Option Investor
Newsletter

Daily Newsletter, Wednesday, 10/04/2000

HAVING TROUBLE PRINTING?
Printer friendly version

The Option Investor Newsletter                Wednesday 10-04-2000
Copyright 2000, All rights reserved.                        1 of 1
Redistribution in any form strictly prohibited.

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/100400_1.asp

Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        10-04-2000        High      Low     Volume Advance/Decline
DJIA    10784.50 + 64.80 10850.00 10713.60 1.17 bln   1254/1565
NASDAQ   3523.10 + 67.27  3532.43  3382.53 2.13 bln   1874/2140
S&P 100   762.03 +  4.00   765.48   751.17   totals   3128/3705
S&P 500  1434.32 +  7.86  1439.98  1416.31           45.8%/54.2%
RUS 2000  507.49 +  2.82   507.79   499.40
DJ TRANS 2560.00 + 61.82  2576.35  2499.08
VIX        23.75 -  0.64    25.80    23.15
Put/Call Ratio       .68
******************************************************************

The Meaning Of Pain

This earnings warning season is inflicting cruel and unusual
punishment on market participants alike.  The major indices
finished solidly higher today despite a fresh round of earnings
warnings, which spread across several sectors.  Although both
the DOW and NASDAQ finished well into positive territory today,
another broken box maker might bring the bears out again tomorrow.
Is this deja vu, or what?  The last time I wrote the wrap was the
night of the Apple warning.  Hopefully the Dell warning won't have
the same bearish implications on the markets.  We'll know more
tomorrow.

But, before we expand upon the bearish news, let's focus on the
brighter spots in the market today.  After the Fed's indications
of leaving interest rates alone yesterday, the cyclicals extended
their two-day rally, which lead the Dow higher from the opening
bell this morning.  The leaders of the Dow today included: HD, IP,
MO, SBC, INTC, and IBM.



Despite the attempts from the bears, the DOW has held up relatively
well during the past weeks.  After bouncing off support at the
10,600 level last week, the DOW is now positioned to retest
resistance at 10,850, again.  The 10,850 level has proved to be a
significant site of struggle for the DOW over the past three weeks
of trading.  If the DOW can breakout above the resistance level,
we might see the INDU move very quickly to the 11,000 level.
However, if the cyclicals lose their steam and another sector
doesn't pick up the slack, the DOW could retest support near
10,600.

The NASDAQ finished three points better than the DOW, on volume
that was reminiscent of days gone by.  It was a wild and
volatile session with an impressive 2 billion shares trading
hands on the NASDAQ today.  However, despite the green on the
COMPX, breadth on the NASDAQ remained in bearish territory.
Decliners outpaced advancers yet again in today's trading by
nearly 300 issues.  Although, of the advancing issues, the
chip sector was by far and away the clear leader on the
NASDAQ today.  The Philadelphia Semi Index (SOX.X) gained a full
6% today, ahead of several high-profile earnings announcements
from chip manufacturers and equipment makers in the coming
weeks.  The best performing chip stocks on the NASDAQ today
included:  VTSS (+6.31), XLNX (+4.88), ALTR (+4.63), NVLS (+5.87)
and even INTC (+1.69) joined in the chip bull bandwagon.  What's
more, the beaten down communications equipment makers rebounded
with gusto today.  Leading the charge was:  JDSU (+6.44), SDLI
(+20.00), CIEN (+4.31), and QCOM (+5.94).  It was definitely
nice to see the once market-leading stocks reassert themselves
today during the NASDAQ's rally attempt.




The NASDAQ's five-week downtrend remains well intact, despite
today's rally.  The fact is the NASDAQ has yet to find a
solid bottom to rally from, and the DELL earnings warning might
complicate matters further.  On the other hand, the strong
performance of the semiconductor sector today might extend into
tomorrow's trading, especially after the bullish report from
Micron (MU) after the bell.  MU posted profits of $1.16 versus
estimates of 96 cents.  The stock traded up fractionally in the
after hours session.

The wild trading on the NASDAQ was epitomized by Oracle (ORCL).
Trouble began brewing yesterday morning after ORCL concluded its
analyst meeting.  Apparently, ORCL's CFO and flamboyant CEO did
not impress Wall Street analysts with bullish visions.  ORCL's
presentation created a great deal of controversy which resulted
in the stock losing 12% yesterday.  The construed comments of
ORCL's executives continued to weigh on the stock today, with ORCL
trading as low as $60.50.  However, late in the day, the company
issued a press release which reiterated guidance.  Toward the close
of trading today, executives said that the company was on track to
meet current estimates.  The stock paired its losses, which helped
the NASDAQ climb well into positive territory on the day.  It
seems the market is searching for any reason to sell stocks, and
unfortunately for the NASDAQ, ORCL fell victim to the bears' evil
ways yesterday and again today.

ORCL's wild gyrations over the past two days could have been the
result of two earnings warnings in the software sector.  After
the market closed last night, Computer Associates (CA) warned that
its second-quarter profits would fail to meet analysts previous
estimates.  BMC Software (BMCS) also warned of weakness in its
mainframe software business.  BMCS expects to report earnings
nearly 50% lower than previously anticipated.  CA and BMCS are
competitors of ORCL, which makes their respective warnings
significant.  The ramifications of the CA and BMCS warnings were
felt by other software makers today, with none other than Mr
Softee (MSFT) falling (-1.13), and finishing at a new 52-week low.

As much as I dislike writing about earnings warnings, I must
mention one other profit problem in the brokerage sector.  The
leading market maker in NASDAQ stocks, Knight Trading Group (NITE),
warned of lower-than-expected third-quarter earnings due to a
slowdown in trading activity last summer and less volatility in the
capital markets.  It's somewhat ironic that the very things we have
been missing in the markets, i.e. volatility and volume, have been
detrimental to the brokerages.  NITE told analysts it expected to
record earnings of 13 to 16 cents per share versus consensus
estimates of 31 cents.  That's a pretty significant miss!  As
such, the brokers took it on the chin today, lead lower by NITE
(-3.69), MER (-2.06), AMTD (-1.25), and GS (-4.44).

Away from stocks and into the commodities market, the American
Petroleum Institute reported crude oil supplies rose by 3.4
million barrels last week.  The Department of Energy confirmed the
rise in oil supplies last week.  The market responded to the news
by taking crude oil below $32 a barrel, again.  The easing oil
prices continue to pressure the energy sector with refiners and
drillers taking the brunt of the selling.  However, the lower
oil prices are providing much-needed relief to several other
sectors of the market including cyclicals and the transportation
sector.

More economic news in the form of the Nonfarm payrolls number
will be released Friday.  Although the market expects the Fed to
remain on hold for some time, the payrolls number is significant
because it could influence the Fed's bias.  The consensus
estimate for the Nonfarm payrolls number is around 225 K.  If
the number comes in lower than expected, the Fed might adopt a
neutral bias, which could relieve the equity markets.  Also
reported on Friday is the Jobless rate for September, which is
expected to come in at 4.1%.

Today's high-profile earnings warning came from Dell Computer
(DELL), who pointed to weakness in the European markets and
slowing demand from small-businesses on their failure to meet
revenue growth targets.  DELL told analysts that revenues were
trending toward a shortfall for its third-quarter, and the
company might fall one or two pennies short of EPS estimates in
its fourth-quarter.  DELL lost (-2.69) in after hours trading,
and could weigh on the Tech sector tomorrow.

Over the past three weeks, every time the NASDAQ has attempted
to find a bottom and rally, a high-profile tech company warns
of lower-than-expected profits.  Today's rally might be quickly
erased tomorrow, depending upon how the market receives the
DELL earnings warning.  In the case of the bulls, the NASDAQ is
well into oversold territory and due for an extended bounce.
Moreover, market participants have been expecting bad news from
DELL given the stock closed at another new 52-week low today, so
the company's warning might not be that unexpected nor have much
impact on the markets.  Finally, the bullish report from Micron
might clear the case for the once-beloved semis, which could very
well lead a rebound on the NASDAQ.  On the other hand, the bears
still have a stronghold on the market, which is evident in the
NASDAQ's five-week trend of lower lows.  If the market shrugs off
Dell's warning, we might be trading at near-term lows on the
NASDAQ.  However, if the bears show up with strength again
tomorrow, lower lows on the NASDAQ are not out of question.

Eric Utley
Research Analyst


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

Just a few spaces left.  Don’t miss this spectacular event.
Sign up today! http://www.OptionInvestor.com/workshop

Have you taken the time to see what you will be missing?

This is a power packed event from morning till night.
Check out the outline:
http://www.OptionInvestor.com/workshop/outline

Here is the quest speaker list:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The current roster of staff instructors includes:

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

For a course outline click here:

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

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

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

There is something for everybody. Just mingling with over 15
professional option traders for four days is worth the price
of admission. The entire weekend for the low price of $3795.
All meals, snacks and favors are provided and you will get a
professionally produced set of videos of the entire weekend.

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

For more info and to sign up:

http://www.OptionInvestor.com/workshop


********************************Advertisement********************
Option trades starting at only $15.50, stock trades as low as $9.95!

Mr. Stock provides key advantages to the serious option investor.
Along with complex option trading online, fast executions, advanced
charting capabilities and the ability to trade from any screen, we
now offer some of the best commissions on the Internet. Our staff
understands the sense of urgency required in today's market and
will respond quickly to your most important trading needs.

http://mojofarm.mediaplex.com/adserver/click_thru_request/565-58-1875-3
*****************************************************************


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

Trading The NDX/QQQs
Austin Passamonte

I'm always willing to trade anything with a symbol. Show me
the right things on a chart and I'm clicking up the broker.
Know anyone like that around your house?

That being said, most of us have our pet favorites we tend
to focus on. Mine happen to be indexes as well-documented
within this forum. The OEX usually gets my attention first
simply out of habit. I've traded it long enough to develop
that certain "feel" one gets after following a market over
time. Infallible? I wish. Higher-odds is about the best I
could hope for.

So it goes with the QQQs as well. These little gems are my
next favorite symbol to play. I'm certainly not alone as
open-interest volume on this market is one of the highest
of all "indexes", only surpassed by the SPX which we'll
discuss soon as well.

Right from square one, QQQ contracts are actual sector HOLDR
"shares" and option contracts on the HOLDR which mirror the
NASDAQ 100. To my knowledge, they are subject to 100% short-
term tax rates instead of 60/40 long term/short term rates
taxable on true index options and commodity futures contracts.
Please don't take my word for it; your accountant or tax
advisor is the authority on this sensitive matter.

QQQ contracts are listed on and traded exclusively through
the AMEX exchange. Not to be outdone, the CBOE recently
created a new mini-NDX index option contract from the big
one listed there for years. The mini-NDX or MNX is 1/10th the
size of its parent and has a cost basis similar to OEX option
contracts as a mirror index on the same CBOE exchange.

The MNX does not yet enjoy massive volume like the QQQs but
I expect that to improve greatly as time goes on. One plus
to these contracts are the feature of 60/40 long term/short
term capital gains, again as confirmed by your accountant
or tax professional.

Tax basis aside, QQQs have several strong advantages that
make them wonderful trading vehicles for beginners and pros
alike.

They are incredibly liquid which makes entry and exit a snap.
Orders placed at or near the bid and ask to sell or buy
respectively are quick fills in most markets.

Because of this great liquidity, market makers cannot easily
push the bid/ask spread very wide and we can use relatively
tight stops.

Also, our stops are usually hit right on or close to placement
as the market fills with such massive trading action. This
keeps slippage to a minimum on strikes near or at the money.

Contract prices are relatively cheap. Depending on where we
are in the expiration cycle, near-money options are 2 - 5
points cost.

Its underlying index is not a sleepy one; the NDX can and
does move 100+ points per session on a regular basis. Today
for example. It isn't unusual for option prices to reach 50
100+% above purchase price in a session or two. When big
moves and reversals are underway it can be several times
your money.

Now, I know many equity option traders just stifled a yawn
and hit the "back" button on their tool bar. Doesn't everyone
prefer PDLI and RMBS where profits like these are on the table
within one session rather than several?

Prefer yes, captured no. These high-flyers can make you
rich or broke within an hour and guess which is easier to
accomplish? Yes, I love trading these two myself but the risk
is high as any reward.

Premium volatility at or above 100% and two-point bid/ask
spreads are the norm, not exception. Pin-point entries are
paramount and a bit of luck doesn't hurt at all either. Nothing
wrong with this for the nimble fingered traders but not for
everyone, although more may try than actually should.

Personally I like predictable, methodical trade vehicles. The
heart-stoppers are fun to take for a spin but it's tough to
get down in the trenches and eke out a long-term career with
them. Just when you get to know one of those stocks with great
intimacy, it all changes on us.

Just like that ex-boyfriend or girlfriend you last dumped, life
has changed but memories die hard. ORCL, MSFT, DELL, INTC, CSCO
and a cast of hundreds all had their glorious days in the sun.
Care to make a living trading any of them these days? Better go
start the dating process all over again or face financial ruin
trying to relive history.

Here's a little exercise for you; keep track of all the live
analysts (forget the dead ones) you see on CNBC or CNN media
shows that don't get asked about one or more of the old war
horses listed above. Don't worry about running short of fingers
here unless you clean your lawnmower's deck with blades
engaged.

Why is this? Because most of the people who bought into these
wrinkled darlings did so near or at their all-time highs. Hey,
stocks breaking out above all-time highs are purported to go
much higher and swarms of anxious buyers believe that hook,
line & sinker.

Witness the volume on INTC above $70 just a few weeks ago. Think
anyone still holds INTC shares they greedily grabbed above $70?
Worse yet, any call options in September or October open above
$70 with high hopes for further gain? Ouch. Old memories do die
hard.

Back to the Qs. We went on that tangent for a reason. We only
need to familiarize ourselves with the index once and it really
doesn't change that much. At least when it does change the action
is more deliberate and foreseeable. Isn't that a beautiful thing?


(Hourly chart; NDX)



Remember, a shuffle occurs within this and every index to keep
things more or less balanced & smooth. Worn, tattered stocks
are replaced by new studs that keep pushing things the way it
was before. Meteoric rise and fall is replaced by steady ascent
instead.

So we've made our case for the QQQs, now what? Time to figure
out how we can turn this rambling into cash.

Pick a strategy and it fits the QQQs. Straight calls and puts,
debit spreads, credit spreads, calendar spreads, naked writes...
it all works here. Buying calls & puts at resistance & support
and/or trading oscillator signals to enter either direction
are equally effective. Lots of help narrowing things down,
aren't we?

One of the first things to keep in mind is the propensity for
this market to become range-bound each month. Save for major
moves every little while, we can clearly identify firm points
of overhead and underlying congestion. If we patiently wait
for either of these ranges to be tested and repel prices, our
entry is fairly simple. Managing stops properly and asking for
just less than probable profits is the approach I encourage.

(Hourly chart, QQQ)



We'll save specific trade strategies for our time together next
Monday where proper space permits. Meanwhile, a few more tips
on index-market timing.

The NASDAQ-100 is led by a few of its heavyweight components
as most indexes are. This sympathetic relationship occurs as
traders watch how MSFT, INTC, CSCO, WCOM and a few others
behave. Perceived strength or weakness here leads to further
buying or selling spread throughout the sector.

Plenty of traders track the pulse of this market through the
action of it's big horses, and rightly so. Whether it be
fundamental or psychological action that moves a market, the
move occurs regardless. Knowing what causes this is of more
importance to us than why it works.

My approach varies from this a bit. If I aim to track the NDX
market I choose not to keep an eye on its components myself.
I prefer to simply watch the chart signals for the NDX itself,
confident that all price action taking place within the index
is reflected by the chart signals I rely on.

(Hourly chart, QQQ)



Either method is fine and both approaches work. I'd suggest
you become adept at judging near-term market action in one of
these ways before entering the fray if this is all new to you.

Monday next we will move into specific trading methods and
strategies for short and long-term plays on the NDX index.
Feel free to visit us at OIN's newest sister site;
www.IndexSkybox.com  to see how we currently trade this market 
live and a view our diverse approach. In either case I look 
forward to our time spent together real soon!

Best Trading Wishes,
Contact Support


************************Advertisement*************************
Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?

Trade instantly with Stop Losses at Preferred Capital Markets
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with Preferred Capital

Anything else is too slow!

http://www.sungrp.com/tracking.asp?campaignid=593
**************************************************************


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

AETH - Aether Systems Inc $90.00 -3.63 (-15.50 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.

Most Recent Write-Up

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.

Comments

Since breaking $100, AETH has serious potential downside.  Today's
trading looked good for the stock as it bounced at $90 and headed
up toward $100.  Fortunately for us, this gave a prime entry.
AETH came up shy of $100, at $98.44, and turned on a dime in the
final 45 minutes to plummet $9 on heavier volume.  If a break of
$90 happens with strong volume, it would be a sign to jump on
board.  Bounces toward $100 accompanied with a rollover could also
provide entry.  Traders ran for the exits at the close so look for
more pressure tomorrow.

BUY PUT OCT-100 HEX-VZ OI=217 at $16.25 SL=12.75
BUY PUT OCT- 95*HIZ-VS OI= 10 at $12.63 SL= 9.75
BUY PUT OCT- 90 HIZ-VR OI=  9 at $ 8.25 SL= 6.50

Average Daily Volume = 1.10 mln



*****************************************
BIG CAP COVERED CALLS & NAKED PUT SECTION
*****************************************

Industrial stocks make a stand...but for how long?

The Dow advanced today as strength in cyclical issues boosted the
recovery in the blue chip average.  Meanwhile, a brisk rally in
semiconductor stocks helped the Nasdaq close positive for the
first time in almost a week.  The old economy leaders included
DuPont (DD), Boeing (BA), Alcoa (AA), International Paper (IP),
Wal-Mart (WMT), and SBC Communications (SBC).  In the technology
group, Intel (INTC) led the recovery, adding to gains in the chip
sector and Internet stocks rebounded following a recent slump in
business-to-business shares.  Software companies survived a profit
warning from Computer Associates (CA) and networking stocks edged
higher as bargain hunting investors scoured the group for oversold
issues.  The biotechnology sector was the only dissenter, failing
to extend Tuesday's gains amid profit-taking.  The broader market
saw advances in airline, retail, paper, and chemical shares while
utility and financial issues slumped.  Oil and oil service stocks
retreated as crude futures declined on news of increasing supply
from the American Petroleum Institute.  Analysts suggested that
concerns surrounding the valuations of tech companies have caused
investors to rethink their portfolio outlook and a classic sector
rotation was the inevitable result.  Now the question is whether
the market can sustain today's momentum and a begin a recovery in
earnest as the earnings season approaches.


Summary of Previous Picks:

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

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

OSIP    OCT    45    42.06  62.56    $2.94   5.7%
ALXN    OCT    85    80.25  99.69    $4.75   4.9%
NMSS    OCT    65    59.75  50.56   -$9.19   0.0% Exit on Rally?

Naked Puts:

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

ALXN    OCT    80    76.75  99.69    $3.25  11.4%
OSIP    OCT    40    38.56  62.56    $1.44  10.0%
ELNT    OCT    80    78.62 100.88    $1.38   8.5%
CTIC    OCT    45    44.19  64.13    $0.81   8.4%
AGIL    OCT    60    58.56  76.50    $1.44   8.3%
VRTS    OCT   110   108.31 137.00    $1.69   7.5%
VRTS    OCT   110   107.94 137.00    $2.06   7.0%
EXTR    OCT    85    83.75 107.75    $1.25   7.0%
NTAP    OCT   115   112.81 118.78    $2.19   6.8%
MEDX    OCT    95    93.62 110.13    $1.38   6.8%
RMBS    OCT    60    58.50  83.25    $1.50   6.7%
PDLI    OCT    73    70.87 112.63    $1.63   6.6%
RIMM    OCT    60    58.37 106.00    $1.63   6.4%
EXTR    OCT    83    81.06 107.75    $1.44   6.2%
BLDP    OCT    90    88.50 100.00    $1.50   6.2%
PALM    OCT    40    39.12  45.44    $0.88   6.1% Testing 50 dma
RBAK    OCT   125   123.63 139.56    $1.38   5.2% Looking bearish
METHA   OCT    45    43.06  42.69   -$0.37   0.0% Key moment
NMSS    OCT    55    53.00  50.56   -$2.44   0.0% Key moment
AVNX    OCT   115   111.50  99.00  -$12.50   0.0% Exit on Rally?


Naked Calls:

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

TUTS    OCT   120   122.31  68.25    $2.31   9.8%
MRVC    OCT    85    86.00  44.81    $1.00   8.2%
AETH    OCT   145   146.31  90.00    $1.31   7.8%


New Candidates:

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

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

BULLISH PLAYS - Covered Calls & Naked Puts

***************
EXTR - Extreme Networks  $107.75  *** A Big Day! ***

Extreme Networks is engaged primarily in the design, development,
manufacture and sale of high performance networking products
based on Gigabit Ethernet technology.  They provide end-to-end
switching solutions that meet the requirements of enterprise LANs,
ISPs and content providers.  Their flagship products, Summit and
Black-Diamond, share a common ASIC, software and management
architecture that allow a relatively short product design and
development cycle, thereby reducing the time-to-market for new
products and features.

Extreme has been one of the best performing Nasdaq issues over
the last year and this unique company, which ended the quarter
up 117%, also posted strong revenues as its growth continued.
Extreme reported fourth-quarter revenue of $92.4 million, up
142% over the year ago results.  The company has been hailed as
a technology leader, receiving a number of major industry awards.
Extreme was named the "Fastest Growing Company in Silicon Valley"
based on three-year revenue growth by the Silicon Valley Business
Journal, and EXTR is the only company to win the Networld+InterOp
"Best of Show" Award back-to-back for four years.  In addition,
Extreme was ranked #2 in Deloitte & Touche's most prestigious
"Rising Star" category for its "Fast 50" Program for the Silicon
Valley, a listing of the 50 fastest growing technology companies
in the area.  Rankings are based on the percentage of growth in
revenues from the last five years and Extreme's sales have grown
from $300,000 in fiscal 1997 to $262 million in the most recent
quarter.  The tremendous growth is based on the industry's wide
acceptance of the company's vision of " Ethernet Everywhere" for
next generation networks delivering broadband communications.

With the recent bullish activity in the issue, it's obvious that
investors believe EXTR is destined to be one of the top companies
in the industry and we favor the recent technical support near the
target cost basis.

EXTR - Extreme Networks  $107.75

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

Sell Put  OCT 82.5 EXR VX  40        1.13    81.38     9.4% ***
Sell Put  OCT 85   EXR VQ  197       1.63    83.38    13.3%
Sell Put  OCT 87.5 EXR VY  51        1.94    85.56    14.9%



******

JNPR - Juniper Networks  $207.94  *** Solid Recovery! ***

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

Technology stocks rebounded today from the recent earnings blues,
thanks to strength in discounted network-equipment shares.  The
tech-heavy Nasdaq, which closed higher for the first time since
late last week, was boosted by the surging prices in industry
giants like Juniper Networks.  Juniper is considered one of the
new bellwether companies in leading-edge technology because of
its outstanding growth.  The company's revenue grew nearly 100%
in the latest quarter, and the trend is expected to continue in
step with the demand for Internet infrastructure.  Investors are
still treading lightly ahead of the earnings season but the trend
for technology issues has been a flight to high growth stocks and
we believe Juniper Networks is one of the few issues that will
remain relatively bullish, even in a negative market.

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

JNPR - Juniper Networks  $207.94

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

Sell Put  OCT 145  JUY VI  606       1.31   143.69     5.8% ***
Sell Put  OCT 150  JUY VJ  1771      1.69   148.31     7.4%
Sell Put  OCT 155  JUD VK  1079      2.13   152.88     9.2%
Sell Put  OCT 160  JUD VL  838       2.50   157.50    10.8%



******

PPRO - Purchasepro.com  $84.81  *** Entry Point! ***

PurchasePro.com is a provider of Internet business-to-business
electronic commerce services.  The company's e-commerce solution
is comprised of public and private communities or "procurement
networks," where businesses can buy and sell a range of products
and services over the Internet in a competitive and cost-effective
manner.  Subscribers to the company's procurement networks need
only an Internet connection, a Web browser and a PurchasePro.com
membership in order to participate in interactive communities.
The procurement networks are customizable and scalable, utilizing
an open-architecture platform that can be integrated with members'
existing enterprise resource planning and accounting systems.  The
company's solution leverages the growth, pervasiveness, low costs
and community building nature of the Internet as a unique basis
for e-commerce for the broad business-to-business market.

Internet stocks rallied today as investors acquired the leading
issues at reduced prices, in the wake of the recent technology
sell-off.  In the business-to-business sector, traders filled
their baskets with a number of popular stocks and PPRO was one
of the HOT commodities.  Based on the strength in the issue,
investors believe the company is one track to become an industry
leader and our position offers an excellent reward potential at
the risk of owning this unique stock at a favorable cost basis.

PPRO - Purchasepro.com  $84.81

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

Sell Put  OCT 60   PXZ VL  606       0.81    59.19     8.7% ***
Sell Put  OCT 65   PXZ VM  688       1.50    63.50    15.4%
Sell Put  OCT 70   PPU VN  1137      2.31    67.69    20.5%



******

RIMM - Research In Motion  $106.00  *** On The Move, Again! ***

Research in Motion Limited is a designer, manufacturer and
marketer of innovative wireless solutions for the mobile
communications market.  Through development and integration of
hardware, software and services, they provide solutions for
access to e-mail, messaging, Internet and intranet-based
applications. Research in Motion's technology also enables a
third party developers and manufacturers worldwide to improve
their products and services with wireless access.

RIMM has been on the move in recent weeks and last Friday, the
company's share value jumped $15 to a recent closing high at $98
after the maker of the popular Blackberry two-way wireless pager
demonstrated that costly marketing programs can produce results.
RIMM reported that its revenues in the second quarter rose 57%,
well above analysts' estimates, as 25,000 new wireless customers
were connected to corporate-based servers and the number of new
companies deploying the pagers rose 25%.  In addition, the firm
announced that America Online is scheduled to launch its version
of the Blackberry later this year and that will mark RIMM's first
major foray into the consumer market.

Research in Motion is set to capitalize on the emerging wireless
market, producing a hand-held wireless device, the 957, that
allows wireless access to corporate e-mail, along with their
Inter@ctive Pager product line and the BlackBerry wireless e-mail
solution.  RIMM recently announced a deal with private software
firm Brience to expand enterprise applications to their devices.
Brience specializes in adapting and delivering unique proprietary
corporate information to any handheld in customized form, and the
potential for applications for RIMM's devices is significant.  In
addition, MODCOMP, a subsidiary of CSP (CSPI) and a top developer
of E-commerce and M-Business solutions, also announced that its
integration software, ViewMax, now supports wireless access to
mainframe, midrange, and UNIX applications via the BlackBerry
wireless email solution.  The ViewMax solution will seamlessly
connect any enterprise system, or "green screen," application to
the popular handheld, which recently won the 2000 PC World Class
Award for best wireless communication device.

From a technical viewpoint, the issue has excellent support near
our cost basis and the over-priced option premiums will allow us
to open a new position at a favorable entry point.

RIMM - Research In Motion  $106.00

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

Sell Put  OCT 85   RUL VQ  419       1.38    83.63    11.5% ***
Sell Put  OCT 90   RUL VR  323       2.19    87.81    14.5%



******

VECO - Veeco Instruments  $102.00  *** Entry Point! ***

Veeco Instruments designs, manufactures, markets and services a
broad line of equipment primarily used by manufacturers in the
data storage, optical telecommunications and semiconductor
industries.  These industries help create and distribute a wide
range of information age products for today and tomorrow, such
as personal computers, network servers, fiber optic networks,
digital cameras, TV set-top boxes and personal digital assistants.
Veeco offers two principal product lines: Metrology and Process
Equipment.  CVC, a subsidiary of the company, provides cluster
tool manufacturing equipment used in the production of evolving
tape and disk drive recording head fabrication, optical components,
passive components, MRAM, bump metallization, and next generation
logic devices.

Veeco Instruments rallied big in late September, closing at new
all-time high on momentum from an upgrade earlier in the month.
Banc of America offered the most recent opinion of the provider
of equipment for the manufacture of optical telecom components
and they initiated coverage with a "strong buy" rating and a $190
price target.  The analyst noted that VECO is delivering excellent
growth in its optics business and the issue trades at a favorable
discount to other industry leaders.

Investors appear to share the positive outlook and with today's
reversal above recent technical support near $95, the issue is
poised for further upside activity.  If you agree with a bullish
view of the stock, these conservative positions offer excellent
entry points, considering the recent volatility in the market.
Target a higher premium in the position initially, to allow for
a brief pullback in the stock from its current levels.

VECO - Veeco Instruments  $102.00

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

Sell Call OCT 85   QVC JQ  14       19.25    82.75     5.2% ***
Sell Call OCT 90   QVC JR  60       15.62    86.38     8.0%

Sell Put  OCT 80   QVC VP  13        1.81    78.19    15.5% ***
Sell Put  OCT 85   QVC VQ  99        2.94    82.06    20.9%
Sell Put  OCT 90   QVC VR  428       4.25    85.75    24.4%


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

NEUTRAL PLAYS - "SELL STRANGLES"

***************
PMCS - PMC Sierra  $209.94  *** Premium Selling Play! ***

PMC-Sierra designs, develops, markets and supports performance
semiconductor networking solutions.  The company's products are
used in the high-speed transmission and networking systems,
which are being used to restructure the global telecommunications
and data communications infrastructure.  The company provides
components for equipment based on Asynchronous Transfer Mode,
Synchronized Optical Network, Synchronized Digital Hierarchy,
T1/E1/J1 and T3/E3/J2 access transmission, High speed Data Link
Control and Ethernet.  The company's networking products adhere
to international standards and are sold on the merchant market
to over 100 customers either directly or through its worldwide
distribution channels.

This play is simply based on the current price or trading range
of the underlying stock and its recent technical history.  The
probability of profit from these positions is also higher than
other plays in the same strategy based on disparities in option
pricing.  Technically, we favor the issue for a bullish position
and have decided to sell premium for credit and use the earned
income to offset any losses on the downside, in the event we are
required to accept assignment of the stock.  If the price of the
issue moves through the current resistance area near $245, we
will buy the stock to cover our sold options.

PMCS - PMC Sierra  $209.94

NEUTRAL CREDIT-STRANGLE (sell naked call & sell naked put)

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

Sell Call OCT 250  SAR JJ  1632      2.44   252.44    10.0%
Sell Put  OCT 170  SZI VN  414       2.31   167.69     9.5%

Sell Call OCT 260  SAR JL  2934      1.38   261.38     6.0% ***
Sell Put  OCT 165  SZI VM  293       1.69   163.31     7.4% ***


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

BEARISH PLAYS - Naked Calls

***************
RBAK - Redback Networks  $139.56  *** Technicals Only! ***

Redback Networks is a provider of advanced networking systems
that enable carriers, cable operators and service providers to
rapidly deploy high-speed access to the Internet and corporate
networks.  Their Subscriber Management System (SMS) connects and
manages large numbers of subscribers using any of the major high
speed access technologies including digital subscriber line,
cable and wireless.  Redback sells its products through a direct
sales force,resellers and distribution partners.

Since the recent sell-off in the technology group began, this
company's share value has fallen substantially and today, the
issue did not participate in the recovery rally.  Redback is a
volatile, price-momentum stock and based on the negative short
term outlook, we are going to pursue a bearish stance with a
conservative risk/reward perspective.  We will use the current
consolidation period and overpriced option premiums to initiate
the position with a favorable premium.  The probability of the
share value reaching our sold strikes appears rather low, but
there is always the possibility of a recovery rally so monitor
the position daily for changes in technical character.

RBAK - Redback Networks  $139.56

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

Sell Call OCT 170  BKK JN  1938      2.06   172.06    13.1%
Sell Call OCT 175  BKK JO  278       1.50   176.50     9.7%
Sell Call OCT 180  BKK JP  3081      1.00   181.00     6.6% ***




************************Advertisement*************************
PRIVATEBUY.COM(tm).  SHOP ONLINE.  ANONYMOUSLY.  ANYWHERE.

You no longer need to submit your real name, credit card number, or
sensitive personal information when you shop online!

PrivateBuy.com is the first private debit account that allows you to
make purchases safely and anonymously at ANY merchant online. Sign up
today at http://www.privatebuy.com/signupdisplay.asp?srcid=4E2W
**************************************************************


*******************
FREE TRIAL READERS
*******************

If you like the results you have been receiving we
would welcome you as a permanent subscriber.

The monthly subscription price is 39.95. The quarterly
price is 99.95 which is $20 off the monthly rate.


We would like to have you as a subscriber. You may
subscribe at any time but your subscription will not
start until your free trial is over.

To subscribe you may go to our website at

www.OptionInvestor.com

and click on "subscribe" to use our secure credit
card server or you may simply send an email to

 "Contact Support"

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the
information over the phone.

You may also fax the information to: 303-797-1333


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

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

DISCLAIMER

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

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

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives