Option Investor

Daily Newsletter, Tuesday, 01/11/2000

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The Option Investor Newsletter         Tuesday 1-11-2000
Copyright 2000, All rights reserved. 
Redistribution in any form strictly prohibited.

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
      1-11-2000            High     Low     Volume Advance Decline
DOW    11511.10 -  61.10 11663.10 11502.70 1,014,040k 1,013  2,083
Nasdaq  3921.19 - 128.48  4066.66  3904.82 1,682,735k 1,592  2,572
S&P-100  785.25 -   5.67   795.67   783.06    Totals  2,605  4,655
S&P-500 1438.56 -  19.04  1458.66  1434.42            35.8%  64.2%
$RUT     492.61 -   9.28   501.91   492.56
$TRAN   2949.56 -  30.94  3017.18  2948.44
VIX       23.93 +   1.42    24.36    22.19
Put/Call Ratio       .47

Deja Vu?

I hope this is not a repeat of January 1999. After setting a
new high on the Dow yesterday, interest rate pressures finally
caused investors to step back and reconsider the future. I hope 
we are not going to relive last January. Coincidentally, Yahoo!
announced earnings after a big pre-earnings move, announced a
2:1 split for Feb-8th and then tanked, taking much of the
Internet sector with it. 


Maybe it is just the way things line up in January that makes
the markets rocky. The Fed does not like to raise rates in 
December and the first meeting of the year is late January,
early February. Before this important meeting is non-farm
payrolls, CPI, PPI and Retail Sales. The market is in rally
mode with all the new year retirement cash and earnings are
on the way. With all the positive market events all leading
up to a negative Fed event something has got to give. Add to
that the +85% gains for the Nasdaq in the last twelve months
and the Dow at new record highs and the possibility of profit
taking is close to 100%.

After spending most of the day in record territory the Dow
finally caved in to the soaring bond yields and coming CPI
and PPI reports. It was a valiant effort but the selling on
the Nasdaq and the rising interest rates proved too much to



The Nasdaq never had a chance today. Many tech and Internet
stocks gapped down at the open and never saw positive ground.
While the bears are painting pictures of gloom and doom the
real picture is more likely just profit taking from the almost
+400 point gain since last Friday's low. The Dow had held and
even had some interest rate sensitive stocks were rebounding some
until the fear of darkness descended on traders. As the Nasdaq
plunged to the lows of the day just before closing many feared
that the YHOO earnings could be a pivotal event. The expectations
were so high that anything else would be a disappointment. 
Traders sold off anything Internet in the last 45 min of trading
but both indexes came to a dead stop on their current support 
levels. 3900 on the Nasdaq and 11500 on the Dow were hit almost
simultaneously and both came to a dead stop with only a slight 
rebound. There was no end of day rally or hordes of buyers
coming in off the sidelines. 

The event that prompted all the caution was of course the 
Yahoo earnings. YHOO was expected to earn $.15 but the whisper
numbers were in the $.20 to $.22 cent range. Also rumored was
a 4:1 split. Yahoo did announce record earnings posting a $.19
gain but they missed even the lowest whisper number and the
split was only a 2:1. (my how traders today are fickle, only a
2:1?) Yahoo is now experiencing the Dell syndrome. More shares
equal the need for exponentially more revenue to beat estimates
and make the whisper number from quarter to quarter. Even 
stellar numbers like Yahoo turned in today, more than double
the same quarter last year, were not enough for investors. In
January last year Yahoo repeated almost exactly the same results 
with a stock split and still tanked from $240 to $130 before the
split run began. The Internet sector followed YHOO down. CMGI
dropped from a high of $77 prior to YHOO earnings to a low of 
$40 only two weeks later.

Another battle being waged by the Internet bulls and bears is
the PE war. AOL successfully used its very high PE Internet
stock to buy a real business with real earnings and a PE less
than 10% of its own. On one hand, this is good. Time Warner
felt like AOL stock was a good value and were willing to trade.
The bad news, AOL is now not just an Internet company and there
is a tug of war between traders as they try to decide how the
new company should be valued. TWX had a PE of 12 and AOL a PE
of 117. The combined entity will end up being valued somewhere
in the middle. If the middle is 50-60 then AOL could be trading 
in the $50 range or less soon. Amazing how valuation math works.
Is AOL worth less today just because it now has twice the hard
assets and access to 100 million paying subscribers, than it was
last week when it only had 21 million subscribers? Is it worth
less now that it has its own cable/broadband network? In my
mind it should be worth more. The combined entity will be a
monster marketing machine. Couple that with the new AOL/TV
product announced this week and look at the millions of new
eyeballs who will be clicking and buying soon. Yet, because
it now controls hard assets which can be valued by historical
norms the Internet valuations are being called into question.
This is putting pressure on the entire Internet sector as traders
rethink the Internet Valuation model. I think when cooler heads
prevail there will be a rush to buy AOL as a multimedia giant
with a huge Internet footprint and a profit model that works.

The Fed is ahead and there is already trouble brewing. Last
night a Fed head started the interest rate hike ball rolling
with a hawkish speech and by doing so fired the first warning
shot towards the markets. Normally the Fed heads go on a
whirlwind speaking tour just before a rate hike to talk up the
need for a hike. You can lock your doors and board up your
windows but you cannot escape the coming events. As if the 
CPI/PPI was not enough trouble on Thr/Fri, Alan Greenspan is
scheduled to give a speech on Thursday night and it may not
be pretty. Many analysts think there is not enough votes on
the committee to raise rates a full +.50% on Feb 2nd and they
expect Greenspan to use his speaking events to pound the markets
and therefore accomplish the same thing. The last time the Fed
raised rates +.50% in one meeting was just before the Oct 97
crash. With the market extended so far recently there are several
board members who think a +.50% hike could have the same result.
We all know Greenspan can bring the markets to their knees if
he wanted, so this will be a test of his restraint. Traders
feel the market has already priced in a +.25% hike and feel
that ONLY a +.25% hike now would be like firing a starter
pistol on the road to Dow 13000. This wall of worry that is
building could mean rocky and very volatile markets for the
next two weeks.

That boomerang came back. I have been telling you that eventually
the interest rates would appear to haunt the markets and today
was the day. I think this is just another excuse for profit taking
but with yields over 6.67% and forecasted for 7% soon the markets
are beginning to leak some cash. Liquidity however is alive and
well. Trimtabs.com reported that +$10 bln in cash poured into 
stock funds in the last week and that money will have to be put
to work. If they see the market sliding, they may wait. If they
see others buying the dip then we could see a rush of cash from
the sidelines. 

The breadth was terrible again today but about what you would
expect on a down day. The bad news again was the volume. Strong
volume on a down day is not a good omen. The Nasdaq posted 1.7 
bln shares and the NYSE slightly over 1 bln. Traders would rather 
have seen light volume and lack of conviction.

Several Internet stocks I watch dropped back to strong support
at the close and in checking after hours trading they had not
moved more than a dollar or so. This is positive considering
the -$20 than YHOO dropped in after hours trading. It is possible
that we could see a dip at the open and then a slow recovery 
but we are at a very dangerous point. A break much under 3900
on the Nasdaq could start a slide to 3700 or even lower. The
two days of record gains by the Nasdaq may have just needed a 
release day but the magnitude of some of the drops makes me 
cautious. I urge you to be cautious tomorrow until we see which
way this market is really going.

Good Luck, Sell Too Soon.
Jim Brown

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Digital Island Rises on Road Runner Pact
By Cindy Christ

In a move to expand its worldwide content delivery network,
Digital Island (ISLD) formed a strategic partnership with Time
Warner Corp.'s (TWX) Road Runner cable modem service, the
company said Tuesday.

The deal comes a day after AOL announced it was acquiring "old
media" company Time Warner, reflecting an emerging trend for
content distribution companies to align with leading content


Market Posture

As of Market Close - Tuesday, January 11, 2000 

                   Key Benchmarks
Broad Market       Bearish/Bullish  Last    Posture/Since  Alert

DOW Industrials   10,800  11,550  11,511    Neutral   1.04           
SPX S&P 500        1,340   1,400   1,439    BULLISH  12.03
OEX S&P 100          700     750     785    BULLISH  12.03
RUT Russell 2000     430     450     493    BULLISH  11.12           
NDX NASD 100       3,200   3,800   3,544    Neutral   1.06  
MSH High Tech      1,650   1,900   1,821    Neutral   1.06             

XCI Hardware       1,250   1,425   1,373    Neutral   1.06          
CWX Software       1,210   1,420   1,305    Neutral   1.07             
SOX Semiconductor    640     660     717    BULLISH  12.21                      
NWX Networking       820     900     853    Neutral   1.07
INX Internet         665     800     723    Neutral   1.06             

BIX Banking          645     690     517    BEARISH  11.30        
XBD Brokerage        410     450     419    Neutral  11.30          
IUX Insurance        625     650     588    BEARISH  11.30             

RLX Retail           900     935     988    BULLISH  11.23           
DRG Drug             380     400     364    BEARISH  12.07   
HCX Healthcare       760     790     738    BEARISH  12.07    
XAL Airline          180     190     152    BEARISH   5.21      
OIX Oil & Gas        280     315     292    Neutral   1.06      

Posture Alert    
100-point swings on the Nasdaq are becoming a daily occurrence, as 
the technology index closed down -128 today after making a nice 
comeback from last week's sell-off. The Dow sold off near the end 
of the day as well, after breaking a new all-time-high earlier in 
the trading session. Losing sectors were abundant, and were led by 
the Nasdaq 100 (-4.66%), Internet (-4.47%), Semiconductor (-3.32%), 
and Software (-3.25%). There are no current changes in posture. 

Market Sentiment 

Tuesday, January 11, 2000

Where do we go from Here?

Volatility continues to be the name of the game, as investors and 
traders continue to get whipsawed all around with no sense of 
direction. After last week's 10% Nasdaq correction (if we can call 
it that), CNBC had every bear in the world on their television 
show. Three days later, you couldn't find one bear in sight, as 
the bulls started to celebrate the major comeback with a 
vengeance. 100+ point moves are starting to become the norm, which 
is a scary thought. Below, we have a top 10 list for several 
categories on the Nasdaq, and as you can see, we have broken many 
records during the first seven trading days of the year. We are 
only seven trading days into the new-year and we have 3 of 
the greatest point decreases, and increases in history. Granted, 
percentage change is more important to us, but regardless, this is 
not a trend that we want to continue.

In past history, extreme swings in volatility usually presage a 
change in trend. Back in October, we highlighted this same issue, 
and stated that the volatility (end of OCT.) was a positive for 
the bulls. Hindsight is 20/20, but the bulls had a pretty good 
run after we called that change in volume. The current volume and 
volatility (so far) is leaning in favor of the bears, and may be 
indicating a change in trend. The flip side is that if the Nasdaq 
can break into new highs soon, this volatility may be indicating 
a new leg in the current Bull Run. Regardless, with the major run 
we've had in this market, as well as the weakness being witnessed 
in the bond, we find it prudent to be taking a more cautious tone 
at this moment.     

DATE:          VOLUME:         DATE:      POINT CHANGE:
12/9/99     1,781,618,331     1/4/00      -229.46
1/5/00      1,732,071,691     1/6/00      -150.41
1/10/00     1,731,743,600     8/31/98     -140.43
1/11/00     1,693,203,000     4/19/99     -138.43
12/8/99     1,671,003,270     1/11/00     -128.48
11/17/99    1,646,360,300     10/27/97    -115.83
12/15/99    1,641,956,336     9/23/99     -108.33
1/7/00      1,634,928,900     7/20/99     -98.11
12/10/99    1,616,740,374     2/9/99      -94.13
1/6/00      1,594,505,965    11/30/99     -85.21

DATE:          %GAIN:           DATE:       %LOSS:
10/21/87        7.34%          10/19/87     -11.35%
9/8/98          6.02%	       10/20/87      -9.00%
10/30/87        5.29%          10/26/87      -9.00%
10/29/87        5.20%           8/31/98      -8.56%
10/9/98         5.17%          10/27/97      -7.02%
9/1/98          5.06%           3/27/80      -6.15%
10/15/98        4.55%           4/19/99      -5.57%
10/28/97        4.43%            1/4/00      -5.55%
1/10/00         4.30%           10/5/98      -4.85%
6/16/99         4.27%           10/1/98      -4.81%

1/10/00       +167.05
1/7/00        +155.49
1/11/00       +128.48
12/21/99      +127.28
9/3/99        +108.87
6/16/99       +103.16
10/20/99       +99.95
12/2/99        +99.07
2/11/99        +96.05
9/8/98         +94.34

These last seven days have been witness to extreme volatility in 
volume and price, which do seem to be favoring the bears. The 
Nasdaq failed to break into new ground, and based on technicals, 
is indicating a failed rally. With new highs in the bond, we would 
look for continued weakness in equities. Most professionals didn't 
expect the big drop we had last week, and most didn't expect the 
impressive rebound. Granted, Yahoo, Ariba, and AT&T all made 
positive news tonight, but where we go from here is anyone's 
guess, and ours is leaning towards the bear camp. 


Corporate Earnings:
The main corporate earnings season is just around the corner, but 
there have been several positive earnings surprises or comments 
from senior management, including SAP AKTIENGESELL (SAP), 
Peoplesoft (PSFT), Lehman Bros (LEH), Nortel (NT), Cisco Systems 
(CSCO), Newbridge Networks (NN), and Charles Schwab (SCH).

Cash Flow:
The cash that has been sitting on the sidelines was put to use 
Friday, as the NYSE traded 1.22 billion and the Nasdaq traded 1.63 

Mixed Signs:

Volatility Index (23.93):
The VIX proved once again this last week that the low 30's was a 
great opportunity, as it touched 31.02 on 1/5, which also 
correlated to a near term bottom on technology stocks.


Pre-Release Season:
We are in the pre-release season, in which companies with negative 
earnings announcements spill the beans. We have witnessed several 
such as Gateway Computer, Beyond.com, and now Lucent Technology.  

Interest Rates (6.677%):
The yield continues to break new highs, with the next stop being 
6.75-7.00%. The market has already priced a 25 basis point 
increase this February, however the market is also pricing in a 
30% chance of a 50 basis point hike.

Low price to earnings stocks have been a safe haven so far in 2000, 
while high P/E stocks have gotten blistered. Is value coming back 
into play?
Energy Prices:
With the rapid rise in crude oil, everything from manufacturing to 
transportation will be affected by higher costs. These higher costs 
will be felt 1-2 quarters out, and could put pressure on profit 

Change in Sentiment:
Bulls will remember this latest sell-off in technology shares, 
which could put a damper on any near-term rallies.

The Power of Sentiment Analysis

It has often been said that the crowd is right during the
market trends but wrong at both ends.  Measuring and
evaluating the sentiment of the crowd, therefore, can give
savvy option traders a decided edge.

Pinnacle Index OEX               Friday      Tues
Benchmark                        (1/7)     (1/11)

Overhead Resistance (785-810)     3.84      3.05

OEX Close                       783.49    785.25

Underlying Support  (760-780)     0.93      1.29
Underlying Support  (730-755)     2.38      2.66

What the Pinnacle Index is telling us:
Based on January 11, direct overhead is moderate, and underlying 
support is light but slowly gaining strength.

Put/Call Ratio                  Friday     Tues
Strike/Contracts                (1/7)     (1/11)

CBOE Total P/C Ratio             .50       .47
CBOE Equity P/C Ratio            .43       .36
OEX P/C Ratio                   1.03      1.88

Peak Open Interest (OEX)
                     Friday           Tues
Strike/Contracts     (1/7)           (1/11)

Puts                700 / 11,939	 700 / 11,157
Calls               780 /  8,250         790 /  7,469
Put/Call Ratio        1.45              1.49

Please view this in COURIER 10 font for alignment

Daily Results

Index     Last    Mon     Tue  Week
Dow    11511.08  49.64  -61.12-11.48
Nasdaq  3921.19 167.05 -128.48 38.57
$OEX     785.25   7.43   -5.67  1.76
$SPX    1438.56  16.13  -19.04 -2.91
$RUT     492.61  13.58   -9.28  4.30
$TRAN   2949.56  15.78  -30.94-15.16
$VIX      23.93  -0.69    1.42  0.73

Calls             Mon     Tue  Week

MSTR     238.50  40.88  -12.75 28.13  Announces new alliance!
VIGN     201.66  14.69   11.78 26.47  VIGN shares on fire!
AFFX     170.06  39.63  -22.81 16.81  Still positive this week
EXDS     103.19  16.91   -0.84 16.07  New, breakout play
CHKP     202.50  19.88   -9.25 10.63  CHKP never looked back
INKT      99.94  15.50   -4.94 10.56  Joins in the party!
ORCL     112.38  12.38   -3.38  9.00  Plethora of positive press
INTU      82.38  11.56   -2.75  8.81  New, traders are in-to-it
GMST      70.63   6.00    0.88  6.88  New, a market gem
GMH      102.56   6.06   -1.50  4.56  Back in the good old days
HGSI     164.81  17.25  -12.75  4.50  What a week for our play!
SEPR     122.38   2.06    2.19  4.25  New, entry to hot sector
GO        32.00   4.00    0.00  4.00  Hops on and rides the wave
MOT      132.75  10.94   -7.00  3.94  Earnings next Monday!
ADI       90.56   7.56   -3.88  3.69  Sets a new all time high
EMC      109.50   6.38   -4.50  2.13  Continues where left off
CSCO     106.50   3.94   -3.31  0.38  Holding back a surprise?
CMTN      52.00   1.56   -1.56  0.00  CMTN is at a crossroads
AMGN      66.44   4.13   -5.69 -1.56  Earnings January 20th!
NOK      171.00   7.94  -10.94 -3.00  Nokia has solid support
CMRC     184.00  11.25  -14.75 -3.50  Dropped, can't go through
CMVT     135.25   0.13   -3.88 -3.75  If you needed a reminder
XCED      41.75  -0.19   -3.81 -4.00  XCED gets down to business
QCOM     144.44   9.38  -14.94 -5.56  Offers great opportunities
BVSN     141.06  13.66  -20.94 -7.28  The ever so generous BVSN


WCOM      42.56  -0.38   -4.25 -4.63  Strong day doesn't help
HNZ       38.69  -0.81    0.50 -0.31  Dropped, stuck in bottle
CHINA     79.44   5.75   -2.81  2.94  On the edge of your seat?
SCNT      70.25   4.00   -0.25  3.75  A little more time for SCNT
SANM      96.63   9.56   -4.69  4.88  Headed toward 200-dma?
TIBX     140.50  13.13    7.38 20.50  Dropped, too much positive


Caviar or Spam?

Gee Whiz! This roller coaster is getting exhausting!! AOL surely 
helped us yesterday but boy, they surely re-thought the issue 
today! It's amazing how a little issue like valuations, can cause 
so much anxiety. I got slammed with the opening gap down this 
morning. I felt like creamed spinach. Served me well, though. 
Things had been going a little too well lately!!  

You know what it is, don't you? It's the PPI/CPI due later this 
week and the G-Man giving us a lecture on Thursday. That's when 
we find out if we are grounded or not. In anticipation of 
punishment, those bond yields escalated to their 2 year highs 
on the 30yr @ 6.67%. Anytime you are playing high flyers, it is 
important to pay attention to the bond. I knew better yesterday, 
when I saw the yield up, even though the rest of the whole 
investment world was flying high. I saw it, acknowledged it, 
thought about it, then like an idiot, I ignored it. 

Thank was dumb. Thank goodness I did sell a bunch trying to rollout 
out for day trading today. Well, that didn't quite work either. 
I stayed up late doing research, then over-slept an hour this 
morning. That's bad because when that happens it critically 
affects my coffee infusion period, which critically affects my 
early morning decisions.... all of which causes my sell finger to 
work in slow motion. I hate it when that happens! Just for fun, 
notice the difference a week makes from last Monday. Are you 
eating Caviar or canned Spam for either holding or taking profits?

Anyway, I love to play gaps...when they work in my favor. But I 
guess every now and then, one must feed those friendly 
"Writers" of all those calls we buy. I'd rather buy them a little 
cheaper present though! 

Three good points can be made here that can be useful in the 
future. One, YHOO has a huge following before earnings. It has 
developed a pattern of beating expectations. As more and more 
people have read about its pattern and run up into earnings, more 
people have played it. I've noticed that people have started taking 
profits earlier and earlier. Three earnings back, huge intra-day 
runs occurring the day of earnings was not uncommon. 
Unfortunately, one doesn't know the pattern has changed, until a 
new pattern has developed and been tested. Next earnings, it might 
be a good idea to take some major profits daily, the week working 
into earnings. A new pattern has been noticed and tested in spite 
of great earnings.

Another point is noticing how a stock in the same sector, can 
affect another stock. The exuberance over AOL certainly helped 
YHOO take off on Monday. Well shoot, it helped EVERYTHING take 
off yesterday! Which can then set you up for payback if one 
happens to sneeze. Suddenly the excitement about the merger, 
created concern over how internets would be valued post 
mergers. That was bad timing for YHOO. What's the big deal 
anyway? Internet players ignore valuations! That's what we've 
been trying to tell them all along. Uh Oh. The battle of the older 
versus younger MBA's is heating up.

Add to that the third point, which is that darn bond yield and you 
have the derailing of a freight train for internets. Interest rates 
are more important to some, than others. I may be wrong but venture 
capital fund agreements are signed without worries over the daily 
fluctuations of the bond yield, where profitable companies may 
borrow working capital money from their banks. Then again, some 
have a drawer full of cash and don't need to borrow money to 
operate. YHOO has about $963 Million CASH ON HAND! Boy, could I 
ever go shopping on THAT credit card! Regardless, many react first 
and then think about things later. The rule of thumb for me, is 
that when I see the bond yield escalating, its time to aggressively 
take profits and lighten up for at least a day. Unfortunately, I 
broke my own rule yesterday and paid the price at the open today 
before exiting. Oh well, we are all works in progress. Right? 

Back to YHOO, "typically" it has a nice sell off after earnings 
since it has such a strong run up into earnings. Usually it is a 
good put play at that time. What confuses me this time is that YHOO 
has sold off $103 dollars from its high last week. That's a lot! 
It's at $370 in after hours as I write. But also remember, YHOO was 
roughly at $215 right before the announcement for its S&P inclusion 
at the end of November. Of course Y2K was in there helping too. So, 
$500 is a long way from $215 in 6 weeks. It makes sense to give 
some back. But how much will that be and did the good put play 
already take place? Somewhere in between, it will settle out, but 
I will be a little more careful entering large put contracts until 
I feel more confident with more downward pressure. I'll turn to 
sector and market watch for confirmation.

The AOL news is exciting and interesting. For those who like leaps, 
this could be an interesting play for a long-term hold. I haven't 
checked the premiums but Wednesday afternoon may look even better 
and then there is Thursday. Question: AOL and Time Warner sure were 
quiet working out the details of the merger. Doesn't it make you 
wonder who else is out there working on similar deals we don't know 

I have exited most all positions except those I intend to exercise 
on option expiration Friday to take long shares. Due to the 
uncertainty later this week, I will probably wait this period out. 
I see no reason for any run-ups happening between now and Thursday. 
The potential risk seems to be on the down side to me. During this 
time, I will rebuild my watch list and look for good entry 
opportunities for earning's plays. Then it will depend on if 
G-Man is nice to us and the eco reports are in line. Several great 
companies are in split territory and earnings day always makes for 
a good announcement time. At this time, I don't plan on playing too 
many diverse plays because I still expect uncertainty to spook plays 
going into the February Fed meeting. Also, my nerves need a rest!! 

Renee White 
Contact Support


An Osmotic Technical Point of View

Hello, my name is Harrison... 
I am an Option Trader and you might be one too! Oh ya, and a 
few words on AOL.

Doesn't if feel good to be a Capitalist at times like these! 
NASDAQ is handing out prizes like a carny booth gone mad! If 
you played almost any of the plays from the Sunday update you 
are a happy camper! AOL, what can you say? Well I can say a lot! 
The analysts are falling all over themselves praising it. Pabulum, 
pure and simple. It was looking like the best short in quite awhile. 
It still may be, but, not for the faint of heart. AOL was walking 
across piranha infested waters on the back of alligators. Well 
they made it but, only to the island in the middle.
With over 50 % of revenues coming from subscribers, they were in 
serious danger of seeing drastic revenue drops in the very near 
future. The problem that they face now is they have been fighting 
letting others gain true access to their users. They have been 
running a closed platform so to speak and fighting hard to keep 
it that way. For those of you who aren't AOL users, it is very 
difficult to even open attachments in email if it is not from 
another AOL user. Now in order to get approval for the merger, 
they are going to have to open up and let their users roam free. 
This is a 180 on this issue since just last month. Once they do, 
I predict that quite a few of them will jump ship. You can think 
of the AOL user as Jim Carrey in the movie The Truman Show (if 
you have seen it, you know what I mean, if not, go rent it, it is 
pretty good). 

The soap box just collapsed. Now for some fun stuff! OK, here you

You might be an option trader:

If at the dairy isle you dig all the way into the back of 
the case to find the carton that has just one extra day until 

If you regularly refer to January and February as Jan and Feb.

If you regularly refer to the months in possessive tense i.e. 
December's, June's etc.

If you have made more money in one day than some people 
make in a month.

If you have lost more money in one day than some people 
make in a month.

If you have made more money in one day than some people make in a 

If you have lost more money in one day than some people 
make in a year.

If while in a conversation about investing when others are 
talking about there rate of returns for the year, you surpassed 
their yearly returns in one month. If you are reading this!

If any of you would like to contribute any more of these gems, 
please let me know. I will post them with copious attribution.
I got almost everything that I wanted for Christmas this year 
except for that darn crystal option ball. I even left out cookies 
and a bottle of Jack Daniel's just to be safe. Both were gone but, 
no ball. I am going to have to talk with the fat guy!

My only New Year's resolution this year was to quit mumbling when 
someone asked me what I do. Be glad that you that you figured out 
that you are an option trader! Well, this week ought to be fun! 
Heck, for that matter this year ought to be fun! This kind of 
market is what we have been waiting for! 

Hello, my name is Harrison. I am an Option Trader!

Happy Trading!

Contact SupportHarrison"Fortunate few are those that greet life on their own terms" 
I was sitting in my rocking chair when I came up with 
that gem. I was staring at the quote screen!

When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time. 
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CMRC $184.00 -14.75 (-3.50) Yesterday CMRC topped out at $202 
and couldn't push through the resistance.  This disappointment 
coupled with today's negative performance impels us to exit the 
momentum play tonight.  There was some news surrounding CMRC 
however nothing to effect trading.  Wellpoint health Networks 
(WLP) chose Commerce One's solution to streamline its purchasing 
and planning process and Connected Corp inked a deal to manage 
and protect CMRC's PC assets.


HNZ $38.69 +0.50 (-0.31) You know that frustrated feeling 
that you get when you just can't get the ketchup out of the 
bottle?  No matter how hard you pound on the bottom, it just 
won't budge.  Admittedly, that is how we are feeling about
the $38 level on this play.  Looking back, HNZ is known for 
spending a good deal of time at dollar levels along its 
decline.  The question becomes, is the drop going to be 
worth the wait?  (I am talking about the stock, not the 
ketchup).  We don't think so.  There are so many big movers 
out there, it is hard to justify keeping a play that has been 
trading in such a tight range for so long, and therefore, we 
are saying so long to our play on HNZ. 

TIBX $140.50 +7.38 (+20.50) Ouch!  TIBX headed as low as $112 
yesterday and then managed to find its legs and traded all the 
way up to $135.  TIBX settled for a close just over $133 with 
volume double the daily average.  TIBX opened up today and 
quickly climbed to tag a high of $148 for the day before 
settling back to flirt around $140 for the remainder of the 
session.  Again, this move was backed by good volume.  What 
happened?  There were several factors that worked together to 
throw a wrench in our put play.  One factor was an upgrade by 
MSDW on Monday of the Reuters Group Plc to a Strong Buy, which 
was based on a higher asset valuation of TIBX.  Another factor 
was, as we mentioned in our initial write up, the near term 
support of TIBX's 50-dma at $117; it held.  And of course, 
there was the announcement of the largest mega-merger ever 
between TMX and AOL, which helped drive the NASDAQ to new 
highs.  There were simply too many positive happenings to 
cushion TIBX and keep our put play from even really getting 


BVSN $141.06 -20.94 (-7.28) Haven't we been here before?  The 
ever so generous BVSN wants to make sure that everyone gets 
the chance to play.  BVSN made a big gap up at the open on 
Monday and moved up nearly $14 for the day.  Today, BVSN 
opened down slightly and traded as low as $140.  We believe 
that we have been granted more opportunities for potential 
points of new entry.  BVSN has some immediate support at 
$140 backed with further support at $138 and $130.  We may 
encounter some resistance at $150.  BVSN's 10-dma, which is 
currently at $161.75, looks to be providing resistance as 
well.  Should $140 hold, we could be cleared for another nice 
run up.  On Monday, BVSN announced that they had entered into 
an agreement with Central Design Systems (CDSI) and will be 
providing end-to-end management technology to CDSI's e-business 
solution offering.  

QCOM $144.44 -14.94 (-5.56) QCOM is holding on well for the 
kind of markets we are dealing with.  Trading on Monday was
great for the Nasdaq and therefore great for QCOM.  You may 
recall it bounced from support at $133 on Friday and closed 
just shy of the old level of $160.  Today's markets brought 
QCOM down with them but we see QCOM sticking this out and 
going on an earnings run.  Earnings are due out on the 25th.  
So at this point there are different support levels and 
opportunities to jump in on the dips.  The support at $140 is 
practically what QCOM closed at so if the markets are dip again 
tomorrow morning, that would be a good entry level.  If it is 
stronger than "a dip", look for QCOM back at $133.  Resistance 
and the 10-dma are both hanging out around $160.  QCOM made an 
agreement with Hitachi today to develop and commercialize a 
next-generation mobile data communication system.

MSTR $238.50 -12.75 (+28.13) In this volatile market things 
change with amazing quickness.  MicroStrategy began the week 
with a very strong rally into new high ground.  After gaping 
above resistance at $217, the stock rallied all the way to 
$262, shattering the old high of $230.  Positive news and one 
of the biggest comebacks in NASDAQ history were responsible 
for the strong move.  MSTR announced a new business alliance 
with Primark Corp. to develop and syndicate premium financial 
information services for investors on the Stretegy.com 
Personal Intelligence Network.  Today's action was 
understandably weak.  MSTR's drop today did not violate any 
support levels.  Look for support and a good entry point at 
$231.  If MSTR gathers strength look to enter a bullish 
position if it can trade above $251.  One word of caution.  
This stock moves on very little volume.  In the first half 
hour of trading the stock had a 14 point range on only 26,000 
shares!  If you are going to trade the options on this stock 
we recommend that you have access to real time quotes and do 
not place market orders.

AFFX $170.06 -22.81 (+16.81) Human Genome Project stocks were 
the big winners last week and that continued on Monday.  
However, this sector was one of the first to suffer profit- 
taking today and AFFX was no exception.  We are encouraged by 
the fact that AFFX is still positive for the week.  A very 
interesting technical picture has developed in the past two 
days.  A double top was established yesterday at $195.50.  A 
shorter-term double bottom was made the past two days at $167.
So what does it all mean?  Primarily it means that these two 
price levels are the key pivot points.  If you want to trade 
the range buy in the mid to low $160's and sell in the low 
$190's.  If the stock takes out today's high and opening price 
of $186, you could get a run to $195.  If AFFX cannot 
convincingly trade above $195 you might want to take profits.  
On the downside, if AFFX trades below $167, look for it to 
close the gap all the way down to $153 before initiating a 
bullish position.  In the news, Novartis entered into an 
agreement with AFFX whereby, Novartis now has purchased broad 
access to AFFX's gene research equipment and software. 

XCED $41.75 -3.81 (-4.00) Not the best of starts for this 
call play.  Although the first recommended purchase point of 
$43 seems to have been a little high and the stock failed to 
rally after taking out the old high of $47.50, we still 
believe that this stock has profit potential to the upside.  
A consolidation in the $40-$42 range could be just the tonic 
this stock needs to gather strength for another run.  If the 
stock opens in this range, a call position could be initiated.  
If it opens much lower wait for it to go to $36 before going 
long.  If it rallies on the open you can buy it above $46, if 
it falls short of that mark wait for a pullback.  On Monday, 
XCED made the anticipated announcement of divesting its 
holdings in its old Water-Jel business.  The move allows XCED 
to fully concentrate on its Internet and Business development 

GMH $102.56 -1.50 (+4.56) Back in the good old days a 
channeling stock would take a little while before trading 
between the upper and lower bands.  Yesterday, GMH did it one 
grand gesture!  With an open of $103 and a follow through to 
$105.68, GMH fell just short of our upper band target of $106-
$107.  It can still get there.  Today was an "inside" day with 
a range of $101.68 and $104.  These numbers are important in 
determining the next move.  A trade above $104 should take us 
into new high territory.  A trade below $101.68 could take us 
back to the lower band at $96.  Place trades and stops 
accordingly.  Pegasus sued to be able to join a lawsuit 
against GMH over fees and rate rebates.  The original suit 
was filed in August by affiliate members of NRTC (a group of 
DIRECTV providers) and seeks class action status.

AMGN $66.44 -5.69 (-1.56) Hopefully subscribers long AMGN 
took their profits when AMGN traded below $70 today, an 
important short-term support level mentioned in Sunday's 
write-up.  After dropping below $70, profit-taking accelerated, 
dropping the stock all the way back to $64.13 before finding 
support.  If the market can settle down and start to move 
higher, then earnings traders may start bidding shares back up 
to the announcement date of January 20th.  It would probably 
take a trade above $70 to get traders to start buying 
enthusiastically again.  Otherwise you can buy AMGN if it stays 
above $64, today's low.  On the downside, AMGN should find 
some support first at $62 and then $58.  AMGN dropped today 
despite the fact that industry colleague and fellow 
heavyweight, Biogen, announced that it will beat estimates.  
BGEN was also down today.  

ADI $90.56 -3.88 (+3.69) Yesterday ADI obviously had taken 
enough of a breather and opened strong at $90, bypassing its 
first line of opposition at $88.  By the close ADI had tacked on 
$7.56 and penetrated its all-time high setting a new record at 
$94.75 confirming momentum was not dead.  If the past two trading 
sessions are any indication, near-term support could establish 
itself at $90 just above the rising 5-dma ($88.65) and 10-dma 
($89.13).  If there's a slip under this higher level, confirm a 
bounce off $87-$88 before starting another position.  In the 
news, ADI announced it's the leading seller of over 1 mln ADSL 
chipsets on the open market with a 60% dominant market share.  
ADI also boasts its ADSL chipset have more interoperability 
with more ADSL systems than any of the competition.

GO $32.00 +0.00 (+4.00) Yesterday the bullish momentum 
surrounding the American Online (AOL) and Time Warner (TWX) deal 
rippled through the Media and Internet stocks.  GO hopped on a 
board and rode the wave to an extraordinary $4.00, or 14.29% 
advance!  Volume too was strong with 3.36 mln shares exchanging 
hands.  Today the same robust trading activity carried on as GO 
maintained its higher share price.  Near-term support is at $32 
and also $30, with the 10-dma trailing down at $27.63.  Any dip 
under this level signals the momentum may be running out of steam.   
Remember this play is primarily news-driven, but technically it 
still has promise.

ORCL $112.38 -$3.38 (+9.00) It's hard to complain about a $3.38 
loss on day when the NASDAQ lost 128 points, especially since it 
gained $12+ yesterday.  Volume remains strong at 1.5 times the 
ADV, which tells us that buying interest is still present.  If 
you look at the opening price, ORCL lost just $0.13 in today's 
trading - no cause for alarm here.  It's a good sign.  Today, 
support was found at $109.50, but is a bit stronger at $105 
(previous resistance), then $102.50.  The market could be jittery 
through the end of the week in light of PPI, Greenspan, then CPI 
beginning Thursday morning.  Interest rates are a big worry right 
now.  The point is to target-shoot your entry according to your 
risk profile.  ORCL is proving itself to be the software partner 
of choice in Internet applications and isn't going away anytime 
soon.  A 2:1 split that takes place after the close on Jan 18th 
is driving the current run - a plethora of positive press 
releases (say it 3 times real fast!) doesn't hurt either.

CSCO $106.50 -$3.31 (+0.38) Lucent's flaws are CSCO's 
opportunity.  While CSCO doesn't report earnings until Feb 8th, 
CSCO's defense of and refusal to change analysts' estimates 
following the LU news leads us to believe that they may be 
holding back an earnings surprise.  CSCO is also in split 
territory again, though not likely to influence any current 
buying decisions.  Over the past two days, support can be found 
at $106; $102 after that.  Resistance is holding firm at $110.  
It's starting to look like one of those ascending triangles, or 
pennant on the chart, don't you think?  Volume has fallen back 
slightly to match the ADV of 21 mln shares, indicating perhaps 
some consolidation.  We'd almost expect that, given the 
propensity for market choppiness driven by interest rate worries 
prior to PPI, Greenspan, then CPI beginning Thursday morning.  
Pick your entry carefully - any negative market news could send 
CSCO back to $100 if severe enough.  Nonetheless, we consider 
the dips buyable after a bounce off these levels of support.  
Just make sure your target fits your risk profile, or wait for 
a breakout over $110 with volume.


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This newsletter is a publication dedicated to the education 
of options traders. The newsletter 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 
newsletter 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 accuracy or completeness.
The newsletter staff makes every effort to provide timely 
information to its subscribers but cannot guarantee specific 
delivery times due to factors beyond our control.

The Option Investor Newsletter         Tuesday 1-11-2000
Copyright 2000, All rights reserved. 
Redistribution in any form strictly prohibited.


NOK $168.00 -10.94 (-3.00) OK, this is getting old.  Just when 
we think we might get that breakout over $180, along come 
interest rate fears to knock the stuffing out of telecom ADRs.  
While we are frustrated waiting for a move, support remains in $5 
increments beginning at $170 all way down to $150, though we 
really don't expect NOK to get that low again.  NOK is the only 
major handset producer currently offering Internet-ready phones, 
which can't produced fast enough.  We've already noted that we 
expect an upside earnings surprise thanks to their announcement 
last year that they would earn 3 years of income in just the next 
2 years.  The earnings announcement date is February 1, subject 
to change per Nokia's IR department.  They are also in split 
range over $150.  While it may be a bit early to begin an 
earnings/split announcement run, if you are itching to play and 
don't mind holding through some turbulence, consider target 
shooting for April calls whose time value won't diminish as 
rapidly.  In current news, NOK is on board as a partner in the 
launch of Vodafone's single global platform and content for 
mobile data and Internet applications.  Other partners are 
Charles Schwab, IBM, SUNW, Netscape (AOL), and Infospace.  As 
VOD launches wireless Internet, it will sell more phones.

CMTN $52.00 -1.56 (+0.00) CMTN is once again coming to a 
crossroads.  We have been looking for a run into earnings 
next week.  Since the Lucent debacle last week, CMTN has had
a tough time getting back on track.  Remember we are normally
judged by the company we keep.  The negative tone in the major
indices didn't help CMTN today either.  Monday, CMTN gapped
higher at the open and has drifted sideways to lower for most
of the two sessions this week.  Technically CMTN has come
down to an intraday support level at $51.75 in both of the
last two sessions.  The 10-dma sits at $51.15.  A close below
support could spell trouble for our play.  The next level
of support for CMTN sits at $49.25.  On the bright side, the 
volume the past two days has been lower than average.  We aren't
giving up as we still have time for CMTN to run into earnings. 
Before entering or adding to existing plays, confirm the 
direction of CMTN and volume.  CMTN reports on Jan 18th.  

HGSI $164.81 -12.75 (+4.50) What a week so far for our play
in HGSI.  Shares of HGSI surged over $30 Monday before
settling at $177.56, +17.25 for the session.  The move came
on news from Celera Genomics Group.  The company said it had 
mapped more than 90 percent of the material in the human
genome, the genetic blueprint for the human body.  Celera sells
drugmakers genetic information, that may serve as blueprints 
for molecules to precisely target causes of disease and create
better drugs.  It was the kind of information that was just
what the doctor ordered for our split run play in HGSI.  Today
profit taking set in for HGSI, dropping the price -12.75 to
end the session at $164.81.  The volume was lighter than normal,
indicating the serious players are still hanging on to their
shares of HGSI.  Technically HGSI appears to still be headed 
south.  It will find support near $160.  A bounce off that area
would provide another good entry point for our play.  If HGSI
rebounds from here, confirm the volume of the move prior to 
entering a new play.

INKT $99.94 -4.94 (+10.56) Monday's announcement of the AOL-TWX
merger ignited the momentum for stocks in the Internet sector.
INKT joined in the party as well.  Shares of INKT surged over
17 percent Monday on the news, as the tech heavy Nasdaq made
another record move.  Today saw some profit-taking set in, as
INKT fell -4.94, to close just under the century mark at $99.94.
Given the move Monday, the retreat was not bad.  Technically
INKT has initial support at $98 on an intraday basis.  The next
level is seen at $95.  The week's economic reports get under
way tomorrow, and depending on the numbers, INKT and the Internet
sector and the Nasdaq could take off again or head south.  
YHOO reported better than expected earnings this afternoon,
and continued to fall out of bed in after-hours trading.  If 
the trend continues in the morning, this could pull shares of
INKT lower as well.  INKT reports earnings Jan 20th and we 
are looking for a run into the announcement.  Keep your stops
close and confirm market direction prior to entering any new 
plays in this one.   

MOT 133.38 -6.38 (+3.94) Motorola joined in on the buying frenzy
Monday as AOL and Time Warner announced their new union.  Shares 
of MOT climbed to $143.63 on speculation the AOL merger could 
also boost sales at MOT.  Time Warner's Road Runner cable-modem 
service already gets its cable from modems from Motorola.  Last 
week MOT completed its $17 bln purchase of General Instruments
Corp.  That purchase should help MOT take advantage of rising 
demand for cable services.  The $7 decline today appears to be 
profit-taking.  If you entered this play, hopefully you sold
too soon, and are looking for a new entry point.  MOT will find
initial support at $130, followed by $125.  Patience may be the
key to this play.  We are looking for a run into earnings as 
MOT is due to report next Monday.  We would wait for the market 
to dictate our next move.  A decline to either support level 
followed by a bounce, with solid volume would provide a good 
entry point for this play.

CMVT $135.25 -3.88 (-3.75) Need a reminder why we never recommend
trading during amateur hour?  Look no further than CMVT on Monday.
Gapping up over $5 on the open, the first price of the day was
the high, followed by a gradual deterioration throughout the day.
This was on slightly greater than average volume and occurred in
the face of the NASDAQ's largest 1-day point gain ever.  Showing
some strength today, CMVT moved above $143, before the late day
selloff in the NASDAQ pulled it back for a $3.88 loss.  Volume
picked up late in the day and thankfully CMVT bounced right on
its $133 support level to recover over $3 from the low of the
day.  Going forward, we expect the volatility to continue, so
confirm market direction before opening new positions.  Overhead 
resistance is in the $143-144 area, right where CMVT rolled
over today.  We are still waiting to hear from CMVT on a
possible split, and expect support to hold at $133 or possibly
$130, but if the market is uncooperative and these levels are
violated, stand aside.

CHKP $202.50 -9.25 (+10.63) Monday's record move on the NASDAQ
gave a nice boost to our earnings/split play.  Gapping up over
$6, CHKP never looked back, adding just under $20 for the day
on average volume.  Tuesday was a mixed bag for CHKP, as it was
for many of the high-flying technology shares.  Opening lower,
shares ran all the way to $218.50, last week's new 52-week high,
before succumbing to selling pressure.  CHKP gave up all of its
intraday gains to lose over $9 on the session.  There is light
support at $200 and then $193.  With the strength of this play,
earnings February 1 and a split (date to be determined at the
shareholder meeting on January 13), look for CHKP to continue
showing strength.  Resistance is up at the 52-week high, which
was tested again today.  Remember, this is a volatile internet
issue, so evaluate your risk profile accordingly.  CHKP 
continued to add to its market leading position Monday, through
collaboration with Verisign.  The 2 companies unveiled
Go Secure!(SM) for Check Point which facilitates the deployment
of digital certificates in Check Point's VPN-1T/FireWall-1
solution.  With continuing concern over internet security,
CHKP's ability to provide security in its systems will continue
to attract customers.

EMC $109.50 -0.50 (+2.13) EMC continued Monday right where it
left off on Friday, tagging $116, before fading a bit in the
afternoon to close up $6.38 on 1.5 times it ADV.  Benefiting
from the strength in the NASDAQ, EMC got within spitting
distance of its 52-week high from last Monday, before profit-
takers moved in near the close.  EMC tried to continue its rise
today, and although it got close to yesterday's high, the
downside pressure in the NASDAQ was too much, pushing EMC down
to close with a fractional loss.  It now has resistance at $116
and then support between $105-107.  The 10-dma, currently just
above $107, should reinforce this support level.  Earnings are
2 weeks away and should start to garner investors' attention
going forward.  On Monday, EMC completed the U.S. antitrust
review portion of its $192 million acquisition of SOFTWORKS,
a leading global provider of enterprise data, storage and
performance management software.

VIGN $201.66 +11.78 (+26.47) Did you buy the dip yesterday?
After opening strongly, VIGN moved up just south of the $190
resistance level.  Prices then dropped off, consolidating for
most of the day near $180.  Volume started to pick up around 3pm
and VIGN moved strongly right up to the close, ending at $189.88,
right below resistance.  Continuing where it left off, VIGN
opened strongly this morning, quickly moving through resistance
and hitting a new 52-week high of $211, before succumbing to the
overall market weakness.  VIGN spent the rest of the day
consolidating near $200, and fortunately refused to participate
in the NASDAQ selloff.  Support is building at this level, but
further weakness in the market could drop us down to retest
support at $190.  VIGN has still not announced the actual date
for their earnings.  According to the company, they will be
released in late January or early February.  On Monday, VIGN
agreed to buy DataSage Inc. for $554 million in stock
(3.16 million shares) to help them get a larger share of the
e-commerce software market.  Tuesday brought more good news with
Tara Long at CE Unterberg Towbin reiterating her Strong Buy
recommendation.  Also on Tuesday, VIGN announced the acquisition
of Engine 5, Ltd., a pioneer in enterprise-wide Java server
technology. This further solidifies VIGN's leadership position
in the e-business applications market.


CHINA $79.44 -2.81 (+2.94) CHINA likes to keep you on the edge 
of your seat.  CHINA's 5, 10 and 30-dmas have worked to 
converge and provide some solid support right around $75-79.  
Though this level is holding well, should CHINA manage a 
breakthrough, it doesn't have much left to rely on in the 
way of near term support.  We are headed in the right 
direction and should we make the drop below this current 
support level, we could be cleared for a healthy fall.  We 
did not really see the kind of volume we would have liked 
backing today's decline, however, we expect to see this to pick 
up should CHINA continue to fall through support.  Obviously, 
we are at a crucial point for this play.  Confirm direction 
before entering any new plays.   

SCNT $70.25 -0.25 (+3.75) SCNT traded up $4 during Monday's 
session while posting better than average volume.  Today, SCNT 
opened just over $70 and spent the day flirting around this 
level.  $70 seems to be providing support at this point, backed 
by the 5-dma at $69.75.  SCNT does look to have some resistance 
right around $73.  Also, SCNT still has a ways to go before it 
is able to re-enlist the support of its 10-dma ($77), which is 
still trying to catch up with SCNT's rapid decline.   We are 
going to give SCNT a little more time on our play list as we 
are not convinced that it has reversed its downward trend just 
yet.  We recommend waiting for some consistent trading below 
$70 before entering any new plays.  One thing to watch out for 
is an upcoming earnings announcement on the 19th (confirmed).  
Exercise caution as there is always the possibility of an 
earnings run. 

SANM $96.63 -4.69 (+4.88) When we said wait for further 
corroboration before opening a position on SANM and that "it's 
better to be safe than sorry", it couldn't have been said any 
better.  The AOL/TWX "dance party" was no doubt rocking the 
markets and SANM was shaking its booty.  Yesterday's Strong Buy 
reiteration by Needham & Co was certainly no help either.  SANM 
shot up as high as $102.75 on strong volume before settling back 
to the mid-90s today.  The increasing volume on today's decline 
as the market session was coming to a close indicates profit-
taking may continue tomorrow.  We'd like to see a slip back 
under the $95 mark to confirm our technical conviction that 
SANM will head back towards the 200-dma ($80.64).

WCOM $42.56 -4.25 (-4.63) The strong day at the NASDAQ couldn't
help WCOM yesterday.  Moving up to bump its head just below $49
during amateur hour, it was all downhill from there, giving WCOM
a fractional loss for the day.  With the markets weaker today,
the weakness continued right from the open, and as the day wore
on it got worse.  WCOM, losing over $4 today is now at its lowest
point since late 1998.  The 10-dma (currently $49.50) will
continue to create resistance and now the October low near $45
should pressure this telecom behemoth.  Downside pressure from
the pending Sprint merger continues with talks still ongoing
about how Sprint will pull out of its unprofitable European
phone venture with Global One.  The merger of AOL with Time
Warner is generating concern over competition with WCOM's UUNET
operation.  The only silver lining for WCOMs dark cloud of woes
came from Jack Grubman at Salomon Smith Barney.  Today, he
reiterated his Buy rating, but this didn't seem to matter.


EXDS - Exodus Communications $103.19 -0.84 (+16.06 this week)

Though they don't like the term, they are frequently called 
"server farms".  Exodus is a leading provider of Internet systems 
and network management solutions for enterprises with mission-
critical Internet operations.  Exodus manages Internet Web sites 
and its network infrastructure from 16 Internet Data Centers 
located in the United States and Europe.  Exodus currently has 
IDCs located in the Austin, Boston, Chicago, London, Los Angeles 
(2), New York (2), Seattle (2), Silicon Valley (4) and 
Washington, D.C. (2) metropolitan areas.  Exodus added three 
additional IDCs and three international server hosting sites at 
the end of 1999, bringing the total number of Exodus sites to 22 

It's been a while since we've seen EXDS on these pages.  However, 
following a 1-month consolidation in the $80-$90 range, we have 
ourselves a breakout which began yesterday on more than twice the 
ADV of 3.6 mln shares.  That EXDS gave back less than $1 while 
the NASDAQ and Internets crumbled around it is testimony to its 
strength.  But the real meat is that EXDS will report earnings on 
January 26 after the close, where they may announce another 
split.  The last one completed (a 2:1 on December 15) was 
announced on November 19, 1999 at $108.  Don't look now, but here 
we are again.  Support held well today at $101, but can also be 
found a bit lower at $97.50.  After that?  Around $95.  Target 
shoot where you are comfortable, but realize the next few days 
will be turbulent.  Don't try to catch a falling knife.  Wait for 
the bounce.  You may also consider buying a breakout back over 
$110, but volume is the key.

Today, EXDS announced they would buy Keylabs in a $44 mln, 
transaction.  However, yesterday, the big news was that MSDW 
reiterated their Strong Buy.  Wit Capital started them as a Buy 
last week too.

Jim's Covered Straddle strategy could work well here (see Sunday 
Newsletter, Options 101).  The net debit on the long side is 
below $80 consolidated support.

***Warning! January contracts expire next week***

BUY CALL FEB-100 DUB-BT OI=939 at $17.00 SL=13.25
BUY CALL FEB-105*DUB-BA OI=226 at $14.88 SL=11.75
BUY CALL FEB-110 DUB-BB OI=396 at $12.75 SL=10.25
BUY CALL MAR-110 DUB-CB OI=143 at $17.25 SL=13.50

Picked on Jan 11th at  $103.19     P/E = N/A
Change since picked      +0.00     52-week high=$116.50
Analysts Ratings    18-8-0-0-0     52-week low =$  6.88
Last earnings 10/99  est=-0.29     actual=-0.29
Next earnings 01-26  est=-0.19     versus=-0.13
Average Daily Volume = 3.6 mln
Chart = http://quote.yahoo.com/q?s=EXDS&d=3m


INTU - Intuit Inc $82.38 -2.75 (+8.81 this week)

Intuit develops and markets financial software products and 
related Web services.  Their flagship products are Quicken, the 
#1 personal finance program in the world, and TurboTax used for 
tax preparation.  Founder Scott Cook still has a 12% stake in 
the company.

Last Wednesday Intuit traded at almost four times its ADV and 
advanced an astonishing 29%, or $17.56 after Bear Stearns 
started coverage with a Buy rating and news of the company's  
latest Internet-strategy hit the press.  Intuit unveiled a new 
Web service that allows small business to create its own Website 
and link up its accounting date.  For the first time, small 
business can do business via the Net quickly and at a relatively 
low cost with Intuit's QuickBooks Site Builder service.  The 
first six months will be free and after that $9.95 per month.  
According to Scott Cook, founder and company executive, 
QuickBooks Site Builder "is the most exciting thing we've 
introduced in over a year" and that " this is just part of a 
much-larger strategy, which is to become the largest hoster of 
small businesses".   Yesterday INTU powered even higher on pure 
momentum breaking through resistance at $80 and tagging $90 to 
set a 52-week record!  Assuming old resistance will emerge as 
new support, look for the present level to hold firm above the 
5-dma ($77.64) indicator.  Then pick your entry after confirming 
stock direction and market sentiment.     

In addition to its new Buy rating last Wednesday, Bear Stearns 
issued an $80 price target.  ABN AMRO also stepped up to the 
plate for INTU and reiterated a Buy recommendation that day.  
In other news on Monday, Intuit announced its Quicken Mortgage 
online home lending service changed its name to Quicken Loans 
to reflect its expanded and direct lending capabilities.  The 
recent acquisition of Rock Financial Corp now allows prospective 
clients the ability to secure and close loans directly from the 

***Warning! January contracts expire next week***

BUY CALL JAN-80*IQU-AP OI=134 at $ 5.88 SL=4.25
BUY CALL JAN-85 IQU-AQ OI=187 at $ 3.37 SL=1.75
BUY CALL FEB-80 IQU-BP OI=342 at $10.00 SL=7.50
BUY CALL FEB-85 IQU-BQ OI= 84 at $ 7.75 SL=6.00
BUY CALL FEB-90 IQU-BR OI=  0 at $ 5.88 SL=4.25 New Strike

Picked on Jan 11th at    $82.38    P/E = 44
Change since picked       +0.00    52-week high=$90.00
Analysts Ratings      4-9-1-0-0    52-week low =$22.50
Last earnings 11/99   est=-0.19    actual=-0.12
Next earnings 02-21   est= 0.46    versus= 0.45
Average Daily Volume = 3.27 mln
Chart = http://quote.yahoo.com/q?s=INTU&d=3m


GMST - Gemstar International $70.63 -0.88 (+5.13 this week)

Gemstar develops, markets and licenses proprietary 
technologies and systems aimed at making technology user-
friendly for consumers under the VCR Plus+ name.  Gemstar is 
a leading provider of electronic program guide services, which 
allow users to view a television program guide on screen, 
obtain details about a show, sort shows by themes or 
categories and select shows for tuning or recording, all 
through remote control.  Gemstar's primary source of revenues 
has been license fees paid by consumer electronics 
manufacturers and publications for the licensing of the VCR 
Plus+ technology and the right to print the PlusCode Numbers.

Gemstar had a very exciting December that drove the stock into 
the wonderful heights of new highs.  On December 14th, GMST 
split it shares 2-for-1, putting an exclamation point on an 
excellent year for GMST.  On December 23rd GMST was added to 
the NASDAQ 100.  This very exclusive club has become a very 
important investment vehicle for Index fund owners.  It makes 
sense in light of the huge gains for the NASDAQ 100 Index last
year.  Demand for the shares of GMST increased because of 
inclusion in the "Q's".  Since December, Gemstar has suffered 
a bit of a hangover, with the shares pulling back to $61 after 
hitting $79.50.  It looks like the profit-takers are out of 
the way.  Relative strength has been very good for the shares 
of GMST the past few days although it did slip a bit into 
today's close.  New support has been established at the $60-$61 
level and the stock convincingly broke a two week downtrend 
on Monday.  Indications of the break from a downside channel 
put the stock back up, possibly into the $90's.  A bullish 
position on GMST can be placed at current price levels on a 
flat opening.  If we get lucky and there is a little selling 
follow through on the opening you could get a more favorable 
price.  If the shares drop below $65, wait for $62 before 
initiating any positions. 

No recent news items for Gemstar.

***Warning! January contracts expire next week***
BUY CALL JAN-65 GST-AM OI=2865 at $ 7.25 SL=5.25  
BUY CALL JAN-70 GST-AL OI= 973 at $ 3.88 SL=2.25
BUY CALL FEB-65 GST-BM OI= 245 at $10.00 SL=7.50
BUY CALL FEB-70*GST-BN OI=1633 at $ 7.38 SL=5.25
BUY CALL FEB-75 GST-BO OI= 449 at $ 5.00 SL=3.25

Picked on Jan 11th at    $70.63    P/E = 79
Change since picked       +0.00    52-week high=$79.50
Analysts Ratings      7-0-0-0-0    52-week low =$13.88
Last earnings 10/99   est= 0.09    actual= 0.09
Next earnings 02-15   est= 0.10    versus= 0.08
Average Daily Volume = 1.48 mln 
Chart = http://quote.yahoo.com/q?s=GMST&d=3m 


SEPR - Sepracor Inc. $122.38 +2.19 (+4.25 this week)

They are a specialty pharmaceutical company that develop 
improved versions of widely prescribed existing pharmaceuticals.
Located in Marlborough, MA, Sepracor products can offer
reduced side effects, improved safety, new uses, and improved 
dosage forms over traditional compounds.  They are currently 
in the process of developing drugs to treat asthma, allergies, 
pain, sleep disorders, and depression.  SEPR has licensed to 
Johnson & Johnson the rights to an improved version of JNJ's
own Propulsid heartburn medication.  SEPR competes in the 
healthcare sector with Bayer AG, Glaxo Wellcome, and
Johnson & Johnson.

SEPR continued higher today without the rest of the Biotech
sector.  Late last week analysts at Paine Webber issued 
favorable comments on several stocks in the drug and biotech 
sector.  That seemed to give SEPR and several leaders in the 
industry the boost necessary to break out of the recent 
consolidation.  SEPR broke through the $105 level, which had 
provided tough resistance on several occasions.  The volume 
behind the move was impressive with over 1.0 million shares
changing hands.  The momentum behind the move continued this
week, with SEPR hitting a high of $128, an level not seen since
late last March.  The resurgence of the Drug and Biotech
sector has provide investors with some handsome returns recently.
With the momentum behind the move, we are adding SEPR to our
list of plays for an earnings run as well.  SEPR is scheduled
to report earnings next week.  Even though SEPR and many stocks
in the industry are showing negative earnings, investors are
choosing to focus on the potential for the company.  SEPR, like
many others in the industry have been beaten down and now have 
seen a renewed interest in the sector.  For our play in, SEPR 
bounced off intraday support at $120 late today.  The next level
of support is seen at $117.  We would look for continued strength
in SEPR as the stock and the industry are a hot item right now.
As always confirm market direction and volume prior to entering
any new play.  

This morning analysts at Deutsche Banc Alex Brown reiterated their
Strong Buy rating on SEPR.  They projected a new price target of 
$155 for the company.  They also expect strong inflows of news 
from trial programs at the company over the course of 2000.  
Although SEPR has few brokers that follow the company, most of 
those that do have rated the company a Strong Buy or a Buy.

***Warning! January contracts expire next week***

BUY CALL JAN-110 ERQ-AB OI=1446 at $14.25 SL=11.25
BUY CALL JAN-115 ERQ-AC OI= 457 at $10.38 SL= 8.25
BUY CALL JAN-120*ERQ-AD OI= 238 at $ 7.13 SL= 5.25
BUY CALL JAN-125 ERQ-AE OI= 319 at $ 4.25 SL= 2.50

Picked on Jan 11th at  $122.38     P/E = N/A
Change since picked      +0.00     52-week high=$140.88
Analysts Ratings     4-5-2-0-0     52-week low =$ 58.75
Last earnings 10/99  est=-1.56     actual=-1.68 surprise=-7.70%
Next earnings 01/20  est=-1.51     versus=-1.10
Average Daily Volume =   414 K
Chart = http://quote.yahoo.com/q?s=SEPR&d=3m


No new puts today.


VIGN - Vignette Corporation $201.66 +11.78 (+26.47 this week)

VIGN provides Internet Relationship Management (IRM) software
products and services, a category of enterprise solutions
designed to enable businesses to build sustainable online
customer relationships, increase returns on internet-related
investments and capitalize on Internet business opportunities.
VIGN's clients come from diverse sectors and include financial
services, health, education and government, media, retail,
technology and telecommunications.

Sunday's Write Up

It seems everything is moving faster and VIGN is no exception.
Tagging a new 52-week high of $188.56 on Monday, the popular
B2B e-commerce issue got hammered with the rest of its sector,
trading as low as $155 late Thursday afternoon.  Turning on a
dime Friday morning, VIGN quickly moved up to resistance at
$170, where the battle between buyers and sellers continued for
most of the day.  The bulls finally won out, pushing VIGN up 
to close above $175.  The test of the $155 support level on
Thursday filled in the opening gap from December 30th, which
makes the chartists happy.  Volume has been on the light side
the past 2 days, and we would like to see it pick up to confirm
a further move to the upside.  Market permitting, VIGN will be
setting its sights on resistance near $190.  Barring a repeat
of last week's wild gyrations, VIGN should have good support
in the $165 area.  Any bounce here would provide an excellent
entry point as we set up for our run to earnings which are 
about 2 weeks away.  Keep in mind the volatility of this issue; 
the faint of heart need not apply, and stops are mandatory.

Positive comments and upgrades were the news of the week for
VIGN.  Greg Vogel of Banc of America maintained his Strong Buy
rating and raised his price target from $133 to $265 on Tuesday.
Also on Tuesday, Aaron Scott of Advest Inc., increased his 
rating from Buy to Strong Buy and raised his price target 
from $130 to $275.

Tuesday's Write Up

Did you buy the dip yesterday?  After opening strongly, VIGN 
moved up just south of the $190 resistance level.  Prices then 
dropped off, consolidating for most of the day near $180.  
Volume started to pick up around 3pm and VIGN moved strongly 
right up to the close, ending at $189.88, right below resistance.  
Continuing where it left off, VIGN opened strongly this morning,
quickly moving through resistance and hitting a new 52-week high 
of $211, before succumbing to the overall market weakness.  VIGN 
spent the rest of the day consolidating near $200, and 
fortunately refused to participate in the NASDAQ selloff.  
Support is building at this level, but further weakness in the 
market could drop us down to retest support at $190.  VIGN has 
still not announced the actual date for their earnings.  
According to the company, they will be released in late January 
or early February.  On Monday, VIGN agreed to buy DataSage Inc. 
for $554 million in stock (3.16 million shares) to help them get 
a larger share of the e-commerce software market.  Tuesday 
brought more good news with Tara Long at CE Unterberg Towbin 
reiterating her Strong Buy recommendation.  Also on Tuesday, 
VIGN announced the acquisition of Engine 5, Ltd., a pioneer in
enterprise-wide Java server technology. This further solidifies 
VIGN's leadership position in the e-business applications 

***January contracts expire in two weeks***

BUY CALL JAN-180 GGV-AP OI= 92 at $28.13 SL=22.00
BUY CALL JAN-185 GGV-AQ OI= 47 at $24.13 SL=18.75
BUY CALL JAN-190 GGV-AR OI=389 at $21.00 SL=16.25
BUY CALL JAN-195*GGV-AS OI=503 at $18.38 SL=14.25
BUY CALL FEB-190 UOJ-BR OI=207 at $32.38 SL=25.25
BUY CALL FEB-195 GGV-BS OI= 59 at $29.88 SL=23.25

Picked on Dec 30th at  $163.75     P/E = N/A
Change since picked     +37.91     52-week high=$211.00
Analysts Ratings     9-4-0-0-0     52-week low =$ 19.91
Last earnings 10/99  est=-0.20     actual=-0.19
Next earnings 01-19  est=-0.08     versus= N/A
Average Daily Volume = 1.03 mln
Chart = http://quote.yahoo.com/q?s=VIGN&d=3m


Rising Interest Rates Subdue Euphoric Attitude..

Monday, January 10

Technology stocks drove the Nasdaq to its biggest one-day gain in
the history of the index as investors celebrated the pact between
America Online and Time Warner. The Dow Jones Industrial Average
climbed 49 points to 11,572 while the Nasdaq Composite soared 167
points to 4,049. Volume on the Nasdaq was heavy at 1.72 billion
shares with advances beating declines 2,516 to 1,560. The broader
S&P 500 index rose 16 points to 1,457. Advancing stocks edged-out
declines 17 to 13 with more than 1.03 billion shares traded on the
NYSE. There were 103 stocks at new highs and 60 at new lows. The 
market's rally came amid a weakening in the bond market with the
30-year U.S. Treasury down 18/32 while the yield rose to 6.59%.
Sunday's new plays (positions/opening prices/strategy):

HealthSouth   HRC    MAR7C/FEB7C     $0.19   debit    calendar 	
HealthSouth   HRC    JAN7C/FEB7C     $1.25   debit    LEAPS/CC's
P-Coms        PCMS   MAY7C/FEB10C    $2.00   debit    diagonal
Allaire       ALLR   JAN175C/165C    $0.75   credit   bear-call
Legato        LGTO   JAN80C/JAN75C   $0.62   credit   bear-call 
Viatel        VYTL   JAN55C/JAN50C   $1.00   credit   bear-call

Today's buying frenzy started a number of our issues higher at
the open. The bullish activity allowed excellent entry points
in the call-credit positions. The most beneficial move came in
Legato, and with the stock up almost $6 during the session, we
were able to open the conservative position for a higher credit.
In fact, the majority of our new plays traded at better than
expected prices.

Portfolio plays:

The major indices posted record moves today as a merger between
Time Warner (TWX) and America Online (AOL) brought new interest
into media and Internet stocks. The industry giants announced
they would join forces in the largest all-stock combination in
history. In the wake of the news, retailing, chemical and
financial services stocks ended lower as money flowed back to
high-flying technology issues. The Nasdaq closed with an absurd
point gain, bolstered by rising chip and software stocks. Despite
the enthusiasm in the market, analysts are now concerned about
the increasing potential for the Fed to raise interest rates.

Our biggest winner today was Exodus (EXDS) with a surprise $17
rally to $104. The bullish credit position, JAN70P/JAN72P should
expire at maximum profit. Another tremendous mover was Motorola
(MOT), which gapped up over $11 to close at $140. Our LEAPS/CC"s 
position is profitable above $115. Smaller-cap stocks also made
some incredible progress. Silicon Valley Group (SVGI) opened $3
higher after announcing it will easily top analysts' estimates in
its first quarter. Company officials said it will earn $0.15 per
share in the quarter, well above the consensus. Last quarter they
earned $0.05 a share on sales of $189 million. Analysts said SVGI
has seen continued strength in its bookings. Our bullish calendar
spread provided two profitable opportunities; an early exit for a 
favorable profit or the roll-out to February options at a higher
strike price. Geron Corporation (GERN) climbed another $2.75 to
$17.25 as news of continued success in human genome sequencing
lifted biotech stocks to new highs. Morgan Stanley noted that many
non-genomic companies participated in the rally amid promising
drug pipelines and recent launches of money-making products. Both
of our positions in this issue are now profitable. Other recent
performers also participated in the rally including; Loral Space
And Communications (LOR), Micron (MUEI), Silicon Graphics (SGI), 
Talk.com (TALK) and Zoltek (ZOLT).

Merger news led the market and also dominated the Spreads/Combos
portfolio. Today Nextlink Communications (NXLK) said it would buy 
Internet access provider Concentric Network (CNCX) in a $3 billion
deal. The acquisition allows NXLK to expand its high-speed data
and Internet services. CNCX shareholders will receive $45 in NXLK
stock for each share. Nextlink said it expects the Concentric pact
to close in the second quarter of 2000. Our position in CNCX moved
to maximum profit as the stock rose sharply on the news, gaining
almost $10 to $39.62. There may also be an opportunity for rolling
up as the inflated option premiums move back to theoretical value.

In the long-term portfolio, there were a number of excellent moves.
Adobe Systems (ADBE), Computer Associates (CA), Solectron (SLR),
Sun Microsystems (SUNW), and United Airlines (UAL) all shared in
the day's gains. Of particular interest was Vodaphone (VOD) which
climbed almost $5 during the session to close at $51, after a new
upgrade from CSFB. General Motors (GM) was also in the news with
an announcement they will buy the remaining 50% of SAAB Automobile
from Investor AB, the Swedish holding company with which it has
shared Saab ownership for 10 years. They expect to complete the
acquisition by the end of January. GM rallied to $75.50, offering
an excellent opportunity to move the spread position into February.
The new position is LJAN75C/FEB75C at $3.88 debit. One of the top
movers in the straddles section, Continental Airlines (CAL) said
that it is pleased with the numbers from the fourth quarter. The
company is scheduled to release earnings January 18. According to
First Call, Continental is expected to post earnings of $0.40 per
share. The straddle position has traded higher in recent weeks,
offering as much as $11.00 credit on the original $8.62 invested.

Tuesday, January 11

Bond yields tempered investor enthusiasm a day after the market
rallied on news of the largest merger in the history of stocks.
The Dow ended down 61 points at 11,511 after reaching an all-time
high of 11,663. The technology-laden Nasdaq Composite dropped 128
points to 3,921. The S&P 500 index fell 19 points to 1,438. In the
broad market, declining stocks led advances 2 to 1 with almost a
billion shares traded on the NYSE. New lows outpaced new highs 73
to 67. The benchmark 30-year U.S. Treasury bond dropped 1-5/32,
driving the yield up to 6.68%.

Portfolio plays:

There were a few favorable moves in the portfolio today. Our most
surprising issue was HealthSouth (HRC) which rose another $0.75
to finish at $6.68. The issue traded near $7 for much of the day,
over $1 higher than our original cost on Monday. Both of the new
bullish positions are profitable and we expect the stock to move
higher in the coming weeks. Another recent pick, P-Com (PCMS)
rebounded in today's slumping market and the bullish technical
trend appears to be intact. Zoltek (ZOLT) has been on the move in
the last few sessions and institutions are showing more interest
in the issue. One well-known competitor, Conoco Corporation has
invested $125 million in a new carbon fiber facility and that may 
indicate future demand in the industry. Speculators are suggesting
that ZOLT may also be a target for Dupont (DD) or General Electric

Other than the market bellwethers, there were only a small number
of long-term positions that made bullish moves today. Exxon-Mobil
(XOM) led that group, climbing $1.25 to $85 (our sold strike) on
strength in the major oil companies. One of our straddles plays
made a new high. Mylan Laboratories (MYL) climbed $1.31 to end
just short of $27 on the rally in the biotech sector. The current
credit for the APR-$17.50 straddle is $9.25. The original cost of
the position was $4.56. Another recent straddle, Univision (UVN)
rebounded to a midday peak near $105. The overall position again 
eclipsed the $20 mark, providing $5.25 profit on $14.75 initially 
invested for one month.

A number of bullish issues moved lower during the session and the
most beneficial drop was Legato (LGTO). The company's share value
fell almost $10 today partly due to negative comments by Merrill
Lynch. They said that poor revenues in the sector were affecting
the valuation of many companies and although they offered a "buy"
recommendation on the stock, most investors saw it as a downgrade.
In any event, the negative move helped our conservative bull-call
spread considerably, and we expect the play to expire comfortably
OTM next week.
Questions & comments on spreads/combos to Click here to email Ray Cummins


THC - Tenet Healthcare  $26.31     *** Sector Rally ***

Tenet Healthcare is the second largest investor-owned healthcare 
services company in the United States. Tenet owns and operates
over a hundred general hospitals with thousands of licensed beds
and related healthcare facilities. Tenet's facilities serve urban
and rural communities in 18 states, with the company's largest
presence in California, Texas, and Florida. Tenet's healthcare
operations consist of numerous subsidiaries: Tenet HealthSystem 
Hospitals, TH Medical, and TH HealthCorp. Their general hospitals
offer acute care services, operating and recovery rooms, radiology 
services, respiratory therapy services, pharmacies, and clinical
laboratories. Some of THC's hospitals offer tertiary care services
such as open-heart surgery, neonatal intensive care, and other 
neuroscience procedures. Major operations of the company include 
rehabilitation hospitals, specialty hospitals, long-term care 
facilities, and psychiatric facilities.

The healthcare sector is performing well and today Tenet reported
a rise in second-quarter net income. Officials said net income for
the quarter was $135 million, or $0.43 per share versus $0.40 per
share in the prior-year quarter. On an operating basis, they beat
analysts' estimates by $0.02 cents for the quarter. Tenet reported
that revenues rose almost 10% billion and marked the resumption of
earnings growth after a particularly difficult 1999.

We wouldn't normally recommend a new bullish position after an
earnings report but the suggested calendar spread is very low risk
and the issue appears to be firmly established in a new long-term
upward trend. The stock will most certainly consolidate over the
next few weeks but the premium from the sold option will offset
any small correction.

PLAY (conservative - bullish/calendar spread):

BUY  CALL MAY-30 THC-EF OI=550 A=$1.56
SELL CALL JAN-30 THC-AF OI=690 B=$0.38

A less neutral and more bullish type of calendar spread is when
the underlying issue is some distance below the strike price of
the options. This position is speculative with low initial cost
and large potential profits. Two favorable outcomes can occur:
the stock rallies in the short-term and the position is closed
for a profit as time value erosion in the short option produces
a net gain or; the underlying stock consolidates, allowing the
sold option to expire and then eventually rallies above the long
option strike price.

It is generally best to establish this type of spread at least
2 - 3 months before the long option expires, capitalizing on the
ability to sell another option against the longer-term position.
That is the basic idea in this spread play; selling time value
in the options when they are overpriced (high implied volatility)
and buying it back (if necessary) when they return to intrinsic
value. Ideally, the spreader would like to have the stock finish
just below the sold strike when the near-term option expires. If
the short options are in-the-money at expiration, he will have
to buy them back to preserve the long-term position.

Chart = http://quote.yahoo.com/q?s=THC&d=3m


KEG - Key Energy Services  $6.81     *** On The Rebound! ***

Key Energy is the largest onshore, rig-based well servicing
contractor in the world, with almost 1,500 well service rigs
and over 1,000 oil field trucks. The company is also a leading
onshore drilling contractor with a large number of drilling rigs.
Well services include rig-based services, oil field trucking and 
ancillary oil field services. KEG also provides contract drilling
services for major and independent oil companies onshore the
continental United States and internationally.

This is simply another bullish issue moving out of a long-term
basing pattern. The recent earnings were favorable and a number
of brokers have upgraded the issue in recent weeks. There are
two ways to participate in the movement of the issue, depending
on your outlook for the stock.

PLAY (conservative - bullish/calendar spread):

BUY  CALL JUL-7.50 KEG-GU OI=261 A=$1.43
SELL CALL FEB-7.50 KEG-BU OI=50  B=$0.38

- or -

PLAY (aggressive - bullish/diagonal spread):

BUY  CALL APR-5.00 KEG-DA OI=355 A=$2.25
SELL CALL FEB-7.50 KEG-BU OI=50  B=$0.38

Chart = http://quote.yahoo.com/q?s=KEG&d=3m

More Reader's Request

Here is another position on a well-known issue submitted by a
reader. This play is based on the current trading range of the
underlying stock and the recent technical history or trend.
Current news and market sentiment will have an effect on this
issue so review the play thoroughly and make your own decision
about the future outcome of the position.


RMBS - Rambus  $77.63     *** Own This One? *** 

Rambus designs, licenses, and markets high-speed chip-to-chip
interface technology to enhance the cost-effectiveness and
performance of computers. This high-speed interface technology
is used in logic ICs and DRAM memory chips found in workstation
PC graphics, consumer electronics and networking systems. Rambus
has created a revolutionary chip-to-chip interface architecture
allowing data to be transferred through a simplified bus at
significantly higher frequencies than permitted by conventional
technologies. The company holds 44 patents on various aspects of
its technology, and has applications pending for a number of
additional products in the United States. Rambus also licenses
its technology on a nonexclusive and worldwide basis to chip
manufacturers that sell their ICs to systems companies who have
adopted Rambus technology.

A recent article suggested that chip manufacturers are going to
increase their output of Rambus-based memory for use in PCs and
game systems. A new industry study said memory chip makers will
ship an estimated 270 million RDRAM units this year and if this
expansion occurs as expected, Rambus will enjoy a large revenue
windfall from the licensing royalties. RMBS' unique architecture
for chip-to-chip interface doubles the speed of data transfer
and is expected to increase in future versions. Their RDRAM may
eventually dominate the game system market and many experts say
it will become the industry standard.

In view of the incredible outlook for this company, the inherent
risk of the position may be offset by a desire to own the stock
at a greatly reduced price.

PLAY (aggressive - bullish/credit spread):

BUY  PUT JAN-60 BNQ-ML OI=1401 A=$1.31
SELL PUT JAN-65 BNQ-MM OI=1363 B=$1.81

Chart = http://quote.yahoo.com/q?s=RMBS&d=3m


As a trader, you may be familiar with options on individual stocks
where you have the right to buy (call option) or the right to sell
(put option) a particular stock at some predetermined price within
some predetermined time. The buyer has the rights and the seller
the obligations. With index options the basic ideas are the same.
Index options allow you to make investment decisions on a specific
market industry or on the market as a whole. Spread strategies can
be made with index options similar to those made with individual
stock options. Many professional traders employ index spreads as a
hedge strategy. We favor debit positions on the SPX for momentum
and hedge or longer-term plays and OTM credit spreads on the OEX
when the risk/reward is favorable. Low ROI disparity spreads will
be listed (when available) for the conservative index trader.


OEX - S&P 100 Index  $785.25     OTM Credit-Spreads

The Standard & Poor's 100 Index is a capitalization-weighted index
of 100 stocks from a broad range of industries. The component
stocks are weighted according to the total market value of their
outstanding shares. The impact of a component's price change is
proportional to the issue's total market value, which is the share
price times the number of shares outstanding. 


For OTM credit spread trades, we like to use the actively-traded
S&P 100 Index options because they contain much more premium than
options on individual stocks and provide an underlying instrument
less prone to huge, gapping moves. Review the 'Market Sentiment'
section for specific technical information on the S&P 100 Index.

PLAY (bearish/low ROI):
BUY  CALL JAN-815 OEX-AC OI=3471 A=$1.00
SELL CALL JAN-810 OEX-AB OI=5375 B=$1.43
NET CREDIT TARGET=$0.43 ROI=9% (10 days)

PLAY (bullish/low ROI):
BUY  PUT JAN-735 OEZ-MG OI=2585 A=$1.43
SELL PUT JAN-740 OEZ-MH OI=5127 B=$1.75
NET CREDIT TARGET=$0.31 ROI=6% (10 days)

UPSIDE B/E=$810.75 
DOWNSIDE B/E=$739.25

By combining two credit spread positions, you can participate
in a popular neutral strategy known as the Long Iron Condor. It
is often used with range-bound positions and is a limited risk,
limited profit strategy that gives you a wide range for success.
The play is based solely on the current price and trading range
of the underlying issue and the recent technical trend. Current
news and market sentiment will have an effect on this position
so review the underlying issue and make your own decision about
the future outcome of the stock price.

CHART= http://quote.yahoo.com/q?s=^oex&d=b

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See Disclaimer in section one


Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

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