Option Investor
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Daily Newsletter, Tuesday, 03/13/2001

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The Option Investor Newsletter                  Tuesday 03-13-2001
Copyright 2001, All rights reserved.                        1 of 2
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        03-13-2001        High      Low     Volume Advance/Decline
DJIA    10290.80 + 82.50 10293.10 10108.10 1.36 bln   1476/1601
NASDAQ   2014.78 + 91.40  2015.35  1932.63 2.10 bln   2110/1648
S&P 100   613.51 + 12.00   613.73   598.80   totals   3586/3249
S&P 500  1197.66 + 17.50  1197.83  1171.50           52.5%/47.5%
RUS 2000  462.26 +  3.86   462.45   453.46 
DJ TRANS 2769.74 - 91.45  2863.97  2723.97
VIX        30.73 -  4.38    35.37    30.68
Put/Call Ratio      1.01
******************************************************************

Market Must Be Down

I know this to be true now because Lou Dobbs made his token
appearance as the headline guest on the Today show this
morning.  I usually don't watch morning television other than
to catch the jabs Mark Haines lays on Joe Kernen on CNBC but
this morning, as I searched for a weather prediction, all the
talk shows were headlining the market turbulence.

As Matt Lauer drilled Lou with probing questions (most of
which have been asked for almost a year now) I couldn't help
but think that this was a message to Joe Public not to panic.
Of course things have bad before the NASDAQ dropped below
2000, but it seemed that the highly psychological break down
through this level on Monday was enough to put the markets in
the headlines again.

This highlighting of the market's malaise may actually serve
to provide us with the final sell off that we need to gain
some traction here and go higher for at least a while.  The
weak holders may use this break through 2000 as an excuse to
throw in the towel.  On the other side of the coin, many long-
term investors have targeted the 2000 level as a place to step
up to the plate and buy.

No matter what the small investor thinks, in the end it is the
institutional buying and selling that moves the market.  To
that end, it doesn't appear as if the mutual fund managers are
positioning themselves for a turnaround anytime soon.

In a recent survey of mutual fund managers, only 18% of U.S.
managers expect a more healthy earnings picture in 2001 and
only 10% expect a "V" type recovery in 2001.  For the
uninitiated, a "V" recovery is one that rockets straight off a
bottom.  Instead of a "V" recovery, many analysts are now
calling for a more prolonged recovery off the bottom or an "L"
recovery.  I don't know about you, but whatever letter you
believe will typify the bottom, I'd just like to see the
"recovery" part of the equation come to fruition, and soon!

Today's Markets

On Tuesday, investors were successful at plugging the holes in
the dam that had caused the major indices to leak red all over
Wall Street during Monday's session.  Buyers finally stepped
in after Monday's sell off to scoop up tech bargains.

The NASDAQ (COMPX) rebounded by 91.40, or 4.75% to close back
above the important 2000 level at 2014.78.  Volume came in at
a healthy 2.1 billion shares and advancers beat decliners by
2092 to 1659.

Over in the DOW (INDU) things got off to a slow start but the
burners kicked on in the afternoon session to take the old
economy average higher.  The DOW added 82.55, or 0.81%, to
10290.80.  It spent much of the morning in negative territory
as money flowed into tech stocks; however, it was boosted by
late day buying in General Electric (NYSE:GE), J.P. Morgan
(NYSE:JPM) and International Business Machines (NYSE:IBM).
The stocks closed up $2.73, $1.91 and $2.90 respectively.

Treasuries took a rest after recent gains as interest once
again turned back to equities.  The 10-year benchmark bond
closed down 11/32 to yield 4.94% and the 30-year note lost
20/32 to yield 5.34%.

We also received some economic news today in the form of the
February retail sales figures.  Sales for February dipped
slightly by 0.2%, but this was more a function of a
simultaneously huge upward revision in the January sales
figures.  Sales in January were revised up to 1.3% from the
previously released number of 0.7%.  All in all these reports
point to a consumer that is still spending and this is good
news for an economy that needs the consumer on its side to
avoid an extended recession.

Stocks and Sectors on the Move

Most all technology sectors saw a good bounce off extremely
oversold levels today.  The PHLX Semiconductor Index clawed
its way back by 36.13 to close above 600 at 612.51.  Some
standouts in the sector included KLA-Tencor (NASDAQ:KLAC) up
$2.56 to $43.81, Micron Technology (NYSE:MU) up $3.29 to
$44.05 and Advanced Micro Devices (NYSE:AMD) up $1.05 to
$23.78.

Networking stocks also received a collective group hug from
investors today.  Stocks in the sector were bid up today on
the heels of sizeable losses on Monday.  Cisco (NASDAQ:CSCO)
recouped $2.56, ending today's session at $21.38.  John
Chambers spoke today at the Merrill Lynch Global
Communications Conference, essentially saying that new orders
continue to be soft and that this slowdown would be a two-
quarter phenomenon at minimum.  But, in a show of confidence
in the long-term outlook of the company, Chambers indicated
that Cisco would consider reinstating a share buyback program.

Bucking the decidedly upbeat tone on the day were shares of
Tyco International (NYSE:TYC).  The big conglomerate's shares
fell $3.87 to $46.83 after the company announced that it is
purchasing finance company, CIT Group (NYSE:CIT), for
approximately $9.2 billion in stock.  The drop in Tyco shares
was due in most part to worries over the dilution stemming
from the stock-swap acquisition.  Tyco plans to use the CIT's
services to provide vendor financing within its other areas of
business, including telecommunications, electrical equipment
and security systems.

Also flying into the market's headwind today were airline
stocks.  Delta Airlines (NYSE:DAL) warned of weaker profits,
sending most airline stocks into a landing pattern.  Delta
warned that, due to a weak economy, it would lose $0.70-
$0.90/share instead of the expected profits of $0.46/share.
That's like landing at Logan instead of Laguardia!  Needless
to say the stock took a hit.  DAL closed off $1.64, or 3.81%,
to $41.46.  United Airlines (NYSE:U) followed suit, falling
$1.10, or 3.3%, to $32.20 and United Airlines (NYSE:UAL)
descended by $1.64, or 4.28%, landing at $36.72.

Looking Forward, Always Forward

Wednesday brings with it the January Business Inventory
report.  Although the business inventory report is not usually
market moving, as we get closer to the March 20th Fed meeting,
all economic reports take on added weight.  January business
inventories are seen coming in unchanged from December's
levels.

The real test going forward is to see whether the DOW and
NASDAQ can rally together or if one has to suffer at the
expense of the other.  Recently, the NASDAQ appears to have
started to drag down even the old economy stocks.  We need to
see evidence of this dwindle, since along with the retail
investor losing confidence, if we get into an irrational
market where even valuations go out the door, then we are in
trouble.




While the market is still in repair mode and while earnings
warnings still are a real threat, traders should still be in
"tread lightly" mode.  This means going into trades with less
than your normal position and closely monitoring sectors for
hints as to where the money is flowing.

Trade Smart and Keep Stops In Place

Craig Seidler
Contributing Editor
www.OptionInvestor.com


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

OptionInvestor is proud to announce our third annual Spring option
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Richard Arms, inventor of the TRIN, or Arms Index, Equivolume
charting and author of "Trading Without Fear."

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Steve Nison, the worlds foremost expert on Candlestick charting.
Author of "Japanese Candlestick Charting Techniques" and "Beyond
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Harry Brown, author of seven investment books.

Jim Crimmins, President of TradersAccounting.com

Austin Passamonte, editor of IndexSkybox.com

Jeff Bailey, editor of PremierBriefing.com

Jim Brown, President of the Premier Investor Network.

The detailed schedule will be posted in about two weeks. There
will not be individual breakout sessions during the day. Each topic
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****************
MARKET SENTIMENT
****************

Was That The Bottom?
By Austin Passamonte

The eternal question we've been asked and asking others for nigh
on a full year now. Our definitive answer would be, "Quite
possibly and maybe, probably for now." How's that for conviction?

First the near term. Tons of technical damage was done from
Friday and Monday's massive selloff. Once again, layers of
resistance lie meshed above us as investors & traders pray for
certain levels to get hit so they can just exit at even. Trust
us, they are out there in droves. That being said, greed causes
the very same holders of hope to resist selling their
aforementioned "stranded dogs" even while those issues rally back
from despair.

Monday had all the signs of temporary capitulation. Massive
selling, VIX & VXN values soaring and put/call ratios beyond all
measure of sanity. Today's early test of 10,100 in the Dow as
pointed out by Jeff Bailey in his "Premier Briefing" hourly
reports called it to a "T." Markets gradually moved higher and
closed near the respective peaks from there.

Yesterday they couldn't sell 'em fast enough; today they buy?
What kind of logic, reasoning and common sense does that make?
None. Welcome to the world of equity trading where human emotion
rules.

Plenty of trading accounts went bust over the past three sessions
as margin calls forced dumping of the good with bad and traders
trapped in a gut wrenching see-saw just wanted out. Others were
forced out from being on the wrong side of volatile moves in both
directions as well. We officially call that "washed out."

Then nightfall came and went, traders wake up to a landscape of
bargains and swoon for their discarded angels once again. If we
had $1, o.k. $100 for each time we've seen this there would be no
need to trade again for awhile.

Now what? No company of importance has warned, Japan hasn't yet
filed Chapter 7 and post-market futures are up nicely as we
speak. Straight up the charts from here? It's never that easy,
especially during Triple-Witch expiration events. We expect
Thursday to be a wild session as European-style option contracts
and numerous CME & NYBOT futures contracts cease trading or
expire, including the mighty S&P 500.

That coupled with PPI on Friday and general market turmoil almost
assures us of large-range days at least two of the next three
ahead. Let's not forget the FOMC on Tuesday but we'll focus on
that this weekend.

Possible overhead resistance:
QQQ:   46
NDX: 1800
OEX:  633
SPX: 1235
Dow: 10,400

Possible underlying support:
QQQ:   42
NDX: 1680
OEX:  598
SPX: 1180
Dow: 10,100

Market Sentiment's best guess: Major indexes trudge higher on
volatile action and close well above current levels if no
bombshells erupt. Lurking in the shadows are rally killers too
numerous to mention and any could easily derail such fragile
upside movement. We'll dissect long-term trends and market lows
behind and ahead in Saturday's edition. Let's survive & prosper
the next three sessions first.

Trade the daily trend, use small amounts of risk capital willing
to be lost and consider trading a very few March contract index
options. We can almost assure ourselves the action could get
wild, and massive multiples can & do amass between Wednesday's
open and Friday's close.

Chances of broad indexes trading flat over the next three
sessions are slightly lower than that first par-5, hole-in-one
that patiently awaits us in the distant sun. We never know which
little ball teed up in the fairway will be the one!

*********

VIX
Tuesday 03/13 close: 30.73

VXN
Tuesday 03/13 close: 72.67

30-yr Bonds
Tuesday 03/13 close: 5.34%


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
                                 (03/13/2001)
  (Open Interest)       Calls        Puts          Ratio
S&P 100 Index (OEX)
Resistance:
650 - 635               13,740        8,961         1.53
630 - 615                8,275       12,838          .64

OEX close: 613.55

Support:
610 - 595                1,710       13,272         7.76
590 - 575                   12       11,698       974.83

Maximum calls: 700/ 6,978
Maximum puts : 560/10,095

Moving Averages
 10 DMA  635
 20 DMA  649
 50 DMA  679
200 DMA  743


NASDAQ 100 Index (NDX/QQQ)
Resistance:
 54 - 52                77,579        21,875         3.55
 51 - 49               143,432        59,324         2.42
 48 - 46                72,874        65,642         1.11

QQQ(NDX)close: 44.45

Support:
 43 - 41                22,342        24,715          1.11
 40 - 38                 3,992        25,687          6.43
 37 - 35                   895         7,810          8.73

Maximum calls: 50/95,963
Maximum puts : 48/42,061

Moving Averages
 10 DMA 46
 20 DMA 50
 50 DMA 57
200 DMA 78


S&P 500 (SPX)
Resistance:
1275                   24,199        23,491          1.03
1250                   25,039        26,072           .96
1225                    9,262        12,498           .74

SPX close: 1197.71

Support:
1175                    1,631       10,544          6.46
1150                      609       19,112         31.38
1125                       22        5,393        245.14

Maximum calls: 1350/47,392
Maximum puts : 1325/42,451

Moving Averages
 10 DMA 1234
 20 DMA 1258
 50 DMA 1305
200 DMA 1397

*****

CBOT Commitment Of Traders Report: Friday 03/09
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          -2012     -1841         -2960     -4538
Total Open
interest %      (-19.12%)  (-20.19%)     (-10.32%)  (-16.02%)
                net-short  net-short     net-short  net-short


S&P 500          (Current) (Previous)    (Current) (Previous)
Open Interest
Net Value         +91122     +84749       -111638   -101746
Total Open
Interest %      (+37.69%)  (+41.67%)    (-14.93%)   (-13.36%)
                net-long   net-long      net-short  net-short


What COT Data Tells Us
**********************
Indices: For the second week in a row the Commercials have
increased their net-short positions on the S&P 500.  In the last
two weeks the Commercials have added more than two percent to the
short side, this is significant considering they had been holding
around the twelve percent range for several weeks.  The Small
Specs and Commercials have lightened up in their net-short
positions on the DJIA.

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 03/06 by the CFTC.


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

Please visit this link for Market Posture:

http://www.OptionInvestor.com/marketposture/031301_1.asp


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

A Strategy That Can Work
By David Popper

Boy this is hard.  The market looks like a bottom is forming and
a trap door springs.  Many friends of mine gain confidence when
the market has a rally and despair the very next day when the
market resumes its downward trend.  There are a lot of technical
and fundamental reasons why the market is behaving like this.
There are all sorts of books that would teach you how to play a
bear market rally such as Stan Weinstein's book, "Secrets for
Profiting in Bull and Bear Markets."  The bottom line for part
time traders is that these fine strategies take too much time and
require a lot of practice before a trader begins to be profitable.
There are principles and safeguards that can be employed, however,
which can help a trader in this environment as long as the trader
is realistic about the amount of profit which can be achieved.

In case you have not noticed, this market is completely counter-
intuitive. Just when it "seems" safe to jump in, the market
falls.  Just when fear is in the air, the market rises.  Simply
put, feelings and hunches are completely unreliable and are
usually totally out of sync with the market.  It may be best to
stay out at this point.  If you must play, however, there is a
strategy which can work in this type of market.  Keep in mind
that this is not the strategy that you would want to play in a
bull market, nor is it a strategy that you would want to play
in an overvalued market. Instead, this strategy is designed for
busy people, who want to be involved in the market, stay in sync
with the market, hedge their position and be profitable.  Below
I will discuss aspects of this strategy.

1. ONLY TRADE THE TOP STOCKS OR INDEXES:  Institutions have
certain favorites which are well established companies and
are gorillas in their field.  Because these companies are
quite large, and their stock is quite liquid, institutional
money tends to flow toward them when the market trend
reverses.  Indexes such as the NASDAQ 100 share these same
characteristics, but actually provide even more safety
because no one warning will make the index fall out of bed.
The NASDAQ 100 is my trading vehicle of choice.

2. BUILD A POSITION:  Purchase a position in one or more
stocks or indexes with 1/4 of your funds and write either
current month deep in-the-money(ITM) calls or alternatively
write at-the-money(ATM) calls four to six months out.  The
advantage of the deep ITM calls is that the extrinsic portion
of the call premium depreciates rapidly.  The advantage to the
longer ATM call is that you secure much more premium due to
the high amount of time premium associated with a lengthy
expiration date and the fact that ATM calls have the most
extrinsic premium built into them.  Writing longer term calls
does not keep you necessarily in the play for four to six
months because if the stock really roars up or down and then
settles, the extrinsic portion of the call premium will
depreciate rapidly.  At that point, you would be able to
buy the call back and begin a new play.

3. COVER OR CLOSE YOUR POSITION:  If the stock or index,
moves up rapidly you would have the option of closing your
option position, as discussed above, or simply buying a put
for a small amount of money.  Once the put is in place, my
downside is protected.  The profit I make will be the
difference between the call and put premium if they are at
the same strike price.  For example, if I were to sell the
$50 call on the QQQ (NASDAQ:QQQ) for $10 and later buy the
put for $4, my profit would be $6 and my downside is protected.
On top of that, I will be able to profit on a market downturn
because my the call that I sold will depreciate in value, while
the put that I own will increase in value. On a dip, you would
be able to buy back the call cheap and resell it on a rebound.

Likewise you could sell the put when the market is severely
oversold and repurchase the put on a rally. The beauty of this
strategy is that you are in sync with the market.  When the
market rallies and everyone is buying, you are selling calls
for a high premium and establishing downside protection.  When
the market is dropping and everyone else is panic selling or
buying puts for high premiums, you are buying back calls cheap
and selling the "cheap" puts for a profit.  You are actually
buying low and selling high.  True, even this strategy will take
some practice, but the moves are slower and it is easier for a
part time trader to stay on top of the trade.

4. WAIT 30 TO 60 DAYS BEORE YOU DEPLOY AN ADDITIONAL 1/4 OF
YOUR TRADING ACCOUNT:  Sometimes during the frenzy of an
unproven bear market rally, I have found myself jumping the
gun and deploying too much capital at once.  This can be
unproductive.  Currently, the market swings are violent.
Each thirty to sixty days finds the market trading in a new
range. It can be helpful to start an entirely new position,
even if with the same security, because the position will be
established at an entirely new strike price and with covered
calls established on different expiration dates.  These
modifications are an additional way to diversify your
positions.  Further, after this system has been employed for a
period of 6 months, you will notice that expiration dates will
be approaching every month or every other month, so you will
have the opportunity to establish new positions often.

In essence, by using this strategy, you will be able to collect
premium every 30 to 60 days which will provide substantial cash
flow.  The employment of a portion of your funds on a systematic
basis gives you some of the protection of dollar cost averaging,
while the use of puts protects your downside and allows you to
profit in bull or bear markets.  Obviously, skill at reading
charts will aid in a trader's ability to establish positions that
are potentially safer and more profitable.  This strategy,
however, affords much more margin for error.


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

Preparing For A Bottom
By Scott Martindale

What a difference a week makes.  Last Tuesday I was waxing
nostalgic about the big morning gap up -- the kind that we had
enjoyed so often during fall 1999 through spring 2000.  However,
since last Tuesday we have seen the markets plummet as horribly as
anything we saw last year, despite today's encouraging internals.
For my part, I'm getting tired of discussing all the reasons the
markets should be bottoming while watching them continue to
nosedive.  Yesterday, the S&P 500 officially joined the Acapulco
cliff-diving club.  Only the Dow continues to hold out.

Now our stock market troubles are threatening to impact Europe,
which had been starting the road to recovery.  But despite the
rants of certain perma-bears (or should we call them vultures) who
are excitedly predicting a further 35% drop in Nasdaq, the economy
has not died -- it has been temporarily slowed by an FOMC that was
too aggressive with rate hikes and is now too reluctant with rate
cuts.  The Fed should cut rates another full point over the coming
weeks, and they continue to pump money into circulation as a
stimulus.

Admittedly, today's action was enticing.  If you are greedy like
me, it was hard to resist jumping in on today's bounce.  If you
believe the bottom is here or not far off, it may be time to
start thinking about naked puts gain.  However, a huge rally may
not be in the cards, so mid- to long-term calls and LEAPS may not
be the best play, unless you plan to short-term trade them.
However, if you are prepared to exit quickly, or if you don't mind
accumulating some shares at "good" prices, naked puts (and put
credit spreads) might be a good strategy, especially given the
high VIX (i.e., high premiums).  Understand the risks and rewards
of this strategy -- your reward as a put seller is limited to the
initial premium you collect, no matter how much the underlying
stock rallies, but your risk in the event of a stock price decline
is substantial.

I have learned to only write puts on stocks I really believe in
and wouldn't mind owning, not just those that have high options
premiums and good current technicals.  Keep in mind that when you
buy an option the underlying stock must move strongly in your
direction to make money, but when you sell an out-of-the-money
(OTM) option you make money if it goes in your direction, stays at
the same level, or even goes slightly in the wrong direction.
Also, time decay is fastest for short-term (one to three month)
options, which is in your favor as a seller but is a disadvantage
as a buyer.

Don't get greedy and focus solely on stocks with high options
premiums.  The premiums are high for a reason -- high volatility,
which means it could go down as fast as it goes up.  And beware of
options that have higher implied volatilities than normal for the
underlying stock.  When implied volatilities are significantly
higher than normal for no apparent reason, a significant move may
be coming. You don't want to be on the wrong side of such a move.
Pick the stocks first, then choose the put option.  Many traders
have found success by focusing on relative-strength leaders in a
strong uptrend.

Compile a watch list of your favorite stocks and find a good
support price for each based on technicals and option open
interest.  It's best to catch a stock bouncing firmly off support,
and then sell a front-month strike at or below that support price.
Be especially careful selling in-the-money (ITM) puts, which
increases your margin requirement and the chance of assignment
(watch out for early assignment!).

Carefully track your put selling positions to be sure that you can
afford to purchase all the underlying stock under your contractual
obligations in the event of a market decline.  Of course, you can
improve your odds by diversifying among various industries.  Going
all-tech is probably not prudent in this environment.

But even if the stock moves up as you hoped, be prepared to buy it
back, especially if it moves up quickly.  Volatile stocks can drop
back down just as quickly as they move up, so I think it's better
as a general practice to close out the position when you can lock
in a good profit and free up your margin for another play.

A variation on the buy-back strategy is to turn the naked put into
a put credit spread by legging into the spread as the stock moves
up.  This provides: a larger credit than if you entered both legs
at the same time, a larger target profit than simply buying back
the sold put, better downside protection than a naked put position
(important in this market!), and it frees up margin.  Of course,
you can also enter the position initially as a credit spread
rather than legging in by placing a limit order on the net credit.

What happens if you sell an OTM put below support, but the stock
moves against you?  OIN has described a strategy whereby if the
stock drops to the strike price sold, you cover the position by
shorting the stock instead of buying back the put for a loss.
This creates a covered put.  If the bear is still here, it might
be a good way to play.

Perhaps the best place to look for bullish stocks right now are
the small and mid caps, which have outperformed the big caps this
year.  Around 66% of stocks on the NYSE are above their 200-day
moving average.  This provides strong support to the thesis of
imminent recovery in both the economy and the broader market.

Where else to look?  How about power generation companies like
AES Corp. (NYSE: AES), Calpine (NYSE: CPN), NRG Energy (NYSE: NRG)
and Dynegy (NYSE: DYN).  They are well-positioned to capitalize on
a key growth area.  They aren't very volatile, which means they
don't offer big options premiums for naked puts, but they are
playable with relative safety.

How about in the tech sector?  Semiconductors will lead any
advance in technology by virtue of their position as key
components and building blocks in virtually all new technologies.
Moreover, they generally sport modest P/E's.  In particular, look
at the market positions and valuations of companies like Applied
Materials (NASDAQ: AMAT), LSI Logic (NYSE: LSI), National Semi
Conductor (NYSE: NSM), KLA-Tencor (NASDAQ: KLAC), Texas
Instruments (NYSE: TXN), Taiwan Semiconductor (NYSE: TSM),
Novellus (NASDAQ: NVLS), and International Rectifier (NYSE: IRF).
They may not provide the huge moves of some other tech names in
networking, storage, or advanced semiconductors, but they aren't
going to have as much downside either.

Also, looking at today's movers gives an indication as to who
might move the fastest when the markets decide to sustain a rally.
I was quite impressed today with BEA Systems (NASDAQ: BEAS), Human
Genome Sciences (NASDAQ: HGSI), Juniper Networks (NASDAQ: JNPR),
Mercury Interactive (NASDAQ: MERQ), Extreme Networks (NASDAQ:
EXTR), and Ballard Power (NASDAQ: BLDP).


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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:
*****

WAG $42.89 -1.32 (-1.67) Banc of America initiated coverage on
WAG with a buy rating this morning, but that effort couldn't
trump the negative tone of the retail sales report this morning.
The unexpected dip in sales caused widespread selling in retail
issues, which spilled over into WAG and dragged it below our
stop at $44.  WAG did bounce off the $42 level today, and we'd
use any extension of that bounce to exit positions early
tomorrow.

PPG $52.66 -2.04 (-2.84) Cyclical stocks took it on the chin
Tuesday on the heels of continued weakness in the sector and
an unfriendly retail sales report.  PPG was no exception as
the stock fell below our protective stop at $54 and continued
lower before bouncing off support at $52.  If the break below
our stop at $54 didn't get traders out this morning, look to
exit open positions on a pop back above $53.

ELY $24.80 -1.20 (-1.71) The momentum we had been gaming in
shares of ELY came to an abrupt halt this morning following
a bearish retail sales report.  The stock slipped below our
stop at $25.50 before bouncing off the $24 level.  If the
break below our stop didn't get you out, look to exit
existing positions on an advance back above $25.

MYG $35.92 -1.09 (-0.69) Our new play in MYG that we initiated
yesterday came to an end today following the release of retail
sales figures.  MYG slipped precipitously at the open this
morning and offered little in the way of entry points.  If by
chance readers did get into the play today, look for MYG to
breakout above $36 and consider exiting around the $36.50.


PUTS:
*****

SEBL $29.84 +4.53 (+3.40) All good things must come to an end
at some point, including our put play in SEBL.  The stock offered
several profitable entry points since we picked it at $30.06.
After a failed rally from $33 last Tuesday, SEBL slid all the
way down to $25.13 on Monday of this week with the intense selling
which occurred on the Nasdaq.  However, the broad based one day
recovery on the Nasdaq today brought SEBL past our stop level of
$28.  It's a long way to go before SEBL can reach its 50 dma of
$56.20, however, at this point, we think it is prudent to drop
coverage tonight.

BGEN $63.38 +2.63 (+0.44) On Monday, BGEN opened at $62.94,
and proceeded to slide from there with the technology selling
to reach strong support at $60.31.  On Tuesday, Elise Wang of
Solomon Smith Barney upgraded BGEN to outperform, giving it a
price target of $75.  Initially, BGEN did not respond with
very much enthusiasm to this upgrade, as it lingered around the
$61 level in the morning.  However, when the Nasdaq started to
rally, BGEN picked up momentum, reaching $63 by 2:00, and then
a high of $65 by 3:20.  While BGEN pulled back toward the
close, it closed right above its 200 dma of $63.19.  At this
point, BGEN has lost much of its downward momentum, and as
such, we are taking our profits and dropping it tonight.

MWD $59.00 +3.00 (-1.75) Positive comments from John Mitchell
at Putnam Lovell Securities helped the brokerage sector today.
According to Putnam Lovell, the sector has excellent long term
growth prospects, and many stocks are approaching attractive
valuations.  Bear Stearns, Lehman Brothers, Goldman Sachs, and
Morgan Stanley all regained some lost ground today.  While the
sector is highly likely to experience weakness in the near term,
MWD closed at our stop price of $59, and as such, we are dropping
it tonight.

NEWP $38.15 +4.75 (+3.03) Newport was one of the 15 stocks chosen
by the NASDAQ in a pilot program to test the decimal system.
This was of little difference to traders on Monday, as the stock
gave up $1.73 or almost 5 percent.  Despite the break below
support at $35, volume was light for the day, especially
considering the volume to the downside for other Tech stocks.
This suggested to us some latent strength and with that, we
tightened our stop, moving it down from $40 to $37.  Today NEWP
bounced strongly from its oversold condition, advancing over 14
percent.  While volume was light, just under 75% of ADV, the
close above the 5-dma at $37.90 along with our stop price of $37,
suggests that another move higher could be with more conviction.
Already a highly profitable play, we are taking our gains and
gladly moving on.

VSTR $93.81 +5.44 (+0.31) That was quick!  Yesterday's weak
opening got our VSTR play off to a good start, and we got an
attractive entry as the stock fell below our $92 entry trigger
after amateur hour.  As the broader markets continued to feel
the pain of the bears' mauling, VSTR fell to close at $88.50,
very near the low of the day.  Alas, that seems to have been the
bottom for the time being, as buying emerged right from the
open.  The rally really seemed to grow legs in the final hour,
pushing our play up to close at the high of the day, solidly
above our $92 stop.  The bulls are hoping for a continuation of
today's recovery, and given the strong move this afternoon they
may get their wish.  At any rate, with a violated stop, it is
time to say goodbye to VSTR.


**************
BROKERS CORNER
**************

A Market Psychology Gauge

There are various tools that gauge the market's psychology.  The
VIX (CBOE's volatility index of the S&P 100), VXN (CBOE's
volatility index of the NASDAQ 100), Investor Sentiment Readings,
Put/Call ratios, and the CBOT Commitment Of Traders Report are
some of the indicators investors use to calculate the market's
sentiment.  Many of the indicators previously mentioned are
considered contrarian indicators. The term contrarian suggests
that the data collected may be analyzed as the opposite of the
actual readings. For example, an Investor Sentiment Reading, which
polls the population of investment newsletter editors, that has an
overwhelming majority of bulls over bears is believed by the
contrarian investor or "smart money"  to be bearish.  The actual
point at which the Investor Sentiment indicator turns bearish or
bullish is up for debate. I have my personal parameters while
others have theirs. The basic concept of using contrarian
indicators is doing the opposite of the market's sentiment. The
term "Smart Money" usually refers to the money not being controlled
by the investing public (often referred to as sheep of the herd).
My intention is not to offend anyone.  I want OIN readers to be
educated about ways to possibly gain an edge. When the average
person is talking about their latest investment in some arbitrary
sector, the smart money would probably sell.  This theory is based
on an old saying, "the herd gets slaughtered." Another indicator
that may give some insight to market sentiment is the Put/Call
ratio.

You may have heard the Put/Call ratio mentioned on the TV by Tom
Costello or Bob Pisani on CNBC.  The Put/Call ratio is the volume
of puts divided by the volume of calls. There are two ratios to
consider; the Index and the Equity.  I refer to the CBOE's volume
for the Index ratio and the sum of the 5-option exchanges' volume
for the Equity ratio.  This may be an intra-day as well as an
intermediate term indicator.  The contrarian believes that a large
amount of call volume versus a small amount of put volume is
bearish.  By assuming that the volume is call and put buying, the
larger amount of call volume suggests that the market is net
bullish.  Because the contrarian believes the opposite, the smart
money usually speculates that this is bearish.  The presence of a
large amount of put volume suggests that the market may be turning
bearish.  This is usually read as a bullish sign. Unfortunately,
the data isn't always dependable because the data changes
throughout the day.  An investor may wish to look for a general
trend.  I prefer to use this with other indicators in order to get
a consensus on the market's sentiment. As with the Investor
Sentiment Reading, the parameters to use on the Equity and the
Index Put/Call ratios are debatable.  I suggest asking your broker
what parameters to use.  Or you may contact me via e-mail @
RJOgilvie1@home.com or toll free @ 877-925-0880 if you need further
information regarding this topic or any other questions pertaining
to investing.

Robert J. Ogilvie

Neither Cutter & Company, Inc. nor Robert J. Ogilvie makes any
representation as to the accuracy, reliability or completeness of
any charts, formulas, and /or research opinions presented herein.
This article is intended solely for educational purposes. Nothing
herein should be construed as an offer or solicitation to buy or
sell any securities. Cutter and Company is a Member of the NASD,
MSRB, and SIPC.


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The Option Investor Newsletter                  Tuesday 03-13-2001
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

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********************
PLAY UPDATES - CALLS
********************

No call updates tonight


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

QLGC $30.69 +3.56 (+1.75) A gut-wrenching sell-off across the
broad markets yesterday saw QLGC slide to a new 52-week low at
$27.13 amid active trading.  A rolling pattern between the $27
level and the $30 resistance ceiling provided entry/exit
opportunities throughout the session.  While the intraday
gyrations provided aggressive types with a variety of
possibilities, the troubled sector itself saw little relief,
until late afternoon today.  As buyers put money to work, QLGC
and other related stocks such as EMLX, JNI, NTAP rebounded off
their bottom supports.  But in despite of the oversold
conditions, QLGC's roller coaster ride may not be over just yet.
The bulls couldn't successfully take QLGC through the overhead
resistance; although it is currently at a precarious level.
Therefore, don't throw caution to the wind.  While the market
sorts itself out, keep protective stops tight at $32 to avoid
extensive losses.

AFFX $38.00 -0.75 (-8.00) Shares of AFFX lost more ground on
Monday - or perhaps it'd be better said that they fell off a
cliff!  On 2.6 times the ADV, the bears cut AFFX down 19%, or
$8.75 within the first couple hours of trading.  A feeble
rebound barely cracked the $40 mark before AFFX found intraday
support near $38.  The stock continued to trade to the down side
today, setting a new 52-week low at $36.13.  Importantly too,
the pattern of lower highs and lows persisted to illustrate
AFFX's overall weakness; although we can't ignore the fact that
the NBI.X and BTK.X rose significantly today after suffering
four days of strong declines.  In an effort to protect existing
profits and to avoid getting nailed pending a sharp rebound,
we've lowered our closing stop to $40. It may also be wise to
wait for a dissenting broad market to push AFFX below the $36
level before adding new positions.

BRCM $35.94 +2.69 (-2.69) Yesterday's weakness in the NASDAQ,
along with more lawsuits from disgruntled shareholders, combined
for a one-two punch, knocking down shares of BRCM by $5.38 or
almost 14 percent on 1.2 times the ADV.  Today, in sympathy with
a rebounding market, the stock cut Monday's losses in half,
regaining 8.08 percent on 1.1 times ADV.  In doing so however,
BRCM made a new 52-week intra-day low of $32.50, as bulls and
bears struggled to value the optical chip company.  While the
bulls got their way today, BRCM's downtrend remains firmly
intact.  Failed rallies above resistance at $37 and the 5-dma at
$37.80 could lead to a resumption of its decline, providing
aggressive traders with targets for entry.  However, a close
above our stop price of $38 would lead to a drop of this put
play.  A break below $35 with volume, confirmed by a falling
Philadelphia Semiconductor Index (SOX), could allow more cautious
traders to take a position.


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

AGGRESSIVE:

BAC - Bank of America Inc. $54.25 +2.63 (+2.25 this week)

One of the world's leading financial service companies, Bank
of America is committed to making banking work for customers
like it never has before.  The company enables customers to
do their banking and investing whenever, wherever, and however
they choose through the nation's largest financial services
network, including more than 4,400 domestic offices, and
13,000 ATMs, as well as 38 international offices, a telephone
banking network that handles over a half billion calls a year
and an internet web site that provides on line access to over
3 million customers, more than any other bank.

Bank of America's stock has demonstrated exceptional resilience
since the beginning of the year, as BAC stayed above its major
moving averages during most of the correction we experienced in
the last several weeks.  Fundamental strength and excellent news
which has been released recently has added to the momentum.
According to CSFB analysts, BAC has been able to buck the sector
trend by increasing their stock underwriting and M & A activity
this quarter and year to date.  In addition, BAC's fixed income
underwriting activity is up 78% year to date.  Considering these
trends, BAC could be better positioned than most to meet their
first quarter estimates.  Last week, a maverick bank analyst
at Prudential, Michael Mayo began coverage on 19 bank stocks, and
issued a rare sell rating on 9 of them.  BAC was one of the few
he recommended.  During Monday's intense selling on both major
indexes, BAC held at strong support at the $51 level, above the
200 dma of $49.21 and the 50 dma of $50.47.  This reinforces a
pattern of lower highs from February 21, at $46, and March 1
at $48.  BAC is poised to possibly break above strong resistance
at $55 in anticipation of the Fed meeting next week.  Traders
could take positions at current levels, or at a possible pull
back to support at $53.50.  A rally above $55 on strong volume
could be another entry point.  Watch others in the banking sector
like JPM and FTU for strength.  We are setting stops at $52, so
close plays if the stock closes below this point.

BUY CALL APR-50 BAC-DJ OI= 1360 at $6.00 SL=4.00
BUY CALL APR-55*BAC-DK OI= 5795 at $2.95 SL=1.50
BUY CALL MAY-50 BAC-EJ OI= 5893 at $6.90 SL=5.00
BUY CALL MAY-55 BAC-EK OI=11060 at $4.00 SL=2.50

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


ELNT - Elantec Semiconductor $24.56 +3.06 (+3.06 this week)

Elantec is engaged in the design, manufacturing and marketing
of high performance analog integrated circuits, primarily for
the video, optical storage, and DSL markets.  The company
offers approximately 150 products such as amplifiers, drivers,
faders, transceivers and multiplexers, most of which are
available in multiple packaging configurations.  ELNT targets
high growth commercial markets in which advances in digital
technology are driving increasing demand for high speed, high
precision and low power consumption analog circuits.

It has been a long painful slide for ELNT bulls since the stock
fell out of its long ascending channel back in early November.
Crashing down from the $120 level, the Semiconductor stock found
itself trading at a mere shadow (19%) of its former self a short
6 weeks later.  Fortunately the Semiconductor stocks began to
recover the PHLX Semiconductor index (SOX.X) enjoyed a sustained
rally right through the end of January.  After resting up for
round two, the bears came out swinging in early February and
again pushed the SOX.X down to test its lows for the year, while
dragging ELNT down in the process to touch new lows below $20.
Even in the face of continued bearish commentary in the
Semiconductor sector, Chip stocks have begun to show signs of
life, as seen on the ELNT chart.  Even with the drastic selloff
Friday and Monday on the NASDAQ, ELNT refused to move to new
lows, and with the daily Stochastics coming out of oversold, it
is looking like it could be setting up for a decent recovery.
The first solid resistance appears at $26 and then $30, the
bottom and top of the gap from February 28th.  Then we have
solid resistance near $33 where the stock repeatedly found
support throughout February.  Consider new positions on a bounce
from intraday support near $22 (also the location of our stop),
or on a continuation of the rally that manages to clear the $26
resistance level.  Watch the SOX.X for confirmation of sector
strength before playing, and stand aside from the play if it
violates our stop on a closing basis.

BUY CALL APR-25*UET-DE OI=177 at $4.25 SL=2.75
BUY CALL APR-30 UET-DF OI= 31 at $3.00 SL=1.50
BUY CALL MAY-25 UET-EE OI= 32 at $6.00 SL=4.00
BUY CALL MAY-30 UET-EF OI= 29 at $4.38 SL=2.75
BUY CALL MAY-35 UET-EG OI=100 at $2.88 SL=1.50

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


LOW VOLATILITY:

DD - DuPont $45.36 -0.12 (-1.74 this week)

Engaged in a diverse collection of science and technology
related businesses, DD operates within 20 strategic business
units.  Some of the more prominent of these units are
Agriculture and Nutrition, Nylon Enterprise, Performance
Coatings & Polymers, Pharmaceuticals, Polyester Enterprise,
Specialty Fibers and Specialty Polymers.  Within these units,
the company's 80 businesses manufacture and sell a wide range
of products to many different markets, including the
transportation, textile, construction, automotive,
agricultural, pharmaceutical, packaging and electronics
industries.

Until the DJIA began to melt down a few days ago, DD was looking
like it was solidly on a quest to take out the $50 resistance
level.  Then with the Industrials falling precipitously through
the 10,300 support level, we watched DD begin to fall out of its
promising uptrend.  With daily Stochastics rolling over sharply
from the overbought region, you may be wondering why we are
adding the stock as a call play.  The answer lies on the
intraday charts.  Although the stock fell sharply again this
morning, it caught a strong afternoon bounce just above the $44
support level, recovering to close above both the 50-dma
($44.31) and the 200-dma ($44.53).  This gives us a concrete
level to place our stop - $44.  Any close below this level will
spell doom for our play, but it appears that a near term floor
is in place, from which DD can regain its footing and take a
shot at the elusive $50 level.  Any selling that produces a drop
near $44 looks attractive for aggressive entries, so long as
this support level is not violated on a closing basis.  More
conservative players will want to wait for the stock to
demonstrate its affinity for higher altitude by clearing the
next level of resistance at $46 before playing.  Use the DJIA
as a benchmark of investor sentiment for our play.  If this
index breaks down below Monday's low, DD will likely continue
its descent as well.

BUY CALL APR-45*DD-DI OI=6242 at $2.50 SL=1.25
BUY CALL APR-50 DD-DJ OI=9392 at $0.65 SL=0.00
BUY CALL JUL-45 DD-GI OI=4088 at $4.30 SL=2.75
BUY CALL JUL-50 DD-GJ OI=5105 at $2.20 SL=1.00
BUY CALL OCT-45 DD-JI OI=1911 at $5.60 SL=3.50
BUY CALL OCT-50 DD-JJ OI= 441 at $3.30 SL=1.75

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


PIXR - Pixar Animation Studios $35.06 +1.00 (+0.69 this week)

Pixar is an Academy Award-winning computer animation studio with
the technical, creative and production capabilities to create a
new generation of animated feature films, merchandise and other
related products.  Pixar's objective is to combine proprietary
technology and world-class creative talent to develop
computer-animated feature films.  In partnership with Walt Disney
Pictures, Pixar created and produced Toy Story (1995), A Bug's
Life (1998) and Toy Story 2 (1999).  Since its incorporation,
Pixar has been responsible for many important breakthroughs in
the application of computer graphics for filmmaking.

A Tech stock that is up so far this year is worth of some
attention.  It is with this in mind that we are initiating
coverage on Pixar.  Since its low of $25.63 late last year, the
stock has advanced, thanks to a stellar earnings report in which
the company tripled revenues over the previous quarter and beat
Street estimates by 8 cents.  What's more, the company guided
earnings higher for the next quarter.  In an uncertain market
that values strong earnings, this was more than enough good news
to move the stock up.  Having broken through resistance at $34.50
today, look for this point to provide support, along with the
5-dma at $34.31 and the 50-dma at $34.09.  A bounce off these
levels along with the 10-dma at $33.23 may provide an entry for
aggressive traders, as long as PIXR is above our stop price of
$33.75 by the closing bell.  While PIXR has been recently been
outperforming industry peers DIS, FOX and MGM, positive sentiment
in these stocks could give our play an easier path in which to
move higher.

BUY CALL APR-30 PQJ-DF OI= 80 at $5.63 SL=3.50
BUY CALL APR-35*PQJ-DG OI=292 at $1.94 SL=1.00
BUY CALL APR-40 PQJ-DH OI=253 at $0.50 SL=0.00
BUY CALL JUL-35 PQJ-GG OI= 88 at $3.75 SL=2.50
BUY CALL JUL-40 PQJ-GH OI= 99 at $1.69 SL=0.75

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


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

AGGRESSIVE:

RATL - Rational Software Corp $25.75 -1.75 (-2.19 this week)

Rational Software develops, markets and supports a comprehensive
suite of solutions that automate the software development
process. The Company's global products and services help
organizations develop and deploy Web, e-business, enterprise-
wide, technical, and mission-critical software. It serves
customers in three principal categories: e-business, e-
infrastructure, and e-devices.  Blue chip clients include
Merrill Lynch, Microsoft, and Nokia.

Rational Software fared relatively well while investors concerns
about the economy shook the markets earlier in the year.  But
recently, it's been a hard road for those who went long on RATL.
Since reaching a relative peak at $55.25 on January 29th, the
share price has literally been cut in half.  The worries about a
slowdown in IT (information technology) spending eventually
trickled down to the software infrastructure sector.  TIBCO
Software's 1Q earning's warning last Thursday further
accelerated RATL's losses, bringing damages to $30, or 55% to
date.  Other companies that help companies to do business over
the Web, such as Mercury Interactive (MERQ), BEA Software
(BEAS), and Check Point Software Technologies (CHKP), were
effectively pounded too.  Today more bad news hit RATL.
Prudential Securities announced they lowered their forecasts on
the company to reflect economic weakness.  It certainly looks
like it won't be a bed of roses for RATL. at least over the
short-term.  Four consecutive days of losses have seen RATL
setting new 52-week records and we're anticipating more downside
action in a declining market.  Nonetheless, we're setting stops
to safeguard our capital.  We'll exit the play on a close above
the $29 mark, which is currently bolstered by the 5-dma
($29.55).  Going forward, look for RATL to shatter the record
books and fall through $24.31 on robust volume.  But keep in
mind that from a historical perspective, the stock hasn't seen
the underside of $25 since January 2000, which denotes an
attractive price level.  Plus, the current oversold conditions
increase the risks of a turnaround.  Now that your nerves are
wore down to their nubs, you might consider an entry on
rollovers at the $30 level and then exiting with potential
profits as RATL approaches the $25 support.  Otherwise, wait for
strong downward momentum to take RATL below the $25 support and
buy into the weakness.  Be prepared to lock in gains quickly.

BUY PUT APR-30 RAQ-PF OI= 937 at $6.75 SL=4.75
BUY PUT APR-25*RAQ-PE OI=1292 at $3.75 SL=2.00

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


AETH - Aether Systems Inc. $19.75 -0.19 (-1.88 this week)

Aether Systems Inc. is a leading provider of wireless and mobile
data products and services allowing real time communications and
transactions across a full range of devices and networks.  Using
its engineering expertise, the ScoutWare family of products
including the Aether Intelligent Messaging (AIM) software
platform, and its network operations and customer care center,
Aether seeks to provide comprehensive, technology independent
wireless and mobile computing solutions.  Aether develops and
delivers wireless and data mobile services across a variety of
industries and market segments both in the United States and
internationally.

Once valued at over $12 billion in market cap, shares of wireless
software maker AETH have fallen sharply over the past year.  Like
many other high-flying technology stocks, concerns over valuation
have played a key role in the share price decline.  As well, the
unexpected slowdown in wireless handset sales has acted as a drag
to the stock.  The company's business model has also contributed
to AETH's demise, as traders lost their appetite for money-losing
operations.  The recent delays in the deployment of
next-generation wireless systems have affected the entire
wireless sector, taking AETH along for the ride.  Having failed
to move above its 50-dma (now at $36) early this year, the stock
has since drifted downward, most recently accelerating its
descent.  This is in spite of positive comments from JP Morgan H
& Q, who re-iterated their Buy rating and set a 12-month price
target of $66, citing strong revenue growth leading to eventual
earnings growth next year.  Shareholders have been much less
patient, as AETH has moved lower on the back of the 5-dma, now at
$21.60.  Look for this moving average to provide resistance going
forward, along with $20 and $21.50.  Selling pressure as the
stock price approaches these overhead resistance levels may allow
high-risk players to jump in, making sure that AETH does not
close above our stop price of $22.  Strong selling pressure
taking the stock below $19.00 with conviction could lead to
another test of today's low of $18.31, allowing for an entry on
weakness.  Ideally, wait for sector rivals CMVT and OPWV to
confirm downward momentum.

BUY PUT APR-17.5 HIZ-DW OI= 63 at $4.50 SL=2.75
BUY PUT APR-20  *HIZ-DD OI= 50 at $3.38 SL=1.75
BUY PUT APR-22.5 HIZ-DX OI=281 at $2.19 SL=1.00
BUY PUT MAY-20   HIZ-ED OI= 51 at $4.13 SL=2.50
BUY PUT MAY-22.5 HIZ-EX OI= 30 at $3.00 SL=1.50

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


*********************
PLAY OF THE DAY - PUT
*********************

AFFX - Affymetrix Inc $38.00 -0.75 (-8.00 this week)

Affymetrix develops and manufactures DNA chip technology.  Its
GeneChip system and related products identify, analyze, and
manage complex genetic information in an effort to improve the
diagnosis, monitoring, and treatment of disease.  Their product
is essentially DNA probe arrays that contain gene sequences on a
chip, a scanner to process the probe arrays, and software to
analyze the information.  They market their technology to
academic research centers, pharmaceutical and biotech firms, and
clinical laboratories around the world.

Most Recent Write-Up

Shares of AFFX lost more ground on Monday - or perhaps it'd be
better said that they fell off a cliff!  On 2.6 times the ADV,
the bears cut AFFX down 19%, or $8.75 within the first couple
hours of trading.  A feeble rebound barely cracked the $40 mark
before AFFX found intraday support near $38.  The stock continued
to trade to the down side today, setting a new 52-week low at
$36.13.  Importantly too, the pattern of lower highs and lows
persisted to illustrate AFFX's overall weakness; although we
can't ignore the fact that the NBI.X and BTK.X rose significantly
today after suffering four days of strong declines.  In an effort
to protect existing profits and to avoid getting nailed pending a
sharp rebound, we've lowered our closing stop to $40. It may also
be wise to wait for a dissenting broad market to push AFFX below
the $36 level before adding new positions.

Comments

The Biotechs(BTK.X) bounced back today with the major market
rebound, yet we feel that this is simply short covering from the
recent downward forecast.  Look for a rollover from resistance
at $40 for entries, or a break below $36 with sector weakness to
jump on this put play.  While our closing stop is $40, a failed
rally at $43 may give aggressive traders an entry as well.
However, note that we will lock in our profits in this play if
AFFX closes over $40.

BUY PUT APR-45 FIQ-PI OI=31 at $9.38 SL=2.75
BUY PUT APR-40*FIQ-FH OI=68 at $6.50 SL=1.50
BUY PUT APR-35 FIQ-FG OI=12 at $3.75 SL=1.50

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


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

A Technical Bounce Was Inevitable...

The stock market rebounded today in the aftermath of a widespread
sell-off that sent the major indices to recent lows.


Monday, March 12

Stocks plummeted Monday as investors fled from the equity markets
amid new fears of economic recession.  The Dow fell 436 points to
10,208 and the NASDAQ finished down 129 points at 1,923.  The S&P
500 was down 53 points at 1,180.  Despite the widespread selling
pressure, volume on the Big Board was a light 1.22 billion shares
with losers trouncing winners 4 to 1.  Activity on the NASDAQ was
also light with 1.22 billion shares traded.  Technology declines
outpaced advances greater than 3 to 1.  In the U.S. bond market,
the 30-year treasury rose 11/32, pushing its yield down to 5.30%.


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

Amgen       (NASDAQ:AMGN)  APR80C/75C  $0.69  credit  bear-call
Kerr McGee  (NYSE:KMG)     APR60P/65P  $0.90  credit  bull-put
CheckPoint  (NYSE:CKP)     MAY10C/10P  $0.25  debit   synthetic
Impath      (NASDAQ:IMPH)  APR70C/35P  $2.25  credit  strangle
Telebras    (NYSE:TBH)     APR65C/65P  $7.60  debit   straddle

Today's volatile market activity provided some good opportunities
to initiate our new combination positions.  The bullish synthetic
position in CKP was the only play that did not offer a price near
the target as it moved higher at the open and never retreated.


Portfolio Activity:

The stock market approached capitulation status today as concerns
about the lack of corporate earnings growth weighed on investors.
Industrial stocks were hit hard with all 30 Dow components ending
in the red.  Boeing (NYSE:BA), Disney (NYSE:DIS), General Electric
(NYSE:GE), J.P. Morgan (NYSE:JPM) and Honeywell (NYSE:HON) were
among the biggest losers.  In technology trading, 99 of the 100
stocks on the NASDAQ 100 declined, driving the "new economy" index
down almost 62% from its high of 5048 set on March 10, 2000.  The
weakness stemmed from losses in the networking sector after Cisco
(NASDAQ:CSCO) tumbled in the wake of Friday's announcement that it
will lay off thousands of workers, resulting in a charge of $300
million to $400 million in the fourth quarter.  Sweden's Ericsson
added to the gloomy outlook, warning that it now expects its total
sales for the first quarter of 2001 to be flat or somewhat lower
compared to the first quarter last year.  Over the past few weeks,
expectations for technology industry earnings have dropped from a
14% decline to a 25%-30% decline for the first half of 2000.  In
the broader market, almost every group posted losses with telecom,
Internet and computer software shares leading the hi-tech losers
while biotechnology, pharmaceutical, transportation, oil service,
and brokerage stocks added to the downward movement in industrial
sectors.

The Spreads portfolio was a "sea of red" as investors ran for the
exits in today's unexpected sell-off.  Stocks plummeted across the
board with both growth and defensive shares enduring precipitous
declines.  The big losers in our blue-chip technology section were
Microsoft (NASDAQ) and Intel (NASDAQ:INTC).  Time Warner Telecom
(NASDAQ:TWTC) also moved significantly lower and the decline has
jeopardized our short Put option at $60.  Among industrial stocks,
Alexander & Baldwin (NASDAQ:ALEX), Continental Airlines (NYSE:CAL),
Chiron (NASDAQ:CHIR), Minnesota Mining & Manufacturing (NYSE:MMM)
and Stryker (NYSE:SYK) fell on broader market weakness and these
positions, as well as other combination plays with sold Puts, must
be reviewed and adjusted (or closed) if the situation dictates an
early exit.  Luckily, many of our bearish spreads profited from
the downward movement including International Business Machines
(NYSE:IBM), Honeywell (NYSE:HON), Johnson & Johnson (NYSE:JNJ),
American Home Products (NYSE:AHP), PerkinElmer (NYSE:PKI), Pfizer
(NYSE:PFE) and Shire Pharmaceuticals  (NASDAQ:SHPGY).  The Avery
Dennison (NYSE:AVY) "bear-call" credit position benefited from the
sell-off but it remains on the current watch-list for a potential
adjustment.  A number of our time-selling plays were affected by
the new downward pressure and the position that profited most was
Advanta (NASDAQ:ADVNB), as it fell closer to the sold call option
at $12.50.  Surprisingly, another of our recent calendar spread
candidates, Ocular Sciences (NASDAQ:OCLR) actually moved higher,
toward the maximum area of profit, during the session.

The bearish market activity produced a number of favorable moves
in the debit straddle section.  Stocks such as Omnicom (NYSE:OMC)
and Icos (NASDAQ:ICOS) saw large losses and the new volatility
helped the positions break out of range-bound trading patterns.
Alliance Capital (NYSE:AC) also slumped and the $3 drop pushed
the neutral debit-strangle into a profitable range.  Older plays
in Tri-Continental (NYSE:TY) and British Telecom (NYSE:BTY) were
significantly affected by today's downside movement with both
stocks falling to recent lows.  Hopefully, the large moves will
continue and possibly produce future profits in some of these
recently docile issues.


Tuesday, March 13

The stock market rebounded today in the aftermath of a widespread
sell-off that sent the major indices to recent lows.  A number of
groups moved higher during the session, but the overall outlook
was cautious as analysts suggested the gains would not hold due
to worries over the U.S. economy and falling corporate profits.
The NASDAQ closed up 91 points at 2,014 and the Dow was 82 points
higher at 10,290.  The S&P 500 was up 17 points at 1,197.  Volume
on the NYSE hit 1.35 billion shares, with losers beating winners
1,567 to 1,522.  Activity on the NASDAQ was heavy at 2.1 billion
shares exchanged.  Technology advances outpaced declines 2,111 to
1,646.  In the bond market, the U.S. 30-year Treasury fell 17/32,
pushing its yield up to 5.33%.


Portfolio Activity:

Stocks rebounded today with bargain-hunting buyers resurfacing
after the market's recent sell-off.  Technology issues led the
way with advances seen in semiconductor, computer hardware and
software, and telecom shares.  Among the Dow industrial stocks,
General Electric (NYSE:GE) was a big winner, rising over $2 after
company officials told investors that GE is prepared to deliver
double-digit earnings growth in 2001, and they are confident in
the ability to deliver first-quarter earnings per-share of $0.30,
up 15% from the same period last year.  Analysts at Merrill Lynch
backed the bullish forecasts, saying the stock offers a buying
opportunity at current prices.  A number of blue-chip issues were
higher today, including Honeywell (NYSE:HON), the merger target
of GE, Intel (NASDAQ:INTC), J.P. Morgan Chase (NYSE:JPM), AT&T
(NYSE:T), Hewlett-Packard (NYSE:HWP) and Microsoft (NASDAQ:MSFT).
In the broader market, airline shares slumped in the aftermath of
a profit warning from Delta Air Lines (NYSE:DAL).  Delta said it
now expects a first-quarter loss of $0.70 per share, compared to
the $0.46 profit expected by analysts.  Oil service, cyclical,
pharmaceutical, utility and gold shares retreated while financial
and biotechnology issues generally advanced.

Today's winners in the Spreads portfolio were in the technology
group with Intel (NASDAQ:INTC), Hewlett-Packard (NYSE:HWP), AT&T
(NYSE:T) and Microsoft (NASDAQ:MSFT) among the best performing
issues.  Motorola (NYSE:MOT) also moved higher, even though the
company announced it's slashing 7,000 more jobs in its wireless
handset group and will also accrue special-item charges in both
the first and second quarters of 2000.  Cardinal Health (NYSE:CAH)
was among the leaders in the health services segment while Chiron
(NASDAQ:CHIR) moved higher on strength in the biotechnology group
and PolyMedica (NASDAQ:PLMD) topped the major drug segment.  The
recent volatile market activity has yet to affect our positions
in Investment Technology (NYSE:ITG), which remains comfortably
between the sold strikes ($50 and $55) of our two opposing plays.
Among small-cap shares, Advanta (NASDAQ:ADVNB), Ocular Sciences
(NASDAQ:OCLR) and Insignia Financial NYSE:IFS) all moved higher
and it's time to plan the upcoming transition to April in those
time-selling plays.  On the downside, the recent bearish move in
Minnesota Mining and Manufacturing (NYSE:MMM) continued through
a technical support area at $110 on heavy volume and the bullish
play in that issue must now be monitored for a potential exit or
adjustment.  The premium-selling positions in Alexander & Baldwin
(NASDAQ:ALEX), Time Warner Telecom (NASDAQ:TWTC) and Continental
Airlines (NYSE:CAL) also exhibited new exit signals as the issues
failed to recover in today's rally.

Questions & comments on spreads/combos to Contact Support
******************************************************************
                           - NEW PLAYS -
******************************************************************
RARE - Rare Hospitality  $29.44  *** A Rare Opportunity! ***

Rare Hospitality International (NASDAQ:RARE) was incorporated in
December 1982 and formerly known as LongHorn Steaks.  The company
operates and franchises over 150 restaurants, including over 100
LongHorn Steakhouse restaurants; a number of restaurants operated
under the names Bugaboo Creek Steak House and Bugaboo Creek Lodge
& Bar, and also some Capital Grille restaurants.  In addition, the
company operates two additional specialty restaurants, Hemenway's
Seafood Grille & Oyster Bar and The Old Grist Mill Tavern.  The
LongHorn Steakhouse restaurants are Texas roadhouse-themed casual
dining, full-service restaurants that serve lunch and dinner.  The
Bugaboo Creek restaurants are casual dining restaurants designed
to resemble a Canadian Rocky Mountain lodge.  The Capital Grille
restaurants are fine dining establishments with a more upscale
menu and atmosphere.

With the recent decline in corporate earnings, it's surprising
to find a company that announced fourth quarter revenues that
rose 19% from the equivalent period in 1999.  At the same time,
total revenues for 2000, a 53-week period, were $464,028,000, an
increase of 21% from the 52-week period in 1999.  The company's
diluted earnings per share increased 48% to $1.23 for 2000 from
$0.83 for 1999.  The CEO complimented the RARE team for its help
in delivering exceptional operating and financial results during
the past year and also for extending the company's track record
of consistent, profitable growth.  He said the company seeks to
optimize shareholder value with a strategy of superior execution
in their existing restaurants, moderate and controlled expansion
of their restaurant base, and profit margin expansion through
increased operating efficiencies and economies of scale.  Looking
forward, the company's primary financial goal is to sustain a 20%
annual growth rate in earnings per diluted share; an optimistic
target for all but the most productive corporations in today's
economy.

Investors appear to share the company's bullish outlook and those
of you who wouldn't mind owning the issue at a discounted price
can speculate on the near-term movement of the stock with this
synthetic position.  Target a higher premium initially, to allow
for a brief consolidation in the issue.

PLAY (speculative - bullish/synthetic position):

BUY  CALL  APR-35  QRH-DG  OI=3  A=$0.93
SELL PUT   APR-25  QRH-PE  OI=0  B=$0.69
INITIAL NET DEBIT TARGET=$0.00-$0.12 TARGET PROFIT=$0.75-$0.80

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $800 per contract.

http://www.OptionInvestor.com/charts/mar01/charts.asp?symbol=RARE
******************************************************************
CUM - Cummins Engine  $41.05  *** For Namesake! ***

Cummins Engine Company (NYSE:CUM) is a worldwide designer and
manufacturer of diesel engines up to 2,700 horsepower.  Cummins
also produces natural gas engines, engine components and other
subsystems.  Cummins provides power and components for a wide
variety of equipment in its primary businesses: engine, power
generation and filtration.  The company sells its products to
original equipment manufacturers, distributors and automotive
customers worldwide, and conducts manufacturing, distribution
and service activities in many areas of the world.  The company
has three operating segments: Engine, Power Generation, and
Filtration.

The demand for vehicle engines and diversified power generation
components has fallen significantly over the past year as the
effect of a slowing economy worked its way through the supply
chain from the consumer to the manufacturer.  The worldwide glut
of large trucks and heavy equipment is taking a severe toll on
the companies that supply the industry and Cummins officials
recently said the challenges in the market would pull revenue
down about 10% in the first quarter.  Cummins blamed the losses
on a significant drop in demand as new shipments of heavy-duty
truck engines were down more than half from last year's levels.
While the outlook for the sector is somewhat bleak, the company
has made some streamlining moves and expects to slash about $55
million this year from ongoing costs.  In addition, the company
expects to announce a more complete restructuring plan in the
coming months.  On the bright side, Cummins recently announced
it has entered into a long-term supply agreement with PACCAR
(NASDAQ:PCAR) and the company's European subsidiary, DAF Trucks.
Earlier this month, Westport Innovations and Cummins announced
the formation of a joint venture to market low-emission, high
performance engines powered by natural gas.  The joint venture
combines their technologies in a business model that can profit
from a significant market share, based on the increasing demand
for natural gas-powered products.

Despite the fundamental challenges facing the company and the
industry, it appears that investors have priced the pessimistic
outlook into the current value of CUM shares.  With technical
support at $37, this position offers a reasonable risk/reward
ratio for traders who are bullish on the issue.

PLAY (conservative - bullish/credit spread):

BUY  PUT  APR-35.00  CUM-PG  OI=2    A=$0.55
SELL PUT  APR-37.50  CUM-PU  OI=250  B=$0.85
INITIAL NET CREDIT TARGET=$0.40-$0.50  ROI(max)=19% B/E=$37.10

http://www.OptionInvestor.com/charts/mar01/charts.asp?symbol=CUM
******************************************************************
                         - STRADDLES -
******************************************************************
FLR - Fluor  $45.00  *** Cheap Speculation! ***

Fluor (NYSE:FLR) is a holding company that provides services on
a worldwide basis in the fields of engineering, procurement,
construction, maintenance, operations, project management and
business services.  These services are grouped into three primary
operating segments.  Fluor Daniel provides a full range of design,
engineering, procurement, construction and other services to many
clients in a broad range of industrial and geographic markets on
a worldwide basis.  Fluor Global Services include equipment sales,
temporary technical and non-technical staffing, services to the
United States government and productivity consulting services and
maintenance management, among others.  Fluor Signature Services
provides integrated business services and business infrastructure
support in the areas of human resources, finance, accounting,
safety, information technology, knowledge management and office
support services.

Fluor has been an active issue recently and the volatile movement
may continue if there are any unexpected announcements at the
company's annual meeting Wednesday.  Held exclusively for owners
of Fluor stock, the annual meeting has the purpose of reviewing
the company's operations, electing directors to the board, and
conducting other corporate business matters.  In addition, senior
executives will be available for media interviews and corporate
questions following the formal meeting.  Technically, the history
of the issue is too short to make a meaningful calculation on its
option pricing and potential movement but one of these options is
going to be "in-the-money" at expiration.  The question is, which
one and by how much?  Traders who want to speculate on the future
volatility of the issue can use this position to profit from any
large movement.  The Open Interest on the bearish portion of the
play is not as high as we would prefer but since the position will
likely be held until expiration, the final option value will be
determined almost entirely by the price of the underlying issue.

Note: Traders who are looking for another position of this nature
should consider the March ATM options on Metasolv (NASDAQ:MSLV).

PLAY (very speculative - neutral/debit straddle):

BUY  CALL  MAR-45  FLR-CI  OI=110  A=$0.85
BUY  PUT   MAR-45  FLR-OI  OI=3    A=$0.80
INITIAL NET DEBIT TARGET=1.50-$1.55 TARGET ROI=20%

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


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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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