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Daily Newsletter, Tuesday, 09/19/2000

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The Option Investor Newsletter                  Tuesday 09-19-2000
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        09-19-2000        High      Low     Volume Advance/Decline
DJIA    10789.30 - 19.20 10839.10 10761.90  963 mln   1380/1492
NASDAQ   3865.64 +139.12  3865.85  3740.65 1.71 bln   2246/1716
S&P 100   787.77 +  8.84   788.68   779.55   totals   3626/3208
S&P 500  1459.90 + 15.39  1461.16  1446.05           53.1%/46.9%
RUS 2000  523.31 +  6.63   523.37   515.80
DJ TRANS 2605.61 - 14.55  2627.00  2574.62
VIX        22.11 -  0.90    23.47    21.89
Put/Call Ratio       .58
******************************************************************

We sure can't complain about this week!

With an explosion of relief buying the Nasdaq gapped open almost
+70 points in the first 15 min of trading. This put the Nasdaq
dead on support at 3800 and it struggled to hold this level all
morning. Once traders came back from lunch and saw 3800 holding,
the race was on. The over sold rebound was fueled in part by an
upgrade to Intel and AMD. The Dow however, even with strength in
MSFT +2, INTC +4.56 and HWP +3.50, could not manage a positive
close. After spending most of the day under 10800 the Dow managed
to make a nice run into positive territory just before the close
but fell back on end of day selling.







The major factor for the rebound in the tech markets, other than
just seriously over sold, was an upgrade by Bank of America on
several stocks they downgraded just last week. Confused? Last
week BOA downgraded INTC to "market perform" and set a price target
of $55. INTC was trading in the $67 range at the time. After the
downgrade INTC dropped over the next several days to a low of almost
$55. Same with AMD which was downgraded to a "market perform" with
a price target of $25. They cited slowing PC growth, weak chip
sales, bad product mix, etc. But that was last week. I wonder if
they were short those stocks? Today BOA upgraded both of these
stocks and set a price target on INTC of $70 and $40 on AMD. Now
you are really confused. How could an analyst put out a market
moving research report one week and then entirely reverse it only
a week later? Did he cover his shorts? AMD rose +13% or +3.50 and
back to $30 and Intel +4.56 to close at 60.31.

Adding to the semiconductor rally was the Bear Stearns conference
call in which they stated that they are positive on current PC
demand. They felt the semi cycle is not over and still has room
to run. They said demand had picked up in September for Intel and
Micron. DRAM prices are still strong and prices are stable to up.
They set a price target on Intel of $90.

These two pieces of positive news were strong motivators to the
Nasdaq rally. The Dow however dropped on a profit warning from
Alcoa. AA said profits would be "well below" estimates due to
energy costs and slowing orders from some big industrial markets.
The soft landing in the materials sector is turning in to a crash.
The majority of the recent earnings warnings have been in this
and related sectors. The following companies have already warned;
AA, DD, ETN, DANA, FMO, IR, ROK, TRW, WHR, CR, BWA, SOI and BGG.
255 stocks have already prewarned according to First Call but only
60% of those or 153 were negative. The problem is the brand names
that are warning. Names like Alcoa, Dupont and Gillette are much
more widely held than JAKK. These high profile warnings in a quarter
known for earnings problems just confirm the bearish sentiment.

I am sure you are all excited about China getting preferred trade
approval. The markets however yawned as Clinton held a news
conference to trumpet the news. The real news for the day was an
earnings warning from JAKK. Jakks Pacific Inc warned that there
was a slowdown in sales of its main product. That product? WWF
action figures. Wow! If The Rock, Kane, Hardy Boyz, The Undertaker
and Stone Cold Steve Austin are not selling we must really be in
for a recession. There go my role models! I wonder how Barbie and
Ken are doing over at Mattel?

The Euro has not hit bottom yet and posted yet another new low
today. At the same time natural gas posted a new high. Let's see,
energy costs more but money is worth less. Yep, sounds like a
definite economic problem to me. Add in oil futures bumping up
against yesterday's high of $37 and we have some real stress.
The current oil problem appears to be a lack of tankers to
transport it along with requirements increasing daily. A couple
hundred SUVs rolled off assembly lines while I was writing this
commentary. Colder weather in the north has started the run on
heating oil supplies and rumors of hoarding are already appearing.
Now, how would you hoard heating oil? Yes Sir, just fill up my
basement please and that big hole I dug in the back yard as well.
All jokes aside, some analysts are still calling for +$40 oil
soon and that will continue to pressure the industrial sector.

Helping the Nasdaq today Cisco CEO, John Chambers, said CSCO had
no exposure to the weak Euro since all sales were made in U.S.
Dollars. Actually he said there was a slight positive for them
since they paid their expenses in Euros. This works for a company
that sells its products to corporations but does not work for a
company like Gillette which sells a much lower priced consumer
product. Gillette of course warned on Monday. Microsoft got a
boost today as well when Assistant Attorney General Joel Klein
announced he was leaving the U.S. Government to find another
job. Klein launched the landmark case against Microsoft and was
a leading podium pounder against an Appeals Court hearing. With
Klein out of the picture investors saw a sliver of light under
the breakup door. MSFT gained +2. Dell bounced off its 52 week
low set yesterday with a +1.88 gain on news that component prices
were softening. This is a plus for them and will enable lower
prices for consumers while maintaining profit margins for Dell.
Ironically, the "lower prices for components" comment was ignored
by the broader market as investors were busy in the chip feeding
frenzy. Seems to me the lower prices would mean that Ashok's
warning on Sept 4th regarding Intel is coming true just as others
are upgrading them. Is the right hand reading the left hands
reports?

SunMicro actually went up after announcing a purchase of Cobalt
Networks for about $2 billion. The move will position SUNW in
the low end server appliance market. Investors liked the move
and both stocks were up. SUNW has bounced off support at $112
for a week now and this news helped rally them off the bottom.

The best scenario I mentioned on Sunday came to pass. The big
sell off on Monday giving us the buying opportunity we wanted,
followed by the big rally today. Unfortunately the gap open this
morning made this rally hard to play. Up +30 at the open and
+70 ten minutes later, those of us who like to confirm market
direction after amateur hour before opening a play were left
holding the bag. With a +70 point gain and a history of selling
off before the close, the prudent decision would be to wait. When
traders returned from lunch they wasted no time in buying more
tech stocks. Must have been the three martini lunch. Either that
or they were just so surprised to come back from lunch to a
positive market they just lost control.

Our problem now becomes how long will it hold? With the Dow
still sick and sure profit taking due tomorrow on stocks like
SDLI +38, PMCS +23, JNPR +18, GLW +17, AMCC +17, RBAK +16,
there is a strong possibility this could be yet another bear
trap rally. I hope not but we really need to put a couple
positive days together before we start throwing caution to
the wind and buying everything in sight. The Dow selling at
the close as the Nasdaq was soaring shows us that there is
still some weakness in the market. Sure, some of the Dow
weakness was investor rotation back into techs but I don't
think that was the whole problem. At 3865 the Nasdaq is +163
points above the double test of 3700 on Monday. That is a +29%
recovery of the recent -553 point drop since Sept 1st. The
Nasdaq has never been known for doing things slow yet recovering
almost one third of the loss in one day is pretty strong. Lets
hope all that cash on the sidelines decides the market is about
to run away from them. 3900 is still the next critical level.
Once over that I will feel much more comfortable. The Dow is
facing a critical test of ascending support dating back to
January. If it falls under 10750 we could see another round
of retesting Dow lows in the 10500 range. October, although
known for big drops, is also known as the bear killer month.
Historically bearish Septembers are forgotten with end of the
month October rallies. I can't wait!

It is with great pleasure we announce the first annual
Advanced Options Workshop in Denver, Colorado on October 27-30th.
You have heard about our popular March Expo seminars which have
sold out for the last two years. The attendees from those events
have urged us to put together an advanced course in the same
format. This course will be taught by over a dozen speakers
including myself. This is a one time presentation with up to
the minute information and as always we guarantee you will
not be disappointed. The schedule is fast and furious with
optional sessions lasting until 10PM each evening. This is
the best option education available. The price includes your
room, ALL meals, a professionally produced video of the event
and one on one interaction with speakers who are experts in
their field. The event kicks off with a Halloween party on Friday
night. Join the fun. Be a better trader! Seating is limited.
For more information: http://www.OptionInvestor.com/workshop

Good luck and sell too soon.

Jim Brown
Editor


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

The Austin TX seminar is September 21/23rd. Options
expiration is over and earnings still several weeks
away. 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 Rhoades 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 21-23 Austin TX
Sep 28-30 Boston
Oct 12-14 Charlotte NC
Oct 19-21 San Francisco
Oct 27-30 Denver, Advanced Option Workshop
Nov 02-04 Phoenix
Nov 09-11 Miami FL
Nov 20-23 Dubai, UAE (Special 4 day seminar)
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?

You can learn from the experts how to interpret all
these indicators, read charts, pick stocks and which
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


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


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

There Just Might Be A Bottom
By Austin Passamonte

Meowww...Growl...ROAR! Which "dead cat" did we hear from
today? Just when we sat teetering precariously on the edge
of a great market void, back came momentum angels market
bulls have come to rely on time and again.

We shouldn't consider this a firm bottom beneath us quite
yet but that was one impressive relief rally. Stick one or
two more just like it inside this week and we may not hear
"new market bottoms" for a little while again.

The long-term technical picture isn't perfect for a reversal
but it improved today. Flipping through daily charts of the
major indexes and semi-conductor sector shows signs of life
for release from oversold extreme zones soon.

Let's not load the tractor-trailer with calls just yet. Short
term signals indicate another round or two of tests could face
us before buying conviction begins with earnest. Where? We don't
pick points, we rely on technical signals to move into action.
One or two retests of these most recent lows and a strong rally
from there could do it.

The oil/poor earnings hurdle hasn't been cleared yet either.
Futures traders in the oil markets are betting that current
prices are at or near their tops but Iraq is the wild-card.
We'll include COT report sentiment this Friday for commercial
traders in the energy sector to see how the giants are playing
today's price/market action.

Candle patterns show versions of bullish engulfing candles and
semblances of "Morning Star" bullish reversals in the NASDAQ
series markets. They are three day patterns that begin with a
bearish down or red candle, a doji or stalemate of some sort the
second and a clear or green bullish candle the third.

This exhibits the transition of sentiment from bearish to neutral
to bullish sequentially and is present in daily NASDAQ charts.

Check out the put/call ratio disparity in the OEX and QQQs. Lots
of puts below us and few calls above clear the runway for action
if movement heads that direction.

We believe the DOW will lead from here. It closed exactly on the
major trendline support drawn from its March intraday lows through
the higher-lows from there. Technology had an excellent day but
the blue chips couldn't manage to finish green.

The dip-buying crowd remains alive & well. Floor traders continue
to view rallies as new selling opportunities. As usual we find
ourselves in a state of transition. More selling could lie ahead
but it's very possible we've identified the point where tech
buyers consider the usual stalwarts too cheap. Maybe it's behind
us for now. We'll see.

Going forward, Market Sentiment waits to see S&P 500 commercial
traders move from net-short to neutral or even long. The VIX
spiking towards 23.5 or higher is welcome also. Stochastic and
MACD values on the daily index charts moving up above 20% extreme
zone will signal the next move is underway. Index prices holding
this week's higher-lows would complete bullish divergence patterns
on the daily charts as well.

Trade carefully until the green lights signal all's well to the
upside. We'll give up the first part of any move but harvesting
the biggest chunk from its middle is the safest trading of all.

As always, calls or puts as your market indicators suggest is the
great advantage option players have above all others!


*****

VIX
Wed 9/13 close: 22.11

CBOE Equity Put/Call Ratio
The CBOE equity put/call ratio is a contrarian-sentiment
indicator. Small traders are majority of equity-option players.
Numbers above .75 are considered bullish, .75 to .40 neutral
and bearish below .40
*************************************************************
                             Tues        Wed         Sat
Strike/Contracts            (9/19)      (9/13)       (9/16)
*************************************************************
CBOE Total P/C Ratio         .58         .66          .65

Equity P/C Ratio             .52         .58          .59


Peak Volume (Index & OEX)
CBOE Index & OEX put/call ratio is now a "smart money" sentiment
indicator, as majority of buying done by institutional traders.
Numbers above 1.5 are considered bearish, 1.5 to .75 neutral and
bullish below .75
**************************************************************
                            Tues          Wed        Sat
Strike/Contracts           (9/19)        (9/13)      (9/16)
**************************************************************
All index options           1.06          1.32        1.11

OEX Put/Call Ratio          1.26           .85        1.47

30-yr Bonds
Friday 9/15 close; 5.92%

Support/Resistance Indicator
The Index Support/Resistance(S/R)Ratio is a formula used to
gauge possible support or resistance based on open-interest
disparity. Ratio listed is percentage of calls to puts or
puts to calls respectively.

Support is factored from dividing puts by calls at strike
levels beneath index closing price. Resistance is factored
from dividing calls by puts at strike levels above current
closing price.

  (Open Interest)       Calls       Puts         Ratio
S&P 100 Index (OEX)
Resistance:
830 - 815               7,868       4,115         1.91

810 - 795               9,642       5,432         1.77

OEX close: 787.77

Support:
785 - 770                 974       6,558          6.73
765 - 750                  68       7,294        107.26***

Maximum calls: 820/5,230
Maximum puts : 750/3,939

Moving Averages
 10 DMA  801
 20 DMA  813
 50 DMA  806
200 DMA  783


NASDAQ 100 Index (NDX/QQQ)
Resistance:
100 - 98                 8,265        9,662           .86
 97 - 95                12,254       23,875           .51
 94 - 92                 7,734       14,707           .53

QQQ(NDX)close: 93.3/16

Support:
 91 - 89              4,892         19,173           3.92
 88 - 86                273          9,450          34.62***
 85 - 83                178          7,268          40.83***

Maximum calls: 97/6,158
Maximum puts : 90/10,227

Moving Averages
 10 DMA 93
 20 DMA 96
 50 DMA 94
200 DMA 94


S&P 500 (SPX)
Resistance:
1525                   4,060         2,031          1.99
1500                  18,895        20,353           .93
1475                  10,473        10,619           .99

SPX close: 1459.90

Support:
1450                   3,350        12,366           3.69
1425                   1,832        11,774           6.43
1400                   1,069         8,625           8.07


Maximum calls: 1500/18,895
Maximum puts : 1500/20,353

Moving Averages
 10 DMA 1479
 20 DMA 1494
 50 DMA 1482
200 DMA 1446

*****

CBOT Commitment Of Traders Report: Friday 9/08
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
DJIA futures
Net contracts;    +791 (long)        - 2,700 (short)
Total Open
Interest %        11.5% net-long        12% net-short

NASDAQ 100
Net contracts;    -3,427 (short)        -2033 (short)
Total Open
Interest %        21.74 net-short      4.84% net-short

S&P 500
Net contracts;     + 46,014 (long)     -52,185 (short)
Total Open
Interest %        21.36% net-long       8.95% net-short

What COT Data Tells Us: Commercial positions in S&P 500 and
DJIA remain at or above five-year extreme short levels. NDX
commercials continue to go shorter.

Small specs continue to build net-long extremes in SP00S but
have given ground in DJIA and switched over to heavily net-
short in NDX. Weak hands are shaking out, only a matter of
time in our opinion before they crumble.

(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
future market direction.

Bullish:
Fed's finished
Benign government reports
Oversold market levels now
Disparity in overhead call/put ratios

Bearish:
Oil Prices
COT reports *new data Friday
Recent pre-warnings, downgrades
Broad market's break of critical M/A support
Recent Market leaders breakdown
Technical chart indicators


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

As of Market Close - Tuesday, 09/19/2000

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

DOW   Industrials      10,789      10,750  11,350     **
SPX   S&P 500           1,459       1,440   1,495     **
COMPX NASD Composite    3,865       3,650   4,000
OEX   S&P 100             787         774     810
RUT   Russell 2000        523         510     550     **
NDX   NASD 100          3,756       3,500   3,850
MSH   High Tech         1,029         980   1,055     **

BTK   Biotech             720         690     780
XCI   Hardware          1,477       1,400   1,520
GSO.X Software            456         430     470     **
SOX   Semiconductor     1,028         940   1,140     **
NWX   Networking        1,245       1,180   1,280
INX   Internet            547         530     580

BIX   Banking             606         580     635     **
XBD   Brokerage           660         625     710
IUX   Insurance           737         705     760

RLX   Retail              834         805     890     **
DRG   Drug                381         365     410
HCX   Healthcare          795         765     815
XAL   Airline             147         144     162
OIX   Oil & Gas           316         296     332

Eight alarms were triggered in the past two sessions and all
were at support levels.  Tomorrow looks to be a critical day
for the COMPX as it has rallied back, close to its last support
alert at 3,900.  A move above 4,000 could send the bears running.
Lowering support (DOW, SPX, RUT, MSH, GSO.X, SOX, BIX, RLX)
Lowering resistance (COMPX, OEX, NDX, MSH, GSO.X, NWX, INX, BIX)
Raising support (INX).


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

What's My Plan?
By Lee Lowell

I often hear people say, "I think stock ABC is going to go up, I'm
going to buy some call options."  This is the end of the thought
process and the investor ends up buying any old call option on
stock ABC.  No consideration was given to which month to buy,
which strike to buy, whether implied volatility was high or low,
whether earnings are due, if a spread play might be in order, how
do the support numbers look, or maybe selling an option would be
the most beneficial play.  Unfortunately, TV infomercials can
make options trading look glamorous and easy.  That's not the
case.  Successful options trading is hard work.  You may get lucky
now and again, but if you want to be a successful, long-term
options trader, you must put in some effort.

I'd like to go into a little more detail about some of these
steps that one should take before deciding to take an options
position.  For me, it always comes down to whether I would want to
hold the underlying stock in my portfolio for a long time.  For
others, it may be pure speculation and a one-day hold. The bottom
line is whether the stock will actually move in the direction you
anticipated, but doing a little more preparation can possibly lead
to an even bigger profit or less of a loss.

Once I've decided on my stock of choice, I always check its
historical and implied volatility.  For those of you who follow
my articles, you know that I'm a volatility addict.  Check the
"Options 101" history section during February and March 2000 for
my previous in-depth discussions of volatility.  In short,
implied volatility tells us whether the option premiums on any
particular stock are cheap or expensive when compared to its past.
Each stock and its options will go through cycles of high and low
volatility.  You've heard this before, but your objective is to
concentrate on option-buy strategies when volatility is low and
concentrate on option-sell strategies when volatility is high.
This increases your chances of success.  Volatility is one of the
components of any option pricing model.  A low volatility input
will yield a lower option premium and vice versa.

If the implied volatility on the stock I like is at very high
levels, then I look at selling puts or put spreads.  This lets me
sell some very juicy premiums while having the chance to buy the
stock at lower levels.  This doesn't assure me of ever getting
ownership of the stock, but at least I've received a credit into
my account for the effort.  If I truly wanted to own the stock and
the volatility levels were very high, then I would just outright
buy the stock at that point.  I could also institute a bull call
spread which would let me buy and sell the high premiums at the
same time and thus not expose myself to a volatility crush.  On
the flipside, if the stock's implied volatility is extremely low,
then I would not hesitate to buy LEAP calls or whatever month I
feel the stock will move by.  But since my timing has never been
good, I stick with the LEAPs.  LEAPs also gives you the extra
padding when your timing is off.  You will lose some value but not
as much as if you owned the stock outright.  And when the stock
starts to move up and volatility starts to increase, that is when
I start selling covered calls against the LEAPs. (see previous
article).

This ties in with which month to choose when buying options.  As
you know, any long option is a wasting asset.  The longer it takes
for the stock to hit its profit point, the faster your long call
will erode.  With each passing day, your option gets a little
cheaper.  This makes it harder for you to sell for a profit.  As
I said before, my timing stinks so I will always choose an option
with at least 6 months before expiration if I'm not going for the
LEAPs.  Most people like to play close-to-expiration options
because they are cheap and the payoffs can be big.  But if your
entry level is off and your timing is off, and/or if you bought
an overvalued option...then say goodbye to that option because
decay will take over.  You're just not giving yourself enough
time for the option to mature.  Then, your emotions begin to make
the trading decisions for you.  But if you are a short-term
speculator who has lots of faith in your timing models, then by
all means, stick with what works for you.  I've had no luck.
Buying the extra time gives you that margin for error if you
happen to get in at a bad entry point or if some rumors may be
floating about.

Now what about which strike to buy?  Again, most people like to
buy out-of-the-money options because they are cheap and the
returns can be astronomical.  But the success rate is very low.
The stock has to move a great deal in a short amount of time in
order to make a profit.  (See my articles on probability of
profit).  To get the real bang for your buck, stick with at-the-
money or in-the-money options.  They may cost more but you'll
get more movement out of them and they won't be comprised of just
all time value (extrinsic value).

Another idea is to employ a spread trade.  You can buy a call
spread which will not only lower your break-even point but it
will also lower your initial capital outlay.  This is a great
strategy to use that can deal with high volatility issues, and
you can tailor the strikes to the level you think the stock might
reach by expiration.  Say for instance you like Copper Mountain
Networks (CMTN) for a long-term play.  The stock's been beaten
down recently and looks very oversold.  At the moment, the
implied volatility on CMTN is on the high side, so buying
outright calls can be a little risky if volatility starts to drop.
You could purchase the longest dated ATM call which happens to be
the March 2001 $40 call for 13 points.  This makes your break-
even point $53/share.  If CMTN continues to go lower and
volatility starts to fall, you will lose quickly.  Instead, you
can buy the longest-term ATM call and sell an OTM call against it
as a spread.  You could purchase the March 2001 $40 call and sell
the March 2001 $70 call for about 8 points.  If volatility starts
to drop, then both options will lose value.  The $40 call's loss
will be somewhat protected by the $70 call's gain.  The spread
will cost $500 cheaper and the break-even point has been lowered
to $48/sh.  It's true that your profits are capped at 22 points,
but you won't be kicking yourself until CMTN moves past $70/share.
That's a healthy move from its current price and plus, who
wouldn't be happy with a 22 point profit?

The last items are fundamental and technical in nature.  Being
able to spot good support and resistance levels, having good
timing and momentum indicators will certainly help you in picking
a decent entry and exit point.  Plus, with the free information
overload that exists on the web today, you should always know when
the stock has analyst meetings, earnings announcements, stock
splits, etc.  These actions are notorious for inducing big
volatility moves.  Use it to your advantage.

So the next time you want to buy a call option, take a little
extra time to check the details and remember your Options 101!


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

Volatility Revisited
By Mary Redmond

It can be informative to look at the historical and implied
volatility numbers for several stocks which have recently made
moves, as well as some which have been flat for a period of
time.

Four weeks ago, I wrote about the historical and implied
volatilities of QCOM and CMGI.  At the time, options of both
stocks had implied volatilities which were lower than the six
month average of the historical volatilities of the stocks.
QCOM had an historical volatility of 97 in June and the QCOM
October at-the-money call options had an implied volatility of 66.
CMGI had an historical volatility of 94 in June and the call
options had an implied volatility of 85.7.

QCOM has moved up from $60 to $70 in the last few days and another
7 points today.  The November 70 call options have an implied
volatility of 72.4, and the January 2002 70 LEAPs have an implied
volatility of 73.8.  The stock moved up approximately 16% and
the implied volatility of the near-term options moved up slightly
under 10%.  This may indicate that the market thinks the options
will not necessarily move up as dramatically as the stock has in
the past.

QCOM had an almost unbelievable rise last Fall and Winter, during
which the historical volatility of the stock rose dramatically.
Last December, the historical volatility of QCOM was 115.  This
means that based on the past performance of the stock, QCOM had
a probability of over 95% of moving within two standard deviations
of 115% above or below its price at the time.

However, like many high flyers QCOM fell dramatically during
April of this year, and has been almost flat this summer.
In April, the historical volatility of the stock was 103, although
the stock had fallen substantially from its high of the year.
The volatility stayed high through May and June, and dropped
substantially in July and August.  In July, QCOM had a historical
volatility of 49.5, and in August the historical volatility was
49.  It took several months before the stock had stayed flat
enough for the historical volatility to drop significantly.

At the end of August, the historical volatility of the stock was
49, and the implied volatility of the call options was 66.
Usually, it is best to buy an option when the implied volatility
of the option is lower than the historical volatility of the
stock.  However, the six month average of the stock's historical
volatility was 78.8.

Ideally, it could be best to buy an option when the implied
volatility is lower than the stock's historical volatility, and
the stock's historical volatility is lower than in previous
months.  If the stock makes a move higher, the options can be
highly profitable.

Volatility is a little like velocity.  It measures how much the
stock has moved on a historical basis.  Volatility used in a
combination with other fundamental and technical indicators can
be a useful tool.  One important point to remember is that a
large move to the downside can increase the implied volatility
of the options and thus their price.  This means even if the
stock is low, the options may be expensive.

For example, Lucent is near a 52-week low of $36.  The historical
volatility of Lucent in August was 40.36.  The November at-the-
money LU calls have an implied volatility of 51.  The six month
average historical volatility is 49.  You might think that the
options would be undervalued by a large percentage, but Lucent
made several large daily moves this year, which can add to the
implied volatility of the options.

It is interesting to look at the historical and implied volatility
numbers for several other stocks, as it can give us an indication
as to how these numbers change.  For example, Sycamore Networks
has only been a publicly traded stock for less than a year.  The
historic volatility numbers on this stock have a tendency to be
on the high range.  For example, in April the historic volatility
was 210.  In May, the historic volatility was 137.  This is partly
because the volatility numbers reflect the past trading range of
the stock.  This stock has not really had a flat period since it
has been publicly traded.

If you buy LEAPs, it is generally best to try to find stocks which
make steady, gradual one or two point gains rather than stocks
which have wild trading patterns of moving up and down 20 points
in a day.  The more volatile the stock the more expensive the
option premiums.

It seems ironic that we have just finished a year of worrying
about the Fed’s cycle of interest rate hikes and now people are
starting to worry about the Euro and oil prices.  There have
been so many different theories on the Fed’s next move that we
have heard everything from another 50 basis point hike (highly
unlikely) to a rate cut by next year.  Some analysts claim that
we could be heading for a recession.  However, a recession
generally means a period of negative growth in the GDP.  The
last recession we had was 1991.  It seems extreme that the GDP
could go from a rate of over 5% annually to a negative rate in
a very short period of time.


******

Analysis of My Recent Plays
By Scott Martindale

Wow, we sure went through some ups and downs between August
expiration and September expiration.  Traders went from bullish to
bearish, and now many are saying we’ve bottomed, while others say
watch out for more downside.  Monday resembled the kind of "final
capitulation" I’ve been expecting in that even the "generals"
(i.e., CSCO, INTC, ORCL) were selling off steeply.  The technical
picture was looking gloomy with lots of bearish talk, but it was
also a bit oversold with lots of cash on the sidelines.  Today was
certainly encouraging.  For me, it sounds like another good time
for naked puts.

I thought it would be instructive for today’s article to review
some of my September options plays (mainly naked puts) to explore
how I closed them out, other ways I could have closed them, and
other plays on them.

First of all, I really shied away from buying calls this past
month.  In fact, I had all of one call play: JNPR Sept 170’s,
which I bought on August 16 when JNPR was at 166 for a lovely
entry point.  In retrospect, I could have won big on this, but I
followed OIN’s advice to sell too soon, which I did at the first
sign of weakness for a small profit.  [This is one of the
disadvantages of the high premium momentum stocks - the stock has
to do more than go up; it has to go up faster than the rapid
premium erosion.]  Of course, JNPR soon launched to over $220,
which could have given me a very nice profit, but I never got back
in because I never saw a sufficient pullback and bounce.

Instead, I concentrated on naked puts.  As I’ve mentioned in this
column before, my favorite plays are naked puts and put credit
spreads.  I also like buying stocks or LEAPS on pullbacks within
an uptrend and writing covered calls or spreads against them on
strength.  Keep in mind that when you sell an OTM option (call or
put) you make money if it goes in your direction, stays at the
same level, or even goes slightly against you.  So my focus is on
selling puts, particularly during this just-completed highly
uncertain September option period.  The main point I’m making in
going over these plays is that there are many ways to play naked
puts other than simply selling them and waiting for them to
expire.

For September, I sold puts (some ATM and some slightly OTM) on nine
different stocks: USIX, SCON, CNXT, MSTR, ICIX, DCLK, GSTRF, VIGN,
and ORCT.  I chose them from a watchlist made up of stocks that I
like for their important technology, favorable technical picture,
and high options premiums.  I got ICIX directly from the OIN pick
list, and DCLK and GSTRF were OIN picks as well.

As it turned out, I got good pops on various "surprise" news
events for ICIX, CNXT, MSTR, and VIGN so I could close them out
early for $0.25 or better.  This is the absolute best possible
outcome for a naked put - you close out early on a good news run.
Sometimes the run is short-lived, so it’s always best to close it
out when you can.

As for the other plays, GSTRF maintained good technical strength
throughout, and SCON briefly violated the $20 support but quickly
recovered, so I let both expire worthless.  DCLK maintained good
strength but couldn’t close above the $40 strike I had sold, so I
bought it back for a small profit.  ORCT closed below the $10
strike I had sold, but I chose to buy back only half the position
and take some shares for selling covered calls (mainly because I
think it is at a low-risk price right now).

As for USIX, let me tell you about this one.  I had been
successfully writing puts against it for several months even
though the technicals have not been good.  I just didn’t believe
that this important ASP company would go below $10, so I wrote the
September 10’s on August 11th for $1.25 when the stock was bouncing
off $11.  Come September, it slid down to about $7, but I still
couldn’t bring myself to close it out because I believed the stock
was way oversold, which is something I always tell myself not to
get caught up with.  [Use a strict loss-cut strategy, I tell myself.
It doesn’t matter what the stock SHOULD be doing - it only matters
what it’s actually doing.]  This time, however, I got lucky.  USIX
got an upgrade on expiration Friday, which gave it a last minute
$2 boost back into the 9’s, and I actually closed out the position
at 1/2 - the best price of the day.  [Never depend on this sort of
serendipity.]  This week USIX is back down.  This experience
reminds me to never ignore technicals, no matter how oversold it
is or how I feel about the company.

I’m sure you’ve noticed that all of the plays were at $40 or less.
Although I do write puts on higher priced stocks up to $200, I
generally prefer to sell a greater number of contracts on a
variety of stocks, and lower priced issues allow me to do that.

If I was very focused on capital preservation and risk
minimization, and I didn’t have a lot of time to watch my
positions, there are ways to protect my downside.  First, I could
turn all naked puts into credit spreads, either by entering both
legs simultaneously, or by "legging in" as the stock rises to
increase the credit.  [I could have done this on a few of my
plays, but I chose not to do so this month.  I’m more likely to
play spreads on higher priced stocks.]  Then, if the stock is
closing on expiration below the sold strike (inside or outside the
spread), I can choose either to close out the spread or take all
or some of the stock for writing covered calls.

If I choose to take the stock for covered call writing, I can
reduce risk by buying a put to cover the downside of the covered
call play, i.e., the stock losing value.  Here’s an example using
DCLK.  DCLK closed on Friday at $38.  If I had sold a Sept 40 put
and chose to take possession, I would have control of the stock on
Monday.  Today, DCLK closed at $40.44.  If I wanted to sell a
call at the close on today’s strength, I could have sold the Oct
40 for $4.25 and simultaneously protected the downside by buying
an Oct 35 put for $1.75.  That’s a net credit of $2.50 with a $5
stock price depreciation risk.  Alternatively, I could try to play
the momentum a bit better.  The high of the day was $41.94 about
30 minutes prior to the close.  I might have been able to sell
the Oct 40 call for $5 and buy the Oct 35 put for $1.50 for a
net credit of $3.50.

I could also hold out for more price appreciation on continued
market strength.  If the stock price carries up to near $45 before
finding resistance, I might then choose to sell an Oct 45 call
(for about $4) and buy an Oct 40 put (for about $1.50) to eliminate
the downside risk altogether.  Or I could sell an ITM Oct 40 call
(for about $7.13) and buy either an Oct 40 put (for about $1.50)
that eliminates the downside or a cheap Oct 35 put (for about $0.50)
with a net credit (of about $6.63) that more than offsets the $5
stock price risk.


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

How Many Lives Does a Dead Cat Have?
By Buzz Lynn
sectortrader@OptionInvestor.com

Only time will tell if today was a major turning point or a giant
headfake.  Following yesterday's selloff to 3700, today's rally
brought us back above the 3800 level on the NASDAQ.  In the
meantime, it's given us one heck of a tradable rally.

Those wondering if it can last are asking the right question.
Yes, 1.7 bln shares looks good.  So does a close above 3850 on the
NASDAQ, which carries it nicely above support levels of 3700, 3800
and 3850.  All these figures coincide with a bottom at the major
trend line and the 252 day moving average (252? the rough number
of trading days in a year - sometimes helpful, sometimes not).
Most tech stocks, many sporting double-digit gains, were up on
decent volume and signaled a nice change from the previous few
days.  OEX was also up nearly 9 points to close at 787.77.  All
this looks technically positive for the future.

On the theory that nothing goes down (or up) in a straight line,
you'll know from last night's Wrap that a rally wasn't unexpected
and sure enough we got it.  That's just natural, even when the
bigger trend is pointed down.

Forgive us for introducing the rain cloud to the freshly lit
campfire.  However, we have reason to remain cautious.  First, the
Dow did not participate, which weakens the case for a sustainable
market wide reversal to the upside.  Second, earnings warnings are
still coming out as a result of weak foreign currencies and higher
natural resource and production costs (a.k.a. high oil costs).
Crude oil costs and anticipated tight supply are still on an
upward trajectory.  Dana (DCN) and Federal Mogul (FMO), both major
suppliers to the auto industry, have warned over the last two
days.  One analyst yesterday downgraded Daimler Chrysler (DCX) and
outright said they would not hit revenue projections.  How long
until Ford (F) and GM enter their confession?  That would not be
good for other suppliers including electronic (a.k.a. technology)
manufacturers that supply the industry.  For reference, DCX, GM
and F have total sales of $492 bln.  That’s more than three times
the sales of CSCO, INTC, MSFT, DELL, ORCL, and WCOM combined.  A
smokestack manufacturing slowdown matters.

Third, the VIX hasn't yet shown signs that investors are
sufficiently worried.  Fourth, the OEX and NASDAQ both have yet to
break through their resistance points (the values from which they
rolled over) from yesterday.  They are still trading essentially
even for the week.

Growl!  Bear noises from the Denver Bunch?  Not really.  While
there are opportunities to put on profitable trades, currency and
crude are a stronger influence than lines on a daily technical
chart, which by the way have not yet given us the buy signal.
Until the chart show us a clear bottom and upturn, we remain
cautious on betting the farm on today's rally.

That said, you might be wondering why we don't list any put plays
for the downside.  The simple answer is that NASDAQ and OEX are
already oversold and waiting for the big trend buy opportunity to
show itself.  It doesn't mean you can't make day or even swing
trades to the downside.  It means that technically the markets are
due to go up.  Be patient.  The entries will come once we see
capitulation and/or 2 bln shares traded on a market-positive day.
This is not the time to place a long-term bet.  Consider sticking
with hit and run plays until a larger trend emerges.

***Note we have the MACD set at 8,18,6 and the stochastic set at
10(3),5 for all our technical references in this section.***

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

QQQ - NASDAQ 100 $93.31 +3.44 (+3.00 this week) Yesterday didn't
look so hot as the NASDAQ slid to critical support of 3700, which
corresponded to a low of $88 for QQQ.  If you bought in at that
level yesterday at the close, congratulations.  There's a medal of
bravery waiting for you on Wall Street.  Today's recovery was
equally fantastic showing us that 3700 is a strong support level
and that 3800 would provide little resistance.  The Q's remained
equally strong clawing back over the $90-$91 level to $93.31 at
today's close.  Can it last?  Wish we had the answer.  1.7 bln
shares looks good, but we've seen no capitulation yet nor heavy
buying.  Today looks like a technical bounce and the daily chart
has yet to confirm any upside trend.  Fact is smokestack company
warnings may eventually trickle down to the tech sector.  Today's
pop may not last. On the other hand, NASDAQ and QQQ can't stay
oversold forever.  Resistance is at $94.50-$95.50, then $97.50 and
$99-$100.

Calendar Spread:

Much as we want to get caught up in today's enthusiasm, we still
encourage caution going forward.  Technicals MACD and stochastic
on a daily chart have yet to give us the buy signal.  That said,
we might yet get another opportunity.  For those that entered a
long leg yesterday as QQQ touched $88, tomorrow may be the day to
sell a short leg if today's finishing action carries through the
morning and rolls over.  Selling the rollover may prove smart if
the rest of the market shows weakness too.  This could be
especially fun for those using stochastic and MACD to trade in and
out of the short leg on a 30 or 60-min chart.  Support is at $90-
$91, then $88.  That might be a good time to enter the long leg.
Resistance is at $94.50-$95.50, then $97.50 and $99-$100, which
may make a good time to sell the short leg.  Just make sure you
sell the rollover first.

BUY  CALL JAN- 90 QVQ-AL OI= 6907 at $12.38

SELL CALL OCT- 95 QVQ-JQ OI= 5735 at $ 4.13, ND = 8.25 or less
SELL CALL OCT- 97 QVQ-JS OI= 6710 at $ 3.25, ND = 9.13 or less
SELL CALL OCT-100 QVO-JV OI= 6302 at $ 2.13, ND =10.25 or less

Long Call:

Sometimes we don't emphasize it enough in this section but bounces
off support, not just a stochastic/MACD move, make excellent
entries.  We have yet to see a confirmation on a daily technical
chart that signal us to enter.  However, $88 support mid-day
yesterday might have made a nice target at which to shoot.  If you
didn't get in there, no sweat.  You may again have an opportunity.
Today' may have been only a technical bounce wherein QQQ resumes
the downward trajectory tomorrow.  While you can still target
shoot at support of $90-$91, then $88, we still favor a short
stochastic cross over of the long stochastic and 20% level,
followed by a MACD crossover for confirmation to make an entry.
We've resisted offering puts as long as the technicals indicate
oversold, but you are still welcome to play them for quick hit and
runs.  We just favor sticking to the bigger trend patterns for a
good call entry.  Resistance is at $94.50-$95.50, then $97.50 and
$99-$100

BUY CALL OCT- 90 QVQ-JL OI= 4510 at $7.25 SL=5.00
BUY CALL OCT- 95 QVQ-JQ OI= 5735 at $4.38 SL=2.50
BUY CALL OCT-100 QVO-JV OI= 6302 at $2.19 SL=1.00

Bullish Put Credit Spread:

Still waiting for the eventual turnaround from the oversold
position on the daily chart.  Gunslingers could have entered the
badlands yesterday as the QQQ touched $88, but it would have taken
nerves of steal and a gamblers outlook at that moment to pull the
trigger.  We favor waiting for a stochastic reversal over the 20%
mark and a MACD crossover to the positive side of zero.  Remember,
this is supposed to be a safer way to play an upward trending
market without the risk of a naked put.  Wait for the signals.  Be
sure to cover before the maximum threshold of pain if the trade
goes against you

SELL PUT OCT-90 QVQ-VL OI=10840 at $3.00
BUY  PUT OCT-85 YQQ-VG OI= 7496 at $7.75
Net Credit = $1.25 or better

Average Daily Volume = 18.8 mln


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

OEX - S&P 100 $787.77 +8.84 (-2.00 this week) A tough day for the
OEX yesterday took it down hard to 778.93 right at previous
support set in June, July and August.  You could guess that it
might have bounced today and you'd be right.  Despite a 60-min
technical chart showing a nice entry for the longs today, the
daily chart has yet to tell the same story.  We are still not
convinced that that a long entry is available based on the daily
chart, but it is likely near given the deeply oversold position of
the MACD and stochastic.  That said, negative fundamentals in the
form or expensive oil and currency risk remain at the forefront of
investors' minds and can easily overpower a chart that looks like
it should move up.  Keep in mind too that the OEX has a few more
smokestack businesses in its composition than the NASDAQ and is
thus more susceptible to earnings warnings, especially if the car
companies warn.  Then it's look out below!  Our inkling is to
remain cautious until the short stochastic crosses above 20% and
the long stochastic line.  We'd like to see a MACD confirmation.
Support is strong at 783, then 775-780, while resistance is at
791, 798, and 800.

Long Call:

Wish we had a different story to tell, but we think given the
earnings warnings based on currency exchange rates and oil prices
may keep the index pinned for the moment even if it is in
technically oversold territory on the MACD and stochastic
indicators of a daily chart.  While today presented a juicy
recovery that could have made us money had we been brave enough to
buy on Friday's close, it moves a bit closer to gambling if we
don't see technicals to confirm it.  Fact is there hasn't been
blood in the streets followed by a 2 bln share upward moving day,
nor has the VIX popped to 24 yet, which indicates still some
investor complacency at current levels.  In short, we don't know
yet if today was a headfake or a real recovery.  That's why we'll
wait for a technical signal from MACD and stochastic first before
entering.

BUY CALL OCT-780 OEZ-JP OI= 266 at $25.00 SL=17.50
BUY CALL OCT-790 OEZ-JR OI=1864 at $17.88 SL=12.50
BUY CALL OCT-800 OEX-JT OI=2661 at $13.25 SL=10.00

Bullish Calendar Spread:

Tap tap tap.  That's the sound of our fingers drumming the desk
waiting for a technical bullish turnaround.  Actually, if you were
brave enough to take it, a target shot entry at 780 support would
have been terrific.  However, it was looking pretty scary for a
long entry yesterday as OEX hit that level.  For those already in
a long leg of he spread, tomorrow if we see an OEX rollover in the
morning following today's euphoria, that might make an excellent
time to sell the short leg.  That of course assumes that earnings
warnings are going to keep pressure on the indices.  To heck with
stochastic and MACD.  Fundamentals can overpower them.  That's why
we'll wait for a clear reversal from oversold on the daily
stochastic and MACD chart.  Remember our job as spread traders is
to buy cheap and sell dear while letting time value decay to our
benefit.  Support is at 783, then 775-780 - a possibly good time
to buy long.  Resistance is at 791, 798, and 800 - possibly a good
time to sell short.

BUY  CALL MAR-800 OEX-CT OI=  10 at $49.25

SELL CALL OCT-800 OEX-JT OI=2661 at $13.25, ND=36.00
SELL CALL OCT-820 OEX-JD OI=5230 at $ 5.50, ND=43.75

Bullish Put Credit Spread:

Tap tap tap.  Same sound - still drumming.  Somebody out there
must have taken advantage of this trade yesterday when the OEX
looked pretty dark and gloomy at 777.  Unfortunately it wasn't me.
While it may look like support is firm at 775-780, the MACD and
stochastic haven't yet given us the reversal buy sign form their
currently oversold position.  Keep in mind this is still a risky
trade if you don't understand it.  It hinges on a level of comfort
that the OEX will not fall below 775 and that we get to keep the
entire credit at the end of the month.  It's a bit like a naked
put only with some, rather than unlimited, protection.
Unfortunately, the credit has narrowed to under $0.50 and this
play is no longer worth the effort.

Average Daily Volume = 1266



*************
DAILY RESULTS
*************

Index       Last     Mon    Tue    Week
Dow     10789.29 -118.48 -19.23 -137.71
Nasdaq   3865.64 -108.71 139.12   30.41
$OEX      787.77  -10.84   8.84   -2.00
$SPX     1459.90  -21.30  15.39   -5.91
$RUT      523.31  -14.20   6.63   -7.57
$TRAN    2605.61  -51.30 -14.55  -65.85
$VIX       22.11    1.08  -0.90    0.18

Calls

IDTI      103.31    5.25   7.06   12.31  Another all-time high
QCOM       77.50    3.56   7.69   11.25  Welcome back CDMA
ITWO      182.25   -2.75  12.81   10.06  Breakout above $180
CFLO      127.88   -2.13   7.63    5.50  Looking strong
CHKP      156.25   -1.00   6.00    5.00  Close to breaking out
CAH        92.31    1.34   2.97    4.31  New, steadily climbing
AGIL       79.00    2.00   1.75    3.75  Higher lows and highs
YHOO      108.06   -0.81   3.00    2.19  Closed over 10-dma
SEBL      100.88    1.75   0.13    1.88  Consolidate today, entry?
PALM       50.81    1.00  -0.31    0.69  Resting, watch for a run
PEB       106.75   -3.28   3.53    0.25  Profit taking gives entry
CORR       60.19   -2.06   1.81   -0.25  Watch for profit taking
ABGX       79.13   -2.56   2.06   -0.50  Holding up, entry point
AFL        60.31   -0.69   0.13   -0.56  Stable at the $60 level
CMRC       69.00   -5.00   3.81   -1.19  Dropped, lost momentum
NT         71.00   -4.19   3.00   -1.19  Retesting support at $68
CDWC       79.25   -4.69   0.44   -4.25  Profit taking blues

Puts

PCS        40.81   -2.06  -2.56   -4.63  Approaching 52-week low
DIGL       70.81   -4.53   2.47   -2.06  Lower highs and lows
EPNY       82.25    2.00  -3.75   -1.75  New, close to breakdown
MMM        83.88   -1.94   0.69   -1.25  No reversal yet!
UK         36.00   -0.03  -0.56   -0.59  The falling euro hurts
LVLT       74.00   -4.69   4.13   -0.56  Telecoms still trending
SCMR      106.56   -4.88   5.94    1.06  Concerns are rampant
CMTN       44.69   -2.13   3.81    1.69  Short covering rally?
PWAV       42.06    2.63   2.38    5.00  Rebound, possible entry
CREE      124.69   -3.44  12.19    8.75  Dropped, upgrade too much


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:
*****

CMRC $69.00 +3.81 (-1.19) CMRC and ARBA battled for the
spotlight at their respective conferences today.  The press
releases flowed in an unending stream as the duel raged on.
Some of the highlights included a two-year marketing and sales
agreement with Compaq Computer (CPQ), which makes CPQ the
preferred hardware provider and increases CMRC's product
exposure.  There was also a deal with Computer Sciences (CSC) in
which CSC will use CMRC's software to create a private exchange
of its own.  Commerce One announced too that a pilot program
with Boeing (BA) to connect supplier to "Exostar", an Internet
exchange for the aerospace industry, was successfully completed.
Amidst the round of declarations, USB Piper Jaffrey restated a
Strong Buy and raised annual estimates for the company.  DLJ
also reiterated a Buy recommendation.  The exposition coupled
with the Internet revival bumped CMRC off its recent bottom
support of $65.  The bounce returned CMRC to a respectable
position at the converged 5 and 10 DMAs.  Nonetheless, it's time
to exit CMRC.  The conference is history and CMRC just isn't
demonstrating its earlier spunk.  Perhaps, the share price will
perk up next month.  The company confirmed it's reporting
earnings on October 19th, after the market close.


PUTS:
*****

CREE $124.25 +11.75 (+8.75) Yesterday was business as usual for
CREE as the stock continued to encounter resistance at the 5- and
10-dma.  After some early morning stability, the stock headed
lower and spent the rest of the day in that direction.  As could
be expected, it managed to find support above the $110 level we
mentioned on Sunday.  That level was further reinforced by CREE's
lower Bollinger band.  Today, with a strong day for Tech stocks
and coverage initiated by First Union Securities for CREE at a
Buy, the stock took off on high volume, closing up $11.75 or
10.44%.  In doing so, the stock closed above its 5- and 10-dma
for the first time this month, which might suggest CREE's
downtrend may be over.  While confirmation is still required and
volume was about average today, the oversold condition of the
Semis and the possibility of a recovery caused us to move on.


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Copyright 2000, All rights reserved.                        2 of 2
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********************
PLAY UPDATES - CALLS
********************

IDTI $103.31 +7.06 (12.31) The bulls are stampeding with IDTI
leading the herd.  IDTI announced a product improvement yesterday,
along with the extension of an existing strategic alliance with
Arrow Electronics (ARW).  The two separate announcements helped
IDTI to buck the overwhelmingly negative trend in the Chip sector
yesterday, which positioned the stock for a breakout today.  And,
breakout might be an understatement.  IDTI charged to a new 52-
week high today on volume that confirmed the move.  In fact, over
1.5 times the ADV changed hands during IDTI's rally today.  If we
get any extension of today's rally in the Tech sector tomorrow,
adventurous traders might consider entering IDTI at its current
levels early Wednesday morning.  If, however, the NASDAQ heads
southward again, watch for IDTI to stabilize before jumping in.
Aggressive traders might look near the $100 support level for
entry points if IDTI pulls back tomorrow.  The stock has held up
relatively well in spite of the NASDAQ's weakness; remember we
have the possibility for a split announcement this Friday.

ITWO $182.25 +12.81 (+10.06) DB Alex Brown reiterated their Buy
rating on ITWO Monday morning, citing the B-2-B giant's prospects
for a blowout third quarter and its building business momentum.
But, despite the analyst praise, ITWO continued to slip lower
along with the NASDAQ.  However, after ITWO bounced off its
support level at $172 for the third time this afternoon, the
stock was launched into orbit.  In the final hour of trading,
ITWO actually eclipsed the $180 level on a surge of buying
volume.  If today's rally in the Tech sector proves to be more
than a dead-cat-bounce, aggressive traders might look to enter
new positions in ITWO early tomorrow morning as the stock broke
above resistance at $180.  Watch the direction in the NASDAQ
carefully before playing ITWO.  If the Tech sector pulls back,
consider playing a bounce off ITWO's newly established support
at $180; make sure to wait for the Tech bulls to return before
buying any bounce.  If the Tech sector gathers momentum early
tomorrow, conservative traders might look to enter ITWO on a
rally above $185, after confirming strong volume.

AGIL $79.00 +1.75 (+3.75) Despite a down day for the market
yesterday, AGIL managed to buck the trend, gaining $2 on almost
4 times the ADV.  After a brief visit near the 5-dma to start the
week, the stock quickly bounced as it was bid up during amateur
hour.  While it spent the rest of the day digesting its morning
gains, volume increased right up into the close.  Today was a
continuation of AGIL's up-trend as an early morning visit near
the 5-dma led to sideways trading for most of the day until the
close as it was lifted higher by a rallying NASDAQ on twice the
ADV.  AGIL's up-trend has been strong ever since the bounce last
Wednesday.  A continuation of that up-trend will see bounces off
the 5-dma (now at $75.85) as aggressive entry points.  AGIL also
has strong support near former resistance at $75 and also the
10-dma at $73.56.  The stock's next hurdle is the $80 level.  A
breakthrough $80 on strong volume would confirm upward momentum
allowing for a conservative entry.

CFLO $127.88 +7.63 (+5.50) CFLO managed to hold up well in
yesterday's Tech downdraft as it gave up only $2.13 on average
volume.  Today saw the stock erase yesterday's loss and then some
as it gained $7.63 or 6.34% on over 160% of ADV.  Today's trading
provided entry points for aggressive and conservative traders
alike.  A morning dip near the 10-dma at $115.81 led to a strong
bounce as buyers came in aggressively and bid the stock up the
rest of the day on increasing volume.  In doing so, resistance at
$125 was taken out, allowing conservative traders to participate
in the rally.  CFLO encountered resistance at the $130 level,
which will be the next hurdle to overcome.  As long as the up-
trend holds, look for aggressive entries on bounces off the 5-dma
now at $121 and near 10-dma, which has moved up to $116.  Those
who want to wait for confirmation before entering will watch for
CFLO to break through $130 with conviction.  Entries can also be
found on bounces off support at $125 and $120.

NT $71.00 +3.00 (-1.19) Like Friday, NT encountered resistance at
its 10-dma yesterday.  Opening at that level, the stock spent the
rest of the day selling off to close down $4.25 on almost twice
the ADV.  Despite this, NT found support at $67 and closed near
its 100-dma at $68.83.  Today saw the $67-68 area continue to
provide support as NT took back some of its gains to close up
3.86%.  Volume today came in lighter than yesterday, at 120% of
ADV and it appears that the 10-dma, now at $71.21, continues to
act as resistance.  Conservative traders will want to see NT
break through this moving average before entering the play while
aggressive traders may want to target-shoot bounces off the
$67-68 area but confirm direction on a bounce with volume.  On
Monday, the company announced new DSL solutions to make DSL
Service more readily available.  A possible reason for Monday's
down day aside from a weak Tech market is a lawsuit against ATON
by Resonate, who claim that ATON has infringed on one of their
patents.  ATON is currently being acquired by NT.

CHKP $156.25 +6.00 (+5.00) On Monday, CHKP unveiled VPN-1/
FireWall-1(R) SmallOffice, a software solution that extends the
company's SVN architecture, to bring comprehensive Internet
security to small businesses.  They're integrating the new
product with high-performance, low cost security appliances,
the first of which are also being announced today by CHKP's
partners Intrusion.com and Ramp Networks.  The news was barely
enough to keep CHKP afloat for the day, as it fought the weak
NASDAQ.  The NASDAQ closed down 108 points, but, CHKP showed
its strength closing down only $1 for the day at $150.25 on
average volume.  Tuesday morning, we quickly sold-off to a low
of $147.69, piercing below the 5-dma and the 10-dma (currently
$149.60 and $148.60, respectively), before smartly bouncing back
to a mid-morning high of $152.  As we approached the half-way
point of trading, CHKP was trading just below the flat line on
quiet volume.  But, as the Nasdaq goes so goes CHKP, as was
evident by its continued ascent all afternoon and into the
closing bell.  For the record, CHKP finished the day at $156.25,
up $6.00 for the day on average volume, not too far from its old
high at $159.  Watch for a continued move to the upside through
the old high on stronger volume as an aggressive way to gain entry
to the play.  If the market rests, look for CHKP to pullback to
its 5-dma and 10-dma, currently $149.60 and $148.60, respectively.
Use a pullback to the above mentioned levels combined with a
volume supported move back up as a potential entry point.

AFL $60.31 +0.13 (-0.56) Stable Mabel!  AFL got off to a rocky
start on Monday, getting caught up in all the selling that took
place.  In early morning trading, AFL pierced below its 5-dma at
$60.60 to an intraday low my mid-morning of $58.81, just below
the 10-dma at $59.10.  Investors used the piercing of the 10-dma
to begin buying AFL once again and push the stock up to $60.19 by
days end, down only -$0.69 for the day.  Volume was above normal,
logging in at 1.38 mln shares on the day (3.1 times ADV),
increasing as we headed towards the closing bell.  Tuesday morning,
AFL announced they filed a shelf registration statement with
Japanese regulatory authorities for the issuance of up to Y100
billion (approximately $930 million at the current exchange rate)
of yen-denominated (Samurai) bonds.  AFL anticipates it will use
the proceeds of any issuance of the yen-denominated bonds to
repurchase its stock, or for general corporate purposes.  Did duck
season open Tuesday?  AFL opened in negative territory, but
investors decided that it might be time to take a little more duck.
They ran AFL to a new high of $62.25 early Tuesday morning, before
settling it back to a mid-morning level $61.63, comfortably above
its 5-dma currently at $60.60.  Buyers stayed quiet in AFL as the
day moved on, focusing more attention on the busy Tech sector.
AFL closed just above the flat line at $60.31, up $0.13 for the
day, just below its current 5-dma at $60.60.  Overhead resistance
is now at today’s intraday high of $62.25.  Traders should look for
a pullback to the 10-dma at $59.10, coupled with a volume backed
bounce, as an ideal spot for entry to AFL.  Another alternative
may be to watch for AFL to push above $62.25 on strong volume,
thereby creating a breakout scenario, to enter a trade.

ABGX $79.13 +2.06 (-0.50) On Monday, they rested!  ABGX and the
rest of the Biotechs took a big breather, in sympathy with the
Nasdaq on Monday.  ABGX slipped into negative territory
immediately, as the market opened cautiously.  As we approached
mid-day, ABGX had logged in an intraday low of $77, down over $2
for the day.  Later in the day, ABGX retested the earlier low and
pierced through dropping to a low on Monday of $76.69, just above
its current 5-dma at $76.20 and by the close we had settled down
$2.56 at $77.06 on slightly heavier volume.  The Nasdaq and the
Biotechs in general got off to a solid start on Tuesday.  ABGX
saw some good buying in early trading reaching as high as $80.50.
However, as the morning pressed on, the buyers weren't quite as
visible and supportive and ABGX slipped to $77.50, just below its
5-dma  currently at $77.80.  ABGX closed in positive territory by
the end of the day, up $2.06 to finish at $79.13 for the day on
lighter volume.  Overhead resistance still resides at last
Thursday's high of $84.50, and again between $90 and $92.  A
conservative approach would be to watch for a pullback to the
current 5-dma or 10-dma (currently $77.80 and $74.60, respectively)
with a nice bounce on volume as ideal entry.  Pay close attention
to market sentiment and direction at this time as you consider
opening new trades.

SEBL $100.88 +0.13 (+1.88) Monday morning, SEBL announced Great
Plains (GPSI), a leading provider of e-business solutions, intends
to expand its partnership with SEBL.  The news coupled with Mr.
Siebel's appearance on CNBC later in the day and Mr. Siebel's
keynote address at Bank of America's investment conference helped
fuel the buyer's fire in SEBL for the majority of the day.  It left
the gates running Monday morning touching a high of $103, breaking
through old resistance of $101.25, before getting caught up in the
negative sentiment in the NADSDAQ.  We saw SEBL pullback to a low
of $97.50, before investors boosted the stock back above the flat
line by the closing bell.  When all was said and done Monday, SEBL
finished up $1.75 at $100.75 supported by volume of 10.97 mln
shares (1.33 times ADV).  Today, SEBL announced Fujifilm is
standardizing its customer-facing activities in France on SEBL's
e-Business Applications.  Trading was somewhat volatile Tuesday
morning, as SEBL traded in a $3.50 range touching a high of
$103.31 and a low of $99.75.  By mid-day, trading was calm and
SEBL was down $0.63 at $100.13 on light volume.  Even though the
Nasdaq kicked it into gear today SEBL needed a day of rest and
it finished the day quietly, up $0.12 at $100.88 on lighter
volume.  Overhead resistance now sits around $103.  You may want
to wait for a break through that level with strong volume before
jumping in to this trade.  Alternatively, look for a light volume
pullback to the 5-dma or 10-dma (currently $95.50 and $94.60)
coupled with a strong volume bounce and good market sentiment as
a conservative way to enter this trade.

CORR $60.19 +1.81 (-0.25) Going along for the ride with the
broader markets this week, CORR dropped yesterday to close near
its low of the day before rebounding nicely today.  The strong
move this morning came right at the open and wasn't tradable,
but when the price retested yesterday's lows this afternoon,
it provided an acceptable entry for the target shooters.  This
afternoon's bounce came just above $58, and the recovery into
the close kept CORR above its 5-dma (currently $59.19).  Volume
has been dropping this week, and today saw slightly less than
the daily average number of shares trading hands.  This made for
the lowest volume in the stock since August 24th.  That is not
a good sign, so watch out for profit taking in the days ahead.
Momentum runs are fueled by buying volume and when it
disappears, it doesn't take long for the rocket to come crashing
back to earth.  Rather than buying dips at support, the most
prudent entry strategy for now looks like buying strength.  Wait
for CORR to blast through the $62 resistance level with strong
volume before initiating new positions.  That way you won't get
stuck trying to catch a falling knife.

PALM $50.81 -0.31 (+0.69) As we mentioned last weekend, PALM was
due for a little consolidation and that is exactly what we have
seen this week as the stock has remained between $49-51 while
the broader markets sold off yesterday and recovered today.
Product related news today didn't have much of an effect either,
with licensee HandSpring announcing they would be producing two
new PDAs, one color, and one with a cellular phone module.
Production for these little gadgets is barely keeping up with
the strong demand, as more and more consumers find they can't
live without them.  Price action in the PALM's stock is another
matter altogether, though.  After running from $40 to $50 in a
little more than a week, consolidation was needed and it looks
like PALM could be getting ready for another run, market
permitting.  Dips to the $49-50 level still look buyable, but
preferably with stronger volume on the bounce than we have seen
so far this week.  The 5-dma (now at $50.38) is reinforcing the
chart support, so this may be a good level to target shoot.
Although the gains in the broader market were solid today, we
need more than one day to justify a rally.  Conservative traders
will want to wait for a break through the $53 resistance level
on solid volume before jumping into the play.

PEB $106.75 +3.53 (+0.25) Profit taking yesterday served up an
attractive entry point, for those with cast iron stomachs.
After selling off sharply towards the close, buyers stepped up
to support the price at the $102 level, right at the 5-dma.  The
buying continued this morning, as amateur hour enthusiasm drove
PEB up to almost $106 before traders stopped to catch their
breath.  After trading flat for much of today's session, our
play caught another wave of enthusiasm as it surged through
intraday resistance in the final hour, pushing the stock over
$107 just before the close.  The volume this afternoon was
beautiful as it ramped up throughout the afternoon, giving nice
confirmation to the price rise.  The problem is, that even with
the attractive volume trend, today's volume came in at only half
the ADV, making us suspicious that there may not be a lot of
enthusiasm to drive our play higher.  The 5-dma (now at $104.31)
should provide mild support with the 10-dma (just above the $100
support level) providing a stronger place to target shoot new
entries on pullbacks.  If you would rather buy strength, look
for a breakout over resistance at $110 as your trigger point.
Keep an eye on the volume, as it needs to be stronger to move
us significantly higher.

QCOM $77.50 +7.69 (+11.25) Our timing was on the money!  QCOM's
depressed share price enticed the bargain hunters!  Shares of
QCOM soared as investors took another chance on Qualcomm's CDMA
technology.  Friday's gains extended into Monday after Mark
Roberts at First Union Securities gave QCOM a boost.  He upped
his recommendation on the stock to a Strong Buy from Buy and
commented on upcoming news events.  Recall QCOM broke free from
the mighty shackles at $65 after money manager, Graham Tanaka,
predicted a strong comeback for QCOM last week.  The powerful
momentum easily cracked the first line of opposition at the 100-
dma ($71.08). The volume blazed on again today as QCOM propelled
upward towards the $80 objective.  If the trading activity
continues to reach two or three times the ADV on the uptake,
then this resistance level shouldn't be too difficult to
overcome.  Still be aware that QCOM hasn't seen the upside of
$80 since early June.  Support is solid at the 10-dma ($64.73),
but pullbacks to the 5-dma ($68.03) are more likely if QCOM
retraces.  Also consider entries on high-volume moves off
$75 and the current level.

CDWC $79.25 +0.44 (-4.25) The profit taking mongers took some
off the top of CDWC this week.  But you can't really blame them.
CDWC hit four consecutive highs last week and stretched even
higher to $86.13 on Monday.  Plus, stocks move in cycles, which
provide buying opportunities.  So, now we have the opportunity
to  take an entry into this recovery play.  CDWC is currently
situated between the 10-dma ($78.98) and the 5-dma ($80.60).
The above-mentioned technical lines have proven to be supportive
indicators on the stock's recent climb.  Take a look at a daily
chart for visual confirmation.  Therefore, a definitive bounce
off this level backed by respectable volume is considered
reasonable confirmation that the momentum is intact.  In the
news this week, the company announced the launch of CDW
Solutions, a 'magalog'.  The magazine-style editorial is an
industry first and perhaps best explained by CEO, Michael
Krasny, who said, " As a multi-brand technology source, we have
a unique place in the industry -- we've got our finger on the
pulse of both the manufacturers and small to medium-sized
business customers. We're translating all that knowledge into a
brand new magalog that provides timely technology information
and details on new products in the market."

YHOO $108.00 +2.94 (+2.13) After an entry opportunity yesterday
afternoon, YHOO got a boost from the press today.  YHOO announced
Tuesday morning that Barnes&Noble.com(BNBN) would replace AMZN as
the featured merchant on the portal's site.  But, AMZN won't go
away feeling bad, as an official called it "mutual."  The press
injected some buying momentum in YHOO, as investors see this new
alliance as offering YHOO a valuable partner in the offline world,
being Barnes & Noble(BKS).  Trading action today gave YHOO an
almost 3% boost, closing over the 10-dma of $106.88 for the first
time since August 25th.  Volume, however, was light at 4.8 mln
shares.  We would watch for YHOO to hold its 10-dma and also to
make a move higher through $110.  Entries may be attained on
pullbacks to the 10-dma, or $106, accompanied by a bounce.  More
conservative traders may want to wait for a break above $110.
Once again, this is a stock for quick intraday trades based on
the recent rolling pattern.


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

CMTN $44.69 +3.81 (+1.69) The Amex Networking Index ($NWX) rose
a solid 3.3% today, on the back of the broader Tech sector.  For
its part, CMTN benefited from the bounce in the Network Equipment
sector and rose along with the NASDAQ.  However, it's been a
bearish month for CMTN thus far in September, and today's bounce
might have provided a solid entry into our short play.  If the
Tech bears return tomorrow to wreak havoc in the Telecom Equipment
sector, aggressive traders might look to enter new put positions
in CMTN near its current levels.  The stock faces major resistance
just above at the $45 level, which might provide a solid entry into
the play should CMTN rollover.  However, wait for the sellers to
refute any CMTN attempt to break above $45.  The more conservative
traders might wait for weakness to return to the NASDAQ before
entering new plays.  Consider entering the play if CMTN slips back
below support near the $44 level, or wait for the stock to break
down below support at $43 for a more conservative entry.

UK $36.00 -0.56 (-0.59) The bears have taken complete control of
the Chemicals sector.  Despite the bloodletting in the Tech sector
yesterday, the Chemicals sector, which is generally a place of
solace for scared investors, slipped further into the sludge.  The
main culprit in the Chemicals continued slide, and UK for that
matter, is the slumping euro.  As we saw today, the euro fell to
yet another new low, which in turn sent UK to another new low.
Because of its vast multinational operations, UK is sensitive to
the movement in the euro, which will be the telling indicator for
our put play going forward.  If the euro continues to slide lower
tomorrow, traders might consider initiating new positions in UK
early in the day.  Otherwise, wait for UK to fall below its
intraday low of $35.81 before entering the play.  Volume continues
to turn up during UK's down days; make sure to confirm any fall
lower with above average volume.

PWAV $42.06 +2.38 (+5.00) Monday saw PWAV find support at $36.75.
From there the stock moved higher, bucking the trend of a down
market to close up $2.63, this kept PWAV's price below the 50-dma
and resistance at $40.  Today the stock was helped by a rallying
NASDAQ.  Gapping up on the open, PWAV spent most of the day
trading in a narrow range before some end of buying in the last
hour of trading closed the stock up 5.94%.  Despite this, volume
came in at roughly half the ADV, suggesting a lack of conviction
on the part of the buyers.  At least for today, there were more
buyers than sellers.  Up ahead is strong resistance in the form
of the 200-dma at $42.65.  A failure to break through this level
could be a great entry point but make sure volume confirms a
rollover before jumping in.  Above that the next level of
resistance is at $45.

PCS $40.81 -2.56 (-4.63) We love it when a plan comes together!
PCS is moving according to script.  Following the big volume
move down on Friday, the sellers continued their assault on
Monday.  The negative sentiment in the Tech sector definitely
worked in our favor.  Although volume was not as robust as it
was on Friday, PCS did slip to $43.38, down $2.06 for the day.
We had been looking to cross below the intraday low of $44.06
set back in April; it happened Monday!  It felt like the
shorts were covering a bit of their positions early Tuesday
morning as the Tech sector bounced off of the lows of Monday.
PCS hit a high of $44, looking like the beginning of a solid day,
before stalling and dropping all the way to $41.50 on increasing
volume as we approached mid-morning.  The selling continued and
PCS got hit to the downside by $2.56 on 7.28 mln shares (2 times
ADV) to finish the day at $40.81, a new low for the year.  The
selling could become more aggressive from here as there is no near
term support on the charts, so traders may want to enter the play
just off an intraday bounce back to the $41.75 to $42.00 area.
Watch for a short-covering rally or potential dead-cat bounce
rally from here as a more conservative way to enter the trade.

LVLT $74.00 +4.13 (-0.56) Don't let today's strong gains fool
you.  LVLT is still in a downtrend and today's action looks like
little more than an oversold bounce.  You know what those are
good for don't you?  That's right, entry points on put plays!
While we didn't get an entry today (LVLT closed right at its
high of the day), market weakness in the morning could provide
just such an entry.  Sentiment in the Telecom sector hasn't
improved, and until it does, stocks like LVLT will likely
continue to languish.  Volume has been increasing for the past
3 days, with today's action more than 50% above the ADV.  The
50-dma ($74) and the 30-dma ($72.38) look to be converging near
$73, and this level will likely be pivotal going forward.  If
LVLT can recover, look for that level to act as support, but
further weakness will likely turn it into resistance.
Yesterday's drop punctured the 50-dma and even with today's big
gain, LVLT still ended the day below this level.  Look for a
rollover from the vicinity of the 50-dma to provide a good entry
point going forward.  It won't help the bulls case that this
level is backed up by more resistance at the 5-dma ($74.88), the
10-dma ($76.44), and the 100-dma ($78.50).  Unless there is a
strong rally in the broader markets, LVLT will have a hard time
pushing higher.

MMM $83.88 +0.69 (-1.25) The list of companies that are warning
about their upcoming 3rd quarter results continues to grow, and
we are just waiting for MMM to show up at the confessional.
Since attempting to break above the $97 level two weeks ago, the
stock has been caught in a pretty strong downtrend.  Finding
temporary solace at the $84 support level near the end of last
week, it looked like our play might actually be trying to put in
a bottom.  Well that all changed at the open yesterday as MMM
cratered down to solid historical support at $82, before
beginning a very gradual recovery.  While the price has been
gradually moving higher since yesterday's open, we are nowhere
near seeing a reversal, with the 5-dma (now at $84.75)
continuing to exert downward pressure.  The $84 support level is
now acting like resistance, and continued market weakness could
be just the catalyst needed to push MMM down towards its 52-week
low, which sits at $78.19.  If MMM comes to the party and admits
to problems with their earnings estimates, then look out below.
With the amount the stock has fallen in the past 2 weeks, relief
buying could appear at any time, especially if the DJIA can
mount any kind of recovery.  Use any such event as an entry
point, buying puts when the stock runs out of steam and begins
to roll over at resistance, first at $85, and then the declining
10-dma ($87.63).  As always, keep one eye glued to the volume
chart; it provides a wealth of information as to the strength
of any move, whether up or down.

SCMR $106.56 +5.94 (+1.06) The market jitters over lowered sales
demand from the major telecoms continued to rattle the network
equipment stocks on Monday.  The downturn extended to the fiber-
optic companies like CIEN and of course, SCMR.  As we mentioned
in earlier write-ups, some concern is also related to vendor
financing risks.  SCMR subsequently lost 4.6%, or $4.88 on
strong volume.  Today however, SCMR reversed.  The share price
rose above $106 on bullish comments from Max Schuetz, an analyst
at Thomas Weisel Partners.  It's also likely that SCMR got a
shot of adrenaline from today's technical rally in the NASDAQ.
Despite it all, SCMR remains bound by overhead resistance at the
5-dma ($107.11) and $108.  High-volume moves off the current
level offers reasonable entries into this momentum play.  If
you're more adventurous, look for intraday peaks to take a
position.  Expect some resistance near the century mark.  Keep
stops tight.

DIGL $70.81 +2.47 (-2.06) The grave concerns about a spending
slowdown among the phone companies dragged the Networking stocks
down further on Monday.  DIGL was a big recipient with a $4.53,
or 6.2% loss!  More importantly, the grim sentiment jump-started
the downward momentum.  DIGL slid below $70 by mid-afternoon and
then dived to $66.50 on strong volume.  The weak close at $68.34
was a nice touch, too.  The last minute bounce off $68 today
can't be ignored, but don't throw the baby out with the bath
water just yet.  For one, upper resistance is firmly established
at the 10-dma ($74.86) and is currently developing near the 5-
dma ($72.09).  The ceiling is getting lowered.  This effectively
may push DIGL lower or it could narrow the trading range.
Therefore, wait for definitive confirmation before taking
additional positions.  Only time will tell if the bearish move
through last Wednesday's low of $68 will ultimately set DIGL
up for more losses.


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

CAH - Cardinal Health Inc 92.31 +2.97 (+4.31 this week)

Cardinal Health is the nation's leading provider of products and
services that support the health-care industry.  They operate
under four distinct business segments:  Pharmaceutical
Distribution and Provider Services, Medical-Surgical Products
and Services, Pharmaceutical Technologies and Services, and
Automation and Information Services.  Clients include
independent and chain drugstores, hospitals, alternate care
centers, and the pharmacy departments of supermarkets and mass
merchandisers.

A series of analyst upgrades catapulted CAH to new heights in
recent sessions.  The dynamic momentum first drove CAH through
the formidable resistance at $85, then cast it higher still.
Following a Buy recommendation and upped price target to $98
from $85 by Lawrence March at Lehman Brothers, CAH responded
with convincing gains on September 12th.  A pattern developed.
First Union Securities issued a Strong Buy recommendation and
raised its price target to $97 from $86.  CAH advanced further.
On September 14th, MSDW restated an Outperform rating and also
upped its price target to $100 from $74.  Again, CAH tacked on
more points.  From there on in, it's been pure momentum driving
the share price to new 52-week highs.  Today, CAH closed smack
on the newest record of $92.31!  You can't beat that bullish
sentiment.  Short-term support is at $89 and $90, which is just
above the 5-dma line.  This level offers solid entries during
consolidation or on intraday dips.  A pullback to the 10-dma
around $84 and $85 should however raise your radar.  Look for
the high-volume to precipitate another breakout.

In recent news, Cardinal Health said it's expanding its
financial-reporting segments, from three to four, to fine tune
the way it manages its businesses.  The company is expected to
report earnings around October 26th.

BUY CALL OCT-85 CAH-JQ OI=726 at $9.13 SL=6.25
BUY CALL OCT-90*CAH-JR OI=161 at $5.63 SL=3.50
BUY CALL OCT-95 CAH-JS OI= 94 at $2.88 SL=1.50
BUY CALL NOV-90 CAH-KR OI=  0 at $5.75 SL=3.75  Wait for OI!
BUY CALL NOV-95 CAH-KS OI=  0 at $4.75 SL=2.75  Wait for OI!

Picked on Sep 19th at   $92.31    P/E = 39
Change since picked      +0.00    52-week high=$92.31
Analysts Ratings    12-7-1-0-0    52-week low =$37.00
Last earnings 06/00  est= 0.71    actual= 0.72
Next earnings 10-26  est= 0.65    versus= 0.53
Average Daily Volume =   970 K



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

EPNY - E.piphany, Inc. $82.25 -3.75 (-1.75 this week)

E.piphany is a leading provider of intelligent customer
interaction software for the customer economy.  The company serves
more than 250 industry-leading enterprises in ecommerce, financial
services, communications, consumer-packaged goods, and technology.
Delivering an integrated solution combining insight and action
software products, EPNY's web-based analytic and operational CRM
portfolio provides global business with a single, enterprise-wide
view of each customer, to better understand and proactively
respond in real-time to customer and market opportunities.

Actions speak louder than words.  Despite all the great words
coming from analysts and from the company itself lately, EPNY
continues to head ever lower, with volume to the downside
accelerating.  First the words, as last week there were two
pieces of good news for EPNY.  ING Barings initiated coverage on
the stock with a Buy rating last Thursday.  As well, the company
announced an alliance with ZAMBA Solutions, in which the two firms
will integrate and support systems running EPNY's software.  On
Monday, EPNY announced an upgrade to its B2B software, which would
extend the capabilities of its system to better serve its
customers.  Also, EPNY announced partnerships with Emptoris and
iMediation.  Today, Robinson-Humphrey issued positive comments on
EPNY, rating the company a Buy.  Despite all the good news and a
strong market for Tech stocks today, EPNY lost 4.36% on 155% of
its ADV.  Where words fail to explain, perhaps EPNY's chart could
shed some light on the situation.  Ever since encountering
resistance at $110 to start the month, it's been all downhill for
EPNY.  Already far below its 200-dma (now at $131.78), the stock
broke below its 50-dma first, now just above the psychological
$100.  From there, it's been a slide down the back of the 5-dma
($88.42) below the 100-dma at $94.36.  This level is also
reinforced by the 10-dma.  With EPNY unable to overcome
resistance at the 5-dma, a failure to rally above this moving
average could be a great entry point.  As well, former support at
$85 may also offer formidable resistance.  Support for the stock
can be found in increments of $5, starting at $80 and $75.  A
failure at $75, and we could see the stock quickly drop to $63.
Weak support levels, strong overhead resistance, and negative
momentum despite positive news all adds up to a promising put
play.  Just make sure volume to the downside confirms a rollover
when making an entry.

BUY PUT OCT-85 PEY-VQ OI=237 at $11.00 SL=8.25
BUY PUT OCT-80*PEY-VP OI= 97 at $ 8.63 SL=6.00
BUY PUT OCT-75 PEY-VO OI= 25 at $ 6.63 SL=4.50

Average Daily Volume = 652 K



**********************
PLAY OF THE DAY - PUT
**********************

CMTN - Copper Mountain Networks $44.69 +3.81 (+1.69 this week)

CMTN helps its clients climb to the peak of connectivity.  The
company is a leader in digital subscriber line (DSL)
communications products for telecom and Internet service
providers, which enable high-speed broadband connectivity over
existing copper phone lines.  The company has partnerships with
3Com and Lucent.  NorthPoint Communications accounts for about
40% of CMTN's sales.

Most Recent Write-Up

The Amex Networking Index ($NWX) rose a solid 3.3% today, on the
back of the broader Tech sector.  For its part, CMTN benefited from
the bounce in the Network Equipment sector and rose along with the
NASDAQ.  However, it's been a bearish month for CMTN thus far in
September, and today's bounce might have provided a solid entry
into our short play.  If the Tech bears return tomorrow to wreak
havoc in the Telecom Equipment sector, aggressive traders might
look to enter new put positions in CMTN near its current levels.
The stock faces major resistance just above at the $45 level,
which might provide a solid entry into the play should CMTN
rollover.  However, wait for the sellers to refute any CMTN attempt
to break above $45.  The more conservative traders might wait for
weakness to return to the NASDAQ before entering new plays.
Consider entering the play if CMTN slips back below support near
the $44 level, or wait for the stock to break down below support
at $43 for a more conservative entry.

Comments

A bounce wasn't out of the question today on the NASDAQ.  CMTN
felt some relief, gaining over 9%.  The true test tomorrow will
be whether the NASDAQ can follow through, or render today just
another dead-cat bounce.  If the NASDAQ rolls over, our put play
will be ready.  With the 10-dma at $47.59, a rollover at that
technical resistance would offer a great entry.  A break of this
level would be an indication to stay out.  If the broader tech
market falters, look to CMTN to follow as sellers return.

BUY PUT OCT-50 KUA-VJ OI=1110 at $ 8.75 SL=6.75
BUY PUT OCT-45*KUA-VI OI= 334 at $ 5.63 SL=4.00
BUY PUT OCT-40 KUA-VH OI= 728 at $ 3.25 SL=1.75

Average Daily Volume = 2.73 mln



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


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

Technology stocks recover amid strength in semiconductor
issues...

The Nasdaq enjoyed a triple-digit rebound as investors shopped
for bargains after the recent slump.

Monday, September 18

Rising energy prices and a weak euro created cause for concern in
today’s session.  The Dow closed down 118 points at 10,808 while
the Nasdaq fell 108 points to 3,726.  The S&P 500 Index was down
21 points at 1,444.  Trading volume on the NYSE hit 956 million
shares, with declines beating advances 2,212 to 690.  Activity on
the Nasdaq was moderate at 1.61 billion shares exchanged, with
declines beating advances 2,981 to 1,103.  In the bond market, the
30-year Treasury slumped 25/32, pushing its yield up to 5.95%.


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

Abbott Labs   ABT     OCT40P/OCT42P   $0.50   credit   bull-put
St Jude       STJ     JAN50C/OCT50C   $1.93   debit    calendar
Franklin      BEN     JAN45C/JAN40P   $4.75   debit    strangle
Cell Path     CLPA    OCT60C/OCT17P   $2.06   credit   strangle
Gemstar       GMST    OCT95C/OCT55P   $3.75   credit   strangle

All of our new positions were affected by the market’s volatile
movement today.  Abbott Labs slumped at the open but the premiums
were also lower than expected.  The credit for the position was
well below our target and we will wait for a better opportunity
in the coming sessions.  St. Jude rallied near the open and there
was little chance to enter the position near the target price.
A slump near 10:00 A.M. provided the best entry, but the debit
was still well above our suggested range.  Franklin was also
uncooperative with higher than expected prices in the neutral,
debit strangle.  Limit orders held the book prices at a premium.
Cell Pathways and Gemstar offered favorable entries and both
positions were active.  A 10-contract trade in GMST was observed
near 9:45 AM and there was also participation in the CLPA play,
during the first few minutes of the session.

Portfolio Plays:

A combination of higher oil prices, slowing earnings growth and
the weak bond market conspired to drive the stock market lower
today.  Crude prices topped $37 per barrel as tensions in the
Middle East grew after reports of a missile attack on Baghdad
and continued claims by Iraq that Kuwait was stealing oil.  In
addition, the flood of revenue warnings continued, with several
companies citing the recent decline in the euro as the cause of
falling earnings.  The European currency is near all-time lows
and is expected to reduce revenues in American corporations in
the coming months.  On the Dow, J.P. Morgan (JPM) continued to
slump while Johnson & Johnson (JNJ) and Eastman Kodak (EK) also
moved lower.  In the technology group, bellwether issues dropped
with JDS Uniphase (JDSU), Cisco Systems (CSCO), Dell Computer
(DELL), Intel (INTC), Oracle (ORCL) and Microsoft (MSFT) among
the losers.  Biotechnology stocks added to the Nasdaq's woes and
in the broader market, financial, retail and computer hardware
issues all moved lower.

There were few favorable moves in the Spreads/Combos portfolio.
Qualcom (QCOM) was one of the few surprises, up almost $4 to $69
after First union upgraded the stock to a "strong buy."  Our new
"bull-put" position achieves maximum return with the issue above
$55.  Virata (VRTA) was another unexpected gainer, up almost $2
at mid-day after Robertson Stephens upgraded their outlook for
the company.  In a research note, analysts said that Virata's DSL
business remains strong, with sales of its Helium communications
processor leading the charge.  Reportedly, semiconductor sales at
Virata drove almost all of the upside in the quarter and margins
are expected to improve in the coming months.  Small-cap issues
fared little better than the broader market but Maxtor (MXTR) and
Caremark RX (CMX) were among the few upside movers.  Regrettably,
the rest of the section experienced downward pressure and there
were a number of precipitous declines.  With today’s breach of
key technical levels, it appears the recent bearish trend will
continue for a few sessions before a rebound occurs.  That means
that decisions will have to be made regarding a number of failing
issues.  Most of these come from the Reader’s Request category
but other OIN subscribers may have participated in the positions
as well.  Bullish, long-term plays in Loral Communications (LOR),
Lucent (LU), and Netspeak (NSPK), along with calendar spreads on
Global Crossing (GBLX), Mead Corporation (MEA), and Steven Madden
(SHOO), and the debit spread in Covad (COVD), should be reviewed,
and possibly closed or adjusted based on your outlook for each
issue and your personal risk/reward attitude.  Speculative plays
in Crossroads Systems (CRDS), Engage (ENGA), and Ventro (VNTR)
also deserve attention and with the unfavorable condition of the
market, you must decide if these past selections continue to meet
your criteria for potential portfolio holdings.

Tuesday, September 19

The Nasdaq enjoyed a triple-digit rebound as investors shopped
for bargains after the recent slump.  The composite technology
index rose 139 points to 3,865.  The Dow industrials retreated
however, as earnings worries continued to plague the group.  The
blue-chip average closed down 19 points at 10,789.  The S&P 500
Index was up 15 points to 1,459.  Activity on the Nasdaq reached
moderate levels with 1.69 billion shares traded.  Declines beat
advances 2,253 to 1,597 in technology issues.  Trading volume on
the NYSE reached 1 billion shares, with declines beating advances
1,494 to 1,383.  In the bond market, the 30-year Treasury moved
18/32 higher, pushing its yield to 5.91%, as market participants
looked ahead to the Treasury buyback coming on Thursday.

Portfolio Plays:

Technology stocks rallied today as bargain-hunting buyers feasted
on slumping semiconductor shares.  Intel (INTC) and Advanced Micro
Devices (AMD) led the recovery after Banc of America Securities
upped its ratings on both stocks and other issues in the group
followed suit. The chip sector, which often defines the outlook
for technology stocks, has under-performed the market in recent
weeks.  Internet shares managed decent gains with CMGI (CMGI) and
Exodus Communications (EXDS) pacing the advance.  Meanwhile, the
Dow edged lower amid profit concerns, with one of its old-economy
components warning that it will fall short of quarterly earnings
expectations after the close Monday.  Alcoa (AA) announced that
revenues will be much lower than expected, based on sharp declines
in the transportation, building, construction and distribution
markets as well as higher energy costs.  Other Dow shares moving
lower included Wal-Mart (WMT), Home Depot (HD), Honeywell (HON),
and International Paper (IP).  The broader market saw gains in the
financial arena, led by bank stocks.  Goldman Sachs (GS) and A.G.
Edwards (AGE) both posted earnings ahead of consensus estimates,
boosting share values of similar companies.  Biotechnology and
major drug issues also advanced while paper, retail, and utility
shares consolidated.  Oil and oil service stocks retreated amid a
weakening in crude prices.

Our portfolio experienced a number of favorable moves during the
session and technology issues were the leaders in every category.
Qlogic (QLGC) outpaced all other stocks in the section, up $10 to
$93 after the company was touted in three major brokerage reports
during the session.  Qualcomm (QCOM) was another top performer,
up almost $8 to $77 as the recent rally continued amid optimism
over an upgrade from First Union Securities.  The issue traded
higher on volume well above its norm, making the stock a standout
among other bullish issues.  Commerce One (CMRC) made solid gains
and HNC Software (HNCS), Polycom (PLCM), and Virata (VRTA) also
rallied during the upbeat session.  Global Crossing (GBLX) edged
higher in sporadic trading and Crossroads (CRDS), Netspeak (NSPK)
and Ventro (VNTR) provided indications that they aren’t ready to
"give up the ghost" quite yet.  In the financial sector, Allstate
(ALL) and Toronto Dominion (TD) both performed well and our new
positions in these issues are profitable, with over three months
remaining until expiration.  Another new position, Abbott Labs
(ABT) slumped during the session, providing an improved entry in
the bullish, "put-credit" spread.

On a sour note, Covad Communications (COVD) dropped over $2 to
close in the $15 range after a day of rampant selling.  There was
no public news to explain the move but traders speculated that an
upcoming $500 million dollar debt offering, which was rated very
poor by Moody's, may be part of the explanation.  Regardless of
the reason, the issue was unloaded by institutional traders and
the volume in today’s session was well above average.  Based on
the new technical indications, we may consider selling the long
position in the debit spread, while it has favorable premium and
leaving the sold position (at $17.50) uncovered in the short-term.
Obviously, it’s an aggressive move but something has changed the
outlook for this issue and the bearish character suggests a new
downtrend is in place.  An early exit of the long position will
provide a small profit in the play and the stock can always be
purchased at a later date - to create a covered-call - if and
when the issue recovers.

Questions & comments on spreads/combos to Contact Support
******************************************************************
                         - NEW PLAYS -
******************************************************************
FNV - Finova Group  $7.25  *** Cheap Speculation! ***

The Finova Group is a financial services holding company.  Through
its principal subsidiary, Finova Capital, the company provides a
broad range of financing and capital market products.  Finova
extends revolving credit facilities, term loans and equipment and
real estate financing primarily to middle-market businesses with
financing needs falling generally between $100,000 and $35 million.
Finova operates in twenty specific industry or market niches under
three market groups.  The principal lines of business are Capital
Markets; Commercial Finance; and Specialty Finance.

Finova shares have fallen to new lows in recent months but this
week, the issue showed signs of life as takeover rumors surfaced
in the pits.  When asked about the activity, company officials
reiterated their statements from earlier in the year regarding the
hiring of Credit Suisse First Boston to help determine a strategy
for the future.  The plan includes a review of alternatives that
would possibly include the sale of the company or a potential
equity infusion by a major funding group or entity.  The process
is ongoing and publicly, there have been no major announcements.

Implied volatility and volume in FNV’s options jumped today on
active call buying and we are going to pursue a speculative play
in the issue, based on the new interest from investors.


PLAY (conservative - bullish/calendar spread):

BUY  CALL  JAN-10  FNV-AB  OI=1330  A=$1.00
SELL CALL  OCT-10  FNV-JB  OI=1364  B=$0.38
INITIAL NET DEBIT TARGET=$0.50-$0.56  TARGET ROI=50%

This position is based on recent increased activity in the stock
and underlying options.  Although the play offers a favorable
risk/reward potential, it must also be evaluated for portfolio
suitability and reviewed with regard to your strategic approach
and trading style.


******************************************************************
AGIL - Agile Software  $79.00  *** B2B: Not a bad place to be! ***

Agile Software develops and markets collaborative manufacturing
commerce solutions that speed the build and buy process across
the virtual manufacturing network.  Agile’s solutions manage
product content and critical communication, collaboration and
commerce transactions among original equipment manufacturers,
electronic manufacturing services providers, customers and other
suppliers in real-time.  The company's offerings are well suited
for participants connected in outsourced supply chains, as well
as those managing multi-site engineering, manufacturing, sales
and distribution via the Internet.

Business-to-business stocks were "on the move" today, thanks to
the recovery in technology issues, an Oracle (ORCL) upgrade and
new industry optimism ahead of a host of company conferences.
Agilent is one of the top companies in the group and the issue’s
most recent rally began in late August when U.S. Bancorp Piper
Jaffray Senior Business-to-Business e-Commerce Analyst Timothy M.
Klein initiated new coverage on the company with a "buy" rating.
Agile Software provides Web-based collaboration applications that
help OEMs communicate manufacturing change orders with contract
manufactures, suppliers and internal engineers and Klein believes
that Agile is one of the top companies addressing opportunities
within the collaborative-enterprise-solutions market.  Expansion
in that niche sector is fueling growth in business-to-business
eCommerce and strong industry fundamentals along with the trend
toward increased outsourced manufacturing and shorter product
lifecycles will directly benefit Agile's future prospects.  In
addition, the company has industry-leading technology, solid
fundamentals and promising revenue potential.

We simply favor the recent bullish technicals and the opportunity
to speculate on the future movement of the issue in a conservative
manner.


PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-55  AUG-VK  OI=16  A=$1.31
SELL PUT  OCT-60  AUG-VL  OI=31  B=$1.69
INITIAL NET CREDIT TARGET=$0.56-$0.62  ROI(max)=12%


******************************************************************
HAL - Halliburton Company  $50.56  *** Oil Industry Slump? ***

Halliburton Company provides a variety of services, equipment,
maintenance and engineering and construction to energy, industrial
and governmental customers.  The company offers its products and
services through three business segments: Energy Services, which
provides discrete services and products and integrated solutions
to customers in the exploration, development and production of oil
and gas; Engineering and Construction, which provides services to
energy and industrial customers and government entities worldwide;
and Dresser Equipment, which designs, manufactures and markets
highly engineered products and systems, primarily for the energy
industry.

This month has seen record levels in the oil industry as crude oil
prices closed above $35 a barrel for the first time in ten years.
Concerns over shrinking winter heating oil supplies outweighed a
bigger-than-expected rise in current crude stocks and the recent
OPEC output hike to produce extreme demand for the commodity.  On
Monday, crude futures rallied even higher as tensions increased
between two oil-producing nations in the Middle East and after the
close today, prices climbed higher when a key inventory report
showed a new, unexpected drop in supplies.  The American Petroleum
Institute posted its weekly petroleum supply data and one of the
biggest surprises came from crude-oil inventories, which fell 2.03
million barrels to 286,580 million barrels during the week ended
September 15.  That was almost 3 million barrels shy of analysts'
average estimate; they'd predicted a rise between 800,000 and 1.2
million barrels.

With the bullish, after-hours news, this stock is likely to move
higher in tomorrow’s trading however, we believe the current
technical indications favor a bearish play on any strength in the
issue.  In this case, the premiums for the (OTM) call options are
slightly inflated and the potential for a successful rally to new
highs is significantly affected by the resistance at the sold
strike price; a great situation for a "call-credit" credit spread.


PLAY (aggressive - bearish/credit spread):

BUY  CALL  OCT-60  HAL-JL  OI=3576  A=$0.43
SELL CALL  OCT-65  HAL-JK  OI=5127  B=$1.12
INITIAL NET CREDIT TARGET=$0.81-$0.93  ROI(max)=22%







**********
DISCLAIMER
**********

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html

DISCLAIMER

Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

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