Option Investor

Daily Newsletter, Tuesday, 10/17/2000

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The Option Investor Newsletter                  Tuesday 10-17-2000
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MARKET WRAP  (view in courier font for table alignment)
        10-17-2000        High      Low     Volume Advance/Decline
DJIA    10089.70 -149.10 10293.90 10026.40 1.17 bln    813/2115
NASDAQ   3213.96 - 76.32  3348.61  3173.68 1.93 bln   1231/2777
S&P 100   711.72 - 13.76   729.41   707.74   totals   2044/4892
S&P 500  1349.97 - 24.65  1380.99  1342.34           29.5%/70.5%
RUS 2000  470.88 - 10.87   483.51   468.59
DJ TRANS 2391.22 - 46.92  2451.95  2384.27
VIX        32.71 +  3.21    33.51    28.53
Put/Call Ratio       .89

Trying to find a bottom, again!

The markets tried to rally at the open today but buyers went on
strike after yesterday's wimpy performance. With no follow through
from Friday's huge gains, buyers pulled in their horns and decided
to wait for a few earnings results before committing further funds.
After the flood of pre-earnings warnings the sentiment is negative
and traders have adopted a "show me" stance for those companies
announcing this week. The results have been good so far but the
announcement after the close by IBM and INTC will set the tone
for trading tomorrow.

After struggling most of the day in advance of the IBM/INTC
earnings tonight the markets managed to close off their lows
but not by far. The Nasdaq dropped -117 at the low of the day
but managed to suck it up to only -76. The Dow dropped to a low
of 10026 around 2:PM and was only able to squeak out a 10090
close. Traders said it was not a flood of sellers just no buyers.
There were no bids in quantity. Where normally there are buyers
in large quantity a dollar or two under the current market bids
there was no sub floor today. Fortunately the sellers did not come
in force or we could have gotten a retest sooner than expected.

The flood of earnings announcements have been very positive with
most beating the estimates or at least meeting the numbers. If
this continues then investors will start feeling more confident
and start buying again. Still the earnings estimates for the
fourth quarter are putting a cloud over the market. Last year
earnings for the fourth quarter came in at 31%. On October 2nd
the estimates for this year were +29% and had been trimmed due
to the easing economy. As of today analyst consensus estimates
are only +25% because of the pre-warnings and guidance from
companies already announced. This bleeding of profits is slowly
turning into a hemorrhage for the market.

The market movers for tomorrow include Intel which beat reduced
estimates of $.38 with $.41 but then warned that fourth quarter
revenues would only increase +4% to +8%. Last year the number
was +11% so that was effectively a lower guidance. Intel traded
higher and lower after hours but stayed pretty much even with the
close. Intel at $35 was called a compelling buy in an after hour
interview with Ashok Kumar who was previously negative on the
stock. This implied buy signal helped hold the price in after

IBM, which will cause the biggest impact to the Dow, announced
results that only met analyst's estimates of $1.08 and lower
revenue numbers than expected. They also scaled back the outlook
going forward and that combination was the kiss of death. IBM
dropped -$11 in after hours trading. This will equate to more
than -50 Dow points at the open.

Other earnings bombs today included RFMD which announced earnings
in line with analyst estimates but then warned that results would
slow in this quarter. RFMD dropped -$10.75 to $15.56 in after hours.
CMTN announced earnings that beat estimates but then warned that
the fourth quarter would only be in the range of +.04 to +.06 and
that was far less than the $.28 that analysts were expecting.
CMTN dropped -18.50 to $12 in after hours. That is a -60% drop!
TER dropped -$10 after warning that the fourth quarter would miss
by a wide margin due to a slowing semiconductor sector. That was
the wrong thing to say. That rocked the semiconductor equipment
manufacturers like AMAT (-4.25) and rippled through the PC sector
as well. A downgrade of Micron by a major analyst at the open
did not help. AMAT, MU, KLAC, NVLS all lost ground.

ITWO announced after the close as well and beat estimates
by doubling revenue. They also announced a 2:1 split but with the
other earnings bombs coloring sentiment for tomorrow investors
took profits in after hours and knocked -$10.50 off the price.

Internet stocks have gone from the rock star like idols of the
investing world to leper status. Telling somebody you have YHOO
or AMZN in your portfolio is like admitting to owning XXX rated
websites. The previous superstars are being whacked daily by
investors listening to the "advertising model is dead" mantra
being broadcast by the conventional media. It must be payback
time. After being ignored as advertisers rushed from conventional
media onto the Internet these same outlets are now welcoming
advertisers back and rubbing it in big time. YHOO dropped another
-6.31 today to a 52 week low of $48.88. Yep, that is a loss of
-$109 billion in market cap in the last four weeks. AOL, who
announces earnings tomorrow was dropped for a -$9 loss as analysts
worried out loud that advertising could be a problem for them
also even though the bulk of their earnings came from subscriptions.
Guilty by association, a new 52 week low for AOL as well.

The selling today was broad based but still orderly. The advance
decline ratios indicate to me that institutions are still selling
and it is not just retail investors. The decliners beat advancers
on the NYSE 3:1 and 2:1 on the Nasdaq. The number of new lows
on the S&P were still drastic at 211 which is over 40% of that
index. This looks like to me that the funds are still selling
losers in their yearly tax loss selling binge. If this is the
case then we could see the Thursday lows tested again soon. Also,
many funds have technical loss limits that trigger automatic sells
when stocks break those limits. As each fund sells a specific stock
it drives the price lower and that triggers sells from other funds
and that continues to fuel the death spiral across the board.

If the selling continues much longer the margin call problem will
also add to this downward spiral. The margin debt as reported by
TrimTabs.com is still over $250 billion, only -10% off its March
high. That is actually up +37% from October of last year. Think
about that for a minute. This means investors are much more
leveraged and therefore more in danger than they were last year
and that positive sentiment by retail investors is a very bearish
contrarian indicator. There are likely many hundreds of thousands
of investors having another Maalox moment tonight. If those same
investors have doubled up on Internet stocks for instance since
they always go back up, they may be in for an unpleasant surprise.

If total bearishness is required before the market can rally then
we should be really close. The pessimism is so thick you can't
breathe. Now before you think I have gone off the deep end let's
review historical facts. It is always darkest before the dawn and
green indicators on my charts have all but disappeared. This is
a good thing. Very few successful rallies evolve from a downward
spike resulting in a V bottom. Most successful rallies come after
a double bottom. That is where the indexes retest those original
lows several days later. The Dow came very close to the 10015
from last Thursday today with 10026 but the Nasdaq has about -150
points to drop to retest the 3056 low. I would be very surprised
to see Nasdaq 3000 broken and I view anything close to that as
a buying opportunity but Dow 10000 is looking very fragile. With
the big IBM drop at the open and six other Dow components with
earnings tomorrow we could be in trouble there. MSFT, BA, IP, UTX,
EK and JPM announce tomorrow. MSFT will be after the close. JPM
should not be a problem and Boeing is expected to beat but IP
and EK could cause a stink. Other notables for tomorrow include

What we are looking for is that retest of those Thursday lows.
With the Middle East problem cooling and oil prices stabilizing
the only thing left to worry about is earnings and maybe an
economic report or two. The CPI is tomorrow as well as Housing
Starts and the rest of the week is clear. What will make or
break this week is the guidance from future earnings reports.
If we can get some positive surprises WITHOUT negative guidance
the market could find a bottom. It wants to find a bottom here.
For every dollar the funds sell they must reinvest that money
soon. What better place to reinvest than 10000/3000. Stocks are
cheap, very cheap. I looked at dozens of charts tonight and there
was not one real stock that looked like it was going lower than
last Thursday's low. Sure there were stocks still dropping but
ATML, SFE, ATHM as examples are now trading in the $10 range and
are not a big factor as far as the market is concerned. I sorted
my watch list by price and of the top 55 highest priced stocks
25 of them posted gains today. Of the bottom 55 only 7 posted
gains. The long term losers are still losing but the higher
priced quality stocks are hanging in there. I started to say small
caps and large caps but I realized that most of the ones on the
loser list had been large caps or at least high flyers. CMGI,
ANAD, AMZN, CLRS, RNWK, LU. All relics of times past and mere
skeletons of their former glory, now trading at $21 or less. The
Internet bubble has burst and like everyone said, it is not pretty.
Still the money that has left these stocks over the last several
months is now mostly sitting on the sidelines and waiting for
the smoke to clear.

The power of that cash was seen last Thursday and that volume
was not even especially significant at 2.07 billion on the Nasdaq.
It is entirely possible that when the dam bursts and this money
finally comes off the sidelines we will have a 3 billion share day.
That will be confirmation. The difference between last year and
this year is outlook. Analysts are dropping estimates for the
fourth quarter instead of increasing them. This is a major
difference but the greed factor is alive and well. A +25% quarter
may not match the 31% from last year but it is way better than the
+12% to +17% "normal" historical growth. Do you think that just
because the estimates for 4Q are +25% that fund managers are going
to buy bonds or put your cash in a money market? Not hardly. In
reality it will increase the race for quality stocks. It will be
a stock pickers market and those stocks will soar. The winners
from 1998 were not the winners in 1999 and few of those will be
winners in 2000. Those winners will emerge over the next several
weeks and we will be all over them. Are you ready to join the party?
Get your party favors ready!

There are still several seats left for the October Workshop
in Denver. When it is over you will be saying I wish I had gone.
Don't wait! http://www.OptionInvestor.com/workshop

Good luck and sell too soon.

Jim Brown

For those who didn't have time to watch the
presidential debate Wednesday night, I've found
this transcript of what was said:


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 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


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:


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.



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. Laurie

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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Here Comes Chicken Little Again!
By Austin Passamonte

The sky is falling. By now we know the drill: nervous traders
hang on every analyst word after announcement. Forget meeting or
beating your numbers... tell us that you expect blow-out profits
and double digit growth in the following quarters far as the eye
can see. Maybe we'll let you live. Say anything even slightly
naughty and we'll take you out to the woodshed where we oil up
the axe & chopping block.

Market bulls are wishing for a bit of political maneuvering from
analysts these days; tell everyone what they want to hear now and
then let the truth get discovered later.

This is not much different from many other October earnings
seasons in memory. Some are forgettable to the bulls but weekly
charts do not lie. History is recorded for posterity.

Negative sentiment isn't dripping any more; we are saturated. If
capitulation is marked by irrational selling then we are close;
the fires are being fanned to melt down our golden idols.

Such is the stuff bull-market runs have been made of. There is
plenty of reason to think this may be different. No end of fear
and gloom in our industry from top to bottom, side to side. We've
seen, heard and read countless valid reasons backed by fact why
our financial world as we know it is about to change.

The bull market is over and we're headed for long periods of
vast, empty darkness.

Very well might be and we won't dispute that possibility, but
pardon us if we've heard it all before.

Anyone just entering the grand game of Wall Street might not
recall 1987 and 1988. They might not recall a few years later
when war broke out in the Middle East. That's O.K., flip back on
your bar charts and see what the markets did from there.

Don't bother looking at many of the market's current darlings;
they didn't exist back then. Nor do future stalwarts of the
decade beyond. The players change but the game remains the same.
Markets move up and down in cyclic rhythms regardless what anyone
hopes, fears or predicts.

Why don't we talk about technical indicators here right now?
Which ones work? Yesterday's support & resistance are merely
speed bumps today. No rational behavior is present in the short

Therefore, we back off our view to the long term. Widen our
vision. What do we see?

A stable to strong economy, a Fed Chairman who's overseen an
incredible bull run and a market beginning to look relatively
cheap. Does danger lie ahead? Certainly! We could easily crash to
new market lows beginning tomorrow.

That strikes fear in the heart of stock players. Strikes fear in
the heart of "call buyers". Option traders within OIN only see
opportunity in each market direction. We personally watched OEX
and SPX put options appreciate 300+ and 400+% today under five
hours time. To option traders, that spells opportunity!

Market Sentiment still believes this market will enjoy strong
rallies in the near-term. Conditions are ripe for their
formation. Should the rallies decide to run straight south
instead, that's why we trade options; for the privilege of being
able to profit wildly in both directions!

Tag along in each direction with calls and puts where needed and
thumb your nose at bulls & bears. It's your divine right as an
option trader to do so!


Tuesday 10/17 close; 32.71

30-yr Bonds
Tuesday 10/17 close; 5.76%

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)
750 - 735               13,233       10,535         1.26
730 - 715               10,586       16,527          .64

OEX close: 711.72

710 - 695                 1,406       19,228        13.68
690 - 675                    32        9,793       306.03***

Maximum calls: 740/5,325
Maximum puts : 700/12,365

Moving Averages
 10 DMA  735
 20 DMA  751
 50 DMA  787
200 DMA  780

NASDAQ 100 Index (NDX/QQQ)
 87 - 85                20,933        20,747         1.0
 84 - 82                36,994        20,961         1.76
 81 - 79                48,448        28,040         1.73

QQQ(NDX)close: 78.25

 77 - 75                11,157        24,153         2.16
 74 - 72                 7,837        14,238         1.82
 71 - 69                 1,512         7,920         5.24

Maximum calls: 78/31,568
Maximum puts : 80/14,646
Moving Averages
 10 DMA 80
 20 DMA 85
 50 DMA 91
200 DMA 94

S&P 500 (SPX)
1425                   14,983        14,650          1.02
1400                    7,271        10,890           .67
1375                    6,998        12,504           .56

SPX close: 1349.97

1325                     7,468        12,221         8.32
1300                     3,454        25,015         7.24
1275                       158         4,103        25.96***

Maximum calls: 1425/14,983
Maximum puts : 1300/25,015

Moving Averages
 10 DMA 1386
 20 DMA 1413
 50 DMA 1459
200 DMA 1444


CBOT Commitment Of Traders Report: Friday 10/13
Weekly 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              +804                   -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 and Thursday?

Next Fridays 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
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 - Tuesday, 10/17/2000

                                  Key Benchmarks
Broad Market           Last     Support/Resistance   Alert

DOW   Industrials      10,089      10,000  10,600
SPX   S&P 500           1,349       1,325   1,400
COMPX NASD Composite    3,213       3,040   3,500
OEX   S&P 100             711         700     750
RUT   Russell 2000        470         460     500
NDX   NASD 100          3,172       3,000   3,350
MSH   High Tech           868         825     935

BTK   Biotech             707         630     740
XCI   Hardware          1,174       1,120   1,310
GSO.X Software            388         355     435
SOX   Semiconductor       648         620     800     **
NWX   Networking        1,093       1,010   1,170
INX   Internet            319         310     420     **

BIX   Banking             539         525     600
XBD   Brokerage           584         555     640
IUX   Insurance           736         720     790

RLX   Retail              728         695     810
DRG   Drug                421         370     425
HCX   Healthcare          870         825     875
XAL   Airline             129         126     140     **
OIX   Oil & Gas           313         308     328     **

The SOX, INX, XAL and OIX triggered support levels in the past
two sessions.  The XAL triggered our alert at 129, but managed to
finish fractionally higher.  Watch the Dow here.  If the bears
are able to break the 10,000 level, there could be trouble.
Lowering support (SOX, INX, XAL, OIX). Lowering resistance (SOX,


Can The Bulls Come Out And Play Yet?
By Lee Lowell

Last week was hard to watch.  I sometimes wonder if I'm doing
myself any good by sitting in front of the computer all day.
While I was still a floor trader on the NYMEX, a good portion of
my trades were true "day trades", where I was in and out of the
positions by the end of the trading day whether they were wins or
losses.  As time went on and the bigger positions I held, it was
not always possible to go home with a clean slate but I would try
to be as delta and gamma neutral as possible.  But most of the
time I tried to come home with an empty portfolio.  The hardest
part about being an at-home trader is that you can't trade like a
floor trader.  You can't just get in and out with that kind of
speed, and you're not privy to seeing every order that comes down
the pipe from other brokerage houses.  Plus, the commissions costs
would eat you alive.

I know most of you are thinking that you've never been a floor
trader so you can't make the comparison.  Just suffice it to say
that being an off-floor trader really makes you become a true
position trader.  You need to become familiar with strategies that
will work out over time.  You need to know which plays to make in
up, down and sideways markets.  Education is the key.  So if
that's the case, then why do I still sit in front of the computer
all day?  Because I love the game, man!  Once a trader, always a
trader.  As long as you cover yourself and don't blow it all on
one play, and make rational and thought-out decisions, you can
remain in the trading world for however long it takes.

Anyways...back to my original statement.  Last week was hard to
watch, but I'm getting that feeling that we may be very close to
turning the corner.  Everything's just getting hammered.  I'm so
glad that I finally was able to control my urge to keep buying
more on every dip.  Now I'm waiting for the upturn to begin in
earnest before I use all my available cash.  Patience really helps
in this case.  But as long as we're still not sure which way the
next move is, let's make sure we know how to handle the present

Have you been watching volatility?  Not only has the VIX hit its
highest point since March/April, but the implied volatility of
many individual stocks have skyrocketed also.  As noted many times
in various OI articles, whenever the fear is rampant on Wall
Street, volatility soars.  And it usually happens when we have
downmoves.  This is because the downmoves are always fast and
furious and the rationale of many traders gets thrown out the
window.  Active put buying is the catalyst that usually drives up
the VIX and other stock's individual volatilities.  As a
sentiment indicator, the put/call ratio can also give us clues to
when the market might turn around.  Used in a contrarian fashion,
when the put/call ratio reaches extremes and everyone is loaded up
with puts, this is when we see a turnaround shortly thereafter.

So let's talk about how to use this high-volatility environment.
As we know, this is not the time to be buying individual options
unless the volatility on that stock is at low levels.  At this
point, I'm beginning to look at more bullish strategies with a
conservative edge.  This means selling covered calls that are
slightly in-the-money.  Not only does selling ITM calls give me
a little more downside protection, but the higher volatility
allows me to get more bang for my buck.  On a certain stock, I
could sell a covered call for 4 points, but 3 weeks ago when
volatility was much lower, that same call was only trading for
about 2.5 points, even with more time left! (all else being
equal).  If you're feeling slightly more bullish, then you can
still sell ATM or OTM calls.  They won't give you as much
downside protection but your upside potential is higher.

On the flipside, we can sell puts or put credit spreads.  Selling
naked puts is a risky strategy of course, but as long as you know
the consequences, then it could be a good play.  Not only will
the higher volatility allow you to sell further OTM puts than
usual, but if you're aiming to get assigned the shares, your
cost basis will be even lower.  For example, 2 weeks ago on a
random stock, you could've sold a put that was 20 points OTM for
$5, but now with the increased volatility, that same put is worth
$8 (all else being equal).  To see the effects of increased
volatility of your options, plug the numbers into your options
calculator.  Just bump up the volatility estimate and leave all
the other inputs the same.  You'll see how the premiums will
increase.  If you're not willing to take the unlimited risk that
naked puts offer, then go with selling put spreads.  Your risk is
limited so you know what the potential loss could be.  Once
again, the higher volatility allows you to sell further OTM put
spreads which increases the chance of them expiring worthless.

High volatility doesn't necessarily mean that buying options
are off limits.  Just don't buy individual options unless you're
extremely psychic and you know for sure which way the stock is
going to move.  Buy call spreads or put spreads.  The high
volatility of one strike will be offset by the high volatility
of the other strike.  Check the skew too.  You may be able to
get the short side of the spread off at a more favorable
volatility level.  This is why I suggest getting a data feed
vendor that can give you the option's "bid implied volatility"
and its "ask implied volatility."  This way you are sure to know
exactly what volatility level you are buying and what level of
volatility you are selling.  It's not enough to just look at
the "implied volatility" column within the option chain because
that IV column is based on the last trade of the option.  Well,
that option could've traded days ago, so you're not getting up-
to-date information.  Just like when you want to buy the stock
outright, it never makes sense to look at the last trade because
it's already old hat.  You need to see the stock's actual bid/ask
to know what level you really can do the trade for.

Don't forget to look into you bag of other strategies to use in
these situations.  Backspreads are a great strategy to use when
bullish and there is a reverse skew - meaning the lower strikes
have higher implied volatilities than the higher strikes.  Also,
calendar spreads are a great way to take advantage of skewing
between different expiration months.  When volatility explodes,
it's usually the front-month options that see the majority of it,
leaving the further-out expiration months with less of a rise in
volatility.  This lets you sell front month options that will
decay quickly while being long slower-decaying further-out options.
It just takes a little education and trial and error to see how
all these strategies play out.  Give 'em a try.

Good luck.


Exit Strategies
By Scott Martindale

This uncertain market climate makes it very important to protect
profits and minimize losses.  So, I'm writing this article for
two reasons.  First, I'd like to give you readers some ideas to
consider for protecting your portfolios.  And second, I'm not
doing a great job of it myself, so I need to reinforce in my own
mind these strategies.

If you're like me, you've held some stock positions too long - to
the point that there's no use in selling now if you still like
the company long-term.  And you've surely held options positions
too long.  Exit strategies do not apply only to long/short stock
positions.  They apply to every kind of play, including LEAPs,
naked puts & calls, long puts & calls, spreads, straddles, etc.
Even if the market bottoms nicely and we start a new 6-month
bull run, not everything will go up - and certainly nothing will go
straight up.  You must use a strategy for protecting your gains
and minimizing losses.

An effective exit strategy addresses a number of issues:

1. Eliminates the need for subjective decisions under duress

2. Prevents you from selling so soon (within a "normal" range of
volatility) that you deprive yourself of the opportunity to let
your profits run

3. Keeps you from giving back your profit or letting it run into
a loss

To make the really big gains, either short or long term, you
usually have to ride out some corrections, and that's never
pleasant.  Emotions can get the best of you.  A mechanical exit
strategy is your best bet.  But what works?

An envelope channel can be useful. You might have a rule that a
stock should be sold or shorted, a put bought, or a call sold, on
the first down day after closing above the envelope.  However,
even volatile stocks generally don't rise above their uptrending
envelopes very often. But when a stock has raced up so quickly
that the pace is unsustainable, there is no point in letting your
profit run any further.

Technical cross-overs, support or resistance penetrations, fixed
percentage pullbacks, or percentage pullbacks versus a benchmark
are examples of general exit strategies.

Simple fixed percentage rules are the easiest to adhere to.  For
example, you might set a profit target (like 50 or 100%) and sell
when you hit it.  Don't even worry about what you missed out on.
However, if you're down by a fixed percentage, such as 25% or 50%
on an option or 15% on a stock, close the position.  Once you are
up by 10% on a stock or 25% on an option play, try very hard not
to let it turn into a loss.

Stocks that outperform the market in multiple time periods and
have nice, smooth, uptrending chart patterns tend to keep moving
up.  Shallow corrections are important because it tells you that
there are people who want to buy the stock on any pullback.  An
effective strategy is a simple trendline or moving average.  For
example, if you put a 40-day moving average under a strong stock,
you should see that it tends to bounce off that line.  An easy
system is to sell a long stock or call position (or buy back a
naked put) when the stock closes below its simple 40-day moving

Last week I talked about various technical indicators, such as
Volume, Accumulation, Money Flow, Stochastics, MACD, RSMA,
Bollinger Bands, and RSI.  Some of these can indicate in advance
that an exit signal might be imminent, while others can provide
the actual exit signal.

For example, when the Stochastics crosses up through the 80% line
or when RSI crosses through the 70% line, price is generally in
an overbought position.  For both Stochastics and RSI, the
shorter the time frame the more short-term signals you get, which
is generally desirable for front-month call plays.

Exit signals for long stock or call positions are produced when:

1. An overbought stochastic moves down through its MA

2. The MACD falls below its signal line

3. A divergence of RSMA below the moving average occurs

4. The price drops back down inside the upper Bollinger Band
after previously moving outside of it.

It's useful to choose one or more of these as objective signals,
and choose the time frame that best fits your trading style.
Short-term plays require shorter time frames, whether you prefer
6-month or 10-minute plays.  But keep in mind that sensitivity
gets you out sooner, perhaps sooner than you really want. It may
give you too many signals.  One of the objectives of RSMA is to
give you a better chance of letting your profits run.  If a stock
is dropping mainly because the market itself is dropping, there
is less chance of an exit signal than if it were dropping while
the market was rising.  This is fine for a long-term stock play,
but for a call play, your premium is still eroding.

Also, here are a few price-volume trading guidelines that you
might consider:

1. Increasing volume on increasing price means buying pressure is
accelerating and price should continue up.

2. Increasing volume on decreasing price means selling pressure
is accelerating and price should fall.

3. Decreasing volume on increasing price means price is leveling
off and probably will reverse. This is the most reliable of all
the relationships, constituting a "failed rally." - Exit signal

4. Decreasing volume on decreasing price means the pullback is
leveling off. In the midst of a general uptrend, pullbacks are
expected and desirable. Expect a price reversal to the upside.

5. Higher than normal volume at price highs means that traders
are selling into strength, creating a short-term price ceiling.
When stocks increase their volume on short-term rallies, they
tend to exhaust themselves and pull back on lightening volume
before they can proceed up again. This is a short-term or intra-
day exit signal, but may not be an exit for a medium or longer-
term trend.

6. Higher than normal volume at price lows means that traders are
buying on weakness, possibly creating price support for a short-
term or intra-day bounce. But longer-term, unless some external
event dictates high demand, the final bottom will more likely be
a low volume test.

The short-term investor, including most of us option traders, is
actually trying to take advantage of price discrepancies in a
longer-term trend.  Therefore, we must watch for areas of
"congestion" serving as support or resistance, which can delay or
even stop breakout moves (up or down).  Compare open interest in
calls vs. puts at a given strike to find imbalances.  For
example, if there is quite a bit more OI of calls at a strike
price that the stock is approaching, it might serve as resistance
and provide a possible exit signal.

I have covered a lot of different approaches to exit strategies.
Experiment with them.  But be sure to settle on something,
because the standard amateur practice of going with your gut is
not an effective long-term trading strategy in these uncertain


Watching The P/E Ratios
By Mary Redmond

It is important to note that the price/earnings ratio of the
S&P 500 index has decreased from 26 in March to its current
level of 23.  This one of the reasons why many market strategists
are stating that the market is undervalued.

We can look at the price/earnings ratio of the S&P 500 over
a longer period of time to get an understanding of how stocks
have been valued in different periods.  For example, in 1990
the P/E of the S&P 500 ranged from 12.7 to 15.9, with an
average of 14.3.  In 1998, the P/E ranged from 21.3 to 26.3,
averaging about 23.  It is not unrealistic to value most
companies at a higher multiple now than a decade ago.  This is
because many structural and fundamental changes in the U.S.
economy and businesses have occurred in recent years.  In
addition, the productivity of American workers has increased
dramatically over the last several years.  Also, over the last
several years the S&P 500 has added many more companies with a
higher growth rate than they used to include.  The average return
on equity of the S&P 500 companies was 10% in 1990.  Today's
return on equity is approximately 20%.

Some analysts feel that a company should trade at a P/E ratio
equal to its earnings growth rate.  For example, if a company's
earnings are growing at 25% annually then the P/E should be 25.
If it is over 25, the stock is considered to be overvalued and
vice versa.

However, the price/earnings ratio alone is often insufficient
information to consider when valuing a company.  One of the most
important fundamental factors to consider is the rate of return
on shareholder's equity, and the growth level of the shareholders
equity in relation to the market capitalization.

For example, why would anyone buy Juniper with a P/E ratio of
over 954?  Because Juniper's shareholders' equity grew from
approximately $44 mln in 1997 to over $457 mln in 1999.
In addition, many analysts talk about Juniper in comparison to
Cisco, which is a company worth $383 bln in market value.
Investors are willing to pay a premium for a $76 bln company
which they think will be a $383 bln company someday.

We also need to consider another factor.  Equity mutual funds now
take in approximately as much money on a weekly basis as they did
on a yearly basis in 1980.  There are approximately 100 times more
investors in the stock market now than there were a decade ago.
Money flows are more powerful and more significant now.  Years ago,
companies were primarily valued on a cash flow basis.  Nowadays,
fundamentals can be ignored if market participants dislike a
company.  In this investing period, volatility is more severe and
pronounced due to the power of money flows into and out of
securities based on the emotions of market participants.

As earnings season progresses, many traders may buy calls in
anticipation of earnings runs.  Most of the time, companies
will sell off after their earnings are reported unless they
report numbers which are widely disparate from the analysts'

It is important to recognize that the analysts' predictions of
earnings are usually more precise with larger, well established
companies which have been public for many years.  For example,
the estimates of Cisco's earnings have usually been accurate
to within one cent for the last several quarters.  When a
company has been public for a long time, the analysts often
become as almost as familiar with the management team as they
are with their family members.  Analysts may be more conservative
with companies which were brought public very recently and are
growing their earnings at a very fast rate.  Often, these
stocks are the ones which can report earnings widely disparate
from the analysts' predictions, and rally after earnings are
reported.  The analysts may be more conservative when they are
not as comfortable with the company's history of execution.

Other factors are important when looking at a company's history
in terms of deciding when to trade.  For example, it is usually
a sign of technical weakness when a company falls below the
200-DMA.  However, we may take exception to this rule in certain
cases.  For example, Sycamore has only been public for about a
year.  If SCMR dropped below the 200-DMA, it might not be as
indicative of weakness as it would with a stock like Lucent.

We want to try to identify as many trend lines as possible when
trading.  The current market environment is worrisome because
it looks like the two year trend line of the S&P 500 has
been violated.  It looks like the train went off the tracks and
has to get back on.  We may need to wait until this primary
trend line is re-established before investors feel completely
comfortable investing at previous levels.

We want to consider the last time the S&P 500 broke down
from its primary trend line in the last several years.  This
was in the summer of 1998.  There were many crises occurring
which scared investors out of the market and threatened our
economic stability, including the Asian currency devaluation,
the Russian default, and the collapse of Long Term Capital.
In retrospect, these issues seem worse than our present
situation except in one way.  The Nasdaq had not increased
to the lofty levels we saw earlier in 2000.  The severe
correction which occurred in technology and internet stocks
this spring has impacted our economy in ways many investors
may not realize.  The failure of many developmental stage
internet companies may be one of the reasons high yield
debt rates are so high, and the IPO market is so tight.
These issues are making it very difficult for small company
stocks to rally.

You could make a case for the fact that the Nasdaq has yet
to find a real long term trend line.  The Nasdaq always seems
to get ahead of itself, make steep moves up, and run out of
breath.  We have to consider that 10 years ago the Nasdaq
was considered by many to be an irrelevant index consisting
largely of risky start-up companies.

Ciena is an example of a company which has a strong upward
trending trading pattern.  It has shown amazing resilience
even in the market correction over the last month.  You can
often benefit from drawing key support lines on a chart.  They
identify levels the stock at which a break to the downside would
be in violation of the primary trend line.  Often, these points
correlate to high levels of outstanding interest in puts below
the stock price or calls above the stock price.

Sunday's article had an error.  The fund flows for 1994
were $75.4 billion.  In 1995, they were $116.5 billion, and
in 1997 they were $189.6 billion.

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Index       Last    Mon     Tue    Week
Dow     10089.71  46.62 -149.09 -102.47
Nasdaq   3213.96 -26.49  -76.32 -102.81
$OEX      711.72  -3.53  -13.76  -17.29
$SPX     1349.97   0.45  -24.65  -24.20
$RUT      470.88   1.36  -10.87   -9.51
$TRAN    2391.22   7.96  -46.92  -38.96
$VIX       32.71  -1.48    3.21    1.73


VRTX       78.88   3.75    4.88    8.63  New, aggressive drug play
EMLX      134.56  -0.31    5.19    4.88  Dropped, earnings Thur
BRCD      244.44   8.88   -4.06    4.81  Strong sector and stock
GLW        97.00   5.44   -1.31    4.13  Restricted by the NASDAQ
SEBL      102.81   4.75   -0.81    3.94  Holding strong above $100
RSAS       55.00   0.31    2.75    3.06  New, investors love EPS
CIEN      130.00   7.28   -5.16    2.13  Trading near all-time high
LLY        89.13   2.81   -0.69    2.13  Droppped, earnings Thur
MRK        78.19   0.69    1.31    2.00  Close to new 52-week high
SUNW      111.38   3.56   -3.19    0.38  Dropped, earnings tomorrow
AKAM       49.13   3.88   -3.75    0.13  Dropped, earnings tomorrow
NT         64.00   2.00   -3.44   -1.44  Pressured by NASDAQ bears
SCMR       79.00  -0.34   -6.13   -6.47  Nervousness in Tech stocks


CREE       76.00  -2.44   -9.19  -11.63  New, market is confused
CRA        58.94  -2.81   -4.56   -7.38  CRA still sliding
NVDA       59.00  -1.50   -4.63   -6.13  New, sales slowing
JPM       137.63  -0.13   -5.38   -5.50  Dropped, earnings tomorrow
CPTH       47.38  -0.94   -3.69   -4.63  Dropped, earnings Thur
INKT       80.81   2.88   -4.31   -1.44  Thankful for resistance
CPN        83.75   1.63   -1.88   -0.25  On the brink of breakdown
DNA       149.38  12.13    2.63   14.75  Dropped, biotech rebound

When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


SUNW $111.38 -3.19 (+0.38) One thing about the sun, it doesn't
shine every day.  Neither does SUNW.  Not that it was any fault of
the stock, just an overall pending earnings gloom in the markets.
A ray of hope was offered today on our play however, as the 20-dma
ended up supporting SUNW, and we got a bullish tail on the
candlestick indicating an underlying optimism.  Of course, most of
SUNW's resilience to the current market can be attributed to
tomorrow's earnings announcement, confirmed after the market close.
Watch for a run into the announcement, however, consider exiting
existing positions before tomorrow afternoon in order to avoid a
post announcement dip.  Current call holders could look to sell
into any strength offered into the earnings announcement tomorrow.

AKAM $49.13 -3.75 (+0.13) Did you catch the bounce?  We hope
so, as AKAM proved to be a profitable play for OI Investors,
reaching a high of $58.50 on Monday.  A majority of the
momentum from Friday into this week occurred in anticipation of
the earnings announcement tomorrow.  Today, AKAM started higher
out of the gate, but quickly sold off on continued market
weakness.  Intraday, AKAM found support at the 20-dma near $49,
but due to our cardinal rule to never hold over earnings, we will
exit this play with the profits offered.  Traders still in the
play could any strength offered to exit positions.

LLY $89.13 -0.69 (+2.13) While LLY has been a slow mover compared
to the more volatile high-tech stocks we usually like to play, it
has also been a steady winner.  With many of our favorite Tech
stocks taking it on the chin lately, LLY has provided us with a
safe place to make some money.  LLY continued to head higher on
Monday gaining $2.81 or 3.23%, though it did encounter resistance
at $90.  Today, that resistance level held up, as LLY gave back
some of yesterday's gains.  It is interesting to note that
trading volume in Merrill Lynch's Pharmaceutical HOLDR (PPH) has
increased over 5 fold recently and is about to challenge its
all-time highs.  While we would love to continue the play, LLY
reports earnings on Thursday so instead, we will take our profits
and keep an eye on it for future opportunities.

EMLX $134.56 +5.19 (+4.88) As stocks in the Technology sector
continue to suffer on earnings concerns and analyst downgrades,
EMLX is a rare bright spot.  Yesterday saw our play give back a
tiny portion of Friday's stellar gains, and today buyers pushed
the stock to its highest close since late March.  Lest you get
the idea that it was just a lack of selling, volume confirmed
the positive move with 50% more shares than the daily average
changing hands today.  That is a powerful argument for the
strength of EMLX as earnings approach.  The company is set to
report its numbers on Thursday after the close, so now you know
why our play moves to the drop list tonight.  We never recommend
holding plays over an earnings announcement, and that rule is
even more important in this volatile market.  We don't recommend
initiating new positions at this point.  Tighten up your stops
to protect your profits and then use any further gains as an
opportunity to capture a little more profit before Thursday's


CPTH $47.38 -3.69 (-4.63) Negative sentiment in the Internet
sector continues to drag CPTH lower, with leaders AOL, AMZN, YHOO
and parent company CMGI making 52-week lows.  Investors who once
ignored losses in the EPS column in favor of revenue growth are
now taking a closer look and not liking what they see.  Growth
prospects are being seriously questioned and business models are
being challenged.  These factors have all contributed to CPTH
being a highly successful put play.  Alas, all good things must
come to an end and as CPTH is set to report earnings on Thursday,
we are sadly ending the play.  A weak attempt to rally on Monday
morning was harshly denied, giving us an entry for the one last
play we were looking for.  Thank you CPTH!

JPM $137.63 -5.38 (-5.50) The weekend did little to change the
fundamental picture as fears of a hard landing in the economy,
deteriorating credit quality in the corporate bond market and a
slumping stock market continue to weigh on financial stocks.  On
Monday, JPM had a day of indecision as it closed slightly down
on average volume, after encountering resistance at $145-146.
Today, that level provided resistance yet again as the
stock broke below $140 support to close down 3.76% on low volume.
While we would love to keep the play, letting our already
substantial profits run, JPM reports earnings tomorrow after the
bell so with that, we are taking our gains off the table.

DNA $149.38 +2.63 (+14.75) As though waiting for us to recommend
puts before moving, DNA responded by gapping up at the open
yesterday and continuing to rise all the way into today's close.
Strength in both the Biotech and Drug sectors has allowed our
play to continue to shake off weakness in the broader markets,
as it appears to have put in a solid bottom near $130.  The
buying volume continues to be strong, and towards the end of the
day, DNA managed to poke through the $148 resistance level.
Stochastics gave a solid buy signal on the daily chart today,
and given that we have yet to get an entry signal for buying
puts, this looks like a good time to remove it from the list.

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The Option Investor Newsletter                  Tuesday 10-17-2000
Copyright 2000, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

To view this email newsletter in HTML format with embedded
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SEBL $102.81 -0.81 (+3.94) SEBL started the week off with a bang
despite the toil and trouble in the broader Tech sector.  The
stock shot above $100 early yesterday morning, and hasn't fallen
back below that level since.  In fact, SEBL bounced off exactly
$100 today during the NASDAQ meltdown.  Going forward, use a
bounce off the $100 level as entry into new positions as the
risk to reward remains favorable.  However, consider setting a
stop to limit losses in case the $100 support level does fail.
More conservative traders could enter new SEBL positions if the
shares rally above the $104 level on increased volume.  SEBL had
a hard time clearing $104 today, which could be a pivotal level
going forward.  Make sure to confirm direction in the NASDAQ
before buying into strength.  The confusion around earnings has
been settled.  SEBL will report its third-quarter results on
October 24th.

MRK $78.19 +1.31 (+2.00) MRK has benefited from two distinct
events early this week.  There's no denying the fact the
Pharmaceutical sector would rally with a Republican government.
As such, MRK has been steadily climbing as the Republican
presidential candidate continues to climb in the polls.  Although
it's hard to game, we need to be cognizant of the political
impact on our play.  Along with politics, MRK continues to advance
as investors seek solace in the Drug stocks while Tech tumbles.
A continued sell-off in the NASDAQ could continue to carry MRK
higher with flight-to-quality buying.  The two aforementioned
events have positioned MRK on the brink of breaking out above $80
and past its 52-week high at $81.13.  The more conservative
traders might consider entering new positions if MRK rallies on
strong volume above $80.  The aggressive traders could enter new
positions at current levels if MRK advances early tomorrow;
confirm sector direction by monitoring MRK's competitors LLY,
SGP, and PFE.  If, however, the Drug sector pulls back tomorrow,
aggressive traders might consider entering new positions if MRK
bounces off support at $77.50 or lower near $77.

CIEN $130.00 -5.13 (+2.13) CIEN traced its second consecutive
new 52-week high today despite the continued weakness in the
broader Tech sector.  Shares gapped higher this morning after
Warburg Dillon Read reiterated its Buy rating on CIEN and
raised its price target from $108 to $175.  Warburg commented
that CIEN remains the leader in next generation optical
systems.  In spite of the bullish comments, the Tech bears got
to CIEN today and closed the morning gap to erase the stock's
gains.  CIEN is acting like it wants to go higher, plus,
continues to trace higher lows.  CIEN's strength bodes well,
if we could just get the NASDAQ to cooperate!  If CIEN's
pattern of relatively higher lows holds, aggressive traders
might find entry near current levels, or lower near the $120
level.  A more conservative approach might be to wait for
CIEN to build momentum and target shoot for entries if the
stock rallies above $135 on strong volume.  Positive
direction in the NASDAQ will certainly be conducive to our
play and might be worth waiting for.

GLW $97.00 -1.31 (+4.13) Turmoil in the Tech sector continues
to prevent our GLW play from reaching its potential.  The
outlook and prospects for the high-speed network business
remain bullish as confirmed by recent upward revisions by none
other than GLW and positive profit reports by the likes of JNPR.
Many on Wall Street feel that GLW remains in a market leading
position, at the same time, though, analysts feel GLW will
remain under pressure as long as the NASDAQ continues to slide.
With that said, it's crucial to monitor the direction in the
broader Tech sector (the NASDAQ) before entering new positions
in GLW.  Aggressive traders might consider taking on new
positions at current levels if the NASDAQ turns positive early
tomorrow, or on a bounce off GLW's near-term low around the
$95.50 level if the bargain hunters step in.  On the other
hand, more conservative traders might wait for GLW to gain
momentum and look to enter new positions if the stock rallies
above the ever-important $100 level.  Make sure to confirm
strength in the NASDAQ and watch for heavy volume to give
credence to any breakout attempt.

BRCD $244.44 -4.06 (+4.81) The Storage sector continues to hold
up in a market lukewarm on Tech stocks.  Monday was just another
opportunity for BRCD to assert itself in spite of a soft NASDAQ.
Starting the week on a positive note, the stock spent the
remainder of the day headed higher to close up $8.88 on 120% of
ADV.  Today, aggressive traders were treated to an entry point as
BRCD spent the first half of the day heading lower on decreasing
volume, to touch its 5-dma, now at $238.  From there, the stock
found buyers and bounced, narrowing today's small loss.  Volume
was light, less than 80% of ADV, suggesting today's action is
likely profit taking after a strong move up.  Resistance has been
encountered at the $253-254 area in the past couple of days.  A
break above that level would be a conservative entry while
aggressive traders may want to target shoot a bounce off the
5-dma.  In the news today, BRCD announced that it expanded its
alliance with storage software giant Veritas, further
solidifying its commanding leadership position in the Storage
Area Network space.

NT $64.00 -3.44 (-1.44) While holding up alright during
yesterday's directionless trading, Networking stocks fell
victim to broad-based technology selling today.  Bucking the
market trend yesterday, NT managed to tag $68 before falling
back a bit at the close.  The fledgling weakness grew into a
serious pullback this morning as our play dropped to bounce at
the $63-64 support level.  This support level also happens to
be sitting right on top of the converged 200-dma ($63.50),
10-dma ($63.38), and 5-dma ($63.50) and it was encouraging to
see this level hold as the major indices dropped throughout the
day.  Our play is predicated on anticipation of a run into
earnings, and we are rapidly approaching the company's release
date.  Scheduled for October 24th after the close, we now only
have 5 days of trading for NT to make its move.  Below current
support, our play should find help at $60, but a major
selloff that violates the level would be a strong sign to stand
aside.  Aggressive traders can buy a bounce from the vicinity of
today's lows, but need to watch for volume to confirm the
bounce before playing.  Traders with a more cautious
approach will want to wait for buying volume to push NT through
the $66 resistance level before opening new positions.

SCMR $79.00 -6.13 (-6.47) Following the lead of the NASDAQ
yesterday, SCMR couldn't make up its mind, and as a result,
ended the day virtually unchanged after moving in a nearly $10
range.  Today was a different story, but not necessarily better.
Falling to the $79-80 support level early in the day, it was
clear that there was not enough conviction in the bulls camp to
push prices back up and as a result SCMR ended the session very
near its low of the day.  This came on volume significantly
above the ADV and is a good reflection of the nervousness that
is surrounding technology stocks.  Below current levels,
support should materialize at $75, and then $72 (the lows from
last week).  Intraday resistance is forming near $84 (also the
site of the 10-dma), with a more significant obstacle found at
the $90-92 resistance level.  Consider new entries on a strong
(volume-backed) bounce from support or if you prefer the more
cautious approach, wait for buying interest to push through the
$84 resistance level.


INKT $80.81 -4.31 (-1.44) INKT once again cycled a profit for
short-term investors, but you had to be nimble and very
resilient in order to benefit from the play.  All we can say is
thank goodness for resistance.  The stock continued its rally on
Monday, rising pretty much to our touted resistance line at $90,
the 10-dma.  Since the buzz-word on the street has been to sell
into strength, that's exactly what investors did to INKT as it
bounced nicely off the resistance late in the day.  This
morning, another rally attempt occurred in the first ten
minutes of trading.  However, the doom and gloom of the
markets sent INKT lower, ending with a close near the bottom
of its $12 range today.  Since the markets have shown the
inability to maintain the rally attempt offered on Friday,
things are looking up for short players and INKT should
continue to profit us on the downside.  Monday, Lehman Brothers
reiterated its Buy rating on shares,  but it only benefited the
stock for one day.  Investors can once again look to play a
resistance bounce off the now $89 mark, or look for INKT to
trade below $77 on continued market weakness to ride the
current negative momentum on the play.

CPN $83.75 -1.88 (-0.25) ABN AMRO issued a research report this
morning in which it reiterated its Outperform rating on CPN.
The brokerage house also raised earnings estimates by quite a
substantial margin.  The news caused CPN to gap modestly higher
this morning, which proved to be the site of the stock's
intraday high.  CPN rolled over at the $87.50 level and never
looked back.  In fact, CPN slipped towards its day low near
the close of trading after the buyers stepped aside and let
the sellers have their way.  CPN finished near the $83.50 level
today, which is a pivotal area for our play.  CPN has bounced
from $83.50 in the past, and could find support at that level
again.  However, if support at $83.50 fails, CPN could fall to
$80.  With that said, watch for CPN to fall below its
support level at $83.50, and confirm any break down with heavy
volume.  Aggressive traders might target shoot for entry if
CPN rolls over near resistance at $84 or higher near $85.

CRA $58.94 -4.56 (-7.38) Sentiment in the Biotech sector has been
improving lately, with both the Merrill Lynch Biotech HOLDR (BBH)
and the Amex Biotech Index (BTK) bouncing late last week and
moving higher this week despite trouble in the rest of the
NASDAQ.  Peers such as DNA, IDPH, and HGSI have been strong so far
this week but negative momentum might prove stronger for CRA as it
continues to head deeper into the red on the back of the 5-dma.
Encountering formidable resistance at $70 on Monday morning, the
stock sold off to close near its low of the day on over 130% of
ADV.  Today, CRA picked up where it left off, heading ever lower,
once again with resistance from the 5-dma, now at $63.50.  Breaking
below $60 support, CRA closed down 7.19% on over 115% of ADV.
Aggressive traders may target shoot the 5-dma or a bounce off $60
resistance for an entry point while a more conservative entry can
be had if CRA breaks below $55 on volume.

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VRTX - Vertex Pharmaceuticals $78.88 +4.88 (+8.63 this week)

Vertex Pharmaceuticals Incorporated discovers, develops and
markets small molecule drugs that address major unmet medical
needs.  The Company has eight product candidates in clinical
development to treat viral diseases, inflammation, cancer,
autoimmune diseases and neurological disorders.  Vertex has
created its pipeline using a proprietary approach,
information-driven drug design, that integrates multiple
technologies in biology, chemistry, and biophysics to increase
the speed and success rate of drug discovery.  Vertex's first
approved product is Agenerase, an HIV protease inhibitor that
Vertex co-promotes with Glaxo Wellcome.

Market fears are mounting.  Consider the concerns of a slowing
economy, the weak Euro, Internet business models questioned,
semiconductor slowdown, deteriorating credit quality and a host
of other worries.  As a result of the increasing worries on
Wall Street, many investors have fallen back on the good
old reliable drug stocks as a safe haven.  After all, those with
illness care little that oil is over $30 a barrel or that credit
quality in high-yield corporate bonds are trending toward
recession-level default rates.  They just want their medicine,
at almost any cost, as long as they get better.  It is with this
inelastic demand in mind that analysts such as Chase B&Q's Alex
Zisson have described the drug sector as "a safe place to be".
With Merrill Lynch's Pharmaceutical HOLDR (PPH) poised to challenge
new highs, the positive sentiment in drug stocks appears to be
spreading to the battered Biotech issues, which have bounced
strongly since their lows of last week.  Finding support at the
100-dma (now at $63.53), VRTX has rallied back above it's 50-dma
(at $75.93), a level that served as formidable resistance last
week.  As well, it put itself back on the right side of the 5 and
10-dma, now converged in the $72.75 area.  With a down NASDAQ
today, VRTX was able to buck the trend, thanks to a strong day for
the Biotech sector.  The stock did however, encounter resistance
at $80.  A break through this level on volume would be the signal
for conservative traders to take a position while aggressive
traders may watch for a pullback to the 50-dma or the 5 and 10-dma
for an entry.

As there has been a dearth of news for VRTX lately, sector
sympathy will play a key role in the future direction of the
stock.  Confirm technicals with the BBH or the Amex Biotech Index
(BTK) before initiating a play.

BUY CALL NOV-75 VQZ-KO OI= 43 at $10.25 SL= 7.00
BUY CALL NOV-80*VQZ-KP OI=562 at $ 8.25 SL= 5.75
BUY CALL NOV-85 VQZ-KQ OI= 59 at $ 5.88 SL= 4.00
BUY CALL JAN-80 VQZ-AP OI= 17 at $13.75 SL=10.00
BUY CALL JAN-85 VQZ-AQ OI= 26 at $12.00 SL= 9.00

SELL PUT NOV-70 VQZ-WN OI=  0 at $ 4.00 SL= 6.00  Wait for OI!!
(See risks of selling puts in play legend)

Picked on Oct 17th at    $78.88     P/E = N/A
Change since picked       +0.00     52-week high=$96.00
Analysts Ratings      2-7-0-0-0     52-week low =$11.69
Last earnings 06/00  est=  0.20     actual=  0.22
Next earnings 10-24  est= -0.33     versus= -0.28
Average Daily Volume  =   916 K

RSAS - RSA Security $55.00 +2.75 (+3.06 this week)

RSA Security Inc. is a trusted name in e-security, helping
organizations build secure, trusted foundations for e-business
through its two-factor authentication, encryption and public
key management systems.  As the global integration of Security
Dynamics and RSA Data Security, RSA Security has the market
reach, proven leadership and unrivaled technical and systems
experience to address the changing security needs of e-business
and bring trust to the new, online economy.  A global company
with more than 5,000 customers, RSA Security is renowned for
providing technologies that help organizations conduct
e-business with confidence.

Things were looking pretty grim for RSAS investors less than
two weeks ago.  Their stock reached a two-year intraday low
on October 4th.  The company threw investors a lifeline the same
day, announcing that revenues for the third quarter rose 29% and
announcing that it would report better than expected results on
October 12th.  Icing on the cake was the company's statement
that it would buyback up to four million shares of its stock -
always a sign of confidence for the future.  The announcement
helped RSAS recover from its lows and the next day's $5 gap
up was just the start of what has been a consistent recovery
ever since.  True to its word, RSAS reported solid earnings less
than a week ago and investors have shown their approval by
continuing to drive the price higher.  Volume has been coming
in solidly above the ADV for the past 2 weeks, and the stock has
now traversed the entire distance between the lower and upper
Bollinger bands.  In the process, RSAS has also scaled every one
of its moving averages except for the 200-dma (now at $60.31).
Today's solid 5% move in a negative technology market was very
encouraging and it was even better that we saw the stock scale
the last of its shorter moving averages, the 50-dma ($53.31).
The $50-51 level represents decent historical support, and seems
like a good level to target shoot new entries on an intraday
pullback.  While there may be some mild resistance to overcome
near current levels, the next serious level of contention will
be at the $60 level.  With the strong move over the past two
weeks, RSAS is due for a little bit of profit taking, especially
with today's move above the upper Bollinger band.  Waiting for
a pullback before initiating new positions may be the most
prudent strategy, but if RSAS defies the odds and heads higher
from current levels, feel free to open new plays as buying
volume pushes our play above today's high.

Music to investors ears was the company's announcement less
than two weeks ago that they would impress the street with their
third quarter results and buy back up to four million shares of
their own stock.  Even better was the fact that RSAS managed to
deliver on their promise, and post solid earnings in an
environment where it seems that past heroes are falling left
and right.  On October 5th, First Analysis Securities upgraded
the stock from Accumulate to Strong Buy and FAC/Eqts First
Albany jumped in with their own upgrade from Accumulate to Buy
last Friday.

BUY CALL NOV-50 QSD-KJ OI=1124 at $7.75 SL=5.50
BUY CALL NOV-55*QSD-KK OI=  84 at $4.88 SL=3.00
BUY CALL JAN-55 QSD-AK OI=  46 at $8.75 SL=6.00
BUY CALL JAN-60 QSD-AL OI=  74 at $6.63 SL=4.50
BUY CALL JAN-65 QSD-AM OI=  49 at $5.25 SL=3.25

SELL PUT NOV-50 QSD-WJ OI=  81 at $2.31 SL=3.75
(See risks of selling puts in play legend)

Picked on Oct 17th at   $55.00     P/E = 16
Change since picked      +0.00     52-week high=$93.06
Analysts Ratings     6-5-1-0-0     52-week low =$28.88
Last earnings 10/00  est= 0.24     actual= 0.24
Next earnings 01-11  est= 0.26     versus= 0.23
Average Daily Volume   = 462 K


CREE - Cree, Inc. $76.00 -9.19 (-11.63 this week)

Cree, Inc. is the world leader in the development, manufacturing,
and marketing of electronic devices made from silicon carbide
(SiC).  The Company incorporates its proprietary technology to
produce compound semiconductors for use in automotive and liquid
crystal display (LCD) backlighting; indicator lamps; full color
light emitting diode (LED) displays and other lighting
applications.  The Company also manufacturers SiC crystals used
in the production of moissanite gemstones and SiC wafers for
research directed toward optoelectronic, microwave and power

The market does not like confusion, as investors in CREE have
recently learned.  Reporting earnings last Thursday evening, CREE
managed to double Street expectations, posting revenue growth of
80%.  After the conference call, BridgeNews released a report
with the headline "CREE warns not to keep expecting such high
margins".  Joe Kernan reported this as news on CNBC the next day,
which caused CREE to close down almost 8% on ten times the ADV.
CREE's CFO Cynthia Merrell responded by saying, "We have not
changed our range of low- to mid-50 percent for gross margins
going forward.  This is the same range as before."  Despite this,
BridgeNews stands by its report, stating that "BridgeNews did
not state that CREE had issued a formal warning on its margins,
but did indicate that CREE was cautioning analysts not to assume
future margins would be consistently quite as high as the record
latest quarter levels."  Amidst all this confusion, at least we
can turn to the charts for solace.  After encountering formidable
resistance from the 50-dma ($115.75), CREE has sold off on the
backs of the 5 and 10-dma ($87.47 and $99.30, respectively).  At
the height of the selling panic last Friday, CREE bounced at $77.
Gapping up at the open on Monday, CREE was unable to break through
resistance at $93, which brought in the sellers, who tool the stock
below the $77 mark today.  Volume to the downside has been
accelerating since the beginning of October.  Add to that negative
sentiment in the Chip and Wireless stocks, the confusion last week
only served to accelerate the negative momentum already present in
CREE.  At this point, there are a number of ways to enter the
play.  A bounce off $77 or the 5-dma are aggressive targets to
shoot for while a break below $75 on strong volume would be a
more conservative entry.

BUY PUT NOV-80 CQR-WP OI=41 at $13.38 SL=10.00
BUY PUT NOV-75*CQR-WO OI= 5 at $10.13 SL= 7.00
BUY PUT NOV-70 CQR-WN OI= 0 at $ 7.88 SL= 5.75  Wait for OI!!

Average Daily Volume = 1.51 mln

NVDA - NVIDIA Corporation $59.00 -4.63 (-6.13 this week)

NVIDIA Corporation designs, develops and markets 3D graphics
processors, graphics processing units and related software that
set the standard for performance, quality and features for
every type of desktop personal computer user.  Used in a wide
variety of application including games, the Internet and
industrial design, the company's products were the first to
incorporate a 128-bit multi-texturing graphics architecture.
This design approach delivers to users a highly immersive,
interactive 3D experience with compelling visual quality and
stunning effects at real-time frame rates.  NVDA sells its
products to major PC manufacturers such as Compaq, Dell,
Gateway, Hewlett-Packard and IBM.

Building a better mousetrap is only profitable if people are
willing to spend money to get rid of mice.  Likewise, making
the best graphics processing card is only going to keep the
profits flowing in if people continue to buy PCs, and lots of
them.  Well, the verdict seems to be that PC sales are slowing
and that means PC component sales will slow too.  Investors seem
to have figured out the math and have spent the first half of
October shaving nearly 30% off NVDA's share price.  Volume has
been heavy, with today's tally coming in at 50% above the ADV.
Closing out the session below the critical $60 support level for
the first time in over 2 months is not a good sign, and our play
has now violated every one of its moving averages, save one.
The last holdout is the 200-dma ($52.63), and it is nestled
right at the next critical support level, $52-53.  Although the
daily Stochastics are now in the oversold zone, recent events in
the technology sector have demonstrated that an oversold stock
can almost always become more oversold.  A violation of today's
intraday low of $58.31 looks like a good point at which to enter
new positions, so long as volume remains heavy.  Using the rule
that old support becomes resistance, NVDA should find its first
challenge at the $62-63 level in the event of a short-term
recovery.  This happens to correspond to the 5-dma ($63.13), so
look to initiate new plays as our play fails to penetrate
resistance and rolls over.

BUY PUT NOV-60*RVU-WL OI=91 at $6.38 SL=4.25
BUY PUT NOV-55 UVA-WK OI=37 at $3.88 SL=2.25

Average Daily Volume = 1.32 mln


INKT - Inktomi Corporation $80.81 -4.31 (-1.44 this 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.

Most Recent Write-Up

INKT once again cycled a profit for short-term investors, but you
had to be nimble and very resilient in order to benefit from the
play.  All we can say is thank goodness for resistance.  The stock
continued its rally on Monday, rising pretty much to our touted
resistance line at $90, near the 10-dma at $89.06.  Since the
buzz-phrase on the Street has been to "sell into strength," that's
exactly what investors did to INKT as it rolled over nicely at
the open.  This morning, INKT only managed a high of $88.88 in the
first ten minutes of trading.  The doom and gloom of the markets
sent INKT lower, however, the stock closed about $3 over its low
of the day as the NASDAQ bounced.  Since the markets have shown
the inability to maintain the rally attempt offered on Friday,
things are looking up for short players and INKT should continue
to profit us on the downside.  Monday, Lehman Brothers reiterated
its Buy rating on shares, but the benefits were brief.  Investors
can once again look to play a rollover at overhead resistance of
$83 and $89.  A break of $77 on continued market weakness would
provide an entry to ride the current negative momentum on the play.


We are looking for the negative momentum to continue tomorrow for
the NASDAQ.  Any morning relief will likely be met with selling
into strength.  Look to enter on any rollovers from overhead
resistance, or a break below Tuesday's low of $77.13.

BUY PUT NOV-85 KYQ-WQ OI=312 at $13.00 SL=10.50
BUY PUT NOV-80*KYQ-WP OI=174 at $10.00 SL= 7.50
BUY PUT NOV-75 KYQ-WO OI=  6 at $ 7.50 SL= 5.75

Average Daily Volume = 2.30 mln

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Revenue Worries Plague the Market...

Stocks closed sharply lower today amid concerns over a potential
earnings slowdown in the coming quarters.

Monday, October 16

The stock market ended mixed Monday as profit-taking subdued the
the Nasdaq while the Dow rallied on strength in retail issues.
The composite technology index retreated 26 points to 3,290 but
the Dow Jones industrial average rose 46 points to 10,238.  The
S&P 500 ended relatively unchanged at 1,374.  Trading volume was
average on the Big Board at 1 billion shares exchanged.  Broad
market declines outpaced advances 1,490 to 1,377.  Activity on
the Nasdaq was moderate with 1.78 billion shares changing hands.
Technology declines edged advances 2,067 to 1,939.  In the bond
market, the bellwether 30-year bond fell 2/32 to 106 3/32, with
its yield edging up to 5.81%, as traders awaited news from the
Middle East summit.

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

Answerthink      ANSR   OCT22C/OCT20C  $0.50  credit  bear-call
Shire Pharma     SHPGY  OCT50P/OCT55P  $0.75  credit  bull-put
Read-Rite        RDRT   APR12C/NOV12C  $1.06  debit   calendar
Carter Wallace   CAR    JAN25C/NOV30V  $2.94  debit   diagonal
Nasdaq-100       QQQ    OCT81C/OCT81P  $4.12  debit   straddle
Applied Micro    AMCC   OCT155P/O165P  $1.38  credit  bull-put
Applied Micro    AMCC   OCT210C/O200C  $1.00  credit  bear-call

Today's market volatility provided some excellent opportunities
to participate in our new combination positions.  The AMCC play
worked perfectly.  After opening to the upside and then trading
within a $13 range, it settled near $180 for the close and then
gave back an additional $2 in after-hours trading.  The issue is
perfectly in the middle of the target area ($170-$190) and there
is a high probability the position will expire at maximum profit.

Portfolio Plays:

Technology investors braced for impact in today's session as the
glut of earnings reports began to pour in.  Over 1,500 companies
are set to announce quarterly results this week and institutional
traders are expecting a major sell-off in less favorable issues.
Mutual funds must record their losses between now and the end of
the month and that activity will weigh heavily on the supply side
of share values.  In addition, economic concerns overseas such as
currency conversion, energy costs, and slowing sales will affect
the outlook for almost every industry.  This week's reports will
be paced by Intel (INTC), International Business Machines (IBM),
Honeywell (HON), Citigroup (C) and Philip Morris (MO).  Investors
are skeptical about the outlook for blue-chip technology stocks
and their concerns pushed Dow bellwethers Intel and Microsoft to
the top of the loser's column during the session.  Intel warned
of lower revenues earlier in the month and today, Microsoft hit
a 52-week low in anticipation of the company's quarterly results.
In contrast, the Dow's rally was led by its retail components.
Wal-Mart Stores (WMT) and Home Depot (HD) both recovered from
recent losses as traders looked for bargains in blue-chip stocks.
Also helping the industrial average were gains in Coca-Cola (KO),
American Express (AXP), Johnson & Johnson (JNJ), and Minnesota
Mining & Manufacturing (MMM).  On the Nasdaq, Amazon.com (AMZN)
paced the losers, tumbling to $24 after an article in investment
magazine Barron's said the Internet retailer might be seeking to
raise cash through a secondary stock offering.  Semiconductors
were also lower and in the broader market, bank and financial
issues slumped after major companies reported mediocre earnings.
Oil and oil service shares consolidated as crude futures slipped
on news that Saudi Arabia will raise output unilaterally if OPEC
fails to take action after the recent talks.

Our portfolio enjoyed a few favorable moves during the volatile
session.  Qualcomm (QCOM) climbed $7 to a recent high near $77
amid reports the company would provide China Unicom with its
CDMA technology to build a mobile phone network.  Our bullish
position at $55 is expected to finish at maximum profit.  Ariba
(ARBA) was a big mover in today's trading, closing almost $10
higher at $132.  Brocade (BRCD) was also active, up $9 to $246
on a solid technical rebound.  The credit strangles on these
issues have provided excellent returns.  Agile Software (AGIL)
and Commerce One (CMRC) finished strong, both up over $5 as
investors searched for new leadership in the technology group.
Positions in these issues have also provided excellent returns.
Nice Systems (NICE) made a big move in early trading, rising to
$55.88 during the morning session.  The rally provided a great
opportunity to close our recent debit straddle and the neutral
play yielded $5.50 credit, a profit of $1.75 on $3.75 invested
in less than one week.  In addition, there were numerous early
exit and adjustment opportunities.  Our primary concerns were
Enzo Biochem (ENZ) and American Home Products (AHP), and both
positions were closed to limit further losses.   Knight Trading
Group (NITE) has also been a particularly troubled issue in
the past few weeks and with our (sold) Put position in jeopardy,
we decided to roll forward and down to the November options for
a small debit.

Tuesday, October 17

Stocks closed sharply lower today amid concerns over a potential
earnings slowdown in the coming quarters.  The Dow Jones average
retreated 149 points to 10,089 and the Nasdaq composite slid 76
points to 3,213.  The S&P 500 index dropped 24 points to 1,349.
Trading volume on the Big Board totaled 1.16 billion shares as
declines outpaced advances 2,116 to 818.  Activity on the Nasdaq
was heavy with 1.9 billion shares exchanged.  Declines trounced
advances 2779 to 1234.  In the bond market, the 30-year treasury
rose 20/32 to 106 23/32, pushing its yield down to 5.765% as the
stock sell-off prompted safe-haven buying.

Portfolio Plays:

Concerns over corporate earnings continued today as traders sold
for profits in all but the most favorable issues.  Semiconductor
and Internet stocks led the Nasdaq's decline while weakness in
financial and retail issues caused the Dow's demise.  The market
has been plagued by profit warnings over the past few weeks, with
many high-profile companies announcing they won't meet consensus
estimates.  At the same time, uncertainty over oil prices and the
failing Euro has driven investors away from equities into more
conservative ventures.  On the Dow, a handful of companies posted
their quarterly results this morning and the bearish effects were
far-reaching.  Shares of American Express (AXP), AT&T (T), Home
Depot (HD), Hewlett-Packard (HWP) and Walt Disney (DIS) drifted
lower after the announcements.  Blue-chip technology bellwethers
Intel (INTC) and International Business Machines (IBM) will be
reporting after the market close and their revenue outlooks are
expected to have a profound affect on upcoming sessions.  Earnings
news also failed to inspire financial stocks, with brokerage issues
pacing the slump amid worries over declines in trading volume.
On the Nasdaq, chip companies were pummeled after analysts at
Chase H&Q lowered their ratings on the semiconductor capital
equipment sector to "market perform," indicating that capital
expenditures will likely come in at or below 10% in 2001, versus
widespread expectations of 20%-25% growth levels.  In the broader
market, oil, oil service, drug, utility and biotech shares fared
well but most other sectors moved lower on increasingly negative

Our portfolio was a "sea of red" and there was little positive
activity worth noting in the technology group.  Manugistics (MANU)
and Research in Motion (RIMM) were the only major issues that
advanced and many of the losses in that category were substantial.
As expected, the market experienced a large movement overall, with
the Nasdaq falling over 100 points during the past two sessions.
On the bright side, our Nasdaq-100 (QQQ) straddle is performing
quite well and the position has already yielded a small profit
for aggressive traders, with additional potential over the next
three days.  The neutral position in Applied Micro Circuits (AMCC)
also achieved favorable results, losing significant time value as
the issue traded in a $10 range.  In addition, a number of plays
on drug stocks benefited from the upside activity in the group and
the majority of bearish positions are at maximum profit.  Most
analysts are anticipating additional volatility ahead of the
"double-witching" expiration of stock and index options Friday,
and it will be interesting to see whether the market can rebound
from the current setback and continue with last week's recovery.

Questions & comments on spreads/combos to Contact Support
                         - NEW PLAYS -
BSC - Bear Stearns  $57.00   *** Takeover Play! ***

The Bear Stearns Companies, through its subsidiaries, primarily
Bear, Stearns Securities and Bear, Stearns International Limited,
is an investment banking, securities trading and brokerage firm
serving corporations, governments, institutional and individual
investors worldwide.  The company operates in three segments:
Capital Markets, Execution Services and Wealth Management.

Bear Stearns has been a popular take-over candidate in the past
and recently, the implied volatility and volume in BSC's options
has increased to unusual levels.  Traders are speculating that a
"buy-out" is in the works and based on the bullish activity in
the underlying issue, that appears to be a reasonable assumption.

PLAY (speculative - bullish/diagonal spread):

BUY  CALL  JAN-50  BSC-AJ  OI=1846  A=$11.88 (wide B/A spread)
SELL CALL  OCT-60  BSC-JL  OI=3368  B=$1.56

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

JNPR - Juniper Networks  $228.00  *** High Flier! ***

Juniper Networks is a provider of unique Internet infrastructure
solutions that enable Internet service providers and other
telecommunications service providers, to meet the demands
resulting from the rapid growth of the Internet.  The company
delivers next generation Internet backbone routers that are
specifically designed, or purpose-built, for service provider
networks.  The company's flagship product is the M40 Internet
backbone router, and it recently introduced the M20, an Internet
backbone router purpose-built for emerging service providers.
The company's Internet backbone routers combine the features of
the JUNOS Internet Software, high performance ASIC-based packet
forwarding technology and Internet-optimized architecture into a
purpose-built solution for service providers.  Unlike conventional
routers, which were developed for enterprise applications and are
mostly inadequate for service provider use in public networks,
the company's Internet backbone routers are specifically designed
to accommodate the size and scope of the Internet.

Juniper is breaking into Cisco's (CSCO) market segment with faster
and better equipment and their fundamental performance reflects
that fact.  The company recently reported earnings of $0.17 per
share, versus estimates of $0.09, and the issue has rallied from
under $200 to over $240 in just three trading sessions.  The big
move on the Nasdaq last week contributed to the issue's gains and
after reaching the upper "Bollinger" band, the price retreated to
$229 at the close of trading today.  So where does JNPR go from
here?  The issue will probably trade in a wide range over the next
few weeks as the chart shows strong support at $180 and the 50-DMA
is near $200.  The company has a very high P/E ratio, but with
earnings doubling every quarter, that P/E ratio will continue to
move lower.  Going into November, we can likely expect more upside
than downside on the Nasdaq and all the indications suggest we can
successfully initiate a bullish, put-credit spread on JNPR, that
will expire worthless in November.

PLAY (conservative - bullish credit put spread):

BUY  CALL  NOV-170  JUD-WN  OI=655  A=$4.88
SELL CALL  NOV-175  JUD-WO  OI=405  B=$5.38
INITIAL NET CREDIT TARGET=$0.62-$0.75  ROI(max)=14%

Note: Playing a $5 spread allows you to "leg out" of the spread if
things turn sour and still have a high probability of making money.
This position is $50 below the current price of the issue and if
JNPR were to go down that low, it will be with large moves.  If
you put a "buy-to-close" order on the short option, based on the
stock price of $180, and JNPR crashes down through it, then most
probably you will be able to exit the long option with a profit.
Though the objective here is for the spread to expire worthless,
keep in mind that going for the smaller spread (5 instead of 10
or 20) and putting smart stop orders in place usually results in
better profits.  If your broker does not allow you to place stop
orders based on stock price, then keep a mental stop near $180
and be faithful to it.

INTC - Intel  $36.25  *** Bottom-Fishing! ***

Intel Corporation, a semiconductor chip maker, supplies the
computing and communications industries with chips, boards,
systems and software that are integral in computers, servers
and networking and communications products.  Intel's major
products include microprocessors, chipsets, flash memory
products, networking and communications products, embedded
processors and microcontrollers, and digital imaging and
other PC-peripheral products.  Their component-level products
consist of integrated circuits used to process information.
Intel sells its products to original equipment manufacturers,
PC and computing appliance users, industrial and communications
equipment manufacturers, and businesses, schools and state and
local governments.  Intel also provides data center services to
businesses needing e-Commerce services.  Intel is organized into
five operating segments according to various product lines: the
Intel Architecture Business Group, the Wireless Communications
and Computing Group (formed out of the Computing Enhancement
Group), the Network Communications Group, the Communications
Products Group, and the New Business Group.

Intel needs no introduction!  After jockeying with Microsoft
(MSFT) and General Electric (GE) for the title of the largest
capitalized company in the world earlier in the year, Intel fell
from grace.  Now its technical history looks like that of a "has
been" dot-com company.  However, contrary to what seems to be a
common belief these days, our economy will not collapse overnight
and we are not going back to using the Abacus.  We will all be
using computers next year.  Intel stock is a steal at this level
and any significant rally in the Nasdaq rally should boost the
issue significantly.  Intel also issued its earnings report today
after the close.  Their sales rose 19% in the third quarter and
earnings came at $0.36, compared with $0.21 for the same period
last year.  Judging by the after-hours activity, traders are happy
with the results.

PLAY (conservative - bullish debit spread):

BUY  CALL  JAN-35  INQ-AG  OI=29098  A=$6.00
SELL CALL  JAN-40  INQ-AH  OI=34269  B=$3.62

                         - STRADDLES -

One of our readers requested some Straddle positions on Financial
issues, to take advantage of the earnings-related volatility in
the sector.  This position meets our criteria for a favorable
straddle; relatively cheap option premiums, a history of adequate
price movement and future events or activities that may generate
volatility in the issue or its industry.  This selection process
provides the foremost combination of low risk and (potentially)
high reward.  As with any recommendation, it should be evaluated
for portfolio suitability and reviewed with regard to your
strategic approach and trading style.

CMB - Chase Manhattan  $37.94  *** Earnings Play! ***

Chase Manhattan Corporation is a bank holding company that is
organized into three major businesses: Global Bank, National
Consumer Services and Global Services.  The company conducts
domestic and international financial services businesses through
various bank and non-bank subsidiaries.  The principal bank
subsidiaries are The Chase Manhattan Bank, Chase Manhattan Bank
USA, and Chase Bank of Texas.  The company's principal non-bank
subsidiary is Chase Securities, which is engaged in securities
underwriting and dealing activities.  The company's bank and
non-bank subsidiaries operate nationally as well as through
overseas branches, representative offices, and affiliated banks.

Earnings are driving the market and companies in the Bank and
Finance industry have been significantly affected by the recent
troubling reports.  Chase Manhattan announces quarterly earnings
on Wednesday afternoon and the outcome is sure to produce future
volatility in the issue.

PLAY (conservative - neutral/debit straddle):

BUY  CALL  DEC-35  CMB-LG  OI=6200  A=$5.00
BUY  PUT   DEC-40  CMB-XH  OI=3005  A=$4.00

Note: We are using ITM options in this position to reduce the
cost of time-value premium.  With this conservative approach,
the upside break-even is $44.00, and the downside break-even is


Please read our disclaimer at:


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

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

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