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Daily Newsletter, Wednesday, 09/13/2000

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The Option Investor Newsletter               Wednesday  09-13-2000
Copyright 2000, All rights reserved.                        1 of 1
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MARKET WRAP  (view in courier font for table alignment)
        09-13-2000        High      Low     Volume Advance/Decline
DJIA    11182.20 - 51.00 11231.00 11140.70 1.07 bln   1376/1453
NASDAQ   3893.89 + 44.38  3895.81  3794.29 1.66 bln   1998/1978
S&P 100   803.02 +  0.45   804.49   795.79   totals   3374/3431
S&P 500  1484.91 +  2.92  1487.45  1473.61           49.6%/50.4%
RUS 2000  534.00 +  1.57   534.36   529.79
DJ TRANS 2723.46 + 38.06  2727.73  2671.28
VIX        21.48 +  0.30    22.25    21.27
Put/Call Ratio       .66

Up One Day, Down The Next

Or maybe it is down one day, up the next.  At any rate, the two
major indices just can't seem to get this dance step down as the
rotation continues.  Today, the rotation favored the beleaguered
NASDAQ after Tuesday's sell-off, with two tech stocks, ironically,
dragging the INDU lower.  But considering the news related to the
two indices, one would have thought the opposite to have happened.
The Chase-JP Morgan merger announced this morning confirmed rumors
of the deal, but the Financials sold off, as well as JPM.  Then,
one of the NASDAQ generals, INTC, received a downgrade that gapped
the stock down, yet the NASDAQ rebounded after three days of heavy
selling.  With triple-witching this Friday, PPI tomorrow, and
earnings warnings abound, the markets sure do some wacky things.

The big news at the NYSE was the announcement that Chase Manhattan
Bank (CMB) would buy JP Morgan (JPM) in a stock deal valued at $35
bln.  It was only a matter of time before JPM was swallowed up
amid constant speculation and rumors, and the suitor is now known.
Specifics of the deal will give JPM shareholders 3.7 shares of CMB,
valuing the takeout price of JPM at $207.  JPM closed down $4.25
to $181.25.  So naturally, on news of the merger, Financials
rallied, right?  Wrong.  Actually, other potential takeover
targets lost on the day.  I'm beginning to believe that whatever
you  would expect to happen in this market won't and the exact
opposite will.  A la the post-Labor Day rally.  I think this trend
is a product of the speed/span of information dissemination, but
that's a whole 'nother story.  LEH, which is considered a takeover
target, got hammered today, off $9.13, almost 6%.  Others include:
BSC(-2.56) and MER(-2.69).  Getting a boost on the news, however,
were online brokers.  Ameritrade(AMTD) and E-Trade(EGRP) soared,
up 7% and 4.4% respectively.  But the big winner was Knight
Trading(NITE).  NITE is thought to be the most attractive target,
being the leading NASDAQ market-maker.  The top two candidates
that might be looking at NITE:  Citigroup and Morgan Stanley.
NITE was up a whopping 22%, or $6.56, to $36.  Bottomline, there
isn't a lot of big fish left in the industry with the ability
to buy some of these targets, nor find them as a strategic fit.
There may be some nibbling from across the pond, as foreign
companies attempt to get into the U.S. markets.  But, we may see
a slowdown in consolidation for the Financial sector.

Helping JPM drag down the INDU was tech components HWP and INTC.
Just a week after the Ashok Kumar downgrade of INTC to a Buy,
Semi analyst Rich Whittington of Banc of America slashed his
rating on INTC and AMD.  The downgrade from a Strong Buy to a
Market Perform weighed heavily on the stocks, taking INTC down
another $3.69 on almost triple the ADV.  To put that in
perspective, since the Friday before Labor Day, just eight
trading sessions ago, INTC has sunk 17%!  $60 appears to be a
good support level, and institutions were actively battling to
distribute and accumulate the stock today based on block trades.
Its 200-dma lies at $59.08, which hasn't been tested since
October 1999.  Traders will be carefully watching this NASDAQ
general as a barometer of broader tech health.  AMD fell $2,
about 6.5%.

The HWP decline was fairly hefty.  Continuing its perilous fall,
HWP dropped $5.88 to close right on its 200-dma of $105.13.  You
would think we could blame it on an earnings warnings, right?
Well, kind of, but not HWP's.  The culprit actually was SCI
Systems(SCI), which warned it would miss Q1 earnings estimates of
$0.38 by 4 cents.  Investors punished the stock by hacking its
share price by 18%.  The warning was attributed to weak September
sales and seasonal weakness in consumer electronics and PCs.  So
what about HWP?  HWP is one of SCI's biggest customers.  This
may be an indication of what's to come for some of the hardware

As a result, the INDU slid lower as it consolidates in the 11100
- 11200 area.  On Tuesday, the INDU tested support near the 11100
area, and buyers stepped in to move the index higher.  Yet, the
new trend that has been developing since running into resistance
at 11400 last Wednesday has become concerning.  With earnings
warnings, and the quickness in which investors abandon stocks at
any sign of weakness, i.e. HWP, fear may be mounting.  The INDU
lost 51 points today while the VIX.X gained a quarter of a point
to 21.43, still extremely low.  We will be watching support at
11100.  A break will certainly bring the INDU to 11000.
Otherwise, the index will need to break above this short-term
trend to settle investor fears.  The former looks like the most
probable move considering the increasing earnings warnings, and
the fact that September historically is a down month.  Sherwin-
Williams(SHW) warned today, citing higher raw material costs,
while McDonald's stated in after-hours that its 2000 EPS would
be 2 cents lower-than-expected due to the weak Euro.

Shaking off the second INTC downgrade in the last two weeks,
the NASDAQ rebounded after four days of selling.  Many stocks that
had been hit hard during the recent selling, got a bit of relief.
CSCO, which dropped through the key support level of $60 Tuesday
and its 200-dma on Monday, found buyers waiting at $58 and it
climbed higher throughout today's session.  This action buoyed the
NASDAQ, yet CSCO is still under its 200-dma at $62.34.  Right on
the open, the NASDAQ gapped down and traded below the 3800 level.
The low of the day was 3794, just 5 points below the 252-dma,
noted in the chart below.  This is a technical that many traders
use because it is roughly based on the number of trading days in
a year.  The bounce was steady throughout the day and slightly
off its highs.  Adding 44 points today, the NASDAQ did not quite
make it to test 3900.  The overall sentiment in the tech sector
has grown more cautious.  Yet, today, investors bought many of
the high-fliers with reckless abandon.  CIEN(+14.75), ITWO(+10.88),
NEWP(+14.81), MUSE(+12.31), and CHKP(+11.13) all surged.  Caution
should be taken though since the downtrend is still intact.  Jim
said today that this is a trading market, given that September is
historically a down month.  We will be watching to see if the
NASDAQ continues to break down and violate 3800, or if higher
volume drives the index higher, breaking this short-term

Looking forward, tomorrow morning will have the PPI announcement.
Expectations call for an increase of +0.1 and +0.2 for the core
rate.  A benign or positive number will only reassure what most
people on the Street already believe, that the Fed is out of the
picture until next year.  A negative number would give investors
another reason to unload some of their holdings.  Key earnings
tomorrow will come from ORCL and ADBE, which are expected to
be strong.  As we progress through the dreary month of September,
keep up your radar for more earnings warnings.  This not only
hurts the individual stock but also related sectors, as in the
SCI-HWP case.  Bargain hunters showed up today, and with
valuations coming down on favorites like INTC and CSCO, they
may continue to nibble.  Exercise caution as it appears investors
are quicker to sell than buy.  It is expiration week and Friday
is triple witching, so look for some good action in those
September lottery options.  Good luck.

Matt Russ

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Are You A Good Trader?
By Eric Utley

Take my quiz and find out.  I decided to drift away from my
usual trading rhetoric - political rant - poor attempt at humor
and challenge the faithful Ask the Analyst readers.  Over the
next several weeks, I will present a series of cases, which
will represent some of the most important dynamics of trading.
I hope that you read through the problems as if you were in a
similar trading situation and think carefully about what you
would do next.  Make note of what drives your decision making
and analyze your psychological motives.  We'll begin delving
into and analyzing the answers next week.  Before you tackle the
conundrum below, know this, there's no "right" answer.

You've been watching the Telecom Equipment sector with bearish
eyes.  Ursa Modem Company (UMC) has been acting weak and you're
ready to claw into a put play.  You discover an analyst over at
Contradictory Brokers issued a big downgrade on UMC's main
competitor earlier in the day, which brought out the sector
sellers.  The bears teamed together to take UMC below its two-week
support level at $80.  The stock's losses are mounting and you
decide to buy 10 at-the-money puts near market close after UMC
falls below $79.  The next morning you discover the NASDAQ futures
down -50 points on a profit warning from a big Telecom carrier.
The news causes UMC to gap down by -$4, it then falls another -$2
after amateur hour expires, and then stabilizes during mid-day
trading.  Since you bought front-month puts with little time value
left, and the contracts were at-the-money with a delta near 50,
the options move with lightning speed and show you a one-day paper
gain of 200%.  What next?  Do you:

A)  Laugh all the way to the bank after selling your entire line

B)  Take half off the table and let the rest ride

C)  Hold tight

D)  Add to your position

Think carefully about what you would do if faced with the
preceding "problem" and feel free to chime in with your mock
decision.  One more thing before we jump into this week's
requests.  I've been in the process of moving over the past week
and a half.  As such, I've neglected many of you by not responding
to the host of e-mails that I have received.  So, please flood my
e-mail inbox with question, comments, and don't forget to send
your stock requests to Contact Support.  I'll
make an effort to respond to every e-mail.  Don't forget to put
the symbol of your stock request in the subject line of the


Nortel Networks - NT

An excellent equity but heading down all the time.  Can you
please advise your comments where one can expect a solid support
or is there some news causing this fall? - Regards, Sunil

You are correct Sunil, NT is an excellent equity.  We actually
kicked around the idea of adding the stock to our put list, but
decided not to because it's such a strong equity.  NT has been
punished over the last two weeks on the news of a slowdown in
capital spending by the major Telecom carriers.  Simply put,
the likes of T, WCOM, and FON will buy less equipment from the
likes of NT, LU, and CSCO.  So, the market thinks sales will slow
or even level off for the Tech beauties like NT.  The question is
whether or not the market has completely discounted that fact
into the stock prices or if the market is even correct in doing
so.  Here is where the story gets interesting.  NT's CEO said
yesterday that the company has sold out of fiber optic
equipment and that sales of $12 bln were attainable this year.
Furthermore, several analysts came to the defense of the entire
Telecom Equipment sector today, calling the recent correction
in the group overdone.

The fact is the Internet is still growing at mach speed.  I've
complained in the past that I haven't been able to get high-
speed Internet access even though I lived in a highly populated
area.  Well, I just moved to an even more densely populated
area, and wouldn't you know it, high-speed Internet access isn't
available.  The market, in which NT dominates, is growing, plain
and simple.  NT is the premiere provider of optical equipment in
its respective space.  I think the recent correction in NT, and
the rest of the Telecom Equipment sector, has presented a very
favorable entry for the long-term investors.  Looking over NT's
chart, I don't see much downside risk below its current levels.
And, for the long-term investor, limited downside risk and a
lot of upside potential should sound pretty good.


DST Systems - DST

What are your long-term views of DST (a sleeper of a stock that
keeps running up, and is highly profitable).  Great job, I really
enjoy reading all the requests, thanks! - Bruce.

DST is a leading provider of computer software solutions and
services to the financial services industry.  The dawn of
decimalization is a huge windfall for companies such as DST.  By
switching to a decimal-based trading system, opposed to
fractions, spreads in the market should narrow, which should
induce more trading and liquidity.  More trading translates into
bigger profits for DST.  An increase in trading activity means
mutual funds, brokers, and institutions need to keep track of
increasingly larger amounts of transactions.  And, DST is there
to provide the software to keep track of all those trades.  DST
also provides services to the telecom carriers, insurance
providers, and cable TV operators.  But, the heart of the
company's business is financial software.  I think the
stocks such as DST are going to be big winners in the next
year.  It will definitely be a sector to watch in the coming
months.  Simply said Bruce, I'm bullish on DST and its industry
group for the short and long-term.

DST's chart reflects the market's optimism about the company's
future.  I don't think all the good news is factored into the
stock price just yet.  Analysts have been moving up their EPS
estimates for DST on a fairly regular basis over the past three
months.  That's always a bullish sign when Wall Street raises
its expectations for a company.  DST has some fantastic
fundamentals to support the stock's price.  However, the stock
has run quite a ways recently without much hesitation.  Since
the stock has not consolidated its gains, it makes it a bit
more difficult to gain entry into the play.  You can see below
on the chart that DST has the tendency to pullback to its
50-dma.  With the lack of a solid base to search for entry
points, I would suggest looking to buy DST on a pullback to a
major support level, which looks to be the 50-dma.


Micron Technology - MU

How dangerous is MU now? - May

That is a good question May.  MU is a barometer for the Semi
sector and if MU is hurting the rest of the chips are probably
feeling the pain.  And the pain has been rampant recently.
MU has shed 30% since its August high.  The stock has sold
off on the threats of slowing growth and the anticipation of
profit warnings in the Tech sector.  Are the market's concerns
valid?  To be quite honest, I don't know.  There is a lot of
concerns over valuations in the Chip sector, which has added to
the bears' fury.  Let's keep in mind that the $SOX is still up
around 50% on the year.  Those are some pretty healthy gains
that some investors are sitting on, and combine the threats of
a slowdown in the Chip cycle, you've got yourself a few good
reasons to sell stocks.  For those reasons, I think the $SOX,
specifically MU, will retest key support levels very soon.

September is historically a bad, bad month for stocks.  With
the concerns floating around the Chip sector and given the
time of year, I think it would be wise to stand on the
sidelines and wait for MU to settle down.  The stock did get
a nice pop today, but it doesn't tell us too much about the
market's perception of MU.  If the industry analysts are right,
and the current Chip cycle has another 12 to 18 months before
ending, there will be plenty of time to gain a favorable entry
into MU.  As it stands now, MU is a bit dicey.  One possible
play on the stock might be to look for an entry on a retest
of support near $60.


1-800 Contacts - CTAC

CTAC has had an incredible run-up.  Will it continue up? - Rod

CTAC is a direct marketer of, well, contact lenses.  The company
boasts of servicing 1.2 mln customers since its founding in 1995.
Since CTAC is a specialty retailer, the company is less afflicted
by rising interest rates.  When the money supply is tight,
consumers are more likely to opt for a new pair of contact lenses
over a new pair of jeans.  Since CTAC is interest rate immune,
the stock has done quite well this year despite Doc Greenspan's
antics.  The company is growing its business at an incredible
rate and has fundamentals that any retailer would love.  Earnings
should grow over 30% in the next several years, and despite its
recent run, CTAC sells at a relatively cheap valuation.

But, because of its recent run, we're faced with the same problem
we have DST - finding a good entry point.  CTAC is consolidating
around the $40 level, with its 10-dma providing a little back-up.
Aggressive traders might look to buy the stock on a bounce off
its support level.  But, the more conservative approach would be
to wait for the stock to consolidate for at least seven weeks and
watch for the inevitable break out.  CTAC has had an incredible
run, but I think it can go higher given a little time to
consolidate its gains.  I actually know one of CTAC's employees;
he loves the company and they treat him well.  That's bullish to


Cell Genesys - CEGE

This stock has over 200 patents granted, hundreds pending in the
biotech field.  It has several hundred mln in cash.  With about
30 mln shares outstanding and selling around $30 a share it is
undervalued.  Do you agree? - James

Cell Genesys is a leading gene therapy company, who is focused on
the development of cancer vaccines - a noble cause to say the
least.  The company has a prostate cancer drug in the latter
stages of phase II trials, and pancreatic and lung cancer vaccines
that are in early phase II clinical trials.  Like you alluded to
James, CEGE has the largest patent portfolio in the gene therapy
field.  The company licenses its gene activation technology to
the likes of Pfizer, Amgen, Human Genome, and others.  Those
licensing agreements are the primary source of CEGE's revenues,
right now.  Obviously, that would change if CEGE is granted
approval for just one of its cancer vaccines currently in clinical

CEGE's story is similar to that of many Biotechs.  The company has
a string of drugs on which it's hanging its future on, and if the
company receives approval it could reap huge rewards for obvious
reasons.  Anything that could combat cancer would surely be a
blockbuster drug.  But, there's always the risk that CEGE won't
receive approval for any of its drugs or that you might have to
wait several years before the company recognizes profits from its
clinical developments.  To combat those risks, though, CEGE has
accumulated about $240 mln in cash on its balance sheet to make
its financial sailing as smooth as possible.  In addition, CEGE
owns roughly 12% of Abgenix (ABGX).  So, your best bet in trading
CEGE is to watch the action in ABGX and listen for more
announcements about CEGE's clinical developments.  CEGE is a
riskier bet for the long-term investor because the company does
not yet have a profitable product pipeline.  However, because of
its strong fundamentals, CEGE is a good stock to trade the
movements in the broader Biotech sector.


This column is an information service only.  The information
provided herein is not to be construed as an offer to buy or
sell securities of any kind.  The Ask the Analyst picks are not
to be considered a recommendation of any stock or option but an
information resource to aid the investor in making an informed
decision regarding trading in options.  It is possible at this
or some subsequent date, the editor and staff of The Option
Investor Newsletter may own, buy or sell securities presented.
All investors should consult a qualified professional before
trading in any security.  The information provided has been
obtained from sources deemed reliable, but is not guaranteed
as to its accuracy.


Chunks From The Middle
By Austin Passamonte

Aw shucks...not a single person took the bait I dangled in
Monday's visit. I made a statement saying it was my belief
that disciplined traders using a multi time-frame chart
system could achieve a 3/1 win-loss ratio of trades. Not a
single person disagreed!

Either I'm the only one here (it's possible) or you guys are
making that happen already. If so would you please let me in
on your secret? I only said it was possible, not that I was
doing so.

Reality is I'm human and prone to seeing trade signals just
a wee bit before they actually complete. You know, one of those
"close enough for me" setups? A weakness to succumb for those
keeps me from the elusive 3/1, but I'm working on it.

Actually, massive wealth can be achieved with a mere 2/1 win-
loss ratio coupled with a good money-management system. That's
subject matter for another day, so we'll stay on track here.
Our objective should be to win two trades for every loss and
obviously have bigger profits than losses.

The big picture there is that smaller profit trades are much
easier to win than the big hits. I know, I know, we all wanted
to buy OTM JP Morgan calls on Monday but not all of us did.
My congrats if you were one who had such foresight. Still, a
long-term living is tough to eke out that way.

A few people questioned the put-play returns I noted in last
Saturday's Market Sentiment piece. These were meant to be
examples of entire trades that were possible. 100+% and 200%
percentages were there, but I'm never able to buy lowest and
sell highest. I've done the reverse plenty of times but never
seem to pick off an entire move.

Nope, I can't make a fortune doing that but can see my way to
such doubling my money risked on every three trades averaged.
How's that? Well, my primary goal is to risk one dollar to make
one dollar and win two for every loss. Chunks of profit from
the middle will settle for me and me for them.

For example, trading the OEX or QQQs is a whole different dollar
game between the two but our concept is exactly the same. If I
see a developing trade that seems high odds to me, I will enter
at the best point possible and set a stop-protect order 2 points
below. All I expect on that trade is a mere 2 point gain in

Now the bid/ask spread eats into our two-point protect right
from entry so we better be accurate about this. Diligently
following the 60/30 minute chart setup handles most of that.

Once the option's trade price reaches halfway to our target we
immediately move our protective stop up from two points below
entry to entry level. Once the live play reaches a trade
range of two points over entry, we place a sell-limit order
to harvest our profit immediately or at least place a stop
order just below if there's strong reason to believe it's
continuing straight up.

Here's a live scenario; on Monday afternoon just past 2:00
EST I watched the QQQs start rolling over from the 94 level.
My 30 minute chart had stochastics crossing in the overbought
range on that short-term chart. Its hourly chart showed the
same in progress. I instantly entered a limit-buy order for
the Sep 91 puts @ 1/2 and was filled. No stop was placed in
this case because I only spent what I was otherwise willing
to risk on an October contract's stop loss. A free trade, if
you will.

By 3:00pm the position was trading at 7/8 and I placed my first
stop at 1/2 with the bid/ask spread 3/4 - 15/16. Before too
much longer the spread was at 1 - 1 1/16. I moved my stop to a
sell-limit at 1 and closed out for 100% return on purchase in
less than 90 minutes total time.

If the market had rallied into the close, my stop would have
been hit near entry and I'm only out commissions. I'll take a
par trade over a loss any day!

You'd be surprised how many swing trades in a market only
move the exact same amount a safe stop order is before
reversal. On the OEX, two or three-point swings are most
common. SPX, 5-point daily swings are the norm. That happens
to be what I feel are the best stop-loss orders below entry
on each respective market.

Risk one, make one, two out of three times. Bear the occasional
gap-loss against and also the big pop in your favor to balance
things out. Pick any figures you want and win two out of three
balanced trades over time on a spread sheet. Let me know what
that might do for your early retirement plans!

On another note, I don't want to open Pandora's box here so
please internalize what I'm about to say. This does not negate
all you've been told about trading options.

Personally, the concept of "amateur hour" does not influence
my trade-entry at all. This time frame affects equity options
much more than indexes. Individual stocks are notorious for a
gap-move open in one direction only to gradually fade to the

This action is due to the pre-market pressure of parked orders
to buy or sell at the open. News and events are usually what
draw us to that play along with everyone else. I seldom buy a
market that has just gapped in any direction due to the strong
tendency for it to refill the gap quickly, often within the
same session.

Indexes are a blended average of many stocks and seldom pop
big at the open. When they do, I simply stand aside and
watch how the first thirty minutes or so will unfold.

A great many times during large range days the perfect
entry lasts the first five to ten minutes after the
open before it shoots off and never looks back. This is
tricky to play, as reversals are common. However, such
market reversals happen anytime during open hours these
days and I trust chart signals to keep me out of great
harm the majority of times.

I DO NOT recommend entering stock-option plays at the open
if it makes a gap-move right off the bat. For every one that
goes on to profit, several others hit the daily high right
from the opening pop. Let non-OIN readers fall prey to such
"buy-the-tip-top" follies with their market orders to buy
parked with brokers.


I had hoped to cover Bollinger Bands technical study tonight
but I'm experiencing tremendous equipment challenges this
week. Plainly, I've bought new computers, switched to Adobe
Photo Shop and have yet to tame the beast. I am a minimalist
trader for a reason; technically-challenged is being kind.
We promise to be on track for our visit next week and will
surely cover this important subject then.

Enjoy the heck out of expiration week... buy cheap and sell
very dear! Best Trading Wishes,

Contact Support

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PALM - PALM, Inc. $48.50 +1.38 (+3.50 this week)

Known for its ubiquitous Palm-branded handheld devices, PALM
brought handheld computing to the masses.  Although Apple
pioneered the concept of the Personal Digital Assistant (PDA)
with its ill-fated Newton series, PALM, which was spun off
from 3Com (COMS) in March, has managed to convince consumers
they can't live without these little electronic gadgets.  The
company's product offerings have grown and now include the
Palm III, Palm V, and the Internet-enabled Palm VII product
families.  These pocket-sized PDAs allow users to use pen-based
input and to copy and synchronize information between the
device and a personal computer.

Most Recent Write-Up

The IPO of PALM in early March was one of many new offerings
last spring, and it received an amazing amount of interest on
its first day.  Opening the day at more than double its offering
price, the stock quickly shot as high as $165 before more
rational thinking prevailed, bringing the price back to earth.
In the midst of the spring NASDAQ correction, PALM shares
languished for months, finally bottoming near $20.  Finally,
in late June, volume began to increase, and the stock has seen
significant accumulation ever since.  The most recent bout of
profit taking ended in mid-August, and the subsequent rally has
brought the price up through resistance near $45.  Today's strong
gains pushed PALM through this level to close at its highest point
since late March.  The technicals, such as MACD and Stochastics,
are still looking strong, and the 10-dma (currently $43.44) has
provided support on each pullback over the past 3 weeks.  The
bulls ran into resistance today at $48, and above that looms the
$53 level.  Below the $45 support level is solid support around
$40.  Use pullbacks to support as buying opportunities, but make
sure volume confirms the bounce before playing.  The pullbacks
recently have been brief and shallow, so the $45 level looks like
the best point to target shoot.  Continuing strength that pushes
PALM above $48 on strong volume will provide a more conservative


PALM moved above the aforementioned $48 level today on volume
that revealed the bulls were large and in charge.  PALM has
fallen under heavy institutional accumulation, which has carried
the stock steadily higher for over a month.  Ahead of the PPI
report tomorrow, we thought PALM would be a conservative bullish
play.  Watch for the steady professional buying to lift PALM above
resistance at $49 tomorrow morning and confirm a rally with a
continuation of heavy volume.  Also, buying PALM's pullbacks has
been a profitable trade recently.  A bounce off support at $48,
or lower near $47, might provide the aggressive traders with a
favorable entry.

BUY CALL OCT-45 UPY-JI OI= 3444 at $6.00 SL=4.00
BUY CALL OCT-50*UPY-JJ OI= 2715 at $3.50 SL=1.75
BUY CALL OCT-55 UPY-JK OI=  203 at $1.94 SL=1.00
BUY CALL NOV-50 UPY-KJ OI=15283 at $4.75 SL=2.75
BUY CALL NOV-55 UPY-KK OI= 2966 at $3.00 SL=1.50

Picked on Sep 12th at    $47.13     P/E = 529
Change since picked       +1.38     52-week high=$165.00
Analysts Ratings      6-2-1-0-0     52-week low =$ 19.88
Last earnings 07/00   est= 0.00     actual= 0.03
Next earnings 10-19   est= 0.02     versus= N/A
Average Daily Volume = 8.29 mln


Volatility increases as the major groups vie for control of the

Technology stocks recovered today while industrial issues slumped
amid concerns over upcoming earnings.  The Nasdaq Composite edged
higher during the session but the blue-chip Dow average remained
firmly negative as computer hardware components Hewlett-Packard
(HWP) and Intel (INTC) suffered major losses.  Selling in shares
of Citigroup (C), Philip Morris (MO), McDonald's (MCD), and Home
Depot (HD) also pressured the industrial group.  At the same time,
financial issues slumped after weeks of bullish activity on news
that Chase Manhattan (CMB) will purchase J.P. Morgan (JPM).  The
transaction values JPM shares at over $205 and the merged entity,
to be named J.P. Morgan, Chase, & Co., will have assets near $660
billion.  One issue that continued to benefit from speculation in
the sector was Knight Trading Group (NITE).  The largest Nasdaq
market-maker saw its shares soar 30% on rumors the company is the
next takeover target.  In the technology group, a Banc of America
Securities downgrade of Advanced Micro Devices (AMD) weighed on
sentiment in the semiconductor sector and fears of a slowdown in
the Personal Computer industry were boosted early in the session
by component-maker SCI Systems' (SCI) warning that its quarterly
results would come in well below estimates.  The company blamed
seasonal weakness in consumer electronics and finished personal
computer demand for the shortfall.  In addition, analysts said
the PC slowdown is centered on low-end box makers and shares of
sector competitors fell in tandem with the news.  In the broader
market, utility, airline and biotech stocks moved higher but oil
and oil service shares slumped as crude prices dipped following
the rally earlier in the week.  The recent jump in crude futures
is becoming a major problem for the market and from a seasonal
viewpoint, this month is rarely a bullish period for stocks.  In
addition, the earnings-warning period is in full swing and most
investors are too concerned with avoiding the companies that may
miss estimates to focus on long-term portfolio additions.  With
that fact in mind, we will continue to focus on positions that
offer conservative entry points into technically favorable charts,
with reasonable monthly returns.

Summary of Previous Picks:

Covered Calls: (Margin would double the listed Monthly Return)

Stock  Strike Strike Cost   Current Profit  Monthly
Symbol Month  Price  Basis  Price   (Loss)  Return

METHA   SEP    45    41.50  51.06    $3.50   8.6%
PHCM    SEP    85    78.25  88.13    $6.75   7.1%
ADBE    SEP   115   109.68 125.94    $5.32   6.4%
SMTC    SEP    80    75.43 106.19    $4.57   6.1% 2-1 Split 9/26
MANU    SEP    70    67.81  86.88    $2.19   6.1%
BLDP    SEP   105   103.18 109.88    $1.82   6.0%
MIPSB   SEP    45    43.25  48.69    $1.75   5.4%
ARTG    SEP    90    87.63  90.31    $2.37   5.1%
MIPS    SEP    45    42.88  54.75    $2.12   5.0%
ORCL    SEP    85    82.75  81.81   -$0.94   0.0% Earnings 9/14!
NAVI    SEP    45    42.87  41.69   -$1.18   0.0% At support

NMSS    OCT    65    59.75  71.06    $5.25   6.1%

Naked Puts:

Stock  Strike Strike Cost   Current Profit  Monthly
Symbol Month  Price  Basis  Price   (Loss)  Return

MANU    SEP    65    63.56  86.88    $1.44  14.7%
MANU    SEP    70    69.19  86.88    $0.81  14.5%
MIPSB   SEP    45    43.37  48.69    $1.63  14.2%
METHA   SEP    40    38.37  51.06    $1.63  14.0%
INFA    SEP    85    83.50 102.31    $1.50  10.8%
ARTG    SEP    85    83.63  90.31    $1.38  10.4%
TUTS    SEP    85    83.19  85.00    $1.81  10.0%
MIPS    SEP    40    38.87  54.75    $1.13   9.9%
BOBJ    SEP    95    93.31 103.13    $1.69   9.9%
ADBE    SEP   105   102.75 125.94    $2.25   9.4%
INFA    SEP    90    89.19 102.31    $0.81   9.1%
VRTX    SEP   57.5   56.44  75.75    $1.06   9.0% Adj 2-1 split
NAVI    SEP    40    39.00  41.69    $1.00   8.9%
QLGC    SEP    85    83.50  98.06    $1.50   8.7%
EMLX    SEP    55    53.75  96.06    $1.25   7.9%
SMTC    SEP    70    68.62 106.19    $1.38   6.9% 2-1 Split 9/26
MMCN    SEP    55    53.94 108.38    $1.06   6.7%
MXIM    SEP    65    63.75  81.00    $1.25   6.6%
ORCL    SEP    80    79.06  81.81    $0.94   6.4% Earnings 9/14!
INKT    SEP   100    98.62 108.75    $1.38   6.3%
PHCM    SEP    65    63.50  88.13    $1.50   6.2%
MERQ    SEP   100    99.00 119.94    $1.00   6.2%
BLDP    SEP   100    99.44 109.88    $0.56   5.5%

METHA   OCT    45    43.06  51.06    $1.94   9.7%
NMSS    OCT    55    53.00  71.06    $2.00   8.4%
AVNX    OCT   115   111.50 148.06    $3.50   7.2%
RIMM    OCT    60    58.37  78.19    $1.63   6.4%

Naked Calls:

Stock  Strike Strike Cost   Current Profit  Monthly
Symbol Month  Price  Basis  Price   (Loss)  Return

SNWL    SEP   100   101.31  54.50    $1.31  10.8% 2-1 Split 9/18
LSCC    SEP    80    81.00  65.25    $1.00   8.7%

New Candidates:

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.  (We monitor the positions marked with ***).

BULLISH PLAYS - Covered Calls & Naked Puts

September Expiration Speculation!

ITWO - i2 Technologies  $172.00  *** Short-term Speculation! ***

i2 Technologies is a provider of intelligent eBusiness solutions
that help enterprises optimize business processes both internally
and among trading partners.  Its solutions enable enterprises to
operate more efficiently, more effectively collaborate with
suppliers and customers, and conduct business transactions over
the Internet.  They recently launched TradeMatrix, a robust
platform of business-to-business solutions, services and
marketplaces, which will allow customers, partners, suppliers and
service providers to do business together in real time.  Its
services include procurement, commerce, customer care, strategic
sourcing, product development, and more.

i2 Technologies is one of the leaders in the Internet B2B sector
and investors, as well as industry experts, are bullish on the
company's outlook.  A recent survey of analysts produced these

9/12/00  I2 Technologies was rated a "strong buy" in new coverage
by analyst Richard Davis at Needham & Co.  The target price is
$222 per share.

9/11/00  I2 Technologies was rated a "buy" in new coverage by
analyst David Garrity at Dresdner Kleinwort Benson Securities.

9/6/00   I2 Technologies was maintained "accumulate" by analyst
Douglas Crook at Prudential Securities.  The 12-month target was
raised to $200 from $150 per share.

9/5/00   I2 Technologies was rated "outperform" in new coverage
by analyst Gretchen Teagarden at Salomon Smith Barney.  The 2001
price target is $179.

Obviously, the analysts' consensus opinion is very optimistic but
this play is simply based on the current price or trading range
of the underlying issue and its recent technical history.  We
will use the current market volatility and the overpriced option
premiums to help initiate these relatively conservative, bullish
positions.  The probability of the share value falling to our
target strike price appears rather low but there is always the
possibility of a major correction so monitor the issue daily for
changes in technical character.

ITWO - i2 Technologies  $172.00

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  SEP 160  QYI UL  469       0.94   159.06    24.8% ***
Sell Put  SEP 165  QYI UM  129       2.00   163.00    47.7%


JNPR - Juniper Networks  $198.63  *** A Big Recovery! ***

Juniper Networks is a provider of unique Internet infrastructure
solutions that enable Internet service providers and other
telecommunications service companies, to meet the critical
demands resulting from the rapid growth of the Internet.  The
company delivers next generation Internet backbone routers that
are specifically designed, or purpose-built, for service
provider networks.  The company's flagship product is the M40
Internet backbone router, and it recently introduced the M20,
an Internet backbone router purpose-built for emerging service
providers.  The company's Internet backbone routers combine the
features of the JUNOS Internet Software, a new high performance
ASIC-based packet forwarding technology and Internet-optimized
architecture into a purpose-built solution for service providers.

Technology stocks recovered today from some of their September
blues, thanks to strength in top Internet equipment shares.  The
tech-heavy Nasdaq, which closed higher for the first time since
late last week, was boosted by the surging prices in industry
leaders like Juniper Networks.  Obviously, investors are still
treading lightly ahead of key data expected later this week; the
Producer Price Index (PPI), due out on Thursday and the CPI or
Consumer Price Index, which will be announced Friday.  The data
from these reports is an important measure of inflation at the
wholesale and retail levels and the market can react abruptly to
unfavorable numbers in either of these indices.  Fortunately, the
recent trend for technology issues has been a flight to the more
expensive stocks and we think Juniper is one of the issues that
will remain bullish, even in the event of a negative announcement.

With favorable disparities in the front-month option premiums,
this position offers an excellent speculation play for those who
agree with our outlook for the issue.

JNPR - Juniper Networks  $198.63

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  SEP 175  JUD UO  1073      0.81   174.19    21.8% ***
Sell Put  SEP 180  JUD UP  883       1.19   178.81    29.2%

October Expiration

ALXN - Alexion Pharma  $100.88  *** Bracing For A Rally? ***

Alexion Pharmaceuticals develops products for the treatment of
cardiovascular, autoimmune, and neurologic diseases caused by
improper functioning of the human immune system.  They have two
lead product candidates in Phase II trials, one for the
treatment of acute inflammation caused by cardiopulmonary bypass
surgery, and the other for the chronic treatment of rheumatoid
arthritis and membranous nephritis.  Alexion is developing its
Apogen and UniGraft technologies in preclinical studies.  They
are targeting their first Apogen product candidate, known as MP4,
for the treatment of patients with multiple sclerosis.

Alexion has been focusing on an important aspect of the natural
healing process known as the complement cascade.  Complement is
made in the body in a series of complex steps in reaction to
foreign pathogens.  In most cases, the complement cascade is
triggered after the white blood cells begin to protect the body.
Once activated, its job is to help kill the cells harboring the
invasive pathogen.  However, the human healing system can become
too protective, leading to other problems such as autoimmune and
inflammatory diseases.  For now, there no products available that
block any part of the complement cascade but analysts have been
paying close attention to one of Alexion's new drugs, an antibody
complement cascade inhibitor for lupus and rheumatoid arthritis.

In addition, Alexion announced last week that it received "fast
track" status for the approval process for its treatment for
patients undergoing bypass surgery, which it is developing in
partnership with Procter & Gamble (PG).  The fast track approval
could substantially reduce the amount of time the U.S. FDA takes
to grant approval for Alexion's new treatment, designed to block
inflammation that could cause heart or brain damage.  The company
also said that it has completed the enrollment of 1,000 patients
for the Phase II trials to test the efficacy of the drug.

Based on the technical indicators, investors like the fundamental
outlook for the company and we favor the opportunity to own the
issue at a reduced cost basis.

ALXN - Alexion Pharma  $100.88

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Call OCT 85   XQN JQ  20       20.63    80.25     4.9% ***
Sell Call OCT 90   XQN JR  100      17.50    83.38     6.5%

Sell Put  OCT 80   XQN VP  5         3.25    76.75    11.4% ***
Sell Put  OCT 85   XQN VQ  0         4.88    80.12    13.7%
Sell Put  OCT 90   XQN VR  0         6.50    83.50    14.9%


OSIP - OSI Pharmaceuticals  $51.69  *** Drug Development! ***

OSI Pharmaceuticals is a research and development company that
utilizes a comprehensive drug discovery and development
capability to rapidly and cost effectively discover and develop
novel, small-molecule drug candidates for commercialization
by major pharmaceutical companies. OSI conducts its drug
discovery and product development programs independently as well
as in conjunction with major pharmaceutical companies. Their
efforts are primarily focused in the areas of cancer, diabetes,
cosmeceuticals and G-protein coupled receptor, or GPCR, directed
drug discovery.

OSI Pharmaceuticals rallied today after the company announced a
summary of early data emerging from a Phase II study of OSI-774
in non-small cell lung cancer patients.  OSI-774 is a potent,
selective and orally active inhibitor of the Epidermal Growth
Factor Receptor (EFGR), an oncogene that is associated with the
aberrant growth that is characteristic of cancer cells.  Philip
Bonomi, a lead investigator, and Director of Medical Oncology at
the Rush Cancer Institute in Chicago says that OSI-774 is a well
tolerated, oral medication which is active in non-small cell lung
cancer.  He was particularly impressed by partial responses with
OSI-774 in two patients who had been treated previously with two
and three different chemotherapy regimens.  OSI commented that
they are confident the study confirms OSI-774 to be an active and
well tolerated anti-cancer agent and an important competitor in
the new class of EGFR inhibitors.

In addition, OSI Pharmaceuticals recently announced an acquisition
from Pfizer of a small molecule EFG receptor inhibitor, a cancer
drug candidate.  The acquisition came as a result of a decision
between Pfizer and the Federal Trade Commission as a requirement
of Pfizer's merger with Warner-Lambert.  Company officials believe
this is a transforming event and a fundamental positive for OSIP,
as growth factor inhibitors are the next major wave of cancer
therapeutics.  Numerous biotechnology and pharmaceutical companies
are working on such agents, demonstrating the market opportunity
in this therapeutic category.

That's certainly good news for the company and we favor the bullish
chart indications and today's new, all-time high.

OSIP - OSI Pharmaceuticals  $51.69

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Call OCT 45   GHU JI  90        9.63    42.06     5.7% ***

Sell Put  OCT 40   GHU VH  48        1.44    38.56    10.1% ***
Sell Put  OCT 45   GHU VI  103       2.94    42.06    14.3%


PALM - Palm Incorporated  $48.50  *** Earnings Rally? ***

PALM is a global provider of handheld computing devices, and has
brought about the widespread acceptance and use of these gadgets.
Although Apple pioneered the concept of the Personal Digital
Assistant (PDA) with its ill-fated Newton series, PALM, which was
spun off from 3Com (COMS) in March, has managed to convince
consumers of the utility of their products.  Their product
offerings have grown and now include the Palm III, Palm V, and
the Internet-enabled Palm VII product families.  These pocket
sized PDAs allow users to use pen-based input and to copy and
synchronize information between the device and a personal

Palm has been a favorite of the OIN in recent sessions and we
noticed there are some excellent premiums available for traders
who wish to initiate a new portfolio position through the sale of
Naked Puts.  Of course, the company's earnings are due on Monday,
September 25, and that could be the primary cause of the recent
rally.  We favor these positions based on the bullish technical
outlook for the issue but you can learn more about the company at:


PALM - Palm Incorporated  $48.50

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  OCT 40   UPY VH  778       0.88    39.12     6.1% ***
Sell Put  OCT 45   UPY VI  621       2.38    42.62    10.7%


RMBS - Rambus  $84.47  *** A New Deal! ***

Rambus designs, develops, licenses and markets high-speed chip-
to-chip interface technology to enhance the performance and cost-
effectiveness of computers, consumer electronics and other
electronic systems. They license semiconductor companies to
manufacture and sell memory and logic ICs incorporating Rambus
interface technology, and market their products to systems
companies to encourage them to design Rambus interface technology
into their products.  They have been aggressive in this respect,
licensing more than 100 patents to around 30 semiconductor
companies. Their technology cost-effectively increases the data
transfer rate, allowing semiconductor memory devices to keep pace
with faster generations of processors and controllers.

Deal of the century?  No, but Rambus' licensing agreement with
NEC of Japan is certainly a bright spot amidst the lawsuits the
chip designer is embroiled in over licensing royalties.  NEC is
the world's second-largest chipmaker, and is the largest chipmaker
to sign a licensing agreement with Rambus.  The agreement involves
working on developing technology to speed the performance of
memory chips.  The financial details of the agreement were not
revealed but investors reacted positively to the agreement, moving
the share price up almost ten percent at the close, on higher than
average volume.  Rambus has had more than its share recently of
legal entanglements, settling one lawsuit over patents favorably
with Hitachi, and launching a similar suit against Infineon
Technologies.  Rambus is not only the "hunter" in the realm of
patent lawsuits, but the "hunted" as well.  Micron Technology and
Hyundai Electronics Industries of South Korea filed suits against
Rambus, rejecting the Rambus claims to patent royalties and instead
accusing the company of violating industry antitrust laws.  With
the philosophy of a good offense being the best defense, Rambus
filed a counter-lawsuit against those two companies in Europe on

We simply favor the new outlook for the company and the inflated
option premiums will allow us to speculate on the future movement
of the issue with a reasonable cost basis.

RMBS - Rambus  $84.47

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  OCT 60   BYQ VL  443       1.50    58.50     6.7% ***
Sell Put  OCT 65   BYQ VM  336       2.00    63.00     8.7%
Sell Put  OCT 70   BYQ VN  773       3.25    66.75    11.8%


TUTS - Tut Systems  $85.00  *** Taking Profits! ***

Tut Systems develops and markets advanced communications products
that enable high-speed data access over the copper infrastructure
of telephone companies, as well as the copper telephone wires in
homes and businesses. Their products incorporate high-bandwidth
access multiplexers, associated modems and routers, Ethernet
extension products and integrated network management software.

Despite the recent sell-off, this company remains one of our
favorites for long-term portfolios.  The fundamental outlook is
very positive; revenues are expected to grow 100% year over year,
and the stock should see higher prices in the future.  However,
the current technical trend is very unfavorable and the volatile
activity in the stock has produced some excellent premiums in the
(OTM) call options.  We will use the current speculative interest
to open a conservative position with a bearish outlook.  If the
price of the issue moves through the current resistance area near
$115, we will buy the stock to cover our sold options.

TUTS - Tut Systems  $85.00

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Call OCT 120  QSS JD  8         2.31   122.31     9.8% ***
Sell Call OCT 125  QSS JE  51        1.75   126.75     7.7%


Leveraging Covered Calls
Leverage is one of the reasons to buy options over the underlying
security.  Some investors prefer to trade covered calls to trading
calls and/or puts.  One alternative to covered call writing is
to buy a longer-term (long option) option and sell (short option/
naked) a nearer term option at the same or higher strike price.
This is referred as a calendar or debit spread.  The longer-term
option is generally more expensive than the nearer-term option
due to time value.  The long-term is also more expensive due to
buying the strike closest to the stock price and selling the
near-term out of the money.  Therefore, a net debit is achieved.
For instance, buying one JAN 50 2002 call option for 15 and
selling one OCT 60 2000 call option at 2 results in a net debit
of 13 (15-2=13) and an initial return of 13.3% (2/15= 0.133).

One benefit of the Calendar spread is the leverage.  Leverage is
one of the attractive qualities associated with option trading.
For instance, buying 1000 shares of a 100 stock on margin usually
requires a minimum requirement of 50%.  Therefore, the minimum
cash required to facilitate the trade would be $50,000.  For the
sake of the example, let's assume the JAN 2002 100-call option
is trading at 28 with a delta of 72.  I determine whether to buy
the option or the stock by calculating the hedge by multiplying
the stock price by the initial margin by the delta (divided by 100)
of the call option in question (100X50%X0.72=36).  In my opinion,
if the calculation yields a higher number than the option price,
it is better leverage to buy the option.

The strategy is simple.  The most difficult aspect, as with any
investment, is determining which stock to buy.  Some investors
look for up-trending stocks, while others look for the highest
premium.  The best entry strategy is the one that, among other
things, best suits the individual's risk tolerance, investment
objectives, and desired return.  I have heard investors comment
that "you can't lose with covered calls." This is false if the
stock goes down below the cost basis. The risks of buying the
long-term option (LEAP) are depreciation of time value, price
deflation due to decline in stock price, slippage, etc.  It is
necessary to have an exit strategy if the trade goes against
you.  Options expire and cause an investor to lose up to their
initial investment. In addition, it is also necessary to have
a strategy if the stock price advances to or above the sold
option's (short) strike price. In this case, one must either
close out the short option if in the money by buying the call
to close or be prepared to sell stock that you may not own.
If the short call needs to be closed out, it may by beneficial
to close out the long-term option as well.

Robert John Ogilvie

If you have any additional questions regarding this article,
please feel free to contact me at 877-925-0880 or e-mail
rjogilvie1@home.com.  Neither Cutter & Company, Inc. nor Robert
J. Ogilvie makes any representation as to the accuracy,
reliability or completeness of any charts, formulas, and/or
research opinions presented herein.  This article is intended
solely for educational purposes.  Nothing herein should be
construed as an offer or solicitation to buy or sell any
securities.  Option trading is speculative and entails risk with
the potential to lose principal.  Option trading is not suitable
for all investors.  Cutter and Company is a Member of the NASD,

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