Option Investor

Daily Newsletter, Thursday, 04/06/2000

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The Option Investor Newsletter         Thursday  4-6-2000
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)
       4-06-2000           High     Low     Volume Advance Decline
DOW    11114.30 +  80.40 11201.10 11029.60 1,008,016k 1,862  1,135
Nasdaq 4,267.56 +  98.34  4324.09  4196.51 1,745,257k 2,787  1,431
S&P-100  814.09 -   5.00   820.88   806.29    Totals  4,649  2,566
S&P-500 1501.34 -   7.36  1511.76  1487.37            64.4%  35.6%
$RUT     532.50 +  14.46   535.68   517.99
$TRAN   2847.32 +  23.04  2874.84  2823.38
VIX       29.77 -   0.82    31.08    29.38
Put/Call Ratio       .49

Fear of the Fed causes late afternoon pullback.

The non-farm payroll report due out Friday almost stopped the
current rally dead in its tracks today. After both major indexes
charged off to triple digit gains this morning the air slowly
leaked out of the balloon as the day progressed and the Dow 
fell back into negative territory briefly just after 3:PM.
While the Nasdaq did not go negative it dropped -68 points from
the intraday high before rebounding at the close.

After the release of the weekly jobs report today, which fell
6000 to 260,000, a 26-year low, the focus immediately shifted
to the non-farm payrolls tomorrow. The abundance of bearish
estimates along with the party line parroted by Greenspan at
the New Economy luncheon yesterday put fear of the Fed back
into traders. Official estimates are running from +375K to 
+425K new jobs created in March with the unemployment rate
dropping back to 4.0%. Unofficial estimates, the "whisper"
numbers, are as high as 600K jobs and 3.9% unemployment. 
Traders will attempt to justify a blowout number by pointing
to a five week period instead of four weeks and warmer weather
compared to the storm plagued February numbers. Still with 
February clocking in at only +43,000 new jobs, a +600K number
will send ripples of Fed fear through the markets. Greenspan
said on Wednesday that he felt the market would ignore even
stronger measures by the Fed to stop the runaway economy. 
Stronger measures equate to +.50 rate hikes instead of +.25%
or hikes between meetings. If the jobs numbers blow out and
the PPI/CPI next week are elevated then the Fed could react
before the next meeting. If the Fed feels the market will 
ignore stronger measures then they will be less inclined to 
use small increases. This caused many traders to take profits 
from the rebound and go flat before the announcement.



Goldman Sachs released a "Super Seven" technology list for 
stocks that will perform well in periods of extreme volatility
like we had this week. The list includes Cisco Systems, Dell
computer, EMC Corp, Oracle, PMC-Sierra, Teradyne and First Data 
Corp. "During this period of extreme volatility we recommend that
investors remain focused on those larger cap technology names 
where we continue to have high conviction in the fundamentals,"
Goldman said. Today's close for the Super Seven, CSCO -.31,
DELL -2.03, EMC +6.50, ORCL +4.59, PMCS +15.69, TER +9.25,
FDC +2.63.

After Clinton joked that he and Prime Minister Blair tanked the
biotech sector recently on a misunderstanding and confirming
that they supported patenting new discoveries, the sector has
rocketed. Today CRA announced they had finished sequencing the
human genome, a breakthrough that opens the door to precise
understanding of what causes diseases of all kinds. The sector
again rocketed with many stocks adding +20, +30, even +$40 or

The semiconductor sector just keeps surprising with worldwide
sales of +$14.6 billion in February. This was an increase of
+33% from year ago levels and only fueled increases in estimates
for coming quarters. Some of the stocks that benefited were
NSM +6.44, KLAC +7.75 and TER +9.25 after also being named to
the Super Seven list.

European auctioneer QXL.com, which had dropped from $180 to 
a close of $70 on Wednesday received an upgrade from SG Cowen
with a $1000 price target. They split 3:1 after the close
yesterday to around $24 but traded today as high as $117 this
morning after the news. The stock closed at $52 ($156 pre-split)
and was trading up +$9 in after hours.

Alcoa was the first Dow stock to announce earnings this quarter
and posted +$.95 vs estimates of +$.91. Alcoa said operating
efficiencies and higher prices drove first quarter profits +60%
higher than a year ago and giving them the strongest quarter
ever. AA finished up +$1.75 today after a big sell off yesterday
in front of the news.

In the "I am glad I did not hold over earnings" section Yahoo
posted record earnings yesterday and then sold off over -$11
today to close at $153.69. If you have been reading this letter
long then you know YHOO has a history of a significant gains
before earnings and then a drop after earnings. Even though we
preach it in the letter and teach it in our seminars, even some
of the staff continues to hold over earnings, even when the
trend clearly shows otherwise. The refusal to acknowledge facts
will eventually lead to serious losses. The crowd continually
expects big price explosions after strong earnings because the
few companies that actually have strong gains are burned into 
their subconscious while the majority of stocks that decline
after earnings are ignored. Learn from history and profit from

The Dow, Nasdaq and S&P all closed on the upside for the first
time in weeks. The volume was light but we will take anything
we can get compared to the alternative. The VIX is still 
hovering in buy territory around 30 but there is not really
any follow through yet. The jobs report and CPI/PPI are providing
resistance to the current earnings cycle. We are nearing the
end of the rally if this is just a dead cat bounce or bear trap
rally. The Nasdaq seems to be running out of steam and even with
the +98 close today it was not convincing. With most bear traps
lasting 2-3 days Friday will be a key day. We are rapidly 
approaching a liquidity crisis around April 15th and with 
overhead resistance the Nasdaq has an uphill battle ahead. The
Dow, despite the 700 point swing on Tuesday is locked into a
trading range between 10900-11200 and showing no indications
of a breakout. Traders should be taking advantages of any 
earnings runs but be prepared to step aside quickly if the
Nasdaq rolls over. Traders should also be ready to step aside
as the 15th approaches if the market starts moving downward
again. As you have seen this week, when everyone heads for the
exits at the same time we can see some serious down drafts.
Recognize the warning signs and act quickly.

Nasdaq and S&P futures are both up strongly but there is a
lot of darkness before the morning jobs report. 

Trade smart and sell too soon.

Jim Brown

Current long positions: None

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A Retailer With A High-Tech Growth Rate
By Matt Paolucci

If you thought the only way to capture big returns was to invest
in technology stocks, then maybe it's time you take a look at
retail, particularly women shoes. Huh? I know, it sounds a little
strange. But if you are looking for a little diversification
among your holdings in optical networking and genomics testing,
perhaps you ought to check out Steven Madden Limited (SHOO).

The Long Island, NY-based company designs, sources and sells
fashion footwear under the Steve Madden, l.e.i., and David Aaron
brands for women and girls ages 8 to 45 years. The Company
distributes its products through 28 Steve Madden retail stores,
one David Aaron store, three outlet stores and more than three
thousand department and specialty store locations in the United
States, Australia, Canada, Israel, Mexico and Venezuela.

Steven Madden is definitely in expansion mode, and for good
reason. Business is booming.

Fourth quarter revenues increased increased 86 percent to $49.2
million compared to $26.5 million for the fourth quarter of
fiscal 1998. Diluted earnings per share increased 94 percent to
33 cents from 17 cents, even with an 11 percent increase in
shares outstanding.

Full year revenues were up 90 percent to $163 million compared to
$85.7 million for fiscal 1998. Diluted earnings per share
increased 84 percent to 92 cents versus 50 cents in the prior
year period, on a 13 percent increase in shares outstanding.

Net profit margins were 8.6 percent in the fourth quarter, and
7.0 percent, increases of 19.4 percent and 10.7 percent,

Madden is planning 8 new store openings during the year 2000. The
two most recent additions, its fifty-sixth and fifty-seventh
stores, will be in Chicago, Illinois and Littleton, Colorado.

Rhonda J. Brown, President and Chief Operating Officer,
commented, "The Park Meadows store (Littleton) marks our second
store in the Denver market where we have already been successful.
This mall is a highly trafficked three-year old shopping center
that features the best specialty retailers for the year 2000..."

Steven Madden is also taking advantage of online opportunities,
selling its shoes and accessories through Web sites
StevenMadden.com and Stevies.com.

The Stevies line of products targets girls in the 6-12 year-old
age group. The brand, which focuses specifically on the
"tween" market, will be available in July.

Steven Madden, Chairman, President and CEO, stated, "We are
excited by the positive reception Stevies has had since its
introduction at the Vegas Shoe Show in February. These licenses
represent our next tactical step in strengthening the Stevies
name and propelling the brand further through our department
store partners..."

Wall Street seems to be pretty excited about the prospects for
shares of Steven Madden LTD. All seven of the analysts who cover
the stock rate it either a Strong or Moderate Buy.

The stock, which currently trades for around $18, has a PE
(price/earnings) ratio of just 16 times this year's (2000)
earnings estimates of $1.07 per share. The Company is forecast to
grow at 22.9 percent annually over the next five years, versus
15.5 percent for the overall shoe and apparel sector, that's 47
percent faster than the competition.

Laurence Dunn, a Chartered Financial Analyst with John Galt
Capital Management, calls Steven Madden Limited is arguably "the
best run company in the sector today."

Market Posture

As of Market Close - Thursday, April 6, 2000 

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

DOW Industrials   10,850  11,250  11,114    Neutral   3.16
SPX S&P 500        1,410   1,475   1,501    BULLISH   3.21
OEX S&P 100          780     800     814    BULLISH   3.21
RUT Russell 2000     470     580     533    Neutral   4.04
NDX NASD 100       3,800   4,700   4,087    Neutral   4.04
MSH High Tech        900   1,150   1,039    Neutral   4.04

XCI Hardware       1,480   1,510   1,611    BULLISH   2.24
CWX Software       1,450   1,670   1,362    BEARISH   4.04
SOX Semiconductor  1,210   1,360   1,157    BEARISH   4.04
NWX Networking     1,050   1,190   1,000    BEARISH   4.04
INX Internet         800     940     747    BEARISH   4.04

BIX Banking          520     615     579    Neutral   3.16
XBD Brokerage        450     580     513    Neutral   4.04
IUX Insurance        520     620     589    Neutral   3.16

RLX Retail           900   1,000     989    Neutral   3.16
DRG Drug             330     380     362    Neutral   3.30
HCX Healthcare       680     760     732    Neutral   3.30
XAL Airline          130     160     152    Neutral   3.10
OIX Oil & Gas        265     300     293    Neutral   3.16

Posture Alert    
A wild week of trading made Thursday's action feel very lackluster,
however; the major indexes all enjoyed a positive day. Volume was 
decent as the NASDAQ traded 1.7 billion while the NYSE traded just 
over 1 billion shares. Leader's today include Brokerage (+4.53%), 
Networking (+4.09%), Software (+3.51%), and Russell 2000 (+2.79). 
Losers were limited to Drugs and Banking. There are no current 
changes in posture.   

Market Sentiment 

Thursday, April 6, 2000

Reversals Revisited!

This has been an extremely dramatic week for all, and no matter what 
sectors you have played; odds are, you were reaching for the Tums, 
Advil, Tylenol, or some sort of strong beverage at one point or 
another. The mother of all reversals occurred this week, and 
hopefully, everybody took advantage of the entry points that were 
thrown right in our face.
Regardless, the investor psychology in the short term is really 
important at the moment. Currently, you have millions of investors 
who bought stocks at higher prices before the big drop. What this 
creates is potential selling pressure (as investors wait to be 
break-even), in addition to the bears that are ready to jump back 
in and short the market. Now, the major issue that can catapult this 
market through this negative psychology is earnings season. Now the 
major earnings run is just around the corner, but it is shaping up 
to be a great season. 

Last night, Yahoo reported great numbers, stated that the future 
looks even better, but sold off as they missed the infamous whisper 
number. This wasn't surprising since they missed their whisper by 
a penny, and since many momentum-investors were playing the stock 
hoping for a grand slam! Well, Yahoo hit a triple and scored two 
runs, but was short of the 4-banger that many were looking for.     

Well, this week showed the power of catching a reversal, so we 
thought we would highlight several other reversals that we 
highlighted recently. On February 27, Pinnacle Capital highlighted 
several sectors in our Market Sentiment, and the results below are 
pretty impressive, especially given that the sectors were poor 
performers, and it only took a month! Catching a reversal is very 
powerful, and is obviously very rewarding!


Sector           As of 2/27/00     As of 4/6/00        Return:
Banking   (BIX)     471.34           579.48             23% **              
Insurance (IUX)     464.53           589.12             27% **
Airlines  (XAL)     117.08           152.19             30% **


Corporate Earnings:
Major corporate earnings continue to come out strong and ahead of 
analyst expectations. General Electric is the latest bellwether 
to give positive comments regarding earnings.

Short Interest NYSE:
Short interest continues to climb as quickly as the market. The 
short interest on the NYSE increased +5.7% to 4,110,510,698 shares 
on March 15. This bearish level would suggest further upside 

Short Interest NASDAQ:
Short interest jumped +3.49% to 2,710,141,156 shares on March 15. 
This bearish barometer would indicate further upside potential.

Interest Rates (5.791):
The current yield is in bullish territory.

Volatility Index (29.77):
The VIX continues to prove that the low 30's are an excellent 
buying opportunity, and the low 20's continue to be a great selling 
opportunity. Tuesday, the VIX hit 35.44 before retracing, which also 
happened to be the lows of the day!

Mixed Signs: None


IPO Dilution:
With so many IPO's hitting the market, there seems to be dilution 
occurring where shares of finally freed up to sell by insiders. 
$58.6 billion of stock was freed up for trading in March, $67.3 
billion this month, and $118.3 billion in May. This is too much 
stock for the system to handle. 

Pre-Release Season: 
Over the next several weeks, companies will let Wall Street 
know that their profit/sales goals are not being met, and their 
stocks will get brutally punished. The first major corporation 
to do just this is Proctor & Gamble, with it's 27 point decline,
followed by MicroStrategy and its 140-point decline and other's 
such as Tellabs.
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 

Investor Expectations:
More and more investors are now expecting high double-digit growth if 
not triple-digit expansion in their portfolios. This extreme positive 
sentiment could help fuel a future selloff in technology shares.

The Power of Sentiment Analysis

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

Pinnacle Index
OEX                              Friday      Tues        Thurs
Benchmark                        (3/31)      (4/04)      (4/06)

Overhead Resistance (830-860)     4.20        9.27       11.48

OEX Close                       815.06      813.29      814.09

Underlying Support  (800-825)     1.01        1.22        1.31
Underlying Support  (770-795)     1.52        1.90        1.93

What the Pinnacle Index is telling us:
Based on Thursdays figures, overhead continues to increase. It is 
doubtful that the OEX will significantly break into this level by 
April expiration.  

Put/Call Ratio                  Friday     Tues       Thurs
Strike/Contracts                (3/31)    (4/04)      (4/06)

CBOE Total P/C Ratio             .48        .55        .46
CBOE Equity P/C Ratio            .35        .45        .41
OEX P/C Ratio                    .79       1.66        .82

Peak Open Interest (OEX)
                     Friday           Tues            Thurs
Strike/Contracts     (3/31)          (4/04)          (4/06)

Puts                700 / 7,509    700 /  7,821     800 /  9,229 
Calls               830 / 6,037    845 / 18,137     845 / 17,902
Put/Call Ratio         1.24           0.43             0.52

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 28, 2000    Bottom              29.09

April 6, 2000                           29.77   


Rubber Bands and Boomerangs
By Renee White

I assume everyone has known exactly how to trade in this clearly 
defined market.  Right?  Buy low, sell high?  Seems easy.  Buy 
high, sell higher?  I'm confused.  Or is it buy low, sell lower?  
No, that can't be right.  Buy on strength, sell on weakness.  Of 
course, that's right...as long as the system isn't overloaded on 
huge volume with everyone and their uncle trying to buy or exit 
positions at once.  Hey, who changed the game?  This is earnings 
season.  I'm not supposed to have to watch or worry about things 
this closely.  Uh oh.  Ugghh.  If the techs are shaky, that means 
I have to pay more attention to economic data again.  Shoot!  I 
just want to trade easy...meaning, I just want things to go up!  
Would somebody please tell us where to find the revised rules of 
the game...the ones that last longer than a few hours at a time.

A good friend of mine told me last night that one could easily 
get rich from trading the intra-day swings that are occurring 
right now.  In theory, he was right.  That's assuming one can 
open a can of catfish and eat it while swimming in a pool of 
sharks.  I'm not that good.  At the end of the day lately, I've 
seen a million opportunities I COULD have participated in.  
Unfortunately, this instability has made me trigger shy, coupled 
with recent losses over the last 2 1/2 weeks.  I have not been a 
buyer of individual equities since after the first 10% correction 
in March.  If you remember, I had left low open orders sitting 
and waiting for a mild sell-off before the last FOMC meeting.  It 
was a dirty trick when "mild" became a 10% correction when I 
wasn't looking.  Before that, I was loaded with cash.  After that, 
I was loaded with bad positions down 55-60% before I even booted 
up to see them.  Stop losses don't work if the correction occurs 
before you've had a chance to enter them.  Being right on the 
timing of the sell-off was little consolation for the hit. 

I bought QQQ 110 options on that correction.  Like many, it 
seemed reasonable to think that a 10% correction right before 
April earnings would make a good entry point.  So, feeling like a 
safe trouper, I trekked off to the option seminar with my mighty 
YHOO compass pointing towards a typical earnings run along with my 
Qs that I bought on the bottom.  Of course, every scuba diver 
knows that when the ocean gets very dark and still, you realize 
that the reef beneath you has disappeared.  All the while, you 
were swimming off to investigate something off in the distance.  
It's a very eerie feeling to look down and see nothing under you 
but deep black ocean.  A million questions pop into your head 
when you look around you and see the same depth of ocean all 
around you.  There is no bottom and there is no lifeline. 

That is how I felt when one attendee came up to me at lunch during 
the conference and asked, "Did you buy more?"  Not knowing what 
he was really talking about, my automatic answer was, "How bad 
was it?"  His answer, "We just dropped 300 points!"  I can't 
repeat my comment which followed in response to both the money I 
had probably lost on the Q's along with the shock and confusion 
over another 10% correction so close to the last.

For anyone thinking that I never screw up, I assure you that I did 
these last few weeks.  I promptly ran upstairs and again entered 
more Qs, now the 105s.  I thought certainly I was safe because 
this would be the last correction before April earnings.  Deja Vu?  
Thank goodness that I exited most of my YHOO positions before that
drop, but I still held out on a few other which were well in the 
money.  Feeling confident I just lowered my cost basis on more Qs
for the mighty April earnings, I trekked on back to the conference 
with smiles.

After a long seminar week, exhausted and totally removed from the 
market, I returned home with a "cold".  Why do I tell you this?  
Because I am a trader and life just happens.  By the time I came 
home, I was exhausted and had a fever.  All I wanted to do was 
sleep which is exactly what I did all day Monday, never turning on 
the tube.  In fact, except for getting up to take medicine, I 
slept through Tuesday morning  awaking shortly after lunch.  Can 
you imagine my confusion when I turned on CNBC for the first time 
in almost 10 days?  It just didn't register with me right away 
that I had just slept through the biggest one day stock market 
correction in history.  How does that happen?  I'm NEVER sick!  
My phone started ringing that evening and I didn't know how to 
tell people that I had slept through the whole event!  Do you 
have any idea how utterly embarrassing that is?  What a trader, 

But, because I am consistent, I pulled myself together before 
the close and bought some more Qs.  Had to buy that dip!  This 
time it was the 100s.  Of course, I felt safe because this would 
be the last correction before April earnings, right?  Ugghh!  Is 
that song not getting old yet?  Which verse are we on?  Again I 
find myself out in the deep blue sea, not knowing where the 
bottom really is.  It's just too quiet out here this time.  Even 
though the market has been up since Tuesday, my 110s and 105s are 
still under water.  I didn't exit because I naturally thought the 
worst was over...until I realized it wasn't.  Each 10% correction 
since mid March has occurred when I was away from my computer and 
not even booted up.  Unbelievable!  I accidentally exited my 100s 
today, basically breaking even, but I'm still holding close to 100 
contracts that have red glitter on them.

Oh, the trials and tribulations of trying to make money in the 
markets.  The great humiliator.  After 3 major corrections in so 
many weeks, I sit here listening to the big heads talk about 
retesting the lows.  Which low might that be?  I'd like to see 
them retest the first low, but I think that would mean we should 
be going back up.  Hmmm, not so funny this time since we all know 
they are talking about more downside.  Darn, just when we all 
learn that history repeats itself, it quits repeating; YHOO 
changes its pattern, there is no January rally, no February 
sell-off, split runs fizzle and April earnings is a hiccup on 
the chart.  Frankly, I'm just not sure which way the rubber band 
is shaped right now.  Is it stretched or relaxed?  The action 
today felt good, but after being bitten 3 times, I am not that 
trusting.  Also, I hear the stage being set for profit taking to 
retest the recent lows, if not lower.  What a rude awakening for 
people still trading with money that was meant to be used to pay 
their 1999 tax bill. 

I've talked to several friends in the last 2 weeks who have had 
hefty margin calls $100K, 190K, 250K, even close to 3/4 of a
million dollars.  All were from writing naked puts.  Obviously, 
everyone has been hit in this market, even traders who know 
better.  I know that I lost a bundle while at the conference, not 
watching my "safe" entries on the first 10% correction in March. 
Who would of thought we would get corrections once a month, 
then once a week, then in a day....all back to back. 

Well my friends, I hope you are one of those people who has 
been able to intra-day trade hard enough to make a fortune, as 
my friend so calmly pointed out last night.  I am not.  My 
confidence is on hold until I see a reef beneath me.  Trying to 
cover positions also seems ackward since I don't have a sense of 
market direction.  Right now it just feels like I am swimming in 
shark infested waters, with an open can of catfish.  I know they 
are there ready to take another bite, but I don't know if I can 
make it to the reef before they try. 

The bigger question may soon surface.  If it does retest Tuesday's
bottom again (count on that happening...the question is when?), do
I risk loading again feeling safe with a double bottom?  Or do 
chart patterns not matter anymore either?  Will it be another 
May/June decline or this year a rally after the sell-off during 
April earnings?  The real question becomes, "How many times can 
you throw a boomerang and it come back to hit you in the head?"
Trade carefully.


There is no Traders Corner article tonight.

Options 101

Getting Back To Basics
By: Lee Lowell

Let's go over a few issues that seem to be confusing some of our
readers.  Before you ever dive into the market and buy or sell 
an option, you must do a little preparation.  If there is no
analysis involved, you will get eaten alive.  First, you must
have access to an option calculator.  Most likely it will be 
a calculator based on the Black-Scholes equation.  I suggest
going to the CBOE website and clicking on their "Trader's Tools"
link.  Within the Tools, click on the "Option Calculator".  This
is your first step in getting a handle on how the option is
priced in the marketplace.  All the inputs that are necessary 
for the option calculator are readily available, except the 
volatility component.  The volatility component is something that 
we've discussed extensively, but there still seems to be some 

Any option calculator will ask you for your volatility "estimate" 
of the underlying stock.  The volatility estimate is what you 
think the volatility of the underlying stock will be until your 
option expires.  You need to make an educated guess on this 
volatility.  In order to make a guess, you should look at the 
stock's "historical" volatility behavior.  I've had many 
questions on where to look for this historical volatility.  
There are not many free places on the web to find these 
statistics except for the CBOE website.  Within the tools 
section again, you can click on the "stock's historical 
volatility" link.  At this point you can get a handle on how the
stock has moved in the past.  I believe the CBOE breaks down the
HV into 30 day intervals.   

Once you've seen the past results, you make your own guess of 
volatility and plug it into the option calculator.  This is called
your "forecast" volatility.  Whether your forecast is right or 
wrong is yet to be seen.  But at least you've done some analysis.

The next step is to check your option's "implied volatility".  
This is the volatility component of the option itself and it 
signifies what the market participants predict for the underlying
stock in the near future.  It's almost like saying the option 
itself is making a prediction of the stock's movement.  Remember,
volatility (historical or implied) is a number that gives you an
idea of how the underlying has performed in the past and how it 
hopes to perform in the future.  You can also use the option 
calculator to figure out any option's implied volatility.  Just 
plug in all the variables excluding your volatility guess, but 
including the option's price as it's trading in the market.   
Since you've swapped your volatility guess for the option's 
price, the calculator will now spit out for you a volatility 
number instead of a theoretical value.  This new volatility number 
is the option's "implied volatility".

So you now have your "forecast volatility" which is derived from 
looking at how the stock has fluctuated in the past.  And you have 
the option's "implied volatility".  It's you against them!  How do 
the two compare?  Is your FV higher/lower than the IV?  If there 
is a significant difference, then you must dig a little deeper or 
check your analysis.  If the IV is much higher, then there is 
probably some excitement surrounding the stock because of takeover 
rumors or earnings announcements approaching.  If you are 
confident with your volatility forecast and it differs 
significantly from the option's IV, then go ahead and take 
advantage of the situation by buying or selling options based on 
the FV/IV relationship.

What really helps in getting an idea of how the stock and option's 
volatility has moved in the past is to look at historical charts 
of each.  I believe that looking at past IV charts is essential 
when trading options.  Unfortunately, this is not easy to find on 
the web anywhere for free either.  The options broker that I use 
for my own trading has their own in-house volatility charts that 
comes in pretty handy.  That is mrstock.com.  Check 'em out.  I've 
also been asked to suggest datafeed vendors that supply IV and 
delta information.  Take a look at esignal.com, dtniq.com, 
interquote.com, pcquote.com and mt98.com.  I believe all of these 
have IV columns in their options chains, and mt98 & pcquote even 
have "bid IV" and "ask IV" columns too which is a big plus.  MT98
might even have IV charts too.     

In my opinion, IV is a much more important number to focus on than 
the HV.  The HV just tells me the price band that the stock has 
moved within over the past.  Over time, all stocks will develop an 
average volatility level that the stock seems to revert to.  If 
it's trading above its mean, it will eventually move back down to 
it.  And if it's trading below the mean volatility, it will 
eventually trend back up to that level.  Fine.  But if you want to 
trade the options, you're gonna be trading them based on IV.  You 
get a quote for a certain option from your broker, and that option 
has an IV attached to it.  You buy or sell that option based on 
its IV.  Not only can the IV be higher or lower than the HV, but 
the IV can be high or low compared to its own past.  Here's an 
example.  We want to analyze a 3-month IBM ATM option.  IBM has a 
90-day historical volatility of 35%.  The ATM option has a 1-day 
IV of 40%.  This is obviously above the HV.  But is the IV 
high/low compared to its own past?  For the last 90 days, the IV 
has ranged from 40% - 80%.  So the 1 day IV of 40% is low for its 
range but still higher than the HV.  What's the assessment?  It 
seems that over the past 3 months, there was pumped up excitement 
in the options for whatever reason.  But as rumors were quelled, 
the option's IV started to come back down in line with the HV.  
As I've said previously, the HV and the IV usually move in tandem 
except for those few occasions.  We know that the IV for IBM ATM 
options are close to the HV now but at the low end of its IV 
range.  At this point you can say that IBM options are fairly 
priced.   If the 1 day IV had been 80% instead of 40%, it would be 
fair to say that IBM options are relatively expensive, so selling 
strategies could be in your future.

This is what volatility analysis can do for you.  The datafeed 
vendors I mentioned can get you started in the right direction.  
Last week I mentioned that another author stressed in his book 
that too many traders only focus on their timing techniques when 
trading options.  Once they predict which way the stock will 
move in the future, they indiscriminately purchase any option 
they can get their hands on.  This is a BIG mistake.  They may be 
right about the direction, but they may be buying grossly 
overvalued options.  Going back to our IBM example above, what if 
this trader had bought IBM options when the IV was at 80%?  He/she 
would surely lose over the near term as the IV plummets down to 
40%.  Or if he/she happened to be lucky enough to squeak out a 
gain on the trade, it's not nearly as much as he/she would've made 
if the options had been bought at 40% IV.  The strategy of this 
trader should've focused on selling options to take advantage of 
the IV.  If he/she was bullish on IBM, then selling puts, put 
spreads, or writing covered calls would be the optimum strategy.   

I believe I have exhausted the subject of volatility over the last 
few weeks.  For any newcomers to OIN, just click on the "Options 
101" link in the left-hand margin and read some of the previous 
articles.  There' some good information on volatility in general, 
along with ways to use it in your own trading.  You can use 
volatility analysis to give yourself an advantage when putting on 
call and put spreads, ratio spreads, straddles, etc.  Don't forget 
to look at the formula I previously presented to give yourself an 
idea of the stock's possible range until expiration date.  It's 
just another tool to help you make a more informed trading 

Good Luck.

Please view this in COURIER 10 font for alignment
Daily Results

Index      Last     Mon     Tue     Wed     Thu    Week
Dow    11114.27  300.01  -57.09 -130.92   80.35  192.35
Nasdaq  4267.56 -349.15  -74.79   20.33   98.34 -305.27
$OEX     814.09    5.56   -9.33   -9.33    7.80   -5.30
$SPX    1501.34    7.39  -11.24  -11.24   13.97   -1.12
$RUT     532.50  -23.05   -9.92   11.92   14.46   -6.59
$TRAN   2847.32  -57.14   18.85   99.33   23.04   84.08
$VIX      29.77   -1.55    2.24    2.69   -0.82    2.56

Calls               Mon     Tue     Wed     Thu    Week

MEDX      68.00    1.69   -2.19    4.50   13.75   17.75  New
HWP      148.13    0.00    5.56    4.75    6.13   15.25  Stellar
AMAT     106.69   -5.00    8.88    6.06    2.50   12.44  Strong
CHKP     176.75  -36.19   25.47   -1.84   18.25    5.69  Great day
LXK      111.25    0.31    0.19    1.69    3.31    5.50  New
WLA      103.00    4.19    3.63   -3.00    0.38    5.19  Light vol
IBM      122.75    3.63   -0.81    2.44   -2.25    4.75  Still up
CL        59.00    4.12    0.19   -2.25    0.56    2.63  Up small
KSS      103.94    1.63   -4.50    1.25    3.06    1.44  Midday hi
BAC       53.44    3.06   -1.31   -0.19   -0.56    1.00  Dropped
PCAR      50.06   -0.12    2.88   -2.00   -0.69    0.06  Skidding
EXDS     139.69  -17.69   14.13   -5.94    8.69   -0.81  Steady
SUNW      92.69   -3.88    0.19   -1.25    3.94   -1.00  Running
INTC     129.81   -1.31    2.13   -2.88   -0.06   -2.13  Which way
QCOM     139.13   -8.56    5.88   -5.38   -2.13  -10.19  Dropped
NOK      212.00  -15.63    1.25   -4.75   13.00  -10.50  Dropped
DISH      68.44   -4.81   -5.81   -4.69    4.75  -10.56  Recovered
NXLK     105.44   -1.56  -12.82  -12.37    8.50  -18.25  New
NXTL     126.56   -5.62   -6.82   -9.93    0.69  -21.68  New
INKT     155.88  -27.56   -9.44    2.38   -4.50  -39.13  Waiting


LVLT      88.19   -7.25   -3.69    0.19   -6.81  -17.56  New
ICGE      73.88  -12.15  -10.28    5.81    0.19  -16.44  Entry
IIJI      67.50   -8.63   -5.63    8.88    3.13   -2.25  Slid late
KO        45.75    2.37    3.07   -4.75   -1.88   -1.19  New
ITXC      55.13   -2.43   -9.56    8.19   11.88    8.06  Dropped

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


BAC $53.44 -0.56 (+1.00) The sound you heard at 4:00pm EST was
the closing bell, or it could have been the bell ringing to wake
up investors letting them know they could finally go home.  We
wouldn't blame you if you dosed off watching BAC trade the past
two days, we did.  We are going to let this one go for now.  The
short-term trend is still heading up, but BAC and the banking
sector seems to have lost its momentum.  BAC ran into overhead
resistance near its 200-dma on Monday before the sell-off.  The
holding company has been unable to garner any momentum in the
past two sessions drifting lower to support at $53 late today.
BAC did see a few buyers step in, the last 15 minutes of the
session, with fair volume, which could be the beginning of
another run.  Frankly with the bounce in the blue chips today, 
we looked for BAC to participate, but it couldn't get out of 
its own way.

NOK $211.50 +12.50 (-10.50) That's it.  Time to say good bye to 
this 4:1 splitter.  After the close tomorrow, NOK will undergo 
its split and will begin split-adjusted trading on Monday, April 
10th.  Veteran readers will recall that we do not recommend 
holding through a split due to the likelihood of a post split 
depression.  While NOK didn't give us the split run we were 
looking for, it was still a profitable play with many 
opportunities to profit from the price swings.  As a consolation 
prize, NOK announced today that it had secured a $300 mln 
equipment contract with British wireless carrier, Orange Plc.  
That may help slightly.  But in reality, with earnings about 
a month off in early May, there is no event to trade into.  
Accordingly, we don't expect NOK to be on the move for a bit 
and will end this phone call tonight.  Time to find another play.

QCOM $139.13 -2.13 (-10.19) Beep, beep.  That's the life-support 
system sounding off for QCOM.  Granted the stock price was 
charging ahead last week while many of the Internets were 
drowning, but now QCOM is flat lining around $140 and $145.  As 
you know consolidation is necessary, although we expected some 
signs of vitality by today.  Plus volume levels have dissipated 
to almost half the ADV and this is a bearish indication.  It's 
possible QCOM will regain its powerful momentum a few days 
before its earnings' report on April 18th (after the bell), but 
as it is now, the play is over.  Also in the future, look for 
a rollout of the CDMA mobile phone technology in China.  US 
Commerce Secretary William Daley said he won a pledge from 
Chinese Premier Zhu Rongji today to get the networks up and 


ITXC $55.13 +11.88 (+8.06) ITXC showed strength on Wednesday 
and moved higher along with the NASDAQ which is exactly what 
we wanted to see.  It traded up but it did so with conviction, 
which was unexpected.  And to put the final spoils on this play, 
ITXC gapped up today and steadily made way to the $55 level.  
Given that it didn't roll over in the high $40's and firmly 
went through $50, our expectations for this play have not 
materialized.  Therefore, we must cut this one loose and move 
away from ITXC.


AMAT $106.69 +2.50 (+12.44) AMAT is in the right business at the
right time, and the stock continues to roll higher.  As long as
people continue to buy cell phones, cars, and computers AMAT will
benefit.  Positive news flowed from fellow Semi's Wednesday as
Microchip Technologies (MCHP) and Fairchild Semiconductor (FCS)
said earnings will top analysts estimates in the coming quarter.
AMAT also benefited Wednesday from an upgrade by Adams Harkness.
The firm raised AMAT from Market Perform to Accumulate.  Wall
Street is looking for an incredible quarter from the Semi's as
one analyst put it, "Conference calls will be wildly bullish."
James Morgan, chairman and CEO of AMAT said Thursday that the
backlog of orders for the industry was increasing.  Morgan
predicted "decades of huge growth" for the semiconductor industry
as the use of microchip applications spreads beyond computers.
All of the good news has pushed AMAT firmly above $100.  After
hitting an all-time high of $111.25 Thursday, AMAT pulled back 
on light profit-taking.  The stock continues to use its 5-dma as
support in its move higher.  Look for the stock to bounce off the
5-day and confirm direction before entering any new positions.
AMAT has ran into resistance twice at the $110 level, watch for
momentum to carry the stock above that level and provide an entry
with less risk.
EXDS $139.69 +8.69 (-0.81) With its wide intraday swings, EXDS
continues to provide opportunities.  Although the stock dipped
down to $131 at the open today, it managed to climb back above
the critical support level of $136.  The earnings report from
Yahoo that we have been eagerly awaiting provided a boost to net
stocks today, as the company beat estimates by a penny.  As
earnings season commences, many analysts are looking for great
numbers from the high-tech stocks.  In the news recently, EXDS
announced that it has built on their successful alliance with
Compaq (CPQ) to provide e-business services.  EXDS also named CPQ
as their preferred provider of Windows NT/2000 systems.  Also of
note, DELL held its analyst meeting Thursday, where the company
announced its new extended Internet Strategy.  EXDS will provide
Web services for DELL's new initiative.  We mentioned last
Tuesday that EXDS had light resistance at $140.  That level has
now turned into formidable resistance, as the stock failed to
break $140 yesterday and again today.  EXDS is finding support 
at its 5-dma, look for a dip below that level to initiate new
positions.  Watch EXDS closely to see if the stock can breakout
above $140, if the stock can move above resistance there is not
much standing in the way of $150.

PCAR $50.06 -0.69 (+0.06) Our play in PCAR lost traction over
the past two days as traders took profits after the recent
run-up.  After peaking at $54 on Tuesday the stock gapped down $1 
Wednesday on average volume.  The stock stumbled again Thursday,
as traders sold PCAR down to $49.  After hitting $49 for the
second time today, PCAR gained back $1 in the last hour of
trading as volume picked up into the close.  It appears the
profit-taking is over, noting the strong close today.  Although
the stock has come off its recent highs, we're looking for PCAR
to regain momentum and continue its climb higher.  The stock
established solid support today at $49, look for a bounce off
that level as an entry point.  If the strength from today's close
carries through tomorrow, look for PCAR to move higher using its
5-dma as support.  We'll encounter resistance at $51 before PCAR
can move substantially higher.  Watch for a move above $51 with
conviction as that would position PCAR to retest its recent

INTC $129.75 -0.06 (-2.19) Indecision appears to be dominant 
throughout the market at this time and also has a hold on INTC as
it remained relatively unchanged today.  Everyone seems to be a
little wary as to where we go next but the good news is that the
Semiconductor Index($SOX) was up almost 2%.  Going forward to 
Friday's trading session, we will be watching the general market
direction as tomorrow's employment report is released at 8:30 EDT.
Due to INTC's last two sessions of indecision, the overall market
trend will be its catalyst, one way or the other.  We are 
currently putting INTC on probation to see if we get an upside
move for this call play.  Technically, INTC has resistance at 
its 50-dma of $133.13 and it has been finding buyers in the short-
term around $125.  Watch for trader sentiment after amateur hour 
and target shoot to your individual risk levels.

CHKP $176.75 +18.25 (+5.19) After the abuse that occurred on
Tuesday, CHKP has at least recovered its feet.  It took some
time but buyers have now pushed the price solidly above support
at $155-157, and today's close puts the price just above the
10-dma at $174.  Although yesterday's volume was still heavy 
at over 3 million shares, things calmed down today, with just
average volume of 1.25 million shares trading hands.  After 
the turmoil in the markets, and specifically the Internets,
investors are likely resting up before jumping back in with
both feet.  Adding support today was word that Sands Brothers
upgraded the Internet security firm from Neutral to Strong Buy.
Now that CHKP has moved above resistance at $170 and is resting
above the 10-dma, look for further strength as earnings on April
12th approach.  Should the markets pull back, target shooting
may be your entry strategy - look for a bounce near $170.  A
more conservative approach to playing this volatile issue would
be to wait for a convincing break through resistance at $180.

DISH $68.44 +4.75 (-10.56) Margin calls from Tuesday's decline
served up a nice entry into our DISH play Wednesday morning as
the NASDAQ gapped down at the open.  This proved to be the low
of the day, and buyers cautiously moved back into the issue.
Yesterday's late day weakness provided one more dip before the
gap up this morning, which set DISH firmly on the path to
recovery, allowing the stock to close very near its close on
Tuesday.  Doubling its average daily volume today, DISH moved
right up to resistance at $70 before pulling back a bit at the
close.  Above $70, DISH will also find resistance at $75 and
$80.  After the turbulence in the markets this week, it has
been reassuring to see some normalcy return, hopefully calming
investor fears as we move into the April earnings cycle.
Although DISH doesn't report until mid-May, the rising tide of
the NASDAQ should help to float the stock higher if the bulk
of earnings are strong.  Today's introduction of DISHLink,
should garner positive attention for the company in the weeks
ahead.  DISHLink is an affordable and convenient system for
delivering broadband content and video channels to the office
desktop, and will be demonstrated at the Sands Expo Center in
Las Vegas from April 10-13.  A dip to support near $66 looks
like a good entry strategy, but more conservative traders may
want to wait for a break through $70 before helping themselves
to DISH.  


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

The Option Investor Newsletter         Thursday  4-6-2000
Copyright 2000, All rights reserved. 
Redistribution in any form strictly prohibited.


INKT $155.88 -4.50 (-39.13) Following the example of the
Internet sector as a whole, INKT appears to be gathering its
strength.  After the drubbing it took on Tuesday, the stock
(as well as the sector) have traded in a fairly narrow range
over the past 2 days.  Yahoo! came out with earnings last night,
and although the numbers were solid, they were not exciting.
As the sentiment leader for the sector, the fact that Yahoo!'s
earnings were not stellar may have negative implications for
other Internet stocks.  Use appropriate caution going forward
and don't let the subdued trading range of the past two days
lull you into a false sense of security as we move full speed
into April earnings.  It does look like most of the weak hands
were shaken out near $112 on Tuesday, and hopefully we won't
revisit this level anytime soon.  The trading today in INKT
was mixed as volume picked up on decreasing price between
2-3pm EST.  Fortunately, the price bounced right at the $150
support level, allowing INKT to recover modestly into the
close on continued strong volume.  So, what's next?  With
earnings scheduled for April 18th, INKT should get moving higher
soon.  Look for today's support to hold and enter as prices
bounce here once again.  A more conservative approach would be
to wait for a penetration of near-term resistance at $165, or
ideally yesterday's high near $175.

HWP $148.13 +6.13 (+15.25) Finally, our patience with HWP has
been rewarded.  As the high-flyers on the NASDAQ were taken 
out behind the woodshed on Tuesday, HWP held firm at its $130
support level.  With the great relative strength demonstrated
in the midst of panicked investors, HWP was one of the first to
begin moving higher, adding $4.88 yesterday, and a stellar $6.18
today.  Voting with their wallets, investors have now pushed HWP
firmly through the $140 resistance level and are taking aim at
the all-important level of $150.  If successful, they will push
HWP to a new 52-week high and into blue-sky territory.  Now
firmly above $140, HWP is back into its historical split range.
Look for an announcement anytime between now and earnings,
currently scheduled for May 17th.  With the public comments from
the company that earnings are expected to be strong, and news of
the company's dominance in the retail PC sector, this could be
the beginning of a strong run.  Support should be strong between
$140-142, and a bounce near this level would make for a nice
entry.  For those of you not quite sold on the strength of the
recent move, wait for HWP to break out to new highs before
jumping on board.

KSS $103.94 +3.06 (+1.44) Did you happen to join the rest of
folks that bought shares of KSS Wednesday as the retailer bounced
off the support area near $95?  If so you must be pleased.  With
investor sentiment still a bit shaky Wednesday morning, KSS fell
another $4.50, to $95.13.  After lunch investors began to nibble
on Kohl's stock, bidding the price another $7 higher in the next
two hours.  Keep in mind this is not a high flying tech issue,
but a 7% move in 2 hours is nothing to sneeze at.  Today traders
liked what they saw yesterday, and the announcement that Kohl's
same-store sales for the month of March rose 6.8%.  Total sales
for the value priced retailer jumped 34.4% over the five week
period ended April 3rd.  Oh, did we mention, KSS hit another new
high today?  Yep, $106 is the new 52-week high, and by the looks
of the volume the past two days, there may be more room to go.
Over 2.3 million shares have been traded on the latest move.
KSS did pull back a little going into the close today, but still
finished the day with a respectable gain of 3.0%.  If profit-
taking continues, buyers could enter at $102 and $100.  Don't
forget KSS will split 2-for-1 on April 25th, which may also
help keep our play in the limelight.  For now, look for bounces
off support or continued moves higher to enter.

WLA $103.00 +0.38 (+5.19) Considering the action in the Drug
stocks the past two days, we really aren't disappointed in WLA.
The decline Wednesday and the lackluster session today may have
provided us with a very good entry point.  Lackluster that is
until final thirty minutes of trading.  WLA did pop up $1.50 in
the last half-hour today.  Not a big move, but considering for
most of the day WLA traded in a $0.75 range, we'll take it as a
plus.  Most of the weakness seen the past two days came after
Paine Webber, downgraded Bristol-Myers Squibb from a Buy to an
Attractive.  However in the same breath they upped their 12-month
price target for BMY from $65 to $73 per share.  They said the
drug industry should have solid first quarter earnings growth,
the probability of a major Medicare drug benefit before the
Presidential election is less than 50%, and the Presidential
race is too close to call, but could have a major impact on BMY
and the industry as a whole, as the year progresses.  Analysts
at Paine Webber said that while lowering their ratings on BMY
they remain positive on the group.  Investors took profits on 
the news, but began to test the waters late today.  Volume the 
past two days amounted to only 4.5 million, which is light 
compared to what we've seen as WLA advanced.  Support is now 
found between $100 and $101, however with investor sentiment 
improving WLA may be back on track.

SUNW $92.69 +3.94 (-1.00) So, how's our conservative big-cap 
earnings play today?  Very well, thank you.  SUNW has exhibited 
little of the volatility common with other technology issues 
over the past two days, trading in a $7 range of $87-$94.  
Support is strong at $87 and could make an excellent target 
at which to shoot.  Intraday support can be found around $91.  
We'd expect the price to advance further as SUNW trades into 
earnings, scheduled for April 13 (confirmed, but subject to 
change).  Careful though.  Volume has fallen back to the ADV.  
We'd rather see volume increase running into earnings since it 
confirms other investors' interest too.  Also, with tomorrow a 
likely day for some traders to take chips off the table prior to 
a weekend, SUNW could experience some weakness as the day wears 
on.  In the news, Michael Dell made some interesting comments 
about SUNW today at the DELL analyst meeting in New York.  He 
noted that while SUNW is now DELL's only relevant competitor in 
the server business, their hype is now greater than their ability 
to deliver.  While a comment like that may have long term 
implications, it shouldn't affect the play.  Just don't bet 
against Mikey - he has a track record of being generally correct.

CL $59.00 +0.56 (+2.63) CL is finding its footing at these 
higher levels.  The consumer stock managed well after taking a 
late-day dip to the 10-dma at yesterday's close.  It recovered 
nicely with a solid upward move back to $60 before oscillating 
in a tight one point range.  The techs may have rallied somewhat 
today, but deep wounds can sting for a while.  So with that in 
mind, the short-term for CL is still promising.  The overhanging  
resistance is looming at $60 and $62 while the bigger challenge 
is the 52-week record at $66.75.  Since Tuesday, volume was only 
moderate so look for the trading levels to return to 2.2 mln 
(ADV) or better.  Upcoming earnings may also lend a helping 
hand.  Colgate-Palmolive is expected to report on April 19th. 

IBM $122.75 -2.25 (+4.75) Near-term support continues to pattern 
higher (now at $122) as IBM demonstrates its momentum is intact.  
The rising technical 5 and 10 DMA indicators still coincide with 
the stock's support level and are good gauges for entries into 
this momentum/earnings' play.  Today IBM just missed cracking 
the stubborn resistance ($128.25) set on March 27th as it 
powered up to $128.13 early in the session.  Volume remains 
respectable too.  These are bullish signs that IBM can make a 
run through $130 and overtake the 52-week record at $139.19 
before earnings on April 18th, market permitting of course.  In 
the news, IBM Japan won a 10-year $1 bln computer- outsourcing 
contract from major life insurer, Mitsui Mutual Life Insurance.  
The company also snagged a three-year $250 mln equipment 
contract with ABB's Engineering and Technology Group.


ICGE $73.88 +0.19 (-16.44) ICGE hasn't been moving exactly in 
the direction we'd expected.  A resumption of DB Alex Brown's 
coverage today with a Strong Buy didn't help.  Nonetheless, 
consider the gain a gift for a better entry.  For shortly 
thereafter, it petered out.  ICGE remains technically weak and 
hasn't meaningfully participated in the rally over the last two 
days.  It just can't get back and hold over resistance of $80, 
which was prior support until Wednesday's cliff dive.  Volume is 
falling too, telling us that buyers have no conviction.  That's 
not a good sign for the stock when the rest of the market is 
making decent recovery progress.  That said, if you see another 
move over $80, consider taking a position once it falls back 
through, even if the overall market is strong, and especially if 
the overall market is weak.  Otherwise, confirm the negative 
market direction and consider a position if ICGE falls under 
current intraday support of $71.50.  For the chartists, note that 
it's also under its 5-dma of $76.66, which it couldn't hold today 
either, making it all the more difficult for a recovery going 
into a Friday fraught with fear.  It's a long way to the next 
level of support at $60.

IIJI $67.50 +3.13 (-2.25) As we warned in Tuesday's update, that 
sharp 20.4% drop in the first days of the week attracted some 
bargain hunters.  IIJI saw strong gains particularly on 
Wednesday, although the higher share prices couldn't hold up 
even with the markets in rally mode.  The stock is currently 
sandwiched between the 5-dma ($63.65) and the 10-dma ($70.18). 
Recall older support was at $65 so this level isn't 
reprehensible, but we do need to see downward movement from 
here.  A definitive slide through the 5-dma would provide better 
confirmation that this technical momentum play can move back 
into deeper territory.  There isn't any company-specific news 
event to effect trading.  


LXK - Lexmark International $111.25 +3.31 (+5.50 this week)

Wrapping its arms around the entire life-cycle of printers, LXK
develops and manufactures a broad range of laser, inkjet and dot
matrix printers for the office and home markets.  The company is
also the exclusive source for new print cartridges for the laser
and inkjet printers it manufactures.  Additionally, LXK provides
supplies for IBM printers and offers after-market laser
cartridges for the large installed base of a range of laser
printers sold by other manufacturers.

Beating the rest of the market to the punch, LXK got its
pullback out of the way early.  Hitting a new 52-week high of
$135.88 on March 22nd, LXK had nowhere to go but down as
investors calmly took their profits.  Having run up 50% since
the start of the year there were a lot of profits to take, too.
Volume remained below average throughout the decline and began
to pick up (along with increasing price) last Friday, posting 
a close at $105.50.  Then came black Tuesday, an event that,
although it caused some selling, could only manage to drop
prices to $99, (right on the 100-dma).  Like a rubber band
stretched tight, LXK snapped back as soon as investors figured
out the world wasn't going to end.  With the air already let
out of the stock and earnings just around the corner (April
24th), LXK looks like it could make a run at its recent highs.
There are however, a couple obstacles to overcome.  The first
is the 50-dma ($114.65) which provided overhead resistance in
today's trading.  This also happens to be a significant level
of resistance, confirmed several times in February and early
March.  The next obstacle will be the 30-dma, currently sitting
at $119, and the site of more historical resistance.  Look for
a bounce near support at $107 to trigger your entry, or for
those with a more cautious nature, wait for a close above the
50-dma.  Once clear of the obstacles listed above, LXK should
be free to run, and we hope the approach of earnings coupled
with a broad market recovery will make it a swift race.  

New has been sparse on LXK, with the most recent item of note
being the rating given by Prudential.  On March 17th, the firm
began coverage with an Accumulate rating.

BUY CALL APR-110*LXK-DB OI=570 at $6.63 SL=4.50
BUY CALL APR-115 LXK-DC OI= 96 at $4.25 SL=2.50
BUY CALL APR-120 LXK-DD OI=124 at $2.63 SL=1.25
BUY CALL MAY-115 LXK-EC OI=109 at $7.50 SL=5.25
BUY CALL MAY-120 LXK-ED OI=134 at $6.88 SL=4.75

Picked on Apr 6th at    $111.25     P/E = 47
Change since picked       +0.00     52-week high=$135.88
Analysts Ratings      6-4-1-0-0     52-week low =$ 49.50
Last earnings 01/00   est= 0.68     actual= 0.73
Next earnings 04-24   est= 0.58     versus= 0.48
Average Daily Volume = 1.13 mln


MEDX - Medarex Inc. $68.00 +13.75 (-17.75 this week)

Medarex is a biopharmaceutical company developing monoclonal 
antibody-based therapeutics (drugs) to fight cancer and other 
life-threatening and debilitating diseases.  The company has 
developed a broad platform of patented technologies for antibody 
discovery and development, including the HuMAb-Mouse system for 
the creation of high affinity human antibodies.  Yes, their claim 
to fame is that they've engineered a mouse with a human immune 
system!  Medarex's HuMAb-Mouse technology is a transgenic mouse 
system that creates high affinity, fully human antibodies instead 
of mouse antibodies.  Using standard laboratory techniques, 
scientists can produce these fully human antibodies in a matter 
of months.  Medarex creates and develops human antibodies for 
itself and others, offering a full range of antibody development 
capabilities, including pre-clinical and clinical manufacturing 

You say you like a little high risk in this already volatile 
market?  Here's one in the Biotech sector that's got some 
promise, thanks to an engineered furry critter - a mouse! (see 
above)  But what makes this one different from other Biotech 
stocks is the technical picture.  After reaching a high of $206 
in early March, MEDX fell to $33.25, a "mere" 84% drop in value 
during Wednesday's crater-fest.  The turnaround has been equally 
great as MEDX opened at $41 yesterday and has been on a tear 
ever since.  Clearly, the selloff was overdone as shown by the 
bottomed-out stochastic.  The volume of the recovery both 
yesterday and today has been at least 50% above the ADV of 1.5 
mln shares.  With barely in excess of 28 mln shares in float, 
volume really gooses the price moves and makes this reversal 
trend look really strong.  Though MEDX closed strong (up $4 in 
the last 10 minutes), intraday support can be found in the $61-
$62 range, or if the theory that old resistance becomes new 
support holds water, $65 may also work for the gunslinger types.  
If you are one, look closely at a 1-minute chart.  You can see 
the price blast off on a volume spike once it hit $65 - a nice 
print for the technical trader.  Apparently others thought so 
too.  Unless it makes a nice steady move from the open (not a gap 
up), we suggest waiting for a pullback after amateur hour before 
getting in.  One thing we were not able to confirm is an earnings 
date, but it should be in mid-May following mid-February results 
last reported.

Typically when a rooster takes credit for the sunrise, you don't 
believe him.  But when President Clinton apologized yesterday for 
tanking the Biotech market along with Tony Blair two weeks ago, 
the market was all too happy to respond positively by powering up 
the sector again.  No specific news on the company though other 
than a recent secondary offering that brought in almost $400 mln 
of fresh capital - enough to sustain it for years according to 
one analyst

BUY CALL APR-65 MZU-DM OI=239 at $10.13 SL= 7.00
BUY CALL APR-70*MZU-DN OI=259 at $ 7.88 SL= 5.50
BUY CALL APR-75 MZU-DO OI=206 at $ 6.13 SL= 4.00
BUY CALL MAY-70 MZU-EN OI=267 at $14.88 SL=10.75
BUY CALL MAY-75 MZU-EO OI= 41 at $13.00 SL= 9.75

SELL PUT APR-60 MZU-PL OI=142 at $ 3.75 SL= 5.75
(See risks of selling puts in play legend)

Picked on Apr 06th at   $68.00     P/E = N/A
Change since picked      +0.00     52-week high=$206.00
Analysts Ratings     1-7-1-0-0     52-week low =$  2.88
Last earnings 02/00   est= N/A     actual= N/A
Next earnings 05-15   est= N/A     versus= N/A
Average Daily Volume = 1.5 mln


NXTL - Nextel Communications $126.56 +0.69 (-21.69 this week)

Nextel communications provides digital and analog wireless
communications services throughout the United States.  Nextel's
4-in-1 business solution integrates guaranteed all-digital
cellular service, text/numeric paging capabilities, digital two-
way radio and wireless Internet services.  Customers can now
use the same phone number no matter where they are, whether it's
across town, in another country, or around the world.  With
headquarters in Reston, Virginia, Nextel serves 96 of the top
100 markets in the United States.  

"Wireless is hot, and investors want wireless"  That's a quote
from Christopher Larsen, a wireless analyst at Prudential
Securities, earlier this week when talking about the U.S wireless
market.  Until today, looking at the chart of NXTL, one wouldn't
think traders are so hot on wireless.  Something positive showed
up today for one of our latest additions.  Buyers.  NXTL hit
$119.44 and found an increasing interest in their stock.  At its
worst level in the first thirty minutes of the session, NXTL was
down about -$6.34 when the volume picked up, the price reversed
course, and NXTL ended the day with a gain of $0.69.  Today 
marked the first time in nine sessions that NXTL actually had
any positive sentiment directed its way.  For the week Nextel
was showing a loss of about 20%, when investors finally woke up
and began to take notice.  Keep in mind this is a stock that
traded at $165.88 on March 10th.  Other than overall market
sentiment, very little has changed as far as the company and 
the position in the market place.  In the past two days analysts
at WR Hambrect and Davenport & Co. have reiterated their Buy
rating on NXTL, which did seem to help prop up the price a bit.
This past Monday, NXTL announced "Nextel Worldwide" a service
providing customers with one phone, one number, world wide.  
Nextel Worldwide simplifies the idea of global roaming for
international travelers.  The real emphasis on this play lies in
the fact we believe the selling this week in NXTL was overdone,
and the bounce today may be the beginning of a nice run back up
the chart.  As NXTL hit the low today, about 841K shares were 
traded in a half-hour period, with the price beginning to reverse.
We expect the momentum to continue and would look for chances to
jump on board.  A pull back to the $122 area would also provide 
a good entry point.

The competition is heating up in the wireless world, as Tuesday
SBC Communications and BellSouth unveiled their long awaited 
plans to merge their wireless operations.  Some analysts expect 
NXTL to eventually merge with a larger European operator that
uses similar technology.
BUY CALL APR-120 FZC-DD OI=104 at $11.38 SL= 8.25
BUY CALL APR-125*FZC-DE OI=134 at $ 8.63 SL= 6.00
BUY CALL MAY-120 FZC-ED OI=632 at $16.63 SL=12.00
BUY CALL MAY-125 FZC-EE OI=219 at $14.13 SL=10.50
BUY CALL MAY-130 FZC-EF OI=260 at $11.75 SL= 8.75

SELL PUT APR-120 FZC-PD OI=309 at $ 4.13 SL= 6.25
(See risks of selling puts in play legend)

Picked on Apr 6th at    $126.56    PE = N/A
Change since picked       +0.00    52-week high=$165.88
Analysts Ratings     12-7-3-1-0    52-week low =$ 33.00
Last earnings 02/00   est=-0.99    actual=-0.85 
Next earnings 04-26   est=-0.81    versus=-1.31
Average daily volume = 4.36 mln


NXLK - Nextlink Communications $105.44 +8.50 (-18.56 this week)

Nextlink Communications is a competitive local-exchange carrier
(CLEC).  The company builds fiber-optic rings in cities to
provide local and long-distance phone service, e-mail, and other
Internet services primarily to small businesses.  NXLK provides
services in 38 major US markets, including New York, Los Angeles,
and Chicago.  NXLK is also adding local multipoint distribution
service (LMDS) fixed wireless licenses to its portfolio of
communications services.  The company has agreed to buy Internet
access provider Concentric (CNCX).  NXLK was founded by cell
phone pioneer Craig McCaw, who owns 35% of the company.

The telecom services stocks are showing impressive relative
strength.  In the face of broad market weakness and wild
volatility, US telecom stocks continue to plow higher.  Stocks
like GTE and BEL are hovering near all-time highs despite the
meltdown earlier this week.  The sector has benefited from a
stream of positive analysts comments.  Lehman Brothers upgraded
BLS Thursday to Buy from Neutral and raised their price target.
The upgrade came after BLS announced a joint venture with SBC.
The continued consolidation in the telecom sector is seen as a
positive by industry analysts and could help to lift NXLK higher.
The merger with CNCX is expected to be completed within the next
few months and could provide some relief to shares of NXLK as
arbitrageurs have held the stock down.  The stock is now trading
at a very attractive level after the sharp sell-off Tuesday and
continued pressure Wednesday.  We're looking for NXLK to rebound
from the recent decline as the fundamentals remain intact and 
the telecom sector begins to rebound.  Technically, the chart 
for NXLK doesn't real pretty after its recent decline.  However, 
there is not much resistance preventing the stock from moving 
higher.  The stock has resistance just above at $110, but after 
that we should see smooth sailing up to $120.  NXLK is currently 
positioned back above its 5-dma with major support at $103.  
Watch for the stock to bounce off support for entry or wait 
for NXLK to move above $110 for a more conservative entry.  
Confirm direction in the telecom sector before entering into 
the play; using GTE, BEL, and BLS as references.

In the news, Phonecalls.com signed an agreement with NXLK
yesterday.  Under the terms of the agreement, Phonecalls.com will
co-locate with NXLK to provide local and long distance enhanced
communications services to commercial and residential customers.
Also of note, the Board of Directors announced a 2-for-1 stock
on February 16th, with a payable date of June 15th.

BUY CALL APR-100 QNF-DT OI=673 at $10.38 SL=7.50
BUY CALL APR-105 QNF-DA OI= 92 at $ 7.75 SL=5.25
BUY CALL APR-110*QNF-DB OI=382 at $ 5.25 SL=3.25
BUY CALL MAY-105 QNF-EA OI=134 at $13.50 SL=9.75

SELL PUT APR-100 QNF-PT OI=721 at $ 4.13 SL=6.00
(See risks of selling puts in play legend)

Picked on Apr 6th at    $105.44    P/E = n/a
Change since picked       +0.00    52-week high=$132.50
Analysts Ratings     14-2-3-0-0    52-week low =$ 26.00
Last earnings 12/99   est=-1.49    actual=-1.34
Next earnings 05-01   est=-1.56    versus=-1.09
Average Daily Volume = 1.49 mln


LVLT - Level3 Communications Inc $88.19 -6.81 (-17.56 this week)

Level3 Communications is a global telecommunications and 
information services company that is building an international 
fiber-optic network based on internet protocol (IP).  Their 
focus is primarily on the business market.  Services include 
local, long distance, and data transmission as well as other 
enhanced services. Currently they serve 20 cities in the US and 
Europe.  LVLT also has its hands in the coal mining business.  

This telecom stock is taking a whipping out behind the barn.  
The widespread market decline has pummeled the share price by 
16.6% in a mere four days.  Are you thinking, so what?  Yes, 
many telecom and high-flying Internets suffered sharp pullbacks 
recently, but they're doing what LVLT is not - recovering!  It 
appears as if LVLT doesn't have the dynamism to lift it back up 
above its previously steadfast support of $100.  Take today for 
example.  Banc of America Securities reiterated a Strong Buy 
recommendation.  Instead of a sign of positive recognition, LVLT 
shed another $6.81 on strong volume.  This is especially bearish 
considering the Nasdaq was in rally mode.  Entries into this 
technical momentum play?  Downward bounces off $90 are 
reasonable while more conservative will wait a definitive move 
through $85. The next level of historical support is just above 
the 200-dma ($78.66) at $80 and $83 so watch for opposition at 
those marks.  Pitfalls?  Earnings are approaching on April 18th, 
after the bell.  Be careful of investor exuberance as this event 
approaches.  An FYI, even though nothing's transpired in the 
past, LVLT is a split-candidate above $80.  It's always a good 
idea to do your homework and know as much as you can about the 
stock you're playing.

BUY PUT APR-100 QHN-PT OI= 633 at $15.13 SL=11.00
BUY PUT APR- 95*QHN-PS OI=2058 at $11.75 SL= 8.75

Average Daily Volume = 2.89 mln


KO - The Coca-Cola Company $45.75 -1.88 (-1.25 this week)

The Coca-Cola Company is the largest manufacturer, distributor
and marketer of soft drink concentrates and syrups in the world.
The company's products include all of the Coca-Cola brand drinks,
Minute Maid, Sprite, Barq's root beer, and Powerade among others.
It sells more than 160 brands of beverages in some 200 nations.
About two-thirds of its sales come from outside the US.  The
company commands 51% of the global soft-drink market.  Coca-cola
claims that its products account for a mere 2% of global daily
fluid intake -- for now.

KO is running out of fizz as the company recently lowered growth
estimates.  Facing a struggling stock price and questions about
its new strategy, late Tuesday Coca-Cola set its long-term target
for earnings per share growth at 15%, narrowing its goal from a
previous range of 15 to 20%.  The long-term growth rates had been
in place for the last 10 years as KO enjoyed a time of strong
growth.  The narrowing of EPS growth came on the heels of a
restructuring of the company's operations that will cost KO $800
mln in 2000.  Many traders feel that the lowered growth target of
15% is still too high.  Pointing out that KO is setting itself up
to continue to miss quarterly estimates in the coming year.  As a
result, the stock will continue to decline due to disappointing
earnings.  The problems continue to mount for KO in the past year
after the contamination scare in Belgium and France, the filing
of a racial discrimination lawsuit, and the company's problems
with regulators in Europe.  As the story gets worse for KO, we
can capitalize as the stock continues to decline.  After the
lowered growth estimates were announced Tuesday night, traders
began to sell.  And the selling hasn't stopped.  The stock found
some support today at $45 but continues to look weak.  Watch for
support at $45 to fail as an indication traders have resumed
selling.  A move below $45 could see the stock move below its 52-
week low of $42.88.  If the stock does bounce higher, look for
KO to have resistance in the $46 - 47 area, where you might look
for an entry.    

BUY PUT APR-50*KO-PJ OI=3279 at $4.88 SL=3.00 
BUY PUT APR-45 KO-PI OI=5479 at $1.44 SL=0.75 

Average Daily Volume = 5.13 mln


AMAT - Applied Materials $106.69 +2.50 (+10.63)

Applied Materials is the world's #1 maker of complex
manufacturing equipment used in semiconductor factories.  Its
machines have a big share in most industry segments, including
deposition (layering film on wafers), etching (removing excess
material during patterning), and ion implantation (altering
electrical characteristics of certain areas of wafer coating).
Applied Materials also makes metrology systems and inspection
equipment.  Their customers include Advanced Micro Devices,
Intel, Lucent, and Motorola.  
Most Recent Write-Up

AMAT is in the right business at the right time, and the stock
continues to roll higher.  As long as people continue to buy cell 
phones, cars, and computers, AMAT will benefit.  Positive news 
flowed from fellow Semi's Wednesday as Microchip Technologies
(MCHP) and Fairchild Semiconductor(FCS) said earnings will top 
analysts estimates in the coming quarter.  AMAT also benefited 
Wednesday from an upgrade by Adams Harkness.  The firm raised 
AMAT from Market Perform to Accumulate.  Wall Street is looking 
for an incredible quarter from the Semi's as one analyst put it,
"Conference calls will be wildly bullish."  James Morgan, chairman
and CEO of AMAT said Thursday that the backlog of orders for the 
industry was increasing.  Morgan predicted "decades of huge 
growth" for the semiconductor industry as the use of microchip 
applications spreads beyond computers.  All of the good news has 
pushed AMAT firmly above $100.  After hitting an all-time high of
$111.25 Thursday, AMAT pulled back on light profit-taking.  The 
stock continues to use its 5-dma as support in its move higher.  
Look for the stock to bounce off the 5-day and confirm direction 
before entering any new positions.  AMAT has run into resistance 
twice at the $110 level, watch for momentum to carry the stock 
above that level and provide an entry with less risk.


With great demand for chips in today's world of cell phones, 
handhelds, and other personal electronics, AMAT is benefiting.
Trading in a $7 range today, AMAT certainly will be moving 
tomorrow.  With strength in the semiconductor sector, momentum 
is on AMAT's side.  A benign employment report tomorrow will give
the market reason to go higher so watch for market direction and
profit-taking.  Target shoot to personal risk levels.

BUY CALL APR-100 ANC-DT OI=2931 at $11.13 SL=8.75
BUY CALL APR-105*ANC-DA OI=5468 at $ 8.25 SL=6.00
BUY CALL APR-110 ANC-DB OI=4080 at $ 5.88 SL=4.00
BUY CALL MAY-110 ANC-EB OI= 781 at $11.88 SL=9.25

SELL PUT APR- 90 ANC-PR OI=5554 at $ 1.38 SL=2.50
(See risks of selling puts in play legend)

Picked on Apr 4th at     $98.13    P/E = 70
Change since picked       +8.56    52-week high=$111.25
Analysts Ratings    14-15-2-0-0    52-week low =$ 24.19
Last earnings 01/00    est=0.38    actual=0.40
Next earnings 05-10    est=0.54    versus=0.18
Average Daily Volume = 8.13 mln


A Day For Reflection..

Wednesday, April 5

Equity markets were mixed today as the Nasdaq posted slim gains
while the broader market slid lower.  The technology index rose
20 points to 4169 but the Dow industrials lost 130 points to end
at 11,033.  The S&P 500 index fell 7 points to 1487.  Volume on
the Nasdaq was 1.8 billion shares with declines leading advances
3-to-1.  On the big board, 1.12 billion shares changed hands and
losing issues dominated the exchange.  In the bond market, the
30-year Treasury fell 6/32, bid at 106 17/32, where it yielded

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

Proctor & Gamble   PG   MAY50C/MAY60C   $8.50   debit   bull-call
Kellogg Company    K    MAY22C/MAY25C   $0.00   debit   bull-call
H.J. Heinz         HNZ  JUN40C/APR40C   $0.00   debit   calendar

Our new positions were a difficult group during Wednesday's
session.  Proctor & Gamble was the only issue that provided an
easy entry into the suggested spread.  The debit for the Kellogg
position was slightly higher than our target and we decided to
wait for another entry opportunity.  We will continue to track
the issue for a pullback in the next few days.  The disparity
in the H.J. Heinz options was gone at the open and there was no
favorable position available.

Portfolio plays:
After another volatile session, the technology group registered
modest gains on strength in Semiconductor and Internet issues.
Chip stocks were the big winners after a number of analysts made
positive comments on the industry.  The Biotech sector was also
strong with a number of large drug companies enjoying significant
rallies.  In the broad market, healthcare, defense and railroads
were among the strongest industries, and Transport stocks were
standout performers as crude oil prices hit a 3-month low early
in the session.  Some traders insisted that Tuesday's intra-day
reversal was evidence the Nasdaq correction is over and bargain
hunting investors continued to scour the market for cheap stocks.
Some analysts have a more pessimistic view and expect a trading
range to develop in the near future.  Goldman Sachs strategist
Abby Cohen offered some new opinions, saying she continues to be
enthusiastic about the outlook for US equities.  Fed Chair Alan
Greenspan also made comments on the recent activity saying the
FOMC must be careful to keep inflation contained and that it
should focus on the broader economy as opposed to asset prices.
He suggested that monetary policy should not target stock prices
and that history will judge if technology earnings forecasts are

With the recent volatility, no one is really sure what prices
should be for any technology issue and some interesting comments
came from the chief economist at John Hancock Funds.  "The Nasdaq
has to be largely a story about emotions and psychology.  It's not
real stuff.  The market is overvalued.  But at the same time,
we're dealing with a population of investors who are either
professionals who can't afford to get out of the market or novices
who have never seen it go down.  Either way, it lends itself to
every downturn being a buying opportunity." In my opinion, that
is an absolutely correct analysis of the current market mentality.
As long as the economy is performing well, there will be plenty
of fund inflows to support the equity markets.  Of course there
will be technical corrections (hopefully not as significant as
we experienced this week), but the overall trend is intact and
the outlook should remain bullish for quite some time.

The recovery in the leading technology sectors boosted many of
our positions in the Spreads Portfolio to profitable territory
and we expect the short-term rebound to continue.  While there
were a number of plays closed early to protect gains or limit
losses, a few stocks weathered the storm quite well.  Almost all
of our credit spread issues remained above their respective short
positions (ESIO was the only deserter) and today the majority of
stocks in the group moved higher.  Nvidia (NVDA) was the session
leader with a $16 rally to end at $91 on strength in the chip
sector.  Sunday's "New Plays" offered two short-term winners in
California Amplifier (CAMP) and International Rectifier (IRF),
both of which were closed during Tuesday's sell-off for excellent
gains.  The Debit Spread Section required timely management with
E*trade (EGRP) but stocks such as Advanced Micro Devices (AMD),
BMC Software (BMCS), Helix (HELX) and Xerox (XRX) withstood the
brief correction with ease.  Most of the diagonal spreads have
been closed for profits or adjusted forward and except for Legato
(LGTO), the bullish portfolio has performed as well as could be
expected.  Each of our calendar spreads have offered favorable
returns and Kroger (KR), Philip Morris (MO) and Navistar (NAV) are
some of the recent winners.  The LEAPS/CC's section is one of the
most successful strategies in our portfolio with profitable plays
in Bank One (ONE), Computer Associates (CA), Medtronics (MDT),
Network Associates (NETA) and Vodaphone (VOD).  American Online
(AOL) is the only "question mark" in that group and we believe AOL
will soon continue its recent rally.  The straddles group has
been rather docile with regard to the market volatility but each
play has attained a positive credit at least once and the newest
play, Ubid (UBID) became a winner this week as the stock fell to
lows near $18 during Tuesday's wild session. 

While there is no perfect strategy for the option trader, most
investors learn to hedge their risk in as many different ways as
possible, thereby minimizing the effects of volatile and adverse
markets.  Spread trading can also help a trader take advantage of
mis-priced options, while at the same time reducing the effects
of short-term movements in the underlying issue so that he can
safely hold a position to maturity.  Looking back over the last
few days, that description held true in most of the plays in our
portfolio.  Lets hope it doesn't happen again in the near future!

Thursday, April 6

Stocks rallied today with the technology sector leading the way
in a calm and orderly session; a condition that has become the
exception rather than the rule.  The Dow Industrials gained 80
to end at 11,114.  The Nasdaq Composite rose 99 points to 4,269
on strength in biotechnology and networking issues.  The S&P 500
Index and the Russell 2000 Index of small-capitalization stocks
also advanced.  Trading volume was 1 billion shares on the NYSE
and 1.73 billion shares on the Nasdaq.  Market breadth was very
positive with advancers outnumbering decliners 19 to 11 on the
Big Board and 28 to 14 on the Nasdaq.  In the bond market, most
prices slid lower as stability in stocks removed the safe-haven
bid from Treasuries.

Portfolio plays:

Today the Market enjoyed a brief reprieve from the recent bearish
outlook as all of the major equity averages moved higher.  Our
portfolio participated in the bullish activity and most of the
plays benefited from the rally.  The market leaders rallied in
almost every industry and the Spreads Section was dominated by a
small group of well-known issues including Advanced Micro Devices
(AMD), American Online (AOL), Nvidia (NVDA), Sun Microsystems
(SUNW), and Vodaphone (VOD).  In the broad market, biotech shares
moved higher in a second consecutive day of buying and brokerage,
oil service and retail shares gained ground while drug and bank
stocks fell lower.  In the technology group; networking, Internet
and computer software companies enjoyed favorable rallies.  The
semiconductor sector was somewhat subdued after recent gains even
as a report announced that February's worldwide chip sales were up
33% from year-ago levels.  The report also indicated a bullish
outlook for growth in the industry and that bodes well for many
of our long-term positions associated with that group.

Even though the Nasdaq has recovered significantly from recent
losses, analysts still expect volatile price action over the next
few weeks as the index attempts to define a technical bottom.  In
the intermediate term, the broad market is expected to establish
a rectangular trading pattern as opposed to a trending market and
those conditions will offer a number of profitable opportunities
for option traders.  For those of you who favor bullish strategies,
the difficulty will be in finding the issues that have greater
potential to trend higher rather than remain mired in a range.
With persistence, we may even be able to uncover some positions
that profit regardless of the market's character.

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

				- NEW PLAYS -

TLAB - Tellabs  $57.94   *** Earnings Warning! ***

Tellabs designs, manufactures, markets and services voice, data,
video transport and network access systems.  Their products are
used by public telephone companies, long-distance carriers,
alternate service providers, wireless service providers, cable
operators, government agencies, utilities and business end users.
Tellabs also provides fiber optic systems, digital cross-connect
systems, managed digital networks, and network access products.
Digital cross-connect systems include the TITAN series and their
managed digital networks include the MartisDXX integrated access
and transport, statistical multiplexers, packet switches, T1
multiplexers and network management systems.  Network access
products include digital signal processing products such as echo
cancellers and T-coders, special service products such as voice
frequency products, and local access products such as the

Today shares of Tellabs mover lower after the telecommunications
equipment company warned that first-quarter profits would fall
below expectations.  Tellabs cited lower gross profit margins,
largely stemming from higher-than-expected component costs and
increased customer service installations, which has a much lower
margin than products.  The company said it expected to report
profits of $0.25-$0.27, almost 20% lower than the consensus
estimate.  Robert Wilkes, telecommunications analyst with Brown
Brothers Harriman, expressed some concern with the lower margin.
He noted that Tellabs has enjoyed relatively high gross margins
in the past and there was concern that investors would see TLAB's
margins fall closer to those of its rivals.  ABN AMRO's telecom
specialist also lowered his rating on the stock, based on lower
future earnings.

We simply favor the recent technical resistance near the sold
strike at $65.  We will try to use any bullish recovery rally
to increase the position credit.

PLAY (conservative - bearish/credit spread):

BUY  CALL  APR-70  TEQ-DN  OI=2180  A=$0.43
SELL CALL  APR-65  TEQ-DM  OI=5252  B=$0.88
INITIAL NET CREDIT TARGET=$0.50-$0.56 ROI(max)=12%

Chart =


TER - Teradyne  $95.50   *** New All-Time High! ***

Teradyne manufactures automatic test equipment and software
including systems to test semiconductors, circuit boards,
telephone lines and networks and software.  They also build
backplanes and associated connectors used in electronic systems.
Teradyne's semiconductor test systems are used by electronic
component manufacturers in the design and testing of products
that include logic, memory and mixed signal circuits.  Their
circuit-board test systems are used by electronic equipment
manufacturers for the design and testing of circuit boards and
other assemblies.  Telecommunications test systems are used by
telephone operating companies to test and maintain subscriber
telephone lines and related equipment.  Software test systems
are used by a number of industries to test communications
networks, computerized telecom systems and server applications.
Backplane connection systems are used for the computer,
communications and military/aerospace industries.

Today Goldman Sachs listed its "super seven" high-technology
companies, highlighting issues it prefers in a volatile market.
The magic seven included electronic systems maker Teradyne and
the stock rallied almost $9 on the news.  The bullish issue is
now trading at a new record high and the trend is supported by
heavy volume.  With the favorable outlook in that sector and the
move to a new trading range, the issue has very little chance of
returning to the $75 range.  Once again, we will try to use the
daily movement of this volatile stock to increase the credit in
the position.

PLAY (conservative - bullish/credit spread):

BUY  PUT  APR-70  TER-PN  OI=560   A=$0.68
SELL PUT  APR-75  TER-PO  OI=2071  B=$1.06
INITIAL NET CREDIT TARGET=$0.50-$0.56 ROI(max)=12%

Chart =


ABT - Abbott Labs  $37.82   *** Cheap Speculation! ***

Abbott Laboratories is engaged in the discovery, development,
manufacture and sale of healthcare products and services.  Its
products are generally sold directly to retailers, wholesalers,
hospitals, healthcare facilities, laboratories, physicians'
offices and government agencies throughout the world.  Abbott
has five reporting revenue segments: Pharmaceutical Products,
Diagnostic Products, Hospital Products, Ross Products and
International.  Abbott also has a 50% owned joint venture, TAP
Holdings Incorporated.

The drug sector has performed favorably through the recent Market
volatility and options in Abbott Labs have been active ahead of
their upcoming earnings announcement.  The company is expected to
report first quarter earnings on April 11 and the consensus is a
revised $0.44 per share.  Apparently there are some investors who
think the earnings may be favorable as the issue has moved up
significantly in the last week.  We noticed a premium disparity
in the front-month options and this position offers low-risk
speculation for those who agree with a short-term bullish
outlook for the issue.

PLAY (speculative - bullish/calendar spread):

BUY  CALL  MAY-40  ABT-EH  OI=6382  A=$1.56
SELL CALL  APR-40  ABT-DH  OI=618   B=$0.43

Chart =

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