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Daily Newsletter, Sunday, 02/04/2001

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The Option Investor Newsletter                   Sunday 02-04-2001
Copyright 2001, All rights reserved.                        1 of 5
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******************************************************************
MARKET STATS FOR LAST WEEK AND PRIOR WEEKS
******************************************************************
        WE 2-2           WE 1-26          WE 1-19          WE 1-13
DOW    10864.10 +204.12 10659.98 + 72.39 10587.59 + 62.21  -136.63
Nasdaq  2660.50 -120.80  2781.30 + 10.92  2770.38 +143.88  +218.85
S&P-100  705.48 -  3.58   709.06 +  3.83   705.23 + 17.35  +  6.17
S&P-500 1349.47 -  5.48  1354.95 + 12.40  1342.55 + 24.00  + 20.20
W5000  12450.10 - 77.20 12527.30 +143.40 12383.90 +202.60  +308.80
RUT      501.50 +  2.82   498.68 + 10.59   488.09 +  2.34  + 22.61
TRAN    3092.76 +136.57  2956.19 +  2.90  2953.29 - 48.69  -112.01
VIX       24.75 -   .39    25.14 -  1.15    26.29 -  1.33  -  4.41
Put/Call    .60              .59              .48              .60
******************************************************************

OOPS!
By Jim Brown

Thursday OIN, "There is no reason for the markets to fall other
than a disaster from CSCO or a Jobs Report tomorrow showing several
hundred thousand more jobs than the 90,000 expected." OOPS! The Jobs
report showed an increase in new jobs of +268,000, substantially
more than the expected +90K. Many analysts had whisper numbers
that had actually been negative. Surprise, surprise, surprise, as
Gomer Pyle would say. The Dow, ready to breakout over resistance
at 11,000 was suddenly looking for support much lower. The Nasdaq,
held up for a week by the Dow, found no support from the blue chip
index and headed south as well.







What a difference a day makes! Just a number or two, a few extra
zeros, an extra decimal place and wham! The Fed induced rally is
turned instantly into a bear trap and investors everywhere are
wondering what hit them. The Dow finished -165 points below its
high as investors worried that the aggressive Fed had turned back
into teddy bear due to signs of an economic rebound where one was
not expected. The huge jump in new jobs over what had been expected
was mostly due to the construction area. New home sales are rising
and +145,000 of the new jobs were in construction. This was the
biggest jump in construction jobs since 1978. Manufacturing is
still in a recession showing a loss of -65,000 jobs but the
headline number was all that investors could see. The unemployment
rate climbed to 4.2% which is the highest rate in sixteen months.
The higher unemployment is welcome as it reduces the wage creep
but it was not enough to offset the market shock.

The problem is simple. Investors were ready to buy stocks because
the Fed was on the rate cut trail not because earnings from stocks
were so compelling they just had to buy. With the Fed now assumed
to be on the sidelines until the March-20th meeting the reasons
to buy just shrunk. The 100 basis point drop in the last month is
already priced into the market with the big gains since Jan-3rd.
The next cut, if it is a cut at all, is now over six weeks away.
If the economy is really rebounding then the Fed may wait
instead of possibly overheating the economy again. The premise
of a series of rate cuts was instantly eradicated and now we are
faced with buying stocks on fundamentals and as we all know the
fundamentals look pretty bad.

Just how bad will be tested on Tuesday when Nasdaq:CSCO announces
earnings and more importantly gives the equivalent of the state of
the union address on the tech sector. Only 3.50 away from its 52-wk
low of $32, CSCO is widely expected to warn. When John Chambers was
asked last week if January was a little challenging, John said that
it was MORE than a little challenging. This brings up the specter
that CSCO may actually miss earnings although nobody is actually
saying that out loud. Still the guidance going forward is absolutely
crucial. With literally every major tech stock already warning
and those warnings, ala PMCS, becoming increasingly drastic, the
importance of the CSCO guidance becomes even more important.

The NYSE:NSM warning from Thursday took a toll on the chip sector
with Nasdaq:RMBS, Nasdaq:INTC, Nasdaq:XLNX, Nasdaq:AMCC and Nasdaq:
PMCS all finishing lower. The chip stocks, many of which sell to
CSCO are all sliding weakening as investors worry about a negative
forecast.

Retail stocks also fell on Friday as investors reacted to the
dropping consumer confidence and now a possible halt in the
rate cuts. No sector, other than possibly Drugs as a defensive
play, appears to be immune to the new negative market sentiment.

The only positive was the low volume on a negative day. The
NYSE only managed slightly over one billion shares and the
Nasdaq a meager 1.6 billion. The volume on the Nasdaq is not
something we can count on. They are switching from a double
counting system to a single counting process like the NYSE.
Because not every trade on the Nasdaq was double counted the
actual impact of the change is very hard to determine. Many
analysts claim the impact will only be a ten percent drop but
the 1.6 billion today was about a 35% drop from recent days.
Was it simply low volume or a change in counting? We may
never know and can't use the volume indicator for confirmation
of any move for several weeks until new averages are created.

Declines were negative on both indexes but new 52-week highs
beat out new lows by 440:55 on all exchanges. This is not a
negative trend. So now we are faced with conflicting scenarios.
Did the markets really turn over and are about to retest old
lows OR did traders simply decide to take profit on some
negative economic news?

For the last two days I have been telling you we could have
a dip as investors sold the rate cut news. We got the dip.
I suggested buying any rebound from under 2700 and we are
under 2700 but not yet rebounding. From the looks of the
Nasdaq chart at the close on Friday we are not finished
dipping yet. The CSCO earnings are looming large in our
future. Even if the Jobs Report had not clouded the picture
it is unlikely Monday would have been a big up day. Nobody
wants to take a position before the CSCO event. Since 2700
only held for about two hours the next support to be tested
it about 2575. I could see this happening on Monday.

Other than the CSCO earnings the next week is pretty flat
as far as market moving events are concerned. Earnings are
slowing and the economic calendar is positively weak. Monday
is the NAPM non-manufacturing report which is not a market
mover. Wednesday is the Productivity report and Wholesale
Inventories on Friday. A pretty bland week.

As traders we need to be conservative. We are faced with
a bipolar market. The Nasdaq struggled all week and ended
Friday with more apparent weakness ahead. The Dow failed
at 11,000 again after a four day rally but showed a little
pulse at the close. Our long term outlook is still weighted
toward the Fed cutting rates again in March. The recession
in manufacturing is not over. We may not get an intra-meeting
cut but we should get something in March. This is the
underlying foundation for the market. If the market starts
crashing again we may see the maestro of money pull another
surprise rate cut out of his hat to reinforce that floor.
Greenspan does not want to admit it but much of the current
budget surplus comes from stock market profits. Kill the
market and kill the surplus. Kill the surplus and the tax
cut fails as well. A real problem for the king of green.

My previous guidance still holds. Aggressive traders buy
any rebound from under 2700. For conservative traders wait
for a breakout above 2700 again. (yes I lowered it from
2870) All traders should wait for the CSCO earnings to make
sure there is not a hidden market bomb. Don't fret if there
appears to be a rally between now and the announcement. If
it is real it will still be there after the earnings.
According to Austin the commercial traders added to their
short positions yet again. This is not encouraging
considering this is a lagging indicator. What do they know
that we don't? Regardless of what happens over the next
couple weeks, if you stick to the strategy listed above
your risk will be minimal. It is simple, stay short or
flat under 2700 and long over 2700. Got it! Now relax!

In non-trading news I have several great announcements.
You may have seen over the last week Renee White has
returned to OIN and is writing in the Traders Corner
again. She is an old hand here at OIN having written
for over two years now. The guys in the crowd are saying
"so what?" Well I have another surprise for you. Janar
Wasito has also returned to writing for OIN and our sister
site IndexSkybox.com starting this Sunday. Renee and Janar
are two of the most read writers we have ever had and I
am really glad to welcome them back!

It is with even more excitement that I get to announce
the preliminary list of guest speakers for the April Expo.
You will not believe the heavyweights we have lined up
for this event. Get ready to be amazed!



Tom DeMark, author of "Day Trading Options", "New Market
Timing Techniques" and "The New Science of Technical
Analysis." Tom has been a distinguished authority on stock,
option trading and market timing for over 30 years. He
manages a $4 billion hedge fund and has been a consultant
to George Soros, Morgan Bank, Citibank, Goldman Sachs, etc.




Jon Najarian, "Doctor J" as he is called at the CBOE. Jon
started at the CBOE in 1981 where he found his discipline,
quick reflexes and competitive nature, developed while a
running back for the Chicago Bears, were well suited to
the demands of floor trading. DRJ's success in the pit led
him to found Mercury Trading in 1989. The firm currently
makes markets in more than 90 high-tech and biotech stocks
and trades between 25,000 - 40,000 options per day. Jon
appears daily on "FOX News in the Morning," serves as the
noon anchor on "Webfn.com" and can be heard four times a
day on CBS radio.



Mark Leibovit - Chief Market Strategist at VRTrader.com,
his technical expertise is in volume analysis, providing
short term, high performance stock trades and market timing
based on his proprietary "VOLUME REVERSAL" (tm) trading
program. Mark is the number one market timer for the last
six months as ranked by Timer Digest. He was a market
consultant ("Elf") on Louis Rukeyser's Wall Street Week
televison program for seven years.



Richard W Arms, Jr., Editor of ArmsInsider.com is a financial
consultant to institutional investors and a private portfolio
manager based in Albuquerque. He is a noted expert in the
field of technical and market analysis, the 1995 winner of the
prestigious Market Technicians Award and the author of several
best selling books and articles on his ground breaking theories
in volume analysis and market forecasting. This key technical
tool for understanding market price movement is listed daily
in the Wall Street Journal and is flashed once a minute on CNBC.



Mark Skousen, Ph.D, Editor of FORECASTS & STRATEGIES since 1980
is a professional economist with an uncommon knack for turning
his understanding of economics into highly valuable investing
advice. Since 1980 he has lead hundreds of thousands of
subscribers to unique investing opportunities often ignored
or overlooked by other investing advisers. Skousen is best-known
for his advice to  subscribers to "sell all stocks and mutual
funds" less than six weeks before the 1987 stock market crash
that wiped out billions in investors' wealth. He has consistently
been on the right side of major investing trends in his career
with F&S and, before that, with Inflation Survival Letter.


Steve Nison - Steve Nison is not only the world's foremost
expert on Candlestick Charting techniques, he's the author of
the two top selling, definitive books on the topic:
Japanese Candlestick Charting Techniques and Beyond Candlesticks.
He has trained and lectured investors and investment firms around
the world on how to integrate these methods into their investment
strategies.



Jim Crimmins - Jim is president of TradersAccounting.com and a
noted authority on tax issues for traders. Jim is an expert on
gaining Trader Status and puts on seminars on "Tax Free Trading"
around the country. If you have been to a money show, you have
probably seen Jim with flocks of people around him. Jim is the
authority on tax accounting for traders! Jim will be speaking
on Trader Status, Mark to Market and IRS do's and don'ts for
traders.

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

Is that a great lineup or what! We are still waiting on
confirmations from several other possibles which will help
make this the best seminar we have ever produced. In addition
to the speakers above the OIN staff you read every day will
also be teaching in-depth money making stock and option
strategies. Over 20 professionals in one spot dedicated
to providing a quality educational experience. Any two
of the speakers above would be worth the money and you
will learn from over 20. Can you afford not to come?

Click here for more info:
https://secure.sungrp.com/workshop/april01/index.asp

Trade smart, enter passively, exit aggressively!

Jim Brown
Editor


************************************
Spring Options Workshop and Bootcamp
April 5th-9th, Denver Colorado
************************************

OptionInvestor is proud to announce our third annual Spring
option workshop in Denver Colorado. This power packed five-day
event is structured to fully educate you on advanced option
strategies and will make you a better and more profitable trader.

If you attended the March Denver Expo last year and thought it
was the best function you had ever attended.. You haven't seen
anything yet! Great food, entertainment, education and just
plain fun in sunny Denver. The biggest complaint in March was
the massive weight gain experienced by the attendees from the
gourmet menu. We know how to put on a function. Ask anyone who
came last March!

We guarantee the speaker lineup to be second to none. In the
October seminar not only did we have Jim Brown and over 15 of
the OIN staff but Steve Nison, the father of modern candlestick
charting. Also, Dick Arms, creator of the Arms Index or the Trin
Indicator, Gregory Spear, author of the Spear Report, Stan Kim,
founder of the Snail Trader System and Jim Crimmins, president
of TradersAccounting.com. We promise the lineup this April will
exceed your expectations again!

This is not a beginner seminar but if you feel the need to brush
up on the basic trading strategies then we have an optional boot
camp the day before the four day seminar begins. If you have
traded options before and you are comfortable with the basic
strategies then this seminar will take you to a new trading
level. If you have been trading options for sometime and are
ready to broaden your knowledge and improve your trading results
in all kinds of markets then this is for you. Meet and interact
in a small group setting with the writers you have seen in
OptionInvestor for the last four years.

We are starting the seminar with an optional one day boot camp
which will cover all the basic strategies, calls, puts, leaps,
covered calls, naked puts, spreads, straddles, etc. This will
help investors not familiar with all the basic strategies get
up to speed before the intensive education and the advanced
material in the main seminar. The boot camp will be 8 hrs of
personal instruction by the OIN staff.

The main seminar will begin with a reception, dinner and
entertainment on Thursday night and continue non-stop until
noon on Monday. We mean non-stop. We don't quit until you do
and many optional sessions last until 10:PM or later.

The detailed schedule will be posted in about two weeks. There
will not be individual breakout sessions during the day. Each
topic will be covered in 1-2 hr general sessions taught by one
or more OptionInvestor staff and presented on three giant screens.
In the evening we will offer five of our popular chalk talk
sessions for that personal question and answer interaction.

The list of instructors is led by Jim Brown and will include
many OIN staff with outstanding guest speakers during lunch
and dinner each day. The Spring Denver Expo seminars fill up
fast and seating is limited! SIGN UP NOW or risk missing out
on this opportunity.

Unlike other seminars with only two or three instructors, you
will get in-depth knowledge from many different instructors
who are experts in their field.

The cost for the four-day workshop, April 6th to 9th is only
$2995 (spouse only $1495). This includes breakfast, lunch and
supper each day. All course materials, a CD of all the
presentations and a professional video package of the entire
seminar so you can review the material at home in the comfort
of your living room.  There is also a $500 discount if you
have attended a prior OIN seminar.

This is not a prepackaged presentation that gets repeated over
and over with stale information. This is a one-time production
and everything is fresh, live and as current as we can make it.
The videos will have your real time questions and answers and
not some from a prior class. Where else can you get intensive
yet personalized options education like this?

Do not delay as seating is very limited.
We guarantee you will not be disappointed!

You can pay for your education one bad trade at a time or you
can invest less money one time to learn how to do it right.

Click here for more info:
https://secure.sungrp.com/workshop/april01/index.asp


If you have not been to one of our Denver Expo seminars before
here are some comments from previous attendees:


The words herein are totally inadequate to express what I am
feeling about you and all the OptionInvestor organization. But
this medium is all I have. Thank you more than these few simple
words can say.

Wow, what a seminar! In my 25 years of investing I have attended
many instructional conferences, but I have never, never experienced
one like your Options Expo. The instructors were absolutely tops.
Subjects, generally were on target. Especially for me, the Skybox,
index funds/options and the early morning strategies and trading
were particularly great. The attention to the many details and
nuances were especially evident, and I guess most of the credit
that area goes to your great support team.

Now, the real challenge is to apply and implement the powerful
knowledge I was exposed to.

Sincerely and warmly,
Kevin Hughes, Denver

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

Jim & Staff,

I am sitting in the hotel room after a great 3 days in your
seminar. I can't tell you how pleased I am and want to thank
each of you for a job well done. Having been responsible for
events like this, albeit on a much smaller scale, I can recognize
all the hard work that went into the seminar. Each member of the
staff is to be congratulated!! The seminar confirmed my belief
that the OIN staff really cares about the success of their
subscribers. Jim, you all should be proud of the work you do to
enrich the lives of so many people. It is one thing to amass a
personal wealth. It is a much higher calling to help others meet
their goals in life. I was very impressed that you were emotional
in your closing remarks. You have so much to be proud of -- helping
people fish all over the world! Thanks again and I look forward
to attending another seminar in the future.

My best regards,
Jim Boettcher
Austin, Texas

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

I must say, that your seminar was outstanding!!! Sign me up for
next year. It is rare that a person of your position would share
so generously your knowledge of his trade. I hope that I will be
able to put into place much of what you taught. Every aspect of
the seminar was first class, from the hotel, to the food, the
instructors and the luncheon speakers. One of the biggest
surprises was your generosity in handing out material, and gifts.

Two weeks ago I attended a competing option seminar in Chicago
and all I got from the was coffee at the morning break, No
handouts, no food and half of the final day was promoting their
web site and additional classes. I must say your seminar far
exceeds what I got from them.

Sincerely yours,
Mike Lillis

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

Please pass on my thanks to the entire OIN group for a fabulous
EXPO. The seminar far surpassed any expectation that I would have
fathomed, had I attempted to! OIN has the right attitude and the
obvious ability to be a leader and I look forward to many years
of positive experiences with you folks.

Kind regards,
Gwen Richardson

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

GREAT JOB TO EVERYONE!

I described this event to my friends as a life changing event!
(options aside) ,the quality of people, dedication, sacrifice
of their time (the second 40+ hours a week they don't have to
work but do) they do this because they care, wanting to help
others change their life dramatically (My wife thinks I was
oxygen deprived up there !) I came back a different person for
those who know me that says a lot. Now for the options side
I have to admit there was so much info to absorb, most of it
came to me on the 2000+- mile ride home it all started to fall
into place I feel Very confident (yes Jim this can be bad but
I know this now!) Notice the patience here guys! that's one
change I have a plan to stick to !

THANK YOU !!!
Allan O'Neill

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

Need we say more? If you want to learn how to be a better trader,
making more and losing less then you should come to this seminar.
We guarantee you will not be disappointed!

For more info:

https://secure.sungrp.com/workshop/april01/index.asp


*********************
EARNINGS SCHEDLUE
Feb-5th to Feb-9th
*********************

The earnings calendar is too large to email.
Please visit the website for the complete list.


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**************
EDITOR'S PLAYS
**************

Right call, wrong timing!

This never happens to anyone else, right? I bought SPX puts
on Wednesday to capture the anticipated post FOMC sell off.
Everything was looking good until the small rally into the
close on Thursday night. I closed the position thinking the
Dow might actually break 11,000 on a good Jobs Report Friday
morning. Everyone knew the Jobs Report was going to be very
recessionary, right? Still, I closed the position just to be
safe. The rest is history. The bad Jobs Report doubled the
price of the puts, AFTER I had already closed the trade.
Surely this never happens to anyone else!





The coming week is tough to predict. The market has already
priced in the 100 basis point rate cut and the possibility of
an earnings problem from CSCO is strong. It would appear that
the direction could be down. However the Fed did cut rates
and they will probably do it again. This will be on the minds
of fund managers. Up? Down? Sideways?

My advice would be to stand aside and watch until after
the CSCO announcement and then decide which way to play.
Because our readers are mostly type-A personalities they
do not want to hear this and only want a couple killer plays
in spite of the market indecision.

Because of that I would class these plays as lottery plays
and very high risk. Use your own judgment!


AMCC - Put






AMCC is tanking with the rest of the semiconductor sector
but could rebound at any minute on any positive comments
from an analyst. AMCC just broke a trend of higher lows
and fell below the uptrend line. Support is probably in
the $60 range. The Feb-$60 put is only $2.69 and another
serious Nasdaq down day could provide a couple dollar gain.

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

CSCO - $35 Straddle



About the only thing for sure on Tuesday after the CSCO
earnings is that CSCO is likely to move strongly in one
direction or the other. With the bad news already priced
in to CSCO at $36 many analysts think we could see an
immediate rebound if the guidance is not too bad. Others
think JNPR is stealing market share faster than expected
and CSCO will drastically warn. CSCO at $25, could be,
but it could also be $42 again real soon.

The conservative way to play this would be a straddle.
Buying a call and a put at the same time. You profit from
a strong move in either direction but lose one side in a
weak move. With CSCO likely to move at least $5 up or down
the risk to this play is minimal. Your cost of entry is
only $5 and either option will be $5 or more with a move
in a single direction. The risk is a flat report and a
flat stock hovering around $35 for three more weeks. Still
should that happen you could close the position for a
small loss within a day or two of the announcement.

If you must play before the announcement this would be a
fairly safe play.

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

QQQ - Straddle



Using the same straddle concept on the QQQs would produce
a profit with a strong move in either direction. We all
agree this is likely to happen but we just do not know which
direction. The net cost of the Feb straddle is only $5.40
and one side should win.


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

If you must play, two of these three options give you some safety
and yet a chance for a big win if the market moves somewhere
quickly on the CSCO announcement.


Good Luck

Jim Brown


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


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

Groundhog Day
By Austin Passamonte

Punxatawny Phil, woodchuck weather prognosticator extraordinaire
emerged from his winter slumber on Friday and couldn't decide
whether he saw his shadow or not. It was almost a shadow but not
quite full penetration so nobody could tell which... oops, sorry,
wrong parable. That saga took place in Florida not long ago.

Nope, Phil decided winter was over and ambled off away from his
den to share lush green pastures with frisky bulls kicking up
their heels. Farmer Al came to deliver sweet feed Wednesday
afternoon at 2:16pm and all the bulls gathered round. Quickly the
feed was spurned and bulls scattered to all four corners of the
wind, nary to be seen again.

Poor Phil sat all alone & helpless in the grass when along came
Recession grizzly bear to gobble him down like a party hors
d'oeuvre. Bulls are gone, Phil was lunch and the grizzly ambles
on.

Are those storm clouds on the horizon?

Looks a little dark over Stochastics mountain and a low pressure
system threatens to push down the slopes. Lower temperatures and
turbulent wind is in the forecast. The daily news report plots
this weather system's movement from here. Better bundle up and
put a few logs on the fire, it could be awhile until warmth
returns.

Actually, the VIX & VXN barometers have been hanging at multi-
month lows the past few days. Release from there could signal
fair weather soon, so we'll keep an eye on them.

A tropical storm is beginning to form offshore as well. Only
visible to the well-trained eye, if Hurricane CSCO develops as
feared it could easily be a category-five storm. Batten down the
hatches and head for high ground, if this one strikes land late
Tuesday night it will blast the landscape apart on Wednesday and
possibly beyond. The imperfect storm.

Early February is often the coldest month with March one of our
stormiest. Can't rule out the Recession blizzard spreading a
blanket of snow across the nation and freezing things to a crawl.

Farmer Al may have delivered the feed truck a bit too late this
time. Hungry bulls needed several pounds of feed each day to
sustain life, vigor and health. Starving them for many months has
left the herd in poor shape. Dumping a ton of feed on the ground
cannot undo all of the damage malnutrition caused before, day
after growth-slowing day.

Very neglectful, Al. Those who believe you're a brilliant farmer
that ably protects his spread may soon find out modern times have
long since passed you by. Hindsight is perfect and the horizon is
beginning to clear across the vast prairie lands looking dead
flat this year, to use your words.

We hear word that your feed truck may be passing this way again
real soon, but malnourished bulls haven't begun to digest the
last heap you piled in front of them. Remember Al, it takes time
for all that feed to work its way through the system. Did you
starve your bulls way too long? Force-feeding will not, cannot
and does not make up for many months of neglect and abuse.

And so we wait to see if the bulls, gaunt from scarce feed and
ribs sticking out can fatten themselves in the week ahead. Or
will winter return with a vengeance to claim more lives and settle
across the land in a thick blanket of ice and frozen snow?

The End (or just the beginning?).

******

VIX
Friday 02/02 close: 24.75

VXN
Friday 02/02 close: 63.75

30-yr Bonds
Friday 02/02 close: 5.48%


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.

                                   Saturday
                                 (02/03/2001)
  (Open Interest)       Calls        Puts          Ratio
S&P 100 Index (OEX)
Resistance:
745 - 730                9,266          819        11.31
725 - 710                7,730        5,965         1.30

OEX close: 705.48

Support:
700 - 685                5,319       10,566         1.99
680 - 665                1,698        7,626         4.49

Maximum calls: 740/3,968
Maximum puts : 700/4,968

Moving Averages
 10 DMA  711
 20 DMA  700
 50 DMA  701
200 DMA  757


NASDAQ 100 Index (NDX/QQQ)
Resistance:
 71 - 69                75,075         7,663         9.80
 68 - 66                45,043        16,677         2.77
 65 - 63                46,552        61,081          .76

QQQ(NDX)close: 61.55

Support:
 60 - 58                16,847        62,419         3.71
 57 - 55                 8,048        27,056         3.36
 54 - 52                 2,297        21,692         9.44

Maximum calls: 70/59,934
Maximum puts : 60/50,255

Moving Averages
 10 DMA 65
 20 DMA 63
 50 DMA 63
200 DMA 82


S&P 500 (SPX)
Resistance:
1425                   15,765         4,704          3.35
1400                   15,485         1,990          7.78
1375                    9,706         7,443          1.30

SPX close: 1349.47

Support:
1325                   11,225        12,117          1.08
1300                    2,964        13,771          4.65
1275                      486        10,714         22.05

Maximum calls: 1425/17,765
Maximum puts : 1350/15,376

Moving Averages
 10 DMA 1360
 20 DMA 1340
 50 DMA 1334
200 DMA 1416

*****

CBOT Commitment Of Traders Report: Friday 02/02
Weekly COT report discloses positions held by small specs and
commercial traders of index futures contracts on the Chicago
Board Of Trade.

Small specs are the general trading public with commercials being
financial institutions. Commercials are historically on the
correct side of future trend changes while small specs are not.
Extreme divergence between each signals a possible market turn in
favor of the commercial trader’s direction.

                     Small Specs             Commercials
DJIA futures     (Current) (Previous)    (Current) (Previous)
Open Interest
Net Value          -467      +426          -5599     -7528

Total Open
interest %       (-6.18%)   (+5.66%)     (-22.99%)  (-30.35%)
                 net-short  net-long     net-short  net-short


NASDAQ 100
Open Interest
Net Value         +1810      +1262         -6642     -4061
Total Open
Interest %      (+11.61%)   (+8.36%)     (-10.94%)  (-5.90%)
                net-long    net-long     net-short  net-short


S&P 500
Open Interest
Net Value         +73434    +69952         -93215     -91053
Total Open
Interest %      (+39.86%)  (+37.54%)     (-12.53%)  (-12.11%)
                net-long   net-long      net-short  net-short


What COT Data Tells Us
**********************
Indices: The disparity between Commercials and Small Specs
remains intact on the S&P 500.  Small Specs have moved from net-
long to net-short on the DJIA while the Commercials have
increased their net-short positions on the NASDAQ 100.

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 reduction while commercials remain skeptical.
(Bearish)

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 01/30 by the CFTC.


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

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ASK THE ANALYST
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Input - Output
By Eric Utley

My role here at OptionInvestor is to add value, educate, and
ultimately help our readers take money out of the market.  It's
a good role, but one that needs to evolve.

So I'm asking the readers of this column, both the newbies
and seasoned pros, for input on ways I can improve upon my
weekly commentary and review.  To the detriment of this
column, I don't have the best grasp on exactly who my
audience is.  And if there's one thing my writing teachers
stressed, it's to know your audience.  It may be a fault of
the medium with which I present my commentary, or just my
fault for not asking, but I need to get a better grasp on
the demands from this column.

What I would like from my audience are suggestions,
complaints, insights, demands, requests...anything to let
me know what is wanted.  The more participation I get in
this request, the better I can tailor the column to meet
the needs and wants from my readers.  I know for a fact
that A LOT of people read this column judging by the
Internet monitoring trends I receive.  But for some reason
I don't get very many complaints or disagreements from the
readers.  To be honest, I can take criticism, and I sure
as hell deserve some considering subscribers to
OptionInvestor pay $40 a month.  It's rather simple, the
more my readers demand the more value I can add.

In an attempt to better inform readers of my strengths,
thus value adding abilities, let me elaborate a bit on my
market operations.  My specialty trades are high
probability, low risk operations that are very short in
duration (day trading).  To emphasize that point, 85% of
my trades thus far in 2001 have been profitable.  I have
put on exactly 20 trades this year and have lost money on
three: twice in Cisco calls and once in Microsoft calls.

I usually don't hold positions over night, but that depends
a lot upon the current market conditions and sentiment.  I
trade almost every sector of the market except energy stocks;
for some reason I find that sector hard to game, especially
the supply/demand characteristics and risk/reward profiles.
And if I don't understand it, I don't trade it!

Both my trading and investment decisions are based upon a
top-down bias, which I develop by monitoring A LOT of
different metrics.  This includes global markets, currencies,
interest rates, the bond market, political uncertainty,
emerging businesses, sector rotation, sentiment, market
psychology, among other variables.  In essence, I live,
eat, breathe, and often sleep stocks.

I'm a professional market participant that writes, not the
other way around.  As such, I feel sometimes my messages
and observations are a bit convoluted.  And that's where
the readers of this column need to voice opinions, concerns,
and/or demands.  The more input I receive, the better output
I can deliver.

I'd also like to make it clear that I'm not bragging, and
I'm by no means conceited.  I follow innumerable data points
and their relation to stocks every day.  I've studied this
stuff day and night for a long, long time.  Everyone is
capable of taking money out of the market if they put in
enough time and work, and that's all I've done.

So if the readers of this column have any suggestions,
advice or complaints, please let your voices be heard.  The
only reason I ask is so I can improve the product I deliver
every weekend.  Send your comments and don't forget stock
requests to Contact Support.  Please put
the symbol of your requests in the subject line of the e-mail.

----------------------------

Electro Scientific Industries - ESIO

Thanks for taking the time to answer my question.  Please give
me your opinion on ESIO. - Thanks, Sid

Thanks for the request, Sid.

Electro Scientific (NASDAQ:ESIO) is a smaller player in the chip
industry with a market cap of roughly $890 million.  Its products
are used by manufactures of wireless communication chips,
computers, automotive electronics, among other electronics.
Electro's products improve upon semiconductor technologies and
increase efficiencies in the manufacturing process.  Its
competitors include SCI Systems (NYSE:SCI) and Vishay
Intertechnology (NYSE:VSH).

Judging by Electro's most recent earnings report, one might
draw the conclusion that the company is not experiencing any
slowdown.  The company earned a full $1 per share during
its most recent quarter while analysts were forecasting a profit
of 87 cents per share.  That was a nice 15 percent surprise to
the upside.  The company has a stellar earnings history with
solid quarter-over-quarter and year-over-year numbers.  Shares
of Electro trade with a trailing price-to-earnings ratio of
11 and a forward-looking PE in the single digits.  That's some
pretty cheap stock considering Electro's expected earnings
growth.

The only real cause for concern that I could find with Electro
is the fact that estimates for the current quarter are trending
lower.  What's more, the analysts' numbers for next year are
substantially lower than those for this year.  Obviously Wall
Street is expecting Electro's earnings growth to decelerate
in 2002.  However, if the company continues to surprise to
the upside as was the case last quarter, Wall Street will be
proven wrong and shares of Electro will return a handsome
profit to investors.  The stock is undervalued relative to
the broader tech sector, considering the company's earnings
growth.  The only reason the stock isn't trading higher right
now is because of Wall Street's expectations for lower growth
ahead.  Again, if Electro continues to beat estimates, its
share price will catch up with the fundamentals.  Finally,
the company has a debt-free balance sheet and a nice
position in cash.

Now let's segue to the chart.  ESIO staged a big rebound from
its near-term lows late last December.  The stock nearly
doubled in the space of just one month.  It's due for a
breather.  I'd like to see the stock settle into a range between
its current level and maybe $30, consolidate, then breakout above
near-term highs.  Notice the decrease in volume that has
accompanied ESIO's pullback, which confirms that the recent
move is normal profit taking.




----------------------------

Bell Microproducts - BELM

Should I hold this stock or sell the 22.50 call? - Herb

While you know I cannot give specific advice on trading
strategies, Herb, I'd be more than happy to comment on
your request and review the chart.

Bell Microproducts (NASDAQ:BELM) is another company with
various operations in the semiconductor business.  The company
sells a variety of products to manufacturers along with
value-added services.

The idea of selling a covered call on BELM is well-founded,
Herb, especially around the $22.50 level.  As easily seen on the
chart, the $22.50 level, for one reason or another, has been a
historical site of resistance.  Add to the fact that BELM is
still battling a long-term descending trend line and selling
covered calls might not be a bad strategy right here,
especially if the broader tech sector remains under pressure.
However, I'd point out that Bell is announcing earnings on
February 7th, which may present some risk in putting some calls
out.  The company does have a history of surpassing estimates
by healthy margins - but the guidance going forward will be the
most crucial in price direction.

As for the longer term outlook on the BELM chart, let me make a
few quick points.  The stock has staged a nice rebound along
with the broader chip sector thus far in 2001.  BELM is now
pulling back and consolidating its recent gains on very light
volume, which is normal.  Similar to the ESIO chart above, I'd
like to see a key support level hold right here for BELM - in
this case, the $20 support level for BELM.  The stock could
very well settle in a range between $20 and $22.50 in an attempt
to consolidate recent gains before the next catalyst takes BELM
higher, which may or may not be the firm's earnings announcement
next week.




----------------------------

Broadcom - BRCM

Please advise your views on BRCM?  When do you think [the] stock
would halt the downward trend? - Thanks and regards, Sunil

Broadcom (NASDAQ:BRCM) is, of course, a highly-visible, much-
loved company on Wall Street.  As such, I won't bore you with
the details of the company or the underlying fundamentals of
the business.

Instead, let me make a few general and technical observations
in an attempt to convey my opinions on Broadcom.

Expectations for Broadcom are very high.  And although the
Street's expectations for Broadcom have come down over the
last three months, I wonder how much hope is still priced into
the stock?  If Broadcom were to miss estimates in a coming
quarter, lower guidance, or blowup similar to the PMC
Sierra (NASDAQ:PMCS) incident I think the result would be
very painful because of the high regard with which the market
views Broadcom.

I also noticed that several insiders have been selling shares
in Broadcom over the last three months.  I don't know if that
fact is a cause for concern, but it's something to be aware of.

Now let's address your attempt in picking the bottom in shares
of Broadcom, Sunil.  It looks as if BRCM may trace an inverse
head-and-shoulders bottom.  The low, or the head, of the chart
formation is set at $75, with the left shoulder in place at
$85.  I think if BRCM continues to pullback under pressure
from the Nasdaq, a good entry point would be a bounce off the
$85 level.  The $85 level would provide a solid entry into
BRCM because the risk is easily quantifiable, and the potential
reward outweighs the risk, assuming Broadcom continues to
deliver.



----------------------------

DISCLAIMER:
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.


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*************
COMING EVENTS
*************

For the week of February 5, 2001

Monday
======
NAPM Services           Jan  Forecast: 55.00%   Previous: 61.10%
Idx of Online Shopping  Jan  Forecast:    NA    Previous: 250.5


Tuesday
=======
None Scheduled


Wednesday
=========
Productivity-Prel        Q4  Forecast:  2.50%   Previous:   3.30%
Consumer Credit         Dec  Forecast:  $8.5B   Previous:  $12.9B
Oil & Gas Inventories 2-Feb  Forecast:    NA    Previous: 282.6MB
Semiconductor Billings  Dec  Forecast:    NA    Previous:   -2.0%


Thursday
========
Initial Claims        3-Feb  Forecast:    NA    Previous:   346K
Wholesale Inventories   Dec  Forecast:  0.50%   Previous:  0.40%
Chain Store Sales       Jan  Forecast:    NA    Previous:   0.7%


Friday
======
ECRI Wkly Leading Idx 2-Feb  Forecast:    NA    Previous:  -1.5%


Week of February 12th
====================

Feb 13  Retail Sales
Feb 13  Retail Sales ex-auto
Feb 14  Business Inventories
Feb 15  Initial Claims
Feb 15  Export Prices ex-ag.
Feb 15  Import Prices ex-oil
Feb 15  Philadelphia Fed
Feb 16  PPI
Feb 16  Core PPI
Feb 16  Housing Starts
Feb 16  Building Permits
Feb 16  Capacity Utilization
Feb 16  Industrial Production
Feb 16  Mich Sentiment-Prel.


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The Option Investor Newsletter                   Sunday 02-04-2001
Sunday                                                      2 of 5

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The Perfect Storm
By Janar Wasito

After a long hiatus to do some traveling, I asked Jim whether it
would be OK to write some articles for Optioninvestor again. One
of the secrets of improving as a trader is to keep some kind of
journal to evaluate your trading decisions and to improve as you
go on. I found that writing for the newsletter helped me to do
this. I am basically a very novice option trader, but I have found
the newsletter to be very helpful in laying out an array of
strategies. I am going to focus my articles on the new subscriber--
how to read the newsletter; how to set up your own trading
logistics; how to think, in general terms, about asset allocation
and strategy allocation.

But first, let's go back a few years and talk about risk. In "The
Perfect Storm," George Clooney and crew head out to the Flemish
Cap to catch some fish. If you read the book, you find that they
are risking their necks for a few thousand dollars, and this last
trip of the season promises to be the big catch. They end up
deciding to try to head back to Massachusetts through the storm
of the century so the fish won't spoil -- and, so to speak, they
lose their account. Sound familiar?

When you look back on it, Oct 1998 to March 2000 was the prelude
to "The Perfect Financial Storm." Greenspan cut rates 3 times in
quick succession to head off the Long Term Capital Management
situation and Russian debt default in the Fall of 1998.
Predictably, that sparked a rally, and inflation, which the Fed
had to fight beginning in mid-1999. But, there was this little
thing called Y2K that everyone got worked up about, including Big
Al, and he skipped a tightening in Dec 1999. That caused our
friend, the NAZ, to put in a pretty mean blow off top between
Nov 1999 and Mar 2000. 2000 points in 4 months. Remember the old
axiom, Don't Confuse Brains and a Bull Market. The third and final
ingredient to the prelude to the Perfect Storm was the dot-com
boom and bust. Oh yeah, the signs were there. I remember seeing
The Internet Bubble at Bucks in Woodside in Nov 1999. A venture
capitalist looking every bit the teenager sat waiting for a
breakfast date, probably with some merry band of entrepreneurs.
But that didn't stop me from day trading options on internet
stocks on my wireless modem while sitting through the last year
of graduate school.

In any case, the fallout from The Perfect Storm was record
volatility, mostly on the downside, all throughout the last 9
months of 2000. You could trade it, but it was a tough environment
to learn. Bonds, anyone? But, just as everyone is getting
conservative, hurting for cash for monthly expenses, and taking
a very protective position, the best opportunities occur.
George Clooney and crew could have pushed out towards Europe to
ride out the storm and come back to port with a cargo of spoiled
fish, but they would still have a boat. The question is whether
you still have a tradable account, and maybe even some of your
gains from 1999. That's the mark of a pro, and that is a matter
of asset allocation and discipline. I didn't do everything right,
but as I review where I have come in a little over 2 years of
option trading, these are the questions I am asking myself.

I suspect that with a new Fed easing cycle started that the
economy will pick up this year, particularly towards the second
half. However, I also suspect that we have not yet seen the lows
in some sectors and indexes. We won't know whether Alan overshot
until later this year. But in this environment, there will probably
be a new crew of newsletter subscribers, and that is where I will
try to focus my efforts. If you have a boat, and are still willing
to take a risk, stay tuned.

******

Recession Indicators: Paul Harvey, The Super Bowl & Groundhogs
By Renee White

There seems to be a lot of uncertainty out there. One day I hear
relief with optimism for the future, followed by fear and despair
over an impending recession. Let's review with the help of Paul
Harvey, the Super Bowl and Ground Hogs.

As though times weren't confusing enough, I was driving home
listening to the radio Friday when I heard something that annoyed
me. Anyone who has ever listened to talk-radio has probably heard
Paul Harvey and his famous line "and NOW you know, the rest of the
story." I've always enjoyed his stories but not today when he
threw out a comment something to the effect: "It's official. We're
in a Clinton Recession. We have 6 months of decreases in
manufacturing jobs."  Excuse me. Did he say we were officially
in a recession? Phooey!!!

Many people are bored to death with economics, so I will try to
keep the details pertinent to traders. Understanding the bare
basics of economics gives traders an edge when looking beyond
day-trading strategies. After hearing Mr. Harvey's comment, I
think it's an important time to review the definition of a
recession and how it relates to business cycles.

According to the U.S. Commerce Department, the economy is in a
recession when there is a decline in Gross Domestic Products
(GDP) lasting for 2 consecutive quarters (6 months) or more. My
Webster's dictionary defines it "as a temporary falling off of
business activity." Temporary. Compare this to a depression,
which is defined as "a decline in GDP for 6 consecutive quarters
(18 months)."

To put a recession in perspective, we need to realize that for
almost 10 years (should I thank Mr. Clinton for at least part of
that?), we have had a booming, exploding economy with barely a
hiccup. That's what's so unusual. Naturally, a pullback from 4-6%
growth to Thursday's GDP number of 1.4% is going to hurt. That
pullback sends many screaming, "Fire" in the darkness of the night
because they fear the worse when they first smell smoke.

We are definitely in a pullback but we are not yet in a recession,
nor do I think we will get there soon. However, I can certainly
trade the fear and profit from it.

Understanding normal business cycles to make investment decisions,
can greatly improve ones investment returns with little effort.
Business cycles go through four stages: Expansion, Peak,
Contraction, Trough. Guess how many of those stages we hit in
year 2000?

Economists call mild short-term business Contractions, "recessions."
Longer and more severe Contractions are "depressions."  During
Peaks, it is easy for all to feel a little exuberate, obviously,
irrationally. Sometimes, when you reach the top of the mountain,
you forget how hard it was to get there. Once declining business
activity begins during the Contraction phase, both businesses and
ndividuals start feeling pain, sometimes, also irrationally. Once
business activity stops declining and levels off, the cycle makes
its Trough. If you're not careful, the choppiness during the
Trough phase is where traders can lose money from the whipsaw
action of the market before the next upturn begins. Yet this is
also where investors with a longer-term perspective, can do well.
This is why I always like to think through the big picture, while
making short-term trading decisions.

Those economic numbers we report weekly are so important to
follow. When monkeys can throw darts and pick stocks as well as
you, most likely we are in an Expansion phase, which is
characterized by: increasing consumer demand for goods &
services, increasing industrial production, rising stock markets,
rising property values, and an increasing GDP. Another words,
people are buying cars, homes, computers, going on vacations and
companies are selling all products; corporate earnings are great.

Have you noticed that during the recent downturn in the business
cycle, we have heard nothing from that dart-throwing monkey? The
Contraction phase (correlating with downturns) is characterized
by: rising number of bankruptcies, bond defaults (lights out
California?), falling stock markets, rising inventories (due
to slackening consumer demand), and a decreasing GDP.

So we have it. We've been in a Contraction. We've had not only
slackening retail consumer demand but also slackening business
demand as capital expenditures by businesses, slow also. That
slower demand causes a decreasing GDP. Makes sense, doesn't it?
It is important to note that our 4th quarter GDP was NOT negative.

As a trader or investor, I can use these business cycle phases, to
help me time my longer-term market moves. This week we heard that
the unemployment rate had jumped to 4.2%. Mr. Harvey was right, we
have had 6 months of decreasing manufacturing jobs, almost 225,000
since last June. What he didn't mention was the increase in hours
worked (factory work week) by those remaining employees or the
huge (145,000) gain in construction jobs, which was the highest
since 1978. That inconsistency is enough to confuse anyone,
including the Fed. Certainly, job growth in construction
corresponds also with the recently reported strength in the
housing industry. I don't know about you, but it sounds like
someone is making money somewhere if they are building, buying
houses, and hiring workers due to demand. Could this be sector
rotation in real life? Watch these numbers because reports of
increasing jobs being created, with other strong indicators, will
not hurry the Fed to consistently and aggressively cut taxes. With
some numbers showing strength while others show weakness, he could
decide to sit and wait for more data. That's important because
all traders should know by now, if the Fed disappoints us on a
decision day, it's a sure sell-off.

But never fear. We have other indicators to look at. According
to Reuters News Service, The Super Bowl Stock Market Predictor
has correctly forecast yearly stock performances based on the
winner of the American professional football championship game
over 80% of the time. The predictor says if the team can trace
its roots to the original National Football League, and wins on
Super Sunday, major stock market indices will rise in the calendar
year the game is played. But, if a winning team's roots are in the
American Football League, the Dow, S&P 500, and the NYSE
composite, will fall. According to Bob Stovall the developer of
the Predictor, "Over a period of 34 years, it has outperformed
any packet of Nobel prize winners or team of strategists that I
can think of."  There's no confusion about the direction of the
economy with this indicator. What's exciting here is that this
year, both the Baltimore Ravens and the New York Giants got their
starts in the original NFL. So, bring back those dart throwing
monkeys, it's party time!

Then we have the Ground Hog Day Predictor and Indicator. According
to this indicator, if he doesn't see his shadow, spring is near,
birds will sing and stocks will fly. Money and life will be easy,
we are back to expensive restaurants and economic expansion. If he
does see his shadow, it's time for TV dinners, continued shopping
on Ebay, and dreams about retirement in 100 years. Uh oh, another
indicator with confusing data. Punxsutawney Phil, the world's
most famous reporting groundhog, did see his shadow on Friday.
Bummer! Hey Phil, my friend, you let me down here! Luckily, there
was another groundhog in another part of the country, which didn't
see his shadow, so a return to easy life near-term is undecided
by conflicting data also.

Last weekend I explained why I was taking positions, expecting a
sell-off for the week. Although the week started out strong, it
ended with a loud whimper and my bias proved profitable. Since we
closed at the lows, I decided to hold positions over the weekend.
Depending on the opening rotation action & news Monday morning, I
will either take profits on a strong gap down with broken support
levels, or if weakness continues, I may wait awhile but exiting
before CSCO's earnings are released. My thinking is that fears of
CSCO missing their routinely stellar earnings whispers may keep
the markets suppressed going into that number. I'm having a hard
time expecting much of a rally before those numbers are known.
Therefore, if I am right, I will take profits while the fear is
high, before they are released. If Nasdaq stays weak going into
those numbers, and they meet expectations but not the whisper
number, a relief rally MAY occur. On the other hand, if buyers
come back Monday and there is market strength going into CSCO's
numbers, beware of a potential sell-off if anything from the
report disappoints the market.

Personally, I feel the downward pressure in the market, which may
take us to nice lows for long-term entry points. Times may be
choppy in the markets for a while, if we are in the Trough phase
as I expect. But with an unbelievable 100 basis point worth of
easing in one month, and a probably successful retroactive income
tax rate cut on the horizon, I'm feeling good about next year's
Santa Claus rally already.

Corporations are readjusting their balance sheets already.
Homeowners aren't the only ones who refinance for lower rates.
It was reported Friday that Nabors Industries (AMEX:NBR) was
locking in long-term borrowing opportunities, when they didn't
even need the funds yet, just to take advantage of the low
financing rates. I don't know about you, but I had to wonder,
Why now? Why not wait another 6 months when rates are supposed
to be lower? Hmmm. That suggests to me that somewhere along the
way during this recovery, we as traders might expect a rate cut,
and not get it. Big business is starting to lock in rates now.

Ask yourself this, if there were thoughts of an impending
recession by big business in the near future, would they lock
in money now that they don't need yet, at today's rates?


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********************
THE PLAYS OF THE DAY
********************

Call Play of the Day:
*********************

MWD - Morgan Stanley Dean Witter $86.26 (+3.76 last week)

See details in sector list




Put Play of the Day:
********************

NEWP - Newport Corporation $75.56 (-13.25 last week)

See details in sector list




*************************ADVERTISEMENT*********************
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
IndexSkybox.com:
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************************************************************


**************************
PICKS WE DROPPED THIS WEEK
**************************

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.


CALLS

COST $43.94 (+2.06) Costco struggled to push past $46.25 on
Wednesday and Thursday, and made it as far as $46.38 Friday
morning.  Unfortunately, severe weakness in the broad market
indexes, as well as a loss of over 2% in the retail sector on
Friday took its toll.  The retail sector (RLX.X) started selling
off early Friday morning, and dropped below support at 920.
Costco fell to support at $44 shortly after the RLX broke down,
and held there for most of the day.  However, a drop in both
the Dow and the Nasdaq of over 100 points near the market close
overwhelmed any strength Costco had left, and it dropped below
our stop price of $44.  Thus, we are dropping our play this
weekend.

NITE $22.00 -1.25 Nite showed impressive strength on Thursday in
the wake of the post-Fed meeting slump.  On Friday, Nite managed
to stay above $22.40 for most of the day, in keeping with the
pattern of higher lows it had been establishing.  However, when
the Dow broke below 10,900, and the Nasdaq dropped below 2680,
Nite couldn't hold up, and closed at our stop price of $22, so we
are dropping it this weekend.

EMC $72.20 (-6.86) The scrimmage between the bulls and the bears
was resolved on Friday, and it was a decisive victory for the
bears.  After threatening for most of last week to break below
our $76 stop, the top-heavy nature of the broader markets took
a big bite out of EMC's market capitalization on Friday.  Not
only did the $75-76 support level give way, but shares of the
enterprise storage leader fell as low as $71, plunging through
the 50-dma.  The positive effects of the company's outstanding
earnings report seem to have been fully dissipated, to be
replaced by the continuous stream of negative news from the
broader technology sector.  With the sharp technical violation,
there is no point in keeping EMC on the playlist, so we are
moving on to healthier plays.

CTXS $34.81 (+0.94) Throughout CTXS' steady ascent in the month
of January, the 5 and 10-dma (now at $35.53 and $34.86) provided
moving average support while connecting the highs and lows during
that time revealed an upward trending regression channel.  On
Friday, the stock fell almost 4 percent in sympathy with a soft
NASDAQ.  While volume was light, less than 80% of ADV, the close
put CTXS below its two aforementioned moving averages as well as
its upward trend-line and our stop price of $35.  This break
suggests that the up-trend has been broken and as such, the
chances favor sideways to negative price action going forward.
With upside potential now less likely, we are closing out this
play.

FDRY $20.25 (-2.63) It appears that the Cisco effect is weighing
heavily on our call play in FDRY.  Comments made by CEO John
Chambers have been seen as bearish by the market, which has led
to weakness to CSCO's stock price, affecting the entire
Networking sector.  FDRY ended the week lower, falling almost 9
percent on Friday.  Trading volume was light, a little over half
of ADV but by the day's end, the stock has fallen below its 5 and
10-dma (at $21.97 and $21.50).  CSCO's earnings is fast
approaching, as the Tech bellwether will be reporting this
Tuesday, adding an element of increased uncertainty in the near
term.  That and the close below our stop of $22 puts FDRY on the
drop list.

IBM $110.27 (-3.92) With the Dow Jones Industrial Average pulling
back triple digits on Friday, Big Blue retreated $3.78 or 3.31
percent on fears of the slowing economy eating into corporate
profits.  While the adage of not fighting the Fed may still hold
true, the recent rate cuts may take some time to work themselves
into the market.  In the meantime, as option investors, we are
well aware of time decay and its effects on a play.  With IBM's
close below its 5 and 10-dma ($113.58 and $112.09) as well as our
stop price of $111, with stochastics pointing towards the
likelihood of further downside, we are no longer recommending
taking new positions.

RMBS $49.06 (-0.06) While still above our stop price of $49, we
are taking RMBS off our call play list, as the stock is falling
under the swoon of sector sympathy.  With the Philadelphia
Semiconductor Index (SOX) and Merrill Lynch's Semiconductor HOLDR
both breaking below their recent up-trend lines and stochastics
curling southward, the Chip stocks appear to be in the process of
rolling over.  During RMBS's climb in January, the stock has
shown higher relative strength than its peer group but at this
point, with strong overhead resistance at $50.35 from the
converged 5 and 10-dma and the Semiconductors stumbling, we are
taking our money off the table.

UBS $173.79 (+1.34) The anemic volume and narrow range trading we
have seen in shares of UBS over the past couple of weeks has
given little sign of what the stock wants to do next.  With
support at $170 and resistance at $176, this play would have been
dropped long ago if not for the low option prices relative to the
stock price allowing enough leverage to trade the range.  On
Wednesday, the stock managed to close above the $176 level but
with little buying conviction to support the move, UBS quickly
pulled back.  Our stop at $173 remains in place but in light
technical weakness in the charts of competitors BSC and LEH, we
are stepping aside.  Look for strength in Monday trading to exit
open positions.

SUNW $29.19 (-2.06) Our long-term play on shares of Sun
Microsystems came to an abrupt halt last Friday as the stock came
under heavy selling pressure.  The pullback in the Nasdaq
Composite caused SUNW to fall below our protective stop at the
$30 level, subsequently forcing us to drop coverage on the play.
For those with open positions, look to exit plays on a rebound
back up to the $30 level.

BBY $43.69 (-3.81) Our play on retailer BBY had been sailing
along smoothly ahead of last Friday's jobs report.  The report
revealed an unexpected large increase in new jobs, which led
market participants to feel the Fed would not cut interest rates
before its meeting at the end of March.  As a very interest rate
sensitive company, BBY took the news on the chin and rolled
over.  BBY fell well below our stop at $47, but for those with
open positions use any relief rally early Monday to exit plays.

TYC $60.28 (-1.84) After breaking out to new highs earlier in
January, TYC found resistance at the $63 level, subsequently
rolling over and recently bouncing off our stop at the $60
level.  Instead of risking TYC stopping us out, we're dropping
coverage on the play this weekend as the technical picture
remains weak.  Use any bounce off $60 to exit positions.


PUTS

No dropped puts this weekend


***********
DEFINITIONS
***********

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.

RISKS of SELLING PUTS:
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.


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

TLAB - Tellabs, Inc. $65.00 (+4.06 last week)

TLAB designs, manufactures, markets and services data, voice
and video transport, switching/routing and network access
systems that are used worldwide by public telephone companies,
long-distance carriers, alternate service providers, cellular
service providers, cable operators, government agencies and
utilities.  Through its various acquisitions, the company is
also able to offer voice-quality enhancement products for
wireless, satellite-based, cable communication and wireline
telecommunications, as well as managed high-speed transport
solutions which operate in Synchronous Digital Hierarchy and
Dense Wavelength-Division Multiplexing (DWDM) environments.

The rally that had stagnated a little over a week ago, received
new life when TLAB announced earnings on January 23rd that were
in line with analyst estimates.  The lack of bad news seemed to
cheer the bulls and they continued to bid the price higher,
helped out this past Tuesday when Gruntal & Co. initiated
coverage of the company with an Outperform rating.  The coverage
came a day after TLAB announced that they would acquire Future
Networks, a voice and data cable modem company, for $181 million
cash.  The company expects the acquisition to shore up its
position in the cable data and telephone markets.  Apparently
investors liked the deal, despite the fact that it is expected
to dilute earnings by 6 cents in 2001 and a nickel in 2002.
Technically TLAB is looking a bit overextended, so we need to
keep an eye out for profit taking.  Stochastics have now
flattened out in overbought territory and with the price
bumping up against the upper Bollinger band, we are going to
need strong buying interest to keep the rally alive.  While
momentum players might be inclined to buy further strength,
they need to play with caution, as they may find themselves
in the unfortunate position of buying at the high of the day.
But if this fits your style, look to buy a breakout over the
$66 resistance level, with an eye to further resistance between
$67-68.  If you can exercise a bit of patience, look for small
pullbacks to support near $63, or the vicinity of our stop at
$61.  Whatever your entry strategy, monitor the health of the
Telecom sector for signs of weakness, by keeping an eye on
Merrill Lynch's Telecom HOLDER (AMEX:TTH).

BUY CALL FEB-60 TEQ-BL OI=3063 at $6.25 SL=4.25
BUY CALL FEB-65*TEQ-BM OI=4058 at $3.00 SL=1.50
BUY CALL FEB-70 TEQ-BN OI=2474 at $1.13 SL=0.50
BUY CALL MAR-65 TEQ-CM OI=2885 at $5.13 SL=3.00
BUY CALL MAR-70 TEQ-CN OI=2528 at $3.25 SL=1.75
BUY CALL MAR-75 TEQ-CO OI=6822 at $1.94 SL=1.00

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


***********************
NEW LOW VOLATILITY CALL
***********************

CTX - Centex Corporation $41.88 (+3.75 last week)

The top home builder in the U.S., CTX operates in 20 states and
Washington DC, as well as in Latin America and the UK.  The
company builds almost 19,000 homes a hear with an average price
tag of $190,000 for both first-time and move-up buyers.  The
company has subsidiaries that offer home security systems and
pest-control services, as well as construction contracting for
hospital, school, office building and hotel projects.  Rounding
out the picture, CTX has interests in land development, mortgage
banking, commercial real estate, and construction supply
manufacturing.

How bad can the U.S. economy be, if one of the country's largest
home builders is able to beat earnings estimates by a dime while
continuing to increase revenue growth?  That is an apt
description of the company's most recent earnings report on
January 23rd.  Apparently this strong performance hasn't been
lost on investors, as they have been continuing to bid the stock
higher for months now.  Since breaking out last July, the stock
has been moving nicely in an ascending channel, the current
range of which is from $38 to $44.  Now that CTX has crested the
$40 resistance level, there are very few obstacles overhead.
First we have the $43 resistance level, and then the all time
highs near $45, before the stock is in blue sky territory.  The
stellar earnings report got the attention of the analyst
community as well, and on January 25th, DB Alex Brown
initiated coverage with a Strong Buy rating.  The last 2 weeks
saw the stock bounce at $36 and rally a solid 16%, bringing it
up to kiss the upper Bollinger Band ($42.38) on Friday before
pulling back a bit at the close.  As we attempt to jump into
this established trend, we are looking for conservative entries
to materialize as the stock pushes through $42.  Aggressive
players can look for intraday dips as a means to grab a more
attractive entry point, but only if CTX can hold above our stop,
placed at $41.

BUY CALL FEB-40 CTX-BH OI=167 at $3.20 SL=1.50
BUY CALL FEB-45*CTX-BI OI=  7 at $0.80 SL=0.00
BUY CALL MAR-40 CTX-CH OI=  6 at $4.40 SL=2.75
BUY CALL MAR-45 CTX-CI OI=  2 at $2.05 SL=1.00
BUY CALL APR-45 CTX-DI OI= 79 at $3.40 SL=1.75

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


LGTO - Legato Systems, Inc. $17.88 (+1.13 last week)

Legato Systems, Inc. is a worldwide leader in the enterprise
storage management software market. Legato products help
companies leverage their business-critical, corporate data
assets. At Legato Systems we have developed a range of solutions
- named the Legato Continuum - that ensures the highest levels of
data protection, availability and storage resource management.
Founded in 1988, Legato provides storage management software
products that have become the recognized industry standard with
the largest installed base representing over 60,000 customers.

Early last year, Legato Systems fell into dishonor, as the
company reduced announced revenues for the 1999 fiscal year.
With the SEC investigating into accounting irregularities and
reports of $7 million in unauthorized deals made by its sales
representatives, shares of LGTO feel sharply and deeply.  Since
then, the company has been in the process of regaining
shareholder trust.  Posting a strong earnings report this past
week with higher than expected revenue numbers, the company
provided a bullish outlook in its conference call.  It appears
that analysts have put the stock back on their radar screen as
well.  Prudential Securities maintained their Hold rating while
JP Morgan H and Q upgraded the stock from a Market Perform to a
Long Term Buy, citing that they are "cautiously optimistic
following the early operational success of new management".
LGTO's stock price has already more than doubled so far this
year, putting the shares back above all its major moving
averages.  Pullbacks to the 5 and 10-dma at $17.61 and $17.09 may
provide aggressive traders with targets for entry.  As well,
support may be found in increments of $0.50 from $17.50 to our
stop price of $16.  For a more conservative entry, wait for LGTO
to break above $18.25 on volume before taking a position.  While
the stock has been rallying in spite of weakness in the storage
sector, strength in peers BRCD, EMC and VRTS would make it easier
for LGTO to move higher.

BUY CALL FEB-15   EQN-BC OI=3610 at $3.63 SL=1.75
BUY CALL FEB-17.5*EQN-BW OI=4115 at $1.81 SL=1.00
BUY CALL FEB-20   EQN-BD OI=2010 at $0.75 SL=0.00
BUY CALL MAR-17.5 EQN-CW OI=1420 at $2.81 SL=1.50
BUY CALL MAR-20   EQN-CD OI=2451 at $1.56 SL=0.75

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


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


**********
DISCLAIMER
**********

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html

The Option Investor Newsletter                   Sunday 02-04-2001
Sunday                                                      3 of 5

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/020401_3.asp


*************************ADVERTISEMENT*********************
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
IndexSkybox.com:
http://www.sungrp.com/tracking.asp?campaignid=1514
************************************************************


******************
CURRENT CALL PLAYS
******************

JPM - JP Morgan Chase $54.64 (+0.45 last week)

JPM is a premier international banking firm headquartered in the
US. It is a holding company for subsidiaries engaged in global
banking and investment.  They offer services to corporations,
institutions, and the very wealthy.  Recently they merged with
the Chase Manhattan Corporation.

The anticipation of the Fed meeting last week saw many of the
financial stocks move toward the highs of their respective
trading ranges.  JPM quickly solidified a near-term support
level at $52 and has since established a higher launching pad at
the $54 mark.  This week, the financial stocks have essentially
flowed with the gyrations of the marketplace.  Mid-week JPM and
other heavyweights like Citigroup (C) and Merrill Lynch (MER)
flirted with their current resistance levels, but ended lower by
Friday as a result of the significant declines in the broad
market.  The profit taking was expected and offers traders the
opportunity to take call positions in a variety of sectors.
Specifically to our play on JPM, we're looking for a momentum
wave to push the share price through the opposition at $59.19.
Pertinent elements for success include a bullish market
environment combined with broad advances across the banking
sector.  The Philadelphia Bank Sector Index (BKX.X) is presently
finding support at 950.  A break through 960 and 965 would
signal sector strength and thus, provide better confirmation
going forward.  Be patient.  Reasonable entries might be found
after JPM moves through the 5-dma ($55.32) and $56 on strong
volume; although some traders might want to lock in gains as JPM
approaches the $60 level.  You can always jump back in later for
another round instead of trying to catch that big break!

BUY CALL FEB-50 JPM-BJ OI=13981 at $5.30 SL=3.25
BUY CALL FEB-55*JPM-BK OI=17674 at $1.88 SL=1.75
BUY CALL MAR-50 JPM-CJ OI= 7975 at $6.40 SL=4.25
BUY CALL MAR-55 JPM-CK OI=14091 at $3.10 SL=1.50
BUY CALL MAR-60 JPM-CL OI= 6832 at $1.20 SL=0.50  High Risk!

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


MUSE - Micromuse Inc $82.75 (+4.69 last week)

Founded as a network management solutions reseller, Micromuse
today is a leading provider of real-time fault and service-
level management software.  Its Netcool suite helps
telecommunications and Internet service providers ensure the
uptime of network-based customer services and applications.  The
company's software is used in the OSS and NOC centers of many of
the world's leading service providers such as AOL, Cellular One,
and Charles Schwab.

So there's some of you out there that wouldn't touch a telecom
software play with a ten-foot pole.  Well let's remember that
we're not in for the long-term, but rather to play the current
uptrend.  And at this time, some traders feel it's a good time
to snap up some of the leading players like MUSE, ONI Systems
(ONIS), OpenWave Systems, and even Portal Software (PRSF)
because of the dropping interest rates and inevitable build-out
of the broadband networks.  MUSE's recent run-up is also
directly related to its stellar earnings report announced on
January 18th.  Pro forma earnings came in at $0.10 p/s, blowing
away the consensus estimate of $0.08 by 25%!  The analysts
rushed out to spew their positive recommendations.  Bear
Stearns, Janney Montgomery Scott, and First Albany all
reiterated Buy ratings the next day.  This week, CSFB came
forward with a Strong Buy recommendation too.  Technically, MUSE
is currently poised for further advancements; and from a
historical perspective, MUSE has been a good play during strong
technology rallies.  This HIGH-RISK and VOLATILE momentum play
offers the more aggressive traders entries off the $80 support,
but make sure there are buyers before you take positions off
this mark.  We'll exit the play if MUSE fails to maintain a
bullish disposition above the $80 level.  A more cautious
approach might be to look for entries on strong bounces from $82
and $83, which corresponds with the 5-dma ($83.21) line.  The
immediate resistance stands at $88.75, last Tuesday's intraday
peak.

BUY CALL FEB-75 UZQ-BO OI=450 at $11.13 SL= 8.25
BUY CALL FEB-80*UZQ-BP OI=396 at $ 7.38 SL= 5.25
BUY CALL FEB-85 UZQ-BQ OI=230 at $ 4.75 SL= 2.75
BUY CALL MAR-80 UZQ-CP OI= 30 at $13.63 SL=10.25
BUY CALL MAR-85 UZQ-CQ OI=  4 at $10.25 SL= 7.25
BUY CALL MAR-90 UZQ-CR OI= 35 at $ 8.25 SL= 5.75

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


MWD - Morgan Stanley Dean Witter $86.26 (+3.76 last week)

MWD is the #2 retail broker in the US only after Merrill Lynch.
The 1997 merger of Morgan Stanley and Dean Witter created an
investment banking and retail brokerage powerhouse.  The company
is now a global financial service firm with three primary
business segments: securities, asset management, and credit
services.  Its Discover unit has been one of the leading credit
card issuers.  MWD has more than 430 branches in the US and some
30 more abroad.  Its clients include both individuals and
institutions.

A second interest rate cut in less than a month and a positive
market bias provide a profitable climate for bankers and
brokerage houses alike.  Consider the recent trading trends of
the financial heavyweights like JP Morgan (JPM), Merrill Lynch
(MER), and Citigroup (C).  It's really quite simple, lower rates
benefit the group.  And on Friday, there was speculation of
another takeover within the financial circle.  Heavy call
activity was reported that stemmed from market rumors linking
American Express (AXP) to potential suitors, namely Morgan
Stanley Dean Whitter.  The speculation follows the firm's
confirmation that its president and COO, John J. Mack, was
stepping down in March as the result of an internal power
struggle with former Dean Whitter head Philip Purcel, who's now
in charge of company operations.  In recent weeks, MWD shares
suffered as a result of the announcement; although they quickly
rebounded after last Tuesday's analyst meeting.  The company's
top executives soothed analysts' concerns about leadership and
the potential for more turnover at the firm with assurances that
they foresee little need for "massive staff cuts" and that they
were continuing to look for ways to advance its global platform
in key markets.  MWD's confident trading at the $84 and $86
levels coupled with Thursday's fantastic 6%, or $5.00 breakout
prompted our immediate coverage.  Friday's mild pullback with
the broad markets and the Banking Sector (BKX.X) demonstrated
the stock's strength and offered enterprising entry points near
the $86 level.  We've set our protective stop at this mark too
in an effort to protect future profits and capital.  The growing
momentum and rising near-term support levels also provide
bullish confirmation going into next week.  The more cautious
types might consider buying on intraday dips near $88 if MWD
breaks to the upside of $90 on strong volume.

BUY CALL FEB-80 MFZ-BP OI=10574 at $8.00 SL=5.75
BUY CALL FEB-85*MFZ-BQ OI= 4288 at $4.00 SL=2.50
BUY CALL FEB-90 MFZ-BR OI=15423 at $1.75 SL=0.75
BUY CALL MAR-85 MFZ-CQ OI=  170 at $7.00 SL=5.00
BUY CALL MAR-90 MFZ-CR OI= 1072 at $4.40 SL=2.75
BUY CALL MAR-95 MFZ-CS OI= 1149 at $2.40 SL=1.25

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


FLEX - Flextronics International $37.94 (-1.06 last week)

One of several "contract manufacturers" serving the
telecommunications, networking, consumer electronics, and
computer industries, FLEX provides its customers with the
opportunity to outsource a complete product.  The company
takes responsibility for engineering, supply chain management,
assembly, integration, test and logistics management.  FLEX
provides complete product design services, including electrical
and mechanical, circuit and layout, radio frequency, and test
development engineering services.  Among FLEX's long list of
customers are Cisco, Hewlett-Packard, Lucent, Microsoft, Nokia,
Motorolla, and Palm Computing.

Recently renewed investor attention came to FLEX, when
Ericsson (ERICY)announced that it would outsource all of its
mobile phone production to the company.  This was just the most
recent indication that as companies look for ways to streamline
their operations, they are increasingly looking to the contract
manufacturers like FLEX as a means to an end.  Then on Thursday,
shares of FLEX were up an additional  percent on very heavy
volume, as the Singapore-based company offered 27 million shares
to the public in a secondary stock offering.  The market's
positive reception of the availability of additional shares
indicates they understand that the company is well positioned
to take advantage of the changing economic climate.  Or, as DB
Alex Brown analyst Chris Whitmore said, "As end-market demand
slows, companies are increasingly looking to outsource and FLEX
is certainly well-positioned to take advantage of these
opportunities."  He stated that his rough estimates indicate the
ERICY deal could add 20 cents to calendar year 2002 earnings.
With all that being said, FLEX is in a precarious technical
position, holding just above the critical $37 support level
(also the location of our stop).  Adding to the case that the
bears are taking control, is the fact that Stochastics dropped
out of the overbought region on Friday.  We need to see a strong
sign from the bulls to get FLEX moving again, and strong buying
volume would be a great start.  While aggressive traders can
consider new positions on a bounce from the $37 level, more
conservative traders will want to wait for a decisive move
through the $40 resistance level before initiating any new
positions.  Measure sector sentiment by monitoring other
contract manufacturers like JBL and CLS - if all three are
in rally mode, that will be a strong endorsement of the bulls'
case.

BUY CALL FEB-35*QFL-BG OI=5335 at $4.13 SL=2.50
BUY CALL FEB-40 QFL-BU OI=6396 at $1.19 SL=0.50
BUY CALL MAR-35 QFL-CG OI= 636 at $5.63 SL=3.75
BUY CALL MAR-40 QFL-CU OI= 848 at $3.88 SL=2.25
BUY CALL MAR-45 QFL-CH OI= 942 at $1.19 SL=0.50
BUY CALL APR-40 QFL-DH OI=2122 at $4.38 SL=2.75

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


QCOM - Qualcomm Inc. $86.81 (+5.81 last week)

Qualcomm Incorporated is a leader in developing, delivering, and
enabling innovative digital wireless communications products and
services based on the Company's digital technologies.  As the
pioneer of Code Division Multiple Access (CDMA), the technology
of choice for next-generation wireless communications, Qualcomm
continues to lead the industry in the development of voice, data,
and wireless Internet products and solutions.  Qualcomm is also
transforming industries through its various satellite businesses
and technology partnerships.

QCOM's strength this past week relative to the Tech sector is a
bullish sign, considering the choppiness in the NASDAQ over the
past five trading sessions.  Breaking its last major moving
average resistance, the 50-dma (now at $82.75) on Monday, the
stock has since found support at this level.  The company has had
a number of positive developments recently, improving its overall
fundamental picture.  A key patent dispute ruling in QCOM's favor
against Motorola could pave the way to the company winning
lawsuits against Ericsson and Nokia.  QCOM also posted a
well-received earnings report, beating Street estimates by a
penny and in the conference call, was bullish, citing next
generation wireless building as a driver for increased revenue
growth.  The company also washed its hands of a failed investment
in Globalstar, writing off the loss and providing some
much-needed relief as well as a lower tax rate going forward.
Lehman Brothers re-iterated their Strong Buy rating on QCOM,
citing better than expected chipset and licensing revenues.  JP
Morgan H and Q followed suit, re-iterating their Long-Term Buy
rating.  Investor interest could carry over into next week, with
news that the company may be announcing a new wireless software
package.  Successful tests of the 50-dma as well as the 5-dma at
$85.72 and horizontal support at $85 and our stop price of $83
could allow aggressive players to enter this play.  For an entry
on strength, a close above $87 would allow conservative traders
to take a position.  In both cases, a strengthening NASDAQ would
provide a more hospitable environment for QCOM to rally.

BUY CALL FEB-80 AAF-BP OI=11444 at $8.88 SL=6.25
BUY CALL FEB-85*AAF-BQ OI=12537 at $5.50 SL=3.50
BUY CALL FEB-90 AAF-BR OI=10726 at $2.81 SL=1.50
BUY CALL MAR-85 AAF-CQ OI= 1465 at $9.00 SL=6.25
BUY CALL MAR-90 AAF-CR OI= 2853 at $6.75 SL=5.00

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


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The Option Investor Newsletter                   Sunday 02-04-2001
Sunday                                                      4 of 5

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

YHOO - Yahoo!Inc. $33.00 (-4.75 last week)

Yahoo!Inc. is a global internet communications, commerce and
media company that offers a comprehensive branded network of
services to more than 120 million users per month worldwide.
As the first online navigational guide to the World Wide Web,
www.yahoo.com is a major guide in terms of traffic, advertising,
household and business user reach, and is one of the most
recognized brands associated with the internet.  The company
also provides online business services designed to enhance its
clients web services and web sites tools and services.

It has been a long way down from YHOO's 52-week high of $205.63
reached on March 22 of last year, and, considering the market's
response to recent news, YHOO looks like it has further to drop.
YHOO suffered a serious decline with the internet sector this
fall, and fell below its 50 and 200 dma in September.  The
culmination of bad news reached its peak in January, when YHOO
reported an in-line December quarter, with sharply lowered
guidance for 2001.  Yahoo met earnings estimates of 13 cents
per share, with revenues on the low end of the $310 -$318
million guidance.  However, management stated that they had
lowered their estimates for 2001 earnings to between 33 and 43
cents, from the previous expectations of 57 cents per share.
YHOO also lowered their sales expectations by 5%, to $1.2 to
$1.3 billion, down from $1.42 billion.  The following day Yahoo
reached a 52-week low of $24.13, as numerous analysts downgraded
the stock.  CSFB lowered their revenue estimates to $1.13 billion
for 2001, and reduced their March quarter revenue by 26% quarter
to quarter, and 3% year over year.  YHOO's advertising revenue
is 90% of their total revenue, and the slowdown in online
advertising is not expected to pick up in the first half of 2001.
Given the low near term visibility of the growth necessary to
drive stock performance, YHOO shareholders may be in for
additional selling pressure.  YHOO tried to rally with the
Nasdaq in the post Fed rate cut rally during January, and
poked its head through the 50 dma of $39.69 temporarily on
January 30, before rolling over.  Additional attempts to rally
past $36 were thwarted in overall market weakness last week.
YHOO is now poised to roll over from $33, which could lead
to the next support levels at $30.50.  Traders could take
positions at current levels, or at a roll over from $30.50
which could lead YHOO to its next support level at $27.
Below that, we could retouch the 52-week low of $24.13.  Watch
the internet sector (HHH) for an indication of weakness, and
set stops at $36.

BUY PUT FEB-35*YHQ-NG OI=1360 at $3.63 SL=1.75
BUY PUT FEB-30 YHQ-NF OI=8081 at $1.13 SL=0.50

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


NEWP - Newport Corporation $75.56 (-13.25 last week)

The Newport Corporation is a global supplier of precision
components and automated assembly, measurement, and test
equipment for use in the fiber-optic communications,
semiconductor equipment, computer peripherals, and scientific
research markets.  The Company's high precision products enhance
productivity and capabilities of the Fortune 500 corporations,
government agencies, and the other technology clients it serves.
Optical components and devices for vibration and motion control
account for about two-thirds of the company's sales.

The negative bias currently effecting the fiber optics' sector
and other related industry stocks becomes distinctly evident
when you consider the recent performance of NEWP.  Stepping back
a bit into January, NEWP fell from its lofty pedestal and
crashed through the century mark the correlating 200-DMA
($100.36) on the heels of its earnings' report.  After reporting
record growth in its core markets and posting substantial year-
over-year combined with sequential sales' increases in both the
fiber optic communications and semiconductor equipment markets,
the shares dived a whopping $24.50, or 23% on January 25th.  The
reason for madness? On a conference call with analysts, company
officials stated that it only expected sales to rise 40% in 2001
in contrast to the 50% forecast from three months ago.  This
week's market gyrations couldn't give NEWP the boost it needed
to resurface above the psychological $100 level, but the broad
market decline at the end of week certainly had a devastating
impact.  Shares of NEWP along with others like GLW, JDSU, and
NT quickly sold-off in heavy trading on Wednesday, bringing
the stock well below its relative support at $90.   Subsequent
activity saw the share price battling to recover a position
above converged 5, 30 & 50 DMAs, at $84 and $85.  Friday's
crucial slide through $80 and bearish close almost literally on
its intraday low offers downward confirmation going forward.
We're keeping our protective stop tight at the $80; although
more aggressive entries might found on high-volume rollovers in
that price vicinity.  Otherwise, consider buying into further
weakness if there's volume on the decline.  Expect some light
support as NEWP approaches the $70 level.  You may want to note
your calendars.  On February 5th, 15th and 21st, executives will
review the company's operations, financial performance and
discuss the company's position as a leader in the design and
manufacture of high precision testing equipment for the fiber
optic communications and semiconductor industries at respective
conferences in the US.

BUY PUT FEB-80 NZZ-NP OI=256 at $9.50 SL=6.50
BUY PUT FEB-75*NZZ-NO OI=650 at $6.75 SL=4.75
BUY PUT FEB-70 NZZ-NN OI=966 at $4.63 SL=2.75
BUY PUT FEB-65 NZZ-NM OI=213 at $3.00 SL=1.50  High Risk!

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


JDSU - JDS Uniphase Corp $50.00 (-9.63 last week)

JDS Uniphase provides advanced fiber optic equipment and modules
for the telecommunications and cable television industry
worldwide.  Products include source lasers and components that
modify and switch signals, and modules that amplify and transmit
signals.  Clients include Alcatel, Ciena, Lucent, and Nortel.
In an ongoing effort to expand its reach, JDS Uniphase is
buying rival SDL (SDLI) for about $17 bln.

It's not looking too rosy for the fiber optics as the concerns
of a slowing US economy make technology investors somewhat
nervous.  And in particular, the telecommunication industry
stocks continue to preside as the market "whipping boy".
However, not is all to blame on pure emotions either - facts are
facts.  The industry may very likely experience some softening
in the first part of the year.  For instance, JDS Uniphase and
Corning (GLW), who is the world's biggest producer of optical
fiber and cable, both announced lower expectations for 2001.
Corning recently came forward too with specific news that some
of its customers like Nortel (NT) and Lucent (LU) may order less
optical fiber and components in an effort to cut costs, which
effectively sent fiber-optic shares lower.  The bleak outlook
has investors singing the blues across the board.  In response
to the growing concerns, CE Unterberg Towbin and Adams Harkness
both downgraded JDSU to a Buy from Strong Buy.  This week the
broad-based declines knocked JDSU for a loop.  The $55 support
level, which is bolstered by the 5 and 10 DMAs at $55.49 and
$55.71, failed to buoy the shares amid the market adversity this
time around.  A 10.6%, or $9.00 freefall on Friday saw JDSU
crash land on $49.87 for a devastating finish.  Further weakness
below the 30-dma ($50.87) would provide additional bearish
confirmation for the more cautious types.  For those who like to
enter on rollovers, consider using the $54 level as a practical
measurement guide.  Strength above $54 indicates a potential
reversal and we'll exit the play if JDSU manages a close above
that mark.

BUY PUT FEB-55 UQD-NK OI=14112 at $6.63 SL=4.50
BUY PUT FEB-50*UQD-NJ OI=15720 at $3.50 SL=1.75
BUY PUT FEB-45 NQD-NI OI= 5615 at $1.56 SL=0.75  High Risk!

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


VRTS - Veritas Software Corp. $87.00 (-12.75 last week)

VERITAS Software Corporation is a leading provider of data
availability software solutions that enable customers to protect
and access their business-critical data.  Founded in 1989, the
Mountain View-based company offers solutions to manage the
explosion of data and the growing complexity and scalability of
networked environments that exist in today's New Economy.
Enabling companies to ensure Business Without Interruption,
VERITAS is the market's leading innovator of data protection,
file system and volume management, clustering, replication, SAN
(storage area network) and application software solutions that
continuously deliver data when and where needed.

The Storage sector, like the Networking space, has been a
favorite area for growth investors.  With net-related traffic
flow multiplying at exponential levels, the demand for storage
has also increased, benefiting companies such as BRCD, EMC, NTAP
and VRTS.  However, analysts have recently been aggressively
downgrading the sector, resulting in a technical breakdown in
charts of Storage stocks across the board.  NTAP appears to have
suffered the most punishment, with Goldman Sachs, Credit Suisse
First Boston, Robertson Stephens and Saloman Smith Barney all
downgrading its shares.  Concerns over valuation and near-term
revenue growth in the current economic climate have managed to
trump bullishness of stellar earnings reports.  VRTS beat Street
estimates by 2 cents on record revenues and was upbeat in its
conference call.  With the highest of expectations already priced
into the stock, it appears that even the best of performances is
not enough to surpass investor benchmarks.  As a result, shares
of VRTS have now plunged below all the major moving averages.
For higher risk players, failed rallies above its 5-dmam now at
$95.83, could provide an ideal entry but confirm a rollover with
selling volume before making a play.  As well, make sure the
stock closes below our stop price of $94.  Resistance may also be
found at $90 and $88.  For an entry on weakness, if the bears
return in force, taking VRTS below $85 with conviction, this
would allow for a more conservative play.  Before jumping in,
keep an eye on the aforementioned peers to gauge sentiment in the
Storage sector.

BUY PUT FEB-90 VUQ-NV OI=1573 at $7.25 SL=5.00
BUY PUT FEB-85*VUQ-NU OI= 809 at $4.38 SL=2.75

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


*****************
CURRENT PUT PLAYS
*****************

SPW - SPX Corporation $99.80 (-9.20 last week)

SPX Corporation is a $2.7 billion global provider of technical
products and systems, industrial products and services, service
solutions and vehicle components.  SPX has operations in 19
countries with the worldwide headquarters in Muskegon, Michigan.
The company designs, manufactures and markets fire detection
systems, data networking equipment, broadcast antennas and
automatic fare collection systems.  SPX Corporation also designs,
manufactures and markets power transformers, industrial valves,
electric motors, and components for the light and heavy duty
motor vehicle markets.

After gapping down at the open on Monday morning, SPW
experienced selling pressure the entire week.  The downward
stair step pattern offered several put entry points, as SPW
rolled over from $109.25, $107.25, $104, and $102.11.  The
market obviously did not like the news that SPW had added
$425 million to its bank credit and priced $500 million in
LYON zero coupon senior notes, and Friday's selling took SPW
below the critical support level of $100, which had held
since last May.  SPW attempted to rally over $100 at the
close, but failed, and is now poised to roll over from
current levels to the next support level at $98.50.  Viewed
on a monthly chart, SPW's pattern looks like a big dome, and
if support at $100 does not hold next week, the next major
support level is $95, and then $80.  One of the keys here
will be volume.  The 10 day average volume of approximately
500,000 shares is nearly double the three month average
volume of 260,000 shares.  If this volume continues or
increases, and coincides with weakness in the overall market
and the capital goods sector, SPW could be positioned for
a major fall.  The weakest NAPM report in nearly ten years
indicated that the manufacturing sector of the economy is
in a recession, and this hits companies like SPW particularly
hard.  SPW's CEO has already stated that their earnings
growth in a slowing economy would be lower than expected.  SPW
is scheduled to report earnings on February 13, so traders have
a week left for this put play.  Consider taking positions on
a failed rally at $100, or a break below $99 on heavy volume.
Watch others in the capital goods sector like TYC for an
indication of sector strength, and set stops at $102.

BUY PUT FEB-100*SPW-NT OI=18 at $4.40 SL=2.75
BUY PUT FEB- 95 SPW-NS OI=20 at $1.95 SL=1.00

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


ADBE - Adobe Systems $43.56 (-14.50 last week)

A long-time leader in desktop publishing software, ADBE
provides graphic design, publishing, and imaging software
for Web and print production.  Offering a line of application
software products for creating, distributing, and managing
information of all types, the company generates nearly 75% of
sales through publishing software products such as Photoshop,
Illustrator, and PageMaker.  Its Acrobat Reader, which uses
portable document format (PDF) is popping up all over the
Internet, as businesses shift from print to digital
communications.  In addition, ADBE licenses its industry
standard technologies to major hardware manufacturers,
software developers, and service providers, as well as
offering integrated software solutions to businesses of all
sizes.

It's nice to be at the right place at the right time, and we
got into the ADBE play just in time.  Added last Monday, we got
one day to get into the play before the software company
shocked the street with an earnings warning.  Tuesday evening
after the market close, management raised took up the battle
cry of so many other technology companies before them,
"weakness across all business and geographic segments".
Following their confessional, ADBE fell more than $10 the next
day, helped along by a USB Piper Jaffray downgrade.  Prudent
investors took their profits Wednesday after the sharp drop,
taking advantage of the increased volatility, and then looked
for a new entry point.  We got just that on Friday morning as
the stock traded as high as $46.44 before spending the rest of
the day selling off again.  The dead-cat bounce was to be
expected, and the bearish pressure in the Technology sector
helped the bears to maintain the upper hand.  Now below all of
the moving averages, it seems that historical support is the
only thing capable of stopping the effect of gravity.  The
lower Bollinger band (now at $41.96) will help to reinforce
the historical support near $41-42, but the real support looks
to be resting at $38.  Look to initiate new positions on any
weak rally that fails to break through our $46 stop.  As long
as the NASDAQ continues to slide, ADBE will have a hard time
mounting a serious recovery.  Of course, continued weakness
that pushes ADBE below $43.50 (Friday's low), will present
a more conservative entry opportunity.

BUY PUT FEB-50 AEQ-NJ OI=4295 at $7.13 SL=5.00
BUY PUT FEB-45*AEQ-NI OI=2871 at $3.63 SL=2.00
BUY PUT FEB-40 AEQ-NH OI=3467 at $1.56 SL=0.75

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


HGSI - Human Genome Sciences $55.44 (-7.38 last week)

Possessing one of the largest human and microbial genetic
databases, HGSI licenses its database of knowledge to
pharmaceutical heavyweights like GlaxoSmithKline and Merck.
Management has chosen to forgo the race to decode the entire
human genome, and has instead focused on finding and patenting
genes involved in developing gene-based therapeutics.  Its
four compounds currently in clinical trials are intended to
limit the toxic effects of chemotherapy, promote the repair of
damaged cells, stimulate antibody production, and spur regrowth
of blood vessels.

In the absence of any significant news, HGSI investors have been
subject to the whims of the broader Biotech sector, and lately
those whims have been decidedly bearish.  After running out of
steam right at the 665 resistance level early last week, the
Biotech index (BTK.X) rolled over with gusto.  In the past four
days, the BTK has given up nearly 12%, but if you think that is
bad, then look at HGSI, which has given up more than 19%.
Sounds like a great recipe for a put play - pick a weak sector
to pick on, and then pick the weakest stock in the sector.  So
what is going on with HGSI?  After rolling over last week at
the 200-dma (then at $68), our play has plunged through all
its remaining moving averages and support at $59-60, coming to
rest on tenuous support at $54-55.  The bears appear determined
to take out this support level, and when they do, conservative
traders will be flashed the all-clear for new entries, so long
as the BTK is still falling.  Earnings are approaching on
February 13th (estimated date, and we are waiting for
confirmation from Investor Relations), but unless the sector
gets healthier, we are looking for HGSI to continue to
deteriorate.  With Stochastics still falling and the lower
Bollinger band flat-lining near $48 (also the site of the early
January lows), HGSI definitely has more room to fall, and we
want to enjoy the ride.  One thing to take note of is that
volume has weakened considerably over the past week, and we
are now seeing daily volume at slightly more than half the ADV.
When volume picks up again, watch the direction carefully, as
that move is likely to be strong.  More aggressive entries can
be had on intraday bounces near the most-recently violated
$59-60 support (now resistance) level.  Just make sure that
our stop, now located at $59, is still intact before playing.

BUY PUT FEB-60 HHA-NL OI=336 at $7.88 SL=5.50
BUY PUT FEB-55*HHA-NK OI=412 at $4.88 SL=3.00
BUY PUT FEB-50 HHA-NJ OI=761 at $2.75 SL=1.50

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


IDPH - IDEC Pharmaceuticals $57.22 (-6.09 last week)

IDPH is a biopharmaceutical company engaged primarily in the
research, development and commercialization of targeted
therapies for the treatment of cancer, autoimmune, and
inflammatory diseases.  The company's first FDA-approved
product, Rituxan, treats non-Hodgkin's lymphoma.  Delivered
intravenously, Rituxan is a monoclonal antibody used in place
of chemotherapy or radiation.  IDPH is also developing products
for the treatment of various autoimmune diseases such as
psoriasis, rheumatoid arthritis and lupus.

As the Biotech sector continues to rollover, IDPH is going along
for the ride, driven by deteriorating investor sentiment and
accelerated by the poor technicals on the chart.  Even analysts
are having a hard time saying anything nice about the stock.
Although there haven't been any negative comments, the best
bullish comments they could muster came from First Union
Securities last Wednesday, when the firm said their outlook
remains relatively unchanged at present and they raised their
price target from $68 to $70.  And this was only 2 days after
the company reported strong earnings (up 140% over the past
year), and with strong revenue growth driven by robust Rituxan
sales.  It looks like the "sell the news" crowd showed up just
in time to take advantage of the stock when it was a bit
overextended.  Nearing the upper Bollinger band last Tuesday
with the Stochastics in overbought territory and on the day of
earnings was just too tasty a morsel for the bears to pass up,
and they sold the news vigorously, quickly driving the stock
down through its ascending trendline.  Although much of the
downside pressure has now been released, it looks like there
could be more to come.  The dominant factor is likely to be the
broader market and Biotech sector.  If they continue to move
lower, then expect IDPH to break below the $57 support level,
and challenge the next level near $51.  Aggressive traders can
target shoot new entries on intraday rallies that fail to break
through the $61-62 resistance level, so long as our $62 stop is
not violated.  More timid players will want to wait for the
bears to push IDPH below $56 on solid volume before adding new
positions.  Ride the trend for all it is worth, but keep an eye
on the Biotech index (BTK.X) - when sentiment starts to change,
it should show up there first, giving us an early warning to
tighten up our stops or exit any open positions.

BUY PUT FEB-60 IHD-NL OI=355 at $5.88 SL=3.75
BUY PUT FEB-55*IDK-NK OI=183 at $3.13 SL=1.50
BUY PUT FEB-50 IDK-NJ OI=189 at $1.44 SL=0.75

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


********************************
WEEKLY UPDATES FOR VARIETY PLAYS
********************************

LONG-TERM:

LU $17.73 -1.27 (-0.27 last week)  LU seems to be settling into
a consolidation range between $17 and $19.  The stock was poised
to challenge resistance at $19 on Thursday, but the stronger
Job Report ignited a market wide sell-off on the concern that
we may not get an intermeeting rate cut.  With that said, we will
be watching for LU to hold support around $17 - $17.50, where
buyers have been showing up.  Being a Long-Term play, a strong
move through $19 would indicate another run at the $20's.  Take
your pick on the entries, either a bounce off support or a break
through resistance.  Consider your time horizon and look for a
market catalyst to bring the buyers back to LU.  We moved the
stop loss up to $17.

BUY CALL FEB-15 ULU-BC OI= 8690 at $3.10 SL=1.50
BUY CALL MAR-15*ULU-CC OI=  217 at $3.60 SL=2.25
BUY CALL MAR-20  LU-CD OI=14209 at $0.90 SL=0.00  High Risk!
http://www.premierinvestor.net/oi/profile.asp?ticker=LU


GE $46.28 +0.05 (+1.66 last week)  GE ran up nicely on Tuesday
ahead of the anticipated rate cut on Wednesday.  It was typical
buy the rumor, sell the news, but the buying that went on was
much needed as GE seemed to be drifting sideways.  At these
levels, GE is a good long-term buy, but it may not be fixing for
any big moves as it hammers out its bottom in the $45 area.
Resistance lies overhead at $47, $48, and $49.  Therefore, the
best entry opportunity would be on a break out with renewed
buying interest, i.e. strong volume.  Consider the longer
term options to avoid time decay.  The stop loss remains at $43.

BUY CALL MAR-45 GE-CI OI=13767 at $3.50 SL=1.75
BUY CALL JUN-50*GE-FJ OI=13203 at $3.10 SL=1.50
BUY CALL SEP-50 GE-IJ OI= 1503 at $4.60 SL=2.75
http://www.premierinvestor.net/oi/profile.asp?ticker=GE


LOW VOLATILITY:

CNC $16.24 +1.50 (+3.88 last week)  Four days of profit taking
have taken this OI favorite down from the $18 range.  We are
looking to see CNC consolidate its recent gains a bit.  In
doing so, we believe $16 is a level which CNC should hold as
support during this stage.  In fact, buyers supported this
level on both Thursday and Friday, and it happens to be our
current stop loss level.  Volume on the downside has been lighter
than that of the upside.  Buying interest may be just a day or
two away, so look for a break above $17 for an entry.  If this
occurs, CNC will likely challenge the $18.50 on another run
higher high in this recent uptrend.

BUY CALL FEB-15 CNC-BC OI=13481 at $1.75 SL=0.75
BUY CALL MAR-15*CNC-CC OI=  341 at $2.45 SL=1.25
http://www.premierinvestor.net/oi/profile.asp?ticker=CNC


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*****
LEAPS
*****

The $64,000 Question - How Severe Will It Be This Time?
By Mark Phillips
Contact Support

We've been watching the markets with fascination over recent
weeks as they have continued to move up in the face of
continuing bad news.  Earnings warnings, earnings misses,
abysmal economic reports, energy crisis in California - all of
these have had a damping effect but the markets have still
rallied, as all eyes have been on the Fed.  Going into the FOMC
meeting last Tuesday, it was pretty much a sure thing that we
would get a 0.50% interest rate reduction, with prospects of
more cuts in the months ahead.  This was clearly priced into
the market already, and then the talking heads started spouting
nonsense like a 75 basis point cut, and its likelihood, yadda,
yadda, yadda.  Yep, that's about when I hit the mute button,
because for those that were paying attention to more than the
talking heads on CNBC, this was just pie in the sky fantasy.
The problem was that investors were listening and once the 50
basis point cut was announced Wednesday afternoon, those that
foolishly hoped for more were actually disappointed!  Imagine
that!

Then, in the wake of the 0.50% rate cut, we had, can you
believe it, Disappointment?  It took a couple days for it to
materialize, but by Friday, all the major indices were selling
off from their overextended positions, and we are now left
wondering...Is there really a bottom somewhere beneath us?
If so, where is it?

So, did you take advantage of last week's musings about some of
our recent LEAPS plays and how to actually 'play' them?  Sure
enough, QCOM continued its rebound from the $70 level, and is
now beginning to test $90.  If you bought again near support,
you should be ratcheting up those stops.  Why actively manage
this position when you have a 2003 LEAP, you ask?  Because the
current market will give you a little, and then take a good
portion of it back before giving you a little more and repeating
the process.  Personally, I don't want to give very much back
on the pullbacks, which could happen soon due to the proximity
of the upper Bollinger band ($88.75), so I have my stop resting
just below the $84 support level.

Ok, so we were right about QCOM, and are thus vindicated in
selecting it as the Spotlight play last week.  What about the
other two plays we mentioned.  Recall that we also mentioned
Agilent (A) as a play that had moved sharply upwards and was
in a retracement mode.  A looked weak to me, and with the
Stochastics oscillator on the daily chart still falling, I
cautioned that the stock likely had more downside before
finding a new bottom.  Granted it, really took until Friday
to get moving to the downside, but then with the added pressure
of a declining NASDAQ, the stock fell through the 50-dma, and
closed just fractionally above $52, the stock's lowest level in
almost a month.  And even though daily stochastics appear to
have reached bottom, the weekly stochastics has just gotten
started in its descent.  If the broader technology market
continues to weaken, it wouldn't be surprising to see further
weakness in A.

Finally, we have DELL.  Recall we were cautioning that even
though it had moved up nicely, it was looking vulnerable to
profit taking in the near term.  Sure enough, we got one more
sharp move upwards on Monday, before spending the rest of the
week in the red.  You could have used the information in one
of two ways; one would have been to take profits off the table
when weakness began to emerge, while the other would have been
to keep you from initiating new positions when the stock was
looking top heavy.  As we have said many times in recent months,
pick your entry strategy and then wait for the market to
deliver it to you.

I reviewed those plays to hopefully give a better idea of what
to watch for in order to more successfully manage your LEAPS
positions and increase your profits over time.

So what is going on this week?  After looking at dozens and
dozens of charts, we came to the conclusion that there was
nothing that looked healthy enough to warrant being added as
a new play.  There is lots of weakness out there, and with
CSCO's earnings coming up this week, we felt it was better to
sit this week out.  As a bellwether for the Technology sector,
if CSCO has an impressive report and sounds like it is in a
strong position, this could give new life to the whole market.
As nice as that sounds, it is not the most likely scenario.
More realistically, especially given the recent cautionary
comments from John Chambers, the company's CEO, CSCO is likely
to talk of the impact that the Telecom slowdown is having on
revenues, underscoring that the slowdown affects everyone.  The
prudent approach will be to wait for the news to become known
and trade after we see what the market reaction is.

So, as much pain as we have seen in the markets in the past
several months, we must be cautious not to allow the recent
rally to fool us into thinking the bears have gone into
hibernation for good.  Remember how painful it was to continue
to buy every dip from Labor Day through the end of the year.
Lots of falling knives, and lots of severed fingers.  So, we've
entered another downturn, but the Fed is finally in our corner.
If the NASDAQ can put in a higher low, and many of our LEAPS
plays can follow suit, then I will feel pretty confident saying
that we've turned the corner and entered the beginning stages
of the next leg of the great bull.  But we need to see that
higher low form.  Posting a lower low (unlikely in my opinion)
would be a very bad sign, and the downside from there would
be unpleasant, but it would make the $64,000 question that
much more poignant.  And I think the guidance from CSCO will be
critical to that near-term question.

Not only were there no new plays to list this week, but it was
difficult to find one of our current plays to feature as the
Spotlight play, so for the first time in many months there is
no new play or Spotlight play this week.  Then our good old
friend, the VIX is still meandering along in the middle of
its historical range, ending the week at 24.75.  Rather than
force a bad play, we'll let the chips fall where they may, and
re-evaluate conditions next week.

In the meantime, protect your capital, and take profits when
they are offered.


Current Plays

SYMBOL  SINCE     LEAPS         SYMBOL   PICKED   CURRENT  RETURN

EMC    11/07/99  JAN-2002 $ 45  WUE-AI   $ 9.50   $34.40   262.11%
       09/17/00  JAN-2003 $100  VUE-AT   $32.75   $16.80   -48.70%
CSCO   11/14/99  JAN-2002 $ 45  WIV-AI   $11.00   $ 5.38   -51.14%
       11/26/00  JAN-2003 $ 60  VYC-AL   $16.63   $ 5.88   -64.66%
NT     11/28/99  JAN-2002 $37.5 WNT-AU   $15.13   $ 9.00   -40.52%
       09/10/00  JAN-2003 $ 75  ODT-AO   $27.50   $ 4.70   -82.91%
AOL    03/12/00  JAN-2002 $ 65  WAN-AM   $18.63   $ 4.30   -76.92%
       08/13/00  JAN-2003 $ 55  VAN-AK   $17.50   $11.70   -33.14%
AXP    03/12/00  JAN-2002 $46.6 WXP-AQ   $ 9.33   $ 9.90     6.11%
WM     03/19/00  JAN-2002 $ 30  WWI-AF   $ 5.38   $22.40   316.36%
       10/22/00  JAN-2003 $ 45  VWI-AI   $ 7.88   $14.30    81.59%
NOK    05/21/00  JAN-2002 $ 50  IWX-AJ   $17.25   $ 2.95   -82.90%
       07/30/00  JAN-2003 $ 50  VOK-AJ   $17.75   $ 6.00   -66.20%
C      06/18/00  JAN-2002 $48.8 YSV-AW   $10.31   $13.30    29.00%
       10/01/00  JAN-2003 $ 60  VRN-AL   $12.25   $11.60   - 5.31%
GENZ   07/16/00  JAN-2002 $ 70  YGZ-AN   $17.13   $29.25    70.75%
                 JAN-2003 $ 70  OZG-AN   $23.13   $37.75    63.21%
QCOM   09/17/00  JAN-2002 $ 70  WBI-AN   $22.50   $32.63    45.00%
                 JAN-2003 $ 70  VLM-AN   $29.63   $41.25    39.22%
TXN    10/22/00  JAN-2002 $ 50  WTN-AJ   $13.75   $ 8.30   -39.64%
                 JAN-2003 $ 50  VXT-AJ   $18.38   $13.30   -27.62%
BGEN   11/05/00  JAN-2002 $ 70  WGN-AN   $17.25   $13.75   -20.29%
                 JAN-2003 $ 70  VNG-AN   $25.00   $21.13   -15.50%
MU     11/26/00  JAN-2002 $ 45  WGY-AI   $13.13   $11.30   -13.90%
                 JAN-2003 $ 45  VGY-AI   $17.25   $16.60   - 3.77%
A      12/03/00  JAN-2002 $ 55  YA -AK   $16.88   $14.40   -14.67%
                 JAN-2003 $ 60  OAE-AL   $19.88   $17.70   -10.94%
ORCL   12/10/00  JAN-2002 $ 35  WOK-AG   $ 7.75   $ 5.00   -35.48%
                 JAN-2003 $ 35  VOR-AG   $11.13   $ 8.50   -23.63%
QQQ    12/10/00  JAN-2002 $ 70  WNQ-AR   $15.13   $ 8.90   -41.18%
                 JAN-2003 $ 75  VZQ-AW   $19.25   $12.50   -35.06%
WMT    12/24/00  JAN-2002 $ 55  WWT-AK   $ 9.63   $ 9.80     1.82%
                 JAN-2003 $ 55  VWT-AK   $14.00   $14.30     2.14%
DELL   01/07/01  JAN-2002 $ 20  WDQ-AD   $ 5.25   $ 8.63    64.29%
                 JAN-2003 $ 25  VDL-AE   $ 5.63   $ 8.63    53.20%
WCOM   01/14/01  JAN-2002 $ 25  WQM-AE   $ 5.00   $ 3.50   -30.00%
                 JAN-2003 $ 25  VQM-AE   $ 7.38   $ 5.75   -22.03%
CPN    01/21/01  JAN-2002 $ 40  YLN-AH   $10.50   $11.70    11.43%
                 JAN-2003 $ 40  OLB-AH   $15.38   $16.20     5.37%
ARBA   01/28/01  JAN-2002 $ 45  YYR-AI   $14.25   $ 9.75    31.58%
                 JAN-2003 $ 45  OLR-AI   $19.00   $14.25    25.00%



Spotlight Play

None


New Plays

None


Drops

NOK $32.60 It has been a painful slide for NOK shareholders over
the past 2 months.  Early December was the last time the stock
was looking healthy.  After getting a bit ahead of itself, it
began pulling back, testing and retesting $40 support until it
finally broke for good a couple weeks ago.  Then earnings came
out, and it was effectively all over.  Even though the fourth
quarter results were better than expected, the conference call
pointed to trouble ahead due to the broader economic picture,
and investors promptly sold the stock in response to the
numerous analyst downgrades.  NOK is the last of the 3 major
handset makers to fall from grace, and until the fundamentals
in the handset market improve, it seems unlikely that we will
see much upside in NOK's share price.


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**********
DISCLAIMER
**********

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html

The Option Investor Newsletter                   Sunday 02-04-2001
Sunday                                                      5 of 5

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/020401_5.asp

*************
COVERED CALLS
*************

Charting Terms and Definitions: Stages Explained!
By Mark Wnetrzak

Each week we receive a number of questions regarding terms that
are commonly used when describing the technical character of an
issue.  One of the most well-known techniques for chart analysis
comes from "Secrets for Profiting in Bull and Bear Markets", by
Stan Weinstein.  He describes the condition and outlook for most
stocks in terms of stages.  Here is a brief description of each
category and how it can be used in selecting bullish candidates
(such as those used in Covered-Call and Naked-Put positions) and
some hints for timing your entry and exit transactions.

Stage I is the basing stage that could last for months (or even
years).  It is usually defined by little or no vertical movement
with a long-term moving average that is basically flat.  A common
axiom suggests that, "The longer the base, the stronger the case"
when an issue breaks-out and issues with this type of pattern
have relatively low risk as there is little downside potential
remaining.

Stage II is when the issue begins to exhibit signs of a new upward
trend.  The stock price closes above a long-term moving average
(150-200 dma) with the average turning up, and that is the ideal
time to enter a bullish play.  Investors should look for the next
resistance level to identify any potential "failed rally" points.
Try to focus on stocks that have room to run, picking only those
issues that are in stage II climbs and buying on pullbacks to
technical support (or recent trend-lines).


Some Stage II signs to look for:

Volume - This is vital!  Rallying stocks climb on substantially
larger volume, much more than that which occurs any time during
the basing stage.  This volume should not be short lived as the
change in stock price is the result of supply and demand; those
who want to buy versus those who want to sell.  The key point is
that a rise or fall in price on a small volume of shares traded
is far less important than a move supported by heavy volume.  If
there is heavy trading on an upward move, buyers are in control
of the market, and their enthusiasm for the stock often pushes it
even higher.  In addition, most experts say that volume precedes
the direction of a stock's price and when reviewing candidates,
we favor issues with bullish trends that have good volume support.

Relative strength - When a stock breaks out of a base, relative
strength should cross up above the zero line into positive
territory.  The higher the climb to cross above the zero line, the
higher the probability of a continued upward movement.

The "Runner's Crouch" or building steam - A move often seen before
the stock breaks out.  It's usually a small dip to gather strength
for the upward push above the moving average.  After the issue
crosses above the top of the basing area (resistance), it should
also climb above the moving average.  This action will start to
turn the moving average up.  Then the stock should begin to climb
significantly and as it corrects back to the moving average, the
next rally should create a new near-term high.

Stage III is the area where the stock begins to encounter weakness
and fails to make new highs.  It is defined by sideways trend in
the issue and a crisscrossing of the moving averages.  This is the
place to tighten stop losses and take profits if the rally fails
to continue.  Always allow for a possible resumption of stage II.

Stage IV is when an up-trend breaks down completely, with the stock
falling through it's long-term moving average and then failing to
rebound above it.  The moving average will turn downward as the
stock continues to fall and make new lows.  When a stock enters
Stage IV, there is usually a last chance to sell on a move back
up, towards the long-term moving average.  When entering bearish
positions look for support areas so as to make sure a stock has
room to fall before "shorting" the stock or buying a put.  Many
traders will use rallies to resistance areas to initiate shorts
and then cover as a stock approaches a support area.

Good Luck!


SUMMARY OF PREVIOUS PICKS
*****
NOTE: Using Margin doubles the listed Monthly Return!

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

SFAM    8.63   8.41   FEB   7.50  1.88  *$  0.75  16.1%
ONNN    8.00   7.13   FEB   7.50  1.56   $  0.69  15.5%
GEN    10.50  12.48   FEB  10.00  1.50  *$  1.00  12.1%
ANTC   11.25  12.50   FEB  10.00  2.25  *$  1.00   9.9%
XLA     8.38   8.29   FEB   5.00  3.88  *$  0.50   9.9%
CLRS    7.88   8.31   FEB   5.00  3.25  *$  0.37   8.7%
RDRT    7.56   9.31   FEB   5.00  2.88  *$  0.32   7.4%
HOTT   22.13  24.50   FEB  17.50  5.88  *$  1.25   6.9%
ISLD    6.13   4.84   FEB   5.00  1.50   $  0.21   6.6%
VPHM   22.13  24.50   FEB  17.50  5.38  *$  0.75   6.5%
SCON    7.13   9.06   FEB   5.00  2.44  *$  0.31   5.9%
PGNX   27.38  24.75   FEB  20.00  8.13  *$  0.75   5.6%
FNSR   36.38  32.81   FEB  30.00  7.50  *$  1.12   5.6%
ENTU   20.31  17.03   FEB  15.00  6.00  *$  0.69   5.2%
ASTSF  16.31  15.19   FEB  12.50  4.38  *$  0.57   5.2%
CPST   34.19  41.00   FEB  25.00 10.50  *$  1.31   4.9%
MCCC   20.00  18.75   FEB  17.50  3.25  *$  0.75   4.9%
GEN    11.00  12.48   FEB  10.00  1.31  *$  0.31   4.6%
ATHM    8.72   6.00   FEB   7.50  2.00   $ -0.72   0.0%
BKHM   22.56  14.06   FEB  17.50  6.13   $ -2.37   0.0%

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

Comments:

Both Bookham Tech (NASDAQ:BKHM) and At Home Corp. (NASDAQ:ATHM)
continue to weaken, though they haven't violated their recent
lows.  In the interest of prudent money management, we suggest
you exit these positions and we will reflect that action in next
week's summary.  You may consider rolling ATHM down to a JUL-$5
strike for a new cost basis of $4.66 and rolling down BKHM to a
JUN-$15 strike for a new cost basis of $13.55, depending on your
long-term outlook.  Monitor On Semiconductor (NASDAQ:ONNN) as it
tests its 50 dma - a move towards $6.00 appears probable.  Will
Digital Island (NASDAQ:ISLD) endure the post-earnings downgrades?
If your long-term outlook has changed, maybe it is time to close
the position.  What's up with Viropharma (NASDAQ:VPHM) and the
heavy volume on Friday?  Finisar's (NASDAQ:FNSR) recent price
action is worrisome (falling on heavy volume) and a test of the
bottom of its recent trading range near $25 may be forthcoming.



NEW PICKS
*********

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

NERX   10.06  MAR   7.50  XUO CU  3.62  443   6.44   42    11.9%
NXCD   11.38  MAR  10.00  DQX CB  2.31  13    9.07   42     7.4%
ESCM   16.00  FEB  15.00  QFC BC  1.44  179  14.56   14     6.6%
ELON   24.44  FEB  20.00  EUL BD  5.00  523  19.44   14     6.3%
LGTO   17.88  MAR  15.00  EQN CC  3.88  2830 14.00   42     5.2%
ATRX   23.00  MAR  20.00  OQF CD  4.00  0    19.00   42     3.8%
CSTR   17.06  MAR  15.00  QLR CC  2.75  9    14.31   42     3.5%


Company Descriptions

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

*****
ATRX - Atrix Laboratories  $23.00  *** Onward and Upward! ***

Atrix Laboratories (NASDAQ:ATRX) is engaged primarily in the
research, development and commercialization of a broad range of
medical, dental, and veterinary products based on its proprietary
drug delivery systems.  With the acquisition of ViroTex, Atrix
has a broad-based platform of drug delivery technologies that
provides for parenteral, transmucosal and topical drug delivery.
The company's flagship product, ATRIDOX, is a minimally invasive
pharmaceutical treatment for periodontitis that employs the
ATRIGEL system containing the antibiotic doxycycline.  Atrix
recently licensed the North American marketing rights to its
Leuprogel products to Sanofi-Synthelabo and they have also
received an exclusive option from Tulane University Health
Science Center to license human growth hormone releasing peptide-1,
a new patented growth promoting compound.  We favor the bullish
technicals as the stock remains in a Stage II climb, recently
reaching a multi-year high.  With earnings due in the next few
days, we prefer a lower risk entry point closer to support.

MAR 20.00 OQF CD LB=4.00 OI=0 CB=19.00 DE=42 MR=3.8%

http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=ATRX
*****
CSTR - Coinstar  $17.06  *** Rally Mode! ***

Coinstar Inc. (NASDAQ:CSTR) and its subsidiaries, Meals.com and
Coinstar International, use technology to deliver time and money
saving services to consumers in their local supermarkets.  The
company's 8,500 strong network of machines is currently available
to 130 million consumers in 45 states and the District of Columbia,
as well as in Canada and the United Kingdom.  Meals.com Inc.
connects consumers, grocery stores and manufacturers through
online and in-store technologies that provide shoppers with
relevant information and special offers based on their personal
preferences.  Coinstar recently announced it has served its 100
millionth customer, proving the more and more Americans are using
Coinstar.  This week, the stock made a bullish move; rallying up
and out of an ascending triangle.  The activity suggests the issue
has further upside potential, but we prefer a conservative entry
point with a cost basis below technical support.

MAR 15.00 QLR CC LB=2.75 OI=9 CB=14.31 DE=42 MR=3.5%

http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=CSTR
*****
ELON - Echelon  $24.44  *** Bottom Fishing! ***

Echelon Corp. (NASDAQ:ELON) is the world leader in networking
everyday devices.  The company offers a comprehensive line of
hardware and software products for automating building, home,
industrial, transportation, and utility applications using
LONWORKS networks, an international, cross-industry, open
standard for interoperable device networks.  In January, ELON
reported earnings, meeting current estimates with revenues of
$49.3 million; an increase of 24% over last year.  Net profit
for the quarter ended December 31 was $1.1 million, or $0.03
per share, compared to a loss of $0.03 last year.  Investors
appear pleased as the stock continues to rally on increasing
volume.  Banc of America's has initiated coverage with a "buy"
rating and Prudential has re-iterated their "strong buy" rating.
This short-term play takes advantage of the current bullish
momentum as Echelon begins to forge a Stage I base.

FEB 20.00 EUL BD LB=5.00 OI=523 CB=19.44 DE=14 MR=6.3%

http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=ELON
*****
ESCM - ESC Medical Systems  $16.00  *** Earnings Rally! ***

ESC Medical Systems (NASDAQ:ESCM) develops, manufactures and
markets medical devices utilizing state-of-the-art proprietary
intense pulsed light source and laser technology.  Its systems
are used in a variety of aesthetic, surgical and medical
applications, including the non-invasive treatment of veins
and other benign vascular lesions, pigmented lesions, hair
removal and skin rejuvenation, as well as ENT, OB/GYN and
neurosurgery.  No warning here!  In early January, ESC Medical
announced that it expects to meet estimates with 4th-quarter
revenues of approximately $46 million, which would be a 15%
increase over the same quarter last year.  The stock rallied
strongly on the news and has now moved above the December high,
ending ESCM's downtrend.  This play offers reasonable short-term
speculation for those investors with a long-term bullish outlook
on the issue.

FEB 15.00 QFC BC LB=1.44 OI=179 CB=14.56 DE=14 MR=6.6%

http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=ESCM
*****
LGTO - Legato Systems  $17.88  *** Impressive Revenue! ***

Legato (NASDAQ:LGTO) is a worldwide leader in enterprise storage
management and application availability.  Helping companies
leverage business-critical, corporate data assets, Legato's
products and services enable information continuance, a seamless
approach to the movement, management and protection of data
throughout an enterprise.  Legato reported earnings this week
with revenues of $58.4 million as compared to $54.2 million last
year.  The company is poised for growth with a a strong balance
sheet and positive business pipeline going into 2001.  Investors
were pleased with the strong 4th-quarter report even after an
impressive pre-earnings rally.  With a new version of its
flagship product, NetWorker 6.0, and its Celestra product, being
successfully deployed with select customers, the future looks
bright.  We favor a conservative cost basis that allows for a
brief post-earnings pullback.

MAR 15.00 EQN CC LB=3.88 OI=2830 CB=14.00 DE=42 MR=5.2%

http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=LGTO
*****
NERX - NeoRx  $10.06  *** Speculators Only! ***

NeoRx Corp. (NASDAQ:NERX) develops innovative biopharmaceutical
products designed to improve treatments for patients with cancer.
In addition to STR for multiple myeloma, NeoRx is conducting a
phase I trial of its Pretarget. Technology in lymphoma, and
currently plans to test STR indications in breast and prostate
cancers once its clinical hold is lifted.  The company suffered a
setback in November when it had to suspended accrual and treatment
under its phase III clinical trial for patients with multiple
myeloma and other Skeletal Targeted Radiotherapy (STR) studies.
The company is providng the FDA with addition information and
hopes to resolve the matter soon.  A reasonable cost basis for
those who wish to speculate on the decision.

MAR 7.50 XUO CU LB=3.62 OI=443 CB=6.44 DE=42 MR=11.9%

http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=NERX
*****
NXCD - NextCard  $11.38  *** Bracing for a Rally? ***

NextCard, Inc. (NASDAQ:NXCD) is considered the leading issuer of
consumer credit on the Internet.  The Company was the first to
offer instant online credit card approval, a choice of customized
credit card offers, and exceptional online customer service.  NXCD
has continued to innovate with its NextCard Concierge(SM) online
shopping service, online bill payment services, and comprehensive
rewards program.  NextCard reported solid earnings in January,
with operating revenue increasing to $62.0 million for the quarter.
A 346% (26% sequential) increase over last year isn't too shabby.
The company originated over a billion dollars in new loans through
the Internet during 2000, consistently scaling the business ahead
of expectations, and NXCD is on-track to achieve profitability by
the end of this year.  Obviously Wall Street was pleased and we
simply favor the support area near our cost basis.

MAR 10.00 DQX CB LB=2.31 OI=13 CB=9.07 DE=42 MR=7.4%

http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=NXCD
*****

*****************
SUPPLEMENTAL COVERED CALLS
*****************

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

HPOW    8.06  FEB   7.50  HQF BU  1.25  164   6.81   14    22.0%
MDR    15.29  FEB  15.00  MDR BC  1.20  426  14.09   14    14.0%
SERO   18.00  FEB  17.50  QEO BW  1.31  112  16.69   14    10.5%
GEN    12.48  MAR  12.50  GEN CV  1.25  2    11.23   42     8.1%
PRGN   29.75  MAR  27.50  GQP CY  4.50  120  25.25   42     6.5%
LIN    37.25  FEB  35.00  LIN BG  3.00  70   34.25   14     4.8%
RCII   38.50  MAR  35.00  RQG CG  5.63  73   32.87   42     4.7%


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***********************
CONSERVATIVE NAKED PUTS
***********************

Option Trading Basics: Arbitrage and Making a Market
By Ray Cummins

One of the most common questions we receive from new traders
concerns the manner in which floor brokers participate in the
options market.

The majority of methods employed by floor specialists to profit
from trading in options and their associated stocks are based on
pricing theory and statistical probability.  There are also a
number of scalping techniques; the most common of which occurs
when heavily traded options are bought at the bid and sold at the
ask, generating a spread credit for the market maker.  Specialists
who participate in risk-free transactions also utilize various
arbitrage techniques.

A large number of specialists favor box-spreads and conversions or
reversals (reverse conversions).  A box spread consists of two
call options with different strike prices and two put options with
strike prices equivalent to the calls.  Box spreads are initiated
when the options are mis-priced on a relative basis.  The price
risk of the call spread is offset by the opposite position in the
put spread thus guaranteeing a risk-free profit.  In addition,
the specialist does not need to purchase the underlying issue to
participate in the technique.  Unfortunately, opportunities for
this type of position are available primarily to floor traders who
can instantly exploit the disparities among the options, and the
ongoing execution of orders in a liquid market eventually returns
the prices to their relative fair values.

Conversions involve calls, puts, and the underlying stock.  For
example, the conversion is used when a retail trader is interested
in buying a call option.  To offer the position, a specialist will
buy an under-priced put and sell an overpriced or fairly priced
synthetic put (a short call and long stock position).  The initial
profit is achieved when the transaction yields a credit. If the
value of the (sold) call option goes up, the (long) stock position
will offset the change.  If the value of the (long) stock falls,
the put is exercised to cover the loss.  In this manner, the floor
broker trades risk-free and profits from the initial transaction.
Of course, funds must be borrowed to finance the purchase of the
stock and the current interest rate is always figured into the
overall position.

The technique for a reversal (reverse conversion) is simply the
opposite.  When a retail trader desires to sell a call option, a
floor broker will attempt to buy the call at a discount and sell
an overpriced or fairly priced synthetic call (a short put and
short stock).  The initial credit received is risk-free profit. In
the case of a reversal, the funds received from the (shorted) stock
are placed in a risk-free, short-term investment.  At expiration,
the call will be exercised to purchase the underlying or the stock
is received via assignment, replacing that which was borrowed in
the initial transaction.  There are no up-front funds needed for
this technique but because of the rules (sales on the up-tick only)
and difficulty in short selling, specialists generally do not
receive all of the funds from the short sale.

All of these techniques are risk-free transactions since the price
change on the option purchased is offset with the sale of synthetic
positions.  The knowledge of option pricing is the primary manner
in which the specialist profits from these transactions.  Simple
box spreads and conversions are the most common forms of option
arbitrage and once you understand the basics of each method, your
relationship with the market-maker will be a much happier one.

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.


SUMMARY OF PREVIOUS PICKS
*****

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

ARTG   34.50  34.25   FEB  25.00  0.69  *$  0.69  13.2%
EXPE   16.25  16.56   FEB  12.50  0.31  *$  0.31  12.6%
FIBR   26.38  23.50   FEB  17.50  0.69  *$  0.69  12.6%
JNIC   29.00  18.94   FEB  17.50  0.75  *$  0.75  12.4%
SPCT   21.94  24.75   FEB  17.50  0.38  *$  0.38  11.5%
RATL   47.88  48.94   FEB  35.00  1.25  *$  1.25  10.3%
TVLY   20.69  24.88   FEB  15.00  0.38  *$  0.38   9.1%
SMTC   27.75  28.81   FEB  17.50  0.63  *$  0.63   9.1%
GMST   52.69  48.69   FEB  35.00  1.19  *$  1.19   9.1%
PLUG   19.94  25.56   FEB  12.50  0.44  *$  0.44   8.9%
GLGC   23.88  22.75   FEB  17.50  0.31  *$  0.31   8.8%
TER    39.56  39.38   FEB  32.50  0.56  *$  0.56   8.7%
ISSI   17.75  17.88   FEB  12.50  0.38  *$  0.38   8.7%
PRIA   30.19  30.75   FEB  22.50  0.38  *$  0.38   8.6%
PPRO   22.31  25.13   FEB  12.50  0.38  *$  0.38   8.5%
MFNX   18.69  14.06   FEB  12.50  0.38  *$  0.38   8.3%
AVCI   37.13  34.50   FEB  20.00  0.69  *$  0.69   7.6%
BMCS   32.13  28.31   FEB  22.50  0.44  *$  0.44   7.0%
EXFO   50.44  42.88   FEB  30.00  0.69  *$  0.69   7.0%
VECO   57.50  50.13   FEB  30.00  0.56  *$  0.56   6.7%
MU     46.44  41.20   FEB  35.00  0.56  *$  0.56   6.2%

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

Comments:

JNI Corp. (NASDAQ:JNIC) isn't making it easy; but the position
can be exited for a $0.25 loss or rolled down to the MAR-$15
strike for a net credit of $1.25 ($13.75 basis).  It hasn't yet
violated the early January low and the selling pressure appears
to be abating.  A tough call - do I stay or do I go now?  Watch
Gemstar-TV Guide (NASDAQ:GMST) as it has violated its 50 dma.
A move to $35 seems unlikely (at this time) but stranger things
have happened.  We may soon find out why Integrated Silicon's
(NASDAQ:ISSI) FEB-$12.50 strike was overpriced (very volatile).
Metromedia Fiber (NASDAQ:MFNX) continues to weaken and should be
monitored closely.  The position could be closed for an $0.18
loss (a MAR-$10 strike isn't available yet).  It appears Micron
Tech (NYSE:MU) will test the support area near $35 - so its time
to evaluate your options (no pun intended).


NEW PICKS
*********

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

MLI    26.88  FEB  25.00  MLI NE  0.65  287  24.35   14    14.8%
CBT    33.18  FEB  30.00  CBT NF  0.55  1517 29.45   14    11.2%
MDR    15.29  MAR  12.50  MDR OV  0.60  20   11.90   42    11.1%
TPTH   12.75  MAR  10.00  TPU OB  0.44  20    9.56   42    10.7%
ABMD   25.44  MAR  15.00  IBU OC  0.50  56   14.50   42     6.5%
NAUT   19.19  MAR  17.50  NQT OW  0.56  0    16.94   42     6.2%
SPCT   24.75  MAR  17.50  QCS OW  0.44  0    17.06   42     5.9%


Company Descriptions

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

*****
ABMD - Abiomed  $25.44  *** A Change of Heart? ***

Abiomed (NASDAQ:ABMD) is a developer, manufacturer and marketer
of medical products designed to safely and effectively assist or
replace the pumping function of the failing heart.  The company
has been developing and is preparing to enter human clinical
trials for the AbioCor Implantable Replacement Heart, a unique,
battery-powered totally implantable replacement heart system,
which may eventually become the first such device for end-stage
heart failure patients. Abiomed currently manufactures and sells
a temporary heart assist device, which is approved by FDA as the
only device for the temporary treatment of patients with failing
but potentially recoverable hearts.  Abiomed shares rallied last
week after the company said it received permission from the U.S.
FDA to begin initial trials of its replacement heart.  ABMD also
withdrew its offer to buy Thermo Cardiosystems (AMEX:TCA), which
suggests they are confident of the success of the new procedure.

MAR 15.00 IBU OC LB=0.50 OI=56 CB=14.50 DE=42 MR=6.5%

http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=ABMD
*****
CBT - Cabot  $33.18  *** Chemicals Sector Hedge ***

Cabot (NYSE:CBT) has businesses in chemicals, performance materials
and specialty fluids.  The Chemicals business manufactures carbon
black, fumed metal oxides, and inkjet colorants for the automotive,
construction, consumer products, electronics and rubber industries.
The Performance Materials segment produces tantalum, niobium and
their alloys for the electronic materials and refractory metals
industries, and cesium, germanium, rubidium and tellurium for a
wide variety of industries including the fiber optics and specialty
chemicals industries.  The Specialty Fluids business produces and
markets cesium formate as a drilling and completion fluid for use
in high pressure and high temperature oil and gas well operations.
Cabot revenues fell below the consensus estimates for the quarter
but the company said that earnings for the fiscal year 2001 should
be about 50% higher, due to increasing prices and volumes and its
ore position.  Investors applauded the news, driving CBT's shares
to an all-time high and it appears the rally will continue.

FEB 30.00 CBT NF LB=0.55 OI=1517 CB=29.45 DE=14 MR=11.2%

http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=CBT
*****
MDR - Mcdermott Intl.  $15.29  *** Oil Sector Hedge ***

McDermott International (NYSE:MDR) operates in four business
segments: Marine Construction, Power Generation, Government
Operations and Industrial Operations.  Marine Construction
provides services to customers in the offshore oil and gas
exploration and production and hydrocarbon processing and to
other marine construction companies.  Power Generation provides
services, equipment and systems to generate steam and electric
power at energy facilities worldwide.  Government Operations is
the sole supplier of nuclear fuel assemblies and major nuclear
reactor components to the U.S. Navy for the Reactors Program.
The Industrial Operations segment provides unique services to
customers in a wide range of industries.  MDR participates in a
number of industrial segments and the recent technical breakout
suggests the issue is poised to return to its past valuations.

MAR 12.50 MDR OV LB=0.60 OI=20 CB=11.90 DE=42 MR=11.1%

http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=MDR
*****
MLI - Mueller Industries  $26.88  *** Metals Sector Hedge ***

Mueller Industries (NYSE:MLI) is a leading manufacturer of copper,
brass, plastic and aluminum products.  The range of these products
includes copper tube and fittings; brass and copper alloy rod, bar
and shapes; aluminum and brass forgings; aluminum and copper
impact extrusions; plastic fittings and valves; refrigeration
valves and fittings; and fabricated tubular products.  Mueller's
plants are located throughout the United States, and in Canada,
France and Great Britain.  The company also owns a short line
railroad in Utah and natural resource properties in the Western
United States.  With the recent profit-taking in the broad market,
a few hedge plays in the portfolio isn't such a bad idea.  This
position has merit technically, but the company's earnings will
likely have an effect on the outcome.  The report is due on 2/13.

FEB 25.00 MLI NE LB=0.65 OI=287 CB=24.35 DE=14 MR=14.8%

http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=MLI
*****
NAUT - Nautica Enterprises  $19.19  *** Rally In Progress! ***

Nautica Enterprises (NYSE:NAUT) designs, sources, markets, and
distributes apparel under the following brands: Nautica; Nautica
Competition; NST-Nautica Sport Tech; Nautica Jeans Company; John
Varvatos; E. Magrath; and Byron Nelson.  These products feature
classic and contemporary styling, quality and functionality.  The
company's in-store shop programs for the Nautica collections are
an integral part of its marketing ploy for its wholesale business.
In addition to its wholesale business, the company operates outlet
stores to provide an additional sales channel for Nautica products
and allows for the organized distribution of excess merchandise.
The company also strategically extends its brands and broadens the
international distribution of its apparel through other license
arrangements.  NAUT is one of the leading Specialty Retailers and
investors are plowing money in to the sector in expectation of a
recovering economy.  On Friday, the issue moved to a new high and
our cost basis seems like a reasonable price at which to own the
stock.

MAR 17.50 NQT OW LB=0.56 OI=0 CB=16.94 DE=42 MR=6.2%

http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=NAUT
*****
SPCT - Spectrian  $24.75  *** Record Revenues! ***

Spectrian (NASDAQ:SPCT) is a leading designer and manufacturer of
single-carrier and multi-carrier high-power RF amplifiers for the
worldwide wireless communications industry, utilized in both data
and voice applications.  Spectrian supports AMPS, CDMA, TDMA, GSM
and 3G technologies for mobile and fixed wireless networks.  The
company achieved record revenues this quarter by doubling their
multi-carrier amplifier sales from the previous period.  Spectrian
has also been officially selected by Nortel Networks as a supplier
of UMTS MCPA amplifiers; an event which will have positive effects
on the company's future earnings.  Our cost basis in the issue is
near the most recent technical support area, thus providing a low
risk entry point.

MAR 17.50 QCS OW LB=0.44 OI=0 CB=17.06 DE=42 MR=5.9%

http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=SPCT
*****
TPTH - TriPath Imaging  $12.75  *** On The Move! ***

TriPath Imaging (NASDAQ:TPTH) develops, manufactures and markets
products to improve cancer screening.  Improved slide preparation
technology is delivered through the AutoCyte PREP System, a unique
automated thin-layer cytology sample preparation that produces
specimen slides with a homogeneous, thin-layer of cervical cells,
and is one of only two sample preparation systems approved by the
FDA as a replacement for the conventional Pap smear.  TriPath also
delivers visual intelligence technology to increase accuracy and
productivity in medical testing procedures through the AutoPap
Primary Screening System, which utilizes proprietary technology to
analyze Pap smears.  TriPath reported fourth quarter revenues of $9
million, an 11% increase from the third quarter of 2000 and a 41%
increase from the fourth quarter of 1999.  This capped a year in
which revenues increased by 77% and investors appear to favor the
fundamental improvement in the company.

MAR 10.00 TPU OB LB=0.44 OI=20 CB=9.56 DE=42 MR=10.7%

http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=TPTH
*****

***********************
SUPPLEMENTAL NAKED PUTS
***********************

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

SERO   18.00  FEB  17.50  QEO NW  0.81  5    16.69   14    23.4%
LIN    37.25  FEB  35.00  LIN NG  1.00  65   34.00   14    15.9%
EX     10.10  MAR  10.00   EX OB  0.90  0     9.10   42    13.5%
LFG    48.15  FEB  45.00  LFG NI  0.60  0    44.40   14     7.8%
MLTX   19.00  MAR  15.00  UXM OC  0.44  20   14.56   42     7.5%
PKS    20.20  MAR  17.50  PKS OW  0.55  1106 16.95   42     6.7%
SLOT   53.44  MAR  45.00  QLT OI  0.94  12   44.06   42     4.9%


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


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

Entry Point or Exit Opportunity?

Traders sold for profits today, driving the major indices lower
after a week of bullish activity.


Friday, February 2

Traders sold for profits today, driving the major indices lower
after a week of bullish activity.  The NASDAQ slid 122 points to
end at 2,660 and the Dow closed down 119 points at 10,864.  The
S&P 500 index finished down 24 points at 1,349.  Trading volume
on the NYSE hit 1.04 billion shares, with losers beating winners
1,708 to 1,378.  Activity on the NASDAQ was light at 1.7 billion
shares exchanged, with declines beating advances 2,495 to 1,367.
In the bond market, the 30-year Treasury fell 23/32, pushing its
yield up to 5.50%.


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

Clorox     (NYSE:CLX)  JUL40C/FEB40C   $2.30   debit   calendar
Cabletron  (NYSE:CS)   JUL25C/FEB25C   $2.70   debit   calendar
Hewlett    (NYSE:HWP)  JAN02-40C/F40C  $6.25   debit   calendar

The bearish market activity allowed entries at the target prices
in all of our new positions.


Portfolio Plays:

Stocks moved lower today as traders took profits from the recent
broad-market rally.  Analysts said the robust employment report
added to the negative sentiment but the selling pressure came on
thin volume, suggesting there was little concern over the bearish
activity.  In the technology group, telecom shares led the losers
while networking, Internet and semiconductor equipment companies
also experienced large percentage losses.  Among blue-chip issues,
International Business Machines (NYSE:IBM), Intel (NASDAQ:INTC)
and Minnesota Mining (NYSE:MMM) weighed on the Dow while General
Motors (NYSE:GM), Johnson & Johnson (NYSE:JNJ) and financial giant
American Express (NYSE:AXP) saw cautious buying.  The leading S&P
500 groups were Healthcare, Pharmaceutical and Oil Service.  The
Spreads Portfolio experienced little bullish activity during the
session and only a few issues made significant gains.  Qualcomm
(NASDAQ:QCOM) was the technology standout in the big-cap category
while Portal Software (NASDAQ:PRSF) led the lower-priced issues.
AES Corporation (NYSE:AES) paced the industrial group, up $1.25
as investors moved back into safety stocks.  It appears that our
speculative offering in the issue may yield a profit, even though
we did not initiate any positions in the play.  Of the stocks that
moved lower, only Molex (NASDAQ:MOLX) was a concern and with the
issue moving below recent technical support (and the 30-DMA), we
decided to exit the bullish position with a small loss.  The short
option (FEB-$40) was easily closed for $1 and we will attempt to
offset the remaining debit with the sale of the long (FEB-$35)
Put in the coming sessions.  One of the issues that we mentioned
last week, Lennar (NYSE:LEN) is still showing signs of a failed
rally but it has managed to remain above our sold (short) Put at
$35.  As noted on Monday, we were looking for a favorable exit
opportunity and near mid-week the issue provided a closing debit
of $1.00 (offered as low as $0.95) for the FEB-$35 Put.  Now the
long option at $30 can be sold to cover, or partially offset the
small loss.

The Straddles section was again the most active group and our
Reader's Request position in AOL Time Warner (NYSE:AOL) finally
achieved the target return on a simultaneous order basis.  The
issue fell to a low of $46.75 during the session, providing a
$7.75 credit overall on $5.90 invested in less than two weeks.
Another position in that category, Omnicom (NYSE:OMC) moved out
of its recent trading range near $90 after the company announced
it sold $750 million of 30-year zero-coupon convertible bonds in
the 144a private placement market.  The sale was increased from
an originally planned $500 million and that may have surprised
some of the company's long-term investors.  Our neutral position
in Triad Hospitals (NASDAQ:TRIH) has yet to produce a profit but
the issue provided new hope on Friday, falling to a recent low
near $27.  The next downside target is $25.75 and a successful
test of that range would likely signal an exit in the bearish
portion of the play.  We noticed the price of Lyondell Chemical
(NYSE:LYO) has made a nice recovery from the mid-January lows
near $12.75 and traders who did not take the early-exit profit
may consider closing the bullish portion of the position if the
recent rally fails near current resistance at $17.

Questions & comments on spreads/combos to Contact Support
******************************************************************
                           - NEW PLAYS -
******************************************************************
ENZN - Enzon  $56.13  *** Reader's Request! ***

Enzon (NASDAQ:ENZN) is a biopharmaceutical company that develops
and commercializes enhanced therapeutics for life-threatening
diseases through the application of its two proprietary platform
technologies: polyethylene glycol (PEG) and single-chain antibody.
The company applies its PEG technology to improve the delivery,
safety and efficacy of proteins and small molecules with known
therapeutic efficacy.  Enzon applies its single-chain antibody
technology to discover and produce antibody-like molecules that
offer many of the therapeutic benefits of monoclonal antibodies,
while addressing some of their limitations.  Enzon's quarterly
earnings are due on February 7, 2001.

One of our new readers identified this issue for bearish play
and asked if we might offer some suggestions on how to speculate
on the potential downside activity in a conservative manner.  A
review of the option premiums and Implied Volatility suggests
that an ITM or ATM Put-debit spread is in order, and the small
disparities in option pricing will help us open the position at
a discount.

PLAY (conservative - bearish/debit spread):

BUY  PUT  FEB-65  QYZ-NM  OI=392  A=$9.62
SELL PUT  FEB-60  QYZ-NL  OI=417  B=$5.62
INITIAL NET DEBIT TARGET=$3.75-$3.88  ROI(max)=28% B/E=$61.12

- or -

PLAY (aggressive - bearish/debit spread):

BUY  PUT  FEB-55  QYZ-NK  OI=551  A=$3.25
SELL PUT  FEB-50  QYZ-NJ  OI=537  B=$1.75
INITIAL NET DEBIT TARGET=$1.50  ROI(max)=230% B/E=$53.50

http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=ENZN
******************************************************************
NAV - Navistar  $29.18  *** New Merger Rumors! ***

Navistar International (NYSE:NAV) operates in three principal
industry segments: truck, engine and financial services.  The
company's truck segment is engaged primarily in the manufacture
and marketing of medium and heavy trucks, including school buses.
The engine segment is engaged in the design and manufacture of
mid-range diesel engines.  The truck segment operates primarily
in the United States and Canada as well as in Mexico, Brazil and
other selected export markets while the engine segment operates
primarily in the United States and Brazil.  Based on assets and
revenues, the truck and engine segments represent the majority
of the company's business activities.  The financial services
operations consist of Navistar Financial Corporation, and its
domestic insurance subsidiary along with the company's foreign
finance and insurance subsidiaries.

Despite Friday's sell-off in technology issues, I received some
favorable comments regarding the new assortment of time-selling
positions and now we have another candidate for that strategy.
Navistar is an old favorite in our portfolio, having produced a
number of profitable positions amid past takeover rumors.  The
speculation of a potential merger has once again attracted the
attention of retail option traders and the interest has pushed
the front-month Implied Volatility to extreme levels.  Those of
you who enjoy speculative calendar spreads can attempt to profit
from the recent hype with this bullish, time-selling position.

Note: The company's earnings are due on February 15, the last
trading day for February options.  Plan to close or adjust the
position prior to the announcement.

PLAY (speculative - bullish/calendar spread):

BUY  CALL  APR-30  NAV-DF  OI=2733  A=$3.80
SELL CALL  FEB-30  NAV-BF  OI=8630  B=$2.25
INITIAL NET DEBIT TARGET=$1.45-$1.50  TARGET ROI=25%

http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=NAV
******************************************************************
SHRP - Sharper Image  $16.50  *** Earnings Rally? ***

The Sharper Image (NASDAQ:SHRP) is a specialty retailer that is
nationally and internationally renowned as a leading source of
new, innovative, high-quality products that make life easier and
more enjoyable.  Sharper Image operates approximately 100 stores
throughout the United States and also sells its product through
direct mail, mailing millions of its catalogs each month.  The
company's products may also be purchased on the Internet via its
online store at sharperimage.com and also at an online auction
site where consumers can place bids to win Sharper Image products
at lower prices.  A significant and growing proportion of sales
are of proprietary products created by their product development
group, Sharper Image Design.  The company's quarterly earnings
announcement is expected on February 15, 2001.

Shares of Sharper Image have been on the rebound during the past
few sessions and there is little news to explain the rally.  Some
traders say its the company's share buy-back program while others
believe the upcoming earnings are reason behind the move.  With
little public information to explain the activity, it's difficult
to have confidence in a bullish position.  In addition, there is
substantial resistance at the current price and then again near
last year's highs ($18-$20).  At the same time, we can't pass up
the inflated option premiums, so we have decided to bet against
the retail trader with this bearish position.  If the issue moves
above $19 on increasing volume, we will cover the sold option with
the purchase of stock or close the play for small loss.

PLAY (aggressive - bearish/credit spread):

BUY  CALL  FEB-22.50  SAU-BX  OI=306  A=$0.43
SELL CALL  FEB-20.00  SAU-BD  OI=246  B=$0.93
INITIAL NET CREDIT TARGET=$0.56-$0.62  ROI(max)=29% B/E=$20.56

http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=SHRP
******************************************************************
                         - STRADDLES -
******************************************************************
UNM - UNUMProvident  $29.67  *** Earnings Play! ***

UNUMProvident Corporation is the parent holding company for a
group of insurance companies that collectively operate throughout
North America and in the United Kingdom, Japan, and Argentina.
The company's principal operating subsidiaries are Unum Life
Insurance Company of America, The Provident Life and Accident
Insurance Company, The Paul Revere Life Insurance Company, and
Colonial Life & Accident Insurance Company.  Through its many
subsidiaries, Unumprovident is the largest provider of group and
individual disability insurance in North America, the United
Kingdom, and Japan.  The company also provides a complementary
portfolio of life insurance products, including long-term care
insurance, life, employer- and employee-paid group benefits, and
related services.

Based on analysis of UNM's historical option pricing and current
technical background, this position meets the basic criteria for
a favorable debit straddle.  The stock has inexpensive options,
a history of adequate price movement to make the play profitable,
and upcoming events (quarterly earnings) that may generate future
volatility in the issue.  In addition, the recent chart pattern
(an ascending triangle) in UNM suggests that significant price
activity may occur in the coming sessions.

PLAY (conservative - neutral/debit straddle):

BUY  CALL  FEB-30  UNM-BF  OI=397  A=$0.90
BUY  PUT   FEB-30  UNM-NF  OI=105  A=$1.30
INITIAL NET DEBIT TARGET=$2.00 TARGET ROI=15%-20%

http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=UNM


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