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Daily Newsletter, Wednesday, 10/25/2000

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The Option Investor Newsletter                Wednesday 10-25-2000
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        10-25-2000        High      Low     Volume Advance/Decline
DJIA    10326.50 - 66.60 10462.00 10306.60 1.30 bln    971/1892
NASDAQ   3229.57 -190.22  3376.33  3210.74 2.17 bln   1258/2727
S&P 100   719.14 - 19.28   737.48   718.21   totals   2229/4619
S&P 500  1364.90 - 33.26  1393.29  1362.21           32.5%/67.5%
RUS 2000  475.21 - 12.64   487.85   474.29
DJ TRANS 2438.81 - 32.28  2471.69  2435.40
VIX        29.89 +  3.67    30.15    27.48
Put/Call Ratio      0.58
******************************************************************

Insatiable Demand Turns To Demise

Investors ran for the exits today as the once untouchable fiber
optic stocks felt the heat.  What catalyzed the selling on the
NASDAQ today was Nortel's(NT) seemingly decent earnings report.
How does a Canadian company listed at the NYSE affect the mighty
tech index?  It's that "insatiable demand" for the "red hot fiber
optic sector."  Remember those sound bites.  Well, fiber optic
counterparts on the NASDAQ were sold off in sympathy with NT, but
the implications are far greater than simply the sector.  In what
investors considered a do-no-wrong sector, the fiber stocks are
starting to fall and raising concerns as this last pocket of
strength withers.

First it was the semis, then it was the hardware stocks, and now
it is the optical networking stocks.  These are the stocks that
managed to maintain their most lofty levels even through some of
the roughest times recently.  Today's market action creates
concerns and questions about which sector is going to lead the
NASDAQ.  It was disastrous and quite frankly, a bit overdone.
But, today's panic selling says something about this fickle market.
Everything is priced to perfection based upon previous performance.
I know it's a mouthful but the point is that anything short of
perfect is swiftly and harshly punished.  Look at the fallout on
the NASDAQ from the NT news:  SDLI(-81.81), AMCC(-50.31),
PMCS(-37.75), MMCN(-31.38), NEWP(-31.00), CIEN(-27.00),
JDSU(-24.06), JNPR(-22.56), and the list goes on.  Those are
massive losses in market capitalization!  A sector wide devaluation
as such seriously raises the question of whether the environment
will return to its once rosy picture.  Regardless, we are continuing
to see clues of an economic slowdown that is clearly undeniable.

Those losses above added up on the NASDAQ and the index closed
down 190 points at 3228.  Yesterday was the technical precursor
for today's move when the NASDAQ put in a triple top at 3520 and
just gave up into the close.  Throw in NT's disappointment and you
have a recipe for a huge retracement.  The gap up from last
Thursday has been covered for the most part, but there is still
51 points to go.  Wishful thinking would be that we cover that,
bounce back and sail off into the sunset, but it's never that easy.
JDSU is scheduled to report earnings after the close tomorrow and
this could potentially rock the markets one way or another.  Given
that NT's revenue numbers weren't up to par and that NT is one of
JDSU's larger customers, investors fear the carnage could continue.
Then again, JDSU could be the calming effect that this market needs
so much.  Breadth was decidedly negative on the NASDAQ with
decliners crushing advancers by a 2-1 margin.  Volume clocked in
at 2.1 bln, indicating that there was no doubt about the
seriousness of the selling.




One bright spot on the NASDAQ today was from AMZN.  What!?  Can you
believe it, AMZN bucked the trend today!  The stock jumped 8% today
after reporting a lower-than-expected loss, better-than-expected
revenues and a rosy outlook going forward.  At one point, AMZN was
up 22% but finished higher by $2.31 at $31.88.  AFFX also posted
earnings Tuesday after the bell and was generously rewarded today.
The biotech company was expected to post a loss of 12 cents but
surprised the Street by reporting a profit of $295,000 for a
breakeven result on a per share basis.  Investors loved it and
AFFX gained $16 to $68.38, a whopping 30%!

As for the INDU, it fared better than the NASDAQ only losing 66
points to finish the session at 10326.  On the first chart below,
it looks like a nice day of consolidation after four consecutive
days of gains after extremely oversold conditions when it hit 9654.
The INDU did, however, break the trendline on which it has
diligently traded the past five days.  A little consolidation is
nothing to complain about, particularly if the INDU manages to
hold support at 10300.  But when looking at a longer term picture
for INDU in the second chart, we can see that the dominant
downtrend from September has not been broken yet.  The major
question is whether this is consolidation for the INDU or the
mother of all bull traps.  In assessing this, it appears that
the INDU capitulated last Wednesday, visiting the 9650 area, and
the buyers have been in control of the INDU for the most part.
Yet, in this current volatile environment, we must remain
skeptical, using the NASDAQ's action as an example.  Draining most
of the life out of the INDU was HWP(-5.69) and IBM(-3.88).







Also weighing on the INDU was AT&T's(T) stock performance in light
of its recent announcement to break up into four separate entities.
An uncharacteristically subdued C. Michael Armstrong outlined this
morning a complex rescue plan to save the fledging behemoth.  This
is an obvious response to a sickly stock performance and
unsuccessful bet on cable that Armstrong made a couple of years
ago.  The main culprit for T, however, was the long-distance
business which is losing revenues faster than expected, even with
its massive customer base.  Ma Bell will be broken up into the
following firms:  Wireless, Business, Broadband, and Consumer.
All will bear the AT&T name and are expected to be operational in
2002.  T lost $3.50 today to close at $23.38.

After the bell tonight, VRSN reported earnings of 18 cents, beating
Street estimates by 12 cents.  Revenues were $173 mln for the
quarter, a 660% increase year-over-year.  Yet, oddly enough, VRSN
traded as low as $138.63 in after-hours, nearly $9 lower than the
NY close.  Someone got a bargain though, realizing the strong
earnings report, as VRSN closed the after-hours session at $157.
This should bode well for the NASDAQ, which is due for an oversold
bounce tomorrow.  Let's not forget that the trading day is long
and volatile, so watch your positions.

Looking forward, tomorrow morning before the bell will be the ECI
report, the Employment Cost Index.  The market expects a 1.0%
increase.  GDP is expected on Friday so traders will be paying
close attention to the economic calendar.  Dallas Fed President
Robert McTeer spoke today and said to expect "a fairly dramatic
slowdown in Friday's numbers."  We are beginning to see a slowdown
in revenue growth for S&P companies so a reflection in our
economic numbers wouldn't be a surprise.  The Euro is once again
at all-time lows and concerns are growing about its future and
stability.  In trading, all eyes will be on JDSU tomorrow and
after the close when they report earnings.  This most likely will
be a major market mover going into Friday so use caution in
positioning tomorrow.  Good luck and expect volatility.

Matt Russ
Editor

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

Market Orders May Be Appropriate Sometimes
By Mary Redmond

On Monday morning I was interested in purchasing GE LEAPs.
GE opened a few minutes after the market opened.  Many NYSE
stocks will open several minutes late if there is order imbalance,
often caused by news events.  Usually, the LEAPs will open in
sequence, with the first year LEAPs opening first.

On Monday, the Jan 03 50 LEAPs opened at $13.50 to $14.  The
ask dropped to $13.50 in a few moments.  I put in an order to
buy 10 LEAPs at the ask price of $13.50.  The order was not
filled a few minutes later.  The market had changed to $12.38
to $12.88.  I changed the order to buy 10 LEAPs at $12.88.
The order was still not filled.  Finally, a few minutes
later I put the order in as a market order and it was filled
immediately at $12.88.

If there are a lot of limit orders pending, market orders will
generally be filled first.  By noon, over 450 Jan 03 50 LEAPs
had traded, and over 900 Jan 02 50 LEAPs had traded.  This is
very high daily trading volume for two and three year LEAPs.
Many LEAPs will only trade one or two contracts per day.
The high volume of contracts also decreased the spread between
bid and ask to less than $1.00.  Many LEAPs have spreads of
between $1.5 and $2.00.

Market orders for options are often dangerous.  The market
changes so quickly nowadays that a stock can rise a few points
in a few seconds.  You could enter a market order to buy an
option at $10 and it could be filled at $11.  However, at times
you might enter a market order after the market opens if you
want immediate execution at the ask price and your limit
order is not filled.

You also need to become familiar with the trading pattern of
individual stocks.  For example, GE dropped from over $55
last week to under $50 on Monday after the takeover of Honeywell
was announced.  GE was not likely to jump up two or three points
in a few seconds Monday morning since it is a very large company,
and there was market uncertainty regarding the merger's impact
on the stock price.

If the technical indicators are pointing to a stock that is
highly likely to move up or down rapidly, you may want
immediate execution.  In these cases, it is usually best to
enter a limit order at the ask.  If the market is moving very
quickly, the ask may move up a quarter of a point by the time
you enter the order.  If you think QQQ call options will double
by the end of the day and they are currently $2.125 to $2.25, you
could put in an order to buy at $0.125 above the ask.  This order
would almost certainly be executed.

Another case in which a market order may be appropriate is when
you are closing a spread position the Friday before expiration.
Once I was closing a put spread the day before expiration.  The
short put was $0.125.  I put in the limit order to buy at $0.125
and the report came back nothing done fifteen minutes later.  I
put in the order at the market and it was executed immediately.

It will be interesting to watch GE over the coming year.  Some
analysts have given GE a target price of $100.  GE has a market
capitalization of $524 bln at $53 per share.  A $100 price would
give it a market capitalization of almost $1 trln.  The largest
market capitalization any company has achieved so far is less than
$600 bln.  At some point we will probably have a trillion dollar
company on the exchange.  It will be intriguing to watch which
one makes it first, as Cisco, Microsoft, GE, and EMC have all
been called potential trillion dollar companies.

It is often difficult for stocks to increase their market
capitalization at a fast rate when they become very large.  GE
might be worth a trillion dollars someday, but it may not be for
several years.  This is one of the reasons many companies choose
to spin off subsidiaries or divide their companies when the
stock prices are down.  However, this can also be interpreted
as a sign of desperation when a company's stock is weak.

The latest slashing victim in the technology market wars was
NT, which lost over $46 bln in market capitalization today,
after reporting sales at the lower end of estimates.  Some
analysts have said that the optical networking stocks were
priced to perfection and needed downward adjusting.  However,
in this case, the selling itself may have been overdone.

Consider the fact that NT was $48 last December, with a market
capitalization of $148 bln.  At the time, their sales were
$6.57 bln.  The current market capitalization is $137 bln and
their sales are $7.3 bln.  Their gross profit margin increased
slightly from this time, and their net income is considerably
higher.

Consider that NT was worth over $270 bln at its peak this summer.
Even before the earnings were reported it had lost over $80 bln
of market value.  JDSU was worth over $150 bln last spring.  It is
now worth less than half of that.

In addition, NT is valued at a much lower level than Cisco.
NT's sales totaled $28.5 bln over the last twelve month.  Cisco's
trailing twelve month sales were $18.9 bln.  Cisco currently
trades at twelve times 2001 estimated sales, and has a market
value of over $350 bln.  At $45, NT is trading at less than four
times 2001 sales.  Is Cisco overvalued or is NT undervalued?  The
wire line telecom equipment system group averages 4.6 times 2001
sales and 48 times projected 2001 earnings estimates.

It seems that investors are floundering, trying to determine
what an appropriate valuation for a company is.  Many premier
tech stocks have increased their earnings and revenues, and
yet decreased in value considerably in the last six months.
Were they overvalued previously or undervalued currently?  Only
time will tell.

It doesn't seem unrealistic to value premier growth companies
at a premier level.  There are very few sectors in which stocks
are able to increase their earnings higher than 10% or 12% per
year.  The real issue in investor sentiment these days is the
exaggeration of fear and greed, and investor impatience.


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

HAND - Handspring Inc $89.00 +0.31 (+0.94 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.

Most Recent Write-Up

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.  COO
Bernard Whitney also told analysts that predicted sales in the
current quarter will also top earlier estimates.  Besides the
obvious demand for its product, the continued expansion in the U.S.
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.  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.

Comments

Today, HAND looked strong for most of the day until the overall
NASDAQ pressure dragged the stock lower into the close.  If the
selling continues tomorrow, look for bounces from $85 where buyers
have been showing up.  Below that, the 10-dma at $83 has been
providing support for HAND.  More conservatively, a strong volume
move through $90, or even $95, could give a momentum entry.

BUY CALL NOV-85 HQA-KQ OI= 87 at $14.75 SL=11.50
BUY CALL NOV-90*HQA-KR OI=189 at $12.38 SL= 9.50
BUY CALL NOV-95 HQA-KS OI= 73 at $10.25 SL= 8.00
BUY CALL DEC-90 HQA-LR OI=  5 at $16.25 SL=12.50
BUY CALL DEC-95 HQA-LS OI=  0 at $14.38 SL=11.00

Picked on Oct 24th at    $88.13    P/E = N/A
Change since picked       +0.88    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



*****************************************
BIG CAP COVERED CALLS & NAKED PUT SECTION
*****************************************

POP! A bursting bubble drags the Nasdaq back down....

Technology stocks led the market lower today as investors rotated
into defensive measures.  The Nasdaq endured precipitous losses
in the wake of a major sell-off in the Networking sector after a
disappointing earnings report from fiber-optic leader Nortel
Networks (NT).  Late Tuesday, Nortel registered a third-quarter
profit that was a penny ahead of the consensus estimate, however
investors focused on the company's revenue, which was about $200
million short of the expected amount.  The stock plunged 25% to
$46 and the company's comments about rising customer inventories
and potential problems in the supply chain raised questions about
the entire networking industry.  Shares in JDS Uniphase (JDSU),
Ciena (CIEN), Cisco (CSCO), and Lucent (LU) all fell on the news.
Semiconductor issues extended their recent slump while losses in
Internet stocks were reduced by a better-than-expected report from
E-tailer Amazon.com (AMZN).  At the same time, the Dow Industrials
slid lower even as investors dumped technology stocks in favor of
healthcare and consumer staples.  The blue-chip leaders included
Boeing (BA), Coca-Cola (KO), Johnson & Johnson (JNJ), American
Express (AXP), Procter & Gamble (PG) and Eastman Kodak (K).  A new
round of tax-loss selling by mutual fund managers put pressure on
industrial shares but the downdraft was limited due to interest in
bank and financial stocks.  In the broader market, biotechnology
shares moved higher thanks to some bullish earnings reports and
drug and health-care stocks also climbed as investors looked for
companies whose earnings are expected to rise even if the economy
slows.  Overall, trading was heavier than normal and almost two
stocks fell for each one that rose on the New York Stock Exchange.
The bearish activity doesn't bode well for the short-term outlook
so this week we will focus on positions with a high probability of
returning a favorable monthly income.  Remember, our approach is
directed at achieving consistent portfolio profits, regardless of
market conditions.  In the current period of earnings-related
volatility, we are not interested in stock ownership, just steady
growth in the value of our brokerage account.


Summary of Previous Picks:

NOTE:  October prices as of Friday's Expiration


Covered Calls: (Margin would double the listed Monthly Return)

Stock  Strike Strike Cost   Current Profit  Monthly
Symbol Month  Price  Basis  Price   (Loss)  Return

HAND    OCT    55    53.62  89.31    $1.38   8.7%
OSIP    OCT    45    42.06  72.06    $2.94   5.7%
ALXN    OCT    85    80.25  99.50    $4.75   4.9%

Positions Closed Early: VECO (suprise recovery), NMSS


Naked Puts:

Stock  Strike Strike Cost   Current Profit  Monthly
Symbol Month  Price  Basis  Price   (Loss)  Return

HAND    OCT    45    44.31  89.31    $0.69  16.3%
DCTM    OCT    45    44.31  92.25    $0.69  15.5%
CMRC    OCT    45    44.44  70.00    $0.56  14.8%
PWER    OCT    55    54.44  84.66    $0.56  13.2%
RIMM    OCT    85    83.63 117.38    $1.38  11.5%
ALXN    OCT    80    76.75  99.50    $3.25  11.4%
ITWO    OCT   135   133.88 186.88    $1.13  10.5%
OSIP    OCT    40    38.56  72.06    $1.44  10.0%
VRTS    OCT   105   104.19 166.81    $0.81   9.6%
EXTR    OCT    83    81.38  99.38    $1.13   9.5%
PPRO    OCT    30    29.60  33.00    $0.41   8.8% Adj 2-1 Split
ELNT    OCT    80    78.62 104.63    $1.38   8.5%
CTIC    OCT    45    44.19  73.50    $0.81   8.4%
AGIL    OCT    60    58.56  72.56    $1.44   8.3%
VRTS    OCT   110   108.31 166.81    $1.69   7.5%
VRTS    OCT   110   107.94 166.81    $2.06   7.0%
EXTR    OCT    85    83.75  99.38    $1.25   7.0%
NTAP    OCT   115   112.81 148.63    $2.19   6.8%
MEDX    OCT    48    46.81  57.25    $0.69   6.8% Adj 2-1 Split
RMBS    OCT    60    58.50  63.75    $1.50   6.7%
PDLI    OCT    73    70.87 121.66    $1.63   6.6%
RIMM    OCT    60    58.37 117.38    $1.63   6.4%
EXTR    OCT    83    81.06  99.38    $1.44   6.2%
BLDP    OCT    90    88.50 100.50    $1.50   6.2%
PALM    OCT    40    39.12  59.38    $0.88   6.1%
JNPR    OCT   145   143.69 232.00    $1.31   5.8%

Positions Closed Early: VECO, METHA, AVNX, RBAK, NMSS (Murphy's
Law was in full effect as every position but NMSS recovered).

APWR    NOV    40    38.56  48.00    $1.44  10.8%
DCTM    NOV    50    48.44  84.00    $1.56   9.0%
HAND    NOV    50    48.75  88.44    $1.25   6.5%
VRTS    NOV   110   108.13 132.00    $1.88   5.9%
HGSI    NOV    70    68.94  88.69    $1.06   5.1%

No play on SEPR - due to pre-open drop last Thursday.

Sell Straddles:

Stock  Strike Strike Cost   Current Profit  Monthly
Symbol Month  Price  Basis  Price   (Loss)  Return

PMCS    OCT   165   163.31 204.50    $1.69   7.4%
PMCS    OCT   260   261.38 204.50    $1.38   6.0%

EXAR    NOV    43    40.50  45.50    $2.00  15.4% Adj 2-1 Split
EXAR    NOV    63    65.19  45.50    $2.69  20.5% Adj 2-1 Split

Naked Calls:

Stock  Strike Strike Cost   Current Profit  Monthly
Symbol Month  Price  Basis  Price   (Loss)  Return

GMST    OCT    90    90.50  70.00    $0.50  13.0%
TUTS    OCT   120   122.31  32.38    $2.31   9.8%
MRVC    OCT    85    86.00  41.13    $1.00   8.2%
AETH    OCT   145   146.31 106.88    $1.31   7.8%
RBAK    OCT   180   181.00 137.56    $1.00   6.6%


New Candidates:

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.  (We monitor the positions marked with ***).

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

BULLISH PLAYS - Covered Calls & Naked Puts

***************
AVCT - Avocent Corporation  $67.88  *** Technicals Only! ***

Avocent is a top supplier of connectivity solutions for enterprise
data centers, service providers and financial institutions around
the world.  The company was formed earlier this year following the
merger between Apex and Cybex Computer Products Corporation.  Apex
is a leader in server console management and switching technology.
Cybex is a leading provider of network hardware used to manage
servers and data centers.  The combined company's branded products
include a range of switching, extension, remote access and video
display solutions.

Avocent has been "on the move" in recent weeks and the company's
outstanding quarterly results have helped boost its share value to
new highs.  Now the issue is trading in "Blue Sky" territory and
there is no indication of any slowdown in the bullish momentum.
The current technical outlook is favorable and our position offers
an excellent reward potential at the risk of owning this leading
issue at a favorable cost basis.

AVCT - Avocent Corporation  $67.88

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  NOV 60   QVX WL  441       1.50    58.50     9.5% ***
Sell Put  NOV 65   QVX WM  0         3.00    62.00    14.5%



*****

KREM - Krispy Kreme  $92.75  *** Speculation Only! ***

Krispy Kreme is a branded specialty retailer of premium quality
doughnuts.  The company's principal business is owning and
franchising Krispy Kreme doughnut stores for the high volume
production and sale of over 20 varieties of premium quality
doughnuts, including its signature Hot Original Glazed.  Krispy
Kreme differentiates itself by combining quality ingredients,
vertical integration and a unique retail experience featuring
its stores' fully displayed production process, or doughnut
making theater.  Each of these stores is a doughnut factory with
the capacity to produce from 2,400 dozen to over 6,000 dozen
doughnuts daily.  The company's doughnut stores are versatile in
that most can support multiple sales channels to fully utilize
production capacity.  In addition to retail stores, the company
produces doughnut mixes and manufactures a range of equipment,
which all of its stores are required to purchase.  The company
also operates a distribution center that provides Krispy Kreme
stores with essentially all supplies for the critical areas of
their business.  The company's vertical integration allows it to
maintain the consistency and quality of its products throughout
its system, utilize volume buying power which helps lower the
cost of supplies to every store, and enhance profitability.

Krispy Kreme makes a great doughnut but the price of its stock
is governed primarily by supply and demand.  Company insiders
hold more than 77% of the outstanding shares, and institutions
hold another 15%.  With less than 10% of the total market float
available for individual investors, the issue is prone to major
moves on thin volume and exposure to volatility based on demand
by short-term traders.  Technically, the issue appears to be
successfully completing a consolidation phase and we expect the
share value to continue higher in the coming sessions.  Those of
you who favor the outlook for the company can use this position
to speculate conservatively on the future movement of its stock.

KREM - Krispy Kreme  $92.75

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  NOV 65   EKU WM  25        0.94    64.06     6.4% ***
Sell Put  NOV 70   EKU WN  6         1.38    68.62     9.2%
Sell Put  NOV 75   EKU WO  106       2.25    72.75    13.8%



*****

PCYC - Pharmacyclics  $57.38  *** Earnings Rally! ***

Pharmacyclics, is a pharmaceutical company developing products to
improve upon current therapeutic approaches to the treatment of
cancer, atherosclerosis and retinal disease.  The company's lead
texaphyrin-based product candidates are XCYTRIN, a molecule to
enhance the effects of radiation and chemotherapy in treating
cancer; LUTRIN, a molecule for use in photodynamic therapy of
cancer; ANTRIN, a unique molecule to treat atherosclerosis via
photoangioplasty and OPTRIN, a molecule to treat age-related
macular degeneration, which is a disease of the retina caused by
growth of small blood vessels that can lead to blindness.  PCYC
has also developed CITRA VU, an oral magnetic resonance imaging
contrast agent.

In the past few months, Pharmacyclics has reported favorable
results from clinical trials involving a number of drug products
and bullish momentum from the news has boosted the issue to a
new trading range.  In addition, earnings are due on or about
November 2 and most of the other companies in the group have
exceeded analysts' consensus estimates with outstanding results.
Our conservative position offers a method to participate in the
outcome of the report with relatively low risk.

PCYC - Pharmacyclics  $57.38

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  NOV 45   QPY WI  0         1.38    43.62    14.2% ***
Sell Put  NOV 50   QPY WJ  20        2.75    47.25    19.8%



*****

VRTX - Vertex Pharmaceuticals  $96.06  *** Entry Point! ***

Vertex Pharmaceuticals designs, develops and commercializes novel
small molecule drugs that address significant markets with major
medical needs, including the treatment of viral diseases, cancer,
autoimmune and inflammatory diseases and neurological disorders.
The company has discovered and advanced nine drug candidates into
clinical development, including one product, the HIV protease
inhibitor Agenerase (amprenavir), which has reached the market.
Vertex has a broad product pipeline, with seven drug candidates in
Phase II clinical development and significant collaborations with
Glaxo Wellcome, Aventis, Schering AG (Germany), Eli Lilly, Kissei
and Taisho.  These relationships provide it with financial support
and valuable resources for research programs for the development
of its clinical drug candidates and for the marketing and sales of
the company's marketed products.

This company is simply one of our favorites for long-term stock
portfolios and the demand for drug manufacturers has helped the
issue remain relatively bullish in the midst of recent selling
among a number of industry-leading stocks.  Regarding Vertex,
the fundamental outlook is very positive; revenues are expected
to grow substantially in the coming year and the company should
see higher share values in the future.  The current technical
trend is favorable and we offer this position as an entry point,
based on the chart indications.  Obviously, the issue is prone
to a correction with the broad market but a reasonable cost
basis exists near the previous support area at $70.

VRTX - Vertex Pharmaceuticals  $96.06

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  NOV 70   VQZ WN  175       1.19    68.81     7.7% ***
Sell Put  NOV 75   VQZ WO  1304      1.81    73.19    11.4%
Sell Put  NOV 80   VQZ WP  186       2.44    77.56    13.0%


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

BEARISH PLAYS - Naked Calls

The issues are excellent candidates in the premium-selling
category of options trading.  Based on analysis of historical
option pricing and the underlying stock's technical background,
these positions meet our fundamental criteria for profitable
naked-calls.  Each issue has robust option premiums, a well
defined resistance area and a high probability of remaining
below the target strike prices.  As with any recommendations,
these positions should be carefully evaluated for portfolio
suitability and reviewed with regard to your strategic approach
and personal trading style.  Many traders may favor a more
aggressive approach, selling options that are closer to the
current price of the issue, to produce a higher initial return.
While that technique may be more attractive, it also increases
the theoretical risk of loss.  Only you can know what plays are
suitable for your personal risk-reward tolerance and portfolio
outlook.

***************
BRCM - Broadcom Corporation  $217.88  *** Probability Play! ***

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

This play is simply based on the current price or trading range
of the underlying stock and its recent technical history.  BRCM's
recent downward movement has been on increasing volume and it is
the 4th time the stock has failed at resistance near $270.  The
issue continues to trade in a range from $200 to $260, but its
technical strength appears to be weakening.  Consider covering the
(short) position on any rally above $270, that is accompanied by
strong volume - an unlikely occurrence.

BRCM - Broadcom Corporation  $217.88

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Call NOV 270  YRL KN  2350      3.25   273.25     9.2%
Sell Call NOV 280  YRL KP  1313      2.19   282.19     6.3% ***
Sell Call NOV 290  YRL KR  891       1.50   291.50     4.4%



*****

JNPR - Juniper Networks  $195.63  *** Sector Slump! ***

Juniper is a provider of Internet infrastructure solutions that
enable Internet service providers and other telecommunications
service providers, to meet the demands resulting from the rapid
growth of the Internet.  The company delivers next generation
Internet backbone routers that are specifically designed, or
purpose-built, for service provider networks.  The company's
flagship product is the M40 Internet backbone router, and it
recently introduced the M20, a new Internet backbone router
purpose-built for emerging service providers.  The company's
Internet backbone routers combine the features of the JUNOS
Internet Software, high performance ASIC-based packet forwarding
technology and Internet-optimized architecture into a solution
for service providers.

Technology investors ran for the exits Wednesday after Nortel
Networks (NT) crushed the notion that fiber-optic networking
stocks would lead the rally higher.  Analysts believed optical
equipment makers like Nortel wouldn't be able to keep pace with
demand and would escape the slowdown plaguing personal computer
makers and semiconductor manufacturers.  Instead, Nortel proved
that industries which were once considered bulletproof are now
showing that they can be affected by the economy, and the recent
slowdown in spending patterns.  The weakness spread to many of
the leading companies in the technology group, especially within
optical manufacturing.  Juniper was just one of the many issues
hurt by the news and now it appears there is additional downside
potential for the stock in the near future.

JNPR - Juniper Networks  $195.63

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Call NOV 260  JUP KL  911       2.88   262.88     9.1%
Sell Call NOV 270  JUP KN  4838      2.00   272.00     6.4%
Sell Call NOV 280  JUP KP  1410      1.56   281.56     5.1% ***



*****

NEWP - Newport $117.00  *** Breaking Down! ***

Newport Corporation is a global supplier of high-precision test,
measurement and automation systems and subsystems that enable
manufacturers of fiber optic components, semiconductor capital
equipment, industrial metrology, aerospace and other precision
products to automate their manufacturing processes, enhance
product performance, and improve manufacturing efficiencies and
yields.  Newport's high precision products enhance productivity
and capabilities of test and measurement and automated assembly
for precision manufacturing, engineering and research applications.

This play is simply based on the current price or trading range
of the underlying stock and its recent technical history.  The
near-term NEWP price trend is bearish and reflects a pronounced
negative divergence from an intermediate-period moving average.
In addition, the decline has come on increasing selling pressure
and a major support level has been violated.  With the failure
at $165, a short-term "head-n-shoulders" formation is in place
and it appears the share value has little chance of reaching our
sold positions in three weeks.

NEWP - Newport $117.00

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Call NOV 175  NOQ KO  78        2.88   177.88    14.5%
Sell Call NOV 180  NOQ KP  1352      2.38   182.38    12.2%
Sell Call NOV 185  NOQ KQ  53        2.00   187.00    10.4%
Sell Call NOV 190  NOQ KR  111       1.69   191.69     8.9% ***




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