Option Investor
Newsletter

Daily Newsletter, Thursday, 01/27/2000

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The Option Investor Newsletter         Thursday  1-27-2000
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)
************************************************************
       1-27-2000           High     Low     Volume Advance Decline
DOW    11028.00 -   5.00 11164.10 10915.40 1,124,137k 1,482  1,557
Nasdaq  4069.91 -  97.50  4140.09  3973.59 1,710,684k 1,829  2,284
S&P-100  759.61 -   3.18   770.77   737.32    Totals  3,311  3,841
S&P-500 1398.56 -   5.53  1418.86  1380.71            46.3%  53.7%
$RUT     517.02 -   4.02   526.02   513.73
$TRAN   2615.27 -  49.52  2688.36  2610.64
VIX       25.06 -   0.02    31.37    23.50
Put/Call Ratio       .49
*************************************************************

If the Nasdaq drops -100 in the morning but rebounds +65 in
the afternoon, is that a rally?

The Nasdaq gapped open this morning and traded higher for over 
an hour before giving in to another broad sell off. From the 
high of 4140 at 11:00 to the low of 3973 at 3:20 was a drop
of -167 points. But the optimists out there are probably 
pointing to the +67 point bounce off the low into the close
and claiming a rally. Call it what you want, the final score
was -30.35 for the bears. It is only a rally in my book if it 
closes positive. Put a week of days like this together and
you could have a 400 point trading range with lots of winners
and sinners but you would still be -150 points when the smoke
cleared on the last day. Another way to look at it based on 
the intraday high on Monday of 4300, we were down over -327 
points for the week at 3:20 but we are only down -260 at the
close. Does that make you feel better? If it did then the 
Dow's -451 point intraday loss from Monday's high of 11366 to
today's low of 10915 probably will not faze you either. After
the closing bounce we are only down -335 for the week. And to
think I was worried! The Dow is now down -700 from the highs
of last week. The good news, and it is good news, is the Dow
support at 11000 held again for the third time this week. 
This support dates back to November of last year and was 
tested prior to this week only once on Jan-5th. The Nasdaq
also tested technical support at 4040 and psychological support
at 4000 and held. This support dates back to last December as
well. 


  


 


 

If you look at all three charts above you will see one common
point. All three indexes are exactly on their last ditch support
before a serious drop. The Dow and the S&P are teetering on
the edge of a large cliff. The Nasdaq has some intermediate
support but still could drop -200 more points very easy if the
support breaks. I always think it is amazing that all the 
indexes seem to drift back to support levels right before 
major market events like the ECI report and the FOMC meeting.
The cautious investors get out and the aggressive investors
start nibbling right at support. 

Santa Claus, Easter Bunny, Dell and Qualcomm.

The market as a whole reacted extremely well considering the
Dell earnings warning. Dell actually traded up for a few minutes
after the open but the volume of shares to be sold were just
too strong for the bulls. 127 million shares of Dell stock
traded hands today and Dell closed down -2.81 at 37.56. For the
Dell diehards who realize this is a great company being punished
for slow shipments from Intel and Y2K lock downs, this the time
to buy those long term options. The Jan-2001-$30 call is only
$12.75 and the $40 leap is only $7.75. For less than the cost
of a short term call on an Internet stock you can buy a leap
on Dell and have almost zero risk on the down side and a 100%
to 200% profit on the upside. Does anybody not think that Dell
will be back to $60 before the year is out?    


 

Everybody knows by now that Qualcomm warned and the selling
is not over yet. The warning that chip deliveries were slowing
caught everyone off guard and many investors still refuse to
accept the facts that their super stock is not bullet proof.
This is like finding out after the fact that Superman wore
lace panties or the Lone Ranger was a racist. First we find
out there is no Santa Claus, the Easter Bunny does not exist
and Dell and Qualcomm are just normal stocks. Dorothy, we
are not in Kansas any more.


 

On the economic front, the news was mixed. The Durable Goods
orders came in this morning with a jump of +4.1% compared to
the expected rise of +0.8% The figures were skewed, however, 
by a 16.2% advance in orders for transportation equipment, 
specifically airplanes and aircraft parts. Excluding this, 
orders grew by 0.7%. The weekly Jobless Claims inched up only 
+1000 to 266,000 proving that the labor market is still tight 
even after the holiday jobs were eliminated. Last weeks 265,000
was the lowest number of filers since Dec-1973. Friday we will 
have two more important pieces of Fed data. The Employment Cost
Index, which is expected to rise by +0.8% and the Q4 domestic
product which should confirm the +5% growth rate again. The
markets will be watching the ECI for signs of excessive inflation
that could cause the Fed to raise over +.25% on Tuesday. The
Mon/Tue meeting by the FOMC is of course the biggest challenge
facing this market. Most agree that there will be a +.25% hike
but there are some who worry that Greenspan could take aggressive
action and raise it +.50% to shock the markets and the economy.
I cannot understand this line of thinking. Greenspan is an
incrementalist. He may decide to raise rates by +1.00 to +1.50%
this year but he will do it in +.25% increments. This is an
election year and Greenspan was just nominated for another
term as Fed chief. Not known for stupid moves he would be out
of character to shoot himself in the foot now.

Breadth of the markets was still negative but that should be no
surprise. The volatility on the Nasdaq is reaching monumental
proportions. The average daily intraday spread last December was
85 points. For the month of January the spread has averaged 109
points. Today the spread between high and low was 167 points.
As I have said before, this is a clear sign of a market top
or bottom. Since we are nowhere near a bottom the other choice
is not pleasant. Volume remains very high at 2.94 bln shares
and the market is slowly sinking. High volume on down days is
not a good sign. The Russell-2000 finally rolled over on the
24th. As long as the small caps were gaining ground the big
caps would not have given up many points. Now that the Russell
is confirming the Dow drop we have two strikes against us.


 

The bond market has staged a major recovery in the last four days.
Yields are down to 6.52% from 6.75%. However, this is coming at
the expense of stocks. Money is flowing out of stocks and into
the safety of bonds as we get closer to February and the Fed
meeting. The question is really "when will the trend reverse?"
Why is the big money running to the sidelines? Is it just the
seasonal portfolio rotation or something bigger. CNBC has been
hyping the margin factor all day. They keep pointing out that
for every major market top and reversal in the past there was
an increase in margin debt. Margin debt is at an all time high
today and almost double previous market top levels. Greenspan
also talked about margin this week and its impact on the wealth
of the consumer. With extremely high margin usage there is a
foundational weakness in the markets. People who over extend
themselves on margin are at risk to lose large percentage
amounts relative to their capital base and are at risk of being
liquidated at a substantial loss in the event of a market
downturn. The use of margin has been widely debated recently
and several major brokerages have already put plans in motion
to increase the requirements and curtail future excesses.
This will be good for the markets eventually and take some of
the volatility out but it could also cause some ripples as the
changes are implemented. 

Be very careful in the market at this critical inflection point. 
If we break support here the next stop on the Nasdaq could be 
3800 which would be -10% from the last closing high. The -10% 
correction level on the Dow is 10530 but that would be much 
harder to hit do to the available cash on the sidelines. 

Keep your stop losses close and sell too soon!

Jim Brown
Editor
  

****************************************************
ANNUAL OPTION INVESTOR SEMINAR UPDATE - IMPORTANT !!
****************************************************

The four day Option Investor Option Expo in Denver 
on March 28-31st is going fast. There are less than
50 seats left and you will be disappointed if you miss
this event.

We are going to announce the guest speakers this Sunday
and you are not going to believe who we have coming!!

If you were thinking about going but had not made up your
mind then this is your last chance. We were fortunate that
the hotel had meeting rooms available for this seminar and 
there will not be another opportunity until next year.

The four day Option Investor Seminar will be taught by 15 
of the Option Investor staff and will have several well 
known "guest" speakers. 

The first day, Tuesday March-28th is optional. This is a
special Options Boot Camp session for newer traders who need
to better understand the basic strategies before attending 
the Wed/Thr/Fri advanced classes.

The four day seminar will focus on explaining in detail each
of the option strategies you need to be a successful trader
in all kind of markets. You will learn how to choose what
strategy is right for you in every situation. You will learn
how to make money in any market and recognize the difference.
This is intensive instruction with real time, real life examples.
We will use live examples and study real plays as they occur.

Representatives will be available to answer your questions
from many of the brokers, charting and quote services we use 
at OIN. 

The tax saving information you will receive in the tax 
classes will more than pay for the entire trip.

This is our annual event and will not be repeated until 2001.

You can lose more than the price of the seminar in only 
one trade. Why not invest the same money in education and
profit from the experience the rest of your life?

For more information click below.

http://www.OptionInvestor.com/bootcamp/oinmain.html 


Some of the topics covered will be:

Entry Point, Entry Point, Entry Point
Technical & Fundamental Analysis 
Options on Stock Splits
Understanding Market Sentiment
Recognizing Market Changes
Cash Flow with Covered Calls
Covered Calls on Leaps
Using The Power of Index Options
Successful Spread Techniques
Maximizing Returns With Options
Selling Puts, A Win - Win Play
Using Options To Hedge the Market
Buying Stock with Options
Fundamentals of Charting
Picking the Right Play
In the Money, At the Money, Out of the Money
Understanding Risk Profiles
Making Stop Losses Work
Trend Trading
Day Trading Options
Trading Psychology
Money Management
Target Shooting, Waiting on the Market
Capitalizing on Earnings
Stress Free Straddles
Taxes and the Trader
Keeping more Profits by Paying Less Taxes
Selling Time
OEX Skybox
Recognizing Opportunity and Profiting From It.


The second session is already over half full. If you are 
interested please register immediately because seating
is limited.

http://www.OptionInvestor.com/bootcamp/oinmain.html 



**********
STOCK NEWS
**********

Keeping An "i" on B2B
By Cindy Christ

Just when you thought you had a handle on B2B e-commerce, the
waters are starting to shift.

The first swell in the B2B wave started with companies like
BroadVision (BVSN) and Macromedia (MACR), which make software
that helps companies build effective Web sites to sell goods
and services over the Internet.

http://members.OptionInvestor.com/stocknews/012700_1.asp


**************
Market Posture
**************

As of Market Close - Thursday, January 27, 2000 

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

DOW Industrials   11,000  11,250  11,028    Neutral   1.25
SPX S&P 500        1,340   1,400   1,399    BULLISH  12.03
OEX S&P 100          700     750     760    BULLISH  12.03
RUT Russell 2000     430     450     517    BULLISH  11.12
NDX NASD 100       3,200   3,850   3,593    Neutral   1.06
MSH High Tech      1,650   1,900   1,778    Neutral   1.06

XCI Hardware       1,300   1,350   1,349    BULLISH   1.14
CWX Software       1,210   1,420   1,282    Neutral   1.07
SOX Semiconductor    640     660     779    BULLISH  12.21
NWX Networking       820     900     865    Neutral   1.07
INX Internet         665     800     741    Neutral   1.06

BIX Banking          645     690     548    BEARISH  11.30
XBD Brokerage        410     450     437    Neutral  11.30
IUX Insurance        625     650     567    BEARISH  11.30

RLX Retail           900     935     909    Neutral   1.25
DRG Drug             380     400     346    BEARISH  12.07
HCX Healthcare       760     790     710    BEARISH  12.07
XAL Airline          180     190     130    BEARISH   5.21
OIX Oil & Gas        280     315     275    BEARISH   1.27  *


 
Posture Alert    
Corporate earnings continue to roll in very favorably, however, 
the market continues on its choppy ways. Thursday saw weakness in 
technology shares thanks to Dell Computer's whiff on earnings; 
however, select buying was witnessed in the Internet sector, 
which closed up +1.94%. The only other sector with decent buy 
pressure was Banking, which closed up +1.40%. On the downside, 
the Oil & Gas sector traded down -2.15%, and as such, we have 
lowered this sector to Bearish from Neutral. 



****************
Market Sentiment 
****************

Thursday, January 27, 2000

The Shorts Are Alive and Well!

Sloppy market action continued Thursday with weakness in 
technology shares thanks to Dell Computers pre-release of an 
earnings shortfall. Dell exchanged 127 million shares and closed 
down -2 13/16, after actually being positive earlier in the 
trading session. Let's see; Dell was upgraded by Merrill Lynch, 
H&Q, Piper Jaffray, and Robbie Stephens but was downgraded by SG 
Cohen. Dell traded huge volume, but still managed to close down 
on the day even with 4/1 upgrade ratio. Either Cohen had a lot 
more stock for sale than the 4-upgrading firms could purchase, or 
these 4 big names firms were putting on Band-Aids to benefit their 
institutional clientele. We would most likely opt for the latter 
scenario. Regardless, this market continues on it volatile and 
direction-less pattern. We continue to believe that we are in a 
consolidating stage where we will see a vast trading range in very 
short periods of time.

One important gauge of sentiment is the level of short interest on 
the major exchanges. Investors who sell securities "short" borrow 
stock and sell it, betting that the stock's price will decline and 
that they will be able to buy the shares back later at a lower 
price for return to the lender. Short interest reflects the number 
of shares that have yet to be repurchased to give back to lenders. 
In the past, stocks that have heavy short interest, when combined 
with some sort of positive news, has witnessed very quick and 
powerful up-moves.  At times, short sellers are forced to cover, 
which only helps the buying pressure, and this is known as a 
"short squeeze." Walt Disney Company, which happens to be the 
4th most shorted stock on the NYSE, was witness to short covering 
this week. As such, below is a list of the most heavily shorted 
stocks on the NYSE, and based on changes from the previous month, 
it is evident that the shorts are alive and well. 
   

Largest Short Positions			
Rank                     Jan. 14            Dec. 15        Change
1 At&T                  74,321,531        79,641,975     -5,320,444
2 Vodafone              68,596,385        71,809,300     -3,212,915
3 America Online        64,305,968        60,868,701      3,437,267
4 Walt Disney-Hldg      61,897,330        61,068,546        828,784
5 Qwest Comm            52,059,751		N/A
6 Sprint PCS            43,591,236        36,361,743      7,229,493
7 Kmart                 38,078,039        36,690,178      1,387,861
8 Lucent Technologies   38,028,314        38,858,872       -830,558
9 Wal-Mart              36,955,864        40,812,511     -3,856,647
10 Time Warner          36,631,438        38,997,033     -2,365,595
11 Nortel Networks      32,418,727        29,063,486      3,355,241
12 Columbia/HCA         31,602,801        31,990,328       -387,527
13 EMC                  31,474,660        33,079,296     -1,604,636
14 BP Amoco             25,743,988        37,332,256    -11,588,268
15 Kroger               24,878,572        24,210,701        667,871
16 Citigroup            23,792,557        25,614,424     -1,821,867
17 Compaq Computer      23,631,238        22,769,674        861,564
18 Clear Channel        23,560,660        21,790,898      1,769,762
19 AT&T-Liberty (Cl A)  23,507,627        25,817,744     -2,310,117
20 Bell Atlantic        21,911,215        20,801,439      1,109,776
21 Rite Aid             20,825,502        20,169,732        655,770
22 Tyco Intl            20,658,933        18,712,490      1,946,443
23 Iomega Corporation   18,387,687        20,466,494     -2,078,807
24 Medtronic            18,111,230        16,909,566      1,201,664
25 Bank of America      18,014,373        14,454,826      3,559,547
26 Knight Ridder        17,665,230        16,896,922        768,308
27 Loral Space          17,612,639        14,306,355      3,306,284
28 Wells Fargo & Co     17,385,057        20,664,817     -3,279,760
29 Caremark Rx          17,346,630        17,286,304         60,326
30 Dominion Resources   17,148,754         9,654,400      7,494,354


BULLISH Signs: 

Corporate Earnings:
Major corporate earnings are coming out left and right and it 
looks to be another very solid quarter!

Cash Flow:
The cash that has been sitting on the sidelines has been put to 
use as of late, as record volumes for the major indexes have been 
shattered.

Short Interest:
From a contrarian stand, short interest (JAN-14) on the NYSE is 
still very high, totaling 3,973,256,735 shares. 


Mixed Signs: 

Interest Rates (6.525%):
The current break below a minor uptrend line leads us to believe 
that yields may pull back temporarily and test the 6.4% breakout 
level.

BEARISH Signs:

Volatility Index (24.34):
The VIX continues to prove that the low 30's are an excellent 
buying opportunity, and the high teens continue to be a great 
selling opportunity. 

 
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 margins.


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       Thurs
Benchmark                       (1/21)      (1/25)      (1/27)

Overhead Resistance (780-800)     0.83       1.26        1.80

OEX Close                       779.78     767.31      759.61

Underlying Support  (750-770)     2.14       2.93        2.14



What the Pinnacle Index is telling us:
Based on January 25, underlying support for the OEX decreased back 
to previous levels. Overhead resistance is still light, but is 
slowly building due to call buyers entering the marketplace. Based 
on the statistics, we would look for continued sloppy action, most 
likely trading range bound. 


Put/Call Ratio                  Friday     Tues       Thurs
Strike/Contracts                (1/21)    (1/25)      (1/27)

CBOE Total P/C Ratio             .47        .50        .49
CBOE Equity P/C Ratio            .41        .43        .42
OEX P/C Ratio                   1.26       1.21       1.37


Peak Open Interest (OEX)
                     Friday           Tues            Thurs
Strike/Contracts     (1/21)           (1/25)          (1/27)

Puts               760 / 5,234       760 / 7,121     700 / 7,101
Calls              745 / 4,079       745 / 4,304     800 / 5,185
Put/Call Ratio         1.28             1.65            1.37



Please view this in COURIER 10 font for alignment
*************************************************
CHANGES THIS WEEK

Daily Results

Index      Last     Mon    Tue    Wed    Thu    Week
Dow     11028.02 -243.54  21.72   3.10  -4.97 -223.69
Nasdaq   4039.56 -139.32  71.33 -97.50 -30.35 -195.84
$OEX      759.61  -21.04   8.57  -4.52  -3.18  -20.17
$SPX     1398.56  -39.45   8.12  -5.94  -5.53  -42.80
$RUT      517.02  -10.99  -1.36  -0.55  -4.02  -16.92
$TRAN    2615.27  -48.54 -48.26  10.10 -49.52 -136.22
$VIX       25.06    3.66  -1.98   0.74  -0.02    2.40

Calls               Mon    Tue    Wed    Thu    Week

SILK      168.00    4.00   9.50   3.50   5.00   22.00  Moves up
TQNT      154.06    1.13  17.00  -8.63   3.06   12.56  Superstar
VECO       58.00    5.63   0.75   3.00  -1.00    8.38  Volume
BGEN       99.69   -6.81  10.69   1.13   2.69    7.69  New
LU         56.69    0.94   2.19   0.63   1.44    5.19  New
PMCS      191.25   -4.00   9.63   6.13 -11.75    0.00  A gift?
VOD        55.94   -1.00   0.13   1.13  -0.25    0.00  Will they?
LVLT      109.88    2.38  -4.00  -0.50   1.50   -0.63  Caution
PCS       109.50   -2.25  -0.25   1.00   0.25   -1.25  Last chance
ANAD       77.13   -2.88   5.13  -3.88  -0.50   -2.13  Dropped
MFNX       67.50    4.13  -3.38  -8.13   5.00   -2.38  In action
TWX        85.75   -3.50  -1.38  -1.88   1.00   -5.38  Bounces
DISH       90.38   -0.38  -1.06  -4.75   0.31   -5.88  Patience
MUSE      166.69  -12.44   8.56   0.69  -3.06   -6.25  New
NOK       178.50   -5.00   3.06   0.00  -4.50   -7.13  Strength
GMST       68.63   -7.81   2.94  -5.06  -1.31  -11.25  Dropped
NTLI      125.00   -8.13  -2.75   0.19  -0.69  -11.38  Splits 2/3
CMVT      136.50   -5.00   6.63  -6.94  -8.56  -13.88  Dropped
NTAP      102.88  -15.13   5.19   1.19  -5.50  -14.25  Square one
HGSI      199.81   -6.63 -10.06 -11.25   5.88  -22.06  Dropped
AFFX      224.88  -27.25  -1.63  -1.75   1.88  -28.75  Support

Puts

IIJI       73.25   -0.13  -3.06  -3.81  -1.38   -8.38  Heads south
SLR        71.00   -3.00  -0.50  -1.94  -4.00   -6.56  Dogpiled
CMGI      112.25   -7.63   3.81  -3.44   1.25   -6.00  Bearish
RLM        65.50   -2.19  -0.81  -0.69  -0.19   -3.88  Ski slope
UAL        56.88   -0.13  -1.31   0.56  -2.38   -3.26  New
MU         64.75    2.38  -3.63  -2.31   1.19   -2.38  Lack of vol
FD         42.69   -2.63   1.81   1.94  -2.31   -1.19  More bears
RMBS       77.50   -0.38   1.38  -1.69   2.81    2.13  Dropped



************
WOMANS WORLD
************

There is no Womans World article tonight.  Renee is on vacation.


**************
TRADERS CORNER
**************

Selling Calls & Setting Ambushes

My boxing coach used to teach us how to move to the side and 
throw a hook; or step back, then throw a jab. These drills worked 
particularly well with an overly aggressive opponent -- like the 
kids from Southie -- because you could use your opponent's momentum 
to double the force of a blow. Ultimately, using these kinds of 
punches depended more on footwork and conditioning than on raw 
punching power, since most of the power a boxer develops comes 
from footwork, not upper body strength. That's what I am doing 
now -- I am using good money management (footwork, if you will) 
to position my portfolio to profit from an over-extended raging 
bull market on the last legs of its latest uptrend, which started 
on the last two days of October.

Last week, I attempted to do this by selling TIBX Feb 165 Calls. 
I hadn't spent enough time at ringside watching my opponent first, 
though. I sold them when TIBX was at 158, and, like an aggressive 
fighter, TIBX went right to my strike and skipped back and forth, 
forcing me to hedge and unhedge, bleeding me in the exchange and 
tying up my account. On the second day of doing this, I tripped 
over my own feet when I did not have enough buying power to fully 
hedge my position. Last Sunday, I described how I followed my 
trading role model, Marty Schwartz, and closed this losing position.
Good thing I did -- TIBX announced a 3:1 split on Monday, and moved 
up strongly, despite a down market, to something like 179. The gap 
up on Tuesday would have presented a difficult hedging problem, to 
say the least.

This past weekend, I formulated my strategy -- do nothing because 
I really hadn't had the time to put in my homework. Monday was the 
first day of classes. Then, I checked the market at the close on 
Monday from a computer at school (not my trusty wireless modem 
equipped lap top, because it is in the shop). I saw a market doing 
exactly what I expected. On one of my back up lap tops (a Macintosh 
G3 with Virtual PC to run QCharts & Preferred Trade), I decided on 
a quick fragmentary plan -- sell VRSN Feb210 Calls if I get a failed 
rally at the open on Tuesday. To hell with it. I could hear my 
instructors from Marine Infantry Officer's Course now -- "Don't 
worry about how screwed up you are, worry about how screwed up the 
other guy is, and take advantage of that!" To hell with the fact 
that it was the first week of classes (I was shrewdly scheduling 
them all during non-market hours, but still had to make some 
commitments earlier in the trading day), and so what if my lap top 
had crashed. I saw my opening.

I sold VRSN Feb210 Naked Calls at the open, commiting about 50% to 
66% of my available buying power to the hedge, if required. If VRSN 
went up to 210, then I would hedge the calls. But, this was a 
opponent that I knew. I have held VRSN in my LT Stock Account & 
IRA since October, when I bought it at 58. I sold VRSN Feb220 
Covered Calls in both accounts last week at 16 and 18. $1500 in 
present cash flow (per 100 shares) for selling a contract that is 
15 points out of the money is a good deal, in my book...particularly 
when I expect a general market pullback. I had already decided to 
sell the shares at 220 if they were exercised, so this is a trade I 
did not have to monitor at all. I know VRSN well because I follow it 
every day, as it bobs back and forth wildly (good for volatility 
premiums, bad for peace of mind). I now think of the stock like an 
errant but spirited young puppy, shooting off in every direction. 
I knew that it was announcing earnings, and was happy to see good 
results. Now that earnings for the stock are over, and the Fed is 
on the collision radar, I felt much safer about selling those VRSN 
Feb210 Calls naked. At the open on Tuesday, the stock bumped up to 
200, but then quickly dropped off to 195. I sold my contracts at 15. 
On Tuesday & Wednesday, VRSN bounced between 190 and 200, and closed 
today below 190. On Thursday, midday, as I edit this piece, VRSN
is at 182, fully 28 points OTM.

In a few weeks, if the market starts to drop off, I expect VRSN to 
drop with it. If VRSN drops hard in a "NASDAQ Event" (my criteria 
is that my fellow starving students/ wannabe traders are asking me, 
hey, did you see the market?... yeah, I caught that), say to 150, 
then I plan to be prepared to sell OTM VRSN Feb Puts, say Feb140s. 
This will complete "going short a naked strangle" (ah, yeah... you 
do that), as opposed to "going short a naked straddle" (which sounds 
both more enjoyable and less criminal). The great thing about this 
strategy is that it is impossible for both sides to be in the money. 
So, I have more than enough margin to hedge whichever side goes in 
the money. Indeed, I am guaranteed to have extra buying power. But
this is my first month attempting this strategy. I am working on my
footwork & endurance. This strategy might return 12% on my overall 
ST Options Portfolio. That will be just fine in a down month, thank 
you. Indeed, if I could compound 10% a month for the next 2 years, 
I would be quite happy.

My plan in the future is to regularly monitor a watch list of Red 
Hot/Internet stocks (such as the 50 from Jim's Options 101 Column 
in last Sunday's newsletter) for resistance, support, bollinger 
bands, stochastics, MACD, and other technical indicators that give 
me good entry points for selling calls or selling puts. These will 
be the core stocks in my LT Stock Portfolio, which I acquire by 
selling puts; after acquiring them, I will sell covered calls when 
these stocks run up to resistance levels (see AFFX last week). These 
will be the stocks which I sell naked, OTM puts and calls on at 
support & resistance levels. These are the stocks which regularly
come up in the newsletter's call picks. When these stocks again show  
up en masse in the call picks in Mid March, I will be playing calls 
on the Red Hots again... and again in June... and again in November/ 
December. But EVERY month, I plan to compound the gains in my 
portfolio by selling naked strangles. I will add more cash to this 
strategy as my footwork & endurance improves.

Executing & monitoring this strategy is a different game than 
playing straight calls & puts. When you monitor straight puts and 
calls, entry point is all important and varies minute by minute. 
You have to watch the market with something like qcharts and a 
broker like preferred at least 3 times a day -- an hour after the 
market opens, at mid day when traders come back from lunch, and 
for the last 1:15 of the trading day. You have to have key support 
levels marked to "target shoot" a good entry. You have to use 
trailing stops if your position sky rockets to lock in the profit. 
You have to do all these things and more (see the Options 101 series 
for more details). It is like planning an attack on a hill -- set up 
the fire support, locate the enemy crew served weapons, figure out 
how to destroy them, find covered routes of approach. You take huge 
risks every step of the way.

Selling Calls is more like setting an ambush. You withdraw from 
ground that you know, making note of natural obstacles, and planning 
places to drop bombs and artillery shells on an advancing enemy. You 
pick ground you want to fight on -- that hill looks like a good spot 
to put mutually supporting machine guns and anti tank wired guided 
missiles. I want to fight here. With a stock like VRSN, which I know 
well, I pick where I want to make my money as investors bid it up to 
an overextended level. Those investors/traders charge onward like an 
ignorant, but brave army, looking for more profits. They only know 
one dance step -- buy low, sell high.

Come into my kitchen. VRSN hits its highs and pulls back. The options
premiums are pumped way up, and they do not drop off over night. I 
sell that premium to a fighter trying to pound my face into hamburger. 
Fine buddy, let me clear a path for you. The stock peaks at 212, and 
retreats. Pow. That is where I want to land a punch, then cover up 
like Mohammed Ali doing the Rope-a-dope, waiting for another shot. 
Now the market goes into its Pre-Fed daze. Perfectly predictable, 
except for all the investors who poured into the market in the last 
few months, pushing daily trading volume on the NASDAQ towards 2 
billion. Next, I wait for them all to discover that the Fed is a big 
bombshell, and there is really a lot of dead space between Feb 1-2 
and March 26, the second FOMC meeting of the year. When they go
screaming for the sell button, then I will land a second blow -- pow,
thanks for that OTM premium pumped way up because you just sold an 
awesome stock. In a normal month in 1999, I might make 50 trades. In 
the February 2000 cycle, I would be very happy to make just two.

If all this is too violent for you, think about this -- this strategy 
is actually much more like eastern Judo and the writing of Chinese 
military philospher, Sun Tzu. The goal is to efficiently use your 
opponent's energy against him. The analogy to warefare is just a 
fiction -- as former Marine and champion trader Marty Schwartz points 
out, your only real opponent in the market is your self. As the 
philosophical Market Wizard Ed Seykota likes to say, everyone gets 
what they want from the market. If you want to pay your broker for 
50 trades and still lose money, go right ahead. I'd rather make money.

Janar Wasito
Contact Support


PICKS WE DROPPED
****************
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.


CALLS:
*****

GMST $68.63 -1.31 (-11.25) We really wanted to see GMST hold 
that $69.50 support to justify keeping this call play.  Alas, 
when the trend is not your friend it is time to kick him out of 
your sandbox.  Ever since making a new high seven trading days 
ago, GMST just keeps slipping below one support area after 
another.  We think GMST might be nearing a bottom with pretty 
good support at the 50-dma at $66 level.  Despite this support, 
we are dropping GMST for now until it can get back on track 
and move out of this pullback/consolidation phase.  

CMVT $136.50 -8.56 (-13.88) Tired of waiting?  That seems to be
the sentiment of CMVT investors.  We picked this play in
anticipation of a split announcement - as promised back in
October.  The last 2 days however, seem to indicate that
investors don't want to hang around and wait forever.  Yesterday 
was bad enough, as CMVT sold off to close right above the $144 
support level, but today was downright ugly, as CMVT gapped down 
at the open and headed south from there.  Losing almost $9 on 
greater than average volume is not a good sign for our play and 
it is time to say goodbye.

HGSI $199.81 +5.88 (-22.06) Our view of HGSI has changed a bit
as the decline that began the first of the week, continued the
past two days.  Our long-term view is still positive, but our
split run may be all but over.  The broader indices have been
choppy and HGSI seems to have been forming an intraday base 
between $195 and $205 for most of the last two sessions.  HGSI
fell to a low of $192.50, in the fist fifteen minutes of trading 
Wednesday morning and has struggled to regain any momentum to 
the upside.  Although we could see one more push, we are going
to drop HGSI from our list tonight, due to the split on Monday.
If you hold a position in HGSI, make sure to close it by the end
of business Friday.  HGSI has been a great play, and the company
most assuredly will be back be back list of plays in the near
future. 

ANAD $77.13 -0.50 (-2.13) Anadigics reports its earnings 
tomorrow morning at 8:30 EST.  At this point all your positions 
should be closed out.  ANAD has taken us for a volatile ride, 
but that same volatility is what gave us multiple opportunities 
for profit.  But ground zero is here and we're dropping ANAD 
this evening.


PUTS:
*****

RMBS $77.50 +2.81 (+2.13) RMBS shrugged off the Nasdaq and 
decided to go their own direction.  The Nasdaq was down and 
RMBS was up, so we have decided to drop our play due to their
independence.  They shattered the resistance level of $76.08
and took off today, even hitting the next stop at the 10-dma, 
$80.  The old resistance level now may become support.  There 
still was not a lot of volume backing up the breakthrough so 
investors might turn on RMBS and test the new support level.  
But for us, right now, we see them headed upward and that has 
made us make the decision to drop them as a put play.  They 
had no major news effecting their trading.   



********************
PLAY UPDATES - CALLS
********************

AFFX $224.88 +1.88 (-28.75) Affymetrix seems to be consolidating 
its monster move in the latter part of this week.  On the 
bullish side we have seen higher lows three days in a row.  On 
the bearish side, we see selling thwarting any huge rallies. 
The bullish picture still looks stronger than the bearish 
picture.  When money starts flowing back into the market we feel
it is likely that AFFX will be bid up.  Human Genome stocks 
still look like the place to be during rallies.  This industry 
group could become the leaders of the momentum players.  That 
said, we need to see confirmation of this leadership position in 
the near future.  If these stocks do not start rallying soon, 
they may get stuck in a consolidation phase for awhile.  We see 
nice support around $207, which is possible if we get another 
selling wave in this volatile market.  Aggressive traders may 
want to key into the support in the mid $220's.  Look for 
resistance at $238 followed by $248.

TQNT $154.06 +3.06 (+12.56) TriQuint sure looked like a 
superstar earlier today.  All week, TQNT gaps up to a new high, 
pulls back, takes out the opening high, rallies a bit and then 
pulls back.  If it was not for the huge selling wave intraday, 
TQNT seemed poised to shatter its previous day's high.  The 
high print of $163 was impressive.  As long as the uptrend stays 
in place, it seems possible that TQNT will trade up there again 
soon.  It looks like TQNT needs to hold the $151 support level 
to keep the uptrend alive.  A drop below this price could take 
the stock back down to around $138.  If TQNT fails to take out 
resistance at $163, aggressive traders may want to take profits 
to avoid holding a position over the weekend.  It sure has been 
nice listening to CNBC the past two days.  The "talking heads" 
keep reporting that one of the strongest tech stocks is TQNT.  
Welcome aboard!

VECO $58.00 -1.00 (+8.38) Veeco started off in the right 
direction for us yesterday.  Midday the stock traded above 
Tuesday's high of $56.75.  With increasing volume the stock went 
straight to resistance at $60, before pulling back.  It looks 
like $60 is a very important level for the stock to cross before 
it can continue its charge, especially since we saw the stock 
back off of that level again today.  In the initial report on 
Tuesday we failed to mention that one of the reasons why Veeco 
intrigued us as a call play was because of the incredible volume 
that accompanied the breakout above $50.  We still have not seen 
any news to account for it, but technically it is very positive. 
Support remains in the $53-$54 area, which may be a good place 
to go long on pullbacks.  There is very good longer-term support 
at $50.


***********************************************
PLAY UPDATES - CALLS - CONTINUED IN SECTION TWO
***********************************************



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DISCLAIMER
**********
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         Thursday  1-27-2000
Copyright 2000, All rights reserved. 
Redistribution in any form strictly prohibited.


********************************
PLAY UPDATES - CALLS - CONTINUED
********************************

SILK $168.00 +5.00 (+22.00) Somebody forgot to tell SILK
investors that the markets are in correction/consolidation
mode.  Since we picked it on Tuesday, SILK has continued to
move up nicely.  Although volume remains weak (only about half
the ADV), nobody seems willing to part with their shares, even
at these lofty prices. Intraday support sits at $160-162, with
stronger support down at $151.  Resistance is at today's high
of $$173.25 and then the 52-week high of $177.94.  Recall that
nothing moves in a straight line, and with the overall market
weakness, we will likely see some consolidation soon.  SILK has
wide intraday swings which will provide ample entry opportunities, 
but play this volatile issue with caution.

TWX $85.75 +1.00 (-5.38) Still consolidating, TWX continues to
bounce at the $84 support level.  While the rest of the market
continues to weaken, TWX looks to be forming a nice base in
anticipation of the next move upwards.  Volume continues to
decrease from the extreme levels seen after the merger
announcement with AOL.  Most analysts have come out in support
of the deal, some going so far as to call the combined company
the internet company of the future.  Be aware that TWX is
scheduled to announce earnings on February 1st, even though
we were unable to confirm this with the company.  We don't
expect this to move the share price significantly and since 
this is really a play on AOL we will be holding over earnings.  
Conservative investors may want to wait until after earnings 
at this point just to be safe.  Any move up from support on 
increasing volume is buyable, but we would be concerned if the 
$84 level is broken on a closing basis.  Support for AOL at $60 
continues to hold and is the real catalyst for the direction 
of TWX's stock.

VOD $55.94 -0.25 (+0.00) Will they or won't they?  That is 
the $64,000 question, as we wait to see if the Mannesmann 
shareholders will approve VOD's buyout bid by the February 7th
deadline.  Given the overall market weakness, VOD has performed
well, showing us that the $54 support level is strong.  There
is not a lot of pressure to push the shares in either direction
as volume has been light the past 2 days.  In order to confirm
a continued move upwards we will need to see the buyers return
in force.  Target shoot entries on intra-day dips near the $54
support level or wait for a breakout above $57 on strong volume.
If support is broken, stand aside in this volatile market.  As
always, protect yourself with stops.

NOK $182.75 -4.50 (-7.13) NOK felt a wedgie coming on (an 
ascending one on the chart)...that is until today's big dip to 
$174.  We're going to give NOK just one more day to pull it out 
despite today's loss.  Here's why.  Earnings are next Tuesday 
(Feb. 1) before the bell and we may get a split announcement then 
too.  As we've noted all along, NOK revised their growth rate 
from 25-35% up to 30-40%.  They won't under-perform that number, 
and we think NOK is likely to exceed that figure given their 
CEO's comments that they would hit their 3-yr gross revenue goals 
in two years (code for 50% growth).  We're surprised the Street 
hasn't come to the same view.  Though plodding along in neutral 
in the $175-$185 range for at least the last two weeks, 45 
minutes before today's close, NOK really demonstrated strength as 
it pumped up the volume and added back $4 from it's low of the 
day.  It now rests just below its 10-dma support of $181.  Let 
volume and move back above $181 be your guide to entry, and be 
prepared to exit before earnings.

MFNX $67.50 +5.00 (-2.38) As we noted in Tuesday's update, MFNX 
may need more than just one negative day to cool off.  That 
turned out to be true as MFNX took a beating yesterday, falling 
to as low as $62.  Buying volume sneaked in this morning AFTER 
amateur hour and took the price back to $70 before it reversed 
and found support on two occasions in the $65-$66 range.  $66 is 
shaping up to be excellent support.  Now, market willing, MFNX 
may be ready for another leg up.  Still no news and earnings are 
mid to late February at the earliest.  Thus that won't be a price 
driver.  Given today's volume of 3.5 mln shares (22% over the 
ADV) and that it happened after the first hour, we could deduce 
that professionals are back in the action, which could drive the 
price higher over the next few trading sessions.  Again, this 
issue is temperamental and acts erratically on lower volume.  
Special understanding of Tasmanian Devils may be helpful here.  
Let the volume be your guide.

PCS $109.50 +0.25 (-1.25) Well, it certainly was not the most 
exciting trading day for PCS, but in a market as volatile as 
today's, we are not complaining!  PCS spent Wednesday 
continuing its recovery run, trading to just under $110 and 
closing near the high end of its day.  Today's session offered 
pretty much the same trading range as yesterday though in a 
slightly different fashion.  PCS started the day at its high, 
traded to its low mid-day and then moved up to close positive.  
PCS encountered some resistance at $110 both yesterday and today.  
Needless to say, we would like to see a breakthrough and a close 
above this level to confirm the continuing momentum of this 
earnings/split run.  PCS did close today's session resting on 
its 5-dma which could hold heading into tomorrow.  PCS looks 
to have some additional support at $108, which it has tested 
throughout the last two sessions.  PCS has further support 
right around $105.  We will be dropping this play on Sunday 
since PCS will be announcing earnings on February 1.

PMCS $191.25 -11.75 (+0.00) Wednesday delivered the close 
above $200 that we were looking for.  PMCS offered a nice 
trading range of just under $10 on Wednesday and traded as 
high as $207.50, a new 52-week high.  Today, PMCS gapped up 
over $2 at the open and then quickly succumbed to a bout of 
profit-taking, which dragged the stock down as low as $182.19.  
Ouch!  PMCS did find support at its 10-dma and managed to move 
up nearly $10 from its low by the close.  PMCS has re-enlisted 
support at the $190 level which could hold and serve as a nice 
point for new entry going forward, should PMCS continue to 
reclaim its positive momentum.  Today's session may end up 
being a gift for our split play on PMCS.  Obviously, confirm 
direction before entering. 
 
NTAP $102.88 -5.50 (-14.25) NTAP got a nice bounce Wednesday
as the networking company continue the momentum from late 
Tuesday.  The only problem was it ran into resistance at $115
and turned around.  NTAP exemplifies the choppy action seen in
the major indices this past week.  NTAP gave us a chance for a
nice day trade yesterday before rolling over.  We are not 
promoting "day-trading" but many times we are forced to take 
what the market gives us.  Again we are back at square one.  The
$100 level has provided good support and a bounce higher would
provide another good entry point for this play.  If we see 
weakness and the $100 support level doesn't hold then the next
area of support is down near $92.  Resistance is found at $108
and $115.  If you enter a new play in NTAP be prepared to sell
to soon until we get through the FOMC meeting next week, as we
may see a clear develop at that time.

DISH $90.38 +0.31 (-5.88) Other than the initial failed spike
right out of the gate Monday morning, DISH has yet to provide
a satisfactory entry point.  We still believe DISH will provide
a good opportunity.  Patience can definitely be a virtue when
waiting for that perfect entry point.  Actually the recent 
decline will provide us with a much better entry if the momentum 
continues as we believe it will.  DISH has suffered through the
volatility and choppiness seen at the Nasdaq and will likely  
continue to do so until we get the Fed meeting out of the way,
next week.  Tomorrow morning will see the release of the ECI
report and GDP.  Bad numbers could definitely set a negative
tone for the markets.  The 50-dma at $85.50 has provided support 
for DISH, a close below that level could spell trouble.

LVLT $109.88 +1.50 (+9.38) Ok let's practice a little caution 
here.  LVLT has risen significantly over the past few weeks. 
We've seen the stock tack on $33.50, or 36.6% since we added it 
to our call list on January 14th.  And just on Monday LVLT 
pinnacled at $120.25 setting yet another new 52-week record.  
Since then the market has shown signs of weakness and 
instability.  Granted LVLT has held up well with near-term 
support in-line with the 5-dma (now at $110.10), but be warned.  
Next week is the Fed meeting followed by the company's earnings' 
report on Thursday, before the bell.  These events could 
possibly shake up the momentum.  If that turns out to be the 
case, it wouldn't be surprising to see LVLT move closer to its 
10-dma ($100.93).  So be prepared for a downdraft.  On the 
brighter side, recall LVLT is a split-candidate and there's 
plenty of shares available for a stock split.

NTLI $125.00 -0.69 (-11.38) NTLI is in a steadfast consolidation 
period in the proximity of the 10-dma ($127.08).  Today there 
were a couple of dips to firmer support near $120, but these 
downward spikes were quickly reversed.  This is a bullish sign.  
However, the stock has been trading at the $125 level since 
Tuesday so keep out the yellow flag on NTLI.  First of all we 
need to see a confirming bounce off this mark and second, the 
play is over when NTLI splits 5:4 on February 3rd.  Keep these 
factors in mind before opening a new position.  



*******************
PLAY UPDATES - PUTS
*******************

SLR $71.81 -3.19 (-6.56) A weak market, weak sentiment, and weak 
chart all combined in a dogpile on SLR today.  Though displaying 
half-hearted attempts at support at $74, $73, and barely a hiccup 
at $72, SLR headed south in today's trading to $68.69 before a 
strong recovery with strength into the close.  On the way back 
up, SLR stopped short of $72, its previous support, which may act 
as new resistance (at least temporarily).  Surprisingly, it 
didn't help much that Merrill Lynch named it a long and short-
term Buy with a new target price of $120.  So here's the deal.  
Waiting for penetration of $72, then a firm bounce south of $73 
on increasing volume will yield the best entry.  Even so, with 
the strength in other semiconductors, SLR may have run its 
course.  Tighten up your stops to protect your profits.  This 
has been a good run, but we'll have to wait and see if it's over 
yet.  If not, the next likely support level is at $68.

IIJI $73.25 -1.38 (-8.38) IIJI attempted a move back up to $80 
at the open of Wednesday's session but after a brief rendezvous, 
IIJI was pulled back down to close the session under $75.  Today, 
IIJI flirted around with $75, trying to decide if this level 
was going to end up serving as resistance or support.  Obviously, 
resistance won out.  IIJI has additional resistance at $78, $79 
and $80.  IIJI is trading in the range of some previously 
established support, right around $72-$73, so it is important 
to exercise caution here.  We are also still concerned about the 
lack of volume backing the decline; another reason to proceed 
carefully until we see an increase.

FD $42.69 -2.31 (-1.19) Admittedly, our put play on FD was 
looking a little shaky yesterday.  FD tried to make a break for 
it and made it all the way up to $45, a move backed by strong 
volume.  FD managed a close just pennies shy of the high for 
the day and looked well positioned heading into today.  This 
morning the bears emerged, proving that they were not done with 
FD just yet.  FD gapped down $0.75 at the open, again found 
resistance at $44 and spent the rest of the session heading south.  
FD did find support at $42 and as we mentioned on Tuesday, we 
would like to see a drop below this level to confirm continuing
negative momentum.  Otherwise, your best bet for new entries 
could be on up days like yesterday that are held back by 
resistance.  Today, FD announced that its board of directors 
has authorized an additional repurchase of up to $500 million of 
its common shares.  This authorization replaces the current 
repurchase program which expires tomorrow. 

MU $64.75 +1.19 (-2.38) Wednesday was a good day for our put 
play on MU.  MU lost $2.31 and offered a nice trading range of 
nearly $5.  MU made a weak attempt at a positive day today and 
was unable to come up with anything too impressive.  MU traded 
in a tight range and had volume just over half of the daily 
average backing its move up, a good indication that there aren't 
really too many interested MU buyers out there.  MU's 5-dma, 
which has done a nice job of providing resistance in the past, 
is sitting overhead at $66.  Look for this level to hold.  This 
could be a nice level for possible entry points.  MU could have
additional resistance at its 10-dma of $69.75.  MU's next 
notable support level is at $60.

CMGI $112.25 +1.25 (-6.00) CMGI gave us solid confirmation of 
its direction over the past two days.  The stock clearly 
penetrated support at $112.50 and bearishly closed below this 
first line of opposition.  Again $115 served as strong 
resistance during intraday trading offering a nice point of 
entry into this "post-split" blues play.  Initially, we cited 
the 50-dma (now higher at $108.20) as our first goal.  This 
week CMGI tagged this technical indicator intraday giving us 
confidence our target is within our reach.  Still I want to 
mention a somewhat dissenting disposition that could effect 
this put play.  Late day CMGI participated in the "rally" on 
increased volume and this may not be a good sign.  Also Lazard 
Freres & Co started CMGI with a new Buy rating and issued a 
target price of $170.  With or without news, remember this is a 
HIGH-RISK Internet play that requires your undivided attention.

RLM $65.50 -0.19 (-3.88) The pattern of lower-highs and lower-
lows continues to establish itself forming a steep ski slope.  
So what's driving this stock down?  The negative market pressure 
and RLM's own downward momentum is steadily pushing the share 
price lower.  Today we saw RLM break through bottom support at 
$67 and $66.  And after hitting an intraday low of $64.88 the 
stock couldn't manage a recovery and hit the wall at $65.50.  
The next shield to penetrate is at the 200-dma ($63.25) where 
there is established support.  Take a look at a six-month chart 
for visual confirmation.  You can see how the $60 to $63 range 
formed a tight channel during October and November.  



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

MUSE - Micromuse Inc. $166.69 -3.06 (-6.25 this week)

Micromuse develops, markets and supports scaleable, rapidly 
deployable, configurable, software solutions for the effective 
monitoring and management of multiple elements underlying an 
enterprise's information technology infrastructure.  Micromuse 
recently earned the highly acclaimed "Best of Show" award in 
the network management category at the 1999 Networld + Interop 
in Atlanta.  Major Micromuse clients include: AirTouch, AOL, 
AT&T, Charles Schwab, GTE, Mindspring and a number of financial 
investment concerns.  Micromuse is considered to be the leading 
provider of fault and service-level management software.  
Micromuse is perhaps better known as the "Netcool" company, 
which refers to its software product used extensively by 
telecommunications and Internet service providers.

Recently named in Bloomberg's list as one of the top 100 stocks 
whose increase in value during 1999 outpaced that of all other 
publicly traded companies (MUSE was 21st), Micromuse is no 
stranger to the gunslingin' world of NASDAQ tech traders.  
Software in general is a leading group and MUSE is one of the 
group's brightest stars.  It is no surprise then that MUSE has 
scheduled to split its shares 2:1 (ex-date on February 23rd).  
Micromuse's business is driven by many other tech sectors. 
According to the CEO, Greg Brown, "The explosive growth of 
Internet, telcom, and cable networks are major drivers behind our 
business."  We have recently had success in the Calls Section 
with stocks that are a member of one high tech group but are 
also substantially benefiting from doing the bulk of their 
business with the leaders of other high tech groups.  See AFFX 
and TQNT.  MUSE has formed a very intriguing technical formation 
called a contracting triangle.  This means that in recent 
trading sessions the shares have had lower highs and higher 
lows.  What usually happens in this formation is that a break to 
one side or the other typically results in a huge move.  With a 
split rally a possibility, we like the chances that the breakout 
will be to the upside.  The key prices to watch are $160-$171.  
The next move could occur with a break from this range.  A move 
to the upside might find a little resistance at $185 followed by 
the all-time high of $192.50.  The next support level below $160 
is $152.

January 19th saw MUSE report record quarterly results.  Revenues 
for their first quarter increased 106% over the comparable 
quarter in the previous year.  Net earnings showed an increase 
of over 62%.  This quarter also showed that a record 85% of 
revenues came from service provider customers.  In the last 
quarter, Micromuse added 91 new customers to increase its total 
customer base to 532.

BUY CALL FEB-165 QVM-BM OI=  5 at $24.38 SL=19.00 low OI
BUY CALL FEB-170*QVM-BN OI=162 at $19.25 SL=15.00
BUY CALL FEB-175 QVM-BO OI= 41 at $17.50 SL=13.63
BUY CALL MAR-165 QVM-CM OI= 20 at $32.38 SL=25.25 low OI

Picked on Jan 27th at  $166.69    P/E = 386
Change since picked      +0.00    52-week high=$192.50
Analysts Ratings     5-6-0-0-0    52-week low = $24.00
Last earnings 01/00  est= 0.13    actual= 0.13
Next earnings 04-19  est= 0.14    versus= 0.07
Average Daily Volume =   291 K
Chart = /charts/charts.asp?symbol=MUSE

****

LU - Lucent Technologies $57.44 +1.44 (-4.75 this week)

Lucent makes the things that make communications work, or so 
goes the tag line on the commercials.  Actually, Lucent 
Technologies, headquartered in Murray Hill, N. J., designs, 
builds, and delivers a wide range of public and private 
networks, communications systems and software, data networking 
systems, business telephone systems, and microelectronics 
components.  Bell Labs is the research and development arm 
for the company.  

Ugh!  Anybody holding a long position on January 6 after the 
close when LU reported they would experience an earnings 
shortfall was probably in a lot of pain.  In fact, LU opened down 
$20 on the 7th from its previous day close at $72.  As they had 
warned, earnings fell a penny shy of estimates.  The worst was 
that their revenues were relatively flat compared to last year 
with not much hope of a big recovery this current quarter.  That 
was January 20th.  With all the bad news priced in and most of 
the sellers shaken out on that 176 mln share day following the 
warning, and stragglers exiting on the 18th, only the die-hards 
were left.  With no more sellers around, buyers are beginning to 
nibble.  Support is rock solid at the $50-$52 level.  For the 
conservative trader, this can be one of the more comfortable 
plays that will let you sleep at night.  You can target shoot on 
a bounce off any weakness, or simply wait for a breakout over 
$58.50 to take a position. Of course, confirm market direction 
first.

In the news, there were comments earlier in the week (Forbes 
Magazine quoting unnamed sources) that LU might consider offering 
a tracking stock for its optics division, which could also help 
the underlying shares.  We'll keep you posted on any developments.  
By the way, combined with purchases from Nortel Networks, these 
two make up 46% of JDSU's sales.

BUY CALL FEB-50 LU-BJ OI= 3269 at $7.75 SL=6.00
BUY CALL FEB-55*LU-BK OI=12708 at $4.00 SL=2.25
BUY CALL FEB-60 LU-BL OI=21348 at $1.50 SL=0.75
BUY CALL MAR-55 LU-CK OI=  989 at $5.63 SL=4.00
BUY CALL MAR-60 LU-CL OI= 3982 at $3.13 SL=1.50

Picked on Jan 27th at    $57.44     P/E = 81
Change since picked       +0.00     52 week high=$84.19
Analysts Ratings    15-16-5-0-0     52 week low =$47.00
Last earning 01/00    est= 0.37     actual= 0.36 surprise=-3.0%
Next earning 04-20    est= 0.25     versus= 0.17
Average Daily Volume = 16.8 mln 
Chart = /charts/charts.asp?symbol=LU

****

BGEN - Biogen Inc. $99.69 +2.69 (+7.69 this week)

Biogen researches, develops, and markets biopharmaceuticals
to treat a variety of illnesses.  AVONEX, is the company's
claim to fame, used in the treatment of multiple sclerosis.
Other drugs made by BGEN include Amevive, for psoriasis;
Antova for autoimmune diseases; and Adentri, for congestive
heart failure.  BGEN also receives revenues from licensing
drugs it has developed to other companies.  BGEN has research
agreements with Schering-Plough, SmithKline Beecham, Merck
and Abbott Laborites.

As we add BGEN to our play list, BGEN will be added to another
prestigious list of companies.  What could be better than being
on our select list of plays, you ask?  Well BGEN will join the 
S&P 500 Index Friday after the close of business.  This past 
Monday, Standard & Poors said it will add Harley-Davidson and 
Biogen to its index.  As if the Biotech company didn't have 
enough going for it lately, investors jumped in with both feet 
Tuesday morning driving the price of BGEN to new highs in each 
the last three sessions.  BGEN has had quite a month.  After a 
brief dip the first two days of the new year, BGEN has gone
virtually straight up.  BGEN reported earnings in the middle of
the month beating analysts estimates.  Since the first of the new
year BGEN has been upgraded on at least five different occasions.
Late last week, Merrill Lynch named BGEN to their "Focus One"
list based on a compelling valuation and strong sales of Avonex.
Avonex is the company's flagship drug, used in the treatment of
multiple sclerosis.  Although the Biotech sector has experienced
a pullback, BGEN has continued higher for most of the week.  We
believe the momentum will continue.  BGEN did make a new 52-week
high today at $101.25.  Support is found at $99 and $96.50. 
The strength behind the move today was impressive with 7.9 mln.
shares changing hand.  Look for continued strength or a bounce 
off support as an entry point for this new play. 

The latest comments on BGEN came from analyst Eric M. Hecht at
Merrill Lynch.  Hecht reiterated a near-term Buy rating for the
company and also reiterated a long-term Buy rating.  BGEN had
a helping hand today as the FDA reported Immunex's drug,
Novatrone appears to be effective treatment for patients 
suffering from multiple sclerosis as well.

BUY CALL FEB- 95 BGV-BS OI= 970 at $11.00 SL=8.75
BUY CALL FEB-100*BGV-BT OI=2119 at $ 8.00 SL=6.25
BUY CALL FEB-105 BGV-BA OI=  95 at $ 5.88 SL=4.25

Picked on Jan 27th at    $99.69    P/E = 71
Change since picked        0.00    52-week high=$101.25
Analysts Ratings     9-6-11-0-0    52-week low =$ 44.00
Last earnings 01/00   est=-0.42    actual= 0.44 surprise=+4.7%
Next earnings 04-13   est= 0.42    versus=-0.29
Average daily volume = 2.74 mln
Chart = /charts/charts.asp?symbol=BGEN



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

UAL - UAL Corp $56.88 -2.38 (-3.25 for the week)

UAL is a holding company whose principal subsidiary is United 
Air Lines, the world's largest airline.  They engage in the 
commercial air transportation of people, property, and mail.  
Notably, UAL is one of the world's largest employee-controlled 
companies with its employees owning 47% of the stake.  

On January 13th, UAL abruptly announced its 2000 financial 
forecast would be well below analyst expectations.  UAL shares 
stumbled a whopping 13% on strong volume and the news 
subsequently dragged down the airline sector.  UAL cited that 
rising fuel prices could push costs upwards of 25% compared to 
the 1999 levels.  Plus the company is expecting labor costs to 
rise as well in anticipation of contract negotiations with its 
pilots and mechanics.  Merrill Lynch also came forward on the 
news and downgraded the airline to a Near-Term Neutral from a 
Near-Term Accumulate.  Despite the negative events UAL held 
firm above support at $60.  That is until this Tuesday when it 
slipped under the mark.  Flight disruptions caused by the east 
coast blizzard shut down nearly 400 flights and news of 
International fare increases were not well received by 
investors.  UAL announced it would be tacking on the $20 fuel 
surcharge (already on domestic flights) as well as a general 
3% increase to its international flights.  UAL dipped to an 
intraday low of $58 and has since edged lower.  Take a look at 
a one-month chart with a 5-dma line and you can see this technical 
indicator is a good gauge for an entry into this put play.  
Presently the 5-dma is at $58.99 so look for an intraday bounce 
off this mark.  Keep in mind too that the negative market 
sentiment is playing a significant role in the descent.

***Presently there are no strikes below 55***

BUY PUT FEB-60*UAL-NL OI=732 at $4.25 SL=2.75
BUY PUT FEB-55 UAL-NK OI=824 at $1.63 SL=0.75

Average Daily Volume = 700 K
Chart = /charts/charts.asp?symbol=UAL


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

SILK - Silknet Software $168.00 +5.00 (+22.00 this week)

Silknet Software is squarely positioned in the e-business
world, providing its industry-leading customer-centric
applications and systems to the likes of Microsoft, Office
Depot, Sprint, Inacom, and Bell Canada.  SILK's software
allows companies to build strong customer relationships
through personalized marketing, sales, electronic commerce
and customer support services.  SILK's approach integrates
all customer interactions and data, whether across the Internet,
by phone, through e-mail, or in person, providing the company's
partners and customers with a single view of their relationship.

Tuesday's Write Up

Along with the rest of the NASDAQ, sellers hammered SILK right
after the first of the year.  After finding its feet near $105,
buyers began immediately buying it up and quickly pushed the
price above $130.  After a couple days of consolidation, the
stock began steadily moving up, using the 10-dma (currently
$142.50) as support.  The move really got underway when the
company announced strong earnings on the 13th, followed by
George Gilbert of Credit Suisse First Boston reiterating his
Buy rating the next day.  It has been encouraging to see that
SILK has remained strong this week in the face of the weakness
in the broader markets.  We are a bit concerned that volume 
has been light and we want to see it pick up going forward.
Looking at an intraday chart, we see a very nice pattern of
higher-highs and higher-lows over the past week and a half.
Because the move up has been so quick, there is not strong
support until $133.  We should see mild support at $150, and
then $144; a bounce at either of these levels accompanied by
increasing volume is a good target for opening new positions.
The next point of resistance will likely be the 52-week high
($177.94), set on December 30.  This is a volatile internet
stock, subject to large daily moves.  While this provides
plenty of entry points, exercise caution and use stops to
protect yourself in the event of a correction.

SILK continues to form strong alliances and customer 
relationships, the latest with Computer Sciences Corp.
Beneficial to both companies, the agreement (announced today)
extends SILK's business-to business market penetration.  On
January 19th, the company announced the adoption of Silknet
eBusiness Systems and Silknet eService by two automotive
e-commerce companies, BBCN.com and CarParts.com.

Thursday's Write Up

Somebody forgot to tell SILK investors that the markets are 
in correction/consolidation mode.  Since we picked it on 
Tuesday, SILK has continued to move up nicely.  Although 
volume remains weak (only about half the ADV), nobody seems 
willing to part with their shares, even at these lofty prices. 
Intraday support sits at $160-162, with stronger support down 
at $151.  Resistance is at today's high of $$173.25 and then 
the 52-week high of $177.94.  Recall that nothing moves in a
straight line, and with the overall market weakness, we will 
likely see some consolidation soon.  SILK has wide intraday 
swings which will provide ample entry opportunities, but play 
this volatile issue with caution.

BUY CALL FEB-160*ULI-BL OI=166 at $21.50 SL=16.75
BUY CALL FEB-165 ULI-BM OI= 60 at $19.13 SL=15.00
BUY CALL FEB-170 ULI-BN OI= 41 at $16.88 SL=13.25
BUY CALL FEB-175 ULI-BO OI= 98 at $14.63 SL=11.50	

Picked on Jan 25th at $159.50     P/E = N/A
Change since picked     +8.50     52-week high=$177.94
Analysts Ratings    1-6-0-0-0     52-week low =$15.63
Last earnings 01/00 est=-0.28     actual=-0.20
Next earnings 04-13 est=-0.26     versus= N/A
Average Daily Volume =  290 K
Chart = /charts/charts.asp?symbol=SILK



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

Earnings And Inflation Woes Continue..

Wednesday, January 26,

The rotation out of technology issues continued today as earnings
reports warned of future shortfalls. A wave of late selling left
the Dow almost unchanged at 11,032 while the Nasdaq ended the
session sharply lower. The composite of hi-tech stocks closed 97
points lower at 4069. The S&P 500 index was down 5 points at 1404.
NYSE volume was active at 1.1 billion shares. Gaining issues led
losers 1,737 to 1,317. Stable bond prices added support with the
30-year Treasury rising 19/32, bid at 93 31/32, pushing the yield
down to 6.58%.

Portfolio plays:

Investors focused on earnings reports and forecasts during the
morning session, but most of the action took place after the Fed
chair's comments on the future of interest rates. Greenspan told
the Senate Banking Committee that keeping prices stable will cut
the risk of imbalances in the economy. He said that low, stable
inflation is essential for US prosperity and that the Fed's task
is to set conditions to extend growth. He also said there are no
signs of US productivity peaking and that the US trade gap is not
credible over the long run. Analysts now believe a 25-basis-point 
increase will be the most likely outcome when the FOMC meets next
week.

A number of market-leading issues fell prey to profit-taking and
the biggest losers were the computer hardware and biotechnology
sectors. Some signs of bullish activity were present in banking,
media and defense stocks but there were no wide-spread rallies.
Our portfolio was amazingly quiet with few issues moving much in
either direction. In the small-cap group, On Health Networks
(ONHN) surged $1.75 to close at $10 on news their award-winning
online health and wellness destination for consumers has emerged
as an E-healthcare leader for 2000. The company announced it has
closed 1999 with record-breaking gains in advertising and site
traffic with 3.2 million unique users in December and more than
100 advertisers and e-commerce partners. P-Com (PCMS) was another
mover, climbing to a midday high near $14 on speculation of their
earnings report due out this week. The bullish diagonal position
offered a favorable early-exit opportunity with $0.50 profit on
$3.00 invested for one month.

In the LEAPS/CC's portfolio, Vodaphone (VOD) climbed $1.12 after
bid target Mannesmann indicated that it would be happy to settle
for less than 50% of the marriage just so long as VOD increases
the cash element of the bid. The merger is expected to benefit
Vodaphone's bottom line and growth prospects significantly, as
long as they don't spend a fortune in the acquisition. Medtronics
(MDT) also rallied during the session, rising to a new all-time
high after the U.S. Food and Drug Administration approved its
Reveal Plus Insertable Loop Recorder, an implanted heart monitor
that tracks heart activity much like an airplane's flight data
recorder. The device, which Medtronic said was the world's first
implantable heart monitor with new auto-activation capabilities,
helps physicians diagnose the cause of suspected heart-related
symptoms such as dizziness, palpitations, seizures, or fainting.
The stock closed at $46.12 and our position is at maximum profit
above $42.50. Unfortunately, one of our favorite issues is in a 
significant slump. Solectron (SLR) has fallen almost $10 in the
past week and rather than lose all of our previous gains in the
sell-off, we have decided to close the position and look for a
new entry point after the issue finds support and new interest.

Thursday, January 27

Anxiety among investors increased today as Dell Computer warned
of future profit shortfalls. The Dow Industrials managed a slight
gain, closing up 5 points at 11,028 while the technology-heavy
Nasdaq Composite fell 30 points to 4,039. The S&P 500 Index was
down 5 points at 1,398. In the broad market, declines edged out
advances 15 to 14 with over 1 billion shares traded on the NYSE.
There were 41 stocks at new highs while 122 made new lows. The
benchmark 30-year U.S. Treasury Bond was up 20/32 with the yield
falling to 6.52%.

Portfolio plays:

There were only a few blue-chip issues that enjoyed major gains
in today's session and General Motors (GM) was our big winner.
The stock rallied $4.31 to close just below $83 after Goldman
Sachs analyst Gary Lapidus upgraded the company to the brokerage
firm's "recommended list". The analyst said GM's core automotive
now sells at all-time low on both price to sales and price to
forward earnings and he expects an announcement by GM management
about partial separation of Hughes within the next few months,
possibly following GM's board meetings in February or March. GM
is expected to spin-off 30%-50% of its Hughes (GMH) stake to
shareholders, contribute some portion to GM's hourly pension and
retain a stake to be distributed at a later date. The brokerage
report suggested that GM is worth about $100 a share, based on
the sum of its parts and a discount due to the expected Hughes
deal. That suits us just fine as our position returns maximum
profit above $80.

A number of other portfolio issues made favorable moves in
today's slumping market. One of our recent suggestions, BCE Inc.
(BCE) rallied almost $5 to close at a new all-time high near
$105. The move came after Salomon Smith Barney raised its price
target for shares in the telecom's holdings to $120. On Thursday,
the Montreal-based firm announced plans to spin off 94% of its
stake in communications equipment player Nortel Networks (NT).
The spin-off is seen as a smart strategic step in unlocking the
company's value and will help fund future growth, especially in
its data, media and wireless operations. Our position returns
maximum profit above $85. The most surprising stock was Splash
Technologies (SPLH). The unique computer hardware company moved
to a midday high near $16 on heavy volume with no public news.
Our recent bullish offering was a FEB7C/FEB10C bull-call spread
at $2.00 debit. This position is expected to expire at maximum
profit.


Questions & comments on spreads/combos to Click here to email Ray Cummins


*********
NEW PLAYS
*********

ASDV - Aspect Development  $78.00     *** New All-Time High ***

Aspect Development creates, markets and supports enterprise client
server software and content products that enable manufacturers to
improve product development and business processes through
component and supplier management (CSM). Aspect's CSM solution is
licensed to global enterprises in many industries including
electronics and high technology, aerospace and defense, automotive, 
industrial process and consumer package goods. The CSM solution 
incorporates four interrelated elements, the Explore family of 
enterprise client server software products, the VIP family of
component and supplier content databases, Professional Services
for legacy data conversion and business process consulting and a
Web Catalog Publisher. Aspect's customers include more than 150 of
the 200 largest manufacturing companies in the world.

ASDV makes Internet-based software and reference data products
that help businesses improve product development and business
processes through component and supplier management solutions.
Their recent blow-out earnings and the B2B sector momentum has
boosted the issue to new highs. The technical support from the
recent consolidation area provides a margin of safety for this
favorable short-term position.


PLAY (conservative - bullish/debit spread):

BUY  CALL FEB-55 QDV-BK OI=5   A=$24.75
SELL CALL FEB-65 QDV-BM OI=155 B=$15.75
INITIAL NET DEBIT TARGET=$9.00 ROI(max)=11% (two weeks)

Chart = /charts/charts.asp?symbol=ASDV

****

GLW - Corning  $162.00   *** On The Move! ***

Corning is a diversified technology company that manufactures
leading edge communications, electronics and textile products
around the world. Most of their products are marketed under the
Corning, Celcor, Costar, Fibergain, HPFS, LEAF, Pyrex, Steuben
and Vycor trademarks. The Telecommunications Segment produces
optical fiber and cable, optical hardware and equipment, and
photonic components for the telecommunications industry. The
Advanced Materials Segment manufactures specialized products
with unique properties for applications utilizing glass, glass
ceramic and polymer technologies. Businesses within this segment
include environmental products, science products, semiconductor
materials and optical and lighting products. The Information
Display Segment manufactures panels and funnels for televisions
and CRTs, projection video lens assemblies and liquid-crystal
display glass for flat panel displays.

Corning's share value continued higher this week after Monday's
favorable earnings report. A number of analysts have upgraded
the company in the past few days including Salomon Smith Barney
with a BUY rating and a target of $225; Josepthal with a BUY
rating; and Gruntal with a new short-term target of $176. Today
the stock price rose $6 on news the company would increase its
manufacturing capacity to produce additional optical components
used in communications. Corning said the additional capacity is
necessary to meet increasing demand for photonic components. The
company also said it would make a public offering of 13 million
common shares at $151.38. Currently, that's about what the stock
appears to be worth.


PLAY (conservative - bullish/credit spread):

BUY  PUT FEB-120 GLW-ND OI=322 A=$1.12
SELL PUT FEB-130 GLW-NV OI=269 B=$2.12
INITIAL NET CREDIT TARGET=$1.12 ROI(max)=12% (two weeks)

Chart = /charts/charts.asp?symbol=GLW

****

SEBL - Siebel Systems  $101.88     *** Reader's Request ***

Siebel Systems is the market leader in enterprise-class sales,
marketing and customer service information systems. The company
helps organizations to focus on increasing sales, marketing and
customer service effectiveness in field sales, customer service,
telesales, telemarketing, call centers and third-party resellers.
SEBL designs, develops, markets and supports their own enterprise
applications software, a leading web-based product designed to
meet the sales, marketing and customer service information system
requirements of the largest organizations. Siebel's e-commerce
applications deliver the first entirely Web-based, enterprise
class family of sales, marketing, and customer service products.
Siebel applications fully support ActiveX, Java, and HTML and can
be delivered over the Internet or via an organization's intranet,
supporting multiple desktop platforms.

Shares in Siebel Systems rocketed this week after the company
reported stronger-than-expected results for its fourth quarter
and analysts boosted their earnings outlook for the future.
Siebel officials said that new e-commerce business helped its
revenue surge 109% to $268 million, while net income climbed to
$0.19 a share. Analysts were expecting $0.15 a share and after
the news, they jumped on the upgrade opportunity. Bear Stearns
reiterated their ATTRACTIVE rating based on strong 4Q results.
Hambrecht & Quist offered a BUY rating and placed the stock on
their focus list citing the big upside in revenue and an EPS well
above their forecast. SG Cowen reiterated a STRONG BUY, based
on explosive license revenue acceleration.

A reader requested a bullish short-term position on this issue
and the risk/reward outlook is favorable for this aggressive
debit spread.
 
PLAY (aggressive - bullish/debit spread):

BUY  CALL FEB-85 SGW-BQ OI=1976 A=$18.62
SELL CALL FEB-95 SGW-BS OI=1138 B=$10.75
INITIAL NET DEBIT TARGET=$7.75 ROI(max)=29% (two weeks)

Chart = /charts/charts.asp?symbol=SEBL



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************
See Disclaimer in section one
************

DISCLAIMER

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