Option Investor

Daily Newsletter, Tuesday, 02/20/2001

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The Option Investor Newsletter                  Tuesday 02-20-2001
Copyright 2001, All rights reserved.                        1 of 2
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MARKET WRAP  (view in courier font for table alignment)
        02-20-2001        High      Low     Volume Advance/Decline
DJIA    10730.90 - 68.90 10903.20 10727.50 1.11 bln   1321/1755
NASDAQ   2318.35 -107.03  2442.99  2317.77 1.88 bln   1308/2513
S&P 100   661.36 - 14.06   679.08   660.85   totals   2629/4268
S&P 500  1278.94 - 22.57  1307.16  1278.44           38.1%/61.9%
RUS 2000  491.14 -  8.14   500.36   490.44
DJ TRANS 2977.46 - 17.32  3015.44  2972.11
VIX        27.50 +  2.42    27.82    25.35
Put/Call Ratio      0.70

CSCO recession spreads to Intel!

The recession CSCO CEO John Chambers spoke about over the
weekend has now spread to Intel. Nasdaq:INTC said today that
they were instituting cost cuts that would save several hundred
million dollars this year. They are cutting some costs by as
much as 30% due to an increasingly difficult economic environment.
The tech sector finally gave in to the continued bad news and the
remaining buyers gave up in disgust. Thank you John Chambers!

There was not much to brag about in the markets today. Bulls
were constantly bombarded by downgrades on any sector that was
showing signs of life. The fiber-optic community led the hit
parade as they got hammered again with a round of negative news.

Nasdaq:JDSU hit a low of $32 after UBS Warburg cut them to a
neutral from a strong buy. A Lehman analyst cut revenue targets
for JDSU on the basis of slowing sales and rising inventory.
Corning, Nyse:GLW, dropped another -10% to $30 and Nasdaq:CIEN
lost -$5 to $77.50.

The Lehman analyst also cut all the communication chip stocks
and the resulting losses were serious. He said visibility going
forward was poor and he expected all three of the majors to warn.
He cut estimates by about -18% on all three. Nasdaq:BRCM lost
-9.75, Nasdaq:AMCC -5.50, Nasdaq:PMCS -7.88. PMCS was stated
to be the least likely to warn. CSFB analyst Charlie Glavin,
also downgraded PMCS to a hold and AMCC to a buy due to soft
March orders.

The selling was not limited to tech stocks. Brokerage stocks
took a hit after comments about slowing volume and general
economic uncertainty. Keefe Bruyette & Woods issued rating
changes and cautions on the major brokers saying account
growth was slowing and trade volume was anemic. Nyse:LEH
took a huge hit dropping -$7 and Nyse:GS was only slightly
better at -$5.50. Schwab was the least impacted with only
a -$1.14 loss. Schwab was hit last week after saying they
would have trouble meeting estimates.

Financial stocks in general were sold on fear of a recession.
Banks were dropped on fears of loan losses and weak loan demand.
Citigroup, JPM and BAC all fell on a downgrade to Bank One by
a Goldman Sachs analyst. Goldman said consumer loan portfolios
would be the next area to watch in the banking community.

Airline stocks also suffered after Merrill Lynch cut earnings
projections for six carriers. UAL, AMR, ALK, CAL, NWAC and DAL,
all are victims of deteriorating consumer sentiment and could
see lower demands for air travel if the economy continued
slowing. Flat corporate profits and continued layoffs would
slow demand for air travel.

About the only sector making progress today was the retailers.
After earnings from Wal-Mart and Home Depot the sector was
energized on hopes of strong results from other companies
announcing this week. Wal-Mart beat the street by a penny
and logged its first $2 billion profit quarter. They called
it challenging but still beat the street. Home Depot announced
earnings in line with estimates but then warned that next
quarter profits may slip. ANF announced after the close and
beat estimates by two cents. Historically retailers do well
in late February and March and even in this bear market they
appear to be holding their own.

Agilent, Nyse:A, announced earnings after the close and followed
the scripted program perfectly warning that sales would be
substantially lower and growth would be only 10%-15% for the
full year. Analysts had expected $29 billion in revenues and
the company guided them lower to only $12 billion. A serious
shortfall! The same reasons were given, over capacity, excess
inventory and no sales. They did not actually say "no sales"
but read between the lines and that is what you get. The stock
was hammered in after hours trading and fell to a low near
$41 after closing at $44.26.

The Nasdaq closed at its low of the day and only +67 points
over the intraday low for the year of 2251. Support at 2400
failed shortly after the open and the index suffered all day.
The negative sentiment was so thick it could have been smog.
Up volume on the Nasdaq was only 277 million and down volume
was 1.5 billion. With today being a continuation of last
Friday the 5:1 ratio of down to up volume is getting very
close to a capitulation event. The only holdup was the volume.
At only 1.8 billion for the Nasdaq it was not a blowout event.
Without a blowout there will only be a weak bottom. There was
no bargain hunting at the close and it was the lowest close
since Jan-2nd at 2291. There were just no buyers to offset
the few sellers.

If we are going to bounce then Wednesday may be the
day. The Agilent earnings tonight sounded just like the
others in the past weeks and may not impact the market as
much as some new unexpected disclosure. We are very close
to important support at 2300 and again at the year low of
2251. This support along with the serious oversold conditions
could trigger the bounce. The keyword here is "could."

The economic report to watch tomorrow will be the CPI and
most analysts are not expecting a blowout like the PPI last
week. The expected number is +0.3% with the core rate at +0.2%
The problems brought about by the PPI last week include the
possibility of stagflation and a calming of Fed aggressiveness.
A benign CPI could re-ignite the Fed and increase odds of a
larger rate cut at the March-20th meeting. A blowout CPI could
cause some serious problems as it would be seen as confirmation
of the PPI and a Fed on hold again. I can't imagine the Fed
staying on the sidelines with every earnings report chock
full of problems but then again I am not Greenspan.

As traders we need to be wary of this market. While it is
totally rational to expect a bounce any day, what we expect
is immaterial. As long as everybody is sitting on the
sidelines waiting for the bounce, it will not happen. Until
traders decide stocks are too cheap and start spending money
again then we should wait. Remember, we are not trying to
pick a bottom. We want to buy the bounce not the drop.
While I feel that technically we are due a bounce anywhere
between here and 2250 there are serious challenges to this
thought process. With two of the biggest companies on the
Nasdaq, CSCO and INTC, making horribly negative comments,
there is no reason for traders to buy stocks. SUNW has an
analysts meeting on Thursday and many expect them to warn.
The sentiment is very negative and can get worse. Until
something changes this sentiment there is not going to be
a rally. It could be a benign CPI tomorrow or another
surprise rate cut. We do not know what the catalyst will
be but we have to have it to stop the current down trend.
Either way I do expect a trading rally soon. Now repeat
after me, Low CPI, Low CPI, Low CPI.....

Enter passively, exit aggressively!

Jim Brown

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

OptionInvestor is proud to announce our third annual Spring
option workshop in Denver Colorado. This power packed five-day
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If you attended the March Denver Expo last year and thought it
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plain fun in sunny Denver. The biggest complaint in March was
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Current speakers include:

Tom DeMark, author of "Day Trading Options", "Science of
Technical Analysis" and "New Market Timing Techniques" and
manager of a $4 billion hedge fund.

John Najarian, "Doctor J" as he is known on the CBOE

Mark Leibovit, Chief Market Strategist of VRTrader.com

Richard Arms, inventor of the TRIN, or Arms Index, Equivolume
charting and author of "Trading Without Fear."

Mark Skousen, Editor of Forecasts and Strategies for over 20

Steve Nison, the worlds foremost expert on Candlestick charting.
Author of "Japanese Candlestick Charting Techniques" and "Beyond

Harry Brown, author of seven investment books.

Jim Crimmins, President of TradersAccounting.com

Austin Passamonte, Editor of IndexSkybox.com

Jeff Bailey, Editor of PremierMarkets.com

Jim Brown, President of the Premier Investor Network.

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

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

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

This is not a prepackaged presentation that gets repeated over
and over with stale information. This is a one-time production
and everything is fresh, live and as current as we can make it.
The videos will have your real time questions and answers and
not some from a prior class. Where else can you get intensive
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Do not delay as seating is very limited.
We guarantee you will not be disappointed!

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

Click here for more info:

Mark Leibovit, the #1 market timer in the nation, will be
on the Nightly Business Report discussing his Annual
Forecast Model on Friday evening February 23 (between 5:30
and 7:00 p.m. ET).

Mark is Chief Market Strategist for VRTrader.com, a Premier
Investor Network website, a technical consultant and former
'Elf' on Louis Rukeyser's Wall Street Week for 7 years.
His Annual Forecast Model has been subscribed to by Wall
Street's most elite. Mark is presently ranked #1 timer in
the nation by TIMER DIGEST and #2 on AmericasBestTimers.com.

For information on his extremely accurate Annual Forecast
Model for your own viewing, click here:


Dead Mountain-Lion Bounce?
By Austin Passamonte

It's official: We're heading to new market lows according to
every celebrity spokesperson and market analyst speaking on CNBC
today, from the time we tuned in until we turned their noise off.
That's all the near-term bullish confirmation Market Sentiment
needed to hear.

Make no mistake, we still feel the ultimate multi-year bottom
lies ahead and it may likely not be anything resembling a "V".
That being said, we expect to go higher before then if even just
for a little while.

Where to begin? Well, fundamental news couldn't get much worse.
Big-cap techs have been pounded to recent lows not dreamed of in
the wildest bear fantasies. CSCO (NASDAQ:CSCO) at $26, INTC
(NASDAQ:INTC) at $31 and JDSU (NASDAQ:JDSU) downgraded from a
"buy" to worse were absolutely unthinkable mere weeks ago.

INTC's report about slashing costs and dismal 2001 outlook
whacked any semblance of a rally broad markets may have attempted
to post this session. Better then than after the bell, however.

From a purely fundamental basis investors & traders should sell
every equity they own, sit in cash and wait for the bull-run to
resume many months or even years from now down the road. For
those of us who care more about technical analysis, such is not
the case.

Where do we begin? Let's just hit the high notes here.

First of all, chart signals spanning all mid to near-term time
frames for major indexes except the Dow are buried in oversold
zones and screaming for relief. They can remain there awhile
longer but not forever.

Daily chart candlestick patterns pushed well outside the OEX and
SPX lower Bollinger band today while the VIX pushed outside its
upper Bollinger band... both cases of near-term bullish reversal
indication, likely tomorrow.

The VIX has spiked towards its bullish reversal values and newer
studies tracking the NDX (VNX.X on CBOE and QQV.X on AMEX
exchanges) each spiked higher of course, but we don't have a feel
for where they trade at extremes. All could go higher as the
selloff continues but not forever.

Put/Call ratios have lost all touch with sanity. We realize it's
the first front-month day for March contracts but get a load of
those open put/call ratios listed below versus overhead ratios in
relation. The whole world loaded up on OTM put contracts today
and the majority simply cannot win. We are sitting on huge
disparities of support with scant resistance directly overhead.
We like that risk/reward factor as well.

Ten of the last fourteen trading sessions in the S&P 500 have
been negative closes and that cannot go on forever. Without
question we should see lower closes than today's and probably
many of them going forward, but a relief rally is builds pressure
in the interim.

Market sentiment expects another relief rally soon and we think
it's closer now than anytime since the post-FOMC decline. Tech
darlings are cheap and momentum players & dip buyers cannot stand
to stay away. Lest we think it will be different this time,
that's what everyone always thinks during times like these. The
public will always exist and an excuse will emerge to begin
testing the "bottom" soon.

We consider the next rally to follow (whenever it emerges) to be
another excellent bearish-play entry, but it should be tradable
to the upside first. There seems to be more upside reward than
downside risk in the overall indexes but not necessarily single
companies. Plenty of time-bombs still remain out in techland that
will take their stock's price from current value to zero. Make
sure you don't play any of those!

Expect market relief soon and it could be fleeting but furious.
One session's action does not a trend make as we've witnessed
countless times this year.

Trade the daily trend with caution!


Tuesday 02/20 close: 27.50

Tuesday 02/20 close: 67.60

30-yr Bonds
Tuesday 02/20 close: 5.45%

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)
700 - 685                8,019        4,017         2.00
680 - 665                2,180        5,636          .39

OEX close: 661.36

660 - 645                   48        3,418        75.96
640 - 620                    3       12,260      4086.67

Maximum calls: 700/4,891
Maximum puts : 640/5,681

Moving Averages
 10 DMA  687
 20 DMA  699
 50 DMA  696
200 DMA  752

NASDAQ 100 Index (NDX/QQQ)
 62 - 60                57,218        23,778         2.41
 59 - 57                27,759        21,868         1.28
 56 - 54                21,582        35,000          .62

QQQ(NDX)close: 52.99

 52 - 50                 5,086        22,072         4.34
 49 - 47                   221         8,546        38.67
 46 - 44                   222         5,561        25.05

Maximum calls: 60/41,149
Maximum puts : 60/19,206

Moving Averages
 10 DMA 57
 20 DMA 61
 50 DMA 61
200 DMA 81

S&P 500 (SPX)
1350                   44,809        40,929          1.09
1325                   38,467        43,732           .88
1300                    9,907        23,176           .43

SPX close: 1278.95

1250                    3,273        12,096          3.70
1225                      114        12,218        107.09
1200                    1,197        22,240         18.58

Maximum calls: 1350/44,809
Maximum puts : 1325/43,732

Moving Averages
 10 DMA 1321
 20 DMA 1341
 50 DMA 1331
200 DMA 1410


CBOT Commitment Of Traders Report: Friday 02/16
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          -2625     -2903         -4782     -4001
Total Open
interest %      (-24.98%)  (-29.87%)     (-18.90%)  (-16.84%)
                net-short  net-short     net-short  net-short

Open Interest
Net Value          +4104     +3292         -8143     -6615
Total Open
Interest %      (+18.73%)  (+20.96%)     (-12.85%)  (-10.93%)
                net-long   net-long      net-short  net-short

S&P 500
Open Interest
Net Value         +73789     +74142        -92910    -94766
Total Open
Interest %      (+40.21%)  (+41.81%)     (-12.12%)  (-12.52%)
                net-long   net-long      net-short  net-short

What COT Data Tells Us
Indices: Overall, positions of both the Small specs and
Commercials have not varied significantly from last week, as
Commercials continue to hold large net-short positions on the S&P
500, DJIA, and NASDAQ 100 while the Small specs are on the long
side in the S&P 500 and NASDAQ 100.

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 02/13 by the CFTC.


Please visit this link for Market Posture:



Probability Of Profit
By Lee Lowell

Going into most option trades, the trader feels pretty good about
his/her chances of walking away a winner.  They've done the
research.  They've checked the fundamentals, the technical picture,
and maybe even done some volatility analysis (my favorite part).
But have you checked your actual chances of success of your
desired position?  This would be achieved by checking the
"probability of profit."  It's very easy to do.  All you need is
to have access to a probability calculator.  If you've ever done
studies on this subject, you'll find that most option buying
strategies lie somewhere in the range of having a 2%-35% chance
of success, while option selling strategies fall somewhere in the
range of 70%-95% chance of success.  The reason  that most option
buyers have such a small chance is due to the fact that most will
buy overvalued, out-of-the-money options.  Be that the case, I'm
still going to show you how to check your chances of success for
whatever strategy you choose.

Since I like to sell options to take advantage of daily time decay,
I'm going to walk you through the steps I take to find the
probability of the strategy yielding a winner.  I never sell naked
options so most of my trades are selling credit spreads on either
the indices or some individual stocks.  One of the keys to any
selling-type strategy is to find an underlying security with above-
average implied volatility.  One of the easiest securities to do
this with is the OEX.  You can find its implied volatility by
looking at it own volatility index called the VIX.

The graph above is a one year chart for the VIX.  As of Friday,
2/16/01, the VIX was trading just around 25 which is a little under
the average for the last year.  The VIX tells us how expensive or
cheap the options on the OEX currently are compared to its past.
We need to know these numbers because it will come into play when
using our probability calculator.

The OEX closed on Friday 02/16/01 around 675.

Since I believe that the OEX will not make a substantial rebound in
the very near term, I want to sell some call spreads on the OEX for
the nearest expiration month.  I will concentrate on selling
out-of-the-money(OTM) options since these are usually overpriced,
and because they have a smaller chance of becoming profitable.  If
I am wrong on my prediction and the OEX starts to rebound, the OTM
calls give me more room for error since they have no intrinsic
value to begin with.  I'm looking at selling the March OEX 705
calls and buying the March 710 calls for a credit of 1 point.  My
reward is limited to $100 per spread and my risk is limited to
$400 per spread.  Does that seem like a good deal?  Risking $400
to make $100?  We won't know until we check our odds.  Let's take
a look at the probability calculator.

On the top of the calculator you will see the inputs area.  Here
you enter the current price of the underlying security along with
the days to expiration, volatility estimate, and your target price
level.  I have loaded the current price of the OEX of 668, 24 DTE,
a volatility estimate of 25% and my target price of 706 which is
my breakeven level.

If you look at the results, you will see the chances of the OEX
going above the breakeven point of 706 that I set in the inputs
section.  It's only giving me a 19.40% chance of the OEX going
above 706.  So I have approximately an 80% chance of this trade
working out in my favor.  Going back to our question above:  does
this seem like a good deal to risk $400 to make $100?  I think if
you have any chance over 80%, then it's a pretty good deal.  You
can look at it on the flipside too as the option buyer.  Would you
rather risk $100 to make $400.  On the surface this seems like the
better bet.  But if you only have a 20% chance of winning that
$400, would you do it?  It's a personal preference, but as the
option seller, I like taking the odds of an 80% chance of winning
over a 20% chance.

We need to discuss the inputs for a minute.  Since the price of
the underlying, DTE, and breakeven points are known numbers, the
only one we need to be careful about is the volatility component.
Since the volatility input is usually a guesstimate, we can
achieve different probability numbers.  I like to stick with the
market's implied volatility forecast because that usually
represents a wide consensus of most market participants.  The OEX
is easy to use because the VIX is a readily available number.
When pricing individual stocks, you need to have a good handle on
the volatility estimate.  Look at historical volatility charts
along with the implied volatility charts and come to some sort of
average.  If you're looking to sell options, choose the higher
volatility number.  This will give you more room for error because
you'll be more cautious of the strikes you choose.

For those of you who like riskier trades and have the capability
in your brokerage account to sell naked options, you can get some
pretty good chances of success for the options to expire worthless.
Take a look at selling the MARCH OEX 560 put/720 call strangle for
2 points.  This makes our breakeven points 558 on the downside and

This gives us a greater than 99% chance of the OEX not reaching
our downside parameter and an 88% chance of the OEX not reaching
our upside parameter.  Granted, there is unlimited risk in this
trade, but the chances of that happening within 24 days are slim.
If the OEX stays within our wide trading range, we get to keep our
$200 premium.

Think a stock like Brocade (BRCD) is due for a quick and large
recovery?  Why not buy some cheap OTM calls.  How about the March
$70 calls for 1 point?  C'mon, it's only $100.

Taking into consideration that BRCD's implied volatility levels
are at yearly high's, you'll only have about a 6% chance of making
any money on that option.  Good luck.

Now, these probability calculations are not the end-all be-all of
options trading.  Since the outputs are based on guesses of your
volatility input, the outcomes can always surprise you.  Your
volatility estimate at the time of trade may be different a week
later, or some earnings warning may come out and drastically move
the price of the stock.  Check your chances with the calculator
during the course of the trade to see how the odds change.  This
is why I like to make my sell-side trades on the indices instead
of individual stocks because they are prone to less dramatic moves.

The probability calculator is just another tool to add to your
arsenal when trading options.  Use it before you buy that next
OTM option.  Your chances of success might surprise you.

Until next time...


Review Of My February Plays
By Scott Martindale

What was that I heard from John Bollinger on CNBC today?  While I
was working out at the gym, I was reading the closed caption on
the TV, and he seemed to indicate that the Nasdaq might stay
around 2300 for the next couple of years!  Not much lower, but not
much higher either until earnings catch up with valuations.  Did
he really say that the action for the foreseeable future might be
in tractors rather than chips?  Say it ain't so.

Indeed, a scan of my long-term stock holdings at today's close
showed winners like high-yielding REITs and royalty trusts,
natural gas producers/traders, drug makers, and retailers; whereas
my remaining tech holdings were almost all down.  Although I've
lightened up considerably in tech primarily through stop orders,
I'm still holding several of my favorites without stops.

Just as January was a terrific month to be a bullish options
trader, February was just the opposite.  With the Nasdaq peaking
on the first trading day after January expiration, buying puts or
selling calls was the better approach.  Nonetheless, I ventured
into a few naked put plays.  On Jim's suggestion in the newsletter
on Sunday, Jan 21st, regarding strength in Ciena (NASDAQ:CIEN), I
sold deep-ITM Feb 120 naked puts on Jan 22nd for $24 when the
stock dipped to about $101.  Much to my distress, the stock
continued to pull back into the low-80's before rallying into the
Fed meeting.  On the Wednesday morning of the Fed announcement, I
decided to relieve myself of some portfolio risk and buy back the
puts for $23.25.  This turned out to be a wise decision as the
stock sold off post-Fed to around $70.

I also continued to use these fearsome selloffs to provide entry
points for writing high-premium naked puts; whereas buying calls
(with their equally high premiums) only pays off if the stock
recovers strongly.  [Of course, the downside risk of naked puts is
still much greater.]

I wrote naked puts on only three stocks showing extreme weakness:
Network Appliance (NASDAQ:NTAP), Adobe Systems (NASDAQ:ADBE),
and Superconductor Technologies (NASDAQ:SCON).  Unfortunately,
all three continued to stay weak.  After selling off from the mid-
70's to the mid-50's in two days, NTAP appeared to be stabilizing,
so I wrote the slightly-OTM Feb 55 puts on Jan 26th for $5.25.
Rather than close them out on the next leg down, I decided to hold
on in anticipation of a strengthening in the important data
storage sector, but I ended up closing out the position during
expiration week at around $14.  This was bad position management
on my part.

As for ADBE, I used the post-Fed announcement selloff on Jan 31st
as an entry point, writing the Feb 45 puts for $3.50 with the stock
right around $45.  The stock held tough for four days before
succumbing to selling pressure.  SCON held tough technically right
through the Fed announcement, so when it showed some pre-weekend
weakness on Feb 2nd, I took the opportunity to sell ITM Feb 10 puts.
Unfortunately, the weakness has persisted.  Nevertheless, I
decided to take assignment of both ADBE and SCON for covered call
writing in anticipation of these issues coming back quickly with
the next tech rally.

I realized today that I haven't bought a long-term option (over
three months out) or a LEAP since last June!  I just haven't been
confident enough in the market direction to fork out much money
for time premium, and the bid/ask spreads can really hurt you if
you decide to stop out.  Until I can tell a bull rally from a bear
trap, I'm going to remain reluctant to buy long-term options in
either direction, although I have been trading equities a bit.

However, I'm still willing to play short-term options, although I
didn't buy any new call options during the Feb expiration month.
Swing trading the Nasdaq 100 Unit Trust (AMEX:QQQ) and S&P 100
Index (CBOE:OEX) proved to be too time-intensive and aggravating
for my taste, so I stopped that trial back in December.  However,
I continued to hold February calls on Applied Micro Circuits
(NASDAQ:AMCC) and Portal Software (NASDAQ:PRSF) from late-
December.  I sold the AMCC Feb 80's at a 50% loss just when I
thought it was starting to come back in late January.  But the
PRSF Feb 10's worked great as I sold them on Jan 30th ahead of the
Fed meeting for a 375% profit, even though the technicals seemed
to indicate it had further to run.  The post-announcement selloff
made this an excellent decision as I sold at the peak.  Note that
merely placing a tight stop loss in an effort to "let profits run"
doesn't always guarantee that you preserve your gains since a
volatile stock can gap down very quickly, giving you far less gain
than you expected.  In cases like this, it's better to sell on
strength rather than depend on stops to protect your gains.

I've been cautiously bullish for awhile now, waiting for the right
time to buy calls and equities or write puts, but not playing the
downside at all (despite Austin's encouragement in the newsletter).
But last Wednesday morning, I finally decided to buy March puts on
a stock with a particularly ominous chart, Time Warner Telecom
(NASDAQ:TWTC).  Of course, the market jumped on that opportunity to
rally big when ol' Scott finally bought puts!  Although I had been
hiding out, the market was laying low just waiting to trap me!
[I know everyone's felt that way from time to time.]  But alas,
the stock has continued its slide along with the rest of the
market, making that play profitable so far.

Last month I described a covered call play on JDS Uniphase
(NASDAQ:JDSU) in which I was called out at $60 and bought back in
at $58.  However, I was stopped out of those shares on Jan 26th at
about $56.  I was also stopped out of Nortel Networks (NYSE:NT)
around $36, QQQ at $61, and a few others.  I don't carry sell
stops on all my long-term holdings, just the sectors that seem
particularly vulnerable or are in longer-term downtrends.  In
retrospect, I also should have stopped out of EMC (NYSE:EMC) when
the once-invincible data storage sector succumbed to the tech bear
like everything else.

Nevertheless, during the month I wrote covered calls to generate
cash on a number of my long-term holdings showing technical
strength, including Stillwater Mining (AMEX:SWC), International
Rectifier (NYSE:IRF), Qualcomm (NASDAQ:QCOM), and Biogen
(NASDAQ:BGEN).  I wrote at-the-money Feb 40's on SWC, Feb 55's on
IRF, and Feb 85's on QCOM, as well as in-the-money Feb 65's on
BGEN.  I held off selling calls on BGEN until Feb 9th because of
its extreme strength, and I wrote ITM because it looked overbought
and due for a pullback as it bumped up against $70.  However, it
pulled back only briefly, and in fact BGEN was the only stock that
was called out for the month.

Despite the current market weakness, it still looks like an
opportunity in the making as valuations fall to more palatable
levels.  No doubt, Nortel's severe earnings warning and John
Chambers' comments hurt, but I'm continuing to watch the fallen
angels for possible plays, such as NT, CSCO, JDSU, AMCC, and
Extreme Networks (NASDAQ:EXTR).

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index instead?

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


MUSE $55.06 -9.00 (-9.00) Unfortunately, even MUSE could not
hold up amidst the heavy selling which occurred on the Nasdaq
and in the software sector.  MUSE dropped in the morning to
the $58 level, where it spent most of the afternoon consolidating.
However, when the Nasdaq dropped 100 points at the end of the
day, MUSE could not muster up the strength to fight the trend.
While the stock may recuperate if the Nasdaq rallies, MUSE has
closed below our stop level of $58, and we are thus dropping
it tonight.

IFIN $76.88 -5.13 (-5.13) Unfortunately, broad based heavy
selling in the brokerage and investment banking stocks put an
end to our call play in IFIN.  IFIN sold off in sympathy with
other stocks like GS, MWD and STT, which were mercilessly
slaughtered on stagflation concerns.  While these concerns may
dissipate if the CPI is benign tomorrow, IFIN closed below our
stop and we are thus dropping it tonight.

IBM $111.50 -3.50 (-3.50) Simply put, IBM not only failed to
rise to the occasion.  And to a larger extent, the share price
failed to stay afloat amid the market adversity.  The
uncertainty saw Big Blue get cut down over 3% on robust volume.
The substantial losses unequivocally took IBM through our $113
stop.  It's disappointing to have to knock IBM off our call
list, but its overall weakness today leaves us no choice.

USB $28.98 -0.45 (-0.45) Broad-based bearish comments in
conjunction with company specific downgrades in the finance
sector Tuesday caused detrimental damage to our USB call play.
The stock has appeared to lost all of its momentum and is now
sliding lower.  Although USB hung around its 50-dma near the
close of trading, it did settle below our protective stop at
$29.  If the close below the stop didn't get you out today,
use any pop back above the 50-dma now at $29.03 to exit open

LAB $47.12 -3.91 (-3.91) Brokerage stocks took it on the chin
during Tuesday's session as a round of downgrades and bearish
comments concerning light trading volume swept through the
sector.  For its part, LAB was downgraded by Keefe Bruyette,
which subsequently caused detrimental damage to our play.  LAB
fell on relatively heavy volume, and finished well below our
protective stop at $49.  If the slip below the stop didn't get
you out of positions, use any relief rally or bounce Wednesday
morning to exit open positions.  Monitor the direction in the
Broker Index (XBD.X) in order to gauge an exit point!


STT $100.10 -4.80 (-4.80) Patient investors were finally
rewarded today, as STT gave them a sharp drop to pad the profits
in their accounts.  After gradually declining every day for the
past couple weeks, the stock finally vindicated the bears by
gapping lower and then sliding throughout the day, fractionally
breaching the century mark towards the end of the day.  Driving
the drop today was widespread weakness in Financial stocks, and
the net result was to bring our play down to major support in
the $98-100 level.  Given that the $100 support level held into
the close today, we'll take this opportunity to lock in our
profits and move on to new plays.

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index instead?

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The Option Investor Newsletter                  Tuesday 02-20-2001
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

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AES $58.59 +0.61 (+0.61) Amidst the overall market weakness,
AES emerged victorious, seemingly undaunted by investors' fears
of possible stagflation and a continued slowdown in technology
earnings growth.  Public awareness is growing regarding the
increasing demand for power in the U.S., particularly in
California.  In addition, consolidation is occurring in the
power sector, as Energy East announced today that they plan to
buy RGS Energy Group for $1.4 billion.  With the momentum AES
is generating, it should be able to break out from the wedge it
has been forming to clear heavy resistance at $60 in the near
future, which could mean clear sailing to the $65 level.
Conservative traders might want to wait for this break on heavy
volume.  Monitor the independent power sector for strength,
and set stops at $56.

CIEN $77.31 -5.31 (-5.31) It was an outright nasty post-holiday
session! The monstrous sell-off reached all corners of the
market and left no stock unscathed.  In fact, CIEN closed below
our $78 stop, but we're maintaining our coverage on the
expectation of a rebound following the short covering rally this
afternoon.  The analysts are also booting for CIEN's strong
recovery, with many citing the company's ability to take market
share from its faltering rival, Nortel (NT).  Recently Thomas
Weisal and Wit SoundView reiterated Strong Buy recommendations
and issued price targets of $150 and $155, respectively.  Today,
Gruntal & Co also reiterated a Short-Term Outperform and $120
price target on CIEN.  Today's pullback places CIEN below the 5
& 10 DMAs.  Therefore, please consider waiting for CIEN to
resume a strong position above the $78 and $79 marks before
strategizing an aggressive entry.  In a rebounding market, look
for buyers to take CIEN into the $82-$84 range and drive it
towards $90 on strong volume.

AEOS $58.19 -0.50 (-0.50) Earnings' reports from Walmart (WMT)
and HomeDepot (HD) initially gave the DOW and the retail sector
a lift in early trading, but it soon became evident that the
rally couldn't swing the broader market.  In despite of the
overall downside action, AEOS managed quite well and once again
demonstrated its strength ahead of its own earnings' date.  The
company is confirmed to report on March 15th, BEFORE the opening
bell.  Currently, near-term support is established at the $58
level; although $60 remains a staunch adversary on the upside.
During these turbulent times, it may be wise to wait for the big
breakout through the 52-week high, at $60.06, before adding new
positions.  A close under the $54 mark and we'll exit AEOS.

SDS $58.25 +0.99 (+0.99) SDS continued to display relative
strength in a market that is not necessarily friendly to anything
tech-related.  However, SDS' strength is not isolated; several of
its competitors traded higher during Tuesday's tough session for
the tech sector.  SDS' relative strength should bode well going
forward if the Nasdaq and broader tech sector rebounds.  Having
said that, the most prudent strategy would be to wait for
an advancing Nasdaq in conjunction with strength in competitors
such as FISV before entering new SDS positions.  If you get
confirmation early Wednesday morning, new positions can be
added at current levels, thereafter traders might look to take
some profits as SDS approaches $60.  Low volume pullbacks can
be pursued conservatively, but be aware that we've raised our
protective stop to $57 and would drop coverage on SDS if the
stock closed below that level.

LH $146.49 +1.24 (+1.24) On a day where sharp declines emerged
on all the major indices, defensive stocks attracted fresh
money, and LH fit the bill.  Granted, it wasn't a huge gain,
but the fact that our play posted a gain at all is encouraging,
as it continued to forge ahead in its fledgling recovery.
Capping the stock's upside move today was the upper Bollinger
band ($147.15), but with daily Stochastics still heading
upwards, LH looks like it could continue to push towards
resistance, first at $148, and then $150-152.  We are moving
our stop up to $141, and aggressive traders can target shoot
new entries on a bounce from this level or the ascending
trendline near $143.  In case you missed it last week, the
company reported earnings that beat estimates by a handy 8
cents (13.5%), and that is likely the principle catalyst behind
the solid performance in the past week.  LH is even
outperforming its primary competitor, DGX, which is looking a
little bit weak.  If DGX rolls over, selling pressure could
bleed over into trading of LH, so monitor this stock to keep
from getting on the wrong side of the trade.

MLTX $20.00 +0.13 (+0.13) While not a stellar day for Technology
stocks, or our play on MLTX, it was encouraging to see the stock
stop on a dime at the $20 support level.  After puncturing the
upper Bollinger band last Thursday, the stock needed to pull
back a bit for its next leg higher, and we are hoping this is
where things will turn up again.  With our stop still sitting at
$19, there isn't a lot of wiggle room for aggressive investors
looking to buy the dip.  If MLTX bounces above our stop (and it
looks like we may be seeing the beginning of that in today's
session), feel free to initiate new positions for the next move
up.  More conservative investors will want to hang onto their
cash until the bulls can propel the price up through the $21
level (the bottom of the gap up from last Thursday).  The NASDAQ
is in a tenuous condition right now, so we need to watch it to
keep us apprised of the likely near term direction on our play.
If it bounces from current levels it will likely buoy shares of
MLTX, but setting new 52-week lows is likely to have a
deleterious effect on our play.

FDC $63.15 -0.80 (-0.80)  FDC traded in a tight range today between
$63 and $64, amid more tech selling.  This defensive play continues
to maintain a solid uptrend and today's action was nothing more
than consolidation of last week's gains.  Buyers held the $63
support level throughout the day and any bounces from that level
or below at $62 support would offer nice entries.  Overhead, $64
is the level to break through so watch for volume to propel it
higher.  JP Morgan H&Q spotlighted FDC this morning calling the
stock "a safe harbor in turbulent seas."  They "continue to
recommend FDC and view it as a highly attractive defensive holding
in a turbulent tech market."  We concur.  The stop remains at $62.


ABGX $30.88 -2.81 (-2.81) Continuing weakness in the Nasdaq,
particularly the biotech sector worked out favorably for our
put play.  ABGX rolled over from $34.81 and then $32.56 today,
to reach strong support at the $30.88 level.  This is
consistent with the long term downward channel which was
established in November.  The pattern of lower highs in
February kept ABGX rolling over from strong resistance at $38,
$36, and $34.  Should this trend continue, ABGX may break the
heavy support level at $30, which dates back to last January.
If $30 is broken on heavy volume, ABGX may fall to the $20
level.  Conservative put players might want to wait for a drop
below $30 on heavy volume before taking positions.  Aggressive
traders can take positions on another roll over from $32.58,
if it is accompanied by weakness in BTK.X and the Nasdaq.
We are moving stops to $34 tonight.

NOK $25.50 -1.00 (-1.00) Nokia sold off with its peers in the
cellular communications industry to reach a new 52-week low at
$25.27.  A disappointing earnings report from Nextel on Friday
prompted a Solomon Smith Barney downgrade today, which served to
weaken the entire cellular sector.  In addition, continued
worries of excess inventory plague the semiconductor sector,
which experienced heavy selling today.  Weakness in semiconductors
is unhealthy for the cellular sector, as many chip components
are sold to cellular phone companies.  Nokia's near term outlook
is very grim, as the stock showed little response to the Nasdaq
rally we saw in January.  Traders can take positions at current
levels, or at a roll over from $26.50.  Continue to monitor
others like MOT and ERICY, and move stops to $27.

BBOX $51.88 +0.00 (+0.00) Today's lack of downside action amid
the dissenting broader markets indicates BBOX could have found a
bottom; or it's simply consolidating at $51 and $52 after
experiencing such a devastating decline, particularly last week.
We're keeping BBOX on our put list to give it some room and time
to produce results; however, that doesn't mean to go out and buy
puts, not just yet.  We're looking for a breakdown below the $50
level or a high-volume rollover to occur.  Our protective stop
remains in place at the $55 mark, but a downward bounce from the
5-dma ($52.50) could also offer a reasonable entry if the share
price begins to deteriorate.  Be patient and don't take
unwarranted risks.

BRCD $44.88 -8.38 (-8.38) February sure hasn't been the month
to bet against the bears in Technology stocks.  Even solid
stocks in solid sectors have been hit by severe selling whenever
investors fear there is more bad news hiding around the corner.
BRCD is a good case in point, as it has given up nearly 60% in
less than a month, first on general Technology weakness and then
last week on the drastic EMLX earnings warning.  Even the
approach of BRCD's earnings (tomorrow after the close) has been
unable to lift shares of the fibre-channel leader, despite the
fact that there has been nothing but good news from the company.
Today saw BRCD give up a whopping 15% on more than double the
ADV as it reached major support in the $43-45 level, not seen
since May of last year.  With the severe oversold condition of
both BRCD and the broader NASDAQ, we would recommend tightening
up your stops, and we have lowered our stop to $49.  Unless you
have the ability to daytrade tomorrow, now would be the time to
look at locking in profits on BRCD.  If you want to play the
last day of our play ahead of earnings, consider a failed
intraday rally near the $47 or $49 level as your trigger for
new entries.  Whatever your preference, make sure to close any
open positions before the closing bell tomorrow.

NETE $52.94 -4.06 (-4.06) Sure enough, Friday's late-day rally
in NETE turned out to be a fluke (likely related to options
expiration), and after starting out today on the downside, the
stock found resistance at $56 before continuing to decline,
ending the day very near the low of the day with a 7% loss.
The closing price puts NETE below the 200-dma ($53.60), and
this technical violation could open the door to further losses.
Largely driven by solid selling across the board on the NASDAQ,
NETE just couldn't buck the bearish trend today.  We are
pulling in our stop, placing it at $56, near the day's high and
the descending trendline.  Aggressive investors can still
consider new positions on failed rallies near this level,
although given the NASDAQ weakness today, we may not get so
lucky.  Taking the conservative approach may be the strategy
that yields a new entry point in the days ahead.  If that fits
your risk profile, look for a drop below today's low of $52.50
to trigger new entries.

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UTEK - Ultratech Stepper $39.06 +1.06 (+1.06 this week)

UTEK develops, manufactures and markets photolithography
equipment designed to reduce the cost of ownership for
manufacturers of integrated circuits, including advanced
packaging processes, photomasks, thin film magnetic
recording devices and micro-machined components,  The company
supplies step-and-repeat systems based on one-to-one (1X) and
reduction optical technology to customers involved in the
semiconductor fabrication process throughout North America,
Europe and Asia.

When was the last time you saw a chart that looked this good?
UTEK has been on a tear for the last 2 months and is showing no
signs of letting up anytime soon.  Confirming support near $19
in late December, the stock has more than doubled since then as
buyers have been driving it higher on heavy volume.  With an ADV
of 473K shares, and recent trading frequently topping 1 million
shares, it is clear that this stock is on fire.  As a matter of
fact, if you only looked at the UTEK chart, you sure wouldn't
know that the NASDAQ was flirting with new 52-week lows.  The
stock hasn't been this high since late 1995, and if the current
trend continues, it seems entirely reasonable that the bulls
will soon scale the all time high of $47.50.  Announcing very
strong earnings (a nickel ahead of estimates) on January 25th
got the stock moving again, and it got another shot of
adrenaline from the Adam Harkness upgrade to Strong Buy on
January 31st.  Ever since beginning its recent uptrend, the
stock has been moving in a nice tight ascending channel, and
with today's move it is now above the upper channel line ($39)
and the upper Bollinger band ($38).  Stochastics have been
buried in overbought for over a month, and it seems likely that
we will see some profit taking in the near future.  That will be
our opportunity to target new positions for the next leg of the
rally.  The rapidity of the rise has left us with little to
point at as solid support so we will use the intraday support
that has formed at $38, and then $37 as our entry levels.  A
pullback to either of these plateaus looks attractive, so long
as the uptrend remains intact.  Just in case the trend runs out
of steam, place stops at $37.

BUY CALL MAR-35*UQT-CG OI=643 at $5.13 SL=3.00
BUY CALL MAR-40 UQT-CH OI=  4 at $2.06 SL=1.00
BUY CALL MAR-45 UQT-CI OI=  0 at $0.69 SL=0.00  Wait for OI!
BUY CALL APR-40 UQT-DH OI=  0 at $3.50 SL=1.75  Wait for OI!
BUY CALL MAY-40 UQT-EH OI=  0 at $5.38 SL=3.25  Wait for OI!



QQQ - Nasdaq-100 Trust $52.99 -2.14 (-2.14 this week)

QQQ is a long-term unit investment trust that issues tracking
stocks of the Nasdaq-100 Index (Cubes), which represent the
largest and most-actively traded companies on the Nasdaq
exchange. The price of the tracking stock corresponds to the
performance of its component equities and is approximately one-
fortieth of the Index's value.  NASDAQ evaluates the Index's
composition quarterly.

There's no doubt of the uncertainty and storm clouds rumbling
through the NASDAQ.  But the adage, "once bitten, twice shy"
doesn't necessarily apply to the adrenaline-driven technology
traders who keep charging back in for another round.  The
thinking, or feeling, goes that there could very well a pot of
gold to be had at the end of that illusory rainbow.  Anyway,
enough armchair psychology for one write-up.  We're beginning
coverage on QQQ with the objective of riding up a recovery from
the bottom.  And yes, we all want to know where is that market
bottom in EXACT terms.  Well, let's face it.  All the market
gurus put together can't say for sure.  But one thing is
certain, we've put a protective stop in place at QQQ's $50
level.  Keep in mind, there's a difference between calculated
risk and outright gambling; plus the tech-laden NASDAQ is very
volatile!  So instead of trying to catch the falling knife and
getting bludgeoned, you might want to strategize an entry by
buying into a rally and locking in gains as QQQ approaches
different levels of its upper resistance.  An example would be
to enter a play as QQQ moves through $55 and the 5-dma and then
sell as it approaches $60 and the 10-dma.  In other words, play
the current trading spreads versus trying to get that one home
run over the long-term.

BUY CALL MAR-45 QQQ-CS OI=  121 at $9.00 SL=6.25
BUY CALL MAR-50*QQQ-CX OI= 4334 at $5.20 SL=3.25
BUY CALL MAR-55 QQQ-CC OI= 6239 at $2.55 SL=1.25
BUY CALL MAR-60 QQQ-CH OI=41149 at $1.00 SL=0.00




GS - Goldman Sachs $96.00 -5.50 (-5.50 this week)

The Goldman Sachs Group is a global investment banking and
securities firm that provides a wide range of services worldwide
to a substantial and diversified client base that includes
corporations, financial institutions, governments, and high net
worth individuals.  The company provides investment banking,
which includes financial advisory and underwriting, and trading
and principal investments.  The company's activities are divided
into two business segments, comprised of Global Capital Markets
and Asset Management and Securities Services.

Goldman Sachs rallied strongly from December to mid January, in
anticipation of the rate cuts by the Federal Reserve, and hit
a high of $118.62 on January 30.  However, since that point,
a head and shoulders formation developed, as GS was unable to
rally past $120, and profit taking ensued.  Viewed on a daily
chart, you can see a left shoulder at $110.50, a head at $118.62,
and a right shoulder at $109.50.  In the last week, the selling
intensified, and GS dropped first below its 50 dma of $105.92
on Feb 15, and below its 200 dma of $99.99 today.  This may have
occurred in response to Friday's much higher than expected PPI,
which started some investors worrying about the possibility of
stagflation developing, in which the Fed's abilities to control
the economy are limited.  However, most analysts feel this is not
a serious threat yet, as one PPI report does not indicate a trend.
GS and others in the investment banking sector may be suffering
from the realization that the rate cuts are not a panacea to
overall weakness in the investment banking and brokerage industry.
The IPO market has been exceptionally weak for months, and shows
few signs of recuperating.  Today, analyst reports from CIBC
and Keefe, Bruyette and Woods reiterated that the weak retail
environment may take its toll even further on brokerage and
investment banking stocks.  If the CPI is benign, the investment
banking stocks may rally at the open tomorrow, in which case
aggressive traders could consider taking positions upon a roll
over from the $96 or the $98 levels, if the sector is weak.
Otherwise, a break below $96 on strong volume would be very
bearish, and could easily lead GS to the $90 level.  Watch others
like MWD and LEH, and SPBROK for sector weakness, and set stops
at $102.

BUY PUT MAR-100*GS-OT OI=249 at $8.70 SL=6.25
BUY PUT MAR- 95 GS-OS OI=663 at $5.80 SL=4.00


ARBA - Ariba Inc $18.00 -3.50 (-3.50 this week)

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

Once this star-studded tech stock slipped below the
psychologically governing century mark last November, it's been
downhill ever since - and that's no joke!  We're initiating
coverage on ARBA tonight as it appears to be going for broke -
again no pun intended! Today's massive sell-off hit ARBA hard.
On the day, it experienced a 16.3% cut on 1.2 times the ADV.
We're looking for ARBA to see single digits as the NASDAQ
struggles and investors examine their tech-related issues.  Yes,
it's true that ARBA is already a cheap stock, which isn't
typical for an OI call play, but the options are active; and
thus, present a lucrative opportunity for enterprising traders.
The obvious risk to taking put positions on ARBA is a market
reversal, a profitable B2B sector (despite Nortel's dismal
outlook), and an attractive stock at a bargain price.  But
before ARBA can resume an uptrend, there needs to be enough
buyers to create a substantial momentum wave.  Therefore, pay
attention to volume levels and stock direction before you jump
into the play.  Also, the negative bias across the software
sector should increase the chances of ARBA moving lower over the
near-term.  You might buy into further weakness or enter on
rollovers at the $20 and $21 levels, which is capped by the 5-
dma ($22.09) line.  If you play a rollover, be prepared to lock
in gains as ARBA approaches $18, the new 52-week low set at
today's closing bell.

BUY PUT MAR-25 IRU-OE OI=1365 at $7.75 SL=5.50
BUY PUT MAR-20*IRU-OD OI=2518 at $5.25 SL=3.25


QLGC - QLogic Corporation $42.19 -9.25 (-9.25 this week)

Q Logic Corporation is changing the way the world views Storage
Area Networks, serving OEMs, VARs, and systems integrators within
the broadest line of SAN and NAS infrastructure components in the
industry.  With over 15 years of enterprise storage experience,
the company develops a full range of Fibre Channel switches,
PCI host bus adapters, controller silicon and management chips
for systems and peripherals, as well as the QLCG management
suite of SAN management software solutions.

QLGC is suffering from a serious weakness in the semiconductor
sector.  As one of the last high flyers in this sector to fall,
QLGC has a chart which could frighten even the most die-hard
bulls.  QLGC was as high as $120 in December, and rallied to
$97.69 in January following the rate cuts.  However, the
subsequent drop has been sharp and steep.  On February 1, QLGC
fell below the converged 200 and 50 dmas of $85.94, after
reporting earnings on January 23.  Following this significant
drop, a huge gap formed on February 12, as the stock fell from
$70.39 on February 9, to $55.31 on February 12, on the day that
EMLX warned of a major slowdown.  Since QLGC provides components
for data storage systems, a slowdown in the data storage sector
could be a short term kiss of death for shares of QLGC.  In
addition, numerous analysts have warned that the semiconductor
inventory problem may not correct until later this year.  Traders
can take positions at current levels if the SOX.X continues to
exhibit weakness, and stays below its 50 dma of $644.26.
Conservative traders might want to wait for a break below the
52-week low of $39 on heavy volume.  Set stops at $50.

BUY PUT MAR-50 QLC-OJ OI=289 at $11.13 SL=8.25
BUY PUT MAR-45*QLC-OI OI=443 at $ 7.50 SL=5.25



ABGX - Abgenix $30.88 -2.81 (-2.81 this week)

Abgenix is a biopharmaceutical company focused on the
development and commercialization of fully human monoclonal
antibody therapies for a variety of diseases.  Abgenix
leverages its leadership position in human antibody technology
by building a large and diversified product portfolio through
the establishment of licensing arrangements with multiple
pharmaceutical, biotechnology and genomics companies and
through the development of its own internal proprietary

Most Recent Write-Up

Continuing weakness in the Nasdaq, particularly the biotech
sector worked out favorably for our put play.  ABGX rolled over
from $34.81 and then $32.56 today,  to reach strong support at
the $30.88 level.  This is consistent with the long term downward
channel which was established in November.  The pattern of lower
highs in February kept ABGX rolling over from strong resistance at
$38, $36, and $34.  Should this trend continue, ABGX may break the
heavy support level at $30, which dates back to last January.  If
$30 is broken on heavy volume, ABGX may fall to the $20 level.
Conservative put players might want to wait for a drop below $30
on heavy volume before taking positions.  Aggressive traders can
take positions on another roll over from $32.58, if it is
accompanied by weakness in BTK.X and the Nasdaq.  We are moving
stops to $34 tonight.


Watch the BTK.X tomorrow to determine its direction, as well as
ABGX's.  A break of 550 on the BTK.X would result in an increase
in sellers.  If ABGX takes out the $30 level, shorts will most
likely jump on board.  Rollovers from $32 would also provide an
entry point into this put play.

BUY PUT MAR-35*AZG-OG OI=68 at $5.75 SL=4.00
BUY PUT MAR-30 AZG-OF OI=33 at $3.38 SL=1.75


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The Sell-off Continues...

New concerns about future corporate profits sent the technology
composite to its lowest close since early January and the outlook
for a recovery is grim.

Tuesday, February 20

New concerns about future corporate profits sent the technology
composite to its lowest close since early January and the outlook
for a recovery is grim.  The NASDAQ ended down over 100 points at
2,318.  The Dow industrials also declined on weakness in finance
stocks, ending 68 points lower at 10,730. The S&P 500 index was
down 22 points to 1,278.  Trading volume on the NYSE reached 1.10
billion shares, with losers outdistancing winners 1,754 to 1,326.
Activity on the NASDAQ was moderate at 1.85 billion shares traded,
with declines doubling advances 2,515 to 1,312.  In the U.S. bond
market, the 30-year Treasury rose 2/32, pushing its yield down to

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

Manugistics  (NASDAQ:MANU)  MAR60C/35P    credit  $2.50  strangle
PolyMedica   (NASDAQ:PLMD)  MAR50C/22P    credit  $0.93  strangle
QualComm     (NASDAQ:QCOM)  MAR100C/60P   credit  $1.38  strangle
Intel        (NASDAQ:INTC)  JA02-40/A40C  debit   $3.75  calendar
PerkinElmer  (NYSE:PKI)     MAR105C/100C  credit  $0.70  bear-call

The Presidents Day Holiday was not kind to our premium-selling
positions as the quoted option prices receded substantially from
Friday's closing numbers.  None of our new Short-Strangles traded
at the suggested credits and only the PolyMedica play was offered
near the target entry price.  The PerkinElmer position opened at
a lower premium, but the spread offered a favorable risk/reward
ratio for bearish-outlook traders.  Technology stocks started the
day with a brief rally but Intel did not participate.  The chip
giant simply added to the negative sentiment, announcing it would
reduce discretionary spending by at least 30% while avoid layoffs.
Investors were not pleased and the stock tumbled.  The target
(short) call option premiums were trading for just a few cents
but rather than avoid opening the LEAPS play, we decided to sell
April options for a slightly higher credit and a lower cost basis

Portfolio Activity:

Investors punished the market today, pushing the major indices
lower amid worries that the U.S. economy's slowing pace will
negatively affect corporate earnings growth for the next three
quarters.  Technology shares closed near the day's lows, with
big-cap networking issues leading the sell-off.  JDS Uniphase
(NASDAQ:JDSU) and Cisco Systems (NASDAQ:CSCO) were among the
worst performers as both stocks fell almost 10%.  The computer
hardware segment also fell precipitously with Hewlett Packard
(NYSE:HWP) and Dell (NASDAQ:DELL) leading the downward movement.
On the Dow, financial stocks were among the worst performers
with losses in Citigroup (NYSE:C) weighing on the industrial
average.  The slide in blue-chip issues was checked by retail
giants Home Depot (NYSE:HD) and Wal-Mart (NYSE:WMT), as both
companies were able to hold on to small gains in the wake of
favorable earnings news.  In the broader market, defensive
issues benefited from the selling, which was concentrated in
growth stocks.  Tobacco, utility and pharmaceutical shares
edged higher and select Old Economy issues also enjoyed small
advances.  Some analysts say they are unconvinced that hi-tech
companies can make a comeback in the near-term and investors
are looking for clues about what action the Federal Reserve
might take to stimulate economic growth.  The best outcome is
for the FOMC to fulfill market expectations and cut rates by a
half percentage point at its March 20 policy meeting.  Then we
will begin to see bargain hunting in the technology group and
hopefully, an end to the recent downward trend in the NASDAQ.

There was little bullish activity in the Spreads section but
Omnicom Group (NYSE:OMC), the second largest advertising firm
in the world was a big mover after reporting quarterly earnings
that beat consensus expectations.  A new business unit, BBDO
Worldwide recently became the exclusive worldwide agency for
auto-maker Chrysler, and that segment was credited with boosting
the company's overall revenues.  Chief Financial Officer Randell
Weisenburger announced in a conference call that the Chrysler
account had contributed about $650 million out of total of $1.4
billion in new business for Omnicom in the quarter, an increase
of 115% on the year.  Shares in OMC rallied to a high near $95
and the value of our debit straddle (at $90) moved back to the
original cost basis.  For traders who have watched their option
premiums erode in this range-bound market, a break-even exit may
not be so bad.  Another issue in that section, Grupo Televiso
(NYXE:TV) dropped $2 to a recent low near $45 and now the stock
appears to be in the midst of a large downward move.  The first
target will be the January lows near $42.50.  A successful test
of that area would suggest the beginning of a new rolling cycle
and a move back to the $50 range.

The small-cap group was one of the few areas of the market that
performed well during the session.  Our new positions in Zoltek
(NASDAQ:ZOLT) and Answerthink (NASDAQ:ANSR) edged higher even as
the technology segment came under renewed selling pressure.  In
the industrial group, Clorox (NYSE:CLX) moved as high as $37.15
and traders in the bullish calendar spread at $40 may have used
the upside activity to sell March options in the long-term play.

Questions & comments on spreads/combos to Contact Support
                         - NEW PLAYS -
PCTL - PictureTel  $3.97  *** Cheap Speculation! ***

PictureTel (NASDAQ:PCTL) is engaged in developing, manufacturing
and marketing visual and audio collaboration solutions.  Visual
collaboration employs videoconferencing, video streaming and
data collaboration technologies to facilitate productive meeting
environments that may incorporate video, audio and real-time and
archived multimedia data.  The company's products and services
enable businesses, schools, medical facilities, government and
other organizations to eliminate the barrier of distance so they
can work together more effectively.  PictureTel is organized into
three distinct business segments, videoconferencing products,
videoconferencing services and audioconferencing products, which
consists of its MultiLink subsidiary.

Earnings continue to drive the market and the activity is obvious
in this case as shares of PictureTel have rallied over the past
two days amid expectation of a favorable announcement.  The price
of PCTL, the world leader in integrated collaboration, rocketed
another 20% during Tuesday's session on extreme volume and the
potential for additional upside movement is excellent.  At the
same time, resistance at the previous trading-range bottom (near
the sold strike at $5), and the inflated March option premium
offer a position with a great time-selling opportunity.  Traders
who want to speculate on the future value of PCTL's stock should
consider this conservative spread with a bullish outlook.

PLAY (conservative - bullish/calendar spread):

BUY  CALL  JUL-5.00  PTQ-GA  OI=332  A=$1.25
SELL CALL  MAR-5.00  PTQ-CA  OI=118  B=$0.38

ABMD - Abiomed  $28.31  *** Have A Heart! ***

Abiomed (NASDAQ:ABMD) is a developer, manufacturer and marketer
of medical products designed to safely and effectively assist or
replace the pumping function of the failing heart.  The company
has been developing and is preparing to enter human clinical
trials for the AbioCor Implantable Replacement Heart, a unique,
battery-powered totally implantable replacement heart system,
which may eventually become the first such device for end-stage
heart failure patients. Abiomed currently manufactures and sells
a temporary heart assist device, which is approved by FDA as the
only device for the temporary treatment of patients with failing
but potentially recoverable hearts.

Abiomed shares rallied in late January after the company said it
received permission from the U.S. FDA to begin initial trials of
its replacement heart.  The Food and Drug Administration granted
Abiomed approval to implant AbioCor, its prosthetic replacement
heart, in five patients as part of an initial clinical trial of
the device.  The device will be used in an attempt to keep alive
patients with "end-stage" heart failure who cannot be helped by
other available therapies, including heart transplantation.  The
FDA testing permission brings Abiomed a step closer to receiving
approval to sell its unique artificial heart and Banc of America
Securities offered a new "buy" rating on the company after the
announcement.  In addition to the FDA news, ABMD also recently
withdrew its offer to buy Thermo Cardiosystems (AMEX:TCA), which
suggests they are confident of the success of their new procedure.

Traders who want to speculate on the recent bullish activity in
ABMD and the potential for further positive developments can do
so in a conservative manner with this synthetic position.

PLAY (conservative - bullish/synthetic position):

BUY  CALL  MAR-35.00  IBU-CG  OI=344  A=$1.38
SELL PUT   MAR-22.50  IBU-OX  OI=275  B=$1.12

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $700 per contract.

                      - CREDIT STRANGLES -
APHT - Aphton  $20.06  *** Premium-Selling! ***

Aphton (NASDAQ:APHT) is a biopharmaceutical company developing
products using its vaccine-like technology for neutralizing
hormones that participate in many gastrointestinal system and
reproductive system cancer and non-cancer diseases, and the
prevention of pregnancy.  Aphton's approach to the treatment of
major diseases is to employ anti-hormone therapy.  This hormone
therapy involves neutralizing, or blocking, targeted hormones
that play a critical role in diseases of the gastrointestinal
and reproduction systems.  Aphton has strategic alliances with
Aventis Pasteur, SmithKline Beecham, Schering-Plough, and the
World Health Organization.

Since the plays that we offered on Sunday provided few favorable
opportunities, we decided to look for some new candidates in this
popular strategy.  While we wouldn't normally use a biotechnology
company for this technique, the option pricing in Aphton appears
to offer a generous margin for movement and the company has few
(expected) catalysts for volatile activity in the near term.  In
addition, we favor Aphton's diverse portfolio of hormone products
and owning the issue at a cost basis near $14 isn't a terribly
unpleasant alternative.

PLAY (moderately aggressive - neutral/credit strangle):

SELL CALL  MAR-30  HQY-CF  OI=0  B=$0.38
SELL PUT   MAR-15  HQY-OC  OI=0  B=$0.43
INITIAL NET CREDIT TARGET=$0.88-$1.00  ROI(max)=18%
UPSIDE B/E=$30.88 DOWNSIDE B/E=$14.12

ALEX - Alexander & Baldwin  $27.50  *** Probability Play! ***

Alexander & Baldwin (NASDAQ:ALEX) is a diversified company with
most of its operations centered in Hawaii.  Its Transportation
segment carries freight between various United States and Canada,
Hawaii and other Pacific ports, and provides terminal and cargo
logistics services.  The Property Development/Management segment
develops and manages a wide range of residential, commercial and
industrial properties.  The Food Products segment grows and also
processes raw sugar and molasses, invests in a sugar refining
business, produces and markets coffee, and generates and sells
electricity.  Ocean transportation operations of the company are
conducted by a wholly owned subsidiary, Matson Navigation, and
several Matson subsidiaries.  Real property and food operations
are conducted by the company and other wholly-owned subsidiaries.

ALEX is a good candidate for a premium-selling position because
it has a small trading range with support near our downside cost
basis and overhead supply below the upside break-even point.  In
addition, there are no apparent news items or events that will
substantially change its character prior to the March options
expiration.  The issue is exactly in the middle of our profit
envelope and we will use the recent volatility and the inflated
option prices to open a neutral play with a favorable premium.
The probability of the share value reaching our sold strikes is
rather low, but there is always the possibility of a significant
change in the technical outlook, so monitor the position on a
regular basis.

PLAY (conservative - neutral/credit strangle):

SELL CALL  MAR-30  XQD-CF  OI=103 B=$0.38
SELL PUT   MAR-25  XQD-OE  OI=0   B=$0.31
INITIAL NET CREDIT TARGET=$0.75-$0.81 ROI(max)=10%
UPSIDE B/E=$30.75  DOWNSIDE B/E=$24.25


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