Option Investor
Newsletter

Daily Newsletter, Sunday, 02/13/2000

HAVING TROUBLE PRINTING?
Printer friendly version

The Option Investor Newsletter          Sunday  2-13-2000  1 of 5
Copyright 2000, All rights reserved. 
Redistribution in any form strictly prohibited.

Posted online for subscribers at http://www.OptionInvestor.com

Entire newsletter best viewed in COURIER 10 font for alignment
******************************************************************
MARKET STATS FOR LAST WEEK AND PRIOR WEEKS
******************************************************************
         WE 2-11           WE 2-4         WE 1-28          WE 1-20
DOW     10425.21 -538.59 10963.80 +224.93 10738.87 -512.84 -471.20
Nasdaq   4395.45 +151.31  4244.14 +357.07  3887.07 -348.33 +171.13
S&P-100   752.04 - 23.47   775.51 + 37.47   738.04 - 41.74 - 17.74
S&P-500  1387.12 - 37.25  1424.37 + 64.21  1360.16 - 81.20 - 23.79
RUT       537.10 + 11.58   525.52 + 20.90   504.62 - 29.33 + 25.84
TRAN     2436.13 -172.83  2608.96 + 27.21  2581.75 -169.74 -140.14
VIX        26.92 +  3.99    22.93 -  6.16    29.09 +  6.43 +   .53
Put/Call     .59              .45              .60             .47
******************************************************************

February correction? 

Gosh, who would have thought we would see a correction in February?
It is now official. The Dow has fallen -11.4% from the January high
and is now officially in correction mode. The benchmark index closed
out the week with a -218 point drop and a loss of -538 points for the
week. The Dow did not even slow down as it passed through the 10550
milestone signifying a -10% correction. The selling on the Dow
finally rubbed off on the Nasdaq as traders decided they would be
better off taking profits Friday and sleeping easier over the 
weekend. The divergence between the Dow and the Nasdaq was 
becoming critical and market technicians were expressing alarm. 
Why? Who cares if nobody wants to buy MO, MMM, DD or IP? I think 
there is a valid reason for the split but it concerned 
technicians still stuck in historical trend analysis. The good 
news? Talk of bargain hunting on the Dow began near the close on 
Friday.


 


 

Contrary to conventional wisdom the market fell again Friday after 
getting a weaker than expected January Retail Sales report. Sales
in January only increased +0.3% instead of the +0.6% analysts
expected. Normally this would have been positive and would have
indicated the pace of consumption is slowing. The number that 
irritated the markets was the increase in the December number from
+1.2% to +1.7% which is excessive in the Feds eyes. Personally 
I think the answer is obvious. A large number of consumers bought
a much larger supply of a broad range of items to prepare for the
feared Y2K shutdown. When the catastrophe did not materialize the
public did not need to buy as much in January. The Dec/Jan retail
sales discrepancy was simply a statistical representation of Y2K 
hype. The bond market cheered the reduced January number as 
evidence of a possible cooling of consumer spending. Sorry guys, 
you are wrong. The rebound in the bond market prompted a drop in 
yields to 6.25%. Dow financial stocks rallied on the news. AXP 
+2.06, JPM +2.69, C +1.25 but AXP and JPM both gave up their 
gains and ended the day negative.

Another challenge to both the Dow and the Nasdaq came from 
Microsoft. A report published by CNet expressed concerns that the 
acceptance of Windows 2000 would be less than enthusiastic. Rumors 
of bugs and lack of computability to some current programs 
prompted a large number of investors to take profits from the 
+$15 gain in the last two weeks in anticipation of the Windows 
2000 release. MSFT closed down -6.06. MSFT was responsible for more 
than -30 points of drop in both the Dow and Nasdaq. Ironically the 
keynote speaker at the Windows 2000 conference, Michael Dell, 
fired the first shot last night saying Linux was gaining momentum 
and there was no rush of corporate customers upgrading to Windows 
2000. Dell said, "We just don't see a massive immediate 
acceleration into Windows 2000" Adding fuel to the fire was the 
technology-consulting firm Gartner Group who said in a report 
that one in four corporations would run into computability 
problems with existing software. These are not the kind of 
comments Microsoft investors want to hear. Warburg Dillion Read 
analyst Charles Wolf said these comments could hurt Microsoft for 
some time. Oops! Way to go Michael. I wonder if Bill Gates will 
invite him to any more group socials in the future?

After a week of terrorist attacks on some of the largest websites
by hackers there was another more serious attack on Wall Street.
An unidentified male set off a pipe bomb at 4:40 AM at the Barclay
building, 75 Wall Street. Nobody was injured but there was concern
that the NYSE would shut down if any further devices were found.
After a brief period of confusion the blast became just another
excuse for the selling Friday. Give me a break! Why would a minor
incident several blocks away and totally unrelated to the stock
market impact stock prices to the tune of billions of dollars?

The inflation outlook continues to be influenced by rising oil 
prices. Saudi Arabia, one of the largest OPEC distributors is 
rumored to be planning even more cuts in production and shipments 
to U.S. and European customers. Was it something we said? Oil 
prices hit another nine year high today on the news. Prices have 
not been this high since the gulf war. Maybe somebody should 
remind Saudi Arabia who bailed them out in 1991 with 500,000 
soldiers and billions of dollars in war expenses. 

We got the afternoon sell off I was expecting on the Nasdaq. What
I was not expecting was the big drop in the morning as well. Much
of that drop was due to the Microsoft and Dell impact on the Nasdaq.
Breadth remained terrible all day but what else would you expect
during a serious Dow correction? While the Dow still looks sick
the Nasdaq drop was not convincing. The volume was weaker than 
normal and there were still pockets of resistance. Intel for 
instance was only down -1.75 and many of the recent fast movers
only gave back a small percentage of their gains. BEAS only 
dropped -.50 after gaining +$20 for the week. CSCO only gave back
-5.00 after gaining +$35 in February. There were many examples like
this but the other extreme was also represented. AMCC gave back 
-$28 of the +130 it has gained in February and YHOO dropped -22
on the eve of its split. Still out of the hundred or so fast 
movers on my current watch list only 14 lost more than $5 and
only three more than $10. The question now becomes, "is this just
another profit taking day like Wednesday and we can expect to be 
back in record territory on Monday" or is it the start of another
"correction/buying opportunity". Sounds like a trick question on
the "Who wants to be a Millionaire" show. If we knew the answer
to this one it would be worth well more than a million dollars.

The way I read this the Dow is very oversold. There was a bargain
hunter bounce on the Dow (+50) at the close but it was not 
convincing. The Nasdaq also bounced about +40 before turning
down again. After seeing the strength in the Nasdaq this week I
don't think we can hit -10% again anytime soon. The liquidity
coming into the market is enormous. I would look for 4300 to be 
the near term bottom on the Nasdaq. The Dow however could still
have some room to drop in spite of the very oversold condition.
Many of the Nasdaq stocks I researched had a rebound spike at
the close but almost none of the NYSE stocks showed any life.
It is entirely possible we will see another Monday like we had
two weeks ago with the Dow and Nasdaq both giving ground at the
open and then rebounding by the end of the day. I doubt however
they will rebound very far. This is a killer week for economic
reports and many analysts are expecting a retest of 10,000. That
would be extreme in my book. Possible but extreme. The Dow is 
still not trading at parity with the broader market. The S&P
has yet to close above the last day in 1999 and this has not
happened since 1978. Over 20% of the S&P stocks are trading at
52 week lows. There is a bear market in almost everything but
tech stocks. Other than the oversold conditions on the Dow there
is nothing to make investors want to buy. The earnings news is 
over and the economic reports this week are giving bond traders
nightmares.

Monday is Business Inventories, Tuesday Industrial Production,
Wednesday Housing Starts, Import/Export Price Index. But the 
real problems come on Thursday with the PPI and Friday with
the CPI, Real Earnings and Consumer Sentiment. Just in case you
have not heard, Greenspan is giving his twice yearly Humphrey
Hawkins testimony to the House Banking Committee on Thursday.
PPI, CPI, Housing, Jobs, Earnings and Greenspan, all in one week.

Conventional wisdom would expect the market to languish and 
possibly test new lows before the big reports at the end of
the week. Contrarian wisdom would have the markets prejudging
the outcome and moving into rally mode on Tuesday. If you doubt
the validity of contrarian thinking simply look at the market
history the two days prior to the last three Fed meetings. Strong
rally each time. Go figure. The market is the best discounter of
future events known to man and if the markets decide the PPI/CPI
numbers are going to be benign then who are we to complain.
The Nasdaq did not even lose all of Thursday's gains and the
Russell-2000 only lost -5.11 but has not been able to hold above
540 in a week. This bounce off the previous high is a point of
concern but I think it is Dow related. 

The bottom line: Please keep your seatbelt fastened and remember
the coming week last year was the low for the month. There could
still be another dip before this rally roller coaster resumes its
upward momentum. Options expire on Friday which normally provide
an upward bias for the week. If we get a follow through dip on
Monday to under 4300 on the Nasdaq I would buy it once it turns
up. For both my readers who play Dow stocks you two are on your 
own. Seriously, we could see a bear trap rally on the Dow simply 
as a relief bounce from the severe oversold condition. I would 
continue to be skeptical of any Dow rally until it closed over
11000 convincingly and that is +600 points up from here. Basic
materials stocks did not suddenly jump from 5% growth to 40%
growth just because the Dow sold off. Just because GT was $75
and now it is $21 does not mean it is a bargain. It may still
be overpriced. Even if it was under valued it still may not be
a good trade. This sounds corny but we want to play the winners
not try to pick the bottom on the losers. I have people who
eamil me every week with I think XYZ is a great buy here and I
look at a chart and it has been going down for months. Play
the champs not the tramps. Be patient, pick your plays carefully 
and watch for the rebound. Once past this dip we may not see 
another for weeks as we head into March and the April earnings.
Remember this chart from last year. 


  

Late February and early March would have been good months to go
skiing or repaint the house. Many readers would have saved 
thousands of dollars by doing anything besides fight the market.

Trade smart and sell too soon.

Jim Brown
Editor



*************
READERS WRITE
*************

Dear Jim,

I've subscribed with you for a few years, and I see a different 
set of recommendations in the past few months compared to in the 
past.  For one thing, 90% of your picks are EXPENSIVE options now.  
Unlike before, it is very rare to find recommendations under 
800 - 900 - 1000 dollars or so. Many are 2000 or more.  I guess 
you will reply that that's what the market is now, but I 
disagree.

Now your picks are extremely volitle, and while you are right 
saying "sell too soon," you hide behind that message to cover 
your volitle picks.  I think you should be  honest and have 
another constant message - watch the market hourly.

I think you have some great picks, but I also thing that I have 
to watch the market more closely to be successful with your 
picks.  In your section that tells us your trades, you have 
demonstrated that by the storyline in which you watch by the hour, 
go out to lunch or something, and return with dramatic results.

Why not a few more good picks that I can watch once a day or once 
every 2 days??  I don't have the time to tune in to the market 
every hour or so.

I've had some great plays too - that have LOW PRICES, ARE NOT AS
VOLITLE, AND FOLLOW THE THEME OF YOUR TREND ARTICLE. How about 
BNI, WEN, ED, ED ALL, CSX, and MYG (you used to have 
recommendations on this). I realize that these are put 
recommendations, but they have low option prices, are not as 
volitle, and have a trend. That's what I used to find in your 
newsletter - go check your archives. That's the type of pick I 
need when I don't watch the market every hour.

How many of your picks next week will be $1000, $2000, $3000 
options that need to be watched hourly??  60%, 70%, 80% again??  
I wish you would challange your staff to find the good options 
with lower prices more often.

Cordially,

Dave

***

Dave, you are right! We have been playing the fast movers more 
often and ignoring the lower volatility stocks that only move 
$2-$3 a week. This appears to be what most traders are wanting. 
We track how many hits each play page gets on the website and the 
fast movers out number the slow pokes 20, 30, even 50 to 1. 
However, we feel your pain. Even we draw the line on several 
picks per week that have option prices larger than Dell's stock 
price. I do think the market has changed in the last three years. 
How many stocks went up +$10, $20 even $30 a day three years ago? 
One, maybe two? Today there are dozens every day. The potential 
for profit is incredible. However the potential for loss is much 
higher due to the volatility. How many 100 point Nasdaq days were 
there in 1999? Three. How many have we had in the first 28 trading 
days of 2000? Eight. Actually those eight all rank in the top ten 
point days on record for the Nasdaq. This is not the same market 
and the volatility is only going to grow.

I spoke with the staff about this issue. I do believe there are
quite a few readers who would like some lower risk trades. Starting
next week we are going to try and maintain 5-6 "cheap" plays in the
lineup at all times. We are also considering a risk indicator. 
If a play is a "1" it would be minimal risk, a "5" extreme risk. 
The problem here is one persons extreme risk is another persons 
boring play. It is up to you to determine which plays you like and 
are comfortable sleeping at night.

Here is one we added this week.

PCMS $18.75  The March $20 call is $2.13 (look in the play section)

Here is one put that we added too:

KRB $20.88 The March $20 put is $1.25

Also, a stock does not have to have a low price to be a cheap play.
Take Lucent @ $53 today. The March $55 call is only $2.69. There
is almost no risk because of the steep drop recently. 

We will attempt to identify and pick at least five of these plays
each week starting next week.

Hope this helps.

Jim


***********
JIM'S PLAYS
***********

The continuing Dow sell off finally started impacting the Nasdaq on
Wednesday and fearing another "Nasdaq correction" I closed out all
my naked put plays for February. Many were down to under $1.00 and
most were highly profitable. I am not going to list charts for each
like last week. Everybody should understand the concept by now. I 
picked about 20 stocks that I think will make excellent naked puts
for March and I have already programmed the put symbols into my
Interquote and Qcharts. The option premiums on Friday were just
incredible with many showing returns of over 40% for the month.
Now comes the hard part. Last month I jumped the gun and sold the
puts before the Nasdaq had bottomed which gave me several days of
indigestion before the plays returned to profitability. The hard
part will be waiting to see if the Nasdaq is going to sell off
more in front of the PPI/CPI or was the dip on Friday the only
entry point we are going to get. If we jump the gun again then
we get the month of March off to a bad start and the experience
will poison our trading habits for days to come. One or two bad
trades can ruin a dozen good ones by making us wait too long to
pull the trigger causing us to get in too late and get out too
early. Patience, patience, patience. Easy to say, tough to do
when your option premiums are bleeding value every day.

This week I am going to pick three current plays that would be my
choices for this week. These are my choices based on what I think
will work this week and what I think most readers would be eager
to play. You must decide, based on your risk profile, which would be
right for you. Just because I chose them to write about this weekend
does not give them any special status. Each could gap down -20 
points at any time.  

ANAD - $124 - Straight call play
 


The Anadigics play is a straight momentum call play. They make 
fiber optic equipment and that sector just will not quit. 
Ordinarily I would recommend waiting for a pullback to the lower 
channel around $120 before opening a call position but the lack 
of any drop on both Nasdaq down days last week shows incredible 
strength. Notice it was moving up all Friday afternoon. The 
downside to this play is the option prices. With the strong moves 
by ANAD it has run away from the available option symbols. The 
closest one to the stock price is the March-120 DQA-CD @$14.00.
It is $4 ITM already. I would place a stop at $11.00.

***********

Millennium Pharmaceuticals - Entry point?
 



 

This looks like an entry point on MLNM. They have never broken the 
trend line since starting the move up on Jan-3rd. The big profit 
taking dip on Friday with the Nasdaq could give us an opportunity
to start a new play. The only caution would be the flatness on the
8th-9th. This was after a big move up +30 points on the 4th-7th and
I think it was just consolidating. Still many people have huge 
profits since this run started at Christmas around $100. I would 
want to confirm upward movement again before committing.


****

CLRN - Straight call play on breakout
 



 

This type of formation, the bullish wedge, is one of the strongest
buy signals available. Once the stock price breaks out of the 
formation it can move upward very fast. The lower high portion 
clearly shows there is buying pressure from many buyers. This 
shows a steady progression of higher limit orders following the
stock price upward to catch any dips. The March $110 call is $14.38
but I like the March $100 cal better at $18.88. It is $10 deeper
in the money but the premium is only $4.50 more. The Delta on the
$100 is much higher than the $110. Did I mention that they have a
meeting to increase shares scheduled for next week?


**********

As I stated above, my plan is to not jump the gun on the Nasdaq. I
will try and wait out the PPI/CPI unless we get a clear upward move
before then. I plan to sell naked puts on about ten stocks and open
several call positions on the same stocks if they take off.

I will post my Naked Put list separately today in the Naked Put 
Section.

Be patient. Missed money is better than lost money.

Jim


******************************
OptionInvestor/Optionetics 
Spring Advanced Seminar Series
******************************

The spring dates for the OptionInvestor/Optionetics seminar
series are approaching fast. This is the advanced seminar
taught by George Fontanills and Tom Gentile. If you feel
you need more option strategies in your trading arsenal 
like the Delta Neutral Straddles George is famous for then
this seminar is for you. Remember, you can bring a friend
for free and retake this seminar as many times as you want for
free. The cost of the two day seminar is about what you would
lose in only one trade. Invest it, don't lose it.

Here are the spring dates: 

Feb 27/28 Los Angeles
Mar 19/20 Chicago 
Mar 26/27 Dallas
Apr 2/3   San Francisco

For complete details http://www.OptionInvestor.com/seminar/

There is a 100% money back guarantee and you can take a friend
for free. What else could you ask for?



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

Free Trades
By Jim Brown

The Dell earnings event this week provided a prime example of
the benefits of using combination plays to reduce your cash
exposure and actually in some cases even make a profit just
for entering the trade. 

Because this is a complicated subject I am going to start very
basic. I used this simple example on the radio this week and I 
still got calls from people who did not understand the process.

A call option gives you the right to buy stock at a set price
by some future date. Using Dell Computer at $37 as an example, 
if you bought a May $37.50 call, that is when they announce
earnings again, this call would allow you to buy Dell stock at
$37.50 in May, even if Dell was over $50 again. With a call you
have the right but not the obligation to buy stock at a fixed
price. You can exercise your call and buy the stock or you can
simply sell your call for the same profit.

The opposite of a call is a put option. A put option allows you
to sell stock at a fixed price on or before some future date.
If you owned a $37.50 put on Dell you could sell Dell stock at
$37.50 even if it was trading at $20 on the open market. With
a put you have the right but not the obligation to sell stock
or simply sell the option at a profit.

Now for the fun part. If you think Dell will recover from the
current eight month low of $37 and you like Dell then this is 
how you can own it for almost nothing. (prices are Thursdays)

First you write or sell a May $37.50 put on Dell for $4.50. You
are going to sell to somebody else the right to make you buy 
Dell stock at $37.50 on or before May 19th. Your risk here is
exactly the same as if you bought Dell stock today for $37.50
except you are taking in $4.50 in cash for the put option you
are selling. You can also limit your risk by placing a stop loss
order for say $6.00. If Dell continued dropping and the option
rose to $6.00 the put position would be closed for a $1.50 loss.

Second you would use the money you received for selling the put
to buy a May $37.50 call for $3.25. You would have a positive 
cash flow of $1.25. You sold the put for $4.50, you bought a
call for $3.25 for a net credit of $1.25. 

There are now three possible outcomes.

1. Dell stays in the $36-38 range for the next three months and
both options expire worthless. This is highly unlikely.

2. Dell drops under $36 and you may be asked to buy the stock
depending on how far Dell dropped. You can also limit your risk 
by placing a stop loss order on the put for say $6.00. If Dell 
continued dropping and the option rose to $6.00 the put position 
would be closed for a $1.50 loss. So your maximum risk would be
$1.50. Remember you entered the play with a $1.25 profit so you
have no real risk.

3. Dell recovers from the Intel chip shortage and runs back up
to $50 before May earnings. You sell your call option and pocket 
the $12.50 difference between $37.50 and $50.00. For every dollar
Dell stock rises above $37.50 by May 19th that is one dollar of
pure profit to you.

Remember, it cost you nothing to enter the trade and the risk
is exactly the same as buying the stock outright unless you 
use a stop loss which limits your risk to whatever amount you
choose. 

This is basically a free trade and almost anyone can do it. The
only requirement is a margin account (for the naked put) and 
$900 margin for every contract in your trade.

What do you think? Will Dell still be $36 by May 19th?
  


Consider using this type of strategy to lower your cost of entering
call plays and increase your returns.

Jim Brown



**********
Stock News
**********

Super Prospects in Store for Network Appliance 
By Cindy Christ

Shares in Network Appliance (NTAP) zoomed 11 percent Friday,
reaching a new 52-week high of $154.94 after Robertson
Stephens raised per-share earnings estimates for the provider
of network storage and caching products.

"We are reiterating our Buy rating on Network Appliance, as we
believe the company is the best-positioned network attached
storage (NAS) vendor in the industry," said Robertson Stephens
network storage analyst Dane Lewis in a research note.

http://members.OptionInvestor.com/stocknews/021300_1.asp



*******
Ask OIN
*******

Who Wants To Be A Technician??
By Ryan Nelson

Is that your final answer?  A charting we will go, but first 
let's review from last week.  I got a lot of e-mail about which 
charting service I use to create the Trend Lines or Rays.  

http://members.OptionInvestor.com/ask/021300_1.asp



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

As of Market Close - Friday, February 11, 2000 

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

DOW Industrials   10,700  11,250  10,425    Bearish   2.10     
SPX S&P 500        1,350   1,450   1,387    Neutral   2.01  
OEX S&P 100          740     780     752    Neutral   2.01  
RUT Russell 2000     500     540     537    Neutral   2.11   *
NDX NASD 100       3,575   4,090   3,969    Neutral   2.11   *   
MSH High Tech      1,800   2,000   1,928    Neutral   2.11   *   

XCI Hardware       1,300   1,525   1,472    Neutral   2.11   *   
CWX Software       1,200   1,470   1,441    Neutral   2.11   *
SOX Semiconductor    740     940     913    Neutral   2.11   *
NWX Networking       900   1,020   1,012    Neutral   2.11   * 
INX Internet         700     800     749    Neutral   1.06

BIX Banking          640     690     514    BEARISH  11.30
XBD Brokerage        400     450     423    Neutral  11.30
IUX Insurance        580     600     514    BEARISH  11.30

RLX Retail           950   1,000     900    BEARISH   1.28
DRG Drug             340     380     334    BEARISH   2.11   *
HCX Healthcare       700     750     695    BEARISH   2.11   *
XAL Airline          160     180     119    BEARISH   5.21
OIX Oil & Gas        280     315     251    BEARISH   1.27


Posture Alert
Following the potential powerful reversal signal Friday (2/11), 
we have turned Neutral across the technology group and Bearish 
across the blue chips and select industry sectors including the 
Drug and Healthcare.  We also remain Bearish across Airline and 
financial stocks.  After a very volatile trading week that saw 
many indices reach new territory, we have updated our key 
benchmark levels for each index.  Please make a special note of 
these potential turning points.



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

Don't Even Think About It
By Pinnacle Capital Advisors

With the equity markets selling off precipitously, investors may 
be itching to buy this dip in hopes to get a head start on a next 
rally - but one of our trusted indicators suggests that we have 
not seen a selling climax yet.

One of the market sentiment indicators Pinnacle tracks is the 
volume level of the Standard & Poors Depository Receipts or 
"spiders" (SPY) and Nasdaq 100 Trust shares or "Cubes" (QQQ).
The SPY and QQQ are both American Stock Exchange (AMEX) traded 
securities designed to approximate 1/10 the value of the S&P 500 
Composite Stock Price Index (SPX) and 1/20 the value of the 
Nasdaq 100 Index, respectively. 

By looking at the combined volume activity for these securities 
in association with market direction, one can gain a better 
understanding of what is likely driving that volume.  Because the 
SPY and QQQ can be shorted on downticks, it is likely that spikes 
in the volume are the result of fear that has emerged from a 
market decline. Investors who desire a hedge against a market 
decline may take a short position in the SPY, or those who have 
become very bearish may even short the SPY as an aggressive 
position.  As illustrated by the attached charts, Spikes in the 
SPY and QQQ volume may presage potential market bottoms Since it 
is likely that the volume spikes tend to represent extreme fear. 
Normally single day spikes in excess of 30,000,000 serve as these 
signals.  Friday's decline off of recent highs was only met by 
22.3 million QQQ-SPY-DIA volume.  This is even lower than the 
23.0 million seen on Wednesday (2/9) and 24.1 million seen during 
the decline on Tuesday, January 25.  This may be too complacent 
of a reaction for Friday's (2/11) decline to be a short-term 
bottom forming day.


 


 


BULLISH Signs: 

Corporate Earnings:
Major corporate earnings continue to come out strong and ahead of 
analyst expectations.

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 on the NYSE is 
still very high, eclipsing 4 billion shares. The short 
interest on the Nasdaq is more than 2.4b shares. 


Mixed Signs: 

Interest Rates (6.293):
Although the recent bond market rally has helped bring the current 
yield down near 6.0 last week, it closed Friday (2/11) at 6.293.

Volatility Index (22.24):
A review of the VIX"s daily chart suggests that the low 30's are 
an excellent buying opportunity, and the low 20's continue to be 
a great selling opportunity. The VIX peaked on an intraday basis 
Friday (2/11) at 28.4 before collapsing and closing at 26.98.  
This may serve as a potential reversal pattern and signal the end 
of the market's recent slide. 


BEARISH Signs:

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
Benchmark                       (2/11)

Overhead Resistance (760-860)     2.16

OEX Close                       752.04

Underlying Support  (700-750)     5.63


What the Pinnacle Index is telling us:
Appears to be good sentiment support at the OEX's 100-dma (740) 
but overhead resistance is climbing and could stall a broad 
market advance. 


February Peak Open Interest (OEX)
                      Tues           Thurs          Fri
Strike/Contracts      (2/8)           (2/10)       (2/11)

Puts               740 / 9,312     740 / 9,937   740 / 10,138
Calls              800 / 7,222     800 / 7,806   800 /  8,058
Put/Call Ratio         1.29           1.27          1.25


March Peak Open Interest (OEX)
                                                    Fri
Strike/Contracts                                   (2/11)

Puts                                             700 /  5,211
Calls                                            850 /  4,027
Put/Call Ratio                                       1.29


Volatility Index    Major
Date                Turning Point       VIX

October 97          Bottom              54.60      
July 20, 1998       Top                 16.88         
October 8, 1998     Bottom              60.63
January 11, 1998    Top                 26.38
March 4, 1999       Bottom              28.15   
May 14, 1999        Top                 25.01 
July 16, 1999       Top                 18.13 
August  5, 1999     Bottom              32.12 
October 15, 1999    Bottom              32.06
January 18, 2000    Top                 21.09

February 11, 2000                       26.98


 



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

For the week of February 14th, 2000

Monday

Business Inventories     Dec    Forecast: 0.4%   Previous: 0.9% 
Atlanta Fed Index        Jan    Forecast: --     Previous: -16.6

Tuesday

Industrial Production    Jan    Forecast: 0.5%   Previous: 0.4% 
Capacity Utilization     Jan    Forecast: 81.5%  Previous: 81.3%

Wednesday

Housing Starts           Jan    Forecast: 1.64M  Previous: 1.71M
Building Permits         Jan    Forecast: 1.61M  Previous: 1.61M
Import Prices            Jan    Forecast: --     Previous: 0.7% 
Export Prices            Jan    Forecast: --     Previous: 0.1% 

Thursday

Greenspan testifies before House Banking Committee on state of 
economy

Jobless Claims           2/11   Forecast: --     Previous: 301K 
Producer Price Index     Jan    Forecast: 0.2%   Previous: 0.3% 
Philadelphia Fed Survey  Feb    Forecast: 11.9   Previous: 9.1  

Friday

Consumer Price Index     Jan    Forecast: 0.3%   Previous: 0.2%   
Real Earnings            Jan    Forecast: --     Previous: 0.2%
Univ Mich Sentiment      Feb    Forecast: --     Previous: 112   
International Trade      Jan    Forecast: -26.4B Previous: -$26.5B


Week of 2/21

2/24 Durable Goods Orders - Jan
2/24 Help Wanted Index - Jan  
2/25 Gross Domestic Product - Q4-rev
2/25 Existing Home Sales - Jan



*************
WOMAN'S WORLD
*************

Straddling the OEX

Warning:  You may skip the first paragraph if you are a male 
or in a hurry.
  
I don't wish to scare away all you terrific male readers as 
I really appreciate the comments, questions and suggestions I 
receive weekly but I now know that you gals are really out there.  
Last weeks article on "Camp Mom" generated the most "e-mails from 
females" I have gotten since I began writing for OIN.  I was 
beginning to wonder if Renee, Mary and I were the only female OIN 
readers.  I am now happy to report otherwise and I encourage you 
not to be intimidated by all the trading jargon.  There is no such 
thing as a "dumb question".  Believe me the guys know that and 
they're not afraid to ask.    It's funny, some of the e-mails from 
the guys start -- "I was reluctant to admit I read Women's world 
BUT... would you mind explaining ..." O.K., O.K., enough of the soapbox 
and on to the nitty gritty.

As I mentioned in my article last week, I will be going away (no 
articles from me for the next two weeks) so I needed to get my 
trading house in order.  After rolling up and forward any 
unfavorable positions and closing out my February profitable ones, 
I am in pretty good shape to leave without worrying about my 
positions, short of a total market crash.  This time has allowed 
me to review some new trading strategies that I would like to 
implement upon my return.  I have been trading the OEX more often 
since following skybox for their key benchmarks.  Although I don't 
follow the system in it's entirety, it gives me great signals for 
my own strategies.  

What I really love about writing for OIN, is that it forces me to 
do a lot of research to either identify successes or losses.  
This past week I looked into my OEX trades and tried to identify 
why I was successful or not on each of my trades over the last 
month.  What I like to do is set up spreadsheets with data and 
run averages over different time frames.  From those averages, a 
trading strategy usually emerges.  I copied the monthly, weekly 
and daily data on the OEX directly from my software into a 
spreadsheet.  Normally, I try to do this before I start trading 
something, so I have an idea of its daily, weekly and monthly 
trading ranges.  

The spreadsheet was set up with the following 8 headings:
Date, Open, Hi, Low, Close, Open minus Close, Open minus Hi, and 
Open minus Low.

The Average (High to Low) ranges were as follows:
Daily = 12 points  
Weekly = 29 points  
Monthly =62 points

The Average (Open to Low) ranges were as follows: 
Daily = 6 points  
Weekly = 15 points  
Monthly =28 points

The Average (Open to High) ranges were as follows:
Daily = 6 points  
Weekly = 14 points  
Monthly =35 points

What this tells us is the OEX is a great trading vehicle.  By 
buying the options (I personally don't short the market), you 
can have access to a fairly predictable, volatile AND liquid 
market. My goal is to develop a strategy that could be used in 
bull and bear markets and would not leave me totally exposed to 
market direction.  Additionally, I want to develop an emotionless, 
totally objective criteria for trading that strategy.

After reviewing the daily, weekly and monthly data, I decided to 
develop a strategy using weekly data.  After going back 32 weeks 
(the limit of my historical data), I found that the average range 
of Open to High was 14 points and the average range of Open to Low 
was 15 points. This suggested to me that I could make money by 
trading straddles.  I particularly like this strategy because I 
don't have to be right about market direction. In order for 
straddles to be profitable, the underlying must be capable of 
moving large amounts, which makes the OEX a perfect candidate.  

By looking at historic and current OEX option quotes and theoretical 
prices, I next tried to approximate an average cost of the ATM calls
and puts with at least 2 weeks to expiration.  Also I projected what 
the value of the OEX calls and puts would be if the OEX were move 5 
or 10 points before expiration by looking at the current prices of 
calls and puts that were 10 points in and 10 points out of the money.  
That way I was able to approximate what the value of the option 
would be if the OEX moved 10 points in either direction.  While this 
is very simplistic, it is a start.  My entry point would be to buy a 
call AND a put at the "Open" each week, but I needed to have an 
objective exit strategy. 
 
From the limited data I had, the most profitable exit point was to 
sell the options after the OEX moved 10 points in either direction 
from the open of the week.   After the OEX moved 10 points up from 
the open in a given week, I would sell the call, and after a 
10-point decline I would sell the put.  Out of 32 weeks, there were 
seventeen "10 point moves" upward from the open of the week and 
twenty-one "10 point moves" downward from the open of each week.  I 
assumed that if the OEX did not move 10 points favorably in one 
direction or the other by expiration, I would let the option expire 
worthless.  In this scenario, 6 of the call options and 4 of the put 
options would have expired worthless before their expiration. This is 
very conservative in that the unprofitable leg is assumed to be 
worthless at expiration.  They might be worth anywhere from 1 to 9 
points of intrinsic value and of course I wouldn't let them expire 
worthless. I will be working to tweak this aspect is the future by 
closing out the unprofitable leg with whatever premium is left 
during the last week before expiration or on expiration day itself.  
This should improve returns, but it then makes the system less 
objective and more subjective unless I determine a specific time and 
date to sell the unprofitable expiring leg regardless of its price.   

My assumptions for working this strategy are as follows:
1.  The cost of the of the ATM calls is 22 and 18-1/4 for the ATM 
puts, based on the current theoretical five week ATM prices.  (This 
is probably a little high because the average time premium would be 
4 weeks.)   
2.  My projected profit on the sale of the options is 4-1/8 points 
on the puts and 6-3/8 on the calls.  This is also based on the 
current theoretical five-week "10-point"  ITM calls and puts. This 
is probably too high as well because some time value would be lost 
over the 1 or 2-week holding period.  On balance, they would probably 
offset each other .  
3.  Current volatility is representative in the price of the current 
options and can be projected backward and forward in time over the 
32-week study.

The results of this first stab at an OEX trading strategy is a 
cumulative profit of 58 points over and above an initial investment 
of 40-1/4 points (22 for the call, 18-1/4 for the put).   That is 
over 100% return in only 32 weeks.

The point of this article is to get you thinking about the OEX 
and various option strategies you are comfortable with that you 
might be able to apply.  Look at developing your own option trading 
strategies on stocks that you love to trade.  I would love to receive 
your input or suggestions to enhance this strategy or to challenge 
any of my assumptions, particularly if you can provide a better 
variable to use.   I will be gone after Thursday of this week until 
the February 29, so I will apologize in advance in case I am not able 
to respond to all of your e-mail.   

Contact Support


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

Stocks Versus Options

I think the best time to buy an option is when it is more 
advantageous to buy the option than the stock, or when a 
combination strategy allows you protection against loss through 
hedging. In order to determine whether it is a good time to buy 
an option you need to use technical market indicators, a 
fundamental understanding of the stock and its trading pattern 
and your judgement about what you think is going to 
happen to the stock and the overall market.

For example, if one of your favorite stocks has been flat for a 
period of time and you expect that the stock will perform well in 
the near future because of impending news, like earnings which 
you think will be good, a split,or a spinoff of a subsidiary you 
can look at various options. As long as your judgement about the 
stock and market are accurate, you may be able to make more money 
with the option strategy than you could with the stock.

An example of this is the Qwest leaps I bought recently. I bought 
the leaps at 12 when the stock was 40. This week the stock hit 46, 
and the leaps hit 16 . The profit on the leaps was 4  points, or 
37.5%. If you had bought 100 shares of stock at 40 and it hit 46, 
your profit would have been 15%. In this situation, the capital 
outlay for the leaps was less than one third the outlay for the 
stock, and the profit was over twice what the profit would have 
been on the stock.

Sometimes you may feel more comfortable buying the stock than the 
option. In order to be successful with options timing is crucial.  
If you misjudge the market in a short term option it can expire to 
zero. Another example when options may be more advantageous for 
certain individuals is in the case of an expensive stock, like 
Broadcom which hit 350 today. I have owned Broadcom in my stock 
portfolio for over 6 months, and I don't intend to sell it. However, 
you could have made a huge profit with less capital outlay in the 
last several weeks if you had purchased an option rather than the 
stock, since 100 shares of Broadcom would have cost over 30,000, 
and you could have bought an option for significantly less.

I wanted to get back into CMGI this week for a number of reasons. I 
think the stock is going to perform very well this year, 
specifically over the next 6 months. This week several news items 
were released on CMGI: First that Silknet, which is one of their 
minority holdings was bought by Kana for a 21% premium over 
Silknet's price. Second, another CMGI minority held company, 
Vicinity, went public Wednesday in a very successful IPO which 
was priced at 17 and traded up to 42 7/8, raising 119 million 
dollars. Since CMGI owns 32% of the company, this is just a hunch, 
but don't you think this might add a nice healthy profit to this 
quarter's earnings? Also, CMGI entered a new agreeement with 
Nokia, Compaq and Softnet  to develop hand held broadband 
internet access devices. They are also planning a big ipo of Alta 
Vista in the first half of this year, which should be a huge money 
maker.

On Monday and Tuesday I thought that the VIX was too low to buy 
CMGI options, and on Wednesday I couldn't bring myself to buy 
options when the Dow seemed to be perched at the edge of a cliff 
trying to bring the Nasdaq down with it. So I bought back into 
the stock. If you don't feel right about the market it is best 
not to buy an option. No matter how strong a stock may be, if 
the entire market tanks, almost everything will go with it.

We have been hearing about the two different markets, the 
technology market and the other market for so long now that some 
market analysts are wondering if it even matters anymore. 
Technology stocks have defied almost every obstacle which has  
tried to block their path, including higher interest rates, Fed 
increases, and higher oil prices, to continue their climb 
upwards. No one knows how long this can continue, however, a 
truly healthy market rally is one in which all major sectors 
including financials, pharmaceuticals and consumer staples 
participate. 

One clue which may help to explain why the techs and Nasdaq 
continue to rally even in the environment of a declining Dow, and 
whether this phenomenon might continue is the study of cash flows 
into mutual funds and money market funds. According to AMG Data 
Services ,in 1999 the cash flows into equity mutual funds totaled 
111.9 billion, and cash into money market funds totaled 232.1 
billion There's a lot of money out there! But more significant 
than just the numbers is the fact that large capitalization equity 
funds and technology funds took in over 75% of the total money. 
Technology funds took in approximately 30 billion, or 26.8 % of 
the total, and large cap equity funds took in 46.6 billion, or 
41.6% of the total. Yet the technology sector funds make up only 
2.1% of the total number of equity mutual funds.

What conclusion can we draw? No market indicator is ever 100% 
accurate, but I think this is indicative that a lot of mutual fund 
families may be closing down generic non performing funds and 
opening up more tech funds. They have to give their customers what 
they want. 

According to both AMG data services and Trimtabs, February fund 
flows are off to a good start with the week ending Feb 2 showing 
cash inflows of over 8 billion in to equity funds and outflows of 
over 8.7 billion out of money market funds. Remember around this 
time of year people start writing two checks: One to the IRS, and 
one to their IRAs. Some retirement accounts have monthly or 
quarterly contributions throughout the year, but most brokerage 
firms and funds start seeing huge pickups in contributions from 
February through April. It is good to keep an eye on the money 
flows, but I think the combination of having to pay taxes and 
buying stocks in IRA accounts may cause increased volatility more 
than any specific direction.

Contact Support


MORE WOMANS WORLD IN SECTION TWO
********************************


************************Advertisement*************************
Tired of waiting on trades to execute? 
Does your broker offer Stop Losses on Options?  

Trade instantly with Stop Losses at Preferred Capital Markets
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with Preferred Capital

Anything else is too slow!

http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN
**************************************************************



FREE TRIAL READERS
******************

If you like the results you have been receiving we 
would welcome you as a permanent subscriber.

The monthly subscription price is 39.95. The quarterly
price is 99.95 which is $20 off the monthly rate.


We would like to have you as a subscriber. You may 
subscribe at any time but your subscription will not 
start until your free trial is over.

To subscribe you may go to our website at 

www.OptionInvestor.com

and click on "subscribe" to use our secure credit 
card server or you may simply send an email to

Contact Support

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the 
information over the phone.

You may also fax the information to: 303-797-1333



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              2-13-2000    
Sunday                        2 of 5


*************************
WOMAN'S WORLD - CONTINUED
*************************

Tid Bits to Consider in a Downside Market. 
By Renee White

Several readers mentioned that they did not know how to find the 
VIX, in order to follow it on a daily basis. Remember, the VIX 
(Volatility Index) is an index, so the extension is important. 
VIX.X is the symbol you need to follow. On Friday, it moved 
higher trading intra-day to 28.93. It closed at 26.98 and has 
been closer higher every day since February 8 th. The chart 
makes me feel like it  still has more upside, which signals 
rocky roads and downside risks for Nasdaq. 

For those of you considering the QQQ as a hedge against your 
tech portfolio, spend a little time looking at the chart 
before jumping in. QQQ does not move as fast as the Nasdaq and 
the options for QQQ move even slower.  

I have one reader who buys or shorts, QQQ intra-day and plays 
it against the VIX. But, he buys 1000-2000 shares of QQQ at a 
time, and exits with 1 1/2 - 2 points profit or so. That is a 
nice day's work, but it requires a large investment and large 
number of shares. I've been following his plays and I can see 
why he would rather trade these intra-day rolls, than to worry 
about picking the right stock, then  waiting on it to move in 
the right direction. If you can afford the investment, it works 
well. The larger the play, the less movement you need in the 
underlying to skim nice profits. But, you must be good at 
reading charts before trying this. Nothing is guaranteed and 
like any other play, it can sometimes bite you.
 
Make sure you look at the charts on Nasdaq, QQQ and the options 
on QQQ first, and make sure you understand their actions before 
expecting to use them as a hedge. The options are really very 
slow moving, so they do require a larger number of contracts 
than many are accustomed with higher flying tech stocks.

One other thing to keep in mind when learning how to hedge by 
playing the down side; it has its own learning curve. Choosing 
the play is only the first hurdle to learning how to play it. 
Most new option traders have a very difficult time thinking in 
terms of playing the downside or even, figuring out when to 
place a downside trade. Again, the charts will help you. If you 
look for over-head resistance levels, become familiar with 
downside charting patterns, juxtaposed against reading market 
sentiment while using various indicators, the odds help turn 
decisions a little in your favor. Add in knowledge of current 
market conditions, with a little foreshadowing, and decisions 
become a little easier. 

I think the biggest problem for a lot of traders (including 
myself at times), is deciding when to exit downside plays. Yes, 
you will look at the charts for support levels, but it is not 
as easy with these plays. It is easier to wait too long, and 
get hit with a gap open the next day. These days, sell-offs in 
Nasdaq have been occurring so rapidly, that you might not get 
more than 10 minutes, or a couple of hours before the buyers 
rush in. In the old days (a few months back), it might have 
lasted a couple of days or a week. How long will these short 
cycles last? We may find out this week. I could be wrong, but 
I am expecting more downside follow-through in the Nasdaq. I 
don't think the selling is over this time. 

On upside plays, you usually get several days in a row in which 
to profit. But, for some reason, the pain seems greater to many 
new traders, waiting on a downside play to perform. Many get 
confused if they bought the position for hedging or for 
profiting on swing moves, only to exit right before the market 
rolls over. What's odd is that many of these traders will hold 
calls too long hoping they will go up, only to watch them expire 
worthless. A hedge play is bought for a different mindset than 
a profit play. 

This is why I go with a larger stop loss on puts for hedging, 
when I feel the market is really very heavy. If the sell-off 
occurs, the put premiums will inflate as they become more 
popular to the masses. Remembering the honest reason you entered 
the play; to hedge, or to play, can help with your exiting 
decision on puts that aren't moving. On puts that do move 
profitably, watch intra-day charts and try to take smaller 
gains more frequently. You can always re-enter on a roll, if 
the downside is not over. Expecting to hold out for that one 
big profitable dip before exiting, is the most common mistake 
of new downside players. It causes many profitable put plays to 
quickly reverse, only to end up as a losing trade. Look at the 
charts and try to find your own patterns during downtrends. 

This is a nice time to consider if we are short term or long 
term investors and decide if you win more in markets going up, 
down, or sideways. For the most part, long-term portfolios 
should weather mild storms. In its favor, it creates long term 
capital gains, less paper work, fewer commission, and generally 
less stress. As long as the stock does not break down completely, 
the cycles are to be expected. I do not follow my long-term 
portfolio daily. I occasionally check them with daily charts. 
For the most part, my energy is spent with my various short-term 
trades.  

Short-term traders have more stress, which increases by the 
shorter their trades are. More frequent smaller profits, lots 
of paper work, lots of commissions, no free time for 
distracting phone calls or conversations, messy income tax 
accounting, and many more headaches, frequently typifies the 
intra-day trader. Bless their souls, they must juggle a lot of 
information and act on it very quickly meaning, many times, 
within seconds. A bad short-term trader churns their accounts, 
makes their broker rich from commissions, and ends up with less 
money trying too hard.

If you cannot make the same proportion of "wins" playing all 
three markets, (up, down, and sideways), then use discipline 
to force yourself to trade less, or not at all, when the market 
is not in your favor. It's easy to make money in up markets. 
It takes practice and experience to make money in down markets. 
But, those sideways markets have a machine gun effect and can 
hurt everybody quickly......especially option traders. 

Looking at charts and learning just the basics, can help you know 
when to step aside. Over-trading when the odds are against you, 
is a common mistake that once recognized, can help keep money in 
your account which would have otherwise vaporized. Save your 
irritations for the little things in life that you can't do 
anything about, like the tree house my new neighbor is building 
which faces right into the whole backside of my heavily windowed 
house, where I've lived with the privacy from trees, for the past 
12 years.

Renee White
Contact Support



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

Operations Plan 2000: Task Force Ripper
By Janar Wasito

One of the traders interviewed in Jack D. Schwager's Market 
Wizards says that you have to figure out how you see yourself -- 
had I stayed in the Marines, I would have been a company 
commander by now, so I suppose I see myself as a armored task 
force commander built on a rifle company, a platoon of tanks, 
armored amphibian vehicles, and other supporting elements. 
Whether the analogy that works for you is that you are a doctor, 
conductor, or skier, it really doesn't matter. The key is finding 
an analogy that helps you to plan and execute effectively, and to 
limit the impact of emotions on your trading... and vice versa.

Situation. In the last 4 months, I have gone through some of my 
best periods in trading, as well as through some painful learning. 
In Oct99, I had a drawdown in my ST Options Account of 50%. The 
most beneficial thing that happened in this period was that I took 
a full week off in mid Oct. Rested, I recognized the importance of 
the large volume breakout on the last two days of Oct, and traded 
aggressively, making almost a 50% gain by Thanksgiving. Over 
Thanksgiving, I took 1.5 weeks off, and prepared for the December 
trading period. Over December, I traded full bore, scoring huge 
gains with QCOM, VRSN, YHOO and other plays.

On Jan4, I made my best trade -- moving a large chunk of cash from 
my ST Options Account to my LT Stock Account. That single trade, 
not involving an option at all, insured that I will stay "in 
business" for at least a year, probably longer. Since then, it has 
been downhill. Since early Jan, my ST Options trading account (now 
rebalanced to about 12% of my assets) has lost about 30% in 
value; my LT Stock Account has lost maybe 3%. In that period, I 
have been switching strategies, in part because of the write ups 
in OIN regarding covered straddles, and in part because of a 
mentor who emphasizes the need to minimize drawdowns. Also, I 
have had no real break, although I had planned a trip which was 
canceled. Trading in this period has taken a toll on my personal 
relationships. The short strangle strategy has indeed been a 
strategy that resembles "picking up dimes in front of a 
bulldozer." As of last Friday, I had scored 8 straight days of 
gains. This week, things fell apart. Bad decisions (holding QQQ 
puts) lead to more bad decisions. VRSN moved up to the strike of 
my short calls (Feb210) and forced me to buy back some contracts, 
at a gain, but also forced me to hedge and unhedge. The biggest 
bright spot in the last two months has been selling puts, although 
on Thursday, I sold some puts (VRSN Feb200 and CMRC Feb150) that 
may break this trend of profitable short put plays.

Intelligence Preparation of the Battlefield. What Brought Me 
Here? What Do I need to go forward? What Works? In 1998, I 
started investing in LT Stocks and have had some great returns; a 
natural corollary to this is LEAPs, which I am switching into for 
Gorilla stocks that I want to own over the next few years. In 
1999, I started trading options with great results. Those are my 
core competencies, and I need to fall back on those strengths as 
I craft an operational plan for this year. Though I have lost 
some money in 2000, it has been the tuition in the school of 
learning some promising new strategies -- selling puts, covered 
calls & calendar spreads (on LEAPs). I have not had success in 
selling calls, and so the short strangle strategy is not a good 
one for me. However, the basic insight that if you are short a 
put and a call on the same stock has merit. I may be able to 
apply it by writing both puts and covered calls against core stock 
holdings. In this way, I am assured that at least one leg of the 
strangle will expire worthless.

Mission. My goal is to return 100 to 200% on my total portfolio 
for the year. My secondary goal is to develop an investing/ 
trading style that I can sustain for the long run. Another goal 
is to use the process of investing to learn about promising 
sectors and companies.

Execution. My concept of operation for this year is to execute 
about 5 related strategies. In any given month, I want to take 
1.5 weeks off from active trading (though I will have open 
positions).

LT Stock. No Maintenance Required. (40%) As I write this, LT 
Stocks represent about 14% of my portfolio. My goal, through 
purchasing LT Stock by selling puts, is to increase this to about 
40%. My core stocks will come from a combination of sources such 
as the Wired40, thestreet.com Tech30, Money30, and the OIN 
picks. These will be stocks like JDSU, VRSN, BRCM, AFFX, INCY, 
CSCO, ARBA -- about 50 to 75 total on my watch list. My goal will 
be to own 10 to 20 at any given time.

Covered Call Selling @ resistance during overbought conditions. 
Every month. Little or no maintenance required. For example, I 
sold covered calls on almost all of my LT Stock holdings over 
the last month. I should have waited until earnings to sell 
covered calls on CSCO, since I would rather not lose my stock 
when my short CSCO Feb 125 gets exercised. But it will be OK if 
that happens. This has been a good source of cash flow, and it 
promises to be even better when I start adding higher volatility 
stocks to my portfolio.

LEAPs & Calendar Spreads (10%): sell calls against LEAPs @ 
resistance during overbought conditions. Every month.

Straight Calls (maybe Spreads) @ support during oversold 
conditions. Close focus on good entry point with Preferred Trade. 
Only 2.5 weeks per month. (15%) I want to begin to take longer 
term positions, ie options with 2 - 3 months of time so that time 
decay is not so bad (selling options makes one very aware of 
this); I want to trade splits & earnings, as it appears that 
these will be profitable plays throughout the year, not just in 
certain months. Because of my poor record in 1999 & 2000 with OEX 
& QQQ Puts, I am avoiding these plays.

Selling Puts @ support during oversold conditions. (35% of 
portfolio in cash).

Admin & Logistics/ Command & Control. Tom Basso, another 
successful trader in Jack Schwager's The New Market Wizards, says 
that a trader needs to address a trading plan in 3 steps -- 
trading psychology; risk control; and strategies (above).

Trading Psychology. I want to watch the market about 3 hours a 
day -- at the open, midday, and at the close. I want to prepare 
for the following week for about 5 hours each Sunday, inputting 
trades for each of the above 4 or 5 strategies into qcharts. I 
want to spend about an hour at night digesting information. I 
want to spend a full week and a half off per month. I think I 
will do better if I spend this much time -- but not more -- on 
trading. Too much time equates to over focus and leads to lower 
results.

Risk Control. My risk control comes from asset allocation (a 
large cash position), and from targeting no more than 2%, and 
eventually 1%, per trade. I do not plan to use portfolio hedging 
to accomplish risk control; as I said, index puts have not been 
good plays for me.

An update from Saturday afternoon... Trading really is a process 
of continual education. So, I have been going through some 
materials on the more advanced strategies in Optionetics. One of 
my lessons learned from the last month and a half is that I am 
really not altogether comfortable with selling naked options. The 
allure of "riskless" compounding of 5, 10, 15, even 25% per month 
is appealing, but the fact is that there is a lot of risk 
involved, both in financial terms and in personal terms. I am 
therefore moving very quickly towards updating my arsenal of 
strategies.

1. LT Stock -- still the basis for my knowing about 15 stocks 
very well. But these stocks will change as new sectors, such as 
biotech, emerge as leaders.

1a. Covered Calls -- I don't like the idea of buying a stock just 
to write a covered call against it. But, I would like to write 
covered calls against my long term stock holdings.

2. LEAPs & Calendar Spreads. Just getting educated about these, 
and I think that they offer a good source of steady cash flow. 
This is definitely a strategy I will employ, particularly as I 
tend to buy LEAPS or longer term options on the most volatile 
stocks.

3. Old Strategy: Straight Calls. New Strategy: Debit Spreads/Bull 
Call Spreads. I am at the point, financially, where I would 
prefer to limit my risk and accept lower returns. I need a means 
to put a greater amount of my total assets into play, and I can't 
see myself doing it with straight calls. As interesting as short 
naked strangles/ straddles appeared at first, this is not 
something I am totally comfortable with. Not on a financial 
level, nor at a personal level.

4. Old Strategy: Naked Puts. New Strategy: Credit Spreads/Bull 
Put Spreads. Again, I have had some initial success with selling 
naked puts in this past month. I actually like the strategy for 
acquiring LT Stock, and will probably use it for that purpose, 
but in very limited amounts. I will never calculate the maximum 
number of puts I could sell and then execute all of them. That is 
just too risky for me to execute as a long term policy. I don't 
ever want to lose my account, and I take it very seriously when 
the option handbooks I consult say that the risk is unlimited. It 
only takes one Oct97 to wipe out a years of gains with this 
strategy, however good the long term prospects for compounding 
look. What I am comfortable doing, however, is selling a put at a 
oversold level of support on a stock, while simultaneously buying 
a lower priced put to create a credit spread. I understand this 
strategy intuitively, having sold puts this last month with 
success. Buying the lower strike put is just a means of insuring 
that a bulldozer never completely flattens me.

Respect Risk. Uneducated but brave soldiers lose to smart bullets 
in every battle. With this in mind, I will be unwinding my short 
naked option positions next week with some care, while 
simultaneously planning to execute some of the spread strategies 
in the March cycle.

Good Luck.

Janar Joseph Wasito
Contact Support


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

An Osmotic Technical Point of View

Do you feel any better?

All righty then. Where to start, hhmm. In looking back at my 
trading for the past several years I must say that I am definitely 
doing much better by far. I guess that if I wasn't I would be 
totally broke and you would not be reading this. Although the 
learning curve is both steep and subtle, a successful traders 
education usually will put an Ivy League education to shame in 
its total cost. If I were to tally up just the trades that I have 
been in that I got out of early we are at 8 figures. Not counting 
the ones that were up and then ended being down. So don't feel bad 
if you blow out a trade a wee bit early. Unfortunately, you are 
going to make mistakes. Part of the education is in seeing your 
money do a Houdini.  The good thing is, it is part of the 
learning process and it is normal. 

Here is just a partial list of plays that I should have kept that 
I remember off the top of my head. 10 contracts YAHOO 2001 120 
calls. 2000 shares of JDSU at 32 before the last split. 500 shares 
of MST 3 splits ago. 1000 shares of TQNT at 42. 500 shares of 
CREE at 38. 200 shares CMGI at $54. 20 contracts of the May 50 
calls of A. 800 shares of HGSI at 52. Plus and untold number of 
calls and puts that are up a ton from where I purchased them and 
I consider myself a fairly good trader. 

My point here is that you are going to make mistakes every once 
in awhile. Especially when you are beginning. The key is to stay 
in the game long enough so that you can get past your mistakes. 
Make sure you don't ever let your losses go past 50% on a play at 
the absolute worst. I prefer 15% or 20% Something that I do that 
seems to work for me is to also sell off 50% of my play at the end 
of the day if I have a double. I get my initial investment back 
and let the profit ride. This kept me in the game early on. How 
many times have you had a double then find out the next day you 
are down a couple bucks? Now I also know that all of the trading 
manuals tell you not to ever put more than 2% of your portfolio 
into one trade. Get real, when I first started out 2% of my 
portfolio was $200. 2% is just not realistic until you are well 
on your way. but, you should break up your portfolio as much as 
you can. So if you only have 10k to start, maybe do 4 trades. Do 
not put it all in one trade! The odds are stacked against you.

Now that I have told you some of downside. There is a wonderful 
flip side to this very shiny coin. If you stick with it, the 
upside can be any number that you set your mind to. If you want 
to make $5,000 a month, $5,000 a week, or $5,000 an hour, there 
is nothing stopping you from doing it. If you apply yourself to 
learning the rules, this game will make you more money than all 
but a few jobs in the world. The only thing it depends on is you. 
The market is truly the largest equal opportunity employer that 
there has ever been. It doesn't care if you have a Masters degree 
or dropped out of high school, how old you are or if you are a man 
or a women or what color skin you have. You need only learn the 
rules and you are hired. 

Do you feel any better? Man, I love being a capitalist, 
stockaholic and all. I hope that all of you reading this were 
fortunate enough to play the TQNT calls that OIN notified you 
about. For those of you who did, you know exactly what I am 
talking about. For those of you who did not, take a look at the 
pick and then go chart it and see what happened. Use a 3 day 
moving average on it. This should be a reminder to all of us. For 
every play that we miss, there are ten more out there to find that 
can make you $100,000 when you find them. And believe me, when you 
do hit your first big one, it is very special. But, just to give 
you fair warning, you are then hooked. Oh, but I can tell you from 
experience, the bait is worth it!

ETEK update. ETEK actually surpassed JDSU in price on Thursday. 
Only 19% more to go.

Happy Trading!
Contact SupportHarrison



**************
BROKERS CORNER
**************

Fear and Greed
By Monty McCutcheon

Outrageously high markets and outrageously low markets and even 
the ones in between require a re-hash of the Ten basic rules. 
Learn them Live them and Prosper.

I have a client up over 1000% since last Jan. I'm beginning to 
hear "we could have made more" type statements. Greed, Greed, 
Greed. We all have it or we wouldn't be in the market to begin 
with. I actually think the greed part of the equation is much 
worse than fear. However, both should be squashed immediately 
when they begin to creep. In the good times investors will get it 
in their head that "it will keep going, let's buy an option 
further out." "Monty, your system works, but this would have 
worked better." That's is all well and fine if we knew 
unequivocally for sure that the market will be higher any given 
month. Greed will always lead to fear, if you let one side of it 
get you, then, without a doubt the other side will get you as 
well. Anytime you feel it creeping in and it affects the things 
that got you where you are, you need to get re-familiarized with 
the "Top Ten Rules". If the market were to gap down it would be 
"should have done this and should have done that". Unless you 
have the things in place to prevent getting walloped in the 
wallet. It's easy to look back, and with a market as powerful as 
this one, hindsight tells us we should have bought a March option 
back in October and we should have broken rules1, 3, 8, 9 and 10. 
Unfortunately, nobody is smart enough to predict that. The very 
reason that there are set rules for option trading is to help the 
investor avoid the pitfalls that so many of us have already 
experienced, THE HARD WAY. They are there to protect as well 
as enhance wealth.

Just as fear should be addressed when markets look terrible, so 
should greed be addressed when everything looks like it can't go 
wrong. I am here to tell you that it can go wrong and it will go 
wrong, it is merely a matter of time. And so being motivated by a 
client letting emotion get the best of him, ( I am sure there are 
many out there) I am urging the OIN readers to take a few minutes 
and review the "Top Ten Rules". They are good ones and should be 
re-addressed from time to time.

I have no doubt that Jim has established these rules through 
trial and error. They work. Use them. Don't deviate from them. 
Commit them to memory. And when you've done that........Do it 
again. Five years from now you will be glad that you did.


Monty McCutcheon
Vice President &
Options Specialist
Fahnestock & Co.
Contact Support



******************
OPTION CLUB UPDATE
******************

Sunday, February 13, 2000

THE OPTION INVESTOR TRADING CLUBS HAVE EXCITING FORUMS AND 
INFORMATIVE SPEAKERS!!! 

 Visit the trading club message boards and see what others have 
to say:

	
http://boards.OptionInvestor.com/tradersclubs/


UPDATE FROM SALT LAKE CITY, UT
*******************************
DATE: THURSDAY, FEB 17, 2000
TIME: 6:00 PM
LOCATION: SANDY SENIOR CENTER, NORTH WEST CORNER 1300 E., 9400 S. 
AGENDA: GUEST SPEAKER, JODY OSBORN, OPTIONS 101, ASST Editor OIN

Jody is a writer for the OIN Newsletter and lives in SLC. He will 
review and go into details of the strategies from Jim Brown's 
article mentioned in the 01\09\00 Sunday newsletter. You can go 
to OptionInvestor.com" and print out the article. If you are 
planning to attend, you might want to read this article and 
subsequent articles so that you will be familiar with the 
strategy and will better understand the presentation. Print a 
copy and bring it with you for reference. We will also have 
another staff member who will review charting technical analysis.

The entrance to the Senior Center is from 1300 East. The building 
is about 1 lot North the NW corner of the intersection and sets 
back a bit.

Hope to see you on Thursday the 17th. We usually hold the 
meetings on the second Thursday, do please note that this is the 
Third Thursday! Also, the March meeting will be on the third 
Thursday - March 16. If you are from an outlying area and wish to 
carpool, please let me know and I'll send you other members email
address.

Carol Mortensen

If you would like to join contact us at Contact Support
and Contact Support



********
MAILBAG
********

Concerning Covered-calls:

Dear OIN:

A question on your covered calls - in Wed summary of covered calls, 
you talk about your in the money calls that generate 5%/month income
- when you sell calls, do you always do it in the money????  Don't 
you get called out a lot then?  What if you want incremental income 
using covered calls but do NOT want to be called out, isn't it safer 
to sell out of the money calls???? 
Also, how do you choose which stocks to write calls on - other than 
on the ones that have 3 red arrows.

I have been getting your newsletter for the past 6 months and am 
very confused about your covered call strategy.

Also, when you put in a stop loss, say when you buy a call, the stop 
loss is based on the share price, not the option price - correct???  
So the stop loss goes into effect when the stock price drops to that 
price - so you sell the stock or are you really selling the option.  
I guess my question is the stop loss is based on the stock price, 
but if the stop loss is met, the stock option gets sold right???

Thanks,

CI


Subj:   Covered-Call Strategies

Since our newsletter is geared towards the short-term, we don't 
concentrate on stock ownership.  We follow a conservative, total 
return concept with our covered write strategy (explained in detail 
in chapter 2 of Lawrence McMillan's, 'Options: As a Strategic 
Investment'). We value downside protection when evaluating a 
potential return and are willing to have the stock called away 
to meet our objectives. We wish to take advantage of overvalued 
premiums which will allow a maximum profit even if the stock 
declines. We target a 5% (10% on margin) monthly return on 
investment, which equates to a 60% yearly return. We view the 
entire position as a "single entity" and are not predominately 
concerned with the results of stock ownership. We value a true 
conservative covered write that offers reduced risk and a good 
probability of making a profit. 

Check out this Sunday's Covered Call section - the narrative may 
answer some of your questions about selling OTM calls. 

As for searches, we combine several propriety searches, 
concentrating on technically healthy stocks in strong sectors 
as well as momentum plays (takeovers, mergers, etc.).  We 
concentrate on finding stocks with overvalued premiums that 
have strong support near the sold strike or cost basis (break-even 
point).  We do a cursory search of recent news but as our aim is 
not stock ownership but consistent monthly returns, we do not 
concentrate on the fundamentals of a company. Technicians tend to 
believe the fundamentals are revealed in the chart anyway.  Again, 
we only provide a list of recommended candidates and fully expect 
our readership to perform their own due diligence before entering 
a position.  

This is predominately the way we trade.  We don't like to lose 
money (very low risk tolerance) and have learned not to fall in 
love with stocks. It isn't glamorous in a strongly bullish 
environment, but withstands corrections quite well and our accounts 
grow, slowly, but consistantly.  For almost two years, over 80% of 
our candidates have been profitable.  We usually stay with stocks 
under $30.00 since the relative yield is higher. 

When you close a covered call position or roll to a new position, 
you must first buy back to "close" the calls on the original 
position.  Then you are free to sell the stock or sell new calls. 
Since you write (sell) the call to open the position, the 
transaction to close the position is a buy order. You will need 
to ask your broker how they handle stop losses for covered writes.
Most do not have the capability since it is a combination order 
(buy back the calls and sell the stock).

Again, McMillan's book is well worth reading and should be 
available at the local library. The educational site at the CBOE 
is very good too:

http://www.cboe.com/education/strategy/eo-2.htm

OIN




****

Strategy Selection: Spreads - Planning For Profit..
By Ray Cummins

The key to success in any form of trading is to have a well-defined 
strategy, a plan of attack.  The options market offers a variety
of different ways to profit but the risk can often be significant.
The easiest way to limit or control the potential for loss is to
devise and follow a specific system or set of rules.  The structure
of this system will require a number of profitable strategies along
with the knowledge to implement and manage them correctly.

The primary requirement for profitable trading is the ability to
achieve reasonable returns and control risk.  A plan without
specific targets and loss-limiting features is certain to fail in
the long-run.  A careful and deliberate approach to strategy
selection is the first step in the process.  After the principal
techniques have been identified, it is imperative to execute them
with precision and discipline.  Discipline in option trading is
the ability to maintain "self-control" and execute the plan.  The
most difficult skill that traders must learn for is the ability to
overcome emotional impulses.  When real money is at stake, the
influences of greed and fear (of loss) will attempt to sway your
judgment, hindering a rational thought process.  If you can not
overcome these effects, the chances of success are slim.  That is
the reason it is so important to utilize strategies that promote
disciplined trading.  Techniques that offer little opportunity for
indecision generally provide more consistent returns and far less
risk than those with a high level of maintenance.

Successful trading strategies have a number of common traits; ease
of execution, flexibility and well-defined principles, but the most
important characteristic for the majority of investors is asset
preservation.  In the options market, the most profitable systems
are those which employ sound defensive measures.  The ability to
protect and conserve portfolio capital, while achieving consistent
returns is a fundamental quality of any technique.  Fortunately,
there are numerous option trading strategies that satisfy this
criteria and our goal at the OIN is to help new investors discover
the most appropriate combination of trading techniques and provide
them with the tools necessary to profit on a regular basis.  With
that concept in mind, we continue our introduction to fundamental
spread strategies.

The majority of option traders use derivatives to speculate on the
movement of stocks and indexes.  The appealing feature of option
ownership is leverage with limited risk.  If a trader correctly
predicts the market direction and takes the appropriate position,
he can expect to make a profit.  Unfortunately, that technique has
a low probability of success.  As you know, even when the market
moves in the predicted direction, owning the correct position
(CALL or PUT) will not necessarily be profitable.  The reason is,
over short periods of time (while the trader is waiting for the
option to rise in value), the position is at risk from a variety
of changes in the market.  One method that experienced traders use
to overcome that problem is spreading.  Spread trading is simply a
way to take advantage of mis-priced options, while at the same time 
reducing the effects of short-term changes in market conditions so
that a position can be held to maturity.

The majority of successful option traders engage in some form
of combination, position or spread trading.  The basic technique
involves buying and selling simultaneous but opposing positions
in different option series.  The most common strategies are used
to reduce the cost (and the risk) of a position while providing
a higher probability of a limited return.  Advanced methods of
spreading rely strictly on pricing disparities.  Experienced
traders know there is an identifiable relationship between
various series of options and when the relationship appears to be
mis-priced, they will buy the under-priced position and sell the
over-priced position.  The spread will profit as the prices of
the instruments return to a linear relationship.

The wonderful thing about option trading is its diversity.  There
are an incredible number of strategies available, one for every
type of market trend, character and outlook.  Positions involving
combinations of calls and puts, with different strike prices and
expiration months, along with index and futures options, offer
the astute trader a variety of ways to participate in the market.
This assortment provides even the most conservative investor the
ability to construct positions with an acceptable level of risk
versus reward in almost any situation.  In addition, students of
option pricing theory can identify combinations with potentially 
superior returns when the relationships between the options are
theoretically skewed.

While there is no perfect position, successful traders learn to
maximize profits and hedge their risk in as many different ways as
possible, limiting the effects of short-term volatility and market
gyrations.  Obviously there is no way to completely eliminate risk
but you can reduce it much more than that of a inexperienced trader
who does not utilize all of the available strategies.

Next week's Topic: Strategy Basics - Diagonal Spreads..

Ray Cummins
Spreads Editor
Click here to email Ray Cummins

****

I would like to introduce Lee Lowell to our OIN readers. Lee
is going to write weekly educational articles for the Options 101
section. I think you will like his style and input. Give him
a read. Jim

****

     Hello everyone.  I'd like to take this opportunity to thank 
Jim Brown for giving me the opportunity to add my own option 
trading articles to this already incredible website.  I've done 
my fair share of surfing the web for reliable options trading 
websites, and I believe OIN is one of the best out there.
 
     I would like to give the readers a little background on 
myself and what I hope to achieve in upcoming articles.  I've 
been an options trader for 8 years now with experience in both 
stock and commodities options.  I've been a trader on the floor 
of the exchanges for 6 of those years with the last two years 
trading full-time from my home.  I believe the opportunities for 
at-home traders like ourselves have come a great distance in just 
the last few years alone.  The amount of information available to 
the home trader now is just staggering and with websites like OI, 
you can really increase your chances for success.  Online trading 
is still just beginning and is poised to become the wave of the 
future.  Online brokerages still need some work in terms of 
options trading availability, but they are making strides.  It is 
in my opinion that pit trading will be phased out over the next 
5-10 years and everyone trading from a PC now is way ahead of the 
game.

     The articles that I will write will mostly consist of  
educational pieces that will include examples.  The focus of my 
articles will be to explain what the determinants of an option 
price are and how to apply them into different options 
strategies.  I will spend a considerable amount of time 
explaining volatility and its different forms.  I believe that 
understanding and knowing how to use volatility is the key to 
becoming a successful options trader.  The types of trades that I 
want to cover include straddles, strangles, debit & credit 
spreads, backspreads, ratio spreads (my favorite), etc.  

     As I get into writing these articles, I hope some of the 
readers will feel free to comment on my pieces and ask any 
questions they might have.  I look forward to this opportunity 
and hope to add to the successes of each trader and to this 
fabulous website as well

Regards,

Lee Lowell 

****

"What's in an option anyway?"
By Lee Lowell

     Welcome to the first installment of my options articles.  

    Today I'd like to begin with a brief review of what makes up 
the price of an option and then focus in on one of the 
ingredients that I believe is the most confusing to beginning 
traders and the most vital in options pricing.  For any advanced 
options traders, please bear with me, as I know this is 
elementary to you.

     The price of an option that trades in the marketplace is 
called the "premium" and is determined by the supply and demand 
of all the market participants.  These participants can include 
you and me, floor traders, mutual funds, insurance companies, 
large speculators, etc.  Most of the options that we trade are 
executed on various options exchanges around the country.   
Participants are influenced by their own reasons why the 
underlying security might go up or down.  These reasons include 
speculation, news stories, rumors, fundamentals, technicals, etc.  
All forces are working against each other until a price is agreed 
upon by buyer and seller.

     An option's premium is made up of 6 different ingredients 
and is calculated using an options pricing model such as the 
"Black-Scholes" version:

1.  Underlying stock price
2.  Strike price of the option
3.  Days to expiration
4.  Volatility
5.  Interest rates
6.  Dividends of the underlying

These 6 components can then be put into 2 groups: 

1. "intrinsic value"
2. "extrinsic value"

  The relationship between the first 2 items in my list above 
make up the "intrinsic value" and the last 4 make up the 
"extrinsic value".  

     An option is said to have "intrinsic value" (true value) 
when its strike price is "in-the-money".  (For any novice 
traders, the "strike price" is the agreed upon price that the 
buyer of the option can buy or sell the underlying security if 
exercised)  For a call to have "intrinsic value" (and be in-the-
money), its strike price is lower than the current stock price,  
and for puts -  its strike price is higher than the current stock 
price.  This is the relationship between the first two items in 
my list above (underlying stock price and strike price of the 
option). 
    
     The "extrinsic value" adds premium to an option's price 
above and beyond its intrinsic value.  The volatility of the 
underlying stock and the amount of time before the option expires 
is what gives it this extra value.  The higher the volatility and 
more time before expiration, the more it will bump up the 
extrinsic portion of the premium.  Although interest rates and 
dividends play a part in options pricing, it is this author's 
opinion that these two components do not affect the price of an 
option enough to warrant extended explanation.  Just know that 
higher interest rates and higher dividend payments will increase 
an option's premium and vice versa.  

Just to sum up:  Intrinsic + Extrinsic = option's premium.  
Here's a fictitious example.

     IBM is trading at $100.  IBM FEB $90 call = $13.
     Intrinsic value (in-the-money value) = $10   (current price 
of IBM -  strike price = $10)
     Extrinsic value = $3  (total option premium  - intrinsic 
value = $3)

     The extrinsic value is what I'd like to focus most of my 
attention on at this point.  All "out-of-the-money" options:  for 
a call - the strike price is above the underlying stock price and  
for the put - its strike price is below the underlying stock 
price, have no real value (no intrinsic value).  So it is said 
that this type of option is only made up of "extrinsic value".  
If you remember, extrinsic value is made up of the "volatility" 
and "time to expiration" components from my list above.  The 
longer the option has until expiration day, the higher its 
premium will be.  This is because the more time an option has, 
the more of a chance it could move into- the-money.  A six-month 
option will have a higher premium than a one-month option.  

      This brings us to the second component of the option's 
"extrinsic value" - volatility.  It is in my opinion that this is 
one of the most important and least understood components of an 
option's price.  This is why I will spend significant time in 
upcoming articles on this issue, and it is volatility that 
becomes the basis for most of my options trading decisions.  

     I will briefly describe the different types of volatility 
here and save a more detailed discussion for the next 
installment.

     There are a few different forms of volatility: 1. 
"historical" (or "statistical"),  2. "forecast", 3. "future" and 
4. "implied" volatility.  In short, historical volatility tells 
us how erratic, or not erratic, a stock has been over some period 
in the past.  It is a mathematical number expressed as a  % that 
describes a stock's movement (up or down) over a certain time 
frame.  In statistical terms, the stock's volatility is also its 
standard deviation.  A stock that has small movements over the 
year will have a very low volatility number, say 20%.  A stock 
with extreme movements can have a volatility of well over 100%.  
Here's an example of what the historical volatility number can 
tell you.  If a stock is priced at $100/share and has a 
volatility of 25%,  then over the next year, this stock should 
trade in a range of $75 - $125 (that's 25% above and below $100).  
This is accurate about 68% of the time for the next year.  
Options traders can look at the 30 day, 60 day, 90 day, 1 year, 5 
year, etc. historical volatilities of the underlying stock to 
give them an idea of how it has moved either up or down over 
those time frames.  Each time frame can result in a slightly 
different picture and I will expand on that in an upcoming 
article.  Historical volatility charts and data are readily 
available at certain websites.

Another form of volatility is called "implied volatility".  This 
is also a number expressed in a % but has to do with the 
volatility of the option itself and not the underlying stock.  
This number is what the market in general believes what the range 
of the stock will be until expiration.  In essence, the market is 
making a prediction of the underlying's "future volatility" (see 
below).  In order to find out what the option's implied 
volatility is, you must plug in the actual price of the option as 
it's trading in the market and run it through your Black-Scholes 
model.  Along with the option's current price, you input the 
other 5 components (stock price, strike price, days to exp., 
interest rates, & dividends) and the model will spit out an 
implied volatility number for you.  In most cases, historical 
volatility and implied volatility will be different.   
     
     The last 2 types of volatility are "future" and "forecast" 
volatility.  Forecast volatility is what each individual trader 
thinks the volatility of the option should be over its time to 
expiration.  It's what we feed into our option-pricing model to 
get a theoretical value.  Future volatility is what every trader 
hopes to know - how the underlying stock will fluctuate until the 
day of the option's expiration.  Since nobody can predict the 
future, our "forecast volatility" has to be guessed upon by using 
past historical volatility patterns.  Just as stock technicians 
look at past price patterns on stock charts to give them an idea 
of how the stock will move in the future, option traders will 
look at past "historical volatility" numbers to make a guess of 
"future volatility".  I know all this sounds a little confusing 
but I will expand on this in upcoming articles and discuss how to 
use all kinds of volatility in your own options trading.  Most of 
the time, historical, implied, future, and forecast volatility 
are not the same and this is what leads to trading opportunities.

     Lastly, "out-of-the-money" options trade a great deal more 
in volume mostly because these options only consist of "time 
value"(extrinsic value).  These cheaper options appeal to most 
consumers not only because they are cheaper in dollar terms but 
because the returns can be extremely dramatic if you can catch a 
big move quickly.  Look at all the traders that bought far out-
of-the-money calls on QCOM in November and December 1999 when it 
was trading at $250/share.  Who would've thought that if you 
bought a QCOM $600 call, ($350 dollars out of the money), that 
you could easily have made hundreds of thousands, even millions 
in a matter of weeks!!  I believe our friend Janar, who also 
writes for this newsletter, had the vision to do just that with 
QCOM.  Congrats.  

     I hope that this piece has given you an idea of the basics 
of an option's premium and I will further explain each item in 
more detail in upcoming articles. 

Good luck,

Lee Lowell     
Contact Support



************************Advertisement*************************
Tired of waiting on trades to execute? 
Does your broker offer Stop Losses on Options?  

Trade instantly with Stop Losses at Preferred Capital Markets
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with Preferred Capital

Anything else is too slow!

http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN
**************************************************************



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


The Option Investor Newsletter          2-13-2000  
Sunday                        3 of 5


LAST WEEKS CHANGE FOR THIS WEEKS PICKS:
***************************************

Daily Results

Index      Last    Week
Dow     10425.21 -538.59
Nasdaq   4395.45  151.21
$OEX      752.04  -23.47
$SPX     1387.12  -37.25
$RUT      537.10   11.58
$TRAN    2436.13 -172.83
$VIX       26.92    3.99

Calls              Week

AMCC      230.03   44.22  Up $72 for the week going into Fri.
INSP      191.31   41.19  Is this just the beginning for INSP?
NTAP      154.94   27.00  Dropped, earnings on Tuesday
ISLD      114.25   26.19  New, evidence of intact momentum
ANAD      124.00   23.97  New, market validates this sector
MUSE      209.50   22.38  Stock splits 2:1 on February 23rd
LHSP       82.00   21.38  New, looking to catch a ride on wave
BEAS      108.00   18.75  Makes it through virtually unscathed
EMLX      123.88   15.88  New, EMLX bucked the trend on Friday
ADIC       68.00    9.63  Incredible relative strength on Fri.
COVD       84.63    8.06  Covad's upward trend still intact
ASPT       67.88    7.88  Momentum is fueling Internet rocket
CLRN      106.25    7.25  Kept the staircase intact on Friday
SNDK      149.06    7.06  SNDK continuing to see profits soar
CUBE       87.19    7.00  One of the strongest in its sector
HYSL       48.88    5.63  New, a hot contender in B2B arena
TXN       137.63    5.63  An incredible move by the Semis!
LLTC      105.50    4.06  One of the most ubiquitous products
ICIX       52.13    2.88  Dropped, earnings on Wednesday
MFNX       80.13    1.81  Dropped, volume tapering off for MFNX
PCMS       18.75   -0.31  New, smaller price with big potential
BCE       118.03   -0.97  Spinning off 95% of its stake in NT
MLNM      212.50   -5.50  Decline just what the doctor ordered?
EBAY      153.38  -14.69  Dropped, fell like a led balloon Fri.

Puts

VERT      213.00  -13.00  Microsoft; once a gift, now a burden
PVN        65.38  -12.94  The real basis for play is technical
PGR        54.00   -6.25  Nobody wants to pick a bottom here!
MMM        82.94   -6.13  MMM was off and running backwards!
CAT        36.00   -5.81  CAT gets dragged across the floor!
KMG        48.13   -5.75  OPEC meeting fuels the fears on KMG
JNJ        77.44   -4.69  New, suffered an intense sell-off
GD         41.44   -4.13  GD still remains under a dark cloud
UAL        52.00   -3.50  Dropped, has UAL landed at a bottom?
KRB        20.81   -2.38  New, plenty of problems for KRB
PG         93.75   -1.00  Dropped, PG may begin to recover


STOCKS ADDED TO THE PICK LIST
*****************************

Calls

HYSL - Hyperion Solutions
EMLX - Emulex Corp. 
PCMS - P-COM Inc 
ISLD - Digital Island 
ANAD - Anadigics 
LHSP - Lernout & Hauspie Speech Products

Puts

KRB  - MBNA Corporation
JNJ - Johnson & Johnson



***************************
PICKS WE DROPPED THIS WEEK
***************************

Remember that historically, when we drop a pick it will go up 
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


CALLS

NTAP $154.94 (+27.00) The rumors were flying on NTAP all
day Friday.  We won't jump into that pit, but here's what we 
know.  NTAP gapped up over $5 at the open, made a new high at
$159.13 and saw a tremendous amount of buying in the last hour
of the day.  NTAP gained 11% on a day when the Nasdaq gave 
back between 2%.  In short, it was the final leg of our earnings 
run kicking into gear, right before our very eyes.  NTAP is 
scheduled to report earnings Tuesday after the close, which is 
why we are dropping it this weekend.  Most analysts are looking 
for NTAP to report $0.12, with some predicting EPS to be as 
high as $0.20.  Dane Lewis, an analyst at Robertson Stephens, 
reiterated his Buy rating on NTAP and raised his 2000 & 2001 EPS 
estimates to $0.40 and $0.58, from $0.39 and $0.54 respectively.  
There very well could be other news coming from the company, but 
right now we will focus on our position and leave the rumors 
in the mill.  NTAP has support at $153 and $148.  Adjust your 
stops according to your risk profile and be sure to close this 
one by the end of business on Tuesday.  

EBAY $153.38 (-14.69) EBAY's share price was holding up pretty 
well amidst the hacker invasion scare this week.  It managed to 
keep a position between the 10-dma and 5-dma on Wednesday and 
Thursday.  This downdraft teased us with possible entry points.  
However Friday there was no breakout through short-term 
resistance at $165.  Instead EBAY fell like a lead balloon on 
strong volume in the afternoon.  It did bounce back off its low 
at $151.75, but couldn't penetrate $156 in a last minute ditch 
to recapture its losses.  EBAY is now positioned just above the 
50-dma ($149.50) and this coupled with the strong descent 
indicates to us the momentum play is over.  

MFNX $80.13 (+1.81) Nothing fundamentally wrong, it's just that 
volume is tapering off, and any moves in the stock price are 
fairly whimsical.  Why's that?  No news or events to drive 
investors into MFNX's stock.  In fact, given MFNX IR's lack of 
direction on their earnings date, we're moving on to more 
predictable plays where there's at least a reason for the move.  
We can no longer find one here.  For those interested, MFNX 
reports earnings in (we swear, this is what IR said) "the third 
or fourth week of March; very little chance of anything in 
February".  They are also a split candidate above $50, but even 
that has an outcome about as predictable as "pin the tail on 
the donkey".  Next!

ICIX $52.13 (-2.88) Because earnings are scheduled to be 
announced on Wednesday, we are cutting ICIX loose from our call 
list.  ICIX has done a nice job for us and we are disappointed 
that this play was cut short.  ICIX demonstrated some nice 
relative strength against Friday's down market and we are still
optimistic about the future of ICIX.  Because ICIX is set to 
announce on Wednesday before the open, be sure to have all of 
your positions closed out by Tuesday.  ICIX is definitely one 
for your radar screens going forward.  Also, don't forget that 
DIGX (a subsidiary of ICIX) is due to start trading options of 
its own on Monday, the 14th.


PUTS

UAL $52.00 (-3.50) On Friday UAL showed strength at the current 
$52 level and this is a bullish sentiment.  In an environment 
where the DOW is dropping fast, it was expected that UAL would 
have lost ground.  Instead it appeared to hit bottom at $51.13. 
Perhaps traders are finally considering this a buy opportunity 
or simply are in "hold mode".  No matter, we're exiting this 
weekend for better profit opportunities.  

PG $93.75 (-1.00) On Thursday, there was certainly a glimmer 
of "more losses to come" as PG broke through its comfortable 
support at $92-$93 and closed at $91.44.  However it now appears 
PG has indeed hit bottom and may begin to recover.  In Friday's 
session as the DOW continued to loose its footing, PG made 
valiant efforts to move higher.  We see this as a clear-cut 
sign that it's time to close up shop and move on to more 
advantageous plays.  




STOCK SPLIT CANDIDATES 
***********************

Current Split Candidates
 
MLNM - Millennium Pharmaceuticals 
AMCC - Applied Micro Circuits Corp. 
TXN  - Texas Instruments
CLRN - Clarent Corporation 
 
Split Candidates that are not current plays
 
IMNX - Immunex
EMC  - EMC Corp
CMVT - Comverse Tech.
NXLK - Nextlink Comm.
 
Recent announcements we predicted
 
CSCO (most recent pick) - Cisco Systems



STOCKS WITH UPCOMING SPLITS 
****************************

We don't list all splits available, only those we 
feel may have play possibilities. 

Symbol - Stock          Splits/Date  
YHOO - Yahoo!           2:1 02-14-00 ex-date 02-15
HRL  - Hormel           2:1 02-15-00 ex-date 02-16
EMMS - Emmis Comm       2:1 02-15-00 ex-date 02-16
EXAR - Exar Corp        3:2 02-15-00 ex-date 02-16
ADCT - ADC Telecom      2:1 02-15-00 ex-date 02-16
DITC - Ditech Comm      2:1 02-16-00 ex-date 02-17
CTXS - Citrix Systems   2:1 02-16-00 ex-date 02-17
ITWO - I2 Tech          2:1 02-17-00 ex-date 02-18
CBXC - Cybex Comp Prod  3:2 02-18-00 ex-date 02-22
PRGN - Peregrine Sys    2:1 02-18-00 ex-date 02-22
CRA  - Celera           2:1 02-18-00 ex-date 02-22
PEB  - PE Bio           2:1 02-18-00 ex-date 02-22
TIBX - Tibco Software   3:1 02-18-00 ex-date 02-22
SNDK - SanDisk          2:1 02-22-00 ex-date 02-23
TQNT - Triquint         2:1 02-22-00 ex-date 02-23
KANA - Kana Corp        2:1 02-22-00 ex-date 02-23
IVX  - IVAX Corp        3:2 02-22-00 ex-date 02-23
SANM - Sanmina Corp     2:1 02-22-00 ex-date 02-23
MUSE - Micromuse        2:1 02-22-00 ex-date 02-23
VIAN - Viant Corp       2:1 02-23-00 ex-date 02-24
USAI - USA Networks     2:1 02-24-00 ex-date 02-25
ESIO - Electro Scient   2:1 02-24-00 ex-date 02-25
EMMS - Emmis Corp       2:1 02-24-00 ex-date 02-25
PXCM - Proxicom         2:1 02-24-00 ex-date 02-25
ITRU - InterTrust       2:1 02-24-00 ex-date 02-25
MGG  - MGM Grand        2:1 02-25-00 ex-date 02-28
SEPR - Sepracor         2:1 02-25-00 ex-date 02-28
GSPN - Globespan        3:1 02-25-00 ex-date 02-28
SILI - Siliconix        3:1 02-28-00 ex-date 02-29
NSOL - Network Solution 2:1 02-28-00 ex-date 02-29
DS   - Dallas Semi      2:1 02-28-00 ex-date 02-29
SDLI - SDL Inc          2:1 02-29-00 ex-date 03-01
GTLL - Global Tech      3:2 02-29-00 ex-date 03-01
TMPW - TMP Worldwide    2:1 02-29-00 ex-date 03-01
WEBT - WebTrends        2:1 02-29-00 ex-date 03-01
ANAD - Anadigics        3:2 02-29-00 ex-date 03-01
MMPT - Modem Media      2:1 03-01-00 ex-date 03-02
ONXS - Onyx Soft        2:1 03-01-00 ex-date 03-02
JMED - Jones Pharma     3:2 03-01-00 ex-date 03-02
WCII - Winstar          3:2 03-02-00 ex-date 03-03
VRTS - Veritas          3:2 03-03-00 ex-date 03-04
XLA  - Xcelera          2:1 03-03-00 ex-date 03-04
SLR  - Solectron        2:1 03-08-00 ex-date 03-09
JDSU - JDS Uniphase     2:1 03-10-00 ex-date 03-13
SDLI - SDL Inc          2:1 03-13-00 ex-date 03-14
BVSN - Broadvision      3:1 03-13-00 ex-date 03-14
LRCX - Lam Research     3:1 03-16-00 ex-date 03-17
SANM - Sanmina          2:1 03-22-00 ex-date 03-23
CSCO - Cisco            2:1 03-22-00 ex-date 03-23
LLTC - Linear Tech      2:1 03-27-00 ex-date 03-28
GE   - General Elec     3:1 04-26-00 shareholder mtg
AXP  - American Exprs   3:1 05-10-00 ex-date 05-11
SNE  - Sony Corp        2:1 05-19-00 ex-date 05-22
AA   - Alcoa            2:1 06-09-00 ex-date 06-12


For a complete list of all the coming splits check out the
"split calendar" on the side of the online edition newsletter
page.



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

With all the great plays each week we can never decide
on just one so take your pick. 


Call plays of the day:
**********************

CLRN - Clarent Corporation $106.25 (+7.25)

See details in sector list

Chart = /charts.asp?symbol=CLRN

****

INSP - InfoSpace.com Inc $191.31 (+41.19)

See details in sector list

Chart = /charts.asp?symbol=INSP

****

ISLD - Digital Island $114.25 (+26.19)

See details in sector list

Chart = /charts.asp?symbol=ISLD


Put play of the day:
********************

PGR - The Progressive Corporation $54.00 (-6.25)(-1.88)

See details in put list

Chart = /charts.asp?symbol=PGR



*************
DEFINITIONS
*************

SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
TP/P= True premium or Time premium
RRR = Risk/Reward/Ratio
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume
MTD = Move to double - amount stock must move to double option 
price in one week. ONE WEEK MOVE ONLY !

Numbers within ( ) are the amount of change for the week.
Numbers within ( ) may be designated with PxW, like P3W, prior 3
weeks

The options with a "*" by the strike price are our choices from the 
group. If the stock moves as expected we feel they have the best 
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5 
Analysts who follow each stock rate it and these rating are 
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell" 

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.

RISKS of SELLING PUTS:
The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the 
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.



***********
CALLS PLAYS
***********
Hardware
********

SNDK - Sandisk Corp. $149.06 (+7.06)(+24.06)

What's in a name?  SNDK provides computer storage sans disk.
The company is a leading provider of flash memory storage
devices - integrated circuits that retain data when power is
off.  The company is involved in all aspects of flash memory
process development, chip design, controller development, and
system-level integration.  SNDK has customized its products 
to address the needs of many emerging applications in the
consumer electronics and industrial/communications markets,
including digital cameras, smart phones, personal digital
assistants (PDA), and MP3 portable music players.

How can you go wrong with a company that makes the lion's share
of those cute little memory cards we put in our digital cameras
and palmtop computers?  With demand for its products increasing
at a furious pace, SNDK is continuing to see its profits soar.
Earnings were a huge upside surprise, but the real excitement
is the 2-for-1 split which occurs on February 22nd.  Investors
should start to show up in droves, driving both volume and price
higher as the date approaches.  We are still waiting for a
convincing break out of our pennant formation, which comes to a
point at $150 within the next 2 days.  So we should see that
breakout soon.  A pullback is always possible, with the skittish
behavior of the broader markets, but it was nice to see the
strong action in SNDK last week.  The chart continues to present
us with higher-lows, making us very happy and providing daily
entry points.  Mild support has now moved up to $147, with
stronger support at $144.  Look for a bounce at either level
or a break through $153 to trigger your entry into this play. 

Dan Niles at Robertson Stephens reiterated his Buy rating
Wednesday and issued a six-month price target of $200.  The
latest product news is over a week old, but worth reiterating.
Sandisk continues to improve its market position, announcing
Thursday that it will supply CompactFlash memory cards for the
new Hewlett Packard PhotoSmart C618 and C912 digital cameras.
Nelson Chan, senior VP for marketing at SNDK said, "HP's
decision to use SanDisk CompactFlash memory cards in its most
advanced digital cameras demonstrates the capability of the
SanDisk CF card to support not only high-resolution image
storage, but also next generation features such as continuous
shooting and audio recording.".

BUY CALL MAR-145 SWQ-CX OI=36 at $22.25 SL=17.25
BUY CALL MAR-150 SWQ-CY OI=69 at $20.00 SL=15.50
BUY CALL MAR-155*SWQ-CZ OI=22 at $17.88 SL=13.75
BUY CALL MAR-160 SWQ-CW OI=30 at $16.13 SL=12.50

SELL PUT FEB-140 SWQ-NH OI=88 at $ 3.00 SL= 4.25
(See risks of selling puts in play legend)

Picked on Feb 03rd at $135.06     P/E = 173
Change since picked    +14.00     52-week high=$156.00
Analysts Ratings    1-4-0-0-0     52-week low =$ 17.00
Last earnings 01/00 est= 0.22     actual= 0.30
Next earnings 04-26 est= 0.28     versus= 0.15
Average Daily Volume =  822 K
/charts/charts.asp?symbol=SNDK

****

EMLX - Emulex Corp. $123.88 (+15.88)

Emulex Corp is a leading developer and supplier of fibre 
channel technology, an ANSI standard communications interface 
that delivers unprecedented bandwidth, connectivity and 
reliability networking applications.  They design three types 
of connectivity products: network access servers, print servers 
and high-speed fibre channel products.  They sell their products 
worldwide to OEM and end users, through other distribution 
channels including value-added resellers, systems integrators 
and others.  

Don't tell shareholders of EMLX that the major indices had a 
rough day Friday.  Right now they don't care, because EMLX 
bucked the trend and finished the day and week with solid gains.
Actually the majority of the shareholders in EMLX are well
aware of Friday's debacle, since over 83% of the company's
outstanding shares are owned by institutions.  That's right
the heavy hitters, are heavily invested in one of our latest 
additions to our play list.  What's behind the latest push in
EMLX?  Besides reporting fantastic earnings late in January,
and being an extremely well run company, EMLX is in the business
of providing storage for data and giving people the ability
to manage and access that data.  Right now companies that do
that, and do it well, are hot.  EMLX has created a great niche
for itself.  Two of its competitors, QLGC and INTC, finished
Friday's session with losses, while EMLX added +6.75 for the 
day.  That in itself speaks well.  EMLX is coming out of its 
post earnings sell-off and has mounted an assault on the $125 
level, which has provided a bit resistance recently.  EMLX 
closed near its high of $124, making the beginning of the week
look more positive too.  As for the technical picture, many 
arrows point higher including MACD and Stochastics.  Support
is at $121 and $117, although we don't believe the latter will 
be tested.  A close above $125 could clear the way for a move 
to $140 area.  
    
Earlier this week, Shannon Reid, a fund manager for Evergreen
Select Strategic Growth Fund, commented on his holdings in 
the technology arena.  Reid said "with the explosion of 
information being passed around the world, it creates a big
opportunity for companies in the business of providing storage".
Reid's favorites in that area included EMLX, EMC and QLGC.

BUY CALL MAR-115 UMQ-CC OI=109 at $22.00 SL=17.00
BUY CALL MAR-120 UMQ-CD OI= 66 at $19.50 SL=15.25
BUY CALL MAR-125 UMQ-CE OI= 34 at $17.25 SL=13.50
BUY CALL MAR-130*UMQ-CF OI=107 at $15.25 SL=12.00

Picked on Feb 13th at $123.88    P/E = 225
Change since picked     +0.00    52-week high=$170.25
Analysts Ratings    3-3-0-1-0    52-week low =$  6.63
Last earnings 01/00  est=0.14    actual=0.23
Next earnings 04-25  est=0.16    versus=0.05
Average Daily Volume =  948 K
/charts/charts.asp?symbol=EMLX


*************
SEMICONDUCTOR
*************

TXN - Texas Instruments $137.63 (+5.63)

How about Semiconductors R Us?  TXN has broad-based exposure
to the semiconductor market, especially in digital signal
processors and analog integrated circuits.  TXN's products are
used in a diverse range of electronic systems, including
digital cell phones, computers, printers, hard disk drives,
networking equipment, and digital cameras.  TXN also supplies
electronic controls equipment, sensors, radio-frequency
identification systems, and sophisticated graphing
calculators.

Is this our entry point?  Seemingly oblivious to the gyrations
of the broader markets for the past week, TXN finally took a
rest as investors cashed in some of their gains.  TXN came
down and tested support at the by-now-familiar $137 level.
The stock looks poised to take the next set of investors higher.
Mild resistance sits at $142, and then at the most recent
52-week high of $145.  This move is being driven by the
incredible strength in the Semiconductor industry (see news
below), along with TXN's leading role in digital signal
processing and analog circuits.  Eighty percent of all digital
cell phones shipped worldwide have TXN semiconductors inside.
With that kind of exposure in a market that is exploding like
wireless telecommunications, it is no wonder TXN shares are
taking off.  Volume on Friday's decline was just about average,
and it was encouraging to see the volume pick up in the last
hour as prices bounced near $137.  Going forward, look for this
level to hold as support as TXN prepares itself for a fresh
assault on the 52-week high.  Volume on TXN is a particularly
good indicator of the strength of an advance or decline; use
it for confirmation before opening any new positions.  

Giles Delfassy, VP of TXN's worldwide wireless communications
business continued to crow about the growth and opportunity in
the wireless market.  Speaking at the Goldman Sachs Technology
Symposium on Thursday, he estimated 60% growth in digital
wireless handsets this year.  According to Delfassey, "The next
step is enabling new features in wireless handsets like
streaming audio, video and mobile e-commerce". Further
strengthening its leadership in analog circuits, TXN introduced
new process technology on Monday that enables 20 times greater
integration of Digital logic with Analog blocks in Broadband
applications

BUY CALL MAR-135 TNZ-CG OI= 780 at $10.75 SL= 8.50
BUY CALL MAR-140*TNZ-CH OI= 394 at $ 8.50 SL= 6.50
BUY CALL MAR-145 TNZ-CI OI= 427 at $ 6.50 SL= 4.75
BUY CALL APR-140 TNZ-DH OI= 174 at $12.50 SL=10.00
BUY CALL APR-145 TNZ-DI OI= 241 at $10.25 SL= 7.75

SELL PUT FEB-135 SWQ-NG OI=1265 at $ 3.00 SL= 4.25
(See risks of selling puts in play legend)

Picked on Feb 8th at    $138.38     P/E = 86
Change since picked       -0.75     52-week high=$145.00
Analysts Ratings    14-14-5-1-0     52-week low =$ 43.00
Last earnings 01/00   est= 0.47     actual= 0.51
Next earnings 04-24   est= 0.51     versus= 0.32
Average Daily Volume = 4.12 mln
/charts/charts.asp?symbol=TXN

****

LLTC - Linear Technology $105.50 (+4.06)(+10.69)

Linear Technology is a manufacturer of high performance linear 
integrated circuits.  LLTC products include operational, 
instrumentation and audio amplifiers; voltage regulators, power 
management devices, DC-DC converters and voltage references; 
communications interface circuits and sample-and-hold devices.
Applications for LLTC's circuits include telecommunications, 
cellular telephones, networking products and satellite systems,
notebook and desk top computers, computer peripherals, 
video/multimedia, automotive electronics and military and 
space systems.

Linear Technology's semiconductor products may be the most 
ubiquitous of the industry.  Their chips are used for a vast 
array of applications.  This fact is perhaps why LLTC has been 
an institutional favorite for many years.  Sure, they do not 
make the sexy cutting edge chips that grab the headlines, they 
just make the chips that everybody needs.  With semiconductor 
stocks becoming the new market leaders, LLTC is a "safe" way to 
capitalize on this trend.  LLTC will be rewarding shareholders 
with a 2-for-1 stock split on March 27th.  Although this split 
is probably too far down the road to make an immediate impact 
on very short-term traders it still, nevertheless, underscores 
management's confidence for stability in the share price of their 
company.  One of the reasons why semiconductor stocks have been 
leading the market is due to a stellar earnings period that saw 
several upside surprises and LLTC was among them.  LLTC posted 
sales up 35% and earnings up 41%.  Perhaps the more significant 
announcement was that LLTC offered guidance that the current 
quarter will also be very strong.  After a nice run which saw 
the stock make new highs six days in a row LLTC has become a 
little more volatile up here.  The big ranges of the past few 
days are indicative of a tug-of-war between profit takers and 
new investors.  We have noticed that LLTC is perhaps best 
purchased on pullbacks as opposed to making purchases on 
breakouts.  We are looking for LLTC to hold above $100 to keep 
the rally alive.  The trading range of the past few days could 
continue for awhile giving intraday traders an opportunity for 
some profits.  Longer term traders may have to be patient and 
watch and see if LLTC has entered a consolidation phase.

Could the next wave for growth in technology be found in the so-
called e-appliance sector?  Merrill Lynch seems to think so and 
LLTC could be one of the biggest beneficiaries of this trend by 
supplying the chips for such products as digital cameras, video 
games, digital set-top boxes and Palm Pilot devices.  Since LLTC 
is trading in these 4-6 point ranges very experienced option 
traders may want to consider selling some of the February time 
value premium on rallies up to short-term resistance against 
their long March calls thereby constructing a bullish calendar 
spread for expiration week.  Please do not attempt to do this if
you do not fully understand the risks inherent in this strategy.

BUY CALL MAR- 95 LLQ-CS OI=114 at $14.75 SL=11.50
BUY CALL MAR-100 LLQ-CT OI=218 at $11.88 SL= 9.25
BUY CALL MAR-105*LLQ-CA OI=184 at $ 9.00 SL= 6.75
BUY CALL MAR-110 LLQ-CB OI=277 at $ 6.88 SL= 5.00

Picked on Feb 1st at    $97.69    P/E = 78
Change since picked      +7.81    52-week high=$111.50
Analysts Ratings    7-10-4-0-0    52-week low =$ 41.75
Last earnings 01/00  est= 0.38    actual= 0.40
Next earnings 04-13  est= 0.41    versus= 0.31
Average Daily Volume = 1.6 mln
/charts/charts.asp?symbol=LLTC

****

AMCC - Applied Micro Circuits Corp. $230.03 (+44.22)(+36.69)

Applied Micro Circuits designs, develops, manufactures and 
markets high-performance, high bandwidth silicon connectivity 
for optical networks.  The company uses high-frequency, mixed-
signal design expertise, higher layer digital content and 
multiple silicon process technologies to offer integrated 
circuit products for the data/telecom markets.  With the 
company's acquisition of Cimaron Communications in March 1999, 
AMCC is positioned to provide industry-leading, fiber-to-switch 
silicon solutions, including framers, mappers, PMD and physical 
layer devices.  Among AMCC's customers are Alcatel, Cisco 
Systems, Juniper Networks, Lucent technologies, Nokia, Nortel 
Networks, Siemens and 3Com.

Up $72 for the week going into Friday, the final 7.5 hours of 
trading weren't pretty, unless you sold into the highs during the 
first 5 minutes of the day.  After that, AMCC was dropped kicked 
for a $28 loss during  trading for the rest of the day.  If there 
was a saving grace, it's that a few buyers appeared late in 
the day and added some volume, thereby keeping AMCC from closing 
at its $221 low of the day.  There is nothing in the news 
that will account for the drop.  However, slightly seasoned 
traders know that trees don't grow to the sky, etc., and AMCC 
was due for a reversal given its 8-day sprint to the top.  
Technically, it isn't as bad as it looks.  AMCC still maintains 
its strong position in the optical bandwidth expansion business.  
While a big part of their revenue (40%) comes from NT, NT is 
the right horse to ride since it is the leader in the optical 
switching business (and growing faster at Lucent's expense).  
Back to those technicals.  Near-term support is at $220, where 
AMCC found support on Wednesday, Thursday, and even Friday.  
Careful though.  Any further market fears could put AMCC back on 
a southerly heading for $210 and $200, followed in $10 increments 
to $140, though we doubt it will get that low since even a 100% 
retracement is $170.  Though not a guarantee, we think 50% to 62% 
is reasonable.  That would range from $215 to $204.  $200 will 
certainly provide a psychological barrier, and $197 is the 10-
dma.  Target shoot to your level of risk tolerance.  With the 
huge time premiums, another strategy to consider is Jim's covered 
straddle, or for the slightly more conservative, the covered 
strangle.  Using a simple margin account, your return could 
easily exceed 50% by March 17 if you are reasonably attentive to 
the price swings.

AMCC is also a split candidate.  They last announced a 2:1 split 
in August when the stock traded at $95, which became effective in 
mid-September at $105.  AMCC is way past that mark, and they have 
enough shares for a 3:1 without further shareholder vote.  
Earnings will not happen again until April 10 (estimate).  Thus 
we could have a long wait unless the BOD gives us a nice 
surprise.  Not that it mattered much this week, but CSFB resumed 
its Strong Buy rating with a $240 price target (it got there), 
while Deutsche Bank upgraded AMCC to a Strong Buy with a $250 
price target (it got there too.).

BUY CALL MAR-220 AEX-CW OI=481 at $35.75 SL=28.00
BUY CALL MAR-230*AZF-CF OI=137 at $32.88 SL=25.50
BUY CALL MAR-240 AZV-CH OI=  4 at $28.63 SL=22.25 low OI
BUY CALL MAY-230 AZV-EF OI= 45 at $48.13 SL=37.50
BUY CALL MAY-240 AZF-EH OI= 15 at $44.38 SL=34.50 low OI

Picked on Feb 5th at    $185.81     P/E = 478
Change since picked      +44.22     52 week high=$261.69
Analysts Ratings      9-3-0-0-0     52 week low =$ 16.88
Last earning 01/00    est= 0.18     actual= 0.21 surprise=12%
Next earning 04-10    est= 0.22     versus= 0.10
Average Daily Volume = 1.28 mln
/charts/charts.asp?symbol=AMCC

****

CUBE - C-Cube Microsystems $87.19 (+7.00)

C-Cube is the industry leader in the development and delivery of 
highly integrated digital video silicon and systems solutions.  
C-Cube's Semiconductor Division delivers digital video silicon 
and systems solutions for the communications and consumer 
electronics markets.  C-Cube's DiviCom Division is a leader in 
the deployment of digital video networks.

In this investment world where Mutual Fund managers need to 
chase each other's picks to stay with the pack and earn their 
market performance pay, you will see a herd mentality.  As more 
and more money chases fewer sectors, leaders emerge and most 
of the rest of the stocks in the market wallow direction-less.  
Since the start of the year we have seen the SOX rally over 200 
points, closing on Friday at 912.20.  We found CUBE as a call 
play by trying to identify the strongest stocks within this 
sector.  C-Cube has also done very well recently because it is 
a leading supplier of chips to the home electronics industry.  
When the economy is booming people like to buy a lot of 
expensive toys.  Also contributing to CUBE's rally was a very 
strong earnings report in January that saw the company beat the 
Street's estimates by three pennies.  Last week saw CUBE stage 
a very nice rally with a close above $90 on Thursday.  We have 
noticed that many stocks seem to stage a rally straight to $100 
and perhaps beyond when they close above $90.  We would like to 
see CUBE recover quickly with a new high to confirm that this 
pattern will be realized.  Unfortunately, the NASDAQ ran into 
some healthy profit-taking on Friday and CUBE was not spared. 
The pullback could prove to be a good entry level for the next 
potential rally.  Be careful.  Breaks in the NASDAQ have been 
very quick, but a bit severe lasting 2-3 days so keep an eye 
on those support levels at $85 and $80. 

Recent analyst commentary has come from H.C. Wainwright which 
saw fit to place a $110 price target for the stock and Robertson 
Stephens which reiterated a buy rating.  Michael Murphy, the 
manager for the market outperforming Monterey New World 
Technology Fund, announced that he has been recently buying 
shares of C-Cube.

BUY CALL MAR-80 UQB-CP OI=201 at $12.25 SL=9.75
BUY CALL MAR-85*UQB-CQ OI=677 at $ 9.25 SL=7.00
BUY CALL MAR-90 UQB-CO OI=127 at $ 6.75 SL=4.75

Picked on Feb 8th at    $85.69    P/E = 71
Change since picked      +1.50    52-week high=$93.88
Analysts Ratings     3-3-1-0-0    52-week low =$17.25
Last earnings 01/00  est= 0.37    actual= 0.40
Next earnings 04-20  est= 0.34    versus= 0.34
Average Daily Volume =   835 K
/charts/charts.asp?symbol=CUBE


******** 
Internet
********

ISLD - Digital Island $114.25 (+26.19)

Digital Island is a leading global e-business delivery network 
company.  They offer hosting, content delivery, network 
management, and support for mission critical applications.  The 
company has regional Data Centers in New York, Santa Clara, 
Honolulu, and London, connecting directly into 21 countries 
with content distribution sites in nine markets worldwide.  Its 
clients are multinational corporations that use the Internet 
for day-to-day business operations.

ISLD is leading edge when it comes to delivering content-on-
demand via multiple Internet devices.  Many broadband experts 
believe their technology is critical to the further development 
and growth of the industry.  Rebounding from depressed levels, 
ISLD shot upwards $23.75, or 26.2% from Monday's close of 
$90.50.  Other stocks in this emerging market of "Enhanced TV 
and Broadband" such as OpenTV (OPTV), Wink Communications 
(WINK), and Liberty Digital (LDIG) also sprung forward this week 
while most of the Internets suffered the crushing wrath of 
security worries.  The extensive upswing by ISLD ultimately 
cracked January 3rd's overhead resistance ($115.25) during 
intraday trading on Friday.  Take a look at a three-month chart 
and notice ISLD had made three previous attempts but failed.  
Therefore it's evident that this momentum is intact and very 
powerful.  Over the past two sessions, short-term support has 
evolved at $108 to $110 and is firmer below the 5-dma ($104.41) 
at the $100 level.  A dip to the latter technical indicator 
followed by a definitive bounce would be a solid entry point; 
although be careful of any pullback below that.  If ISLD takes 
off like a champion racehorse out of the gates on Monday, wait 
until after amateur hour, confirm direction, make the intraday 
volatility your ally, and target shoot for an entry.  Bottom-
line this a pure momentum play.

This week CareerNext.com, a leading career portal that brings 
individuals seeking employment across Asia Pacific together with 
recruiters, and AudioCast.net, a pioneer in streaming media 
technology, both joined Digital Island's growing client list.

BUY CALL MAR-105*SUH-CA OI= 340 at $21.38 SL=16.75
BUY CALL MAR-110 SUH-CB OI=   0 at $19.00 SL=14.75 Just opened
BUY CALL MAR-115 SUH-CC OI=   0 at $16.50 SL=12.75 Just opened
BUY CALL MAY-115 SUH-EC OI=  12 at $24.38 SL=19.00 low OI
BUY CALL MAY-120 SUH-ED OI=1521 at $26.00 SL=20.25

Picked on Feb 13th at   $114.25    P/E = N/A
Change since picked       +0.00    52-week high=$156.94
Analysts Ratings      4-2-0-0-0    52-week low =$  8.66
Last earnings 12/99   est=-0.71    actual=-0.61
Next earnings 05-02   est=-0.77    versus= N/A
Average daily volume = 1.17 mln
/charts/charts.asp?symbol=ISLD

****

CLRN - Clarent Corporation $106.25 (+7.25)

Bent on keeping information moving, CLRN is a leading provider
of scalable Internet protocol (IP) telephony systems which
permit the simultaneous transmission of voice, fax and data
over the Internet.  The Clarent system is built around packet-
switched technology, which breaks information into pieces,
transmits it, and reassembles it at its destination.  This
method makes more efficient use of network bandwidth because
it only takes up space during the actual transmission.  AT&T
accounts for 36% of sales and customers outside the US make
up another 50%.

Keeping the staircase of higher highs and lows intact on Friday,
investors pushed shares of CLRN higher on more than triple the
ADV.  The move that began after strong earnings on January 20th
will be running on higher octane fuel later this week.  The
annual shareholder meeting is on Tuesday, and the agenda calls
for a vote to increase the authorized shares from 50 to 200
million shares.  Does anyone else smell a split coming?  The
old resistance level at $100 now looks like support and a
bounce near this level could provide a nice entry.  Because of
the stair-step pattern of CLRN, we have an easier time picking
entry points.  Currently CLRN is right in the middle of its
up-trending channel, and the logical pullback (to the bottom
of the channel), would put it right at $100.  But we can't 
fail to mention the great support at $105.25 on Friday.  
Resistance comes at the 52-week high at $110.25, and if volume
remains strong, we could be in blue sky territory before you
can say "NASDAQ 5000".  Consider new entries on a return to
support, followed by a bounce.  This is a breakout (momentum)
play, and as such, it requires volume to continue on its ascent.
Of course the specter of a split always makes investors happy.
More aggressive traders may want to open positions on a break
to new highs, but make sure the volume is there.  Use stops to
protect your gains and tighten them if volume starts to dry up.

Speaking to SmartMoney.com Wednesday, COO Rich Hopps
crystallized the company's focus, stating "Voice is, if you
look downstream, the most lucrative application of a converged
voice and data network".  On February 3rd, CLRN and ACT
teleconferencing, a full-service global provider of audio,
video, data and Internet conferencing products and services,
introduced the first-ever full duplex IP telephony
conferencing solution.  The new solution, Action VOIP gives
customers the ability to conduct attended, unattended and
fully automated audio conferences via IP telephony, regardless
of the location of conference participants.

BUY CALL MAR-100 KGQ-CT OI= 23 at $18.88 SL=14.75 low OI
BUY CALL MAR-105 KGQ-CA OI=  2 at $16.50 SL=12.75 low OI
BUY CALL MAR-110*KGQ-CB OI=866 at $14.38 SL=11.50
BUY CALL MAY-105 KGQ-EA OI=100 at $26.75 SL=20.75
BUY CALL MAY-110 KGQ-EB OI= 42 at $23.63 SL=18.50

SELL PUT FEB-100 KGQ-NT OI=  0 at $2.56  SL= 4.00
(See risks of selling puts in play legend)

Picked on Feb 10th at $102.69     P/E = N/A
Change since picked     +3.56     52-week high=$110.25
Analysts Ratings    1-4-0-0-0     52-week low =$ 19.88
Last earnings 01/00 est=-0.10     actual=-0.05
Next earnings 04-20 est=-0.04     versus= N/A
Average Daily Volume =  462 K
/charts/charts.asp?symbol=CLRN

****

INSP - InfoSpace.com Inc $191.31 (+41.19)

InfoSpace.com provides content and commerce solutions for Web 
sites and Internet appliances. Their focus is on content such 
as yellow pages, maps, classified ads, real-time stock quotes, 
sports and other information.  InfoSpace.com has 100+ online 
customers including the likes of American Online and Microsoft.  
Founder and CEO, Naveen Jain, has a 38% stake while Acorn 
Ventures owns 12% of the company.

InfoSpace.com's share price has multiplied by more than 40-fold 
since its $15 IPO in December 1998.  Many analysts believe it's 
just the beginning and predict INSP will rise significantly as 
the demand for cell-phone Web services grows.  Now come on you 
must be thinking, that sounds like a pitch for investors!  
Honestly it's just a bit of background information.  Our play 
takes on a different twist and is short-term.  We've added INSP 
as a pure and simple split run.  On January 31st, the company's 
BoD announced its second 2:1 stock split this year (subject to
shareholders' approval).  A vote to increase authorized shares 
from 200 mln to 900 mln is expected by written consent and if 
all goes according to plan, the stock dividend will be payable 
on March 15th.  Currently there are 48.2 mln shares issued 
following the recent 2:1 stock split on January 4th.  January 
was certainly a busy month for InfoSpace.com!  Just after that 
split, they announced stellar earnings on January 26th.  
Earnings came in at $0.09 shooting past 4Q estimates of $0.00 by 
a First Call consensus.  From that point on traders have lost no 
time driving up the share price over 43% to Friday's new 52-week 
record at $200.44!  Near-term support is first at $190 and $185, 
but the vicinity of $180 just above the 5-dma ($177.93) is more 
solid.  Open Interest did pick up on Friday, which is a good 
sign, but still be cautious about opening new positions.  

Lots of analysts have a positive outlook when it comes to this 
stock.  Merrill Lynch's infamous Internet analyst, Mr. Blodgett, 
has INSP tagged with a Buy rating and both Dain Rauscher 
Wessels and US Bancorp Piper Jaffray have Strong Buy 
recommendations out.  Recently Merrill Lynch also upped their 
price target to $175 and Paine Webber raised their target price 
to $200 from $160.

BUY CALL MAR-185 FHY-CQ OI=  2 at $31.13 SL=24.25 low OI
BUY CALL MAR-190*FHY-CR OI= 10 at $29.38 SL=23.00
BUY CALL MAR-195 FHY-CS OI=  0 at $26.63 SL=20.75 Wait for OI!
BUY CALL MAR-200 FHY-CT OI=103 at $24.63 SL=19.25

Picked on Feb 10th at   $191.50    P/E = N/A
Change since picked       -0.19    52-week high=$200.44
Analysts Ratings      6-3-0-0-0    52-week low =$ 10.00
Last earnings 12/99   est= 0.00    actual= 0.09
Next earnings 05-01   est=-0.12    versus=-0.01
Average Daily Volume = 1.70 mln
/charts/charts.asp?symbol=INSP

****

COVD - Covad Communications $84.63 (+8.06)(+3.38) 

Covad communications is in the high speed Internet business.
The motto at their Web site says "The Internet, the way it 
should be".  COVD has more than 350 qualified ISP partners 
across the U.S. to offer Covad DSL.  They concentrate primarily 
in the metro areas, operating more than 16,700 lines.  They 
have formed strategic alliances with AT&T, Nextlink and Quest.
Operating over existing copper phone lines allows the company 
to offer lower rates and 24 hour connectivity.  Their primary 
competition comes from NorthPoint and Rhythms Netconnections.  

How do you know when the traders are committed to sticking with
their positions?  Volume, is one the keys to determining what's
really going on inside the mind of the trading public.  That's
why we really aren't concerned about COVD's pullback Friday.
COVD gave back $1.75 Friday, on less than half its ADV.  We 
view the retracement as a buying opportunity, assuming the broad
market cooperates.  COVD came within $0.50 of touching its 5-dma
at $82.91 late in the day.  Actually the way COVD traded on 
Friday was very promising.  It did trade lower for most of the 
session, but the decline was slow and gradual, not the "just get 
me out" mentality seen when traders want to dispose of a stock 
at any price.  The upgrade earlier in the week from E*Offering 
and the addition of COVD to Merrill Lynch's competitive local 
exchange carriers(CLECs) list with a Buy rating, seems to have
thrown COVD to the forefront.  Although COVD did explode right
out of the gate Monday morning, the retracement to support at 
$78 and the subsequent bounce late Tuesday and early Wednesday 
is what really provided us with warm fuzzies and the added 
confidence in this play.  One bit of caution before adding any 
new positions in COVD.  We will wait to see the mood of investors
as they return to work next week.  COVD's trend is intact, but 
it can't go it alone.  If Friday's decline at the Nasdaq was 
just a warm up for things to come, then keep your stops close.

In a press release Friday, COVD, announced it would host Vice 
President Al Gore's speech focusing on the technology industry's
impact on the growing American economy.  Vice President Gore's
visit comes on the occasion of the fourth anniversary of the
passage of the Telecommunications Act of 1996, which opened up 
competition in the Telecom marketplace.
 
BUY CALL MAR-75 COU-CO OI=187 at $14.38 SL=11.25
BUY CALL MAR-80 COU-CP OI= 88 at $11.38 SL= 8.75
BUY CALL MAR-85*COU-CQ OI=163 at $ 8.75 SL= 6.75
BUY CALL MAR-90 COU-CR OI=190 at $ 6.88 SL= 5.25

SELL PUT FEB-80 COU-NP OI= 39 at $ 1.38 SL= 2.63
(See risks of selling puts in play legend)
 
Picked on Feb 01st at    $74.00    PE = N/A
Change since picked      +10.63    52-week high=$88.13
Analysts Ratings      6-6-1-0-0    52-week low =$24.83
Last earnings 01/00   est=-0.97    actual=-0.80 
Next earnings 04-25   est=-1.06    versus=-0.56
Average daily volume = 2.27 mln
/charts/charts.asp?symbol=COVD


*********
SOFTWARE
*********

HYSL - Hyperion Solutions $48.88 (+5.63)

The worldwide analytic application software leader, Hyperion 
Solutions Corporation gives today's knowledge workers the 
"freedom to succeed" with software, services and partner 
offerings that help them understand and optimize their 
businesses.  More than 6,000 organizations worldwide use 
Hyperion's analytic application software products, which 
include market-leading packaged analytic applications, and 
OLAP server technology and tools.  In addition, more than 350 
leading data warehousing, OLAP tools, services, ERP, packaged 
application, and platform alliance partners extend the value 
of Hyperion's products and services to deliver maximum 
flexibility and choice to customers.  

Let us begin our play on Hyperion Solutions with a brief 
lesson in Greek mythology.  Hyperion was a Titan, which is 
any of a family of giants born of Uranus and Gaea and ruling 
the earth until overthrown by the Olympian gods.  You take a 
name like that and add it to a company, which is making itself 
well known in the explosive e-business/business-to-business 
arena and how can you possibly go wrong?  In all seriousness, 
HYSL has done a nice job of establishing itself in the B2B 
arena and boasts a rather impressive clientele list, not to 
mention some potentially lucrative partnerships (see a few of 
these referenced in the third paragraph).  Other than the 
obvious being in the right place, i.e., B2B, at the right time 
factor, HYSL looks to have many bullish indications, which have 
landed this play on our call list.  HYSL has been forming what 
looks to be a very nice wedge as it has consistently traded down 
to higher-lows and then steadily moved up to tag higher highs.  
Friday was no exception, as HYSL fought the declining market, 
reached a new 52-week high and managed to only lose pennies for 
the session.  Another favorable factor is the support backing 
HYSL.  It looks to have some immediate support right around $46.  
Hyperion's 5-dma, which is currently at $45.50, has also done 
a nice job of holding throughout February.  HYSL has further 
support at $43 and $40.  Looking ahead, the only formidable 
resistance in the near-term path of Hyperion is the $50 level, 
which can be a bit of a psychological obstacle when approached 
with a lack of momentum.  Also, HYSL was mentioned recently 
in Smart Money magazine as value tech play.  Value tech, huh?  
OK, the more good print the better.  CRM (customer relationship 
management) has been the place to be and HYSL is now getting 
more recognition.  

HYSL has spent the last couple of weeks building up its arsenal
of allies.  Recently,  HYSL has announced partner agreements 
and co-development agreements with such notables as Red Hat 
(RHAT), Purdue University, Regional Economic Research and CAM-I 
to further development and delivery.  HYSL looks to be putting
everything in place to make itself known as one of the titans 
in the B2B world.

BUY CALL MAR-45 WQE-CI OI=37 at $ 8.38 SL=6.25
BUY CALL MAR-50*WQE-CJ OI=14 at $ 5.25 SL=3.50
BUY CALL MAY-45 WQE-EI OI=36 at $11.13 SL=8.75
BUY CALL MAY-50 WQE-EJ OI=27 at $ 8.75 SL=6.50

Picked on Jan 30th at  $48.88     P/E = 69
Change since picked     +0.00     52-week high=$49.25
Analysts Ratings    2-3-5-0-0     52-week low =$ 9.88
Last earnings 01/00 est= 0.20     actual= 0.21
Next earnings 04-24 est= 0.22     versus= 0.08
Average Daily Volume =  598 K
http://OptionInvestor.com/charts/charts.asp?symbol=HYSL

****

ASPT - Aspect Communications $67.88 (+7.88)

Aspect Communications provides customer relationship management 
solutions worldwide.  Their hardware and software enables 
companies consistent interactions with their customers via the 
telephone, Web, electronic mail, and fax.  Clients include 
Daimler Chrysler, E*Trade, ICT Group, Bank United, and 
PacificCare Health Systems.

A recent acquisition announcement initially fired up ASPT on 
February 1st, but it's momentum, momentum, momentum that is 
fueling this Internet rocket.  The acquisition of privately 
held PakNetX Corp is important because the combined technology 
will for the first time allow seamless integration of video, 
voice, conferencing, and Web interactions from a centrally 
managed software switch, thereby eliminating the traditional 
PBX.  As a result of the $55 mln cash deal, Aspect will take a 
one-time charge in the 1Q, but this factor obviously did not 
impact the share price.  Since the announcement ASPT has risen 
upwards of 43%, climbing from the depths of $48 to an impressive 
new high of $69.94 on Friday.  Although it's disappointing to 
note that volume levels have tapered off; and yet, the stock has 
stretched into new territory five out of the past six trading 
sessions!  Near-term support on Friday was at $67 and $68, 
but it's more rooted near the 5-dma ($64.78).  Look to this 
reference point for entries into this HIGH-RISK and potentially 
VOLATILE momentum play.  Keep in mind too that players will 
eventually want to take some chips off the table.

On Friday First Securities came in with a Strong Buy 
recommendation upgrading ASPT's rating from an Accumulate.  Also 
this week Aspect announced the integration of its Aspect Portal 
applications with Clarify, Remedy, and Vantive front-office 
systems.  This "out-of-the-box" solution provides a seamless 
system that can be easily customized to meet a client's need.  
And closer to home, the company appointed two new VP's "to 
strengthen and enhance customer support and consulting 
services".

BUY CALL MAR-60 ATQ-CL OI=256 at $12.63 SL=10.00
BUY CALL MAR-65*ATQ-CM OI=139 at $ 9.88 SL= 7.50
BUY CALL MAR-70 ATQ-CN OI= 11 at $ 7.13 SL= 5.25 low OI

Picked on Feb 8th at     $64.50    P/E = N/A
Change since picked       +3.38    52-week high=$69.94
Analysts Ratings      1-9-1-0-0    52-week low =$ 6.00
Last earnings 12/99   est=-0.03    actual= 0.01
Next earnings 04-14   est= 0.00    versus=-0.27
Average Daily Volume = 1.05 mln
/charts/charts.asp?symbol=ASPT

****

BEAS - BEA Systems $108.00 (+18.75)(+6.56)

Founded in 1995 BEA Systems has become widely known as a 
leading provider of middleware for enterprise applications.
This is largely because of the success of BEA Tuxedo and BEA
WebLogic, which together comprise approximately 46 percent
of the transaction server market.  Amazon.com, FedEx and 
Ericsson use BEA TUXEDO, to process millions of transactions
daily.  BEAS entered the market for application servers, Java-
based software used in developing and integrating e-commerce
and other Internet based applications with BEA WebLogic.  BEAS
provides complete solutions to its customers through a full 
range of services including, developing customer components,
consulting, training and support.

The only thing BEAS suffered from Friday was a real lack of new
buyers.  BEAS made it through the broad market decline, virtually
unscathed, ending the day down just $0.50.  That's a real 
positive in our book and marks the second time this week the
company's stock has held up, with selling going on all around
it.  Actually BEAS did better this second go-around than it did
Wednesday, when traders got up on the wrong side of the bed.
Friday BEAS, begrudgingly traded down to $107, before investors
bid the price back up.  Another check in the plus column for
this play shows that since the Jan 31st, BEAS has shot up over
$32 and still refuses to give way, when presented with 
opportunities to head south.  This doesn't mean BEAS, couldn't
give way to continued outside pressures, but we are very pleased
with it's performance so far.  BEAS broke through the $90 level
and the century mark to make new highs.  $110 is the current
high and the next target for BEAS to surpass.  Earnings for
the BEAS are due to come out Feb 22nd and the expectations
of solid quarterly results should continue to give this play
the push it needs to continue higher.  Note that technically, 
Stochastics, RSI and several other indicators show BEAS to be
getting a bit overdone.  Not that we couldn't see a retracement,
but how many times have you seen a stock travel in over-bought
territory for weeks with very little correction?  Case in point,
the Nasdaq.  We aren't throwing the technicals out, but in this
kind of market, target shoot you entry points off support and
resistance, and set your stops accordingly.  For BEAS those 
points are $108, $106 and $102.

The top news of the week for BEAS had to be the comments made
by Jim Burkart, co-leader of the Kemper Technology Fund.
Burkart stressed the important place that BEAS and similar
smaller companies have in their fund.  Although they own many
of the big names, Burkart said that "bigger is not necessarily
better" stating that BEAS was on his list of favorites.

BUY CALL MAR-100 BUC-CT OI=1874 at $19.75 SL=15.50
BUY CALL MAR-105*BUC-CA OI= 278 at $17.50 SL=13.63
BUY CALL MAR-110 BUC-CB OI=  73 at $14.75 SL=11.50

SELL PUT FEB-100 BUC-NT OI=  81 at $ 2.06 SL= 3.75
(See risks of selling puts in play legend)

Picked on Feb 06th at    $89.25    PE = N/A
Change since picked      +18.75    52-week high=$110.00
Analysts Ratings     10-1-1-0-0    52-week low =$  3.53
Last earnings 11/99   est= 0.05    actual= 0.06 
Next earnings 02-22   est= 0.07    versus=-0.03
Average daily volume = 2.84 mln
/charts/charts.asp?symbol=BEAS



*****************************************
SOFTWARE - CALLS - CONTINUED IN SECTION 4
*****************************************


************************Advertisement*************************
Tired of waiting on trades to execute? 
Does your broker offer Stop Losses on Options?  

Trade instantly with Stop Losses at Preferred Capital Markets
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with Preferred Capital

Anything else is too slow!

http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN
**************************************************************


*******************************
CALLS CONTINUED IN SECTION FOUR
*******************************
SEE DISCLAIMER IN SECTION ONE





The Option Investor Newsletter             2-13-2000  
Sunday                        4 of 5


********************
SOFTWARE - CONTINUED
********************

ADIC - Advanced Digital Information Corp $68.00 (+9.63)(+6.44)

ADIC is a leading global provider in the market to manage and 
protect information for computer networks.  The company has 
over 50,000 automated tape libraries installed and a suite of 
software solutions and Storage Area Networking (SAN) products.  
These products are marketed under ADIC and ADIC/GRAU brands of 
OEM partners including Dell, Exabyte and Unisys.  The company's 
own storage management tools include AMASS, FileServ and 
CentraVision which are software products that provide users 
with shared access to network data.

Some of the biggest investors in new publicly traded companies 
are other more seasoned publicly traded companies.  Companies 
such as Intel and MSFT have utilized this strategy of investing 
in their partners for a long time.  But it is not just a game 
for the "big boys" and that brings us to ADIC.  ADIC has a 
sizable investment in one of the hottest stocks of the past two 
weeks, Crossroads Systems (NASDAQ:CRDS).  Crossroads is a 
storage router manufacturer and these companies, JNPR and CSCO 
to name a couple of others, have been flying due to the reality 
that Internet companies simply can not buy enough new equipment 
to keep up with the demand for their services.  CRDS has risen 
over 100 points in the past seven trading days to close at 
$175.25 on Friday.  The 2.6 million shares that ADIC owns, have 
resulted in an astounding paper profit of over $364 million 
since the October IPO.  We have witnessed in previous Call Plays 
in this section that sometimes it takes the Street a little 
while to get a clue about the value of these types of underlying 
assets.  When they figure it out the shares of the beneficial 
owners can really explode.  Some of this underlying wealth seems 
to have been realized in recent trading days.  After meandering 
for awhile during a pullback from new highs, the share price of 
ADIC has begun to make its next move.  What really impresses us 
is the incredible relative strength in the shares on Friday 
while most of the rest of the technology world suffered profit 
taking.  The new high established, coupled with pretty decent 
volume, indicates to us that ADIC could well be on its way to a 
nice move to the upside.  Look for momentum investors to jump on 
board if the stock can make a move above Friday's newly 
established all-time high of $71.  If ADIC happens to be dragged 
down due to overall weakness in the early Monday, new positions 
established at support levels of $65 and perhaps as low as $62 
could be profitable.  Just remember to get out before the close 
on Wednesday due to earnings. 

ADIC is a fast growing company in its own right.  Recently they 
added new Fibre Channel routers to their suite of Open SAN 
backup Solution packages, making them the first company to build 
support for direct-to-tape, serverless backup within SAN's.  
Earnings are coming out on Wednesday and with a strong quarter a 
possibility, we may get a nice run early next week.  We saw a 
big increase in call option volume towards the end of the week 
which could be indicative of some bets being placed in 
anticipation of a solid earnings report.

BUY CALL MAR-60 QXG-CL OI=283 at $15.75 SL=12.25
BUY CALL MAR-65*QXG-CM OI=125 at $13.50 SL=10.75
BUY CALL MAR-70 QXG-CN OI= 27 at $11.25 SL= 9.00

Picked on Feb 6th at    $58.38    P/E = 86
Change since picked      +9.63    52-week high=$71.00
Analysts Ratings     3-3-0-0-0    52-week low =$ 6.63
Last earnings 12/99  est= 0.22    actual= 0.26
Next earnings 02-16  est= 0.23    versus= 0.13
Average Daily Volume =   420 K
/charts/charts.asp?symbol=ADIC

****

MUSE - Micromuse Inc. $209.50 (+22.38)(+24.25)(-10.06)

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.

The result of having one of the hottest software products on the 
market for managing the systems of some of the fastest growing 
companies in America, ISP's and communications companies, has 
given MUSE a very strong stock price.  Helping to drive 
excitement for the stock is a pending 2-for-1 split with a 
payable date of February 22nd.  Investors are placing their 
money in the stocks of communications software companies because 
they feel that this sector is poised for solid growth due to 
information carriers increasing reliance on software for future 
growth.  Last year MUSE was 21st on Bloomberg's list of the best 
price performers among 1999's publicly traded stocks and it is 
off to a good start to make similar lists this year.  All this 
year we have witnessed that some of the best performing stocks 
are those companies who sell advanced technology products to 
other technology companies.  This symbiosis was recently 
commented upon by the CEO of Micromuse when he said, "The 
explosive growth of the Internet, telecom and cable networks are 
major drivers of our business."  MUSE made a small new high 
almost everyday last week.  This strong stair-stepping pattern 
is encouraging for the possibility of further new highs to come. 
Despite Friday's selloff, MUSE was able to stay comfortably 
above the always important $200 price level.  If the selling 
continues, look for support just above that price as a possible 
entry point for the next move higher.  If $200 does not hold, be 
a little patient and wait for the selling to subside before 
entering any new positions.  The stock could pull all the way 
back to the breakout area of $190 and still be in a solid short 
term uptrend.  

Last week saw another new edition to the ever growing list of 
users of MUSE's Netcool software product.  Genosys Technology 
Management is a global technology company providing network 
operations center services, technology hosting and professional 
services for client's deployed technology assets.  This recent 
addition to the Netcool family is a continuing trend that has 
generated further buying interest in MUSE's stock.

BUY CALL MAR-190 QVM-CR OI= 0 at $38.88 SL=30.38 Wait for OI!
BUY CALL MAR-195 QVM-CS OI= 0 at $35.75 SL=27.88 Wait for OI!
BUY CALL MAR-200*QVM-CT OI=53 at $28.88 SL=22.50
BUY CALL MAR-210 QVM-CB OI=20 at $24.50 SL=19.13

Picked on Jan 27th at  $166.69    P/E = 487
Change since picked     +42.81    52-week high=$220.00
Analysts Ratings     5-6-0-0-0    52-week low =$ 28.13
Last earnings 01/00  est= 0.13    actual= 0.13
Next earnings 04-19  est= 0.14    versus= 0.07
Average Daily Volume =   276 K
/charts/charts.asp?symbol=MUSE



*******
Telecom
*******

ANAD - Anadigics $124 (+23.97)

Anadigics designs and manufactures radio frequency integrated 
circuit (RFIC) solutions for growing broadband and wireless 
communications markets (broadband, cable, fiber optic and PCS).  
The company's innovative high frequency RFICs enable 
manufacturers of communications equipment to enhance overall 
system performance, manufacturing cost, and time to market.  
By utilizing state-of-the-art manufacturing processes for 
its RFICs, ANAD achieves the high-volume, and cost-effective 
products required by leading companies in its targeted high-
growth communications markets.  ANAD was the first GaAs (Gallium 
Arsenide) IC manufacturer to receive ISO 9001 certification.

With wireless broadband, cable, fiber and the need for hardware 
to support it growing by leaps and bounds, the market continues 
to validate this sector as the next great frontier.  So how is 
this important to ANAD?  They make the high frequency radio 
circuitry that makes the transmission possible.  How's business?  
Glad you asked.  They announced a 38% earnings surprise on 
January 28 with the stock trading at about $77.  No post earnings 
depression here.  The issue has zoomed ahead its current price of 
$124 with not even a day of breathing time.  That came to an end 
on Friday and also gave us what may be an entry point.  Though it 
spiked up to $129 during the first five minutes of amateur hour, 
it immediately spiked back down to its low of the day of $116.75.  
From there, the rest of Friday's chart is a thing of beauty with 
a steady ascent all the way back to $124 - this while the rest 
of the market was headed the other way.  Talk about bucking a 
headwind!  With volume as strong as it was at the close, it 
looked like a continuation of Thursday's closing breakout.  ANAD 
has wobbly support at $122, pretty strong support at $117, and 
stronger support yet at $110.  Target shoot to your comfort 
level, or let volume fill the issue to carry it convincingly over 
$125.  Since earnings, pullbacks have been limited to only about 
$5, that may be all the break we get for a good entry.  But a 
correcting technology market (AKA NASDAQ) could make it worse.  
You'll have to make your own judgement call on this one.  Recent 
price gains and lack of OI make these inherently risky.

No we haven't forgotten about the split announced with earnings 
on January 28.  The ratio is 3:2 and is just over two weeks away 
on February 29, with March 1 as the execution date.  With maybe 
a breather or two, we are looking for the split run to continue 
through that date, though maybe not at as strong a pace as in 
the last two weeks.

***Caution - No OI on any strikes listed***

BUY CALL MAR-120 DQA-CD OI=  0 at $17.00 SL=13.25
BUY CALL MAR-125*AUZ-CE OI=  0 at $14.25 SL=11.25
BUY CALL APR-120 DQA-DD OI=  0 at $22.63 SL=17.50
BUY CALL APR-125 AUZ-DE OI=  0 at $20.00 SL=15.50

Picked on Feb 13th at  $124.00     P/E = 478
Change since picked      +0.00     52-week high=$129.38
Analysts Ratings     3-2-1-0-0     52-week low =$ 13.00
Last earnings 01/00  est= 0.16     actual= 0.22 surprise=38%
Next earnings 04-28  est= 0.20     versus= 0.08
Average Daily Volume =   393 K
/charts/charts.asp?symbol=ANAD

****

PCMS - P-COM Inc $18.75 (-0.31)

Their company logo says they are the Leading Supplier of 
telecom distribution equipment and services for end user access
to the World-Wide Network.  The company's products are based on
common system architecture and are designed to carry various 
combinations of voice, data and video traffic and to be easily
configurable based on the needs of its customers.  PCMS contracts
out the majority of its manufacturing, and also provides related
software and networking support.  Most of PCMS's revenues come
from outside the United States.    

If you look at the price of this stock you might wonder why
we've included PCMS in our newsletter.  PMCS made our list
of favorites for several reasons, not the least of which is the
potential profit offered in this play.  PCMS is an inexpensive
stock compared to what we normally put in the newsletter, but
don't let that fool you.  Early in February PMCS broke through
the $16 level which had provided resistance on several different
occasions.  The company had just reported earnings that were
in-line with analysts estimates.  The day after reporting 
earnings, no less than four different brokers either reiterated
or upped their rating on PCMS.  Analysts at CIBC raised their 
12-month price target from $17 to $35.  What are the analysts
seeing in P-Com?  The company's fixed wireless technologies
are gaining increased prominence as a high-speed alternative
to laying cable.  Basically the stock is viewed as broadband
at a discount and has certainly attacked investors attention.
Tuesday PCMS hit a new high at $19.69 and retraced to form an
intraday base at $17.50.  Friday PCMS ended the day with a 
gain of $0.75, which isn't bad considering the profit-taking
seen at the Nasdaq.  Technically PCMS has formed a beautiful
channel since late December and almost double in price since
the first of the year.  How many of the larger cap companies
have doubled in price since the first of the year?  Ok, maybe
a few but you get the idea.  Look for bounces of support at 
$18.25 and $17.50 should we see a retracement before PCMS 
moves higher.

The most recent news on PCMS is the numerous upgrades seen
late in January, but they seem to have drawn investor attention
back to a company that many ignored in the past.

BUY CALL MAR-15 PQP-CC OI= 628 at $5.00 SL=3.25
BUY CALL MAR-20*PQP-CD OI= 589 at $2.13 SL=1.00
BUY CALL MAY-15 PQP-EC OI=1592 at $6.00 SL=4.25
BUY CALL MAY-20 PQP-ED OI= 192 at $4.00 SL=2.50

Picked on Feb 13th at    $18.75    PE = N/A
Change since picked       +0.00    52-week high=$19.69
Analysts Ratings      3-4-3-0-0    52-week low =$ 3.69
Last earnings 01/00   est=-0.10    actual=-0.10 
Next earnings 04-27   est=-0.06    versus=-0.27
Average daily volume = 1.98 mln
/charts/charts.asp?symbol=PCMS

****

BCE - BCE Inc. $118.03 (-0.97)(+20.31)

BCE is Canada's largest communications company.  Through its 
operations in communications services, BCE provides residence 
and business customers in Canada with terrestrial and wireless 
communications products and applications, satellite 
communications and direct-to-home television services, systems 
integration expertise, electronic commerce solutions, Internet 
access and high-speed data services, and directories.  Abroad, 
through Bell Canada International's investee companies, BCE 
provides communications services to more than 6 million 
customers in Asia and Latin America.  BCE also has an extensive 
international presence through its 39% ownership of Nortel 
Networks, a network designer and builder of communications 
networks, as well as through Teleglobe, an international 
telecommunications carrier.  

Before the we get started telling you about the locked up value 
soon to be unlocked by virtue of BCE selling its stake in Nortel 
(NT), we would be remiss if we didn't also note that ugly 
Friday's slide may not be over.  If that's true, don't rush out 
first thing Monday to take a position looking for the immediate 
payoff.  That said, this play is really about unlocking the value 
of BCE's Nortel Networks holdings.  BCE is about to spin off 95% 
of its ownership, or 39% of Nortel as a dividend to BCE 
shareholders.  Here's the math.  BCE has a market cap of about 
$78 bln.  NT has a market cap of about $167 bln.  With a 39% 
interest in NT worth about $65 bln., the market is valuing the 
remainder of BCE at only about $13 bln.  What's troubling is that 
$13 bln in value hasn't changed since last week.  Investors seem 
only willing to bid BCE up in lockstep with NT.  If the market 
thought this would be truly valuable to BCE shareholders after 
the spin-off, they would be tripping over themselves to buy BCE 
now.  They are not.  The big issue seems to be on how the 
distribution will be treated tax-wise - it could be an expensive 
capital gain, something most shareholders don't want.  If BCE can 
solve that issue, the BCE value net of NT could then move up.  
Until then, it will trade in lockstep with NT, maintaining its' 
$13 bln net value.  Thus, we need to keep an eye on NT as a 
guide. (Nothing to worry about here.  In terms of market share, 
they are smoking their competition, and had a great earnings 
report.)

There really isn't any news until we hear of a tax ruling on the 
distribution.  Thus we'll need to watch the technicals closely.  
While RSI, MACD, and momentum are still high, weekly volume fell 
back noticeably this week causing these indicators to show signs 
of rolling over.  Daily volume is still above the ADV, but the 
trend has reversed, which tells us that buying pressure is 
easing.  Target shoot if you like at support levels of $117, $115 
and $113.50 (also the 10-dma), but we suggest you consider 
holding off until the Nasdaq market shakes off the cold and 
causes the technicals to turn positive again.  As always, confirm 
that the market direction is in your favor.

BUY CALL MAR-110 BCE-CB OI=706 at $15.88 SL=12.50
BUY CALL MAR-115*BCE-CC OI=441 at $10.00 SL= 7.50
BUY CALL MAR-120 BCE-CD OI=348 at $ 7.13 SL= 5.25

Picked on Feb 02nd at $109.63     P/E = 21
Change since picked     +8.40     52-week high=$124.56
Analysts Ratings    4-4-0-1-0     52-week low =$ 38.31
Last earnings 01/00  est= N/A     actual= N/A
Next earnings 04-00  est= N/A     versus= N/A
Average Daily Volume =  889 K
/charts/charts.asp?symbol=BCE



*************
Miscellaneous
*************

LHSP - Lernout & Hauspie Speech Products $82.00 (+21.38)

On the cutting edge of interfacing man to his machines, LHSP
is the world's leading provider of speech and language
technology products and services.  Included in the company's
broad array of products and services are the following;
speech recognition for more than 15 languages (another 20
are on the way), digital speech and music compression, language 
translation, text-to-speech, Web-based translations, and
dictation of continuous speech.  LHSP is collaborating with
Microsoft (who owns 7% of LHSP) on its own speech recognition
interface.

Forget E.F. Hutton!  When LHSP speaks, investors listen.
Continuing to drive technology toward the nirvana of reliable
voice communication to computers (large and small), LHSP made
a big step this week.  The company unveiled a handheld device
with the capability to handle continuous speech-to-text
translation (see news below).  Sluggish and unloved for most
of last year, LHSP started catching investor's ears in December.
Making almost no progress last month, February has been a
different story.  Between the positive press, new products and
strong revenues (LHSP beat estimates by 2 cents on Wednesday),
you'd think the stock would be skyrocketing.  You'd be right,
as the price has jumped from under $50 to over $80 in the last
week and a half.  The price was juiced on the 7th, owing to the
successful demonstration of the product described below.  The
prototype was based on the Linux operating system; do you think
that has anything to do with investor excitement for LHSP?  Oh,
and just to make sure the package was complete, the company
announced a 2-for-1 split along with earnings.  The date is not
set, and a shareholder vote will be required, but this company
is definitely on the move.  Remember that nothing moves in a
straight line, and with the huge run-up this week, LHSP may be
due to take a breather.  If it does, we may be presented with
some attractive entry points.  The 5-dma ($78) has provided
support this week, and then we have stronger support at $75
and $71.  Look for a pullback to one of these support levels
to create a good entry point, and then ride the wave into the
future.

At Demo 2000 on Monday, LHSP showcased its ability to move
speech and language technologies beyond the desktop.  The
company demonstrated an industry first; its prototype handheld
device (with a large vocabulary continuous speech dictation
engine) has the ability to easily send and receive e-mail,
surf the Web, and conduct e-commerce transactions.  No big 
deal until you realize everything can be done by voice, rather 
than scribbling or typing on a tiny keyboard.

BUY CALL MAR-80 XQL-CP OI=283 at $ 9.00 SL= 6.75
BUY CALL MAR-85*XQL-CQ OI= 34 at $ 6.88 SL= 5.00
BUY CALL MAR-90 XQL-CR OI=105 at $ 5.38 SL= 3.50
BUY CALL JUN-85 XQL-FQ OI= 45 at $13.25 SL=10.50
BUY CALL JUN-90 XQL-FR OI=323 at $11.50 SL= 9.25

Picked on Feb 12th at  $82.00     P/E = 113
Change since picked     +0.00     52-week high=$84.75
Analysts Ratings    1-1-1-0-0     52-week low =$25.75
Last earnings 02/00 est= 0.20     actual= 0.22
Next earnings 05-10 est= 0.18     versus= 0.12
Average Daily Volume =  747 K
/charts/charts.asp?symbol=LHSP

****

MLNM - Millennium Pharmaceuticals $212.50 (-5.50) 

Millennium Pharmaceuticals is a leading drug discovery and
development company.  They incorporate large-scale genetics,
genomics, high throughput screening and informatics in an 
integrated science and technology platform.  MLNM develops 
treatments and diagnostics for such conditions as obesity, type
II diabetes, asthma and cancer.  They have a number of research
and development alliances with Hoffmann-La Roche, Eli Lilly 
and Bayer.  MLNM also licenses technology to Monsanto for use 
in plant agriculture and human health care. 

Our play in MLNM proved a couple of times this week the theory
of "what's good for the goose, is be good for the gander".
Earlier in the week MLNM broke through the $200 level on news
of the discovery of a family of proteins that eventually could
be beneficial in the treatment of disorders such as anxiety,
depression, ischemia and epilepsy.  Thursday MLNM joined in 
making a new high on the news that CuraGen(CRGN) had made an
important scientific breakthrough, in completing the first 
protein-interaction map for an entire model organism--yeast.
MLNM gained about 5% Thursday proving that what was good for
the goose,(CRGN), wasn't bad for the gander.  Well on Thursday 
after the close, HGSI, one of our recent favorites reported
fourth quarter earnings.  They missed the street estimates by
10%, reporting a bigger loss than had been expected.  Friday
morning the goose theory, kicked in again.  This time however,
what was bad for the goose, proved to be terrible for the gander.
HGSI lost about 4.0% Friday, while MLNM fell over 7.0%.  Believe
it or not, we may be able to profit quite nicely from Friday's
sell-off.  MLNM fell through the $220 level of support all the
way the way to a low of $207.63.  MLNM has strong support at 
$200 which combined with Friday's free fall may provide us with
a great entry point for our play.  We will give MLNM that $200 
support level, but not much after that with abandoning ship.  
MLNM did bounce off $210 late in the day, but we would wait to 
see the mood of traders on Monday, after a weekend of licking 
their wounds before jumping into this play.  Be patient and 
you may be rewarded.

The only other news affecting the price of MLNM this week was
the $100 million IPO filed by Lexicon Genetics.  MLNM has
established collaborative agreements with Lexicon and others
for research and again any funds raised though an IPO could
be beneficial for all concerned.    

BUY CALL MAR-200*QMR-CT OI=35 at $35.75 SL=27.95
BUY CALL MAR-210 QMR-CB OI=91 at $30.63 SL=23.95
BUY CALL MAR-220 QMR-CD OI=13 at $25.88 SL=20.25 low OI

Picked on Feb 10th at  $232.31    PE = N/A
Change since picked     -19.81    52-week high=$237.25
Analysts Ratings     3-3-2-0-0    52-week low =$ 28.00
Last earnings 01/00  est= 0.02    actual= 0.05 
Next earnings 04-25  est=-0.35    versus= 0.05
Average daily volume =   680 K
/charts/charts.asp?symbol=MLNM



**********************
LEAPS by Mark Phillips
**********************

What a ride!  The dichotomy between the major indices provides
some interesting opportunities.  As the DOW rolled downhill,
the VIX marched steadily upwards, closing the week at 26.92.
The utility of this indicator is uncanny, repeatedly calling
out the market tops near 20 and the bottoms near 30.  Speaking 
of bottoms, we hope this is it for LU.  We are concerned with 
our LU play and are putting it on probation this week.  As if 
sitting right on support wasn't bad enough, it is now starting 
to look like the problems at the company may take more than 1-2 
quarters to correct.  Remember, we look to buy LEAPS with a good 
likelihood of growth over the next several months; a company 
with problems doesn't fit that model and a break of $50 will 
be grounds for expulsion.  Keep your eye out for that next 
entry point, especially if the VIX can get into the low 30s.

Current Plays

SYMBOL  SINCE     LEAPS         SYMBOL   PICKED   CURRENT  RETURN

EMC    11/07/99  JAN-2001 $ 80  ZOH-AP   $15.38   $45.75   197.46%
                 JAN-2002 $ 90  WUE-AR   $19.00   $49.75   161.84%
GPS    11/07/99  JAN-2001 $ 40  ZGS-AH   $ 5.75   $15.13   163.13%
                 JAN-2002 $ 45  WGS-AI   $ 7.88   $17.13   117.39%
IBM    11/07/99  JAN-2001 $100  ZIB-AT   $13.63   $28.63   110.05%
                 JAN-2002 $110  WIB-AB   $16.50   $32.38    96.24%
LU     11/14/99  JAN-2001 $ 80  ZEU-AP   $12.88   $ 4.00   -68.94%
                 JAN-2002 $ 90  WEU-AR   $16.13   $ 7.38   -54.25%
CSCO   11/14/99  JAN-2001 $ 80  ZCY-AP   $19.13   $59.38   210.40%
                 JAN-2002 $ 90  WIV-AR   $22.00   $60.25   173.87%
GE     11/21/99  JAN-2001 $150  ZGR-AU   $16.25   $15.38   - 5.35%
                 JAN-2002 $150  WGE-AU   $25.50   $25.50     0.00%
NT     11/28/99  JAN-2001 $ 75  ZOO-AO   $22.25   $54.25   143.82%
                 JAN-2002 $ 75  WNT-AO   $30.25   $63.25   109.09%
VOD    12/05/99  JAN-2001 $ 50  ZAT-AJ   $10.75   $14.75    37.21%
                 JAN-2002 $ 50  WHV-AJ   $15.00   $19.88    32.53%
TXN    12/12/99  JAN-2001 $110  ZTN-AB   $22.25   $43.63    96.09%
                 JAN-2002 $120  WGZ-AD   $28.50   $49.25    72.81%
NXTL   12/19/99  JAN-2001 $ 90  ZFU-AR   $23.50   $48.38   105.87%
                 JAN-2002 $100  WFU-AT   $27.25   $53.63    96.81%
SUNW   12/19/99  JAN-2001 $ 80  ZJX-AP   $17.63   $29.00    64.49%
                 JAN-2002 $ 90  WJX-AR   $22.00   $33.75    53.41%
AOL    12/23/99  JAN-2001 $ 90  ZKS-AR   $20.13   $ 5.00   -75.16%
                 JAN-2002 $100  WAN-AT   $25.63   $ 9.50   -62.93%
LU     01/09/00  JAN-2001 $ 50  ZEU-AJ   $13.63   $13.13   - 3.69%
MOT    01/09/00  JAN-2001 $125  ZMA-AE   $31.13   $46.13    48.19%
                 JAN-2002 $125  WMA-AE   $41.50   $57.75    39.16%
CY     01/16/00  JAN-2001 $ 40  ZSY-AH   $ 9.13   $11.50    25.96% 
                 JAN-2002 $ 40  WSY-AH   $12.63   $16.00    26.68%
ERICY  01/30/00  JAN-2001 $ 65  ZYD-AM   $19.75   $35.13    77.87%
                 JAN-2002 $ 65  WRY-AM   $27.00   $42.50    57.41%
MSFT   01/30/00  JAN-2001 $100  ZMF-AT   $17.63   $19.13     8.51%
                 JAN-2002 $110  WMF-AB   $21.63   $23.00     6.38%
ICIX   02/06/00  JAN-2001 $ 55  ZLJ-AK   $12.00   $14.88    24.00%
                 JAN-2002 $ 55  WLJ-AK   $18.00   $20.38    13.22%
        
To review the play description on any of our current plays, 
go to the LEAPS section for the date the play was added
 

New Plays

Q - Qwest Communications $46.25

Receiving an encouraging upgrade this week, Q looks to be
getting over the hump of concern shown over its pending merger
with Baby Bell US West.  To wit, Eric Strumminger of PaineWebber
said Wednesday he is "no longer concerned about Qwest's ability
to parallel process the US West merger and maintain its growth
rate/competitive positioning in the Internet."  Q continues to
build out their broadband capabilities and will likely be a
formidable player in the market long-term.  Investors seem to
be paying attention as Q moves out to new highs.  Based on the
pattern of higher lows since the first of the month, Q looks to
have mild support near $45.  Much stronger support sits at $43.
A retreat to either of these levels followed by a bounce would
make the best entry.

BUY LEAP JAN-2001 $50.00 ZWK-AJ at $ 5.88
BUY LEAP JAN-2002 $50.00 WWH-AJ at $10.88

/charts.asp?symbol=Q

****

CS - Cabletron Systems $39.00

Clearly coming back to life after a couple dark years, CS has
been moving up nicely over the past 3 months.  To underscore
that the recovery is for real, the company announced Friday
that they would be splitting CS into 4 divisions, which will
be spun off to shareholders within the year.  Following the
announcement, Goldman Sachs upgraded the company to Market
Outperform and shares closed at their highest level since 1997.  
The move to break up the company should unlock more of the 
shareholder value and several analysts value the four pieces 
somewhere north of $50 per share.  Strong support at $28.50 
would provide a gift of an entry point, but is unlikely.
More realistically, look for a pullback to $34-35 to fill 
the gap from Friday's strong move.

BUY LEAP JAN-2001 $30.00 ZLJ-AK at $14.25
BUY LEAP JAN-2002 $30.00 WLJ-AK at $18.25

/charts.asp?symbol=CS

  
Drops

GTW $55.88 A victim of the margin pressures that are affecting
all of the box-makers, GTW continues to move lower.  Although
the company is solid, investors seem to be waking up to the 
fact that paper-thin profit margins are not conducive to a 
continued upward move in price, unless the company is also 
growing market share.  It is not enough to pick LEAPS on a 
stock that is at a low - we need good growth prospects.  Right 
now GTW and the rest of the box-makers are not very attractive 
and we will move on to other plays until the outlook improves.



*****************
PUTS, PUTS, PUTS
*****************

Put plays can be very profitable but have a larger risk than call 
plays. When a stock is falling the entire investment community 
(except the shorts) is hoping it will reverse and start back up. 
The company management is also doing everything they can to shore 
up their stock price. The company issues press releases, brokers 
talk it up, analysts try to put a positive spin on everything. 
Then of course there is the death knell, the "buy recommendation" 
simply because the price has dropped to some level that analysts 
feel attractive again. Buyers who like the stock wait until it 
appears a bottom has been reached and then jump on it in a feeding 
frenzy. They may already have a large position and are averaging 
down. Many factors can stop a free falling stock in mid drop.

****

PGR - The Progressive Corporation $54.00 (-6.25)(-1.88)

In business since 1937, Progressive is one of the nation's 
largest auto insurers.  Progressive offers all types of vehicle 
insurance and property-casualty insurance through 30,000 
independent agencies, the Internet and through affiliate 
programs.  PGR is a holding company for 82 subsidiaries.  PGR 
also has one mutual insurance company affiliate.

Are there any buyers out there?  It certainly does not seem like 
anybody wants to step up to the plate and try and pick a bottom 
on this down trending stock.  The company has succumbed to 
events outside of its control.  First of all PGR reported 
terribly disappointing earnings back in January due to huge 
losses stemming from automobile damage claims as the result of 
Hurricane Irene.  Operating Income was $0.06 vs. $1.38 a year 
ago.  The losses could not come at a worse time when cash would 
be very beneficial to defend against a rising interest rate 
environment.  The Fed wants to slow down the economy.  One of 
the first things to slow down when interest rates rise is the 
purchase of big ticket items such as automobiles.  Fewer 
purchases of higher priced cars means smaller premiums for 
Progressive.  It is a simple story.  Another factor possibly 
affecting the share price of PGR is the markets penchant for 
pounding losers and chasing after winners.  As long as this 
trend continues, PGR could possibly keep going lower.  Strangely, 
Lehman Brothers initiated coverage two weeks ago with a Neutral 
rating, hardly a ringing endorsement.  You could not ask for 
a better looking technical trend than the downsloping chart 
of PGR.  As we suggested last week, buying puts on small rallies 
has proven to be very profitable.  We see no reason why this 
can not continue.  That said, look to keep adding positions as 
long as PGR does not trade above any previous day's high.

BUY PUT MAR-65 PGR-OM OI= 12 at $10.00 SL=7.50 low OI
BUY PUT MAR-60*PGR-OL OI=169 at $ 7.38 SL=5.25
BUY PUT MAR-55 PGR-OK OI=  0 at $ 4.13 SL=2.50 Wait for OI!

Average Daily Volume = 395 K
/charts/charts.asp?symbol=PGR

****

GD - General Dynamics $41.44 (-4.13)

General Dynamics, headquartered in Falls Church, Virginia, 
employs approximately 44,000 people worldwide and has annualized 
sales of about $10 billion.  The company has leading market
positions in shipbuilding and marine systems, amphibious 
and land combat systems, information systems, and business 
aviation.  

GD still remains under a dark cloud.  With another down day and
nothing positive in the forecast it doesn't look good for GD.  
Investors have turned a cold shoulder to the whole defense 
industry.  Even though some companies have maintained earnings 
(like GD) the few key players have not and are pushing down 
the entire sector.  The big sector players are all suffering 
from the same problems.  Rising research-and-development costs, 
shrinking federal defense budgets and difficulty digesting the 
mergers in the industry does not give investors cause to be 
optimistic.  As we've mentioned before, we see that indicated 
in GD's volume day by day.  Support is holding good at $41.50 
as GD really has just dipped in and out if that level for the 
last couple of days.  However Friday's close was under that 
level so on Monday, depending on market conditions, we could 
be past that support level and on our way down.  We might hold 
up again at $40 so watch to see if we get some support there.  
Any bounces off the rebounds would be good entry points.  GD 
has had no major news this week.

BUY PUT MAR-45*GD-0I OI=18 at $4.63 SL=2.50
BUY PUT MAR-40 GD-OH OI= 0 at $1.94 SL=0.88 Wait for OI!

Average Daily Volume = 1.19 mln
/charts/charts.asp?symbol=GD

****

CAT - Caterpillar Inc. $36.00 (-5.81)

Headquartered in Peoria, Ill., Caterpillar is the world's 
largest manufacturer of construction and mining equipment, 
diesel and natural gas engines and industrial gas turbines.  
As one of the Fortune 500, Caterpillar and its dealers sell 
products in nearly 200 countries and sponsor events that 
promote the company's growth-oriented, high-tech strategy.

Investors have the CAT by the tail and no matter how hard it 
tries to dig its claws in, it is getting dragged across the 
floor.  CAT lost over two points in Friday's session, moving 
down to spend a taking the time to stretch out for a bit of a 
"cat nap" across the $35 level.  CAT did make an unimpressive 
late day attempt at move up and made it up to an even $36 to 
end the week.  Volume was over three times the daily average on 
Friday, a solid bearish indication letting us know there are 
plenty of investors looking to leave their shares of CAT by the 
roadside.  Though CAT did find support at the $35 level, we 
don't believe the selling is over yet.  Watch for the negative 
momentum to push CAT through $35.  These brief intraday rallies 
may serve well for target shooting (we won't even attempt a CAT 
play on words with this one) your way into a new entry point.  
CAT looks to have a bit of resistance to conquer at each 
dollar level though the more formidable resistance looks to 
be somewhere in the neighborhood of $41.  On Friday, Caterpillar 
CEO, Glen Barton, announced that CAT had not only changed the 
date but also the location of their upcoming 2000 annual 
shareholders meeting.  The new date is April 12th and the 
location is the company's headquarters location, Chicago, IL.  
Barton went on to explain that the meeting format changes had 
been made because CAT was looking to be more cost effective 
while maintaining effective shareholder communications.  Let us 
translate...We are hurting folks and we are looking to cut any 
corner that we can to ease the pain.  Note: There were no animals 
hurt in any way in the writing of this play.

BUY PUT MAR-40*CAT-OH OI=773 at $5.00 SL=3.25
BUY PUT MAR-35 CAT-OG OI=  0 at $1.88 SL=0.75 Fri.'s vol=283

Average Daily Volume = 1.98 mln
/charts/charts.asp?symbol=CAT

****

KMG - Kerr-McGee Corp. $48.13 (-5.75)

Kerr-McGee Corporation is an Oklahoma City-based company 
engaged in two worldwide businesses.  One is oil and gas 
exploration and the other is production and marketing of 
titanium dioxide pigment.  The company purchased Oryx Energy 
in 1999, making it one of the top US non-integrated oil and 
gas companies.

Though KMG managed to slide through Friday's down market and 
come up with a small gain, we were not at all impressed and 
more than happy to keep a spot open for this oil and gas 
exploration company.  KMG was the recipient of an upgrade from 
Goldman Sachs on Friday.  Goldman Sachs raised KMG from a 
Market Outperform to a Trading Buy (don't you just love these 
ratings they come up with?).  Investors seemed to wrestle 
around with the news, trading KMG across $48.50 for the 
majority of the session before finally deciding that they 
weren't buying the upgrade and weren't buying the stock; 
trading or otherwise.  It seems as though investors are a 
little skittish about the idea of making any kind of commitment 
to an oil exploration company at this point.  As we mentioned 
last week when we initiated this play, KMG is suffering due to 
fears that OPEC may have to alleviate some of the building oil 
price pressures and "dip" into reserves to loosen the supply.  
Who would be hurt the most by the move?  The companies that 
have benefited the most from the surging oil prices, i.e., oil
exploration companies such as KMG.  KMG did manage to dig up 
some support at $48 and $47.75 on Friday, and we are looking 
for a drop below these levels to confirm continuing negative 
momentum.  KMG looks to have resistance overhead at $48.50, 
which is backed with further resistance between $49 and $50.  
Confirm direction before trying to slip into this one. 

BUY PUT MAR-50*KMG-OJ OI=135 at $4.00 SL=2.50
BUY PUT MAR-45 KMG-OI OI= 62 at $2.00 SL=1.00

Average Daily Volume = 699 K
/charts/charts.asp?symbol=KMG

****

VERT - VerticalNet Inc. $213.00 (-13.00)(-40.00)

VerticalNet, Inc. owns and operates 55 industry-specific Web 
sites designed as online business-to-business communities, 
known as vertical trade communities.  These vertical trade 
communities provide users with comprehensive sources of 
information, interaction and e-commerce.  Additionally, 
VerticalNet provides auctions, catalogs, bookstores, career 
services and other e-commerce capabilities horizontally 
across its communities with sites like Industry Deals.com, 
IT CareerHub.com, LabX.com, Professional Store.com.  
VerticalNet's NECX Exchange provides an exchange for the 
electronic components industry.  

Once a gift, now a burden.  When we initiated coverage on VERT, 
we noted that we were looking for VERT to fill the gap which 
was formed as a result of a very good day for VERT.  It was 
on this day that Microsoft (MSFT) announced that it would be 
investing $100 million in VERT for a 2% stake.  If you followed
Friday's market at all, you probably know that Microsoft was 
one of the leaders in Friday's tech market decline.  Obviously, 
VERT felt the pressure on its own not to mention the pressure 
it must have felt as a result of the newly formed ties with the 
software giant, MSFT.  The above referenced gap, which could 
take VERT back to $200, continues to narrow.   Should the rate
fears continue to plague the market, particularly the tech
stocks, VERT could finish the move down to $200.  Dare we hope 
for a little extra?  One point to note was the fact that the 
volume backing Friday's nine and a half point drop, was light, 
about half of the daily average.  We would certainly like to 
see a pickup in this number on the down days to confirm 
negative investor sentiment toward VERT.  Then again, we still 
were the beneficiaries of over a nine-point drop, so we won't 
complain too loudly.  VERT looks to have some resistance at $215 
and $225, so watch for these levels to hold VERT back on any up 
days.  Should these levels hold, they could serve as potential
entry points for new plays.  Should VERT continue right on 
downhill, new entries are still feasible, but be sure to keep 
your stops tight, particularly as we approach our $200 goal.  

BUY PUT MAR-220 ERW-OD OI= 38 at $31.38 SL=24.50
BUY PUT MAR-210*ERW-OB OI= 49 at $24.00 SL=18.75
BUY PUT MAR-200 ERW-OT OI=139 at $20.75 SL=16.25

Average Daily Volume = 1.47 mln
/charts/charts.asp?symbol=VERT

****

PVN - Providian Financial Corp. $65.38 (-12.94)(-5.13)

Providian is a provider of lending and deposit products to 
customers nationwide and also offers credit cards in the United 
Kingdom.  Providian serves a broad market with loan products 
including credit cards, home equity loans, secured cards and 
membership services.  With a commitment to 100% customer 
satisfaction, Providian's mission is to help its customers build 
or rebuild, protect and responsibly use credit by providing a 
quality borrowing experience that leads to active and lasting 
customer relationships (code for "C" grade consumer credit). 
Providian has $23 billion in assets under management and over 
12 million customers.

While rumors of a Federal lawsuit against PVN have so far 
remained unconfirmed by either side, the writing was on the wall 
as early as seven months ago.  Forbes Magazine then noted in a 
published article that there were already four lawsuits filed in 
San Francisco that accuse Providian of charging consumers for 
credit products and services they didn't want, transferring 
balances from other credit cards without customer approval and 
imposing excessive late fees.  Ok, fine.  But the real basis for 
the play has become technical.  As we noted in Thursday's update, 
PVN has violated every moving average ever invented by 
technicians.  PVN had been moving down at such a rapid clip that 
despite a $1 gain on Friday, PVN still could not get over its 3-
dma, let alone its 10, 50, and 200-dma.  We also noted that a 
good entry would be on a bounce south from $65 to $67.  Just our 
luck!  Around 11:00 ET on Friday, PVN topped out at $66.75 before 
moving down for the rest of the day.  We suggest you consider the 
same strategy again.  However, this time we want to keep a closer 
eye on the volume since it tapered back on Friday.  That may be 
a signal that sellers are dwindling, which could have PVN moving 
back up from here on any positive news.  Then again, it may have 
just been a slow Friday.  No matter, we need to watch $67 from 
here.  A move back over $67 with any volume (amateur hour doesn't 
count) would probably be our cue that the play is over.  A bounce 
south of $67 would make a good entry and set PVN up for a test of 
$60.  Just watch the market for overall direction before making 
the play.

BUY PUT MAR-75 PVN-OO OI= 447 at $11.88 SL=9.50
BUY PUT MAR-70*PVN-ON OI=1244 at $ 8.38 SL=6.50
BUY PUT MAR-65 PVN-OM OI=  82 at $ 5.50 SL=3.75

Average Daily Volume = 1.07 mln
/charts/charts.asp?symbol=PVN

****

MMM - Minnesota Mining and Manufacturing $82.94 (-6.13)

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

Go, baby, go!  MMM was off to the races this week - running
the wrong direction, but who cares when you are betting against
them?  Weighing heavily on the shares this week was the
continued divergence between the DOW and the NASDAQ.  As we've
mentioned before, MMM will have a hard time heading up as long
as the DOW is headed lower.  Don't look now, but we are rapidly
approaching the $80-81 support level, and volume is remaining
strong (50% over the ADV on Friday).  With all the other moving
averages left in the dust, the 5-dma ($86.38) is providing
excellent resistance as MMM continues its descent.  New entries
can be considered as MMM rolls over near the 5-dma, but tighten
up your stops as we approach support.  The fundamental picture 
remains bleak also as cyclicals continue suffer from rate fears.  
That is the story most economists are selling, but you also 
have to take into account that no one wants slow growth stocks 
like MMM.  The money is leaving and heading over to the tech 
sector.  Until this phenomenon changes, the Nasdaq is the place 
to be.

BUY PUT MAR-90 MMM-OR OI=710 at $8.88 SL=6.75
BUY PUT MAR-85*MMM-OQ OI=105 at $5.38 SL=3.50

Average Daily Volume = 1.32 mln
/charts/charts.asp?symbol=MMM

****

KRB - MBNA Corporation $20.81 (-2.38)

MBNA Corporation, a bank holding company and parent of MBNA 
America, N.A., a national bank, has $72.3 billion in managed 
loans.  MBNA, the largest independent credit card lender in 
the world, also provides retail deposit, consumer loan, and 
insurance products. 

KRB was able to fight off the Y2K scare, but they've got other
problems to face.  Since mid-January they have been on a steady 
decline.  Investors are not putting their money or trust with 
KRB either as we are seeing above average volume on the point 
drops.  The interest rate concerns have investors leaving in 
droves.  With a bigger problem occurring on Friday, that is 
breaking the old support level that has been in place since 
October of last year.  That doesn't go over too well with 
technicians.  If we pass this level, who know how low we may 
go.  Since KRB is shadowing the Dow, Monday will be a crucial 
day for KRB.  More weakness will spill over to KRB and send it 
heading down.  Next support is at $16-$17.  An aggressive
entry would be any rebounds that KRB tries to make above support.  
A more conservative entry would be to wait and see if the $20 
level is broken and then enter on any rebounds after that.  
The beauty of this play is the low premiums.

BUY PUT MAR-25 KRB-OE OI=822 at $4.38 SL=2.75
BUY PUT MAR-20*KRB-OD OI=291 at $1.25 SL=0.00 

Average Daily Volume = 2.46 mln
/charts/charts.asp?symbol=KRB

****

JNJ - Johnson & Johnson $77.44 (-4.69)

Johnson & Johnson is one of the world's largest and diversified 
makers of healthcare products.  JNJ has three distinct business
segments serving the consumer, professional, and pharmaceutical 
markets.  As a consumer you're probably most familiar with 
their over-the-counter brands like Tylenol, Band-Aids, and 
"no tears" baby shampoo.  But Johnson & Johnson reaches beyond 
that realm and expands all aspects of its product lines through 
acquisitions.  They are truly a healthcare giant.

JNJ has suffered an intense sell-off this week as its sector 
struggles to keep its head above water.  As more time passes, 
it seems the high-flying techs are winning over even the most 
prudent of investors.  The furious flee from such stand-up 
companies like JNJ is daunting, but as traders we can play 
current either way.  For the past three sessions volume has been 
heavy on the descent at almost double the ADV.  This bearish 
sign puts more odds in our favor for a successful put play.  
Wednesday marked JNJ's fall under the 10-dma ($82.06) although 
better confirmation came on Thursday and Friday.  The stock not 
only slipped under the 5-dma ($79.79), but more importantly,  
closed under $78, which appeared to be emerging as a potential 
near-term support level.  Looking at a 52-week calendar, JNJ is 
in the gutter so to speak.  The stock hasn't seen price levels 
this low since 1998.  In summary, the broad negative pressure 
within its sector should continue to drive JNJ even lower, but 
it'd be wise to use trailing stops to protect against money 
coming in off the sidelines.  After hours on Friday, JNJ 
announced it completed its $85 mln merger with Innovasive 
Devices (IDEA), a manufacturer of surgical devices and 
instrumentation.  Innovasive shareholders approved the deal and 
will receive 0.948 shares of JNJ common stock for every share 
of Innovasive stock they own.  JNJ also reported that over the 
next 90 days it will buy back the number of shares used in the 
merger.  In other news JNJ sold off 283K shares of Amylin 
Pharmaceuticals, a drug developing company, between Feb 8th 
and 10th cutting its stake in the company to 4.99%.

BUY PUT MAR-85 JNJ-OQ OI= 698 at $9.38 SL=7.00
BUY PUT MAR-80*JNJ-OP OI=1320 at $5.75 SL=4.00
BUY PUT MAR-75 JNJ-OO OI=1003 at $3.00 SL=1.50

Average Daily Volume = 3.12 mln
/charts/charts.asp?symbol=JNJ


************************Advertisement*************************
Tired of waiting on trades to execute? 
Does your broker offer Stop Losses on Options?  

Trade instantly with Stop Losses at Preferred Capital Markets
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with Preferred Capital

Anything else is too slow!

http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN
**************************************************************



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


The Option Investor Newsletter             2-13-2000  
Sunday                        5 of 5

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

Covered-Calls: Strategies and Techniques...

One of our readers, whose primary interest is stock ownership,
requested an explanation regarding the correct approach for
writing calls on long-term portfolio positions.

The situation:

I have 900 shares of CSCO and have been pondering writing covered
calls against my long position for some time.  I have been hesitant
to do it because I do not want to part with the stock as it has
given excellent returns.  I wanted to see if you could provide a
method/strategy for writing covered calls against this position.

One trader's analysis:

Most investors use covered writing to increase their income over
outright stock ownership; selling deep out-of-the-money (OTM)
positions (time premium) and hoping they expire worthless.  In
most cases, deep OTM calls have the lowest risk of assignment
though they provide little downside protection.  The problem in
the case of CSCO, is deciding which strike to sell.  The key is to
identify a balance between (sold) premium and upside potential.
Obviously, you want to select a strike price that provides a
reasonable return yet is far enough out-of-the-money that it will
most likely expire worthless.  Since CSCO just announced a split
and beat the consensus earnings estimates to boot, this task could
be difficult.

If an investor does not want to lose his stock, he should always
be prepared to buy back the written calls should the stock price
rise above the sold strike.  This means that to even consider
writing calls on a stock you do not want to lose, you must have
the resources to repurchase the calls should the need arise.  In
volatile stocks, which can run up quite quickly in a short time,
the capital expenditure could become quite large, forcing you to
let the stock be called away.

If you decide to write calls on CSCO and the strike you sold moves
in-the-money (ITM), you would buy back the calls when their value
nears parity.  You need not worry about early assignment as long
as there is some time premium left in the call.  However, once the
call trades at parity, or worse, at a discount, the probability of
early assignment rises significantly.  This occurs when the written
calls become deep ITM or are near expiration.  At that point, you
would buy back the written calls to close the position.  You could
then roll forward by selling longer term OTM calls, raising your
profit potential.  Of course, that also increases your exposure to
loss if a technical (trend) reversal should occur.

Some investors will write at-the-money (ATM) calls, which have the
most time value, or the nearest OTM calls, depending on their risk
tolerance.  Essentially, they are trading options against their
stock position, selling time and buying-back parity.  They try to
time short-term tops, writing inflated calls on market strength,
and buying them back a few days (weeks) later on weakness.  They
usually don't wait for the written calls to move to parity, a
momentary deflation in the call option's premium is all that's
needed.  Obviously, this approach is much more aggressive and time
consuming.  The advantage is that you are selling into strength,
when the premiums are most inflated, by call buyers. The primary
disadvantage is readily apparent: If the stock moves up too far and
too fast without a pullback, you could lose it to early assignment.
Using regression channels (read Jim's Options 101 - Entry Points)
and short term oscillators may be helpful in picking entry points.
As they say, nothing goes up in a straight line, but CSCO does have
a history of making strong runs (and don't forget Murphy's Law).

Lawrence McMillan discusses the covered write strategy at length in
chapter II of his book, "Options: As a Strategic Investment."  The
book should be available at your local library and is well worth
reading.

Next week (as previously promised): A Review Of Candlesticks..


SUMMARY OF PREVIOUS PICKS

NOTE: Using Margin doubles the listed Monthly Return! 

Stock  Price  Last   Call  Strike Price   Profit  Monthly
Symbol Picked Price  Month Sold   Picked  /Loss   Return

CYOE    5.50   7.81   FEB   5.00   1.44  *$  0.94  21.3%
TERA    4.41   7.50   FEB   5.00   0.50  *$  1.09  20.2%
WAVX   13.94  19.06   FEB  12.50   2.00  *$  0.56  10.2%
MCRE   11.88  13.38   FEB  10.00   2.50  *$  0.62   9.6%
WDC     5.50   4.94   FEB   5.00   1.13   $  0.57   9.4%
GMGC    6.84   9.88   FEB   5.00   2.38  *$  0.54   8.8%
GMGC    7.50   9.88   FEB   5.00   2.88  *$  0.38   7.6%
MESG   17.31  18.00   FEB  15.00   3.25  *$  0.94   7.3%
ESPI    9.22  10.56   FEB   7.50   2.19  *$  0.47   7.3%
CCCG   16.88  26.38   FEB  15.00   2.56  *$  0.68   6.9%
CCUR   18.38  17.00   FEB  15.00   4.38  *$  1.00   6.6%
KELL    8.81   7.44   FEB   7.50   1.69   $  0.32   6.5%
ESPI   11.06  10.56   FEB   7.50   3.88  *$  0.32   6.5%
JDAS   22.69  21.56   FEB  20.00   3.25  *$  0.56   6.3%
VLNC   34.56  34.63   FEB  25.00  10.25  *$  0.69   6.2%
BRKT   25.75  35.75   FEB  22.50   4.13  *$  0.88   5.9%
ASFT   21.50  20.63   FEB  15.00   7.38  *$  0.88   5.7%
VTS    17.75  18.38   FEB  15.00   3.50  *$  0.75   5.7%
PRST   19.63  24.81   FEB  17.50   2.75  *$  0.62   5.3%
NZRO   35.00  29.38   FEB  25.00  10.88  *$  0.88   5.3%
VOYN   13.06  11.88   FEB  10.00   3.50  *$  0.44   5.0%
HRC     5.81   5.31   FEB   5.00   1.13  *$  0.32   5.0%
EAII   14.25  13.00   FEB  10.00   4.75  *$  0.50   4.9%
MUEI   12.75  10.56   FEB  10.00   3.25  *$  0.50   4.9%
CORL   22.13  17.50   FEB  15.00   7.75  *$  0.62   4.7%
DBCC    9.19  11.13   FEB   7.50   2.00  *$  0.31   4.7%
MSGI   19.13  24.88   FEB  15.00   4.75  *$  0.62   4.7%
PCMS   10.06  18.75   FEB   7.50   3.00  *$  0.44   4.5%
HMK     9.88   8.31   FEB   7.50   2.81  *$  0.43   4.4%
XICO   22.56  19.25   FEB  17.50   5.75  *$  0.69   3.8%
IFCI   10.13  16.25   FEB   7.50   3.00  *$  0.37   3.8%
ERTH    6.03   4.53   FEB   5.00   1.38   $ -0.12   0.0%

FSII   17.81  18.88   MAR  15.00   4.25  *$  1.44   7.7%
UBET    6.25   5.81   MAR   5.00   1.63  *$  0.38   6.0%
MCRE   15.50  13.38   MAR  12.50   3.88  *$  0.88   5.5%
SIII   15.00  15.94   MAR  12.50   3.38  *$  0.88   5.5%
GELX   17.81  20.31   MAR  15.00   3.75  *$  0.94   3.6%

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

Comments: 

Geltex Pharma (GELX) choose to rally the week we rolled down
to the MAR-$15 call. Better safe than sorry! Western Digital
(WDC) appears to be headed lower. Concurrent (CCUR) broke below
its 50 dma and should be monitored closely. Kellstrom (KELL) is 
reacting negatively to the resignation of its CFO and has moved
to a new low. Earthshell (ERTH) is testing its recent lows but
hopefully it will get a boost from earnings this week. Several
stocks appear ready to move up again, market permitting.

Closed: 

Gst Telecom (GSTX) - closed below $8 - time to move on.


NEW PICKS
*********

Sequenced by Company

Stock  Last  Call  Strike Option  Last Open Cost  Return Return
Symbol Price Month Price  Symbol  Bid  Intr Basis Called Unchanged

AND     8.88  MAR   7.50  AND CU  1.94  654  6.94  8.1%   8.1%
EPIC    9.56  MAR   7.50  PQS CU  2.50  175  7.06  6.2%   6.2%
GZTC   29.13  MAR  22.50  GEQ CX  8.38  113 20.75  8.4%   8.4%
MSGI   24.88  MAR  20.00  UMS CD  6.00  95  18.88  5.9%   5.9%
PTEK    8.94  MAR   7.50  TQO CU  2.13  485  6.81 10.1%  10.1%
RNBO   30.88  MAR  25.00  BQO CE  7.00  14  23.88  4.7%   4.7%
SCTC   22.31  MAR  20.00  YQS CD  3.75  51  18.56  7.8%   7.8%


Sequenced by Return Called (& Not Called)

Stock  Last  Call  Strike Option  Last Open Cost  Return Return
Symbol Price Month Price  Symbol  Bid  Intr Basis Called Unchanged

PTEK    8.94  MAR   7.50  TQO CU  2.13  485  6.81 10.1%  10.1%
GZTC   29.13  MAR  22.50  GEQ CX  8.38  113 20.75  8.4%   8.4%
AND     8.88  MAR   7.50  AND CU  1.94  654  6.94  8.1%   8.1%
SCTC   22.31  MAR  20.00  YQS CD  3.75  51  18.56  7.8%   7.8%
EPIC    9.56  MAR   7.50  PQS CU  2.50  175  7.06  6.2%   6.2%
MSGI   24.88  MAR  20.00  UMS CD  6.00  95  18.88  5.9%   5.9%
RNBO   30.88  MAR  25.00  BQO CE  7.00  14  23.88  4.7%   4.7%


Company Descriptions:

OI  - Open Interest
CB  - Cost Basis or break-even point
RC  - Return Called
RNC - Return Not Called (Stock unchanged)

****

AND - Andrea Electronics $8.88   *** New Strength? ***

Andrea designs, develops and manufactures audio technologies and 
equipment for enhancing applications that require high performance
and high quality voice input. The Company's has several patented 
and Patent-pending audio products that enhance a wide range of 
audio products to eliminate background noise and ensure the optimum
performance of voice applications. Though revenues were lower for 
the fourth quarter, Andrea has expanded its technology portfolio 
and strategic alliances, most recently with Voyetra Turtle Beach.
A BUY rating this week and improving technicals suggest Andrea is
ready to move out of its stage I base.  

MAR 7.50 AND CU Bid=1.94 OI=654 CB=6.94 RC=8.1% RNC=8.1%

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

****

EPIC - Epicor $9.56   *** Still Climbing! ***

Epicor is an enterprise software supplier focused exclusively on
the real-world requirements of mid-market companies. The company
delivers business performance solutions including Front Office, 
Back Office and eBusiness capabilities, that enable companies to
automate on their own terms and outperform their competition by 
capitalizing on customer relationships. Investors appear pleased
by Epicor's aggressive reorganization and cost-cutting measures
to position itself for success in 2000. The recent spike in price
occurred when a fund manager mentioned Epicor on CNBC. With the
technical picture improving, we will take advantage of inflated
premiums providing a cost basis near support.

MAR 7.50 PQS CU Bid=2.50 OI=175 CB=7.06 RC=6.2% RNC=6.2%

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

****

GZTC - Genzyme Transgenics $29.13   *** Favorable results! ***

Genzyme Transgenics is a leader in the application of transgenic 
technology to the development and production of monoclonal 
antibodies and other recombinant proteins for therapeutic and 
biomedical uses. To date, the Company has formed more than a 
dozen collaboration agreements which provide for transgenic 
production of targeted proteins. Genzyme's stock jumped in January
after the company announced (successful) results of their phase
III trial evaluating the ability of transgenically produced 
recombinant human antithrombin III (rhATIII). An ensuing pact 
with Alexion Pharmaceuticals, a BUY rating from Warburg Dillon
Read, and a successful public offering have all driven the
stock higher. We favor a conservative entry point near the 30
dma on a fast moving issue. Research thoroughly!

MAR 22.50 GEQ CX Bid=8.38 OI=113 CB=20.75 RC=8.4% RNC=8.4%

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

****

MSGI - Marketing Services $24.88   *** Earnings Run! ***

Marketing Services is organized into two business divisions:
The Internet Group and The Direct Group. The Internet Group's 
mission is to acquire, invest in and incubate Internet companies. 
The Direct Group provides strategic planning, direct marketing, 
database marketing, telemarketing, telefundraising, media planning 
and buying. MSGi's revenues have grown from $16 million in fiscal
1996 to in excess of $100 million on an annualized basis. GE and 
CMGI both have positions in MSGI and we wouldn't mind owning the
issue near the four-month consolidation area. Earnings are due
this week.

MAR 20.00 UMS CD Bid=6.00 OI=95 CB=18.88 RC=5.9% RNC=5.9%

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

****

PTEK - Premiere Technologies $8.94   *** Break Out? ***

Premiere Tech is a holding company of leading Internet-based and 
telephony-based B2B service providers. Its operating companies 
include Premiere Conferencing, Premiere Document Distribution, 
and Premiere Messaging. The Company's PTEKVentures.com investment
arm has ownership interests in Healtheon/WebMD(HLTH), S1 (SONE), 
USA.NET, Webforia, and Derivion. Premiere Tech has continued to
pay off debt; sign new agreements; received a favorable ruling
in a lawsuit; and recently announced its fourth quarter will beat 
analysts' estimates. The technicals are strong and the recent 
breakout above its stage one base appears promising.

MAR 7.50 TQO CU Bid=2.13 OI=485 CB=6.81 RC=10.1% RNC=10.1%

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

****

RNBO - Rainbow Technologies $30.88  *** Web Security ***

Rainbow Technologies develops and supplies computer network
security products that secure the rights to software and other
digital content, and that provide privacy and security for
computer network and Internet communications and commerce. Their
products are designed for anti-piracy, license management and
tracking and software distribution over the Internet. They also
provide Internet security products computer transaction servers
engaged in Internet commerce, electronic brokerage and financial
services, and encrypted processing and acceleration for original
manufacturers of routers and switching equipment. A great company
in a hot sector with a bullish chart pattern. Very conservative!

MAR 25.00 BQO CE Bid=7.00 OI=14 CB=23.88 RC=4.7% RNC=4.7%

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

****

SCTC - Systems & Computer Tech  $22.31   *** Hot B2B Sector ***

Systems & Computer Technology develops, licenses and supports a 
suite of client/server, enterprise software and provides a range
of information technology services, including outsourcing, systems
implementation, systems integration and maintenance/enhancements. 
The Company offers information technology solutions ranging from
application software to large-scale outsourcing contracts. SCT 
claims its fourth quarter was impacted by business delays due to
industry Y2K concerns and investors appear to agree. The stock
closed at a 52-week high and appears ready to run for a new all
time high. As the issue is overextended in the near term, we
favor a cost basis at technical support.

MAR 20.00 YQS CD Bid=3.75 OI=51 CB=18.56 RC=7.8% RNC=7.8%

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


*************************
NAKED PUT PERCENTAGE LIST
*************************

This is strictly a list of possible naked put candidates 
which have the highest put premiums but are still an
up trending stock. We make no representations about the
safety or suitability of these plays. You should look
at a chart on each symbol and decide which strike price
you would be comfortable selling. Everyone has a different
risk profile. These stocks fit my profile.

Jim

This list is available as a download in Excel format.
Simply click on this link and save to your computer.

http://www.OptionInvestor.com/downloads/hpfeb-14.xls


Stock  Stock Strike  Option OptionMargin Percent Comment
Symbol Price  Price  Symbol Price At 25%  Return

AFCI    52.44  45    AQF-0I   4.50  13.11  34%   LOW MARGIN
AFCI    52.44  50    AQF-OJ   6.88  13.11  52%   LOW MARGIN
AFFX   259.75  240   FUE-OH  19.25  64.94  30%
AMAT   164.94  160   ANC-OL  10.63  41.24  26%
AMCC   230.00  210   AEX-OV  20.63  57.50  36%
APNT    64.50  55    UAP-OK   5.50  16.13  34%   LOW MARGIN
APNT    64.50  60    UAP-OL   7.75  16.13  48%   LOW MARGIN
ARBA   212.13  190   IUR-OR  12.13  53.03  23%
ARBA   212.13  200   IUR-OT  15.38  53.03  29%
BEAS   108.00  100   BUC-OT  10.13  27.00  38%
BVSN   172.13  160   BZV-OL  16.00  43.03  37%
BVSN   172.13  165   BZV-OM  18.50  43.03  43%
CKFR    73.50  65    FCQ-OM   5.38  18.38  29%   LOW MARGIN
CKFR    73.50  70    FCQ-NN   6.13  18.38  33%   Feb
CKFR    73.50  70    FCQ-ON  10.13  18.38  55%   LOW MARGIN
CLRN   106.25  100   KGQ-OT  11.63  26.56  44%
CNCX    47.69  45    QXF-OI   2.56  11.92  21%   NXLK BUY@45
COVD    84.63  80    COU-OP   5.38  21.16  25%
CRA    251.06  240   CZA-NH   8.75  62.77  14%   FEB
CRA    251.06  240   CZA-OH  25.38  62.77  40%
CTXS   175.81  170   XWW-ON  14.25  43.95  32%
DITC   170.00  155   DUI-OK  17.50  42.50  41%
EMLX   123.88  110   UMQ-OB   9.13  30.97  29%
EMLX   123.88  120   UMQ-ND   7.13  30.97  23%   FEB
EMLX   123.88  120   UMQ-OD  14.25  30.97  46%
ENMD    48.56  40    QMA-OH   3.63  12.14  30%   LOW MARGIN
ENMD    48.56  45    QMA-OI   5.75  12.14  47%   LOW MARGIN
ETEK   201.75  195   FNY-OS  16.50  50.44  33%   JDSU BUYING
FFIV    98.38  90    FQL-OR   8.75  24.60  36%
HLIT   123.00  120   LQL-ND   4.00  30.75  13%   FEB
HLIT   123.00  120   LQL-OD  11.50  30.75  37%
INSP   191.25  170   FHY-ON  14.38  47.81  30%
INSP   191.25  180   FHY-OP  21.00  47.81  44%
ISLD   114.75  105   SUH-OA  13.63  28.69  48%
ISLD   114.75  110   SUH-NB   4.00  28.69  14%   FEB
ITWO   239.88  220   QYJ-OD  20.13  59.97  34%
JNPR   216.00  200   JUY-OT  17.38  54.00  32%
JNPR   216.00  210   JUY-NB   9.50  54.00  18%   FEB
JNPR   216.00  210   JUY-OB  22.00  54.00  41%
LDIG    58.00  50    DUL-OJ   4.63  14.50  32%   LOW MARGIN
LRCX   140.19  135   MLC-NG   3.38  35.05  10%   FEB
LRCX   140.19  135   MLC-OG  12.63  35.05  36%
MCOM    97.50  95    MQM-OS  10.13  24.38  42%
MLNM   212.94  200   QMR-OT  15.63  53.24  29%
MRVC    79.56  70    VQX-ON   6.50  19.89  33%   LOW MARGIN
MRVC    79.56  75    VQX-OO   8.25  19.89  41%   LOW MARGIN
MUSE   209.50  200   QVM-OT  16.88  52.38  32%
NPIX    72.44  65    XMQ-OM   5.63  18.11  31%   LOW MARGIN
NPIX    72.44  70    XMQ-ON   8.00  18.11  44%   LOW MARGIN
NXTV   119.31  110   NUX-OB   8.50  29.83  28%
RBAK   215.50  200   BUK-OT  12.50  53.88  23%
RBAK   215.50  210   BUK-NB   5.13  53.88  10%   FEB
RBAK   215.50  210   BUK-OB  14.25  53.88  26%
RNWK   177.63  170   RNO-NN   4.88  44.41  11%   FEB
RNWK   177.63  170   RNO-ON  16.00  44.41  36%
SONE   129.25  125   QFB-OD  12.75  32.31  39%
VRSN   209.03  200   QVZ-NT   5.38  52.26  10%   FEB
VRSN   209.03  200   QVZ-OT  18.00  52.26  34%
VRTS   173.00  165   UQJ-OM  13.63  43.25  32%
VRTS   173.00  170   UQJ-NN   5.38  43.25  12%   FEB
VRTS   173.00  170   UQJ-ON  14.88  43.25  34%


Sorted by return percentage

Stock  Stock Strike  Option OptionMargin Percent Comment
Symbol Price  Price  Symbol Price At 25%  Return

RBAK   215.50  210   BUK-NB   5.13  53.88  10%   FEB
LRCX   140.19  135   MLC-NG   3.38  35.05  10%   FEB
VRSN   209.03  200   QVZ-NT   5.38  52.26  10%   FEB
RNWK   177.63  170   RNO-NN   4.88  44.41  11%   FEB
VRTS   173.00  170   UQJ-NN   5.38  43.25  12%   FEB
HLIT   123.00  120   LQL-ND   4.00  30.75  13%   FEB
CRA    251.06  240   CZA-NH   8.75  62.77  14%   FEB
ISLD   114.75  110   SUH-NB   4.00  28.69  14%   FEB
JNPR   216.00  210   JUY-NB   9.50  54.00  18%   FEB
CNCX    47.69  45    QXF-OI   2.56  11.92  21%   NXLK BUY@45
ARBA   212.13  190   IUR-OR  12.13  53.03  23%
EMLX   123.88  120   UMQ-ND   7.13  30.97  23%   FEB
RBAK   215.50  200   BUK-OT  12.50  53.88  23%
COVD    84.63  80    COU-OP   5.38  21.16  25%
AMAT   164.94  160   ANC-OL  10.63  41.24  26%
RBAK   215.50  210   BUK-OB  14.25  53.88  26%
NXTV   119.31  110   NUX-OB   8.50  29.83  28%
ARBA   212.13  200   IUR-OT  15.38  53.03  29%
CKFR    73.50  65    FCQ-OM   5.38  18.38  29%   LOW MARGIN
MLNM   212.94  200   QMR-OT  15.63  53.24  29%
EMLX   123.88  110   UMQ-OB   9.13  30.97  29%
AFFX   259.75  240   FUE-OH  19.25  64.94  30%
ENMD    48.56  40    QMA-OH   3.63  12.14  30%   LOW MARGIN
INSP   191.25  170   FHY-ON  14.38  47.81  30%
NPIX    72.44  65    XMQ-OM   5.63  18.11  31%   LOW MARGIN
VRTS   173.00  165   UQJ-OM  13.63  43.25  32%
LDIG    58.00  50    DUL-OJ   4.63  14.50  32%   LOW MARGIN
JNPR   216.00  200   JUY-OT  17.38  54.00  32%
MUSE   209.50  200   QVM-OT  16.88  52.38  32%
CTXS   175.81  170   XWW-ON  14.25  43.95  32%
MRVC    79.56  70    VQX-ON   6.50  19.89  33%   LOW MARGIN
ETEK   201.75  195   FNY-OS  16.50  50.44  33%   JDSU BUYING
CKFR    73.50  70    FCQ-NN   6.13  18.38  33%   Feb
ITWO   239.88  220   QYJ-OD  20.13  59.97  34%
APNT    64.50  55    UAP-OK   5.50  16.13  34%   LOW MARGIN
AFCI    52.44  45    AQF-0I   4.50  13.11  34%   LOW MARGIN
VRTS   173.00  170   UQJ-ON  14.88  43.25  34%
VRSN   209.03  200   QVZ-OT  18.00  52.26  34%
FFIV    98.38  90    FQL-OR   8.75  24.60  36%
AMCC   230.00  210   AEX-OV  20.63  57.50  36%
RNWK   177.63  170   RNO-ON  16.00  44.41  36%
LRCX   140.19  135   MLC-OG  12.63  35.05  36%
BVSN   172.13  160   BZV-OL  16.00  43.03  37%
HLIT   123.00  120   LQL-OD  11.50  30.75  37%
BEAS   108.00  100   BUC-OT  10.13  27.00  38%
SONE   129.25  125   QFB-OD  12.75  32.31  39%
CRA    251.06  240   CZA-OH  25.38  62.77  40%
JNPR   216.00  210   JUY-OB  22.00  54.00  41%
DITC   170.00  155   DUI-OK  17.50  42.50  41%
MRVC    79.56  75    VQX-OO   8.25  19.89  41%   LOW MARGIN
MCOM    97.50  95    MQM-OS  10.13  24.38  42%
BVSN   172.13  165   BZV-OM  18.50  43.03  43%
CLRN   106.25  100   KGQ-OT  11.63  26.56  44%
INSP   191.25  180   FHY-OP  21.00  47.81  44%
NPIX    72.44  70    XMQ-ON   8.00  18.11  44%   LOW MARGIN
EMLX   123.88  120   UMQ-OD  14.25  30.97  46%
ENMD    48.56  45    QMA-OI   5.75  12.14  47%   LOW MARGIN
ISLD   114.75  105   SUH-OA  13.63  28.69  48%
APNT    64.50  60    UAP-OL   7.75  16.13  48%   LOW MARGIN
AFCI    52.44  50    AQF-OJ   6.88  13.11  52%   LOW MARGIN
CKFR    73.50  70    FCQ-ON  10.13  18.38  55%   LOW MARGIN


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

Option Trading Basics: Conversions And Reversals...

This week we continue our discussion of option trading techniques
and the methods used by floor brokers to provide a liquid market.
In our last segment, we learned that market-makers use a number
of arbitrage techniques to create liquidity for retail traders.

The majority of specialists favor box-spreads and conversions or
reversals (reverse conversions).  A box spread consists of two
call options with different strike prices and two put options with
strike prices equivalent to the calls.  Box spreads are initiated
when the options are miss-priced on a relative basis.  The price
risk of the call spread is offset by the opposite position in the
put spread thus guaranteeing a risk-free profit.  Unfortunately,
opportunities for this type of position are available primarily
to floor traders who can instantly exploit the miss-pricing among
the options.  The ongoing execution of orders in a liquid market
eventually returns the prices to their relative fair values.

Conversions involve calls, puts, and the underlying stock.  For
example, the conversion is used when a retail trader is interested
in buying a call option.  To offer the position, a specialist will
buy an under-priced put and sell an overpriced or fairly priced
synthetic put (a short call and long stock position).  The initial
profit is achieved when the transaction yields a credit. If the
value of the (sold) call option goes up, the (long) stock position
will offset the change.  If the value of the (long) stock falls,
the put is exercised to cover the loss.  In this manner, the floor
broker trades risk-free and profits from the initial transaction.
Of course funds must be borrowed to finance the purchase of the
stock and the current interest rate is always figured into the
overall position.

The technique for a reversal (reverse conversion) is simply the
opposite.  When a retail trader desires to sell a call option, a
floor broker will attempt to buy the call at a discount and sell 
an overpriced or fairly priced synthetic call (a short put and 
short stock). The initial credit received is risk-free profit. In
the case of a reversal, the funds received from the (shorted) stock
are placed in a risk-free, short-term investment. At expiration, 
the call will be exercised to purchase the underlying or the stock
is received via assignment, replacing that which was borrowed in 
the initial transaction. There are no up-front funds needed for 
this technique but because of the rules (sales on the up-tick only)
and difficulty in short selling, specialists generally do not 
receive all of the funds from the short sale. That's where the 
risk-free investment interest figures into the overall equation.

All of these techniques are risk-free transactions since the price
change on the option purchased is offset with the sale of synthetic
positions.  The knowledge of option pricing is the primary manner
in which the specialist profits from these transactions.  For the
majority of traders, box spreads; where only options are involved,
are the favored method of arbitrage.  The specialist does not need
to purchase the underlying issue to participate in the strategy.
Another advantage of these techniques is they do not require the
management of hedge values needed for complex ratio spreads and
other model-driven systems.  Box spreads and conversions are the
most common forms of option arbitrage and once you understand the
basics of each method, your relationship with the market-maker
will be a much happier one.


                      *** WARNING ***

Occasionally a company will experience catastrophic news causing
a severe drop in the stock price. This may cause a devastatingly
large loss which may wipe out all of your smaller gains. There is
one very important rule; Don't sell naked puts on stocks that you
don't want to own! It is also important that you consider using
trading STOPS on naked option positions to help limit losses when
the stock price drops. Many professional traders suggest closing
the position when the stock price falls below the sold strike or
using a buy-to-close STOP at a price that is no more than twice
the original premium from the sold option.


SUMMARY OF PREVIOUS PICKS 

Stock  Price  Last   Put   Strike Price   Profit  Monthly
Symbol Picked Price  Month Sold   Picked  /Loss   Return

VDAT   12.50  12.75   FEB  10.00   0.31  *$  0.31  24.0%
TSEMF  14.38  20.13   FEB  12.50   0.75  *$  0.75  23.5%
MCRE   12.56  13.38   FEB  10.00   0.69  *$  0.69  23.4%
NFLD   16.19  15.50   FEB  12.50   0.38  *$  0.38  22.8%
PCMS   15.00  18.75   FEB  12.50   0.50  *$  0.50  18.1%
TRVL   15.50  15.44   FEB  12.50   0.44  *$  0.44  17.5%
WSTL   11.44  26.44   FEB   7.50   0.50  *$  0.50  16.5%
MSGI   18.50  24.88   FEB  15.00   0.50  *$  0.50  16.5%
MESG   18.31  18.00   FEB  15.00   0.50  *$  0.50  16.1%
OTEX   20.63  29.44   FEB  17.50   0.56  *$  0.56  14.3%
HSAC   23.00  20.06   FEB  17.50   0.69  *$  0.69  14.2%
NSPK   23.69  22.63   FEB  20.00   0.38  *$  0.38  13.4%
DMRK   22.38  38.00   FEB  17.50   0.69  *$  0.69  12.3%
SMSC   14.25  14.25   FEB  12.50   0.50  *$  0.50  12.2%
NSPK   22.25  22.63   FEB  15.00   0.56  *$  0.56  12.1%
NZRO   33.25  29.38   FEB  22.50   0.75  *$  0.75  11.0%
RNBO   24.75  30.88   FEB  20.00   0.56  *$  0.56  10.7%
XICO   19.75  19.25   FEB  15.00   0.31  *$  0.31  10.5%
TLCM   20.25  21.75   FEB  15.00   0.50  *$  0.50  10.1%
QTRN   24.44  28.50   FEB  17.50   0.50  *$  0.50  10.1%
NPLS   23.06  29.63   FEB  17.50   0.44  *$  0.44   9.5%
PGEX   22.81  23.13   FEB  15.00   0.50  *$  0.50   9.1%
TLCM   23.13  21.75   FEB  17.50   0.31  *$  0.31   9.1%
PILT   25.94  33.94   FEB  17.50   0.56  *$  0.56   9.0%
CPQ    32.00  25.69   FEB  25.00   0.56  *$  0.56   8.7%
NOVL   33.69  38.88   FEB  25.00   0.63  *$  0.63   7.9%
GSTRF  34.19  31.75   FEB  22.50   0.63  *$  0.63   7.8%
EMIS   35.63  55.44   FEB  25.00   0.63  *$  0.63   7.5%
NETA   28.00  31.50   FEB  20.00   0.38  *$  0.38   5.9%

ZONA    7.69   7.00   MAR   5.00   0.31  *$  0.31  12.1%
PTEC   20.63  23.06   MAR  15.00   0.63  *$  0.63   9.6%
RWAV   10.56  10.56   MAR   7.50   0.31  *$  0.31   9.3%
DRD    28.00  27.56   MAR  20.00   0.56  *$  0.56   6.6%

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

Comments:

Compaq (CPQ) is threatening to move below the sold strike. It 
could be closed now at break-even; something to consider
unless you want to own the stock.


NEW PICKS
*********

Sequenced by Company

Stock  Last  Put   Strike Option  Last  Open Cost   ROI Opt
Symbol Price Month Price  Symbol  Bid   Intr Basis  Expired

PRGY   25.75  FEB  22.50  PUY NX  0.31  304  22.19   4.2%
        
AXTI   31.94  MAR  17.50  AQX OW  0.50  100  17.00   7.3%
MSGI   24.88  MAR  17.50  UMS OW  0.44  65   17.06   8.1%
PGEX   23.13  MAR  17.50  QAE OW  0.50  46   17.00   9.8%
PILT   33.94  MAR  22.50  PTU OX  0.63  15   21.87   8.5%
PTEC   23.06  MAR  17.50  PKQ OW  0.38  110  17.12   7.6%
RNBO   30.88  MAR  22.50  BQO OX  0.38  0    22.12   5.8%
TSEMF  20.13  MAR  15.00  TWQ OC  0.56  150  14.44  12.2%


Sequenced by Return On Investment (ROI)  

Stock  Last  Put   Strike Option  Last  Open Cost   ROI Opt
Symbol Price Month Price  Symbol  Bid   Intr Basis  Expired

PRGY   25.75  FEB  22.50  PUY NX  0.31  304  22.19   4.2%
        
TSEMF  20.13  MAR  15.00  TWQ OC  0.56  150  14.44  12.2%
PGEX   23.13  MAR  17.50  QAE OW  0.50  46   17.00   9.8%
PILT   33.94  MAR  22.50  PTU OX  0.63  15   21.87   8.5%
MSGI   24.88  MAR  17.50  UMS OW  0.44  65   17.06   8.1%
PTEC   23.06  MAR  17.50  PKQ OW  0.38  110  17.12   7.6%
AXTI   31.94  MAR  17.50  AQX OW  0.50  100  17.00   7.3%
RNBO   30.88  MAR  22.50  BQO OX  0.38  0    22.12   5.8%


Company Descriptions:

OI  - Open Interest
CB  - Cost Basis or break-even point 
ROI - Return On Investment 


*************
February Puts
*************

PRGY - Prodigy $25.75   *** One Week Play! ***

Prodigy Communications is an Internet Service Provider that
offers fast and reliable Internet access and related value-added
services. The Prodigy Internet service provides subscribers with
high-speed Internet access, an electronic mailbox, graphics and
multimedia messages, and disk space to host a personal Web page.
The Marketplace on Prodigy Internet provides links to numerous
Web-based retailers and they have also formed a business services
division to develop and market web-based services to commercial
entities. With earnings expected on February 15, this would be
considered a speculative position.

FEB 22.50 PUY NX Bid=0.31 OI=304 CB=22.19 ROI=4.2%

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


**********
March Puts
**********

AXTI - American Xtal Technology $31.94   *** Strange Stuff! ***

American Xtal Technology uses a proprietary vertical gradient
freeze (VGF) technique to produce high-performance compound
semiconductor base materials, or substrates, for use in a
variety of electronic and opto-electronic applications. American
uses this technology to manufacture and sell gallium arsenide,
indium phosphide and germanium substrates. They also have R&D
contracts with the Department of Defense for developing GaAs and
other substrates. A very unique issue and recently upgraded by
Prudential to a STRONG BUY. We'll play this volatile position
at a recent technical support level.

MAR 17.50 AQX OW Bid=0.50 OI=100 CB=17.00 ROI=7.3%

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

****

MSGI - Marketing Services $24.88   *** Earnings Run! ***

Marketing Services is organized into two business divisions:
The Internet Group and The Direct Group. The Internet Group's 
mission is to acquire, invest in and incubate Internet companies. 
The Direct Group provides strategic planning, direct marketing, 
database marketing, telemarketing, telefundraising, media planning 
and buying. MSGi's revenues have grown from $16 million in fiscal
1996 to in excess of $100 million on an annualized basis. GE and 
CMGI both have positions in MSGI and we wouldn't mind owning the
issue near the four-month consolidation area. Earnings are due
this week.

MAR 17.50 UMS OW Bid=0.44 OI=65 CB=17.06 ROI=8.1%

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

****

PGEX - Pacific Gateway $23.13   *** Testing The Tops ***

Pacific Gateway provides international telecom services to
worldwide long distance providers worldwide as well as retail
customers. Their international switched services consist of
calls that either originate in the United States or constitute
return traffic to the U.S. from foreign long-distance carriers.
Pacific also operates gateway switches in the continental U.S.
Domestic services consist of switched long distance calls and
dedicated point-to-point connections between the U.S. and other
foreign locations. A majority of their users are multinational
corporations or government agencies that have a high volume of
voice and data communications between two or more international
locations. PGEX is once again attempting to break the recent
resistance level near $24 and in the event it fails, we want to
be near the bottom of the fall.

MAR 17.50 QAE OW Bid=0.50 OI=46 CB=17.00 ROI=9.8%

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

****

PILT - Pilot Network Services $33.94   *** An OIN Favorite ***

Pilot Network Services provides a wide range of secure Internet
services that incorporate high-bandwidth connectivity and enable
secure electronic business over the Internet. Pilot's services
include secure access and gateway services, secure hosting and
electronic commerce services, and secure extranet and virtual
private networking services. These services enable remote users
and wide-area networks to securely communicate enterprise-wide
and over the Internet. Pilot provides these services through a
number of geographically dispersed Network Security Centers. A
very conservative position on a bullish issue in a great sector.

MAR 22.50 PTU OX Bid=0.63 OI=15 CB=21.87 ROI=8.5%

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

****

PTEC - Phoenix Technologies $23.06   *** Solid Growth! ***

Phoenix Technologies designs, develops and markets system and
chip level software for personal computers, peripheral devices
and information appliances.  This unique software provides
compatibility, connectivity and manageability of the various
components and technologies used in PCs, peripheral devices and
information appliances.  The company provides these products
primarily to manufacturers of personal computers, peripheral
equipment, integrated circuits, and system boards.  The company
recently reported solid revenues and strong operating profits
along with a positive outlook for the coming year.  We favor the
bullish outlook and technical support near the cost basis.

MAR 17.50 PKQ OW Bid=0.38 OI=110 CB=17.12 ROI=7.6%

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

****

RNBO - Rainbow Technologies $30.88   *** Web Security ***

Rainbow Technologies develops and supplies computer network
security products that secure the rights to software and other
digital content, and that provide privacy and security for
computer network and Internet communications and commerce. Their
products are designed for anti-piracy, license management and
tracking and software distribution over the Internet. They also
provide Internet security products computer transaction servers
engaged in Internet commerce, electronic brokerage and financial
services, and encrypted processing and acceleration for original
manufacturers of routers and switching equipment. A great company
in a hot sector with a bullish chart pattern. Very conservative!

MAR 22.50 BQO OX Bid=0.38 OI=0 CB=22.12 ROI=5.8%

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

****

TSEMF - Tower Semiconductor $20.13   *** Own This One! ***

Tower semiconductor is an independent manufacturer of integrated
circuits on silicon wafers and a provider of related services.
As a foundry, Tower provides IC design, manufacturing and
turnkey services using advanced production capabilities and the
proprietary IC designs of its customers, and is specializing in
providing solutions for embedded non-volatile memory devices and
CMOS image sensors. ICs manufactured by Tower are adapted into
a wide range of products in diverse and rapidly growing markets, 
including computer and office equipment, communication products
and consumer electronics. Investors have boosted Tower out of a
recent trading range and we favor the support near our cost
basis.

MAR 15.00 TWQ OC Bid=0.56 OI=150 CB=14.44 ROI=12.2%

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



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

Time For A Breather..

Friday, February 11

Technology stocks joined flagging blue-chip issues in a massive,
long overdue sell-off. The Dow Jones Industrials fell ominously,
closing down 218 points at 10,425. The Nasdaq Composite finished
89 points lower at 4396. The S&P 500 Index dropped 29 points to
1387. Trading volume on the NYSE reached 1 billion shares with
declines outpacing advances 2-to-1. The 30-year bond was up 22/32,
bid at 99 20/32, pushing its yield down to 6.28%.


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

RMI Net   RMII   MAY5C/MAY10C   $3.62   debit   bull-call
Duramed   DRMD   JUN5C/MAR10C   $3.93   debit   diagonal
E.spire   ESPI   JUN5C/MAR10C   $4.38   debit   diagonal
E.spire   ESPI   MAR12/FEB12C   $0.62   debit   calendar


Portfolio plays:

The market foundered Friday as traders succumbed to the negative
sentiment that has plagued blue-chip issues all week. Cyclical
stocks led the way down with fears of rising interest rates and a
spike in commodity prices affecting the majority of industries. A
number of technology companies posted large losses as investors
lightened positions in the high-flying issues. Our portfolio was
lucky enough to escape relatively unscathed but the majority of
analysts agree that if the Dow fails to hold at this level, the
Nasdaq will eventually follow it lower.

The names on our leader-board haven't changed much this week and
once again, Triquint (TQNT) topped the list of winners. Today the
stock climbed another $30, closing at $257 after Banc of America
Securities raised its investment rating along with earnings and
revenue estimates for the company. On Thursday Triquint reported
fourth quarter earnings of $0.48, which surpassed estimates by
$0.11. Banc of America happily reiterated its STRONG BUY rating,
announcing a new target of $300. This company has enjoyed a $120
rally since the issue was selected as a spread candidate in early
January. I hate to say it but, I wish we had just bought the calls! 
Seibel Systems (SEBL) has also been a pleasant surprise over the
last few weeks and today it moved up another $8.62 to end at $110.
The company said Thursday that IBM will run SEBL's software for
its 55,000 internal users and 30,000 business partners. SEBL said
it's the largest deal it has ever booked and the company's share
value jumped on the news. Emulex (EMLX) rebounded $6.75 to $123
after positive comments from the CEO were published in a special
Morgan Keegan Storage Networking Issue. Emulex CEO Paul Folino
said the company is the market leader in fibre-channel adapters
and owns the critical expertise and core technologies vital to the
industry sector, including ASICs, software and network management
and gigabit transmission technology. Helix (HELX) finally made a
positive move, climbing $4.38 to $56 on speculation regarding next
week's earnings report. Our position at $45 appears safe for now.

With one week until expiration, the Spreads/Combos portfolio has
avoided the majority of down-trending issues and should finish
the month with another excellent performance. Our conservative
debit and credit spread sections have achieved a near perfect
success rate and the majority of diagonal spreads are profitable.
The long-term portfolio enjoyed a number of new winners including
Adobe (ADBE), Network Associates (NETA) and Vodaphone (VOD), and
the Jones Pharmaceutical (JMED) straddle was the top play in the
section with a 375% return in just two months. The few positions
that failed to profit were speculative plays on merger/spin-off
candidates and low-cost calendar spreads that were closed early
(well before expiration) to conserve capital. Unfortunately, the
number of open positions has again grown to an unmanageable level.
With over 100 issues to track on a daily basis, the quality of the
ongoing narrative is at an all-time low. With that in mind we are
going to do some housekeeping, closing the majority of positions
that are significantly profitable as well as the remaining few
that have little or no short-term profit potential. Those of you
with questions about outstanding positions can send your requests
to me personally. While I will not offer advice, I am always happy
to provide opinions and ideas concerning possible adjustments or
exits.

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


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

WAVO - WavePhore  $7.88   *** On The Move! ***

WavePhore partners with prominent providers of news, business
data, Internet-based content and multimedia programming to
deliver selective unique intelligence and quality content to an
information dependent society. Their products and services
include: WaveTop, a free multimedia Internet broadcast service
that enables a nationwide wireless broadcast medium for the home
PC; Newscast, a premier business information source designed for
information professionals; Networks, a service providing wireless
data broadcasting, network services and related equipment to
providers of financial data, news and other information; eWatch,
a service providing a subscription-based, comprehensive Internet
monitoring service for business customers and WavePhore Labs, a
fee-based, in-house professional service aimed at delivering
custom news and information integration solutions for corporate
customers.

WAVO recently partnered with Virgin Entertainment to create
JamCast, the first Web site and service to offer select digital
tracks by popular artists from Virgin's library of music. The
selections are available in digital download format, a growing
technology for music buyers to acquire tracks by their favorite
artists. WAVO officials were upbeat about the deal and said it
was the first of several announcements they will make in the
near future as they intend to expand their participation in the
electronic distribution of digital music.

The Internet info/entertainment industry is growing exponentially
and WAVO is positioned to benefit from that expansion. With the
renewed interest in the issue, this position has an excellent
probability of a profitable outcome.


PLAY (conservative - bullish/diagonal spread):

BUY  CALL MAY-5.00 WKQ-EA OI=2082 A=$3.50
SELL CALL MAR-7.50 WKQ-CU OI=7042 B=$1.31
INITIAL NET DEBIT TARGET=$2.00 TRAGET ROI=25%

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

****

FBR - Friedman Billings Ramsey  $15.00   ** A Strange One! ***

Friedman Billings Ramsey is a full service investment banking 
firm focused on investment banking, research, institutional 
brokerage and asset management. FBR seeks to identify rapidly 
changing industries and those that are not fully understood or
appropriately valued by the market. Once identified, FBR develops
a thorough understanding of the fundamentals and opportunities of
that industry. FBR offers significant underwriting capabilities
and brokerage services as well as advisory services in mergers,
acquisitions and strategic partnerships. 

FBR expected a sizeable fourth-quarter profit and they got it
when the company reported a 255% increase in revenue for the
period. The company said that activity in its Internet-focused
technology businesses, notably venture capital and investment
banking, was the primary driver of revenue in the fourth quarter.
Friedman's price spiked February 7 when it said that its managed
venture capital fund (FBR Technology Venture Partners) owns a
substantial position in webMethods (WEBM). On Friday, WebMethods
shares soared $177 to $212 after the B2B software developer sold
4 million shares at $35 each in its IPO, generating $143 million.

The chart on Friedman Billings Ramsey had been improving even 
before the webMethods related movement, suggesting that somebody
knew of future activities. FBR recently moved out of a rounded
bottom formation on increasing volume and ended very close to a
new all-time high on Thursday. Though some volatility is expected,
any consolidation should meet technical support in the $8 to $9
range. In the event the stock finishes inside our spread, we may
decide to take ownership of the issue and sell calls to recover
any losses.


PLAY (aggressive - bullish credit spread):

BUY  PUT MAR-7.50  FBR-OU OI=150 A=$0.43
SELL PUT MAR-10.00 FBR-OB OI=157 B=$0.93
INITIAL NET CREDIT TARGET=$0.62 ROI(max)=

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

****

PTEK - Premiere Technologies  $8.94   *** Long-term Play ***

Premiere provides a comprehensive, integrated suite of information
and telecommunication services to a wide range of users. Premiere
delivers its services through its network management services 
platform which provides users with a single, user-friendly point 
of access to its services. This platform is accessible from 
virtually any telephone in the world and is designed to communicate
with PC'S, facsimile machines and pagers. Premiere's proprietary 
software enables it to customize its services at the individual
subscriber level and to easily expands system capacity. Premiere's
operating companies include Premiere Conferencing, Premiere 
Document Distribution, and Premiere Messaging. The company's
PTEKVentures.com investment arm has ownership interests in a
number of speculative issues; Healtheon/WebMD (HLTH), S1 (SONE),
USA.NET, Webforia, and Derivion.

Premiere recently used some of the proceeds from its investment
in Healtheon to pay off a $150 million short-term credit facility. 
The company has also reorganized its corporate infrastructure and
along with repaying the debt, expects to eliminate $30 million in
corporate overhead in fiscal 2000. Premiere is slated to report
earnings on February 29 and the company announced in January that
it should substantially exceed expectations for EBITDA, and will
be comfortably in-line with revenue expectations.

The technicals continue to improve as Premiere recently made a
new 6-month high on increasing volume. Signs of accumulation have
been evident though there is some technical resistance near $10.
The outlook is bullish as the stock moves out of a rounded bottom
formation towards the July high. Obviously this position also has
value as a pure stock play with the low rate of margin interest,
but we favor the advantages of options (LEAPS pricing - time value
characteristics) and the ability to exercise at any time is simply
a bonus.

PLAY (conservative - bullish/LEAPS/CC's):

BUY  CALL JAN01-5.00  ZTJ-AA OI=924 A=$5.25
SELL CALL MAR00-10.00 TQO-CB OI=979 B=$1.00
INITIAL NET DEBIT TARGET=$4.12 TARGET ROI=100%

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

****

EPIC - Epicor  $9.56   *** Is This B2B? ***

Epicor is an enterprise software supplier focused exclusively on
the real-world requirements of mid-market companies. The company
delivers business performance solutions including Front Office, 
Back Office and eBusiness capabilities, that enable companies to
automate on their own terms and outperform their competition by 
capitalizing on customer relationships.

There have been a number of favorable announcements on this issue
in the past few weeks and investors appear pleased with Epicor's
aggressive reorganization and cost-cutting measures. The recent
spike in price occurred when a fund manager mentioned the stock
publicly and Hambrecht & Quist's bullish, post-earnings outlook
simply fed the fire. The technical pattern is improving and there
are a number of favorable indicators suggesting further upside
bias. We noticed the small disparity in Epicor's options while
searching for covered-call candidates and for those who like to
actively trade calendar spreads, it offers a favorable, low risk
position.


PLAY (conservative - bullish/calendar spread):

BUY  CALL JUL-12.50 PQS-GV OI=58 A=$1.93
SELL CALL MAR-12.50 PQS-CV OI=42 B=$0.68
INITIAL NET DEBIT TARGET=$1.12 TARGET ROI=50%

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

****

NSOL - Network Solutions  $302.88   *** Technicals Only ***

Network Solutions is a world-wide-web domain name registration
service provider. They act as the exclusive registrar for and
maintainer of second level domain names within the .com, .org,
.net, and .edu top-level domains. Network Solutions provides
domain name registration services, Internet-based products and
services and Internet technology services. Their well-known
InterNIC registration service is an e-mail based registration
template application process for the registration of domains.
The RegistrationPlus registration process allows customers to
reserve a domain name and activate it at a later date. Their
Internet-based products and services include Dot Com Mail, a
portable e-mail service designed for small businesses, Dot Com
Toolkit, a small business resource center for setting up a web
site and conducting business on the Internet, and Dot Com
Promotions, where a domain name registrant can subscribe to
various services provided by LinkExchange.

Network Solutions is a popular issue that graces the electronic
pages of the OIN on a regular basis. With last week's move above
a recent resistance area near $275, there is little chance for a
return trip. The indicators all point skyward and the buying may
have just begun. Those of you that favor ultra-conservative,
credit-spread positions should relish this one.


PLAY (conservative - bullish/credit spread):

BUY  PUT MAR-210 JNU-OB OI=11 A=$3.12
SELL PUT MAR-220 JNU-OD OI=53 B=$4.12
INITIAL NET CREDIT TARGET=$1.12 ROI(max)=12%

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



************************Advertisement*************************
Tired of waiting on trades to execute? 
Does your broker offer Stop Losses on Options?  

Trade instantly with Stop Losses at Preferred Capital Markets
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with Preferred Capital

Anything else is too slow!

http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN
**************************************************************



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

DISCLAIMER

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.

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives