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Daily Newsletter, Tuesday, 11/28/2000

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The Option Investor Newsletter                  Tuesday 11-28-2000
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        11-28-2000        High      Low     Volume Advance/Decline
DJIA    10507.60 - 38.50 10613.90 10489.60 1.03 bln   1148/1687
NASDAQ   2734.98 -145.51  2891.40  2734.46 1.92 bln   1080/2932
S&P 100   708.47 +  3.62   720.28   708.10   totals   2228/4619
S&P 500  1336.09 +  7.20  1358.81  1335.13           32.5%/67.5%
RUS 2000  459.02 - 12.68   471.70   458.63
DJ TRANS 2796.41 - 28.35  2825.06  2781.18
VIX        30.51 +  1.49    30.68    29.07
Put/Call Ratio      0.68
******************************************************************

Nasdaq closes at new 52 week low.

Sorry, if you were in the market you were already painfully aware
of that fact. The carnage was widespread but the chip stocks, B2B
and networkers bore the brunt of the selling. Actually it appears
anything with a double digit PE was targeted again except maybe
biotechs. The pessimism is so thick traders simply do not want to
take a position. Every rally is met with another wave of selling
and with those investors buying the dips getting killed on a daily
basis there is no incentive for others to step in. The Semiconductor
Index also set a new 52-week low after Dan Niles made negative
comments about several chip companies.










It was simply a bad day in the market and the reason is not the
election but earnings worries. With 23% of the S&P already warning
the outlook is not good. The normally positive fourth quarter outlook
is being dampened by a Fed which will not ease up on the interest
rates and the lingering effects of the last six hikes. The retail
sector that was up on Monday dropped today as worries of lower
margins caused widespread selling. Analysts cited sales of as much
as -50% off in many stores in a period where they normally post as
much as 50% of their annual sales. If they have to discount that
much on the first week of the season then what will they have to do
as the longer than normal selling season drags on?

One of the major events which was missed or ignored by the talking
heads on CNBC was an interview with Waldo Best of MSDW. While he
was talking about steel stocks and the topic probably put Bill
Griffeth to sleep, he said that Morgan Stanley was now factoring
in a 40% chance of a recession within the next twelve months. Am
I the only one that is concerned by that comment? Mr. Greenspan
are you listening? Morgan Stanley Dean Witter is not a fly by
night brokerage company. They are well respected and this public
pronouncement of the R word could cause even more market instability
going forward.

Dan Niles was personally responsible for a huge chunk of the Nasdaq
and SOX drop today. He said PMCS might warn about inventory problems
as soon as today. Since ALTR is the only company in the chip sector
that has warned he feels there is a lot of undiscovered problems
and the major companies could drop -50% to -75% on any earnings miss.
He warned that by selling now investors would eliminate that risk.
PMCS dropped -6, INTC -2, MU -3.63, NVLS -4.75. Broadcom also lost
ground, -12.50, but had the added negativity of another acquisition.
They acquired VisonTech Ltd, a leading supplier of MPEG-2 technology
for $776 million in stock. This was their 12th acquisition this year
and the 19th since 1999. BRCM at $85, can you believe it? Down -140
in the last three weeks! I listened to Henry Nicholas the BRCM CEO
today and he was very upbeat about the company. He said they had
already issued a press release saying they were comfortable with
analyst estimates and the acquisition today would be accretive to
earnings in the third quarter. He convinced me but he has a large
investor conference on Wednesday and he will have to convince them
as well for the slide to stop. With a PE of 227 it is still not
cheap but I would be a player when it finally rebounds. After the
market close today CHPC, a provider of test and packaging services
for the semiconductor makers, warned that higher inventory and
slowing demand would seriously impact earnings for the next quarter.
CMOS announced earnings that beat analysts estimates by a penny
but warned that in the current environment there was concern that
orders for chip testing equipment would be pushed out and they
said revenue could be down substantially down for next quarter.
Looks like some confirmation of the Niles call already.

Another sector that received several warnings today was the PC
sector. Several analysts said that all the PC makers had excessive
inventory going into the selling season and that inventory levels
were even higher than the end of the third quarter. Analysts felt
that they would have to take hits in the fourth quarter for this
unsold inventory. With PC demand slowing they felt Compaq was the
most at risk with a reseller channel stuffed with equipment. Compaq
immediately issued a press release saying they were comfortable
with channel inventory levels. This is probably the only thing that
kept the sector from really selling off. CPQ lost -1.71 (-7%), DELL
-2, GTW -1, HWP -1. Those numbers may not seem very large but this
sector has already suffered greatly. Dell is only $22 now and CPQ
$23.

Brocade, another stock I watch closely, got hammered with the rest
of the networkers today but the main cause for the drop (-28) was
their earnings which are expected on Wednesday. Investors are just
not taking any chances. With stocks losing 50% of their value on
an earnings miss it brings a whole new meaning to "never hold over
earnings."

The B2B sector also took a big drop but most of the news was positive.
There were several upgrades and coverage initiations but the sector
dropped mostly on the association with the Internet lepers. Yahoo
dropped to a new 2-year low of $37 and the incubators CMGI and ICGE
moved even closer to penny stock status. This should not impact B2B
companies but this is what the analysts were blaming it on. ARBA -5,
ITWO -11, FMKT -4, CMRC -4, VRSN -5.

The Dow was not immune to problems today. JPM as an extension to
CMB through the buyout dropped -4.13. Salomon Smith Barney cut
earnings estimates on CMB from $.90 to $.70 based on drops in
the investment portfolio. Citing the drops in the market and the
corresponding stocks in their portfolio they felt a mark to
market election would cause them to miss estimates substantially.
This was the first in a wave and others are sure to follow.

The economic reports today showed the economy still slowing with
the Durable Goods Orders dropping -5.5%. This was the first drop
in the last three months. Wednesday we get the revised GDP numbers
and something in the +2% range is expected. Much higher and the
Fed will hold the line and much less the recession bears will be
out in force. 2% should move the Fed into a neutral bias when they
meet on Dec-19th. Remember, the other key date is Dec-18th when the
Electoral College names the new president. All the hoopla will be
over and traders will not be able to use the election results as
a whipping post for market woes. If we get a positive result from
the Fed as well then maybe this market will turn around. Since we
all know the markets move before the events we could expect some
firming in the next week or so. FYI, Bear Stearns is estimating
that the GDP will be revised down to only +1.7%. This would be
the softest quarter since 2Q-1995. Should this come to pass the
Fed would almost have to react with a minimum neutral bias on
Dec-19th.

The election mess is still weighing on the markets. There was a
rumor this afternoon that the Gore press conference would be a
concession speech. The Dow moved off its lows about +85 points
and the Nasdaq +50 points. Once he started speaking and they saw
he was not conceding the market dropped off immediately. I get
hate mail for saying the market wants a Bush win but I did not
make this up. It is just a fact and the Gore fans will have to
live with it. Actually after watching all the different cases in
play in Florida I think there is still a real possibility that Gore
will be the next president and the market will have to deal with
that eventually. In six different cases there are about 2800 votes
that could go to Gore depending on the interpretation of the different
judges. About +261 votes have a very good chance of being added to
Gore in two cases. Any other win in any other case would put him
over the top. When/If that happens the markets will probably be
unsure of direction. Some sectors will sell off immediately, drugs
would be one. On the other hand the market would be thankful to
just get the problem behind us and we could rally on the news as
well. It is a very interesting time in the market.

Remember last week when I suggested waiting until the Nasdaq broke
over 3200 as an entry point for calls? Well that was -500 points
ago and another +250 point failed rally. If you followed my advice
you saved a lot of money by staying out of the market. Our put players
are doing very well but we know that everyone is not comfortable with
that strategy. Where is the market going tomorrow? Nobody knows for
sure but we are clearly in the over sold column once again. The
Nasdaq is now -1100 points under the 200DMA. While some may feel
that is severely undersold it may be just PE decompression. Back in
March there were hundreds of stocks with huge triple digit PE ratios.
Not so any more. We are rapidly approaching more normalized PEs but
some stocks, BRCD would be one, are still valued at huge ratios. BRCD
with a PE of 515 ranks high on the "overvalued" list but chip stocks
with real earnings and PE ratios in the teens are also out of favor.
So where is the beef? If AMAT at 18 is not a buy then what does the
market want? In short, it wants to know what the future holds. It
wants to know who the president will be and when the Fed will release
its vice grip on the economy. It wants to know that there will be
a soft landing not a crash. The market is the most efficient
discounting mechanism of future events known to man. Unfortunately
in the current environment the discounters are drawing a blank. The
old adage of "when in doubt, sit out" is becoming the golden rule.

New problems are appearing. Margin calls are accelerating but many
investors are just covering with cash. This means there is still no
real fear of a prolonged down trend. With every support level that
is broken by each tech stock there are new waves of selling. Traders
that pegged their hopes on every conceivable last ditch support level
are now faced with those levels breaking on almost a daily basis.
The "it can't go any lower than that" crowd is beginning to see the
light. Traders are also saying that instead of there being a "buyers
boycott" there are more and more sellers. There has not been a real
capitulation event yet with high volume and big drop. Today for
instance only posted 1.9 bil shares on the Nasdaq. That capitulation
event may still be in our future. 2650 is the next support level if
we cannot hold the line here. That support dates back to Aug-Sept of
1999. That would be a -50% haircut from the March highs. Can it get
there? Sure! Will it get there? Nobody knows. As an aggressive investor
I would back up the truck at any rebound around 2650. As a conservative
investor I would recommend waiting until the Nasdaq closed over 3000
again. Yes, that is several hundred points away but it would be a
real confirmation of a trend reversal. If you are tired of being
ground into hamburger then wait for the trend to change in our favor.

We continue to get email that goes like this: "I have been successful
in playing calls for the last two years but the last two months I
have given it all back. What am I doing wrong?"
Answer: You are trying to play calls in a down market the same way
you did in an up market. For the last two years with very little
effort you could have made a fortune buying calls on big cap tech
stocks. Since Sept-1st we have been in a down market with many stocks
losing -50% to -75% of their value. Dip buyers have been getting
killed. It takes more than 5-min a day to decide what stock you are
going to buy the next day. If you are an investor that only buys
calls then you need to wait for the market to turn in your favor.
Look at a chart of the Nasdaq. You would not buy a stock that had
the same chart patterns. Learn to be patient. It is cheaper and more
rewarding.

You have seen me write about John Dessauer, a newsletter editor with
a 20-year history. John spoke at our March Expo here in Denver to
about 600 attendees. John uses a common sense bottom up method of
stock picking and has been very successful. He has asked me to
speak at his "Dream Seminar at Sea" in March. The itinerary looks
more like a vacation than a seminar with stops in Aruba, Caracas,
Grenada, Dominica, St Thomas and San Juan but John will manage to
keep us busy. If you have interest in this event visit this link:
http://www.cruzproductions.com/dessauer/

On a sad note tonight we morn the passing of Peter Sandek and his
family. Peter was the leader of the Atlanta Option Investor Club.
Peter flew his plane to the March Expo in Denver and just got his
instrument rating this month. His plane crashed on the way home
from visiting relatives over Thanksgiving. Our prayers are with
them.

Good luck and don't buy too soon.

Jim Brown
Editor


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the alphabet soup of technical terms like RSI, DMA,
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****************
MARKET SENTIMENT
****************

Bearish Bubble?
By Austin Passamonte

No newsflash here - buying puts has been a very profitable venture
for the past three months. And it may promise to be just as good
an approach for a few more ahead as well.

Current market action reminds us of that from late 1998 until
March 2000. How you ask? Simple. Just flip your charts upside-down
and overlay the two. Market action moved straight up those charts
back then with the occasional weak dip making buy & hold call
options a simple strategy.

Today we see the mirror reverse. Continual selling for twelve
weeks with the occasional weak rally to sell into makes buy & hold
put options a simple strategy as well.

The difference has been strictly mental perception. It's easy to
accept the "fact" that markets can remain grossly oversold as
prices soar to unlimited heights. It was easier to visualize QCOM
at $1,000 than $100 not long ago. We will more readily believe the
myth that trees can grow to the sky than the fact that fire can
reduce them to ash much faster. The painful truth of reality was
exhibited this year in our precious western forests ravaged by
historical fires, and likewise equity markets in metaphorical
fashion.

Market Sentiment has trudged a return back to the bear cave once
again. We are well aware how anxious market bulls are for any
glimmer of hope that a powerful rally will ensue, and that can
never be ruled out. However, odds weigh heavily in favor of
further downside to come as explained below:

1.  Pressure on all markets is based on weak earnings, high
valuations and uncertainty ahead. Everything else including the
election fiasco is just noise. Fear of a hard landing has grown
and signs do point to this being a concern.

2.  Warning season ahead. Any market bell-weathers that prewarn
will confirm nervous market fears and send us down to new lows
post-haste. The advent of equal disclosure would intensify this as
institutions flock to dump shares along with retail.

3.  Weakening dollar. Daily chart signals show bearish divergence
on the dollar as pointed out to us by Molly Evans. Bonds and gold
alike are gaining strength as a flight to quality by foreign money
may have begun.

4.  Oil prices won't fall until the first or second quarter of next
year at the earliest. Cold weather in the U.S. will create
considerable economic pressure immediately from here.

5.  Fed meeting euphoria. We expect the markets to rally strong
into the Fed meeting mid-December in anticipation of a change in
sentiment at the least. Will Greenspan give equity markets the
green light so soon after a lengthy campaign to slow things down?
What happens to trader sentiment if the Fed doesn't ease their
stance?

Lest you think Market Sentiment is alone in viewing this market
beneath a thick fur coat & claws, the latest COT report shows that
SP00S commercials INCREASED their historical 10+ year net-short
holdings by almost 10% more than what they were already short.

This is a huge red flag. These market behemoths scaled into their
short contracts in the CME commodity pits at levels far above
where we trade today and are hold substantial profits. Not only
haven't they begun scaling out to capture huge gains, they shorted
even more!

Market mavens of soon-to-be tested fame can tout "SPX 1575 levels
by year's end" every day until then but that will not manufacture
reality. Market Sentiment chooses to follow the big boys trading
$Billions in the "belly of the beast" and will continue to
successfully trade in their direction as we have for more than a
decade.

We expect tradable rallies ahead and look for the next to emerge
anytime from here. This does not change the fact that all markets
are creating another multi-year bottom to base from and begin the
next long-term rally. That bottom does not seem to be here yet and
could lie below a considerable distance away.

Trade with caution and in both directions for sure. When in doubt,
consider foregoing calls to buy puts in this environment. It has
worked for twelve-plus weeks now and could continue for quite some
time as well. Profits are the focus, regardless of direction!

*****

VIX
Tuesday 11/28 close: 30.39


30-yr Bonds
Tuesday 11/28 close: 5.69%

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

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

                                   Tuesday
                                 (11/28/2000)
  (Open Interest)       Calls        Puts          Ratio
S&P 100 Index (OEX)
Resistance:
745 - 730               12,254        3,639         3.37
725 - 710                5,863        8,955          .65

OEX close: 708.47

Support:
705 - 690                 1,044       7,180          6.88
685 - 670                    46       9,495        206.41***
Maximum calls: 740/5,325
Maximum puts : 680/4,538

Moving Averages
 10 DMA  717
 20 DMA  730
 50 DMA  739
200 DMA  774


NASDAQ 100 Index (NDX/QQQ)
Resistance:
 75 - 73                40,378        41,501          .97
 72 - 70                28,261        45,424          .62
 69 - 67                13,047        15,796          .83

QQQ(NDX)close: 65.45

Support:

 64 - 62                    896         8,390         9.36
 61 - 59                  5,443         4,321          .79
 58 - 56                     17         1,215        71.47

Maximum calls: 80/38,993
Maximum puts : 80/37,697
Moving Averages
 10 DMA 71
 20 DMA 74
 50 DMA 80
200 DMA 92


S&P 500 (SPX)
Resistance:
1400                   64,880        54,662          1.19
1375                   32,481        24,771          1.31
1350                   14,331        32,244           .44

SPX close: 1336.09

Support:
1325                    4,553        19,860          4.36
1300                    6,946        20,208          2.91
1275                    1,919        16,446          8.57


Maximum calls: 1400/64,880
Maximum puts : 1400/54,662

Moving Averages
 10 DMA 1355
 20 DMA 1382
 50 DMA 1395
200 DMA 1438

*****

CBOT Commitment Of Traders Report: Monday 11/27
Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts on the
Chicago Board Of Trade. Small specs are the general trading
public with commercials being financial institutions.
Commercials are historically on the correct side of future
trend changes while small specs are not. Extreme divergence
between each signals a possible market turn in favor of the
commercial trader's direction.


                     Small Specs                Commercials
DJIA futures    (Current)  (Previous)      (Current)  (Previous)
Open Interest
Net Value         -138        +100           -2462       -2436
Total Open
Interest %       (-1.94%)    (+1.42%)       (-9.76%)     (-9.60%)
                 net-short   net-long       net-short   net-short

NASDAQ 100
Open Interest
Net Value         -363        -733            -223        -77
Total Open
Interest %      (-1.76%)      (-3.58%)      (-0.42%)     (-.16%)
                net-short    net-short      net-short    net-short

S&P 500
Open Interest
Net Value         +68303       +61563        -79145      -72376
Total Open
Interest %       (+34.74%)    (+32.17%)      (-11.76%)   (-10.91%)
                 net-long     net-long       net-short    net-short

What COT Data Tells Us: Commercial positions in S&P 500 remain at
their ten-year extreme short levels with the disparity between
Small Specs and Commercials increasing.

Small specs have now gone to a net-short position on the DOW.
Data compiled as of Tuesday 11/21 by the CFTC.


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

Please visit this link for Market Posture:

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*************
READERS WRITE
*************

Regarding Debit Straddles...
By Ray Cummins

Dear OIN:

I am trying to follow the straddle picks in the newsletter. How
many straddle picks do you do every week/month? What's the best
way to determine whether to get in or out? What's the best way to
read up on straddles so I can invest properly?

Thanks,

GO

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

Hello GO,

We offer Straddle positions once or twice a week, when favorable
positions are identified.  You can also scan optionable issues
based on historical volatility to generate a list of candidates
and then evaluate their chart patterns to select potential plays.
To help with your trading, here is some basic information on the
strategy:

Debit Straddles

The debit straddle is an appropriate strategy for occasions in
which one suspects that the price of the instrument will move
substantially but does not know in which direction it will go.
This "delta-neutral" technique can work very well in situations
where important news is about to be released and it is expected to
be either very favorable or extremely detrimental.

Corporate earnings announcements, new drug approvals, merger or
takeover speculation, and annual board meetings (splits/spin-offs)
are just a few common examples of situations in which uncertain
information will be released on or near a specific date. Option
trading is generally very active in these cases and participants
expect the issues to move significantly after the announcement.
However, trading straddles on these occasions is certainly not
without risk. When investors already know or expect the event,
options will be overpriced (relatively high implied volatility)
and the price of the underlying stock may not move enough to make
the position profitable when the announcement occurs.  If this
happens, the worst thing a trader can do is to hold on to a
previously purchased straddle in the faint hope that some other,
unanticipated news will be released before the options expire.

The most important thing to remember when evaluating a straddle
is to understand that the greater uncertainty associated with the
previous examples are known by everyone. The options will often be
priced according to a higher stock volatility, making the play
unfavorable. The most attractive straddles will be those in which
the trader is confident that the underlying issue will be more
volatile than everyone else.

Time-value characteristics:

The first subject we must discuss is often considered the most
important component of option pricing: time value. As most of you
know, option premium consists of two components: Intrinsic Value
and Time Value. Assume that a current stock's price is equal to
the strike price. In this case, an option's premium for the call
and put does not have any intrinsic value, only time value.

The main factors that influence Time Value include:

1) The number of days until expiration
2) Implied Volatility
3) How far the option is in or out-of-the-money.

At-the-money options have the highest time value. As the option
starts moving in or out-of-the-money, the time premium begins to
drop in value. The closer the option is to expiration, the more
its premium will shrink (per unit time) due to time decay.

This gives us a guideline in selecting a straddle. We should pick
an expiration month so that the price of the straddle will not be
too high (too far from expiration). However, it must also provide
enough time for the stock to perform as expected, before we have
to exit the trade to preserve capital. One important fact to
remember; the highest increase in time decay for at-the-money
options occurs in the last 30 days before expiration. That means
we should rarely hold a straddle position to expiration. When you
understand that time decay is working against you, you can begin
to choose trades in which other beneficial components will help
your position profit, even as time passes.

Pricing components:

Now you've learned that time decay is working against us in the
straddle. What other factors can help us to achieve the goal of
selling at a higher price in the future? Two components; Implied
Volatility and Intrinsic Value.

Implied volatility is a characteristic of an option's time value.
The higher the implied volatility, the higher the option's time
value is. When you find a situation where implied volatility is
statistically low (probability dictates that it should start to
move higher), you can occasionally make a profit by selling your
straddle at a higher price, even if the underlying stock price
doesn't move significantly. Obviously, any increase in implied
volatility will boost the time value of your position and move
your trade closer to a profitable outcome.

(Editors note: If you do not have a thorough knowledge of Implied
Volatility, please review that subject before you participate in
these types of positions. It is important that you understand the
concept and how it relates to option pricing before you spend money
on strategies expected to profit from changes in volatility.)

Another basic component that can help us profit in a straddle is
Intrinsic Value. Once again, assume that the underlying price is
equal to the strike price; this means that our straddle does not
have any intrinsic value. When the stock starts moving in either
direction, one of our options will become "in-the-money." This
will cause the intrinsic value to expand in that option. But, in
contrast, the time value of both positions begins to decrease as
the underlying moves away from the at-the-money strike. Remember,
the further the option is in or out-of-the-money, the less time
value it contains.

The rate of change for both of these values is very important.
Intrinsic value has a rate of change equal to one; if the stock
price moves one point into the money, intrinsic value increases by
one point. Time value is obviously much more complex. The rate of
change depends on how far away the option is from the strike price;
the further the option is in or out-of-the-money, the smaller the
rate of change on a one point move in the underlying issue. With
that concept in mind, it is easy to see that when the underlying
issue's price moves away from the strike price, we gain more in
intrinsic value than we lose in time value. That's one way in
which a debit straddle achieves profits. Keep in mind, the
measurement of the underlying issue's move is statistical
volatility and we look for straddle positions on instruments where
we expect that component to increase.

Making the strategy work:

To construct profitable straddle positions, it is important to be
aware of the effects of all these components. A theoretical edge
in one or two of these factors can make a position favorable but
it is better to have the majority of them on your side. If one
were to review trading histories, the most common mistake among
new traders is the purchase of short-term straddles. You can
profit from these positions but generally that occurs only when
the underlying starts moving immediately after the play is opened.
Of course it appears attractive because the straddle does not have
a large amount of time value and the small movement required for
profit seems very probable. The problem is, if the underlying
doesn't move right away, time decay will start to increase rapidly
and your position will suffer regardless of the (eventual) stock
price movement. Most experienced traders agree that two to three
months should be the minimum time frame for (debit) straddles. If
you have a choice between two different series of expirations and
the implied volatility for the longer-term options are lower, you
should consider the position with the greater time value because
those options are likely to be theoretically cheaper.

Always remember to look for volatility that is low with respect to
its historic levels. The reason is the tendency for volatility to
return to its former range or median value. The concept is often
called the "Rubber Band" effect and it basically means there is a
high probability that when volatility is pulled too far in one
direction, it will eventually reverse, moving the opposite way.
This pattern of behavior is the primary reason why experienced
traders use volatility-based positions to make money. They try to
construct plays that take advantage of the future volatility of an
issue - when the current value is high or low compared to recent
historical trends. Volatility is a predictable and powerful
component for derivatives traders and understanding this concept
is paramount for consistent profits in the options market.

More information on this and other spread/combination techniques
can be found in Sheldon Natenburg's book, "Option Volatility and
Pricing Strategies" and "Options as a Strategic Investment" by
Larry McMillan, available in the OIN bookstore.

Good Luck!


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

Reflections On A Year Full of Trading Lessons
By Scott Martindale

You can count on certain things in life: death, taxes, and a post-
election rally.  So can someone tell me when the election is going
to end?

Briefly, I'm going to make another comment about this proud moment
in our history.  Maybe I don't watch enough TV (choke!), but I
haven't heard a real explanation why certain people think we can
get a "full, fair and accurate" vote count for Florida solely by
recounting three heavily Democratic counties.  I finally heard
Sean Hannity and Bill O'Reilly on Fox last night really press the
issue.  One Democratic guest finally said something like, "Well,
the Republicans should have contested the counts in those other
counties."  What kind of argument for fairness, accuracy, and
completeness is that?

Oh, oh...what's that I hear?  Gore is on TV as I write this saying
he proposes a full recount of the entire state -- because he
believes that most of the disputed ballots are in the poorer
(heavily Democratic) precincts that use antiquated voting
machines.  Oh, oh...look at the market sell off as he speaks.
[Looks like I'll have to stop out of my PDLI calls....Done.]

But even a statewide recount won't address the issues of illegal
postmarks on absentee ballots from dangerous military locations,
premature network news projections dissuading Florida Panhandle
voters in the Central time zone, and so on.  On this large scale,
we will never have an accurate count of voter sentiment.  Maybe
next time we'll ensure that all precincts nationwide use modern
voting equipment, absentee ballots will be standardized, and the
TV networks will cool their projections.

It's amazing how many rare or unforeseeable events have converged
upon us this year.  Not only was it the quadrennial election year,
but the presidential election was unimaginably close, contested,
and divisive.  The newly introduced Euro cratered in a way no one
could have foreseen.  We've witnessed an economy that has been
both overheated and non-inflationary such that the Fed has not
known quite what to do with it.  We have unprecedented cooperation
within the OPEC cartel and a possible war brewing in the Middle
East.  We've seen a tech stock bubble that brought comparisons to
the tulip bubble of a previous century.  Our collective fear of
missing a continued bull run was greater than our fear of the
bubble bursting.  [I guess we call that greed.]  And then we've
seen multiple failed attempts at a Nasdaq bottom.  These events
have resulted in a market most of us have never seen and probably
couldn't imagine in this time of sustained prosperity.  Perhaps
we've learned something from it.  But then again, we're only
human.

For me, it wasn't the best year to encounter this kind of market.
This was the year I left the relative safety of my career within
the big corporation to strike out on my own as a management
consultant, freelance writer, and part-time trader.  In previous
years, stop losses quickly became stop gains as good stocks
inevitably recovered and kept rising, carrying the indices to
record highs.  This year, however, my conditioned reluctance to
sell after a major gap down on a good stock -- for fear of missing
what used to be the "inevitable" short-term recovery -- has been
detrimental in most cases.  The bounces still come but have
usually been short-lived (often only intraday).  After crying wolf
for a long time, fear mongers like Martin Weiss can finally claim a
victory on their tech stock tumble prediction.  However, they also
predicted crashes on the Dow and S&P, a big spike in gold prices,
and the fall of the dollar.  Although I've made some money trading
short-term puts on QQQ, I anticipated continued strength in tech
this year because of their relative immunity to interest rates and
cyclicality.  The false rallies sucked us in.  I suspect many
traders will report losses for the year -- many for the first
time.

I recently read a few simple money management reminders that
became especially important this year.  They bear repeating here.

First, let's talk about margin trading.  You need to recognize the
overall market trend.  Obviously, we have been searching for a
bottom on Nasdaq for sometime now, so the trend has been down.  In
a downtrending or bear market, you must be defensive -- do not buy
on margin.  You can get aggressive again when the trend has
changed decidedly, but don't jump on the first V-bottom or two-day
rally.  And even in a bull market, avoid using all your available
margin since a volatile swing or correction may blow you out of
the water.

Use trailing stops.  If you are like me, you are hesitant to take
a big loss on an option when the underlying stock sells off after
hours and the option opens the next day way down.  You want to
wait for a bounce.  If the bounce comes in the midst of market
strength, you think there might be some follow-through, so you are
hesitant to exit into the strength.  This is a tough situation, no
doubt.  If you don't stop out at the next day's open, the bounce
may never come, and your position may get worse.  And if you hold
the position and get a bounce, this year has shown us that it can
fade fast - too fast for anyone who is not glued to the screen.
All experts agree that the best strategy is to take emotion out of
the picture by using objective stops.

Perhaps most important of all, diversify your plays.  We all know
we shouldn't put all our eggs in one basket, but sometimes we fail
to realize that individual sectors, and technology stocks as a
whole, often move together.  A basket of bullish plays on BEAS,
ARBA, SDLI, CHKP, and QCOM works great in a bull market, but it is
not very diversified in a struggling market.

Another good lesson for the year is this: Take with a grain of
salt anything you hear from Wall Street's paid analysts, whose
recommendations and projections originate from the companies
themselves and are tainted by conflicts of interest.  How many
times this year have we seen an analyst come out with a Strong Buy
rating and an ambitious price target, then "pile on" the stock
after an earnings miss or general market selloff by downgrading it
and lowering the target?

Also, with only $3,000 in losses deductible against regular income
each year, plan your taxes carefully.  Keep in mind that losses
beyond $3,000 can be carried forward.  If you are holding LEAPS or
stocks that are underwater, you might want to consider selling
them before year-end.

So, what's up for the near term?  I've gone a bit more to cash in
my long-term account, and I've stopped out of some stocks I've
accumulated in my trading account.  I also bought some more QQQ
puts at today's close, emboldened by OIN's last intraday
commentary on CSCO weakness.  At today's close, my personal
watchlist for short-term plays showed only five green symbols out
of about 75 total.  They are the VIX (of course), two gold stocks,
HD, and USIX.  I'll talk about USIX and the ASP sector in my next
article.


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


CALLS:
*****

EXTR $66.69 -3.63 (-12.50) Extreme changed course soon after
the open on Monday and the uptrend that we were following has
now come to an end.  The catalyst for this week's move down
was the same old lingering negative sentiment for the Nasdaq
and Telecom stocks.  The stock offered some profitable trade
opportunities last week as it recovered from a recent sell-off,
but the volume wasn't strong enough to reverse the longer-term
pattern.  We noted on the weekend that it was sitting near the
top of the current pattern and that prudence was in order.  Now
we see that the sellers were ready to take the stock back down
and stop us out of the play.  This is really nothing new for
long plays in the past two months as you have to be ready to
take small profits off the table when conditions allow.

TQNT $36.25 -4.13 (-8.25) No matter how good the fundamentals,
it's difficult for a chip stock to rally when the Philadelphia
Semiconductor Index (SOX.X) is heading into 52-week low territory.
On Monday, in sympathy with a falling chip sector, TQNT dropped
$4.13 or 9.27 percent on over 130% of ADV.  Today, our stop loss
at $40 was triggered as the stock fell another 10.22% closing just
above the 50-dma, now at $35.96.  While volume today was lower
than average, and support at the 50-dma held, we are sticking with
our game plan.  As a result, we are no longer covering TQNT.

ENMD $21.63 -3.75 (-4.38)  Hmmmm.  ENMD receives a seven year
subcontract valued at $7-14 mln for research & development of a
federal malaria vaccine, and the stock gets crushed.  That breaks
down to about $1-2 mln per year in additional revenue for ENMD.
Regardless, the stock got caught up in the heavy NASDAQ selling
and fell through its support at $22.  That happened to be our
stop loss level.  The selling today on ENMD began right out of
the gate and although it may find some relief tomorrow, we will
be dropping this Long Term Play tonight.


PUTS:
*****

No dropped puts today


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The Option Investor Newsletter                  Tuesday 11-28-2000
Copyright 2000, All rights reserved.                        2 of 2
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********************
PLAY UPDATES - CALLS
********************

A $50.69 +0.19 (-0.25) Agilent started the week off with a major
acquisition announcement.  In an aim to enhance its software
offerings to communication providers, Agilent inked a cash deal
with Objective Systems Integrated (OSII).  This acquisition and
the recent November 17th agreement to sell off its medical division
to Philips Electronics (PHG), clearly suggests that Agilent is
moving more towards the tech and telecom industries.  From an
earnings viewpoint, it's expected that the purchase will cut
Agilent's profits by about $0.02 in fiscal 2001, but over the
longer-term will accelerate growth projections.  The news didn't
upset the apple cart and A continued to trade higher on Monday,
just falling shy of moving through the $52 level.  Today, the stock
gapped up at the open and raised to immediate resistance at $52.75.
Intraday trading was also strong with short-term support inching
higher to $51.50, while $50.50 sustained the deeper dips.  The
bullish moves this week have left the near-term dmas down below the
$50 mark.  A return to the 10-dma, currently at $46.84, offers an
aggressive entry on a pullback, but let's keep our stop set at the
$44 mark for protection.  A high-volume break through $52 warrants
consideration for the more conservative traders to take positions.

CELG $59.75 -4.88 (-0.63) As we anticipated in Sunday's write-up,
excitement over the upcoming American Society of Hematology (ASH)
Meeting helped drive CELG higher Monday.  In fact, Biotechs
rallied across the board ahead of the event.  With the meeting
starting Friday, the event has had a history of showcasing
upcoming potential blockbuster drugs.  News of CELG presenting
at the show helped shares rally $4.24 or over 7 percent on
higher than average volume.  Today however, with a nervous
market, traders were eager to take profits and protect capital.
With that, CELG fell 7.54 percent, closing right above its
100-dma.  Volume today however, was lighter than on yesterday's
rally.  For aggressive traders, a bounce off the 5-dma at
$59.75, the 100-dma at $59.56 or the 10-dma at $56.25 could be
targets to shoot for.  There is also support at $55 and our stop
price at $52.  If the market bounces tomorrow, a move above the
50-dma at $60.46, with the buyers returning in force, could
allow for a conservative entry.

AMGN $66.34 -0.84 (+0.28) Swimming upstream through another
turbulent, politically-charged week, AMGN has actually managed
to post a gain over the past 2 days.  Granted, it is only a
fractional gain, but in this market environment, we'll take
what we can get.  Like most of the Drug and Biotech stocks,
AMGN is moving in concert with the daily tides of the election
battle; moving higher when it looks like Bush will be the victor
and falling back when the Gore camp casts doubt on that
possibility.  The stock's valiant attempt to break through the
descending trendline ($68) was rebuffed again today as negative
sentiment ruled the markets, causing all the major indices to
close in negative territory.  The 50-dma, 200-dma, and the
ascending trendline have converged near $65, and this is the
level where we expect to witness the next battle between the
bulls and the bears.  If this level holds up as support, it
should provide a launching point for another test of resistance
near $68-69.  The other alternative will open the door for
another retest of support near $62, the location of our stop.
At this point, the best entry point looks like a bounce from
the $65 support level, although more aggressive traders can
target shoot a volume backed bounce from $62.  Once the election
is resolved, AMGN should be able to finally break above its
descending trendline, and that would be a good entry trigger
for more conservative players.


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

HAND $55.63 -3.19 (-2.50) Monday morning buyers scooped up shares
of HAND, taking the share price as high as $62.56.  Lehman
Brothers' restatement of its Buy rating, and accompanying comments
that reiterated the company's positive earnings track for December
likely gave HAND a boost on Monday.  The bullish momentum was
however, short-lived and ineffectual.  Just before noontime, HAND
was swiftly cut down from the $62 level and taken to the underside
of the $60 mark on increasing volume.  This morning, another
feeble attempt to breakout above $63 failed miserably.  The
downward momentum kicked in full-throttle and the share price saw
$54.31 before stabilizing at the $55 and $56 levels.  Depending on
your risk tolerance, the past two sessions have offered a variety
of entry points.  As we move forward with this put play, look for
continued weakness under the 5-dma ($57.83) coupled with a break
of $53 on strong volume to warrant additional positions;
particularly if you're more on the conservative side.  Although
we're keeping our stop loss set higher at $63 to provide room for
mild gyrations in trading.

YHOO $36.97 -3.15 (-3.91) Yahoo reported Monday that holiday
shopping got off to a strong start last week.  The company
said that transactions were more than double the number that
occurred on the Friday after Thanksgiving last year.  Despite
the good news, YHOO has plummeted both days this week.  You
know sellers are running the show when you see such optimism
quickly discounted.  The point being that investors are more
concerned with advertising and page views than they are with
transactions right now.  Tuesday's trading was especially
promising with YHOO hitting fresh two-year lows.  As we have
mentioned before, the stock lacks support in technical terms.
This descent may not be resolved until YHOO capitulates in
the mid-$20s.  Still we will keep an eye out for buyers at the
$36 level which held up well this afternoon while the Nasdaq
continued to sink.  Otherwise, continue to ride the momentum
while adjusting your stop loss to preserve profits.  Currently
our stop is set at $42.00, meaning we will exit on any close
above that price.

MVSN $42.50 -5.25 (-6.63) It's been very quiet on the news front
lately for MVSN and with that, the stock has traded in sympathy
with the NASDAQ.  Gapping up at the open on Monday morning, the
stock encountered resistance at $54.  From there, the sellers
took control, moving the stock lower for the rest of the day,
closing the morning gap and then some.  At the end, MVSN closed
down $1.38 on heavy trade.  The selling continued today as MVSN
encountered resistance at the 5-dma, now at $47.47.  From there,
the stock headed deeper into the red but found support just below
the $40 level.  Despite a slight bounce at the end of the day,
the stock closed down almost 11 percent on above average volume.
Another failed test of the 5-dma could provide aggressive traders
with an entry as well as a failed rally above resistance at $47
and $50 but be aware that our stop price has been moved down to
$49.  A break below $40 on strong selling volume would allow
traders to jump in for a solid entry.

NEWP $61.94 -1.13 (-9.31) Our put play headed ever deeper into
negative territory to start the week.  Encountering resistance at
the 10-dma on a Monday, the sellers took advantage of the
temporary strength to sell the stock down.  For the day, NEWP
dropped $8.19 or over 11 percent.  While trading volume was
average, the bears were clearly in control.  Today, the company
announced that it would be making a corporate presentation this
Thursday evening at Credit Suisse First Boston's annual Tech
conference.  The CEO and CFO will be talking about the company's
most recent earnings report, provide details about its operations
and outline plans for growth.  While this helped to lift the
stock up in early trading, resistance at $70 was too strong and
from there the selling continued, with the stock closing down
another 1.78 percent on almost 115% of ADV.  Look for another
failed rally above the 5 and 10-dmas, at $66.68 and $72.29,
respectively, as possible aggressive entry points, as well as
resistance at $70 and our stop price of $71.  For the more risk
averse, a break below support at $60 confirmed by volume would be
the target to shoot for.

SLR $33.25 -1.44 (-2.31) Solectron opened up over a point on
Monday, at $35.50, when the markets gapped open.  However, the
opening pattern was a big bearish red candlestick, and the stock
was not able to break its trend.  SLR hovered around $35 for
most of the day, then collapsed and closed at $34.68.  Overall
sentiment was weak, and selling volume rose on Tuesday, as over
5.8 million shares traded, and SLR formed the highly bearish
three black crows pattern.  It appears that SLR will not have
the strength to cross the converged 50 and 200-dmas  of $41 any
time soon unless overall market sentiment changes.  With a P/E
of over 43, and a newly assumed burden of additional stock
issuance to pay for their takeover of NatSteel, SLR has fallen
out of favor with investors.  Consider taking a position on
a failed attempt to rally past the 10-dma of $34.35, which would
likely bring the stock to the 5-dma of $33.81.  The next major
support level is $30, and after that is the 52-week low of $28.
SLR could conceivably fall below its lows if market conditions
permit.  However, remain cognizant that we are in an oversold
market which could rally at any time, and set stops at $37.

FCEL $51.69 -4.44 (-10.56)  The possible scenario we described on
Sunday for FCEL has worked out beautifully for our put play.
FCEL actually reached $61.81 on Monday morning during the market
rally, but it was a classic bull trap.  After another attempt to
rally past $61.50, FCEL sold off sharply for the rest of the day.
FCEL broke below $60 Monday afternoon and ended up closing at
$56.13.  FCEL has lost 50% of its value from its high in October
of over $100, and is now in a clearly defined down trend.  FCEL
is deeply below its 50-dma of $68.18, and is resting at the
10-dma of $51.63.  A good entry point could be a failed attempt
to rally past the 5-dma of $55.43, which could easily send the
stock below its 200-dma of $49.42.  If it breaks through $49, the
next support level is around $38, which hasn't been tested since
March.  It is a long way down to the low level of $20 in May, but
there is a distinct possibility that this level will be tested,
depending on market conditions.  Investors are looking for value
in this market, and it is difficult to value non profitable
companies like FCEL.  However, the market indexes are now oversold
and likely to rally.  And with that, effect stops if FCEL closes
above $61.

VRSN $82.09 -5.09 (-11.16) It's hard to believe that VRSN was
trading north of $200 just 2 short months ago, but here it sits,
having lost a whopping 60%.  The descending trendline that
describes the highs during this decline, has steepened and is
continuing to pressure the stock to the downside.  As expected,
the relief rally that began last Friday was a head fake, and
the selling returned with a vengeance yesterday morning.
Aggressive players got a great entry point as VRSN rolled over
from its gap open near $100.  The selling didn't let up today,
and our play went right back for a test of support near $80.
Earnings concerns have been particularly unkind to Internet
stocks this week, and judging by VRSN's chart, there is likely
more pain to come.  Given the stock's failure to penetrate the
$100 resistance level, and in an effort to keep the lion's share
of our profits, we are moving our stop down to $91.  This will
make an attractive point for initiating aggressive positions,
but make sure that selling volume is picking up before playing.
Entries can also be considered as VRSN falls through its recent
lows near $78, as this will open the door for the stock to drop
to its next support level near $60.

VRTS $99.03 -6.97 (-1.85) Just when the bulls thought it might
be safe to come out and play, they got hit with another
Technology selloff this week.  Friday's weak rally continued
through the first hour of trading yesterday before the bears
came out in force again.  The NASDAQ continues to trace new
yearly lows and VRTS couldn't dodge the selling pressure,
giving up nearly $7 in today's session.  Resistance has
solidified at $108, keeping our stop at $109 solidly in place.
If the selling continues, a test of last week's low of $91
looks like an easy downside target and aggressive traders will
use any relief rally as an opportunity to initiate new positions
for the next leg to the downside.  More conservative entries can
be had as the selling picks up steam, pushing VRTS below
intraday support near $97.  Volume has picked up above the ADV
again, and this confirmation of bearish sentiment will likely
continue to confirm downside moves.


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

AGGRESSIVE:

SGP - Schering-Plough $55.44 +1.06 (+1.94 this week)

Schering-Plough is a holding company that, through its
subsidiaries, is engaged in the discovery, development,
manufacturing and marketing of pharmaceutical products
worldwide.  The company has three principal product lines;
prescription products, animal health products, and over the
counter (OTC) health care products.  At the head of SGP's
prescription drug roster is Claritin, the world's top
antihistamine.  The company's OTC brand names include Afrin
(nasal sprays), Dr. Scholl's (foot care), and Coppertone and
Bain de Soleil (sun care).

In the wake of the Technology-related selloff this year, Drug
stocks are looking pretty healthy.  Even the election
uncertainty can't keep the buyers away as they are searching
for a safe haven for their investment dollars.  Although a Bush
administration will likely be more favorable to Drug stocks
than a Gore presidency, this factor is being overshadowed by
the fact that investors are running scared from Technology
stock valuations, and this sector is one of the typical safe
havens to which they are flocking.  While the stock will not
post the double-digit gains that momentum investors have become
used to, the option premiums are much more reasonable.  After
consolidating above the $50 support level for over a month, SGP
began slowly moving up about two weeks ago, and is now testing
resistance between $55-57.  Once clear of this obstacle,
investors will set their sights on the 1999 high of $60.75.
Intraday support at $53 looks like a good level for initiating
new positions on any short-term pullback, and we have placed our
stop just below at $52.  Continued strength can also be used as
a trigger for new entries, but wait for buying volume to push
the price north of $56 before taking the plunge.  As long as
the Technology sector remains under pressure, SGP should
continue to benefit from investors' search for a safe place for
their investment dollars.  Also monitor the progress of the
election stalemate, as any resolution will likely have an effect
on the Drug sector.

BUY CALL DEC-50 SGP-LJ OI=8898 at $6.00 SL=4.00
BUY CALL DEC-55*SGP-LK OI=2894 at $2.25 SL=1.25
BUY CALL DEC-60 SGP-LL OI=2594 at $0.56 SL=0.00
BUY CALL JAN-55 SGP-AK OI=9528 at $3.75 SL=2.25
BUY CALL JAN-60 SGP-AL OI=5143 at $1.63 SL=0.75
BUY CALL JAN-65 SGP-AM OI=1759 at $0.69 SL=0.00

http://www.premierinvestor.net/oi/profile.asp?ticker=SGP


LOW VOLATILITY:

CGP - Coastal $83.50 +0.94 (+1.31 this week)

Coastal is a Houston-based energy holding company with
consolidated assets of $16 billion and subsidiary operations in
natural gas transmission, storage, processing and marketing.
Coastal and El Paso announced on January 18th a definitive
agreement to merge.  The merger is expected to be completed
during the fourth quarter of this year.

Deregulation in the energy sector has spurred competition and
consolidation among leading firms.  The shifting landscape of
the once stodgy sector has captured Wall Street's attention.
Along with industry consolidation, CGP is directly benefiting
from the flight of beaten down tech investors into the energy
sector, who are looking for growth with less risk and
lower volatility.  That sector rotation boosted CGP out of its
10-week base and above resistance at the $80 level late last
week.  Since breaking above $80, the stock has continued
climbing to new highs this week and looks poised to extend
its recent rally as resistance is nonexistent above current
levels.  New entries could be had a current levels if the
energy sector continues advancing early tomorrow.  Use
CGP's competitors in KMP and WMB as references when confirming
sector direction.  Additionally, a pullback to support at
$82, or lower near the pivot point at $80 could provide
additional entry opportunities.  However, be aware that we
have set our stop at $80 and would drop coverage on CGP should
the stock settle below that level.

BUY CALL DEC-80 CGP-LP OI=512 at $5.13 SL=$3.00
BUY CALL DEC-85 CGP-LQ OI=237 at $2.06 SL=$1.00
BUY CALL JAN-85*CGP-AQ OI=241 at $4.63 SL=$2.75
BUY CALL JAN-90 CGP-AR OI=105 at $2.56 SL=$1.25
BUY CALL MAR-85 CGP-CQ OI=159 at $6.75 SL=$4.75

http://www.premierinvestor.net/oi/profile.asp?ticker=CGP


LOTTERY:

GADZ - Gadzooks $21.13 +1.50 (+1.00 this week)

Dallas-based Gadzooks is a specialty retailer of casual apparel
and related accessories for young men and women principally
between the ages of 14 and 18.  The company currently operates
376 mall-based stores in metropolitan and middle markets in 35
states.

Since breaking above triple-top resistance at $19 late last
week GADZ has been on a tear.  The stock's advance this week
is quite a feat considering the overall market conditions.
The fuel behind GADZ's recent rally was the company's bullish
earnings report and upbeat guidance delivered in mid-November.
We're looking for the recent upgrades and earnings-driven
momentum to continue to carry GADZ higher into the holiday
shopping season.  New entries can be found at current levels
early tomorrow if GADZ continues to display relative strength
in this weak market.  Make sure to confirm a continuation of
the recent heavy volume before entering on strength.  Additional
entries might be found on a low-volume pullback to support just
below at $21 or lower at the $20 level.  We have set our stop
for GADZ at $19.50.

BUY CALL DEC-20*EQK-LD OI=154 at $2.06 SL=$1.00
BUY CALL JAN-20 EQK-AD OI= 40 at $3.13 SL=$1.50
BUY CALL MAR-20 EQK-CD OI= 14 at $4.38 SL=$2.75

http://www.premierinvestor.net/oi/profile.asp?ticker=GADZ


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

AGGRESSIVE:

AGIL - Agile Software $44.88 -5.69 (-7.06 this week)

Agile develops and markets product content management software,
which is software that enables companies to collaborate over the
Internet by interactively exchanging information about the
manufacture and supply of products and components.  Agile's
collaborative suite of software products is designed to improve
the ability of all members of the manufacturing supply chain.
Since their start in 1996, they have licensed their products to
approximately 300 customers including Gateway, Texas
Instruments, Lucent Technologies, and Solectron.

AGIL's sharp fall on November 17th was in direct correlation to
an earnings' sell-off, while today's breakdown corresponds to
the NASDAQ's strong transgression below 2800.  After hours on
November 16th, Agile Software reported positive 2Q earnings.
The company beat consensus estimates by one cent.  However,
sequential revenue growth did slow, from 46% 1Q to only 28% 2Q.
Plus, the software maker didn't raise its revenue guidance for
the next two quarters as much as analysts would have liked.
The B2B jitters and a relatively inevitable post-earnings
decline put AGIL in a precarious position for the next morning's
trading.  That Friday (11/17) AGIL fell sharply, slipping
to $48.38 at one point, before resurfacing for a $8.50, or 13.3%
loss.  Volume was heavy at 3.8 times the ADV!  The losses
continued into Monday's session with another $4.57, or 8.3% cut;
however, the volume on the decline was only average.  In the
following days, the stock managed to find some stability
primarily between $50 and $54, with $48 keeping AGIL afloat
during rough trading.  But today, AGIL suffered a significant
breakdown and chaperoned the NASDAQ down into the dark abyss of
"where's the bottom?".  Coming off a strong opening above the
10-dma at $55 on Monday, AGIL fell on hard times as the selling
accelerated into today's session.  The bearish performance left
AGIL just a fraction away from today's intraday low.  You might
consider entering on downward momentum if AGIL demonstrates
continued weakness below $45; but expect some support at the
$40 level.  If you'd rather be more aggressive and play it from
the top end of the spectrum, then look for an oversold bounce to
take AGIL up to the 5-dma, which is currently at $49.55, and
then take entry on a rollover.  Our stop is firmly set at the
$50 mark in light of the stock's attractive price and existing
analysts ratings.

BUY PUT DEC-55 AUG-XK OI= 7 at $12.25 SL=9.00
BUY PUT DEC-50 AUG-XJ OI=20 at $ 8.63 SL=6.00
BUY PUT DEC-45*AUG-XI OI=10 at $ 5.38 SL=3.25

http://www.premierinvestor.net/oi/profile.asp?ticker=AGIL


ITWO - I2 Technologies $101.69 -11.50 (-11.31 this week)

ITWO is a global provider of intelligent eBusiness solutions for
supply chain management and enhanced business applications.  On
June 12, 2000 ITWO merged with Aspect Development (ASDV) to
create one of the largest software providers for eBusiness and
eMarketplace solutions.  TradeMatrix, its Internet marketplace,
provides an open digital community powered by i2's advanced
optimization and execution capabilities that help manufacturers
plan production and other related operations.

While ITWO managed to hold up during the NASDAQ weakness in
September and October, November has turned out to be a tough
month indeed.  During this time, ITWO has fallen below all its
major moving averages, on the backs of the 5 and 10-dmas.
Valuation concerns have plagued the B2B Sector, as Internets
across the board, deemed priced to perfection, were discounted
for a less than perfect economy.  During October, ITWO had been
in a wide trading range, from $145 support to $192 resistance.
With that support broken, shares of ITWO fell on strong volume,
and the possibility of more downside appears highly likely.
Today, the company announced that its shareholders have approved
an increase in shares to complete a 2-for-1 stock split set for
next week, on December 5th.  This news had little effect, as the
stock dropped over 10 percent on 125% of ADV despite the
announcement.  While normally we would be cautious about a
possible pre-split run-up, weak techincals and negative sentiment
in the B2B sector as well as the NASDAQ make the probability of
such a move to be low.  Just in case, we are setting a stop at
$111.  A close above this level could suggest a break in ITWO's
downtrend.  A failed rally above the 5 and 10-dma are aggressive
targets to shoot for in entering this put play.  There is also
resistance at $105 and $110 but confirm a rollover with volume.
Support for ITWO can be found at the psychologically important
$100 level.  A break below this point, with continued selling
strength, will allow conservative traders to enter this play.  In
either case, confirm direction and sentiment with Merrill Lynch's
B2B HOLDR (BHH) before initiating a play.

BUY PUT DEC-105 QYJ-XA OI= 418 at $13.00 SL=9.75
BUY PUT DEC-100*QYJ-XT OI=1132 at $10.13 SL=7.00
BUY PUT DEC- 95 QYJ-XS OI=  43 at $ 8.13 SL=5.75

http://www.premierinvestor.net/oi/profile.asp?ticker=ITWO


*********************
PLAY OF THE DAY - PUT
*********************

VRTS - Veritas Software $99.03 -6.97 (-1.85 this week)

As an independent supplier of storage management software,
VRTS develops and sells products that protect against data
loss and file corruption, allowing rapid recovery after disk
or computer system failure.  The company's products provide
continuous data availability in clustered computer systems with
shared resources. This enables IT managers to work efficiently
with large file systems, making it possible to manage data
distributed on large computer network systems without harming
productivity or interrupting users.  VRTS provides products for
most popular operating systems, including UNIX and Windows NT,
as well as a full range of services to assist its customers in
planning and implementing their storage management solutions.

Most Recent Write-Up

Just when the bulls thought it might be safe to come out and play,
they got hit with another Technology selloff this week.  Friday's
weak rally continued through the first hour of trading yesterday
before the bears came out in force again.  The NASDAQ continues
to trace new yearly lows and VRTS couldn't dodge the selling
pressure, giving up nearly $7 in today's session.  Resistance has
solidified at $108, keeping our stop at $109 solidly in place.
If the selling continues, a test of last week's low of $91 looks
like an easy downside target and aggressive traders will use any
relief rally as an opportunity to initiate new positions for the
next leg to the downside.  More conservative entries can be had as
the selling picks up steam, pushing VRTS below intraday support
near $97.  Volume has picked up above the ADV again, and this
confirmation of bearish sentiment will likely continue to confirm
downside moves.

Comments

VRTS broke back below the psychological level of $100 and just
might be fixin' to close that gap from last Friday.  The stock
closed last Wednesday at $93.38 and gapped up to $98.63 the day
after Thanksgiving.  If the negative sentiment continues tomorrow
on the NASDAQ, VRTS will likely slide with it.  Look for entries
on breaks below $97.  If the stock finds some relief from the
selling, a rollover near resistance at $104 would provide a good
entry.

BUY PUT DEC-105 VUQ-XA OI= 539 at $12.00 SL=9.00
BUY PUT DEC-100*VUQ-XX OI=2183 at $ 9.13 SL=6.25
BUY PUT DEC- 95 VUQ-XW OI=2743 at $ 6.63 SL=5.00

http://www.premierinvestor.net/oi/profile.asp?ticker=VRTS


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

The Nasdaq sell-off continues...

Technology stocks were drubbed again today amid new valuation
concerns.


Monday, November 27

Industrial stocks rallied Monday as retailers announced favorable
sales results and investors rotated money into defensive issues.
The Dow closed up 75 points at 10,546 while the Nasdaq finished
down 23 points at 2,880.  The S&P 500 index closed up 7 points at
1,384.  Trading volume on the NYSE hit 925 million shares, with
advances beating declines 1,563 to 1,287.  Activity on the Nasdaq
reached 1.6 billion shares, with declines beating advances 2,260
to 1,795.  In the bond market, the 30-year Treasury dropped 15/32,
pushing its yield up to 5.69%.


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

Micron        MU    DEC35C/DEC37C   $2.00   debit   bull-call
Pfizer        PFE   DEC47C/DEC45C   $0.38   credit  bear-call
Unibanco      UBB   JAN25C/JAN25P   $3.62   debit   straddle
Voicestream   VSTR  DEC130C/D100P   $4.00   credit  strangle
ECI Telecom   ECIL  DEC22P/DEC25C   $0.00   debit   collar

Micron rallied briefly but eventually retreated on concerns of
a slowdown in earnings among technology companies.  Semiconductor
stocks were particularly weak on the heels of negative analyst
comments and the recovering issue ended down almost $4 at $37.12.
Unfortunately, analysts now expect further selling in the group.
In contrast, Pfizer rallied with other stocks in the drug sector.
Our original plan was to open the position with a $0.38 credit,
but with the Presidential election activity (Sunday night's vote
certification) favoring George W. Bush, we adjusted our initial
target slightly higher, as pharmaceutical stocks are expected to
perform well in a Republican controlled government.  The credit
we achieved was $0.50 but we will record the suggested target of
$0.38.  Now we must monitor the issue for a close above $45 on
heavy volume, which will be the first indication that a change
of character has occurred.  UBB and VSTR both traded in a small
range, limiting our ability to achieve a favorable entry.  ECI
Telecom rallied in early trading, but the option premiums were
adjusted lower and there was no opportunity for a bullish collar.


Portfolio Plays:

The market rallied Monday morning as investors speculated that
the contest for the Presidency was nearing an end.  However, the
optimism quickly faded as technology shares faltered on concerns
over the industry's earnings growth.  Losses in infrastructure
leaders Cisco Systems (CSCO) and Juniper Networks (JNPR) helped
drag the Nasdaq lower and Salomon Smith Barney sent chip stocks
reeling with comments that Broadcom (BRCM) shares were unlikely
to recover anytime soon.  The massive sell-off in the technology
group has left many leading companies undervalued, but a belief
that most issues are still too expensive is leading to a major
rotation to defensive blue-chips.  Shares of Wal-Mart (WMT), 3M
(MMM) and Home Depot (HD) led the gainers on the Dow and Boeing
(BA), Caterpillar (CAT), and American Express (AXP) joined the
upside activity.  The industrial group also got a boost from
Merck (MRK) on speculation that pharmaceutical companies stand
to benefit from a Bush win because of his hands-off approach to
regulation of the sector.  Among broad market issues, investors
sought biotechnology, precious metals, bank and cyclical stocks
but avoided oil service, utility, chemical and brokerage shares.
Retail companies were also among the top performers, as holiday
shoppers started the Christmas season with a bang.

Our portfolio enjoyed a number of winners in the biotechnology
sector and the group followed shares of Vertex Pharmaceuticals
higher as investors reacted to news of the company's progress
with a new product.  Shares of Vertex (VRTX) rallied almost $9
after the company said its VX-175 treatment for people infected
with the AIDS virus has advanced into the third phase of patient
testing.  A Vertex spokesman also said that Glaxo Wellcome (GLX),
which has a deal with Vertex to sell their protease inhibitor,
might apply for marketing clearance for the drug in 2002.  Our
bullish credit spread has successfully recovered after a recent
downward adjustment to the DEC-$65 Put.  Other companies in the
group also rallied including Invitrogen (IVGN) and Pharmacyclics
(PCYC).  In the healthcare sector, Medquist (MEDQ) continued to
move higher and our recent synthetic position is now offering a
favorable early-exit profit.  Cardinal Health (CAH) was another
bullish issue and consumer product companies Carter Wallace (CAR)
and Johnson & Johnson (JNJ) also experienced upside activity.  In
the retail group, Home Depot (HD) was a solid performer, up $1.25
to $38 and the issue appears to be establishing a solid base near
$37.  On the downside, Safeway (SWY) succumbed to profit-taking
after a week of advances, but Quaker Oats (OAT) managed to avoid
further selling in the absence of a potential merger partner and
that may be an indication that selling is over for now.  One play
that continues to plague our bullish portfolio involves Broadcom
(BRCM), and if you didn't exit the position (or short the stock)
when it moved below near-term support near $150, there is little
to do except sell additional premium and wait for the eventual
recovery.

Our long-term position in Microsoft (MSFT) continues to offer
excellent opportunities for adjustment as the share price hovers
near $70.  Today there was additional bullish activity after the
company filed an appeal in an attempt to reverse an order by a
U.S. District Court judge that the software giant be broken into
two parts.  MSFT shares moved higher after the company denied it
held a monopoly or had violated antitrust law, and also asked an
appeals court to throw out a lower court ruling that would break
it into separate companies.  In a 150-page brief ahead of oral
arguments set for February, Microsoft said District Judge Thomas
Penfield Jackson ruled incorrectly that its business practices
were anti-competitive.  Jackson ordered on June 7 that Microsoft
be broken up and also set other remedies, all of which have been
suspended pending appeal.  Today the leading software maker told
the appeals court that Windows is not a monopoly if the market
is properly defined, and the company also challenged the finding
that it had tried to monopolize the Web browser market.  All of
the activity is providing an excellent venue for speculation and
our position will benefit from any new interest in the company's
long-term call options.


Tuesday, November 28

Technology stocks were drubbed again today amid new valuation
concerns.  The Nasdaq closed down 145 points at 2,734 and the
Dow was dragged down 38 points to 10,507.  The S&P 500 finished
12 points lower at 1,336.  Activity on the Nasdaq was moderate
at 1.89 billion shares exchanged, with declines beating advances
2,939 to 1,082.  Trading volume on the NYSE reached 1.02 billion
shares, with declines beating advances 1,689 to 1,158.  In the
bond market, the 30-year Treasury rose 9/32, pushing its yield
down to 5.67%.


Portfolio Plays:

Technology stocks moved lower today as investors continued to
rotate funds into defensive areas of the market.  The bullish
activity in safe-haven sectors kept the Dow positive for most
of the morning, but the Nasdaq slid to new lows for the year.
Technology companies have yet to escape from recent selling
pressure as the Wall Street works to digest reduced revenue
expectations for the future and chip stocks were once again
the target of bearish comments.  Merrill Lynch said it remains
cautious on the group as it is still at risk from a potential
inventory correction and it will likely take months to absorb
the slowdown in demand.  On the bright side, some networking
stocks showed strength after CS First Boston analysts issued
an optimistic outlook for Cisco (CSCO).  The report said that
Cisco is not seeing the impact on its current growth rate from
the slowing in capital spending that many other companies are
experiencing.  At the same time, Internet issues struggled as
shares of e-tailers slumped after a recent recovery.  On the
Dow, drugs stocks were among the few net gainers along energy
shares and some financial issues.  American Express (AXP) and
Citigroup (CIT) were among the bullish bank stocks and Alcoa
(AA) and International Paper (IP) led the industrial category.
In the broader market, retail stocks consolidated from recent
gains, which were fueled by optimism about the holiday season
and brokerage shares edged higher after Goldman Sachs upped
its outlook for Lehman Brothers to "market outperformer."  The
general consensus among investors is that nobody can buy with
confidence, as each rally is met with heavy selling and until
that trend changes, the stock market will continue to suffer.

Today was indeed an ominous sign for technology issues as the
Nasdaq once again closed at a new yearly low.  Fortunately,
we also have a large number of plays in the industrial group
and many of those positions enjoyed positive activity, even as
the broader market moved lower.  The pharmaceutical sector was
among the few favorable groups and positions in Curagen (CRGN)
and Pharmacylics (PCYC) continued to recover from the recent
sell-off.  In consumer products, Johnson & Johnson (JNJ) was a
big winner, rallying $2.75 to a new high near $100.  The move
is important because JNJ broke-out of a recent trading range
and is now expected to test its yearly highs.  Our position at
$90 is at maximum profit and it can be closed early to lock-in
gains.  Carter Wallace (CAR) edged higher and those of you in
the bullish diagonal spread will have to repurchase the short
option to remain in the play.  The current return is over 100%
and that may be enough to warrant an early exit.  Our new play
in Medquist (MEDQ) has been very impressive and today the issue
moved up $1.25 to a recent high near $18.  The bullish play is
now offering a $1.00 return and that's a great one-week profit.
Quaker Oats (OAT) enjoyed a nice bounce, recovering from the
cancelled plans for a potential merger and for now, the bullish
position at $80 appears intact.  However, we will monitor the
issue closely for signs of technical failure.  Home Depot (HD)
was among the few retail issues to advance in today's session
and the trading range near $40 appears to be well-established.

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

One of our readers asked for some credit-spread candidates in the
medical, healthcare and pharmaceutical groups.  These industries
are all performing well in the recent bearish market conditions
and one of these positions may meet your criteria for portfolio
suitability.

******************************************************************
FRX - Forest Laboratories  $135.88  *** Bracing for a Rally? ***

Forest Laboratories develops, manufactures and sells both branded
and generic ethical drug products that require a physician's
prescription, as well as non-prescription pharmaceutical products
sold over the counter.  Forest's most important United States
products consist of branded ethical drug specialties marketed
directly, or detailed, to physicians by Forest Pharmaceuticals,
Forest Therapeutics and Forest Specialty Sales forces.  Their
products include Celexa, for the treatment of depression; the
respiratory products Aerobid, Aerochamber and Tessalon; Tiazac,
Forest's once-daily diltiazem for the treatment of hypertension
and angina; Infasurf, a lung surfactant for the treatment and
prevention of respiratory distress syndrome in premature infants,
and Cervidil, used for the initiation or continuation of cervical
ripening.

There's little news to explain today's bullish activity in FRX
but the issue moved to the top of a recent trading range amid
solid buying pressure and excellent volume.  Some traders say
the rally may be related to the recent announcement that Forest
Laboratories will replace Seagate Technology (SEG) on the widely
tracked S&P 500 Index.  Seagate is being acquired by Veritas
Software (VRTS), which is already part of the S&P 500 Index, but
the date for the index exchange has not been set.  The S&P 500 is
tracked by fund managers and changes to the index are generally
followed by heavy trading in shares of the companies affected as
funds holdings are adjusted to match the popular market gauge.

Regardless of the reason, FRX appears to be bracing for a rally
and those who favor the drug manufacturing sector can use this
position to speculate conservatively on the future movement of
the issue.


PLAY (conservative - bullish/credit spread):

BUY  PUT  DEC-115  FRX-XC  OI=43   A=$0.62
SELL PUT  DEC-120  FRX-XD  OI=501  B=$1.00
INITIAL NET CREDIT TARGET=$0.50  ROI(max)=11%


******************************************************************
BAX - Baxter International  $84.94  ** New Trading Range? ***

Baxter International is engaged in the worldwide development,
manufacture and distribution of a diversified line of products,
systems and services used primarily in the healthcare field.  The
company manufactures products in 29 countries and sells them in
over 100 countries.  Baxter develops, manufactures and markets
products and technologies related to the blood and circulatory
system.  Baxter operates through three segments: I.V. Systems and
Medical Products, which develops technologies and systems to
improve intravenous medication delivery and distributes medical
products; Blood Therapies, which develops biopharmaceutical and
blood collection and separation products and technologies; and
Renal, which develops products and provides services to treat
end-stage kidney disease.

Baxter has received favorable coverage from analysts in recent
weeks, boosting the company's fundamental outlook as investors
look to alternative growth issues in the wake of the recent
technology sell-off.  Baxter was reiterated a "strong buy" by
analysts at CIBC World Markets with a price target of $90.  ABN
also holds a bullish recommendation for the company with a per
share target of $88.  U.S. Bancorp Piper Jaffray just upped its
price target to $95, after revising the company's 2001 sales and
earnings progression to reflect foreign exchange components.  In
addition, the company said on Monday that it is offering to buy
back up to $950 million of its debt securities.  Officials said
the tender offer is expected to provide BAX with the flexibility
to issue non-U.S. dollar denominated debt to match its current
liabilities and assets.

Today's rally to a recent high suggests the trend will continue
and the previous trading-range bottom near $80 should provide
adequate support for any future corrections.


PLAY (conservative - bullish/credit spread):

BUY  PUT  DEC-75  BAX-XO  OI=8   A=$0.31
SELL PUT  DEC-80  BAX-XP  OI=50  B=$0.88
INITIAL NET CREDIT TARGET=$0.62-$0.69  ROI(max)=14%


******************************************************************
UNH - UnitedHealth Group  $116.38  *** Solid Earnings! ***

UnitedHealth Group forms and operates markets for the exchange
of health and wellbeing services.  The company provides a broad
spectrum of resources to help people improve their health and
well being through all stages of life.  The company's Health
Care Services segment consists of the UnitedHealthcare and
Ovations businesses.  UnitedHealthcare coordinates network-based
health and well-being services on behalf of local employers and
consumers in six broad regional U.S. markets.  Ovations is a
business dedicated to advancing the health and well-being goals
of Americans in the second half of life, age 50 and older.  The
company's Uniprise business is devoted to serving the needs of
large organizations.  UNH's Specialized Care Services is a
portfolio of specialized health and well-being companies.  The
company's Ingenix business operates in the field of health care
data and information, analysis and application.

Managed care stocks have been "on the move" again this week amid
speculation of a George W. Bush presidential victory and relief
that the government will be controlled by a Republican majority.
A Republican victory is viewed as more favorable by the managed
care sector because the GOP is expected to favor the industry in
controversial legislation known as the patients' "bill of rights."
The industry has fought passionately over a key provision in the
bill that threatens to increase patients' rights to sue their
health maintenance organizations for improper denial of care.
Managed care issues have also performed well recently because
several companies in the group have exceeded quarterly earnings
expectations.  UnitedHealth is one of those select companies and
from a trend and momentum viewpoint, the bullish trend suggests
there may be additional upside potential in the near-term future
of this issue.


PLAY (conservative - bullish/credit spread):

BUY  PUT  DEC-100  UNH-XT  OI=117  A=$0.56
SELL PUT  DEC-105  UNH-XA  OI=160  B=$1.00
INITIAL NET CREDIT TARGET=$0.56-$0.62  ROI(max)=12%




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