Option Investor

Daily Newsletter, Sunday, 02/25/2001

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The Option Investor Newsletter                   Sunday 02-25-2001
Copyright 2001, All rights reserved.                        1 of 5
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        WE 2-23          WE 2-16           WE 2-9           WE 2-2
DOW    10441.90 -357.92 10799.82 + 18.37 10781.45 - 99.10  +204.12
Nasdaq  2262.51 -162.87  2425.38 - 45.59  2470.97 - 91.09  -120.80
S&P-100  642.64 - 32.88   675.42 -  6.93   682.35 - 11.97  -  3.58
S&P-500 1245.86 - 55.67  1301.53 - 13.23  1314.76 - 17.77  -  5.48
W5000  11500.70 -528.90 12029.60 - 94.71 12124.31 -169.65  - 77.20
RUT      477.45 - 21.83   499.28 +  2.23   497.05 -  5.84  +  2.82
TRAN    2930.07 - 64.71  2994.78 - 18.64  3013.42 - 11.82  +136.57
VIX       30.34 +  5.26    25.08 -   .07    25.15 +  1.06  -   .39
Put/Call    .71              .89              .73              .60

Finally the shorts covered!
By Jim Brown

It was not pretty but we will take everything we can get. At 2:PM
Bear Stearns chief economist, Wayne Angell, a former Fed governor,
told his staff that the Fed would cut rates by -.50% in the first
three days of next week. He gave it better than a 60% chance of
happening. Immediately buyers came into the market. Not in volume
but most stocks started showing immediate improvement. Once the
bounce was definitely underway there were several attempts to sell
into the rally but they all failed. Once it was apparent that the
rally was going to stick the shorts ran for cover. Most charts
show huge gains in the last 30 minutes that are characteristic
of short covering, not investor buying. There was a rumor that
the Fed was going to cut over the weekend to avoid the irrational
exuberance and +300 point gains like we got on Jan-3rd.

I said on Thursday night, "what other bad news can we get that
is not already priced into the market?" Okay, how about Motorola
and Qualcomm? I give up! Nyse:MOT warned before the opening bell
that they could post a loss for the first time in 15 years. That
went over really well!  The company said it would fall short of
estimates and blamed a significant slowdown in orders across all
its business lines. Not only kiss off MOT but Nyse:NOK,
Nasdaq:ERICY, and Nasdaq:QCOM as guilty by association.

Qualcomm dropped -$17 intraday to $50.13 after it took advantage
of the Motorola warning and drop to make an announcement of their
own. QCOM said there would be a delay in some third generation
deployment in Europe until 2004-2005. European telecommunications
operators had forecast that 3G technology would be ready by 2002.
The $50.13 low was it's lowest since Oct-1999. Later in the session
the company reiterated that demand for the current 2000-CDMA 3G
chips was still in line with previous estimates. QCOM regained a
substantial portion of the intraday loss and closed the day down
only -5.13 at $61.81. Most analysts with a microphone downgraded
QCOM but MSDW upgraded the stock to a strong buy from outperform.
He said the huge drop in the stock provided an entry point for
investors since the new 3G product was not really a factor in
current estimates. Good call! I like it when an analyst goes
against the trend and draws a line in the sand. $60 had been
strong support since last May and many investors made a quick,
safe $10 on the drop today.

Nyse:IBM was the biggest loser on the Dow with a drop of -4.90.
The culprit was the Nasdaq:SUNW earnings warning. With a drop
of -50% in earnings estimates for the largest U.S. server
producer, analysts immediately realized that IBM with $88 billion
in revenues, and the number one server seller worldwide, was not
going to come through the recession unscathed. The broad based
drop in computer sales will hit IBM as well. IBM may not drop
estimates -50% like SUNW but it will warn analysts say. IBM
was one of the few stocks that had held the high ground through
the recent weakness but over the last three days IBM has lost
almost -$15.

As I said before the catalyst for today's bounce was a note
from Wayne Angell at Bear Stearns. He gave a credible voice to
what others were wishing more than believing. The flood of
negative sentiment had moved from stocks to a Fed that was
behind the curve but did not have the guts to admit it. The
almost unanimous call for another rate cut quick has escalated
into a 60% chance of an intra-meeting cut next week. Critics
claim the Fed can't cut for fear the markets will not react
and then have egg on their face. I said several times this
is totally flawed. The Fed could come right back and cut again
and again if needed. They have just gotten started and could
cut another 2.0% if needed to jump start the economy and the
markets. We are only three weeks away from the Fed meeting
so any intra-meeting cut has to come this week to have any
real impact. A further cut at the meeting and we would be
on an interest rate roll!

A reason given for part of the drop this week was Turkey.
The Lira was devalued and there were several rumors that
a couple hedge funds were trapped in currency trades. Memories
of Long Term Capital and how close we came to a banking
system failure were quickly revisited. The Lira was trading
at 674,000 to one U.S. dollar. That would make any $40,000
dollar American car about a 26 billion lira investment. Give
me a Grand Wagoneer and a two ton truck please. You would
need the truck to carry your cash from store to store. A
cart with $150 of groceries is worth about a billion lira.
Interest rates were running around 6000%. That means it
cost 60 lira to borrow 1 lira. So explain to me why a hedge
fund would even remotely consider gambling in this currency?
I doubt we will see any truth to those rumors. I would
however believe it possible that there was some involvement
in the South American currencies and possible repercussions
from there. Chile and Argentina both suffered fluctuations
from the Turkey problems.

The short covering rally may have come too late for many
investors. Margin calls are up and as of Thursday were
running better than twice the normal rate. With the number
of stocks still down on Friday that statistic is probably
even worse. Liquidations of stock in lieu of adding cash
to already strapped accounts will likely run into Monday
and maybe Tuesday. The offset to this is investors that
have been waiting for an entry point.

I have been dying to be bullish for a week. The key word
here is "dying." What a depressing week. I am going to
take one of my tag lines of "don't buy too soon" and have
it etched on my monitor in big block letters. I have been
telling investors to wait for the bounce for two weeks
and then I bought the dip instead. Have you ever opened a
position only to look back the next day and wonder what you
were thinking? I am sure that never happened to anyone but
me. I mean we were very oversold and everybody just knew the
SUNW news was already priced in, right? Fortunately Wayne
Angell came to our rescue. Or did he? Does anybody think
Alan Greenspan is a stubborn guy? Do you think maybe he
took offense at a former Fed governor making a public call
like that and stealing the Fed Head's thunder? What do you
think will happen to the markets now if there is no rate
cut by the close on Wednesday as forecasted by Angell? You
got it, retest the lows again.

So Greenspan is in a box again. Cut rates the first three
days and it looks like somebody else is pulling your strings.
Don't cut rates and the market tanks again. Catch 22. I
am glad it is his job and not mine. Another analyst was
saying today that Alan can't cut rates just to bail out
the stocks market. The Fed has said on numerous occasions
that equity prices have no impact on Fed policy. Alan
however has taken great pains to talk down the last couple
of bubbles as we all know. I believe the "stock prices
are not important" mantra is bull. Greenspan has said that
consumer confidence is very important to the health of the
economy. There are 66 million brokerage accounts in the U.S.
plus untold millions of fund/retirement accounts. It would
probably not be out of line to say more than half of the
U.S. population has a direct interest in the stock market.

What happens to consumer confidence when they get their
statements at the end of each month? I will give you a
clue, it is not going up. Investors are not taking their
profits out to buy new houses, cars, boats or retirement
property. Plans to do those things are on hold and investors
are frustrated and scared. I think the stock market is the
prime mover for consumer confidence. Now, do you really
think Alan does not care about stock prices? How much of
the budget surplus last year was funded by windfall profits
from the 1999 Internet bubble? The Nasdaq alone rose over
$3 trillion. Not everybody sold but many people sold over
and over. Do the math using your capital gains rate or even
worse your personal tax rate. I will save you the trouble,
it was billions. Now how much do you think the last 12
months of the bear market have contributed to the surplus?
I would think significantly less. In my humble opinion
Alan actually cares a lot about equity prices. Now, if you
were Greenspan would you bite the bullet and cut in the
next three days anyway and make Angell a hero or would you
risk waiting until Thursday or Friday and risk the market
falling again?

Make no mistake about it. The rally on Friday afternoon
was a short covering rally only. I saw no evidence of
investors rushing into stocks because they were excited
about earnings. This was simply a technical short covering.
Traders who had been short all week and seeing a good
possibility of a rate cut early next week, took profits
and closed positions. The rumor of a weekend rate cut
was discounted on the surface but many short traders
probably thought twice about closing just in case. Here
we are again at a crucial point in the markets. The Nasdaq
has now closed three days straight within 20 points of
2250. (2269, 2246, 2262) Resistance is at 2280-2300.
Volume on Friday, in spite of the rally, was lighter than
the previous down day. No confirmation of the rally came
from any internals. Decliners beat advancers and down
volume beat up volume 2:1. Sound like a real rally to you?

While I may sound bearish I don't want to alarm you. I am
just reporting the facts as I see them. My bias is still
for the Nasdaq to move up on an oversold rally soon. The
2250 level has been broken but basically is still a price
magnet. However there are still quite a few analysts saying
we have not seen the wash out yet. They are forecasting 2050
as the next support level with some calling for sub 2000
numbers soon. There will always be bears and if we fell to
1500 they would be saying 1200. The truth will not be known
until it happens. How much lower can it go? There is $4
trillion currently invested in stock funds. There is over
$2 trillion parked in money market funds. This does not
count idle cash in brokerage accounts already. If investors
felt the urge to invest in cheap stocks there is more than
enough money available to power a monster rally. Luring
this cash off the sidelines is the problem.

The reality for Monday is a war between the bulls and the
bears. Bears will be cautious with a possible rate cut
announcement in every news bulletin. This may give the bulls
an edge and allow them to take back some ground. Remember,
the market hates uncertainty and we will be up to our ears
in it. There will be more earnings warnings and more
downgrades. The only positive catalyst we have to look
forward to is the rate cut. The economic calendar is loaded
with problems for the week. Tuesday has Durable Goods, New
Home Sales and Consumer Confidence. Wednesday we get the Q4
GDP and Chicago PMI. Thursday is Personal Income and Spending,
Construction Spending and NAPM. Friday is the all important
Michigan Sentiment again. Even worse than the economic
reports is the Greenspan calendar. Wednesday he testifies
on Monetary Policy before the House Financial Services
Committee at 9:30AM and Friday he testifies on Current Fiscal
Issues before the House Budget Committee at 10:AM. Those
two appearances could have a block buster impact on the
markets. Another Bear Stearns analyst said that if Alan does
not cut rates before his testimony then the markets will
assume the Fed has backed off their aggressive stance and
probably head even lower. A cheerful thought!

I would caution investors about rushing into the market next
week unless your plan is to trade it. You must also decide
before going long if you want to be long during the Greenspan
speeches. Those have proven hazardous in the past. Remember
we only want to trade in a stable environment and in the
direction of the trend and right now the trend is still down.
If we can get back over 2300 and hold it then join the party.
This goes for conservative traders also. Because we are so
oversold there is the possibility of a couple hundred point
bounce on good news. To repeat, the plan I am suggesting for
long call traders is to go long over 2300 and stay flat under
2300. Let the market make the decision for you. Take the
stress out of trading by planning your trades and sticking
to the plan.

Trade smart, 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
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Current speakers include:

Tom DeMark, author of "Day Trading Options", "Science of
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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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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
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This is not a prepackaged presentation that gets repeated over
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Play updates! A very painful week!

The Nasdaq opened down on Tuesday and never looked back.
Traders should have never started any of the plays mentioned
in last weeks column. Remember, we never play calls in a
down market. Even a helium ballon goes down in a down

With that said, AMCC appears to have put in a strong bottom
at $35 and I would suggest selecting a different call strike
than the one from last week. I would play the March-$40
call AEX-CH @ $3.50. Remember, wait for a rising market.


CIEN - $85 call

The down market drowned CIEN in a sea of red until Thursday.
CIEN appears to have put in a bottom at previous support of
$70 and is ready to rally if the market cooperates. I picked
the ITM $70 call at $7.88 since there is only 3 weeks left.
$4.50 is intrinsic value already making the time value only
$3.38. After a +$3 move it will be all 100% delta and move
dollar for dollar. Only play in a rising market and plan to
exit around $90.


MUSE - $70 call

MUSE died at the open on Tuesday with the markets falling and never
recovered. There was a jump on short covering at the close on
Friday but no sign of support. I am dropping MUSE as a candidate.


QQQ - Calls

You should not have entered this play due to the down market.
The bounce off $48 on Friday was short covering but if we get
a rate cut and positive Greenspan remarks then I could easily
see $60 as a target.


JNPR - Mar-$80 Call

Is it a bottom or is it short covering? We will not know until
next week but after selling off for several weeks we could get
a giant jump like the Feb-14th action if the market cooperates
on a rate cut. Only play if the market is rising!


My market view is very guarded given the minor rally at the
close on Friday. There was no confirmation and no volume.
Without a rate cut and with Greenspan speaking there are
more reasons for the market to go down than up. The fear
of a possible rate cut will keep the shorts confused and
many out of the market. That is the only positive thing I
can see at this time. Only enter these plays if the market
is rising on good volume. This could be a dangerous week
or an explosive week, we just don't know which yet!

Of the recommended plays above I am long CIEN, JNPR and
QQQ at this time.

Good Luck

Jim Brown

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Got A Light, Mr. Angell?
By Austin Passamonte

These markets have been setting up for a short-squeeze tinderbox
over the past several sessions. Every good inferno begins with one
tiny spark when all conditions are right. Friday afternoon's
market call from a former Fed member may have lit the next market
bonfire to flicker, lick or blaze its way up all major index
charts... the amount of heat produced remains to be seen.

Friday was not at all the session we expected for the first 5.5
hours of action. Thursday's bullish reversal was quickly
extinguished long before the bell and further selling was rampant
once again. We were part of that furious action as calls were
scaled out of early in the session during our own nimble time of

When the VIX soared to 34.00 and then 35.00 however, every
household dime was dug out from beneath sofa cushions to purchase
all the index calls we could possibly afford. Our fondest wish is
that you did the very same and much more of it!

Only a few sessions each year see bullish spikes to that extreme
and they are all but lead-pipe locks. We might have over-extended
our financial risk a tad (and then some) but experience has shown
when it's time to shift gears, tromp the accelerator and dump the
clutch when that light tree all turns green in front of us on the
drag strip.

We trade very simple by nature with few rigid rules but one of
those are to buy calls & sell put-credit spreads on VIX above
30.00, and buy puts & sell call-credit spreads on VIX below 20.00
without question or hesitation. If those extremes continue, keep
buying more.

This approach only materializes a handful of times per year, is by
far amongst the biggest, easiest of wins and has never failed us
yet (we had to say that, didn't we?). Likewise, we never trade
bearish with a VIX over 30 or bullish when under 20 as learned
from two very large monetary losses long ago when we did.

For traders who may have missed Friday's bottom spike, rest
assured there will be a few more entries like this on either side
of VIX bearish 20/bullish 30 again this year and each year for all
of us to eagerly take advantage of. Keep an eye on the VIX(VXN as
we learn its behavior) for these infrequent but very high-odds
setups to occur.

What next? You had to ask.

Our best guess (what we're paid to do) is for the relief-rally to
continue on strength of rate-cut rumor. All we needed was a spark
and that's likely the match tossed towards gasoline. Major indexes
are oversold to an extreme, the VIX is still high and put/call
ratio disparity lost all sense of reason days ago. This also
reflects short interest in the equity markets as well. Bears have
shorted everything that wasn't tied up or nailed down and massive
profits are the result. Harvesting/protecting those gains should
be a catalyst to rally.

Every powerful rally we can recall emerges from times exactly like
this when there is absolutely no reason for it to do so. Likewise,
every market slide comes at a time when the world is all looking
up. Do you recall talk of a Dow's close above 11,000 being the
start for a trek to 12,000+? It may have seemed like forever ago
(or 800 index points on Friday) but it was less than two meager
weeks past. My, my, how times do change.

Where might the Nasdaq markets be two short weeks from now?
Considerably higher than where they are tonight would be our
guess. The tech index has outwardly been sold into slavery and
outwardly treated like the plague. Inwardly, there are millions of
tech bulls still in love with their fallen angels eager to
rekindle the romance. Sure, there may have been some harsh words
recently spoken by loved ones but it will soon be time to kiss &
make up. Flirtatious interest shown by other parties will ignite
those two age-worn emotions of fear & greed.

Lest we think it's different this time and people have changed, we
need a refresher course on Human Psychology 101. Human nature is
the only predictable constant we can count on in life and upon
market action.

That being said, we have identified a few key points of overhead
resistance for the big four. Should prices reach these lofty highs
and struggle, we may consider various entry/plans.

Dow: 10,700 - 10,750 is cluttered with various major moving
     averages and Fibanocci retracements from recent high/low

NDX: 2,360 is the 20 DMA and 50% retracement of recent extremes.
     2,440 is the 50 DMA and 62% retracement of recent extremes.

SPX: 1300 is the 10 DMA and 50% retracement of recent extremes.
     1325 is the 20 & 50 DMA and 62% retracement of extremes.

OEX: 676 is the 50% retracement of high/low extremes
     690 is the 20 & 50 DMA and 62% retracement of extremes.

These are key levels to watch in the broad indexes for price
action to cluster near. All could be approached prior to week's
end and will offer formidable resistance at that time.

A relief rally has been brewing since late last week and needs a
catalyst to propel it. We may have found exactly that. We do not
consider any move from here an ultimate market bottom or even
sustainable rally, but it promises to be highly tradable and that
is all we ask. After all, we are traders!

It's still important to trade the daily trend and for now that
appears to be going up. Play scared and take profits when accrued.


Friday 02/23 close: 30.34

Friday 02/23 close: 72.04

30-yr Bonds
Friday 02/23 close: 5.48%

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)
680 - 665                7,637        7,838          .97
660 - 645                3,269        5,915          .55

OEX close: 642.46

640 - 625                  225        6,854        30.46
620 - 600                   36       12,945       359.58

Maximum calls: 700/6,150
Maximum puts : 600/6,581

Moving Averages
 10 DMA  670
 20 DMA  689
 50 DMA  692
200 DMA  751

NASDAQ 100 Index (NDX/QQQ)
 60 - 58                86,511        30,864         2.80
 57 - 55                77,353        41,835         1.85
 54 - 52                32,898        22,757         1.45

QQQ(NDX)close: 51.18

 50 - 48                28,092        38,223         1.36
 47 - 45                 1,921        14,042         7.31
 44 - 42                   452         3,072         6.80

Maximum calls: 60/58,280
Maximum puts : 50/26,186

Moving Averages
 10 DMA 54
 20 DMA 58
 50 DMA 60
200 DMA 80

S&P 500 (SPX)
1300                   12,598        19,395           .65
1275                   10,331        20,136           .51
1250                    5,507        19,494          3.54

SPX close: 1245.48

1225                    1,222        12,415         10.16
1200                    1,343        20,946         15.60
1175                      223         4,908         22.01

Maximum calls: 1350/46,708
Maximum puts : 1325/42,538

Moving Averages
 10 DMA 1294
 20 DMA 1325
 50 DMA 1324
200 DMA 1407


CBOT Commitment Of Traders Report: Friday 02/23
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         -2538      -2625        -4571      -4782

Total Open
interest %       (-26.63%)  (-24.98%)    (-18.48%)  (-18.90%)
                 net-short  net-short    net-short  net-short

Open Interest
Net Value         +2988      +4104        -8493      -8143

Total Open
Interest %       (+15.44%)  (+18.73%)    (-13.44%)  (-12.85%)
                 net-long   net-long     net-short  net-short

S&P 500
Open Interest
Net Value         +77015     +73789       -96492     -92910
Total Open
Interest %       (+40.10%)  (+40.21%)    (-12.70%)  (-12.12%)
                 net-long   net-long     net-short  net-short

What COT Data Tells Us
Indices:  Once again we have the Small specs and Commercials
holding their respective positions with little change.  The
Commercials continue to indicate that we could be in for further
downside activity.

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 02/20 by the CFTC.


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those who know.

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Fed Watch
By Eric Utley

Last weekend, I speculated that the FOMC will cut interest rates
before its meeting near the end of March.  That speculation
spread last week and induced a bit of fear in the shorts, who
feverishly covered late Friday.

Additionally, that late-day rally Friday felt as if there were
some new and big longs buying stock.  It's only a hunch on
my part, but the buying felt pretty big.

So now that the market is at least discounting the possibility
for an intermeeting rate cut, traders might want to consider
how to trade around such an event if it does transpire.

The best way to profit from a surprise rate cut by the Fed,
while taking the least amount of risk, would probably be
with the banks, brokers, retailers and cyclicals.  The techs
are likely to stage a big rally if the Fed does cut rates,
but in all reality, it may be best to sell into the tech
rally because fundamentals in that group have not even
remotely rebounded.

Conversely, if the Fed does not move next week, I would think
there exists a strong chance of the Nasdaq Composite (COMPX)
falling as low as 2000, or even breaking down below that
level.  The reason is because the market discounted the
possibility of an intermeeting move last Friday, so there's
that expectation already built into the market.  And a
disappointment in the form of the Fed not cutting might give
us the capitulation day we've been waiting for on the Nasdaq.
Moreover, I can almost guarantee we haven't heard the last
of earnings warnings from the tech sector.  And as long as
the fundamentals continue deteriorating in the tech
sector, the excessive downside in share prices will continue.

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


JDSU Short

I put on several trades last week, gaming both the long and
short side.  I chose to review the trade I put on in JDS
Uniphase (NASDAQ:JDSU) last Tuesday because I think it
represents a relatively simple trade.  All I did was
hypothesized that the tech sector would continue selling
off, waited for a good execution and took profits.

I expected the Nortel (NYSE:NT) blowup to have a lasting and
negative impact over the weekend and result in continued
selling in the optical networking sector.  In addition, I
believe JDSU was downgraded Tuesday morning.

If I recall correctly, the Nasdaq futures were somewhat higher
Tuesday morning before the open, despite the looming pessimism
over the tech sector.  However, as soon as the bell rang the
pessimism was evident in the cash index as the Nasdaq
Composite (COMPX) precipitously fell and JDSU was met with
very heavy supply.

I normally don't like to trade within the first half-hour of
the day because of the whipsaws that tend to take place.
However, the selling in JDSU was so rampant that I decided to
take on some puts as soon as the stock broke below its intraday
low from the previous Friday.  I held the puts for a few points
in the underlying and when the shorts appeared to be buying
the stock back and taking profits, I did the same thing and
blasted the puts for a decent profit.

JDSU - 5 minute


American Tower - AMT

What do you think of AMT?  Good way to play the growth in wireless
voice/data?  Capital expenditures should now begin to bear fruit,
and appears to have strong support at current levels. - Thanks,

I'll be honest with you, Dave, I don't think the wireless sector
is a very friendly place to put money to work right now.  The
big players in the wireless space, such as Nokia (NYSE:NOK) and
Motorola (NYSE:MOT), among others, are facing severe downturns in
demand and a softening in their underlying businesses.  As such,
I would expect that slowdown in consumer demand for wireless
products and services would eventually catch up with American
Tower (NYSE:AMT) - the company is an operator of network and
communications towers.

In addition, American Tower, like many highly-leveraged telecom-
related companies, is cash flow negative.  It continues to lose
money from operations and is expected to do so for quite some
time.  Plus, I did notice the company has some debt on its balance

To be perfectly blunt, I don't think AMT is the kind of stock you
want to own in the current market environment.  The company is
a money losing, leveraged firm operating in an industry with
a severe lack of visibility.  But let me make it clear that I'm
not blasting AMT...as always, I'm just giving my readers an honest

Finally, I don't like the technical picture of AMT.  The daily
chart below reveals that AMT has bounced off the $30 level twice
in the past, and although it may provide support once again, I
don't think it is prudent to try to pick a bottom in a stock
like AMT.

AMT - daily

What's more, this weekly chart below reveals a pattern of long
liquidation, consolidation and subsequent liquidation.  It
appears that AMT may be breaking down from its most recent
consolidation and headed to new relative lows.

AMT - weekly


Cheap Net Stocks

First of all, I find your technical analysis with fundamental
backdrop very valuable.  I've been searching for some beaten
down tech stocks that have been in bases for a couple of months
at least.  HLTH, DCLK, GX are three such beaten down names.  I
know for sure that [the] Internet will not disappear.  Do you
think that Internet stocks will become good speculation
candidates going forward?  Are these charts investment worthy?
Do you typically wait for a stock to cross 200 day moving
average before entering trade on long side?  Please pinpoint
entry points. - Thanks in advance, Sanjay

Thank you for the compliments, Sanjay.

Internet stocks may become a decent speculative medium over the
next few years.  But you must realize that these Internet
companies, such as DoubleClick (NASDAQ:DCLK) will NEVER realize
the hyper-growth rates they enjoyed not to long ago.  And before
you decide to swoop up some cheap Net stocks hoping they'll
rebound, just remember that stock prices can always go lower
(see: Priceline (NASDAQ:PCLN) and Etoys (NASDAQ:ETYS)).

Shares of DoubleClick do appear as if they've found bottom and
are now attempting to form a base.  My only concern is that the
current trading range is merely a short consolidation range and
that DCLK would rollover and trade well below the $10 level.
However, as long as the $10 level holds, or thereabout, DCLK
might be worth a speculative look.  I think the best entry
point would be a bounce off the lower end of its range around
$10.  If you were to buy the stock around $10, I think it's
almost a necessity to set a fairly tight stop just below the
entry price.  Another entry point might be provided on a
breakout above the descending trend line which has capped
DCLK's recent rally attempts.  But, I'd be very cautious buying
breakouts in the current tech environment.

DCLK - daily


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


For the week of February 26, 2001

Existing Home Sales     Jan  Forecast:  5.00M   Previous:   4.87M

Durable Orders          Jan  Forecast: -2.50%   Previous:   2.10%
Consumer Confidence     Feb  Forecast:   111    Previous:  114.4
New Home Sales          Jan  Forecast:  923K    Previous:    975K

GDP-Prel.                Q4  Forecast:  1.10%   Previous:   1.40%
Chain Deflator-Prel.     Q4  Forecast:  2.10%   Previous:   2.10%
Chicago PMI             Feb  Forecast: 41.30%   Previous:  40.20%
Agricultural Prices     Feb  Forecast:    NA    Previous:   -2.0%
Oil & Gas Inventory  23-Feb  Forecast:    NA    Previous: 277.1MB

Auto Sales              Feb  Forecast:   6.5M   Previous:    6.7M
Truck Sales             Feb  Forecast:   7.0M   Previous:    7.5M
Initial Claims       24-Feb  Forecast:   350K   Previous:    348K
Personal Income         Jan  Forecast:  0.50%   Previous:   0.40%
PCE                     Jan  Forecast:  0.60%   Previous:   0.30%
Construction Spending   Jan  Forecast:  0.50%   Previous:   0.60%
NAPM Index              Feb  Forecast: 42.00%   Previous:  41.20%
Mich Sentiment- Final   Feb  Forecast:  87.8    Previous:   87.8

ECRI Wkly Leading Indx  Feb  Forecast:    NA    Previous:   -2.8%

Week of March 5th

Mar 05  NAPM Services
Mar 06  Productivity-Rev.
Mar 06  Factory Orders
Mar 07  Consumer Credit
Mar 08  Initial Claims
Mar 09  Nonfarm Payrolls
Mar 09  Unemployment Rate
Mar 09  Hourly Earnings
Mar 09  Average Workweek
Mar 09  Wholesale Inventories

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The Option Investor Newsletter                   Sunday 02-25-2001
Sunday                                                      2 of 5

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


How Bullish Should You Be?  How Bullish Do I Feel?
By Renee White

The opposite of yelling "FIRE" in a dark theatre is yelling
"RATE-CUT" when the market is making a historical lower low. The
timing of that call just smells funny to me.

If you have been playing this market with the wind to your back,
another lower low in Nasdaq proved profitable. Like I said last
week, if things did not improve early, I would re-enter protective
put plays that I had prematurely exited due to travel plans. This
is exactly what I did. I felt the market risk was clearly to the
downside. Therefore, I bought protective puts to either capture
profits from a slide or to buffer my account balance while
choosing to hold on to existing long shares. The insurance price
of the puts would protect me, and if I was lucky enough to see a
big bounce, I could exit those with profits.

Sometimes I think I have the worse luck timing meetings,
conferences and business, which takes me away from my trading
desk. I live in the suburbs so once I leave for a meeting, the
traffic and distance forces me to miss most of the trading day.
I was able to watch the first 1.5 hours of trading Friday
morning. Feeling like the market was going to tank further, I
struggled to decide if I should place stops on my profitable
put plays if a hard dip occurred, followed by a rally. Or if I
should enter higher limit orders for put exits, to profit from
the panic of selling due to the continued fall I anticipated. I
finally decided to do a little of each. I placed both stops, and
limit orders, while leaving other orders open for good measure.

I returned 10 minutes before the close and saw the big bounce.
Unfortunately, nothing filled. My orders were all 1/4 - 1/2 point
out of range and therefore, not triggered. Once again, I had lost
an opportunity to take maximum profits being away at another
meeting. I've said it before: your bias may be right, you may
know the play, but executions make or break you.

At the close, I heard about the potential rate-cut next week so
many times that it began to seem odd. Something didn't smell
right. Even though I decided to take some profits off the table,
I held on to others. At market close, I kept asking myself why I
held those since there was clear strength going into the close.
I'll share my thoughts.

It was odd how many times I heard the rate-cut comment in the
final minutes of the market. Having learned to question the
talking heads with a contrarian view, my immediate reaction was
it felt like brainwashing. I mean, what better comment to cause a
quick short-covering reversal when the NASDAQ is plummeting to
historically lower-lows? Did any one else think the timing of that
comment was odd other than me? It just seemed way too perfect.
Could some big money have been on the wrong side of the slide?

I'll gladly be humbled if I am wrong, but I think betting on a
cut next week is risky. Knowing your trading style, risk tolerance
and time frame is critical here. Opportunity is opportunity, no
matter where the market is. But if you are looking for safe
entries for longer term trades, or even intermediate swing trades,
think things through a little bit deeper, and further away from
the hype. Being late for a reversal entry is much less painful
than another potential train wreck. Let's review a little.

During corrections, the market reacts anticipatory. However, if
a true recession materializes, those who anticipated a quick
bounce and recovery get creamed for early entry. Nothing but cash
is safe in a real recession. Remember, the definition of a
recession is an economic contraction, not just a market
correction. By the book, a recession is at least two consecutive
quarters of negative GDP growth. It does not turn into a
depression until it is 6 consecutive quarters...18 months.
Therefore, a recession lasting 1 year or more is always likely
once it begins. Our last GDP report showed major slowing, but
it was not a negative number. Still, the damage occurs to the
businesses well before the compilation of data for reports.
That's why money has not been eager to jump into the markets
this year; the second half of the year is starting to smell.
Will our next GDP be our first negative report?

Don't step in front of this freight train loaded with too many
long positions until economic numbers prove prudent. I'll only
be playing the short side because even if I am wrong, the huge
overhead resistance and poor April earnings will help protect me.

In a true recession, people become afraid to spend and borrow.
They hold off on everything other than necessities until
everything "feels" safer. Cash is king. Recessions hit all
industries. The safest are anything you eat, drink or smoke.
That doesn't mean those areas will fly, just that they are
necessities and their profits will be more stable.

Lately, lay-offs are occurring faster than rate cuts. The Fed
obviously was late to the game. The damage is there. I hope that
quick large cuts can save the depth and length of damage. Still,
businesses don't bounce back that quickly. They do not lay off
10,000 employees one month, just to hire them back 4 weeks later.

Of course in the meantime, normal people also scale back on
spending. Media will bombard every household with the bad news;
lay-offs will speak for themselves, while advertised price cuts
appear in red everywhere. Even lower rates have a hard time
promoting business activity, as in 1929. Banks hate to loan
money to shaky businesses and people without jobs. This is why
the crash of 1929 didn't bottom for several years. A stalemate
occurred when it became hard to encourage people to spend,
encourage banks to loan, or people to borrow.

Regardless of what the Fed wants, if they get behind the curve
and fail to cut rates soon enough, things can quickly spin out of
control until all systems catch-up with each other. Right now it
looks like catch-up isn't likely until a period that is typically
weak for the markets; post April & into summer at best. That alone
could depress things until fall. Rate cuts do not guarantee an
immediate rising market.

We are in a critical period here. I'm sticking to a downside bias.
The way I see it, a potential rally is just potential, until it
materializes and holds! Until then, I'm playing conservatively.
This chapter is clearly not over yet.


The Fed, Reg FD, Silicon Valley
By Janar Wasito

I went out to lunch with a friend from graduate school recently.
He had co-founded one of the two start-ups I worked for while at
Stanford. How times have changed. While ordering our meal at a
restaurant in downtown Palo Alto, I was struck by how empty the
place was -- basically just us and one of Rich's classmates. But
it also struck me as a time to put some of the changes in the
Internet economy into perspective.

First, the Fed. Now that the Nasdaq is back at 1998 levels, the
financial press seems to be clamoring for a rebound based on the
Fed easing cycle. But liquidity is not the problem. Money is
available. It is available for good ideas and profitable
initiatives. The problem is ROE, or return on equity. Take the
build out of 3G or third generation cellular phone networks.
Billions have been spent on the licenses alone, but how is that
investment going to result in a return for the company? That is
the issue. The Fed grabs headlines. An inter-meeting cut will grab
attention and pump up the market for a day or two, but the real
problem has nothing to do with interest rates, it has to do with
the operational strength and profitability of individual companies.

Which brings me to a related topic, Regulation FD. What do CSCO,
EMLX, and PMCS have in common? Recent, large price drops.
Prominent positions in the networking sector. Most importantly,
perhaps, from the standpoint of how drastically their stock prices
move, though, is regulation FD, or Full Disclosure, which has been
promulgated by the Securities and Exchange Commission in the last
6 - 9 months. All of these companies announced significant earnings
shortfalls in the last few months, and they all got hammered. But
the analyst community heard about it when you and I, the retail
investors, did. They were just as blindsided by the news as we
were. That is a significant change from the situation prior to
2000, when analysts often received information in advance of the
public. This was also in an era of expanding earnings and, I think,
was one of the related factors in pushing the earnings multiples
of leading technology companies to exaggerated levels. The reason
that this is important to retail investors is that we now hear
about the news when the big players do. This makes communicating
with other investors more important. It also makes a web site like
OptionInvestor.com more valuable, since it aggregates a lot of
information in a timely manner. But, on the downside (or upside,
if you are put player), it will tend to compress company valuations.
It is a background factor to be aware of.

Finally, a report from the frontlines. Although the economy is
apparently going through a tough period, Silicon Valley is in
better shape than ever. Now is a great time to be an entrepreneur
here. Sure, a lot of the froth has been blown off the top. But,
the companies that are going to survive the dot com melt down are
moving ahead. I was working out at my yuppie boxing gym with
someone from hotjobs.com the other day, and he said that no one has
been laid off, and that the company is doing some important
strategic alliances with other companies in the field. Rich, the
former co-founder of a dot com, was in town touching base with
some folks about new ventures in incubation mode. Tom, who I met
on a scuba dive expedition off the coast of Australia (one part
of a one year honeymoon), is back in town, doing lunch, and
advising companies; he sold his dot com to INKT at the end of
1999. Venture capitalists have money, and though they had a rough
year in 2000, many of the experienced players saw it coming, and
their investors could not be too disappointed after the run in the
late 1990s. In short, now is the time to invest human capital into
new ventures...now, when magazine covers are proclaiming the death
of the new economy, yada-yada-yada. In the next few months, it
will also be a decent time to dollar cost average some long range
funds into dot.coms with the cash and a plan to become sustainable

How does this all impact option traders? First, the Fed is not going
to be the factor that saves the day. Look at the fundamentals of the
companies for clues that the firms are making a return on their
money. Second, in the current environment, the SEC is making sure
that we retail investors are getting information as quickly as
institutional players. This affects volatility, makes gathering your
own information and sharing it effectively even more important.
Finally, some of the most interesting opportunities in technology
investing are going to come into focus in the near future. The
Internet Bubble has burst, but it will probably be replaced by a
biotech - Information Technology bubble in a year or two.
Stay tuned.

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index instead?

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Calendar Spreads: A Nice Way To Sleep At Night, Part 1
By Lynda Schuepp

Because traders have a limited attention span and we writers have
a constraint on the length of our articles, this article will be
spread over two weeks.

Calendar spreads are really an easy yet at the same time a more
sophisticated option strategy.  I've written about calendar
spreads before but I thought I'd write about it again because it's
a good way to explain some "option basics" for the beginner trader
while at the same time offer a more sophisticated trade for those
of you who have been burned by straight directional trades (buy a
call or put).  I'm assuming there aren't too many of you brave
soldiers that still have enough capital to be going naked.  I will
try to give a fair amount of explanation to each of my points
below but if you still don't understand a point, go dig out some
books.  I have found over the years that sometimes one writer can
explain things in such a way that it seems simple while other
writers make it sound so complicated.  Unfortunately, different
readers respond to different writers in very different ways.  Now
on to the topic at hand - the calendar spread using January '02
and January '03 puts with a strike price of $80 using prices
generated February 23rd.

The calendar spread is sometimes called a time spread.

1. A short position
2. A long position with a longer timeframe,
3. Using all calls or all puts
4. The same strike price is used for both legs.
5. Cost is minimal
6. Maximum Risk is the cost of the trade
7. Reward can be very high, usually 2 to 8 times your investment,
   depending on your time frame.

Maximum reward is obtained when the stock closes at the strike
price you chose at expiration of the shorter month.  In this case,
the January '02. The example I will use would be to buy a
January '03 put with an 80 strike on QQQ and sell a January '02
put with an 80 strike on QQQ.  I personally like to deal with
puts, because the prices are usually cheaper than calls. In this
example, if the QQQ's close at 80 on expiration day of January '02
(the shorter leg), then the short leg (the January '02 put) will
expire worthless and you will have an "at-the money" put with one
year left to expiration that you can sell.  This is the part that
a lot of people have trouble with and it is what prevents them
from doing this trade.

It is very important to understand that the current price of the
January '02 "at-the-money" option (strike of approximately 50) is
a good approximation for what the January "03 80 put will be worth
in January '02 if the QQQ are at 80.  The current price of the
January "02 50 put has almost a year left and is currently worth
about $7.40.  If the QQQ's are at 80 at expiration in '02 then the
80 strike price would be "at-the-money" and worth at least $7.40,
probably more.

Some reasons for doing a calendar spread:
1.  Don't have time to watch the market, minute by minute
2.  Don't have a lot of trading capital (left).
3.  Not as confident in trading ability anymore
4.  Like to sleep well at night
5.  Like a limited risk strategy with potential high returns
6.  Like to make money, even when you are wrong

Criteria for doing a calendar spread:

1.  Find a stock that has been slammed and was at a MUCH HIGHER
point in the past. That's not too hard to do these days.  Try any
stock in the Nasdaq 100, or maybe just try the Nasdaq 100 by
looking at the QQQ's.  I'll use QQQ in my example.

2.  Find a stock where the shorter-term option has higher
volatility than the longer-term option.  Understanding how to
play volatility will greatly increase your odds for success in
any option trade.  Volatility is a main component in option
pricing and if you don't understand it, you need to.  Volatility
is the measure which the stock is expected to move up or down in
a given period of time.

There are two types of volatility: historical and implied.
Historical volatility is calculated based on the actual change of
prices in the past.  Implied volatility is what the market maker
believes the stock will move and is calculated using a complicated
model which then becomes a factor in the option's price.  The
higher the implied volatility relative to historical volatility,
the more expensive the option.  For this reason, you want to be a
buyer of low volatility and a seller of high volatility.  Looking
at the QQQ's we see that the months farther out have lower implied
volatility than the closer months.  Most trading platforms give
you implied volatility of the option.  Therefore, the QQQ's remain
a candidate for this trade because the implied volatility of the
January '02 options which we would be short is more than the
January '03 options which we would be long.

3. Find a stock where the current implied volatility (20-day)
is lower than the average yearly historical volatility.  Don't
confuse this with #2 which discusses differences in volatility
between the months.  If the volatility as a whole is relatively
low in relation to where the volatility has been in the last year,
your position will benefit from a rise in volatility.  Historical
volatility over the last year has ranged from .42 to .69, and
currently is at .43 at the low end of the range.  Therefore, the
price of our options will increase in value if volatility

Our long January '03 80 put will rise in value if the volatility
is higher than the current volatility because implied volatility
is a main component of option pricing as discussed above.  If
volatility at expiration is the same as it is currently, then our
"guesstimate" of $7.40 is a good one.  I like to be conservative,
so I would base my risk/reward calculation using this number,
knowing that my odds are greatly increased if there is a rise in
volatility.  If you don't have the ability to get this information,
don't worry, it is not as important, it just gives you a little
bit better edge.

The Last four criteria will be covered in detail next week:

4. Determine the most appropriate time frame to trade.
5. Determine the most appropriate strike to use.
6. Select the number of contracts that are optimal for
   your trading plan.
7. Learn how to  calculate your risk to reward using different
   strikes and timeframes.
8. Find the approximate value of your spread at expiration
   if you are wrong.

Pay particular attention to "IMPORTANT CONCEPT" above and go
back and try it with other stocks that you trade.  Don't try
this out without the benefit of the criteria 4 thru 8.  So
stay tuned and come next week armed with your best candidates
and learn how to further improve your odds of being successful
by using criteria 4 through 8.  Just master 1 through 3 this
week and pick a book on options and read everything you can
about volatility--your bank account will thank you.


Call Play of the Day:

EMC - EMC Corporation $45.00 (-9.05 last week)

See details in sector list

Put Play of the Day:

WEBM - Web Methods Inc. $48.75 (-14.55 last week)

See details in sector list

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


UTEK $33.94 (-4.06) Providing proof that stop losses are
mandatory in this uncertain market, UTEK fell off a cliff
Friday morning, violating several perceived support levels in
the process.  The selling frenzy didn't abate until the stock
reached the $31 level, and although the afternoon recovery came
on solid volume, the bullish trend is now dead.  After our stop
at $37 fell victim to the bears in the first hour of trading,
there was no looking back and we have no choice but to remove
UTEK from the playlist this weekend.


ABGX $30.31 (-4.00) Abgenix has offered excellent
opportunities for put players in the last week.  However,
the stock responded well today to news released regarding their
payment for ImmGenics with $77 million in cash.  In addition,
the biotech index exhibited very bullish behavior on Friday, as
the index rallied in the morning, and closed significantly
higher.  Considering these factors, and the fact that Abgenix
closed above our stop level, we are dropping it this weekend.

TIBX $19.44 (+3.63) The late afternoon rally attempt took TIBX
Upward 19.6%, or $3.19 on 1.6 times the ADV.  If you had open
positions, stops at the $18 level should have protected your
capital.  The sharp reversal coupled with the violation of our
protective stop compels us to drop TIBX from our put list this
weekend.  Tibco Software recently confirmed it's reporting 2Q
earnings on March 22nd, after the market.


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

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

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

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

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

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


EMC - EMC Corporation $45.00 (-9.05 last week)

EMC wants to be your storage solution.  The company designs,
manufactures and markets a wide range of enterprise storage
systems, software, networks, and services.  The company’s
products store, retrieve, manage, protect and share information
from all major computing environments including mainframe, UNIX,
and Windows NT.  With offices around the world and a 35% growth
rate for the first 9 months of the year, EMC is effectively
filling its role as the worldwide storage leader.

In the wake of negative news and earnings warnings from the
Storage sector, EMC fell through the $50 support level last
week.  Compounding the stock's problems, the company joined the
crowd and issued its own warning, cautioning investors of
slowing growth.  Still expecting to meet its $12 billion revenue
target for the year, EMC revised sales growth estimates downward
to the 25-35% range.  Following this admission, the stock traced
a new 52-week low of $34 on Thursday before the buyers returned.
After helping the stock to recover to the $39-40 level by
Thursday's close, we saw buyers increase their enthusiasm late
on Friday.  Major support between $32-34 got the bulls started
on Thursday, and then former Fed governor, Wayne Angell got the
party going again Friday afternoon with his prediction of a Fed
rate cut early next week.  Speculation aside, the bottom line is
that buying was strong going into the close on Friday, and this
could be the beginning of a significant recovery.  After
declining more than 50% in the past 3 weeks, EMC seems to be
significantly oversold, and with daily Stochastics turning up
out of the oversold region, we are more than happy to step up
and take a piece of the developing recovery.  Conservative
entries can be considered on a continuation of the Technology
rally that pushes EMC through the $46 level.  Aggressive traders
that are looking for a better entry point can consider new
positions on a bounce from either the $42 or $40 level.  Keep a
short leash on the play, as a drop through our $39 stop will be
a clear sign that the bears are back in charge.

BUY CALL MAR-40 EMC-CH OI=7459 at $7.20 SL=5.00
BUY CALL MAR-45*EMC-CI OI=3742 at $4.50 SL=2.75
BUY CALL MAR-50 EMC-CJ OI=7257 at $2.60 SL=1.25
BUY CALL APR-45 EMC-DI OI= 766 at $6.60 SL=4.50
BUY CALL APR-50 EMC-DJ OI=2360 at $4.50 SL=2.75
BUY CALL APR-55 EMC-DK OI=1607 at $3.10 SL=1.50


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The Option Investor Newsletter                   Sunday 02-25-2001
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MSFT - Microsoft Corp $56.75 (-0.56 last week)

Microsoft is the #1 software company in the world.  They
develop, manufacture, license, and support a broad range of
software products including Windows operating systems, server
applications, the popular MS Office suite, and a Web Browser.
As most of you know, the company is presently involved in
anti-trust issues with the government.  CEO and co-founder,
Bill Gates still owns 15% of Microsoft.

The technology stocks as well as many of the blue chips are
feeling the torrents of negativism and fear that is currently
influencing investors' opinions.  As a result, OI call plays are
light in consideration of the massive selling rocking the
markets.  Yet, we consider MSFT a viable option.  Take a look at
the stock's chart and you can visually confirm its strength at
the $55 support level.  Our play is for the $55 level to not
only continue to keep MSFT afloat during the storm, but also to
serve as a launching pad on the rebound.  A solid bounce off the
5 & 10 DMAs at $56 and $57 followed by a move through the 30-dma
and the $60 resistance signal the beginnings of a run.  You
might, however, consider selling into strength as MSFT
approaches the governing 200-dma, currently at $64.65.  This
formidable line of opposition recently stopped other rally
attempts dead in their tracks.  If you chose to enter prior to a
convincing breakout, keep stop in place near the above-mentioned
$55 support.  Microsoft is having its day in court this week.
On Monday, a seven-judge panel is scheduled to hear two days of
oral arguments from company and government lawyers in regard to
contentions brought forth by Microsoft that its practices were
lawful and the trial judge was biased.

BUY CALL MAR-50 MSQ-CJ OI= 1601 at $7.88 SL=5.50
BUY CALL MAR-55*MSQ-CK OI= 8307 at $4.00 SL=2.50
BUY CALL MAR-60 MSQ-CL OI=32948 at $1.50 SL=0.75
BUY CALL APR-55 MSQ-DK OI=25343 at $5.63 SL=3.50
BUY CALL APR-60 MSQ-DL OI=22464 at $3.13 SL=1.50


LH - Laboratory Corp. of America $147.00 (+1.75 last week)

Laboratory Corporation of America Holdings (LabCorp) is the #2
clinical laboratory service in the world, behind Quest
Diagnostics.  LH performs 2000 types of tests for more than
100,000 clients, including health care providers, pharmaceutical
firms, physicians, government agencies and employers.  With 25
major laboratories and some 1200 service sites nationwide, the
company emphasizes specialty and niche testing such as allergy
tests, HIV tests, blood analyses, and substance abuse

Seemingly impervious to the bears' persistent assault, LH
managed to recover nearly all its intraday losses as the shorts
covered their positions ahead of the weekend.  What started out
as another down day for the broader markets did an abrupt
about-face after former Fed Governor Wayne Angell predicted that
the Fed will cut rates early next week.  The news broke just
before 3pm ET, and provided the fuel for LH to extend its
fledgling recovery right up to the closing bell.  After the
initial drop to $142, the recovery was already well underway
before Mr. Angell's encouraging comments, as LH bounced from the
6-week ascending trendline.  The strength of the recovery
brought the stock back above the $144 stop level, allowing LH to
end the volatile day with only a fractional loss.  Aggressive
traders that stepped in after the bounce were rewarded with a
surge of buying volume in the final 30 minutes - now we need to
see if there will be any follow through next week.  Buyers have
been struggling to push LH through the $148 resistance level,
and now that the upper Bollinger band is above $150, they just
may be able to pull it off next week.  Conservative investors
will want to step into the play as LH rallies through $148 on
the back of continued strong volume.  While intraday dips to the
$144 level are buyable for aggressive investors, take care not
to catch a falling knife.  With daily Stochastics flattening out
in the overbought region, it is conceivable that profit taking
could emerge at any time.

BUY CALL MAR-145 LH-CI OI= 61 at $10.00 SL= 7.00
BUY CALL MAR-150*LH-CJ OI= 54 at $ 7.50 SL= 5.25
BUY CALL APR-150 LH-DJ OI=  0 at $13.20 SL=10.00  Wait for OI!
BUY CALL APR-155 LH-DK OI=  1 at $11.20 SL= 8.25
BUY CALL MAY-150 LH-EJ OI= 23 at $17.10 SL=12.25
BUY CALL MAY-155 LH-EK OI=102 at $14.60 SL=10.75

SELL PUT MAR-140 LH-OH OI=532 at $ 4.90 SL= 7.00
(See risks of selling puts in play legend)


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The Option Investor Newsletter                   Sunday 02-25-2001
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PWAV - Powerwave Technologies Inc. $17.44 (-5.81 last week)

Powerwave Technologies Inc., an ISO 9001 quality certified
company is a leading supplier of high performance RF power
amplifiers for use in wireless communications networks.
Powerwave designs, manufactures and markets both single carrier
and multi carrier RF power amplifiers for use in cellular, PCS,
and 3G base stations throughout the world.  Corporate
headquarters are located in Irvine California.

PWAV started to make a pattern of lower highs in early December,
as PWAV's inability to cross resistance at $73.50 and $68.50
led to an accelerating downward spiral in January and February.
PWAV responded to the weakness in the cellular sector which
started with disappointing earnings and multiple downgrades
of Nokia, the key bellwether cellular communications stock.
Then, after reporting earnings of its own on January 23, PWAV
was deluged by downgrades from multiple brokerage firms.  A
downgrade from buy to hold by UBS Warburg stated that they
believed power amplifier blenders would be forced to lower
prices due to increased competition, and pressure from OEM
vendors as a result of aggressive equipment pricing.  This
report sliced 12% of PWAV's price.  Then, on February 14, both
Morgan Stanley Dean Witter and CIBC World Markets cut their
ratings on PWAV, which resulted in another round of heavy
selling to take the stock below its 10 dma of $25.94.
PWAV is now in a downward stair step pattern, with each
support level typically lasting one to two days, and typically
broken by a sharp decline of two points.  On Friday, the
ripple effect which started with weakness in the cellular
sector, and culminated with warnings from Qualcomm and Motorola
turned into a tidal wave of selling in wireless communications
stocks.  While some technology sectors rebounded toward the
end of the day as the Nasdaq erased Friday's loss, PWAV showed
no response, and actually dropped half a point in the last
few minutes of trading.  At this point, additional selling seems
almost inevitable, unless we have a dramatic turnaround in the
wireless communications sector.  PWAV is now at a new 52-week
low and poised to drop from $17.5 which would most likely
lead to support at the $15 level.  Traders could take positions
at current levels, or at a possible roll over from the $18.00
level.  Watch NOK, ERICY and QCOM for sector weakness, and
set stops at $20.

BUY PUT MAR-20  *VFQ-OD OI=139 at $4.00 SL=2.50
BUY PUT MAR-17.5 VFQ-OE OI=  5 at $2.38 SL=1.25


ITWO - I2 Technologies Inc $29.56 (-8.63 last week)

ITWO is a global provider of intelligent eBusiness solutions for
supply chain management and enhanced business applications.  On
June 12, 2000 ITWO merged with Aspect Development (ASDV) to
create one of the largest software providers for eBusiness and
eMarketplace solutions.  TradeMatrix, its Internet marketplace,
provides an open digital community powered by i2's advanced
optimization and execution capabilities that help manufacturers
plan production and other related operations. The Chairman and
founding CEO, Sanjiv Sidhu retains a 40% stake in the company.

The lot of competitors in the eCommerce and supply chain
sectors, such as I2 Technologies (ITWO), Ariba (ARBA), Commerce
One (CMRC) and SAP (SAP), continue to be scrutinized by
investors.  Of course, the negative bias across the markets is
an obvious catalyst for the general downtrend, but news of a
joint software venture between Commerce One and Sap to rival the
alliances of Ariba, I2 Technologies, and IBM also added some
fuel to the B2B fire.  Furthermore, the investors' concerns
about the sector's valuations were effectively revealed as share
prices continued to rapidly decline.  Specifically, the
propulsion driving ITWO further into the dark abyss last week
was bolstered by its increased trading activity.  Volume levels,
at 1.2 to 1.6 times the ADV, invariably accelerated the stock's
downtrend.  Another dissenting element that came into play, in
regard to ITWO, was the revised price targets put out by CIBC
World Markets and CE Unterberg Towbins.  Each firm cut their
targets by 20% and 29%, respectively.  From a technical
perspective, the beginning of ITWO's ultimate demise began when
the $38 support level failed to keep ITWO afloat amid the market
chaos.  However the decisive factor, which prompted us to add
ITWO to our put list, came into play during Friday's session.
ITWO not only returned to pre-rally price levels - $30 marks the
historical resistance from way back in November 1999 - but it
also couldn't resurface above that proximity during the late day
rally on the NASDAQ.  The overall weakness implies that traders
could take ITWO lower next week.  It'd be wise, however, to
confirm the downtrend before beginning plays.  In its entirety,
the current price level may on one hand this may present an
attractive buying opportunity to some, but on the other, it
indicates that this tech stock's valuation was highly overrated
to begin with and needs to be taken down even a few more
notches.  We don't have a crystal ball to warn of fleeting
buying sprees.  However, we can minimize our trading risks by
staying tuned to market direction, sector sentiment, and the
stock's particular trading nuances as well as keeping stops in
place.  Consider setting a stop loss at $32 for protection of

BUY PUT MAR-35 QYJ-OG OI=1029 at $7.13 SL=5.00
BUY PUT MAR-30*QYJ-OF OI=3615 at $3.75 SL=2.00
BUY PUT MAR-25 QYJ-OE OI=  69 at $1.75 SL=0.75



QLGC - QLogic Corporation $41.88 (-9.80 last 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 continues to suffer in sympathy as its cousins in the
data storage and chip sectors continue to warn of further
weakness to come.  The severe sell off in shares of Brocade
this week lead to heavy selling in QLGC on more than double
the average daily volume.  Since QLGC supplies chips to the
data storage supply companies, this stock may not fully
recuperate until we have more upbeat comments from companies
like Emulex, and EMC.  In addition, the warnings from
Qualcomm and Motorola plagued the entire semiconductor sector
on Thursday and Friday, as Motorola specifically cited
weakness in chip demand as one of their primary problems.
On Thursday, the semiconductor book to bill ratio was released
at .8, which is the weakest seen in years.  This is partly
responsible for the poor response of the semiconductor sector
to the recuperation in the Nasdaq which occurred on Friday.
Semiconductor stocks are suffering from an inventory problem,
and several analysts this week stated that the problem may
not be corrected as soon as was previously expected.
The SOX.X needs to clear several resistance levels before a
true rally can ensue.  While QLGC recovered from its low
level of the day on Friday, it is still in a strong downward
trend.  A rollover from $43.75 would be a possible entry
point, if accompanied by weakness in the SOX.X.  A more
conservative put entry could be a drop below $37 on heavy
volume which could conceivably bring QLGC to its 52-week low
at $33.81.  We are moving stops to $44.

BUY PUT MAR-45*QLC-OI OI=750 at $7.25 SL=5.00
BUY PUT MAR-40 QLC-OH OI=386 at $4.38 SL=2.50


NOK - Nokia $21.34 (-5.81 last week)

Nokia is the world leader in mobile communications.  Backed by
its experience, innovation, user-friendliness and secure
solutions, the company has become the leading supplier of mobile
phones, and a leading supplier of mobile, fixed and IP networks.
By adding mobility to the Internet, Nokia creates new
opportunities for companies, and further enriches the daily
lives of people.

Nokia got hammered again on Friday, as the stock has hit a
new 52-week low every day for the last five days.  This week
the primary catalysts for the heavy selling were warnings
from Motorola and Qualcomm, which threw the wireless sector
into a tailspin.  In an interview with the London Times on
Thursday, Qualcomm’s CEO Irwin Jacobs stated that they were
expecting a two year delay in the roll out of their third
generation W-CDMA technologies.  Qualcomm dropped from a high
of over $83 to a low of $63 this week, and the selling
intensified on Friday, as nearly five times the average daily
volume changed hands.  Motorola seemed to catch the flu when
Qualcomm sneezed, as, Motorola issued a warning on Friday
stating that a big drop off in orders and sales could result in
the company’s first quarterly loss in 16 years.  Motorola
sold off on double its average daily volume.  Friday was
Nokia’s worst day this week, as a whopping 45 million shares
traded, three times the average daily volume.  The near term
outlook for Nokia seems particularly grim considering the
fact that Nokia did not rally toward the end of the day when
the Nasdaq erased the day’s loss.  Since Nokia did not respond
to the previous two Federal Reserve rate cuts, it might not
respond to a third, which increases the odds for success of
our put play.  Nokia appears poised to roll over from the
current level, which could be a possible entry point.  Otherwise,
a break below $20 on heavy volume is a real possibility, and
another potential entry point.  We are moving stops to $23.

BUY PUT MAR-25*NAY-OE OI=7498 at $4.30 SL=2.50
BUY PUT MAR-20 NAY-OD OI= 638 at $1.15 SL=0.75


ARBA - Ariba Inc $17.69 (-3.81 last 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.

You've heard it over and over again.  Fear of the uncertainty is
driving the markets lower; and more specifically, effectively
shifting investors out of the technology sectors.  The B2B and
related stocks are no exception.  The likes of ARBA, BEAS, and
CMRC have been hit hard.  ARBA experienced a 17.7% cut last week
amid robust trading.  Our objective is to play the downward
momentum as investors continue to examine their tech-related
issues.  Granted ARBA is already a cheap stock, but nonetheless,
the share is edging lower and importantly, option contracts are
active.  The opportunity for lucrative profits cannot be
ignored.  We however, recommend not throwing caution to the
wind.  ARBA is an attractive stock at a bargain price and the
potential for a market recovery is imminent.  Keep stops in
place at $19 and begin new positions only after confirming
further weakness in a declining market.  There's light support
at the $17 level and the new 52-week low, at $16.38, is the
ultimate opposition.  The more adventurous types might consider
taking an entry on a high-volume rollover from the 10-dma line,
near $21.  This strategy is very risky, so be prepared to lock
in gains quickly.

BUY PUT MAR-25 IRU-OE OI=1500 at $8.38 SL=6.00
BUY PUT MAR-20*IRU-OD OI=2916 at $4.38 SL=2.75
BUY PUT MAR-15 IRU-OC OI= 918 at $1.44 SL=0.75


BBOX - Black Box Corp $48.75 (-3.13 last week)

Black Box Corporation provides technical network services and
related products to businesses across the globe via its catalog
and Web site.  The company's technical support services include
a 24-hour phone support line and on-site design, installation,
and maintenance.  Customers outside of  North America account
for about a third of sales.

We're glad we gave BBOX some room to operate last week.  The
stock ultimately broke out of the $51 and $52 consolidation
channel and saw $45.75 by Friday.  The definitive moves to the
downside provided attentive traders with a multitude of
profitable opportunities.  But take note, the pre-weekend rally
took BBOX upward on accelerating volume, which may indicate
succeeding gains if there's any market strength next week.  The
good technical news is that the bulls failed to bring BBOX
through the developing resistance at $50 and the 5-dma line.
Questions of the stock's valuation and the company's future
outlook continue to rattle about in investors' minds, so there's
still the potential of further weakness.  We have, however,
tightened our stop to $49 to guard existing positions.  If
you're strategy is to play the spreads and take entries on
rollovers near the resistance levels, expect the share price to
find light support at $45, stronger as it approaches $41.50,
which marks the stock's 52-week low.

BUY PUT MAR-50*QBX-OJ OI=68 at $6.00 SL=4.00
BUY PUT MAR-45 QBX-OI OI=24 at $3.00 SL=1.50
BUY PUT MAR-40 QBX-OH OI=13 at $1.63 SL=0.75


ADBE - Adobe Systems $32.63 (-3.69 last week)

A long-time leader in desktop publishing software, ADBE
provides graphic design, publishing, and imaging software
for Web and print production.  Offering a line of application
software products for creating, distributing, and managing
information of all types, the company generates nearly 75% of
sales through publishing software products such as Photoshop,
Illustrator, and PageMaker.  Its Acrobat Reader, which uses
portable document format (PDF) is popping up all over the
Internet, as businesses shift from print to digital
communications.  In addition, ADBE licenses its industry
standard technologies to major hardware manufacturers,
software developers, and service providers, as well as
offering integrated software solutions to businesses of all

Refusing to break down on Friday, ADBE actually moved slowly
upwards until the final hour of trading.  Then, following
speculation that the Fed would be cutting interest rates early
next week, the stock followed the NASDAQ sharply higher for
the remainder of the session.  Volume backed the late-day
recovery too, with more than 2 million shares (more than a
third of the ADV) trading hands in the final 90 minutes.  The
possibility of an inter-meeting interest rate cut from the Fed
drove the shorts to cover ahead of the weekend.  Stepping back
a moment and looking at the daily chart, we can see that the
prevailing downtrend is still in place.  Should the rate cut
fail to appear next week, look for the sellers to come back
with a vengeance and take another shot at driving ADBE to new
lows.  The descending trendline is now sitting at $34, also the
site of our stop, and should the rally run out of steam near
this level, it will provide aggressive traders with an
attractive entry point as the selling resumes.  Without help
from the Fed, there is little to motivate buyers, and given the
recent earnings warning which was followed by a rash of
downgrades, ADBE looks like it has more downside before finding
a bottom.  Conservative traders will look for a drop through
the $30 level as their signal to open new positions.

BUY PUT MAR-35*AEQ-OG OI=1931 at $4.88 SL=3.00
BUY PUT MAR-30 AEQ-OF OI=1574 at $2.31 SL=1.25


NETE - Netegrity, Inc. $48.25 (-8.75 last 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.

Continuing its rapid descent Friday morning, NETE gave us a
great opportunity to lock in profits as it probed the $40
support level.  Aggressive traders had to be quick on the
trigger though, as the stock did an about face at the low and
rallied nearly 20% in the final hour of trading.  So what
prompted the sharp reversal ahead of the weekend?  Just before
3pm ET, Bear Stearns chief economist and former Fed Governor
Wayne Angell told his sales force that there is a 60% chance
of a Fed rate cut next week.  As if somebody threw a switch,
sellers were replaced with buyers, and the broad markets
rallied right into the close with the NASDAQ actually managing
to post a gain for the day.  Although the rally was impressive,
it looks like the move was largely short-covering by bears that
didn't want to go into the weekend exposed to the risk that the
Fed might actually move over the weekend.  What it is giving us
is another attractive entry point on our play, as the stock
moved up very near the $50 resistance level.  One other factor
that could give the stock an upward bias next week is the
positive rating from Adam Harkness.  The firm initiated coverage
of NETE with a Buy rating Friday afternoon, but should the rate
cut fail to materialize, tech bulls are likely to be sorely
disappointed.  We are looking for that disappointment to produce
a resumption of the downtrend as another week commences.
Consider new positions as the stock rolls over, so long as it
remains below our $50 stop.  More conservative traders will want
to wait for the stock to fall below the $45 support level on
strong volume before jumping back into the play.

BUY PUT MAR-50*UPN-OJ OI=346 at $6.00 SL=4.00
BUY PUT MAR-45 UPN-OI OI=114 at $3.50 SL=1.75


WEBM - Web Methods Inc. $48.75 (-14.55 last 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 sold off to a new 52-week low at $42.25 on Friday morning,
then rallied on Friday afternoon with the Nasdaq toward the close.
However, it is unlikely that this rally will be sufficient
to establish a new upward trend in WEBM, considering the heavy
selling which has occurred over the last several weeks.
WEBM is suffering from the heavy selling of newly unlocked
shares from its IPO last year, as millions of dollars worth
of newly unlocked stock was dumped on the market during the
last three months.  Further selling may possibly occur, which
would almost certainly weaken the share price even further.
WEBM fell below its 50 dma of $85.31 after reporting earnings on
January 31, and since then, the downward momentum has been
intense.  WEBM is now in the middle of the downward channel
established on February 15, and is poised to roll over from
the current level, which could be a possible entry point.
A more conservative entry point could be taken on a break
below the new 52-week low of $42.25 on strong volume.  Monitor
the software index for sector weakness, and continue to set
stops at $50.

BUY PUT MAR-50*UUW-OJ OI=584 at $6.38 SL=4.50
BUY PUT MAR-45 UUW-OI OI= 19 at $4.00 SL=2.50




GE $46.18 -0.92 (-0.82 last week)  Market fears continued to
heighten this week, dragging down most sectors and issues.  As
the selling increased into the end of the week, GE slipped from
its recent attempts at $48.  On Friday, as the NASDAQ fell to
new two year lows and the INDU grew weaker, GE dipped to the
$45 level and bounced strongly.  This level is critical support
as well as our stop loss level.  The bounce occurred in
conjunction with what appeared to be a short covering rally before
the weekend.  As long as GE puts in higher lows, as it has since
January, this long-term play will survive.  However, a weakening
broader market and a break of $45 and GE will be dropped.

BUY CALL APR-45 GE-DI OI=  535 at $4.00 SL=2.50
BUY CALL JUN-50*GE-FJ OI=17030 at $2.84 SL=1.50
BUY CALL SEP-50 GE-IJ OI= 6828 at $4.39 SL=2.75

QQQ $51.18 +0.18 (-3.95 last week) Using $50 as our stop loss, we
believe that QQQ offers a long-term trading opportunity.  However,
the QQQs also offer quick trading opportunities and we would
suggest taking profits in any long-term QQQ positions as they
present themselves, especially considering the downside turbulence.
Friday's sell-off brought the QQQs to $48 before the short-cover/
relief rally began, lifting them to $51.  The NASDAQ very well may
have more downside in the near future, so use caution, stop loss
orders and bounces as entry points.  Current resistance is overhead
at $52 and break above could lead to challenge of $54.  Support
appears at $48, but below that support is unclear.  The closing
stop will remain at $50.

BUY CALL APR-50*QQQ-DX OI=1397 at $5.69 SL=4.00
BUY CALL APR-52 QQQ-DZ OI= 300 at $4.80 SL=3.00
BUY CALL JUN-54 QQQ-FB OI=1070 at $5.30 SL=3.50


WAG $42.80 -0.05 (-0.89 last week) The week started off well
after the WSJ.com published an article on what sectors are strong
after interest rate cuts.  Drug retailers was one of those sectors.
Yet, with resistance near $45, the stock pulled back a bit along
with the broader market and is now resting near its 10-dma at
$42.60.  We feel that this is a critical level and therefore
maintain a stop loss at $42.50.  If last week was simply
consolidation, WAG will be poised to re-challenge $45, which has
a double-top resistance from last November.  A bounce from current
levels and buying interest in retailers would give a nice entry.
However, a breakdown below our stop and further liquidation down
to $40 may be in the cards.  Remember, resistance at $45 will be
strong, but a breakout on heavy volume from there would also
warrant an entry.

BUY CALL MAR-40*  WAG-CH OI= 371 at $3.40 SL=1.75
BUY CALL MAR-42.5 WAG-CV OI= 557 at $1.70 SL=1.00
BUY CALL MAR-45   WAG-CI OI=2549 at $0.60 SL=0.00  High Risk!

MO $47.02 -0.99 (+0.51 last week)  Fear in the broader market on
Friday led to profit-taking in some of the safer havens, like MO.
This general fear resulted in MO falling almost a dollar after
the stock failed to break $48.50.  Our stop is currently at $47,
so MO is right on the edge.  Its 10-dma lies slightly above at
$47.31.  This may present a problem and an invitation to sellers
to book profits.  In that case, we will stop out of the play,
however, there is support at $45.50.  A bounce from current levels
will lead to a challenge of $48.50 once again.  Traders can buy
a break of that level but remember that $50 will be staunch
resistance, especially considering the amount of open interest on
the March 50s.

BUY CALL MAR-45*MO-CI OI= 9750 at $3.10 SL=1.50
BUY CALL MAR-50 MO-CJ OI=20116 at $0.65 SL=0.00  High Risk!

WM $50.52 -0.31 (-0.02 last week)  Moving with the general market
trend, WM's fluctuations have been far less volatile.  Sellers have
been active in the stock on Thursday and Friday, taking WM as low
as $49.  We issue a word of caution as WM lies at critical level
of $50, also the site of our stop loss.  At this point, the 10-dma
is overhead at $51.21, but the 50-dma lies beneath at $49.86 to
help further buoy support at $50.  If further distribution of
shares continues next week, utilize your stops to minimize downside
risk.  Buyers held the stock flat at $49.50 on Friday.  On the
upside, resistance will be encountered at $51 and $51.50.  If
WM clears these levels, a run at $52.50 would allow entry.

BUY CALL MAR-45 WM-CI OI=   2 at $6.10 SL=4.50
BUY CALL MAR-50*WM-CJ OI=1459 at $2.05 SL=1.25
BUY CALL MAR-55 WM-CK OI=1717 at $0.40 SL=0.00  High Risk!

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Not So Fast!  Short Covering Does Not Make A Bottom
By Mark Phillips
Contact Support

Another week, and another yearly low for the NASDAQ.  So what
else is new?  The continuous stream of poor economic news
coupled with earnings warnings everywhere you look, combined to
drive the NASDAQ to a new intraday low of 2156 on Friday before
so much as a hint of buying appeared.  Joining the bearish
party last week was the DJIA; giving up on breaking through
resistance at 11000, the index rolled over, heading south for
the majority of the week.  Just as it was testing the bottom of
its recent range at 10300, former Fed Governor, Wayne Angell
swooped in with a carrot for the bulls.  Telling his sales force
at Bear Stearns that there is a 60% chance of a Fed rate cut in
the early part of net week was like waving a red cape in front
of a bull, and buyers swooped in to scoop up the perceived

But wait a minute.  Was it truly a resurgence of buying, or
simply the shorts covering ahead of the weekend, protecting
against the possibility that Mr. Angell was right?  Based on the
charts, my vote goes for short covering.  Although the major
indices posted an impressive recovery from their lows, they all
closed sharply negative on the week.  Even the NASDAQ, the only
index to close in the black on Friday is deep in oversold
territory, as borne out by the still-buried daily stochastics

Our favorite sentiment indicator, the VIX, certainly gave us a
short-term buy signal midday on Friday when it briefly crested
the 35 level, but the speed with which it declined back to 30
has us a bit concerned.  The VIX has tested this level several
times since Labor Day, with each occurrence followed by a brief
trading rally.  The catch is that each time, the bears
reasserted control and pushed the major indices, particularly
the NASDAQ back into their prevailing downtrends.  When the
prevailing trend is down, we occasionally need to relieve some
of the pent-up buying pressure so that the sellers can pile on
for the next leg down.  While it may sound overly pessimistic,
we expect to see the VIX shoot back over the 35 level, possibly
much higher, before we see the much-needed capitulation that we
can connect with a long-term market bottom.

When top-flite managers like John Chambers, Michael Dell, and
Jack Welsh are having a hard time providing guidance for the
remainder of 2001, equities are having a hard time attracting
enough buying interest to effectively combat the bears.  Hope
for the second-half recovery is disappearing fast and investors
are as nervous as a cat in a room full of rocking chairs.  This
is not the environment in which to be initiating new long-term
positions on stocks that will continue to be affected by a
deteriorating economic picture.

Underscoring the point, this week two more of our Technology
plays bit the dust due to negative comments from the companies.
Both QCOM and A gave us opportunities to profit nicely since
we picked them, but the economic downturn has taken its toll
driving both to new yearly lows.

So what's a LEAPS investor to do?  The first approach would be
to simply stand aside until we see evidence that improvements
in the economic picture (more rate cuts will help, but won't
be an instant panacea).  If you simply must play, then
disciplined trading will be the key.  Use all the tools at your
disposal to locate the high odds entry points - a bounce from
major support on strong volume with both the daily and weekly
Stochastics oscillators turning up would be a good start.

To improve your odds, focus on stocks that will not be as
severely affected by the current poor economic conditions.
Financial stocks like AXP and C seem to be excessively
oversold (although that doesn't mean that can't become more so),
and should benefit from a declining interest rate environment
over the coming months.  While still under pressure at this
time, WMT is deriving more of their income stream from staples
like groceries.  No matter how bad the economy is, people still
need to buy food.  And if you want to profit from the escalating
energy crisis in California, our CPN play is likely to perform
well over the next year, due to our insatiable demand to keep
those electrons flowing.

Select Technology plays with solid fundamentals are starting to
look attractive as well, but it is entirely possible that they
will become even cheaper in the months ahead.  If you decide to
play in this arena with the likes of CSCO, EMC, or even the QQQ,
take a shorter term approach.  After entering the play, manage
your positions with an iron hand, adhering to strict stop-loss
rules, and consider yourself successful if you can pocket
consistent gains of 25-30%.

Preserve capital at all costs.  LEAPS give us the luxury of time
to be right, but not the ability to stand idly by while the
bears maul our portfolio.  If you can't see a high-odds entry,
then perhaps you are better served by remaining on the
sidelines.  The bulls will run again, and we want to make sure
we are healthy enough to join them when they do.

Have a profitable week.

Editor's Note: Take notice of the change in EMC strikes in the
playlist this weekend.  Due to the recent McDATA spinoff, new
strikes have been assigned for EMC.  The old strikes (WUE-AI and
VUE-AT) represent control of only EMC shares, while the new
strikes (WUL-AI and VUP-AT) represent control of both EMC and
MCDT shares.  The majority of trading has now moved to the new
strikes, and the VUE-AT LEAP is no longer trading.  Since it
makes more sense to control shares of both companies at this
juncture, we are changing the listed strikes accordingly.  We
have listed both sets of strikes this week for reference, and
next week will list only the new strikes.  As you can see by
the difference in the 2002 strike prices, there will be a
discrepancy in the RETURN column, but it appears to be fairly

Current Plays


EMC    11/07/99  JAN-2002 $ 45  WUE-AI   $ 9.50   $12.30    29.47%
                 JAN-2002 $ 45  WUL-AI   $ 9.50   $12.80    34.74%
       09/17/00  JAN-2003 $100  VUE-AT   $32.75   $13.10   -60.00%
                 JAN-2003 $100  VUP-AT   $32.75   $ 5.40   -83.51%
CSCO   11/14/99  JAN-2002 $ 45  WIV-AI   $11.00   $ 2.19   -80.11%
       11/26/00  JAN-2003 $ 60  VYC-AL   $16.63   $ 2.75   -83.46%
AOL    03/12/00  JAN-2002 $ 65  WAN-AM   $18.63   $ 2.55   -86.31%
       08/13/00  JAN-2003 $ 55  VAN-AK   $17.50   $ 8.80   -49.71%
AXP    03/12/00  JAN-2002 $46.6 WXP-AQ   $ 9.33   $ 7.50   -19.61%
WM     03/19/00  JAN-2002 $ 30  WWI-AF   $ 5.38   $22.20   312.64%
       10/22/00  JAN-2003 $ 45  VWI-AI   $ 7.88   $14.00    77.78%
C      06/18/00  JAN-2002 $48.8 YSV-AW   $10.31   $ 8.10   -21.44%
       10/01/00  JAN-2003 $ 60  VRN-AL   $12.25   $ 7.10   -42.04%
GENZ   07/16/00  JAN-2002 $ 70  YGZ-AN   $17.13   $26.88    56.89%
                 JAN-2003 $ 70  OZG-AN   $23.13   $35.50    53.48%
QCOM   09/17/00  JAN-2002 $ 70  WBI-AN   $22.50   $15.75   -30.00%
                 JAN-2003 $ 70  VLM-AN   $29.63   $23.13   -21.95%
BGEN   11/05/00  JAN-2002 $ 70  WGN-AN   $17.25   $19.25    11.59%
                 JAN-2003 $ 70  VNG-AN   $25.00   $27.50    10.00%
MU     11/26/00  JAN-2002 $ 45  WGY-AI   $13.13   $ 8.60   -34.48%
                 JAN-2003 $ 45  VGY-AI   $17.25   $13.40   -22.32%
A      12/03/00  JAN-2002 $ 55  YA -AK   $16.88   $ 6.40   -62.07%
                 JAN-2003 $ 60  OAE-AL   $19.88   $ 9.20   -53.71%
QQQ    12/10/00  JAN-2002 $ 70  WNQ-AR   $15.13   $ 3.90   -74.22%
                 JAN-2003 $ 75  VZQ-AW   $19.25   $ 6.50   -66.23%
WMT    12/24/00  JAN-2002 $ 55  WWT-AK   $ 9.63   $ 7.10   -26.23%
                 JAN-2003 $ 55  VWT-AK   $14.00   $11.30   -19.29%
DELL   01/07/01  JAN-2002 $ 20  WDQ-AD   $ 5.25   $ 7.13    35.71%
                 JAN-2003 $ 25  VDL-AE   $ 5.63   $ 7.25    28.77%
WCOM   01/14/01  JAN-2002 $ 25  WQM-AE   $ 5.00   $ 1.94   -61.25%
                 JAN-2003 $ 25  VQM-AE   $ 7.38   $ 3.63   -50.85%
CPN    01/21/01  JAN-2002 $ 40  YLN-AH   $10.50   $12.50    19.05%
                 JAN-2003 $ 40  OLB-AH   $15.38   $17.10    11.22%
CLX    02/11/01  JAN-2002 $ 40  WUT-AH   $ 5.20   $ 4.40   -15.38%
                 JAN-2003 $ 40  VUT-AH   $ 8.10   $ 7.20   -11.11%
JWN    02/18/01  JAN-2002 $22.5 WNZ-AX   $ 3.30   $ 2.70   -18.18%
                 JAN-2003 $ 25  VNZ-AE   $ 4.10   $ 3.20   -21.95%

Spotlight Play

CSCO - Cisco Systems $27.00

A year ago, you would have thought us insane if we had said you
would get another chance to buy CSCO below $30, but that is
precisely the scenario we have right now.  Persistent market
weakness, thanks to the rapid Fed-induced economic slowdown has
dragged even this Tech bellwether down near 2-year lows.  Of
course, it didn't help that CSCO itself missed earnings earlier
this month for the first time in several years.  Throw in CEO
John Chambers' strong statement last weekend that the US
manufacturing sector is solidly in a recession, and it is no
wonder buyers have continued to be swamped by sellers since the
$45 support level was broken in early December.  Even after the
nearly 70% drop in price, CSCO has a lofty PE of 66, based on
Friday's closing price of $27.  So why is the stock featured as
the spotlight play this weekend, instead of being moved to the
ever-growing Drop list?

CSCO is arguably the best-managed technology company in existence,
and despite the near-term weakness, we expect it to outperform the
overall Technology market once rosier economic times return.  Not
only that, but it appears that most of the damage that can be done,
has been.  With that being said, we wouldn't be in a hurry to
gobble up new positions at current levels.  The late-day rally on
Friday appears to be mainly short-covering as the bears didn't
want to carry their positions into the weekend with the looming
possibility of a surprise interest rate cut.  That's right, as
mentioned above, the primary catalyst for the rally seems to
have been the optimistic (at least from where we sit) comments
from Wayne Angell that we are about to receive another gift
from Greenspan and Company.  We don't expect the current rally
to continue for long, and are looking for another pullback as
our opportunity to add new positions.  Although the $25 level
provided support last week, it seems entirely possible that we
could see a dip into the low $20's before the stock finds its
ultimate bottom for the long (and likely slow) recovery.

Consider this an early advisory, that when we do get the dip
into the low $20s it looks like a good time to open new
long-term positions, provided that support near $22 isn't
violated.  Initiate new plays above $23 on a bounce from $22.
If the tech-wreck continues to pressure CSCO below this support
level, stand aside for the time being, as the next solid support
doesn't appear until $17-18.

BUY LEAP JAN-2002 $30.00 WCY-AF at $5.75
BUY LEAP JAN-2003 $30.00 VYC-AF at $8.75

New Plays



A $38.30 Despite beating analyst estimates by 4 cents last week,
A investors didn't like what they heard in the company's
conference call.  Stating that sales growth would be weaker in
coming quarters was all the incentive analysts needed, and
several stepped forward to downgrade the stock.  The bears had
a field day, dropping the stock for a 12% loss on Wednesday, but
the pain didn't stop there.  A continued to decline throughout
the remainder of the week, closing on Friday at a new all-time
low.  The late-day rally on Friday wasn't enough even to undo
the damage done early in the day, leaving the stock locked in a
persistent downtrend.  Until economic conditions improve,
allowing management to provide better future visibility, we
don't want to keep A on our playlist, tying up capital that
could be put to better use elsewhere.

QCOM $61.81 Just as QCOM was looking like it was going to give
us an attractive entry point for the next leg up, CEO Irwin
Jacobs cratered his own stock by stating that the 3G CDMA
buildout in Europe would likely be delayed until late 2004.
Investors responded by selling the stock all the way down to
$50 Friday morning, its lowest point since October of 1999.
This is yet another case showing the necessity of stop losses,
the use of which would have had you out of any open positions
well in advance of today's dramatic decline.  Despite the sharp
afternoon recovery, the bearish nature of Mr. Jacob's comments
significantly changes our outlook for the stock.  There is a
lot of collateral damage that needs to be repaired, and we don’t
want to leave our money in the balance while the repair crews
go to work.

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The Option Investor Newsletter                   Sunday 02-25-2001
Sunday                                                      5 of 5

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


Trading Techniques:  Covered-Call Repair Strategy
By Mark Wnetrzak

A recent E-mail from a subscriber suggested that we review the
basic ratio-call strategy used to recover losses in a stock's
value.  The technique involves long-term portfolio stocks that
have declined during the recent market slump.  When the share
value of a portfolio issue falls, the investor can react in a
number of ways.  The easiest approach is to simply take no action
and hope the stock eventually recovers.  Another popular method
is to "average down" which involves adding new shares to your
current position at a lower price.  While this a great way to
lower the overall cost basis in the issue, it also significantly
increases the amount of money at risk in the position.  One of
the most common method that option traders use in this situation
utilizes a bull-call spread to lower the break-even basis of the
position while increasing the overall profit potential.  In the
book "Options For The Stock Investor", the author refers to this
strategy as a covered call plus a call-debit spread, where the
premium from the sold position is used to offset the cost of the
long call.  The term "ratio-call spread" is a slightly different
definition than most position traders would use, but regardless
of how it's labeled, it is a favorable technique.

An example:

An investor purchases 500 shares of ABC stock at $20 and writes
(5) JAN-$20 calls for a premium of $1.00.  The overall cost basis
is $19.00.  At the end of the strike period, the stock has fallen
to $18.00, a realized loss of $1.00.   Now the trader still likes
the long-term outlook for the issue but is concerned about further
downside risk and the need to recover lost profit potential.  The
investor could try to improve his overall position by purchasing
(5) FEB-$17.50 calls and selling (10) FEB-$20 calls.  The new
position is a combination of the covered-call and the bull-call
spread.  The components are; LONG 500 shares ABC stock and LONG
(5) FEB-$17.50 calls but also SHORT (10) FEB-$20 calls.  Notice
there are no "naked" or uncovered calls and with simple analysis
of each individual component, you will find that the technique
offers an excellent remedy for restoring lost profit potential at
a reasonable level of risk.

A basic explanation of the advantages of the strategy:

Assume that buying the (5) $17.50 calls and selling the (10) $20
calls requires a small additional debit.  On some occasions, the
sold calls (twice as many) will roughly equal the price of the
bought calls and thus no extra costs (other than commissions) are
required for the play.  However, any additional money invested
towards the new position will lower the new break-even (below the
current one) by approximately that amount.  Now, if ABC should
continue to decline and eventually finish the expiration period
below $17.50, all of the calls will expire.  The investor will be
only slightly worse off, because his cost basis is increased by
the additional amount spent for the bull-call spread.  The amount
should be a very small percentage (2-5%) of the stock price, or
in this example, about $0.50.  If ABC finishes at or above $20 at
expiration, the play will return maximum profit, easily 2-3 times
more than the simple covered call.  This profit outlook can be
determined by calculating the various prices based on the stock
finishing exactly at $20.  The real advantage is apparent as you
compare the final outcome when the stock price finishes within
the strike prices.  Recall that the downside break-even is now
lower by approximately $0.50, the same amount as additionally
invested for the bull-spread, and upside profit for the new play
occurs (and increases exponentially) at a significantly lower
stock price.  All of the possible results for any particular
position can be analyzed by simply comparing both plays at the
various prices.

Obviously, no one likes to be in a losing position, but the key
to success is how we react to this type of situation and in many
cases, the ratio-call repair technique offers an excellent method
to recover lost share value.

Good Luck!

NOTE: Using Margin doubles the listed Monthly Return!

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

ANSR    8.09   7.50   MAR   7.50  1.44   $  0.85  13.9%
ACPW   20.38  20.63   MAR  17.50  4.38  *$  1.50  10.2%
ACLS   11.13  10.44   MAR  10.00  1.88  *$  0.75   8.8%
ESCM   16.84  16.50   MAR  15.00  2.88  *$  1.04   8.1%
URBN   10.44  11.19   MAR  10.00  1.06  *$  0.62   5.7%
GLGC   23.94  20.34   MAR  20.00  4.88  *$  0.94   5.4%
PRGN   28.63  28.50   MAR  25.00  5.00  *$  1.37   5.0%
ROAD   25.06  28.00   MAR  25.00  1.25  *$  1.19   4.3%
AMSY   22.88  22.75   MAR  20.00  3.63  *$  0.75   4.2%
CSTR   16.75  16.50   MAR  15.00  2.44  *$  0.69   4.2%
ATRX   23.00  20.25   MAR  20.00  4.00  *$  1.00   3.8%
WGR    28.00  25.59   MAR  25.00  4.00  *$  1.00   3.6%
CSTR   17.06  16.50   MAR  15.00  2.75  *$  0.69   3.5%
NERX   10.06   6.75   MAR   7.50  3.62   $  0.31   3.5%
MNTR   23.56  23.06   MAR  22.50  1.88  *$  0.82   3.3%
LGTO   17.88  14.50   MAR  15.00  3.88   $  0.50   2.6%
UTEK   38.00  33.94   MAR  35.00  4.25   $  0.19   0.6%
SGI     5.00   4.60   MAR   5.00  0.40   $  0.00   0.0%
NXCD   11.38   8.56   MAR  10.00  2.31   $ -0.51   0.0%

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


Not too bad a week, at least as far as the Covered-Call Section
is concerned.  Still, even deep-in-the-money covered writes
are not a panacea for a protracted bear move.  If you have altered
your outlook on the future, consider using any rally to reduce
exposure.  Technically, Ultratech Stepper's (NASDAQ:UTEK) drop
on Friday is worrisome as a test towards $30 (50 dma) appears
likely - one to watch next week.  Nextcard (NASDAQ:NXCD) may
yet make a successful test of support around $8.  Legato Systems
(NASDAQ:LGTO) remains at a key moment.  Neorx (NASDAQ:NERX) is
moving lower on increasing volume - not a good sign.  Roadway
Express (NASDAQ:ROAD) continues to show impressive strength in
the face of the bear!


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

PHSY   36.88  MAR  30.00  HYQ CF  8.75  542  28.13   21     9.6%
ORG    10.96  MAR  10.00  ORG CB  1.50  619   9.46   21     8.3%
GLFD   20.38  MAR  20.00  GQF CD  1.44  64   18.94   21     8.1%
MNMD   38.25  MAR  35.00  MAQ CG  4.88  143  33.37   21     7.1%
NVLS   45.38  MAR  40.00  NLQ CH  7.00  1375 38.38   21     6.1%
LTBG   14.19  MAR  12.50  LKQ CV  2.13  50   12.06   21     5.3%
PLMD   39.44  MAR  30.00   PM CF 10.50  75   28.94   21     5.3%
GMST   49.50  MAR  40.00  QLF CH 10.88  418  38.62   21     5.2%

Company Descriptions

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

GLFD - Guilford Pharmaceuticals  $20.38 *** Drug Sector ***

Guilford Pharmaceuticals (NASDAQ:GLFD) is a biopharmaceutical
company engaged in the development and commercialization of
products in two principal areas:  targeted and controlled drug
delivery systems and therapeutic and diagnostic products.  The
company reported earnings last week, showing a net loss of $47.1
million, or $2.00 per share on revenues of $18.1 million.
According to the Guilford’s CEO, 2000 was a pivotal year as the
company achieved important milestones, while transitioning into
a fully-integrated biopharmaceutical company.  The company has
six product candidates advancing through various stages of
clinical development and is working on bringing these products
into the marketplace.  A reasonable cost basis from which to
speculate on Guilford's future.

MAR 20.00 GQF CD LB=1.44 OI=64 CB=18.94 DE=21 MR=8.1%

GMST - Gemstar  $49.50 *** An Old Favorite! ***

Gemstar-TV Guide International Group (NASDAQ:GMST) develops,
markets and licenses proprietary technologies and systems that
simplify and enhance consumers' interaction with electronics
products and other platforms that deliver video, programming
information and other data.  Their first proprietary system,
VCR Plus+, is currently incorporated into virtually every major
brand of VCR sold worldwide.  The company has also developed
and acquired a large portfolio of technologies and intellectual
property to implement interactive program guides (Gemstar Guide
Technology), which enable consumers to navigate through, sort,
select and record television programming.  Gemstar is an OIN
favorite as the options premiums are generally robust and the
issue has a unique niche in the consumer electronics market.
The recently announced a 10-year pact to provide its interactive
program guide to U.S. cable operator Charter Communications’
(NASDAQ:CHTR) digital cable customers, will provide Gemstar 85%
of national advertising revenue.  We simply favor the improving
technicals and the support above our cost basis.

MAR 40.00 QLF CH LB=10.88 OI=418 CB=38.62 DE=21 MR=5.2%

LTBG - Lightbridge  $14.19 *** Bottom Fishing ***

Lightbridge (NASDAQ:LTBG) provides customer relationship management
solutions that enable communications service providers to initiate
and maintain relationships with their subscribers.  Clients rely on
Lightbridge's Telesto. network of integrated customer acquisition
and risk management solutions to forge customer relationships.
The company's traditional and Web-based offerings are designed to
facilitate rapid application approval, minimize fraud and expand
the opportunity to retain high-value customers.  Lightbridge, which
recently completed its merger with Corsair Communications, expects
to see 20% total revenue growth over last year with total gross
margins in the mid fifty percent range.  The stock has rebounded
strongly off the December low and is showing continued buying
pressure as it forges a Stage I base.

MAR 12.50 LKQ CV LB=2.13 OI=50 CB=12.06 DE=21 MR=5.3%

MNMD - MiniMed $38.25  *** Change of Character? ***

MiniMed (NASDAQ:MNMD) designs, develops, manufactures and markets
advanced infusion systems with a primary emphasis on the intensive
management of diabetes.  The company's products include external
pumps and related disposables, a first generation continuous
glucose monitoring system as well as exclusive marketing rights
to an implantable insulin pump, which is currently only approved
for distribution in the European Community.  MiniMed's 4th-quarter
sales grew 30% to $92.5 million and net income increased 153% to
$18.8 million.  The company continues to make progress on the
design, testing and pilot manufacturing of their next generation
insulin pump, which is currently scheduled for introduction later
this year.  Prudential has recently upgraded MiniMed to a "strong
buy" rating and Adams, Harkness & Hill has reiterated a "buy"
rating.  Several positive technical signals and MiniMed's recent
move above its 30 dma suggest further upside potential.

MAR 35.00 MAQ CG LB=4.88 OI=143 CB=33.37 DE=21 MR=7.1%

NVLS - Novellus Systems $45.38  *** Speculators Only? ***

Novellus Systems (NASDAQ:NVLS) manufactures, markets and services
advanced automated wafer fabrication systems for the deposition of
thin films within the semiconductor equipment market.  Novellus
had favorable earnings in January, reporting record net sales for
the 4th-quarter of $389.9 million and net income of $94.2 million,
or $0.69 per fully diluted share.  2000 was the best year in the
company's history, with record backlog and with revenue more than
double the prior year.  As for 2001, the company plans to offer a
mid-quarter update in their conference call on March 1.  Novellus
has weathered economic downturns in the past, concentrating on
expenses and their internal numbers.   A reasonable entry point for
those who wish to speculate on one of the stronger semiconductor

MAR 40.00 NLQ CH LB=7.00 OI=1375 CB=38.38 DE=21 MR=6.1%

ORG - Organogenesis $10.96 *** Bracing for a Rally ***

Organogenesis (AMEX:ORG) is the only tissue-engineering company to
have developed and gained FDA approval for a mass-produced product
containing living human cells.  The Company's product development
focus includes living tissue replacements, cell-based organ assist
devices and other tissue-engineered products.  Lead product
Apligraf - a cellular, bi-layered skin substitute - is approved
and marketed for the treatment of venous leg ulcers and diabetic
foot ulcers.  The Organogenesis research pipeline includes the
Vitrix(TM) living dermal replacement product, a coronary vascular
Graft, and a liver assist device.  The stock recently completed
a double-bottom formation and is showing increasing strength.
Organogenesis continues to report record sales of Apligraf
which should bode well for their future earnings.

MAR 10.00 ORG CB LB=1.50 OI=619 CB=9.46 DE=21 MR=8.3%

PHSY - PacifiCare $36.88 *** Earnings Surprise ***

PacifiCare Health Systems (NASDAQ:PHSY) is one of the nation's
largest health care services companies with $11 billion in
revenues.  Primary operations include health insurance products
for employer groups and Medicare beneficiaries in eight states
and Guam, serving approximately 4 million members.  Other
specialty products and operations include behavioral health
services, life and health insurance, dental and vision services
and pharmacy benefit management.  PacifiCare's stock has rallied
on better-than-expected 4th-quarter earnings, a strong outlook
for 2001 and a series of brokerage upgrades.  A conservative
entry point closer to support for those investors who are
bullish on PacifiCare.

MAR 30.00 HYQ CF LB=8.75 OI=542 CB=28.13 DE=21 MR=9.6%

PLMD - PolyMedica  $39.44  *** Range Bound? ***

PolyMedica (NASDAQ:PLMD) is a nationwide provider of consumer
specialty medical products and services.  The company is best
known through its Liberty brand name and it serves primarily the
senior chronic disease marketplace.  PolyMedica also focuses on
Compliance Management using its unique Technology Platform to
help seniors manage their disease more effectively.  Liberty
pioneered National Direct to Consumer Advertising to seniors
with chronic diseases.  The company announced favorable earnings
in January but has suffered since November when Barron's made
unsubstantiated claims that it was part of an FBI investigation.
So far, the company has denied that is under investigation.
For those who consider PolyMedica undervalued, the current
overpriced options provide a reasonable entry point.

MAR 30.00 PM CF LB=10.50 OI=75 CB=28.94 DE=21 MR=5.3%



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

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

RMDY   25.50  MAR  22.50  LRQ CX  5.50  44   20.00   21    18.1%
ACLS   10.44  MAR  10.00  ULS CB  1.13  2070  9.31   21    10.7%
LPNT   41.31  MAR  40.00  PUN CH  3.13  194  38.18   21     6.9%
CRA    39.70  MAR  35.00  CRA CG  6.00  122  33.70   21     5.6%
AMKR   19.75  MAR  17.50  QEL CW  2.88  51   16.87   21     5.4%
ABX    15.32  MAR  15.00  ABX CC  0.80  4095 14.52   21     4.8%

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index instead?

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Stock Buying Basics:  Market Extremes
By Ray Cummins

Today we continue our discussion of common technical analysis
terms and the basic indicators that can help a trader determine
market direction.  One of the expressions that has become very
popular in recent weeks is "oversold."  With regard to the basic
market definition, the underlying concept is based on the number
of stocks advancing or declining.  When an excessive number of
issues have advanced, the market is said to be "overbought."  If
an excessive number of issues have declined, it is said to be
"oversold."  If the broader market is in an overbought condition,
that's usually a sign that euphoria has overwhelmed investors
and it's time to stop buying, or at least start taking profits.
When the major indices appear to have declined to a relatively
low point in the cycle and the market is oversold, you may want
to start buying again, as the risk will generally be lower in
bullish positions.

Indicators that identify market extremes are universally popular
as technical trading tools.  The most important concept investors
should understand is that overbought and oversold indicators can
only provide a method of determining when a market is approaching
historical excesses.  They do not suggest that the market is at a
turning point merely because it has moved beyond a specific level.
In addition, simply establishing these arbitrary ranges can often
create a major problem for traders.  The key to success with this
type of analysis is that the condition of overbought or oversold
must only be indicated when the instrument reaches an excessive
state; one which occurs rarely over time.  After all, any trader
who applies relatively lax boundaries when searching for such an
extreme condition will seldom be able to correctly identify the
few occasions when the gauges are truly extended beyond the norm.

The first step is to use a reliable indicator that works well with
this type of technical analysis.  One of the most common tools for
viewing overbought and oversold is the Relative Strength Indicator
or RSI.  This measure of price momentum was developed by J. Welles
Wilder in 1978 and is commonly included in the "oscillators" group
because it varies between fixed upper and lower boundaries.  The
RSI is based on the fact that a stock, when advancing, will tend
to close nearer to the high of the day than the low, and of course
the reverse is true for declining issues.  The indicator compares
the price performance of a stock to that of itself, rather than to
a stock market index or another stock, and it must not be confused
with other relative strength gauges.  In this case, the oscillator
is indexed from 0 to 100 and it is most useful in a well-defined
trading channel as trending prices tend to distort overbought and
oversold signals.  Using the basic values, a "buy" signal occurs
when the oscillator is at 20 or less (the stock is oversold) and
"sell" signals are issued when the RSI value is 80 or greater (the
stock is overbought).

Technical analysis can play a vital role in identifying stocks
that are in the process of becoming winners and those that may
quickly turn into losers.  Establishing the correct parameters in
which the terms "overbought" and "oversold" apply only to truly
exceptional conditions is an important requirement in the study
of historical pricing.  Many otherwise intelligent traders regard
this type of indication as a clear-cut signal when the market is
beyond the relatively arbitrary boundaries of the oscillator.  In
reality, this measure of momentum is simply showing whether the
price line is speeding up or slowing down and when an extreme is
achieved, the condition cannot be expected to exist for extended
periods.  The result is generally a consolidation, followed by a
renewed trend or a reversal and because it's almost impossible to
determine which will occur, additional indicators are used to help
predict the likely outcome.

Good Luck!

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


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

BRIO   13.38  11.31   MAR  10.00  0.63  *$  0.63  16.5%
MDR    15.80  12.66   MAR  12.50  0.40  *$  0.40  12.2%
KSWS   31.50  32.38   MAR  30.00  1.38  *$  1.38  12.0%
TSN    13.55  12.75   MAR  12.50  0.65  *$  0.65  11.3%
MDR    15.29  12.66   MAR  12.50  0.60  *$  0.60  11.1%
TPTH   12.75  10.00   MAR  10.00  0.44   $  0.44  10.7%
SGR    52.04  50.31   MAR  45.00  1.30  *$  1.30   9.4%
APWR   42.50  37.44   MAR  30.00  0.69  *$  0.69   8.2%
TSO    13.32  13.45   MAR  12.50  0.40  *$  0.40   7.1%
ABMD   25.44  25.56   MAR  15.00  0.50  *$  0.50   6.5%
OII    22.50  20.15   MAR  20.00  0.40  *$  0.40   6.3%
NAUT   19.19  18.25   MAR  17.50  0.56  *$  0.56   6.2%
BPOP   27.38  27.00   MAR  25.00  0.50  *$  0.50   6.0%
RBK    31.20  26.18   MAR  25.00  0.45  *$  0.45   5.8%
OII    22.00  20.15   MAR  20.00  0.45  *$  0.45   5.4%
UIS    18.91  17.12   MAR  17.50  0.65   $  0.27   4.3%
AL     38.25  36.00   MAR  35.00  0.60  *$  0.60   4.1%
HOMS   36.63  29.13   MAR  30.00  1.13   $  0.26   3.1%
SPCT   24.75  16.13   MAR  17.50  0.44   $ -0.93   0.0%

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


McDermott International (NYSE:MDR) joined the crowd and posted
unfavorable earnings, primarily due to the de-consolidation of
a bankrupt subsidiary and lower income from its construction
business.  The stock has taken an unexpected turn for the worse
and may move back into its old trading range ($8 - $10), so we
will attempt to exit the position on any rally.  Several other
issues continue to weaken (and act horrid) and should be watched
closely or exited:  Reebok (NYSE:RBK) - at support, Homestore.Com
(NASDAQ:HOMS) - rally failing, and Spectrian (NASDAQ:SPCT) - in
the shadow of the Nortel (NYSE:NT) effect.  Your actions, which
may include acquiring the stock, exiting the position, or rolling
down, should be determined by your personal risk-reward tolerance
and overall outlook for each issue, its industry, and the market.
If your anxiety is high, use a future rally to reduce portfolio
exposure or lower your cost basis by rolling down and out to a
safer strike price.


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

NEM    15.96  MAR  15.00  NEM OC  0.40  1950 14.60   21     9.9%
OLOG   23.38  MAR  22.50  OOQ OX  0.56  0    21.94   21     9.0%
PHTN   25.25  MAR  20.00  PDU OD  0.31  32   19.69   21     8.4%
AMAT   47.94  MAR  37.50  ANQ OU  0.56  962  36.94   21     8.0%
ATVI   22.50  MAR  20.00  AQV OD  0.38  65   19.62   21     8.0%
HGSI   48.81  MAR  35.00  HHA OG  0.56  4    34.44   21     7.9%
LPNT   41.31  MAR  35.00  PUN OG  0.56  9    34.44   21     7.5%

Company Descriptions

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

AMAT - Applied Materials  $47.94  *** Chip Sector! ***

Applied Materials (NASDAQ:AMAT) develops, manufactures, markets
and services semiconductor wafer fabrication equipment and
related spare parts for the worldwide semiconductor industry.
Customers for these products include semiconductor manufacturers
and semiconductor integrated circuit (IC or chip) manufacturers
that either use the ICs they manufacture in their own products
or sell them to other companies.  These ICs are key components
in most advanced electronic products; computers, telecom devices,
automotive engine management systems and electronic games.  The
company also owns Etec Systems, a manufacturer of mask pattern
generation solutions for the electronics industry and has a flat
panel display division, AKT, and provides manufacturing execution
system software (MES) for the semiconductor industry through its
company, Consilium.  AMAT is our #1 choice in the chip sector,
and traders who want to speculate on the group should consider
this conservative position.

MAR 37.50 ANQ OU LB=0.56 OI=962 CB=36.94 DE=21 MR=8.0%

ATVI - Activision  $22.50  *** Video Gaming Giant! ***

Activision is an international developer and distributor of
interactive entertainment and leisure products.  The company's
products span a wide range of genres including action, adventure,
extreme sports, strategy and simulation and target markets such
as game enthusiasts, general consumers, value buyers and children.
The company also publishes, develops and distributes products for
a variety of game platforms and operating systems, including PCs,
the Sony Playstation, Sega Dreamcast and Nintendo N64 console
systems and the Nintendo Gameboy handheld device.  ATVI is one of
the leaders in producing entertainment and leisure software and
the company has recently signed on to provide products for the
new Microsoft Xbox, ensuring that the world's most powerful video
game console will offer consumers a range of games when it hits
the market.  The stock recently climbed to a new, all-time high,
and our cost basis near $20 appears to be a relatively safe entry
point in the issue.

MAR 20.00 AQV OD LB=0.38 OI=65 CB=19.62 DE=21 MR=8.0%

HGSI - Human Genome Sciences  $48.81  *** New Discovery! ***

Human Genome Sciences (NASDAQ:HGSI) researches and develops novel
compounds for treating and diagnosing human diseases based on the
discovery and understanding of the medical usefulness of genes.
The company has used automated, high-speed technology to discover
the sequences of chemicals in genes and generate a collection of
partial human gene sequences.  The company possesses one of the
largest databases of the genes of humans and microbes, and it has
created a broad base of products based on its genomic database.
GlaxoSmithKline has begun human trials of a new compound that may
reduce risk in atherosclerotic plaque and cardiovascular disease
using a target derived from its collaboration with HGSI.  Human
Genome will benefit from milestone payments related to clinical
progress and if the product is commercialized, the company will
receive substantial royalties.  Investors cheered the news and
HGSI shares are due for a bounce after a prolonged period of
selling pressure.

MAR 35.00 HHA OG LB=0.56 OI=4 CB=34.44 DE=21 MR=7.9%

LPNT - Lifepoint Hospitals  $41.31  *** A New Trend? ***

Lifepoint Hospitals (NASDAQ:LPNT) owns and operates general, acute
care hospitals located in non-urban areas.  Lifepoint operates a
number of hospitals located in: Alabama, Florida, Georgia, Kansas,
Kentucky, Louisiana, Tennessee, Utah and Wyoming.  Lifepoint's
general, acute care hospitals usually provide the range of medical
and surgical services commonly available in hospitals in non-urban
markets.  These hospitals also provide diagnostic and emergency
services, as well as outpatient and ancillary services such as
outpatient surgery, laboratory, radiology, respiratory therapy and
physical therapy.  Lifepoint is planning a public offering of 3.3
million shares of its stock, which will dilute the 32.2 million
shares outstanding.  Investors were briefly disappointed, but now
the issue appears to bracing for a rally, and our cost basis is
well below the current trading range.

MAR 35.00 PUN OG LB=0.56 OI=9 CB=34.44 DE=21 MR=7.5%

NEM - Newmont Mining  $15.96  *** Precious Metals Hedge! ***

Newmont Mining (NYSE:NEM) is engaged in the production of gold,
the exploration for gold and the acquisition and development of
gold properties worldwide.  The company currently produces gold
from mines in Nevada and California, and, outside of the United
States, from operations in Peru, Indonesia, Mexico and Uzbekistan.
The company also began production of copper concentrates from a
copper/gold deposit at a second location in Indonesia.  Battle
Mountain Gold, which has operations in northern Ontario, Canada
and Bolivia, as well as interests in Australia and Papua New
Guinea, is a wholly-owned subsidiary of NEM.  This position is
simply a portfolio hedge for traders who are concerned about the
recent performance of the broad market.  Consider this play only
if you have a relatively bearish outlook for stocks.

MAR 15.00 NEM OC LB=0.40 OI=1950 CB=14.60 DE=21 MR=9.9%

OLOG - Offshore Logistics  $23.38  *** Serving Oil Services! ***

Offshore Logistics (NASDAQ:OLOG) is a supplier of helicopter
transportation services to the worldwide offshore oil and gas
industry.  Through its Air Logistics subsidiaries and with its
investment in Bristow Aviation Holdings Limited, operates almost
400, including 78 aircraft operated through other entities.  The
company's operations also include production management services
through Grasso Production Management.  GPM's services include
furnishing personnel, engineering, production operating services,
paramedic services and the provision of boat and helicopter
transportation of personnel and supplies between onshore bases
and offshore facilities.  The offshore gas and oil industry is
active again and transportation to the rigs is a necessary part
of any oil company's operations.  OLOG is one of the leaders in
the business and with the stock trading at a new two-year high,
it appears that investors favor the outlook for the company.  We
will "target shoot" a premium near $0.75 initially, to allow for
some consolidation in the issue.

MAR 22.50 OOQ OX LB=0.56 OI=0 CB=21.94 DE=21 MR=9.0%

PHTN - Photon Dynamics  $25.25  *** Bottom Fishing! ***

Photon Dynamics (NASDAQ:PHTN) is a provider of yield management
solutions to the flat panel display industry.  The acquisition of
CR Technology complemented its capabilities of data acquisition,
image analysis and systems engineering.  As a result, Photon now
offers yield management solutions for the printed circuit board
assembly and advanced semiconductor packaging industries.  Their
test, repair and inspection systems are used by manufacturers to
collect data, analyze product quality and identify and repair
product defects at critical steps in the manufacturing process.
Photon achieved record revenue during the most recent quarter and
received its largest order to date from a major LCD manufacturer.
The company is also setting its sights on international expansion
and is targeting gross margins of 50% in the next two years.  Our
conservative position is low risk with a reasonable expectation
of profit.

MAR 20.00 PDU OD LB=0.31 OI=32 CB=19.69 DE=21 MR=8.4%



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

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

KLAC   43.38  MAR  35.00  KCQ OG  1.13  2506 33.87   21    16.2%
ILUM   26.50  MAR  22.50  ILU OX  0.63  0    21.87   21    12.6%
QQQ    51.18  MAR  45.00  QQQ OS  0.95  8911 44.05   21     9.0%
SRCL   39.38  MAR  35.00  URL OG  0.62  35   34.38   21     7.5%
BFT    31.30  MAR  30.00  BFT OF  0.55  25   29.45   21     6.8%
LOW    54.58  MAR  50.00  LOW OJ  0.85  1336 49.15   21     6.8%

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An Incredible Comeback!

Technology stocks staged a dramatic recovery Friday amid hopes of
an impending rate cut by the Federal Reserve.

Friday, February 23

Technology stocks staged a dramatic recovery Friday amid hopes of
an impending rate cut by the Federal Reserve.  The NASDAQ closed
up 17 points at 2,262.  Industrial stocks did not perform as well
with the Dow falling 84 points to 10,441.  The broader market S&P
500 index ended 7 points lower at 1,245 after hitting a two-year
low earlier in the session.  Volume on the NYSE hit 1.23 billion
shares, with losers beating winners 1,729 to 1,328.  Activity on
the NASDAQ was heavy at 2.24 billion shares traded.  Technology
declines beat advances 2,077 to 1,703.  In the bond market, the
30-year Treasury rose 21/32, pushing its yield down to 5.48%.

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

Chiron        (NASDAQ:CHIR)  MAR50C/40P  $1.50  credit  strangle
Avery Denn.   (NYSE:AVY)     MAR60C/55C  $0.50  credit  bear-call
Invest Tech.  (NYSE:ITG)     MAR55C/40P  $0.35  credit  synthetic

All of our new positions were available at acceptable prices.
The bear-call spread in Avery Dennison did not meet our target
credit but the entry price was favorable for traders who agree
with a neutral outlook for the issue.

Portfolio Activity:

The market ended mixed today with technology stocks recovering
in late trading while industrial issues continued to decline on
weakness in defensive stocks.  The Dow extended its recent slide,
testing the lower boundary of this winter's trading range after
an unexpected sell-off in computer giant International Business
Machines (NYSE:IBM).  The drop in IBM shares came on a downgrade
by Salomon Smith Barney, which cut its 2001 earnings and revenue
estimates on the bellwether stock.  Among other blue-chip issues,
DuPont (NYSE:DD) and J.P. Morgan (NYSE:JPM) led the losers while
Microsoft (NASDAQ:MSFT), Eastman Kodak (NYSE:EK), and General
Motors (NYSE:GM) edged higher.  On the NASDAQ, Sun Microsystems
(NASDAQ:SUNW) ended flat after an earlier move below $20, in the
wake of an unexpected profit warning.  Sun cut its third quarter
earnings expectations just weeks after affirming revised numbers
and the magnitude of the reduction surprised many investors.  In
the telecom sector, Motorola (NYSE:MOT) slumped after saying it
expects to miss first-quarter earnings estimates and may post an
operating loss because of weak order flow.  The stock moved to a
two-year low on the news.  Networking, chip and Internet shares
were among the best technology groups and in the broader market,
biotechnology stocks rallied while gold shares ended higher for
a third straight session.  On the downside, bearish activity was
seen in brokerage, natural gas, major drug, chemical, utility,
consumer products and oil service issues.

The Spreads Portfolio endured another day of widespread selling
and although the late recovery in the technology segment was a
welcome activity, a number of popular issues ended the session at
recent lows.  One of the big surprises was Qualcomm (NASDAQ:QCOM),
which whipsawed to $50 after a report warned of a two-year delay
in the rollout of its third generation mobile phone technology by
European operators.  Qualcom officials were quick to refute the
rumor, saying that one of its new CDMA technologies was already
available in South Korea.  The company went on to say that CDMA
demand during the second quarter was consistent with previously
stated expectations and that royalty reports from the company's
licensees for the first quarter were exceptionally strong.  The
damage had already been done, however, and QCOM shares did well
to recover to the day's highest levels, which were significantly
below the recent trading-range bottom near $69.  Another issue
that has moved unexpectedly out of its recent comfort area is
Continental Airlines (NYSE:CAL).  The fall from grace began on
Tuesday when Continental appealed a court order approving the
auction of Trans World Airlines, saying the process is slanted
to favor a bid by American Airlines.  Northwest Airlines and
investor Carl Icahn have also objected to the auction process,
alleging that AMR's current offer is "illusory," because it does
not commit AMR to buying any particular assets at any particular
price.  On Wednesday, a bankruptcy judge denied Continental's
motion to halt the process until an appeal can be reviewed by a
higher court.  The decision leaves Continental in an unfortunate
situation and without leverage to oppose the transaction.  From
an investor's viewpoint, there is little positive news in the
company's future and with AMR and United Airlines acquiring the
lion's share of the industry, the outlook for CAL becomes less
certain.  However, there's definitely no ambiguity in the chart,
as the stock has dropped over 10% since the appeal was announced
and the selling volume has increased during the decline.  Those
of you who sold premium in the issue (and did not close the play
on Wednesday's move below technical support) should be prepared
to own the stock unless a significant change in character occurs.

There are, of course, some other positions that are performing
very well, along with a few plays that have not achieved the
expected goals.  The problem is how to identify an appropriate
exit point and with the technology group at extremely oversold
levels, now is not the time to be making adjustments or cutting
your losses.  That move should have been made on the way down,
before the market dropped to new yearly lows.  The key to success
in this game is to limit losses and maximize profits, thus the
question is, "How far do you let the position run before closing
the play?"  Most methods for taking profits and preventing losses
fit into one of two categories: a pre-arranged target profit or
loss limit; or a technical exit based on the chart indications of
the underlying issue.  The first technique is simple, as long as
you adhere to the initially established limits.  The alternative
method is more difficult, but there are many different indicators
available to establish an acceptable exit point; moving averages,
trend-lines, previous lows, etc. and with this type of stop-loss
system, you exit the play after a violation of a pre-determined
level.  Establishing these loss-limiting rules before you enter a
position will help to control emotions and improve consistency
with exit decisions.  When you trade without a plan, it's amazing
how confusing the situation can become and for most of us, a
system of structured and pre-planned moves is the only solution.

Questions & comments on spreads/combos to Contact Support
                           - NEW PLAYS -
OLN - Olin  $20.47  *** Chemicals Sector! ***

Olin Corporation (NYSE:OLN) is a manufacturer concentrated in
three major business segments: Chlor Alkali Products, Metals and
Winchester.  Chlor Alkali Products include chlorine and caustic
soda, sodium hydrosulfite and high strength bleach products.
Metals products include copper and copper alloy sheet, strip,
welded tube and fabricated parts, and stainless steel strip.  The
Metals segment also includes a network of metals service centers
in the continental U.S. and Puerto Rico.  Winchester products
include sporting ammunition, canister powder, reloading
components, small caliber military ammunition and industrial

Here's an interesting issue that we discovered while searching
for "Naked Put" candidates.  The company reported solid earnings
in fiscal 2000 with record profits in the Olin Brass segment and
a noteworthy turnaround in Chlor Alkali Products.  The Winchester
subsidiary posted solid earnings, but the final revenue results
were skewed by the impact of a recently-ended strike at Olin's
manufacturing facility in East Alton.  The company announced that
the costs of the wage dispute will be in the range of $0.40 per
share for 2001, with a substantial portion of the loss coming in
the first quarter.  Strangely enough, investors have chosen to
overlook the past problems and focus on the future, and the new
buying pressure is evident in the stock's recent rally.  With the
current bearish outlook for growth issues, a defensive play may
be a favorable addition to your portfolio.  Traders who believe
OLIN has future upside potential may speculate on that outcome
with this conservative position.  Because the stock has moved up
significantly in the past few sessions, we will target a lower
cost basis initially, to enter the play.

PLAY (conservative - bullish/synthetic position):

BUY  CALL  MAY-22.50  OLN-EX  OI=40  A=$0.90
SELL PUT   MAY-17.50  OLN-QW  OI=36  B=$0.40

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $575 per contract.

SYK - Stryker  $53.94  *** On The Move! ***

Stryker (NYSE:SYK) and its subsidiaries develop, manufacture and
market specialty surgical and medical products, including a range
of orthopaedic implants, bone cement, trauma systems used in bone
reconstruction, powered surgical instruments, endoscopic systems,
raniomaxillofacial fixation devices, specialty surgical equipment
used in neurosurgery and patient care and handling equipment for
the global market.  The company also provides outpatient physical
and occupational rehabilitation services in the United States.

In late January, Stryker reported a 27% increase in its fourth
quarter profit, boosted by a demand in surgical equipment and its
fast-growing physical therapy services unit.  The company said
operating earnings came in at $65 million, or $0.33 per share in
the latest quarter, up from $51 million, or $0.26 per share a year
ago.  The company's net sales increased 10% to $612 million, with
domestic sales jumping 18% to $380 million for the fourth quarter
on growing shipments of orthopedic implants, powered surgical
instruments, endoscopic equipment, hospital beds and stretchers
and higher revenue from physical therapy services.  The surprise
performance was posted by Stryker's Physical Therapy business,
where revenues soared 50% to $40 million.  Worldwide sales of
their MedSurg Equipment was also strong, with an 18% increase
from the year-ago quarter.  Based on the outstanding financial
results, investors have shown a new interest in the company and
the bullish technical indications suggest there is additional
upside potential in the issue.

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAR-45  SYK-OI  OI=2607  A=$0.40
SELL PUT  MAR-50  SYK-OJ  OI=3545  B=$0.90
INITIAL NET CREDIT TARGET=$0.55-$0.60  ROI(max)=12% B/E=$49.45

                       - TECHNICALS ONLY -

These plays are based on the current price or trading range of
the underlying issue and the recent technical history or trend.
Current news and market sentiment will have an effect on these
issues so please review each play individually and make your own
decision about the future outcome of the position.

SHPGY - Shire Pharmaceuticals  $55.50  *** Top Forming? ***

Shire Pharmaceuticals Group (NASDAQ:SHPGY) is an international
specialty pharmaceutical company with a strategic focus on four
therapeutic areas: central nervous system disorders, metabolic
diseases, cancer and gastrointestinal disorders.  Shire has
operations in the United States, Europe and the rest of the
world.  Revenues are derived from sales of products through the
company's sales and marketing group, licensing and development
fees, and royalties.

Shire is a fundamentally sound company with a number of great
products but recently, the defensive drug manufacturing sector
has not been performing as well as one might expect, considering
the bearish trend in the technology industry.  On an individual
basis, a number of issues in the segment have traded lower over
the past few weeks and SHPGY is encountering difficulty at a
well-defined resistance level near $58.  Looking back, that's
approximately the same price range as its failed rally during
the middle of 2000.  With the all-time high in November forming
a peak, the resultant pattern is similar to a common technical
formation known as a "head-n-shoulders."  Traders who agree that
the potential for a move through $60 is unlikely in the next few
weeks may speculate on that outcome with this conservative play.

PLAY (conservative - bearish/credit spread):

BUY  CALL  MAR-65  UGH-CM  OI=0    A=$0.31
SELL CALL  MAR-60  UGH-CL  OI=284  B=$0.88
INITIAL NET CREDIT TARGET=$0.62-$0.69  ROI(max)=14% B/E=$60.62

CAH - Cardinal Health  $100.84  *** Bracing For A Rally? ***

Cardinal Health (NYSE:CAH) is structured as a holding company
that, through a number of separate operating subsidiaries,
provides products and services to healthcare providers and
manufacturers to help them improve the efficiency and quality of
healthcare.  These services and products include Pharmaceutical
Distribution and Provider Services, Medical-Surgical Products
and Services, Pharmaceutical Technologies and Services and other
Automation and Information Services.

A subscriber offered this stock for our review and based on the
recent technical indications in the issue, we think it warrants
further consideration.  In addition, a number of analysts have
upgraded their outlook on the company, based on the addition of
Bindley Western, a wholesale distributor of pharmaceuticals and
provider of nuclear pharmacy services.  Cardinal is now a very
diversified health care stock in a popular sector and with the
company's history of outstanding earnings, the future is bright.
Those of you who have an optimistic view of the issue should
study this position further and make your own decision about
its possible outcome.

BUY  PUT  MAR-90  CAH-OR  OI=914  A=$0.70
SELL PUT  MAR-95  CAH-OS  OI=307  B=$1.25
INITIAL NET CREDIT TARGET=$0.60-$0.70  ROI(max)=14% B/E=$94.40

                   - STRADDLES AND STRANGLES -

One our readers commented that we rarely offer Debit Strangles,
which are a speculative type of Straddle position that utilizes
"out-of-the-money" options.  The technique offers low risk and
potentially high reward, but the problem is that you are paying
a premium for time with no intrinsic value in the options.  There
are conditions however, where this speculative technique can be
favorable, as long as you understand that "probability of profit"
is relatively low.  The following two positions meet our basic
criteria for favorable debit strangles; options that are cheap
(undervalued) with an underlying security that has the potential
to move (high or low) enough to make the play profitable and a
history of multiple movements through a sufficient range in the
required amount of time to justify the overall risk/reward of
the position.  As with any recommendation, each play should be
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and trading style.

ICI - Imperial Chemical  $29.45  *** Probability Play! ***

Imperial Chemical Industries (NYSE:ICI) is an industrial chemical
organization.  Its core business now comprises National Starch,
Quest, Industrial Specialties and Paints.  Imperial also has a
chemicals business that comprises Halochemicals, Methanol and a
number of regional businesses.  ICI is actively pursuing the
divestment of most of its Industrial Chemicals segment consistent
with its strategic shift to specialty chemicals.  ICI is engaged
in industrial adhesives, specialty starch, fragrances, flavors,
food ingredients, specialty process intermediates, paints and
chlorofluorocarbon replacements.  It also has positions in a wide
range of synthetic resins and polymers, chemicals based on silica
and alumina, surfactants and catalysts.  In addition, ICI has a
regional position in the United Kingdom in chlor-alkali products.

PLAY (speculative - neutral/debit strangle):

BUY  CALL  JUL-35  ICI-GG  OI=92  A=$0.75
BUY  PUT   JUL-25  ICI-SE  OI=20  A=$1.10

TMX - Telefonos de Mexico  $31.60  *** Recent Activity! ***

Telefonos de Mexico, S.A. de C.V. (NYSE:Telmex) owns and operates
a telecommunications system in Mexico. It is a provider of local,
long-distance and cellular telephone services as well as Internet
access throughout Mexico.  Telmex also provides other telecom and
telecommunications-related services such as directory services,
data transmission, Internet access, paging service and connection
services to other carriers.  Outside Mexico, Telmex has made a
series of acquisitions primarily focused in Latin America and the
Spanish-speaking market in the United States, and it now operates
in the United States (including Puerto Rico), Brazil, Ecuador and
Guatemala.  The T1msn Internet portal, a joint venture between
Telmex and Microsoft, is aimed at all of the Spanish-speaking
areas of the Americas.

PLAY (very speculative - neutral/debit strangle):

BUY  CALL  APR-35  TMX-DG  OI=1794  A=$0.90
BUY  PUT   APR-30  TMX-PF  OI=1563  A=$1.35


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