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Daily Newsletter, Sunday, 08/11/2002

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The Option Investor Newsletter                   Sunday 08-11-2002
Copyright 2002, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.


Entire newsletter best viewed in COURIER 10 font for alignment

In Section One:

Wrap: Trend Change?
Index Trader Wrap: WHAT A WEEK!
Editor’s Plays: Back to Stock Picking
Market Sentiment: Not Just Yet
Ask the Analyst: Another (small) Way to Play the Rate Game
Coming Events: Earnings, Splits and Economic Reports


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        WE 8-09          WE 8-02          WE 7-26          WE 7-19 
DOW     8745.45 +432.32  8313.13 + 48.74  8264.39 +245.13  -665.27 
Nasdaq  1306.12 + 58.20  1247.92 - 14.20  1262.12 - 57.03  - 54.35 
S&P-100  458.82 + 24.77   434.05 +  7.12   426.93 +  3.83  - 35.81 
S&P-500  908.64 + 44.40   864.24 + 11.40   852.84 +  5.09  - 73.64 
W5000   8571.87 +385.31  8186.56 + 94.93  8091.63 +  8.63  -628.50 
RUT      388.45 + 12.00   376.45 -  5.81   382.26 -  3.94  - 27.08 
TRAN    2351.65 +149.62  2202.03 - 52.76  2254.79 - 77.39  -147.96 
VIX       39.36 -  6.03    45.39 +  4.95    40.44 -  3.01  +  5.12 
VXN       58.70 -  6.74    65.44 -  3.58    69.02 +  7.85  -  4.83 
TRIN       0.90             1.47             1.21             1.44 
Put/Call   0.69             0.93             0.70             1.14 
*****************************************************************

Trend Change?  
by Jim Brown

The Dow made it three in a row. Three weeks of positive gains 
for +725 points. Sounds very bullish if you don't count the 
-930, +1070, -730 and +765 swings on the way to those gains. 
The Nasdaq has not fared so well but posted its first positive 
week in the last five. However, any good news is still good
news. The bulls have their hopes up and those hopes are based
on the Fed cutting rates and the concept that the bottom is 
behind us. Three positive weeks are a nice improvement but did
the trend really change?

Leading the economic hit parade on Friday was the Productivity
Report. The productivity growth came in at +1.1% and surprised
analysts who were expecting only +0.6% growth. While the number
may have surprised analysts expecting the worst it was still
significantly down from the +8.6% growth in the first quarter.
Obviously you can see the dramatic rate of drop but this was 
still bullish for the economy. Productivity soared in the 
manufacturing industry with a +4.9% gain with output up +4.1%
while hours worked dropped by -0.8%. This is exactly what the
Fed will be looking at to gauge the need for another rate cut. 
According to the productivity report the economy is doing fine, 
slow but fine. 

The ECRI Weekly Leading Indicator posted a small gain at 121.7
compared to 120.0 last week. This was the first gain after three
weeks of losses but the six month projected economic growth rate
fell to 2.6% from 3.3% last week. This indicator was projecting 
a 6.0% growth rate as recently as July-12th. This is the slowest
growth projection since March. The slight blip in the headline 
number was due to the gains in the S&P and drop in the Jobless 
claims. 

Stocks continued to be the highlight with Emulex getting a -32%
haircut to $15.36 after warning that their full year sales would
fall below analyst's estimates. This took the entire sector for
a ride to lower ranges. New comments from Banc America about the
chip sector stopped the SOX rebound off five year lows dead in
its tracks. They said it was too early to pick a bottom in chips
as demand was still falling creating much more excess capacity. 
Intel lost ground on rumors they were going to cut capital 
expenditure spending and outsource more manufacturing when a
recovery appears. While this makes business sense it caused a
drag on chips due to demand implications. Ironically, 
coincidentally or on purpose, Intel did not update or provide
guidance for capex spending on their July 16th conference call.
BAC thought Intel could announce capex of only $4 billion, down
from estimates of $5-$5.3 billion.

The common thread among most of the analysts is that 2003 sales
estimates are too high and actual growth could be flat to low 
single digits in 2003. This is substantially below the current
expectations. In Barrons this weekend their headline story 
recommends selling Intel and Applied Materials due to excessive
valuations and falling sales and budgets. Intel and AMD both
gave indications that the typical back to school buying season
was not seeing a surge in orders. There is a strong sense of
urgency to make something happen quickly and slashing prices
soon is expected. Hewlett-Packard-Compaq is said to have a 
backlog of chips exceeding a six week supply when normal is
only two weeks. Bottom line, computers are not selling and this
will be evident in the coming earnings. 

Financials have been making decent gains even when more bad 
news hit the wires about Citigroup and Merrill. Investigators
are now hot on the trail of possible IPO favoritism for clients. 
House Committee Chairman Oxley said he was going to subpoena
documents from Citigroup about shares of IPOs that were bought
and sold by WCOM executives. They want to know if Jack Grubman
traded favors with WCOM execs in exchange for hiring SSB to
provide investment banking services. Originally Citigroup 
refused to turn over the documents claiming privacy protection.
With a subpoena they will be forced to disclose the records.
According to Citigroup they had identified 800 accounts which
would fall into the category under question. The committee has
requested info on about 170 companies Citigroup handled and 
Citigroup said the numbers of accounts could run into the tens
of thousands. 

On Friday stocks were up, bonds were up and gold was up. What's 
up? We were in the twilight zone of indecision. Gold bugs are
still seeing inflation, war, financial collapse behind every
bush. Bond buyers are betting on interest rates falling again 
before year end with possibly a strong Fed cut. Stock buyers 
are convinced the bottom is behind them and Alan won't let them
down. Even oil was up Friday. It appears the indecision is
complete. Everyone is convinced their scenario is the right one
and are voting with their cash.

I will be brief on the Fed story since you are probably numb 
to it already. The WSJ and Washington Post both had headline 
stories that rejected the concept of a rate cut. Both have been
known to be a pipeline to the Fed and one way the Fed can 
telegraph intentions ahead of meetings to avoid announcement
shock. I was going to mention the lack of any indications from
the Fed in my wrap on Thursday but overlooked the notes. Normally
the Fed will telegraph for several weeks in advance their intentions
to make a change. They do this with carefully worded references
in speeches and carefully placed articles. There had been no
telegraphing of any intent to cut rates. Poole said last Sunday 
that the economy was on track and recovering on schedule and the
odds of it falling back into a double dip recession were "very, 
very small". "Markets are going through a period of fundamental
adjustment that is not related to monetary policy and not something
monetary policy can fix." This was a clear effort to squash rumors.
The Fed watches many things but most key to the overall economy
are auto sales, housing and jobless claims. All are doing well
and showing no signs of implosion. Shrinking margins in auto
sales will slow profits for car companies but every industry that
feeds off autos will do well. Bottom line, no rate cut in my
opinion.

Despite the fact that I went short in the market monitor at the
close on Friday I actually think the bottom may be closer than
I recently thought. I would not now be surprised if the lows
were not behind us. What heresy is this? The market is a living
organism with millions of cells. Quite a few of those cells have
decided to call it a bottom and buy stocks. Not in volume but
they are still buying. These are long-term buyers not traders.
They are looking at the market 2-5 years from now and saying 
these are levels today I can live with despite the possibility
of another dip. I personally don't feel the economy is recovering 
yet based on my PC comments above but I don't think it will be 
much worse. The 9/11 anniversary problem is something we cannot 
avoid but after that I think the consumer will start spending 
again. Sorry, I strayed.

The market has put in what I have been hearing as a parabolic
bottom. It is simply another term for "it went down for a long
time, bounced twice and is taking off again". Not very scientific
but you get the picture.

Chart of the Dow




I would be glad to buy it as long as everybody else did also. My
challenge with this is the PC correction in progress, the August
14th certifications, the 9/11 slowdown and the fact that the last 
four days of rally was solely on the prospects of the Fed rate cut.
I could easily agree that manufacturing has run its course. I could
agree that low interest rates with another Fed cut in Sept. will 
spark another wave of refinancing with much of the equity money being 
poured into the consumer market and even the stock market. I just
see some major potholes in the immediate future and wonder how the
market will deal with them.

Maybe, the August certifications are going to be a nonevent. With 
only three days to go there are 584 companies that have not filed
the certification. While it would amaze me if there were not going
to be some skeletons appear it also amazes me that WCOM could hide
$8 billion. So, maybe there are no big guys left to confess and
the WCOM, GLBX, Q, ENE scams are the only shell games in action. 
I just find it hard to believe. I also find it hard to believe
the economy is not going to seriously suffer over the next 30 days
with consumers afraid to venture outside their block until after
9/11. Maybe the numerous patriotic efforts to overcome that concern
will make it a nonevent also. I find it hard to believe that Brazil
is over. The two most market friendly candidates in their October
elections sank in the polls this week and candidate Lula of the 
leftist Workers Party is leading with 33% of the vote. The Brazilian
market dropped -330 points Friday on fears that Lula would win and
he would adopt unorthodox policies and default on the existing
$350 billion in debt. The second place candidate is critical of 
the IMF and would likely not commit to the deals of the IMF loan
and institute capital controls if elected, which would doom the
country. Sounds exciting and I doubt we have heard the last of
Brazil.

While I would like to believe the market is looking forward to 
climbing this wall of worry there is another way to look at the
Dow chart. 

Dow Chart 2




As in any chart pattern the analysis is in the eye of the beholder.
If you look at any symbol/index long enough you can likely find 
a timeframe and setup that fits your interpretation of the market. 
I will leave it up to the readers to decide it this glass is half
full or half empty. 

Dow Chart 3




Anyone watching the market intently on Thursday and Friday 
afternoon saw some serious resistance battles taking place.
Dow 8750 as you can see above, OEX 459 and SPX 911 proved
too strong for several repeated attempts to break. We have
to give the bulls credit, they tried really hard. Unfortunately
the bears just kept selling into the rally and try as they
might the bulls just could not breakout. It may have just
been lack of volume on the buy side on a Friday afternoon.
Just as interesting was the lack of aggressive selling by
the bears. They kept the lid on but they did not press the
advantage and try to go for the kill. They were content to
hold the line. To me this means the bears have lost conviction.
They look at the chart above and see a possible breakout 
ahead on a surprise move by the Fed and they don't want to
get caught holding big short positions. 

This sets up for an interesting week. With the market dead 
on strong resistance we have a Fed meeting on Tuesday along
with Retail Sales. Corporate certifications on Wednesday and
Industrial Production, Philly Fed and June FOMC minutes on
Thursday. Friday is the killer with the Consumer Sentiment
again, Housing starts and the CPI. Ironically, Monday, the
day most analysts expect accounting problems to appear if
there are any, has no major reports. To top it all off this 
is options expiration week. Are we having fun yet?

I can't tell you which way the market is going to go but as
a betting man I am betting against the Fed cutting rates
and that there is at least one more corporate confessor in
the wings. The good news is that the market has been ignoring
bad news. We sure had a busy week for negative events but
the Dow gained +432 points. This represents a real trend 
change but that trend has hit a wall. Whether it is a brick
wall or wall of worry remains to be seen. This week will be
the key. 

For a list of the 534 companies that have to certify their 
financials by Wednesday click here:

http://www.OptionInvestor.com/CEO_Certification.asp


The winning entry on the Guess the Dow contest was 8745.85. 
They missed it by .40 cents. I do not have a name but the 
email address was tlent3192@..... Don't hesitate to click 
below and enter the contest for next week.

Click here: http://www.OptionInvestor.com/game/dowtarget.asp

The prize is a $150 dual monitor video card and very handy for 
setting up your trading system across two monitors on one PC. This 
is the last week and your last chance to win. The average guess
was 8237.20 and over 500 points below the Dow's close. Obviously
there was a lot of negative sentiment going into this week. 

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


Was this commentary helpful to you?
comments@OptionInvestor.com

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


WHAT A WEEK!
By Leigh Stevens

TRADING ACTIVITY AND OUTLOOK - 
The market was up 5% this week in terms of the Dow Industrials 
and up almost as much (4.7%) in the Nasdaq Composite.  Given that 
we may be going back to a more "normal" historic return in the 
market averages of 10-12% per annum, this kind of weekly move is 
impressive! 

Key influences this past week have been the dollar rebounding - 
and, I see this continuing on balance, given the bearish top 
pattern on the Euro charts - AND the relief that half of South 
America's economy was not going to go down the drain, if Brazil 
were to have followed Argentina into similar economic and 
political turmoil (or the Argentines might say, economic hell). 

The Bush administration to its credit talked tough but acted in 
what I think is our definite economic self-interest - the 
administration did not withhold help, which is what their prior 
rhetoric suggested they wanted to do which is why the banking 
sector has been in free fall. 

The main short-term stock market effect was to arrest and sharply 
turn around the falling stock prices for our biggest banks, which 
have huge loan (and loan default) exposure in Brazil. And it is 
well known truism that the market doesn't do well when the 
financial sector is being dragged lower.  Rallies led by the 
financial sector are perceived to have more solid prospects of 
continuing to go higher.  

By the way, the reason we could have stopped IMF action is that 
we can veto IMF bailouts.  We're the only International Monetary 
Fund member that has this kind of veto power.  

If you are a CNBC watcher you may have felt that kind of 
background is never very well explained. Well, change may be 
coming - the relatively new general manager has been wanting to 
move more toward providing more background stories of this type 
and move away from the financial day as "sporting event" and 
breathless reports on every up and down market move.  

Bruno Cohen, who I've spent time with, resigned this past week as 
CNBC general manager - Bruno is an old news hound. Out with old 
and in with the new!  We'll see what the station looks like a 
year from now. Stay tuned. Change does seem needed - I'm ready! 

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




The OEX has broken out above resistance in the 440 area in a 
decisive manner and in terms of what I am seeing on the daily 
chart, could move up toward the 480 next, although the overbought 
near-term condition its in is acting against that.  So, does a 
correction develop first?  The market we've been in for weeks, 
would say yes.  The question is also do they squeeze the shorts 
up into the expiration next week?  If so, we may see 480 before 
we see 440 again.  

If a correction occurs first, which would be the more "normal" 
unfolding of a trend like this, then calls are suggested if 440 
develops as support.  420 was the last swing low and a retest of 
this level can't be ruled out either.  We need to see what Monday 
brings to better see what comes next, especially with the weekend 
possibility that we get some unsettling news or the dollar sells 
down. 

S&P 500 Index (SPX) - Hourly chart:




There is a "line" of resistance in the 912 area currently - the 
overbought condition near term may be telling us why the up trend 
has slowed and sideways action seen. 

The emerging uptrend channel basis the hourly chart intersects at 
883 currently. If a decline takes SPX below this trendline, then 
the key technical will be whether the S&P 500 makes a new low 
that is at or above 855. If 855 is pierced, we are back to 
viewing SPX as forming a bottom as this would break the recent 
uptrend pattern of higher (down) swing lows. 

I'm cautious while this situation I describe resolves itself and 
until the hourly stochastic is not showing the extreme it is 
registering currently.  Put purchases are suggested if the rally 
extends itself here and the index gets up to 932-935.  

DJ Industrial Index (1/100 of INDU) - $DJX - Daily/Hourly charts: 




After a run like this, encountering resistance at a "line" of 
prior highs in the 87.60 area is not surprising - especially 
since the index is overbought on at least a short-term basis. The 
longer that a resistance is not broken of course, the more it can 
"cap" a rally and act as a reversal point. 

However, the consolidation in this area looks like that - a 
consolidation - and, so far, not a top formation in terms of 
price action. 

Bearish Price/Stochastic divergence is setting up however on the 
hourly Dow - minor up trendline is broken on a move below 87.0; 
Support is at 85.75, then in the 85-84.75 area, at the low end of 
the emerging uptrend channel. 

In the short-term, my guess is that a move to the 89 area is the 
best upside potential for the current move, before some 
corrective action sets in.  90 (9000 in the Dow) is another area 
talked about as a resistance.  

Assuming the correction comes first, purchases are suggested in 
the 85 area, especially if the accompanied by an oversold reading 
in the longer stochastic model.   

DJ Industrial Index (INDU) - Weekly chart:



 
The weekly chart presents a quite bullish picture and this past 
week's close has achieved an upside penetration of the internal 
down trendline relative to the late-May price peak. An "internal" 
trendline connects the greatest number of highs (or lows) and so 
may "cut through" one of more extremes - one weekly high in this 
case.  

Note the position of the weekly stochastic oscillator as it just 
in the beginning stages of an uptrend.  This helps keep in 
perspective the "overbought" extreme showing on the short-term 
hourly stochastic and the approaching extreme on the daily model.  

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




The Nasdaq 100 in terms of the QQQ tracking stock has been 
struggling to break out above the top of its hourly downtrend 
channel.  Resistance is apparent at recent highs in the 23.60-
23.70 area. Support is 22.60-22.80; more major support is in the 
22 area. I suggest buying pullbacks into 22-22.60 support.   

A next rally must exceed 24.70 to reverse the downtrend.  Given 
the bullish potential apparent in key Nasdaq stock charts, I 
think this is just a matter of time rather than if (it'll occur). 

The Nasdaq 100 Index itself (NDX) must exceed 992 (wkly close: 
937), and the Composite, 1354 (wkly close: 1306), to exceed the 
prior price peaks.  On NDX, resistance between the week's close 
and the prior highs is around 960 in NDX, and 1330 in COMP 
however.   
 

Leigh Stevens
Chief Market Strategist
lstevens@OptionInvestor.com   


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



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

Back to Stock Picking

After three weeks of complicated index plays let's go back to 
some simple directional plays on stocks. These three are all 
news events or story stocks.


ASH - Ashland Inc.

Ashland filed forms with the SEC on Thursday claiming it had 
155,000 continuing asbestos claims from a subsidiary it sold 
in 1990. The number so shocked the street that the stock 
dropped from $36 to $28 and knocked -$420 million off its 
market cap. The company held a conference call on Friday and
updated investors on the progress of the problem. 

Of the 95,000 claims already resolved more than half were
settled without payment. Of the 47,000 resolved over the last
nine months 68% were dismissed without payment and the remaining
resulted in an average payment of $1,014. 

Using the average of the settled claims the company estimated
the cost of settling the remaining claims at a discounted,
tax adjusted $11 million. The company also revealed that 
insurance would cover all the estimated $6 million in 
settlements for 2002. Where's the beef?

They have paid $71 million over the last four years to settle
claims and defend themselves. With only $11 million in claims
remaining and most awards covered by insurance the sell off
appears too much, too late. 

Ashland has about $300 million in short term debt, all of which
it expects to pay off in the next twelve months. It has a $425
million line of credit that has nothing drawn against it. They 
have been aggressively pursuing a share buyback program and have
bought back 10 million shares in the past four years and 3.6 
million in the last three quarters. They have 65 million shares
outstanding. Their revenue for the nine months ended June-30th
was $5.5 billion. They are best known for their Valvoline Motor
Oil product. It is trading at a PE of 10 based on 2003 earnings 
estimates. You have to go back to July 1993 to see it trade at
$28 again.

The question: Does $11 million in claims covered by insurance
warrant an $8 drop in the stock? 

I think this is an excellent opportunity for a dead cat bounce
play. Unfortunately so do the market makers because the calls
are expensive.

Chart of Ashland




There are four ways to play.

Buy the Sept-$30 call, at the money, for $2.50. You only have 
six weeks for the stock to pass breakeven at $32.50 but a
rebound back to $35 would produce a double.

Buy the Jan-$35 call, out of the money, for $2.10. You have
five months for it to recover to $37.10 and your breakeven
point. Of course any quick move between now and then could
spike the volatility of the option and produce a profit well
before January.

Sell the Jan-$40 put, deep in the money, for $10.40. You are
profitable at anything over $30.08 and get $1 profit for every
$1 move. The risk is that you can be put the stock anytime
between now and January. Once the stock moves up slightly, even
$1, that risk diminishes. Set a stop at $29 and you limit your
risk to any further drop in the stock.

Buy the stock at $30 and write the Jan-$35 covered call for 
$1.30. If the stock is over $35 by January you receive $6.30
for your efforts and a 21% profit. 

New symbols for the $25 calls and puts were added on the drop
but there are no quoted prices yet.

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

TSM - Taiwan Semiconductor

TSM warned recently that they were reducing capex spending for
2002 to $2 billion and had a weaker sales outlook. They are the 
biggest contract manufacturer in the world. The shares took
another hit on Monday when Tokyo Electron, the second largest,
issued the same type of warning. 

Still analysts are united that when the recovery appears TSM
will be in the right place at the right time. There was a rumor
on Friday that Intel was about to announce it was going to 
outsource manufacturing to TSM to reduce plant costs. This is
the trend as plants cost more money and there is not enough
capacity to fill them. 

Barrons, in their headline story this weekend, is recommending
buying TSM as one of the top ten tech stocks and right behind
CSCO and MSFT. Pretty good company!

Chart of TSM


  

TSM does not have leaps but it does have a lot of option
strikes because it is cheap. 

I really believe in this one but the only unknown is the
time frame. If the PC correction drags out another quarter
it could be mid 2003 before TSM reaches its former glory in 
the $18-$20 range. 

I would buy the Jan-2003 $10 call now for $1.45. A couple weeks
after the next series of month/strikes comes out, I would take
my profit in this position and roll out to the farthest strike
I could buy on TSM.

I can see this being $20 again early next year. (Just my opinion)

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

Covered call = 24% return?

Invision Technologies

The company has one of the better charts for the last six 
months. This is reflected in the call premiums.

Buying the stock for $28.30 on Monday and writing the Jan
$30 covered call for $5.10 represents an opportunity to
receive $6.80 in premium and stock appreciation for a $28
investment. That represents a 24% return without using margin.

The high call premiums reduce your risk in holding the stock 
to $23.20 which is your breakeven point in case of a meltdown.

With INVN winning new defense contracts daily the odds of
a meltdown are slim. 

I am not normally a covered call fan but this was too good
an opportunity not to pass on. 




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

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

Good Luck

Jim Brown  


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

Not Just Yet
by Steve Price

The Dow finally made up the losses it endured at the end of last 
week and beginning of this one.  A $30 billion bailout of 
Brazil's economy helped the U.S. bank stocks lead the Dow higher, 
but the big story is the anticipation of next week's FOMC 
meeting.  

The market has been extremely volatile as investors try to guess 
whether or not the FOMC will lower the Fed Funds Rate below the 
current level of 1.75%.  What once looked like a remote 
possibility before the September 24th meeting has now been tossed 
around as a distinct possibility for August 13th.  Several large 
institutions have called for a cut of up to 50 basis points at 
next Tuesday's meeting, and up to 75 basis points by the end of 
the year.  While this would boost the stock market temporarily, 
it may leave the Fed with only blanks in its arsenal as the year 
goes on.  

The anniversary of the September 11th attacks is right around the 
corner, and happens to fall in between the August and September 
FOMC meetings.  If the rate were not already under 2%, a cut on 
Tuesday would seem to be a healthy move toward stimulating both 
the stock market and the economy.  However, the Fed must consider 
the possibility of terrorist activity on, or sometime around, 
September 11th.  Last year, after the attacks they instituted two 
quick rate cuts in order to prop up the plummeting stock market.  
The same tactic would most likely be used again this year.  
Adjusting for inflation, there is only so far the Fed can lower 
rates, before money is, in effect, free.  A rate under 1% could 
be dangerous to inflation, and most likely will not be 
instituted.  That leaves about 75 basis points in the Fed's 
arsenal.  If they were to lower the rate by 25 points next week, 
and something were to happen around the 11th, they would be left 
with only 50 points to play with.  If the economy slipped back 
into recession, that doesn't leave a lot that they can do.  Last 
year they cut rates 11 times, with some of those cuts by 50 basis 
points.  They now have about 3 cuts, of 25 points each, 
realistically left with which to stimulate the economy.  

There are some institutions calling for a 50 point cut on Tuesday 
and then 25 more by the end of the year.  This would be 
dangerous, as well, because if the market were to continue 
tumbling, panic could set in, knowing there is very little the 
Fed could do afterwards.  The Fed does have another alternative 
that may not keep the markets from pulling back from the current 
level, but could save their bullets, while letting investors know 
help is on the way.  This seems to be the most likely scenario 
and would involve the Fed leaving rates where they are, but 
announcing a bias toward lowering them in the future.  

There is some talk that Japan could have averted the economic 
crisis of 1998 if they had been more aggressive in lowering 
interest rates, and that the risk of not lowering rates in the 
U.S. is greater than lowering them now.  If the Fed waits just 
six weeks, until the meeting of September 24th, they will put off 
the effect of any rate cut by only six weeks, while retaining an 
important weapon against another possible attack next month.  The 
effects of any cut are said to take between six and twelve 
months, so any cut instituted now may not be felt for some time.  
Another six weeks allows far greater flexibility in dealing with 
the unknown.

If the rate is not cut next week, look for the market to 
experience a pullback from this week's rally.  Be careful on 
Monday about buying into any continued rally.  Many times, when 
the Fed gives the market what it is looking for and has already 
expected, in this case a 25 point rate cut, there is an initial 
surge, and then a pullback when the euphoria wears off.  In 
either case, a 50-point basis cut may be all that will keep the 
market rolling at this incredible pace.  But the long term cost 
may be too great


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

Market Averages

DJIA ($INDU)

52-week High: 10679
52-week Low :  7702
Current     :  8745

Moving Averages:
(Simple)

 10-dma: 8517
 50-dma: 8967
200-dma: 9748



S&P 500 ($SPX)

52-week High: 1226
52-week Low :  797
Current     :  908

Moving Averages:
(Simple)

 10-dma:  884
 50-dma:  947
200-dma: 1077



Nasdaq-100 ($NDX)

52-week High: 1782
52-week Low :  892
Current     :  937

Moving Averages:
(Simple)

 10-dma:  928
 50-dma: 1023
200-dma: 1355



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



The Retail Index (RLX.X):  The retail index hung on to its gains, 
and the effect of a rate cut next week could be extremely 
positive for these stocks.  If it trickles down to allow more 
homeowners to refinance their mortgages, there is extra 
disposable income in consumers' pockets.  The record mortgage 
application numbers released early in the week suggest the effect 
is already taking place, and this may have contributed to 
investors renewed confidence in this sector.  The RLX has 
rebounded decisively, forming a double bottom just below 260.  
The textbook pattern, with the second dip higher than the first, 
is not quite the same as looking at an individual stock, as it is 
hard to measure volume, however it still looks bullish for the 
group.

52-week High: 366
52-week Low : 254
Current     : 272

Moving Averages:
(Simple)

 10-dma: 273
 50-dma: 305
200-dma: 331


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

Market Volatility

Heading into the weekend, after a day in which the market fights 
off a loss to rally past the recent high, we would expect to see 
a VIX quite a bit below 40.  Not with next week's FOMC meeting 
coming up.  Until there is an announcement on whether or not the 
Fed will lower the Fed Funds Rate, expect volatility to remain 
high. 

CBOE Market Volatility Index (VIX) = 39.36 -0.44
Nasdaq-100 Volatility Index  (VXN) = 58.70 -0.65

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.69        554,586       383,686
Equity Only    0.55        411,789       224,452
OEX            0.82         41,312        34,034
QQQ            0.30         62,748        19,041

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

Bullish Percent Data

           Current   Change   Status
NYSE          32      + 1     Bull Correction
NASDAQ-100    28      + 2     Bull Correction
DOW           37      + 4     Bull Confirmed
S&P 500       33      + 3     Bull Alert
S&P 100       34      + 2     Bull Alert

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  1.06
10-Day Arms Index  1.14
21-Day Arms Index  1.21
55-Day Arms Index  1.37

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       1708          1379
NASDAQ     1382          1842

        New Highs      New Lows
NYSE         35              65
NASDAQ       37             134

        Volume (in millions)
NYSE     1,486
NASDAQ   1,322

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

Commitments Of Traders Report: 08/06/02

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

The commercials reduced their short contracts position by 4,000, 
while increasing their long contracts slightly. Small traders, 
increased their long contracts by nearly 6,000, while leaving 
their short positions virtually unchanged.


Commercials   Long      Short      Net     % Of OI 
07/16/02      388,943   464,162   (75,219)   (8.8%)
07/23/02      405,969   471,704   (65,735)   (7.5%)
07/30/02      430,833   482,957   (52,124)   (5.7%)
08/06/02      431,590   478,879   (47,289)   (5.2%)

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
07/16/02      157,370    67,247    90,123     40.1%
07/23/02      166,713    73,778    92,935     38.6%
07/30/02      153,858    67,451    86,407     39.0%
08/06/02      159,561    67,434    92,127     40.5%

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 increased both long and short contract positions 
equally, by just less than 3,000 contracts on each side.  Small 
traders reduced both positions, taking 1600 contracts from the 
long side, and 450 from their shorts.


Commercials   Long      Short      Net     % of OI 
07/16/02       33,152     39,866    (6,714) ( 9.2%)
07/23/02       37,204     43,601    (6,397) ( 8.0%)
07/30/02       38,163     47,343    (9,180) (10.7%)
08/06/02       41,014     50,025    (9,011) ( 9.9%)

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
07/16/02       12,816    10,774     2,042     8.7%
07/23/02       12,756    11,152     1,604     6.7%
07/30/02       13,159     9,237     3,922    17.5%
08/06/02       11,547     8,782     2,765    13.6%

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

Commercials added to both long and short contract totals.  They 
added 1,000 long contracts and about 1400 shorts.  Small Traders 
also added to both sides, increasing their long contracts by 
1200, while adding 250 to the short side. 


Commercials   Long      Short      Net     % of OI
07/16/02       20,357    14,074    6,283      18.2%
07/23/02       22,369    14,745    7,624      20.5%
07/30/02       22,429    12,811    9,618      27.3%
08/06/02       23,491    14,290    9,201      24.4%

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
07/16/02        8,524    10,133    (1,609)   (8.62%)
07/23/02        9,101    12,604    (3,503)   (16.1%)
07/30/02        6,778     8,999    (2,221)   (14.1%)
08/06/02        7,981     9,258    (1,277)   ( 7.4%)

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

Another (small) Way to Play the Rate Game
By James

Before we begin with this week's Ask the Analyst article,
let me say thank you for the positive emails I received about 
last week's post on the housing sector.  I do want to add one 
more, okay, make that two more comments on the topic this week.  
Last Tuesday, just three days after the housing article was 
written, both myself and another analyst in the 
OptionInvestor.com office independently came across some 
interesting evidence regarding new mortgage applications and 
refinancing.  Last week, in the commentary about the bulls and 
bears arguments on the housing group I said that the refinancing 
boom of the last couple of years was starting to ebb.  That 
comment is incorrect.  New mortgage applications and refinancing 
activity is growing.  According to one person I spoke with in the 
industry, it is reaching an incredible pace.  There was a 
mortgage applications survey results that came out last week that 
confirmed this data as well.

If home sales are so great, why did the housing sector "appear" 
to under perform the DJIA on week with the market up 5%.  Please 
make a note that I said "appear" to under perform.  While the 
DJIA was up 5% last week, the DJUSHB (US Home Construction Index) 
was actually 8% last week.  My bearish bias is based on the chart 
of the DJIA, which closed above its recent highs; compared to the 
DJUSHB (and shares of RYL and MDC, the two stocks we compared 
last week) which did not even come close to the recent late July 
highs.  Incidentally, neither PnF chart of RYL or MDC have 
produced a bullish buy signal yet but they are in a column of 
X's.

Chart of Dow Jones over Chart of DJUSHB



Okay, I can already see some of you about to email me concerning 
the second half the equation - the refinancing part.  Let me 
touch on this quickly.  Normally when someone starts thinking 
about home loans and stocks they look at Freddie Mac (FRE) and 
Fannie Mae (FNM).  Both stocks have been doing well the last 
couple of weeks and they almost look bullish.  Yet one stock you 
may not think of is Countrywide Credit (CCR).  This issue has 
been on FIRE!  Shorts have got to be hurting as this mortgage 
company has been on non-stop climb since the DJIA bottomed on 
July 24th last month.  I can tell you we looked at shorting it 
multiple times but the thought of lower interest rates combined 
with a rising pace of mortgages and refinances will probably have 
this company turning in stellar earnings numbers.  Their last 
earnings report on July 24th, 2002 showed EPS at $1.48, or 13 
cents above consensus estimates.  The FOMC may not cut rates next 
week but there does seem to be a growing expectation they could 
cut rates by the end of the year.  This would act as another shot 
of adrenaline for the U.S. economy potentially in time for the 
Christmas shopping season!

Would I buy this stock now?  Honestly, I don't know.  Shares look 
extremely overbought but with America's focus on real estate 
(instead of the stock market), interest rates at 40 year lows and 
the potential for lower rates ahead, I don't see a lot of 
fundamental reasons that will slow them down.  The stock held up 
pretty well despite a multi-week decline in the DJIA (from May) 
and really didn't see serious selling until the market's fall 
reached a fevered pitch in the last few days.  Check out the 
chart:

Daily Chart of CCR



Those traders interesting in following CCR could try the "inside 
day" technique given Friday's close.  Personally, I think I'd 
like to see a pull back to the $50 to $51 levels before 
considering a bullish position.  Odds are good that we could see 
a pull back in the markets this coming week with new expectations 
for the Fed to not lower rates at this time.  Curious traders 
could watch the stock for a few days and witness shareholder 
reaction to the news after the FOMC meeting on Tuesday.  

You may also want to check out a weekly chart of CCR.  Shares 
approached the $55 level several times back in early 1998 and 
traded as high as $56.25 before following the markets down to the 
October '98 bottom.  The question investors will be asking is 
"will current positive fundamentals for the industry give CCR 
enough fuel to power to new highs?"  

Positions in CCR and other stocks in the group are just one more 
way for investors to play the game when it comes to moves and 
expectations in interest rates.

All right, everyone raise your hands if you would like to discuss 
a different sector next week.  Great, now please email those 
ideas and suggestions to us at:

Contact Support

We look forward to hearing from you!

P.S. For all you CCR bulls out there, check out the point-and-
figure chart.  Now calculate the vertical count (currently 
bullish).  I'll give you a hint.  It's above $70.


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

Was this article beneficial to you?
Let us know: comments@OptionInvestor.com

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

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

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

Symbol  Company               Date           Comment      EPS Est

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

ABV    AmBev - Companhia      Mon, Aug 12  07:00 am ET       0.18
AMLN  Amylin Pharmaceuticals  Mon, Aug 12  Before the Bell  -0.30
CPG  Chelsea Prop Grp, Inc.   Mon, Aug 12  After the Bell    0.66
FRT  Federal Rlty Ivstmt Trst Mon, Aug 12  After the Bell    0.65
MAC  Macerich Company         Mon, Aug 12  Before the Bell   0.68
MAY  May Department Store     Mon, Aug 12  -----N/A-----     0.34
MLS  Mills                    Mon, Aug 12  Before the Bell   0.71
PUB  PUBLICIS Groupe SA       Mon, Aug 12  -----N/A-----      N/A
PKS  Six Flags, Inc.          Mon, Aug 12  After the Bell    0.16
VAL  Valspar                  Mon, Aug 12  Before the Bell   0.73
WTW  Weight Watchers Intl     Mon, Aug 12  After the Bell    0.37
WMC  WMC Limited              Mon, Aug 12  -----N/A-----      N/A

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

ANF  Abercrombie&Fitch        Tue, Aug 13  4:30 pm ET        0.26
AMAT  Applied Materials       Tue, Aug 13  After the Bell    0.05
ATTC  AT&T Canada             Tue, Aug 13  -----N/A-----      N/A
DE  Deere & Company           Tue, Aug 13  Before the Bell   0.35
ENZN  Enzon                   Tue, Aug 13  Before the Bell   0.24
EOG  EOG Resources            Tue, Aug 13  -----N/A-----     0.17
HPC  Hercules                 Tue, Aug 13  Before the Bell   0.17
JCP  JC Penney                Tue, Aug 13  -----N/A-----    -0.10
NTAP  Network Appliance       Tue, Aug 13  After the Bell    0.04
STOSY  Santos Ltd.            Tue, Aug 13  After the Bell     N/A
TRK  Speedway Motorsports     Tue, Aug 13  Before the Bell   0.80
TECH  Techne                  Tue, Aug 13  Before the Bell   0.25
IPG  The Interpublic Group    Tue, Aug 13  After the Bell    0.39
TIF  Tiffany Co               Tue, Aug 13  Before the Bell   0.22
TJX  TJX Companies            Tue, Aug 13  Before the Bell   0.23
UBS  UBS AG                   Tue, Aug 13  -----N/A-----      N/A
WMT  Wal-Mart                 Tue, Aug 13  Before the Bell   0.45
WGR  Western Gas Resources    Tue, Aug 13  Before the Bell   0.30

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

AAP    Advance Auto Parts     Wed, Aug 14  After the Bell    0.72
AZ     ALLIANZ AG             Wed, Aug 14  Before the Bell  N/A
ANN    AnnTaylor Stores       Wed, Aug 14  After the Bell 0.32
BRL    Barr Laboratories      Wed, Aug 14  -----N/A-----  0.85
BEAS   BEA Systems            Wed, Aug 14  After the Bell 0.06
BRCD   Brocade Comm Systems   Wed, Aug 14  After the Bell 0.08
RIO    Companhia Vale RioDoce Wed, Aug 14  -----N/A-----  -0.33
CSR    Credit Suisse Group    Wed, Aug 14  Before the Bell  N/A
EON    E.ON AG                Wed, Aug 14  -----N/A-----  N/A
ERJ    Embraer-Emp Bras Aero  Wed, Aug 14  -----N/A-----  0.32
FD     Federated Dprtmnt Strs Wed, Aug 14  -----N/A-----  0.61
FOX    Fox Entertainment      Wed, Aug 14  07:30 am ET  0.06
INTU   Intuit                 Wed, Aug 14  After the Bell -0.12
JHX    James Hardie Inds      Wed, Aug 14  -----N/A-----  N/A
LZB    La-Z-Boy               Wed, Aug 14  Before the Bell  0.26
NWS    News Corporation       Wed, Aug 14  07:30 am ET  0.15
JWN    Nordstrom              Wed, Aug 14  After the Bell 0.37
PSS    Payless ShoeSources    Wed, Aug 14  Before the Bell  1.85
UBB    Unibanco-UniaoBancBras Wed, Aug 14  -----N/A-----  0.62
V      Vivendi Universal      Wed, Aug 14  -----N/A-----  N/A

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

AMCR  Amcor Limited           Thu, Aug 15  -----N/A-----      N/A
AEOS  American Eagle Outfit   Thu, Aug 15  -----N/A-----     0.15
ADI   Analog Devices          Thu, Aug 15  After the Bell    0.15
ADSK  Autodesk                Thu, Aug 15  -----N/A-----     0.11
DELL  Dell                    Thu, Aug 15  After the Bell    0.19
DV    DeVry                   Thu, Aug 15  -----N/A-----     0.22
DISH  EchoStar Comm           Thu, Aug 15  06:00 am ET       0.06
EL    Estee Lauder            Thu, Aug 15  Before the Bell   0.18
GPS   Gap Inc.                Thu, Aug 15  After the Bell    0.03
HRL   Hormel Foods            Thu, Aug 15  Before the Bell   0.27
SJM   J. M. Smucker Company   Thu, Aug 15  -----N/A-----     0.42
KSS   Kohl`s                  Thu, Aug 15  After the Bell    0.34
NVDA  NVIDIA                  Thu, Aug 15  After the Bell    0.13
NVDA  NVIDIA                  Thu, Aug 15  After the Bell    0.13
NVDA  NVIDIA                  Thu, Aug 15  After the Bell    0.13
TGT   Target Corporation      Thu, Aug 15  -----N/A-----     0.37

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

NAV  Navistar International   Fri, Aug 16  Before the Bell  -0.28


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

Symbol  Company Name              Ratio    Payable     Executable

FVB     First Virginia Banks      3:2      08/09       08/12
WSBK    Wilshire State Bank       2:1      08/15       08/16
SSD     Simpson Manufacturing     2:1      08/16       08/19


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

The week of August 12th is going to be a wild one with the FOMC
meeting on Tuesday.  This list should help to identify other
important events to watch for!

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

Monday, 08/12/02
----------------

Tuesday, 08/13/02
-----------------
Retail Sales (BB)       Jul  Forecast:   1.2%  Previous:     1.1%
Retail Sales ex-auto(BB)Jul  Forecast:   0.3%  Previous:     0.4%
FOMC Meeting (AB)

Wednesday, 08/14/02
-------------------
Business Inventories(BB)Jun  Forecast:   0.2%  Previous:     0.2%

Thursday, 08/15/02
------------------
Initial Claims (BB)   08/10  Forecast:    N/A  Previous:     376K
Industrial Prduction(DM)Jul  Forecast:   0.2%  Previous:     0.8%
Capacity Utilization(BB)Jul  Forecast:  76.2%  Previous:    76.1%
Philadelphia Fed (DM)   Aug  Forecast:    8.5  Previous:      6.6
FOMC Minutes

Friday, 08/16/02
----------------
CPI (BB)                Jul  Forecast:   0.2%  Previous:     0.1%
Core CPI (BB)           Jul  Forecast:   0.2%  Previous:     0.1%
Housing Starts (BB)     Jul  Forecast: 1.670M  Previous:   1.672M
Building Permits (BB)   Jul  Forecast: 1.680M  Previous:   1.700M
Mich Sentiment-Prel.(DM)Aug  Forecast:   89.0  Previous:     88.1


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


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The Option Investor Newsletter                   Sunday 08-11-2002
Sunday                                                      2 of 5


In Section Two:

Index Trader GamePlans: THE SECTOR BEAT - 8/11
Daily Results
Call Play of the Day: ABGX - Another Bouncing Biotech
Put Play of the Day: NKE - Consumer Weakness
Dropped Calls: none
Dropped Puts: BBBY, SNE

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

THE SECTOR BEAT - 8/11
by Leigh Stevens

The Bank Index (BKX) ended the week with very strong gains, as 
did Biotech (BTK), Cyclicals (CYC), Defense (DFI), NYSE 
Financials (NF), Forest products (FPP), Home Builders (DJUSHB), 
Healthcare (HMO), Pharmaceuticals (DRG), Oil Services (OSX), 
Securities brokers (XBD), and Transportation stocks (INDU). 

Featured below are charts and analysis of the Broker-dealers, 
Gold stocks - hope springs eternal with the gold bugs! - and, 
Healthcare. 

The Bank Index broke out above its down trendline and Biotech 
continued to rise above its prior downtrend channel, both sectors 
that I featured as bullish potential plays last week. 
 
UP on Friday -
 




DOWN on Friday - 





SECTOR TRADE RECOMMENDATIONS -

NEW/OPEN TRADE RECOMMENDATIONS -

NONE

 
TRADE LIQUIDATIONS -

NONE


SECTOR HIGHLIGHT(S) -

Broker Dealer Index ($XBD.X)
STOCKS: AGE; AMTD; BSC; ET; GS; JEF; LEH; LM; MER; MWD; NITE; 
RJF; SCH




The Broker-dealer index is rebounding from the low end of its 
owntrend channel in a resurging financial sector that got very 
oversold. 

This index has retested its recent high today in the 391-392 
area. It remains to be seen whether XBD can get above this prior 
high, but it appears that it can and will run up higher - next 
resistance in the 403 area at the 50-day moving average, but more 
major resistance comes in around 430-432.

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




The Gold & Silver Sector traded up over 7% on Friday, continuing 
its rebound from the 55 area and from an oversold level. 

My initial upside objective for Gold stock sector was 65 - with 
he possibility that the sector would have another leg higher and 
climb back up to its "breakdown" point in 70 area. Friday, XAU 
traded right to its 200-day moving average, but then broke out 
above it. Clearing the 200-day MA suggests that the sector could 
now move up to a retest of its 50-day average at 72. This average 
is of course falling - at the beginning of week the 50-day MA was 
73.6. 

My estimate remains that the 70 area, or 1-2 points higher (71-
72) is the best I could see XAU doing on a rebound for a while - 
I would turn seller in this area. 

XAU 14-day stochastic is pointing higher reflecting current 
upside momentum and is still under 50 - typical overbought 
reading for XAU is above 80, although rallies can end above 60. 

Healthcare Index; Morgan Stanley ($HMO.X)
STOCKS: AET; AHG; ATH; CAH; CI; FHCC; HUM; MME; OHP; OPTN; 
PHSY; TGH; THC; UNH; WLP




The Healthcare Index broke out to the upside, above resistance 
implied by its (daily chart) down trendline and looks like it can 
advance further - its retracement has been far less than the 
Provider's Index - HMO hits more significant resistance around 
586.

Health Providers index (RXH.X) - unlike the HMO group, already 
retraced a little over 62% of its steep June-July decline, or a 
substantial part of the prior decline.  This rebound also 
occurred in a very short time span. The Providers such as LPNT, 
TRI, THC, and HCA are just now hitting resistance and got 
overbought - so the sector is correcting now.

Leigh Stevens
Chief Market Strategist
lstevens@OptionInvestor.com



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

For Best Alignment view in Courier Ten Font
*******************************************

CALLS           Mon    Tue    Wed    Thu   Week

ABGX   10.04   -0.93   0.23   0.41   0.80   1.29  New
AMGN   47.73   -0.98   1.31   0.59   2.19   4.53  Leading Bios
CHIR   37.90   -0.71   1.57   1.48   1.57   4.66  Cleared resistance
IDPH   45.89   -1.35   1.28   0.98   2.24   4.19  Higher highs
JNJ    54.51   -2.40   0.18   1.01   2.06   2.01  New support
NOC   116.57   -5.12   1.25   3.62   5.18   8.22  New Good Defense


PUTS               

AZO    67.28   -1.70   1.47  -0.45  -2.10   0.28  Better entry
BBBY   28.62   -0.96   1.26   0.83  -1.30   0.66  Drop
DIA    87.60   -2.43   0.95   2.17   1.05   4.70  New, What cut?
HD     28.29   -0.95   0.55   0.23  -1.12  -0.14  Rebound not enough
NKE    43.92   -1.32   0.30  -0.54   0.68  -1.31  New, Don't Do It
QCOM   25.92   -1.51   1.43  -0.17   0.97   0.66  Can't stay up
SNE    44.44   -0.70   0.49   1.35   0.15   1.71  Drop, misbehaved
TMX    28.40   -0.60   0.90   0.10   0.65   1.10  New, Disconnected


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

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

ABGX - Abgenix Inc. $10.04 (+1.25 last week)

See details in play list




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

NKE - Nike, Inc. $43.92 (-1.56 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
^^^^^

none

PUTS
^^^^

BBBY $28.62 (+0.71) Despite the less than favorable news out of
the Retail sector last week, we're starting to see an underlying
bid in Retail stocks.  BBBY is a perfect example, as it has
reversed its recent trend and may have just completed a
successful double-bottom near the $27 level.  Friday's session
saw the stock tack on better than 3%, far outperforming both the
RLX index and the broad market.  So despite the fact that our
$29.50 stop has not been violated, we think the renewed strength
in BBBY is an early sign that the bearish party is over.  We're
dropping the play this weekend, and would suggest looking to
exit open positions on any early weakness on Monday.


SNE $44.44 +0.44  (+1.73 for the week) The long-term chart on SNE 
continues to look bearish and a rollover from $45 would be 
bearish as well.  In spite of Best Buy's pre-release of earnings 
yesterday, which took more than 30% off of the value of the 
stock, SNE still found buyers today. The stock has not yet 
violated our stop loss, however it has not performed to our 
expectations, and has broken its descending channel from the 
start of July.  The current rally into next Tuesday's interest 
rate announcement could possibly take this stock higher, and we 
see no point in wasting any more time decay with an under 
performing play.  We will close this play on Monday, and look for 
better opportunities.



***********
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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The Option Investor Newsletter                   Sunday 08-11-2002
Sunday                                                      3 of 5


In Section Three:

New Calls: NOC, ABGX
Current Calls: AMGN, CHIR, IDPH, JNJ
New Puts: DIA, NKE, TMX

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

NOC - Northrop Grummon  $116.57 +0.76 (+8.72 for the week)

Company Summary:

Northrop Grumman Corporation is an $18 billion, global defense 
company with its worldwide headquarters in Los Angeles. Northrop 
Grumman provides technologically advanced, innovative products, 
services and solutions in defense and commercial electronics, 
systems integration, information technology and nuclear and non-
nuclear shipbuilding and systems. With nearly 100,000 employees 
and operations in 44 states and 25 countries, Northrop Grumman 
serves U.S. and international military, government and commercial 
customers. (source: company release)

Why we like it:

NOC appears to be on the verge of closing its deal to acquire 
fellow defense company TRW.   The U.S. under-secretary in charge 
of acquisitions, Edward Aldridge, said the deal posed no 
"showstoppers" that might get in the way of Northrop becoming the 
second largest defense contractor.  Northrop first proposed the 
hostile takeover at the end of February.  It hoped to acquire 
defense and auto parts maker TRW and then spin off the auto parts 
division of TRW.  The hostile takeover bid was resolved in July, 
and the combined company is expected to generate 2003 sales of 
between $26 and $27 billion. Under the terms of the agreement, 
Northrop will acquire TRW for $60 per share in common stock, for 
a total value of $7.8 billion, plus assumption of TRW's net debt 
at the time of closing. According to Northrop, "The exact 
exchange ratio will be determined by dividing $60 by the average 
of the reported closing sale prices per share of Northrop Grumman 
common stock on the New York Stock Exchange for the five 
consecutive trading days ending on and including the second 
trading day prior to the closing of the merger. The exchange 
ratio will not be less than 0.4348 or more than 0.5357 of a 
Northrop Grumman share."   The antitrust unit of the Department 
of Justice will make the final decision, but with advice from the 
Defense Department.  Most analysts, as well as company officials 
say they expect no significant merger approval problems.

The stock has been on a slow steady climb, and although it 
experienced a pull back with last week's drop in the Dow, NOC 
found support and has established a pattern of higher highs and 
higher lows. Today's intraday high of $188.20 broke through 
bearish resistance on the PnF chart.  NOC is currently working on 
a bullish vertical count of $150.  While this may seem like a big 
move, NOC has been able to achieve its counts in the past.  We 
are targeting a more "reasonable" $130 on the play, as this stock 
traded as high as $135 as recently as June 19.  A look at the 
daily chart shows the stock has recently broken out above its 10, 
50 and 200-dmas.  $120 could provide round number resistance 
overhead, and the next level of resistance after that looks to be 
$124.

The market could be looking at a pullback following next 
Tuesday's interest rate announcement, however, with talk of the 
U.S. attacking Iraq picking up steam with Dick Cheney's recent 
comments, interest in NOC should remain high.  Conservative 
traders may want to look for a pullback toward today's low of 
$113.60 before initiating new positions, as the stock has posted 
impressive gains the last couple of days, and may be in for some 
consolidation. We see today's small gain as evidence of some 
consolidation at the current level. We will use a stop loss of 
$110.00, as a stock priced over $100 can experience significant 
dollar moves, while the percentage of the move remains low.

BUY CALL AUG-110*NOC-HB OI=4913 at $7.70 SL=3.00
BUY CALL AUG-115 NOC-HC OI=1917 at $3.60 SL=1.00
BUY CALL SEP-110 NOC-IB OI=1489 at $10.10 SL=5.00
BUY CALL SEP-115 NOC-IC OI= 672 at $2.45 SL=1.20

Average Daily Volume = 1.73 mil


---

ABGX - Abgenix Inc. $10.04 (+1.25 last week)

Company Summary:
Operating in the biopharmaceutical field, Abgenix develops and
intends to commercialize antibody therapeutic products for the
treatment of a variety of disease conditions including
transplant related diseases, inflammatory and autoimmune
disorders, and cancer.  Harnessing the power of the mouse,
ABGX has developed XenoMouse technology, a proprietary
technology which the company believes enables quick generation
of fully human antibody product candidates using mice.  Current
internal product development programs have yielded four
antibody product candidates, with ABX-CBL being the current
front runner.

Why We Like It:

So many Biotech breakouts, so little time!  Unless you've been
living under a rock, you by now are aware that the Biotechnology
index (BTK.X) has been the linchpin in the Technology sector
allowing the NASDAQ to possibly put in a near-term bottom.  Our
call list is well populated with Biotech stocks that have been
breaking out, and it is our pleasure to add ABGX to the list
with its breakout over the $9.50 resistance level on Friday.  The
stock has posted a series of higher lows since mid-July, and that
pattern (along with the persistent rise in the BTK index) provided
the springboard for Friday's breakout.  With the likelihood of a
pullback in the market ahead of the FOMC meeting on Tuesday, odds
favor ABGX pulling back to support in the $9.00-9.50 range before
continuing higher.  We want to look to initiate new positions on
a rebound from that support level, or even down near $8.50.  Note
that the trade above $10 on Friday generated a new PnF Buy signal,
with the initial bullish price target of $15.50.  Isn't it
interesting that that is the site of the May highs?  In order for
this target to be achieved, we're going to need to see continued
bullish action from the BTK index, but so far all signs are
encouraging, with the BTK continuing to trade in the upper half
of its ascending channel.  On a near-term basis, ABGX looks a bit
overextended after closing well above its upper Bollinger band on
Friday, so we don't want to take on new positions without seeing
the requisite pullback first.  Initial stops are set at $8, which
is where last week's rally got started

*** August contracts expire next week ***

BUY CALL AUG- 7 AZG-HU OI=2090 at $2.90 SL=1.50
BUY CALL AUG-10 AZG-HB OI= 813 at $0.85 SL=0.25
BUY CALL SEP- 7 AZG-IU OI=  21 at $3.20 SL=1.50
BUY CALL SEP-10*AZG-IB OI= 166 at $1.65 SL=0.75
BUY CALL SEP-12 AZG-IV OI=  34 at $0.60 SL=0.25

Average Daily Volume = 2.00 mln



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

AMGN - Amgen, Inc. $47.73 (+4.22 last week)

Company Summary:
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.

Why We Like It:
Even with the indecisive action in the broad markets as another
volatile week drew to a close, Biotechnology shares were largely
in the green with the BTK index posting another 1.7% gain.  Our
new play on AMGN spent the day in a rather narrow range, but in
the end, the push through the $48 resistance level failed to
stick.  Given the strong gains last week, it was impressive that
the stock didn't experience heavier profit taking ahead of the
weekend.  While much of the discussion in the media over the past
couple days centers around whether the Fed will lower interest
rates next week, the Biotechs seem to be shrugging off this
speculation due to their relative insensitivity to the state of
the economy.  Barring a negative sector-related news event over
the weekend, we're looking for the Biotechs to continue pushing
higher, and as one of the biggest, we're expecting AMGN to lead
the charge.  There is some decent intraday support near $47 and
another rebound from this level can be used to initiate new
positions.  Should the sector drift down for some more meaningful
profit taking on Monday, we'll want to keep our eye on the
$45.50-46.00 area.  This was the site of the stock's breakout
last week and a dip and bounce there should provide for a solid
entry point.  Despite the strength in AMGN as well as the BTK,
we're hesitant to recommend new positions on a breakout over the
$48 level, precisely because of the way AMGN pulled back after
briefly cresting this level on Friday.  There is some decent
resistance in the $49-50 area, and AMGN will likely need one more
dip towards support before taking a serious run at this
resistance.  We're keeping our stop set at $45.

*** August contracts expire next week ***

BUY CALL AUG-47 AMQ-HW OI=5675 at $1.35 SL=0.75
BUY CALL AUG-50 AMQ-HJ OI=3582 at $0.35 SL=0.00
BUY CALL SEP-47*AMQ-IW OI=2814 at $3.20 SL=1.50
BUY CALL SEP-50 AMQ-IJ OI=4008 at $1.95 SL=1.00

Average Daily Volume = 17.8 mln


---

CHIR - Chiron Corporation $37.90 (+4.28 last week)

Company Summary:
Chiron Corporation is a global pharmaceutical company that is
focus on developing products for cancer and infectious disease.
The company continues to build upon its cancer franchise, which
has three dimensions; immune system modulators, monoclonal
antibodies and novel anti-cancer agents.  In the infectious
disease area, the CHIR has a broad range of products.  The
company commercializes its products through three business units,
which include biopharmaceuticals, vaccines and blood testing.
The Vaccines unit offers more than 30 vaccines for adults and
children.

Why We Like It:
Given its extreme weakness over the past several months, the
Biotechnology sector's (BTK.X) outperformance to the upside in
recent weeks has been truly impressive.  Following the lows set on
July 24th, the BTK has been working its way higher in a nice
little ascending channel.  Apparently that rate of ascent wasn't
good enough for CHIR, as this stock has been a real champ over
the past four days.  In that short span of time, the stock vaulted
from the bottom of its own channel ($32.50) to as high as $38.79
on Friday afternoon before the profit taking began.  Given that
that move represented a 19% rally, it should have come as no
surprise that there was some weakness into the close.  In fact,
we pointed out on Thursday, that with the heavy congestion in the
$37-39 area, that would make for a logical point to harvest gains.
So where do we go from here?  The bullish trend is still very
much intact and after this bout of profit taking has run its
course, we'll have another dip that we can buy.  Look to buy a
mild dip near $37 (the center of CHIR's ascending channel) or a
more sizable pullback near intraday support ($35.50-36.00).
We're raising our stop this weekend to $35.  That is just below
the lower edge of the ascending channel and a close below there
would be a strong indication that the trend is coming to an end.
Traders looking to enter on strength can consider buying a rally
through the $39 level, but need to be careful due to the
overhead congestion that is spread between $39 and $41.  If
trading strength, make sure the BTK index is confirming that
strength by continuing to trade up towards the top of its own
channel, currently $395.

*** August contracts expire next week ***

BUY CALL AUG-35 CIQ-HG OI=509 at $3.30 SL=1.75
BUY CALL AUG-37 CIQ-HU OI=275 at $1.35 SL=0.75
BUY CALL SEP-37*CIQ-IU OI=140 at $2.90 SL=1.50
BUY CALL SEP-40 CIQ-IH OI=192 at $1.75 SL=0.75

Average Daily Volume = 2.69 mln


---

IDPH - IDEC Pharmaceuticals $45.89 (+4.14 last week)

Company Summary:
IDEC Pharmaceuticals is a biopharmaceutical company engaged
primarily in the research, development and commercialization
of targeted therapies for the treatment of cancer, autoimmune
and inflammatory diseases.  IDPH's first commercial product,
Rituxan, and its most advanced product candidate, Zevalin
(formerly Y2B8), are for use in the treatment of certain B-cell
non-Hodgkin's lymphomas.  The company is also developing
products for the treatment of various autoimmune diseases such
as psoriasis, rheumatoid arthritis and lupus.

Why We Like It:
After the initial dip on Friday, the broad market staged a bold
rally attempt, with the Biotechs leading the charge, up more than
3% at one point.  But fear of darkness weighed heavily on the
sector along with the rest of the market, causing a pullback in
the late afternoon.  Despite the afternoon pullback, the BTK
index continued working its way higher in its ascending channel,
coming to rest at $375, well above the midline of that channel
($368).  That seems to indicate that the BTK will continue its
winning ways next week, opening the door for a run at the top of
the channel, currently near $395.  IDPH is trading in its own
channel, although it isn't quite as far along as the BTK.  The
stock really had a good run going early in the day, trading as
high as $47.40 before gravity took over.  IDPH proceeded to fall
back to the center of its channel ($46.25), where it spent the
remainder of the day before some late-day weakness dragged it
down to close just fractionally below $46.  The pattern of higher
lows and higher highs is solidly intact and if Friday's pullback
runs its course on Monday, we should see a tradable bottom put in
near the $43-44 support level.  A brief dip as low as $42.50 (the
bottom of the channel) is possible, but a lower odds setup.  Take
advantage of weakness ahead of the FOMC meeting to initiate new
positions on a dip and rebound from support, or else wait for a
renewed surge above the midline of the channel to enter on
strength.  Regardless of your chosen entry strategy, confirm
strength by looking for positive corresponding strength in the
BTK index.  Raise stops to $42.50.

*** August contracts expire next week ***

BUY CALL AUG-45 IDK-HI OI=5137 at $2.25 SL=1.00
BUY CALL SEP-45*IDK-II OI=1738 at $4.50 SL=2.75
BUY CALL SEP-50 IDK-IJ OI=1075 at $2.10 SL=1.00
BUY CALL OCT-50 IDK-JJ OI=1918 at $3.30 SL=1.75

Average Daily Volume = 5.94 mln


---

JNJ - Johnson & Johnson $54.51 -0.06 (+2.26 for the week)

Company Summary:

Johnson & Johnson, with approximately 106,100 employees, is the 
world's most comprehensive and broadly based manufacturer of 
health care products, as well as a provider of related services, 
for the consumer, pharmaceutical and medical devices and 
diagnostics markets. Johnson & Johnson has 197 operating 
companies in 54 countries around the world, selling products in 
more than 175 countries.

Why we like it:

Johnson and Johnson held steady today, after testing support with 
a morning trade down to $53.40.  It rebounded back over $54 and 
continued to cement its base above recent congestion between $50-
$52. $54 established a buy signal on the PnF chart and this 
appears to now serve as support. there may be some consolidation 
in this area before taking off toward JNJ's bullish vertical 
count of $56.  JNJ previously pulled back to support of $50 after 
trading as high as $53.49 last week.  The stock then advanced 
higher with a trade of $54.78.  Today's activity provides shows a 
pattern of higher highs and higher support.  The pull back to 
$53.40 and high of $54.98 shows that the pullbacks, which most 
stocks experience on their way up, are getting successively 
higher. 

This is supported by a look at JNJ's PnF chart as well. A look at 
the pattern there shows an upward sloping support line, with the 
exception of JNJ's big drop after the announcement of 
manufacturing irregularities probe.  The company quickly 
recovered from this drop and added back 13 points in 3 weeks, 
after investors realized the probe had no effect on the bottom 
line.  With a host of new products in the pipeline, including the 
iBot wheelchair, a $25,000 product that climbs stairs, balances 
on 2 wheels and elevates to eye level, Johnson and Johnson's near 
term prospects look promising.  We see the current level as an 
entry point, underscored by today's demonstration of higher 
support.

BUY CALL AUG-50*JNJ-HJ OI=14212 at $4.80 SL=2.50
BUY CALL AUG-55 JNJ-HK OI=10083 at $0.85 SL=0.00
BUY CALL SEP-50 JNJ-IJ OI= 5709 at $5.90 SL=3.00
BUY CALL SEP-55 JNJ-IK OI= 8172 at $2.45 SL=1.20

Average Daily Volume = 10.8 mil


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

DIA - Diamonds Trust - $87.60 +0.35  (+4.40 for the week)

Company Summary:
The Diamonds Trust is the Dow Tracking Stock, which mirrors the 
Dow Industrial Average with a divisor of 100.

Why We Like It:

The DIA, which is the Dow tracking stock, has been on quite a run 
the last few days, as the market has made up its recent 700 point 
loss over the last four days.  The euphoria that has taken hold 
of the market the last few days in anticipation of next week's 
FOMC meeting, seems overextended.  If the Fed does not lower 
rates, look out for a significant pullback after the rally of the 
last three days, which may continue through Monday.  There are 
several reasons the rate cut may not happen, the primary reasons 
being the upcoming anniversary of the September 11 attacks, and 
the already low Fed Funds rate of  1.75%.  If Chairman Alan 
Greenspan and the FOMC lower rates on Tuesday, they will have 
already used up a significant bullet in their arsenal.  The 
September 24 meeting seems a more likely target for lowering the 
rate.  If there were to be any type of terrorist activity on or 
around September 11, the Fed would most likely step in and lower 
rates as they did last year, in an attempt to support the market.  
With an already low rate of 1.75%, which many analysts and large 
institutions are calling for to be lowered by 75 basis points by 
the end of the year, the FOMC must be careful when it uses up the 
possible rate cuts.  By waiting until the end of September, they 
delay the effect of the cut by only six weeks, while still 
retaining the ability to state a "bias" toward lowering rates.  
This bias is generally used to let the investing public know what 
they will most likely be doing in the near future, without having 
to do so at the present time.  If this were to occur, the market 
would most likely fade over the lack of lower rates that it has 
been anticipating.  

The alternative of a 25 basis point cut may also leave the market 
gasping for air.  In the past, when the Fed has given the public 
what they expected, the novelty generally wears off rather 
quickly and the rally fades.  If the rate is lowered by 50 basis 
points, as some institutions are predicting, then the rally will 
most likely continue, and our short play will be stopped out.  It 
is unlikely that the Fed will do this, and leave themselves very 
little wiggle room for the rest of the year.  

A look at the PnF chart for the DIA shows a triple top buy signal 
at $88.00.  However, it is right up against the triple bottom 
sell signal from July.  This pattern, combined with extensive 
buying in the treasuries, may indicate there has been some short 
covering ahead of next week's announcement.  We will use a trade 
below $87 as a short entry point.  This would indicate the short 
covering has been completed and the market is ready to give back 
its gains, or the euphoria has worn off regarding the rate cut.  
In either case, a trade below this level could set the index 
rolling downhill.  We will place our stop loss at $88.50, as a 
continued rally, 100 points higher than we currently stand in the 
Dow, could eventually end over 9000.

BUY PUT AUG-87*DAV-TI OI=16472 at $1.60 SL=1.00
BUY PUT SEP-87 DAV-UI OI=  755 at $3.70 SL=2.00

Average Daily Volume = N/A


---

NKE - Nike, Inc. $43.92 (-1.56 last week)

Company Summary:
Principally engaged in the design, development, and worldwide
marketing of footwear, apparel, equipment and accessory products,
Nike sells its products to approximately 17,000 retail accounts
in the United States and through a mix of independent
distributors, licensees and subsidiaries in approximately 140
countries.  Virtually all of the company's products are
manufactured by independent contractors.  Footwear products are
produced outside the United States, with apparel products are
produced both in the United States and abroad.

Why We Like It:
Judging by the lack of strength in Retail Sales trends, consumers
are pulling in their horns, even in the normally strong
back-to-school season.  Apparel manufacturers are feeling the
pinch as well, as the lack of consumer spending at Retail outlets
is reflecting back to the source.  This trend has clearly been
building for awhile, judging by the recent price action in shares
of NKE.  Despite its trendy appeal, and a recent Strong Buy rating
from Merrill Lynch, the stock can't seem to break out of its
persistent downtrend.  The stock rebounded sharply off its lows
(near $45) on July 24th with the rest of the market, but when the
buying ran out of steam near the $51 level, the return of the
sellers was fast and furious.  Not only did the stock fall back
to its late-July lows, but it actually continued to decline.  Even
the broad market rally of the past 4 days barely caused a blip in
the stock's price, and it is right back at its lowest level since
September 21st.  This relative weakness is a big neon sign that if
the broad market falls back, stocks like NKE are probably going to
be leading the pack to the downside.  The month-long descending
trendline currently rests at $46, and right now that looks wholly
unachievable by the bulls.  NKE has been finding eager sellers at
the $45 level over the past several days, and if we should get so
lucky as to see a rebound back to that level next week, the
subsequent rollover will be a high-odds entry point.  Barring such
a gift, we'll have to content ourselves with entering on a
breakdown under $43.25, the site of last week's intraday lows.
The PnF chart confirms the grim picture, as it is currently on a
sell signal, with a bearish price target of $35.  Set stops at
$46.

*** August contracts expire next week ***

BUY PUT AUG-45 NKE-TI OI=454 at $2.00 SL=1.00
BUY PUT SEP-45 NKE-UI OI= 80 at $3.90 SL=2.50
BUY PUT SEP-42*NKE-UV OI= 30 at $2.65 SL=1.25

Average Daily Volume = 1.70 mln


---

TMX - Telefonos de Mexico, S.A. $28.40 (+0.91 last week)

Company Summary:
TMX is a telecommunications company that provides
telecommunications solutions including local and long-distance
wire services, wireless communications and multimedia networks
for video, audio and data.  Additionally, the company provides
network engineering, digital wireless network access and
Internet.  Located in Mexico City, Mexico, TMX also operates
in the United States, Puerto Rico and Brazil and has strategic
alliances with France Telecom, Carso Global Telecom, SBC
Communications and Williams Communications.

Why We Like It:
There hasn't been much in the way of good news in the
Telecommunications sector in recent months, with the bankruptcy
and accounting scandal at Worldcom being the most notable recent
bad news story.  So it should come as no surprise that this
group has lagged so much in the recent market rebound.  Along
with the bearish pressure in the sector, TMX has been
additionally pressured due to its exposure to the Latin American
market.  So when new of the Brazilian bailout hit, it was only
natural to see a bit of a lift in the stock.  That short-covering
rebound seems to have already run its course, as the stock once
again reversed at its 4-month descending trendline ($29.50) on
Friday.  The fundamental picture hasn't changed, and if this
rebound appears to be providing us with a high-odds bearish entry
point.  In addition to historical resistance (broken support) at
the $30 level and the descending trendline, we have the 20-dma
($29.36) working in our favor.  Another pop up near this level
will likely have the bears piling in with fresh short positions
and we want to throw our hat in the ring.  Use a failed rally
below resistance to enter the play or else wait for a renewed
decline under the $27.75 support level.  We're initiating the
play with a tight stop at $30, as a close above that level would
prove the bulls are gaining strength.

*** August contracts expire next week ***

BUY PUT AUG-30 TMX-TF OI=2084 at $1.85 SL=1.00
BUY PUT SEP-30*TMX-UF OI= 140 at $2.80 SL=1.50
BUY PUT SEP-27 TMX-UY OI= 301 at $1.50 SL=0.75

Average Daily Volume = 1.86 mln



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The Option Investor Newsletter                   Sunday 08-11-2002
Sunday                                                      4 of 5


In Section Four:
Current Put Plays: AZO, HD, QCOM
Leaps: Who Let The Bulls Out?

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

AZO - AutoZone $67.28 +1.32 (-0.24 for the week)

Company Summary:

AutoZone is a Memphis-based auto parts chain that opened its 
first store in Forrest City, AR, on July 4, 1979. A public 
company listed on the New York Stock Exchange (AZO), AutoZone had 
sales of more than $4.5 billion in fiscal 2000. The nearly 3,000 
stores in 42 U.S. states and Mexico are all company-operated - 
there are no franchises. AutoZone, a Fortune 500 company, is 
opening more stores per year than any other retail auto parts 
chain in the nation.

Why we like it:

AZO enjoyed a bit of a rally today.  However, it was not able to 
reach yesterday's high and looks to have given us a better short 
entry point. We continue to see the interest rate debate ahead of 
next Tuesday's rate announcement as a negative for AZO.  If rates 
are lowered, consumers will possibly have more disposable income 
from re-financing and be able to better afford new cars.  This is 
in addition to already low financing on new vehicles, as 
evidenced by Ford and GM's recent increases in U.S. sales. If the 
Fed does not lower rates, we expect the market to give back some 
of its gains of the last three days. It is doubtful a stock with 
such recent weakness would be able to hold up in such an 
environment. With the exception of AZO's rally at the end of 
July, along with the rest of the market, the long-term trend has 
been down. The recent rally, making up all of the Dow's 700-point 
loss from the end of last week and beginning of this week, failed 
to lift AZO, which is a sign of poor relative strength.  

The PnF target of $60 remains our target on this play.  While we 
will need a 3-box reversal before this count is certain, the 
recent weakness in the stock confirms the current PnF sell 
signal.  This is our initial target, however, once this has been 
breached $55 looks like the next possibility.  We are leaving our 
stop loss at $70 as this would signal a reversal of the current 
pattern and would also register a new buy signal on the PnF 
chart.

BUY PUT AUG-70*AZO-TN OI=501 at $3.70 SL=2.00
BUY PUT SEP-65 AZO-UM OI=622 at $3.80 SL=2.00

Average Daily Volume = 1.29 mil


---

HD - Home Depot $28.29 +1.15 (-0.14 this week)

Company Summary:

Founded in 1978, The Home Depot® is the world's largest home 
improvement specialty retailer and the second largest retailer in 
the United States, with fiscal 2001 sales of $53.6 billion. The 
company employs more than 296,000 associates and has 1,437 stores 
in 49 states, Puerto Rico, seven Canadian provinces, and Mexico. 
Its stock is traded on the New York Stock Exchange and is 
included in the Dow Jones Industrial Average and Standard & 
Poor's 500 Index. (source: company release)

Why we like it:

Home Depot rebounded slightly today, however not yet convincingly 
enough to reverse the current trend. The stock remains in its 
descending channel, which was begun at the beginning of May, long 
before its gap down on July 12.  An interest rate drop next week 
may provide extra disposable income from refinancing, which 
consumers may use to remodel homes.  However, Home Depot is 
losing market share to Lowe's and does not appear capable of a 
strong rebound from its current trend.

The current triple bottom breakdown on HD's PnF chart is bearish.  
Home Depot's rebound to yesterday's high still shows a continuing 
downward trend.  The stock is now toward the top of its channel 
and the next roll down would plant the stock below $25.  There 
appears to be some consolidation going on right now, however the 
trend is still clearly negative.  The inability of this stock to 
benefit from the Dow's recent 700-point rally demonstrates very 
poor relative strength, and we will continue to hold this short 
position with a target in the low 20s.


BUY PUT AUG-30 HD-TF OI=6724 at $2.20 SL=1.25
BUY PUT SEP-30*HD-UF OI= 598 at $3.20 SL=1.75

Average Daily Volume = 12.3 mln


---

QCOM - Qualcomm $25.92 -0.12 (+0.37 for the week)


Company Summary:
QUALCOMM Incorporated is a leader in developing and delivering 
innovative digital wireless communications products and services 
based on the Company's CDMA digital technology. The Company's 
business areas include CDMA chipsets and system software; 
technology licensing; the Binary Runtime Environment for Wireless
(TM) (BREW(TM)) applications platform; QChat(TM) push-to-talk 
technology; Eudora® e-mail software; digital cinema systems; and 
satellite-based systems including portions of the Globalstar(TM) 
system and wireless fleet management systems, OmniTRACS® and 
OmniExpress®. QUALCOMM owns patents that are essential to all of 
the CDMA wireless telecommunications standards that have been 
adopted or proposed for adoption by standards-setting bodies 
worldwide. QUALCOMM has licensed its essential CDMA patent 
portfolio to more than 100 telecommunications equipment 
manufacturers worldwide. Headquartered in San Diego, Calif., 
QUALCOMM is included in the S&P 500 Index and traded on The 
Nasdaq Stock Market® under the ticker symbol QCOM. (source: 
company release)

Why we like it:

Qualcomm has made its best effort to recover from its recent down 
trend, however failed once again to hold a close over $26.  We 
like this stock short under $25, and will continue to hold the 
play.  The stock topped out at $26.60 intraday, however fell back 
into the close.  This action indicates there are sellers who feel 
the stock is overvalued, as the pattern suggests a lid at $26, 
with plenty of room below $25.  Looking ahead to next week, it is 
hard to imagine a continued rally in the broad markets past 
Tuesday.  If the Fed does cut rates, it will satisfy the appetite 
of those expecting the cut, but with a 6-9 month lag before the 
cut filters through the economy, it will do little to help the 
tech sector in the meantime.  If the rate cut does not take 
place, expect a market pullback and the crutch that has held 
Qualcomm upright the last couple of days will be gone.  

The low option premium and low time decay makes this play worth 
holding in spite of the lack of movement the last couple of days.  
We can certainly wait until Tuesday, as long as a Monday rally 
ahead of the FOMC meeting doesn't take us out of our stop of a 
closing price over $26.50.  This level would also be a little too 
close to the PnF reversal at $27.  Look for QCOM's descending 
channel from the beginning of the year to continue.  This channel 
has been amazingly consistent, and the stock's foray into the 
upper half should not be considered much more than a temporary 
diversion, as it is still holding the trend.  


BUY PUT AUG-25 AAW-TE OI= 1765 at $0.75 SL=0.00
BUY PUT SEP-25*AAW-UE OI= 3560 at $2.15 SL=1.00

Average Daily Volume = 16.5 mil




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*****
LEAPS
*****

Who Let The Bulls Out?
By Mark Phillips
mphillips@OptionInvestor.com

The situation in the broad markets was looking mighty grim again 
last Monday as the closing bell rang, but amazingly on Tuesday 
the sun came out and bulls frolicked for the remainder of the 
week.  Helping the bovine party along were decent results from 
CSCO Tuesday night, a bailout package for Brazil and hopes for a 
Fed rate cut next Tuesday.

CSCO's earnings were nothing impressive.  In fact the only reason 
they were received so well is that investors were relieved to 
hear nothing worse than demand is still weak.  No accounting 
worries, no skeletons, just high hopes from John Chambers, the 
company's CEO.  Brazil is an interesting situation, as the 
bailout package is little more than a short-term band-aid for a 
systemic problem.  No matter.  Investors still liked the message 
that was sent, as it will give big banks like JPM and C a chance 
to gracefully reduce their exposure in the region.  And Fed rate 
cut hopes?  Fogeddaboudit!  Oh sure they could do it, but my 
guess is that they aren't going to want to use one of only 3 
remaining bullets (25 bp cuts) just because a few Brokerage firms 
say it is a good idea.  With the 9/11 anniversary only a month 
away, look for the Fed to keep their weapon holstered next week.

The markets resumed their rally basically out of relief that they 
weren't going to fall off the edge of the earth and we're still 
in the oversold rebound area.  Volume has been notably weak and 
most stocks and sectors (Biotechs are a big exception) are still 
trading below their multi-month descending trendlines.  Oh sure 
they are close to breaking out and very well could next week, but 
let's remember that close only counts in horseshoes and hand 
grenades.

But I'm not going to argue with the markets.  In fact, with the 
changes to the playlists as detailed below, I think you can see 
that I'm hoping this rally has some legs.  Every one of our Watch 
List plays except for BA jumped over to the Portfolio with the 
resumption of the rally that got going on Tuesday.  I think it is 
interesting to note that they each pulled back into the 
consolidation zones dictated by our entry strategy.  Who says 
Technical Analysis doesn't work?  GRIN

Chief among the factors influencing my opinion that we've seen a 
successful market bottom (at least for a couple months) is the 
nice double-top in the VIX and double bottom in the broad market 
indices.  It looks to me like we're heading up over the near 
term, although I expect to still see a fair amount of volatility 
along the way.

Aside from INTC and BA, all of our plays have an extensive 
writeup down below, so my comments here will be rather brief.


Portfolio:
-------------------

INTC - We dropped BRCM this week and given the weak action in the 
SOX, I was VERY tempted to do the same thing with INTC.  Note 
that despite several broad market attempts to get moving to the 
upside, INTC continues to post lower highs.  And Monday's close 
at $15.88 (a new multi-year low) certainly wasn't encouraging.  
While we aren't dropping the play yet, I will likely do so if the 
current upward move is unable to crest the $19 level.  Clearly, I 
do NOT recommend initiating new plays on another dip towards $16.  
For those nervous about the position, consider closing on 
strength ahead of the FOMC meeting.


Watch List:
-------------------

BA - I really wanted to take an entry on Tuesday, as BA rebounded 
from roughly the $38.50 level, but memories of buying too early 
and being stopped out kept me on the sidelines.  I think BA is 
being pushed around by the action in the Dow Transports ($TRAN), 
and I'm not convinced of the strength there quite yet.  So let's 
keep that entry target in place and hope for one more dip to give 
us a better entry.  The PnF chart still says $32 is going to be 
the downside target, so I don't want to be over eager to get into 
the play until either that target is achieved or we get a fresh 
buy signal with a trade over $43.  Patience is key!

My poor little fingers are about to revolt after writing all 
those play descriptions and drops, so I'm going to keep the 
commentary brief this weekend.  I like the action we've seen up 
to this point, but please don't accuse me of turning long-term 
bullish.  This is a trading rally within an overall bear market.  
Treat it as such.  We can buy the dips for a rally that may last 
2 weeks and it may last 6 months.  At this juncture, nobody 
knows.  We've done the part of entering wisely quite well.  Now 
all we have to do is make sure we exit just as wisely when the 
time comes.

While there are several plays that I think might make good 
additions to the Watch List, I want to wait until next week.  
With 5 new Portfolio plays, I think you'll have plenty to keep 
you busy until next week.  My view of the market says we'll get 
another pullback, which should provide secondary entries into 
several of our new Portfolio plays.  And with another week of 
trading under our belts, it will be much easier to gauge 
intelligent entry points for the new Watch List plays I've got my 
eye on.

Buy the Dips With Caution!

Mark


-------------------
LEAPS Portfolio
-------------------

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
INTC   07/26/02  '03 $ 20  NQ -AD  $ 2.00  $ 1.95  - 2.50%  $15.50
                 '04 $ 20  LNL-AD  $ 4.10  $ 4.00  - 2.43%  $15.50
DJX.X  08/06/02  '03 $ 86  DJX-LH  $ 4.80  $ 6.90  +43.75%  $80
                 '04 $ 88  ZDJ-LJ  $ 7.50  $10.00  +33.33%  $80
GE     08/06/02  '03 $ 30  GE -AF  $ 3.50  $ 4.60  +31.43%  $28
                 '04 $ 30  LGR-AF  $ 4.80  $ 6.50  +35.42%  $28
MSFT   08/06/02  '03 $ 45  MQF-AI  $ 7.60  $ 8.20  + 7.89%  $43
                 '04 $ 50  LMF-AJ  $10.10  $11.10  + 9.90%  $43
                 '05 $ 50  ZMF-AJ  $13.70  $14.60  + 6.57%  $43
QQQ    08/06/02  '03 $ 25  OZC-AY  $ 1.70  $ 2.10  +23.53%  $21
                 '04 $ 25  KLF-AY  $ 3.40  $ 3.70  + 8.82%  $21
WMT    08/06/02  '03 $ 50  WMT-AJ  $ 3.80  $ 4.70  +23.68%  $44
                 '04 $ 50  LWT-AI  $ 7.30  $ 8.30  +13.70%  $44


Puts:
None

-------------------
LEAPS Watchlist
-------------------

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
BA     06/30/02  $37-38        JAN-2003 $ 45  BA -AI
                            CC JAN-2003 $ 40  BA -AH
                               JAN-2004 $ 45  LBO-AI
                            CC JAN-2004 $ 40  LBO-AH
                               JAN-2005 $ 50  ZBO-AJ
                            CC JAN-2005 $ 40  ZBO-AH

PUTS:
None

-------------------
New Portfolio Plays
-------------------

DJX - Dow Jones Industrials $82.74  **Call Play**

Despite my skepticism on Monday night, the bulls managed to pull
it together and rally off the $80 level on Tuesday.  With the
dual benefits of the Brazilian bailout (which helped Financial
stocks like C and JPM) and hopes for a Fed rate cut next Tuesday,
the DOW just kept on rising right into the weekend.  The rebound
on Tuesday gave us our successful test of the $80 level and I can
honestly say I was amazed by the positive action that prevailed.
But our job is to trade what we see, not what we believe.
Clearly, the $87.50 level is a line in the sand, with the bulls
and bears both unable to secure an advantage going into the
weekend.  The bulls can claim victory due to the fact that closed
the DOW right at resistance, while the bears can point to the fact
that the bulls didn't have enough horse (or bull) power to break
through that resistance.  Next week will definitely be exciting,
as volatility is still likely to be extreme.  But I think we
nabbed a first-rate entry point into the play.  Those still
sitting on the sidelines will want to look for a pullback into
the $83-84 level (perhaps on disappointment following a lack of
a rate cut on Tuesday) to allow them to enter the play at a
viable point.  The Bullish Percent for the DOW is now Bull
Confirmed, and the weekly Stochastics are in bullish mode as
well, clearing the way for a continuation of this rally to
perhaps the $94 level over the intermediate term.  Due to my
expectation for further volatility and the fact that we have
some gains under our belt already, I'm initially placing our stop
rather wide at $80.  If we get a breakout over $88 on a closing
basis next week, we'll look to raise that to $82.

BUY LEAP JAN-2003 $ 86 DJX-LH $4.80
BUY LEAP JAN-2004 $ 88 ZDJ-LJ $7.50

---

GE - General Electric $29.65  **Call Play**

As though I had scripted the move, GE cooperated last week by
falling right into the middle of our desired entry range on
Monday before rebounding with the remainder of the broad market
on Tuesday.  That triggered our entry, and to be honest, I was
amazed at how far the stock ran by the end of the week.  Perhaps
it has something to do with the fact that there isn't an issue
with the August 14th certification, or that the company has
announced that they will expense options.  More likely, I think
GE is just participating in the broad market rebound in
anticipation of a Fed ease on Tuesday.  I think that event is
rather unlikely, so disappointment is likely to be the name of
the game after the meeting, resulting in another pullback.  But
that pullback will likely just provide one more opportunity for
late-comers to enter the play on a dip near the $30 level.  It
is interesting to note, that although GE managed to close out the
week at its highest level since the end of May, buyers were unable
to clear the $33 level, which would have generated a fresh PnF
Buy signal.  That likely sets the stage for more weakness next
week after the FOMC meeting -- that likelihood is borne out by the
daily Stochastics, which are nearing overbought.  But the longer
term picture shows the weekly on a nice steep ascent, which ought
to give us a run into the mid-$30s before it has run its course.
While that may not seem like much, look at the %gain in just the
past few days, and you can see that a few dollars in GE can
translate into sizable gains in an options trade.  Take note of
the fact that I have changed the symbol of the 2003 LEAP to
reflect a symbol change at the CBOE.

BUY LEAP JAN-2003 $ 30 GE -AF $3.50
BUY LEAP JAN-2004 $ 30 LGR-AF $4.80

---

MSFT - Microsoft Corp. $45.66  **Call Play**

If there's a big-cap stock in the Technology arena that we should
monitor for indications of whether the NASDAQ has any hopes of
recovery, MSFT would be it.  Despite the attrition that has taken
place in the PC arena over the past couple years, Mr. Softee just
refuses to give up the ghost.  I know it was a bit unusual to
throw it back onto the Watch List right after being stopped out
recently, but I think it is a move that is going to pay off.  The
first bounce off the bottom was a bit too violent to trade, but
last week's drop back to support near the $44 level was just what
we were looking for.  With the broad market recovering, MSFT went
along for the ride, pushing as high as $49 before pulling back
near the end of the day on Friday.  While there will likely be
some volatility surrounding next Tuesday's FOMC meeting, I think
we grabbed a solid entry into the play this time around.  Note
that the PnF chart is currently on a buy signal, and we don't get
into trouble from the long side until a trade at $43, just below
last week's lows.  Use a dip and bounce above this level (ideally
in the $45-46 area) to initiate new positions if you missed your
chance last week.  We'll initially place our stop at $43, but
will look to raise it as soon as MSFT pushes its way through the
$50 level on a closing basis.

BUY LEAP JAN-2003 $ 45 MQF-AI $ 7.60
BUY LEAP JAN-2004 $ 50 LMF-AJ $10.10
BUY LEAP JAN-2005 $ 50 ZMF-AJ $13.70

---

QQQ - NASDAQ-100 Trust $22.50  **Call Play**

Continuing with the theme of the week, even the NASDAQ got into
the act, rebounding from its fresh lows on Monday.  We were
looking to re-enter the play on a rebound from the $22 level, and
while we didn't get in at the low, we certainly got what I think
is a solid entry as the Technology market works on putting in a
decent tradable bottom.  Demonstrating the fact that it is still
the laggard of the indices, the QQQ came to rest just below its
3-month descending trendline ($23.70) on Friday.  We definitely
need to see a breakout over this level and more importantly
$24.50 to convince us that there is some room to run on this
fledgling recovery.  But the early signs are encouraging, with
the weekly Stochastics starting to poke out of oversold territory
(again!) and the Bullish Percent chart trying to transition from
Bull Correction into Bull Confirmed.  I feel we got a great entry
into the play, and now we just need to manage our risk as the QQQ
works up the chart, most likely in a 2 steps forward, 1 step back
manner.  Another pullback and bounce from the $22.00-22.50 area
should provide late entries into the play before the bulls
finally break that descending trendline.  Place stops at $21, just
below last week's low.  Take note of the fact that I have changed
the symbol of the 2003 LEAP to reflect a symbol change at the
CBOE.

BUY LEAP JAN-2003 $ 25 OZC-AY $1.70
BUY LEAP JAN-2004 $ 25 KLF-AY $3.40

---

WMT - WalMart Stores $47.28  **Call Play**

Even with lackluster data related to Retail Sales, and the huge
warning from BBY on Thursday, the Retail index is trying to put
in a bottom.  And as the undisputed leader in the Discount Retail
arena, WMT is still kicking tail and taking names.  Oh, I don't
expect the stock to post new highs any time soon, but I certainly
like the action on the PnF chart.  The rebound off the lows a
couple weeks ago put the stock back in a column of X's and since
then we've gotten a fresh PnF Buy signal that indicates WMT should
run up near the $58 level over the intermediate term.  But we
aren't likely to go there in one straight shot, especially with
the bearish resistance line looming at $52.  Dips are definitely
buyable though, and we took advantage of the one last week to get
us into the play after the rebound off the $46 level.  The next
hurdle for WMT to clear is $50 resistance, which will give us
another double top PnF Buy signal.  If not in the play though, we
would recommend waiting until after the post-FOMC dust settles.
WMT announces earnings Tuesday morning and then we'll have the
(likely) disappointment of no interest rate cut.  Depending on
the outcome of (and investor response to) those two events, we
could very easily see another dip into the $46-47 area, which
would give us another attractive entry setup.  Initial stops
are in place at $44.

BUY LEAP JAN-2003 $ 50 WMT-AJ $3.80
BUY LEAP JAN-2004 $ 50 LWT-AI $7.30

-------------------
New Watchlist Plays
-------------------

None

-------------------
Drops
-------------------

BRCM $17.63 Hoping for BRCM to continue its upward trek proved to
be an exercise in futility, as the stock's strength early in our
play quickly faded.  While I was looking for the $16 level to
provide support for the next leg up, there was just no way for
BRCM to avoid the double onslaught of another breakdown in the
SOX, along with nervousness about CSCO's earnings report,
resulting in a trade below our $16 stop on Monday.  I actually
violated my rule on this one, as I was unwilling to take an exit
on Monday, knowing (alright, believing) that there would be a
bounce back from that level, providing us with a more favorable
exit.  Sure enough we got it.  Whew!  But while the stock has
recovered somewhat off the lows, there is no conviction in the
buying.  We're closing this position as of Friday's closing
price.  Take advantage of any price strength on Monday as an
opportunity to exit open positions at a more favorable price.

GD $17.63 Well, that was nicely scripted.  I said to take
advantage of any drop below $80 as an opportunity to close our
GD play and harvest those gains.  Monday's broad market decline
gave us just what we were looking for as the stock fell to close
at $78.81.  Note the resilience that has kept GD from breaking
below $78 over the past 3 weeks and I think you can see the merit
of taking our exit on weakness.  While I think there may still be
a couple more $$ of downside action, the bulk of the gains to be
had in this play have already accrued.  We exited the play as of
Monday's close.



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The Option Investor Newsletter                   Sunday 08-11-2002
Sunday                                                      5 of 5


In Section Five:

Covered Calls: Using LEAPS With Covered-Calls
Naked Puts: Selling Puts...And Surviving The Aftermath!
Spreads/Straddles/Combos: Echoes Of Optimism...

Updated In The Site Tonight:
Market Watch
Market Posture
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*************
COVERED CALLS
*************

Option Trading Basics: Using LEAPS With Covered-Calls
By Mark Wnetrzak

The are many ways to be successful with covered-calls and using
LEAPS can add versatility to your long-term stock portfolio.


Attn: Covered-Calls Editor
Subject: Selling Covered-Call LEAPS

Hi Mark,

I have question regarding selling covered-calls:

Instead of selling short-term covered-calls, I would like to
sell LEAPS options as the "covered" calls.

For example, if I sell "at-the-money" 2004 LEAPS calls on a
stock, I will receive a large premium...plus I do not have to
check on my position every day.

While selling monthly covered-calls, if the stock price goes
down substantially, I will lose a lot of money -- besides the
worries it creates, and the (multiple) trade commissions.

Do I understand correctly or am I making the wrong decision?

Thank you.

RP


Hello RP,

With the substantial decline in stock prices, we have received a
number of E-mails about selling LEAPS in covered-call positions
to recover value in long-term portfolio issues.  The strategy
of writing LEAPS against portfolio stock can be a great way to
offset potential losses in downtrodden equities because the time
value premium in LEAPS is less affected by market downturns and
sharp declines in the underlying issue can increase the implied
volatility (providing additional premium) of the sold options.

In most cases, positions involving LEAPS do not differ much from
those using shorter-term options.  LEAPS can be sold against the
stock in the same manner as near-term call options.  The covered
write position with LEAPS will have limited profit potential when
compared to outright stock ownership, but will outperform that
strategy if the stock declines in value or remains relatively
unchanged.  At the same time, a trader who sells LEAPS will earn
a substantial credit when compared to a near-term covered write
and since he is selling a more expensive option, the initial
cash investment in new positions will be smaller.  The LEAPS
writer also has a higher net return if assigned early, because
the cost basis in the underlying issue was reduced through the
sale of additional premium.  For long-term investors, writing
covered LEAPS can provide additional insurance against bearish
market activity while retaining the potential for stock splits
and spin-offs, dividends and other benefits of stock ownership.

The most significant difference in LEAPS is their slow rate of
time-value decay.  While this effect is initially beneficial to
option writers, it can be a major obstacle in future position
adjustments.  The premiums (due to future potential) inherent in
LEAPS prices can be very large even when they are substantially
in- or out-of-the-money.  This characteristic will significantly
affect a trader's ability to roll-out of a position because the
sold (short) call option is relatively expensive to repurchase.
However, a short-term covered-call writer who is faced with the
task of rolling down - buying back a current short position and
selling another with a lower strike price - may transition to
LEAPS as a simple means of reducing the overall basis in the
underlying issue, even though he may be moving to a potentially
less profitable position.  The large absolute premiums available
in LEAPS make them an attractive tool in hedging against future
downside activity, but selling long-term options to salvage lost
share value is not always the most efficient technique.  The key
to a correct assessment of this popular strategy, whether used
for new positions or in an attempt to recover from falling stock
prices, lies in comparing the difference in annualized returns
from the sale of LEAPS versus those that can be achieved from
repeatedly writing shorter-term options.


Attn: questions@OptionInvestor.com
Subject: Covered Calls on LEAPS

Hello OIN,

I thought I had read somewhere that covered calls can be written
against leaps.  Can you comment on this technique?

Thanks 

JC


Hello JC,

Covered-call writing is a stock options trading strategy that some
investors use when they are looking for a conservative risk/return
profile, while maintaining a meaningful profit potential in either
bullish or neutral market environments.  An investor will usually
want to write a covered call to generate income, collecting the
premium for the sale of the option against a stock in his or her
portfolio.  This strategy can also be used with LEAPS however it
differs because it does not involve the ownership of shares of the
underlying stock; LEAPS are substituted for the long position.

The strategy is basically a calendar spread.  Calendar (or time)
spreads involve the sale of one option and the purchase of a more
distant option, generally both with the same strike price.  The
basic strategy implies a neutral-outlook philosophy, based on the
fact that time will erode the value of the near-term option at a
faster rate than it will the longer-term option.  An additional
benefit comes from writing calls against the long position each
month, thus lowering the overall cost basis of the position.

After the initial position is in place, LEAPS with covered-calls
require little maintenance unless there is a large change in the
price of the underlying issue.  Ideally, the investor would like
the stock to trade in a relatively small price range and finish
just below the sold strike price when the near-term call expires.
However, if the short-term position is "in-the-money" on the last
day of the expiration period, you simply buy it back so that you
don't have to exercise the LEAPS to cover your obligation -- that
would defeat the purpose of the strategy.  At the beginning of
each new strike period, you sell the next month's call to further
reduce your overall cost basis in the LEAPS.

There are other, more complex, issues involved in trading calendar
spreads and McMillan's book, "Options as a Strategic Investment"
has some excellent information on the subject.

Trade Wisely!


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

FDRY    7.50   8.99   AUG   7.50  0.45  *$  0.45  13.9%
GCOR   10.16  11.66   AUG  10.00  0.70  *$  0.54  12.4%
ENDP    8.58   8.17   AUG   7.50  1.45  *$  0.37  11.3%
LVLT    5.75   5.95   AUG   5.00  1.20  *$  0.45  10.7%
ISRG    7.52   7.95   AUG   7.50  0.35  *$  0.33  10.0%
ICOS   19.01  27.49   AUG  17.50  2.55  *$  1.04   9.2%
AMLN   10.00  13.00   AUG  10.00  0.90  *$  0.90   8.6%
CREE   13.98  14.45   AUG  12.50  2.30  *$  0.82   7.6%
NPSP   17.11  23.06   AUG  12.50  5.60  *$  0.99   7.5%
SNDK   14.40  13.11   AUG  12.50  2.85  *$  0.95   7.1%
TRLY    6.31   5.67   AUG   5.00  1.60  *$  0.29   6.7%
SBL     8.58   9.00   AUG   7.50  1.50  *$  0.42   6.4%
OTEX   20.41  20.78   AUG  17.50  3.40  *$  0.49   6.3%
FTI    17.40  18.68   AUG  15.00  3.00  *$  0.60   6.0%
HYSL   17.85  23.04   AUG  17.50  1.05  *$  0.70   6.0%
ALXN   13.73  13.53   AUG  12.50  1.55  *$  0.32   5.7%
BRCD   18.50  15.36   AUG  15.00  4.40  *$  0.90   5.5%
BRCM   20.39  17.63   AUG  17.50  3.90  *$  1.01   5.3%
NPSP   20.89  23.06   AUG  17.50  4.00  *$  0.61   5.2%
HGSI   14.98  17.87   AUG  12.50  2.90  *$  0.42   5.0%
IMDC   16.00  18.30   AUG  12.50  3.90  *$  0.40   4.8%
IVGN   30.88  36.46   AUG  25.00  6.90  *$  1.02   4.6%
IVGN   32.68  36.46   AUG  27.50  6.00  *$  0.82   4.5%
EXTR   10.67   9.29   AUG  10.00  1.70   $  0.32   3.1%
WEBX   13.88  11.91   AUG  12.50  2.20   $  0.23   2.1%
ULGX    5.32   4.32   AUG   5.00  0.70   $ -0.30   0.0%

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

Comments:

Well, the major averages are at a key moment as they finished 
(stalled) at the end-of-July high.  Next week will either be
a drop from resistance (failed rally) or break-out city.  
Simple enough, just vote with your cash and remember, it is
also expiration week.  Time to re-evaluate any issues that
are acting weaker than expected (failed to rally with the
market) and act accordingly.  Two issues to consider closing
in the name of capital preservation are WebEx Communications
(NASDAQ:WEBX) and Urologix (NASDAQ:ULGX).  Some other stocks
on our early exit watch list include:  Level 3 Communications 
(NASDAQ:LVLT), Sandisk (NASDAQ:SNDK), Open Text (NASDAQ:OTEX),
Broadcom (NASDAQ:BRCM), Brocade Communications (NASDAQ:BRCD),
and Extreme Networks (NASDAQ:EXTR).  

Positions Previously Closed:  Zixit (NASDAQ:ZIXI), Sprint PCS 
(NYSE:PCS), Juniper Networks (NASDAQ:JNPR) and Digital River 
(NASDAQ:DRIV).  



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

AFFX   18.51  SEP 15.00   FIQ IC  4.40 140   14.11   42    4.6%
ALKS    7.70  SEP  7.50   QAL IU  1.25 30     6.45   42   11.8%
MDR     6.00  SEP  5.00   MDR IA  1.50 69     4.50   42    8.0%
MLNM   14.16  SEP 12.50   QMN IV  2.45 2731  11.71   42    4.9%
MRCY   24.79  SEP 22.50   QYR IX  3.60 7     21.19   42    4.5%
MYGN   24.96  SEP 22.50   GSQ IX  4.10 28    20.86   42    5.7%
NXTL    5.49  SEP  5.00   FQC IQ  1.10 1187   4.39   42   10.1%

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

ALKS    7.70  SEP  7.50   QAL IU  1.25 30     6.45   42   11.8%
NXTL    5.49  SEP  5.00   FQC IQ  1.10 1187   4.39   42   10.1%
MDR     6.00  SEP  5.00   MDR IA  1.50 69     4.50   42    8.0%
MYGN   24.96  SEP 22.50   GSQ IX  4.10 28    20.86   42    5.7%
MLNM   14.16  SEP 12.50   QMN IV  2.45 2731  11.71   42    4.9%
AFFX   18.51  SEP 15.00   FIQ IC  4.40 140   14.11   42    4.6%
MRCY   24.79  SEP 22.50   QYR IX  3.60 7     21.19   42    4.5%


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).

*****
AFFX - Affymetrix  $18.51  *** Long-Term Technical Support ***

Affymetrix (NASDAQ:AFFX) develops and commercializes systems 
that help scientists alleviate human suffering and improve the 
quality of life by applying the principles of semiconductor 
technology to the life sciences.  The company's integrated 
GeneChip platform consists of disposable DNA probe arrays 
containing gene sequences on a chip, certain reagents for 
use with the probe arrays, a scanner and other instruments to
process the probe arrays and software to analyze and manage
genetic information from the probe arrays.  Related microarray
technology includes instrumentation, software and licenses for
fabricating, scanning and collecting and analyzing results from
low-density microarrays.  Affymetrix sells its products directly
to pharmaceutical, biotechnology, agrochemical, diagnostics 
and consumer products companies, as well as academic research 
centers, government research laboratories, private foundations
and clinical reference laboratories in the United States and 
Europe and Asia Pacific.  In July, Affymetrix narrowed its loss
in the second quarter due to rising demand for the chips it 
makes for genetic research.  We simply favor a cost basis below
the long-term support area (two-year chart) near $15 and the
recent move above the 30-dma.  

SEP 15.00 FIQ IC LB=4.40 OI=140 CB=14.11 DE=42 TY=4.6%


*****
ALKS - Alkermes  $7.70  *** Germany and U.K. Approvals ***

Alkermes (NASDAQ:ALKS) develops products that are based on 
sophisticated drug delivery technologies.  The company has 
several areas of focus, including controlled, sustained-
release of injectable drugs, lasting several days to several
weeks, utilizing its ProLease and Medisorb technologies, and
the development of pharmaceutical products based on its 
proprietary Advanced Inhalation Research (AIR) pulmonary 
technology.  The company's current focus is on the development
of broadly applicable drug delivery technologies that include 
injectable sustained-release of proteins, peptides and small
molecule pharmaceutical compounds, the pulmonary delivery of
both small molecules and proteins and peptides and drug 
delivery to the brain across the blood-brain barrier.  ALKS
surged this month after its partner, Johnson & Johnson (NYSE:
JNJ), received approval in Germany to market a long-acting,
injectable form of J&J's schizophrenia drug Risperdal.  The
approval comes a month after the U.S. FDA rejected the drug
for the U.S. market, which dropped Alkermes' stock down 68%. 
On Friday, Alkermes and Johnson and Johnson's also received
approval from the national regulatory agency in the U.K. to
market Risperdal Consta, or risperidone.  The stock rallied
on heavy volume and traders can speculate on the near-term 
performance of the issue with this conservative position.

SEP 7.50 QAL IU LB=1.25 OI=30 CB=6.45 DE=42 TY=11.8%


*****
MDR - McDermott  $6.00  *** Asbestos Agreement ***

McDermott International (NYSE:MDR) is the parent company of the
McDermott group of companies, which includes J. Ray McDermott, 
S.A. and its consolidated subsidiaries; McDermott Incorporated 
and its consolidated subsidiaries; Babcock & Wilcox Investment 
Company and its consolidated subsidiaries; BWX Technologies, Inc.
and its consolidated subsidiaries; and The Babcock & Wilcox 
Company.  MDR operates in four business segments: namely Marine 
Construction, Government Operations, Industrial Operations and
Power Generation Systems.  Shares of McDermott jumped this week
on news the company reached a preliminary agreement with asbestos
claimants against its bankrupt Babcock & Wilcox Co. unit.  We 
like the technical reversal and our conservative position offers
a method to speculate on the future movement of the issue with
relatively low risk.

SEP 5.00 MDR IA LB=1.50 OI=69 CB=4.50 DE=42 TY=8.0%


*****
MLNM - Millennium  $14.16  *** Biotech Rally ***

Millennium Pharmaceuticals (NASDAQ:MLNM) is a biopharmaceutical 
company focused on applying its comprehensive and integrated 
science and technology platform to discover and accelerate the
development of drugs and predictive medicine products.  These 
drugs and products may enable physicians to more closely 
customize medical treatment by combining knowledge of the 
genetic basis for disease and the genetic characteristics of a
patient.  MLNM primarily focuses its research and development 
and commercialization activities in four key disease areas: 
cardiovascular, oncology, inflammatory and metabolic.  In July,
Millennium reported a wider second-quarter loss, due to higher
research and promotional expenses, but also reported a more 
than 50% increase in revenue.  The stock has recently gained
strength and the move above the June-July consolidation area
bodes well for the future.  This position offers an excellent
reward potential at the risk of owning this industry-leading
issue at a favorable cost basis.

SEP 12.50 QMN IV LB=2.45 OI=2731 CB=11.71 DE=42 TY=4.9%


*****
MRCY - Mercury  $24.79  *** Defense Segment Strong ***

Mercury Computer Systems (NASDAQ:MRCY) designs, manufactures
and markets high performance, real-time digital signal and image 
processing systems that transform sensor generated data into
information that can be displayed as images.  The company's 
products are divided into two categories: Hardware Products,
which include High Performance Class, VME Class and Industrial
PC Class; and Software Products, which include MC/OS Run-Time
Environment, Scientific Algorithm Library, Vector Signal and 
Image Processing Library, Parallel Application System, RACE++
Series MULTI Integrated Development Environment, and TATL Trace 
Analysis Tool and Library.  Shares of Mercury surged this week
after the company reported fiscal 4th-quarter earnings that
topped Wall Street expectations.  The company also received 
several upgrades as increased military spending should help
future quarters.  Our outlook is also bullish, due to the 
recent technical reversal on heavy volume, and this position
offers a favorable cost basis in the issue.

SEP 22.50 QYR IX LB=3.60 OI=7 CB=21.19 DE=42 TY=4.5%


*****
MYGN - Myriad Genetics  $24.96  *** On The Mend ***

Myriad Genetics (NASDAQ:MYGN) is a biopharmaceutical company 
focused on the development and marketing of novel therapeutic
and predictive medicine products.  The company has developed a
number of proprietary proteomic technologies that permit it to
identify genes, their related proteins and the biological path-
ways they form.  The company operates two subsidiaries, Myriad 
Pharmaceuticals, which develops and intends to market novel 
therapeutic products; and Myriad Genetic Laboratories, which 
focuses on the development and marketing of predictive medicine
products that assess an individual's risk of developing a 
specific disease.  There's not much news on Myriad but the
technical indications suggest the issue has successfully
completed its recent consolidation and is poised for future
gains.  With the drug sector gaining favor, this position 
offers a reasonable entry point from which to speculate
on the company's future. 

SEP 22.50 GSQ IX LB=4.10 OI=28 CB=20.86 DE=42 TY=5.7%


*****
NXTL - Nextel Communications  $5.49  *** Forging A Base ***

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.  Nextel shares 
soared last month amid rumors of consolidation among the 
nation's major wireless carriers and a solid 2nd-quarter
earnings report.  Nextel's sales in the U.S. increased 25% 
to $2.2 billion, and management raised its forecast for 2002.
The company also reduced its debt load ahead of schedule and
its credit profile improved.  The stock has now pulled back
to technical support near $5 after its recent "rocket" advance.
This position offers a favorable cost basis for investors who
believe the wireless sector has finally found a bottom.

SEP 5.00 FQC IQ LB=1.10 OI=1187 CB=4.39 DE=42 TY=10.1%


*****

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

IMMU    6.03  SEP  5.00   QUI IA  1.55 111    4.48   42    8.4%
WGRD    5.21  SEP  5.00   RUH IA  0.70 111    4.51   42    7.9%
EXTR    9.29  SEP  7.50   EXJ IU  2.40 290    6.89   42    6.4%
PRSE   12.45  SEP 10.00   PUI IB  3.20 10     9.25   42    5.9%
ICST   18.92  SEP 15.00   IUY IC  4.80 32    14.12   42    4.5%
TARO   31.06  SEP 30.00   QTT IF  2.80 461   28.26   42    4.5%
CCMP   41.35  SEP 35.00   UKR IG  8.30 123   33.05   42    4.3%



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

Option Trading 101: Selling Puts...And Surviving The Aftermath!
By Ray Cummins

One of our readers asked about the most common methods used to
recover from bearish activity in the stock market.


Attn: OIN - Trading 101 Editor
Subject: Recovery Strategies

Greetings,

I've been trading options for about a year and although I have
been successful on a few occasions, my account balance has
suffered the consequences of a far too optimistic outlook.  My
main strategy of late has been selling puts and now I own some
stocks at prices much higher than their current values.  If I
am going to be in this for the long haul, is there a preferred
way to recover the losses in these issues?  Should I be buying
more of the stocks I own (averaging) and if so, should I sell
calls against them.  Also, I read about using a combination of
stocks and sold options with a debit spread.  Is this a viable
strategy?  Any help to repair my ailing portfolio would be much
appreciated!

Thanks,

SD


Regarding Recovery Strategies:

Lets start with the first approach you mentioned, which involves
buying more of the same stock, or "averaging."  By definition,
averaging is the practice of purchasing the same stock at various
price levels, thereby arriving at a higher or lower average cost.
For long-term investors, averaging down is a very popular tactic
as it is an easy way to lower the overall cost basis in an issue.
Likewise, professional fund managers also utilize the technique
to reduce the cost-per-share of the stocks in their portfolio in
a bearish market.

In most cases, the strategy of averaging down is a practical and
successful method of recovering share value losses however, the
purchase of additional stock should never considered if the added
exposure is not justified by the current technical or fundamental
outlook for the issue.  Increasing one's capital commitment in a
previously losing position requires strong will and deep pockets,
and financial self-destruction is a common outcome for those who
possess both attributes.  At the same time, there are many savvy
market players who buy and hold, then add-to, and finally, sell
for a profit.  This class of investors is schooled in the science
of systematic investing and the art of accumulation of wealth over
time.  They understand the virtue of patience, entering the market
prudently with a long-term outlook that is unconcerned about the
ongoing cycles and fluctuations.

The difficult part of this strategy -- adding to an already sagging
portfolio -- is most pronounced when market conditions seem to be
going from bad to worse and many investors are reluctant to spend
money on stocks when it really counts.  They fail to realize that
the fundamental goal of this approach is to buy in depressed times
with the idea of profiting through a widespread recovery in the
economy, which eventually leads to higher equity values.  One must
understand that from a strategic viewpoint, those who participate
in this manner are simply contrarians who have decided to use the
infrequent lulls as an opportunity to increase their holdings at
attractive prices.  They will achieve success by purchasing issues
that have the potential to grow exponentially when the market turns
upward and they can add to their positions at regular intervals to
even out the troughs and peaks, accruing investment gains over time
in a methodical, organized manner.

Although averaging down is a popular technique, most professionals
say it is also important to average up when the trend is bullish.
That opinion is certainly supported by mutual fund managers, who
add to their stock holdings on a regular basis in rising markets.
However, this activity can be challenging for novice players because
it is complete contrast to the approach ordinarily recommended in
investing manuals; that being the practice to "buy and hold," and
then buy more on a decline.  From an emotional standpoint, it is
natural to rationalize this strategy as it offers a more favorable
entry opportunity than that of the original position.  But, it is
far more productive to consider that any increase in exposure to a
specific market is similar to entering the initial position; thus
it must be assessed based on its current merits.  The question to
ask before adding to a losing position is whether the recent price
action warrants additional portfolio capital.  That question can
only be answered after careful study of the prevailing conditions,
both technical and fundamental.  Of course, the notion that buying
additional stock at a lower price in a long position improves the
overall cost basis often overshadows the fact that this benefit is
at the expense of the new shares.  In simple terms, the existing
position cannot be averaged without producing a similar effect on
the more recent purchase and the end result has a relative benefit
only when viewed with regard to the original position.
 
Regardless of the manner in which you approach the stock market,
it is important to devote only the amount of capital that is
within the proper limits of your investing portfolio.  When in
doubt, limit the size of the initial position until a favorable
trend is well established.  After the position is in place, have
the courage to accept a loss and act promptly at the first sign
of danger.  The most important lesson to learn is that each issue
should be constantly evaluated both fundamentally and technically
to determine if it merits your investment capital.  You have to
ask, "If I were considering this stock for the first time today,
would I buy it?"  If not, sell it and move your assets to a more
favorable investment.  Learning to manage the situation at hand
(keeping the losses to a minimum) is one of the most important
aspects of profitable investing and it must become second nature
to ensure long-term success.

Editor's Note: This narrative will be continued in next Sunday's
edition of the OIN. 


                        *** 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

NXTL    6.64   5.49   AUG   5.00  0.25  *$  0.25  17.2%
ICOS   23.73  27.49   AUG  20.00  0.45  *$  0.45  15.7%
SNDK   15.08  13.11   AUG  12.50  0.55  *$  0.55  14.9%
DCTM   14.86  14.40   AUG  12.50  0.40  *$  0.40  14.6%
PDLI   13.02  13.32   AUG  10.00  0.25  *$  0.25  12.7%
MCDTA   9.70   9.90   AUG   7.50  0.25  *$  0.25  12.4%
ISSX   15.45  15.84   AUG  12.50  0.30  *$  0.30  12.3%
PLMD   29.95  25.93   AUG  25.00  0.40  *$  0.40  11.7%
DCTM   12.90  14.40   AUG  10.00  0.30  *$  0.30  11.3%
BCGI    8.90   9.26   AUG   7.50  0.25  *$  0.25  11.3%
CHKP   15.69  16.90   AUG  12.50  0.25  *$  0.25  10.7%
TRMS   46.62  48.18   AUG  40.00  0.60  *$  0.60  10.3%
BRCM   19.86  17.63   AUG  15.00  0.40  *$  0.40   9.9%
FCN    40.00  41.00   AUG  35.00  0.80  *$  0.80   9.8%
LNCR   31.50  31.13   AUG  30.00  0.50  *$  0.50   9.4%
VMSI   22.35  21.02   AUG  20.00  0.25  *$  0.25   7.9%
MU     23.39  18.90   AUG  17.50  0.45  *$  0.45   7.6%
OSIP   26.79  32.58   AUG  22.50  0.35  *$  0.35   7.5%
PDLI   10.95  13.32   AUG   7.50  0.20  *$  0.20   7.3%
SYY    27.20  28.97   AUG  25.00  0.30  *$  0.30   7.3%
RIMM   13.82  10.45   AUG  10.00  0.25  *$  0.25   7.2%
DT     12.00  10.92   AUG  10.00  0.25  *$  0.25   7.1%
IVGN   35.13  36.46   AUG  30.00  0.30  *$  0.30   7.1%
NBIX   36.24  39.00   AUG  30.00  0.25  *$  0.25   6.4%
QCOM   28.11  25.90   AUG  20.00  0.40  *$  0.40   5.8%
QLGC   40.69  35.90   AUG  25.00  0.45  *$  0.45   5.7%
AMGN   43.51  47.73   AUG  37.50  0.30  *$  0.30   5.6%

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

Comments:

Despite the bullish activity in equities, traders should remain
vigilant in their position management as a retest of the recent
lows is likely in the coming weeks.  Issues on the watch-list
include: Sandisk (NASDAQ:SNDK), Deutsche, Telecom (NYSE:DT),
Micron Technology (NYSE:MU), Research In Motion (NASDAQ:RIMM),
Polymedica (NASDAQ:PLMD) and Ventana Medical (NASDAQ:VMSI).

Positions Previously Closed: 

Applied Materials (NASDAQ:AMAT), Cisco Systems (NASDAQ:CSCO),
Royal Gold (NASDAQ:RGLD), Sangstat (NASDAQ:SANG), Motorola
(NYSE:MOT), and Atmi (NASDAQ:ATMI).


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   13.00  SEP 10.00   AQM UB  0.40 50     9.60   42    9.7%
CVTX   26.01  SEP 20.00   UXC UD  0.70 37    19.30   42    8.6%
ENZN   24.13  SEP 17.50   QYZ UW  0.60 546   16.90   42    8.0%
FDRY    8.99  SEP  7.50   OUJ UU  0.35 1604   7.15   42   10.3%
HGSI   17.87  SEP 12.50   HQI UV  0.30 95    12.20   42    5.6%
ICOS   27.49  SEP 20.00   IIQ UD  0.75 162   19.25   42    8.7%
INVN   28.36  SEP 22.50   FQQ UX  0.85 102   21.65   42    9.4%
NPSP   23.06  SEP 15.00   QKK UC  0.45 2     14.55   42    6.4%
OSIP   32.58  SEP 22.50   GHU UX  0.70 1253  21.80   42    7.0%

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

FDRY    8.99  SEP  7.50   OUJ UU  0.35 1604   7.15   42   10.3%
AMLN   13.00  SEP 10.00   AQM UB  0.40 50     9.60   42    9.7%
INVN   28.36  SEP 22.50   FQQ UX  0.85 102   21.65   42    9.4%
ICOS   27.49  SEP 20.00   IIQ UD  0.75 162   19.25   42    8.7%
CVTX   26.01  SEP 20.00   UXC UD  0.70 37    19.30   42    8.6%
ENZN   24.13  SEP 17.50   QYZ UW  0.60 546   16.90   42    8.0%
OSIP   32.58  SEP 22.50   GHU UX  0.70 1253  21.80   42    7.0%
NPSP   23.06  SEP 15.00   QKK UC  0.45 2     14.55   42    6.4%
HGSI   17.87  SEP 12.50   HQI UV  0.30 95    12.20   42    5.6%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even 
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

*****
AMLN - Amylin Pharmaceuticals  $13.00  *** Speculation Play! ***

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.  The
company has exclusive rights to two drug candidates that are in
late-stage development for the treatment of diabetes, SYMLIN and
AC2993.  The company has a third drug candidate, AC3056, in early
stage clinical trials, and maintains a very focused research and
development program to discover and in-license additional drug
candidates for metabolic diseases.  Amylin shares have been in a
bullish trend since mid-June, when the company presented favorable
SYMLIN and AC2993 results at the annual scientific sessions of the
American Diabetes Association.  Amylin's CEO also commented that
the company is currently in discussions with a potential partner
for AC2993 development and the company's upcoming earnings report
has simply added to the volatility.  Traders who want to speculate
on the near-term share value of this unique biopharmaceutical firm
should consider this position.

SEP 10.00 AQM UB LB=0.40 OI=50 CB=9.60 DE=42 TY=9.7%


*****
CVTX - CV Therapeutics  $26.01  *** New Heart Drugs ***

CV Therapeutics (NASDAQ:CVTX) is a biopharmaceutical firm focused
on applying molecular cardiology to the discovery, development and
commercialization of novel, small molecule drugs for the treatment
of cardiovascular diseases.  The company has four new compounds in
clinical trials including Ranolazine, the first in a new class of
compounds known as partial fatty acid oxidation inhibitors, which
is being developed for the potential treatment of chronic angina.
Shares of CVTX rose this week after the biotechnology company said
it will start next year a pivotal-stage trial of its experimental
drug for diagnosing heart disease.  The firm said a mid-stage trial
of the compound, called CVT-3146, showed that it increased coronary
blood flow velocity and met the requirements for a cardiac imaging
agent.  Another important catalyst for CVTX is the successful, on
time application for the ranolazine NDA and the company's product
pipeline continues to improve.

SEP 20.00 UXC UD LB=0.70 OI=37 CB=19.30 DE=42 TY=8.6%


*****
ENZN - Enzon  $24.13  *** Biotech Binge! ***

Enzon (NASDAQ:ENZN) is a biopharmaceutical company that develops
and commercializes enhanced therapeutics for life-threatening
diseases through the application of its two proprietary platform
technologies: polyethylene glycol and single-chain antibodies.
The company applies their PEG technology to improve the delivery,
safety and efficacy of proteins and small molecules with known
therapeutic efficacy.  Enzon utilizes its single-chain antibody
technology to discover and produce antibody-like molecules that
offer many of the therapeutic benefits of monoclonal antibodies
while addressing some of their limitations.  Enzon is another
biotech issue in the early stages of recovery mode and traders
who like the outlook for the company can use this position to
establish a low risk cost basis in the issue.

SEP 17.50 QYZ UW LB=0.60 OI=546 CB=16.90 DE=42 TY=8.0%


*****
FDRY - Foundry Networks  $8.99  *** Post-Earnings Rally! ***

Foundry Networks (NASDAQ:FDRY) is a provider of next-generation
networking products.  The company provides high-performance, end-
to-end switching and routing devices for enterprises and service
providers. Foundry designs, develops, manufactures and markets 
solutions to meet the needs of high-performance network infra-
structures for Layer 2-7 switching and routing and for LANs,
Metropolitan Area Networks (MAN), Wide Area Networks (WAN) and
the Web.  Foundry offers global end-to-end solutions within and 
throughout a customer's networking infrastructure.  In late July,
Foundry Networks reported better-than-expected second-quarter
results.  Several analysts were impressed with the company's new
products and have raised their revenue and earnings estimates on
the issue.  The bullish technical indications are favorable and
this conservative position offers a method to participate in the
future movement of the stock with relatively low risk.

SEP 7.50 OUJ UU LB=0.35 OI=1604 CB=7.15 DE=42 TY=10.3%


*****
HGSI - Human Genome Sciences  $17.87  *** New Drug Speculation ***

Human Genome Sciences (NASDAQ:HGSI) is a biopharmaceutical and
genomics company focused on therapeutic product development and
functional analysis of genes using its proprietary technology 
platform.  HGSI discovers, develops and intends to commercialize
novel compounds for treating and diagnosing human disease based 
on the identification and study of genes.  HGSI reported earnings
recently, which reflected the loss of expired relationships (for
exclusive access to its genetic database) with several big drug
companies.  HGSI is now free to pursue more lucrative deals as
well as further develop its own product pipeline.  Human Genome
has recently received a milestone payment from GlaxoSmithKline
(NYSE:GSK) and they also granted Schering-Plough (NYSE:SGP) the
exclusive rights to develop and commercialize human antibodies.
We like the recent technical trend and this position offers an
easy way to speculate on the future movement of the issue in a
conservative manner.

SEP 12.50 HQI UV LB=0.30 OI=95 CB=12.20 DE=42 TY=5.6%


*****
ICOS - ICOS Corporation  $27.49  *** More Drug Developments! ***

ICOS Corporation (NASDAQ:ICOS) develops pharmaceutical products
with significant commercial potential by combining its unique
capabilities in molecular, cellular and structural biology,
high-throughput drug screening, medicinal chemistry and gene
expression profiling.  ICOS applies its integrated approach to
erectile dysfunction and urologic disorders, sepsis, pulmonary
arterial hypertension and other cardiovascular diseases, as well
as inflammatory diseases.  ICOS has established collaborations
with pharmaceutical and biotechnology companies to enhance its
internal development capabilities and to offset a substantial
portion of the financial risk of developing its drug candidates.
Biotechnology stocks have performed well recently with shares of
Icos in the news after a positive announcement on the company's
anti-impotence drug.  Icos and pharmaceutical partner Eli Lilly
said their anti-impotence drug, Cialis, had received a favorable
review from European regulators.  The companies hope to receive
final European clearance later this year and win U.S. approval
in the second half of next year.  Traders who want to speculate
on the company's new drug developments can do in a conservative
manner with this position.

SEP 20.00 IIQ UD LB=0.75 OI=162 CB=19.25 DE=42 TY=8.7%


*****
INVN - InVision Technologies  $28.36  *** Bomb Detection ***

InVision Technologies (NASDAQ:INVN) is a provider of Federal
Aviation Administration certified explosives detection systems
used at airports for screening checked passenger baggage.  The
company's EDS products are based on complex computer tomography,
which is the only technology for explosives detection that has
met the FAA certification standards.  InVision was the first
manufacturer, and is one of only two manufacturers, whose EDS
products have been certified by the FAA for screening checked
baggage.  In July, InVision Technologies said that quarterly
profits rose as revenues from governments increased on concerns
about national security.  The company also promised continued
growth with airports moving toward new automated bomb-detection
baggage systems that can take a year to plan and construct.  The
company said it expects third-quarter revenues of at least $110
million and earnings of at least $1.00 per share.  Investors must
agree with the optimistic outlook as INVN shares have recovered
from the 2002 low in mid-May.  Traders who believe the bullish
trend will continue can speculate conservatively on the future
price of InVision with this position.

SEP 22.50 FQQ UX LB=0.85 OI=102 CB=21.65 DE=42 TY=9.4%


*****
NPSP - NPS Pharmaceuticals  $23.06  *** On The Move! ***

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 in early July after a favorable Salomon Smith Barney
report noted that the company has been making solid progress in
resolving the manufacturing issues with its lead drug candidate
Preos.  Recently, NPS reported that it has successfully produced
additional supplies of the drug and it now can supply patients in
all of its current clinical trials into the first quarter of 2003.
Traders can speculate on the near-term performance of the issue
with this conservative position.

SEP 15.00 QKK UC LB=0.45 OI=2 CB=14.55 DE=42 TY=6.4%


*****
OSIP - OSI Pharmaceuticals  $32.58  *** Recovery Underway! ***

OSI Pharmaceuticals (NASDAQ:OSIP) is a biopharmaceutical company
focused on the discovery, development and commercialization of
products for the treatment of cancer.  The company has built a
pipeline of programs and drug candidates addressing major, unmet
needs in cancer and selected opportunities arising from OSI's
new drug discovery research programs that represent commercial
opportunities outside of cancer.  The company has three primary
candidates in clinical trials and seven projects with candidates
in late stage pre-clinical development.  OSI's most advanced drug
candidate is Tarceva, which has demonstrated various indications
of anti-cancer activity.  The company expects to focus its future
efforts primarily in the areas of diabetes.  The recent rally to
a 3-month high suggests that buyers are support the issue at the
current prices and out position allows for a profitable outcome
even with a considerable consolidation.

SEP 22.50 GHU UX LB=0.70 OI=1253 CB=21.80 DE=42 TY=7.0%


*****

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

ENDO   14.56  SEP 12.50   PFU UV  0.70 35    11.80   42   11.4%
PDLI   13.32  SEP 10.00   PQI UB  0.45 0      9.55   42   10.5%
SY     13.63  SEP 12.50    SY UV  0.65 57    11.85   42    9.5%
SIE    23.05  SEP 20.00   SIE UD  0.90 50    19.10   42    9.2%
FBF    24.19  SEP 20.00   FBF UD  0.75 719   19.25   42    8.7%
HYSL   23.04  SEP 20.00   WQE UD  0.75 212   19.25   42    7.8%
FCN    41.00  SEP 35.00   FCN UG  1.25 528   33.75   42    7.8%
CYBX   16.55  SEP 15.00   QAJ UC  0.60 0     14.40   42    7.7%
SHPGY  27.67  SEP 25.00   UGH UE  0.95 25    24.05   42    7.4%
IVGN   36.46  SEP 30.00   IUV UF  0.75 70    29.25   42    6.1%
AMGN   47.73  SEP 40.00   AMQ UH  0.85 3188  39.15   42    5.0%




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

Echoes Of Optimism...
By Ray Cummins

******************************************************************
                         - MARKET RECAP -
******************************************************************
August 9, 2002
The major equity averages ended mixed Friday after a strong week
that saw investors begin to put money back into the stock market.

Blue-chip shares were among the day's best performers, extending
the Dow's gains for a fourth consecutive session and propelling
the world's best known stock average 33 points higher to 8,745.
Despite the bullish activity in old economy issues, the NASDAQ
retreated 10 points to 1,306 amid a deep decline in the hardware
sector.  The broader Standard & Poor's 500-stock index climbed 3
points higher to 908 with banking shares among the most popular
issues.  Oil service, biotechnology, brokerage, gold and airline
shares also attracted eager buyers.  Trading volume ended at 1.2
billion on the NYSE and at 1.3 billion on the technology exchange.
Market breadth was mixed with advancers pacing decliners 17 to 14
on the NYSE while losers overcame winners 19 to 14 on the NASDAQ.
On the fund flow front, Trim Tabs reported that all equity funds
had outflows of $3.5 billion over the week ending 8/7 as compared
with inflows of $1.5 billion during the prior week.  Equity funds
that invest primarily in U.S. stocks had outflows of $2.3 billion
compared with outflows of $900 million in the prior week.  In the
bond market, the 10-year Treasury note rose 1 1/8 to yield 4.26%
while the 30-year government bond surged 1 22/32 to yield 5.11%.


Last week's new plays (positions/opening prices/strategy):
						
Maxim      (NSDQ:MXIM) SEP25P/AUG25P  $1.10  debit   calendar
SPX Corp.  (NYSE:SPW)  SEP80P/AUG80P  $2.00  debit   calendar
Amylin     (NSDQ:AMLN) OCT12C/AUG12C  $0.90  debit   calendar
Sony       (NYSE:SNE)  AUG40P/AUG45C  $0.10  credit  synthetic
Mylan Labs (NYSE:MYL)  SEP35C/SEP30P  $0.20  credit  synthetic
Murphy Oil (NYSE:MUR)  AUG85C/SEP70P  $1.00  credit  strangle
Beazer     (NYSE:BZH)  AUG70C/AUG65C  $0.60  credit  bear-call
Synopsis   (NSDQ:SNPS) AUG50C/AUG45C  $0.50  credit  bear-call

The bearish market activity early in the week did little to help
the entry prices in our new "Reader's Request" calendar spreads
but that was fortunate as the trend eventually reversed, pushing
both SPX Corporation and Maxim Integrated Products higher during
the ensuing recovery rally.  In contrast, the Amylin position
performed very well, allowing a favorable entry opportunity on
Monday and then rebounding to close $0.50 above the sold strike
on Friday.  The spread is currently trading at a small profit
but with the issue at recent high, the position will have to be
monitored daily for potential adjustments.  The synthetic plays
experienced mixed results with Mylan Labs providing an excellent
short-term gain while Sony moved in opposition of the prevailing
trend.  The neutral-outlook short strangle in Murphy Oil offered
an acceptable entry credit but with the broad market rally, the
issue is nearing the sold call and diligent position management
may be necessary to maintain a positive outcome.  Credit spreads
in Beazer Homes and Synopsis are both profitable but again, any
further upside movement may require an early exit or adjustment
in the bearish positions.


Portfolio Activity:

The recent volatility in equities reached a climax this week as
the market experienced extreme moves amid new economic reports
and speculation on another interest rate cut, worries about the
value of the dollar abroad, as well as concerns over fraudulent
corporate accounting and the potential for war with Iraq.  These
are but a sampling of the issues that combined to make the past
month the most active period since the terrorist attacks of 9/11
and with the unpredictable gyrations, it's been difficult for
traders to profit consistently.  In this type of environment, a
limited-risk approach is generally best and the Spreads/Combos
portfolio has enjoyed considerable success despite the volatile
activity during the past few sessions.  Among the bullish credit
spreads, only Fomento Economico (NYSE:FMX) remains unprofitable
and the issue is showing some new signs of a potential recovery.
On the bearish side, only 3M Corporation (NYSE:MMM) required an
adjustment and since we are quite used to the "ebb and flow" in
that stock, a transition to the SEP-$135 call (short) was almost
second nature.  The calendar spreads group was active this week
with Pharmacia (NYSE:PHA) rallying to a recent high.  The upside
movement produced an excellent early-exit profit in the long-term
position.  Kellogg (NYSE:K) also returned to a bullish trend but
the issue should eventually stall (near our sold call) at $35,
providing a favorable adjustment opportunity as we move to the
September option's expiration.  Another position worth noting is
Dupont (NYSE:DD), which has reversed its recent slide and is now
moving back to a previous range between $42-$48.  The speculation
play in Nextel (NASDAQ:NXTL) continues to perform well with the
issue only $0.49 from the point of maximum gain.  The sole debit
straddle, Sei Investments (NYSE:SEI) easily achieved our target
price in mid-July and credit strangles in Symantec (NASDAQ:SYMC)
and Stericycle (NASDAQ:SRCL) are comfortably inside the profit
range.  The neutral-outlook position in Centex (NYSE:CTX), which
was closed early to limit potential losses, has also recovered in
recent sessions.  The last category, Synthetic Positions, is also
the most speculative and the big winner in this group is Protein
Design Labs (NASDAQ:PDLI).  Honorable mention goes to KLA-Tencor
(NASDAQ:KLAC) and Alliant Technystems (NYSE:ATK), two successful
bearish plays that were offered in early July.

Questions & comments on spreads/combos to Contact Support
******************************************************************
                   - STRADDLES AND STRANGLES -

One of our readers asked for some speculative "Expiration Week"
straddles on stocks with earnings due.  Unfortunately, the recent
market volatile activity has pushed options premiums to historic
levels so there are relatively few favorable candidates for this
neutral-outlook strategy.  However, we have identified a small
group of viable candidates, based on option pricing and technical
background.  These stocks have reasonably priced options and the
potential to move high or low enough to make their respective
positions profitable.  The underlying issues also have a history
of price activity through a sufficient range, in the required
amount of time, to justify the overall risk-reward of the play.
As with any other position, each straddle should be evaluated for
portfolio suitability and reviewed with regard to your strategic
approach and trading style.

******************************************************************
ADI - Analog Devices  $22.92

Analog Devices (NYSE:ADI) is engaged in the design, manufac-
ture and marketing of high-performance analog, mixed-signal 
and digital signal processing integrated circuits (ICs) used
in signal processing applications.  The company produces a wide 
range of products that meet the technology needs of a broad 
base of customers and markets.  The company's products also 
include multi-function mixed-signal devices that incorporate
combinations of analog and digital technology.  Analog Devices
also designs, manufactures and markets a limited range of 
assembled products.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  AUG-22.50  ADI-HX  OI=909   A=$1.35
BUY  PUT   AUG-22.50  ADI-TX  OI=1149  A=$0.95
INITIAL NET DEBIT TARGET=$2.20-$2.25  TARGET PROFIT=15-25%


******************************************************************
AEOS - American Eagle Outfitters  $15.96

American Eagle Outfitters (NASDAQ:AEOS) is a specialty retailer
of casual apparel, accessories, and footwear for men and women
between the ages of 16 and 34.  Their lifestyle collection 
includes casual basics like khakis, cargos and jeans; fashion 
tops like rugbys, polos and graphic T's; and functional items
like swimwear, outerwear, footwear and accessories under its 
American Eagle Outfitters and AE brand names.  The company also
operates the Bluenotes/Thriftys specialty apparel chain in Canada.
The company also operates via the Internet at www.ae.com.  As of
February 2, 2002, AEOS operated 678 American Eagle Outfitters 
stores in the U.S. and Canada, and 112 Bluenotes/Thriftys stores
in Canada.

PLAY (very speculative - neutral/debit strangle):

BUY  CALL  AUG-17.50  AQU-HW  OI=936   A=$0.45
BUY  PUT   AUG-15.00  AQU-TC  OI=2811  A=$0.65
INITIAL NET DEBIT TARGET=$1.00  TARGET PROFIT=20-25%


******************************************************************
AMAT - Applied Materials  $13.86

Applied Materials (NASDAQ:AMAT) develops, manufactures, markets
and services semiconductor wafer fabrication equipment and 
related spare parts for the worldwide semiconductor industry. 
Many of Applied's products are single-wafer systems designed 
with two or more process chambers attached to a base platform.
The unique platform feeds a wafer to each chamber, allowing the
simultaneous processing of several wafers to enable very high
manufacturing productivity and precise control of the process.
AMAT builds systems that perform: chemical vapor deposition,
physical vapor deposition, electroplating, etch, implantation,
rapid thermal processing, chemical mechanical polishing, as well
as metrology and wafer/reticle inspection.  AMAT sells most of
its single-wafer, multi-chamber systems based on four platforms:
the Centura, the Endura, the Endura SL and the Producer.

PLAY (very speculative - neutral/debit strangle):

BUY  CALL  AUG-15.00  ANQ-HC  OI=17833  A=$0.35
BUY  PUT   AUG-12.50  ANQ-TV  OI=9984   A=$0.35
INITIAL NET DEBIT TARGET=$0.55-$0.60  TARGET PROFIT=20-25%


******************************************************************
BRCD - Brocade Communications Systems  $15.36

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 critical sto-
rage applications.  Companies can leverage the Company'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.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  AUG-15.00  BQB-HC  OI=2665  A=$1.40
BUY  PUT   AUG-15.00  BQB-TC  OI=4788  A=$1.00
INITIAL NET DEBIT TARGET=$2.20-$2.25  TARGET PROFIT=15-25%


******************************************************************
NTAP - Network Appliance  $7.41

Network Appliance (NASDAQ:NTAP) is a provider of enterprise
network storage and data management solutions.  NetApp network
storage solutions and service offerings provide data-intensive
enterprises with consolidated storage, improved data center
operations, economical business continuance and efficient remote
data access across the distributed enterprise.  NetApp products
consist of filer storage appliances, NearStore appliances,
NetCache content delivery appliances, data management and also
content delivery software and support services.  All NetApp
systems come packaged in rack-mountable enclosures that can be
installed in a customer's existing server racks or installed
and configured in cabinets at the factory.

PLAY (very speculative - neutral/debit straddle):

BUY  CALL  AUG-7.50  NUL-HU  OI=829   A=$0.55
BUY  PUT   AUG-7.50  NUL-TU  OI=1037  A=$0.65
INITIAL NET DEBIT TARGET=$1.05-$1.10  TARGET PROFIT=20-25%


******************************************************************
NVDA - Nvidia Corporation  $9.20

Nvidia Corporation (NASDAQ:NVDA) designs, develops and markets
graphics and media communication processors and related software
for personal computers, 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 that set the standard for performance,
quality and features for a broad range of desktop PCs.  These
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.  Its graphics
processors are designed to be architecturally compatible backward
and forward between generations, giving its original equipment
manufacturers, customers and end users a low cost of ownership.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  AUG-10.00  UVA-HB  OI=4026  A=$0.35
BUY  PUT   AUG-10.00  UVA-TB  OI=4029  A=$1.20
INITIAL NET DEBIT TARGET=$1.35-$1.45  TARGET PROFIT=15-25%

Note:  The Delta or "hedge ratio" in the position suggests that
we should buy 1 call for every 3 puts (1:3 ratio) to maintain
a neutral outlook.  However, any upward movement in the issue on
Monday should allow both sides of the position to be purchased
at similar prices.


******************************************************************
SRNA - Serena Software  $9.86

Serena Software (NASDAQ:SRNA) is a provider of infrastructure
software to manage change to enterprise applications.  Serena's
products and services are used to manage and control application
change for organizations, the business operations of which are
dependent on managing information technology.  The company's
products help IT managers manage changes to applications by
automating and enforcing the process throughout the application
life cycle.  Serena's consulting services help companies improve
their work process by identifying where their current practices
deviate from standard practices and making recommendations.  As
of January 31, 2002, Serena's products had been installed in over
2,750 customer sites worldwide, and its customers included 42 of
the Fortune 50 companies, such as American Express, UBS AG, Navy
Federal Credit Union, Suntrust Bank, Bank of America, Caterpillar,
Citigroup, General Electric, IBM, MetLife, Prudential and SBC
Communications.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  AUG-10.00  NHU-HB  OI=235   A=$0.50
BUY  PUT   AUG-10.00  NHU-TB  OI=1257  A=$0.65
INITIAL NET DEBIT TARGET=$1.00-$1.05  TARGET PROFIT=20-25%


******************************************************************
URBN - Urban Outfitters  $24.49

Urban Outfitters (NASDAQ:URBN) is a merchandising company that
operates specialty retail stores under two distinct brands, Urban
Outfitters and Anthropologie, as well as the Free People wholesale
division.  Urban Outfitters creates and manages retail stores that
offer highly unique collections of fashion apparel, accessories
and home goods in dynamic store settings.  In addition to its many
retail stores, the company offers its products and markets its
brands directly to the consumer on urbn.com and anthropologie.com,
as well as through the Anthropologie catalog.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  AUG-25  URQ-HE  OI=71  A=$1.15
BUY  PUT   AUG-25  URQ-TE  OI=18  A=$1.65
INITIAL NET DEBIT TARGET=$2.50-$2.60  TARGET PROFIT=15-25%


******************************************************************
                        - CREDIT SPREADS -

These plays are based on the current price or trading range of
the underlying issue and its recent technical history or trend.
The probability of profit from these positions may be higher
than other plays in the same strategy based on disparities in
option pricing.  Current news and market sentiment will have an
effect on these issues, so review each play individually and make
your own decision about the future outcome of the position.

******************************************************************
CCMP - Cabot Microelectronics  $41.26  *** Building A Base? ***

Cabot Microelectronics is a supplier of high performance polishing
slurries used in the manufacture of advanced integrated circuit
devices, within a process called chemical mechanical planarization.
CMP is a polishing process used by integrated circuit (IC) device
manufacturers to planarize or flatten many of the multiple layers
of material that are built upon silicon wafers and necessary in
the production of advanced ICs.  Planarization is the polishing
process that levels and smooths, and removes the excess material
from the surfaces of these layers.  CMP slurries are unique liquid
formulations that facilitate and enhance this polishing process
and usually contain engineered abrasives and proprietary chemicals.
CMP enables IC device manufacturers to produce smaller, faster and
more complex IC devices with fewer defects.

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-25  UKR-UE  OI=2676  A=$0.50
SELL PUT  SEP-30  UKR-UF  OI=194   B=$0.95
INITIAL NET CREDIT TARGET=$0.55-$0.65  PROFIT(max)=12%


******************************************************************
ERTS - Electronic Arts  $60.32  *** Range-bound! ***

Electronic Arts (NASDAQ:ERTS) is a global software company that
operates in two primary business segments.  The EA Core business
segment comprises the creation, marketing and distribution of
entertainment software, while the EA.com business segment is
composed of the creation, marketing and distribution of various
entertainment software that can be played or sold online, ongoing
management of subscriptions of online games as well as Website
advertising.  EA.com also owns Pogo Corporation, an ad-supported
games service that reaches a broad consumer market.  Pogo's many
Internet-based family games focus on easy-to-play card, board and
puzzle games.

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-75  EZQ-IO  OI=1634  A=$0.30
SELL CALL  SEP-70  EZQ-IN  OI=2382  B=$0.80
INITIAL NET CREDIT TARGET=$0.55-$0.65  PROFIT(max)=12%


******************************************************************
NKE - Nike  $43.92  *** Rolling Over! ***

Nike (NYSE:NKE) principally is engaged in the design, development
and worldwide marketing of footwear, apparel, equipment and other
clothing accessory products.  Nike sells its products to over
17,000 retail accounts in the United States and through a mix of
independent distributors, licensees and subsidiaries in over 140
countries around the world.  Virtually all of Nike's products are
manufactured by independent contractors.  Most of the company's
footwear products are produced outside the United States, while
apparel products are produced in the United States and abroad.

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-55  NKE-IK  OI=157  A=$0.25
SELL CALL  SEP-50  NKE-IJ  OI=106  B=$0.75
INITIAL NET CREDIT TARGET=$0.55-$0.65  PROFIT(max)=12%


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


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

The shorts are still working with two more triggered Friday.  
We’re trying it again with this Nasdaq favorite.


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/081002.asp


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

More movement to report from Friday’s session.  Unfortunately, 
most of it was to the downside.


To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/081102.asp


*********************
SWING TRADER GAMEPLAN
*********************

Lost That loving Feeling? 
by - Jim Brown

Bulls tried and tried to break through tough overhead resistance 
again on Friday. Unfortunately they lost that positive momentum and 
fair weather traders started to abandon the herd as the close drew 
near. That new love affair may be coming to an end if conditions do 
not change at the open on Monday.

Click here:
http://members.OptionInvestor.com/itrader/swing/swtgp_8100219.asp




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