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Daily Newsletter, Tuesday, 09/05/2000

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The Option Investor Newsletter                  Tuesday 09-05-2000
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        09-05-2000        High      Low     Volume Advance/Decline
DJIA    11260.60 + 21.80 11301.70 11184.80  843 mln   1422/1438
NASDAQ   4143.18 - 91.15  4206.51  4143.18 1.67 bln   1825/2227
S&P 100   823.49 -  6.34   827.77   820.91   totals   3247/3665
S&P 500  1507.08 - 13.69  1517.10  1503.75           47.0%/53.0%
RUS 2000  539.02 -  2.89   542.79   538.41
DJ TRANS 2727.40 + 14.48  2730.69  2709.39
VIX        21.37 +  1.92    21.85    20.78
Put/Call Ratio       .48
******************************************************************

Reality check!

Here they come! What precedes earnings warnings? Analyst downgrades!
It does their reputation no good to downgrade a stock that has
already warned so if they want to garner publicity they have to
go out on a limb in advance of warning season. Ashok Kumar fired
the first salvo today with a downgrade on Intel and the tech
market reacted with a big drop. Great timing for the maximum
press exposure. Everyone is thinking rally and you manage to
take out 25% of the leaders with one announcement. The Dow
managed to rally back to plus territory after Coke said they
were comfortable with estimates going forward but this just
proves the fallacy of looking at the Dow as a market indicator.
The Dow rebound was a fluke with every other index except the
transports dropping. The broader market S&P-500 lost -13.69 and
the Wilshire-5000 lost -128.






How to crater a rally, Step 1. Downgrade a major component of
the Nasdaq. The ensuing drop of that component will take others
in the index with it. Step 2. Phrase your downgrade on weakness
in the sector not specific problems with the company in question.
By saying that PC sales are weakening you can kill chip makers,
INTC, AMD, MU, ATML, ALTR and others along with PC box makers Dell,
CPQ, HWP, IBM and GTW. Guilt by association then drags in software
makers MSFT, ADBE, SYMC and friends. If PC growth is weak then
Internet network companies sales could slow and that hits CSCO,
NT, NTAP, TERN, EXDS, FDRY, AKAM, RFMD and on and on. Every
layer below the actual PC box and its impact on Internet and
networking suffers. It is like that ad for weed killer Roundup.
"Kill the roots, kill the weed." Kill the PC sales forecast and
kill tech market. Thank you Ashok Kumar!

The downgrade on Intel was from "strong buy" to "buy" but the
killer language was the downgrade on growth estimates, a warning
about an imminent over supply of chips and a warning that chip
pricing was likely to turn into a price war. Ashok said he
expected Intel growth to be only mid single digits. This was
much lower than the +15%-17% prior estimates. Saying the PC
rally was failing and third quarter was going to be disappointing
was like saying "man to the lifeboats" on a cruise ship. Traders
back from vacation and trying to decide what to buy were suddenly
trying to decide what PC stocks they needed to unload instead.

Add to the PC sector unrest the fear that neither presidential
candidate is looking very drug friendly and suddenly another
sector is looking grim. The new Bush Medicare plan was not
viewed as positively as was hoped and Banc America's analyst
Leonard Yaffe downgraded the entire sector to market perform.
With the Gore plan seen as allowing Medicare to implement price
controls on drugs and the Bush plan only slightly better, drug
companies are facing possible lower profits once these plans
are implemented. Lower profits mean lower stock prices and traders
started moving out of the sector today.

If these problems were not enough CIEN investors got an unpleasant
surprise. A major customer of Ciena filed for bankruptcy and CIEN
is not likely to receive payment for $28 million of optical
equipment. This will result in a charge of $.06 to their fourth
quarter earnings. CIEN dropped $14 even though the revenue was
already accounted for in the doubtful accounts category. The
charge and loss of the customer will have no impact on CIEN going
forward according to CIEN. Buying opportunity? Looks good to me
but wait for a new trend to appear. CIEN has a 2:1 split on Sept
18th only two weeks away!

The Nasdaq posted a loss after five winning sessions in a row.
Does that surprise anyone? The slightest scare of earnings or
sales prompted the flight reflex as fears of lost profits overcame
the greed compulsion. I want to spend a couple minutes exploring
the shock loss syndrome. Remember the Emulex hoax from two weeks
ago? The stock was rocketing from the mid $40s the first week of
August to a high of almost $120 before the hoax on August 24th.
Since the hoax the stock has fallen to only $100 even though the
press release was bogus. The company is still exactly the same
as it was when the stock was soaring but the stock is now falling.
What changed? Profit shock. This is the term used to describe the
feeling of seeing a $120 stock trading at $50 and you are still
holding an open position. This is of course extreme but you get
the picture. Investors who had been counting their paper profits
of better than 100% were suddenly back to zero or at a loss
depending on how long they had owned the stock.

Once the hoax was over every investor that survived the heart
attack was determined to take profits. It is called getting
out alive, the second chance that many of us don't ever see.
Once the opportunity presents itself to sell, traders not
seeing a continuation of the rapid gains, quietly sell into
rallies and count themselves very lucky.  The profit shock
impacts not only investors in EMLX and stocks in the same
sector like QLGC, but other stocks that have run up fast as well.
Watching someone else take a bath in a news disaster will make
you consider windfall profits you may have in your portfolio.
Lightning can and does strike twice and once hit you are forever
shy. For everyone that woke up this morning expecting a continued
rally and found a tech sector nightmare instead, the prospect of
losing the profits from the last three weeks was suddenly crystal
clear. Investor sentiment changed in the blink of a press release
and +550 points of profit in the Nasdaq since August 11th were
on the verge of disappearing faster than a politicians promise
on November 8th.

Which way from here? Like I said on Sunday, "just because everyone
expects the market to do something does not mean it will," the
drop today proved that millions of investors hoping for a rally
cannot make it happen. The only thing that will cause a rally is
buying, not hoping. Hoping is done by people with open positions
and no money. Traders with money vote for rallies by buying
something and their votes move the market. Volume was good
today (1.6B) and that was a bad sign. Good volume on a down day
causes more down days. The possibility that the PC sector analysis
by Ashok Kumar may be accurate could cause more problems. Traders
are beginning to be more concerned that the earnings warnings
which start next week may be stronger than normal after today's
tech downgrade. This COULD impact the rest of this week. There
are no important economic reports this week but next week is
loaded. The Nasdaq is now showing a failed rally at the 4250
resistance from Friday. The lack of a follow through today
and the sector downgrade could be the one-two punch that knocks
us into next weeks decline several days early. Light support
is at 4100 and then 4000. With September the worst month on
record in the last 49 years, even worse than October, and the
four day post Labor Day rally now in doubt, I would be VERY
cautious about starting new positions. There is still a ton
of cash on the sidelines and this could be the buying opportunity
they have been waiting for. Still, I would be careful. We blinked
and sentiment changed. I hate it when that happens!

Good luck and sell too soon.

Jim Brown
Editor


*********************
FALL SEMINAR SCHEDULE
*********************

Chicago is our next stop. September 14/16th. Here is your
chance to learn from the pros. The three day Technical
Analysis Stock and Option Fall Seminar Series. Three days
of in-depth education. Don't miss it!

Some comments from recent attendees:

I want to thank Chris, Steve and Scott for the excellent workshop
held in Detroit last week.  Having been to the Expo in Denver in
March (which was fabulous), I was ready for a smaller, hands-on
approach to hone my less-than-perfect skills.  I was not disappointed.
One can never get too much education in options investing, and Chris
and Steve offer terrific, unique approaches. Laurie

Chris & Steve, I would like to thank both of you for a great
experience at the Atlanta Workshop. I learned more in the
three days of the workshop about investing and trading than
all of my undergraduate and graduate courses combined. It
was a lot of information in a short time and I hope to put
it to use very soon.  Mike

I attended the Atlanta seminar and wanted to forward my positive
comments. The seminar "really lit my fire". I have been a trader
for 20 years and often go to seminars and this was the first one
that really taught me the most. Dr Lloyd

Jim, I had the good fortune of attending the meeting in Orlando.
Like your newsletter, it was a CLASS ACT. Chris and the others did
a great job. Chris was by far the best performer but the gentlemen
beside me was an option trader with several seminars under his belt
and almost freaked out when Chris finished his Index Presentation.
JC

I am writing this note to compliment you and your staff on the
great job they did in Atlanta.  But more importantly I would like
to single out Steve Rhoades as one of the finest speaker/teacher
on technical analysis that I have ever had the pleasure of hearing.
I am doing my best to persuade other members of the two investment
clubs that I belong to, to attend the Detroit seminar.
Sincerely, ML


We guarantee you will not be disappointed. The class size
is small so you will get plenty of individual attention
from Chris Verhaegh, Steve Rhoads and staff.

At less than the cost of a bad trade you can learn how
to analyze stocks and trade options like the pros.
Don't wait, do it now.

Date   City

Sep 14-16 Chicago
Sep 21-23 Austin TX
Sep 28-30 Boston
Oct 12-14 Charlotte NC
Oct 19-21 San Francisco
Nov 02-04 Phoenix
Nov 09-11 Miami FL
Dec 07-09 Philadelphia
Dec 14-16 San Antonio

Australia coming soon!

Has the market been beating you up? Did you give back
your gains from April? Would you like to understand
all the technical indicators our writers use? Does
the alphabet soup of technical terms like RSI, DMA,
MACD, ROC, Stochastics, Bollinger bands, sound like
Greek to you?

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option strategies to use on those stocks for less than
the cost of one bad trade.

Reserve your seat now for one of our regional seminars.

Click here for more info:

http://www.OptionInvestor.com/seminar/seminar.asp





****************
MARKET SENTIMENT
****************

Vacation's Over - Let The Buying Begin!
By Austin Passamonte

Here we go - Labor Day's over. As most pundits have said, time
for volume and money flow to return. All these little guys
squeezing in ahead of the sure-thing rally created a stealth
rally of their own. Will it continue from here?

Maybe. Don't you just love our commitment to prognostication?
As usual, reality leaves us underwhelmed from expectations of
new market highs. Hey, let's just post some matched prices of
previous closing highs first!

Good volume on the NASDAQ two out of the last three sessions
took us 100+ points in either direction on the NASDAQ 100 index.
What's that tell us?

Our vaunted "buy the dip" crowd (many of us) continue to swoop
in as markets sell off only to buy them back. Still, each rally
mounted is cheerfully met by waves of selling and large blocks
at that. The tug of war continues.

Looking at candle patterns, we had some bullish white candles
on Thursday last following a rally on most indexes. Friday's
near holiday action left outside-day dojis in turn. Today's
close created bearish "Evening Star" three-session patterns
found near the top (?) range of a price move. This indicates
buying strength first, indecision and then weakness over three
sessions time.

The Dow stands alone with what could be a "Gravestone" doji
or upside-down hammer. This means the market opened, rallied
up to its daily high and sold off to close near the open price.
It suggests failure of the bulls to push and support prices
up any further.

Also, the VIX advanced from below 19 last week to close at
21.37 today. While it's still considered within bearish zone,
this slight release could portend much bigger things to come.

We'll see what tomorrow shall bring.

On a bullish front, market pros are returning to the start of
a long season at the helm. What to do with these volumes of
cash lying around? Buy bonds? We think not. Fund managers need
to put that money to work and will look to do so soon.

That will happen when they think prices are apt to go higher.
Funds are a trend-following crowd and near term buying action
could trigger a wave of panic buying. Wouldn't that be nice
for the bulls?

Market Sentiment continues to believe we are at a key moment
in the market and things are fixin' to move fast. With a triple
witch expiration looming ahead there is no reason to think
otherwise.

It could get hot & heavy soon, stand ready to play "hot potato"
with puts and calls as broad markets roil and roll.


MARKET SENTIMENT INDICATORS
---------------------------

VIX
The CBOE Market Volatility Index measures certain S&P 100
option pricing to determine investor sentiment. Historically,
readings near 30 signal possible market bottoms while levels
near 20 indicate possible market tops.

Sat 9/02 close: 19.45    Tues 9/05 close: 21.37


CBOE Equity Put/Call Ratio
The CBOE equity put/call ratio is a contrarian-sentiment
indicator. Numbers above .75 are considered bullish, .75 to
40 neutral and bearish below .40

*************************************************************
                             Tues       Thurs         Sat
Strike/Contracts            (9/05)      (9/07)       (9/09)
*************************************************************

CBOE Total P/C Ratio         .48
Equity P/C Ratio             .41


Peak Volume (OEX)
CBOE index put/call ratio is a contrarian-sentiment indicator.
Numbers above 1.5 are considered bullish, 1.5 to .75 neutral
and bearish if below .75

**************************************************************
                             Tues         Thurs        Sat
Strike/Contracts            (9/05)        (9/07)      (9/09)
**************************************************************

All index options            1.46
OEX Put/Call Ratio           1.53


OEX Maximum Open Interest Strikes/Contracts:

Puts               790/6,137
Calls              800/4,361
Put/Call Ratio       1.41


OEX S/R (Support/Resistance) Ratio Index
The OEX S/R ratio is a formula to gauge possible support
or resistance based on open-interest disparity. Numeral
listed for resistance is the ratio of calls to puts. Support
is ratio of puts to calls. Values above "10" considered firm.
Divergence of numbers may indicate future market direction.


OEX                      Tues         Thurs         Sat
Benchmark:              (9/05)        (9/07)       (9/09)

Overhead Resistance:
(920-855)                87.24
(850/830)                 4.02

index close:               823

Underlying Support:
(825-805)                 1.52
(800-780)                 2.30


What the S/R measure indicates: Net open-interest ratios
are firm above 830 and impenetrable above 850 while very
light all the way to 780. A large index move has downside
clearance to 780 or below with relative ease. We could see
805 in a heartbeat.

We still consider continued failed tests near the 830 range
an excellent put entry.


30-yr Bond:          5.67%

Light, Sweet
Crude, Barrel:     $33.80


200 Day Moving Average (as of 9/05)
The 200 DMA is widely considered the major benchmark for
critical support in a market.

DOW:   10,821          11,260
NASDAQ: 3,998           4,143
NDX:    3,750           3,987
SPX:     1442            1507
OEX:      780             823


CBOT Commitment Of Traders Report: Friday 8/25
Biweekly COT report discloses positions held by small specs
and commercial traders of index futures contracts on the
Chicago Board Of Trade. Small specs are the general trading
public with commercials being financial institutions.
Commercials are historically on the correct side of future
trend changes while small specs are not. Extreme divergence
between each signals a possible market turn in favor of the
commercial trader's direction.


                  Small Specs        Commercials
DOW futures
Net contracts;    +7,165 (long)        - 10,913 (short)
Total Open
Interest %        17.43% net-long       24.29% net-short

NASDAQ 100
Net contracts;    +1613 (long)         +38 (long)
Total Open
Interest %         11.85% net-long       .098% net-long
                                              (flat)
S&P 500
Net contracts;     + 44,989 (long)     -47,946 (short)
Total Open
Interest %         25.24% net-long       8.5% net-short

What COT Data Tells Us: Commercial positions in S&P 500 and
DJIA remain at or above five-year extreme short levels. Small
specs continue to build net-long extremes.

NDX commercials went from net-long to flat while small specs
went from net-short to net-long the past two weeks.

(Not Shown) Commercial positions in 10-Year Note and 30-Year
Bond markets at or near five-year extreme net-short levels.
Small specs build net-long.

Summary: "Smart money" insiders expect stock market to decline
and interest rates to rise. Small traders directly opposite,
creating diverse set up favoring commercial sentiment for
near-term market direction.


BULLISH SIGNALS

Interest rates
5.67% on the 30-year Treasury Bond make equity markets the
only game in town. Fed-Fund futures are pricing slight chance
of further rate hikes and dwindling.

Benign Government Reports
Latest statistics show the economy is cooling and no further
rate hikes may be needed. Friday's batch included

Strength In Financial Sector, Many Dow Components
Financial leaders approach or exceed all-time highs as plenty
of old-economy stocks enjoy strong price leadership

Broad Market Strength
All major indexes are well above 200 DMAs and enjoying solid
gains. Very bullish behavior


******

BEARISH SIGNALS

VIX
Tuesday's close above 21 is very interesting from here.

End Of Earnings Season
Earnings season has all but ended with pre-warning cycle
to begin in two weeks. It may not be pretty this time, due
to..

Third-Quarter Earnings Warnings
A number of companies pre-warning slowed earnings later in
the year are being met with extreme selling pressure.

Energy Prices
Prices are still too high. Ultimately this affects profit
margins and inflation. Light, Sweet Crude closed $33.80 today.
All petroleum expected to be extremely high this fall. Prices
in low $20s would be welcome relief but remain beyond reality.
Seasonal patterns are rising prices soon as well.

COT Report - S&P 500 & DJIA
Latest updated figures show small spec traders remain heavily
long S&P 500 contracts while commercial traders continue
to hold ten-year extreme short position. DJX commercials added
to net short while small specs added to net long holdings.
Widened divergence strongly implores market turn in favor of
commercials. The market's bottom may still lie ahead.

COT Report - NASDAQ 100
Sentiment reversal with small speculators switching to net-
long while commercials go flat may suggest near-term weakness.


**************
MARKET POSTURE
**************

As of Market Close - Tuesday, 09/05/2000

                                  Key Benchmarks
Broad Market           Last     Support/Resistance   Alert
****************************************************************

DOW   Industrials      11,260      11,000  11,400
SPX   S&P 500           1,507       1,485   1,550
COMPX NASD Composite    4,143       4,000   4,300
OEX   S&P 100             823         814     845
RUT   Russell 2000        539         520     575
NDX   NASD 100          3,987       3,900   4,300
MSH   High Tech         1,095       1,080   1,170

BTK   Biotech             741         690     800
XCI   Hardware          1,596       1,500   1,680
GSO.X Software            485         450     500
SOX   Semiconductor     1,121       1,000   1,200
NWX   Networking        1,357       1,325   1,400
INX   Internet            594         550     625     **

BIX   Banking             606         550     610
XBD   Brokerage           687         660     700
IUX   Insurance           718         680     725

RLX   Retail              816         780     840     **
DRG   Drug                380         365     410     **
HCX   Healthcare          791         770     830     **
XAL   Airline             158         148     168
OIX   Oil & Gas           312         280     320

It was a rather negative day as traders got back to work and found
some nice profits had piled up over the past week.  Volume picked
up, but it was to the downside for many sectors and indices.  Both
the INX and RLX hit our resistance points, while the DRG and HCX
broke support levels.  Raising support (INX, RLX).  Raising
resistance (INX, RLX).  Lowering support (DRG, HCX). Lowering
resistance (DRG, HCX).


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

Covered Calls and Calendar Spreads
By Lee Lowell

These are topics that seem to get lots of press on many financial
websites, including OIN.  I'd also like to write about these
strategies not only because they are very popular to many
investors, but because I too am starting to increase my use
of these tactics.

Covered calls are considered to be one of the most conservative
and safest of all option strategies.  This is why brokerages will
allow almost anyone who fills out an option agreement to employ
this strategy.  There really is no extra risk in selling a
covered call that a brokerage needs to worry about.  The investor
already has the shares in the account, so he/she is covered
against the short call.  And since the investor already faces the
risk of their stock going to zero, the covered call will actually
offset that catastrophe by a few points.  The only downside to
this strategy is that the investor may have their profits
capped if the stock starts to blast off.

If you read my article from 08/07, you'd see that I expanded on
the use of covered calls to give yourself some downside protection
and a possible monthly inflow.  Everyone should employ these
tactics.  You need to get the most out of your portfolio by
utilizing option strategies that work with what you already have.
Don't just "wait and hope" for your languishing stock to go back
up.  Sell a call against it.  This at least keeps you involved
and may help to increase your returns.  For years, I sat with my
portfolio of stocks knowing that eventually over time they would
all go up.  But for those periods of meandering and downticks, I
would just chalk it up to "that's the market."  I now know that a
majority of stock and indices, in general, trade within certain
ranges and patterns, which makes me more comfortable selling
covered calls.  I can lower my cost basis by a few points during
those down periods and by using the tools of the trade, I can pick
the most effective calls to sell.  If my stock moves up, then
hopefully from my analysis the call that I sold will still expire
worthless.

I think the reason that most people are hesitant to sell covered
calls is due to the possibility of losing their stock, and missing
out on a big upside move.  But, how many of you were wishing back
in March and April that you had some covered calls that could've
saved you lots of money during the correction?  You can never time
the market, so you can never know when a good time might be to
sell a call.  That's why you should always look to sell calls
against your longs every month.  Now you may have a good feeling
about the stock or it might be in a good uptrend right now.
That's fine.  If you feel really good about the near-term, then
hold off from selling the call.  If you are worried about being
called out and possibly missing out on the "big move", then you
can always buy the call back for a small loss.  Or you can buy the
call back and roll it out to the next month's option.  Just
remember, if you are losing money on the short call, you are
guaranteed to be making MORE MONEY on your long stock.  That's how
covered calls work.  I can hear it now, "why take the chance of
losing any money by buying back the short call for a loss if I
know my stock will eventually go back up?"  The key word is
"eventually."  Like I said, what about those in between times when
there's no movement and those times of slow downward drifts?  Do
you want to bring in a few extra dollars each month or do nothing?
This doesn't have to be a long-term commitment.  You can sell
front month options each month that decay very rapidly.  It's up
to you.  I know what I'm going to do.

I want to talk about a variation of the covered call.  It's a
cross between a covered call and a calendar spread.  The strategy
involves buying an in-the-money LEAP call option and selling a
closer-to-expiration call option with different strike prices.  In
a traditional calendar spread, a longer-term option is purchased
and a near-term option is sold, with both options having the same
strike price and both being calls or puts.  Additionally, if the
near-term option has higher implied volatility than the longer-
term option, than you will have an even better edge in the trade.

With the new strategy, you will purchase an in-the-money LEAP
call and sell a closer-to expiration call whose strike price is
dependent on the premium of the LEAP.  In a covered call strategy,
you either already own the stock and then sell a call against it,
or you can be the speculator and simultaneously buy the stock and
sell the call at the same time.  Buying an in-the-money LEAP call
will not only closely mimic the movement of the long stock (delta
effect), but it will cost less to do so.  This will also lower
your total loss should a potential downside disaster occur.
Buying the LEAP also gives you plenty of time for the strategy to
work and keeps the decay to a minimum (theta effect).  You should
buy at least the 2002 or 2003 LEAPs.  So in effect, you really are
implementing a covered call strategy except that the LEAP is a
surrogate for the stock.  And since we are dealing with options in
different months, we are also in theory conducting a calendar
spread.

The LEAP call should be about 20 points in-the-money which will
probably have at least an .90 delta.  The short call against the
LEAP has to be at a strike price that comprises the strike of the
LEAP plus its premium.  Here's an example.  I've been considering
buying LEAP calls on Nokia which is trading around $46.  I've
decided that I want to purchase the Jan '02 $25 calls for a
premium of $24 or lower.  If I get filled, I want to start selling
calls with a strike price of $49 or higher ($25 call + $24 premium
= $49).  In this case, I would look to sell a Nokia $50 or higher
call in a month that has a few points of premium.  This could
either be the Oct 2000 or the Jan 2001 calls.  The reason why
you want to sell a call with that specific strike formula is
because it eliminates the negative effect of being called out of a
LEAP call prematurely.  The one problem of a regular calendar
spread in which both options are of the same strike price is that
if the stock sky rockets and you are called out of the near-term
call, you may be forced to exercise the long-term call.  This
basically makes you forfeit all the time premium you just paid
for.  With the in-the-money LEAP call, this is not a factor
because of the little time value it has to begin with.  Once the
stock starts to sky rocket and you are called out of the short
call, your LEAP will practically consist of all intrinsic value,
so early exercise is not an issue.  It's the same as if you had
to give up your shares of stock.

Remember, an ITM call with a delta of .90 is comprised almost
entirely of intrinsic value so you don't have to worry much about
time decay or exercising prematurely.  I can either buy 100 shares
of NOK for $4600 or spend $2400 for the Jan '2002 $25 call and
get almost the same results.  I have 1.5 years for the trades to
work for me.  Right now, the Jan '02 $25 call is trading for $24
with NOK trading at $46.  That means it has $21 worth of intrinsic
and $3 worth of time premium (very small).  Let's say I sell the
Jan '01 $50 calls against it for $4.50 and NOK finishes at $55
on expiration day in Jan '01.  I will be called out of my Jan '01
$50 calls for a 1/2 point loss ($5 point intrinsic - $4.50 initial
premium intake) and I will have to exercise my Jan '02 $25 calls
to cover it.  The $25 calls at Jan '01 expiration are worth $30
intrinsically, but they are trading for roughly $30.75 in the
marketplace (using an options calculator).  This means that I will
only be giving up 3/4 point in lost time premium due to the
early exercise.  I can live with that.  Also, my overall gain
from the LEAP/short call is +5 1/2 points.  If I had instead
purchased 100 shares of NOK with the short call, my gain at Jan '01
expiration would be +8 1/2 points.  I'd make an extra $350
if I owned the stock but it would've cost me an extra $2200 to
make the trade initially.  I think I'll stick with the LEAPs.

The strategy is worth a look if you have some LEAP calls that
interest you.  I welcome all questions.

Good luck.

Contact Support


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

Using Volatility and Delta in Spreads
By Mary Redmond

Spreads don't necessarily have to be boring options strategies.
Sometimes you can make a higher percentage profit on a spread
with lower risk than in other options strategies.  Spread
traders generally keep track of the volatility of the options
they are buying and selling, as well as the probability of
the options moving in a particular direction, and many other
factors which can influence the stock's price.

Generally speaking, with spreads you should use the same rules
as when buying and selling call and put options.  You should
usually try to buy an option when the implied volatility is
lower than the historic volatility.  With a spread, the best
strategy is generally to buy an option with comparatively low
implied volatility and sell an option with higher volatility
as a simultaneous transaction.  This will not guarantee a
success, but it will increase the odds of success.

You also should become familiar with a stock's trading pattern
before buying options.  Typically, a stock which has been public
for several years will usually have established a more predictable
trading pattern.  It is much easier to become familiar with the
pattern of a stock like GE than a stock which went public 6 months
ago.  Younger companies tend to have more erratic trading patterns
and may respond with more severe price swings to news and changes
in trading volume.

For example, if you take a stock which has been relatively flat
for a period of time the LEAP call options will probably be
priced with little difference in price between each option.  In
this case, the volatility chart will be tend to be relatively
flat.  This is the implied volatility chart of CMGI Jan '02 LEAPs.




It is important to note that the implied volatility graphs will
often be flatter when there is more time until expiration.
For example, the implied volatility of the Sept 50 CMGI calls
is 77.5.  The implied volatility of the Sept 75 calls is 125.
The implied volatility of the Sept 100 calls is 182.7.  When the
implied volatility is significantly higher than the historical
volatility, the probability of the call options becoming
profitable is very low.  Below is the implied volatility chart
of the September CMGI calls.




You can use this factor to your advantage in many different
spread strategies, including calendar spreads.  If you buy LEAPs
with a low implied volatility, you can often sell near term calls
with higher implied volatility which may expire worthless.

If a stock has been flat for a period of time and the volatility
graph is flat, the options' prices tend to be closer together
at different strike prices.  For example, a few weeks ago the
CMGI Jan 50 calls were $12.50 and the Jan 100 calls were $6.  You
could have bought the 50 and sold the 100 for a cost of $6.50.
Today, the Jan 50 calls are $19.38 and the 100 calls are $10.13
to $10.50.  The spread could have been closed at $8.88, a profit
of $2.38.

If one option is at-the-money and the other is deep out-of-the-
money and the stock rises, the ATM call should rise by a greater
amount than the deep OTM.  If the 50 call became in-the-money this
could be more pronounced.  The delta of the ATM call is
approximately 65.  The delta of a deep OTM call option is about 35.
If CMGI were to rise 10 points the 50 call could rise
approximately $6.50 and the 100 call might rise only $3.50 to $4.
If the stock were to tank, the out-of-the-money call would
decrease more slowly, which could be a disadvantage.

Other factors can affect the delta, including the demand for the
options and the liquidity.  If both options have high outstanding
open interest and trade daily, then the movement of the option
according to its delta should be more precise.  If you are doing
options or spread trading, you also want to consider how the
implied volatility can change as a stock moves.  This can depend
on the public's perception of what the option will do over it's
lifespan, as well as the demand for the option.

For example, if the demand for an option rises because many
people are bidding for it, the implied volatility will usually
rise.  If many people are selling call options, for example in
covered call writing, the implied volatility may decrease.  You
need to use your judgement to determine if people will start
to buy a particular option or write the option if the price
changes.

A difficulty with LEAPs is that the spread between bid and ask can
be as much as two points and you often have to buy a LEAP at the
ask and sell at the bid unless the market changes.  If a LEAP is
quoted at $16 to $17.50, you may not get it at anything under
$17.50.  If you have a broker who can call to the market-makers
and put a spread order in at a particular price, this could help.
However, if the market is illiquid, the market-makers may not give
you a spread at the ratio you want.  You could request an 2002
spread with 4 points and you might not get it.

If you are trading spreads, you have to consider the possibility
of being assigned.  Normally, assignment will occur on or after
the expiration date.  However, a person who owns an American
style option has the right to exercise the option at any time
before that.  If you sell an option, there is always a risk that
you could be assigned.  If every option you sold is covered by
one you bought, your risk is limited.  In today's highly volatile
markets, it can be very dangerous to sell naked calls, since
stocks can gap up or down as much as 50 points in a day, and
naked option writing can result in severe losses.

Contact Support

******

Oil Sector Trading
By Scott Martindale

Say, what?  Oil sector?  But we are high-flying options traders on
technology companies, aren't we?  Our lifeblood is the volatility,
the energy, the excitement, the morning gap ups, the big killings.
Right?

Well, I'd guess that many of the OIN subscribers do feel that way.
In fact, many probably won't even read this (or perhaps any other
Traders Corner article, for that matter), but just go straight to
the play recommendations.  And that's fine.  But perhaps at least
a handful of you folks get a little unnerved by the volatility and
would prefer longer term plays with lower premiums and less
stress, relatively speaking of course.  For you, the oil sector
might be good.

I worked in the oil industry for many years, and for the last few
in particular, I watched with envy as the stock of tech companies
shot through the roof while my stock just kept plugging along with
slow, steady growth, or get mired in a long-term trading range.

For example, look at this uninspiring (for me) table of 5-year
total growth:

			Growth %
Texaco		    59 %
Chevron		    74
Exxon/Mobil		   131 (not bad)
Nabors Drilling	   396 (pretty good!)
Microsoft		   488 (wow)
Cisco			 1,655 (feeling envious)
JDS Uniphase	13,622 (don't depress me)

Well, you can see why I'm schlepping articles for OIN rather than
lying on a sandy beach in the South Pacific sipping a Mai-Tai.  It
certainly could have been a lot worse - I could have worked in the
steel industry.

Of course, many tech employees, especially those in the internet
sector, had to put their early retirement plans on indefinite hold
when the bottom dropped out this Spring and, for many, never
recovered.  My friends who work for small money-losing start-ups
with promising technology say that the employees become almost
paralyzed with distraction during the periods when their stocks
and stock options run up in value; the frantic momentum runs
and then quickly turn south before they exercise the options.
Everyone stays glued to the stock screen.

However, despite the modest gains for the oil stock buy-and-hold
strategy, a closer look at the charts for the major international
companies shows that there is consistent money to be made by
playing options at the cyclical support & resistance points.
Their oil drilling and services brethren such as NBR, DO, SLB,
HAL, BJS, BHI, and GLM all tend to move in lock step with one
another, but they are much more vulnerable to the downside and
have more potential on the upside.  So they are not as low-stress
as the majors.

Let's look at the charts of TX and CHV, as well as a top service
company like SLB.  They move in predictable patterns, selling off
on MACD cross-overs - indicating that their medium-term trends are
not particularly news-sensitive.  When they begin to come off a
trough, they tend to stay on track.  This makes for less stressful
trading.

Looking at Texaco's 5-year chart, after a persistent uptrend in
the early 1990's, TX has been trading between $50 and $60 for
almost 3 years, with a couple of narrower intermediate trading
ranges during 1998 and 1999.




Chevron could have been played between $75 and $85 for almost 2
years between mid-1997 and 1999, buying or selling every 3 months.
During 1999, the trading range moved up to between $85 and $95,
with a couple of retests of the $75 resistance level this year.




As for the oil services companies, if you look at charts for the
late-1997 through early-1999 period, the majors tended to stay
within a trading range while the oil service companies cratered.
Schlumberger lost over 55% of its market value during this period.




However, during the same period, the majors lost at worst about
20%, with some like Exxon-Mobil actually increasing about 15%.
This is because the majors are "vertically integrated," meaning
that they can make money in any of the stages from production of
crude oil & natural gas through retail marketing of refined
products & petrochemicals.

But the services companies are dependent solely upon the
exploration & production stages, requiring strong worldwide demand
and high petroleum prices to meet financial targets.  However, if
you had followed the news on oil industry spending and zealously
enforced your stops, you could have avoided the big downturns in
the oil services sector while enjoying the greater returns offered
during the up periods.

The prognosis for the health of both the oil and oil services
sectors continues to be quite good.  Many are currently valued
based on $20-25/barrel oil, even though the benchmarks sit well
above $30.  With current inventories tight, global economic
recovery underway, and no economical oil substitute anywhere in
sight, there's a good chance we'll see strength for some time to
come.  Nonetheless, we will see the inevitable periods of short-
term weakness as prognosticators speculate about things like OPEC
agreements breaking down or weakening worldwide demand, which may
provide good entry points.

My view as to the best way to play the major oils is with "rolling
LEAPS."  Austin touched on this concept recently.  It simply means
to buy LEAPS at the cyclical troughs and then sell them, or sell
front-month calls against them, at the technical peaks.  With the
oil service companies, many of which do not offer LEAPS, play the
longest-term options available.  You'll find that these LEAPS and
long-term options are much cheaper and less volatile than the
exciting but stressful tech plays.

smartindale@OptionInvestor.com


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*************
SECTOR TRADER
*************

New - OEX Trades
By Buzz Lynn
sectortrader@OptionInvestor.com

As of today, say goodbye to the HOLDRS and hello to the OEX.  Of
course the QQQ remains in integral part of this section too and we
will be adding a third index soon based on your "votes" and the
indexes tradability.  Thanks to all those who wrote in with their
suggestions so far.  Keep those e-mail suggestions coming!  Now on
to today's trading with an eye on tomorrow's profits!

While many of us expected traders and fund managers to return to
their terminals and PCs from vacation with fat wallets to buy
everything in site, it didn't happen that way today.  Remember the
NASDAQ had been up 14 of the last 15 days or so and was due for a
breather.  As an experienced trader or manager, you won't open up
that wallet the first day back with that kind of a positive trend
in place and no pullback.  You'll likely wait for a re-tracement
to get a better entry especially after the last three weeks of
gains.

NASDAQ gave us that pullback today on Ashok Kamur's downgrade of
Intel from Strong Buy to Buy.  He cited slowing sales of INTC's
most powerful new chips.  Of course that means slowing PC sales,
and that perhaps fewer people than anticipated are buying the
latest memory-hogging software.  Add to that WCOM's cratering on
its announced purchase of Intermedia (ICIX) which owns a
controlling interest in DIGX, plus CIEN's announced $28 mln
charge-off for a bad account in Europe, and you get a good idea
about how the day will end.  Can you guess what happened to
technology issues, and thus, the NASDAQ today?  Right!  Booted
into the basement on respectable volume.  We wouldn't be concerned
about it if it happened on lighter volume.  But that coupled with
the VIX back over 20 at 21.37 creates a catch 22.  Are we going to
see the VIX get higher?  Or did that little spike register enough
fear in the market to convince us there is again a "wall of worry"
for the bulls to scale?

We don't have the answer, but on the VIX we can see resistance
around 24.  Thus at this point, that looks like the upper limit
should the markets need more time off.  The good news is that the
slow stochastic is again reaching resistance at 67 while the MACD
isn't far from bumping its head on the neutral 0.0 line on the
daily charts.  Both levels were points of resistance in late June,
July, and August.  Let's hope they hold.

Of course, the VIX is directly linked to the OEX and we'll cover
that index more in the write-up below.  Just note that the tech
stocks like IBM, HWP, NOK and MOT were down in sympathy with INTC.
There may be sympathetic earnings warnings to boot from other
sectors dependent on robust technology.  While it's probably just
an overdue profit taking day in the big picture, keep your eye on
the VIX.

**************
QQQ
**************

QQQ - NASDAQ 100 $99.59 -2.75 (-2.75 this week) So much for the
trend's continuation intact.  The Qs gapped down and continued
down from there.  Even the bounce off $100, which we thought would
lend support, was penetrated.  Fortunately volume on the QQQ was
slightly below the ADV indicating lack of desire to panic toward
the exit door, but still an increase over last Thursday and
Friday's volume.  However, $99.50 is the real test.  Otherwise
look for $97.50 to provide the next level of support.  Technically
on daily chart the MACD and stochastic have showed a flattening
out if not a rollover in today's trading, suggesting there may be
further downside in the next few days.  With the Fed mostly out of
the picture until next year, we don't expect that to last long
unless we get some nasty earnings warnings in the next few days.
The shorter-term (30 and 60-min) charts show that we may be
nearing a bottom suitable for a bullish swing trade entry.  If we
are wrong we can always exit with a stop and enter at a lower
price.  That said, we urge you not to pull the trigger until you
see a clear direction form.  Support is at $97.50, 99.50;
resistance is still at $101, then $103.  Again, watch the tech
stocks, INTC, MSFT, CSCO, WCOM, DELL, ORCL and SUNW for direction.

Calendar Spread:

Still attempting to "leg in" to a spread?  It would have been
tough today to sell the short position suggested over the weekend
for a substantial profit.  What we want to do is sell short term
calls against longer-term calls to keep taking in credits to
reduce the cost of our long position to zero, letting time decay
work in our favor.  This strategy works just like a covered call
except that at the end of the month, we don't want to get called
out of our long-term position.  Thus it becomes necessary to cover
the short when its time value approaches zero, or a day or so
before expiration, whichever occurs first.  Don't worry that it
costs more to repurchase than what you paid for it.  Remember,
your long position is rising in value by an equal or greater
amount.  You simply need to keep some cash on hand to make the
repurchase.  Then you can sell the next month out for another time
value credit.  However, if the price of the QQQ breaks below
support, you can exit the trade for a small loss and re-enter the
whole trade when the price stabilizes and bounces again.  Keep in
mind that intent is buy long position cheap and sell the short as
expensive as possible (like when it hits resistance) to minimize
the net debit.  Support is at $97.50 and $99.50; resistance is at
$101 and $103.

***September options expire in 2 weeks***

BUY  CALL DEC-100 QVO-LV OI= 8982 at $ 9.13

SELL CALL SEP-100 QVO-IV OI=12696 at $ 2.44, ND = 6.69 or less
SELL CALL SEP-102 QVO-IX OI=12870 at $ 1.63, ND = 7.50 or less
SELL CALL OCT-100 QVO-JV OI= 2528 at $ 5.88, ND = 3.25 or less
SELL CALL OCT-105 QVO-JA OI= 1372 at $ 3.63, ND = 5.50 or less

Long Call:

We noted Sunday to exhibit caution this week since nothing goes up
or down in a straight line.  After nearly three weeks of solid
gains, there shouldn't be any surprise that we saw profits swept
form the table today.  INTC's downgrade by Ashok Kumar today may
have been just an excuse.  In any case, the decline came on
increased volume, which should cause us to keep our guard up for
more declines in the coming days.  Earnings warnings would keep
the QQQ moving down, while liquidity still needs to be put to work
in the markets.  We favor the latter, but need to see a bounce
first in the next few days before entering a bullish trade.  The
fact is the daily MACD and stochastic are flattening or possibly
rolling over indicating more declines to come.  However on the 30
and 60-min charts, a near-term bottom and possible positive
reversal may be forming.  Wait for the bounce and let increasing
volume be your clue.  Also watch the lead companies noted in the
intro above.  Support is at $97.50 and $99.50.  Resistance is at
$101 and $103.

***September options expire in 2 weeks***

BUY CALL SEP- 95 QVQ-IQ OI=12039 at $5.88 SL=3.75
BUY CALL SEP-100 QVO-IV OI=11696 at $2.50 SL=1.25
BUY CALL OCT-100 QVO-JV OI= 2528 at $5.88 SL=3.75
BUY CALL OCT-105 QVO-JA OI= 1372 at $3.63 SL=2.00

Average Daily Volume = 18.9 mln


**************
OEX
**************

OEX - S&P 100 824.06 -5.77 (-5.77 this week) While mentioning the
OEX, we cannot escape that other symbol, VIX, that goes with it.
VIX is an indication of volatility.  Volatility determines option
prices on the OEX.  The higher the volatility, the higher the time
premium of OEX options.  While the VIX is a reflection of the OEX,
it also has an approximate, but not perfect correlation with other
indices.  You've hear the old saying, VIX is low, time to go; VIX
is high, time to buy.  Historically, the VIX has predicted tops
(low VIX) and bottoms (high VIX) with good though not perfect
accuracy.  A VIX spike back over 20 indicates more volatility and
perhaps a move back down for the OEX if the VIX continues to rise.
The good news is that the VIX has resistance at 24, and the slow
stochastic is again reaching resistance at 67 while the MACD isn't
far from bumping its head on the neutral 0.0 line on the daily
charts.  Both levels were points of resistance in late June, July,
and August, and may be so again.  Time will tell.  In the
meantime, the OEX has flattened out and clearly found resistance
at 835 while support appears pretty good at 815-820.  Nonetheless,
the daily chart shows MACD and stochastic rolling over
(possibility that OEX will go lower), while the shorter term
charts show that OEX could be setting up for a nice bullish long
entry.  Wait for the bounce in the 815-820 area if you go long.

Long Call:

You know the story.  Chips, PCs, telecom, biotechs, drug stocks -
all took it in the shorts today, while the smokestacks like steel,
autos, paper, and oil puffed their way to the gainers column.  If
the techs start playing seesaw with the smokestacks, OEX could be
rangebound, but that's no reason not to play a short-term swing
trade based on your 30 and 60-min charts.  As noted above, MACD
and stochastic are indicating they may be ready to take OEX back
up, especially with support at 820.  Wait for the dip and bounce
to be sure and watch the VIX, QQQ, and Dow for an indication of
overall market direction.  If these are positive, OEX should be
there too.

BUY CALL OEX-JB OCT-810 OI=3192 at 34.75 SL=24.50
BUY CALL OEX-JD OCT-820 OI=1483 at 28.00 SL=20.00
BUY CALL OEX-JF OCT-830 OI= 310 at 22.25 SL=15.50

Bullish Calendar Spread:

Just like the QQQ above, our objective here is get monthly credits
to reduce the cost of a long-term position to zero, and allow time
decay to work in our favor.  You can leg in to the position by
testing your timing skills based on support and resistance, which
generally means you'll need to remain an active trader to make
this one work.  The idea is buy the long position cheap and sell
the short position as the price rolls over at resistance.  In this
case, that means buying at support at 820 and perhaps selling the
call when the OEX reaches 835 or rolls over from a lesser value
along the way, say 830.

***September options expire in 2 weeks***

BUY  CALL DEC-840 OEX-LH OI=584 at $32.25

SELL CALL SEP-840 OEX-IH OI=3054 at $ 4.75, ND=27.50
SELL CALL OCT-840 OEX-JH OI= 719 at $16.25, ND=16.00
SELL CALL OCT-850 OEX-JJ OI= 824 at $11.88, ND=20.38

Average Daily Volume = 1269



*************
DAILY RESULTS
*************
Index      Last    Mon     Tue   Week
Dow     11260.61   0.00  21.83  21.83
Nasdaq   4143.18   0.00 -91.15 -91.15
$OEX      823.49   0.00  -6.34  -6.34
$SPX     1507.08   0.00 -13.69 -13.69
$RUT      539.02   0.00  -2.89  -2.89
$TRAN    2727.40   0.00  14.48  14.48
$VIX       21.37   0.00   1.92   1.92

Calls

CHKP      154.50   0.00   5.06   5.06  Run, CHKP, Run!!!
MERQ      129.06   0.00   2.56   2.56  New, the love is back!
VERT       57.19   0.00   2.44   2.44  New, VERT on the rise!
TIBX      110.13   0.00   2.06   2.06  Blessed with new deal
SNDK       90.06   0.00   1.56   1.56  Unusual strength today
INKT      131.13   0.00   0.38   0.38  Bucked the weak NASDAQ
VRTS      121.88   0.00   0.13   0.13  Higher prices are holding
ISSX       84.06   0.00  -0.06  -0.06  Higher-highs on track
NEON       37.25   0.00  -0.50  -0.50  Need NASDAQ rally
AGIL       74.06   0.00  -0.69  -0.69  New, another B2B beauty
AAPL       62.44   0.00  -1.00  -1.00  Flat day of trading
DISH       51.88   0.00  -1.19  -1.19  Mild round of profit taking
JNPR      220.13   0.00  -1.50  -1.50  Hurt by the CIEN debacle
ORCL       91.06   0.00  -1.56  -1.56  Pullback on profit taking
IWOV       96.00   0.00  -2.00  -2.00  Dropped, $100 formidable
BEAS       68.50   0.00  -2.25  -2.25  Volatile day, bears move in
LSCC       75.28   0.00  -2.41  -2.41  Getting close to 5-dma
NTAP      112.94   0.00  -2.56  -2.56  Dropped, profit taking ahead
IDTI       89.19   0.00  -3.38  -3.38  Anticipated pullback today
ITWO      175.19   0.00  -4.06  -4.06  Post-holiday pop from SSB
VRSN      181.31   0.00  -4.63  -4.63  Dropped, up-trend over???
MRVC       75.50   0.00  -4.88  -4.88  Sector sympathy-soft NASDAQ
QLGC      108.13   0.00  -7.88  -7.88  Dropped, tired momentum
NEWP      156.88   0.00 -12.06 -12.06  Dropped, valuation downgrade
CIEN      216.31   0.00 -13.81 -13.81  EPS charge, entry point???

Puts

CREE      124.44   0.00  -6.56  -6.56  New, Chip dip
AT         48.94   0.00  -0.88  -0.88  Late-day selling
MMM        92.25   0.00  -0.25  -0.25  Meandering lower
UK         40.88   0.00   1.31   1.31  Flight to value, entry???
KO         56.31   0.00   2.06   2.06  Dropped, EPS sigh of relief


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


CALLS:
*****

VRSN $181.31 -4.63 (-4.63)  It appears that VRSN's current
up-trend may be over.  While Friday's high volume selling could
be attributed to profit taking after a strong run, and today's
2.49% loss on 136% of ADV could be blamed on a weak market,
there's always an excuse that can be found if one looks hard
enough.  Friday's move resulted in VRSN closing below its 5-dma
(now at $189.33).  For most of VRSN's rally in August, the 5-dma
served as the anchor and now it appears that support is gone.
The 10-dma also provided support early on in the recovery.
Today's close put VRSN below that mark, currently at $182.32.  In
addition to this, the key support level of $185 was violated
today.  With the next moving average support from the 50-dma at
$170, there could be further downside ahead.  As a result, we are
no longer recommending this play.

NTAP $112.94 -2.56 (-2.56)  As mentioned on Sunday, where the
NASDAQ leads, NTAP follows.  With the tech index heading lower
today, NTAP tagged along for the ride down.  After encountering
strong resistance on Friday at the $120 level, it appears that
NTAP could now continue to move even lower.  Strong selling
volume in the early morning brought the stock down to the $112
area.  From there the stock spend the rest of the day attempting
to gather strength and rally.  This was not to be as the stock
closed down 2.22% on 67% of ADV.  While volume today was light,
the resistance at $120 is formidable.  Nothing goes straight up
and after a month of strong rallying in August, it appears that
further profit taking may be ahead.  As a result, we are closing
this play.  Today's down day was in spite of news of an alliance
with FDRY and NOK to deliver seminars on e-commerce network
infrastructure in an effort to help companies realize the value
of e-commerce and promote their products.

IWOV $96.00 -2.00 (-2.00)  The psychological resistance level of
$100 is proving to be a formidable challenge for IWOV.  While the
stock started weak in the early morning, buyers came in to
support IWOV at the $95 level.  From there IWOV spent the rest of
the day attempting to pierce the century mark.  By the end of the
day, when it seemed apparent that the $100 resistance would hold,
the sellers came in to take advantage of shifting sentiment and
weak NASDAQ to close the stock down 67% of ADV.  Despite the low
volume of the down move and support holding at $95, the end of
day selling action on high volume does raise a red flag on this
play.  It could take some consolidation for IWOV to gather enough
strength to break through $100.  Sideways movement means decaying
premiums for options, which results in decreases in value for
call options.  As a result, we are closing this play and moving
our money elsewhere.

NEWP $156.88 -12.06 (-12.06) One day Wall Street can be your
favorite friend and the next your worst enemy.  In a
contradictory research report this morning, ABN AMRO lowered its
rating to an Outperform from a Buy rating on NEWP based solely
on valuation concerns.  At the same time, ABN raised its EPS
estimates for this year and the next, and lifted its price target.
Despite the latter half of the report, which rang of bullish
tones, the damage had been done by the downgrade.  NEWP might
bounce back quickly tomorrow if bargain hunters step in to give
support to the stock.  Major resistance is now at $160, near the
10-dma, and support is located just below current levels near
$155.

QLGC $108.13 -7.88 (-7.88) Thanks to the EMLX hoax, our play
on QLGC saw quite a bit more excitement than we originally
bargained for.  After investors recovered their senses, they
proceeded to bid shares of the company higher late last week.
Helping in the move higher was Salomon Smith Barney initiating
coverage of the stock with a Buy rating late last week.  That
news managed to propel the stock above $119 the next day, but
it has been a downhill slide since then, as profit taking has
shaved nearly 10% from the share price.  It was looking like
the $110 support was going to provide another entry point until
a surge of selling volume dropped QLGC down to $108.13, for a
close at the low of the day.  The momentum that attracted us to
the play is looking pretty tired, and rather than wait for it
to come back, we'll take our profits and move on to healthier
plays.


PUTS:
*****

KO $56.31 +2.06 (+2.06) Recharging investor enthusiasm for
shares of KO, the company announced this morning that they
are comfortable with analyst expectations for its third
quarter earnings.  The sigh of relief from investors was
almost audible, as they cast off the concerns voiced last
week by Salomon Smith Barney.  After falling sharply last week,
today's infusion of good news lifted shares of KO above the
200-dma ($55.50) and the 10-dma ($56.13).  Both fundamentally
and technically, KO is no longer looking like a healthy put
play.  After moving strongly higher this morning, KO gradually
drifted lower throughout the afternoon, and we could see more
weakness tomorrow.  We aren't recommending any new plays at
this time.  Instead, use any pullback as an opportunity to exit
the play at a better price.


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The Option Investor Newsletter                  Tuesday 09-05-2000
Copyright 2000, All rights reserved.                        2 of 2
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********************
PLAY UPDATES - CALLS
********************

NEON $37.25 -0.50 (-0.50) This morning NEON provided the
investor with a light volume pullback to $36.63, just above its
5-dma (currently at $36.20), within the first half hour of
trading.  From there, price action was relatively quiet as NEON
hovered below the flat line, until mid-day.  Volume continued
to be light for the remainder of the day, as NEON settled down
$0.50 for the day, to close at $37.25.  NASDAQ market sentiment
and direction need to be monitored closely before entering new
trades.  If you did not gain entry this morning during the small
pullback, look for NEON to pullback on light volume to its 5-dma
at $36.20 or to its 50-dma at $32.30, along with a bounce, for
an entry.

DISH $51.88 -1.19 (-1.19) As the NASDAQ went, so went DISH.
Hit with a mild round of profit taking, in sympathy with the
general market sentiment, we saw it hit an early morning low of
$50.75.  This is still well above its 50-dma (currently at $40.40)
and its 200-dma (currently at $47).  Volume was strong in early
morning trading but lightened up as we approached the midway point
for the day.  Volume was heavier than normal for the day as 3.1
mln shares traded hands and DISH closed just above its low for the
day at $51.88.  DISH seems to want to trade in the direction of
the NASDAQ so be alert when opening new trades.  Continue to look
for a small pullback to the 200-dma at $47, along with a bounce,
for an ideal spot to enter a new trade.

TIBX $110.13 +2.06 (+2.06) Blessed with a new software deal
this morning, TIBX managed to jump back into positive territory,
after an early morning pullback to $105.63, just above the 50-dma
(currently at $104.50).  This morning it was announced that
Italy's premier telecommunications company, Wind Telecomm. SpA,
selected Tibco to provide real time e-business infrastructure
software.  Investors accepted the news positively as they moved
TIBX's stock price up over $1.50 by mid-day.  Trading was calm
for the balance of the day, however,  TIBX finished the day in
positive territory, closing up $2.06 at $110. on volume of 1.84
mln shares.  TIBX moved counter to the NASDAQ today, so, a
pullback of size may not be in the cards.  This mornings move
down at the open to $105.63 may have been your only chance for
a pullback.  However, continue to watch for some profit taking
and keep and eye on the NASDAQ.  Watch overhead resistance at
$114 and $122.

CHKP $154.50 +5.06 (+5.06) Run Forest Run!!  After a quiet open
for CHKP, the buyers  remembered that this baby just broke to
an all-time high on Friday.  With no overhead resistance, the
buyers took CHKP to an early  morning high of $158.50 before
settling back to $154.50, by  mid-day.  Even as the NASDAQ
struggled, the buyers continued to  take more CHKP today as it
closed up $5.06, at $154.50.  Volume  came in at 2.01 mln
shares today (1.2 times ADV).  Look for a  pullback to
yesterday's close, and the sight of the current 5-dma, at
$149.44, as a possible entry point.  Today, intraday support
was found at $153.50, which may provide bounces going forward if
CHKP continues to hold buying interest.  This internet play is
quite volatile; traders should be alert and understand that this
is an aggressive play.

BEAS $68.50 -2.25 (-2.25)  Fresh from a long weekend, bulls and
bears alike were ready to make some moves.  As a result, BEAS had
a volatile day.  Early morning selling in the stock led to a
visit to support at the 5-dma (currently at $66.50).  This
brought in the buyers who bid BEAS up until mid-day.
Encountering resistance at the $71, the bears came back to close
the stock down 3.18% with volume clocking in at 85% of ADV.
Despite this minor pullback, BEAS' up-trend is still firmly
intact.  As long as the trend holds, aggressive investors will
find bounces off the 5-dma to be an ideal entry point.  There is
also support at $68.  Those waiting for confirmation will want to
see BEAS clear the $71 area with conviction before entering.  In
the news Today, BEAS announce an alliance with KPMG Consulting to
develop enterprise products based on BEAS' software.  As well,
vice president of marketing for BEAS will speak at GartnerGroup's
conference on September 6.

MRVC $75.50 -4.88 (-4.88)  What better way to start the week than
with an entry point?  Throughout most of MRVC's rally last month,
the 5-dma (now at $76.91) has provided the bulk of the support
with the occasional visit to the 10-dma.  Today's action in MRVC
was due in part to sector sympathy and a generally soft market
for Tech stocks.  Peers such as GLW and JDSU traded lower today
on the announcement that CIEN would take a one-time $28 million
charge in the fourth quarter due to the inability of a customer
(Iaxis Limited) to pay.  For the most part, MRVC spent the day
drifting lower.  Finding a bottom above its 10-dma (currently at
$74.37), MRVC bounced at $73.13 to close down 6.07% on 65% on
ADV.  A strong bounce off $75 support or the 10-dma could serve
as an aggressive entry while conservative traders will look for
MRVC to move strongly above its 5-dma before entering.  As
mentioned on Sunday, confirm sector sympathy for direction before
making a play.

SNDK $90.06 +1.56 (+1.56)  Bucking the trend of a weak NASDAQ,
SNDK showed unusual strength today as it closed up 1.77% on 127%
of ADV.  After a day of rest, traders were eager to jump on the
SNDK bandwagon as the stock came storming out of the games.
Getting as high as $94.50 on strong volume during amateur, the
stock settled down for the rest of the day before some late day
selling came in to end the day.  Despite this, the small move up
today in the face of a soft market for tech stocks and a move
above resistance at $90 is a good sign.  There was no news to
explain the move today, just good old-fashioned investor
interest.  At this point where SNDK will go will depend on the
market, with volume accelerating to the upside these past few
days.  Support for the stock can be found at $90 and $88.50.
Also providing support is the 5-dma at $85.56 and the 10-dma at
$82.95.  Conservative traders will look for a definitive break
above $95 to enter.

CIEN $216.31 -13.81 (-13.81) CIEN took a hit early this morning
after the company announced it would take a 6 cent charge against
EPS in its fiscal fourth quarter due to the bankruptcy of one of
the company's European customers.  After the news was fully
disseminated and the trading halt was lifted, CIEN fell to the
critical $200 level then quickly bounced back to churn around
$215.  Despite the big dip today, CIEN managed to climb its way
back and trace a higher low in its month-long ascending channel.
Aggressive traders might watch for bargain buying early Wednesday
morning and look for an entry point on a bounce off current levels
near $215.  A more conservative trader might wait for CIEN to
regain its footing and watch for momentum to carry the stock back
above the $220 level.  After this morning's big sell-off there's
not much resistance preventing CIEN from moving higher.  Watch for
the stock to fill its gap on a rally above its day high at $222.

ITWO $175.19 -4.00 (-4.00) ITWO began the week with a post holiday
pop after Salomon Smith Barney initiated coverage on the stock with
an Outperform rating and set a $179 price target.  In fact, Solly
issued favorable reports on the broader B-2-B sector, which fueled
the group's recent momentum.  However, not even sector momentum
could fend off the profit takers late this afternoon.  ITWO slid in
the final half-hour of trading today as traders scrambled to lock
in profits.  ITWO did stop at support right at $175, which might
provide the aggressive traders with a solid entry into the play if
the stock quickly rebounds early Wednesday morning.  If the sellers
return tomorrow to wreak havoc on our play, look for ITWO to next
find support at its 5-dma near the $170 level.  More conservative
traders might wait for ITWO to resume its recent climb and consider
entering the play on a rally above $180, with a move above $185
marking a full recovery from today's sell-off.  Wait for the
broader B-2-B sector to turn positive before entering the play,
use CMRC and ARBA as reference.

IDTI $89.19 -3.38 (-3.38) IDTI's pullback today was inevitable.
After all, the stock ran 20% over the previous two sessions.  Add
the Intel downgrade to the mix and we had the perfect recipe for
profit taking in IDTI today.  The bearish comments on Intel sent
a cold chill through the broader Semi sector, which added undue
pressure on our play.  We are now faced with the usual
consolidation conundrum.  IDTI's big gains late last week might
lead to further sideways action this week.  Going forward, listen
for positive analyst comments on IDTI or watch for the Semi
sector to rally.  IDTI's impressive relative strength will carry
the stock higher if the broader Chip group resumes its rally.
And, we saw what happened when IDTI received favorable analyst
comments last week; listen for bullish words from Wall Street.
Aggressive traders might consider buying IDTI's dip today if
support at $88 holds.  IDTI appears to have settled into a range
between support at $88 and resistance at $92.  With that said,
trading the range is possible, with more conservative traders
looking for a breakout above $92 for new entry into the play.  If
the Chip bears continue to rampage the sector, look for IDTI to
next find support near its 5-dma, which has moved up around $85.

INKT $131.13 +0.38 (+0.38) The momentum that followed last
week's upgrades stayed intact following the long holiday
weekend.  In fact, INKT bucked the NASDAQ sentiment and
stretched higher on moderate volume before taking a hit in the
last hour of trading.  The share price gained 2.8%, or $3.63
at its peak, but couldn't quite penetrate the next level of
resistance at $135.  Future bullish sessions are likely to
incite INKT to rise above this opposition and move towards the
split-level of $150.  Take entries into this momentum play off
near-term support at $128 and $130, assuming INKT stays on its
upward course.  If INKT abruptly pullbacks to the 10-dma
($123.36), the more aggressive traders may choose to take entries
on convincing rebounds.

AAPL $62.44 -1.00 (-1.00) Robust volume and a positive economic
outlook continued to stimulate AAPL's momentum today.  Initially
the share price flirted with the immediate opposition at $64.
However the market conditions ultimately produced a rather flat
day of trading for AAPL.  But not without merit!  It's evident
that AAPL nonetheless established a higher level of intraday
support around $62 and 63, which is very bullish.  And
importantly, it didn't succumb to much selling pressure.  This
is very good news for a stock that just shattered its historical
opposition ($60) on Thursday.  We're expecting AAPL to revisit
its old highs in the short-term and perhaps extend to new
heights.  More enterprising traders may take entries off the
current price level on strong bounces.  Otherwise use the 5-dma
daily line as an entry gauge to enter on dips.  Currently this
technical indicator is just above the old resistance.  Pay heed
to slides under $60 and moves back toward the 10-dma ($58.26),
which could be a red flag for reversal.

JNPR $220.13 -1.50 (-1.50) In keeping with the explosive
behavior of late, JNPR set another all-time high at $128 before
some news and overall market conditions mildly effected trading.
Another major networking firm, Ciena (CIEN), warned that Iaxis,
a closely held European telecommunications company, may not be
able to pay its $28 mln bill.  This bankruptcy culprit is also
one of Juniper's clients, but who fortunately doesn't have an
outstanding balance.  It's the bigger picture however that
influenced the sector trading today.  The news accentuates the
huge risk networking companies take on the in dealing with
start-ups and this gave investors a scare.  Honestly though,
JNPR held up very well throughout the whole session.  It was off
a bit, but easily managed the higher support level at $217 and
$220.  The early breakout also denotes that JNPR's momentum is
still calibrated to run.  Take note of the rising 5-dma line,
which represented the lower end of today's trading spectrum.
This technical can be used as a device measurement when planning
more aggressive entries.  The more conservative may want to sit
on the side-lines or wait for additional advances off the
current level before entering.

VRTS $121.88 +0.13 (+0.13) While there weren't any dynamic moves
today, VRTS did demonstrate it could hold the higher share price
at $121 and $122 support today.  However the upper resistance at
$125 is posing a challenge.  VRTS needs to overcome this
obstacle soon or the play could easily fizzle.  Recall this play
is based purely on its recovering momentum; therefore it's
essential that VRTS not stay in one place for too long.
Although other heavyweights in the computer storage industry
like BRCD, EMC, and NTAP all took a breather today too.  So
let's use discretion and play cautiously.  Entries on bounces
off old resistance at $120 or light support at $121 are
reasonable in a good environment.  But err on the side of
caution if VRTS slides back to the 10-dma ($117.30).  A deep
retracement could prove lucrative, but may not be worth the

ISSX $84.06 -0.06 (-0.06) Today ISSX nudged its way through
Friday's intraday high.  The fractional progress is nonetheless
keeping the pattern of higher-highs on track as ISSX rides the
wave of recovery.  Now that the share price is above a
respectable support level ($80) and considered a split-
candidate, the momentum should perk up even more.  Technically
too, ISSX remains above the 50 & 100 DMA lines.  On the analyst
front, Kama Krishna at Ryan, Beck, and Co started ISSX with new
Buy coverage.  Take entries into this recovery play off the
current prices on a breakout or look for pullbacks to light
support near $80 and $81.  If you want better confirmation, then
you'll have to wait for ISSX to make a conclusive run for $90.

LSCC $75.28 -2.41 (-2.41) Entry point alert.  Continuing it's
month long stair-step pattern, LSCC has pulled back over the
past 2 sessions on declining volume and today the selling
halted right on the $75 support level.  It was encouraging to
see that LSCC did not sell off in the wake of the bearish news
about INTC, leading us to believe our play still has room to
run.  On each pullback, the stock has been finding support
between the 5-dma (currently $74.81) and the 10-dma (currently
$72.94).  Don't look now, but we are very close to this level
now.  Add in the fact that LSCC has historical support at $75,
and the weak volume over the past 2 sessions makes it look like
the stock is getting ready for its next surge higher.  Recall
that investors got an infusion of excitement last Thursday when
the company announced a 2-for-1 stock split, payable on October
11th.  After pulling back for the past 2 days, the upper
Bollinger band is now north of $80, making room for the stock's
next surge higher.  Any move up from the $74-75 level looks
attractive for a new entry point, as long as it is confirmed by
strengthening volume.  Conservative investors may want to wait
for LSCC to rise through the $78 resistance level before
playing.

ORCL $91.06 -1.56 (-1.56) Falling back with the rest of the
NASDAQ, ORCL is cooperating with us, serving up another entry
point for those that missed the first one.  Thursday's breakout
over $90 is still alive and well, as today's pullback only
dropped the price to $90.56.  We need to be vigilant though,
as ORCL closed very near the low of the day.  One other
encouraging factor is that volume came in at only two-thirds of
the ADV, giving the appearance of simple profit taking.  Use
the current weakness as an opportunity to jump aboard this
freight train as it pulls out of the station heading for its
earnings announcement on September 14th.  Salomon Smith Barney
jumped aboard this morning, initiating coverage on the software
company with an Outperform rating.  Look for the $90 support
level to hold, and consider initiating new positions as the
buying volume returns.  Alternatively, a more cautious approach
would be to wait for buying volume to push ORCL above resistance
at $93 before playing.


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

UK $40.88 +1.31 (+1.31) The dichotomy between the Technology
sector and the old-line groups such as the Chemicals was clearly
evident in today's trading.  It was a case of selling the highly
valued Tech stocks and buying the undervalued names such as UK.
Along with the ebb and flow of capital into the Chemicals sector,
UK received a boost early this morning after DOW officials said
the proposed merger will be completed in the near future.  The
comments fueled UK's rally as the spread between the deal
narrowed as the likelihood of the merger being completed was
factored into the stock price.  However, UK's rally today might
be short-lived if the Technology sector reasserts its leadership
role and draws money away from the Chemicals sector.  Aggressive
traders might look to enter the play on a bump against resistance
at UK's descending 10-dma near the $41 level.  A more
conservative trader might wait for UK's losses to mount before
initiating new positions and look to enter the play on a slip
below support at $40.50, or lower near the $40 level.  Make sure
to confirm the return of big sellers with heavy volume before
entering the play.

AT $48.94 -0.88 (-0.88) Two analysts offered positive
reiterations on AT today.  Legg Mason's Wood Walker maintained a
Strong Buy for the stock, but cut the price target to $90 from
$100.  Charles Pluckhahn at Stephens also restated a Buy rating
and issued an $88 12-month price target.  These comments may
have played a role in AT's inability to crack the $49 bottom
earlier in the session.  However the late day pressure finally
knocked AT back towards Friday's all-time low ($48.75).  What's
more is that AT's negative disposition at the end of the session
caused it to close smack on the daily low, which is always a
nice bearish touch.  Above there remains a strong ceiling at $49
and the 5-dma ($50.31), which is keeping a tight lid on the
share price.  However let's not ignore the narrow channel and
the above-mentioned analysts' recommendations.  They give us
special notice to keep the stops in place.  So while volume
remains healthy, wait for a definitive downtrend line to resume
before opening new positions.

MMM $92.25 -0.25 (-0.25) Quiet trading was the rule of the day
on MMM, as the stock spent the session meandering between $91.50
and $92.75.  Traders didn't come back this morning in a strong
buying mood, but they weren't in a rush to sell either.
Friday's session had pushed the stock under its 30-dma
(currently $92.88) and the buyers today were unable to push the
price back above that level.  The 5-dma (currently $93.13) has
been pressuring shares of MMM over the past week, and this
effect could be intensified as the 5-dma crosses below the
30-dma.  The first serious level of support sits at $90, which
is also the site of the 200-dma.  While investors are now back
from their summer vacations, and the Fed appears to be out of
the way for now, signs are clearly pointing to an economic
slowdown.  With little on the calendar to move shares upwards
in the near term, MMM could continue to drift lower as investors
await the beginning of earnings warning season.  In the
meantime, consider new entries as MMM rolls over from the
vicinity of the 5-dma and heads lower on increasing volume.


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

AGIL - Agile Software Corp. $74.06 -0.69 (-0.69 this week)

Agile Software is the leading provider of Collaborative
Manufacturing Commerce solutions that speed the "build" and "buy"
process across a virtual manufacturing network, thereby improving
time to volume, customer responsiveness and cost of goods sold.
Agile's solutions manage product content, and the critical
communication, collaboration and commerce transactions among
Original Equipment Manufacturers (OEMs), Electronic Manufacturing
Service (EMS) providers, suppliers and customers in Internet time.

Like many Tech stocks, July was a rough month for AGIL.  After
failing to break through formidable resistance at $75, the stock
spent the rest of the month selling off sharply.  Finding bottom
at just above the $45 level in the beginning of August, the stock
has since moved higher.  In doing so, it had to break above the
100-dma and 50-dma (now at $53.96 and $64).  Most recently, AGIL
cleared the 200-dma at $65.67, a support that has since been
successfully tested.  AGIL's recovery was also helped by a
stellar earnings report on August 17th, the company posted a
narrower than expected loss of 3 cents versus a loss of 9
cents from the previous year.  Beating Street expectations by a
penny, AGIL moved strongly higher post-earnings.  The stock was
likely helped by positive comments from Chase H&Q and more
recently, U.S. Bancorp Piper Jaffray's Senior B2B analyst Timothy
Klein, who initiated coverage on AGIL with a buy rating.
According to Klein, "We believe that strong industry fundamentals
and the trend toward increased-outsourced manufacturing and
shorter product lifecycles will directly benefit Agile's growth
prospects. In addition, we believe the company has strong
technology, solid fundamentals and very promising growth
potential."  At this point AGIL finds itself where it was in
early July, attempting to overcome strong resistance at $75.
Aggressive traders looking for an entry will look for a confirmed
bounce off the 5-dma at $71.57 or the 10-dma at $69.10.  There is
also support at $71.  A break through $75 on strong volume to
confirm upward momentum will be the signal for conservative
traders to enter this play.

Since last week's coverage by U.S. Bancorp Piper Jaffray, there
has been little news for AGIL.  Look for AGIL to move in sympathy
with the NASDAQ and its peers in the B2B space.  Confirm bounces
and upward moves with sector sentiment when considering entry
points.

*** September contracts expire in two weeks ***

BUY CALL SEP-65 AUG-IM OI= 65 at $10.38 SL=7.00
BUY CALL SEP-70*AUG-IN OI=401 at $ 7.13 SL=5.00
BUY CALL SEP-75 AUG-IO OI= 86 at $ 4.13 SL=2.50
BUY CALL OCT-75 AUG-JO OI= 47 at $ 9.00 SL=6.25
BUY CALL OCT-80 AUG-JP OI=186 at $ 7.00 SL=5.00

Picked on September 5th at $74.06     P/E = N/A
Change since picked         +0.00     52-week high=$112.50
Analysts Ratings        2-7-0-0-0     52-week low =$ 18.31
Last earnings 08/17    est= -0.04     actual= -0.03
Next earnings 11-16    est= -0.02     versus= -0.05
Average Daily Volume    =   558 K



MERQ - Mercury Interactive $129.06 +2.56 (+2.56 this week)

As a provider of integrated performance management solutions
that enable businesses to test and monitor their Internet
applications, MERQ is looking for growing e-commerce demand to
continue to fuel its business.  The company's products perform
such tasks as analyzing and eliminating Web site performance
bottlenecks and automating quality assurance testing.  MERQ's
client base spans a wide range of industries including
Internet companies such as Amazon.com and America Online,
infrastructure companies Ariba and Oracle, as well as Apple
Computer, Cisco Systems and Ford Motor Company.

Investors' on again, off again love affair with MERQ is
definitely back on.  Prompted by the positive press from
International Data Corporation (IDC) on August 28th (see news
below), buying volume really picked up.  Blasting through
resistance at $110 last Monday, investors only paused for a
day before continuing to push MERQ higher, closing out the
week above the $120 resistance level.  Then, despite weakness
on the NASDAQ today, buying volume remained strong, pushing the
stock higher by another $2.56.  Adding fuel to the stock's
climb is the possibility of a stock split.  With more than
enough shares authorized for a 2-for-1, MERQ became a split
candidate again when it moved above $90, and the strong rise
since then is making it more likely that an announcement could
be on the horizon.  Technically the stock looks strong too, as
it is well above all of its moving averages, with the 5-dma
($121.35), acting as support over the past 2 weeks.  Buying
volume is keeping MERQ at its upper Bollinger band and after
the last four days strong gains, profit taking in the near
future would not be out of the question.  Look for a pullback
to support near $120 to trigger new entries, but make sure
volume confirms the bounce before playing.

Continuing to innovate at a breakneck pace, MERQ is showcasing
its abilities at the Silicon Valley Marathon by providing
cutting edge technology to track the performance of runners.
Ranging from finish-line chips to streaming video and real time
online maps of the runners' progress on the marathon web site,
MERQ will load test the site prior to the event to ensure
optimum performance, as well as monitor the site during the
event.  The real driver for recent price action though was
IDC's report on August 25th that MERQ was the 1999 worldwide
leader for automated software quality tools, with a 41% market
share and 55% revenue growth from 1998 to 1999.

*** September contracts expire in two weeks ***

BUY CALL SEP-125 RBF-IE OI=293 at $ 8.75 SL= 6.25
BUY CALL SEP-130*RBF-IF OI=131 at $ 6.00 SL= 4.00
BUY CALL OCT-130 RBF-JF OI=365 at $14.38 SL=10.75
BUY CALL OCT-135 RBF-JG OI= 56 at $12.25 SL= 9.00
BUY CALL OCT-140 RBF-JH OI= 47 at $10.25 SL= 7.25

SELL PUT SEP-120 RBF-UD OI=124 at $ 2.13 SL= 3.75
(See risks of selling puts in play legend)

Picked on Sep 5th at    $129.06     P/E = 43
Change since picked       +0.00     52-week high=$134.50
Analysts Ratings      9-3-1-0-0     52-week low =$ 26.25
Last earnings 07/00   est= 0.12     actual= 0.14
Next earnings 10-12   est= 0.16     versus= 0.11
Average Daily Volume = 1.81 mln



VERT - VerticalNet $57.19 +2.44 (+2.44 this week)

VerticalNet owns and operates 55 industry-specific Web sites
designed as on-line B2B communities, known as vertical trade
communities.  Each of these communities is individually branded,
focuses on one business sector, and caters to professionals
responsible for selecting and purchasing highly specialized,
industry-related products and services.  These communities allow
users around the world to contact each other online, allowing
buyers to research, source, contact and purchase from suppliers
through new business models such as electronic marketplaces,
exchanges and auctions.

With volume on the rise, VERT may be getting ready to live up
to its name again.  Ever since the spring decline, the B2B
sector has been trading more horizontal than vertical, but it
looks like that is about to change.  Positive analyst comments
and improving investor sentiment are helping to lift these
stocks out of their recent trading ranges.  VERT has been stuck
between $20-60 for the past 5 months, well off its highs near
$150.  Now that the summer doldrums are behind us, we are seeing
a resurgence in B2B stocks and it looks like VERT is ready to
take another run at resistance.  The level to clear is the
200-dma (currently $65.56) as this is where the stock has been
turned back on its last two rally attempts.  Since beginning to
move higher 3 weeks ago, VERT is finding support at the 5-dma
(currently $55.06) and a pullback to this level looks like a
good point to open new positions, as it coincides with mild
historical support from last week.  Below there, VERT should
find stronger support at $53, and then $51.  The first level of
resistance that needs to be cleared is $58, followed by $62, and
then the 200-dma.  Conservative traders may want to wait for
continued strong volume to push through this first level of
resistance before playing.  Tighten up your stops as VERT
approaches the 200-dma - you don't want to give back your
profits if the third time fails to be the charm and the bears
take charge again.

Increasing confidence in B2B vertical marketplaces and easing
concerns about the speed of e-marketplace adoption is leading
to a nice rally in B2B stocks.  Positive analyst comments from
CS First Boston today only served to fuel stocks in this sector,
and as one of the featured stocks, VERT was one of those moving
strongly higher.

*** September contracts expire in two weeks ***

BUY CALL SEP-55 UER-IK OI=1495 at $ 4.50 SL=2.75
BUY CALL SEP-60*UER-IL OI=1059 at $ 2.13 SL=1.00
BUY CALL SEP-65 ERW-IM OI= 447 at $ 0.88 SL=0.00
BUY CALL OCT-60 UER-JL OI= 894 at $ 6.13 SL=4.00
BUY CALL OCT-65 ERW-JM OI= 730 at $ 4.38 SL=2.75
BUY CALL JAN-60 UER-AL OI= 571 at $12.38 SL=9.25

Picked on Sep 5th at     $57.19     P/E = N/A
Change since picked       +0.00     52-week high=$148.38
Analysts Ratings    12-15-1-0-0     52-week low =$ 16.00
Last earnings 07/00   est=-0.30     actual=-0.23
Next earnings 10-25   est=-0.28     versus=-0.14
Average Daily Volume = 2.70 mln



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

CREE - Cree, Inc. $124.44 -6.56 (-6.56 this week)

Cree is the world leader in the development and manufacture of
silicon carbide (SiC), which is a base material used in the
fabrication of the Company's blue light emitting diodes (LEDs),
wafers and gemstone materials.  The company was formed in 1987 by
a group of researchers from North Carolina State University, who
were pioneers in the development of single crystal silicon
carbide.  Cree's vertical integration throughout the
manufacturing process from crystal growth to device package and
test, allows total control over all aspects of the production
process.

Since a failed attempt to make a recovery in June, CREE has been
making lower highs and lower lows.  Encountering resistance at
$175, the stock then sold off only to bounce off $120 in July.
From there, CREE attempted to rally but failed to get above $160,
which resulted in a sell-off to the $100-105 range, in spite of
a strong earnings report on July 27.  For its fourth quarter,
CREE posted an 82% increase in revenues over last year's and an
increase of 13% from the previous quarter.  Net income increased
183%, product revenues grew 90%, but this did not stop the
selling.  In August, CREE moved higher with the rest of the
NASDAQ.  Hitting a low of $84.75, the stock managed to break
through several overhead resistance levels.  By the end of the
month however, the stock stalled, encountering resistance near
$148.  So far, September has not been good to CREE.  On Friday,
the stock closed below both its 5- and 10-dma, which are
currently converging near the $135 area.  Today the stock gapped
down at the open and spent the rest of the day moving sideways to
lower, closing down 5.01% on about average volume.  In doing so,
CREE closed below support at $127.  As well, strong moving
average support was violated in the $130 area, with the 50- and
100-dma both near that point.  The only moving average support
left to breach is the 200-dma at $123.70.  At this point there
are a number of possible entry points.  A failure to rally above
its 5- and 10-dma near $135 with volume to confirm could provide
an aggressive entry point.  An even more aggressive entry point
would be to look for a failed rally above resistance at $127 or
moving average support at $130.  Those looking for confirmation
of weakness in CREE could wait until the stock moves below its
200-dma at $123 with conviction before entering, with the next
levels of support at $120 and then $112.

*** September contracts expire in two weeks ***

BUY PUT SEP-130 RNC-UF OI=509 at $9.50 SL=6.50
BUY PUT SEP-125*RNC-UE OI=464 at $7.63 SL=5.25
BUY PUT SEP-120 CQR-UD OI=514 at $4.63 SL=2.75

Average Daily Volume = 1.1 mln



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

CHKP - Check Point Software $154.50 +5.06 (+5.06 this week)

Check Point Software Technologies, Ltd is in the Internet security
business.  They develop, market and support Internet security
solutions for enterprise networks and service providers, which
also include Virtual Private Networks and Managed Service
Providers.  There are three main product lines for CHKP and they
are security products, traffic control for bandwidth management,
and finally management products.  In a nutshell, Check Point
delivers solutions that enable secure, reliable and manageable
business-to-business communications over any Internet Protocol
network including the Internet, intranets and extranets.

Most Recent Write-Up

Run Forest Run!!  After a quiet open for CHKP, the buyers
remembered that this baby just broke to an all-time high on Friday.
With no overhead resistance, the buyers took CHKP to an early
morning high of $158.50 before settling back to $154.50, by
mid-day.  Even as the NASDAQ struggled, the buyers continued to
take more CHKP today as it closed up $5.06, at $154.50.  Volume
came in at 2.01 mln shares today (1.2 times ADV).  Look for a
pullback to yesterday's close, and the sight of the current 5-dma,
at $149.44, as a possible entry point.  Today, intraday support
was found at $153.50, which may provide bounces going forward if
CHKP continues to hold buying interest.  This internet play is
quite volatile;  traders should be alert and understand that this
is an aggressive play.

Comments

CHKP made its own bright spot today by bucking the NASDAQ trend,
and posting an impressive gain.  This just might be a sign of
things to come, as the Internet security company set another
new high today.  We would watch $150 as a key level for CHKP to
hold tomorrow to make another run for a new high.  With the 10-dma
clear down at $140.19, technical support doesn't enter the picture.
If the NASDAQ bounces back from today's profit-taking, look for
CHKP to roll onward.  If the selling continues, use caution with
the play to see if it can buck again.

***September contracts expire in two weeks***

BUY CALL SEP-145 KGE-II OI=404 at $13.38 SL=10.75
BUY CALL SEP-150*KGE-IJ OI=432 at $ 9.75 SL= 7.25
BUY CALL SEP-155 KGE-IK OI=142 at $ 7.00 SL= 5.25
BUY CALL OCT-155 KGE-JK OI= 83 at $16.75 SL=13.00
BUY CALL JAN-160 KGE-AL OI= 11 at $24.13 SL=18.50

SELL PUT SEP-145 KGE-UI OI=163 at $ 2.38 SL= 3.75
(see risks of selling puts in play legend)

Picked on Sep 3rd at    $149.44     P/E = 194
Change since picked       +5.06     52-week high=$158.50
Analysts Ratings     13-4-0-0-0     52-week low =$ 14.40
Last earnings 06/00    est=0.21     actual=0.25
Next earnings 10-20    est=0.25     versus=0.15
Average Daily Volume = 1.58 mln



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

Nasdaq slumps on profit-taking...

The technology index retreated today as biotech and semiconductor
stocks consolidated.


Tuesday, September 5

The technology index retreated today as biotech and semiconductor
stocks consolidated.  The Nasdaq finished down 91 points at 4,143
while the Dow Jones industrial average managed slim gains, ending
at 11,260.  The S&P 500 index finished down 13 points at 1,507.
Trading volume on the Nasdaq was a heavy 1.66 billion shares as
investors returned to the market after the holiday.  Declines led
advances 2,238 to 1,828.  Volume on the NYSE reached 840 million
shares, with declines beating advances 1,441 to 1,425.  The U.S.
30-year Treasury fell 4/32, pushing its yield up to 5.67%.


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

Southdown       SDW    SEP65C/SEP60P   $2.50   credit   strangle
Netspeak        NSPK   NOV20C/NOV7P    $0.00   debit    synthetic
Sirius Sat.     SIRI   SEP35P/SEP40P   $0.00   credit   bull-put
Transkaryotic   TKTX      SEP-25P      $0.00   credit   naked-put
Transkaryotic   TKTX   OCT22P/OCT20P   $0.00   debit    bear-put

There was very little opportunity to participate in our new plays
today.  The difference in option premiums from Friday's close and
Tuesday's open was substantial.  Sirius and Transkaryotic did not
offer favorable premiums during the session (although the issues
moved higher, as expected).  The drop in Implied Volatility in
options for SIRI came after the successful launch of its second
satellite, Sirius-2, from a Russian launch pad in Kazakhstan on
Tuesday morning.  Netspeak offered a reasonable entry but it was
just below our target in the synthetic position.  The premium for
the Southdown strangle was also much lower than expected.


Portfolio Plays:

Profit-taking in technology issues plagued the Nasdaq today but
interest in retail and financial stocks helped the Dow rally.
Leading the blue-chip barometer on the upside were shares of
Coca-Cola (KO), Home Depot (HD), Wal-Mart (WMT), Alcoa (AA),
Philip Morris (MO), and International Paper (IP).  The biggest
losers in the industrial group were Intel (INTC) and Merck (MRK),
with both stocks moving lower after downgrades.  On the Nasdaq,
semiconductor, computer hardware and networking issues paced the
decline in technology shares but Internet stocks rallied, led by
the business-to-business sector.  In the broad market, drug and
biotech issues retreated, increasing the overall session losses.

Increased uncertainty over the third-quarter earnings weighed
heavily on investors as comments concerning the potential for
early warnings were made by a number of analysts.  First Call
noted that third-quarter earnings estimates are being lowered
in the consumer cyclical group, with retailers experiencing the
brunt of the reductions.  At the same time, analysts said that
momentum remains on the upside and there is a lot of money on
the sidelines.  Trim Tabs said liquidity surged in the latest
survey and they expect heavy inflows this week as fund managers
return from their vacations.  In addition, the research group
reported that foreign investors and the recent takeovers of U.S.
companies have been an important factor behind the bullish move
in the major averages between May and August.  On the downside,
Trim Tabs expects an increase in public offerings over the next
few weeks and the rise in the number of new issues is likely to
limit the market's potential going forward.

Our portfolio experienced little activity of significance in
today's session.  Phone.com (PHCM) and Polycom (PLCM) were the
leaders in the technology group and it appears that Polycom is
going to survive the post-split selling pressure.  Our bullish
combination position is at maximum profit with the issue above
$60 at expiration.  Knight Trading Group (NITE) rallied to a
mid-day high near $33.50, bring our remaining position in the
October debit straddle to a break-even exit.  Now we will look
for a favorable "early-exit" opportunity in the coming sessions.
In the small-cap category, Mead (MEA) climbed back above $27 on
strength in the Paper group.  The long-term calendar spread will
achieve maximum returns with the stock near $30.  Loral Space
(LOR) rebounded to $8.12 amid renewed optimism in the Satellite
Communications group.  Our target in the synthetic position is
a return of 50%.  Ryder (R) was one of the few other surprises
of the day.  The issue continued to recover from last week's
slump, reaching a session high just below $20 and our long-term
diagonal spread is offering a small positive return.  We expect
the long-term position to achieve a credit (no potential loss)
as we move to October options.


Questions & comments on spreads/combos to Contact Support
******************************************************************
                         - NEW PLAYS -

One of our readers requested a new candidate for the debit-spread
combination (short put/bull-call spread).  Fortunately, we have a
number of great candidates for the strategy and here is my top
pick, based on the current price and trading range of the stock
and its recent technical history.  News and market sentiment will
have an effect on the so review the play thoroughly and make your
own decision about the future outcome of the position.

******************************************************************
VNTR - Ventro  $17.88  *** Low Risk Entry! ***

Ventro Corporation engages in the business-to-business e-commerce
economy by building and operating companies that transform the
supply chain in businesses around the world.  Ventro operating
companies allow suppliers, buyers and enterprises to streamline
business processes, enhance productivity and reduce costs.  Their
companies offer complete E-2-E commerce solutions consisting of
extensive online marketplaces, electronic procurement, systems
integration to interface with third-party/back-office systems,
and comprehensive services and support.

The recovery in Ventro began in early August when the company
agreed with American Express (AXP) to form a join venture to be
called MarketMile, which will build and operate Internet-based
marketplaces offering business products and services.  The new
online marketplace will allow companies to transact business
products such as office and industrial supplies and corporate
services including temporary labor.  It will initially target
mid-sized companies, with plans to expand into the markets for
large and small firms.  American Express will have a 65% stake
initially, while Ventro will own 35% of MarketMile.

That's great news however, the majority of these new exchanges
won't last long unless they are very successful.  One analyst
believes the average number of electronic marketplaces in each
vertical industry sector will peak at more than 10 by year-end
2000, but will drop to three dominant viable marketplaces per
sector by year-end 2001.  Independent sites that have the
advantage of substantial capital reserves and are generating
actual revenues are the only ones that will survive.  Ventro
falls comfortably into that group and that's why we believe
the issue will soon return to its past stature as a leader in
the industry.


PLAY (very conservative - bullish/debit spread combination):

BUY   CALL  DEC-15.00  UWV-LC  OI=433  A=$6.38
SELL  CALL  DEC-17.50  UWV-LW  OI=442  B=$5.00
SELL  PUT   DEC-10.00  UWV-XB  OI=372  B=$1.00

DEBIT SPREAD TARGET=$1.25  NAKED PUT TARGET=$1.25
OVERALL NET DEBIT TARGET=$0.00  TARGET ROI=75%

This debit spread combination strategy is nothing more than a
sold (short) PUT and a "bull-call" debit spread.  The position
is actually somewhat aggressive, based on the bullish outlook for
both components, but we use "out-of-the-money" options on the
sold PUT to lower the potential risk.  The premium from the sold
PUT is used to finance the purchase of the debit spread.  In this
play, the collateral requirement for the PUT is approximately $455
per contract.


******************************************************************
GBLX - Global Crossing  $35.13  *** New Trading Range! ***

Global Crossing is an independent global provider of Internet and
long distance telecommunications facilities and related services
utilizing a network of undersea and terrestrial digital fiber
optic cable systems.  The Global Crossing Network contains almost
100,000 announced route miles, serving 24 countries and over 200
major cities around the world.  The network is being engineered
and constructed using the latest in fiber optic technology,
including self-healing ring structures, erbium-doped fiber
amplifier repeaters, wavelength division multiplexing, and the
use of redundant capacity to ensure instantaneous restoration.
Through the network, their telecommunications and Internet product
offerings will soon be available to most of the communications
traffic on the planet.  The sub-sea optical fiber network will
eventually span 27 countries linking Asia, the Americas and Europe.

Shares in Global Crossing rallied last week after the company
raised its financial expectations for the current business year.
GBLX officials reported that they expect cash revenues from
continuing operations, which consist of telecom services and
installation and maintenance services, to rise to $5 billion, up
7% from the previous projections and almost 40% higher than their
1999 results.  In addition, Chase H&Q, CIBC World Markets and
four other firms have been added to the list of underwriters for
the upcoming initial public offering by Asia Global Crossing.
Asia Global Crossing is offering 53 million common shares in a
range of $14-$16 a share.  Global Crossing has a 57.5% stake
while Microsoft and Softbank each has a 15.8% position.  The
international company, with offices on multiple continents,
intends to be a pan-Asian telecommunications carrier providing
Internet, data, voice and Web-hosting services to wholesale and
business customers.

Based on the recent bullish activity in the stock, investors
are confident about the future of the company.  We also have a
positive outlook for the stock but there will likely be a period
of consolidation as the issue transitions to a new trading range.
We offer this play for experienced traders only, who are aware
of the potential adjustments necessary in a calendar spread on
a relatively volatile issue.


PLAY (aggressive - bullish/calendar spread):

BUY  CALL  JAN-40  QGV-AH  OI=9797  A=$4.62
SELL CALL  OCT-40  QGV-JH  OI=8370  B=$1.75
INITIAL NET DEBIT TARGET=$2.62-$2.75  TARGET ROI=50%


******************************************************************
CMRC - Commerce One  $69.25  *** Can't Catch This One! ***

Commerce One is a provider of global e-commerce solutions for
business.  Its solutions are designed to create a network of
interoperable marketplaces, trading communities and commerce
portals called the Global Trading Web.  They have developed the
Commerce One Solution to automate the procurement cycle between
multiple buyers and suppliers.  The Commerce One Solution is
comprised of enterprise e-procurement applications consisting
of BuySite Enterprise Edition and BuySite Portal Edition, and
the MarketSite Portal Solution.  Within the MarketSite Portal
Solution, business services such as auction services and other
enhanced content services are offered, with some to be added in
the future.

Earlier this year, Commerce One Ventures was formed to accelerate
global participation in e-business through strategic investments.
The move brought renewed investor interest to the company and now
analysts are beginning to focus on the outcome of its partnership
with Germany's SAP (SAP).  In addition, an exchange that Commerce
One is helping build for the major auto-makers is coming on line
and perhaps more importantly, some observers are beginning to see
the value in the company's focus on "direct" B2B, which involves
buying and selling major supplies like steel for cars instead of
office supplies.  Then there's the coming completion of Commerce
One's acquisition of consulting firm AppNet (APNT), a deal which
provides the company with one of the leading consultants in the
B2B marketplace.

Commerce One has been positioning itself expertly for the long
haul, especially with its focus on the direct B2B business.  This
position offers an excellent way for conservative investors to
participate in the potential movement of the issue.  Plan to use
any near-term consolidation in the issue to increase the credit
in the position.


PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-45  RJC-VI  OI=587   A=$1.12
SELL PUT  OCT-50  RJC-VJ  OI=1294  B=$1.81
INITIAL NET CREDIT TARGET=$0.88-$1.00  ROI(max)=25%




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


**********
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