Option Investor

Daily Newsletter, Sunday, 10/15/2000

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The Option Investor Newsletter                  Sunday  10-15-2000
Copyright 2000, All rights reserved.                        1 of 5
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       WE 10-13          WE 10-6          WE 9-29          WE 9-22
DOW    10192.18 -404.36 10596.54 - 54.38 10650.92 -196.45  - 79.63
Nasdaq  3316.77 - 44.27  3361.04 -311.78  3672.82 -130.94  - 31.47
S&P-100  729.01 - 21.96   750.97 -  8.86   759.83 - 14.25  - 15.69
S&P-500 1374.17 - 34.82  1408.99 - 27.52  1436.51 - 12.21  - 17.09
W5000  12803.50 -338.60 13142.10 -471.30 13613.40 - 64.80  -135.50
RUT      480.39 - 10.63   491.02 - 30.35   521.37 -  2.55  - 12.06
TRAN    2430.18 -113.47  2543.65 + 22.01  2521.64 - 75.50  - 74.32
VIX       30.98 +  5.31    25.67 +  1.82    23.85 -   .32  +  2.24
Put/Call    .76              .75              .59              .56

Was Friday the 13th - October Fools Day or Good Friday?

Are we having fun yet? It was not a day ending in 8 as the October
bottom for the last three years has been but we will take Thursday's
drop to 3054 on the Nasdaq and claim it as this years bottom anyway.
Investors and traders alike expressed that emotion by throwing money
at anything with four letters in the symbol on Friday and the Nasdaq
posted a +242 point gain and the index closed at the high of the day.
That in itself does not make Thursday a bottom but it does show that
there is a lot of money on the sidelines ready to buy tech stocks and
if 3054 is not the bottom it may be really difficult to move much
below that number in the future. At prices seen Thursday investors
were snapping up bargains like CSCO at $49, Dell at $23, Intel at $35,
YHOO at $55 and ORCL at $31. While these prices may not be the bottom
investors were betting there was little if any downside left.

Volume came back into the market this week with a vengeance. The
Nasdaq has been staging two billion share days one right after another
and the NYSE notching one billion repeatedly as well. Thursday was a
very good example of a capitulation day with decliners beating
advancers 3:1 and closing at the low of the day. This came after a
long stretch of seven losers out of the last nine days. Oversold,
oversold, oversold. Period. Saddam Hussein could have bombed Kuwait
on Friday and not driven the markets down any farther. This can be
viewed by bulls as beginning of the Fall rally while the bears are
looking at it as just the ninth bear trap rally since September 1st.
The thing that makes this rally look so convincing is the major
capitulation on Thursday on high volume but isn't that the same thing
that causes relief rallies?

Now before you start firing off that hate mail for casting doubt about
the chances of a continued rally, please note that I believe it is
the real thing but one day does not make a trend. Further confirmation
would be a break and hold over 3400. Either way this was a tradable
rally and it has all the earmarks of continuing for a couple days.
Everybody expected it to collapse Friday afternoon and there was
not even any hesitation. It was Friday the 13th after all. The relief
rally sentiment was so positive after the sell off that not even a PPI
at almost twice the expected amount could not hold back the buyers.
The headline PPI number at +0.9%, the highest in seven months, was
much higher than the +0.5% analysts had expected and the core rate
at +0.3% was three times the expected +0.1%. Still the buyers did
not care.  Retail Sales increased 50% higher than expected at +0.9%
versus the +0.6% forecast. Still the buyers did not care. The lure
of cheap stocks was too much to ignore.

With the Dow dropping for its fifth largest point loss ever on Thursday
and the Nasdaq down -1200 points in the last six weeks the bounce was
inevitable. Does this mean the Fed is really dead? Even with raging PPI
and Retail Sales they will not do anything until after the election
and the next move may still be a cut but it may be a long way off.
Remember, a lot of the selling pressure came from global economic
conditions. The price of oil moderated only slightly on Friday and
further flare ups in the Middle East will only make matters worse.
It was rumored today on the news that Saddam is moving troops towards
Israel and analysts have not ruled out a production cutback by Iraq
as a way to force the oil issues and gain concessions in negotiations.
The Euro dropped to another new low of $.86 to the dollar and the
falling Euro was the main reason the multinationals were losing money.
The concept that the outlook is improving for the fourth quarter is
being questioned and analysts are already paring down estimates for
earnings. Add in the PPI and Retail Sales and things may not be as
bright as the market indicated on Friday.

Part of the basics behind the strong move came from strong earnings
from some leading tech companies. Gateway posted earnings that only
met analyst expectations but said that it's third quarter profit rose
+35% and sales rose +16%. The reason for the jump in the stock price
on earnings that only met estimates was really Dell. With Dell warning
again that things were not going well the Gateway positive statements
were a breath of fresh air. Gateway soared +9.48 to close at $53.11.
PMCS reported earnings of +.31 vs estimates of .26 and the stock
jumped +32 on news that they still have a significant backlog of
orders and components were freeing up. Juniper Networks also beat
estimates with revenue up +78% over the previous quarter. JNPR is
breaking into Cisco's customer base with faster routers and newer
technology. Juniper was upgraded by everybody who had a microphone
and gained +29 after posting +.17 vs estimates of .09. The PE
for JNPR before the earnings announcement was a record 2,310. The
quickest way to reduce that is by more than doubling your earnings
every quarter but 2,310, wow!

The positive earnings news was instrumental to pulling the Nasdaq
off the bottom near the May lows. Negative earnings are still with
us with Lucent warning for the third time in three months proving
that cheap stock prices on previous high flyers does not always
mean value. DoubleClick and Yahoo! also announced but the tone of
their announcements hammered their stock prices as well as other
Internet stocks. The explosion you heard was the Internet advertising
balloon bursting and the companies that depend on advertising
revenues for their lifeblood will be self destructing soon.

The prospect of continued good earnings are great and the announcements
will start in earnest on Monday. Some of the big companies that will
announce next week include INTC, MSFT, AAPL, EMLX, ITWO, PPRO, TLAB
and dozens of others. Rumors that MSFT will guide analyst expectations
lower with their earnings announcement was holding the stock price
down when the Nasdaq was soaring on Friday. Goldman Sachs came out
and said absolutely not, Microsoft is posting strong revenue increases
with Windows 2000 coming on strong. We will see who is right this week.

With the Nasdaq posting a +242 point gain, the 2nd largest percentage
gain ever and the third largest point gain ever, you would think
all fears of future selling were over. Advances on the Nasdaq beat
decliners by 2:1 but the margin on the NYSE was much narrower at
only 4:3. Another disturbing number repeated by network commentators
all day was the new high/new low ratio on the NYSE with 161 new lows
to only 19 new highs. Only one stock hit a 52 week high in the S&P-500,
GD. On the Nasdaq there were 323 new lows and only 21 new highs.
Come on guys, the market has been in the tank for six weeks which
means that most stock prices have dropped. If it took six weeks to get
here it may take more than one day for them to get back to new highs
again. The new low numbers may also be related to continued tax loss
selling from mutual funds. With tax season for funds already upon us
they are selling the losers to offset the winners and reinvesting
that money into new stocks.

The new number one market prognosticator, Abbey Joseph Cohen, and
head cheerleader for Goldman Sachs, came out with her carefully
scripted call that the S&P was now 15% under valued. That does not
take a mathematics degree to determine. The S&P was "fully valued"
in her opinion at 1525 in August and at Thursday's low of 1325 it
was -13.5% off her "fully valued" number. Abbey Cohen does not go
out on a limb, EVER, and carefully scripts her interviews with more
catch phrases than Alan Greenspan yet her words are treated as gospel
in the current media environment. Go figure! How much faith does it
take for a long term investor to feel comfortable buying stocks at
Nasdaq 3000 or Dow 10000 with the Fed on hold? Not much. Still it
makes good advertising for Goldman Sachs and that is the name of
the game. More important to the market was her call that the S&P
should reach 1575 by year end. That is +25 points higher than the
March high of 1550 and +200 points from here. January SPX calls

So was it Good Friday or October Fools Day? The VIX spiked to almost
37 on Friday, a level of volatility and fear not seen since April.
Both major indexes rebounded off support levels not seen in months.
The Nasdaq came within 10 points of the May low for the year of 3042
and the Dow came within 15 points of the psychological 10000 level.
If this was not at least a short term bottom then I would be really
surprised. The market gurus were claiming that there was really no
capitulation on Thursday. Excuse me? TrimTabs.com said the first
three days of the week was the largest outflow of cash from equity
funds they had ever tracked. $9.7 billion was moved from stocks
and into money market accounts. Tens of thousands of investors were
calling their brokers and bailing out of stocks. The numbers for
Thursday are not yet available but you can bet that number climbed
significantly. This is real capitulation. When retail investors
run for the sidelines the bottom has arrived. That was Thursday.
On Friday one analyst reported on CNBC that they were receiving
a record number of phone calls from institutional investors asking
if they thought Thursday was the bottom. We even had brokers calling
us at OIN asking if we thought Thursday was the bottom. This tells
me there is a ton of cash still waiting on the sidelines for the
"October bottom." Because of the nine one day bear trap rallies
we have had since September 1st, everybody is very cautious about
jumping back in to the market on any one day bounce. Not wanting
to be October fools and buy too soon they will eventually fund the
longer term rally once we have confirmation of the event. At Nasdaq
3000 everybody wants to believe it was the bottom. This is an
emotional event and may not be reality. After all who wants to see
Nasdaq 2500? Not me!

I want to believe! I want to lead the charge out of the depths of
the sell off. I also want to be the voice of reality and caution.
How you react to the facts is up to you. The Nasdaq rally was
great but the Dow regained less than half of the almost -400 point
drop on Thursday. 10200 proved to be a top all afternoon. This
could have been simply money moving out of Dow stocks and into
tech stocks but it is still a concern. The Dow has strong resistance
at 10300, still 110 points away. This may keep the Dow from making
any serious gains in the near future. On the Nasdaq traders said
there was not really a lot of buying, just no real selling. Any
investor that has been in the market for any length of time knows
that buying good stocks when everybody else is selling is the way
to make lots of money in the market. However, these same investors
don't want to lose fingers catching a falling knife. Now we are
faced with the proverbial high noon standoff. Bulls against the
bears, buyers vs sellers. Is it the bottom or just a blip in a
longer term trend? With many good stocks down -50% from their highs
investors are faced with a dilemma. Buy now and ride out any further
dips or wait for confirmation of the rally and be faced with paying
much more for the same stocks. I think the answer most investors
and funds will decide is buy now. How much farther can CSCO, INTC
and other mainline stocks fall? Not much! The me too stocks may
still have more to go but with stocks like DCLK, down from it's
recent high of $135 to only $12, they too cannot drop much farther.

The economic conditions are ripe. The Fed is on hold and 95% of
the bond dealers are forecasting the next move to be a cut to cushion
the soft landing. 70% are forecasting that to be this year. Oil is
still the wild card but with the announcement on Friday that many
major dealers are not going to export any more heating oil to
insure adequate supplies at home the price dropped over $1 at the
close to only $34.10. While Saddam Hussein may eventually hold
back his oil as leverage for future negotiations it is not likely.
He needs the money to rebuild his war machine which the U.S and
Britain are still bombing on an almost daily basis. More importantly
the high oil prices have accelerated the rush to discover, develop
and deliver new oil to market. Every day we get closer to those
new discoveries coming to market. The OPEC nations do not want
this to happen and will eventually do something to lower prices
and discourage new investments into new development. The GDP is
still growing at a very strong rate and the earnings this week
are likely to show that things are not as gloomy as everybody has
been predicting. The Middle East summit in Egypt, aimed at stopping
the violence, is scheduled for Monday. Both sides will be pressured
to stop fighting and save face by big political names. Bush is ahead
in the polls and drug stocks as well as businesses in general are
likely to benefit from his election. Consumer spending as evidenced
by the Retail Sales report is still strong and even the higher oil
prices have not put a serious dent in this segment of the economy.
Where is the beef? Where is the gloom and doom in our future? I
don't see it. Sure certain stocks will continuing falling but it
is a company specific issue or in the case of the Internet an
advertising revenue issue. The Internet is not going away. This
is simply the process of maturity taking place on a very visible
scale. If your Internet stock is dropping, pick another stock that
isn't. Sound simple? It is. This same principle will continue
driving the broader market into the Fall rally. Some stocks go
up, others go down. October is when the losers get booted out of
portfolios and winners get voted in. Now is the time to pick
winners for the rally ahead. Whether it is this week or a couple
weeks later the facts are simple. The economy is thriving and
stocks will also. Go buy something! This is expiration week and
volatility may be extreme but it is normally a bullish factor.
There may be profit taking from the astronomical gains on Friday
and there may be another dip or two. Consider them buying opportunities,
you can bet the traders in cash on the sidelines after the big gains
on Friday will be buying like there is no tomorrow. You should be too!

The October Options Workshop in Denver is coming fast. October 27th
is just around the corner and we have almost 20 speakers lined up
to teach you everything you need to know to trade options safely
and profitably in this or any market. I am especially excited about
Steve Nisson and his talk on Candlestick Charting. Steve is the
author of two books on candlesticks which are seen as the premier
works in this field. He will be talking on "Spotting Early Reversal
Signals." This is a must see presentation. Jim Crimmins, President
of Traders Accounting will show you how to pay less taxes and make
your tax accounting less complicated with "Trader Status." Gregory
Spear, Editor of the Spear Report, will talk on the reasons behind
the market gurus market moving recommendations and how we can profit
from these events. Dick Arms, creator of the TRIN indicator, and
author of several books on timing the market will explain next
generation charting systems. These are only four of the speakers
and represent the quality of the October Options Workshop. Don't
wait any longer to register, time is short! 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


Trade smart, sell too soon.

Jim Brown

November - 8th.

OptionInvestor.com, Preferred Trade and E-Signal will hold
a FREE seminar complete with handouts, freebies, door prizes
and over six hours of solid information which can improve your
trading results. Lightning trades, real time quotes, the best
option strategies and a FREE BREAKFAST and LUNCH! How can you go
wrong? It is free but you have to register so we can order food.


DENVER - Oct 27-30th

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

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

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

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


Gregory Spear - 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

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:


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

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

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

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:


If you have not been to one of our Denver Expo seminars before
here are some comments from previous attendees:

The words herein are totally inadequate to express what I am
feeling about you and all the OptionInvestor organization.
But this medium is all I have. Thank you more than these few
simple words can say.

Wow, what a seminar!  In my 25 years of investing I have
attended many instructional conferences, but I have never,
never experienced one like your Options Expo.  The instructors
were absolutely tops.  Subjects, generally were on target.
Especially for me, the Skybox, index funds/options and the
early morning strategies and trading were particularly great.
The attention to the many details and nuances were especially
evident, and I guess most of the credit in that area goes to your
great support team.

Now, the real challenge is to apply and implement the powerful
knowledge I was exposed to.

Sincerely and warmly,
Kevin Hughes, Denver


Jim & Staff,
I am sitting in the hotel room after a great 3 days in your
seminar. I can't tell you how pleased I am and want to thank
each of you for a job well done.
Having been responsible for events like this, albeit on a much
smaller scale, I can recognize all the hard work that went into
the seminar. Each member of the staff is to be congratulated!!
The seminar confirmed my belief that the OIN staff really cares
about the success of their subscribers. Jim, you all should be
proud of the work you do to enrich the lives of so many people.
It is one thing to amass a personal wealth. It is a much higher
calling to help others meet their goals in life.
I was very impressed that you were emotional in your closing
remarks. You have so much to be proud of -- helping people fish
all over the world!
Thanks again and I look forward to attending another seminar
in the future.
My best reagrds,
Jim Boettcher
Austin, Texas


Please pass on my thanks to the entire OIN group for a fabulous EXPO.
The seminar far surpassed any expectation that I would have fathomed,
had I attempted to! OIN has the right attitude and the obvious ability
to be a leader and I look forward to many years of positive experiences
with you folks.

Kind regards,
Gwen Richardson


I described this event to my friends as a life changing event!
(options aside) ,the quality of people, dedication, sacrifice of
their time (the second 40+ hours a week they don't have to work
but do) they do this because they care, wanting to help others
change their life dramatically (My wife thinks I was oxygen
deprived up there !) I came back a different person for those
who know me that says a lot.
Now for the options side:
I have to admit there was so much info to absorb, most of it
came to me on the 2000+- mile ride home it all started to fall
into place I feel Very confident (yes Jim this can be bad but
I know this now!) Notice the patience here guys! that's one
change I have a plan to stick to !
Allan O'Neill


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:



The San Francisco seminar is October 19/21st.
Here is your chance to learn from the pros. The
three day Technical Analysis Stock and Option Fall Seminar
Series. Three days of in-depth education. Don't miss it!

Some comments from recent attendees:

I want to thank Chris, Steve and Scott for the excellent workshop
held in Detroit last week.  Having been to the Expo in Denver in
March (which was fabulous), I was ready for a smaller, hands-on
approach to hone my less-than-perfect skills.  I was not
disappointed.  One can never get too much education in options
investing, and Chris and Steve offer terrific, unique approaches.

Chris & Steve, I would like to thank both of you for a great
experience at the Atlanta Workshop. I learned more in the
three days of the workshop about investing and trading than
all of my undergraduate and graduate courses combined. It
was a lot of information in a short time and I hope to put
it to use very soon.  Mike

I attended the Atlanta seminar and wanted to forward my positive
comments. The seminar "really lit my fire". I have been a trader
for 20 years and often go to seminars and this was the first one
that really taught me the most. Dr Lloyd

Jim, I had the good fortune of attending the meeting in Orlando.
Like your newsletter, it was a CLASS ACT. Chris and the others did
a great job. Chris was by far the best performer but the gentlemen
beside me was an option trader with several seminars under his belt
and almost freaked out when Chris finished his Index Presentation.

I am writing this note to compliment you and your staff on the
great job they did in Atlanta.  But more importantly I would like
to single out Steve Rhoades as one of the finest speaker/teacher
on technical analysis that I have ever had the pleasure of hearing.
I am doing my best to persuade other members of the two investment
clubs that I belong to, to attend the Detroit seminar.
Sincerely, ML

We guarantee you will not be disappointed. The class size
is small so you will get plenty of individual attention
from Chris Verhaegh, Steve Rhoads and staff.

At less than the cost of a bad trade you can learn how
to analyze stocks and trade options like the pros.
Don't wait, do it now.

Date      City

Oct 19-21 San Francisco
Nov 02-04 Phoenix
Nov 09-11 Miami FL
Dec 07-09 Philadelphia
Dec 14-16 San Antonio

Has the market been beating you up? Did you give back
your gains from April/August? Would you like to understand
all the technical indicators our writers use? Does
the alphabet soup of technical terms like RSI, DMA,
MACD, ROC, Stochastics, Bollinger bands, sound like
Greek to you?

You can learn from the experts how to interpret all
these indicators, read charts, pick stocks and which
option strategies to use on those stocks for less than
the cost of one bad trade.

Reserve your seat now for one of our regional seminars.

Click here for more info:


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What is the eternal question of life? Not, what is love? Or how
high is the sky? Or even where did we come from? Inquiring minds
want to know after a big day like Friday....what do I do now?
How do I trade this event?

The market tanked hundreds of points. Stocks and options were
cheap if only I had the guts to buy on Thursday afternoon. Now
call premiums are up huge. Stocks like JNPR +28, PMCS +32, GTW
+9, SUNW +13, RBAK +19, SDLI +27, MUSE +22, ITWO +21 have gone
completely stratospheric again and options cost more than just
buying the stocks on margin. What should I do?

Is that the question you find yourself asking today? Probably
so! The meaning of life and love pale in significance to the
quandry faced by traders on Monday morning.

Let's try to solve this puzzle.

First, let's focus on the value of stocks. Is CSCO so overvalued
at $56 that we should not buy it? Yes, you could have gotten it
at $50 on Thursday but in any sustained rally CSCO should hit
or exceed $70 by year end. The March high was $81. Even with
the inflated options from the Friday rally CSCO is still a
decent play. Capturing a $14 move with a $7 option is still
a good deal in my book.

Second, should you go bottom fishing for stocks that are really
beaten up like Lucent, Dell or DoubleClick. Absolutely not.
Just because these stocks are cheap does not make them good
plays. You get what you pay for. Lucent has warned three times
in three quarters and from the sound of their last warning it
will not get any better soon. Dell is finding out that bigger
is not always better and sequential growth is harder and harder
the bigger you get. DoubleClick may be the biggest force in
the Internet advertising market but that market is crashing.
What does a helium balloon do in a down elevator? It may hug
the ceiling but it still goes down. If a sector is crashing
then even good stocks in that sector will go down.

Third, nobody, and that includes me, can accurately predict
market direction for any period, a day, a week or a month.
We can only tell you what the market should do based on the
factors we have at the time we make the prediction. Those
factors are changing every minute, 24 hours a day. What is
logical at 10:PM on Friday may not be logical at 9:30AM on

The solution for all these problems is time. Wait long enough
and you will know all the answers. Those options you should
have bought have now tripled but you did not lose any money
since you took no risk. Since waiting is not the answer we
want, the only answer we can use is to buy this time in advance.
Instead of buying Oct/Nov options lets buy Jan/Feb or even later
options. Actually this is an ideal time to buy leaps. A $6 move
in CSCO is immaterial to 2003 leaps. The 2003-$75 leap went from
$11.75 to $14.25 on Friday, a gain of 2.50. Add another $14
move to CSCO back to the $70 range and that same leap will be
over $20 and you will have almost a 50% gain. That could happen
before October is over and you would still have two years to
go on the leap. Your risk that CSCO will not go back to $70
in the next two years is so slim that Vegas would not take
odds against it even if they could.

For those that have the capability of writing naked puts the
options are much more variable. You can buy calls much closer
to the money and also closer time wise and decrease the cost
of those calls by selling puts at the same time. In the CSCO
example you could sell the Jan-2001 $60 put for $9.00 and
buy the same 2003 $75 leap for $14.25 for a net cost of $4.25
for the transaction. If CSCO is over $60 in January, a very
sure bet, then you keep the $9.00 and your leap cost you $4.25.
If CSCO is under $60 in January you will be put the stock at
$60 for a net cost of $51 ($60-9=$51) and you still have the
leap with two years to go. Is CSCO a buy at $50? 74 million
shares were traded on Friday and there was no shortage of
buyers over $50. Using the same strategy with an April $60
call at $8.75 gives you a free trade if CSCO is over $60
by January. Any amount CSCO is over $60 is pure profit through

Another tactic is to pick a stock that has a large upside
potential but is not a rocket ship like JNPR. The non-volatile
stocks can make you just as much money because the options
do not cost as much. Take GE, only up +2.50 on Friday but it
is only $3 away from its 52 week high. GE did not sell off
like the tech stocks and when it comes to earnings power it
cannot be matched. If security is your thing then stocks
like GE are the way to go. A November $60 call is only $1.75.
If the market rallies on good oil and Mideast news this could
be a real winner. December is only $.75 more. A Jan-2003 $70
leap is only $9.00 with plenty of upside available.

The easiest tactic in this type of market is still selling
naked puts. It is also dangerous until a new trend is
established. You must be willing to set stop losses and
stick to them as well as possibly ending up owning the
stock for at least a day. The market is likely to be very
volatile next week and that means it can go in either
direction very fast.

Good candidates would be stocks like HGSI which have not
shown any real indications of dropping yet have good premium
values. GE would not be a good candidate since there is no
premium associated with GE puts. You need a volatile stock
to collect good premiums. HGSI has hovered above $75 for the
last three weeks when the market was crashing. Selling the
October, yes, October $90 put would be high risk but if the
market goes in our favor the stock could be over $90 in
one day. The premium is $9 and makes your total risk owning
HGSI for $81.

If you are a naked put seller then you already know how to
use this strategy and there is an excellent list of candidates
in tonights newsletter under "Big Cap Naked Puts" if you are
a risk taker or under the regular "Naked Put Section" for
very limited risk plays.

To recap, I would not buy calls on the high flyers on Monday
simply because of the high call premiums left over from Friday.
I would buy longer term calls/leaps on less volatile stocks
that have a big upside potential. I would sell puts against
any stock I bought calls on to defray some of my cost. As
a speculative naked put seller this week you could either make
a lot of money if the market runs in our favor or get a serious
case of heartburn if the Nasdaq rolls over again.
Be careful and keep those stops in place.


Try to maintain a market neutral outlook and react to what
the market gives us instead of trying to force plays to fit
your market view. The market does not HAVE to go up from here.

Jim Brown

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Ten Months Pregnant
By Austin Passamonte

Like an expectant mother long past her due date, market bulls
were getting pretty grumpy waiting for relief. Heck, we've all
been waiting for a relief rally, dead-cat bounce, short-
squeeze...anything at all describing green on our charts.

It arrived on Friday just as predicted. Then again, we've been
predicting such a rally every night for about two weeks now so
eventually we had to be right. Now that it's here, what next?

Good question. All market bulls (90+ percent of small spec
traders) hope & pray this will be a V-bottom straight up from
here to New Year's. We've seen such action before and it isn't
out of the question this time but I wouldn't trade it that way

One day does not erase all market fears, real & imagined. Yes it
was one heckuva session and bullish candle patterns can be seen
across numerous charts but let's not get carried away. We need to
see a few more things take place within the next two weeks first.

Market Sentiment will take the unusual step of inserting two
charts that help us quantify where we are in relation to a firm
market bottom.

We will examine the S&P 500 and the NASDAQ 100, the two biggest
index bell weathers. All others follow their lead.

The NDX has recently broken below it's long-term trendline
support dating back to October 1999 turn in the market. Its
weekly MACD and stochastic values are very close to a reversal
area but haven't turned yet. When in doubt about long-term market
action, consult long term charts.

I fully realize these words are not welcome to raging market
bulls straining at the gate to snatch up every call in sight. A
good bet would say many readers are narrowing their eyes and
tuning out the hearing already. For that I am sorry but we cannot
manufacture our own reality in the markets. We can hope, pray &
pretend all we want but rest assured our trading accounts will
impress upon us the truth every time. Painfully or otherwise.

Here's the story; these are still sick markets that enjoyed an
afternoon in the fresh air, sun shining and birds singing. Summer
may have arrived but let's wait a bit before sticking our tender
new plants in the garden. Frost warnings could be ahead.

Most every good rally I can recall emerged from conditions just
like these or worse. This time won't be any different, whenever
that will be. The VIX has soared to scary heights and put/call
ratios hit some highs I haven't seen in a long, long time. Fear
was certainly upon us enough to create a short-squeeze tinderbox
waiting for a careless match to be struck.

Terrible news Thursday caused irrational selling pressure. When
this overdone hangover cleared after the close, plenty of traders
had to rethink what they'd done. "My gosh, did I really sell
everything I owned, shorted the world and actually bought all
those puts? What if news improves over the weekend and a rally on
Monday wipes me out? I already got killed buying INTC above $70
as it broke to new highs. That's the best time to buy a stock,

Do you think any traders went soundly to sleep Thursday night
waiting for Friday's open? My money says yes.

No one wanted to hold over this weekend any open positions. That
means long or short. If the overwhelming majority of open
interest was to the short side, where would pressure push the
markets as they cover to go flat?

That's all well & good... what about Monday? Expect the buying to
continue. Too much negative mantra and oversold conditions are
one reason why. Buyers buy; that's what they do. Pent-up and
anxious to get going, any reason to justify getting started will

Incredible numbers of put-option contracts lie open beneath us
with very little call option open-interest overhead. These puts
need to lose value or expire worthless in order for the market to
function and we can certainly expect them to do so.

Expiration week is typically a bullish time. Something like
eleven out of the last thirteen times we've ended the week higher
than open. I like our chances to the upside once again.

The heart of earnings season will begin and no big surprises from
bell weathers too shy for confession will add fuel to the
rockets. Don't be surprised to see broad markets tack on a lot
more growth between now and our visit next Saturday. No wayward
ambush from forces unseen to us with continued good news will be
the action bulls have been longing for.

Then comes post-expiration Monday. This is a whole other
ballgame and we face historical downside market tendencies then
and beyond.

But let's not dwell on that now. Prepare yourself for a wild week
probably to the upside. Surprise events could take us right back
to the depths we just left or below. Both could easily happen
during the next five sessions as well.

One thing is for sure; volatility is here to stay. Expecting
these markets to go straight in any direction for long is not
realistic. This is a trader's fantasy; big swings in both
directions on a regular basis. Call-buyers may suffer greatly
this year but option traders will enjoy one of the most action-
packed seasons in history. Count on it!


Saturday 10/14 close: 30.98

30-yr Bonds
Saturday 10/14 close: 5.80%

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

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

  (Open Interest)        Calls        Puts          Ratio
S&P 100 Index (OEX)
765 - 750               14,339       12,471         1.15
745 - 730               11,215       10,608         1.06

OEX close: 729.01

725 - 710                 6,285      15,768         2.51
705-  690                   783      12,696        16.21***

Maximum calls: 700/5,062
Maximum puts : 700/8,420

Moving Averages
 10 DMA  743
 20 DMA  757
 50 DMA  791
200 DMA  781

NASDAQ 100 Index (NDX/QQQ)
 90 - 88                42,027        39,567         1.06
 87 - 85                20,616        23,411          .88
 84 - 82                15,841        22,420          .71

QQQ(NDX)close: 81.25

 80 - 78                46,768        25,089          .54
 77 - 75                19,071        16,739          .88
 74 - 72                 8,230        13,011         1.58

Maximum calls: 78/25,314
Maximum puts : 90/13,984
Moving Averages
 10 DMA 81
 20 DMA 86
 50 DMA 91
200 DMA 94

S&P 500 (SPX)
1450                   12,642        11,053          1.14
1425                   13,823        14,938           .93
1400                    6,452        10,994           .59

SPX close: 1374.17

1350                     2,488        17,111         6.88
1325                       721         8,133        11.28
1300                     1,387        26,965        19.44***

Maximum calls: 1475/22,103
Maximum puts : 1300/26,965

Moving Averages
 10 DMA 1399
 20 DMA 1421
 50 DMA 1463
200 DMA 1445


CBOT Commitment Of Traders Report: Friday 10/13
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
Open Interest
Net Value             +14                      +306
Total Open
Interest %        (.19% net-long)      (1.75% net-long)

Open Interest
Net Value               +840                   -1268
Total Open
Interest %        (4.9% net-long)       (3.41% net-short)

S&P 500
Open Interest
Net Value              +53,546                 -59,293
Total Open
Interest %         (30.45% net-long)       (9.85% net-short)

What COT Data Tells Us: Commercial positions in S&P 500 added to
five-year extreme short levels while small specs added to net-
longs as compiled Tuesday 10/10 by the CFTC. Guess who got creamed
and who skimmed the profits Wednesday & Thursday?

Next Friday's data should give a clearer picture to Commercials
either covering some profitable shorts or holding fast into next

Fed's finished
Benign government reports
Disparity in overhead call/put ratios
VIX above 30
Friday's rally
Option expiration week
Earnings season

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


As of Market Close - Sunday, 10/15/2000

                                  Key Benchmarks
Broad Market           Last     Support/Resistance   Alert

DOW   Industrials      10,192      10,000  10,600
SPX   S&P 500           1,374       1,325   1,400
COMPX NASD Composite    3,316       3,040   3,500
OEX   S&P 100             729         700     750
RUT   Russell 2000        480         460     500
NDX   NASD 100          3,277       3,000   3,350
MSH   High Tech           905         825     935

BTK   Biotech             675         630     740
XCI   Hardware          1,227       1,120   1,310
GSO.X Software            394         355     435
SOX   Semiconductor       758         660     870
NWX   Networking        1,132       1,010   1,170     **
INX   Internet            356         320     465     **

BIX   Banking             556         525     600
XBD   Brokerage           593         555     640
IUX   Insurance           746         720     790

RLX   Retail              728         695     810
DRG   Drug                411         370     425
HCX   Healthcare          846         825     875
XAL   Airline             131         129     148
OIX   Oil & Gas           315         310     332

Two alerts were triggered in the last session, with the NWX
triggering an alert at resistance.  Lowering support (INX)
Lowering resistance (GSO.X).  Raising support (DOW, OEX, RUT,
NDX, MSH, BTK, XCI, SOX, NWX, BIX, IUX).  Raising resistance (NWX).
Who said Friday 13th is always bad?

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Divine Inefficiencies
By Eric Utley

Market uncertainty yields boundless trading profits.  In light of
recent world events and financial market instability, I thought it
would be relevant to examine the current uncertain state of US
capital markets, particularly the NASDAQ.  As many of you have
read here at OIN, the CBOE Market Volatility Index (VIX) traded
above 30 last week.  In an efficient market, the VIX generally
trades at 25, because the expected rate of return on US stocks
is + or - 12% annually.  When the VIX spikes above 30, it
reveals the market is uncertain about the future rate of return on
stocks.  Uncertainty leads to volatility, which leads to
inefficiencies in the marketplace.

While I hesitantly agree with the Efficient Market Theory and its
application to the long-term ownership of stocks, I know for a
fact market inefficiencies exist in short time frames.  How else
can we rationalize Cisco Systems (CSCO) losing 14% early last week,
then rebounding 12% during Friday's rally?  As a trader, I hope,
live, and dream for market inefficiency because it produces wide
price swings in stocks.  Those wide price swings can - and should -
be readily acted upon to produce trading profits.

Historically, when the VIX traded above 30, declining markets
have generally found bottoms and subsequently rallied.  While I
tend to believe the NASDAQ is near a bottom, I can only say for
certain the market is currently inefficient and very tradable.
The magnitude of market volatility we are currently witnessing
doesn't come around but once or twice per year.  As such, if
you've been waiting out the waning summer months for action in the
stock market, now is the time trade.  However, don't confuse my
enthusiasm with that of calling a market bottom.  It's absolutely
critical to remain objective and be willing to trade both declines
and advances in such volatile times.  I've provided an example of
CSCO's volatile trading on a chart below, along with strategies on
how to make money from the stock's wide price swings.

With the recent market volatility we've experienced, I'd expect OIN
readers to have a lot stocks to review in the coming weeks.  If you
have a quality rebound candidate or a stock likely to lead the
markets higher, share your insight by sending any stock ideas to
Contact Support.  As always, please put the
symbol of your requests in the subject line of the e-mail.


Cisco Systems - CSCO

CSCO is a widely held stock that has been reviewed several times in
this very column.  I thought CSCO would represent a good example of
how to take advantage of the high levels of volatility in the
marketplace.  I must also confess the CSCO kid has been a friend of
mine recently in the form of trading profits.  Keep in mind, our
CSCO strategy discussion can be applied to virtually any stock
traded on the NASDAQ.

For about four months, the market valued CSCO between $60 and $70.
CSCO traded very efficiently from May until September, which made it
difficult to earn short-term profits from the stock.  However, the
market's valuation of CSCO changed about three weeks ago, signaled
by the stock trading below its long-time support level at $60.
Market participants didn't know how to react to CSCO's fall below
$60.  As a result, a great deal of uncertainty, in the form of
volatility, entered CSCO's space.

Since falling below $60, CSCO traded as low as $48.  In that time,
CSCO has offered several trading opportunities to both bulls
(call buyers) and bears (put buyers).  The first bear opportunity
was presented when CSCO broke $60.  A good strategy would have
been to buy puts right when the stock fell below $60 and set a
tight stop to limit the damage of a potential bear trap.  After
the initial break below $60, the market adjusted its value of
CSCO between roughly $55 and $59.  The battle between bulls and
bears intensified, indicated by CSCO's tightening price range for
about eight days of trading.  The second bear opportunity was
provided when the stock broke below its string of relatively
higher lows.  The bulls got their chance after CSCO flirted with
its spring low around $50, subsequently traced a double bottom,
and broke its string of lower highs.


Vitesse Semiconductor - VTSS

Your past comments have always proved to be a good guideline for
trading.  Please advise the future prospects for VTSS. - Regards,

Today's column is filled with several semiconductor-related stocks
which have managed to hold up quite well in the recent market
environment.  Each of the company's I reviewed today operated in
a specialized segment of the Chip sector, which has allowed them
to beat the Tech bears which have infested the NASDAQ.

VTSS is a specialty manufacturer of Chips used in communications
types of applications.  Several chip stocks that supply
communications related semiconductors have done very well in the
market recently.  Take a look at IDTI and ELNT.  VTSS has been
somewhat insulated from the volatility seen in other chip
makers such as INTC and MU.  Maybe it's because VTSS is expected
to grow its earnings by 40% over the next five years.

Like many market leading stocks, VTSS has not been adversely
affected by the recently turmoil in the Tech sector.  The stock's
three year up-trend is well intact and looks strong as ever.  Until
VTSS breaks decidedly from its upward trend, the stock should
continue to climb.  A good way to trade VTSS is to use bounces off
its trend-line of moving averages.  It's harder to gain entry into
a stock with such a defined trend, sometimes you just have to buy.


Silicon Storage Technology - SSTI

Could you please comment on SSTI?  This stock seems to be a
powerhouse in regards to its earnings growth and potential
of the next few quarters.  - Shane

SSTI is one of the leading manufacturers of flash memory chips.
Flash memory devices are used in cell phones, digital cameras,
MP3 players, and a host of other electronic gadgets.  Up until
last spring, many industry analysts expected flash memory
manufacturers to ride a wave of prosperity and boom in the
semiconductor business.  However, the slowdown in the cell
phone sales, and the other consumer electronics caused a big
dip in major flash makers.  The stocks have since rebounded
as fears of a major market meltdown have left the sector.
The fact is, SSTI is expected to grow its earning by more
than 35% over the next several years.  The stock is currently
selling at a discounted price relative to its earnings growth.

Despite the huge losses on the NASDAQ these past six weeks,
SSTI's chart actually looks pretty good.  The stock is up
about 100% so far in 2000, and has been consolidating its
huge gains from the last two years.  Shares have been
trading between $20 and $35 for essentially seven months
now.  I think the stock is due for a breakout if the
NASDAQ can regain its footing.  If, however, SSTI falls
below its long-time support at $20 it might be prudent
to step aside and not catch a falling knife.  But, with
the earnings growth you referred to, Shane, SSTI should
be a good stock to hold for several years.


Applied Micro Circuits - AMCC

Can you please review AMCC.  In the recent downtrend in the
NASDAQ, this stock actually held and just won't go down.  My
question is:  When the market starts to rally, will this
stock have more room to go up? - Thanks, MARJ

AMCC is one of the high-flying optical component makers that
has taken the NASDAQ by storm this year.  The company makes
chips that go into use in high-speed optical networks - still
a red-hot area of technology despite the recent market
downturn.  AMCC reported third-quarter earnings last week that
surpassed consensus estimates by 13%.  The company also declared
a 2-for-1 stock split.  While AMCC relayed a generally bullish
message to investors during its conference call, management
made a few cautionary statements.  AMCC said it was likely to
face supply constraints in the coming quarter, which will dampen
revenue growth to an estimated 20% increase over this quarter's
31% increase.

Despite the cautionary remarks last week, AMCC should continue to
outperform the broader Tech sector because the company's
fundamentals are superior.  The fiber-optic business is still
growing at an almost exponential rate.  AMCC doesn't have to deal
with the macro issues that have been afflicting other areas of Tech
such as Software companies, Handset makers, and certain Chip stocks.
Because AMCC's business is somewhat isolated from other areas of
Tech, the stock should continue to do well, especially when the
market turns around.  AMCC's chart looks very good right now in
spite of the NASDAQ's recent performance.  The stock retested
its pivotal breakout point at $160 last Friday and subsequently
bolted off that level.  A little more time in consolidation and
AMCC will be ready to take off with the rest of the Tech sector.


This column is an information service only.  The information
provided herein is not to be construed as an offer to buy or
sell securities of any kind.  The Ask the Analyst picks are not
to be considered a recommendation of any stock or option but an
information resource to aid the investor in making an informed
decision regarding trading in options.  It is possible at this
or some subsequent date, the editor and staff of The Option
Investor Newsletter may own, buy or sell securities presented.
All investors should consult a qualified professional before
trading in any security.  The information provided has been
obtained from sources deemed reliable, but is not guaranteed
as to its accuracy.


For the week of October 16, 2000


Business Inventories   Aug  Forecast:  0.30%     Previous:  0.20%


Industrial Production  Sep  Forecast:  0.20%     Previous:  0.30%
Capacity Utilization   Sep  Forecast: 82.20%     Previous:  82.3%


CPI                    Sep  Forecast:  0.40%     Previous: -0.10%
Core CPI               Sep  Forecast:  0.20%     Previous:  0.20%
Housing Starts         Sep  Forecast: 1.545M     Previous: 1.531M
Building Permits       Sep  Forecast:    NA      Previous: 1.486M


Trade Balance          Aug  Forecast:-$31.8B     Previous:-$31.9B
Initial Claims      14-Oct  Forecast:    NA      Previous:   306K
Philadelphia Fed       Oct  Forecast:  6.70%     Previous:  8.20%


None Scheduled

Week of October 23rd

23-Oct  Treasury Budget
25-Oct  Existing Home Sales
26-Oct  Employment Cost Index
26-Oct  Initial Claims
26-Oct  Help-Wanted Index
27-Oct  GDP
27-Oct  GDP Chain Deflator
27-Oct  Durable Orders
27-Oct  Michigan Sentiment


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The Option Investor Newsletter                   Sunday 10-15-2000
Sunday                                                      2 of 5

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Watching Cash Flows and Interest Rates
By Mary Redmond

Investors in the 1990s have had several key factors in our
favor.  The free cash flow and profit margins of US corporations
have increased substantially since 1980.  The returns on equity
of US corporations are higher than they ever have been.  We have
been flooded with liquidity from American and foreign stock
market investors.  We have been fortunate enough to have oil
prices low enough to not impact our GDP significantly.  Interest
rates have also been low by historical standards.  As long as
these factors stay favorable, a rally seems highly probable.
We need to monitor the interest rate environment, which is
constantly changing and has a big impact on the market.

Treasuries made considerable gains this week, as money flowed
into the perceived safety of the 30 year bonds.  Many analysts are
expecting yields to decrease in the next six to twelve months.
This can depend on many factors and economic reports, which are
due to be released.  It is also important to monitor the
actions of the Treasury Dept, to determine if the program of
buying back government bonds will continue in the future to
the same degree that it has this year.

We have heard many unconfirmed rumors about brokerage losses
in the junk bond sector.  However, it is clear that creditors
are becoming increasingly tight with their lending practices,
after being burned from extending loose credit.  Moody’s has
down graded a higher number of borrowers than at any time since
1989.  Only the highest quality borrowers and premier IPOs have
access to their corporate financing needs.  This makes it
difficult for smaller, highly leveraged stocks to rally.  Some
analysts think that this factor alone may indicate that a rate
cut in 2001 is highly probable.

We can use the VIX.X in many different time periods.  It is
often useful as a daily trading tool.  When used over a monthly
or quarterly time frame it has shown to be an accurate sell
signal when under 20.  It is more difficult to use the VIX.X
as a buy signal.

For instance, in mid April the VIX.X spiked to over 37.  This
would have been an excellent daily trading buy level.  However,
the markets proceeded to fall significantly lower for several
weeks after the initial drop.  No technical indicator is ever
completely accurate used alone.  A better buying opportunity
developed in late May, after the selling volume had declined,
and the VIX was in the high 20s.  However, this correction is
different for a number of reasons.  The Nasdaq had only risen
to 4250 in August, versus 5000 in March.  Also, the levels of
margin debt were lower in August.

The VIX.X generally spikes higher during severe market drops
because the crashes are almost always sharper and more intense
than market rallies.  A number of factors influence the
implied volatility of put options.  One is the demand for puts,
which rises during crashes.  Another is the speed with which
market crashes occur.

Once the VIX.X spikes to this high level, it means that put
options are expensive.  It is generally a poor time to buy
puts.  However, individual call options may still have low
volatility.  Also, selling put options in put credit spreads
can often be profitable when the VIX.X is high.

One factor which may indicate that the market might be poised
to recuperate faster than it did after the spring crash is
the lower levels of margin debt.  Last March, margin debt was
at a record high.  Money market funds experienced a net outflow
of over $50 bln in April, most of which was attributed to
margin selling.  It was about a month later, at the end of May,
when selling volume abated and the markets started to rally.

Margin selling often causes wide spikes in daily volume with
intense downside pressure as forced liquidation occurs.
Often, this selling intensified during the middle of the day
to ease toward the end of the day.

Statistics on margin debt are often delayed.  However, margin
debt was down in August from the high levels of April, which is
not surprising.  Statistics on money market funds flows can
give an indication of market mentality and margin debt.

The Investment Company Institute reported that money market
funds took in a record amount of cash last week.  Retail money
market funds took in $8.1 bln in cash, to total $1 trln.
Institutional money market funds took in a whopping $16.54 bln,
to reach a record $778 bln.  There may have been margin selling,
but probably not at the same levels seen in April, and the margin
selling has not made a significant dent in the cash stash.

The estimates for cash flows to equity funds this week vary from
outflows of $9 bln to inflows of $1 bln.  The four week
moving average of cash to equity funds is in the range of $2

There were over 13 companies which were scheduled to debut
in IPOs this week.  However, it is not surprising that only
6 companies made it. The light IPO market frees up cash to
be invested in other stocks in the indexes.

It is informative to examine the cash flows to the markets
following the last series of Federal Reserve rate hikes in 1994.
During 1994, the S&P 500 stayed flat, and the total cash
deposited into equity funds was approximately $75.4 trln.
The following year, the flows increased to $116.5 trln.
By 1997, equity funds took in $189 trln in cash.  1996 and 1997
were two of the best years on record for the S&P 500.

In 1999, equity funds took in $170.7 trln in cash.  However, this
was the first year in the 1990s when the level of cash raised
in IPOs was higher than the level of cash which was deposited
to equity funds.  We want to see a higher level of cash coming
into the market than exiting through new issues.

In addition, in 1997 the S & P 500 was approximately 600.  It
has since doubled in market capitalization.  If the same level
of cash went into the S & P 500 next year as the amount which
was deposited in 1997, it might not be sufficient to increase
the market to the same percentage.

Fortunately, investors have demonstrated over the last twelve
months that they have on average a minimum of approximately $50
to $70 bln per month available to invest in the market.  If
the IPO schedule continues to moderate and the flows start
rising consistently, then the market should have no problem

As earnings are released, it is important to monitor the actions
of individual stocks and their sectors.  For example, the chip
stocks tend to move very closely in tandem.  However, within the
chip sector there are many specialized areas.  Some may be in
the middle of slowdowns, while others may find their growth
accelerating.  In the last two weeks, PMC Sierra sold off over
62 points, due to concerns about slowing semiconductor growth.
However, the company had not warned that their earnings would
be lower than expected, and they blew away earnings by a wide
margin.  When the Nasdaq rebounded, PMCS was in a perfect
position for a strong rebound.  And rebound it did!


"En Garde"
By Lynda Schuepp

In fencing the term "En garde" means on guard.  It is a stance
that fencers assume before preparing to fence.  After the gains
we saw on Friday, I think we should all be on guard.  I'm not
saying we couldn't go to the sky from here, but one must use
caution.  Trade what the market gives you, not what you would
like it to give you.

I am very encouraged by the spikes in VIX this week, the
oversold readings in the market, and the bounce off the April
lows on Thursday and the close above on Friday.  However, I
remain cautious.  I tried to leg out of my OEX put spread from
last week, but the market makers were not cooperative.  They
widened the spread to 3 points!  Usually the spread is about
1/2 point.  No way could I exit without the potential of taking
a real beating on one leg or the other.

Wednesday I liked the action at the open and had been watching
the QQQ's.  I was eager to get in on the action.  The QQQ's had
been showing signs of being oversold for quite some time that
I decided to buy a lottery ticket.  The bid ask spread was
reasonable and the calls were actually priced pretty fairly.
I looked at the October calls but decided that for an extra
buck I could buy a month more of time to be right.   I noticed
that the volume spikes on the 15 minute chart was accompanied
with up candles, indicating to me that the QQQ's were being
accumulated in size so I bought the November 80 calls for
$4.63 when the QQQ's were trading at about $78.

By 2:00pm EDT, the QQQ's were bumping their heads at a strong
psychological resistance level of $80.  They ran down to $77.25
by the end of the day.  My calls were under water by a point.

The next day, things were looking good at the open and then the
news about the bombing of our ship.  I was reminded of the movie
"Wag the Dog" and couldn't help but wonder about the timing of
this suicide raft.  Needless to say, the QQQ's and everything else
sunk.  I had to leave to catch a plane to North Carolina for a
fencing event for my daughter so I missed seeing a lot of the
bloodshed.  The QQQ's closed at $75.13.

The next day I spent in the Greensboro convention center trying
to stay focused in two different worlds, the world of fencing and
the stock market.  Needless to say I was not "en garde."  I couldn't
get cell phone service because of the Bell Atlantic/Verizon merge.
The left hand didn't know what the right hand was doing.  They
couldn't find my number in their data base!  The Telecom industry
definitely has some room to improve.  I felt helpless without my
computer or cell phone.  Now, Friday the 13th has always been my
lucky day, and this Friday proved to be the same.  The QQQ's ran
all the way up over the previous resistance of 80!  I am very
hopeful of at least a bounce.  The market will give us signs,
but meanwhile I am holding my November calls.  They closed at $6
for a gain of 30%.  If the options keeps their high volatility, I
will be tempted to sell a higher October strike call against them
and then ride the long call up for the November run.  A close
below $80 might send me running for shelter.

On Monday, I will be back in position and "En garde."  My hope is
that I can just sit back and watch the profits grow.  I am armed
and ready for battle.

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Call Play of the Day:

EMLX - Emulex Corporation $129.69 (+21.69 last week)

See details in sector list

Put Play of the Day:

INKT - Inktomi Corporation $82.25 (-8.75 last week)

See details in sector list

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Index       Last    Week
Dow     10192.18 -561.96
Nasdaq   3316.77  -44.24
$OEX      729.01  -21.96
$SPX     1374.17  -34.82
$RUT      480.39  -10.63
$TRAN    2430.18 -164.49
$VIX       30.98    5.31


BRCD      239.63   25.94  New, it pays to be in the right sector
EMLX      129.69   21.69  Leading the charge on the NASDAQ
CIEN      127.88   17.31  Strong rebound launched CIEN to upside
AKAM       49.00   12.81  New, long time comingrebound is here
SCMR       85.47    7.22  New, young optical with rebound potential
SEBL       98.88    6.44  Relative strength to extend rebound
LLY        87.00    4.06  Tech wreak bringing money into the Drugs
SUNW      111.00    3.50  Tech leader running into earnings
NT         65.44    3.13  Leading optical player set to rally
GLW        92.88    2.44  New, big money in bid bandwidth
MRK        76.19    0.13  Leading drug maker - leading the market


DNA       134.63  -27.88  New, investors buy drugs, not biotech
CRA        66.31  -13.06  High-risk biotechs are hurting
JPM       143.13   -9.88  Finance sector facing several problems
INKT       82.25   -8.75  The bigger trend is still negative
CPN        84.00   -8.25  New, breakdown below key support
JBL        49.38   -1.88  Dropped, strong rebound in Semis
CPTH       52.00    1.25  Bad Net sector thanks to YHOO and DCLK
AETH       87.00    4.75  Dropped, events combined to boost AETH
QLGC       85.00   10.75  Dropped, running for high country


Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


No dropped calls today


JBL $49.38 (-1.88) A strong bounce in the Semiconductor sector, a
stellar earnings report and positive outlook going forward from
PC maker Gateway along with a deeply oversold chart helped JBL
gain $5.38 or 12% on Friday in a NASDAQ-wide relief rally.
Or was it more than relief?  Ever since hitting a bottom at $39
on Wednesday, the stock has been making a comeback.  While
resistance at the 5-dma near $45 held strong on Thursday,
Friday's rally was enough to put JBL back above both the 5- and
10-dma, now at $48.65.  While the stock is still having trouble
with resistance at $50, a friendlier atmosphere in Tech stocks
could be enough reason for JBL to continue its recovery.  With
profits already realized on this play, we are moving on to new
and better prospects.

AETH $87.00 (+4.75) Did you have your paddles handy?  AETH never
gave us a clean break of $75 on Friday.  Instead, the
culmination of the recent five mln-share insider offering, new
Buy coverage at CE Unterberg Towbin, and rallying market
conditions sent AETH through the roof by late afternoon.  The
share price climbed $11.44, or 15% on almost twice the ADV.  The
upswing took AETH through the 10-dma at $85.07, which marked the
upper resistance.  This violation clearly signals the play is
over.  Earnings are also just around the corner.  The company is
expected to report around October 23rd.

QLGC $85.00 (+10.75) Well, QLGC took its beating, there's no
doubt about that!  But on Friday, the stock made a no-holds-bar
run for the high country amid the rallying marketplace.  Once
QLGC made a definitive move through near-term resistance of
$77.50 and the 100-dma line, the share price bolted upwards.
The strong break through $80 and the bullish close at its former
support of $85 leaves no room for argument.  We're cutting QLGC
from our put list this weekend.  Plus, OIN never recommends
holding over an earnings report and Qlogic is scheduled to
report next week.  They're scheduled for Wednesday, October
18th, after the market close.


SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.

The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.


AKAM - Akamai Technologies Inc. $49.00 (+5.06 last week)

Straight line broadband content delivery, best describes this
companies approach to the market.  AKAM is the leader when it
comes to delivering ads and streaming video online.  This company
commands a 70% market share according to Briefing.com, having
captured the majority through its customer Yahoo.  AKAM has good
team support as well, with Apple and Cisco helping in the
technology development.  AKAM's main product called FreeFlow,
allows end users to experience the fastest streaming delivery by
optimizing content distribution to over 4000 servers in 45-
countries.  The software looks for the server closet to the
request, and efficiently routes the data, optimizing user
experience.  With its recent purchase of InterVu, AKAM is poised
to protect and maintain its market dominance in this area.

It's been a long time coming, but AKAM has turned the corner and
is offering investors a good level of entry from the long side.
Since July, AKAM has experienced a negative trend along with the
rest of the Tech sector.  That negative trend came to a halt last
week after AKAM established a solid bottom and began to climb
higher.  Last Friday, the stock hit a low of $35, and has since
commenced an upward trend.  Normally not so intriguing, however,
the MACD is indicating this as the start of serious and very
positive momentum in the play.  Thursday's target cross on the
MACD is showing an ascending slope that promises break through
capability that should allow AKAM to trade above the current
$50 resistance mark.  Once this occurs, an explosive run should
commence to the target area of $60.  Of course, we need the
NASDAQ to cooperate if AKAM is going to accomplish our goal.
AKAM is confirmed to release its earnings on Oct. 18th.  The
company is still in the red, with an estimated loss of 67 cents.
The key here is the street.  AKAM is whispered to beat estimates
by 6-cents, so this could help rally the stock to its target.
Keep in mind however, we won't hold over earnings. In preparation
for this earnings run, Piper Jaffray initiated coverage on the
AKAM Friday with a Buy rating.  AKAM has developed a 2-day
support level at $41.  A rebound off this mark could be playable
for traders, although the more prudent entry will be to follow
momentum.  Allow AKAM to trade above $50 with continued positive
market support.  Trail stops closely to prevent a turnaround
due to tough market conditions.

News Friday revealed that AKAM is integrating storage capability
with its content delivery to allow the company to tap into a
growing $8-billion industry by 2003.  This expansion will take
place in its EdgeAdvantage product to allow managed data storage
of audio, video, photographs, games, etc.

BUY CALL NOV-45 RUG-KI OI=840 at $10.00 SL=7.00
BUY CALL NOV-50*RUG-KJ OI=374 at $ 7.88 SL=5.75
BUY CALL NOV-55 RUG-KK OI=285 at $ 6.13 SL=4.00
BUY CALL FEB-50 RUG-BJ OI=111 at $13.25 SL=9.75
BUY CALL FEB-55 RUG-BK OI=177 at $11.38 SL=8.50

SELL PUT NOV-40 RUG-WH OI=826 at $ 3.63 SL=2.38
(See risks of selling puts in play legend)

Picked on Oct 15th at    $49.00     P/E = N/A
Change since picked       +0.00     52-week high=$345.50
Analysts Ratings      5-5-0-0-0     52-week low =$ 45.50
Last earnings 07/00  est= -0.59     actual= -0.50
Next earnings 10-18  est= -0.67     versus= N/A
Average Daily Volume = 2.16 mln

BRCD - Brocade Communications $239.63 (+25.94 last week)

Brocade is leading the way in a new category of networking:
providing a scalable, reliable foundation for storage
environments.  They are the market leader in Fibre Channel Fabric
switches-the essential framework for networking servers and
storage systems.  Brocade switches deliver the flexible and
secure "Fabric" that supports the tremendous information and
storage demands of today's leading companies.  Brocade Fibre
Channel fabric switches and software provide a networking
foundation for storage area networks (SANs).

It pays to be in the right sector.  In the midst of the recent
weakness in the NASDAQ, storage stocks such as EMC, NTAP and VRTS
have all held their ground far better than stocks in sectors such
as the Semiconductors, Internets, B2Bs - and for good reason.
Even in a slowing economy, there are industries which display such
phenomenal growth rates that more than compensate for any
macro-based concerns.  If VRTS' earnings report on Thursday is
any indication, boasting year-over-year revenue growth of over
100%, the storage business is alive and booming with BRCM a direct
beneficiary.  With eight consecutive periods of quarter-over-
quarter revenue and earnings growth under its belt, BRCD appears
to be headed for number nine.  Bouncing off strong support at $206
last Monday, the stock put together a 5-day winning streak this
past week, even in the face of a down market.  Using the 50-dma
(now near $220) for support, BRCD put itself back on the right side
of the 5- and 10-dma on Tuesday.  From there it's been all up,
trading in a wide intra-day channel spanning over 20 points.  This
is a volatile stock and the premiums reflect it.  But as the
saying goes, you get what you pay for and in this case, it’s
exponential growth.  The 10-dma, now at $224.33, provided a
launching point for BRCD's blast-off on Friday when friendly
market conditions helped it rally to close up $10.64 on 115% of
ADV.  In doing so BRCD closed above resistance, now support at
$230, which is reinforced by the 5-dma.  At this point, a pullback
to the 5- or 10-dma would be an aggressive target to shoot for
while a strong market on Monday could easily lift BRCD past
resistance at $240 for a conservative entry point, but confirm the
breakout with volume and sentiment in the NASDAQ before entering.

With many Tech stocks down so far in October, BRCD has the rare
distinction of being up for the month.  If BRCD can perform this
well in such adverse conditions, an auspicious market could see
the stock challenging its all-time highs.  News such as
Wednesday's announcement of a new high-profile customer in
Fujitsu will certainly help the cause.

BUY CALL NOV-230 GUF-KF OI= 560 at $28.25 SL=20.50
BUY CALL NOV-240*GUF-KH OI= 180 at $21.38 SL=15.50
BUY CALL NOV-250 GUF-KJ OI= 185 at $18.00 SL=13.00
BUY CALL JAN-240 GUF-AH OI= 491 at $35.00 SL=25.50
BUY CALL JAN-250 GUF-AJ OI=6374 at $31.00 SL=22.50

SELL PUT NOV-230 GUF-WF OI=  68 at $14.50 SL=20.00
(See risks of selling puts in play legend)

Picked on Oct 15th at   $239.53    P/E = 619
Change since picked       +0.00    52-week high=$259.81
Analysts Ratings      9-6-2-0-0    52-week low =$ 52.81
Last earnings 08/16   est= 0.13    actual= 0.16
Next earnings 11-15   est= 0.20    versus= 0.03
Average Daily Volume = 2.79 mln

SCMR - Sycamore Networks $85.47 (+7.22 last week)

Sycamore Networks develops and markets intelligent optical
networking products that transport voice and data traffic.  The
company combines its significant experience in data networking
with expertise in optics to develop intelligent optical
networking solutions for network service providers.  Based on
a common software foundation, SCMR's products enable the company
to concentrate on the delivery of services and end-to-end
optical networking.  Among the company's offerings are optical
transport, access and switching systems and end-to-end optical
network management solutions.

A relative newcomer to the Optical Networking space (at least
compared to players like NT), SCMR wants its share of this
latest gold rush.  The company scored a major victory with its
deal with BellSouth last week (see news below), and it appears
this may be the catalyst to pull the stock out of its recent
nosedive.  Recall that we have been playing SCMR to the downside
since it violated support in the vicinity of $120 last month.
Since then it has been a painful slide, as investors have
seemingly jettisoned any high PE stock.  The heavy volume that
occurred near the $70 level may be indicative of a solid bottom
formation, and Friday's strong gains were enough to tip the
scales in favor of the bulls.  Accordingly, SCMR finds its way
back onto the call list this weekend.  While the recovery is
still tenuous, volume came in at nearly double the ADV on
Friday, as our new play tacked on a gain of 11%.  While all of
the moving averages (except the 5-dma at $80.13) are arrayed
overhead, the technicals are starting to turn positive.  Support
appears to be rock-solid at the $70 level, with milder support
in the $78-80 range.  Intraday dips to the higher support level
should provide attractive entry points in the week ahead, but
make sure you are catching a bounce, not a falling knife.
Friday's recovery brought SCMR right up to the $86-87 resistance
level, and the next obstacle above that is found at $91-92.
More cautious investors will take a wait-and-see attitude,
requiring SCMR to scale these levels on solid volume before
jumping into the fray.  Earnings are still a month away for our
play, so if that is the game you want to play, you still have
plenty of time to get into position.

SCMR announced on Thursday that its earnings will be released on
November 14th after the closing bell, followed by the conference
call.  Given the announced multi-million deal with BellSouth for
new-generation optical switches, the current quarter's earnings
may be less significant than the company's forward looking
statements.  Terms of the deal with BellSouth have not been
disclosed, but the symbolic value may far outweigh the dollar
value, as this marks the first sale of SCMR's advanced
fiber-optic switching equipment to a regional Bell.

BUY CALL NOV- 85*QSM-KQ OI= 160 at $14.38 SL=10.75
BUY CALL NOV- 90 QSM-KR OI= 221 at $12.00 SL= 9.00
BUY CALL NOV- 95 QSM-KS OI= 249 at $10.00 SL= 7.00
BUY CALL DEC- 95 QSM-LS OI= 105 at $14.75 SL=11.00
BUY CALL DEC-100 QSM-LT OI=2769 at $13.38 SL=10.00

SELL PUT NOV-70 SMZ-WN OI=159 at $5.38 SL=7.75
(See risks of selling puts in play legend)

Picked on Oct 15th at    $85.47     P/E = 1185
Change since picked       +0.00     52-week high=$199.50
Analysts Ratings      9-4-2-0-0     52-week low =$ 47.25
Last earnings 08/00   est= 0.06     actual=  0.08
Next earnings 11-14   est= 0.02     versus= -0.19
Average Daily Volume = 6.16 mln

GLW - Corning Inc $92.88 (+2.44 last week)

Corning is a global communications technology company that
operates in three primary business segments: Telecommunications,
Advanced Materials, and Information Display.  They are the
world's top producer and pioneer of fiber-optic cable, which it
invented over 20 years ago.  Corning also owns the well known
crystal maker, Steuben Glass.  The company operates 40
manufacturing plants in 10 countries.

In a marketplace that's tormented with thoughts of a tech
slowdown, there's GLW shining brightly above the rest.  It’s a
simple fact.  You can't have a network without network fiber and
parts!  People and businesses want more bandwidth and this
"networking hunger" keeps the Cornings of the world in the big
money.  On Thursday, the company announced that it expects to
hit between $0.34 and $0.35 when it reports on October 24th,
after the market.  If the company's expectations are "on the
money", so to speak, the numbers will crush Wall Street's
estimates of $0.30 cents for its 3Q!  According to James Flaws,
Corning's CFO, "the key driver has been optical fiber" and "the
earnings are largely due to better-than-expected fiber pricing".
The welcomed announcement follows a year of rapid growth for
Corning.  The company successfully emerged from a glassware
maker to a leader in the fiber-optic industry.  To meet the
ever-growing demand, Corning announced in late September that it
will pay $3.6 bln in cash to buy Pirelli, an Italy-based optical
components business.  Recently too, GLW traded as high as $334
prior to its 3:1 stock split on October 4th.  After suffering a
mild bout of post-split depression, the above-earnings surprise
lifted GLW to its current level above the 10-dma ($91.88).
We're anticipating the momentum to build and generate more
upside action prior to the earnings release later this month.
However before jumping into the impending momentum, it may be
more prudent to wait for GLW to demonstrate strength above $90.

GLW was a recipient of a slew of upgrades this week.  Sands
Brothers and William Blair & Co both offered Buy ratings on GLW,
while Thomas Weisel Partners upgraded the stock to a Strong Buy.

BUY CALL NOV- 90 GWD-KR OI=5568 at $11.25 SL= 8.25
BUY CALL NOV- 95*GWD-KZ OI= 121 at $ 8.75 SL= 6.25
BUY CALL NOV-100 GWD-KT OI=5989 at $ 6.75 SL= 4.75
BUY CALL JAN- 95 GWD-AZ OI= 178 at $13.75 SL=10.25
BUY CALL JAN-100 GWD-AT OI=4472 at $11.75 SL= 8.75

Picked on Oct 15th at    $92.88    P/E = 149
Change since picked       +0.00    52-week high=$113.33
Analysts Ratings      6-5-0-0-0    52-week low =$ 21.36
Last earnings 06/00   est= 0.79    actual= 0.94
Next earnings 10-24   est= 0.30    versus= 0.18
Average Daily Volume = 3.92 mln

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The Option Investor Newsletter                   Sunday 10-15-2000
                                                            3 of 5

To view this email newsletter in HTML format with embedded
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SEBL - Siebel Systems $98.88 (+6.44 last week)

Siebel Systems is a provider of eBusiness applications.  Their
products are used by organizations that wish to enhance their
ability to sell to, market to and service their customers across
multiple channels such as the Web, call centers, resellers,
retail and dealer networks. SEBL's products and services are
available in industry-specific versions. The founder and CEO,
Mr. Siebel got his start as a salesman for the Oracle Corporation.

Despite last Friday's massive rally, the NASDAQ lost another 1%
in the past week of trading.  On the other hand, SEBL tacked on
a relatively impressive 7%.  Needless to say, we're pleased with
SEBL's performance!  We're looking for SEBL to extend its recent
rebound in the coming week as third-quarter earnings enter the
forefront.  However, there has been some confusion as to when
SEBL will actually report its third-quarter results.  According to
SEBL's Web site, the company is slated to report in over a week on
October 24th.  There have been several conflicting reports issued,
which suggested SEBL is set to announce earnings this coming week.
We will contact SEBL's Investor Relations department early next
week and relay the correct earnings date.  Whether earnings are
announced this coming week or next, SEBL's profit report is sure
to cause a stir within the Software sector.  The company's
commanding position in the CRM Software market has propelled SEBL
past earnings estimates by an average of 22% in its last two
quarters.  Investor expectations will be high going into SEBL's
earnings report and could transcend into bullish anticipation.
If that anticipation morphs into aggressive buying early next
week, aggressive traders could enter new positions if SEBL breaks
through the $100 level.  A more conservative approach might be to
wait for SEBL to gain momentum and look to enter new positions if
the stock plows above resistance at $103.  If, however, SEBL pulls
back early next week, traders could use a bounce off support at
$95, or even lower near the $90 level to enter new positions.
Make sure to wait for SEBL to rebound off support before entering
on a dip.

Rick Sherlund, the infamous Goldman Sachs Software analyst,
recently shifted his bullish support from long-time favorite MSFT.
Sherlund subsequently bestowed software makers ORCL, ITWO, and our
SEBL with bullish blessings.  Sherlund's bulling of SEBL confirms
the company's high-growth status, which could result in a blowout
third-quarter earnings report.

BUY CALL NOV- 95 EZG-KS OI= 809 at $13.50 SL=10.00
BUY CALL NOV-100*EZG-KT OI=2359 at $11.13 SL= 8.25
BUY CALL NOV-105 EZG-JA OI=1498 at $ 8.63 SL= 6.25
BUY CALL JAN-100 EZG-AT OI=6793 at $17.00 SL=12.25
BUY CALL JAN-105 EZG-AA OI= 999 at $14.75 SL=10.75

Picked on Sep 17th at    $99.00    P/E = 400
Change since picked       -0.13    52-week high=$118.44
Analysts Ratings     17-5-0-0-0    52-week low =$ 19.88
Last earnings 06/00   est= 0.09    actual= 0.11
Next earnings 10-24   est= 0.11    versus= 0.07
Average Daily Volume = 5.89 mln

SUNW - Sun Microsystems Inc. $111.00 (+3.50 last week)

Sun Microsystems is a self contained giant.  They not only provide
the world with UNIX based servers and work stations, but they also
provide their own peripherals.  Among these are (Solaris)
operating systems, (SPARC) chip components, and the now famous
Java technology that much of today's software incorporates.  This
allows for any system to have uniform and compatible running
capability.  SUNW is poised to continue its aggressive growth as
it focuses on the telecommunications industry now.  This is an
industry which many think will overwhelm what we have seen with
growth in the computer industry.

Are you superstitious?  Many thought Friday the 13th would
continue to scare investors into selling.  As the day started,
and the PPI and retail sales numbers came in higher than
expected, it appeared that a scare was truly in the cards.  Not
so however, as Friday the 13th proved to be a day for the
contrarians, and buying ensued.  SUNW participated in this
rebound nicely, as chip and technology issues served as the main
fuel energizing the NASDAQ's rebound.  Much like the NASDAQ, SUNW
closed strong near its high at $111.13, bouncing nicely off the
200-dma support line at $96 as we anticipated. The reason for
this robust bounce is due to the oversold condition on the play,
and the fact that investors used the support as an opportunity to
enter the play to take advantage of the earnings run.  Numbers
for SUNW are confirmed to be released next Wednesday the 18th.
With good numbers being released Friday from Gateway and Juniper
Networks, investors regained some confidence in SUNW's earnings
run potential.  The buying interest Friday catapulted SUNW above
the 10 and 100-dma's, and the stock should now look to use $105
as its new support, where these two dma's converge.  Investors
should now play SUNW with the view of taking advantage of current
positive momentum.  As such, look for continued strength above
the 20-dma at $113 as possible entry points, or a rebound rally
off the $105-support area once it is confirmed.

SUNW once again is making history as they offer open source
coding to the public on their StarOffice 6 product.  The nine
million lines of code are available for download and review, as
SUNW mimics what AOL did with their Netscape division.  Bill
Roth of SUNW development said they are analyzing the open source
strategy and how it will "affect the development process.

BUY CALL NOV-105 SUX-KA OI=3753 at $14.00 SL=10.50
BUY CALL NOV-110 SUX-KB OI=1460 at $11.25 SL= 8.25
BUY CALL NOV-115*SUX-KC OI=4248 at $ 8.75 SL= 5.75
BUY CALL JAN-110 SUX-AB OI=6663 at $17.38 SL=12.50
BUY CALL JAN-115 SUX-AC OI=3697 at $15.13 SL=11.00

SELL PUT NOV-105 SUX-WA OI= 1157 at $ 7.25 SL= 5.00
(See risks of selling puts in play legend)

Picked on Oct 10th at   $103.19     P/E = 89
Change since picked       +7.81     52-week high=$129.31
Analysts Ratings    11-11-1-0-0     52-week low =$ 43.78
Last earnings 07/00   est= 0.33     actual= 0.39
Next earnings 10-19   est= 0.25     versus= 0.17
Average Daily Volume = 14.9 mln

LLY - Eli Lilly & Co. $87.00 (+4.06 last 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.

With the DOW down over 400 points last week and the NASDAQ losing
44 points, LLY has indeed, to quote Chase H&Q analyst Alex
Zisson, "been a safe place to be."  The drug stocks for the most
part have continued their steady ascent, as if immune to the
recent market fears.  While posting modest gains for the week,
low options premiums relative to those of volatile Tech stocks
make the profits realized on this play well worth the effort.
Despite recently encountering resistance at its 100-dma at $85,
the stock broke out of that level on Wednesday as investors,
scared lily-white by a falling market ran to LLY for cover,
helping it to close up almost $3 on strong volume.  On Thursday,
in the face of tensions in the Middle East and a 379 point down
day for the DOW, LLY continued to be a bastion of strength,
ending the day fractionally higher.  On Friday it was time for
the rest of the market to catch up while LLY had a day of rest,
bouncing off support at the 5-dma near the $86 level and
encountering resistance just above $88.50 to close down 50 cents.
Trading volume in the stock as well as in the options has
accelerated as LLY approaches its earnings date.  At this point,
a bounce off strong support at $85 or the 5-dma near $86 could be
an aggressive target to shoot for but make sure the bounce is
confirmed with volume.  Conservative traders will want to see LLY
break through $88.50 on strong buying volume before making a
play, keeping in mind the next level of overhead resistance at

LLY is set to report earnings after the close on October 19th so
there is little time left for the play.  In keeping with our
policy of taking money off the table before such announcements,
we will be closing this play before that time comes.  Last
Thursday, investors looking for protection bought heavily into
October 80 and 85 puts, on almost twice the average trading
volume.  While this increased implied volatility, the change was
minute and contrarian thinking would view this as a positive

BUY CALL NOV-80 LLY-KP OI= 887 at $9.13 SL=6.25
BUY CALL NOV-85*LLY-KQ OI= 740 at $5.88 SL=3.75
BUY CALL NOV-90 LLY-KR OI=1821 at $3.25 SL=1.75
BUY CALL JAN-85 LLY-AQ OI=7144 at $8.88 SL=6.25
BUY CALL JAN-90 LLY-AR OI=4349 at $6.50 SL=4.50

Picked on Oct 5th at     $84.56     P/E = 32
Change since picked       +2.44     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= 0.70     versus= 0.62
Average Daily Volume = 3.74 mln

MRK - Merck & Co $76.19 (+0.13 last week)

Merck is a global pharmaceutical company, which specializes in
the development of human and animal health products.  They are
the #1 industry leader in the US and #2 worldwide.  Some of its
more prominent drugs include Zocor and Meycaor (cholesterol
drugs), Pepcid (an anti-ulcerant), top-selling hypertension
drugs, Vasotec and Prinivil, and more recently the AIDS
medication, Crixivan.  The drug maker also provides
pharmaceutical benefit services through Merck-Medco Managed Care
which it sells to corporations, labor unions, and insurance
companies.  When it comes to e-commerce Merck won't be left
behind either.  The company has formed an alliance with CVS to
market drugs online.

As a leading drug manufacturer with a solid business model and a
strong sales record, Merck is considered a top dog in one of the
best performing sectors this millennium.  Its bottom line is
estimated to grow by 15% in 2001 as a result of a strong trend
in prescription drug sales, despite loosing patent protection on
some drugs.  As profit warnings and disappointing quarterly
earnings afflict the tech sector, MRK has attracted plenty of
buying.  The investors are simply seeking shelter from the
carnage and the drug stocks are great defensive plays during
volatile market conditions.  The robust volume sent the stock
through tough resistance at $75 and positioned it for a strong
run into earnings.  Shares continued to edge higher this week,
forming a tight consolidation around $76 and $77.  Upper
resistance still remains firm at $80 and $81.13, the 52-week
high.  If you were looking to set up for a run into next week,
the multiple bounces off $75 during Friday's session provided
reasonable entry opportunities.  Plan your strategy accordingly.
There are only four sessions left to trade MRK.  The company
is confirmed to report on October 20th, BEFORE the market opens.

Merck recently announced that its drug, Fosamax, was approved by
the FDA for treatment to increase bone mass in men with
osteoporosis.  This medicine is the first of its kind.  It's
projected that the number of men with osteoporosis will increase
approximately 20% by the year 2015.

BUY CALL NOV-70 MRK-KN OI= 3406 at $7.75 SL=5.50
BUY CALL NOV-75*MRK-KO OI= 5206 at $4.13 SL=2.50
BUY CALL NOV-80 MRK-KP OI= 4521 at $1.88 SL=1.00
BUY CALL JAN-75 MRK-AO OI= 9864 at $6.38 SL=4.50
BUY CALL JAN-80 MRK-AP OI=12946 at $4.00 SL=2.50

Picked on Oct 10th at    $76.88     P/E = 29
Change since picked       -0.69     52-week high=$81.13
Analysts Ratings    8-11-10-0-0     52-week low =$52.00
Last earnings 06/00   est= 0.69     actual= 0.73
Next earnings 10-20   est= 0.73     versus= 0.64
Average Daily Volume = 4.69 mln

CIEN - Ciena Corp $127.88 (+17.31 last week)

CIENA Corporation's market-leading optical networking systems
form the core for the new era of networks and services
worldwide. CIENA's LightWork architecture enables next-
generation optical services to transmit signals simultaneously
over the same circuit.  This multiplexing system changes the
fundamental economics of service-provider networks by
simplifying the network and reducing the cost to operate it.
About 45% of sales come from outside the US markets.

Strong action on Friday launched CIEN to the upside of its tight
trading channel of $110 and $120, with style!  The share price
tacked on an impressive 12.7%, or $14.44 on 1.5 times the ADV.
The rallying market conditions were, of course, catalysts;
however, there were other bullish factors to influence CIEN's
breakout.  Despite a collapse of the major indices mid-week, we
saw CIEN finish strong on the back of positive analyst comments.
SG Cowen started CIEN with a Strong Buy and a $150 price target.
They cited accelerating sales growth and its evolvement from a
point-product company to a diversified optical systems vendor as
primary reasons for its "remarkable recovery".  Then there was
the upbeat analyst meeting on Thursday.  CIEN is on track for Q4
earnings (ends 10-31) and gave positive updates on all core
product lines.  The company is expected to report earnings
around November 16th.  As for the play, CIEN has formed a solid
base using $110 as support; yet shares seem to have solid
support as far down as $106 on a pullback.  For our purposes, a
pullback of this magnitude isn't expected over the near-term.
Consider looking for intraday dips at the intersecting 5 and 10
DMAs at $115.66 and $115.21, respectively, as a guideline for
entries.  If you'd rather enter on the climb, confirm strength
above $120 before taking this aggressive approach.  We're
looking for a test of $136.13, the 52-week high set on September
25th.  Keep stops tight in this volatile marketplace.

On Thursday, the company announced plans for its latest leading-
edge development.  Ciena will introduce "channel spacing", an
industry first that will enable new levels of channel density in
its optical transport systems.

BUY CALL NOV-120 UEZ-KD OI=2825 at $18.00 SL=13.00
BUY CALL NOV-125 UEZ-KE OI=1799 at $15.63 SL=11.25
BUY CALL NOV-130*UEZ-KF OI= 896 at $13.38 SL=10.00
BUY CALL JAN-125 UEZ-AE OI=9503 at $23.88 SL=18.75
BUY CALL JAN-130 UEZ-AF OI=2731 at $21.50 SL=16.75

Picked on Sep 24th at   $120.75    P/E = 630
Change since picked       +7.13    52-week high=$136.25
Analysts Ratings      9-9-0-0-1    52-week low =$ 14.69
Last earnings 06/00   est= 0.17    actual= 0.19
Next earnings 11-16   est= 0.24    versus= 0.03
Average Daily Volume = 8.03 mln

EMLX - Emulex Corporation $129.69 (+21.69 last week)

A leading networking company, EMLX designs, builds and
distributes three types of connectivity products: network
access servers, printer servers, and high-speed fibre channel
products.  It's fibre channel products, which are based on
internally developed ASIC technology, are deployable across
a variety of network configurations and operating systems to
support increasing volumes of stored data.  EMLX sells its
products directly throughout the world to OEMs and end users,
as well as through system integrators and industrial

As though shot from a cannon, EMLX led the charge as the NASDAQ
recovered mightily on Friday.  The gap down at the open was to
be expected after Thursday's carnage, but the buyers appeared
immediately and their enthusiasm carried our play higher all
day.  Volume was a healthy 25% over the ADV, and it grew
stronger throughout the day, adding conviction to the nearly 13%
rise.  The market was due for a positive bounce, given the
damage from earlier in the week, but EMLX had telegraphed its
willingness to move higher by refusing to break down through the
$105 support level.  Posting higher lows since early October,
EMLX was poised to rally and did not disappoint.  Comments made
at the Fibre Channel Technology Conference may have helped EMLX
to hold its ground, but it seems the more plausible explanation
is that investors began focusing on the company's rapidly
approaching earnings announcement.  Scheduled for October 19th,
after the close, the company's 1st quarter results are expected
to double the year-ago number, and expectations are high.  The
early bounce provided target-shooters with a bargain of an entry
point, but even more risk-averse players had a solid entry once
our play cleared the $121 resistance level.  This level should
now act as support going forward, backed up by historical
support at $110-112.  Use pullbacks as an opportunity to add new
positions.  Friday's close has brought EMLX right back up to the
$130 resistance level, and pushing through this level will
provide another conservative entry point.  As always, we need to
see strong volume to propel our play to new heights, but if
Friday's action is any indication, EMLX looks ready to run.  If
the enthusiasm continues through the next few days, follow the
cardinal rules and get out ahead of the announcement.  High
expectations frequently lead to post announcement selloffs,
regardless of how strong the numbers are.

Whatever he had to say at the Fibre Channel Technology
Conference last week, EMLX's Director of Product Marketing,
Mike Kane, sure didn't scare investors.  Focusing on the growing
demand for 2Gb/sec solutions and future needs for 10Gb/sec
solutions, he painted a rosy picture for the future of Fibre
Channel technology and EMLX's place in it.  In addition, the
company demonstrated its LightPulse Sbus host adapter and its
PCI-based 2Gb/sec LP9002 host adapter, highlighting the
company's auto speed negotiation capability.

BUY CALL NOV-125 UMQ-KE OI= 87 at $22.13 SL=16.50
BUY CALL NOV-130*UMQ-KF OI=133 at $19.75 SL=14.25
BUY CALL NOV-135 UMQ-KG OI=188 at $17.25 SL=12.50
BUY CALL JAN-130 UMQ-AF OI=326 at $30.63 SL=23.00

SELL PUT NOV-110 UMQ-WB OI= 80 at $ 8.50 SL=11.25
(See risks of selling puts in play legend)

Picked on Oct 12th at   $115.00     P/E = 134
Change since picked      +14.69     52-week high=$225.50
Analysts Ratings      3-7-0-0-0     52-week low =$ 35.50
Last earnings 08/00   est= 0.21     actual= 0.25
Next earnings 10-19   est= 0.26     versus= 0.13
Average Daily Volume = 2.04 mln

NT - Nortel Networks $65.44 (+3.13 last 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

Friday's trading finally provided some action for the bulls,
as NT followed the technology sector higher all day, tacking on
a respectable 9% gain.  The volume picture tilted in favor of
the stampeding bulls as well, with the day's tally coming in at
50% above the ADV.  After building a solid base near $58, NT was
ready to bounce higher, and all it needed was a little
encouragement from the broader market.  On top of that, the
company made some aggressive comments about its wireless
Internet strategy (see below), and earnings are rapidly
approaching.  Set to be released on October 24th after the
close, this gives us just 7 trading days to capitalize on the
rest of the earnings run.  Even if you didn't have the gumption
to pull the trigger on the bounce from the $60 level,
confirmation of the bullish move came with the stock's clean
move through resistance at $63.  While the verdict for the day
was unclear as late as 2pm EDT, the increasing volume into the
close made a strong case for NT heading higher into its earnings
announcement.  Optical Networking is one sector that is still
growing by leaps and bounds, and investors can't seem to get
enough of the stocks in this arena.  As long as the bulls can
parlay this one-day advance into a meaningful rally, this sector
should lead the charge into the much-anticipated fall rally.
Support is rock solid at the $58-60 level, with milder support
now seen near $63.  Use any pullback to these levels as a buying
opportunity, as long as the bounce is confirmed by increasing
volume.  The rise on Friday has NT approaching resistance in the
$66-67 area.  Conservative players will wait for strong buying
volume to push through this level before opening new positions.

Grabbing investor attention Friday at a Telecom conference in
Barcelona, NT's mobile Internet chief, Peter MacKinnon said that
his company is aiming for a 25 percent share in the global
third-generation (3G) mobile Internet market.  Consistently
showing up on Telecom providers' short list, NT looks to be well
on its way with a $780 million 3G contract with British
Telecom's Cellnet and a $100 million 3G contract with Spanish
operator Airtel.  And according to MacKinnon, more deals will
be announced before the end of the year.

BUY CALL NOV-65 NTV-KM OI=5980 at $7.50 SL=5.25
BUY CALL NOV-70*NTV-KN OI=8294 at $5.38 SL=3.25
BUY CALL NOV-75 NTV-KO OI=3697 at $3.38 SL=1.75
BUY CALL DEC-70 NTV-LN OI=6256 at $6.75 SL=4.75
BUY CALL DEC-75 NTV-LO OI=4843 at $4.75 SL=2.75

SELL PUT NOV-60 NTV-WL OI= 6159 at $4.63 SL=5.00
(See risks of selling puts in play legend)

Picked on Oct 5th at      $66.75     P/E = N/A
Change since picked        -1.31     52-week high=$89.00
Analysts Ratings     21-11-2-1-1     52-week low =$24.78
Last earnings 07/00    est= 0.14     actual= 0.18
Next earnings 10-24    est= 0.16     versus= 0.14
Average Daily Volume = 13.80 mln

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The Option Investor Newsletter                   Sunday 10-15-2000
                                                            4 of 5

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CPN - Calpine Corp $84.00 (-8.25 last week)

Calpine is the world's top geothermal producer.  Calpine owns
the largest producing geothermal resource, The Geysers, in
northern California as well as varying interests in power plants
in 11 US states.  They principally engage in the operation of
power generation facilities and the sale of electricity and its
by-product, thermal energy (steam).  Through subsidiaries
Calpine Gas and Calpine Natural Gas, the company has 430 bln
cu/ft equivalent of proved reserves.

Despite being a top utility in the midst of an energy crisis,
CPN is tumbling fast.  Granted CPN isn't in the oil business,
but it does generate power in a country, whose demands far
exceed its supplies, so you'd think it'd be pillar of strength.
Shares of this company have, in fact, more than doubled this
year.  It wasn't until the turbulence on the DOW began rumbling
earlier this month that CPN had its share price cut by an
astonishing 19.5%!  Two brokerage firms even came to CPN's
defense with Buy recommendations.  Gerard Klauer Mattison also
issued a strong $118 price target, but to no avail.  Last week,
shares slipped under the 10-dma ($93.16) and violated the 5-dma
($89.60) on more than twice the normal volume.  Friday's move
through the $85 historical support signals there may be more
weakness over the short-term, although it'll be important to
keep an eye on the DOW.  Remember CPN is highly influenced by
its sentiment.  Assuming CPN dives further into the abyss, the
next level of support is found at $75 and $77, bolstered by the
100-dma line ($77.55).  Downward bounces off $87, or even higher
on an intraday spike to $90, offer entries into this put play.
A break of $84 and $83.50 (Friday's low) would however offer
better corroboration that CPN can slither lower.

BUY PUT NOV-90 CPN-WR OI=4000 at $11.13 SL=8.25
BUY PUT NOV-85*CPN-WQ OI=  21 at $ 8.13 SL=5.75
BUY PUT NOV-80 CPN-WP OI=   0 at $ 5.63 SL=3.50  Wait for OI!!

Average Daily Volume = 1.80 mln

DNA - Genentech $134.63 (-27.88 last week)

Using human genetic information to discover, develop,
manufacture and market human pharmaceuticals for significant
unmet medical needs is DNA's quest.  Thirteen of the currently
approved Biotechnology products came as a direct result of
the company's science.  DNA markets and manufactures 7 of
these with the eighth just getting ready to go into production.
The products include Rituxan, Activase, Nutropin, NutropinAQ,
Nutropin Depot, Protropin, Pulmozyme, and Actimmune.  The firm
is developing other cancer drugs with ImmunoGen and earns
royalties for hepatitis B vaccines, bovine growth hormones,
and Humulin (human insulin).

As the broader markets have disintegrated during the month of
October, the Biotech sector has been one of investors' favorite
whipping boys.  In just over 2 weeks, the Biotechnology Index
(BTK.X) has given up over 20%, and DNA has mirrored this action.
Falling from north of $185 at the beginning of the month,
Friday's low of $128.25 represents a loss of more than 30%.  The
stock failed to have even a hint of a rally into their earnings
announcement on Wednesday, and after just meeting estimates, the
sellers came back with a vengeance.  Even though there was a bit
of a bounce from the lows on Friday, the fact that the stock
couldn't get above Thursday's close, paints a decidedly negative
picture.  As put players, that is precisely what we are looking
for -- poor relative strength.  Sure all our technical
indicators are deep in oversold territory, with all of the
moving averages arrayed over head, but the intense selling
pressure seen earlier last week looks like it is likely to
continue.  Support in the $128-130 range is the first obstacle
to overcome, with further support at $123, then $120 and $115.
Overhead resistance will be a tough nut to crack, with Friday's
rollover occurring near the $137 historical support level.
Further obstacles exist at the historical level of $148 which
is being backed up by the 5-dma ($147.13).  Above there, we have
the $155 resistance level, confirmed by the 10-dma ($159.69).
Barring an unforeseen event, DNA is likely to have a tough time
for the remainder of the month.  Use failed rallies to
resistance levels as an opportunity to enter new positions, or
if you prefer a more cautious approach, let selling pressure
provide your entry point as DNA falls through support near $128.
As always, volume will be the key.  Weakening volume on a
decline will indicate diminishing selling pressure, while anemic
volume on an attempted recovery will be your indication that
buying pressure lacks conviction.

BUY PUT NOV-140 DNA-WH OI= 88 at $13.63 SL=10.25
BUY PUT NOV-135*DNA-WG OI=  0 at $11.50 SL= 8.75
BUY PUT DEC-135 DNA-XG OI=160 at $14.88 SL=11.00

Average Daily Volume = 835 K


INKT - Inktomi Corporation $82.25 (-8.75 last week)

If you have a need for speed on the Internet, INKT is a highly
recognized company to consider.  They specialize in delivering
high content data through their caching application network at
very high and reliable rates.  Reputable companies such as AOL
and Excite@Home have come to rely on INKT's technology to help
them meet their high speed customer demands online.  By using a
Content Delivery Suite, INKT is able to delegate data to many
servers, and then combine them from these multiple locations for
the rapid and efficient deployment their ISP customers have come
to expect.  The company also offers sophisticated search engines
used by AOL and Lycos which offer more detailed search criteria
than the competition.  With high speed data delivery now
becoming wireless, INKT is currently positioning itself with
Hewlett Packard and Sun Microsystems to take advantage of this
new market as well.

Friday the 13th confused everybody, as it instead put the scare
into short players as the markets rallied from an oversold
position.  INKT faired well by simply bouncing off its short-term
support now at $74.  The overall trend and momentum on this play
remains negative, and this slight rebound only offers more entry
opportunity to investors on the short side.  With tensions
increasing in the Middle East, and the renewed concerns of
inflation due to higher than expected numbers in retail sales
and the PPI, the Tech sector is not out of the woods yet.  INKT
investors also remain on the alert as its recent acquisition of
FastForward will continue to dilute earnings.  INKT is
attempting to steal business from Akamai in the content
distribution arena.  They are having a tough time of it
however, as AKAM commands a 70% market share, and INKT has to
battle with giants such as AOL and Cisco in contention for this
market pie.  Since AKAM has a strong hold with Yahoo, this is
proving to be a much more formidable task than INKT had
anticipated, and investors can feel the battle scars of late.
Since INKT was also unable to trade higher than last Thursday's
high of $84.75, we'll look to this area for another possible
rollover on the play.  It is apparent on INKT's intraday chart,
that it is stalling on the upside.  Several bounces occurred
near the $83-area, as INKT was unable to effectively break the
mark.  Investors will want to watch this area, as it may prove
too much, and send INKT lower on renewed market weakness.  Once
investors confirm negative sentiment in the markets again, look
for entry opportunities off either the $83 or $93 resistance
areas, depending upon Monday's setup.  Should INKT continue to
slide from here, wait for a break below the $74-support before

BUY PUT NOV-90 KYQ-WR OI=952 at $16.63 SL=12.00
BUY PUT NOV-85*KYQ-WQ OI=294 at $13.50 SL=10.00
BUY PUT NOV-80 KYQ-WP OI=163 at $10.50 SL= 7.25

Average Daily Volume = 2.30 mln

CPTH - Critical Path, Inc. $52.00 (-1.25 last week)

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

The downtrend is still intact, as market forces, sector sympathy
and political concerns all conspired to take CPTH down the rocky
path.  Parent company CMGI continues to be a burden on its
subsidiaries, making new 52-week lows on a daily basis.  A
one-two punch of earnings reports from YHOO and DCLK left
starry-eyed investors with lofty expectations disappointed,
adding a further drag to the Internet sector.  Despite the stock
having a strong Friday, closing up $6.13 or 13%, there are a
number of reasons why we are keeping this put play.  First,
volume was average, suggesting that it was more of a short
covering and bouncing off oversold conditions rather than buying
conviction.  Second, the stock was unable to close above its
10-dma, now at $52.27.  Third, there is strong overhead
resistance at $53.  Add to that the bounce off the upper part of
its downward trending regression channel on Friday, all we need
is a little profit taking or a continuation in negative sentiment
for Internet stocks and we've got an ideal entry point.  A
failure to rally above resistance at $53 or its 10-dma with
sellers coming in on high volume would serve as an aggressive
entry point while a break below $50 near the 5-dma could give
conservative traders a chance to enter this play.  Earnings are
confirmed for this coming Thursday, on October 18th after the
closing bell.  As always, we stand by our rule of never holding a
position over an earnings report and will close out this play
before that time.  Until then, there appears to be enough time
for at least one more play.

BUY PUT NOV-55*UPA-WK OI= 53 at $10.50 SL=7.50
BUY PUT NOV-50 UPA-WJ OI=119 at $ 7.63 SL=5.25
BUY PUT NOV-45 UPA-WI OI= 70 at $ 5.25 SL=3.25

Average Daily Volume = 988 K

CRA - Celera Genomics $66.31 (-13.06 last week)

Celera was formed to usher in the digital age of medical science
through the development, analysis, and interpretation of genomic,
proteomic, and related biological and medical information.  By
combining its definitive information with proprietary
technologies in computer science, software, mathematical
algorithms, and molecular biology, Celera will help to accelerate
the drug discovery process, elucidate pathways of disease, and
transform molecular diagnostics and therapeutics into practices
that have a more personal and direct impact on our lives.

It's been a highly profitable week for our put play.  Investors
have been eschewing the higher risk Biotech stocks for safe haven
Pharmaceutical issues, trading in blockbuster potential for a
slow and steady proven track record.  As the fate of the NASDAQ
depends largely on the direction of the Semiconductors and
Biotechs, it's no wonder the Tech index continued lower for most
of the week.  While earnings reports from old school Biotechs DNA
and BGEN last week were able to meet or barely beat Street
estimates, analysts have been sending mixed signals, with high
expectations for the sector, yet expressing disappointment in
revenue growth from the reports.  The reason for buying at the
moment, according to analysts, appears to be based on valuation.
But just because a stock or sector has fallen sharply does not
mean it will not fall even more.  Merrill Lynch's Biotech HOLDR
(BBH), a basket of leading Biotech stocks, fell below its 200-dma
last week, reflecting the negative sentiment in the sector.  CRA
has been well below that point for quite some time now and while
Friday's gain of $3.06 or 4.84% was a step in the right direction
(at least as far as shareholders are concerned), the lower than
average volume on the move lacked conviction.  As well, CRA has
been unable to close above its 5-dma, now at $66.50, since
September.  With strong resistance at $70 and intra-day
resistance just above $67, a failure to rally above these levels
could be a signal for aggressive traders to take a position.
Conservative traders who want to make sure the technicals are
weak will be watching for a break below $62 backed by strong
selling volume before entering.

BUY PUT NOV-70 CRA-WN OI=54 at $11.25 SL=8.25
BUY PUT NOV-65*CRA-WM OI=91 at $ 8.38 SL=6.00
BUY PUT NOV-60 CRA-WL OI= 0 at $ 5.88 SL=4.00

Average Daily Volume = 1.17 mln

JPM - J.P. Morgan & Co. Inc. $143.13 (-9.88 last week)

J.P. Morgan is a leading global firm that meets critical
financial needs for business enterprises, governments, and
individuals around the world.  They advise on corporate strategy
and structure, raise capital, make markets in financial
instruments, and manage investment assets.  Their expertise is
based on an in-depth knowledge of their clients' needs and the
industries and environments in which they operate.  They also
commit their own capital to promising enterprises and invest and
trade to capture market opportunities.

Fundamentals continue to be the key driver for JPM's decline this
past week, as fears of credit quality, a slumping NASDAQ, and
political turmoil conspired to lead the stock lower.  While the
rumors last week of Morgan Stanley Dean Witter losing money in
the junk bond market were greatly exaggerated, with estimated
losses of over $1 billion, they were nonetheless true.  According
to MWD, the losses were no more than $90 million since the
beginning of June.  This does confirm suspicions however, that
the under-performing junk bond business, an important source of
revenue for investment banks, will have a negative material
impact on earnings going forward.  Credit quality is another
concern casting a pall over the financial sector.  According to
Moody's, the 12-month default rate is expected to rise 8.4% by
next September, up from its current 5.13% levels, and the highest
since the 1991 recession.  A higher default rate means money lost
for lenders leading to further decreased earnings going forward.
Concerns about the Euro this week were muted by larger
macroeconomic influences, with tensions in the Middle East but
that does not mean the problem has gone away.  Put all these
factors together and the fundamental picture doesn't good.  In fact,
it got worse on Friday as a stronger than expected PPI number.
While JPM rallied $7.13 or 5.24% in spite of the news, volume was
average and the close below 5-dma resistance at $145 leads us to
believe that JPM may not be out of the woods yet.  With additional
overhead resistance at $150, a failure to rally above these
levels could be a signal for aggressive traders to enter this
play.  A break below $140 on volume would serve as an entry point
for conservative traders.  Earnings are scheduled for October 18th.
As usual, we advise traders making a play to close out their
positions before Wednesday's close.

BUY PUT NOV-145 JPM-WI OI= 22 at $8.75 SL=6.25
BUY PUT NOV-140*JPM-WH OI=148 at $6.38 SL=4.50
BUY PUT NOV-135 JPM-WG OI= 43 at $4.50 SL=2.75

Average Daily Volume = 1.98 mln

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Once Again, The VIX Lights Our Path
By Mark Phillips
Contact Support

The first week of the October earnings cycle got off to a rocky
start, as leaders like YHOO failed to impress investors and the
Internet sector took a turn for the worse.  This added to the
pressure on the NASDAQ, and the INDU turned sharply negative as
well.  The silver lining around these clouds was our good friend
the VIX.  By the end of Thursday's session, it had gotten itself
solidly into oversold territory at 34.36, and Friday's recovery
should be no surprise.  Friday's opening gap in the broader
markets drove the VIX above 35, before the rally began in
earnest.  By the time the dust had settled, all the major
indices had posted strong gains with healthy market internals,
and the VIX had settled down to end the week at 30.82.

While the VIX can certainly go higher (it hit 41.53 during the
April selloff), the sharp rise in our volatility index should
have had you dusting off your entry plans for your favorite
LEAPS plays.  This is the time of year that gives us our
optimum entries, when fear finally reaches a crescendo, and
everyone around us is sure the sky is falling.  History has a
funny way of repeating itself, and patience through the wild
gyrations of the past several months left us ready to take
advantage of the excellent entry points as they presented
themselves, right on schedule.

While there is certainly the possibility of more downside in the
days and weeks ahead, the heavy selling followed by a strong
recovery across all the major indices has given us many of the
ingredients to a high probability entry point in many of our
current plays.  Provided the lows from this past week are not
violated, now is the time to take that cash you've been hoarding
and start putting it to work.  We've been waiting all year for
this entry point, and it is unlikely to get much better until we
repeat this cycle next fall.

Before I leave you, let me inject a few words of caution into my
decidedly bullish commentary.  While current market conditions
have me thinking this is just about the bottom for the market,
that does not mean we can go out and buy everything on the LEAPS
playlist.  We still have to observe proper entry technique on
each and every play.  As long as the market can continue
Friday's recovery, that is just our license to look for entry
points on specific plays.  Look for confirmation that the stock
is holding critical support levels, and then use your favorite
technical indicators (I prefer daily MACD and Stochastics) to
give you that entry signal.

We are continuing to clean house in the LEAPS playlist, and are
weeding out the non-performing or losing plays.  Getting the axe
this weekend are BRCM, PHCM, and GM.  Of course, we are adding
new plays as the opportunities present themselves and this week
a fallen star makes it onto the playlist.  See below for the
details of each.

Keep your wits about you, and happy hunting!

Current Plays


EMC    11/07/99  JAN-2002 $ 45  WUE-AI   $ 9.50   $55.63   485.53%
       09/17/00  JAN-2003 $100  VUE-AT   $32.75   $32.25   - 1.53%
CSCO   11/14/99  JAN-2002 $ 45  WIV-AI   $11.00   $21.50    95.45%
NT     11/28/99  JAN-2002 $37.5 WNT-AU   $15.13   $36.13   138.76%
       09/10/00  JAN-2003 $ 75  ODT-AO   $27.50   $24.13   -12.27%
SUNW   12/19/99  JAN-2002 $ 90  WJX-AR   $22.00   $41.88    90.34%
ERICY  01/30/00  JAN-2002 $16.3 WRY-AO   $ 6.75   $ 3.75   -44.44%
       07/23/00  JAN-2003 $ 25  VYD-AE   $ 6.88   $ 3.13   -54.58%
NSM    02/27/00  JAN-2002 $ 70  WUN-AN   $24.25   $ 6.25   -74.23%
AOL    03/12/00  JAN-2002 $ 65  WAN-AM   $18.63   $ 8.40   -54.91%
       08/13/00  JAN-2003 $ 55  VAN-AK   $17.50   $17.00     2.86%
AXP    03/12/00  JAN-2002 $46.6 WXP-AQ   $ 9.33   $15.38    64.79%
WM     03/19/00  JAN-2002 $ 30  WWI-AF   $ 5.38   $13.13   143.96%
JDSU   04/16/00  JAN-2002 $ 80  YJU-AP   $39.63   $37.63   - 5.06%
       08/27/00  JAN-2003 $130  VEQ-AF   $55.25   $31.25   -43.44%
MOT    05/14/00  JAN-2002 $36.6 WMA-AZ   $ 9.54   $ 2.31   -75.76%
NOK    05/21/00  JAN-2002 $ 50  IWX-AJ   $17.25   $ 4.50   -73.91%
       07/30/00  JAN-2003 $ 50  VOK-AJ   $17.75   $ 7.50   -57.75%
C      06/18/00  JAN-2002 $48.8 YSV-AW   $10.31   $11.13     7.90%
       10/01/00  JAN-2003 $ 60  VRN-AL   $12.25   $ 9.88   -19.39%
AMGN   07/02/00  JAN-2002 $ 75  WQY-AO   $20.75   $14.13   -31.93%
                 JAN-2003 $ 70  VAM-AN   $28.75   $23.25   -19.13%
VRSN   07/02/00  JAN-2002 $190  YVS-AR   $66.25   $50.13   -24.34%
       09/03/00  JAN-2003 $190  OVS-AR   $86.63   $67.38   -22.22%
GENZ   07/16/00  JAN-2002 $ 70  YGZ-AN   $17.13   $19.38    13.11%
                 JAN-2003 $ 70  OZG-AN   $23.13   $25.50    10.25%
HWP    07/30/00  JAN-2002 $110  WPW-AB   $28.25   $17.38   -38.50%
                 JAN-2003 $120  VHP-AD   $32.63   $21.75   -33.34%
EXDS   08/06/00  JAN-2002 $ 55  WZZ-AK   $20.75   $11.13   -46.39%
                 JAN-2003 $ 60  VTQ-AL   $25.38   $14.75   -41.88%
MFNX   08/06/00  JAN-2002 $ 40  WOF-AH   $13.75   $ 4.38   -68.18%
                 JAN-2003 $ 45  VKW-AI   $15.63   $ 5.88   -62.41%
GM     08/06/00  JAN-2002 $ 65  WGM-AM   $ 9.88   $ 7.88   -20.29%
                 JAN-2003 $ 65  VGN-AM   $13.25   $11.38   -14.15%
FRX    08/13/00  JAN-2002 $ 95  WRT-AS   $31.38   $35.63    13.53%
                 JAN-2003 $100  VFB-AT   $37.38   $41.38    10.69%
BRCD   08/27/00  JAN-2002 $220  YNU-AD   $65.38   $80.63    23.32%
                 JAN-2003 $220  OMW-AD   $86.50   $103.88   20.09%
CMRC   09/10/00  JAN-2002 $ 80  YCU-AP   $30.13   $22.75   -24.49%
                 JAN-2003 $ 80  OCU-AP   $38.75   $31.00   -20.00%
PHCM   09/10/00  JAN-2002 $ 90  YPH-AR   $45.75   $34.63   -24.32%
                 JAN-2003 $ 90  OFO-AR   $52.50   $40.75   -22.38%
QCOM   09/17/00  JAN-2002 $ 70  WBI-AN   $22.50   $25.00    11.11%
                 JAN-2003 $ 70  VLM-AN   $29.63   $32.63    10.11%
BRCM   09/24/00  JAN-2002 $250  YRR-AJ   $77.13   $55.88   -27.56%
                 JAN-2003 $260  OYG-AL   $95.63   $74.75   -21.83%
COMS   10/01/00  JAN-2002 $ 20  WTH-AD   $ 6.38   $ 6.50     1.96%
                 JAN-2003 $ 25  VTH-AE   $ 7.13   $ 7.38     3.51%
WCOM   10/01/00  JAN-2002 $ 35  WQM-AG   $ 6.75   $ 3.88   -42.59%
                 JAN-2003 $ 35  VQM-AG   $ 9.88   $ 6.25   -36.71%

Spotlight Play

HWP - Hewlett-Packard $90.63

Holding true to historical patterns, the broader market
(particularly technology) experienced significant weakness
through September and the first half of October.  Our HWP play
felt the pain along with other computer-related stocks and
plunged right through the $100 support level.  As the selling
intensified over the past 2 weeks, HWP fell to $82.50, a level
not seen since January.  It remains to be seen whether the
recovery on Friday is the beginning of the fall rally or just
another head-fake, but the market internals looked encouraging.
With a gain of almost $7 on heavy volume, it looks like it may
be time to consider new positions in HWP.  The 2-for-1 split
announced with earnings in August is set to take place on
October 27th, and if the market heads higher from here, now
would be a good time to take a position.  A pullback to support
at $85-86 would make for an attractive entry point, provided it
is followed by strong buying volume.  More conservative players
may want to wait for our play to clear the $93 resistance level
before jumping aboard.  In either case, a positive market will
be a necessary condition for a successful play.

BUY LEAP JAN-2002 $ 95.00 WPW-AS at $21.13
BUY LEAP JAN-2003 $100.00 VHP-AT at $25.75

New Plays

INTC - Intel Corporation $40.38

It looks like it is time to dip our feet back into the
Semiconductor pool, and what better place to start than INTC,
the mother of all Semiconductor stocks.  After warning of an
earnings shortfall for the current quarter, shares of the
chip-maker have been cut in half, but it looks like the carnage
has just about run its course.  The company is set to report
its earnings on Tuesday, and once that is out of the way,
investors are likely to begin looking forward again.  While a
slowdown in the PC sector is having its effect on INTC (hence
the earnings warning), it is unlikely that there is much more
downside in the stock.  Support looks very strong near $35,
with milder support at $38.  The recovery on Friday morning
lifted the share price to the $40 resistance level, where it
flatlined for much of the day.  Any weakness in the technology
sector next week could provide an attractive entry point.
Consider new positions on a bounce from support, so long as it
is confirmed by strong buying volume.  A more conservative
approach is to wait until after the company releases its
earnings for the current quarter and for buyers to push the
price through the $43 resistance level before initiating new

BUY LEAP JAN-2002 $45.00 WNL-AI at $ 9.50
BUY LEAP JAN-2003 $45.00 VNL-AI at $13.38


BRCM $215.31 Unable to get out of its own way, BRCM continues
to drift lower.  With the exception of a half-hearted attempt
to break through the $260 resistance level at the end of
September, our play hasn't been able to catch a break since we
added it.  The decline last week penetrated the long-term
support between $215-220, and even Friday's rally couldn't put
our play back into the black.  While it was encouraging to see
the stock bounce at its 200-dma, the weak technical picture
combined with litigation concerns with INTC, does not make for
a good long-term play.  After 3 weeks of waiting in vain for a
decent entry point, it is time to throw in the towel on BRCM
and go in search of healthier plays.

PHCM $84.13 While managing to put together a nice run in the
latter part of September, selling pressure in the Wireless and
Internet sectors created too much weight for PHCM to lift.
After breaking out above the $100 resistance level, our play was
looking healthy until it found new resistance near $120.  When
the stock rolled over and headed south with the broader
technology market, open plays should have been stopped out for a
small profit.  The selling intensified last week and then things
really got ugly as the stock broke both the $85 support level
and its string of higher lows.  This technical failure, combined
with expectations for the company to post widening losses when
it reports earnings on Wednesday, makes it difficult to continue
to recommend new positions.  Even the recovery on Friday looked
anemic, as our play ran out of gas as it approached resistance
(old support) at $85.  Use any rally in the stock as a more
attractive exit point for any open positions, rather than an
opportunity to initiate new plays.

GM $57.69 While our GM play provided us with a nice triple-digit
profit during the month of August, the weight of the $75
resistance level (also the site of the 200-dma) was too much to
bear.  As the broader markets languished last month, GM slid
back through $70, and the problems mounted as Carl Icahn,
angered by the company's disclosure of his plans to purchase up
to $15 million in GM stock, sold his stake in the automaker.
Then the situation went from bad to worse, with GM reporting
disappointing sales for the month of September, a weak earnings
report last Thursday, and a host of analyst downgrades from the
likes of Lehman Brothers and Dain Rauscher Wessels.  In
addition, several other brokerage firms (Goldman Sachs, UBS
Warburg and PaineWebber) trimmed their estimates for GM going
forward.  With weakness in Europe likely to have a pronounced
effect on the company's revenues, and the professionals lining
up on the bearish side, it is time to drop GM to make room for
more attractive plays.

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The Option Investor Newsletter                   Sunday 10-22-2000
Sunday                                                      5 of 5

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The Bargain Hunting Begins...
By Mark Wnetrzak

With the recent uncertainty in the market, we have received an
increasing number of requests for information on covered-calls
with LEAPS.  Here is an explanation of the basic concepts and
common trading techniques that will help you profit from this
conservative, long-term strategy.

LEAPS can be an ideal investment tool for the option trader who
expects future growth in an underlying stock but does not want
to make the substantial capital outlay required for entering an
outright position in the issue.  With expiration dates months or
even years in the future, time decay occurs very slowly for LEAPS
and these unique instruments offer an effective way to benefit
from a stock's appreciation without incurring the risk associated
with the actual purchase of shares.  Buying LEAPS is an excellent
strategy that finds the happy medium between aggressive, short-
term option trading and the outright purchase of the underlying

Covered call writing is a stock options trading strategy that some
investors use when they are looking for a conservative risk/return
profile, while maintaining a meaningful profit potential in either
bullish or bearish market environments.  An investor will usually
write a covered call to generate income, collecting a premium for
the sale of an option against a stock in his or her portfolio.
This strategy can also be used with LEAPS options, but it differs
because it does not involve the direct ownership of shares of the
underlying stock; LEAPS are substituted for the long position.
There is the added benefit that comes from writing calls against
the long position on a regular basis, lowering the overall cost
of the LEAPS as each short-term option expires.

One of the best and most popular strategies associated with LEAPS
is writing a covered call on the long-term option.  The technique
is similar to a calendar spread (or time spread).  The strategy
generally consists of the sale of one call and the simultaneous
purchase of another call, both on the identical underlying stock,
with the same strike price but one option near-term and the other
option further out.  The theory behind calendar spread profits is
based on a neutral philosophy in which time erodes the value of
the near-term option at a faster rate than the far-term option.
The most common type of time spread is bullish, where the price
of 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, and 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's strike price.

Covered-calls with LEAPS positions can be constructed for any
market outlook or bias on both volatile and stagnant positions.
The strategy is best initiated when the front-month options are
trading at a premium with respect to longer-term volatility.
Most investors prefer to establish these positions at least 8-12
months before the LEAPS expire, capitalizing on the ability to
sell a number of short-term options.  The basic concept in this
type of spread is selling time value in the options when they
are overpriced (high implied volatility) and buying it back, if
necessary, when the options return to intrinsic value.  Ideally,
the trader would like to have the stock finish just below the
sold strike when the near-term option expires.  However, when
the short-term position is in-the-money on the last day of the
strike period, you must buy it back so that you don't have to
exercise the LEAPS to cover your obligation; that would defeat
the purpose of the strategy.  At the beginning of each strike
period, you simply sell the next month's call to further reduce
the cost basis of the LEAPS.

Larry McMillan's book, "Options as a Strategic Investment" has
some excellent information on calendar spreads and other time
selling strategies.  It is available in the OIN bookstore.

Good Luck!

NOTE: Using Margin doubles the listed Monthly Return!

Stock  Price  Last   Call  Strike Price   Profit  Monthly
Symbol Picked Price  Month Sold   Picked  /Loss   Return

PRGN   20.94  20.75   OCT  17.50  4.00  *$  0.56  14.4%
FFD    10.56  12.00   OCT  10.00  1.06  *$  0.50  11.4%
GALT   29.13  31.50   OCT  25.00  4.75  *$  0.62  11.1%
TKTX   45.38  39.94   OCT  35.00 12.00  *$  1.62  10.5%
CCUR   19.00  19.31   OCT  17.50  2.38  *$  0.88   7.7%
IMGN   26.19  38.19   OCT  22.50  5.50  *$  1.81   7.6%
ENMD   26.38  24.13   OCT  22.50  4.63  *$  0.75   7.5%
CTIC   50.13  73.50   OCT  40.00 12.50  *$  2.37   6.8%
MCKC   23.69  21.19   OCT  20.00  4.00  *$  0.31   6.8%
PSFT   33.88  40.63   OCT  30.00  4.75  *$  0.87   6.5%
GLGC   24.75  21.94   OCT  20.00  6.38  *$  1.63   6.4%
WDC     5.75   5.25   OCT   5.00  1.19  *$  0.44   6.2%
BCGI   20.00  23.94   OCT  17.50  3.38  *$  0.88   5.8%
LBRT   30.00  23.56   OCT  22.50  9.13  *$  1.63   5.7%
ASPX   12.38  11.81   OCT  10.00  2.75  *$  0.37   5.6%
IMGN   21.81  38.19   OCT  17.50  5.50  *$  1.19   5.3%
WGAT   22.88  19.00   OCT  17.50  6.63  *$  1.25   5.0%
AAS    42.28  44.69   OCT  40.00  4.00  *$  1.72   4.9%
KOSP   19.75  19.56   OCT  17.50  2.81  *$  0.56   4.8%
ISIP   11.50  10.19   OCT  10.00  1.81  *$  0.31   4.6%
SYNM   20.75  17.06   OCT  17.50  4.38   $  0.69   3.7%
MSTR   31.38  24.19   OCT  25.00  8.25   $  1.06   3.0%
GNSS   19.31  16.75   OCT  17.50  2.63   $  0.07   0.5%
RCOT   15.81  14.31   OCT  15.00  1.44   $ -0.06   0.0%
TRIH   32.38  28.75   OCT  30.00  3.50   $ -0.13   0.0%
EFCX   11.88   8.88   OCT  10.00  2.63   $ -0.37   0.0%
PRST   20.13  16.13   OCT  17.50  3.63   $ -0.37   0.0%
QHGI   15.00  13.38   OCT  15.00  0.88   $ -0.74   0.0%
OSUR   14.00  10.50   OCT  12.50  2.50   $ -1.00   0.0% (EPTO)
CYBS   12.69   6.38   OCT  10.00  3.13   $ -3.18   0.0%

AVID   14.75  15.38   NOV  12.50  3.63  *$  1.38  10.8%
RDRT    7.94   8.31   NOV   5.00  3.25  *$  0.31   5.7%
BPUR   17.38  19.50   NOV  15.00  3.25  *$  0.87   5.4%
WDC     6.13   5.25   NOV   5.00  1.44  *$  0.31   4.8%

*$ = Stock price is above the sold striking price.


Purchasepro.Com (PPRO) was unplayable this week as the gap-up
open on Monday deflated the over-priced call option we were
targeting.  It is again that time to re-evaluate your outlook
on those stocks that were not called away and act accordingly.

Positions Closed Early:

Red Hat (RHAT), Ventro (VNTR), Wave Systems (WAVX), Tivo (TIVO),
Worldpages.Com (WPZ), Neoforma.Com (NEOF), Globalstar (GSTRF),
Niku (NIKU), and Youthstream Media (NETS).

NEW PICKS - Sequenced by Return

Stock  Last  Call  Strike Option  Last  Open Cost  Days to Monthly
Symbol Price Month Price  Symbol  Bid   Intr Basis Expiry  Return

ANSR   18.31  NOV  12.50  QRA KV  6.63  330  11.68   28     7.6%
CTXS   21.44  NOV  17.50  XSQ KW  4.88  206  16.56   28     6.2%
ECLP   21.38  NOV  17.50  IQV KW  4.63  90   16.75   28     4.9%
FFD    12.00  NOV  10.00  FFD KB  2.75  1460  9.25   28     8.8%
FIBR   32.50  NOV  20.00  QFW KD 13.50  18   19.00   28     5.7%
MTSI    9.38  NOV   7.50  TQM KU  2.81  20    6.57   28    15.4%
UAXS   15.31  NOV  12.50  QXX KV  3.38  10   11.93   28     5.2%

Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, MR-Monthly Return.

ANSR - answerthink  $18.31  *** Second Chance Entry! ***

answerthink provides comprehensive eBusiness strategy, marketing
and technology-enabled solutions focused on the emerging digital
marketplace.  As an eBusiness leader, the company offers a range
of integrated solutions, including best practices benchmarking,
eBusiness strategy and architecture, interactive marketing and
design, business applications and technology integration.  On
Tuesday, answerthink reported net revenues for the third quarter
increased 22% to $84.1 million from $69.0 million last year.  Net
income increased to $6 million, or $0.15 per diluted share, from
$4 million, or $0.10 per diluted share, in the third quarter of
1999.  The company was recently upgraded and downgraded and the
current weakness may offer a second chance to own this issue at
a reasonable cost basis.  The solid earnings demonstrate that the
company continues to strengthen and their recent alliances should
enhance their ability to deliver strategic technology-enabled
solutions to their clients.

NOV 12.50 QRA KV LB=6.63 OI=330 CB=11.68 DE=28 MR=7.6%

CTXS - Citrix Systems  $21.44  *** Stage I Base ***

Citrix Systems is a global leader in application server software
and services that offer "Digital Independence(TM)" - the ability
to run any application on any device over any connection, wireless
to Web.  Its products, including MetaFrame(TM) application server
software, NFuse(TM) application portal software and Independent
Computing Architecture (ICA), a core application-server technology,
have been widely adopted by the corporate mainstream to achieve key
business goals.  Citrix was one of the first stocks to receive a
"haircut" back in the Spring after the company issued a warning and
lost its CEO.  Analysts appear to favor Citrix's technology and
market niche, but are waiting to see if the company can deliver
solid results.  On Wednesday, Citrix reported net revenues for the
third quarter of $113.5 million, up 7% from $105.8 million and net
income of $27.5 million or $0.14 per share beating estimates by
$0.02.  The results seem to have pleased investors as the stock
rallied on strong volume and closed above its 50 dma.  We simply
favor the improving technically pattern and bullish outlook.

NOV 17.50 XSQ KW LB=4.88 OI=206 CB=16.56 DE=28 MR=6.2%

ECLP - Eclipsys Corporation  $21.38  *** Earnings Rally! ***

Eclipsys is a leading healthcare information technology provider.
The company provides, on an integrated basis, enterprise-wide,
clinical management, access management, patient financial
management, health information management, strategic decision
support, resource planning management and enterprise application
integration solutions to healthcare organizations.  Additionally,
the company provides other information solutions including remote
hosting, outsourcing, networking technologies and other related
services.  This month, Eclipsys shares have been in rally mode
after receiving favorable ratings from Jefferies & Co. and
Raymond James.  Eclipsys recently released a Linux version of
its eWebIT, a Web-based enterprise application integration (EAI)
product.  On Wednesday, HEALTHvision (created through a merger
of Eclipsys and VHA Inc.), announced an agreement with Cox Health
Systems to deploy a comprehensive e-health strategy.  This is a
first step in providing a service that addresses the varied needs
of key constituents with a single Web-based platform.  We favor
the Stage II breakout on heavy volume as investors speculate on
next Tuesday's earnings report.

NOV 17.50 IQV KW LB=4.63 OI=90 CB=16.75 DE=28 MR=4.9%

FFD - Fairfield Communities  $12.00  *** Buyout-Merger? ***

Fairfield Communities sells vacation ownership interests (VOIs),
commonly known as timeshares, through its points-based vacation
system, Fairshare Plus.  The company also offers financing for
VOI purchasers and other related services.  Fairfield recently
announced that it is engaged in preliminary discussions concerning
a possible merger or other transaction between Fairfield and an
undisclosed company.  They emphasized that there can be no assurance
that these discussions will lead to a definitive agreement and the
company is not expected to issue any further public statements
regarding the discussions until an agreement is signed or the
discussions are terminated.  We simply favor the bullish breakout
on high volume and the ability to speculate conservatively on the
outcome of the rumors.

NOV 10.00 FFD KB LB=2.75 OI=1460 CB=9.25 DE=28 MR=8.8%

FIBR - Osicom Technologies  $32.50  *** New Deal! ***

Osicom Tech is a developer and marketer of metropolitan optical
networking systems, through its optical networking subsidiary
Sorrento Networks.  Sorrento Networks has been a provider of all
optical networking solutions that are used in both interoffice
and access networks since 1997.  Last week, Sorrento announced
a sweeping agreement with Atlanta-based Cox Communications to
provide optical transport solutions nationwide, with immediate
installations in Virginia, California, Arizona and Louisiana.
They will build a next-generation network with scaleable band-
width capabilities allowing Cox to deliver these broadband
capabilities in these locations more efficiently.  After posting
rather dismal earnings in September, this 4-year deal worth up
to $40 million could be just what the doctor ordered.  Osicom
appears to be undergoing a change of character and Friday's
move on heavy volume offers a chance to enter this issue at a
reasonable cost basis.

NOV 20.00 QFW KD LB=13.50 OI=18 CB=19.00 DE=28 MR=5.7%

MTSI - MicroTouch Systems  $9.38  *** What's Up? ***

MicroTouch Systems is a leader in the manufacture of computer
touchscreen display products incorporating the two most popular
touch technologies; analog capacitive and resistive membrane.  The
company applies these technologies in a variety of products, and
markets them under the ClearTek and TouchTek brand names.  No news
to explain MicroTouch's recent spike in price though Bloomberg.com
states that Texas investor Edward W. Rose III and his affiliates
acquired a 7.1 percent stake in Microtouch, spending $6.2 million
to buy 460,300 Microtouch shares from Sept. 27 to Oct. 11.  That
still doesn't account for the recent three day surge.  Is someone
else interested in this stock?  Why?  Maybe it's an earnings run?
(Earnings are due next Thursday).  Remember, the "Tape" tells all
and this play offers cheap speculation at a reasonable cost basis.

NOV 7.50 TQM KU LB=2.81 OI=20 CB=6.57 DE=28 MR=15.4%

UAXS - Universal Access  $15.31  *** Internet Speculation ***

Universal Access is an Internet network infrastructure services
provider that provisions, interconnects and manages high-capacity
multiple-carrier networks in the most efficient, timely and cost-
effective manner.  By combining information and facilities
management, it provides the only solution in the marketplace today
that delivers end-to-end network connections to ISPs, application
service providers, and telecommunications service providers with
the speed to market required to accelerate revenue growth and meet
the Internet-driven demand for bandwidth.   Universal Access has
been named to the Deloitte & Touche's prestigious "Fast 50" program
for Greater Chicagoland, a ranking of the 50 fastest growing tech-
nology companies in the area.  The company was recognized as number
1 in the "Rising Star" category of the awards.  This week Universal
Access was raised to a "strong buy" by analyst Jonathan Atkin at
Dain Rauscher Wessels with a 12-month target of $55.00 per share.
The technical picture also continues to improve as Universal Access
forges a stage I base.  This position offers a favorable cost basis
for investors who have a bullish outlook on the company.

NOV 12.50 QXX KV LB=3.38 OI=10 CB=11.93 DE=28 MR=5.2%

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Naked Put Percentage List
By Matt Russ

Stock  Stock  Strike Option  Option Margin Percent Support
Symbol Price  Price  Symbol  Price  At 25% Return  Level

ADBE  140.06    130  AXX-WF    7.63   3502   22%     130
AETH  106.88     90  HIZ-WR    6.88   2672   26%      90
ARBA  129.81    120  RBU-WD    9.75   3245   30%     120
ARTG   88.50     80  AYQ-WP    5.13   2213   23%      80
AVNX  118.75    100  UYN-WT    5.63   2969   19%     100
BEAS   85.56     75  BUC-WO    4.00   2139   19%      75
BRCD  252.44    230  GUF-WF    8.88   6311   14%     235
BRCM  242.19    220  RDU-WD   10.38   6055   17%     220
CHKP  170.00    150  KGE-WJ    6.75   4250   16%     160
CRA    68.75     60  CRA-WL    4.13   1719   24%      60
CREE   90.50     80  CQR-WP    5.00   2263   22%      80
ELNT  104.63     95  UET-WS    5.75   2616   22%      95
EMLX  160.25    140  UEL-WH    8.50   4006   21%     135
EXTR   99.44     90  EXR-WR    6.88   2486   28%      90
GSPN   82.63     65  GHY-WM    5.25   2066   25%      65
IDPH  190.25    175  IHD-WO    8.13   4756   17%     175
INKT   80.00     70  KYQ-WN    5.50   2000   28%      70
ITWO  186.88    175  QYI-WO   10.25   4672   22%     175
IWOV  119.81    105  IQG-WA    5.25   2995   18%     105
JNPR  232.00    220  JUD-WD   14.38   5800   25%     220
MUSE  195.25    180  UZQ-WP   15.63   4881   32%     180
NEWP  162.00    140  NOQ-WH    8.63   4050   21%     140
NTAP  148.63    130  ULM-WF    6.00   3716   16%     130
PDLI  121.31    110  RPV-WB    5.38   3033   18%     110
QLGC   95.38     85  QLC-WQ    4.50   2385   19%      85
SCMR   84.94     75  SMZ-WM    6.50   2124   31%      75
SDLI  339.00    300  QJV-WT   14.75   8475   17%     300
VRSN  177.31    160  XVR-WL   10.13   4433   23%     160
VRTS  166.81    145  VUQ-WI    5.25   4170   13%     145


October is almost over, so lets get ready for the next rally!
By Ray Cummins

Today we begin a series of regular reviews of the most common
questions asked by new traders.  Our subject for this session
is "Option Pricing Concepts."


Why is it so important to understand option pricing and fair
value?  Why can't I just buy an option and wait for the market
to move in the right direction?


The most important factors in option trading are market movement,
option volatility (with regard to pricing and probability), and
time decay.  The knowledge of these concepts is paramount to
profitable trading and without a suitable basis, you will likely
enter the market at a theoretical disadvantage.  The primary
requirement is familiarity with option pricing.  In volatile
issues, the emotional optimism of traders can cause prices to
vary widely from their true worth.  Without a realistic estimate
of the value of an option, you will often pay an excessive amount
for the rights inherent in the contract and that usually results
in a much lower return (if any) when the issue finally makes the
expected move.  As intelligent traders, we have the ability to
measure the value of an option through mathematical evaluation,
but if you aren't partial to formulas, pricing models will help
you determine the fair market value of an option.  Many of the
established tools for pricing options are free and they should be
used before opening any new position.  Remember, in the majority
of trading techniques, the end result is almost always a product
of what you know, and how well you act upon it.

There are option pricing and volatility calculators at various
sites on the Internet.  One of the most popular (free) tools is
available at the CBOE's web-site (www.cboe.com).  In addition,
there is a great freeware program that downloads data from the
CBOE web-site and displays a quote montage along with the Greek
values available from Rocky Point Software (www.rpsw.com).


What are the "Greeks" and why is "Delta" (or the hedge ratio) so
important when buying and selling options?


An option's price is determined by mathematical equations that
use variables from all of the factors affecting its value.  Each
aspect of option pricing is a separate component of the formula
and they have Greek titles; Delta, Gamma, Theta, Vega, and Rho.
The primary influence on an option's price is the movement of the
underlying security.   This concept relates directly to the first
and most important of the Greeks; Delta.  Delta measures the rate
of change in an option's price compared to a one point movement
in the underlying security.  It can be thought of as a percentage
of the movement of the stock price.  If the stock price moves up
$2 while the option on that stock gains $1, it has a delta of 50
(or 50%).  An at-the-money (ATM) call option will typically have
a delta of 50.  In-the-money (ITM) calls will have higher deltas;
a greater percentage move, based on the change in the underlying
issue.  The opposite is true for out-of-the-money (OTM) call
options; their deltas are lower.  A deeply out-of-the-money call
option will have a delta very close to zero.

Call deltas are positive; put deltas are negative, reflecting the
fact that the put option price and the underlying stock price
are inversely related.  The delta of an option is also occasionally
called the "hedge ratio" and it can be used to determine the
number of calls one would need to be short to create a risk-less
hedge; a position which would be worth the same whether the stock
price rose by a very small amount or fell by a very small amount.
In such a "delta neutral" portfolio, any gain in the value of the
shares held due to a rise in the share price would be exactly
offset by a loss on the value of the calls written.  Of course,
as the delta changes with the stock price and time to expiration,
the number of shares would need to be adjusted to maintain the
hedge.  How quickly the delta changes with regard to the stock
price is given by gamma, one of the lesser known "Greeks."

Gamma is sometimes considered the "delta" of the delta.  Market
makers use this component almost exclusively in the management of
large option accounts.  Specialists who hedge portfolios using the
delta technique try to keep gamma as small as possible to help
limit the adjustments necessary to maintain a risk-free position.
If the position gamma is too large, a small change in stock price
can devastate the hedge.  Adjusting gamma can be difficult, thus
computers are used to monitor portfolio positions and alert the
specialists when corrections are needed to maintain the complex

Vega is the change in option price given a one-percentage point
change in volatility.  Similar to delta and gamma, Vega is also
used for hedging.

Theta is the change in option price given a one-day decrease in
time to expiration.  This component is basically a measure of
time decay.  Time value and time decay are actually two of the
easiest aspects of option pricing to understand.  The time value
of any option can be simply viewed as everything but the intrinsic
value.  Time costs money and more time equals more money.  The
amount of time value in an option's price decays each day it is in
existence.  The closer the option gets to expiration, the faster
it decays.  In a strictly mathematical sense, time value decays at
its square root and this rate of decay is known as Theta.

Rho, while not commonly used by retail traders, is the change in
option price given a one percentage point change in the risk-free
interest rate.

Next week, we review another complex subject in the realm of
option pricing; "Historical Volatility."

Good Luck!


Stock  Price  Last   Put   Strike Price   Profit  Monthly
Symbol Picked Price  Month Sold   Picked  /Loss   Return

PSFT   34.44  40.63   OCT  27.50  0.44  *$  0.44  26.1%
CRUS   39.19  45.00   OCT  30.00  0.50  *$  0.50  26.1%
MDRX   17.56  15.88   OCT  15.00  0.50  *$  0.50  21.9%
ASPX   12.25  11.81   OCT  10.00  0.50  *$  0.50  17.2%
ECLP   16.00  21.38   OCT  12.50  0.38  *$  0.38  15.4%
PROX   48.63  58.00   OCT  40.00  0.38  *$  0.38  14.7%
PSFT   33.88  40.63   OCT  27.50  0.44  *$  0.44  12.6%
PALM   53.19  59.38   OCT  45.00  0.38  *$  0.38  12.3%
WGAT   23.31  19.00   OCT  17.50  0.56  *$  0.56  11.7%
CLTR   36.75  35.31   OCT  30.00  1.13  *$  1.13  10.8%
PLNR   19.75  17.75   OCT  15.00  0.69  *$  0.69  10.8%
LBRT   32.44  23.56   OCT  22.50  0.63  *$  0.63   9.6%
GLGC   23.00  21.94   OCT  17.50  0.31  *$  0.31   9.1%
ALLP   16.50  13.88   OCT  12.50  0.50  *$  0.50   8.5%
UNM    25.00  27.00   OCT  22.50  0.63  *$  0.63   8.4%
CERN   46.69  53.06   OCT  40.00  0.44  *$  0.44   7.7%
CMNT   21.00  30.56   OCT  17.50  0.56  *$  0.56   7.4%
HCR    16.00  14.81   OCT  15.00  0.38   $  0.19   7.1%
PRBZ   29.44  31.81   OCT  25.00  0.50  *$  0.50   6.9%
WGR    26.25  25.13   OCT  22.50  0.56  *$  0.56   6.7%
DRXR   19.06  17.63   OCT  15.00  0.38  *$  0.38   6.6%
STAT   20.00  22.72   OCT  15.00  0.44  *$  0.44   6.4%
SCUR   26.25  24.50   OCT  17.50  0.50  *$  0.50   6.3%
VITR   48.94  37.25   OCT  30.00  1.00  *$  1.00   6.0%
CTIC   50.13  73.50   OCT  35.00  0.56  *$  0.56   5.7%
CERN   46.44  53.06   OCT  40.00  0.50  *$  0.50   5.7%
NERX   23.00  17.38   OCT  17.50  0.38   $  0.26   5.7%
FNSR   48.38  37.00   OCT  40.00  0.69   $ -2.31   0.0%

OCR    16.88  15.81   NOV  15.00  0.63  *$  0.63   8.3%
CHTR   19.38  18.63   NOV  17.50  0.63  *$  0.63   7.0%
VICR   49.38  50.50   NOV  40.00  0.88  *$  0.88   6.8%
VPI    25.50  23.75   NOV  22.50  0.50  *$  0.50   5.6%
HSIC   22.56  20.69   NOV  20.00  0.50  *$  0.50   5.2%

*$ = Stock price is above the sold striking price.


Noven Pharma (NOVN) gapped-up on Monday's open and moved higher
all week, thus no entry was available.  Many of the issues closed
early (listed below), rebounded strongly on Friday and actually
would have provided a positive return - Murphy's Law in action!

Positions Closed Early:

Goto.Com (GOTO), Wave Systems (WAVX), Xerox (XRX), Knight Trading
(NITE), Coinstar (CSTR), Cadence Design (CDN), Andrea Electronics
(AND), Niku Corp. (NIKU)

NEW PICKS - Sequenced by Return

Stock  Last  Put   Strike Option  Last  Open Cost  Days to Monthly
Symbol Price Month Price  Symbol  Bid   Intr Basis Expiry  Return

BCGI   23.94  NOV  17.50  QGB WW  0.56  0    16.94   28    11.4%
CYTC   50.25  NOV  40.00  YQK WH  1.13  214  38.87   28    11.0%
STAT   22.72  NOV  20.00  TAQ WD  0.69  0    19.31   28    10.6%
RNBO   47.00  NOV  35.00  BQO WG  0.88  40   34.12   28     9.3%
ENTU   29.00  NOV  20.00  EXH WD  0.50  61   19.50   28     8.6%
PATH   17.63  NOV  15.00  AQE WC  0.38  70   14.62   28     8.6%
ICN    40.19  NOV  35.00  ICN WG  0.56  313  34.44   28     5.3%

Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, MR-Monthly Return.

BCGI - Boston Communications  $23.94  *** Solid Earnings! ***

Boston Communications Group operates in the following segments:
Prepaid Wireless Services, Teleservices, Roaming Services, and
Systems Divisions.  The Prepaid Wireless Services Division offers
prepaid wireless service that allows carriers to access BCGI's
prepaid C2C platform.  The Teleservices segment provides customer
support teleservices to wireless carrier's customers.  Their
Roaming Services Division provides services that give carriers
the ability to generate revenues from subscribers who are not
covered under traditional roaming agreements by arranging payment
for roaming calls.  The Systems Division manufactures and markets
voice processing platforms to wireless and wire-line carriers;
sells prepaid systems to international carriers; and manufactures
the voice nodes used to support BCGI's C2C network.  Quarterly
earnings were reported last week and the numbers were favorable.
In addition, the technical breakout above $21 suggests the issue
has additional upside potential.

NOV 17.50 QGB WW LB=0.56 OI=0 CB=16.94 DE=28 MR=11.4%

CYTC - CYTYC Corporation  $50.25  *** Earnings Rally? ***

CYTYC Corporation designs, develops, manufactures and markets a
sample preparation system for medical diagnostic applications.
Their ThinPrep System allows for the automated preparation of
cervical cell specimens on microscope slides for use in cervical
cancer screening, as well as for the automated preparation of
cell specimens on slides for use in non-gynecological testing
applications.  The ThinPrep System is designed to reduce the
incidence of false negative diagnoses, improve slide quality and
enable a single sample to be used for additional testing.  The
company also sells ThinPrep Microscope Slides which improve cell
adhesion to the slide.  Earnings are due next week and based on
the recent bullish activity, investors believe the results will
be favorable.  We will speculate on the outcome of the report
with this deep OTM position.

NOV 40.00 YQK WH LB=1.13 OI=214 CB=38.87 DE=28 MR=11.0%

ENTU - Entrust Technologies  $29.00  *** On The Rebound! ***

Entrust is a global provider of public-key infrastructure (PKI)
products and services to e-businesses and other organizations.
Their solution is a comprehensive, end-to-end PKI framework
designed to assure the security of electronic transactions and
communications over advanced networks, including the Internet.
Its open, scalable software solution operates across multiple
platforms, network devices and applications.  The products that
constitute the core of the company's PKI solution are unique
alternatives to current industry offerings.  Last week, Entrust
reported that its third-quarter results beat analyst estimates
by two cents a share while showing a turnaround from a loss the
previous period.  Analysts agree with the company's new outlook
and the cost basis for this position is a favorable price at
which to own this issue.

NOV 20.00 EXH WD LB=0.50 OI=61 CB=19.50 DE=28 MR=8.6%

ICN - ICN Pharmaceuticals  $40.19  *** For Sale! ***

ICN Pharmaceuticals is a global, research-based pharmaceutical
company that develops, manufactures, distributes and sells
pharmaceutical, research and diagnostic products.  The products
treat viral and bacterial infections, diseases of the skin,
neuromuscular disorders, cancer, cardiovascular disease, diabetes
and psychiatric disorders.  On Friday, ICN said it would consider
strategic transactions including a sale of the company prior to
undertaking its restructuring.  Under the restructuring, ICN will
spin off two of its divisions into separate publicly traded units
to its current shareholders: Ribapharm, which encompasses ICN's
research and development activities and ICN International, which
comprises the company's operations in Western Europe and Asia.  It
will also create a third publicly traded entity made up of its
existing operations in North and South America.  The bullish chart
suggests that investors favor the company's strategy.

NOV 35.00 ICN WG LB=0.56 OI=313 CB=34.44 DE=28 MR=5.3%

PATH - AmeriPath  $17.63  *** Earnings Rally! ***

AmeriPath is an integrated physician group practice and laboratory
management company that is focused on providing anatomic pathology
diagnostic services in the United States.  Since inception, the
company has acquired or affiliated with a large number of physician
practices across America.  The hundreds of pathologists employed by
the company provide medical diagnostic services in laboratories
owned and operated by AmeriPath, in addition to hospitals, and
outpatient ambulatory surgery centers.  Earnings are due next week
and investors are confident about the outcome of the report.  The
issue has rallied above a recent trading range to a 52-week high
and based on the current technical strength, there is additional
upside potential if the earnings report is favorable.

NOV 15.00 AQE WC LB=0.38 OI=70 CB=14.62 DE=28 MR=8.6%

RNBO - Rainbow Technologies  $47.00  *** Earnings/Stock Split! ***

Rainbow Technologies is a developer and supplier of computer
network security products that secure the rights to software and
other digital content, and that provide privacy and security for
computer network and Internet communications and commerce.  The
company's products include software protection products against
piracy, license management and tracking, and software distribution
over the Internet; information security products for network and
satellite communications; and Internet security products for
Internet transaction capabilities in a secure environment, access
controls for computer networks including Virtual Private Networks.
A bullish chart, a stock split and upcoming earnings...what more
could you want in a speculation play?  Plan to "target shoot" a
higher premium initially, as the issue consolidates from recent

NOV 35.00 BQO WG LB=0.88 OI=40 CB=34.12 DE=28 MR=9.3%

STAT - I-Stat  $22.72  *** On The Move Again! ***

I-STAT develops, manufactures and markets medical diagnostic
products for blood analysis that provide health professionals
with immediate and accurate critical diagnostic information at
the point of patient care.  The company's current products,
known as the I-STAT System, consist of portable, hand-held
analyzers and single-use, disposable cartridges, each of which
simultaneously performs different combinations of commonly
ordered blood tests. The I-STAT System uses a simple, one-step
procedure, and the results can be easily linked by infrared
transmission to a health care provider's information system.
The Medical Instruments and Appliances group has performed very
well over the past few months and STAT is poised to become one
of the premier companies in the industry.  While there are a
number of positive fundamental aspects in this company, the
technical strength of the recent rally suggests there may be
additional upside potential in the future of the stock and a
cost basis near historical support will suit us just fine.

NOV 20.00 TAQ WD LB=0.69 OI=0 CB=19.31 DE=28 MR=10.6%

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The Market Recovery Continues...

Friday, October 20

Stocks moved higher today as bargain hunters emerged after a new
batch of positive earnings reports.  The Nasdaq ended 64 points
higher at 3,483 and the Dow was up 83 points at 10,226.  The S&P
500 index finished up 8 points at 1,396.  Trading volume on the
NYSE reached 1.19 billion shares, with advances beating declines
1,595 to 1,230.  Activity on the Nasdaq was heavy at 2.12 billion
shares exchanged, with advances beating declines 2,357 to 1,594.
In the bond market, the 30-year Treasury rose 12/32, pushing its
yield down to 5.73%.

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

Human Genome   HGSI   NOV75P/NOV80P   $1.50   credit  bull-put
Human Genome   HGSI   JAN100C/J105C   $2.38   debit   bull-call
EMC Inc.       EMC    LJAN50C/J110C   $52.00  debit   LEAPS/CCs
Advent         ADVS   NOV80C/NOV40P   $1.12   credit  strangle
Fairfield      FFD    JAN12C/JAN10P   $0.62   debit   synthetic

Today's market volatility provided some excellent opportunities
to participate in our new combination positions.

Portfolio Plays:

The market rally continued Friday as investors gained confidence
in the recent recovery amid strong earnings reports.  Trading was
volatile due to the "double witching" expiration of options on
stocks and stock indexes and both major averages experienced
triple-digit swings.  Honeywell (HON) led the Dow higher, surging
$10 to $46 after United Technologies (UTX) said it has terminated
merger discussions with the company and that Honeywell received an
alternative merger proposal, possibly from General Electric (GE).
Hewlett-Packard (HWP), Merck (MRK), Microsoft (MSFT) and AT&T (T)
were among the leading blue-chip issues.  Semiconductor giant SDL
Inc. (SDLI) led the Nasdaq, rising $50 to $339 after reporting
third-quarter profits that beat consensus estimates by $0.07.
SDLI's merger partner JDS Uniphase (JDSU) also rallied, finishing
up $12 at $102.  Customer analysis software maker E.Piphany (EPNY)
rose $25 to $90 after beating third-quarter earnings estimates and
announcing a bullish outlook for the future.  In addition, several
analysts raised their price targets on the company.  Vitria (VITR)
was another big winner, up $10 to $37 after posting third quarter
profits that beat First Call's estimates.

The Spreads/Combos portfolio enjoyed a number of favorable moves
during the session and this week's broad market rally boosted the
majority of our October positions to a profitable finish.  The
top performers in the technology group were Commerce One (CMRC),
Ballard Power (BLDP), Manugistics (MANU), Qlogic (QLGC), Verisign
(VRSN), and Virata (VRTA).  Market bellwethers have dominated the
recovery and our new bottom-fishing position in Intel (INTC) has
exceeded all expectations.  The downtrodden issue has rallied 20%
since the bull-call debit spread was initiated and the long call
option is over $10 in-the-money.  Applied Micro Circuits (AMCC)
was also one of the leaders this week, but today the issue went
too far after analysts at J.P. Morgan started coverage on the
company with a "buy" rating and a 12-month target price of $265.
The bearish portion of our credit-spread strangle was short at
$200 and those of you that didn't close the position Friday
morning (at a favorable profit) were left with a small loss
at the close of trading.  The unpredictable market activity has
produced a number of great volatility opportunities and our new
positions in Globix (GBIX), Nice Systems (NICE), and SCM Micro
(SCMM) all returned favorable short-term profits.  The recent
Nasdaq-100 (QQQ) straddle also provided excellent profits for
those that traded the position during expiration week.  In the
financial sector, shares of Bear Stearns (BSC) soared to $61.50
amid new strength in brokerage issues and continued speculation
of a potential takeover.  Buyout rumors have boosted activity in
the stock and its options over the past few weeks and Friday was
another big day as traders surmised that a deal would finally be
consummated over the weekend and announced before the market opens
on Monday.  Our one-week bullish diagonal spread yielded a 17%
return and there is additional potential for those of you that
rolled to November options in the short position.  Knight Trading
Group (NITE) was also a popular issue, up almost $3 to $29.38 and
our recent downward adjustment to the NOV-$25 Put may yet produce
a profitable outcome.

Overall, it was a good month for the Spreads/Combos section, and
considering the recent slump in the market, we were happy to end
the expiration period "in the black."  Looking forward, we have a
number of improvements planned for the section and with the new
addition to our staff, we expect to provide a wider variety of
strategies to the OIN's many dedicated readers.  Those of you
with suggestions on how the section can be improved should send
your comments to: Contact Support

                         - NEW PLAYS -
EYE - VISX Incorporated  $23.00   *** Speculation Play! ***

VISX develops products and procedures to improve people's eyesight
with lasers.  The company's principal product, the VISX STAR S2
Laser System (VISX System), is designed to correct the shape of a
person's eyes to reduce or eliminate their need for eyeglasses or
contact lenses.  The VISX System ablates, or removes, submicron
layers of tissue from the surface of the cornea to reshape the eye,
thereby improving vision.  The Food and Drug Administration has
approved the VISX System for use in the treatment of most types of
vision problems including nearsightedness, farsightedness, and
astigmatism.  The company sells VisionKey cards to control the use
of the VISX System and to collect license fees for the use of its

VISX has its eye on the top spot in the field of laser-corrected
vision.  They earn profits primarily through the collection of a
license fee for every completed Lasik procedure.  Several months
ago they reduced their $500 per-eye fee to help increase demand
for the procedure.  The immediate impact hurt the stock, which was
once a Wall Street darling.  However, the demand for the procedure
is now growing at an incredible pace, and it seems everybody that
has undergone the procedure, including myself, loves the outcome.
In addition, the company reported outstanding earnings last week,
beating the Street estimates by a penny.  Of course, fundamentals
can make a great company but they won't guarantee a great stock.
(Review a one year chart of the issue for a great example of that

There is a twist in this play.  The legendary corporate raider
Carl Icahn had accumulated approximately 10% of the outstanding
VISX shares.  The FTC granted him antitrust approval to buy up to
15% of the float back in August, however VISX shareholders adopted
a "poison pill" to stop him.  The company's poison pill prevents
Icahn (or others) from holding more than 10% of the outstanding
shares.  Icahn is currently in close talks with VISX President
and COO concerning strategic options for the company.  History
tells us that Icahn will not rest till he shores up the value of
the company's sagging shares, thus a short-term bullish position
is definitely in order!

PLAY (speculative - bullish/diagonal spread):

BUY  CALL  DEC-20  EYE-LD  OI=434  A=$4.62
SELL CALL  NOV-25  EYE-KE  OI=131  B=$1.25

There are several possible outcomes for this play.  One scenario
would be for the stock to close just under $25 at expiration in
November.  In that case, we would sell the DEC-$22.50 or DEC-$25
call, reducing our cost basis in the long position and creating a
bullish debit spread.   Of course, the issue could simply finish
above our sold strike in November and the play would return a 53%
profit for one month.  There are other, more complex alternatives
and those will be discussed as the play progresses.

HON - Honeywell International  $46.00  *** Takeover Target! ***

Honeywell is a diversified technology and manufacturing company
serving customers worldwide with aerospace products and services,
control technologies for buildings, homes and industry, automotive
products, power generation systems, specialty chemicals, fibers,
plastics and electronic and advanced materials.  Operations are
conducted by strategic business units that have been aggregated
under four reportable segments: Aerospace Solutions, Automation
and Asset Management, Performance Materials and Transportation
and Power Products.  Late last year, AlliedSignal and Honeywell
completed a merger and as a result, the former Honeywell became
a subsidiary of AlliedSignal.  In short, AlliedSignal was renamed
Honeywell International.

Honeywell was in the news late last week as United Technologies
(UTX) made a bid for the company.  The share value soared $10 on
Friday, closing near $46 on heavy volume.  In almost any other
circumstance, this would be a classic "short" opportunity as the
chart pattern is not very strong and the short-term Stochastic is
approaching overbought territory.  However, when significant news
produces the rally, all bets on technical analysis are off.  The
spike in share value increased Honeywell's market cap to almost
$28 billion and considering that United Technologies' offer was
rumored to be somewhere around $40 Billion (and General Electric
upping the ante), the stock could be in for a nice upward ride.

Technically, the issue held up reasonably well (in the mid-30's)
before the merger news became public and it should have little
difficulty remaining in the $40 range.  If it falls below the
sold strike, the position risk is limited to less than $2.  At
the same time, you could simply take assignment of this popular
Dow component (at a discount) and sell covered calls to recover
any losses.

PLAY (speculative - bullish/credit spread):

BUY  PUT  NOV-37.50  HON-WU  OI=250  A=$1.00
SELL PUT  NOV-40.00  HON-WH  OI=79   B=$1.63
INITIAL NET CREDIT TARGET=$0.75-$0.88  ROI(max)=42%

BCHE - Biochem Pharma  $24.50  *** Increased Options Activity! ***

BioChem Pharma is an international biopharmaceutical company
dedicated to the research, development and commercialization of
innovative products for the prevention, detection and treatment
of human diseases, with a focus on the anticancer and other
nti-infective areas.  Its products include 3TC, a nucleoside
analog with a novel heterocyclic surrogate sugar ring, various
lines of vaccines, and diagnostic systems and products.

BCHE has been very active in recent sessions and traders say the
upcoming earnings report is the likely culprit.  Whatever the
reason, the new option interest has created a number of favorable
premium disparities and based on your outlook for the issue, the
opportunities to construct profitable positions are excellent.

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

PLAY (conservative - bullish/calendar spread):

BUY  CALL  APR-30  BQX-DF  OI=40   A=$1.88
SELL CALL  NOV-30  BQX-KF  OI=207  B=$0.38

The strategy is best initiated when the front-month options are
trading at a premium with respect to longer-term volatility.
Most investors prefer to establish these positions at least 3-5
months before the long options expire, to allow the sale of a
number of short-term options.  The basic concept in this type of
spread is selling time value in the call options when they are
overpriced (high implied volatility) and buying it back, if
necessary, when the options return to intrinsic value.  Ideally,
the trader would like to have the stock finish just below the
sold strike when the near-term option expires.  However, when
the short-term position is in-the-money on the last day of the
strike period, you must buy it back so that you don't have to
exercise the long-term options to cover your obligation; that
would defeat the purpose of the strategy.  At the beginning of
each expiration period, you simply sell the next month's call to
further reduce the cost basis of the long position.

HAND - Handspring  $89.31  *** A Big Mover! ***

Handspring is a provider of handheld computers.  The company's
first product, the Visor handheld computer, is a personal
organizer that is enhanced by its Springboard platform, an open
expansion slot.  Since the Visor's introduction, more than 2,500
developers have registered with Handspring's developer program
to receive support in developing modules.  Examples of modules
commercially available or in development include a digital camera,
an MP3 player, a two-way pager, a global positioning system and
content such as books and games.

Handspring is set to capitalize on the emerging wireless market,
producing a unique, hand-held wireless device.  The company has
moved to the forefront of the PDA industry this quarter and the
introduction of its GSM module in mid-September, which enables
voice telephony on the Visor, has made the convergence of data
and wireless voice a reality.  The company has also aggressively
expanded its international exposure in recent months, introducing
the Visor in Europe, Hong Kong, Taiwan and Singapore.  As the
company continues to increase production, the Visor is expected
to be launched in other foreign markets later in the year.

Handspring announced record earnings last week and just like all
the other companies in the small group, their numbers exceeded
analysts' consensus estimates.  However, the stock is now slightly
overbought and a post-announcement consolidation is expected.
Our conservative position offers a great method to participate in
the future movement of the issue with relatively low risk.  Target
a higher spread credit initially, to allow for a brief pullback in
the issue.

PLAY (conservative - bullish/credit spread):

BUY  PUT  NOV-50  HQA-WJ  OI=66  A=$1.43
SELL PUT  NOV-55  HQA-WK  OI=43  B=$2.00
INITIAL NET CREDIT TARGET=$0.68-$0.75  ROI(max)=16%

                   - STRADDLES AND STRANGLES -
BRCM - Broadcom Corporation  $242.19  *** Probability Play! ***

Broadcom Corporation is a provider of highly integrated silicon
solutions that enable broadband digital transmission of voice,
video and data to and throughout the home and within the business
enterprise.  These integrated circuits permit the cost-effective
delivery of high-speed, high-bandwidth networking using existing
communications infrastructures that were not originally designed
for the transmission of broadband digital content.  Using unique
proprietary technologies and advanced design methodologies, the
company designs, develops and supplies integrated circuits for a
number of the most significant broadband communications markets,
including the markets for digital cable set-top boxes, cable
modems, high-speed office networks, home networking, direct
broadcast satellite and terrestrial digital broadcast, and
digital subscriber lines.

BRCM is an excellent candidate in the neutral, premium-selling
category of options trading.  Based on analysis of the historical
option pricing and technical background, this position meets our
fundamental criteria for a potential credit-strangle.  The issue
has good option premiums, a relatively well-defined trading range,
and with the company's quarterly earnings announced last week,
there should be little news to produce additional volatility in
the underlying stock.  The probability of profit from this play
is higher (80%-90%) than other plays in the same strategy based
on historical option pricing.  As with any recommendation, the
position should be carefully evaluated for portfolio suitability
and reviewed with regard to your strategic approach and personal
trading style.  Many of you may favor an aggressive position,
selling options that are closer to the current price of the issue,
to produce a higher initial return.  While that technique may
appear more profitable, it also increases the theoretical risk of
loss.  Only you can know what positions are suitable for your
risk-reward tolerance and portfolio outlook.

PLAY (conservative - neutral/credit strangle):

SELL CALL  NOV-320  YRL-KD  OI=438  B=$2.50
SELL PUT   NOV-185  RDU-WQ  OI=296  B=$2.88
INITIAL NET CREDIT TARGET=$5.50-$5.75  ROI(max)=10%
UPSIDE B/E=$325.50 DOWNSIDE B/E=$179.50


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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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