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Daily Newsletter, Thursday, 10/19/2000

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The Option Investor Newsletter                 Thursday 10-19-2000
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        10-19-2000        High      Low     Volume Advance/Decline
DJIA    10143.00 +168.00 10143.00 10014.60 1.30 bln   1956/917
NASDAQ   3418.60 +247.04  3423.45  3314.89 2.34 bln   2846/1158
S&P 100   733.89 + 27.12   734.47   708.35   totals   4802/2075
S&P 500  1388.76 + 46.63  1389.93  1345.64           69.8%/30.2%
RUS 2000  481.30 + 15.09   481.36   466.21
DJ TRANS 2459.81 + 91.16  2468.07  2368.35
VIX        28.17 -  4.33    30.68    27.79
Put/Call Ratio      0.64
******************************************************************

Bottom Or Not, Here Come The Buyers

Despite a continuing indifference among analysts, the buyers
came rushing into the market today in fear of missing the
rally.  This new found optimism is partly due to the Fed chief's
comments this morning.  At a Cato Institute conference, he
said the Fed has been watching for the impact of higher oil
prices on the economy and that so far it has been "modest."
"Despite some slowing that likely has been related in part to
the bite from the so-called 'oil tax' on household incomes, the
growth of consumer spending has remained firm.  But policymakers
need to be on alert for oil-driven, indeed energy-driven, risks
to our expansion."  These comments were interpreted to further
solidify the likelihood that the Fed won't raise rates at the
November 15th meeting.  Which is a given, but don't take that
to mean they may be considering a cut in rates either.  If the
market continues to improve and the Middle East cools, no move
seems to be the best bet at this point.

Today's market action gave investors a lot to cheer about.  How
about a 7.79% move on the Nasdaq to calm fears.  The Nasdaq gained
247.04 points to close at 3418.60.  Perhaps the more exciting
aspect of the 7.79% move is the strong volume.  Volume was 2.15
billion and the trend of returning volume is helping provide a
sigh of relief from investors who struggled through the dog days
of summer.  Advancers lead decliners 28-12.  Everyone should be
thanking Microsoft for this rally.  MSFT reported strong earnings
after the close on Wednesday and the stock shot up over $10 today.
One interesting note, many have pointed to Microsoft's collapse
on the last day of March as the beginning of the summer sell-off.
The stock gapped down big that morning and has been in the dumps
ever since.  Perhaps today's gap higher at the open will signal
the reverse in sentiment going forward.  There is no doubt
Microsoft surprised the Street with such a solid earnings
announcement.




The VIX is telling the same story in reverse.




The Dow Jones Industrials also rallied today, although to a
lesser extent.  But we will take anything positive after the
scare it gave us yesterday.  The DJIA finished up 167.96 to
10142.98 on volume of 1.3 billion shares.  The index was lead
higher by Intel, Microsoft, Gillette, Honeywell and AT&T.  And
even though the market just closed a few hours ago, the Dow may
have an upside bias tomorrow due to HON which continues to trade
higher after-hours on merger talk.  The catch 22 is United
Technologies is the one supposedly looking to buy Honeywell and
UTX is also in the DJIA.  So what may be gained in HON, may also
be lost in UTX.  This index just can't win this week!

Oil prices gave back a little today to close under $33 a barrel,
but that move wasn't anything to write home about.  The equity
markets would still like to see oil sink lower.  Somewhere in
between the $28-30 level would be just fine with me.  The bond
market stayed flat-to-down as investors piled back into stocks.
The 10-year Treasury note is currently yielding 5.69%.

The big after-hours news revolved around eBay earnings.  EBAY
beat the Street with a $0.07 profit versus estimates of $0.04
per share.  And this was just the beginning of the good news.
Revenues also soared to $113.4 million, up 93.8% for Q3.  This
is leading analysts to believe the company may raise forecasts
for fiscal 2001.  "On the surface, it looks like it was very,
very strong quarter," said Derek Brown, a financial analyst who
covers eBay for WR Hambrecht.  The stock is soaring after-hours.
EBAY closed up $3.81 to $57.19 during regular trading before as
high as $70 after the close.  This could be a huge catalyst for
the Nasdaq if the brutally-beaten Net stocks continued to return
to favor.

Nokia's stock rebounded 27% Thursday after the wireless equipment
maker released its quarterly update a week ahead of schedule,
revealing a 40% jump in profits, a 50% gain in sales and a
bullish outlook.  Apparently Nokia was tired of watching their
stock get hammered due to Motorola's earnings news and forecast
last week so NOK released their report a week early.  Hey why
not if you have the quarter in the bag and you are tired of
watching your stock drop.  "Nokia reaffirmed people's faith in
wireless growth, so anybody in wireless is getting a boost
today," Chase H&Q analyst Ed Snyder said.  "This has turned the
tide on the current thinking that wireless is slowing down,
everything is getting worse and (the industry is) dropping off
a cliff."  NOK climbed $8.13 to $38.13 today.

So did you heed the volume warning?  I'm sure you have all heard
the well known saying amongst technicians "volume proceeds
price".  That is what appears to be going on.  Volume has been
strong since last Thursday, the day analysts are now pointing
to as the beginning of the end for this recent bout of weakness.
It is one of those situations that will appear more and more
obvious as the days go by, but investors still freeze like
deer in the headlights when it happens.  Of course, what I am
talking about is the October lows.  This could be the fourth
straight year the Nasdaq has put the low in during this month.
And what was the concerns?  Computer and Semiconductor weakness,
foreign concerns, and inflation and currency problems.  Issues
that are so obvious that it makes you wonder why everyone was
so scared.  Isn't it like watching the movie Pscyho or Halloween?
Sure it is scary the first time or two, but the re-runs on
cable now put me to sleep.  Yet investors and traders still
panic despite knowing the complete history of recent years.

Now before you think the future is too bright, let me reiterate
that many would debate me, saying all is not well.  And it is
unwise to think the market couldn't turn again on a dime and
really get scary.  The DJIA is not out of the woods yet.  If the
Nasdaq trades below yesterday's low of 3026 at this point, I
would be nervous.  All the signs that we have seen from previous
years suggest that the bottom is in place and the next move
should be consolidation or higher.  If we go against this trend
and sink to new lows, then we need to re-evaluate the way to
trade this market.

But here is why I don't see that happening.  The bad news is
beginning to fade fast.  Microsoft, Intel and Ebay have given
us something to cheer about.  Again, this is in typical October
fashion as the bad news rapidly fades and is quickly replaced
by good news.  Many investors are ready to do some buying as
no one wants to get left behind.  Thus you get moves like you
did today where buyers flood the market.  Before you know it,
the prospects of getting one more chance to buy near the 3000
level on the Nasdaq grow smaller and smaller in the rear view
mirror.

In my mind the real dilemma is how to deal with the big moves
as option traders.  Chasing stocks that are up double-digit or
more and have therefore spiked the implied volatility doesn't
interest me.  I still think there are many companies in the
beginning stages of the turn.  Those make for better plays.
The big movers typically take a day or two off from time to
time anyway and that is when to attack those plays.  If history
repeats itself, we are in for a favorable November run to
capitalize on all kinds of different plays.

Ryan Nelson
Editor


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

Was yesterday a bottom?

Many are saying it was, but time will tell.  Market bottoms or
large corrections offer some great entry points and we may be in
the sweet spot for future profits.

Regardless of whether the market has bottomed or will continue
lower is something we cannot control.  What we can control is how
we react to it!

The most important keys to being successful in the market is
knowledge and action!  Successful traders are able to collect
information, analyze it quickly and act on that information.

Experience is often the best teacher, but it can also be the most
COSTLY!

True wisdom is learning from other people's experiences.  We are
providing a forum, at the Denver Options Expo, where you can learn
from experienced traders on both strategy and technical analysis.

To sign up click here:
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 The Denver Options Expo starts in just 8 DAYS! This is a great
opportunity to learn from successful traders the do's and don'ts
of option trading.  You will come together with a core group of
serious option traders and learn powerful and seasoned information
that to learn on your own would cost many of you tens of thousands
of dollars.

Don't wait, sign up today!

If this is a bottom, learn the information needed to profit in a
flat or up trending market.  If this is a head fake, then learn
what you need to do to protect your portfolio.  Don't leave your
trading to luck or hope, become a lifetime learner and we will see
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****************
MARKET SENTIMENT
****************

Technically Speaking
By Austin Passamonte

Yesterday we were unsure if a bottom was in place. Today we are.
At least that's what the trading desks were telling our CNBC
family.

Hey, remember Ralph Bloch? He's the guy every bull panned for
calling the market top in August. Guy tells it like he saw it and
gets hissed. Turns out he was dead-on too, unless we believe he
single-wordedly moved the markets back then.

If Ralph has that kind of power market bulls will be thrilled
because tonight he feels all our components for a bottom are in
place. Anyone care to diss him this time?

We think so to. That is a firm bottom down there that can most
assuredly stand repeated tests in the future. And it very well
may.

Market Sentiment expects a gradual rally to at least 50% from the
intraday bottom to our previous highs in August. If we clear
that, 68% is next. They are as follows:

          50%          62% [Fibanocci from 10/18 low to 9/1 high]
SPX:     1417         1444 (200 DMA)
NDX:     3563         3700
OEX:      759          778 (200 DMA)
Dow:   10,526       10,733 (200 DMA)

For all you NASDAQ Comp addicts, just follow the NDX action. It
leads the Comp anyways so if that stalls, they both do. We see
considerable upside to the 62% retracement where three out of
four major index 200 DMAs lie in wait. These might make very good
call-play exits for those going long for the time being.

Candlestick fans see major bullish-reversal patterns across the
board. Dow, OEX and SPX formed great Morning Star bullish
reversal patterns complete with engulfing bullish candles. The
NASDAQ markets did the same using outside-day candles as well.

These slight gaps between yesterday's NASDAQ highs and today's
higher-lows have some technicians waiting for these to be filled.
We're sure that will happen eventually but maybe not right away.

A word of caution (you knew we had to): We've been spoiled by
"V" bottoms in the past but let us remind you they don't have the
staying power of a nice rounded bottom that's been backed &
filled.

Peek back at any daily chart to the Feb-April 2000 era and count
how many bottoms we put in back then. some weeks had more than
one. There is a lot of worry and turmoil out there to roll us over
on any given day. We would caution you about loading up on
bullish plays and turning your back on the action.

Our expectations are for a strong rally to ensue and we will play
it that way. Calls and LEAPs seem like the high-odds bet these
days and that's all we can ever ask for from the markets; higher
odds in one direction than another. From there, stop management
will make the difference between profit and loss.

Market Sentiment remains cautious as always but sees nothing to
stand in the way of considerable upside from here. Remember, it's
what we can't see that can kill so enter your trades, place those
stops and sell too soon as our beloved mentor is apt to say!

*****

VIX
Thursday 10/19 close; 28.17

30-yr Bonds
Thursday 10/19 close; 5.75%

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

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

                                   Thursday
                                 (10/19/2000)
  (Open Interest)         Calls        Puts          Ratio
S&P 100 Index (OEX)
Resistance:
770 - 755                15,484        3,012          5.14
750 - 735                14,695        7,909          1.86

OEX close: 733.89

Support:
730 - 715                15,047       14,541           .97
710-  695                 4,141       15,247          3.68

Maximum calls: 770/6,086
Maximum puts : 700/7,470

Moving Averages
 10 DMA  726
 20 DMA  745
 50 DMA  784
200 DMA  780


NASDAQ 100 Index (NDX/QQQ)
Resistance:
 94 - 92                 30,798        7,878          3.91
 91 - 89                 31,301       20,810          1.50
 88 - 86                 26,760       20,053          1.33

QQQ(NDX)close: 85.0625
Support:

 84 - 82                 29,485       21,138           .72
 81 - 79                 45,621       27,238           .60
 78 - 76                 21,921       23,251          1.06

Maximum calls: 92/19,8173
Maximum puts : 80/10,888

Moving Averages
 10 DMA 80
 20 DMA 85
 50 DMA 91
200 DMA 94


S&P 500 (SPX)
Resistance:
1450                    12,736        11,585          1.10
1425                    13,610        14,336           .95
1400                     8,254        10,541           .78

SPX close: 1388.76

Support:
1375                     10,163       10,993          1.08
1350                     12,471       15,642          1.25
1325                      2,064        7,883          3.82


Maximum calls: 1475/19,069
Maximum puts : 1300/20,858

Moving Averages
 10 DMA 1372
 20 DMA 1404
 50 DMA 1455
200 DMA 1443

*****

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)

NASDAQ 100
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?

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

Bullish:
Fed's finished
Benign government reports
Disparity in overhead call/put ratios
VIX above 30
Today's  follow-thru rally
Option expiration week
Earnings season

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


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

As of Market Close - Thursday, 10/19/2000

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

DOW   Industrials      10,142       9,650  10,600     **
SPX   S&P 500           1,388       1,305   1,400     **
COMPX NASD Composite    3,418       3,000   3,500     **
OEX   S&P 100             733         680     750     **
RUT   Russell 2000        481         455     500     **
NDX   NASD 100          3,402       2,950   3,500   **  **
MSH   High Tech           935         825     945     **

BTK   Biotech             714         630     740
XCI   Hardware          1,266       1,100   1,310     **
GSO.X Software            419         355     435
SOX   Semiconductor       758         600     800     **
NWX   Networking        1,134       1,010   1,170
INX   Internet            344         275     400     **

BIX   Banking             552         505     600     **
XBD   Brokerage           597         550     640     **
IUX   Insurance           765         720     790

RLX   Retail              769         695     810
DRG   Drug                409         395     425
HCX   Healthcare          849         825     875
XAL   Airline             133         124     140     **
OIX   Oil & Gas           309         296     328     **

The DOW, SPX, COMPX, OEX, RUT, NDX, XCI, SOX, INX, BIX, XBD, XAL,
and OIX triggered support alerts in the past two sessions.  The
NDX and MSH triggered resistance alerts.  Lowering support (DOW,
SPX, COMPX, OEX, RUT, NDX, XCI, SOX, INX, BIX, XBD, XAL, OIX).
Lowering resistance (INX).  Raising support (DRG).  Raising
resistance (NDX, MSH).  Note:  The NDX triggered alerts at
support and resistance.


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

Misery Loves Company
By Molly Evans

Come on in.  There are a lot of riches to rags stories to share.
Where there was exuberance and easy money for the taking there
has now been resignation and dreams of near wealth crushed.  I've
seen posts on the message boards; heard it in the caller's
voices on CNBC and have watched spikes being made on the charts.
Those were prices paid that never came close to reaching that
height again.  Yes, there has been a definite concern growing out
there.  In times past, people waved these declines off as just
being the October doldrums as everyone KNEW it'd come back.  Yet,
somehow it's been different this time.  You know why?  It's
because this time, it hasn't been just the loathsome "day traders"
like us that have taken hard blows.  It hasn't been just those
"fly by night" stocks like AMZN and YHOO that the young people
want to chase.  No.  This time the victims have been the long
term buy and holders of the big caps.  You think that MSFT, INTC,
ORCL, T, WCOM, CSCO, JPM and C aren't in every retirement
portfolio in this nation?

We've witnessed or are witnessing a historical event here.  It's
not that this hasn't ever occurred before.  But, this bear market
will be remembered for a long time to come.  The wealth
accumulation didn't exactly happen overnight.  In the course of
history, some would assert that it did but certainly, in contrast,
no one can argue about the rapidity of how this bear has quickly
and decisively mauled most everyone in its path.  The door was
marked and everyone stampeded to reach it.  My how fast sentiment
changes!  If you've read my writings for any time, you know that
I've been bearish throughout the summer, right through those
rallies and frankly, I remain skeptical right up to this moment.
However, the funny thing is, it has been getting awfully crowded
here in my cave.  What's that tell you?

I know what it tells me.  But, I refuse to flat out say, "that
means it's a bottom."  Last week I entitled my article "No,
That Wasn't It" after an insistent and persistent sell off in
the Nasdaq.  Yet, the very next day witnessed a huge buying
frenzy in the markets.  I felt like a real heel though I still
maintained that it would be short lived.  I wrote the bulk of
this article last evening not knowing that we'd have an 8% surge
in the Nasdaq today.  Today was good.  Will it hold?  This one
just may.  I don't know that it was necessary that we advanced so
much in one day but it does help investors breathe a sigh of
relief for the moment.  Where I was quite leery of that rally
last Friday, this one does feel better. During last Friday's
buying frenzy I got long early in the morning.  Great trades come
from within those markets where the tapes are whirring frantically
but "nimble" is the name of the game there.  I really had thought
we'd get a slightly up to sideways week in before the markets
continued down.  We got a sideways DAY only on Monday.
Unfortunately, I didn't sell Monday and ended up dumping calls on
Tuesday.  Do you know what happens to option contracts when they're
being sold on the bid?  Of course you do.  The owner loses his
(or her!) entire gain and perhaps then some.  I had a rotten day
on Tuesday.  Sometimes you're in sync with the market and sometimes
you're not.

Let me talk about that for a minute.  I was pretty smug with
myself on Monday.  What I had bought on Friday morning was up
nicely by then and I thought that maybe for once, the market
might try to stabilize there for a few days.  This is an options
expiration week so I supposed it worthwhile to put on a few bull
put credit spreads.  If you don't recall what that is, go back to
my article a few weeks ago entitled "Spreading the Risk."  My
thoughts were that we might enjoy an upward bias into some of
these earnings days and I'd sell puts that would depreciate
rapidly and perhaps even expire worthless.  Some Miss Bear huh?

Tuesday rolled around and the trouble began again.  Those fabulous
positions started to rapidly move against me so I got to the
business of getting short by covering the puts I had sold.  Woops.
We were promptly whipsawed the other way and I chided myself for
being such a nervous Nellie and got back to reselling the puts.
Pretty lame isn't that?  I agree!  Keep in mind I had other
positions working too.  Well, it started getting pretty hairy yet
again and quite admittedly, I began to suffer vertigo.  I could no
longer keep straight where I was long, where I was short, what was
winning and what was losing.  When the market is moving fast,
well...that's a position you just don't want to find yourself
in.  It was dumb!  Really, really dumb, not to mention expensive
of me to get myself all tangled up in my own web of confusion.

Not only was I finding myself in losing trades, I was making my
broker very happy with all the commissions.  In my mind there was
only one thing to do.  I liquidated.  I didn't know where the
market was going and I was truly fed up with the game at that
point.  Sometimes the best trade is exiting the very last one you
have at whatever cost.  I essentially sat out Wednesday.  I
watched as former short positions became all the better looking
and lamented as my favorite stocks zoomed up and then right back
down on the pages.  Sure, I regret that but there's always another
day and I hate it when I'm so out of sync with the moves that I
can't pull off even one small winner.  Hindsight is very good and
of course with today's moves, I'd have been sitting pretty but who
can know that at the time?  Sometimes you've just go to have the
presence of mind to save yourself from yourself.  Today was
beautiful but it's just one day at a time these days.  And now,
I've digressed.

So why don't I want to say "bottom" here?  Because the sentiment
in the masses has changed.  Before, I was a lone ranger out here
buying puts and not understanding why XYZ would never seem to come
down.  I'm always early.  I was gathering puts back in July and
August on the brokerages but they continued their ascent.  The
mania continued on even if I saw the cracks in the foundation.
You think it hurts to be bullish now?  Let me assure you that I've
paid dearly for being bearish.  The masses are what move the
market.  Those of us who are contrarians may throw up our hands
but the tank runs right over us unless our timing is precise.  But
as I said earlier, it had been getting awfully crowded in my cave
and I don't much like to be amongst crowded habitats.

The doom and gloom has been getting oppressive.  Is it over?  One
day does not a trend make but it'll be interesting to feel the
sentiment in the coming days.  Maybe it's different at the bottom
than at the top.  Maybe being early in the bottom is different
from buying puts at the top?  I don't know.  I do know that
yesterday I saw some QQQs in the mid-seventies that were calling
for a home in my IRA.  I love to sell premium in the pokier
accounts.  I figure that if I'm thinking that, then there's
little doubt that there are tens of thousands of other hungry
sharks circling the reef too.  Yes, the people of this country and
even those from outside, love our markets and if they have any
money left, they absolutely want it there.  What would it take to
reach that level of disdain to want nothing to do with stocks?  My
guess is that we don't want to know that answer.

But might we?  That possibility certainly exists.  We're in a
different market than the one in which many of us traders cut our
teeth.  As the sentiment changed, we saw different reactions
to news.  Stocks have been cut in half in a day.  You've all seen
it.  Never before has the risk been so high.  (Maybe there is
something to Austin and Buzz's index trading?)  Analysts are
getting tougher as they've been held to the fires for putting
questionable recommendations to "buy" out there.  They loved 'em
at $150 but hate them at $15.  That ceased to sit well with those
long-term investors out there who bought the $150 on that
recommendation.

And is there any reason to falter further?  Well, there's still
plenty of problems out there and you can find them if you want
to look underneath the rug.  The Euro hit a new low yesterday
and the central bankers are very nervous about that.  The Asian
markets are not exactly bullish and quite frankly look to be in
trouble.  And how about those latest CPI and PPI reports?  Hmmm.
Those inflationary numbers don't exactly point to lowered
interest rates anytime soon.  Most market participants don't want
to hear about this stuff however, and they're wishing, hoping and
praying for a recovery.

Mutual Fund operators are trapped too.  Oh yes, this market does
have many reasons for wanting to go up.  The market needs a bounce
to confound the masses once again.  Was today it?  Is it the start
of an intermediate up trend?  We'll know in the coming days.  Don't
you hate stocks?  I'm getting there.  We're here to trade them and
shouldn't love them anyway.  Remember, nimble is the name of the
game.  Cut your losses quickly and take the profit too soon.
Historically, years ending in zeros are not good despite what the
cheerleaders say about year-end numbers.  What else can they say?
You're not going to see Abbey, Joe or Ralph look into the camera
and tell small investors that they best just get out to let the
big boys take the hits here.  Be very suspicious and control your
greed and fear factors.

I hope you're already signed up for the upcoming Denver seminar.
If not, but you're still considering it, please allow me to indulge
you for just a moment longer.  I've been to other trading seminars
and have firsthand experience that they can't hold a candle to what
OIN puts on for their subscribers.  It's a class act and delivers
unbelievably great information.  I'm just another trader out here
who is quite grateful to have been in attendance for the seminar
this past March.  For the cost of one bad trade...or...better yet,
let's say this, "You WILL pick up something that will help you pay
for it in full in the succeeding trading days."  I hope to meet you
there.


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

Index       Last    Mon     Tue     Wed    Thu   Week
Dow     10142.98  46.62 -149.09 -114.69 167.96 -49.20
Nasdaq   3418.60 -26.49  -76.32  -42.40 247.04 101.83
$OEX      733.89  -3.53  -13.76   -4.95  27.12   4.88
$SPX     1388.76   0.45  -24.65   -7.84  46.63  14.59
$RUT      481.30   1.36  -10.87   -4.67  15.09   0.91
$TRAN    2459.81   7.96  -46.92  -22.57  91.16  29.63
$VIX       28.17  -1.48    3.21   -0.21  -4.33  -2.81

Calls

IDPH      188.63   5.13   14.44    5.81   0.75  26.13  New
RIMM      122.44   9.75    5.75    1.94   5.50  22.94  New
VRTS      160.38   9.44   -1.00    3.69   7.44  19.56  New
CIEN      139.88   7.28   -5.16   -5.94  15.81  12.00  New highs???
SEBL      108.63   4.75   -0.81   -2.38   8.19   9.75  Hot Software
VRTX       80.00   3.75    4.88    1.50  -0.38   9.75  Bullish BTK
BRCD      244.44   8.88   -4.06   -5.94   5.94   4.81  Entry point
RSAS       56.50   0.31    2.75    0.00   1.50   4.56  Charging!!!
GLW        95.19   5.44   -1.31   -7.63   5.81   2.31  Dropped
MRK        77.56   0.69    1.31    0.00  -0.63   1.38  Dropped
NT         65.63   2.00   -3.44   -4.19   5.81   0.19  Ready to Run
SCMR       78.25  -0.34   -6.13   -9.00   8.25  -7.22  Led Recovery

Puts

INKT       73.00   2.88   -4.31  -13.38   5.56  -9.25  13-week low
CRA        64.00  -2.81   -4.56    0.19   4.88  -2.31  Dropped
CPN        82.38   1.63   -1.88   -4.81   3.44  -1.63  Dropped
NVDA       63.69  -1.50   -4.63   -0.94   5.63  -1.44  Entry point?
CREE       86.56  -2.44   -9.19   -1.13  11.69  -1.07  Dropped


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


CALLS:
*****

GLW $95.19 +5.81 (+2.31) The massive rebound in the Tech sector
today did wonders for our GLW play.  Shares were hit especially
hard yesterday after GLW confirmed that it would offer $1.2
billion in new stock and debt to help pay for its recent
acquisition of Pirelli's optical business.  The news has held
GLW back in the last two sessions, but, upcoming earnings could
carry shares higher.  GLW is scheduled to report earnings before
the bell Monday morning, so we're no longer initiating coverage
on the stock.  However, traders might watch the stock closely
tomorrow and how it reacts to the SDLI report and acts ahead
of earnings early next week.  Be cognizant of resistance at $96
and higher around $97.50 in searching for exit points tomorrow.
Both levels have given GLW trouble in the past two trading
sessions.

MRK $77.56 -0.63 (+1.38) We are dropping coverage on MRK tonight,
and taking our modest profit off the table.  It was brought to our
attention that MRK will announce its earnings before the bell
tomorrow instead of after the market close, therefore we are
closing our play.  Near-term support has moved up to the $77
level, with $76.50 area providing additional support.  MRK's
near-term resistance level has been established just above
current levels at $78, with major resistance located near
the stock's 52-week high at $81.  Possible exit points might be
found if MRK rolls over near either major resistance level.


PUTS:
*****

CPN $82.38 +3.44 (+1.63) Banc of America Securities reiterated its
coverage on CPN yesterday, which included its Buy rating and $120
price target.  The analyst talk helped CPN to rebound off $77.50
and bounce into today's trading.  The Electric-Power sector
received an additional boost today from two bullish earnings
reports from FPL Group (FPL) and Dominion (D).  CPN gapped higher
this morning, which might signal a near-term bottom, thus an end
to our put play.  For traders with existing positions, watch how
CPN acts around resistance at $83.50; a break down below the $82
level could send CPN to retest its gap at $81 and provide a good
exit point.

CRA $64.00 +4.88 (-2.31) Throughout CRA's decline in October, the
5-dma has served as formidable resistance, providing traders with
entry points on a regular basis.  Today, CRA settled above its
5-dma.  The selling pressure we witnessed on Tuesday and Wednesday
has proved to be climatic as CRA found support at the $55 level.
Today, CRA managed to close above the 5-dma, now at $62.38,
suggesting that the downtrend may be over.  While CRA did find
resistance at the 10-dma (now at $65.57), it appears that worst
may be over.  With the Amex Biotech Index ($BTK) back above its
major moving averages, we know sector sentiment is also improving.
As a result of aforementioned events, we are taking out profits
and closing our put play.

CREE $86.56 +11.69 (-1.06) CREE has moved in step with the
Semiconductor sector for the past couple of days.  Negative
sentiment in the NASDAQ yesterday morning resulted in a gap down
at the open below $70 support.  The gap brought in bargain
hunters, who quickly bid the stock.  From there, CREE drifted
lower to close slightly lower on over 150% of ADV.  Today, with
sentiment improving in the broader Tech market and the oversold
Semiconductors, CREE gapped up at the open and rallied to close
up over 15%.  While volume was average, the close put CREE
firmly above resistance at the 5-dma (near $82).  While there
is still resistance at the 10-dma (at $92.50), improving sector
sentiment leads us to believe that today's bounce could signal
more upside to come and with that, we are dropping coverage on
the play.


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The Option Investor Newsletter                 Thursday 10-19-2000
Copyright 2000, All rights reserved.                        2 of 2
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********************
PLAY UPDATES - CALLS
********************

SEBL $108.63 +8.19 (+9.75) The blowout numbers from Microsoft
helped shares of SEBL to finally eclipse the $105 level.  SEBL's
strong rally on equally strong volume could portend higher prices
in the coming sessions as we approach earnings, which have been
confirmed to be released on October 24th (next Tuesday).  We'll
want to watch early tomorrow for the bulls to continue buying
SEBL.  Look for SEBL to break out above the $110 level on strong
volume.  Should SEBL break $110, the stock could very well go on
to retest its 52-week high at $118.44, which was traced less than
one month ago.  If the NASDAQ pulls back tomorrow to consolidate
today's gains, aggressive traders might target shoot bounces off
support levels.  Watch for SEBL to bounce off the pivotal $105
level, and make sure to wait for the buyers to step in and bounce
the stock higher.  Commerce One (CMRC), a SEBL competitor,
reported bullish earnings after the bell today, which might help
our play rally above the key $110 level tomorrow.

CIEN $139.88 +15.81 (+12.00) The return of the Tech bulls today
boosted CIEN up to the $140 level, but just shy of its recently
minted 52-week high at $141.  CIEN is on the brink of breaking
out once again.  With continued strength in the NASDAQ, shares
could break out in the coming days.  The blowout numbers from
SDL Incorporated (SDLI) after the bell today could help CIEN
to rally above its high tomorrow, and provide a solid entry
into new positions.  If CIEN can't eclipse the $140 level
tomorrow, traders might look to enter new positions on a
pullback to support near the $137 level, lower around the $135
area, or down around $131 on an extended round of profit taking.
The bullish earnings report from Nokia (NOK), among others,
could get our CIEN play rolling in the coming weeks.  We'll
want to pay close attention to earnings reports from the likes
of GLW, JDSU, and NT in the coming week and their effects on
our CIEN play.

BRCD $244.44 +5.94 (+4.81) Gapping down at the open, yesterday
morning offered aggressive traders an entry with a bounce near
the 10-dma.  From there, the stock found buyers but resistance at
$250 brought in the sellers.  BRCD closed modestly lower on 120%
of ADV, despite a stellar earnings report from storage giant EMC.
Interestingly enough, growth in EMC's Storage Area Network (SAN)
division was over 400%.  Numbers like this only emphasize the
potential of the SAN space, which Brocade is the clear leader in,
with over 80% market share.  Today, on the heels of a strong
NASDAQ, BRCD gapped up at the open.  Getting as high as $247, the
stock sold off until an end of day push lifted shares higher to
close up 2.49%.  A bounce off support at $240, or the 10-dma at
$233.75, could provide traders with an aggressive entry while
conservative traders could look for a break above $247
resistance.  In either case, make sure buying volume supports
any advance before entering new positions.

VRTX $80.00 -0.38 (+1.13) Strong moving average support and
improving sentiment in the Biotech sector has been the key to
this play.  With Merrill Lynch's Biotech HOLDR (BBH) back above
the 200-dma, the Biotechs are bouncing back.  Yesterday, in the
face of a volatile NASDAQ, VRTX gapped down at the open. Touching
its 10-dma (now at $73.65), the buyers came in mass to drive the
stock back up, but shares hit resistance at $85, and eased back to
close up 1.9% on over 155% of ADV.  After such a display of
strength, VRTX took a breather today, closing down fractionally on
low volume.  With strong support at $76.80, thanks to the
convergence of the 5 and 50-dmas, a bounce off that level
could provide for an aggressive entry.  There is also additional
support in the $75-76 area.  Investors may also consider entering
at current levels but make sure the buyers are out in force
before initiating a play.

NT $65.63 +5.81 (+0.19) Yesterday's carnage provided a great
entry into our earnings run play on NT - for those with
iron-cast stomachs.  While it was encouraging to see buyers
step up every time the stock dropped to $60, the buying was
pretty anemic.  Today was a different story altogether as
buyers showed up en masse, right from the open.  Gapping up
at the open, NT spent the first hour deciding whether the
opening gains were for real, and then headed off on a steady
rise, right into the closing bell.  Volume was solidly above
the ADV, and it really picked up after lunch time, adding proof
that this move was for real.  With earnings just around the
corner, next Tuesday to be exact, this looks like the beginning
of the move we have been waiting for.  While double-digit gains
were found in abundance in the technology sector today, we are
more than happy with the 10% move we got from NT.  Our play has
been flirting with the 200-dma (now at $63.63) for the past
month, and today's strong move puts it back above this important
level.  NT found resistance today at $66 and the next level of
resistance is sitting at $68.  Profit taking from today's strong
move could provide an attractive entry point on a bounce from
the $63-64 support level, but more cautious traders will want to
buy a breakout above resistance.  Keep in mind that there are
only three trading days left until NT's earnings announcement;
we want to have all open positions closed by that time.

RSAS $56.50 +1.50 (+4.56) Barely taking notice of the rampant
selling in the broader markets yesterday morning, RSAS responded
by charging up to test the $60 level.  Unfortunately, the
afternoon weakness took its toll and our play fell right back to
the $55 level (now acting as support) at the close.  Today's
gains were more controlled as buyers only pushed the stock up to
the $58 level, but it was nice to see the afternoon selloff halt
at $56.  This pattern of surging higher at the open and then
selling off near the close is a familiar one for RSAS investors,
as it has been doing it fairly regularly for the past two weeks.
Find a pattern and exploit it as long as it continues.  Along
those lines, the late afternoon declines can be used as entry
points for the next day's surge.  This approach is only for
aggressive traders, and you must make sure the afternoon selloff
doesn't violate the series of higher lows the stock has built up
over the last two weeks.  Helping to fuel the move higher in
recent days is a long list of positive press items.  Among them,
RSAS has teamed with CSCO on e-business security, and Global
Network Privacy has selected RSAS for its digital certificate
and authentication capabilities.  While bounces from the $55
support level look attractive for new entries, more conservative
traders will want to wait for a volume-backed move through the
$58 resistance level before initiating new positions.

SCMR $78.25 +8.25 (-7.22) Although beaten up with the rest of
the technology sector yesterday, Optical Networking stocks led
the NASDAQ recovery today, and SCMR wasn't about to be left
behind.  Buyers showed up early and often, pushing our play
nearly 12% higher on volume 25% above the ADV.  While still
underwater from where it was at the beginning of the week,
today's strong move is encouraging.  Things were nip and tuck
near the close yesterday as SCMR flirted once again with major
support at $70, but we are willing to overlook this poor
behavior in light of the solid performance seen today.  Prior
support at $79-80 will now act as resistance and conservative
traders will want to wait for strong volume to push our play
through this level before initiating new positions.  Intraday
support sits near $75, and more aggressive traders can consider
new positions on an intraday bounce from this level.  Earnings
are still set for November 14th, so that event is unlikely to
have an effect, at least not until the end of October.  In the
meantime, market health and sentiment is likely to be the
dominant factor in our play, and today's action is encouraging.
Pay careful attention to the action in the broader markets, and
the Networking sector.  As long as today's improving sentiment
continues, SCMR looks poised to perform nicely over the days and
weeks ahead.


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

NVDA $63.69 +5.63 (-1.44) Recent selling pressure in the PC
sector came to an abrupt halt yesterday as the major indices
bounced from their lows.  Improving sentiment continued into
today's session, and NVDA was just one of many beneficiaries.
With the exception of IBM (due to disappointing earnings),
virtually everything PC-related had a nice recovery today, due
in no small part to MSFT's solid earnings.  After gapping down
to $55 at the open yesterday, NVDA has enjoyed a rather
impressive recovery, ending today's session just below $64, for
a gain of nearly 16%.  So why is it still on the Put list?  The
$64 level looks like it is creating some formidable resistance
and the $66 level will be even tougher to crack.  While
yesterday's recovery came on nearly 30% more volume than the
ADV, today saw a sharp decline in volume, failing even to reach
the ADV.  Today's afternoon rollover came right at the 10-dma
($64), and this could be an attractive entry point for
aggressive players.  A more conservative strategy would be to
wait for selling volume to pick up, pressuring NVDA below $61,
near the opening price this morning.  Earnings are scheduled
for November 9th, so that event is unlikely to impact our play,
at least for the next week.  Keep an eye on sentiment in the PC
sector.  If it begins to deteriorate, it will be a good sign
that NVDA is likely to face more hard times ahead.

INKT $73.00 +5.56 (-9.25) Despite the optimistic rebound in the
markets today, our stellar put play with INKT continued to
profit investors.  INKT hit a new 13-week low on the sell-off
which occurred during the morning trading session.  Once the
stock hit the low of $62, it bounced rather strongly on the
broad rally and powered back to near the day's open.  The
entries once again are offered off of resistance, now at $80
near the 10-dma, and momentum trades below the previous day's
low.  INKT has confirmed their earnings release for Oct. 26th,
so ne cautious of the event, now five trading days away.  It
appears that Freeserve's (FREE) search engine will not be
served by INKT anymore.  Rather they will use the GOTO engine
which is also powered by INKT.  Thus a net zero change in
scope, but the market thinks it's negative.  Investors can
once again look for INKT to rollover at the $80 resistance
area, which is the most favorable entry at current levels.
The momentum break through below $62, which is a lot of
profit to forgo to be safe, however it is playable with
negative market support.


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

VRTS - Veritas Software Corp $160.38 +7.44 (+19.56 this week)

Truthfully, as its name applies, Veritas is the world's best
when it comes to data storage.  They lead the market in this
ever critical component of data storage, and management to help
their customers avoid errors and crashes with network systems.
If a crash does occurs, VRTS' management software allows for
very quick recoveries.  So effective is VRTS at what they do,
that Microsoft and Hewlett-Packard are principle clients and
reasons for the company's success.

What market uncertainty?  As if there were no market direction
uncertainty, VRTS rallied off the convergence of the 50 and
200-dma's to establish a new 13-week high today at $160.38.
This is truly a technical momentum play, with several bullish
formations backing the play.  Also, VRTS broke above resistance
at the established $150 mark.  Furthermore, the positive breakout
today did so forming a very positive hammer bar with a
significant downside tail.  This is an indication of the true
positive nature of the play showing buyers dominating the boards
with VRTS.  A good late afternoon rally raised the stock $4,
indicating professional players are also interested in the
issue.  VRTS is rallying in a post earnings way, as they
reported profits two cents better than expected.  No depression
here, rather a pick-up in momentum due to the news.  Four
analysts confirmed Buy or Strong Buy opinions on the stock,
reaffirming optimism in the play.  The good news and performance
on the play has analysts expecting continued good numbers next
quarter.  Two possible entries are offered on this play
depending on market conditions.  First, look for a momentum run
to continue, and let VRTS trade above $160.50 on positive market
support.  Second, continued jitters in the market could take
VRTS back near support at the 10-dma near $140.  A rebound off
this support would be very playable.

VRTS just introduced their File Sharing Option, to dramatically
speed up transaction speeds.  Dot Hill Systems Corp today
announced they have signed an agreement to be a reseller for
VRTS.  Because of Dot Hill's presence in the industry, the
combination should help VRTS increase market penetration.
A great marketing campaign was also introduced by VRTS today,
that allows purchasers to receive cash equivalent to the stock
value of VRTS software at the close of the program.

BUY CALL NOV-155 VUQ-KK OI=281 at $17.63 SL=13.00
BUY CALL NOV-160 VUQ-KL OI=609 at $15.13 SL=11.00
BUY CALL NOV-165*VUQ-KM OI=584 at $12.88 SL= 9.75
BUY CALL NOV-170 VUQ-KN OI=698 at $10.88 SL= 8.25
BUY CALL FEB-170 VUQ-BN OI=224 at $24.50 SL=18.50

SELL PUT NOV-140 VUQ-WH OI=350 at $ 6.00 SL= 8.50
(See risks of selling puts in play legend)

Picked on Oct 19th at   $160.38     P/E = n/a
Change since picked       +0.00     52-week high=$174.00
Analysts Ratings    11-10-1-0-0     52-week low =$ 35.31
Last earnings 10/00   est= 0.14     actual= 0.16
Next earnings 01-11   est= 0.16     versus= 0.12
Average Daily Volume = 6.01 mln



RIMM - Research In Motion Ltd $122.44 +5.50 (+22.94 this week)

Based in Waterloo, Ontario, Canada, Research In Motion Limited is
a leading designer, manufacturer and marketer of innovative
wireless solutions for the mobile communications market.  Through
development and integration of hardware, software and services,
RIMM provides solutions for seamless access to time-sensitive
information including email, messaging, Internet and
intranet-based applications.  RIMM technology also enables a
broad array of third party developers and manufacturers in North
America and around the world to enhance their products and
services with wireless connectivity.

It appears that a major shift is taking place in the computer
industry.  With traditional boxmakers such as Apple and Dell
recently putting out earnings warnings, stocks in PC makers have
tumbled.  But it has been in this climate that shares of portable
computing device companies such as Handspring, Palm and RIMM have
bloomed, marking a unique divergence in the hardware sector.  No
longer content with large clunky desktop machines or even laptops
for computing and Internet needs, consumers have gravitated
strongly towards mobile Internet-ready devices.  Even in last
night's conference call with Apple Computer, analysts repeatedly
asked Steve Jobs what he thought about the handheld computing
market, suggesting the change in trend toward portable hand-held
devices capable of wireless access to the Internet.  According to
Banc of America Securities analyst Rob Sanderson, "Handheld
computing wireless Internet stuff have done really well in this
recent market downturn, because they don't have the exposure to
some of things that are really scary going on in Tech."  Bill
Crawford of Merrill Lynch added, "Right now we are seeing a
shift from the old computing paradigm that stopped at the
personal computer toward handheld devices. That's the new growth
area and clearly Handspring, RIMM, and Palm are sitting in the
sweat spot of that."  Like its geographic location in the Great
White North, RIMM's stock price has headed in that direction
since finding a bottom in late May.  During that time, the stock
has appreciated over 400%, most recently finding support on a
bounce off the $85 level.  At this point, an aggressive entry
could be found on bounces off the 5 and 10-dmas, at $112.70 and
$107.67.  There is also strong support at the recent resistance
level of $115.  A break through $125 resistance on volume would
provide risk adverse traders with a more conservative entry
point.

Continued interest from analysts in the handheld computing sector
will be a key driver to RIMM's stock price.  When making a play,
look for price moves in HAND and PALM to confirm the direction.
In the news today, RIMM introduced a new handheld wireless device
for use with Bell Mobility's Wireless Data Network, which serves
over 2.7 million Canadian customers.

BUY CALL NOV-115 RUL-KC OI=235 at $17.38 SL=12.50
BUY CALL NOV-120 RUP-KD OI= 32 at $13.38 SL=10.00
BUY CALL NOV-125*RUP-KE OI= 35 at $11.13 SL= 8.25
BUY CALL DEC-125 RUP-LE OI=134 at $16.38 SL=11.25
BUY CALL DEC-130 RUP-LF OI= 21 at $14.50 SL=10.75

SELL PUT NOV-110 RUL-WB OI=188 at $ 6.75 SL= 9.50
(See risks of selling puts in play legend)

Picked on Oct 19th at   $122.44     P/E = 1949
Change since picked       +0.00     52-week high=$175.75
Analysts Ratings      6-7-1-0-0     52-week low =$ 23.25
Last earnings 09/28  est= -0.03     actual= -0.02
Next earnings   N/A  est= -0.02     versus=  0.05
Average Daily Volume = 1.46 mln



IDPH - IDEC Pharmaceuticals $188.63 +0.75 (+26.13 this week)

Based in San Diego, IDEC Pharmaceuticals Corporation is a
biopharmaceutical company engaged primarily in the research,
development and commercialization of targeted therapies for the
treatment of cancer and autoimmune and inflammatory diseases. The
Company's first commercial product, Rituxan, and its most
advanced product candidate, Zevalin (ibritumomab tiuxetan,
formerly IDEC-Y2B8), are for use in the treatment of certain
B-cell non-Hodgkin's lymphomas (NHL).

While it's been a rough October so far for many stocks, investors
in IDPH have had much to cheer about.  With high oil prices,
Middle East tensions, concerns about credit quality in corporate
bonds, and a host of other fears, traders have been running to
the drugs stocks for cover, as could be seen in the strong
appreciation of stocks such as LLY, MRK and ABT.  With many
pharmaceuticals near their all-time highs, traders then turned to
the battered Biotech stocks, driving up many of those issues, as
well as Merrill Lynch's Biotech HOLDR (BBH) back above its
200-dma.  With the Amex Biotech Index (BTK) also back above its
major moving averages, it appears that the Biotech bounce is for
real, which is good news for IDPH.  Since mid-September, IDPH has
been trading in a range of 30 points from top to bottom, with
support at $150 and resistance at $180.  This all changed on
Tuesday when the stock broke above $180, thanks to a stellar
earnings report.  Beating the Street consensus by three cents and
the dreaded whisper number by two cents, the stock rallied on
Tuesday as investors piled in to take IDPH above the key
resistance level.  Since then, IDPH has continued higher, using
its 5-dma for support.  Based on the current trend, a bounce off
the 5-dma, currently at $177.73, would provide aggressive traders
with a target to shoot for, with further support from the 10-dma
near $170.  A bounce off support at $180 is another possible
entry point, but confirm the bounce with volume.  Overhead,
resistance can be found in increments of $5 at $190, $195 and the
bicentennial mark at $200.

Tuesday's rally was also helped by positive comments from Bank of
America Securities, which rated IDPH a Strong Buy, US Bancorp
Piper Jaffray, which gave the stock a Buy rating, and Prudential
Securities, raising their price target to $200.  Along with
today's upgrade of IDPH from Adams Harkness, buying interest in
the stock has risen dramatically.  Confirm that sector sympathy
is on your side when initiating a play, using the BTK and the
BBH.

BUY CALL NOV-185 IHD-KQ OI= 84 at $19.00 SL=13.75
BUY CALL NOV-190*IHD-KR OI= 84 at $16.63 SL=12.00
BUY CALL NOV-195 IHD-KS OI=111 at $14.25 SL=10.50
BUY CALL JAN-190 IHD-AR OI=521 at $30.13 SL=21.75
BUY CALL JAN-195 IHD-AS OI=  0 at $27.88 SL=20.25  Wait for OI!!

SELL PUT NOV-180 IHD-WP OI= 10 at $10.50 SL=14.00
(See risks of selling puts in play legend)

Picked on Oct 19th at   $188.63     P/E = 241
Change since picked       +0.00     52-week high=$196.13
Analysts Ratings      5-6-0-0-0     52-week low =$ 42.75
Last earnings 10/16  est=  0.28     actual=  0.30
Next earnings   N/A  est=  0.36     versus=  0.15
Average Daily Volume  =   897 K



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

No new puts today

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

BRCD - Brocade Communications $244.44 +5.94 (+4.81 this week)

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

Most Recent Write-Up

Gapping down at the open, yesterday morning offered aggressive
traders an entry with a bounce near the 10-dma.  From there, the
stock found buyers but resistance at $250 brought in the sellers.
BRCD closed modestly lower on 120% of ADV, despite a stellar
earnings report from storage giant EMC.  Interestingly enough,
growth in EMC's Storage Area Network (SAN) division was over 400%.
Numbers like this only emphasize the potential of the SAN space,
which Brocade is the clear leader in, with over 80% market share.
Today, on the heels of a strong NASDAQ, BRCD gapped up at the
open.  Getting as high as $247, the stock sold off until an end of
day push lifted shares higher to close up 2.49%.  A bounce off
support at $240, or the 10-dma at $233.75, could provide traders
with an aggressive entry while conservative traders could look for
a break above $247 resistance.  In either case, make sure buying
volume supports any advance before entering new positions.

Comments

BRCD held solidly throughout the day at the $240 area.  That's
the support we are watching for a bounce and an entry tomorrow.
We would like to see BRCD make a successful challenge of overhead
resistance at $250.  A break through of $250 with strong volume
momentum would warrant a conservative entry.  If BRCD falls to
the profit takers tomorrow, look for buyers to show up at $240 or
the 10-dma at $233.98.

BUY CALL NOV-230 GUF-KF OI= 567 at $28.50 SL=20.50
BUY CALL NOV-240*GUF-KH OI= 210 at $22.75 SL=17.50
BUY CALL NOV-250 GUF-KJ OI= 356 at $17.63 SL=13.75
BUY CALL JAN-240 GUF-AH OI= 493 at $37.75 SL=29.50
BUY CALL JAN-250 GUF-AJ OI=6380 at $33.00 SL=25.75

SELL PUT NOV-230 GUF-WF OI=  68 at $10.88 SL= 8.50
(See risks of selling puts in play legend)

Picked on Oct 15th at   $239.53    P/E = 619
Change since picked       +4.81    52-week high=$259.81
Analysts Ratings      9-6-2-0-0    52-week low =$ 52.81
Last earnings 08/16   est= 0.13    actual= 0.16
Next earnings 11-15   est= 0.20    versus= 0.03
Average Daily Volume = 2.79 mln



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

What a difference a day makes!

Stocks rallied across the board today in a classic technical
rebound.

Wednesday, October 18

Stocks closed lower today after a volatile session as investors
continued to worry over the outlook for corporate earnings.  The
Dow Jones industrial average dropped 114 points to 9,975 and the
Nasdaq composite index slipped 42 points to 3,171.  The S&P 500
index fell 7 points to 1,342.  Trading volume on the Big Board
was heavy at 1.43 billion shares with declines topping advances
1,891 to 1,000.  The Nasdaq was extremely active at 2.5 billion
shares traded, the third heaviest day in history.  In the bond
market, the bellwether 30-year bond edged lower to 106 22/32,
pushing the yield up to 5.77% as stocks trimmed earlier losses.


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

Chase Bank     CMB    DEC35C/DEC40P   $0.00   debit   straddle
Bear Stearns   BSC    JAN50C/OCT60C   $8.50   debit   diagonal
Juniper        JNPR   NOV170P/N175P   $0.88   credit  bull-put
Intel          INTC   JAN30C/JAN35C   $2.50   debit   bull-call

Chase started the day off with a bang, announcing lower than
expected earnings before the open.  The issue quickly dropped $6
on the news, and we had no opportunity to initiate the straddle
position.  The move affected other stocks in the financial group
and Bear Stearns opened $4 lower in sympathy with the bearish
announcement.  Traders who participated in the bullish diagonal
spread were offered an excellent entry price.  Juniper dropped
$15 in early trading and there was also a favorable opportunity
in that position.  Surprisingly, Intel rallied in opposition of
the downward trend and the bullish spread offered a number of
entry points in the morning session.

For those of you unfamiliar with the Bull-Call (or call-debit)
spread, the explanation is quite simple.  The bull-call spread
involves the purchase of one call and the sale of a higher
priced call.  The conservative trader will initiate the spread
with the long call option in-the-money and the short call option
at- or slightly out-of-the money, where the greatest amount of
(sold) time premium exists.  An investor can use this strategy
when the outlook for the underlying issue is bullish, but a
reasonable amount of downside protection is required.  In the
newsletter, we generally prefer deep-in-the-money plays for
maximum downside protection while still retaining a favorable
profit potential.

In the case of the INTC play, the long option is in-the-money
and the short option is slightly out-of-the-money.  The goal is
for INTC to be above $40 by expiration week in January.  If that
occurs, the value of the spread will be $5, since both options
are in-the-money, and the return on investment will be 100%.
However, if Intel's woes continue, the risk is limited to the
initial outlay of $2.50.  A closing price in the middle of the
spread returns a portion of the initial investment.  There is no
suggested stop-loss on this position but you should use a mental
exit point; maybe half of the value of the spread debit.  If the
market rallies and Intel continues to recover, the spread might
be closed early for a slightly smaller profit, as both options
move deep-in-the-money.


Portfolio Plays:

After a precipitous 435 point decline early in the session, the
Dow managed to crawl to a respectable finish at the close, down
only a fraction of the original deficit.  The Nasdaq moved in a
similar manner, rebounding from an initial 187-point loss to a
positive interval at midday, before succumbing to additional
selling pressure at the close.  Analysts said concerns over the
high price of energy and weakness in the Euro contributed to the
broad market decline.  International Business Machines (IBM) was
the big loser among Dow components, tumbling $17 to $95 after
several analysts downgraded the stock and lowered their future
revenue estimates in response to the computer giant's flagging
quarterly earnings.  IBM's loss represented over 100 Dow points
and the issue single-handedly brought the industrial average to
its lowest level since March.  Not to be outdone, Chase Manhattan
(CMB) reported quarterly earnings that missed consensus estimates
by 20% and since Chase is acquiring J.P. Morgan (JPM), investors
also punished that Dow component.  Intel (INTC) was the surprise
of the day, rallying to $38 after the chip company's quarterly
numbers topped First Call's revised earnings estimates.  In a
conference call with analysts, company officials offered cautious
optimism about Intel's prospects going forward.  On the Nasdaq,
technology stocks got a boost when Sun Microsystems (SUNW), a
leading maker of Internet servers, inadvertently posted strong
quarterly results on its Web site ahead of its scheduled report
after the close of regular trading.  That was a big surprise!  A
relatively low key issue, PeopleSoft (PSFT) was the top Nasdaq
performer with a 25% spike after the e-business applications
provider's results beat the consensus expectations.  The bullish
news prompted upgrades from ING Barings, Goldman Sachs, and the
Lehman Brothers.  In the broader market, paper, biotechnology and
retail companies were the best performers.

Our portfolio resembled an ancient battlefield with rubble and
debris scattered amongst the ruins and streaks of bright crimson
covering the entire section.  The scene could have been worse
however, without the recovery at midday.  Only a few technology
issues managed to advance during the session and those gains were
relatively small.  The leaders included Research in Motion (RIMM),
Manugistics (MANU), Sepracor (SEPR), and of course, Intel (INTC).
In the industrial group, Allstate (ALL) was a minor surprise, up
$1.25 as investors speculated on the outcome of the company's
quarterly earnings.  Carter Wallace (CAR) also continued higher,
adding another positive day to its recent climb on momentum from
buyout rumors.  Worldcom (WCOM) and BellSouth (BLS) were standout
issues in the telecom sector and it appears that industry may be
headed for a recovery sooner than expected.  One bright spot in
the small-cap issues was Ligand (LGND) as the stock moved to the
top of a recent trading range, and the issue is now poised for a
breakout.  Our new straddle candidate, Globix (GBIX) fell over
$2 during the session, providing a great early-exit opportunity
in the play.  The straddle traded as high as $6.50 overall, a
$0.50 profit on $6.00 invested for just one week in the play.

On the downside, a number of stocks endured substantial losses
and our bearish positions are performing quite well.  American
Home Products (AHP) finally succumbed to selling pressure and
just one day after we closed the play for a small loss, it now
appears that our bear-call credit spread will finish at maximum
profit.  Positions that have benefited from the downward movement
include International Business Machines (IBM), Halliburton (HAL),
Smith International (SII), Covad Communications (COVD), Symantec
(SYMN), and Microchip Technology (MCHP).  At the same time, we
need to make adjustments in a few positions to preserve current
gains, and our primary candidates today are Tolgrade (TLGD) and
I-stat (STAT).  Tolgrade dropped $17 and is now below a recent
support area.  We plan to use any technical rebound to exit the
position or roll to a (short) November Put in the $80-$85 range.
I-stat is consolidating after a recent rally and to maintain a
profitable position, we are going to roll to the November $20
Put for a small ($0.12) credit.  Of course, a major rally would
make these transitions much easier.


Thursday, October 19

Stocks rallied across the board today in a classic technical
rebound.  The Nasdaq recorded its third biggest gain ever as
investors cheered strong earnings from technology bellwethers.
The broad market also recovered from recent selling pressure
amid bargain-hunting and short-covering.  The Dow ended 167
points higher at 10,142 and the Nasdaq finished up 247 points
at 3,418.  The S&P 500 was up 46 points to 1,388.  Activity on
the Nasdaq was moderate at 1.95 billion shares exchanged, with
advances beating declines 2,851 to 1,156.  Volume on the NYSE
reached 1.31 billion shares, with advances beating declines by
1,963 to 920.  In the bond market, the 30-year Treasury rose
7/32, pushing its yield down to 5.752%.


Portfolio Plays:

Today's broad-based rally came as a welcome surprise to almost
every investor and our portfolio reveled in the bullish activity.
The move propelled all of our big-cap technology positions to
recent highs and the monthly results improved significantly with
the outstanding performance of both major indices.  The best
performer in today's session was Applied Micro Circuits (AMCC),
up $26 to $194, and our new credit-spread strangle is expected
to finish at maximum profit.  A number of popular issues also
closed with spectacular numbers including Qlogic (QLGC), up $19;
Juniper Networks (JNPR), up $18; and Manugistics (MANU) up $14.
Honorable mention should be made for Adobe (ADBE), Ariba (ARBA),
Agile Software (AGIL), Brocade (BRCD), Intel (INTC), Nice Systems
(NICE), Polycom (PLCM), Research in Motion (RIMM), Tolgrade (TLGD)
and Verisign (VRSN).  The rally in Nice Systems was particularly
important as it pushed the value of our short-term straddle to
$6.50, a $2.75 profit on $3.75 invested in just one week.  The
Nasdaq-100 (QQQ) straddle also benefited from the upside activity
and in addition to being profitable, the neutral play has reached
the break-even points on both sides of the straddle.  Lower-priced
issues joined in the bullish movement with Allstate (ALL), Bear
Stearns (BSC), Carter Wallace (CAR), Delta Airlines (DAL), Delphi
Financial (DFG), Federal Express (FDX), Knight Trading (NITE),
Read-rite (RDRT), and Worldcom (WCOM) closing higher.  The only
issue that endured a major fallout was drug maker Sepracor (SEPR).
Sepracor lost more than a third of its market value today after
it and partner Eli Lilly (LLY) decided not to develop the new
version of Lilly's blockbuster antidepressant Prozac.  The two
abandoned further development of the compound following studies
in which a heart irregularity was detected using high doses of
the drug.  The drop in share value was unavoidable as the news
came out prior to the open, but the issue traded in a $22 range
during the day, providing plenty of opportunity to profit from
the announcement.

Questions & comments on spreads/combos to Contact Support
******************************************************************
                         - NEW PLAYS -
******************************************************************
EMC - EMC Corporation  $97.00   *** EMC keeps going and going! ***

EMC Corporation and its subsidiaries design, manufacture, market
and support a wide range of hardware and software products and
provide services for the storage, management, protection and
sharing of electronic information.  These integrated solutions
enable organizations to create an electronic information
infrastructure, or what EMC calls an E-Infostructure.  EMC is
the supplier of these solutions, which are comprised of
enterprise storage systems, networks, software and services.
Its products are sold to customers utilizing a variety of the
world's most popular computing platforms for key applications,
including electronic commerce, data warehousing and transaction
processing.  EMC believes these and other information-intensive
applications provide it with significant growth opportunities.

EMC has been one of the steady gainers in the market for many
years.  Its split-adjusted cost five years ago stands at about
one dollar.  Fundamentally, it is a very strong company with
earnings that have exceeded forecasts four quarters in a row,
and most recently this week, with another great report.  EMC's
long-term growth rate is estimated at over 31%, giving its
share value ample room to move higher.  On the cautious side,
be aware that EMC's P/E is relatively high at around 166 and
its market capitalization is also lofty at over $200 billion.
Neither factor in itself is a major cause for concern but if
business slows down for any reason, the company's P/E and market
cap will quickly garner attention.  Technically, the chart looks
great, although the stock did break down below the 50-day EMA
(Exponential Moving Average) on bearish earnings expectations
and general market jitters.  However, the move was short-lived
and the stock price rebounded nicely in today's session.

From a business point of view, EMC dominates the HOT storage
sector.  I have been following their technology for many years
and have heard nothing but praise from EMC's many clients.  In
addition to their hardware and associated software, EMC is
leveraging their expertise by providing consulting services to
current clientele, thus adding to the already lucrative revenue
streams.  A great way to participate in the share value growth
of this company is to buy (call) LEAPS.  Buying a LEAP affords
you leverage on stock price appreciation at a fraction of the
cost of stock ownership.  To sweeten the deal, we can also sell
covered-calls against our LEAPS to reduce our cost basis.

The stock has only to move up to $109 in 26 months for the LEAP
to be profitable on its own.  That is only $12 from the closing
price today.  Selling the covered call immediately lowers our
cost basis.  The goal is for the stock to rally to the strike
price of the sold option by January 2001.  At that time (if the
call expires), we can simply sell another call.  If the stock
price is substantially above $110, we can close the play for a
favorable profit.  In that case, the value of the LEAPS will
have increased in price more than the (short) call because it
is deeper in-the-money and has a slower rate of time decay.


PLAY (conservative - bullish/LEAPS/CC's):

BUY  CALL  JAN03-50   VUE-AJ  OI=1222  A=$59.00
SELL CALL  JAN01-110  EMC-AB  OI=5316  B=$6.50
INITIAL NET DEBIT TARGET=$52.00 TARGET ROI=100% (26 months)


******************************************************************
HGSI - Human Genome Sciences  $91.44  *** Roller Coaster! ***

Human Genome Sciences researches and develops novel compounds
for treating and diagnosing human diseases based on the discovery
and understanding of the medical usefulness of genes.  The unique
company has used automated, high speed technology to discover the
sequences of chemicals in genes and generate a large collection
of partial human gene sequences.  The company believes that its
collection includes most of the genes responsible for producing
proteins in the human body. Human Genome possesses one of the
largest databases of the genes of humans and microbes, which the
company refers to as its genomic database.  It has created a base
of product opportunities based on its genomic technology.  The
company is now focused primarily on the research and development
of proteins for the treatment of human disease.

HGSI was one of the high fliers of last year and also the first
quarter of this year.  Then the Nasdaq crashed and with it came
HGSI, all the way down to the mid $20 range.  After several
months of consolidation and forming a stage I base, it resumed
its upward trend.  Though its decline today was discouraging
considering the upward momentum in the overall market, this can
be attributed to the Biotech's simply taking a breather after a
run to the current levels.  Keep in mind that during this week's
down days, HGSI was still up and on Wednesday it was again one
of the leaders in the group.  The most recent bullish move came
on momentum from Monday's announcement that pharmaceutical giant
SmithKline Beecham exercised an option to jointly develop and
commercialize Repifermin, a wound-healing agent.  Repifermin is
currently the subject of three phase II clinical trials and it
has the potential to treat a number of afflictions, including
diabetic ulcers and inflammatory bowel diseases.  The companies
have agreed to share the costs of phase III as well as development
costs beyond those studies and US Bancorp Piper Jaffray analyst
Thomas Hancock estimated that potential revenues for Repifermin
could reach $1 billion.

Based on the news and recent price movement, HGSI was selected
in the "Big-Cap Naked Puts" section on Wednesday, October 18.

http://members.OptionInvestor.com/nakedputs/101800_1.asp


Since Naked Puts may not be your cup of tea, we will discuss
another strategy that lets you speculate on the movement of
HGSI.  As a spreader, the first thing that comes to mind is
to cover the (naked) put with a lower strike, thus creating a
credit spread.  That will be one part of our strategy.  In
addition, if you are really bullish on this issue, you can
utilize the discrepancies in option pricing and buy a bullish
call spread.  If the equity moves in the correct direction,
our put spread will expire worthless (we keep the premium) and
our debit spread will inflate in price, allowing us to close
it for a profit.

By combining these two positions, we can achieve a very good
return while limiting the risk using spreads.  In the first
part of the combination, our risk is limited to the collateral
for the position; approximately $3.38.  In the second spread,
our risk is limited to the initial debit; approximately $2.25.
The reason we play different months is to hedge against the
position going sour in November.  If all goes as planned and
HGSI rallies, our put-credit spread will expire worthless and
our call-debit spread will be in-the-money and profitable.  If
the issue falters, we will have some time premium left in the
call spread and can attempt to recoup a portion of the initial
cost.  HGSI can take its time moving up as long as it does not
break below $80 before the November options expiration and it
finishes above $105 in late January.


PLAY (speculative - bullish/credit spread):

BUY  PUT  NOV-75  HHA-WO  OI=264  A=$3.12
SELL PUT  NOV-80  HBW-WP  OI=571  B=$4.50
INITIAL NET CREDIT TARGET=$1.50-$1.62  ROI(max)=42%

- AND -

PLAY (speculative - bullish/debit spread):

BUY  CALL  JAN-100  HBW-AT  OI=621 A=14.12
SELL CALL  JAN-105  HBW-AA  OI=392 B=11.75
INITIAL NET DEBIT TARGET=$2.12-$2.25 ROI(max)=120%


******************************************************************
FFD - Fairfield Communities  $12.00  *** Reader's Request! ***

Fairfield Communities sells vacation ownership interests (VOIs),
commonly known as timeshares, through its points-based vacation
system, Fairshare Plus.  The company also offers financing for
VOI purchasers and other related services.

Fairfield recently announced that it is engaged in preliminary
discussions concerning a possible merger or other transaction
between Fairfield and an undisclosed company.  They emphasized
that there can be no assurance that these discussions will lead
to a definitive agreement and the company is not expected to
issue any further public statements regarding the discussions
until an agreement is signed or the discussions are terminated.

One of our subscribers noticed the increased buying activity in
both the stock and options on Fairfield.  She also requested that
we identify some favorable combination positions in the issue.
Based on the favorable technical outlook and increased option
interest, the easiest way to profit from future upside activity
may involve one of the most common forms of bullish option plays.


PLAY (speculative - bullish/synthetic position):

BUY  CALL  JAN-12.50  FFD-CV  OI=103   A=$1.81
SELL PUT   JAN-10.00  FFD-OB  OI=1095  B=$1.00
INITIAL NET DEBIT TARGET=$0.50-$0.62 ROI TARGET=50%

Note:  Using options, the position is equivalent to being long
on the stock.  The collateral requirement for the naked put is
approximately $380 per contract.


******************************************************************
                   - STRADDLES AND STRANGLES -
******************************************************************
ADVS - Advent Software  $55.88  *** Probability Play! ***

Advent Software is a provider of stand-alone and client/server
software products, data interfaces, and other related services
that automate and integrate certain mission-critical functions
of investment management organizations.

Advent shares fell $18 on Wednesday after the company reported
quarterly earnings of $7.1 million, or $0.21 a share, up from
last year's profit of $5 million, and a penny ahead of consensus
analyst estimates.  The company's revenue rose to $34 million in
the latest three months from $27 million in the same period a
year earlier.  So why the big drop?  Who knows, but the move has
produced some excellent premiums in OTM options, and we will use
those inflated prices to speculate on the future movement of the
issue.

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


PLAY (conservative - neutral/credit strangle):

SELL CALL  NOV-80  UIV-KP  OI=131  B=$0.62
SELL PUT   NOV-40  UIV-WJ  OI=10   B=$0.50
INITIAL NET CREDIT TARGET=$1.25-$1.38  ROI(max)=10%
UPSIDE B/E=$81.25 DOWNSIDE B/E=$38.75




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