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Daily Newsletter, Tuesday, 10/24/2000

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The Option Investor Newsletter                  Tuesday 10-24-2000
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        10-24-2000        High      Low     Volume Advance/Decline
DJIA    10393.10 +121.40 10439.30 10273.60 1.16 bln   1562/1279
NASDAQ   3419.79 - 48.90  3526.71  3401.05 1.88 bln   1825/2130
S&P 100   738.42 +  4.07   747.37   731.83   totals   3387/3409
S&P 500  1398.13 +  2.35  1415.64  1388.13           49.8%/50.2%
RUS 2000  487.85 -  2.11   493.84   487.71
DJ TRANS 2471.09 + 34.23  2475.03  2439.85
VIX        26.22 -  0.76    27.11    25.12
Put/Call Ratio      0.64
******************************************************************

Nasdaq Wilts As Dow Shines

Investors sold new economy stocks as the old economy continued
to recover.  It wasn't anything to write home about, but we
saw gains in the old fashioned blue chips.  International Paper
deserves most of the credit as it advanced nearly ten percent.
Financials like Citigroup, American Express and JP Morgan also
gained ground, helping to lift the Industrials.  It was the
tech sector that weighed on the averages today.  A profit-
warning by National Semiconductor last night forced the Chip
sector lower.  This was a weight too heavy to allow the Nasdaq
to hold onto early gains.  All in all, it was nothing compared
to other days already gone by in October.

The Dow Industrials finished at 10,394, up 121.35 on volume
of 1.16 billion shares.  Advancers beat decliners 15-12.  The
S&P 500 also gained, although fractionally, up 2.35 points.
The Nasdaq closed down 48.90 points to 3419.  Volume was good,
but not great at 1.83 billion shares.  Today's weakness helped
the VIX back up to 26.83.  The bond market was equally lackluster
in that trading was tepid.  The 10-year slipped to yield 5.63%
while the 30-year closed yielding 5.74%.




After last Wednesday's panic selling which took the Dow to levels
not seen since March 1999, buyers stepped in and helped the index
get on track to its current uptrend.  The rolling trend that has
resulted from this capitulation looks strong and genuine.  Today's
high of 10440 will be the next overhead resistance for the Dow to
roll on through.  Unlike the Nasdaq, the Dow looks like it is on
the road to recovery, granted it does not break down below this
current trendline.

In earnings news, online retail giant Amazon.com on Tuesday
posted quarterly financial results that blew away estimates,
surprising Wall Street with a smaller loss than it did a year
ago as sales ballooned almost 80 percent.  Amazon reported a
third-quarter pro forma net loss of $68 million, or 25 cents
per share, compared with $79 million, or 26 cents a share,
during the same quarter last year.  Analysts and investors
were also anxious to hear what Amazon had to say about the all-
important fourth quarter.  The company said that sales in the
fourth quarter will likely be between $950 million and $1.05
billion, with pro forma operating losses between 5% and 8%
of sales.  This news helped AMZN climb after-hours to $33.

Nortel reported third-quarter net income of $574 million, or 18
cents a share, compared with $314 million, or 11 cents a share,
during the same quarter last year.  Analysts surveyed by First
Call expected earnings of 17 cents a share, on average.  Revenue
was $7.31 billion compared with $5.15 billion during the same
quarter last year, but analysts were expecting total sales of
$7.63 billion in the quarter.  "We are extremely pleased with
the strong growth in the quarter which reflected our continued
strength and leadership in the key growth areas of optical
Internet, wireless Internet, local Internet and eBusiness
solutions," said CEO John Roth in a prepared release.  Well,
John can say what he wants, but the stock is getting hammered
based on the lower revenue number.  The stock has already traded
down near $50 during after-hours trading.

The best analysis of the day goes to Robert Dickey, chief
technical strategist at Dain Rauscher Wessels.  "The market can
move higher without the benefit of past leaders as long as some
other area takes over the leadership role.  The tech stars of
a year ago have been replaced by the healthcare sector as the
most bullish and the Biotechs leading the higher growth area of
that sector.  Also bullish are the energy stocks.  Tech stocks
are bouncing to some degree, but the sector cannot be called
bullish until it has gone through a likely longer bottoming
period.  Put it all together and you have the makings for a
market rally through year-end, although the colors on your
screen will be different than the last time."  The thought
process here is correct.  Obviously Nortel will lead the tech
stocks back down tomorrow, (helping to convince investors that
the bottom is in place and has been tested) but I expect it to
be a short trip.  It is still likely that the bias is to the
upside for the rest of the year.

The key which traders will be looking for tomorrow is how the
markets react to Nortel and ahead of the Thursday Employment
Cost Index.  That report has long been a favorite of the Fed
Chief's and the number will be closely watched.  Expectations
are for a 1.0% rise.  Also, GDP is due out on Friday and will
also be closely watched.  The expectations there are for a 3.4%
rise.  Some positive economic news could put the market back on
the right track.  The interesting fact of late October trading
is that positive news is typically followed by a decent rally.
That is because the market has already been beaten to extreme
levels.  If Nasdaq is quick to rally, it is a good sign and one
we would want to see for the end of this week.




Yet, the Nasdaq finds itself in a bit of technical trouble.  In the
chart above, you can see that the Nasdaq experienced resistance at
3520 area, and then once again both yesterday and today.  As a
result of sellers stepping in at 3520, which is the low from August,
the tech index has established a triple-top.  This technical
development will pose a strong resistance going forward.  Not many
were buying today, and the Nasdaq slipped away throughout the day.
The minor bounce at 3400 is negligible.  The real problem with the
Nasdaq, other than the NT related selling in after-hours, is that
it has a 159 point gap up from last Thursday.  In conjunction with
the trouble at 3520, the Nasdaq very well may backfill this huge
gap.  I know it's not what we want to hear, but it is particularly
concerning with the Nasdaq futures down 82 points at 4:45pm MDT.

So tomorrow is likely to end underwater for the Nasdaq, but
how much of it is likely to be experienced at the open?  I
expect most of the losses to be incurred at the open as stocks
are being sold now in after-hours.  The thing to watch is if
the gap down is quickly bought back up by buyers.  The last
gap down we saw was on the 18th and buyers quickly emerged.
In fact, that was the last good buying opportunity before this
recent rally.  A repeat of that scenario and we could be back
to rally mode as investors jump in.  There is nothing better
than a rally brought on by fear of missing the bottom.  In
all cases, let the market dictate.  There is no point getting
caught sideways in this fast, volatile action.

Ryan Nelson
Editor


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

2 Types of Traders - Which One Are You?

There are really only two types of traders.  We call them
Winners and Losers.  Now don't get us wrong, no trader wins
100% of the time, however, consistent winners learn to cut
their losses while allowing their profits to run.  The key
to consistently winning is applied knowledge.  The place to
obtain this knowledge is at the October Options Expo.  This
event will take place in Denver, Colorado, from October 27
through the 30th.  Seating is limited.

To sign up click here:
http://www.OptionInvestor.com/workshop

A Taste of What You Will Learn:

Looking for ways to spot early reversal patterns?
Candlestick charting may be the answer for you.  Here you
will learn the most important candlestick formations, how
to use them, and why. Learn how to use candlesticks with
western technicals from the foremost expert on Japanese
Candlesticks, author Mr. Steve Nison.

Learn to use the Arms Index (TRIN) effectively for short-term
trading from the Index's inventor, Mr. Dick Arms.  Mr. Arms
is the author of several books on trading, including the
renowned "Trading Without Fear."    Mr. Arms will be sharing
his newest charting system called "EQUIVOLUME".  This is the
first new charting system since the 1930's!  You won't want
to miss being one of the first to learn about this new
technique.

Mr. Jim Crimmons will be helping you learn how to manage your
taxes as a trader and how to get Trader's Status when filing.
If you face nightmares with your current tax situation, and
want an easier and more effective system for tracking your
trades, you don't want to miss this class.

Mr. Jim Brown, President and founder of OptionInvestor.com
will be teaching "How to Prepare to Trade the Market", along
with other useful trading strategies.  This will include
information on how best to prepare and find your new plays.
Then you will go to battle the next morning, as we make LIVE
trades using the very candidates you helped us find.  There
is no better way to learn how to trade than to TRADE WITH
THE PROS!

This is just a taste of the event.  You will spend four days
with over a dozen professional traders. This is not just
a 9 to 5 seminar.  We are going from early morning to late
night.  This is serious training for serious traders.  You
won't need to go anywhere else, as you will be staying in
one of the nicest hotels in Denver, The Inverness Hotel and
Golf Club.  Not only will we be feeding your mind for almost
15 hours a day; we will also feed your body, with delicious
meals and breaks five times a day.   What an opportunity to
spend four days in luxury, learning from the pros, while
being fed in so many ways.

You may be asking, "How much will this Power-Packed Options
Expo Cost Me?"  This is a great question, however, the
question you should really ask is, how much will it cost you
if you don't attend?  Have little mistakes or a lack of
specialized education in the options arena cost you any
money lately? Or could you have reaped greater profit if you
only had the right tools? How much would successful trading
techniques have saved you last Spring during the NASDAQ
sell-off?

Learn to protect yourself and profit in volatile markets.
The only difference between the pros and amateurs is
EDUCATION, ACTION and EXPERIENCE.  We are providing the
EDUCATION and EXPERIENCE, so that when you take the ACTION,
you will have a winning combination.

To register click here:
http://www.OptionInvestor.com/workshop

Check out an outline of events here:
http://www.OptionInvestor.com/workshop/outline


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

Dear Markets: Where Are You Going?
By Austin Passamonte

Are we the only ones searching for a little market conviction
here? It seemed like we were actually on the path in one firm
direction heading into the weekend, but something happened between
happy hour and the start of a new work week.

Investor sentiment sure did change. No amount of bad news after
last Wednesday noon could keep prices down very long. Now they
are just down, period. A few keynote companies report tonight
after the bell and it's red ink all over the screens.

Let's see; last Wednesday we... oh never mind. How about the
Wednesday before instead? Looking over that chart we see... uh,
better not focus on the Wednesday theme here if you have any
bullish blood flowing at all.

Market noise, market chop, market indecision. Where will we go
next?

Market Sentiment still sees good things on the horizon for equity
indexes heading into the future. That doesn't mean it begins
tomorrow. Weekly charts help long-term traders and that won't make
it for open calls on tech leaders at tomorrow's open. We cannot
stress enough the importance of trading within very conservative
limits of your account until clear market trends do evolve.

Candlestick patterns on the NASDAQ indexes are all Evening Star
bearish formations, with a grain of salt. This bearish reversal
holds more merit towards the top of recent market highs and we
wouldn't exactly call current levels that. This doesn't negate the
fact that it shows three days of sentiment change from bullish to
undecided to bearish in succession.

The Dow has enjoyed four consecutive higher closes and a decent
run from 9600 Wednesday, er uh one certain morning last week. The
OEX and SPX have logged three consecutive stalemate "dojis" which
warn of a significant move soon.

What's our guess? Let's reason this out; we are up big overall
from the lows last week and are hitting overhead resistance,
earnings are mixed to poor, selling pressure still persists, the
equity futures commercials haven't switched to neutral or net-long
yet, the euro and Middle East soap operas rage on... do you see
where this is headed?

Likely the same direction our markets are - down. Down to the next
great entry point for bullish plays. Market Sentiment will still
trust our weekly charts and long-term signals to lay odds that the
next sustained move is up.

There remains heavy put-to-call ratios below current levels with
comparatively light resistance above. In our estimation it would
take shocking news to keep us at or below last week's intraday
lows any time soon.

We currently view all pullbacks from here to be worthy test entries
to probe with bullish plays ONCE THE MARKET TURNS from support!
These are markets where we need to buy strength and short weakness
as it occurs. Tight stops trailed up and small amounts of risk
capital will keep us in good stead until the next sustained trend
is safely underway.

Trade lightly and carry a big reserve of cash until then!

*****

VIX
Tuesday 10/24 close; 26.22


30-yr Bonds
Tuesday 10/24 close; 5.71%

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.

                                   Tuesday
                                 (10/24/2000)
  (Open Interest)       Calls        Puts          Ratio
S&P 100 Index (OEX)
Resistance:
775 - 760                4,461        2,708         1.65
755 - 740                8,527        5,033         1.69

OEX close: 738.42

Support:
735 - 720                5,366        8,369         1.56
715 - 700                1,273        7,471         5.87

Maximum calls: 740/5,155
Maximum puts : 730/4,132

Moving Averages
 10 DMA  724
 20 DMA  740
 50 DMA  780
200 DMA  779


NASDAQ 100 Index (NDX/QQQ)
Resistance:
 91 - 89                12,880         9,572         2.26
 88 - 86                16,339        16,528          .99
 85 - 83                19,744        36,868          .54

QQQ(NDX)close: 82.50
Support:

 81 - 79                14,968        21,604         1.44
 78 - 76                 7,046        29,318         4.16
 75 - 73                 2,994        17,258         5.76

Maximum calls: 90/12,953
Maximum puts : 78/19,689

Moving Averages
 10 DMA 81
 20 DMA 83
 50 DMA 90
200 DMA 94


S&P 500 (SPX)
Resistance:
1475                   16,924         4,783          3.54
1450                    9,443         8,503          1.11
1425                    7,667        10,722           .72

SPX close: 1398.13

Support:
1375                    11,730       16,048          1.42
1350                     7,650       20,613          2.69
1325                     1,816        9,844          5.42


Maximum calls: 1475/16,924
Maximum puts : 1350/20,613

Moving Averages
 10 DMA 1370
 20 DMA 1399
 50 DMA 1452
200 DMA 1443

*****

CBOT Commitment Of Traders Report: Friday 10/20
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              -91                   -5
Total Open
Interest %        (7.19% net-short)      (2.86% net-short)

NASDAQ 100
Open Interest
Net Value              +300                   -85
Total Open
Interest %        (1.73 net-long)        (0.21% net-short)

S&P 500
Open Interest
Net Value              +55,273                 -66,352
Total Open
Interest %        (17.89% net-long)      (10.75% net-short)

What COT Data Tells Us: Commercial positions in S&P 500 added to
five-year extreme short levels but the overall net-short
percentage declined slightly. Small specs decreased their net-long
positions as compiled Tuesday 10/17 by the CFTC. Friday's data
should give a clearer picture to Commercials either covering some
profitable shorts or holding fast into this week.

Bullish:
Fed's finished
Benign government reports
Disparity in overhead call/put ratios
Earnings season
Some positive earnings

Bearish:
Oil Prices (falling)
COT reports
Recent pre-warnings, downgrades
Earning shortfalls
Lack of market follow-thru
Broad market's break of critical M/A support
Market leaders breakdown


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

As of Market Close - Tuesday, 10/24/2000

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

DOW   Industrials      10,393       9,650  10,600
SPX   S&P 500           1,398       1,305   1,420
COMPX NASD Composite    3,419       3,000   3,650
OEX   S&P 100             738         680     750
RUT   Russell 2000        487         455     500
NDX   NASD 100          3,353       2,950   3,700
MSH   High Tech           931         825     990

BTK   Biotech             746         630     800     **
XCI   Hardware          1,241       1,100   1,310
GSO.X Software            420         355     455
SOX   Semiconductor       716         600     805     **
NWX   Networking        1,106       1,010   1,200     **
INX   Internet            344         275     400

BIX   Banking             559         505     565
XBD   Brokerage           613         555     630
IUX   Insurance           786         720     790

RLX   Retail              771         695     785
DRG   Drug                420         395     430     **
HCX   Healthcare          868         825     900     **
XAL   Airline             133         124     140
OIX   Oil & Gas           306         304     328

Five alerts were triggered in the past two sessions, all at
resistance.  The SOX triggered an alert right at resistance, then
got hammered.  Lowering resistance (BIX, XBD, RLX).  Raising
resistance (BTK, SOX, NWX, DRG, HCX).


***********
OPTIONS 101
***********

The School of Hard Knocks Part 2
By David Popper

Many years ago, a young trial lawyer found himself in a case in
which he was severely overmatched.  On the night before his final
argument, he was working feverishly.  The harder he worked, the
more confused he became, until the whole argument was one
disjointed mess.  He just knew that he would make a fool of
himself.  He just knew that word would get back to his boss and
that he would be fired.  Sure he was tired.  Twenty hour days for
two weeks straight is tiring.  It also caused him to lose sight
of the big picture.  He could not see the forest from the trees.
He was intimidated.  After years of dreaming for the opportunity
of being lead counsel in a huge trial, he was not relishing the
challenge, instead, he was shrinking from it.  Somewhere around
10:00 that evening, his boss came by to pick up a file.  He
observed the young attorney's demeanor and asked a few general
questions about the case.

At 9:00 AM the next day, it was time to proceed.  The young trial
lawyer looked over his shoulder to see the size of the crowd.  To
his surprise, his boss was in the courtroom.  Now his heart
really raced.  Then the older attorney stood, approached the
table and asked, "May I argue this one?"  Twenty minutes later
the older attorney gave a stirring and passionate argument.
After the case was over, the younger attorney was dumbfounded.
"How in the world could you argue so well and so passionately
on such little preparation," asked the young lawyer.  "Little
preparation, are you kidding," exclaimed the older gentleman.
"Son, I have had thirty years of preparation and have suffered
greatly. Thirty years of legal practice teaches you about
yourself and others that you cannot learn out of a book.  Son,
you cannot argue passionately until you have suffered deeply.
I have had thirty years generally and twenty minutes in direct
reparation for this argument."

Last week, I discussed the impact of my first real initiation
into a market correction.  The dates were August 31st and September
1st, 1998.  Before that time, I had read the books, read the
newsletters, read IBD and followed the rules, but it was all
mechanical.  I had no sense of history and I had no feel.
Money was easy before that date, so I figured that I knew all
that I had to know.  After feeling the panic of a drop, the
relief of selling, and the disillusionment of witnessing stocks
rebounding after I sold, I was mentally and emotionally drained.
Like the young lawyer above, my strategies and account were one
disjointed mess. I realized that I really didn't know much about
the market, maybe I was ready to learn.

Last week, I began to discuss some of the lessons that I learned
in the carnage of those two days.  Please refer to the October
10th, 2000 Options 101 article.  Those lessons dealt with stock
selection.  Below are additional lessons that I learned.  Some of
these lessons are personal in as much as they fit within my
personal time constraints and may not be applicable to the full
time trader.

5. DO NOT USE MARGIN.  Simply put, margin makes you a victim.
When the market moves against you and you are margined, fear
and panic grip you.  You can lose your objectivity, because
your lifestyle is affected.  You begin to hope, then panic.
Worse yet, you may get a maintenance call from your broker.
This requires you to pony up money immediately or suffer
a forced sale which usually happens at the market bottom and
just before a reversal.  Instead of using margin on the front
end, save some cash to use to buy the severe dips.  Someone
else's margin call can be your buy of the year.  Use the
dips to make great buys, do not allow the dips to wreck your
account.

6.  DO NOT BUY FRONT MONTH CALLS UNLESS YOU CAN MONITER THE
ACTION ON AN HOURLY BASIS.  In case you haven't noticed, this
market turns on a dime.  Who knows what will happen next hour
much less the next day.  Front end options can depreciate
instantly.  At least with stocks, you have the luxury of selling
for a loss or waiting for a rebound.  With front end options,
you can lose it all quickly.  This obviously affects your psyche
and objectivity.  When objectivity is lost, anyone can and will
make silly and desperate decisions.

7.  SAVE SOME CASH FOR RAINY DAYS.  This rule is consistent
the above rules.  When you have some cash set aside, downturns
can turn into buying opportunities instead of margin calls.
When you have some cash set aside, you can take positive action
to enhance your account, rather than sit by helplessly watching
your account shrink.

8.  DO NOT PLACE TOO MUCH MONEY INTO ANY ONE STOCK.  Although
It is tempting, try to avoid placing too much money into any
one stock.  Just one week ago the market rallied 250 points,
but EXTR fell 12 points despite blowout earnings.  EXTR is a
great stock, but it did not act great that day.  PMCS and
CHKP offset the EXTR loss.  Needless to say, it is better
to divide your risk.

9.  HAVE AN OVERALL PLAN.  I wrote this article last week, so
I do not have the benefit of knowing what happened on Monday
or today.  If the market is doing well, no doubt you feel
euphoric.  If the market is down, fear is in the air.  If
you have a plan, you feel neither euphoric or fearful
because you realize that over the long haul there will be
great times and bad times in the market.  You simply have
to learn to execute in all environments.  Personally, in
my IRA account I am more patient with each stock when they
fall because I am convinced of their overall quality.  In my
cash account,  I try to generate a monthly income, so I
typically write covered calls most of the time.

I do not represent myself as any expert.  In fact my
conservative money management is employed because I
recognize my inadequacies.  I am in this game over the
long haul, so I can not let the August 31st's of the
market break me.  Like any other storm of life, they
must be confidently and adequately managed.


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

Ouch! Review of My October Plays
By Scott Martindale

Okay, picture this scenario.  I have just arrived home in the
early morning hours of Wednesday Oct 18th after a week in sunny
Mexico.  After catching a few hours sleep, I'm at the computer
with CNBC on the TV, looking at email and trying to get my
bearings as the markets plummet - the Nasdaq is down 188 points.
I had closed a few naked put positions before leaving the country,
but still held several.  The QQQ puts that I bought for insurance
had executed at my limit order (near the market low!) for a nice
gain, but my naked puts were in bad shape.  I really wanted to
sell some more, both under support and deep ITM.  But my
conservative (or is it wimpy?) side overrode, so I sat and watched
the market climb 400 points from that hole into the next day while
I added only one new naked put position (ATM Oct 10 puts on ICGE).

The late market advance was not enough to make me whole on most of
my remaining October naked puts, but it was better than a kick in
the head.  I was able to buy some of them back at reasonable
prices.  Let's look at some of my plays, shall we?

Like last month, I shied away from buying calls.  In fact, I
bought no calls at all.  Now, you must realize that I played tons
of calls during 1999, but as I've discussed in previous articles,
it got to the point that I seemed to be merely churning the
account, so I now focus primarily on selling naked puts, with some
covered calls as well.  However, I made a couple of short-term put
purchases on CPTH (OIN recommendation) and QQQ, both of which
proved quite profitable.  But I'm a bull at heart.

This month I sold covered calls on BBH and PEB during the strong
biotech surge, but there was not enough of a broad advance leading
to overbought conditions to entice me to sell much more.  As usual,
I concentrated on naked puts.

All told, I sold puts (mostly ATM, some slightly OTM, and a couple
well-ITM) on ten different stocks: VITR, RHAT, SCON, MSTR, GSTRF,
PRSF, SCMR, WGR, ORCL, and ICGE.  I chose them from a watchlist
made up of stocks that I like for their important technology or
products, favorable technical picture, and high options premiums.

I first sold puts on VITR based on the OIN naked put list.  The
stock had been strong technically, so I sold Oct 40 puts on the
first pullback on Sept 6th.  It then held up nicely in spite of
Nasdaq weakness, going back over $50.  Nonetheless, the option
premiums never really came down much, which is one of the problems
you run into when you sell OTM puts.  So, I thought I'd give it
more time to erode, and I really didn't worry about it given its
huge gap above the $40 strike.  However, after hitting $54.75 on
Sept 27th, it began a rapid decent in which it actually touched $20
two days prior to expiration on Oct 20th (a mere three weeks)!
Fortunately, I closed the position for a small profit when it
started showing severe weakness on Oct 3rd - only four trading days
after the $54.75 peak.  This is why stocks like VITR command such
high premiums.

I started selling puts in greater earnest on the first signs of
Nasdaq support around 3800 in mid-September, and then sweated it
out as the market continued its slide.  I sold puts on RHAT, SCON,
and MSTR on weakness.  I bought back RHAT two weeks later at a
small loss, bought back MSTR the day before expiration for a small
gain, and took assignment of SCON, since it's on my list of high-
potential stocks to accumulate.

I sold SCMR puts on weakness as the stock was dropping.  I was
listening to a favorite guru who called SCMR a "table-pounding
buy" under $110.  I sold ITM puts, and then more ITM puts as it
dropped further, looking for a rebound that didn't occur until it
had dropped even further.  I bought some puts back, but I also
took some shares at $100 since it's on my list of stocks to
accumulate.  The play that worked out the best was on WGR, a
natural gas company.  I sold the Oct 25 put on Sept 28th when the
stock was at $24.50, and bought it back on expiration day when the
stock was about the same price, but all the time premium had
eroded.  This is the way you're supposed to make money in a
sideways market.

ORCL was my one successful short-term ITM play.  I sold Oct 65
puts for $6.38 on Oct 4th when the stock was knocked down to $61
due to a misinterpretation of the CFO's body language at a
presentation.  That paid off when I bought them back two days
later for $2.50.  I was tempted to hold them longer to burn up more
time value, but I held myself to the exit strategy I planned going
in, which was to do a short-term play on an oversold bounce.  In
retrospect, a more profitable play would have been to sell the Oct
70's, which would have provided more premium erosion as the stock
rose back above $70.

There were some instructive things that took place during the
month.  I sold most of the naked puts while the VIX was low, so it
was hard to buy them back much cheaper as the VIX rose and brought
up the options premiums along with it.  For example, I sold the
Oct 40's on VITR for $4.13 on Sept 6th when the stock was at $45,
but the premium never went much below 3 even as the stock rose to
almost $55.

Unlike last month, I wasn't able to close out any positions for
cheap long before expiration, which is the primary goal of all my
naked put plays.  But expiration week gave us a nice bottom and
bounce.  As it turned out, I got good pops on the last few days to
close out positions for much better prices than it appeared would
be possible, thanks to some great earnings reports.  But because I
sold puts a little too early and then failed to buy back while I
was ahead, I came up with more losers than winners for the month.

However, my plan to exit early if things went against me didn't
play out very well because they gapped down too fast.  It's hard
to bring myself to close out for a big loss after such huge
negative moves on good stocks.  I decided to wait for some
inevitable recovery and time value erosion before closing them.
This strategy worked for some but not all of the positions.  Keep
in mind that it doesn't matter what the stock SHOULD be doing - it
only matters what it's actually doing.  In the end, the only thing
that matters is price.

It looks like we have an after-market sell-off tonight on a lot of
big names like NT, SCMR, GLW, SDLI, JDSU, etc.  Perhaps we'll test
the bottom again, or perhaps this is an entry point.  Me?  I think
I'll wait for some confirmation, but I'm starting to nibble for
November expirations.


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

Index       Last    Mon    Tue   Week
Dow     10393.07  45.13 121.35 166.48
Nasdaq   3419.79 -14.45 -48.90 -63.35
$OEX      738.42  -3.81   4.07   0.26
$SPX     1398.13  -1.15   2.35   1.20
$RUT      487.85   2.51  -2.11   0.40
$TRAN    2471.09 -32.21  34.23   2.02
$VIX       26.22  -0.44  -0.76  -1.20

Calls

IDPH      200.75   6.63   3.88  10.50  Biotech leading the way
BRCD      260.00  14.19  -6.63   7.56  Another all-time high
AGIL       77.63   2.19   2.88   5.06  New, dodged weak Tech sector
RIMM      118.75   5.84  -4.47   1.38  Succumbed to NASDAQ's weight
HAND       88.13  -3.56   2.38  -1.19  New, hand-held is hot
SCMR       82.28   4.13  -6.78  -2.66  Dropped, un-nerved optical
BRCM      239.00   9.56 -12.75  -3.19  Profit taking pullback
RSAS       54.38  -1.81  -1.56  -3.38  Low-volume profit taking
EMC        95.69  -0.06  -4.25  -4.31  Trouble with $100 level
JNPR      218.13  -7.13  -6.75 -13.88  Weak optical sector
CIEN      135.38  -7.38  -6.75 -14.13  Earnings jitters in tech
NTAP      133.69  -8.25  -6.69 -14.94  Valuation downgrade
VRTS      144.56  -9.44 -12.81 -22.25  Dropped, lost its backbone

Puts

VTSS       67.50  -2.63  -6.75  -9.38  New, fell below 200-dma
PVN        98.25  -2.31  -2.50  -4.81  Selling volume waning
FCEL       71.50  -2.09  -1.78  -3.88  Failed rally attempt
PHCC       51.94   6.94  -3.38   3.56  Analyst disagreement
ANEN      104.31   6.38   7.44  13.81  Dropped, strong rebound


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:
*****

VRTS $144.56 -12.81 (-22.25) National Semiconductor's (NSM)
warning today hit the NASDAQ, and it was not a good time for a
slide.  It quickly took the backbone out of the buyers, and as a
result, VRTS sold off all the way back to the 20-dma at $143.
The stock actually dipped below this support mark to a low of
$141.  Since today's action broke below our 10-dma support stop
line, it requires that we drop the play  Today, Solomon Smith
Barney reiterated VRTS with a Buy rating as a result of the
company's meeting with analysts.  Many analysts have been
concerned with a possible deterioration in VRTS' relationship
with SUNW.  Also, news came out in the meeting  that Legato is
beginning to take significant market share from the company.
With this news and turn of events, we dropping coverage on VRTS
tonight.

SCMR $82.28 -6.78 (-2.66) Clearly un-nerved by weakness in the
Optical sector, SCMR investors have been systematically shedding
shares of the company since yesterday morning.  After failing to
hold above the $92 resistance level, our play has given up over
$10, and it is likely to get worse tomorrow morning.  The sector
sentiment got decidedly worse this afternoon after the close
with NT's disappointing earnings report, and it seems a forgone
conclusion that SCMR will gap down at the open tomorrow morning.
Use any bounce tomorrow as an opportunity to obtain a better
exit point.  With the Optical elevator headed down the past 2
days, investors are selling first and asking questions later.
It would be foolish to try and fight the crowd, so we are
cutting SCMR loose tonight.


PUTS:
*****

ANEN $104.31 +7.44 (+13.81) We never got an opportunity to play
ANEN.  The stock immediately gapped at Monday's open and before
long, exhibited strength near the $95 mark.  Today, ANEN broke to
the upside in a big way.  It stopped just shy of $110 and then
gradually receded to find intraday support around $106 and
$107.  The volume levels weren't out of the ordinary nor was
there any pertinent news to predispose ANEN to such a sharp
recovery.  With all hopes dashed for a further breakdown of the
share price, we're taking ANEN off our put list this evening.


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The Option Investor Newsletter                  Tuesday 10-24-2000
Copyright 2000, All rights reserved.                        2 of 2
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********************
PLAY UPDATES - CALLS
********************

CIEN $135.38 -6.75 (-14.13) The underlying jitters about future
earnings augmented the profit taking in the tech sector this
week.  CIEN fared well though and offered a nice intraday spread
to target shoot.  In both sessions, CIEN challenged the upper
resistance and flirted with Friday's all-time high of $151.
Initially, $138 and $140 supported CIEN on intraday swings;
however, today's late day sell-off brought CIEN down to its
previous resistance level.  With concerns about market direction
making traders nervous, it'd be wise to consider waiting for the
buyers to return to the NASDAQ.  What's more, the revenue
short-fall from Nortel after the bell today may cause problems
for CIEN tomorrow.  The more enterprising might enter positions
on a rally above $140 backed by respectable volume.  As it turns
out, there is about six more weeks before Ciena reports earnings.

NTAP $133.69 -6.69 (-14.94) Robertson Stephens clearly noted
that NTAP's downgrade to a Buy from Strong Buy on Monday wasn't
due to any weakness in the current quarter or future growth.
Analyst Dane Lewis cited rising competition in the NAS market
and the stock's rich valuation as limiting upside potential.
The rate cut, nevertheless, put a negative bias on NTAP's
trading.  And yes, there was the typical profit taking to ice
the cake.  Remember that on Friday NTAP just hit a new 52-week
high following a couple days of strong action.  Taking an entry
into this momentum play at the current level might be too risky
for some traders.  So if you'd rather take a more modest
approach, buy into strength as NTAP moves back through $140 on
good volume.  There may be some opposition around $145, but then
it's on to challenge 152.75 for another new record.  The company
is confirmed to report earnings in just a couple weeks on
November 14th, after the market.

BRCM $239.00 -12.75 (-3.19) BRCM has been a stellar performer
up until today's warning from National Semiconductor (NSM) sent
the tech sector lower.  BRCM gave us a $15 range yesterday, as
it continued its bullish momentum to its upper resistance level
at $260.  Early morning trading took shares right to the
resistance mark, where it served as the roll-over point for
today's sell- off.  As the NASDAQ deteriorated, BRCM remained
in its downward trend as well.  It did manage to bounce off the
low of $234.50 to close near support at the 50-dma at $238,
where it might rebound. Rebounds off the 10 and 50-dmas are
playable on market strength. If momentum and strength can take
us back through the $260 area, we should see BRCM retest near
$275.  Big news that might help BRCM higher is the stock's
addition to the NASDAQ 100 index on Monday.  This could add


IDPH $200.75 +3.86 (+10.50) Momentum is clearly in IDPH's favor
as the stock continues to move up on accelerating volume.  On
Monday, helped by an across-the-board rally for the Biotech
sector, IDPH gained $6.64 on over 180% of ADV.  While many
Biotechs gave back their gains today, IDPH continued higher,
adding another 2% to its price and in doing so, closed above the
$200 resistance level.  The close resulted in IDPH making yet
another new all-time high, on twice the ADV.  With blue-sky
territory up ahead, resistance can be found in increments of $5
at $205, $210 and $215.  If the buyers continue to bid up IDPH
tomorrow, an entry can be made on a break above today's high
($202.19) on volume.  Aggressive traders might look for a
pullback to support at $200 or the 5-dma, currently at $192.93
before initiating a play.  While IDPH was able to buck the
Biotech trend today, sector sympathy is still an important
consideration, especially with the recent news from the
company.

RIMM $118.75 -4.48 (+1.38) Last Friday, after the closing bell,
RIMM announced that it had filed to sell 6 million shares of its
stock.  Without providing a reason for the sale, traders sold the
stock down after-hours but on Monday, the market had a chance to
factor in the news.  Gapping down at the open near the 10-dma
(currently at $110.78), buyers came in mass to bid the stock up.
Not only did RIMM get back to even, but it moved higher, until it
hit resistance at $125.  Despite this, RIMM closed up $5.86 or
almost 5% on over 150% of ADV.  Today, the stock attempted to move
higher.  Breaking through resistance at $125, the stock got as
high as $132.69 before it succumbed to the weight of the NASDAQ,
allowing the sellers to take back some of Monday's gains.  On
further pullbacks, aggressive traders will be watching for a
bounce off the 10-dma near $110 for a possible entry while
conservative traders will want to see RIMM break above $120 with
conviction before making a play.

BRCD $260.00 -6.63 (+7.56) What better way to start the week than
by making a new all-time high?  That's exactly what BRCD did
yesterday.  A morning dip to $250 led to a bounce above the 5-dma
and a push above resistance at $260.  From there, the buyers came
in on accelerating volume and in doing so, BRCD closed near it's
highs for the day, up $14.19 or 5.62% on healthy volume.  This
move was in spite of a flat to weak session for the NASDAQ.
Today, traders decided to take some of their profits.  With the
NASDAQ moving lower, BRCD gave back some of yesterday's gains,
shedding 2.48%.  Considering the low volume of the move and the
close right on support at $260, an entry at current levels if the
buyers return could be a good way to initiate a play.  A pullback
to the 5-dma (now at $252.32) could provide aggressive traders
with a higher risk, but potentially more profitable entry.

EMC $95.69 -4.25 (-4.31) The psychological $100 mark is proving
to be formidable resistance for EMC.  While the stock was able to
get as high as $100.88, three attempts to get above that level
were turned back as EMC spent Monday in a narrow range to close
slightly down on average volume.  Today, in the face of a weak
NASDAQ, traders took some profits in the Storage sector.  With
MCDT (which EMC owns a stake of over 80%) dropping almost 14%
today, this provided a further drag.  But there's good news.  EMC
managed to successfully test its 10-dma near $94 as well as its
100-dma at $95, closing above both levels.  As well, volume was
average suggesting that today's drop can be attributed to profit
taking.  For aggressive traders, a bounce off moving average
support could be a possible entry point.  Conservative traders
will most likely sit back and wait for EMC to break through $100
with conviction before making a play.

JNPR $218.13 -6.75 (-13.88) This week has not been kind to our
JNPR play as it was turned back yesterday at the $237 resistance
level.  Then weakness in the Optical sector made things even
more difficult today, as we saw our play unable to scale even
the $230 level.  Particularly frustrating was the fact
that JNPR fell through the $220 support level in the afternoon,
and was never really able to recover.  Adding to the stock's
woes tomorrow will be the effect of NT's earnings, which came
out after the close.  Even though the company beat estimates by
a penny, and had revenue growth of 42%, it was less than the
street was expecting.  NT sold off sharply in the after hours
session, and the negative sentiment bled into other Optical
stocks like JNPR as well.  Since adding the play on Sunday, we
have fortunately not had an opportunity to enter the play, and
we need to exercise extreme caution when considering new
entries.  The $220 support level has been violated which leaves
support at roughly $10 increments below, starting at $210.
Before opening any new positions, we need to see strong buying
volume that propels the stock back over $220.  While aggressive
traders may want to buy a bounce from support, they need to be
very careful not to catch a falling knife.  At a minimum, we
need to see positive sentiment return to both the technology
market in general and the Optical sector specifically.

RSAS $54.38 -1.56 (-3.38) The bulls held their breath today as
profit taking dropped RSAS below $55 today for a bounce right
on the 10-dma ($53.81).  The key to determining that it was
normal profit taking was the weak volume seen over the past 2
days.  While our play is looking vulnerable, with daily
Stochastics and MACD beginning to roll over, the $52 support
level is still intact and unchallenged.  Volume has been a
reliable indicator of RSAS' direction lately with negative
days accompanied by weak volume, indicating normal profit
taking.  With no negative news, today's weakness seems largely
motivated by weakness in the broader technology market, so we
need to confirm positive market direction before initiating
any new positions.  Aggressive traders can consider opening
new positions on a volume-backed bounce from support, but a
more cautious approach will be to wait for buyers to push our
play solidly above the $55 level first.  Above there, RSAS
has resistance at $58, and then $60 (also the site of the
200-dma), so the bulls will have their work cut out for them
if they are going to push our play significantly higher.  A
violation of the $52 support level (just below the 50-dma)
will cast a negative light on our play and raise a big red
caution flag.


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

PHCC $51.94 -3.38 (+3.56) The specialty drug distributor rose a
substantial 14%, or $6.94 in Monday's session on an upgrade from
Lehman Brothers.  Analyst Lawrence Marsh raised PHCC to an
Outperform from Neutral and commented that he expects the share
price to reach $75 within a year.  Goldman Sachs, on the other
hand, took PHCC off their Recommended List and downgraded it to
a Trading Buy the same day.  Volume was heavy at 4.7 times the
ADV on the upswing.  PHCC topped out at $56.50 before getting
shot back down in today's marketplace.  The share price quickly
broke $50 during amateur hour, but unfortunately failed to
rollover at the $52 and $53 level.  While PHCC remains beneath
the 200-dma line, it's imperative the share price makes a
high-volume move to the underside of $50 soon.

FCEL $71.50 -1.80 (-3.88) With Middle East tensions back in the
forefront of traders' minds and oil prices edging higher this
week, has helped FCEL to hold above support at $70.  An early
morning rally attempt on Monday was quickly denied as
traders sold into the strength to drive the stock below the $70
mark.  But a late day bounce allowed FCEL to close above $70,
down $2.08 or 2.76% on over twice the ADV.  Today the bulls came
out again with an early morning rally attempt but somewhere along
the way, buying interest dropped off and with that, the stock
headed lower to close below its 50-dma, down 2.45% on light
volume.  At this point, the bulls and bears alike are watching
the news and oil prices.  Confirming with news, watch for a break
below $70 on heavy volume for a conservative entry while
high-risk traders may target-shoot a failed rally above the 5-
and 50-dma, at $77.98 and $73.62, respectively.

PVN $98.25 -2.50 (-4.81) Even with the DJIA recovering nicely
over the past two days, PVN can't make any headway.  Today
the Financial stocks had a nicely positive day, and our play
continued to deteriorate.  The 5-dma (currently $104.69)
continues to cap each attempted recovery, as selling pressure
pushes PVN closer to major support at the 200-dma (currently
$92.63).  This is just above solid historical support at
$90-92.  A penetration of this level will open the door for a
test of support at the spring and summer lows in the range of
$80-82.  While the technicals like MACD and Stochastics are
still pointed south, we are seeing the selling volume fall off.
This could just be a symptom of declining volume in the
broader markets, but it is a warning sign that selling pressure
may be diminishing.  The rollover this morning at $105 provided
an ideal entry point for new plays, and prudent players will
make sure they have their stops in place.  As PVN approaches
the 200-dma, it is reasonable to assume that the bulls will
attempt to rally the stock.  There is no reason to give back
your profits in that event.  Use any recovery as an opportunity
to open new positions as the bears reassert control, and the
selling pressure intensifies.


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

HAND - Handspring Inc $88.13 +2.38 (-1.19 this week)

Handspring manufactures the Visor handheld computer.  The Visor
is a personal organizer that is enhanced by an expansion slot
for extra memory.  This unique design accommodates such add-ons
like wireless modems, books, games and digital cameras.  The co-
founders of Palm Computers created Handspring in 1998.
Currently, Hawkins and Dubinsky retain a 51% stake in the
company.

A bright future and a strong demand for the company's handheld
computers recently launched HAND to new heights.  Last Tuesday,
Handspring posted a lower-than-expected loss and easily beat
consensus estimates as a result of surging sales.  According
to Chief Executive Donna Dubinsky, "While other product sectors
seem to be experiencing stagnating or slowing growth, we
continue to see a robust market for handheld computers."  COO
Bernard Whitney also told analysts that predicted sales in the
current quarter will also top earlier estimates.  For the
October-December period, Handspring expects sales to reach into
the $95 to $105 mln range.  Besides the obvious demand for its
product, the continued expansion in the US retail market and new
distribution channels in Canada, Europe, and Asia should also
help augment future revenues.  The analysts and investors
obviously liked what they heard.  CIBC World Markets and USB
Piper Jaffray reiterated Strong Buy recommendations and the
latter also raised the price target to $110 from $90.  Investors
demonstrated their enthusiasm on Wednesday by taking HAND
quickly through the resistance at $80 and $85.  By the finish,
the share price advanced $13.69, or 17.6% at the finish and
cracked the $95 level.  Trading activity was paramount at 5.5
times the normal volume levels.  In the aftermath, HAND
continues to trade at these higher levels.  The volume remains
robust and the share price is finding intraday support first at
$90, then lower at $85.  We're anticipating that this stock will
break out again when the profit taking on the NASDAQ subsides
and buyers move back into the techs.  Consider target shooting
for an entry on pullbacks to $85 if your portfolio tolerates a
bit more risk.  Otherwise, consider taking an entry on strong
bounces from the $90 level.  The $95 mark poses the first
obstacle, but the real resistance is just shy of the century
mark at $99.31, last Thursday's all-time high.

In a move to keep up with the times, Handspring products now
come with color screens.  Its color Visor Prism was designed
to rival the new 256 color Palm III.  Now if you're not into
colors, but want to know where you're going, there's CitySync.
The CitySync module comes preloaded with guides to New York
City, Chicago, San Francisco and Los Angeles.

BUY CALL NOV-85 HQA-KQ OI= 92 at $15.00 SL=11.00
BUY CALL NOV-90*HQA-KR OI=263 at $12.63 SL= 9.50
BUY CALL NOV-95 HQA-KS OI= 68 at $10.75 SL= 8.00
BUY CALL DEC-90 HQA-LR OI=  0 at $16.50 SL=12.00
BUY CALL DEC-95 HQA-LS OI=  0 at $14.50 SL=10.75

Picked on Oct 24th at    $88.13    P/E = N/A
Change since picked       +0.00    52-week high=$99.31
Analysts Ratings      9-6-0-0-0    52-week low =$22.38
Last earnings 09/00  est= -0.13    actual= -0.08
Next earnings 01-01  est= -0.17    versus=  N/A
Average Daily Volume = 1.05 mln



AGIL - Agile Software $77.63 +2.88 (+5.06 this week)

Agile Software develops and markets collaborative manufacturing
commerce solutions that speed the build and buy process across
the virtual manufacturing network.  Agile Anywhere (formerly
Agile Workplace) is a Web-based, collaborative software suite
that helps global companies and their partners add, update, and
manage product content throughout the manufacturing supply
chain.  The company's offerings are well suited for participants
connected in outsourced supply chains, as well as those managing
multi-site engineering, manufacturing, sales and distribution
via the Internet.  AGIL primarily targets computer, electronics,
and medical equipment markets.

AGIL has managed to dodge weakness in the technology sector this
week. The stock has extended last week's recovery from the $60
support level.  One possible catalyst for the strong and
sustained move is news that SLR is expanding its use of AGIL's
products (see news below).  The selloff on the NASDAQ last
Wednesday pushed AGIL below its 200-dma, but the buyers stepped
up to the plate first thing Thursday morning, and since then our
new play has tacked on an impressive 19%.  Even weakness on the
NASDAQ has been unable to damp investors' enthusiasm for the
stock.  The company is scheduled to announce earnings on
November 16th, so it is still a bit too early for a run into
that event, but a pullback to support could provide a very
attractive entry.  The first level to consider is $72, which
happens to correspond to the 50-dma ($72.50).  Below that, AGIL
has support between $64-65, with the 200-dma just below at
$63.75.  With Stochastics and MACD pointing solidly upwards,
our play could be in the beginning stages of a strong rally.
We need to exercise caution, though.  Resistance is looming
directly overhead at $81, so conservative players will wait for
a strong move above that level before opening new positions.
Strong volume accompanied the initial bounce last week, but was
much weaker today, falling short of the ADV by 15%.  This could
be a sign that buying interest is beginning to dry up, so make
sure strong buying volume is present before opening new
positions.

AGIL continues to form strategic alliances, and this seems to
have encouraged investors over the course of the past week.
Today's alliance with Alventive, a leading provider of
collaborative commerce Design-to-Order solutions, comes on the
heels of last Thursday's announcement by Solectron (SLR).  SLR
will implement AGIL's Agile Anywhere suite at all its
manufacturing sites worldwide.

BUY CALL NOV-75 AUG-KO OI=  47 at $ 9.50 SL= 6.75
BUY CALL NOV-80*AUG-KP OI=  55 at $ 7.00 SL= 5.00
BUY CALL NOV-85 AUG-KQ OI= 124 at $ 5.00 SL= 3.00
BUY CALL JAN-85 AUG-AQ OI=1611 at $12.50 SL= 9.50
BUY CALL JAN-90 AUG-AR OI=  18 at $10.50 SL= 7.50

Picked on Oct 24th at    $77.63     P/E = N/A
Change since picked       +0.00     52-week high=$112.50
Analysts Ratings      2-7-0-0-0     52-week low =$ 18.31
Last earnings 08/00  est= -0.04     actual= -0.03
Next earnings 11-16  est= -0.02     versus= -0.05
Average Daily Volume   =  743 K



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

VTSS - Vitesse Semiconductor $67.50 -6.75 (-9.38 this week)

Vitesse Semiconductor is a supplier of high-performance
integrated circuits targeted at systems manufacturers in the
communication and automatic test equipment (ATE) markets.  A
leading manufacturer of gallium arsenide (GaAs) integrated
circuits, a type of IC that performs at higher speeds than
silicon chips.  The company offers several products that address
the needs of high-performance communications systems at data
rates from 622 Mb/sec up to 10Gb/sec for the SONET, ATM, IP,
Fibre Channel and Gigabit Ethernet markets.  VTSS also provides
gate arrays and custom products that offer a combination of high
complexity, low power dissipation and high speed for the ATE
market.  Over 80% of sales are to makers of high-speed
communication and networking equipment such as Lucent, Alcatel,
Cisco, Ericsson, and IBM.

Despite a strong earnings report last Wednesday, VTSS has fallen
victim to continued bearish sentiment in the Semiconductor
sector.  Even as the NASDAQ and SOX.X recovered sharply late
last week, the stock was unable to break through the $80
resistance level.  The selling has picked up steam this week,
falling through the 200-dma ($72.13) and support at $69.  Even a
new Buy rating from JP Morgan on Friday seemed to have no impact
as the bears showed up right after amateur hour on Monday.  The
picture was looking mildly negative right up to the final 90
minutes of today's session, as volume picked up sharply and our
play gave up an additional $3.75.  The poor earnings report from
NSM after the close yesterday likely played a pivotal role in
this unfolding saga, as skittish investors need very little
incentive to bail out of a stock or sector with the slightest
hint of weakness.  There is likely to be more weakness on the
NASDAQ tomorrow morning, as the entire Optical sector saw
significant selling in the wake of Nortel's earnings report
after the close today.  This weakness, which bled into the
broader Networking sector, will have a negative effect on VTSS
due to the high percentage of its sales which go to leading
Networkers like LU and CSCO.  The NT news will also create
weakness in the technology sector at the open tomorrow and this
effect will likely be felt by VTSS as well.  While that is bad
for investors, more weakness is likely to give us some
attractive trading opportunities to the downside.  After
violating support at $69-70, look for VTSS to encounter overhead
resistance at this level.  If buyers step in to support the
price, this looks like a logical level to initiate new positions
as the stock rolls over.  Further pressure will come in the form
of the 10-dma ($73.25), which has continued to pressure the
stock for the past 2 weeks.  A more conservative play will be to
enter on continuing weakness, and falling through $66 on
continued strong volume will be the trigger.

BUY PUT NOV-70 VQT-WN OI=179 at $7.50 SL=5.25
BUY PUT NOV-65*VQT-WM OI=282 at $4.88 SL=3.00

Average Daily Volume = 4.65 mln



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

IDPH - IDEC Pharmaceuticals Corp $200.75 (+10.50 last 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.

Most Recent Write-Up

Momentum is clearly in IDPH's favor as the stock continues to
move up on accelerating volume.  On Monday, helped by an
across-the-board rally for the Biotech sector, IDPH gained
$6.64 on over 180% of ADV.  While many Biotechs gave back
their gains today, IDPH continued higher, adding another 2%
to its price and in doing so, closed above the $200
resistance level.  The close resulted in IDPH making yet
another new all-time high, on twice the ADV.  With blue-sky
territory up ahead, resistance can be found in increments of $5
at $205, $210 and $215.  If the buyers continue to bid up IDPH
tomorrow, an entry can be made on a break above today's high
($202.19) on volume.  Aggressive traders might look for a
pullback to support at $200 or the 5-dma, currently at $192.93
before initiating a play.  While IDPH was able to buck the
Biotech trend today, sector sympathy is still an important
consideration, especially with the recent news from the
company.

Comments

The Biotech sector continues to provide investors with profits.
Despite the volatile trading in the broader markets, IDPH has
steadily charged higher over the past week, which culminated
with a break above the significant $200 level today.  Traders
could look to enter new positions at current levels early
tomorrow, after confirming strength in the Biotech sector.  A
pullback to support at $195, or lower near $190, might present
favorable entry points should the profit takers show up
tomorrow.

BUY CALL NOV-195 IHD-KS OI= 291 at $19.63 SL=14.25
BUY CALL NOV-200 IHD-KT OI=1922 at $16.00 SL=11.50
BUY CALL NOV-210 IHD-KB OI= 126 at $12.50 SL= 9.25
BUY CALL JAN-200 IHD-AT OI= 144 at $31.88 SL=23.00
BUY CALL JAN-210 IHD-AB OI=   0 at $27.25 SL=20.50

Picked on Oct 19th at   $188.63     P/E = 241
Change since picked      +12.13     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  =   917 K



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

Another Great Day!

Industrial stocks rallied Monday amid strong earnings from several
blue-chip firms.

October 23, 2000

Industrial stocks rallied today amid strong earnings from several
blue-chip firms.  Technology issues retreated however, as traders
took profits after recent gains.  The Dow closed up 45 points at
10,271 while the Nasdaq finished down 14 points at 3,468.  The
S&P 500 index ended down 1,395.  Trading volume on the NYSE hit
1.02 billion shares, with declines outpacing advances 1,580 to
1,282.  Activity on the Nasdaq was average at 1.69 billion shares,
with advances edging declines 2,087 to 1,874.  In the bond market,
the 30-year Treasury rose 22/32, pushing its yield down to 5.68%.


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

Honeywell   HON   NOV37P/NOV40P   $0.00   credit  bull-put
Visx        EYE   DEC20C/NOV25C   $3.06   debit   diagonal
Biochem     BCHE  APR30C/NOV30C   $1.43   debit   calendar
Broadcom    BRCM  NOV320C/N185P   $5.00   credit  strangle
Handspring  HAND  NOV50P/NOV55P   $0.62   credit  bull-put

Honeywell was a heartbreaker, announcing on Sunday that General
Electric (GE) agreed to buy the company for $45 billion in stock
in a deal that will bolster GE's aerospace, power, industrial
controls, and materials businesses.  Officials said GE will
exchange 1.055 of its shares for each share of Honeywell.  Our
bullish position was unavailable after the news.  BCHE, EYE and
HAND all slumped during the session, allowing favorable entries
in each position.  Broadcom traded in relatively large range,
providing a reasonable opening credit in the (short) strangle.

Portfolio Plays:

Blue-chip stocks rallied today amid strong earnings from market
bellwethers and the Honeywell merger announcement.  On the Dow,
SBC Communications (SBC) was a big winner, rising over $3 to $54
after reporting third-quarter profits which exceeded consensus
estimates by a penny.  SBC also said fourth quarter and yearly
earnings are on target and company officials may consider share
repurchases in 2001.  Major drug issues moved higher after Merck
(MRK) rallied on stronger-than-expected earnings and 3M (MMM) led
the industrial group, rising almost $3 to $89 after posting third
quarter profits which topped the Street's estimates.  3M said it
also expects to meet fourth quarter and 2001 earnings estimates.
Shares of Honeywell (HON) boosted the blue-chips on Monday, rising
$4 to a recent high near $50 after General Electric (GE) agreed
to acquire the company in a tax-free merger valued at $45 billion.
Technology stocks rallied after a slow start, with semiconductor
pacing the group's gains.   Biotechnology issues were also strong
but computer software stocks fell, with Microsoft (MSFT) slumping
over $3 to $62 after last week's big advances.  Internet and B2B
backpedaled, with Amazon.com (AMZN) leading the way ahead of its
earnings report Tuesday.  In the broad market, defense, computer
retailing and photo imaging companies moved higher while trucking,
healthcare and oil drilling stocks retreated.  The downward move
in oil issues was unexpected with crude futures rising as clashes
between Israel and Palestinians near Jerusalem renewed fears about
supply from the oil-rich Middle East.

******************************************************************
                         - STRATEGIES -

One of our new subscribers requested an explanation of the recent
Bear Stearns (BSC) diagonal spread position.
******************************************************************

The options market offers a number of tools and techniques that
can help the astute trader construct a powerful portfolio; one
which possesses a high degree of safety with consistent returns.
Through the use of combinations, the trader has a vehicle to
pursue a wide variety of strategies.  The complete option player
can profit with bullish and bearish plays in situations that
dictate either aggressive or conservative positions.  With an
understanding of the risk/reward relationships between long and
short options at different prices in varying time periods, he can
benefit from the most advanced techniques available in the market.

The majority of traders utilize spreads to reduce the cost and the
risk of option ownership.  They construct combination plays with
partially offsetting option positions to reduce the potential for
capital loss.  Spreads can be designed to generate return diagrams
of almost any character but unfortunately, the fundamental benefit
of this type of trading is also its downfall; the potential gains
are limited.  The most popular types of combination positions are:

Price spreads - the purchase of an option at one strike price and
the sale of another option with a different strike price.  The
potential profit in this strategy is based on the correct forecast
of the direction of the market.

Time (calendar) spreads - the purchase of an option with one
expiration month and the sale of another option with a different
expiration month.  This type of spread benefits from the faster
decay in the time value of the short-term option.

The diagonal spread is a combination of price and time (calendar)
spreads.  The most common version of this strategy requires the
purchase of a long-term call and the sale of a short-term call at
a higher strike price.  In most cases, the initial debit of the
position should be less than the spread between the two options,
eliminating the possibility of loss in an upside break-out.  The
primary advantage of this strategy is the cost basis of the long
position is reduced by the sale of the short-term option.  The
spread achieves maximum profit (at expiration) if the stock price
remains above the sold option's strike price.  The position can
also profit (before expiration) if the underlying issue advances
significantly after the play is opened.

In most cases, a diagonal position is an improvement over the
standard price spread.  If the stock price remains relatively
unchanged or falls slightly, the long option will retain more
value because of its extended maturity.  If the near-term (sold)
call expires, the position can be reestablished with the sale of
a new call.  If the long option is current month, the position can
be converted to a normal price spread.  If the underlying issue
rises above the sold strike price, the spread will be profitable.
With longer-term options, the character of the spread can be
adjusted to match the outlook of the underlying issue.  A neutral
or bearish position can be established with the sale of an ATM
option or the original spread can be duplicated (at a lower cost
basis) with the sale of a new OTM option.  In either scenario, the
long-term diagonal spread benefits from the sale of additional
options throughout the life of the (long) position.

The majority of advantages in a diagonal spread are obvious but
there is one characteristic that most traders overlook.  In a
debit spread, if the stock advances substantially and the options
trade at parity, the maximum potential profit will be limited to
the difference between the strike prices.  With a diagonal spread,
the long option has more time premium.  Thus, when the underlying
issue trades near the strike price at expiration, the value of the
position will grow beyond the theoretical profit range.  With that
in mind, it's easy to see why the maximum potential for profit (at
expiration) occurs at the strike price of the sold option.

Another method that is commonly used to increase the probability
of profit in this strategy requires an understanding of relative
value and implied volatility in option pricing.  When opening or
adjusting any type of spread, it's important to take advantage of
the highest relative premium to create the best possible position.
The exploitation of option pricing disparities is also paramount.
In the majority of OIN positions, we try to open new spreads only
when there is a disparity in pricing (most likely excess value in
the sold option).  This technique allows us to enter plays with a
theoretical edge, at a discount.

For the investor who is not familiar with spread trading, this
strategy offers an excellent opportunity to learn the basics in a
low risk environment.  The concept of the diagonal spread is easy
to understand and once established, the position can be managed
with little difficulty.  The occasional adjustments also provide
the necessary background for more advanced techniques.  Those who
enjoy aggressive directional trading can construct positions to
fit their style as well.  Although the potential for upside profit
is reduced, the limited downside exposure provides a favorable
risk/reward ratio for the majority of investors.

Good Luck!

Questions & comments on spreads/combos to Contact Support

******************************************************************
                         - NEW PLAYS -

Today's Spreads/Combos candidates are generously provided by our
new staff member, Ahmad (Sami) Abualsamid.
******************************************************************

HD - Home Depot  $39.25  *** Upside Potential! ***

The Home Depot, Inc. is the world's largest home improvement
retailer and the third largest retailer in the United States.  As
of January 2000, the Company was operating 913 Home Depot stores
and 15 EXPO Design Center stores.  Home Depot Stores sell a wide
assortment of building materials and home improvement and lawn and
garden products.  EXPO Design Center stores sell products and
services primarily for design and renovation projects.
Additionally, the Company operates two Villager's Hardware test
stores, which offer products for home enhancement and small
projects.  The Company also offers products through two direct
marketing subsidiaries: Maintenance Warehouse and National Blinds &
Wallpaper.

Over the years Home Depot stocks have been one of the few constants
on Wall St.  Once you bought the stock you pretty much were
guaranteed over +40% average annual return, year in and year out.
As of late with the increased volatility in the market and the
addition to the Dow Jones Industrial Average the stock has seen
more volatility than the norm.  It had a good run up to the $60
range, but then it missed the earnings by 3 pennies and the stock
got trashed.  The price fell all the way down to the mid $30's for
a new 52 week low.  That was a good time to buy a LEAP or two.  As
with everything else the market over-reacted to the Home Depot news
and after only several days at that level, it started its climb
back up the chart.  The fundamentals on the company are still very
sound as both net income and net sales keep growing at a very
healthy level.  I visited one of their stores lately three times
to check for myself and the place was full of people every time.
The employees where very helpful and the merchandise was top notch.
It all fits together, over-reaction on the down side, good company,
good fundamentals, and an over all good stock.  There is more than
one way to place a bullish play on Home Depot.  In order to
illustrate the price spread concept that Ray discusses today we
will open up a bullish put credit spread.


PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-36.63   HDW-MK  OI=825  A=$2.50
SELL PUT  JAN-43.38   HDW-MM  OI=569  B=$5.75
INITIAL NET CREDIT TARGET=$2.25  TARGET ROI=100%
B/E=$41.13

The credit is a premium that we keep.  The maximum that we can
loose is the difference in the strikes minus the credit we took in.
If Home Depot is over $41.13 by expiration in January then we break
even. It closed today at $39.25 so we are not far off.  A close
over $43.38 and we finish at maximum profit.  Selecting strong
stocks is important in this strategy as we will gladly be assigned
the stock if the price is below $36.63 in January.  In that case,
we will start selling covered calls against the stock.


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

MSFT - Microsoft  $61.50  *** Winning their battle! ***

Microsoft Corporation develops, manufactures, licenses and supports
a wide range of software products for a multitude of computing
devices. Microsoft software includes scalable operating systems
for servers, personal computers and intelligent devices, server
 applications for client/server environments, knowledge worker
productivity applications, and software development tools. The
Company's online efforts include the MSN network of Internet
products and services and alliances with companies involved with
 broadband access and various forms of digital interactivity.
Microsoft also licenses consumer software programs, sells hardware
 devices, provides consulting services, trains and certifies
system integrators and researches and develops advanced
technologies for future software products. The Company is divided
into three main areas: the Business Divisions, the Sales,
Marketing and Support Group, and the Operations Group.

Microsoft shares fell from the grace as the department of justice
kept hammering on them, the general weakness in the market did
not help either.  However since then we had several events that
changed the complexion of this story.  Assistant Attorney General
Joel Klein head of the DOJ team against Microsoft quit his job
making people think that the DOJ's momentum against Microsoft will
slow down.  America Online (AOL) acquired Netscape showing that
the industry and technology change much faster than lawyers can
keep up with.  Finally, the Supreme court is taking actions that
are interpreted as favorable to Microsoft as they are refusing to
hear the case at this stage and referring the case to the Appeals
court.  The Appeals court historically judged in favor of
Microsoft.

Outside the legal case, Microsoft is still doing a great job in
taking care of its business.  Microsoft Windows 2000 is better
than ever and the Data Center edition will venture into the very
high end server markets.  Microsoft development suite, Visual
Studio version 7 is soon to be released embarking on many new
changes to aid in E-commerce development.  Microsoft claims that
its new database server, SQL Server 2000 achieved the highest
performance ever in terms of TPC benchmarks. Their other ventures
such as the Expedia travel web site, and the MSN network are
stronger than ever.

The market is reacting well to all these news as Microsoft stock
is back on the climb and now would be a good time to play a
bullish call.  Technicians will always tell in cases like this
that you should wait for the turning point before entering a new
position.  Well, do not blink now because the stock just turned
the corner.


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

BUY  CALL  JAN 03-50  VMF-AJ  OI=1706  B=$23.63
SELL CALL  DEC-65     MSQ-LM  OI=190   B=$3.13
INITIAL NET DEBIT TARGET=$20.50  TARGET ROI(26 months)=100%


Another strategy discussed by Ray today is Calendar spreads.  In
this case, we buy a LEAP that is 26 months away from expiration.
By purchasing the $50 strike we are already $11.50 in the money,
and thus we are paying a mere $10 for all this time.  The long side
of the spread will be profitable on its own if Microsoft is over
$73 by January 2003.  By selling covered calls against the LEAP we
reduce our cost with every call we sell.  In fact, we should be
able to reduce our cost on the LEAP to $0 within about a year or so.




**************
BROKERS CORNER
**************

Are You Looking Ahead...
By Robert Norman

The markets won't go down forever!  You have already heard about
the Naked Call strategy which I started talking about in March.
Now we need a plan for a good market because I believe we are
close to the bottom.  If the Nasdaq dipped below 3,000 to 2,800 or
2,500 which stocks would you trade with?  Do you have your list
ready?  Do you know how to create a list?  Here are a few ideas to
help you prepare for a robust winter.  As you all know, I rely on
Investor's Business Daily for a lot of the information that I use
for my trading.  Okay, here we go:

1.  I like stocks that have an EPS rank of 90 or better
2.  Relative Strength of 90 or higher
3.  Accumulation / Distribution rank of A
4.  Group relative strength of 85 or higher
5.  Number of Outstanding shares of 200 mm or fewer (the lower the
    better).  Float 175 mm or fewer
6.  Growth rate (annual compound) 25% or higher
7.  Consecutive yearly earnings increase
8.  Earnings increases last 2 quarters of 25% or higher
9.  Last 4 quarterly sales increases 20% or more
10. No debt or very low debt (less than 30%)
11. Top 2 - 4 stocks in same industry possess high RS rankings (90
    or higher)
12. Institutions own a total of 5% or higher.

Hopefully this helps?  After you have made your list of stocks,
wait for a big up day on the Nasdaq with big volume.  Then within
3 - 4 days look for a follow-through, day when you see both of
these go ahead and start trading.  If you have questions, don't
hesitate to email me at:

Contact Support

Good Luck!

Robert L. Norman
V. P., Investments
J. Michael-Patrick, LLC


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