Option Investor
Newsletter

Daily Newsletter, Tuesday, 02/15/2000

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The Option Investor Newsletter         Tuesday 2-15-2000
Copyright 2000, All rights reserved. 
Redistribution in any form strictly prohibited.

Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
       2-15-2000           High     Low     Volume Advance Decline
DOW    10718.10 + 198.30 10763.10 10494.50 1,088,355k 1,538  1,471
Nasdaq  4420.77 +   2.22  4440.62  4291.10 1,708,659k 1,862  2,342
S&P-100  763.06 +   6.26   766.33   747.80    Totals  3,400  3,813
S&P-500 1402.05 +  12.11  1407.72  1376.25            47.1%  52.9%
$RUT     540.24 +   0.30   540.36   533.08
$TRAN   2448.90 -  18.38  2475.41  2434.45
VIX       24.61 -   1.18    27.78    24.03
Put/Call Ratio       .55
*************************************************************

Tag, you are it!

The Nasdaq reached through the market ropes and tagged the Dow
just before being knocked out of the ring by the bears. After 
diverging for over a week the Dow and Nasdaq switched roles and
the Dow rallied into upside trading curbs for the first time
since early January. Posting a strong +198 point gain the Dow
was successful in dragging the Nasdaq back into positive territory
late in the afternoon. After trading as low as 4291 around 11:00
the Nasdaq started slowly recovering on the Dow's strength. The
Dow's strong performance was due to bargain hunting in the beaten
down financial and materials sectors as well as strength in the
Dow techs. American Express (AXP) added +5.13, JPM +3.88, UTX 
+2.13, MMM +6.25, PG +3.88, HWP +3.25, GE +3.13, INTC +2.13.  


 


 

The were several catalysts for today's blue chip rally. A Fed governor
said the Fed was not going to tie rate increases to stock prices, 
industrial productivity soared +.1% for January and Abbey Joseph
Cohen maintained her bullish outlook for 2000. The biggest factor
here is the claim that the Fed would not raise rates based on stock
prices. The opposite had been hinted since the Dow was at 7900. Mr.
Greenspan has repeatedly cautioned that the market was creating 
wealth at a rate that could not be absorbed by the economy and the
speculative bubble was unhealthy. If his view of the markets and
the productivity of the economy have changed then there is a sale
on snowballs in hell tonight. While the markets celebrated the
statement today it may be soon to party. Greenspan himself will
testify on his view of the economy on Thursday and it is entirely
possible he may voice a different view of the subject. 

Abbey Joseph Cohen tried her best to put a positive spin on her
"good but not great" forecast for the rest of this year.  Her S&P
forecast for year end 2000 is 1525 which is only about six good
days gains from our close of 1402 today. Her forecast is for the
S&P companies to increase earnings by only +8% for the year. This 
is only about half what other analysts are expecting. She expects
the Fed to raise another +.75% which will put a collar on this
rally for good. She is recommending investors only allocate 35%
of their portfolios to tech stocks which she says are now "fairly
valued" but if you read between her lines she is trying to say 
don't buy these high priced stocks.  She recommended buying the 
neglected and unloved sectors.

After her speech the bargain hunters came out in force and focused 
on the recent losers instead of the recent high flyers. PG, at a 
52 week low, added +3.88, JNJ and UTX also at 52 week lows each 
posted +2.13 gains while other name brands like MSFT, CSCO, ORCL, 
QCOM, AMZN, WCOM, CMGI, JDSU, VIGN, AOL all lost ground. Even with
the Dow rally the advance/decline line was only barely positive on 
the NYSE with 1538:1471 and negative across all markets with 3578:
4097. The new highs lost to new lows 413:502. 

Those annoying oil spots on your driveway may be valuable soon.
With the price of oil now over $30 a bbl, a nine year high, and
with some analysts predicting $35 soon, you may be able to sell
drilling rights depending on the size of your driveway spots.
The market may be able to digest $30 but for every dollar over
$30 the cost of the thousands of products, which depend on oil
in some way, will start climbing and could eventually impact
our inflation rate. Higher oil prices may be good for oil stocks
but that is the only sector that would benefit. The transport 
sector is getting killed by these higher prices. The cost of
home heating oil in the northeast has skyrocketed from $.76
to almost $2.00 since early January. Airlines have passed on
the increase in the form of a fuel surcharge but not every
business can do this easily. Some truckers in the NE have parked
their rigs instead of paying $300-$400 more for every tank of
gas. If you only make $1500-2000 for a multi-state run and it
takes several tanks of gas then you are better off staying home.
Watch oil. If it continues up it will bite everyone eventually.

Did you catch the about face from Dell today? In a report from
Reuters Michael Dell is quoted as saying he expected adoption
Of Windows 2000 software to be "strong," thereby distancing
Himself from a previous quote suggesting slow acceptance. Dell
Said his previous comments on the subject may have been 
misinterpreted. He said, "The adoption rate of Windows 2000 will
not be determined by my speeches, it will be determined by 
customer acceptance of the product itself." "We see a lot of
interest in Windows 2000 and our Dell technical consulting 
practice has seen a lot of demand." What's wrong Michael?
Did they cancel your invitation to the big house in Redmond?
Mr. Dell even mentioned that he had installed 2000 on his own
Personal laptop and it "worked great" (until it crashed!! Jim) 

If you heeded my instructions from Sunday, "buy a Nasdaq dip
under 4300" you should be profitable tonight. The Nasdaq dropped
sharply at the open today but skidded to a stop at 4291 and 
performed a miraculous recovery from -127 to +2 at the close.
Could it be possible that both major indexes are actually going
to be moving in the same direction at the same time? Don't get
your hopes up yet. Economic reports for Wednesday include the
Import/Export prices and Housing Starts but Thursday is the
key. With Greenspan and PPI on Thursday and CPI on Friday the
odds for a strong rally to continue are slim. We are likely to
be range bound until we see the PPI on Thursday morning. Expect
more volatility and wide price swings. The only major earnings
report tomorrow is HWP and the short term future of the PC stocks
depend their outlook. 

Trade smart, sell too soon.

Jim Brown
Editor


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

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

Buffett to Buffoon
By  S.P. Brown

Isn't it amazing how one bad year can sully a reputation? Prior
to the start of 1999, nary a discouraging word could be heard
about Berkshire Hathaway (BRKa) chairman and CEO Warren
Buffett.  And with good reason, there was nothing to
discourage.  Buffett, the lead investor for the insurance/
investment firm, had been a perennial market-beater.
Over the past 30 years, BRKa stock had grown at a 26.4 percent
annual rate. 

http://members.OptionInvestor.com/stocknews/021500_1.asp


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

As of Market Close - Tuesday, February 15, 2000 

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

DOW Industrials   10,700  11,250  10,718    Neutral   2.15  *
SPX S&P 500        1,350   1,450   1,402    Neutral   2.01
OEX S&P 100          740     780     763    Neutral   2.01
RUT Russell 2000     500     540     540    Neutral   2.11
NDX NASD 100       3,575   4,090   3,997    Neutral   2.11
MSH High Tech      1,800   2,000   1,948    Neutral   2.11

XCI Hardware       1,300   1,525   1,485    Neutral   2.11
CWX Software       1,200   1,470   1,422    Neutral   2.11
SOX Semiconductor    740     940     954    BULLISH   2.15  *
NWX Networking       900   1,020   1,020    Neutral   2.11
INX Internet         700     800     745    Neutral   1.06

BIX Banking          550     690     517    BEARISH  11.30
XBD Brokerage        400     450     424    Neutral  11.30
IUX Insurance        550     600     519    BEARISH  11.30

RLX Retail           950   1,000     899    BEARISH   1.28
DRG Drug             340     380     342    Neutral   2.15  *
HCX Healthcare       700     750     710    Neutral   2.15  *
XAL Airline          160     180     117    BEARISH   5.21
OIX Oil & Gas        250     280     261    Neutral   2.15  *


***Posture Alert***
After selling off more than 11% since its high in January, the 
DJIA rebounded sharply over the past two days changing our market 
posture of the blue chips sectors to Neutral.  We remain neutral 
across technology and bearish across financials and airlines. 
Take a special note of our key benchmarks for each index for they 
have been updated with the recent volatility.  



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

Tuesday, February 15, 2000

Market Alert! Crude Oil Eclipses $30 per Barrel 
By Pinnacle Capital Advisors

"It seems that everyone's attitude toward investing these days is 
Who Wants to Be a Millionaire.  Unfortunately, in the stock market, 
you don't get any lifelines."

In a speech Saturday, Arthur Levitt, Securities and Exchange 
Commission chairman warned that the historic bull market has 
created all kinds of traps for investors. Value.  More and more 
investors are buying high-flying, fast-moving internet stocks 
with inflated PE ratios.  IPOs.  More and more investors are 
buying an IPO as a quick way to make money.  Margin.  Borrowing 
money to buy stock is as popular as ever. Margin debt has 
eclipsed $243 billion - representing the largest percentage of 
the $17 trillion in market float.  If equity markets sells off 
beyond the 10% correction level, it may spark selling for 
investors to honor the broker's margin calls.  

With money returning to the market, how long will it take 
investors to figure out how $30/barrel oil will spark inflation 
and impact companies' earnings?  Most investors trading online 
today, don't even remember the last time we were above the $30 
level - during the Gulf War.  OPEC is not scheduled to meet until 
March 27th when some members will seek to increase volume and 
thereby ease the price.  

As first highlighted in Sunday's (2/13) article, Pinnacle Capital 
Advisors is suspect of the current post-correction rally for 
several reasons.

First, there was lack of selling climax as evidence by a modest 
spike in the Market Volatility index (VIX) and the lack of 
combined volume activity across Standard & Poors Depository 
Receipts or "spiders" (SPY) and Nasdaq 100 Trust shares or 
"Cubes" (QQQ).  Tuesday's combined volume was only 26.3 million 
shares.  Typically single day spikes in excess of 30 million 
serve as better signals.  This may be too complacent of a 
reaction for Friday's (2/11) decline to be a short-term bottom.

Next, market breadth is relatively weak and some of the big cap 
issues that led the market into record territory a couple of 
months ago are beginning to roll over. Consider Microsoft (MSFT).  
As illustrated below, the Nasdaq composite index climbed into 
record territory on the strength of Microsoft, among others, when 
the software company broke out last December.  However, notice 
the divergence between Microsoft and the technology index over 
the past two months.  Simply put - once the Generals led the 
market higher, but now the troops are moving up WITHOUT the 
generals.  Not the best scenario for a resumption of a broad 
market advance.


Finally, media reference (CNBC / CNN) to the "standard" market 
correction of 10% is widely accepted by investors as the next dip 
and buying opportunity without regard to other broader market 
undercurrents. 


 


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 (6.247):
Although the recent bond market rally has helped bring the current 
yield down near 6.0 last week, the long bond remains above 6.24.

Volatility Index (24.52):
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 24.52.  
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       Tues 
Benchmark                       (2/11)      (2/15)

Overhead Resistance (760-830)     2.16        3.72

OEX Close                       752.04      763.06

Underlying Support  (700-750)     5.63        5.30


What the Pinnacle Index is telling us:
Overhead resistance is building and could stall a broad market 
advance. 


Peak Open Interest (OEX)
                     Friday           Tues 
Strike/Contracts     (2/4)           (2/8) 

Puts               740 / 9,937     740 / 10,315  
Calls              800 / 7,806     800 /  8,796
Put/Call Ratio         1.27           1.17



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
February 15, 2000                       24.98



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

Daily Results

Index      Last    Mon    Tue   Week
Dow     10718.09  94.63 198.25 292.88
Nasdaq   4420.77  23.10   2.22  25.32
$OEX      763.06   4.76   6.26  11.02
$SPX     1402.05   2.82  12.11  14.93
$RUT      540.24   2.84   0.30   3.14
$TRAN    2448.90  31.15 -18.38  12.77
$VIX       24.61  -1.13  -1.18  -2.31

Calls              Mon    Tue   Week

ANAD      140.69  12.50   4.19  16.69  Yeah baby! Defies gravity
BEAS      120.75   8.38   4.38  12.75  A very nice earnings run
CLRN      116.41  15.00  -4.84  10.16  So much for resistance!
INSP      200.56   9.19   0.06   9.25  New all-time high on Mon
SEPR      149.13   1.75   7.13   8.88  New, a healthy addition
AMCC      237.50 -10.91  18.38   7.47  Buyers back at the table
MLNM      217.75   3.59   1.66   5.25  MLNM exhibits strength!
EMLX      129.06  -4.75   9.94   5.19  A very convincing drive
PCMS       22.25   0.78   2.72   3.50  An 18.6% gain this week
CUBE       89.19  -0.06   2.06   2.00  Second time be a charm?
LHSP       84.00  -2.06   4.06   2.00  A break to consolidate
SNDK      151.00   3.38  -1.44   1.94  Product demand increases
ADIC       69.38   3.50  -2.13   1.38  Earnings report tomorrow
BCE       119.31   0.91   0.38   1.28  BCE regains its footing
COVD       84.94   0.13   0.19   0.31  "No man is an island"
LLTC      105.00   2.63  -3.13  -0.50  Strong relative strength
ASPT       67.09  -0.75  -0.03  -0.78  News driven momentum play
HYSL       47.94  -1.69   0.75  -0.94  Offers investors solutions
TXN       134.94  -3.00   0.31  -2.69  Makes a strong bounce
MUSE      205.94  -4.00   0.44  -3.56  Will split spark a run?
ERICY      86.38  -3.69  -0.13  -3.81  New, we have been waiting
ISLD      110.19  -9.19   5.13  -4.06  Fasten your seatbelts

Puts

VERT      197.00 -10.50  -5.50 -16.00  Valentines gift from VERT
RHAT       74.75  -5.19  -3.44  -8.63  New, enthusiasm waning?
GD         41.31   0.13  -0.25  -0.13  Use your life jacket!
KMG        48.63  -0.94   1.44   0.50  Plenty of news out there
KRB        22.19   0.13   1.25   1.38  What's in KRB's future?
PGR        55.94  -1.88   3.81   1.94  Still impressive downtrend
JNJ        79.69   0.19   2.06   2.25  A short-lived rally?
PVN        67.88  -3.88   6.38   2.50  Dropped, possible bottom
CAT        40.00   2.63   1.38   3.50  Dropped, cat out of bag
MMM        89.13  -0.06   6.25   6.19  Dropped, will it recover?



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

When You Hold Too Long Instead of Selling Too Soon
By Renee White

Do you understand the emotional reasons that cause option 
premiums to inflate and deflate? This is not an article 
explaining intrinsic and time value, which makes up an option 
premium. It is an attempt to explain, "What really happens". 
The books are great but understanding the dynamics of "the 
game", will help protect your profits.

I received an email on Monday, from an unhappy camper who held 
too long, through Yhoo's split, instead of selling too soon, as 
the near term high started fading last Tuesday into the close. It 
continued to sell off until it took a mild breath, late today. 

Dear Renee: Your opinion on a matter that has taken my sleep away 
last week: I own 19 Yhoo calls, that I bought rather expensive, 
to my great sadness, Yhoo did not have the usual pre-split rally, 
but it went down even on the evening of the split. I have lost 
already a lot of money, as I was planning to sell them on Friday, 
sometime during the rally that never happened. Please, indulge me 
with some advice. I can't afford to loose any more money, and 
instead of my profits, the only thing going up is my blood 
pressure. A.S.

Dear A.S.  Yes, I think you are in trouble and I feel your pain. 
Trying to put spilled milk back into a glass is always hard. 
Most just wipe it up. 

There is a street rule, don't hold over a split, especially 
high-flyers. They tend to sell-off for several days or weeks 
afterwards because of the run up created from the excitement of 
the split. That's not good if expiration Friday is only a few 
days away. Recovery may be impossible due to Theta (time decay). 
Will they all ALWAYS do that?  No. Are you familiar enough and 
good at fortune telling, to make an educated "guess" if it will 
be different this time? 

So you ask, what do you do if it's too late? Well, I can't tell 
you when to buy or when to sell, but look at your own risk 
tolerance. Would you rather take whatever money is left since 
you know that money is there today  or wait to see if it can go 
back up on a rally, if there is one?  If you wait for a rally 
that does not come, will you be happy with options being worth 
even less than they are today, because this is what will happen 
to near term option, with expiration day nearby. Also, any rally 
that occurs may not include your stock since so many people have 
exited, not to mention a bear trap rally that you hold through 
again, thinking recovery is near. Remember too, if you exit now, 
wait for it to bottom, you could re-enter and ride it back up. I 
urge caution before jumping back in though, until the sell off 
is confirmed, then roll out. Try to think through the most 
likely scenario, not what you hope will happen. "A bird in the 
hand is worth two in the bush."

Understanding why options inflate and deflate will help your 
future plays. Nothing makes one more frustrated than having juicy 
fat profits, only to hold too long instead of "Selling Too Soon". 
That is a very valuable phrase. Option premiums inflate with 
anticipated excitement. Sometimes, excitement causes the premium 
to blow up way out of proportion to what the realistic value 
should reasonably be. Anyone who played QCOM last December can 
tell you that. It's the supply and demand theory. That's why one 
option that's $5 in-the-money may have a premium of 12, while 
another one has a premium of 38. It's okay if you are a 
short-term trader, but it can kill you if you buy, hold and 
don't understand the intricacies of the game. 

Excitement can occur with earnings, with an anticipated split 
announcement, during a split run, on rumors, on unexpected 
exciting press releases, on some analyst upgrades, on favorable 
economic data, etc. Notice, these are opportunities for 
short-term excitement. Do you remember receiving your first 
bicycle? Did you have the same excitement about it 6 months 
later? Traders play the excitement, milk it for all they can get, 
then leave before the party is over, so they can scope out the 
next play and get in early. They make their money on the 
momentum of the ride up. Not the vacillation at the top. 

Premiums start evaporating rapidly once the excitement is over 
and selling starts. Once the split occurs, earnings are reported, 
rumor is dismissed, news is released, etc., buyers will no longer 
outnumber sellers. Your calls will lose value as the big players 
sell to take their profits. Supply & demand again, causes the put 
premiums to now increase, while the calls deflate. If you were 
planning on selling your calls at last week's high, you missed 
your chance. Now the other side (the put player) has the upper 
hand. Their premiums are quickly inflating at the expense of 
those you kept holding. Waiting for your calls to inflate again, 
once the excitement is over, is very costly. In reality, a near 
term option, close to expiration, probably can't recover from a 
strong sell-off after the reason for the excitement is over. In 
most cases, it doesn't happen. 

Are there other strategies you could play, to counter some 
loses? Probably, yes. BUT keep in mind, these will be panic 
plays, placed to salvage lost money, plays that may be advanced 
and much more sophisticated.  Most likely, these are plays you 
are unfamiliar with and haven't paper traded, thereby setting 
you up for further loss and panic since you don't understand the 
play. Let me ask you this, if you were about to have a wreck 
because you were speeding, would you press on the accelerator 
even harder or let up? When you've already made a big mistake, 
it's a bad time to try something new, especially if it is a 
shaky week in the markets, with lots of economic reports and 
everybody is warning you to watch out. The longer you hang in 
without being objective, the more at risk you become. Exiting 
does stop the pain and SHOULD increase your knowledge of what 
NOT to do next time. Trust me, it WILL still happen again. I 
hate to say it again, but I must, don't play options with money 
you can't afford to lose. Play when the market is in your favor. 

It happens to all level of traders. The more experienced ones 
try to catch when emotional trading sneaks into their trading. 
Most will exit and take their punishment, then go kick a tire 
because they really knew better. Emotional trading, while trying 
to recover a loss, is probably the biggest set up for losing 
more money, in addition to holding on and not exiting a position 
going against you. Exit. Don't let it close another day lower. 

I know the loss is brutal. I'm sorry. We are in a shaky market 
right now, even for experienced traders. Do you know if you are 
a Dow or a Nasdaq trader? Do you know why I ask? Personally, it 
might be a good time for new traders to sit back, watch, read 
and study, while waiting for things to settle down before trying 
to play, especially if that is a real head and shoulder pattern 
forming that I see on the Nasdaq Composite daily chart.

Renee
Contact Support

(Editor: Another way to exit a losing call position is to 
turn it into a spread. If you own $300 YHOO calls and YHOO
was $270 and going down, you could sell $280 calls using your
worthless $300 calls as margin. Check with your broker but
this really works. Jim)


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

A Market for Metaphors
By Janar Wasito

Studying the Optionetics Strategies this weekend has proven to 
be a real revelation. I am confident that now I can focus on 
these strategies and achieve the results that I want. At the 
same time, I am rethinking the dominant metaphor for my trading 
-- Trading is War. I am reading the chapters in The New Market 
Wizards randomly and checking off the chapters. This evening, I 
was reading about Randy McKay, a very successful futures trader. 
At the beginning of the interview, McKay states that he was a 
Marine in Vietnam, and my radar perked up -- another successful 
Marine trader! But he is highly critical of his experience, 
calling his two years in Vietnam a waste, and saying that war 
is stupid. He has more of a right to say that than anyone.

Contrast this with Marty Schwartz, author of Pit Bull. For 
Schwartz, the dominant metaphor of his success is that trading 
is war. But Schwartz never went to war. In his own book, and in 
his interview in Market Wizards, he states that he went to Marine
officer candidate school to avoid service in Vietnam by getting 
a reserve commission. In my own case, I never served in any kind 
of real conflict. I got into the Marines in 1991, and left in 
1995. I loved it, had a great time, made some of the best friends 
of my life, and will always consider myself a Marine. But even in 
the Corps, the Vietnam Veterans with eagles, stars and stripes on 
their collars never talked about war. They had no desire to go 
back. They respected risk.

So, what is the point? I have tried to develop a trading style 
like Marty Schwartz. But I can't. I can't sit in front of a 
trading screen for 7 hours a day, making notations about what 
the market is doing each 30 minutes. I can't see every half 
hour as another phase of a battle. I don't want to. I want to 
have a life. The dominant metaphor that trading is war is good 
in the sense that it encourages planning a strategy. In that 
sense, McKay, Schwartz, and -- I hope -- I will be similar in 
applying our Marine heritage. But, I disagree with approaching 
trading as war. Cybercorp.com says that every trade is a battle 
with a counter party. I, for one, have nothing against the market 
maker who is the counter party for most of my orders. I don't 
want to shoot him, destroy him, etc, etc. He's doing his job in 
the economy, just as I am trying to benefit from the economy. 
Trading is war is the dominant metaphor of day traders. Most 
day traders go broke, and quickly. Most day traders have a
insurmountable obstacle in the commissions that their brokers 
charge. If you were an arms merchant, you would want everyone 
to go to war also. It's good for business.

I am choosing two different metaphors as the model for my 
trading in this year and beyond. The first metaphor is the 
trader as athlete. My sport is triathlon. I have a race on 
May 2. I am a big guy. I never race to win. I race to finish. 
It is existential. A race every month over the summer encourages 
a dedication to fitness, health, and good diet. To be successful 
at triathlon, you have to be consistent. Do a mix of swimming, 
running, biking, and weight lifting work outs. I am way, way out
of shape. I could go workout like a mad man, get sick, or pull 
a muscle, and I would be out for 2 weeks. The really important 
training is booooo...rring. Long, slow runs. Long, slow bikes. 
Long, slow swims. Long... slow. Knock out the time at the right 
heart rate. Of course, there are necessary elements like doing 
bricks -- bike/ run workouts to prepare for the transition in 
the race. Techniques are important, consistency is important, 
and doing boring workouts is paramount.

I'd rather make trading like triathlon training than a war with 
another trader... who is actually probably a nice guy. I just 
want to finish. To that end, I would like a style of trading in 
which I look at the market about twice a day, for a half hour 
each. I'd like to do a few hours of work on Sundays. I'd like 
to take off for a week or two each month (currently planning 
a Paris/ London jaunt at the end of Feb), while leaving 
positions open. I would rather not sit at a computer screen for 
7 hours a day and "fight" the market or another trader. I want 
to do my work, get paid for it well, and develop other 
professional and personal interests outside of trading.

I think that is what some of the more advanced strategies will 
allow me to do. If my last few columns have looked like a man 
in transition and change from one approach to another, it is 
entirely accurate. I don't claim to be a guru. I am just a guy, 
a novice trader, who has been trading options in volume since 
December 1998. I think that is why Jim asks me to write this 
column. I am not the straddles guru, bull call expert, or 
anything else. I am looking for the best way to make a very 
good return commensurate with the risk that I am taking. And 
I recognize that one of the risks is disruption to my life on 
a day to day level. That is a risk that I would like to 
minimize as well.

I don't like any of the naked option strategies. They are too 
dangerous. I am not saying that Jim Brown or others can't do 
very well with them. But the fact that the risk is unlimited 
scares the hell out me. Now that I have made some money with 
options, I don't want to blow up my account, or incur a 
liability beyond the cash in my account, by having naked options 
move the wrong way. I do, however, think that the basic market
awareness, stock selection, and entry point awareness that the
newsletter offers are the best and most timely on the Internet. 
I just plan on adjusting the strategies to fit my risk profile, 
which has changed since last year.

For instance, I no longer plan on trading straight calls; 
instead I plan on substituting bull put spreads for targets 
under 30 days to take advantage of time decay (theta); and I 
plan on substituting bull call spreads for targets over 45 days 
-- and I want to go out as far as possible, with LEAPs where 
available to construct the spread. I no longer plan on trading 
naked puts; instead I plan on substituting bull put spreads. 
I no longer plan on selling naked calls; instead I plan on 
substituting bear call spreads. I think that Jim has a brilliant 
insight in the covered straddle strategy -- if you sell a call 
and a put on the same stock, both sides cannot be in the money, 
and time decay works in your favor on both sides. But, given 
this insight, I would like to take advantage of it by doing both 
bear call spreads and bull put spreads (both credit spreads) on 
the same stock when it gives good entry points in the same month. 
Take VRSN, for example. In January/ February, I could have 
entered both types of plays on this stock when it bounced off 
of the 210 level near earnings, and off the 145 level at the 
bottom of the NASDAQ pullback in early Feb.

Instead of having Long Term Stock holdings, I plan on having 
only LEAPs, but I will sell higher strike calls against those
LEAPS (calendar spreads). I have had some very successful LT 
Stocks, which I purchased in 1998/ 1999. YHOO, AOL, MSFT, 
CSCO, HD, AMGN, VOD. But I am selling those stock positions. 
The risk/ reward diagrams on stocks are just not favorable 
enough. Instead of LT Stock positions in 15 - 20 stocks, I 
want 15 - 20 LEAP holdings, all of which are delivering present 
cash flow through capturing the time decay on calendar spreads.

So, in summary, my strategies will be:
-- Long Term: LEAPs/ Calendar Spreads
-- 45+ Days: Debit Spreads (Bull Call Spreads), Straddles
-- Less than 30 Days: Credit Spreads (Bull Put Spreads, Bear 
Call Spreads)

The second metaphor for my trading is that I am a historian. 
My undergraduate major was American History & Literature. 
We are in the middle of the greatest change in how humans 
communicate since the invention of the printing press. What 
better place to watch it than as a graduate student at Stanford
University? I have been in the middle of the deals driving our 
economy. Depending on how you view it, our economy is either at
the start of a new digital renaissance, or at the birth of 
a new set of industries analogous to the invention of the 
telegraph, railroads, and cars. Based on the spending habits 
of baby boomers, this technology boom should continue until 
2009 with some strong pullbacks here and there. In the middle 
of this technology revolution, I am making my own chronicle 
of it for my grand kids -- my monthly trading journal. Each 
month, I will start a new journal. I have different sections 
for various parts of the newsletter, for my notes, and for 
the different strategies I will employ. Those strategies, 
of course, are changing day to day. I plan to augment these 
contents with personal and business notes from various
involvement with companies around the valley. I'd love to 
develop a career writing for National Geographic -- articles 
about fireworks, the velocity of money, and silicon valley.

Think Creatively, Good Luck!

Janar Wasito
Contact Support



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

A word about taxes.
By Robert Norman

Of course, at this time of year, a lot of investors continually 
ask questions about taxes. "How are gains and loses figured in 
on my taxes?" "What tax brackets am I in?" "How do I calculate 
an expired option?" "What about dividends?"

First the tax brackets.

For individuals:

$ 0 - 25,350 15.0%
25,350 - 61,400 28.0%
61,400 - 128,000 31.0%
128,100 - 155,950 36.0%
278,450 and up 39.6%

Married, filing jointly and surviving spouses:

$ 0 - 42,350 15.0%
$ 42,350 - 102,300 28.0%
$102,300 - 155,950 31.0%
$155,950 - 278,450 36.0%
$278,450 and up 39.6%

Long-term versus short-term holdings:
As a general rule of thumb, an individual will combine 
short-term gains and losses (securities held for twelve months 
or less) and long-term gains and losses (securities held for 
more than twelve months)and then combine the net results of 
short-term and long-term gains and losses. An individual can 
deduct up to $3,000.00 net loss per year ($1,500.00, if married 
and filing separate returns). Any excess of actual losses over 
the annual limitation can be carried forward to be used to offset 
gains in future years or to be deducted on the tax return, subject 
to the annual limitations.

How are options that expire worthless taxed?
If an option expires worthless (lapses), the loss is figured by 
calculating the taxpayers cost basis (including commissions paid)
in the option and is used in the tax year that it expires.

Dividends:
Usually dividends are taxed as regular income in your specific 
tax bracket.

Of course, always consult your tax adviser on any and all 
questions concerning taxes on any asset.

Have a very profitable New Year!

Robert L. Norman
Vice President, Investments
J. Michael-Patrick, LLC - St. Louis



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


CALLS:
*****

ADIC $69.38 -2.13 (+1.38) Even though we feel that the market 
has not even come close to recognizing the hidden value 
contained in ADIC's equity position in CRDS, we nevertheless 
must drop this play due to the earnings report coming out 
tomorrow.  Despite the fact that CRDS has retraced a chunk of 
its recent gains,  there is still a ton of value in ADIC's 
holdings.  If ADIC can muster a good earnings report we may re-
visit the company as a call play.  Technically,  ADIC made a 
nice move into new high ground.  The selling today was pretty 
strong down to near the breakout point of $63, but it bounced 
right back.  If we are lucky, maybe we will get a little bit 
of an earnings anticipation bounce tomorrow.  ADIC entered into 
a new OEM agreement with Quantum Corp and will begin offering 
some of Quantum's tape storage products.



PUTS:
*****

CAT $40.00 +1.38 (+3.50) Okay, who let the CAT out of the bag?  
Apparently, it was those pesky value seeking investors who 
were looking for something in the blue light special section 
of the market.  After last weeks run, many investors seemed to 
feel that some of the overbought blue chips may not be the best 
place for their money.  Monday, the bargain shoppers moved in 
on a few of the "un-loved" stocks, i.e., heavy equipment makers, 
such as CAT.  Today, CAT's move through and close at $40, a move
which was backed by strong volume, showed us that there may 
be too many CAT lovers in this market for us to warrant keeping 
a spot open on our put list for this stock.

MMM $89.13 +6.25 (+6.19) Recovery or entry point?  The recovery 
in the cyclicals over the past couple days has even trickled down
to poor MMM.  The move today was particularly impressive, moving
up $6.25 on strong volume (1.5 times the ADV).  The advance
halted at the $90 resistance level and pulled back a bit at the
close.  The pivotal question is whether this is the beginning of
a recovery or a head fake.  Given the strong move in the broad
market, we think the value investors may lend support to MMM,
limiting the potential downside.  We'll let MMM go and move on
to more profitable plays.

PVN $67.88 +6.38 (+2.50) Exhibiting no strength yesterday, PVN 
fell all the way to $60 support and bounced into the close.  In 
this morning's amateur hour, it did the same thing, apparently 
shaking out the rest of the sellers.  Then on news that PVN had 
generated 220K in online credit card accounts and $750 mln in 
Internet retail deposits, the issue gained traction and powered 
its way up the chart without so much as a tire-spin.  A good 
company starving for an inkling of good news can reverse 
direction immediately when that good news shows up.  An analyst 
upgrade to Strong Buy from CS First Boston didn't hurt either.  
While the issue hasn't yet traded back up to its 10-dma, the 
worst is over.  And with volume at two times the ADV today, it 
appears that a recovery has begun.  That said, PVN is off the 
list tonight.



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

HYSL $47.94 +0.75 (-0.94) Today, Hyperion offered some 
solutions to those who were trying to decide on a possible  
entry point.  HYSL rolled out of bed this morning and headed 
down to test support at $46.  Then the coffee kicked in and 
HYSL woke up to make a steady move up for the remainder of 
the session.  Volume was light today, though it did start to 
pick up slightly toward the end of the session.  We were 
pleased to see the greater volume on the right end of 
Hyperion's day.  As we mentioned on Sunday, HYSL's 5-dma has 
done a nice job of providing support throughout February, 
and though HYSL did trade below this level today, it managed 
to reclaim this level as support with a close right on it.  
Should HYSL continue on with its steady ascent, the 5-dma may 
serve well for future entries.  HYSL looks to have additional 
support at $47 and $46.  

MUSE $205.94 +0.44 (-3.56) Muse traders have been a bit 
uninspired this week.  The 2-for-1 split is coming next week 
which may spark another run for the stock once we get through 
this expiration week.  If you had been patient yesterday you 
could have initiated a bullish position at just above $200.  
Despite the fact that the stock traded just below that always 
critical price support level today, it has nevertheless proven 
to be an excellent entry point.  The lack of any follow through 
below $200 indicates to us that MUSE is stabilizing in this area 
and is building a nice base to give it a little strength to 
mount a move next week.  Be cautious, just in case today's 
bounce was a bull trap.  If MUSE does trade convincingly below 
$200 you may want to step to the sidelines and wait for the 
stock to test support at $191 before contemplating a new 
position.  In a continuing story, MUSE has added yet another 
new user of its Netcool software.  The software will be used 
by Mannesmann Mobilfunk (gotta love that name) to present its 
services during the CeBIT 2000 IT trade show in Germany.  It 
is the world's largest IT trade show.

LLTC $105.00 -3.13 (-0.50) With all of the chip excitement 
concentrated in INTC and RMBS early this week it appears that 
LLTC has been a little bit lonely in its pursuit of investment 
dollars.  Of course, it is still very early in the week.  LLTC 
actually showed some marvelous relative strength yesterday by 
testing $100 and closing very strong.  Today was a bit of a 
different story as the stock really could not get going.  LLTC 
closed at a very significant short term price point today.  The 
important thing to realize is that the stock is in a trading 
range, and as we pointed out in Sunday's update, traders could 
have made some quick intraday profits.  We look for LLTC to move 
to the higher end of its range tomorrow on the heels of the AMAT 
earnings report.  A trade above $109 could take us straight to a 
test of the old high of $111.50.  If the stock can make another 
new high we may be witnessing the re-establishment of the 
uptrend.  Otherwise, look for stock to stay in its current 10-
point range in an attempt to consolidate its most recent move.

CUBE $89.19 +2.19 (+2.00) We may have knocked the sellers out of
the box as C-Cube weathered the early NASDAQ storm and made a 
nice move above short-term resistance at $88.75.  The great 
earnings report from AMAT could have a positive affect on all 
things silicon tomorrow and CUBE should benefit.  A re-test of 
the highs could be imminent as long as the CPI and PPI come out 
decently and Greenspan does not say anything to rattle the 
markets in general.  The only negative aspect of today's move is 
that it occurred on very low volume, less than half of the ADV.  
We certainly need to see some good volume tomorrow to confirm 
that CUBE is well on its way back up.  If we can get a close 
above $90, maybe the second time will be the charm to get that 
anticipated move to $100.

COVD $84.94 +0.19 (+0.31) The old saying that "no man is an 
island" perhaps could be changed to "no company is an island".
After managing top keep its head above water Friday with the 
weakness in the Nasdaq, COVD finally gave way to the pressures
seen in the tech stocks the past two days.  We aren't giving up
on this one by any means.  COVD fell out of bed, first thing
Monday morning, but began to bounce back quite nicely after 
hitting the $80 level of support.  The selling at the Nasdaq 
this morning took its toll on COVD again, but the DSL provider 
fought its way back to end the day in the plus column.  COVD 
announced this morning the availability of its DSL services in
the greater Pittsburgh, Pennsylvania area.  The company continues
to expand their services in metro areas around the country and
their latest addition is a positive for the company, but our
play is going to need an added push to get it back on track.  
If the strength seen late today in the Nasdaq can continue, 
COVD should join in.  Keep your stops close, just in case the 
strength seen late today proves to be a head fake.



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



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DISCLAIMER
**********
This newsletter is a publication dedicated to the education 
of options traders. The newsletter is an information service 
only. The information provided herein is not to be construed 
as an offer to buy or sell securities of any kind. The 
newsletter picks are not to be considered a recommendation 
of any stock or option but an information resource to aid the
investor in making an informed decision regarding trading in 
options. It is possible at this or some subsequent date, the 
editor and staff of The Option Investor Newsletter may own, 
buy or sell securities presented. All investors should consult 
a qualified professional before trading in any security. The 
information provided has been obtained from sources deemed 
reliable but is not guaranteed as to accuracy or completeness.
The newsletter staff makes every effort to provide timely 
information to its subscribers but cannot guarantee specific 
delivery times due to factors beyond our control.

The Option Investor Newsletter         Tuesday 2-15-2000
Copyright 2000, All rights reserved. 
Redistribution in any form strictly prohibited.


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

ASPT $67.09 -0.03 (-0.78) ASPT was barely scathed as profit- 
taking on the Nasdaq was driving others lower.  Not once did 
ASPT dip below the 10-dma and today's upswing off the daily low 
of $64.50 moved it back above the 5-dma (now at $66.39).  All 
in all, the stock suffered only fractional upsets and the volume 
was moderate.  Even though ASPT is performing well we'd like to 
see volume levels return in this news-driven momentum play.  
Overhead resistance is mere points away at Friday's new 52-week 
high of $69.94.  The next hurdle is of course to break through 
that psychological $70 level on a rally.  Yesterday, Aspect 
announced Puget Sound Energy has selected its Customer 
Relationship Portal for the mission-critical environment at 
their new electronic facility.

INSP $200.56 +0.06 (+9.25) Volume was powerful again this week. 
This is a good sign that INSP will continue to make gains ahead 
of next month's expected 2:1 split on March 15th.  On Friday the 
stock hit $200.44 during intraday trading, but was unable to 
close above the formidable $200 mark.  This was not the case of 
the past two trading sessions.  Both days INSP managed to close 
above $200 and on Monday, the stock also hit $208 to record 
another all-time high.  Near-term support is now clearly 
established at $195 just a smidgen above the 5-dma ($193.26), but 
is more rooted at $190 and $185.  Entries off these references 
should provide profit opportunities unless of course there's a 
severe correction.  But there's good news in that Open Interest 
at the higher strike prices is more respectable and climbing.  
Yesterday, InfoSpace.com announced it signed an agreement to 
integrate Mojam's live music event listing into its consumer 
content services.  And today, AirTouch Cellular announced it has 
chosen INSP to deliver its Internet services and applications 
serving as AirTouch's US mobile Internet platform.

ISLD $110.19 +5.13 (-4.06) After amateur hour on Monday, the 
pullback was sharp and swift.  Of course you didn't open any 
positions during this time, but did you have your seatbelt 
securely fastened anyway?   This afternoon, there was finally 
some confirmation that the profit-taking was subsiding.  The 
increase in volume ignited the upward momentum and ISLD came 
off its intraday lows ($100.25) at the 10-dma ($100.27) to 
finish at a respectable level.  A more conservative trader 
will still wait for another bounce before entering this pure 
momentum play.  In the news today Digital Island announced 
FT.com, the UK's media giant, was added to its clientele list.  
ISLD will supply critical infrastructure and network services 
to support the new Financial Times portal. 
   
BEAS $120.75 +4.38 (+12.75) BEAS has added +12.75 in two days, 
after being in what some would consider an overbought technical 
state.  But sometimes there is no stopping momentum.  BEAS is 
in the middle of a very nice earnings run and traders that have 
profited from the move the past few days don't care whether
BEAS is overbought or not.  Yes, there could be a round of profit
taking or a brief consolidation, but the volume the past two
days certainly suggests there is more of a move to the upside 
ahead.  BEAS has seen more than 7.2 million shares change hands
in the move to new highs, which supports our belief that BEAS is
not done.  BEAS closed on an intraday support level of $120.  The
next area of support is seen at $115.  Should we see some profit
taking those would be good points at which to add to or enter new
positions.  BEAS is scheduled to report earnings next Tuesday 
after the close, so we still have time for this play to cook.

MLNM $217.75 +1.66 (+5.25) The folks that jumped in MLNM Friday
as it bounced off the $207 area should be feeling pretty good 
after the first two days of the new week.  The scenario here is 
similar to many others in the Nasdaq.  MLNM jumped up in the
first hour of trading, both Monday and today only to be met by
sellers.  It appears tonight that some of the people that had 
entered along the way see the gaps up as an opportunity to get
out.  We see the fact that MLNM has managed to muster some 
strength going into the end of the day as a real positive for 
our play.  It appears as though the traders that weren't scared
off by the decline Friday.  This week MLNM hasn't exhibited the 
strength seen by a few the genomics company's, but we are pleased 
that there was no follow through selling from Friday.  MLNM has 
intraday support at $215, $212 and $207 and would provide ideal 
points to target shoot an entry should we see any further 
pullbacks.  Not much news so far this week, so rely on support 
and resistance to be your guide on MLNM. 

EMLX $129.06 +9.94 (+5.19) On Monday investors decided to take 
a little money off the table and this morning the selling 
continued as the Nasdaq began to fall.  Unlike the Nasdaq, the 
buyers stepped in early just like clockwork at the $117 level 
of support which was hit in the first hour of trading.  The 
heavy hitters jumped back into EMLX and drove the price back 
through the $125 level very convincingly.  We also mentioned 
Sunday that the next target for EMLX could be the $140 area, 
which given the volume the past two days may not be out of the 
question.  We expect the momentum to continue.  Support for 
EMLX is found at $124 and $121. 

CLRN $116.41 -4.84 (+10.16) So much for resistance!  After
building a nice base of support at $105 on Friday, CLRN took
off this week, shattering the old 52-week high at $110.25.
Moving as high as $123.13 on Monday, the temptation was too
great and some profit-taking was bound to occur today.  New
support seems to be forming near $116, and with the bounce in
the NASDAQ right at the 4300 level, CLRN could be ready to run
higher still.  Stronger support exists at $110, with resistance
up at yesterday's high.  Driving the move is the constant
stream of positive press and the shareholder meeting that took
place today.  On the agenda was a vote to increase the number
of authorized shares from 50 to 200 million - does anyone else
think this sounds like a split coming?  The gap up at the open
yesterday was likely the result of the company signing
memorandums of understanding (MOUs) with 5 companies in Taiwan.
These agreements focus on the fact that CLRN will supply the
software for the new broadband local access devices
manufactured by the Taiwanese companies.  Targeted media
formats include DSL, Cable, Wireless Local Loop, and ISDN.
Needless to say, CLRN is a hot stock in a hot sector.  Look
for the run to continue, especially if they happen to announce
a split.  The drop at the close today is a little disconcerting,
so look for a renewed move upwards before jumping on board. 

LHSP $84.00  +4.06 (+2.00) Taking a break to consolidate the
gains from last week, LHSP found its footing right at the $75
support level today.  Reversing itself in lockstep with the
NASDAQ recovery today, LHSP put in a nice performance and set
a new closing high of $84 on double its average daily volume.
Driving the strong move up are the continuous stream of new
technology applications and the excitement of a pending 2-for-1
split, (announced with strong earnings last week).  The split
date is not set, and a shareholder vote will be required, but
the announcement underscores the company's positive outlook in
the rapidly growing IP telephony market.  LHSP is nestled right
up against the $85 resistance level and any positive sentiment
tomorrow should enable it to push right through.  Mild support
appears at $80 (also the site of the 5-dma), followed by strong
support at $75.  With an almost $10 range today, the importance
of good entry points cannot be overemphasized.  Look for a
continued move upwards or another bounce near support to 
trigger new entries.

BCE $119.31 +0.38 (+1.28) Barely registering a pulse while 
trading flat yesterday, BCE fell to the first level of support at 
$117 (actually $116.50) today before regaining its footing.  The 
net gain of $0.38 on the day hides the fact that BCE made a $3 
recovery off its low today.  That's a show of strength in our 
book.  Now, if investors would get interested in BCE for its 
residual value net of its 39% stake in NT, which it plans to spin 
off soon, we might see BCE shares move up without maintaining 
parity to NT shares.  As it is, the market is valuing this 
Canadian phone giant at just 1.3 times sales and 3.7 times 
earnings, both figures net of NT value.  We think it can be said 
again, you can a lead a horse to water, but you can't make him 
drink.  BCE is clearly under valued, but we think it's just a 
matter of time before the market at large makes that discovery, 
which should then stimulate buying interest again.  Volume has 
been average lately indicating no unusual interest.  That may be 
due to unfavorable tax treatment that shareholders might receive 
following BCE's spinoff of NT shares.  BCE is going to need 
volume to break out over resistance in the $120-122 range.  
Anyway support is still at $117, then $115.  Target shoot if 
you like, but a breakout over $122 with volume would be more 
convincing.  News that BCE intends to buy the remaining shares 
of Teleglobe, Inc. that it does not already own for $6.67 bln in 
BCE shares had little effect on the stock.

AMCC $237.50 +18.38 (+7.47) Following a selloff that began last 
Friday, yesterday morning was looking kind of ugly for AMCC (not 
that it didn't deserve a breather after such a long sprint), as 
it traded down to $205 on two occasions before finding its land 
legs again.  That makes the case for rock solid support at $205 
look pretty strong.  $5 increments also provide small amounts of 
support all the way to the current price, with $220 having the 
strongest base.  Target shoot where you like, but based on 
increased volume (more than twice the ADV today), we'd say the 
mini-correction is over.  Investors appear to be back at the 
buying table.  With the next resistance not far away at $245, you 
won't have to work too hard to get there.  However, a breakout to 
a new high doesn't occur until $262.  If today's correction was 
real and $$$ now come off the sidelines, AMCC will be a fund 
favorite and the price should continue moving up.  Let volume be 
your guide.  Also, at these levels, AMCC is a split candidate 
with enough shares authorized to effect a 3:1.  All we need is a 
surprise BOD meeting with the good news!  Otherwise we may have 
to wait until the next earnings release, tentatively scheduled on 
April 10th.

ANAD $140.69 +4.19 (+16.69) Yeah Baby!  Apparently having figured 
out a way to defy gravity, ANAD moved up smartly yesterday and 
dropped a measly $0.50 below yesterday's stellar close during 
today's pre-lunch shellacking.  With the exception of a $1 loss 
on Friday, ANAD has not seen a down day since January 28 when it 
traded at $75.  It doesn't have to fall back very far to reach 
support.  Gap ups at the open just provide a new technical 
benchmark, which ANAD seems all too willing to conquer.  Support 
levels have thus moved up to $135 (nice bounce) and $140 (cruise 
control without selling pressure).  With volume over twice the 
ADV yesterday and today, buyers (most probably growth fund money) 
are in control.  Remember too that ANAD splits 3:2 on February 
29, with an ex-date of March 1.  That can only help.  We look 
for the price to keep moving up accordingly, even though ANAD 
is bumping its head on resistance at $144.  Of course that's 
expected when setting a new high every day.  A bit of news may 
be driving the price too: ANAD announced today that they received 
an order for 10 mln RF switches from "one of largest U.S. based 
wireless handset manufacturers" (duh, maybe Motorola) to be used 
in dual mode phones.

SNDK $151.00 -1.44 (+1.94) SNDK finally broke out to the upside,
but the weakness in the NASDAQ was too much.  Nervous investors
took the opportunity to lock in some of their profits and the
result took SNDK as low as $145 before the buyers returned in
force.  The dip and subsequent recovery provided a nice entry
point for more aggressive investors, and further solidified the
$145 support level, which is also the site of the 10-dma.
Volume has been exceptionally light the past several days (less
than half the ADV), and we will need to see a resurgence in
volume if SNDK is going to move significantly higher.  SNDK has
closed above $150 for the past 2 days and this level may provide
mild support going forward.  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 that occurs on February
22nd.  Investors should start to show up in droves, driving both
volume and price higher as the date approaches.  Wait for a
bounce near $150 accompanied by increasing volume before jumping
on board

TXN $134.94 +0.31 (-2.69) Dropping with the rest of the NASDAQ
over the past couple days, TXN finally found its feet this
afternoon at $130 and bounced strongly.  Breaking down through
the $137 support level may have transformed it into resistance,
so we need to see TXN break above the 10-dma ($135) and
preferably $138 to convince us the upward move is intact.
If investors can get moving above this level, the next target
will be the most recent 52-week high at $145.  This is purely
a momentum move, driven by TXN's strong presence in the digital
wireless industry.  Investors should continue to bid the shares
higher as TXN continues to push the state of the art in Digital
Signal Processing while making additional inroads into the
wireless market (see news below).  Volume has been near the
daily average, so the drop over the past few days may have just
been profit-taking.  But keep your stops in place, just the
same.  New positions can be considered on a breakout above $135
as long as volume confirms the move.  More conservative traders
may want to wait for a break above $138 before jumping on board.
TXN had lots of exciting news on Monday, but the principal
story was the announcement of another industry first.  The
company announced the first DSPcodec that maximizes DSP
performance for voice-band applications, while reducing
development time by a factor of 10.  The new codecs enable
voice extensions in broadband applications such as voice over
IP for cell phones and cable modems. 

PCMS $22.25 +2.72 (+3.50) A gain of $3.50 for the week, may
not be huge by some traders standards, so how about we put it
this way, a gain of 18.6%.  There does that sound better?  Now
you can see why we like what we saw when selecting PCMS as a 
new play.  It just goes to show that bigger is not necessarily
better, when it comes to selecting stocks to play.  Not only did
PCMS gain $2.72 today, but it did it on day the Nasdaq was in the 
hole by better than 100 points.  The recent upgrades by analysts
and the popularity of the companies fixed wireless technologies
seem to have caught investors attention.  The volume behind the
13% increase was impressive as well, with over 4.2 million shares 
changing hands.  So were do we go from here?  PCMS is now in 
uncharted waters, so we must turn to support since at this time
we have no real resistance to hang our hat on.  Technically, 
PCMS has intraday support at $21.25 and $20.50.  If we see any 
pullback or profit-taking, those would be great entry points 
for additional positions or a new play.   



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

PGR $55.94 +3.81 (+1.94) Hey it happens sometimes!  Every dog is 
allowed to have a day or two and it looks like PGR is getting 
theirs.  Ever since we began this play we have warned that a 
trade above any previous day's high could result in a mini-
rally.  If you had been using trailing stops you would have a 
nice profit and would now be waiting for the next entry point.  
Throughout this devastating downtrend PGR has managed a few 
small rallies that seem to last 2-3 days.  Resistance is at $59 
and could provide a good entry point.  If the stock can climb 
above that price, take a look at the $63 level for the next 
possible entry point.  We are maintaining PGR as a put play 
mainly because it is still in a very impressive downtrend, 
despite the fact that the stock did find a few value investors 
today.  Today's move can be partially attributed to an upgrade 
from CSFB from Buy to Strong Buy.

KRB $22.19 +1.25 (+1.38) What's in KRB's future?  Well lets 
see...today, the industrial production report came out showing
that US economic growth is still accelerating.  Curiously 
enough though this did nothing to stop the stocks that are 
usually interest rate sensitive.  However, looking ahead 
more interest rate hikes are inevitable.  Greenspan stated
- and we all listen up when he speaks - that "the Fed's current
policy is to slow the economy to a more moderate pace before 
inflation becomes a problem."  So with all that in mind what
does all this mean for KRB?  Well, their business is affected 
by interest rates so while they had a good day today (as did 
others in the same industry) what is forthcoming might not be 
more of the same.  So we keep our play but with caution, with
the Dow beating out the Nasdaq.  Since KRB follows along with 
the cyclicals, any weakness the Dow shows should cause KRB to 
continue falling and thus causing new entry points.  The only 
news KRB had was that the North Carolina Bar Association will
now offer MBNA services to its members. 

KMG $48.63 +1.44 (+0.50) It seemed as though you couldn't go 
far into today's market without slipping into a story that had 
something to do with the current oil supply (or lack there of) 
situation.  As we are sure you know by now, oil is trading 
higher than it has since 1991 during the Persian Gulf War, 
and is therefore, commanding a great deal of headline presence.  
CNBC analyst Greg Miles reported this morning that many of 
the big oil companies are posting big profits because of the 
high oil prices.  Despite this fact, many of the oil and oil 
service stocks are continuing to feel pressure as investors 
fear the inevitable correction looming just around the bend.  
Kathy Jones, Director of Futures Research for Prudential 
Securities, believes that an increase in oil production is 
inevitable since supply is so tight.  Who will finally make 
the decision to loosen the supply is really the only matter 
of contention at this point.  The question is, will investor 
fears continue to plague oil and oil service companies up until 
the March OPEC meeting or is the news out and digested?  On a 
cautionary note, many analysts are saying that we may have seen 
some investor over-reaction in regards to the possibility of a
correction in oil prices.  We are betting that today's run-up 
in the oil stocks was pre-mature and that investors may still 
continue to proceed with caution toward the oil stocks.  KMG is
approaching a level of resistance at $50, which may prove to be 
an important deciding factor in the future of this play.   

VERT $197.00 -5.50 (-16.00) Okay, so it wasn't roses and 
chocolate, but if you were playing VERT on the downside, VERT 
still delivered a very nice Valentine's gift.  On Monday, VERT 
traded within $0.63 of the $200 level, which was the goal when 
we initiated this put play.  As if the tagging the desired 
level were not enough, VERT even held the door open, allowing 
investors plenty of time to get on board with new entries.  
VERT traded in a range just under $18 on Monday and just under 
$12 today.  VERT closed near the low end of its day today and 
looks well positioned to continue its downward trend.  One point 
to note, is that prior to VERT's gap up back in January, it 
had gained a lot of ground in a short period of time.  Therefore, 
we may be still be cleared for a nice fall.  We would hate to 
be hasty and miss a potential opportunity.  The next level of
mentionable support looks to be right around $180.  If you are 
playing VERT and have not tightened those stops to protect the 
profits that you have made so far, now would be a good time to 
do so.  Remember, we are in bonus territory now, and from here, 
it is icing on your cake.  If only every Valentine were so 
giving!  On Monday, US Bancorp initiated coverage of VERT
with a Strong Buy rating and a $290 price target.  Obviously,
this had little if any positive impact on the stock.  

JNJ $79.69 +2.06 (+2.25) Since it's quite possible the DOW's 
rally may be short-lived amidst the upcoming economic events 
this week, JNJ is staying on our put list for now.  Taking a 
look at the descent on a chart with a 10-dma line, it's clear 
that this indicator has served as strong resistance.  Currently 
JNJ is just below it by a fraction (10-dma = $80.71) so a 
descending bounce from this point would be a good sign.  And 
better confirmation is to see it slip back under $78, then $77.  
Remember this is a sector play.  The basis is for the broad 
negative pressure to continue to drive JNJ lower as investors 
rush toward the high-flying techs.  

GD $41.31 -0.25 (-0.13) Don't jump on this boat without your
lifejacket.  In GD's case it might come in handy since it appears
to be sinking.  We keep saying this over and over, but GD just
can't get investors to turn trusting eyes back towards them.  
Traders have left it off their buy list lately.  It might be the
whole industry they don't like, but GD is still one of the worst
performers out there.  The Dow for the second day in a row out-
performed the Nasdaq, but GD still didn't show life.  Instead 
we see people jumping overboard left and right.  Today Berkshire
Hathaway took that jump and cut their stakes in GD.  Adding to 
the weight that is pulling them down GD plans on spending 10 
billion dollars to start a new program known as Navy-Marine 
Corps Intranet (NMCI) and while in the long run this program has
The ability to help GD people only see what's going on right 
now and that is cash going out GD's door.  We tested the waters
today and dipped under support then rebounded so support is 
still keeping GD afloat at $41.50.  Deciding when to enter will
really depend on your risk, but cautious investors should wait 
for support to break. 



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

ERICY - LM Ericsson Telephone $86.38 -0.13 (-3.81 this week)

Ericsson is a world-leading supplier in the fast-growing and 
dynamic telecommunications and data communications industry, 
offering advanced communications solutions for mobile and 
fixed networks, as well as consumer products.  Ericsson is a 
total solutions supplier for all customer segments: network 
operators and service providers, enterprises and consumers. 
Ericsson has more than 100,000 employees, representation in 
140 countries and clearly the world's largest customer base 
in the telecommunications field. 

We guess you could say we have been waiting by the phone for 
this call for some time now.  ERICY has posted an attractive 
upward trend and last Friday, ERICY tagged a new 52-week high 
of $92.13.  Monday, traders made their move to lock in some 
profits.  The profit-taking continued into today's session 
where ERICY was traded down to just over $82.  ERICY made a 
solid bounce at this level and quickly found its way on to 
the road to recovery.  The buyers jumped back into ERICY with 
enthusiasm, pushing ERICY up to regain the majority of the 
ground it had lost with strong volume backing the ascent.  We 
view this recent move down as an opportunity to get on board 
and congrats to all who jumped on intraday.  ERICY is still 
trading underneath its 10-dma, which is currently at $87.  We 
would obviously like to see ERICY move up through this level 
as a confirmation of positive momentum.  Aside from the $82 
level which was tested in today's session, ERICY looks to have 
additional support at $80, if needed. 

On January 31st, ERICY announced better than expected Q4 
results and a 4:1 stock split.  No, that is not a typo, ERICY 
will be splitting its shares 4:1, a very rare occurrence for 
a stock that is trading under $100.  Though the split date has 
yet to be announced, news like that certainly doesn't hurt 
the near-term picture for a stock!

BUY CALL MAR-75 RQC-CO OI=265 at $13.63 SL=10.50
BUY CALL MAR-80 RQC-CP OI=528 at $10.13 SL= 7.50
BUY CALL MAR-85*RQC-CQ OI=441 at $ 7.13 SL= 5.25
BUY CALL MAR-90 RQC-CR OI=863 at $ 4.75 SL= 2.75
BUY CALL MAR-95 RQC-CS OI=313 at $ 3.13 SL= 1.50

Picked on Feb 15th at    $86.38     P/E = 118
Change since picked       +0.00     52-week high=$92.13
Analysts Ratings     8-11-4-0-0     52-week low =$20.50
Last earnings 01/00   est= 0.32     actual= 0.36
Next earnings 04-28   est= 0.17     versus= 0.04
Average Daily Volume = 4.91 mln
http://OptionInvestor.com/charts/charts.asp?symbol=ERICY

****

SEPR - Sepracor $149.13 +7.13 (+8.88 this week)

As a specialty pharmaceutical company, SEPR strive to develop
improved versions of widely prescribed drugs.  Their Improved
Chemical Entities (ICE) program identifies existing, widely
prescribed drugs that might be replaced by improved, single-
isomer or active-metabolite forms of such drugs.  The company
then seeks to develop ICEs that offer one or more benefits
over the parent drugs, such as reduced side effects, improved
efficacy or effectiveness for new indications.  SEPR has
licensed or is developing ICEs to treat a broad range of
indications in areas including respiratory, urology/
gastroenterology, and psychiatry/neurology.

On a never-ending quest to make a better drug, SEPR appeals to
our desire for better health.  As Americans strive to live
longer, more vibrant lives, SEPR wants to be there to provide
the drugs we need.  Beginning a strong move upward in early
January, supported by a broad-based surge in the Biotech sector,
SEPR has paused over the past 2 weeks to consolidate its gains.
Now that the stock has gotten the consolidation out of the way,
SEPR may be ready to run into its split.  The company is set to
split its shares 2-for-1 next Friday, February 25th.  During
the consolidation mentioned above, SEPR has built good support
at the $140 level, followed by $137.  As the split date
approaches, the pullbacks should be milder and SEPR could find
support near $144.  With a strong move upwards today, SEPR is
testing resistance at $150, and a break through this level
could open the door for a test of the 52-week high at $158.50.
Volume today was strong (double the ADV) and bodes well for a
continued move upwards.  Entries can be considered on a strong
break through $150 or another bounce at the $144-145 level.

News has been light on SEPR lately, which should focus investor
attention on the upcoming split.  The most recent news was the
company's issuance of $400 million in convertible bonds on
February 7th.  The proceeds of the sale will be used for its
ongoing preclinical and clinical trials, and other research and
development programs. 

BUY CALL MAR-145 ERQ-CI OI= 79 at $15.13 SL=11.75
BUY CALL MAR-150*ERQ-CJ OI=208 at $12.88 SL=10.50
BUY CALL MAR-155 ERQ-CK OI= 23 at $10.25 SL= 7.75 low OI
BUY CALL APR-150 ERQ-DJ OI=105 at $17.00 SL=13.25
BUY CALL APR-155 ERQ-DK OI=  0 at $14.50 SL=11.50 Wait for OI!

SELL PUT MAR-135 ERQ-OG OI= 28 at $ 7.63 SL=10.00
(See risks of selling puts in play legend)

Picked on Feb 15th at $149.13     P/E = N/A
Change since picked     +0.00     52-week high=$158.50
Analysts Ratings    5-4-2-0-0     52-week low =$ 58.75
Last earnings 01/00 est=-1.53     actual=-1.79
Next earnings 04-27 est=-1.67     versus=-0.93
Average Daily Volume =  492 K
/charts/charts.asp?symbol=SEPR



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

RHAT - Red Hat, Inc. $74.75 -3.44 (-8.63 this week)

Red Hat is a developer and provider of open source software and 
services, including the Red Hat Linux operating system.  Red Hat 
is the market leader in open source operating systems (OS) 
software, services and information.  Red Hat offers a full line 
of services, including telephone support, on-site consulting, 
developer training, certification programs and priority access 
updates.  Red Hat shares all of its software innovations freely 
with the open source community under the GNU General Public 
License (GPL) and other public licenses.  RHAT has several 
partners including Compaq, Dell, Gateway, IBM, Hewlett-Packard 
and Silicon Graphics.

It appears the early buzz and enthusiasm for Linux has begun 
to slip.  Now that reality has set in, and the subsequent 
realization of out-of-this-world corporate capitalization,  
investors seem to be pulling a little bit away from their blind 
faith investing in everything Linux based.  The biggest 
beneficiary of all the early excitement was perhaps, Red Hat. 
The stock has been cut in half in recent weeks and it had 
nothing to do with a split.  The past two weeks have seen a 
capitulation of sorts from Michael Dell who, at first praised 
Linux while subtly criticizing Windows 2000.  Now, Mr.Dell, 
perhaps the most influential contributor to the overall 
evaluation of the PC business, seems to have changed his tune, 
stating that Windows 2000 will encroach upon the Unix market.  
His lack of further praise of the Linux system may have been a 
de facto attempt to back away from his earlier positive 
endorsement.  Whatever it all means we do know that RHAT is 
breaking down technically and it appears that it could go lower. 
RHAT finished last year on a tear from $60 to $150.  After 
building a nice base around $105, the stock broke down and it 
looks as if the selling could continue, unabated, all the way 
back to the breakout point of $60.  RHAT is still a solid 
company and has mostly had a nice string of positive news.  
Perhaps the bear story is simply just a matter of valuation. 
Either way we will let the trend be our friend.

BUY PUT MAR-80 RCV-OP OI=1107 at $12.38 SL=9.50
BUY PUT MAR-75 RCV-OO OI=  16 at $ 9.50 SL=7.00 Today's vol=264
BUY PUT MAR-70*RCV-ON OI=   0 at $ 6.88 SL=4.75 Today's vol= 72
BUY PUT MAR-65 RCV-OM OI=   5 at $ 4.75 SL=2.75 low OI

Average Daily Volume = 1.60 mln
/charts/charts.asp?symbol=RHAT 



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

ASPT - Aspect Communications $67.09 -0.03 (-0.78 this week)

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.

Sunday's Write Up

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".

Tuesday's Write Up

ASPT was barely scathed as profit-taking on the Nasdaq was 
driving others lower.  Not once did ASPT dip below the 10-dma 
and today's upswing off the daily low of $64.50 moved it back 
above the 5-dma (now at $66.39).  All in all, the stock suffered
only fractional upsets and the volume was moderate.  Even though 
ASPT is performing well we'd like to see volume levels return in 
this news-driven momentum play.  Overhead resistance is mere 
points away at Friday's new 52-week high of $69.94.  The next 
hurdle is of course to break through that psychological $70 
level on a rally.  Yesterday, Aspect announced Puget Sound 
Energy has selected its Customer Relationship Portal for the 
mission-critical environment at their new electronic facility.

BUY CALL MAR-60 ATQ-CL OI=237 at $11.88 SL=9.50
BUY CALL MAR-65*ATQ-CM OI=153 at $ 8.75 SL=6.50
BUY CALL MAR-70 ATQ-CN OI=101 at $ 6.50 SL=4.75

Picked on Feb 8th at     $64.50    P/E = N/A
Change since picked       +2.59    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 = 1.03 mln
/charts/charts.asp?symbol=ASPT


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

The Market Merry-Go-Round Continues..

Monday, February 14
 
Equity markets ended higher Monday as Investors searched for
bargains in the slumping cyclical issues.  The Dow gained 94
points to 10,519 after losing over 500 points last week.  The
Nasdaq composite climbed 23 points to 4,418 after a range-bound
session.  The S&P 500 Index closed relatively unchanged at 1,389.
On the NYSE, declining issues led advances 15 to 14 with 928
million traded.  There were 55 stocks at new highs and 240 at new
lows.  The 30-year U.S. Treasury bond gained 17/32, pushing the
yield down to 6.23%.


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

Friedman    FBR    MAR7P/MAR10P   $0.62   credit   bull-put
Network     NSOL   MAR210P/220P   $1.00   credit   bull-put
Epicor      EPIC   JUL12C/MAR12C  $1.18   debit    calendar
Wavephore   WAVO   MAY5C/MAR10C   $2.06   debit    diagonal
Premiere    PTEK   JAN5C/MAR10C   $4.25   debit    LEAPS/CC's


Portfolio plays:

Blue-chip issues came creeping back into favor today as traders
decided last week's sell-off had run its course.  Auto-makers and
machinery stocks led the Dow higher while semiconductor and
biotechnology issues supported the Nasdaq's small gains.  A number
of downtrodden sectors managed favorable rebounds but financial
stocks ended lower as cautious investors avoided the interest-rate 
sensitive issues ahead of the Fed Chairman's testimony later this
week.  Analysts believe that the upcoming economic data and Alan
Greenspan's Humphrey-Hawkins testimony on Thursday will keep the
market in a relatively small trading range.
 
A few of our portfolio positions were in the headlines today.  One
of the recent bullish issues, Corning (GLW) agreed to buy NetOptix,
a leading optical technology company for $2 billion in cash and
shares of stock.  The companies expect to complete the transaction
in the second quarter and after the announcement, Corning moved up
$12 to $180.  Our put-credit spread at $130 is expected to expire
comfortably OTM.  Computer Associates (CA) announced it will buy
Sterling Software (SSW), a maker of network and information
management software, for $4 billion in stock.  Sterling closed
higher but Computer Associates ended down slightly at $69.31.  Our
bullish LEAPS/CC's play is at maximum profit with the stock above
$65 and we will use the current slump to transition to the March
options.  The roll-up to a (short) MAR-$70 call can be made with
little or no debit, offering increased upside potential for the
already profitable spread.  The new position is LJAN60C/MAR70C at
$2.12 debit.

The small-cap group continues to outperform the majority of stocks
and we had a number of bullish issues in today's session.  Duramed
(DRMD) moved up $1.12, closing at $11.50 on continued speculation
of a possible merger with one of the larger drug companies.  Our
new diagonal position, JUN5C/MAR10C is already trading at a small
profit and we expect the issue to move higher in the coming weeks.
Recoton (RCOT) climbed $1.38 to end at $12.25, recovering nicely
from last week's short-term losses.  The current position in that
issue, MAY5C/FEB10C is trading at maximum profit.  Our choices are;
close the play for $0.75 profit on $4.25 invested or sell a March
option to extend the position.  We elected to roll to the MAR-$12
call at a credit of $0.43. The new spread is MAY5C/MAR10C at a cost
of $3.88.  Marketing Services Group (MSGI) moved up $1.62 to $26.50
in anticipation of a positive earnings announcement after the close
of trading.  MSGI did not disappoint, reporting record results for
the quarter with revenues up 68% to $27.8 million.  Unfortunately
the company still had a net loss, principally attributable to an
increased cash burn from the acceleration of Internet operations,
a slowdown in telemarketing operations and expenses associated
with recent acquisitions.  Our current spread, MAY10C/FEB22C is at
maximum profit and once again the decision will have to be made;
exit with the current profit or sell a March option for increased
upside potential.  With the stock well above our sold strike, we
can wait until any post-earnings selling occurs before making the
decision.  If the time value premium in the sold option falls to
parity, the risk of early assignment will increase.  Keep that in
mind when you are holding short positions to the expiration date.

One of the questions I receive frequently concerns the correct
timing of early exits and adjustments for spread positions.  While
there is no perfect answer (or solution) to this dilemma, one of
the most practical closing strategies is based on the target ROI
for the position.  If a play originates with a 15% monthly return
target and a slightly smaller but reasonable profit becomes
available at an earlier time (based on a lower yield and shorter
time period), the position is a candidate for early closure.  Of
course most positions that meet that criteria will appear to be so
successful they can't possibly lose at expiration.  This aspect
along with commission considerations and the effects of human
nature, which urges you to simply hold the play and hope for
maximum profit, will prevent most traders from closing the play.
As most of you know, even when the issue moves in the predicted 
direction, the play is always at risk from a variety of changes in
the market.  These effects are reduced with hedged positions but
the end result can still be unfavorable.  There are a number of
examples in this month's portfolio including some which might have
been our most profitable positions, except that they were closed
in the interest of sound money management.  This subject certainly
warrants further discussion and we will explore the most common
approaches in future narratives.


Tuesday, February 15

Blue-chip stocks rallied again Tuesday as Investors shifted money
to industrial companies.  The Dow Average rose 198 points to 10,718
while technology shares staged a comeback in late trading and the
Nasdaq managed to close without loss at 4,420.  The S&P 500 Index
rallied 12 points to 1,402 while the small-cap Russell 2000 rose
slightly to 540.  Market breadth was mixed with advancing issues
leading decliners 1,536 to 1,471 on the Big Board with volume of
1.08 billion shares.  The 30-year U.S. Treasury bond ended off
8/32, driving the yield up to 6.24%.

Portfolio plays:

The Dow came rumbling back at full gallop today as the current
short-term rotation out of technology issues drove blue-chips
higher.  Unfortunately, our portfolio is heavily weighted with
technology issues and thus we did not have many participants in
the rally.  However, we did have a number of big winners in the
hot sectors; business to-business e-commerce and bandwidth and
Internet infrastructure.  Emulex (EMLX) was the top performer in
the session, climbing $10 to $130 on a rally in the data storage
sector.  The March covered-combination is profitable above $95.
Another big mover was the recent blow-out drug stock Geron (GERN).
Today the issue gapped up $6 to a new all-time high at $44.  Our
bullish diagonal spread was previously closed near maximum profit
but the has play offered a number of favorable entry and exit
opportunities.  This position is also a good example of when it
might be better to take the early (and slightly smaller return)
rather than chase the issue with numerous upside adjustments.

Small-cap stocks dominated the headlines in the Spreads section
and telecom and computer hardware companies were the leading
issues.  P-Coms (PCMS) rallied almost $3 to close at a 52-week
high near $22.  In January, the company reported that revenue rose
significantly with their fixed wireless technologies gaining new
prominence as a new, high-speed networking alternative to laying
cable.  Now analysts are predicting increasing sales revenue and
up-trends in gross margin throughout the coming year.  It appears
that investors agree.  Our problem is how to make the most of the
continued bullish moves.  The first position (MAY7C/FEB12C) was
previously closed for a one-month, 30% profit.  A recent upside
adjustment created a new position, MAY7C/MAR15C at a $4.25 debit.
This spread is also at maximum profit and the stock price is now
$7 above the sold strike.  Without a significant pull-back to
assist in the transition, it appears this spread will close
permanently on expiration Friday.

Micron Electronics (MUEI) was also on the move, climbing $1.50 to
$12.50 after unveiling its lightest notebook PC in an attempt to
gain more market share and take advantage of new features found in
Windows 2000.  The company until now had not offered a lightweight
notebook, putting it at a disadvantage compared to Dell Computer,
IBM and others industry leaders.  The rally came at a perfect time
and should provide an excellent opportunity to roll our current
spread (APR12C/FEB12C at $1.62 credit) into March.  Another small
surprise was Boston Communications.  Today the stock broke a recent
resistance level near $8 after the company reported it has doubled
its prepaid wireless subscriber base, reaching two million in less
than one year.  BCGI attributes the 100%, year-over-year growth to
their new nationwide roaming network, real-time rating capabilities
and the increasing commitment to prepaid programs from wireless
carrier customers.  In this case, there is excellent potential for
continued upside movement and the transition to March options is
the first step to increase the position profit.  The new (adjusted)
spread is JUN5C/MAR7C at $0.93 debit.

A couple of the mid-cap issues deserve mention. Concentric Network
(CNCX) bounded $2.75 to end just short of a new all-time high near
$50.  The move was notable and may propel the issue to a higher
range but our bullish diagonal position was previously closed near
maximum profit.  Helix (HELX) also continued a recent run, adding
$1.75 to end at a new all-time high near $59.  With this issue, we
have a deep ITM, bull-call spread.  The APR25C/45C at $15.75 debit
can be closed for $17 credit.  Is the slightly smaller, short-term
reward worth an early exit?  Only you can decide..

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


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

VSTR - VoiceStream  $155.31   *** A New All-Time High! ***

VoiceStream Wireless provides personal communications services
in a number of urban markets across the United States.  They are
also constructing new systems in Texas and other regions.  The
company holds over 100 broadband (PCS) licenses covering over 60
million potential clients.  VoiceStream's services include rate
plans, prepaid services, wireless e-Mail, wireless data, and
text messaging.  In addition to offering home coverage in the
urban markets, the company provides national and global roaming.

The big news today is the FCC approval of VoiceStream's $2 billion
deal to buy Omnipoint (OMPT).  The merger, along with their plans
to buy Aerial Communications (AERL), creates a near-nationwide
wireless phone network based on the GSM technology platform, a
European standard for cellular service.  The company also recently
announced they will pay $400 million to buy a portion of Microcell
Telecommunications (MICT), a similar cellular telephone company.
VoiceStream will receive 9.6 million class A non-voting shares of 
Microcell, representing 15% of the company. 

VoiceStream has been making acquisitions to broaden its reach and
now they are considered an industry leader.  Earlier in the month,
Salomon Smith Barney initiated coverage of the company with a BUY
SPECULATIVE rating; target $165, based on their growing network.
Deutsche Banc Alex Brown made their outlook known back in January
with an upgrade to STRONG BUY, based on the company's discounted
price/value.

Unfortunately, price may be the issue tomorrow as nobody knows
where the stock will open. We are going to list the most favorable
position based on the current option prices and will plan to make
the necessary adjustments after the issue begins trading.
 

PLAY (conservative - bullish/debit spread):

BUY  CALL  MAR-110 UVT-CB OI=80 A=$47.25
SELL CALL  MAR-130 BWU-CF OI=31 B=$29.88
INITIAL NET DEBIT TARGET=$17.00-$17.25 ROI(max)=15%

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

****

IONA - Iona Technologies (PLC)  $67.00   *** On The Move! ***
 
IONA Technologies operates in one market segment: distributed
component software products that enable the development,
integration and management of network-based applications in
multi-platform network environments. IONA's two categories of
containers are basic, or entry-level container products, such
as Orbix and OrbixWeb, and enterprise level container products,
such as OrbixOTM, Orbix for MVS and OrbixTalk, which include
support for advanced functionality; transaction management and
mainframe connectivity. The company also provides professional
services, consisting of customer consulting and training and
product customization and enhancement, as well as technical
product support.

One of the most recent news items concerns IONA's new deal with
Credit Suisse.  Iona recently signed a lucrative, multi-year
strategy contract with Credit Suisse to enable the bank's users
to access crucial mainframe-based information through modern
web-based clients, resulting in a compelling business solution.
In the past, Credit Suisse has made major investments in large
mainframe-based systems, enterprise resource applications and
data centers, and this expenditure demonstrates the capability
of IONA's technology.  The bank used Orbix to integrate their
existing processing systems with new front-end applications
necessary for their products and distribution channels.

IONA's goal is to makes it easy for brick and mortar companies to
reliably extend their business to the Internet.  Their product
suite provides an excellent solution to enable users to implement
new e-business strategies quickly and efficiently, meeting the
demands of the growing electronic community.  Investors appear
to support their outlook as the stock price has climbed steadily
in recent months, closing at a new all-time high on Monday.  We
will use the current consolidation to enter this position with a
favorable credit.


PLAY (conservative - bullish/credit spread):

BUY  PUT MAR-45 YWQ-OI OI=0  A=$0.68
SELL PUT MAR-50 YWQ-OJ OI=30 B=$1.25
INITIAL NET CREDIT TARGET=$0.62 ROI(max)=14%

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

****

CPWR - Compuware  $23.56   *** Bottom Fishing! ***

Compuware provides software products and professional services
designed to increase the productivity of the information systems
departments of its target market, the 20,000 largest enterprises
worldwide. Although the company has historically focused on the
testing and implementation environment in the mainframe market,
CPWR also operates in the client/server market with products and
professional services in the application development, testing and
implementation and systems management environments. Compuware's
products are classified under the categories of Mainframe Testing
and Implementation Tools, Application Development Tools, Testing
and Implementation Tools and Systems Management Tools. Compuware
also offers a broad range of professional services, including
business systems analysis, design and programming, software
conversion, systems planning and systems consulting.

Shares in the beleaguered stock rallied over $3 today after J.P.
Morgan began coverage of the business software maker with a BUY
rating and a target of $44.  This new direction may be the first
step in recovering from a sharp drop last month amid concerns
about less-than-robust professional services revenues.  The JPM
analyst suggested that Compuware is poised to enjoy the benefits
of the e-commerce wave and traders jumped on the bargain-priced
issue after the news.  Other analysts have supported the bullish
outlook in the past few weeks including: First Boston with a BUY
rating; target $42, based on results slightly ahead of revised
estimates; Hambrecht & Quist with a BUY rating, after quarterly
reports came in line with pre-announced targets and the revenues
were ahead of estimates; and Prudential, with a STRONG BUY rating,
a position on the select list and a target of $34 based on slowly
increasing service revenues & margins.

This position offers a fair risk/reward ratio for those of you
that are bullish on the issue. A small disparity in call option
premiums pricing will help us open the play at a discount.
 

PLAY (very speculative - bullish/debit spread):

BUY  CALL MAR-20.00 CWQ-CD OI=260  A=$4.38
SELL CALL MAR-22.50 CWQ-CX OI=2712 B=$2.75
INITIAL NET DEBIT TARGET=$1.38-$1.50 ROI(max)=66%

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



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