Option Investor

Daily Newsletter, Sunday, 01/14/2001

Printer friendly version

The Option Investor Newsletter                   Sunday 01-14-2001
Copyright 2001, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

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

Entire newsletter best viewed in COURIER 10 font for alignment
        WE 1-13           WE 1-5         WE 12-29         WE 12-22
DOW    10525.38 -136.63 10662.01 -124.84 10786.85 +151.29  +200.60
Nasdaq  2626.50 +218.85  2407.65 - 62.87  2470.52 - 46.50  -136.25
S&P-100  687.88 +  6.17   681.71 -  4.74   686.45 +  2.22  -  5.25
S&P-500 1318.55 + 20.20  1298.35 - 21.93  1320.28 + 14.33  -  6.20
W5000  12181.30 +308.80 11872.50 -294.50 12167.00 +185.50  -112.40
RUT      485.75 + 22.61   463.14 - 20.39   483.53 + 20.54  +  4.96
TRAN    3001.98 -112.01  3113.99 +167.39  2946.60 + 96.67  +151.25
VIX       27.62 -  4.41    32.03 +  1.80    30.23 -  1.29  +   .32
Put/Call    .60              .63              .67              .61

Too good too last?
By Jim Brown

It was fun while it lasted but if you look behind the Nasdaq loss
of only -14 then you may see that the stealth rally may still be in
progress. While all the Nasdaq big caps suffered minor losses for
different reasons the smaller sector specific stocks continued to
break out of their recent doldrums. The leaders INTC, CSCO, MSFT,
DELL, ORCL, WCOM, SUNW all lost ground but sector leaders like
BRCM, CIEN, HGSI, BMY, RBAK continued to add to their gains. The
Dow however continued to suffer. Led down by UTX -3.19, PG -2.44,
MMM -2.44, HWP -1.69, DD -1.81, C -1.88, INTC -1.25 and CAT -1.75
the index traded below 10500 again late in the afternoon but
rallied at the close to 10525.

There were various reasons for the market weakness on Friday and
most were unrelated. First there was the HWP profit warning which
held the PC and software stocks down for the day. Most had been
posting gains so normal profit taking was assisted by the warnings.
Microsoft moved lower after the Justice Dept filed papers denying
negative bias on the part of the judge. While this was not an earth
moving event it did bring back into focus the fact that the case
was still alive and well. SUNW was downgraded by Salomon Smith
Barney to a price target of $30, which is where it closed, based
on a view that even though SUNW has not warned it was facing a
tough couple of quarters.

Other factors influencing the drop included the PPI and Retail
Sales reports Friday morning. The PPI headline rate was unchanged
compared with estimates of a +0.1% increase. The core rate was
up +0.3% well over the +0.1% expected increase. The crude goods
category increased +8.7% which was the largest increase since
August 1990. Analysts fear these costs will ripple through the
broader numbers once these goods make their way into the market.
The fear, which shot through the markets like a lightning bolt,
is that the Fed might pull back from their aggressive rate cut
posture to see if inflation has suddenly reappeared. The hope
of a -.50% rate cut was suddenly dashed and now the Fed funds
futures are only indicating a -.25% drop. This concerns the
markets since a slower drop in interest rates could delay a
recovery for six months or more. Financial stocks fell on the
worries as well as old economy stocks like DD, IP, UK, MMM etc.
If the recovery was off to the races we now need to wait for
the FOMC meeting on Jan-31st to see if we developed a flat tire.
Retail Sales grew by +0.1% when the expectations were for a
decline of -0.5%. The gains were in stronger than expected
auto sales and should not impact any Fed decision.

William Hewlett who co-founded Hewlett-Packard in 1939 died
Friday morning in California. The pair started HWP with $538
in a one car garage. The combined companies HWP and Agilent
have over $61 billion in sales. Steve Jobs once worked for
the pair in a summer job. Jobs said he used what he learned
during that summer to build Apple Computer into a success.
Well done Mr. Hewlett!

The AOL Time Warner merger is history. The final approval
came through on Thursday and TWX ceased trading on Friday.
The combined company faces many challenges going forward but
is likely to be a force to be feared in the Internet world.
The combined might of the two companies will usher in a new
era of Internet marketing. The stock is on almost every buy
list for 2001 as the 800 lb gorilla just got a lot bigger.
AOL is my guess for inclusion into the Dow to replace HON.

Oil prices appear headed higher again. OPEC is going to meet
Jan-17th on cutting production to maintain high prices for
their products. The anticipated cuts will be 1.5 million bbls
per day but with Iraq still playing tough and withholding 1.5
million bbls per day until he gets paid in Euros, Rubles,
gold bars or ammo of his choosing, the impact will be 3 mil
bbls per day. That could drive prices back over $30 per bbl
and cause the energy related prices to soar again. Bush is
applying pressure already to Saudi Arabia to hold the line.
The first major crisis of his presidency will be seen as a
yard stick of what to expect going forward. Good luck Mr.

The Nasdaq fell at the open as a result of the PC sector
earnings warnings but rallied back to within a whisker of
2700 at 2699.87 before pulling back. The end of day bargain
hunting never materialized with the traders deciding that
going into the long three day weekend flat was better than
taking a chance of another post close blockbuster warning.
The warning did not happen but the positive sentiment from
as late as Thursday appeared to be changing again. The volume
was strong at almost 2.5 billion on the Nasdaq and 1.26 bil
on the NYSE. BUT, and there is always a but, there was no
movement. After a big move high volume with no movement is
often a prelude to a drop. Investors still giddy with the
bullishness from this week are rushing into the market while
investors holding stock are selling into the rally.

The causes for the selling are the worry that the Fed will
not cut as much as expected but of even more concern is the
severity of the HWP and GTW forecasts. With earnings beginning
in earnest next week investors are worried that there will
be a flood of missed estimates and even worse a dire forecast
from the big names. With the earnings list for next week
reading like a who's who of the tech world any pattern of
weakening forecasts could cause another sell off. Big names
reporting next week include JNPR, AMCC, INTC, NVLS, RBAK,
APPL, CTXS, LSCC, MSFT and SUNW to name just a few. If their
forecasts are as dire as Hewlett-Packard's then there will
be trouble on the street. Investors can ignore the HWP and
GTW warnings as industry and/or company specific but if the
entire tech sector starts repeating the same mantra then our
fragile rally may self destruct.

The historical rally for last week came to pass for the Nasdaq
but not the Dow. While historical trends are just that, trends,
and not a sure thing, they are useful for planning for future
events. Historically there is a dip after the first week of
earnings in January. We should plan on that possibility and
use any bounce Monday or Tuesday to position ourselves to
take profits if the market follows past trends as the week
draws to a close. The reason for the dip is combined profit
taking after the earnings runs and/or bad earnings news. With
the possibility for bad news very high the possibility for a
dip is also very high. Many analysts feel the bad news is
already priced into the market as evidenced by the lack of
a material sell off on HWP -1.69 and GTW -1.81. By previous
standards these companies could have easily lost a third or
more of their stock price. The bright side is still the strong
advance/decline ratios at 2:1 on the Nasdaq even though the
index finished negative. This means investors are still bidding
up stock prices on the broader market even though the big caps
were weak. TrimTabs.com said equity inflows amounted to over
+$15 billion for the week ended Jan-10th and more cash is
on the way with retirement contributions on the way. While
last week provided a good base from which to rally we will
be at the mercy of earnings guidance.

Next week is options expiration week and that typically gives
the market a bullish bias. It also provides a tremendous
opportunity for aggressive traders. This is not for the faint
of heart but buying slightly out of the money options can be
very rewarding next week. An example would be ASYT and the
Jan-17.50 call at only $.63. Only -$.69 out of the money and
ASYT moved almost +$3 last week. Another $3 move would make
the option worth $2.50. It is just an example but the reason
I love expiration week. I will list some more possible plays
in my Editor's Plays section today.

My recommendation for the week would be to keep your stops
tight as we get closer to Friday. If you are in a trade on
a stock that announces earnings this week PLEASE consider
closing those trades the day before. Earnings bombs are
very destructive. Remember ARBA last week. They announced
a +625% increase in earnings and beat estimates by +150%
but the stock dropped -$8.19 the next day. An obscure line
in the financials showed they increased their allowance
for doubtful accounts and they are changing the way they
recognize income. This sent investors into a stampede to
exit the stock. Good earnings are not enough to prevent
a trade meltdown. We recommend exiting the trade the day
before earnings are announced to prevent disasters. You
give up the possibility of an explosive bounce but we have
found that historically only occurs in about 2 of every 20
announcements. Are you willing to risk a 90% chance of a gap
down the next morning to get that possible bounce?

Trade smart, enter passively, exit aggressively!

Jim Brown

Get a NextCard Visa, in 30 seconds!
1. Fill in the brief application
2. Receive approval decision within 30 seconds
3. Get rates as low as 2.9% Intro or 9.9% Fixed APR


I love expiration week!

Options are cheap, earnings are moving the stock prices
and there is money to be made. The ASYT example from the
commentary today is just an example but there are so many
opportunities in expiration week that you can go crazy
just deciding which ones to play. I went through about
500 stocks in preparing this article and pulled out about
40 that I would not have any problem playing. Most of the
options were under $1 with the stock less than $1 from
the strike price.

The way to play these is like a lottery play. Pick one
or two and buy a couple contracts with the idea that if
they expire worthless it is no big loss. If we get a
market pop on Tuesday/Wednesday it would not surprise
me to see the majority of these stocks move $2-$3 and
double the option price.

The concept here is not to hold them until Friday and
sell before expiration. The concept here is to hopefully
catch a spike in the stock price early in the week and
have the option price double or triple as market makers
scramble to avoid premiums going negative in the money
before expiration. I strongly suggest picking a price to
sell before you execute the buy. STICK TO THE PRICE. If
you buy an option for $.75 and decide to sell it for $1.50
then SELL IT when it gets to $1.50. What goes up can
come down even faster in expiration week. This is a plan
to get a quick pop with little risk not got for a home
run to make up for all of 2000's losses.

Quick note: Unless you are using Preferred Trade, DO
the order to the floor and the market makers have the
luxury of seeing where the orders are. They can hold
the price just under your limit knowing they have
insurance if things don't go their way. Preferred
holds the orders in their computer and only sends it
to the floor when the bid hits your price. They then
send it as a market order and if it is 10 contracts
or less it is an automatic execution and before the
market maker knows it he owns your contracts. If you
are using another broker for your stop losses call
them and ask how they do it before placing your limit

The list below was the best (cheapest) at the money
options I could find on Friday night on stocks with
good trends. There are better stocks but the options
are still out of sight. As the week progresses we will
see options on stocks like JNPR, CIEN, PMCS etc, cheapen
the closer we get to Friday. Last month we had a deep
V drop and recovery on Friday that was perfect for this
type of trading. Still there are some really good plays
on this list. Pick a couple to trade on Tuesday and then
look for others to develop as the week progresses.

Stock  Price   Strike  Cost    ITM

ADAP   3.81    5.00    0.25
VITR   4.63    5.00    0.38
ISLD   4.69    5.00    0.50
ICGE   4.94    5.00    0.63
CMGI   5.75    5.00    1.06    ITM .75
CMTO   7.25    7.50    0.69
TIVO   7.38    7.50    0.75
CCUR   7.38    7.50    0.75
NETA   7.84    7.50    0.94    ITM .34
RHAT   8.69    7.50    1.44    ITM 1.19
ATHM   8.75    10.00   0.25
ORCH   11.44   12.50   0.63
KANA   11.94   12.50   0.81
LGTO   13.94   15.00   0.69
VC     14.12   15.00   0.38
CNC    14.69   15.00   0.50
MSTR   15.00   15.00   1.31
ICIX   15.69   15.00   1.94    ITM .69
ASYT   16.81   17.50   0.63
SSTI   16.81   17.50   0.69
MFNX   18.69   17.50   1.94    ITM 1.19
TSM    22.31   22.50   0.81
LSCC   22.94   22.50   1.69    ITM .44
ANF    23.63   25.00   0.56
T      24.25   25.00   0.44
PRIA   26.00   25.00   1.63    ITM 1.00
GPS    29.88   30.00   0.94
ARBA   35.06   35.00   2.88
PHG    41.25   40.00   2.06    ITM 1.25
MU     41.50   40.00   2.75    ITM 1.50
SYMC   42.50   40.00   3.75    ITM 2.50
CMCSK  43.63   45.00   0.75
LWIN   44.38   45.00   2.88
JCI    59.56   60.00   1.38
VECO   59.94   55.00   6.88    ITM 4.94
AT     67.50   70.00   0.75
UBS    170.00  170.00  2.90

The prices will of course change at the open on Tuesday
so verify if it is still a good deal before placing your
order. The higher the stock price the better chance of
the stock making a major move before Friday. A $5.00
stock has to make a 40% move to move $2.00. A stock
like AT can move $2 in five minutes. The option is not
a good deal just because it is cheap. If the stock is
not moving up with a good chance of passing the strike
price then pass on the trade.

Good Luck

Jim Brown

Get 10 FREE Issues of Investor's Business Daily. No obligation.
Nothing to cancel.


Earnings (Or Lack Thereof) Season Is Upon Us
By Austin Passamonte

There was a time in the not-too-distant past when earnings season
was a sure-thing rally waiting to happen. Buy OTM calls a few
weeks ahead and sell on the day of earnings release. So
methodical and easy, it was almost free money. For a little

As always, reality sets in eventually. Blow-out earnings and
especially the promise of future earnings that will catch
rocketing over-valuation cannot sustain forever. Not to mention
"companies" who never had a plan nor prayer for profits in the
first place. Now earnings season has become once again the great

We do know a few things. This quarter will be dismal. Next
quarter and the entire year will be flat at best by some
companies' admission already. The question investors and traders
ask is, "Who will have positive performance this year"? Those
that do could be treated like royalty as money waits impatiently
to buy anything that can be justified.

Market Sentiment expects higher closing prices this Friday night
than last. The route we take to get there is most uncertain.
Traders already expect bad news and selling pressure is drying up
as a result. Avoidance of any catastrophic reports should allow
movement to the upside. Surprisingly-negative reports could very
well exist and would stall any rally dead in its tracks as
witnessed last Friday.

Knee-jerk euphoria at the first rate cut 10 days ago has been
replaced with economic uncertainty, corporate crisis in the
energy world and fear that the Fed will do anything less than cut
50 basis points again by/before Jan 31st. The wall of worry is
growing almost high as PCLN & DCLK PE ratios once did.

Beyond this earning's season ahead we must ask ourselves what
will sustain an extended rally from there? Could any underlying
turmoil exist, such as record amounts of bad debt in many sectors
left as baggage from the dot.com's bubble collapse?

History proves that months after the initial interest rate cycle
changes from tighten to loosen, markets are higher. We wonder if
history will repeat once again and what lies in store for us
until then.

Meanwhile, a tradable rally is long overdue and high-odds to
prevail short of any more bearish surprises. White light at the
end of this tunnel is either brilliant sunshine or a giant bear's
gleaming teeth and we cannot yet tell which.

Trade the daily trend with great caution!


Friday 01/12 close: 27.62

30-yr Bonds
Friday 01/12 close: 5.61%

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)
725 - 710               15,178        2,930         5.18
705 - 690               13,299        8,030         1.66

OEX close: 687.88

685 - 670               13,088       11,850          .91
665 - 650                1,562        9,723         6.22

Maximum calls: 685/8,593
Maximum puts : 640/5,359

Moving Averages
 10 DMA  686
 20 DMA  686
 50 DMA  709
200 DMA  764

NASDAQ 100 Index (NDX/QQQ)
 72 - 70                82,533        16,290         5.07
 69 - 67                68,956         6,609        10.43
 66 - 64                71,724        24,723         2.90

QQQ(NDX)close: 62.73

 61 - 59                82,175        49,507          .60
 58 - 56                33,829        28,493          .84
 55 - 53                36,406        40,078         1.10

Maximum calls: 60/60,812
Maximum puts : 60/35,539

Moving Averages
 10 DMA 59
 20 DMA 60
 50 DMA 67
200 DMA 85

S&P 500 (SPX)
1375                   11,021        10,230          1.08
1350                   36,345        31,197          1.17
1325                   14,155        15,886           .89

SPX close: 1318.55

1300                    6,742        14,191          2.10
1275                      440        14,435         32.81
1250                    1,688        12,355          7.32

Maximum calls: 1350/36,345
Maximum puts : 1350/31,197

Moving Averages
 10 DMA 1313
 20 DMA 1312
 50 DMA 1346
200 DMA 1425


CBOT Commitment Of Traders Report: Friday 01/12
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

                     Small Specs             Commercials
DJIA futures     (Current) (Previous)    (Current) (Previous)
Open Interest
Net Value          -108       -2008        -5438     -2167

Total Open
interest %      (-1.37%)    (-25.35%)    (-21.58%)  (-9.59%)
                net-short   net-short    net-short  net-short

Open Interest
Net Value         +1861     -1028          -3982     -1825
Total Open
Interest %      (+11.29%)  (-4.77%)      (-7.13%)   (-3.45%)
                net-long   net-short     net-short  net-short

S&P 500
Open Interest
Net Value        +59586     +59586        -86815       -81851
Total Open
Interest %      (+37.29%)  (+29.89%)     (-11.19%)  (-11.09%)
                net-long   net-long      net-short  net-short

What COT Data Tells Us
Indices: The Commercials show a dramatic increase in their net-
short positions on the DJIA while maintaining their net-short
positions on the S&P 500 and NASDAQ 100.

Small Specs show a substantial reversal in their NASDAQ 100
positions going from net-short to net-long.

Interest Rates: Commercials are moderately short T-Bond and
T-Note futures. (mildly Bearish)

Currencies: Commercials continue to build heavily short Euro
futures while small specs build net long. Small specs are betting
on interest rate reductions while commercials remain skeptical.

Energies: Commercials are net-long crude & oil products at one
year extremes. These producers are hedgers and almost always take
the opposite side of expected market action to lock-in production
prices. They expect lower prices from here. (Bearish)

Metals: Commercials are moving to net-long in Gold, Silver and
Copper from short positions. This has happened quickly and they
expect higher precious metals soon. (Bullish)

COT/CRB: This commodity index measures the entire spectrum of
commodities in overall bullish or bearish outlook. It is now at a
one-year high for commercial bullishness, meaning the outlook for
commodities is long-term positive while equities as a mirror are
considered long-term negative.

Data compiled as of Tuesday 12/26 by the CFTC.



Please visit this link for Market Posture:


Why put all your risk into one stock when you can play the
index instead?

Learn how to invest in the OEX, QQQ, and SPX.  Get intraday
market updates, plays, education and daily commentaries by
those who know.

Sign up for a two week free trial and see for yourself at


By Eric Utley

My thesis of tech remaining dormant in the next six months was
thrown back in my face last week.  But one week does not make
a trend and I'll continue to urge our readers to take caution
in the tech space.

On a quick tangent, my good friend, John Seckinger, and I were
discussing how dynamic the market has become.  And during our
conversation, John, who is the excellent editor of
www.Netbulls.com, reminded me that markets become more and more
dynamic with time.  His insight reinforced just how difficult it
is to make near- and long-term projections in the market and why
it's so important to really "listen" to the market itself.  And,
by the way, if you haven't read any of John Seckinger's
observations over at NetBulls, I would highly recommend doing
so.  He puts out great ideas that help readers make money; he
leaves out the fluff, too!

And finally, at the risk of destroying any credibility I might
have, I would urge the tech traders among our readers to pay close
attention to the Nasdaq early next week, particularly its behavior
around the 2700 level.  In my humble opinion, beyond any other
resistance level the Nasdaq has hurdled, 2700 marks a significant
line between the bulls and bears - it's the site of the Nasdaq's
long-term descending trend that has been in place since September.

Along with a plethora of charts this weekend, I thought I'd
take the time to answer a few questions I received in the past
week that may be of interest to a broader audience.

Please explain "...tail end of tax loss selling..." in January.
Thought tax loss selling ended on 31 December. - Great service,
F Judisch

You are correct, Mr. Judisch, tax loss selling DOES NOT take
place in January.  However, tax gain selling does.  Many
investors choose to lock in gains in early January in an
effort to defer taxes to the next fiscal year.  That's why we
often witness the fourth-quarter's best performing stocks
sell-off in early January.  Shares of Laboratory Corp. (LH)
provide an example.  The stock was a big winner in 2000 and
performed especially well in the fourth-quarter.  In fact,
shares of Lab ended 2000 just seven dollars from their
52-week high.  However, Lab shares now trade nearly $50 from
their high due to tax gain selling.

Hi Eric, I would very much appreciate if you could explain the
reasons why most of the gap ups/downs should be filled? - Sophie

Sophie, most gaps are filled when markets provide proper
liquidity for participants.  The reason is, markets don't like to
trade in inefficient ranges where value is uncertain.  A security,
or index, may trade several deviations away from value, by way of
a gap or parabolic move.  Nevertheless, the security, or index,
generally makes its way back to value, thus filling any gaps
caused by inefficient supply or demand as a bi-product of
imperfect information flow - retail investors are generally on
the wrong end of that flow.

I am new to your newsletter and have really enjoyed your
commentary as well as your put/call plays.  You almost always
recommend entering into a trade (put or call) after noticing a
break on higher volume from a support or resistance level.  My
question is how to notice this higher volume intra-day.  Is the
temporary spike in volume as shown in my 5 minute daily chart
(relative to the previous 5 minute chart) sufficient or do I
have to employ other tools.  Is this the correct way of
spotting higher volume (and reacting to it) even though volume
at the end of the day may come up lower than ADV? - Thanks, Shanti

Thank you for taking the time to write in, Shanti, and thank you
for asking a really good question.  Volume is a key indicator in
detecting the big time buyer or seller, and it's crucial
in deciphering how much force that buyer or seller has.  And as
you alluded to, Shanti, it's all relative.  Take for example the
5-minute chart of Cisco's trading last Thursday.  You'll notice
that around 2:00 EST the trading activity began to dramatically
increase relative to the past two hours, confirming price action.
But, what if ADV ends up lower on the day?  I would say consider
your timeframe.  If you're strictly day trading then you should
only consider the volume in a shorter time period.  If, on the
other hand, you're swing trading with holding periods of two or
three days, then you should give more weight to daily volume

CSCO - 5 min chart

Send your stock requests to Contact Support.
Please put the symbol of your requests in the subject line of
the e-mail.


Audiovox - VOXX

It is my 3rd request for your analysis of VOXX, can you please
e-mail me back what you think if you do not feel it worthy of
putting it in the newsletter. - Thank you, Bob

Bob, I sincerely apologize for not completing your request
early.  It's a matter of time and space, and oftentimes I don't
have a lot of either.  But enough with my excuses, let's tackle

The company operates in wireless communications and consumer
electronics - 80 percent of sales come from the former and the
remaining 20 percent from the latter.  Neither wireless markets
have been very friendly as of late, explaining the drastic
reduction in Audiovox's earnings estimates for its fourth-
quarter.  The company does have a volatile earnings history, but
the recent reduction for fourth estimates was extreme.  That
said, it will be very interesting to hear from the firm when it
announces actual fourth-quarter results, which I believe are
scheduled for release this Thursday.  I would suggest listening
closely to Audiovox's conference call to see whether the
company is struggling as much as the analyst estimates suggest.
If it's not as bad as the sell-side of Wall Street have
predicted, shares of Audiovox may be an aggressive
investment consideration down at these prices.  But if they
fall short of already-lowered numbers, you might want to stay
away from the shares for awhile.

Away from Audiovox's earnings picture, the stock's price
action has been encouraging.  Over the last six weeks, the
stock has traced an inverse head-and-shoulders - a technical
pattern that is indicative of a bottom.  While the bottoming
pattern is encouraging, VOXX still needs to contend with is
nasty downtrend which has been in place for a year now.  And
it's no coincidence VOXX stopped right at that trend line
last week.  A breakout above that line, combined with a bullish
earnings report could set the stock free to rally.

VOXX - Daily

VOXX - Weekly


EMC - EMC, Sun Microsystems - SUNW

Please give me about your preview of EMC and SUNW in current
and future. - Thanks, Helen

Thank you for your two requests, Helen.  And since EMC and
SUNW are both widely held stocks, I thought it would be
relevant to review both.  And because the two stocks are so
well known, I won't bore you with any fundamental gibberish.
So let's dissect their respective charts.

Shares of Sun look as if they found bottom at the $25 level.
Even more interesting is the wedge that is developing.  SUNW
has been trading in a tightening pattern of lower highs and
higher lows.  And it should follow the stock will break in one
direction, hopefully it's to the upside for the sake of the
Nasdaq.  And on that note, if the Nasdaq is able to hurdle the
aforementioned 2700 level in the near future, I would expect
shares of Sun to break to the upside of their wedge.


Shares of EMC, like many tech stocks, are still fighting a nasty
descending trend.  But it does appear the stock has found a
bottom.  I would expect a little consolidation to take place in
the coming weeks given the stock's erratic movements because I
don't think it's very easy to discern where the market is
placing value right now.  Nevertheless, a lot of EMC's
directional movement will depend upon the action in the Nasdaq.
I think the safer play, if you're looking for new entries, is
to wait for a pullback to a good support level.  Or, if you're
patient, wait for the tech sector to REALLY come back and look
to enter new positions in EMC when it breaks back above its
long-term descending trend line.



CSCO Systems - CSCO

Is life over for Cisco?  Has a bottom been put in place?  At
what price is there support?  Looking to accumulate for long
term but I don't want to catch a falling knife.  Huge volume
on the downside on an up day?  Appreciate your comments! - Joe

In my very humble opinion, Joe, Cisco is not dead.  And before
I answer the rest of your questions, let me provide a bit of
history.  This is not the first time shares of Cisco have
suffered a major setback.  In early 1994, shares pulled back
from a high of roughly $2.25 down to $1.  In early 1997, the
stock pulled back from a high of roughly $8.50 down to $5.
And finally, in late 1998, the stock pulled back from a high
around $17.50 back to $10.  These numbers, of course, reflect
several splits.

In percentage terms, the most recent pullback from $82 to $32
is the greatest draw down shares of Cisco have suffered.  But
we must also remember that the bear market of 2000 was one of
the worst in the history of capital markets.   And as the
above numbers remind us, the market has been wrong about
Cisco in the past.  Is the recent pullback any different?
I don't think so, but that's just one trader's opinion!

Now to address your question, Joe: "Has a bottom been put
in place?"  Well, that could be the multi-million dollar
question, couldn't it?  Judging by the stock's price
action over the past four weeks, I would dare say that the
bottom is in process of forming.  It looks like a range is
developing between support at $35 and resistance up to $40,
or maybe $45.  If you're accumulating for the long-term at
these prices, it may be prudent to set a stop at the relative
low around the $32 level just in case the market is correct
about Cisco this time around.  It's all about managing risk
no matter the security!


WorldCom - WCOM

I realize this was asked by Sanjay recently but you seemed to
have passed right over it.  Are we seeing a head and shoulders
bottom on WCOM right now and what's your long-term perspective
on this given the 18 month sell-off? - Thanks, Jim

I didn't cover WorldCom last weekend and regret doing so, Jim,
given its impressive performance last week.  In fact, the entire
telecom carrier sector has performed very well lately - hence
the inclusion of VZ, SBC, GX, and WCOM on the OI call list.

There are a couple of things going on in the carrier space that
should help lift the sector in the next 18 months.  My colleague,
Jeff Bailey, and I discussed this very topic last week and
here's what we came up with:

The Ciscos of the world, who sell their products to the
WorldComs of the world, are facing an inventory glut - supplies
are high.  And when supply is greater than demand, prices come
down.  So now we are witnessing the reverse of 18 months ago
when the Ciscos had extreme pricing power and the WorldComs
had to pay outrageous prices for networking equipment.  The
table has turned.  Now the WordlComs are paying lower prices
for equipment while their revenues should remain relatively
stable, or possibly rise over the next 18 months.  Plus, to
put it plainly, the share prices of the WorldComs were
oversold last year.  These stocks are now considered value
plays, while the companies are in a growth business.

In short, I would expect shares of Worldcom to trade higher
in the next 18 months.  As for a head-and-shoulders bottom,
Jim, I don't see it.  But I do see pretty positive price
action on the chart.  WCOM broke above its long-term
descending trend line, which I view as a big positive.  Plus,
the stock broke out above the $20 level last week, which I
viewed as a key resistance level.  Judging by its strong
technical position, I would expect WCOM trade up to $25 or
$30 in the near- or intermediate-term with help from the
Nasdaq and telecom sector.


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.


For the week of January 15, 2000

None Scheduled

Business Inventories    Nov  Forecast:  0.40%   Previous:  0.60%

Beige Book           17-Jan  Forecast:    NA    Previous:    NA
Capacity Utilization    Dec  Forecast: 80.90%   Previous: 81.60%
Core CPI                Dec  Forecast:  0.20%   Previous:  0.30%
CPI                     Dec  Forecast:  0.20%   Previous:  0.20%
Industrial Production   Dec  Forecast: -0.50%   Previous: -0.20%
NAHB Housing Index      Jan  Forecast:    NA    Previous:    57
Oil & Gas Inventory  17-Jan  Forecast:    NA    Previous: 288.3MB

Initial Claims       13-Jan  Forecast:    NA    Previous:   345K
Housing Starts          Dec  Forecast: 1.500M   Previous: 1.562M
Building Permits        Dec  Forecast:    NA    Previous: 1.586M
Philadelphia Fed        Jan  Forecast: -7.10%   Previous: -4.20%

ECRI Weekly Index    12-Jan  Forecast:    NA    Previous: -7.00%
Mich Sentiment-Prel.    Jan  Forecast:    99    Previous:  98.4
SEMI Book to Bill       Dec  Forecast:    NA    Previous:  1.12
Trade Balance           Nov  Forecast:-$33.0B   Previous:-$33.2B

Week of January 22nd
Jan 22  Leading Indicators
Jan 22  Treasury Budget
Jan 25  Initial Claims
Jan 25  Employment Cost Index
Jan 25  Existing Home Sales
Jan 26  Durable Orders
Jan 26  Help-Wanted Index
Jan 26  Mich Sentiment-Rev.

Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?

Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!



If you like the results you have been receiving we
would welcome you as a permanent subscriber.

The monthly subscription price is 39.95. The quarterly
price is 99.95 which is $20 off the monthly rate.

We would like to have you as a subscriber. You may
subscribe at any time but your subscription will not
start until your free trial is over.

To subscribe you may go to our website at


and click on "subscribe" to use our secure credit
card server or you may simply send an email to

 "Contact Support"

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the
information over the phone.

You may also fax the information to: 303-797-1333


Please read our disclaimer at:

The Option Investor Newsletter                   Sunday 01-14-2001
Sunday                                                      2 of 5

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


What's Your Game Plan?
By Lynda Schuepp

How many times have you heard this line?  How many times have you
ignored it?  One of my new year’s resolutions is to develop a
thorough plan, write it down and follow it.  The key word here is
follow.  If I did that, I would make a lot more money and lose a
lot less.  Having a game plan is crucial if you want to stay in
the trading business over the long haul.  No business can run
without a business plan and trading is no exception.

Before developing a game plan (business plan), you have to
determine what your trading style is.  Are you a short-term,
intermediate-term, long-term investor or some combination of the
three?  If you are a short-term trader you need to qualify your
definition of short-term as one minute, 5 minute or hours.  It
is important to recognize your trading style and use the
appropriate time values on your charts.  If you are a swing-trader
(two to 5 days), you shouldn't be looking at one or five minute
charts to determine your entry or exit signals.  Once you determine
your trading style, then you can develop YOUR game plan.

After reviewing my trades last year I have determined that my
personality is more suited to the short-term.  I need validation
and wins, no matter how small to make me happy.   The problem is
with a short-term strategy you have to have the discipline to take
your losses early, a lesson I have still not learned.  I tend to
take my profits too early and my losses too late, sound familiar?
That's not to say that I don't have other accounts such as my
retirement accounts where my strategy is to hold stocks and
generate cash through option strategies such as spreads or covered

I am in the process of developing a game plan and will share it
with you.  You can use it as a frame of reference, but you need
to develop your own, based on your own personality, amount of time
you have to trade, and knowledge of different market segments,
analytical tools etc.

Step 1:  Screen out the thousands of choices and find ten to
twenty stocks that you know about and have studied and include
them in your watch list.  Use these stocks until they no longer
serve a good purpose.  Constantly do new market research and
replace stocks in your list, but do the research after the market
is closed.  I have found that I used to get distracted from my
own plays when someone would say, "look at this stock, it's going
to pop." I have narrowed my field of choices to 10 stocks; I call
it the Lucky Lynda List.  Since my background is in tech, all my
stocks are in tech.  I also look at the market indices and try to
trade with the trends, based on my time frame that I am currently

Step 2:  Once you double your money, take your original investment
off the table and trade using only 50% of your portfolio.  Last
year, I made a ton of money and later gave back a million dollars
to the market.  It was an expensive lesson to learn.  I was told
along the way by more seasoned traders to sweep the account and
put half your winnings into another account like CD's, to make
sure that you either have enough money to pay the taxes, if you
are profitable, or if you lose the other half, you actually will
make money overall.

Step 3:  Weed out your resources and determine which have made you
money, and dump the rest.  The best resources for me are: Wall
Street Journal, Investors Business Daily, Option Investor and
Daily Graphs Online.

Step 4:  Attend at least 3 seminars a year and read at least 3
books on trading, investing and money management.

Step 5:  Determine your strategy for entry and exit points (and
follow them).

First, I look at a weekly chart to get an overall picture of stock.
As you can see in the chart above, EMLX is above all three moving
averages, the 20-week regression line is up and the stock closed
above the regression line AND all three averages.  Now if I was a
long-term investor, I could buy here.  Actually, the perfect entry
point for the long-term investor would have been when the 10
crossed above the 50 back at the end of September.  You can write
scans like this in programs such as TC2000 and Omega Research and

Since my time-frame is shorter I would look at the daily chart
shown below and make sure that the 20-period regression line (blue)
is up and make sure the stock is at least above its 200-day
moving average.

Daily Chart of EMLX with 10-,50- & 200-Day moving averages (green,
yellow, red) and 20-period regression line (blue):

Next, the most important chart for me is the 60-minute chart,
because of my shorter time frame.  The reason I use criteria from
the daily and weekly charts are because of my ineptness at exiting
bad trades.  If the stock is strong on the daily and weekly charts,
it is less likely that I will get burned if I am stupid enough to
stay in the trade when it has blown past my stop.  Looking at the
60-minute chart of EMLX below, you can see that the 20-period
regression line is up, the 10-period moving average (green) is
above the 50-(yellow) and the 50- is above the 200-(red).  A great
entry point would have been on Wednesday, after all three moving
averages converged and the 10-period headed up and the candle
broke above previous support at $77.   Your exit signal would have
been when the candle closed below the 10-period average at about
$87, for a 10 point move.  I missed this move on this stock
because I was busy flipping SEBL and ITWO (from my list) for 1/2
to 1 point trades.  See why a game plan is important?

Step 6:  Determine your strategy for going long or short.  When I
actually enter the trade I look at the 15 minute, 5 minute and 1
minute charts.  I haven't narrowed it down to a drop dead signal
for entry/exit, but you can see some of the criteria I use below.
From the 15 minute chart below, a buy signal on EMLX at $77 was
generated at the end of the day on Wednesday.  Similar signals
were generated on the 5 minute charts too.   Since I am reluctant
to hold over the close, I would have bought the next morning at
the open for about $78.

As you can see in the chart below, an exit signal was generated
Friday morning when the 10-period moving average crossed below the
50-period but because I don't like holding stocks overnight, I
would have sold at $87.75 at the close on Thursday.

Step 7:  Accept your losses and move on.  Develop a healthy
attitude about trading by focusing on the net result--did you
make money overall?  Stop beating yourself up about the money you
lost.  I now cash out daily and keep a running total of the money
I made, net of losses daily and then add to the previous day's
wins or losses and keep a running weekly total.  My goal is to
make money weekly not daily; otherwise I get caught up in the
negativity of a down day instead of the positive energy of an up

Had I followed my game plan last week, I would have made a lot
more money than I did.  However, I did make money and that is my
goal.  I will continue to refine my game plan and follow it.  Next
week should be an even better week if I can convince myself to
follow my own advice.



Thinking Through The Chaos For January Earnings And Beyond
By Renee White

Earnings season is always the time traders come out from
hibernation. Adrenaline starts pumping, volume reading picks up,
and sleep deprivation increases due to late night research.
Playing January earnings the past few years seemed pretty simple
and made many feel pretty smart. Heck, even a monkey could throw
darts and pick winning plays. But this is not the same market and
to benefit, one must think through their plays from more than one

For me, that means evaluating the Big Picture first. I find that
many traders only focus on the second stage, the Microscopic
View, zeroing in on a perspective that is so narrow; it obscures
their boundaries of good judgment for entry and exits. During the
uncertainty of January 2001, the hardest part is putting these two
perspectives together and deciding the third stage, How To Play It.

By far, the biggest mistake I have witnessed new traders of the
past 2 years make consistently in Yr 2000, was turning a deaf ear
to people with different opinions than what they "wanted" to
hear. We all make mistakes, but also, we all must learn. There IS
a big difference in only buying calls in a bull run during a
stealth bull market, and only buying calls in a full-blown bear

Last April, I wrote an article titled, "Warning, This Is Not the
Market Most Beginners Learn In." In April and May, I wrote about
my concerns looking forward for the year. It was my perspective of
the Big Picture. I wrote that I wasn’t buying Leaps on dips and
warned not to rush in this time. Back then, I could only see out
to the election period in November at which time I would reassess.
In hindsight, that was enough. Still, many traders with ants in
their pants, including myself at times, ignored the bigger
picture, only to be left bloodied and depressed.

So let’s try to think things through again together. Last spring
it was clear we had been in an unsustainable growth run which was
ripe to end and roll-over. Now, we’re crawling on the bottom with
pent up hostility, ready to run in either direction. Playing
earnings is a little tougher at these levels. With desires to
play and win again, we must not lose sight that strategies for
January 2001 may be different than January plays in 2000, 1999
or even 1998. Momentum may not be there, and plays may be short.

Everyone should be comfortable with the market's Big Picture by
now. We had explosive growth in just about all sectors of
technology for several years. It was aided by fear and the surge
in Y2K preparation spending, which were obviously going to dry up
after January 1st, 2000. That dry up would be coupled with rising
oil prices and rate increases which the market had mostly
ignoring.  When the fun ended and the rollover began, few
recognized it was the start of severe pain to come, although in
retrospect, it seems clear.  Those rate increases, and oil prices
would have delayed effects, which would ripple through the markets
in months to come. New Economy companies or not, when companies
expenses increase, they tend to tighten their belts. Belt
tightening affects both buyers and sellers of goods. That pullback
affects inventories and turnover, which then affects
profitability. Easy jobs, fat stock options and fancy toys soon
follow in pain, which of course, affects someone else’s sales,
jobs and individual livelihoods. Wishing and hoping replaces
eternal optimism.

As expected, the October earnings period was much weaker than
prior quarters and now we hear that pre-earnings warnings have
increased significantly for January, showing business is still
declining. The delay in the corporate downturn from the initial
rate increases should make us think that there will likely be
a delay in a corporate profit rebound. I think it is critical
for traders to realize that the pain of lower revenues has just
started to become obvious as corporations review their year-end.
For this reason, I suspect the post-earnings conference calls to
be even more important than in the past, as corporate leaders
guide estimates and growth to downward revisions for 2001. Looking
further out, my guess is that next year we will have a more
familiar Santa Claus rally, as the 3rd and 4th quarter should be
prime for earnings surprises to begin surfacing on the upside,
assuming no international crises. October is now the spookiest
month to trade, making the post earnings period probably good
entries for 4th quarter 2001 and 1st quarter 2002 plays. This is
the good news, but we are still a long way off. I do believe in
the efficient market theory, but only when looking at the Big

For the intermediate future though, we face diminishing corporate
earnings, more lay-offs, pullbacks and less corporate spending.
Don’t lose sight at how slow recovery can be to profits. Sales
have slowed and will get slower in the months to come. That means
some bills have slowed too, probably both payables and receivables.
The system just backs up. Although Crude Oil came down since being
over $35 on October 12th, it has been rising back up from its drop
under $26 on December 21st. It sits now at $30.  You think your
precious tech companies don’t use crude much because they don’t
ship as many products by truck, well, don’t forget the rise in
electricity. High tech eats electricity like body builders drink
muscle boosters.  Either way, if not both, energy prices affect
profit margins. All jobs and performances will be under scrutiny
for value to the company. As companies have more money, they will
take care of necessities first before more elaborate capital

The Microscopic View has traders focusing more on the typical
January effect of money inflow, and now their focus is making sure
they are positioned for some unknown rocket with graffiti saying
"rate cut" on its side to blast off.  That may sound harsh, but
it is important to not lose focus that we are in a bear market
with expected weak earnings for at least one and possibly two
more quarters. If you must play, then play the market and the
trend, but don’t ignore the bigger picture.  When zeroing in on
intra-day or short-term 1-3 day trades, markets become less
efficient and more cataclysmic with extremes to over-bought and
over-sold conditions. In our current environment, these extremes
can occur on the same day. Obviously, this is a nervous market.

It does not matter if you only pick the best of the best. What
worked last quarter may prove squat this quarter. Those prima
donnas, who always beat by a penny, may only just meet
expectations, and then give a whopping downward revision for
the foreseeable future after the markets have closed. If you
ever had the bad habit before, cure it now, don’t hold call
options over earnings. Instead, force yourself to exit early from
the play to be safe. If the crowd is leaving, exit with them,
even if your play is underwater. Better to be underwater than
vaporized! Think of every play as if you were holding a ticking
time bomb.

How to play it? There is opportunity here but strategy will take
scrutiny. The most critical piece of this puzzle is to always know
what your daily Nasdaq chart shows. I keep this within eye’s view,
full of downtrend lines, support & resistance levels drawn and
candles, at all times. I always start a day knowing my support &
resistance levels and I’m constantly monitoring the looks of that
daily chart against my intra-day charts. The down trending channel
lines are major alerts and a line is drawn in the sand if one line
lands on a support or resistance level. Call options are possible
this quarter, but closer monitoring will be necessary. Remember,
the market is stronger than any one play; it doesn’t HAVE to go

Possible choices for calls could be companies that blew-out
whisper numbers in October and those that have revised upward for
2001. My guess is that momentum traders will move there helping
your plays for a few days, not weeks like before. Following volume
on your company would be necessary and I would use support &
resistance levels on an intra-day basis against yesterday’s
numbers.  When intra-day support is broken, I would consider
exiting if I had gains. At a minimum, I would look at where the
stock was compared to yesterday’s high, low and close. For me, a
trade that drops below yesterday’s close is enough reason to exit,
especially in a nervous market. Once the masses exit your company
before earnings, they rarely return.

This quarter, my thoughts remain with playing the downside risk.
I’ll be looking for stocks that have been moving the last several
days, trying to muster a run into their earning’s report. I will
try to capture their highs to sell covered calls or to buy
February and March puts. Potential plays here could be high PE
stocks and the biggest gainers the last two weeks that are
reporting earnings next week. In addition, with another half point
rate cut expected in January, the markets will be expecting and
demanding it. I don’t expect a 1/2 point rate cut. A 1/4 point cut
could be met with a harsh sell-off in the post-earnings month of
February. Even with a 1/2 point cut, since the Fed will be
finished until March, February would be a perfect time for
selling-on-the-news profit taking. I do not agree with the
hysterics of a looming recession, but I can profit from the fear
of it.

One more thought. Even with general market movement to the upside
near term, I will wait until I see the results of earnings before
buying companies I want to hold for the long term. If you are
thinking of bottom-fishing for investing purposes not trading,
make sure you know the outlook on that company for the next
1-2 years. Dead money goes nowhere. In my opinion, there is still
room in some defensive sectors, which have recently pulled back
due to the interest rate cut...not to leave out a little help from
the California utility and energy scare.  Some of those companies
are not affected by California, but have sold off considerably.
Many have had a great year and should post strong earnings with
solid growth forward. I would expect them to rally if techs sell
off in early February. If we do retest recent lows in Nasdaq in
February, I would expect (or hope) they would be higher lows,
which I would read as an entry for long-term portfolio holds.
Options are different though. The time decay could eat at Leaps,
leaving them to drift downward as companies work out problems
the next few quarters.

The stock market is a leading indicator of economic health. Look
at the yearly charts of the general markets and indices. As long
as we are wallowing near the bottom, be more conservative,
cautious, and keep the Big Picture in mind.



Regarding Credit Strangles:

Given the relatively high market volatility, your inclusion of more
short strangles was excellent.  Do you generally recommend that
they be entered when quarterly earnings news won't affect the front
month position?  Secondly, if the probability of finishing between
the break evens is, say, 75%, and above and below split at 12.5%,
with overvalued options and no earnings news coming, would you
close this type of position, say, a week early if you could close
it at 90% profit?

Thanks for your comments!



Thanks for your question, PM.  Concerning risk/reward and
early-exit opportunities:

Earnings announcements (or other potentially significant events)
should always be considered when participating in stock/option
plays, even more so in limited reward/unlimited risk strategies.
Of course, that's one of the primary reasons for the high IV, so
I include it as part of the risk factor in evaluating the
position.  One of the questions I receive frequently concerns
the correct timing of early exits and adjustments for spread
positions.  While there is no perfect answer (or solution) to
this dilemma, one of the most practical closing strategies is
based on the target ROI for the position.  If a play originates
with a 25% monthly return target and a slightly smaller but
reasonable profit becomes available at an earlier time (based on
a lower yield and shorter time period), the position is a
candidate for early closure.  Obviously, most positions that meet
that criteria will appear to be so successful they can't possibly
lose at expiration.  This aspect, along with commission
considerations and the effects of human nature - which urges you
to simply hold the play and hope for maximum profit - will prevent
most traders from closing the position early.  As you know, even
when the issue moves in the predicted direction, the position is
always at risk from a variety of changes in the market.  These
effects are largely reduced with hedged positions but the end
result can still be unfavorable.

I think 90% profit easily meets the criteria for a favorable

Ray Cummins

Get a NextCard Visa, in 30 seconds!
1. Fill in the brief application
2. Receive approval decision within 30 seconds
3. Get rates as low as 2.9% Intro or 9.9% Fixed APR


Call Play of the Day:

VRSN - VeriSign, Inc. $84.88 (+16.06 last week)

See details in sector list

Put Play of the Day:

CB - Chubb Corporation $69.06 (-6.07 last week)

See details in sector list

Get 10 FREE Issues of Investor's Business Daily. No obligation.
Nothing to cancel.


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.


SBC $50.94 (+0.94) After the surge in shares of Telecom stocks
that occurred early last week on the heels of the AT&T upgrade
by Morgan Stanley, shares of SBC have run into a brick wall at
the $52 resistance level.  Since then the technicals have begun
to weaken, and the long steady decline on Friday dropped the
stock briefly below our $50 stop.  Although the late day
recovery allowed the stock to close above this critical level,
it looks like the odds are stacked against the bulls in the near
term.  Rather than wait for a further deterioration, we will cut
the play loose this weekend due to the plentiful selection of
healthier plays.  While there could be a resurgence in shares
next week, we would use any bounce on Tuesday as an opportunity
to exit the play at a more favorable level, rather than
initiating new plays.

CTXS $27.50 (+0.81) The bulls certainly made a valiant effort to
take CTXS through the formidable resistance at $30; however the
200-dma ($30.36) was obviously too much of an obstacle.  After
two sessions of falling short of the $30 mark and a steady sell-
off on increasing volume in Friday's session, it's evident that
we should move on to more lucrative opportunities.  Plus, the
company is reporting earnings this Wednesday, after the market,
which would have promptly terminated the play.

PLAB $34.00 (+6.88) The stock's 25.4% gain last week resulted in
whopping profits for option players.  The strong volume that
resulted in PLAB's bullish close on Friday's intraday high
certainly bodes well going into next week; however, our concern
is profit taking.  The issue hasn't seen these higher trading
levels since last April.  Therefore, with that in mind, we're
lining our pockets with cash and exiting on a profitable note.

VZ $55.50 (+0.94) Well, after four days of lack-luster
consolidation between $55 and $57, we believe it's time to
retire VZ.  We kept the stock on our call list in light of the
renewed interest in telecoms like Lucent, WorldCom and AT&T.
But unfortunately, the enthusiasm didn't spread to Verizon this
time around.  Perhaps the company's earnings' release scheduled
for February 1st (before the opening bell) will ignite another
breakout.  In the meantime, we'll move on to other profitable


CSC $56.69 +1.56 (-0.94) CSC has provided profits for put players
last week.  However, Friday's pattern is indicative of a change
in the stock's trend.  After spiking up as high as $58.13 by
noon, CSC rolled over to support at $56.50.  In an
uncharacteristic sign of strength, CSC closed up on a down day
in the market, and as such, we are dropping it as a put play at
the present time.

IVX $34.00 (+3.00) The ride down to $30.15 proved profitable,
but it's now apparent that IVX found a comfortable bottom.  The
evolving support at $32 and the violation of the upper
resistance at the 10-dma ($33.78) clearly signifies it's time to
exit.  While it's true IVX didn't break through our protective
stop of $35, the stock's high-volume climb Friday afternoon
makes a bullish statement going into next week.  If you have
open positions, consider selling into any intraday weakness.

P $55.13 (-0.75) Although our put play in Phillips has so far
been a profitable one, we are dropping coverage for the simple
reason that there are better opportunities out there for our
investment dollars.  Connecting the highs since the beginning
of the year, we can see that P is still in its downtrend, with
the 10-dma (now at $55.50) providing additional resistance.
However, the stock has traded in a range of a little over 3
points this past week.  As options traders, we want our
positions to have a measure of volatility to overcome the
premiums we pay which decay over time.  While this play has
so far been one of low risk, it has also been one of low
reward.  As such, we are taking our small gains from this play
to put into better prospects.


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.


IDPH - IDEC Pharmaceuticals $168.63 (+13.56 last week)

IDEC Pharmaceuticals is a biopharmaceutical company engaged
primarily in the research, development and commercialization
of targeted therapies for the treatment of cancer, autoimmune
and inflammatory diseases.  IDPH's first commercial product,
Rituxan, and its most advanced product candidate, Zevalin
(formerly Y2B8), are for use in the treatment of certain B-cell
non-Hodgkin's lymphomas.  The company is also developing
products for the treatment of various autoimmune diseases such
as psoriasis, rheumatoid arthritis and lupus.

Just when it looked like the Biotech sector (BTK.X) was never
going to get healthy again, the bulls came back with a
vengeance.  The recovery began with a solid bounce Monday
afternoon, and the rally kept going right up to the closing
bell on Friday.  One of the strongest stocks in the sector was
our new play on IDPH, and Friday's close represents a gain of
24% from Monday's low.  The stock didn't move in a straight line
but the intraday pattern of higher lows and higher highs is
quite encouraging, with volume humming along solidly above the
ADV of 1.87 million shares.  Helping to kick in the afterburners
on Wednesday was First Union Securities, initiating coverage
with a Buy rating.  Investors responded by bidding the stock
more than $18 higher in the first 2 hours of trade.  Despite
the meteoric rise, profit taking was minimal and the fun
continued on Thursday.  Although we haven't had one in a while,
we get to throw the added dynamics of a split run into this
play.  IDPH will split its shares 3-for-1 on Wednesday, January
17th, so this will obviously be a quick play.  Due to the short
fuse on the play, we are keeping it on a short leash and placing
our stop at the $160 support level.  If you're looking for
another catalyst for the current uptrend, how about earnings
which are scheduled for January 29th?  And although the PE ratio
is north of 200, at least this stock actually has earnings to
report!  With the recent bout of volatility, the stochastics are
just starting to move out of the oversold zone, and we are
nowhere near testing the upper Bollinger band.  Thanks to the
recent decline, the upper band is resting at $228, where it
shouldn't be a factor to contend with for some time to come.
The more immediate concerns are resistance at $177-178, where
the stock ran out of steam on Friday, followed by the $186-188
level, which is reinforced by the converged 30-dma ($187.50) and
50-dma ($188.13).  IDPH is a volatile stock, so this play is not
for the risk-averse.  With that being said, the more
conservative entry will materialize as the stock continues its
rally and clears the $178 level.  Target shooting intraday dips
may provide more attractive entry points on a bounce from either
the $163 or $160 support levels.  In either case, confirm a
positive NASDAQ and BTK before playing.

***January contracts expire this week***

BUY CALL FEB-165 IDK-BM OI= 34 at $24.25 SL=18.25
BUY CALL FEB-170*IHD-BN OI=148 at $21.63 SL=16.25
BUY CALL FEB-175 IHD-BO OI= 19 at $19.25 SL=14.00
BUY CALL APR-170 IHD-DN OI= 58 at $33.63 SL=25.25
BUY CALL APR-175 IHD-DO OI=192 at $31.38 SL=23.50
BUY CALL APR-180 IHD-DP OI=522 at $29.25 SL=22.00

SELL PUT JAN-155 IDK-MK OI=196 at $ 5.00 SL= 7.00
(See risks of selling puts in play legend)


MYGN - Myriad Genetics $56.00 (-3.00 last week)

Like the name says, MYGN is engaged in the use of gene-based
medicine to develop novel therapeutic and molecular diagnostic
products.  The company is focused on the emerging field of
Proteomics, the study of the relationship between protein
function and particular disease genes in order to understand
the role this genes and their related genes play in the onset
and progression of disease.  So far, MYGN has identified 22
drug targets using its proprietary technologies.  Based on
its discovery of genes involved in breast cancer, brain cancer,
prostate cancer, heart disease and dementia, MYGN has delivered
13 of these targets to its strategic partners.

In case you hadn't noticed, Biotech stocks were back in favor
this week, with the Biotechnology index (BTK.X) rallying an
impressive 21% between Monday's low and the high on Friday.
MYGN was still in free fall on Monday, with volume clocking in
at more than triple the ADV of 700K shares.  Volume remained
heavy throughout the week, and the stock finally began moving
cautiously higher on Wednesday.  By Friday afternoon, the stock
was solidly in rally mode, and it posted a 17% gain, with buying
volume coming on strong into the close.  So what prompted the
swift turnaround, you ask.  It seems the stock benefited from
news that Hybrigenics and Cytogen, two other firms looking to
turn the science of Proteomics into cash, each reached
milestones in experiments designed to chart which proteins are
capable of binding, or interacting with one another.  The reason
for the response in shares of MYGN is that of all the players in
this arena, MYGN has been the most successful at turning the
science into cash.  Although the stock closed right at the high
of the day on Friday, it also closed right at the $55-56
resistance level, and conservative investors will need to
see the bulls rally the stock through this level before taking
a position.  Then significant historical resistance sits near
$66, just below the 200-dma ($69), followed by another obstacle
at $75.  While it won't be an easy row to hoe, MYGN is showing
the beginnings of a nice rally with the daily stochastics
beginning to turn positive (although still in the oversold
zone).  The selling that occurred early last week came to an
abrupt halt at the $45 support level, and given the sharp
recovery on Friday, we don't expect to see the stock revisit
this level in the near future.  Instead, we are focusing on
support between $51-52 as our trigger for aggressive entries.
Any solid bounce in this area that is accompanied by solid
volume and a positive BTK index looks like a ready-made entry
point.  We have placed a tight stop at $51, and any close below
this level will spell an untimely demise to our play.  One note
of caution before setting you loose on this play.  Note the
unusual option pricing below.  It is due to extreme illiquidity
in the options, so use caution when playing.  Lack of liquidity
translates to wider Bid/Ask spreads, so you may want to try
splitting the spread when opening new positions.  The prices
listed below are the most recently quoted Ask prices for the
options, but the market has since moved away from them.  Take
this into account when evaluating your entry strategy and make
sure it is consistent with your risk tolerance.

BUY CALL FEB-55 QGD-BK OI=21 at $10.13 SL= 7.00
BUY CALL FEB-60*QGD-BL OI= 9 at $10.25 SL= 7.25
BUY CALL FEB-65 QGD-BM OI=30 at $ 9.00 SL= 6.25
BUY CALL MAY-60 QGD-EL OI=20 at $19.00 SL=13.75
BUY CALL MAY-65 QGD-EM OI= 2 at $17.75 SL=12.75
BUY CALL MAY-70 QGD-EN OI=11 at $16.38 SL=11.75

SELL PUT FEB-45 GSQ-NI OI=50 at $ 4.13 SL= 6.00
(See risks of selling puts in play legend)


VRSN - VeriSign, Inc. $84.88 (+16.06 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 companys trusted service infrastructure to develop and
deploy customized digital certificate services for use by an
organizations employees, customers and business partners.

Improving sentiment in the NASDAQ has attracted some buying in
the high-flyers, helping shares of Verisign to gain almost 25
percent this past week.  While analysts have been mixed on the
stock, the recent rise on increased buying volume speaks louder
than words.  First Union Securities upgraded the stock from a
Market Perform to a Buy rating, setting a target price of $90,
citing incremental synergies with its Network Solutions division
leading to higher EPS going forward while Robertson Stephens
lowered its rating from Buy to Long Term Attractive.  Connecting
the highs and lows since late September reveals a downward
regression channel.  Since successfully testing support at the
$58 level however, the stock has rallied thanks to improved
sentiment in the NASDAQ, so much so that VRSN broke to the upside
from its intermediate term downtrend line.  While there was some
profit taking ahead of the long weekend on Friday, with the stock
closing down $2.56 or almost 3 percent, trading was light
relative to the recent volume to the upside.  Earnings are
confirmed on the close of January 24th and if the stock decides
to run ahead of the report, could challenge overhead resistance
from the 50-dma, currently at $96.67.  For now, traders looking
to buy on a dip may find support at $84.50, $81.50, the 5-dma at
$78.33 and our stop price at $78.  If the buyers decide to return
on Tuesday, driving the stop up above the $87 level on volume,
this could allow for a safer entry, but correlate entries with
movement in peers such as ENTU, CHKP, RSAS.

BUY CALL FEB-80 XVR-BP OI=228 at $15.13 SL=11.00
BUY CALL FEB-85*XVR-BQ OI=169 at $12.63 SL= 9.25
BUY CALL FEB-90 XVR-BR OI= 80 at $10.38 SL= 7.50
BUY CALL MAY-85 XVR-CQ OI= 51 at $15.38 SL=11.00
BUY CALL MAY-90 XVR-CR OI=212 at $13.38 SL=10.00

SELL PUT FEB-75 XVR-NO OI=  85 at $ 6.88 SL=10.00
(See risks of selling puts in play legend)


ARBA - Ariba Inc $35.19 (+1.13 last week)

Ariba is a provider of Internet-based B2B e-commerce network
solutions for operating resources.  Their Web-based procurement
software helps manufacturers, retailers, and distributors to
track and manage supply purchases over the Internet.  Blue chip
clients include Dupont, Federal Express, and Hewlett-Packard.

Another company beats the Street's earnings' estimates and takes
a severe thrashing on future growth concerns; and in the case of
Ariba, the question of ambiguous accounting resulted in many
analysts lowering ratings on Friday.  Ariba beat the consensus
estimates with $170 mln in revenues and robust earnings of $0.05
versus the anticipated $0.03 p/s.  Revenue growth was a
respectable 26%, but investors continue to look for the 70 to
100% gains of the recent past despite the fact that Ariba is the
first of the major Internet B2B companies to report an operating
profit.  As is was, investors sliced and diced ARBA of more than
20% of its share value.  The bearish close near the intraday low
wasn't unusual considering the astonishing volume of 84.8 mln
shares exchanging (ADV=13.3 mln) on the decline.  But by
contrast to Friday's negative bias, we believe there's little
downside to come and good upside potential as we move into next
week.  The influential CSFB seems to agree over the long-term as
well.  The brokerage firm raised Ariba's fiscal 2001 EPS
estimates to $0.26 from $0.14 and 2002 to $0.56 from $0.42 -
that's quite an adjustment!  Take a look at last week's chart
and it's easy to see that the $33 and $34 levels kept ARBA
afloat before and after the earnings' adversity.  Of course,
we'll exit the play if ARBA demonstrates continued weakness and
closes below the $32 mark.  You might consider taking entries on
a high-volume rebound through the 5-dma ($38.53) or if you're
more cautious, as ARBA rallies above the 10-dma ($41.43).  You
may want to pay attention other computer service stocks like
Exodus (EXDS), WebMethods (WEBM) and Akamai Technologies (AKAM)
to get a feel of how the sector is responding to overall market

BUY CALL FEB-30 IRU-BF OI= 224 at $9.63 SL=6.50
BUY CALL FEB-35*IRU-BG OI= 335 at $7.13 SL=5.00
BUY CALL FEB-40 IRU-BH OI= 510 at $4.88 SL=3.00
BUY CALL FEB-45 IRU-BI OI=1617 at $3.63 SL=2.00



WCG - Williams Communications $19.50 (+3.82 last week)

Williams Communications is North America's only exclusively
carrier focused fiber optic network and the largest independent
source of end to end integrated business communications
solutions - data, voice or video.  Their businesses also include
the primary video backhaul distribution company for the media
industry and an emerging broadband media services business that
specializes in the management, hosting and distribution of
digital information.  Approximately 85% of WCG stock is held
by its parent company, Williams, traded on the NYSE as WMB.

After suffering through last year's horror story with the rest
of the rapidly expanding telecommunications stocks, Williams
has made an impressive comeback over the last week.  The
original stimulus was the Federal Reserve's rate cut, and the
expectation of future rate cuts, which has had an immediate
and dramatic impact on companies which are starved for cash,
and highly dependent on the corporate debt markets for their
financing needs.  WCG hit a low of $11.50 on January 3, and
within one day of the Fed's rate cut, the stock had crossed
its 50 dma of $14.42, and never looked back.  This week,
several important events occurred which acted as catalysts
to stimulate WCG.  On Tuesday, WCG's parent company, WMB
stated in a preliminary prospectus filed with the SEC, that
it is considering forgiving a $975 million loan made to WCG in
exchange for equity.  This would raise WCG's credit line by
one third, and free up room for WCG to raise an additional
$1.2 B in debt.  (Don't we all wish for parents like that?)
WCG's bonds immediately surged on the expectation of lower
debt to capital ratio.  On Friday, WCG filed a shelf offering
to periodically offer up to $2 billion in common and preferred
stock, debt instruments and warrants to finance expansion,
and investors were so enthusiastic that they pushed the stock
up to $19.50 on 1.5 times the average daily volume.  A pullback
to $19 is likely, and would be an excellent entry point.  If
the telecom and business communications sectors stay strong,
WCG should be able to clear $20, and begin a path to $25.
Keep stops at the converged 5 and 10 dma of $17.

BUY CALL FEB-17.5 WCG-BW OI= 427 at $3.50 SL=1.75
BUY CALL FEB-20  *WCG-BD OI=1380 at $2.13 SL=1.00
BUY CALL MAY-17.5 WCG-EW OI= 380 at $4.75 SL=3.00
BUY CALL MAY-20   WCG-ED OI= 273 at $4.00 SL=2.50


ATHM - At Home Corporation $8.71 (+3.15 last week)

At Home is a provider of broadband online services.  As of June
30, 2000 the company had approximately 1.8 million worldwide
subscribers to its @Home service, which provides high speed
internet access to consumers utilizing the cable television
infrastructure.  The @Home service offers an "always on"
connection, and features a scalable, distributed, intelligent
private network designed to avoid bottlenecks frequently
encountered on the internet.

After reaching a 52-week low of $3.87 on December 22, At Home
gave their shareholders a little excitement this week, with
some help from their majority shareholder AT&T.  The successful
completion of the AOL-Time Warner merger this week stimulated
investor attention in the stocks which offer high speed internet
access through cable lines. On Thursday, the FCC unanimously
approved the AOL-Time Warner merger, but set strict conditions
on the deal, which included the opening of AOL's cable pipelines
to competitors like At Home.  In addition, several analysts
have upgraded AT & T in the last few weeks, and this beaten down
Dow communications conglomerate has demonstrated uncharacteristic
strength, rising from the ashes of $16.50 to over $23 this week.
AT & T has been acting like a much needed kind uncle to At
Home, and on Friday, AT $ T announced that they would increase
their stake in ATHM from 23% to 38% in a stock swap deal worth
about $2.9 billion with rival cable operators Comcast and Cox
Communications.  This news pushed At Home up past its 50 dma of
$7.24 for the first time in over a year, with nearly three times
the average daily volume traded.  At Home has been nearly flat
for several months, which contributes to the low volatility of
its options.  Traders can take positions at current levels, or at
a pullback to support at $8.00.  The next major resistance levels
are $10 and $12, and ATHM may have a chance at clearing these
levels with strength in the broadband sector.  Watch competitors
like AOL for an indication of strength, and set stops at $7.00,
as a drop below the 50 dma would signal an end to our call play.
ATHM reports earnings after the close on January 25, so you want
to be out of the play by that date.

BUY CALL FEB-7.5 AHQ-BU OI=1408 at $2.25 SL=1.25
BUY CALL FEB-10 *AHQ-BB OI= 717 at $1.13 SL=0.50
BUY CALL APR-7.5 AHQ-DU OI= 785 at $3.00 SL=1.50
BUY CALL APR-10  AHQ-DB OI=1947 at $2.00 SL=1.00


CNC - Conseco, Inc. $14.69 (+1.81 last week)

Conseco was incorporated in 1979, began operations in 1982 and
became a public company in 1985. Starting out, they had few
assets.  But they had a three-pronged mission: To be more
efficient than other insurance companies.  To actively manage
their investments to generate greater returns with no additional
risk.  To develop products that meet real market needs-and find
more effective channels for distributing them.  With a superior
array of insurance, investment and lending products, Conseco
today has approximately $102 billion of managed assets and a
strong middle-America franchise, reaching out to more than 50
million potential customer households.

Shares of Conseco have been on the rise since bottoming out at
the $5 level last October.  Having almost tripled during that
time, the stock broke a downtrend that had been in place since
April of 1998.  This once fallen angel appears to be in the
process of earning back its wings.  What's more, the company has
found itself with a patron saint.  When Warren Buffett speaks,
smart people listen, and when Warren Buffett takes action,
everyone takes notice.  With the quintessential smart money man
recently scooping up some of CNC's junk bonds, this vote of
confidence from the Oracle of Omaha has helped to power the stock
higher on increasing volume.  A pullback to support at $14,
$13.50 and our stop price of $13 could serve as potential entry
points, making sure that volume backs the bounce.  Sustained
buying pressure leading to a break through $15 could allow for an
entry on strength, but only if rivals AET and MET are also moving
in the same direction.

BUY CALL FEB-12.5 CNC-BV OI=5021 at $3.00 SL=1.50
BUY CALL FEB-15  *CNC-BC OI=4556 at $1.31 SL=0.75
BUY CALL MAY-12.5 CNC-EV OI=4072 at $4.25 SL=2.50
BUY CALL MAY-15   CNC-EC OI=1963 at $3.00 SL=1.50
BUY CALL AUG-15   CNC-HC OI= 692 at $3.75 SL=2.00


ASYT - Asyst Technologies $16.88 (+2.38 last week)

Asyst Technologies is the leading provider of isolation and
automation technologies that enable semiconductor makers to
protect their valued assets throughout the manufacturing
process while increasing manufacturing productivity.  Asyst
offers a broad range of 200mm and 300mm solutions that
enable the safe transfer of wafers and information between
the process equipment and the fab line.

A bullish semiconductor sector, recent gains backed by robust
volume levels, and inexpensive option prices make this call play
on ASYT quite attractive for our more conservative readers.  The
steadfast rise off the supportive 30-dma ($13.35) and subsequent
trading above the resistance at the 10-dma ($15.42), raised our
radar this week.  It should be noted, too, that ASYT made its
gains despite some negative remarks from the coveted analyst
circle.  Both Tucker Anthony Capital Markets and Wells Fargo Van
Kasper downgraded the stock and cut price targets; although
neither firm offered comments.  Our concerns are not however for
long-term performance and therefore, are purely based on sector
strength and the stock's recent technical developments.  If
you're interested in taking positions into this momentum play,
you might find viable entries on pullbacks near our protective
stop of $15.50 or a bit higher at $16, which represents a firm
level of intraday support.  If you're trading style dictates
waiting for the big breakout, then be patient for ASYT to rally
through $17.50 and $18 in an advancing market before jumping
into the play.  Keep an eye on the Semiconductor Index (SOX.X)
for overall sector sentiment.  Asyst Technologies is expected to
report earnings on January 25th.

BUY CALL FEB-15   QQY-BC OI=145 at $3.00 SL=1.50
BUY CALL FEB-17.5*QQY-BY OI=352 at $1.63 SL=0.75
BUY CALL MAR-17.5 QQY-CY OI=326 at $2.44 SL=1.25
BUY CALL MAR-20   QQY-CD OI=553 at $1.50 SL=0.75


NETA - Network Associates $7.88 (+3.13 last week)

Network Associates is the world's largest independent network
security and management software company and the eighth largest
independent software company overall.  Network Associate's is
the culmination of best-of-breed technologies from the world's
leading software developers.

So you're not one of those high rollers who live to take
positions the more pricey and volatile technology stocks; but
yet, want to take advantage of the rotation back into that
explosive market.  Well, here's an opportunity to ponder.  On
January 9th, I2 Technologies (ITWO) announced that it'd beat 4Q
estimates.  The titillating optimism led other software stocks
like major competitors, Ariba (ARBA) and Commerce One (CMRC), to
higher trading levels.  But perhaps more importantly, the
glowing sentiment that an economic slowdown wouldn't dampen
demand for software companies that help businesses cut costs
trickled down to NETA.  The news literally lifted NETA from the
ground floor.  Trading at practically sub-zero levels, NETA rose
a momentous 65.8%, or $3.12 last week.  The breakout above the 5
& 10 DMAs ($6.49, $5.56) provided supplementary confirmation in
regard to NETA's resurrection.  If you're a stickler for better
technicals, then look for NETA to close the gap (from December
26th) and make a clean break through the 30-dma ($9.67) before
taking positions.  Assuming NETA doesn't transcend our
protective stop and close below $6.50, there's plenty of time to
profit.  Network Associates isn't expected to release earnings
until January 25th.

BUY CALL FEB-5   CQM-BA OI=1030 at $3.25 SL=1.75
BUY CALL FEB-7.5*CQM-BU OI=4981 at $1.69 SL=0.75
BUY CALL FEB-10  CQM-BB OI= 259 at $0.88 SL=0.00  High Risk!
BUY CALL MAR-7.5 CQM-CU OI= 288 at $2.19 SL=1.00


Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?

Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!



Please read our disclaimer at:

The Option Investor Newsletter                   Sunday 01-14-2001
Sunday                                                      3 of 5

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

Get a NextCard Visa, in 30 seconds!
1. Fill in the brief application
2. Receive approval decision within 30 seconds
3. Get rates as low as 2.9% Intro or 9.9% Fixed APR


SFA - Scientific Atlanta Inc. $50.94 (+13.07 last week)

Scientific Atlanta is a leading supplier of transmission
networks for broadband access to the home, digital interactive
subscriber systems designed for video, high speed Internet,
and voice over IP networks, and worldwide customer support
and service.

SFA rallied with the communications equipment stocks on
Friday, and held onto its gain even when the Dow dropped over
100 points toward the close.   Excellent news released this
week, in combination with an analyst upgrade, and the revived
interest in networking and cable TV companies, propelled SFA
to hold steadily above its 50 dma of $47.50.  On Thursday, CSFB
reiterated their buy rating and price target of $80 based in
part on Motorola's Broadband Communications segment success.
Motorola shipped 2M digital set-tops during the quarter, up
11% sequentially, and 100% year over year.  CSFB's projections
for SFA's set-top units to be sold in 2001 remains in the range
of 4.7 M units, up from 1.1 M units.  SFA also introduced a
variety of new interactive set top products at an electronics
show this week.  In addition, the newly-completed AOL Time
Warner merger has renewed investor interest in companies
which provide internet access through the cable TV lines, and
the equipment providers for them.  SFA soared all the way up to
$54.44 Friday morning before falling back to support at $52.63,
and stronger intra day support at $51, which is consistent
with the 5 day pattern of higher lows.  Aggressive traders could
take positions on a pullback to support at $50.  If SFA can
cross resistance at $54.31, which has eluded the stock since
December 11, the next major resistance level to cross is the
200 dma of $55.64.  A break above this would be an excellent
bullish entry point, particularly in conjunction with strength
in the communications equipment sector. SFA is expected to
release earnings on January 18, after the close.  Projections are
in the range of .39 cents per share, and traders should be out
of positions before earnings.  Remember to watch others like ALA
and MOT to get an indication of strength in the sector.  Keep
stops set at $44.

BUY CALL FEB-45 SFA-BI OI= 569 at $10.25 SL=7.25
BUY CALL FEB-50*SFA-BJ OI=2305 at $ 7.13 SL=5.00
BUY CALL MAR-50 SFA-CJ OI= 165 at $ 8.63 SL=6.00
BUY CALL MAR-55 SFA-CK OI= 205 at $ 6.25 SL=4.25


EMC - Emc Corp. $68.81 (+5.82 last week)

EMC Corporation and its subsidiaries design, manufacture and
support a wide range of hardware and software products and
provide services for the storage, management, protection and
sharing of electronic information.  These integrated solutions
enable organizations to create an electronic information
infostructure, or what EMC calls the E-Infostructure.  EMC's
products are sold to customers utilizing a variety of the world's
most popular computing platforms for key applications, including
electronic commerce, data warehousing, and transaction processing.

After rallying over 18% in one week, some profit taking was
inevitable, and EMC pulled back over 6% on Friday, but held
above both the 5 dma of $67.17, and the 10 dma of $65.95.
More importantly, EMC successfully broke out of the downward
channel which began in late November, and took the stock
below its 200 dma for the first time in years.  After reaching
a low of $54.21 on January 2, EMC has made a very healthy
rebound in the last two weeks with a series of higher lows at
$61.50, and today’s support level of $68.81.  The stock is now
in a new ascending channel, propelled by excellent news and
its solid fundamental strength.  After EMC’s CEO reiterated
his outlook for solid growth in 2001, and sales in the range
of $12 billion, several analysts upgraded the stock, and its
sector.  While capital spending on IT technology will slow in
2001, data storage is one of the critical areas in which
companies cannot afford to cut back on expenditures. CSFB
stated that EMC’s core business should grow by over 42%,
fueled by strong sales of their Symmetrix 8000 line.  Additional
news was released regarding EMC’s planned distribution of the
shares of MCDT to shareholders of record as of February 7.  A
pullback to support at $68.56 could be a possible entry point.
Ideally, we are looking for a break above the 50 dma of $75.28,
and the 200 dma of $76.41, which could confirm EMC’s up trend,
and conservative traders might prefer to wait for these levels
before taking positions.  Keep stops set at $67, as a fall
below the current 5 dma could signal a reverse of the up

BUY CALL FEB-70*EMB-BN OI=6399 at $ 6.38 SL=4.50
BUY CALL FEB-75 EMB-BO OI=3148 at $ 4.25 SL=2.50
BUY CALL APR-70 EMB-DN OI=1811 at $10.38 SL=7.50
BUY CALL APR-75 EMB-DO OI=2425 at $ 8.13 SL=5.75


KLAC - KLA Tencor $39.94 (+1.62 last week)

KLA Tencor is the world leader in yield management and process
control solutions for semiconductor manufacturing and related
industries.  The company's portfolio of products, software,
analysis, services and expertise is designed to help integrated
service manufacturers manage yield, throughout the entire wafer
fabrication process, from research and development to final mass
production yield analysis.

A chart of KLAC since January 3 shows that a bullish wedge
pattern is developing, with a series of higher lows at $37.63,
$38.69, and $39.69 and tough resistance at $42.44.  This
pattern almost mirrors that of the semiconductor index, SOX.X,
which has been making higher lows, and encountering resistance
at 700.  Decent earnings from Motorola, as well as superb
rebounds in stocks like BRCM are helping the chip sector.  We
want to see a clean breakout over $42.50 with strong volume,
which could allow KLAC to clear the 200 dma of $43.58, an
excellent possible entry point for conservative traders.  KLAC
is scheduled to report earnings after the close on Thursday,
and an earnings run may very well provide this opportunity.
Pay close attention to the semiconductor index (SOX.X) as a
breakout over 700 would very likely help to provide the extra
momentum necessary for KLAC to clear $42.50 , and make a
move to the next resistance levels of $44.50 and $45.50.  If
these levels are broken, it looks like it could be smooth
sailing all the way up to $50.  Traders should be out of
positions by the market close on Thursday, so this will be a
fast play highly dependent on cooperation from the semiconductor
index (SOX.X).  Keep stops set at $38.

BUY CALL FEB-40*KCQ-BH OI= 723 at $5.00 SL=3.00
BUY CALL FEB-45 KCQ-BI OI= 358 at $3.00 SL=1.50
BUY CALL MAR-40 KCQ-CH OI= 773 at $6.25 SL=4.25
BUY CALL MAR-45 KCQ-CI OI=1223 at $4.38 SL=2.50


BRCM - Broadcom Corporation $123.19 (+29.75 last week)

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

Helped by a rallying Semiconductor sector and an advancing
NASDAQ, shares of broadband chip giant BRCM posted double-digit
percentage gains and in doing so, broke through formidable
resistance levels on accelerating volume.  An acquisition of
privately held Chipmaker ServerWorks on Monday for about $1
billion in BRCM stock gave the company an entry point into the
lucrative high-margin Server space, a deal which analysts
applauded.  WR Hambrecht & Co. rated the stock at a Buy, setting
a $200 price target and commenting, "We anticipate the stock will
outperform its peer group over the next 12 months."  JP Morgan
H&Q was also bullish on the company, saying that the deal would
boost BRCM's bottom line immediately.  With a five-day winning
streak for the week, a pullback would not be out of the question,
allowing aggressive traders to enter this play.  Bounces off
support at $120 and $115 are targets to shoot for but make sure
the buyers return before jumping in.  As long as price/volume
action in BRCM remains healthy, there is no reason why this stock
could not climb much further.  With the 50-dma bear $125, a
conservative entry point could be had if BRCM breaks above this
level on volume, where it could challenge its next level of
resistance overhead at $130.  Currently a highly-profitable play,
we are moving our stop up from $105 to $114 to protect what are
already substantial profits.   When making a play, look to the
Philadelphia Semiconductor Index (SOX), as a benchmark to gauge
sector sentiment and the NASDAQ 100 (QQQ) for a broader market

BUY CALL FEB-120 RDW-BD OI= 698 at $20.25 SL=14.50
BUY CALL FEB-125 RDW-BE OI= 429 at $17.88 SL=13.00
BUY CALL FEB-130*RDW-BF OI=1598 at $15.63 SL=11.25
BUY CALL MAY-125 RDW-EE OI=  91 at $29.38 SL=21.25
BUY CALL MAY-130 RDW-EF OI= 235 at $27.38 SL=20.00

SELL PUT FEB-115 RDW-NC OI= 406 at $12.88 SL=18.00
(See risks of selling puts in play legend)


LRCX - Lam Research Corporation $20.69 (+2.38 last week)

Founded in 1980, Lam Research Corporation is a leading supplier
of wafer fabrication equipment and services to the world's
semiconductor industry.  In particular, Lam is a technical leader
in etch products and expects similar acceptance for its Chemical
Mechanical Planarization (CMP) product and applications.  The
Company also offers next generation solutions for CMP cleaning.
Many of the technical advances that the Company introduces in its
newest products are also available as upgrades to Lam's installed
base of equipment.

A great week for the Chip sector translated into an even better
week for shares of LRCX, as the stock gained almost 13 percent on
accelerating buying volume.  Despite bearish sentiment from
analysts on the entire sector, the Philadelphia Semiconductor
Index (SOX) moved higher, spurred on by buying of Chip stocks
across the board.  LRCX itself was downgraded by Tucker Anthony
Capital Markets and WF Van Kasper, yet the words fell deaf on
investors' ears as they bid the stock higher, though ABN ANRO
upgraded the company from an Add to a Buy rating.  In this case,
it appears that it is not what is said about a stock but rather,
what is happening to it that carries greater weight.  What
matters here is that despite the downgrades, LRCX is rallying on
increasing volume, and this could be a sign that the stock is
ready to move higher, especially since it recently broke a
downtrend which had been in place since April of 2000.  With
resistance from the 100-dma (currently sitting at $20) now
surpassed, look for this level to provide support going forward.
The 5-dma, now at $20.15, reinforces this level.  Below that the
10-dma at $18.33, just below our stop price of $18.50 could
provide for an ideal entry point for aggressive traders.  For the
more risk averse, a break above $21 with conviction could lead to
another test of what appears to be formidable resistance at the
$22.50 area.  In both cases, confirm entries with movements in
Merrill Lynch's Semiconductor HOLDR (SMH) before making a play.

BUY CALL FEB-17.5 LMQ-BI OI= 993 at $4.38 SL=2.75
BUY CALL FEB-20  *LMQ-BD OI= 443 at $2.88 SL=1.50
BUY CALL FEB-22.5 LMQ-BQ OI= 254 at $1.81 SL=1.00
BUY CALL MAR-20   LMQ-CD OI=2688 at $3.88 SL=2.50
BUY CALL MAR-22.5 LMQ-CQ OI= 880 at $2.75 SL=1.25


MER - Merrill Lynch & Co., Inc. $74.25 (+2.69 last week)

Merrill Lynch & Co., Inc. has a strong client focus with a goal
to deliver superior returns to their shareholders.  They are
determined to create value for their clients by providing wisdom
and high quality services that meet their needs.  Merrill Lynch
has a track record of delivering strong returns to their
shareholders, and has aligned employee and shareholder interests
through a high level of employee stock ownership.  They are
leveraging the global investments they have made to sustain
profitable growth.

After a healthy pullback to support in the early going, shares of
financial Merrill Lynch were able to make a comeback and end the
week at a new all-time closing high.  After the huge spike on
Wednesday two weeks ago courtesy of an unexpected 50 basis point
rate cut, it was no surprise that shareholders of MER needed to
catch their breath.  With some of them happy to take profits and
call it a good year, the stock pulled back on decreasing volume
but finding support at the $69, MER used its 10-dma as a
launching pad and since then, has blasted off into blue sky
territory.  A rush of good news in the later part of the week
also helped in MER's ascent.  For the third quarter of the year
2000, MER was rated the top broker for municipal bonds for
insurance companies.  This suggests that the next earnings
report, currently set for January 23rd, could yield higher than
expected results.  News that MER would sell its volatile energy
trading unit to Allegheny and its retail brokerage Herzog to
Investec in an effort to focus on its core competency of
securities was also well received.  At this point resistance at
$75 is formidable, providing a conservative entry if MER can
break through this level on volume.  We are moving our stop price
up from $68 to $70.  For higher risk players, support at $73.50,
the 5 and 10-dma (at $72.36 and $71.40) and the $70 level could
be ideal areas in which to take a position, provided that buy
pressure remains strong and peers such as GS and LEH confirm
sector sentiment.

BUY CALL FEB-70 MER-BN OI=1518 at $7.88 SL=5.75
BUY CALL FEB-75*JMR-BO OI=2549 at $4.64 SL=2.75
BUY CALL FEB-80 JMR-BP OI=1933 at $2.56 SL=1.25
BUY CALL APR-75 JMR-DO OI=5239 at $7.88 SL=5.75
BUY CALL APR-80 JMR-DP OI=7336 at $5.50 SL=3.50


MSFT - Microsoft Corporation $53.50 (+4.38 last week)

Microsoft Corporation develops, manufactures, licenses and
supports a wide range of software products for a multitude of
computing devices. Microsoft software includes scalable operating
systems for servers, personal computers and intelligent devices,
server applications for client/server environments, knowledge
worker productivity applications, and software development tools.
The Company's online efforts include the MSN network of Internet
products and services and alliances with companies involved with
broadband access and various forms of digital interactivity.

The race between the Four Horsemen of the NASDAQ last year was
more of a limp, with CSCO, INTC, MSFT and WCOM all leading the
Tech Index to 52 week lows.  Decreased capital spending, legal
troubles and the maturity of the PC sector all weighed on MSFT's
stock price in the year 2000.  So much so that at one point, the
Redwood of Redmond gave up the crown as the market cap leader of
the NASDAQ, falling below that of both CSCO and INTC's.  But this
week, Mr. Softee reclaimed its throne as the head gorilla, ending
the week with a market cap of $285.3 billion to eclipse Cisco's
$273.9 billion.  The New Year so far has instilled renewed
confidence in the software giant, thanks to an improved
fundamental backdrop.  A bullish outlook for the software sector
courtesy of companies such as ARBA, ITWO, PSFT and RATL was also
welcome news.  An easing Fed and the impending release of the
Xbox gaming console is also helping MSFT to move higher.
Earnings are fast approaching, currently set for January 18th.
As always, we will close out our position ahead of that date.
But until then aggressive entries can be had on bounces off the 5
and 10-dma, at $52.42 and $49.43.  There is also support at $53
and $50 but make sure MSFT closes above our stop price of $51.
The return of buying volume lifting the stock past $54 could
allow more conservative players to take a position.  As mentioned
on Thursday, MSFT is usually a leader, not a follower.  With its
heavy weighting in Merrill Lynch's Software HOLDR (SWH), the
company also makes up over 6 percent of the NASDAQ 100 (QQQ).
Nonetheless, use the action of these two indices to provide clues
as to sector sentiment and movement in the large cap Techs before
making a play.

BUY CALL FEB-50 MSQ-BJ OI=13891 at $6.38 SL=4.50
BUY CALL FEB-55*MSQ-BK OI= 9917 at $3.50 SL=1.75
BUY CALL FEB-60 MSQ-BL OI=34975 at $1.69 SL=0.75
BUY CALL APR-55 MSQ-DK OI= 7279 at $6.13 SL=4.00
BUY CALL APR-60 MSQ-DL OI=14005 at $4.00 SL=2.50


SLR - Solectron Corporation $36.05 (+2.02 last week)

Founded in 1977, Solectron Corporation is the world's largest
electronics manufacturing services company offering a full range
of integrated supply-chain solutions for the world's leading
electronics original equipment manufacturers.  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, reduced total
cost of ownership and more effective asset utilization.

OEM manufacturing stocks have been benefiting greatly from
improving sentiment in the Tech sector, and SLR is no exception.
Breaking a downtrend line that had been in place since last
October, shares of SLR have been advancing on increasing volume
ever since the Fed rate cut from two weeks ago.  Continued easing
in interest rates could translate to increased earnings going
forward, with the likely result being an appreciating stock
price.  Shares of SLR closed above its 50-dma (now at $34.15)
this past week for the first time in over two months, a bullish
sign indeed.  Positive press from analysts at CIBC and Merrill
Lynch has increased investor awareness and interest as well.
Support from the 5 and 10-dma can be found at $36.58 and $35.24
respectively.  As well, bounces off the $37.50 level and $35
could allow higher risk players to initiate a play.  We are
inching up our protective stop, from $34 up to $35 so make sure
that SLR continues to close above this point.  If SLR breaks back
above the $38.50 level on volume this could be a bullish sign,
allowing conservative traders an ideal entry point, but just to
be safe, make sure that competitors such as CLS, FLEX and JBL are
also moving higher.  Overhead resistance at the $40 level from
the converged 100 and 200-dma is formidable but if broken, could
result in a protracted and sustained rally.

BUY CALL FEB-35   SLR-BG OI= 344 at $5.30 SL=3.50
BUY CALL FEB-37.5*SLR-BU OI= 293 at $4.00 SL=2.50
BUY CALL FEB-40   SLR-BH OI= 693 at $2.70 SL=1.25
BUY CALL APR-37.5 SLR-DU OI= 309 at $6.00 SL=4.00
BUY CALL APR-40   SLR-DH OI=1039 at $4.90 SL=3.00


UBS - UBS Warburg $169.82 (-4.09 last week)

UBS Warburg is a business group of UBS AG, one of the largest
financial services firms in the world with 78,000 employees in
more than 40 countries. In the United States, UBS Warburg's
securities activities are conducted through UBS Warburg LLC and
PaineWebber Incorporated, U.S.-registered broker-dealers. The
firm is a leader in equities, corporate finance, M&A advisory and
financing, financial structuring, fixed income issuance and
trading, foreign exchange, derivatives and risk management. UBS
Warburg also offers a full range of innovative wealth management
services through PaineWebber, and provides private equity
financing through UBS Capital.

The prospect of improving interest rates late in the year 2000
had been helping top shelf financial stocks across the board to
move higher, so it was with little surprise that when the Fed
announced a 50 basis point intra-meeting rate cut, some profit
taking ensued.  However, despite the recent pullback, the
price/volume action so far in UBS has been healthy.  Trading has
been downright anemic this past week, but a good sign considering
that moving average support levels are holding.  Connecting the
lows since late-November reveals an upward trending channel which
is continuing to support the stock.  The primary concern we have
in shares of UBS is the gap that was recently made at the $165 to
$170 area.  While the stock successfully tested the $170 level
this week, we are keeping our stop price at the key level of
$165.  With light volume accompanying the recent consolidation
and support at the 10-dma (currently sitting at $168.77) holding
firmly, look for a bounce off this moving average as a potential
aggressive entry point.  For an entry on strength, wait for UBS
to break back above its 5-dma at $170.91, with buying volume
picking up, before making a play.  Despite sporting a high stock
price, UBS' options are relatively inexpensive, providing an
attractive opportunity to play the Financial sector with a high
degree of leverage.  Nevertheless, proper entry points and risk
management are still part of a successful trading plan.  So make
sure that bounces and breakouts are accompanied by increased
buying volume and confirm direction with movement in rivals such
as BSC, LEH, MWD before jumping in.

BUY CALL FEB-165 UBS-BM OI=42 at $9.50 SL=6.50
BUY CALL FEB-170*UBS-BN OI= 6 at $6.80 SL=5.00
BUY CALL FEB-175 UBS-BO OI=62 at $4.50 SL=2.75
BUY CALL MAR-170 UBS-CN OI= 0 at $9.10 SL=6.25  Wait for OI!!
BUY CALL MAR-175 UBS-CO OI= 3 at $6.90 SL=5.00


WCOM - WorldCom, Inc. $21.75 (+3.31 last week)

WorldCom is a new kind of communications company.  WorldCom
combines financial strength and a depth of resources to pursue
the industry's best growth opportunities with an advanced global
network built for the data-intensive era of communications.
WorldCom's strategy is to capitalize on the industry's fastest
growing segments.  It has a unique set of attributes to pursue
this strategy, including approximately 77,000 employees based in
more than 65 countries, comprising an expert workforce of
Information Age architects and sales and service specialists.

Shares of phone stocks have been ringing off the hook so far this
New Year, as upgrades to rival AT&T, renewed investor interest
and an easing Fed are just some of the reasons that traders have
been reaching out and touching the Telecom sector.  Breaking a
long-term downtrend line that had been in place since mid-July
was a good omen on the first day of trading in the year 2001 for
WCOM.  Since then, the stock has moved ever higher, taking out
its 50-dma (now all the way back at $16.61) for the first time
since last summer.  The shift in sentiment can in part be
attributed to value investors moving out of overvalued defensive
sectors such as Drugs and Healthcare into low-PE high-potential
growing Tech stocks.  As well, it appears that fears over credit
quality in the Telecom sector were not as bad as once thought,
resulting in a market re-adjustment to the upside, helped in part
by a healthy round of short covering.  As mentioned on Thursday,
the stock looks poised to move as high as $23 in the near term,
closing a gap that was made late last year.  But first it must
take out resistance from the 100-dma, currently at $22.61.  If
WCOM rallies back above $22 on volume, this would allow
conservative traders to enter, confirming with volume.  For
buyers looking for a pullback, support can be found in increments
of 50 cents at $21.50, $21, the 5-dma near $20.50, $20, $19.50,
the 10-dma at $19 and our stop price of $18.50.  In both cases,
make sure that sector sentiment is on your side before playing,
looking to Merrill Lynch's Telecom HOLDR (TTH) for guidance.

BUY CALL FEB-17.5 JQD-BW OI= 5370 at $5.13 SL=3.00
BUY CALL FEB-20   LDQ-BD OI= 9457 at $3.25 SL=1.75
BUY CALL FEB-22.5*LDQ-BX OI=12756 at $1.94 SL=1.00
BUY CALL MAR-20   LDQ-CD OI=49951 at $3.88 SL=2.50
BUY CALL MAR-22.5 LDQ-CX OI=24983 at $2.50 SL=1.25


EXTR - Extreme Networks $45.50 (+9.60 last week)

Extreme Networks Inc. delivers a simplified approach for building
network infrastructure that facilitates today's digital
communication.  Based on Ethernet and IP technologies, the
company's family of Black Diamond, Alpine and Summit switching
solutions incorporate a unique combination of Extreme Ware (TM)
management software and an ASIC-based common architecture.
Headquartered in Santa Clara, California, Extreme Networks was
listed as the "fastest growing company in Silicon Valley"
based on three year revenue growth by the San Jose and Silicon
Valley business journal.

The networking index has successfully broken the downward
trending channel established in September, and Extreme Networks
is one of the best positioned stocks in the sector.  In the
last few days, the small to mid cap networking stocks have
outperformed the slower moving behemoths like Cisco, and,
with a market cap of just under $5 billion, Extreme has room
for a lot of growth.  A presentation given by the company's
CEO at the Morgan Stanley networking conference this week,
as well as excellent news released by the company, acted
as a catalyst to push the stock over previous resistance at
$45, which is now serving as support.  Extreme unveiled a plan
which would expand its metro networking strategy by offering
first mile access over Ethernet and IP, which could reduce
costs significantly, and expand the number of customers they
reach.  Extreme reports earnings on January 17 after the
close, so this will be a fast play based on the last two
days of a strong earnings run, and momentum in the networking
sector.  EXTR closed above a gap dating back to December 19,
which is a bullish signal, and traders can take positions on
a possible pullback to $45.  With help from the networking
sector, NWX.X, EXTR could very likely cross $50 in the next
two days.  Watch other small and mid cap networking stocks
like SCMR and CIEN for strength, and set stops at $41.

BUY CALL FEB-45 EUT-BI OI=531 at $ 9.75 SL=6.75
BUY CALL FEB-50*EUT-BJ OI=312 at $ 7.88 SL=5.50
BUY CALL MAR-45 EUT-CI OI= 95 at $11.88 SL=9.00
BUY CALL MAR-50 EUQ-CJ OI=115 at $ 9.88 SL=7.00


AEOS - American Eagle Outfitters Inc $49.25 (+2.81 last week)

American Eagle Outfitters is a specialty retailer of collegiate-
style casual apparel, accessories and footwear aimed at men and
women ages 16 to 34.  The company's fashion line of relaxed
clothing bears the American Eagle Outfitters and AE brand name
and are sold exclusively in their mall-based stores.  They
currently operate over 550 stores in 47 states and Washington,

The specialty retailers such as AEOS, GPS, TLB and ANN are
holding onto their recent gains while general merchandisers like
WMT and S inched to the downside this week.  Specifically,
AEOS's robust volume and unrelenting spunk amid the gyrations of
the marketplace continued to provide bullish confirmation.
Friday's breakthrough the first line of opposition at the $50
level and challenge of the recent 52-week ($51.25) coupled with
the ascending support line should entice the technical traders
to take a look at AEOS, too.  Aggressive entries might be taken
on deep pullbacks to the 5 & 10 DMAs ($47.74 & $46.69); although
this requires a much higher tolerance for risk.  The ascending
support, now at $49 and $50, is another entry option if you're
looking to take positions on strong rallies through the upper
resistance.  As we approach the next Fed Meeting, the positive
sentiment of the interest rate easing should result in further
appreciation for AEOS over the short-term and thus; provide the
opportunity to lock in gains at these higher trading levels.
But let's remember to keep an eye on the overall sector and
market direction, too!  While we have an upside bias on shares
of AEOS, we nevertheless must trade smart.  With that in mind,
we've raised our stop to $47 to protect profits going forward.
On the analyst front, USB Piper Jaffray upped its 12-month price
target to $59 and reiterated a Strong Buy recommendation for

BUY CALL FEB-45 AQU-BI OI=221 at $7.38 SL=5.25
BUY CALL FEB-50*AQU-BJ OI=652 at $4.75 SL=2.75
BUY CALL FEB-55 AQU-BK OI= 90 at $2.94 SL=1.50


SNPS - Synopsys Inc $51.56 (+3.56 last week)

Synopsys supplies electronic design automation solutions to the
global electronics market.  The Company provides design
technologies to manufactures of advanced integrated circuits,
electronic systems, and systems on a chip.  Synopsys also
provides consulting services and support to its customers to
streamline the overall design process and accelerate time to

We initiated coverage on SNPS as a result of its recent
technical developments.  In early December, SNPS began building
a strong wedge formation and is now on the brink of a major move
to the upside.  The growing momentum already pushed SNPS
through the $50 and $52 resistance levels; however, the critical
challenge lies at $56.94, the stock's 52-week high.  The return
to selective technology stocks and a bullish sentiment within
the semiconductor sector provides a prime environment for SNPS
to make its big breakout next week.  Buying into high-volume
rallies as SNPS moves through $52 and rivals $57 offer a more
conservative approach; although it may be wise to take profits
as SNPS nears the 52-week high ($56.94).  You can always jump
back in later.  For those who prefer taking a lower entry point
amid a pullback, the supportive 5 & 10 DMAs at $50.01 and
$48.75, respectively, offer reasonable opportunities.  But let's
remember to set stops for protection.  For instance, we'll exit
the play on a close below the $49 level.

BUY CALL FEB-45 YPQ-BI OI=  75 at $7.88 SL=5.75
BUY CALL FEB-50*YPQ-BJ OI= 138 at $4.88 SL=3.00
BUY CALL FEB-55 YPQ-BK OI= 566 at $2.75 SL=1.50
BUY CALL MAR-45 YPQ-CI OI=1032 at $9.13 SL=6.25
BUY CALL MAR-50 YPQ-CJ OI= 324 at $6.25 SL=4.25
BUY CALL MAR-55 YPQ-CK OI= 146 at $4.13 SL=2.50


BEAS - BEA Systems $62.56 (+8.94 last week)

As a provider of e-commerce infrastructure software, BEAS
helps companies of all sizes extend investments in existing
computer systems and provide the foundation for running a
successful integrated e-business.  The company's products have
been adopted in a wide variety of industries, including
commercial and investment banking, securities trading,
telecommunications, airlines, retail, manufacturing and
government.  BEAS' products serve as a platform or integration
tool for applications such as billing, customer service,
electronic funds transfers, ATM networks, Internet sales,
supply chain management, and hotel, airline and rental car

Shrugging off the continuous stream of bad news and poor
earnings, shares of BEAS spent most of last week in rally mode.
After an early drop on Monday, the bulls decided that $42 was
a good level to step in and buy the stock.  Disappointing
earnings from YHOO, concerns about ARBA's post-earnings
conference call, warnings from the likes of GTW and HWP.  All
of these had the effect of sending shares of BEAS higher, and
even an SG Cowen downgrade on Thursday couldn't dampen
enthusiasm for shares of the e-business software company.
Perhaps investors expect to hear good things from management at
the Sun Microsystems J2EE Press and Partner Briefing beginning
on January 16th.  It's too early for the stock to be rising in
anticipation of earnings, as they won't be out until February
13th.  The most likely explanation is that investors are
starting to feel better about select technology stocks that are
not feeding them bad news.  Of course the technicals can't be
ignored either.  At its low last week, BEAS had dropped well
below its lower Bollinger band, and needed to bounce.  Since
this occurred as the stock was testing solid support near $42,
and stochastics had just entered oversold territory (although
just barely), the confluence of factors gave us a nice 50%
bounce from Monday's low to Friday's close.  Now that the
pressure has been relieved, it remains to be seen whether the
bulls have enough conviction to continue the rally.  The
200-dma ($56.94) is now in the rear-view mirror again, and the
stock should find support near here in the event of a pullback.
Our stop is just below there at $53, and this will be the last
line of defense for our play; if it fails to contain any profit
taking, we'll know the bears are back in control and the party's
over.  BEAS has some formidable obstacles to overcome to the
upside as well.  The rally ran into profit taking near $65,
right at the 30-dma ($65.25) and just below the 50-dma ($66.19).
Significant historical resistance rests near $70, and then there
is the string of lower highs posted since late October.  If the
stock obeys this long-term downtrend, it will run out of steam
near $74.  But we're getting ahead of ourselves, because we have
plenty of room to run before reaching that point.  Look for the
stock to bounce at $60 or the 200-dma before continuing their
upward move.  As long as the bounce is accompanied by solid
volume, this will make for an attractive aggressive entry point.
More conservative players will wait for the next resistance
level to fall before playing - rallying through $66 is just what
we will be looking for.  Market and sector strength will play a
dominant role, so make sure both the NASDAQ and the B2B sector
(NYSE:BHH) are continuing to move into positive territory before
stepping aboard.

BUY CALL FEB-60 BUC-BL OI= 512 at $10.50 SL=7.50
BUY CALL FEB-65*BUC-BM OI= 833 at $ 8.00 SL=5.75
BUY CALL FEB-70 BUC-BN OI=1466 at $ 5.75 SL=3.75
BUY CALL MAR-65 BUC-CM OI=3960 at $11.38 SL=8.50
BUY CALL MAR-70 BUC-CN OI=1959 at $ 9.63 SL=6.75
BUY CALL MAR-75 BUC-CO OI=1426 at $ 7.63 SL=5.25

SELL PUT FEB-50 BUC-NJ OI=6677 at $ 3.75 SL=5.75
(See risks of selling puts in play legend)


Get 10 FREE Issues of Investor's Business Daily. No obligation.
Nothing to cancel.


Please read our disclaimer at:

The Option Investor Newsletter                   Sunday 01-14-2001
Sunday                                                      4 of 5

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

Get a NextCard Visa, in 30 seconds!
1. Fill in the brief application
2. Receive approval decision within 30 seconds
3. Get rates as low as 2.9% Intro or 9.9% Fixed APR


No new puts this weekend


AIG - American International Grp. $82.19 (-5.69 last week)

Engaged in a broad range of insurance and insurance-related
activities through its subsidiaries, AIG's primary focus is on
its general and life insurance businesses.  Additionally, the
company is growing its presence in financial services and asset
management.  Other operations include auto insurance, mortgage
guaranty, annuities, and aircraft leasing.  With operations in
130 countries, AIG generates more than half of its revenues
outside the United States.

Proving that what goes up, must come down, Insurance stocks have
been mauled by the bears in the past 2 weeks, and AIG is no
exception.  After completing the head-and-shoulders formation
that began to form in early November, the stock fell off a cliff
a little over a week ago.  Rather than bounce after the 7%
decline on January 4th, the price has continued south,
stretching the lower Bollinger band a little further every day.
Even the 200-dma (then at $86.44) didn't slow the decline as
AIG plunged through this level on Thursday.  The selloff was due
to occur eventually as the stock had been enjoying a sustained
rally since hitting a low of $55 in March of last year.  Sector
rotation is alive and well, and the money that has been going
into technology stocks recently had to come from somewhere.
Regardless of the underlying cause, the long uptrend has been
shattered, to be replaced by the beginnings of what could be a
sustained downtrend.  The technicals are in control now, and
with that being said, AIG is due for a technical bounce.  The
price has been riding the lower Bollinger band for 7 days now,
and the daily stochastics are deep in oversold territory.
Aggressive players will watch for a bounce to give them a better
entry for new positions for the next leg down.  We have
ratcheted our stop down to $85 (just above Friday's high), and
any attempted rally that fails to take out this level will
provide an attractive entry.  Given the degree to which AIG is
pressuring the lower Bollinger band, we would be cautious about
entering new positions on further weakness before some of the
pressure has been released through a relief rally.  With that
being said, the minor recovery Friday afternoon may be about all
we will get, as it seemed to top out just below the $83 intraday
resistance level.  Watch the broader Insurance sector (IUX.X)
and make sure it is continuing south before jumping into new

BUY PUT FEB-85 AIG-NQ OI=2769 at $5.63 SL=3.50
BUY PUT FEB-80*AIG-NP OI=1146 at $3.13 SL=1.50


PMI - PMI Group $50.38 (-7.63 last week)

PMI Group is a holding company that conducts its residential
mortgage insurance business through its subsidiaries.  PMI
provides primary insurance coverage, insuring mortgage lenders
and mortgage loan investors against borrower default on
individual first mortgage loans.  At the end of 1997, PMI
began offering a pool insurance product, primarily to Fannie
Mae and Freddie Mac, as a part of the company's value-added
strategy.  This product is also sold to state housing finance
authorities, and is generally used as an additional credit
enhancement for certain secondary market mortgage transactions
to protect against loss on a defaulted mortgage loan which
exceed the claim payment under the primary coverage.

Given the 28% decline in shares of PMI over the past 2 weeks,
one would think that half the company's customer base had
defaulted on their mortgage.  While there are concerns of an
increase in mortgage defaults due to the economic downturn, that
isn't enough to account for the recent selloff.  A more likely
theory may be that investors felt the share price had gotten
ahead of itself, and in their rush for the exits, they have
driven the price down faster than one might expect.  With
Friday's red candle, PMI may have found at least temporary
support.  With earnings just around the corner on January 24th,
the bulls may step in to attempt to defend prices near the $50
support level.  Due to declining sentiment in the broader
Insurance sector, such a move is likely to be little more than
an aberration, providing aggressive traders with an attractive
entry point, so long as the bounce is capped below our stop at
$53.  Intraday resistance has formed both at $51.50 and $53, and
a rollover at either level looks attractive for new positions.
Even though the $50 level stopped the decline Friday afternoon,
there wasn't enough buying pressure to move shares up by a
significant amount.  This could indicate more weakness ahead,
and more conservative players may want to consider new positions
as PMI falls below $50, continuing to ride the lower Bollinger
band into the basement.  Use the broader Insurance index (IUX.X)
as a gauge of investor sentiment, and only consider new
positions if it is still headed south.

BUY PUT FEB-55 PMI-NK OI=22 at $6.13 SL=4.00
BUY PUT FEB-50*PMI-NJ OI= 5 at $2.94 SL=1.50


CB - Chubb Corporation $69.06 (-6.07 last week)

Chubb Corporation, incorporated in June 1967, is a holding
company with subsidiaries principally engaged in the property and
casualty insurance business. The Company presently underwrites
most forms of property and casualty insurance. The Company's
Property and Casualty Insurance Group writes non-participating
policies. Several members of the Property and Casualty Insurance
Group also write participating policies, particularly in the
workers' compensation class of business, under which dividends
are paid to the policyholders.

The rotation from defensive stocks to more aggressive issues
continued this week, as money steadily trickled away from CB into
brighter and flashier four-letter names.  After the massive
run-up shares of CB enjoyed last year at the expense of Tech
stocks, investors are taking the fat out of Chubb, finding its
valuation steep considering the single-digit revenue growth rate.
With little news from the company recently, technical analysis
and sector sentiment played a key role on the movements of CB.
After the massive slide of two weeks ago, the stock needed some
consolidation.  It was the lack of sellers that really helped CB
stay afloat this past week, that is until Friday when they
returned in force.  On Thursday night, we commented, "Technically
at this point, CB looks to be at a major crossroad.  The
proverbial coiling of the spring in shares of CB suggests a large
move in one direction or the other forthcoming.  A break below
its 200-dma at $73.50 on volume would allow for an ideal entry on
weakness."  This is exactly what happened on Friday, as the stock
fell $4.69 or 6.36 percent on almost twice the ADV.  Now a nicely
profitable play, we are moving our stop down from $77 to $73.  A
failed rally above this level, where the 5-dma current resides,
as well as the 200-dma, still near $73.50, $71.50 and $70 could
provide for aggressive targets of entry.  Continued selling
pressure, taking CB below its Friday low of $68.81 could allow
for an entry on weakness.  As mentioned, sector sympathy is
likely to be a major factor in the movements of CB so keep an eye
on rivals CI and ALL.

BUY PUT FEB-75 CB-NO OI=0 at $7.50 SL=5.25  Wait for OI!!
BUY PUT FEB-70*CB-NN OI=5 at $4.13 SL=2.50


MRK - Merck & Co., Inc. $81.44 (-1.88 last week)

Merck is a global pharmaceutical company, which specializes in
the development of human and animal health products.  They are
the #1 industry leader in the US and #2 worldwide.  Some of its
more prominent drugs include Zocor and Meycaor (cholesterol
drugs), Pepcid (an anti-ulcerant), top-selling hypertension
drugs, Vasotec and Prinivil, and more recently the AIDS
medication, Crixivan.  The drug maker also provides
pharmaceutical benefit services through Merck-Medco Managed Care
which it sells to corporations, labor unions, and insurance
companies.  When it comes to e-commerce Merck won't be left
behind either.  The company has formed an alliance with CVS to
market drugs online.

The environment last year that allowed drug stocks to make new
all-time highs has now appeared to have reversed itself, landing
MRK on our put play list.  Unable to make it past the
psychological century mark in the later part of the year 2000,
traders and shareholders alike appear to be moving out of the
Drug sector.  With last year's inflation fighting Fed replaced by
a recession averting friend, investors are feeling a lot less
defensive.  As well, the once deemed to be undervalued
Pharmaceutical sector is now trading at historically high levels,
with the now deemed undervalued Tech stocks offering attractive
opportunities to buy into high-potential growth at value prices.
This has resulted in a rallying NASDAQ, and the sentiment
surrounding the sleeker and sexier New Economy suggests that the
Techs may be ready to take back the spotlight.  The technical
picture for MRK looks weak as well.  The stock has been unable to
close above its 5-dma so far this year.  A recent plunge below
the 50-dma (currently sitting at $89.89) led to increased selling
with the stock breaking below its 100-dma (now at $82.13) this
past Thursday.  Further failed tests of these two moving averages
could allow aggressive traders to take a position, but make sure
to confirm any rollovers with selling volume.  We are tightening
our protective stop, nudging it from $85 down to $84, with what
appears to be formidable resistance at that level.  Continued
selling leading to a definitive retreat below the $81 level could
allow conservative traders to enter this play, but to ensure
downward momentum, confirm direction with Merrill Lynch's
Pharmaceutical HOLDR (PPH).

BUY PUT FEB-85 MRK-NQ OI=1967 at $6.00 SL=4.50
BUY PUT FEB-80*MRK-NP OI= 972 at $3.38 SL=1.75
BUY PUT FEB-75 MRK-NO OI=2603 at $1.75 SL=0.75


MMC - Marsh & McLennan Co $100.25 (-6.75 last week)

Marsh & McLennan Companies is the world's largest insurance
brokerage company.  The professional services firm provides its
clients with analysis, advice and transactional capabilities in
the fields of risk and insurance services, investment
management, and consulting.  It operates worldwide through its
subsidiaries and affiliates, which include Marsh, a risk and
insurance services firm, Putnam Investments, one of the US's
biggest money managers, and Mercer Consulting Group, a global
provider of human resources and management consulting services.

Two significant factors have parlayed grand profits for put
players taking positions in MMC.  The most obvious is the
general rotation out of defensive stocks and back into
technology stocks.  The second, and more specific element, is
the accelerating downtrend of the insurance sector.  Take a look
at a chart of the S&P's Insurance Index (IUX.X) for visual
confirmation.  At the beginning of January, the IUX.X tumbled
under the 800 support only to find that 750 couldn't hold
either.  Major insurance stocks like Cigna (CI) and Allstate
(ALL) are also quickly losing ground amid the sector-wide sell-
off.  Since last Friday's pivotal move to the underside of $110,
the downward momentum has taken MMC steadily and systematically
to the psychological $100 level.  The triple test of this level,
which occurred during Thursday and Friday's session, may portend
a bottom is forming.  Plus, the attractive price level likely
prompted Prudential Securities to reiterate a Strong Buy rating
and issue a $130 price target.   However at present, the IUX.X
is precariously teetering on the 200-dma (704) line and a
further breakdown could push MMC under its historical support at
the century mark.  If sellers can move MMC under $100 and rival
the $90 and $95 support levels of last March and April, you
might consider taking additional positions.  Another alternative
is to enter on convincing rollovers at the trailing 5-dma
($103.91), near our $104 protective stop.  If you use the
rollover strategy, please consider locking in gains as MMC
approaches $100 to avoid getting snared in a bullish reversal.

BUY PUT FEB-110 MMC-NB OI= 10 at $12.13 SL=9.00
BUY PUT FEB-105 MMC-NA OI= 30 at $ 8.63 SL=6.00
BUY PUT FEB-100*MMC-NT OI=150 at $ 5.75 SL=3.75


Get 10 FREE Issues of Investor's Business Daily. No obligation.
Nothing to cancel.


Is The Rally Upon Us?  Well, Sort Of...Maybe...
By Mark Phillips
Contact Support

What a relief it was to see a decent rally on the NASDAQ this
week.  Regardless of whether you call it "January effect",
optimism over declining interest rates or an end to tax selling,
the technology index posted its best week since Labor Day.
After launching off of the 2300 support level early in the week,
the NASDAQ rallied as high as 2700 before traders noticed the
looming three day weekend and decided to cash in some of their
gains.  Given the recent action in the markets and the sharp
gains this past week, it was rather encouraging to see such mild
selling into the close on Friday.  It gives one the impression
that the worst may be behind us.

But lets look at the dominant factors in our market before we
run out to load up on new LEAPS.  The Commercials are still
sitting on near-record short positions in the S&P 500, the
economy is definitely slowing as we can see by the rash of
earnings warnings and a weak start to the actual earnings
season.  The Fed has begun acting to reduce interest rates, but
keep in mind that rate decreases, just like rate increases, take
6-9 months to filter through the economy and actually show up
in corporate earnings.  With that being said, earnings are
likely to be weak for at least the next 1-2 quarters, with the
first signs of true economic recovery starting to show up during
the October earnings season.

Now before you panic and sell all your open positions, remember
that the markets tend to factor in economic developments before
they actually occur.  So the stock market recovery will lead the
actual upturn in corporate earnings.  The big question is WHEN.
We could be seeing the beginning of the recovery in current
market action, but only an extreme optimist (indistinguishable
from the fool who is soon parted from his money), would expect a
rally straight from current levels back to NASDAQ 5000.  There
has been a lot of collateral damage in the markets and it will
take time to repair.

Our job is to find those stocks that appear to already be on the
mend and CAUTIOUSLY step into new plays.  Last year, you could
initiate new LEAPS positions on either a bounce from support or
a breakout through resistance.  The gradual nature of the
recovery that is ahead of us, makes dip buying the more prudent
approach, but careful attention to technical indicators and
chart patterns is critical.

The VIX has dropped out of the zone above 30 over the past week,
closing the week at 28.66, and removing a fair amount of upward
pressure from stock prices.  At the same time, the NASDAQ has
rallied right to the top of its downwardly trending channel, and
is showing mild signs of weakness.  It isn't much further to the
top of the Bollinger band, now at 2750, but still heading lower.
Daily stochastics have just entered the overbought zone and we
have plenty of historical resistance between 2650-2850, that
will have to be worked through.  Between the technicals and the
string of what are expected to be weak earnings, odds favor a
retracement in the week ahead.  What we really need to see to
give the bulls hope is a series of higher lows form on the daily

Just keep in mind that nothing fundamental has changed in the
market, and the downtrend that began on Labor Day has not been
broken.  Sure, new entries can be considered on select plays,
but make sure to look at the whole picture before jumping
blindly.  Even in a declining interest rate environment,
Financial stocks have been weak lately and our AXP play is on
the cusp of being ejected from the play list.  It was
particularly disconcerting to see the $50 support level give way
over the past week, and unless buyers step in to support the
stock above $45, it could find its way to the drop list in the
near future.  It is virtually impossible for the markets to
sustain an extended rally if the Financials refuse to

Personally, I think the worst may be behind us, but my opinion
and $2.50 will get you a cup of coffee at Starbuck's.  The wild
card is the current earnings cycle.  The actual numbers are
secondary in this analysis, as the comments in the conference
calls are likely to have a much more pronounced effect.  If
companies are guiding estimates further downwards (like GTW
and HWP did last week with their dramatic warnings), we could
see our precious NASDAQ trace new lows before testing the 3000
level again.

The moral of the story is eternal vigilance.  Don't take
anything for granted, and keep in mind that taking profits, no
matter how small, is preferable to ignoring the bear tracks in
the snow.  Ignoring the warning signs while focusing only on
the positive factors, like expectations for another interest
rate cut, is a sure recipe for a mauling of your trading
account.  Regardless of the action of the Fed, the markets are
not going to strap on a set of solid rocket boosters and shoot
right to 5000 before school lets out for the summer.

Once the recovery gets underway, it will do so in a much more
gradual manner, giving prudent investors plenty of opportunities
to step aboard during profit taking dips.  And remember that
just because you are buying lots of time with your LEAPS, that
doesn't mean you have to use it.  If profits are on the table
and it looks like the bears are coming back to town, take your
profits and wait for another opportunity to play the long side.

Trade smart and prosper!

Current Plays


EMC    11/07/99  JAN-2002 $ 45  WUE-AI   $ 9.50   $32.25   239.47%
       09/17/00  JAN-2003 $100  VUE-AT   $32.75   $16.63   -49.24%
CSCO   11/14/99  JAN-2002 $ 45  WIV-AI   $11.00   $ 7.75   -29.55%
       11/26/00  JAN-2003 $ 60  VYC-AL   $16.63   $ 7.50   -54.89%
NT     11/28/99  JAN-2002 $37.5 WNT-AU   $15.13   $ 8.38   -44.65%
       09/10/00  JAN-2003 $ 75  ODT-AO   $27.50   $ 4.38   -84.09%
AOL    03/12/00  JAN-2002 $ 65  WAN-AM   $18.63   $ 4.80   -74.24%
       08/13/00  JAN-2003 $ 55  VAN-AK   $17.50   $12.00   -31.43%
AXP    03/12/00  JAN-2002 $46.6 WXP-AQ   $ 9.33   $10.13     8.52%
WM     03/19/00  JAN-2002 $ 30  WWI-AF   $ 5.38   $16.63   209.01%
       10/22/00  JAN-2003 $ 45  VWI-AI   $ 7.88   $10.13    28.57%
NOK    05/21/00  JAN-2002 $ 50  IWX-AJ   $17.25   $ 7.75   -55.07%
       07/30/00  JAN-2003 $ 50  VOK-AJ   $17.75   $11.63   -34.51%
C      06/18/00  JAN-2002 $48.8 YSV-AW   $10.31   $12.00    16.39%
       10/01/00  JAN-2003 $ 60  VRN-AL   $12.25   $10.63   -13.27%
GENZ   07/16/00  JAN-2002 $ 70  YGZ-AN   $17.13   $31.25    82.43%
                 JAN-2003 $ 70  OZG-AN   $23.13   $38.88    68.07%
QCOM   09/17/00  JAN-2002 $ 70  WBI-AN   $22.50   $24.00     6.67%
                 JAN-2003 $ 70  VLM-AN   $29.63   $32.13     8.42%
TXN    10/22/00  JAN-2002 $ 50  WTN-AJ   $13.75   $12.63   - 8.18%
                 JAN-2003 $ 50  VXT-AJ   $18.38   $17.25   - 6.12%
BGEN   11/05/00  JAN-2002 $ 70  WGN-AN   $17.25   $ 9.88   -42.75%
                 JAN-2003 $ 70  VNG-AN   $25.00   $16.75   -33.00%
MU     11/26/00  JAN-2002 $ 45  WGY-AI   $13.13   $12.63   - 3.81%
                 JAN-2003 $ 45  VGY-AI   $17.25   $17.50   - 1.45%
A      12/03/00  JAN-2002 $ 55  YA -AK   $16.88   $17.88     5.93%
                 JAN-2003 $ 60  OAE-AL   $19.88   $21.00     5.66%
ORCL   12/10/00  JAN-2002 $ 35  WOK-AG   $ 7.75   $ 8.50     9.68%
                 JAN-2003 $ 35  VOR-AG   $11.13   $12.13     8.94%
QQQ    12/10/00  JAN-2002 $ 70  WNQ-AR   $15.13   $11.38   -24.82%
                 JAN-2003 $ 75  VZQ-AW   $19.25   $14.88   -22.73%
WMT    12/24/00  JAN-2002 $ 55  WWT-AK   $ 9.63   $ 9.38   - 2.60%
                 JAN-2003 $ 55  VWT-AK   $14.00   $14.00     0.00%
DELL   01/07/01  JAN-2002 $ 20  WDQ-AD   $ 5.25   $ 7.25    38.10%
                 JAN-2003 $ 25  VDL-AE   $5.63    $ 7.38    30.99%

Spotlight Play

ORCL - Oracle Corp. $32.31

Fans of technical analysis got a belated Christmas present on
January 3rd as ORCL bounced solidly from the $25 level before
resuming its recent gradual uptrend.  Market pressures had
dragged the stock down the day before, and once the Fed reduced
interest rates, the rally was fast and furious with the stock
gaining nearly $7 or more than 25% in one day.  That is quite a
move for ORCL, and the fact that it really hasn't sold off since
then is a good indication that the move likely still has some
legs.  Earnings a month ago were solid, and there was no hint of
a negative effect to the company's growth due to a slowing
economy, which is likely adding to the positive outlook.  The
company's position in the marketplace is being strengthened by
its move from traditional database products into both the
systems software and business applications software markets.
Support at $28 is strengthening and the $30 level is looking
more likely as the price where bargain hunters will step in to
pick up the stock on profit taking dips.  Over the past couple
weeks, buyers have probed and prodded, managing a tenuous
breakout over $32, and the next upside target will be the
$35-36 resistance level, right on the 200-dma, which is
flattening out at $36.  The market environment is still
uncertain (but improving), and this makes buying the dips the
most prudent entry strategy.  Profit taking dips should stop
at the support levels listed above, and as long as buying volume
remains strong, we would advocate new positions near these

BUY LEAP JAN-2002 $50.00 WOK-AG at $ 8.50
BUY LEAP JAN-2003 $50.00 VOR-AG at $12.13

New Plays

WCOM - WorldCom $21.75

Long-time readers will remember that it wasn't too long ago that
we jumped into WCOM thinking the stock had found a bottom near
$25.  Alas, we were too early to the party and it quickly became
clear that the bears had not finished having their way with
Telecom stocks.  The selling in WCOM continued all the way down
to the $13-14 level before solid buying emerged.  The price
action over the past 2 weeks has been very encouraging, as the
stock has cleared the $18 resistance level, turning it into
support as the rally continued this week.  Then the bulls
managed to clear the $20 level, and even closed the late October
gap between $20-23.  The Fed's move to reduce interest rates
(along with expectations that they will do so again by the end
of the month) has changed the outlook for the Telecom industry
in the long term, and investors, large and small are voting with
their wallets that the worst is behind us.  With that being
said, it is unlikely that WCOM will continue its recovery
without suffering bouts of profit taking.  The long decline and
subsequent consolidation caused the Bollinger bands to contract,
and the bulls will have to take several runs at the upper band
before it will expand sufficiently to allow the stock to return
to its former glories.  This expansion has begun, but a quick
look at the daily chart shows that WCOM has been riding the
upper band for the past few days, and Friday's profit taking
was necessary in order to give the bulls room to take another
run at higher prices.  The technology markets are still on shaky
ground and the bears are unlikely to relax their grip after one
short rally.  The encouraging thing about the current move is
that the weekly stochastics have actually emerged from the
oversold zone for the first time since early August, confirming
the move on the daily charts.  It looks like the long awaited
recovery has begun, but the more prudent approach will be to
buy retracements rather than breakouts.  Along those lines, look
for WCOM to pull back to the $20 or even $18 support level and
bounce before initiating new positions.  The time it takes for
this to occur will allow for a further expansion of the
Bollinger bands, providing the bulls with an opportunity to
drive prices through the current $23 resistance level.

BUY LEAP JAN-2002 $25.00 WQM-AE at $5.00
BUY LEAP JAN-2003 $25.00 VQM-AE at $7.38



Why put all your risk into one stock when you can play the
index instead?

Learn how to invest in the OEX, QQQ, and SPX.  Get intraday
market updates, plays, education and daily commentaries by
those who know.

Sign up for a two week free trial and see for yourself at


Please read our disclaimer at:

The Option Investor Newsletter                   Sunday 01-14-2001
Sunday                                                      5 of 5

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


The Tale of the Tape: Errors in Data Reporting
By Mark Wnetrzak

Those of you who read this column regularly know that one of the
most important criteria used in identifying a favorable stock is
its technical character.  In fact, most analysts say that charts
reflect all of the known information and sentiment surrounding a
specific stock or security.  Since charting is based primarily on
price, time and volume inputs, the accuracy and completeness of
each day's trading records are paramount.  What most investors
don't know, is that the charts they see on their computer, using
both intraday and end-of-day data, do not always tell an accurate

Tape reading is one of the oldest methods of interpreting market
movement.  Although ticker tape is no longer used (it has been
replaced by scrolling Times Of Sales data), the basic principles
are still widely recognized by institutional money managers and
professional traders.  Tape reading is a tried and tested method
of determining directional trends by observing price and volume
action.  When this type of data is converted to a visual format,
patterns and formations emerge that can be used to forecast the
future price of an issue.  Since the basis for technical analysis
is price and volume information, its success is dependent on the
accuracy of the statistics reported by the exchanges and their
data vendors.  Unfortunately, errors occur on a regular basis due
to a number of factors, and its important to understand how they
might affect what you see when you look at a common candlestick
or bar chart.

One of the most common complaints heard among Level II traders is
the disparity in volume reporting on the NASDAQ exchange.  When
a specialist executes an order on the NYSE (or the AMEX), most
traders assume that 100 shares of stock were sold and 100 shares
were bought, even if the specialist bought the shares for his own
account.  Insiders suggest that NASDAQ reported volume may be far
higher than the actual public trading that occurs, and given that
most of the market-makers actively trade in personal accounts, it
is easy to see how this might happen.  In fact, there are numerous
occasions where you will see paired trades cross minutes apart and
its hard to determine whether they represent real trading or some
other form of market-maker transactions.  In addition to erroneous
volume data, after-hours trading also presents a unique dilemma to
the chartist.  Transactions after hours are generally not included
in the price and volume information published in daily reports and
on the NASDAQ, post-session volume is integrated into the detailed
record for the next day (with a 24 hour cut-off).  Trades reported
after 24 hours, along with the associated price data, are recorded
for reference purposes only.

Simple errors in data reporting are also a problem and they occur
frequently, even in this age of advanced technology.  Human errors
are common with keystroke typos being one of the primary culprits.
A quick study of intraday reports will often uncover a transaction
far beyond the range of the day's activity; a clear signal that an
error has been made in data entry.  Those mistakes are regularly
seen on end-of-day records and that can affect the presentation of
a specific chart.  Another prevalent anomaly occurs when a trade
is reported out of order.  On the NYSE and AMEX, there is only one
specialist to report orders, making it difficult to keep track of
all the data when activity is brisk.  Trades on the NASDAQ take
place electronically across the globe and time stamped execution
reports don't necessarily flow into the reporting systems in order.
Of course, there are also occasions when participants will delay
a trade report beyond the maximum time allowed, such as a broker
who is subtly trying to unload a big block of shares.  If it is a
sizable trade, the effects on chart data can be significant.  At
other times, price or volume inconsistencies are submitted later,
as a correction, and the original data is not amended.  There are
also many misreported trades including cancellations, rejections,
double-fills and other nullified transactions that show up on the
ticker and can not be removed from end-of-day data.  Pandemonium
in the pits often causes floor traders to execute the same trade
with multiple specialists and only after the chaos has subsided do
the mistakes get corrected.  Many of these irregularities are not
discovered until after the session has ended and by then the tape
is already being analyzed for tomorrow's trading.

Next week, we'll talk more about "tape reading" and the methods
that professional traders use to analyze market-moving forces on
a daily basis.

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

FIBR   16.06  17.81   JAN  12.50  4.75  *$  1.19  15.2%
ADIC   23.94  24.38   JAN  20.00  4.88  *$  0.94  10.7%
SMTC   23.44  27.75   JAN  20.00  4.38  *$  0.94  10.7%
MCOM   10.75  13.56   JAN   7.50  3.88  *$  0.63  10.0%
APWR   38.88  43.00   JAN  35.00  5.25  *$  1.37   8.9%
NRGN   35.13  32.69   JAN  30.00  6.75  *$  1.62   8.3%
MCLD   14.69  19.75   JAN  12.50  3.00  *$  0.81   7.5%
SUNW   28.00  30.44   JAN  22.50  6.25  *$  0.75   7.5%
CRK    11.44  13.31   JAN  10.00  2.19  *$  0.75   7.0%
GLGC   21.25  22.19   JAN  17.50  5.25  *$  1.50   6.8%
FNSR   27.00  33.19   JAN  22.50  5.75  *$  1.25   6.4%
XOXO   22.00  25.69   JAN  17.50  5.00  *$  0.50   6.4%
EXFO   32.00  27.75   JAN  22.50 11.25  *$  1.75   6.1%
KLAC   31.81  39.94   JAN  25.00  8.13  *$  1.32   6.1%
EDGW    5.63   6.59   JAN   5.00  1.00  *$  0.37   5.8%
MATX   17.13  15.56   JAN  15.00  2.69  *$  0.56   5.6%
CHMD   12.13  10.44   JAN  10.00  2.50  *$  0.37   5.6%
PHSY   15.00  16.00   JAN  12.50  2.94  *$  0.44   5.3%
CPRT   18.69  17.88   JAN  17.50  2.19  *$  1.00   5.3%
PHI    17.56  17.69   JAN  15.00  3.25  *$  0.69   5.2%
QTRN   18.38  20.03   JAN  17.50  2.06  *$  1.18   5.2%
HSIC   30.63  30.25   JAN  30.00  2.31  *$  1.68   5.2%
PRIA   23.56  26.00   JAN  20.00  4.00  *$  0.44   4.9%
AVID   18.63  19.13   JAN  17.50  2.06  *$  0.93   4.9%
WMS    19.00  19.06   JAN  17.50  2.25  *$  0.75   4.9%
MLHR   26.81  26.81   JAN  25.00  2.88  *$  1.07   4.9%
CVD    11.38  13.38   JAN  10.00  2.00  *$  0.62   4.8%
GETY   32.00  26.94   JAN  25.00  7.75  *$  0.75   4.5%
BBY    39.94  42.25   JAN  35.00  5.63  *$  0.69   4.4%
WMS    19.69  19.06   JAN  17.50  3.00  *$  0.81   4.2%
ARQL   33.75  28.88   JAN  25.00 10.00  *$  1.25   3.8%
BCGI   28.38  16.25   JAN  22.50  7.25   $ -4.88   0.0%

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


Apparently investors weren't thrilled with Thursday's news on
Boston Communications (BCGI).  Although the company announced
it expects revenues to be in line with previous estimates, the
issue dropped over 30% in active trading.  Investors suggested
that information was available to insiders prior to the actual
announcement and there are likely to be lawsuits in the coming
weeks.  There was little opportunity to avoid a loss, but we
will show the position closed.  Keep a close watch on Neurogen
(NRGN) as it flirts with support near the sold strike.  Matrix
Pharma (MATX) is also testing buying pressure near our strike
price - monitor the position in the coming week.  Chronimed
(CHMD) is beginning to consolidate after a recent rally, so be
sure to evaluate your long-term outlook.  It's time to decide
if it is better to risk owning Copart (CPRT) for another month
or simply exit the position.  We don't mind Quintiles (QTRN)
being so volatile as long as it manages to stay above the sold
strike!  Henry Schein (HSIC) is nearing a key moment at its 50
dma.  Ok, Getty Images (GETY) has us worried; a break-even exit
seems like a prudent move at this point.  Arqule (ARQL) did not
violate the December low and appears to be out of danger.

Positions Closed:

Miravant (MRVT), Rf Micro Devices (RFMD), Lexicon (LEXG), Genzyme
Molecular Oncology (GZMO).


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

PPRO   17.00  JAN  12.50  PXZ AV  5.00  203  12.00    6    21.1%
ATHM    8.72  FEB   7.50  AHQ BU  2.00  1408  6.72   34    10.4%
ANTC   11.25  FEB  10.00  AQC BB  2.25  186   9.00   34     9.9%
XLA     8.38  FEB   5.00  XLZ BA  3.88  372   4.50   34     9.9%
HOTT   22.13  FEB  17.50  UHO BW  5.88  79   16.25   34     6.9%
SCON    7.13  FEB   5.00  OUP BA  2.44  127   4.69   34     5.9%
CPST   34.19  FEB  25.00  CZU BE 10.50  625  23.69   34     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.

ANTC - ANTEC Corporation  $11.25  *** Showing Strength ***

ANTEC Corporation is an international communications technology
company serving the broadband information transport industries.
The company specializes in the manufacturing and distribution of
products for hybrid fiber-coax broadband networks, as well as the
design and engineering of these networks.  No recent news since
ANTEC warned about their fourth-quarter in December.  The largest
customer, AT&T Broadband, discontinued shipments until early this
year.  The business is expected to rebound in the first quarter
and apparently investors are moving to establish their positions.
The stock has rallied on improving technicals and has now moved
above the December high.  A reasonable cost basis on a stock
that is refusing to move lower.

FEB 10.00 AQC BB LB=2.25 OI=186 CB=9.00 DE=34 MR=9.9%

ATHM - Excite@Home  $8.72  *** Bottom Fishing! ***

Excite@Home is the leader in broadband, offering residential and
commercial broadband services, with a global footprint of 88
million homes under long-term cable and DSL contract. Excite@Home
offers consumers broadband services over cable-modem and DSL and
businesses high-speed commercial services.  Excite@Home reported
this week that its worldwide broadband subscriber base rose 27.5%
in the 4th-quarter to about 2.95 million, which met its quarterly
goal.  Shares of Excite@Home have rallied strongly this week on
heavy volume and Friday's news that AT&T would increase its stake
in the company added fuel to the fire.  The stock has now moved
above its 50 dma, which suggests further upside potential.

FEB 7.50 AHQ BU LB=2.00 OI=1408 CB=6.72 DE=34 MR=10.4%

CPST - Capstone Turbine  $34.19  *** A Possible Solution! ***

Capstone Turbine, a winner of Financial Times Energy's 2000
Global Energy Award for Most Innovative Commercial Technology,
is a leading producer of low-emission microturbine systems.
Capstone Turbine has begun to draw investor interest as it
could benefit from the escalating power crisis in California.
The company's clean-burning, refrigerator-sized power plants can
help utilities reduce dependence on skyrocketing spot-market
electricity while helping businesses "keep the lights on" during
brownouts or rolling blackouts.  The stock has moved up sharply
on heavy volume, and has now completed a short-term "triple
bottom" formation.  A favorable entry point for those investors
who have a bullish outlook on the issue.

FEB 25.00 CZU BE LB=10.50 OI=625 CB=23.69 DE=34 MR=4.9%

HOTT - Hot Topic  $22.13  *** Blue Sky Above! ***

Hot Topic is a mall-based specialty retailer of music-licensed
and music-influenced apparel, accessories and gift items for
young men and women principally between the ages of 12 and 22.
The company recently announced that its net sales for December
increased 37% to $48.8 million from net sales of $35.6 million
from last December.  The teen specialty retailers have been
one of the few areas that has not suffered from weak holiday
sales.  The stock has recently split and has already moved up
to a new all-time high.  We simply favor a conservative entry
point with a cost basis near recent technical support.

FEB 17.50 UHO BW LB=5.88 OI=79 CB=16.25 DE=34 MR=6.9%

PPRO - PurchasePro  $17.00  *** Short-term Speculation ***

PurchasePro, a leader in business-to-business e-commerce, operates
the PurchasePro global marketplace, encompassing more than 30,000
businesses and powering approximately 240 private-label marketplaces
with its highly scalable, browser-based e-commerce engine.  The
company recently announced that two Honeywell organizations have
jointly selected PurchasePro to create e-marketplaces to help their
respective users save time, streamline their procurement processes,
and cut overall procurement costs.  The recent "buy" recommendation
by ABN AMRO has also provided some upside momentum.  The stock has
been forging a Stage I base with support above our cost basis.  A
short-term play to take advantage of over-priced option premiums.
Earnings are not due until February.

JAN 12.50 PXZ AV LB=5.00 OI=203 CB=12.00 DE=6 MR=21.1%

SCON - Superconductor Tech  $7.13 *** What's Up? SCON! ***

Superconductor Tech is a leading developer and manufacturer of
superconducting products for wireless communications and wireless
Internet access.  The company's SuperFilter. System utilizes high-
temperature superconducting technology, along with proprietary
cryogenic cooling, to create a front-end filter and amplifier
system utilized in wireless base stations to enhance their
performance.  Why is SCON forming a ski-jump pattern near the
bottom of a year-old downtrend?  There has been no news since
November yet SCON has rallied strongly on heavy volume over the
last three days!  Lots of speculation on the message boards but it
all comes down to a clichi: "The tape doesn't lie."  A reasonable
cost basis; at least until the news for the move is made known to

FEB 5.00 OUP BA LB=2.44 OI=127 CB=4.69 DE=34 MR=5.9%

XLA - Xcelera  $8.38  *** European Internet Incubator ***

Xcelera is a European Internet technology company focusing on
operating, developing and financing Internet technology companies
whose technologies, products or services can be enhanced by or
complement Xcelera's core competencies in content management,
content distribution, caching, storage and streaming.  Xcelera
has fallen on hard times on concerns about insider sales, share-
holder litigation and the tax consequences of transactions.  On
Wednesday, Mirror Image Internet, principally owned by Xcelera,
and R3Media announced a strategic sales and marketing partnership
for next-generation media services.  Xcelera reacted favorably to
this news and rallied strongly on heavy volume.  For investors
who believe the Internet sector has finally found a floor, this
play offers a favorable cost basis with upside momentum already
in place.

FEB 5.00 XLZ BA LB=3.88 OI=372 CB=4.50 DE=34 MR=9.9%



The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

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

MPWR    8.34  FEB   7.50  MGU BU  1.94  697   6.40   34    15.4%
LYNX   12.00  FEB  10.00  ULX BB  3.25  40    8.75   34    12.8%
PLUG   19.94  FEB  17.50  PQL BW  4.38  34   15.56   34    11.2%
MFNX   18.69  FEB  15.00  QFN BC  4.75  1256 13.94   34     6.8%
PRXL   13.13  FEB  12.50  VBQ BV  1.44  75   11.69   34     6.2%
AVCI   37.13  FEB  25.00  QYV BE 13.63  78   23.50   34     5.7%

Get a NextCard Visa, in 30 seconds!
1. Fill in the brief application
2. Receive approval decision within 30 seconds
3. Get rates as low as 2.9% Intro or 9.9% Fixed APR


Market Terms: Interpreting pre-market data in S&P 500 futures.
By Ray Cummins

One of our reader's asked about "Fair Value" and the way it
affects the opening prices of indexes on the broader market.

A futures contract is the obligation to take delivery (long) or
make delivery (short) of an underlying commodity.  The contract
sets the price of a commodity (corn, wheat, oil, etc) at a point
in time in the future.  As an example, a farmer grows wheat and
wants to sell it to a cereal company.  The cereal company wants
to buy the wheat, but not until next September so they decide to
buy a futures contract from the farmer to deliver the wheat at a
fixed (strike) price.  Since market conditions are influenced by
how much wheat is planted, weather conditions, and other outside
factors, the price of wheat will vary, as will the value of the
futures contract.  If the price of wheat is rising in the market,
the futures contract becomes more valuable and can be sold at a
profit.  The exchanges know that trading futures contracts can
be profitable so they have devised instruments not only for
tangible commodities but for stock indexes as well.

With stock index futures, a trader has a choice between buying a
basket of stocks equivalent to the S&P 500, or another index in
the cash market and buying a futures contract.  You can buy an
S&P 500 futures contract which points to a particular value at a
specific point in time and you can also sell this contract as its
value changes.  In the case of an S&P 500 index future, the owner
is contracting to receive a predetermined amount ($250 x Index)
on the third Friday of the expiration month.  This contract is
settled in cash, not by delivering a basket of all 500 stocks in
the index and each point on the index is worth $250.  If a trader
buys the cash stocks, he will incur an opportunity cost, as he
could have simply invested in Treasury bills at no risk.  Because
futures contracts do not require an up-front payment (other than
their margin requirement), they do not incur an opportunity cost,
and therefore one should be willing to pay more for futures than
for the stocks themselves.  However, the owner of the stock will
receive the stock's dividend (and the interest on that dividend)
whereas the owner of futures contract receives nothing.  This is
a holding cost of the future and the difference between the index
futures price and the price of the cash stock index is called the
"basis."  When this basis rises to a level where a trader can buy
the cash stocks at the "ask" and sell the futures at the "bid,"
and cover all of the holding costs, computer programs will try to
take advantage of the situation.  In contrast, when the futures
decline too far (relative to the cash price), arbitrageurs will
try to sell the stocks and buy the undervalued futures contracts.

Futures also have what is called "fair value" and that number is
determined by adding the interest cost of holding the stocks and
subtracting the expected dividends.  Higher interest rates will
expand the basis, as will lower dividend rates.  If the March
2001 contract has a fair value of 5 points, the average price of
the instrument should be 5 points above SPX (cash S&P).  When the
price moves above or below fair value, a change in the presumed
direction of the market is implied.  This is called the "market
indicator" of the futures and it reflects public sentiment that
provides both offensive and defensive trading opportunities, and
allows institutional investors to gauge their portfolio's return
relative to a benchmark.  For instance, when S&P 500 futures are
trading 5 points above fair value, the actual market open should
be 40-50 points higher on the Dow.

The underlying reason for pre-market futures trading is simple:
fund managers and institutional investors use futures to increase
or reduce exposure to the equities markets as their cash holdings
dictate.  In addition, many professional traders maintain large
positions that can be significantly affected by market direction.
Since the most popular index options (OEX, SPX, NDX) on the CBOE
do not trade until a large majority of the underlying issues are
active, futures are often the only way to manage losses and lock-
in gains when unexpected news or company announcements threatens
one's portfolio value.

Good Luck!

                      *** WARNING!!! ***
Occasionally a company will experience catastrophic news causing
a severe drop in the stock price. This may cause a devastatingly
large loss which may wipe out all of your smaller gains. There is
one very important rule; Don't sell naked puts on stocks that you
don't want to own! It is also important that you consider using
trading STOPS on naked option positions to help limit losses when
the stock price drops. Many professional traders suggest closing
the position when the stock price falls below the sold strike or
using a buy-to-close STOP at a price that is no more than twice
the original premium from the sold option.


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

CLPA    6.25   6.72   JAN   5.00  0.25  *$  0.25  36.2%
PHI    17.81  17.69   JAN  15.00  0.50  *$  0.50  15.1%
KLAC   33.69  39.94   JAN  25.00  0.75  *$  0.75  14.5%
PLNR   28.88  23.38   JAN  22.50  0.63  *$  0.63  10.7%
CNF    33.81  32.00   JAN  30.00  0.69  *$  0.69   9.6%
CHTR   22.00  23.00   JAN  20.00  0.81  *$  0.81   9.3%
BSTE   37.50  28.50   JAN  25.00  0.69  *$  0.69   9.2%
STAT   26.44  23.50   JAN  22.50  0.44  *$  0.44   9.0%
NEM    16.25  16.88   JAN  15.00  0.88  *$  0.88   8.9%
ALSI   33.63  34.50   JAN  25.00  0.44  *$  0.44   8.9%
PHCC   40.81  36.38   JAN  32.50  0.50  *$  0.50   8.4%
AEIS   24.38  29.31   JAN  20.00  0.69  *$  0.69   8.2%
CAL    56.50  52.00   JAN  50.00  0.63  *$  0.63   8.2%
ADVP   39.50  39.69   JAN  30.00  0.81  *$  0.81   8.1%
HCR    19.69  20.06   JAN  17.50  0.44  *$  0.44   7.8%
HD     49.75  49.13   JAN  45.00  0.56  *$  0.56   7.7%
MU     35.88  41.44   JAN  25.00  0.69  *$  0.69   7.6%
ADLAC  48.56  46.44   JAN  35.00  0.69  *$  0.69   7.2%
CPRT   20.25  17.88   JAN  17.50  0.38  *$  0.38   7.2%
LFG    38.38  38.44   JAN  35.00  1.00  *$  1.00   6.7%
C      53.69  53.13   JAN  50.00  0.56  *$  0.56   6.6%
PPDI   48.19  48.06   JAN  40.00  0.69  *$  0.69   6.4%
COST   41.31  43.06   JAN  37.50  0.38  *$  0.38   6.3%
SPF    25.44  24.56   JAN  22.50  0.69  *$  0.69   6.3%
TXN    47.63  47.88   JAN  32.50  0.56  *$  0.56   6.0%
GM     54.00  52.88   JAN  50.00  0.50  *$  0.50   6.0%
INSUA  39.88  35.81   JAN  35.00  0.44  *$  0.44   5.5%
BSTE   36.94  28.50   JAN  22.50  0.50  *$  0.50   5.5%
NKE    51.19  56.44   JAN  45.00  0.75  *$  0.75   5.4%
TXCC   47.88  40.31   JAN  25.00  0.75  *$  0.75   5.3%
KLAC   35.94  39.94   JAN  22.50  0.56  *$  0.56   5.2%
SNPS   42.13  51.56   JAN  35.00  0.88  *$  0.88   5.2%
BCHE   28.38  33.13   JAN  25.00  0.50  *$  0.50   5.1%
CCR    41.69  47.06   JAN  35.00  0.75  *$  0.75   5.1%
FNSR   37.50  33.19   JAN  22.50  0.56  *$  0.56   5.0%
ADLAC  40.81  46.44   JAN  30.00  0.50  *$  0.50   5.0%
OXY    22.56  23.06   JAN  20.00  0.56  *$  0.56   4.9%

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


The big news of the week came Monday before the open as American
Airlines Holdings (AMR) became the savior of beleaguered Trans
World Airlines (TWA).  The proposed buyout of TWA left little
room for (near-term) upside potential and we will not record a
position in the issue.  Insituform (INSUA) continues to trade
near its 150 dma; a key moment.  A break-even exit prior to next
Friday's expiration seems very prudent.  Planar Systems' (PLNR)
recovery to its 50 dma appears to offer a second chance to avoid
owning the issue.  Biosite Diagnostics (BSTE) is testing its
December lows; also a key moment.  Priority Healthcare (PHCC)
appears to be struggling as the technicals continue to weaken.
Continental Airlines (CAL) should have offered a much better
cost basis (or even a lower strike) for those who entered the
position.  It's time to decide whether to risk owning Copart
(CPRT) or simply exit the position.  Pharma Products (PPDI) did
manage to test its 30 dma near $40; keep a close watch on the

Positions Closed:

Cor Therapeutics (CORR) - The recent news-driven rally marks
this candidate for the monthly "Murphy's Law" award.


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

RATL   47.88  FEB  35.00  RAQ NG  1.25  198  33.75   34    10.3%
GMST   52.69  FEB  35.00  QLF NG  1.19  178  33.81   34     9.1%
SMTC   27.75  FEB  17.50  QTU NZ  0.63  0    16.87   34     9.1%
PLUG   19.94  FEB  12.50  PQL NV  0.44  14   12.06   34     8.9%
ISSI   17.75  FEB  12.50  XUS NV  0.38  110  12.12   34     8.7%
MFNX   18.69  FEB  12.50  QFN NN  0.38  268  12.12   34     8.3%
AVCI   37.13  FEB  20.00  QYV ND  0.69  321  19.31   34     7.6%

Company Descriptions

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

AVCI - Avici Systems  $37.13  *** Bottom Fishing! ***

Avici Systems develops and sells high-speed data networking
equipment that enables communications service providers to
transmit high volumes of information across their fiber optic
networks.  The company's high-performance solution is being
marketed to telecommunications companies and Internet service
providers that are creating next-generation optical networks to
address the increasing data traffic across the Internet.  The
company's shares have been on the move after analysts reported
that Avici could handily meet and even beat consensus revenue
estimates for the quarter.  The earnings announcement is due
next week and this position offers favorable speculation on the
outcome of the report.

FEB 20.00 QYV ND LB=0.69 OI=321 CB=19.31 DE=34 MR=7.6%

GMST - Gemstar  $52.69  *** An Old Favorite! ***

Gemstar-TV Guide International Group develops, markets and
licenses proprietary technologies and systems that simplify
and enhance consumers' interaction with electronics products
and other platforms that deliver video, programming information
and other data.  Their first proprietary system, VCR Plus+, is
currently incorporated into virtually every major brand of VCR
sold worldwide.  The company has also developed and acquired a
large portfolio of technologies and intellectual property to
implement interactive program guides (Gemstar Guide Technology),
which enable consumers to navigate through, sort, select and
record television programming.  Gemstar is an OIN favorite as
the options premiums are generally robust and the issue has a
unique niche in the consumer electronics market.  The recent
bullish activity indicates that investors are betting the stock
will return to higher valuations in the coming months.

FEB 35.00 QLF NG LB=1.19 OI=178 CB=33.81 DE=34 MR=9.1%

ISSI - Integrated Silicon Solution  $17.75  *** On The Move! ***

Integrated Silicon Solution designs, develops and markets high
performance memory semiconductors used in Internet access devices,
networking equipment, telecom and mobile communications equipment,
and computer peripherals.  Its high speed and low power SRAMs and
its low/medium density DRAMs enable customers to design products
that meet the demanding connectivity and portability requirements
of the data communications and wireless communications markets.
Its objective is to capitalize on trends such as the expansion of
the communications and Internet infrastructure, the proliferation
of wireless devices, and other trends in electronics technologies.
Banc of America Securities recently issued some favorable comments
on the company and the stock responded with a rally to a 3-month
high.  The company's earnings are due on January 24.

FEB 12.50 XUS NV LB=0.38 OI=110 CB=12.12 DE=34 MR=8.7%

MFNX - Metromedia Fiber Network  $18.69  *** Rally Mode! ***

Metromedia Fiber Network provides fiber optic infrastructure and
high-bandwidth Internet connectivity for its communications
intensive customers.  The company also provides connectivity that
enables mission critical Internet applications to thrive, as well
as high-bandwidth infrastructure, including managed co-location
services.  Metromedia recently reaffirmed its quarterly revenue
outlook and said it expects strong growth in 2001.  The company
also said it sees 2001 revenue of about $475 million, as a result
of long-term customer contracts, new business and "accelerating
strong demand" for fiber-optic infrastructure among communication
carriers, businesses and government organizations.  The projection
would top analysts' expectations of $390.7 million for 2001.  In
addition, Robertson Stephens offered some bullish comments on the
company last week and the share value has responded appropriately.

FEB 12.50 QFN NN LB=0.38 OI=268 CB=12.12 DE=34 MR=8.3%

PLUG - Plug Power  $19.94  *** Utility Alternative! ***

Plug Power designs and develops on-site electricity generation
systems utilizing advanced proton exchange membrane fuel cells
for residential applications.  The company's residential fuel
cell system will be an appliance that will produce electricity
through a clean, efficient process without combustion.  The
system will receive fuel from a home's existing natural gas line
or propane tank, convert the fuel into a hydrogen-rich stream,
and then combine it with oxygen from the air in a chemical
reaction that produces electric power.  The company plans to
bring its first residential fuel cell systems to market in 2001,
and, by 2003 expects to offer different model sizes designed to
meet the specific power needs of various market segments.  The
recent problems with California utility companies have generated
new interest in this issue and further upside activity is likely.

FEB 12.50 PQL NV LB=0.44 OI=14 CB=12.06 DE=34 MR=8.9%

RATL - Rational Software  $47.88  *** Solid Earnings! ***

Rational Software is a provider of integrated solutions that
automate the software development process.  The company's
integrated solutions include tools, software engineering best
practices, and services that allow customers to successfully
and efficiently develop and deploy software.  The company's
solutions help customers organize, automate, and simplify the
software development process and enable them to achieve a
competitive advantage by being able to more quickly develop
and deploy high-quality, mission-critical software.  Rational
rallied last week after analysts praised its quarterly reports
and revised guidance.  The company topped consensus estimates
and raised its targets despite a slowdown in IT-spending, and
now the issue is bracing for a move to its old trading range
near $60.

FEB 35.00 RAQ NG LB=1.25 OI=198 CB=33.75 DE=34 MR=10.3%

SMTC - Semtech  $27.75  *** Own This One! ***

Semtech is a supplier of analog and mixed-signal semiconductors.
Semtech designs, manufactures, and markets a range of products
for commercial applications, the majority of which are sold to
the communications, industrial and computer markets.  Semtech's
semiconductors enable power management, test, protection and a
wide range of other functions in products that require signal
processing.  Semtech reported earlier in the month it will meet
consensus fourth-quarter earnings expectations, but indicated
that revenue for the period would be flat on a sequential basis.
The company blamed the revenue shortcoming on a reduction in
orders by customers and a temporary slowdown in demand for
certain communications equipment.  Semtech also said revenue for
the first quarter should be sequentially flat, but resume growth
in the second quarter.  For 2001, the company expects revenue to
grow by 47% and income to more than double.  Investors appear to
favor the outlook as the issue has rallied significantly since
the announcement and the potential for future gains is excellent.

FEB 17.50 QTU NZ LB=0.63 OI=0 CB=16.87 DE=34 MR=9.1%



The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

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

SNPS   51.56  FEB  45.00  YPQ NI  1.56  103  43.44   34     8.9%
BRW    27.56  FEB  22.50  BRW NX  0.63  15   21.87   34     8.5%
BMCS   26.44  FEB  20.00  BCQ ND  0.50  249  19.50   34     7.7%
AXTI   42.13  FEB  30.00  AQX NF  0.63  10   29.37   34     6.2%
PCAR   51.13  FEB  45.00  PAQ NI  0.94  325  44.06   34     5.5%
SKM    28.94  FEB  22.50  SKM NX  0.38  1    22.12   34     5.5%

Get 10 FREE Issues of Investor's Business Daily. No obligation.
Nothing to cancel.


Time for a holiday!

Stocks consolidated Friday in the wake of new earnings warnings
and indications that the Fed will forego a rate cut at its next

Friday, January 12

Stocks consolidated today in the wake of new earnings warnings
and indications that the Fed will forego a rate cut at its next
meeting.  The NASDAQ closed 14 points on weakness in computer
hardware stocks and the Dow industrials ended 84 points lower at
10,525 as economically-sensitive issues weighed heavily on the
blue-chip average.  The S&P 500 index was down 8 points at 1,318.
Volume on the NYSE hit 1.26 billion shares, with winners beating
losers 1,466 to 1,404.  Activity on the NASDAQ was moderate at
2.5 billion shares traded, with advances beating declines 2,373
to 1,462.  The 30-year Treasury fell 1 13/32, pushing its yield
up to 5.63%.

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

Motorola         MOT    JAN25C/FEB25C   $3.62   debit   calendar
Advanced Energy  AEIS   FEB20P/FEB22P   $0.50   credit  bull-put
U.S. Bancorp     USB    FEB30C/FEB30P   $3.31   debit   straddle

All of our new positions offered reasonable entry points during
the session.  Advanced Energy is the only issue that could have
provided a better premium, but after falling slightly during the
morning, it closed almost where it opened at $29.31.  There will
almost certainly be an opportunity to improve the price next week.

Portfolio Plays:

The market took a breather today, after several major technology
companies issued disappointing profit forecasts.  Negative news
from Gateway (GTW) and Hewlett-Packard (HWP) added to the recent
pessimism from Yahoo (YHOO) and Nokia (NOK) to put an end to the
Nasdaq rally.  Salomon Smith Barney also put new pressure on the
group with a downgrade of Sun Microsystems (SUNW).  On the Dow,
United Technologies (UTX), Minnesota Mining (MMM), and Procter &
Gamble (PG) led on the downside, while Johnson & Johnson (JNJ),
Disney (DIS) and Boeing (BA) edged higher.  Among broader market
issues, utility, biotechnology, retail, drug, and gold companies
advanced while bank and cyclical shares declined.  Our portfolio
was dominated by technology issues but once again, many of the
best performances were seen in the small-cap category.  Portal
Software (PRSF) jumped $1.12 to $9 and Conseco (CNC) continued
to rally, closing near a nine-month high at $14.69.  Among the
mid-cap positions, AT&T (T) rose $1.19 to $24.44 and our bullish
calendar spread at $25 is approaching the maximum profit range.
Costco (COST) was the leader in the retail group, up $1.75 to
$43 and our (adjusted) Covered-call at $40 should expire with a
favorable return.  Bearish positions in Pfizer (PFE), Bowater
(BOW), CVT Therapeutics (CVTX), and Allergan (AGN) are expected
to finish profitably.  The Straddles section enjoyed some big
winners this week and today's activity provided great returns
in two recent plays.  Federated Investors (FII) traded as high
as $27.81, providing a closing credit of $2.62 on $1.50 initial
debit.  Mips Technologies (MIPS) closed above $30, pushing our
speculation play to a $5.25 overall credit.  That's $1.75 on
$3.50 invested in less than one week.  Our aggressive straddle
on Three-Five Systems (TFS) also began to achieve profits.  The
issue traded as high as $23.56 during the session, providing a
$0.75 return on $2.50 invested, and there is still a week to go.
Southwest Securities (SWS) also achieved profitability, with a
total credit of $6.38 on $5.31 invested, and the options expire
in March.

Questions & comments on spreads/combos to Contact Support
                   - STRADDLES & STRANGLES -

With the increasing number of requests for debit straddles and a
slew of quarterly earnings announcements occurring over the next
few weeks, we decided to offer some additional positions in this
category.  As we noted last Sunday, there has recently been a lot
of option activity in stocks that are about to report earnings
and one strategy that can work well in this scenario is to buy a
straddle or strangle on the issue.  This conservative technique
can take advantage of a surprise move in either direction, and
can profit when the stock moves ahead of the company's earnings,
in expectation of a particular outcome.  The basic requirements
for success are inexpensive options on an issue that has (proven)
historical volatility.  These positions meet the basic criteria
for a favorable debit straddle (or strangle); inexpensive option
premiums, a history of adequate price movement and future events
or activities that may generate volatility in the issue or its
industry.  Since your market outlook or analysis methods may be
different than ours, each of these recommendations should be
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and trading style.  Due to the expanded
number of positions this week, these plays will not be tracked as
part of the regular section.  Also, the market is closed for the
Martin Luther King, Jr. Holiday so the option premiums may have
changed substantially when the positions reopen on Tuesday.  As
always, due diligence is a must!

AFC - Allmerica Financial  $59.06  *** Another Try! ***

Allmerica Financial is a non-insurance holding company operating
in three major segments.  The company's Risk Management segment
consists primarily of its property and casualty operations, which
are generated through The Hanover Insurance Company and Citizens
Insurance Company of America.  Through its Allmerica Financial
Services segment, the company provides investment-oriented life
insurance and annuities to individuals and businesses throughout
the United States.  With the Allmerica Asset Management segment,
the company offers Stable Value Products, including as Guaranteed
Investment Contracts, to ERISA qualified retirement plans as well
as other institutional buyers, such as money funds, and corporate
cash management programs and securities collateral reinvestment
programs.  In addition to the three operating segments, Allmerica
also has a corporate segment, which consists primarily of cash,
investments, Corporate debt and Capital Securities.  The company
is scheduled to report earnings in early February.

This issue has provided profitable straddles on many occasions,
even with the low Open Interest in the Put options.  However,
the current bid/ask spreads are acceptable and the trading volume
in both series will certainly increase as we move into February.

PLAY (conservative - neutral/debit straddle):

BUY  CALL  FEB-60.00  AFC-BL  OI=55  A=$2.25
BUY  PUT   FEB-60.00  AFC-NL  OI=1   A=$3.00

CI - Cigna Corporation  $115.20  *** Big Mover! ***

CIGNA Corporation and its subsidiaries constitute one of the
largest investor-owned employee benefits organizations in the
United States.  The company's subsidiaries are major providers
of health care products and services, group life, accident and
disability insurance, retirement products and services and
investment management.  CIGNA offers a range of managed care and
indemnity products and services to meet the needs of employers
of all sizes. The customers of these operations range in size
from some of the largest United States corporations to small
enterprises, and include employers, multiple employer groups,
unions, professional associations, government-sponsored programs,
and other groups.  CI's products are marketed in all 50 states,
the District of Columbia and Puerto Rico.  Cigna's quarterly
report is due February 8, 2001.

PLAY (conservative - neutral/debit straddle):

BUY  CALL  FEB-115.00  CI-BC  OI=3  A=$6.30
BUY  PUT   FEB-115.00  CI-NC  OI=0  A=$5.80

IPG - Interpublic Group  $45.40  *** Cheap Speculation! ***

The Interpublic Group is one of the largest organizations of
advertising agencies and marketing service companies, with global
operations in the sectors of advertising, independent media
buying, direct marketing, healthcare communications, interactive
consulting and communications services, marketing research,
promotions, experiential marketing, public relations and sports
marketing.  Its companies include McCann-Erickson WorldGroup, The
Lowe Group, Draft WorldWide, Initiative Media Worldwide, Octagon,
Zentropy Partners, NFO Worldwide, The Allied Communications Group
and other related companies.  IPG's earnings are due February 21.

PLAY (speculative - neutral/debit strangle):

BUY  CALL  FEB-50.00  IPG-BJ  OI=50   A=$0.75
BUY  PUT   FEB-40.00  IPG-NH  OI=350  A=$0.50

ORBK - Orbotech  $42.00  *** Probability Play! ***

Orbotech develops and produces advanced hi-tech equipment for
inspecting and imaging circuit boards and display panels.  The
company is engaged in providing advanced technology solutions
used by electronics manufacturers to facilitate the highest
quality production of printed circuit boards, unique flat-panel
displays, integrated circuit packaging and others electronics
assemblies.  Orbotech's automated optical inspection, imaging
and computer-aided manufacturing technologies enable customers
to achieve the increased yields and throughput essential to
remaining at the forefront of electronics production.  Orbotech
is scheduled to announce earnings in early February.

PLAY (speculative - neutral/debit strangle):

BUY  CALL  FEB-45.00  OKQ-BI  OI=567  A=$2.68
BUY  PUT   FEB-40.00  OKQ-NH  OI=40   A=$2.75

SKYW - SkyWest  $24.00  *** Range Roller! ***

SkyWest, through its wholly owned subsidiary, SkyWest Airlines,
operates regional airlines in the United States.  SkyWest offers
scheduled passenger and air freight service with approximately
1,000 daily departures to 63 cities in 13 western states and
Canada.  Pursuant to a joint marketing and code sharing agreement
with Delta Airlines, SkyWest operates as a Delta Connection in
certain SkyWest markets.  They also operate as United Express
in certain California locations.  Many of the major airlines
report next week but SKYW's earnings are not due until 1/26/01.

Note: There is also a short-term position available with January
options at the $25 strike.

PLAY (conservative - neutral/debit straddle):

BUY  CALL  FEB-25.00  UWQ-BE  OI=15  A=$1.68
BUY  PUT   FEB-25.00  UWQ-NE  OI=0   A=$1.93

TYC - TYCO International  $59.25  *** Key Moment! ***

Tyco International is a diversified manufacturing and service
company.  Through its subsidiaries, the company manufactures
and distributes electrical and electronic components and unique
multi-layer printed circuit boards.  They also design, engineer,
manufacture, install, operate and maintain undersea telecom
systems and manufacture and distribute a range of disposable
medical supplies and other specialty products.  In addition, Tyco
designs, manufactures, installs and services fire detection and
suppression systems and installs, monitors and maintains a wide
range of electronic security systems; and designs, manufactures
and distributes flow control products and provides environmental
consulting services.  Tyco recently acquired Lucent Technologies'
Power Systems (LPS) business unit.  LPS provides a full line of
energy solutions and power products for telecom service providers
and for the computer industry.  Tyco reports earnings next week!

PLAY (conservative - neutral/debit straddle):

BUY  CALL  FEB-60.00  TYC-BL  OI=12664  A=$2.88
BUY  PUT   FEB-60.00  TYC-NL  OI=118    A=$3.25


Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?

Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!



Please read our disclaimer at:


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.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives