Option Investor

Daily Newsletter, Thursday, 02/22/2001

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The Option Investor Newsletter                 Thursday 02-22-2001
Copyright 2001, All rights reserved.                        1 of 2
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MARKET WRAP  (view in courier font for table alignment)
        02-22-2001        High      Low     Volume Advance/Decline
DJIA    10526.80 +  0.23 10566.20 10372.40 1.35 bln   1137/1898
NASDAQ   2244.96 - 23.98  2291.69  2185.91 2.47 bln   1289/2464
S&P 100   647.29 -  0.31   650.96   634.11   totals   2426/4362
S&P 500  1252.82 -  2.45  1259.94  1228.33           35.7%/64.3%
RUS 2000  477.26 -  6.25   483.52   474.62
DJ TRANS 2918.76 - 25.71  2953.02  2900.63
VIX        29.77 +  0.36    40.07    28.70
Put/Call Ratio      0.78

Now that is really painful!

The Nasdaq Composite staged a short-lived rally early Thursday
but ended lower for the fourth consecutive session as investors
unloaded shares of tech stocks on each bounce.  The Dow Jones
Industrial Average, on the other hand, managed to post a
fractional gain.

At its lowest level Thursday, the COMPS fell beneath levels not
seen since way back into December of 1998.  The COMPX fell right
below its Jan. 3 intraday low of 2,251, which came just before
the Fed's surprise interest rate cut, with very little opposition
from the bulls.  The COMPX's counterpart, the Nasdaq 100, which
the QQQs mirror, fell below the 2,000 level for the first time
since June of 1999.

Virtually all tech sectors were in the red Thursday, with the
exception of select pockets of strength in networking, led by
shares of Cisco Systems and certain hardware stocks.  A host of
Internet stocks and software-related shares bore the brunt of
selling.  What was interesting, however, was that while the
tech sector stumbled, the broader market didn't find any bids.
There were minor gains in insurance, health care and oil
stocks, but there was no pronounced sector rotation or aggressive
buying in any stocks.

Professional market participants are still calling for a
capitulation event, which may allow for the broader market to
discount the deteriorating fundamentals in the tech sector.
There is a need for a wash-out of ALL the weak hands, which
many expect would allow for the market to stage a significant

Company Specific News

Efficient Networks (NASDAQ:EFNT) gained roughly 86 percent
after the company agreed to be acquired by Siemens AG, a
German firm.  Siemens said it would pay about $1.5 billion for
Efficient.  The news is somewhat of a bright spot in the tech
sector and may spark merger and acquisition activity within
the networking sector, which would be a very welcome sign to

BEA Systems (NASDAQ:BEAS) got clobbered in trading today - its
shares lost more than 18 percent this ahead of the firm's
earnings report after the bell.  The business infrastructure
software provider's fourth-quarter results beat estimates by
1 penny.  First Call's consensus was for BEAS to earn 9 cents
per share and the firm actually recorded 10 cents in profits.
However, the numbers were not enough to appease Wall Street,
and despite company officials providing bullish guidance going
forward, shares of BEAS lost an additional $7 in after hours
trading.  Analysts indicated that although BEAS reported a
decent quarter, its shares still trade with a high premium,
which is hard to justify in the current market environment.

While Brocade Communications(NASDAQ:BRCD) beat earnings estimates
by a penny last night, their downward revision of revenue and
earnings growth rates for the 2nd quarter and 2001 dragged the
stock lower today.  The stock gapped down on the news, however,
buyers stepped in immediately and the stock climbed steadily
throughout the session on robust volume of 63 mln shares.

Checkpoint Security(NASDAQ:CHKP) missed earnings estimates last
night by two cents, coming in a $0.28 per share.  In typical tech
fashion, CHKP forecasts 2001 revenue growth at 3 to 4%, but added
that "results may be impacted by the slowing economy as well as
the volatility of currency exchange rates."  Investors punished
the stock today in a heavy volume session leaving CHKP down $10.50
at $73.69, an almost 13% loss on the day.

Blue-chip storage company EMC shed over 18% after the company was
downgraded by Banc of America and Morgan Stanley.  The company
reaffirmed its fiscal 2001 revenue target of $12 billion before
the bell, but also painted a "worst case scenario," rather than
a warning.  Banc of America said it is concerned with near-term
visibility in the next couple of quarters due to the general
softness of the U.S. economy.  This is just another cautious
statement from a blue-chip tech company, following INTC's lowering
of discretionary spending and CSCO CEO Chambers' comments about
the slowing economy last week.  The question is:  who are they
telling this to?  Listen up Mr. Greenspan.

Shares of Sun Microsystems fell 8 percent to $18.81 in after-hours
trading Thursday when the company warned of lower 3rd quarter
revenue targets to a 10 to 13% year-over-year rate.  SUNW also
stated that they are unable to comment on 4th quarter visibility.
On an upbeat note, the company announced that it will begin a
buy-back program in which it plans to purchase $1.5 billion in
common stock in the open market.

Economic News

Weekly claims for unemployment benefits rose to 348,000, up 4,000.
This increase moves the 4-week moving average to a six-week high
of 350,750.

Researched by:
Eric Utley, Asst. Editor

Market Outlook

Thanks Eric for covering all the bad news. I was planning on just
covering the good news anyway. Unfortunately, there is none!
In my opinion, this was a very bad day. Not because the Nasdaq
dipped under the sacred 2200 level to 2185, we expected that.
We also expected the immediate bounce off those levels as shorts
covered and longs jumped on the bargains. Sorry, it did not happen.
Yes, there was a bounce, a rather anemic bounce but still a bounce.
Unfortunately there was no conviction. Shorts saw the weakness
and jumped on the leaders again. Both the Dow and Nasdaq had the
same chart, just different numbers.

Was it the overwhelming negative sentiment from the Brocade
warning or the warning from EMC this morning? Was it the expected
warning from SUNW after the close this afternoon? I think you
know the answer. It was all of the above along with the flood of
previous warnings. Buyers are simply scared and after getting
kicked in the wallet several times recently they are simply
waiting for the real bottom, wherever it may be. With the number
of pre-announcement warnings running ten times higher than the
same period last year, real investors are simply waiting for
the damage to be over.

Today the concern was SunMicro and their anticipated warning
after the close. They came, they warned, they dropped -2 in
after hours. Futures fell off a cliff and then started recovering
with the S&P gaining it all back after dropping seven points.
The Nasdaq futures dropped -44 but quickly gained it back.
That could be a good sign for Friday but also a fragile straw
at which to grasp. Did anybody expect SUNW not to warn? Not that
I know. Did they expect it to cut estimates by -50%? Not hardly!
How much more bad news can appear that is not already priced
in at this point? We are in a recession according to everyone
but the Fed. Visibility is now zero. The great second half
rebound is now feared to be a no show. Expectations are now
zero or in some cases less than zero.

Actually I heard a reporter today echo what I said last week.
These companies are "over-warning" to ratchet down expectations
for the future. When your stock is already down from the $100
range to the $20-$30 range, what can it hurt to hammer the
future estimates?  Intel, which has cash flow running in the
billions made a big deal out of a cost cutting announcement
that "may" save 100 million over time. Granted 100 million is
not chump change but to Intel it is a drop in the bucket. This
was clearly designed to "join the party" and possibly wave a
flag in front of Greenspan. Sorry, guys, the jig is up! The
consensus of opinion tonight is that the bottom is here. The
economy is showing signs of a rebound and the Fed does not
have to be as aggressive as previously thought. This is of
course a result of the Leading Indicator report from Friday
morning. The index came in at +0.8%, twice the expected gain,
and a leap up from the last six months of decline. The index
pointed to a moderation in the pace of economic activity but
not a recession! OOPS!

Now we are back on our own again. Uncle Greenspan is not
likely to come riding to our rescue. Actually the two major
cuts of -.50% each have not worked for the markets and he
is now faced with the "what do I do now question." If he
cuts again and the market keeps going down then what? This
was the analysis of all the talking heads on the networks
today. Greenspan in a catch-22 with no way out. Kings X,
he has been in worse positions before and we escaped. There
is a strong rumor that he will cut again on Friday. Many
have dismissed it as just wishful thinking but again, if
you are going to wish for something why not something good?
Just because the indicators were positive does not mean the
markets are not crashing. A rate cut can't hurt and if you
are going to do it in three weeks anyway why not now when
it could stop the slide? Remember that consumer confidence
thing? It just took another drop with the markets today.

Enough preaching to myself. With both futures positive after
the SUNW warning, I think tomorrow may actually be a decent
day. With the Nasdaq down 400 points in a week we are still
very oversold and due a real bounce. The Dow dropped -530
points from Tuesday's high to today's low. Was the news
really that bad or were traders possibly trying to send
their own message to Greenspan to cut again? I would vote
on the latter and it has not worked, yet. Now, technically
speaking I like the fact that traders tried to run the
markets back down again in the afternoon and were unsuccessful
in hitting the previous lows from the morning. This is very
positive. There was huge volume, 1.3b on the NYSE and 2.4b
on the Nasdaq. Can you say capitulation? If today was not
the magic day, I do not want to be around when it comes!
There are the perma-bears calling for 10000/2000 next week.
Hopefully they are wrong. I think the possibility of a
trading bounce is very strong for Friday and we will look
at next week as a separate event once we get past Friday's
close. The shorts really did not cover today but a positive
gap up at the open could change the sentiment completely.
Keep your fingers crossed!

Enter passively, exit aggressively!

Jim Brown

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April 5th-9th, Denver Colorado

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Mark Leibovit, Chief Market Strategist of VRTrader.com

Richard Arms, inventor of the TRIN, or Arms Index, Equivolume
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Steve Nison, the worlds foremost expert on Candlestick charting.
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Austin Passamonte, Editor of IndexSkybox.com

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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
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For information on his extremely accurate Annual Forecast
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Pastures Quickly Greened
By Austin Passamonte

Forgive Market Sentiment for feeling a bit weak this evening; we
sold our blood to buy this morning's wild dip when major indexes
plunged and the VIX spiked above 32.00 and VNX above 70.00 in the

Selling our blood was necessary because we admit to a bit of
guilt in buying calls the past two sessions when it made more
sense to buy puts. Falling knives? Not when all technical &
fundamental signs lined up strongly as they did, but relief took
a bit longer to arrive than we guessed. Sooner for us than
General Custer at the Little Bighorn, but not by much and the
outcome remains to be seen.

Long calls, naked puts, bear-put credit spreads... it all worked
just fine early in the session when sellers rushed the exits and
screens bled a steady scroll of new session lows as a result. Now
the fruits of that labor seem apparent to pluck on Friday.

All major indexes posted bullish reversal "Hammer" candles on
their daily charts, and those long tails are evident just how far
the true range for this session was. Short-term charts show
oscillator signals moving sharply up from grossly oversold and
don't look to stall anytime soon, but none of that came easy.

This session reminded us of the wild swings last March & April
with only one-third the daily range from those days. Bulls
managed to press high prices into the close and we expect upside
pressure built to release tomorrow. Could be a short-squeeze
Friday like so many witnessed before.

One sign among many that strongly points to this is the open-
interest disparity between index option put/call ratios. We can't
recall ever seeing such high readings of underlying puts to
create upward pressure with scant overhead calls to offer
resistance. This by itself does not tell WHEN upside relief will
happen but strongly suggests that it must.

Put options appreciating in value and sold back to the market
force market makers to go long actual stock shares or futures
contracts to hedge (market neutral). Massive put contracts dumped
into the market create buying pressure to offset the disparity,
which causes more of them to get dumped as they depreciate, which
creates the next wave of buying pressure to the upside, etc.

All signs are still pointing to much higher levels soon, likely
at least part of Friday's session if not more.

Lest we think the ultimate bottom is in place, think again. This
is a bear market now and for quite some time to come. One mark of
every bear market is failed rallies on great volatility. Seen any
of that around here lately? The only reason we rallied today and
likely will for at least the next session was an overwhelming
bearish sentiment and temporary washout of selling. They will
return and it will continue somewhere down the road, as the
fundamental picture hasn't improved one iota.

High-odds are open bullish plays from today will perform quite
well tomorrow. We strongly suggest guarding any profits accrued
with great jealousy. Sell too soon and keep some of those gains
in cash; our trade entry of the year is apt to occur once or
twice a week for some time to come!


Thursday 02/22 close: 29.77

Thursday 02/22 close: 71.83

30-yr Bonds
Thursday 02/22 close: 5.53%

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)
685 - 670                5,533        7,427          .75
665 - 650                1,679        6,982          .24

OEX close: 647.29

645 - 630                   16        8,226       514.13
625 - 610                   22        6,067       275.77

Maximum calls: 700/6,050
Maximum puts : 600/6,424

Moving Averages
 10 DMA  675
 20 DMA  693
 50 DMA  694
200 DMA  751

NASDAQ 100 Index (NDX/QQQ)
 60 - 58                85,062        31,706         2.68
 57 - 55                58,294        42,252         1.38
 54 - 52                16,653        21,206          .79

QQQ(NDX)close: 51.00

 50 - 48                 9,872        31,529         3.19
 47 - 45                   808        11,159        13.81
 44 - 42                   217         2,181        10.05

Maximum calls: 60/56,503
Maximum puts : 50/22,758

Moving Averages
 10 DMA 55
 20 DMA 59
 50 DMA 61
200 DMA 80

S&P 500 (SPX)
1325                   39,239        42,541           .92
1300                   12,106        22,217           .54
1275                    4,587        19,520           .24

SPX close: 1252.82

1225                      677        13,609         20.10
1200                    1,187        20,349         17.14
1175                      221         4,753         21.51

Maximum calls: 1350/46,319
Maximum puts : 1325/42,541

Moving Averages
 10 DMA 1302
 20 DMA 1330
 50 DMA 1327
200 DMA 1408


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:



My Friend, The Wiz
By Molly Evans

The Market Wizards books by Jack Schwager have been a source of
inspiration and diverse education for me as a trader.  To read
the tales of real professional traders can be very enlightening.
Schwager has a masterful way of presenting his "Wizards" by
revealing the essence of their systems or at the very least
their discipline or "edge."  Not all wizards care to divulge
their hard won secrets but Mr. Schwager is able to zero in on
what he sees as their individual strengths.  He then transposes
these qualities to the basic skills or knowledge that any trader
could incorporate or should possess.

A third book, "Stock Market Wizards: Interviews with America's
Top Stock Traders" was released just last month.  Again, the
book met my expectations for insight and profundity.  Schwager
makes these wizards seem so real, like real live people.  In
my mind I guess I view them somewhat akin to celebrities.  Yet
obviously, Schwager has met with these gifted traders for hours
and shows us that they are real people with the same
vulnerabilities and weaknesses that we all battle.  However, they
are set apart distinctively as they have mastered their craft
through common sense, dedication, self-confidence and

I have to tell you a story here now.  Bear with me:  Last October,
I had the opportunity to attend an online trading expo in Dallas.
Many of the big names in the business were featured speakers;
John Murphy, Larry McMillen, Linda Raschke, John Bollinger,
Jon Najarian, Tom McClellan, and Larry Williams come to mind.  One
session I ventured in to listen to Mark Cook.  Mark is a private
trader, operating out of his family's 1870s farmhouse in northern
Ohio.  In 1992, he won the U.S. Investment Championship with a
564% return.  The very next year he turned in a 322% performance.
Since then, Mark has consistently traded his way to ownership of
several tracts of land and a fat portfolio.

As you might have surmised, Mark is one of the esteemed wizards
of Schwager's third book.  He grew up farming with his dad,
milking cows and bailing hay and now he's part of an elite group
in a profession considered far removed from his roots.  In years
past, I am told, Mark used to don bib overalls without a shirt,
a farmer's hat and come walking into the room chewing on a bit of
straw.  He'd tell the audience that he lost his shirt in trading
and of course put them all at ease right away being with a country
bumpkin.  But Mark is no bumpkin.  He's a hard-driving futures
trader.  He's been bust, he's won big.  He's been through it all.

Starting out as a securities broker, Mark found that he liked to
be a part of the action more than trying to sell it.  At the
suggestion of a senior broker, he dove into trading options.  He
didn't know much about options but right away he made $800 on an
$1800 investment   "Boy, this is a lot easier than shoveling
manure and milking cows," he recounted to Schwager.  "For my next
option trade, I bought Teledyne calls again and again, I made
money.  I thought I was going to be a millionaire in no time flat.
I was doing so well that I thought, 'Why trade with only a small
part of my capital;  I might as well use all of it.'"  Sound
frighteningly familiar?  It did to me.

Yes Cook, like so many others, busted his account on a trade
gone bad.  It's a tough lesson to learn.  He managed to claw his
way back when he got serious about trading and set about managing
his money and trades with a strict discipline.  To this day, Mark
is adamant in his advice to traders about constructing and living
by a trading business plan.  To prepare for each individual
trading day, he writes out his "daily ritual," a sort of
individual plan to guide the day's trading activity.  Mark insists
that trading is a business and thus requires a lot of work and
dedication to the craft.  In addition to the daily ritual, he
keeps a trading diary throughout the day to record trading
patterns.  Furthermore, Mark believes that each and every trade
should be critically evaluated.  Then, one should review the
trades on a weekly basis to see if there are stronger days than
others.  For instance, he says he is in tune with the markets
best on Tuesday and is weakest on Fridays.

Cook's extreme discipline has been the secret to his success.
He has airtight rules about cutting his own losses.  He's a
great student of the market but maintains a neutral stance about
it.  There is no CNBC in his office, no TV or market related
media whatsoever.  Just classic rock.  It might seem curious to
you to learn that he uses no charts.  He doesn't even know how
to pull one up on the elaborate software he uses!  Mark is a
tape reader and a tick counter.  He developed the Cook Cumulative
Tick Indicator - a proprietary tool for measurement of overbought
and oversold conditions within the market.  As you might have
guessed, the Nasdaq is still in record territory of oversold.
But of course, it's been making new records throughout the entire
past year.

While Mark is for the most part an exclusive futures trader, he
still has the same issues we all face as traders.  That is,
studying and interpreting his own indicators for market health
and direction, discipline in preparation for trading and constant
vigilance and re-evaluation of his trading acumen.  He has a plan,
and he sticks to it.  He knows where his weaknesses lie thus he
avoid traps and is then able to fully capitalize on his strengths.

I met Mark personally at that seminar in Dallas.  He talked
about all of the above and more.  He's an excellent speaker and
is confident in his presentation.  However, he's not a "rah rah"
man.  He tells you like it is.  Trading is a tough business.
You're up against the baddest and meanest dudes out there.  The
trading highway is littered with accidents and no one stops to
help.  I considered all of this deeply and having been at a
sensitive point in my trading career I decided I didn't much care
for him.  We were later introduced through a mutual acquaintance
and I found that he wasn't such a bad guy afterall.  Somehow,
we ended up good friends.

Now, I talk to Mark nearly everyday.  He's still doing his thing,
I'm still doing mine.  It is the camaraderie of trader fellowship
that is special to me.  He would like to see me bang out futures
trades and I'd like to see him hang on to a position for longer
than three minutes.  As I said earlier, he's adamant about the
business plan, the journaling, the daily rituals, and the self-
evaluation.  He keeps me honest and I keep him laughing.  Isn't
that how it should be?

Check out the Schwager book.  Mark's, Michael Lauer and and the
Mark Minervini chapters were my favorites.  I am of the belief
that the Schwager books are must reads for individual traders.
Learn and enjoy.  MKE

Why put all your risk into one stock when you can play the
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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.


AEOS $54.50 -2.38 (-4.19) Healthy volume and a strong
disposition last week kept AEOS on our call list.  However, the
negative bias across the broader markets coupled with leaders
like Walmart (WMT) and Home Depot (HD) also faltering this week
is taking its toll on AEOS.  The propensity for future weakness
cannot be ignored.  It's time to exit the play despite the fact
it didn't violate our $54 protective stop.  If you have open
positions, consider selling into strength during an intraday
rally.  In an advancing marketplace, AEOS may show some
spunkiness ahead of its earnings' announcement next month.  The
company is scheduled to report on Thursday, March 15th.

MLTX $18.25 -0.94 (-1.63) The wild market gyrations today were
too much for our MLTX play to withstand, as it fell through our
$19 stop early in the day.  Today's selling was just a
continuation of the weakness that began to emerge early in the
week, as the daily Stochastics fell out of the overbought
region.  Mirroring the action on the NASDAQ, buyers emerged
today to support the price near $18, but they were unable to
drive the price significantly higher, painting a gloomy picture
for our play.  The stock is in danger of falling through the
200-dma (currently $17.63), and combined with the drop through
our stop, it is time to leave MLTX and search out healthier

SDS $55.20 -3.96 (-2.06) After staging a near-parabolic move from
early February to the middle of the month, shares of SDS
significantly pulled back in Thursday's session.  The catalyst
for the sell-off was a downgrade by Janney Montgomery Scott, from
a buy rating to an accumulate.  The downgrade stemmed from the
stock's recent rise and seems a bit ill-timed in light of SDS'
relative strength in both its stock price and business
fundamentals.  Nonetheless, we're dropping coverage on SDS
tonight as it closed below our recently raised stop at $58.
Look to exit any open positions on a relief rally early Friday
if the stop didn't already get you out.

AES $56.58 -1.78 (-1.11) AES broke out of its bullish wedge
pattern this week to hit a high of $60 on Tuesday.  However,
AES lost momentum today and failed to sustain the strong upward
trend it had been developing for several weeks.  Since the
stock closed below our revised stop at $57, we are dropping
it tonight.

WPI $55.10 -0.90 (-1.90) Despite the continued meltdown in the
tech sector, shares of WPI have pulled back in recent sessions.
The stock did find buyers today off of the $53.25 level and
actually rebounded rather substantially during midday trading.
Despite the rebound though, shares of WPI look technically
weak and without strength in the broader drug sector, may be
on the verge of rolling over.  Look to exit open positions at
current levels or on a quick pop above the $55.50 level.
Monitor the direction in the DRG.X in order to gain the best
exit point.

DYN $48.36 -1.60 (-3.14) After staging an impressive rebound
in early January, which ran through early February, shares of
DYN appear to be pulling back on profit taking.  If not
profit taking, the stock may be suffering from ongoing fears
over the California energy crisis.  No matter the reason, we're
employing discipline and dropping coverage on DYN.  The stock
did settle below our stop and we'd look to exit any open
positions early tomorrow on a relief rally or bounce.

FDC $59.35 -3.21 (-4.60)  With no apparent news to pressure the
stock lower, this morning's gap down appears to be due to the
general market weakness.  FDC gapped below our stop of $62 and
below the 10-dma at $61.63.  This should have discouraged new
entries.  While the stock found temporary support at $60, it was
short-lived as the afternoon selling completed a classic double
distribution.  Volume was very heavy today at 5.3 mln shares,
three times the ADV.  Today's price action is a good example of
the need for stop loss orders.  We are parting ways tonight with


GS $97.20 +2.80 (-2.70)  Shares of GS had a wild ride today,
selling off sharply off the open.  Buying volume surged as GS
touched $91.26, leading to a recovery to resistance at $97.50.
After the stock faltered there, it did managed to find higher
support and rally into the close.  Today’s volume was nearly
50% heavier than the average daily volume, and the bullish close
in a weak market does not bode well for our put play.  In light
of the rebound in the brokerage sector and the increasing chance
of a Fed rate cut before its March 20th meeting, we are dropping
our play tonight.

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The Option Investor Newsletter                 Thursday 02-22-2001
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

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MSFT $55.19 -1.06 (-2.13) It was a tough day in the markets for
both the tech and blue chip stocks.  Hence, MSFT experienced a
wild day of trading.  Initially, MSFT slid to $53.88 as news of
EMC's tempered guidance, right on the heels of Brocade's (BRCD)
slow growth warning, hit the Street like a lead balloon.
However, the subsequent intraday rally attempts provided players
with a multitude of opportunities, depending on your individual
risk portfolio.  From a conservative perspective, MSFT's
fractional close above our $55 stop mark raises the red flags.
However, a solid bounce off this level followed by moves through
the 5-dma ($56.66) and the $58 resistance, at the 10-dma,
signals a breakout.  Look for the robust volume to continue
bolstering the share price in these turbulent times.

LH $147.25 -0.25 (+2.00) Finding an entry point on LH the past
few days has been a challenge as the stock continues to trade
in a narrow range, just below the upper Bollinger band.  Even
the extreme gyrations of the broader markets has had no
perceptible effect, and we are left waiting for a move up or
down to get things moving again.  The 50-dma (now at $145.33)
seems to be providing support, and aggressive traders can
consider new positions on a bounce from either this level or
our stop, now resting at $144.  While conservative entries are
normally initiated on a rally through resistance (now at $149),
it seems unlikely we will get that kind of a move, given the
proximity of the upper Bollinger band at $148.38.  This level
is one possible culprit behind the stock's inability to move
significantly higher, so for the time being, the prudent entry
strategy seems to be targeting new entries from a bounce at
support.  Volume has been on the decline in recent days as well,
with today's session posting only 80% of the ADV - and this is
in the midst of heavy volume in the broader markets.  LH's
primary competitor, DGX has been having a rough week, declining
sharply over the past 2 days and perhaps keeping the LH bulls in
check.  Given the good relative strength, our play could get a
shot of adrenaline when the downward pressure in shares of DGX
is relieved.

UTEK $38.88 +0.97 (+0.88) Shrugging off weakness in the broader
markets today, UTEK bulls reasserted themselves and helped our
play to continue its recent uptrend.  Although early weakness
dragged the stock below our $37 stop, the gradual recovery got
a shot of new life with a sharp recovery in the final hour of
trading, bringing the stock back up to test the $39 resistance
level.  Volume came in 65% above the ADV today, and a huge
portion of that accompanied the late-day buying surge, adding to
the strength of the stock's recovery.  Aggressive traders that
took advantage of the early weakness to initiate new positions
are sitting pretty this afternoon, as UTEK looks poised to
challenge its recent high of $39.38.  Moving through the $39
level will be the trigger point for conservative traders to
enter new positions, but they will need to remain cautious with
the upper Bollinger band and upper channel line converged near
$39.50.  Until the Bollinger bands expand, the most prudent
entry strategy will continue to be buying the dips near support.
Just make sure you aren't catching a falling knife.  Given the
dramatic rally over the past 2 months, UTEK could fall victim
to the bears if buying volume diminishes significantly.


BBOX $48.31 -1.75 (-3.56) BBOX shaved off a couple more points
this week and importantly, cracked the $51 support level today.
The previous support failed to bolster the share price as the
selling rage continued to storm the marketplace.  The jitters
and uncertainty currently plaguing the bulls bears well for put
players.  We've lowered our protective stop from $55 to $52 to
reflect the recent losses and to safeguard existing profits.
If you're interested in playing a rollover, look for BBOX to
bounce off the 5-dma ($51.21) on strong volume, but make sure
there's enough downward momentum to take BBOX through the $49
with some degree of certainty.

ARBA $17.75 -1.38 (-3.75) ARBA panned out well since we added it
to our put list on Tuesday evening.  Aggressive entries could be
found near the revised $20 exit mark and the 5-dma ($20.06) on
Wednesday; however, this approach might not have suited a more
conservative trading style.  Nevertheless, the risk takers were
rewarded in today's session.  ARBA made a significant move to
the downside during amateur hour.  On the day, the stock saw
lows near $16.81 followed by recurrent revolutions to the $18.50
level.  The intraday volatility offered day traders fast-paced
opportunities.  Going forward, especially if you err on the side
of caution, look for the share price to breakdown below $17 and
for $19 to cap attempted revivals.  The oversold markets herald
the increasing probability of a rally, so keep stops tight.

TIBX $16.25 +0.75 (-6.81) It was tough to target an entry in
today's session.  After a decline to $14.56 in early morning
trading, the high-volume action concentrated itself in a rather
narrow range.  Therefore, if you didn't catch the spike to
$17.63, you were essentially kept on the sidelines.  Volume was
exceptional at 2.75 times the norm, which indicates TIBX is the
object of an ensuing battle between the bulls and bears.  If you
do have open positions, keep stops tight at $18 until the
downtrend resumes its course.

QLGC $42.25 +1.69 (-7.56) Our put play in QLGC received a major
boost when BRCD released earnings on Wednesday which beat the
street with downward revisions going forward.  A significant
gap down was met with buyers this afternoon, however, the stock
continued to make a pattern of lower highs at $51.69, $44, and
$43.  While semiconductors staged a minor rally for part of the
day, the rally failed in the afternoon, as overall Nasdaq
weakness took over.  Traders could take positions at current
levels, or at a roll over from $43.50 if it is accompanied by
weakness in the storage and semiconductor sectors.  We are
moving stops to $45.

ABGX $28.00 -1.94 (-4.75) After struggling to maintain support
at $30 for several days, ABGX made one last valiant attempt this
morning before falling to the next support level at $29 by mid
morning.  As the selling intensified on the Nasdaq toward the
end of the day, ABGX fell and consolidated at $28.  ABGX
is now at a new 52-week low, and back to levels it hasn't seen
since October of 1999.  Unless we have a dramatic recovery on the
Nasdaq and in the biotech sector, ABGX will most probably
continue to fall.  A possible entry point would be a failed rally
and roll over from the $30 level.  Otherwise, a break below $26.50
on heavy volume would be a very bearish sign.  In light of current
market action, we are moving stops down to $30.

ADBE $30.44 +0.38 (-5.88) Showing amazing strength in today's
session, ADBE found support at $28.44 before moving up to post
a gain on the day.  Although it was only a fractional gain, it
was a small pocket of strength, as we watched the NASDAQ decline
again on very heavy volume.  Speaking of volume, ADBE nearly
tripled its ADV with heavy volume throughout the day, as the
bulls and bears drew their battle lines around the $30 level.
Aggressive investors could have considered new entries as the
stock rolled over near the $31 level this afternoon, which
indicated there wasn't much strength to the buying earlier in
the day.  Until the current skirmish between buyers and sellers
is resolved, we are leaving our stop at $34, and aggressive
traders can consider new plays on any failed rally below this
level.  If you are looking for the more conservative approach,
wait for ADBE to fall through the $28 support level before
taking a position.  With the lower Bollinger band now sitting
just above $25, our play still has plenty of room to fall,
market permitting.

NETE $47.50 -3.19 (-9.50) It has been a wild ride for NETE over
the past 6 sessions, rallying from $47 last Wednesday to a high
of $60, and then returning to $47 this afternoon.  Traders that
jumped into the play on the initial rollover are sitting pretty
right now and should be considering locking in some profits.
Accordingly, we are ratcheting our stop down to $50 to protect
against any surprise rally tomorrow.  After the initial drop
this morning, the stock traded almost flat for the remainder of
the session, despite the wild movements of the broader market
indices.  With solid support sitting just below at $46,
conservative investors will want to wait for the bears to breach
this level before initiating new positions.  In the absence of
any positive news or a broad-based Technology rally, it seems
unlikely that NETE will be able to stage a significant recovery.
Aggressive investors will want to target shoot new entries on
any failed rally below the $50 resistance level.  Just don't
lose sight of the ongoing battle between the bulls and bears on
the NASDAQ - it is likely to be the dominant factor driving our
play for the next few sessions.

NOK $23.25 -1.00 (-2.00) Nokia has been exhibiting exceptional
weakness over the last several days, as the stock has hit a new
52-week low every day this week.  Kyocera released bad news this
morning, with a projection of hand set sales this year in the
range of 450 million units, as compared to Ericsson and Nokia's
previously stated projections of over 500 million units.  In
addition, analysts have stated that consumers will be less likely
to replace existing handsets in a slowing economy.  Unless the
downward channel is broken, NOK reach the $20 level.  Traders
could take positions at current levels, or at a failed rally
from $23.50.  We are moving stops down to $25.

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No new calls tonight



WEBM - Web Methods Inc. $47.13 -1.88 (-16.18 this week)

Web Methods is a leading provider of infrastructure software
and services for achieving business to business integration,
or B2Bi.  Their software, Web Methods B2B, enables companies
to work more closely with their customers, suppliers, and other
business partners through the real time exchange of information
and transactions over the Internet.

WEBM was met with investor enthusiasm shortly after going public
in February of 2000, as the shares hit a 52-week high of $336.25
last winter.  Since that point, the Nasdaq correction has
taken its toll on young technology companies, even those with
promising futures, and WEBM has been on a long term down trend.
WEBM rallied strongly following the initial Federal Reserve
rate cut on January 3, and subsequently formed a triple top
at the $95 level, which acted as impenetrable resistance since
October.  While the company reported earnings of five cents per
share, much higher than the analysts' consensus of one cent
per share on January 31, WEBM fell below its then 50 dma of
$85.31 the following day.  Since then, WEBM has been in a
serious dive, and it looks like the bottom may be below its
52-week low of $44.50.  WEBM showed a very weak response to the
three analyst upgrades it received in the month of February, as
each upgrade was met with a formation of a lower high and then
additional selling.  Two upgrades by UBS Warburg and Stifel
Nicholas on February 16 prompted a weak rally to the $64 level,
and a continued slump.  Last week, WEBM broke out of a downward
channel with an steep drop below its 10 dma of $61.15 to a new
downward channel.  At this point, WEBM is poised to roll over
from the $47 level, which could be an entry point if accompanied
by weakness in the software sector.  Another possible entry point
could be found on a break below $46.58, or the 52-week low of
$44.50.  Monitor the software index for weakness, and set stops
at $50.

BUY PUT MAR-50*UUW-OJ OI=773 at $8.13 SL=5.75
BUY PUT MAR-45 UUW-OI OI= 17 at $5.38 SL=3.00



NETE - Netegrity, Inc. $47.50 -3.19 (-9.50 this week)

Netegrity is a provider of software and services that manage
and control user access to Web-based e-commerce applications.
The company's SiteMinder product is part of the software
infrastructure that is used to build and manage an e-commerce
Web site, commonly known as a portal.  SiteMinder manages the
complex process of identifying users and assigning entitlements
to each, which determines what information that user can see
and what transactions the user can perform on that Web site.

Most Recent Write-Up

It has been a wild ride for NETE over the past 6 sessions,
rallying from $47 last Wednesday to a high of $60, and then
returning to $47 this afternoon.  Traders that jumped into the
play on the initial rollover are sitting pretty right now and
should be considering locking in some profits.  Accordingly, we
are ratcheting our stop down to $50 to protect against any
surprise rally tomorrow.  After the initial drop this morning,
the stock traded almost flat for the remainder of the session,
despite the wild movements of the broader market indices.  With
solid support sitting just below at $46, conservative investors
will want to wait for the bears to breach this level before
initiating new positions.  In the absence of any positive news or
a broad-based Technology rally, it seems unlikely that NETE will
be able to stage a significant recovery.  Aggressive investors
will want to target shoot new entries on any failed rally below
the $50 resistance level.  Just don't lose sight of the ongoing
battle between the bulls and bears on the NASDAQ - it is likely
to be the dominant factor driving our play for the next few


Looking to capitalize once again on a weak NASDAQ, NETE is right
on the cusp of support at $64.  With the SUNW warning after the
bell, there should be some early morning weakness.  Look for a
break through $64 to jump on board.  If NETE has buying early on,
look for rollovers from intraday resistance at $49 or $52 for
new entries.  The NASDAQ is in oversold conditions and may be
due for some relief so be aware and take profits early.

BUY PUT MAR-55 UPN-OK OI= 84 at $9.88 SL=7.50
BUY PUT MAR-50*UPN-OJ OI=306 at $6.63 SL=4.75
BUY PUT MAR-45 UPN-OI OI=126 at $3.88 SL=2.50


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Title: Down, Down, Down We Go...

The slump in technology issues drove the NASDAQ Composite Index
to its lowest closing level in two years amid concerns about the
stagnant U.S. economy.

Wednesday, February 21

Stocks endured another session of selling pressure as investors
worried about the bleak outlook for corporate profits.  The Dow
industrials skidded 200 points lower to finish at 10,526.  The
NASDAQ closed down 49 points at 2,268.  The S&P 500 index posted
new low for the year, falling 23 points to 1,255.  Trading volume
on the Big Board reached 1.2 billion shares, with losers beating
winners 2,024 to 1,079.  Activity on the NASDAQ was heavy with
over 2 billion shares changing hands.  Technology declines beat
advances 2,614 to 1,156.  In the bond market, the U.S. 30-year
Treasury fell 12/32, pushing its yield up to 5.48%.

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

Abiomed     (NASDAQ:ABMD)  MAR35C/M22P  $0.00  credit  synthetic
Alex.       (NASDAQ:ALEX)  MAR30C/M25P  $0.75  credit  strangle
Aphton      (NASDAQ:APHT)  MAR30C/M15P  $0.88  credit  strangle
PictureTel  (NASDAQ:PCTL)  JUL5C/MAR5C  $0.75  debit   calendar

Today's volatile market activity provided some good opportunities
to initiate our new combinations positions.  Unfortunately, there
was little interest in the plays and without trading activity, the
opening prices were difficult to determine.  Abiomed dropped to
$27.50 in the first hour of trading, and it appears that for a
brief period, the calls were offered at the same price that the
Puts were bid.  However, no contracts traded in the position so
the window of opportunity may have been too short.  The target
options in PictureTel also ended with low trading volume but the
position was offered within a $0.06 of our suggested price for
most of the day.  Alexander and Aphton were the only plays in
which the target prices were observed on a simultaneous order

Portfolio Activity:

The stock market tumbled today amid uncertainty about the economy
and concerns over the outlook for future corporate earnings.  The
unexpected rise in the Consumer Price Index gave traders another
indication that additional interest-rate reductions by the Federal
Reserve may be delayed.  At the same time, analysts acknowledged
the odds of a near-term rate cut is rising with the deteriorating
condition of the financial market.  The NASDAQ has now fallen to
its lowest levels in almost two years and many popular large-cap
technology companies are approaching single digit valuations.  In
addition, the Dow Jones industrial average posted its lowest close
in recent weeks on weakness in its technology components, as well
as interest-rate-sensitive financials and retailers.  The downward
trend in the broader market suggests that investors believe the
potential for a quick economic recovery is almost nil and even the
recent sector rotations will no longer support the major indices.
Today's activity in the pharmaceutical sector was a good example
of the trend to move into defensive companies and yet the buying
pressure in that group had little effect on the overall market.
One of our newer time selling plays in the sector, Alza (NYSE:AZA)
did not respond to bullish movement and it appears that the issue
is destined for the bottom of its recent range.  Traders in the
calendar spread can close the play for a $0.50 profit (on $0.60
invested) or wait for a test of the previous support area near $39.
Those of you who chose a bullish outlook strategy should consider
an exit on any close below the sold strike at $40.  Among other
time-selling positions, Navistar (NYSE:NAV) and Clorox (NYSE:CLX)
are also offering profitable exits and those of you don't like the
near-term outlook for the broad market should consider taking the
early-exit returns.

Today's big winner in the Spreads Portfolio was the debit straddle
in Grupo Televisa (NYSE:TV).  Shares of overseas companies traded
in the United States fell precipitously, with investors in Latin
American firms reacting to instability in Argentina.  The worries
stemmed from financial and political crises in Turkey and that set
the stage for a sell-off in other ADR's.  Mexican broadcaster TV,
the world's biggest Spanish-language media producer, surprised
analysts with a weak fourth-quarter performance, which stemmed
from a drop in income in music, editorial and distribution of
publications.  Ahead of the Q4 report, Grupo Televisa had earlier
warned investors that its earnings growth could be hurt by a drop
in advertising sales from multinational firms, who cut costs to
compensate for the slowdown in the U.S. economy.  The stock fell
almost $9 during the session, bringing the overall credit in our
straddle to $11.40, a 40% return on the initial investment.  Now
the question is how far to ride the bearish trend, and with the
most recent support area near $35, there's a fairly good chance
the issue will move lower.

Thursday, February 22

The slump in technology issues drove the NASDAQ Composite Index
to its lowest closing level in two years amid concerns about the
stagnant U.S. economy.  The NASDAQ ended down 23 points at 2,244.
The Dow industrials finished almost unchanged at 10,526 while the
S&P 500 index closed down 2 points at 1,252.  Trading volume on
the NYSE reached 1.35 billion shares, with losers beating winners
1,901 to 1,141.  Activity on the NASDAQ was heavy at 2.4 billion
exchanged, with declines beating advances 2,466 to 1,294.  In the
bond market, the 30-year Treasury fell 14/32, pushing its yield
up to 5.52%.

Portfolio Activity:

Technology stocks moved lower today, after a volatile session
that saw the NASDAQ fall to new depths amid additional reports
of slowing earnings growth.  The data storage group was driven
down early in the day by an unexpected profit warning from EMC
Corporation (NYSE:EMC), while the hardware sector suffered a
a blow from Brocade Communications Systems (NASDAQ:BRCD).  EMC
said the uncertain economy would slow the company's growth in
2001 and Brocade, which beat analysts' expectations, also said
computer storage companies would see lower revenues due to the
slowing economy.  The news weighed heavily on the sector, which
was previously seen as one of the last areas of strength in an
otherwise beleaguered technology industry.   Among other NASDAQ
segments, only semiconductor, networking, and telecom companies
opposed the downward trend while Internet and software stocks
moved further into the red.  On the Dow, AT&T (NYSE:T), DuPont
(NYSE:DD), SBC Communications (NYSE:SBC), Boeing (NYSE:BA),
Eastman Kodak (NYSE:EK), and International Paper (NYSE:IP) were
the best performing issues.  Leading the downside activity on
the blue-chip average were Walt Disney (NYSE:DIS), Home Depot
(NYSE:HD), Coca-Cola (NYSE:KO), and Microsoft (NASDAQ:MSFT).
The broader market was engulfed in a sea of red, with only a
select group of defensive shares escaping the selling onslaught.
Some analysts are saying that the best-case scenario for the
market is capitulation, as it would permit the major averages to
discount disappointing earnings news for the entire year.  This
type of activity, while unpleasant in the near-term, would allow
the market to stage a sustainable rally from much lower levels.

There was little upside activity in the Spreads section today,
but the downward bias did help a number of our bearish plays.
Positions in American Home Products (NYSE:AHP), PerkinElmer
(NYSE:PKI), Johnson & Johnson (NYSE:JNJ), and Pfizer (NYSE:PFE)
all benefited from the limited buying support.  At the same time,
the downward movement did little to help our bullish positions
and many of the plays in the technology sector are failing with
the slump in NASDAQ stocks.  Traders in these positions should
reevaluate their long-term outlook for the underlying issues and
decide at what point to adjust (or exit) their current plays.
Most of the positions in the small-cap group are performing well,
considering the overall market malaise.  Luminent (NASDAQ:LMNE)
and Davox (NASDAQ:DAVX) are the only issues that appear to have
reversed course significantly, but they both offered profitable
opportunities for adept traders.  One of the big surprises today
was the activity in Abiomed (NASDAQ:ABMD).  Shares of the stock
plummeted after an article by popular market-guru Herb Greenberg
suggested that the company might not deserve its "heart-stopping"
valuation.  Herb commented that companies of this nature "sound
great on paper and are worth their weight in gold in sucking
investors into what may very well be a sexy story and a sizzling
stock...that is, until reality hits, and the device doesn't get
FDA approval, or if it does, that the market is smaller than its
promoters expected."  His comments had a significant affect on
the issue but ABMD shares finished with a respectable recovery
and considering the current condition of the broad market, many
traders may be content to speculate on stocks that are immune to
the affects of the slowing economy.

Questions & comments on spreads/combos to Contact Support
                           - NEW PLAYS -

One of our readers asked for some new bearish positions, based
on the recent downward trend in the market.  However, it is very
difficult to determine which sectors and individual issues will
be less affected by a technical bounce in the near-term.  One
area we will definitely avoid is technology stocks, as they are
deeply oversold.  Some of the other broad market groups might
not respond as well to a recovery rally and with that idea in
mind, here are two positions that may offer favorable trading
opportunities, depending on your strategic approach and future
outlook for the underlying issues.

AVY - Avery Dennison  $52.30  *** Defensive Stock! ***

Avery Dennison (NYSE:AVY) and its subsidiaries are involved in
the production of pressure-sensitive adhesives and materials,
and the production of consumer and converted products.  The
company also manufactures and sells a variety of consumer and
converted products and items not involving pressure-sensitive
components, such as notebooks, three-ring binders, organizing
systems, markers, fasteners, business forms, tickets, tags and
imprinting equipment.  Products in this segment are under brand
names such as Avery, Avery Kids, Marks-A-Lot and HI-LITER.  The
company's pressure-sensitive adhesives and materials segment
manufactures and sells a range of specialty tapes, graphic films,
reflective highway safety products and chemicals.  In addition,
its consumer and converted products segment manufactures and
sells a wide range of Avery brand consumer products, custom
label products, high performance specialty films and labels,
automotive applications and fasteners.

Companies in the paper industry are often included in the
defensive or "safety" sectors, but AVY has not participated in
the most recent rotation to the group.  In fact, shares of the
company slumped today while others in the segment were moving
higher amid buying pressure in the sector.  Now the issue is
trading near the bottom of a recent range and the next support
level is near $50.  With little (expected) news to drive the
stock higher, this position offers favorable speculation for
traders who have a neutral to bearish outlook for the issue.

PLAY (conservative - bearish/credit spread):

BUY  CALL  MAR-60  AVY-CL  OI=87  A=$0.10
SELL CALL  MAR-55  AVY-CK  OI=19  B=$0.75
INITIAL NET CREDIT TARGET=$0.70-$0.75  ROI(max)=15%

ITG - Investment Technology  $47.90  *** Technicals Only! ***

Investment Technology Group (NYSE:ITG) provides equity trading
services and transaction research to institutional investors and
brokers, using technology to increase the effectiveness and lower
the cost of trading.  Its principal service offerings are POSIT,
an electronic stock crossing system; QuantEx, a decision-support,
trade management and order routing system; SmartServers, which
offers server-based implementation of trading strategies;
Electronic Trading Desk, an agency-only trading desk offering
clients the ability to efficiently process multiple sources of
liquidity; ITG Platform, a PC-based order routing and trade
management system; ACE and TCA, a set of pre- and post-trade
tools for systematically analyzing and lowering trading costs;
ITG/Opt, a computer-based equity portfolio selection system; and
Research, which provides research, development, sales and
consulting services to its clients.  Revenues are generated on a
per transaction basis for all orders executed.

This position is simply based on the current price or trading
range of the underlying issue and the recent technical history
or trend in the sector.  Current news and market sentiment will
have an effect on the issue, so review the play thoroughly and
make your own decision about the future outcome of the position.

PLAY (conservative - bearish/synthetic position):

SELL CALL  MAR-55  ITG-CK  OI=32  B=$0.90
BUY  PUT   MAR-40  ITG-OH  OI=9   A=$0.70

Note:  Using options, the position is similar to being short the
stock.  The collateral requirement for the sold (short) call is
approximately $1,300 per contract.

                   - STRADDLES AND STRANGLES -
CHIR - Chiron  $44.94  *** Trading Range! ***

Chiron (NASDAQ:CHIR) is a biotechnology company that participates
in three global healthcare businesses: biopharmaceuticals,
vaccines and blood testing.  The company is developing products
for preventing and treating cancer, infectious diseases and
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, which is
marketed by Ortho-McNeil, a Johnson & Johnson company, as a new
treatment for diabetic foot ulcers.  Chiron also manufactures
Betaseron for Berlex Laboratories and its parent group, Schering
AG, which is marketed by Berlex and Schering AG as a treatment
for multiple sclerosis.  In addition, the company sells a line of
traditional pediatric and adult vaccines.

We received some positive comments on the recent candidates in
this strategy, so we decided to look for another favorable issue
in the premium-selling category.  Once again, our search led to
a stock in the biotechnology sector, which is known to be very
volatile.  However, CHIR has a well-defined trading range and a
high probability of remaining between the sold (short) strike
prices.  Traders who believe the trend will continue can use the
inflated option premiums to open a neutral outlook position and
use the earned income to offset any losses on the downside, in
the event the issue is assigned.  If the stock moves through the
resistance area near $48 on a heavy-volume, the position should
be covered (or offset) to limit potential losses.

PLAY (conservative - neutral/credit strangle):

SELL CALL  MAR-50  CIQ-CJ  OI=2784  B=$0.62
SELL PUT   MAR-40  CIQ-OH  OI=827   B=$0.88
INITIAL NET CREDIT TARGET=$1.50-$1.62 ROI(max)=10%
UPSIDE B/E=$51.50 DOWNSIDE B/E=$38.50


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