Option Investor

Daily Newsletter, Tuesday, 02/27/2001

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The Option Investor Newsletter                  Tuesday 02-27-2001
Copyright 2001, All rights reserved.                        1 of 2
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MARKET WRAP  (view in courier font for table alignment)
        02-27-2001        High      Low     Volume Advance/Decline
DJIA    10636.90 -  5.60 10698.40 10560.10 1.11 bln   1444/1592
NASDAQ   2207.82 -100.68  2300.18  2206.72 1.81 bln   1216/2510
S&P 100   650.97 -  4.83   659.10   647.21   totals   2660/4102
S&P 500  1257.94 -  9.71  1272.76  1252.26           39.3%/60.7%
RUS 2000  478.75 -  9.56   488.31   478.75
DJ TRANS 2971.01 -  7.23  2987.36  2960.80
VIX        29.03 +  1.69    29.76    27.65
Put/Call Ratio      0.79

Desperately Seeking Hope

It was hard to find any hope on the tape today as the NASDAQ closed
at a two year low.  Leading the slide were former tech heavyweights
Cisco (NASDAQ:CSCO) and JDS Uniphase (NASDAQ:JDSU) which both set
new 52-week lows.  Consumer Confidence comes in at 5-year lows but
investors still fret about an intermeeting rate cut that appears
so vital at this point.  Why?  Because, according to Fed Vice
Chairman Roger Ferguson, household spending continues to hold up
well despite the confidence numbers.  His bucket of cold water,
in conjunction with numerous earnings warnings, sent the buyers
into hiding and left the markets for dead.  Seeing that Alan
Greenspan speaks tomorrow at 9:30am ET before the House Financial
Services Committee, one would have thought that an intermeeting
rate cut would have preceded this important inquiry.  As I have
difficulty in finding a good angle to write about this gloomy
market and my hope dwindling, the fact that Mr. Greenspan is going
to "update" his State of the Economy testimony given to Senate two
weeks ago might be of some hope.  But what we really need is a
rate cut.

Many strategists and market watchers believe that the U.S economy
has reached a point where a "wait-and-see" attitude just won't
work.  At the same time, this intermeeting rate cut hype seems to
be just that.  Regardless, the market needs a rate cut simply to
give the buyers a reason to come back, if only temporarily.  While
decliners beat advancers on the NASDAQ by a 2-1 margin, volume was
relatively light at 1.7 mln shares as buyers were nowhere to be
found.  There are two reasons that this widely expected rate cut
has not yet occurred:  first, Greenspan does not like to be
bullied into monetary action by the market; and secondly, I think
the Fed is waiting for a moment when the market least expects it
in order to maximize shock value and effectiveness.  He may also
be waiting to examine the NAPM numbers expected out on Thursday
morning at 10am ET.

In addition to economic concerns, analyst comments and downgrades
continue to be a thorn in the NASDAQ's side.  Today, Goldman Sachs
took the opportunity to lower 2001 estimates on Hewlett-Packard
(NYSE:HWP), IBM (NYSE:IBM), Network Appliances (NASDAQ:NTAP), EMC
(NYSE:EMC), Broadcom (NASDAQ:BRCM), Vitesse (NASDAQ:VTSS), Applied
Micro Circuits (NASDAQ:AMCC), and PMC-Sierra (NASDAQ:PMCS), just to
name a few.  Nike (NYSE:NKE) received a string of downgrades today
after the retailer warned that 3rd quarter earnings would be
significantly lower-than-expected.  They expect 3rd quarter profits
of 34 to 38 cents versus previous estimates of 50 to 55 cents.
The direct result was lower domestic footwear sales but the company
pointed the finger at B-2-B player i2 Technologies (NASDAQ:ITWO)
and their supply chain software application.  Both stocks tumbled
lower:  NKE down $9.57 to $39.60, ITWO down $7.94 to $27.56.

After Friday's late session short-covering rally, fueled by rate
cut speculation, the NASDAQ used that momentum yesterday to climb
to 2300.  Today, that level proved to be resistance and buyers
had no interest in taking positions above there after the Consumer
Confidence number came out at 10am ET.  The rest of the session
was a steady decline toward 2200, which offered nice opportunities
to play puts with little to no heat.  Technically, the NASDAQ is
approaching its intraday low set last Friday before the relief
rally, 2156.  This level will most likely be challenged as
earnings estimates continue to be downwardly revised and companies
confess their woes.  Obviously, upside action on the NASDAQ will
be hinged on a catalyst, namely an intermeeting rate cut.  Until
then, trading puts seems to be working well, yet be on alert for
that unexpected moment when the Fed moves.  Recent rallies have
been short-lived and proved to be put entry opportunities.

Leading the market to the downside was the Networkers(NWX.X),
driven by news that JDSU was cutting more than 3000 jobs, or
about 10% of its work force.  CSCO slipped to $24 a share and
Juniper (NASDAQ:JNPR) lost 13%, finishing at $62.75.  Biotechs
(BTK.X) were weak as well, giving back much of yesterday's gains.
The Semiconductor sector(SOX.X) encountered resistance at 600
both yesterday and today, rolling over to lead the NASDAQ lower.

After the bell, the outlook continued to deteriorate when fiber
optic company Avanex (NASDAQ:AVNX) downwardly revised its 3rd
quarter and fiscal year outlook.  The stock fell 20% in after-
hours to $19.  Following suit, both Chartered Semi (NASDAQ:CHRT)
and Altera (NASDAQ:ALTR) lowered numbers, citing the weakening
economic environment, the usual suspect.

Meanwhile, over on the Dow(INDU), the Consumer Confidence
release tanked the index by 100 points.  After the initial
sell-off, the INDU began climbing nicely as traders went into
insurance and bank issues.  Unfortunately, the INDU encountered
resistance at 10700, which will remain a challenge for the index.
While it sold off late in the session, buyers reemerged at 10600 to
buoy the INDU, even as the NASDAQ slipped to the low of the day.
So now the INDU is pinned between 10600 and 10700, and will
likely trade off Greenspan's testimony tomorrow.  Watch the
Financials, JP Morgan Chase (NYSE:JPM) and Citigroup (NYSE:C)
in particular.

Looking forward, the health of the tech sector is deeply in
question as once high flying heavyweights have been humbled.
The downside on the NASDAQ is uncertain and the mentality of
"it can't go any lower" is dangerous.  Expect the unexpected.
On the flipside, that may also be an intermeeting rate cut.
What we need is hope, and a cut before the March 20th FOMC meeting
certainly would provide that temporarily.  The damage is done from
the previous tightenings of 2000, evident in the constant warnings
and revisions.  Use rallies into resistance as put entry
opportunities and remember that a rate cut will trigger a hefty
short covering rally, especially if it comes at an unexpected
moment.  Even with another easing in the coming month, the market
will digest it on a short-term basis, but the economic
implications are months and months away.  Therefore, be a trader
and take it tick by tick, cutting losses early and taking profits
quickly.  Trade smart.

Matt Russ

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

OptionInvestor is proud to announce our third annual Spring
option workshop in Denver Colorado. This power packed five-day
event is structured to fully educate you on advanced option
strategies and will make you a better and more profitable trader.

If you attended the March Denver Expo last year and thought it
was the best function you had ever attended.. You haven't seen
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plain fun in sunny Denver. The biggest complaint in March was
the massive weight gain experienced by the attendees from the
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Current speakers include:

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

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

Mark Leibovit, Chief Market Strategist of VRTrader.com

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

Mark Skousen, Editor of Forecasts and Strategies for over 20

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

Jim Crimmins, President of TradersAccounting.com

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

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

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

This is not a prepackaged presentation that gets repeated over
and over with stale information. This is a one-time production
and everything is fresh, live and as current as we can make it.
The videos will have your real time questions and answers and
not some from a prior class. Where else can you get intensive
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The World Is Ready To End
By Austin Passamonte

It's official; we are going to 1,500 in the COMPX and that should
drag the Dow down to 9,000 along with it. One big capitulatory
downdraft, our V-bottom is in place and we can continue the bull
market rally from its brief interruption from prior market highs.

Not so fast, Sparky... we shouldn't expect either to occur at the
pace & speed traders desire. Nope, this isn't one of those trite
action movies where our hero gets shot in the shoulder, stabbed in
the leg and kicked in the face only to rise up & win his fight and
leading lady's heart. That only happens in theaters.

Real-life bear markets aren't nearly so concise and compliant.
They are known to drag on and on until every last market bull is
slain and strung from a meat hook. Capitulation will not be an
event but more likely a process few want to endure but all shall
before the inevitable end.

Meanwhile, we will continue to experience rallies up to resistance
and sell-offs down to support or below. Wild rallies failing to
sustain and subsequent lower lows are another hallmark. Seen any
of those over the past few months?

Traders are always euphoric towards resistance and despondent near
support, causing them to buy tops and sell bottoms. Isn't that
what public traders have always done since the caveman age? Flash
back less than one month ago. Everyone was euphoric as the Dow
flirted with 11,000 and tech stocks pre-warned left & right only
to rally the next session. There was no fundamental difference in
the economy then as now.

Oh yes... everything is different this time. The media says we
have no reason to buy until 2003 after the recession winds its way
through our world economy. While that may very well be true, rest
assured that some catalyst will arise to excuse pent-up buyers to
snap up their precious tech-loves for the pittance they now fetch.
CSCO at $24? JDSU below $28? GLW below $29? There are millions of
"investors" just dying to dollar-cost average down and the first
hint of buying that ensues will open the floodgates.

Not this time? Public has finally learned their lesson once & for
all? Please! This is the public we're speaking about. Basic human
nature and herd mentality shall never change.

Lower price levels could easily be in our future and the next
several sessions as well. Any interim rate-cut will merely serve
as a temporary lift to otherwise pretty dismal fundamentals. That
being said, trading rallies will emerge in the near future and for
quite a while as sideways action grinds on. These are trader's
markets and no one sees an end to that anytime soon.

All major indexes could slip another 5% to 10% from here, but they
could gain 10% - 30% just as well. It's up to us for choosing just
when market action has reached extremes and the VIX is a fine
measure of that. Market Sentiment will continue to buy every dip
of our near-term chart signals and sell when they cycle up days,
hours or minutes later. Put-plays can wait until the Fed rumor
becomes news. We are on the cusp of major market moves once again
and it could go either or both directions on any given session.

Take modest positions, sell on the slightest profits captured,
honor disciplined stops and stay in the game until the big ones
are hit. There will be plenty of big moves headed our way in both
directions going forth and staying alive while cautiously probing
for them is the key. Defense wins championships!


Tuesday 02/27 close; 29.03

Tuesday 02/27 close; 73.45

30-yr Bonds
Tuesday 02/27 close; 5.35%

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)
690 - 675                9,224        5,544         1.66
670 - 655                7,110        5,484         1.30

OEX close: 650.97

645 - 630                2,774        9,402         3.39
625 - 610                   36        6,364       176.78

Maximum calls: 700/7,374
Maximum puts : 600/6,983

Moving Averages
 10 DMA  663
 20 DMA  684
 50 DMA  689
200 DMA  750

NASDAQ 100 Index (NDX/QQQ)
 58 - 56                65,243        26,407         2.47
 55 - 53                51,149        36,993         1.38
 52 - 50                42,763        37,773         1.13

QQQ(NDX)close: 49.00


 48 - 46                 1,517         9,243         6.09
 45 - 43                 1,313        10,661         8.12
 42 - 40                   707         6,361         9.00

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

Moving Averages
 10 DMA 53
 20 DMA 57
 50 DMA 60
200 DMA 80

S&P 500 (SPX)
1325                   46,026        42,478          1.08
1300                   12,876        17,257           .75
1275                   12,309        18,556           .66

SPX close: 1257.94

1250                    8,017        20,199          2.52
1225                    3,040        12,170          4.00
1200                    1,663        16,811         10.11

Maximum calls: 1350/47,943
Maximum puts : 1325/42,478

Moving Averages
 10 DMA 1282
 20 DMA 1315
 50 DMA 1320
200 DMA 1406


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
Commercialc 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 02/13 by the CFTC.


Please visit this link for Market Posture:



Fiduciary Duty
By David Popper

Last December, I received a call from a retired executive of a
well known tech company.  He wanted to sue his broker for placing
him in risky and damaging trades.  He lost 1.5 million dollars.
He explained that he left an "old economy" company and joined
well established tech company because options were available and
because the company's stock split and doubled every 18 months to
two years. He had made a fortune on his options.  In December
1998, he had actually accumulated $1.5 mln and decided to slow
down, move to Idaho and do very little.

His company referred him to a well known broker.  The broker asked
him if he liked the prospects of his company. He responded
positively. The broker then recommended that he invest his entire
fortune in buying calls on this company.  The calls were January
2001 calls with a strike price of $100. The stock's price at the
time was $80.  Surely this company, which doubled every year, was
a lock to race well past $100 a share. My client could just see
profits galore.  Why, if history were any guide, he would make
more money retired than he ever made working.

From time to time during these three years, thirteen times to be
exact, the broker, with the consent of my client, would trade in
and out of these options and made an average of $20,000 profit per
trade. This was pure gravy.  Over the course of time, my client
began studying trading and even subscribed to a few web sites.
Imagine being retired and being responsible for monitoring only
one position of a company that you know intimately, which has
a track record of doubling and splitting 18 months to two years.

Then came March 2000.  The stock plummeted.  My client hung in
there.  He was used to dips and the company's prospects were
bright.  The year 2001 was pressure packed.  My client's emotions
rose and fell with the market.  He fought with his wife often.
He spoke to his broker everyday.  They decided to hang in there.
If he sold now, he couldn't retire so he might as well ride it out.
He also played the "what if" game way too often.  On expiration
day, the stock closed at $68 a share and with that went the hopes
and dreams of this man.  The place in Idaho was sold and his
marriage was in ruins.  There, however, was one last, desperate
gambit.  Maybe he could sue the broker.

He called me and wanted to know if there was a claim against the
broker.  After reviewing the situation, I decided that there was
no claim.  The man was well aware of the risks involved and was
only thrilled to make $20,000 thirteen times while the broker
timed the market.  The man was a subscriber to many stock web
sites and was familiar with the risks of holding one position
and of the risks in owning straight calls.  He went into the
trades with his eyes wide open.  I agreed with him that there
was a breach of fiduciary duty.  It wasn't between him and his
broker, however, it was between he and his family.

I began managing my own retirement account in 1998 because my
broker, who was also a friend, passed away. Before I made the
decision to trade myself, I had interviewed many brokers who
were only interested in placing me in mutual funds that had
mediocre results.  Others wanted trading authority but did not
want to educate me.  I felt that no one would watch out for this
account like I would, so I began to read, learn and trade.  When
I walked away from the mutual funds, I was in effect telling my
family that I would watch our account carefully and would use it
to maximize returns.  I would not use it as my personal escape
from reality into a world of risk and excitement.  I would not
make trades which were high risk until I had the time and
knowledge necessary to do so.  In short, I had a fiduciary duty
to trade prudently, with an eye toward achieving financial

Having said the above, I had to determine which plays made sense
for someone who had only limited time to trade. I began using
many methods and enjoyed mixed results.  Then, one event happened
which clarified my thinking.  In January 2000, I purchase 300
shares of Ariba (NASDAQ: ARBA) for $265 a share based primarily
on technical analysis and the fact that the earning were on the
next Monday.  On Friday, it quickly rose to $300 a share and on
that Monday it announced a split.  On Tuesday morning, I had a
short non-jury trial out of town.  On my way to the trial, I
called my broker and heard that a split was announced and that the
stock was indicated at $365 a share in the pre-market.  I won my
trial, went outside, called the broker and found out that the
stock dropped to $290.  Man, I was expecting it to be $400 a
share. I realized that it could have caved more and too much
money could have been lost while I did my job.

I decide that the ultra go-go stocks were not for me yet.  I
began trading the Q's (AMEX:QQQ).  These never fall out of bed.
When Emulex(NASDAQ: EMLX) fell out of bed two weeks ago, QQQ was
down 3 points.  You do not get great pops, but you don't get
nasty surprises either.  When they come, you have plenty of
notice.  They also give you a 5-8% premium, if you are a covered
call writer.

I am not advocating using QQQs as trading vehicle per se, what
I am suggesting is only using trading vehicles that move no
quicker than you have the ability to monitor. After all, I
am out for reasonable gains, not the best gains, because with
best gains come the greatest risk and I may not have time
to monitor that risk.  Taking unmonitored risk would be a
breach of my fiduciary duty.


To Buy, To Sell, or To Stay Out of the Game
By Scott Martindale

It sure has been frustrating watching the VIX spike over 35 on
Friday followed by a precipitous fall to around 27 without any
follow-through rally in the Nasdaq.  Today it closed back up at
29. [The VXN, which is barely a month old, now appears to be the
index to watch for Nasdaq trading.] The past couple of years
indicate that it might take a VIX move to 40 or 50 before we rally
strongly across the board.  Some of you may recall that in October
1987 during that extreme market panic, the VIX reached 170!  Let's
all pray that we aren't destined for that level of fear.

Based on the past, many market watchers insist that the level of
fear and pessimism must become much greater before markets can
bottom out and then go higher. But I believe that investor/trader
mentality is different today than in 1987.  I think the reason
bullishness often increases following disappointing news on the
economy and a big sell-off is it causes many of us to reinforce
our belief in the future of technology and biotechnology, and the
promise they hold for productivity improvement and disease
eradication.  Especially given the tremendous medical, scientific,
and technological breakthroughs of the 1990's, few today believe
that our economy is destined for depression or that the role of
tech will diminish.

Although we will always have cyclicality in our growth and
prosperity as well as the risks associated with a global economy,
the only current stumbling blocks are overly-aggressive Fed
policies and stock prices getting ahead of themselves in the form
of high valuations due to eager investors not wanting to miss out.
Greedy optimists by nature, we modern Americans invest in our
stock markets as a way to express confidence in ourselves, our
country, and humanity in general. The frightful bursting of the
over-inflated tech bubble has only temporarily instilled investors
with a cautious approach.  Many are now following the advice of
implementing stop losses, which perpetuates the selling and
dissuades buyers.  It's become a game in which everyone is looking
for the best entry price for the next bull.  Although it's
suddenly fashionable to be near-term bearish, in fact, most
everyone expects a renewed rally eventually such that those who
are waiting for the extreme pessimism of past market bottoms may
never see it. Most of us have become terminally optimistic, and
for good reason.

I also wanted to briefly mention my President's Day holiday
weekend. I drove my family up to the San Francisco Bay Area to
visit my wife's sister in Sonoma County and let the kids ride her
horses.  I hadn't been up there since Christmas of 1998, and I
haven't lived in the Bay Area since 1994, and I couldn't help but
notice the changes -- mostly the traffic and the endless dot-com
and software billboards.  I mention this because it really
hammered home for me the incredible growth in high tech.  For
those of you in Peoria, Teaneck, or Lookout Mountain who think of
this dizzying array of high-tech dynamos only as ticker symbols
for options plays, I (and I'm sure fellow OIN contributor Janar,
as well) can assure you that they actually exist with real bricks-
and-mortar facilities in and around the Silicon Valley.

As I drove along Highway 101 and Interstate 280, I took note of
numerous office buildings displaying the names of Nasdaq stocks
that we often consider for options plays.  Off the top of my head,
I recall seeing company names like Western Digital (NASDAQ: WDC),
Cisco Systems (NASDAQ: CSCO), Liberate Technologies (NASDAQ:
LBRT), and Ciena (NADAQ: CIEN), not to mention the Main Street of
venture capital -- Sand Hill Road.  It made it all seem a little
more real to me, this technology revolution.

So were you buying or selling today?  Based on today's volume,
chances are you weren't playing at all.

With the disappointing weakness we have seen since the first week
after February expiration, I have mostly avoided the market and
allowed some stock positions to stop out.  Nevertheless, my short-
term bullish outlook was starting to come back.  With the
extremely oversold condition of Nasdaq and the seemingly imminent
inter-session rate cut, I've been looking for a little rally.  I
have entered March naked put positions in JDS Uniphase (NASDAQ:
JDSU) at the 35 strike and Extreme Networks (NASDAQ: EXTR) at the
25 strike, as well as a March 75 call position in CIEN.  All
three appeared to have promising technicals that should allow
them to benefit strongly from any minor tech rally. I also bought
shares of JDSU around $29 in my long-term account today.  [You'll
recall from last week's column that I protected a hefty gain in
JDSU by stopping out on Jan 26 at $56.] When I entered each of
these plays, it seemed like I was buying a bounce, but at today's
close it looked more like a falling knife. We'll see. I might have
to stop out of everything tomorrow.

I also closed out my long put position in Time Warner Telecom
(NASDAQ: TWTC) last Thursday for a decent 50% gain, which was good
timing.  It's strong rally late Friday and Monday demonstrated to
me the importance of taking profits.  The part I'm still
struggling with the most is cutting my losses early.  It seems the
only method that works for me is to enter a stop order early in
the play.  Otherwise, I tend to wait too long giving the position
a chance to comeback.  Patience isn't always a virtue.

Perhaps the best place to look for bullish plays right now are the
small caps, which have easily outperformed the big caps this year
simply by staying flat. And value has outperformed growth. In a
slower growth environment, a reasonably priced small cap that can
successfully take precious market share from a highly valued large
cap should show good price appreciation. Perhaps the OIN call
favorites of prior years will have to make way for small caps and
value stocks.  Let's try to identify some good low-P/E, low-PEG,
low-cap optionable stocks with promising fundamentals and
upturning technicals.

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

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

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

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


EMC $41.66 -3.34 (-3.34) Although revealing nothing new, the
Goldman Sachs earnings revisions in the Hardware sector sank our
EMC play this afternoon.  Citing weakness in IT spending,
Goldman trimmed its numbers on EMC, HWP, IBM and NTAP.  EMC sold
off shortly after the open, dragged lower by a weakening
Technology market and closed below our $42 stop, very near the
low of the day.  The fledgling rally ran out of gas before being
refueled by a Fed rate cut, and suffered the additional
indignity of having its tires deflated by another drop in
Consumer Confidence this morning.  While the stock may find
buyers waiting just below current levels, technicals are
deteriorating, and it is clearly time for us to move on.

MCLD $14.00 -1.69 (+0.44) MCLD pulled back during Tuesday's
session on market-related weakness.  For the most part, the
competitive local exchange carrier (or CLEC) sector held up
relatively well in Tuesday's session, led by telecom giant
AT&T.  However, MCLD exhibited weakness early in the day and
continued lower throughout the session.  Although MCLD
pulled back on light volume and settled right on our stop at
$14, we're dropping coverage this evening and would exit any
open positions on a bounce off $14 early Wednesday.

QQQ $49.00 -3.15 (-2.18) Greenspan's failure to deliver a
rate cut Tuesday, before his testimony Wednesday, caused
widespread weakness across the tech sector.  The Nasdaq
Composite fell to yet another new 52-week low, while the QQQs
fell below our protective stop at $50.  Because of the failure
at the $50 level, we are dropping coverage on the QQQs as a long
term play and would use any pop back above $50 to exit current


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The Option Investor Newsletter                  Tuesday 02-27-2001
Copyright 2001, All rights reserved.                        2 of 2
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MSFT $59.38 -0.19 (+2.63) MSFT saw a fantastic break through the
30-dma, at the $59 level, as its appeals case got underway on
Monday.  The rise in the NASDAQ certainly bolstered the stock's
gains too; but as they say, it was easy come easy go.  In this
morning's session, MSFT extended upward to $61.19, but soon
retraced as a dark mood overtook the Street.  The consumer's
confidence report ultimately undermined two days of positive
sentiment and in sympathy with the broad markets, MSFT fell
slightly today.  The stock landed firmly at its near-term
support and should bounce from here if the software sector
regains its composure and the markets return to rally mode.  To
protect against future doom and gloom, keep stops in place at
$58.  In consideration of the fickle and susceptible market
directions, it may be wise to be patient for a big breakout
through the $64 resistance before adding new positions.  If you
have existing plays or choose to buy into intraday strength,
expect opposition as MSFT approaches that line of opposition, at
the 200-dma.  There was favorable news for Microsoft in the
second day of the appeals hearings.  Chief Judge Harry Edwards
questioned whether US District Judge Thomas Penfield Jackson’s
findings of fact sufficiently defined what he called "the
browser and platform market" and further commented, that it was
"absolutely unclear" on whether the software giant had tried to
monopolize the market for Internet browsers.

BRCD $43.50 -5.13 (-2.19) When we started our aggressive call
play on BRCD yesterday, we mentioned that a break above the
10-dma (now at $48.63) on volume could make for an ideal entry on
strength.  It is at this moving average however, that the stock
found resistance today, as a weak NASDAQ session dragged BRCD
lower, to close down 10.54 percent on 118% of ADV.  In doing so,
the Storage Area Networking (SAN) leader closed back below the
5-dma at $44.88.  The good news is, support at $43 held, as did
our stop price of $42.  A bounce off these two levels tomorrow as
well as support at $40 could allow higher risk players to make a
play, but only if the buying volume returns.  A move back above
the 5-dma could set BRCD up to once again challenge the 10-dma,
providing two potential entry points for the more risk averse.
Just make sure peers EMC, MCDT and QLGC confirm the surge.

VRTS $62.31 -6.63 (-0.06) Giving back yesterday's gains, shares
of VRTS ended the day down 9.61 percent on 1.37 times the ADV in
sympathy with the Storage sector, and most Tech stocks for that
matter.  However, the movement in the past couple of days on
declining volume suggests that the stock may be in the initial
stages of some sideways movement.  With a range as wide as 7
points intra-day, nimble traders could find this an attractive
play.  Support at $62, $61 and our stop price of $60 continue to
hold up, with bounces off these two levels providing potential
targets for aggressive entries.  Looking overhead, the $68-70
area may act as formidable resistance.  A break above the 5-dma
at $66.30 could allow more cautious traders to enter on strength,
provided that sector sisters EMC, LGTO and NTAP confirm upward
momentum. From there it VRTS would be poised to challenge $70.

MER $62.70 -0.80 (+1.47)  Merrill Lynch rallied to poke its
head above the converged 200 and 10 dmas at the $64.50 level
this morning.  However, the volume was not strong enough to
buck the trend of the overall market, and, as a result, Merrill
sold off to strong support at the $62 level.  Traders and
investors may have started to realize that the rumored
50 bp. rate cut this week may not materialize, and this hurt
the broad financial sector, as well as brokerage stocks.
Merrill rallied slightly from the day's low levels toward
the close, which is a positive sign.  Tomorrow’s trading might
be highly volatile, as Chairman Greenspan is testifying in the
morning.  Traders might want to consider taking positions at
the current level, or at a move above $63.46, but only if the
brokerage sector is rallying. Continue to set stops at $60.

CIEN $69.75 -7.50 (-4.75) Proof that the broader market/sector
is the dominant factor in the success of any given play, CIEN
dropped back within spitting distance of our $69 stop today.
Despite all the positive factors mentioned in our initial
writeup last night, the stock succumbed to broad market weakness
today.  Prompting Technology stocks to sell off again today was
the bearish impact of Consumer Confidence that has now dropped
to its lowest level in more than 4 years.  As though that wasn't
enough, Goldman Sachs cratered the Hardware sector today,
trimming estimates on the likes of EMC, HWP, and NTAP.  Though
not directly related to CIEN, the downward pressure created in
the broader NASDAQ market dragged our play down for a nearly 10%
loss on the day.  All eyes are now on the Fed, hoping for an
interim rate cut this week.  If Greenspan and Company fail to
hold out an olive branch for the markets, it seems likely that
the NASDAQ will continue to set new lows, so play carefully.  If
you are looking to buy the current dip, wait for confirmation
that buyers are coming back, supporting the stock above our
current stop level.  If support fails before Uncle Alan rides in
on his white horse, then stand aside from the play.  More
conservative players can consider new entries if CIEN can rally
back through resistance at $74 or $76, but make sure the move
is confirmed by strong volume, and positive movement in the
Networking index (NWX.X).

LH $159.70 +5.05 (+12.70) Investors have been scrambling this
week, looking for any safe place to park their cash, and LH
seems to have gotten the nod.  Shooting sharply higher
yesterday, LH tested resistance at the $160 level before
pulling back at the close.  As a defensive play, broad market
weakness today propelled the stock right through, although it
was unable to hold onto its newfound high ground as the closing
bell approached.  In the past 2 days, LH has advanced nearly 9%,
bringing it solidly above the upper Bollinger band.  Even volume
has been confirming the strength of our play as it has been
running 50% above the ADV this week.  In the near term though,
our play is due for a bit of profit taking with the close well
above the upper Bollinger band, daily Stochastics flattening out
in overbought, and the possibility of a Fed-induced broad market
rally looming on the horizon.  Consider tightening your stops if
you have accumulated significant profits this week, and wait for
a pullback before initiating new plays.  We have raised our stop
to $154, and would consider any solid bounce at or above (maybe
intraday support at $157) this level to be attractive for
initiating new positions.


NOK $21.90 -0.85 (-0.73) Nokia made a feeble attempt to rally
on Tuesday morning, and hit a high of $23.40 before succumbing
to overall market weakness.  Nokia rolled over from $23 at noon,
and took a dive to support at $22.  Further weakness in the
Nasdaq might precipitate Nokia to fall below the next support
Level of $21.50 on heavy volume, which could be a good entry
point for more conservative put players.  Alternatively, another
roll over from $23 is a possibility if it is accompanied by
weakness in the wireless communications sector.  Continue to set
stops at $23, and close positions if Nokia closes above this level.

PWAV $16.13 -1.94 (-1.87 ) PWAV staged a bull trap rally on
Monday and Tuesday, and actually spiked to a high of $19.34 this
morning before the sellers took over.  Around noon, the stock
rolled over from $18 as if on cue when the Nasdaq started to
fall.  Momentum picked up later in the day as PWAV actually
hit $15.50, before rebounding slightly near the close.  At this
point it would take a major rebound in the Nasdaq, as well as
in the wireless sector to revive this stock.  Traders could
take positions at current levels, or at a roll over from $17.50
if the wireless communications and telecom sectors remain weak.
Due to market conditions, we are setting stops at $18.

ADBE $30.50 -1.19 (-2.13) Aggressive traders that were quick on
the trigger, got a great entry into our ADBE play at the open
yesterday.  The stock gapped up to $33.50 and then promptly
rolled over and began its slow descent again.  Market weakness
again today just confirmed that the bears are still in control,
and ADBE went along for the ride, closing very near its lows
from last week.  The battle lines have been drawn near the $30
level and this is likely where we will see if there is enough
selling volume to drag the stock to new lows.  Last week's
intraday low was $28.44, and if the Fed fails to prop up the
equity markets, this looks like a strong possibility given
today's market weakness.  We have moved our stop down to $32,
and aggressive traders can consider new positions on any failed
rally near this level.  Otherwise, look for the conservative
approach to get you safely into the play, initiating new
positions on a volume-backed move below $28.50.

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FPL - FPL Group $66.10 +1.89 (+1.97 this week)

The FPL Group is a public utility holding company.  The group
owns energy operations from coast to coast, but the majority of
its revenues are derived from Florida Power & Light Company
(FPL).  This rate-regulated public utility supplies service to
approximately 3.8 mln customers in eastern and southern Florida.
FPL also wholesales natural gas, oil, and electric power.

FPL Group is merging with Entergy in a deal that will create one
of the largest power companies in the US!  A merger of equals
was announced in July 2000 and a 15-month timetable was set to
secure regulatory approval and close the deal.  Early in
January, a judge's procedural schedule put a glitch in the plans
and it looked like the merger would be shelved for almost a
year.  Fortunately, a motion of reconsideration of the schedule
was approved and the merger is back on track.  The February 16th
announcement was welcome news.  Investors bid FPL up 2.1%, or
$2.30 on moderate volume.  The momentum snowballed in succeeding
sessions and FPL experienced a nice run despite the market
downturn.  Trading activity reached 1.7 times the norm, but the
$66 mark capped the uptrend; that is until today's bullish
action took FPL through the resistance.  FPL not only gets a
gold star for cracking the $66 level, but it also gets brownie
points for closing on the daily high!  The 52-week record is
just over the horizon at $73.  We're confident FPL can attain
this objective; especially in a cooperating market environment.
ABN Amro also reiterated a Buy for FPL and issued a $79 price
target.  At this point however, understand it's sheer momentum
driving FPL upward.  Others in the energy sector like DYN, CPN,
and DUK are simply holding their own; although, EIX is making a
nice recovery off its lows.  Therefore, keep stops in place at
$64 to safeguard against a respite.  FPL Group is expected to
report earnings around April 23rd.

BUY CALL MAR-60 FPL-CL OI= 150 at $6.70 SL=4.75
BUY CALL MAR-65*FPL-CM OI= 161 at $2.35 SL=1.25
BUY CALL APR-65 FPL-DM OI=1000 at $4.20 SL=2.50
BUY CALL ARP-70 FPL-DN OI=   2 at $2.10 SL=1.00


BOL - Bausch & Lomb Inc. $52.67 +2.15 (+1.87 this week)

Baush & Lomb is involved in the development, manufacture and
marketing of healthcare products for the eye through three
business segments: vision care, pharmaceuticals and surgical.
The vision care segment includes contact lenses and lens care
products.  The pharmaceutical segment manufactures and sells
generic and proprietary prescription pharmaceuticals with a
strategic emphasis in the ophthalmic field.  The surgical
segment manufactures and sells products for cataract,
refractive, and retinal surgery.

Investors have had no trouble seeing the merit of BOL over the
past 6 weeks, as they have continued to bid the stock higher.
Knowing that consumers will continue to see to their vision
needs whether the economy is in a recession or not, buyers have
continued to park their investment dollars in the stock, due to
its perceived defensive nature.  Even the Lehman downgrade from
Buy to Market Perform at the end of January couldn't dampen the
bulls enthusiasm, and they continued to bid the price higher.
Since finding support near $37 in early January, the stock has
gained more than 42%, finally clearing the 200-dma ($50.50) last
week and confirming it as support during today's trading
session.  Although the uptrend has been impressive, we need to
be cautious about initiating new positions with the stock very
near the upper Bollinger band ($53.36), and daily Stochastics
beginning to weaken over the past 2 weeks.  In fact, with the
weakening of the Stochastics, we have the early stages of
bearish divergence developing, as successive price highs are
being accompanied by lower Stochastics highs.  Overhead
resistance is also formidable, beginning at $54, and then again
at $56, which is the top of the gap down, which occurred last
August.  Aggressive traders can consider new entries on an
intraday bounce from the $50 or $51 intraday support levels, but
don't try to catch a falling knife.  If BOL falls through our
$50 stop, it will be a clear sign that the bears are finally
gaining the upper hand, and our trigger to stand aside.  More
conservative entries can be considered on a continuation of the
rally as the stock clears the $53 level, but beware of the
looming upper Bollinger band.

BUY CALL MAR-50*BOL-CJ OI= 88 at $3.90 SL=2.50
BUY CALL MAR-55 BOL-CK OI=401 at $1.35 SL=0.75
BUY CALL APR-55 BOL-DK OI=110 at $3.20 SL=1.50
BUY CALL APR-60 BOL-DL OI= 91 at $1.50 SL=0.75
BUY CALL JUL-60 BOL-GK OI= 79 at $5.40 SL=3.00




ADI - Analog Devices Inc. $40.25 -2.96 (-4.25 this week)

With revenues of $2.58 billion for fiscal 2000, Analog Devices is
a leading manufacturer of precision high performance integrated
circuits used in analog and digital signal processing
applications.  Headquartered in Northern Massachusetts, the
company employs approximately 9,100 people worldwide and has
manufacturing facilities in Massachusetts, California, North
Carolina, Ireland, the U.K., the Philippines, and Taiwan.
Analog Devices is listed on the New York Stock Exchange and
included in the S & P 500 index.

Shares of ADI have been in an unmistakable down trend since
last September, as the semiconductor index has been in a
free fall.  ADI originally responded to the first Fed rate
cut on January 3 with a rally above its 50 dma of $51.84 to
a high of $62.60 on January 31.  However, the SOX.X fell
below its 50 dma of 643.23 on February 5, and tried to rally
above it once more before making a serious drop on the
second week of February.  This coincided with the release
of ADI's earnings on February 15.  While the company met
expectations of 50 cents per share, the management stated
that ADI would fall short of expectations in the coming
quarter, and expected to earn in the range of 43 cents per
share vs. the previously expected 49 cents per share.  One
last attempt to meet the 50 dma of $51.76 on February 15
failed, and confirmed the heavy downward pattern.  However,
the last straw may have been the warning from TXN on Monday.
ADI is in a class of semiconductors which specialize in
analog and digital signal processing chips, along with TXN,
LLTC, and MXIM.  This particular category of semiconductors
was hit hard this week when TXN gave a grim forecast of
lowered expected revenues on Monday.  TXN stated that they
expect first quarter revenue to fall 20% from the year ago
quarter, and started a cost cutting program which included
leaving plants idle and offering employees early retirement.
With the SOX.X in serious need of a jumpstart, and no near
term catalyst in sight except the hope of a rate cut, the
prospects for ADI looks bad.  Heavy support at $45 failed
this week, and ADI looks poised to drop from the $40 level,
which has served as support since January of 2000.  A drop
below this level on heavy volume would be a good entry point
if the SOX.X stays weak.  Alternatively, aggressive traders
could possibly enter on a roll over from $41.  Watch others
like TXN for weakness, and set stops at $43.

BUY PUT MAR-40*ADI-OH OI=1774 at $3.30 SL=1.75
BUY PUT MAR-35 ADI-OG OI= 381 at $1.40 SL=0.75


NEWP - Newport Corporation $48.50 -4.50 (-8.75 this week)

The Newport Corporation is a global supplier of precision
components and automated assembly, measurement, and test
equipment for use in the fiber-optic communications,
semiconductor equipment, computer peripherals, and scientific
research markets.  The Company's high precision products enhance
productivity and capabilities of the Fortune 500 corporations,
government agencies, and the other technology clients it serves.
Optical components and devices for vibration and motion control
account for about two-thirds of the company's sales.

As a maker of equipment used in the manufacturing of
Semiconductors as well as Fiber Optic components, weakness in the
Chip sector along with the Networking space have turned into a
devastating one-two punch, putting Newport's stock price on the
ropes.  With declining book-to-bill ratios and plant shutdowns in
Semiconductor companies across the board and lower guidance put
forth by Networking giants such as Cisco and Nortel, it's no
wonder that shares of NEWP have suffered.  The stock was
downgraded this month by ABN AMRO from an Add to a Hold rating,
and by Wit SoundView from a Strong Buy to a Buy rating.  The
company attempted to boost its stock price mid last week,
targeting a 66 percent growth rate for the year 2001.  This fell
upon deaf ears however, as the stock has continued to head deeper
into negative territory, with help from resistance from the 5 and
10-dma (now at $52.85 and $57.61 respectively).  Today's fall of
8.49 percent put NEWP below the key psychological $50 level,
suggesting the possibility of more downside to come.  A plunge
below today's low of $48 on volume would allow for an entry on
weakness while failed rallies above resistance at the 5 and
10-dma along with $50 and our stop price of $55 are potential
entry points for higher risk players.  In both cases, track Tech
sentiment using AMEX's Networking Index (NWX) and Semiconductor
Index (SOX).

BUY PUT MAR-50*NZZ-OJ OI=134 at $7.63 SL=5.25
BUY PUT MAR-45 NZZ-OI OI= 67 at $5.00 SL=3.00



PWAV - Powerwave Technologies $16.13 -1.94 (-1.31 this 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.

Most Recent Write-Up

PWAV staged a bull trap rally on Monday and Tuesday, and actually
spiked to a high of $19.34 this morning before the sellers took
over.  Around noon, the stock rolled over from $18 as if on cue
when the Nasdaq started to fall.  Momentum picked up later in
the day as PWAV actually hit $15.50, before rebounding slightly
near the close.  At this point it would take a major rebound in
the Nasdaq, as well as in the wireless sector to revive this
stock.  Traders could take positions at current levels, or at
a roll over from $17.50 if the wireless communications and
telecom sectors remain weak.  We are lowering our protective
stop to $18 and would exit positions if PWAV closed below that


PWAV traced yet another new relative low during Tuesday's session.
The stock appears poised to trade lower as long as the Nasdaq
continues to slide.  Look for new entries on a break below current
levels or wait for PWAV to fall below $15.50 on heavy volume.
Additional entries might be provided upon a short-covering rally
and subsequent rollover near the $17 level.  In either case, make
sure to confirm direction in the Nasdaq before planning a trade.

BUY PUT MAR-20   VFQ-OD OI=161 at $5.00 SL=3.00
BUY PUT MAR-17.5*VFQ-OE OI=124 at $3.00 SL=1.50


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Still Searching For A Bottom...

Stocks retreated today as optimism that the Federal Reserve would
cut interest rates before the next scheduled meeting faded despite
a decline in consumer confidence.

Monday, February 26

The stock market rallied today amid optimism that the FOMC will
lower interest rates in the near future.  The NASDAQ closed 45
points higher at 2,308 and the Dow was up 200 points at 10,642.
The S&P 500 index finished 21 points higher at 1,267.65.  Volume
on the NYSE hit 1.11 billion shares, with winners beating losers
2,207 to 852.  Activity on the NASDAQ was average at 1.83 billion
shares traded, with advances beating declines 2,424 to 1,343.  In
the U.S. bond market, the 30-year Treasury rose 19/32, pushing
its yield down to 5.44%.

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

Cardinal   (NYSE:CAH)      MAR90P/95P   $0.75   credit   bull-put
Shire      (NASDAQ:SHPGY)  MAR65C/60C   $0.56   credit   bear-call
Stryker    (NYSE:SYK)      MAR45P/50P   $0.40   credit   bull-put
Olin       (NYSE:OLN)      MAY22C/17P   $0.45   debit    synthetic
Imperial   (NYSE:ICI)      JUL35C/25P   $1.70   debit    strangle
Telefonos  (NYSE:TMX)      APR35C/30P   $2.10   debit    strangle

There were a number of excellent opportunities to participate in
the new combination positions today.  The bullish credit spread
in Cardinal Health was available at (and above) the target price,
but Stryker and Shire Pharmaceuticals offered lower than expected
entry premiums.  We were unable to achieve the suggested debit in
Olin Chemicals, but Imperial Chemicals and Telefonos De Mexico
provided acceptable opening prices.

Portfolio Activity:

Industrial stocks were rejuvenated today on hopes that the Fed
would bolster the sagging economy with an aggressive interest
rate cut.  The optimism for an FOMC announcement prior to the
regularly scheduled meeting in March gained momentum after Bear
Stearns' chief economist and former Fed governor Wayne Angell
said there was an 80% chance that Greenspan would cut interest
rates by half a percentage point in the next few days.  Other
analysts said that even without a near-term reduction, the Fed
might do something very aggressive at the March meeting.  The
news spurred institutional traders into a short-covering frenzy
and the market responded favorably.  Among the Dow stocks, Home
Depot (NYSE:HD) rebounded to $44 after Lowes (NYSE:LOW) said it
now expects to exceed the consensus earnings estimates for the
first quarter.  Analysts also raised their revenue outlook for
the second quarter, citing the benign interest rate environment
and rising commodity prices.  The blue-chip average also got a
boost from software maker Microsoft (NASDAQ:MSFT), which moved
up almost $3 as a court began hearing the company's appeal of
the federal antitrust ruling, which stipulated that Microsoft
be broken into two parts.  On the downside, unexpected profit
warnings from chip-producer Texas Instruments (NYSE:TXN) and
consumer products giant Procter & Gamble (NYSE:PG) helped limit
the Dow's gains.  In technology trading, telecom stocks rallied
after Merrill Lynch said share prices have fallen dramatically
and that the sector may be approaching the bottom in terms of
valuation.  In the networking group, Cisco Systems (NASDAQ:CSCO)
led a downward move after First Boston cut its price target and
earnings estimates on the stock.  Weakness was also seen in the
chip-equipment segment after Salomon Smith Barney said investors
have realized that the second half of 2001 will not provide the
expected recovery in the industry.  In the broader market, a
number of biotechnology stocks enjoyed significant gains.  Among
those issues, Human Genome Sciences (NASDAQ:HGSI) was a standout,
rising almost 15% to $55 after reporting encouraging results in
its heart disease treatment.  Genzyme (NASDAP:GENZ) also moved
higher after boosting 2001 sales estimates for its drug Renagel.
Despite the recovery in S&P 500 shares, defensive issues in the
Precious Metals sector also rallied.

There were some excellent moves in the Spreads portfolio today.
Microsoft (NASDAQ:MSFT) was a big gainer, rallying to a recent
resistance area near $60 as the software giant told an appeals
court that it acted legally to promote its products and did not
stifle competition.  Merrill Lynch analyst Henry Blodget said
that many legal experts expect the Appeals Court to reverse the
order to break up the company, and possibly impose other, less
severe conduct-based remedies.  The news provided hope for the
beleaguered issue and our long-term position (JAN-$50C/MAR-$70C)
in the company is once again profitable.  Strength in drug and
biotech shares helped push some of our issues in this group to
recent highs.  Alza (NYSE:AZA) and PolyMedica (PLMD) were among
the best performers and the move in Alza provided a great exit
opportunity for those investors in the bullish credit spread at
$40.  The rally also offered another chance to close the recent
calendar spread for a favorable profit.  On the downside, the
selling pressure in Abiomed (NASDAQ:ABMD) continued and it now
appears that the issue is headed for a test of the recent lows
near $20.  Many of the stocks in the pharmaceutical segment are
also candidates in bearish positions and we must monitor plays
in American Home Products (NYSE:AHP), Pfizer (NYSE:PFE), and
Johnson & Johnson (NYSE:JNJ) for significant character changes.
One issue in the finance group that appears to have experienced
a complete technical recovery is Investment Technology (NYSE:ITG)
and with our short (call) position at $55, we will watch for a
close above the recent highs near $53 to confirm a renewed upward
trend.  On the bright side, Continental Airlines (NYSE:CAL) also
enjoyed a significant rebound and the position in that issue may
eventually finish profitable.  In the Straddles portfolio, Icos
(NASDAQ:ICOS) was a big mover, up almost $5 to a recent high near
$55 on no (apparent) public news.  Now we will monitor the play
for a favorable early-exit profit.

Tuesday, February 27

Stocks retreated today as optimism that the Federal Reserve would
cut interest rates before the next scheduled meeting faded despite
a decline in consumer confidence.  The NASDAQ finished 100 points
lower at 2,207 and the Dow ended down 5 points at 10,636.  The S&P
500 was down 9 points to 1,257.  Trading volume on the Big Board
reached 1.10 billion shares, with winners beating losers 1,590 to
1,449.  Activity on the NASDAQ was average at 1.79 billion traded,
with declines beating advances 2,507 to 1,220.  In the bond market,
the 30-year Treasury rose 1 8/32, pushing its yield down to 5.35%
as bond investors reacted positively to the consumer confidence

Portfolio Activity:

Technology stocks resumed their downward trend today as investors
worried that the Fed would opt not to cut rates between meetings.
In addition, bullish traders had to oppose additional economic
data revealing that the economy is slowing faster than expected.
News that consumer confidence fell to its lowest level since June
1996 also concerned investors, as did a slew of negative analyst
comments.  Across the broad market, buying interest surfaced only
in defensive sectors such as utility, gold and consumer products.
Renewed selling pressure was seen in financial and biotechnology
shares and on the NASDAQ, Internet, computer software, chip and
networking stocks led the index lower.  There was little bullish
activity in the Spreads portfolio during the session but one of
the issues that moved higher, AT&T (NYSE:T) was among the Dow's
best performers.  The stock added another 5% to finish near $23
after Mediacom Communications announced it will purchase AT&T's
cable systems in four states for $2.2 billion.  Vodafone Group
(NYSE:VOD) also said it will buy AT&T's stake in Japan Telecom
for $1.3 billion as it expands its global presence in the world's
second-largest mobile phone market.  The transactions will help
reduce AT&T's debt to about $42 billion and the move brought the
stock into a favorable trading range near the strike price of the
sold (short) call in our current Covered-calls with LEAPS play.
Continental Airlines (NYSE:CAL) and Clorox (NYSE:CLX) also edged
higher during the bearish session and it appears that both of
these issues have additional upside potential in the short-term,
after recent consolidations.  Industrial stocks in the Straddles
section have experienced very little favorable activity over the
past few weeks but some issues have enjoyed volatile activity.
Omnicom Group (NYSE:OMC) and Calpine (NYSE:CPN) recently traded
at near-term extremes and Icos (NASDAQ:ICOS) reached a 3-month
high near $57 in today's session.  The still unexplained rally in
ICOS drove our new debit straddle to profitability at one point
during the day, but now the question is whether any news will be
announced to help sustain the bullish momentum.

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

An article in Sunday's newsletter concerning Calendar Spreads
prompted a request for some candidates in this strategy.  Here
are two low-cost positions that may fit your criteria for this
approach to spread trading.  Both of these plays offer favorable
risk/reward potential but they should be evaluated for portfolio
suitability and reviewed with regard to your strategic approach
and trading style.

IFS - Insignia Financial Group  $12.65  *** Technicals Only! ***

Insignia Financial Group (NYSE:IFS) is the parent company of an
international real estate organization.  Insignia's businesses
specialize in commercial real estate services, single-family home
brokerage, mortgage origination, titles, apartment brokerage and
leasing, escrow agency services, condominium and cooperative
apartment management, real estate oriented financial services,
equity co-investment and other services.  Additionally, Insignia
has developed substantial Internet-based business applications
associated with real estate.  Insignia's principal businesses are
Insignia/ESG, (United States commercial real estate services),
Insignia Richard Ellis (United Kingdom commercial real estate
services), Realty One (single-family home brokerage and mortgage
origination), Douglas Elliman (apartment brokerage and leasing)
and Insignia Residential Group (condominium and cooperative
apartment management).  The company's earnings are due in early

My approach to Calendar Spreads differs slightly from the method
described in the Sunday (2/18/01) OIN as I prefer to use call
options on relatively stable bullish issues and initiate new
positions after spikes in near-term Implied Volatility.  For
those of you who are not familiar with this technique, the basic
premise in a calendar spread is simple; time erodes the value of
the near-term option at a faster rate than it will the far-term
option.  For conservative investors, it is generally better to
establish this type of spread at least 2 - 3 months before the
long option expires, capitalizing on the ability to sell another
option against the longer-term position.  That is the basic idea
in my technique; selling time value in the options when they are
overpriced (high implied volatility) and buying it back (only if
necessary) when they return to intrinsic value.

In this case, we would like to have the stock finish just below
the sold strike when the near-term option expires.  If the short
options remain in-the-money at expiration, we will have to buy
them back to preserve the long-term position.

PLAY (aggressive - neutral/calendar spread):

BUY  CALL  JUN-12.50  IFS-FV  OI=174  A=$2.10
SELL CALL  MAR-12.50  IFS-CV  OI=576  B=$0.85

ADVNB - Advanta  $12.50  *** Disparity Play! ***

Advanta (NASDAQ:ADVNB) is a financial services company with over
2,600 employees, servicing approximately $20 billion of assets,
including $12 billion in managed assets and $8 billion in assets
serviced for third parties.  Advanta has been providing financial
services to consumers and small businesses since 1951, including
a broad range of self-service financial solutions and services on
the Internet.  Advanta leverages its first-class direct marketing
and information based expertise to develop state-of-the-art data
warehousing and statistical modeling tools that identify potential
customers and new target markets.  Over the past few years, it has
used these distinctive capabilities to become one of the nation's
largest issuers of MasterCard credit cards to small businesses.
Advanta also created one of the first automated underwriting and
sales engines used in the non-conforming mortgage industry.

ADVNB shares rallied today on extreme volume and there was little
news to explain the movement.  The recent trading range near $12
has been very stable during the past few weeks as the share value
continues to consolidate from a significant upward trend in early
January.  That activity was attributed to the company's earnings
announcement and news that Chase Manhattan Mortgage Corporation,
a subsidiary of J.P. Morgan Chase & Co. (NYSE:JPM) had signed an
agreement to acquire Advanta's mortgage business.  Now the only
speculation is if and when that deal will eventually occur and
how well the company will deliver on its promise to earn $1.41 a
share for fiscal 2001.

With an excellent premium disparity in the target options, this
position offers an excellent speculation play for traders who
believe they can effectively manage ADVNB's potential for future
upside activity.

PLAY (aggressive - neutral/calendar spread):

BUY  CALL  APR-12.50  ABQ-DV  OI=139  A=$0.88
SELL CALL  MAR-12.50  ABQ-CV  OI=160  B=$0.50

                   - STRADDLES AND STRANGLES -
TWTC - Time Warner Telecom  $66.13  *** Probability Play! ***

Time Warner Telecom (NASDAQ:TWTC) is a fiber facilities-based
integrated communications provider offering local business "last
mile" broadband connections for data, high-speed Internet access,
local voice and long distance services.  TWTC serves customers in
21 metropolitan markets in the United States and their customers
principally are telecommunications-intensive business end-users,
long distance carriers, Internet service providers wireless
communications companies and governmental entities.  The company
offers switched services in 20 of its 21 service areas and its
fiber optic networks span 8,872 route miles, contain 332,263
fiber miles, and provide service to 5,566 buildings.

Even with the recent sell-off in technology issues, traders are
still asking for more premium-selling positions.  Here is another
popular issue with inflated option prices and a reasonably stable
trading pattern.  In this case, we will use the recent volatility
and the robust premiums to initiate a neutral-outlook play with a
favorable credit.  The probability of the stock reaching our sold
strikes is rather low, but there is always the possibility of a
significant change in the technical outlook, so monitor the play
on a regular basis.

PLAY (conservative - neutral/credit strangle):

SELL CALL  MAR-80  TTU-CP  OI=870  B=$0.93
SELL PUT   MAR-40  TTU-OH  OI=351  B=$0.88
INITIAL NET CREDIT TARGET=$1.88-$2.00 ROI(max)=13%
UPSIDE B/E=$81.88 DOWNSIDE B/E=$38.12


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