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Daily Newsletter, Wednesday, 03/14/2001

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The Option Investor Newsletter                Wednesday 03-14-2001
Copyright 2001, All rights reserved.                        1 of 1
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        03-14-2001        High      Low     Volume Advance/Decline
DJIA     9973.50 -317.30 10279.40  9895.60 1.38 bln    759/2328 
NASDAQ   1972.09 - 42.69  2028.53  1933.40 2.15 bln   1083/2721
S&P 100   596.10 - 17.41   613.46   589.89   totals   1842/5049
S&P 500  1166.71 - 30.95  1197.45  1155.35           26.7%/73.3%
RUS 2000  453.69 -  8.57   462.12   451.26
DJ TRANS 2680.90 - 88.84  2763.35  2641.81
VIX        34.60 +  3.87    45.01    32.94
Put/Call Ratio      0.92
******************************************************************

Parabolic Fear

The Dow Jones Industrial Average (INDU) has lost roughly 885
points in the last four trading sessions.  Meanwhile, the Nasdaq
Composite (COMPX) fell below the psychologically significant
2000 level.

With fear running rampant on Wall Street, the threat of that
emotion spilling over into Main Street America is a cause for
great concern.  Many economists and market watchers have
opined recently that the plunge in stock prices, particularly the
Nasdaq, could negatively impact consumer sentiment and ultimately
reduce spending.  And as Alan Greenspan has made it clear during
recent testimonies, the American consumer holds the key to
fending off a recession in the United States economy.  We'll know
more about the recent decline in stock prices and the impact on
consumers with the preliminary Michigan Consumer Sentiment report
set for release Friday morning, in conjunction with the producer
price index.

In the meantime, we must set aside emotions in the form of fear
and instead defer to objectivity.  For the trader types among
my readers, the strategy of shorting stocks or buying puts
continues to work (read: profits).  The easiest game continues
to be betting on lower stock prices, especially within the
technology and telecom-related sectors.  The earnings warnings
and lack of visibility in the two aforementioned sectors
remains the dominant theme.  Just ask John Chambers, CEO of
Cisco Systems (NASDAQ:CSCO), who spoke in an ominous tone after
the bell Tuesday concerning the continued slowdown in orders
for networking gear.  Or, take a look at shares of Nextel
Communications (NASDAQ:NXTL), which lost 28 percent of their
value Wednesday following an earnings warning from the mobile
communications concern.  My purpose here is not to beat a dead
horse.  Rather, I'd like to emphasize that the path of least
resistance for the tech sector remains to the downside, which
can yield profits to traders willing to short stocks or buy
puts.

For the investor types among my readers, with longer time
horizons than traders, the game is growing more and more
difficult.  Up until the recent blowup in the INDU, sectors
such as retail, finance and cyclical had been working higher.
But, the growing concerns in international markets, particularly
Japan, has confounded matters in the aforementioned groups of
stocks.  However, I continue to think these groups of stocks
will work higher in the second half of 2001, IF the U.S.
economy doesn't slip into a recession.  Moreover, by
positioning in finance, retail and cyclical, investors can take
advantage of a dramatic move by the Fed.  And by dramatic, I
mean a cut in interest rates that the market has not yet
discounted.

In fact, rumors hit trading desks Wednesday that the Fed could
possibly cut interest rates Thursday, similar to what they did
in 1998, which was a day before an options expiration.  In
addition, the Fed Funds Futures discounted a 68 percent
probability of the FOMC cutting by 75 basis points next Tuesday.
Whether or not either of the two scenarios plays out over the
coming trading sessions remains to be seen.  Nonetheless, both
traders and investors should be aware that there exists an
increasing probability of the Fed drastically cutting interest
rates in the near future to snuff out the fear which is
spreading across global capital markets, particularly if
inflation remains subdued.

The fear that I've been alluding to has been exacerbated in
recent days by the debacle in Japan.  About two weeks ago,
Standard & Poor's downgraded their credit rating on Japanese
debt, which was seen as pivotal.  This morning, another debt
rating agency, Fitch, placed 19 Japanese banks on 'Rating
Watch Negative.'  In essence, the downgrade by Fitch
heightened fears of broad risk among global financial
institutions.  The concerns over defaults in Japan are very
real for leading money center U.S. banks such as Citgroup
(NYSE:C) and JP Morgan Chase (NYSE:JPM) judging by the
price action in their shares Wednesday.  While I still
believe the financials will outperform in the latter half
of this year if the Fed cuts rates drastically, the
market may continue to punish shares of the larger banks
with exposure to Japan.  That's why investors may shun the
larger, global banks for smaller, regional concerns in the
U.S. such as Washington Mutual (NYSE:WM).

The breakdown in the financial sector played the leading role
in the demise of the INDU Wednesday.  We may see a rebound
on short covering Thursday in the INDU, but it appears the
old economy index wants to trade lower.  Of course, that
could change with the market's perception of what the Fed
will do next week.  Nevertheless, I consulted my astute
colleague, Jeff Bailey, for a downside target on the INDU
using his point and figure charting.  Jeff's charts revealed
that the bearish price objective for the INDU is 9400.  Now
we don't expect the INDU to trade in a straight line down
to 9400, but it does give a reference to the downside.
Furthermore, resistance for the INDU now solidly sits at
the 10,250 level.  What that means, in the near-term, is the
INDU could bounce back up to that level and rollover.  This
is just an idea and a few levels to reference in the
INDU over the coming week or two to keep in mind for a TRADE.




Meanwhile, the COMPX continues to work lower and the trend is
obviously down.  And that's why I'll reiterate that buying puts
on weak tech stocks should continue to make money until the
market tells us we're wrong (read: losses) in betting on lower
stock prices.  Our recent put play on shares of Broadcom
(NASDAQ:BRCM) represents a good argument.  We've captured
about $13 on the downside in the Broadcom play.

The 1500 level has been popularized among technicians lately
as a possible downside target for the COMPX.  And there is a
growing belief that the COMPX is headed to that level.  Here
again with the COMPX, I'm simply setting forth a reference
point for traders.




Going into Thursday's session, there are a couple of things
to keep in my mind.  There exists the possibility of
Fed-related rumors circulating again, which may induce short
covering in both the INDU and COMPX.  What's more, we'll want
to pay special attention to the news and action overnight in
the global markets, especially Japan.

In addition, Oracle (NASDAQ:ORCL) is set to report earnings
after the close Thursday.  In short, keep in mind the possible
impact of the Oracle report when planning trades, especially if
you plan on holding positions overnight.  I have no insight into
the Oracle report, so I won't give a bias going into their
numbers.

What's more, Friday marks triple witching for equity and
index options along with futures contracts.  Expiration may
lend a brief bid to the tape in conjunction with anticipation
of the Fed meeting next Tuesday.

Finally, Friday morning will bring two key economic releases:
preliminary consumer sentiment numbers and the producer price
index (PPI).  Both are very crucial!  The market would like to
see a weak PPI to prove that inflation remains subdued.
Furthermore, the market might actually like a VERY weak sentiment
number which may induce the Fed to move more aggressively than
the market expects.

On a final note, in light of the rampant pain and fear in the
broader market averages, I'd like to share a random thought.
The biggest advantage that retail traders/investors have over
professionals is that the former don't HAVE to operate in the
market every day.  Institutional traders/investors are required
to put money to work EVERY day, whereas retail market
participants are not.  I would urge my readers to consider that
thought before every trade that may not present favorable risk
to reward characteristics.  This market is one of the most
difficult to gauge in recent history and it's blowing up
professionals and individuals alike.  But, for those who
make it through this difficult period, I'm sure they will
prosper and make a ton of money when the market gets easier.
And I unequivocally believe the market will get easier after
the pain has passed!

Eric Utley
Assistant Editor
www.OptionInvestor.com


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*************
NEW CALL PLAY
*************

SMTC - Semtech Corp. $27.06 +1.40 (+2.00 this week)

Semtech is a leading supplier of power management, transient
protection, system management, high performance, and advanced
communications semiconductor products for portable and high
speed communications applications.  Semtech designs, manufactures,
and markets a range of products, the majority of which are sold
to the communications, industrial and computer markets.

A stock which can close higher on a day like Wednesday deserves
a medal.  In a rare feat of strength, SMTC closed at its 50 dma,
which puts it at a level of technical strength above its peers
in the semiconductor industry.  SMTC reached a 52-week low of
$15 on December 21, which coincided with a low point on the
SOX.X of 530.  However, SMTC powered upward since then, with the
fuel provided by good earnings, and positive guidance from the
company management.  On February 22, SMTC reported net sales
for the fiscal year 2001 of $256.7 million, up 48% over the
prior year, and net income of 79 cents per diluted share, a
105% increase from the prior year.  Perhaps more important
than the actual numbers was the reassurance from the company
management about SMTC's outlook going forward.  According to
Jack Poe, SMTC's CEO, their gross bookings in November were
the lowest in the quarter, with December and January showing
sequential improvement.  In addition, their new product
introductions increased 57%, and 425 new design wins were
reported.  Since the second week in January, SMTC has been
trading in a tight range with strong support at $22.50, which
held during the intense market sell-offs this week, and heavy
resistance at $30.  It is important to note that the semiconductor
index has found some stability this week, with support at the
575 level, and at this point, the downward momentum in SOX.X
has abated somewhat.  When viewed on a three day chart, SMTC
shows a mini bullish wedge formation, with a pattern of higher
lows at $23, $24, and $26, and resistance at the $27 level.
SMTC closed on a bullish note, with a poke through $27, and, if
the market conditions permit, SMTC could be poised to break
out above $28, and possibly $29.50.  Traders could take positions
at current levels, if accompanied by strength in SOX.X.  A more
aggressive trade could be taken on a pullback to support at
$26.26.  Watch others in the sector like XLNX and STM, and
set stops at $24.  We will exit positions if SMTC closes below
this level.

BUY CALL APR-25 QTU-DE OI= 26 at $4.63 SL=2.75
BUY CALL APR-30*QTU-DF OI= 32 at $2.50 SL=1.25
BUY CALL JUN-25 QTU-FE OI=360 at $6.50 SL=4.50
BUY CALL JUN-30 QTU-FF OI=182 at $4.25 SL=2.50

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


WCOM - WorldCom Inc $16.44 +1.25 (+0.31 this week)

WorldCom is a global communications company that provides a
broad range of communications, outsourcing, and managed network
services.  The core business is communications services, which
includes long distance, local, and wireless  communications;
including voice, data, Internet, and international services.
WorldCom also provides one of the broadest range of Internet and
private networking services available.

Shares of telecommunications companies took another Nestea
Plunge today as the DOW straddled the 10,000-bench mark.  The
broad-based sell-off crushed many of WCOM's competitors.  Level3
Communications (LVLT), SBC Communications (SBC), and Verizon
(VZ) all experienced considerable losses.  Then there was
WorldCom, the trend bucker.  WCOM gained an astonishing 12%, or
$1.81 intraday after CEO Bernard Ebbers maintained his guidance
for 1Q earnings and would not cut its growth outlook.  Salomon
Smith Barney's Jack Grubman, who has held the rank of top
telecommunications analyst for more than a decade in
Institutional Investor magazine's annual survey of money
managers, also raised his revenue growth expectations for the
company's unit that sells data and Internet services to big
companies.  For the 1Q, he increased estimates to 12.5% from 12%
and for the year, to 14% from 13.2% citing the potential to win
more European business.  Grubman further maintained his Buy
recommendation on the stock.  This was especially good news for
WorldCom.  In the past year, the stock has lost over 60% of its
value.  However in today's session, more than 75.7 mln shares
exchanged hands on the climb, making it the third-most active
stock in the US markets.  Our objective is to play WCOM's
impending momentum.  We're looking for traders to generate
enough dynamism over the short-term to take WCOM topside of $18
and make a charge for the 50-dma, currently towing the line at
$19.  If our expectations don't pan out, you'll see us exit the
play on a close below the $15 support.

BUY CALL APR-10.00 JQD-DB OI=  602 at $6.75 SL=4.75
BUY CALL APR-12.50 JQD-DV OI=  943 at $4.50 SL=2.75
BUY CALL APR-15.00*JQD-DC OI= 8317 at $2.63 SL=1.25
BUY CALL APR-17.50 JQD-DW OI=15365 at $1.25 SL=0.50
BUY CALL APR-20.00 LDQ-DD OI=19748 at $0.63 SL=0.00  High Risk!

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


************
NEW PUT PLAY
************

VTSS - Vitesse Semiconductor $42.19 +2.38 (+0.75 this week)

Vitesse Semiconductor is a supplier of high-performance
integrated circuits targeted at systems manufacturers in the
communication and automatic test equipment (ATE) markets.  A
leading manufacturer of gallium arsenide (GaAs) integrated
circuits, a type of IC that performs at higher speeds than
silicon chips.  The company offers several products that address
the needs of high-performance communications systems at data
rates for the SONET, ATM, IP, Fibre Channel and Gigabit Ethernet
markets.  VTSS also provides gate arrays and custom products that
offer a combination of high complexity, low power dissipation and
high speed for the ATE market.

Shares of the gallium arsenide chipmaker Vitesse have recently
under-performed its sector, as measured by the Philadelphia
Semiconductor Index.  An oversold bounce in March for most Chip
stocks was met with little buying interest for shares of VTSS.
This in part can be attributed to negative sentiment in the
wireless space, which has also aversely affected peers such as
QCOM and TQNT.  As well, a series of analyst downgrades from
brokerage houses such as Goldman Sachs and UBS Warburg, following
an earnings warming from the company, has impeded the stock from
making any progress.  Since last week, VTSS has been moving
sideways, trading in a narrow band between support below at
$39.50 and resistance overhead at $45.25.  Connecting the lows
since the beginning of March reveals an upward trending support
line, culminating in an ascending triangle pattern.  Given the
relative weakness in VTSS' share price, along with negative
sentiment in the Chip sector, the possibility seems to favor a
resolution to the downside.  Strong selling volume resulting in a
breach of today's intra-day low of $40.81 could be an attractive
entry for conservative traders, but for the even more risk
averse, wait for confirmation in the form of a bearish plunge
below $39.50.  Entries on failed rallies can be had with
resistance at $44 and $45.25.  However, be aware that we have
placed a protective stop at $46.  A close above this price will
no longer make this a recommended play.

BUY PUT APR-45*VQT-PI OI=662 at $7.88 SL=5.75
BUY PUT APR-40 VQT-PH OI=650 at $5.25 SL=3.25

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


*****************
STOP-LOSS UPDATES
*****************

AETH - put play
Adjust from $22 down to $20

BRCM - put play
Adjust from $38 down to $37

RATL - put play
Adjust from $29 down to $26


*************
DROPPED CALLS
*************

LMT $37.64 (-0.92) Since we added LMT to our call list, the
broader markets significantly weakened and unfortunately, the
stock's trendline began moving sideways.  Although, there was an
aggressive opportunity to take an entry off the $37 level last
Tuesday; and subsequently, LMT's moves to new yearly highs
($39.50) offered the profitable exits.  But today, stocks of a
"defensive nature" got nailed as the DOW thundered through
10000, concluding the session with damages at over 317 points to
the downside.  It's true that LMT didn't violate our closing
stop at $37; however, the failing support and the increased
potential for further devaluation compels us to exit the play
this evening.

DD $43.71 -1.65 (-3.39) We started coverage on this low
volatility play yesterday based on major moving average support
below, with the 200-dma at $44.51, the 100-dma at $44 and the
50-dma at $44.22, and the possibility of a follow through of
yesterday's strength intra-day.  Gapping down at the open in
sympathy with the DJIA, DD spent the rest of the day moving
lower, as macroeconomic concerns weighed especially heavily on
old economy stocks.  DD ended the day down 3.64 percent on higher
than average trading volume and as a result, we never did get our
entry point into this call play.  Now below all its major moving
averages as well as our stop price of $44, we are dropping
coverage and do not recommend taking on any positions.

BAC $51.75 -2.50 (-0.25) Financial stocks were hit hard across
the board as worries about possible defaults from Japanese
banks spread through the sector.  BAC held up well amidst the
onslaught, as it dipped to $50.86 during the mid day selling
before recuperating somewhat toward the close.  BAC has not
released any specific news on this topic, and may very well
continue to rally if the market recovers from oversold levels.
Nonetheless, it closed below our stop level, and as such, we
are dropping it today.


************
DROPPED PUTS
************

No dropped puts tonight


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

Using Volatility Indicators In Tandem
By Mary Redmond

Traders today have many highly effective and technically
accurate indicators to gauge the conditions of the major indexes,
as well as individual stocks.  At this point, it can be
informative to track the movement of the VIX, QQV, and VXN in
combination with other tools.  The general rules for the
VIX have been to buy when the VIX is very high, perhaps over 35,
which can indicate an oversold market, and sell when the VIX is
very low, for example, 20 or below, because this can indicate an
overbought market.  However, as market conditions change over the
years, we may have to revise our ideas of what a high or low VIX
is.

Today's markets have unprecedented levels of volatility.
Traders can expect to see hundred point ranges on the Dow and
Nasdaq almost every day.  The increasing levels of market
volatility can be attributed to many different factors,
including the speed with which news travels, the very high
levels of liquidity, the number of market participants, and the
amount of news which is released on a daily basis.  All of these
factors are likely to increase in the future.  If that happens,
we may start to think that a VIX of 25 is very low, and a VIX
of 40 is high.

Since the VXN and QQV are new indicators, we may need to track
their trading ranges for a period of time to determine what is
a very high level, and what is a very low level.  For example,
the VXN's highest level in the last two weeks has been over
77, and the QQV spiked up to near 67 last week.  But these
numbers can't really be used as buy or sell indicators alone.

One of the best ways to use these indicators for trading is
to watch their movement, and not necessarily the numbers alone.
For example, there is no set rule to use in terms of what is
a buy level, and what is a sell level.  Theoretically, the VIX
could move up indefinitely, to levels far greater than we have
ever experienced.  For the last several months, a VIX of 35
has been a good buying opportunity, but the VIX could spike
up to far greater levels in a true panic.

However, there is a way to use the indicators together which
can be highly effective.  For instance, a VIX, VXN, or QQV
which has spiked way up out of its trading range on a
daily or 60 minute chart may start to pivot and move downward.
If you can catch the correct point at which the pivot starts,
and the trend in the volatility indicator starts to move
downward, particularly if it coincides with rising bond yields,
and perhaps an oversold TRIN reading, this can be a buy level
which has a high probability of success.  Alternatively, if
the VIX, VXN or QQV have spiked out of the lower level of
the Bollinger bands, and start to move up, this can be a
sell indication.




It is apparent on a chart of both the VXN and QQV that the
primary trend was up during February, which corresponded to
a primary downward trend in the QQQ.  Along the way, there
were some intra day bullish trades, but profits had to be
taken quickly.




For example, Tuesday and Wednesday of this week were both
very volatile days in which nimble traders could have
scalped a few points on the QQQ on the way up as well as
on the way down.  While Tuesday started off slow, bullish
momentum picked up and the Nasdaq and Dow both closed
strongly up.  One factor which indicated that the markets
were highly oversold was the closing TRIN level on Monday,
which was abnormally high.  Around mid morning, the VXN
and QQV started trending downward, and bond yields started
moving slightly upward.







Wednesday was one of the most volatile days we have seen
so far this year.  The QQQs traded from $42.31 to $45.19.
The markets opened lower, moved higher, and moved lower
again.  If you examine a close up photo, you can see
how the VXN and QQV, along with the bond yields gave
buy and sell indications.




When we are analyzing volatility, it can help to consider
what this is actually measuring.  For example, the QQV
measures the range that the market believes the QQQ will
trade in over the course of the year.  If the QQV goes to
70, the market is estimating that the QQQ could move 70%
higher or lower in the coming year.  This would mean the
QQQ could move from approximately 13 to 73, or 70% above
and below the current levels of 43.  Since this is an
extreme range, it can be viewed as a high level for the
indicator.


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

RATL - Rational Software Corp $24.06 -1.69 (-3.88 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.

Most Recent Write-Up

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.

Comments

RATL broke below a key support level during Wednesday's trading.
The failure of its relative low at $25.25 has RATL poised to
head lower.  Look to enter new put positions on a break below
the $24 level early Thursday morning.  Make sure to confirm
weakness in the broader tech sector by monitoring the Nasdaq.
In addition, look for weakness in the software sector as
measured by the GSTI Software Index (GSO.X).

BUY PUT APR-30 RAQ-PF OI= 937 at $8.00 SL=5.75
BUY PUT APR-25*RAQ-PE OI=1348 at $4.38 SL=2.75

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


*****************************************
BIG CAP COVERED CALLS & NAKED PUT SECTION
*****************************************

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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