Option Investor

Daily Newsletter, Tuesday, 02/22/2000

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The Option Investor Newsletter         Tuesday  2-22-2000
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)
       2-22-2000           High     Low     Volume Advance Decline
DOW    10304.80 +  85.30 10336.80 10103.80   980,317k 1,358  1,658
Nasdaq  4382.12 -  29.62  4443.94  4291.01 1,772,029k 1,808  2,462
S&P-100  731.58 +   3.06   734.75   719.48    Totals  3,166  4,120
S&P-500 1352.17 +   6.08  1358.11  1331.88            43.5%  56.5%
$RUT     540.95 -   4.73   547.55   531.40
$TRAN   2459.14 +  28.34  2463.42  2424.49
VIX       27.55 -   0.90    30.69    27.21
Put/Call Ratio       .63

Almost and Exactly

The Dow, seemingly hell bent for a retest of the October low
of 9976, paused this afternoon on its downward plunge. Contrary
to Friday's selling action, the buyers were lined up on the
sidelines at the open. After a brief rally the few remaining
sellers overpowered the buyers for a brief drop of -115 points
to 10,103. The closer we got to 10000 the more buyers cut in
line to beat other investors to the bargains. Those waiting
to see if 10000 would hold were left waiting at the altar after
the bargain hunting kept the Dow from getting within 100 points
of the goal. The Dow then rebounded +225 points to trade over
+100 points and 10300 in late afternoon. After almost touching
10K again the Dow looked like it was gaining strength all
afternoon as buyers gave up on the idea that 10K would be just
around the corner.

The Nasdaq, always the contrarian, diverged with the Dow yet
again but in the opposite direction. With the Dow in rally
mode you would have expected the Nasdaq to be setting records
again. The only record set by the Nasdaq was the bounce off
-120 at 4291. This was the exact same number that served as
support before charging off +260 points last week. The 150
point trading range today was highlighted by strong rebounds
by many of the previous winners but also by some big losers
as well. The Biotech index has now corrected -10% from the
highs set last week but it is still up +44% YTD.

When the VIX spiked into buy territory over 30 this morning the 
bargain hunters went shopping. Some of the most beat down stocks
received the most attention. GE, down from 144 to 125 in February
gained +4.50 today. Dow Chemical, down from 121 to 104 in February
jumped +9.38 as bottom fishers ran from stock to stock looking for
huge retracements. Texas Instruments soared +15 to $149 on news 
that they were expanding their DSP offerings.

Volume was moderate on both major exchanges with the Nasdaq only
trading 1.78 bln shares. Even though the Dow was positive the
advance/decline on the NYSE was strongly negative at 1658 decliners
to 1358 advancers. The Nasdaq was no better with decliners beating
advancers by 2462 to 1808. Several analysts said there was heavy
margin related selling when the averages dipped at mid-morning.
With the Dow down -1600 points from the Jan-14th high we are 
reaching the pain threshold for many highly leveraged traders.

Part of the credit given to the turn around today was the flurry
of stock buyback announcements. The leader with the mother of all
buybacks was MRK. Now trading at a 52 week low the company announced
that it would buy back $10 billion of shares. Following in their
footsteps were GIS 50 mln shares, Goodrich $300 mln, LTD $200 mln,
WFC 81 mln shares, KMB 25 mln shares, VISX 10 mln shares. Share
buybacks tend to energize investors and markets. The investors
are encouraged that there will be less shares in the market place
and therefore higher earnings and share prices. The markets are
energized because buy backs tend to occur at market bottoms.
The flurry of announcements today would tend to make investors
believe that 10000 is as low as we are going.

The strong afternoon rally on the Dow and the Nasdaq's struggle
back to positive territory were blunted by the realization that
Greenspan testifies before Congress again tomorrow and many
traders do not want to hold over that event. The interest rate 
worries continue to plague the market and bonds are benefitting 
from the shift out of stocks. As a result, bond prices rose a 
full point pushing the yield, which moves inverse to the price,
down to its low of the day at 6.08%.

The Dow is still in oversold territory and the Nasdaq is just
consolidating from the recent gains. The challenge will be holding
today's gains on the Dow. We need to build a base here above
10,000 or the future looks bleak. The 10,000 level is a very
important psychological support level. As long as we stay above
it we have a chance at catching fire and running back to record
levels. Once we slip and close below 10k the bloom will be gone
from the rose and some analysts are calling for 8800-9000. It
will never happen in my mind because the economy is still
firing on all cylinders. Mr G., as much as we poke fun at him
will manage the inflation and keep us on track. We will take
our monthly vaccinations for a while but then we will get
healthy again. The next two rate hikes are already priced into 
the market and once past the verbal abuse by Greenspan on
Wednesday we should be on track. I just hope that track is up!
AMG data reported today that $16.9 billion came out of growth
and value funds so far in February. Don't look now but that
money has to go somewhere and all bets are on tech stocks.
Anybody else want to make that bet?

Trade smart, sell too soon.

Jim Brown

Disclosure: I did not pull the trigger at 4300 today. It was
just under for a minute and only 9 points. 

Sign me, 
Still holding.

My current positions include:


Spring Advanced Seminar Series

The spring dates for the OptionInvestor/Optionetics seminar
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Feb 27/28 Los Angeles
Mar 19/20 Chicago 
Mar 26/27 Dallas
Apr 2/3   San Francisco

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SciClone Pharmaceutical: A Profitable Small-Cap Biotech? 

Believe it or not, there are other sectors in this booming 
economy to invest in other than optical networking and business 
to business e-commerce that can offer big potential returns.  
The biotech industry happens to be one of them.  The average 
biotech mutual fund rose more than 60 percent last year.  This 
year looks like it could be a repeat.  

Consolidation in the industry is creating larger, more 
efficient companies.  This consolidation is allowing companies 
to combine their respective drug pipelines, thus, reducing the 
gaps between product releases.  Also, automation in the sector 
has helped speed up the process of conducting clinical trials.  
The benefit of consolidation and automation: a company that 
can bring more new drugs to market faster and more cost-

One way to play biotech is to bet on the Pfizers and Warner 
Lamberts of the world.  These companies are profitable and have 
proven track records with established drugs.  These companies 
may receive FDA approval on several drugs each year.  It is 
the safer way to invest in biotech.  And for taking the safer 
route, the probability of losses is reduced, but at the same 
time, so is the probability for huge gains. 

The other way to play biotech is to invest in a small company 
with perhaps a very limited track record, and one or two drugs 
in later-stage clinical trials that have some promise.  These 
are the companies typically have no profits and don't plan on 
generating profits for several years.  However, approval of 
just one drug could send shares of a small biotech to the 
moon, especially if the drug has a large potential market and 
is costly to administer. 

SciClone Pharmaceuticals (SCLN), based in San Mateo, CA, just 
may be that company.  Sciclone is no Pfizer or a Warner 
Lambert, but it does have some good things going for it. 

SciClone acquires, develops, and commercializes drugs for 
treating chronic and life-threatening diseases.  Its lead drug, 
ZADAXIN, targets hepatitis B and C, cancer, and certain immune 
disorders.  ZADAXIN is approved for treating hepatitis B in 
China, Kuwait, Peru, the Philippines, and Singapore.  It is 
also used as an influenza vaccine in Argentina, and is 
undergoing clinical trials for treating Hepatitis C in the US 
and Europe.  The firm has an agreement with Schering-Plough 
(SGP) to develop and market ZADAXIN in Japan.  A second drug 
is undergoing clinical trials in the U.S. for use against 
cystic fibrosis, called CPX. 

Hepatitis B is a highly infectious liver disease that can lead 
to liver cancer and death.  Worldwide, there are approximately 
350 million long-term carriers of the Hepatitis B virus, 
including 1.2 million in the United States.  According to 
the Centers for Disease Control and Prevention, over 200,000 
Americans contract acute Hepatitis B each year. 

Just last month, SciClone announced the start of a U.S. Phase 
II Hepatitis B study using its ZADAXIN, in combination with 
lamivudine (discovered by BioChem Pharma and developed by 
Glaxo Wellcome), an FDA-approved nucleoside analogue.  The 
study will assess the safety and efficacy of the combination 
in the treatment of chronic hepatitis B patients. 
Approximately 1.2 million people in the U.S. are chronic 
carriers of Hepatitis B. Lamivudine currently is used as 
a singular treatment, but has been unsuccessful. 

Doctors say that it is quite possible that multi-drug 
cocktails will emerge as the preferred treatment regimen for 
hepatitis B in the U.S., just as we have seen with HIV and 
hepatitis C.

"We believe that ZADAXIN plus lamivudine could be an ideal 
combination therapy for Hepatitis B, a combination designed to 
boost the patient's immune system while suppressing hepatitis 
B viral replication," said Alfred R. Rudolph, M.D., SciClone's 
Chief Operating Officer.

SciClone expects to start pivotal U.S. Phase 3 studies for 
Hepatitis C during this year, and has filed for ZADAXIN 
marketing approval in 19 additional countries. 

Cystic fibrosis is the most common fatal genetic disorder 
among Caucasians.  Cystic fibrosis will kill most of its 
70,000 worldwide victims before they reach the age of 31. 

SciClone, just last week, announced plans to move forward with 
the next stage of its phase II development program for CPX.  
Sciclone plans to study a new formulation of CPX, based on 
results of its initial phase II study. 

"CPX is one of the most promising therapies for CF patients," 
said Robert J. Beall, Ph.D., President and Chief Executive 
Officer of the Cystic Fibrosis Foundation (CFF). 

From a valuation standpoint, Sciclone's financials are looking 
better and better. 

For the year ending December 31, 1999, the company reported 
total revenue of $9.4 million versus $3.7 million for 1998. 
Net losses were $5.4 million, or 26 cents per share, a 
decrease of 74 percent, from a loss of $21.1 million, or $1.29 
per share, excluding a dividend of 19 cents per share, in 

The company's net loss for the fourth quarter was just 
$535,000, or 2 cents per share, a 94 percent reduction 
compared to a loss of almost $9.5 million, or 52 cents per 
share, for the fourth quarter of 1998. 

Sales of ZADAXIN for the fourth quarter of 1999 were $2.99 
million versus $1.26 million in the prior year period.  Total 
ZADAXIN sales for 1999 were $9.1 million versus $3.6 million 
for 1998.

SciClone said the improvement in operating results is based on 
the 1999 restructuring of the company to focus on sustaining 
international sales growth, increased drug development 
activities through partnerships and relatively stable 
operating expenses.  The company expects these trends to 
continue in 2000 and maintains the goal of operating 
profitably by the end of this year.

CEO Donald Sellers has increased his stake in the company by 
more than 50 percent to around 52,000 shares in the past few 
months.  One director made a 68,000-share open market purchase 
in July of 1999.  Insider purchases are always a good sign of 
management's confidence in the company. 

Cash totaled almost $12.7 million as of February 2, 2000. 
According to Zack's Investment Research, Sciclone is 
forecasted to post reduced losses of 9 cents per share for 
2000 and a profit of 46 cents per share for fiscal year 2001. 
The one analyst covering the company has a Strong Buy rating 
on the shares.  Sciclone has no debt.    

SciClone stock is currently trading at $9 per share, which 
values the company at less than 20 times fiscal year 2001 
earnings of 46 cents per share.  With two promising drugs, one 
moving to late-stage Phase II trials and one scheduled for 
U.S.  Phase III trials, no debt, profitability in 2000, and 
strong insider buying, SciClone looks poised for future 

Market Posture

As of Market Close - Tuesday, February 22, 2000 

                    Key Benchmarks
Broad Market        Bearish/Bullish     Last    Posture/Since  
Alert **************************************************************** 
DOW Industrials     10,700   11,250   10,304    BEARISH  2.17
SPX S&P 500          1,350    1,450    1,352    BEARISH  2.18
OEX S&P 100            740      780      732    BEARISH  2.18
RUT Russell 2000       500      560      541    Neutral  2.18
NDX NASD 100         3,575    4,090    3,969    Neutral  2.18
MSH High Tech        1,800    2,000    1,900    Neutral  2.11

XCI Hardware         1,300    1,525    1,427    Neutral  2.11
CWX Software         1,200    1,470    1,441    Neutral  2.18
SOX Semiconductor      740      940      990    Neutral  2.18
NWX Networking         900    1,040    1,008    Neutral  2.18
INX Internet           700      800      708    Neutral  1.06
BTK Biotech            420      675      612    Neutral  2.18

BIX Banking            550      690      479    BEARISH 11.30
XBD Brokerage          400      450      404    Neutral 11.30
IUX Insurance          550      600      492    BEARISH 11.30

RLX Retail             950    1,000      805    BEARISH  1.28
DRG Drug               340      380      328    BEARISH  2.18
HCX Healthcare         700      750      685    BEARISH  2.18
XAL Airline            160      180      120    BEARISH  5.21
OIX Oil & Gas          250      280      256    Neutral  2.15

***Posture Alert***
Equity markets rebounding after Friday's precipitous sell off.  
However, our market posture remains the same until we get 
confirmation of today's potential market reversal. (2/22)

Market Sentiment 

Confirming a Reversal! 
By Pinnacle Capital Advisors 
Tuesday, February 22, 2000

Before jumping in the Market Wednesday (2/23), make sure you 
confirm the potential reversal signal given during Tuesday's 
action.  Attached below are intraday charts of several 
potentially strong reversal signals across some broad market 

Notice also the chart provided for the Market Volatility Index 
(VIX). 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 Tuesday (2/22) at 30.7 before collapsing and 
closing at 27.3. This may lead to a potential reversal pattern and 
signal the end of the market's current slide. 



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 

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 (6.068):
Friday's action appears to holding just above its 200-dma. 

Volatility Index (27.33):
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 
Tuesday (2/18) at 30.7 before collapsing and closing at 27.3 This 
may lead to a potential reversal pattern and signal the end of the 
market's current slide. 

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                       (2/18)      (2/22)

Overhead Resistance (750-830)     2.16       3.15    

OEX Close                       728.04     730.16

Underlying Support  (700-730)     5.63       7.10   

What the Pinnacle Index is telling us:
Underlying resistance is building and could provide support for 
the market. 

Peak Open Interest (OEX)
                     Friday           Tues  
Strike/Contracts     (2/18)           (2/22)

Puts               700 / 5,522      700 / 6,241
Calls              800 / 4,863      800 / 5,300
Put/Call Ratio         1.14            1.2

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 22, 2000                       27.33

Please view this in COURIER 10 font for alignment

Daily Results

Index      Last    Tue   Week
Dow     10304.84  85.32  85.32
Nasdaq   4382.12 -29.62 -29.62
$OEX      731.58   3.06   3.06
$SPX     1352.17   6.08   6.08
$RUT      540.95  -4.73  -4.73
$TRAN    2459.14  28.34  28.34
$VIX       27.55  -0.90  -0.90

Calls              Tue   Week

INKT      132.00   9.44   9.44  New, ready to rally with Nasdaq
LHSP       98.75   9.38   9.38  A great performer in this market
SEBL      121.88   7.31   7.31  New, favorable sentiment for SEBL
ENMD       74.50   7.00   7.00  How can you not love this chart?
EMLX      146.00   6.00   6.00  EMLX continues Friday's momentum
QLGC      115.50   4.50   4.50  New, ignores market weakness
ERICY      91.25   2.56   2.56  ERICY is a news driven play
NEON       76.00   2.38   2.38  NEON's glow continues to attract
COMS       70.88   1.19   1.19  A volatile but impressive move
COVD       85.13   0.13   0.13  Another good news bad news day
ESPI       13.56  -0.38  -0.38  New earnings play performs well
PHCM      136.81  -0.81  -0.81  PHCM avoids potential disaster
PCMS       22.16  -0.91  -0.91  Are the new buyers committed?
Q          48.50  -0.94  -0.94  A possible point of entry for Q
IFCI       30.88  -1.13  -1.13  Tags yet another new high today
GLW       190.00  -3.31  -3.31  Anticipating split announcement
INSP      196.25  -4.00  -4.00  We have not given up on INSP
BCE       112.94  -6.44  -6.44  Dropped, like watching paint dry
SEPR      159.94  -7.19  -7.19  Did you catch the entry point?
ISLD      107.75  -7.63  -7.63  A pure Internet momentum play
ISSX       86.13  -8.56  -8.56  Dropped, a possible trend change
ANAD      136.38  -9.88  -9.88  ANAD's gains too juicy to resist


MCOM       85.94  -3.81  -3.81  New, takes turn and heads south
KMG        44.44  -1.00  -1.00  KMG slides right through $45
RHAT       71.63   0.13   0.13  Resistance could keep the hat on
KRB        20.75   0.75   0.75  Dropped, beginning of a rally?
PGR        56.94   1.00   1.00  Look at today in two lights
JNJ        78.63   1.19   1.19  Still trapped under resistance
MRK        65.50   3.50   3.50  Dropped, $10 billion buyback


The Square Peg Round Hole Theory
By Renee White

Last Thursday, I shared my frustration of trying to enter 
multiple plays with limit orders that were slightly under what 
the market was willing to let me buy. I had been in cash for many 
weeks and I was getting anxious to trade. I was ALMOST, determined 
to trade, even though the market was against my inner instincts 
and the prices I wanted to pay on that day. In a desire to play, 
I committed a trading sin by inching up my limit price on two 
plays, ever so slightly. Still I was not filled. By the close, I 
had felt totally beat up, even though I had not bought anything 
and my money was still in the bank. Now, looking at hind-site, I 
realize how lucky I was.

Starting Thursday evening, I began having computer problems, which 
kept me tied up with (what seemed to be) every tech support person 
in the country until last evening. I even had the paid Microsoft 
techs stumped for a while.  The good news was that I was 
completely out of the market on Friday's sell off and those pains 
of missed opportunities from Thursday, quickly dissipated as I 
watched the premiums of things I had tried to buy, atrophy to a 
point of cachexia. 

I believe very strongly in the Square Peg, Round Hole theory of 
life. Many years ago, after a long introspective search for the 
understanding of who I was, I realized a correlation between 
anything that I tried to force "to be one way", and the opposing 
forces that kept my desires from being met.  I noticed that the 
more I tried to force something, it ended up taking way too much 
negative energy and effort to get. Also, it seemed as though the 
win ended up being less than what I had expected or dreamed. The 
alternative being things in life that seem to work, seem to work 
from the beginning.  Something tells you it will work out. It may 
need adjustments and tweaking, but not a complete overhaul. 

I guess you can say that this is similar to the blending of either 
two water based substances, or an oil & water mixture. In my minds 
eye, I see these forces in almost everything I do. I evaluate 
relationships by them, potential business deals, and now trading 
(when I think about it).  I evaluate things on bad days, to see 
how they are handled. It is almost a second sense to me now. When 
things aren't making progress, or appearing to be getting 
difficult, red flags go up and I find myself backing off to watch 
from the sidelines. If I am right that the forces are against me, 
the storm will continue without my participation and I realize it 
was a bad deal. If I am wrong, it gives me an opportunity to 
re-evaluate the situation and decide if it is indeed a win/win 
situation just going through a rocky time. 

When I inched up my limit orders last week, that was trying to 
force a play and I knew better. Thank goodness it still didn't 
fill. Traders know not to chase stocks. In a high flying frenzy, 
it causes you to over pay due to emotional excitement. What goes 
up, must come down. Wait for the pullback. If you missed the 
launch, at least wait for an intra-day pullback to support. The 
opposing forces of wanting to buy versus staying in cash, worked 
me over last week. I think, no, I KNOW, that had I not had 
computer problems on Friday, my fingers would have been sliced 
off one digit at a time, while I tried to catch one falling knife 
after another. My computer problems kept me out of the market, 
which meant not only that I could not buy too soon, but I was not 
faced with trying to decide to sell everything I had bought the 
day before. The missed buying opportunities from Thursday, now 
felt like luck. Sometimes the laws of nature work in mysterious 

Uploading to a new computer is always a frustrating endeavor. I 
am always amazed how many hours can be eaten up with plug-n-play 
technology. It's akin to helter skelter on a pretty, sunny day. I 
thought the pain was over this morning until I downloaded qcharts 
on my new machine and realized all my settings were gone. All my 
alerts, all my stops, my bases, my watch list, my option lists, 
Ugh.this was painful. In my mind, everyone had all weekend to 
study their charts and plan their strategies while I was with tech 
support until last night. Also, my qcharts were blinking in and 
out, with bad data showing up, which I initially blamed on my 
computer problems. Disorientation is very uncomfortable and 
coming to work "green" in the middle of sell-offs just makes it 

In medicine, you are taught to always think in terms of the big 
picture. Although the immediate crisis catches your attention, one 
must always be thinking of their differential diagnosis. Treat the 
cause, not just the symptom. Coming into the market today, cold 
and without my normal parameters in front of me, I felt the first 
thing to do was evaluate the big picture.

The DOW was the easiest. It was still selling off from its recent 
slide. Looking at a daily chart showed it heading further south. 
I saw minor support at 10,200 from late September which also saw 
support in April, then stronger support close to 10,000 from mid 
October, which also showed stronger support from last April. 
Since the DOW quickly headed further south from the open, I was 
looking for some leap opportunities which I felt would recover 
nicely, if these support levels held and the VIX hit 30. I began 
studying charts on stocks I knew I wanted to own, that had been 
hit hard, but had good growth potential. With the Nasdaq down also 
(an unusually thing to see these days), I feel bounces on each 
could be soon, since I feel the negative sentiment in the air. I 
did not have time for all the research I needed, but I only needed 
a couple of good plays. 

One that I found was GE. As I looked at the daily chart, GE closed 
last Friday at a 125 support level seen last October. This looked 
like weak support, with stronger support being around 120. GE has 
already announced a 3:1 split, with a record date of 4/27/00. It 
has corrected >21% from its high of 159 1/2 around Christmas. For 
those who like dividends, GE also pays handsomely @ 1.64/share. 
Looking back over the last 4 years, the only other similar major 
sell off that I saw, occurred during the July-October 1998 period. 
For those who don't remember, this was during a major overall 
market correction also. By the end of the next quarter, it had a 
+50% increase from the October lows. For me, these things help 
stack the deck in my favor. GE is a good strong company which has 
kept up with technological advancements. I expect continued growth 
and rewards, along with interest in the stock split. It did not 
test the 120 support, but traded higher all day. I believe, this 
was a good entry for a Jan '02 leap play.

Then watching Nasdaq more closely, again I pulled up my daily 
chart and saw 4300 as the support to watch. As it sank below that 
support, with the VIX spiking over 30, I put in orders for QQQ 
March 186. I initially had problems with my trading programs since 
I had not adjusted any settings on the new download. I missed the 
best entry because buyers rushed in as I expected, while I was 
fighting with my order. This time, I did not inch up my limits 
but waited for another intra-day pull back. Although Nasdaq did 
not pierce under 4300 again, it did tap it and my entry points 
were staged for good fills. These Q's looked great at the end of 
the day and I expect them to fly once the buying returns. 

The lesson I keep reminding myself is when your square pegs seem 
not to be fitting in those round holes, just stop yourself and 
ask if the forces of nature seem to be against you. If so, 
nothing you do will help. Wait for that exciting opportunity that 
feels right, the right price, that relationship, or that 
business deal, that seems to fit nicely with your plans, your 
dreams, your research and your emotions. As much as I hate to 
admit it, even computer problems can save you from forcing a 
fit, giving you better entries a day later. 

Renee White
Contact Support


Selling Puts vs. Spreads & Option Traders vs. Market Makers
By Janar Wasito

I would like to explain why I have decided against selling naked
options, including puts, in favor of doing spread trades. Then 
I would like to compare our position as individual traders with 
the market makers in the pits. If you have been following the 
newsletter, you may be experiencing the problem of how to manage 
a large account. That is a good problem to have. The holy grail 
is monthly compounding at a high enough rate (15 - 30%) to turn 
your six figure account into several million dollars in a year 
or two. Jim has been writing about two strategies -- the so 
called covered straddle (or strangle) strategy, and the naked 
put strategy -- as a means to accomplish this goal. I have been 
testing both, and I have decided against them. Here is my 
comparison of the strengths and weaknesses of the naked put 
strategy vs. the spread strategy.

Naked Puts:
1. It is relatively simple. You see a bounce in the market, 
sector, and stock, and simply select an at the money, or slightly 
out of the money put and sell it.
2. Time decay (theta) works in your favor if the stock goes up, 
goes up slightly, or stays flat.
1. It can tie up a lot of margin.
2. Your potential risk is much larger than your reward.

I decided against the strategy because of the two negative 
factors. Other traders may come to the opposite conclusion 
because of the advantages. The first disadvantage is that 
selling puts can tie up a large part of the available margin 
in your account. I am not an expert on margin, and that is 
partly by my disposition and personal comfort level. Until 
January of this year, I never bought a stock on margin. If 
you have a $100,000 account, you can think of your ability 
to sell puts on several levels. The first level is to think 
of your straight cash buying power of $100,000. Say you like 
BRCM, which is at 190. You would not mind owning the stock. 
You can sell (5) BRCM Mar 190 Puts for $1500 apiece, netting 
an inflow of $7500. You have just entered into an obligation 
to buy $95,000 of BRCM stock. You think BRCM is going up, and 
your strategy is to let the puts expire worthless and to pocket 
the premium. You have enough cash in your account to accomplish 
that. $7500/ $100,000 = 7.5% return.

The next level is to look at your $100,000 account and to use 
the margin buying power in your account. You can sell (10) BRCM 
Mar 190 Puts for $1500 apiece, netting an inflow of $15000. You 
have entered into an obligation to buy $190,000 of BRCM stock. 
$15000/ $100,000 = 15% return.

The next level is to calculate how many naked puts you can sell. 
Your broker has various methods of calculating this, and you 
will be able to sell more if you are further out of the money. 
You could call and ask your broker how many of the BRCM Mar 180 
Puts you can sell, for example, and the answer would be an amount 
that is higher than your ability to purchase stock if BRCM drops 
below the strike price and stays there until expiration. I am not 
going to go into this calculation, which has been covered in 
various recent parts of the newsletter. I am simply making a 
personal decision in saying that I am not comfortable with being 
in this position. There are methods to limit your risk -- setting 
stop orders to buy to close the contracts if the contracts or the 
stock hits a certain price. My experience with stops, however, is 
that setting tight stops on a position usually leads to getting 
taken out, and, on average a lot of little losses eventually lead 
to a larger loss. The other protection is diversification. Of 
course, no trader should put all his eggs in a single play. But 
there is a high degree of correlation in the plays in the 
newsletter -- ie, they all move together. It would be one thing 
if you were selling BRCM Puts and HD Puts, but the newsletter 
plays tend to be concentrated in the networking, biotech, and 
Internet sector -- or, simply, the Nasdaq/ tech sector. 
Diversification won't protect you if all of the tech stocks take 
a dive together.

Perhaps the biggest risk of this strategy is that a trader will 
develop complacency and get run over by a big move against his
positions. Hence the description, "picking up dimes in front of 
a bulldozer" for this strategy. The advanced Optionetics seminars 
teach that a trader should first evaluate how much he can lose 
on a trade, then calculate how much he can make. Say, for example, 
that you sold (20) BRCM Mar 180 Puts for 10 1/4 in a $100,000 
account. You take in $20,000, a return of 20%. (I realize that 
you would probably diversify, but the math would be the same if 
you did the same trade across 4 stocks.) If BRCM drops from 190 
to 140 overnight and stays there until expiration in March, then 
you do not have enough buying power in your account to purchase 
the stock you have obligated yourself to buy. You need to be able 
to buy $360,000 worth of stock, which means that you need to be 
able to add another $80,000 to your account -- or perhaps just 
$60,000, if you have the $20,000 credit from the puts you sold. 
That is what you can lose. The most you can make is the premium, 
or $20,000 which you captured by selling the 20 contracts initially.
George Fontanills tells a story of a money manager who ran a fund 
which did nothing but sell naked puts. The fund grew to $60 
million, but, on one day in October 1997, it went to negative 
$60 million.

But perhaps you answer that you can see this type of situation 
coming. You will just not sell puts in August or in October. I 
don't think that is a wise course of action either. If you have 
had success selling puts for several months, you will probably 
grow complacent and overconfident. That is itself the biggest 
danger. In any case, I would recommend that you take a 
conservative, rather than the most aggressive, approach towards 
calculating margin requirements. There is no "riskless" way to 
compound money at steady rates of 15 - 30% a month. There is no 
free lunch. The strategy might be appropriate for some people, 
and it makes a lot of sense to purchase stock, but everyone 
should look hard at the risks before attempting this strategy. 
I also think that we have become complacent in that we assume 
that every dip will be bought, and that there is a constant 
upward bias to the market. I can think of several potential 
scenarios that could lead to major drops --

1. Natural Disaster. Think of a R. 9 earthquake in San 
Francisco/ Silicon Valley that shuts down a lot of Internet 
businesses temporarily.

2. Successful attack on financial systems. The recent attack 
by hackers on web sites is tame by comparison with the 
potential, without going into details for obvious reasons.

The great thing about the naked put strategy is that it takes 
advantage of time decay (theta). Is there a way to capture 
the advantages of theta, while limiting the risk? Here is an 
approach using spreads.

Let's assume that you have a $100,000 account, and that you 
are going to shoot for the same 15 - 30% return that the 
naked put strategy offers. One approach would be to take the 
newsletter recommendations for naked put/ straight call plays, 
complete with the analysis of good entry points and support 
levels, and to engage in a strategy of Bull Put Spreads. For 
example, let's assume that the newsletter picked BRCM (not 
currently a play, but just an example). Instead of writing 
those naked puts, you decide to construct a Bull Put Spread 
as follows:

Sell BRCM Mar 195 Put @ 17 3/4
Buy BRCM Mar 175 Put @ 8 7/8
For a credit of 8.9 with a risk of 11.1. Break Even is 186.

Normally, you would not want to put on a spread with a reward/ 
risk ratio of less than 1/1, but, in this case, you think that 
your probability of pay off is high enough to justify the risk. 
But look at the trade in the context of your portfolio. If you 
sold those naked (20) BRCM Mar 180 Calls, you tie up your entire
$100,000 -- indeed, you obligate yourself to buy $360,000 worth 
of stock, more than you can purchase in your account. But, if 
you put on the above spread with 30 contracts, you have a credit 
(or maximum reward) of 30 * $887 = $26,625. Most importantly, 
your maximum risk is 30 * $1100 = $33,750. If BRCM does in fact 
drop to $140 overnight, you will lose 33% of your account, but 
you will not incur an obligation beyond the funds in your 
account. Moreover, once you have put on the spread, you have 
enough margin left to put on 2 similar positions.

Here then is a summary of Spreads:
1. Allows the trader to create risk/ reward balances (along 
with probability of pay off, and potential for longer time 
2. Can still take advantage of theta.
3. More efficient use of available margin in account
1. Complicated, so harder to construct and execute on the fly 
(but with practice can be done; after all, this is what market 
makers do all day long)

Here is a another comparison -- the individual trader vs. the 
market maker.

Market makers have many advantages, including these:
1. Better access to information about the stock and activity 
in the pits
2. Greater leverage -- market maker margin is 20:1, which is 
far beyond what individual traders will be able to use
3. Speed in execution

But, particularly with a real time quote service like qcharts 
and a broker like Preferred, individual traders have some 
important advantages too:
1. Can pick when to be in the market and when to take a week 
or two off
2. Can see the bigger picture -- can see the quotes on 4 
option exchanges

I want to focus on the last item in the context of putting on 
spread trades to take advantage of the newsletter's market 
awareness, which is a big competitive advantage. Take one of 
the naked puts that Jim sold -- for example the AFFX Mar 280 
Put. The current bid on that contract is 29.875, which is a 
juicy premium by anyone's standards. Let's say you catch a 
nice bounce off of the 275 level, and you sell that contract. 
AFFX is headed up on another surge by the biotechs. One 
alternative, which I personally plan on using, is to let a 
stock like that run up. AFFX is capable of moving 10 or 20 
points in an hour or less. Let's say that AFFX gets to 300, 
and it is still moving north. One thing that you can do at 
this point is to buy a lower strike put. The current ask on 
the AFFX Mar 260 Put, for example, is 21.125. However, if 
AFFX moved up to 300, the ask on that contract would probably 
drop quickly. If you bought that contract at $11.875, you 
would have created a Bull Put Spread with a credit of $18 
and a risk of just $2. 
The break even on that trade would be 280 - 18 = 262. In other 
words, you would make money at expiration if AFFX closed above 
262. If it closed above 280 at expiration, you would pocket the 
entire $18 per contract in your spread. Instead of tying up a 
large part of your account in order to maintain the margin for 
that position, you now just have a margin requirement of $2 
per contract in the spread. Of course, the risk of this 
technique is that AFFX could just as easily move against you. 
One could argue that if you are watching a stock closely enough
to know whether it is moving up or down on a given day or hour, 
you should just trade it with a straight call. All very true, 
but I am trying to point out some creative techniques.

Now let's look at the potential advantages that an individual 
trader can exploit. A few months ago, I visited the options 
trading floor of the Pacific Exchange. It was chaos. Rows of 
screens streaming quotations on stocks, options, and market 
indices. Ranks of market makers in pits huddled around 
specialists in a specific stock option. Hand signals, pieces 
of paper all over the place. The trader who was giving us the 
tour made a comment that stayed with me: "You know, some 
traders try to pick an option on one exchange and to sell it 
for a difference of 1/4 or 1/8 of a point on another exchange. 
We hate those guys." That is an important clue. For all of the
advantages that the market makers in any one exchange have, 
they also have this disadvantage -- there is always a disparity 
of 1/8 or 1/4 of a point between the bids on the AMEX and CBOE 
or between the PACX and PHLX. That spells opportunity.

With a real time quote service like qcharts, and a broker 
like preferred, I can pick exactly where to place my orders. 
Last week, frustrated with some other brokers, I set up a Bull 
Put Spread in Preferred by going to the best exchange to get 
both legs of the position. The "natural" price (ie, the bid 
on the higher strike put minus the ask on the lower strike put) 
was something like 21, but I set up my "do it yourself" spread 
for something like 22.5. A point and a half on a 40 point 
spread. Not that big a deal, right? Maybe so. But how about 
a point and a half on a 5 or 10 point spread? That's a 
significant advantage, especially when all the other factors 
(market direction, sector direction, and stock direction) 
line up in your favor. Usually, a spread order goes to the 
same exchange to be filled, and market makers get a chance 
to look it over and decide whether they like it or not. As 
I learned, it can take a good long time to get a fill. But 
when you are creating your own spread positions for your 
account by hitting the best bid and the best ask on the 
best exchanges, you have total control. The market makers 
who are selling you the individual legs of the spread have 
no idea that you are creating a spread. In fact, with a 
certain minimum number of contracts, the orders are filled 
electronically. That is why I could set up my spread in 32 
seconds on Preferred when attempting to enter the order in 
other brokers had proven more time consuming.

Let's take an example. Say you want to sell the JDSU Mar 200 
Put because you think that JDSU will move up towards its split 
on 3/13. You want to minimize the impact to your margin, so 
you decide on a fairly tight, 5 point spread trade -- a Bull 
Put Spread in which you sell the Mar200 Put and buy the Mar195 
Put. On the AMEX, the bid for the 200P is 16 5/8 and the ask 
on the 195P is 15 1/8. You could get a total credit of 1.5 for 
a risk of 3.5 -- not very favorable. But if you hit the bid on 
the 200P at 17 on the PACX and the ask of 15 1/8 on the AMEX, 
the total credit goes to 1.875 and the risk goes down to 3.125. 
Still not very favorable, but immediately better by going to 
different exchanges. Now, if you wait to leg into the trade 
on an uptrend, you can create even more favorable odds. Say 
you sell the 200P for the best bid of 17, and JDSU is moving 
up. You are short a naked put, but you are watching the play. 
If JDSU moves up 5 points, the ask on the 195P may drop to 12, 
and you can buy that contract to complete the spread position. 
If you can in fact buy the 195P for 12, then you have a 5 point 
Bull Put Spread with a credit of 5. In other words, you have 
reduced the risk in the trade to zero and you are tying up zero 
margin. Of course, this would be the ideal situation. It won't 
always occur just that way. But if you create your own spreads 
by looking for the best exchange for both legs of your trade, 
you can get half a point or a point on a 5 or 10 point spread, 
and that is significant. If you can leg into the trade at the 
most favorable times, then you can give yourself an even bigger 
edge, while still enjoying the reduced risk of a spread vs a 
naked put position.

The same techniques will work for constructing Bull Call 
Spreads as well as Bearish Spreads. Of course, this is a lot 
more complicated than buying straight calls. But if you are 
a serious long term player in this arena, you need to know as 
much as possible to stack the odds in your favor.

On Tuesday, I entered the following trades:
CMGI bull call spread jan01 115/175
ICGE bull put spread sept 120/220
NOK bull call spread jul 190/240
AFFX bull call spread aug 270/310
IMNX bull put spread mar 165/185 (used the technique described 
above to "leg into" the trade for a better credit)
VRSN buy-write w/ mar 240Call (IRA)
VIGN Bull Call Spread Jun 230/270
It is also good to see JDSU moving up this morning, turning my 
Bull Put Spread positive.

And here's the best part of spread trading -- I am headed to 
Paris, Germany & Switzerland tomorrow. (I am meeting one OIN 
subscriber in Paris, and another in Switzerland! And when I 
get over to Ireland again, I am headed up to Rathmullen on 
beautiful Lough Swilly for a beer with another subscriber.) 
I am simply letting the above trades run. The only ones that 
are high anxiety are the March Credit Spreads. The Bull Call 
Spreads can all be adjusted (ie, the short side bought back), 
if the stock price drops when I get back in early March. It 
is fine to day trade a better entry on a spread (eg, IMNX 
credit spread above), but once I am in the trades, I want to 
just walk away and check them twice a day... or twice a week. 
When I get back, I plan to start my program of LEAPs & 
Calendar Spreads.

Good Luck & Respect Risk.

Janar Wasito
Contact Support


An Osmotic Technical Point of View
Dyslexia strikes again and more blips on the Radar 
by Harrison Frolick

In one of my stories on Sunday I incorrectly gave the symbol 
for DSLN- DSL.NET Inc. as NDSL. DSLN is the correct symbol. 
I also forgot to include CMTN this time around as well in the 
Broadband corral. If you want to see all of my potential picks 
in this area go to the Traders Corner in the sidebar and look 
at my February 3rd article.

Buying opportunities are what I see in this market. For those 
of you looking for the dip in HGSI that I mentioned on Sunday, 
it may have given it to you today. Keep an eye on the 3 day MA. 

GWRX-Geoworks gave a buy signal on Friday. I picked up the 
GWU GJ July 50 Calls for $8.5. Toshiba licensed it wireless 
communications patent today. Here is some info.

"ALAMEDA, Calif., Feb 22, 2000 /PRNewswire via COMTEX/ -- 
Geoworks Corporation (Nasdaq: GWRX), a pioneer in wireless 
data communications services and technologies, today announced 
that Toshiba Corporation is the first to finalize a licensing 
agreement for Geoworks' patented flexible user interface 
(Flex UI) technology. Flex UI technology is an essential 
element of the Wireless Application Protocol (WAP), the 
emerging global standard for mobile communications. Geoworks 
has licensed its patented technology to Toshiba for use in a 
series of handset devices. "

This should be the first of many announcements for them. I 
look for it to go to 70 by July with a little luck. They are 
up 7 from Friday to around 41 as I write this.

Here is one more for you. FDC- First Data Corp. I don't 
normally like to play NYSE stocks because of the manipulation 
by the market makers I see every morning, I mean come on, 
holding up a stock for a half an hour while a couple of guys 
sort things out with a pencil? In my opinion the NYSE's days 
are numbered. Anyway, FDC owns Western Union and Transpoint 
which is jointly owned by Microsoft. Transpoint just merged 
with Checkfree-CKFR a few days ago. Here is the deal, these 
guys appear to have the horsepower to own a good portion of 
the transactions on the web. We are talking billions here! 
This means huge earnings potential. They are around 45 right 
now up from 22 in October but, they appear to have built a 
good base for solid growth and, the calls are relatively cheap. 
I picked up the May 50 Calls FDC EJ's for only 2 1/8 today. 
I like these types of plays for doubles, they are sleepers. 
These are the gears that make the Net go. That is it for today,
remember to have fun out there!

Happy Trading!
Contact SupportHarrison


"What is this thing we call volatility?"
By Lee Lowell

     In continuation of my article from last time, I would 
like to dive deeper into the different forms of volatility.  
If you remember from my previous discussion, "volatility" is 
one of the components used in an option-trading model to figure 
out an option's theoretical value.  There are three main types:
     Let's begin with "historical volatility".  Every stock has 
a range that it trades within over the course of a year, (or any 
period of time in the past) and this range is measured and turned 
into a % number, which we call its "volatility".  In technical 
terms, the volatility is really one standard deviation of these 
price movements.  And these movements can be either up or down.  
Here's an example.  DIS currently has a volatility of 25%.  What 
does this tell us?  It is saying that over the course of the 
year, DIS should trade within a range of +/- 25% from its current 
price of today.  If DIS is at $30/share today, then you can 
expect it to move in a range from $22.50 - $37.50 over the next 
year.  Now this theory holds true about 67% of the time for a one 
standard deviation move.  A two standard deviation move will hold 
true with a 95% accuracy.  So if you really want to be sure about 
DIS' range over the next year and be 95% accurate about it, then 
you need to just double its range to $15-$45/ share.  This has a 
big effect when trading and I will show you how to use this in 
your own options trading in the next article.  Just remember that 
historical volatility is a measurement of the underlying stock 
     How is historical volatility measured and what time frames 
should we use?  (The actual formula and mathematics involved in 
the calculation is a little complex for this discussion but it 
can be found in various option novels)  This is a good question 
because historical volatility can be measured and calculated in a 
number of different ways.  Do you want to know the stock's 
volatility for the last 10 days, 2 months, 1 year, 10 years, etc?  
What is best?  Do you use daily or weekly closing prices, or do 
you take an average of the high, low, and close for the day?  
It's confusing.  So what's the answer?

     The answer really depends on your own individual time frame 
for the option you plan to take.  If you're looking to buy a one-
year leap call option, you might want to look at the stock's 
historical volatility over the last year because that tends to 
smooth out the recent erratic moves.  But you should also look at 
a more recent volatility number also, maybe a 3-month volatility 
chart.  This could give you a feel for the stock's most recent 
activity.  So when planning your trade, you could actually take a 
weighted average of those two historical numbers and use that to 
give you a better volatility picture.  Now, which prices of the 
underlying should you use?  Do you use closing prices only, high, 
low and close averaged together or just the high and low 
together?  Do you use daily prices, weekly prices or monthly 
prices?  Again that depends on your time frame but to get the 
most accurate picture, most systems rely on the daily close to 
close method.
     This brings us to the second form of volatility - "forecast 
volatility".  This is your own guesstimate of where you think the 
stock will move to over the life of your option.  Your forecast 
volatility is then put into your option-pricing model.  Where do 
you get your forecast from?  By using past historical and past 
implied volatility levels.  This is why it's important to pick a 
certain historical time frame to look back at.  If you're pricing 
a 30-day option, you'll put more importance on where the stock 
has been in the recent past.  But if you're buying or selling 
long term leaps, you must not only look at the recent stock 
range, but also how the stock has moved on a long term basis.  
This is the only way I know how to come up with a forecast 
volatility.  Just like technical analysts use historical charts 
to gauge where a stock might go in the future, volatility 
analysts can do the same with historical volatility charts.

     The last form of volatility I'd like to discuss is "implied 
volatility".  This is the volatility of the option itself and not 
the underlying stock.  It is also a % number that implies the 
price range the market thinks the stock will trade in during the 
life of the option.  If you want to find out an option's implied 
volatility, you need to input the option's actual price that it's 
currently trading for and run it through your trading model.  
Then it will spit out the volatility number.  This "implied" 
volatility number will probably be different than the stock's 
historical volatility and different from the forecast volatility 
number that you place into your own calculations.

     Implied volatility is really what you want to concentrate on 
if you're going to be a serious option trader.  It is implied 
volatility that decides whether options are over/under priced in 
the marketplace.  When active traders talk about volatility and 
whether options are cheap or expensive, they are talking about 
implied volatility and where it's at compared to its past-implied 
levels.  I know this, because I lived it.  If you want to buy an 
option on a stock right before a Fed meeting or right before a 
company puts out its earnings, you run the risk of buying 
overvalued options.  This is because there is so much uncertainty 
about the way the underlying stock will move in the very near 
term, that all the market participants want to protect themselves 
from an adverse move.   So all the options get bid up in price 
because everyone is trying to buy them at the same time in 
anticipation of the earnings announcement or a Fed decision.  
Once again, you can find out the implied volatility number if you 
have a simple option calculator or you can ask your broker.  The 
way to find out if your option is over/under valued at this point 
is to then compare this implied volatility number to its PAST 
implied and PAST historical volatility numbers.  You must have 
access to this information and there are a few select websites 
where you can find this out to make the comparisons.  Making this 
comparison can tell you whether its current implied volatility is 
at its high, low, or middle end of its past range.

     Now if you really want to get in on the action because you 
have a strong idea of where the stock's going to go, then by all 
means buy the option you want.  Just remember that you are buying 
an expensive option and if your prediction of the stock's 
direction is wrong, you will lose extremely quickly.  Because 
once the earnings come out, all the uncertainty is gone and the 
implied volatility levels will come back down to earth.  So you 
may even be right on the direction of the stock after the 
earnings announcement, but you will not make as much or you might 
even lose money because once implied volatility goes lower, so 
does the price of your option!   

     Whew!  That was quite exhausting.  I hope you have gained 
somewhat of an idea how important and confusing volatility can 
be.  It is this way because it's such an important component when 
trading options.  It's also the only unknown ingredient within 
the option-trading model.  All the other factors - strike price, 
underlying price, days to expiration and interest rates are all 
easily definable and fixed at that moment that you price your 
option.  Volatility is not.  You have to pick which kind of 
volatility or volatilities to focus on and then decide what time 
period to look back at.  The best advice I can give is the more 
time spent analyzing volatility and how to use it, the more 
successful you will be.  

     Now that we've got a handle on what volatility is and how to 
figure it out, we'll actually start to use that knowledge in 
examples in upcoming lectures.   See you then.


Lee Lowell
Contact Support

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.


ISSX $86.13 -8.56 (-8.56) Is ISSX establishing a base camp, 
or is it reversing its trend for a spell?  It is hard to say 
for sure at this point, but with today's breakthrough of both 
the 5 and 10-dmas and a drop over eight points, we aren't 
waiting around to find out!  Though the volume backing today's 
drop was not all impressive, the fact that ISSX was unable to 
participate in the Nasdaq's late day rally and instead closed 
just shy of its low for the day, may be indicative of more 
downside to come.  Therefore, we are dropping ISSX from our 
call play list for now while it shakes out the rest of its 

BCE $112.94 -6.44 (-6.44) Here's a not so subtle riddle: Paint 
drying, grass growing, BCE appreciating.  What do these have 
in common?  Other than boredom, if you guessed a non-productive 
use of time, you'd be right.  The only difference is time 
premiums don't evaporate from paint or from your front lawn.  
Investors are not keen on recognizing the value in BCE.  While 
stripped of its NT holdings, BCE looks to be quite a value play.  
However, the rest of the market doesn't agree.  That could be 
the lack of capital gains tax treatment on the distribution, 
which would leave a lot of long term holders squealing from 
the tax pain of ordinary income.  We can't explain today's big 
drop either, especially following Merrill's upgrade this morning.  
Suffice it to say, BCE doesn't look like it will pay off anytime 
soon.  Thus we are dropping it from the list.


KRB $20.75 +0.75 (+0.75) What we witnessed today may be the 
beginning of a rally.  KRB is making a come back on strong 
volume since Friday's afternoon bottom.  For this reason we 
have decided to drop our play on KRB.  They still haven't 
broken above the 10-dma at $21.40 or the old support level 
of $21, which did hold KRB down some today too.  Anyway, we 
aren't making money as KRB is trying to pick its direction so 
we will exit for the time being.  KRB hasn't had any news 

MRK $65.50 +3.50 (+3.50) It's not unusual that a company will 
announce a stock repurchase program when its stock is near all-
time lows, but it was a bit of a surprise considering Merck is 
currently making purchases under a July 1998, $5 billion 
authorization.  Just minutes before the market close today, the 
company announced its BoD approved a new $10 bln treasury stock 
purchase plan and separately, declared a $0.29 p/s quarterly 
dividend payable April 3rd.  The common stock will be purchased 
"over time" on the open market in block transactions and in 
privately negotiated transactions.  The acquired shares will 
be used for employee benefit programs and general corporate 
purposes.  As a result of the announcement, MRK spiked up 
sharply and gained +$3.50 on strong volume.  We have no choice 
but to exit the play this evening.


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This newsletter is a publication dedicated to the education 
of options traders. The newsletter is an information service 
only. The information provided herein is not to be construed 
as an offer to buy or sell securities of any kind. The 
newsletter picks are not to be considered a recommendation 
of any stock or option but an information resource to aid the
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The newsletter staff makes every effort to provide timely 
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The Option Investor Newsletter         Tuesday 2-22-2000
Copyright 2000, All rights reserved. 
Redistribution in any form strictly prohibited.


INSP $196.25 -4.00 (-4.00) We haven't given up on INSP despite 
the past six days of strong consolidation.  For the more 
aggressive traders who look for early entries, than INSP is the 
play for you.  In about three weeks on March 15th, InfoSpace.com 
is scheduled to split its stock 2:1 for the second time this 
year.  INSP is now primarily trading in a narrow channel between 
$195 and $200.  Although this morning it popped up to $206.13 
flirting with the all-time high of $208.  Recently too trading 
volume has been waning, but today over 2.04 mln shares exchanged 
hands.  This is another bullish sign.  Good news also came by 
way of the press.  InfoSpace.com announced that it won the 
patent for commerce infrastructure services on the Internet 
and wireless devices.  This patent encompasses private label 
commerce solutions for tracking purchases, services, and 
information on the Internet and wireless devices. 

ESPI $13.56 -0.38 (-0.38) Our new earnings play performed 
admirably today.  The early morning bidders propelled ESPI up 
to $14.94 setting up new opposition for tomorrow's session.  
Although ESPI may experience stronger resistance as the share 
price approaches its 52-week high at $18.13.  After today's 
session, it appears near-term support is establishing itself at 
$14 and $13.50.  Watch for intraday dips to the latter mark 
for entries.  Recall ESPI is reporting earnings next Monday, 
February 28th.  This is a quick "get in and out" play.  In the 
news, ESPI announced it's been hired to build fiber-optic 
networks in Atlanta and Miami for PSINet, one of the US largest 
Internet providers to businesses. ACSI Network Technologies, 
a unit of e.spire, will build the network and lease the fiber-
optic capacity to PSINet.  Terms of the agreement were 

IFCI $30.88 -1.13 (-1.13) IFCI held up very well in today's 
down market and managed to tag yet another new high of $35.25.  
We saw a few profit-takers emerge on to the scene early today, 
dragging the stock down to $28.50.  The buyers quickly came 
to the rescue and brought IFCI back up.  IFCI tested the 
recently established support level at $30, which held nicely 
throughout today.  Should IFCI reclaim its positive direction 
tomorrow, the current level may serve well for new entries if 
you are looking to play the remainder of this earnings run. 
As we have mentioned before, IFCI is set to announce earnings 
on February 29th and therefore, we have less then a week left 
of this play.  Enjoy!

ERICY $91.25 +2.56 (+2.56) This is turning out to be a news 
driven momentum play.  ERICY jumped out of bed this morning,
gapping up $3.75 to a new 52-week high of $93.25.  ERICY then 
quickly pulled back to test support at $90.  This level held 
nicely, and provided some room for entry.  ERICY demonstrated 
some great relative strength against today's rather bleak market 
too.  Part of this may be attributed to a strong Euro, which 
helped boost a few of the telecom stocks.  The current level 
could provide some potential for new entries should ERICY 
continue on with its positive momentum run.  Watch for $90 to 
hold on the pullbacks.  On Monday, ERICY received a nice mention 
in an article written by two Internet stock columnists, Michael 
Ward and Mido Shammaa.  It was written that ERICY offers "an 
exciting opportunity to develop a position in the burgeoning 
global Internet equipment market".  They went on to comment 
that investing in a stock like ERICY offers investors combined 
exposure to wireline telecom, broadband and wireless equipment 
sectors.  ERICY announced on Monday that it would be investing 
approximately $26 million in its Malayasian plant.  ERICY also 
revealed intentions to invest in the cellular market in Mexico.

ENMD $74.50 +7.00 (+7.00) How can you not love ENMD's chart?
Even with the market weakness over the past 2 days, the price
won't even give the time of day to the 5-dma (clear down at $63)
as it continues to surge higher.  It is hard to dampen the
continuing enthusiasm for any company that promises to enhance
and improve our health.  The move that began in early February
is being driven by strong buying volume, motivated by the
company's recent announcements of new and promising anti-cancer
drugs.  Gapping up over $5 at the open today, the market weakness
was only able to drag the price down to fill the gap before ENMD
started marching higher.  By the end of the day, the stock was
challenging the morning highs which represented a new 52-week
high.  We have good support near $68 and resistance is at $75.
As long as the sector remains strong, dips near support are
buyable, but use caution - we are now up over 70% in the last
11 trading days and profit-taking could appear at any time.

LHSP $98.75 +9.38 (+9.38) Somebody forgot to tell LHSP investors
that the market is weak.  Diverging from the broad markets right
out of the gate on Friday, the move continued today.  On double
the average daily volume, shares have surged as much as 25% in
the past two days, allowing LHSP to tag the $100 mark before
pulling back a bit at the close.  Today's high makes another
52-week high and there are enough positive factors to continue
driving it higher.  Among these factors are the strong earnings
announced on February 9th, accompanied by a 2-for-1 split
announcement (execution date and shareholder approval pending),
and frequent new product announcements and strategic alliances.
With the rapid move up, strong support is clear down at $85.
Mild support is found at $94.50 and $92, with the 5-dma still 
down at $87.25.  As long as volume remains strong, a bounce 
near any of these support levels is buyable going forward.  A 
breakout over $100 is a good trigger for those more conservative 

NEON $76.00 +2.38 (+2.38) NEON's glow continues to attract
investors.  In this uncertain market environment, investors
are searching for a few strong stocks to put their money in
and NEON has definitely made the short list.  Just as we
expected, NEON bounced right at the $70 support level this
morning before launching higher to tag a new 52-week high at
$78.63.  The weakness today was enough to allow NEON to meet
the 5-dma ($69.25) for the first time in over a week, but the
buyers didn't let the meeting last for long.  Strong volume
(25% over the ADV today) should continue to drive shares higher
as the company continues to make strategic alliances in the 
B2B marketplace.  Today NEON and Commerce One announced the
availability of the Commerce One BuySite to ERP Connector for
SAP R/3.  Also, in a second press release, NEON will be giving 
support to CMRC's direct materials procurement and collaborative 
supply chain management services.  This is what sparked the 
afternoon rally and pushed NEON above $74.  Going forward, 
intraday dips are buyable as is a return to the $70 support 
level.  Don't get too stingy though or you might miss the next 
leg up.  A break to new highs can be considered for new entries 
as long as volume remains strong.  Oh, and don't forget those 

SEPR $159.94 -7.19 (-7.19) Did you catch that entry point
today?  Dropping with the NASDAQ this morning, SEPR tagged
$153.75 before the buyers returned and helped the stock recover
to close near $160.  It was a rough day, but not unexpected,
given the strong run-up last week.  Even with the sharp pullback,
the low today was almost $2 above the 10-dma.  The $155 support
level is still intact, but now the question is whether SEPR has
enough strength to run higher before the 2-for-1 split this
Friday.  Today has the look of simple profit-taking, as the
volume dropped from the extreme levels of last week to only
550K shares, very near the ADV.  If the stock is going to surge
higher, it will have to come on strong volume.  Entries can be
considered on another bounce off of support or a break through
resistance at $164.  Today's drop should be all that is needed
to remind you of the importance of stop losses - use them and
keep your profits.

COVD $85.13 +0.13 (+0.13) Another good news, bad news day for 
investors in COVD.  COVD announced this morning that a federal
district judge ruled that they did not infringe on a patent held
by Bell Atlantic.  The company said it won a summary judgement
last Friday, in a federal district court in Norfolk, Va.  The 
judgement is subject to appeal however.  Last year COVD filed an
antitrust and fraud lawsuit against Bell Atlantic, which is still
pending.  On the news COVD jumped out of the recent trading range
to a high of $87.50 in the first fifteen minutes of the session.
The bad news here is that the move to higher prices was met by
sellers who decided that may be their opportunity to get out.  
By early afternoon COVD had declined to $83.13, when buyers 
finally entered the picture.  COVD fought its way back into the
middle of the recent trading range which is exactly where it 
closed.  Although it's not really bad news, we would like to have
seen COVD be able to sustain its move early in the day.  So we
are back at square one.  If we see COVD begin to move higher,
be sure and check the volume behind the move, to help assure
it's not another ride on the seesaw.

EMLX $146.00 +6.00 (+6.00) Volatility was the order of the day
for many of the stocks at the Nasdaq and EMLX proved to be no
exception.  EMLX continued the momentum seen Friday, shooting
up to $148 early in the session.  It then dropped almost $16 
or 11% in the next ninety minutes.  Traders that entered EMLX
early on probably ended the day with a sore neck, as the action
in the first two hours certainly provided all the ingredients 
for whiplash.  Hopefully you were able to remember the first
hour rules, and either stay away and wait for a pullback, or
took some money off the table as EMLX retreated from the early
spike.  For those with patience, EMLX provided a very nice
entry point when it bounced off the $132 area.  Not much news
today on EMLX, just volatility.  We mentioned Sunday that if
EMLX were to fall back through $138 or $135 that the stock may
be taking a breather.  Well we hope it took a quick breath, 
because shares of EMLX shot back through those levels and 
finished the day in the plus column, gaining $6 for the session
on lighter than ADV.  What's ahead for EMLX?  Given the strength
of the bounce, we would look for EMLX to continue to move higher.
If it runs out of gas near $148, then move your stops up close.  

PCMS $22.16 -0.91 (-0.91) Our sleeping giant slept through most 
of the trading session, finishing the day with a loss of almost
4.0%.  In reality shares of PCMS began to pullback about noon
on Friday.  From its high of $23.88 we have seen PCMS retrace
about 10%.  Today $21.50 held up as good support, when buyers
entered the market.  The decline appears to be nothing more
than profit-taking at this point, as the volume has been fairly
light.  PCMS and EMS technologies announced this morning that
PCMS had placed its second large order of antennas from EMS.  Not 
a big deal for PCMS, but it was for EMS.  The bottom line of the
deal shows the continued strength of PCMS in the fixed wireless
networks business, which is what has caught investor's attention
in the first place.  PCMS has very strong support at the $20.00
level, and subsequent levels of support every $0.50 up the chart.
Although PCMS did find support today at $21.50 we would like
to see more of a commitment from new buyers, before entering as
we enter a new play. 

Q $48.50 -0.94 (-0.94) Unless you are a previous holder of Q
stock, today's pullback may have been good news.  We added Q
to our list of plays this weekend and the pullback today may 
have provided us with a very nice entry point for our new
play.  Traders sold shares of Qwest stock at the opening bell
dropping the communications company to near its 10-dma at 
$47.55.  Q traded near its low for most of the session until
the final thirty minutes of the day, when a few buyers began to
surface.  As we said this may be a good point to enter our new
play.  Q's next support levels are seen at $47 and $46 although
we believe Q may generate strength from the current levels.
Much of the strength in this play came from recent upgrades and
analysts comments on Qwest.  This morning analyst, Christine 
Nairne, of E*OFFERING reiterated her Strong Buy rating on Qwest,
and set a 12 month price target of $70.  She went on to comment
that she feels confident about the company's current plans and
management's ability to execute.  Before entering a new play, 
it may be a good idea to check the volume and movement in Q.
COMS $70.88 +1.19 (+1.19) The movement in COMS today was a bit
volatile, but impressive as the networking company finished the
day in positive territory.  Remember this is a play on the
spin-off of Palm, a subsidiary of COMS as much as COMS itself.
The IPO for Palm is in the next couple of weeks and investors
can participate in the IPO by purchasing shares of COMS now.
Like many of the stocks at the Nasdaq COMS suffered from selling
woes early in the session today.  COMS hit the support area
near $67 and again found buyers waiting with open arms.  The 
fact that COMS made two more unsuccessful attempts to move
lower only to be met by more buyers is a plus in our book for
our new play.  Another positive for COMS was the announcement
that COMS and Hewlett-Packard have expanded their current
agreement to develop and supply a range of connectivity solutions
aimed at the corporate user.  If the broader markets will 
cooperate we expect COMS to continue to move higher.

ANAD $136.38 -9.88 (-9.88) Profit-takers are finally stepping in.  
That meteoric rise provided gains too juicy to resist.  As we 
noted Sunday, volume was pulling back, indicating buyers may be 
taking a break.  Not only that, but escaping a market downdraft 
is that much more difficult with no buying volume to counter it.  
ANAD gave us a buying opportunity when it dipped below its 10-dma 
($131) to $126, yet managed a close not only above its 10-dma, 
but above historical support of $136 (barely).  Even with no news 
to bolster the price, today's dip coincided nicely with NASDAQ's 
dip to 4300.  If NASDAQ can continue the rebound, ANAD would have 
some of the selling pressure removed and would then be free to 
move up into its 3:2 split on February 29 after the close.  Also, 
with the VIX.X touching 30 intraday, a NASDAQ reversal to the 
upside may have been at hand.  To play it safe, you may want to 
confirm that $136 will hold, otherwise, we'd rather see another 
round of selling in unison with the NASDAQ followed by a rebound 
before taking a position.  While we didn't see the breakout of 
the ascending pennant today, there is still time to enter this 

GLW $190.00 -3.31 (-3.31) Moody's reaffirmed GLW's debt rating 
today noting, "The confirmation reflects Corning's improving 
profitability and cash flows, solid margins, global leadership 
position in optical fiber and cable, and the expectation that 
supply/demand factors for optical fiber and liquid crystal 
displays will provide steady growth opportunities in the near-to-
intermediate term"...not that it helped much in this morning's 
downdraft.  The good news is that GLW is rebranding itself as 
a tech company in optical components rather than cookware 
manufacturer.  Technically, GLW's $6 recovery off its low this 
afternoon was positive as was holding $186 during the market's 
other "Maalox moments" (see 5-day chart).  The 10-dma is way back 
at $178, which is to say that MACD and RSI are positive, however 
the stochastic indicator is flashing "overbought" (yes, but so is 
every other tech stock after the last two months).  Resistance is 
at $195; breakout occurs over $198.  Without much consolidation, 
picking an entry point at support is tricky, so pick your entry 
commensurate with your own risk profile.  We still anticipate a 
split announcement and are awaiting proxy material with an 
"increase the authorized shares" agenda item.

PHCM $136.81 -0.81 (-0.81) There could have been disaster today 
on two fronts, but there wasn't.  First, PHCM was never down 
today more than $1.63 from Friday's close - this despite a 
selloff that took the NASDAQ down to 4291.  Second, with Larry 
Ellison's introduction of Oracle Mobile today, PHCM will finally 
have some competition (even Larry Son said PHCM had no 
competition until now) - still no stutter-stepping.  You know 
you have a good thing when a giant turns its guns on you.  We 
picked this play because we think that PHCM is about to break 
out of the trading range that it's held since December.  What's 
different this time is that increased volume has come to the 
issue at this level of resistance ($140).  If the volume keeps 
up and the NASDAQ continues its rebound, PHCM should give us 
the breakout over $142.  With dips entailing less than $2 over 
the past five days while the rest of market fell apart, PHCM is 
poised to outpace the NASDAQ on any upturn.  For the brave, 
target shoot to your level of comfort.  For the conservative 
wanting a bravery play, we suggest waiting for the $140-$142 
breakout before making an entry.

ISLD $107.75 -7.63 (-7.63) Today ISLD couldn't hold near-term 
support at $110, but soundly bounced upward off the firmer 
support level near $105.  This as well as the stock's positive 
response to the Nasdaq trying to reclaim its ground later in 
the day was its saving grace.  Of course, better confirmation 
is for ISLD to move above the converging 5-dma ($110.71) and 
10-dma ($109.02) and then, crack the initial opposition at $115.  
For new readers take heed, playing ISLD is RISKY business.  
There is no news or events to power the stock higher.  ISLD 
is a pure Internet momentum play.


RHAT $71.63 +0.13 (+0.13) RHAT is on probation.  RHAT broke 
below the $70 level that we mentioned in Sunday's write up as 
a possible obstacle for our put play.  This level managed to 
provide what looked like some rather formidable looking 
resistance throughout the session, however the NASDAQ's late 
day rally managed to pull RHAT back through.  Now, we have to 
wait for RHAT to drop below this level again so that we know 
RHAT isn't ready to surrender it's downward trend just yet.  
The next level of support for RHAT looks to be somewhere 
between $64 and $62.  RHAT still has quite a bit of resistance 
overhead, which could work to keep the hat on this play.  The 
10-dma is still headed lower, currently as $79.  We will give 
RHAT a few more days to determine its direction.  Should it 
appear that investors are ready to throw their hats back into 
the ring and start buying back into RHAT, it will be time for 
us to leave RHAT off the put list. 

KMG $44.44 -1.00 (-1.00) Though many analysts are saying oil 
stocks may be oversold at this point, the decline continues.  
Shares of KMG are no exception.  Apparently, investors are 
just not convinced that oil and oil service stocks are the 
place to be.  The $45 level proved to be a non-issue in today's
session, as KMG quickly slid on through.  The bears dragged 
KMG across $44.50 throughout the majority of today's session.  
Should investors start buying into analyst's claims that oil 
and oil service stocks are oversold at this point, we may see 
a trend reversal for some.  It was reported today that OPEC 
could make a decision to increase production prior to their 
March 27th meeting.  Of course, there is still a chance that 
OPEC may wait until the March or even the September meeting 
before offering any kind of relief.  Another factor to consider 
is the potential lag time that between a decision to increase
production and the time when we will see actual relief to the 
consumer.  As this story continues to unfold, it will be 
important to keep your stops tight and enter with caution, 
taking note of any recent developments in the news.

PGR $56.94 +1.00 (+1.00) You can look at today's trading in two
lights.  Yes we see the point gain and if that's all you look 
at, then it seems like PGR is trying to do something here.  
Plus today's close was over the 10-dma.  But we also look at 
the volume which shows a lack of conviction for that gain.  
Nope, looking at the whole picture it looks like we are in 
another one of PGR's bear-trap rallies they like to create so 
often on their way downhill.  This rally is mostly created by 
the Dow's comeback today more than anything.  This is a risky 
play however because PGR didn't roll over and break the $54.69 
level either.  So watch your positions with stops now that the 
10-dma is broken.  One good thing about these little rallies 
are that they create great entry points.  
JNJ $78.63 +1.19 (+1.19) Today the US Supreme Court sided with 
major drug makers and distributors refusing to renew a class-
action antitrust suit that alleged an industry wide price-fixing 
conspiracy.  The decision is a major victory for the likes of 
JNJ, Novartis AG, Monsanto, and Forest Laboratories who chose 
not to bow down to the allegations.  Several of their 
competitors paid out more than $700 mln in settlements.  Carter 
Phillips, an attorney for the defendants, believes the decision 
now puts his clients at a "wonderful competitive advantage" 
simply because "they're not out the 700 million bucks"!  Still 
JNJ is straining to move one way or the other.  Currently the 
stock is trapped under overhead resistance at the 10-dma 
($78.99), which is good news for this sector put play, but we're 
nevertheless frustrated that JNJ isn't breaking out under the 
$77 mark.  If you have open positions, please keep the stops 
in place to protect you're capital.


QLGC - QLogic Corporation $115.50 +4.50 (+4.50 this week)

Somebody has to make the equipment that lets your computer talk
to all its peripheral equipment and QLGC does it well.  A
leading designer and supplier of semiconductor and board-level
input/output (I/O) management products, QLGC has been providing
SCSI-based connectivity solutions to this market sector for 
over 12 years.  QLGC's I/O products provide a high performance
interface between computer systems and their attached data
storage peripherals, such as hard disk and tape drives,
removable disk drives and RAID (redundant array of independent
disks) subsystems.  

QLGC ignored the market weakness on Friday and punched through
resistance at $105 on double the average daily volume.  The gap
up this morning was a bit too much and the bears forced a retest
of the $105 level before being overwhelmed by buying volume.
Bouncing strongly, the stock gained over $10 from its low of the
day, setting a new 52-week high at $117.  With no post-split
depression after the 2-for-1 which occurred on February 8th,
QLGC looks very strong and should continue higher.  Demand for
its products coupled with compatibility with the newest
technology (see news below) is a formidable combination and
investors have been taking notice.  Another test of support at
$105 would be a gift at this point, but would make for a very
nice entry into this momentum play.  If volume remains strong
and the bulls can push prices through resistance at $117, be
prepared to jump on board.

Last Wednesday, QLGC announced full driver support for the
Intel IA-64 architecture on all QLogic Fibre Channel and SCSI
controllers and host bus adapters.  According to Mark Edwards,
VP and General Manager of QLGC's Computer Systems Group, the
company designed software drivers for their products to run on
64-bit CPUs from the beginning.  As a result, the controllers
could be migrated seamlessly to Intel Itanium processor-based
systems.  This follows a host of announcements this month,
highlighting QLGC Fibre Channel product support for the new
Open Storage Area Network (SAN) Initiative.  Compliance to the
initiative will ensure interoperability and manageability in
multi-platform, complex environments.

BUY CALL MAR-110 QLC-CB OI= 336 at $13.63 SL=11.00
BUY CALL MAR-115*QLC-CC OI=1680 at $11.25 SL= 9.00
BUY CALL MAR-120 QLC-CD OI=   0 at $ 8.63 SL= 6.50 Wait for OI!
BUY CALL APR-115 QLC-DC OI=  20 at $16.75 SL=13.00
BUY CALL APR-120 QLC-DD OI=  20 at $14.25 SL=11.50

SELL PUT MAR-105 QLC-OA OI=  10 at $ 4.88 SL= 6.75
(See risks of selling puts in play legend)

Picked on Feb 22nd at $115.50     P/E = 174
Change since picked     +0.00     52-week high=$117.00
Analysts Ratings    3-3-0-0-0     52-week low =$ 11.63
Last earnings 01/00 est= 0.36     actual= 0.40
Next earnings 04-19 est= 0.20     versus= 0.11
Average Daily Volume =  843 K


SEBL - Siebel Systems, Inc. $121.88 +7.31 (+7.31 this week)

Siebel Systems, Inc. is the world's leading provider of eBusiness 
applications software.  Siebel Systems provides an integrated 
family of eBusiness application software enabling multi-channel 
sales, marketing and customer service systems to be deployed over 
the web, call centers, field, reseller channels, retail and 
dealer networks.  Siebel Systems' sales and service facilities 
are deployed locally in more than 28 countries. 

We've been watching SEBL for awhile and finally decided to play 
it, given what appears to be a bottom for the NASDAQ.  Not only 
that, but when a stock is up $7 on an otherwise lousy day, it 
deserves attention.  The news also figures prominently into 
creating favorable sentiment for SEBL.  Here's a partial list: 
1) IBM will use SEBL software for its 55,000 internal users and 
30,000 business partners - SEBL cites this as its largest win 
ever.  2) SEBL will support MS-SQL 7.0 and Windows 2000.  3) SEBL 
announces integration between Cisco ICM software and SEBL's e-
business applications.  4) SEBL wins Call Center Magazine's 
Product of the Year for the second year in a row.  You get the 
picture.  All this follows a blowout Q4 announced on January 26 
wherein SEBL smoked analyst's $0.15 estimates with a $0.19 actual 
figure.  Technically, SEBL has been on the stairway to Heaven 
since early January in a beautiful ascending channel.  Today was 
another breakout to a new high.  While we can't recommend taking 
a position first thing in the morning since it's trending toward 
the high end of the channel, you may want to consider an entry at 
one of two price points dependant on your risk tolerance.  The 
first is at $116-$118, or the center of the channel, where 
support has been found over the last three days.  The second and 
most conservative entry would be where the 10-dma falls to meet 
the 50-dma, though we can't promise that will happen again 
anytime soon, or at what price point.  But if you see them 
converge, then separate, that's an entry point.  Another reason 
not to jump in immediately is that volume has been tracking a bit 
lightly and could signal a reversal for a few days - history 
suggests that's the case.  Thus wait for the pullback before 
taking a position unless volume gets pumped up to where you can't 
stand it.

SEBL is also a split candidate, having announced its last 2:1 
split in late August 1999 at $67.  However, with 300 mln shares 
authorized vs. 185 mln outstanding, only a 3:2 is possible 
without a shareholder meeting.  No proxy to increase the shares 
has yet been filed, and earnings (a likely time to announce a 
split) won't occur again until April.  Last week, Dain Rauscher 
Wessels rated SEBL a new Strong Buy with a $150 price target.

BUY CALL MAR-115 SGW-CC OI= 232 at $13.13 SL=10.50
BUY CALL MAR-120*SGW-CD OI=1134 at $10.25 SL= 7.75
BUY CALL APR-115 SGW-DC OI=   0 at $18.38 SL=14.25 Wait for OI!
BUY CALL APR-120 SGW-DD OI=   0 at $15.75 SL=12.00 Wait for OI!

Picked on Feb 22nd at  $121.88     P/E = 216
Change since picked      +0.00     52-week high=$121.88
Analysts Ratings     9-5-0-0-1     52-week low =$ 15.75
Last earnings 01/00  est= 0.15     actual= 0.19
Next earnings 04-25  est= 0.14     versus= 0.10
Average Daily Volume = 3.5 mln


INKT - Inktomi Corp $132.00 +9.44 (+9.44 for the week)

Inktomi develops the world's most scalable software for the 
world's fastest-moving software environment: the Internet.  The 
company's core technology underpins products for the Internet 
infrastructure that contribute to network performance, 
scalability and efficiency. Inktomi technology paves the way 
for emerging opportunities in online commerce, media and 
communications by enabling the Internet to intelligently 
accommodate more users and data traffic.  Inktomi developed 
the search engine that runs such popular portals as HotBot, 
NBC's Snap, Yahoo!, and the Disney Internet Guide.

Some Net stocks, like AOL, may have lost some of their appeal, 
but the money is flowing into the infrastructure stocks.  On 
Friday, INKT made a strong move through resistance at $120 
tagging $128.50 intraday.  The breakout was in direct 
correlation with new coverage put out by Dain Rauscher Wessels.  
Analyst Stephen Sigmond rated INKT a Strong Buy and issued a 
$190 12-month price target that day.  He cited that "Inktomi is 
still in the early stages of a massive growth opportunity, and 
we believe the company should represent a core holding for 
investors in the Internet infrastructure sector"; and further 
adding that "no other infrastructure provider offers off-the-
shelf, building-block based solutions on such a massive scale".  
Overall, INKT was one of the best performers in the Goldman 
Sachs Internet index last week!  Today we saw INKT continue to 
power higher and tack on a hefty $9.44, or 7.7%.  But what else 
is behind the imminent momentum?  Well first off, the constant 
flow of news tooting consistent Web growth is pumping up the 
infrastructure stocks.  Just last month, Media Metrix reported 
that the number of monthly unique visitors accessing the 
Internet has increased by 15%.  Plus there's the news that SBC 
Communications (SBC) will purchase Sterling Commerce (SE), a 
Net infrastructure firm, for $3.9 bln in an all cash deal on the 
expectation that all roads lead to conducting business online.  
This most certainly bodes well for INKT who makes the software 
that accommodates Web traffic.  Technically it looks like INKT 
is developing a short-term support level at $125 above the 5-dma 
($121.74). But today INKT shattered intraday resistance at $130  
and set a new 52-week high at $134.19 by the close.  If patterns 
hold true, then $130 could eventually evolve as a higher 
support level.  Please pay close attention to the stock's 
direction and market sentiment before opening any positions.  
And for those who can't stomach the HIGH-RISK and VOLATILITY 
that goes along with Internet plays, please move on - this one's 
not for you!

In the news last week, Robertson Stephens upgraded INKT to a Buy 
from a Long-Term Attractive.  The analyst, John Powers, raised 
the rating as he believes " the company is the premier provider 
of software that provides access to the ever-increasing amount 
of content of the Web".  

BUY CALL MAR-125 KYQ-CE OI= 443 at $15.13 SL=11.75
BUY CALL MAR-130*KYQ-CF OI=1361 at $12.38 SL= 9.75
BUY CALL MAR-135 KYQ-CG OI= 109 at $ 9.88 SL= 7.50
BUY CALL MAR-140 KYQ-CH OI= 603 at $ 7.75 SL= 6.00
BUY CALL APR-140 KYQ-DH OI=  75 at $14.13 SL=11.25
BUY CALL APR-145 KYQ-DI OI=1065 at $12.50 SL=10.00

Picked on Feb 22nd at   $132.00    P/E = N/A
Change since picked       +0.00    52 week high=$134.19
Analysts Ratings     7-10-1-0-0    52 week low =$ 28.13
Last earnings 01/00   est=-0.04    actual=-0.02 
Next earnings 04-17   est=-0.02    versus=-0.07
Average Daily Volume = 2.32 mln


MCOM - Metricom $85.94 -3.81 (-3.81 this week)

Metricom is a leading provider of wide area mobile data 
communications solutions.  It designs, develops and markets 
wireless network products and services that provide low-cost, 
high performance, easy-to-use data communications that can be 
used in a broad range of personal computer and industrial 
applications.  The Company's networks take advantage of Federal
Communications Commission ("FCC") regulations that permit 
license-free, spread spectrum operation in the 902 to 928 MHz 
frequency band.  Metricom's primary service, Ricochet, provides 
users of portable and desktop computers and hand-held computing 
devices with fast, reliable, portable, wireless access to the 
Internet, private intranets, local area networks ("LANs"), 
e-mail and on-line services for a low, flat monthly subscription 
fee that permits unlimited usage. 

Today's close below the 50-dma helped to land MCOM on our put 
list.  MCOM recently went through what looks like a reversal 
pattern, which is a period of consolidation followed by a trend 
reversal.  MCOM was locked in a fairly tight trading range for 
approximately 3 days before the new downward trend began to 
emerge last Friday, when it broke through its 10-dma, which 
was at $95.  Today's continuation of the downward movement gave 
us the confirmation and the go ahead to initiate a put play on 
MCOM.  One of the possible catalysts behind MCOM's decline is 
a good old-fashioned post-earnings depression.  MCOM announced 
earnings last Wednesday and came in a whopping 51 cents better 
than analysts expectations.  It may have been the pending 
announcement that was holding MCOM afloat and once the news was 
out, it looks as though investors were anxious to lock in their
profits.  MCOM has made substantial drops in the last two 
sessions, and with today's close near the low for the day, MCOM 
may be well positioned to continue it's descent heading into 
tomorrow's session.  The next level of support for MCOM looks 
to be at $80, backed by additional support levels at $71 and $69.  
It appears as though MCOM may encounter resistance at $87, $90 and 
$92.  New entries are probably best made toward the early part 
of the day, as MCOM looks to be establishing a pattern of opening 
near the high and closing near the low. 

BUY PUT MAR-85*MQM-OQ OI=28 at $8.25 SL=6.25
BUY PUT MAR-80 MQM-OP OI=34 at $6.13 SL=4.25

Average Daily Volume = 822 K


NEON - New Era of Networks $76.00 +2.38 (+2.38 this week)

Delivering e-business and enterprise application integration
solutions, NEON is the leader in providing packaged solutions
that successfully integrate legacy applications, client/server
and Web-based applications.  Proving that the old and new can
successfully coexist, NEON counts large banks and financial
institutions like Chase Manhattan and Merrill Lynch among the
long list of companies that use its proprietary software
technology to integrate business information on incompatible
databases and operating systems.  Through partnerships, internal
growth, and acquisitions, NEON serves some 800 clients worldwide
in the healthcare, insurance, telecommunications, travel and
manufacturing industries.

Sunday's Write Up

Like a beacon in the night, NEON continues to glow brightly.
Receiving a recharge on Monday from the positive press (see
below), NEON spent the week charging higher.  Even the NASDAQ
weakness on Friday couldn't dim investor enthusiasm for this
B2B leader.  After a strong move up in October and November of
last year, NEON entered a 3-month period of consolidation.
Although not moving very quickly, this consolidation period
did result in a nice pattern of higher-highs and higher-lows.
Breaking out of this uptrending channel on Thursday galvanized
more buyers to flock to the stock.  The strength of the move
is highlighted by the fact that the 5-dma (currently at $66.50)
hasn't been touched since Monday.  The move up this week took
place on above average volume and it was encouraging to see the
volume surge as prices moved up in the final hour on Friday.
Look for NEON to find support near $70, followed by $66.
Consider opening new positions on a bounce near either of these
levels, as long volume returns.  More conservative investors may
want to wait for a convincing breakout above resistance at $75
before jumping on board.

NEON and Softplus, Inc., a leading e-solutions company announced
a strategic partnership on Monday.  Softplus will offer NEON's
e-business infrastructure platform as part of its end-to-end
e-solutions, providing flexible, Internet-based applications to
the communications industry.  Also on Monday, NEON announced 
a strategic partnership with eXcelon Corporation, a leading
supplier of dynamic B2B solutions.  eXceleon will bundle core
components of NEON's e-business products with its new B2B
Integration Server in order to enhance the server's enterprise

Tuesday's Write Up

NEON's glow continues to attract investors.  In this uncertain 
market environment, investors are searching for a few strong 
stocks to put their money in and NEON has definitely made the 
short list.  Just as we expected, NEON bounced right at the 
$70 support level this morning before launching higher to tag 
a new 52-week high at $78.63.  The weakness today was enough 
to allow NEON to meet the 5-dma ($69.25) for the first time 
in over a week, but the buyers didn't let the meeting last for 
long.  Strong volume (25% over the ADV today) should continue 
to drive shares higher as the company continues to make 
strategic alliances in the B2B marketplace.  Today NEON and 
Commerce One announced the availability of the Commerce One 
BuySite to ERP Connector for SAP R/3.  Also, in a second press 
release, NEON will be giving support to CMRC's direct materials
procurement and collaborative supply chain management services.  
This is what sparked the afternoon rally and pushed NEON above 
$74.  Going forward, intraday dips are buyable as is a return 
to the $70 support level.  Don't get too stingy though or you 
might miss the next leg up.  A break to new highs can be 
considered for new entries as long as volume remains strong.  
Oh, and don't forget those stops!

BUY CALL MAR-65 QNO-CM OI=329 at $15.13 SL=11.75
BUY CALL MAR-70*QNO-CN OI=468 at $12.00 SL= 9.50
BUY CALL MAR-75 QNO-CO OI=172 at $ 9.13 SL= 6.75
BUY CALL MAR-80 QNO-CP OI=  0 at $ 7.00 SL= 5.25 Today's vol = 57

SELL PUT MAR-60 QNO-OL OI=70 at $2.00 SL=4.00
(See risks of selling puts in play legend)

Picked on Feb 20th at    $73.63     P/E = N/A
Change since picked       +2.38     52-week high=$78.63
Analysts Ratings      2-5-1-0-0     52-week low =$12.19
Last earnings 01/00   est=-0.03     actual= 0.00
Next earnings 04-26   est= 0.01     versus= 0.11
Average Daily Volume = 1.02 mln


Is this a good way to start the month?

Tuesday, February 22

The Dow displayed new strength today, rallying in late-session
trading ahead of Federal Reserve Chairman Greenspan's final round
of congressional testimony.  The popular Blue-chip average added
85 points to end at 10,304 after falling 115 points early in the
day.  The technology heavy Nasdaq closed down 29 points at 4,382,
also recovering from significant early losses.  Declining issues
outnumbered advancing issues 4-to-3 on active volume of slightly
less than 1 billion shares on the NYSE.  The 30-year U.S. Treasury
bond rose almost a full point, pushing the yield down to 6.08%.

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

Ariba         ARBA   MAR160P/170P   $1.12   credit   bull-put
Bea Systems   BEAS   MAR90P/M105P   $2.75   credit   bull-put
MRV Comm.     MRVC   MAR60C/MA70C   $9.00   debit    bull-call
Integrated    ISSI   APR7C/MAR15C   $7.00   debit    diagonal
Organogen.    ORG    JUN10C/MA15C   $4.12   debit    diagonal

With the widespread option pricing (data) problems during the
first 20 minutes of the session, it was difficult to correctly
record the opening position on ISSI.  It appears there was a
brief opportunity to participate in the diagonal spread, but it
was not at our target price.  In any case, the issue moved as
expected, up through the recent resistance area on strong volume.

Portfolio plays:

Today's session began on a sour note with stocks selling off in
the majority of industries.  Fortunately, blue-chips made a sharp
recovery, driving the index up 86 points at the close.  Technology
issues also started slow but by the end of the day, most of the
leading stocks had rebounded to opening levels.  Our portfolio
enjoyed a number of favorable rallies in the lower-priced issues
but no adjustments were made.  The leaders in the small-cap group
were ESC Medical (ESCM), up $1.12 to $13.50 on momentum from last
Thursday's 52-week high and Tupperware (TUP) with a $1.00 rebound
off the 50 dma.  Today's move may provide the necessary impetus
for a continued recovery from the recent slump.  The surprise of
the day was Helix Technology (HELX) which added another $3.62 to
close at a new all-time high of $64.00.  Our bullish debit spread
position is at maximum profit above $45.

Summary Of Monthly Positions:

Stock  Pick    Last     Position    Debit   Value    G/L   Status

AFCI  $55.00  $48.75  MAR40C/FE50C  $8.75  $11.75   $3.00  Closed
AGTX  $8.88   $3.31   JUN7C/FEB10C  $1.81   $2.12   $0.31  Closed
BCGI  $5.12   $10.63  JUN5C/MAR7C   $0.93   $2.25   $1.31   Open
BMCS  $42.31  $41.63  MAR40C/FE45C  $3.75   $5.00   $1.25  Closed
CDN   $22.81  $18.63  MAY15C/MA20C  $2.93   $3.50   $0.56   Open
CNCX  $29.38  $52.63  APR15C/FE40C  $17.75  $20.00  $2.25  Closed
CRUS  $14.06  $20.31  JUN10C/MA15C  $3.75   $5.12   $1.38   Open
DLX   $29.00  $23.19  APR25C/FE30C  $3.75   $2.75  ($1.00) Closed
DRMD  $10.12  $12.75  JUN5C/MAR10C  $3.93   $4.31   $0.38   Open
ESPI  $10.88  $13.94  JUN5C/MAR10C  $4.38   $4.75   $0.38   Open
GERN  $13.00  $53.63  MAR12C/FE15C  $1.25   $2.50   $1.25  Closed
GSTRF $37.68  $23.00  MAR35C/FE40C  $3.25   $2.88  ($0.38) Closed
KEG   $6.81   $8.50   JUL7C/MAR10C  $1.43   $1.68   $0.25   Open
KM    $10.00  $8.31   JUN7C/FEB10C  $1.75   $2.06   $0.31  Closed
LOR   $18.00  $15.38  APR20C/FE22C  $1.75   $2.50   $0.75  Closed
MSGI  $20.43  $26.06  MAY12C/MA22C  $5.75   $9.00   $3.25   Open
NAV   $41.31  $33.56  JUL35C/FE45C  $4.88   $9.12   $4.25  Closed
NN    $27.69  $32.88  MAR17C/FE25C  $6.25   $7.50   $1.25  Closed
ONHN  $9.69   $10.38  APR7C/FEB7C   $0.62   $0.75   $0.12  Closed
PCMS  $10.06  $23.06  MAY7C/FEB12C  $3.00   $4.75   $1.75  Closed
PCMS  $10.06  $23.06  MAY7C/MAR15C  $4.25   $6.75   $2.50   Open
PZL   $11.68  $9.50   APR10C/FE12C  $1.81   $0.93  ($0.88) Closed
RCOT  $7.50   $13.44  MAY5C/MAR10C  $3.88   $4.62   $0.75   Open
STAT  $15.75  $12.00  APR10C/FE15C  $4.00   $3.88  ($0.12) Closed
SVGI  $16.38  $25.00  JUN17C/MA22C  $2.88   $5.00   $2.12   Open
TERA  $6.62   $8.00   JUN5C/MAR7C   $1.43   $1.93   $0.50   Open
UIS   $29.25  $32.94  APR22C/MA30C  $2.50   $6.38   $3.88   Open
WAVO  $7.88   $7.75   MAY5C/MAR10C  $2.06   $2.00  ($0.06)  Open
ZOLT  $7.68   $9.94   APR7C/MAR10C  $0.06   $1.68   $1.62   Open

* A number of these positions were closed early to protect profits
  or prevent (limit) potential losses.

The diagonal spread is profitable if the value of the position
exceeds the initial debit (or cost-basis) at the expiration of
the long position.  However, because we track the plays based on
the current closing cost/value, the gains for diagonal spreads
will rarely be reflected until the play closes.  Each month, as
we sell a new option against the long position, the net cost
should decline or the position value should increase.

			      - DEBIT SPREADS -
Stock  Pick     Last     Position    Debit   Value    G/L   Status

ASDV  $78.00   $105.00  FEB55C/F65C  $8.75   $9.88   $1.12  Closed
BEAS  $84.94   $146.00  MAR50C/M65C  $12.38  $14.50  $2.12   Open
BCE   $96.75   $119.38  FEB75C/F85C  $8.25   $9.88   $1.12  Closed
BVF   $56.93   $67.50   APR42/AP50C  $5.00   $6.12   $1.12   Open
CVD   $14.25   $15.19   FEB12CC/NP   $12.25  $12.50  $0.25  Closed
EMLX  $119.00  $140.00    FEB100C    $95.00  $99.88  $4.88  Closed
EMLX  $119.00  $140.00    FEB95P     $92.50  $95.00  $2.50  Closed
ESCM  $11.31   $12.38   APR7C/AP10C  $1.38   $1.38   $0.00   Open
HELX  $51.00   $60.50   APR25C/A45C  $15.75  $17.00  $1.25   Open
MI    $56.00   $46.88   FEB50C/F55C  $3.50   $2.75  ($0.75) Closed
NTPA  $77.50   $79.50   MAR50C/M65C  $13.25   New     Play   Open
PCS   $55.38   $43.75   FEB42C/F47C  $4.43   $4.88   $0.43  Closed
PCS   $55.38   $43.75   FEB42C/F50C  $6.25   $7.00   $0.75  Closed
RMII  $11.00   $10.31   MAY5C/MA10C  $3.62   $4.50   $0.88   Open
SEBL  $101.88  $114.56  FEB85C/F95C  $7.00   $9.88   $2.88  Closed
SPLH  $12.25   $14.44   FEB7C/FE10C  $2.00   $2.43   $0.43  Closed
TKLC  $26.00   $37.63   FEB17C/F22C  $4.12   $5.00   $0.88  Closed
TQNT  $160.50  $223.44  FEB135/140C  $3.75   $4.88   $1.12  Closed
TUP   $16.81   $17.31   APR15C/A17C  $1.25   $1.12  ($0.12)  Open
VLNC  $35.88   $30.88   MAR20C/A25C  $4.25   $3.38  ($0.88)  Open
VSTR  $155.31  $148.00  MA110C/130C  $17.00  $15.00 ($2.00)  Open
WDC   $5.56    $4.31     FEB5CC/NP   $4.38   $4.31  ($0.06) Closed

* A number of these positions were closed early to protect profits
  or prevent (limit) potential losses.

A debit-spread is profitable if the value of the position exceeds
the initial cost of the spread when the play is closed.  However,
because we track plays based on the current cost/value, potential
gains may not be reflected until both positions are closed.

	                 - CREDIT STRANGLES -
Stock  Pick    Last    Position    Credit   Cost    G/L    Status

SDW   $54.94  $54.88  FEB50P/60C   $2.25   $0.00   $2.25   Closed

A credit strangle is profitable if the closing cost of the play
is less than the initial credit.

			      - DEBIT STRADDLES -
Stock  Pick     Last    Position    Debit    M/V     C/V    Status

APLX  $14.62   $16.06   JUL15C/15P  $6.50   $7.00   $6.88    Open
CBR   $27.19   $17.75   MAY25C/30P  $10.25  $12.50  $12.25   Open
CFR   $29.69   $21.25   MAR30C/30P  $3.06   $8.75   $8.62   Closed
JMED  $38.65   $67.50   MAR37C/40P  $8.12   $40.00  $31.00  Closed
LHSG  $25.50   $41.00   APR25C/25P  $6.75   $15.75  $15.50   Open
MYL   $18.63   $24.44   APR17C/17P  $4.56   $10.50  $7.38   Closed
UVN   $85.75   $105.19  MAR85C/85P  $14.75  $27.00  $20.00  Closed

          M/V = Maximum Value  C/V = Current Value

A debit-straddle is profitable when the value of the position
exceeds the initial cost.

Stock   Pick     Last    Position   Credit   Cost    G/L   Status

CCN   $75.38   $65.75   FEB70P/65P  $0.93   $1.25  ($0.31) Closed
CTAS  $49.25   $37.38   FEB65C/60C  $0.75   $0.00   $0.75  Closed
EXTR  $87.38   $85.00   FEB70P/65P  $0.62   $0.00   $0.62  Closed
FBR   $15.00   $13.38   MAR7P/M10P  $0.62   $0.62   $0.00   Open
GLW   $162.00  $193.31  F120P/130P  $1.12   $0.00   $1.12  Closed
IONA  $67.00   $64.50   MAR45P/50P  $0.62   $0.88  ($0.25)  Open
ISSX  $97.38   $94.68   MAR70P/75P  $0.75    New     Play   Open
ITVU  $139.00  $135.00  FE90P/100P  $1.12    New     Play   Open
NSOL  $302.88  $292.50  M210P/220P  $1.00   $1.25  ($0.25)  Open
PEP   $32.75   $34.25   MAR37C/35C  $0.38   $0.75  ($0.38) Closed
PGR   $65.50   $55.94   FEB85C/80C  $0.62   $0.00   $0.62  Closed
SNDK  $142.00  $145.63  FE95P/105P  $0.75   $0.00   $0.75  Closed

Note: The Pepsico (PEP) credit spread was inadvertently listed as
a February position.  The correct expiration month is March and
the portfolio has been updated to reflect that change.  While the
stock is still trading below the sold strike (the position remains
profitable below $35.25), the closing price on Friday will be our
recorded exit.  The Chris Craft (CCN) position was closed early to
limit potential losses.

Credit spreads are profitable if both positions remain OTM until
expiration.  The cost-to-close price can be used to compare the
initial opening credit to the current spread value.

Stock  Pick    Last     Position     Debit   Value    G/L   Status

AG    $13.88  $10.56  MAY15C/FEB15C  $0.75   $0.50  ($0.25) Closed
CRUS  $15.68  $20.31  JUN20C/MAR20C  $0.88   $1.50   $0.62  Closed
EPIC  $9.56   $9.38   JUL12C/MAR12C  $1.18   $1.12  ($0.06)  Open
ESPI  $10.88  $13.94  MAR12C/FEB12C  $0.62   $1.12   $0.50  Closed
HUM   $9.25   $7.06   MAY10C/FEB10C  $0.75   $0.62  ($0.12) Closed
HRC   $5.75   $5.25    MAR7C/FEB7C   $0.18   $0.12  ($0.06) Closed
KLOC  $5.93   $5.13    APR7C/FEB7C   $0.75   $0.50  ($0.25) Closed
MUEI  $10.50  $11.81  APR12C/FEB12C ($2.38)  $0.62   $3.00   Open
PDE   $17.25  $14.69  APR17C/FEB17C  $0.56   $1.00   $0.43  Closed
PFE   $37.00  $33.50  MAR40C/FEB40C  $0.62   $0.50  ($0.12) Closed
STRX  $8.43   $6.50    MAY7C/MAR7C  ($0.12)  $0.25   $0.38   Open
SWBT  $19.93  $16.00  MAY20C/JAN20C  $0.93   $1.00   $0.06  Closed
TALK  $17.68  $16.13  APR22C/FEB22C  $0.25   $1.00   $0.75  Closed
TDFX  $8.50   $9.75   MAR10C/FEB10C ($0.38)  $0.62   $1.00  Closed

* A number of these positions were closed early to protect profits
  or prevent (limit) potential losses.  

The calendar (or time spread) is profitable if the value of the
position exceeds the initial debit (or cost-basis) at the end of
the expiration period for the long position.  However, because we
track the plays based on the current closing cost/value, the gains
for time spreads will rarely be reflected until the play closes.
Each month, as we sell a new option against the long position, the
net cost should decline or the position value should increase.

                    - COVERED-CALLS WITH LEAPS -
Stock  Pick     Last     Position    Debit   Value    G/L   Status

ADBE  $76.13   $98.25  JAN80/MAR80C  $5.50   $12.00  $6.50  Closed
CA    $53.56   $71.25  JAN60/MAR70C  $2.12   $15.75  $13.62  Open
CS    $16.80   $35.69  JAN15/MAR25C  $4.25   $10.62  $6.38   Open
GM    $71.68   $73.75  JAN75/FEB80C  $6.62   $10.50  $3.88  Closed
HRC   $5.75    $5.25   JAN7C/FEB7C   $1.25   $1.12  ($0.12) Closed
JNJ   $95.68   $77.44  JAN100/F100C  $2.12   $7.50   $5.38  Closed
MDT   $39.38   $47.69  JAN37/MAR45C  $6.25   $9.62   $3.38   Open
MOT   $100.00  $144.94 JAN105/M145C  $27.50  $44.00  $16.50 Closed
NETA  $25.12   $28.31  JAN15/MAR25C  $7.88   $9.50   $1.62   Open
PG    $109.50  $92.94  JAN100/F110C  $11.62  $12.12  $0.50  Closed
PTEK  $8.94    $9.56   JAN5C/MAR10C  $4.25   $4.12  ($0.12)  Open
SLR   $71.25   $66.56  JAN70/FEB85C  $11.50  $17.00  $18.75 Closed
SUNW  $35.88   $92.81  JAN37/MAR85C  $32.00  $47.00  $15.00 Closed
UAL   $70.38   $53.50  JAN60/FEB70C  $11.25  $9.00  ($2.25) Closed
UAL   $70.38   $53.50  JAN75/FEB75C  $5.75   $4.50  ($1.25) Closed
VOD   $49.25   $50.75  JAN45/MAR55C  $9.75   $12.25  $2.50   Open
XOM   $81.94   $76.56  JAN85/FEB85C  $2.38   $6.38   $4.00  Closed

* We are closing the majority of older plays in this section to
  to allow better coverage of the remaining positions.


Note: We trade the 'Spreads' portfolio just as we would trade our
personal account and the ongoing narrative is a service we provide
to help novice traders understand how various positions might be
opened and closed.  It is not intended to substitute for your own
trading techniques nor does it replace your duty to manage the
positions in your portfolio.  We post a list of the current plays
after each expiration period and the summary is a reasonable
representation of the positions offered during the month.

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


Companies in the biotechnology, wireless telecommunications and
E-commerce groups are the new market leaders as the majority of
investors continue to buy these issues on weakness.  Obviously no
one really knows where the market will go but most analysts are 
optimistic about technology stocks and traders have tailored their
strategies to overweight these companies.  Even in the face of
additional interest rate hikes, these issues are the favorites as
they have the capacity to grow their earnings at much faster rates
than blue-chip companies.  In fact, the whole technology industry
is expanding so rapidly that Greenspan's present strategy of small,
periodic interest rate increases will have little or no impact on
the majority of companies.  The bottom line is that corporations
with annual earnings growth of 30% offer a much better investment
opportunity in the current, inflation-sensitive environment.


TGX - Theragenics  $14.56  *** Biotechnology Boom! ***

Theragenics produces and sells implantable radiation seeds used
in the treatment of prostate cancer.  TheraSeed is a U.S. Food
and Drug Administration licensed device based on the radioactive
isotope palladium 103.  In treatment, TheraSeeds are implanted
into the prostate in a one-time, minimally invasive procedure,
that has been shown in independent clinical studies to offer
success comparable to, or better than conventional therapies,
with reduced side effects.  Theragenics has an agreement with
Indigo Medical for the distribution of TheraSeeds.  The company
has also participated in the development of the TheraSphere, a
microscopic radioactive glass sphere designed for the treatment
of liver cancer, and has granted Nordion International, the
exclusive sublicense to manufacture, distribute and sell the
product.  TheraSphere has been approved for distribution in
Canada and is awaiting approval by the FDA in the United States.

There's no news to explain today's rally but the attitude among
investors is extremely bullish when Biotechs are mentioned.  The
recent focus on this sector has propelled a number of previously
slumping issues to solid recoveries and TGX is participating in
the move.  Instead of attempting to justify the gains, we will
simply focus on the excellent technical character of the bullish
issue and the long-term potential for a significant rebound.

PLAY (conservative - bullish/diagonal spread):

BUY  CALL JUN-10.00 TGX-FB OI=498 A=$5.12
SELL CALL MAR-15.00 TGX-CC OI=148 B=$1.00

Chart =


DISH - Echostar  $100.00   *** An OIN Favorite! ***

EchoStar and its subsidiaries deliver direct-to-home satellite
television products and services.  Their satellites provide the
DISH Network capacity for over 200 channels of digital video,
audio and data services.  The DISH network has over two million
subscribers.  DISH Network programming is available to consumers
in the continental United States using an 18-inch satellite dish
and a digital satellite receiver.  Another group, the Satellite
Services business provides the delivery of video, audio and data
to business television customers and other satellite users.  The
services include satellite up-link, satellite transponder space,
and other products.  EchoStar Technologies designs, manufactures
and distributes DBS (Direct Broadcast satellite) set-top boxes,
antennas and other digital equipment.  Some of you may not know
that EchoStar Communications is headquartered in the same city as
The Option Investor Newsletter; Littleton, Colorado.

Echostar rallied almost $6 today after positive comments from an
analyst at CSFB concerning the upcoming investor conference call.
First Boston, the leading brokerage on the issue, also reiterated
their recent BUY rating with a target price of $125.  The company
is expected to address a number of issues in the near future, the
most important topic being new products and the status of their
lawsuit against Direct TV (the filing claims violations of federal
and state antitrust laws).  Analysts at First Boston are bullish
on the issue based on the belief that subscriber additions have
continued to increase exponentially.  I personally subscribe to
DISH as it's the only source for worldwide financial inforamtion
in the rural area where I live (Chugiak, Alaska).

The chart appears to be signaling an upcoming break-out and with
the possibility of a split in this range, investors will be adding
to their positions on any new rally.  This conservative spread
offers a favorable method of speculating on a future bullish move.

PLAY (conservative - bullish debit/spread):

BUY  CALL MAR-80 UAB-CP OI=642  A=$22.25
SELL CALL MAR-90 UAB-CR OI=1127 B=$13.50
INITIAL NET DEBIT TARGET=$8.38-8.50 ROI(max)=17%

Chart =


IDTC - IDT Technologies  $33.94   *** NTOP Buy-out? ***

IDT Corporation is a leading multinational carrier that provides
wholesale and retail customers with integrated international and
domestic long distance telecommunications service, Internet access
and, through Net2Phone, Internet telephony services.  IDT also
offers retail long distance services to individual and business
customers in the U.S. and around the globe.  IDT operates one of
the nation's largest Internet access networks and is well known
for their Net2Phone service, which allows customers to make phone
calls from a PC.

IDTC continued to rally today on speculation that AOL will buy a
controlling interest in Net2Phone.  A recent report suggested that
AOL may purchase IDT's remaining 48% stake in Net2Phone for terms
that could approach $70 per Net2Phone share.  Traders swarmed the
pits as the stock recovered from early losses, driving the Implied
Volatility to extreme levels.  There are a number of ways to
speculate on the possibility of a Net2Phone merger but we favor
this simple, in-the-money position.

PLAY (speculative - bullish/debit spread):

BUY  CALL MAR-22.50 IQJ-CX OI=1652 A=$12.38
SELL CALL MAR-30.00 IQJ-CF OI=3836 B=$6.75

Chart =


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