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Daily Newsletter, Tuesday, 10/03/2000

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The Option Investor Newsletter                   Tuesday 10-03-2000
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        10-03-2000        High      Low     Volume Advance/Decline
DJIA    10719.70 + 19.60 10857.70 10709.80 1.10 bln   1360/1524
NASDAQ   3455.83 -113.07  3639.29  3454.65 1.96 bln   1527/2543
S&P 100   758.03 -  5.23   774.09   757.15   totals   2887/4067
S&P 500  1426.46 -  9.77  1454.82  1425.28           41.5%/58.5%
RUS 2000  504.67 -  7.00   515.22   504.36
DJ TRANS 2498.18 + 33.76  2526.27  2465.02
VIX        24.39 +  0.96    24.39    22.35
Put/Call Ratio       .76
******************************************************************

Don't Fight the Fed

Score one for Greenspan and company today.  And to think, we all
figured that this meeting would be a non-event.  In fact, I had to
remind myself that there WAS an upcoming FOMC meeting.  Well, it
seems the FOMC intends to keep the lid on the market for now. It
was no surprise that interest rates were left unchanged, but most
traders were caught a little flat-footed when it was announced
that they were remaining in a defensive mode against the inflation
threat.

With recent economic data indicating that a slow down is occurring,
it was reasonable to expect that the FOMC would at least adopt a
neutral stance in regard to inflationary pressure.  The primary
reason they gave for continuing their hawkish tone - high energy
prices - may be the very reason they should consider lowering
interest rates.  Yes, high energy prices do lead to inflation, but
they can lead to recession in the long term as well, since
consumers have less discretionary spending.  Warning signs of
possible trouble were reported just this morning, with the 5th
consecutive decline in the Index of Leading (sometimes misleading)
Economic Indicators.  A set of 3 has historically been a precursor
to a recession, but the previous string of 5, which occurred in
1995, was of the soft landing variety, so we can't make a solid
conclusion yet.

So, we ended with a big minus 114-point day on the Nasdaq Composite
and the Dow lost most of a 138-point gain to finish up only 20
points.  For the Nasdaq, it's the third straight day of big "gap
up" mornings, followed be a close near the bottom of the day.  Is
it time for an up day?  Maybe, but we may be due for some pain
first thing in the morning.




With today's slip below the 3521 level and 3500 for that matter,
we now have an official confirmation of the double top formation
on the chart.  We were hoping for a double bottom at 3521 to build
a base.  Unfortunately, that support was broken.  I guess we
shouldn't be too surprised though.  I just never felt fear
gripping this market.  Sure, the "generals" were beginning to fall,
but the Volatility Index was not moving toward 30 and these
"gap up" mornings were just too optimistic.

When the climatic selling starts (as if today's volume of 1.9 bln
shares weren't enough), I look for a pivotal turnaround in this
downtrend - that day could be Wednesday, but it may take longer
than that to truly put in a bottom.  Late today, we saw sell
stops and margin calls dragging this market lower as it passed
under 3500.  If we get a gap down in the morning, we could see the
same type of capitulation selling that would be a buyable event,
at least for a one-day play.

But the outlook isn't so bad for the longer term.  Our old friend
Abby Joseph Cohen of Goldman Sachs kicked off today's early
morning bullishness.  Remember her?  She set the bearish wheels
in motion last March, when she said she was un-weighting techs
and moving heavily into financials.  The market did likewise.
She's the E.F. Hutton of the millennium - when she talks, people
listen.  The good news is that she likes technology again.  Couple
that with the historically strong season of November through March
and we are likely to see the bull market return soon.  It appears
she particularly likes the storage, network equipment, and
Internet infrastructure software companies - no surprise there.
They've been the strongest stocks all summer.  Names mentioned
were EMC Corp. (EMC), Network Appliance (NTAP), Juniper Networks
(JNPR), Cisco (CSCO), Oracle, (ORCL) and BEA Systems (BEAS).

Despite Abby's friendly words, the tech sectors suffered, some
more than others.  B2B stocks took it on the chin in a major way
today. Ariba (ARBA -14.59) and i2 Technologies (ITWO-17.88)
continued yesterday's sell off on the news that their "alliance"
had lost a major customer - the Global Healthcare Exchange.
Joining those two unfortunate stocks today was IBM - the third
member of the alliance.  IBM had some trouble of its own as rumors
circulated the trading floor that the company could pre-announce
an earningswarning, but no confirmation as of yet.  Add to that a
downgrade of Commerce One (CMRC -13.62) and the B2B sector was
down for the count.

Also hurting was the Software group - particularly stocks engaged
in B2B software.  Leading that group was Oracle (ORCL), which
tanked a full 9.50 points.  Many related stocks followed suit and
the Goldman Sachs Software Index took a massive 7.5% blow to the
downside.  Of course, the standout in the software industry was
tiny Corel (CORL +2.09), maker of WordPerfect and Linux operating
system compatible software, which just signed a $135 mln deal with
rival Microsoft (MSFT +2.54).

Thank Xerox, the world's top photocopier maker, for at least part
of today's selling.  The company warned AGAIN, that it would not
make earnings forecasts for the upcoming quarter.  Bad news from
XRX has come to be expected with their current mismanagement, but
the company's comments placed blame on a slowing U.S. and European
economy.  Those words made the entire tech sector uneasy, since
there are already plenty of worries about revenue growth rates.

A yellow flag should be thrown at Wit Soundview for a late hit on
the chip equipment stocks.  We can trust analysts to help us run
up stocks, but not to get us out in a timely fashion.  The
brokerage firm today downgraded the industry, citing slowing
growth prospects.  Falling into disfavor with Wit was Applied
Materials (AMAT), Brooks Automation (BRKS), Semitool (SMTL) and
Nanometrics (NANO).  In the chip sector, the equipment stocks are
generally the last to be upgraded and the first to be run back
down.  If that is the case, the worst might not be over for the
semiconductors.

But the carnage of the tech sector didn't carry over to the old
economy.  Banks finished well for a second day in a row, with
stocks like Citibank (C) looking pretty healthy.  Also looking
good is General Electric (GE), which finished up 0.54 points,
accompanied by some of the cyclical stocks, which buoyed the Dow
Industrials.

Institutional equity traders looking for a flight to safety had
limited opportunities today, since bonds were also trading lower
after the Fed announced a hawkish stance toward inflation.  With
the FOMC finger on the interest rate trigger, bond traders looked
for the exit doors as well.  The ten-year note lost 10/32 to
$99.09 and now yields 5.94%.

Looking again at the charts, the Nasdaq Composite could be
targeting a follow through of the double top formation, which is
twice the distance from the tops to the trough.  That would put us
at the May low near 3050, which would be tidy enough.  I'm not
sure it will get that bad though.  If the market gaps down huge
Wednesday morning, day traders are likely to step in and buy it up.
Of course, further weakness could set the margin calls and sell
stops in motion and we could get to the bottom rather quickly.




The INDU is still forming a base in the 10,600 region.  Today's
early strength was encouraging though, so if the tech components of
the index can just get their act together, the index is looking
relatively strong.




Looking at tomorrow's action, the most likely event would be sell
at the open orders which take the market down while stopping out
many traders.  After the first thirty minutes, that trend could
reverse, especially if the value guys step in with the intention to
buy at sale prices.  Of course, the other scenario is that the
value players could begin talking before the market, causing a gap
up at the open, which would likely be faded out further in the day.
Either way, it's going to be fun from a trading perspective.

As for the longer term, the move below support is discouraging.
The May low is a possibility, but not a certainty.  We all know
that October is a time for disastrous sell offs, but it's also a
bear killer.  I'm betting that in just a few weeks the bears will
be hard to find again.  Also - keep in mind that there are two
jokers with a lot of influence debating on television tonight.
Oil, drugs, healthcare and the economy are going to be hot
topics - I would expect a reaction of some sort in the markets
tomorrow.  Good Luck!

Steve Pekarek
Contributing Editor


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

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

Getting Ugly Early
By Austin Passamonte

We've been bullish for a couple of weeks now and what has
it got us? Signs of a bottom are fading in the foreground
as we speak. Is all hope lost? Never!

Just set aside for now. The failed rally we saw today is
likely a sign of what's to come. Market Sentiment feels
these major indexes will not sprout strong legs and scamper
straight up their charts without some major flushing out.

After all, it is October. We've been here/did this too many
times from the call buyers side of view. Put buyers on the
other hand are throwing parties multiple times weekly. It
is a proven fact that more money can be made trading puts
an equal amount of entries than calls on average.

Most equity-option traders scoff at the notion, harboring
sweet memories of 2 calls sold for 20 numerous times over
the prior two years. Who said that behavior was average?
Spoiled call buyers have either turned into option traders
or turned their accounts to ash by now, one of the two.
There are numerous examples of each all around us.

Considering we are option traders, the put side of things
is looking favorable this week. Major traders are all too
willing to sell every rally that dares rear its horns. The
afternoon plummet today may pick up where it left off soon.
Real soon.

Should bullish option traders crawl under a rock and sleep
this action off? Nope. It takes a firm market bottom to
launch the next incredible bull-market rally from and we
are fixin' to do that. If we wanna buy calls at 2 and sell
them for 20 ever again, they must reach the price of 2 first.

Talking about finding support is not easy. Moving averages
are all resistance now instead. Trendlines are resistance
as well.

Speaking of trendlines, the next major long-term support
on the OEX lies near the 730 mark. The SPX will find a
bottom near 1400 as well. Long ways off from new market
highs of 850 and 1525, respectively.

Just as those levels are now but a faded memory, so too
will these soon be. Market Sentiment is hanging its hat
on our one-last market reversal signal remaining; the COT
commercials position. They went 10-year net short and many
people scoffed at the notion. They've proven once again how
seldom the market giants actually lose.

By the same token, they won't stay short forever. We have
to believe some of those shorts are coming off even as we
speak and more to follow. The very moment these giants
switch to net-neutral or slightly long we can be sure a
firm bottom is in place. This Friday's report and each
Friday thereafter now will give us plenty of warning
when this happens.

Just don't bet the farm this week. It could get ugly
early and stay that way for awhile. Be prepared to buy
options that appreciate in the direction your market is
headed. You know what we mean; we've preached calls &
puts as conditions dictate forever now and will do so
the rest of our time together here!

*****

VIX
Tuesday 10/03 close; 24.39

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
*************************************************************
                                        Monday         Tues
Strike/Contracts                        (10/02)      (10/03)
*************************************************************
CBOE Total P/C Ratio                     .72           .76

Equity P/C Ratio                         .68           .70


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
**************************************************************
                                        Monday        Tues
Strike/Contracts                        (10/02)      (10/03)
**************************************************************
All index options                        1.23         1.56

OEX Put/Call Ratio                       1.24          .96

30-yr Bonds
Tuesday 10/03 close; 5.95%

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:
795 - 780               11,492       6,230         1.84

775 - 760                7,576      12,246          .62 ***

OEX close: 757.74

Support:
755 - 740                1,555      16,829        10.82
735 - 720                   47      13,634       290.09 ***

Maximum calls: 800/7,607
Maximum puts : 750/7,802

Moving Averages
 10 DMA  767
 20 DMA  784
 50 DMA  798
200 DMA  783


NASDAQ 100 Index (NDX/QQQ)
Resistance:
 92 - 90                28,059      26,326         1.07
 89 - 87                 7,659      35,233          .22
 86 - 84                 2,114      23,853          .09 ***

QQQ(NDX)close: 83.375

Support:
 82 - 80                   669      15,388        23.00
 79 - 77                    36       7,427       206.31 ***
 76 - 74                   115       8,242        71.67

Maximum calls: 90/13,077
Maximum puts : 90/16,235

Moving Averages
 10 DMA 89
 20 DMA 91
 50 DMA 93
200 DMA 95


S&P 500 (SPX)
Resistance:
1475                   20,411        15,223          1.34
1450                   10,475        12,423           .84
1435                      246           646           .38

SPX close: 1426.26

Support:
1425                    7,770         16,345         2.10
1400                      947         11,038        11.66
1375                    1,043          8,687         8.33


Maximum calls: 1475/20,411
Maximum puts : 1350/21,322

Moving Averages
 10 DMA 1439
 20 DMA 1459
 50 DMA 1472
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 10/3 by COT next

Bullish:
Fed's finished
Benign government reports
Monumental disparity in overhead call/put ratios

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


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

As of Market Close - Tuesday, 10/03/2000

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

DOW   Industrials      10,719      10,550  10,900     **
SPX   S&P 500           1,426       1,415   1,465
COMPX NASD Composite    3,455       3,250   3,750     **
OEX   S&P 100             758         754     776
RUT   Russell 2000        504         500     525
NDX   NASD 100          3,353       3,300   3,700     **
MSH   High Tech           910         890   1,000     **

BTK   Biotech             698         690     790     **
XCI   Hardware          1,243       1,240   1,350
GSO.X Software            401         390     445     **
SOX   Semiconductor       812         800     960     **
NWX   Networking        1,159       1,140   1,210
INX   Internet            440         430     510     **

BIX   Banking             629         600     635
XBD   Brokerage           670         620     670     **
IUX   Insurance           778         720     790

RLX   Retail              797         780     850
DRG   Drug                407         370     425     **
HCX   Healthcare          841         805     860
XAL   Airline             141         136     152
OIX   Oil & Gas           332         296     332

Ten alarms were triggered in the past two sessions.  Believe it
or not, two were at resistance levels (DOW, XBD).  Lowering
support on (COMPX, NDX, MSH, BTK, GSO.X, SOX, INX, RLX).
Lowering resistance on (COMPX, OEX, NDX, MSH, BTK, XCI, GSO,
SOX, NWX, INX, RLX).  Raising support (BIX) Raising resistance
(DOW, XBD).  Tomorrow's open will be interesting!


***********
OPITONS 101
***********

Another Downside Strategy?
By Lee Lowell

This seems to be all we can talk about these days.  I'm tired of
all my holdings going down in price.  There's only so much
downside protection covered calls can give you, and I don't like
buying puts all that much because I'm more of a premium-seller
kind of trader.  So what else can we do in this bearish
environment while keeping our long-term bullish opinion?  We can
actually combine these two trades to form a strategy called the
"collar."

A collar is a strategy that is just like a covered call trade but
with a twist.  The collar is a combination of long stock, long an
at-the-money put and short an out-of-the-money call.  It is ideal
to use this strategy on a stock that is somewhat volatile so the
discrepancy between the put and call premiums is more pronounced.
You want to use LEAP options so you have enough time for your
bullish bias to work out and because the pricing of the options
are more favorable the more time you have.  So you buy the ATM put
to give you the downside protection and sell the OTM call to pay
for that protection.  The call premium should be more than the put
premium so that you can establish the spread for a credit.  This
strategy gives you complete downside protection for zero debit or
a credit into your account, along with the chance for good upside
potential.

With a regular covered call approach, your downside is protected
only to the extent that the short-call premium gives you.  Plus,
your upside is capped at the short-call strike.  With the collar,
your upside profits are also capped, but you are protected all the
way down to zero.  Plus, you've received a credit for your effort.
Sounds like a no brainer to me.  What's the catch?  There really
isn't one except that your profits may be capped and you may have
to wait awhile to see the rewards.  But we are here for the
long-term, so that doesn't bother me.

Let's take a look at an example with real prices.  You want to get
in on the hot fiber optic sector and decided to take your chances
on Corning, Inc. (GLW).  This is a volatile stock, to say the
least--just what we want.  As of this writing, GLW is trading for
about $297/share.  You want to hop on board but you've seen the
destruction that some of these high fliers have done in the recent
past.  To insulate yourself for one of those nasty downdrafts,
let's put on a collar.  We'll buy 100 shares of GLW at $297, we'll
buy 1 Jan 2003 $300 put for $83, and we'll sell 1 Jan 2003 $400
call for $85.  This gives us an initial option credit of $2,
theoretically bringing our 100 share purchase price of GLW down to
$295.

So where do we stand?  We've got 100 shares of GLW with a cost
basis of $295, we're long a Jan 2003 $300 put, and short a Jan
2003 $400 call.  What does the risk/reward look like?  In a worst
case scenario, if GLW goes belly up and falls to zero, we'll walk
away with $500 in our pocket.  This is because we get to exercise
the $300 put which means we get to sell GLW for $300/per share.
Since we bought GLW for $297, plus our initial 2 point credit,
that's 5 points ($500) profit no matter what (excluding
commissions).  What about the upside?  That's even better.  We
have a 100 point leeway.  We won't start giving up profits until
we hit $400 per share.  So come expiration day in Jan 2003, if
GLW ends up at $400, we'll make 105 points x 100 shares = +$10,500.
Not too bad.  And that's only working with the minimum amount of
contracts.  Do that with 1000 shares and 10 option contracts and
see what you get.  So at the extremes, we'll either end up with
$500 if GLW goes broke, or we'll make 10K if GLW goes up to
$400/sh.  Looks pretty good.  I think anyone who gets to sell a
covered call 100 points OTM, buy an ATM put for total downside
protection, and gets to take in a credit for the trade, is doing
very well.

If it's still confusing, let's break it down using total dollars
to help clarify.  If GLW goes bankrupt, we'll lose $29,700 on the
long stock.  We'll make $21,700 on the put ($300 strike - $83
premium = $217 x 100 = $21,700), and we'll make $8500 on the
short call expiring worthless.  $21,700 + $8500 = $30,200 -
$29,700 = $500 total profit.  Or put another way, just take the
$300 put and subtract the cost basis of $295 for GLW and you get
$5 points x 100 = $500.  If GLW goes up to $400/sh. by expiration,
we'll make 103 points on our 100 shares for +$10,300 ($400 - $297),
plus the $200 initial credit from the options to give us a total
of +$10,500.

The collar is a great way to protect yourself on the downside and
to give you some room for profit on the upside.  The GLW trade is
really great because you have over 100 points of upside potential
before having to give up profits and you're protected all the way
down.  This type of strategy can work for almost any stock.  But
you must look at long-term options and stocks that are a little
more volatile.  Of course, you can always adjust the collar in
terms of strikes, expiration dates, etc.  If you are really
bullish you can actually reduce the amount of calls you use (if
you are doing multiple contracts).  Let's say you buy 1000 shares
of stock and 10 put contracts.  You can adjust the call strike
and sell only 8 calls against the puts.  As long as you use a low
enough call strike whose premium will still outweigh the put price,
you can still do the collar for a credit.  So if your stock starts
to rise, you will make more money sooner than later because you
only have 8 short calls instead of 10 short calls.  Theoretically,
this gives you unlimited upside potential now instead of being
capped.  Give it a try.  Good luck.


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

Call Options On Fallen Stars May Be Dangerous
By Mary Redmond

With earnings season arriving, many traders will start deciding
which stocks are the best candidates for earnings runs.

Many traders plan to buy call options as the earnings dates
approach on certain stocks.  It may also be profitable to
buy put options on companies which you think will release
lower-than-expected earnings.

There are some solid companies in the S&P 500 which have
consistently beaten expectations and rallied into earnings,
and a few which have continued to rally the following day.
Sometimes it may be even more profitable to find the ones
which are likely to miss expectations, buy puts before
the earnings are released.  This is because the stocks which
disappoint tend to move down more rapidly than the ones which
meet or even beat expectations move up.

Many companies have a history of reporting disappointing
earnings.  Many give excuses - last year it was Y2K, this year
it is the Euro, next year it will be something else.  If you
research a company's history of beating or missing expectations,
you can estimate the likelihood of the same scenario repeating.
For example, in a slowing economy certain sectors are more
vulnerable to slowing earnings, including capital intensive,
transportation and durable goods.  In addition, if a company
is a repeat offender, they probably will continue to disappoint
unless something changes, like new management.  In certain
cases, earnings slowdowns may already be priced in.  We need
to find certain cases in which the earnings may be much lower
or higher than the market already expects.

The better you know the company, the management, the accuracy
of the analysts, and the developments in the industry, the
better equipped you are to judge if a company will disappoint.
A real killing can be made in options if you think a company
will perform far better or far worse than expectations, and
you are accurate.

There are so many stocks which have lost 20% to 50% of their
market value lately that some investors may wonder if they
could be good long term investments at bargain prices.  However,
it is worth noting that companies can go far lower after the
first drastic drop.

For example, did anyone really think Lucent would go to $28
from a high of $80?  Many people probably thought it was a
bargain at $40.  How about Intel, Procter & Gamble, or Apple?
Intel lost 20 points and then lost another 7 this week.
The fact that Apple lost 50% of its value in one day does not
necessarily make it a bargain.  It could easily lose more.

There is no shortage of great companies trading on the exchanges.
The investment banking and technology boom of the 1990s has
given rise to hundreds of dynamic, rapidly growing companies
competing for investors' dollars.  The market shows absolutely
no tolerance for mediocrity.  If a company disappoints the market
analysts and shareholders, it can lose a big chunk of its value
in one day, and then experience slower, more prolonged selling
later.  Most investors feel they do not want to bother wasting
time with a company which warns of weak earnings when there
are hundreds of companies which state that their earnings should
beat estimates.

It is difficult to judge what the bottom will be on any stock
since fundamentals can be ignored if market participants are
selling heavily.  A better strategy is to wait until a base is
formed, and the stock changes course, starts to show technical
strength and turn around.

In fact, buying call LEAPs on stocks which have just made dramatic
drops can be a poor strategy.  The reason for this is primarily
the fact that such rapid drops often increase the implied
volatility of the options.

For example, the historic volatility of Apple as of August was
47.92.  The implied volatility of the Jan ATM options yesterday
was 82.8.  This means that using volatility alone, the options
are overpriced.  The historic volatility of Intel in August
was 45.8.  The implied volatility of the options is over 72.
Since volatility tends to revert to its historic level, this
means that the options on Intel may be overvalued despite its
drop.




Currently, many investors are worried that a decrease in the
earnings growth of the S&P 500 companies will lead to lower
stock prices in the fourth quarter and in 2001.  However,
there is not always a direct correlation between earnings and
profit growth and market performance.  If history is a guide,
it seems that the markets perform the best in an environment
of stabilizing interest rates, even if earnings growth is slowing.

For example, in 1994 the Fed raised rates 7 times.  The following
three years were some of the best in market history.  And yet,
the rate of earnings growth of the S&P 500 companies slowed.

Consider what happened last Spring.  The majority of companies in
the S&P 500 blew away earnings estimates by a wide margin, and
yet we had one of the worst market crashes in decades.

Now that the cycle of rate hikes is over, it may take market
participants some time to adjust to a new environment of stable
or decreasing interest rates.

There is wide divergence among market analysts regarding the
next move which will be taken by the Federal Reserve on rates.
A significant number of market analysts are expecting a rate cut
early in 2001 since virtually all of the most recently released
economic indicators point to demand side inflation being
under control, and some think the economy may be slowing too much.
However, this view does not seem to be priced into the stock
market.  Perhaps some in the market are still expecting further
rate increases, and this is putting a damper on the market
enthusiasm.  If the perception changes to an expectation of a
rate cut, the market could react favorably.

When you realize how much money American and foreign investors
have at their disposal, it is easy to forecast a market rally.
For example, the Investment Company Institute reported that
investors deposited $23.4 bln to equity funds during August,
and $22 bln to money market funds.  During the last year,
investors deposited an average of $60 bln monthly either to
equity funds or money market funds.  This is about $700 bln
annually that investors have at their disposal.  If they put half
this amount in the market, we could have a strong rally.  Even
last January, when investors put $41.7 bln into equity funds,
they still deposited $41 bln to money market funds.

In addition, the IPO market has been averaging in the range of
$3 bln weekly, or $12 bln monthly.  This amount could
easily be absorbed.  If the IPO market starts dumping $30 or
$40 bln worth of stock on the market we might need to
start worrying.

We had an optimistic turnaround in the Dow and Nasdaq mid day
today, and it is worth noting that Cisco came very close to
crossing the 200-dma of $59.57.  Cisco has lost a considerable
amount of its market capitalization in the last few weeks, and
is considered a bellwether for Nasdaq strength.  Many of the
technology stocks had superb entry points around 11:15am EDT
today for daily trades just when the VIX spiked out if its
trading range.  However, it the trades weren't exited early, all
of the gains could have been lost.


******

My Favorite Technical Indicators
By Scott Martindale

Wow. Ugly, unless you play puts. It's the put players who continue
to perform the best in this market.  Have you been playing the OIN
put recommendations?  I bought CPTH Oct 60 puts on Friday and
promptly sold today for an 80% gain before the mid-day rally.
Perhaps I should have held longer.  Certainly I should have played
more puts.

Have you seen the poll posted on the OIN website?  It gives four
choices as to where you think the NASDAQ will bottom, but the
lowest choice is the May low of 3042.  What about last year's mid-
year top of around 2900?  It could go that low.

Despite this observation, this week's OIN call list happens to be
a virtual who's who of my personal watchlist of stocks to buy for
my long-term account.  Stocks like VRSN, SEBL, CHKP, QCOM, JNPR,
VRTS, PEB, and BRCM - the most desirable new technology companies.
Even in the face of a down market, they are looking poised to move
up soon, whether due to fundamentals, technicals, earnings
anticipation, splits, or whatever.  Some of them have held up so
well that they still haven't (and may never) fall below my trigger
price.  I always feel more comfortable playing my favorite
companies, even for short-term plays, even though it is no
guarantee of a short-term gain.

This brings up a good question: How do you know when to enter a
trade (long-term or short-term) on your favorite stocks?  Let's
say one has fallen close to your target buy price - what do you
do?

First, confirm market direction.  As we see these days, even
stocks that desperately want to rally can get caught in the market
downdraft.  This happened to each of the stocks listed above from
the Sunday call list.

Second, are there any recent or planned news events that could
provide a catalyst?

Third, look at the technical picture.  Of course, this is more art
than science, and there are no hard-and-fast rules that guarantee
success.  I'll talk more about my favorite indicators in a moment.

Fourth, decide what is your strategy.  My guidelines are:

1. Short-term trade, with target gain and sell stop: Enter when
you see a firm bounce off support, or after a brief pullback
during a momentum run, or after a high-volume breakout above a
previous high.

2. Long-term position to hold or write covered calls: Buy 1/2 of
your target position, then the other 1/2 after it moves 10% up
or down.

3. Intermediate-term position for conservative gains on LEAPS: Buy
deep ITM after a sustained bounce off firm support, confirmed
by market and sector strength.

Now, let's talk about technical indicators.  I watch several.
They rarely line up at the same time to give screaming buy
signals, so you must use "feel" to decide what the true story is.
My favorites are Volume, Accumulation, Money Flow, Stochastics,
MACD, RSMA, Bollinger Bands, and RSI. I also use a couple of
proprietary indicators developed by my charting service to look
for systematic buying (accumulation).

On Balance Volume (OBV) is a momentum indicator that relates
volume to price change. It is a running total of volume that shows
if volume is flowing into or out of a security.  In general, you
look for divergences. For example, a divergence is detected when
the price makes a new high and the OBV fails to confirm.

Volume Accumulation is a modification of OBV. Instead of assigning
all the period's volume to either buyers or sellers, the Volume
Accumulator uses a proportional amount of volume based on the
relationship between the closing price and its intra-period mean
price. Strong accumulation is bullish.

Money Flow attempts to measure the amount of money buying a stock
vs. the amount of money selling a stock to indicate the general
buying and selling pressure on a stock.  I look for money flowing
strongly into a stock.

Stochastics is an indicator that measures the price velocity. It
shows us where price is trading within a given range. The
boundaries of the range would be the high and the low for a
specific time period determined by the user.  A stochastic of 100%
would mean price is currently trading at the extreme high of the
range and a stochastic of 0 would mean price is trading at the
extreme low. This helps to indicate whether price is overbought or
oversold. When the Stochastics crosses up through the 80% line, it
is considered overbought. Below 20% is considered oversold. When
an oversold stochastic moves up through its MA, a buy signal is
produced. I watch both 40-day and 7-day, but I prefer the shorter
period to get more signals.

MACD (Moving Average Convergence/Divergence) shows the
relationship between two moving averages of prices. MACD is
derived by dividing one moving average by another. It is based on
the point spread difference between two exponential moving
averages (EMA) of the closing price. The basic MACD trading rule
is to sell when the MACD falls below its signal line and to buy
when the MACD rises above its signal line. I use the 12/24/11
parameters.

The relative strength graph is generated by comparing the relative
price performance of any two items (such as two stocks or a stock
and a market index).  If the first item in your comparison is out-
performing the second item, the relative strength line will be
rising. For tech stocks, I compare against the NASDAQ Index. I
also compare the relative strength graph against its 10 and 40-day
moving averages (RSMA).  Divergences above the moving averages are
bullish.

Bollinger Bands are a type of envelope (or trading band) plotted
at standard deviation levels above and below a moving average.
Because standard deviation measures volatility, the bands widen
during volatile markets and contract during calmer periods. The
Bollinger rules are: (1) sharp moves in price tend to occur after
the Bands tighten (reduced volatility), and the closer to the
average the better, (2) moving outside the Bands signals a
continuation of the move until the prices drop below or inside of
the Bands, (3) moves starting at one Band tend to go to the
opposite Band. I use a 20-day moving average.

Relative Strength Index (RSI) is a price momentum indicator that
measures a security's price relative to itself and its past
performance, thereby indicating its internal strength. It depends
solely on the changes in closing prices. When RSI registers a
reading of 70% or higher, price is generally in an overbought
position. When RSI reaches the 30% level, price can be considered
oversold.  I prefer a 14-bar period.

Keep in mind, these technical indicators do not purport to
forecast or predict future price movement.  They merely quantify
the recent behavior of market players so as to give an indication
of the likely direction of future price movements.  Beware of
external forces like major news events, announcements, or analyst
upgrades/downgrades that can throw recent technical trends out the
window.  This is why we still use stop losses.  Despite your
rigorous analysis, preparation and execution, external forces can
and do create surprises that will ruin it all.


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

Index       Last     Mon     Tue    Week
Dow     10719.74   49.21   19.61   68.82
Nasdaq   3455.83 -103.92 -113.07 -216.99
$OEX      758.03    3.43   -5.23   -1.80
$SPX     1426.46   -0.28   -9.77  -10.05
$RUT      504.67   -9.70   -7.00  -16.70
$TRAN    2498.18  -57.22   33.76  -23.46
$VIX       24.39   -0.42    0.96    0.54

Calls

ADBE      163.44    7.75    0.44    8.19  New, upcoming split!!!
QCOM       72.50    0.06    1.19    1.25  Back on track today!
CHKP      155.88   11.00  -12.63   -1.63  Partnership with BRCM
PEB       112.69   -3.69   -0.13   -3.81  Healthy biotech
CFLO      135.13   -0.63   -7.25   -7.88  Extended profit taking
VRTS      130.44   -2.13   -9.44  -11.56  Dropped, no entry pts
CIEN      110.13   -1.44  -11.25  -12.69  Major support at $110
AGIL       75.69   -2.63  -11.63  -14.25  Bounced off 50-dma
SEBL       97.03   -8.81   -5.47  -14.28  B-2-B weakness gets SEBL
MERQ      140.50   -5.31  -10.94  -16.25  Entry channel bottom?
MUSE      183.50   -8.56   -8.88  -17.44  Down, but not out
JNPR      201.44  -12.81   -4.69  -17.50  Close above critical $200
RATL       50.00   -1.63  -17.75  -19.38  Dropped, disconcerting
BRCM      224.25  -10.06   -9.44  -19.50  Dropped, hard time chip
VRSN      180.00  -10.69  -11.88  -22.56  Dropped, support failed
ITWO      152.00  -17.19  -17.88  -35.06  Dropped, bad B-2-B bears

Puts

AETH       93.63  -11.94    0.06  -11.88  New, supply vs demand
CPTH       52.00   -4.56   -4.19   -8.75  Parent Co. sympathy
AKAM       44.00   -5.63   -2.88   -8.51  New, sellers took over
DIGX       39.13   -3.63   -4.13   -7.75  Consolidation concern
CMOS       25.25   -1.63   -3.13   -4.75  Broke below key $30 mark
MU         43.06   -3.63    0.69   -2.94  Dropped, earnings 10/04
OMC        75.44    0.69    1.81    2.50  Dropped, beat the bears


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:
*****

ITWO $152.00 -17.78 (-35.06) ITWO, along with its partner ARBA,
took it on the chin early Monday after investors learned of
another setback for the B-2-B alliance.  The Global Health Care
Exchange said it would go with an alternate technology in
developing its online health care meeting place.  On top of the
lost contract, ITWO investors learned early this week that a key
ITWO executive had left the company.  The two bearish news items
in conjunction with a weak Tech sector were enough to take ITWO
down by nearly 20%.  High trading volume has confirmed ITWO's
fall from grace over the past two days, which makes the sell-off
all the more disconcerting.  In light of the recent debacle, we
are no longer initiating new positions in ITWO.  However, ITWO is
extremely oversold and may be due for a bounce tomorrow.  But,
given the current weakness in the B-2-B space, a relief bounce
might provide a good exit point.

VRSN $180.00 -11.88 (-22.56) A strong selling sentiment amongst
the techs took VRSN down to the mat this week.  By late
afternoon today, VRSN's firmer support at $188 and $190 couldn't
hold up to the mutiny of the NASDAQ.  The stock went down hard
and fast.  Stop losses may have gotten some of you out before
the massacre hit full-force.  If not, try to repair losses.
Because VRSN is a fast-rising network security leader it's
subject to volatility.  Therefore, if you have open positions try
to exit on an oversold rally.  The only consolation for today's
decline was that it occurred on below average volume, which
indicates that traders aren't dumping stock in a panic.
Verisign is expected to report solid earnings around October
23rd.

RATL $50.00 -17.75 (-19.38) While the stock appeared to hold up
well yesterday, closing down only $1.63 on a weak NASDAQ day,
today was another story.  Like many Tech stocks, RATL started
the day down and headed lower.  What is surprising is
RATL's drop, down 26.20%, with no apparent news to explain the
move.  The end of day sell-off on high volume is disconcerting,
with final volume for the day clocking in at 477% of ADV, putting
RATL well below it's 50-dma at $56.  With earnings confirmed for
October 11th, a sell-off this steep, even on a weak market day,
is not a good sign.  RATL may find support at it's 100-dma, near
$49 but we will be looking to exit this play on any strength.

BRCM $224.25 -9.44 (-19.50) That loud sucking sound you heard
this afternoon was the sound of just about every technology
stock flushing recent gains down the drain.  BRCM was having a
hard enough time in yesterday's session, giving up the $242
support level to close in critical condition, below even the
$235 level.  The recovery this morning looked a little on the
weak side, and once the stock clawed its way back to the $242
support (now resistance) level, the bears came out in force.
As the NASDAQ tanked this afternoon, we watched BRCM sell off
with a vengeance, losing nearly $18 in the final 2 hours on
very strong volume.  All the technicals on the daily chart have
turned strongly negative, so it is time to walk away and let
the stock regain its dignity.  Solid support sits between
$215-220, but given today's action, we wouldn't be surprised to
see this level fall to the bears this week.  Use any relief
rally in the morning as a chance to get out of the play with
at a better level.

VRTS $130.44 -9.44 (-11.56) First the bad news... Our new call
play got slaughtered this week.  It seemed as though nothing
could buck the downward NASDAQ trend as one support level after
another got broken.  The good news is that, aside from a mild
bounce early yesterday morning, there hasn't been anything
approaching a decent entry point.  If you dove into the play at
that point, you should have been stopped out in the decline
yesterday afternoon.  This is an example of a play that was
broken from the beginning, as VRTS has given up nearly $20
since hitting $149.75 yesterday.  If you did get in and are
still holding onto a losing position, use any oversold bounce
tomorrow as an opportunity to get out, not as a chance to enter
the play.  Needless to say, VRTS is a drop tonight.


PUTS:
*****

OMC $75.44 +1.81 (+2.50) The bargain-basement prices and the
upcoming ad presentations enticed buyers to snatch up some
shares of OMC and its rival, True North this week.  Recall these
two advertising firms are involved in a winner-take-all shootout
for over $1 bln in DaimlerChrsyler business.  Presentations are
set for this Friday.  There's also been widespread scuttlebutt
that TNO is a potential takeover target by OMC, but analyst
sentiment is mixed on that issue.  While last week's strong losses
dominated the scene, OMC is currently advancing amid the
controversy and excitement.  The steady moves through the 5-dma
($73.24) and 10-dma ($74.73) clearly warrants an xit tonight.

MU $43.06 +0.69 (-2.94) We would love to keep this put play on the
list, considering the stock dropped 17% in seven sessions, but MU
reports earnings after the bell tomorrow.  As a general rule, we
do not recommend holding over an earnings announcement due to the
possibility of unexpected price swings.  This would mean exiting
positions by tomorrow's close.  MU performed well for us in the
wake of INTC's warning, giving us plenty of entry opportunities,
and a continued downtrend.  This morning, Bear Stearns analyst
Charles Boucher defended the stock, stating that it was "oversold"
and reiterated his Buy rating on the stock.  As a result, MU traded
higher until the afternoon when stock followed the NASDAQ's lead
and sold off into the close.  There may be one day left for this
put, but we are closing it tonight.  Just remember to be out by
the close tomorrow.


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The Option Investor Newsletter                  Tuesday 10-03-2000
Copyright 2000, All rights reserved.                        2 of 2
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********************
PLAY UPDATES - CALLS
********************

QCOM $72.50 +1.19 (+1.25)  While the NASDAQ radically veered from
its course, QCOM went back on track today!  A bullish ascent off
the supportive 5 & 10 DMAs coupled with an unwavering push through
the resistance at $75 restored our confidence that QCOM is destined
to run up.  Last Monday Wu Jichuan, head of China's Ministry of
Information Industry, announced that China is allowing its telecom
companies to choose which CDMA standard they want to use.  So one
thing stands clear, Qualcomm will get a piece of the Chinese market
no matter which standard is used because of CDMA royalties.  This
good news may be just the catalyst to drive up QCOM's share price
over the near-term, especially with earnings approaching on
November 2nd.  After today's bloodbath, it's clear that near-term
support at $72 and $73 is established.  However, in this fearful
market and it being October and all, err on the side of caution.
A conservative entry into this call could be taken on a break
above $75 with strong volume.  More aggressive entries can be
attained on bounces from the $71 - $71.50 area.  But keep stops
in place no matter what.  Traders are selling into strength and
QCOM could easily turn on a dime.  In other news, the new
Japanese telecom giant KDDI announced it plans to launch the
world's fastest mobile phone-based data service.  They will use
Qualcomm's high data rate technology, which is 75 times faster
than regular phone lines.

CHKP $155.88 -12.63 (-1.63) CHKP and Broadcom (BRCM) announced
a strategic partnership this morning to develop and deliver
next generation Internet security products.  However, despite
the significant announcement with BRCM, CHKP fell victim to the
bears in the software sector.  The earnings warning from Computer
Associates (CA) after the bell today might continue to pressure
the software sector tomorrow, especially if the Tech bears
return.  With that said, traders might wait for CHKP to stabilize
tomorrow morning before entering the play.  The stock has major
support just below at $155 and lower near $150.  A bounce off
either level might provide a solid entry into the play if the
broader Tech sector rebound tomorrow.  the more conservative
traders might wait for CHKP to rally back above its breakout
point near the $160 level.  Make sure to confirm the return of
heavy volume with any rally attempt in CHKP before entering new
long positions.

SEBL $97.03 -5.47 (-14.28) The controversies swirling around in
the B-2-B sector over the past two days have weighed heavily on
our SEBL play.  The B-2-B exchange-related news concerning ITWO
and ARBA yesterday began the bear ball rolling, which only gained
momentum today.  Several analysts and even company executives
tried to defend stocks in the B-2-B sector, but had little
persuasion over the bears' relentless selling.  Because of the
uninhibited selling in the B-2-B sector, SEBL fell below its
10-dma yesterday and the ever-critical $100 support level today.
What's more, volume has picked up over the last two days, which
makes SEBL's slide a bit concerning.  As such, we'll want to use
caution in the coming trading sessions when considering entering
new SEBL positions.  If the bears continue to claw the B-2-B
sector, aggressive traders might look for SEBL to find support
at its 50-dma currently at $93.50.  SEBL's 50-dma has provided
solid support for the past two months and might provide a solid
entry into the play.  However, if the 50-dma fails, SEBL might
be in serious trouble.  On the other hand, if SEBL rebounds
tomorrow, traders might look for a quick pop back above the
$100 level.  Conservative traders might wait for SEBL to move
back above its 10-dma near $104 before entering the play.

CIEN $110.13 -11.25 (-12.69) Shares of CIEN faded into negative
territory amid a mixed market on Monday despite a positive show
by some of the large telecommunications equipment stocks.  NT
rose on a $1.4 bln, 10-year deal with Cable & Wireless to
transform their international network to Internet-based
technology.  The news, however, couldn't bring CIEN above $128
and it closed at a critical level.  While most stocks advanced
earlier in the day ahead of the Fed's meeting, CIEN succumbed to
another session of heavy selling today with volume levels
topping 1.5 times the ADV right from the get-go.  When the
market literally fell apart, CIEN was already off-kilter.  It
quickly slipped through the safety net at the intersecting 5 &
10 DMAs ($121-$122).  It didn't help matters that analyst Rick
Berry at Centennial Capital Management started new coverage on
CIEN with a Sell and a one-to-three-month price target of $88!
Huh?  Who's that... and who issues a lower price target?  As
weird as it sounds, we need to be cautious.  The stock's current
position at the proximity of the 30-dma ($109.05) line isn't an
opportune place to take an entry.  Wait for the market and stock
to resume a clear-cut, bullish direction before jumping back into
this sexy optical.

AGIL $75.69 -11.63 (-14.25) Monday morning started off on the
right track as AGIL rallied strongly in the first half hour
of trading.  Getting past $95, the stock looked poised to
challenge the century mark when the rally suddenly fizzled,
replaced by small but consistent waves of selling.  By the end of
the day, those small moves down added up, as AGIL closed down
$2.63 on 152% of ADV.  Today, the stock continued to head lower.
It appeared to find bottom early in the day at $75, when end of
day selling pushed AGIL lower to test successfully test $70
support.  Another test of $70 could provide for an aggressive
entry point as well as $75, but make sure there are buyers to back
the move.  Overhead, resistance can be found a $80 as well as
the 5- and 10-dma at $85.15 and $83.34.  One news item of special
interest came from Chase H&Q, who maintained their Buy rating,
commenting that "Agile is cementing its position as an
established industry leader in the area of supply chain
collaboration, a major new area of strategic corporate
investment."

CFLO $135.13 -7.14 (-7.88) CFLO has been able to flourish despite
weakness in the NASDAQ over the past month.  The relative
strength of this stock has been simply amazing.  So much so that
the stock was in 4th place for the best performing stocks of the
third quarter, posting a 132% gain during that period.  So far
this week, CFLO has had a more challenging time bucking the
market trend.  On Monday, CFLO held up strongly, closing down just
fractionally on average volume, right on its 10-dma.  Today, the
stock finally succumbed to the downward pressure of the NASDAQ.
A failed attempt to rally in the morning brought in the profit
takers, who took away 5.09% on twice the ADV.  Aggressive traders
looking to enter this play may want to target shoot support at
$135 and $130 but confirm a bounce with volume before entering.
Conservative traders will want to wait for momentum to carry CFLO
above resistance at $140 before entering, while keeping an eye on
resistance from the converged 5- and 10-dma at $143.75.

MUSE $183.50 -8.88 (-17.44) Down but not out yet.  Unable to hold
the $200 level, MUSE sold off on Monday along with the NASDAQ,
shedding $8.56 on 77% of ADV.  Attempting to make it back above
$200 this morning, the sellers stepped in once again.  Finding
support at the $185 level, the stock attempted a comeback but
market forces prevailed, with MUSE closing down another 4.61% on
90% of ADV.  While it's been a rough week so far for MUSE,
investors can take solace that volume to the downside has been
light.  As well, MUSE's upward sloping regression channel since
early August remains intact, with a strong bounce off the lower
part of the channel today, near $175.  For those who have a high
risk tolerance, a bounce off support a $175 or $180 could be an
excellent entry point but make sure that volume supports the
bounce.  Conservative traders may want to hold back until MUSE
clears $190, where its 10-dma currently resides, before
considering an entry.

JNPR $201.44 -4.69 (-17.50) JNPR had a rough day yesterday,
falling as low as $201.50 before a mild recovery at the close.
After gapping up this morning, the NASDAQ deteriorated
throughout the day, dragging just about anything technology
related down with it.  JNPR wasn't immune to this effect,
falling early in the morning to retest the lows from yesterday,
where we saw anemic buying action support a recovery back up to
where the day began, near the $214-215 level.  That was as good
as things got, as the selling intensified again, pushing our
play down to close out the session just above the $200 support
level.  The MACD and Stochastics have turned sharply negative on
the daily chart, giving the impression that more downside is
possible.  The 30-dma ($206.63) didn't even halt the stock's
decline and the next moving average that might provide support
is the 50-dma, currently at $186.25.  This corresponds to major
chart support, currently positioned at $181-184.  Be very
careful in initiating any new positions at this point.  While
there may be bullish swing trades available on any oversold
bounce, it looks like the near-term trend may still be down.
Rather than buying bounces from support, we would look for
JNPR to rally back above $215 on strong volume before
initiating any new positions.

PEB $112.69 -0.13 (-3.81) While it isn't exactly the picture
of health, at least the Biotechs seems to have dodged the
rampant selling that has afflicted the broader technology
sector.  PEB looks even better than the Biotech Index (BTK.X),
managing to keep from violating any significant support levels
this week.  This isn't to say that the bulls have had a free
reign, but at least they have managed to keep the bears in
check.  Yesterday's trading pushed our play down below the $112
support level before an end of day mini-rally provided a bit of
relief.  This positive action continued into trading this
morning, but the early bullishness soon evaporated, and PEB sold
off at the close.  Ending once again, at the $112 support level,
our play is at a critical juncture, now below the 10-dma
($114.38) for the first time in nearly a month.  Although there
is solid support near $108, the rate at which support levels
were violated in the technology sector during today's session,
paints a bleak picture for the bulls.  For those of you with
open positions, keep those stops in place.  While the more
adventurous may want to buy the next bounce off of support, we
would feel much more comfortable waiting for PEB to rally back
above $116 before opening any new plays.

MERQ $140.50 -10.94 (-16.25) Making a new intra-day high of
$162.50 on Monday morning, MERQ promptly sold off by mid-day, as
sellers rushed to take their profits off the table.  As a result,
the stock closed down $5.31 or 3.39% on 126% of ADV.  In doing so
MERQ closed below its 5-dma, but managed to find support at the
10-dma.  Today, that support was broken in the first hour of
trading.  Bouncing at $135 level, MERQ attempted to rally back
but with resistance at $145, headed lower to close the day down
7.22% on 180% of ADV.  This is a dangerous time to be a bull but
with that danger comes opportunity.  Connecting the highs and
lows since September, we can see that at today's low MERQ touched
the bottom of its upward sloping channel, just above $132, before
bouncing convincingly.  With strong support at $130 as well as
support at $135, an aggressive trader could see bounces off these
levels as buying opportunities.  But make sure market direction
supports the move up when considering a play.  Conservative
traders will want to see MERQ back above $150 before initiating a
play.


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

CMOS $25.25 -3.13 (-4.75) The pivotal $30 level we had been
closely monitoring gave way yesterday morning, and the bears
haven't stopped selling CMOS since.  The discounting in the Chip
sector seems to be far from over as the likes of AMAT, NVLS,
KLAC, and even INTC continue lower.  Since CMOS fell below its
key support level at $30 early this week, our next objective
will become the $20 level, which was the stock's breakout point
from over 18 months ago.  CMOS has fallen a long way in the
last month, and a relief rally or oversold bounce is long over
due.  If CMOS does bounce higher in the coming days, aggressive
traders might wait for the stock run into resistance in the
form of heavy selling, and look to enter new put positions on
a rollover.  Resistance levels to watch for a rollover are
currently located at the $26 level and again at $27.  If,
however, the Chip bears continue their assault on CMOS, consider
entering new positions if the stock falls below $24.75, or
beneath its intraday low at $24.38.  Make sure to monitor the
direction in CMOS' sector by watching KLAC, AMAT, and TER.

DIGX $39.13 -4.13 (-7.75)  Black October arrived in style and
DIGX played out like a charm.  Does "what a deal" sum it up for
you?  After just adding DIGX to our put list this weekend, DIGX
opened at $47.13 Monday morning and methodically slid lower.  News
of its own takeover by WCOM and EXDS's recent announcement of its
acquisition of Global Crossing's (GBLX) GlobeCenter is fueling
DIGX's obliteration.   This week, the downward momentum first
extended the losses below the $45 mark and successfully met the
challenge at $42.50, the site of Thursday's intraday low.  The
declining intensity continued to apply the pressure and DIGX slid
under $40 in today's session.  There is some historical support at
this price level and more at $35, so be prepared for some
resistance.  Keep stops tight to protect against "oversold
rallies".

CPTH $52.00 -4.19 (-8.75) As parent company CMGI continues to
make new 52-week lows, it appears that CPTH is tagging along for
the ride.  On Monday, coverage was initiated on CPTH by Adams
Harkness with a Strong Buy.  This did little to generate buying
interest in the stock as it opened lower and spent the rest of
the day continuing in that direction.  CPTH closed down $4.56 or
7.51% and in doing so, fell below its 100-dma, now at $56.32.
Today, we saw resistance at the 5-dma (now at $58) continue to act
as a ceiling for CPTH, as two attempts to rally above that level
were met with selling pressure.  Volume for the past couple of
days has been about 800 K, with average volume at the one million
mark.  While volume may be low, the bias in direction is clearly
down.  Look for a failure to break above the 5- or 100-dma to
provide for an entry point but confirm an entry with market
sentiment.  Conservative traders will want to see CPTH break
below support at $50 before jumping in.


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

ADBE - Adobe Systems $163.44 +0.44 (+8.19 this week)

A long-time leader in desktop publishing software, ADBE
provides graphic design, publishing, and imaging software
for Web and print production.  Offering a line of application
software products for creating, distributing, and managing
information of all types, the company generates nearly 75% of
sales through publishing software products such as Photoshop,
Illustrator, and PageMaker.  Its Acrobat Reader, which uses
portable document format (PDF) is popping up all over the
Internet, as businesses shift from print to digital
communications.  In addition, ADBE licenses its industry
standard technologies to major hardware manufacturers,
software developers, and service providers, as well as
offering integrated software solutions to businesses of all
sizes.

Showing their approval for ADBE's strong earnings report 3 weeks
ago, investors continued to bid the price higher, while the
broader technology sector continued to weaken.  So, what
prompted this bullish activity?  It's funny how a 2-for-1 split
can bring out the bull in even the most cautious investor.  Set
for October 24th, the announcement of the split conveys the
company's positive business outlook, and analysts are seeing the
same thing (see news below).  Between continued strong revenue
growth and successful new product launches, ADBE is
strengthening its dominant position in the desktop and Web
publishing space.  Although some profit taking did take place in
late September, solid support formed at the $145-146 level, and
it launched higher again in the middle of last week.  Well above
the 10-dma (currently at $155.38), ADBE tagged a new all-time
high today, but is running into the upper Bollinger band, and
showed some technical weakness this afternoon.  This is likely a
side-effect of the broad market weakness, but if it intensifies,
we wouldn't be surprised to see some profit taking before our
play is ready to run higher.  Historical support is seen at
$157, followed by $152, and then $145-146.  Aggressive traders
can consider buying bounces at support, but use caution in such
a weak technology market.  Even the strongest stock can't buck
the broader market trend forever.  A more conservative approach
will be to wait for the NASDAQ to show better health and enter
new positions as ADBE continues its run to new highs.

ADBE has experienced broad-based support for its new InDesign
software, as additional leading service providers are
integrating the software product into their product and
service offerings.  This will help ensure that the advantages
of InDesign will be leveraged from the original stages of
design through the final printing of materials.  Jumping in the
day after the AAPL earnings warning, Prudential Securities
defended ADBE, stating that APPL's problems should have no
effect on ADBE.  They recommended buying ADBE on any knee-jerk
weakness, and reiterated their Strong Buy rating on the stock.

BUY CALL OCT-160 AXX-JL OI=1005 at $11.25 SL= 8.50
BUY CALL OCT-165*AXX-JM OI= 724 at $ 8.75 SL= 6.25
BUY CALL OCT-170 AXX-JN OI=1099 at $ 6.63 SL= 4.50
BUY CALL NOV-165 AXX-KM OI= 206 at $14.75 SL=11.00
BUY CALL NOV-170 AXX-KN OI=5537 at $12.25 SL= 9.25

SELL PUT OCT-155 AXX-VK OI= 308 at $ 4.88 SL= 6.75
(See risks of selling puts in play legend)

Picked on Oct 3rd at    $163.44     P/E = 68
Change since picked       +0.00     52-week high=$170.19
Analysts Ratings      5-5-2-0-0     52-week low =$ 53.44
Last earnings 09/00   est= 0.52     actual= 0.57
Next earnings 12-14   est= 0.58     versus= 0.46
Average Daily Volume = 1.61 mln



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

AETH - Aether Systems Inc $93.63 +0.06 (-11.88 this week)

Aether Systems is the company that offers information in the
palm of your hand.  They provide wireless data services and
systems enabling people to use wireless handheld devices for
real-time data communications and transactions.  The company
also designs and develops wireless data systems and software
engineered exclusively for healthcare, education and government.
AETH is based in Owings Mills, MD and has branch offices in New
York and Florida.

Here's a company that puts wireless Internet in the palm of your
Hand, yet it's losing its connection with shareholders.  If you
take a 52-week journey back in time, there's no doubt AETH's
taken its investors on a wild and wholly ride.  The stock's
price rallied as high as $345 and has sunk as low as $41.13.
Since September 1999, it's acquired seven companies and raised
$1.1 bln via a secondary offering last March.  Our play on AETH
is that the stock may come under more short-term pressure as a
result of the staged release of 24 million shares (about 63% of
total shares) into the market at the end of the lock-up period.
Couple this event with the nasty market environment and there's
a recipe for a lucrative put play.  Last Tuesday, AETH came off
higher support above $120 and for a dramatic close at $106.69,
down nearly 15% on the day.  This week proved fatalistic too.
AETH slithered below the century mark and set an intraday bottom
at $88.06 in today's session.  The downtrend line is intact and
the clear pattern of lower-highs and lower-lows indicates
further weakness in the share price.  Consider target shooting
the intraday spikes for entries.  The 5-dma, currently at
$100.90, is offering upper resistance amid the descent.  Use
this technical line as an entry/exit gauge.  It's imperative
that you be aware of the positive sentiment regarding AETH over
the long-term.  Robinson Humphrey, Wedbush Morgan, and JP Morgan
have all recently gone to the podium for this stock.  Remember,
our play is short-term: get in, take your profit, and get out
while the negative conditions govern.

BUY PUT OCT-100*HEX-VZ OI=213 at $14.13 SL=11.25
BUY PUT OCT- 95 HIZ-VS OI=  0 at $11.13 SL= 8.75  Wait for OI!
BUY PUT OCT- 90 HIZ-VR OI=  0 at $ 8.25 SL= 6.25  Wait for OI!

Average Daily Volume = 1.10 mln



AKAM - Akamai Technologies $44.00 -2.88 (-8.51 this week)

Using software based on the company's proprietary mathematical
algorithms, AKAM provides a global delivery service for Internet
content, streaming media and applications that improves Website
speed, quality, reliability, and scalability.  It even helps to
protect against Website crashes due to demand overloads.
Superior delivery of customer Web content and applications
through a worldwide network is achieved by locating the content
and applications geographically closer to users.  Exploiting the
fact that even on the Internet, the shortest distance between
two points is the fastest, AKAM monitors Internet traffic
patterns and delivers its customers' content and applications by
the most efficient route available.

Bargain hunters that tried to pick the bottom on AKAM yesterday
were in for a rude awakening today.  After gapping slightly
higher, the sellers took over, pushing the stock down below $44
before the stock saw any relief.  Broad-based weakness in the
technology sector was the culprit, and the attempted mid-day
rally came to an abrupt end as the selling intensified again in
the final two hours of today's session.  The Internet sector as
a whole saw heavy selling, especially as the day moved on, and
with AKAM's recent weakness, it was like yelling "Fire!" in a
crowded theatre.  This was just the latest installment in a
downtrend that has been uninterrupted for the past month.  AKAM
is now sitting almost 40% below where it sat just before the
Labor Day weekend, and today's bearish action traced yet another
all-time low of $43.88.  Throughout the past month, the stock
has channeled between the 10-dma (now at $53.19) and the lower
Bollinger band (now at $44.25).  The daily Stochastics are
solidly in oversold territory, but showing no sign of
reversing direction and the MACD looks like it is headed
further into negative territory.  Keep your eye out for an
oversold bounce, and use it as an opportunity to buy puts as
the price rolls over again.  The 10-dma looks like a great
level for initiating new positions, but given the NASDAQ
weakness, we may not get that lucky.  More realistic entries
can likely be had with a rollover from either the $47 or $49
levels which should now act as resistance.  Of course, if the
selling intensifies from current levels, feel free to jump into
the play as AKAM breaks to new lows.  AKAM will report earnings
on October 18th after the close, but its pattern of increasing
losses since the company went public a year ago is not likely
to inspire any investor confidence in the near term.

BUY PUT OCT-45*RUG-VI OI=377 at $5.50 SL=3.50
BUY PUT OCT-40 RUG-VH OI=225 at $3.13 SL=1.50

Average Daily Volume = 2.06 mln



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

QCOM - Qualcomm Inc $72.50 +1.19 (+1.25 this week)

Qualcomm develops and manufactures communications technologies
and products.  It's best known for its CDMA (code division
multiple access) technology which is the industry standard for
mobile communications.  This technology is used in cellular
phones, wireless telephone system equipment, and satellite
ground stations.  In addition, Qualcomm provides the trucking
industry with a monitoring system called OnmiTRACS and is
currently in a joint venture to develop a low-earth-orbit
satellite communication system called Globalstar.  They are also
the #2 supplier of digital cell phones following Nokia.

Most Recent Write-Up

While the NASDAQ radically veered from its course, QCOM went back
on track today!  A bullish ascent off the supportive 5 & 10 DMAs
coupled with an unwavering push through the resistance at $75
restored our confidence that QCOM is destined to run up.  Last
Monday Wu Jichuan, head of China's Ministry of Information
Industry, announced that China is allowing its telecom companies
to choose which CDMA standard they want to use.  So one thing
stands clear, Qualcomm will get a piece of the Chinese market
no matter which standard is used because of CDMA royalties.  This
good news may be just the catalyst to drive up QCOM's share price
over the near-term, especially with earnings approaching on
November 2nd.  After today's bloodbath, it's clear that near-term
support at $72 and $73 is established.  However, in this fearful
market and it being October and all, err on the side of caution.
A conservative entry into this call could be taken on a break
above $75 with strong volume.  More aggressive entries can be
attained on bounces from the $71 - $71.50 area.  But keep stops
in place no matter what.  Traders are selling into strength and
QCOM could easily turn on a dime.  In other news, the new
Japanese telecom giant KDDI announced it plans to launch the
world's fastest mobile phone-based data service.  They will use
Qualcomm's high data rate technology, which is 75 times faster
than regular phone lines.

Comments

QCOM held tight as the NASDAQ violated key support and finished
on the low of the day.  Trading in QCOM over the past two weeks
has built an ascending wedge in the $71 to $75 range.  It
continues to higher lows and is coiling like a spring.  Any
relief in the NASDAQ would certainly give QCOM a welcomed boost.
We're looking for this coiling spring to burst and any strong
volume break over $75.56 would warrant entry.  Given the recent
selling, utilize stop losses.

BUY CALL OCT-65 AAO-JM OI=14836 at $9.25 SL=6.75
BUY CALL OCT-70*AAO-JN OI=22577 at $5.75 SL=4.00
BUY CALL OCT-75 AAF-JO OI=16122 at $3.25 SL=1.50
BUY CALL NOV-75 AAF-KO OI= 3875 at $6.38 SL=4.25
BUY CALL NOV-80 AAF-KP OI= 3481 at $4.75 SL=2.75

Picked on Sep 17th at    $66.25    P/E = 84
Change since picked       +6.25    52-week high=$200.00
Analysts Ratings     10-9-4-0-0    52-week low =$ 45.33
Last earnings 06/00   est= 0.27    actual= 0.27
Next earnings 11-02   est= 0.24    versus= 0.23
Average Daily Volume = 14.4 mln



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

Nasdaq slides to recent lows..

Technology stocks fell precipitously as investors continued to
fret over future earnings growth.

Monday, October 2

The Nasdaq foundered again today, suffering triple-digit losses
as concerns over corporate earnings plagued technology stocks.
The index finished down 103 points at 3,568.  The Dow industrials
edged higher after last week's slump, rising 49 points to 10,700.
The S&P 500 ended relatively unchanged at 1,436.  Trading volume
on the Nasdaq reached 1.76 billion shares, with declines beating
advances 2,735 to 1,427.  Activity on the NYSE was average with
1.02 billion shares traded.  Broad market declines beat advances
1,648 to 1,274.  In the bond market, the 30-year Treasury fell
20/32, pushing its yield up to 5.92%.

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

Maxtor            MXTR  NOV7C/OCT10C    $1.88   debit   diagonal
Advance Para.     ADVP  OCT30P/OCT35P   $0.62   credit  bull-put
Intl. Bus. Mach.  IBM   OCT130C/125C    $0.75   credit  bear-call
Worldcom          WCOM  OCT32C/OCT27P   $0.19   debit   synthetic
Bergen Brunswig   BBC   DEC12C/OCT12C   $0.43   debit   calendar

Our new group of spread candidates experienced mixed activity.
Maxtor started strong but finished lower as technology stocks
slumped and there may be a better opportunity to enter the
position later this week.  Advance Paradigm also failed to offer
the target credit and we will monitor the spread for additional
premium in the coming sessions.  IBM was the big winner on the
Dow, up over $5 after falling precipitously last week.   A move
through resistance near $122 will be the first indication of a
sustainable rally but we believe it will be difficult for the
issue to remain above the sold strike ($125) after the company's
upcoming earnings report.  IBM is vulnerable to missing estimates
due to the flagging Euro and a decline in sales growth resulting
from the general slowdown in computer sales.  Worldcom pulled
back at the open and the synthetic position was available at a
better-than-expected price.  Unfortunately, it went even lower
during the session.  The target debit in the Bergen Brunswig
calendar spread appeared difficult to achieve but there were a
number of (apparently) simultaneous positions opened at $0.43
during the day.

Portfolio Plays:

Technology stocks tumbled today as additional reports of profit
shortfalls troubled investors in the wake of Apple Computer's
earnings warning last week.  Analysts said the recently lowered
expectations for the U.S. economy has affected the outlook for
revenue growth in emerging companies.  Monday's trading activity
was dominated by a flight to safety and blue chip shares rallied
amid strength in the financial group.  J.P. Morgan (JPM) led the
way, up over $5 as traders speculated on further consolidation in
the industry.  Rumors that HSBC (HBC) would acquire Merrill Lynch
(MER) helped boost gains in the sector.  Caterpillar (CAT) shares
also moved higher despite warnings that third-quarter net income
would be 10%-15% below consensus estimates.  Analysts said that
the stock is already cheap and currently reflects lower earnings
going forward.  In the tech sector, hardware stocks rallied early
and then retreated with Apple Computer (APPL) again leading the
decline.  Internet issues slumped and biotechnology stocks also
moved lower after MedImmune (MEDI) was hit with downgrades.  The
issue fell $20 after analysts cut their ratings on the company.
Among broad market stocks, oil shares edged higher as crude oil
futures rose on concern that a hurricane heading toward the Gulf
of Mexico may reduce production in the next few weeks.  On the
downside, retail and transportation stocks slipped lower while
aerospace/defense issues consolidated from recent gains.

Portfolio Plays:

Our portfolio endured losses in all but a few of the technology
positions.  Adobe Systems (ADBE) was one of the bright spots, up
almost $8 to $163 after some positive comments were reported in
the Wall Street Transcripts.  One analyst noted the graphic arts
sector has seen very positive growth with the sector as a whole
up 43% year to date.  The sector's expansion has been boosted by
Adobe, which has experienced a huge turnaround and tremendous
growth.  The company has become a major player in the evolution
of digital imaging and the demand for rich visual media over the
Web.  Our conservative position near $125 is expected to return
maximum profit.  Research in Motion (RIMM) continued its winning
ways, up another $4 to $103 on momentum from the recent blow-out
earnings.  Investors applauded the company's quarterly results
last week, pushing RIMM's stock up $15 on Friday to an all-time
high and on the Nasdaq, the issue led the "net gainers" category.
One of the recently slumping issues, Enzo Biochem (ENZ) jumped
almost $5 after the company reported that new data on the first
individual treated in the Phase 1 clinical trial of HGTV-43, the
company's HIV-1 gene medicine product, show that Enzo engineered
cells have successfully engrafted in the patient's bone marrow
and were spawning new differentiated cells designed to fight the
virus.  It is apparently a scientific milestone as no current
technology has been successful in engrafting cells expressing a
cloned gene in the bone marrow of adult subjects without first
ablating the patient, a process in which existing blood cells
are destroyed.  With renewed interest in the company, its share
value should resume an upward trend for the next few sessions,
allowing our bullish credit spread to expire profitably.  Only
one other positive move was worth reporting.  Allstate (ALL)
rallied with the financial group, climbing to $36 near mid-day
and the credit for our bullish synthetic position reached $1.00.
That's a favorable early-exit profit, based on the entry debit
$0.06.

On the downside, Ariba (ARBA) was hammered today after losing a
key online marketplace customer.  Ariba fell $16 to $127 after
reports that the trading-exchange joint venture of Ariba, i2,
and IBM, was dismissed by the Global Health Care Exchange.  The
sell-off was exacerbated by the slump in the Nasdaq and the news
fueled speculation that the Alliance was not the happy marriage
portrayed by the three partners.  Ariba has been riding a wave
of optimism in recent months, after reporting favorable results
in the most recent quarter, but today the bullish momentum ended
abruptly.  Our neutral credit strangle is short at $110 and when
the issue approaches that price, we will evaluate the technical
outlook and make the appropriate position adjustments.

Tuesday, October 3

Technology stocks fell precipitously as investors continued to
fret over future earnings growth.  The Nasdaq slid 114 points to
a recent low near 3,454 and the momentum dragged the blue-chip
stocks. The Dow industrials ended off their earlier highs, up 19
points to close at 10,719.  The S&P 500 index was down another 10
points to 1,426.  Activity on the technology exchange was heavy
at 1.94 billion shares traded, with declines outpacing advances
2,550 to 1,528.  Trading volume on the NYSE reached 1.09 billion
shares, with advances beating declines 1,527 to 1,367.  In the
bond market, the 30-year Treasury fell 4/32, pushing its yield
up to 5.93%.

Portfolio Plays:

Bargain-hunting buyers in the cyclical industry helped the Dow
finish positive but there was no salvation for the Nasdaq.  The
technology index plummeted amid continued profit worries and the
downward momentum has significantly eroded investors confidence
in the group.  There was little help from the Fed's decision to
leave short-term rates unchanged and the outlook was less than
outstanding.  In its statement, the Fed said risks to the U.S.
economy remain tilted toward inflation although recent economic
data suggests demand has moderated to a pace more in line with
the economy's potential productivity.  Analysts had unanimously
predicted no change in interest rates, thus the effects of the
announcement were almost unnoticed.  Inside the technology group,
networking and semiconductor stocks performed better than most
while Internet issues slumped as the business-to-business sector
was plagued by selling pressure.  On the Dow, industrial issues
Alcoa (AA), DuPont (DD), Caterpillar (CAT), International Paper
(IP) and United Technologies (UTX) were the best performers.  In
the broad market, banking, transportation and biotech companies
were popular and aluminum, chemicals and defense stocks rallied.
In contrast, photo imaging and office equipment shares retreated
and online brokerage and utility issues topped the sellers list.
Strangely enough, Abby Joseph Cohen of Goldman Sachs says she is
bullish on technology stocks, and that concerns over the earnings
environment may be overdone.  Abby commented that slowing growth
will prolong the "profit expansion" and that stock markets enjoy
the best results when investors are confident that growth can be
sustained.  I don't know about you, but my confidence is quickly
fading.

Our portfolio was a "sea of red" today as investors began to
capitulate in earnest, selling their holdings at recent lows in
a classic, broad-market exodus.  Technology companies were hit
hard and the only issues in the big-cap category that finished
positive were Adobe (ADBE) and Qualcomm (QCOM).  That's scary!
In fact, there was little positive activity in any group and
only a few stocks achieved closing gains.  Federal Express (FDX)
edged higher amid strength in the transport sector and St. Jude
Medical (STJ) rallied to the top of a recent trading range as
investors searched for growth issues unaffected by the downdraft
in technology issues.  Our bullish position in St. Jude is now
offering a $1 profit and that's a favorable early-exit return.
Abott Labs (ABT) appears to be bracing for a new rally and Enzo
Biochem (ENZ) managed to retain most of Monday's gains.  Based
on its bullish performance amidst the negative background, we
have new confidence in the technical outlook for the issue.  Of
course, the downward trend has also helped a number of bearish
positions.  International Business Machines (IBM), Halliburton
(HAL), Microchip (MCHP), Smith International (SII), and Covad
Communications (COVD) all fell victim to the selling pressure,
bolstering the outlook for our current plays in those issues.

A number of positions are at risk now that the underlying issues
have transitioned to bearish trends and there will certainly be
some adjustments in the coming sessions.  The obvious candidates
include Ariba (ARBA) and Ballard Power (BLDP) and the positions
in these issues will likely be rolled forward and down to lower
the cost basis in each issue.  The big loser today was Plug Power
(PLUG) and as we commented last week in our discussion on spread
adjustments, the issue was a prime candidate for further downside
movement, after it broke through technical support.  The stock
began moving lower near 10 A.M and the short option traded below
$5 early in the day.  By the end of the session, the long option
was worth over $7, a great opportunity for those who participated
in the movement.  While it's difficult to determine what results
could have been achieved without actually trading the position,
a break-even exit, considering the original $0.75 credit, was not
an overwhelmingly difficult feat.  There were other strategies
that could have been implemented to limit any additional losses,
including shorting the issue or initiating an offsetting spread.
As the market slump continues (along with new technical failures)
we will review some of the common techniques for exiting popular
spread positions.

Questions & comments on spreads/combos to Contact Support
******************************************************************
                         - NEW PLAYS -
******************************************************************
BLS - BellSouth  $41.00  *** On The Rebound! ***

BellSouth is a communications giant serving millions of customers
in countries around the globe.  BellSouth offers, on its wireline
network, local, long distance and network access services for
voice communications, digital and data services, cable/digital TV
and advertising services.  The company also markets e-commerce
services, Web design and hosting and online access to residential,
business and institutional customers of all sizes.  BellSouth is
one of the world's largest wireless communications providers with
local and long distance, voice and data communications services
in major markets throughout the United States and in key growth
areas around the world.

Telecom issues are expected to recover in the upcoming weeks and
BellSouth has rebounded in recent sessions on optimism over its
new wireless communication network.  On Friday, the FCC approved
SBC Communications' (SBC) and BellSouth's proposal to create the
second largest wireless carrier in the U.S.  The venture, which
was announced in April, will have about 18 million subscribers,
second to only to Verizon Wireless.  The new company, which will
be 60% owned by SBC and 40% by BellSouth, pushes AT&T's wireless
business down to the #3 spot and is expected to become a leader
in a number of major markets across the country.  Based on the
bullish activity in the issue, investors favor the new agreement
and this position provides an excellent opportunity to speculate
on the success of the venture.


PLAY (speculative - bullish/synthetic position):

BUY  CALL  JAN-45.00  BLS-AI  OI=1756  A=$1.88
SELL PUT   OCT-37.50  BLS-MU  OI=1913  B=$1.68
INITIAL NET CREDIT TARGET=$0.25-$0.38 ROI TARGET=50%

Note:  Using options, the position is equivalent to being long
on the stock.  The collateral requirement for the naked put is
approximately $1450 per contract.


******************************************************************
STAT - I-Stat  $24.19  *** On The Move! ***

i-STAT develops, manufactures and markets medical diagnostic
products for blood analysis that provide health professionals
with immediate and accurate critical diagnostic information at
the point of patient care.  The company's current products,
known as the i-STAT System, consist of portable, hand-held
analyzers and single-use, disposable cartridges, each of which
simultaneously performs different combinations of commonly
ordered blood tests in approximately two minutes.  The i-STAT
System uses a simple, one-step procedure, the results of which
can be easily linked by infrared transmission to a health care
provider's information system.

The Medical Instruments and Appliances group has performed very
well over the past few months and STAT is poised to become one
of the premier companies in the industry.  While there are a
number of positive fundamental aspects in the company's future,
this position is based solely on the technical outlook for the
underlying issue.  From a trend and momentum viewpoint, the
strength of the recent rally suggests there may be additional
upside potential in the future of this stock and a cost basis
near technical support will suit us just fine.  As always, news
and market sentiment will have an effect on the issue so review
the play thoroughly and make your own decision about the future
outcome of the position.


PLAY (aggressive - bullish/credit spread):

BUY  PUT  OCT-20.00  TAQ-VD  OI=10  A=$0.31
SELL PUT  OCT-22.50  TAQ-VX  OI=0   B=$0.75
INITIAL NET CREDIT TARGET=$0.50-$0.62  ROI(max)=25%


******************************************************************
                         - STRADDLES -
******************************************************************
SCMM - SCM Microsystems  $36.22  *** Probability Play! ***

SCM Microsystems designs, develops and sells hardware, software
and silicon that enables secure access of digital content and
services.  The company sells its products primarily into four
markets: Digital Television, where its products are used to
control access to digital television broadcasts; Broadband Access,
where its products are used to provide secure connections between
a limited number of users or to control access to subscribed
content from a satellite, terrestrial or cable operator; Network
Security, where its products are used to control access to PCs,
computer networks and the World Wide Web to facilitate enterprise
security and online transactions, and Digital Media Transfer,
where its products expedite the transfer of information between
PCs and digital appliances such as digital cameras and digital
music players.  SCM's customers are manufacturers in the consumer
electronics, computer, digital appliance, digital media and
conditional access system industries.

This position meets our criteria for a favorable straddle; cheap
option premiums, a history of adequate price movement and future
events or activities that may generate volatility in the issue
or its industry.  This selection process provides the foremost
combination of low risk and potentially high reward.  We would
like to use shorter-term options to achieve profits based on
the neutral outlook but the Open Interest in the November and
December options is almost nil.  The March series offers some
liquidity and it will increase as time passes.  The options in
that month also provide an acceptable risk/reward ratio however,
as with any play, the position should be evaluated for portfolio
suitability and reviewed with regard to your strategic approach
and trading style.


PLAY (conservative - neutral/debit straddle):

BUY  CALL  MAR-35  SIU-CG  OI=10  A=$7.12
BUY  PUT   MAR-35  SIU-OG  OI=18  A=$6.25
INITIAL NET DEBIT TARGET=$13.00 TARGET ROI=50%




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