Option Investor

Daily Newsletter, Sunday, 03/18/2001

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The Option Investor Newsletter                   Sunday 03-18-2001
Copyright 2001, All rights reserved.                        1 of 5
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        WE 3-16           WE 3-9           WE 3-2          WE 2-23
DOW     9823.41 -207.87 10644.62 -213.63 10466.31 + 24.41  -357.92
Nasdaq  1890.91 - 49.80  2052.78 -115.95  2117.63 -144.88  -162.87
S&P-100  587.99 - 12.72   633.40 - 18.06   633.89 -  8.75  - 32.88
S&P-500 1150.53 - 23.03  1233.42 - 31.32  1234.18 - 11.68  - 55.67
W5000  10559.37 -223.31 11331.73 -282.18 11374.40 -126.30  -528.90
RUT      441.80 - 10.36   473.65 -  7.84   476.88 -   .82  - 21.83
TRAN    2631.37 - 71.64  2942.17 - 75.12  2915.19 - 14.88  - 64.71
VIX       35.29 +  2.66    29.35 +  2.89    30.86 +   .52  +  5.26
Put/Call   1.08              .83              .80              .71


If Friday's trading didn't scare away every bull, then I don't know
what will.  That's what we're waiting for: Capitulation.  With a
capital "C."  But I'm not going to try and call a bottom in a
market that can't see past the current quarter.  The fact is that
the market is a leading indicator of the economic future.  Without
visibility, no one really knows when valuations will come back in
line or which companies will have predictable revenue streams.
Hence, the buyers strike.  While put trading has continued to be
successful, Tuesday's Fed meeting and the anticipated rate cut
might breath some life back into the market, if only for a brief
moment.  Consumer Sentiment came in strong-than-expected,
indicating the consumer's faith is not dead.  So, will we get the
50 or 75 basis point cut?

No matter whether we get the 50 or the 75 basis point cut, there
will likely be some short covering on Monday and Tuesday ahead
of the Fed meeting.  Minor relief in tech stocks and financials
should be expected.  It has been said so many times on the Street
lately that the market is in oversold territory.  In the same
instance, the NASDAQ traces new lows and the Dow(INDU) slips
below 10000.  Everyday we scan for opportunities on the upside
which is a task in itself.  One particular sector that appears to
have stabilized near support is the Securities Broker/Dealer
Index(XBD.X).  After the Fitch's downgrade of the credit rating
on 19 Japanese bank last Wednesday, this index looks to have
settled in at 450.  Any short covering in the major B/Ds ahead
the Tuesday's Fed meeting would provide an opportunity on the
long side.  This would be for a quick trade, as the reaction to
the Fed is still an unknown.  A 50 basis point cut might not
satisfy the market, especially with the growing number of pundits
expecting a 75 point cut.  The bigger cut would give a nice lift
for a relief rally going into the end of the week.  However, after
Friday's stronger-than-expected Consumer Sentiment number, we
will probably have to settle for a half point cut.  We'll take
what we can get.  We added Lehman Bros.(NYSE:LEH) as a call play
this weekend to give us exposure to this opportunity.

Friday's open on the NASDAQ gave the signal for put plays, as it
took out Monday's low of 1923.  There was very little heat for
put traders while the NASDAQ slid 50 points before buyers showed
up at 1877 around 10:45am ET.  The stronger Sentiment report at
10am only fueled the downside pressure.  With another new 52-week
low for the NASDAQ, the short covering rally only lasted until
the 1925 level, where previous support turned into resistance.
There really isn't a lot to say about the NASDAQ anymore.  The
bottom has been elusive for 1500 points and remains so until we
get a better idea of business sentiment for 2001.  We would
expect a short covering bounce in tech shares ahead of the Fed
meeting, especially if the 75 basis point talk continues on the
Street and CNBC.  The long side trade would be risky but there
are a few tech stocks that aren't in a bloody downtrend.  I stress
few.  Worldcom(NASDAQ:WCOM) and Semtech(NASDAQ:SMTC) have been
showing relative strength in the NASDAQ.

Over on the INDU, the chart indeed did not lie and continued its
dominant pattern.  Friday was the downward forecast after the
consolidation stage, as shown in the Thursday Wrap INDU chart.
The INDU traded with a very similar intraday pattern as the
NASDAQ;  no one wanted to be long going into the weekend.  It
lost 207 points and also found resistance at previous support at
10000.  Of the thirty Dow stocks, only five were in the green:
Coca-Cola(NYSE:KO), General Motors(NYSE:GM), International Paper
(NYSE:IP), Microsoft(NASDAQ:MSFT), and Phillip Morris(NYSE:MO).
If Friday's low of 9814 is taken out by sellers, watch for buying
at the 9730 level which is where buyers showed up in March 2000.
It may provide a bounce, but this is an entirely different year
than last.

As option traders, we must look for the immediate opportunity.
Seizing the moment.  Because of the nature of options, time is of
the essence and we must be myopic.  Positioning past two days can
be disastrous in the current market, unless of course you have
been short.  Take it one day at a time, and with the Fed changing
monetary policy on Tuesday, we can't be sure what a market like
this will do.  Until we get better visibility with April earnings
and the rate cuts begin to take effect, we'll have to take it day
to day.  No need to catch a falling knife.  Any short covering
combined with less than a 75 basis point cut will give a very
nice put entry.  Currently, seven out of 25 bond dealers that
trade directly with the Fed expect a 75 basis point rate cut.
It seems unlikely, but the Fed has done some strange things in
the past, i.e. the 50bp hike last May.  Given the bear market,
any rally will be short lived.  Keep this in mind when setting up
trades.  Weak tech will continue to be sold after the Fed is out
of the way.  Trade smart.

Matt Russ

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"I Don't Care, Just Sell It"
By Austin Passamonte

That's the message countless brokers across the world received
this week as traders continue to become much "broker" as well.
Margin calls are rampant, which merely serves to feed this
extended bearish feast.

All bullish hope is almost lost. Every analyst & professional
trader is heard to reaffirm we can go nowhere but down and stay
there. CNBC itself has turned into a collection of bears and the
chronically depressed. Mark Haynes and Joe Kernan might need
Prozac judging from the way they've openly acted the past two

Technicians are suggesting 9,400 for the Dow and 1,800 or less on
the Nasdaq. Some blustering bears have publicly called for a Dow
at 5,000 points, Nasdaq at 1,000 points and SOX at 100 points.
Pardon us for saying so, but that's every bit as moronic a
statement as Nasdaq 6,000+ turned out to be one year ago this

Now let's see if we've got this straight: large numbers of
traders have just gone broke, everyone on the street is bearish
and the selling seems to have no end. Should the Nasdaq & NYSE
just hang some "Closed For Business" signs and file Chapter 7?
Not so fast.

Yes we could go lower and most likely will. Nor will a reversal
necessarily be the last test of these recent lows, either. This
being said, it is our opinion that the tide may have begun to
turn towards a gradual market recovery.

We've expected a relief rally for the past -600 Dow points and
might wait a few hundred more before one arrives. We are not
calling a bottom but do see a possible turn in the big ship
that's been awaited since last July.

All bear markets end when the last bull gives up, no one wants to
buy a single share of anything and stocks talk is considered
unfit for social settings. That's when the bottom will arrive.
Now, have we seen any noted bulls turn bearish? Has there been
rampant selling of everything with a symbol? Do you have any
family & friends who cringe at the mere mention of stock markets
and quickly change the subject?

Don't look now and let's not get overly excited, but this week's
COT report shows the big S&P Commercials covered a bit of their
all-time historical short position in the CME pits by the close
of trading on Tuesday.

We wonder if they may have bought back a few more open shorts at
fire sale prices Wednesday through Friday? Remember they've
shorted this market from SPX 1525 all the way down to 1150, which
is a colossal, unimaginable profit zone.

Looking at forward-month S&P futures contracts (in our fee-based
charting service) we see that volume soared but open interest
collapsed the past few trading sessions, including Friday. Open
interest in any futures market is predominately commercial
holdings and they are usually short. Especially in this case.

The fact that net open interest is much lower now hints that
there was more short covering in the nearby contract after
Tuesday as open interest (all those net shorts) didn't seem to
roll forward into forward(back) month contracts. We'll have a
much clearer picture this time next week and there's no giant
rush to find out: markets will continue to stay flat or decline
well beyond that.

This transition will be a process not an event and cannot call
the exact bottom, nor is it akin to flipping a switch. We miss
nothing while waiting for fresh data to post on Friday 3/23 from
the CBOT. The key thing to watch for is continued reduction of
net short regardless of market direction. At this point we expect
them to continue covering shorts if the market stays flat or goes
down. If they once again increase shorts on the next rally, we
remain bearish. If they cover shorts on a rising market and move
close to net neutral or slightly long, Market Sentiment will
officially call a bottom then & there.

These goliaths will not hold short forever and most of the reason
they built this position was to hedge $multi-billion holdings.
What do we assume is the opposite of massive net short in the
futures arena? Net buying in the cash market. Who do we think
sold the public herd INTC all the way down from $75 to $28? Who
dumped that overpriced tech junk the masses craved last year all
the way down? Now that those very same masses can't throw it away
fast enough, who's left to do any buying? Think the mega-pros
might want some deflated shares back at what they consider more
reasonable prices soon? Market Sentiment thinks so.

A move from almost 15% net-short to 11.75% does not signal a
market bottom. Far from it. What this does suggest is that they
may see limited downside potential compared to much larger upside
risk being short. Does that make sense? It might not be the
bottom, but better to scale out instead of rolling forward
complete with carrying (premium) charges it would take and book
some profits just in case.

Technical analysis is less predictable these days because it
simply measures collective market sentiment at any precise moment
in time and trader sentiment changes faster than Denver's weather
these days. We cannot draw lines on a weekly chart and know with
conviction they will hold in either direction. However, do not be
surprised if the former Big Caps (now mini-caps) begin to resist
further selling and actually begin creeping up in price over the
coming days, weeks and months. If they do, we might just know
who's nibbling!


Friday 03/16 close: 34.75

Friday 03/16 close: 76.23

30-yr Bonds
Friday 03/16 close: 5.27%

Support/Resistance Indicator
The Index Support/Resistance(S/R)Ratio is a formula used to
gauge possible support or resistance based on open-interest
disparity. Ratio listed is percentage of calls to puts or
puts to calls respectively.

Support is factored from dividing puts by calls at strike
levels beneath index closing price. Resistance is factored
from dividing calls by puts at strike levels above current
closing price.

  (Open Interest)       Calls        Puts          Ratio
S&P 100 Index (OEX)
625 - 610                1,590        4,492          .35
605 - 590                1,098        5,059          .22

OEX close: 587.94

585 - 570                  276        5,297        19.19
565 - 550                    2        3,830      1915.00

Maximum calls: 660/ 3,007
Maximum puts : 520/ 5,891

Moving Averages
 10 DMA  621
 20 DMA  635
 50 DMA  673
200 DMA  741

NASDAQ 100 Index (NDX/QQQ)
 50 - 48               135,920        57,019         2.38
 47 - 45                89,320        55,622         1.61
 44 - 42                23,599       128,480          .18

QQQ(NDX)close: 41.10

 40 - 38                14,206        34,787          2.45
 37 - 35                 1,924         8,598          4.47
 34 - 32                    91         4,822         52.99

Maximum calls: 53/116,009
Maximum puts : 43/109,575

Moving Averages
 10 DMA 45
 20 DMA 47
 50 DMA 56
200 DMA 77

S&P 500 (SPX)
1225                    3,520         7,787           .45
1200                    6,147        15,005           .41
1175                      500         7,127           .07

SPX close: 1150.53

1125                       14         3,802        271.57
1100                       57        12,133        218.86
1075                        0        12,207      12207.00

Maximum calls: 1275/17,414
Maximum puts : 1150/20,003

Moving Averages
 10 DMA 1212
 20 DMA 1234
 50 DMA 1296
200 DMA 1393


CBOT Commitment Of Traders Report: Friday 03/13
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          -1981      -2012        -1491     -2960
Total Open
interest %       (-15.88%)  (-19.12%)    (-4.35%)   (-10.32%)
                 net-short  net-short    net-short  net-short

S&P 500
Open Interest
Net Value         +78245     +91122       -94842    -111638
Total Open
Interest %       (+29.35%)  (+37.69%)    (-11.74%)  (-14.93%)
                 net-long   net-long     net-short  net-short

What COT Data Tells Us
Indices: This week saw the Commercials start to pullback a little
on hedged positions. Commercials show a decline of 3 percent on
S&P 500 net-shorts while they reduced their DJIA net-short
positions by 6 percent. Small specs began getting short the S&P,
exactly what we expect to create a bottom in time.

Interest Rate/Debt Instruments:
Commercials continue to build net-short positions in the Euro and
all Treasury note futures markets.

Commercials are building significant net-long in the Japanese

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 03/13 by the CFTC.

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By Eric Utley

The looming tax deadline, Japan's debacle, 52-week lows and
the sea of red formerly known as the U.S. stock market were all
far out of mind last weekend.

I took a brief sabbatical from my duties here at OI to spend
some much-needed quality time with my family.  My beloved
mother and much-adored younger sister made the journey across
the Rockies in an attempt to drag me away from my trading
terminal which has become a permanent fixture in my life.
Fortunately, they succeeded in diverting my attention and I'm
grateful.  I forgot that there are things other than the
market that are far more important in my life.  My only intent
in sharing this personal detail with my readers is to reinforce
what, and more importantly who, we are venturing into the
stock market for.

Instead of reviewing a trade from last week with my readers,
I'd like to give a forward-looking thought concerning the
FOMC meeting on Tuesday.  I'm of the belief that the Fed will
cut by 50 basis points and not 75 basis points.  But, I've
got a take on both scenarios.

If the Fed cuts by 50 basis points, I think the market sells
off out of disappointment and traders might look to hit some
bids on tech stocks.  We may even get the much-hyped
capitulation event following a 50 basis point cut.  On the
other hand, if the Fed does in fact cut by 75 basis points
I think the broader market lifts, especially finance and
tech stocks.  I think that the finance stocks, especially
banks, will rally into the close following a 75 basis point
cut.  Among tech stocks, I think the most battered groups will
advance substantially because of the short infestation.  Watch
shares of CIENA (NASDAQ:CIEN) if the Fed does cut by 75 basis
points - that was one stock that REALLY moved on the surprise
rate cut on January 3rd.

This rate cut, however large or small, by the Fed Tuesday will
mark its third in this benign cycle of monetary policy.  And
as history has shown, three rate cuts are supposed to be of
some significance.  But, I'm of the belief that the tech sector
will remain under pressure over the next several months even if
the Fed does cut by 75 basis points Tuesday.  That belief could
change as early as next weekend, and I'll let you know if it
does.  But my opinion right now is that tech is, and will be,
a tough place for quite some time.  Having said that, traders
might get some good entries on put plays in the tech sector
following a 75 basis point cut.  Even though I said to keep an
eye on CIENA for a long trade following a 75 basis point, I
would emphasize that any long trade should be exited quickly
if profits are made.  Be very nimble!

This is just my opinion, and my beliefs don't mean anything to
the market.  I would urge my readers to develop their own
trading ideas and develop a thesis ahead of the FOMC meeting
Tuesday if the event is going to be traded around.

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


Concord EFS - CEFT

Hi there.  I've been watching CEFT for a while now and it seems
to be strong in the midst of all the negative news this last year
or so.  It seems to have broken new highs and I'm wondering if you
could highlight this company and give us your take on it. - Thanks,

Thanks for writing in, Bert!

I also have watched shares of Concord EFS (NASDAQ:CEFT) for quite
some time now.  I actually owned the stock for part of last year.

The company has a solid history of earnings growth and impressive
expectations going forward.  If the company continues to hit its
numbers this year, one might argue a very bullish case for owning
shares of Concord at current levels.

The company is a leading provider of merchant services.  In short,
Concord provides electronic transaction services for credit and
debit cards, including authorization and settlement.  Two other
companies in this space are Total Systems (NYSE:TSS) and First
Data Corp. (NYSE:FDC).  The charts of the two aforementioned
competitors of Concord look pretty good considering the broader
market meltdown.

You'll note that shares of First Data, Total Systems and Concord
are trading near their respective 52-week highs.  This does
present a bit of a conundrum in light of the current market
environment.  Concord is hitting on all cylinders and its sector
counterparts are performing equally well in terms of both price
and fundamentals.

However, I'm a bit cautious in buying stocks near their highs
in this market because virtually every sector is getting
whacked, which was especially evident last week.  Having said
that, I would be cautious in pursuing shares of Concord at
current levels for no other reason than the broader market
weakness.  But, I would definitely keep Concord on the radar
screen especially when the broader market stops falling.  I
would think shares of Concord, along with those of its
competitors, would do quite well when the broader market
stabilizes and ultimately advances.  The relative strength in
Concord in both price and underlying fundamentals should lend
to outperformance once the economy and market up-tick.


Global Crossing - GX

Your insightful analyses are much appreciated.  How does GX look
for a medium term play?  Capital expenditures almost completed,
revenues rising (finally), and appears to have good support around
$15. - Thanks, Dan

Dan, I have to thank you for the kind words, they are VERY much

I'll be honest, I think a medium-term play on shares of Global
Crossing (NYSE:GX) is a bit dicey.  The tech and telecom sectors
remain a place of peril and I think trying to game the bottom
right here in Global Crossing is a risky proposition for a medium-
term "trade."  But, if you must play Global Crossing right here,
from the long side, I would suggest using a tight stop in order
to manage risk.

However, while my short- medium-term outlook on Global Crossing
is not as friendly, I do the think the company will be a long-
term winner in the build out of the global Internet.  The company
already has the build out of its global fiber network financed.
And that network, when completed, will carry voice, video and
a variety of financial transactions.  Most of all, Global
Crossing's network will increase information flow.

I don't have an edge or any particular insight into the price
action of shares of Global Crossing in the medium-term.  The
fact remains that the near future of tech and telecom remains
cloudy and difficult to gauge.  As such, I wouldn't suggest
a trade from the long side in Global Crossing right here and
and now.  But, for those INVESTORS looking to add some
aggressive exposure, and who already have a diversified
portfolio, I think they could nibble on a little Global
Crossing at current levels.  But to make it perfectly clear, the
stock should only be pursued at current levels for those with
a higher risk tolerance and AT LEAST two or three years of


Krispy Kreme - KREM

KREM has earnings coming and a split.  I think they are riding
a wave that should be crashing, and have thought of shorting
this stock...any observations? - Thanks much, Bruce

Thanks for the question, Bruce.  I have to tell you, Krispy
Kreme (NASDAQ:KREM) is opening a shop about two minutes away
from my house here in Denver and I fear my caloric intake may
go parabolic.

In all seriousness, Bruce, I do have a few good observations
for you concerning Krispy Kreme.  The company is set to release
7.4 million shares on April 5th from their IPO lockup.  This
could potentially and drastically increase the supply of stock
if insiders and franchisees choose to sell their stock.  To
give you an idea of the potential impact of the lockup, when
Krispy Kreme announced a secondary offering on January 5th its
stock lost more than $8 that day.  In short, I don't think
Krispy Kreme's investors like the idea of more supply coming
to market, especially with the cult-like following its shares

Now, my second observation of Krispy Kreme may sound a bit out of
whack but I do believe it holds some credence.  Krispy Kreme is
set to move to the NYSE on May 17th and trade under the symbol
KK.  What's interesting is that I watched two Nasdaq stocks
(Global Crossing and E*Trade (NYSE:ET)) move to the NYSE and
their stocks subsequently weakened more than usual.  I would
suggest pulling up charts on Global Crossing and E*Trade and
noting the precipitous decline in their share prices after their
respective moves to the Big Board.  This whole idea of shorting
a stock just because it moves from the Nasdaq to the NYSE is
obviously speculative, and IS NOT predicated on the underlying
fundamentals of the company.  However, we're putting the idea to
test with our new put play this weekend in BMC Software (NYSE:BMC)
which recently moved from the Nasdaq to the NYSE.

If our BMC Software put play works, Krispy Kreme may represent
a good short at current levels with the supply of stock set to
increase and its move to the NYSE.


Abbot Laboratories - ABT

Please let me know your thoughts on ABT.  When I look at this on
a weekly basis it looks like it is trying to do one of two
things...form a head and shoulders...Or, going for a triple top
at around 53...either way it looks like it may have more downside
than upside. - Thank you, Christine

Thank you for taking the time to write in, Christine.

Drug stocks enjoyed a monster rally, which began in early 2000
at the dawn of the great bear market.  As investors began to
sell tech and finance stocks, their capital made its way into
more defensive issues such as tobacco and drug stocks.  My
readers can pull up a chart on the AMEX Pharmaceutical Index
(DRG.X) in order to view the massive sector rotation into the
drug stocks, which lasted up until early 2001.  However, for
reasons unknown to me, the same market participants who were
rotating into drug stocks last year are now selling in a big
way.  This sector rotation out of drug stocks is a bit confusing
to me, because they represent a defensive play.  And, as we all
know, the broader tech and finance sectors are still getting
whacked.  One reason that I can think of why investors are
selling drug stocks is to raise capital...maybe to meet
redemption requirements or to stay liquid?  Or, maybe investors
are selling drug stocks as a function of their high historical
valuations and are merely taking profits from last year?

We do know that there is a massive long liquidation in the
drug stocks currently, Christine, which brings us back to your
Abbott Labs (NYSE:ABT) request.  I have nothing to write about
Abbott that is particularly negative concerning the company or
its fundamentals.  Furthermore, I'm not smart enough to pick
the bottom in the DRG.X, but it does appear that the path of
least resistance is to the downside.  However, because Abbott
made a large move to the downside over the last month, especially
last week, it's rather difficult to measure the amount of risk
in putting out stock (read: short selling) at current levels.  If
a trader was looking to short shares of Abbott, I think the most
prudent strategy, in terms of risk-to-reward, would be to wait
for the stock to rebound to a significant resistance level.  You
mentioned a possible top at the $53 level, or head-and-shoulders
formation, Christine, but I would point out that it would take
quite some time for Abbott to rally roughly 10 points to complete
the formation you're looking for.  And I don't know if Abbott
will make it that high during this cycle of rotation out of drug
stocks.  Two resistance levels to watch for a rollover might be
$46.50 and $48.00.


Qwest Communications - Q

If you have room what are your thoughts on Qwest (Q)? - Thanks,

Similar to my ideas concerning Global Crossing, Marvin, I think
the short-term for Qwest (NYSE:Q) is a bit difficult to gauge
in terms of the macro fundamentals in the telecom sector.

However, the stock did act particularly well last week, which
stemmed from the company reaffirming its growth outlook last
Tuesday.  The bullish comments from Qwest were a beacon of
hope last week.  But the question right here and now is if the
momentum from Qwest's comments can sustain its stock price and
push it higher in the short-term.  The reason I pose this
question is because shares of Qwest traced a bullish forecast
up through Thursday, followed by an inside day Friday.  The
stock could be set to breakout of this pattern and trade up
to $40, which could present opportunity to traders from the
long side.  But, I don't know what the catalyst could be to
allow Qwest to work higher.  My only suggestion is to refer
to price next week, and watch for a breakout.

Finally, for what it's worth, I think Qwest will be a long-
term winner of the new economy and will capitalize on the
broadband business.  When the market and economy turn, I think
Qwest is a stock to own for investment purposes.  The
operative word, however, is WHEN the market turns.  Be


This column is an information service only.  The information
provided herein is not to be construed as an offer to buy or
sell securities of any kind.  The Ask the Analyst picks are not
to be considered a recommendation of any stock or option but an
information resource to aid the investor in making an informed
decision regarding trading in options.  It is possible at this
or some subsequent date, the editor and staff of The Option
Investor Newsletter may own, buy or sell securities presented.
All investors should consult a qualified professional before
trading in any security.  The information provided has been
obtained from sources deemed reliable, but is not guaranteed
as to its accuracy.


For the week of March 19th, 2001

None Scheduled

Trade Balance            Jan  Forecast:-$33.0B  Previous: -$33.0B
Treasury Budget          Feb  Forecast:-$44.0B  Previous: -$41.7B
FOMC Announcement             Forecast:    NA   Previous:     NA

CPI                      Feb  Forecast:  0.20%  Previous:   0.60%
Core CPI                 Feb  Forecast:  0.20%  Previous:   0.30%
Oil & Gas Inventories 16-Mar  Forecast:    NA   Previous: 285.3MB

Initial Claims        17-Mar  Forecast:   368K  Previous:    375K
Leading Indicators       Feb  Forecast: -0.20%  Previous:   0.80%
FOMC Minutes                  Forecast:    NA   Previous:     NA
Semi Book to Bill Ratio  Feb  Forecast:    NA   Previous:   0.81

ECRI Wkly Leading Idx 16-Mar  Forecast:    NA   Previous:   -4.1%

Week of March 26th
Mar 26  Existing Home Sales
Mar 26  New Home Sales
Mar 27  Durable Orders
Mar 27  Consumer Confidence
Mar 29  Initial Claims
Mar 29  GDP-Final
Mar 29  Chain Deflator-Final
Mar 29  Help-Wanted Index
Mar 30  Personal Income
Mar 30  PCE
Mar 30  Chicago PMI
Mar 30  Mich Sentiment-Rev.

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The Option Investor Newsletter                   Sunday 03-18-2001
Sunday                                                      2 of 5

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Be Calm, Think Clearly, It's Not Time To Panic
By Renee White

Okay, I give up. I'll admit it. It WAS a bubble. Like most of my
contemporaries, I'd give anything for a second chance to apply
all that I've learned in the last two years.

If you are like me, you are probably sick now. Sick of hearing how
oversold this market is. Sick of hearing "Was that the bottom?"
Are you also sick of the word capitulation, and Jay Leno's Nasdaq
jokes? How about being sick of looking at a dwindling account
balance, and hearing, "Buy this. It's fairly valued."

I will not belabour that point in this article. In addition, I will
not make light of the week we have had. This is painful and very
stressful for anyone who watches the markets, regardless if they
make their living by it or not. It affects aggressive traders,
employees and conservative retirees on fixed income. My heart just
bleeds for the elderly who felt safe in some "widow and orphan"
stocks of yesteryear; equities that were previously described as

So now we know what both bubbles and crashes feel like. The good
news is: we have accelerated our learning curve by experiencing
both dimensions. Sure, it was an expensive lesson and for many of
us the bleeding continues. However, let's get beyond that. This
is finance and things change. The market is fluid; it doesn't only
go up. If you are to survive in order to win again, you must be
able to live through the storms AND learn from them. To play in
this game for years to come, each of us must learn how to play
the slides and the nasty muddy bottom aftermath, as well as the
ascent. The storms are our best teachers of our own individual
weaknesses. Those who study it will become much stronger traders
once the sun starts shining again.

Last year I spent more time reading economics and how it affects
the markets. Although the markets feel gut wrenching these days,
those studies have really improved my market projections and
interpretations. Recently I heard: "The stock market has
predicted 9 out of the last 5 recessions." The first time I heard
that I laughed. This week, instead of laughing, I thought about it.
In order to avoid being caught up in the panic perpetuated by the
media, I decided to avoid CNBC Wednesday, Thursday and Friday. I
do not need hysterics when I am trying to clearly understand the
market. In 1987, the stock market clearly announced an economic
crisis, but other than a shakeout in the financial industry, no
recession occurred. Though I have a knot in my stomach, I think
this past week was an over-reaction.

It is clear to me now that everyone feels sick and traders
are looking at the stock market as a predictor of our economic
demise. I would like to caution readers from falling into this
trap. You have heard it mentioned before, when the CEO gets
Man Of The Year and his face smiles gleefully on the cover of
Time Magazine, it's probably a good time to short the stock. Well
friends, I can't help but wonder with the Nasdaq crash jokes
becoming a nightly routine for Jay Leno, if we are near a buy
signal. Four out of the four nights I watched last week, he lead
with Nasdaq crash jokes.

I think everyone knows at this point that picking the exact
bottom is just guessing. No one knows and everyone has an opinion.
Understanding a little economics can help calm the nerves. The
Federal Reserve influences the economy by adjusting money flow.
The Chairman can stimulate the economy by his favorite tool,
lowering the Federal Funds Rate.  To kick-start the economy during
the recession in the early 1990's, the Fed shaved the Federal
Funds Rate 16 times over a 2-year period, starting in late 1990.
If you look at your charts, you will see an ascent starting
about the same time.

By making money cheaper, everyone benefits; banks, businesses and
the everyday person. The Fed Funds Rate is the rate federal banks
charge each other for overnight loans of $1 mln or more. It
is considered a barometer of the direction of short-term interest
rates, which fluctuate constantly. When banks borrow cheaper
dollars, they pass it down in terms of cheaper mortgages, credit
cards, and business loans. Money flows easily but there are also
risks associated with declining interest rates. If rates fall too
low with an expanding economy, it tends to spark inflation.
Naturally, with inflation comes the scare of increasing interest
rates to cool things off. The cycle occurs, then repeats again.

The markets are so volatile at this point that I will most likely
sit out until after the market picks a direction after the rate
cut. April earnings will still be bad so if we get a rally soon,
I will probably play earnings with another downside bias. If I am
lucky, I will enter April earnings plays after a rally has surged
to a resistance level using May/June expiration periods.  This is
the typical post-tax season slump which can help my bearish bias.
May is known for being a very weak month for the markets.

Before following the total fear and panic, look around and you
will still see signs of a vibrant, healthy economy in most areas.
It's possible that we have all become far too myopic in our
perspectives, caused by the memories of our enjoyably comfortable
bubble from the past.

It's time we think clearly, looking further out in time. Although
things are shaky, they do not warrant panic. Plot and follow
economic reports for hints on where we are going. Buy a basic
book on economics to learn the difference in leading and lagging
indicators and how they affect the stock market. Build confidence
 through learning. Be calm. Think clearly. And don't panic.

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

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Option Tactics In A Bear Market
By Lynda Schuepp

It ain't over until the fat lady sings.  We all are sick of the
bleeding and each week we think, "this is the bottom, I'll buy the
dip, it's always worked before." It is human nature to want to be
long the market not short, but continuing to use strategies that
worked two years ago are quite unprofitable.  But surely the bottom
is near, you say.  We've been wishing and hoping that were true
since the first major correction in April of last year.  One year
later, we are down 40% from that low and down 60% from the high

Let's compare this bear market to other bear markets.  We thought
the crash in 1987 was horrendous and the worst most of us have seen
in our trading careers.  That correction saw the S&P 500 tumble
56%, the Nasdaq declined 58% and the Dow Jones fared the worst at a
loss of 70% and only lasted four months, and the worst was over in
a month.  We have to go back to December of 1974 to see more
significant declines.  That bear market lasted 2 years and saw the
S&P 500 drop 94%, the Dow Jones drop 87% and the Nasdaq fared worst
at a decline of 149%!  Does history repeat itself?  What's different
this time?

One only needs to look at the gains in these three indexes up to
their highs in March of 2000 to see the problem.  I'm afraid Alan's
bubble is a reality.  If you go back to the lows in December of
1974 to the highs in March of 2000, the Dow rose 1900%, the S&P
2400% and the Nasdaq 9200%!  Now I'll admit the Nasdaq is a better
reflection of growth companies than the Dow.  The times they are
a-changing, so it's probably more realistic to compare the growth
in the three indexes since the lows back in October of 1987.  The
Dow rose 600%, the S&P 600% but the Nasdaq rose 1700%, almost
triple the other indexes. Therein, lies the problem-what goes up
(too far, too fast), comes down to a more reasonable level.  The
question remains - are we at reasonable levels yet?

As of Friday, the Dow is up 508%, the S&P up 432% and the Nasdaq
is up 556% since the October 1987 lows.  If we are not in a
recession, then these levels are pretty realistic but if we are in
a recession, we should see ALL indexes go lower from here.

Last week, I wrote about a longer-term strategy to use in a bear
market.  Well, it's one week later, the market is lower still and
it's time to review our position.  To recap from last week, we
looked at a bull call spread, being the bottom fishers and
optimists that we naturally are.  We chose the January calls for
reasons explained in the article, going long the 40 strike and
short the 45 strike.  Last week at the close, we could have put
the trade on for $2.30.  One week later it would cost $2.30 based
on the closing prices on Friday!  But the market is down, how can
that be?  Imagine, the QQQ's dropped from $45 to $41 this week, but
our spread actually held.  This is why you should hedge your bets
in this kind of market!  Had you simply gone directional and bought
the January 40 calls without selling the 45 strike, you'd be down
25% of your investment.  And speaking of investment, on 10 contracts
you would have invested over $11,000 if you only bought the 40
calls, but the spread only cost $2300 for 10 contracts.  Let's
review, invest $2300 in the spread and your loss is zero after the
QQQ's went down 8% or invest $11,000 and be down $3000.  That's why
you need to add this strategy to your arsenal.

The good news is that the perception based on the option prices
this week indicate we may finally be near a bottom, but don't expect
a rapid turn around.

Nasdaq since October 1987:

Notice how the Nasdaq dropped to its 100-period moving average.
Remember this is the 100-MONTH moving average, because this is a
monthly chart.  Sometimes, you need to step back and look at the big
picture.  We are very near that average now, the actual number is
1678 and that's only another 10%.  We could do that in a week!  This
average has provide MAJOR support in the past bear markets and will
need to be watched.

The moral of the story is keep your losses small and minimize risk
in your trades by implementing more conservative strategies in
this kind of market.


Call Play of the Day:

WCOM - WorldCom Inc $17.44 (+0.50 last week)

See details in sector list

Put Play of the Day:

RIMM - Research in Motion $26.19 (-14.19 last week)

See details in sector list

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Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


ELNT $23.88 (+2.38) Caught in a descending elevator, it
didn't seem to matter that ELNT wanted to head up.  The
Semiconductor index (SOX.X) was in a full speed descent over
the past 2 days, and the negative effect bled into our play.
Even though volume dropped off to less than one-third of the
ADV, there was still too much selling pressure for the stock
to remain above our $24 stop.  Rather than fight a losing battle
in a crippled sector, we'll step aside before things really get


No dropped puts this weekend


SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.

The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.


WM - Washington Mutual Inc $51.49 (+1.86 last week)

Washington Mutual is the US's largest savings and loan financial
services company.  They provide a diversified line of products
and services to individuals and small to mid-sized businesses.
WM offers consumer banking, mortgage lending, commercial
banking, financial services, and consumer finance.  They operate
principally in California, Washington, Oregon, Florida, Texas
and Utah; although they some 2,000 facilities across 40 states.

While the market may continue to punish shares of the larger
banks with exposure to Japan, the smaller banks with concerns
principally in the US such as Washington Mutual (NYSE:WM) become
very attractive to financial investors.  If the Fed cuts rates
drastically on Tuesday, WM is likely to burst at the seams and
make a charge for $55.93, the 52-week high set in December.
Hence, we're beginning coverage this weekend purely on the
speculative probability that WM could rally into the Fed meeting
Tuesday.  Again, this is distinctively probable because WM is a
domestic bank with little, if any, exposure to Japanese-related
concerns.  If such a rebound comes into play there's two
elements you'll want to pay particular attention to in regard to
exit strategies.  First, there's the stock's own resistance
levels, which could cap the uptrend and thus, result in a
rollover.  In other words, traders might want to lock in gains
as WM approaches the $56 level to avoid getting caught in a
downdraft and seeing profits quickly dissipate.  The other
pertinent element is, of course, the direction of the old
economy index and its resistance levels.  Anticipate the
threatening opposition; first through 10,000, then 10,100 and so
on.  Exit accordingly.  Now, notwithstanding the stock's
steadfast strength at the current trading levels, pick your
entries according to your risk portfolio and keep closing stops
in place at $50.  A more aggressive trader might be willing to
take a riskier entry below $50, say near the $48 support or 5-
dma ($49.92) and venture that WM will react positively in the
coming days.  Others may instead consider a more conservative
trade and simply buy into strength on the big breakout through
the immediate resistance at $52 and $54.  And on the analyst
front, there's some confidence regarding the stock's potential,
going forward.  Goldman Sach's reiterated a Market Outperform on
Friday and Sandler O'Neill upgraded WM to a Buy as well as
issued a $58 price target.  Nonetheless, keep the rose-colored
glasses in your pocket and trade with discipline.

BUY CALL APR-45 WM-DI OI=1682 at $7.50 SL=5.25
BUY CALL APR-50*WM-DJ OI=3685 at $3.60 SL=1.75
BUY CALL APR-55 WM-DK OI=6123 at $1.20 SL=0.50


LEH - Lehman Brothers Holdings $66.40 (-1.71 last week)

Through its subsidiaries, LEH constitutes one of the leading
global investment banks, serving institutional, corporate,
government and high-net-worth individuals clients.  The company
is engaged primarily in providing financial services, including
securities writing and direct placements, corporate finance and
strategic advisory services, private equity investments and
securities sales and trading.  Completing its array of banking,
research and trading capabilities, LEH also engages in the
trading of foreign exchange, derivative products and certain

After the drubbing the broader markets took last week, it is
tough to find any stocks that posted a gain.  While it wasn't a
stellar move, it was encouraging to see LEH successfully test
the 200-dma (currently $63.75) and close above it on Friday.
To underscore the stock's strength, the DJIA posted a 52-week
closing low, with the NASDAQ and S&P500 setting new 2-year lows.
So, for starters, our new play is looking pretty solid relative
to the alternatives out there.  Add in the possibly buoyant
effect of the Fed meeting on Tuesday and an earnings report set
for the following morning (March 21st), and we have the makings
of a good, albeit speculative, call play.  Aiding the stock in
its reassuring bounce last week was solid support at the $60
level, and barring a disappointment from the Fed on Tuesday, we
don't expect to revisit that level any time soon.  We want to
watch this one closely, and so were are starting with a tight
stop at $64.  Consider intraday dips near the $65 support level
to be attractive entry points, but keep in mind that a close
below $64 will be cause for ejection from the playlist.  With
daily Stochastics just coming out of oversold, more conservative
players may want to enter on strength, initiating new positions
as the stock surges through $67 on solid buying volume.  Watch
the Broker/Dealer index (XBD.X) carefully, as it has been
teetering on the edge of support at $450.  If this support
fails, it will be very difficult for our play to keep its head
above water.  On the other hand, a solid bounce from this level
could be just what LEH needs to really get moving.  Just keep
your eye on the clock.  The Fed meeting is likely to juice the
share price one way or the other, and we will want to be out of
any open positions no later than the close of business Tuesday,
with earnings set to be released the following morning.

BUY CALL APR-65*LEH-DM OI=1097 at $ 7.00 SL=5.00
BUY CALL APR-70 LEH-DN OI=1722 at $ 4.40 SL=2.75
BUY CALL JUL-70 LEH-GN OI= 936 at $ 8.50 SL=6.00
BUY CALL JUL-75 LES-GO OI=1494 at $ 6.70 SL=4.75


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Please read our disclaimer at:

The Option Investor Newsletter                   Sunday 03-18-2001
Sunday                                                      3 of 5

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

Why put all your risk into one stock when you can play the
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market updates, plays, education and daily commentaries by
those who know.

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


WCOM - WorldCom Inc $17.44 (+0.50 last 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.

It was volatile week of trading for many of the
telecommunications companies.  The massive sell-off on Wednesday
saw many of WCOM's competitors like Level3 Communications
(LVLT), SBC Communications (SBC), and Verizon (VZ) take big
hits.  In contrast, WCOM gained an astonishing 12% intraday
after CEO Bernard Ebbers maintained his guidance for 1Q earnings
and would not cut its growth outlook.  The strong move off the
$15 support caught our attention and initiated immediate
coverage of WCOM.  Salomon Smith Barney's Jack Grubman, also
praised WorldCom.  He upped his 1Q and yearly revenue growth
expectations for the company's data unit as well as reiterated a
Buy rating on the stock.  On Thursday, we got a big break.
Merger scuttlebutt involving SBC Communications (SBC) and Sprint
(PCS) interspersed with whispers of WorldCom's potential
involvement in a separate deal lifted the whole
telecommunications sector.  The strong upward momentum launched
the share price through the $18 resistance on volume of 1.4
times the ADV.  A clean break through $18 opened the door for a
challenge of the next line of opposition at the 50-dma, near
$19.  While this may not seem like much of an obstacle, this
technical measurement has, in previous months, snuffed out
upward trend lines.  Look for buyers to step in amid an
advancing marketplace and generate enough momentum to clear this
resistance before taking additional positions; unless you're
interested in buying a deep dip and playing the current trading
channel.  The latter approach tends to involve more risk.  We're
maintaining a protective stop at the $15 mark.  For new readers,
this essentially means that we'll exit the play if WCOM fails to
hold this level on a close.

BUY CALL APR-15    JQD-DC OI= 8963 at $3.25 SL=1.50
BUY CALL APR-17.50*JQD-DW OI=19381 at $1.69 SL=0.75
BUY CALL APR-20    LDQ-DD OI=26616 at $0.75 SL=0.00


SMTC - Semtech Corp. $27.69 (+2.63 last 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.

Within the semiconductor sector, the analog device chip stocks,
such as LLTC, MXIM, and SMTC have been holding up better than
some of the high flying chips stocks such as PMCS and BRCM.
SMTC demonstrated a pattern of consistently weaving within
approximately 10 points above and below its 200 and 50 dmas
for the last twelve months.  Some analysts feel that, at this
point, the analog chip stocks have discounted weakness in the
first and second quarter of this year, and are possibly
looking forward to the third quarter.  According to SMTC's
management, the December and January gross bookings have
shown improvement from the weakness exhibited in November.
Since the beginning of this year, SMTC has held at strong
support at $22, and has been unable to penetrate heavy
resistance at $29.75.  Eventually, the stock should break out
of this tight range, and the technical indicators favor an
upside breakout.  In Friday's choppy action, SMTC reached a low
right on top of the 50 dma of $27.23, which could be a possible
entry point for aggressive positions.  Conservative call players
might want to wait for a break above $29.75 on strong volume,
which might lead SMTC to test the next resistance level at
the 200 dma of $34.49.  We are setting stops tight at the $27
level, so close positions if SMTC closes below $27.  Continue
to monitor others in the analog chip sector, such as ADI and
NSM, as well as the SOX.X.

BUY CALL APR-25*QTU-DE OI= 43 at $5.00 SL=3.00
BUY CALL APR-30 QTU-DF OI=121 at $2.56 SL=1.25
BUY CALL JUN-25 QTU-FE OI=360 at $7.00 SL=5.00
BUY CALL JUN-30 QTU-FF OI=183 at $4.50 SL=2.75



OPWV - Openwave Systems Inc. $25.54 (-5.36 last week)

Openwave Systems Inc., the combination of Phone.com and
Software.com, is the worldwide leader of open Internet-based
communication infrastructure software and applications.
Openwave's customers are communication service providers
worldwide, including wireless network operators, wireline
carriers, internet service providers, portals, and broadband
network providers.  Openwave was formed in November of 2000
following the merger of Phone.com Inc. and Software.com Inc.

A classic rollover from the $28.70 level occurred in the
morning, as the Nasdaq collapsed at the open.  This rollover
brought OPWV to support at the $26 level, which held briefly
until the afternoon.  It is important to note that OPWV did
not participate in the brief Nasdaq rally which occurred
during the mid morning on Friday, which almost brought the Nasdaq,
and the software index, GSO.X, into positive territory for
a few minutes.  OPWV continued to experience selling throughout
the day, which brought it to a low of $24.72, almost a point
above the 52-week low of $23.87.  While the software index
has exhibited weakness recently, the communications software
sector has been hit particularly hard.  This week, Comverse
Technologies, another communications software company, reported
excellent earnings, but fell flat on its face after being
downgraded by Goldman Sachs, US Bancorp Piper Jaffray and
Banc of America Securities.  OPWV could potentially be hurt
by slowing wireless demand, or the slowing demand for
additional software applications by carrier customers, either
of which is possible in the coming quarter.  At this point,
investors are not taking any chances, and are bailing at the
slightest sign of weakness in a stock's sector.  Considering
the market's lukewarm reaction to Oracle's earnings, the
software index may experience further selling ahead.  Trading
next week will be tricky, as the Federal Reserve will announce
their decision on interest rates on Tuesday.  Traders might
want to assess the market's reaction to the Fed's decision
before taking positions.  OPWV is currently poised to roll over
from $26, which could be an entry point for aggressive put
players.  Otherwise, a break below $23.87 on heavy volume would
be very bearish, and could establish a new 52-week low.  Watch
other communications software stocks, like CMVT, DOX, and
CSGS, to assess sector weakness.  We will set stops at $29, and
close positions if OPWV closes below this point.

BUY PUT APR-30 UGE-PF OI=533 at $7.40 SL=5.25
BUY PUT APR-25*UGE-PE OI=906 at $4.20 SL=2.75


QLGC - QLogic Corp $27.00 (-1.94 last week)

QLogic Corporation is the leading manufacturer of fibre channel
bus adaptors.  The company is also a designer and supplier of
semiconductor and board level input/output (I/O) components
They've been designing and marketing SCSI-based (small computer
system interface) products for over 12 years and sells its
products to server, workstation, and date peripheral makers.
Blue-chip clients include Compaq, Dell, Hitachi, IBM, and
Quantum Corporation.

You might want to get another ticket to ride the QLGC roller
coaster.  Earlier in the week, QLGC offered day traders
opportunities to profit as a result of the intraday gyrations.
Take a look at a chart for visual confirmation.  But on Friday,
the rolling share price made a definitive move to the downside,
breaking out of its consolidation channel.  Now notice that
Friday's activity not only resulted in the stock hitting its
third 52-week low ($26) for the week, but also that the $28
level, which is bolstered by trailing 5-dma ($28.36), served as
staunch resistance amid rally attempts.  The budding pattern of
lower-highs and lower-lows certainly forecasts the potential for
more downside activity going into the Fed Meeting.  However,
beware of a broad market rally in the event Greenspan opts for a
dramatic rate cut.  This is where the use of stop losses come in
very handy.  We have revised our protective stop to the $30, but
understand, ours is a closing stop.  Entries above this level
are viable under the right conditions: a dissenting market
and/or rollover play off the 10-dma ($31.97), for instance.  To
jump on this put play in a more conservative manner, look for
sector weakness and a break below the $26 bottom.

BUY PUT APR-30*QLC-PF OI=262 at $6.50 SL=4.50
BUY PUT APR-25 QLC-PE OI= 84 at $3.75 SL=2.00
BUY PUT APR-20 QLC-PD OI=800 at $1.50 SL=0.75


AFFX - Affymetrix Inc $37.00 (-9.00 last 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.

The rolling downward momentum afflicting the broad markets and
the Biotechs (BTK.X) is effectively generating lots of downside
action for AFFX!  In despite of major short covering on Tuesday
that boosted the markets, AFFX simply experienced two days of
consolidation between $36 and $39.  A failed rally at $41 on
Thursday provided a prime opportunity to jump into this put
play.  Rewards were fruitful for the risk-takers.  AFFX freefell
to the $36 level amid robust volume in the first couple hours of
trading on Friday.  Once again, the 5-dma ($38.13) has resumed
its role as the upper resistance, keeping a tight lid on
advances.  Conservative types may find this measurement device a
way to gauge entries and/or exits.  In light of the narrowing
trading range and the upcoming Fed Meeting, we've revised our
closing stop from $40 to $39.  If AFFX demonstrates unexpected
strength and finishes the day above $39, we'll move on to other
lucrative opportunities.  While our closing stop is at $39,
please don't discount aggressive entries above this level.  If
the environment dictates further weakness; albeit, a declining
market combined with a faltering sector (BTK.X below the
critical 500 mark), there may very well be profits to capture.
Conservatively, be patient for a break to the underside of $36
for better confirmation.

BUY PUT APR-40 FIQ-PH OI=489 at $7.13 SL=5.00
BUY PUT APR-35*FIQ-PG OI=122 at $4.13 SL=2.50
BUY PUT APR-30 FIQ-PF OI= 21 at $2.19 SL=1.00


RATL - Rational Software Corp $20.31 (-7.63 last 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.

Exceptional volume levels topping twice the normal trading
activity have generated a strong downtrend line for RATL in
recent weeks.  The rippling effect of a slowdown in IT
(information technology) spending across the board is currently
having a negative impact on the software infrastructure sector.
Companies who help businesses operate over the Web such as
Mercury Interactive (MERQ), BEA Software (BEAS), and Check Point
Software Technologies (CHKP) are getting diced and sliced as
investors continue to ponder their trading strategies amid a
bloodied marketplace.  And to add insult to an already injured
RATL, Prudential Securities lowered their forecasts on the
company last week to reflect economic weakness.  In despite of
the oversold conditions - RATL has lost almost 65% of its value
since hitting $55.25 on January 29th - the share price continues
to decline.  Monumental declines occurred in Thursday and
Friday's sessions.  While not monumental percentage-wise,
historically it's very significant.  Prior to October 1999, the
$20 served as the upper resistance - literally for almost a
year until the company's big breakout into the technology wave.
Therefore, use this information in planning your plays.  On one
hand, more declines may be in the cards with the $14 level
providing the next relative bottom.  Or on the other hand,
discriminating buyers may find the attractive price level too
hard to resist, even if it's amid a short-term rally on Fed
news.  On Thursday, First Albany and Dain Rauscher Wessels
tooted Strong Buy recommendations, with the latter also issuing
a $70 price target.  Therefore, it's of the utmost importance at
this point in the play to use stops for protection, despite the
lack of traders' response to the upgrades last week.  Your
personal level of risk will dictate intraday stop marks, but
take note, we'll exit the play on bullish close above $23.  If
you're considering an aggressive entry near the 5-dma ($23.94),
be prepared to lock in gains as RATL approaches the $20 level,
supported by the 52-week low ($19.94).

BUY PUT APR-25 RAQ-PE OI=1430 at $6.38 SL=4.25
BUY PUT APR-20*RAQ-PD OI= 577 at $3.12 SL=1.50


RIMM - Research in Motion $26.19 (-14.19 last week)

Research in Motion designs, builds and markets wireless
solutions for the mobile communications market.  Through
development and integration of hardware, software and services,
RIMM provides solutions for seamless access to time-sensitive
information including e-mail, messaging, Internet and
Intranet-based applications.  RIMM's portfolio of products
includes the RIM Wireless Handheld product line, the
BlackBerry wireless email solution, wireless personal computer
card adapters, embedded radio modems and software development
tools.  The company's technology also enables a broad array of
third party developers and manufacturers in North America and
around the world to enhance their products and services with
wireless connectivity.

Tossed about in the stormy NASDAQ seas for the first half of
last week, RIMM really started to sink towards the end of the
week.  Giving up $11.18 (30%) over the past two days would
normally be bad enough, but it came on volume that more than
doubled the ADV, pushing the price solidly below the surface of
the lower Bollinger band to close out the week at its lowest
point since last May.  So what caused the meltdown in the share
price, you ask?  Let's call it fortuitous guilt by association,
as the Wireless sector had a rough week.  First NXTL warned of a
revenue and earnings shortfall due to the economic slowdown.
Shares of the company got hammered on the news, and then
Wireless Handheld device makers PALM and HAND got slapped with
an NCR patent infringement suit Thursday morning and the
punishment was swift.  Both PALM and HAND gave up better than
12% in the past 2 days, and combined with the NXTL news and
overall bearish sentiment in the market, it is no great surprise
that our play gave us such a large move.  The late-May low of
$23.25 is the stock's last chance of support that is less than
a year old.  If the bulls can't hold the line near this level,
the stock will quickly be trading at levels not seen since
August of 1999.  In that case look for support to appear at $21,
and then $18.  Given the rapid decline this week, we are
ratcheting our stop down to $33 to prevent giving our profits
back to Mr. Market.  Consider new positions on any rally that
fails to hold above our stop, as the selling volume begins to
reappear.  Entering new positions on further weakness seems a
bit dicey at this point, given the fact that Friday's closing
price was more than $4 below the lower Bollinger band.  It seems
likely that there will be some short covering before the stock
heads further south.  Although not likely to have much of an
effect in the current market conditions, don't forget that RIMM
will release earnings on March 28th.

BUY PUT APR-30 RUL-PF OI=1090 at $6.70 SL=4.75
BUY PUT APR-25*RUL-PE OI= 198 at $3.80 SL=2.25


AETH - Aether Systems Inc. $16.56 (-5.06 last 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

Market sentiment has played a key role in the decline in the
shares of Aether over the past year.  With the stock down almost
95 percent from its all-time high, AETH has not only moved lower
in sympathy with the NASDAQ, but has vastly under-performed the
Tech index.  The overabundance of optimism over its earnings
prospects and business model that allowed AETH to peak last year
has now turned into a formidable wave of overhead resistance
amidst the tides of pessimism.  The slower than expected
deployment of next generation wireless networks has also been a
drag on the Wireless sector, weighing heavily on AETH.  Even
bullish comments from analysts are not helping the stock.  Late
last month, JP Morgan H & Q reiterated their Buy rating and
12-month price target of $66, citing strong revenue growth
leading to earnings growth going forward.  This did little to
incite buyer interest however, as the stock has lost almost 50
percent since the time of the announcement.  A failure to hold a
3-week base culminated in a break below support at $23 in early
March, and has since resulted in a steady decline, with the 5-dma
(now at $18.45) acting as a lodestone on the stock.  Failed
attempts to challenge resistance at this level along with $17.50
and $19.50 may offer attractive opportunities to enter
aggressively.  Just be aware that in order to protect our
profits, we are lowering our closing stop price from $20 to $19.
Strong selling volume leading to a break below Friday's intra-day
low of $16.38 may allow the more cautious to take a position,
provided that peers CMVT and OPWV confirm downward movement.

BUY PUT APR-20   HIZ-PD OI= 48 at $5.13 SL=3.00
BUY PUT APR-17.5*HIZ-PW OI=377 at $3.25 SL=1.75


BRCM - Broadcom Corporation $33.38 (-5.25 last week)

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

A struggling Chip sector and a seemingly endless flurry of
lawsuits aimed at the company has turned this former Wall Street
darling into a much-beleaguered stock.  An article from the Wall
Street journal in late February cast a harsh eye on recent
insider stock sales, questioning not only the legitimacy, but
also the legality of the transactions.  With the stock price
already in a downtrend, this only served to draw the ire of
shareholders, resulting in an almost daily stream of class action
lawsuits.  This legal burden kept shares of the optical chipmaker
from participating in the recent short-lived bounce in Chip stock
prices and now, with Semiconductor sector, as tracked by the
Philadelphia Semiconductor Index (SOX), threatening to make new
lows, it appears that BRCM's stock price may follow suit.
Connecting the highs and lows since the middle of February
reveals that BRCM has been trading a steep downward-trending
regression channel.  Since the drop of almost 14 percent on
Monday, the stock spent most of the week trading sideways, and in
doing so, has marked enough time for the top of this channel to
catch up.  Failure to hold the $32 level may provide cautious
traders with an entry on weakness while aggressive players may
target resistance from the 5-dma (at $34.25), $35 and our stop
price at $37.  Make sure BRCM stays below our protective stop, as
a close above this price could suggest a break in its downtrend
and give us the signal to close our positions.

BUY PUT APR-40 RCQ-PH OI=2746 at $6.63 SL=4.50
BUY PUT APR-35*RCQ-PG OI=1061 at $4.13 SL=2.50


VTSS - Vitesse Semiconductor $39.06 (-2.38 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.

Analyst downgrades and negative sentiment in the Wireless sector
kept a lid on VTSS' stock price recently and now, with the
failure of what could have been a bullish triangle pattern along
with a faltering Chip sector, our put play could find itself
deeper into profitable territory.  After a steep decline in the
month of February, the stock settled into a trading range, with
support below at $39.50 and resistance overhead at $45.25.
Connecting the lows since the beginning of March also revealed
that the stock was in the process of forming an ascending
triangle formation.  While such patterns usually resolve to the
upside, VTSS' weakness relative to its peers suggested that a
resolution to the downside was more likely.  This came to pass on
Thursday, as an optimistic open near resistance on the heels of a
positive NASDAQ gave way to a day of selling, closing below
$39.50 support and resulting in a breakdown of its triangle
pattern.  This uptrend line on Friday, along with the 5 and
10-dma (at $40.95 and $41.46 respectively) acted as resistance.
Further failed attempts to take out these levels could provide
higher risk players with entry points, but wait for the sellers
to return before jumping in.  In order to preserve our gains, we
are moving our stop price down, from $43 to $42.  A close above
this level will result in our dropping coverage.  If the bears
get the upper hand in Monday trading, a break below Friday's
intra-day low of $37.75, confirmed by weakness in sector sisters
QCOM and TQNT, could allow the more risk averse to take a
position, keeping in mind that support levels for the stock can
be found just below at $37 and $35.

BUY PUT APR-40*VQT-PH OI= 682 at $6.63 SL=4.50
BUY PUT APR-35 VQT-PG OI=1229 at $4.13 SL=2.50


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The Option Investor Newsletter                   Sunday 03-18-2001
Sunday                                                      4 of 5

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ABGX - Abgenix $18.81 (-8.63 last week)

Abgenix is a biopharmaceutical company focused on the development
and commercialization of fully human monoclonal antibody
therapies for a variety of diseases.  The company's antibody
technology platform, which includes XenoMouse (TM) technology
enables the rapid generation of high affinity, fully human
antibody product candidates to essentially any disease target
appropriate for antibody therapy.  Abgenix leverages its
leadership position in human antibody technology by building
a large and diversified product portfolio through the
establishment of licensing arrangements with multiple
pharmaceutical, biotechnology and genomics companies and through
the development of its own proprietary products.

Last year, investors were willing to bid to the moon for
biotechs which offered the potential to cure deadly diseases
like cancer decades from now.  This year, investors only care
about the cancer which has eaten away at their savings, and
are running scared from non profitable companies which could
have to wait years for FDA approval of their products.  ABGX
fell below its 200 dma of $58.90 the first week in January, which
coincided with a drop in the biotechnology index below its
major moving averages.  While BTK.X rallied following the initial
Fed rate cut in January, ABGX rallied simultaneously, but failed
to move above the 50 dma of $54 the last week in January, and
has been on a serious slide since that point.  On January 30,
ABGX reported fourth quarter revenues of $13.5 million, with a net
loss of $4.5 million, or 5 cents per share, which is down from
16 cents per share in the year ago quarter.  Management stated
that they expect 2001 revenues to increase to $30 to $35 million,
from $26 million in 2000, but they expect to increase their
expenditures dramatically, to over $100 million.  This translates
into a 15% increase in revenues and a 100% increase in company
expenditures on research and development, and the market did not
like this news.  A failed rally past $38 during the last week
in February coincided with a failed rally in BTK.X past the $600
level.  This week, ABGX held at the $22 level until Friday, when
ABGX broke an important support level of $20, which dates back to
December of 1999.  At this point, support is light until the $13
level, and, without a dramatic change in investor sentiment, we
could see that level next week.  Traders could consider taking
positions at current levels, or possibly at a failed rally past
$20.  Monitor the BTK.X for continuing weakness, as it broke an
important support level of $470 on Friday.  We are setting stops
at $22, so close positions if ABGX closes above this level.

BUY PUT APR-25   AZG-PE OI=  9 at $7.63 SL=5.25
BUY PUT APR-22.5*AZG-PY OI=132 at $5.50 SL=3.50


BMC - BMC Software, Inc. $19.17 (-4.33 last week)

Founded in September 1980, BMC Software is one of the world's
largest independent software vendors.  They deliver the most
comprehensive Service Assurance strategy for e-business systems
management with the fastest guaranteed implementation.  This
strategy enhances availability, performance and recoverability of
companies' business-critical applications.  The BMC typical
customer is an enterprise confronted with the task of managing
billions of data entries essential to the daily activity of
hundred, thousands and even millions of individuals.  The company
is headquartered in Houston, Texas, with offices worldwide.

Throughout the NASDAQ's slide so far this year, the Software
sector has been one of the weaker components in the Technology
space.  Given these circumstances, shares of BMC Software have
managed to defy gravity for much of this time.  A positive
earnings pre-announcement in the beginning of the year in which
the company raised guidance going forward coupled with an upgrade
by Prudential Securities to a Strong Buy rating helped the stock
to gap up massively, from $15.62 to a price level of over $20.
From there, the stock spent most of its time attempting to break
through resistance at $33.  Unable to do so, BMC has since fallen
under the weight of its sector, as warnings of an earnings
shortfall from ORCL led software stocks lower in the aftermath.
The company recently moved trading of its stock from the NASDAQ
to the NYSE, but this change in venue has done little to ease its
downtrend.  Earlier this month, the stock was downgraded by Dain
Rauscher Wessels from a Buy to a Neutral rating, resulting in
further selling.  On Friday, with pressure overhead from the
5-dma, along with a falling NADSAQ, BMC failed to hold critical
psychological support at $20.  It appears now that the stock may
attempt to fill its January gap and in doing so, could provide an
opportunity for conservative traders to make a play on a break
below $18.75 with conviction.  Higher risk players may look for
failed rally attempts resulting in a rollover at $20, the 5-dma
(now at $21.14) and our closing stop price of $22.  Track sector
sentiment using Goldman Sachs Software Index (GSO) when
monitoring positions.

BUY PUT APR-22.5 BMC-PX OI=159 at $4.40 SL=2.75
BUY PUT APR-20  *BMC-PD OI= 10 at $2.70 SL=1.50




PIXR $34.00 -0.25 (-0.38 this week)  On Tuesday, when we picked
this Low Volatility call play, PIXR surged and closed above $35
on high volume.  We were anticipating a confirmation of that
strong break.  Normal profit taking has occurred since then and
PIXR bounced off its 252-dma at $33.75.  This moving average is
typically used by traders as it represents the number of trading
days in a year.  That level also is our stop loss.  We would
expect to see PIXR confirm its Tuesday breakout early next week.
Much of the selling on Friday was market related.  Bounces from
the 252-dma at $33.75 can be bought as well as a break above $35
again on strong volume.  Premiums are reasonable, especially in
July contracts.

BUY CALL APR-30*PQJ-DF OI= 80 at $4.50 SL=2.75
BUY CALL APR-35 PQJ-DG OI=304 at $1.44 SL=0.75
BUY CALL APR-40 PQJ-DH OI=283 at $0.25 SL=0.00  High Risk!
BUY CALL JUL-35 PQJ-GG OI= 97 at $2.88 SL=1.50

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Construction Zone -- Proceed With Caution
By Mark Phillips
Contact Support

Welcome back to the work in progress we call LEAPS.  If you take
a quick glance down below, you'll see that the section has
changed quite a bit since our last visit.  First, let me say
thank you to all of you that wrote to me last week regarding the
upcoming changes.  I really appreciate the kind words and the
constructive suggestions on how we can make this column more
useful as a trading resource.  I haven't had time to respond to
you all on an individual basis yet, but will attempt to do so in
the week ahead.

Ok, so what have we done here?  First off, the layout you see
here is only a transitionary phase, but it should carry us
through the weeks and months ahead until we have completed the
first wave of changes.  You'll notice that there are now three
lists of plays shown below.  The first list is the old playlist,
that we've all become familiar with over the past year.  In
fairness to those that rely on it for tracking our plays, we
will maintain this list until each of the plays listed there
have either transitioned to the active LEAPS Portfolio or have
been dropped due to poor performance.

Listed next is the LEAPS Portfolio, and you can see we have one
lone resident on this new list.  CLX gave us what we deemed to
be an acceptable entry point early last week, and so it moved
here from the old playlist.  Each play that is added to the
LEAPS portfolio will be given a play write-up detailing our entry
point, and why we think it deserved to be added at that time.
We will err on the conservative side by listing the high price
of the day as our entry price.  Although the CLX play write-up is
rather long, expect future play write-ups to be more concise,
allowing us to spend more time talking about the Portfolio,
Watchlist, the overall market and what to expect in the week

Finally, the LEAPS Watchlist is likely to be the most dynamic
portion of the new LEAPS column.  Here we will list plays that
we feel are appropriate for the consideration of new positions,
and we will detail the level at which we will take an entry, the
strike price we will target, as well as what we would consider a
technical violation in terms of a stop level.  Due to the
current market conditions, you can see that all of the listed
target prices are below current market values.  The bearish
market environment is not appropriate to buying breakouts,
whereas bounces from support levels will provide better entry
points.  Combined with our listed stop levels, it should provide
entries into profitable plays, while eliminating poorly
performing stocks from consideration.  We will review our listed
entry levels on a weekly basis, and update them as needed.  As
market conditions permit, we will also consider entry points
above current prices as well.

Each of the possibles on the old playlist have been moved to the
Watchlist, and we have listed what we believe are attractive
entry points as well as a value for the stop.  Although the term
'stop' isn't really appropriate, due to the fact that we have
not entered any of these plays, I think it conveys the point
that a move below this level will indicate a broken play, and
therefore, no entry.  If the stop listed on the Watchlist is
violated on a closing basis, we will drop that play and remove
it from the Watchlist.  Additionally, you can see we have two
new plays on the Watchlist, CRUS and SWS.  See the individual
plays below for the motivation and entry strategy for these

When a play on the Watchlist provides us with an entry as
detailed in the play write-up, it will move from the Watchlist
to the Portfolio, accompanied by a new play write-up, detailing
our entry into the play, and the location of our stop.  Stops
will move up, but will never move down, and the Portfolio will
keep these levels up to date on a weekly basis.  You can use
these levels for managing your open plays, or apply a fixed
stop-loss percentage to the actual LEAPS contract price.

I can't wrap this up until doing a brief recap of what I think
are the pertinent factors facing us in the markets next week.
All of the major indices, as you well know, declined to set new
52-week lows on Friday, and the VIX again closed above 35.  In
days gone by, we would have looked at this as a screaming Buy
signal for LEAPS, but there hasn't been any capitulation and
despite the extreme oversold conditions, there just isn't any
catalyst for these markets to go up.

Greenspan will be speaking on Tuesday, hopefully giving us our
much-anticipated (and much-needed) interest rate cut.  Don't pin
your hopes on that event to propel the major indices out of
their doldrums though.  As has been covered much more eloquently
in the newsletter in recent weeks, the problems engulfing the
equity markets at this time go much deeper than interest rates
and will take more healing than can be provided with a quick 50,
75, or even 100 basis point decrease.

That's all the time we have for this week, but now that we've
covered the basics, it should allow us to spend more time in the
weeks ahead addressing specific details of the various plays and
the always changing market conditions.

Stay tuned and keep those emails coming!

Current Playlist (Old Format)


AOL    03/12/00  JAN-2002 $ 65  WAN-AM   $18.63   $ 1.50   -91.95%
       08/13/00  JAN-2003 $ 55  VAN-AK   $17.50   $ 6.60   -62.29%
WM     03/19/00  JAN-2002 $ 30  WWI-AF   $ 5.38   $22.50   318.22%
       10/22/00  JAN-2003 $ 45  VWI-AI   $ 7.88   $14.40    82.86%
C      06/18/00  JAN-2002 $48.8 YSV-AW   $10.31   $ 6.40   -37.92%
       10/01/00  JAN-2003 $ 60  VRN-AL   $12.25   $ 6.10   -50.20%
GENZ   07/16/00  JAN-2002 $ 70  YGZ-AN   $17.13   $28.00    63.46%
                 JAN-2003 $ 70  OZG-AN   $23.13   $36.63    58.34%
BGEN   11/05/00  JAN-2002 $ 70  WGN-AN   $17.25   $11.88   -31.16%
                 JAN-2003 $ 70  VNG-AN   $25.00   $19.25   -23.00%
MU     11/26/00  JAN-2002 $ 45  WGY-AI   $13.13   $10.00   -23.81%
                 JAN-2003 $ 45  VGY-AI   $17.25   $15.10   -12.46%
WMT    12/24/00  JAN-2002 $ 55  WWT-AK   $ 9.63   $ 5.20   -45.97%
                 JAN-2003 $ 55  VWT-AK   $14.00   $ 9.30   -33.57%
DELL   01/07/01  JAN-2002 $ 20  WDQ-AD   $ 5.25   $ 7.00    40.48%
                 JAN-2003 $ 25  VDL-AE   $ 5.63   $ 7.13    35.44%
CPN    01/21/01  JAN-2002 $ 40  YLN-AH   $10.50   $14.20    35.24%
                 JAN-2003 $ 40  OLB-AH   $15.38   $18.90    22.93%
JWN    02/18/01  JAN-2002 $22.5 WNZ-AX   $ 3.30   $ 1.70   -48.48%
                 JAN-2003 $ 25  VNZ-AE   $ 4.10   $ 2.60   -36.59%

LEAPS Portfolio

Current Open Plays


CLX    03/13/01  '02 $ 35  WUT-AG  $ 3.50  $ 4.00    14.28%  $ 28
                 '03 $ 35  VUT-AG  $ 6.10  $ 6.70     9.84%  $ 28

LEAPS Watchlist

Current Possibles


CRUS   03/18/01  $17-18        JAN-2002 $ 20  WUR-AD   $15
                               JAN-2003 $ 20  VUR-AD   $15
SWS    03/18/01  $18           JAN-2002 $ 18  YWF-AT   $15
                               JAN-2003 $ 20  VWZ-AD   $15
AOL    03/18/01  $38           JAN-2002 $ 40  WIU-AH   $35
                               JAN-2003 $ 40  VAN-AH   $35
WM     03/18/01  $46-47        JAN-2002 $ 50  WWI-AJ   $43
                               JAN-2003 $ 50  VWI-AJ   $43
C      03/18/01  $44-45        JAN-2002 $ 50  WRV-AJ   $42
                               JAN-2003 $ 50  VRN-AJ   $42
GENZ   03/18/01  $83           JAN-2002 $ 85  YGZ-AQ   $74
                               JAN-2003 $ 90  OZG-AR   $74
BGEN   03/18/01  $60-61        JAN-2002 $ 65  WGN-AM   $58
                               JAN-2003 $ 70  VNG-AN   $58
MU     03/18/01  $38 or $35    JAN-2002 $ 40  WGY-AH   $30
                               JAN-2003 $ 40  VGY-AH   $30
WMT    03/18/01  $44-45        JAN-2002 $ 50  WWT-AJ   $41
                               JAN-2003 $ 50  VWT-AJ   $41
DELL   03/18/01  $20-22        JAN-2002 $ 25  WDQ-AE   $16
                               JAN-2003 $ 25  VDL-AE   $16
CPN    03/18/01  $43-44        JAN-2002 $ 45  YLN-AI   $38
                               JAN-2003 $ 50  OLB-AJ   $38
JWN    03/18/01  $16           JAN-2002 $ 20  WNZ-AD   $14
                               JAN-2003 $ 20  VNZ-AD   $14

New Portfolio Plays

CLX - The Clorox Company $32.31

It is an interesting comment on the state of our equity markets
that a pedestrian stock like CLX is the first play to make it
into our live portfolio.  Recall from the initial play write-up 5
weeks ago that we were looking for a bounce near either the
$33-34 support level or near $30.  On Wednesday, the company
warned of falling earnings for the third quarter and full year
due to, yep you guessed it, weaker volume in certain product
areas and increased energy and raw materials costs.  We had
already decided to take the entry provided earlier in the week,
when the stock was bouncing from $31.  Fortunately the bears
didn't seem to be able to push the share price any lower
following the warning, even though Sanford Bernstein cut their
rating on the stock from Outperform to Market Perform.  My
reaction to that is, "Big Deal"!  I checked the past 3 years of
earnings upgrade/downgrade history, and there wasn't a single
mention of this firm over that span of time.  More importantly,
investors as a whole seemed to disregard the downgrade, as well
as reduced earnings estimates from Lehman Brothers and Goldman
Sachs on Thursday.  The brief dip was met by buying on Friday,
and our play finished out the week with a small gain.  Recall
that our catalyst for the play is the fact that we are now
entering a declining interest rate environment, which is always
helpful to cyclical stocks.  Although the economy is weak, CLX
is fairly insensitive to the travails of the broader economy.
Afterall, how bad would things have to get before you'd quit
buying bleach for your laundry?  On Wednesday, the company
warned of falling earnings for the third quarter and full year
due to, yep you guessed it, weaker volume in certain product
areas and increased energy and raw materials costs.  Repeated
bounces near $31 in the weeks ahead still look attractive for
new entries, just in case you missed your chance last week.

BUY LEAP JAN-2002 $35.00 WUT-AG at $3.50
BUY LEAP JAN-2003 $35.00 VUT-AG at $6.10

New Watchlist Plays

CRUS - Cirrus Logic $18.81

Operating in the recently decimated Semiconductor sector, CRUS
designs and manufactures integrated circuits that employ
high-performance analog and digital signal processing (DSP)
technologies.  The company's products enable system-level
applications in the Analog (audio, communications and data
acquisition), Internet (embedded processors and optical storage)
and Magnetic Storage (disk drive electronics integration)
markets.  The selling pressure that has engulfed chip companies
over the past several months has depressed shares of CRUS, but
the stock is starting to show signs of life.  Since early
December, the stock has tested support near $17 three times,
and this level looks attractive for initiating new positions, so
long as our $15 stop isn't violated.  Earnings came in 2 cents
ahead of estimates in January, but the CRUS cautioned that
revenues will be sequentially flat for the fourth quarter,
leading to the most recent decline in the share price. The
company reiterated its earnings guidance for fiscal year 2001
and should show strong performance, especially when the economy
begins to recover.  With a PE ratio below 7, there is plenty of
upside for our new play.  When Technology starts to show signs
of life the Semiconductors should lead the charge, so keep an
eye on the Semiconductor index (SOX.X) for signs that the bulls
are flexing their muscles again.

BUY LEAP JAN-2002 $20.00 WUR-AD
BUY LEAP JAN-2003 $20.00 VUR-AD

SWS - Southwest Securities $19.35

As a full-service securities and banking firm, SWS uses
technology to deliver a broad range of investment and related
financial services to its clients.  These clients include
individual and institutional investors, broker/dealer,
corporations, governmental entities and financial
intermediaries.  The company provides clearing services to
200 correspondent broker/dealers and over 500 independent
contract brokers, as well as full-service and online discount
brokerage services to individual investors.  Broker stocks have
been under heavy selling pressure since late January, reflecting
reduced revenues due to decreased trading activities.  In the
past week, these stocks have begun to show some resistance to
the downside pressure, as demonstrated by the Securities
Broker/Dealer index (XBD.X), which has been finding support near
$450.  The company's earnings miss in January dragged the stock
back from the $30 resistance level, and we are a bit concerned
that it fell through the $20 support level last week.  However,
now that estimates have been ratcheted downwards for upcoming
quarters, and with a PE ratio less than 3.0, the risk/reward
ratio is definitely attractive.  Consider new entries on a
bounce from the $18 support level, with rigid stops set at $15.
Look for a resurgence in buying in the XBD index to provide an
early cue that SWS is ready to begin its recovery.

BUY LEAP JAN-2002 $18.13 YWF-AT
BUY LEAP JAN-2003 $20.00 VWZ-AD



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The Option Investor Newsletter                   Sunday 03-18-2001
Sunday                                                      5 of 5

To view this email newsletter in HTML format with embedded
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Option Trading Basics: Q&A with the Covered-calls Editor
By Mark Wnetrzak

This week, we decided to review one of the most common subjects
discussed in subscriber E-mail.  A frequently received question
concerns the techniques used by specialists and market-makers.

The majority of methods employed by floor specialists to profit
from trading in options and their associated stocks are based on
pricing theory and statistical probability.  There are also a
number of scalping techniques; the most common of which occurs
when heavily traded options are bought at the bid and sold at the
ask, generating a spread credit for the market maker.  Specialists
who participate in risk-free transactions utilize simple arbitrage
techniques.  The concept of put-call parity identifies mis-priced
relationships between the call, put, and the stock.  If the call
is overpriced relative to the put, then the put is purchased and a
synthetic put, made up of a short call and long stock, is sold.
This technique is called a conversion.  If the call option is
under-priced relative to the put, then the call is bought and a
short synthetic call, made up of a short put and short stock, is
sold.  The opposite of a conversion and is often called a reversal,
or reverse conversion.  Specialists also favor box spreads; two
call options with different strike prices and two put options with
strike prices equivalent to the calls.  Once again, box spreads are
only initiated when the options are mis-priced on a relative basis.

The most profitable transactions for specialists are generally
deep-in-the-money calls and puts, since these options usually have
large bid/ask spreads (due to the lack of liquidity).  An example
of this type of trade: If an individual places an order to sell a
deep-in-the-money call, then the floor broker uses a reversal, or
reverse conversion with a short synthetic call (short stock and
short put) to offset the purchased call.  If the bid-ask spread is
$1 and the specialist pays the retail trader bid price only, the
position should yield a profit.  Recall that the basis for this
transaction is the market-maker can buy the call at a discount and
at the same time, sell the synthetic call at fair value to generate
a risk-free position.  Obviously, this assumes the put option is
fairly priced and the stock can be shorted (sold) for the current
bid.  Any delay in the execution of the remaining components will
put the trade at risk.  If the share price changes or the up-tick
rule (in most cases, stocks can be shorted only on an upward move)
prevents the specialist from shorting the stock in a timely manner,
the profit will quickly disappear.  There are no up-front funds
needed for this method, but because of the difficulty in shorting
stock, specialists generally do not receive all of the profit from
the initial transaction.  However, specialists do have a method of
offsetting any potential losses.  In the case of a reversal, the
funds received from the sale of the stock are placed in a risk-free,
short-term investment.  Thus interest rates, the difference between
the market prices and the fair value of the options, and the amount
of funds received in the short sale all have some effect on the
eventual profitability of the position.

Fortunately, all option trades do not result in a conversion or
reversal.  Since the majority of retail traders buy options, and
since a large portion of purchased derivatives are redeemed at a
lower value (or expire worthless), market-makers will often take a
short position in these options.  Then they simply wait until the
option falls in value, to purchase an offsetting position.  In the
case of a short call option, they may eventually construct a long
synthetic call (a much easier transaction - no shorting of stock)
to offset the sold position.  Regardless of the situation or type
of arbitrage, their fundamental goal is to profit from disparities
in option pricing and by trading inside the bid/ask spread.

Good Luck!

NOTE: Using Margin doubles the listed Monthly Return!

Stock  Price  Last   Call  Strike Price   Profit  Monthly
Symbol Picked Price  Month Sold   Picked  /Loss   Return

ACPW   20.38  17.75   MAR  17.50  4.38  *$  1.50  10.2%
VPHM   26.69  24.44   MAR  22.50  5.00  *$  0.81   8.1%
ESCM   16.84  21.75   MAR  15.00  2.88  *$  1.04   8.1%
NVLS   45.38  40.88   MAR  40.00  7.00  *$  1.62   6.1%
URBN   10.44  11.31   MAR  10.00  1.06  *$  0.62   5.7%
MKC    40.00  40.00   MAR  40.00  1.00   $  1.00   5.6%
PLMD   39.44  33.44   MAR  30.00 10.50  *$  1.06   5.3%
ERTS   51.81  47.38   MAR  45.00  7.88  *$  1.07   5.3%
MCCC   20.50  19.50   MAR  20.00  1.44   $  0.44   5.0%
AMSY   22.88  20.00   MAR  20.00  3.63   $  0.75   4.2%
CSTR   16.75  16.25   MAR  15.00  2.44  *$  0.69   4.2%
WGR    28.00  31.36   MAR  25.00  4.00  *$  1.00   3.6%
CSTR   17.06  16.25   MAR  15.00  2.75  *$  0.69   3.5%
MNTR   23.56  22.94   MAR  22.50  1.88  *$  0.82   3.3%
ACLS   11.13   9.50   MAR  10.00  1.88   $  0.25   2.9%
ITN    13.56  12.06   MAR  12.50  1.55   $  0.05   0.9%
DCEL   19.50  16.94   MAR  17.50  2.63   $  0.07   0.9%
PLMD   39.22  33.44   MAR  35.00  5.38   $ -0.40   0.0%
ORG    10.96   9.05   MAR  10.00  1.50   $ -0.41   0.0%
SGI     5.00   3.94   MAR   5.00  0.40   $ -0.66   0.0%
NERX   10.06   4.88   MAR   7.50  3.62   $ -1.56   0.0%
ATRX   23.00  16.50   MAR  20.00  4.00   $ -2.50   0.0%
MNMD   38.25  30.69   MAR  35.00  4.88   $ -2.68   0.0%
GLFD   20.38  16.06   MAR  20.00  1.44   $ -2.88   0.0%
GLGC   23.94  15.88   MAR  20.00  4.88   $ -3.18   0.0%
GMST   49.50  34.50   MAR  40.00 10.88   $ -4.12   0.0%

CLPA    6.22   5.41   APR   5.00  2.06  *$  0.84  12.5%
SHFL   20.94  21.25   APR  17.50  4.38  *$  0.94   4.1%
GLC    23.73  23.44   APR  22.50  2.35  *$  1.12   3.8%
ATVI   24.63  23.25   APR  22.50  3.13  *$  1.00   3.4%
BBBY   28.44  26.25   APR  27.50  2.94   $  0.75   2.1%
SEI    22.05  19.50   APR  20.00  3.10   $  0.55   2.1%
CPRT   21.81  18.88   APR  20.00  2.63   $ -0.30   0.0%

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


The only good thing that can be said for this month is that
expiration Friday is over, as more issues have taken a turn
for the worse during these horrid times.  Evaluate the "cost"
of holding on to your positions and writing more calls versus
selling the stock and eliminating the potential for further
capital erosion.  A neutral-to-bullish strategy is difficult,
if not impossible, to employ in a bearish environment.  The
ability to roll down and/or forward is adversely affected and
in many cases, can only "lock-in" a loss at best.  Purchasing
long-term puts (or index puts) can help hedge against further
downside but the cost of this insurance raises your cost basis.
The "Bear" is a fearsome creature and his path of destruction
rarely leaves anyone untouched - the key is to survive.

Positions Closed:

Ultratech Stepper (NASDAQ:UTEK), Legato Systems (NASDAQ:LGTO),
Peregrine Systems (NASDAQ:PRGN), Roadway Express (NASDAQ:ROAD),
Nextcard (NASDAQ:NXCD), Health Systems (NASDAQ:PHSY), Lightbridge


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

ELNK   10.38  APR  10.00  MQD DB  1.38  4912  9.00   35     9.7%
IGEN   13.31  APR  10.00   GQ DB  4.25  130   9.06   35     9.0%
UTHR   16.94  APR  15.00  FUH DC  3.25  149  13.69   35     8.3%
MTSN   14.00  APR  12.50  QQM DV  2.44  118  11.56   35     7.1%
ADBE   28.63  APR  25.00  AEQ DE  5.13  1145 23.50   35     5.5%
SHFL   21.25  APR  20.00  SFQ DD  2.44  80   18.81   35     5.5%
NRG    30.84  APR  30.00  NRG DF  2.60  568  28.24   35     5.4%

Company Descriptions

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

ADBE - Adobe Systems  $28.63  *** Post-Earnings Rally? ***

Adobe (NASDAQ:ADBE) builds award-winning software solutions for
Network Publishing, including Web, print, video, wireless and
broadband applications.  Its graphic design, imaging, dynamic
media and authoring tools enable customers to create, manage and
deliver visually-rich, reliable content.  On Thursday, Adobe
posted pro forma earnings, excluding non-operating gains and
losses, of 33 cents per diluted share which was 5 cents higher
than analysts' lowered forecasts and 3 cents better than their
original expectations.  Though the company warned that 2nd-
quarter revenue growth was expected to come in at 15%, rather
than their forecast of 25%, investors and analysts were pleased
with the report, considering the current economic environment.
This position offers a favorable entry point for traders who
believe Adobe will weather the storm.

APR 25.00 AEQ DE LB=5.13 OI=1145 CB=23.50 DE=35 MR=5.5%

ELNK - EarthLink  $10.38  *** Merger/Buy-out Target! ***

EarthLink (NASDAQ:ELNK) is an Internet service provider that
offers reliable nationwide Internet access and related value-
added services to individual and business members.  ELNK was
formed as a result of the merger of EarthLink and MindSpring
Enterprises.  The companies' combined member base grew as a
result of the merger and also from strategic acquisitions as
well as traditional marketing channels and alliances.  There
is some speculation that EarthLink may be a take-over target
now that the company has amended a 3-year pact with Sprint.
The company is also aggressively positioning itself to be the
number one wireless ISP.  We simply favor ELNK's bullish
change of character as the stock has rallied back above its
150-dma on strong volume.

APR 10.00 MQD DB LB=1.38 OI=4912 CB=9.00 DE=35 MR=9.7%

IGEN - IGEN International  $13.31  *** Bottom Fishing! ***

IGEN (NASDAQ:IGEN) develops and markets biological detection
systems based on its proprietary ORIGEN technology, which
provides a unique combination of sensitivity, reliability,
speed, and flexibility.  ORIGEN-based systems are used in a
wide variety of applications, including clinical diagnostics,
pharmaceutical R & D, life science research, and industrial
testing for food safety and quality control.  This week, IGEN
sold 789,075 shares of common stock for $9.5 million to Acqua
Wellington North American Equities Fund, Ltd.  The company
recently announced a joint venture to develop a test for the
"mad cow disease" that would allow screening of infected cows
in slaughterhouses.  Technically, the recent bullish signals
and positive divergences suggest that IGEN may be putting in
a bottom.  This position offers a reasonable cost basis for
investors who agree with a positive outlook for the issue.

APR 10.00 GQ DB LB=4.25 OI=130 CB=9.06 DE=35 MR=9.0%

MTSN - Mattson Technology  $14.00  *** Stage I ***

Mattson (NASDAQ:MTSN) is a leading supplier of thermal, plasma
and wet semiconductor processing equipment.  MTSN's products
combine advanced process technology on high-productivity
platforms backed by industry-leading support.  In February,
Mattson announced that the company plans to divest its single-
wafer RT-CVD business unit, previously known as STEAG CVD
Systems.  Though the company reported favorable earnings in
January, the current economic slowdown is forcing the MTSN
to focus on its core technologies and providing its customers
with high-productivity tools based upon the best-performing
platforms and processes available.  The stock has formed a
Stage I base over the last six months and this play offers
a favorable cost basis below technical support.

APR 12.50 QQM DV LB=2.44 OI=118 CB=11.56 DE=35 MR=7.1%

NRG - NRG Energy  $30.84  *** Power Sector Turned On! ***

NRG Energy (NYSE:NRG) is a participant in the independent power
generation industry.  The Company is principally engaged in the
acquisition, development, operations and maintenance of and
ownership of power generation facilities.  NRG recently closed
its sale of 18.4 million shares of common stock at a price of
$27 per share.  The independent power producers are gaining
attention and this week analysts raised their 2001 and 2002
earnings outlooks on the sector.  NRG appears to have completed
a rounded-bottom formation which suggests a test of the September
high is forthcoming.  Traders who agree with this outlook can
use this position to establish a reasonable entry point in the

APR 30.00 NRG DF LB=2.60 OI=568 CB=28.24 DE=35 MR=5.4%

SHFL - Shuffle Master  $21.25  *** Rally Mode Continues! ***

Shuffle Master (NASDAQ:SHFL) is a gaming supply co. specializing
in providing innovative, high quality products and services to
the casino industry, including card shufflers and other table
gaming equipment, table and slot games, and gaming machine
software and related hardware.  SHFL rallied in late February
after announcing that it had signed an agreement with Recreativos
Franco, Madrid, one of the gaming industry's leading manufacturers.
This will allow Shuffle Master to tap into Franco's wealth of
knowledge and significantly expand their product offering to
casinos.  Shuffle Master has been in "rally mode" since early last
year and continues to move higher.  The stock has again climbed
into "blue sky" territory and this play offers bullish investors
a second-chance entry point.

APR 20.00 SFQ DD LB=2.44 OI=80 CB=18.81 DE=35 MR=5.5%

UTHR - United Therapeutics  $16.94  *** What's Up Doc? ***

United Therapeutics (NASDAQ:UTHR) develops pharmaceuticals to
treat vascular diseases, including pulmonary hypertension and
peripheral vascular disease, as well as selected other chronic
conditions.  The company has focused primarily on developing
Uniprost as its lead product for treating advanced pulmonary
hypertension, and also is developing Uniprost for late-stage
peripheral vascular disease.  Not much news since the company
announced that it had completed enrollment in its Phase III
study of oral beraprost in patients with pulmonary hypertension.
Insider trade data released at the end of February may have
spiked the recent rally as it shows insiders are acquiring
the stock.  We simply favor the bullish short-term technicals
and the volume supported rally in March, at a time when just
about everything else was hammered.  The tape is telling us
something and the key is whether or not we decide to listen.

APR 15.00 FUH DC LB=3.25 OI=149 CB=13.69 DE=35 MR=8.3%



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

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

NVLS   40.88  APR  35.00  NLQ DG  8.25  100  32.63   35     6.3%
AAPL   19.63  APR  17.50  AAQ DS  3.25  1852 16.38   35     5.9%
CSTR   16.25  APR  15.00  QLR DC  2.13  282  14.12   35     5.4%
UCOMA  15.56  APR  12.50  QUW DV  3.75  0    11.81   35     5.1%
SMTC   27.69  APR  22.50  QTU DR  6.38  24   21.31   35     4.9%
BSX    18.45  APR  17.50  BSX DW  1.80  4476 16.65   35     4.4%

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index instead?

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market updates, plays, education and daily commentaries by
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Trading Strategies: When It's In-The-Money...
By Ray Cummins

One of the most common questions we receive from new subscribers
concerns the potential for early assignment of "in-the-money"
options.  In most cases, the probability of being "exercised" is
relatively low and only when you are short in a position with no
extrinsic value does the likelihood of an unwanted assignment
become a concern.  However, one of the more popular strategies
used by aggressive traders; selling "deep-in-the-money" Puts,
involves a higher risk of assignment and there are some facts
you should know before participating in this technique.

When you sell an option, as an opening transaction, you are the
Seller or Writer.  Writers are obligated to buy the underlying
interest at the strike price (with a Put) or sell the underlying
interest at the strike price (with a Call) if the contract is
exercised.  With American Style options, the instrument can be
exercised on any trading day prior to the expiry date.  The last
day to exercise an American-style option is usually the third
Friday of the month in which the contract expires (expiration
Friday).  The option exchanges have a cut-off time of 5:30 P.M.,
Eastern Standard Time, for receiving an exercise notice.  However,
most brokerage firms have an earlier cut-off time that may affect
when you receive a notice of assignment.

When an option writer receives an exercise notice that obligates
him to buy the underlying security at the specified strike price,
he can simply buy the stock or initiate an offsetting transaction
such as buying another ITM Put (and eventually exercising it) or
shorting the underlying.  Due to pricing disparities, there may
be an advantage to one of these (or other) alternate "covering"
strategies.  As expiration approaches and the sold (short) Puts
become further in-the-money, you run a higher risk of having the
stock put to you.  It can, and sometimes does, happen prior to
expiration, but the actual percentage of early assignments is
statistically very low.  If there is a strong move in the stock
in the right direction, you might consider repurchasing the Puts,
especially with deep-ITM positions, because they have relatively
low Delta (great for sold Puts) and perform almost as well as a
position in the stock.  Of course, that also frees your portfolio
collateral for additional plays with greater (relative) profit
potential and eliminates the risk of early assignment.  Also, as
expiration approaches, you may consider rolling the position out
to a future date, where there is a lower risk of assignment due
to the additional time premium (extrinsic value) in the option.
The term "rolling" means that an existing option position is
liquidated and a similar position is established to replace it.
If the replacement position differs from the original position
with respect to only the exercise price, the position is said to
have been "rolled up" or "rolled down".  If the only difference
between the positions was the expiration month, you've "rolled
out" to a future position.

The Options Industry Council, a non-profit association created
to educate the investing public and brokers about the benefits
and risks of exchange-traded options, has recently distributed
some interesting facts concerning the topic of early assignment.
First, regarding the Options Clearing Corporation, the largest
clearing organization in the world for financial derivatives
instruments.  Operating under the jurisdiction of the Securities
and Exchange Commission, the OCC is the issuer and registered
clearing facility for all U.S. exchange-listed securities options.
To ensure fairness in the distribution of equity and index option
assignments, The Options Clearing Corporation utilizes a random
procedure to assign exercise notices to the accounts maintained
with OCC by each Clearing Member.  The assigned firm must then
use an exchange approved method (usually a random process or the
"first-in, first-out" method) to allocate those exercise notices
to accounts which are short the options.

With that in mind, here are some general guidelines concerning
the early assignment of short option positions:  Surprisingly,
only 10% (on average) of options end up being exercised and the
percentage hasn't varied much over the years.  That means option
exercises are not that common.  The majority of option exercises
(and the corresponding assignments) take place when the option
approaches expiration.  It usually doesn't make sense to exercise
an option which has any time premium over intrinsic value and
for most options, that doesn't occur until close to expiration.
In general terms, a Put which goes in-the-money is more likely to
be exercised than a Call (in similar circumstances) because the
trader who exercises a Put uses it to sell his shares and receive
cash.  A person exercising a Call option uses it to buy shares and
must pay cash.  Traders are more likely to exercise options when
they can receive cash sooner, as opposed to situation with Calls,
where exercise means you have to pay cash sooner.  However, the
simple fact is, there is no absolute method to predict when you
will be assigned on a short option position; it can happen any day
the market is open for trading.

Good Luck!


Stock  Price  Last   Put   Strike Price   Profit  Monthly
Symbol Picked Price  Month Sold   Picked  /Loss   Return

VPHM   25.88  24.44   MAR  20.00  0.25  *$  0.25  20.0%
PLMD   38.75  33.44   MAR  30.00  0.63  *$  0.63  16.3%
VSEA   31.03  27.63   MAR  25.00  0.44  *$  0.44  14.0%
ADVP   45.13  45.75   MAR  40.00  0.81  *$  0.81  12.8%
MDR    15.80  12.95   MAR  12.50  0.40  *$  0.40  12.2%
TSN    13.55  13.06   MAR  12.50  0.65  *$  0.65  11.3%
MDR    15.29  12.95   MAR  12.50  0.60  *$  0.60  11.1%
NEM    15.96  16.05   MAR  15.00  0.40  *$  0.40  10.0%
SGR    52.04  51.51   MAR  45.00  1.30  *$  1.30   9.4%
OLOG   23.38  25.00   MAR  22.50  0.56  *$  0.56   9.0%
TMK    36.28  35.60   MAR  35.00  0.55  *$  0.55   8.7%
APWR   42.50  30.06   MAR  30.00  0.69  *$  0.69   8.2%
ATVI   22.50  23.25   MAR  20.00  0.38  *$  0.38   8.0%
AMAT   47.94  44.25   MAR  37.50  0.56  *$  0.56   8.0%
HGSI   48.81  44.94   MAR  35.00  0.56  *$  0.56   7.9%
ABMD   25.44  17.81   MAR  15.00  0.50  *$  0.50   6.5%
OII    22.50  20.70   MAR  20.00  0.40  *$  0.40   6.3%
BPOP   27.38  27.69   MAR  25.00  0.50  *$  0.50   6.0%
OII    22.00  20.70   MAR  20.00  0.45  *$  0.45   5.4%
BSTE   37.25  29.56   MAR  30.00  0.63   $  0.19   5.0%
AL     38.25  35.60   MAR  35.00  0.60  *$  0.60   4.1%
TSO    13.32  12.07   MAR  12.50  0.40   $ -0.03   0.0%
EFII   24.88  21.94   MAR  22.50  0.38   $ -0.18   0.0%
NOVT   36.94  29.13   MAR  30.00  0.56   $ -0.31   0.0%
PHTN   25.25  19.13   MAR  20.00  0.31   $ -0.56   0.0%
NAUT   19.19  16.31   MAR  17.50  0.56   $ -0.63   0.0%
LPNT   41.31  33.38   MAR  35.00  0.56   $ -1.06   0.0%
RBK    31.20  23.10   MAR  25.00  0.45   $ -1.45   0.0%

OATS    9.25   8.88   APR   7.50  0.44  *$  0.44  13.3%
THQI   33.88  32.56   APR  30.00  1.38  *$  1.38   9.0%
TMAR   17.31  15.38   APR  15.00  0.56  *$  0.56   7.8%
ANF    32.30  31.99   APR  25.00  0.55  *$  0.55   5.7%
VTS    36.98  31.15   APR  30.00  0.62  *$  0.62   5.3%
ADVP   49.94  45.75   APR  40.00  0.75  *$  0.75   5.0%

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


Whew!  As the little girl in the movie Aliens says:  "They're
dead, ok! Can I go now?"  She didn't want to stick around and
wait for the creatures to return.  Many investors may feel
the same way after witnessing the destructive force of a Bear
Market.  Preserving capital becomes paramount in the effort
to survive this cycle.  This can be accomplished by rolling
down or shorting the underlying stock as the price falls through
the sold strike.  Of course, just exiting the position may be
the best course of action.  If you decide to own the stock,
writing calls on the new position may help reduce your cost
basis, but will not protect against an extended downturn in the
market.  Remember, the key is to be around for the next "Bull"

Positions Closed:

Spectrian (NASDAQ:SPCT), Homestore.Com (NASDAQ:HOMS), Brio
Tech (NASDAQ:BRIO), K-Swiss (NASDAQ:KSWS), Tripath Imaging


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

AAPL   19.63  APR  15.00  AAQ PC  0.50  16389 14.50  35     9.8%
BSX    18.45  APR  17.50  BSX PW  0.80  400   16.70  35     9.6%
SCIO   19.38  APR  15.00  UIO PC  0.44  10    14.56  35     8.9%
GLC    23.44  APR  20.00  GLC PD  0.55  725   19.45  35     7.4%
MTON   27.25  APR  20.00  KQM PD  0.50  23    19.50  35     7.3%
ESCM   21.75  APR  17.50  QFC PW  0.38  120   17.12  35     6.8%
OLOG   25.00  APR  22.50  OOQ PX  0.56  0     21.94  35     6.0%

Company Descriptions

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

AAPL - Apple Computer  $19.63  *** Bottom Fishing! ***

Apple Computer (NASDAQ:AAPL) designs, manufactures and markets
personal computers and other personal computing and communicating
solutions for sale primarily to education, creative, consumer,
and business customers.  Most of the company's net sales to date
have been derived from the sale of its Apple Macintosh line of
personal computers and related software and peripherals.  Apple
Macintosh personal computers are characterized by their intuitive
ease of use, innovative industrial designs and applications base,
and built-in networking, graphics, and multimedia capabilities.
The company offers a range of PCs and products, including related
peripherals, software, and networking and connectivity solutions.
This position offers a reasonable cost basis for traders who are
interested in "bottom fishing" the Personal Computer sector.

APR 15.00 AAQ PC LB=0.50 OI=16389 CB=14.50 DE=35 MR=9.8%

Boston Scientific  $18.45  *** Entry Point! ***

Boston Scientific (NYSE:BSX) is a worldwide developer and marketer
of minimally invasive medical devices.  The company's products are
used in a range of interventional medical specialties, such as
cardiology, electrophysiology, gastroenterology, neuro-endovascular
therapy, pulmonary medicine, radiology, urology and also vascular
surgery.  BSX's products are generally inserted into the human body
through natural openings or small incisions in the skin and can be
guided to most areas of the anatomy to diagnose and treat a range
of medical problems.  These products provide effective alternatives
to traditional surgery by reducing procedural trauma, complexity,
risk to the patient, cost, and recovery time.  BSX has returned to
favor after almost a year of selling pressure and traders who want
to own stock in this company can establish a discounted basis in
the issue with this position.

APR 17.50 BSX PW LB=0.80 OI=400 CB=16.70 DE=35 MR=9.6%

ESCM - ESC Medical Systems  $21.75  *** Up On A Down Day! ***

ESC Medical Systems (NASDAQ:ESCM) develops, manufactures and
markets medical devices utilizing state-of-the-art proprietary
intense pulsed light source and laser technology.  Its systems
are used in a variety of aesthetic, surgical and unique medical
applications, including the non-invasive treatment of veins and
other benign vascular lesions, pigmented lesions, hair removal and
skin rejuvenation, as well as ENT, OB/GYN and neurosurgery.  In
February, ESC Medical posted excellent quarterly results and said
it expects revenues to nearly double to $300 million in 2001, due
to its purchase of Coherent Medical Group.  The recent acquisition
makes ESCM one of the world's largest medical laser companies and
combined with their proprietary technology, used for both medical
and cosmetic purposes, the potential for future earnings growth
is excellent.  This position offers a great risk/reward ratio for
traders who wish to speculate on the potential of this unique

APR 17.50 QFC PW LB=0.38 OI=120 CB=17.12 DE=35 MR=6.8%

GLC - Galileo International  $23.44  *** Own This One! ***

Galileo International (NYSE:GLC) is a provider of electronic
global distribution services for the travel industry utilizing
a computerized reservation system.  The company provides travel
agencies and individuals with the ability to access schedule and
fare information, book reservations and issue tickets for more
than 500 airlines.  Galileo gained attention last month when it
made a $220 million bid for TWA's 26% stake in Worldspan.  GLC
and Worldspan have battled for second place for many years behind
Sabre, the leader in the computerized travel reservation business.
Unfortunately, the court accepted American Airlines' bid for most
of TWA's assets, including the Worldspan stake, and the company
must now look for other possible strategic transactions in the
industry.  Apparently, investors still favor the outlook for the
issue as it is trading comfortably above a 30-dma and the bullish
trend is expected to continue.

APR 20.00 GLC PD LB=0.55 OI=725 CB=19.45 DE=35 MR=7.4%

MTON - Metro One Telecom  $27.25  *** A Big Day! ***

Metro One Telecom (NASDAQ:MTON) develops and provides enhanced
directory assistance and information services for the telecom
industry.  Metro One contracts with wireless carriers to provide
services to their subscribers.  The company's customers include
many of the leading wireless telecommunications carriers and the
company has expanded into the landline telecommunications market.
Shares of Metro One rallied Friday after company officials said
MTON's first-quarter earnings would surpass analysts' estimates
of $0.21 a share by up to 50%, due to improved efficiencies and
lower data content costs.  The company said it expected revenues
of between $48 million and $49 million, as it continues to enjoy
improved operational performance and gross margins.  Traders who
want to speculate on the recovery in MTON shares can do so in a
conservative manner with this position.  Target a higher premium
initially, to allow for a brief consolidation in the issue.

APR 20.00 KQM PD LB=0.50 OI=23 CB=19.50 DE=35 MR=7.3%

OLOG - Offshore Logistics  $25.00  *** Serving Oil Services! ***

Offshore Logistics (NASDAQ:OLOG) is a supplier of helicopter
transportation services to the worldwide offshore oil and gas
industry.  Through its Air Logistics subsidiaries and with its
investment in Bristow Aviation Holdings Limited, operates almost
400, including 78 aircraft operated through other entities.  The
company's operations also include production management services
through Grasso Production Management.  GPM's services include
furnishing personnel, engineering, production operating services,
paramedic services and the provision of boat and helicopter
transportation of personnel and supplies between onshore bases
and offshore facilities.  The offshore gas and oil industry is
active again and transportation to the rigs is a necessary part
of any oil company's operations.  OLOG is one of the leaders in
the business and with the stock trading at a new two-year high,
it appears that investors favor the outlook for the company.  A
a premium of $0.62-$0.75 would provide a reasonable cost basis
in the issue.

APR 22.50 OOQ PX LB=0.56 OI=0 CB=21.94 DE=35 MR=6.0%

SCIO - Scios  $19.38  *** Drug Sector Speculation! ***

Scios (NASDAQ:SCIO) is a biopharmaceutical company engaged in
the discovery, development, and commercialization of novel human
therapeutics based upon its capabilities in both protein-based
and small-molecule drug discovery and development.  The company
focuses its proprietary research and development efforts in the
areas of cardiorenal and inflammatory disorders, and Alzheimer's
disease.  The company has research and development collaborations
with a umber of major drug producers and also has a Psychiatric
Sales and Marketing Division, which provides operating cash that
funds the other activities of the company, principally research
and development efforts.  Scios is hoping that Natrecor, a drug
used in conjunction with acute congestive heart failure patients
will become a usable therapeutic for that condition.  Natrecor is
a recombinant form of B-type natriuretic peptide, a naturally
occurring hormone in the body that aids healthy functioning of
the heart and it may be able to help the body's natural responses
to heart failure.  Traders who want to speculate on a drug-sector
issue should consider this position.

APR 15.00 UIO PC LB=0.44 OI=10 CB=14.56 DE=35 MR=8.9%



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

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

WCOM   17.44  APR  15.00  JQD PC  0.63  5692 14.37   35    10.6%
WSM    27.87  APR  22.50  WSM PX  0.55  311  21.95   35     7.6%
SHFL   21.25  APR  17.50  SFQ PW  0.44  12   17.06   35     7.4%
EBAY   32.50  APR  20.00  XBH PD  0.56  409  19.44   35     6.9%
SMTC   27.69  APR  17.50  QTU PZ  0.44  130  17.06   35     6.4%
SGR    51.51  APR  42.50  SGR PV  0.80  32   41.70   35     5.6%

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Title: When Will It End?

The triple-witching expiration of equity-index options, futures
and options on individual stocks did little to help the market's
performance today.

                         - MARKET RECAP -
Friday, March 16

The triple-witching expiration of equity-index options, futures
and options on individual stocks did little to help the market's
performance today.  The active session was plagued by worries of
economic slowdown and the broad-based selling pressure drove the
Dow 217 points lower to 9,823.  The NASDAQ slipped 49 points to
1,891 while the S&P 500 index finished 23 points lower at 1,150.
Trading volume on the Big Board reached 1.5 billion shares, with
losers doubling winners 2,049 to 1,000.  Activity on the NASDAQ
was heavy at 2.1 billion shares exchanged, with declines leading
advances 2,595 to 1,062.  In the U.S. bond market, the 30-year
Treasury rose 3/32 to 101 18/32, pushing its yield down to 5.26%.

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

Earthlink  (NASDAQ:ELNK)  OCT12C/APR12C  $1.62   debit   calendar
Sprint     (NYSE:FON)     AUG25C/APR25C  $1.50   debit   calendar
Harley     (NYSE:HDI)     APR50C/APR45C  $0.30   credit  bear-call

The new time-selling positions in ELNK and FON were available at
the target entry prices.  However, the downward market movement
prevented a favorable opening premium in the HDI position.

Market Activity:

Stocks retreated today amid uncertainties over corporate earnings
and the upcoming Federal Reserve meeting.  Investors showed their
disappointment in the market's recent performance by moving to
the sidelines and the lack of buying simply helped the bears gain
momentum late in the session.  By the end of the day, the Dow had
fallen to its lowest level in a year while the NASDAQ and the S&P
500 index hit lows not seen since 1998.  There were few blue-chip
issues in the plus column and the biggest losses occurred in the
technology components.  Hewlett-Packard (HWP), Intel (NASDAQ:INTC)
and International Business Machines (NYSE:IBM) led the industrial
average lower and the selling pressure migrated to other hardware
shares.  Dell Computer (NASDAQ:DELL), Compaq (NYSE:CPQ), Gateway
(NYSE:GTW) and Apple Computer (NASDAQ:AAPL) all moved lower.  The
surprise of the session was Computer Sciences (NYSE:CSC), which
plunged almost 40% to $32 after saying it expects fourth-quarter
earnings to miss consensus estimates by a wide margin, due mainly
to declining global demand for information technology consulting
and systems integration services.  The bearish news simply added
to the pessimism in Oracle's (NASDAQ:ORCL) outlook Thursday, which
suggested the current economic uncertainty will limit visibility
for many technology companies for the next few quarters.

Monthly Summary:

In March, the most popular category of option trading strategies
was also the most successful.  The credit spreads section offered
successful positions in American Home Products (NYSE:AHP), Avery
Dennison (NYSE:AVY), Honeywell (NYSE:HON), Investment Technology
(NYSE:ITG), Johnson & Johnson (NYSE:JNJ), PerkinElmer (NYSE:PKI),
Pfizer (NYSE:PFE), Minnesota Mining (NYSE:MMM), Stryker (NYSE:SYK)
and Shire Pharmaceuticals (NYSE:SHPGY).  The losing position in
the group, Cardinal Health (NYSE:CAH) was profitable until Friday
morning and readers who exited the play during the first hour of
trading limited the loss to less than $0.50.  The calendar spread
was another popular trading technique and we enjoyed a number of
profitable positions in that category.  Alza (NYSE:AZA), Atrix
Labs (NYSE:ATRX), Clorox (NYSE:CLX) and Navistar (NYSE:NAV) were
among the issues that provided satisfactory returns over the past
month.  Insignia Financial (NYSE:IFS), Advanta (NASDAQ:ADVNB) and
Ocular Sciences (NASDAQ:OCLR) were also outstanding positions in
this strategy.  IFS closed at $12.43 and ADVNB finished the day
at $12.69, both within pennies of the target strike price.  In
the case of ADVNB, the long option will be sold on a future rally
to lock-in a small gain in the position.  The time-selling play
in OCLR also performed well, providing a roll-out credit of $0.69,
thus reducing the overall debit to $0.56 in the long-term spread.
Among the LEAPS with Covered-Calls positions, AT&T (NYSE:T) was
the standout and the trading range near $23 has proven to be very
helpful in reducing the cost of the JAN-02 $25 Call.  The overall
cost of the spread JAN-$25/APR-$25 is now only $0.90 and we plan
to own the option "free and clear" by early summer.  Positions in
Hewlett-Packard (NYSE:HWP) and Intel (NASDAQ:INTC) have performed
reasonably well, considering the protracted selling pressure in
technology issues.

In the delta-neutral sections, finding profitable plays was much
more difficult than in recent periods.  The range-bound activity
in many of the broader market issues proved to be a significant
obstacle in debit strategies while unexpected (and precipitous)
losses made premium-selling positions hard to manage.  However,
there were some excellent candidates in both categories and the
popularity of these techniques guarantees that we will continue
to offer more non-directional plays in the future.  The winners
in the debit straddle portfolio were Alliance Capital (NYSE:AC),
Flour (NYSE:FLR), Grupo Teliviso (NYSE:TV) and Tri-Continental
(NYSE:TY).  TD Waterhouse (NYSE:TWE) expired at break-even, but
offered a profitable exit earlier in the year and today, British
Telecom (NYSE:BTY) reached a new maximum credit of $27.50.  In the
credit strangles group, Aphton (NYSE:APHT), Chiron (NASDAQ:CHIR),
Cima Labs (NASDAQ:CIMA), Polymedica (NASDAQ:PLMD) and Time Warner
Telecom (NASDAQ:TWTC) all expired at maximum profit.  Positions
in Alexander & Baldwin (NASDAQ:ALEX) and Continental Airlines
(NYSE:CAL) were not successful, but both issues offered viable
exit opportunities for technically adept traders.  Our group of
synthetic positions were less productive than normal, due to the
bearish activity in the market and the few entry opportunities
that were available.  Of the candidates offered, Dupont (NYSE:DD),
and Olin Chemicals (NYSE:OLN) initially enjoyed bullish activity
however, many of the plays were not available at the target entry
prices.  Eli Lilly (NYSE:LLY), Metro One Telecom (NASDAQ:MTON)
and Investment Technology (NYSE:ITG) offered reasonable opening
credits, but they failed to perform as expected, thus tying up
large collateral amounts for relatively small returns.

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

One of our subscribers asked for some bearish credit-spreads on
industrial stocks and with the recent decline in broader-market
issues, that appears to be the correct directional outlook for
short-term traders.  All of these positions are based on recent
technical indications and the current price or trading range of
the underlying issue.  Since current news and market sentiment
will have an effect on these companies, please review each play
individually and make your own decision about the future outcome
of the position.

GDT - Guidant  $48.44  *** The Sell-off Continues! ***

Guidant (NYSE:GDT) is a global company that designs, develops,
manufactures, and markets a broad range of therapeutic medical
devices used in the treatment of cardiovascular and vascular
diseases.  The company offers coronary stents, coronary balloon
dilatation catheters, and related products and accessories used
to treat blockages in the vascular system; automatic implantable
cardioverter defibrillator systems, which are used to detect and
treat abnormally fast heart rhythms, known as tachycardia; a full
line of implantable pacemaker systems used to manage slow or
irregular heart rhythms, known as bradycardia; products for use
in minimally invasive vascular surgeries, including the treatment
of abdominal aortic aneurysms; and products for use in minimally
invasive cardiac surgeries, including products to perform cardiac
artery bypass grafting on a beating heart.

On Friday, Guidant had a number of news announcements, the first
of which was positive for the company.  Guidant officials said
the company won U.S. regulatory approval for two new coronary
dilatation catheters used to treat blocked coronary arteries.
The company already has received regulatory approvals for the
Powersail and Highsailin catheters in Europe and Japan, its two
other key markets, and the FDA approval will strengthen their
position in the United States.  Later in the day, the company
announced it had voluntarily halted production and sales of its
Ancure System, a less invasive approach than surgery for people
with abdominal aortic aneurysms.  The product accounts for about
3% of the company's earnings and may result in a first-quarter
charge of $12 - $15 million.

Technically, GDT remains in a Stage IV downtrend, bouncing-off
its descending 150-dma several times over the last five months.
A test towards strong support at $45 appears likely while a move
above the confirmed resistance at $53 is highly improbable.  In
addition, the company's earnings are due next week and without a
major upside surprise, there is very little chance the issue will
eclipse $55 in the coming month.

PLAY (conservative - bearish/credit spread):

BUY  CALL  APR-60  GDT-DL  OI=2282  A=$0.30
SELL CALL  APR-55  GDT-DK  OI=2589  B=$0.80
INITIAL NET CREDIT TARGET=$0.55-$0.60  ROI(max)=12% B/E=$55.55

PLMD - PolyMedica  $33.44  *** New Downtrend? ***

PolyMedica (NASDAQ:PLMD) is a national supplier of unique medical
products and services.  The company is best known through its
Liberty brand name, which serves the chronic disease marketplace
for senior customers and focuses on Compliance Management using
its Technology Platform to help seniors manage their disease more
effectively.  Liberty pioneered the concept of National Direct to
Consumer Advertising to seniors with chronic diseases.

Polymedica has been one of our favored issues in past weeks for
premium-selling strategies.  The relatively stable trading range
and inflated option premiums were a perfect combination in many
option trading techniques.  However, the character of the issue
has changed significantly and there is little news to explain the
activity.  Now it appears the stock is starting a new leg down as
it has failed to stay above its 150-dma and the selling pressure
came on heavy volume.  A continued move through the February low
would confirm a bearish future and traders can speculate on that
outcome with this conservative position.

PLAY (conservative - bearish/credit spread):

BUY  CALL  APR-50  PM-DJ  OI=125  A=$1.00
SELL CALL  APR-45  PM-DI  OI=86   B=$1.50
INITIAL NET CREDIT TARGET=$0.55-$0.60  ROI(max)=12% B/E=$45.55

VAR - Varian  $63.20  *** Failed Rally? ***

Varian Medical Systems' (NYSE:VAR) products can be grouped into
three principal categories: oncology systems, x-ray tubes and
imaging subsystems, and other technologies developed by their
Ginzton Technology Center, primarily brachytherapy.  Varian's VMS
oncology systems line encompasses a fully integrated system of
products embracing not only linear accelerators but also unique
ancillary products and services.  Their linear accelerators and
simulators are in service around the world, treating many cancer
patients daily.  The company's x-ray tubes are sold to most major
diagnostic equipment manufacturers and cover a wide range of
applications including advanced mammography and CT scanning.

Varian is another issue will little public news to drive its share
movement but from a technical viewpoint, the upside potential is
small.  In fact, VAR appears to be forming an early Stage III top
and the recent move below its 50-dma is bearish.  The issue has
failed three times in the $70 range, creating significant overhead
supply and it has now broken technical support by moving below the
February lows.  The premiums for the OTM call options are slightly
inflated and with recent resistance at the sold strike price, VAR
is an excellent candidate for a bearish credit spread.

PLAY (less conservative - bearish/credit spread):

BUY  CALL  APR-75  VAR-DO  OI=4  A=$0.65
SELL CALL  APR-70  VAR-DN  OI=2  B=$1.35
INITIAL NET CREDIT TARGET=$0.75-$0.80  ROI(max)=17% B/E=$70.75

                    - STRADDLES & STRANGLES -
SPW - SPX Corporation  $95.96  *** Probability Play! ***

SPX Corporation (NYSE:SPW) is a global provider of technical
products and systems, industrial products and services, service
solutions and vehicle components.  SPX designs, manufactures and
markets a wide range of fire detection systems, data networking
equipment, broadcast antennas and automated fare/toll collection
systems.  SPX also designs, manufactures and sells transformers,
industrial valves, mixers, electric motors, laboratory freezers
and ovens, high-pressure hydraulics, industrial furnaces and coal
feeders, as well as specialty service tools, equipment and other
services primarily to the motor vehicle industry in North America
and Europe.  In addition, the company also engages in the design,
manufacture and marketing of transmission and steering components
for light and heavy-duty vehicle markets, principally in North
America and Europe.

SPX has been a very active issue recently and the decision to buy
United Dominion (NYSE:UDI) simply complicates the task of valuing
the company.  Shareholders of United Dominion, a manufacturer of
industrial and builders' products, expect to receive SPX shares
worth $25 for each of their shares, but with the price of SPX in
a recent decline, the ratio (0.2353 of an SPX share for each share
of UDI) may need to be adjusted to keep the deal intact.  SPX is
planning to use cash on hand along with a new $780 million credit
line to refinance United Dominion's existing debt and if all goes
well, the merger will close in the second quarter.  Another event
that may affect SPX's share value is the company's earnings report,
due in mid-April.

Based on analysis of the historical option pricing and technical
background, this position meets the fundamental criteria for a
favorable debit straddle.  Since the options have large bid/ask
spreads, use a limit order to open the position.  Our target for
the overall price of the straddle will be $11.25 - $11.50.  Those
of you with a longer-term outlook can use the June options at a
target price of $18.

PLAY (conservative - neutral/debit straddle):

BUY  CALL  APR-95  SPW-DS  OI=1245  A=$6.20
BUY  PUT   APR-95  SPW-PS  OI=5     A=$5.50

COST - Costco  $37.13  *** Home Again! ***

Costco Wholesale (NASDAQ:COST) operates membership warehouses that
offer very low prices on a limited selection of nationally branded
and selected private label products in a wide range of merchandise
categories in no-frills, self-service warehouse facilities.  The
company operates over 300 warehouse clubs, comprised of some 237
stores in the United States, 59 in Canada, 10 in the UK, three in
Korea, three in Taiwan, and one in Japan.  The company also has a
number of warehouses in Mexico operated through a 50%-owned joint

COST appears to be a good candidate for a premium-selling play as
it is moving back towards a trading range in which it has been
comfortable for almost a year.  The fundamental outlook for the
company is excellent and the option premiums remain robust due to
the recent volatility in the issue.  Traders who wouldn't mind
owning COST at a basis near $31 can sell the OTM option premium
for a credit and use the earned income to offset potential losses
on the downside, in the event of assignment of the issue.

PLAY (conservative - neutral/credit strangle):

SELL CALL  APR-45.00  PRQ-DI  OI=1383  B=$0.50
SELL PUT   APR-32.50  PRQ-PZ  OI=159   B=$0.75
INITIAL NET CREDIT TARGET=$1.38-$1.50 ROI(max)=12%
UPSIDE B/E=$46.38 DOWNSIDE B/E=$31.12


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