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Daily Newsletter, Tuesday, 03/06/2001

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The Option Investor Newsletter                  Tuesday 03-06-2001
Copyright 2001, All rights reserved.                        1 of 2
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        03-06-2001        High      Low     Volume Advance/Decline
DJIA    10591.20 + 28.90 10690.90 10570.20 1.10 bln   1851/1196
NASDAQ   2204.43 + 61.51  2243.78  2202.70 1.99 bln   2302/1401
S&P 100   645.45 +  7.02   653.21   640.08   totals   4153/2597
S&P 500  1253.80 + 12.39  1267.42  1243.88           61.5%/38.5%
RUS 2000  481.13 +  5.34   482.28   475.79
DJ TRANS 2980.43 + 41.03  2980.43  2937.06
VIX        27.44 -  1.78    28.09    27.03
Put/Call Ratio      0.57
******************************************************************

What if the Nasdaq could close positive three days in a row?

Was that a rally in the face of bad news? What happened to the
gloom and doom from last week? Did I miss something important
over the weekend? Did Abbey Joseph Cohen call a market bottom
while I was at lunch? Inquiring minds want to know! For whatever
reason the shorts covered once again at the open on Tuesday. The
elusive "short covering indicator" must have signaled a possible
short squeeze and traders squared accounts in oversold tech stocks.
Could it be fears of a surprise rate cut on Wednesday? I doubt it
but stranger things have happened.







With seven chip stocks either warning or being downgraded in the
last 48 hours does it strike anybody else strange that the SOX
is up +25% in the last three days? Intel CEO Andy Grove said in
a conference call today that he does not see a snap back in chip
demand but rather a protracted workout of the inventory problem.
Still his stock did not sell off. The selective hearing by
investors has analysts scratching their heads. Several of the
chip stocks downgraded included PMCS, AMCC, PMCS, VTSS all of
which closed positive for today.

Maybe we have reached that perfect point in the markets where
investors have had enough. Blue chip tech stocks are now back
down to PE ranges in the 20s and 30s. Long term analysts are
saying stocks are currently valued at 1991 levels which was
before the recent eight year run in the market. Al Goldman could
not say enough positive things about the current stock values.
John Murphy stuck his neck out and called the bottom on CNBC
this afternoon. The only people missing are Abbey and Ralph
Acampora and we could bag this bear market for good. Well, we
could also use an end to earnings warnings!

Speaking of warnings, Nasdaq:JDSU, warned on top of a warning
after the close today. They warned just a couple weeks ago when
the SDLI merger was complete and today they warned that that
estimate was too aggressive. Investors in after hours trading
did not get very excited and only knocked -$1 off the $28 closing
price. This may be a sign of things to come. JDSU has been fallen
from $140 to under $25 recently and at that price is considered
fairly valued.

Easy come, easy go for Nasdaq:AMZN. The rumor from Monday that
they were going to link up with Wal-Mart was killed today. The
talks had occurred but had concluded without any action. The +25%
gain from Monday, +2.75 translated into a -.75 loss today. Jeff,
if you can invent a rumor like that every week your stockholders
would love you. A +25% gain on the rumor and a -5% loss on the
news. To heck with selling books, sell rumors instead!

Will he or won't he? Wednesday is widely expected to be the last
day for an intra-meeting rate cut. After Wednesday the odds increase
dramatically that any rate cut will wait until the Mar-20th FOMC
meeting. There are some analysts trying to reach back to our last
recession in 1991 and point to a surprise rate cut four days before
the meeting as proof that Greenspan can do it at anytime. Sure he
can do it but in his speeches he has said there is no urgency and
that is the kiss of death for a surprise cut. The next major piece
of economic news is the Jobs Report on Friday. There is an outside
chance a much weaker than expected number could trigger a cut but
almost nobody expects that. Next week however is full of Fed watched
numbers including PPI, Sentiment and Industrial Production. Today
was Greenspan's 75th birthday. Maybe George W will send him a free
rate cut pass in his birthday card.

The Nasdaq gapped above resistance at 2200 at the open, spent the
day trading much higher and then drifted back to close at 2200
again. Traders waiting for that milestone to be breached to go
long were caught off guard and probably were unable to trade the
bounce. Whenever the market gaps open substantially it is a very
good idea to sit back and watch. The gap open produces a bounce
in option prices that is very hard to profit from unless you already
own them. Buy on a strong gap open like we had on Tuesday and you
will watch those options premiums bleed for the next day or two
if there is no follow through in the markets. Remaining on the
sidelines is painful but not as expensive as choosing the wrong
entry points.

For Wednesday traders should look for a pull back to make an entry.
However Tuesday's high of 2243 should serve as an entry point if
there is no morning drop. Actually I would wait until we trade
over 2250 before opening a new long position. 2300 is still
resistance as well so the next several days could be a struggle
to make any big gains. The futures are actually positive at 7:30
and considering the JDSU warning, among others, this is very
positive. Three up days in a row? If I am dreaming, don't wake me up!

Enter passively, exit aggressively!

Jim Brown
Editor
www.OptionInvestor.com


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

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Jim Brown, President of the Premier Investor Network.

The detailed schedule will be posted in about two weeks. There
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****************
MARKET SENTIMENT
****************

Three Sessions Each Day
By Austin Passamonte

That's what we have most days lately. A strong move in one
direction off the open, mid-day reversal and then who knows what
into the close. We've seen this type of action plenty of times
before but can't remember so many sessions strung together like
this.

As we've said for weeks now, accomplished day traders can & do
make solid returns each session playing the major indexes and
certain volatile stocks, but even that takes great concentration
& effort. Almost every other strategy of two sessions or greater
duration remains quite an adventure indeed!

Part-time and less experienced traders are caught in a wash of
sideways action. Perhaps sideways isn't the right term as these
markets make wild swings up and down the charts. We'd love to say
it'll end soon but cannot yet state that in good conscience.

Our expectations are for a steady chop up the charts as we head
towards March 20th FOMC meeting. It is a mere 9.5 trading
sessions from tonight but there are plenty of stumbling blocks
along the way. Government reports interpreted as bearish and/or
further warnings by additional bell-weather stocks could easily
send markets right back down to test recent lows or beyond.

That being said, the herd's sentiment is clearly changing and
this is reflected in the charts. Daily-chart signals on the big
indexes are grossly oversold and attempting to emerge from these
extremes. One of the clearest bull-reversal patterns we see right
now is the SOX, which has led tech sectors for the past few years
without fail.

Short-term signals are rolling down from intra-session overbought
zones and portend a further pullback during Wednesday's session
at the least. We expect support to hold and higher prices to
resume from there with no further market bombs dropped on traders
that seem so persistent these days. There are layers of overhead
resistance meshed above current price levels and any sustained
upside move from here has work cut out for it.

Companies continue to warn but prices quickly bounce off knee-
jerk, post-market trades. This is bullish fundamental bias that
essentially states traders are sick of selling and now want any
reason to buy. Simple as that. Anyone who ever attempts to trade
financial markets using pure logic, reasoning and fundamentals
will always get crushed like a squirrel in the road with no
exceptions. Market action is totally driven by human emotion and
little else. Right now that emotion is turning to hope for the
future, blind or otherwise.

Our overall expectation? A staggered upward move with possible
large dips as we approach March 20th FOMC with our customary "Buy
The Rumor" rally. If we think the public has finally wised up and
that won't happen this time, we are grossly mistaken. The public
has been buying tops & selling bottoms since cave men traded
Mastodon bones and their ancestors promise to do so far into the
future. Our key to success is identifying what the herd expects
to do next and lie in wait for that inevitable migration to
begin. Ambush using calls or puts as conditions dictate result in
our share of prime beef or bear steak as a reward.

Market Sentiment thinks we hear faint hoof beats of the herd
approaching now and looks to bullish strategies for the next
barbeque bear. Wait patiently for the next successful test of
near-term support and consider firing up your grill as well. Just
plan on serving the guests and closing up shop sometime before
2:15pm on March 20th in case of rain!

**********

VIX
Tuesday 03/06 close: 27.44

VXN
Tuesday 03/06 close: 69.03

30-yr Bonds
Tuesday 03/06 close: 5.38%


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.

                                   Tuesday
                                 (03/06/2001)
  (Open Interest)       Calls        Puts          Ratio
S&P 100 Index (OEX)
Resistance:
685 - 670               11,467        5,733         2.00
665 - 650               12,342        5,571         2.22

OEX close: 645.45

Support:
640 - 625                4,386        9,954         2.27
620 - 605                   63        8,181       129.86

Maximum calls: 700/6,584
Maximum puts : 560/9,577

Moving Averages
 10 DMA  644
 20 DMA  665
 50 DMA  684
200 DMA  746


NASDAQ 100 Index (NDX/QQQ)
Resistance:
 59 - 57                46,907        16,568         2.83
 56 - 54               120,869        35,018         3.45
 53 - 51                76,437        24,501         3.12

QQQ(NDX)close: 49.40

Support:
 48 - 46                52,080        29,466           .56
 45 - 43                 4,590        33,261          7.25
 42 - 40                 3,380        15,642          4.63

Maximum calls: 50/99,205
Maximum puts : 50/40,737

Moving Averages
 10 DMA 49
 20 DMA 53
 50 DMA 58
200 DMA 79


S&P 500 (SPX)
Resistance:
1325                   49,363        42,603          1.16
1300                   11,591        16,849           .69
1275                   15,194        21,817           .70

SPX close: 1253.80

Support:
1225                    5,298        15,689          2.96
1200                    3,053        18,614          6.10
1175                      244         9,182         37.63

Maximum calls: 1325/49,363
Maximum puts : 1325/42,603

Moving Averages
 10 DMA 1249
 20 DMA 1285
 50 DMA 1314
200 DMA 1401

*****

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


NASDAQ 100
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.


**************
MARKET POSTURE
**************

Please visit this link for Market Posture:

http://www.OptionInvestor.com/marketposture/030601_1.asp


***********
OPTIONS 101
***********

Probability Of Profit, Part II
By Lee Lowell

In the previous article, we talked about how to use a probability
calculator to figure out your chances of success of your desired
option position.  It was mentioned to me that some people had
concerns with the "expected return" of the position at the same
time.  Let's discuss that issue.

Expected return, or expected profit/loss, is the amount you can
expect to receive or lose from a trade if you do it over and over
again.  If given the chance to repeat that same trade many times,
you should be able to hit that expected profit/loss number pretty
closely.

Expected return is calculated very easily.  All you need to do is
take the maximum gain on the trade and multiply it by your
probability of success, and then take the maximum loss and multiply
it by your probability of loss.  Subtract these two numbers and
you will have your expected return.

Debit and credit spreads are very easy to use when figuring out an
expected profit/loss.  If a credit spread has a 70% chance of
success with the maximum gain of $3, and a probability of loss
of 30% with a maximum loss of $7, your expected return on this
trade is $0.  If you do this same trade 100 times, you would make
$3 on 70 attempts and you would lose $7 on 30 attempts, basically
making it a wash trade.  For long-term success, you want to find
trades that have a positive expected return.  Usually, with a
positive expected return comes a smaller probability of profit, so
you need to find the right balance.  Does it mean that you shouldn't
do a trade if your expected return is negative?  Or should you do a
trade with a high expected return but a low probability of profit?
It depends.

If you have a trade with a 99% probability of profit, and your
maximum gain is $.50, but that probability of loss is unlimited,
will you take the trade?  Maybe, maybe not.  This is the case with
many naked selling option positions.  Using spreads will always
contain that unlimited loss, so your probabilities and expected
returns are all known beforehand.

I agree with the theory that you should have a positive expected
return for every trade, but that's not always going to happen,
especially if your odds of success are getting above 90%.  It is
my belief that you will never be able to perform the exact same
trade twice in the markets.  Something is always going to be
different about every option trade you make, so it's hard to
justify the theory of expected return working out in the long-run
(in my opinion).  This is why I suggested that any trade with a
probability of 80% or higher is worth taking a shot at.
Nevertheless, we'll explain some trades with the correct balance.
Let's go back to the examples I used last week and I'll show you
the numbers and how to get around negative expected return figures.

OEX @ 668, Target Price = 706
Calendar days remaining:  24
Percent Annual Volatility:  25

Probability of stock being above Target Price:  19.4%
Probability of stock being below Target Price:  80.5%

This was our probability estimates for the March OEX 705/710 call
credit spread for $1.  Our maximum gain is $100 and our maximum
loss is $400.  What's our expected return?  Using the formula I
gave above, we get (.805*$100 - .194*$400) = +$2.90.  So if we do
this same trade many times over, we will make $2.90 over the long
run on each trade.  I know this seems like such a small number,
but that's how expected profit/loss is calculated in the long-run.
You have to remember, the OEX can close at any price level on
expiration day.  In order for us to walk away with the $2.90 profit,
the OEX would have to close somewhere around 705.97 on expiration
day.  On this specific trade though, we are hoping the OEX closes
anywhere below 705 for us to receive the full $100.  Based on all
the parameters we've entered for this trade, in the long-run, we'll
be a winner by $2.90.

So what we have here is an all-around good trade.  We have an 80%
chance of success and we also have a positive expected return of
$2.90.  That's what you want to see in most of your trades.  What
do we do if our expected profit/loss is negative and we still have
a high probability of success?  Let's look at an example.

CSCO @ $24.75, Target Price = $31.0625
Calendar days remaining:  136
Percent Annual Volatility:  74

Probability of stock being above Target Price:  30.7%
Probability of stock being below Target Price:  69.2%

Here's a trade using real numbers for a CSCO July '01 $30/$35 call
credit spread with an initial credit of $1 1/16.  We have a 69.2%
chance of CSCO expiring below our breakeven of $31 1/16 and a
30.7% chance of loss.

Let's do the math:   0.692*$106.25 - 0.307*$393.75 = -$47.38

We have a negative expected return of -$47.38 on this trade even
though the probability of success is close to 70%.  What should we
do?  You have a few options.

First, here's a quick test to see what minimum credit you need to
bring in on a trade in order to have the profit/loss be positive,
or at least a breakeven number.  Take the difference between the
strike prices (35-30=5) and multiply that by the probability of
loss figure (5*.307=1.54).  In order for this specific trade to
have at least a $0 expected return, you need to take in at least
1.54 points ($154) for the initial credit.  Let's see if the $154
floats in our original formula (.692*$154 - .307*$346 =$0).  Yes,
it works!  So what you need to do now if you want to trade this
CSCO spread, is to set a limit price of at least 1.54 points for
your initial credit.  This will ensure a balanced trade between
risk/reward and expected return.

The other trick for getting this to a balanced trade is to take
the negative expected return figure of -$47, turn it to a positive
+$47 and add it to the first initial credit.  So we take $47.38 an
add that to our initial credit of $106.25 and we get $154.  Again,
we need to take in at least 1.54 points initial credit for the
credit spread to be properly balanced.

You can figure these numbers for any kind of option trade you like.
I used the credit spreads because the breakeven points are easy to
see.  In the case of a long call where your profits are unlimited
and the downside is limited, you just need to pick a specific point
on the upside to use in your equations.  Most people would pick a
point that the underlying must reach in order to double your
premium. "Percent to double" as it's called.

I hope the math hasn't confused too many people, but it's really
not that hard once you get the hang of it.  Try it and you'll see.

Good luck.


**************
TRADERS CORNER
**************

Valuations: Realistic or Optimistic?
By Scott Martindale

I was a bit nostalgic this morning.  Ah, yes, it was reminiscent
of the good ol’ days of 1999.  Remember those days?  It seems like
forever ago.  You could buy a call on a promising-looking chart,
hold it overnight, and bamm! -- get that pop in the morning.
Except in 1999 you might get some follow-through during the day
instead of the flat line we saw for the rest of today.  Today, you
really weren’t able to do much after the opening pop.

I’ve been holding Ciena (NASDAQ: CIEN) March 75 calls for about a
week through some ups and downs, not stopping out because of its
history of big moves in an up market coupled with the extremely
oversold condition of the market.  Today, I got that burst through
$75 that I’ve been looking for (followed by some after-hours
selling), but I’m still holding in anticipation of little more
rally ahead.  But is it to be?

Well, almost everyone -- bull and bear alike -- has felt the
market is short-term oversold and due for some kind of rally.
Bulls go further in saying the Nasdaq has successfully tested its
lows and is putting together a bottom as evidenced by its rise in
the face of continuing bad news.  Bears say a recession is coming
and valuations are still too high, but bulls say that the markets
will rise steadily due to falling interest rates, tax cuts, and $3
trillion in cash on the sidelines waiting for the "right time."

Is there an imminent recession?  Let’s look beyond the bad numbers
that the press likes to trumpet and find some bright spots.  We
got new housing numbers recently, i.e., 921,000 starts in January
-- better than January 1999, which was the record year for the
housing industry.  Orders for business equipment (much of which is
new technology) were up 5.7% in January -- the fastest sequential
growth since June 2000.  And, of course, employment is still strong.

It’s interesting to note that the Value Line Index (VLE) has
maintained a solid uptrend since the fourth quarter of 1998.  In
contrast to the widely followed Russell and S&P Indices that are
market cap weighted, the VLE is unweighted, similar to an
individual investor’s portfolio. Thus, it is better at telling you
your chances of picking a winner in that an unweighted average
gives an indication of market breadth.

Steven Leuthold was on CNBC on Friday talking about some of his
analysis of historical market performance after various earnings
changes in the S&P 500.  Interestingly, by far the best
performance in stock appreciation -- something like 20% gains on
average -- follow periods in which the S&P shows negative earnings
growth in excess of -5%.  He thinks it’s time to start
accumulating.

Three-quarters of stocks are above their 10-week moving average,
and almost as many are above their 30-week moving average.  Market
forecasters like Ralph Acampora, Ed Yardeni, and Harry Dent are
still forecasting huge increases in the major indices by the end
of the decade, like 20,000+ in the Dow and 10,000+ in the Nasdaq.
Wow!  Could we be so lucky?  A better question is, can earnings
truly grow enough to justify such valuations?

Let me talk a little about valuations, particularly in one of the
most promising sectors of all - optical networking.  Let’s compare
some of the players with respect to the P/E (TTM -- trailing 12
months), P/E (estimated fiscal year 2001), and PEG (ratio of P/E
to consensus estimate of 5-year earnings growth rate).

                                  P/E (TTM)    P/E (2001)    PEG
JDS Uniphase (NASDAQ: JDSU)         0.0          37          0.82
Corning (NYSE: GLW)                 66           22          0.78
Ciena (NASDAQ: CIEN)               178          103          2.60
Cisco Systems (NASDAQ: CSCO)        58           36          1.10
Juniper Networks (NASDAQ: JNPR)    152           63          1.20
Extreme Networks (NASDAQ: EXTR)    113           46          0.98
Sycamore Networks (NASDAQ: SCMR)   320           70          1.40
Foundry Networks (NASDAQ: FDRY)     19           19          0.47

From this list, FDRY looks like a bargain.  But in a market that
has punished high-valuation stocks, including the fallen angel
optical networkers, CIEN has managed to hold up well. It has firm
support around $70, even though it is the most richly valued on
the list.  Furthermore, CIEN recently raised $1.5 billion in fresh
capital with a combined stock and bond offering. They sold 11
million shares of stock at $83.50 and issued $600 million in
bonds, plus they already had about $240 million in cash on its
balance sheet prior to the offering.  Although they will need some
of these funds to absorb the recently acquired Cyras Systems, it’s
possible CIEN is planning more acquisitions with this money.

As the industry stabilizes, consolidation is the natural
progression.  The stronger companies like CIEN, GLW, and JDSU
should see more rapid strengthening in their share prices that
will give them the ability to take over the weaker players,
further strengthening their market position.  [The one caveat is
that speculators may drive up the price of the weaker players
in anticipation of a takeover.  Obviously, this would make a good
options play.]

Does this mean certain companies truly deserve the high valuations
as investors get a foothold in what many consider to be the
dominant sector for the "new economy?"  Or does it mean that many
investors are still chasing tulip bulbs?  Time will tell.  But as
options traders, we can play the momentum without betting the
farm.


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


CALLS:
*****

FPL $64.95 -0.28 (+0.41) A daily chart visually confirms that
FPL is currently experiencing a period of consolidation, tightly
coiling around the supportive 5 & 10 DMAs intersection.  The
vicinity of $65, therefore, would've provided a favorable range
of operation to take entries if FPL made the big break through
the immediate resistance at $66.  However, that wasn't the case.
FPL basically laid down and ignored the rallying conditions.
This laxadaisal behavior compelled us to drop coverage on FPL
tonight despite the fact that it didn't violate our protective
stop.

JNPR $64.06 +5.44 (+10.47) In Monday's session, traders shunned
UBS Warburg's sharp 12-month price target cut from $250 to $100
per share and bid JNPR up $6.04%, or 9.4% on average volume.
JNPR's rebound exhibited astonishing strength in defiance of
concerns about the overall sector, but fortunately was capped by
the 5-dma and our corresponding $60 protective stop.  Then the
axe fell today.  The networking leaders extended their
respective rallies for a second round of strong gains.  JNPR saw
another fantastic advance, clearly violating the 10-dma ($65.58)
and knocking us out of the play.


PUTS:
*****

PWAV $17.19 +0.88 (+1.13) PWAV offered a few excellent
opportunities for put players since we picked it at $17.44.
The stock's progressive roll over pattern took it to a low
of $14.06 on March 1.  However, today's Nasdaq rebound
invigorated some of the wireless communications stocks,
including PWAV.  While PWAV will need more momentum in order
to re establish a true upward trend, it closed above our stop
level of $17, and as such, we are dropping it tonight.

ISSX $47.44 +4.69 (-3.87) The long overdue Nasdaq rally prompted
a surge of buying on the software index today, which put a halt
to our short lived put play.  While ISSX still remains in a long
term downward trend, the stock closed above our stop level of $47,
and as such, we are dropping it tonight.

AMCC $30.69 +1.50 (+1.88) Strength in the Semiconductors
continued today, contributing significantly to the NASDAQ rally.
The bullish sentiment finally rubbed off on our AMCC play,
helping the stock to move above our $30 stop at the open.
Although there was no follow through to the upside, the stock
didn't really sell off as the afternoon progressed, adding
strength to the theory that AMCC may have found a bottom.  While
the fledgling rally could roll over in the days ahead, we need
to follow our discipline and drop AMCC now that it has closed
above our stop.

EBAY $40.31 +2.31 (+2.63) Good news from Amazon.com helped to
lift the Internet sector on Monday and with that, shares of
leading online auction site EBAY managed to end the day up
fractionally on less than 60 percent of ADV.  That strength
managed to carry over to today, when a bouncing NASDAQ from
deeply oversold conditions lifted the stock up over 6 percent.
While volume was average and resistance was encountered from the
50-dma near $43, the close above our stop price of $40 means that
we will be dropping coverage of this play.  Look for weakness in
EBAY near today's close to potentially carry over into tomorrow's
session, providing an opportunity to exit short positions.


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The Option Investor Newsletter                  Tuesday 03-06-2001
Copyright 2001, All rights reserved.                        2 of 2
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********************
PLAY UPDATES - CALLS
********************

UNH $60.51 +0.51 (-0.28) UNH demonstrated its durability and
stamina amid the current rotation out of defensive stocks and
the adversity effecting its sidekick, PacifiCare Health Systems
(PHSY).  The $59 support level convincingly sustained the share
price during Monday morning's early decline.  And since, short-
term support rose to $60, bolstered by the 5-dma line.  Volume
continued to remain healthy as UNH toggles with the $61
resistance.  Today's marginal close in the positive offers
bullish encouragement, but a charge for the 52-week high at
$64.36 would provide better confirmation going forward.  Keep
stops in place at $59 to safeguard capital.

IDTI $37.13 +2.13 (+3.75) Even after Prudential Securities
downgraded shares of IDTI on Friday, the bulls came out
swinging on Monday, attempting to keep the recovery alive.  With
a downgrade from Strong Buy to Hold, you would have expected the
stock to be under pressure this week, but that clearly wasn't
the case.  Whether it was the weather, or contrarian sentiment,
we don't know, but our play has been moving nicely higher this
week.  After consolidating between $33-34 yesterday, the bulls
went on a buying spree this morning, quickly pushing shares as
high as $39 before watching a steady deterioration into the
close.  Buoyed by gains in both the Semiconductor index (SOX.X)
and the Networking index (NWX.X), IDTI will likewise be
susceptible to weakness in these sectors should the NASDAQ
recovery fail to follow through during the remainder of the
week.  Yesterday's anemic volume was likely due to the weather,
but we saw volume top the ADV by 25% today.  This would be a
good sign if it weren't for the fact that the volume was still
increasing as the price dropped into the close.  Given the solid
moves the past 2 days, we are moving our stop up to $35 to
protect our gains.  Aggressive players can consider new
positions on a bounce from either $36 or $35 (the bottom of
today's gap).  More conservative traders will want to wait for
another strong move to the upside that takes IDTI through the
$39 resistance level before opening new plays.  Before
initiating new positions, make sure the SOX and NWX indices are
still heading up - IDTI will have a hard time continuing its
climb without the support of the broader sectors in which it
operates.

EDS $65.32 +0.19 (-1.13) With resistance overhead at $67.50 and
then at $68, shares of the e-business solutions giant have moved
sideways so far this week on declining volume.  Yesterday, EDS
pulled back $1.32 or about 2 percent on lighter than average
volume.  Today, an attempt to break through $67.50 was denied, as
there was just not enough buying pressure to back the move.  The
good news is, the stock continues to make higher lows, so its
uptrend is still firmly intact.  Support is also building, with
the 5 and 10-dma (at $65.06 and $63.74) both edging ever higher.
Bounces off these two moving averages along with horizontal
support at $65 and our stop price of $64 may provide aggressive
traders with potential entry points.  Conservative traders will
want to wait for the buyers to return in force, powering EDS
above $68 with conviction before taking a position.  Keep an eye
on rivals CEFT and SDS to gauge sector sentiment when making a
play.

UBS $161.00 +3.05 (+6.20) We started our aggressive call play on
Swiss banking leader UBS yesterday based on its recent strategic
moves as well as its successful test of an important support
level (the 100-dma, now at $153.27).  So far, this has already
paid off, as our calls, just one day old, now sit in profitable
territory.  Today's gain of almost 2 percent is actually quite
significant, because of the low options premiums translating into
low option prices and a high degree of leverage.  Today's move
also signals the break of its downward trending regression
channel.  At this point, continued strength in UBS allowing it to
advance above $163 on volume would allow for an entry on
strength.  Dip buyers may look for pullbacks to support at $160,
the 5 and 10-dma converged at $158, $155 and our stop price
of $153 for higher risk entries.  Tracking the movements of
competitors BSC, LEH, MWD could help in discerning overall sector
health.


*******************
PLAY UPDATES - PUTS
*******************

BGEN $68.06 -0.63 (-0.38) BGEN continues to roll over from
lower highs, which resulted from several failed attempts to clear
the 10 dma of $70.35.  On Monday, the selling took BGEN as low as
$66.75, before the stock recuperated with the market.  On Tuesday,
BGEN opened at $69.25, but immediately dropped to strong support
at the $68 level, even as the Nasdaq rallied.  The biotech index
fell below an important support level of 576, and without further
strength in BTK.X, BGEN may have further to fall.  If support
at $68 fails for BGEN, the next major support level is $65, and
then the $62.75 level.  Conservative traders might want to wait
for such a drop as a potential entry point.  Aggressive traders
could consider taking positions on another failed rally attempt
from $68.50, if BTK.X is also falling.  In light of recent market
action, we are moving stops to $70.

ADBE $28.50 +1.44 (+0.81) Even a broad-based Technology rally
couldn't help ADBE get back on its feet, as the stock only
managed a paltry $1.44 gain today.  Even with volume coming in
60% above the ADV, the bulls couldn't even challenge the $29
resistance level, and should the NASDAQ rally fail to continue
tomorrow, ADBE looks like a ripe target for the bears.  Watch
the GSTI Software index (GSO.X) for signs of weakness, as this
will more than likely be a catalyst to kick our play back into
its persistent downtrend.  We still have solid support at the
$26-27 range, with resistance near $29, also where our stop is
resting.  Aggressive traders will want to target shoot new
positions as the stock rolls over near current levels, so long
as our stop remains intact.  The move conservative approach will
be to wait for sellers to regain the upper hand and push ADBE
down through the $26 support level.  Use caution with any open
plays, as the NASDAQ is trying to break out of its bearish
trend, and if the current rally turns out to have legs, it will
be difficult to push ADBE to new lows.

MERQ $48.38 +4.75 (-0.13) Our put play in MERQ started the week
on the right foot, heading deeper into profitable territory in
spite of a rising NASDAQ on Monday, as the stock lost $4.88 or
over 10 percent on over twice the ADV.  However, MERQ managed to
bounce strongly today, reclaiming almost 11 percent of its market
value with volume at twice the ADV.  Considering the steep
declines recently, a technical bounce was not surprising.
Closing just below our stop price of $49 today, today's move
allows some time for MERQ's moving averages to catch up with the
stock price.  A failed rally above $49, $50 and $52 may provide
entry points for higher risk players while conservative traders
will want to wait for MERQ to drop below $48 on volume.  From
there it could be a quick trip to test $45 support.  Before
jumping in, make sure that sector sympathy confirms an entry by
monitoring competitors CPWR and RATL.

NEWP $39.38 -4.63 (-3.00) Moving in step with the NASDAQ
yesterday, NEWP managed to end Monday's trading session higher by
$1.63 or 3.83 percent on a light day of trading, with less than
80 percent of the ADV trading hands.  This tentative buying
carried over into today's session in the early going, as a gap up
in the morning led to an attempt to rally later in the day.  But
upon encountering resistance at the 10-dma near $49, the sellers
returned on mass.  This proved to be an opportunity to take on
new short positions, as the stock sold off on high volume in the
last hour of trading to close below support at $40.  We are
moving our stop down from $46 to $44 to protect our profits.
Aggressive players may look for sellers returning as NEWP
approaches resistance at $40, $41.50, $44 and the 5-dma at $45 to
enter this play while conservative traders will be watching for a
break below $38.50 on volume, confirming direction using AMEX's
Networking Index (NWX) and Semiconductor Index (SOX).


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index instead?

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**************
NEW CALL PLAYS
**************

AGGRESSIVE:

A - Agilent Technologies $40.59 +2.55 (+2.57 this week)

Agilent Technologies is a global diversified technology company
that provides enabling solutions to high growth markets within
the communications, electronics, healthcare and life sciences
industries.  The company provides test instruments, standard
and customized test, measurement and monitoring instruments and
systems for the design, manufacture and support of electronics
and communications devices.  Additionally, A provides fiber
optic communications devices and assemblies, integrated circuits
for wireless applications, application-specific integrated
circuits, optoelectronics and image sensors.  Agilent also
supplies patient monitoring, ultrasound imaging, and cardiology
products and systems for the healthcare industry.

Persistent market weakness drove A down to a new yearly low of
$34.40 last week, making the diversified technology company ripe
for a recovery.  Apparently the bulls recognized an attractive
opportunity and began accumulating shares near the low.
Yesterday, the EU approved Philips Electronics' plans to buy
the healthcare unit of Agilent, and then Frost Securities
initiated coverage of the company with a Buy rating.  That
positive news, combined with an oversold bounce and a positive
NASDAQ today, drove the share price up by more than 5%.  The
big question now is whether the current recovery in Technology
stocks is sustainable or if it is another head-fake designed to
fleece some more eager bulls.  The technicals favor a continued
rally for A, as the daily Stochastics oscillator poked out of
oversold today, allowing the stock to clear the critical $40
resistance level.  But it won't be an easy road for the bulls,
as A has formidable resistance staggered overhead at $42, $45
and then $47.  Last week's consolidation pattern confirmed the
stock has decent support near $38, and if the rally is for real,
then the stock should be able to hold above this level on any
pullback.  Not only is it a good location for initiating
aggressive positions, but it is also where we are placing our
stop.  More conservative investors will want to wait for a
continuation of the upward move to push A through the $42
resistance level before jumping aboard.  Although not a member,
A tends to move in tandem with the Networking index (NWX.X), so
watch the performance of this index for confirmation of strength
before playing.

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

BUY CALL MAR-35 A-CG OI= 172 at $6.19 SL=4.00
BUY CALL*MAR-40 A-CH OI= 865 at $2.30 SL=1.25
BUY CALL APR-35 A-DG OI=  44 at $7.59 SL=5.25
BUY CALL APR-40 A-DH OI= 250 at $4.59 SL=2.75
BUY CALL APR-45 A-GI OI=1706 at $2.64 SL=1.25

http://www.premierinvestor.com/oi/profile.asp?ticker=A


PLAB - Photronics Inc $37.63 +3.13 (+4.94 this week)

Photronics manufactures photomasks, which are high precision
quartz plates that contain microscopic images of electronic
circuits.  Photomasks are a key element in the construction of
semiconductors.  The Company's products are used to transfer
circuit patterns onto semiconductor wafers during the
fabrication of integrated circuits.  US chip makers account for
nearly 85% of sales; although Photronics operates manufacturing
facilities in Asia, Europe, and North America.  They recently
acquired rival Align-Rite in a move to become the world's
largest independent maker of photomasks.

Some market analysts are shouting "Buyers Beware!", but many
others are taking advantage of the fantastic bargains within the
tech sector.  For the fourth straight session, the Philadelphia
Semiconductor Index (SOX.X) made gains, after hitting a two-
month low last Wednesday.  Semiconductor stocks across the board
are evidently looking too good to pass up!  As a result, PLAB's
been rolling along.  Coming off lows near $30, PLAB edged back
up to its support at $35-$36.  Today, this tech stock made its
move through $37 and closed up 9.1%!  Volume was exceptional at
2.7 times the ADV.  We're looking for near-term support to
solidify at $36 and offer traders a firm launching pad from
which to take entries, assuming the uptrend extends into
subsequent sessions.  Now for those who prefer buying the dip,
the $34 level, which marks a firmer support, can serve as a
measurement for both aggressive entries and diehard exits.
PLAB's coverage is certainly based on its own technical merits,
but the sector strength and rallying marketplace are also key
elements to this momentum play's success.  Therefore, it'll be
important to keep your attention on the SOX.X for ultimate
direction.  Currently this index is sitting at 646, but so far
has failed to overcome the critical 650 level.  A major break
through 650 would signal a very bullish disposition for all
semiconductor-related stocks and provide the confirmation we're
looking to attain.

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

BUY CALL MAR-30 PQF-CF OI=284 at $8.00 SL=5.75
BUY CALL MAR-35 PQF-CG OI=971 at $3.63 SL=2.00
BUY CALL APR-30 PQF-DF OI= 10 at $9.00 SL=6.25
BUY CALL APR-35 PQF-DG OI=148 at $5.25 SL=3.25
BUY CALL APR-40*PQF-DH OI=  5 at $2.75 SL=1.25

http://www.premierinvestor.com/oi/profile.asp?ticker=PLAB


LOW VOLATILITY:

ELY - Callaway Golf Company $26.09 +0.82 (+1.09 last week)

Ely Callaway founded Callaway Golf Company in 1982.  First called
Callaway Hickory Stick USA, Inc., the Company specialized in
hickory-shafted putters and wedges that were "Demonstrably
Superior and Pleasingly Different."  The Company designs,
develops, manufactures and markets high quality, innovative golf
clubs and golf balls.  Callaway Golf Company employs about 2,600
people worldwide, most of whom are housed in nine buildings on
the Carlsbad, Calif. campus with a combined area of nearly
800,000 square feet.  The Company's principal products include
metals, woods, irons, putters and golf balls.

It appears that even a slowing economy cannot abate the
popularity of golf, helping shares of Callaway to stay in 52-week
high territory.  The success of high margin products such as its
Rule 35 golf ball, which the company started making last year,
along with new endorsement contracts with high profile golfers,
has ignited investor interest in the stock.  Since hitting a low
of $11.88 last August, ELY has been advancing steadily higher in
a beautiful lower-left to upper-right ascending pattern, with
volume to the upside these past few weeks more than doubling to
support the move.  An entry on strength may be gained if the
buyers step in tomorrow, taking the stock to new 52-week highs.
For higher risk players looking to enter on a dip, support can be
found at the 5 and 10-dma at $25.14 and $24.59.  These two levels
are reinforced by horizontal support at $25 and $24.  We are
placing a protective stop just below at $23.75.  Make sure that
ELY continues to close above this point.

***March contracts expire in less than two weeks***

BUY CALL MAR-25   ELY-CE OI= 47 at $1.45 SL=0.75
BUY CALL APR-25  *ELY-DE OI=132 at $2.25 SL=1.25

http://www.premierinvestor.com/oi/profile.asp?ticker=ELY


*************
NEW PUT PLAYS
*************

AGGRESSIVE:

SEBL - Siebel Systems Inc. $29.00 -4.63 (-8.00 this week)

Siebel Systems Inc. is the world's leading provider of ebusiness
applications software.  Siebel Systems provides an integrated
family of ebusiness applications software enabling multichannel
sales, marketing and customer service systems to be deployed
over the Web, call centers, field, reseller channels, retail and
dealer networks.  Siebel Systems' sales and service facilities
are located in more than 37 countries.

While most technology stocks enjoyed long awaited gains in today's
rally, SEBL experienced heavy selling on 39 million shares, which
is three times the average daily volume.  The heavy selling began
last Friday, when Oracle's lowered sales and earnings estimates
spilled over into other ebusiness software applications companies.
SEBL opened last Friday with a gap down of over 6 points, and
the bad news continued this week.   SEBL suffered the indignity
of downgrades from a list of influential Wall Street firms over
the last few days, including CSFB, Merrill Lynch, Morgan Stanley
Dean Witter, Goldman Sachs, and Robertson Stephens.  Robertson
Stephens analyst Alex Baluta stated that SEBL is likely to face
a challenging environment at the end of the quarter, as companies
delay purchases in the uncertain economic environment.  Adding to
the problem, SEBL often closes 50% or more of its business in the
last month of the quarter.  As if this weren't bad enough, The
Wall Street Journal reported in an article on Tuesday that SEBL's
sales chief had left the firm and taken a position with Vignette.
This only served to increase investors nervousness with an
already weakened stock.  While SEBL has been in a long term down
trend since November, today's fall may have suffocated any hopes
of a recuperation with the Nasdaq.  SEBL is making a pattern of
failed rallies from lower highs, and is now at a new 52-week low.
Following this pattern, the most likely near term move is a roll
over from $29, which could lead to the next support level at $27
dating back to October of 1999.  The next strong support level is
at the $20 level.  Traders could consider taking positions at
current levels, or at a drop below $28.50 on heavy volume.
Monitor the software index for weakness, and set stops at $32.

**March contracts expire in two weeks**

BUY PUT MAR-35 SGW OG OI=841 at $7.13 SL=5.00
BUY PUT MAR-30*SGW-OF OI=716 at $3.63 SL=1.75

http://www.premierinvestor.com/oi/profile.asp?ticker=SEBL


BRCM - Broadcom Corporation $48.88 +0.75 (+1.56 this week)

Broadcom Corporation is a provider of highly integrated silicon
solutions that enable broadband digital transmission of voice,
video and data to and throughout the home and within the business
enterprise.  These integrated circuits permit the cost-effective
delivery of high-speed, high-bandwidth networking using existing
communications infrastructures that were not originally designed
for the transmission of broadband digital content.

Strength in the Chip sector recently has helped to lift the
NASDAQ higher.  A rash of earnings warnings yesterday from
Semiconductor companies across the board did not cause the
customary sell-offs and in fact, stocks such as XLNX, CY, LSI,
VTSS, and TQNT advanced in the face of their warnings.  This
rallying on bad news was enough for bring out the bulls, who were
more than happy to assume that the worst has been priced into the
Semiconductor stocks.  Earnings shortfalls, falling sales and
inventory build-ups all add up to a negative picture.  While it
can be argued that the market looks ahead, these problems added
to an uncertain economy mean the lack of visibility ahead.  That
being said, BRCM has been weak relative to its peers, even in the
recent bounce.  Every time the stock has reached a level of
support, it has fallen below on increased selling volume.
Negative comments and ratings by Banc of America Securities,
Merrill Lynch, Solomon Smith Barney, WR Hambrecht and most
recently SG Cowen have also provided a drag on the stock price.
What's more, the company has been under legal pressure, as a Wall
Street Journal article published last week questioned the
legitimacy of recent insider stock sales.  Failed rallies above
resistance at $50 and our stop price of $52 could allow
aggressive traders to take a position while a break below the
5-dma at $47.71 would allow the more risk averse to make a play.
As always, correlate entries with movement in the Philadelphia
Semiconductor Index (SOX) as well as the NASDSAQ 100 (QQQ).

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

BUY PUT MAR-50*RCQ-OJ OI=1484 at $5.38 SL=3.50
BUY PUT MAR-45 RCQ-OI OI=1549 at $3.00 SL=1.50

http://www.premierinvestor.com/oi/profile.asp?ticker=BRCM


**********************
PLAY OF THE DAY - CALL
**********************

EDS - Electronic Data Systems $65.32 +0.19 (-1.13 this 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.

Most Recent Write-Up

With resistance overhead at $67.50 and then at $68, shares of the
e-business solutions giant have moved sideways so far this week on
declining volume.  Yesterday, EDS pulled back $1.32 or about 2
percent on lighter than average volume.  Today, an attempt to
break through $67.50 was denied, as there was just not enough
buying pressure to back the move.  The good news is, the stock
continues to make higher lows, so its uptrend is still firmly
intact.  Support is also building, with the 5 and 10-dma (at $65.06
and $63.74) both edging ever higher.  Bounces off these two moving
averages along with horizontal support at $65 and our stop price of
$64 may provide aggressive traders with potential entry points.
Conservative traders will want to wait for the buyers to return in
force, powering EDS above $68 with conviction before taking a
position.  Keep an eye on rivals CEFT and SDS to gauge sector
sentiment when making a play.

Comments

EDS gapped up and drifted lower today on light volume.  We are
expecting that the volume that has pushed EDS higher will be
returning after two days of minor profit taking.  Today, the stock
encountered resistance at $67.50, a level which was established
on Friday.  To play EDS, look for bounces from intraday support
at $64.50 accompanied by strong buying volume.  The 10-dma at
$63.75 should also provide added support.  A break above $67.50
could attract buying that drives the stock toward $70.

***March contracts expire next week***

BUY CALL MAR-60 EDS-CL OI=1242 at $5.80 SL=4.00
BUY CALL MAR-65*EDS-CM OI=3354 at $2.25 SL=1.00
BUY CALL APR-65 EDS-DM OI= 500 at $4.59 SL=2.75
BUY CALL APR-70 EDS-DN OI=1019 at $2.59 SL=1.25

http://www.premierinvestor.com/oi/profile.asp?ticker=EDS


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************************
COMBOS/SPREADS/STRADDLES
************************

No Conviction in the Rally!

Stocks moved higher for the second consecutive session but the
major averages ended well below their peak levels as investors
worried about declining corporate profits.


Monday, March 4

Stocks moved higher today as investors ignored a slew of profit
warnings in their search for discounted issues.  The NASDAQ was
25 points higher at 2,142 at the close while the Dow finished up
95 points at 10,562.  The S&P 500 index rose 7 points to 1,241.
Trading volume on the NYSE was a light 926 million shares, with
advances beating declines 1651 to 1407.  Activity on the NASDAQ
was also meager with 1.49 billion shares exchanged.  Technology
declines edged advances 1,846 to 1,810.  In the bond market, the
30-year Treasury fell 6/32, pushing its yield up to 5.37%.


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

Honeywell    (NYSE:HON)    MAR50C/MAR47C  $0.50  credit  bear-call
Invest Tech. (NYSE:ITG)    MAR45P/MAR50P  $0.45  credit  bull-put
Min. Mining  (NYSE:MMM)    MAR100P/M105P  $0.40  credit  bull-put
Dupont       (NYSE:DD)     APR50C/APR40P  $0.20  debit   synthetic
Cima Labs    (NASDAQ:CIMA) MAR75C/MAR45P  $0.88  credit  strangle

Most of our new positions offered favorable entry opportunities
during the session.  The bullish plays in Investment Technology
and Minnesota Mining provided acceptable opening prices that were
easily improved through separate orders.  Dupont moved higher at
the open and never retreated, providing only a brief window for
adept traders in early trading.  The option premiums in Cima Labs
were slightly lower than Friday's quotes, due to declining time
value and the overall credit was not as high as we anticipated.


Portfolio Activity:

The market rebounded today after a series of recent declines amid
optimism from two of Wall Street's biggest brokerages.  Positive
remarks from Merrill Lynch and Morgan Stanley Dean Witter, both
of which advised clients to consider adding to their portfolios
at these depressed levels, were largely responsible for the day's
bullish activity.  Citing the exaggerated declines of the past
few weeks and the Fed's campaign to lower interest rates, Merrill
Lynch moved its U.S. equity exposure to "overweight," based on a
belief that most of the negative profit outlook is already priced
into stocks.  In spite of the bullish comments, trading volumes
were thin in one of least active days of 2001 as New York City
and the rest of the northeastern United States braced for a major
storm with extreme winter weather forecast for the region.  On
the Dow, Caterpillar (NYSE:CAT), Boeing (NYSE:BA) and United
Technologies (NYSE:UTX) led the blue-chip gainers while Coca-Cola
(NYSE:KO), SBC Communications (NYSE:SBC) and Merck (NYSE:MRK) all
declined.  Among technology issues, chip stocks rose even as new
profit warnings were announced by Cypress Semiconductor (NYSE:CY),
Vitesse Semiconductor (NASDAQ:VTSS) and LSI Logic (NYSE:LSI).  In
the Internet sector, Amazon.com (NASDAQ:AMZN) surged 25% after a
British newspaper reported that Amazon.com and Wal-Mart (NYSE:WMT)
are in talks to form a "strategic alliance."  Networking shares
also rallied, with Cisco (NASDAQ:CSCO), Juniper Networks (JNPR)
and Nortel (NYSE:NT) moving higher during the session.  In the
broader market, most sectors enjoyed favorable gains but retail,
financial and biotechnology were among the weakest segments.

The Spreads Portfolio experienced bullish activity in a number
of technology groups but blue-chip shares were the most popular
issues during the session.  Bellwether companies including AT&T
(NYSE:T), Intel (NASDAQ:INTC), Hewlett-Packard (NYSE:HWP), and
Microsoft (NASDAQ:MSFT) led the upside movement and strength in
these issues helped propel the broader markets to an oversold
rally.  Among industrial stocks, transportation companies were
upbeat and the momentum helped Continental Airlines (NYSE:CAL)
move back to the $45 range, near our sold strike in the neutral
credit strangle.  At the same time, issues in defensive sectors
also edged higher and that means we will have to keep an eye on
bearish positions in American Home Products (NYSE:AHP), Chiron
(NASDAQ:CHIR) and Avery Dennison (NYSE:AVY).  In the small-cap
category, Solutia (NYSE:SOI) and Olin (NYSE:OLN), both chemical
companies, continued to rally and recent synthetic positions in
those issues have performed well.  Our new time-selling issues,
Advanta (NASDAQ:ADVNB), Insignia Financial Group (NYSE:IFS) and
Ocular Sciences (NASDAQ:OCLR) ended the day with little change
and that bodes well for the success of those positions.  Among
premium-selling candidates Aphton (NASDAQ:APHT) and Alexander &
Baldwin (NASDAQ:ALEX) edged lower and any further downward
movement will provide unavoidable exit signals, based on recent
technical indications.  The only bright spot in that category
was Time Warner Telecom (NASDAQ:TWTC), which rallied over $3 on
strength in the telecom industry, and remains comfortably in the
middle of our profit envelope.


Tuesday, March 6

Stocks moved higher for the second consecutive session but the
major averages ended well below their peak levels as investors
worried about declining corporate profits.  The NASDAQ finished
61 points higher at 2,204 and the Dow ended 28 points higher at
10,591.  The S&P 500 index was up 12 points to 1,253.  Trading
volume on the NYSE reached 1.09 billion shares, with advances
outpacing declines 1,861 to 1,191.  Activity on the NASDAQ was
average at 1.98 billion shares exchanged, with advances beating
declines 2,305 to 1,401.  In the bond market, the U.S. 30-year
Treasury fell 4/32, pushing its yield up to 5.37%.


Portfolio Activity:

Investors pushed the market higher for a second straight session,
ignoring earnings worries while continuing to hunt for bargains
in the technology industry.  Among NASDAQ issues, hardware and
semiconductor shares led the charge while industrial stocks were
supported by interest in the financial, retail, oil service and
airline segments.  Defensive stocks, including utility, consumer
products, paper and precious metals generally retreated.  Whether
the recent rally proves to be sustainable over the long haul is
yet to be seen, but the bullish activity has helped a number of
positions in the Spreads Portfolio return to profitability.  In
addition, today's upside momentum provided excellent "roll-out"
opportunities in many of our long-term plays including Hewlett
Packard (NYSE:HWP), Intel (NASDAQ:INTC), Microsoft (NASDAQ:MSFT)
and AT&T (NYSE:T).  Motorola (NYSE:MOT) also displayed potential,
climbing to a high near $18.50 near midday.  As we mentioned in
last Sunday's edition, some of the Covered-calls with LEAPS plays
will benefit from cost-averaging (with additional long options)
to recover lost profit potential.  Time-selling positions in the
industrial group have also enjoyed the recent recovery rally and
Navistar (NYSE:NAV) and Atrix Laboratories (NASDAQ:ATRX) offered
profitable exits during the session.  Among the neutral "premium"
plays, Aphton (NASDAQ:APHT) and Alexander & Baldwin (NASDAQ:ALEX)
rebounded from recent lows, but they are far from a full recovery
and we will continue to monitor those positions closely.  Stocks
in the small-cap category performed well and Sicor (NASDAQ:SCRI)
has been a pleasant surprise, up almost $1 since we selected the
issue for a bullish play last week.  Other stocks in that group
have been excellent candidates for calendar spreads and today's
movement in Insignia Financial Group (NYSE:IFS) was beneficial as
it brought the issue back to the sold (short) strike at $12.50.
Unfortunately, the downward trend may just be starting and with
the favorable premiums for April options, an adjustment may soon
follow.  Ocular Sciences (NASDAQ:OCLR) was another issue that
slumped during the session, but the stock appears to have good
short-term support near $16 and that's the area we will use to
identify future signs of a failed rally.

Questions & comments on spreads/combos to ray@OptionInvestor.com
******************************************************************
                          - NEW PLAYS -

One of our readers asked for some candidates in the Oil Services
industry, based on the recent bullish momentum in the sector and
its hedge potential against future declines in the broader market.
All of these plays offer a favorable risk/reward outlook, however
they should be evaluated for portfolio suitability and reviewed
with regard to your attitude toward the technical character of
each issue along with your strategic approach and trading style.

******************************************************************
AHC - Amerada Hess  $76.69  *** Reader's Request! ***

Amerada Hess (NYSE:AHC) explores for, produces, transports and
sells crude oil and natural gas.  The company's exploration and
production activities take place in the United States, United
Kingdom, Norway, Denmark, Gabon, Indonesia, Azerbaijan, Thailand,
and in certain other countries.  The company also manufactures,
purchases, transports and markets refined petroleum and other
energy products.  The company owns one-half of a refinery joint
venture in the U.S. Virgin Islands and another refining facility,
terminals and retail outlets located on the East Coast of the
United States.

Shares of oil and natural gas companies rallied again today as
optimism over OPEC's next production move helped a number of
companies in the sector achieve record levels.  Amerada Hess was
one of these issues, climbing to an all-time high near $77 amid
renewed strength in the industry.  Despite the increasing share
prices, analysts continue to be bullish on the group suggesting
that the refiners will easily beat consensus estimates for the
first quarter and will remain upbeat regarding prospects for the
rest of the year.  Merrill Lynch is one of the more optimistic
backers of the refining segment, based on the recent recovery in
profits from the majors' refining-and-marketing operations that
produced a number of positive revenue surprises.  The technical
indications in AHC are also favorable and this position offers a
reasonable risk/reward ratio for traders who are bullish on the
issue.

PLAY (conservative - bullish/credit spread):

BUY  PUT  APR-65  AHC-PM  OI=1   A=$0.55
SELL PUT  APR-70  AHC-PN  OI=25  B=$1.10
INITIAL NET CREDIT TARGET=$0.60-$0.70  ROI(max)=14% B/E=$69.40

http://www.OptionInvestor.com/charts/mar01/charts.asp?symbol=AHC
******************************************************************
WFT - Weatherford International  $56.85  *** Reader's Request! ***

Weatherford International (NYSE:WFT) is one of the world's top
providers of equipment and services for the drilling, completion
and production of oil and natural gas wells.  Its operations are
conducted in over 50 countries, and the company has more than 300
service and sales locations in substantially all of the oil and
natural gas producing regions in the world.  Their products and
services are divided into separate operating businesses: Drilling
and Intervention Services, Completion Systems, Artificial Lift
Systems and Compression Services.

Stocks in the Oil Service sector are performing very well and
Weatherford is one of the top companies in the industry.  The
company's earnings report, posted in late January, reflects that
fact as revenues for the fourth quarter of 2000 increased 44%
over the $372.6 million reported in the fourth quarter of 1999.
Fourth quarter 2000 earnings, excluding special charges, reflect
an improvement of 372% over the prior year's earnings of $7.5
million.  Sequentially, the company's fourth quarter results,
excluding special charges, improved significantly over the third
quarter with operating income up 53% on higher worldwide activity
levels in drilling and production for oil and natural gas.  WFT's
performance reflected these trends and was further aided by the
positive impact that industry demand is having on pricing for its
products and services.  Weatherford is also benefiting from the
ongoing introduction of new products and services as well as the
addition of new capacity and the company is well-positioned to
meet the rising equipment needs in the industry.

Traders who favor the fundamental outlook for the company and the
bullish technical indications for its share value can speculate
on the future movement of the issue with this synthetic position.

PLAY (speculative - bullish/synthetic position):

BUY  CALL  APR-65  WFT-DM  OI=3   A=$1.30
SELL PUT   APR-50  WFT-PJ  OI=48  B=$1.05
INITIAL NET DEBIT TARGET=$0.00-$0.12 TARGET PROFIT=$1.00

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $1,700 per contract.

http://www.OptionInvestor.com/charts/mar01/charts.asp?symbol=WFT
******************************************************************
PTEN - Patterson Energy  $39.75  *** Reader's Request! ***

Patterson Energy (NASDAQ:PTEN) provides domestic land drilling
services to major and independent oil and natural gas companies.
The company focuses its operations in Texas, New Mexico, Oklahoma,
Louisiana and Utah.  The company currently has a drilling fleet
of 119 drilling rigs, 114 of which are currently operable.  The
company is also engaged in the development, exploration, purchase
and production of oil and natural gas, and provides a number of
contract drilling fluid services to oil and natural gas operators.

Among domestic drilling companies, Patterson is one of the best
fundamental candidates with fourth quarter earnings revealing a
profit of $0.32 a share, far beyond the consensus estimate of
$0.22 and well above last year's penny a share.  The company's
revenues were up 90% year-over-year on new demand for land-based
drilling, which was fueled by the rising costs of natural gas.
The company is growing and to meet the increasing need for drill
rigs, Patterson Energy and UTI Energy (AMEX:UTI) recently agreed
to a stock-swap merger, creating the nation's second-largest oil
driller and 18th-largest oil-field company.  UTI Energy is also
enjoying financial success, recently posting earnings of $0.23 a
share, seven cents above the Street's consensus, on an 80% surge
in revenue.  The company's future earnings estimates, along with
those of PTEN, have been revised higher by up to 25% in the past
month and that provides a great example of the strength in the
industry.

This combination position simply offers a way to speculate on the
future performance of one of the top companies in the Oil Service
sector.

PLAY (moderately aggressive - bullish/credit spread):

BUY  PUT  APR-30  NZQ-PF  OI=0  A=$0.50
SELL PUT  APR-35  NZQ-PG  OI=0  B=$1.19
INITIAL NET CREDIT TARGET=$0.75-$0.81 ROI(max)=17% B/E=$34.25

http://www.OptionInvestor.com/charts/mar01/charts.asp?symbol=PTEN


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