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Daily Newsletter, Tuesday, 02/06/2001

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The Option Investor Newsletter                  Tuesday 02-06-2001
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        02-06-2001        High      Low     Volume Advance/Decline
DJIA    10957.40 -  8.40 11035.10 10932.20 1.05 bln   1660/1405
NASDAQ   2664.49 + 21.28  2705.59  2640.23 1.79 bln   2020/1771
S&P 100   708.52 -  1.14   714.96   707.48   totals   3680/3176
S&P 500  1352.26 -  2.05  1363.55  1350.04           53.7%/46.3%
RUS 2000  505.76 +  5.02   507.46   500.65
DJ TRANS 3061.72 -  7.99  3105.65  3061.05
VIX        23.82 -  0.57    24.58    23.44
Put/Call Ratio      0.71
******************************************************************

Waiting On A Friend

Tech stocks are on trial after the bell today, as its hero
steps before the jury disheveled, battered and feeling only a
fraction of its former self (55.31% of its former self to be
exact).  With earnings winding down and economic data on the
lighter side this week, Cisco Systems (NASDAQ:CSCO) takes
center stage as investors try to decide which way the NASDAQ
is going to head in the short run.

Headlining after hours action, Cisco actually missed earnings
estimates of $0.19/share, coming in with earnings of
$0.18/share.  This is the first time in 14 quarters that Cisco
missed estimates.  Cisco also disappointed with its top line
revenue number as well, coming in with revenues of $6.75
billion as opposed to estimates of $7.11 billion.  In
addition, inventories were up 25% sequentially and John
Chambers said he is "cautious" about the "brief pause" in the
economy.

The big networking company has an effect on more people than
are probably aware, since it is owned by thousands of mutual
funds.  Moreover, it makes up about 7% of the NASDAQ, so we
may be in for a rough ride in techland tomorrow.

In addition to Cisco's news, we received good news on the M&A
front, with the Justice Department's approval of the JDSU
Uniphase (NASDAQ:JDSU) and SDL, Inc. (NASDAQ:SDLI) merger.
Its been a long time in the making, with SDLI shareholders
certainly wishing that the merger was consummated months ago
when JDSU was trading at almost three times today's closing
price of $51.81.  The $18 billion merger ($41 billion when it
was announced last summer) will finally go through since JDS
Uniphase has agreed to sell off its Zurich manufacturing plant
to Nortel Networks (NYSE:NT) for $3 billion.

This merger approval has created a juggernaut within the
fiber-optics arena. By acquiring SDLI, JDSU has proved to
investors that it will continue to do whatever it takes to
remain on the cutting edge of its industry.

The above merger serves as an excellent segue into my thoughts
behind why the tech sector is not going to race back to its
March highs any time soon, but instead remain in a fairly wide
trading range.

Tech stocks trade on uncertain future cash flows.  These cash
flows are uncertain because the tech industry is extremely
fast moving.  Who knows where we will be in three years let
alone in six to seven years?  All a tech company can hope to
do is remain ahead of the innovation curve.  It does this by
buying up small companies who are designing the "next" big
thing.  Sun Microsystems (NASDAQ:SUNW) has used this strategy
to grow earnings, as has Cisco, Microsoft (NASDAQ:MSFT) and
the above-mentioned JDS Uniphase.

The problem with the current tech downturn is that stock
prices are no longer at levels that enable mergers to take
place.  This is because tech companies commonly use their
stock as currency in a merger.

In addition, with the recent M&A craze having just ended last
year, many tech companies have increased their share float, a
result of issuing more stock in conjunction with the mergers.
Companies traditionally institute a systematic share buyback
program after mergers to prevent their shares from getting
diluted.  Just imagine how many shares outstanding a Cisco
would have if it didn't repurchase on the open market after
its multiple acquisitions over the past three years!

Bottom line to all this is that tech companies are currently
strapped for cash due to the economic downturn and have
suspended many of these systematic buyback programs.  Guess
what happens when a Cisco or a Sun Microsystems stops buying
millions, even billions of shares over a period of time on the
open market?  Right.  The natural "floor" or "support"
disappears and so do the sky-high stock prices.

This spiraling downturn becomes a cycle that is only remedied
when tech companies re-grow their earnings to the point where
their stock prices rise enough to commence "buying" growth
again.  It takes time, of course, to grow earnings without the
aid of acquisitions, but the recent rate cuts should help and
are aimed at speeding up the cycle and getting us back to a
healthy M&A environment.

Today's Markets

The NASDAQ (COMPX) held up fairly well considering most market
participants were sitting on their hands, waiting for the news
out of Cisco.  The index moved up 21.28, or 0.81%, to close at
2664.49.  The morning optimism in the big cap techs made way
for afternoon pessimism, as the NASDAQ slipped away into the
close.  Volume came in at 1.7 billion shares.  Advancers beat
decliners 2015 to 1772.

The DOW (INDU) spent the afternoon above the 11,000 mark but
couldn't hold on, ending the session down 8.43 to 10957.42.
The financial stocks were a drag on the old-economy index all
day and picked up steam on the downside towards the close.
DOW component J.P. Morgan Chase (NYSE:JPM) finished off $2.32,
to $52.28 and American Express (NYSE:AXP) closed down $1.42,
to $46.99.  Breadth remained positive, with NYSE advancers
beating decliners 1662 to 1401.

Bond prices weakened after a worse than expected auction of 5-
year notes dampened buyers' spirits.  The benchmark 10-year
treasury ended off 9/32, to yield 5.21% and the 30-year bond
closed down 11/32, to yield 5.51%.

Stocks and Sectors on the Move

It wasn't all tech in the news today.  The oil service stocks
gushed higher amid wide spread optimism of increased
exploration and heightened pricing power throughout the
industry.  The Philadelphia Oil Services Index (OSX.X) has
just broken out of a double bottom formation, as have some of
its component stocks.  Weatherford Int'l (NYSE:WFT) posted a
new closing high of $52.99 after rising $2.49 today.
Tidewater (NYSE:TDW) also broke out of a wide base formation,
having lifted $1.04 to close at $50.00.

Late Monday, Etoys (NASDAQ:ETYS) was the latest of the dot-
coms to essentially call it quits.  The e-tail company
announced that it has finally given up hope of funding from a
potential buyer.  Being a new dad, this news hit home.  Going
to the toy store is a treat, but it was just too darn easy to
order up the latest dolly on-line and have it come to the
door.  Besides, when we take a trip to the toy store, guess
who ends up with the most toys?  Anyway, ETYS is still talking
with Goldman Sachs (NYSE:GS) about a possible merger or
restructuring.  Keep your fingers crossed.

The AMEX Biotech Index (BTK.X) bounced off oversold levels
today, rising 23.09, to close at 60.3.97.  The index has been
putting in lower highs and lower lows since November so it
probably isn't time to take the plunge just yet.  A standout
on the day, however, was Immunomedics, Inc. (NASDAQ:IMMU).
The company announced that it received a patent extension on
its cancer-fighting antibodies.  The company has licensed the
antibodies for use by Amgen (NASDAQ:AMGN) to fight non-
Hodgkin's lymphoma.  IMMU closed up $1.69, or 11.25%, to
$16.69.

Looking Forward, Always Forward

We don't get much in the way of economic news until the
Initial Jobless Claims, which is reported Thursday.  However,
investors will have their hands full dealing with the news out
of Cisco.  We shall see if the earnings news will be shaken
off, like so many other misses this last quarter or if
investors will focus on the report as further proof of an
economic downturn.

A gap down in the COMPX tomorrow, followed by a strong
recovery would go a long way to at least holding the NASDAQ in
its upper trading range in the short run.




Trade has been healthy in tech recently, but we certainly
don't get the feeling that all the big institutional buyers
are on board at this point.  Volume on down days in tech is
telling us that investors are still skittish and not willing
to hold through bouts of uncertainty.




I think this next month or two will be defined by sector
rotation, as investors react to economic news and rate cuts.
The key is going to be to stay ahead of the rotating and to
remain nimble.  Keep profit and loss targets tight and keep
your eye on the financials and retailers to see if investors
still believe that the Fed will be able to drag us out of the
doldrums.

Craig Seidler
Contributing Editor


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

180-Degree Reversal? More Of The Same?
By Austin Passamonte

Quite often these days major indexes take turns trading in
opposite directions. Take your pick; up one day, down the next as
tired money chases sectors and sidelined cash thickens its layer
of moss.

All we've heard recently is a close over 11,000 in the Dow and a
green light is lit to test new index highs. Oh really? Those
words ring a bell in Market Sentiment's muddled mind.

Let us see... the cobwebs are clearing... oh yes - now we recall!
It was almost a year ago when the Nasdaq Comp tested mile-high
altitude near 5,000 and everyone knew it was a cinch to break
that, converting resistance to firm support. Some guy named Ralph
Acampora (remember him?) said that 6,000 was merely a foregone
conclusion the day it first broke above 5,000. Right on CNBC he
said that, too.

If we remember correct it closed above there once, countless
investors backed up the truck to buy every bullish play in sight
and we've never returned since. Now Ralph is only seen on the
back of milk cartons and those truckloads of bullish plays were
not prime beef but merely by-product left behind by the bulls.

Seems like another bullish benchmark was a clear signal to buy as
well. Could it be Intel (NASDAQ:INTC) reaching all-time highs at
$75? Plenty of investors bought back then... after all, isn't the
best time to load up on a "strong" stock right when it posts new
highs?

We don't know about that, but check out INTC's daily chart from
there and see how many times it tested & closed above $75. Once.
A lot of buy & hold investors pushed each other out of the way to
load up during the bullish breakout. How'd that turn out from
there?

Let's not be too hasty drawing trend lines in the sand about
where bulls & bears will take over. We need more evidence than
that.

Our daily-chart signals tell us the Dow is very top heavy and due
for a decline. How far? No one can say but the Nasdaq daily
charts are approaching oversold in a hurry. Could we see the same
tired dollars chasing sectors once more from old economy to new?

The VIX and VNX are posting lower levels than any point since
October 9th, 2000. Plenty of call buyers out there loading up in
front of the rally that's sure to ensue once the Dow closes above
11,000. VIX is towards the lower end of its bearish zone and a
break below 21.50 would be a clear downside signal at this time.

All of our trusted chart signals are pointing towards further
weakness tomorrow but CSCO influence and trader's sentiment over
a good night's sleep will affect them at the open. Early action
is up, down, flat and down by the post-market momentum rangers.

We can assure everyone of one thing; should the Dow fail to close
above 11,000 for several sessions on a retest soon, it will have
posted a triple-top failure spanning last October until current.
Now THAT would be a market-moving event back down to 10,500 where
a bottom support price magnet lies in wait.

Bottom line; too early to tell. We remain near-term bearish until
daily-chart signals reach oversold and begin to reverse from
there. This should happen within the leading sectors first and we
will watch them carefully and report those findings as they
occur. Sideways markets are an ideal time to write credit spreads
and watch those premiums expire profitably within our accounts as
well.

Until the next direction emerges, trade the daily-trend with
care!

***

VIX
Tuesday 02/06 close; 23.82

VXN
Tuesday 02/06 close; 60.70

30-yr Bonds
Tuesday 02/06 close; 5.52%


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

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

                                   Tuesday
                                 (02/06/2001)
  (Open Interest)       Calls        Puts          Ratio
S&P 100 Index (OEX)
Resistance:
745 - 730                9,932          830        11.97
725 - 710               10,079        6,170         1.63

OEX close: 708.52

Support:
705 - 690                6,686       10,544         1.58
685 - 670                1,901        8,969         4.72

Maximum calls: 720/3,586
Maximum puts : 700/4,685

Moving Averages
 10 DMA  712
 20 DMA  703
 50 DMA  701
200 DMA  757

===

NASDAQ 100 Index (NDX/QQQ)
Resistance:
 71 - 69                74,738         7,808         9.57
 68 - 66                48,298        13,233         3.65
 65 - 63                66,485        55,915         1.19

QQQ(NDX)close: 61.75

Support:

 60 - 58                19,213        61,447         3.20
 57 - 55                 8,434        28,976         3.44
 54 - 52                 2,478        22,065         8.90

Maximum calls: 70/60,083
Maximum puts : 60/45,319

Moving Averages
 10 DMA 64
 20 DMA 64
 50 DMA 63
200 DMA 82

===

S&P 500 (SPX)
Resistance:
1425                   15,788         4,713          3.35
1400                   13,886         2,014          6.89
1375                    9,045         7,403          1.22

SPX close: 1354.31

Support:
1325                   10,778        11,787          1.09
1300                    2,899        13,652          4.71
1275                      486        10,901         22.43


Maximum calls: 1425/15,788
Maximum puts : 1350/16,656

Moving Averages
 10 DMA 1361
 20 DMA 1345
 50 DMA 1335
200 DMA 1415

*****

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

Please visit this link for Market Posture:

http://www.OptionInvestor.com/marketposture/020601_1.asp


***********
OPTIONS 101
***********

The Four Questions
By Lee Lowell

There are basically four nagging questions that every option
investor must face before putting on a position:

1.  Which way do I think the underlying stock is going to move?
2.  How much time do I want to give myself?
3.  Which strike price do I choose?
4.  Are the options overpriced or underpriced? (volatility)

Nobody said it was easy.  To be truly successful in this arena,
you must go through this checklist.  The days of just buying any
old call and watching it go up, are over.  That internet bubble
has burst.  Shall we break it down?

The first thought of most option investors is which way they think
the stock is going to move.  Ultimately, wherever the stock ends
up on expiration day will determine how much you will make or lose
on your position (if held to expiration).  Remember, you do not
need to hold your position until expiration day.  You can sell out
your longs or buy back your shorts at anytime.  Most likely, your
target points will be hit sometime before expiration.  Don't be
afraid to trade it.  The best ways to get a handle on possible
future movement is to do some technical analysis on the stock,
check the fundamentals, and keep tabs on the news.  Hopefully this
will help you form an opinion on future direction.  If for some
reason you don't have an opinion on direction but have a feeling
of an impending move on a stock, then the strategies of choice are
neutral option plays such as straddles and strangles.

Once you have formed an opinion on direction, you need to decide
about the time frame in which you think your prediction will work
out.  This is one of the hardest decisions.  Knowing how long it
might take for a stock to make a desired move is almost impossible
to predict.  If you buy short-term options, your investment will
be small and your overall risk will be low.  But if the move
doesn't happen right away, you can lose the whole premium.  If
you buy longer-term options (leaps), your investment is larger but
you will have less daily decay and you can wait out the move.
Once again, the move may never occur, but at least you're giving
yourself the opportunity to be right.  Some traders don't like to
tie up that much capital for long-dated options such as leaps.  So
you can either buy a mid-term option (6-9 months out) or just buy
near-term options every month.  Buying front-month options each
expiration for 12 months might end up costing you the same as
buying 1 leap option at the very start.  It'll actually cost more
with commissions added in.  This is a very difficult decision to
make but I always like to give myself the extra cushion and usually
choose options at least six months out.  There's nothing more
aggravating than seeing the stock make the expected move right
after your options have expired!

Ok, you've got an idea (maybe) of where the stock might move to
and you've picked the duration.  The next step is to pick the
appropriate strike price.  Not many people give this one much
thought.  They go after the least expensive one.  This usually
results in picking a far out-of-the-money option with very little
probability of becoming profitable.  If you look at the deltas of
these options, you'll see them with a value of anywhere from 1% -
10% depending on how far OTM they are.  Delta tells us how much
the option price should move along with a 1 point move of the
stock.  If your option has a delta of 5%, that means for every 1
point move in the stock, your option price will move less than
1/16 of a point!  That's not the kind of movement you're looking
for.  By the time the stock has made it's expected move, your
option will only have given you a few measly points.  The delta
also tells us the probability of your option finishing
in-the-money.  Do you want an option that has a 5% chance of
finishing in-the-money?  Plus, finishing ITM doesn't guarantee a
profit.

Example: IBM is at $100.  You buy the 110 calls for $4.  IBM
closes at $111 on expiration day.  Your option is ITM, but only
by 1 point.  So you really ended up losing 3 points on this play.
Buying OTM options are lottery plays that hardly ever pay off.
Sure it's fun to play every once in awhile because there's always
that chance, but it rarely happens.  Playing ITM or ATM options
will give you more bang for your invested dollars.  You will have
a delta anywhere from 50% - 90% which will give you good option
movement.  Sure the option costs more, but your probability of
walking away with a profit is bigger.  Take a look at a
probability calculator on some websites.  You'll see your chances
of either making a profit or your chances of just getting to the
break-even point.  It all comes down to: do you want a cheaper
option with a small chance of profitability or something that
costs more but has a greater chance of yielding a profit.  Again,
it is a personal decision.  I like to choose mostly ATM or slightly
ITM options when I put on a position.

Lastly, and of course my favorite step:  check the option's
volatility.  This will give you an idea of how fairly priced the
options are.  If you read my article from last week, you'll gain a
greater understanding of this concept.  In short, volatility lets
us know how expensive or cheap the options are when compared to
past volatility levels.  If you are a buyer of options, try to
make sure the implied volatility levels are low compared to its
past readings and vice versa for option sales.  Looking at charts
of historical volatility levels will give you an idea of how your
option stands today.

Succeeding in the world of options trading is difficult for anyone.
Take these steps into account and you're sure to increase your
bottom line.

Good luck.


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

Another Sector for Your Watch List - Power Producers
By Scott Martindale

I have written in the past on various volatile but high-potential
sectors to watch for possible options plays.  Today I'll talk
about another technology sector comprising a handful of solid,
high-growth companies sporting lots of buzz, lots of promise, and
lots of upside potential, but with relatively little further
downside risk: Power Producers.  The unusual feature among these
companies compared with some other hot sectors I've profiled is
that they have real earnings and reasonable P/E's, as well as
relatively modest historical volatility (mostly in the 40's).

First, however, let me comment on my short-term trading, I have
been looking to jump on weakness in former high-fliers for writing
naked puts.  Network Appliance (NASDAQ: NTAP), Adobe Systems
(NASDAQ: ADBE), Serena Software (NASDAQ: SRNA), Oracle (NASDAQ:
ORCL), Siebel Systems (NASDAQ: SEBL), and Applied Micro Circuits
(NASDAQ: AMCC), just to name a few, all look quite enticing at
their depressed prices.  Other stocks that are showing signs of
recovery from extreme weakness include Copper Mountain (NASDAQ:
CMTN), Portal Software (NASDAQ: PRSF), and Superconductor
Technologies (NASDAQ: SCON).

Regarding AMCC, my Feb 80 call play is dead and buried, but on the
bright side this fine company is getting down to a more attractive
price level for accumulating shares or writing puts.  PRSF and
CMTN are providing another possible entry point after rebounding
very quickly in January.  I put in an order to sell Feb 25 naked
puts at $2.50 on SRNA this morning, but I missed the early dip and
never got filled as the stock climbed above $25 and held up.
We'll see what kind of renewed weakness we get tomorrow.

Okay, let's talk about independent power producers, including
power generators, distributors, wholesalers, and natural gas
producers.  Like the alternative energy companies I've written
about here, this sector is well-positioned to capitalize on the
current and developing power crises we are seeing in this country,
and in fact around the world.

Independent power producers (IPP) are the electrical power
utilities filling the gaps created by surging demand and the
deregulation (or quasi-deregulation) of much of the traditional
regulated utility industry.  They develop, purchase and operate
plants to provide power that is often sold in the open market to
the regulated utilities.  Rapid growth in the new economy is
creating incredible growth in electricity demand.  Internet data
traffic is increasing 100% every 100 days.  The rising demand for
clean, uninterruptible power for data centers alone dramatically
changes the outlook for power requirements and magnifies the
already burgeoning shortage of capacity.  It is a trillion-dollar-
plus gold mine.

These power needs will be met unregulated electricity producers
like AES Corp. (NTSE: AES), NRG Energy (NYSE: NRG) and Calpine
Corp. (NYSE: CPN), power wholesalers like Dynegy (NYSE: DYN),
Enron (NYSE: ENE) and Reliant (NYSE: REI), and natural gas
companies like EOG Resources (NYSE: EOG), El Paso Energy (NYSE:
EPG) and Western Gas Resources (NYSE: WGR).

These companies will be depended upon to provide the answer to
crises like what we are seeing in California, e.g., brownouts and
rolling blackouts. Independent power is forecast to grow from less
than 5% of domestic daily power capacity in 1996 to over 50% by
2008.

AES is the world's largest independent power producer, owning and
operating a diverse portfolio of electric power plants with a
total capacity of 36,675 megawatts.  However, CPN is my favorite
play among the IPP's.  It has interests in 46 plants with a total
capacity of about 5,500 megawatts and projects under construction
throughout the country. A subsidiary has 430 billion cu. ft.
natural gas equivalent of proven reserves.  A one-year chart of
CPN shows its strength coinciding with the California power
crisis.  It has been consolidating around $40, and has strong
support at $35 and $30.  Notice that the stochastic is poised for
another upswing.




If you look at a one-year chart of ENE, REI, and DYN, their
patterns all track quite similarly, although REI and DYN have
managed a greater price progression over the course of the past
year.  This is primarily because ENE was already sporting a high
valuation a year ago due to its widely trumpeted reputation as a
conservative high-tech play from its broadband capacity trading
and services.


  
All of the stocks I have discussed are not only are good to watch
for short-term options plays, but they are also great for long-
term equity positions or LEAPS due to the fundamental importance
of the sector to the world's continued economic growth.  They have
been consolidating recently after some strong gains, and all are
poised for further upside in the near term with minimal downside
risk.  These likely will not perform as explosively as some of the
other sectors I've written of, such as alternative energy or
superconductors, as evidenced by their relatively modest
historical volatility, but they likely will not disappoint to the
downside either.


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


CALLS:
*****

JPM $52.28 -2.32 (-2.36) On Monday, news hit the wire that JPM
along with Citigroup (C), Bank of America (BAC), and First Union
(FTU), were named in congressional hearings as the major US
Banks holding accounts for foreign counterparts who launder
millions of dollars of dirty money.  The announcement cast a
shadow over the financial sector and in response, the broad
negative sentiment took the Banking Index (BKX.X) below the
benchmark 950 level for a devastating close at 936.
Specifically, JPM suffered a high-volume sell-off that sent the
share price through our $54 protective stop within hours of the
opening bell.

MWD $84.95 -1.55 (-1.31) Morgan Stanley Dean Witter holds $665.6
mln of Sunbeam's approximately $1.7 bln bankruptcy debt.
Although the bank supports Sunbeam's six-to-nine month
reorganization plan, the negative bias already effecting the
financial sector this week sent shares of MWD into bearish
territory.  Today, MWD freefell through the $86 level during
amateur hour.  The bulls initially regained control and pushed
MWD topside, but the combination of broad market and sector-wide
influences were uncompromising.  Stops should have taken out
your positions.  The company is expected to report earnings
around March 20th.

QCOM $82.94 -3.50 (-3.88) It appears that QCOM is having a tough
time closing above $87.  We mentioned that a close above this
resistance level would allow conservative traders to enter this
play.  While the stock made it above this point intra-day on
Monday's trading, the move was without buying conviction and as a
result, QCOM ended the day below $87.  Today the stock retreated
a little over 4 percent on about half of ADV and in doing so, put
itself below the 5-dma at $85.10 as well as our stop price of
$83.  Now teetering on the ledge of support at the $82.75 area
where the 10 and 50-dma are converged, we are dropping coverage
of this play.

FLEX $36.88 -1.13 (-1.06) Contract manufacturing stocks have
lost their way over the past week, and FLEX's inability to clear
the $40 resistance level had us taking a cautious stance on the
FLEX play.  Despite bullish comments from both the company and
analysts about a positive impact to FLEX's business due to the
current economic slowdown, the bears wrested control from the
bulls and killed our play today.  The weakness from the past
several days turned into an ugly gap down and then decay, as our
play went right through our $37 stop and fell almost to $35
before finding any support.  Unfortunately FLEX is history
before it ever really got moving.


PUTS:
*****

NEWP $81.94 +3.25 (+6.38) We never had the opportunity to get an
entry into NEWP this week.  After the first hour of trading on
Monday, NEWP cycled in the $74 and $77 range followed by a surge
of buyers stepping in at the end of the session.  NEWP rallied
to a strong close, just shy of our $80 exit point.  A rollover
never transpired today.  The violation of our protective stop
and very bullish disposition above $85 clearly indicates the
stock found a bottom.

JDSU $51.81 +1.81 (+1.81) Investors see a win-win situation!
JDSU announced this morning that it received the regulatory
approvals for its mega merger with fierce rival, SDL (SDLI).  As
required, JDS Uniphase agreed to sell its Zurich, Switzerland
subsidiary to Nortel Networks (NT) for about $3 bln in Nortel
stock and enter into a supply agreement through 2003.  The deal
is expected to close next week.  The merger news coupled with an
expected update of its financial forecast next week elevated
investors' confidence.  In contrast to yesterday's strong
downside action where JDSU saw $47.44 by mid-afternoon, today's
trading was very bullish.  JDSU found intraday support at the
opening price of $52 with spikes through the $53 level amid
active trading.  The inclination of a positive bias for the
near-term gives us notice to exit the play this evening.

SPW $103.75 +4.81 (+4.25) SPW offered put players good
opportunities since we picked it at $112.93  However, the
stock has shown uncharacteristic strength in the last two
days.  After dipping as low as $97.84 on Monday, SPW
rallied today with a number of capital goods stocks which
seem to have found strength.  Whether this is the start of
a new trend, or a one day respite from an oversold condition
remains to be seen.  However, SPW closed above our stop level
and therefore we are dropping it tonight.

YHOO $36.38 +1.31 +3.70 Yahoo rallied over the last two days
despite the fact that some of the stocks in the internet sector
faltered.  On Tuesday, HHH found some strength, although it is
still below the 50 dma.  Yahoo may have a long way to go before
it can be considered a stock in an upward trend, but it closed
above our stop price, and we are therefore dropping it tonight.


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The Option Investor Newsletter                  Tuesday 02-06-2001
Copyright 2001, All rights reserved.                        2 of 2
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********************
PLAY UPDATES - CALLS
********************

TLAB $64.38 -2.63 (-0.63) Finally succumbing to the NASDAQ
weakness today, TLAB came down and gave aggressive traders a
tasty entry point this afternoon.  After closing above the
upper Bollinger band yesterday with daily stochastics deep
in overbought territory, it seemed only logical that we would
see some profit taking soon, and that is what we got today as
the stock fell to bounce just fractionally below our $64 stop.
This level held up very well for the remainder of the day, but
we need to beware of the CSCO effect tomorrow.  The tech
bellwether missed estimates by a penny, and the collateral
damage could be significant tomorrow.  Of course, this bipolar
market might just take it all in stride and use the small
earnings miss (a penny) as an excuse to rally.  Who knows...
Let's let the market tell us which way to go from here.  A
continued bounce from the $64 support level looks like a good
aggressive entry point, but make sure it is being supported by
strong volume and a positive move in the Telecom stocks.
Merrill Lynch's Telecom HOLDR (AMEX:TTH) is a good yardstick
for measuring the sector.


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

VRTS $86.13 -3.75 (-0.88) Shares of VRTS got a low volume
technical bounce yesterday from oversold conditions, allowing
moving average resistance some time to catch up with the stock
price.  Today, horizontal resistance at the $92 level acted as
the barrier that halted the bulls' attempted advance.  From
there, the stock fell back to close down over 4 percent on 75% of
ADV.  It appears that high expectations on the part of investors
in the Storage sector continues to weigh on VRTS.  The weak
volume in recent trading suggests bulls are not completely ready
to step in, giving the bears the upper hand on this stock.  Look
for a failed rally above the 5-dma near $90 as well as at our
stop price of $90 as potential entry points for aggressive
traders.  For an entry on weakness, look for a break below $85
support, backed by strong selling volume for a more conservative
play.  Correlate entries with movement in peers BRCD, EMC, NTAP.

HGSI $54.56 +3.25 (-0.88) The early morning rally in Biotech
stocks couldn't muster anything approaching follow through as
the day wore on, and the Biotech index (BTK.X) gradually fell
back as the afternoon progressed.  Going along for the ride,
our HGSI play rallied sharply this morning, hitting $56.50
before the bears could corral the runaway bulls.  The fact
that the decline lasted right up to the end of the day, has us
thinking that it was a good aggressive entry point, and not a
reason to drop the play; at least not yet.  Fortunately the
close was back under our $55 stop, so we can keep the play for
another day.  Recall that we have mentioned HGSI is scheduled
to release earnings on February 13th (according to
Briefing.com).  Well, the word 'scheduled' may be inappropriate.
Estimated may be a better description, as Investor Relations
informed us this morning that the company's policy is to not
pre-announce their earnings date.  This is a common theme with
many Biotech stocks, so be forewarned that if you play them, you
can get surprised by an earnings release when you aren't
expecting it.  With that being said, we'll proceed under the
assumption that the February 13th date is fairly close.  A
continued rollover from current levels looks attractive for
new entries, but make sure it is confirmed by move weakness on
the BTK index.  More conservative players will want to target
a drop below $51 for initiating new positions.

IDPH $59.00 +1.50 (-1.78) So, are you holding your breath,
wondering if that was an entry point this morning.  IDPH gapped
open this morning and rallied sharply for the first hour,
moving fractionally above our $60 stop before the bears
reasserted their control.  How about this for interesting
though - more than double the stock's normal 1.1 million share
volume traded hands, and there appears to have been no news.
The entire Biotech index (BTK.X) experienced a similar move,
gaining 4% and lending credence to the statement that most of a
stock's movement is due to sector movement.  Despite the 1-day
rally, IDPH is still locked in a persistent downtrend, defined
by the descending trendline, now between $60-61.  Aggressive
traders can continue to initiate new positions as IDPH bounces
south from the trendline, while more conservative players will
want to wait for the $57 support level to fail to contain the
bears' assault.  Keep an eye on sentiment in the broader sector
by watching the BTK index.  If it is headed south, look for
IDPH to follow suit.

IDTI $40.88 +1.13 (-1.69) Don't you just love it when a new play
gives you a good entry point on its first day?  IDTI delivered
for us today, moving up to find resistance near $42 before
rolling over after the lunch hour.  The bulls didn't even have
enough momentum to challenge the $44 resistance level (also the
location of our stop) before the bears chased them off.  This
gave aggressive traders a decent entry point on the rollover,
and despite a small late-day bounce (likely in anticipation of
the CSCO earnings tonight after the close), it looks like it has
plenty of downside available.  Volume was a bit light today,
indicating there wasn't much conviction in the bulls' camp.
Speaking of the CSCO's earnings, the response to the numbers
tomorrow morning will likely have a significant effect on the
NASDAQ.  For the first time in recent history, the company
failed to beat estimates by a penny; in fact they came in a
penny shy.  If the bears decide to go on a rampage in the
morning, use a drop below $38 to initiate conservative plays.
And for you aggressive players, intraday rallies to the $42-44
area are still attractive for new entries, so long as there is
no follow through.  If the markets ignore CSCO's earnings miss,
then IDTI could move up through our stop, and put a premature
end to the play, so watch CSCO and the NASDAQ in the morning
for indications of market and sector sentiment.


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

AGGRESSIVE:

NKE - Nike Inc $56.85 +1.55 (+1.90 this week)

NIKE is the world's #1 shoe company and controls more than 45% of
the US athletic shoe market.  The company sells its shoes and
line of athletic wear and equipment to approximately 20,000 US
retail accounts, in about 140 countries, and via Internet.
Co-founder Phil Knight retains about 34% ownership of the firm.

Nike buyers' weren't discouraged by the DOW's failure to crack
the 11,000 mark today.  Instead, the stock's robust trading
volume sent it through the $56 resistance right out of the gate.
The investors' penchant for shares of NKE saw the price level
tagging $57 before the closing bell capped the advances.  NKE's
strong moves off the 5-dma ($55.37) and subsequent development
of near-term support above the $55 level this week demonstrates
its individual strength within the retail sector.  Take a look
at a daily chart to visually confirm the bullish disposition.
Another mover is Nike's direct competitor, Reebok International
LTD (RBK), the world's #2 shoemaker.  Last Thursday, Reebok
reported that its 2001 profits could surge as much as 25% as the
result of a trendy brand makeover.  Keep a watch on this stock
too.  The call coverage on NKE is the result of its steady,
momentum-driven climb and recent technical developments.
Traders might consider taking entries into this more
conservative type play if NKE can maintain a strong stance above
our protective stop of $54 and make a charge for $60.06, the 52-
week high set on January 9th.  Nike is expected to report its 2Q
earnings around March 20th.

***February contracts expire in two weeks***

BUY CALL FEB-50 NKE-BJ OI= 483 at $7.30 SL=5.00
BUY CALL FEB-55 NKE-BK OI=1867 at $3.10 SL=1.50
BUY CALL FEB-60 NKE-BL OI=1215 at $0.85 SL=0.00
BUY CALL MAR-55*NKE-CK OI= 101 at $4.90 SL=3.00
BUY CALL MAR-60 NKE-CL OI= 420 at $2.70 SL=1.25
BUY CALL MAR-65 NKE-CM OI=  64 at $1.30 SL=0.50

http://www.premierinvestor.com/oi/profile.asp?ticker=NKE


DELL - Dell Computer $26.88 +2.44 (+1.69 this week)

DELL is the world's largest direct computer systems company.
The company offers its customers a full range of computer
systems, including desktop computer systems, notebook
computers, workstations, network servers and storage products,
as well as an extended selection of peripheral hardware,
software and related services.  DELL's direct sales model
offers in-person relationships with corporate and institutional
customers, as well as telephone and Internet purchasing,
built-to-order computer systems, telephone and online
technical support, and onsite product service.

Now that is the kind of action we haven't seen from DELL in
awhile.  Gaining more than 9% on volume that topped the ADV by
25%, shares of the leading box maker had a great day today.  So
what drove the move, you ask?  There are several factors to
point at, but the most likely catalyst was the positive comments
from analyst Steve Fortuna at Merrill Lynch.  Citing additional
penetration into the small business market and increasing
Windows 2000 upgrades as near-term growth catalysts, Fortuna
reiterated his Buy rating.  Also in the news was DELL's
announcement that its online marketplace would be closing due to
its poor performance.  After bottoming near $16 in late
December, the stock price has moved up sharply, running up to
almost $29 last week, before profit taking began to emerge.
With earnings approaching on February 15th, buyers began
stepping up today to support the stock price, and it is making a
good show of putting in a higher low near $24.  Buyers showed up
first thing this morning, and pushed DELL higher right into the
close, giving the impression that they might try to challenge
the $30 level before the company releases its earnings report.
Any CSCO related market weakness could give us a nice aggressive
entry point if DELL can bounce above our $25 stop.  More
conservative traders will want to buy continuing strength, as we
watch for confirmation of this emerging strength in the
Stochastics oscillator, which is looking like it will reverse
and head higher without dipping into the oversold region.  A
continuation of today's rally looks buyable if the bulls can
push the price above $27.50 on continued strong volume.  Of
course, if the NASDAQ can shake off the CSCO earnings
disappointment and rally, it will be a good confirmation that
the market wants to rally, and DELL should benefit.

***February contracts expire in two weeks***

BUY CALL FEB-25   DLQ-BE OI=21851 at $2.63 SL=1.25
BUY CALL FEB-27.5 DLQ-BY OI=20764 at $1.06 SL=0.50
BUY CALL MAR-25   DLQ-CE OI= 1838 at $3.25 SL=1.75
BUY CALL MAR-27.5*DLQ-CY OI= 2742 at $1.94 SL=1.00
BUY CALL MAR-30   DLQ-CF OI= 4399 at $1.00 SL=0.00

http://www.premierinvestor.com/oi/profile.asp?ticker=DELL


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

AGGRESSIVE:

SCMR - Sycamore Networks $27.00 -1.06 (-1.93 this week)

Founded in 1998 and headquartered in Chelmsford, MA, Sycamore
Networks is focused on developing the transport, switching and
management products required to create a flexible, intelligent,
end to end optical network.  Addressing the current limitations
of the public network infrastructure to grow bandwidth and
support new services, Sycamore leverages existing fiber optic
resources by bringing intelligence to the optical domain.
Sycamore's intelligent optical networking solutions will relieve
current network congestion and lay a foundation for the next
generation's telecommunication infrastructure.

Once a darling of Wall Street, Sycamore has established a
serious bearish trend over the last several weeks, and has
closed lower every day for the last seven days.  Sycamore
fell below the 200 dma last September, and has failed at
repeated attempts to establish a sustainable upward trend since
that time.  Sycamore tried to poke its head through its
50 dma on December 14, but was not able to, and retreated
to form a 52-week low at $26.75 on December 21.  Then,
Sycamore rallied with the Nasdaq and networkers during January,
and tried once more to clear its 50 dma of $51.38 on
January 23, to no avail.  The fiber optic stocks have
exhibited weakness since Corning warned of an industry
slowdown during their last earnings report.  However, the
real short term killer to this sector may very well be
the Cisco earnings report, which was released after the
market close on Tuesday.  As most market watchers know by
now, Cisco missed the analysts' earnings expectations for
the first time in 14 quarters, and reported revenues and gross
margins on the low side of expectations.  This report will
most likely have a huge impact on the entire technology
sector, and the fiber optic and networking companies in
particular.  Sycamore closed just a quarter point above its
52-week low of $26.75, and is likely to open lower on
Wednesday, which could put Sycamore at a new all time low
since its IPO in October of 2000.  Watch the networking
index's reaction to Cisco, and consider taking positions
if NWX.X falls below support at 750, and Sycamore falls
below $26.75.  An aggressive trader might wait for Sycamore
to roll over at $27.63, but only with weakness in NWX.X and
others like JDSU and CIEN.  Sycamore is scheduled to report
earnings February 13, so traders have a week for this play.
Set stops at $29.

***February contracts expire in two weeks***

BUY PUT FEB-30*SMZ-NF OI=2093 at $4.88 SL=3.00
BUY PUT FEB-25 SMZ-NE OI=1359 at $1.88 SL=1.00

http://www.premierinvestor.com/oi/profile.asp?ticker=SCMR


GS - Goldman Sachs Group $108.95 -3.15 (-5.01 this week)

Goldman Sachs is a leading global investment banking and
securities firm, providing a full range of investing, advisory,
and financing services worldwide to a substantial and diversified
client base, which includes corporations, financial institutions,
governments, and high net worth individuals.  Founded in 1869,
they are one of the oldest and largest investment banking firms.
After more than a century as a private partnership, the firm
became a public company in 1999.  The Goldman Sachs Group, Inc.
is headquartered in New York and has 42 offices in over 20
countries.

It's no secret that an environment of lower interest rates is
good news for the Financial sector.  Interest rates simply put,
represents the cost of borrowing money, and with the cost of
doing business reduced, this means less interest expense and a
more healthier bottom line.  As a result, shares of leading
investment banker Goldman Sachs had been rallying early this year
on the anticipation of rate cuts.  But with a full 1 percent ease
already realized, it appears now that investors may be selling on
the news.  Having failed to break through resistance at $120,
where the upper Bollinger band currently resides, GS has since
slipped below its 5 and 10-dma, currently at $113.39 and $114.76
respectively.  So far this week, despite the low volume, it's the
sellers that are in control, as a break below $111 support has
led to further weakness in the stock.  Today, GS gave up another
2.81 percent and while volume was low, the direction was clearly
down.  A break below $108 on volume could allow for an entry on
weakness but with support at $107, the more conservative may want
to wait for this level to be taken out before jumping in.  Once
below $107, there is little support until the $100 area where the
50 and 200-dma are currently converged.  GS may get a technical
bounce at this point, so aggressive traders may target failed
rallies above resistance at $110 and our stop price of $111.  In
both cases, confirm direction with rivals BSC, LEH, MWD.

***February contracts expire in two weeks***

BUY PUT FEB-110*GS-NB OI=1735 at $4.80 SL=3.00
BUY PUT FEB-105 GS-NA OI=1003 at $2.80 SL=1.50

http://www.premierinvestor.com/oi/profile.asp?ticker=GS


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

VRTS - Veritas Software Corp. $86.13 -3.75 (-0.88 this 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.

Most Recent Write-Up

Shares of VRTS got a low volume technical bounce yesterday from
oversold conditions, allowing moving average resistance some time
to catch up with the stock price.  Today, horizontal resistance at
the $92 level acted as the barrier that halted the bulls'
attempted advance.  From there, the stock fell back to close down
over 4 percent on 75% of ADV.  It appears that high expectations on
the part of investors in the Storage sector continues to weigh on
VRTS.  The weak volume in recent trading suggests bulls are not
completely ready to step in, giving the bears the upper hand on
this stock.  Look for a failed rally above the 5-dma near $90 as
well as at our stop price of $90 as potential entry points for
aggressive traders.  For an entry on weakness, look for a break
below $85 support, backed by strong selling volume for a more
conservative play.  Correlate entries with movement in peers BRCD,
EMC, NTAP.

Comments

The NASDAQ has been in a tight range the past two days, between
2600 and 2700.  Given CSCO's earnings miss this evening, techs
very well may be weak.  Watch closely to see if buyers step in
discounting the bad news as already priced into the NASDAQ or if
they hammer it.  Support should be around 2600.  However, if the
market doesn't like the news, watch for the NASDAQ and VRTS to
move lower.  Look to buy a further break below $85 on strong
volume or on a rollover from resistance at $90.  This play will
be entirely determined on the NASDAQ direction so keep this in
mind as you trade.  A break of 2600 on the NASDAQ will likely
drag VRTS to $80.

BUY PUT FEB-90 VUQ-NV OI=1538 at $7.00 SL=5.25
BUY PUT FEB-85*VUQ-NU OI= 961 at $4.25 SL=2.75

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


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

Cisco Steals The Show!

Technology stocks recovered from the recent selling pressure
today, ahead of the all-important earnings announcement from
Cisco Systems.


Monday, February 5

Defensive stocks rallied today, leading the blue-chip industrial
average to triple-digit gains.  The Dow finished up 101 points at
10,965.  The NASDAQ suffered from profit-taking, but closed well
above its lowest levels for the day at 2,643.  The S&P 500 index
ended 4 points higher at 1,354.  Trading volume on the big board
reached 1.01 billion shares, with winners beating losers 1,638 to
1,444.  Activity on the NASDAQ was light with 1.6 billion shares
exchanged.  Technology declines beat advances 2,223 to 1,581.  In
the bond market, the U.S. 30-year Treasury rose 10/32, pushing
its yield down to 5.49%.


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

UnumProvident (NYSE:UNM)     FEB30C/F30P  $2.00  debit   straddle
Navistar      (NYSE:NAV)     APR30C/F30C  $1.60  debit   calendar
Enzon         (NASDAQ:ENZN)  FEB65P/F60P  $3.88  debit   bear-put
Sharper Image (NASDAQ:SHRP)  FEB22C/F20C  $0.00  credit  bear-call

The UnumProvident straddle and the Reader's Request position in
Enzon offered favorable entry opportunities today.  The movement
in Navistar also provided a reasonable cost basis, although the
entry price did not meet our target debit on a simultaneous order
basis.  The option prices in the Sharper Image position were
quickly adjusted at the open, preventing any entry in the bearish
call-credit spread.


Portfolio Plays:

Old Economy stocks led the market higher Monday with investors
focusing on defensive tactics amid recent selling pressure in
technology issues.  Analysts said traders were waiting for the
quarterly earnings report from Cisco Systems (NASDAQ:CSCO) before
considering a move back into the hi-tech segment.  The networking
company is expected to report a second quarter profit of $0.19 a
share on Tuesday, and CSCO's stock price slid lower ahead of the
announcement.  Chip shares provided additional downward pressure
on the NASDAQ after the Semiconductor Industry Association said
the sector may not achieve a previous growth forecast of 22% in
2001, due to slowing overall demand.  Software stocks were among
the few technology segments achieving positive results during the
session.  On the Dow, International Business Machines (NYSE:IBM),
Eastman Kodak (NYSE:EK), Exxon (NYSE:XOM) and Honeywell (NYSE:HON)
led the blue-chip average higher while Intel (NASDAQ:INTC), Disney
(NYSE:DIS), Wal-Mart (NYSE:WMT,) and Johnson & Johnson (NYSE:JNJ)
limited its gains.  In the broader market, oil service stocks rose
along with healthcare and other defensive issues while specialty
retail and biotechnology shares generally retreated.

Our portfolio saw limited activity during the session with only a
few significant moves.  Among industrial issues, Atlantic Coast
Airlines (NYSE:ACAI) was  big winner, up over $2 to a recent high
near $46 amid buying pressure before the company's upcoming stock
split and positive comments for the regional airlines sector.  Our
bullish position at $40 is safe for now but the issue can be very
volatile, so monitor it on a daily basis.  Forest Labs (NYSE:FRX)
rallied to a midday high near $68 after a brief consolidation at
$65 and it appears the issue is poised for continued gains.  Our
new speculation play in Clorox (NYXE:CLX) is off to a good start
with the stock edging upwards on strength in cyclical companies.
Be prepared to roll into March options if the rally pushes the
issue above the sold option at $40.  Among lower-priced shares,
Steven Madden (NASDAQ:SHOO) was a big winner, up almost $2 to a
recent high at $12.25.  Now we are woefully regretting the few
extra pennies it took to enter the play.  In the technology group,
AT&T (NYSE:T) and Microsoft (NASDAQ:MSFT) were the only standouts,
achieving small gains even as profit-taking in NASDAQ shares
opposed their upward movement.

In the Straddles section, a number of plays are expiring this
month and a few of them have yet to provide a profit.  The drop
in Implied Volatility along with the range-bound activity in the
major market indices have conspired to keep some positions in the
negative.  One issue that we spoke of on Friday, Triad Hospitals
(NASDAQ:TRIH) made a valiant attempt to become profitable on the
downside, but was met with renewed buying today as favorable
profits were announced by other companies in the sector.  The
upside activity signaled an early exit in the bearish portion of
the play and now we must hope for a significant rally to boost
the value of our remaining (FEB-$30) call option.  The position
in Jefferson-Pilot (NYSE:JP) also enjoyed some bullish activity
today after the company said its quarterly operating profits rose
8% on strong sales of its core individual annuity and insurance
policies.  The results beat analysts' average forecast by a penny
and the share value rallied on the news.  Unfortunately, the move
was not enough to make the straddle profitable (on a simultaneous
order basis) and now we will have to decide when to trade out of
each position.  Based on the (three) failed attempts to break
through $69 during today's trading, that area is now short-term
resistance and any future failures at that price will probably
signal the beginning of a post-earnings slump.


Tuesday, February 6

Technology stocks recovered from the recent selling pressure
today, ahead of the all-important earnings announcement from
Cisco Systems.  The NASDAQ closed up 21 points at 2,664.  The
Dow industrials fell 8 points to 10,957 on weakness in the
financial sector.  The S&P 500 index finished down 2 points at
1,352.  trading volume on the NYSE reached 1.05 billion shares,
with winners beating losers 1,664 to 1,410.  Activity on the
NASDAQ was relatively light at 1.78 billion exchanged, with
advances beating declines 2,020 to 1,772.  In the bond market,
the 30-year Treasury fell 8/32, pushing its yield up to 5.50%.


Portfolio Plays:

The Dow saw its recent gains evaporate Tuesday due to new selling
pressure in industrial issues, while the NASDAQ managed a small
gain before traders became cautious late in the session.  Worries
over the quarterly profit report from Cisco Systems (NASDAQ:CSCO)
limited the advances in the technology segment and the pessimism
spread to many of the recovering New Economy companies including
Internet, networking and software shares.  On the Dow, Walt Disney
(NYSE:DIS) was among the blue-chip winners, up over a dollar after
the entertainment conglomerate posted a quarterly profit of $0.16
per share, beating the consensus estimates by a penny.  A number
of bellwether technology issues also ended in the black with Intel
(NASDAQ:INTC), Hewlett-Packard (NYSE:HWP), International Business
Machines (NYSE:IBM) and Microsoft (NASDAQ:MSFT) ending higher.  In
broader market groups, biotechnology, oil service, natural gas and
select consumer stocks advanced while banks and brokerages, gold,
chemical, retail and paper issues consolidated after recent gains.
Despite the mixed emotions in stocks today, the Spreads Portfolio
experienced a number of favorable moves in both industrial and
technology issues.  Forest Labs (NYSE:FRX) was the top performer
in the blue-chip group, up another $3 to a recent high near $70.
Our bullish credit-spread at $60 should expire at maximum profit.
Hewlett-Packard (NYSE:HWP) was the leading technology issue, up
$1.50 to $36.80 and our new LEAPS with Covered-calls position is
performing well.  Varian (NASDAQ:VARI), Motorola (NYSE:MOT), and
International Rectifier (NYSE:IRF) were also among the technology
stocks that moved higher during the session.  Among lower-priced
stocks, NS Group (NYSE:NSS) and Steven Madden (NASDAQ:SHOO) were
the portfolio leaders.

It's nice to Murphy's Law at work again as one of the positions
we fought so diligently to escape from; Lennar (LEN:NYSE) has
begun to rebound.  Late Monday, residential homebuilder Lennar
received some positive comments from valuation analyst Michael
Brush and investors responded appropriately.  The article in MSN
also exhibited an optimistic outlook from Merrill Lynch housing
analyst Robert Curran, who thinks orders should grow at least at
a mid-single digit pace during the first half of 2001 and then
accelerate in the second half.  The bullish activity pushed our
credit spread back to profitability, and we are always happy to
be wrong when it benefits the readers!  In the Straddle section,
our new position in UnumProvident (UNM) became profitable after
just one day in play.  The issue fell over $2 at midday, on no
news, and the bearish portion of the straddle traded as high as
$2.40, paying for the entire position with a gain of $0.40.  In
other delta-neutral plays, Jefferson-Pilot (NYSE:JP) reversed
course dramatically, down almost $2 near the end of the session
and Triad Hospitals (NASDAQ:TRIH) continued to rebound, moving
back above a short-term resistance area near $30.  For traders
who are trying to leg out of these positions, predicting the
next move in the underlying issues may require a crystal ball.

Questions & comments on spreads/combos to Contact Support
******************************************************************
                           - NEW PLAYS -
******************************************************************
LMNE - Luminent  $9.25  *** Cheap Speculation! ***

Luminent (NASDAQ:LMNE) designs, manufactures and markets a very
comprehensive line of active and passive fiber optic components
that enable communications equipment manufacturers to provide
optical networking equipment for the rapidly growing intercity
and intracity portions, or metropolitan segment, and business
and home access segments of the communications network.  The
company is a wholly owned subsidiary of MRV Communications.
Luminent's components offer high performance in many critical
parameters, including laser power, linearity, receiver frequency
response and cross talk between the laser and receiver.  These
components are used to provide a range of cable television,
satellite distribution, data services and telephony, all over a
single fiber for residential access.

Luminent is a relatively new company, but their prospects for
growth in the networking industry are huge!  In late January,
the company reported outstanding quarterly results and a very
optimistic view for future profits.  Revenues in the December
quarter were up over 25% sequentially and gross margins were
also excellent, increasing by 34%.  The company guided analysts
to sequential revenue growth of 5%-6% for the coming quarter
and based on LMNE's strong position in metro and access optical
markets, those numbers should be easy to achieve.  Traders who
want to speculate on an up-and-coming issue may find Luminent
a suitable candidate.  We will target a higher premium in this
volatile stock initially, to lower our cost basis in the issue.

PLAY (conservative - bullish/synthetic position):

BUY  CALL  APR-12.50  ULN-DV  OI=177  A=$1.25
SELL PUT   APR-7.50   ULN-PU  OI=25   B=$1.25
INITIAL NET CREDIT TARGET=$0.25-$0.50 TARGET PROFIT=$0.80-$1.00

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $320 per contract.

http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=LMNE
******************************************************************
WFT - Weatherford International  $52.99  *** A Big Day! ***

Weatherford International (NYSE:WFT) is a leading provider of
equipment and services used for the drilling, completion and
production of oil and natural gas wells.  Its operations are
conducted in over 50 countries, and the company has more than
300 service and sales locations in substantially all of the oil
and natural gas producing regions in the world.  The company's
products and services are divided into four operating business
divisions: Drilling/Intervention Services, Completion Systems,
Artificial Lift Systems and Compression Services.

Weatherford International rallied today amid strength in the
Oil Service sector and speculation on the petroleum supply
report due out after the close of trading.  The data came with
little surprise, as last week's distillate inventories dropped
slightly less than expected and crude inventories rose.  On the
bright side, an unanticipated drop in gasoline supplies helped
hold March crude futures near their closing numbers and traders
will now look to Wednesday's supply data from the U.S. Energy
Department for further guidance.  Analysts say the oil service
group is poised for a major breakout between now and the second
quarter of 2001, as accelerating exploration and production
spending and significant pricing power begin to have an affect
on the industry.  The sector also has the second best earnings
estimates for the coming year among all industry sectors, with
earnings growth expected to be near 90%.

Traders who want to speculate on the performance of the group
in the near-term can do so with these bullish combination
positions.  Target a higher premium initially, to allow for a
brief consolidation after today's rally.

PLAY (conservative - bullish/credit spread):

BUY  PUT  FEB-45  WFT-NI  OI=2504  A=$0.15
SELL PUT  FEB-50  WFT-NJ  OI=956   B=$0.55
INITIAL NET CREDIT TARGET=$0.50-$0.60  ROI(max)=10%

- or -

PLAY (speculative - bullish/synthetic position):

BUY  CALL  FEB-55  WFT-BK  OI=746  A=$0.93
SELL PUT   FEB-50  WFT-NJ  OI=956  B=$0.55
INITIAL NET DEBIT TARGET=$0.00-$0.12 TARGET ROI=20%

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $1,900 per contract.

http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=WFT
******************************************************************
CCMP - Cabot Microelectronics  $85.31  *** Technicals Only! ***

Cabot Microelectronics (NASDAQ:CCMP) is a supplier of slurries
used in chemical mechanical planarization, or CMP, a polishing
process used in the manufacturing of integrated circuit devices.
The company has also begun selling new slurries for polishing of
the magnetic heads and the coating on hard disks in hard disk
drives.  In addition, it recently began limited production of
CMP polishing pads for customer evaluation and qualification.

We found this position while scanning for charts of bullish
issues with favorable option premiums.  The plays is based on
the current price or trading range of the underlying issue and
the recent technical history or trend.  Current news and market
sentiment will have an effect on the issue so review the play
thoroughly and make your own decision about the future outcome
of the position.

PLAY (conservative - bullish/credit spread):

BUY  PUT  FEB-65  UKR-NM  OI=69  A=$0.43
SELL PUT  FEB-70  UKR-NN  OI=67  B=$0.93
INITIAL NET CREDIT TARGET=$0.56-$0.62  ROI(max)=12%

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


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