

AUG 17.50 RCQ HW LB=3.90 OI=2003 CB=16.49 DE=35 TY=5.3%


*****
EXTR - Extreme Networks  $10.67  *** Change Of Character? ***

Extreme Networks (NASDAQ:EXTR) is a provider of network infra-
structure equipment for business applications and services.  The
company delivers high-performance application and services infra-
structure for enterprise, service provider and metropolitan area 
networks (MANs)-based on technology that combines high performance,
intelligence and a low cost of ownership.  The company's family of 
Summit stackable, BlackDiamond and Alpine chassis switches share
the same consistent hardware, software and management architecture,
enabling businesses to build a network infrastructure that is 
simple, easy to manage and scalable to meet the demands of growing 
businesses.  Investors appear to be relieved that Extreme will 
not issue a warning prior to the company's earnings report due on
July 17.  We favor the strong technical support area near $10 and
the move through the long-term downtrend line (two-year chart), 
which suggests a positive change of character.

AUG 10.00 EXJ HB LB=1.70 OI=867 CB=8.97 DE=35 TY=10.0%


*****
NPSP - NPS Pharmaceuticals  $17.11  *** On The Rebound! ***

NPS Pharmaceuticals (NASDAQ:NPSP) is a biopharmaceutical company
engaged in discovering, developing and commercializing small 
molecule drugs and recombinant proteins.  The company's product 
candidates are primarily for the treatment of bone and mineral
disorders, gastrointestinal disorders and central nervous system
disorders.  NPS Pharmaceuticals has three product candidates in
active clinical development and several pre-clinical product
candidates.  Two of these product candidates, Preos and AMG 073,
are in Phase III clinical trials.  The company's third product
candidate, ALX-0600, is in a pilot Phase II clinical trial.
NPSP rallied this week after a favorable Salomon Smith Barney
release said the company has been making solid progress in 
resolving the manufacturing issues with its lead drug candidate
Preos.  Speculators have moved into the stock pushing the share 
price up $5 in two days as news on Preos is expected soon.  
Traders can speculate on the near-term performance of the issue
with this conservative position.

AUG 12.50 QKK HV LB=5.60 OI=170 CB=11.51 DE=35 TY=7.5%


*****
PCS - Sprint PCS  $6.02  *** Cheap Speculation! ***

Sprint PCS (NYSE:PCS) operates a digital personal communication 
system wireless network in the U.S., using a single frequency and
a single technology.  Sprint PCS, a subsidiary of Sprint Corp.
(NYSE:FON), comprises Sprint Corporations' wireless PCS operations. 
The PCS Group has licenses to serve the entire United States 
population, including Puerto Rico and the United States Virgin 
Islands.  The PCS Group also includes Sprint Corporation's 
investment in Pegaso Telecomunicaciones, S.A. de C.V. (Pegaso),
a wireless operation in Mexico; SVC BidCo L.P., a joint venture
to acquire wireless spectrum rights, and Virgin Mobile U.S.A., 
a joint venture to market wireless services.  Regardless of the
recent slump in share value, Sprint PCS is one of the top companies
in the Wireless sector and among many institutional investors, it
is also one of the core holdings.  The current technical outlook
is recovering and our position offers an excellent reward potential
at the risk of owning this industry-leading issue at a favorable
cost basis.

AUG 5.00 PCS HA LB=1.40 OI=2366 CB=4.62 DE=35 TY=7.1%


*****
SNDK - SanDisk  $14.40  *** Technically, It's Bottom-Fishing ***

SanDisk (NASDAQ:SNDK) designs, manufactures, and markets flash
memory storage products that are used in a wide variety of 
electronic systems.  The company has designed its flash memory 
storage solutions to address the storage requirements of emerging
applications in the consumer electronics and industrial/communica-
tions markets.  SanDisk's products are used in a number of rapidly
growing consumer electronics applications, such as digital cameras, 
PDA's, portable digital music players, digital video recorders and
smart phones, as well as in other applications, such as routers
and switches and wireless communications base stations.  SanDisk's
products include removable CompactFlash cards, MultiMediaCards,
FlashDisk cards and Secure Digital Cards and embedded FlashDrives
and Flash ChipSets with storage capacities ranging from 8 megabytes
to 1.2 gigabytes.  SanDisk appears to have made a successful test
of the September low and the recent move back above both the 30-
and 50-dma bodes well for the future.  We favor the technical
support near the cost basis in this position and investors who
are interested in a long-term portfolio position in the Data
Storage Devices sector should consider this issue.

AUG 12.50 SWQ HV LB=2.85 OI=108 CB=11.55 DE=35 TY=7.1%


*****

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

RMBS    5.05  AUG  5.00   BNQ HA  0.65 1155   4.40   35   11.9%
LVLT    5.56  AUG  5.00   HGY HA  0.95 1887   4.61   35    7.4%
ICST   20.21  AUG 17.50   IUY HW  3.80 0     16.41   35    5.8%
AWE     6.09  AUG  5.00   AWE HA  1.40 1666   4.69   35    5.7%
BYD    15.32  AUG 15.00   BYD HC  1.15 538   14.17   35    5.1%
SLAB   25.55  AUG 20.00   QFJ HD  6.60 0     18.95   35    4.8%
MRVL   24.00  AUG 20.00   UVM HD  5.00 257   19.00   35    4.6%
CHRT   21.05  AUG 20.00   UCT HD  2.00 704   19.05   35    4.3%



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

Trading Basics: Make A Plan And Follow It!
By Ray Cummins

One of our new readers offered some excellent comments on why
it is so important to adopt a systematic approach to trading.


Attn: OIN Traders Corner
Subject: Advice For A New Trader

Greetings,

I am writing to you as a trial member of the Option Investor
Newsletter.  I have found your information to be very helpful
for a new trader and with the variety of strategies offered,
there is something for everyone.  The approach I am taking
is very conservative but one theme I noticed among all the
different articles, regardless of the type of strategy, is the
need to have a trading plan for each position in your portfolio.
From what I have learned, this plan should include criteria and
conditions, as well as a set-up for the entry, a target profit,
a maximum loss limit, and a procedure for any adjustments.  It
is obvious why you might need this level of complexity for some
of the advanced strategies but why is it necessary for simple
call and put buying?  In fact, I think some traders might tend
to focus too much on the method behind the trade rather than
on the selection of the stock itself.  My goal is to achieve a
balance between the two, yet I don't want to sacrifice success
because I have neglected the more important component.  It is
really that important to have a plan every time you trade an
option?

My compliments on a fine product.

BD


Hello BD,

As a new participant in the options market, the first thing you
must understand is: the majority of traders lose money because
they do not have a plan identifying how and when to exit their
plays.  Maximizing profits from winning trades, while preserving
capital in losing positions, is critical to long-term success.
Unfortunately, that task can be incredibly difficult without a
comprehensive trading system.

Human nature is one the many obstacles that new investors must
overcome to be successful in the stock market.  Every trade we
make is affected by hope, greed, and fear and the influence of
these feelings is the biggest single factor an investor must
understand if he expects to profit on a consistent basis.  Of
course, trying to separate emotions from trading decisions is a
very difficult task.  As humans, we tend to act on a given set
of circumstances in a very predictable manner and those natural
instincts cause many traders to make emotional judgments, rather
than mechanical decisions, when the situation becomes complex.
To make matters worse, a trader will commit the same mistake in
the future if there is not a properly pre-planned reaction to a
particular sequence of events.  In fact, most investors believe
their response is proper in the consequence of what the market
has done when in reality, the correct action should be a result
of a predetermined resolution to a given set of criteria.

Some of us are better at controlling their emotions than others,
but everyone can benefit from the use of a systematic approach
to managing portfolio positions.  Unfortunately, many investors
spend all their time looking for the perfect system; the "Holy
Grail" of trading that produces a profit every time.  Obviously,
the "perfect" method does not exist.  If it did, there would be
no market because those with access to the system would quickly
acquire all of the average trader's money.  It is the element of
randomness in share price movement that insures a predictable or
"scripted" pattern of trading can not exist and that is the most
important component of our market system.  Since every strategy
has specific advantages and drawbacks, successful traders follow
simple guidelines that help ensure profitable results.  First,
they use a disciplined approach, adhering to strict principles of
money management.  Although losses are an unavoidable part of the
game, successful traders remove ego and emotions from the outcome
by executing the system as it was designed.  They use discipline
in applying the technique, ensuring it is initiated in a timely
manner and during the appropriate market conditions.  They have
confidence in a methodical process and the patience to allow it
time to work as intended.  These sophisticated participants have
have no margin for faulty judgment or excessive capital exposure
but they know that a trader with a well-devised plan can be wrong
about the market more often than not and still be successful.

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

SLAB   26.80  25.55   JUL  22.50  0.60  *$  0.60  18.6%
CANI   11.50  10.30   JUL  10.00  0.35  *$  0.35  14.7%
CLHB   13.52  10.31   JUL  10.00  0.40  *$  0.40  14.0%
CANI   11.07  10.30   JUL  10.00  0.50  *$  0.50  11.3%
LNCR   31.86  31.38   JUL  30.00  0.55  *$  0.55  10.5%
YHOO   15.49  12.94   JUL  12.50  0.30  *$  0.30   9.3%
SIE    19.20  20.23   JUL  17.50  0.65  *$  0.65   8.5%
COCO   33.89  30.13   JUL  30.00  0.60  *$  0.60   8.5%
COCO   33.00  30.13   JUL  27.50  0.30  *$  0.30   8.1%
CUM    31.86  29.97   JUL  30.00  0.45   $  0.42   8.1%
BCE    18.22  17.94   JUL  17.50  0.25  *$  0.25   8.0%
LNCR   30.71  31.38   JUL  27.50  0.70  *$  0.70   7.8%
FBR    10.65  11.08   JUL  10.00  0.35  *$  0.35   7.7%
CACI   36.51  36.78   JUL  32.50  0.80  *$  0.80   7.6%
FCN    33.30  33.30   JUL  30.00  0.35  *$  0.35   7.3%
SIE    22.35  20.23   JUL  20.00  0.35  *$  0.35   7.3%
APN    10.85  10.80   JUL  10.00  0.25  *$  0.25   7.3%
CHBS   41.19  39.51   JUL  35.00  0.35  *$  0.35   7.1%
ASYT   20.35  17.40   JUL  17.50  0.35   $  0.25   6.4%
IBC    28.88  27.00   JUL  25.00  0.35  *$  0.35   6.3%
SWFT   21.50  21.17   JUL  20.00  0.55  *$  0.55   6.2%
SCIO   28.94  28.27   JUL  25.00  0.55  *$  0.55   5.8%
ATTC   31.25  31.52   JUL  30.00  0.80  *$  0.80   5.8%
SWFT   22.65  21.17   JUL  20.00  0.35  *$  0.35   5.6%
SKX    22.10  18.10   JUL  17.50  0.30  *$  0.30   5.5%
DG     18.50  18.20   JUL  17.50  0.30  *$  0.30   4.9%
YCC    26.74  24.54   JUL  25.00  0.55   $  0.09   0.8%
MOVI   20.18  16.60   JUL  17.50  0.35   $ -0.55   0.0%
EXPD   32.17  28.84   JUL  30.00  0.35   $ -0.81   0.0%

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

Comments:

This week's activity did little to help the helped the bullish
positions in our portfolio but fortunately, the majority of
plays came through the sell-off unscathed.  Of course, the
concern now is that a few negative earnings surprises from the
top-tier companies will drag the market lower, limiting any
upside potential for those who achieve favorable results.  In
fact, many analysts are saying the outlook for stocks is so
bearish that only an "apocalyptic" event will preclude the
equity markets from enduring significant downside activity in
the near future.  With that attitude in mind, we are going to
maintain a cautiously optimistic viewpoint for the strongest
issues in the portfolio and exit (or adjust) any plays that
have less than outstanding technical indications.  The current
watch-list includes almost every issue listed in the summary,
so be diligent in your position management during the coming
week.

Positions Closed: Yellow Corp. (NASDAQ:YELL), JDA Software
(NASDAQ:JDAS)



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

AMAT   18.48  AUG 15.00   ANQ TC  0.55 3042  14.45   35   10.7%
ATMI   23.54  AUG 20.00   ASQ TD  0.75 20    19.25   35    9.8%
CSCO   14.38  AUG 12.50   CYQ TV  0.50 18552 12.00   35    9.9%
DT     12.00  AUG 10.00    DT TB  0.25 174    9.75   35    7.1%
MU     23.39  AUG 17.50    MU TP  0.45 1484  17.05   35    7.6%
PDLI   10.95  AUG  7.50   PQI TU  0.20 720    7.30   35    7.3%
QCOM   28.11  AUG 20.00   AAW TD  0.40 1112  19.60   35    5.8%
RGLD   14.10  AUG 12.50   MJQ TV  0.60 27    11.90   35   11.2%
RIMM   13.82  AUG 10.00   RUL TB  0.25 420    9.75   35    7.2%

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

RGLD   14.10  AUG 12.50   MJQ TV  0.60 27    11.90   35   11.2%
AMAT   18.48  AUG 15.00   ANQ TC  0.55 3042  14.45   35   10.7%
CSCO   14.38  AUG 12.50   CYQ TV  0.50 18552 12.00   35    9.9%
ATMI   23.54  AUG 20.00   ASQ TD  0.75 20    19.25   35    9.8%
MU     23.39  AUG 17.50    MU TP  0.45 1484  17.05   35    7.6%
PDLI   10.95  AUG  7.50   PQI TU  0.20 720    7.30   35    7.3%
RIMM   13.82  AUG 10.00   RUL TB  0.25 420    9.75   35    7.2%
DT     12.00  AUG 10.00    DT TB  0.25 174    9.75   35    7.1%
QCOM   28.11  AUG 20.00   AAW TD  0.40 1112  19.60   35    5.8%


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).

*****
AMAT - Applied Materials  $18.48  *** Reader's Request! ***

Applied Materials (NASDAQ:AMAT) develops, manufactures, markets
and services semiconductor wafer fabrication equipment and other
related parts for the worldwide semiconductor industry.  Applied
Materials' customers for these products include semiconductor
wafer manufacturers and semiconductor IC manufacturers.  Applied
makes systems that perform: chemical vapor deposition, physical
vapor deposition, electroplating, etch, ion implantation, rapid
thermal processing, chemical mechanical polishing, metrology and
wafer/reticle inspection.  Applied sells most of its single-wafer,
multi-chamber systems based on four main platforms: the Centura,
the Endura, the Endura SL and the Producer.  One of our readers
asked if this would be a good candidate for selling (OTM) puts,
to own the issue for a long-term portfolio.  Despite its recent
share value losses, Applied Materials continues to dominate the
market for capital equipment used to make micro-processors and
memory chips.  From a technical viewpoint, the stock is volatile
but over the past decade, the company has posted has earnings
increases of 30 to 50% after coming off major lows percent and
the rebound from the current nadir could be even greater.  Those
who want to own the top company in the chip-equipment group can
use this position to establish a reasonable basis in the issue.

AUG 15.00 ANQ TC LB=0.55 OI=3042 CB=14.45 DE=35 TY=10.7%


*****
ATMI - Atmi Inc.  $23.54  *** AMAT Alternative! ***

ATMI Inc. (NASDAQ:ATMI) is supplier of materials, equipment and
related services used in the manufacture of semiconductor devices.
The company targets the front-end semiconductor materials market,
which includes the processes used to convert a bare silicon wafer
into a completely functional wafer that contains many copies of a
semiconductor device or chip.  ATMI's operations are organized
along two business segments: Materials, which provides a broad
range of ultra-high-purity semiconductor materials, as well as
semiconductor materials packaging and basic delivery systems, and
Technologies, which provides the sensors for the workplace and
manufacturing environment that detect materials as they travel
through the workplace, point-of-use environmental equipment that
abates materials, specialty thin film deposition services that
provide coated wafers directly to the company's many customers
and outsourced parts cleaning and semiconductor fabrication tool
maintenance.  For traders are more inclined to focus on technical
indications, ATMI offers a favorable alternative to AMAT.  The
issue has established a near-term base at $20 (our sold strike)
on heavy buying pressure and the support area offers a perfect
"early-exit" signal in the event of further downside activity.

AUG 20.00 ASQ TD LB=0.75 OI=20 CB=19.25 DE=35 TY=9.8%


*****
CSCO - Cisco Systems  $14.38  *** Networking Giant! ***

Cisco Systems (NASDAQ:CSCO) is engaged in networking for the
Internet.  Cisco Internet Protocol-based networking solutions
are installed at corporations, public institutions and telecom
companies, and are found in a growing number of medium-sized
commercial enterprises.  The company provides a broad line of
solutions for transporting data, voice and video around the
world.  Cisco solutions are designed to allow networks, both
public and private, to operate with flexibility, security, and
performance.  Cisco shares rebounded this week after Merrill
Lynch analyst Samuel Wilson upgraded the stock, citing healthier
fundamentals and attractive valuation.  Wilson commented, "Our
macro leading indicators continue to point toward a recovery in
communications equipment new orders during the second half of
2002, with revenues following shortly thereafter."  He also said
the fundamentals at Cisco are improving, and the company is
expected to show top and bottom line out-performance before
year end.  Investors who agree with that outlook can "lock-in"
a cost basis of $12 with this position.

AUG 12.50 CYQ TV LB=0.50 OI=18552 CB=12.00 DE=35 TY=9.9%


*****
DT - Deutsche Telekom AG  $12.00  *** On The Rebound? ***

Deutsche Telekom AG (NYSE:DT) is a European telecommunications
company that offers fixed-line voice telephony products and
services through more than 50 million access lines.  Through
T-Mobile, Deutsche Telekom serves approximately 31 million
mobile telephony customers in Europe.  The company is also a
provider of high-speed digital access lines with over 600,000
digital service lines and 17 million channels utilizing the
information transfer standard known as Integrated Services
Digital Network.  Deutsche Telekom provides new asymmetric
digital subscriber line services.  T-Online is an Internet
provider with approximately 8 million subscribers.  Deutsche
Telekom's subsidiaries and investments include various telecom
companies in the United Kingdom, France, Austria, Central and
Eastern Europe, the United States and Asia.  In May 2001, the
company acquired VoiceStream Wireless and Powertel.  Deutsche
Telekom recently released upbeat details of first-half results
saying that earnings before interest, taxes, depreciation and
amortization rose from the comparative 2001 period, driven by
growth at its wireless arm and stabilization at its fixed-line
unit.  The company's full earnings report is due in mid August
and traders can speculate conservatively on that announcement
with this position.

AUG 10.00 DT TB LB=0.25 OI=174 CB=9.75 DE=35 TY=7.1%


*****
MU - Micron Technology  $23.39  *** Mega Memory Maker! ***

Micron Technology (NYSE:MU) and its subsidiaries are principally
engaged in the design, development, manufacturing and marketing
of semiconductor memory products.  The company offers products
that include dynamic random access memory, synchronous dynamic
random access memory, double data rate dynamic access memory,
legacy dynamic random access memory products, static random access
memory products and Flash products.  Memory chip-maker Micron
Technology said last week it expects strong demand for personal
computers in the second half of this year, which should lead to
higher selling prices for its products.  News of a merger with
Hynix Semiconductor also resurfaced Friday and traders who think
the outlook for Micron is improving can profit from future upside
activity in the issue with this position.

AUG 17.50 MU TP LB=0.45 OI=1484 CB=17.05 DE=35 TY=7.6%


*****
PDLI - Protein Design Labs  $10.95  *** Biotech Bottom Fishing! ***

Protein Design Labs (NYSE:PDLI) is engaged in the development of
humanized monoclonal antibodies for the prevention and treatment
of disease.  The company has licensed specific rights to its
humanized antibody product, Zenapax, to Hoffmann-La Roche and
its affiliates, which markets it for the prevention of kidney
transplant rejection.  Protein Design is also testing Zenapax for
the treatment of autoimmune disease.  In addition, the company
has several other humanized antibodies in clinical development
for autoimmune and inflammatory conditions, asthma and cancer.
Protein Design Labs saw renewed buying interest in its stock last
week after some favorable product developments and this position
offers a great entry price in the issue.  Traders should target
a higher premium in the play initially, to increase the potential
return on investment.

AUG 7.50 PQI TU LB=0.20 OI=720 CB=7.30 DE=35 TY=7.3%


*****
QCOM - Qualcomm  $28.11  *** CDMA Lives On! ***

Qualcomm (NASDAQ:QCOM) is a worldwide developer and supplier of
code division multiple access (CDMA)-based integrated circuits
and system software for wireless voice and data communications
and global positioning system products.  Qualcomm offers complete
system solutions, including software and integrated circuits for
wireless handsets and infrastructure equipment.  This complete
system solution approach provides customers with their advanced
wireless technology, enhanced integration and interoperability,
as well as reduced time to market.  Qualcomm provides integrated
circuits and unique system software to many wireless handset and
infrastructure manufacturers.  South Korea's Samsung Electronics,
a major manufacturer of CDMA phones, recently said it may double
its investment in handset production in 2002, depending on market
conditions.  That would significantly boost QCOM's roll-out of
networks and phones based on the company's CDMA standard, which
offers twice the voice capacity of old networks with "always-on"
data connections more than twice as fast as traditional, dial-up
telephone modems.  Traders who wouldn't mind owning QCOM for $20
per share can speculate on the company's future growth with this
position.

AUG 20.00 AAW TD LB=0.40 OI=1112 CB=19.60 DE=35 TY=5.8%


*****
RGLD - Royal Gold  $14.10  *** A Simple Hedge Play! ***

Royal Gold (NYSE:RGD) is engaged in the acquisition and management
of precious metals royalties.  Royal acquires existing royalties
or finances projects that are in production or near production in
exchange for royalty interests.  The company, to a reduced extent,
also explores and develops properties thought to contain precious
metals and seeks to obtain royalty and other carried ownership
interests in these properties through the subsequent transfer of
operating interests to other mining companies.  Substantially all
of the company's revenues are and can be expected to be derived
from royalty interests, rather than from actual mining operations
conducted by the Company.  Royal recently completed the sale of
500,000 shares of common stock to a single institutional investor
at a price of $13.75 per share.  The proceeds from the offering
will be used to advance the company's royalty acquisition program
and allow them to maintain strong working capital.  Investors who
want a diverse portfolio can use this position to hedge against
bearish activity in the broader equity markets.

AUG 12.50 MJQ TV LB=0.60 OI=27 CB=11.90 DE=35 TY=11.2%


*****
RIMM - Research In Motion  $13.82  *** Optimistic Outlook! ***

Research In Motion Limited (NASDAQ:RIMM) is a designer, builder
and marketer of wireless solutions for the mobile communications
market.  Through the development and integration of hardware,
software and services, RIM provides solutions for seamless access
to time-sensitive information including e-mail, messaging, online
and intranet-based applications.  RIM technology also enables a
broad array of third party developers and manufacturers in North
America and around the world to enhance their many products and
services with wireless connectivity.  RIM's portfolio of products
includes the RIM Wireless Handheld product line, the BlackBerry
wireless e-mail solution, embedded radio modems and software
development tools.  Shares of Research In Motion have been "on
the rebound" since the company affirmed its prior sales outlook
for the current quarter and said it may even meet previous goals
for the full year.  RIM said that higher-margin products helped
the hand-held paging company deliver far narrower-than-expected
losses in its first quarter as revenue just topped expectations.
Traders who think the company's cautiously optimistic outlook
will translate to higher share values can profit from future
bullish activity in the issue with this position.

AUG 10.00 RUL TB LB=0.25 OI=420 CB=9.75 DE=35 TY=7.2%


*****

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

SLAB   25.55  AUG 20.00   QFJ TD  1.10 13    18.90   35   15.4%
FEIC   24.01  AUG 20.00   FQE TD  0.85 6     19.15   35   11.5%
OVER   23.77  AUG 17.50   GUO TW  0.60 4686  16.90   35    9.7%
MRVL   24.00  AUG 17.50   UVM TW  0.60 299   16.90   35    9.7%
ICST   20.21  AUG 15.00   IUY TC  0.50 0     14.50   35    9.6%
BRCM   20.39  AUG 15.00   RCQ TC  0.50 3350  14.50   35    9.5%
EXTR   10.67  AUG  7.50   EXJ TU  0.25 245    7.25   35    9.1%
NAUT   13.00  AUG 12.50   NQT TV  0.40 10    12.10   35    6.8%
GE     28.60  AUG 25.00    GE TE  0.55 7743  24.45   35    5.7%


SEE DISCLAIMER IN SECTION ONE
*****************************


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

Dow Downfall Continues!
By Ray Cummins

******************************************************************
                         - MARKET RECAP -
******************************************************************
July 12, 2002

The Dow Industrial Average plunged for the fifth straight session
Friday amid a sell-off in America's most popular hardware store,
The Home Depot (NYSE:HD).

The blue chip average slumped 117 points to 8,684, led by a slide
in Home Depot shares after Merrill Lynch slashed its rating on
the company to "neutral" on speculation that sales are sluggish
compared with rival Lowe's (NYSE:LOW).  Weakness was also seen
in Coca-Cola (NYSE:KO), SBC Communications (NYSE:SBC), Procter &
Gamble (NYSE:PG) and Boeing (NYSE:BA).  The NASDAQ ended little
changed after rallying early in the session on positive from Dell
Computer (NASDAQ:DELL) and Juniper Networks (NASDAQ:JNPR).  The
hi-tech index also benefited from select buying in hardware, chip
and networking issues.  In the broader equity markets, biotech,
gold and drug shares edged higher but selling pressure in retail,
utility, bank and defense issues pushed the S&P 500-stock index
6 points lower to 921.  Volume totaled 1.59 billion on the NYSE
and 2.01 billion on the NASDAQ.  Market breadth ended negative,
with decliners surpassing advancers 3 to 2 on the NYSE and 6 to
5 on the technology exchange.  On the fund flow front, Trim Tabs
estimated that all equity funds had outflows of $6.3 billion over
the week ended July 10 compared with outflows of $10.9 billion
during the prior week.  Equity funds that invest mainly in U.S.
stocks saw outflows of $5.9 billion, versus outflows of $10.9
billion in the prior week.  Treasury issues rallied throughout
the week with yields on the benchmark 10-year note falling to an
eight month low.  The 10-year Treasury rose 13/32 to yield 4.58%
while the 30-year government bond gained 15/32 to yield 5.34%.


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

Bed-Bath    (NSDQ:BBBY)  JUL32P/JUL35P  $0.40  credit  bull-put
Intuit      (NSDQ:INTU)  JUL40P/JUL45P  $0.50  credit  bull-put
Weatherford (NYSE:WFT)   JUL55C/JUL50C  $0.55  credit  bear-call
Centex      (NYSE:CTX)   AUG65C/AUG45P  $1.20  credit  strangle
Symantec    (NSDQ:SYMC)  AUG45C/AUG25P  $1.25  credit  strangle
Hovnanian   (NYSE:HOV)   AUG40C/AUG30P  $0.20  credit  synthetic
Total Fina  (NYSE:TOT)   AUG85C/AUG75P  $0.10  credit  synthetic

The bearish market activity early in the week played havoc with
our new bullish positions.  Favorable trends in Hovnanian, Total
Fina Elf and Bed, Bath & Beyond were abruptly reversed, leaving
little opportunity for position adjustments.  (It's amazing how
quickly and dramatically the technical outlook for a stock can
change!)  Fortunately, the "premium-selling" plays held up well
with both issues remaining in their respective trading ranges.
Of the entire selection of new candidates, only Weatherford and
Intuit traded as expected.


Market Activity:

The market's cautiously optimistic outlook turned to unrestrained
pessimism on Monday and the selling pressure continued relatively
unabated throughout the week as investors purged their portfolios
in the wake of falling share values.  Volatility soared to recent
highs and as with most financial issues, the cycle simply fed upon
itself, forcing equity prices exponentially lower as more traders
placed "sell" orders.  Some pundits suggested the bearish trends
provided ample confirmation of future downside activity while the
more optimistic analysts noted the potential for a classic "V-
shaped" bottom in the coming weeks.  From a purely technical point
of view, the outlook is slightly bullish in the near-term due to
the "oversold" conditions, however an extended time-frame reflects
the truly unfavorable state of the market.  In fact, a number of
chart formations indicate the bottom will begin to form near 860
(on the S&P 500-stock index) and that is not a very encouraging
forecast for most investors.

Our outlook is more positive than most, but it's hard to see past
the reality of single-digit prices for the hi-tech bellwethers of
recent years.  Stocks like Sun Microsystems (NASDAQ:SUNW), Oracle
(NASDAQ:ORCL), Ciena (NASDAQ:CIEN), PMC Sierra (NASDAQ:PMCS), JDS
Uniphase (NASDAQ:JDSU) and Comverse Technology (NASDAQ:CMVT) have
all fallen from grace in the wake of the bursting stock-market
bubble and there is little chance these issues will ever return to
their previous valuations.  With that type of unpredictability in
equity prices, it is very difficult for new traders to discover
how to become successful in this vicious game (before they lose
all their money).  Indeed, learning to correctly apply profitable
strategies is the key to long-term success in any type of trading
and that is the subject of today's most excellent E-mail question.

Questions & comments on spreads/combos to Contact Support
******************************************************************
                 - READER'S WRITE E-MAIL REPLIES -
******************************************************************

Attn: Spreads/Combos Editor
Subject: Option Trading Strategies

Dear Mr. Cummins,

I would like to seek your opinion on advice on my future trading.
I have seemed to try just about every type of option trading, and
due to my impatience or lack of trading skill, have watched my
large gains turn into bigger losses over the last two years.  I
would like to settle on one or two trading methods and become
proficient in them.  Because I am unable to sit in front of my
computer screen daily (because of my job), your spread and
straddle recommendations seem to fit my trading schedule and
parameters.  Though I would love to be able to receive the 100-
500% profits touted by straight call or puts, I have come to the
conclusion that I would much rather see a consistent profit flow
on a monthly basis.  So, what would you recommend for a $100,000
account?  Are there a certain number of spreads per account, or
contracts per spread that should be used for an account?  Should
I focus only on bullish or bearish strategies, or implement all
of the recommendations in your articles for a balance?

And in addition to these types of trades, are there any other
recommendations that might you have for my situation?  I know
how busy you must be, but I would appreciate any assistance you
could provide.

Thank you,

KT


Hello KT,

I admire you for undertaking the task of identifying the most
appropriate trading strategy for your situation and circumstance.
It is a difficult and time-consuming chore but one that is very
important for long term success in the options market.  Many new
traders neglect this requirement and despite any initial triumphs,
the omission is eventually reflected in the performance of their
portfolios.

Before I make any suggestions, you should understand that my
skills exist in the area of research and teaching others about
risk management and pricing theory.  I do not consider myself a
professional trader, nor do I have a desire to be one.  I have
many friends who are professionals (brokers, floor specialists
and market-makers) and it takes a special kind of individual to
live those lifestyles.  Indeed, I have found after a number of
years in the industry that I am more suited to simply providing
information (and some guidance) to other traders and managing a
low stress portfolio for personal capital appreciation.  The
strategies I use are not unlike the ones listed in the various
sections of the OIN, but I take a more conservative approach than
most.  The options market traditionally yields 3%-4% on a monthly
(annualized) basis to those who develop a sensible trading plan
and correctly apply proven trading techniques in the appropriate
conditions (and that's fine for me).  This general rule is valid
almost across-the-board with regard to the various methods used
by today's top traders and to be honest, the strategies haven't
changed much in years.  The key to success is found not in the
specific approach you take, but rather in the way you manage each
and every position in your portfolio.

As far as favored techniques, I prefer premium-selling positions
with high probability and limited risk such as OTM credit spreads
on broad indexes (OEX/SPX) and occasionally, individual issues.
I will also sometimes speculate with a synthetic position (bullish
or bearish) if the risk/reward outlook is very attractive.  It is
important to not limit your portfolio to directional trading only
and in that respect, debit straddles can be very attractive when
the implied volatility in options is near historical lows.  Also,
the strategy is easily managed without continually monitoring the
underlying issue and its option prices, thus is may be appropriate
for your situation.  When the equity markets resume their positive
trends, I will transition to bullish diagonal and calendar spreads
(and covered-calls on LEAPS) as well as selling cash-secured puts
on portfolio-quality issues.

Regarding money management, the old adage "never put all your eggs
in one basket" holds true in the financial markets and professional
players generally limit their portfolio exposure to 10-15% on any
one position.  That ratio is appropriate for most combination and
spread techniques and diversity is a very important component of
success for any type of trading.  As far as the candidates in the
OIN, I strongly recommend that you do NOT "implement all of the
recommendations" that are offered.  As stated in the disclaimer:

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.

Another thing to remember is the Spreads/Combos section content
is directed in large part by the OIN's readers and the favorite
strategies (regardless of the market condition/character) among
subscribers continue to be: OTM credit-spreads, debit straddles,
bullish calendar spreads (especially CCs w/LEAPS) and synthetic
positions.  The point is, there are many situations when a play
is offered because the readership favors that technique, even if
it is not the most theoretically correct approach for the current
market conditions.

I hope that helps you narrow the search for favorable strategies
and when you find something that works, let me know so I can share
your success with other traders who use the OIN to improve their
skills and increase their profits in the options market!

Good Luck!

Ray

******************************************************************
                      - Speculation Plays -

These positions are based on recent increased activity in the
stock and/or its underlying options.  All of these plays offer
favorable risk-reward potential but they should be evaluated for
portfolio suitability and reviewed with regard to your strategic
approach and trading style.
  
******************************************************************
CIEN - Ciena  $5.56  *** Networking Recovery! ***

Ciena Corporation (NASDAQ:CIEN) is engaged in the intelligent
optical networking equipment market.  Ciena offers a portfolio
of products for communications service providers worldwide.  The
company's customers include long-distance carriers, competitive
and incumbent local exchange carriers (CLECs), Internet service
providers, wireless and wholesale carriers.  Ciena makes optical
transport and intelligent optical switching systems that enable
service providers to provision, manage and deliver high-bandwidth
services to their customers.  The company has pursued a strategy
to develop and leverage the power of disruptive technologies to
change the fundamental economics of building carrier-class tele-
and data-communications networks, thereby providing its customers
with a competitive advantage.  The company's intelligent optical
networking products are designed to enable carriers to deliver
any time, any size, any priority bandwidth to their customers.

Ciena is one of the past darlings of the networking segment and
it was a very popular stock during the rise of the NASDAQ.  In
more recent times, the issue has suffered along with every other
hi-tech stock from the massive sell-off that decisively erased
the market capitalization of virtually every technology company.
Now the issue resides in the single-digits but analysts say the
company has bullish potential after announcing a reorganization
to speed product development and slash costs in a weak telecom
environment where customer spending has been severely reduced.
Ciena has combined its four product development organizations
into two teams to meld the various network elements into fewer,
multi-function products and the move should help the company
embark on a long-term recovery in the coming months.  Traders
who agree with a positive outlook for CIEN's share value can
speculate on that outcome with this combination play.

Note: This play utilizes Jim Brown's (OIN Founder/Chief Editor)
popular technique of writing "in-the-money" Puts to profit from
future upward movement in the underlying issue.  A near-term Put
is also purchased to limit downside risk in the position if the
recovery does not begin in the next few months.

More information on this unique strategy can be found at:

http://members.OptionInvestor.com/editorplays/042201_1.asp

PLAY (speculative - bullish/short-put combination):

SELL PUT  JAN04-15.00  LGE-MC  OI=1529   B=$9.80
BUY  PUT  OCT02-5.00   EUQ-VA  OI=1384   A=$0.90
INITIAL NET CREDIT TARGET=$8.90-$9.00 TARGET PROFIT=$2.00-???

Note:  There is a collateral requirement for the sold (short)
Put, whether it is partially covered in the initial spread or
exists "naked" when the long option expires.  Please review
the terms of the collateral requirements with your broker.


******************************************************************
SEPR - Sepracor  $8.84  *** Same Strategy - Different Stock! ***

Sepracor (NASDAQ:SEPR) is a research-based pharmaceutical company
dedicated to treating and preventing human disease through the
discovery, development and commercialization of pharmaceutical
compounds, including product candidates directed toward serving
unmet medical needs.  The company's proprietary compounds are
either single-isomer or active metabolite forms of existing drugs,
which the company refers to as improved chemical entities, or new
chemical entity compounds, which are unrelated to any currently
marketed products.

Stocks in the generic drug group have been plagued by concerns
over increased competition in the industry and the downward
momentum in Sepracor shares, which began when the FDA denied
approval for Soltara, the company's anti-allergy drug, has only
recently come to an end.  While there is no reason to anticipate
higher prices in the near-term, Gary B. Smith of Thestreet.com
says: "The longer we move sideways, the better chance we have of
moving up, not down."  That seems to be the case with Sepracor
and traders who believe the upside potential outweighs the risk
of downward movement can speculate on the stock's future activity
with this position.
 
PLAY (speculative - bullish/short-put combination):

SELL PUT  JAN04-15.00  LGD-MC  OI=2262   B=$7.60
BUY  PUT  OCT02-7.50   ERQ-VU  OI=300    A=$1.10
INITIAL NET CREDIT TARGET=$6.70-$6.75 TARGET PROFIT=$1.50-???

Note:  There is a collateral requirement for the sold (short)
Put, whether it is partially covered in the initial spread or
exists "naked" when the long option expires.  Please review
the terms of the collateral requirements with your broker.


******************************************************************
PDLI - Protein Design Labs  $10.95  *** Bottom Fishing! ***

Protein Design Labs (NYSE:PDLI) is engaged in the development of
humanized monoclonal antibodies for the prevention and treatment
of disease.  The company has licensed specific rights to its
humanized antibody product, Zenapax, to Hoffmann-La Roche and
its affiliates, which markets it for the prevention of kidney
transplant rejection.  Protein Design labs is also testing the
drug Zenapax for the treatment of autoimmune disease and the
company has several other humanized antibodies in development
for autoimmune and inflammatory conditions, asthma and cancer.

Protein Design Labs enjoyed buying interest in its stock last
week after some favorable product developments.  A European
biotech company focused on cancer immunotherapies, Igeneon AG,
has licensed from PDL a humanized monoclonal antibody under an
option agreement signed by the companies in 2000.  Igeneon will
receive exclusive worldwide rights to develop and market the
antibody while PDL will receive an upfront fee, plus milestone
payments and royalties on any product sales generated by the
antibody.  PDL also recently began a Phase I clinical trial to
evaluate the safety and tolerability of its humanized antibody
Nuvion in patients with ulcerative colitis.  PDL said the Phase
I, dose-escalation pilot study of Nuvion will be conducted in
patients whose ulcerative colitis has not responded to steroid
therapy.  The company believes that a unique antibody such as
visilizumab, which induces apoptosis or programmed cell death
of activated T cells, could provide therapeutic benefit in
ulcerative colitis because it has previously shown evidence of
activity in early stage trials in graft-versus-host disease and
kidney transplantation, in which steroids also are a concomitant
therapy.

Traders who think PDLI is in the early stages of a recovery can
attempt to profit from future upside movement in the issue with
this position.

PLAY (speculative - bullish/synthetic position):

BUY  CALL  AUG-12.50  PQI-HV  OI=965  A=$0.80
SELL PUT   AUG-10.00  PQI-TB  OI=980  B=$0.85
INITIAL NET CREDIT TARGET=$0.15-$0.25  TARGET PROFIT=$0.75-$1.00

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $430 per contract.


******************************************************************
NXTL - Nextel Communications  $4.40  *** Cheap Speculation! ***

Nextel Communications (NASDAQ:NXTL) provides digital, mobile
communications across the United States by offering integrated
wireless services under the Nextel brand name, primarily to
business users.  The company's digital network constitutes an
integrated wireless communications system utilizing a single
transmission technology: integrated Digital Enhanced Network
technology, which was developed by Motorola.  Customers are able
to access digital mobile telephone services, such as speakerphone,
conference calling, voice mail, call forwarding and additional
line service; Nextel Direct Connect service, which allows any
subscribers in the same local calling area to contact each other
instantly on a private "one-to-one" call or on a group call;
Internet services, mobile messaging services, e-mail and advanced
Java-enabled business applications, marketed as Nextel Wireless
Web services, and international roaming capabilities, marketed as
Nextel Worldwide.

Nextel shares soared last week amid rumors of consolidation among
the nation's major wireless carriers and reports of an impending
buy-out circulated after the Wall Street Journal said VoiceStream
is holding preliminary merger discussions with AT&T Wireless.  The
deal would involve VoiceStream's parent Deutsche Telekom acquiring
AT&T Wireless for an estimated $10 billion, creating the country's
second-largest provider with 26 million subscribers.  While most 
analysts say the marriage is unlikely, other company pairs might
be more viable and traders are placing their bets on the potential
partners.  Speculation surrounding Nextel's upcoming earnings is
also fueling option interest and the disparity in near-term call
premiums, along with the healthy overhead supply near our sold
strike price, make this position viable for those who participate
in time-selling strategies.
 
PLAY (speculative - bullish/calendar spread):

BUY  CALL  JAN-5  FQC-AQ  OI=6790  A=$1.45
SELL CALL  AUG-5  FQC-HQ  OI=6416  B=$0.55
INITIAL NET DEBIT TARGET=$0.75-$0.85  TARGET PROFIT=25%-50%


******************************************************************
                        - CREDIT SPREADS -
******************************************************************
HDI - Harley-Davidson  $48.94  *** Technicals Only! ***

Harley-Davidson (NYSE:HDI) is primarily a motorcycle manufacturer
and marketer.  The company operates in two principal business
segments: Motorcycles and Related Products, which designs,
manufactures and sells primarily heavyweight touring, custom and
performance motorcycles, as well as a range of motorcycle parts,
accessories and general merchandise, and Financial Services,
which, through the company's main subsidiary, Harley-Davidson
Financial Services, is engaged in the business of financing and
servicing wholesale inventory receivables and consumer retail
installment sales contracts, primarily motorcycles and various
non-commercial aircraft.  The Motorcycles segment includes the
group of companies doing business as the Harley-Davidson Motor
Company, subsidiaries of H-D Michigan, and Buell Motorcycle
Company.  HDFS is an agency for certain unaffiliated insurance
carriers providing property/casualty insurance and extended
service contracts to motorcycle owners.  The company's quarterly
earnings are due on July 16.

This position was discovered with one of our primary scan/sort
techniques; identifying potentially failed rallies on issues
with bullish options activity.  In this case, the premiums for
the (OTM) call options are slightly inflated 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 credit spread.

PLAY (conservative - bearish/credit spread):

BUY  CALL  AUG-60  HDI-HL  OI=3821  A=$0.20
SELL CALL  AUG-55  HDI-HK  OI=3271  B=$0.75
INITIAL NET CREDIT TARGET=$0.60-$0.65  PROFIT(max)=14%


******************************************************************
                   - EXPIRATION WEEK STRADDLES -

One of our readers asked for some speculative straddles in the
technology group and despite the recent market volatility, there
are a few good candidates for neutral, option-buying strategies.
Here are some possible straddles, based on analysis of historical
option pricing and technical background.  Recent news and market
sentiment will have an effect on the issue so review each play
thoroughly and make your own decision about its future outcome.

******************************************************************
AAPL - Apple Computer  $17.50  *** Earnings Play! ***

Apple Computer (NASDAQ:AAPL) designs, manufactures and markets
personal computers and related personal computing systems and
communicating solutions for sale mainly to education, creative,
consumer and business customers.  Substantially all of Apple's
net sales over the last five years have been derived from the
sale of its Apple Macintosh line of personal computers and
related software and peripherals.  The company offers a range
of personal computing products including desktop and notebook
personal computers, related devices and peripherals, networking
and connectivity products, and various third-party hardware
products.  All of the Company's Macintosh products utilize
PowerPC RISC-based microprocessors.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  JUL-17.50  AAQ-GS  OI=4931   A=$0.80
BUY  PUT   JUL-17.50  AAQ-SS  OI=52478  A=$0.95
INITIAL NET DEBIT TARGET=$1.60-$1.65  TARGET PROFIT=15-25%


******************************************************************
GENZ - Genzyme General  $17.75  *** Active Biotech Issue! ***

Genzyme General Division (NASDAQ:GENZ) is a division of Genzyme
Corporation, a biotechnology and human healthcare company that
develops products and provides services for unmet medical needs.
Genzyme General develops and markets therapeutic products and
diagnostic products and services with an emphasis on genetic
disorders and other chronic debilitating diseases with defined
patient populations.  The company is organized into two segments,
Therapeutics, which focuses on developing and marketing products
for genetic diseases and other chronic debilitating diseases,
including a unique family of diseases known as lysosomal storage
disorders, and specialty therapeutics, and Diagnostic Products,
which develops, markets and distributes in vitro diagnostic
products.  The company also operates a wholly owned subsidiary,
GelTex Pharmaceuticals, Inc., which Genzyme General acquired in
December 2000.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  JUL-17.50  GZQ-GW  OI=1174  A=$1.30
BUY  PUT   JUL-17.50  GZQ-SW  OI=3697  A=$1.00
INITIAL NET DEBIT TARGET=$2.15-2.20  TARGET PROFIT=15-25%


******************************************************************
INTC - Intel Corporation  $17.99  *** Earnings Play! ***

Intel Corporation (NASDAQ:INTC) is semiconductor chip maker that
supplies the computing and communications industries with chips,
boards, systems and software building blocks that are integral
to computers, servers and networking and communications products.
The company offers products at various levels of integration,
allowing customers to create advanced computing and communications
systems.  Intel's main products include microprocessors, chipsets,
boards, networking and communications products, such as Ethernet
network interface cards and network processors, embedded control
chips and flash memory used in cellular handsets and handheld
computing devices, as well as cellular baseband chipsets.  The
company is organized into four operating segments: the Intel
Architecture business, consisting of the Desktop Platforms Group,
the Mobile Platforms Group and the Enterprise Platforms Group;
the Intel Communications Group; the Wireless Communications and
Computing Group, and the New Business Group.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  JUL-17.50  NQ-GW  OI=27592  A=$1.20
BUY  PUT   JUL-17.50  NQ-SW  OI=25371  A=$0.75
INITIAL NET DEBIT TARGET=$1.75-$1.85  TARGET PROFIT=15-25%


******************************************************************
LLY - Eli Lilly  $50.26  *** Drug Sector Volatility! ***

Eli Lilly & Company (NYSDE:LLY) discovers, develops, makes and
sells pharmaceutical products.  Eli Lilly offers neuroscience
products, endocrine products, anti-infectives, oncology products,
animal health products and cardiovascular agents.  Lilly makes
and distributes its products through owned or leased facilities
in the United States, Puerto Rico and 26 other countries.  The
company's products are sold in approximately 160 countries.  Eli
Lilly directs its research efforts primarily toward the search
for products to diagnose, prevent and treat human diseases.  The
company also conducts research to find products to treat diseases
in animals, and to increase the efficiency of food production
for animals.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  LLY-GJ  JUL-50  OI=1543  A=$1.85
BUY  PUT   LLY-SJ  JUL-50  OI=210   A=$1.60
INITIAL NET DEBIT TARGET=$3.25-$3.35  TARGET PROFIT=15-25%


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


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************
MARKET WATCH
************

Several plays were triggered last week, and led to good trades.  
Will next week bring with it more good fortune?


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/071402.asp


**************
MARKET POSTURE
**************

Following the action mid week, Market Posture was quiet Friday.  
What awaits next week?


To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/071402.asp


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**********

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