Option Investor

Daily Newsletter, Sunday, 03/04/2001

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The Option Investor Newsletter                   Sunday 03-04-2001
Copyright 2001, All rights reserved.                        1 of 5
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         WE 3-2          WE 2-23          WE 2-16           WE 2-9
DOW    10466.31 + 24.41 10441.90 -357.92 10799.82 + 18.37  - 99.10
Nasdaq  2117.63 -144.88  2262.51 -162.87  2425.38 - 45.59  - 91.09
S&P-100  633.89 -  8.75   642.64 - 32.88   675.42 -  6.93  - 11.97
S&P-500 1234.18 - 11.68  1245.86 - 55.67  1301.53 - 13.23  - 17.77
W5000  11374.40 -126.30 11500.70 -528.90 12029.60 - 94.71  -169.65
RUT      476.88 -   .82   477.45 - 21.83   499.28 +  2.23  -  5.84
TRAN    2915.19 - 14.88  2930.07 - 64.71  2994.78 - 18.64  - 11.82
VIX       30.86 +   .52    30.34 +  5.26    25.08 -   .07  +  1.06
Put/Call    .80              .71              .89              .73

Would the last Nasdaq investor please turn off the sign!
By Jim Brown

The head cheerleader for the Fed went on record again on Friday
that the economy could be showing signs of life and investors
decided that meant no immediate rate cut and the Nasdaq fell
again. Support is still fading and 2050 is widely quoted as the
next bounce point. Oracle was the big scapegoat for the day after
warning that profits could slip by 10%. Warning season starts next
week but who is left? Over 300 companies already warned about the
March quarter and every big cap tech I could think of has already
confessed. Maybe that is the light at the end of the tunnel. If
there is nobody left to warn in the traditional period then is the
bad news already priced into the market? The Dow could not decide
if it was good news or bad. Down as much as -148 in the morning
and up as much as +129 in the afternoon, it finished almost flat
as confused investors went flat for the weekend.

The Oracle warning depressed a Nasdaq that had rallied into the
close on Thursday. Just when you thought it was safe to go back
into the market another heavyweight hits you in the wallet. The
high profile Oracle warning brought back into the forefront of
investors minds the possibility that even a series of Fed cuts
may not restore life to tech profits.

Earlier this week AMCC warned that revenue would suffer but the
real news was the admission on CNBC by the CEO that there was
"simply no orders" and visibility was very bad. The severity of
the CEO comments echoes the comments of dozens of companies over
the last several weeks. Zero visibility, no orders and customers
canceling existing orders, how much worse can it get?

That could be the key. Greenspan still claims to be ready to cut
rates aggressively if the economy shows any signs of getting worse.
I don't know how many more companies have to warn before he sees
the light but there were some signs today that the "economy is
recovering" speech may be cracking. Investors ran up the major
averages as the testimony came to a close but after seeing the
hit ORCL investors took on their warning there was just no staying
power. Chances of a rate cut next week improved slightly today but
not enough to make traders want to hold over the weekend.

Is there a bottom in our future? We all know there is but not
when or where. The stock market pundits, including me, have been
expecting an oversold bounce since the middle of February. The
Nasdaq is evidently not listening to us since investors are still
aggressively selling into every rally. According to several
websites that measure investor sentiment the bullish percentage
is rising. The farther we drop the more it rises as investors
expect a major rebound. Market strategists have always known
that market bottoms are formed when investor sentiment is bearish
not bullish. This reversal of sentiment has yet to happen.

There are many chartists that expect a bounce at 2050 but it is
becoming more likely that should we venture that far into the
past the real bottom is 2000 instead. It may not be a bottom
but even thousands tend to be psychological stopping points.
The 2000 level was serious resistance back in July and Oct of
1998 and could provide a tough support level to pierce going
back down. Thursday's intraday bottom of 2075 is only an intraday
dip from 2000. Support levels have been falling faster than
contestants on Survivor with 3000, 2500, 2400, 2300, 2200 all
failing in succession. I suggested last Sunday that long call
investors only go long over 2300. If you heeded that suggestion
you were on the edge of your seat on Monday when the Nasdaq
bumped against 2300 several times but could not punch through.
Not only have support levels been falling but upper resistance
is also falling. 2300 was resistance on Monday but 2200 became
resistance after Wednesday.

Make no mistake, there is plenty of money available to invest.
More than $2 trillion is still parked in money market accounts
as well as very high levels of uninvested cash in equity accounts.
There is just no burning desire to be in the markets. With the
first quarter earnings in April likely to be a disaster investors
are simply sitting on the sidelines expecting lower prices ahead.
The earnings survivors for the first quarter will be the investor
favorites when money goes back to work. We are however rapidly
approaching another milestone on the calendar. Historically tech
investors have shown a desire to be uninvested between April
and October. Summer has typically proven to be listless and
uninspiring for tech stocks. The problem with this historical
event repeating itself is the severity of the drop already in
place. With stocks like CSCO trading in the $20 range and ORCL
at $16 how much cheaper are they likely to go? Like one comment
I heard today, "buy ORCL and ignore it for five years and you
will be very well rewarded." I agree and the difference between
$16 today or possibly $12 next week may not be relative in the
long term view. I checked, the 2003-$25 leaps are selling for
less than $5 with almost a 100% chance of huge returns. Better
yet, buy the leaps for $5, sell the 2003-$20 put leap for $7
and you have an incredible combo play and a very minimal risk.

Wayne, where are you? Wayne Angell made news last week with
a forecast of a Fed intra-meeting rate cut for this week. The
cut never materialized and Greenspan had the last laugh. Wayne
may have torched his own chances of getting the cut by going
public with the forecast. Greenspan has now proved to the
detriment of all tech investors that he is in control not the
hoard of analysts predicting his actions. Now that the Angell
prediction is history there is a little glimmer of light in
the rate cut tunnel. Greenspan said on Friday that inflation
does not appear to be a problem which appears to give a green
light to the next cut. He also repeated his support for a tax
cut as an economic stimulant. With the rate cut window open
again there is a slim possibility that Alan could come to our
rescue as early as next week. Don't hold your breath however.
With only 12 trading days before the next FOMC meeting the
most likely prospect will be no cut until the meeting. A cut
only two weeks before the meeting would be highly unusual.
The economic calendar begins with the non-manufacturing NAPM
and closes the week with the Jobs Report. If Greenspan holds
off on a cut until after the Jobs Report then all hope fades
until the March-20th meeting.

As traders we need to be very careful the next couple weeks.
The tale of the tape is down and regardless of how much we
want to hope it up, the market will only move when real money
starts to flow. Volume on Friday was strong with the Nasdaq
trading over 2.3 billion shares on a down day. The NYSE traded
almost 1.3 billion shares and finished flat. Until the Nasdaq
rallies on strong volume we should not be entering bullish
plays. The exception to this would be trading the bounces.
If we do succeed in hitting 2000 next week I would risk
trading the bounce. Otherwise I would suggest long call
investors wait for a close over 2200 on strong volume which
is our current ceiling. If it is any consolation the rate of
descent on the Nasdaq has slowed. Stock buybacks are increasing.
The Nasdaq lost -65 but advancers were beating decliners 18:17
at the close. The bad news is priced in but the bears are still
in control. Be patient!

Trade smart, enter passively, exit aggressively!

Jim Brown

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Play updates! Another painful week!

The strong bottom we looked at in AMCC blew out with the meltdown
in the semiconductor sector and the warning by AMCC on Thursday.

JNPR fell through support at $70 and never looked back.

CIEN struggled valiantly through the bad Nasdaq week and finally
gave in to selling at the close on Friday. Again, we need to wait
on the market to find a bottom.

QQQ calls - no help here either. The Nasdaq weakness pushed them
down to their lowest level ever at $46.70. When the rebound comes
this will be a great place to put some money but we need to wait.


Until the Nasdaq finds a bottom most investors should either play
puts or sit out. Sitting out is not the answer most investors want
to hear so I am going to focus on three low risk (in my opinion)
long term plays. We will not worry about intraday swings or new
Nasdaq lows. These are long term high profit positions, not trades.

ORCL - New 52 week low @ $16.88

Oracle makes around $1 billion in profit per quarter and is currently
trading at a PE of 15. Not 115 or 215 or 315 but 15. The long term
prospects for ORCL are excellent. The warning last week presented a
buying opportunity for long term investors. Can it drop farther, you
bet but it can also climb back to the $30-$40 range or higher when
the market recovers.

I am suggesting a leap combination play. Buy a call, sell a put and
add almost $6 per share of cash into your account. You capture any
appreciation from the stock with your call, which you got free, and
should ORCL finish over $25 by Jan-2003 you keep all the excess put
premium as well.

Payout examples.

Any close at expiration over $19.13 = profit

ORCL @ $40

Put expires worthless - $10.50 profit
Call worth $15 for $15 profit
Cost of call = $4.63
Profit = $10.50 + $15 = $25.50 - $4.63 (cost) = $20.87

ORCL @ $30

Put expires worthless - $10.50 profit
Call worth $5 for $5 profit
Cost of call = $4.63
Profit = $10.50 + $5 = $15.50 - $4.63 (cost) = $10.87

ORCL @ $20

Stock put to you at $25, you sell @ $20 = $5 loss
Call expires worthless = $4.63 loss
Put premium received = $10.50
Losses = $4.63 + $5 = $9.63
Profit = $10.50 - $9.63 (loss) = $0.87


CSCO - 52-week low

Using the same concept on CSCO which is now trading at a PE of 54
results in a $4.88 credit to your account. Unless someone invents
a new way to route Internet traffic without hardware CSCO will
continue to prosper as the world leader in switching equipment.

I am suggesting another leap combination play.

Buy Jan-2003 $30 Call leap @ $6.25 VYC-AF
Sell Jan-2003 $30 Put leap @$11.13 VYC-MF

This gives you a net credit of $4.88 into your account.

Potential payout examples:

CSCO $50

Put expires worthless = $11.13 profit
Call worth $20 = $20.00 profit
Cost of call = $6.25
Profit = $11.13 + 20.00 = 31.13 - $6.25 cost = $24.88 profit

CSCO $40

Put expires worthless = $11.13 profit
Call worth $10 = $10 profit
Cost of call = $6.25
Profit = $11.13 + $10.00 = $21.12 - $6.25 cost = $14.88 profit

CSCO $30

Put expires worthless = $11.13 profit
(put could be executed for $30, stock sold for $30)
Call worth $.00
Cost of call = $6.25
Profit = $11.13 - $6.25 cost = $4.88

CSCO $20

Put exercised @ $30, stock sold for $20, $10 loss
Premium received on Put = $11.13 income
Call expires worthless
Cost of call = $6.25
Profit = $10 (loss) + $6.25 (cost) = -$16.25 loss
Loss of $16.25 is offset by $11.13 premium received
Total loss is only $5.12


CIEN - approaching next support at $60

CIEN is nearing support at $60 but could go as low as $40 if
the current market weakness continues. However, CIEN just
raised guidance for the next quarter and year. Unless a
fiber virus suddenly appears Ciena should rocket out of
any market bottom. PE is still a strong 158 but the company
is growing much faster than its peers.


Using the same leap combination concept I am suggesting a
little different approach. Selling a 2002 put and buying
the 2003 call. The call is already in the money and to
compensate we are going to sell a deep in the money put as

BUY  2003 $60 Call Leap @ $33.25 VCB-AL
Sell 2002 $90 Put  Leap @ $34.50 YCD-MR

The net credit is only $1.25 and is not important to this
transaction. The key is the fully paid $60 call. If the put
expires worthless in 2002 (CIEN over $90) you could then
sell another 2003 put to increase your profits.

Potential Payout Examples:

CIEN $120 - (Jan-2002)

$90 put expires worthless = $34.50 profit
$60 call now worth $70 = $70 profit ($10 est time value)
Cost of call = $33.25
Profit = $34.50 + $70 = $84.50 - $33.25 cost = $71.25 profit
(Still a year left on the call)

CIEN $100 - (Jan-2002)

$90 put expires worthless = $34.50 profit
$60 call now worth $50 = $50 profit ($10 est time value)
Cost of call = $33.25
Profit = $34.50 + $50 = $84.50 - $33.25 cost = $51.25 profit
(Still a year left on the call)

CIEN $75 - (Jan-2002)

$90 put exercised, stock sold at $75, $15 loss
$60 Call worth $35 = $35 profit ($10 time value est)
Cost of call = $33.25
Profit = $35 - $33.25 - $15 = $-13.25 loss but call
still has a year to go.


With the short term market direction still in doubt I would
look for more long term opportunities. Stocks are cheap but
could get cheaper. Commercial traders are still increasing
their short positions which does not bode well for the near
future. Greenspan will continue to reduce rates and will
eventually get control back again. The Nikkei is now at a
15 year low and is having a negative impact on the US markets.
Be patient or be long term.

Good Luck

Jim Brown

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The Rally That Just Won't
By Austin Passamonte

It's been a long time since we've watched such fickle markets on
a daily basis of rally & sell. Exactly one year ago and counting
was much the same thing. While we don't expect intraday swings of
three to six hundred Dow or Nasdaq points anytime soon, the
pattern remains the same.

Skilled traders last year had the chance to make obscene fortunes
during days like those depicted above but steam-roll just about
everyone else.

Since Friday, February 23rd the Dow, SPX and OEX successfully
tested recent bottoms three times the past six trading sessions.
It might take another trip or two down during the week ahead, but
it remains our opinion that a near-term bottom is in place
barring unforeseen and catastrophic news. A relief rally is
overdue and expected by growing numbers of traders who have begun
to see firmness below and a pre-FOMC meeting run may be the
catalyst to drive them higher.

Should that be the case, are we to expect the final multi-year
bottom is there? Not even close. The bear market is far from over
and we will almost assuredly trade lower than recent levels
sometime down the road. Between then and now lies at least one
sustained rally if not more. No markets go straight up or down
without correction and that remains true even now. Down is far
easier than up but up we will go and soon.

Up however, won't be easy. Massive technical damage has been done
and solid layers over overhead resistance are meshed above. We
consider the following values the next points of solid ceiling
based on moving averages, Fibanocci numbers and support/
resistance above:

SPX: 1280, 1300, 1320
NDX: 2192, 2300, 2400
Dow: 10,700 = major congestion
Comp: 2,380, 2,500
SOX: 610, 642
OEX: 675, 686

The VIX, VXN and put/call ratios remain at bullish reversal
zones. Put/Call ratio disparity on index options indicates heavy
support and light resistance levels once again.

Every market indicator known to man is registered in oversold on
daily-chart time lengths. Pick one; they all read the same.

The Dow, OEX and SPX each posted bullish "doji" reversal candles
on their daily charts. Nasdaq indexes posted bullish "gravestone
doji" reversals on their daily charts as well. One key sign of a
major bullish price reversal is a market closing on daily lows
while bearish reversals usually occur on closes near the session

This flies in the face of common assumption in the equity world
but is easily proven on a daily chart for any symbol. Dial one up
and see for yourself. Most price reversals come in this fashion
and that seems to be the setup here right now.

There are several bearish points to be made as well. Short-term
chart signals are decidedly weak and forecast lower levels at
some point during Monday's session at the very least.

We approach the next pre-warn season and guilty parties seem all
too anxious to line up in droves early & often these days.
Markets need to once again shrug off further bearish news before
they sustain any kind of upside move.

Over at the Chicago Mercantile Exchange, our old friends the
commercial traders have increased their historical net-short
position to no surprise for anyone. These giant hedge funds and
institutions will continue to short this market for weeks and
months to come, rallies or otherwise until the final washout

Market Sentiment still expects a final capitulatory period far
beyond what we've seen so far to end the big bear. A Dow below
9500, NDX & Comp well below 2000, SPX sub-1200 and OEX sub-600
all at once will break the bear market's back and most remaining
stalwart bulls in the process. Our fondest hope is for all to be
heavily invested in long puts when that inevitable period

Meanwhile, our bias heading into this week remains to the upside
but that is no different than the past two with obvious results.
Holding this mantra shall prove us correct eventually, but that's
not the idea. All conditions remain highly oversold and countless
bullish indications exist & await their day in the sun. Green
pastures remain locked under a blanket of snow until sunshine
reappears and it promises not to be long. That however, is a
relative term.

The best we can hope to do is trade the daily (or hourly) trend,
book profits when offered and wait on the sidelines for the next
extreme market move to arise. Nimble & fleet of mouse is the
order for success these days!


Friday 03/02 close: 30.86

Friday 03/02 close: 77.43

30-yr Bonds
Friday 03/02 close: 5.36%

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)
670 - 655               11,192        5,161         2.17
650 - 635                7,266        9,252          .79

OEX close: 633.89

630 - 615                  976        9,419         9.65
610 - 595                  223        9,028        40.48

Maximum calls: 700/6,198
Maximum puts : 560/9,485

Moving Averages
 10 DMA  649
 20 DMA  672
 50 DMA  685
200 DMA  748

NASDAQ 100 Index (NDX/QQQ)
 56 - 54               119,574        35,068         3.41
 53 - 51                57,176        25,989         2.20
 50 - 48               121,333        59,859         2.02

QQQ(NDX)close: 46.70

 45 - 43                 3,733        23,975          6.42
 42 - 40                 2,919        14,076          4.82
 39 - 37                    51         6,004        117.72

Maximum calls: 50/86,601
Maximum puts : 50/39,676

Moving Averages
 10 DMA 50
 20 DMA 54
 50 DMA 59
200 DMA 79

S&P 500 (SPX)
1300                   12,510        17,023           .73
1275                   15,487        21,922           .71
1250                    9,235        15,804           .58

SPX close: 1234.18

1225                    3,142        17,422          5.54
1200                    2,117        19,063          9.00
1175                      246         8,653         35.17

Maximum calls: 1325/49,189
Maximum puts : 1325/42,622

Moving Averages
 10 DMA 1257
 20 DMA 1295
 50 DMA 1315
200 DMA 1403


CBOT Commitment Of Traders Report: Friday 03/02
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         -1831      -2538         -4538     -4571
Total Open
interest %       (-20.19%)  (-26.63%)    (-16.02%)  (-18.48%)
                 net-short  net-short    net-short  net-short

Open Interest
Net Value         +3985      +2988         -8594     -8493
Total Open
Interest %       (+18.58%)  (+15.44%)    (-12.24%)  (-13.44%)
                 net-long   net-long     net-short  net-short

S&P 500
Open Interest
Net Value         +84749    +77015        -101746    -96492
Total Open
Interest %      (+41.67%)  (+40.10%)     (-13.36%)  (-12.70%)
                net-long   net-long      net-short  net-short

What COT Data Tells Us
Indices: This week saw an increase in divergence on the NASDAQ
100 and S&P 500 with the Commercials adding to their net-short
positions and the Small Specs increasing their net-long
positions.  The DJIA had both sides moving in synch as they
lightened their net-short holdings.

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 02/27 by the CFTC.


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By Eric Utley

These are trying times, indeed!  And this game we call the market
is not getting any easier.

I've become increasingly reluctant to trade anything tech-related
from the long side because of events such as the Oracle blowup
last Thursday evening and the steep sell-off in the market
Friday afternoon.  Just when I think I've developed an edge,
and discerned a favorable probability in tech, something goes
awry.  As such, I avoided tech from the long side last week
in my endeavors.

I've been employing several hedging techniques in my day trades
in order to preserve capital, minimize risk and still make money.
Although, I didn't use any particular hedge in the trade I've
detailed below.  Some of these tactics may be useful for my
readers and are widely known by industry professionals, such
as hedge fund managers - a group which I plan to join in the

These hedging techniques can be as simple as buying a calculated
ratio of protection.  For example, I might speculate that CIENA
(NASDAQ:CIEN) is going to trade higher during the day, so I buy
1,000 shares in conjunction with the purchase of 5 puts.  So I
can capture a large upside move, while minimizing the risk with
the puts.  Another strategy might be to buy the leading stock
within a particular group while simultaneously selling the lagging
stock within the group.  For example, buying shares of CIENA and
shorting shares of Nortel (NYSE:NT).  This type of hedge can
allow traders to capture a large upside move, while again hedging
downside risk.  Of course, any hedging strategy is limited to the
amount of capital with which a trader operates.  But even if a
trader is only operating with $5,000 or $10,000, they can still
employ risk management strategies by way of hedging practices,
and still make money.

I think the topic of hedging is of particular interest given the
continued slide in the Nasdaq.  At some point, the Nasdaq HAS to
reach its lowest point.  When that point is reached, I really
don't know.  But it might be prudent to use some sort of hedge
when gaming the long side of tech in the meantime.

As always, if my readers have any specific questions hedging
techniques, let me know through the e-mail address below.

Send your stock requests to Contact Support.
Please put the symbol of your requests in the subject line of the


Fed Speculation

I bought some speculative calls last Tuesday on Citigroup (NYSE:C)
in an attempt to game a possible intermeeting rate cut by the
Fed.  While I normally don't like to trade in a purely speculative
manner, I felt the risk to the downside was fairly limited, while
there existed the potential for great upside if the Fed did, in
fact, cut rates on Tuesday.

Citigroup was trading relatively well Tuesday morning, following
the release of Consumer Confidence numbers.  In fact, the
broader banking sector, as measured by the KBW Bank Sector Index
(KBW.X), was displaying strength in spite of the heavy trading
in the broader market.  Citigroup was bouncing off the $50 level,
so I went in and bought a relatively large number of calls.

As I had speculated, the relative strength in shares of
Citigroup attracted buyers and the stock began to lift off the
$50 level.  Because Citigroup was trading at a strike price
($50), the options were very sensitive to the movement in the
underlying.  Furthermore, the implied volatility in Citi's
options is relatively low.  So a few ticks in the underlying
can move its options - especially options with a 50 delta.

As Citi traded higher, off the $50 level, I began to sell into
the strength.  The reason I scaled out of my position as the
stock traded higher was because I wanted to keep some exposure
in the event of a surprise rate cut.  In short, by taking some
profits off the table from the initial position, I was able to
let the rest of my position ride, minus some emotion.

Citi peaked at $51.50 and began to rollover.  As the day wore
on, it became evident that the Fed would not cut rates to
appease the market.  As such, Citi began to slip and as soon
as the stock fell back below my entry level at $50, I blasted
my remaining position for a small loss due to commissions and
slippage.  However, the gains from my earlier sales offset the
small losses due to the stock's pullback so the trade was a
net gain.

I could have made a lot more money if I would have blasted my
entire position when Citi crossed the $51 level.  But, I was
gaming a bigger move to the upside in the event of a rate cut.
And as I mentioned previously, I felt the reward-to-risk
profile for this particular trade was favorable.  If I was
presented with the same situation again, I would make the
exact same trade.


Veritas Software - VRTS

Would you please look at VRTS and give us your opinion? - Thanks,

The two sectors that had remained relatively intact during the
latter-half of 2000 were data storage and optical.  However,
those two sectors have been systematically taken lower so far
in 2001, and I suspect they'll continue to trade lower in the
foreseeable future.  This is just my opinion, of course.

As you probably know, Molly, Veritas (NASDAQ:VRTS) is a supplier
of data storage software.  It competes with the likes of Oracle
(NASDAQ:ORCL), who publicly warned last Thursday.

In addition, the hardware makers in the storage sector, such
as Emc (NYSE:EMC) and Brocade (NASDAQ:BRCD) have admitted to
the lack of visibility in their respective businesses.  On an
ancillary note, Emc is one of the best managed companies in
the world and their lack visibility is a testament to how tough
the storage business really is.

However, that's not to say you can't TRADE Veritas from the
long side in an attempt to game the oversold condition in the
Nasdaq Composite.  That's the reason you'll find Veritas on
the OptionInvestor call list currently.

But owning Veritas at current levels for INVESTMENT purposes
is a game I'd rather not play.


Applied Micro Circuits - AMCC

Looking at the weekly chart for AMCC, it strikes me that there is
an almost perfect head and shoulders pattern.  Also it appears
that the drooping right side is now striking a double bottom near
32.  How would you interpret these patterns as to the near-term
movement of AMCC? - Thanks, Alec

Alec, much has taken place since you sent in your request for
Applied Micro Circuits (NASDAQ:AMCC).  The stock subsequently
took out the relative low at $32 you mentioned and the company
issued a profit warning last Thursday.

Following the profit warning Thursday afternoon, a powerful
short covering rally ensued in shares of Applied.  It was a
classic case of sell the rumor and buyback on the news.

However, that profit taking (short covering) rally Thursday may
be short lived until the visibility in the networking business
improves.  And judging by the recent warning from 3Com
(NASDAQ:COMS) and the poor price action in Cisco (NASDAQ:CSCO),
the networking business is far from reaching a trough.  And
as you probably know, Alec, Applied Micro sells its integrated
circuits to manufacturers such as Cisco.

Let us now address the massive head-and-shoulders on the weekly
chart you alluded to, Alec.

I consulted our nationally recognized technician, John
Seckinger, for a little help with AMCC's head-and-shoulders on
the weekly chart.  And what John and I concluded was a bit

John and I used the $105 level for the head - in some instances
it may be more prudent to use AMCC's peak near $110 as the head
of the formation.  But in this case we felt $105 represented a
a "better" level for the head.  According to our placement, the
level of the neckline at the time of AMCC's trading near $105
sat at roughly the $50 level.  So, we came up with a difference
of $55 (or $105 - $50).

To derive the bearish, downside objective from the
head-and-shoulders, John and I placed the right shoulder at $60.
Taking the difference from the head to neckline of $55, and
subtracting that from the right shoulder at $60, we came up with
a bearish objective of $5.  Coincidentally, the $5 level is the
next major support level that lies below shares of Applied Micro,
which is a bit disconcerting, to say the least.


Solectron - SLR

I really enjoy writings as they have been very educational &
enlightening for myself as well as others I'm sure.  I would
like your take on SLR if you have time please. - Thank you,

I greatly appreciate your kind compliments, Marvin.  Thank you.

By now, we all know that the stocks within the tech sector are
in a deep bear market.  There's an intensifying debate brewing
about whether the current bear market is nothing more than an
inventory correction and tech stocks will rebound in the latter-
half of calendar 2001.  Others suggest the bear market is, in
fact, a secular decline in technology which may last years upon
years.  Having said that, shares of Solectron (NYSE:SLR) may
still be a dicey proposition at their current levels.

However, there is a growing trend among technology companies to
outsource their manufacturing operations to firms such as
Solectron.  Recent examples of this trend have been provided
by Ericcson (NASDAQ:ERICY) and Motorola (NYSE:MOT) - two troubled
telecom companies.  Although the two aforementioned telecoms
didn't outsource the services of Solectron, their actions
reinforce the trend nonetheless.

If the trend of tech and telecom companies outsourcing their
beleagured manufacturing operations to firms such as Solectron,
Flextronics (NASDAQ:FLEX) and Celestica (NYSE:CLS) continues,
then it might help to buoy the shares of these contract
manufacturers and mitigate the impact from the deteriorating
tech sector.  And for that reason, there may exist an underlying
bid in this group of stocks, such as Solectron, because the
fundamentals may be in place to sustain the group.

But I would suggest proceeding with caution in any tech group.
If you're going to try to pick the bottom in Solectron in an
attempt to anticipate improving fundamentals within the
contract manufacturing group, I would suggest using a tight
stop to manage risk.


Mercury Interactive - MERQ

What do you think about MERQ?  I like the fairly predictable
trading ranges and am also looking at it as a long term hold. -
Thanks, Pat

Pat, I'm going to be rather blunt and bearish in my review of
Mercury Interactive (NASDAQ:MERQ).  It's not because I have
anything against the company or its products.  But I think
owning the stock for the "long term" may be a dangerous
proposition right here and now.

Mercury Interactive sells its products and services over a
broad spectrum of technology companies.  Its list of customers
include dot coms, B-2-B companies, tech heavyweights such as
Cisco and Oracle, as well as old economy names.  I don't have
to go into detail concerning the current conditions in the
dot com business, B-2-B and broader technology.

However, what is a bit disconcerting with Mercury Interactive,
specifically its stock price, is that it trades with a large
premium.  That premium which has been built into the stock
was predicated on the company's superior outperformance in
earnings growth and expectations for subsequent profits.
But I fear that Mercury Interactive won't live up to its
expectations - that much is currently being discounted into
the stock price.

To take a quick tangent from my review of Mercury, I'd like to
reinforce that the sole purpose for venturing into the stock
market is to make money.  And I don't think you're going to
make money in Mercury Interactive over the next twelve to
eighteen months by owning the stock.  Of course, that may not
matter depending upon your time horizons.  But, the point I'm
trying to make is that rationalizing a decline in a stock by
saying you're a long-term investor is a dangerous practice -
it won't make you money.  While Mercury may struggle for the
next year, or so, you might be able to make more money in
other groups of the market such as finance, retail or cyclical.

I'm by no means making an example of you, Pat.  I'm simply
giving you my honest take in an attempt to help you make more
money, or save it in this case.


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 March 5, 2001

NAPM Services            Feb  Forecast: 52.00%  Previous:  50.10%
Online shopping Index    Feb  Forecast:    NA   Previous:  162.7

Productivity-Rev.         Q4  Forecast:  2.00%  Previous:   2.40%
Factory Orders           Jan  Forecast: -2.20%  Previous:   1.10%

Consumer Credit          Jan  Forecast:  $5.3B  Previous:   $3.0B
Beige Book                NA  Forecast:    NA   Previous:     NA
Oil and Gas inventory  2-Mar  Forecast:    NA   Previous:  280.0MB
Semiconductor Billing    Jan  Forecast:    NA   Previous:   -2.1%

Initial Claims         3-Mar  Forecast:    NA   Previous:    372K
Chain Store sales        Feb  Forecast:    NA   Previous:    4.8%

Nonfarm Payrolls         Feb  Forecast:    88K  Previous:    268K
Unemployment Rate        Feb  Forecast:  4.20%  Previous:   4.20%
Hourly Earnings          Feb  Forecast:  0.30%  Previous:   0.00%
Average Workweek         Feb  Forecast:  34.2   Previous:   34.3
Wholesale Inventories    Jan  Forecast:    NA   Previous:   0.00%
ECRI Future Inflation    Feb  Forecast:    NA   Previous:   -7.8%
ECRI Wkly Leading Indx 2-Mar  Forecast:    NA   Previous:   -3.3%

Week of March 12th
Mar 13  Retail Sales
Mar 13  Retail Sales ex-auto
Mar 14  Business Inventories
Mar 15  Initial Claims
Mar 15  Export Prices ex-ag.
Mar 15  Import Prices ex-oil
Mar 15  Current Account
Mar 15  Philadelphia Fed
Mar 16  PPI
Mar 16  Core PPI
Mar 16  Housing Starts
Mar 16  Building Permits
Mar 16  Industrial Production
Mar 16  Capacity Utilization
Mar 16  Mich Sentiment-Prel.

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The Option Investor Newsletter                   Sunday 03-04-2001
Sunday                                                      2 of 5

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


Hey! What Happened To Our Market-Moving Rate Cut This Week?
By Renee White

Thank You, Mr. Angell. I'm sure more than a few traders who
trusted your insight lost money from your rate cut comment last
week. My neck was on the line last weekend when I dismissed the
optimism and played against his call. I hope he realizes that
next time he may be thought of as The Angel of Death. I'm glad
I played the contrarian and held puts!

Although the week gave us lower lows, I found it interesting. It
is clear than many people are stepping aside at this time,
watching from the sidelines. More margin calls flushed out more
traders on a weak week. In addition, just when traders were
beginning to believe every company had already warned, more showed
up. The latest twist in the game that I see developing is the
warning after the warning. I'm beginning to wonder if we shouldn't
be prepared for a second phase of earning’s revisions from all
major companies. Gosh, wouldn't that be sick? Get ready.

Trying to find optimism, I realized we have fallen so far that
we can't possibly fall that much again. I mean, NASDAQ can't go
to zero. Can it? We have dropped 3,061 points from the intraday
highs in March 2000, a 59.65% drop, one of the worst in history.
NASDAQ has lost 22% in valuations this February alone. That was
after we thought the majority of the damage had already been done
and the rate cuts had begun. Still, we can't drop another 3,000
points when we are sitting at 2117.

The good news is: if we continue to slide at our current pace, we
should have the pain over and done with by the end of the quarter
once NASDAQ hits zero. If you think that won't happen, then
perhaps the bottom is near. I don't mean to be glib, but if you’ve
managed to hang in there, learning to trade this slide, you
probably feel you have earned a Ph.D. in market lessons. Suffice
it to say, you will definitely be titled "seasoned" once a new
bull leg appears and the next batch of green traders come
cheerfully, learning to trade in order to grow rich. The odds are
in our favor of not seeing another slide of this magnitude again
for many, many years. When it eventually returns, we should all
smell it coming. For now, we have almost survived.

We aren't there yet though. The damage is not finished, but it is
feeling closer and closer. This week reminded me of a slab of
beef on the grill, being poked for doneness. On one side, it is
char-grilled, on the other, still slightly bloody. It's been
poked with a fork and the blood still looks just a little too
red. It's not quiet done yet, but close.

They say a crash isn't over until the last generals fall. We
thought that meant stocks or sectors. However, on Friday I heard
them whooping Mr. Greenspan in the congressional shed. It wasn't
pretty. It's obvious that falling from a deity level is tough
and everybody watches.

During his testimony this week, we learned that he is indeed
paying attention to those mixed economic reports that I have
mentioned in previous articles. He specifically mentioned the
strength in the auto and housing industries, while other parts
of the economy showed weakness. We should keep our eyes on these
reports as we try to discern if we can salvage our economy from a
true recession. Unemployment claims were up, but so was consumer
spending. The mixed reports showed consumer spending did not
match current consumer sentiment. With 4th quarter GDP 1.1%, a 6
year low, the concern in our economic slowdown is real. Again,
this number tells us we are in a sharp economic pullback, but it
is important to acknowledge that it has not turned negative yet.

Trading on Friday was interesting. I was left with mixed feelings.
With Oracle (NASDAQ:ORCL) warning after Thursday's close, the market
had all the reasons it needed to fall right back through the new
Nasdaq low set on Thursday. Although the market was skittish, it
appeared to struggle with an urge to go up, not down. Advancers
beat decliners, but you would hardly know this by looking at the
chart. I definitely felt more gloom in the market at the beginning
of the week than towards the end. In fact, I found myself holding
both call and puts going into the weekend. I couldn't exit my
puts, yet I couldn't buy more either. I did buy a few calls
Thursday and Friday. This indecision is new. A feeling I haven’t
felt for many months. It's too early for me to know if there is
any depth to this change in sentiment, but straddles may be the
best plays here.

Since we held Thursday's low after Oracle's news, I tend to think
the bounce from this oversold condition may start next week.
Things just felt a little different Friday. I don't trust long
term trades yet, but I should be able to scalp some profits from
an oversold bounce if I'm right. We are getting to very low
levels. Low enough that I think the risk of shorting before a
bounce is risky. Sometime soon, Nasdaq will find a bottom and it
will come before we have signs of economic recovery. Probably,
about the time the general public starts to really feel the
effects of an economic slowdown, the market will have already
started to turn. We probably won't believe it, know it, or trust
it, when we get there. Perhaps these mixed economic reports are
the beginning. Or perhaps they too will roll over first.

One last note, I want to share the red flag that went up in my
subconscious mind this week. CNBC's Tom Costello reported that
visitors from foreign nations were starting to come by to
interview him on the falling NASDAQ. That was not comforting to
me. Japan came at the end of the week after a host of others.
Japan. A country who once showed major economic strength, who
had also had a wild and high-flying stock market, and now has
one of the biggest debts of all large countries and a continued
recession lasting greater than 8 years. Was this gloating on
their part, or concern?


New Subscriber Focus: Setting Up Your Workspace, Part I
By Janar Wasito

One of the main challenges for new subscribers is taking the large
amount of information presented in the newsletter and putting it
into a form which is useful and actionable during the trading day.
This is part one of a two part article on how I approach this

First, I want to throw out two analogies for trading. The first is
that of a Marine platoon commander leading his platoon up the hill
on some attack. Maybe I send a team with light machine guns up the
left side, and go down the middle with most of the unit and some
attached rockets, radio in for some fire support, and kick off a
coordinated attack on a bunker complex. Adrenaline is pumping,
emotions are high, this is the stuff of John Wayne movies.

The second is of that of the same Marine lieutenant sitting in the
back of some armored command vehicle in a back up Battalion
command post. There are 4 radios, some to aircraft, some to
forward units, some to adjacent units. There are 4 maps of various
scales taped to the insides of the vehicle, and reports are coming
in from everyone at the same time. The maps have high-speed avenues
of approaches drawn in between mountain ridges, and the rate of
movement of enemy vehicles have been calculated in advance, as have
the ranges and capabilities of supporting weapons. It’s a more
cerebral game of allocating resources and identifying points of
main effort. If the main command post gets taken out, you are
quarterbacking hundreds of Marines over a large operational area,
moving aircrafts into the zone of operations.

So, which image best represents how the trader makes money? I
would suggest that the first image is a little like the trader
after the bell has rung and the trading session has started. But
the second image is where I try to make my money. The second image
is more like what I do at night or on the weekends to try to
understand my own trading better and to improve it. The second
image is how any good trader - such as Marty Schwartz - will
really make money.

I read the newsletter with a hard copy in a binder, a pencil, and
my laptop computer with an Internet connection. I have Qcharts
open, and I have my trading set up at my fingertips, which I will
explain in a second. From Qcharts, I can right click on an option
contract and have it set up in Preferred Trade’s software. From
observation to orientation to decision to action (an OODA loop)
in literally minutes, if not faster. As George Fontanills says at
times, this is adult Nintendo, but the stakes are real.

At the heart of this set up is my charting software. On the left
hand side, I have two quote screens, and a time and sales at the
bottom. The top quote screen has my primary trading index, the
QQQ, at the top, along with the NDX.X. Below those two tickers,
separated by a subtotal, are a series of market tickers, including
the COMPX, SOX.X, OEX, VXN.X, VIX, and BKX.X. (I won’t try to
explain each one, as this is done in other parts of the newsletter
frequently). Below those tickers, also separated by a subtotal,
are the 100 components of the Nasdaq 100. As for the vertical
columns, I have symbol, net, last, and net%, so that I can
instantly rank the 100 components by net % change. This helps me
throughout the trading day to see which stocks are leading the
index higher or lower. For example, on Thursday, I could see
CIEN at the top of the net% all day, and when it weakened, it
signaled a downward shift in the QQQ index.

Below this first quote sheet is a second quote sheet in which I
load 1 or 2 option contract symbols - QQQ puts or calls, depending
on the situation.

Below this second quote sheet is a time and sales box, which I can
expand to fill the entire screen. When I am getting into or out
of a option contract, I will look at the bid/ask, and usually I
split the market, and use Preferred Trade’s direct access to the
option exchanges to select the best exchange. I will often watch
as I put in a limit order between the bid and ask, only to see the
market maker move the bid up to match my limit. Fine, buddy, so I
will cancel the order, wait for the bid to drop back down and put
it back in. Getting familiar with the order entry capabilities will
add % points to a trader’s returns, and those incremental gains
will add up, over a long period. Slippage is where market makers
will gain a lot of their profits, but retail traders can guard
against some of this by playing heads up ball.

Next week, I will discuss further my workspace functions and
trading techniques in Part II.

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


Calendar Spreads: A Nice Way to Sleep at Night, Part 2
By Lynda Schuepp

As Paul Harvey says, "And now for the rest of the story."  Here is
the link for Part 1 that was printed last week to help you review:

Calendar Spreads: Part 1

Part 2:

Criteria for doing a calendar spread:

4. Pick a time frame you are comfortable with.
This is a subjective one, but there is no mystery here.  The longer
the time frame the less sensitive the spread is to fluctuations in
the stock.  If you would like to just buy an investment and tuck
it away, then you should use a long time frame like the January '02
and January '03 as previous discussed.  If you want action now,
then use a shorter time frame.  The shorter the time frame, the
more the potential reward as an annual percentage, but with that
comes more risk.  As they say, "there ain't no free lunch."

5. Pick a strike you are comfortable with.No mystery here either,
remember, you are betting that the stock will close at or near your
strike price at the expiration of the shorter leg.  If you were to
use March and April instead of the January '02 and January '03, it
is common sense that you wouldn't use 80 as your strike price,
unless you think the QQQ's could close at 80 in the next 4 weeks!
The strike you choose will be dependent on your market outlook for
the next month if using the March and April options.  If you think
the QQQ's will stay flat, you might choose a 50 strike, if you were
moderately bullish you might choose 55, really bullish and you
might select 60!  The cost of the spread decreases as you move the
strike farther above the current price of the stock.  The cost of
the March-April 50 put calendar spread would cost $1.60 or $1600
for 10 contracts versus $1.20 for the spread using a 60 strike.
However, which strike has the greater probability?

I'll leave that for you to decide. I prefer to go out longer term
and use my capital to put on various positions with greater odds
and somewhat less of a reward, therefore, increasing my changes to
be right.

6.  Select the number of contracts you are comfortable with.
I recommend at least 10 contracts when doing this strategy.  The
reason is that most brokers charge you a minimum ticket, and with
 the cost of the spread so cheap, it's not worth doing less than
10, or commissions will play a real factor.  It also gives you some
room to make some adjustments, a topic we can cover in another

7.  Study different strike and timeframes and calculate your risk
to reward.  In the case of the January '02/ January '03 puts with
a strike of 80, we determined our maximum reward was $7.40, lets
$7 to make it easier to calculate.  The cost of the spread would be
$1.60 using the "natural spread".  The natural spread is buying at
the ask and selling at the bid, which the market maker is obligated
to fill at.  However, you can always squeeze a little out of each
leg, and I would conservatively assume we could get this spread
down to $1.40 or $1400 for 10 contracts.  Now divide $1.40 into the
guesstimated actual reward of $7 and you get 5 to 1 odds!  That
means you make a 500% return in about a year if QQQ go to 80 buy
January 02.  Maybe you would be more comfortable with a projection
of 70, if so then use the prices for 70 strike, which would be a
cost of $2.30 for the natural spread or about a 3 to 1 odds.
Notice how your reward drops as the strike price drops closer to
the actual price of the stock.

8.  Find approximate values on your spread at expiration in case
you are wrong about the stock.  You can do this by looking at
current option prices and using those prices as approximations for
what options will be worth in the future by changing the time
frames and strike prices.  If you decide on the QQQ January
'02/January '03 80 strike, then how much would your spread be worth
if the QQQ's only get to 60 or 70?  To figure this, look at the
current prices of the January 02 options to approximate the
value of your '03 leg at expiration in January '02.

If the QQQ's only get to 60 instead of 80, your short January '02
80 put is worth 20 points, ouch!  You would have to buy them back
and you would be down $20,000 plus your initial investment of
$1400.  Don't panic, your January '03 80 put would be worth at
least 20 points too, plus 1 year of time value, so all is not lost.
You probably could get $1 of time value on the "03 put so your
total loss would be about $400 ($1400 cost of spread less $1000
which would be the sale of spread in January '02).  Worst-case
scenario-- if the stock is "put" to you, in other words you are
assigned the stock, simply exercise your long put and move on.  You
have no extra money at stake and that is truly the worst case.  You
would lose $1400, the cost of the spread.

If the QQQ's only got to 70 - then the short January '02 80 puts
would be worth $10 or $10,000, but your long 80 puts would be worth
approximately $12.80 or $12,800, which is the current price of the
January '02 60 put.  This is the approximation you must master, by
using current prices to project the value of your long leg at
expiration of the shorter-term option.  If the QQQ's get to 70 then
your 80 puts would be 10 points in the money.  Today, the current
strike that is 10 points "in the money" would be the 60 strike
because the QQQ's are currently trading for about 50.  Looking at
the current prices of the January '02 60 puts which are now 10
points "in the money" you would determine that your long 80 put
would be worth about $12.80.  Subtracting the $10 to buy back the
short leg, your profit would be $1400 ($12.80 for the price of the
long less $10 price of the short leg less $1.40 cost of the spread
originally, times 1000 for 10 contracts).  You made 100% in a year
and you were 10 points off your projection, not bad.

Really study and understand how to determine the value of your
spread at expiration and you will see that this is a worthwhile,
low risk, high reward kind of trading.  Pay particular attention to
#8 and go back and try it with other stocks that your trade.


Call Play of the Day:

FPL - FPL Group $65.36 (+1.23 last week)

See details in sector list

Put Play of the Day:

MERQ - Mercury Interactive Corp $48.50 (-21.56 last week)

See details in sector list

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


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.


SEBL $36.09 (-11.97) The ORCL bomb did extensive damage to the
Software sector even before the opening bell on Friday, and our
SEBL play never even had a ghost of a chance to make it off the
sidelines, gapping down to $35.50.  Buyers tried to resurrect
the stock throughout the morning, and actually almost succeeded
in lifting the stock back above our $40 stop.  Unfortunately,
fear of darkness began to set it, and the burden of relentless
selling in the Software sector was too much for the bulls.
After lunch, the bears came back, mauling the bulls in the
afternoon session.  SEBL fell back to close very near the low
of the day for a 19% loss, leaving us no choice but to remove
it from the playlist this weekend.

MSFT $56.69 (-0.06) Notwithstanding the stock's relative
strength and resiliency of late, the world's software leader
fell under par in Friday's session.  Whilst the Oracle (ORCL)
news didn't, in effect, rock the NASDAQ, the software sector
continued to vanquish under the scrutiny and slew of analyst
downgrades.  Besides the obvious violation of its $58 support,
MSFT closed just a fraction from its intraday low amid robust
trading.  The whole kit and caboodle doesn't bode well going
into next week; therefore, we're dropping coverage on MSFT this


No dropped puts this weekend


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.


EDS - Electronic Data Systems $66.45 (+4.75 last week)

EDS is a professional services firm that applies consulting,
information and technology in innovative and productive ways to
enable clients to improve their overall performance, extend their
enterprise ahead of the competition and better serve their
customers.   The company's end-to-end services portfolio covers
these areas:  Management Consulting, E-Solutions, Business
Process Management and Information Solutions.  EDS is highly
innovative in using technology to solve business problems and
help clients in such areas as improving customer service,
enhancing the quality of their products and even getting to
market ahead of the competition.

It's all about the earnings.  The slowing economy has without a
doubt been unkind to many equities, no matter what the sector.
Business models that can’t survive the harshest of scrutiny are
being tossed aside, and companies that can't maintain their
earnings growth projections are finding it difficult to keep
their stock prices up.  On the other side of the coin, the market
has been richly rewarding those few firms which have exhibited
sound fundamental strength.  In such uncertain times, consistency
and quality of earnings are what command premiums, which has
helped shares of EDS to rally strongly so far this year.  After
forming a wedge pattern spanning two months in December and
January, the stock broke to the upside in early February, thanks
to an impressive earnings report in which the company beat Street
estimates by two cents and provided bullish guidance going
forward.  This led to a rash of upgrades and positive comments
from the likes of CS First Boston, JP Morgan, Lehman Brothers,
and most recently Deutsche Banc Alex Brown.  Intra-day bounces
off the 5 and 10-dma at $63.80 and $63.35 along with support at
$65 and our stop price of $64 could allow aggressive players to
take a position.  If the buyers continue to bid up the stock on
Monday, then a break above Friday's high of $67.40 would allow
for an entry on strength, but be sure to confirm upward momentum
with industry peers CEFT and SDS.

***March contracts expire in two weeks***

BUY CALL MAR-60 EDS-CL OI=1439 at $7.10 SL=5.00
BUY CALL MAR-65*EDS-CM OI=3452 at $3.30 SL=1.75
BUY CALL APR-65 EDS-DM OI= 459 at $5.40 SL=3.50
BUY CALL APR-70 EDS-DN OI= 723 at $3.00 SL=1.50


IDTI - Integrated Device Tech. $33.38 (-4.88 last week)

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

"Sell the rumor, but the news" seemed to be the flavor of the
week for Semiconductor stocks.  Following the lead of AMCC
investors who bid the price of the stock up in the wake of the
CEO's revenue reduction Thursday afternoon, IDTI investors went
on a buying spree after the company revised its revenue and
earnings guidance downwards Thursday evening.  Calling for
revenues to come in 20% shy of prior estimates of $279 million,
the company's president, Jerry Taylor cautioned that "IDTI
continues to see the impact of the industry-wide inventory
correction which began in the fourth quarter of calendar 2000".
Nothing new there, except for investors' reaction to it.  Rather
than punish the stock, buyers queued up to go on a buying spree
Friday morning, tacking on a little over a dollar as volume
surged to 70% above the ADV.  Helping the bulls in their quest
to stage a Friday rally was the Semiconductor index (SOX.X),
which continued to recover from Thursday's new yearly lows.
While IDTI weakened a bit near the close, this was more likely
fear of darkness, rather than any significant weakness in the
stock.  Since the NASDAQ and SOX.X direction will be pivotal in
the success of our play next week, we need to watch these
indices carefully.  If we have seen a near-term bottom and they
make a concerted effort to rally, then IDTI will be off to the
races, providing conservative investors with an attractive entry
point as the stock moves above $34.50.  On the other hand, early
weakness could give the ball to aggressive investors with
another dip near the $30 intraday support level.  As long as the
buyers come back in volume and give us a strong bounce, entries
near this level would seem to present a compelling risk/reward
ratio.  Set stops at $30.

***March contracts expire in two weeks***

BUY CALL MAR-30 ITQ-CF OI=255 at $4.88 SL=3.00
BUY CALL MAR-35*ITQ-CG OI=550 at $2.13 SL=1.00
BUY CALL APR-30 ITQ-DF OI=154 at $7.00 SL=5.00
BUY CALL APR-35 ITQ-DG OI=154 at $4.63 SL=2.75
BUY CALL APR-40 ITQ-DH OI=155 at $2.94 SL=1.50


UNH - United Healthcare Group $60.79 (+6.46 last week)

United Healthcare owns and manages a broad spectrum of health
care plans and services across in the United States and
internationally.  This global enterprise provides employers
products and resources to plan and administer employee benefit
programs.  They operate distinct business segments:  United
Healthcare manages HMO, point-of-service, and preferred provider
plans; Ovations is Medicare and Medicaid options provider;
Uniprise handles health plans for large companies; and
Specialized Care offers the specialized plans.

On Friday, news of a partial victory in Federal Court boosted
shares of publicly traded managed-care companies.  US District
Judge Fredrico Moreno dismissed claims that the HMOs conspired
against doctors to systematically delay and deny payment even
when care was medically necessary.  These practices violate
federal racketeering laws and fiduciary responsibilities under
the Employee Retirement Income Security Act (ERISA), a 1974
federal law that regulates pension and health benefits.  Last
year, the managed-care industry came under great scrutiny and
was the target of a slew of lawsuits by health-care providers
and patients alike.  Most of the nation's leading health
insurers, including UnitedHealth Group (UNH), Wellpoint Health
Networks (WLP), Cigna (CI), PacifiCare Health Systems (PHSY),
and Aetna (AET) were named in the lawsuits.  The long-awaited,
but peremptory judgment lifted shares across the sector.  UNH
was launched out of its primary trading range ($55 to $60) on
brisk volume.  On the day, UNH gained $1.80, or 3.1%, finishing
strong at just a few cents off the intraday high.  The bullish
move through the immediate opposition at the $60 level follows a
week of relatively positive action for UNH and its cohorts.
Consider starting new call plays if UNH maintains its upward
trend and challenges $65 with vengeance.  A more aggressive and
risky strategy is to buy into a bounce off the 50-DMA at $57 &
$58, then sell your positions as UNH approaches the
corresponding resistance levels.  Take note, we'll drop coverage
on UNH if it demonstrates weakness and closes below the $59

***March contracts expire in two weeks***

BUY CALL MAR-55 UNH-CK OI=3046 at $6.60 SL=4.50
BUY CALL MAR-60*UNH-CL OI=3339 at $2.95 SL=1.50
BUY CALL APR-60 UNH-DL OI= 109 at $4.70 SL=2.75
BUY CALL APR-65 UNH-DM OI= 820 at $2.80 SL=1.50



PPG - PPG Industries Inc $52.38 (+2.88 last week)

PPG Industries manufactures decorative and protective coatings,
glass products, and also specialty chemicals.  You may be
familiar with their Lucite brand house paint or Olympic stains.
Coatings for architectural, automotive, and industrial uses
account for 50% of the company's revenue while the glass
products represent nearly 30% of sales.  PPG has over
110 manufacturing facilities in 22 countries and about 250
retail paint stores in the US.

PPG's undeviating trendline and unfailing sector in conjunction
with last week's strong breakout through the $51.50 resistance
demands concise and timely attention.  Moving right to the
point, PPG is a slow, but steady mover that historically
exhibits low volatility.  We're beginning coverage on the basis
of implied gains, notwithstanding the topsy-turvy marketplace.
While the technology traders continue to assail their flight
instincts and rotate in-and-out of different sectors, PPG offers
somewhat of a safe haven.  Furthermore, our anticipation is that
PPG will build momentum and make a charge for its 52-week record
high at $58.12 over the near-term.  Consider taking entries on
bounces off the previous resistance ($50), if there's buyers
demonstrating interest amid an advancing marketplace.
Otherwise, gauge the stock's strength going forward and look for
opportunities on the climb.  In other words, pursue entries at
the stock's corresponding levels of intraday support as it
advances towards it's upper resistance. PPG Industries is
expected to report earnings around April 19th.

***March contracts expire in two weeks***

BUY CALL MAR-45 PPG-CI OI=125 at $7.60 SL=5.25
BUY CALL MAR-50*PPG-CJ OI=165 at $2.90 SL=1.50
BUY CALL APR-50 PPG-DJ OI=  2 at $3.90 SL=2.50
BUY CALL APR-55 PPG-DK OI=  5 at $1.10 SL=0.00


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Please read our disclaimer at:

The Option Investor Newsletter                   Sunday 03-04-2001
Sunday                                                      3 of 5

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VRTS - Veritas Software $63.63 (+1.25 last week)

Veritas Software is the industry's leading enterprise-class
application storage management software provider.  They furnish
storage management software for protection against data loss and
file corruption, efficient file processing and networks back-up.
Veritas (Latin for "truth") has made its name by partnering with
such technological heavyweights as Hewlett-Packard, Microsoft,
and Sun Microsystems, all of which have licensed and embedded
Veritas products in their operating systems.  Its purchase of the
network and storage management software group of disk drives
maker, Seagate Technology, doubled Veritas' size and gave Seagate
approximately a 33% stake in the company.

Relative strength has been the name of the game for shares of
storage software maker Veritas this past week.  While the rest of
the Storage sector, and the NASDAQ for that matter, spent the
week looking for a bottom, VRTS has been in a well-defined
trading range.  Fans of candlestick charting may note the two
hammer formations at the end of the previous week.  Since then,
the stock has managed to maintain support just above the $60
level, while encountering resistance overhead at $72.  With
intra-day swings of over 7 points, this has already been a great
play for nimble traders.  A downgrade of VRTS by Morgan Stanley
from Outperform to Neutral along with ORCL's earnings warning
dragged the stock down on Friday, closing almost 10 percent lower
on 1.8 times the ADV.  However, VRTS did manage to close above
our stop price of $63.  With support also at $62 and $60, a
bounce off these levels could allow higher risk players to jump
in, but make sure the stock ends the day back above our stop.  Be
aware though that the company will be hosting a mid-quarter
conference call on Monday after the market close, so traders may
want to wait for this event to pass over before making a play.
Strong buying interest that lifts VRTS above $65 could give
conservative traders a signal to enter.  While VRTS has
outperformed other companies in the Storage sector this past
week, we recommend confirming upward momentum with industry peers
LGTO and EMC before taking a position.

***March contracts expire in two weeks***

BUY CALL MAR-60 VIV-CL OI=1253 at $ 8.25 SL=5.75
BUY CALL MAR-65*VIV-CM OI=1497 at $ 5.75 SL=3.75
BUY CALL MAR-70 VUQ-CN OI=2257 at $ 3.75 SL=2.50
BUY CALL APR-65 VIV-DM OI= 412 at $10.63 SL=7.50
BUY CALL APR-70 VUQ-DN OI=1473 at $ 8.63 SL=6.00

SELL PUT MAR-55 VIV-OK OI=1488 at $ 2.38 SL=4.00
(See risks of selling puts in play legend)


BOL - Bausch & Lomb Inc. $52.29 (+1.49 last 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.

Proving once again that Newton was right, the law of gravity
came into play on Friday.  While not exactly welcome, the profit
taking on BOL was expected, and actually a bit overdue.  The
stock had been pushing awfully hard on the upper Bollinger band
in recent days, and needed to pull back a bit to allow the next
wave of buyers to get on board.  Let's face it - this isn't a
Tech stock, and it is up 40% in the past 7 weeks in the midst of
a down market.  Between the upper Bollinger band ($54.85), the
top of the August gap ($55.75) and historical resistance at
$55-56, our play needed to retrace to gather its strength for an
all-out assault.  BOL should continue to enjoy the benefits of
a defensive stock as the overall market continues to deteriorate
amid concerns of the decelerating economy.  So how do we play it
in the week ahead?  Given the fact that the bulls arrested the
stocks decline at the ascending trendline ($52), we are raising
our stop to this level and would consider a bounce from current
levels to be a good aggressive entry point.  A continuation of
the uptrend will provide conservative traders more entry points
as the stock moves back up through $53 and then $54, but beware
of the looming resistance.  We'll need the bulls to work
together to lift BOL through the $56-57 resistance level, but a
continuation of the current uptrend could see that level by
week's end.

***March contracts expire in two weeks***

BUY CALL MAR-50*BOL-CJ OI= 93 at $3.70 SL=2.25
BUY CALL MAR-55 BOL-CK OI=811 at $1.10 SL=0.50
BUY CALL APR-55 BOL-DK OI=112 at $3.00 SL=1.50
BUY CALL APR-60 BOL-DL OI=113 at $1.60 SL=0.75
BUY CALL JUL-55 BOL-GK OI= 80 at $5.30 SL=3.25


VRSN - VeriSign Inc. $50.56 (+0.06 last week)

VeriSign Inc. is the leading provider of trusted infrastructure
services to web sites, enterprises, electronic commerce service
providers and individuals.  The company's domain name, digital
certificate and payment services provide the critical web
identity, authentication and transaction infrastructure that
online businesses require to conduct secure e-commerce and
communications.  VeriSign's services are available through its
web sites or through its direct sales force and reseller
partners throughout the world.

On Friday, VRSN moved between the trading range it established
this week, with sharp spikes between its new higher low of $48,
and resistance at $52.  Friday’s close was particularly
encouraging, as VRSN formed a very bullish candlestick pattern
with a surge of momentum which defied the weak trend of the
Nasdaq.  Several Wall Street analysts upgraded VRSN yesterday,
as the firms applauded the company’s deal with The Internet
Corporation for Assigned and Numbers (ICANN).  According to
CSFB, the VRSN gains a lot and loses a little, as the new
deal proposed (which is expected to be approved by the Commerce
Dept) removes the uncertainty regarding VRSN’s previously
expected spin off of part of their business.  At this point,
VRSN will retain control of the lucrative DNS registrar in
exchange for the surrender of rights to .org and .net web
domains.  Since .com web domains comprise 80% of the internet
addresses, this was perceived as a winning situation for VRSN.
Upselling customers through the DNS registrar is expected to
be a critical part of VRSN’s long term growth strategy.  At
this point, VRSN is poised to break out above $52, and possibly
above strong resistance at $55, with some help from the
overall market.  Traders could take positions at current levels,
or at a surge above $52, if accompanied by strength in the
Nasdaq and the software index.  Alternatively, a strong break
above $55 with heavy volume could position VRSN to make a clean
break above the next major resistance level at $60.  Set stops
at $50, and exit positions if VRSN closes below this level.

***March contracts expire in two weeks***

BUY CALL MAR-50*QVR-CJ OI= 729 at $5.88 SL=4.00
BUY CALL MAR-55 QVR-CK OI=1530 at $3.63 SL=1.75
BUY CALL APR-50 QVR-DJ OI= 174 at $9.38 SL=6.25
BUY CALL APR-55 QVR-DK OI= 163 at $7.25 SL=5.25


FPL - FPL Group $65.36 (+1.23 last 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.

A merger of equals that will create the one of the largest power
companies in the US is back on track!  Early in January, a
judge's procedural schedule put a glitch in the merger plans of
FPL Group and Entergy.  It looked like the deal would be shelved
for almost a year.  Fortunately, a motion of reconsideration of
the schedule was recently approved.  The February 16th
announcement was welcome news to investors.  In defiance of the
befuddled marketplace, FPL flourished amid robust trading.  And
of consequence, this week's bullish stock action took FPL
through the overhead resistance at $65.50 and $66.  We're now
looking for FPL to resume its strong upward momentum and make a
charge for $73, which marks the 52-week record.  In an advancing
market, this objective is certainly attainable.  However, a
conservative approach demands patience for the big breakout
before taking entries.  While it's true that others in the
energy sector like DYN, CPN, EIX, and DUK are managing quite
well, this play is based on stock-specific momentum.  Keep stops
in place at $64 to safeguard capital.  Amongst the analysts, ABN
Amro declared its confidence in FPL.  Last week the brokerage
firm reiterated a Buy recommendation and issued a $79 price

***March contracts expire in two weeks***

BUY CALL MAR-60 FPL-CL OI= 146 at $6.00 SL=4.00
BUY CALL MAR-65*FPL-CM OI= 171 at $2.15 SL=1.00
BUY CALL APR-65 FPL-DM OI=1000 at $3.60 SL=1.75
BUY CALL ARP-70 FPL-DN OI=  12 at $1.60 SL=0.75


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index instead?

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market updates, plays, education and daily commentaries by
those who know.

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Please read our disclaimer at:

The Option Investor Newsletter                   Sunday 03-04-2001
Sunday                                                      4 of 5

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

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


BGEN - Biogen Inc. $68.31 (-3.72 last week)

Biogen, Inc. is a biopharmaceutical company principally engaged
in discovering and developing drugs for human healthcare through
genetic engineering.  Headquartered in Cambridge, MA, the
company's revenues are generated from international sales of
Avonex for treatment of relapsing forms of multiple sclerosis,
and from the worldwide sales by licenses of a number of products,
including alpha-interpheron, Hepatitis B vaccines, and diagnostic
products.  Biogen's research and development activities are
focused on novel products to treat inflammatory and autoimmune
diseases, neurological diseases, cancer, fibrosis and congestive
heart failure.

After a drop from over $120 a year ago, BGEN has sustained a
consistent trading range between heavy resistance at $75 and
support at $50 for the last twelve months.  While the biotech
index made a substantial rise of over 14% in January, and a
subsequent fall of over 19% in February, BGEN shot up to
$75 in January, and remained above $70 for most of February,
while many of the other biotech stocks lost strength.  At this
point, BGEN's chart indicates that it may be time for this
stock to fall from its lofty heights.  BGEN formed a bearish
wedge pattern this week, with a series of lower highs at $75,
$72, and $70, and strong support at $68.  On Thursday, BGEN
opened at $72, dropped to support at $68 during the sell off,
and rebounded only to close at $70.  On Friday, BGEN made two
attempts to clear $70, and failed both times to close below
its 10 dma of $69.13.  On Friday, the biotech index reached
its 50 dma of 695, but was unable to close above it, which
reinforces the pattern of lower highs in BTK.X which has been
forming since November.  A strong break below $68 would likely
lead BGEN to $67, and then its next major support level at $65.
This could be a good entry point, particularly if accompanied
a drop in BTK.X below its 10 dma of 573.67.  A more aggressive
entry point could be a failed rally past $69, if the market
and sector are weak.  BGEN remains above its 50 dma of $63.61
and its 200 dma of $60.91, and a drop below either of these
levels would be a very bearish indicator, and another possible
entry point.  Keep an eye on others in the sector, like MEDI
and IDPH for an indication of weakness, and set stops at $72.

***March contracts expire in two weeks***

BUY PUT MAR-70*BGQ-ON OI= 984 at $4.38 SL=2.50
BUY PUT MAR-65 BGQ-OM OI=1893 at $2.13 SL=1.00


JNPR - Juniper Networks Inc $53.59 (-21.16 last week)

Juniper Networks develops and provides next-generation Internet
infrastructure systems that are designed to meet the
scalability, performance, density, and compatibility
requirements of IP networking systems.  The company's M40 and
M20 Internet backbone router use JUNOS network traffic
management software, ASICs.  Its clients include some of the
world's leading service providers such as Ericsson and

Over the course of time, loyal OI readers have been privy to a
variety of JNPR plays.  This weekend we're initiating downside
coverage on this volatile and, quite often, profitable Internet
stock.  When the last trace of gold glitter failed to dazzle
investors, they were quick to bring this tarnished maker of
high-capacity computer-networking equipment to its knees.  On
February 7th, JNPR violated the ever-so psychological century
mark and has since lost almost half of its value.  Hovering just
above the $50 level, JNPR is near death - or is it a grand
buying opportunity?  Here lies the danger.  Although, previous
attempts to recover its high-flying stature were rapidly
extinguished as investors continued to ponder the economic state
of affairs.  Over the long run, Juniper Networks and its rival,
Ciena (CIEN) are likely to be sheltered from the telecom
spending slowdown as they are focused on 3rd generation data
networks, but in the meantime, the technology slayers are taking
no prisoners.  A sharp price target cut on Friday to $75 from
$200 a share by MSDW also didn't help build investor's short-
term confidence in the stock.  JNPR fell $8.22, or 13% on the
day.  Volume has been unwavering on the decline and at times,
exceptional, with trading activity at double the ADV.  If you’re
a bit leery of taking positions, you should be.  This is a HIGH-
RISK put play, plain and simple.  You might find entries on
high-volume rollovers from the $65 level, but make sure the
sellers are out in control.  Although the pattern of lower-lows
is encouraging, better confirmation would come if JNPR breaks
$50 and convincingly demonstrates an acceleration of its
downside momentum.  We're keeping a tight rein on JNPR in
consideration of its volatile trading nature.  Any strength
above the $60 mark into the close and we'll exit the play.

***March contracts expire in two weeks***

BUY PUT MAR-60 JUX-OL OI=3818 at $10.50 SL= 7.50
BUY PUT MAR-55*JUX-OK OI=1321 at $ 7.75 SL= 5.50
BUY PUT MAR-50 JUX-OJ OI=2753 at $ 4.88 SL= 3.00



PWAV - Powerwave Technologies Inc $15.75 (-2.00 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 continued to form its downward channel on a week when
Many other stocks in the wireless communications equipment sector
started to show a few signs of bullish behavior.  On Thursday,
when the Nasdaq made a dramatic pivot point from the lows
of the day to close slightly higher, PWAV made only a feeble
attempt to rally to $15.94, which confirms the weekly pattern
of lower highs.  Friday’s move was particularly significant,
since the stock rolled over from its daily high at $17 to
close at $15.75, an important support level.  PWAV has been
receiving little positive attention from Wall Street, and
was the victim of a significant number of downgrades in the
last several weeks, from Morgan Stanley Dean Witter, CIBC
World Markets and DB Alex Brown.  In order to re establish a
true upward trend line, PWAV would need to clear its 10 dma of
$18.36, and this seems like a long shot.  However, the markets
may be poised for a rebound next week, so traders should be
careful with this play.  Viewed on a longer term chart pattern,
PWAV is forming a bearish wedge pattern with strong support
at the $15 level, which was briefly violated this week.  A
possible entry level could be taken on a roll over from $16,
particularly if it occurs in a down market.  Conservative
traders might want to wait for PWAV to close below $15 on
heavy volume, which would be a very bearish signal.
Considering the risk involved, we are keeping stops tight
at $17.

***March contracts expire in two weeks***

BUY PUT MAR-  20 VFQ-OD OI=158 at $4.88 SL=3.00
BUY PUT MAR-17.5*VFQ-OE OI=118 at $2.94 SL=1.50


EBAY - eBay Inc $37.69 (-6.75 last week)

eBay is the world's largest online trading community.  Founded in
September 1995, eBay is a powerful marketplace for the sale of
goods and services by a passionate community of individuals and
small businesses.  The sellers pay a fee to have their items
placed on the company's Web site and the buyers get to browse and
make bids on the merchandise.  If an item sells, eBay charges the
seller a percentage of the closing price.  The company's rivals
in the auctioning arena are Yahoo! and Amazon.com.

Formidable overhead resistance from major moving averages and
continued weakness in the Internet sector have conspired in the
recent decline in shares of online auctioneer EBAY.  Having
failed to rally above its 200-dma ($52) earlier this year, the
stock has since fallen below both its 100 and 50-dma (at $45 and
$42.58 respectively) on accelerating volume.  While the bulls
would argue that EBAY has a profitable business model, as
evidenced by its positive earnings figures, the bears would point
out that having earnings only means that the company cannot hide
behind its losses, with its triple-digit price/earnings ratio of
220.59 serving as a poster child of over-valuation.  Speculation
from Salomon Smith Barney that the company could merge with
Yahoo, along with the settlement of a lawsuit against Bidder's
Edge in EBAY’s favor helped the stock to buck Friday's NASDAQ
downturn.  Nonetheless, the technicals remain weak, as the stock
has been riding down the 5 and 10-dma ($40.20 and $42.90) these
past couple of weeks.  Provided that the downtrend remains
intact, look for EBAY's moving averages to act as a strong
barrier, with failed rallies providing aggressive traders with
opportunities for entry.  Just make sure that the stock continues
to close below our stop price of $40.  A drop below support at
$35 on renewed downside volume could allow the more conservative
to enter on weakness.  In making a play, Merrill Lynch's Internet
HOLDR (HHH) should provide an adequate measure of sentiment in
the dotcom space.

***March contracts expire in two weeks***

BUY PUT MAR-40*QXB-OH OI=2369 at $4.75 SL=3.00
BUY PUT MAR-35 QXB-OG OI=1054 at $2.38 SL=1.25


MERQ - Mercury Interactive Corp $48.50 (-21.56 last week)

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

The potential inability to meet high expectations put forth by
Street analysts combined with weakness in the NASDAQ has resulted
in a mass exodus of shareholders in MERQ.  Despite coverage
initiated by WR Hambrecht this past week with a Buy rating and a
12-month price target of $80, the stock has declined sharply on
accelerating volume.  Fears that the company can not maintain its
wide profit margins, along with concerns that earnings going
forward could suffer because of greatly reduced capital
expenditures on the part of its customers, punctuated by bad news
from B2B software giant Oracle, only added fuel to the fire sale.
The lack of positive announcements from the company in the form
of new customer wins and key strategic partnerships has also
helped to deal a blow in the stock's share price.  Friday's drop
of $10.50 or almost 18 percent on over 2.8 times the ADV not only
made our put play highly profitable, but also resulted in a dip
near its 52-week low of $45.  To protect our profits, we are
moving our protective stop down, from $63 to $56.  Oversold
bounces that fail at $50, $53, $55 and $56 could serve as
aggressive targets for higher risk players, but be sure to
confirm a rollover with selling volume.  The more risk averse may
want to wait for MERQ to fall below key support at $45 with
conviction before making a play.  In both cases, correlate
entries with direction in sector sisters CPWR and RATL.

***March contracts expire in two weeks***

BUY PUT MAR-50*RQB-OJ OI=380 at $7.88 SL=5.75
BUY PUT MAR-45 RQB-OI OI=392 at $5.13 SL=3.00


NEWP - Newport Corporation $42.38 (-14.88 last 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 manufacturer of machines used to produce Semiconductors and
Fiber Optic components, the fortunes of NEWP are intimately
connected to the goings on in the Chip and Networking sectors.
With book-to-bill ratios falling rapidly and news of plant
closings from many Semiconductor companies, along with earnings
warnings and lowered projected revenues by networking giants such
as Cisco and Nortel, it's no wonder that shareholders are
worried.  What's more, analysts have picked up on the bearish
sentiment.  ABD AMRO downgraded the stock from an Add to a Hold
rating.  Wit SoundView followed suit, dropping NEWP from a Strong
Buy to a Buy rating.  The company attempted to do some damage
control, by stating their intentions to grow sales 66 percent in
2001. This news was met by a skeptical market, as the stock has
continued its downward path.  High volume activity this week was
not surprising, as on Thursday NEWP was added to the S&P MidCap
400 Index (MID).  On Friday the stock experienced a bout of post
index addition blues.  This along with a weak NASDAQ resulted in
a drop of over 16 percent on over 1.6 times the ADV.  The break
below support at $45 is ominous indeed.  Look for this level to
act as an obstacle, with additional resistance from the 5-dma at
$48.64, providing aggressive entry points.  We are moving down
our stop from $55 to $49.  A break below Friday's low of $41.38
may be a signal for conservative players to play, using AMEX's
Networking Index (NWX) and Semiconductor Index (SOX) to gauge
Sentiment before doing so.

***March contracts expire in two weeks***

BUY PUT MAR-45*NZZ-OI OI=147 at $7.24 SL=5.00
BUY PUT MAR-40 NZZ-OH OI=155 at $4.63 SL=2.75


ADBE - Adobe Systems $27.69 (-4.94 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

ADBE's battle lines have been redrawn in the past 2 sessions as
the bulls and the bears slug it out at intraday support and
resistance.  On the heels of the ORCL earnings warning Thursday
night, software stocks came under renewed selling pressure,
dropping our play as low as $26.25 before buyers reappeared.
Volume swelled and the stock quickly ran up to the $29 level
before the downward trend re-emerged.  ADBE is likely to break
out of this range in the near future, with overall direction in
the NASDAQ and the Software sector (GSO.X) likely to be the
dominant factors.  This gives us a nice tight range to focus on
as we target new positions.  Aggressive traders will want to
open new plays on failed rallies to the $29 level (also the
location of the month-long descending trendline), while those
with a more conservative approach will wait for selling pressure
to push our play below the stubborn $26 support level.  While
still deep in oversold territory on the daily chart, ADBE is
rolling over on the intraday charts from overbought territory,
and showing further signs of weakness.  Even the lower Bollinger
band is now south of $25, giving our play more room to move to
the downside as Technology bulls continue to pull in their
horns.  While we still favor the downside on ADBE, keep your
positions on a short leash with stops set at $29.  As we can
see from the volatility of the past 2 sessions, the bulls are
just itching to get a rally started and are likely to grasp
at any excuse.

***March contracts expire in two weeks***

BUY PUT MAR-30*AEQ-OF OI=1947 at $4.00 SL=2.50
BUY PUT MAR-25 AEQ-OE OI= 895 at $1.63 SL=0.75


AMCC - Applied Micro Circuits Corp. $28.81 (-8.25 last week)

Fulfilling the need for speed, AMCC is a global provider of
high-performance, high-bandwidth integrated circuits used to
control the high-speed flow of transmissions through fiber-optic
telephone networks.  Communications products, used in LANs and
WANs, account for 55% of the company’s sales.  The company's
chips are also used in automated test equipment, high-speed
computing, HDTV, and military applications.  The company which
is growing through acquisitions, has a top-flite client list,
including Nortel, Raytheon, Alcatel, Cisco, 3Com and Lucent.

Joining the ever-growing confessional processional Thursday
afternoon, AMCC's CEO, David Rickey, lowered the company's
revenue guidance for the fourth quarter.  Revising estimates
down from $175 million to $125-135 million would have seemed to
be the death-knell for the stock and a boon to our play, but
schizophrenic traders apparently had other things in mind.  In
a rare show of optimism, traders apparently sold the rumor and
bought the news.  Investors that had sold AMCC in prior sessions
on rumors that the communications chip provider would warn in
the near future, did an about face and bought the stock when
trading resumed after the warning.  This rampant enthusiasm was
unexpected and nearly took out our stop before fear of darkness
took over, allowing the stock to settle back below $30.  Despite
trepidation and uncertainty about Greenspan's testimony on
Friday, the bulls were back at it by the time the Fed head was
through speaking, rallying the stock north of $32 before the
late-day selling took hold once again.  Again, AMCC settled
below the $30 level, and it looks like this is a good point to
focus on in the week ahead.  If the bulls are unable to crest
this level on a closing basis, AMCC is likely to head down with
the ever-weakening NASDAQ.  Keep an eye on the Semiconductor
index (SOX.X) as a way to gauge investor sentiment in the
sector.  The recovery that began Thursday afternoon seemed to
lose momentum Friday afternoon, and a further deterioration will
be just what we need to drag AMCC to new lows.  Conservative
traders will want to target new positions as the stock drops
below the $28 intraday support level, while more aggressive
players can target a rollover below our stop, which we have now
lowered to $30.

***March contracts expire in two weeks***

BUY PUT MAR-30*AEX-OF OI=1061 at $4.13 SL=2.50
BUY PUT MAR-25 AEX-OE OI=1131 at $1.75 SL=1.00




WAG $44.33 +0.96 (+1.53 last week) As we stated last week, WAG
appeared poised for another test of resistance at $45.  That is
exactly what happened early on Wednesday.  WAG traded at a high of
$45 and the sellers stepped in, taking the stock down for two days.
We have upped our stop to $43, which happened to be the near where
the stock settle on Thursday's close.  Yet, with Friday's report
that WAG's same-store sales rose 9.5% in February, the stock
powered higher for the first half of the day to $44.50.  Take a
look at an intraday chart from Friday.  The stock gave almost no
heat until the end of the day and exemplifies an almost perfect
day trade.  Supply held the stock from advancing beyond $44.50.
This should be kept in mind as profit takers may be locking in
their gains.  Once again, resistance at $45 is solid and a break
above there would attract a lot of buying.  Look for bounces from
intraday support at $44 for entries if WAG pulls back.  Below
that, $43 will be a key level of support as well as our stop loss.
The 10-dma currents lies at $43.64.

***March contracts expire in two weeks***

BUY CALL MAR-40*  WAG-CH OI= 354 at $4.59 SL=2.75
BUY CALL MAR-42.5 WAG-CV OI= 565 at $2.50 SL=1.25
BUY CALL APR-45   WAG-DH OI=2084 at $2.05 SL=1.00

DORL $28.81 +0.25 (+1.75 last week) Slowly but surely, that's just
the nature of Low Volatility plays.  Nevertheless, money can be
made and at a lower risk level.  After adding this play on
Wednesday, the stock pulled back in Thursday's session and offered
a prime entry point off of $28.  DORL climbed higher on Friday,
running into resistance at the $29 level.  Entries can be attained
on a break above this resistance level along with strong volume.
Pullbacks to support at $28, or the 10-dma at $27.75, accompanied
by a bounce would also be buyable.  Our stop loss is currently
set at $27.

***March contracts expire in two weeks***

BUY CALL MAR-25 QDL-CE OI=166 at $3.88 SL=2.75
BUY CALL MAR-30 QDL-CF OI= 43 at $0.56 SL=1.25  High Risk!
BUY CALL APR-25*QDL-DE OI=  1 at $4.50 SL=1.00

DJ $63.90 +1.01 (+4.40 last week) Friday's continuation of DJ's
recent tear brought the stock above its 200-dma of $62.86 for the
first time since last August.  With the newspaper industry facing
lower ad revenues going forward, DJ's announcement on Thursday
that it would raise the price of the Wall Street Journal for the
first time in more than 10 years should help insulate it from the
slowdown.  To gain entry, look for pullbacks toward the 200-dma
or $62.50 where buy support has been showing up.  The overhead
challenge will be $64, with $65 thereafter.  It would be better
to be patient will this play and gauge pullbacks for entry.  Our
stop remains at $62.

***March contracts expire in two weeks***

BUY CALL MAR-60 DJ-CL OI=445 at $4.10 SL=2.50
BUY CALL MAR-65 DJ-CM OI=500 at $0.95 SL=0.00  High Risk!
BUY CALL APR-60*DJ-DL OI=  0 at $5.50 SL=3.75

WM $51.10 +0.56 (+0.58 last week)  WM staged a nice comeback
throughout the week and avoided further distribution of its stock.
As it treads along the $50 level, which also happens to be our
stop, WM has been making strides higher.  It cleared resistance
at $51 and $51.50 on Friday, running for $52.50, just as we
stated last week.  Friday's high was $52.43 and sellers were right
there to take profits.  A break above that level very well may
bring sellers out, yet strong buying volume would attract more
buyers and would warrant entry.  A further pullback to support at
$50 accompanied by a bounce would be the best entry opportunity.

***March contracts expire in two weeks***

BUY CALL MAR-50 WM-CJ OI=1798 at $2.15 SL=1.25
BUY CALL APR-50*WM-DJ OI=2532 at $3.40 SL=1.75


GE $44.57 -1.34 (-1.61)  Resistance at $48 proved to be too strong
for GE, which has been climbing since January.  The turbulence of
the market this week not only knocked down GE from the $48 level,
it also sunk the bellwether below the trendline from which it
was ascending.  Friday's downside action broke that trendline
which roughly coincided with our stop level of $45.  Being a
Long Term play, current call holders with far out expirations may
chose to ride it out.  Otherwise, considering stop losses if GE
does not make a decent recovery.

PSS $75.35 +0.28 (+1.05) On Tuesday, we saw PSS pull back to its
10-dma after Monday's breakout to new highs.  We viewed this as
an entry opportunity into an uptrending stock in a sector which
is performing well.  Yet, since then, PSS has been rolling over
ever so slightly.  While buyers supported the stock on Friday
at $74, sellers where hiding out at $76.  The past three sessions
have seen supply come into PSS at lower levels.  Profit taking
obviously is occurring and we feel that PSS may be in for some
consolidation after failing to following through on Monday's
breakout.  This Low Volatility call did not violate our stop at
$74.50, so use that as a guide for current positions.  The
50-dma is at $71.06 and the stock may be in for a pullback to
that level.

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

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Seems Like Deja Vu To Me
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.

Sound familiar?  It should, as it was the first few lines of
last week's commentary.  Aside from some minor details, it
applies directly to the market with which we are faced right
now.  This past week, the new low of 2071 came on Thursday,
rather than Friday, but the pattern remains the same.  Buyers
are as scarce as hens' teeth and the result is that the NASDAQ
has been left to suffer the effects of gravity without a
parachute.  Thursday's low was the Technology index's lowest
point since December of 1998, and if buyers don't come off the
sidelines soon, it looks like we will be visiting the sub-2000
area before the Federal Reserve cuts interest rates in a little
over 2 weeks.  Even the DJIA is having a hard time, with three
tests of the critical 10,300 support level in the past 6

The VIX surged through its upper Bollinger band again this week,
briefly cresting the 34 level on Thursday, but the lack of
capitulation selling or high-volume buying would seem to
indicate it will head higher still.  Recall the market declines
of 1997 and 1998, where the VIX crested 50 before buyers
returned in sufficient numbers to buoy equity prices off their
lows?  Ending the week at 30.86, the VIX is in historical
'Buy' territory, but we need a lot more convincing before we
will look at this as a great entry point for long-term

While there is a record amount of cash sitting on the sidelines,
there just isn't any reason for it to find its way into
equities.  The economic slowdown is really starting to hit home
with individual investors, and anyone not wearing rose-colored
glasses (and dark ones at that!) can see that we are in a
recession.  Greenspan's lack of action this past week, although
not surprising, is disconcerting.  I can see one of two possible
scenarios relating to our illustrious Fed head.

The first is that he is already seeing signs of a bottoming
process in the economic indicators (although I don't see how),
and is loathe to over-stimulate (yeah, right!) the economy and
perhaps usher in inflation.  If that is in fact the case, then
bulls can take heart.  Since the equity markets move in advance
of the actual economy, then signs of economic recovery in the
months ahead will be met with buyers coming off the sidelines
in droves.  Oh, wouldn't that be lovely!

Before you get too excited, lets talk about the other
possibility.  Could it be that Greenspan is losing his Midas
touch, or worse yet, that it is becoming the reverse Midas
touch, where everything he touches turns to lead?  It seems as
though every economist or analyst (Wayne Angell included) is
seeing an economy that is in dire straights and desperately in
need of stimulation.  But Uncle Alan doesn't see it?  Come on!
Something just doesn't seem right here.  Watching one of the
late-night cable news shows last week, I heard a comment that
casts a different light on the Fed's current monetary policy.
"Alan Greenspan preached for years about the 'irrational
exuberance' and the fact that the equity markets were
overextended.  He's determined to be right".  Could it be that
he got tired of market bulls thumbing their nose at him, and is
keeping the purse strings tight until he feels they (we) have
learned their lesson?

Whatever the case may be, we are due to suffer more pain in the
equity markets before things improve enough to warrant new
long-term positions.  Greenspan will likely cut rates at the
March 20th FOMC meeting, but that and the two 50 basis point
cuts in January will not be felt by the broad economy until the
end of summer.  Why would you want to tie up your capital for
the next 6 months on the hopes that things might get better all
by themselves?

If you are a techaholic (join the club), then your best course
of action for the near term is two-fold.  First-off, keep your
hands in your pockets, as that will keep you from clicking on
the 'Buy' button when you see your favorite Technology stock
trading at an 'unbelievable bargain'.  Odds are that it will
get even cheaper in the weeks and months ahead and it is much
safer to enter new positions on the way back up than trying to
catch the proverbial falling knife.  Your second task is to take
advantage of your hiatus from active trading and add something
to your arsenal of tools.  It doesn't matter what it is, so long
as you learn.  Write a trading plan, read a new book on
technical or fundamental analysis, analyze your trading
decisions over the past year, or paper trade for awhile.  All of
these activities will serve to make you a better trader,
improving your trading results in the future.

Even defensive plays like WMT, CLX, CPN, and the like are having
a hard time making any headway.  Financial stocks normally do
well in a declining interest rate environment, but as you can
see by our drop of AXP this weekend, even that safe haven is
suspect.  C isn't doing much better, and WM is looking downright
stellar just by its ability to not lose ground.

Not only is there a dearth of good candidates for new LEAPS
plays, we were hard pressed to find a single play on our list
that looks like an attractive candidate for new entries in the
week ahead.  Remember our Spotlight of CSCO last week where we
were targeting a bounce near the $22 level?  The stock fell to
$22.19 at the close on Friday, but still doesn't look like a
good entry.  With heavy selling volume driving the stock to new
yearly lows on a daily basis, (actually Friday's close was a
2-year low), it looks like CSCO could see the sub-$20 area
before the week is out.  This isn't an isolated case either,
underscoring the necessity of using stops to both preserve
profits, and more importantly, limit losses.

Until we can see signs that the economy is coming out of its
stupor, trading the long side is a risky venture at best.  The
time to be bullish will return, and hopefully soon.  We'll keep
a sharp eye out for signs of improvement, but in the meantime,
hold your fire.  Cash is your ammunition, and you don't want to
shoot until you can see the whites of their eyes.

Have a good week!

Current Plays


EMC    11/07/99  JAN-2002 $ 45  WUL-AI   $ 9.50   $ 8.40   -11.58%
       09/17/00  JAN-2003 $100  VUP-AT   $32.75   $ 3.40   -89.62%
CSCO   11/14/99  JAN-2002 $ 45  WIV-AI   $11.00   $ 1.19   -89.20%
       11/26/00  JAN-2003 $ 60  VYC-AL   $16.63   $ 1.88   -88.72%
AOL    03/12/00  JAN-2002 $ 65  WAN-AM   $18.63   $ 2.10   -88.73%
       08/13/00  JAN-2003 $ 55  VAN-AK   $17.50   $ 8.10   -53.71%
AXP    03/12/00  JAN-2002 $46.6 WXP-AQ   $ 9.33   $ 6.70   -28.19%
WM     03/19/00  JAN-2002 $ 30  WWI-AF   $ 5.38   $22.70   321.93%
       10/22/00  JAN-2003 $ 45  VWI-AI   $ 7.88   $14.30    81.59%
C      06/18/00  JAN-2002 $48.8 YSV-AW   $10.31   $ 7.80   -24.35%
       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   $30.88    80.24%
                 JAN-2003 $ 70  OZG-AN   $23.13   $39.38    70.23%
BGEN   11/05/00  JAN-2002 $ 70  WGN-AN   $17.25   $16.38   - 5.07%
                 JAN-2003 $ 70  VNG-AN   $25.00   $24.75   - 1.00%
MU     11/26/00  JAN-2002 $ 45  WGY-AI   $13.13   $ 8.10   -38.29%
                 JAN-2003 $ 45  VGY-AI   $17.25   $12.80   -25.80%
QQQ    12/10/00  JAN-2002 $ 70  WNQ-AR   $15.13   $ 2.80   -81.49%
                 JAN-2003 $ 75  VZQ-AW   $19.25   $ 4.90   -74.55%
WMT    12/24/00  JAN-2002 $ 55  WWT-AK   $ 9.63   $ 6.40   -33.51%
                 JAN-2003 $ 55  VWT-AK   $14.00   $10.50   -25.00%
DELL   01/07/01  JAN-2002 $ 20  WDQ-AD   $ 5.25   $ 6.38    21.43%
                 JAN-2003 $ 25  VDL-AE   $ 5.63   $ 6.63    17.67%
WCOM   01/14/01  JAN-2002 $ 25  WQM-AE   $ 5.00   $ 1.69   -66.25%
                 JAN-2003 $ 25  VQM-AE   $ 7.38   $ 3.38   -54.24%
CPN    01/21/01  JAN-2002 $ 40  YLN-AH   $10.50   $13.20    25.71%
                 JAN-2003 $ 40  OLB-AH   $15.38   $18.00    17.07%
CLX    02/11/01  JAN-2002 $ 40  WUT-AH   $ 5.20   $ 3.80   -26.92%
                 JAN-2003 $ 40  VUT-AH   $ 8.10   $ 6.60   -18.52%
JWN    02/18/01  JAN-2002 $22.5 WNZ-AX   $ 3.30   $ 2.05   -37.88%
                 JAN-2003 $ 25  VNZ-AE   $ 4.10   $ 2.65   -35.37%

Spotlight Play


New Plays



AXP $43.75 Continuing lower over the past 2 weeks, AXP can't
seem to find any respite from the relentless selling.  The
stock has now turned the $45 support level into resistance and
looks poised to challenge the next support level at $40 in the
near future.  Despite falling interest rates, the negative
impact of a slowing economy is having an even more pronounced
effect on Financial stocks, and AXP is no exception.  As a
matter of fact, if signs of economic recovery fail to
materialize soon (and why would they with the Fed standing on
the sidelines), AXP could very easily be headed much lower.
Since adding it to the list the stock rallied strongly from
just above $40 to north of $60, and has now returned to where
it started a year ago.  Handsome profits were made in the
process, but the persistent downtrend over the past 5 months
makes further bullish plays ill-advised at this time.  We think
the most prudent course of action is to remove it from our
playlist, and wait for economic conditions to improve.

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The Option Investor Newsletter                   Sunday 03-04-2001
Sunday                                                      5 of 5

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Charting Basics: The Stochastic Oscillator
By Mark Wnetrzak

Our recent discussion of overbought/oversold indicators prompted
one of our subscribers to ask about the use of "Stochastics" to
identify potential entry and exit points.

Oscillators can be valuable tools for analyzing stocks, but they
are also among the most misunderstood indicators.  In the study
of financial issues, oscillators offer a mathematically derived
measure of a specific market's momentum; its rate of acceleration
or deceleration.  In any trend, prices are gaining, maintaining,
or losing momentum.  A loss of momentum can be a hidden reversal
signal or a warning sign that the trend may be coming to an end.
The stochastic oscillator compares the current stock price to its
price range over a specifically identified period of time.  This
technique is based on the idea that in an upward trending market,
stocks tend to close near their highs and in a downward trending
market, stocks tend to close near their lows.  That would indicate
that as an upward trend erodes, stocks close further away from the
highs and vice versa.  The stochastic indicator attempts to show
when prices start to group around their lows in an bullish market,
and just the opposite in a down-trending market.  The theory is
that these are the conditions which indicate a trend reversal is
about to occur.

The stochastic indicator is plotted as two lines (%D and % K)
on a chart with values ranging from 0 to 100.  The %D line is
considered more significant of the two.  Stochastic readings
above 80 indicate that price is closing near its highs and
likewise, readings below 20 indicate that price is closing near
its low.  Ordinarily, the %K line will reverse direction before
the %D line but, when the %D line changes direction prior to the
%K line, moving back down through the 80 range (or up through
the 20 range), a reversal in the price is usually indicated.  A
very powerful move is indicated when the plot approaches 100 (
or 0) and then reverses back down through 80 (or up through 20).
Many times, when the %K or %D lines begin to flatten out, this
is an indication that the momentum is changing and may be the
first sign that the current price trend may soon reverse.

One of the simplest applications of the oscillator is to identify
the divergence between price and momentum.  That situation occurs
when the stock price is making higher highs but the stochastic
oscillator is making lower lows (or the opposite).  Remember, the
purpose of an oscillator is to alert traders to a potential failed
rally or the possible conclusion of a sell-off.  If the stochastic
indicator fails to confirm a stock's new high, traders should wait
for %K to cross below %D and to drop below 80 before considering
an exit.  When the stochastic indicator fails to achieve a new low
along with the share value, investors should wait for %K to cross
above %D and to climb above 20 before entering a new position.  In
any case, a bullish or bearish stochastic divergence should always
be validated by the market's price action.  When used correctly,
the stochastic oscillator can often demonstrate a change in price
before the reversal actually occurs, and that can be very helpful
in determining the appropriate time to enter or exit a position.

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

ACPW   20.38  18.00   MAR  17.50  4.38  *$  1.50  10.2%
PHSY   36.88  32.38   MAR  30.00  8.75  *$  1.87   9.6%
ACLS   11.13  10.38   MAR  10.00  1.88  *$  0.75   8.8%
ORG    10.96  11.50   MAR  10.00  1.50  *$  0.54   8.3%
GLFD   20.38  22.00   MAR  20.00  1.44  *$  1.06   8.1%
ESCM   16.84  21.81   MAR  15.00  2.88  *$  1.04   8.1%
MNMD   38.25  35.13   MAR  35.00  4.88  *$  1.63   7.1%
NVLS   45.38  40.94   MAR  40.00  7.00  *$  1.62   6.1%
URBN   10.44  11.13   MAR  10.00  1.06  *$  0.62   5.7%
GLGC   23.94  20.13   MAR  20.00  4.88  *$  0.94   5.4%
PLMD   39.44  38.75   MAR  30.00 10.50  *$  1.06   5.3%
LTBG   14.19  12.50   MAR  12.50  2.13   $  0.44   5.3%
GMST   49.50  41.94   MAR  40.00 10.88  *$  1.38   5.2%
ROAD   25.06  25.13   MAR  25.00  1.25  *$  1.19   4.3%
AMSY   22.88  22.63   MAR  20.00  3.63  *$  0.75   4.2%
CSTR   16.75  17.63   MAR  15.00  2.44  *$  0.69   4.2%
WGR    28.00  25.75   MAR  25.00  4.00  *$  1.00   3.6%
CSTR   17.06  17.63   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  23.31   MAR  22.50  1.88  *$  0.82   3.3%
NXCD   11.38   9.38   MAR  10.00  2.31   $  0.31   2.5%
SGI     5.00   4.65   MAR   5.00  0.40   $  0.05   0.9%
ATRX   23.00  18.94   MAR  20.00  4.00   $ -0.06   0.0%
ANSR    8.09   6.38   MAR   7.50  1.44   $ -0.27   0.0%
LGTO   17.88  12.41   MAR  15.00  3.88   $ -1.59   0.0%
PRGN   28.63  20.94   MAR  25.00  5.00   $ -2.69   0.0%

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


Many of the above issues are testing support near their sold
strikes and should be monitored closely over the next two weeks.
Pacificare Health (NASDAQ:PHSY) (after Thursday's court ruling)
and Atrix Labs (NASDAQ:ATRX) are testing their 150 dma's - a key
moment for both issues.  Legato Systems (NASDAQ:LGTO) failed to
hold at its 150 dma and will be shown closed next week.  Peregrine
Systems (NASDAQ:PRGN) has also broken down - exiting the position
may be prudent.

Positions Closed:

Ultratech Stepper (NASDAQ:UTEK)


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

CLPA    6.22  APR   5.00  QJC DA  2.06  173   4.16   49    12.5%
MCCC   20.50  MAR  20.00  MUD CD  1.44  18   19.06   14    10.7%
ITN    13.56  MAR  12.50  ITN CV  1.55  650  12.01   14     8.9%
DCEL   19.50  MAR  17.50  DDU CW  2.63  20   16.87   14     8.1%
VPHM   26.69  MAR  22.50  HPU CX  5.00  108  21.69   14     8.1%
MKC    40.00  MAR  40.00  MKC CH  1.00  286  39.00   14     5.6%
ERTS   51.81  MAR  45.00  EZQ CI  7.88  83   43.93   14     5.3%

Company Descriptions

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

CLPA - Cell Pathways  $6.22  *** Cheap Speculation! ***

Cell Pathways (NASDAQ:CPLA) is a pharmaceutical company focused
on the research, development and commercialization of products
to prevent cancer and to treat cancer.  Their technology is based
upon CLPA's discovery of a novel mechanism that it believes can
be targeted to induce selective apoptosis, or programmed cell
death, in certain pre-cancerous and cancerous cells without
affecting normal cells.  CLPA has created a class of selective
apoptotic anti-neoplastic drugs (SAANDs) and has synthesized over
500 new chemical compounds in this unique group.  In screening
assays, over 200 of these drugs display significantly greater
apoptotic potency than CLPA's lead drug product, Aptosyn.  CLPA
was hammered last September as the FDA decided it would need
further information before approving the company's NDA on
Aptosyn.  Now the issue is recovering from the selling pressure
and forming a Stage I base.  With the company focusing its
resources on registration-directed trials in multiple cancer
indications, a cost basis near $4 seems like a reasonable price
to speculate on the future.

APR 5.00 QJC DA LB=2.06 OI=173 CB=4.16 DE=49 MR=12.5%

DCEL - Dobson Communications  $19.50  *** Buyout Candidate? ***

Dobson Communications (NASDAQ:DCEL) is a leading provider of
cellular phone services to rural markets in the United States.
Headquartered in Oklahoma City, the Company owns or manages
wireless operations in 19 states.  In early February, AT&T
Wireless purchased 200,000 shares of Dobson Communications'
Series AA preferred stock for $200 million.  AT&T has said
that it is in further negotiations with Dobson Communications
regarding increasing its ownership and may even acquire the
company.  A favorable cost basis from which to speculate on
the outcome of the negotiations.

MAR 17.50 DDU CW LB=2.63 OI=20 CB=16.87 DE=14 MR=8.1%

ERTS - Electronic Arts  $51.81  *** If it's in the Game... ***

Electronic Arts (NASDAQ:ERTS) operates in two principal business
segments: EA Core and EA.com.  Through EA Core, the company makes,
markets and distributes interactive entertainment software for a
variety of hardware platforms.  EA.com represents Electronic Arts'
online and e-Commerce business.  EA.com's online business includes
subscription revenues collected for Internet game play on their
web-sites, sales of Internet-based games and sales of Electronic
Arts products sold through EA.com websites.  In late January,
Electronic Arts reported quarterly earnings that were less than
outstanding, but investors chose instead to focus on the company's
future outlook.  The company says it will be profitable next year
and this week's purchase of gaming Web site Pogo.com, should draw
more new paying subscribers to help meet that financial target.
Analysts believe EA.com needs about 600k-700k more subscribers to
meet its financial goals, equivalent to nearly 5% of pogo.com's
registered users.  A reasonable short-term return with a cost
basis at support.

MAR 45.00 EZQ CI LB=7.88 OI=83 CB=43.93 DE=14 MR=5.3%

ITN - InterTAN  $13.56  *** Buyout/Merger Speculation? ***

InterTAN (NYSE:ITN) is engaged principally in the sale of consumer
electronics products and services through Company-operated retail
stores and dealer outlets in Canada and Australia.  In Canada,
the Company also operates cellular telecommunications stores (the
Rogers AT&T Stores) on behalf of Rogers Cantel Inc.  InterTAN's
ongoing retail operations are conducted through two wholly owned
subsidiaries, InterTAN Australia, which operates in Australia
under the trade name Tandy, and InterTAN Canada, which operates
in Canada under the trade name RadioShack.  InterTAN recently
reported that its same store sales increased 11% as it once again
delivered double-digit growth in its audio/video categories.
Even so, the latest surge in price may be more related to
InterTAN retaining Salmon Smith Barney to "investigate and
evaluate multiple strategic options" to enhance shareholder
value.  We simply favor the bullish breakout above the October
to February consolidation area.

MAR 12.50 ITN CV LB=1.55 OI=650 CB=12.01 DE=14 MR=8.9%

MCCC - Mediacom  $20.50  *** Next Leg Up? ***

Mediacom Communications (NASDAQ:MCCC) is the 9th largest cable
television company in the U.S. offering an array of broadband
services, including cable television, advanced digital video
programming and high-speed Internet access.   The Company's
cable systems pass approximately 1.2 million homes and serve
approximately 780,000 basic subscribers in 22 states.  This
week, Mediacom reported its 4th-quarter revenues were $87.5
million, an increase of 39.3%,  and EBITDA was $41.0 million,
an increase of 44.2%.  The Company estimates that in 2001 it
will achieve pro forma revenue growth of 12.0% to 14.0% and
pro forma EBITDA growth of 11.5% to 13.5%.  Mediacom also
announced that it is buying AT&T Broadband's systems in Iowa,
Georgia, Illinois and Missouri in a $2.2 billion cash deal,
doubling its current size.  SG Cowen has upgraded their rating
on Mediacom to "strong buy."  A reasonable entry point on a
technically bullish chart.

MAR 20.00 MUD CD LB=1.44 OI=18 CB=19.06 DE=14 MR=10.7%

MKC - McCormick  $40.00  *** Blue Sky Territory! ***

McCormick & Company (NYSE:MKC) is the global leader in the
manufacture, marketing and distribution of spices, seasonings
and flavors to the entire food industry - to foodservice and
food processing businesses as well as to retail outlets.  In
addition, the packaging group manufactures and markets specialty
plastic bottles and tubes for personal care and other industries.
In January, McCormick reported record sales and earnings per
share for the fourth quarter and fiscal 2000.  The company
expects that most of their earnings per share growth for 2001
will occur in the second half of the year, due to the dilution
effects of its acquisition of Ducros, the leading spice business
in Europe.  Even a downgrade by Merrill Lynch to "NT accumulate"
did little to stop investors from pushing McCormick to a new
all-time high and this position offers favorable short-term
speculation on its future movement.

MAR 40.00 MKC CH LB=1.00 OI=286 CB=39.00 DE=14 MR=5.6%

VPHM - ViroPharma  $26.69  *** New Agreement! ***

ViroPharma (NASDAQ:VPHM) is a pharmaceutical company engaged in
the discovery and development of new antiviral medicines for the
treatment of diseases caused by RNA viruses including:  viral
respiratory infection (VRI); viral meningitis; hepatitis C; and
respiratory syncytial virus (RSV) diseases.  The company has
recently completed enrollment in their ongoing VRI Phase III
studies, and expects to announce results in April.  Pending
favorable results, the company expects to file for a NDA later
this year.  The rally in ViroPharma this week is due to a
revised agreement with Sanofi-Synthelabo for pleconaril, VPHM’s
most advanced product candidate.  The new agreement expands
ViroPharma's intellectual property rights and should dramatically
enhance the commercial potential of pleconaril.  We simply favor
the bullish implications of the recently completed short-term
head-n-shoulders bottom.

MAR 22.50 HPU CX LB=5.00 OI=108 CB=21.69 DE=14 MR=8.1%



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

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

PGNX   16.75  MAR  15.00  GUB CC  2.50  3    14.25   14    11.4%
CVNS   11.44  APR  10.00  CQQ DB  2.50  20    8.94   49     7.4%
WCNX   31.63  MAR  30.00  NBU CF  2.38  118  29.25   14     5.6%
AMAT   45.25  MAR  40.00  ANQ CH  6.25  911  39.00   14     5.6%
CLCI   10.13  APR  10.00  QAZ DB  0.94  275   9.19   49     5.5%

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

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market updates, plays, education and daily commentaries by
those who know.

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Position Management: Exit Strategies
By Ray Cummins

Learning to correctly manage portfolio positions; maximizing gains
while limiting losses, is one of the most important aspects of
successful trading.  The first thing a trader should realize is
that they should never enter a position without a pre-planned exit
strategy.  The reason for this approach is simple: the most common
reason for losing money in the options market is failing to close
a position in a timely manner, regardless of whether the action is
to limit losses or lock-in gains.  A surprising number of traders
achieve excellent profits, but end up giving most (or all) of it
back simply because they don't develop a sensible plan to manage
each position.  The majority of market professionals utilize limit
orders in conjunction with profit targets and protective stops to
curb losses, but the retail trader is far less proficient in this
practice.  Using sell-stops eliminates the risk of emotional or
reaction-based judgments in difficult situations and removes human
nature from the equation.  A mechanical and disciplined method for
achieving profit is the key to consistent success and allowing the
market to make the exit decision is much more precise than relying
on our complex human intuition.

Unfortunately, there are a number of difficulties associated with
using trading stops in the options market.  The first problem is
how to determine the point at which to exit.  As we noted in last
week's narrative, most methods of position management fit into one
of two categories: a target profit or loss limit; or a technical
exit based on the chart indications of the issue.  The most common
technique for preserving capital; using a closing stop, is simple
as long as one adheres to the initially established limits.  It is
each trader's responsibility to determine the appropriate level
of portfolio funds that are invested in any one play and also the
percentage loss of a position that would trigger its exit.  This
percentage then becomes a constant to judge whether a prospective
position's stop, relative to its entry price, is consistent with a
trader's pre-determined risk exposure.  The alternative method; a
technicals-based exit, is more difficult.  As you might expect,
the proper placement of sell-stops requires a thorough knowledge
of chart analysis and basic market trends or cycles.  The primary
price support areas and short-term (18 - 40 dma) moving averages
are the main indicators that determine the initial target limits,
but there are many different indicators available to establish an
acceptable exit point.  With this type of position management, the
play is closed after the issue violates a pre-determined level or
when conditions no longer favor a trend's continuation.  Ideally,
the best method is to identify a specific and dynamic target for
each position, based on the underlying issue's technical history
(including character and volatility) and the overall market trend.

Another obstacle that option traders must overcome is the tendency
to place stop-loss orders at common levels, where they are less
effective and more likely to receive unwanted fills.  The problem
with most retail players is they use similar logic to place stops
in concentrated areas based on trend lines, moving averages, price
gaps and other popular chart formations.  Novice participants are
known for using obvious stop-loss prices such as whole numbers or
familiar fractions, rather than more precise amounts, and yet they
are the first ones to complain to their broker about "bad" trades.
The truth is, when the underlying issue has a volatile character
or moves in a relatively large range, it's easy for floor traders
to migrate the market to those areas for short periods, so that
waiting orders (whether unwanted or not) can be filled.  At times,
it appears there is almost a magnetic pull to certain levels but
in reality, it is just the specialists' desire to make trades and
maintain liquidity in the market.  Some traders try to avoid this
problem by not using specific exit targets while others position
their stops at distinctive prices.  One factor new traders often
overlook is that a stop is an order to sell "at the market" while
prices are dropping, or to buy "at the market" while prices are
rising, and it is quite common to receive fills that are beyond
the specified stop level.  The difference between the stop price
and the actual execution price is referred to as "slippage" and
with the extreme volatility inherent in many issues, sometimes it
does not make sense for traders to use GTC or stop-loss orders,
since the whipsawing in prices can easily cause what in hindsight
may be unwanted fills.

Next week, we will continue this discussion of position management
and the methods that successful traders use to maximize portfolio

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

MDR    15.80  13.35   MAR  12.50  0.40  *$  0.40  12.2%
TSN    13.55  12.60   MAR  12.50  0.65  *$  0.65  11.3%
MDR    15.29  13.35   MAR  12.50  0.60  *$  0.60  11.1%
NEM    15.96  16.60   MAR  15.00  0.40  *$  0.40  10.0%
KSWS   31.50  29.75   MAR  30.00  1.38   $  1.13   9.8%
SGR    52.04  52.70   MAR  45.00  1.30  *$  1.30   9.4%
OLOG   23.38  24.13   MAR  22.50  0.56  *$  0.56   9.0%
PHTN   25.25  25.50   MAR  20.00  0.31  *$  0.31   8.4%
APWR   42.50  36.00   MAR  30.00  0.69  *$  0.69   8.2%
ATVI   22.50  23.25   MAR  20.00  0.38  *$  0.38   8.0%
AMAT   47.94  45.25   MAR  37.50  0.56  *$  0.56   8.0%
HGSI   48.81  56.44   MAR  35.00  0.56  *$  0.56   7.9%
LPNT   41.31  38.50   MAR  35.00  0.56  *$  0.56   7.5%
TSO    13.32  12.98   MAR  12.50  0.40  *$  0.40   7.1%
ABMD   25.44  20.50   MAR  15.00  0.50  *$  0.50   6.5%
OII    22.50  21.75   MAR  20.00  0.40  *$  0.40   6.3%
NAUT   19.19  17.94   MAR  17.50  0.56  *$  0.56   6.2%
BPOP   27.38  27.63   MAR  25.00  0.50  *$  0.50   6.0%
RBK    31.20  26.94   MAR  25.00  0.45  *$  0.45   5.8%
OII    22.00  21.75   MAR  20.00  0.45  *$  0.45   5.4%
AL     38.25  37.75   MAR  35.00  0.60  *$  0.60   4.1%
UIS    18.91  16.89   MAR  17.50  0.65   $  0.04   0.6%
TPTH   12.75   9.50   MAR  10.00  0.44   $ -0.06   0.0%
BRIO   13.38   7.63   MAR  10.00  0.63   $ -1.74   0.0%

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


McDermott International (NYSE:MDR) continues to hold above its
50 dma.  Both positions above could be exited now for a small
loss ($0.10 - $0.30), based on Friday's closing price.  Brio
Tech (NASDAQ:BRIO) joined the crowd by warning this week.  We
will show the position closed.  Tripath Imaging (NASDAQ:TPTH)
is suffering after posting earnings this week though it appears
to be holding at support.  Using any oversold rally to exit the
position may be prudent.  Monitor issues that are now showing
excessive weakness; K-Swiss (NASDAQ:KSWS) and Reebok (NYSE:RBK)
and re-evaluate your long-term outlook for each position.

Positions Closed:

Spectrian (NASDAQ:SPCT), Homestore.Com (NASDAQ:HOMS)


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

BSTE   37.25  MAR  30.00  BQS OF  0.63  40   29.37   14    16.5%
PLMD   38.75  MAR  30.00   PM OF  0.63  5233 29.37   14    16.3%
NOVT   36.94  MAR  30.00  QOH OF  0.56  172  29.44   14    14.5%
VSEA   31.03  MAR  25.00  UES OE  0.44  102  24.56   14    14.0%
ADVP   45.13  MAR  40.00  QVD OH  0.81  357  39.19   14    12.8%
EFII   24.88  MAR  22.50  EFQ OX  0.38  90   22.12   14    10.4%
TMK    36.28  MAR  35.00  TMK OG  0.55  0    34.45   14     8.7%

Company Descriptions

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

ADVP - AdvancePCS  $45.13  *** Health Services ***

AdvancePCS (NASDAQ:ADVP), formerly known as Advance Paradigm, is
a provider of health improvement services, offering its clients a
comprehensive array of pharmacy benefit management, disease
management, clinical trials and research, web-based marketing
support and other health-related programs.  AdvancePCS generates
revenues from providing services to two primary customer groups;
health benefit plan sponsors and pharmaceutical manufacturers.
The company markets to includes Blue Cross Blue Shield plans and
other managed care organizations, insurance companies, government
agencies, employer groups and labor union-based trusts.  ADVP also
provides clinical research services primarily to pharmaceutical
manufacturers.  AdvancePCS is the nation's largest independent
provider of health improvement services and a great addition to
any balanced portfolio.  Our position offers a conservative cost
basis in the issue.

MAR 40.00 QVD OH LB=0.81 OI=357 CB=39.19 DE=14 MR=12.8%

BSTE - Biosite Diagnostics  $37.25  *** Trading Range? ***

Biosite Diagnostics (NASDAQ:BSTE) develops and markets accurate
and cost-effective diagnostic products designed to improve the
quality of patient care and simplify the practice of laboratory
medicine.  The company's two product platforms, the Triage Panel
and the Triage Meter System, are designed to provide rapid results
through either qualitative visual readings or quantitative meter
readings.  Both of the company's product platforms utilize its
expertise in antibody engineering, analyte cloning, signaling
chemistry, micro capillary fluidics and sampling technologies.
The principal markets for the company's products are hospital
laboratories, emergency departments and point-of-care locations.
After a recent technical consolidation, the issue has established
a relatively stable trading range and our position provides an
excellent opportunity for conservative "drug sector" speculation.

MAR 30.00 BQS OF LB=0.63 OI=40 CB=29.37 DE=14 MR=16.5%

EFII - Electronics For Imaging  $24.88  *** On The Rebound? ***

Electronics For Imaging (NASDAQ:EFII) designs and markets products
that support color and black-and-white printing on a variety of
peripheral devices.  The company's products incorporate hardware
and software technologies that transform copiers and printers from
many leading copier manufacturers into fast, high quality networked
printers.  The company's Fiery products include stand-alone servers,
which are connected to digital copiers and other peripheral devices,
and Fiery controllers, which are embedded in digital copiers and
desktop color laser printers.  EFII sells its products primarily to
original equipment manufacturers in North America, Europe and Japan.
Electronics For Imaging is noted for solid fundamentals and experts
say it has excellent growth potential.  Traders who agree with that
outlook should consider this position for a potential entry point
in the issue.

MAR 22.50 EFQ OX LB=0.38 OI=90 CB=22.12 DE=14 MR=10.4%

NOVT - Novoste  $36.94  *** What's Up? ***

Novoste (NASDAQ:NOVT) is a leader in the unique field of vascular
brachytherapy (radiation therapy) to reduce the incidence of
restenosis.  The company has developed the Beta-Cath System, which
is a hand-held device designed to deliver beta or low penetration
radiation to the site of a treated blockage in a coronary artery
to decrease the likelihood of the re-narrowing of a previously
treated artery.  Restenosis is the major limitation of angioplasty
treatments, which are used by interventional cardiologists to open
blocked coronary arteries.  NOVT shares rallied Friday, without
any public news to explain the move.  Traders who expect the trend
to continue can speculate on that outcome with this conservative

MAR 30.00 QOH OF LB=0.56 OI=172 CB=29.44 DE=14 MR=14.5%

PLMD - PolyMedica  $38.75  *** Entry Point? ***

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 it is under investigation.
For those who favor PLMD's fundamentals; growing earnings, free
cash flow and a balance sheet with no debt, this position offers
a reasonable cost basis in the issue.

MAR 30.00 PM OF LB=0.63 OI=5233 CB=29.37 DE=14 MR=16.3%

TMK - Torchmark  $36.28  *** Own This One! ***

Torchmark (NYSE:TMK) is an insurance and diversified financial
services holding company.  Torchmark, through its subsidiaries,
provides a variety of life and health insurance products and
annuities to a broad base of customers.  Torchmark insurance
subsidiaries are licensed to sell insurance in all 50 states,
the District of Columbia, Puerto Rico, the Virgin Islands, Guam,
New Zealand and Canada.  The company is the parent for businesses
operated by Liberty National Life Insurance, Globe Life and
Accident Insurance, United American Insurance, United Investors
Life Insurance, and American Income Life Insurance.  Torchmark
is a solid company in the insurance industry and this position
offers excellent portfolio diversification for traders who need
a broad market hedge.

MAR 35.00 TMK OG LB=0.55 OI=0 CB=34.45 DE=14 MR=8.7%

VSEA - Varian Semiconductor  $31.03  *** Semiconductor Sector! ***

Varian Semiconductor (NASDAQ:VSEA) designs, manufactures, markets
and services semiconductor equipment used in the fabrication of
integrated circuits.  As a leading supplier of ion implantation
systems, the company has shipped more systems worldwide than all
other competitors combined and to virtually every major chipmaker
in the world.  The company has introduced leading-edge technology
that leverages single-wafer processing to the entire spectrum of
energies and implant applications.  This approach led to a product
that is highly differentiated by its unique capabilities, greater
throughput and improved process yields.  This week's pick in the
semiconductor sector is VSEA, and traders who want to speculate on
a recovery in the group can do so in a conservative manner with
this OTM Put position.

MAR 25.00 UES OE LB=0.44 OI=102 CB=24.56 DE=14 MR=14.0%



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

XLNX   42.50  MAR  35.00  XLQ OG  1.25  5227 33.75   14    25.3%
FWC    15.31  MAR  15.00  FWC OC  0.60  34   14.40   14    20.3%
NVLS   40.94  MAR  35.00  NLQ OG  0.94  3707 34.06   14    18.0%
FLR    40.41  MAR  40.00  FLR OH  0.95  0    39.05   14    12.4%
RCII   42.06  MAR  40.00  RQG OH  0.75  356  39.25   14    10.5%
UCL    36.48  MAR  35.00  UCL OG  0.40  1120 34.60   14     6.4%

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those who know.

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The Gloomy Outlook Continues!

Technology stocks were routed again today in a volatile session
that saw the NASDAQ stage an oversold rally only to retreat amid
renewed selling pressure.

Friday, March 2

Technology stocks were routed again today in a volatile session
that saw the NASDAQ stage an oversold rally only to retreat amid
renewed selling pressure.  The technology composite closed down
65 points at 2,117.  Industrial stocks managed small gains with
the Dow finishing 16 points higher at 10,466.  The S&P 500 index
was down 7 points at 1,234.  Trading volume on the NYSE reached
1.28 billion shares, with winners beating losers 1,919 to 1,124.
Activity on the NASDAQ was moderate at 2.3 billion shares traded,
with advances beating declines 1,894 to 1,716.  In the treasury
market, the long bond fell 1 2/32, pushing its yield up to 5.36%.

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

Sicor     (NASDAQ:SCRI)  MAY15C/MAY10P  $0.43   debit   synthetic
Ocular    (NASDAQ:OCLR)  JUL17C/MAR17C  $1.25   debit   calendar
Alliance  (NYSE:AC)      APR50C/APR45P  $2.85   debit   strangle

Sicor slumped in early trading, falling to $12.06, but the target
debit was unavailable.  There may be another entry opportunity in
the coming sessions.  In the Alliance Capital debit strangle, a
3-contract trade at $2.85 was observed late in the afternoon.

Portfolio Activity:

The NASDAQ crumbled in late-session trading today as investors
fought unsuccessfully to support a courageous recovery in the
technology group.  The news of an earnings warning from Oracle
(NASDAQ:ORCL), a computer software maker that helps companies
grow their businesses, joined a slew of downbeat forecasts from
other hi-tech firms and aroused concerns that even corporations
with new Internet-oriented products aren't immune to a slowdown.
A number of analysts contributed to the negative outlook, with
Goldman Sachs offering discouraging forecasts for Siebel Systems
Brocade (NASDAQ:BRCD), Applied Micro (NASDAQ:AMCC), Microsoft
(NASDAQ:MSFT) and Sanmina (NASDAQ:SANM).  The bearish comments
did not end there however, as CS First Boston and Morgan Stanley
also downgraded a string of technology issues.  SG Cowen added
their thoughts on the semiconductor group, saying the weakness
will likely extend into the second half of the year.  Telecom
shares also slumped after SBC Communications (SBC:NYSE) said its
first-quarter profits will fall short of expectations because of
high costs of entering new businesses such as long-distance and
high-speed Internet.  On the Dow, defensive shares Exxon-Mobil
(NYSE:XOM), Minnesota Mining (NYSE:MMM), and International Paper
(NYSE:IP) led the gainers as investors continued to seek shelter
in classic safety sectors.  Retail stocks were also among the
stronger groups and in the broader market, oil service, airline
and biotechnology issues generally moved higher.

Our portfolio ended with mixed results after a volatile session
and although industrial stocks were more bullish as a group, a
number of technology issues finished the day higher.  Motorola
(NYSE:MOT), AT&T (NYSE:T), Hewlett Packard (NYSE:HWP) and Intel
(NASDAQ:INTC) all enjoyed favorable gains and for those of you
in these long-term positions, a time will come when you should
consider adding to your current (long) options to improve the
overall cost basis.  In the transportation segment, Continental
Airlines (NYSE:CAL) continued its recent unpredictable activity,
climbing $2 to a recent trading range near $44 and once again,
it appears that the issue could sustain a small rally from the
current levels.  Navistar (NYSE:NAV) has rebounded significantly
over the past few sessions and the issue should test a near-term
resistance area at $29.  Our calendar spread in NAV is short at
$30 and any upward movement in the stock will improve the profit
in the position.  In the biotech segment, Chiron (NASDAQ:CHIR)
has moved back to the top of its trading channel and the issue
should be monitored for a rally to new yearly highs.  Our short
(call) option at $50 is not currently in danger but a technical
change in character could certainly affect the outlook for the
play.  One of the safe-haven sectors, consumer non-durables has
performed well during the broad market slump and Avery Dennison
(NYSE:AVY) continues to challenge the top of its recent trading
channel.  A rally in the group would likely propel the stock to
the upper $50 range and with our sold (short) calls at $55, we
must be prepared to respond to that outcome.  With additional
overhead supply at $61, the easiest spread adjustment would be
a transition (roll-out and up) to the APR-$60 call.

In the small-cap category, Advanta (NASDAQ:ADVNB) was one of the
surprise movers, climbing $1 to $13.63 after announcing that it
completed the sale of its mortgage business to Chase Manhattan
Mortgage for a cash price of in excess of $1 billion.  With the
conclusion of the strategic alternatives process, Advanta expects
to have a book value of $16-$17 per share and the company is now
set to focus on its credit card business.  Company officials said
the completion of the transaction converted a substantial portion
of their book value to cash and the proceeds from the sale will
be used to reduce debt and enhance their profitable operations.
Investors applauded the news, which was not expected until later
in the quarter and the issue responded with a midday rally to
yearly highs near $14.  Traders in our calendar spread position
were caught off guard and now they will have to make a decision
about the future outlook for the issue.  Those who feel the move
will continue can roll-up and out to a higher strike price in the
short position, or simply buy shares (or ITM calls) to offset the
current obligation at $12.50.  Of course, a consolidation may be
in order after the recent run-up and any pullback could also be
used to adjust the spread to reflect a bullish perspective.  As
we noted in the original narrative, a position of this nature
(aggressive, time-selling) requires adept management and the key
to success is keeping the sold option relatively near the price
of the underlying issue, where the extrinsic value and premium
erosion is greatest.

Questions & comments on spreads/combos to Contact Support
                           - NEW PLAYS -
HON - Honeywell  $44.79  *** Reader's Request! ***

Honeywell International (NYSE:HON) is a diversified technology
and manufacturing company serving customers worldwide with unique
aerospace products, control technologies for buildings, homes and
industry, automotive products, power generation systems, fibers,
specialty chemicals, plastics, electronic and advanced materials.
Honeywell's operations are conducted by strategic business units
in four reportable segments: Aerospace Solutions, Automation and
Asset Management, Performance Materials and Transportation.  The
company is a product of the merger of Honeywell and Allied Signal
and the Honeywell has recently accepted an offer to become part
of General Electric (NYSE:GE).

One of our readers submitted this issue for a bearish position,
based on concerns that the European Commission's review of the
General Electric/Honeywell merger might take months and could
result in a number of significant concessions before the deal is
approved.  In a potentially serious setback to its largest-ever
acquisition, General Electric was notified last week that the EU
regulators will extend by as much as four months their review of
its proposed $45 billion acquisition of Honeywell.  Authorities
at the EU are entitled to review certain mergers involving large
companies and it has the power to prevent such transactions when
it finds that it would threaten competition in its markets.  While
it is unlikely the merger would be blocked, the announcement all
but ends GE's hopes of completing closing the acquisition by the
end of March and investors are not happy with the news.  Traders
who think the recent bearish trend will continue can speculate on
that outcome with this combination position.

PLAY (speculative - bearish/credit spread):

BUY  CALL  MAR-50.00  HON-CJ  OI=8379  A=$0.30
SELL CALL  MAR-47.50  HON-CW  OI=3093  B=$0.70
INITIAL NET CREDIT TARGET=$0.45-$0.50  ROI(max)=23% B/E=$47.95

MMM - Minnesota Mining  $111.33  *** Safety in Diversity! ***

Minnesota Mining and Manufacturing Company (NYSE:3M) is a fully
integrated enterprise whose business has developed from research
and technology in coating and bonding for coated abrasives.  The
company offers products in six categories: industrial products,
transportation, graphics & safety products, health care products,
consumer and office products, electro and communications products,
and specialty material products.  3M's products are sold directly
to users and through numerous wholesalers, retailers, jobbers,
distributors and dealers in a wide variety of trades in many
countries around the world.

With the recent broad market downturn, investors have flocked to
safety issues in the cyclical and consumer product groups.  Most
of these companies have diversified interests in various economic
areas operating through different divisions and units, thus they
are less susceptible to the slowing economy.  Minnesota Mining is
is often referred to as the maker of industrial adhesive products
(3M markets Scotch brand tape) but they also provide manufacturing
services in a number of other industries.  Each specific segment
is affected by a combination of many different elements, as well
as the overall economy, the health of the industry they transact
business in, and the unit's individual performance.  All of these
subsidiaries behave in different ways from one another, performing
uniquely in separate cycles and with varying degrees of success.
At any given time, one or more of these segments will outperform
the broader market and by owning shares of a conglomerate, traders
can benefit from its ability to compensate for common economic

Technically, MMM has established a relatively stable trading range
near $110 and those of you who favor the company's outlook in the
current market environment may speculate on its performance with
this conservative position.

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAR-100  MMM-OT  OI=1357  A=$0.65
SELL PUT  MAR-105  MMM-OA  OI=4040  B=$1.10
INITIAL NET CREDIT TARGET=$0.50-$0.55  ROI(max)=11% B/E=$104.50

ITG - Investment Technology  $56.35  *** Revenge Play! ***

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

ITG was one our picks for a potential failed rally last month,
and the issue showed its contempt for our bearish opinion with
a complete technical reversal and a move to new all-time highs.
With heavy volume backing the renewed up-trend, it appears that
ITG is poised for additional bullish movement and this position
offers a great way to participate in that activity with limited
risk.  Target a higher premium initially, to allow for a brief
consolidation in the issue.

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAR-45  ITG-OI  OI=15  A=$0.35
SELL PUT  MAR-50  ITG-OJ  OI=0   B=$0.75
INITIAL NET CREDIT TARGET=$0.50-$0.60  ROI(max)=11% B/E=$49.50

DD - Dupont  $44.72  *** Bottom Fishing! ***

DuPont (NYSE:DD) is engaged in science and technology in a range
of disciplines including high-performance materials, specialty
chemicals, pharmaceuticals and biotechnology.  Dupont operates
through a number of strategic businesses and within the strategic
business units, approximately 80 businesses manufacture and sell
a wide range of products to many different markets, including the
transportation, textile, construction, automotive, agricultural,
health, pharmaceuticals, packaging and electronics markets.  The
company's strategic business units have been aggregated into nine
reportable segments: Agriculture & Nutrition, Nylon Enterprise,
Performance Coatings & Polymers, Pharmaceuticals, Pigments and
Chemicals, Pioneer, Polyester Enterprise, Specialty Fibers and
Specialty Polymers.  The final segment consists of the company's
photomasks, safety resources, and global services businesses, and
divested businesses including certain printing and publishing
products and coal.

It's obvious that businesses in different industries are affected
in unique ways by the same economic variables and this reasoning
applies just as well to a company with a diverse line of products.
Investors buy stocks in this category to protect their portfolio
against unexpected changes in the market and for that reason, a
number of conglomerates are exhibiting new strength in the wake
of recent widespread selling pressure.  DD is one of these issues
and with the current Stage I base identifying a possible bottom
to the year-long downtrend, we are going to speculate on a future
rally with this conservative synthetic position.

PLAY (speculative - bullish/synthetic position):

BUY  CALL  APR-50  DD-DJ  OI=5490  A=$0.75
SELL PUT   APR-40  DD-PH  OI=6014  B=$0.50

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $1,400 per contract.

                   - STRADDLES AND STRANGLES -
CIMA - Cima Labs  $57.00  *** Probability Play! ***

Cima Labs (NASDAQ:CIMA) develops and manufactures fast-dissolve
and enhanced-absorption oral drug delivery systems.  OraSolv and
DuraSolv, their principal proprietary fast-dissolve technologies,
are oral dosage forms incorporating taste-masked active drug
ingredients into tablets that dissolve quickly without chewing or
water.  Cima currently manufactures and packages five commercial
products incorporating its proprietary fast-dissolve technologies.
Cima Labs also develops applications for its technologies that it
licenses to pharmaceutical company partners, and they generate
revenue from licensing fees, product development fees, selling
products that employ its fast-dissolve technologies and royalties.
The company currently has agreements with American Home Products,
AstraZeneca, Bristol-Myers Squibb, N.V. Organon, Novartis and

This issue is an excellent candidate in the "premium-selling"
category of options trading.  Based on analysis of statistical
option pricing and the underlying stock's technical history,
this position meets our fundamental criteria for a profitable
credit-strangle.  The issue has robust option premiums and a
relatively well-defined trading range along with a mathematically
high probability of remaining between the target strike prices.
However, current news and market sentiment will have an effect
on the stock's movement so the position should be carefully
evaluated for portfolio suitability and reviewed with regard
to your strategic approach and personal trading style.  Some
traders may favor a more aggressive approach, selling options
that are closer to the current price of the issue, to produce
a higher initial return.  While that technique may be more
attractive, it also increases the theoretical risk of loss.
Only you can know what plays are suitable for your risk-reward
tolerance and portfolio outlook.

PLAY (conservative - neutral/credit strangle):

SELL CALL  MAR-75  UVK-CO  OI=298  B=$0.56
SELL PUT   MAR-45  UVK-OI  OI=37   B=$0.62
UPSIDE B/E=$76.25 DOWNSIDE B/E=$43.75


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Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

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