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Daily Newsletter, Thursday, 10/05/2000

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The Option Investor Newsletter                 Thursday 10-05-2000
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        10-05-2000        High      Low     Volume Advance/Decline
DJIA    10724.20 - 60.30 10843.30 10722.70 1.18 bln   1257/1549
NASDAQ   3472.10 - 51.00  3549.01  3459.58 1.87 bln   1594/2331
S&P 100   764.45 +  2.42   768.41   760.81   totals   2851/3880
S&P 500  1436.28 +  1.96  1444.17  1431.80           42.4%/57.6%
RUS 2000  502.67 -  4.82   508.98   502.64
DJ TRANS 2568.30 +  8.30  2589.67  2558.21
VIX        23.63 -  0.12    24.45    22.99
Put/Call Ratio       .70
******************************************************************

The Churning Continues	

I don't think I was the only one to breathe a sigh of relief when
the bell rang.  It was bumpy ride for the markets today as traders
continued to churn stocks in search of ascending issues.  For the
NASDAQ, DELL's comments from yesterday weighed on hardware stocks
and PCLN's problems once again brought selling pressure to the
Internets.  This is the type of market that we have to take a day
at a time, and just getting through it was the biggest relief
today.

The first order of business this morning before the open was news
of Priceline.com(PCLN) announcing that two of its licensees would
be shutting down.  The licensees, Webhouse Club, which sold
groceries and gasoline at name-your-own prices, and Perfect
Yardsale, a used-merchandise seller, will no longer be in business
with PCLN.  According to Webhouse Founder and PCLN's Vice Chairman
Jay Walker, the reason:  PCLN needs more capital for the operation
and it wouldn't be feasible to raise another $100 mln.  As a result,
he will be "winding down" the businesses over the next 90 days.  It
is interesting to note that both of these licensees are separate
businesses from PCLN and do not affect PCLN's operations.  Yet, in
this fickle market, investors and traders will jump on any bit of
information to sell.  From what was a $100 stock in March, PCLN
has deteriorated to $5.81 a share, losing $3.56 on the day, a
whopping 38%!  That's amazing.  Especially considering that this
"winding down" will no way affect PCLN's books.  Just goes to show
the type of market environment October has brought upon us.

Traders took PCLN's woes one step further and used this information
to sell other leading, or not-so-leading, Internet stocks.  Feeling
the heat were old-school Internets AMZN(-2.44,-6.7%),
YHOO(-3.25,-3.7%), CMGI(-2.81,-11.5%), and ICGE(-3.31,-21%).  Those
are some massive percentage losses for these once highly touted and
highly capitalized companies.  Managing to remain in a league of
their own from the old guard was AOL.  Although not having an
impressive year, AOL broke out over the $60 level once again on
word that is merger partner Time Warner(TWX) would not pursue its
proposed deal with Britain's EMI record company.  This was the
major obstacle for approval of the AOL-TWX merger in the EU.
European regulatory officials felt that an EMI-TWX marriage would
create an all too powerful force in the music recording industry.
By walking away from the EMI deal, both AOL and TWX were freed
from the burden of potential blocks to their own merger, as well
as their stocks.  TWX finished up $5.24 to $91.24, and AOL added
$2.85 to $61.50.  Today's decision will likely clear the way for
merger approval by the EU, and the FTC, which expects to reach a
decision before the next Presidential Inauguration.

The real story today was the NASDAQ's reaction to DELL's words of
warning last night after the bell.  Confirming the trend of
slowing earnings growth, DELL was the third high profile old tech
company to warn, after INTC and AAPL.  The announcement rocked
hardware stocks from the get-go.  DELL lost 10%, or $3, to
close at a two year low of $25.19.  It dragged down the other
box makers including CPQ(-3.64), GTW(-2.77), and HWP(-7.38).  For
the NASDAQ, it feels like it is just one thing after the other,
like a snowball growing as it rolls down the mountain.  And the
damage was across the board today, with Networkers(SCMR:-13.88),
Semis(AMCC:-13.63), B2Bs(ARBA:-13.63), and Software(SWCM:-11.88)
all feeling the selling heat.  While the NASDAQ traded in a
90 point range, it waffled around the 3500 level for most of the
day.  On the chart below, notice how the NASDAQ has fallen from
its prevailing downtrend that began in early September.  This
drop off has taken the NASDAQ into a lower trading range that is
bound on the upside at 3600.  Tuesday's low of 3382 was the
arbitrary support point after the previous low of 3521 from August
was taken out.  Many traders looked to this level for support,
and now technicians are nervous about possible tests of May's low
of 3042.  This morning on CNBC, Ralph Bloch of Raymond James
stated that the two major indices, the NASDAQ and the INDU, need
to be on the same page to advance.  In addition, he said that a
breakdown in the INDU would likely result in a market test of the
May lows.  Volume on the NASDAQ was healthy at 1.83 bln with
decliners beating advancers 23-15.  Breadth continues to trend on
the negative side and is a serious concern for the tech sector.




Now that it appears that the overall market health is hinged on
the two major indices getting together and moving in lock step,
the INDU becomes ever so important.  During the past couple of
weeks, the INDU has made a nice recovery from the 10600 level,
running into resistance at 10850 on the way.  In fact, traders
have attempted to break through 10850 three different days since
bouncing from 10600 to no avail.  Today's close has brought the
Dow 30 to critical point:  smack dab on the recent trendline that
it has recovered on.  Tomorrow's trade will be key in determining
the sentiment for the INDU and the markets.  A breakdown from this
level could result in a retest of 10600, and a weak INDU will
only add to the pressure on the NASDAQ.  A bounce for the INDU
will help the index narrow its ascending wedge, in which it can
coil to break that overhead resistance.  Tomorrow's Non-Farm
Payroll will likely determine traders' sentiment and an early
direction for the INDU.




On the earnings front, Alcoa(AA) posted earnings of $0.42 per share,
in-line with lowered estimates after the company warned on September
18th.  AA ran up prior to earnings from the $25 level, and finished
today's session down an eighth to $27.13.  Merrill Lynch upgraded
some of the other old-economy stocks today to a Near Term Accumulate
from a Neutral.  On their list was CL, PG, G, and CLX.  Investors
have neglected many of these issues during the past year and their
recovery would greatly help the health of the INDU.  On the flip
side, JC Penney(JCP) warned today that their 3rd quarter earnings
will not meet the Street, citing consumer spending slowdown.  JCP
lost $1.25 and now trades at $10 a share.

Looking ahead, traders will be watching tomorrow's Non-Farm Payrolls
and Unemployment Rate for direction.  The markets expect 225K and
4.1%, respectively.  Equally important will be the technical outlook
for the markets.  If traders want to sell techs again tomorrow, they
probably will either way.  There is a downward bias in the market
and we have seen many of the high-flying leaders of the NASDAQ fall
drastically in the past week.  Even, EMC, which has held up
relatively well, has come under heavier selling pressure the past
two days.  As traders continue to churn the market, we must take
these October sessions day by day.  Interestingly enough, the VIX.X
was down today to 23.63, indicating that fear really hasn't grabbed
hold of the investment community yet.  We are approaching the full
swing of earnings season next week, which could be our saving grace
or the last straw.  Use caution and stop loss orders as price
volatility increases.  Remember, when in doubt, stay out.  Cash can
always come in handy on a rainy day.  Good luck.

Matt Russ
Editor


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

Coiled Springs
By Austin Passamonte

If you're getting tired of this market's chop, join the club.
Is there some unwritten law that states we must trade between
plus and minus 50 points of yesterday's close, multiple times
daily? Sure seems that way.

As traders we revel in the 100+ point moves one direction
or the other, one session or more. We've enjoyed that in the
recent past and Market Sentiment believes such will be upon
us once again.

Looking at daily charts of most major indexes and numerous
big-cap stocks, we see more "doji" stalemate candles racked
together than my high-school chess team amassed. Such clear
evidence of investor confusion and indecision suggests we are
at a short-term crossroads right now.

When balance is found and neither side can tip the scales,
pressure is built. Hourly and 30 minute charts show prices
coiling into all sorts of wedges, pennants and other tight
patterns. That can't, won't and doesn't last forever!

Short-term charts give near-term signals. We expect a sizeable
pop soon which could go either way. Tomorrow's employment report
could be the catalyst (excuse) for one side to say "uncle".

Yesterday afternoon a huge block trade of almost 15,000 QQQ
Oct 92 Calls cleared the market. Someone is betting nearly
two million dollars that we will move up from current NDX
levels soon. Want to bet against them? It is either a big-time
speculation or mother of all short-stock hedges by a market pro.

Maybe it's Jim trying to earn his wife Sondra that new Prowler
she's been hankering over. In any case this is good to know.

The COT report is released tomorrow after 3:00pm EST. Let's
see if the SP00S commercials have covered shorts, added to or
stood pat as of Tuesday's close. Also good to know.

Daily chart technical oscillators remain oversold and struggle
to emerge. Each time they do, another pre-warning steps on their
fingers. Who else will warn tomorrow after the close? We'd wait
'til then ourselves, given the choice.

Right now technical levels of support & resistance see us range
bound with room to clear the upside. As we well know, rallies
emerge from the darkest depths of public sentiment and we'd say
we're close.

Five weeks ago people couldn't buy stocks high enough. Now they
can't sell them low enough. Guess where we'll likely be five
weeks from now? A few companies actually making their numbers
will surely help.

Don't expect any sustained rallies to begin now and carry through
until March. That's unrealistic. Expect a rally any time but don't
try to buy the bottom. Take your chunks from the middle and be
grateful for what the market gives. It offers up solid profits
more days than not in either direction, if we are gracious and
accept what's given!

*****

VIX
Thursday 10/05 close; 23.63

30-yr Bonds
Thursday 10/05 close; 5.90%

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.

                                   Thursday
                                 (10/05/2000)
  (Open Interest)        Calls        Puts        Ratio
S&P 100 Index (OEX)
Resistance:
805 - 790               19,516       4,588         4.25

785 - 770                9,952       8,543         1.16

OEX close: 764.38

Support:
760 - 745                4,005      15,073         3.76
740 - 725                   89      12,532       140.81***

Maximum calls: 800/8,135
Maximum puts : 750/7,034

Moving Averages
 10 DMA  763
 20 DMA  779
 50 DMA  797
200 DMA  783


NASDAQ 100 Index (NDX/QQQ)
Resistance:
 94 - 92                30,274      18,667         1.62
 91 - 89                24,605      35,662          .69
 88 - 86                11,337      23,942          .47***


QQQ(NDX)close: 85.875

Support:
 84 - 82                 2,863      11,753         4.11
 81 - 79                 1,097      14,175        12.92
 78 - 76                    82       7,967        97.16

Maximum calls: 92/19,462
Maximum puts : 90/17,242

Moving Averages
 10 DMA 88
 20 DMA 90
 50 DMA 92
200 DMA 95


S&P 500 (SPX)
Resistance:
1500                    19,031      17,889         1.06
1475                    22,263      17,028         1.31
1450                    13,893      11,345         1.22

SPX close: 1436.28

Support:
1425                     7,834      17,674         2.26
1400                     1,254      12,068         9.62
1375                       993       8,691         8.75


Maximum calls: 1475/22,263
Maximum puts : 1350/23,179

Moving Averages
 10 DMA 1436
 20 DMA 1453
 50 DMA 1471
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 updated on 10/06 by COT

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

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


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

As of Market Close - Thursday, 10/05/2000

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

DOW   Industrials      10,724      10,550  10,900
SPX   S&P 500           1,436       1,415   1,465
COMPX NASD Composite    3,472       3,250   3,750
OEX   S&P 100             764         750     776     **
RUT   Russell 2000        502         485     525     **
NDX   NASD 100          3,424       3,250   3,700     **
MSH   High Tech           926         890     926

BTK   Biotech             694         650     790     **
XCI   Hardware          1,238       1,210   1,350     **
GSO.X Software            410         385     445     **
SOX   Semiconductor       832         800     960
NWX   Networking        1,189       1,135   1,210     **
INX   Internet            446         430     510

BIX   Banking             621         600     635
XBD   Brokerage           651         620     670
IUX   Insurance           781         735     790

RLX   Retail              804         780     850
DRG   Drug                411         370     425
HCX   Healthcare          847         825     860
XAL   Airline             147         138     152
OIX   Oil & Gas           308         296     332

Seven alarms were triggered over the last two sessions all to the
downside.  Lowering support on (OEX, RUT, NDX, BTK, XCI, GSO.X,
NWX) Lowering resistance on (SPX, MSH, RLX) Raising support on
(IUX, HCX, XAL).


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

Just Tradin'
By Molly Evans

One can learn a whole lot in just a year.  This time last year
saw me putting on some of my first options trades.  What a great
time!  The low of October 1999 for the Dow was registered at 9651
on the 15th while the Nasdaq saw its low of 2632 on the 18th.
(Did the markets really move in tandem way back then?)  They both
ran a good leg up the hill but the Nasdaq smoked the Dow by gains
of 59% to the Dow's 18% effort until they hit a hurdle on January
3rd 2000.  I remember the day well.  Ignorance is so bliss.  I
thought, "Huh!  What's the problem?"  Makes me laugh to think of
it all now.  But then, our runners soon found their legs again and
all was well.  The Dow petered out on the 14th of January though,
topping at 10,150 and fell sick for a solid three months before
hitting its bottom at the low 9730s three of four days.  As you
all know, the Nasdaq went on to rise exactly 2500 points from
that October 18th low until it topped out at 5132 on March 10th.
That was a 95% gain in just under 5 months.  Glory days.

It's kind of fun to think back to that time.  For those of us
who like to trade the high flyers, our only concern was whether
we were picking the stock that would run the hardest.  We never
paused to consider if it was a worthy investment.  I didn't
anyway.  You didn't need to!  As I said, ignorance is bliss and
there was plenty of it in the market.  No wonder we laughed at
the naysayers.  This is the new era!  Get with the program.  I
remember chastising my mom for holding onto her AHP stock.  "Mom!
Get a clue!"  I raked her over the coals when she said she was
thinking of buying more at its year low of $40.  "No mom!  Those
stocks are on sale for a reason!  Geez, you're embarrassing me!
Buy as much CMGI as you can get.  You can't lose!"

You didn't need TA either.  Everything I looked at was overbought.
They all looked the same.  But so what?  They could get more
overbought.  I remember March 11th well too.  I bought that dip
with a vengeance; couldn't believe people were just tossing these
great stocks aside.  It was the mother of all sales.  Of course,
the crash landing three days later hurt pretty badly but at least
it was over quickly.  The gaping wounds healed on the outside I
guess but...I for one, was a changed investor and trader on the
inside.

The psychology of trading books call it "Rock Bottom" when a
trader essentially blows up his own account and then capitulates
at the exact low.  Some never come back to the market again.  Some
try to blame it on the market, Alan Greenspan, a message board or
even the companies of the stocks they chased.  They then come back
to try it all over again as the market is "better now" but repeat
all their previous mistakes.  And then there are those, like me,
that vow this will never happen to them again.  A vow like that
is a true awakening and a high commitment to learning all about
something one never really had a clue about in the first place.
It takes time, energy, patience and practice.  There's no holy
grail and there's no set system that someone else can prescribe
for you.

It's been nearly seven months that I've been pouring over books and
websites learning about trading, options, strategies, the market,
economics and even myself.  And what have I learned?  I've learned
that the markets are multi-dimensional, dynamic and fascinating.
I've learned that everyone has an opinion about the market but
many people don't want, no, let me re-phrase that, can't tolerate
to hear that it might be going down nor do they want to hear the
bad news behind declines.  Furthermore, most people think that
the markets are always a safe place for their money as long as
they buy and they hold.  I've learned that I've got the patience
of a gnat when it comes to trading and I've got to constantly
slap my hand to keep it from clicking into high risk but high
reward trades.  Don't worry!  I'm learning.  I do still have
those Dupont LEAPs I bought this past summer.  ZZZZZzzz.

Perhaps most importantly, I've learned that while it is good to
educate yourself, forming definite market opinions is a very
hazardous pastime if you're a trader.  That's been another issue
I struggle with.  This market is a whipsaw until proven otherwise.
I lean bearish but that's because as I told you, one, I read
voraciously and study the economics.  It's all there.  If my head
is in the sand, I can't see very well.  Not good.  I want to know
what the real deal is.  Secondly, I told you I have the patience
of a gnat.  As Chris Verhaegh says, "Bear pie is served up fresh,
hot and fast."

We're in a downward trend and sitting on some very important key
support lines.  How's it going to play out?  I don't know.  No
one does.  I know some pretty darned smart folks are calling for
a major crash very soon.  But then again, as I said previously,
the markets are multi-dimensional and dynamic.  I believe there
are a lot of controls in place that we don't even know about. Who
says the market has to go anywhere?  I've been hearing "rally
coming" since before Labor Day and in the other ear someone is
screaming, "SELL everything!  Run for your life!"  What's a girl
to do?

I'm just tradin'.  Trading the trend, whatever it is at the
moment and concentrating on chart patterns, self discipline
and taking note as to how the markets react to various fundamental
and technical events.  I like spreads; I like various long
strategies, short plays and covered calls.  I think it's dangerous
to hold positions overnight and I am doing so with less and less
frequency.  I'd love to again be a position holder and "let those
profits run" but they just don't do that.  At least the stuff I
know and love to trade doesn't.  I wonder what's going to happen
too, but it's ludicrous to try and pick a bottom here and go in big
for positions.  I may have that bear bias but short squeezes are
pretty painful and I'm not about to load up on puts for that big
crash that may never come.

When I see patterns forming on my screen, I pounce.  I was quite
happy in some aggressive long call plays on Tuesday but then all
of the sudden there were red candles dirtying up the picture.
They got bigger and bigger, and then there was one to follow that
one and then another.  What in the world?!?  I finally got a clue
that something was afoot that I didn't know about when the Nasdaq
had dropped thirty, going on forty points, in about 5 to 10
minutes.  The FED!  I'd completely forgotten.  How could I have
forgotten?










You've never seen a girl fly into action faster to flip plays.
You can trade only from the hard right edge of that chart.  When
things are going along nicely and they suddenly reverse in ALL of
the plays, it becomes a Kodak moment at this trader's station.
What had been shoring up to be a great day became a pretty painful
one within twenty minutes.  However, you've got to look at the big
picture; the day before and the day after were glorious for me.
That's the nature of it.  Gotta love it!  No fear.  Just get right
back on that horse and call it right.

I know I can't control how my plays are going to be treated by
the market.  The only thing I can control here is myself.  Maybe
that's the most important lesson I've learned so far.  I wish
you all well, it's been a tough year for all traders.  Hang in
there.


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

Index       Last     Mon     Tue    Wed    Thu    Week
Dow     10724.92   49.21   19.61  64.74 -59.56   74.00
Nasdaq   3472.10 -103.92 -113.07  67.27 -51.00 -200.72
$OEX      764.45    3.43   -5.23   4.00   2.42    4.62
$SPX     1436.28   -0.28   -9.77   7.86   1.96   -0.23
$RUT      502.67   -9.70   -7.00   2.82  -4.82  -18.70
$TRAN    2568.30  -57.22   33.76  61.82   8.30   46.66
$VIX       23.63   -0.42    0.96  -0.64  -0.12   -0.22

Calls

QCOM       82.88    0.06    1.19   5.94   4.44   11.63  Winner!
NT         66.75    2.88    0.00   1.25   3.13    7.25  New
LLY        84.56   -0.25    0.88   0.75   2.06    3.44  New
CHKP      159.38   11.00  -12.63  -1.66   5.16    1.88  Rebound!
CIEN      117.19   -1.44  -11.25   4.31   2.75   -5.63  Recovered
ADBE      148.50    7.75    0.44  -5.44  -9.50   -6.75  Entry Pt?
PEB       107.94   -3.69   -0.13   2.31  -7.06   -8.56  Dropped
SEBL       98.81   -8.81   -5.47   5.69  -3.91  -12.50  Needs NAZ
MERQ      139.50   -5.31  -10.94  -2.44   1.44  -17.25  Volatile!
JNPR      197.94  -12.81   -4.69   6.50 -10.00  -21.00  Dropped
AGIL       67.50   -2.63  -11.63   0.81  -9.00  -22.44  Dropped
MUSE      171.50   -8.56   -8.88   1.50 -13.50  -29.44  Dropped
CFLO      108.00   -0.63   -7.25 -13.38 -13.75  -35.00  Dropped

Puts

AETH       90.00  -11.94    0.06  -3.63   0.00  -15.50  Bear target
AKAM       39.69   -5.63   -2.88   1.47  -5.78  -12.82  Looks bleak
QLGC       75.63   -0.69   -8.63   2.06  -5.13  -12.38  New
DIGX       39.63   -3.63   -4.13   0.38   0.13   -7.25  Stable
JBL        50.00   -2.31   -1.31  -1.00  -2.13   -6.75  New
CMOS       23.75   -1.63   -3.13   0.69  -2.19   -6.25  Thanks MU
CPTH       55.13   -4.56   -4.19   6.00  -2.88   -5.63  Lower path


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:
*****

AGIL $67.50 +9.00 (-22.44) Yesterday, AGIL gapped down at the
open, near its 50-dma at $68.79.  Spending most of the day
trading in a narrow range at that level, a late day recovery on
strong volume resulted in the stock closing up fractionally on
almost three times the ADV.  Starting off much like yesterday,
selling pressure in the early morning led to trading in a narrow
range. Instead of ending the day with a recovery however, further
selling into the close put the stock below it's 50-dma.  While
AGIL is still above its 200-dma, currently at $65.95, a break
below that level leading to further selling in current market
conditions is quite possible.  As a result, we are closing this
play.

CFLO $108.00 $13.75 (-35.00) No longer immune to the movements of
the broader markets, CFLO has been breaking below support levels
which took weeks to build.  CFLO's dip earlier in the week was
initially viewed as normal profit taking; it has turned out to be
a full-fledged sell-off.  Yesterday, the stock lost nearly 10% on
twice the ADV in spite of a rallying NASDAQ.  While CFLO did stop
at the key level of $120, the support level did not hold up today
as stock shed another 11% on four times the ADV.  While the stock
did manage to close above its 50-dma at $104.59, CFLO's sell-off
on accelerating volume and its break below key support at $120
have forced us to drop the play.

MUSE $171.50 -13.50 (-29.44) Wednesday's volatile action in the
MUSE provided a glimmer of hope as a strong sell-off in the
early morning led to a convincing recovery by the end of the day.
Forming what looked like a hammer reversal on a bounce off strong
support at $160 (near its 50-dma), a follow-through today would
have offered a possible entry point.  Instead, the sellers took
control after two failed attempts to break though resistance at
$185.  The failed reversal to the upside and additional
resistance from the 5-dma, now at $187.21, leads us to believe
that further selling could be ahead.  With that, we are taking
money off the table.

JNPR $197.94 -10.00 (-21.00) Given a stay of execution on Tuesday
by its ability to hold the $200 support level, JNPR succumbed to
continuing weakness in the Technology sector today and gets the
axe after all.  Yesterday's recovery off the $191.50 low gave the
appearance that JNPR would be able to hold support, but
continuing earnings warnings from technology leaders like DELL
were more than the bulls could stand, and they allowed the
selling to proceed unchallenged today.  Volume was slightly
above the daily average as JNPR gave up $10, and with the
technicals all pointing down, it looks like JNPR could test the
$180 level before the selling abates.  Earnings are only a week
away, but the negative market environment makes it unlikely that
our play will be able to mount a serious recovery between now
and then.  Needless to say, JNPR moves onto the drop list
tonight, as we make room for stronger plays.

PEB $107.94 -7.06 (-8.56) The Biotechs have continued to
deteriorate throughout the week, and PEB has finally followed
suit, falling through the $112 support level and closing
today's session fractionally below the $108 level.  This had
previously looked like rock-solid support, and today's action
combined with the rollover in Stochastics and MACD makes it
clear that PEB is weakening by the day.  It was hard to find
pockets of strength in the beleaguered Technology sector today,
and those that could be found didn't contain our play.  Rather
that hold on and hope, we'll move on to other plays with a more
positive near-term outlook.


PUTS:
*****

No dropped puts today.


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The Option Investor Newsletter                 Thursday 10-05-2000
Copyright 2000, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

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********************
PLAY UPDATES - CALLS
********************

CHKP $159.38 +5.19 (+1.88) It's been a wild week of trading so
far for CHKP, with the stock trading over a 25 point range in the
past four days.  The increased volatility in CHKP, and the broader
markets for that matter, has created several trading opportunities.
One such opportunity was created yesterday when CHKP bounced off
support at $145 and subsequently lead the rebound in the Tech
sector.  CHKP's extended rebound today, in spite of the broad
sell-off in the Tech sector, bodes well for our play.  The stock
finished just below resistance at $160, a level that held CHKP
back for most of today's trading.  Aggressive traders might look
to enter new positions in CHKP if the stock pops back above the
$160 level early tomorrow.  But, even the aggressive traders might
want to wait for the NASDAQ to strengthen before entering new
positions.  The more conservative traders might wait for CHKP to
regain momentum, and wait for the Tech bulls to return in force
before entering new positions.  A conservative entry point might
be found if CHKP breaks above $165, or higher above the $170 level.
If the NASDAQ continues to slide and drags CHKP lower, aggressive
entries might be found near the stock's support levels at $150, or
lower near $145.

SEBL $98.81 -3.94 (-12.50) The problems in the B-2-B sector and
warnings from major software makers have combined to weigh heavily
on SEBL this week.  Moreover, the general sentiment in the Tech
sector has not necessarily been conducive to our bullish play.
However, the buyers returned to SEBL yesterday to lift the stock
from its sell-off mire.  And, although SEBL pulled back today, the
stock has developed a steady trend of relatively higher lows
over the past two trading sessions.  However, if SEBL is going to
move higher in the coming weeks, the stock will need cooperation
from the NASDAQ.  With that said, conservative traders might wait
for the NASDAQ to stabilize before entering new long positions.
Aggressive traders might continue to look for quick trading
opportunities in SEBL using tight stops.  One such aggressive
play on SEBL might be an entry on a quick move back above $100
early tomorrow.  Additionally, if SEBL's trend of higher lows
holds tomorrow, aggressive traders might consider entering on a
pullback to around the $97.50 area.  However, use caution in
entering new call positions given current market conditions.  A
more conservative entry might be found if SEBL rallies above
the $104 level in conjunction with a strong NASDAQ.

MERQ $139.50 +1.44 (-17.25) It's been volatile the past couple of
days, not only for the NASDAQ, but for MERQ as well.  Yesterday,
the stock experienced weakness in the early going.  Bouncing off
strong support at $130, MERQ attempted to stage a comeback.
While not entirely successful, the stock did manage to
significantly narrow the gap, closing down just $2.44.  Today,
MERQ attempted to continue its recovery until encountering
resistance near its 5-dma around $146-147 area; the stock spent
the rest of the day back filling.  Despite the late-day pullback,
MERQ managed to close up slightly on average volume in the face of
a weak market.  Aggressive traders might look for entries near
MERQ's support levels at $135 and $130, but only after confirming
a bounce with volume.  Conservative traders will want to see MERQ
break through its 5-dma, now at $143.63, before entering.  In
yesterday's news, the company expanded its customer base through
an alliance with Genuity Inc., which will license MERQ's ActiveTest
system.  As well, COMS has enlisted MERQ's services, to provide Web
performance management solutions for an upcoming Internet-based
poll, which is said to be the world's largest.

QCOM $82.88 +4.44 (+11.63) She's a blue ribbon winner!  Oversold
conditions and a break from economic worries provided the
catalyst for QCOM's strong upward moves in recent sessions.
QCOM bounced off the $71 - $71.50 area yesterday and hasn't
looked back.  The bullish ascent through $75 and then $78.13
(QCOM's near-term high), blinked a green light for even the
more conservative to take a position in this momentum play.
Today, the strong advances extended QCOM above the previously
elusive $80 level!  The volume was tremendous at more than
double the ADV.  At this critical level, the excitement should
generate more momentum and effectively drive up the share price.
Intraday, $80 and $81 held up well and should evolve as near-
term support.  Consider buying into strength as QCOM moves
through $85 or target shoot dips for an entry.

CIEN $117.19 +2.75 (-5.63) Shares of CIEN came back into focus
amid the rallying conditions yesterday.  Earlier in the week, CIEN
saw the underside of the supportive 5 & 10 DMAs in heavy selling.
Its recovery is a good indication, but we still need to be
cautious.  On Wednesday, another peculiar piece of coverage was
initiated.  Analyst Susan Kalla at Bluestone Capital Partners
started CIEN with a ST Underperform and a LT Market Perform as
well as issued correlating price targets at $103 and $125.
Sounds like a different version of "Who's that... and who issues a
lower price target?" syndrome.  Currently CIEN is perched on the
5-dma ($117.18).  More enterprising traders may find an entry off
this level, but it may be wiser to stack a few more chips in the
corner.  Instead, consider waiting for CIEN to resume a strong
uptrend and move through the 10-dma ($121.44) on respectable
volume before taking additional positions.

ADBE $148.50 -9.50 (-6.75) Is that an entry point or just a
waypoint on a downward trip for our play?  After we added it on
Tuesday, ADBE has had two really tough days, giving up nearly $15
in the process.  As we said on Tuesday, "Even the strongest
stock can't buck the broader market trend forever.", and the
past two days have been the proof.  The only news since Tuesday's
all-time high was another analyst initiating coverage with a
Buy rating, so it seems the selling is just profit taking and
selling in sympathy with the technology sector weakness.
Thankfully, there hasn't been a decent entry point yet, but the
big question is where will it form.  Today's weakness plunged
ADBE through its 10-dma ($154.55), and the late-day bounce
occurred just above the $145-146 historical support level.
Below that, ADBE should find lots of help at $140 and the $137
level.  While it was disconcerting to see ADBE fall as much as it
has this week, and on very heavy volume, it was nice to see the
late-day bounce today, which likewise came on very heavy volume.
The bulls may be making a stand at current levels, but we need to
see the confirmation of strong buying before jumping into the play.
In light of the tenuous market conditions, we would be extremely
cautious of buying intraday dips to support unless the whole market
turns around.  The best entry strategy will be to wait for strong
buying volume to push ADBE back above the 10-dma before jumping
into the play.


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

CMOS $23.75 -2.19 (-6.25) The broader Chip sector enjoyed a
reprieve from the bears yesterday as traders bid shares higher
ahead of MU's earnings report.  The rally in the NASDAQ added
fuel to the momentum of the $SOX.  However, the market received
MU's report with a strong bearish bias, which resulted in wide
spread selling in the Chip sector once again today.  The return
of the bears today resulted in a new low in CMOS' month-long
descending channel.  The stock rolled over at the $27 level this
morning, and didn't stop falling until finding support at $23.69.
The fact that CMOS closed just above its intraday low today bodes
well for our put play going forward.  As we've written in the
past, CMOS doesn't have major historical support until the $20
level.  As such, the stock could be headed significantly lower
from current levels.  Aggressive entries might be found if CMOS
rallies to resistance at $25 or higher near $26 then subsequently
rolls over.  A more conservative entry might be found if CMOS
falls below $23.69, with confirmed weakness in the $SOX.

CPTH $55.13 -2.88 (-7.63) The path continues to be lower for
CPTH, as parent company CMGI continues to sink, making new
52-week lows on a daily basis amidst weakness in most Internet
issues.  Yesterday, on an up day for the NASDAQ, CPTH staged a
recovery attempt.  Bouncing off support at $50 in early morning
trading, the stock blasted off to close up $6 on very strong
volume.  In doing so, CPTH closed above its 5- and 100-dma (now
at $56.45 and $56.78).  It appears CPTH's rally may have been a
bear trap, as today the stock slipped back below the two moving
averages.  Look for failures to rally above these two points as
well as the 10-dma near $60 as aggressive entries while the
conservative traders might continue to watch for a break through
$50 on volume to enter new plays.  The two Strong Buy ratings of
CPTH from CIBC World Markets and Adams Harkness earlier in the
week have had little effect on stopping CPTH's downward momentum.
Nonetheless, make sure a rollover is confirmed beforeentering on
strength.

DIGX $39.63 +0.13 (-7.25) Despite the rallying conditions, DIGX
provided us with another two days of profit opportunities as it
stretched lower.  On Wednesday for example, the share price slid
down to $36.25 and established a new bottom to challenge.
Additionally, the $40 mark and the 5-dma, which is currently at
$41.65, are still serving as an effective line of resistance.
But, let's take off the blinders for a moment.  DIGX has lost over
50% of its value since it first tumbled through $80 on September
5th.  Therefore, we can't ignore the possibility of a recovery.
The recent lows and upcoming earnings could entice buyers to start
nibbling.  Yesterday too, Adams, Harkness & Hill began new
coverage on DIGX with an Accumulate and issued a 12-month price
target of $59.  So, keep stops tight if you plan to buy into
further weakness or have open positions.  Last, but not least,
mark your calendars.  Digex scheduled a conference call for
October 26th from 9am to 10am EST to report its 3Q earnings.

AETH $90.00 +0.00 (-15.50) If you like target shooting, then
AETH was your play on Wednesday.  The wide intraday swings
offered a variety of opportunities from highs above $98 and to
lows near $88.  However, take a look at a daily chart.  It's
evident that the $90 level is firming as a bottom.  However,
looking at it from a more bearish perspective, AETH's bullseye
close on $90 in the most recent two sessions indicates that it's
testing its support level.  The established pattern of lower-highs
is also a good sign that there's more weakness ahead for AETH.
But, unless your strategy is to aggressively day trade amid a
volatile session, play cautiously and wait for downward momentum
to break the barrier at $90.  The company is expected to report
earnings around October 23rd; however this event shouldn't
sway trading over the short-term.

AKAM $39.69 -5.78 (-12.81) We held our breath throughout the
mini-rally yesterday, but it was all for naught.  AKAM didn't
come anywhere close to touching the 10-dma (clear up at $49.75),
and then proceeded to continue its downward slide today.  We
had a pretty clear entry as the price fell through the $44
level this morning, and the confirmation came this afternoon
as the selling intensified.  Rather than anything news-related,
the decline in AKAM is being driven by continued fear in the
Technology sector, and warnings from the big boys like INTC and
DELL certainly aren't helping.  Even the mild recovery near the
close today looked half-hearted as the stock couldn't even
manage a close above $40.  While things are looking bleak for
AKAM shareholders, we need to make sure we don't get caught off
guard.  With Stochastics deep in oversold territory, and AKAM
buried in its lower Bollinger band, an oversold bounce is not
out of the question (yesterday's action notwithstanding).  Keep
your stops in place and use any such bounce as an opportunity
to open new positions.  Once the buyers have their 15 minutes
in the limelight, consider opening new positions when the bears
come back in force.  Until the NASDAQ comes out of its death
spiral, look for AKAM to continue lower.


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

LLY - Eli Lilly & Co. $84.56 +2.06 (+3.44 this week)

Lilly is a leading innovation-driven pharmaceutical corporation.
They are developing best-in-class pharmaceutical products by
applying the latest research from their own worldwide
laboratories and from collaborations with well-known scientific
organizations.  As their products save and improve lives, they
also save overall health care costs: they are often less
expensive than other forms of health care, such as surgery and
hospitalization.  Lilly employs more than 31,000 people worldwide
and markets their medicines in 179 countries.  Lilly has major
research and development facilities in 9 countries and conducts
clinical trials in more than 30 countries.

In a turbulent market for Tech stocks, investors are reaching for
the Prozac, literally.  Investors in LLY have experienced a
little turbulence themselves when in early August, Barr
Laboratories (BRL) won a judgment in the Federal Appeals court,
allowing them to start selling a generic version of Prozac.
Since the 29% plunge, LLY has found support at the $65 level and
from there, spent September on the mend, closing back above the
200-dma (now at $75).  With fears of a slowing economy, many Tech
issues have taken it on the chin, but it's times like these that
investors turn to drug stocks as safe havens.  After all, people
still get sick in a slowing economy and as a result, still buy
medicine.  As well, LLY's senior vice president of pharmaceutical
products, John Lechleiter, proclaimed that "Prozac is not our
future," adding that the company expected to submit as many as 10
new products for FDA approval by 2002.  This has helped LLY's
stock price appreciate over the past month and so far, October
is off to a great start.  The 50-dma, now at $81.53, has proven
to be formidable resistance over the past couple of weeks for
LLY.  The break through that level today, along with the 100-dma
at $84.30, has cleared up much overhead resistance.  A bounce
off the two moving averages or off support at $80 would provide
for aggressive entry points while conservative traders will
watch for LLY to break through $85 with conviction before
initiating a play.  From there, resistance can be found in
increments of $5 at $90, $95 and the psychological $100.

Yesterday, Lehman Brothers reiterated their Buy rating on LLY,
along with a $100 price target.  Today, SG Cowen analyst Steve
Scala offered bullish praise for the company, based on the
promise of LLY's sepsis drug Zovant.  With earnings coming up on
October 19th and bullish comments from analysts, look for a
possible earnings run as a driver for LLY's stock price.

BUY CALL OCT-75 LLY-JO OI=2589 at $10.13 SL=7.75
BUY CALL OCT-80*LLY-JP OI=4921 at $ 5.75 SL=3.75
BUY CALL OCT-85 LLY-JQ OI=4364 at $ 2.50 SL=1.25
BUY CALL NOV-85 LLY-KQ OI= 604 at $ 4.38 SL=2.75
BUY CALL NOV-90 LLY-KR OI=1099 at $ 2.44 SL=1.25

Picked on Oct 5th at     $84.56     P/E = 30
Change since picked       +0.00     52-week high=$109.00
Analysts Ratings    6-11-13-0-0     52-week low =$ 54.00
Last earnings 06/00   est= 0.60     actual= 0.61
Next earnings 10-19   est= 0.71     versus= 0.62
Average Daily Volume = 3.79 mln



NT - Nortel Networks $66.75 +3.13 (+7.25 this week)

Nortel Networks is a leading global supplier of data and
telephony network solutions and services.  Covering all the
bases, its business consists of the design, development,
manufacture, marketing, sale, financing, installation,
servicing and support of networks for both carrier and
enterprise customers.  With a presence in over 150 countries,
NT serves local, long-distance, personal communications
services and cellular mobile communications companies as well
as cable television companies, Internet service providers and
utilities.

It wasn't that long ago that NT was playing 2nd fiddle to both
CSCO and LU, but the times, they are a changing.  LU has failed
to execute for several quarters in a row, leaving NT to duke it
out head to head with CSCO.  NT excels in this comparison as
well, with CSCO nowhere near the optical capabilities of the
optical networker to the north.  This little Canadian upstart
has been built into a powerhouse, through superior technology
and an acquisition strategy that is second only to that of rival
CSCO.  We last played the Nortel back in July, as the stock
soared to tag its current all time high of $89 on the date of
its last earnings announcement.  The report was stellar, and
the outlook for the current quarter is similarly rosy.  How can
you argue with 45-50% revenue growth on annual sales in excess
of $26 billion.  So why did the stock sell off to below $60
recently?  It is the season, not the stock.  Virtually anything
that even remotely resembles a technology stock has been
punished in recent weeks, but this is creating just the kind of
opportunity we live for - buy low and sell high.  The analyst
community seems to agree (see news below), and now that the
company has completed its acquisition of Alteon WebSystems, NT
looks well positioned for growth throughout the remainder of
the year.  Then, as if we needed more motivation, earnings are
rapidly approaching, with the company set to announce their
results on October 24th.  Support at the $60 level looks rock
solid, with strong support sitting at the 200-dma ($62.94).
Bargain hunters can consider taking advantage of intraday dips,
buying bounces near support.  Just make sure that the buyers
are showing up in force and you aren't trying to catch a
falling knife.  More cautious investors will want to wait for
NT to scale resistance at $68 before playing.

NT announced today that it had completed its acquisition of
Alteon WebSystems, adding yet another notch to the leading
optical networking company's belt.  If you think that analyst
upgrades are the fuel of stock appreciation, then NT should be
just about topped off by now.  On Tuesday, CSFB reiterated their
Strong Buy rating, followed by ING Barings initiating coverage
with a Strong Buy and Sands Brothers starting coverage with a
Buy rating yesterday.  NT now has a total of 35 analysts
following the stock of which 31 of them rate the stock either a
Buy or Strong Buy.

BUY CALL OCT-65*NTV-JM OI=59055 at $5.25 SL=3.25
BUY CALL OCT-70 NTV-JN OI=11140 at $3.00 SL=1.50
BUY CALL OCT-75 NTV-JO OI=11175 at $1.50 SL=0.75
BUY CALL NOV-70 NTV-KN OI= 5232 at $6.13 SL=4.00
BUY CALL NOV-75 NTV-KO OI= 2177 at $3.75 SL=2.25

SELL PUT OCT-60 NTV-VL OI=18139 at $1.81 SL=3.50
(See risks of selling puts in play legend)

Picked on Oct 5th at      $66.75     P/E = N/A
Change since picked        +0.00     52-week high=$89.00
Analysts Ratings     21-10-2-1-1     52-week low =$24.78
Last earnings 07/00    est= 0.14     actual= 0.18
Next earnings 12-14    est= 0.16     versus= 0.14
Average Daily Volume = 13.00 mln



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

JBL - Jabil Circuit, Inc. $50.00 -2.13 (-6.75 this week)

Founded in suburban Detroit in 1966, Jabil Circuit, Inc. provides
electronic manufacturing services for companies in the
communications, personal computer, computer peripheral,
automotive and consumer industries.  Jabil offers its customers
the total manufacturing solution including circuit design, board
design from schematic, mechanical and product design, sourcing
and procurement, prototype and volume board assembly, system
assembly, design and implementation of product testing, direct
fulfillment, warranty and repair services from 20 facilities in
North America, Latin America, Europe and Asia.  Jabil is one of
the world's largest electronic manufacturing services providers.

While JBL is not a box-maker, recent action suggests that it is
being treated like one.  As a major supplier of the components
that go into PCs, a slowdown in computer sales suggests a
slowdown in demand for JBL's components.  Ever since the earnings
warnings from INTC and AAPL, anything computer-related has been
feeling the heat.  Unable to break though $70 in early September
brought in the JBL sellers.  Finding support at its 50-dma (now at
$57.51), the stock attempted to recover but encountering resistance
at a lower high of $65.  Another recovery attempt found JBL
encountering yet another lower high, this time at $60.  The
resulting rollover led to a break below support at the 50-dma.
Since then, the moving average has become a resistance point, one
of many to be unsuccessfully tested.  Most recently, JBL has been
riding down the 5- and 10-dma (now at $53.16 and $55.05) on
accelerating volume.  Yesterday's earnings warning from one of
JBL's major customers, DELL, only added fuel to the selling fire.
Closing right on the $50 mark, down 4.08% on almost twice the
ADV, puts JBL below it's 100-dma, currently at $51.74.  With
that level breached, the only moving average left for support is
the 200-dma, just below at $46.  Aggressive traders looking to
enter the play will look for a failure to rally above the 5-, 10-,
or 100-dma as a possible entry point.  Conservative traders will
watch tomorrow to see if JBL breaks below $50 for an entry.  A
break on strong volume will likely see JBL testing the 200-dma.

BUY PUT OCT-55 JBL-VK OI=1237 at $6.50 SL=4.50
BUY PUT OCT-50*JBL-VJ OI= 793 at $3.38 SL=1.75

Average Daily Volume = 1.35 mln



QLGC - Qlogic Corp $75.63 -5.13 (-12.38 this week)

QLogic Corporation is the leading manufacturer of fibre channel
bus adaptors.  The company is also a designer and supplier of
semiconductor and board level input/output (I/O) components
They've been designing and marketing SCSI-based (small computer
system interface) products for over 12 years and sells its
products to server, workstation, and date peripheral makers.
Blue-chip clients include Compaq, Dell, Hitachi, IBM, and
Quantum Corporation.

In recent times, the $85 level proved supportive on pullbacks,
but Tuesday's tech massacre pushed QLGC over the edge.  The
downward intensity brought the share price under $80 for a
bearish finish near the intraday low.  A weak open on Wednesday,
followed by its inability to move back through $85 with any
conviction, prompted us to keep an eye on QLGC.  The successive
development of lower lows and highs, the break below the 100-dma
($78.43), and today's 6.3%, or $5.13 decline cinched it.  While
former support at $85 should offer a solid ceiling, the 100-dma
at $78.43 should begin to evolve as the upper trading band.
Look for volume to remain respectable to strong on the decline.
If you choose to buy into subsequent weakness on moves through
today's intraday low of $74.19, expect some resistance at QLGC
nears $70.  We're anticipating QLGC will lose more ground as its
industry continues to be plagued with earning concerns and
downgrades.  Four of its major players: INTC, AAPL, MU, and the
most recent DELL, all gave warnings that the future wouldn't be
as bright as analysts would expect.  This alone generates a
magnanimous pressure among the hardware-related stocks.

BUY PUT OCT-80 QLC-VN OI=645 at $9.00 SL=6.25
BUY PUT OCT-75*QLC-VO OI=551 at $6.13 SL=4.25
BUY PUT OCT-70 QLC-VP OI=425 at $3.75 SL=2.00

Average Daily Volume = 2.66 mln



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

AKAM - Akamai Technologies $39.69 -5.78 (-12.82 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.

Most Recent Write-Up

AKAM $39.69 -5.78 (-12.81) We held our breath throughout the
mini-rally yesterday, but it was all for naught.  AKAM didn't
come anywhere close to touching the 10-dma (clear up at $49.75),
and then proceeded to continue its downward slide today.  We
had a pretty clear entry as the price fell through the $44
level this morning, and the confirmation came this afternoon
as the selling intensified.  Rather than anything news-related,
the decline in AKAM is being driven by continued fear in the
Technology sector, and warnings from the big boys like INTC and
DELL certainly aren't helping.  Even the mild recovery near the
close today looked half-hearted as the stock couldn't even
manage a close above $40.  While things are looking bleak for
AKAM shareholders, we need to make sure we don't get caught off
guard.  With Stochastics deep in oversold territory, and AKAM
buried in its lower Bollinger band, an oversold bounce is not
out of the question (yesterday's action notwithstanding).  Keep
your stops in place and use any such bounce as an opportunity
to open new positions.  Once the buyers have their 15 minutes
in the limelight, consider opening new positions when the bears
come back in force.  Until the NASDAQ comes out of its death
spiral, look for AKAM to continue lower.

Comments

As the NASDAQ continues lower, the Internet sector suffers.
AKAM has felt the pain recently in the form of new 52-week
lows.  The stock continues to trace new yearly lows, with no
bottom in sight.  AKAM's late-day rally attempt today could
provide a solid entry into new plays early tomorrow if the
NASDAQ continues lower.  A rollover around the $40 level
could portend further downside.  A more conservative entry
might be found if AKAM falls below its freshly minted
52-week low at $38.50.

BUY PUT OCT-45 RUG-VI OI=400 at $8.25 SL=6.00
BUY PUT OCT-40*RUG-VH OI=527 at $5.00 SL=3.00

Average Daily Volume = 2.11 mln



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

Dell Deals a Deadly Blow...

The stock market slumped today as concerns over upcoming earnings
plagued the leading issues.

Wednesday, October 4

Technology stocks rebounded today in a classic oversold rally.
The broader market also advanced as investors rotated funds
into old economy issues.  The Nasdaq finished 67 points higher
at 3,523 and the Dow ended up 64 points at 10,784.  The S&P 500
index was up 7 points at 1,434.  Trading activity on the Nasdaq
heavy at 2.1 billion shares, with declines outpacing advances
2,142 to 1,882.  Volume on the NYSE reached 1.16 billion shares,
with advances beating declines 1,563 to 1,268.  The Euro edged
lower ahead of the upcoming European Central Bank meeting and
crude oil futures retreated on news that stockpiles increased
more than expected last week.  In the bond market, the yield on
the 30-year Treasury fell to 5.94%.


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

I-Stat      STAT   OCT20P/OCT22P   $0.56   credit   bull-put
BellSouth   BLS    JAN45C/JAN37C   $1.00   debit    synthetic
SCM Micro   SCMM   MAR35C/MAR35P   $13.50  debit    straddle

Our new positions were a difficult lot even in today's volatile
session.  I-Stat offered the target entry credit but BellSouth
and SCM Microsystems were less cooperative, providing little
opportunity to open the positions at the suggested prices.

Portfolio Plays:

The stock market enjoyed a modest rally today as investors went
bargain hunting for choice technology shares.  The Nasdaq erased
early losses to close positive as bottom-fishing buyers emerged
late in the session.  Chip stocks were particularly strong with
Intel (INTC) and Micron Technology (MU) leading the group, and
telecom stocks also advanced on speculation that Nextel (NXTL)
and AT&T (T) might join forces.  In a show of unusual resilience,
computer software issues rallied amid a slew of negative reports
including a profit warning from Computer Associates (CA).  At the
same time, International Business Machines (IBM) moved up to $114
even though Merrill Lynch cut its third-quarter earnings estimates
for the company.  The bad news continued as Robertson Stephens cut
its rating on Oracle (ORCL) and Amazon.com (AMZN), but despite the
continued warnings from leading companies, stocks finished higher
in most sectors.  On the Dow, Hewlett-Packard (HWP), International
Paper (IP) and SBC Communications (SBC) led the rally as investors
moved funds into issues that have fallen to new lows over the past
few weeks.  The industrial average also got a lift from demand for
the technology heavyweights and shares of blue-chip manufacturing
and chemical companies helped propel the market higher.  Retailers,
which have been pummeled in recent weeks, also moved higher but
the broad market's advances were limited by uncertainty over the
Fed's new outlook for interest rates.  Energy shares also slumped,
as oil prices retreated amid reports of a buildup in U.S. crude
stockpiles.

Portfolio Plays:

The rally today was welcomed by all but it may be too soon to quit
our day jobs.  A major profit warning from Dell Computer (DELL)
was announced after the close and that could renew the earnings
anxiety that has dominated the market in recent weeks.  In fact,
it was a big day for revenue warnings and before the open, Knight
Trading Group announced that profits in the third quarter would be
substantially lower than expected due to a slowdown in trading and
expansion charges.  The news thumped the online brokers and our
bullish speculation play in NITE suffered a technical knock-out.
There was no chance to limit the loss in the position so we are
destined to ride out the news and work on lowering our cost basis
in the issue, if it is assigned.  The surprise announcements were
rampant as Maxtor (MXTR) reported it will buy Quantum's Hard Disk
Drive Group (HDD) in a stock transaction valued at $1.3 billion.
Quantum's stockholders will receive 1.52 shares of Maxtor common
stock for every share of HDD common stock they own and the merger
will create the world's leading disk drive company.  The pact did
not help our recent diagonal position as Maxtor suffered from a
brisk sell-off.  To avoid a loss in the position, we have decided
to close the long option and remain short at $10 for two weeks.
If the issue rallies through resistance near the sold strike, we
will buy the underlying issue to create a covered-call.

In our big-cap technology portfolio, Ariba (ARBA) was the leading
issue, up $17 after two days of significant losses.  The volatile
movement has worked in our favor with regard to the neutral credit
strangle and we expect to achieve an early exit in the position if
the issue remains in a relatively small trading range.  Among the
Nasdaq winners were Internet leader Commerce One (CMRC), telecom
company Qualcomm (QCOM) and Ballard Power (BLDP).  Today's rally
in BLDP will allow us to pick the time and price for a potential
adjustment, should it become necessary.  Other notable advances
were seen in Research in Motion (RIMM), Qlogic (QLGC), Tollgrade
(TLGD), and Veeco (VECO).  Gemstar (GMST) has endured the recent
selling pressure with remarkable resilience and the technical
indications suggest it may be bracing for a rally.  Our short
option at $95 will be in jeopardy if the issue moves to a higher
trading range and we will monitor its activity on a daily basis.
Industrial stocks also performed well and Federal Express (FDX)
was the leader in that category.  The issue moved up $1 to $45
and it will likely continue higher as crude prices consolidate.
At the same time, the recent downside activity has been an asset
to our bearish positions.  American Home Products (AHP), Covad
(COVD), International Business Machines (IBM), Halliburton (HAL),
Microchip (MCHP) and Smith International (SII) have all suffered
amid the selling pressure.

Thursday, October 5

The stock market slumped today as concerns over upcoming earnings
plagued the leading issues.  The Dow finished down 60 points at
10,724 and the Nasdaq closed down 51 points at 3,471.  The move
out of growth into value boosted the S&P 500 index to a positive
finish to 1,436.  Trading activity on the Nasdaq was moderate at
1.85 billion shares with declines edging advances 2,341 to 1,593.
Volume on the NYSE reached 1.17 billion shares, and declines led
advances 1,549 to 1,263.  In the U.S. bond market, the 30-year
Treasury rose 19/32, pushing its yield down to 5.89%.

Portfolio Plays:

The broad market edged lower today as another round of profit
warnings weighed heavily on investors.  An early-morning rally
was quickly thwarted by selling pressure as the recent onslaught
of downward earnings revisions came back to haunt the leading
issues.  The rotation to old economy stocks failed to help the
Dow's performance and the blue-chip laggards included Philip
Morris (MO), Hewlett-Packard (HWP), International Paper (IP),
and Home Depot (HD).  Alcoa (AA) contributed to the downward
bias, posting third-quarter earnings of $0.42 a share, equal to
the lowered estimates as higher energy costs and softening in
the transportation, construction and distribution markets cut
into the company's bottom line.  In the technology group, chip
and hardware stocks were hardest hit, mostly due to the profit
warnings from Dell Computer (DELL).  After Wednesday's close,
Dell announced that third-quarter revenue would fall well below
expectations due to soft European demand and poor global sales
to small-business customers.  In addition, analysts noted that
earnings season for semiconductor companies will be less than
outstanding due to falling demand in the personal computer and
wireless markets.  The Internet group also endured major losses
as B2B stocks fell victim to profit taking from recent advances.
On the bright side, shares of consumer product stocks rallied
following a slew of upgrades from Merrill Lynch, and major drug,
airline, biotechnology and financial issues also edged higher.
At the same time, retail, utility, and paper stocks sagged.  Oil
shares also extended this week's losses as November crude fell
to the $30 range amid an easing in supply concerns after the
government successfully completed its auction from the nation's
emergency reserve.

Our portfolio experienced mixed results in today's session but
there were a few bright spots.  Research in Motion (RIMM) moved
up another $8 on momentum from its recent positive earnings and
Qualcomm (QCOM) continued to rally, rising over $5 to a 3-month
high near $83.  Tollgrade (TLGD) advanced $5 to $143 and Brocade
(BRCD) rebounded $8 to $225, finishing squarely in the middle of
our sold strikes in the neutral credit strangle.  Sepracor (SEPR)
advanced amid strength in the specialty pharmaceutical sector
and St. Jude Medical (STJ) followed suit.  Those of you that did
not take profits in the STJ calendar spread should consider the
issue's bullish indications as you prepare to make adjustments
in the position.  Unfortunately, a slew of leading stocks also
moved lower today and there are a number of issues that need to
be monitored for technical failure.  Our new Reader's Request
play in Worldcom (WCOM) was just one of the bearish positions,
and we will try to list the issues that require early exits, to
protect gains (or limit losses), in Sunday's narrative.

The small-cap group performed very well today and the leader in
that category was Read-Rite (RDRT).  The stock surged $1.69 to a
52-week high on momentum from the recent contract announcements
and our bullish combination play is approaching maximum profit.
Caremark RX (CMX) rallied to a two-year high on strength in the
health services group and those of you remaining in the bullish
calendar spread should consider making an upside adjustment in
the coming sessions.  The position previously offered a $0.62
profit but the gains can likely be extended in the long option
(DEC-$10) by transitioning to a diagonal spread.  In the mid-cap
group, Advanced Paradigm (ADVP), BellSouth (BLS), and Plug Power
(PLUG) all moved higher and one of our previous straddle issues,
Toronto Dominion (TD) rallied with the rebound in the financial
sector.  Those of you participating in the neutral debit strangle
are beginning to reap the rewards of patience as the play now
yields a $0.75 profit on $1.69 invested.


Questions & comments on spreads/combos to Contact Support
******************************************************************
                         - NEW PLAYS -
******************************************************************
LGND - Ligand Pharma  $14.13  *** New Trading Range? ***

Ligand Pharmaceuticals is a pharmaceutical company that discovers,
develops and markets new drugs that address critical unmet medical
needs of patients in the areas of cancer, men's and women's health
and skin diseases, as well as osteoporosis, cardiovascular and
inflammatory diseases.  The company strives to develop drugs that
are more effective and/or safer than existing therapies and that
are more convenient and cost effective.  Ligand's subsidiaries
include Glycomed, Marathon Biopharmaceuticals and Seragen.  Ligand
currently markets three oncology products in the United States,
all of which were approved by the United States Food and Drug
Administration last year: Panretin, ONTAK and Targretin capsules.
Ligand is also marketing two oncology products in-licensed for
marketing exclusively in Canada, Photofrin and Proleukin.

Ligand shares rallied today after the company reported that drug
manufacturer Eli Lilly (LLY) made new milestone payments of an
undisclosed amount for a diabetes drug, known as LY510929, and a
back-up compound Ligand is developing.  The drug and the back-up
compound have been deemed as clinical candidates by the company,
and will soon be tested for treating cardiovascular disease and
type II diabetes.  The products are in a group of several drugs
being pursued under a five-year deal with Lilly, and Ligand said
it may receive additional milestone payments, should a compound
derived from the tests progress through human development.  The
two companies are collaborating on developing drugs with broad
applications for treating metabolic diseases, such as diabetes,
obesity, dyslipidemia, cardiovascular disease associated with
insulin resistance and obesity.

The stock has excellent technical support near our cost basis
and the favorable option premiums will allow us to speculate,
in a conservative manner, on the future movement of the issue.


PLAY (speculative - bullish/synthetic position):

BUY  CALL  NOV-17.50  LQP-KW  OI=1031  A=$0.62
SELL PUT   NOV-12.50  LQP-WV  OI=53    B=$0.62
INITIAL NET CREDIT TARGET=$0.12-$0.25 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 $465 per contract.


******************************************************************
K - Kellog Company  $25.31  *** Cheap Speculation! ***

Kellogg Company and its subsidiaries are engaged in the production
and marketing of ready-to-eat cereal and convenience food products
on a worldwide basis.  The principal products of the company are
ready-to-eat cereals and convenience food products, which are made
in 20 countries and distributed in more than 160 countries.  The
company's products are generally marketed under the Kellogg's and
Morningstar Farms names, and are sold principally to the grocery
trade through direct sales forces for resale to consumers.  They
use broker and distribution arrangements for certain products, as
well as in less-developed market areas.  In the United States, in
addition to ready-to-eat cereals, they produce and distribute
toaster pastries, frozen waffles, frozen pancakes, marshmallow
squares, cereal bars and meat alternatives.  The company also
markets these and other convenience food products in various
locations throughout the world.

Potential merger activity in the food group is underway again and
cereal giant Kellogg has emerged as a candidate to acquire Keebler
Foods (KBL), the #2 U.S. cookie and cracker maker.  Kellogg is now
seen as the front-runner in a field that once included France's
Groupe Danone, British confectioner Cadbury Schweppes and Campbell
Soup (CPB).  Analysts say a Kellogg-Keebler combination would help
Kellogg by lessening its dependence on the slumping cereal market
and diversify the company into faster-growing businesses.

Options on Keebler have been active in recent sessions, suggesting
an announcement may be forthcoming and the implied volatility in
near-term Kellogg options has also increased.  If you think that
today's bullish activity in Kellogg's share value is a sign of
potential recovery, use this position to speculate conservatively
on the future movement of the issue.


PLAY (conservative - bullish/calendar spread):

BUY  CALL  MAR-30  K-CF  OI=135  A=$1.00
SELL CALL  NOV-30  K-KF  OI=46   B=$0.31
INITIAL NET DEBIT TARGET=$0.56-$0.62  TARGET ROI=50%


The basic premise in a calendar spread is simple; time erodes
the value of the near-term option at a faster rate than it will
the far-term option.  A bullish type of calendar spread is when
the underlying issue is some distance below the strike price of
the options.  This position is speculative with low initial cost
and large potential profits.  Two favorable outcomes can occur:
the stock rallies in the short-term and the position is closed
for a profit as time value erosion in the short option produces
a net gain or; the underlying stock consolidates, allowing the
sold option to expire and then eventually rallies above the long
option strike price.

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


******************************************************************
                     - STRADDLES/STRANGLES -
******************************************************************
HSY - Hershey Foods  $52.38  *** Probability Play! ***

Hershey Foods and its subsidiaries are engaged in the manufacture,
distribution and sale of consumer food products.  The company's
principal product groups include chocolate and non-chocolate
confectionery products sold in the form of bar goods, bagged
items and boxed items, and grocery products in the form of baking
ingredients, chocolate drinks, peanut butter, dessert toppings
and beverages.

Option premiums remain relatively inexpensive, although not as
theoretically cheap as they have been in the last few months,
thus neutral option-buying strategies are a favorable approach
to profitable volatility trading.  This "discounting" effect is
particularly true of equity options and with the earnings season
upon us, many stocks will experience violent moves without any
warning.  In many cases, the options market does not accurately
reflect this capability for increased volatility and that can
provide some excellent opportunities for astute investors.  The
simple and effective method to benefit from this condition is
through the purchase of straddles or strangles.

This position meets our criteria for a favorable strangle; 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.  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 (aggressive - neutral/debit strangle):

BUY  CALL  FEB-55  HSY-BK  OI=261  A=$2.69
BUY  PUT   FEB-50  HSY-NJ  OI=90   A=$2.31
INITIAL NET DEBIT TARGET=$4.75 TARGET ROI=50%




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**********
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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.

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