Option Investor

Daily Newsletter, Sunday, 11/12/2000

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The Option Investor Newsletter                   Sunday 11-12-2000
Copyright 2000, All rights reserved.                        1 of 5
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       WE 11-10         WE 11-03         WE 10-27         WE 10-20
DOW    10602.95 -215.00 10817.95 +227.33 10590.62 +364.03  + 34.41
Nasdaq  3028.99 -422.59  3451.58 +173.22  3278.36 -204.78  +166.37
S&P-100  719.11 - 32.59   751.70 + 25.52   726.18 - 11.98  +  9.15
S&P-500 1365.98 - 60.71  1426.69 + 47.11  1379.58 - 17.35  + 22.76
W5000  12688.80 -694.10 13382.90 +522.30 12860.60 -196.80  +253.90
RUT      480.90 - 26.85   507.75 + 27.90   479.85 -  7.60  +  7.06
TRAN    2704.22 - 57.53  2761.75 +232.78  2528.97 + 59.90  + 38.89
VIX       32.50 +  6.19    26.31 -  3.84    30.15 +  2.73  -  3.56
Put/Call    .83              .57              .59              .50

Election limbo, earnings hell!
By Jim Brown

Chomp, chomp. That is the sound of me eating my words from last
night. While my prediction came true it appears that it was only
a minor victory in a major war. We may have dodged the CSCO bullet
only to step on an election landmine. The smoke cleared just in
time for us to be flattened by the aftershocks from the Dell
earnings warning. Just another fun week in the markets as we
absorbed a -422 point Nasdaq drop. Yes, there was support at 3100
but sellers finally over powered buyers after several attempts
to rally and the fear of weekend darkness drove the index to
the low of the day. Dead on support from the October 18th low
and only +2 points above the low for the year. The bad news is
the negative sentiment resulting from the Dell aftershocks. The
charts are not pretty and could get worse.

Where do I start? Yes, the election is still in the news and the
ultimate reason for the sell off at the close but the main culprit
is still Dell. By guiding growth estimates lower AND saying that
they see PC demand slowing they sent ripples through the sector
that looked more like shock waves. There were multiple downgrades
Friday morning with the worst going all the way to neutral which
is a polite way of saying "sell" in analyst speak. Dell has fallen
-54% YTD and closed the day at $23, down -$10 from Tuesday's high.
Dell's estimate of +20% growth is not that bad except for their
astronomical growth in the past. This is the same problem analysts
had feared from CSCO on Monday. CSCO came through, Dell did not.
The between the lines comments from Dell sent almost every sector
that even remotely touches the PC business into free fall. They
indicated that margins would be falling as competition heated up
for a smaller market. What a mouth full! Why not just say Michael
Dell is going to work moonlighting for somebody else because Dell
will lose money soon and needs more capital?

A price war may be good for consumers but it is terrible for stock
investors. Component prices are already about as low as they can
go with packing and shipping sometimes more than the price of the
component. Unfortunately the PC makers will be unable to profit
from this trend now that the PC itself is becoming a commodity
and box makers have no pricing power. Once demand slows to far less
than capacity the profits evaporate. Remember just two years ago
there was a shortage of components and top line computers were
on allocation and price did not matter? That bubble has now burst
and the major players are undoubtedly in fear of the months ahead.

Intel was a major recipient of the bad sentiment. With demand
slowing the need for chips will slow and with Pentium III chips
available in quantity the P4 may not soar off into the record
books. Intel dropped more than -10% to $37 and Morgan Stanley
downgraded them to neutral. Intel may be suffering from the death
of 1000 cuts. They have many products, great profits and great
expectations BUT every time a broker, analyst, reporter or talking
head says something about slowing PC demand or slowing economy
they endure the equivalent another paper cut. After today investors
feel the Intel era may be fading. Remember as little as six years
ago very few people had a home PC and the Internet was something
you heard about on TV. Granted the Internet era is far from over
and it is not likely to go the way of the CB radio but as evidenced
by the bursting advertising bubble and Internet incubator stocks
like CMGI heading toward penny stock status, times are changing.

The major chip, computer, networking, software and Internet stocks
fell steeply and the bad news is they could continue falling.
Gateway, which deals mostly with consumers in the U.S. and has
few business sales, dropped -6.50 to a 52 week low of $39.75.
Compaq, with a large business sales effort, only dropped -1.41
and was seen as finally gaining ground against Dell after years
of fierce competition. Several analysts said they felt Dell was
failing in the enterprise server area with major competition from
CPQ and SUNW. Somebody forgot to tell SUNW investors as the stock
dropped -8.38 to a four month low of $89.25. This is confusing
since SUNW has been posting stronger sales and should also benefit
from the IBM announcement today. IBM announced they can not make
large scale systems fast enough to meet demand and the stock
dropped -6.44 to 93.31. There appears to be computing demand for
big business and the right vendor.

The PC sector was not the only sector under pressure. JPM warned
that Target and Wal-Mart have a tough quarter in front of them and
their margins will come under pressure from competition. TGT fell
only -1.44 to $26 but WMT got hammered for almost a -$10 loss in
the last two days. The problem here is the slowing economy and
the growth of the niche players like Abercrombie & Fitch (ANF).

With all the bad news in the markets at least I can report that
the election crisis is over. Well, maybe by next Sunday I can
report that but not today. If it is possible it is getting worse.
In case you do not have a TV, radio or newspaper subscription
the votes in Florida seem to have stabilized at +327 for Bush.
However there are now multiple counties (democratic) which are
going to do a hand recount of millions of ballots. Sounds like
fun to me. Any volunteers? Add to this the fact that New Mexico
has moved back into the "too close too call" category and Oregon
now has gone into the Gore column AND so on and so on and so on.
The absentee ballots from Florida do not have to be received
until next Friday to still be valid. We will be faced with more
hours of TV sound bites over the next week than anyone should
have to endure. Both sides have claimed the majority of absentee
ballots will be in their favor. In theory we will not know the
final result in Florida until 5:PM on Friday the 17th. This
means an entire week of even more market uncertainty.

In reality I think this recount rule may be a good thing. If
you don't like the results of something just demand a recount
until the results come out the way you want. In that vein I
hereby demand a recount of the market from Friday. I think it
should have stopped at 3100 and I should not have been stopped
out of my trades. Anyone else that feels that way should sign
our investor rights petition. We are thinking about suing the
market makers, class action of course, and injuncting them from
lowering prices more than $.25 in any trading day. Our
constitutional rights to profit have been infringed. Oops! Sorry,
I guess real life doesn't work that way. I paid my money and
took my chances and was proven wrong yet again. I am sure I
am the only one that ever has that happen. I am thinking about
creating a new indicator, the Jim Brown Contrarian Indicator.
You know the one. I will put my trades up on the website in
real time and you will know which stocks to short and which
ones to buy based on me doing the opposite. You can see a prime
example of capitulation in BRCM today. The low of $156 at 11:45
on Friday was exactly when I closed my naked put position for
a loss. BRCM ran for +20 immediately afterwards. Enough sour
grapes from me because I am sure you have plenty of your own.

Next week should be real exciting. That I can guarantee. That
is about all I can guarantee about next week. I keep hearing
bearish targets of 2850 give or take a hundred points for the
Nasdaq. Based on what? We are only -40 points below where we
were on November 8th last year. We are only +2 points over the
low for the year. As I said last night, this election event has
not happened before and nobody knows what the eventual impact
will be. If you are looking at the purely technical indicators
you will either be scared to death of borrowing money to invest
next week depending on your bias on the market. If you are bullish
you are looking at the May low of 3042 and the October low of
3026 and screaming retest, retest! If you are bearish you are
looking at the same data and screaming "look out below." Funny
how your bias will color your interpretation of "purely technical"
indicators. If you have been reading our newsletter for long
you know we are news and event players. Technical indicators
can be pointing entirely in one direction but if we have a news
event which is coloring the picture then we try to consider that
in our recommendations. Thursday this was just an election event.
Friday it became an earnings event. One only wonders what Monday
will bring. Rumors are surfacing that OPEC is going to cut back
on oil again soon. The Fed meets on Wednesday this week. If the
market does not like uncertainty then we are in for trouble.
Still greed is alive and well and tech stocks are starting to
look really cheap once again. After a news filled weekend we are
very likely to see them even cheaper. When do the commercial
traders finally cover their extreme short positions Austin has
been writing about? 2900, 2800, 2700? When does extreme oversold
become too much for buyers to bear? Soon we hope.

Does -422 points in one week guarantee an oversold bounce? No,
but the odds are good we are very close. When things look their
worst it is time to buy. Ask any long time investor. It takes
guts to jump in the gap but there are billions of dollars on
the sidelines that will be put to work soon. With the Nasdaq
over -900 points below its 200 DMA there are some really good
deals. With the purely technical groupies by the bushel calling
for 2850 next week it should not take much in the way of news
over the weekend to make it a self fulfilling prophecy. With
2850 the target we will have dropped -2300 points or -44% from
the high of the year. Once we break 3026 on the downside we
will start another entirely new series of technical problems.
That will be a lower low and confirm the longer term down trend
which started back in March. Can it get any blacker? Sure. Will
it? I doubt it. Are we going back to 1000? Not hardly. What
should we do? I am sitting on the sidelines licking my wounds
from today and deciding what stocks I want to buy next week.
I am still bullish. It is like those analysts that put a strong
buy on some stock at $100 with a target of $150. The stock drops
to $75 and they maintain a strong buy. $50, $40, $30, $20, and
they drop it to a neutral. If the business did not change between
$100 and $20 and you liked it at $100 then you should love it at
$20. I liked BRCM at $260, at $160 I love it. If you liked CIEN
at $150 you should love it at $85. JNPR $240 or $170. Before you
fall into the trap of "if it was good at $300 then $100 should
be a great deal" you should consider CMGI $325 to $15, ICGE $212
to $10. Cheap is not always good but if you do your research and
pick some good stocks over the next couple days you could be
well rewarded before November is over.

Next week is going to be financial quicksand. There will be strong
volatility. The VIX closed Friday at 32.50 and the put/call ratio
at .83. Both signs of near market bottoms. The VIX has only been
this high eight times this year. I can't tell you what to do but
my wounds will heal by Monday and I will be ready to lock and load.
Art Cashin said today something I thought was very simple yet
profound. "Buyers have the luxury of time, Sellers have the urgency
of losing money." As buyers, and you should all be buyers after
being stopped out today, we have the luxury of waiting until the
absolute darkest moment before executing that trade. Those who
have better sense and don't have to try and buy the absolute bottom
can wait even longer for post election result daylight and clarity
of thought before opening that new trade. Trust me, we are not
going up +2300 points next week. You will have plenty of time when
the Fall rally begins. Who knows, we could get a market stabilizing
rate cut from the Fed meeting on Wednesday. Now where are those

Trade smart, don't buy too soon.

Jim Brown


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What is it they say about the best laid plans of mice and men?
They sometimes go astray. This was definitely an "astray" week.
Almost all the stocks I was looking at last week positively
blew up after the CSCO earnings, election crisis and finally
the Dell warning. I should have stayed in bed this week!

Fortunately I did stay flat until Thursday and after the dip
below 3100 on Thursday I felt that "retest" would hold and I
went long on SDLI, BRCM, JNPR, BRCD and PMCS. Now this is
where you should be saying "but what about Dell earnings
on Thursday night?" And, I would like to know, where the hell
were you! I had thought in late afternoon that I would close
those plays before the close but I found myself on a conference
call the last 30 minutes of the market day. I watched them
move higher into the close while I talked and thought "Dell
probably will not miss estimates and these are not PC stocks"
I will just hold them and continued my call. Bad choice.

You know the answer. All gapped down at the open. Actually
I was laying in bed watching the premarket on CNBC when I got
a wakeup call from Preferred telling me I had been PUT my
entire position on PMCS at $170. That will wake you up and
get your adrenaline flowing. What a way to start the trading

I launched all the plays on the Thursday dip and closed them
all when the Nasdaq rolled over the second time on Friday.
Since they were all the same I am not going to explain each.

The wild card was the PUT to me on the PMCS. Since it closed at
$125 on Thursday, +$5 over where I sold it I was not expecting
any exercise. It did drop -$7 in after hours and I can only
think the market maker was clearing up loose ends and figured
he could make $2 and eliminate the open interest on the strike.
I sold the $170 put for $50 with the stock at $120.

The wild card was the PUT to me on the PMCS. Since it closed at
$125 on Thursday, +$5 over where I sold it I was not expecting
any exercise. It did drop -$7 in after hours and I can only
think the market maker was clearing up loose ends and figured
he could make $2 and eliminate the open interest on the strike.
I sold the $170 put for $50 with the stock at $120.

Just because I had to close these plays under less than ideal
circumstances does not mean I would change the plays. The
odds of success when selling puts on a major dip are almost
80% in your favor. This was just not my day.

I am going to repeat this next week on any major dip and
recovery. I still like BRCM, SDLI, CIEN and any other high
dollar stock I can find that is rebounding after the dip.
Unfortunately it is getting increasingly harder to find
high dollar stocks. There is serious bloodshed and many
of my previous favorites are under $50 now with no trend.

I am going to write an Option 101 tonight about selling
DITM naked puts so I will cut this short. If you want to
learn more about this strategy read that article.

My caution for the week, WAIT FOR THE BOUNCE ON GOOD NEWS!

We are in no hurry and we could wait all week on the sidelines.
Every time you jump into a play that busts out it costs you
capital and confidence. You can't afford to lose either.


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It's In There
By Austin Passamonte

Remember that old Ragu spaghetti sauce commercial from years ago?
Back when we had more muscle & hair (on a personal note) before
market stress did away with both? Best we recall someone asked what
was needed besides the contents of that jar for a complete
spaghetti dish. The answer was "nothing else, it's all in there".

Reality is our family would've died at the thought of bottled
sauce for any holiday gathering but let's stay on track here,
o.k.? Oops ... we're the ones tripping down memory lane. Sorry.

Back to the point. Dick Arms, inventor of Arms Index (Trin) made
an enlightening statement out in Denver not long ago. When speaking
to our group at lunch he made reference to this very commercial as
an analogy to technical analysis. Dick said he has no interest in
company info, p.e. ratios or any other fundamental news.
Everything known to the markets at this point in time is reflected
in their charts.

We agree. Not only that, everything known AND the next best
guess is included there as well. Mastering technical analysis may
not be easy but it sure can be financially rewarding. There is no
better way to consistently predict market behavior more than 50%
of the time under all conditions for years and decades to come.

The easy part is seeing these clear signs in front of us. The
hard part is buying into that with cash when the masses are
touting just the opposite.


Friday 11/10 close; 32.50

30-yr Bonds
Friday 11/10 close; 5.88%

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

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

  (Open Interest)       Calls        Puts          Ratio
S&P 100 Index (OEX)
755 - 740               18,562       10,337         1.80
735 - 720                6,695       11,119          .60

OEX close: 719.11

715 - 700                1,540       15,137         9.83
695 - 680                  117        9,738        83.23***
Maximum calls: 780/5,764
Maximum puts : 700/7,295

Moving Averages
 10 DMA  728
 20 DMA  735
 50 DMA  746
200 DMA  737

NASDAQ 100 Index (NDX/QQQ)
 81 - 78                41,303        44,116          .94
 77 - 76                17,240        66,614          .26
 75 - 73                10,424        62,303          .17

QQQ(NDX)close: 71.89


 70 - 68                 1,268        16,759        13.22
 67 - 65                   272         5,508        20.25***

Maximum calls: 82/25,455
Maximum puts : 77/29,312
Moving Averages
 10 DMA 74
 20 DMA 75
 50 DMA 79
200 DMA 80

S&P 500 (SPX)
1425                   10,383        13,199           .79
1400                   29,096        31,178           .93
1375                   13,353        19,271           .69

SPX close: 1365.97

1350                    9,440        22,652          2.40
1325                    2,461         9,678          3.93
1300                    1,230        17,277         14.05***

Maximum calls: 1400/29,096
Maximum puts : 1400/31,178

Moving Averages
 10 DMA 1382
 20 DMA 1395
 50 DMA 1415
200 DMA 1395


Special Note:  New COT Data will not be available until Monday
(Austin's comment: data was unavailable at the time of article
publication. However, we can be sure the S&P 500 Commercials
held their historical net-short position beyond Tuesday 11/7
close when most recent data was compiled. Next Friday (11/17)
will tell more as the market now tests the low range once again.)


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Enough Already, One Of You Needs To Conceit!
By Eric Utley

The market can't take it anymore.  The uncertainty surrounding
the presidential election is wreaking havoc on US capital
markets, and I'm starting to get mad!  Few people realize that
somewhere around 15% of the capital in the US stock market is
owned by foreign investors.  And, those foreign investors have
been taking their capital out (along with domestic investors)
of US markets since last Wednesday morning.

I don't blame them, though.  If I owned a mutual fund that
invested solely in a foreign country such, I'd want to know
that their political system is running smoothly.  If I read
of voter fraud allegations and saw protests on the television,
I would liquidate, too!

So, Vice President Gore or Governor Bush, if you're reading
this, please, for the sake of our beloved market, conceit
already!  I don't care who wins, either of you will work
fine as far as myself and the market are concerned.

I have to apologize for the scarcity of charts in today's
column, but the drama in the markets last week brought
about a terrible, terrible cold.  I'll be back next week,
healthy as ever so make sure to fill my e-mail with stock
requests.  Send them to Contact Support.
Please put the symbol of your requests in the subject line
of the e-mail.


JNIC - JNI Corporation

Last week, I detailed an operation in shares of Palm, which went
a little too smoothly.  This week, I decided to detail a trade
(make that a missed traded) in which I missed the boat big time!

My trading buddy and I collectively formed a bearish bias after
witnessing the ominous trading on the NASDAQ last Wednesday
and again Thursday.  Going into Friday's session, we were looking
for stocks to put (short).  A list was formed, which happened to
include JNIC.

After the gap down Friday morning, I was a little hesitant to
jump right into some puts, because I figured a lot of risk had
been taken out of the market right at the opening.  Oh, how I was
wrong!  Shares of JNI proceeded to fill the gap and then rollover
shortly after the opening.  The stock subsequently slipped below
the $100 level, which was the first entry point I considered.
Why I didn't pull the trigger at $100, I'll never know.  My
second thought was to buy some puts if the stock fell below $95
- it did.  But, something was clouding my judgment and I
couldn't figure out what was preventing me from entering the
trade.  Needless to say, I walked away from my trading terminal
after the stock bounced up to the $100 level - which happened to
present yet another favorable entry point.  I was so close!!!


Paychex - PAYX

I have not seen this stock on OIN lists.  But heard great news
about this company.  Please comment. - Regards, Sunil

Paychex is an interesting company that has carved out a
profitable niche.  The company caters to small businesses,
who need assistance in deciphering US tax laws along with
other accounting services.  Paychex's main service is to
prepare paychecks (hence the name) and internal accounting

The company has a long history of growing earnings at a
respectable rate.  Analysts expect that growth to continue
by over 25% in the next several years.  Furthermore, the
company is essentially debt free with a good position in cash
on its balance sheet.  Those type of fundamentals make
Paychex a good long-term investment, like so many others we've
reviewed in this column.

While the company's prospects over the long-term warrant
reasons to own the stock, it may be due for a pullback in the
near-term.  In fact, Morgan Stanley recently downgraded the
stock on valuation concerns.  Although the stock is still acting
strongly, and I don't usually heed analyst comments, the
current market environment is not necessarily conducive to
high valuations.  Furthermore, the stock has not endured a
long period of consolidation for over a year now.  While the
chart looks good, especially in light of the recent market
behavior, it's hard to pick a good entry point after such an
extended run.  However, shares of Paychex may continue along
their path of higher highs, only the market will decide.


Research In Motion - RIMM

RIMM issued a truckload of stock last week.  What is the money
going to do to assist in a return on the stock?  Is the money
positioned to accelerate sales?  Are there too many players
in that hand-held area?  Are all of these queries just noise
and of no value because price dictates?  - Thank You, Debra

Excellent queries, Debra.  You bring up a good point about
noise and the value of price.  But, before we get into that
idea, let's examine your questions.  Rim placed 6 million
shares for approximately $585 million.  According to a press
release last week, the company said it would use the proceeds for
general corporate uses, which includes research and development
costs, expansion of manufacturing capacity, and expansion of the
company's sales force.  That capital will definitely help to
accelerate Rim's sales should it be used for product development
and marketing efforts.

The hand-held space is predominantly represented by three
players:  Handspring (HAND), Palm (PALM), and Rim.  Since the
wireless electronic devices each company manufactures are such
a niche product for consumers, the market may be a little crowded.
However, I've read several industry reports which suggest the
future of computing will take place in the palm of our hands,
pardon the pun.  If the market does grow as many analyst
expect, the hand-held sector is going to be a good long-term
investment and big enough for the three main companies.

But, in the short-term, does any of this matter?  Is it all
noise?  I reviewed Rim a short while ago, and discussed the
stock's impressive momentum and the company's unbelievable
revenue growth rate.  But, since that time the market's
perception of Rim has changed.  The bears have brought the
valuation question to the forefront recently, which has
snuffed out the stock's momentum.  Despite the company's
bullish future and exponential growth, the stock got
ahead of itself and now looks poised for an extended
pullback.  How do we know a big pullback is in order?  Take
a look at the chart below and notice the peculiar pattern
formed over the past two months.  The big head-and-shoulders
top indicates lower prices.  And, in my opinion, Debra, price
dictates in the near-term!


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


With the election stealing the show, investors have forgotten that
the Fed meets on Wednesday.  The tone of this meeting will be very
important.  The CPI report will follow on Thursday.

For the week of November 13, 2000


None Scheduled


Retail Sales           Oct  Forecast: -0.10%     Previous:  0.90%
Retail Sales ex-auto   Oct  Forecast:  0.30%     Previous:  0.70%


Business Inventories   Sep  Forecast:  0.30%     Previous:  0.70%
Industrial Production  Oct  Forecast:  0.10%     Previous:  0.20%
Capacity Utilization   Oct  Forecast: 82.00%     Previous: 82.20%


CPI                    Oct  Forecast:  0.20%     Previous:  0.50%
Core CPI               Oct  Forecast:  0.20%     Previous:  0.30%
Initial Claims      11-Nov  Forecast:    NA      Previous:   344K
Philadelphia Fed       Nov  Forecast: -1.00%     Previous: -3.80%


Housing Starts         Oct  Forecast: 1.550M     Previous: 1.530M
Building Permits       Oct  Forecast:    NA      Previous: 1.506M

Week of November 20th

21-Nov  Trade Balance
21-Nov  Treasury Budget
22-Nov  Initial Claims
24-Nov  Michigan Sentiment

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The Option Investor Newsletter                   Sunday 11-12-2000
Sunday                                                      2 of 5

To view this email newsletter in HTML format with embedded
charts and graphs, click here:


Calling a Bottom is Like Calling A Winner of This Election
By Lynda Schuepp

Maybe it's just wishful thinking, but I think we are close to a
bottom.  Lets examine the Fibonacci numbers.  A definition is in
order here. For you high-level guys- simply put, the market does
not move in a straight line up or down.  Instead, it moves up and
then retraces, reverses and then moves up again.  Some key numbers
for reversals are one-third, one-half and two-thirds.  Two-thirds
is VERY significant.  Prices rarely retrace two-thirds, so when
they do, it can be dangerous.  If they retrace more that two-thirds
it is highly likely that the market for stock, future, commodity,
etc. has reversed.

For those of you who want to know the nitty gritty: a Fibonacci
Cycle is an analytical tool that can be drawn on a chart to
identify price cycles which repeat high and low price patterns.
Fibonacci uses a specific number sequence called the Fibonacci
number series and assumes that you can predict future price levels
by identifying historical price patterns.

The Fibonacci number series is based on adding the first two
numbers of a series to arrive at the third number. For example,
1 + 1 = 2, then 1 + 2 = 3, then 2 + 3 = 5, 3 + 5 = 8, etc. The
number sequence is therefore 1, 2, 3, 5, etc. The most commonly
used Fibonacci numbers are 1, 2, 3, 5, 8, 13, 21, 34, 55, and 89
and are used is timing cycles.  Fibonacci ratios are very
important.  Each number is approximately 62% of the next, higher
number. For example, looking at these numbers, 13 divided by 8 is
6154 or close to 62%. The inverse (1-.62) of these number patterns
is 38%.  Therefore, 38% and 62% are SIGNIFICANT numbers to
technical analysts. Fibonacci numbers are used in Elliott wave
analysis, but we'll save that for another day, as I am sure most of
you are getting blurry eyed and really don't care at this point.
Let’s see how we can use this information for our benefit in

If you don’t have a charting package that provides fibonacci ratios
just use the one-third, one-half, and two-thirds as possible places
where the stock will bounce and reverse or continue in the same
direction.  These numbers can help you choose good entry and exit
points.  That is all that is important about them.  Now let's look
at some examples in charts to see what I mean.  Most charting
packages allow you to identify retracement levels.  First you pick
a significant low and then pick a significant high, (assuming
prices are headed back down and then set percentage levels to
predict how much the entity might retrace.

I haven’t been trading the OEX lately because they are overpriced
and the spreads are atrocious.  With VIX up at the +30 level it’s
no wonder.  I’m not saying you can’t make money on them, but I
don’t like to stack the deck against me.  I have found that the
options on the QQQ’s have been easier to trade. The QQQ’s, which
represents the Nasdaq 100, were created in March 1999.  Using the
gray box below with the fibonacci numbers on the QQQ’s, a one-third
retracement would be approximately 90.  A 50% retracement would
bring the QQQ's down to 80.  A two-thirds retracement would be
about 71-3/4.

Below are the fibonacci numbers from the monthly chart below:

See Monthly Chart Below:

In the chart above we see a run-up from about 50 to 110 in one
year.  That means the QQQ's rose 70 points.  Notice that Friday's
close was 71-3/4 or 66% retracement.  I don’t get hung up on
whether to use 62% or 2/3 but either way we are sitting on a bomb.
If this number doesn't hold, the long-term up-trend has reversed.
In the chart above, we can see that volume is moving up as the
price goes up, that is a simple way to confirm that the trend is
intact.  Volume has been decreasing as prices declined.  That
means we could be close to a bottom as we run out of sellers.  Of
course, no one could have foreseen the confusion with the election
results so we have a new element of uncertainty in the market.
Next, lets move to a shorter time frame.

Below is the fibonacci numbers from the weekly chart below:

Looking at the weekly chart, we see that prices peaked the middle
of March.  The QQQ's went from 117 down to 77 and back up to 102
by the end of August, or a 62% retracement.  Sound familiar?
(The answer is fibonacci, known as fibs).  However the bottom
in May is suspect.  You'd like to see volume to be increasing
on the way up and decreasing on the way down.  Since the end of
May, it has been doing just the opposite.  The QQQ's have now
retraced over 120% since their high at the beginning of September,
not a good sign.  The next logical stop on the Fib scale would
be -132% or 69.  We are very close to that number now and that
number has VERY strong significance.  I'd like to see a volume
reversal and some confirming signs of a true reversal to validate
the bottom so we can all get on with the business of making money.
However, I feel more confident at calling a bottom at 69 than I
do calling the winner of the presidential election.  I bought
the QQQ’s and QQQ December call options, probably a little
prematurely, especially if this election contest gets any
nastier and drags on. We’ll have to wait and see what the market
gives us, and trade accordingly.

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Going Naked for Fun and Profit
By Jim Brown

No, this is not a column on streaking. What I am talking about
is way more fun and much more profitable. I am talking about
selling naked puts. Not just any naked puts but Deep In The
Money on aggressive stocks. This is the closest thing you can
get to free money in my opinion. Bear with me and read the
entire article before making any judgments.

The basic naked put concept involves finding a stock that is
moving up with a good trend. The basic Naked Put section of
the newsletter is probably the most profitable and most
consistent section we have. The plays that Ray and Mark pick
each week are very safe, if there is any safety in this market,
and average 10%-15% profit per month. Multiply that by 12
months and you get a very nice living. The only qualifier
is you must have naked option writing capability or spread
trading capability in your account.

Using the example below you can see the basic strategy in
action. There are two different ways to use this.

The first strategy would be the very conservative strategy
of selling a $60 put on a $80 stock. Your margin requirement
is 25% of the $80 or $20. The premium you receive for selling
the put is $2.63. This makes your return for the very conservative
strategy of 13%. ($2.63/$20=13%) Your risk is that the stock
will decline to less than $60 and the stock will be put to
you. This is less risk than selling covered calls. You do not
own the stock. It can drop -$20 before you are at risk. Your
breakeven is $57.38 ($60-2.63) Very safe, very repeatable.

The conservative strategy using the same stock is to sell the
$70 put for $6.13 and this increases your return to 30.6% because
the margin did not change. You still have a $20 margin to make
$6.13. ($6.13/$20 = 30.6%) Your risk is now that the stock
will drop under $70 and the stock will be put to you at $70.
Considering your premium of $6.13 your breakeven is $63.88.
If the stock closes at any price over $63.88 on expiration
Friday you are profitable.

The key to the basic strategies is selling puts under strong
support levels. These support levels protect you to some extent
from falling prices and market events. You should also use
stop losses to take you out of the trade if the option price
rises more than +25% over your sales price. This means the stock
is falling and your risk is approaching. You can always wait
for the stock to bounce and sell another strike to recover your
stopped out price. This is very easy to do.

Aggressive strategy:

This is one of my most requested classes at our seminars.
I use a Deep In The Money strategy for selling naked puts
that maximizes returns by fully utilizing the high delta
of in the money options.

Consider this example:

The stock is at $225 and the three strikes available are $220, $230
and $240. The premium for the $240 strike is $45.38. The margin for
the trade is $56 or 25% of the stock price. If you sold this put
and it expired worthless you would have an 81% return.
($45.38/$56 = 81%) This equates to an 81% return for a $16 move.

The reason for the big returns is the difference in Margin and the
high premiums from being deep in the money. It requires the stock
to move up from where you sold the put but relatively speaking they
do not have to move far to increase the returns.

Consider the chart above. The premium you receive for the difference
between the strike price and the stock price is Intrinsic value. Or
stock value. This is exactly like a call that is $40 ITM. Every dollar
the stock goes up you get almost $1 in premium increase. If the stock
goes down you get almost a $1 decrease in the value of that call.

Same with the Put. For every dollar above the stock price you sell
a put it is "in the money" and the value is totally intrinsic. Every
dollar that stock moves up reduces the value of your put and increases
your profits. Once the stock price passes the strike price the premium
decays slower because it is all time value.

Consider this, if you sold a $250 put on a $100 stock how much would
the stock have to go up for you to make money?

Using this example and assuming the put premium was $175 for a $250
put on a $100 stock the stock would not have to move at all for you
to be profitable. The time value would decay and you would have to
give back the premium you did not use or $150. In reality you would
sell a current month put with little or no time value but ANY movement
over $100 would be a $1 for $1 profit for you. If the stock finished
anywhere between $100 and $250 you would be profitable. The margin
on this trade is $25 to start, (it is 25% of the stock price and
will go up as the stock goes up). If your margin was $25 and the
premium was $175 your return would be 600%. This would be extreme
and I am only using it as an example. Still it is factual.

Now, using this example, if you sold a put $100 over the current
stock price of any stock that was moving up, would you care where
the stock finished the month? Your only care is that it does not
go below the price it was when you sold it. That means if you
sold a $250 put on a $100 stock you should close the trade if the
stock moves under $100. That puts you at risk for being put the
stock or having to buy back the put at a higher price.

If you sell a naked put on a stock that is moving up and then
set your stop loss at a dollar or two below the stock price where
you started the play then your loss will be that dollar or two
that is not covered by your stop loss. Once your put is profitable
you can move up your stop and then be stopped out for a profit
if the trade goes against you. Normally you are only at risk
during the first two days of the play. If you sell on a serious
dip then you have to have a more serious dip to cause you problems.

The drawback of course is you must be able to own this stock
unexpectedly. An after hours drop can cause the put holder to
exercise your put and you will own the stock. As long as you
close the play whenever it drops below the opening price you
should almost never see this problem.

A major drawback to this strategy in this market is the gap
down on the open on negative news. Everything is fine the
day before but somebody warns and the entire sector drops -$20
before the open the next day. The way to protect against this
is to buy an "insurance put". If you are selling $50 ITM on the
upside and taking in a $55 premium then before the day is over
go about $20 OTM or under the stock price and buy a put. The
price that far out of the money is normally $4-$8 depending on
the volatility of the stock. Now if you get a gap down your
naked put increases in value but so does your protective put.
You will not get a $1 to $1 move in each but you protect yourself
against more than a $3-$5 loss. You are effectively turning the
play into a spread and limiting your maximum risk.

If this strategy interests you I suggest you go look at some
charts for some fast moving stocks. Pick a strike price $30
to $50 away from the stock price and do the math on the margin
and premium. You will be amazed at the return possibilities.

Fine tuning this strategy.

First, you do not want to hold the plays to expiration. I
like to sell $50 to $100 DITM and then close them after a
run of $20 to $30. Take your profits after any 3-5 day run.
Nothing goes up forever and the longer you are in a play
the greater the possibility of a drop in the stock.

Repeat the play on another stock. You can normally do this
about three times per month. You wait for a dip in the market
and stock, sell the put, wait 3-5 days and close the play.
Then wait for the next market/stock dip and repeat. It does
not have to be the same stock. There are hundreds of choices.
You can vary this strategy and use less volatile stocks,
nice steady growers. You still get $1 for $1 profits and
your margin is only 25% not 50% like buying the stock.

We publish a list of high premium, high volatility stocks in
the newsletter each week for this strategy. Find the list
and paper trade several for a week or two and you will see
why I like this strategy better than any other.

Jim Brown


Call Play of the Day:

CIEN - Ciena corporation $90.56 (-23.81 last week)

See details in sector list

Put Play of the Day:

RSAS - RSA Security $46.00 (-11.44 last week)

See details in sector list

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


TWX $76.35 (-3.08) With the FTC seeking stiffer conditions
from AOL and TWX for approval of their proposed merger, TWX
investors took a little heat.  The commission announced on Friday
that they voted to postpone any legal action against the deal for
three weeks.  Add that to the heavy selling of tech stocks, and
TWX got sold off below our stop of $77.  This Long Term play may
work out well as the deal gets closer to being done, but we must
take what the market gives us and drop this play.

KANA $20.63 (-5.13) Closing near the low of the day on Friday,
KANA lost its steam and rolled over.  There didn't seem to be any
buyers in the market on Friday and tech stocks got whacked.  As a
result of the lack of buyers and heavy selling, KANA broke down
below our stop of $23.  This short lived Long Term play is being
dropped from the play list.

MLNM $71.88 (-13.19) More downside action in Friday's session
brought MLNM back to the low $70s.  There was no late-day
upswing on the NASDAQ to give it a boost back above our Stop at
$75.  OIN is exiting MLNM this weekend as a result of the
stock's transgression.  A more positive environment might
provide the catalyst to move MLNM through the upper resistance
at $89.81, the 52-week high just set on Wednesday, but time is
money so let's move on to more opportune plays.  By the
end of Friday's session MLNM was sitting on the supportive 30
and 50 DMAs.  If your stop losses didn't take you out of the
play, then look for an intraday bounce off the current level to

MANU $103.50 (-17.00) The strong momentum in recent weeks that
resulted in new 52-week records coupled with a 2:1 stock split
next month leaves no doubt of the high expectations we have on
this issue.  However, we can't fight the current trend or ignore
the serious infraction of our $110 Stop.  We held MANU over on
Thursday evening in hopes of a swift recovery, but the negative
pressure of the broad markets took its toll on the share price
in Friday's session.  With much regret, MANU is a drop this
weekend.  Look for this stock to return to our call list if it
shows signs of challenging $126.25 in the near future.  The
company will split its stock 2:1 on December 7th and its
earnings release is expected around December 21st.

ADBE $77.44 (-3.25) It appears that despite positive comments
from Montauk Securities and Robertson Stephens on Wednesday,
uncertainty in the markets and negative sentiment in the Tech
sector is dragging ADBE down.  On Friday, the stock was affected
by Dell's outlook going forward, as they lowered revenue
estimates for next year.  With a possible slowdown in computer
sales, it appears that the market may be pricing in a slowdown in
software sales as well.  Whether or not that line of thinking has
any merit, ADBE fell below its 10-dma support (at $79.16) as well
as our stop at $79.  With that, we are taking our money off the
table for better opportunities ahead.

EMC $70.88 (-15.44) On Thursday, we mentioned that EMC had formed
two-thirds of a doji morning star reversal pattern.  As well, the
high volume on the doji candlestick pattern and the bounce off
support at $80 had us thinking that perhaps it was ready for a
rebound.  However, this was not to be.  The Dell Effect was the
theme on Friday, as large cap Tech stocks dropped across the
board on the PC maker's lower guidance for next year.  Falling
$2.69 or 3.16% on over 150% of ADV and now well below our stop
price of $86, we are closing out this play.

PSFT $42.81 (-3.94) PSFT has had a nice run recently but it
appears that resistance at $50 was too formidable.  Since
touching that level twice on Tuesday and Wednesday, the stock has
traded lower.  A strong bounce on Thursday off our stop price and
firm support at $42 was a good sign but PSFT found resistance
from its 5-dma, currently at $47.29.  On Friday, with negative
sentiment in the NASDAQ, PSFT fell $3.13 or 6.8%.  While the
volume was low, less than 55% of ADV, the close below the 10-dma
at $45.74 suggests the first signs of a rollover.  With the stock
perched precipitously near our stop price, we are ending this
play before it falls below that level.

IMCL $57.06 (-10.56) Making the issue of its earnings date
irrelevant on Friday, IMCL finally gave in to the selling
pressure and fell below our stop at $59.  Not that it really
matters at this point, but the drop in price seemed to be a
lack of buyers more than a rush of sellers, as volume barely
reached the ADV.  Fortunately we never got a decent opportunity
to enter the play as the stock hasn't had a decent day since we
added it last weekend.  IMCL got caught in the sights of the
bears, and in addition to falling out of its bullish trend, the
stock also falls off the playlist this weekend.


No dropped puts today


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

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

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

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

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

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


CIEN - Ciena corporation $90.56 (-23.81 last week)

Ciena corporation's market leading optical networking systems
form the core for the new era of networks and services worldwide.
Ciena's lightworks architecture enables next generation optical
services and changes the fundamental economics of service
provider networks by simplifying the networks and reducing the
cost to operate it.

Ciena is one of the few companies in the dynamic field of
optical networking equipment manufacturers which is strongly
above its 200-dma at $82.19.  Ciena was able to post a gain
on Friday which was one of the worst days for the market in
several weeks.  There was an unconfirmed rumor on an Internet
news reporting service that Cisco was considering a possible
takeover of Ciena.  Neither company has commented on this.
Regardless, Ciena has an earnings growth rate which is almost
unrivaled, and the company has not warned of slowing
growth.  Ciena made a high of over $140 in mid October, and
experienced a free fall with the technology sector correction.
However, a longer trend line can be drawn from a low of $50
in July, which confirms a solid uptrend.  Ciena is due to
report earnings on December 7th, although the date may change
closer to reporting time.  The lowest price Ciena dropped to
in the last several weeks was $84, and a strong rebound
followed.  On Friday, Ciena found solid support at $85.81 and
promtly rebounded, as technical buy signals indicated a move
to the upside.  Ciena tried to push through the 5-dma of $95.50
on Friday, but the market environment was too weak.  Consider
taking new positions on a move through the 5-dma of $95.50, or
the 10-dma of $100 on strong volume.  The 50-dma is a long way
off at $109.  Remember that anything can happen in this
unprecedented election year, and close all positions if Ciena
closes below $84.

BUY CALL DEC- 90 UEE-LR OI= 530 at $14.75 SL=$11.00
BUY CALL DEC- 95*UEE-LS OI=2396 at $12.50 SL=$ 9.50
BUY CALL DEC-100 UEE-LT OI= 669 at $10.38 SL=$ 7.25
BUY CALL JAN- 95 UEE-AS OI= 897 at $15.75 SL=$11.50
BUY CALL JAN-100 UEE-AT OI=7098 at $13.75 SL=$10.25


LH - Laboratory Corporation of America $147.00 (+14.13 last week)

As one of the largest independent clinical laboratories in the
United States, LabCorp, is a silent, but full, partner in the
physician/patient relationship.  By getting physicians and
hospitals the accurate, reliable data they need in a timely
fashion and by pioneering new, cutting-edge testing procedures,
LabCorp plays a critical role in the process of patient
diagnosis, treatment, and monitoring.  LabCorp's versatility and
expertise are best illustrated by the Company's ability to
conduct more than 2,000 different tests ranging from simple blood
analyses to sophisticated techniques involving the replication of
highly complex DNA.

It's been a great year so far for stocks in the Healthcare
sector.  While many Tech stocks are attempting to find a bottom,
investors in LH have been wondering where the top is.  So far, it
appears that the sky's the limit, with the stock this Friday
making a new all-time high, in the face of political uncertainty.
Starting the year off with low institutional ownership, the stock
has edged ever higher, as large investors have been buying up
LH's shares.  In fact, net institutional buying last quarter was
up almost 20 percent.  Recently, LH's stock has continued its
ascent while the share price of competitor Quest Diagnostics
(DGX) has gone the opposite way.  It appears that the market,
acting as a long term weighing machine, is in the process of
giving the heavyweight title to LH.  On Friday, the stock made a
new all-time high, closing up $5.13 or 3.61%.  LH was likely
helped by good news, as Standard and Poor's raised the company's
credit rating two levels, from BB+ to BBB.  This puts LH's credit
rating in the Investment Grade category.  What this means is that
because LH's credit rating is more secure, default risk is lower,
leading to a decrease in interest rates going forward.  Lower
interest charges mean lower expenses leading to higher net
income.  It is likely that the full impact of this good news has
not been felt, suggesting more possible upside. For aggressive
traders, there is support at $145 and $140, near the 5-dma,
making them possible targets for entry.  Conservative traders may
want to wait for LH to make a new high, backed by strong buying
volume before making a play.  We have set out stop at $138, just
above the 10-dma.  A close below this level could be a signal to
exit this play.

BUY CALL DEC-140*LH-LH OI=32 at $15.63 SL=11.25
BUY CALL DEC-145 LH-LI OI= 0 at $13.00 SL= 9.75  Wait for OI!!
BUY CALL DEC-150 LH-LJ OI= 2 at $10.50 SL= 7.50
BUY CALL FEB-145 LH-BI OI= 5 at $21.88 SL=15.75
BUY CALL FEB-150 LH-BJ OI= 0 at $19.00 SL=13.75  Wait for OI!!

SELL PUT DEC-135 LH-XG OI= 50 at $ 5.38 SL= 7.75
(See risk of selling put in play legend)


BRCM - Broadcom Corporation $166.25 (-56.13 last week)

Broadcom. is a developer of highly integrated silicon solutions
that enable broadband digital data transmissions to the home and
within the business enterprise. BRCM's products enable the high-
speed transmission of data over existing communications
infrastructures.  Customers include Cisco, Samsung, and
Scientific-Atlanta; along with Motorola and 3Com, who account
for 28% and 18% of sales, respectively.

They say timing is everything.  Last Tuesday, the Presidential
Election zapped the markets as more money moved to the security
of the side-lines and BRCM announced a $2+ bln stock acquisition
of SiByte, a start-up processor maker.  Investors sold off the
issue at five times the ADV when details of the purchase
revealed it would reduce Broadcom's profits by a hefty $0.03 a
share in each quarter of 2001!  The deal is expected to close in
60 days; and although it shouldn't have a significant impact on
4Q earnings, it didn't make one bit of difference to the traders
as the news traveled throughout the panicky marketplace.  19.4%,
or $42.50 was skimmed off BRCM before the bloodshed came to a
close at the bell on Tuesday.  The extraordinary events
surrounding our Presidential Election continued to effect BRCM's
trading and the losses extended into Wednesday's session.
Investors regained some of their senses amid the continuing
chaos.  It helped that Robertson Stephens also came to BRCM's
defense.  The firm commented that "despite the dilutive impact,
the acquisition of SiByte, we believe, is a step in the right
direction for Broadcom as the trend towards outsourcing higher
layer line card functionality to standard component
manufacturers is likely to accelerate.  We continue to rate the
stock of Broadcom as a Buy".  On Thursday, investors realized
the profit potential and took BRCM off the $150 level.  The $159
and $160 marks are currently buoying BRCM intraday and thus,
we've set our Stop at $159 for a clean exit.  It was promising
to see BRCM rise above $175 in late day trading on Friday.
We're anticipating a strong rebound going into next week.
Whether you're considering taking an aggressive entry on
intraday dips off short-term support or buying into strength as
BRCM reclaims its position above the $200 level, make no
mistake.  This is a HIGH-RISK Internet play.  Keep stops in
place to protect capital.

BUY CALL DEC-165 RDU-LM OI= 129 at $20.63 SL=15.25
BUY CALL DEC-170*RDU-LN OI= 349 at $18.00 SL=13.00
BUY CALL DEC-175 RDU-LO OI= 195 at $15.63 SL=11.25
BUY CALL JAN-170 RDU-AN OI= 224 at $26.25 SL=20.50
BUY CALL JAN-175 RDU-AO OI= 270 at $24.13 SL=18.75



SGI - Silicon Graphics $4.44 (-0.13 last week)

Silicon Graphics manufactures high-end servers as well as the
advanced graphics computers used to create some of Hollywood's
most striking special effects.  It also makes modeling and
animation software, and microprocessors.  Struggling in a
workstation market encroached upon by increased PC power, the
company is refocusing on servers.

Once the darling of Silicon Valley, SGI has fallen out of favor
with investors over the last several years.  However, the stock
has appeared to found bottom at current levels.  Furthermore,
we've noticed peculiar options activity in the December contracts,
which makes SGI a candidate for our lottery play list.  Add to
that the fact the stock has an unfilled gap up to the $7.50 level.
This play is not for everyone, though.  As the name suggests,
it's a lottery play with high risk to reward characteristics and
should only be played by those willing to risk capital.  A small
move in the stock could produce big profits, because of its low
price and low volatility in options contracts.  Look to enter the
play at current levels around $4.50.  A more conservative entry
might be found if SGI rallies above the $5 level on strong volume.
However, a close below $4 would trigger a stop and a drop of the

BUY CALL DEC-5*SGI-LA OI=30431 at $0.63 SL=0.00
BUY CALL FEB-5 SGI-BA OI= 1193 at $0.81 SL=0.00
BUY CALL MAY-5 SGI-EA OI=  621 at $1.19 SL=0.50


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The Option Investor Newsletter                   Sunday 11-12-2000
Sunday                                                      3 of 5

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MSFT - Microsoft $67.38 (-1.31 last week)

Microsoft's vision is to empower people through great software-any
time, any place, and on any device.  As the worldwide leader for
software in personal and business computing, Microsoft strives to
produce innovative products and services that meet our customer's
evolving needs.  At the same time, Microsoft realizes that success
is about more than just making great products.

Considering the extraordinarily weak market environment, MSFT
held up surprisingly well on Friday.  The stock has had a strong
run for the last three weeks, and some consolidation was to be
expected.  The market has showed no tolerance for non profitable
companies in the last few weeks, and MSFT's strong profits make
it a fund manager's favorite.  MSFT is currently nestled between
the 50-dma of $64, and the 200-dma at $73.44.  MSFT tried three
times on Friday to clear $68, but was unable to, and found support
at $67.  If MSFT can clear the converged 5 and 10-dma of $69.50 on
strong volume, consider taking new positions.  However, consider
that we are in uncharted territory with the election uncertainty,
which may persist for a longer period of time than anticipated.
This can weigh heavily on all stocks, but particularly on MSFT,
since the company rallied partly on the anticipation of possible
relief from the monopoly trial remedial action.  For this reason,
close the position if the stock closes below $66, as this would
signify a move out of the ascending channel.

BUY CALL DEC-65 MSQ-LM OI= 4411 at $5.63 SL $3.63
BUY CALL DEC-70*MSQ-LN OI=11286 at $2.94 SL $1.50
BUY CALL DEC-75 MSQ-LO OI=29619 at $1.44 SL $0.75
BUY CALL DEC-70 MSQ-AN OI=38617 at $4.38 SL $2.75
BUY CALL DEC-75 MSQ-AO OI=37978 at $2.56 SL $1.25


IMGN - Immunogen $39.25 (+1.19 last week)

Founded in 1981, ImmunoGen develops products that deliver
chemotherapy directly to cancer cells.  Called Tumor-Activated
Prodrugs (TAPs), ImmunoGen’s products are small-molecule-based
anti-cancer agents with high potency and reduced toxicity.  They
are produced by combining extremely potent chemicals with
monoclonal antibodies that recognize and bind directly to tumor
cells.  ImmunoGen’s product portfolio is focused on TAPs for
colorectal cancer, small-cell lung cancer and other aggressive
malignancies.  In preclinical studies, all of ImmunoGen’s
products have proven to be more potent and less toxic in animals
than existing chemotherapeutics.

IMGN has been investing its dollars in research and development
and so far, it has been paying off.  Good news and on the
pipeline front helped IMGN stay in the green this past week, as
many stocks of the four-letter variety were sold with abandon.
On Thursday the company announced that initial testing results of
their Tumor-Activated Prodrug (TAP), used to treat small-cell
lung cancer, had been well tolerated in mice as well as monkeys.
In fact, the drug produced better than expected results, as even
small amounts of it were noticeably effective.  Not only that,
but the scope of testing has expanded to treatment of other major
internal organs.  While the drug is far from ready for Phase III
clinical trials, initial results are promising indeed.  Friday
yielded even more good news, as another drug further along in its
pipeline, was reported to be in preliminary Phase I/II.  In
layman's terms, these are the first human trials.  This drug,
also a TAP, is intended for treating non-small-cell lung cancer.
The results so far are encouraging.  With the stock currently
just below the $40 mark, a break through that level on strong
volume could allow conservative traders to take a position, but
be aware of resistance just ahead from the 5-dma, now at $41.11.
For aggressive traders, a bounce off the 10-dma, currently at
$38.82, is a possible entry point.  There is additional support
near our stop price at $37.  A close below this point could
suggest that it the stock may need to head lower before resuming
its upward climb.  Also note that on Monday IMGN will be pricing
its secondary offering of 4 million shares.  How the stock reacts
could be an good indicator of future strength (or weakness).

BUY CALL DEC-30 GMU-LF OI=  52 at $11.38 SL=8.50
BUY CALL DEC-35*GMU-LG OI=  59 at $ 8.00 SL=5.75
BUY CALL DEC-40 GMU-LH OI= 110 at $ 5.38 SL=3.50
BUY CALL JAN-40 GMU-AH OI=1057 at $ 7.00 SL=5.00
BUY CALL JAN-45 GMU-AI OI= 775 at $ 5.38 SL=3.50


SDLI - SDL, Inc. $220.56 (-41.94 last week)

SDLI was the first company in the world to successfully
commercialize the integration of multiple lasers on a single
semiconductor chip and ever since, has been a leader in
integrating lasers with other optical or optoelectronic elements
such as lenses, mirrors and light amplifiers.  Their
technological leadership is illustrated by the more than 125
patents held, backed by an emphasis on continued research and
development. Their goal is to replace both electronic-based
systems and conventional optics with more powerful and efficient
semiconductor laser solutions.

Simply put, SDLI is a leveraged play on Fiber Optics leader JDSU.
As Jim Brown mentioned last week, with a 3.8-to-1 share
exchange, any move on JDSU will result in 3.8 times that move in
SDLI.  This has given SDLI a high volatility, making large
intra-day swings on a daily basis, making this stock a traders'
dream.  Taking the closing prices of both stocks, there appears
to be an arbitrage spread of about $40.  This spread reflects the
risk premium going forward of the proposed merger.  Positive news
could narrow the spread, leading to a further increase in SDLI's
share price.  On Friday, Tech stocks all across the board headed
lower, with continuing controversy surrounding the Federal
election as well as in sympathy with Dell's comments of slower
sales going forward.  Dropping $17.75 or 7.45% on 90% of ADV,
SDLI closed right above strong support at $220.  This coming week
will be a busy one for JDSU, with a busy conference schedule.  On
Monday, the company will be at the Deutsche Banc Alex. Brown Tech
2000 Conference.  Tuesday will be Wit SoundView's Fourth Annual
Technology Outlook Conference.  Wednesday JDSU will do double
duty, presenting at the UBS Warburg Fifth Annual Global Telecom
Conference and Credit Suisse First Boston's Annual Technology
Conference.  With the stocks in oversold territory, positive news
going forward could ignite a strong rebound in the shares of both
companies.  For aggressive traders, there is support in
increments of $5 from $200 to $220.  A bounce off support,
confirmed with volume could allow for an entry, but make sure
SDLI closes above our stop price of $216 as anything lower could
mean more downside and force us out of this play.  For a safer
entry, wait for SDLI to break through $225 on volume, where
upward momentum should quickly take the stock to its next
resistance level at $230.

BUY CALL DEC-215 QZL-LC OI=  22 at $30.88 SL=22.50
BUY CALL DEC-220*QZL-LD OI= 148 at $28.13 SL=20.50
BUY CALL DEC-230 QJV-LF OI=1417 at $23.50 SL=17.00
BUY CALL MAR-220 QZL-CD OI=  17 at $47.00 SL=34.00
BUY CALL MAR-230 QJV-CF OI= 110 at $43.00 SL=31.00

SELL PUT DEC-210 QZL-XB OI= 140 at $18.75 SL=25.50
(See risk of selling put in play legend)


TLAB - Tellabs $53.25 (-0.31 last week)

Tellabs is an optical networking firm.  Its equipment is used
throughout the world to manage and transmit data, voice, and
voice signals.  Customers include telecommunication companies,
cable operators, corporations and government agencies.  Baby
Bells account for nearly one-third of sales with another third
generated outside the US.

Many stocks in the communications equipment market, like Ciena
(CIEN) for instance, were bullet proof amid the summer doldrums.
TLAB, on the other hand, just wasn't considered one of those
sexy stocks.  Without the favorable conditions to buffer a
seasonal correction, TLAB quickly tumbled from its July peak of
$77.25.  When the scuttlebutt hit the Street that the networking
equipment market showed signs of slowing, the relentless
punishment continued.  Finally last month, TLAB hit a relative
bottom of $37-$38.  As the dust settled following the harsh
sector sell-off, investors took notice of this undervalued
stock.  Many investors seized the opportunity to buy the issue
at a bargain price.  The resulting momentum of the past couple
weeks took shares of TLAB through the $50 resistance.
Currently, TLAB is channeling between $52 and $56 on respectable
volume - we will use the low end of that channel at $52 for our
stop.  If you're more risk oriented, you might consider taking
entries off the converged 5 and 10 DMAs at $53.55 and $52.31,
respectively.  A more conservative approach is to wait for a
break above $56 and the 200-dma ($57.54) before beginning new
plays.  Recently on November 2nd, the brokerage firm Robinson-
Humphrey reiterated a Buy recommendation on TLAB and issued an
$85 price target.  Although the steady action this week points
to another move to the upside, trade smart and confirm the

BUY CALL DEC-50 TEQ-LJ OI= 685 at $6.13 SL=4.00
BUY CALL DEC-55*TEQ-LK OI=1365 at $3.50 SL=1.75
BUY CALL DEC-60 TEQ-LL OI=3984 at $1.88 SL=1.00
BUY CALL JAN-55 TEQ-AK OI=2522 at $5.63 SL=3.50
BUY CALL JAN-60 TEQ-AL OI=2618 at $3.75 SL=2.25


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The Option Investor Newsletter                   Sunday 11-12-2000
Sunday                                                      4 of 5

To view this email newsletter in HTML format with embedded
charts and graphs, click here:

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NEWP - Newport Corporation $85.75 (-23.69 last week)

In research laboratories, product development departments and on
production lines around the world, scientists and engineers
depend on Newport Corporation.  The company is the leading
worldwide manufacturer and distributor of precision components
and systems used for development and application of laser and
optical technologies, supporting not only advanced research, but
also sophisticated new technology and industrial applications.
Its products and expertise are increasingly used in semiconductor
manufacturing and testing, fiber optic communications and other
commercial applications that require ever increasing
higher-precision and tighter tolerances.

This once high-flyer has seen better days.  Ever since hitting a
high of $192.06 in late September, NEWP has had over half its
market cap erode in the space of less than two months.
Connecting the highs and lows since its peak reveals a
downward-trending regression channel.  There are a number of
factors leading to NEWP's decline but the most devastating blow
to the stock has been its position in the Fiber Optics food
chain.  Earnings reports from leaders Cisco and Nortel gave the
bears plenty of ammunition to work with.  Nortel's revenue miss
of high-end projections had them crying, "Slowdown!" while
Cisco's build-up of inventory had investors concerned that sales
going forward for equipment makers such as NEWP would be
substantially lower.  October was an especially brutal month,
with the stock crashing through its 50 and 100-dma support (now
at $142.84 and $130 respectively).  A downgrade late in the month
by UBS Warburg from a Buy to a Hold rating did not help NEWP in
November either.  On Friday, the stock fell below its last line
of moving average support, the 200-dma at $88.44.  Ending the day
down $9 or 9.5% on higher than average volume, the stock has also
been having trouble with the 5 and 10-dma (currently at $95.84
and $101.10).  A failure to rally above moving average resistance
as well as the psychological $100 could provide aggressive
traders with an ideal entry point, but make sure NEWP closes
below our stop, set at $94.  A close above this level could
indicate a possible halt to its downward momentum.  Just to make
sure, a break through resistance at $85, backed by selling
strength could allow for a safer entry.

BUY PUT DEC-90*NZZ-XR OI=36 at $16.88 SL=12.25
BUY PUT DEC-85 NZZ-XQ OI= 0 at $14.63 SL=10.75  Wait for OI!!


PLCM - Polycom, Inc. $47.31 (-17.63 last week)

Polycom manufactures and markets a full range of high quality,
media-rich communications tools and network solutions, which
enable business users to immediately realize the benefits of
video, voice and data over rapidly growing converged networks.
Although the company is primarily a video conferencing and
voice conferencing product provider, it has recently entered
the DSL access market, particularly in the area of integrated
voice appliances and broadband access devices.

Like Wile Coyote, PLCM stepped off a cliff on Thursday, falling
victim to the market weakness that drove the NASDAQ to its
lowest close of the year.  Proceeding to fall through several
levels of support, the stock gave up 29% in three days, joining
the long list of technology companies that have fallen from
grace.  Even the 200-dma ($48.19) was insufficient to halt the
stock's decline as selling volume continued to increase right up
to the closing bell, with the closing tally coming in at double
the ADV.  Since there was no stock-specific news that would
prompt such a sharp move, it seems logical that PLCM finally
fell victim to the valuation concerns that have tripped up one
technology stock after another.  Although below the 200-dma, the
stock did manage to end the week right on a significant support
level ($47-48), so the conservative strategy will be to wait for
further weakness before opening new positions.  Falling below
$47 on continued strong volume looks like a good entry, as it
will open the door for a drop to the next major support at $40.
Aggressive traders can target shoot their entries if the stock
bounces and rolls over.  Previous support at $50-52 will likely
provide solid resistance, so use a rollover near this level as
your entry trigger.  Any substantial recovery that clears $52
will be a clear signal that PLCM has found help from buyers and
will be our signal to exit the play.

BUY PUT DEC-55 QHD-XK OI=12 at $10.50 SL=7.50
BUY PUT DEC-50 QHD-XJ OI= 0 at $ 7.13 SL=5.00  Wait for OI!!
BUY PUT DEC-45*QHD-XI OI= 2 at $ 4.38 SL=2.75


VRSN - VeriSign, Inc. $113.19 (-29.19 last week)

VeriSign is the leading provider of Internet trust services
and digital certificate solutions needed by Web sites,
enterprises and individuals in order to conduct secure
electronic commerce and communications over IP networks.  VRSN
has used its secure online infrastructure to issue over 100,000
of its Website digital certificates and over 3.5 million of its
digital certificates for individuals.  The company also offers
the VeriSign Onsite service, which allows an organization to
leverage the company's trusted service infrastructure to develop
and deploy customized digital certificate services for use by an
organization's employees, customers and business partners.  To
date, over 300 enterprises have subscribed to the OnSite service
and VRSN has strategic relationships with industry leaders
including Cisco, Microsoft ,RSA, Security Dynamics, and VISA.

After failing to hold above the $200 level in early October, it
has been a painful downhill slide for VRSN investors.  Over the
past 6 weeks, the stock has continued to trace a series of lower
highs and lower lows, as the technicals continue to deteriorate.
The abuse this week was not confined to VRSN, as other players
in the Internet security space like CHKP and RSAS took severe
haircuts on election related jitters and continued concerns
about slowing revenue growth.  The bounce from the $120 level
two weeks ago gave the bulls hope, but that level was shattered
on Friday, with the stock trading as low as $108.50 before
recovering slightly in the afternoon.  Don't look for any help
from the moving averages, as even the converged 5-dma and 10-dma
are sitting near $130, a level not likely to be seen in the near
future.  In line with the previous support equals new resistance
theory, aggressive traders can target-shoot new entries near
$120, if the stock begins to roll over after any kind of
oversold bounce.  We have placed our stop just above this level
($123), and a rise through that level would indicate that the
buyers are starting to come back.  Given the heavy volume (40%
over the ADV) on Friday, we don't think that is the most likely
course of events though.  It looks like more weakness to come,
and the more conservative strategy will be to pile on as VRSN
falls below $111.  Although there is some support near $108, the
odds favor a drop to the $100 support level before things begin
to improve.  If the NASDAQ fails to hold support at 3000, it is
entirely reasonable to think that VRSN will challenge its spring
low at $91, before buyers reappear with cash in hand.

BUY PUT DEC-115 XVR-XC OI=104 at $16.63 SL=12.00
BUY PUT DEC-110*XVR-XB OI=209 at $14.38 SL=10.75
BUY PUT DEC-105 XVR-XA OI= 73 at $11.63 SL= 8.75


BLDP - Ballard Power Systems $89.50 (-21.50 last week)

Ballard Power Systems is engaged in the development and
commercialization of proton exchange membrane (PEM) fuel cells
and related power generation systems for stationary units and
transportation vehicles.  Other usage includes portable
applications for emergency and recreational use.
DaimlerChrysler and Ford own 19% and 14% of Ballard,

The confusion and turmoil surrounding the Presidential Election
has certainly taken its toll on the markets - and we still don't
have a certifiable winner!  In the case with BLDP, it would be
to the company's benefit for a Gore win.  In a Democratic White
House, environmentally friendly companies like Ballard Power
Systems would fare well since Gore is known to be concerned
about conservation and environmental issues.  But if BLDP's
chart is any indication of who'll be inaugurated, then we could
be looking at a Republican White House in 2001.  BLDP's chart
for is unmistakably bearish!  Starting on pre-election Monday,
BLDP began its descent.  By Wednesday it slipped under its
historical split-candidate level of $100 and crashed through all
the near-term DMA lines.  On Thursday, BLDP attempted to rally
late afternoon, but failed to breakthrough the psychological
century mark - it hit a wall at $99.  Friday's action took BLDP
down for the count.  The technical violation of the 200-dma
($92.26) and the potential for more uncertainty in the markets
next week prompted us to add BLDP to our put list.  Volume
remains average to strong, so look for increased trading on the
decline to foreshadow further weakness below $90.  First expect
some light support at Friday's near-term bottom of $89.25, then
lower at the $80 if BLDP went into a downward spiral.  Be
cautious if it starts to look like Gore may take the Presidency.
This event could send shares upward.  We've set a firm Stop at
$96 to minimize any positive impact.  More enterprising traders
might take entries on a rollover at this level, if the market
and world events are supportive to the downtrend.

BUY PUT DEC-90 DFQ-XS OI=23 at $10.38 SL=7.50
BUY PUT DEC-85*DFQ-XR OI=50 at $ 7.25 SL=5.00
BUY PUT DEC-80 DFQ-XQ OI=66 at $ 5.13 SL=3.00



DGIN - Digital Insight $13.50 (-5.50 last week)

Digital Insight makes Internet banking software that lets users
check balances, view transactions, transfer funds, and pay bills
over the Web.  The company's cash management software caters to
business users.  Digital Insight also offers Web site creation,
hosting, and maintenance services.  Its AXIS Lending provides
Internet-based loan services to both consumer and business

The path to profitability is growing longer for several Internet
oriented businesses.  That fact is prevalent in the Internet
banking sector, in which DGIN operates.  Profits are still a long
way off for the company, and investors are growing impatient.
That impatience culminated in DGIN losing $5.50 last week - nearly
30%.  DGIN's steady downtrend and low price have put in on the
low volatility put play list, and we're looking to profit on those
very characteristics.  DGIN continues to trace new 52-week lows;
as such, there's no support below - the stock's in uncharted
territory.  Look to enter new positions on a break below the
$13.50 level.  A rollover near the $14.50 level might provide a
more aggressive entry upon a failed rally attempt.  We'll use the
$15 mark as our stopping point, should DGIN rebound.  Confirm
sector weakness with CORI and SONE before entering new plays.

BUY PUT DEC-17 UGU-XW OI=0 at $4.63 SL=2.75
BUY PUT DEC-15*UGU-XC OI=0 at $2.56 SL=1.25
BUY PUT FEB-15 UGU-NC OI=0 at $3.38 SL=1.75



SLR - Solectron $36.06 (-8.13 last week)

Solectron Corp. is one of the world's largest supply chain
facilitators for customized electronics technology, manufacturing
and service solutions.  Founded in 1977, Solectron's integrated
technology solutions, materials, manufacturing and operations,
and global services offer customers competitive outsourcing
advantages, such as access to advanced manufacturing technologies,
shortened product time to market, and more effective asset
utilization.  Their customers are primarily original equipment

Solectron has had a bad week.  While the company was able to
stay just under the 50-dma at $44.51 on Monday, the news that
Cisco had an oversupply of inventory in certain electronics
components, combined with election uncertainty, was too much
for the stock.  SLR crumbled slowly and steadily, losing on
average one point a day.  On Wednesday, the stock fell below
its 200-dma of $41.69 in the morning, made one more futile
attempt to rally to this level again, and collapsed.  On Friday
the selling intensified, as SLR plunged to $36, losing 10% of
its market value by mid afternoon.  The volume was over 14
million shares, nearly five times the average daily volume of
2.8 million shares.   SLR has a long way to go before it can
think about reaching the 5-dma of $40.63, or the 10-dma of
$42.88.  In the meantime, consider adding new positions on a
failed attempt to rally above $37, and exit all positions
if the stock closes above $39.

BUY PUT DEC-45 SLR-XI OI=1120 at $9.50 SL=$6.50
BUY PUT DEC-40*SLR-XH OI= 364 at $5.63 SL=$3.63


IDTI - Integrated Device Technology $32.50 (-17.88 last week)

The company's high-performance semiconductor products and modules
are found in computers, peripherals, and communications and
networking devices.  About 70% of sales are from communications
and high-performance logic components, specialty memory, clock
management circuits, and networking devices.  IDTI also makes
static random-access memories (SRAMs).

The story goes something like this...  Cisco's earnings report on
Monday had the Networking giant as usual beating Street estimates
by a penny.  Going into the report, many feared that Cisco would
not be able to match its previous growth rate of 60%.  But the
company came through, growing revenues by 66%.  As impressive as
it was, analysts looked for the proverbial dark cloud in the
silver lining focused on the inventory numbers.  With raw
materials inventory up 59% to almost $2 billion dollars, this is
a large increase indeed.  Noting the increased inventory levels
of Nortel and Lucent as well, there was much concern over a
possible slowdown in demand for various optical components going
forward.  With Cisco as a large customer, IDTI has clearly been
impacted by the news.  Negative sentiment in the Semiconductor
sector and the NASDAQ for that matter have also conspired to lead
the stock lower.  With its once-beautiful chart now broken and
the stock well below all its major moving averages, IDTI has
continued to head deeper into negative territory, backed by
resistance from the 5 and 10-dma (currently at $40.75 and $46.33
respectively).  Support levels can be found in increments of $5
at $30 and $25 as can resistance at $35, and $40.  A failed rally
above resistance could be aggressive targets to shoot for but
make sure volume confirms the rollover.  A break below $30 on
volume would be a more conservative entry.  In either case, we
have lowered our stop to $38 so make sure IDTI continues to close
below this level when considering a play.

BUY PUT DEC-35*ITQ-XG OI=115 at $7.25 SL=5.00
BUY PUT DEC-30 ITQ-XF OI= 42 at $4.25 SL=2.50


ADI - Analog Devices $44.50 (-17.81 last week)

Analog Devices is a leading maker of analog (linear and
mixed-signal) and digital integrated circuits (ICs), including
digital signal processors.  The company's broad line of ICs
incorporate analog, mixed-signal and digital signal processing
technologies that translate real-world phenomena such as
pressure, temperature, and sound into digital signals.  ADI's
products are used in communications equipment (40% of sales),
computers and peripherals, and medical and scientific
instruments.  Among ADI's more notable customers are Motorola,
Dell, Lucent, and Sony.

This week was not kind to the Semiconductor sector, as it fell
to its lowest close of the year in Friday's selloff.  Between
the negative comments made in earnings reports from DELL and
CSCO, and the continuing election uncertainty, there was simply
a shortage of buyers willing to step up to the plate and buy
anything technology-related.  Caught in the rapidly descending
elevator, ADI had no choice but to drop with the broader
markets, giving up more than 28% on the week to close at its
lowest point since early January.  Adding insult to injury,
Morgan Stanley downgraded INTC from Outperform to Neutral,
further increasing the pressure in the already beleaguered
sector.  With all that negative pressure, we would have expected
ADI to plunge further on Friday, but amazingly it seemed to
actually find support near $43 and recover slightly throughout
the day.  Volume dropped off to the daily average on Friday, and
the stock's refusal to sell off further prompts us to lower our
stop to $48, to protect against a possible recovery.  One
possible cause for the apparent strength could be the fact that
the company is set to report its earnings on Tuesday after the
close.  With our play coming to an end on Tuesday due to this
event, we would only recommend new entries on the play if
continuing technology weakness pushes ADI below the $43 level.

BUY PUT DEC-50 ADI-XJ OI=482 at $9.88 SL=7.00
BUY PUT DEC-45*ADI-XI OI=301 at $6.63 SL=4.50


RSAS - RSA Security $46.00 (-11.44 last week)

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

Leading the NASDAQ to a new low for the year on Friday was the
Internet sector, as the continuing election debacle combined
with persistent valuation and revenue growth concerns, keeping
buyers firmly planted on the sidelines.  RSAS saw its
sub-sector, Internet Security, come under renewed selling
pressure as well with other players like VRSN and CHKP selling
off sharply right up to the closing bell.  Volume came in at
the ADV again, and unless the NASDAQ halts its slide at the 3000
level, it looks like our play could easily retest support at
$39-40.  This would make the technicians happy, as it would
serve to close the unfilled early October gap between
$39.50-43.50.  The selloff over the past week has been severe,
pushing the stock well outside its lower Bollinger band, so it
would not be out of the question to see an oversold bounce
materialize in the next couple days.  If such a bounce appears
and runs out of steam near the $50 level, consider it to be an
attractive, yet aggressive entry point.  To protect against the
possibility of giving back our profits, we have moved our stop
down to $50.  More conservative entries can be had as RSAS falls
through tentative support at $46, on its way to fill the gap
mentioned above.

BUY PUT DEC-55*QSD-XK OI= 605 at $10.38 SL=7.50
BUY PUT DEC-50 QSD-XJ OI=   0 at $ 6.63 SL=4.50  Wait for OI!!


LVLT - Level3 Communications $36.06 (-3.75 last week)

Level3 Communications is a global telecommunications and
information services company that is building an international
fiber-optic network based on internet protocol (IP).  Their
focus is primarily on the business market.  Services include
local, long distance, and data transmission as well as other
enhanced services. Currently they serve 20 cities in the US and
Europe.  LVLT also has its hands in the coal mining business.

While some investors are seeing their portfolios take a beating,
many traders are playing individual trends.  The negative bias
on the NASDAQ continues ice our cake when it comes to the put
play on LVLT.  In both Monday and Tuesday's session, LVLT saw a
52-week low at $34.25 on unusually high volume.  Our play did
get side-tracked when Kaufman Brothers and Level3
Communication's CEO incited a buying spree.  The brokerage firm
upgraded LVLT to a Buy and issued a $59 price target.  That same
day, CEO James Q. Crowe responded to shareholders' recent
concerns about the stock's weakness with a reassuring press
release.  He pledged that the company would meet estimates
despite the growing concerns in the telecommunications industry.
But the sincere sentiment wasn't enough to drive LVLT over the
top of $41.38 in subsequent trading.  Yes, it's true that
hindsight is always 20-20 - the buying spree was indeed a
premium entry point!  As it stands now, the ceiling is getting
lowered again.  LVLT couldn't penetrate the $38 level by Friday;
however we have maintained our $41 Stop loss.  We want to have
enough leeway to take an aggressive entry on a high-volume
rollover, yet have that distinct exit point near the 10-dma
($40.20).  Take a look at a daily chart and you can visually
confirm how this technical line has served as upper resistance
on the decline.  Take entries according to your risk tolerance.
A conclusive slide through the new low at $34.25 would confirm
further weakness, but keep stops tight if you enter at these
lower price levels.

BUY PUT DEC-40 HGY-XH OI=2028 at $7.25 SL=5.00
BUY PUT DEC-35*HGY-XG OI= 320 at $4.38 SL=2.75
BUY PUT DEC-30 HGY-XF OI= 269 at $2.50 SL=1.25


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Wow!  Did Anyone Get the Number of That Truck?
By Mark Phillips
Contact Support

If there was ever a time to employ stop losses, this week was
it.  With very few exceptions, our playlist took a beating this
week as fears of slowing growth in technology were amplified by
the fiasco known as "Decision 2000".  The presidential election
has become almost surreal, and I won't bore you with a rehash
of what has become a tedious and embarrassing affair.  The
important point is that it has created significant uncertainty
in the markets.  As we all know, the markets do not like
uncertainty, and the effects can be seen across all the major
indices, with the bulk of the pain being felt in the technology
sector.  Over the past 3 days, the NASDAQ has given up 11.3% to
post its lowest close this year, as volatility has increased yet

Still an accurate barometer of fear, the VIX moved as high as
33.45 on Friday, before dropping a bit to close out this
volatile week at 32.63.  While readings above 30 usually
provide attractive entry opportunities for longer-term
investors, it isn't clear that the selling has come to an end
yet.  The impact of a slowdown in the economy and its effect
on the growth rates of leading technology companies is still
being sorted out by the market participants.  Given the action
near the close on Friday, it is looking increasingly likely
that the 3000 level on the NASDAQ will fail to hold, with a
likely downside target of 2800-2850.  Obviously, we need to wait
for the current decline to play itself out before jumping in to
new positions, especially in the volatility sector.

While technology has been under pressure, we have seen
impressive strength in the Pharmaceutical and Financial sectors.
Although there have not been large gains in these groups, due
to their lower valuations, they have not succumbed to the severe
selling pressure that has been evident in the recent high flyers
like Networking and Internet stocks.  Diversification, anyone?

I had some questions at the Denver seminar and by email recently
concerning the issue of volatility, the VIX, and option premiums
that I'd like to address briefly.  The question goes like this.
"If we buy LEAPS when the VIX is high, doesn't that mean that
LEAP premiums will be inflated, and when volatility drops off,
the premiums will too?"

The short answer is yes, even LEAP premiums are affected by
volatility, but to a lesser degree than short-term options.  So
while a given short-term option premium may jump by 30%, the
corresponding increase in the LEAP premium may only be 10%.
This is due to the longer lifespan of the LEAP.  Since we are
looking to buy LEAPS and hold them for a longer period of time,
we can target attractive plays when the VIX is high (indicating
a market bottom is near), and hold them through the market
recovery without suffering the penalty of rapid time decay.  So,
while buying LEAPS when the VIX is high will mean a higher LEAP
premium, you are doing so when the deck is stacked in your
favor, and over the long run, the increase in premium due to a
rising stock price will more than overtake the decrease caused
by declining volatility.

The absolute best case scenario is to find a stock you want to
buy LEAPS on, and buy it when the stock specific volatility is
low, but the VIX is high.  A perfect example of this
relationship is our play on WM.  Although we have seen large
fluctuations in the broader markets and the VIX, the LEAP
premiums have increased very little due to the volatility over
the past few months.  When we first selected the play back in
March, a 2002 LEAP that was one strike OTM cost a little over
$5.  Currently, a 2002 LEAP that is one strike OTM is going for
$5.  To be fair, we should probably look at the 2003 LEAP, as
the time horizon is more comparable, but even that strike is
only a little more than $6.  This shouldn't be construed as a
recommendation to go out on Monday and snatch up LEAPS on WM,
as you still need to look for the right entry point, but it is
a good example of how to dance between the raindrops and make
volatility work for you.

Until next week, tread (and trade) carefully and carry a big
cash reserve.  Or as Jim frequently reminds us, "Don't Buy Too

Current Plays


EMC    11/07/99  JAN-2002 $ 45  WUE-AI   $ 9.50   $44.88   372.37%
       09/17/00  JAN-2003 $100  VUE-AT   $32.75   $24.63   -24.81%
CSCO   11/14/99  JAN-2002 $ 45  WIV-AI   $11.00   $16.38    48.86%
NT     11/28/99  JAN-2002 $37.5 WNT-AU   $15.13   $13.25   -12.43%
       09/10/00  JAN-2003 $ 75  ODT-AO   $27.50   $ 6.50   -76.36%
SUNW   12/19/99  JAN-2002 $ 90  WJX-AR   $22.00   $25.63    16.48%
       11/05/00  JAN-2003 $120  VSU-AD   $39.50   $24.63   -37.66%
AOL    03/12/00  JAN-2002 $ 65  WAN-AM   $18.63   $ 6.70   -64.05%
       08/13/00  JAN-2003 $ 55  VAN-AK   $17.50   $14.80   -15.43%
AXP    03/12/00  JAN-2002 $46.6 WXP-AQ   $ 9.33   $17.50    87.57%
WM     03/19/00  JAN-2002 $ 30  WWI-AF   $ 5.38   $16.50   206.69%
       10/22/00  JAN-2003 $ 45  VWI-AI   $ 7.88   $10.63    34.92%
JDSU   04/16/00  JAN-2002 $ 80  YJU-AP   $39.63   $19.88   -49.85%
       08/27/00  JAN-2003 $130  VEQ-AF   $55.25   $17.13   -69.00%
NOK    05/21/00  JAN-2002 $ 50  IWX-AJ   $17.25   $ 6.38   -63.04%
       07/30/00  JAN-2003 $ 50  VOK-AJ   $17.75   $ 9.75   -45.07%
C      06/18/00  JAN-2002 $48.8 YSV-AW   $10.31   $12.13    17.60%
       10/01/00  JAN-2003 $ 60  VRN-AL   $12.25   $10.88   -11.22%
VRSN   07/02/00  JAN-2002 $190  YVS-AR   $66.25   $22.13   -66.60%
       09/03/00  JAN-2003 $190  OVS-AR   $86.63   $34.38   -60.32%
GENZ   07/16/00  JAN-2002 $ 70  YGZ-AN   $17.13   $28.25    64.92%
                 JAN-2003 $ 70  OZG-AN   $23.13   $35.13    51.86%
HWP    07/30/00  JAN-2002 $ 55  WPW-AK   $14.13   $ 5.13   -63.73%
                 JAN-2003 $ 60  VHP-AL   $16.25   $ 6.75   -58.46%
EXDS   08/06/00  JAN-2002 $ 55  WZZ-AK   $20.75   $ 6.13   -70.48%
                 JAN-2003 $ 60  VTQ-AL   $25.38   $ 8.88   -65.03%
MFNX   08/06/00  JAN-2002 $ 40  WOF-AH   $13.75   $ 3.63   -73.64%
                 JAN-2003 $ 45  VKW-AI   $15.63   $ 5.38   -65.61%
FRX    08/13/00  JAN-2002 $ 95  WRT-AS   $31.38   $49.75    58.54%
                 JAN-2003 $100  VFB-AT   $37.38   $55.88    49.48%
BRCD   08/27/00  JAN-2002 $220  YNU-AD   $65.38   $63.88   - 2.30%
                 JAN-2003 $220  OMW-AD   $86.50   $86.63     0.14%
CMRC   09/10/00  JAN-2002 $ 80  YCU-AP   $30.13   $19.63   -34.87%
                 JAN-2003 $ 80  OCU-AP   $38.75   $27.63   -28.71%
QCOM   09/17/00  JAN-2002 $ 70  WBI-AN   $22.50   $26.38    17.22%
                 JAN-2003 $ 70  VLM-AN   $29.63   $34.38    16.01%
COMS   10/01/00  JAN-2002 $ 20  WTH-AD   $ 6.38   $ 3.88   -39.22%
                 JAN-2003 $ 25  VTH-AE   $ 7.13   $ 4.63   -35.09%
INTC   10/15/00  JAN-2002 $ 45  WNL-AI   $ 9.50   $ 7.25   -23.68%
                 JAN-2003 $ 45  VNL-AI   $13.38   $10.88   -18.69%
TXN    10/22/00  JAN-2002 $ 50  WTN-AJ   $13.75   $ 8.38   -39.09%
                 JAN-2003 $ 50  VXT-AJ   $18.38   $12.50   -31.97%
ADBE   10/29/00  JAN-2002 $ 80  YEJ-AP   $23.50   $24.63     4.79%
                 JAN-2003 $ 80  VAE-AP   $30.75   $32.75     6.50%
BGEN   11/05/00  JAN-2002 $ 70  WGN-AN   $17.25   $14.38   -16.67%
                 JAN-2003 $ 70  VNG-AN   $25.00   $21.38   -14.50%

Spotlight Play


What's this?  A Technology stock that actually moved up this
week?  Believe it or not, QCOM looks to be on the mend after
spending the last 6 months with scant buying interest, the CDMA
king looks like it is on the mend.  While the change of
attitude in China and Korea is encouraging, this seems like a
longer term factor.  The real mover this week was the growing
evidence that many TDMA carriers are considering upgrading to
QCOM's 1X-CDMA technology, as they migrate to data enabled
networks.  Couple that with the fact that the company had its
European patents upheld, and the revenue stream seems to be
solidifying.  Lehman Brothers seems to agree, as they reiterated
their Buy rating on the stock Friday.  That's the easy part.
The hard part is trying to pin down an entry strategy.  With the
NASDAQ threatening to break below 3000, we would recommend
extreme caution in initiating new positions in anything
technology related until we see evidence that the tech index has
found a bottom.  No matter how compelling the individual stock
is, broad market weakness can overwhelm that strength and drag
it lower.  Conservative players will wait for the stock to break
above the $80 level and hold before taking a position.  For you
risk takers, feel free to take advantage of any near-term
weakness to target shoot a better entry.  While $68 looks like
an attractive level for new positions, the wild card is the
NASDAQ.  We need to see it quit bleeding before jumping into
any new positions.

BUY LEAP JAN-2002 $75.00 WIJ-AO at $24.63
BUY LEAP JAN-2003 $80.00 VLM-AP at $31.38

New Plays



HWP $39.13 No matter how you slice it, if you were holding tech
stocks this week, it hurt.  We had been getting concerned as
HWP languished leading up to their 2-for-1 split, which occurred
two weeks ago.  It finally found some support in the low $40s,
but that support was no match for the nervous state investors
found themselves in this week.  First CSCO spooked investors on
Monday with some negative comments, which accompanied an
otherwise stellar earnings report.  Then we got a huge dose of
uncertainty from the lack of election results, and finally DELL
reported earnings on Thursday, guiding future estimates lower,
re-igniting fears about the slowing PC sector and valuations of
companies in that space.  That was too much for poor HWP and it
spent the past 2 days selling off on very heavy volume (nearly
4 times the ADV on Friday).  What had appeared to be solid
support at $40, is now looking like overhead resistance, and it
looks like sentiment has gotten even worse.  Despite Carly's
impressive performance at the helm since she took over, things
do not look positive for the stock at this point, and we have
no choice but to drop HWP from the playlist.

VRSN $113.19 Although it has been one of the last sub-sectors
of the Internet sector to get hit full force with valuation
concerns, Internet security stocks appear to be taking their
turn out behind the woodshed.  Long a favorite call play, VRSN
has really been beaten up lately, giving up nearly 50% of its
value over the past 6 weeks.  The stock has continued tracing
a series of lower highs and lower lows, and even a stellar
earnings report was only good enough to temporarily halt the
decline.  Whether it is the real cause or just an excuse, the
election debacle marked the beginning of the most recent
downward slide.  Support had looked solid at $120, but sellers
sliced through that like a hot knife through butter, and the
stock actually tested the $108 level before finding any kind of
support on Friday.  And it doesn't look like the bears are done
yet, with a retest of the spring lows at $91 looking entirely
possible.  Notice that VRSN made it onto the Put list this
weekend, indicating that things are not looking good.  Until
things improve significantly, we can't continue to keep it on
the LEAPS list.


Symbol  Company Name                Splits  Payable    Executable

TLB  - Talbots, Inc.                  2:1  11/07/2000  11/08/2000
PKE  - Park Electrochemical Corp.     3:2  11/08/2000  11/09/2000
CDIS - Cal Dive Intl Inc              2:1  11/13/2000  11/14/2000
EPNY - E.piphany, Inc.                3:2  11/13/2000  10/31/2000
DCTM - DOCUMENTUM                     2:1  11/13/2000  11/16/2000
EV   - Eaton Vance Corp               2:1  11/13/2000  11/14/2000
CPN  - Calpine Corp.                  2:1  11/14/2000  11/15/2000
AZA  - ALZA Corporation               2:1  11/15/2000  11/16/2000
BEIQ - BEI Technologies, Inc.         2:1  11/21/2000  11/22/2000
ARXX - Aeroflex                       2:1  11/22/2000  11/24/2000
PHCC - Priority Healthcare Corp.      2:1  11/22/2000  11/24/2000
TNL  - Technitrol, Inc.               2:1  11/27/2000  11/28/2000
ANEN - Anaren Microwave               2:1  11/27/2000  11/28/2000
MXC  - MATEC Corporation              3:2  11/27/2000  11/28/2000
ATK  - Alliant Techsystems            3:2  11/27/2000  11/28/2000
MWAV - M-Wave, Inc                    2:1  11/28/2000  11/29/2000
PVN  - Providian Financial Corp       2:1  11/30/2000  12/01/2000
SHFL - Shuffle Master, Inc.           3:2  11/30/2000  12/01/2000
CHRW - C.H. Robinson                  2:1  12/01/2000  12/04/2000
PSC  - Philadelphia Suburban          5:4  12/01/2000  12/04/2000
ITWO - i2 Tech                        2:1  12/04/2000  12/05/2000
INOD - Innodata Corporation           2:1  12/01/2000  12/04/2000
TECH - Techne Corporation             2:1  12/01/2000  12/04/2000
SUNW - Sun Microsystems               2:1  12/05/2000  12/06/2000
MANU - Manugistics Group              2:1  12/07/2000  12/08/2000
BEC  - Beckman Coulter, Inc.          2:1  12/07/2000  12/08/2000
CREE - Cree                           2:1  12/08/2000  12/11/2000
ABK  - Ambac Financial                3:2  12/12/2000  12/13/2000
SYY  - SYSCO Corporation              2:1  12/15/2000  12/18/2000
SKYW - SkyWest, Inc.                  2:1  12/15/2000  12/18/2000
ILI  - Interlott Technologies         2:1  12/20/2000  12/21/2000
UNH  - UnitedHeath Group Inc.         2:1  12/22/2000  12/26/2000
SPIR - Spire Corporation              2:1  12/22/2000  12/26/2000
IWOV - Interwoven                     2:1  12/29/2000  01/02/2001

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The Option Investor Newsletter                   Sunday 11-12-2000
Sunday                                                      5 of 5

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Managing Market Declines: Know when to hold and when to fold!
By Mark Wnetrzak

Share values are constantly changing because stocks trade in a
market where humans make most of the decisions.  The gyrations
always include both upward and downward fluctuations in price
and although the movements often appear to be random, there is
a method to the madness.  Underlying fundamentals such as cash
flows, asset values and growth rates determine security values
over the long-term but in the present, emotion drives prices
and the difference between cost and fair value can occasionally
become extreme.  Hope and greed are the primary reasons for
inflated prices and fear, a much stronger emotion, can create
intense, short-lived periods of opportunity for adept traders.

Buy low and sell high!  That's the key to successful trading.
In reality, the concept is far more difficult than it appears.
Anyone who trades for an extended period will endure a number of
market declines and how one reacts during those extraordinary
periods will have a substantial influence on their total wealth.
Although brief market corrections rarely have a lasting financial
affect on long-term portfolios, a bruised ego generally prevents
one from recovering quickly.  Once a trader has sold in a panic,
it's unlikely they will think clearly enough in the short-term
to buy back in near the market bottom.  The withdrawn investor
will remain on the sidelines, slowly regaining the courage to
participate again, while the market hastily recovers it losses.
The healing process is accelerated by rising prices but in most
cases, traders who sell near the bottom fail to re-enter the
market until the recovery rally is almost over.

New traders fail to understand why selling near the low of sharp
market decline can be costly in more ways than one.  First, the
shares are often sold at the worst possible time, generally below
the cost basis, and certainly at loss when compared with earlier
prices.  Unloading portfolio holdings in a panic also causes an
emotional letdown, leaving most traders unable to partake in the
ensuing bullish phase.  This missed opportunity, every bit as
important as selling for a loss, is simply a gain not realized.
Of course, understanding the potential extent of a market decline
can help one pre-plan a strategy for timely exits.  In addition,
knowing how substantial a correction is likely to be will provide
a trader with a better perspective than those who can conceive of
nothing but catastrophic losses and endless financial suffering.

The word "crash" is often used to identify precipitous market
declines caused by specific events such as bankruptcies by major
financial institutions, credit defaults by foreign governments or
failures of their currencies.  Another practical and descriptive
phrase is "market correction," and this usually describes a sharp
drop that although distressing, does not carry the significance
or historical implications of a widespread crash.  Stock market
corrections occur frequently and in some instances, they become
severe enough to cause a brief panic among the general public
before the upward trend resumes.  Some traders favor the abstract
term "retracement" when describing a short-term market pullback,
because it captures the unemotional aspect of a mathematically
measurable decline in prices.  The severity of the movement and
its duration are the most important components in any analysis of
a falling market.  The severity of the event can be characterized
by the relative amount of damage in a specific time period.  Most
analysts identify a 10%-15% drop over a span of a few weeks as a
"correction" whereas a decline of 20% or more in less than a few
months would be considered a "crash."  This type of extensive
deterioration, far out of proportion to the market's underlying
fundamentals, generally does not exist for long because bargain
hunters eventually intervene with renewed buying pressure.

During a severe decline in the market, it is important to look
at each issue in your portfolio individually.  When a company's
share value is falling, there is not always a fundamental reason
for the drop.  Sometimes the stock price will simply be dragged
down by traders who are selling in conjunction with a slump in
the broader indices.  However, there are also occasions when a
problem with other companies in the sector, or in its suppliers
can significantly affect the perspective for an entire industry.
A recent example is Cisco Systems (CSCO), the networking giant
that changed the fundamental outlook for companies that provide
telecommunications equipment, specialized semiconductors, and
diversified electronics.  Traders must also evaluate the overall
condition of the market when reviewing portfolio positions.  The
reasons for widespread declines in share values are generally
obvious.  Rising interest rates and consumer debt ratios, weak
leading indicators, and flagging corporate earnings are signs of
an impending economic setback, and the prudent trader may decide
to pair his long-term holdings until a determination can be made
about the primary direction of the market.  At the same time, a
wise investor also develops perspective.  Imagine you could look
back to the current date from some point in the distant future.
Would the recent downtrend be viewed as significant or would it
simply be another of those periodic corrections?  Is the bearish
environment we are experiencing now likely to prove historically
important?  If not, unloading many of those long-term portfolio
positions is probably unwarranted.  Instead, you might consider
selling some covered-calls and adding to those issues that have
proven earnings and superior growth potential.

Good Luck!

NOTE: Using Margin doubles the listed Monthly Return!

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

MTSI    9.38  17.38   NOV   7.50  2.81  *$  0.93  15.4%
MTSI   12.00  17.38   NOV  10.00  2.50  *$  0.50  11.4%
AVID   14.75  15.31   NOV  12.50  3.63  *$  1.38  10.8%
TSIX   16.75  16.06   NOV  12.50  5.00  *$  0.75   9.2%
FFD    12.00  14.44   NOV  10.00  2.75  *$  0.75   8.8%
ANSR   17.00  13.50   NOV  12.50  5.13  *$  0.63   7.7%
ANSR   18.31  13.50   NOV  12.50  6.63  *$  0.82   7.6%
ENTU   29.25  26.00   NOV  25.00  5.50  *$  1.25   7.6%
BCGI   23.13  26.31   NOV  20.00  4.00  *$  0.87   6.6%
ARDM   24.63  19.81   NOV  17.50  7.63  *$  0.50   6.4%
CTXS   21.44  24.06   NOV  17.50  4.88  *$  0.94   6.2%
GALT   28.13  22.81   NOV  22.50  6.25  *$  0.62   6.2%
VMSI   25.63  28.00   NOV  22.50  4.00  *$  0.87   5.8%
RDRT    7.94   6.59   NOV   5.00  3.25  *$  0.31   5.7%
FIBR   32.50  28.25   NOV  20.00 13.50  *$  1.00   5.7%
ACXM   40.75  43.56   NOV  35.00  6.63  *$  0.88   5.6%
BPUR   17.38  26.56   NOV  15.00  3.25  *$  0.87   5.4%
PROX   58.75  55.75   NOV  50.00 10.50  *$  1.75   5.3%
UAXS   15.31  13.44   NOV  12.50  3.38  *$  0.57   5.2%
ECLP   21.38  22.75   NOV  17.50  4.63  *$  0.75   4.9%
WDC     6.13   5.56   NOV   5.00  1.44  *$  0.31   4.8%
ENMD   32.56  34.75   NOV  25.00  8.25  *$  0.69   4.1%
HWP    46.25  39.13   NOV  40.00  7.25   $  0.13   0.7%
GOAM   11.63   9.00   NOV  10.00  2.06   $ -0.57   0.0%

MTIC    6.00   6.97   DEC   5.00  1.44  *$  0.44   7.0%

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


MicroTouch Systems (MTIC) is making me wish I had just bought some
calls.  Keep a close watch on Answerthink (ANSR) as it is testing
the October low - a key moment.  Pick a stop-loss exit on Entrust
(ENTU) and stick to it - maybe breaking the September low or at
greater risk, the October low.  Galileo (GALT) is one to watch as
Marvell (MRVL) is at a key moment.  Hewlett-Packard (HWP), which
reports earnings Wednesday, is not only being dragged down by the
"DELL" effect, but has the added weight of an uncertain market due
to the indecisive election results (who knew nobody would know?).
The probability of owning the issue is now fairly high, unless of
course you choose an early exit.  The next support level is just
below $37.00.  Goamerica (GOAM) is also at a key moment within its
trading channel.  A move below the current range should signal an
early exit as a drop towards $6.00 becomes highly probable.


Sequenced by Return

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

SNWL   17.94  NOV  15.00  UWL KC  3.25  117  14.69    7     9.2%

SUPG   21.47  DEC  17.50  UQG LW  5.25  26   16.22   35     6.9%
BCGI   26.31  DEC  22.50  QGB LX  5.38  15   20.94   35     6.5%
MME    17.75  DEC  17.50  MME LW  1.31  27   16.44   35     5.6%
MTSI   17.38  DEC  12.50  TQM LV  5.63  590  11.75   35     5.5%
HPC    18.44  DEC  17.50  HPC LW  1.88  2139 16.56   35     4.9%

Company Descriptions

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

SNWL - SonicWALL  $17.94  *** Short-term Speculation! ***

SonicWALL is the leading provider of Internet security solutions
for broadband customers in the small to medium size enterprise,
branch office, telecommuter and education markets.  The SonicWALL
Internet security appliance is a high-performance, solid-state
product that provides a reliable, easy-to-use and affordable
Internet security solution.  In October, SonicWALL reported
record revenues and profits for its third quarter.  Revenues
for the quarter increased 254% to $18.4 million and net income
increased 708% to $6.1 million.  SonicWALL continues to expand,
adding new products and recently acquiring privately held Phobos.
The stock appears to be forming a Stage I base with improving
technical signals.  This position offers reasonable one-week
speculation for those investors with a bullish outlook.

NOV 15.00 UWL KC LB=3.25 OI=117 CB=14.69 DE=7 MR=9.2%

BCGI - Boston Communications  $26.31  *** Solid Earnings! ***

Boston Communications Group operates in the following segments:
Prepaid Wireless Services, Teleservices, Roaming Services, and
Systems Divisions.  Quarterly earnings were reported in October
and the numbers were favorable.  This week, TeleTech purchased
the customer care division of BCGI in a cash transaction valued
at $15 million.  Under the terms of the agreement, BCGI could
receive additional cash payments, totaling up to an additional
$20 million over 4 years, based upon fulfillment of arranged
revenue targets for its customer care division.  The technical
outlook remains bullish as BCGI continues to rally higher with
technical support near our cost basis.

DEC 22.50 QGB LX LB=5.38 OI=15 CB=20.94 DE=35 MR=6.5%

HPC - Hercules  $18.44  *** Take-Over Candidate! ***

Hercules manufactures chemical specialties used in making a
variety of products for home, office and industrial markets.
At the end of October, Hercules announced that it has retained
Goldman, Sachs & Co. to evaluate various strategic alternatives,
including the possible sale of the company.  There have been
rumors that BASF is interested in Hercules, but the company
has declined to comment.  We simply favor the technical breakout
above the May high on heavy volume, which should now provide
support near our cost basis.  Speculation on the possible
future of Hercules should continue to drive the stock higher.

DEC 17.50 HPC LW LB=1.88 OI=2139 CB=16.56 DE=35 MR=4.9%

MME - Mid-Atlantic Medical Services  $17.75  *** Hot Sector! ***

Mid-Atlantic Medical Services is a regional holding company for
health care organizations that provides comprehensive health
insurance products and services.  MME reported solid earnings
this week with a net income increase of 54%, demonstrating that
the company is well positioned to maintain its revenue and
membership growth.  On Friday, Deutsche Banc AB raised MME to
a "buy" and First Union Securities reiterated their "buy"
rating and raised the share price target to $21.  We favor the
bullish chart and heavy volume support on Friday's rally during
a rather ugly session.

DEC 17.50 MME LW LB=1.31 OI=27 CB=16.44 DE=35 MR=5.6%

MTSI - MicroTouch Systems  $17.38  *** Now We Know Why! ***

MicroTouch Systems is a leader in the manufacture of computer
touchscreen display products incorporating the two most popular
touch technologies; analog capacitive and resistive membrane.
The company applies these technologies in a variety of products,
and markets them under the ClearTek and TouchTek brand names.
This week MTSI announced that it is involved in negotiations
which could lead to the sale of the company.  No wonder Edward
W. Rose III acquired a 7.1 percent stake in MicroTouch a few
weeks ago.  We have recommended this candidate twice in the
recent past; after noticing a technical change in character and
again after favorable earnings.  This position offers a fairly
conservative entry point for those wishing to speculate on the
outcome of the buyout rumors.

DEC 12.50 TQM LV LB=5.63 OI=590 CB=11.75 DE=35 MR=5.5%

SUPG - SuperGen  $21.47  *** Favorable Test Results! ***

SuperGen is dedicated to the development and commercialization
of products to treat life-threatening diseases, particularly
cancer.  The current rally started a few weeks ago when SuperGen
reported that all of the sickle cell anemia patients treated with
its anti-cancer compound decitabine responded to the drug in an
early-stage clinical study.  This week, SuperGen reported on its
anti-cancer compound Nipent, which produced "durable complete
responses" in patients with hairy cell leukemia over a 10-year
study period.  However, after Friday's close, SuperGen reported
a $0.30 loss, a penny more than expected (but the results did
include a one-time non-cash acquisition charge).  This position
offers a speculative  entry point for those investors who have
completed their own due diligence and retain a bullish outlook
on the company's future.

DEC 17.50 UQG LW LB=5.25 OI=26 CB=16.22 DE=35 MR=6.9%

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Successful Stock Ownership: Back to the basics!
By Ray Cummins

One of our new subscribers requested some guidelines for buying
and selling stocks in the current market environment.  When most
professional traders discuss their common traits, you will often
hear how important it is to understand the elements of technical
analysis and basic market timing.  At the same time, many of the
older investors are more comfortable with fundamental analysis.
That is the process where one attempts to forecast the future
profits of a company by analyzing their market share, revenue,
pricing structure, and other components regarding the operation
of the company's business.  Most of the positions that we offer
are of a short-term nature and thus we favor technical analysis
as the primary means for stock selection.  The study of pricing
trends and chart patterns has nothing at all to do with the daily
operations of the company.  Instead, technical analysis of price
patterns is a technique used to predict the future direction and
magnitude of a stock's movement.  Although each style is often
viewed as less than adequate by the opposing group, there is an
inherent value in both methods and either system can produce
favorable results.

Technical analysis is generally more suitable to markets with
extreme volatility and unusual conditions, since it offers the
best method for timing entries and exits.  Unfortunately, new
investors are so overwhelmed by the incredible number of chart
patterns and indicators, they overlook the most common rule for
consistent profits; buy low and sell high!  Fundamental analysis
provides an accurate picture of the long-range outlook, but it is
miserably late in predicting the actual movement of stock prices.
However, analyzing the value of a company can help to forecast
potential profits (or losses) and in the end, earnings usually
determine share value.  Quarterly reports will also affect the
short-term outlook for a stock and the most significant changes
occur when a company reports earnings that are different from the
analysts' consensus estimates.  As we have seen in recent weeks,
even a "met expectations" earnings report will inevitably cause
a company's share value to fall as soon as the information become
public news.  When this happens, brokerages are often first to
change their opinions on the company, downgrading the issue and
causing further damage to the stock price.  This is one of the
best occasions when fundamental analysis might be helpful in a
short-term trading scenario.

The dilemma facing many investors is simple; they want to own
good stocks but yet they are afraid to buy amid bearish market
conditions.  The key to success is to become proficient with
the various types of stock analysis and use the one that best
suits your skill level, risk tolerance and portfolio outlook.
While strategy is important, it is also imperative to approach
investment activities with the right attitude and expectations.
Trying to achieve too much from a portfolio can put the account
in the red quickly (greed can lead to terrible decisions), and
accepting returns that barely surpass current inflation rates
will prevent a portfolio from growing.  While most investors who
make the effort to learn about the stock market are not satisfied
to achieve the same return as the Dow or the S&P 500, others will
actively seek mediocrity.  Just look at the number of index funds
that are sold to investors who then are relegated to losing what
the market loses and gaining no more than what the market gains.
So how do you determine a reasonable expectation?  Most investors
who participate in historically profitable strategies will easily
average 15%-20% return on an annual basis.  In the long-term, 10%
a year is the typical return for broad market stocks in general.

Here are just a few of the most common guidelines that may help
you avoid the pitfalls of stock ownership.  While we can't take
credit for these rules (many are as old as the market itself),
it's important to use this knowledge to improve your success in
this vicious game that is the stock market.

Before opening any position:

Check the overall market indicators for direction.  Analyze the
sector and industry in which your issue resides.  Study the
performance of similar groups and make sure it coincides with
your outlook.  Choose only those stocks with the most favorable
technical formations.  Once you have a candidate in mind, do your
homework!  Know the company and the calendar; upcoming events,
earnings dates, and scheduled announcements.

Before entering an order:

Double-check the chart!  Make sure you are absolutely ready to
own the issue at the target price.  Don't buy a stock that's in a
downtrend (Stage IV) and never open a position right after good
news, especially if the chart shows a significant advance prior to
the announcement.  Never buy a stock just because it appears cheap
after a big sell-off.  Always use simple, proven techniques and
develop target prices for potential plays.  Take the human factor
out of trading by using LIMIT and GTC orders.  When news or events
change the character of the play, make the necessary adjustments.

After you have established the position:

The #1 rule: Know your exit and use a mental or mechanical stop.
Stay informed by monitoring all the news and announcements
affecting your position.  Never hold a stock in an established
downtrend no matter how fundamentally sound the company appears
to be.  Hope is an expensive emotion!

Closing the position:

Determining when to exit a play is a matter of personal preference
and you are the only one who can decide how you will trade.  The
best advice is, be consistent!  If you find that you're frequently
buying and selling in similar situations, something is wrong with
your system.  There are a number of proven techniques for managing
portfolio positions, and maximizing gains while limiting losses is
an important aspect of successful investing.  The most difficult
lesson is learning to close losing positions.  It can be painful
but the simple fact is: There is no reason to hang on to a losing
position when there are so many other profitable positions that
deserve your time and money.  Accept your losses, learn from your
mistakes (evaluate each one critically) and move on!

Good Luck!


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

ANSR   17.00  13.50   NOV  12.50  0.63  *$  0.63  22.6%
JDEC   28.00  25.00   NOV  22.50  0.50  *$  0.50  17.5%
BVSN   35.75  31.63   NOV  30.00  0.69  *$  0.69  16.2%
ARQL   28.50  24.00   NOV  22.50  0.38  *$  0.38  13.6%
ECLP   25.31  22.75   NOV  20.00  0.50  *$  0.50  13.0%
APWR   55.63  35.94   NOV  35.00  1.06  *$  1.06  12.6%
CLTR   44.00  35.44   NOV  25.00  0.50  *$  0.50  11.7%
BCGI   23.94  26.31   NOV  17.50  0.56  *$  0.56  11.4%
CYTC   50.25  52.25   NOV  40.00  1.13  *$  1.13  11.0%
STAT   22.72  21.88   NOV  20.00  0.69  *$  0.69  10.6%
RNBO   23.50  20.50   NOV  17.50  0.44  *$  0.44   9.3% 2-1 Split
ENTU   29.00  26.00   NOV  20.00  0.50  *$  0.50   8.6%
PATH   17.63  17.00   NOV  15.00  0.38  *$  0.38   8.6%
OCR    16.88  16.88   NOV  15.00  0.63  *$  0.63   8.3%
CERN   60.31  55.13   NOV  50.00  0.75  *$  0.75   7.5%
AMZN   35.63  30.06   NOV  22.50  0.38  *$  0.38   7.3%
ACXM   40.25  43.56   NOV  35.00  0.56  *$  0.56   7.1%
CHTR   19.38  18.19   NOV  17.50  0.63  *$  0.63   7.0%
ENMD   38.00  34.75   NOV  22.50  0.25  *$  0.25   6.9%
VICR   49.38  42.81   NOV  40.00  0.88  *$  0.88   6.8%
PLMD   57.50  49.50   NOV  45.00  0.50  *$  0.50   6.0%
HSIC   22.56  25.88   NOV  20.00  0.50  *$  0.50   5.2%
ICN    40.19  33.81   NOV  35.00  0.56   $ -0.63   0.0%
FIBR   41.00  28.25   NOV  30.00  1.00   $ -0.75   0.0%
ATSN   45.38  37.63   NOV  40.00  0.88   $ -1.49   0.0%

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


Keep a close watch on Answerthink (ANSR) as it is testing a
recent low - a key moment.  J.D. Edwards (JDEC) has weakened
and should be watched closely as it tests support.  Broadvision
(BVSN) may hold at support near the mid-October high and 50 dma,
be ready to exit the position if it fails.  Astropower (APWR)
continues to weaken and conservative investors would have taken
the break-even exit offered on last Friday's rally.  Those with
a higher risk tolerance may wait to see if the 150 dma provides
support (near our sold strike).  The next support level below
$35 is the JUN-AUG highs near $30.  Vicor (VICR) is in a bit of
a nosedive though a bounce off its 150 dma seems probable.  In
any case, a close watch should be maintained this week.  Hmmmm,
ICN Pharma's (ICN) earnings appeared to be favorable, thus that
drop last week becomes more mysterious.  The issue is currently
testing support and any further weakness should be grounds for
a quick exit.  Osicom's (FIBR) recent rally has failed under the
weight of CSCO and a complicated election.  Using any rally to
exit the play early may be a prudent move.  No news on Artesyn
Tech (ATSN) appears to be bad news, as it has given a bearish
signal on both a daily and a weekly chart.  Hopefully, a bounce
off the 30 dma will provide a less painful exit next week, if
you dare to wait, depending on your risk tolerance.

Positions Closed:

Vintage Petroleum (VPI)

Sequenced by Return

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

AFWY   17.50  DEC  15.00  FQD XC  0.81  40   14.19   35    13.3%
AVID   15.31  DEC  12.50  AQI XV  0.56  160  11.94   35    12.6%
ECLP   22.75  DEC  17.50  IQV XW  0.63  0    16.87   35    10.6%
IMG    27.63  DEC  22.50  IMG XX  0.81  101  21.69   35    10.5%
IDXC   29.38  DEC  22.50  XQW XX  0.75  0    21.75   35     9.8%
MTON   18.94  DEC  15.00  KQM XC  0.38  8    14.62   35     7.9%
SMSC   25.00  DEC  20.00  OMQ XD  0.44  10   19.56   35     7.0%
OXHP   37.38  DEC  30.00  OQX XF  0.56  153  29.44   35     6.0%

Company Descriptions

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

AFWY - American Freightways  $17.50  *** Own A Trucker! ***

American Freightways is a scheduled carrier of less-than-truckload
shipments of general commodities, serving direct all points in 40
eastern states.  The company has a new, extended-reach, scheduled,
direct all-points service, which is identified in the market as
American Flyer.  American Freightways recently announced favorable
results for the quarter with net income rising 42% and operating
revenue up 19% from the year-ago period.  Based on the fundamentals
and recent buying interest, this issue is an excellent portfolio
position for traders who want to own a transportation stock.

DEC 15.00 FQD XC LB=0.81 OI=40 CB=14.19 DE=35 MR=13.3%

AVID - Avid Technology  $15.31  *** Trading Range?  ***

Avid Technology is an industry-leading provider of digital media
creation and distribution solutions.  The company gives customers
the power to communicate to multiple audiences with creativity
and ease.  Avid solutions, which span a wide range of markets and
price points, are used for Web, special effects, video, audio,
film, television, broadcast news, corporate communications, music,
the Internet and games.  Avid recently won an Emmy award for
pioneering development of full motion broadcast-quality PC video
and compression plug-in cards for the manufacture of non-linear
editing systems or video servers.  Avid recovered from a low in
June on increasing technical strength and has recently moved back
above a long-term (30 week) moving average.  The company's bullish
earnings also helped the outlook for the company and this position
offers a reasonable entry point for investors who want to own the

DEC 12.50 AQI XV LB=0.56 OI=160 CB=11.94 DE=35 MR=12.6%

ECLP - Eclipsys  $22.75  *** Post-earnings Rally! **

Eclipsys is a leading healthcare information technology provider.
The company provides, on an integrated basis, enterprise-wide,
clinical management, access management, patient financial
management, health information management, strategic decision
support, resource planning management and enterprise application
integration solutions to healthcare organizations.  The company's
quarterly earnings results included a return to operational
profitability one quarter earlier than expectations, nearly 30%
sequential bookings growth and a sales funnel above $1 billion for
the first time in ECLP's history.  Banc of America and Merrill
Lynch commented favorably on the report and Robertson Stephens
followed with a bullish recommendation on the issue.  We simply
favor the opportunity to own the stock at a reasonable cost basis.

DEC 17.50 IQV XW LB=0.63 OI=0 CB=16.87 DE=35 MR=10.6%

IDXC - IDX Systems  $29.38  *** Entry Point! ***

IDX Systems provides healthcare information solutions including
software, hardware and related services required by physician
groups, management services organizations, hospitals and unique
integrated delivery networks.  IDX solutions use computer and
Internet technologies to reengineer clinical, financial and
administrative processes to improve healthcare efficiency and
quality.  IDX also operates a medical dictation and transcription
services business segment under the name EdiX, and its Internet
services and content business group under the name ChannelHealth.
IDX has rallied substantially in the wake of favorable earnings,
becoming slightly overbought in the process.  This play offers a
lower cost basis for investors who want to own the issue.

DEC 22.50 XQW XX LB=0.75 OI=0 CB=21.75 DE=35 MR=9.8%

IMG - Intermagnetics  $27.63  *** Technicals Only! ***

IMG is a leading developer and manufacturer of super-conducting
materials, radio-frequency coils, magnets and devices utilizing
low- and high-temperature super-conducting wire, cable and tape,
and related refrigeration equipment.  The company derives current
revenues primarily from applications within magnetic resonance
imaging for medical diagnostics and cryogenic applications for
vacuum and related processes.  Through its own R&D development
and in conjunction with industry partners, IMG is committed to
commercialization of applied superconductivity and refrigeration
systems.  IMG is in a unique niche industry and the technicals
suggest that investors favor the outlook for the company.  This
position allows for future consolidation, in light of the recent
market turmoil.

DEC 22.50 IMG XX LB=0.81 OI=101 CB=21.69 DE=35 MR=10.5%

MTON - Metro One  $18.94  *** On The Move! ***

Metro One develops and provides enhanced directory assistance
and information services for the telecommunications industry.  It
primarily contracts with wireless carriers to provide services to
their subscribers.  The company's customers include many of the
leading wireless telecommunications and in addition, the Metro
One has expanded into the landline telecommunications market and
provides services to GST Communications, a regional competitive
local exchange carrier.  Finnish telecom operator Sonera said on
Thursday it would buy a 25% stake in Metro One for $68 million.
Sonera said it would subscribe four million newly issued shares
in Metro One for $17 per share, and that suggests the issue is
worth at least that price in the current market.

DEC 15.00 KQM XC LB=0.38 OI=8 CB=14.62 DE=35 MR=7.9%

OXHP - Oxford Health Plans  $37.38  *** Sector Rally! ***

Oxford Health Plans is a health care company currently providing
health benefit plans primarily in the Northeast U.S.  Oxford's
product line includes its point-of-service plans, traditional
health maintenance organizations (HMOs), preferred provider
organizations, Medicare/Choice plans and employer-funded benefit
plans.  Even as the stock market took a tumble this week amid
uncertainty over the presidential election, shares of HMOs have
rallied as investors were relieved by the Republican-dominated
Congress.  A Republican majority in Congress should help Health
Maintenance Organizations secure a more favorable outcome in the
ongoing legislation concerning the patients' "bill of rights."
We simply favor the outlook for OXHP and the healthcare industry.

DEC 30.00 OQX XF LB=0.56 OI=153 CB=29.44 DE=35 MR=6.0%

SMSC - Standard Microsystems  $25.00  *** Just One Chip! ***

Standard Microsystems is a worldwide supplier of MOS/VLSI IC's
for the personal computer industry and the broader embedded
systems marketplace, specializing in technologically demanding
logic control and connectivity.  The company's products provide
solutions in PC Input/Output, Systems Logic, Connectivity, Local
Area Networking and Embedded Control Systems.  The company sells
its products to a worldwide customer base, which includes most of
the leading personal computer manufacturers.  SMSC has been an
industry leader, manufacturing more than 40% of the I/O circuitry
for personal computers, and the company is now trying to leverage
this strength into the microprocessor chipset industry.  The plan
appears to be working as the stock has avoided all of the recent
trouble in the chip sector.

DEC 20.00 OMQ XD LB=0.44 OI=10 CB=19.56 DE=35 MR=7.0%

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Clinton Gets My Vote!

The stock market plunged today amid concerns over earnings growth
and delays in the outcome of the Presidential election.

Friday, November 10

The stock market plunged today amid concerns over earnings growth
and delays in the outcome of the Presidential election.  The Dow
fell sharply, closing 231 points lower at 10,602 on weakness in
industrial bellwethers.  A profit warning from Dell Computer sent
the technology sector into a spin, with the Nasdaq finishing down
171 points at 3,028.  The S&P 500 index closed 34 points lower at
1,365.  Volume on the NYSE was light at 965 million shares traded,
with losers trouncing winners 1,920 to 895.  Trading activity on
the Nasdaq was moderate at 1.76 billion shares exchanged, with
declines tripling advances 2,852 to 1,008.  In the bond market,
the 30-year Treasury fell 7/32, pushing its yield up to 5.86%.

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

Advanced Fibre   AFCI   MAR35C/MAR35P   $13.50   debit   straddle
Ralston Purina   RAL    MAR30C/DEC30C   $0.93    debit   calendar
Bear Stearns     BSC    DEC50C/NOV60C   $7.88    debit   diagonal

Ralston Purina was the big play of the day and the market-makers
took almost 30 minutes to identify the disparity in the MAR-$30
call options.  Those of you watching the position probably noticed
the option price moving from $2 to $3 near 10:00 A.M., will almost
no activity in the stock.  The spread was offered at the target
debit near 9:45 A.M. and by the end of the day, the position was
profitable.  The same cannot be said for the Bear Stearns spread,
but the drop at the open guaranteed a better than expected entry
price.  There was little activity in the AFCI straddle.  However,
one trader bought two contracts at the target debit.

Portfolio Plays:

The stock market turned ugly today as news that the presidential
election could remain unresolved for weeks weighed heavily on
investors.  Political uncertainty has halted the recent recovery
rally, just as America was coming to grips with the effects of
slowing corporate earnings.  The sell-off in technology stocks
continued, and the revenue warning from Dell Computer (DELL) was
a major catalyst in the bearish activity.  Dell announced that
sales growth would slow to 20% in fiscal 2002, below consensus
forecasts of 22% to 28%, and although some analysts believe the
decline is mostly related to improvements by competitors, others
said the demand for personal computers is significantly slowing.
The news caused shares of other hardware companies to retreat,
with Compaq (CPQ), Hewlett-Packard (HWP), International Business
Machines (IBM) and Gateway (GTW) all enduring substantial losses.
A Morgan Stanley downgrade of Intel (INTC) added to the Nasdaq's
woes and the chip-maker's stock slid to $37 after analysts cited
sluggish chip demand in October.  On the Dow, retail issues took
another hit with Wal-Mart (WMT) and Home Depot (HD) experiencing
additional losses, a day after the sector was hit by an earnings
warning from Best Buy (BBY).  In the broader market, those groups
perceived as safe havens such as drug, utility, oil, and consumer
companies, enjoyed favorable advances.  Tobacco shares also edged
higher, adding to recent gains amid speculation that a Republican
would win the presidency.  Next week, a flurry of economic data
including the consumer price index, retail sales, housing starts,
building permits, industrial production, capacity utilization and
business inventories, will impact the market.  In addition, the
Federal Reserve will also be meeting on Wednesday and fortunately,
analysts are anticipating the central bank will vote to leave the
current interest rates unchanged.

There was little positive activity in the Combos portfolio today
but despite our recent bullish bias, the majority of November's
combination positions are expected to expire profitable.  The few
issues that moved higher during the bearish session were not in
danger of a significant decline and companies in consumer related
groups such as Food and Beverage, along with the pharmaceutical,
healthcare and drug sectors were the top performers.  Short-term
positions on Curagen (CRGN), Glaxo-Wellcome (GLX), Human Genome
Sciences (HGSI) and Pharmacyclics (PCYC) remain "in the black"
but at the same time, there are a number of issues that need to
be monitored as the technology industry tries to find technical
support near the bottom of a recent trading range.  Bullish plays
in Seagate (SEG) and Juniper Networks (JNPR) are "on the bubble"
and many of the positions in the insurance and financial groups
have retreated substantially.  On the bright side, all of the
premium-selling plays are trading at maximum profit and most of
the straddle positions have returned favorable gains.  A recent
winner in that category is Hershey Foods (HSY) and although we
did not post an opening position at the target price, the play
has already achieved a credit well in excess of its initial cost
with three months remaining until expiration.

Questions & comments on spreads/combos to Contact Support
                         - NEW PLAYS -

One of our readers requested some new positions on companies in
the Consumer Products industry and based on the relative strength
of many of the issues in that group, these plays offer favorable
speculation for traders who agree with the bullish outlook.

These positions are based on the current price or trading range
of the underlying issue and the recent technical history or trend.
The probability of profit from these positions is also higher
than other plays in the same strategy based on disparities in
option pricing.  Current news and market sentiment will have an
effect on these issues.  Review each play individually and make
your own decision about the future outcome of the position.

SWY - Safeway  $56.63  *** On The Move! ***

Safeway is a food and drug chain in North America, with almost
1700 full service grocery stores.  Its U.S. retail operating
areas are located principally in northern California, southern
California, Oregon, Washington, Alaska, Colorado, Arizona, Texas,
the Chicago metropolitan area and the Mid-Atlantic region.  The
company's Canadian retail operations are located principally in
British Columbia, Alberta and Manitoba/Saskatchewan.  In support
of its retail operations, the company has an extensive network of
distribution, manufacturing and food processing facilities.  In
addition, the Company has a 49% interest in Casa Ley, which has
86 food and general merchandise stores in Western Mexico.

The Food and Beverage group is HOT and retail grocery issues are
also performing well in the current market.  Shares of Safeway
have risen significantly in recent sessions on strength in the
industry and numerous sector upgrades.  The SWY chart reflects a
solid bullish trend with little downside risk and our (potential)
cost basis is below the recent trading range.

PLAY (speculative - bullish/synthetic position):

BUY  CALL  JAN-65.00  SWY-AM  OI=237  A=$1.25
SELL PUT   DEC-50.00  SWY-MJ  OI=768  B=$1.12

Note:  Using options, the position is equivalent to being long
on the stock.  The collateral requirement for the naked put is
approximately $1700 per contract.

JNJ - Johnson & Johnson  $94.44  *** Trading Range! ***

Johnson & Johnson manufactures and markets a range of products in
the health care field in many countries of the world.  Their
worldwide business is divided into three segments: Consumer,
Pharmaceutical and Professional.  The Consumer segment's products
are personal care and hygienic products, nonprescription drugs,
adult skin and hair care products, baby care products, oral care
products, first aid products and sanitary protection products.
The Pharmaceutical segment's worldwide franchises are in the
antifungal, anti-infective, cardiovascular, contraceptive,
dermatology, gastrointestinal, hematology, immunology, neurology,
oncology, pain management and psychotropic fields.  The final
segment includes suture and mechanical wound closure products,
surgical equipment and devices, wound management and infection
prevention products, interventional and diagnostic cardiology
products, diagnostic equipment and supplies, joint replacements
and disposable contact lenses.

The trading range in JNJ is very well established and the recent
popularity of healthcare product and major drug issues suggests
the group will move higher in the coming weeks.  With favorable
premiums in the December options, this position offers a great
speculation play for those who are bullish on the issue.

PLAY (conservative - bullish/credit spread):

BUY  PUT  DEC-85  JNJ-XQ  OI=1333  A=$1.06
SELL PUT  DEC-90  JNJ-XR  OI=2080  B=$1.93
INITIAL NET CREDIT TARGET=$1.00  ROI(max)=25% B/E=$89.00

                   - STRADDLES & STRANGLES -
BTY - British Telecommunications  $101.31  *** Breakup! ***

British Telecommunications is engaged in providing communication
services, including long-distance and international calls.  BTY
also manages private networks and supplies mobile communication

British Telecommunications recently announced an aggressive plan
to restructure the company, cutting its debt over $14 billion by
selling stock in its mobile phone business, network operations
and other assets.  BTY plans to create three new publicly traded
companies; BT Wireless, NetCo., and a phone directory business
named Yell, and they will offer about 25% of the stock in each
company.  BTY also said it is studying a possible stock listing
for its Internet business, BT Ignite.  By selling stock in its
various operations, BTY hopes to reduce its debt load and lower
operating costs.  The move to divide the company should result
in increased volatility and the recent trading activity suggests
it will be exciting.

This position meets our criteria for a favorable straddle; cheap
option premiums, a history of adequate price movement and future
events or activities that may generate volatility in the issue
or its industry.  This selection process provides the foremost
combination of low risk and potentially high reward.  As with
any recommendation, the play should be evaluated for portfolio
suitability and reviewed with regard to your strategic approach
and trading style.

PLAY (conservative - neutral/debit straddle):

BUY  CALL  APR-100  BVY-DT  OI=0   A=$13.50
BUY  PUT   APR-100  BVY-PT  OI=30  A=$10.12

SEPR - Sepracor  $69.88  *** Where To Now? ***

Sepracor is a specialty pharmaceutical company focused on the
cost-effective development of safer, purer and more effective
drugs that are improved versions of pharmaceutical compounds.
The company develops and markets these drugs by leveraging its
expertise in chiral chemistry and pharmacology, and experience
in conducting clinical trials and seeking regulatory approvals
for new drugs.  Sepracor's Chemical Entities pharmaceutical
development program has yielded an extensive portfolio of drug
candidates intended to treat a broad range of indications in
respiratory care, urology, gastroenterology, psychiatry and
neurology.  The company is also broadening its development focus
to include discovery and development of new chemical entities.
Recently, Sepracor introduced Xopenex, a single-isomer form of
the leading bronchodilator, albuterol. Xopenex is the first
pharmaceutical product developed and commercialized by Sepracor.

Sepracor is another popular company that has been punished in
recent weeks, falling nearly 40% on news that development partner
Eli Lilly (LLY) would abandon a program to develop R-fluoxetine,
the second-generation version of Eli Lilly's antidepressant drug
Prozac.  Investors were quick to conclude that Sepracor's entire
development methods were in doubt.  Of course, Sepracor's primary
strategy, science, and technology are still sound but investors
are less than excited about the prospects for the company's share
value.  In any case, the recent news-related volatility has
inflated the near-term option premiums to record levels and
those of you who like to speculate can use that to your advantage
with this moderately aggressive, neutral position.

Note: As with any recommendation, the play should be carefully
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and personal trading style.

PLAY (aggressive - neutral/credit strangle):

SELL CALL  NOV-80.00  ERQ-KP  OI=2106  B=$1.31
SELL PUT   NOV-60.00  ERQ-WL  OI=3018  B=$1.81
INITIAL NET CREDIT TARGET=$3.25-$3.38  ROI(max)=18%
UPSIDE B/E=$83.25  DOWNSIDE B/E=$56.75

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

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