Option Investor

Daily Newsletter, Sunday, 02/11/2001

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The Option Investor Newsletter                   Sunday 02-11-2001
Copyright 2001, All rights reserved.                        1 of 5
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         WE 2-9          WE 2-2           WE 1-26          WE 1-19
DOW    10781.45 - 99.10 10864.10 +204.12 10659.98 + 72.39  + 62.21
Nasdaq  2470.97 - 91.09  2660.50 -120.80  2781.30 + 10.92  +143.88
S&P-100  682.35 - 11.97   705.48 -  3.58   709.06 +  3.83  + 17.35
S&P-500 1314.76 - 17.77  1349.47 -  5.48  1354.95 + 12.40  + 24.00
W5000  12124.31 -169.65 12450.10 - 77.20 12527.30 +143.40  +202.60
RUT      497.05 -  5.84   501.50 +  2.82   498.68 + 10.59  +  2.34
TRAN    3013.42 - 11.82  3092.76 +136.57  2956.19 +  2.90  - 48.69
VIX       25.15 +  1.06    24.75 -   .39    25.14 -  1.15  -  1.33
Put/Call    .73              .60              .59              .48

Surviving The Slowdown

Friday was chock full of announcements and speculation on how
Corporate America is dealing with the economic slowdown.  As
lay-offs become more commonplace in 2001, the markets drift lower
over concerns about corporate revenues.  The intraday trend:
decidedly negative.  This painful decline begs the question, where
will the market look next for that glimmer of hope that we had
two weeks ago?  The answer is Greenspan.

With earnings season winding down and most major tech players
confessing their lack of visibility, market watchers once again
will shift their focus to Fed Chairman Alan Greenspan and the
fate of interest rates.  We all know that earnings and revenues
going forward, at least for the next two quarters, are going to
be less than stellar, according to the standards that we have
grown to expect the past few years.  With the chief concern
being the slowing economy in the U.S., Greenspan is thereby the
chief positive catalyst and the closest thing to a panacea for
the market's woes.

After Friday's dismal market performance for both the NASDAQ and
the INDU, Monday will be a day of anticipation.  Greenspan is
scheduled to speak on Tuesday morning at 10am ET before the Senate
Banking Committee.  Doc Greenspan will be diagnosing the state
of the economy in the Fed's semiannual report to Congress, formerly
known as the Humphrey-Hawkins Report.  While Greenspan will
delicately tip-toe that fine semantic line during the testimony,
market watchers will be listening intently for any sign of a
possible intermeeting rate cut.  It was the stronger Non-Farm
Payroll report on Friday the 2nd that sparked market fear of not
getting an intermeeting cut, which was widely perceived as certain.
The FOMC is not scheduled to meet until March 20th and it seems
reasonable that given the current economic condition, a month
without Fed action is a month too long.

Further evidence of the slowing economy was presented Friday and
dragged the markets lower.  Motorola(NYSE:MOT) announced that it
will cut 4000 jobs from their Semiconductor Products operation.
This comes just a few weeks after the company said they were
cutting 2500 jobs in their mobile phone unit.  The word "lay-offs"
has become all too familiar on both Wall Street and Main Street in
2001.  Creating downward pressure for the NASDAQ were rumors that
Dell Computers(NASDAQ:DELL) would be laying off 10% of its
workforce.  Reports circulated late Thursday night and set the
stage for a test of 2500 on the NASDAQ.  DELL denied the reports
but the speculation was enough to set the tone for both the stock
and the index.  Whether rumor or fact, this pattern of lay-offs
shows the cost-cutting measures that Corporate America is forced
to take to survive in this economic environment.

As I mentioned on Wednesday, 2500 was key support for the NASDAQ.
This level was overcome by selling on Friday, with the tech-heavy
index now sitting in deeply oversold territory.  We have reached
a very precarious juncture for the NASDAQ.  Both Eric and I
discussed last week how the tape has been difficult to read as the
NASDAQ drifted.  Now, lacking a fundamental catalyst along with
technical weakness, the NASDAQ is at a point where it really could
go either way.  Are we heading to retest January 3rd's low of 2251?
Or will the NASDAQ put in a new higher low above 2400?  Given the
oversold condition, Greenspan may provide the necessary boost to
attract buyers back this week.

Here is a chart of the NASDAQ with the exact same lines that were
drawn on Wednesday.  We were looking for Wednesday's rally momentum
to continue on Thursday and drive the NASDAQ to resistance at 2700.
Unfortunately, the momentum was short-lived in the morning and
could only lift the index to the downtrend line where sellers
whacked it once again.  From there, the breakdown accelerated.  To
the downside, there is really no discernable support level of true
strength.  January 10th's low was 2376, when the NASDAQ began its
run to 2900.  More importantly, the market needs a fundamental
catalyst to drive it back to its previous trading range.  Even if
the Fed can provide hope for the market in the form of rate cuts,
fundamentals trump both technicals and the Fed.  We must trade
what the market gives us, and right now Greenspan's Senate hearing
will be that next glimmer of hope.

In addition to the rumors surrounding DELL, other big cap NASDAQ
names have been perpetuating the tech index lower.  Both Microsoft
(NASDAQ:MSFT) and Oracle(NASDAQ:ORCL) have been subject to the
Street's critique.  On Thursday morning, Merrill Lynch analyst
Henry Blodget downgraded MSFT to an Accumulate from a Buy, expecting
slowing software sales.  Boy, this guy really knows how to make
friends.  Hey Henry, you liked Amazon(NASDAQ:AMZN) at $100, you
must love it at $13.  I'm sorry...don't get me started on that guy.
Moving on, ORCL plunged below $25 a share after Morgan Stanley
analyst Charles Phillips downwardly revised revenue growth forecasts
going forward.  These types of downward revisions are going to
be as commonplace in the coming months as the word "lay-offs."
However, it is a double-edged sword.  Obviously, it's perceived as
a negative when a company can't sustain current growth levels, yet
it also allows for a better chance of an upside surprise.  Bring
down expectations to realistic levels.  Watch those big caps.  The
market won't be able to advance without them.

Lucent(NYSE:LU) may have attempted to be creative in trying to
survive the slowdown and now has the SEC looking its way.  The
SEC has begun a formal investigation of the struggling telecom,
calling into question accounting practices.  The issue focuses
on software licensing agreements and nearly $680 mln in revenues
booked in fiscal 2000.  Just another financial woe for LU, which
has consistently missed earning's numbers during the past year.

Looking at the INDU, 11000 has proven to be the victor this time
around.  Last Wednesday, I mentioned that without a close over
11000, the INDU would slip back to support near 10800-10850.
Without even attempting another run at resistance, the INDU
sold off more than 150 points.  MSFT, IBM(NYSE:IBM), Wal-Mart
(NYSE:WMT), SBC(NYSE:SBC), and GE(NYSE:GE) all contributed to
the downside action on Friday.  Broad selling with little buying
epitomizes this market right now.  No catalyst, no buying.  This
is precisely why the INDU was not able to break the 11000 level.
There was simply no reason to buy.  Tuesday's Greenspan meeting
very well may create a tradable move for both indices, if only
temporary.  Technically, the INDU decent support at the 10600
level, where it consolidated in late-January and from where it
launched its recent rally.

With Corporate America tightening the belt and trying to survive
these uncertain times, the market is seeking something to keep
its apparent recovery going.  Fundamentally, revenue growth
forecasts will continue to be reassessed.  Technically, the charts
aren't painting a bullish picture.  We are in an economic slowdown
and in these times, we look to Alan Greenspan.  Knowing that he
watches the consumers' confidence in the U.S., we can count on
him being on our side.  So Tuesday morning at his Senate
testimony, Greenspan will be conscious of Retail Sales numbers
announced earlier at 8:30am ET.  These events will provide trading
opportunities, and given the oversold conditions on the NASDAQ,
it will most likely be to the upside.  However, remember two
things.  First, in a market environment with only short-term
catalysts and a lack of long-term visibility, trade quick and
be nimble.  Second, it's expiration week, so expect opportunity
and volatility as institutions roll positions forward.  On top
of that, PPI is due out on Friday.  Be aware that unscheduled
events, i.e. analyst calls & company announcements, have been
dictating the market.  Expect the unexpected and trade smart.

Jim Brown will be back on Tuesday to give us insight into
Greenspan's comments and the market's reaction.

Matt Russ

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Now They're Getting Nervous
By Austin Passamonte

For the past few weeks we've been bombarded by bullish sentiment
from all media directions, with CNBC starting as the center point
for most of us. From pre-FOMC until the last couple days we've
seen analysts calling right now the time to buy. Market timers
saying the bottom is behind us. Don't fight the Fed. Techs are
cheap. Buy now or miss out forever.

When the whole world around us insists the sun is now blue and we
look up and it still seems yellow, that can be a most unsettling
time. What are we to believe? Celebrity media types steering
their guests to say bullish things or the lying charts in front
of our eyes? Do we really pays $hundreds per month for all our
technical analysis and it offers us nothing but sheer falsehood?

Not this time. Again and forever, the charts were correct. They
plainly called the top for all major indexes weeks ago and will
call bottoms eventually as well. We didn't go straight down,
haven't reached bottom yet and it won't be a straight ascent back
to new highs either.

We believe the tech sectors have been pushed beyond near-term
limits and are due to bounce quite soon. That will usher in the
next wave of eager selling as we look forward to a few more
rounds of failed rallies ahead. The Dow in particular is in grave
danger to give back a few hundred points or so if near-term
support doesn't hold this week. A clean break and close below
Friday's session low could easily see 10,400 area next.

The wild-card here is our Fed. The only thing keeping Nasdaq
markets from sub-2,000 points and the SPX above 1,200 is blind
hope that another interim rate cut is in our future and soon. It
very well may be and would surely ignite another short squeeze
the likes of which we saw one month ago.

As we've stated within this section since July 2000, we will
consider the next multi-year bottom in place when commercial S&P
500 traders unwind their all-time historical short position over
at the Chicago Mercantile Exchange and begin to accumulate
instead of distribute. That remains our primary benchmark of long
term market reversal.

Impatient traders and those with short-term vision may scoff at
this notion, pointing out a handful of market rallies since then
until now. While they have certainly been tradable events, any
who bought & held stocks or LEAPS during each rally have been
washed out of their longs every time when trying to hold from
these "bottoms". Lower market lows have resulted after every
failed rally, and that pattern has not been broken yet.

This week's testimony by Greenspan to the House will be picked
about for every mumbo-speak utterance in reference to his current
stance. One little phrase eluding to anything less than his
finger on the rate-cut trigger would not be a time for holding
open bullish plays. All ears will tune in and markets orders
staged to go at a moment's notice.

Markets are in a precarious position right now. Sentiment has
suddenly shifted from highly bullish to very nervous. Panic is
the next emotion to run this gamut.

Peering into our crystal ball, we will be first to go out on the
fiscal limb. We expect to test or exceed new market lows on the
big indexes within the next two weeks. A few failed rallies along
the way are almost certain, with Monday being a good time for the
first to begin.

Once markets wash out again, everyone turns bearish and calls for
doom & gloom all year just like they did last May and July 2000
when market nulls enjoyed two wonderful, long-duration rallies.
By then the VIX & VNX would be reaching their highs, technical
signals screaming for bullish reversals and CNBC celebs wailing &
gnashing their teeth.

COT report at that time might show S&P 500 commercials covering
their grossly, obscenely profitable shorts and moving over to the
accumulation phase. Just about the time Market Sentiment looks to
catch the next pre-FOMC rally into further rate cuts. How's that
for throwing darts at the future?

Trade the upside carefully until then; the trend still remains
decidedly down.


Friday 02/09 close; 25.15

Friday 02/09 close; 65.21

30-yr Bonds
Friday 02/09 close; 5.38%

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

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

  (Open Interest)       Calls        Puts          Ratio
S&P 100 Index (OEX)
720 - 705               12,067        7,433         1.62
700 - 685                6,169        9,874          .62

OEX close: 682.35

680 - 665                1,476        8,861         6.00
655 - 645                   37       11,778       318.32

Maximum calls: 740/5,057
Maximum puts : 650/4,458

Moving Averages
 10 DMA  706
 20 DMA  704
 50 DMA  700
200 DMA  755


NASDAQ 100 Index (NDX/QQQ)
 66 - 64                68,436        47,127         1.45
 63 - 61                82,274        31,585         2.60
 60 - 58                27,243        79,282          .34

QQQ(NDX)close: 56.49


 55 - 53                 7,355        30,571         4.16
 52 - 50                 2,704        30,227        11.18
 49 - 47                   176         5,158        29.31

Maximum calls: 70/61,077
Maximum puts : 60/40,442

Moving Averages
 10 DMA 62
 20 DMA 63
 50 DMA 63
200 DMA 82


S&P 500 (SPX)
1375                    8,655         5,941          1.46
1350                   17,317        15,730          1.10
1325                   10,877        12,616           .86

SPX close: 1314.76

1300                    2,830        13,496          4.77
1275                      587         9,612         16.37
1250                      914         8,263          9.04

Maximum calls: 1350/17,317
Maximum puts : 1350/15,730

Moving Averages
 10 DMA 1352
 20 DMA 1348
 50 DMA 1334
200 DMA 1414


CBOT Commitment Of Traders Report: Friday 02/09
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          -2903      -467          -4001     -5599

Total Open
interest %      (-29.87%)    (-6.18%)      (-16.84%)  (-22.99%)
                 net-short   net-short     net-short net-short

Open Interest
Net Value        +3292      +1810          -6615      -6642
Total Open
Interest %      (+20.96%)   (+11.61%)    (-10.93%)   (-10.94%)
                net-long   net-long      net-short  net-short

S&P 500
Open Interest
Net Value        +74142     +73434        -94766       -93215
Total Open
Interest %       (+41.81%)  (+39.86%)    (-12.52%)  (-12.53%)
                 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 greatly
increased their net-short positions on the DJIA while Commercials
have reduced their net-short positions.

Interest Rates: Commercials are short 10-year T-Note futures to a
five-year extreme. (Bearish)

Currencies: Commercials continue to build heavily short Euro
dollar futures while small specs build net long. (Bearish)

Metals: Commercials are moving to net-long in Gold, Silver and
Copper from short positions. Small specs are at five-year net
short positions in silver. (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 02/06 by the CFTC.


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By Eric Utley

I owe a lot to the readers of this column.  The response to my
request for feedback last weekend was overwhelming.

I was inebriated with replies to my request and very much
appreciate the time and effort taken by those who were
motivated enough to respond.  If you haven't yet received a reply
from me yet it's on the way - I'm still working my way through
the list.  I took a lot away from the many ideas and suggestions
sent in by the readers and will begin to implement some new
ideas into this column next weekend.  I need to run some of the
ideas past Jim Brown first and haven't yet had the opportunity
to speak with him.

One common request I received was for possible trades akin to
what Jim lays forward in his Editor's Plays column.  The problem
I have with setting up trades for the readers of this column is
that my trading strategy varies greatly from Jim's and, I'm sure,
many of our readers.  As I mentioned last weekend, I have been
day trading only, and not holding positions overnight.  That
strategy will evolve with the market landscape.  However, because
my recent strategy requires such nimbleness, I don't feel it
prudent to set up trades during the weekend - there's so much
that can change in the market over five short days.

Nonetheless, I feel that there's more that I can do in this
column to add value.  And over the next week or two I will
implement some changes.  In the meantime, suggestions are
always welcome.

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


The Top-Down

I had many requests for the data points I follow when determining
my top-down bias - in essence, the fundamental research I do
each day.

I like to start with a top-down approach by first gauging the
global financial landscape.  I don't spend as much time on this
aspect of my trading as I'd like, mainly due to the lack of
information flow.  Nonetheless, I like to be aware of global
events that will impact trading in the U.S. markets.  For
example, I knew at the beginning of last week that the Bank of
England was meeting and was expected to cut interest rates and
that pressure was on the Bank of Japan to do the same - both
banks cut rates last week.

I like to follow the price action mainly in two global markets:
Asia and Europe.  The Qcharts service that I use provides several
ways of monitoring price action in Europe and Asia, but the two
indexes I mainly follow are the Eurotop 100 Index (TOP.X) and
the AMEX Japan Index (JPN.X).  There are probably better means
of following the Asian and European markets, but these two
indexes serve my needs well.  To reiterate, I don't follow the
foreign markets REAL closely but do know the general direction
in which they're trading.

The next data point I monitor is the debt market.  I like to get
a feel of what's going on in the bond market and be aware of any
treasury auctions or new corporate debt coming to market.  I
monitor price action in the debt market by watching the yields
of the 5-year Treasury Note (FVX.X), 10-year Treasury Note
(TNX.X) and the 30-year Treasury Bond (TYX.X).  Remember that
yields move opposite of price.  For example, last Friday, the
30-year yield fell 1.59 or .159 percent.  Yields were falling
and price was rising, thus capital was flowing into bonds and
out of stocks judging by the poor performance in the broader
market averages last Friday.  So, was last Friday's action in
the bond market a function of asset allocation or a flight to

On the quote sheet below, remember to move the decimal place
over once to the left, i.e. 54.17 equals  5.417 percent.

I also like to visually monitor the direction in yields by
keeping a chart on the 10-year Treasury Note nearby.  Whether
one uses the 10-year or 30-year is debatable, but either one
should serve the purpose of monitoring the ebbs and flows of
the bond market.

After gauging the debt market, I like to peek into the futures
market.  Depending upon the current market conditions, the
futures market can often serve as a leading indicator for the
cash indexes.  However, if you're not real familiar with the
futures market and how it works, I would suggest to bypass this
step in the top-down approach.  Nonetheless, the futures market
is something to be aware of when trading.

After the futures market, I closely examine the broader market
averages which includes the Dow Jones Industrial Average (INDU),
S&P 500 (SPX.X), Nasdaq Composite (COMPX), Nasdaq-100 Index
(NDX.X), Russell 2000 (RUT.X) - for the small caps, Dow Jones
Transportation Average (TRAN) and the Dow Jones Utilities
Average (UTIL) as well as the CBOE Volatility Index (VIX.X).  I
like to be aware of the trends, support and resistance levels,
and the previous day's open, high, low and close for each of
the indexes I follow.  Plus, the broad market averages, when
combined with the signs from the debt market, can serve as a
gauge on which way capital is flowing from a macro perspective.

After the major market averages, I break it down to sectors, in
an attempt to discern what industry groups are advancing the
averages or weighing them down.  I don't follow anything real
special in the way of sector rotations.  All I attempt to do
is get a broad grasp on which industry groups are moving and
in what direction.  Here again with the sectors, I like to get
a feel of trends, support and resistance levels, along with
the previous day's highs and lows.

In addition to the price action monitoring I do with the sectors,
I like to research upcoming events and/or news items that may
impact trading in certain industry groups.  For example,
industry conferences, analyst meetings and product launches,
among other events.  And the only way to research that
information, that I know of, is by taking a lot of time after
the market closes to read financial publications, read some more
and visit a lot of Web sites.  My favorite places to look for
upcoming analyst meetings and industry conferences are
individual company Web sites in the investor relations sections.

The following listing of sectors is a snapshot of what I watch
and serves the purpose of monitoring sector rotation.  Although
there are several sectors I left off, such as food and beverage,
the list gives me an idea of where capital is flowing.

Once I discern where the capital is flowing, I then pull-up
charts on a half dozen, or so, individual stocks within the
sector.  I would suggest for readers to select a handful of
liquid stocks within each of the major sectors and become
familiar with the way each stock trades.

In summary, the top-down approach that I use is simply a means of
discerning where capital has flowed, and where it's likely to move
to next.  By having a macro feel on the market, I can better
position my trades and route them in the path of least resistance,
no matter the direction of that path or the sector.  Additionally,
by having a top-down approach I can better employ risk management
strategies after entering a trade as risk becomes easier to
quantify with a better understanding of the current conditions in
the market.


Unitedhealth Group - UNH

What are your perspectives on UNH...nice trend...is it just a
post-split dip? - Paul

Paul, in my opinion, I don't think the stock split had anything
to do with the dip in shares of Unitedhealth Group (NYSE:UNH).
If you compare a chart of the Health Care Index (HCX.X) to one
of UNH you'll notice both began to pullback in early January.
The sell-off in each may have been a function of tax-gain
selling as traders locked in their profits.  Along with the
tax-related selling, I think UNH continued to pullback due to
the actions of the Federal Reserve on January 3rd.  The surprise
interest rate cut induced capital to flow back into the tech and
finance sectors of the market and out of the defensive groups
such as health care.

However, as we witnessed last week, capital freely flowed out
of the tech sector and into the more defensive groups of stocks
along with bonds.  But, UNH didn't advance last Friday which is
somewhat of a convoluted signal given its defensive nature.  I
think the ill-reception of Cigna's (NYSE:CI) earnings report -
one of UNH's competitors - had everything to do with the
underperformance of UNH Friday despite the exodus of capital
from the Nasdaq.

Here's the conundrum.  UNH is in a defensive sector and should
advance if the Nasdaq works lower.  However, the poor relative
performance Friday is a bit disconcerting given that UNH should
have risen in light of the terrible Nasdaq.  So, was there
something in the CI earnings report that shifted the dynamic in
the healthcare sector enough so that it no longer benefits from
rotation out of tech?  I can't say unequivocally if that was
the case with the CI report, but it's a good question nonetheless.

If the Nasdaq continues to decline, I would think that UNH would
find some bids in conjunction with weakness in tech.  But the
divergence from that thesis last Friday makes UNH all the more
harder to game right now.  If the Nasdaq rebounds next week, then
I would expect UNH to continue to pullback.  Moreover, the chart
below may reveal a double-top in UNH around $63.50.


Inktomi - INKT

What are your thoughts on INKT?  Down huge, some rumors of a
buyout, in a long-term growth sector. - Thanks, Dan

Dan, I don't like shares of Inktomi (NASDAQ:INKT).

But before I go on, let me make it perfectly clear that I'm not
attempting to talk down INKT nor am I bashing the company.  I
still have a hard time figuring out what exactly the company

I know for a fact that the company doesn't make a lot of money
from operations.  INKT recorded profits of $1 million during
its last fiscal quarter - keep in mind the company is still
valued at more than $1.6 billion.  And those profits INKT
reported last quarter are expected to disappear in the coming
two quarters as the company guided lower during its conference
call with analysts.  As the CEO of INKT succinctly put it,
"We will incur a modest loss for the next two quarters..."

If the words of the CEO aren't cautionary enough, I would
encourage to defer to the price action in INKT.  The chart
looks terrible and I wouldn't dare to attempt to pick the
bottom in the stock right here.  In all sincerity to any of
my readers who own INKT, I wish I had something better to
write about the company.  But I would rather be honest than
to try and paint a rosy picture.

In addition, Dan, I choose to never buy a stock on the
premise of a takeover, especially when the fundamentals of
a company are a cause for concern.


This column is an information service only.  The information
provided herein is not to be construed as an offer to buy or
sell securities of any kind.  The Ask the Analyst picks are not
to be considered a recommendation of any stock or option but an
information resource to aid the investor in making an informed
decision regarding trading in options.  It is possible at this
or some subsequent date, the editor and staff of The Option
Investor Newsletter may own, buy or sell securities presented.
All investors should consult a qualified professional before
trading in any security.  The information provided has been
obtained from sources deemed reliable, but is not guaranteed
as to its accuracy.

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Thanks for your support!


For the week of February 12, 2001

None Scheduled

Retail Sales            Jan  Forecast:  0.50%   Previous:   0.10%
Retail Sales ex-auto    Jan  Forecast:  0.40%   Previous:   0.00%
Richmond Fed Survey     Jan  Forecast:    NA    Previous:   -6.0

Business Inventories    Dec  Forecast:  0.40%   Previous:   0.50%
Oil & Gas Inventories 9-Feb  Forecast:    NA    Previous: 285.6MB

Jobless Claims       10-Feb  Forecast:    NA    Previous:361,000
Export Prices ex-ag.    Jan  Forecast:    NA    Previous:  -0.20%
Import Prices ex-oil    Jan  Forecast:    NA    Previous:   0.90%
Philadelphia Fed        Feb  Forecast:   -23    Previous:  -36.8
NAHB Housing Indx       Feb  Forecast:    NA    Previous:     54

PPI                     Jan  Forecast:  0.20%   Previous:   0.00%
Core PPI                Jan  Forecast:  0.10%   Previous:   0.30%
Housing Starts          Jan  Forecast: 1.550M   Previous:  1.575M
Building Permits        Jan  Forecast:    NA    Previous:  1.493M
Capacity Utilization    Jan  Forecast:  80.30%  Previous:  80.60%
Industrial Production   Jan  Forecast:   0.00%  Previous:  -0.60%
Mich Sentiment-Prel.    Feb  Forecast:     94   Previous:   94.7
ECRI Wkly Index       9-Feb  Forecast:     NA   Previous:  124.0

Week of February 19th

Feb 21  CPI
Feb 21  Core CPI
Feb 21  Trade Balance
Feb 21  Treasury Budget
Feb 22  Initial Claims
Feb 22  Leading Indicators
Feb 22  Help-Wanted Index

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The Option Investor Newsletter                   Sunday 02-11-2001
Sunday                                                      2 of 5

To view this email newsletter in HTML format with embedded
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New Subscriber Focus: Strategy Allocation
By Janar Wasito

John Bogle, one of the fathers of index funds, remarked that the
single biggest factor in determining how your portfolio performs
is how you structure your asset allocation. For option traders,
we have certain advantages inherent in using leveraged
instruments - and certain risks. But in our world, the same basic
insight applies. In this article, I want to walk through some
thoughts for new subscribers in particular.

When I started reading the newsletter regularly in January, 1999,
I had already spent the entire previous year investing most of my
assets - about 85% - in long-term stock holdings. I had tried an
option trade or two in 1998, and a big loss in DJX options had
scared me out of the game until I had set up the majority of my
assets in relatively stable positions in blue chip companies.
Particularly if you are coming to this newsletter as a new
subscriber looking for a way to profit from a new potential bull
market some time in 2001, it makes sense to limit your risk by
putting only a small fraction of your assets into an account with
options authorization.

Now, however, I think in terms of strategy allocation. I have both
a long-term and a short-term account. But, instead of just buying
and holding quality companies in my long-term account, I also have
certain options strategies which I will employ in the long-term
account. For instance, I still want to hold stock for the long run
in this account. I have some CSCO and YHOO which I have had since
1998 in this account, and I regret selling other long-term
positions in solid companies. But talk about round trips! The
lessons I have learned from watching the CSCO and YHOO is that at
certain points it makes sense to put collars on long-term stock
holdings. For example, in early 2000, I could have sold a call
(even a LEAP) against my CSCO, and bought shorter-term puts, thus
creating a collar (for more on the specifics of this kind of
strategy, refer to a reference book like Chicago Board Options
Exchange, Options: Essential Concepts & Strategies). Now, I am
also building positions in REITS, like Spieker Properties(NYSE:SPK).
As a San Francisco resident, I note that while the NASDAQ has
plummeted in value, the rent on my condo goes up. Call me Peter
Lynch, but I see a trend here.

Also, in my long-term account, I will use covered calls. I would
like to write calls on the QQQ, particularly if I could use
technical analysis to get good monthly entry points by buying the
stock when it is oversold, and waiting until it is overbought to
write an in the money, or at the money call. But, I am not sure
whether the QQQ has put in a bottom yet, so I am also looking at
stocks like (NYSE:LEH), (NYSE:GS), and (NYSE:MWD) (many recent
OIN call picks), and other stocks highlighted in the covered call
section of the newsletter. My goal in writing covered calls in my
long-term account is to achieve returns in the 5 - 10% range
every month in good and bad markets. If I can compound those kinds
of returns, over several years, then I will be on my way to
financial independence.

In my short-term account, my strategies are straight puts and
calls on the QQQ (see indexskybox.com for more on my current
short-term trading). However, I also select about 3 newsletter
call picks each week to track closely. My goal in tracking those
plays is to see how leading stocks react to news, and to see
whether these plays are working right now. My observation from
quantifying and evaluating my own trading records from years past
is that I can do very well in short-term call plays, but only
during certain parts of the year. In 1999, for instance, I did
well in January, June-July, and November-December. So, I want to
be aware of whether these single stock plays are working. On the
downside, I have found that excessive focus on a single stock can
ruin your objectivity, and my goal now is to trade for the long
run. That means removing emotion, which will be a major theme in
my articles.

My approach will not be for everyone. I share it with our readers
as a picture of how one trader addresses these problems. The
essential learning lesson though is to have a larger plan in place.
I will review my asset allocation and yearly game plan on a
quarterly, or even a monthly basis. But it is always easier to
adjust a plan than to make one up in the middle of the trading
day. In my next article, I will address how I read the newsletter
for maximum benefit in formulating an action plan for the upcoming


Who Says, "Real Men Don't Do Laundry?"
By Renee White

What happened to those tough executives known for playing golf
or watching football? Are they getting soft on us? These days,
I feel like I'm hearing much more about their laundering and
house-cleaning skills.

Apparently, many CEO's and CFO's have been hiding their
house-cleaning talents from their wives. Funny how quick your
memory returns, when your million dollar-a-year salary starts
looking shaky due to an overall downturn in the market. That
salary doesn't look so bad if your company is growing 30-40%
a year. However, if your market cap is shrinking by that much
per quarter, then that salary really sticks out like a sore

Leave it to the smart ones not to clean their own houses.
No, instead of salary reductions, they take all the candy away
that was promised as incentives to those employees they begged
to come work for them when the labor-pool was tighter than a
rubber-band on a ponytail. First, they cut the good things,
and then come the lay-offs. And boy, is that house cleaning
party ever starting! Mr. Clean has returned!

Evidently, some of our biggest banks in this country have tried
cleaning another way. Their specialty is doing the laundry. Some
have become so good at it that international relationships with
unsavory characters have improved tremendously. In fact, I hear
they actually love doing business with some of our big banks.
Wire transfers have made their lives feel so heavenly. At home,
a lot of these men don't know how to separate whites from
colored clothes.  But boy oh boy, they sure learned the
advantages of clean money. (This really isn't a funny issue
because we've recently bought shares in just about every bank
that was mentioned in that report this week. So much for
spreading risks!)

Recently, I read that 662 companies fell below $1 a share in
Year 2000. Compare that to 196 in 1998 and 138 in 1999, and you
see the impact of our recent market decline and correction. Of
course, correction only relates to the NASDAQ market, and this
is what scares me. More on this later.

Two weeks ago, I shared my overview of business, the economy, and
trading near term, while expressing my concerns over the bullish
expectations I was hearing due to the expected rate cut at the
end of January. It felt odd to me that so many people were "ready
to play earnings" and were "loading up the truck" for some big
rocket ship that they thought would take off once the second cut
was announcement.  I saw nothing good about to happen. I shared
my negative bias and the fact that my trades were favoring a
sell-off going into February expiration.

Last weekend, I expressed my concern if Cisco (NASDAQ:CSCO) missed
their numbers, a secondary sell-off would certainly occur.
Expecting them to continue to outperform, when the overall business
climate is sick, just didn't make sense to me at all. If everyone
around you has a cold, you're most likely going to get one too. I
mentioned I would hold all my put plays going into CSCO'S earnings,
yet exiting before the close on earning's day. However, due to the
flat activity for two days going into the close before earnings,
I decided to hold all put plays in other equities, over the
report instead. I had sold my CSCO shares many months ago at $55,
worried that our expectations may have outgrown their reality in a
bad business environment. So continuing that thought, I was not
optimistic that their January earnings would be consistent with
their past performance, nor our expectations and certainly not a
market mover to the upside. As expected, the news was bad, and
the outlook poor for the next two quarters. Glad I held!

So, here we are in post earnings and time for a reality check. We
have just had one of the worst earnings reporting quarters that
most traders have ever experienced since they started paying
attention to the markets. We have been given a dose of market
medicine, with a 100 basis point rate cut within one month,
unprecedented for these times. The reality is: two half point
rate cuts have done nothing to get this market out of its funk.
All we got was one bigger dead cat bounce. Ugghh! The markets
are still sick. So is the economy. Lay-offs are occurring faster
than I can burn popcorn. And to make it worse, all the good news
is already out for the immediate future.

I don't mean to paint a dismal picture. There is money to be made
on either side of the market. Nevertheless, we are entering the
post-earnings dull zone and I expect little action for a while.
In my opinion, (which of course could easily be wrong), I will
not play in anticipation for another surprise rate cut to be
gifted us this month. The next fed meeting is in March, which
coincidentally will fall when we are getting our next phase of
pre-earnings warnings.

Between then and now though, my concern and question is: will we
stay crawling on the bottom here, or will it get worse? Shorting
a dull market is risky. Not shorting a continued slide is bad too.
I don't see a strong rally in the immediate future at this time;
I see more sideways movement possibilities. However, what really
concerns me is the Dow(INDU). It has bumped its head up against
11,000 so many times now, that it has knots on its head and a
headache to match. The INDU has not been in a bear market and part
of me is starting to worry about that.

Could these multiple failures to hold over 11,000 be a prelude to
a fall in that market also? Is it possible that the ripples of a
weak economy is about to tumble that index into a bear market to
join NASDAQ, so that once again, they began moving in tandem like
the old days? I have to admit, I got a chill when I heard it
reported that Gillette(NYSE:G) didn't even want to give any
guidance on the near term. In fact, I've heard a lot of concerns
about the near-term from companies on the big board. Could
laundering skills hurt our financial sector? It all just keeps
adding up. I'm beginning to anxiously look forward to some skid
marks from the slide.

In the last two weeks, we have received mixed economic reports,
which in my opinion will not hurry the Fed to another cut before
March. Eventually, these rate cuts will filter down the business
chain. Even if the INDU does tank, it could create the negative
psychology forcing another surprise rate cut without the economic
numbers to match.

Markets move with psychological passion, so I will play that
direction if this week's bleed doesn't change early week. A full
fledge recession is an uncertainty. I think the aggressiveness of
these rate cuts may save us and come summer, we will all be
feeling better. But in all honesty, it is just too close to call.
It could go either way. Another month or two of economic numbers
should be sufficient for firm opinions. The markets though, move
in anticipation, over-reacting typically in either direction. If
we do come out of this business slump by summer, we should get
sustained movement well before that time.

What I hope for is that CEO's will get tired of cleaning houses
within a month, laundry returns for true work-clothes instead
of money, and the unemployment rate starts slightly inching
downward as we get back to our long running booming economy. The
first hints of recovery will show up in economic reports and they
will not all change at once. It will be confusing since some
reports will continued to be revised, months after a preliminary
report is published.

George W. Bush recently taught us a lesson. If you lower
expectations enough, eventually no one expects anything and
even mistakes will be laughed off. Once we get all our bullish
expectations out of our system, it will be easier for small
news to excite us. The best thing about lowered earning's
expectations and analyst's downgrades are the opportunities to
surprise the market to the upside once again. Once that starts,
we are off to the races again. However, market choppiness and
confusion will be eminent before we get there.

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

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

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


The Hills Are Alive With The Sound Of Music
By Lynda Schuepp

As Julie Andrews sang in the Sound of Music, "Let's start at the
very beginning, a very good place to start."  This is my first
time writing for Options 101, so I'm going to start at the
beginning, but not at the very beginning.  I'm assuming, if you
are a subscriber, you know what a put and a call are, and the
impact of volatility on the price of option.  The tricky part is
when the market is going sideways.

Plan your trade and trade your plan, great advice that I read
somewhere.  I know I couldn't have made that up, but I don't know
who to pay homage to.  Let's start at the beginning, namely the
entry point.  Of course, prior to entry, you should have done
research on your stocks, technical analysis, studied which option
strategies would be best suited for your outlook, and what your
reward to risk scenario looks like.  What you say?  You don't
know what your reward to risk is?

Step 1:
What is your market outlook and is your stock following the trend?
That trite, but tried and true saying, "the trend is your friend"
should be followed whenever possible.  When I analyzed my losing
trades from last year, I found that most of them occurred when I
fought the trend.  Most salmon die trying to swim upstream, so why
fight it?  Below are charts of the Nasdaq 100, Dow Jones and the
OEX, which I use to gauge the trend of the overall market.  Note
that you can't get volume from OEX charts.  Look at the direction
of the 50 day moving averages as they appear on each chart. It's
easy to spot the trends.  When price and volume averages are
moving in the same direction, you can expect more of the same, if
they are moving sideways, you can expect a choppy sideways market
but look out if they are moving in opposite directions.

QQQ, which is representative of the Nasdaq 100, is one of my favorite
trading vehicles.  I trade the stock and the options.  Note that the
50 day moving average of the prices has been steadily moving down with
prices, no surprise here.  Note also that the 50 day moving average
on the volume has been moving up.  What that tells us is that the
smart money (the institutions) have been selling.  However, the last
9 days shows that although prices are still moving down, the average
volume is starting to go sideways, saying that the end is near!  The
problem will be that the QQQ's are likely to trade sideways before
reversing direction and that is a much harder market to trade than a
directional one.  Option trades in this kind of a market would include
butterflies and calendar spreads, which are more sophisticated and
trickier to adjust. However, this is not a bad time to just buy the
underlying and wait for a volatility spike to sell calls against your
position.  With volatility low, it might also a good time to be
buying leap calls.

The Dow looks a little more promising.  It was trading in a channel
between October and the middle of December and then broke the channel.
The Dow is establishing higher lows and finding a lot of resistance at
11,000, the magic number.  A breakout to the upside may not be far away.

The OEX looks similar to the QQQ's.  However, without a volume
indicator it is difficult to determine if the end is near.  From
these three charts you can see that 2 out of 3 markets are down and
one is sideways with a bias to the upside.  Now are you still ready
to jump in and load up the truck with short-term calls?

Step 2:
Determine an appropriate option strategy. Based on my analysis of
the market, we are headed sideways.  I like butterflies in sideways
markets so I am looking at stocks that will provide a nice risk to
reward.  Sideways markets are uncertain and there is no way to gage
how long they will last.  I like to go out only a month or two.
Next, I would look at the cost of the puts versus the calls to
determine which is cheaper.  As a review, you pick a strike and
buy one option then go up and sell two options at a higher strike
price and then finally go up again and buy one option.  There is
no additional margin required, and your risk is the cost of the

Step 3:
Determine your risk to reward.  The risk in a butterfly is the cost
of the spread.  The reward is the difference between the middle
strike and outer strike less the cost of the spread.

Looking at option prices above on the QQQ's from Friday's close and
using the natural spread (buying at the ask and selling at the bid),
I would look at the 55-60-65 call and put butterflies and the
60-65-70 call and put butterflies. Remember the maximum reward is if
the stock closes at the middle strike at expiration.  In order to
determine which set of strike prices to use, you must determine
where you think the stock will be on March 16th, option expiration
day.  The QQQ's are currently at $56.40 but I think they will be
higher so I'd choose a middle strike price higher than Friday's
close.  Let's just look at one set of strikes for the calls and
the puts, but you can use these prices to experiment on your own
and find a trade that you would feel comfortable with.

Looking at the March 55-60-65 calls
55 call-- debit is 4.90, 10 contracts cost $4990
60 call-- credit is 2.50, 20 contracts you'd get $5000
65 call-- debit is 1.20, 10 contracts cost $1200
Total cost of the butterfly would be $1100 (4990 less 5000 plus 1200)
Maximum reward is $3900 (middle strike less cost of butterfly)
Maximum risk is $1100 (cost of butterfly)
Reward to risk is approximately  3.5 to 1 ($3900/1100)

Looking at the March 55-60-65 puts
55 put debit is 3.10, 10 contracts cost $3100
60 put credit is 5.70, 20 contracts you'd get $11400
65 put debit is 9.60, 10 contracts cost $9600
Total cost of the butterfly would be $1300 (3100 less 11400 plus 9600)
Maximum reward is $3700 (middle strike less cost of butterfly)
Maximum risk is $1300 (cost of butterfly)
Reward to risk is approximately 2.8 to 1($3700/1300)

Odds are better using the call scenario in this case.  If the QQQ's
drop further, you could buy back your 60 calls and let your long
calls ride for an almost free trade.  Using calls, you would make
money if the QQQ's close between $56.10 and $63.90 by March 16th,
which is a pretty nice range.  If you were VERY bullish you would
move the butterfly up and use the 60-65-70 strikes, but that would
mean your expectations would be for the QQQ's to close up 15% to
$65 by expiration.  There is not a magic bullet here, just a
scenario you can work at to get better.

If you've never traded butterflies, paper trade these two scenarios,
or one that you like better and see where the QQQ's and the
butterfly close daily, weekly and at expiration.  It's a great
strategy, with low risk, high reward and let's you sleep
comfortably at night.  Once you understand how this trade moves
relative to the underlying, you just might find this to be your
favorite strategy.


Call Play of the Day:

FDC - First Data Corporation $60.03 (-0.27 last week)

See details in sector list

Put Play of the Day:

ISSX - Internet Security Systems $66.44 (-5.01 last week)

See details in sector list

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

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

Anything else is too slow!



Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


DELL $23.50 (-1.69) Rumors of layoffs at DELL shot a big fat
hole in our nascent earnings run play, and like the company
management, we could do little but watch as fear ruled the day.
After the rumors surfaced, the stock was down sharply at the
open, right through our $25 stop, and despite the company's
assertion that the rumors were false, the stock sold off into
the close, ending the day on Friday with a nearly 10% loss.
Needless to say, with a busted stop, rumors of layoffs, and
posting its lowest close in over 3 weeks, DELL has no business
on our call list anymore.  Hopefully the company can smooth some
of the ruffled feathers on Thursday when they report their
quarterly earnings, but in the meantime we will step away from
the stock.


GS $107.75 (-6.21) We mentioned on Thursday that GS appeared
poised to test its 50-dma support (now at $102.50), and that is
exactly what it did.  On Friday, the stock approached the moving
average in early morning trading but upon doing so, found willing
buyers on strong volume.  With that, GS bounced to end the day up
$1.80 or 1.7 percent on higher than average volume and in doing
so, closed above our stop price of $107.  In light of the
resiliency GS displayed on a weak day for the markets and the
stop loss violation, we are taking profits on this play.


SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.

The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.


AES - AES Corporation $59.58 (+1.33 last week)

AES is an independent power producer headquartered in Arlington
Virginia.  The company's generating assets include interests in
one hundred and thirty four facilities totaling over 53 gigawatts
of capacity.  AES's electrical distribution network has over
920,000 km of conductor and associated rights of way and sells
over 126,000 gigawatt hours per year to over 17 million end-use
customers.  In addition, through its various retail electricity
supply businesses, the company sells electricity to over 154,000
end-use customers.

As the third largest power company in the world, AES has
demonstrated phenomenal growth, and has recently attracted
new attention among the investment community as a combination
of a stable, defensive company with an enviable annual earnings
growth rate.  On January 29, AES reported a 97% increase in
fourth quarter earnings, and a 106% increase in revenues to
$6.7 billion.  Company management stated that they expect
earnings to grow in the range of 25 to 35% over the next three
to five years.  After a slight post earnings dip, AES shares
have resumed the strong upward channel which commenced early
in December.  Banc of America Securities and CSFB both
upgraded AES to a strong buy during January.  CSFB has stated
that AES has the strongest backlog of new business in its
history, and that the shares were penalized due to investors
failing to understand that AES' California credit and pricing
exposure is immaterial.  In fact, in the last couple of weeks,
the investment community has started to recognize that AES
stands to benefit enormously from the power shortage in
California.  On Thursday, Governor Davis ordered a new 21 day
streamlined process  for new power plants which he hopes will
bring an additional 500 megawatts to California by this summer.
AES has recently submitted a proposal to the California Energy
Commission to restart two previously retired gas plants which
could provide an additional 450 megawatts of energy by June 1.
With all of this good news, and strength in the energy sector
AES is now solidly above the 200 dma at $52.26 and the 50 dma
at $55.07, and shrugged off the sell off in the overall market
this week, by bursting through the converged 5 and 10 dma at $57.
Traders could take positions on a possible pullback to support
at $59 or $58.50.  Resistance is heavy at $60, but once cleared,
there is little additional resistance to $65.  Watch the other
independent power producers like CPN for sector strength, and
set stops at $56.

***February contracts expire next week***

BUY CALL FEB-55 AES-BK OI= 950 at $5.00 SL=3.00  High Risk!
BUY CALL FEB-60 AES-BL OI=5440 at $1.50 SL=0.75  High Risk!
BUY CALL MAR-55 AES-CK OI=  91 at $6.80 SL=5.00
BUY CALL MAR-60*AES-CL OI=1057 at $3.70 SL=2.50


IFIN - Investors Financial Services Corp $85.81 (+4.31 last week)

Investors Financial Services Corp. provides asset administration
services for the financial services industry through its wholly-
owned subsidiary, Investors Bank and Trust Company.  The company
provides global custody, multicurrency accounting, institutional
transfer agency, performance measurement, foreign exchange,
securities lending, mutual fund administration and investment
advisory services to financial asset managers, including mutual
fund complexes, investment advisors, banks, and insurance
companies.  Offices are located in the United States, Canada,
Cayman Islands, and Ireland.

Shares of IFIN have demonstrated uncharacteristic strength
in a bear market, and have stayed firmly above their 200 dma
for the last twelve months, dipping briefly below the 50 dma
in January.  For the fiscal year 2000, IFIN's net income
rose 58%, as their net interest income rose 64%, driven by
increased client deposits.  As a small cap value stock, IFIN
is benefiting from a sector rotation out of large cap
growth stocks, which suffered serious losses last year.  IFIN's
earnings are driven by assets under management, which shields
the company somewhat from the earnings fluctuations found in
the other financial sectors.  After reaching a 52-week high
of $96 in December, IFIN dipped to $60.75 on January 21, but
has since then re established the upward channel which
commenced last summer.  Investors responded very enthusiastically
to the news that IFIN had completed the purchase of the
Advisor Custody Unit of Chase Manhattan Bank's National
Customer Services Division on February 2, and this week, IFIN
burst through its converged 5 and 10 dma of $81.53, which
had been a sticking point for the stock for nearly two weeks.
IFIN now appears determined to make a run for the next
resistance level at $90, and possibly its 52-week high at
$96.  Traders could take positions on a pullback to $85, or
at current levels.  Watch the investment management sector
for an indication of sector strength, and others like AC
and STT, and set stops at $80.

***February contracts expire next week***

BUY CALL MAR-80 FLQ-CP OI= 0 at $10.50 SL=7.75  Wait for OI!
BUY CALL MAR-85*FLQ-CQ OI=87 at $ 7.50 SL=5.25
BUY CALL APR-80 FLQ-DP OI= 0 at $13.38 SL=9.75  Wait for OI!
BUY CALL APR-85 FLQ-DQ OI= 0 at $10.50 SL=7.75  Wait for OI!


SDS - SunGard Data Systems Inc. $54.99 (+6.48 last week)

SunGard is a global leader in integrated IT solutions and
eProcessing for financial services.  SunGard is also the pioneer
and a leading provider of high-availability infrastructure for
business continuity. With annual revenues in excess of $1
billion, SunGard serves more than 10,000 clients in over 50
countries, including 47 of the world's 50 largest financial
services institutions.  Wherever financial assets are managed,
traded, processed or accounted for, SunGard offers an integrated
solution.  SunGard provides a wide range of modular,
best-of-breed financial software solutions that are integrated
using standard message protocols and SunGard integration
technologies to form highly scalable, web-enabled enterprise

It appears that not all Tech stocks are out of favor.  The recent
bear market has put ideas like value along with quality and
consistency of earnings back into the spotlight.  Add to that
strong fundamentals and it's no wonder why shares of SDS have
rallied over the past 8 months in the face of declining markets.
With the company's core customer base consisting of old economy
firms in the Financial sector, SDS has been able to not only post
consistently profitable quarters, but also provide clear guidance
going forward.  The company reported earnings this past week,
posting record revenues and beating Street estimates by a penny.
This along with an upbeat conference call led Robertson Stephens
to re-iterate their Strong Buy rating and set a target price in
the mid-70's.  Technically the chart is solid, sporting a
beautiful uptrend.  Connecting lows since July, the stock has
been on a steady climb, with occasional tests of the 50 and
100-dma providing traders with a rare opportunity for entry.  In
fact, SDS recently bounced off its 50-dma (at $49), with its
break above the 5 and 10-dma (at $51.52 and $50.64 respectively)
confirming upward momentum.  Horizontal support can be found at
$54, $52.75, our stop price of $51 and the psychological $50.
For an entry on strength, look for a break above $55 on increased
volume coupled with rallying in rivals EDS and KEA.

***February contracts expire next week***

BUY CALL FEB-50 SDS-BJ OI=1393 at $5.20 SL=3.25  High Risk!
BUY CALL FEB-55*SDS-BK OI= 126 at $1.10 SL=0.00
BUY CALL MAR-50 SDS-CJ OI=  89 at $6.00 SL=4.00
BUY CALL MAR-55 SDS-CK OI= 445 at $2.65 SL=1.25



DYN - Dynegy Inc $53.15 (+2.80 last week)

Through its subsidiaries, Dynegy markets and trades electricity,
natural gas, coal, liquid petroleum, and other related products
in North America, the UK, and continental Europe.  Dynegy
controls more than 14,000 MW of generating capacity through its
investments and alliances with utility companies to sell energy
in deregulated retail markets.  Dynegy's asset base was further
broadened by the 2000 acquisition of Illinova Corporation, which
included Illinois Power, a distributor of electricity and
natural gas to over 650,000 customers in southern Illinois.
Chevron owns 29% of Dynegy.

Dynegy, a major supplier of electrical and gas energy to the
California market, saw huge gains in its 4Q.  On January 24th,
Dynegy reported more than double earnings and predicted it would
easily blow away most analysts' profit forecasts in 2001.  Net
income rose 235% to $105.9 mln, or $0.32 a diluted share, from
$45.1 mln, or $0.19, same quarter a year ago.  Revenue also more
than doubled to $10 bln from $4.64 bln.  In addition, a few days
later the company announced the completion of its previously
announced acquisition of 1,700 MW of power generation
facilities in the Northeast, the 500-MW Danskammer Power Plant
and 1,200-MW Roseton Power Plant, both just outside New York
City.  According to Steve Bergstrom, president and COO of
Dynegy, "this acquisition significantly strengthens our
competitive position in the Northeast.these facilities are well
positioned to create value for our customers and our company due
to their location, fuel diversity and ability to serve both
heating and cooling loads".  In other words, big bucks.  We're
initiating coverage on this lower volatility stock because of
its convincing strength above the 10-dma ($50.90) and 5-dma
($52.45).  Another important element is specifically, the
stock's sector.  Take a look at charts of Chevron (CHV), Texaco
(TX), Barrett's Resources (BRR) and Mitchell Energy & Dev (MND)
for visual confirmation of the energy sector's relative
strength.  Investors' interest was first evident last week as
volume levels elevated and the share price broke to the upside
of the $50 resistance.  Near-term support has since developed
higher at $52 and $52.50.  These levels offer reasonable entries
into the play, but beware of the upper opposition at $54 - some
conservative traders might consider taking profits as DYN flirts
with that price level.  Otherwise, you can always jump into the
momentum as DYN rallies above $54 and makes a charge for $59.87,
the 52-week high.  Despite the low volatility of the stock, we
have a stop loss set at the $50 mark for protection.

BUY CALL MAR-45 DYN-CI OI=1427 at $10.00 SL=7.00
BUY CALL MAR-50 DYN-CJ OI= 301 at $ 6.50 SL=4.50
BUY CALL MAR-55*DYN-CK OI=1492 at $ 3.90 SL=2.50
BUY CALL MAR-60 DYN-CL OI=1193 at $ 2.10 SL=1.00
BUY CALL MAR-65 DYN-CM OI= 439 at $ 1.15 SL=0.50


M0 - Philip Morris Cos $48.00 (+2.59 last week)

Philip Morris Companies is the world's largest tobacco firm,
controlling about half of the US tobacco market.  The Marlboro
name is their most valuable brand; although Benson & Hedges,
Parliament, and Virginia Slims brands have made their mark
across the globe, too.  The company also derives a large
proportion of its profits from its Kraft food and Miller beer
subsidiaries.  Its Kraft Foods unit is the #1 food company in
the US and #2 throughout the world.  Some household brands that
you're likely familiar with include Jell-O, Oreo, Ritz, Kool-
Aid, Maxwell House, and Post cereal.

Philip Morris Companies might have missed estimates by a penny
on January 1st, but their strong Food and Tobacco Units boosted
its overall profits.  The solid earnings' report and its
attractive price level lured many value and fundamental
investors to increase their holdings in the company.  The second
interest rate cut also likely played into the bullish
developments of late.  In just 7 trading sessions, MO has gained
9.1%, or $4.00 on strong volume.  The robust trading activity
indicates the buying may not be over; especially when you
consider the not-so-favorable market environment.  The
significant break through the $47 resistance and subsequent new
52-week record of $48.43 on Friday were key factors in adding MO
to our call list this weekend.  Look for $47 and $48 to develop
as strong levels of support over the near-term and for MO to
challenge the $50 level.  If on the downside, the stock fails to
hold its recent gains and returns to sub-$45 trading, we'll exit
the play in the bat of a lash.  This is not to say that taking
entries on pullbacks to the 5 & 10 DMAs, currently at $46.71 and
$45.81, is out of the question in an advancing market - although
it is risky!

BUY CALL MAR-40 MO-CH OI= 8052 at $8.40 SL=6.00
BUY CALL MAR-45 MO-CI OI= 8606 at $4.30 SL=2.50
BUY CALL MAR-50*MO-CJ OI=11078 at $1.45 SL=0.75
BUY CALL MAR-55 MO-CK OI= 1428 at $0.35 SL=0.00  High Risk!


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The Option Investor Newsletter                   Sunday 02-11-2001
Sunday                                                      3 of 5

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CIEN - CIENA Corporation $79.88 (-3.88 last 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.

Seemingly immune to the poison that seems to have been ingested
by many of the big boys on the NASDAQ, CIEN has been holding
firm over the past few days.  An amazing feat in and of itself,
CIEN has also been bucking the trend in its own sector with
the Networking index (NWX.X) heading sharply lower again this
week, this time thanks to an earnings miss from tech bellwether
CSCO.  It looks as though the stock has found solid support near
the $80 support level, and it's a good thing too, as our stop is
just below there at $78.  So what do we owe the incredible
resilience to?  First, the company hasn't made any rumblings
about having a weak quarter, and with the strong performance
last quarter, investors seem to be hoping for a ray of light
from this Optical Networking company when they report earnings
on Thursday morning.  Then we have Chapman company initiating
coverage of the company with a Buy rating, and bullish comments
from other Optical companies is helping to paint a rosy picture
for CIEN.  ONI Systems (ONIS) reported a smaller than expected
loss, raised its forecasts for the next 2 quarters and said
there is no sign of a slowdown in its telecommunications
customer base.  Another player, Corvis (CORV) said on Wednesday
that it has $581 million in unfilled orders for its
long-distance optical networking equipment products, and has no
plans to change its financial outlook for the year.  Hmmmm,
that doesn't sound like the whining we have heard lately from
the likes of LU, CSCO, et.al.  Could it be that CIEN and its
Optical brethren are doing something right, that many of the
more elderly Networking companies have yet to grasp?  Whatever
the cause, we only have a few days left to play, as all
positions should be closed ahead of the company's earnings
release.  Although the stock gave up some ground on Friday,
the weak volume (about two-thirds of the ADV) indicates there
is not a rush for the exits, and investors may have just been
reducing their exposure ahead of the weekend.  Current levels
look attractive for aggressive players, but they need to wait
for buying to appear indicating that the stock is serious about
moving higher into its earnings report.  More cautious players
will want to wait for an increase in buying volume to push the
price above $85 resistance before playing.

***February contracts expire next week***

BUY CALL FEB-80 UEE-BP OI=2795 at $ 5.13 SL= 3.00  High Risk!
BUY CALL MAR-80*UEE-CP OI=1668 at $ 9.88 SL= 7.00
BUY CALL MAR-85 UEE-CQ OI=3786 at $ 7.63 SL= 5.25
BUY CALL APR-80 UEE-DP OI=1844 at $13.50 SL=10.25
BUY CALL APR-85 UEE-DQ OI= 668 at $11.25 SL= 8.50

SELL PUT FEB-75 UEE-NO OI=4740 at $ 2.69 SL=4.25
(See risks of selling puts in play legend)


RE - Everest Re Group $62.73 (+3.23 last 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.

Nervous investors moved to the sidelines ahead of the weekend,
but they sure weren't in a hurry to shed their shares of RE.
Trading less than a third of the ADV, the fractional loss was
insignificant compared to the drubbing that many stocks took
amid widespread weakness on all the major indices.  Insurance
stocks were one of the few sectors that moved up on Friday,
and the continuing strength on the Insurance index (IUX.X)
surely helped RE to stay above the $62 support level (also the
location of our stop).  With earnings set for February 21st
after the close, the timing looks ideal for a bullish play,
especially with the support of the Insurance sector, which
appears to be solidifying its attempt to move higher.  The
stock is attempting to establish a new uptrend after the
selloff that commenced right after the first of the year, but
is running into resistance right now at the upper Bollinger
band ($64.69).  Combined with daily stochastics which are just
entering the overbought zone, RE could be vulnerable to profit
taking in the days ahead.  If the bulls can maintain the upper
hand (likely so long as the IUX.X continues its ascent) then
our play ought to be able to move back up near the upper
Bollinger band and confirm the emerging uptrend by posting a
higher relative high.  Although conservative investors may want
to wait for a move through the $64 resistance level before
initiating new positions, they need to be aware of the inherent
risk of an imminent pullback from the Bollinger band right after
they enter the play.  At this point, aggressive players may have
the best approach - opening new positions on a convincing bounce
from the $62 support level, as we see a return of buying volume
next week.

***February contracts expire next week***

BUY CALL FEB-60 RE-BL OI=147 at $3.20 SL=1.50
BUY CALL FEB-65 RE-BM OI=615 at $0.90 SL=0.00  High Risk!
BUY CALL MAR-60*RE-CL OI= 46 at $5.60 SL=3.50
BUY CALL MAR-65 RE-CM OI= 31 at $2.70 SL=1.25
BUY CALL APR-65 RE-DM OI=200 at $4.20 SL=2.50
BUY CALL APR-70 RE-DN OI=592 at $2.65 SL=1.25


FDC - First Data Corporation $60.03 (-0.27 last week)

First Data is the remarkably efficient, often invisible engine
powering today's global shift to a cashless economy.  They
process and safeguard every type of electronic payment method:
credit, debit and stored-value cards, electronic checks and
cash.  They also provide Electronic Funds Transfers to 75
percent of the world and provide card issuer services for
1,400 financial institutions and 396 million consumers
worldwide. And, through their visionary Internet Commerce
Group, they are developing advanced services and solutions
that help financial institutions, merchants, business and
consumers access the power and possibilities of the Internet.

Strength in spite of a weak market, major analyst support and
blowout earnings are just a few of the many factors that led us
to add FDC as a call play.  It appears that value has become the
buzzword on the market lately and with that, the stock has
rallied on comments by First Union Securities and US Bancorp
Piper Jaffray that shares of FDC are attractively valued in
relation to the consistency in their earnings and growth rate.
Both institutions have Strong Buy ratings on the stock and have
been continually upping the target price, much to the delight of
shareholders.  Merrill Lynch also upgraded the stock earlier in
the year, anticipating a good earnings report, and FDC did not
disappoint.  In the conference call, the CEO was bullish, raising
EPS guidance for fiscal 2001.  Now well above all its major
moving averages, the stock has rallied on support from the 5 and
10-dma, currently converged near the $60 level.  Look for a
bounce off this point as well as horizontal support at our stop
price of $58 as ideal opportunities for aggressive plays.  For
the more conservative, who prefer to buy on the breakout, wait
for FDC to take out overhead resistance at $61.50 on volume.
Once over this level, the stock will be in blue-sky territory,
making new all-time highs.  When planning an entry, keep an eye
on competitors FISV and PAYX in order to ascertain sector

***February contracts expire next week***

BUY CALL FEB-55 FDC-BK OI=2026 at $5.30 SL=3.25  High Risk!
BUY CALL FEB-60 FDC-BL OI=6279 at $1.30 SL=0.00  High Risk!
BUY CALL MAR-55 FDC-CK OI=  10 at $6.50 SL=4.50
BUY CALL MAR-60*FDC-CL OI= 275 at $2.95 SL=1.50


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Please read our disclaimer at:

The Option Investor Newsletter                   Sunday 02-11-2001
Sunday                                                      4 of 5

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BOBJ - Business Objects S.A. $73.50 (-6.06 last week)

BOBJ develops, markets and supports e-business intelligence
software for client/server environments, Intranets, Extranets
and the Internet.  Business intelligence software tools are
designed to help companies turn data into useful business
information, thereby leading to increased competitive advantage,
new business opportunities, improved customer service and
ultimately, increased revenues and profit.  In addition, the
company's products can improve the performance of an e-business
enterprise by providing reporting and analysis against the
ever-expanding amount of transaction and profile data that is
collected each day throughout the World Wide Web.

Starting off the new year with a brief dip below $40 was not an
auspicious beginning for this e-business software company, but
after the surprise interest rate cut on January 3rd, BOBJ has
been on a tear.  Leading up to its recent earnings report, the
stock managed to rally as high as $75 before the numbers were
released.  Surprising the street by a nickel on February 1st,
BOBJ got one final pop, which was enough to help it graze the
200-dma (then at $83.50).  That was all the bears could take, as
they awoke from hibernation in a selling mood.  The stock
reversed course right at the 200-dma, and began rolling over.
Friday's nearly $3 drop finished the job of filling the
post-earnings gap up, but now the Stochastics have dropped out
of overbought territory, and the next likely level of support
is $70, followed by $65.  We do have the possibility that this
is only profit taking, as volume has been declining steadily
over the past week, only reaching about 60% of the ADV on
Friday.  Taking the cautious approach will yield new entries as
BOBJ declines below the $72 level on increasing volume.
Barring a drastic change in sentiment, the $80 level looks like
it will provide solid resistance in the event the bulls try to
rally the stock, so that is where we have placed our stop.
More aggressive players can target shoot new entries on any
bounce that begins to fall back at the intraday resistance
levels of $75, or $78.  With no positive catalysts on the
horizon, as long as the NASDAQ remains weak, BOBJ will have a
hard time reversing course and heading back into bullish

***February contracts expire next week***

BUY PUT FEB-75 BBJ-NO OI=105 at $ 5.00 SL=3.00  High Risk!
BUY PUT MAR-75 BBJ-OO OI=  0 at $10.00 SL=7.00  Wait for OI!
BUY PUT MAR-70*BBJ-ON OI= 10 at $ 7.50 SL=5.25
BUY PUT MAR-65 BBJ-OM OI=  5 at $ 5.25 SL=3.25


MERQ - Mercury Interactive Corp $71.94 (-11.06 last week)

Mercury Interactive is the exterminator of the software
industry.  The company offers a comprehensive line of automated
testing tools that address the full range of quality needs for
testing complex applications throughout the business enterprise.
Essentially the tools help companies build better applications,
from Internet/e-business transaction systems to informational
Web sites.  All of its research and development is conducted in
Israel, however the company is based in California.

The software and programming stocks are again the target of
indignation in the NASDAQ.  Many of the once star-studded tech
stocks like MERQ, NTAP, AGIL, AETH, and INTU are getting the
old heave-ho as trader's try to find some balance in their
portfolios during these turbulent times.  Even Big Softie (MSFT)
broke its $60 support in last Friday's session as the declining
NASDAQ sunk below 2500.  MERQ has fared much worse in recent
times.  Last week, it became evident that the converged 10, 30,
& 50 DMAs, in the vicinity of the $85 level, couldn't keep MERQ
afloat amid the continuing adversity of the marketplace.  When
the bears accelerated their attack late afternoon on Thursday,
the already struggling MERQ quickly fell victim to the broad
selling pressure.  It did however find some light support just
above the $70 mark on Friday.  With that in mind, it may be wise
to take put positions only after MERQ exhibits definitive
weakness below that level.  Stronger support is at $60, where
buyers stepped in both in November and January's declines.
Another strategy, if your more adventurous and your portfolio
can handle the risk, is to play a spread between our protective
stop at $79 and the bottom support near $70.  For example, if
MERQ rebounds and then fails to break through the overhead
resistance near the 5-dma ($79.54), you might consider playing
the downward momentum and locking in gains as MERQ approaches
previous support.

***February contracts expire next week***

BUY PUT FEB-75 RQB-NO OI= 459 at $ 6.50 SL=4.50  High Risk!
BUY PUT FEB-70 RQB-NN OI= 308 at $ 3.63 SL=1.75  High Risk!
BUY PUT MAR-75*RQB-OO OI= 433 at $11.38 SL=8.50
BUY PUT MAR-70 RQB-ON OI=  35 at $ 8.50 SL=6.00


ISSX - Internet Security Systems $66.44 (-5.01 last week)

Internet Security Systems (ISS) is the leading provider of total
information security management for networks, servers,
applications and desktops.  Not only does ISS offer
market-leading, best of breed security management systems for
security assessment, policy enforcement and intrusion detection -
all built on the company's SAFEsuite security management platform
- it also provides superior customer service, consulting and
education offerings that significantly reduce the complexity and
expense inherent in protecting online assets.  ISS approaches
Internet security through a complete lifecycle approach, offering
a managed solution that covers the full continuum of Internet
security needs.

In the case of ISSX, it's not the company's business model that
is in question but rather, the business model of its customers.
For any corporation that relies heavily on Information
Technology, network security is an area where spending cannot be
cut.  This has helped shares of ISSX as well as its competitors
to fare relatively better than other Internet firms which
generate revenue from less mission-critical goods and services,
making it more immune to cuts in capital expenditures.  However,
analyst Brian Foote of Ryan, Beck & Co. recently downgraded the
stock from a Strong Buy to a Buy rating based on three simple
words: accounts receivables volatility.  What this means is that
when ISSX sells its products to its customers, it does so on
credit, making the company a loaner of money.  In doing so, this
exposes ISSX to longer payback periods, reduced cash flow and
working capital, and the much-dreaded default risk (if the
customer goes under and cannot pay its debt).  With dotcoms
becoming dotbombs at an alarming rate, the certainty of payback
is difficult to discern and can swing wildly.  As we all know,
investors do not like uncertainty.  Failing to break through its
100 and 200-dma (at $77 and $79), the stock has since pulled back
below $72, where the 5, 10 and 50-dma are all converged.  We are
placing a protective stop at this level.  A failed rally above
this point could allow aggressive traders an ideal opportunity to
jump in.  There is also horizontal resistance at $69, $68 and
$67.  A break below $64.50 on volume would allow the more
conservative to enter on weakness, provided that peers CHKP and
VRSN are also moving lower.

***February contracts expire next week***

BUY PUT FEB-65*ISU-NM OI=132 at $2.94 SL=1.50  High Risk!
BUY PUT FEB-60 ISU-NL OI=244 at $1.19 SL=0.00  High Risk!



AETH - Aether Systems Inc. $28.63 (-16.93 last 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

Put players benefited from the continued heavy selling in
shares of Aether amid a weak market environment on Friday.
Since Aether's earnings report this week, investors have
shown no mercy for the stock, and have sold on more than
double the average daily volume, taking the stock to a new
52-week low at $26.13.  On their earnings conference call,
Aether 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.  Since then,
Wall Street analysts have lined up to downgrade the stock.
Robertson Stephens, Piper Jaffray, Lehman Brothers, C.E.
Unterberg Towbin and JP Morgan Hambrecht & Quist all cut
their price targets on the stock this week.  On Thursday,
Aether gapped down and continued to sell off throughout
the day.  On Friday, Aether fell from $29 to $26.50 in
the morning, and rallied slightly with probable short
covering in the afternoon.  The most likely scenario is
a roll over from $28.50, which could be a possible entry
point for aggressive put players.  Conservative put players
might want to wait for a break under $26.50 on strong
volume, which could lead Aether to a new 52-week low.
Watch the Nasdaq and the wireless sector for continued
selling before initiating positions, and set stops at $31.

***February contracts expire next week***

BUY PUT FEB-30 HIZ-NF OI=326 at $3.38 SL=1.50  High Risk!
BUY PUT FEB-25 HIZ-NE OI= 90 at $1.00 SL=0.00  High Risk!
BUY PUT MAR-30*HIZ-OF OI=181 at $5.63 SL=3.50
BUY PUT MAR-25 HIZ-OE OI=348 at $3.13 SL=1.50


HGSI - Human Genome Sciences $51.06 (-4.38 last week)

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

As the Biotechs have continued to meander lower, HGSI has had no
positive catalyst to support it, and has consistently moved down
over the past 2 weeks.  Now testing major support near $47-48,
it is with some regret that we look to the imminent end of our
play.  It has been a consistent (if slow) performer, but we have
the looming spectre of the company's earnings report to contend
with now.  The company would not confirm the earnings release
date, but we have an unconfirmed date of February 13th.  That is
Tuesday, so it doesn't take a rocket scientist to figure out
that timid investors will want to lock in their profits and
close out any open positions ahead of time, just to be safe.
For those adrenaline junkies out there, if you are going to
continue to hold positions up until we get the numbers from the
company, make sure you are playing with stop losses, and tight
ones at that.  We have moved our stop down to $54 this weekend,
and aggressive investors can still consider a day-trade on a
bounce and rollover below this level.  Watch the Biotech index
(BTK.X) for confirmation of sector weakness, and consider new
entries only if the signals from the market, sector, and stock
are all pointing to more downside.  Given the limited timeframe,
and major support not far below ($47-48), we would discourage
new positions on a drop below $51, and would instead use any
weakness as an opportunity to exit open positions at an even
more profitable level.

***February contracts expire next week***

BUY PUT FEB-55 HHA-NK OI= 475 at $5.88 SL=4.00  High Risk!
BUY PUT FEB-50 HHA-NJ OI= 835 at $2.94 SL=1.50  High Risk!
BUY PUT MAR-50*HHA-OJ OI=2158 at $6.50 SL=4.50


IDTI - Integrated Device Tech. $38.06 (-4.50 last week)

Integrated Device Technology designs, develops, manufactures
and markets a broad range of high-performance semiconductor
products.  The company serves up products for data networking
and telecommunications equipment such as routers, hubs,
switches, cellular base stations, storage area networks,
networked peripherals, servers, and personal computers.  About
70% of sales are from communications and high-performance
logic components such as embedded RISC microprocessors,
specialty memory, logic and clock management circuits, and
networking devices.

With weakness continuing to pervade both the Networking (NWX.X)
and Semiconductor (SOX.X) sectors, IDTI has been unable to break
out of its persistent downtrend over the past 3 weeks.  As
profitable as the play has been, it is possible the ride may be
coming to an end, at least temporarily.  Stochastics are now
deep within oversold territory, and the $38 level has provided
consistent support as the daily close has inched ever lower.
Volume has been dropping, with Friday's fractional loss coming
on a mere 45% of the ADV.  With the lower Bollinger band sitting
near $36, also the site of considerable historical support,
prudent traders will tighten up their stops to preserve their
gains.  For our part, we have inched our stop down a bit more,
bringing it to $40, very near the highs for the past 3 days.
The loss this week solidified the 50-dma (currently $39.84) as
resistance, and aggressive investors can still consider new
entries on an intraday bounce and rollover near this level.  The
stock is beginning to establish a pattern of attempting to rally
and then falling back to close very near the low of the day,
making for a very tradable pattern.  More conservative traders
will want to wait for an increase in selling volume to push IDTI
below the $38 support level before jumping into new positions.
As long as the SOX.X and NWX.X are still weak, IDTI will likely
have a hard time doing anything but head further south.

***February contracts expire next week***

BUY PUT FEB-40 ITQ-NH OI=2896 at $3.25 SL=1.75  High Risk!
BUY PUT MAR-40*ITQ-OH OI= 171 at $5.63 SL=3.50
BUY PUT MAR-35 ITQ-OG OI=  15 at $3.00 SL=1.50


STT - State Street Corp. $108.00 (-2.74 last 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.

Where have all the sellers gone?  After giving us a picture
perfect rollover at the 200-dma (then at $114.38) a little less
than 2 weeks ago, STT has inexplicably found support near $108.
The daily swings are barely tradable with the last 2 days
action confined to a range of just over $2.  That's pretty slim
on a $100+ stock.  With the intraday rallies being capped near
the $110 level, it seems logical to ratchet our stop down to
that point, to minimize the effect of an adverse move to the
upside.  It looks like the bears are about to get help from the
30-dma as well.  Currently sitting at $112.67, the average is
dropping more that $0.45 per day and interestingly, the
descending trendline that is created by the highs over the past
2 weeks is exactly parallel to this moving average.  And sure
enough, the trendline is currently at $111, adding one more
obstacle that STT has to overcome if it is going to reverse its
bearish trend.  We do have a cautionary note on the broader
sector though.  The Brokerage index (XBD.X) is looking like it
is trying to reverse its recent slide, with support
materializing near 595 and stochastics threatening to reverse
and head back up from oversold territory.  We lamented the lack
of sellers above, but there is obviously a lack of buyers as
well, due to the stock's inability to even get close to the
descending trendline over the last 2 days.  As our play
continues to drift lower, consider new entries either on a drop
below $107.50, accompanied by further weakness in the Brokerage
sector.  More aggressive players can consider new positions from
a rollover near $110, but make sure the stock isn't beginning a
grand recovery on the back of the broader sector.

***February contracts expire next week***

BUY PUT FEB-110 STT-NB OI=715 at $4.20 SL=2.75  High Risk!
BUY PUT MAR-110*STT-OB OI= 24 at $7.70 SL=5.75
BUY PUT MAR-105 STT-OA OI= 22 at $5.20 SL=3.50


GLW - Corning Inc $40.96 (-10.12 last week)

Corning is a global communications technology company that
operates in three primary business segments: Telecommunications,
Advanced Materials, and Information Display.  They are the
world's top producer and pioneer of fiber-optic cable, which it
invented over 20 years ago.  Corning also owns the well known
crystal maker, Steuben Glass.  The company operates 40
manufacturing plants in 10 countries.

Corning's been busy making plans to ensure it can effectively
keep up with the worldwide demand for optical fiber.  Recent
news of a $150 mln Italian facility expansion comes on the heels
of Corning approving a plan a couple weeks ago to build a $400
mln optical fiber-optic plant in Oklahoma City.  And earlier in
December, Corning also announced it would put $450 mln into
expanding an optical-fiber plant in North Carolina.  But as it
may be, the announcements aren't having a positive impact on the
share price, at least not of late.  The fiber optic stocks
continued to buckle under the pressure of lingering uncertainty
within the industry.  Many related stocks like JDSU, SDLI, NT,
ALA and NEWP are near their respective lows.  Corning's tempered
guidance for 2001 as the result of expected softening from
several existing customers, Lucent (LU) and Nortel (NT) in
particular, combined with JDS Uniphase (JDSU) dismal forecast
incited strong sell-offs across the board.  On Wednesday, GLW
fell victim to more selling and violated the $50 support on
accelerating volume levels.  The bearish activity extended
throughout the week as subsequent technical breakdowns below the
5 and 10 DMAs ($46.40, $51.01) effectively fueled the downward
momentum.  However, keep in mind that GLW is considered a HIGH-
RISK put play simply because the fiber optic stocks tend to
exhibit volatile direction changes and wide price variances.
Going forward, we're keeping a tight rein on GLW.  The current
price level poses an attractive buying opportunity and if the
NASDAQ reverses, we don't want to be caught holding the bag.
Although we have our protective stop firmly set at the $44 mark,
the more aggressive types might enter at a higher level if
there's evidence of a high-volume rollover in a declining
market.  A more cautious approach is to buy into further
weakness as GLW breakdowns below $40.08, the new 52-week low set
in Friday's session.

***February contracts expire next week***

BUY PUT FEB-45 GLW-NI OI=4239 at $4.80 SL=3.00  High Risk!
BUY PUT FEB-40 GLW-NH OI= 483 at $1.60 SL=0.75  High Risk!
BUY PUT MAR-45 GLW-OI OI= 989 at $6.60 SL=4.50
BUY PUT MAR-40*GLW-OH OI=1106 at $3.60 SL=1.75


GSPN - GlobeSpan, Inc. $27.38 (-7.50 last week)

GlobeSpan is a company focused on DSL technology.  They are a
leading worldwide provider of integrated circuits (chip sets),
software, and system designs for Digital Subscriber Line (DSL)
solutions that enable the high-speed transmission of data, voice
and video over the World Wide Web at rates over 100 times faster
than today's 56 Kilobit modems.  Using existing copper telephone
lines that run to nearly every home and business, GlobeSpan's
products create the functionality and speed that makes DSL a
reality.  A growing call for high-speed, low cost Internet
access has produced an enormous demand for GlobeSpan's products.

Weakness in Chip stocks (especially of the communication variety)
along with the DSL sector as a whole has so far made our put play
in GSPN a successful one.  Bad news from companies such as
Broadcom, Ericsson, Lucent and PMC Sierra have all have weighed
on shares of GSPN, as the stock has fallen in sympathy with
related Tech issues.  This is in spite of a stellar earnings
report, with 519 percent year-over-year revenue growth.  The
company maintained its guidance going forward but it appears that
the Street was expecting more.  With the highest of expectations
already priced in from its January run-up, the stock sold off
post-earnings despite Prudential Securities re-iterating their
Strong Buy rating.  These factors combined, have resulted in
technical weakness in GSPN's chart.  Recently falling below its
last major moving average, the 50-dma at $33.74, the stock has
been heading deeper into negative territory, with a declining
5-dma (now at $ 31.36) exerting downward pressure on GSPN.  A
failed rally above this moving average could allow aggressive
traders to make a play, but confirm with selling volume.  In
order to protect our profits, we are moving our stop price down
from $32 to $30.  These two levels should also provide horizontal
resistance along with $29 and $28.  A break below support at $26
would allow the more risk averse to enter on weakness.  From
there the stock could drop quickly to the low 20's.  Correlate
entries with weakness in the Philadelphia Semiconductor Index and

***February contracts expire next week***

BUY PUT FEB-30*GLQ-NF OI=480 at $3.88 SL=2.50  High Risk!
BUY PUT FEB-25 GLQ-NE OI=439 at $1.25 SL=0.00  High Risk!




GE $45.66 -1.48 (-0.62 last week)  After Monday's bounce from the
10-dma at $46, GE was beginning to show some life.  The stock,
however, has encountered resistance at $48 throughout the week.
There is a seller at that price that's keeping the stock down.
A strong move through $48 would set up GE for a move toward $50,
a level not seen since December 19th.  On the downside, watch $45
for support.  A close below this level, which is also our stop
loss, and we would part ways with GE.

BUY CALL MAR-45 GE-CI OI=14094 at $2.70 SL=1.25
BUY CALL JUN-50*GE-FJ OI=14218 at $2.65 SL=1.25
BUY CALL SEP-50 GE-IJ OI= 4978 at $4.00 SL=2.50


USB $30.02 +0.08 (+0.34 last week)  Building a nice ascending
wedge at the $30, USB is readying itself for a breakout.  It has
been holding up well in the face of the broad market sell-off.
As a major regional bank, USB likely will continue to perform
well in anticipation of further rate cuts.  The 10-dma is at
$29.72 and pressuring the stock to break resistance at $30.25.
An entry can be attained on a break through this level or on a
bounce from support at $29.80.  We have a tight stop set at

BUY CALL FEB-30 USB-BF OI=2231 at $0.75 SL=0.00  High Risk!
BUY CALL MAR-30*USB-CF OI= 868 at $1.60 SL=0.75

CTX $42.19 -1.23 (+0.31 last week) After picking up coverage on
CTX last weekend, the stock subsequently traded higher, nearly
reaching the $45 level.  The latter half of last week saw CTX
pullback on what appeared to be normal profit taking judging by
the relatively light volume.  In fact, the stock bounced right
off our protective stop at $42 during Friday's session.  As long
as CTX continues to trade above $42 we'll maintain coverage on
the stock.  However, should CTX close below $42 we'd drop the
play.  Having said that, another bounce off $42 could provide
a more aggressive entry.  Conversely, if the stock rebounds
early next week look for new entries on an advance past the
$42.50 level.

BUY CALL MAR-40*CTX-CH OI=  6 at $4.30 SL=2.75
BUY CALL MAR-45 CTX-CI OI=  9 at $1.90 SL=0.75
BUY CALL APR-45 CTX-DI OI=209 at $3.30 SL=1.75



LGTO $16.50 -0.88 (-1.38)  LGTO has been getting heavy as the
week progressed.  There has been some minor selling pressure in
the $17-$18 level, with buy support at $16.  With the stock
drifting in this range, consolidation of recent gains looks to
be in the future.  We are dropping this play tonight because of
its technical stagnation.  If you are in current positions, watch
the $16 level for continued support and use it as a stop loss
level.  $18 will be overhead resistance.

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And The Answer Is...BAD!
By Mark Phillips
Contact Support

Remember my lead-in question from last week, where I asked how
bad the selling would be on the NASDAQ in the week ahead.
Fortunately I had enough foresight (or luck) to advocate
standing on the sidelines the past couple weeks, but I must say
that the damage was worse than I expected.  Remember that we
are looking for the NASDAQ (and many of our LEAPS plays) to
arrest their declines in time to post higher lows.  This would
give us at least a ray of hope that the much-needed recovery
could get under way.

How bad can it get?  Well, the QQQ is only about $4 above its
January reaction low of $52.06, and it (along with stocks like
EMC and NT) are at risk of trading at new yearly lows if bulls
don't come out of the barn soon.  But what will the catalyst
be?  We know that the Fed is now in an easing mode, as they
attempt to stave off a full-fledged recession, but after the
initial euphoria, investors have seemed far more interested in
the string of earnings warnings and misses that have inundated
the news wires of late.  After all, they know that today's
interest rate reduction will take 6-9 months before it really
has an effect on the economy, and therefore the business cycle.

Even the DJIA has been unable to follow through its recent rally
and crest the 11,000 level, making it tough to game long plays
in any of the major markets without carefully selecting the
right sector.  CPN is one of the rare winners recently as the
play has shot right up the chart since we picked it, reflecting
investors' interest in anything that might allow them to profit
from the continuing energy fiasco out here in California.

Recent market action has reminded me of the Peanuts cartoon I
used to watch as a kid.  I'm sure you remember it too.  Every
year, Lucy would hold the football for Charlie Brown.  He'd come
tearing across the field, and kick for all he was worth.  But
just at the last minute, Lucy would pull the ball aside, and
Chuck's foot would connect with nothing but air.  You can see
it now, can't you?  The follow through from the attempted kick
carried poor old Charlie up into the air, prior to an
unceremonious and unpleasant landing, flat on his back.

I submit to you that the bulls are starting to feel like Charlie
Brown, after several repetitions of this scenario.  The bears
let the charts look just good enough to sucker the buyers in,
and then yank the ball away, revealing that the supposed support
level that motivated their recent purchases is really nothing
more than thin air.  You don't have to go through that
experience (can you say ARBA?) too many times before you become
too timid to take advantage of the true opportunities when they
do present themselves.  When all of us die-hard bulls are
looking at the markets through bearish glasses, that is when
sentiment will have shifted sufficiently to allow the markets
to begin the long recovery we are craving.

Maybe we are actually getting close.  Here's my logic.  I'm a
bull at heart, and I freely admit it.  But analyzing my trading
of late, 90% of my trades are Puts, not Calls.  And I'm doing
much better on the bearish plays too!  Okay, so those are short
term trades, but it provides an indication of the near term
market direction.  When those put plays start refusing to
perform, and strong stocks are putting in solid upward moves
from major support levels, that will be the time to initiate
new LEAPS positions for the next leg up.  The best possibility
for this type of play that I could find this week is our old
favorite, EMC.  See the Spotlight play below for the details.

For another week, we are stuck watching with anticipation for
favorable chart formations before initiating new positions, and
we aren't really getting any help from our buddy the VIX.  While
it did provide a mild caution flag early last week as it grazed
the 23 level (its lowest point since early October), it wasn't
enough to tell us that we were about to see the kind of weakness
that materialized at the end of the week.  Currently resting at
25.15, our favorite volatility indicator is still right in the
middle of its historical range, failing to give us an indication
of which way the markets are likely to move.  And our new
volatility metric for the NASDAQ, the VXN, really doesn't have
enough trading history for us to use it as a reliable indicator.

Waiting and watching is still the name of the game.  Aggressive
players can consider buying solid bounces from support, but need
to be very cautious that they wait for the bounce before pulling
the trigger.  Otherwise we could find ourselves laying flat on
our backs asking, "What happened?".

Exercise patience and wait for your entry points to come to you.
Finally, use stops and take profits when they are offered.

Current Plays


EMC    11/07/99  JAN-2002 $ 45  WUE-AI   $ 9.50   $28.40   198.95%
       09/17/00  JAN-2003 $100  VUE-AT   $32.75   $13.10   -60.00%
CSCO   11/14/99  JAN-2002 $ 45  WIV-AI   $11.00   $ 2.31   -78.98%
       11/26/00  JAN-2003 $ 60  VYC-AL   $16.63   $ 2.94   -82.33%
NT     11/28/99  JAN-2002 $37.5 WNT-AU   $15.13   $ 5.70   -62.33%
       09/10/00  JAN-2003 $ 75  ODT-AO   $27.50   $ 2.85   -89.64%
AOL    03/12/00  JAN-2002 $ 65  WAN-AM   $18.63   $ 3.80   -79.60%
       08/13/00  JAN-2003 $ 55  VAN-AK   $17.50   $11.10   -36.57%
AXP    03/12/00  JAN-2002 $46.6 WXP-AQ   $ 9.33   $ 9.10   - 2.47%
WM     03/19/00  JAN-2002 $ 30  WWI-AF   $ 5.38   $22.80   323.79%
       10/22/00  JAN-2003 $ 45  VWI-AI   $ 7.88   $14.60    85.40%
C      06/18/00  JAN-2002 $48.8 YSV-AW   $10.31   $11.80    14.45%
       10/01/00  JAN-2003 $ 60  VRN-AL   $12.25   $10.20   -16.73%
GENZ   07/16/00  JAN-2002 $ 70  YGZ-AN   $17.13   $31.88    86.08%
                 JAN-2003 $ 70  OZG-AN   $23.13   $40.50    75.10%
QCOM   09/17/00  JAN-2002 $ 70  WBI-AN   $22.50   $26.38    17.22%
                 JAN-2003 $ 70  VLM-AN   $29.63   $34.63    16.86%
TXN    10/22/00  JAN-2002 $ 50  WTN-AJ   $13.75   $ 5.00   -63.64%
                 JAN-2003 $ 50  VXT-AJ   $18.38   $ 9.40   -48.84%
BGEN   11/05/00  JAN-2002 $ 70  WGN-AN   $17.25   $19.13    10.87%
                 JAN-2003 $ 70  VNG-AN   $25.00   $27.13     8.50%
MU     11/26/00  JAN-2002 $ 45  WGY-AI   $13.13   $ 9.60   -26.86%
                 JAN-2003 $ 45  VGY-AI   $17.25   $14.60   -15.36%
A      12/03/00  JAN-2002 $ 55  YA -AK   $16.88   $14.50   -14.07%
                 JAN-2003 $ 60  OAE-AL   $19.88   $17.90   - 9.94%
ORCL   12/10/00  JAN-2002 $ 35  WOK-AG   $ 7.75   $ 3.00   -61.29%
                 JAN-2003 $ 35  VOR-AG   $11.13   $ 6.13   -44.97%
QQQ    12/10/00  JAN-2002 $ 70  WNQ-AR   $15.13   $ 6.10   -59.68%
                 JAN-2003 $ 75  VZQ-AW   $19.25   $ 9.40   -51.17%
WMT    12/24/00  JAN-2002 $ 55  WWT-AK   $ 9.63   $ 7.00   -27.27%
                 JAN-2003 $ 55  VWT-AK   $14.00   $11.30   -19.29%
DELL   01/07/01  JAN-2002 $ 20  WDQ-AD   $ 5.25   $ 7.50    42.86%
                 JAN-2003 $ 25  VDL-AE   $ 5.63   $ 7.50    33.21%
WCOM   01/14/01  JAN-2002 $ 25  WQM-AE   $ 5.00   $ 2.75   -45.00%
                 JAN-2003 $ 25  VQM-AE   $ 7.38   $ 4.88   -33.90%
CPN    01/21/01  JAN-2002 $ 40  YLN-AH   $10.50   $16.10    53.33%
                 JAN-2003 $ 40  OLB-AH   $15.38   $21.10    37.24%
ARBA   01/28/01  JAN-2002 $ 45  YYR-AI   $14.25   $ 4.63   -67.54%
                 JAN-2003 $ 45  OLR-AI   $19.00   $ 8.00   -57.89%
CLX    02/11/01  JAN-2002 $ 40  WUT-AH   $ 5.20   $ 5.20     0.00%
                 JAN-2003 $ 40  VUT-AH   $ 8.10   $ 8.10     0.00%

Spotlight Play

EMC - EMC Corporation $56.40

Recent trading in shares of one of our favorite LEAPS plays has
left us a bit puzzled here at the home office.  The company was
one of the few technology companies to beat analyst earnings
estimates AND revenue growth targets.  On top of that, in the
conference call, Chairman Michael Ruettgers said the company
"gained share in every major segment of our addressable market.
Our competitive lead has never been stronger."  So the
fundamental picture looks intact - why did the stock get taken
apart in the past 2 weeks?  Blame it on NASDAQ weakness, Fed
dread, energy costs, or just plain old investor nervousness, but
the stock seems to have been excessively punished recently.  A
quick look at the chart bears this out, with the closing price
the past two days deep into the lower Bollinger band (currently
at $59.69), daily stochastics deep into oversold and due for a
bounce, and the closing price approaching major support between
$50-53.  Given the strong fundamental picture, with a strong
case for a bounce on technical reasons, we think EMC makes a
compelling case for new positions, provided it doesn't plunge
below major support.  We'll actually give the stock until the
$50 level to find bottom and would advocate aggressive traders
begin to take positions on any bounce above that level.  More
conservative traders can still take advantage of the near term
weakness by opening new positions as the stock moves back above
the $62-63 resistance level on solid volume.

BUY LEAP JAN-2002 $60.00 WUL-AL at $14.40
BUY LEAP JAN-2003 $60.00 VUP-AL at $20.10

New Plays

CLX - Clorox $36.20

As technology stocks continue to languish and the bears become
ever more entrenched in their dominant positions, we are forced
further off the beaten path to find decent LEAPS candidates.
With the Fed now solidly (we hope) in an easing mood for the
foreseeable future, cyclical stocks like CLX should be in the
beginning stages of a long-term recovery.  The company is
engaged in the production and marketing of non-durable consumer
products sold primarily through grocery and other retail stores.
The stock is sensitive to interest rates and the strength of
the economy, but how bad would things have to be before people
stop buying laundry supplies or kitty litter?  Looking at the
chart, we can see that the stock has thrice found major support
near $30 over the past year, and is once again recovering on
anticipation that the worst is behind for the stock.
Intermediate resistance near $35, has now been crested by the
bulls, but with Stochastics back in overbought, now isn't the
time to initiate new positions.  Look for a bit of profit taking
to drop CLX down to the $33-34 support level, providing us with
a more attractive entry point.  If we get an unexpected (and
unlikely) drop to the vicinity of $30, aggressive traders can
consider new positions so long as the stock doesn't break its
52-week low of $28.38 before reversing back to the upside.  With
cheap options available, a $5-10 move in shares of CLX could
provide a very nice profit.  Based on the recent trading
history, our new play looks to have upside to the $45-50 area,
plenty of room for those high returns we like to see from our
LEAPS plays.

BUY LEAP JAN-2002 $100.00 WUT at $5.20
BUY LEAP JAN-2003 $100.00 VUTH t $8.10


ARBA $24.69 Well, that didn't last long!  We were promptly
chastised for our attempt to bottom fish in the risky B2B
sector.  Recall that we picked up ARBA as it had made a fairly
convincing case for solid support near $32-34.  No sooner did
we add it to the play list than the stock began a determined
kamikaze dive, plunging through our $32 stop as though it
didn't exist.  As the first full week of February comes to a
close, we have watched the stock give up fully 38%, and it is
showing no signs of bottoming yet.  ARBA failed to perform as
expected, so it justifiably gets the boot this weekend.

ORCL $23.56 Anyone else asking themselves what happened?  ORCL
gave up a whopping 13% on Friday, and that was without any
embarrassing confessions or earnings warnings from the company.
Say thanks to Morgan Stanley Dean Witter analyst Charles
Phillips (no relation), who issued a report saying that ORCL's
database license revenue growth may fall victim to the dot-com
meltdown.  In a nervous technology market, investors sold first
and asked questions later, driving the stock down to its lowest
level in over 2 months.  Whether the analyst's concerns are
founded or not, the basis of our play (technical strength) has
been shattered, and so has our confidence in the stock over the
near term.

TXN $37.33 Our play on TXN was having enough problems fighting
off the bears after posting weak earnings on January 22nd, and
then NOK came to the confessional a little more than a week
later, warning that first quarter growth in mobile phone sales
will fall short of expectations.  Shares of NOK have gotten
clocked on the news, hence its drop from the play list last
weekend.  But the Wireless sector bears have turned their
attention on TXN, given the semiconductor firm's strong
business relationship with the Finnish wireless phone giant.
The results are clearly seen on the TXN chart, as the price has
now declined through multiple levels of support and is resting
just above new yearly lows.  With the flood of bad news
continuing to come out of the Semiconductor sector, it seems
prudent to move aside and focus on plays that don't have such
a steep uphill battle in front of them.

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

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

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


Please read our disclaimer at:

The Option Investor Newsletter                   Sunday 02-11-2001
Sunday                                                      5 of 5

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


Market Sentiment: Opposing the Crowd
By Mark Wnetrzak

The recent introduction of volatility indices on the NASDAQ 100;
the VXN and the QQV, prompted one of our new readers to ask why
analysts are so concerned with tracking fear and anxiety in the
stock market.  The basis for these unique sentiment gauges is a
concept known as the "contrarian viewpoint," or one that opposes
the general majority.

The most common methods of technical analysis use quantitative
measures that characterize price movement to determine the
future outlook for a particular instrument.  Even the popular
charting indices (advance/decline lines, overbought/oversold etc.)
are based on historical statistics.  There is however, another
class of indicators that does not rely on the mathematical
analysis of specific trends or changes in volume and accumulation
patterns to produce a trading signal.  The theory behind these
measures is that investors and analysts are particularly prone to
simple psychological biases such as "running with the crowd" and
the opposing belief is widely referred to as a "Contrary Opinion."
The rational for contrarian investing is simple:  When the crowd
is bullish, they invest their money in stocks, some to the point
of borrowing against portfolio collateral (margin).  When most of
the public's cash is already in the market, what money is left to
push stock prices higher?  On the other hand, when the majority
of investors become bearish, they have already sold most of their
stocks.  If the average investor has more cash than stock, there
is a lot of money waiting to be reinvested.

Contrarian indicators are subjective and they don't rely on any
specific signals, as opposed to most chart reading methods that
measure quantity and quality.  The underlying idea is that human
nature and the "herd" mentality affects all of us because people
feel comfortable when they share common beliefs and opinions.  In
fact, humans tend to coalesce around popular ideas even when there
is no substantial evidence to support the base theory.  We ignore
evidence that would lead to other conclusions in hopes that it
will eventually go away.  This type of behavior in the market is
exhibited in the excessive optimism that investors display just
before a significant correction occurs.  It is also seen in the
negative outlook that becomes widespread as the bottom of a bear
market approaches.  Many of these biases occur because of the
way we process information.  Investors tend to base decisions on
data that is insufficient and drawn from a sample that is far too
small.  We also tend to focus on issues that are outperforming
the market and assume that the trend will continue far beyond the
point that probability suggests is practical.  These beliefs are
reinforced when others interpret information in the same manner,
thus market confirmations and agreement often create a vicious,
self-fulfilling cycle.  Traders who understand these biases and
successfully identify the opinions of the majority can use this
knowledge to position their portfolio with the opposite outlook.

The most common contrarian indicators are the equity put/call
ratios and the bullish/bearish sentiment indices compiled by
market research services such as Investors Intelligence.  The
(equity-only) put-call ratio is computed daily by dividing the
put volume of all stock options by the call volume of all stock
options.  When option traders are bullish on the stock market,
call volume increases relative to put volume.  When traders are
bearish, put volume increases relative to call volume.  The P/C
ratio is an excellent contrary sentiment indicator and when the
relationship between put volume and call volume becomes extreme,
a market reversal is likely.  Investors Intelligence was one of
the first services to exploit the fact that when too many people
are bullish on the market, a correction may be looming on the
horizon.  The company produces the well-known Market Sentiment
Index, which reflects the number of investment newsletters that
are bullish or bearish on stocks.  In August 1987, bulls rose to
60.7% while bears were just 19.2% and that psychological climate
prevailed even though a technical market top was forming.  Those
feelings continued until the "Black Monday" sell-off in October;
strong evidence that optimism doesn't accompany the start of a
new bull market.

Contrary opinion indicators are valuable tools when used properly
but one thing to be aware of is that any technique you subscribe
to should always be used to confirm other signals from different
types of analysis.  When these indicators provide well defined
signals that agree with your other gauges, be sure to listen to
the message.  Here's one that may interest you: On Thursday, the
American Association of Individual Investors revealed in their
survey that the bulls are up to 56% and the bears are down to 14%.
What does that say about the future of the stock market?

Good Luck!

NOTE: Using Margin doubles the listed Monthly Return!

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

SFAM    8.63   7.69   FEB   7.50  1.88  *$  0.75  16.1%
ONNN    8.00   7.13   FEB   7.50  1.56   $  0.69  15.5%
XLA     8.38   6.61   FEB   5.00  3.88  *$  0.50   9.9%
ANTC   11.25   9.94   FEB  10.00  2.25   $  0.94   9.3%
CLRS    7.88   8.09   FEB   5.00  3.25  *$  0.37   8.7%
RDRT    7.56   8.97   FEB   5.00  2.88  *$  0.32   7.4%
HOTT   22.13  26.81   FEB  17.50  5.88  *$  1.25   6.9%
VPHM   22.13  22.44   FEB  17.50  5.38  *$  0.75   6.5%
ELON   24.44  21.56   FEB  20.00  5.00  *$  0.56   6.3%
SCON    7.13   7.69   FEB   5.00  2.44  *$  0.31   5.9%
PGNX   27.38  21.88   FEB  20.00  8.13  *$  0.75   5.6%
ASTSF  16.31  14.06   FEB  12.50  4.38  *$  0.57   5.2%
FNSR   36.38  29.88   FEB  30.00  7.50   $  1.00   5.0%
CPST   34.19  31.88   FEB  25.00 10.50  *$  1.31   4.9%
MCCC   20.00  17.94   FEB  17.50  3.25  *$  0.75   4.9%
ESCM   16.00  14.75   FEB  15.00  1.44   $  0.19   2.8%
ENTU   20.31  14.44   FEB  15.00  6.00   $  0.13   1.0%
ISLD    6.13   4.63   FEB   5.00  1.50   $  0.00   0.0%
GEN    10.50   7.96   FEB  10.00  1.50   $ -1.04   0.0%
GEN    11.00   7.96   FEB  10.00  1.31   $ -1.73   0.0%

NERX   10.06   8.72   MAR   7.50  3.62  *$  1.06  11.9%
NXCD   11.38  10.81   MAR  10.00  2.31  *$  0.93   7.4%
LGTO   17.88  16.50   MAR  15.00  3.88  *$  1.00   5.2%
ATRX   23.00  22.25   MAR  20.00  4.00  *$  1.00   3.8%
CSTR   17.06  16.75   MAR  15.00  2.75  *$  0.69   3.5%

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


Many of the above issues are consolidating under the stress of
a general market malaise.  GenRad (NYSE:GEN) however, reacted
quite negatively after reporting a weak 4th-quarter and also
warning of a 1st-quarter loss.  The extremely heavy volume on
Thursday's move to the bottom of GenRad's support area should
have triggered an exit signal.  As taking a small-loss exit on
Thursday would have been prudent, we will show the position
closed.  Some other issues to consider exiting or rolling down,
especially on further weakness: On Semiconductor (NASDAQ:ONNN),
Pharmaceuticals (NASDAQ:PGNX), Capstone Turbine (NASDAQ:CPST),
and Digital Island (NASDAQ:ISLD).  The action in ViroPharma
(NASDAQ:VPHM) still remains suspect after last Friday's high
volume reversal.

Positions Closed:

Bookham Tech (NASDAQ:BKHM), At Home Corp. (NASDAQ:ATHM)


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

SGI     5.00  MAR   5.00  SGI CA  0.40  537   4.60   35     7.6%
URBN   10.44  MAR  10.00  URQ CB  1.06  3     9.38   35     5.7%
PRGN   28.63  MAR  25.00  GQP CE  5.00  58   23.63   35     5.0%
ROAD   25.06  MAR  25.00  EJQ CE  1.25  36   23.81   35     4.3%
CSTR   16.75  MAR  15.00  QLR CC  2.44  19   14.31   35     4.2%
WGR    28.00  MAR  25.00  WGR CE  4.00  30   24.00   35     3.6%
MNTR   23.56  MAR  22.50  MNQ CX  1.88  579  21.68   35     3.3%

Company Descriptions

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

CSTR - Coinstar  $16.75  *** Rally Mode Continues! ***

Coinstar Inc. (NASDAQ:CSTR) and its subsidiaries, Meals.com and
Coinstar International, use technology to deliver time and money
saving services to consumers in their local supermarkets.  The
company's 8,500 strong network of machines is currently available
to 130 million consumers in 45 states and the District of Columbia,
as well as in Canada and the United Kingdom.  Meals.com Inc.
connects consumers, grocery stores and manufacturers through
online and in-store technologies that provide shoppers with
relevant information and special offers based on their personal
preferences.  Coinstar recently announced it has served its 100
millionth customer, proving the more and more Americans are using
Coinstar.  This week, Coinstar reported that its 4th-quarter loss
narrowed versus a year ago, and said it hired J.P. Morgan to help
explore strategic alternatives.  Buy-out?  Merger?  Nothing like
speculation to continue the bullish momentum.  We simply favor
the support around $15.

MAR 15.00 QLR CC LB=2.44 OI=19 CB=14.31 DE=35 MR=4.2%

MNTR - Mentor  $23.56  *** New 7-month High! ***

Mentor (NASDAQ:MNTR) develops, manufactures and markets a broad
range of products for the medical specialties of aesthetic and
general surgery (plastic and reconstructive surgery) and urology.
In January, Mentor reported its 3rd-quarter showing net income
from continuing operations was $7.2 million and $0.30 per share
compared to $7.3 million and $0.29 a share last year.  The results
included a restructuring charge of $1.4 million, from which the
company expects to reap improved profitability.  Mentor continues
to expand, recently completing  the acquisition of Porges S.A., a
subsidiary of Sanofi-Synthelabo, which provides an ideal platform
for the European launch of new Mentor products.  The stock has
rallied sharply off its lows and has now moved above the July
high, a bullish indication.

MAR 22.50 MNQ CX LB=1.88 OI=579 CB=21.68 DE=35 MR=3.3%

PRGN - Peregrine  $28.63  *** Stage I Base ***

Peregrine Systems (NASDAQ:PRGN) offers business organizations an
integrated suite of packaged infrastructure resource management
application software.  Peregrine's Infrastructure Management Group
is the world leader in providing software solutions to manage the
entire life cycle of an organization's assets and Peregrine's
E-Markets Group delivers best-of-breed e-Commerce connectivity,
real-time data transformation, catalog creation and management,
and portal creation and management.  In January, the company
reported a 3rd-quarter profit that was slightly higher than
analyst forecasts and said results outside of the U.S. were very
strong.  Peregrine's CEO remains comfortable with forecasts for
continued growth for the rest of the year.  The chart continues
to improve as Peregrine forges a Stage I base.  We favor the
bullish move above the 150 dma and a cost basis within support.

MAR 25.00 GQP CE LB=5.00 OI=58 CB=23.63 DE=35 MR=5.0%

ROAD - Roadway Express  $25.06  *** Transportation Sector ***

Roadway (NASDAQ:ROAD) is a leading transporter of industrial and
commercial goods with a variety of innovative services designed
to meet customer needs.  Roadway, an ISO 9000 certified carrier,
provides seamless service between all 50 states, Canada, Mexico
and Puerto Rico with export services to 66 countries.  Roadway
reported favorable earnings in January as the company experienced
stronger than normal business levels in 2000.  Though ROAD's CEO
is cautious about the beginning of 2001, he stated that the company
has cost control measures in place and believes that pricing levels
will continue to remain stable.  He didn't expect any significant
adverse impact on margins as the company continues to focus on its
core LTL service, growth through specialized products and cost
containment.  Upgrades and new coverage have followed in recent
weeks and the bullish move to a new 52-week high on heavy volume
bodes well for the future.

MAR 25.00 EJQ CE LB=1.25 OI=36 CB=23.81 DE=35 MR=4.3%

SGI - Silicon Graphics  $5.00  *** On the Mend... ***

Silicon Graphics (NYSE:SGI) provides a broad range of high-
performance computing and advanced graphics solutions that enable
customers to understand and conquer their toughest computing
problems.  After unloading Cray Supercomputer and restructuring
SGI finally appears to be showing signs of life.  The company
reported earnings in January, posting revenue of $487 million,
compared with $426 million last quarter, which represents a 14%
increase.  Order growth for the company's high-end graphics
products, particularly its unique line of SGI (TM) Reality
Center(TM) facilities, has been particularly strong.  Though
the company reported a loss this quarter ($0.38 per share), it
expects to be profitable in the fourth quarter.  The stock
remains in a Stage I base but the technicals are beginning to

MAR 5.00 SGI CA LB=0.40 OI=537 CB=4.60 DE=35 MR=7.6%

URBN - Urban Outfitters  $10.44  *** Entry Point? ***

Urban Outfitters (NASDAQ:URBN) is an innovative specialty retailer
and wholesaler which offers a variety of lifestyle merchandise to
highly defined customer niches through 40 Urban Retail stores in
the United States, Canada and the United Kingdom; an Urban web
site, www.urbn.com; 24 Anthropologie stores in the United States;
an Anthropologie catalog and web site, www.anthropologie.com; and
a wholesale subsidiary which sells to the URBN's retail operations,
and to more than 1,300 specialty stores, catalogs and department
stores.  Urban Outfitters rallied sharply in January after reporting
sales for the month of December were up 12% to $38.1 million from
$34.1 million in December of last year.  With earnings due on March
15, investors have been pushing the stock higher in anticipation of
the news.  We favor a conservative entry point closer to support
until the results are known.

MAR 10.00 URQ CB LB=1.06 OI=3 CB=9.38 DE=35 MR=5.7%

WGR - Western Gas Resources  $28.00  *** Oil Sector Hedge ***

Western Gas Resources (NYSE:WGR) is an independent gas gatherer
and processor, transporter, producer and energy marketer providing
a broad range of services to its customers from the wellhead to
the sales delivery point.  The Company designs, constructs, owns
and operates 17 natural gas gathering, processing and treating
facilities located in major gas-producing basins in the Rocky
Mountain, Mid-Continent, Gulf Coast and Southwest regions of the
United States.  Western Gas suffered a correction as the electric
problem in California affected it sales to Pacific Gas & Electric
Co. (NYSE:PCG).  With earnings due next Wednesday, February 14,
investors appear to have priced-in the uncertainty related to PCG.
Western Gas appears ready to resume its up-trend and should make
an excellent addition to any diversified portfolio.

MAR 25.00 WGR CE LB=4.00 OI=30 CB=24.00 DE=35 MR=3.6%



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

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

UCOMA  18.31  MAR  15.00  QUW CC  4.38  6    13.93   35     6.7%
SPCT   21.25  MAR  20.00  QCS CD  2.69  8    18.56   35     6.7%
MXWL   21.00  MAR  20.00  QMW CD  2.38  198  18.62   35     6.4%
BGC    10.93  MAR  10.00  BGC CB  1.55  122   9.38   35     5.7%
CHIR   45.06  MAR  42.50  CIQ CV  4.88  53   40.18   35     5.0%

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

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

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


Margin and Maintenance with Naked Puts
By Ray Cummins

One of our readers suggested that we discuss the difference
between initial margin and account maintenance requirements
with regard to uncovered options.  First, we will review the
general guidelines for common stock-option strategies.


To establish and maintain a margin account, a broker requires a
minimum of $2,000-$5,000 in any combination of cash or marginable
securities to be on deposit with the brokerage.  For an account
to carry uncovered options and/or spreads there is a generally a
minimum balance requirement of $10,000-$50,000.  Margin account
holders are required to maintain certain minimum equity levels
in their accounts.  If the market value of the account declines,
the broker may request a deposit of additional collateral.  Of
course, a margin call should be answered promptly to avoid the
liquidation of any portfolio holdings.


Generally, the initial investment requirement on long positions
involving marginable stocks is 50% of the current share value.
Stocks priced above $4.00, but less than $10.00, usually require
a margin minimum of $4.00 per share, while shares valued above
$10.00 generally require a maintenance of 30% of the current
share value.  Most of the issues in our Covered-Call Section
require 50% initial margin for the purchase of the stock and a
maintenance requirement of 30% of the value of the issue after
it is in your portfolio.


The margin requirement for writing options is vastly different
than that which is used with stocks.  The margin requirement is
simply a deposit that an investor must provide to guarantee that
he or she will cover any written options in the event they are
exercised.  This collateral is a legal requirement and it is a
very important component in your strategy selection because it
determines the overall "return on investment" or ROI.  There are
two different categories of margin requirements with options:
Initial Margin and Maintenance Margin.


The Initial Margin is the amount of collateral you must have
in your account to initiate the position.  Recall that with
options, margin means the cash or securities required to be
deposited by an option writer with his brokerage firm as
collateral for the writer's obligation to buy or sell the
underlying interest, or in the case of cash-settled options,
to pay the cash settlement amount, if assigned an exercise.
The minimum margin requirements are imposed by the Board of
Governors of the Federal Reserve System, the options markets
and other self-regulatory organizations, and increased margin
requirements may be imposed either generally or in individual
cases by various brokerage firms.  The most widely used margin
requirements are based on the regulations at the Chicago Board
Options Exchange:

Writers of uncovered puts or calls must deposit and maintain
100% of the option proceeds* plus 20% of the aggregate contract
value (current equity price x $100) minus the amount by which
the option is out-of-the-money, if any, subject to a minimum
for calls of option proceeds* plus 10% of the aggregate contract
value and a minimum for puts of option proceeds* plus 10% of the
aggregate exercise price amount. (*For calculating maintenance
margin, use the option's current market value instead of the
option's proceeds.)

With most brokers, uncovered equity puts generally require the
greater of the following per contract (for collateral):

The initial premium received plus 40% of the underlying issue's
price, minus the out-of-the-money amount.

- or -

The initial premium received plus 20% of the underlying issue's

This is also the formula we use when calculating the initial
return on investment for candidates in the Naked-Puts Section.


The Maintenance Margin is the amount of cash (or securities)
required to offset the changing collateral requirements of the
written options in your portfolio.  As the price of the option
(and the underlying stock) changes, so does the maintenance
margin.  With (short) Put options, the margin requirements can
increase when the underlying stock price falls and also when it
rises significantly.  The reason is the manner in which the
collateral amount is determined (with the exchange formula) and
traders should always consider not only the initial margin
requirement, but also the maximum margin needed through the life
of the position.  Option writers occasionally have to meet calls
for additional margin during adverse market movements and even
when there is enough equity in the account to avoid a margin
call, the need for increased collateral will make that equity
unavailable for other purposes.  Consider these facts carefully
before you initiate any "naked" option positions.

Good Luck!

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


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

MLI    26.88  25.05   FEB  25.00  0.65  *$  0.65  14.8%
ARTG   34.50  37.94   FEB  25.00  0.69  *$  0.69  13.2%
EXPE   16.25  16.25   FEB  12.50  0.31  *$  0.31  12.6%
FIBR   26.38  18.00   FEB  17.50  0.69  *$  0.69  12.6%
SPCT   21.94  21.25   FEB  17.50  0.38  *$  0.38  11.5%
CBT    33.18  35.61   FEB  30.00  0.55  *$  0.55  11.2%
RATL   47.88  44.13   FEB  35.00  1.25  *$  1.25  10.3%
TVLY   20.69  25.69   FEB  15.00  0.38  *$  0.38   9.1%
SMTC   27.75  28.75   FEB  17.50  0.63  *$  0.63   9.1%
GMST   52.69  50.56   FEB  35.00  1.19  *$  1.19   9.1%
PLUG   19.94  20.19   FEB  12.50  0.44  *$  0.44   8.9%
GLGC   23.88  22.38   FEB  17.50  0.31  *$  0.31   8.8%
TER    39.56  35.10   FEB  32.50  0.56  *$  0.56   8.7%
ISSI   17.75  17.44   FEB  12.50  0.38  *$  0.38   8.7%
PRIA   30.19  25.50   FEB  22.50  0.38  *$  0.38   8.6%
PPRO   22.31  14.50   FEB  12.50  0.38  *$  0.38   8.5%
AVCI   37.13  25.06   FEB  20.00  0.69  *$  0.69   7.6%
BMCS   32.13  30.63   FEB  22.50  0.44  *$  0.44   7.0%
EXFO   50.44  40.00   FEB  30.00  0.69  *$  0.69   7.0%
VECO   57.50  46.50   FEB  30.00  0.56  *$  0.56   6.7%
MU     46.44  38.76   FEB  35.00  0.56  *$  0.56   6.2%
JNIC   29.00  16.94   FEB  17.50  0.75   $  0.19   3.2%

MDR    15.29  16.00   MAR  12.50  0.60  *$  0.60  11.1%
TPTH   12.75  11.00   MAR  10.00  0.44  *$  0.44  10.7%
ABMD   25.44  25.94   MAR  15.00  0.50  *$  0.50   6.5%
SPCT   24.75  21.25   MAR  17.50  0.44  *$  0.44   5.9%
NAUT   19.19  16.63   MAR  17.50  0.56   $ -0.31   0.0%

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


It is that time again to evaluate your long-term outlook on any
issues you may end up owning.  The following issues have broken
down technically and could be considered candidates for an early
exit on further weakness (or ensuing rally):  Mueller Industries
(NYSE:MLI), Teradyne (NYSE:TER), and PurchasePro.Com (NASDAQ:PPRO).
Nautica Enterprises (NASDAQ:NAUT) fell rather drastically Friday
on heavy volume - not a good sign.  A move below $16 (50 dma) on
a closing basis would be a bearish change of character.

Positions Closed:

Metromedia Fiber (NASDAQ:MFNX)


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

CHIR   45.06  FEB  42.50  CIQ NV  0.44  624  42.06    7    12.0%

BRIO   13.38  MAR  10.00  UBR OB  0.63  190   9.37   35    16.6%
TSN    13.55  MAR  12.50  TSN OV  0.65  298  11.85   35    11.3%
TSO    13.32  MAR  12.50  TSO OV  0.40  45   12.10   35     7.1%
RBK    31.20  MAR  25.00  RBK OE  0.45  1112 24.55   35     5.8%
OII    22.00  MAR  20.00  OII OD  0.45  0    19.55   35     5.4%
AL     38.25  MAR  35.00   AL OG  0.60  32   34.40   35     4.1%

Company Descriptions

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

AL - Alcan Aluminum  $38.25  *** Metals Sector ***

Alcan Aluminium (NYSE:AL) is the parent company of a group of
companies involved in most aspects of the aluminum industry.
Through subsidiaries and joint ventures worldwide, the company
participates in bauxite mining, aluminum oxide refining, power
generation, aluminum smelting, manufacturing and recycling, as
well as research and technology.  The company recently acquired
Algroup, and the integration progressing well.  The new entity
has a very clear strategic focus, aimed at profitable growth,
and Alcan will continue to be a leader in the industry.  Those
who favor a hedge in the metals industry should consider this
position.  Will we "target shoot" a credit near $0.75 initially,
to increase the overall return on investment.

MAR 35.00 AL OG LB=0.60 OI=32 CB=34.40 DE=35 MR=4.1%

BRIO - Brio Technology  $13.38  *** On The Move! ***

Brio Technology (NASDAQ:BRIO) delivers complete business analytic
software solutions enabling companies to use information to be
more competitive, customer-centric and responsive to increasing
demands of e-business.  With Brio ONE, organizations have one
integrated, scalable and easy-to-use solution delivering business
intelligence, enterprise reporting, information portals, and
packaged analytic applications across all B2X environments.  Brio
ONE helps companies derive higher business value from all of their
information sources, including ERP, SFA and CRM applications, data
marts, data warehouses and the Internet.  Oracle's Senior VP Craig
Brennan is the new CEO of BRIO and he has an aggressive "comeback"
plan for the company.  Investors appear confident in the strategy
and the new buying pressure has helped BRIO's stock return to a
bullish trend.

MAR 10.00 UBR OB LB=0.63 OI=190 CB=9.37 DE=35 MR=16.6%

CHIR - Chiron  $45.06  *** Technicals Only! ***

Chiron Corporation (NASDAQ:CHIR) is a biotechnology company that
participates in three healthcare businesses: biopharmaceuticals,
vaccines and blood testing.  The company is developing products
for preventing and treating cancer, infectious diseases and also
cardiovascular disease.  The company's products include Proleukin,
a recombinant form of interleukin-2, which the company markets as
a treatment for metastatic renal cell carcinoma and metastatic
melanoma.  Chiron manufactures recombinant human platelet-derived
growth factor, the active ingredient in Regranex Gel and they also
manufacture Betaseron for Berlex Laboratories, which is marketed
as a treatment for multiple sclerosis.  In addition, the company
sells a line of traditional pediatric and adult vaccines.  This
position is simply based on the well defined trading range in
CHIR and the risk of owning the issue at $42 is relatively low.

FEB 42.50 CIQ NV LB=0.44 OI=624 CB=42.06 DE=7 MR=12.0%

OII - Oceaneering International  $22.00  *** Earnings Rally! ***

Oceaneering International (NYSE:OII) is an applied technology
company that provides a range of integrated technical services
and hardware to customers operating in marine, space and other
harsh environments.  The company concentrates on the development
and marketing of underwater services and products requiring the
use of advanced deepwater technology and most of its services are
provided to the oil and gas industry.  These products and services
include drilling support, sub-sea construction, design, lease and
operation of production systems, facilities maintenance and repair,
specialty sub-sea hardware and specialized onshore and offshore
engineering and inspection.  Oil service shares are performing well
and this issue has vaulted to new highs in anticipation of its
upcoming earnings report.  Barring a disaster, the stock should
easily remain above our cost basis and a recent support area near
$19.  Traders should wait for a brief pullback in the issue before
initiating a position.

MAR 20.00 OII OD LB=0.45 OI=0 CB=19.55 DE=35 MR=5.4%

RBK - Reebok  $31.20  *** Retail Leader! ***

Reebok International (NASDAQ:RBK) is engaged primarily in the
design and marketing of sports and fitness products, including
footwear and apparel, as well as the design and marketing of
footwear and apparel for non-athletic, casual use.  The company
has four major brand groups: the Reebok Division, the Rockport
Company, Ralph Lauren/Polo Sport and the Greg Norman Division.
Reebok shares have been on the move after the company's report
that it posted a profit in the fourth quarter, compared to last
year's loss.  The company says its products continue to outsell
competitor's brands and profits this year could surge 25% this
year.  Reebok was also the best performing stock in the S&P 500
for 2000 and it appears the trend will continue.

MAR 25.00 RBK OE LB=0.45 OI=1112 CB=24.55 DE=35 MR=5.8%

TSN - Tyson Foods  $13.55  *** Food Sector Consolidation ***

Tyson Foods (NYSE:TSN) and its various subsidiaries produce,
distribute and market chicken, Mexican foods, prepared foods,
animal and pet food ingredients and live swine.  Tyson is a
totally integrated poultry company and its operations consist
of breeding and rearing chickens, as well as the processing
and marketing of these food products.  Tyson Foods is buying
IBP Inc. (NYSE:IBP) for $3.2 billion in cash and both companies
seem to see the deal as beneficial for both.  If the deal goes
through, IBP will be able to expand its new line of shelf-ready,
brand name beef and pork products, and Tyson Foods will benefit
from IBP's expertise in fresh meats and luncheon and deli meats.
Traders who wouldn't mind owning stock in the Food Industry can
speculate on the success of the potential merger partners with
this conservative position.

MAR 12.50 TSN OV LB=0.65 OI=298 CB=11.85 DE=35 MR=11.3%

TSO - Tesoro Petroleum  $13.32  *** Hot Sector! ***

Tesoro Petroleum (NYSE:TSO) is an independent refiner and seller
petroleum products and a provider of marine logistics services.
The company operates three refineries on the United States West
Coast, in Alaska, Hawaii and Washington, and also has a network
of terminals along the Texas and Louisiana Gulf Coast providing
fuel and logistical support services to the marine and offshore
exploration and production industries.  Tesoro operates in two
business segments: Refining and Marketing and Marine Services.
Its principal petroleum products include gasoline, diesel fuel,
jet fuel and heavy oils and lubricants.  TSO is simply another
popular small-cap stock in the oil service sector and if their
upcoming earnings report is favorable, the issue should continue
to rally in the coming months.

MAR 12.50 TSO OV LB=0.40 OI=45 CB=12.10 DE=35 MR=7.1%



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

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

FILE   25.13  MAR  20.00  ILQ OD  0.63  0    19.37   35     9.7%
BBBY   25.31  MAR  22.50  BHQ OX  0.81  27   21.69   35     8.7%
LGND   13.75  MAR  12.50  LQP OV  0.38  30   12.12   35     7.1%
DORL   26.25  MAR  25.00  QDL OE  0.75  50   24.25   35     6.5%
USAI   22.00  MAR  20.00  QTH OD  0.50  43   19.50   35     6.0%
JEC    52.20  MAR  50.00  JEC OJ  1.30  0    48.70   35     5.7%
HB     49.60  MAR  45.00   HB OI  0.80  850  44.20   35     4.3%

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The Downtrend Continues...

Friday, February 9

Stocks plunged today as fears of an economic recession weighed
heavily on investors.  Weakness in large-cap technology stocks
drove the NASDAQ down 91 points to 2,470.  The selling pressure
spread to industrial issues, pulling the Dow 99 points lower to
10,781.  The broader market S&P 500 index ended down 17 points
at 1,314.  Trading volume on the NYSE was meager with only 1.05
billion shares traded.  Big Board losers beat winners 1,658 to
1,400.  Activity on the NASDAQ was also light with 1.8 billion
shares exchanged.  Technology declines trounced advances 2,376
to 1,356.  In the bond market, the 30-year Treasury rose 20/32,
pushing its yield down to 5.381%.

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

There were no positions opened in today's session.  The credit
spread in Apollo Group (NASDAQ:APOL) was not offered at our
target price and it appears that there was a limit order in
place before the market open.  Here's a hint: If you are trying
to fill a thinly traded position with a noticeable disparity,
do not place the order before the options begin trading.  Both
Davox (NASDAQ:DAVX) and Solutia (NYSE:SOI) remained in a small
range, preventing any favorable entries in the bullish synthetic
positions.  We will continue to monitor these plays for entry
opportunities in the coming sessions.

Portfolio Plays:

Today was not a good example of how to the end the week!  Almost
every technology sector endured substantial declines and big-cap
companies were particularly weak as investors gave up hope of an
economic recovery in the near-term.  The belief that profits will
not improve until late in the year has become widespread and the
bearish sentiment is beginning to affect all of the major averages.
Analysts say that revenues should improve over the course of the
next few months because of a weaker dollar and the reduction in
excess equipment inventories.  Earnings will also receive a boost
from an upcoming accounting change, which will eliminate goodwill
amortization.  The immediate future is less favorable because the
profit environment needs to stabilize before the market can stage
a sustainable recovery, and the disappointing results will likely
continue through the next quarter.  On the bright side, all of
the major averages are now deeply oversold and stocks are due for
a technical bounce.  Next week, traders will look for clues about
the Federal Reserve's next move in FOMC Chairman Alan Greenspan's
address to the Senate Banking Committee.  Lets hope the outlook is
an optimistic one!

Despite the dismal performance of the market today, the Spreads
Portfolio experienced little significant activity.  The downward
pressure on stocks was limited in most of our positions and only
a few big-cap technology issues suffered large losses.  Qualcomm
(NASDAQ:QCOM) was the big loser, down almost $6 to $79.12 amid a
sell-off in the wireless telecom group.  Motorola (NYSE:MOT) was
another poor performer, moving below $19 for the first time in a
month.  Hewlett Packard (NYSE:HWP), AT&T (NYSE:T) and Microsoft
(NASDAQ;MSFT) led the blue-chips lower and Navistar (NYSE:NAV)
dropped to the bottom of a recent trading range.  Our calendar
spread in Navistar will need to be closed, or adjusted forward to
March options before the company's earnings next week.  On the
bright side, a number of industrial issues moved higher during
the session.  Bullish plays in Advanced Energy (NASDAQ:AEIS),
HBSC Corporation (NYSE:HBC) and Atrix Laboratories (NASDAQ:ATRX)
benefited from upside activity.  AES Corporation (NYSE:AES) and
Household International (NYSE:HI) were portfolio standouts with
both issues climbing to recent highs.  In the Straddles Section,
the decline in option volatility continued to erode the value of
many of the positions.  In addition, the range bound activity in
the broader market limited the movement of most of those issues
and unfortunately, the trend is expected to continue.  The only
hope we have in the coming weeks is for an unexpected catalyst
to reverse the current course of the market.  I, for one, would
welcome any surprise.

Questions & comments on spreads/combos to Contact Support
                           - NEW PLAYS -
AZA - Alza  $44.55  *** Extreme Options Activity! ***

ALZA (NYSE:AZA) is a research-based pharmaceutical company with
leading drug delivery technologies.  ALZA applies its unique
technologies to develop pharmaceutical products with enhanced
therapeutic value for its own portfolio and for many of the
world's leading pharmaceutical companies.  ALZA commercializes
products it develops as well as products it acquires from third
parties.  ALZA is currently focusing its sales and marketing
efforts in urology and oncology, and in the year 2000 expects to
add central nervous system (CNS)/pediatric marketing and sales

Trading in Alza options surged last week as the share value of
the stock moved higher, and the increased activity pushed the
Implied Volatility in the option premiums to extreme levels.
There was little news to explain the movement and traders could
only speculate about the reason for the rally, but based on the
the volume of shares exchanged, somebody is expecting an upward
bias in the coming sessions.  There a number of ways to attempt
to profit from the recent interest and we have listed two of our
favorites.  Both of these plays are based on the activity in the
stock and underlying options.  While each position offers good
risk/reward potential, they must also be evaluated for portfolio
suitability and reviewed with regard to your strategic approach
and trading style.

PLAY (speculative - neutral/calendar spread):

BUY  CALL  APR-45.00  AZA-DI  OI=2270  A=$4.40
SELL CALL  FEB-45.00  AZA-BI  OI=1756  B=$1.60

- or -

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAR-37.50  AZA-OU  OI=472   A=$0.80
SELL PUT  MAR-40.00  AZA-OH  OI=1749  B=$1.25
INITIAL NET CREDIT TARGET=$0.55-$0.65  ROI(max)=28%

PFE - Pfizer  $45.04  *** An Old Favorite! ***

Pfizer (NYSE:PFE) is one of the world's largest pharmaceutical
and consumer healthcare companies.  The company was formed with
the combined interests of Pfizer and Warner-Lambert company and
the new entity now represents a significant consumer business
encompassing many of the world's best-known brands including
Halls, Tetra, Benadryl, Sudafed, Listerine, Desitin, Schick,
Visine, Ben Gay, Lubriderm, Zantac 75 and Cortizone.  Pfizer
operates through four main operating units: Pharmaceuticals,
Warner-Lambert Consumer Division, Pfizer Animal Health Group and
Pfizer Global Research and Development.

Pfizer was the focus of a number of news items last week after
the company said Tuesday that it has received approval to market
its schizophrenia drug Ziprasidone.  Analysts say doctors are
looking for alternatives to existing anti-psychotic treatments
and if the drug's safety record holds up over time, it could
generate sales that rival those of competing products.  On the
downside, Ziprasidone is associated with an altered heartbeat,
a side affect that has ended the promise of other popular drugs.
The announcement helped the stock rally to recent highs but the
optimism quickly faded as concerns about the labeling of other
potentially harmful products consumed investor's attention.  Now
it appears that PFE is destined to remain in its recent trading
range until another "blockbuster" news item attempts to change
the character of its stock.  We will speculate on that outcome
with this conservative combination position.

PLAY (conservative - bearish/credit spread):

BUY  CALL  MAR-50.00  PFE-CJ  OI=11354  A=$0.40
SELL CALL  MAR-47.50  PFE-CM  OI=12436  B=$0.80
INITIAL NET CREDIT TARGET=$0.50-$0.60  ROI(max)=25%

MTON - Metro One Telecom  $34.50  *** Reader's Request! ***

Metro One Telecommunications (NASDAQ:MTON) develops and provides
enhanced directory assistance and information services for the
telecommunications industry.  It contracts mostly with wireless
carriers to provide services to their subscribers.  The company
opened its first call center and began testing and offering its
enhanced directory assistance and information services in 1989
and has since entered into hundreds of contracts to provide its
services to carrier's subscribers on a charge per call basis.
In addition, the company has expanded into the landline telecom
market and provides services to GST Communications, a regional
competitive local exchange carrier.  The company currently has
contracts with 13 carriers and their customers include many of
the leading wireless telecom providers such as Sprint PCS, AT&T
Wireless Services, Nextel Communications, Pacific Bell Wireless,
Vodafone AirTouch PLC and ALLTEL Communications.

One of our readers commented on the recent bullish chart history
of Metro One and asked us to identify some potential positions
in the issue.  One of the more favorable speculative strategies
is the "synthetic" position and in this case, the option premiums
favor that approach.  Traders who see a bullish future for the
issue may attempt to profit from this low risk technique.  We
will target a slightly higher premium initially, to improve the
potential for profit in the position.

PLAY (conservative - bullish/synthetic position):

BUY  CALL  MAR-40  KQM-CH  OI=40  A=$1.00
SELL PUT   MAR-25  KQM-OE  OI=40  B=$0.62

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $775 per contract.

                         - STRADDLES -

I received some new requests for debit straddles this week and
although the relative premiums in options is very low, there
were very few candidates that met the fundamental criteria for
the strategy.  As you know, I simply look for options that are
undervalued, on stocks that have the potential to move (high or
low) enough to make the straddle profitable.  In addition, I try
to find issues that have a history of multiple movements through
a sufficient range (in the requisite time period) to justify the
overall risk/reward of the position.  Based on historical option
pricing analysis and the technical background of the underlying
issues, these positions are good candidates for debit straddles.
Current news and market sentiment will have an effect on these
stocks, so review each position individually and make your own
decision about its potential for profitability.

TV - Grupo Televisa  $50.31  *** Probability Play! ***

Grupo Televisa SA (NYSE:TV) is a media company in the Spanish
speaking world and a well known participant in the international
entertainment business.  The company has interests in television
production and broadcasting, programming for pay television,
international distribution of television programming, popular
direct-to-home satellite services, publishing and publishing
distribution, music recording, cable television, radio production
and broadcasting, professional sports and business entertainment
promotions, paging services, feature film production and sales,
dubbing and an Internet portal.  The company also owns an equity
interest in Univision Communications, a Spanish television
broadcaster in the United States.

PLAY (conservative - neutral/debit straddle):

BUY  CALL  APR-50  TV-DJ  OI=141   A=$4.50
BUY  PUT   APR-50  TV-PJ  OI=1080  A=$4.00

ICOS - ICOS Corporation  $50.06  *** Probability Play! ***

ICOS Corporation (NASDAQ:ICOS) is discovering and developing new
pharmaceuticals by seeking points of intervention in disease
processes that may lead to more specific and efficacious drugs.
The company's research and drug development programs involve both
acute and chronic conditions.  Presently, the company and its
affiliates have four product candidates in clinical trials: IC351
and sitaxsentan, each a small molecule product candidate; Pafase,
a recombinant form of a naturally occurring human serum enzyme;
and IC14, a monoclonal antibody.  In addition, the company has
several product candidates in the research and pre-clinical phases
of development.  Over the past few years, ICOS has established
corporate collaborations to enhance and optimize the company's
development while maintaining substantial downstream product
rights to potential products, thereby offsetting a substantial
portion of the financial risk of developing these candidates.

PLAY (conservative - neutral/debit straddle):

BUY  CALL  APR-50  IIQ-DJ  OI=156  A=$5.50
BUY  PUT   APR-50  IIQ-PJ  OI=18   A=$5.00


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