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Daily Newsletter, Thursday, 09/28/2000

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The Option Investor Newsletter                 Thursday 09-28-2000
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        09-28-2000        High      Low     Volume Advance/Decline
DJIA    10824.10 +195.70 10856.30 10623.20 1.20 bln   1878/958
NASDAQ   3778.32 +122.02  3778.38  3626.55 1.99 bln   2598/1391
S&P 100   773.32 + 14.69   775.38   756.95   totals   4476/2349
S&P 500  1458.29 + 31.72  1461.69  1425.78           65.6%/34.4%
RUS 2000  523.81 + 15.68   524.09   507.62
DJ TRANS 2572.32 + 57.79  2577.73  2513.63
VIX        21.95 -  2.41    24.87    21.55
Put/Call Ratio       .48
******************************************************************

An Absence Of Earnings Warnings Brought The Bulls From Hiding
Today.

But, a rotten Apple might send them back into the bear cave
tomorrow.  Before Apple's warning after the bell, the bulls had
claimed a clean victory today.  Impressive volume returned to
both the NYSE and NASDAQ as buyers engaged in uninhibited bidding
of stocks.  Breadth on both major markets had a distinct bullish
smell; advancers nearly doubled decliners on both the NYSE and
NASDAQ.  Moreover, nearly every sector benefited from the
broad-based buying, with the exception of the major Oil
Integrators, which slid lower on the dip in oil prices.  But,
all of that was before the Apple (AAPL) warning.

Shortly after the market closed, AAPL warned it would fall well
short of previous earnings estimates.  AAPL told analysts it would
earn between 30 and 33 cents this quarter; the consensus had been
for AAPL to earn 45 cents.  AAPL didn't blame its shortfall on the
euro, nor the high cost of energy, which makes their warning rather
unique.  Instead, AAPL said sales across all market segments were
weak, with especially sluggish demand in the education market,
which has contributed mightily to AAPL's revenues in the past.
AAPL's grim profit warning lead to bloodshed in afterhours trading.
At the time of publication, AAPL had settled around the $29 level,
a full 45% lower than its 4:00 EST closing price!

The aftershock of AAPL's warning spread quickly to the rest of the
Computer-related sectors in afterhours trading as IBM, HWP, GTW,
CPQ, DELL, and even INTC traded well below their respective
closing prices.  Plus, the fact that AAPL accounts for a little
over 1% of the NASDAQ 100 (QQQ) should lead to a lower opening
tomorrow.  However, the question is whether we'll see a repeat of
the Intel warning or will the bears regain control?  If the former
plays out, recall what happened around the time of the Intel
warning.  The NASDAQ gapped lower by more than 200 points the
morning after Intel's warning and subsequently climbed 185 points
into the close of trading.  If, on the other hand, the bears
return to their selling ways, the NASDAQ could be headed for
serious trouble.  But, with so many stocks trading in oversold
territory already, the prospect of a black Friday seems unlikely.

The oversold condition of the broader market, especially the Tech
sector, lead to the massive bounce we witnessed today.  Today's
advance in the NASDAQ was the fifth attempt to rally during the
month of September.  The preceding four rally attempts have all
ended with failure, and proved to be bear traps.  This time though,
feels a little different, and for several reasons.  For the first
time this month, the NASDAQ has successfully traced a higher
relative low.  Over the course of the past two days, the NASDAQ
was able to hold above its most recent low at 3615 (the morning
after the Intel warning).  Furthermore, the internals of the
NASDAQ, (i.e. advance/decline line and volume) greatly improved
today.  And, finally, the NASDAQ shrugged off a downgrade of CSCO
this morning, and carried the Networking giant up $2 on the day
(more on this story below).




The magnitude with which the NASDAQ rallied today was impressive.
But, we've a long way to go before the index retests its double
top formed between early July and September.  There has been a lot
of pain inflicted upon market participants during the last month,
especially in the Tech and Telecom sectors.  Today's rally on the
NASDAQ might signal that the last of the big sellers have left
the market, although the AAPL warning could change that in the
near-term, only time will tell.  And, it's time needed for the
NASDAQ to heal from its recent wounds before the bull-market
leading index resumes its record climb.  Many market technicians
expect the NASDAQ to trade in the lower half of its retracement
until a major catalyst returns to the market and drives stocks
higher.  That major catalyst could very well be third-quarter
earnings reports.  Tomorrow marks the end of the third-quarter,
which should hopefully signal an end to earnings warnings.  As
the market segues from earnings warning season to the actual
earnings reporting season, optimism along with the bulls might
return.  Again, only time will tell.




The NASDAQ's ability to ignore the CSCO downgrade and get on
with its rally was encouraging to see this morning.  Judging by
the CSCO downgrade, it's clearly evident the sell-side of Wall
Street cannot reach a consensus over future market direction.
Sanford Bernstein downgraded CSCO and NT from respective Market
Outperform ratings to Market Perform ratings.  Initially, the
downgrade sent CSCO and NT lower this morning, and dragged
others lower such as GLW, JDSU, and CIEN.  Then, with a
counterpunch, Salomon Smith Barney reiterated its Buy rating on
both NT and CSCO.  And, Merrill Lynch did the same.  The debate
over telecom equipment spending appears to be far from over,
which is the root of the recent demise of Lucent, Cisco, Copper
Mountain, Nortel, and many, many others.  However, CSCO's and
NT's respective advances in light of the downgrades this morning
were encouraging to see.

Over on the DOW, the bulls took charge at the opening bell this
morning and didn't surrender control all day long.  Leading the
rally in the INDU was PG +$5.25, JPM +$5.25, HWP +$3.25 (before
the Apple warning), UTX +$2.88, C +$2.75, SBC +$2.31.  As you can
see in the aforementioned, the rally on the DOW was broad,
spreading over nearly every sector.  The only sector that didn't
join in the rally today was the Oil group, who continued sliding
lower after crude oil prices sank to a seven week low.  Although
the sinking oil prices are wreaking havoc in the Energy sector,
the rest of the market is breathing a big sigh of relief.  As
long as oil prices keep heading down, the fear of inflation
should ease, which is good for the DOW.




While the threat of inflation through high energy prices has
fallen into the background the pesky euro is looming in the
shadows.  Several key events will affect trading in the euro
tomorrow.  First, Denmark citizens voted against joining
the European Union Thursday, a move that would have directly
linked Denmark's economy to the beaten down euro.  What's more,
tomorrow marks the first day the euro will trade freely in the
open marketplace, after government officials intervened.  If
the big speculators get a hold of the euro again and take the
currency lower, the American multinationals might fall under
market scrutiny once again.  It's been nice not to worry about
the level of the euro during the past few trading sessions, and
equally enjoyable to watch the price of oil decline.  If we
could just get these Tech companies to stop warning of lower
profits.

The bigger picture has improved over the last two days, with
the exception of the Apple warning this afternoon.  The three
worst enemies of the broader market over the past month have
been: the euro, high oil prices, and profit warnings, in no
particular order.  With the euro stabilizing, and oil prices
declining, the market is facing fewer enemies.  Moreover,
third-quarter earnings warning season is approaching its end.
The rallies in both the DOW and NASDAQ today signaled that
market participants are testing bullish waters.  Tomorrow's
reaction to the AAPL warning will tell us more about how ready
the market is to rally.  We will be watching for a follow-
through to today's rally attempts in both the DOW and NASDAQ
beginning tomorrow and into next week.  A confirmation of
today's rally might signal a near-term bottom in the market.
On the other hand, failure to move substantially to the upside
over the next three or four trading sessions might signal we've
been trapped by the bears once again.

The office here in Denver has been abuzz with excitement over
the upcoming seminar.  I look forward to attending the Advanced
Options Workshop and meeting many of our OIN readers.

Eric Utley
Research Analyst


*****************************
OCTOBER OPTIONS WORKSHOP EXPO
DENVER - Oct 27-30th
*****************************

Here is the list you have been waiting for. The guest speakers
and the course outline for the October Workshop Expo. The list
of guest speakers is outstanding. Here they are:

Steve Nison - Steve Nison is not only the world's foremost
expert on Candlestick Charting techniques, he's the author
of the two top selling, definitive books on the topic:

Japanese Candlestick Charting Techniques and Beyond Candlesticks.
He has trained and lectured investors and investment firms around
the world on how to integrate these methods into their investment
strategies.

Steve will be speaking on "Spotting Early Reversal Signals."

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

Gregory Spears - Author of the Spear Report. Gregory developed a
unique "consensus" concept for picking stocks in the early 90's
while trying to make sense of the myriad of financial newsletters
in his mailbox. His unique "consensus" system has developed an
average gain of 100% for his recommendations over the normal
holding period which is about six months. The Spear Report is
quoted or featured in dozens of financial publications and Greg's
financial workshops are "standing room only."

Greg will be speaking on the top market gurus, "What they are
saying and why they are wrong."

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

Dick Arms - Richard Arms is the inventor of the Arms Index,
otherwise known as the TRIN. He has been analyzing the market
for over 35 years and is a constant visitor to CNBC as a
market commentator. His work in technical analysis is older
than most of the brokers now trading with his tools. His newest
invention is the Equivolume charting system, the first new
charting system since the 1930s.

Dick will be explaining the TRIN and how we should use it to
trade as well as his new Equivolume charting system. This will
be an interactive session with plenty of attendee questions
that Dick will answer.

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

Stan Kim - Stan has a MBA from UCLA and worked for IBM for many
years. He realized he did not want to work for anybody else and
did not want anybody working for him. He has been a full time
trader ever since. He is the founder of the Snail Trader system
of trading and is currently working on a new book. Stan consults
and mentors traders and investment firms.

His topic will be, "How to Trade for a Living When You Are Not
a Stock Guru."

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

Jim Crimmins - Jim is president of TradersAccounting.com and a
noted authority on tax issues for traders. Jim is an expert on
gaining Trader Status and puts on seminars on "Tax Free Trading"
around the country. If you have been to a money show you have
probably seen Jim with flocks of people around him.

Jim IS the authority on tax accounting for traders!
Jim will be speaking on Trader Status, Mark to Market and
IRS do's and don'ts for traders.

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

Add to this distinguished list above the fifteen plus speakers
from OptionInvestor and you have an event you cannot afford to
miss.

The current roster of staff instructors includes:

Ryan Nelson - Managing Editor, OptionInvestor.com
Chris Verhaegh - Options 101/102 Writer and Option Strategist
Steve Rhoads - Technical Analysis Instructor
Molly Evans - OIN Staff writer
Lee Lowell - OIN Staff writer
Austin Passamonte - Editor IS, Staff Writer
Buzz Lynn - Editor, Sector Trader, Staff Writer
Mark Phillips - Leaps Editor, OIN
Vince Dowd - Spreads Specialist
Louis Horkan - Managing Editor, Premier Investor
Steve Pekarek - Editor, SplitTrader.com
Jeff Bailey - Editor, Premier Briefing
Matt Russ - Editor, OptionInvestor.com
Jim Brown - Head Option guy

For a course outline click here:

Http://www.OptionInvestor.com/workshop/outline

The workshop is scheduled for the last weekend in October.
Four days of intense, power packed option education.

This is not your standard seminar. We start by putting you up
in a luxury hotel and feeding you five times a day. We feed your
mind from a fire hose as well with more than 15 speakers and
special guests to educate you on every option strategy.

There is something for everybody. Just mingling with over 15
professional option traders for four days is worth the price of
admission. The entire weekend for the low price of $2995 plus
your room. All meals, snacks and favors are provided and you
will get a professionally produced set of videos of the entire
weekend.

Need we say more? If you want to learn how to be a better trader,
making more and losing less then you should come to this seminar.
We guarantee you will not be disappointed!

For more info:

http://www.OptionInvestor.com/workshop


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


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

Blue Skies and North-Bound Markets
By Austin Passamonte

It was a glorious day across much of the world, including
downstate New York. For Wall Street analysts trying to guess
where the near-term market bottom is we'd suggest it might be
way back at the end of today's vapor trail left by the Dow and
joined with most techs as the day progressed.

The markets couldn't sell forever and we knew today would arrive
soon. We just didn't know which one today would be, but here
it is!

Just like that, one fell swoop and the technical picture is
looking much brighter. Chart are improving as well outline below;

The Dow has closed above its 10 and 200 DMAs with the 20 and 50
DMAs well over 100+ points above us. Clearly more room to run.

The SPX is also above its 10 and 200 DMAs with the 20 and 50s
lying in wait near the 1475 mark. The NDX has a little more
congestion with the 20, 50 and 200 DMAs not far overhead from
the close. A serious test of this resistance can be expected
soon.

The OEX still trades below all four major moving averages and
has some work to do.

However, the four key indexes formed textbook bullish "Morning
Star" candle formations over these three trading sessions. First
we had a bearish, long red candle to show negative sentiment.
Next we had yesterday's clear doji or stalemate showing neutral
or changing sentiment. Today we finished the pattern with a long
clear or green bullish candle longer than the bearish red, an
engulfing candle.

This suggests all that bearish sentiment has now converted to
the bullish side in an even bigger way. How's that sound to you?

With all that massive buying today the VIX managed to behave
itself, trading in absolute perfect range between its 50 and 200
DMA as well. We currently consider it in benign territory although
it bears watching from here.

Daily chart stochastic values on all major indexes are still near
or within the 20% oversold range and have forever to move up from
here. That doesn't mean we will, it simply means we could before
becoming overbought on a long-term basis once again.

Should we go out and load the trader's truck with LEAPs? We hope
you did that last night. Seriously, there is a lot of upside
possible here but don't expect it all at once.

Call buyers spoiled from the previous couple of years where fall
rallies went straight up and never looked back will most likely
be very disappointed going forward. The speculative bubble that
just popped cannot reasonably be expected to form once again any
time soon.

Option traders on the other hand will revel in this environment.
Call buyers will slowly fall by the wayside but option trades can
enjoy 100+ and 200+ daily swings in each direction on a frequent
basis. Puts will be as profitable or much more so and those who
master both sides of the market can and will get very rich indeed.
We never said it'd be easy but we promise it will be worth it.

Market Sentiment honestly doesn't care which direction those 200+
range days move just so long as they keep up the good work!

*****

VIX
Thur 9/28 close; 21.95

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
*************************************************************
                                        Thurs         Sat
Strike/Contracts                        (9/28)       (9/30)
*************************************************************
CBOE Total P/C Ratio                     .48

Equity P/C Ratio                         .44


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
**************************************************************
                                        Thurs        Sat
Strike/Contracts                        (9/28)      (9/30)
**************************************************************
All index options                         .85

OEX Put/Call Ratio                        .86

30-yr Bonds
Thursday 9/28 close; 5.88%

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:
810 - 795               16,770        3,773        4.44

790 - 775               10,102       10,475         .96

OEX close: 773.32

Support:
770 - 755                15,410       11,876        .76***
750 - 730                   134       15,735     117.42***

Maximum calls: 800/7,501
Maximum puts : 750/8,484

Moving Averages
 10 DMA  774
 20 DMA  794
 50 DMA  801
200 DMA  783


NASDAQ 100 Index (NDX/QQQ)
Resistance:
101 - 99              14,304       3,415          4.19
 98 - 96              15,020      16,545           .91
 95 - 93              24,184      24,975           .97***

QQQ(NDX)close: 92.23/32

Support:
 92 - 90              26,911       27,476         1.02
 89 - 87               6,057       39,315         6.49
 86 - 84               1,153       18,258        15.84***

Maximum calls: 95/11,766
Maximum puts : 88/16,901

Moving Averages
 10 DMA 91
 20 DMA 91
 50 DMA 93
200 DMA 94


S&P 500 (SPX)
Resistance:
1500                   18,357        17,965          1.02
1475                   18,409        13,590          1.35
1460                    2,120         1,326          1.60

SPX close: 1458.29

Support:
1450                   81,244         12,553         1.52
1425                    7,724         18,168         2.35
1400                    1,271         11,432         8.99


Maximum calls: 1475/18,409
Maximum puts : 1425/18,168

Moving Averages
 10 DMA 1447
 20 DMA 1472
 50 DMA 1475
200 DMA 1447

*****

CBOT Commitment Of Traders Report: Friday 9/22
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
Total Open
Interest %        13.37% net-long    11.78% net-short

NASDAQ 100
Total Open
Interest %          .04% net-long     8.9% net-short

S&P 500
Total Open
Interest %        29.07% net-long    10.57% 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. *Data compiled on 9/26 by COT

Bullish:
Fed's finished
Benign government reports
Broad rally today
Disparity in overhead call/put ratios

Bearish:
Oil Prices (falling)
COT reports (changing?)
Recent pre-warnings, downgrades
Broad market's break of critical M/A support
Market leaders breakdown


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

As of Market Close - Thursday, 09/28/2000

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

DOW   Industrials      10,824      10,550  10,850     **
SPX   S&P 500           1,458       1,415   1,465     **
COMPX NASD Composite    3,778       3,600   3,950
OEX   S&P 100             773         754     780
RUT   Russell 2000        523         500     525
NDX   NASD 100          3,725       3,500   3,800
MSH   High Tech           990         945   1,020     **

BTK   Biotech             800         740     820
XCI   Hardware          1,369       1,320   1,430
GSO.X Software            463         440     470
SOX   Semiconductor       901         850   1,000
NWX   Networking        1,207       1,140   1,250     **
INX   Internet            506         475     545     **

BIX   Banking             625         585     635
XBD   Brokerage           648         620     685
IUX   Insurance           774         720     780     **

RLX   Retail              821         800     875
DRG   Drug                409         365     415
HCX   Healthcare          855         805     855
XAL   Airline             145         140     152
OIX   Oil & Gas           307         296     332

Six alarms were hit in the past two sessions, with IUX triggering
the sole resistance alert.  The remaining five alerts were at
support levels.  Today's rally gives traders an excellent
opportunity to assess risk/reward profiles for the sectors you're
interested in.  Lowering support (DOW, SPX, MSH, NWX, INX)
Lowering resistance (COMPX, OEX, RUT, NDX, XCI, INX, XBD) Raising
support (OEX, BTK, HCI, GSO.X, SOX, BIX, XBD, HCX) Raising
resistance (IUX)


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

Spreading The Risk
By Molly Evans

When most people think of the stock market, they envision that
when it goes up, that's very good.  When it goes down, obviously,
that's bad.  As option traders, that's not necessarily the case
for ourselves unless we're positioned adversely to the opposite
side of the pendulum market swings.  Now clearly, on any given
day, not everything is going up or down.  If you are holding
positions diversified over various sectors, something is pulling
back while another is pedaling ahead.  You fret over whether it's
time to cut what's losing or to take profits on what's winning.
These are the mental gymnastics of traders everywhere.   The
market has been a killer to anyone who dared go long the wrong
stock as of late.  The shorts have become accustomed to getting
the wind knocked out of their plays for so long that they don't
know what to do with success so they probably cover too soon or
too late (like today) and in the end no one is happy as the market
slowly bleeds and then whipsaws to the other extreme.

During my training in anesthesia, we were constantly told that
if something isn't working, we have to do something different
and do it fast.  If the securing of a breathing tube into the
windpipe isn't going well, the practitioner has to change the
blade they're using or realign the patient's head for a better
axis.  If the patient is not breathing, that tube HAS to get in
there.  Anesthesia runs pretty automated once the bus is on the
road but human intervention is what gets it there.  In comparing
this to our world of trading, it would follow that if a portfolio
is gasping, one simply MUST do something to stop it.  We've got
to give the portfolio a breathing tube, so to speak, and that is
by cutting losses and good money management.  You know the deal.
No more than 2% of portfolio at risk in any one position, wait
for the entry off your favorite technical indicator and get out
when it violates your preset limits or achieves the goal.  Easy.
Not really.  We're all human and have preconceived notions about
how the play is going to go.  When it doesn't, we tend to think
that we just misjudged a little bit, are willing to forgive the
stock's transgression and wait for it to do what we knew it was
supposed to do.  Afterall, we wouldn't have entered the trade if
we didn't think it was going to go our way.  And that my fellow
traders, is how you, me and most everyone else ends up in trouble
at least one time or another.

Once we figure out how to stop losing money and come to the
realization that taking winnings out of the market isn't so easy
afterall, how do we still manage to bring home returns superior
to what a mutual fund could do?  How can we get off the
emotional roller coaster of cheering a stock on or cussing when
it goes against our bias?  What would it be like to put that bus
on the road and sit back and wait to just tweak the play a little
now and then?  Positioning your portfolio into spreads can do it.
We've talked about this numerous times on the site and have
ongoing columns dedicated to picks suitable for spreads.  However,
I had the opportunity to talk with one of our readers in-depth
about how he likes to maneuver himself around in the market
and wanted to tell you about it.  He's a big spread fan and as
such, is quite happy to keep taking base hits and doubles,
forgoing homeruns.  Who's had a homerun lately anyway?  Some, I
would suppose, but not many.

G, as I will call him, has been trading options for ten years but
has gradually converted himself into a more conservative trading
style.  He is no longer subject to the incredible swings in
portfolio value inherent with a strictly directional investing
style. In fact, G really doesn't mind which way the market moves,
just so it does.  His favorite play is the calendar bull spread,
buying LEAPs and then selling OTM calls against them.  You might
also hear these referred to as Bull Debit Spreads because they
will always require a debit of cash to implement.  The lower
strike costs more than the higher strike you're selling.  The
beauty in this trade is in capturing the time premium month
after month and marching the strikes upwards as the stock
advances.  He does these with stable stocks as it just isn't
feasible to try and capture the tops and volatility of the wild
ones.

I asked what he does if the stock moves up to the strike he
sold as it's nearing expiration day and he is at risk for being
assigned.  No problem, he rolls it up by buying back the call and
selling the higher strike.  He doesn't want to be assigned and the
underlying LEAP is gaining in value along with that move anyway.
It's not that big of a deal to have to buy back the call to close
the position, and then turn right back around and sell a higher
out-of-the-money strike.  Another trick, and more power to you if
your broker will allow you to do it, is to rewrite the next month's
calls on expiration Friday without buying back to close the
expiring previously written calls.  He is in effect writing naked
calls for the weekend to capture the volatility and little bit of
time on that Friday rather than the following Monday.

An equivalent position can be established with puts.  This would
be called a Bull Put or Bull Credit Spread.  Here you work
opposite the calls by buying the less expensive, lower strike or
more out-of-the-money put, and then sell the closer to the
underlying, more expensive put.  There is a net credit into
your account which you can collect interest upon provided you
have the margin collateral the broker requires until the spread
is closed.   Of course, you implement this put spread if you have
a bullish outlook on the stock because as the stock moves up, the
put you sold loses its value as does the one you own.  But you've
already collected your premium and are just waiting for them both
to expire worthless.  You could, though, buy back the put to
close if you think the stock is topping, keep the profits you've
already bagged thus far, and let your out-of-the-money put
appreciate as the stock drops.

G likes to implement a variety of spreads like this.  He's not a
one trick pony.  He's not afraid to play the dark side either.
Instead of simply buying puts when he thinks the stock is going to
come down, naturally he'll implement a bear spread.  For instance,
this is G's thought on a day like today:  a one-day wonder.  It's
still Fall, we've been spanked hard and the market wanted a rally.
Will it hold?  That's a million dollar question, isn't it?  G
doesn't think so, so what he did was pull the option chain for
one of those high flying babies today.  He wants to implement
either a Bear Call Credit Spread or a Bear Put Debit Spread.
When a bear spread is implemented with calls, you're taking in
a credit by buying the call with the higher strike and selling
the call with the lower strike.  The usual credit into the account
caveats apply and the play runs exactly opposite of what we
discussed in the Bull Put Spread.  You want the underlying to drop
so that your lower strike call will fall in its value and thus
you conceivably pocket the entire net amount should they both
expire worthless or you sell to close the lower strike once the
stock shows signs that it wants to rebound.

You can also construct the bear spread with puts by buying the
higher strike put and selling the lower strike put against it.
This offsets the cost of your more valuable short position.  You
are thus hedged and have limited your risk but also your profit
potential.

Think back one week ago.  This was the day Intel warned.  On
Friday morning, panic was in the air and what happened?  It was
all over very quickly as the sharks came to feed.  The market was
already in an oversold state and that was the point of maximum
irrationality to where smart money wants in, even if only
temporarily.  It was amazing to watch, much like today's frenzy
in fact.  Short covering is like that and traders who've been
beaten up, don't want to miss their chance on the long side if the
market is finally going to let them in on an upswing.

For G, last Friday was one of those great days that truly smart
traders wait and pray for.  I'll let him tell you about it in his
own words, "Friday was a special day.  A very good, very special
day.  Intel's announcement bombed the market.  Most of the tech
stocks dropped.  I entered orders to cover the short side of my
call spreads prior to the open.  And, I entered orders to write
puts against long put positions.  Bingo.  Tremendous fills within
the first 15 minutes of the day.  Then, the market gradually crept
back to about where it was the day before, (except Intel of
course).  On Monday, I'll rewrite the short side of several bull
call spreads and I'll cover the puts written at Friday's open.
My portfolio is generally bullish, suggesting that I think that
the market will rise.  When it went south on Friday morning, I
was still able to turn a profit as I'm constantly selling premium"
and thus able to leg out of a profitable play at points of extreme
as witnessed last Friday.

Spreads aren't for everyone, but everyone should give pause to
consider allocating some of their portfolios to doing it.  If for
nothing else, it will force you to become a more rounded trader
and to better understand the myriad of possibilities to profit
with options other than by simply buying calls and/or puts.


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

Will A Rotten Apple Spoil the Bunch?
By Buzz Lynn
Contact Support

What looked a broad-based rally today could easily retrace
following AAPL's earnings warning tonight.  Let's quickly
summarize today's business headlines:

PG and BMY announced that they would meet or beat estimates this
quarter - good.

Dole Foods warns citing (what else?) Euro and oil - bad.

A federal judge dismissed part of the Department of Justices'
lawsuit against tobacco companies that sought recovery of billions
of dollars to treat sick smokers - good (for business. . .no hate
mail from tobacco litigants please).

The government revised reported economic growth figures upward to
correct an error while initial job claims fell, indicating a tight
labor market - potentially bad with an FOMC meeting next Tuesday.

EXDS will buy GBLX's Global Center hosting unit for $6.5 bln in
EXDS stock giving GBLX approximately 20% ownership of EXDS - good
for GBLX and the telecom industry; bad for EXDS; good for all in
the long run.

Denmark rejected the Euro in a vote today, but Central Bank buying
may keep the Euro from plunging - mixed opinions.

Lehman Bros. Reiterates Buy rating on WMT - good.

CSCO and NT receive downgrades from Sanford Bernstein, but Merrill
and others rush to sector's defense - mixed opinions.

So what is the meaning of all this?  In the absence of any really
bad news, investors took today's snippets of good news as a reason
to rally, especially since the markets (NASDAQ in particular) have
been down for the last four days.  All that may come to an abrupt
end tomorrow following AAPL's warning tonight.  It wasn't just
slower U.S. sales.  It was slower sales "in all geographic
regions".  After closing at $53.50 today, AAPL traded down to $29
after hours.

We noted Tuesday, "according to First Call, 64% of the companies
providing estimates this quarter will miss earnings, vs. 55% for
the previous quarter, as reported by briefing.com.  That's a big
reason to stay concerned."  INTC, AAPL, EK, AA, DOL, CUM, FMO, G,
ROK, and GT have all warned and been severely punished - generally
30% or more.  Despite that earnings warnings effectively wind down
after tomorrow's close.  That still leaves one more day and
nothing says it can't happen again over the weekend for those
companies that report later in October.  Unfortunately, there is
still time to disappoint.

The fact is that this market still has highly valued companies
lined up like ducks in a carnival gallery.  The only reward for
meeting or exceeding earnings is in living to make the cycle
again.  The punishment is getting shot without hope of recovery
anytime soon.  That said, it's a bit early to get bullish despite
the technical test and bounce from support levels on heavy volume.

Window dressing will be on the menu and S&P additions get
announced tomorrow, which could keep the markets choppy too.
Technical indicators have yet to turn positive and give us the
bullish reversal signal.  While the FOMC convenes Tuesday next
week and shouldn't produce any surprises, we would be wary of
jumping in with both feet until we see some technical oscillator
buy signals first.

We recall being pretty excited about last Friday's recovery too.
Maybe today's rally is the start of something good, but in this
market, we'll wait another day or so to make sure it's the real
thing.   Fool me once, shame on you.  Fool me twice, shame on me.

***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 $91.56 +2.83 (-1.38 this week) Today provided a
nice daily recovery to an otherwise down week proving that an
oversold market can be become more oversold, and that a one-day
bounce doesn't make a trend.  Any gains today in INTC, MSFT, CSCO,
and DELL were just making up losses from earlier in the week.
WCOM was the only clear winner today.  Otherwise, technical
indicators MACD and stochastic have yet to give us the buy sign.
Don't misunderstand, the strong bounces off 3650 on the NASDAQ
yesterday and today, which equate to about $88 on the QQQ, make
for great daytrading possibilities, but have yet to get our MACD
into positive territory on a daily chart.  While the stochastic is
now above 20%, MACD has yet to confirm the move.  Selling time
looks good to us.  Resistance is good at $93.50 and $95.  With
APPL's warning tonight, you may want to stand aside until next
week.

Calendar Spread:

While the upturn may be near, we still are not bullishly confirmed
on the chart to go long.  That said, let's sell some time value
just before a weekend, shall we?  That way, premium evaporates on
the buyer into our account.  Remember, we want to buy the long leg
cheap at support, and sell the short leg dear at resistance.  Now
may be the time to do the latter if AAPL's warning puts pressure
on the technology horizon.  Watch for a rollover at $93.50 or $95.

BUY  CALL JAN- 95 QVQ-AQ OI= 3609 at $ 8.75

SELL CALL OCT- 95 QVQ-JQ OI=11766 at $ 2.69, ND = 6.06 or less
SELL CALL OCT-100 QVO-JV OI=10362 at $ 1.06, ND = 7.81 or less

Long Call:

Today actually looked great for daytrading on a 30 or 60-min
chart.  However, since we are most interested in capturing a
directional move, we still need to wait for the no longer oversold
stochastic (over the 20% line) to be confirmed with a positive
MACD.  Despite today's rally, we aren't there yet.  Support is at
$90 and $88 with resistance at $93.50 and $95.  Target shoot where
you like or wait for the technicals.

BUY CALL OCT- 90 QVQ-JL OI=11429 at $5.63 SL=3.75
BUY CALL OCT- 95 QVQ-JQ OI=11766 at $2.88 SL=1.25
BUY CALL NOV- 95 QVQ-KQ OI=  500 at $5.25 SL=3.25

Bullish Put Credit Spread:

Four down days deserved to be greeted with an up day.  but that
doesn't mean the trend has reversed.  Until we see a MACD
confirmation of the no longer oversold stochastic, we should not
be eager to jump into this play.  Remember, this is for
experienced traders only.  The intent is to sell a put and buy a
lower strike price put for protection, meanwhile taking a credit
into our account.  It's like a naked put with a safety net, but it
still requires margin usage.  Ideally, we enter at the bottom of a
trend and use a rising market to have both positions expire
worthless.  We then keep the whole credit.  Follow the math below!
This one looks juicy just before a weekend - value decays while we
mow the lawn and sleep this weekend.

SELL PUT OCT-90 QVQ-VL OI=16765 at $2.50
BUY  PUT OCT-85 YQQ-VG OI=10832 at $1.38

Net Credit = $1.13 or more

Average Daily Volume = 19.5 mln


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

OEX - S&P 100 $773.32 +14.69 (-0.76 this week) The overall market
cooperated today sending the OEX bouncing off Tuesday's and
yesterday's lows around 752-755.  It also bounced off the low
Bollinger band giving us the signal that the reversal may finally
be near.  Now we need to see OEX turn stochastically positive by
moving over the oversold 20% level, followed by a positive MACD
confirmation.  When that happens we will likely be at the
beginning of a sustainable uptrend.  Unfortunately, one bad apple
(AAPL) can spoil the bunch and the oversold can become more
oversold.  We'd opt to wait until next week to enter any trades
here.  That way, the effects of the S&P reshuffling and window
dressing changes will have run their course, or at least be
manageable risks.  Support is at 770, 750, 740, and rock solid at
730.  Resistance is at 775, 780, mildly at 790, then again at 800.

Long Call:

Today's rally did not give us a stochastic or MACD buy signal on
the daily chart.  The stochastic, despite last Friday's brief poke
above 20%, remains in oversold territory.  MACD has not been
positive for all of September.  If today's rally has any legs,
that may about to change.  Don't jump the gun but wait for the
confirmation on the daily chart before getting in.  For those with
a bit more time to watch, you can use the same signals on a 30 or
60-min chart to position trade or daytrade.  As noted above,
support is at 770, 750, 740, and rock solid at 730.  Resistance is
at 775, 780, mildly at 790, then again at 800.

BUY CALL OCT-750 OEZ-JJ OI=  52 at $23.63 SL=16.50
BUY CALL OCT-760 OEZ-JL OI= 475 at $17.00 SL=12.25
BUY CALL OCT-770 OEZ-JN OI=1071 at $12.13 SL= 9.25
BUY CALL NOV-770 OEZ-KN OI=  99 at $19.88 SL=14.50

Bullish Calendar Spread:

Now might be a good time to sell some time if we AAPL puts a drag
on the markets tomorrow.  Like the QQQ above, our job will be to
sell the short leg dear at resistance while buying the long leg
cheap at support.  If the market rolls over, feel free to grab
some of that time value decay for the weekend, especially if
today's rally turns out to be a one-day wonder.  Resistance is at
775, 780, 790, and 800.

BUY  CALL MAR-800 OEX-CT OI=  22 at $40.63

SELL CALL OCT-800 OEX-JT OI=7501 at $ 4.00, ND = 36.63
SELL CALL OCT-820 OEX-JT OI=6466 at $ 1.00, ND = 39.63

Bullish Put Credit Spread:

In this kind of play, we must be comfortable that we have found a
bottom.  We have our bounce off the lower Bollinger band, but
still need to break the 20% oversold line with the fast stochastic
and confirm it with a positive MACD.  That's when we'll know we've
hit bottom.  At that point, our job it instigate a "safe" naked
put by buying a lower strike put for protection and let the trend
make our position expire worthless.  Meanwhile we keep the credit
we got when we entered the trade.  The risk is that OEX drops
through the floor and we are liable for the difference between
strike prices minus the credit.  This play is better suited for
advanced traders, but know the strategy and your threshold of pain
before entering.

SELL PUT OCT-765 OEZ-VM OI=2514 at $10.00
BUY  PUT OCT-760 OEZ-VL OI=2608 at $ 8.88

Net Credit = $1.13 or more

Average Daily Volume = 1266



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

Index      Last    Mon     Tue    Wed    Thu   Week
Dow    10824.06 -39.22 -176.83  -2.96 195.70 -23.31
Nasdaq  3778.32 -62.54  -52.12 -32.80 122.02 -25.44
$OEX     773.32  -8.07   -9.14   1.76  14.69  -0.76
$SPX    1458.29  -9.69  -11.82  -0.64  31.72   9.57
$RUT     523.81  -3.44   -5.49  -1.76  15.68   4.99
$TRAN   2572.32 -41.51  -37.56  -3.54  57.79 -24.82
$VIX      21.95   0.23    0.68  -0.72  -2.41  -2.22

Calls

CFLO     145.50  13.84    5.97  -1.50 -10.00  18.31  Profit taking
SEBL     116.47   2.75   -2.50   3.31   7.91   3.56  All-time high
AFL       64.56   0.94    2.25  -0.56  -0.88   2.63  Fractional
CIEN     130.00   6.81   -0.44  -4.00   6.88   2.38  Setting records
AGIL      92.00   3.69   -0.69  -1.19  10.19   1.81  Broke out
CAH       90.94   0.31    2.38  -2.00  -2.06   0.69  Dropped
QCOM      74.81  -3.00    3.38  -0.50   1.94  -0.13  Still holding
ENZN      71.00  -1.94   -1.38   3.06   0.19  -0.25  Bargain hunt
VRSN     208.38  -2.69   -5.63   7.88  13.94  -0.44  New
JNPR     228.00   2.25    2.63  -5.50   3.00  -0.63  Still strong
BRCM     256.19   3.50    4.75  -9.25   8.44  -1.00  Support held
MERQ     156.31   4.56    1.75  -9.25  10.31  -2.94  Rebounding
FRX      118.91  -2.94   -1.88  -0.19   4.47  -5.00  Recovered
ITWO     192.50  -3.56    1.50  -3.38  11.75  -5.44  On fire today
PEB      119.44   0.75  -10.81   3.81   6.69  -6.25  Rejoice
IDTI      96.53  -0.19    1.19  -7.75   7.34  -6.75  Heckava bounce
CHKP     153.25   0.13   -3.31  -5.44   9.44  -8.63  Came back

Puts

CPTH      58.88   1.94   -4.25  -5.69  -2.94  -8.00  New
OMC       74.19  -1.06   -3.00  -2.75   4.19  -6.81  Doctor's order
CMOS      31.00  -2.88   -1.13  -1.06   0.19  -5.06  Lower highs
EPNY      82.50  -2.13   -1.56   0.00   4.00  -3.69  Dropped
DITC      42.00  -5.56    3.31  -0.38   5.13  -2.63  Dropped
AFCI      37.94   0.50   -1.44  -1.63   2.88  -2.56  Not dead yet
MU        49.50  -6.00    3.19   2.00  -2.13  -0.81  Not convinced
PCS       34.50   3.56   -0.06   0.56   2.44   4.06  Dropped


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:
*****

CAH $90.94 -2.06 (-1.44) Temperate volume escorted CAH lower as
profit taking took a foothold in the past two sessions.  Stop
losses would have easily protected against the recent downdraft.
The overall lack of gains amid the broad rallies plainly
indicates CAH has peaked.  Today's weak close below the
intersecting 5-dma ($92.81) and 10-dma ($91.79) is definitely a
bearish sign too.  So while the bullish series of all-time highs
off the low $80's was exciting and lucrative, it's time to exit
this momentum play.  CAH is expected to report earnings around
October 24th.


PUTS:
*****

EPNY $82.50 +4.00 (+0.31) It appears that EPNY has settled into a
trading range, spanning 10 points, between $75 support and $85
resistance.  Volume has been tapering off dramatically this past
week.  Support at $75 has been tested numerous times successfully
and the recent selling pressure on accelerating volume has
abated.   Yesterday in a down market, EPNY was able to finish
unchanged on less than average volume.  Today the stock closed up
5.10% on about half of its ADV.  In doing so, EPNY managed to
close above both its 5- and 10-dma (now at $80.31 and $81.46) for
the first time in almost three weeks.  Though volume on today's
move was low, it appears the downtrend may be over and with that,
we are closing this put play.

PCS $34.38 +2.31 (+6.38) The shorts continued to cover their
positions on Wednesday.  Even as the Techs took a rest, PCS
found itself in positive territory for the majority of the day.
By days end Wednesday, PCS had settled at $32.06, up $0.56 on
the day accompanied by lighter than normal volume.  In early
morning trading Thursday, PCS continued its ascent, climbing by
over $1 to $33.06.  As the Tech sector picked up steam, PCS
buyers continued to appear, pushing it up to $34.25 by mid-day.
Control remained in the buyer's hands all day as PCS finished up
to finish the day at $34.38, comfortably above its 5-dma of
$30.40.  It feels as if all the bad news may be priced in to PCS
now, as the buyers seem to be supporting PCS and other telecom
related issues.  As a result, we are going to take our huge
profits and run.  Thanks PCS!

DITC $42.00 +5.13 (+2.50) As suspected, the low from Tuesday
marked the bottom for DITC.  The jury was still out yesterday,
but today's strong recovery definitely boots DITC off the put
list.  Opening at the low and finishing very near the high for
more than a $5 gain has the definite earmarks of a recovery.
Throw in bullish reversals on the MACD and Stochastics, and a
close over the 10-dma for the first time in 3 weeks, and the
outlook is anything but bearish.  Hopefully you followed our
advice and kept those stops tight, as they should have taken
you out of the play during today's steady upside move.


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The Option Investor Newsletter                 Thursday 09-28-2000
Copyright 2000, All rights reserved.                        2 of 2
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********************
PLAY UPDATES - CALLS
********************

ITWO $192.44 +11.69 (+6.25) ITWO was on fire today with a little
help from the broader NASDAQ market.  After five sessions of
selling, the NASDAQ was due for an oversold bounce and traders
piled into their favorite momentum plays.  Also helping out our
play was yesterday's announcement that Robert W. Baird initiated
coverage of ITWO with a Market Outperform.  And the stock did just
that today, tacking on a 6.5% gain.  The trend remains steady and
ITWO traded right down to its 10-dma at $181.44, just after the
open, only to explode throughout the day.  Volume was stronger by
one mln shares over the ADV.  Depending on how the AAPL warning
affects the market tomorrow, this momentum may be too strong to
get in front of.  In that case, $200 will be the next price
objective overhead.  Today's high of $195.75 will also be
resistance.  Even if the market slips in the morning, look for
buyers to step into ITWO.  Any bounces from $190, $185, or even
$180, if it goes that far, will provide entries into this high
flier.

IDTI $96.56 +7.38 (+0.44)  That was one heck of a bounce and
entry point.  Boy, I hope somebody jumped on that one!  Ticking
in with a low of $86.13 near the open, volume stepped up and
quickly drove the stock to $92 where it based during midmorning.
It was a very nice day trade, yet we want to convey a sense of
caution.  There has been a few development with this play that
concern us.  Wednesday's selloff brought IDTI below its 10-dma,
which is now at $96.67 and acted as resistance today.  In regards
to this, IDTI could not get back to yesterday's opening price near
$99.  This may be a preemptive signal that profit taking could
continue.  Also, today's volume was not as strong as the volume
to the downside on Wednesday.  We have been riding this play for
quite a while, up nearly $30.  We would not initiate new plays
unless IDTI moves convincingly through the $99 range and onto
$100.  Tighten up stops and watch carefully as the sellers have
been rearing their ugly heads.

AGIL $92.00 +10.19 (+12.00) Struggling with strong resistance at
$85, AGIL finally broke out today, and it did so in style.
Yesterday was a relatively quiet day for AGIL, as the stock found
support above its 10-dma (now at $81.23) and closed on its 5-dma
(at $84.07), providing aggressive traders with a point of entry.
Those who didn't take advantage of the opportunity yesterday got
another chance today as another bounce above its 10-dma in the
early morning lead to a break though its 5-dma.  AGIL spent the
rest of the day moving higher, breaking through resistance at
$85, to close up 12.45% on 230% of ADV.  There was no news to
accompany the move up but we'll take the gain nonetheless.  With
resistance at $85 and $90 cleared, look for those two points to
be levels of support as AGIL attempts to challenge $95 and then
the psychological $100.  Look for a bounce off support,
especially off $90 where the 5-dma also currently resides as a
possible entry point for the aggressive and a break above $95
with conviction for the more conservative.

CFLO $145.50 -10.00 (+8.31) After such a great start to the week,
a little profit-taking is not surprising, perhaps even healthy.
Encountering resistance at the $160 level on Tuesday, the stock
continued to do so on Wednesday.  Hitting a high of $160 early in
the day brought in the sellers, closing the stock down $1.50,
with volume coming in at 252% of ADV.  Today, CFLO gapped down at
the open and spent the early part of the day selling off.
Finding support near its 10-dma and $140, the stock quickly
bounced, providing aggressive traders with an ideal point of
entry.  CFLO closed he day down 6.43% on 240% of ADV.  While
selling volume these past couple of days appears to be high, it
should be noted that it is about average when compared to the
large volume to the upside this past week.  Conservative traders,
however, will want to see CFLO break through $150 (just above its
5-dma) before making an entry.  Conservative traders may be
target shooting for another bounce off strong support at $140.

MERQ $156.31 +10.31 (+7.38) Yesterday gave investors in MERQ a
little scare as the stock was dragged lower by the weight of a
falling NASDAQ.  The stock spent the day moving lower in
stair-step fashion to close down $9.25, about 6%.  On the bright
side, volume was low, at only 90% of the ADV.  Today saw MERQ gap
down at the open.  Getting near strong support at $140, the stock
quickly bounced as buyers stepped in eagerly to buy the dip.
This turned out to be an excellent entry point as MERQ also found
support from its 10-dma at $142.20.  From there the stock spend
the rest of the day moving ever higher.  MERQ closed up 7% on
higher than average volume.  In doing so, it more than erased
yesterday's drop and finds itself once again challenging its
all-time highs.  A break above $160 on volume would be a
conservative entry point.  Aggressive traders may want to look
for a bounce off the 5-dma (at $151.85) or support at $150.

CHKP $153.25 +9.44 (+0.81) We got the pullback, mentioned in the
update Tuesday night, early Wednesday morning as the Techs
struggled.  CHKP saw an early morning low of $145.75 and by mid
day was still at those levels on average volume.  However, as
Wednesdays trading wore on, the selling pressure in the Nasdaq
intensified and CHKP felt the pressure, closing below the support
levels at $145-$146, finishing down $5.44 at $143.81.  Thursday,
the selling pressure continued as CHKP slipped to an early morning
low of $141 before rebounding smartly to $146, all within the
first hour of trading.  By mid-day, the Nasdaq heated up and CHKP
followed, moving into positive territory by more than $6 at $150.50.
As we headed toward the end of trading, the Tech sector remained
strong.  CHKP followed suit closing up $9.44 on volume of 2.69 mln
shares, to finish at $153.25 just above its 10-dma (currently
$152.10).  It is possible we may see a continued upward move from
here, so aggressive traders may need to use intraday pullbacks as
a way to enter this trade.  A pullback to the 5-dma at $149.10
would offer a more conservative entry point.

AFL $65.00 -0.44 (+2.19) You can't knock a good stock down.  This
AFL has been a star, making its own way in this difficult market
environment.  Wednesday was no different, as AFL pulled back only
fractionally in early trading, only to push back up to the flat
line my mid-day.  As we finished up on Wednesday, AFL found
itself down $0.50 at $65.50 on robust volume once again.  Of note
Wednesday was Aflac's recognition by InformationWeek magazine as
being named to the InformationWeek 500 Listing of Information
Technology Innovators.  Thursday morning felt like business as
usual for AFL, giving us the usual light volume pullback, moving
down by only $0.38 to $65.06.  Half way through the trading day,
Aflac was still fractionally below the flat line, as the focus
moved to the Tech sector.  The rally in the Techs continued for
the remainder of the day and subsequently, AFL rested for the
balance of the day.  Volume was a light 673K shares today. Traders
could look for a continued light volume pullback to the 5-dma or
10-dma at $63.80 and $62.20, respectively, along with a volume
supported bounce as an ideal entry point.

SEBL $116.63 +8.06 (+11.63) As the Nasdaq showed weakness, SEBL
bucked the trend Wednesday finishing at a new closing high.  By
mid-day, SEBL had been as high as $111.38, but, some selling
pressure late in the day caused SEBL to close at $108.56, up
$3.31 for the day.  Strength was the theme for Thursday morning
as SEBL moved up by $4 to touch $112.25.  As the day finished up,
the strong got stronger as SEBL pushed to a new intraday high of
$117.31.   In concert with the strengthening Nasdaq, SEBL posted
an all-time closing high of $116.63 on decent volume.  This horse
could keep galloping from here as momentum players pile in, so
traders may have to use intraday pullbacks to gain entry here.
Pullbacks to the $114 level or the $111 level could be bought
provided the bounces from those levels are accompanied by strong
volume.  The 5-dma is down at $105.90.  It is important here to
watch for profit taking.

QCOM $74.81 +1.94 (+1.81) Patience is running thin, but QCOM is
still a contender.  The object of this play is for a strong
momentum move to the upside of $80 followed by a run leading
into earnings.  The company is confirmed to report on November
2nd, after the market.  Granted that's five weeks into the
future.  But if the momentum takes hold and the market is
conducive to a rally, then the sky's the limit for this old-time
favorite.  While we didn't see any sharp moves or spikes in
volume in recent sessions, QCOM has established a higher level
of near-term support at $73 and $74.  The recurring tests at the
$75 mark is encouraging, but a breakout above the near-term high
of $78.13 would provide better confirmation.  Aggressive traders
may consider entries at the trailing 5 and 10 DMAs at $72.81 and
$72.46, respectively.  However, a return to the 100-dma ($68.56)
vicinity should send you running for cover.  In the news,
Qualcomm and Agilent Technologies (A), a test and measurement
equipment maker, announced they entered into a multi-million
dollar deal.  Under the terms of the agreement, it will allow
Agilent to use patents, software and chipsets to expand its line
of Code Division Multiple Access (CDMA) test equipment.

CIEN $130.00 +6.88 (+9.25) Bucking the trend of many techs in
recent sessions, CIEN continues to reach new heights.
Yesterday Ryan, Beck & Co restated a Strong Buy recommendation
and issued a $165 price target.  Sentiment remains strong
amongst the analysts that the fiber-optic companies will beat
earnings estimates; and thus, we're anticipating more upside
action over the short-term.  CIEN is expected to report on
November 16th.  The current momentum recently drove CIEN to a
new 52-week record at $136.25 on Monday.  The ensuing action
following the sharp upswing established a higher support level
at $124 and $128, which has held throughout the week.  The first
marks to conquer are $130 and $131.  Expect a bit more
resistance as CIEN attempts to stretch into new territory.  Dips
to the rising 5-dma line, now at $125.70, still offer the
enterprising trader solid entries.  While, in hindsight, today's
downdraft to the 10-dma ($118.09) offered a lucrative entry, be
wary taking positions on such deep cuts.

ENZN $71.00 +0.19 (-0.06) The strong gyrations amid active
trading provided opportunities for lucrative entries and exits
in the past two sessions.  If you had quick fingers on the
keyboard, ENZN demonstrated strength above $70 after amateur
hour on Wednesday and offered the opportunity to jump into the
building momentum.  The share price catapulted to $74.13, a new
52-week record, before it settled back into the vicinity of $71
for the remainder of the day.  The profit takers returned in
today's sessions and initially brought ENZN down a few notches.
But once again, the $66 level proved to be a solid launching
pad. ENZN bullishly finished the day at a respectable price
level. The bargain hunters are obviously out in force!

BRCM $256.19 +8.44 (+7.44) Things were looking pretty grim for
BRCM yesterday as selling pressures pushed the stock down
through support between $248-250.  Then, the bears pushed our
play down for a retest of support at $242, which fortunately
held up.  The recovery continued this morning, getting back over
$250 before the noon hour.  Steely-nerved target shooters could
have jumped in to buy the bounce as it occurred right in the
middle of the convergence of the 10-dma ($243.38), 30-dma
($244.69) and 50-dma ($239.19).  As the afternoon wore on, the
bears forced one more test of the $250 level before letting the
bears push the price up to close just below the high of the day,
putting our play back in the black.  It was nice to see the
recovery today, and while dips to support at $250 and then $242
look buyable, the markets are not looking like they have picked
a direction yet.  Discretion may dictate waiting for a solid
(read that as strong volume) move through the $260 resistance
level before playing.

FRX $118.91 +4.47 (-0.53) Recovering its composure in the middle
of the noon hour yesterday, FRX pulled itself up by its
bootstraps and recovered right into the close.  It was a relief
to see buyers step up to the plate at the $110-112 support
level, which is reinforced by the 10-dma (then at $112.56).
This support level is now stronger, given another successful
test under its belt and another intraday dip to this area is
definitely buyable.  While volume was nothing to write home
about over the past 2 days, it is holding above the average seen
since the LLY-induced selloff last month.  While it didn't
manage a new high today, FRX's recovery was respectable, tacking
on over $4, to close just over $2 from a new all-time high.  The
real fly in the ointment continues to be the broader markets,
and specifically earnings warnings.  The markets seem ready to
rally, but are having a hard time doing so in the face of the
daily earnings confessions.  October is just around the corner,
and for now, the best course of action may be to wait for a
convincing breakout to new highs before opening new positions.

JNPR $228.00 +3.00 (+2.38) Falling right at the open yesterday,
the only positive thing that could be said about JNPR was that
the price bounced just above the 10-dma (then at $214.25).
While today did see the price continue a modest recovery, the
jumpy nature of the price action today made it very hard to get
a good entry.  With the daily procession of companies coming to
the earnings confessional, the markets remain jittery, selling
off at the slightest provocation.  Recovering out of their
oversold condition this morning, it was clear that they really
wanted to rally and that is what they did, taking our play
along for the ride.  But the enthusiasm may be short-lived with
AAPL pressuring the tech sector in the after-hours session
today, warning that their earnings will not be up to snuff.
The $230 level is still looking like solid resistance, and
waiting for a volume-backed breakout seems the most prudent
entry strategy.  Intraday dips to the $224 support level,
followed by $215-217, are still buyable.  Just make sure that
buyers are stepping forward before you jump in - there's no
sense trying to catch a falling knife.

PEB $119.44 +6.69 (+0.44) Biotech buyers rejoice.  Despite
wild fluctuations in the broader markets, PEB is holding up
nicely and continuing to probe the $121 resistance level.  PEB,
which has recently changed its name to Applied Biosystems had
the good fortune to have UBS Warburg initiate coverage yesterday
with a Buy rating, and that could have been partially
responsible for the strength today.  Even with the large
decline on Tuesday, PEB managed to maintain support at the
10-dma (now at $111.83), and further dips to the $110-112 level
look attractive for new entries.  One item of concern is the
fact that the volume has been declining all week.  This may
portend some near-term weakness, or it could just be
consolidation ahead of a renewed assault on resistance.  Rather
than trying to guess as to what our play will do next, a more
cautious approach is to wait for strong volume to propel the
shares through the $121 resistance level before initiating new
positions.  With the unsettled market conditions, make sure to
keep your stops in place to protect against the unexpected.


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

MU $50.75 -0.88 (-1.25) The past three days have been low volume
relief for MU, after Monday's drubbing, which was a picture
perfect put entry by the way.  MU got its head above $50 on
Wednesday, and managed to close above that level today.  Yet,
there are two things that are worth noting:  if you look at the
intraday chart, resistance at $54.50 offered an entry before
rolling over midday on Wednesday;  then today, MU rolled
at $53, on a day that the NASDAQ was up over 120 points.  This
lower intraday high tells us that buyers just aren't willing to
push the stock higher.  In simple terms, a lack of conviction.
Another factor is the lower volume during the last two days.
Given the AAPL warning after the bell, MU will likely be hit by
sellers tomorrow.  A break through $50 will give even
conservative traders an entry.  Any intraday spikes up to $51,
$53, or $54 along with a rollover would provide entries as well.
On the downside, look for the stock to move toward support at $47,
and then possibly challenge Monday's low of $46.

CMOS $31.00 +0.19 (-4.88) Although finding some relief today on
the heels of the NASDAQ's 122 point gain, CMOS continue to sink
lower on the chart.  Lower high after lower high, traders look
for any pop in the stock to sell.  Wednesday's high was $34 with
resistance at $33 establishing itself as CMOS plunged in the
final two hours of trading, even as the NASDAQ came off its lows.
Today's high was $32.75, and after that was set, sellers took
down CMOS into the close, just off the lows of the day.  Bottomline:
CMOS ain't going up right now.  Selling volume increased into the
close and with the AAPL warning after the bell, we can expect there
to be a downward bias on hardware and computer-related sectors
tomorrow, including Semi stocks.  If CMOS spikes up during the day,
consider entries on rollovers from resistance at $32, $33, and $34.
If the CMOS heads lower, jump on in.  A break of $30 would attract
momentum shorts and even conservative traders might want to grab
an entry.  Support below $30 is wherever you want it to be, meaning
slim to none.

AFCI $37.94 +2.88 (+0.31) Wednesday morning provided you with
another good entry into AFCI, as it moved strongly to the plus
side in the first hour of trading.  After hitting an early
morning high of $38.88, it did pullback and slip into negative
territory by mid-day.  As you know, the selling pressure
heightened in the Nasdaq late Wednesday and AFCI felt the
pressure too, finishing the day down $1.63 at $35.06.  As we
got started Thursday, volume was light and price action was
fairly quiet as AFCI was down by $0.56 to $35.63 in the first
hour of trading.  AFCI picked up the pace in sympathy with the
Nasdaq as we approached the mid way point for the day and this
momentum continued into the closing bell.  Volume was a light
1.57 mln shares, which indicates that today's gains might not
have the conviction to continue higher.  Look for a failed rally
attempt from here to the $40-$41 level, the site of the 10-dma
(currently $41.30) or watch for a move back down through the
above-mentioned 5-dma on strong volume as ways to enter this
trade.

OMC $74.19 +4.19 (-2.81) Yesterday's high-volume downtrend was
just what the doctor ordered.  OMC quickly fell victim to
selling pressure.  It shattered the potential support at $70 and
slithered helplessly to $68.13, a new 52-week low, before buyers
stepped in to snatch a bargain.  Although, even in today's broad
market rally, OMC couldn't regain a position above the first
level of resistance near $75.  The stock is currently sandwiched
between the 5-dma ($73.98) and the 10-dma ($75.64).  Consider
taking entries on downward moves from the current level or buy
into the downtrend as OMC moves through $72.  The impending
acquisition with True North (TNO) and the possibility of losing
its major ad account with DaimlerChrysler should continue to put
negative pressure on the share price in the near-term.


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

VRSN - VeriSign Inc $208.38 +13.94 (+13.50 this week)

VeriSign provides Internet-based trust services that
authenticate and protect data so secure transactions and
communications can be conducted over the Internet,
intranet, and extranets.  Websites, enterprises, government
agencies, and even individuals use VeriSign's digital ID's
(digital certificates) with the encrypted information as
cybersafeguards for such activities as e-mail, home
banking, and credit card transactions.  Visa represents 14%
of total sales.

If you want security on the web, then look no further than
Verisign.  The company's custom-made e-commerce network
provides authentication and secure transactions.  With a
strong business model and an anticipated revenue growth of
55% over the next 3 years, VRSN is considered a favorite
among market participants.  A glance at VRSN's long-term
chart visually confirms investors' bullish sentiment on the
company.  The steady buying has kept the share price in a
very consistent trading channel of $150 to $200.  It's also
a relevant issue that VRSN is a split-candidate at this
price level.  The company has more than enough stock to
announce a stock dividend with 1 bln share authorized and
194 mln outstanding.  The big break came in today's incredible
rally.  The momentum pushed the shares through the upper
resistance to an intraday peak of $209.56!  With the company's
earnings report due next month around October 23rd coupled with
the bullish moves today, we're anticipating strong upside action.
Look for good volume at 4+ mln shares or better to move the stock
higher.  Due to today's incredible $13.94 advance, watch for
profit taking.  For price pullbacks, $188 and $190 mark support,
bolstered by the 10-dma ($190.92).  More conservatively, consider
taking entries on bounces off former resistance at $200 and buying
into strength as VRSN moves through the $210 level.

In the news today, Verisign announced that over 10,000 companies
have adopted its Payment Services.  This comprehensive e-commerce
solution enables businesses to create a secure online storefront
in a matter of minutes.

BUY CALL OCT-200 QVZ-JT OI=3736 at $20.50 SL=14.75
BUY CALL OCT-210*QVZ-JB OI=1099 at $15.50 SL=11.25
BUY CALL OCT-220 QVZ-JD OI= 954 at $11.50 SL= 8.75
BUY CALL NOV-210 QVZ-KB OI= 329 at $24.50 SL=19.00
BUY CALL NOV-220 QVZ-KD OI=  41 at $20.13 SL=14.50

Picked on Sep 28th at   $208.38    P/E = N/A
Change since picked       +0.00    52-week high=$258.50
Analysts Ratings    13-11-1-0-0    52-week low =$ 48.81
Last earnings 06/00   est=-0.01    actual= 0.07
Next earnings 10-23   est= 0.06    versus= 0.02
Average Daily Volume = 3.85 mln



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

CPTH - Critical Path, Inc. $58.88 -2.94 (-10.94 this week)

Critical Path, Inc. is the dominant global provider of
business-to-business Internet messaging and collaboration
solutions for the wireless, Internet-centric, telecommunication
and corporate markets.  Critical Path, founded in 1997, helps
businesses maximize the communication and revenue potentials of
messaging while minimizing costs.  Critical Path has built an
industry-leading global infrastructure with mail centers
connected to key Internet exchange points around the world.
Critical Path's technology currently reaches more than 125
million end-users through its customer relationships and more
than 25 million wireless devices.

September has not been kind to CPTH.  With its parent company
CMGI trading near its 52-week low, CPTH has been dragged along
for the ride, after encountering resistance at the $80 level at
the end of August.  Most recently, CPTH has bounced off support
at $63 only to find strong resistance at a lower high of $75.
This week started out promising for the company as the stock
managed to close above its 5- and 10-dma.  Connecting the highs
and lows since the middle of August reveals that CPTH has been
forming a symmetrical triangle pattern.  While Monday's action
was within the range of that pattern, Tuesday saw CPTH break to
the downside, putting it once again below the 5- and 10-dma.
While volume to the downside was low, confirmation came yesterday
in the form of a break below its 50- and 200-dma (at $63.33 and
$65.51) on 150% of its ADV.  Along with that, previous support at
$63 was violated as well.  Today saw CPTH continuing lower on
accelerating volume, despite news of an alliance with Elron
Software.  Unable to break through overhead resistance at $63 in
the early going led to the stock selling off to close down 4.75%
on over twice the ADV, even as most Tech stocks soared.  The 5-
and 10-dma, at $66 and $69, provide additional overhead
resistance.  Look for a failure to rally above $60 or $63 as a
possible aggressive entry point.  A break below $56 on volume
would be the target for the more conservative.  With many
Internet stocks going through tumultuous times, second-tier
issues with weak technicals such as CPTH are affected even more
so.  Make sure sector sympathy is on your side before making an
entry.

BUY PUT OCT-60 UPA-VL OI=280 at $6.75 SL=4.75
BUY PUT OCT-55*UPA-VK OI= 58 at $4.63 SL=2.75
BUY PUT OCT-50 UPA-VJ OI= 22 at $2.88 SL=1.50

Average Daily Volume = 988 K



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

MU - Micron Technology $50.75 -0.88 (-1.25 this week)

Micron is one of the world's leading makers of semiconductor memory
components. Two-thirds of the companies revenues come from dynamic
random-access memory (DRAM), flash memory, and other chips. MU has
added the newer Rambus DRAM and Synchronous DRAM products to its
line, and it is developing embedded memory for the digital video
and other markets. The other third of the company's sales come from
Micron Electronics (61% owned by MU), which makes PCs and laptop
computers and offers Internet related business services.

Most Recent Write-Up

The past three days have been low volume relief for MU, after
Monday's drubbing, which was a picture perfect put entry by the
way.  MU got its head above $50 on Wednesday, and managed to
close above that level today.  Yet, there are two things that are
worth noting:  if you look at the intraday chart, resistance at
$54.50 offered an entry before rolling over midday on Wednesday;
then today, MU rolled at $53, on a day that the NASDAQ was up over
120 points.  This lower intraday high tells us that buyers just
aren't willing to push the stock higher.  In simple terms, a lack
of conviction.  Another factor is the lower volume during the last
two days.  Given the AAPL warning after the bell, MU will likely be
hit by sellers tomorrow.  A break through $50 will give even
conservative traders an entry.  Any intraday spikes up to $51,
$53, or $54 along with a rollover would provide entries as well.
On the downside, look for the stock to move toward support at $47,
and then possibly challenge Monday's low of $46.

Comments

With an AAPL earnings warning after the bell today, hardware and
computer-related stocks, i.e. Semis, will likely experience some
selling pressure.  MU has had two days of low volume gains.  On
both of the last two trading sessions, sellers have taken advantage
of early morning strength and sold in the afternoon.  We don't
believe the selling is over.  Look for entry on a break of $50
as this newest earnings warning sinks in.

BUY PUT OCT-55 MU-VK OI=3593 at $7.38 SL=5.50
BUY PUT OCT-50*MU-VJ OI=4729 at $4.50 SL=2.75

Average Daily Volume = 7.30 mln



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

Stocks Recover Amid Optimistic Outlook...

The market staged a broad-based rally today as investors cheered
some positive earnings forecasts.

Wednesday, September 27, 2000

Technology stocks ended lower today as concerns over corporate
earnings sent Internet stocks into a downward spiral.  The Nasdaq
ended down 32 points at 3,656.  At the same time, the Dow average
finished almost unchanged at 10,628 in a volatile yet range-bound
session.  The S&P 500 index was also unchanged at 1,426.  Trading
volume on the NYSE reached 1.16 billion shares, with advances
beating declines 1,528 to 1,318.  Activity on the Nasdaq Exchange
was heavy at 1.94 billion shares traded, with declines outpacing
advances 2,454 to 1,550.  In the bond market, the U.S. Treasury
announced it will stage a buyback, repurchasing up to $1 billion
of callable long-term bonds.  The 30-year Treasury fell 23/32 on
the news, pushing its yield up to 5.89%.

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

American Home    AHP   OCT65C/OCT60C   $0.62   credit   bear-call
Veeco Inst.      VECO  OCT85P/OCT90P   $0.75   credit   bull-put
Federal Express  FDX   JAN40C/OCT45C   $4.50   debit    diagonal

All of our new positions offered favorable entry opportunities
during Tuesday's volatile trading.  Federal Express and Veeco
both dipped briefly while American Home Products rallied for a
short period in the active session.  Of course, each of these
entries may be improved if the market continues to move in an
extreme daily range.

Portfolio Plays:

Stocks finished lower today after an early rally faded amid news
of additional earnings warnings.  In recent weeks, the market has
been fixated on the upcoming quarterly reports and indications
that the economy is slowing, combined with record oil prices and
Europe's weak currency, has investors pessimistic about revenues
for many companies.  This time, the Internet sector was the main
culprit and the Nasdaq endured additional selling pressure when
Priceline.com (PCLN) warned that quarterly earnings will be below
consensus estimates due to a shortfall in airline ticket sales.
PCLN shares quickly tumbled and Yahoo! (YHOO), Amazon.com (AMZN),
eBay (EBAY), and America Online (AOL) all fell in sympathy.  In
other technology groups, computer hardware and software stocks
retreated, and semiconductor issues also slumped after an early
morning rally.  On the Dow, classic industrial issues slid lower
with Eastman Kodak (EK), Caterpillar (CAT), and Microsoft (MSFT)
leading the way.  In the broader market, energy stocks finished
higher on concerns about rising fuel costs as winter approaches.
Financial and retail stocks also had a tough time as investors
moved money out of blue-chip issues and in many cases, companies
were penalized or rewarded based on their future earnings outlook.

The Spreads/Combos portfolio experienced little notable activity
during the volatile session.  HNC Software (HNCS) was the leader
in the technology group, up over $3 to $72.  Our bullish credit
spread at $45 is expected to expire at maximum profit.  Global
Crossing (GBLX) continued its recent active movement, up $2 to
$30 on speculation that Exodus Communications (EXDS) is close to
a deal to buy the company's GlobalCenter Web hosting unit, which
manages companies' Web sites, for about $6.5 billion in stock.
The purchase of GlobalCenter would make Exodus the largest firm
in the fast-growing Web hosting market, allowing it to compete
against other leading companies in the group.  Global Crossing
will own a 20% stake in Exodus, becoming its largest shareholder.
Under a joint marketing agreement, Global Crossing would be able
to market the Web hosting services of Exodus to its own customers.
The marketing pact would give GBLX the benefit of offering those
services to its customers without the cost of maintaining and
building the Web hosting unit.  The pact will help reduce Global's
expenses and allow it to focus its funds and time on building
other aspects of its business.  That's certainly going to affect
the company's flagging share value and it should bring our long
term position back to profitability.  Read Rite (RDRT) also edged
higher and it appears to be comfortable in the $11 range.  Most of
the activity surrounding the company in recent weeks has been tied
to the launch of a new subsidiary called Scion Photonics, which is
developing optical wafers for use in the fiber-optic networks.
Scion is currently valued at approximately $100 million and if
their optical wafer prototype functions as touted, Read Rite's
share value will increase substantially.

On the downside, Ventro (VNTR) fell $2 to $9 and it now appears
there is no hope of finding a buyer for the company in the near
future.  However, the company's falling market cap will certainly
make it easier to negotiate a favorable price, should a potential
suitor emerge.  Steven Madden (SHOO) has also retreated below a
short-term (30-day) moving average and it may be time to salvage
the remaining premium in the position.  Knight Trading (NITE) has
slumped in recent sessions but there appears to be a relatively
solid support range near our cost basis at $30.  We will monitor
the issue for a move below that price.  A bullish stock that is
consolidating in our favor is St. Jude (STJ).  The new calendar
spread is offering a $2.75 credit for early exit; an $0.81 profit
in just over one week.  One of our recent credit strangles has
seen the implied volatility in its options decline favorably.  The
neutral position in Gemstar (GMST) offered a $1.25 profit to exit
the play early during the session.  Today's slump in shares of
Delphi Financial (DFG) offered a second-chance entry for those of
you interested in the recent put-credit spread, and the spike in
oil prices has boosted Smith International (SII) to near-term
highs, providing a new entry opportunity for traders who believe
the issue will be unable to sustain any future rally attempts.

Thursday, September 28

The market staged a broad-based rally today as investors cheered
some positive earnings forecasts.  The Dow closed up 195 points at
10,824 and the Nasdaq ended 121 points higher at 3,778.  The S&P
500 index was up 31 points at 1,458.  Trading volume on the NYSE
reached 1.2 billion shares with 1,878 advancers and 958 decliners.
On the Nasdaq market, 2,598 advancers led 1,391 decliners as 1.95
billion shares traded hands.  The U.S. 30-year treasury closed at
5.88%.

Portfolio Plays:

The market staged an unexpected rally today as investors went
bargain hunting for discounted shares.  Financials, biotech,
utility, drug and retail stocks all advanced, with only the oil
service group retreating amid slumping crude oil prices.  On the
Dow, Procter & Gamble (PG), Citigroup (CI), American Express (AXP),
and Walt Disney (DIS) enjoyed bullish activity.  Proctor & Gamble
led the way, up over $5 after reporting a favorable profit outlook.
The company said it can achieve double-digit earnings growth in
the coming year and the announcement boosted the share values of
many old-economy companies, which have been hammered in recent
weeks on concerns over the impact of the falling Euro and higher
energy costs.  In the technology group, networking shares managed
positive results and Internet stocks also made an impressive move,
rebounding to a positive finish after yesterday's brisk sell-off.
Semiconductors continue their short-term rally, pacing the advance
for a second consecutive session.  Analysts say that third quarter
earnings will be the market's upside catalyst as we muddle through
the seasonally soft period of the year and when the top companies
begin to report favorable numbers, stocks will rally to new highs.

Our portfolio greeted today's activity with great relief as many
of the bullish positions were approaching key technical areas.  A
number of technology issues rallied during the session and there
were also some excellent gains in the industrial issues.  Adobe
Systems (ADBE), Agile Software (AGIL), Manugistics (MANU), and
Qlogic (QLGC) led the big-cap category and Global Crossing (GBLX)
continued to recover, up almost $2 after Exodus (EXDS) officially
announced it would buy Global Crossing's GlobalCenter Web hosting
unit for $6.525 billion in stock, making it the biggest company
in the Web hosting market.  Federal Express (FDX) was a big mover,
up over $2 as investors speculated in the transport sector.  Our
new diagonal position returned an $0.80 profit in one day!  Those
of you with a long term bullish outlook for the issue can remain
in the play until the technical indications change.  In the bank
and financial sectors, Knight Trading (NITE), Franklin Resources
(BEN) and Delphi Financial (DFG) participated in the upside move
but Allstate (ALL) led the way with a $2 rally to $35, a new high
for the year.  Our recent synthetic position can be closed for an
$0.88 profit.  With the broad market recovery, the down and out
issues came to life.  Sizable gains were seen in Engage (ENGA),
Loral Space (LOR), Lucent (LU), and Novell (NOVL).  The leaders
in the small-cap group were Maxtor (MXTR) and Caremark (RX), and
both issues are profitable in the calendar spread category.  One
last note, Gemstar (GMST) jumped $11 after News Corp. (NWS) said
it has agreed to buy Liberty Media's 21% stake in the company.
The deal is seen as positive for Gemstar and our short position
at $95 may be in jeopardy if the rally is sustained.  Monitor the
issue for further upside movement in the coming sessions.

Questions & comments on spreads/combos to Contact Support
******************************************************************
                         - NEW PLAYS -
******************************************************************
MAT - Mattel  $11.63  *** New Option Interest? ***

Mattel designs, manufactures and markets a wide variety of family
products on a worldwide basis through both sales to retailers and
direct to consumers.  Mattel's reportable segments are separately
managed units and include Toy Marketing, Consumer Software and
Operations.  The Toy Marketing segment is divided on a geographic
basis between domestic and international.  Domestic Toy Marketing
segment is divided into USA Toys, US Fisher-Price/Tyco Preschool
and other activities.  The Consumer Software segment consists of
educational, productivity and entertainment software products
developed and sold by the Learning Company division on a worldwide
basis.  The Operations segment manufactures toy products, which
are sold to the Toy Marketing segments.

Some increased trading activity has occurred recently in Mattel
options and there is little reason to explain the new interest.
Some traders suggested the speculation might be based on Mattel's
plans to sell its interactive toy unit, a division that has been
the subject of negative reviews in the past few months.  Other
traders offered comments on a new licensing agreement with a unit
of Walt Disney (DIS).  Last week, Mattel agreed to produce toys
based on Disney characters, including Mickey Mouse and Winnie the
Pooh, in all global territories except Japan.  In the new pact,
the Fisher-Price subsidiary of Mattel will produce preschool and
plush toys, dolls, and games based on classic Disney characters.
While it is unlikely that either of these issues is the culprit,
something favorable may be occurring in the company and we are
going to speculate on the future movement of Mattel's share value
with this conservative, long term position.


PLAY (conservative - bullish/calendar spread):

BUY  CALL  APR-12.50  MAT-DV  OI=2476  A=$1.62
SELL CALL  OCT-12.50  MAT-JV  OI=5192  B=$0.38
INITIAL NET DEBIT TARGET=$1.00-$1.12  TARGET ROI=50%


It is generally best to establish this type of spread at least
2 - 3 months before the long option expires, capitalizing on the
ability to sell another option against the longer-term position.
That is the basic idea in this spread play; selling time value
in the options when they are overpriced (high implied volatility)
and buying it back (if necessary) when they return to intrinsic
value.  Ideally, the spreader would like to have the stock finish
just below the sold strike when the near-term option expires.  If
the short options are in-the-money at expiration, he will have
to buy them back to preserve the long-term position.


******************************************************************
SEPR - Sepracor  $122.00  *** On The Move! ***

Sepracor is a specialty pharmaceutical company focused on the
cost-effective development of safer, purer and more effective
drugs that are improved versions of widely-used pharmaceutical
compounds.  The company develops and markets these drugs by
leveraging its expertise in chiral chemistry and pharmacology,
and experience in conducting clinical trials and seeking new
regulatory approvals for drugs.  Sepracor's Improved Chemical
Entities pharmaceutical development program has yielded an
extensive portfolio of drug candidates intended to treat a wide
range of indications in respiratory care, gastroenterology,
urology, psychiatry and neurology.  Sepracor is also broadening
its development focus to include discovery and development of
new chemical entities.  Recently, they introduced Xopenex, a
single-isomer form of the leading bronchodilator, albuterol.
Xopenex is the first pharmaceutical product developed and
commercialized by Sepracor.

Biotechnology and major drug issues have become favorable in
recent sessions and the renewed bullish activity in these
groups suggests that investors are using the sectors as safe
havens for growth speculation during sluggish periods in the
semiconductor and networking industries.  Sepracor is one of
the leading companies in this area and based on the positive
technical outlook for the issue, we have decided to initiate
a short-term spread position with a conservative outlook.  We
will target a higher premium in the position initially, to
allow for a reasonable pullback in the stock from its current
levels.


PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-95   ERU-VS  OI=1516  A=$1.00
SELL PUT  OCT-100  ERU-VT  OI=299   B=$1.43
INITIAL NET CREDIT TARGET=$0.62-$0.68  ROI(max)=14%


******************************************************************
                   - STRADDLES AND STRANGLES -
******************************************************************
ARBA - Ariba  $149.19  *** Reader's Request! ***

Ariba is the leading business-to-business e-commerce platform
and network services provider.  Through the Ariba B2B Commerce
platform; an open, end-to-end infrastructure of interoperable
software solutions and hosted Web-based commerce services, the
company enables efficient on-line trade, unique integration and
collaboration between B2B marketplaces, buyers, suppliers and
commerce service providers.  The functionality of the Ariba B2B
Commerce platform creates Internet-driven economies of scale and
process efficiencies for leading corporations around the world.
Their products include the B2B Commerce Platform, Marketplace,
Ariba Buyer, and Dynamic Trade.

One of our readers asked for another candidate in the neutral,
premium-selling category of options trading (that Jim favors).
Based on analysis of the historical option pricing and technical
background, this position meets our fundamental criteria for a
potential credit-strangle.  The issue has overpriced options, a
relatively well-defined trading range, and with today's rally and
the upcoming quarterly earnings (10/18), speculators are sure to
keep the premiums high in the OTM options.  The probability of
profit from this position is higher (80%-85%) than other plays in
the same strategy based on historical option pricing.  As with
any recommendation, the play should be evaluated for portfolio
suitability and reviewed with regard to your strategic approach
and trading style.  Many of you may favor an aggressive position,
selling options closer to the current price of the issue but, in
any case, due diligence is mandatory in this play!


PLAY (aggressive - neutral/credit strangle):

SELL CALL  OCT-195  IMU-JS  OI=305  B=$1.43
SELL PUT   OCT-110  IUR-VB  OI=301  B=$1.62
INITIAL NET CREDIT TARGET=$3.19-$3.25  ROI=10%
UPSIDE B/E=$198.25 DOWNSIDE B/E=$106.75




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