Option Investor

Daily Newsletter, Wednesday, 02/07/2001

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The Option Investor Newsletter                Wednesday 02-07-2001
Copyright 2001, All rights reserved.                        1 of 1
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MARKET WRAP  (view in courier font for table alignment)
        02-07-2001        High      Low     Volume Advance/Decline
DJIA    10946.70 - 10.70 11004.00 10911.30 1.15 bln   1620/1460
NASDAQ   2607.82 - 56.67  2636.07  2554.76 2.06 bln   1490/2226
S&P 100   700.77 -  7.75   708.53   697.13   totals   3110/3686
S&P 500  1340.89 - 11.37  1351.80  1334.26           45.8%/54.2%
RUS 2000  507.08 +  1.32   507.47   502.67
DJ TRANS 3034.67 - 27.05  3068.00  3025.15
VIX        24.52 +  0.70    25.04    24.14
Put/Call Ratio      0.58

Simply Short-Covering Or New Relative Low?

After Networking giant Cisco's (NASDAQ:CSCO) disappointing earnings
report last night, we were all wondering how the market would
absorb the news.  Would the news already be discounted in the
lower stock price, or would it create a panic across the market?
Looking at the tape tonight, we got a little of both, giving
traders the option to play both ways today.  Fortunately, it
happened in the order of panic, then rebound, and not vice versa.

Because of this fact, the market is setting up for a decent day
tomorrow.  Considering the magnitude of CSCO's influence over the
market, whether real or overstated, missing earnings by a penny
had the potential to disrupt the 2001 recovery.  But as investors,
we must read between the lines and understand that the market is
priced to perfection.  As Eric Utley mentioned in the Wrap on
Monday, CSCO CEO John Chambers informally talked down guidance and
admitted that visibility was, indeed, difficult.  The market priced
this into the stock price prior to the announcement as Chambers
telegraphed what was confirmed in last evening's conference call.
Even the Networking behemoth is not immune to the slowing
economy and lower forecasted IT spending.

This lack of visibility is exactly what makes this market
difficult to trade.  The tape has been tough to read lately, but
today's action gives hope for the coming days.  CSCO traded down
to its key support level of $30, a base dating back to June 1999.
When it hit that level, big money stepped up to defend the stock
and increasing volume pushed the stock higher into the close.
CSCO traded 281 mln shares today!  Second highest for a single
equity in one day.  The NASDAQ reversed its course at that time,
bouncing from 2554.  Was this just a short covering rally or will
this new relative low anchor the bottom of a trading range?  Volume
on NASDAQ favorites grew heavier on that rebound, indicating more
than just short covering.  Take a look at Ciena (NASDAQ:CIEN),
Dell (NASDAQ:DELL) and Veritas (NASDAQ:VRTS).

While this recovery was impressive, we must still be weary of
the overall NASDAQ health.  Since trading near 2900 last week,
the tech-heavy index has retreated to the lower-end of this new
range.  The question is where is the bottom of this range?
Critical support was at 2600.  It broke below that level today,
yet the afternoon rebound afforded a close above that level.
Still, notice in the chart below that the downtrend line is
intact.  A strong, sustained move tomorrow toward 2700 would
indicate that the NASDAQ is making its way higher in the range
between 2500 and 2900.  2500 is KEY critical support.  A break
of that level could bring a retest of January lows.

We continue to watch the sector rotations vigilantly.  Following
the money trail is essential in determining the next move.  During
the past month, we have seen sector rotation occurring on a much
more frequent basis.  It happens quickly and furiously.  Only the
nimble players can keep up.  Unfortunately, given the current
market environment, i.e. no defined trend, rangebound trading,
institutions are making their moves much quicker as well.  This
creates more exaggerated moves as money is churned.

Let's take a look at some sectors.  Of course, as CSCO goes, so
do the other Networkers(NWX.X).  Players in this space suffered
a similar fate to that of CSCO: Juniper(NASDAQ:JNPR), Redback
(NASDAQ:RBAK), and Sycamore(NASDAQ:SCMR).  CSCO cited a slowdown
in telecom carrier spending and that means that companies like
Nortel(NYSE:NT), Nokia(NYSE:NOK), Lucent(NYSE:LU), and SBC(NYSE:SBC)
will struggle.  Biotechs(BTK.X) had some short covering yesterday
after five consecutive down days.  Today's late session failure
to break above 600 may lead to continued downward pressure as the
short players reassert themselves.  Drug stocks were down today as
well, while Oil Service stocks continued their advance.  Retail
stocks performed well ahead of Retail Sales numbers next Tuesday,
which are expected to be slightly above expectations.  The Internet
Index(IIX.X) continues to be weak as the entire business model is
questions.  EToys.  Enough said.  CSCO, NTAP, and GLW all hit
52-week lows today.

The next two days should bring continued weakness in the Biotech
sector, and strength in the Retail stocks like American Eagle
(NASDAW:AEOS), Nike(NYSE:NKE), Abercrombie & Fitch(NYSE:ANF).
Financials have fallen prey to profit-takers after this recent
run-up on Fed-easing euphoria.  And after the tech rebound, we are
looking for this momentum to attract buyers the next two days.
But, remember that being in a trading range means consolidation,
so be selective in choosing entry points and exits.  Using this
sector rotation thesis, we don't just want to plow into any old
tech stock.  We have learned the hard way during the past year,
and promised ourselves not to make the same mistake twice.  We are
in an environment with a value-focus rather than a growth-focus,
and following that idea, traders should look to quality tech
names.  Both IBM(NYSE:IBM) and Microsoft(NASDAQ:MSFT) are perfect
examples.  These two stocks helped buoy the Dow(INDU)in the
afternoon, lifting it from a low of 10911.

11000 proved to be intraday resistance once again today for the
INDU.  A close over that magic number was elusive for another day
as investors sold Financials and Drugs.  Even in this rate-cutting
environment, which has been the INDU catalyst, this psychological
resistance level proves to be resilient.  The previous close above
11000 was September 14th, 2000.  This level has loomed overhead
since November and the INDU has been rangebound between 10300 and
11000 since Halloween.  The longer that it takes to close above
11000, the stronger resistance becomes.  If the INDU fails on the
next attempt, it will likely fall back to recent support levels
near 10850 or 10800.  It will be essential for the Financials to
participate on the upside for the INDU to achieve this feat.
Watch the BIX.X and the BKX.X as they settle back to support.

Looking ahead, we are constantly monitoring the sector rotations
as the market continues to churn in a sideways motion.  The fact
is that bad news is still expected in the coming months, yet the
question is will stocks absorb it?  While the euphoria of a rate
cut is immediate, the economic effect is not.  What the economy
is feeling right now is that 50 basis point rate hike from last
May.  This is evident in the widespread tightening of the corporate
belt.  Given the new economic environment and a very different
market than we grew accustomed to in the 1990's, we must analyze
the market with different outlooks and ideas.  I cannot stress
enough sector rotation and the churning that's indicative of a
sideways market.  As the market changes, so must our thought
process and trading techniques.  Be nimble, trade the ranges, stick
with works working, and when it doesn't, look for another sector.
We have entered a value market rather than the explosive growth
market, but money is still there to be made.  One thing that my
trading mentor, a former option market-maker, taught me was that
consistently taking small profits will outperform swinging for the
fences in the long-run.  Less risk, consistent performance.  Trade

Matt Russ

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

OptionInvestor is proud to announce our third annual Spring
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We guarantee the speaker lineup to be second to none. In the
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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
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This is not a beginner seminar but if you feel the need to brush
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We are starting the seminar with an optional one day boot camp
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The main seminar will begin with a reception, dinner and
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and many optional sessions last until 10:PM or later.

The detailed schedule will be posted in about two weeks. There
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In the evening we will offer five of our popular chalk talk
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The list of instructors is led by Jim Brown and will include
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Unlike other seminars with only two or three instructors, you
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The cost for the four-day workshop, April 6th to 9th is only
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This is not a prepackaged presentation that gets repeated over
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AEOS - American Eagle Outfitters $58.25 +1.13 (+2.38 this week)

American Eagle Outfitters, Inc. is a specialty retailer of casual
apparel, accessories and footwear for men and women between the
ages of 16 and 34.  The company designs, markets, and sells its
own brand of versatile, relaxed, timeless classics like jeans,
cargo and T-shirts, under the American Eagle Outfitters and
Bluenotes brands, providing high quality merchandise at affordable
prices.  The company currently owns 556 American Eagle Outfitters
stores in 47 states and the District of Columbia.

Shares of AEOS are soaring, due to the strength in the retail
sector, as well as a stream of excellent news recently
released by the company.  Early in January, AEOS reported that
total sales for the five weeks ending December 30 increased
45.1% to a record $231 million from $159.8 million from the
year ago quarter.  Last week, the good news continued, as
AEOS hit a 52-week high of $59.25 on January 31, amid high
confidence that the pattern of strong sales growth would
continue in 2001.  Marcia Aron of Deutsche Bank Alex Brown
rated the company a strong buy, and retail analysts at CIBC
Oppenheimer stated that AEOS is well positioned among retail
stocks.  The company's unique market niche and franchise is
attracting both customers and investors, and, with earnings
expected to be released on March 15, as well as a 3 for 2
stock split to be distributed on February 23, the stock is
well positioned for a strong run into both.  Now positioned
solidly above both the 200-dma of $35.70 and the 50-dma of
$45.79, AEOS has momentum to run.  Traders could consider
taking positions on a dip to support at $57.50.  Resistance
is strong at the $60 level, and a break above this would
be an excellent entry point, as it could set AEOS on a path
to a possible new all time high.  Watch the retail sector
(RLX.X) for an indication of sector strength, and set stops
at $56.

***February options expire in less than two weeks***

BUY CALL FEB-55 AQU-BK OI=2471 at $4.63 SL=2.75
BUY CALL FEB-60 AQU-BL OI=3297 at $1.81 SL=1.00
BUY CALL MAR-55*AQU-CK OI= 161 at $7.75 SL=5.75
BUY CALL MAR-60 AQU-CL OI= 148 at $5.13 SL=3.00


CIEN - CIENA Corporation $81.88 -0.81 (+1.88 this week)

Helping to satisfy our insatiable demand for bandwidth, CIEN
makes dense-wavelength division multiplexing (DWDM) systems for
use with long-distance fiber-optic communications networks.
CIEN offers optical transport, intelligent switching and multi-
service delivery systems that enable service providers to
deliver and manage high-bandwidth services to their customers.
The company's MultiWave DWDM systems allow optical fiber to
carry up to 40 times more data and voice information without
requiring more lines.  CIEN's customers include long-distance
carrier, competitive local exchange carriers (CLECs), Internet
service providers and wholesale carriers.

Maybe the third time is the charm.  We've played CIEN on a
couple of false breakouts recently, as it has flirted with its
12-week descending trendline.  The last breakout attempt, at the
end of January, failed to hold above the formidable $100 level
and once again the bears went on a rampage.  Falling back with
the rest of the NASDAQ, CIEN has now dropped back near the $80
support level.  What is encouraging about the stock is the fact
that even in light of CSCO's earnings miss last night, the stock
gave up less than $1 today, and intraday charts show strong
buying volume throughout the afternoon.  So, let's try a
different strategy this time around.  Instead of waiting for the
stock to break out before adding it to the playlist, we'll start
coverage of it tonight, with the caveat that it is an aggressive
play.  With earnings a week away (February 15th before the
open), this will also be a quick play, custom made for
aggressive nimble traders.  Accordingly, we are placing a tight
stop at $78, just above today's lows, and are going to require
that CIEN be on its best behavior to avoid an early ejection
from the game.  Aggressive entries can be considered on a volume
backed bounce above our stop, and ideally above $80.  Although
this play is not for the faint of heart, more conservative
players may want to wait for the stock to continue its rise
before playing.  In this case, wait for strong buying volume to
push CIEN through $84 on strong volume.  Keep an eye on the
Networking index (NWX.X) for confirmation that CIEN doesn't have
a lead weight tied to around its waist.  After all, even if the
company is doing great, it will have a hard time bucking a
bearish sector.

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

BUY CALL FEB-80*UEE-BP OI=1567 at $ 6.88 SL=4.75
BUY CALL FEB-85 UEE-BQ OI=2177 at $ 4.50 SL=2.75
BUY CALL FEB-90 UEE-BR OI=2383 at $ 2.81 SL=1.50
BUY CALL MAR-80 UEE-CP OI=  69 at $11.50 SL=8.75
BUY CALL MAR-85 UEE-CQ OI=1188 at $ 9.13 SL=6.25
BUY CALL MAR-90 UEE-CR OI= 599 at $ 7.13 SL=5.00

SELL PUT FEB-75 UEE-NO OI=1946 at $ 2.44 SL=4.00
(See risks of selling puts in play legend)


RE - Everest Re Group $64.03 +2.03 (+4.53 this week)

Engaged in the underwriting of property and casualty reinsurance
on a treaty and facultative basis, RE provides its services to
insurance and reinsurance companies in the United States and
selected international markets.  The company writes reinsurance
both through brokers and directly with ceding insurance
companies, giving it the flexibility to pursue business
regardless of the ceding company's preferred reinsurance
purchasing method.

Bulls are hoping that RE is gearing up for a repeat of last
year, and have started buying the stock after a 6-week hiatus.
During the recently ended calendar year, RE shot up from a low
near $22 to a high of $74.75, for a gain of 240%.  Not bad for
an insurance stock, huh?  Well, after the first of the year,
tax selling emerged again as investors locked in their profits.
Before it was all over and done with, our new play had dropped
to $54.50, right at the 38% retracement of the prior year's
gains.  Since then the stock has been gradually recovering its
footing, climbing back over the 30-dma ($62.88) and the 50-dma
($63.06).  The bulls have now managed to post a higher low at
the end of January, and today's strong move has all the earmarks
of a stock that is set to post a higher high tomorrow.  The only
fly in the ointment right now is the fact that RE is bumping up
against its upper Bollinger band ($64.06).  With earnings set
for February 21st after the close, the timing looks ideal for a
bullish play.  The Insurance sector seem to be on the rebound as
well, as seen by the Insurance index (IUX.X), which bounced from
its 200-dma in the middle of January and is threatening to start
posting higher lows and higher highs again.  Intraday support
looks pretty solid at $62, so that is the level of our stop and
we are looking for new entries to materialize on a pullback and
bounce between $62-63.  It seems logical that we will get some
sort of a pullback from the Bollinger band before continuing
higher, but if the bears get carried away and penetrate our
stop, then we'll have to stand aside.  Conservative players may
want to buy the breakout over $65, but keep an eye out for
profit taking until we get a bit of a pullback from the
Bollinger band.  Check the strength of the Insurance sector by
monitoring the IUX.X before initiating new positions.

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

BUY CALL FEB-60*RE-BL OI= 27 at $4.80 SL=3.00
BUY CALL FEB-65 RE-BM OI=604 at $1.90 SL=1.00
BUY CALL MAR-65 RE-CM OI=  0 at $3.10 SL=1.50
BUY CALL APR-65 RE-DM OI=110 at $4.60 SL=2.75
BUY CALL APR-70 RE-DN OI=580 at $2.80 SL=1.50



AETH - Aether Systems Inc. $36.86 -6.75 (-8.70 this week)

Aether Systems Inc. is a leading provider of wireless and mobile
data products and services allowing real time communications and
transactions across a full range of devices and networks.  Using
its engineering expertise, the ScoutWare family of products
including the Aether Intelligent Messaging (AIM) software
platform, and its network operations and customer care center,
Aether seeks to provide comprehensive, technology independent
wireless and mobile computing solutions.  Aether develops and
delivers wireless and data mobile services across a variety of
industries and market segments both in the United States and

Aether has taken quite a tumble from its 52-week high of $345
last March.  After two failed attempts to clear its 50-dma
in January, Aether's downward trend has accelerated in the
last two days.  On February 6, Aether reported a net loss of
90 cents per share for the fourth quarter, which was lower than
the analysts' consensus by ten cents per share, and revenues of
$29.8 million, an increase of 59% from the third quarter.
While the initial reaction in the after hours trading was
positive, the market responded poorly to the forward looking
guidance given to investors by the company management.  Aether's
management stated that they expected to see a much wider than
expected loss in 2001 of $3.90 to $3.98 per share, versus the
$2.25 per share loss predicted by First Call.  Aether stated
that they plan to increase spending and investments in an
aggressive strategy to reach profitability two quarters
earlier than expected, in the third quarter of 2002.  All
investors needed to hear was a wider than expected loss predicted
to trash the shares, and Aether sold off on Wednesday on over
three times the average daily volume.  There may be some short
covering tomorrow, which could give traders a possible entry
point on a rollover from resistance at $38, or $39.  More
conservative traders might want to wait for a break below $36
on heavy volume, which could lead Aether on a path to its
52-week low.  Watch the wireless sector for weakness, and set
stops at $41.

***February options expire in less than two weeks***

BUY PUT FEB-40*HIZ-NH OI= 453 at $4.88 SL=3.00
BUY PUT FEB-35 HIZ-NG OI=1022 at $1.88 SL=1.00


STT - State Street Corp. $108.31 -1.20 (-2.43 this week)

State Street is a bank holding company and is one of the
world's leading specialists in serving institutional investors.
The company provides a full range of products and services for
portfolios of investment assets.  Customers include mutual funds
and other collective investment funds, corporate and public
pension funds, corporations, unions and non-profit organizations
both in and outside of the United States.

Starting out the new year on the wrong foot, STT managed to drop
nearly 25% between the first of the year and its earnings
announcement on January 18th.  By that time the stock had
retreated back to major support between $98-100, and investors
uttered a collective sigh of relief that the company's earnings
weren't worse.  The company missed estimates by 2 cents, and
buyers lined up the next day to begin a rally that took STT
right up to the 200-dma (then at $114.38) last week.  That was
all the bulls could muster though, and after a week of nibbling
away at the recent gains, the bears got serious over the past 2
days, pushing our new play back below the $110 support level,
where we now expect STT to find resistance.  Due to the pivotal
importance of this level, we are placing our stop just above, at
$111.  Volume, which had been declining since the stock traced
its low on January 19th, is back on the rise, topping the ADV
today, and underscoring the bearish move on the daily
Stochastics.  This oscillator has now dropped back out of the
overbought zone, and looks like it is ready to do some downhill
sledding.  Other institutional financial services stocks such as
LEH, JPM, GS and MWD are looking vulnerable as well.  Watch
these stocks for an indication of sentiment in this group; as
long as the group is weak, look for STT to follow the path of
least resistance, which at this time appears to be down.  While
aggressive investors may want to wait for a failed rally at the
$110-111 resistance level before initiating new positions, more
conservative players may be the first to get an entry, as STT
drops below $107.50 (just below today's low) under continued
selling pressure from the bears.

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

BUY PUT FEB-110*STT-NB OI=646 at $4.50 SL=2.75
BUY PUT FEB-105 STT-NA OI=105 at $2.45 SL=1.25
BUY PUT MAR-110 STT-OB OI=  8 at $8.00 SL=5.75
BUY PUT MAR-105 STT-OA OI= 15 at $5.40 SL=3.50



NKE - call play
Adjust from $54 up to $55

SCMR - put play
Adjust from $30 down to $25

GS - put play
Adjust from $111 down to $107

IDTI - put play
Adjust from $44 down to $41


TLAB $62.50 -1.88 (-2.50) The CSCO effect turned the tables on
bullish traders today, pushing most technology stocks sharply
lower, and dropping our TLAB play through our $64 stop.  The
volume wasn't excessive, but you could see that there just
weren't enough traders willing to hold their shares in light of
the change of sentiment from CSCO's stunning disappointment.
The bulls attempted to rally shares of TLAB after the gap down,
but there was just too much selling pressure, as seen in the
past hour, when the stock dropped to new lows for the day.
With sentiment and technicals (stochastics rolled out of the
overbought zone today), it is time to say goodbye to TLAB.


VRTS $82.06 -4.06 (-3.63) The widespread, Cisco-related selling
induced shares of Veritas to gap down this morning and caused a
subsequent visit to the $80 level, where buyers stepped up in a
big way.  Given the short-covering into the close of trading,
and the apparent floor in place at the $80 level, we're
dropping coverage on VRTS this evening in an attempt to lock
in profits.  Open positions can be exited either near resistance
at $83, or a breakdown below the $82 level, with the latter case
obviously being the most favorable.

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Following A Successful Put Play
By Mary Redmond

In the last week, there have been several stocks which offered
the opportunity to profit from put options.  It is important to
watch as many technical indicators as possible, as well as
to track the long and short-term trading pattern of each stock.
It's also helpful to monitor the stock's sector and the overall
market conditions while trading options.

For example, the volatile biotech sector(BTK.X) demonstrated a head
and shoulders pattern from December to January.  While the initial
Fed rate cut did boost the sector temporarily, it rolled over
toward the end of January and made a precipitous drop.  When it
dropped, most of the stocks in this sector dropped with it.

You can track the BTK.X or the BBH, which is the holders trust
for the biotech sector.  You see how the BTK formed a head and
shoulders pattern in December and January?  That was a
warning sign for technical weakness.  Then, the sector tried
to rally with the Nasdaq in the post Fed rate cut rally, but
failed to clear the 50-dma on January 29th.

While this is a historical pattern of the sector, it can also
be useful when trading on a short-term basis.  It gives us
a background for short-term trades.  For example, considering
the underlying sector weakness, biotech puts may have had a
higher probability of success in the last two weeks.

Last week, some analysts and technicians had been warning that
we could see a post-Fed rate cut drop, possibly because the
Nasdaq had risen over 12% from the low of the year, and also
because the VIX had dropped significantly from the 35 level to
25 level.

Let's take a look at the chart of HGSI, one of our recent put
plays.  You can see that the stock's chart shows its own
head and shoulders pattern, similar to that exhibited by the
index.  The stock fell through its 200 and 50-dmas back in
December.  Then, it tried to rise above these major averages
on January 24th, and again the 29th, and failed both times.

So, we were setting the stage for a technically weak stock
within a technically weak sector.  Now, we can move in and
take a closer look at the stochastics, the MACD and the VIX
and VXN to see how we want to enter the play.

On January 29th, the stock fell below its 50-dma of $67.81
after attempting to clear it.  This is a bearish signal.
You see how both the stochastic and MACD oscillator started
to fall at this point?

This could have been an aggressive put entry point, however,
it is risky to buy options before a Fed meeting.  A more
conservative entry point might have been toward the end of
the week.  The Fed meeting was the 31st, and after the meeting,
the Nasdaq, as well as the biotech index, the VIX, the QQQ,
and HGSI gave strong sell signals.

Due to some rumors which had been circulated prior to the
meeting, some people had been expecting a 75 basis point
rate cut.  Since the 50 basis point cut had already been
priced into the market, a sell off on the news was likely.

You see how the VIX spiked out of its Bollinger bands to the
downside? This can often be a signal to exit long positions, or
possibly enter short positions.  At the same time, the VXN
also spiked to the lowest trading range on the Bollinger

At this point, the Nasdaq was falling below a critical support
level at 2800, the QQQs were falling below a support level at $65,
the Biotech index was falling below support at 630, and HGSI was
falling below a support level at $62.50.  In addition, the yields
on the 10-year Treasury Note, TNX.X were dropping from 5.2%, which
indicated that the market was likely to follow.

The three bearish red candlestick pattern is also indicative
of a stock which is likely to drop further.

Thus, the end of the day on the 31st was a good entry point for
this put play.  We also had a good entry point on February 2nd,
as shown above on the charts.

At this point, the QQQs fell below the critical support level
of $62, which was a signal of weakness.  We had the VIX and the
VXN spiking out of the Bollinger bands to the downside.  We also
had HGSI dropping below another support level at $58.  This
would have yielded excellent profits, as the stock dropped as low
as $50 the next day.

In summary, the more technical indicators point to a move in a
stock, the stronger it is likely to be.  If possible, try to use
the market, the sector, the VIX and VXN, the bond yields and
news released on the stock to give an indication of good entry
points and exit points for profitable plays.  None of these
indicators are ever successful all the time, which is why it
can be a good idea to use many indicators together for a sense
of short-term direction.

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DELL - Dell Computer $26.50 -0.38 (+1.31 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.

Most Recent Write-Up

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.


Today, DELL offered a nice entry point as the shorts covered on
the NASDAQ in the afternoon.  Volume picked up on the buyside as
DELL bounced from intraday support at $25.25 and finished the
day at $26.50.  We are looking for the NASDAQ strength to continue
tomorrow.  Entry can be attained on a break through resistance at
$27 or on a pullback to support at $25.25, also the site of the

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

BUY CALL FEB-25 DLQ-BE OI=22263 at $2.31 SL=1.25
BUY CALL MAR-25*DLQ-CE OI= 2126 at $3.00 SL=1.50
BUY CALL MAR-30 DLQ-CF OI= 4729 at $1.00 SL=0.00



Cisco Earnings Provoke Technology Sell-off...

Investors displayed their true feelings today as apprehension and
fear spread throughout the market in the wake of the quarterly
report from Cisco Systems.  The networking giant posted a profit
of $0.18 a share, missing the consensus estimates by a penny.  The
company also lowered its expectations going forward saying that
revenue and sales will be flat in the near-term.  Cisco had beat
analysts' estimates in each of the past 14 quarters and the news
of a shortfall was not well received.  The stock was hit with a
number of negative EPS revisions and most brokerages lowered the
company's rating as well.  The decline in Cisco's share value put
additional pressure on the flagging NASDAQ and the pessimism was
also felt in other segments of the market.  The most noticeable
selling came in networking issues but computer hardware, software
and Internet shares also moved lower in the aftermath.  The Dow
industrials were only slightly affected by news and the rotation
between Old Economy and New Age companies continued to hold the
blue-chip average in a relatively small trading range.  By early
afternoon, investors became more optimistic and market analysts
commented that the selling in technology stocks may simply be a
consolidation in response to January's stellar performance.  The
end of the session saw mixed results with hi-tech bellwethers
Microsoft (NASDAQ:MSFT) and International Business Machines
(NYSE:IBM) enjoying bullish activity while Intel (NASDAQ:INTC)
and Hewlett Packard (NYSE:HWP) succumbed to profit-taking.  Most
stocks in the communications-technology group experienced broad
selling pressure but there were some positive moves in software
shares.  Among S&P 500 sectors, new buying interest surfaced in
biotechnology, utility, natural gas and retail stocks while oil
service, major drug, paper and gold issues generally retreated.

Summary of Previous Picks:

Covered Calls: (Margin would double the listed Monthly Return)

Stock  Strike Strike Cost   Current Profit  Monthly
Symbol Month  Price  Basis  Price   (Loss)  Return

CTLM    FEB    35    34.06  37.13    $0.94   5.2% Exit?
EMLX    FEB    70    66.94  81.75    $3.06   4.6%
ADI     FEB    55    53.70  49.40   -$4.30   0.0% Closed
FTE     FEB    85    83.05  77.20   -$5.85   0.0% Closed

Naked Puts:

Stock  Strike Strike Cost   Current Profit  Monthly
Symbol Month  Price  Basis  Price   (Loss)  Return

CTLM    FEB    35    33.94  37.13    $1.06  18.7%
EMLX    FEB    60    57.94  81.75    $2.06   9.7%
CMVT    FEB    90    88.81 105.25    $1.19   9.5%
VSTR    FEB   105   102.75 118.81    $2.25   7.7%
EMLX    FEB    65    63.94  81.75    $1.06   6.5%
IDTI    FEB    35    34.44  38.50    $0.56   5.1%
ADI     FEB    55    53.80  49.40   -$4.40   0.0% Closed
FTE     FEB    85    83.70  77.20   -$6.50   0.0% Closed

Sell Strangles:

Stock  Strike Strike Cost   Current Profit  Monthly
Symbol Month  Price  Basis  Price   (Loss)  Return

AFFX    FEB    53    51.81  67.38    $0.69   9.4%
AFFX    FEB    85    85.69  67.38    $0.69   9.4%

VECO    FEB    35    34.50  54.19    $0.50   8.0%
VECO    FEB    80    80.63  54.19    $0.63  10.0%

AFFX    FEB    50    49.19  67.38    $0.81   7.4%
AFFX    FEB    98    98.31  67.38    $0.81   7.4%

VECO    FEB    30    29.06  54.19    $0.94   7.3%
VECO    FEB    95    96.13  54.19    $1.13   8.7%

Naked Calls:

Stock  Strike Strike Cost   Current Profit  Monthly
Symbol Month  Price  Basis  Price   (Loss)  Return

OSIP    FEB    85    86.13  58.94    $1.13   8.6%
BRCD    FEB   135   136.25  80.06    $1.25   7.4%
CIEN    FEB   145   146.00  81.88    $1.00   6.2%
MYGN    FEB   100   100.69  68.50    $0.69   6.1%

Credit Spreads:

Stock  Pick    Last     Position   Credit    C/B    G/L    Status

A     $61.88   $50.14  FEB45p/50p   $0.56   $49.44  $0.56   Exit?
CMVT  $121.63 $105.25  FEB95p/100p  $0.75   $99.25  $0.75   Alert
ITG   $45.81   $50.42  FEB35p/40p   $0.69   $39.31  $0.69   Open
NUFO  $60.19   $45.00  FEB40p/45p   $0.62   $44.38  $0.62   Exit?
CEPH  $58.50   $57.25  FEB75c/70c   $0.38   $70.38  $0.38   Open

Debit Straddles:

AC (NYSE:Alliance Capital) Profit target met - closed on 1/30 for
$0.75 (30%) gain.  In hindsight, holding onto the puts a bit longer
would have been quite profitable...ahh, the life of a speculator!

New Candidates:

This following group of plays is simply a list of 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
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.  (We monitor the positions marked with ***).


BULLISH PLAYS - Naked Puts, & Combinations

AEOS - American Eagle Outfitters  $58.25  *** Hot Sector! ***

American Eagle Outfitters (NASDAQ:AEOS) is a specialty retailer of
all-American casual apparel, accessories and footwear for men and
women between the ages of 16 and 34.  The company sources, designs
and markets a versatile line of timeless and relaxed clothing
classics like jeans, khakis, and T-shirts under the American Eagle
Outfitters and AE brand names for exclusive sale in American Eagle
Outfitters stores.  The stores sell fashionable items that reflect
a lifestyle-based retail branding strategy.  Their many designers
interpret fashion trends and develop merchandise that has fresh,
collegiate appeal.  Merchandise is regularly updated with unique
styles, colors and fabrics.  The company also offers fashionable
interpretations of fundamental wardrobe items such as jeans,
sweaters, khakis, T-shirts, woven shirts, and fleece.

The retail sector is HOT and AEOS shares moved to a new, all-time
high today after announcing that total sales for the first five
weeks of the year increased 73% to a record $72 million.  That's
a bold statement of the company's success, considering the recent
slump in the economy and traders who want to own a great stock in
the apparel industry can speculate on the future movement of the
issue with these conservative positions.

AEOS - American Eagle Outfitters  $58.25

PLAY (sell naked put):

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  MAR 45   AQU OI  239       1.06    43.94     6.9% ***
Sell Put  MAR 50   AQU OJ  449       2.31    47.69    10.9%



DIGL - Digital Lightwave  $49.25  *** Own This One! ***

Digital Lightwave (NASDAQ:DIGL) designs, develops, markets and
supports diagnostic products for monitoring, maintaining and
managing fiber optic networks.  Telecom service providers utilize
fiber optics to provide increased network bandwidth to transmit
Internet, voice, data and multimedia video traffic.  Digital's
products provide telecommunications service providers and other
equipment manufacturers with capabilities to cost-effectively
deploy and manage fiber optic networks to address the rapidly
increasing demand for bandwidth.  Their current customers include
telecommunications service providers such as GTE, MCI WorldCom,
Qwest Communications, Level 3 Communications, Ameritech, and
telecom equipment manufacturers such as Alcatel Network Systems,
Tellabs, Nortel Networks and Cisco Systems.

Digital Lightwave surprised a number of analysts last week, easily
exceeding consensus earnings estimates for the fourth quarter.
The maker of products for fiber-optic networks said it earned $13
million, or $0.40 per share, up from $3.9 million, or $0.13 per
share, in the same period last year.  Revenue nearly doubled to
$33.9 million from the fourth quarter a year ago and the company
has now completed seven consecutive quarters of increased revenue
and earnings growth.  Analysts quickly upgraded the issue and the
new buying support has helped the stock weather the effects of the
"Cisco Syndrome."  We favor the bullish technical outlook for the
issue and traders who agree with that opinion can speculate on the
future movement of the stock with these conservative positions.

DIGL - Digital Lightwave  $49.25

PLAY (sell naked put):

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  FEB 40   DGW NH  325       0.50    39.50    15.4%

Sell Put  MAR 35   DGW OG  46        1.44    33.56    10.5% ***
Sell Put  MAR 40   DGW OH  14        2.56    37.44    16.2%



IMPH - Impath  $55.94  *** On The Move! ***

Impath (NASDAQ:IMPH) specializes in providing patient-specific
cancer diagnostic and prognostic information, with a particular
expertise in difficult to diagnose tumors, prognostic profiles
in breast and other cancers, and lymphoma/leukemia analysis.
The company currently works with more than 7,400 physicians
specializing in the treatment of cancer patients, in 1,785
hospitals and 409 oncology practices.  The company's database
currently contains more than 550,000 patient profiles.  In
addition, Impath can link its information with that of its tumor
registry business to provide data on the full continuum of care,
from diagnosis through treatment and outcomes on many patients.
Impath is working on more than 50 projects with over 20 different
pharmaceutical/biotechnology companies including 21 U.S. based
and four international clinical trials.

Impath shares have been "on the move" in the past few sessions
after some bullish comments and an upgrade were issued by First
Union Securities.  Now the stock has moved out of a recent trading
range on heavy volume and the potential for future upside movement
is excellent.  Traders who agree with a bullish outlook for the
issue can speculate on a continued rally with this conservative
credit spread.

IMPH - Impath  $55.94

PLAY (conservative - bullish/credit spread):

BUY  PUT  FEB-45  QPH-NI  OI=34  A=0.38
SELL PUT  FEB-50  QPH-NJ  OI=34  B=0.93
INITIAL NET CREDIT TARGET=$0.62-$0.75  ROI(max)=14%



NBR - Nabors Industries  $62.30  *** Oil Sector Hedge! ***

Nabors Industries (AMEX:NBR) is a land drilling contractor with
over 500 actively marketed land drilling rigs.  Nabors conducts
oil, gas and geothermal land drilling operations in the US Lower
48 states, Alaska and Canada, and internationally, primarily in
South and Central America and the Middle East.  Nabors also is
one of the largest land well-servicing and work-over contractors
in the United States.  Nabors also is a major provider of offshore
platform work-over and drilling rigs.  Nabors markets a number of
platform, jack-up and barge rigs in the Gulf of Mexico and other
international markets.  These rigs provide well, work-over and
drilling services.  To further supplement its primary business,
the company offers a number of ancillary well-site services,
including oilfield management, engineering, transportation,
construction, maintenance, well logging other support services,
in selected domestic and international markets.

The Oil Service sector has performed very well over the past few
sessions and based on the improving technical outlook for the
group, we decided to look for a conservative position to hedge
our bullish outlook for the broader market.  The search uncovered
some excellent candidates but most of the option premiums in the
Oil Service group have very little premium.  However, this play
offers reasonable reward with limited downside risk and today's
activity in NBR shares suggest the bullish trend will continue.

NBR - Nabors Industries  $62.30

PLAY (aggressive - bullish/credit spread):

BUY  PUT  MAR-50  NBR-OJ  OI=2071  A=0.40
SELL PUT  MAR-55  NBR-OK  OI=219   B=0.85
INITIAL NET CREDIT TARGET=$0.55-$0.60  ROI(max)=12%



UHS - Universal Health Services  $89.70  *** On The Rebound! ***

Universal Health Services (NYSE:UHS) owns and operates acute care
hospitals, behavioral health centers, ambulatory surgery centers,
radiation oncology centers and women's centers.  The company has
a number of hospitals, acute care hospitals, behavioral health
centers, and two women's centers in the US and Puerto Rico.  The
company, as part of its Ambulatory Treatment Centers Division,
owns outright, or in partnership with physicians, and operates
or manages surgery and radiation oncology centers located across
the U.S. and in the District of Columbia.  Services provided by
the company's many hospitals include general surgery, internal
medicine, obstetrics, emergency room care, radiology, oncology,
diagnostic care, coronary care, pediatric services and behavioral
health services.

Universal Health Services has recovered from a recent sell-off
in the Healthcare sector with flying colors and speculation on
the company's upcoming earnings have propelled the issue into an
unexpected rally.  With the quarterly announcement due on Friday,
February 16, the upward movement should easily carry the share
value beyond our sold options and as long as there are no major
surprises, these positions will expire profitable.

UHS - Universal Health Services  $89.70

PLAY (sell naked put):

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  FEB 75   UHS NO  23        0.30    74.70     4.7%
Sell Put  FEB 80   UHS NP  14        1.05    78.95    12.9% ***
Sell Put  FEB 85   UHS NQ  0         2.30    82.70    23.0%


Neutral Plays - Straddles & Strangles

ASFC - Astoria Financial  $55.91  *** Probability Play! ***

Astoria Financial (NASDAQ:ASFC) is a unitary savings and loan
association holding company for Astoria Federal Savings and
Loan Association (Astoria Federal).  In addition to directing,
planning and coordinating the business activities of Astoria
Federal, the company invests primarily in U.S. Government and
federal agency securities, mortgage-backed securities and other
securities.  Astoria Federal's principal business is attracting
retail deposits from the general public and investing those
deposits, together with other funds generated from operations,
principal repayments on loans and securities and borrowed funds,
primarily in one-to-four family residential mortgage loans and
mortgage-backed securities and, to a lesser extent, multi-family
residential mortgage loans, commercial real estate loans and
consumer and other loans.

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

ASFC - Astoria Financial  $55.91

PLAY (conservative - neutral/debit straddle):

BUY  CALL  MAR-55  AQR-CK  OI=14  A=$2.75
BUY  PUT   MAR-55  AQR-OK  OI=20  A=$1.81



CHKP - Check Point Software  $146.56  *** Premium Selling! ***

Check Point Software Technologies (NASDAQ:CHKP) develops, markets
and supports Internet security solutions for enterprise networks
and other service providers including Virtual Private Networks,
firewalls, intranet and extranet security and Managed Service
Providers.  The company delivers solutions that enable secure,
reliable and manageable business-to-business communications over
any Internet Protocol network-including the Internet, intranets
and extranets.  Check Point product offerings also include traffic
control/quality of service and IP address management.  Check Point
products are fully integrated as a part of the company's Secure
Virtual Network architecture and provide centralized management,
distributed deployment, and comprehensive policy administration.
The capabilities of Check Point products can be extended with the
Open Platform for Security, enabling integration with many best of
breed hardware, security applications and enterprise software

Check Point Software Technologies is an excellent candidate in the
premium-selling category of options trading.  The issue has great
option premiums, a relatively well-defined trading range and a high
probability of remaining between the sold (short) strike prices.
Based on historical analysis of option pricing and the underlying
stock's technical history, the issue meets our basic criteria for a
favorable credit strangle, and in the event of a brief slump, we
wouldn't mind having the issue in our portfolio at a cost basis
near $120.  The company will split its stock 3-for-2 on 2/12/2001.

CHKP - Check Point Software  $146.56

PLAY (aggressive - neutral/credit strangle):

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  FEB 170  KGE BN  1562      1.00   171.00     9.3% ***
Sell Call FEB 120  KGE ND  706       1.13   118.87    11.5% ***

Sell Put  FEB 165  KGE BM  467       1.69   166.69    13.6%
Sell Call FEB 125  KGE NE  607       1.56   123.44    13.7%


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