Option Investor

Daily Newsletter, Tuesday, 03/20/2001

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The Option Investor Newsletter         Tuesday  3-20-2001
Copyright 2001, All rights reserved.
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MARKET WRAP  (view in courier font for table alignment)
        03-20-2001          High     Low    Volume Advance/Decline
DJIA     9720.80 - 238.30 10019.90 9718.20 1.23 bln   1301/1759	
NASDAQ   1857.48 -  93.72  2004.09 1922.78 2.15 bln   1374/2257
S&P 100   581.93 -  15.74     4.06  581.65   totals   2675/4016
S&P 500  1142.62 -  28.20  1180.56 1142.19           40.0%/60.0%
RUS 2000  444.48 -   6.79   456.17  444.36
DJ TRANS 2675.86 -   5.80  2717.02 2672.44
VIX        35.04 +   1.69    36.18   32.62
Put/Call Ratio       0.61

Ugly, really ugly?

Let me clarify something. They CUT rates by half a point! C-U-T !
The market reacted like the Fed raised rates instead. Traders sold
into the news like they expected a -1.50 cut instead of -.50. Was
it something they said? Maybe, "global weakness", "may last for
some time." What ever the reason the remaining bulls were shredded
into hamburger by the bears as strong volume knocked -300 points off
the Dow's high and pushed both major indexes to new lows.

What happened to the three cuts and a bump theory? Three big cuts
at that! 12 of the last 13 times the Fed has cut rates three times
the market has rallied and moved upward. Could we be looking at
that rare occasion where the markets continue down? It is too soon
to tell but things are not looking good based on today's action.

The Dow's high today was 10028, 310 points above the close. This
-300 point drop occurred in only an hour and forty minutes after
the Fed announcement. The Dow closed at 9718 and at the lowest
level since March of 1999. Volume on the NYSE was high at 1.23
million shares. The Nasdaq faired no better dropping -117 points
from its high and closing at 1859 or the lowest point since Nov-13th
1998. Volume was strong at 2 billion shares but not excessive.

The big news of course was the Fed rate cut and the language they
used in the announcement. The big key to me was the global reference.
With Japan continuing to tank and Korea showing weakness for the
first time in seven years, it appears that the U.S. is not the only
weak spot. If our weakness ripples out to the rest of the world
through a lack of orders for components and materials then what we
get back as these other economies weaken in turn may be worse. The
Fed acknowledged that "excess capacity may last for some time" meaning
the end is not yet in sight. The stated reason for the cut was a
"weak economy risk" but they also said the drop in the stock market
was impacting investments into the business community. Now, it does
not take a very high IQ to understand the need to conserve cash if
your cash cow brokerage account from two years ago is now a cash
drain every time you have to cover a losing position. Companies have
seen investment income disappear and asset balances drop as much as
-75%. The question of "do we upgrade equipment on a the assembly line"
turns into "if I layoff those employees how much can I get for that
excess equipment?" This dramatic change in the business climate shows
that the Fed over reacted in their rate hikes last year and they are
behind the curve now in trying to correct the problem.

The echo of the announcement had not even died before investors started
calling for another intra-meeting rate cut of -.50% This may be wishful
thinking but the next meeting is not until May-15th so there is plenty
of time for economic reports to impact the Fed thinking. The meetings
after that are June-26th and Aug-21st. The Fed may be forced to react
early if the global economy continues to weaken.

Warnings, downgrades, layoffs and bad news continued to flow today with
Oracle announcing a 5% cut in staff. Solectron warned that earnings
would drop by more than half and took a charge for cutting 8200 jobs.
PWAV warned that it would post a loss when analysts were expecting a
+.06 cent gain. There were many more but you have heard the same sad
story many times already this month. Ten companies warned after the
bell tonight. Is there more ahead? You bet! Some said a Fed rate cut
of 75 basis points would have jump started the market and sent buyers
into a frenzy. Wrong! At this point there is no reason to buy stocks.
With every major company saying that there is "zero visibility"
going forward there is nothing that will make investors race into
the fog with no idea of what is lurking there. Until we get to a
level where all the bad news is priced in, we will fall farther.

Former Fed governor, Lyle Gramley, said he would bet "big money"
that the Fed was far from done but he could give no reason to buy
stocks yet. Earnings are over, the indexes are setting new lows
and the worst six months of the year are ahead. Sound like a buying
opportunity to you? Actually it is for aggressive investors. The
old adage, "buy stocks when nobody wants them" would certainly
apply today. NOBODY wants stocks today. Shorts are increasing
positions and there is no end in sight. That is a buy signal for
long term buy and holders but nobody is taking the bait. CSCO 19,
SUNW 17.50, INTC 24.63, ORCL 14.50, JDSU 21.50, there is a limit
to how far these companies can drop but still no takers. The shorts
are obviously looking for single digits on these stocks and now
that the Dow is well under 10,000 and the Nasdaq well under 2000
we could see that soon. Analysts are scratching their heads trying
to find new support levels.

You know we are grasping at straws when the only hope of a rally
is now a short covering rally just prior to income tax day. While I
am sure there will be some covering to pay the tax man, I doubt it
will be material. Most traders lost money last year and wish they
had a tax bill instead of a tax loss. However many institutional
investors will wait until after the 15th simply to avoid the
possibility of further drops.

Capitulation? Not yet! With that label being applied to every major
drop for the last week you can see it was not true. If you think
this through then there is more red ink in our future. The S&P
Tech index is at a 29 month low and still falling. Every stock
that has not warned is being shorted aggressively in hopes that
they will warn. The put/call ratio is anemic at only .61 and is
not showing any signs of serious worry. Only 36% of investors
are currently bearish compared to 31% still bullish. Definitely
not a bottom indicator. The VIX however is hovering in the 33-36
range which is normally a buy range. Those of us who remember last
April remember numbers well over 40. With many investors conditioned
to move out of tech stocks over the summer months we could see even
higher VIX numbers soon.

When I left to speak at the John Dessauer cruise seminar on
Mar-8th the Dow closed at 10846. Today it closed at 9718. That
is an -1128 point drop in only a week and there are no buyers
in sight. Over -1100 points and no buyers, does that worry anybody?
It does me. Is the day-trading era over? Are mutual funds withdrawals
increasing? Are we going back to historical PE ratios of 7-12? I
think these are the more serious questions we need to worry about,
not the difference between 50-75 points. As investors we need to
play the trend and not try and buy this dip. Rate sensitive stocks
are not reacting to the cuts. Fundamentals are now coming back
into vogue and until the market sees the fog clearing they are not
going to buy stocks. Investors want to see earnings and positive
forecasts before committing what little money they have left.

I relate this to a gambler who walks up to a table with say $2000
and promptly loses half. His bets then decrease, his aggressiveness
declines or he quits to wait for another day. If he loses half again
he either quits or goes into serious conservation mode. His $50 bet
decreases to $25 and then $10 and then $5 as his bankroll decreases.
A trader/gambler with only 10%-20% of their beginning investment can
no longer capitalize on positive trends. They are beaten mentally.
They are too cautious and even bets with good odds are ignored or
only taken in minimum amounts.

As traders we need to sit this one out. The risk/reward ratio
for puts is no longer in our favor. Stocks that have fallen from
$175-$125-$100 to $15-$20 no longer drop in big increments.
Calls on these stocks still bleed premium every day. If the
trend is still down but stocks are trading in the teens then
it is safer to wait. There may be an explosive rally in our
future but you would hate to be in puts when it happened. You
don't want to be in calls either since it could be weeks or
months before it comes. We wait, conserve our cash and look
for strong stocks that appear to be putting in bottoms while
the market is still tanking. When the market does rebound you
are then eager and prepared to go back into battle. Sometimes
the best play is no play at all.

It is also entirely possible that the afternoon drop today was simply
a "sell the news event" and cooler heads will prevail tomorrow. Don't
be fooled by a morning bounce. We have sold off so severely that there
is plenty of room above us. We can wait for a trend to appear before
committing capital. There have been a dozen or so bear trap rallies in
the current down trend. Each were ok for agile traders but costly for
the average investor. Nasdaq 2050 is the next level where we would
suggest conservative traders should take a long position. After trying
for over a week to break out over 2025 we have to recognize that to
be significant resistance. Wait for the break out before going long.
Aggressive investors will of course be looking for that next bottom
and throwing money at anything that resembles a bounce. No amount of
caution will change their mind. When was the last time the Fed cut
rates three time in a row by 50 points and the market failed to react?
This should cause you to rethink any long positions. Investors on the
Nasdaq have lost over $4 trillion in the last 12 months. How much more
will it take before the carnage is over? Hamburger anyone? There is
a world of difference between eating hamburger and being hamburger.
You choose.

Enter passively, exit aggressively!

Jim Brown

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Not Impressed
By Austin Passamonte

That describes today's market action beyond 2:15pm EST. Yes we
all "knew" the Fed would only cut by .50-basis points but once
again CNBC and to a lesser extent other media outlets did a
subtle but certain job of making a case for .75 basis instead. In
our opinion this is huge disservice to their audience, but sure
makes for easy trading in the process.

Real simple today: on the outside chance .75 basis cut was
realized, buy calls above recent overhead resistance. The .50
basis that was expected & would surely disappoint investors
become known? Buy puts below recent support and hold on!

If only this weren't the first week of expiration cycle that has
contracts bloated with worthless time premium. Had today been
within the last two weeks of expiration cycle it would be very
interesting indeed! Easy 100% - 200+% returns on contract cost
for major index options the final two hours and perhaps a lot
more ahead this time last week, but the Fed still lacks good
sense to schedule all their meetings during expiration week!

Now back to the future. Markets rallied one session into this
meeting and sold that entire effort & then some within one hour
before today's close. Gains are lost much easier than logged and
we expect Wednesday to continue the decline. With no remaining
catalyst to prop markets up and in-vogue, "easy money" made to
the short side these days, selling pressure promises to continue
in earnest.

Remaining market bulls (threatened species) are hoping for one
big capitulation event so the markets can resume the customary
rally once again. Exactly half of that scenario is likely within
the next few sessions. The rally part could be awhile.

There are so many upside challenges ahead that we don't know
where to begin. Fundamental earnings news (more specifically,
lack of earnings) would be one. Pre-warn season is another. Tax
season liquidation is a third. Tax season? The markets crashed
last year! Not so fast, Sparky... keep in mind that techs rallied
huge from January to all-time highs March 2000 and massive gains
were made prior to loss. A minority of traders claim full-time,
mark-to-market status while the vast majority still sit on
painful tax liabilities without money to cover. Sell anything
possible to raise Uncle Sam's distorted capital gains share is
the solution.

Near term? We look for the following index levels to offer "firm"
support. A bounce from higher levels is very possible, but
downside risk exists to these historical points of support on
weekly charts:

Dow: 9600
SPX: 1100
NDX: 1460
QQQ: 36.5
OEX: 535
SOX: 400

These are the big indexes that list options. Those who may still
follow the COMPX (why?) can assess possible support based on the
NDX, its natural leader. We believe most remaining risk lies in
the Dow and S&P indexes as the techs have lost far greater
percentage values than broader indexes to date.

What about the COT report and possible short covering by big
professionals there? Keep in mind this tells us we may be near a
bottom ZONE, not point. Commercial giants sell on the way up and
buy on the way down in a scaling process, not "V bottom" events.
Traders who think we can suffer one big capitulation day and
break out the bull horns after that may be sadly mistaken indeed.

Speaking of COT reports, some have inquired about the dropped
listing of Nasdaq 100 data here. The source we formerly gleaned
this from is unavailable, and most other reporting wires omit the
ND01H because it's very illiquid and dubiously reliable. If we
can easily locate the data once again it will be included, but
keep in mind all of the important action takes place over in the
S&P 500 arena. The rest pales in comparison.

With all that's been said, should market bulls at this point
slash their hooves and head off to the great glue factory in the
sky? Nope: the next powerful rally can emerge at any time without
warning. Actually, that's just how one will have to as all odds
look bleak from where we lie here tonight.

The possibility exists of total market meltdown this week, but
the next oversold rally can always emerge without warning. Trade
the daily trend with caution and avoid big bets & long term


Tuesday 03/20 close: 35.04

Tuesday 03/20 close: 74.34

30-yr Bonds
Tuesday 03/20 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)
620 - 605                2,558        4,814          .53
600 - 585                4,697        7,749          .61

OEX close: 581.93

575 - 560                    2        4,997      2498.50
555 - 540                   21        6,433       306.33

Maximum calls: 660/ 3,262
Maximum puts : 520/ 6,254

Moving Averages
 10 DMA  611
 20 DMA  627
 50 DMA  669
200 DMA  739

NASDAQ 100 Index (NDX/QQQ)
 49 - 47               132,822        40,868         3.25
 46 - 44               119,771        55,702         2.15
 43 - 41                50,645       133,252          .38

QQQ(NDX)close: 40.35

 39 - 37                 1,756        33,857         19.28
 36 - 34                 6,863        33,478          4.87
 33 - 31                    84         6,986         83.17

Maximum calls: 53/116,317
Maximum puts : 43/96,162

Moving Averages
 10 DMA 43
 20 DMA 46
 50 DMA 55
200 DMA 77

S&P 500 (SPX)
1200                   10,854        15,079          0.72
1175                    2,346         6,573          0.36
1150                    6,287        22,830          0.28

SPX close: 1142.62

1125                      810         4,258          5.26
1100                       80        13,757        171.96
1075                       35        15,000        428.57

Maximum calls: 1275/18,229
Maximum puts : 1150/22,830

Moving Averages
 10 DMA 1194
 20 DMA 1221
 50 DMA 1290
200 DMA 1390


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 their hedged positions. Commercials show a decline of 3
percent on the S&P 500 net-shorts while they reduced their DJIA
net-short positions by 6 percent.

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.


Please visit this link for Market Posture:



Is It Over Yet?
By Lee Lowell

That's the question most investors want to know.  Is the selling
done or am I going to see my account balance dwindle even further?
I think most of us realize that those great few months of non-stop
upside movement are over and many of those internet companies
that we thought would make us millionaires are all distant memories.
The days of wishing the market back up, or the phrases of "it can't
go any lower," or "just keep buying the dips" has caused lots of
pain to many people.  And this bear market has not only caused pain
to the investors who got swept up in the speculative craze of
dot.mania, but to those investors who are close to retiring and
want to start tapping their IRA's.  The blue chips that you never
want to sell also have been decimated by this monster.  I believe
it has affected all of us in some way or another.  If you trade
for a living and the markets are your sole source of income, you
know how bad it's been over the last year.

So what are we going to do about it?  Well, let's just say that
we've all been taught a good lesson.  I know some option traders
who have only been trading since the 90's bull run and have never
experienced a downmove such as this.  We learned that the markets
can't go up forever and that eventually you must take some profits
or hedge your gains with downside protection.  Even for those
people who consider themselves "buy and holders," it doesn't hurt
to take a little profit.  I too have my "buy and hold" accounts,
and they have lost a ton of value also.  Nothing has been immune.
I'm just glad I still have some years left to try to recoup some
lost value.

Being a commodity trader at heart, and that still being my main
source of income, I've learned there's a world of difference
between what influences commodity options versus equity options.
In the world of physical commodities, supply and demand is the
driving force behind all price movements.  Not enough rain in the
summer - then soybeans go up.  OPEC raises production - crude
prices go down, a freeze in South America - coffee prices go up.
It's all supply and demand.

Equity options are a whole different ballgame.  You've got so many
outside influences that can affect the prices of stocks.  Will the
Fed raise or lower interest rates, will the company issue good or
bad earnings, will the company issue a warning, what are the
analysts saying, takeover rumors, day traders moving the markets,
etc, etc.  You've got so much to take into consideration.  This
isn't a recommendation to trade commodity options over stock
options, it's just a fact that trading stock options isn't easy.

So getting back to the question of what we're going to do.  I've
decided that for me personally, when I want to trade stock options,
I'm only going to trade the indices.  SPX, OEX, QQQ, DJX.  You can
have just as many big movements as individual stocks, but you will
never be exposed to the damage (or lucky gain) by those nasty gap
moves that individual stocks are prone to these days.  Since the
indices are made up of many different stocks, they aren't affected
nearly as much because an individual stock got downgraded or
released bad earnings.

I know that every option position I take will be hedged in one way
or another.  I will only put on spreads at this point.  Whether it
is an outright call spread or put spread, debit or credit spread,
calendar or straddle, etc.  No more of these long calls that are
held onto until expiration.  We've seen profits built up, just to
be lost within a few days time.  None of that!  I will be taking
any profit from now on.  The greed factor has caused many accounts
to be wiped out.  If your option position is showing a profit, how
long are you planning on letting it run?  Is it up 100%?  Then take
the gain.  You don't need to wait until expiration.  Are you waiting
for that 1000% gain just so you can tell your friends about your
amazing trading prowess?  Don't get caught up in that.  Taking
small gains time after time will build up an account very nicely.

Of course, the hardest part is taking a loss.  Nobody wants to admit
that they were wrong and take a loss.  The bottom line of trading
is whether you made money or lost money.  Unfortunately, if you
lose money, then most will deem themselves a failure.  I believe
that is the biggest obstacle to overcome when trading the markets.
It's the psychology and emotional aspect of trading that keeps us
in the game too long with a loss.  You just don't want to admit
that your prediction of stock movement was wrong.  And then there's
the time when you did follow your stop-loss rules and closed out
with a loss, only to see the position turn around on you.  Yes,
that does happen.  But how many times has that happened when you
decided to stay in the position until the very end?  Not many I

I just recently had a position on with some long puts on SUNW.  I
bought some to protect my long stock and some extra to try to gain
a little from the downside moves.  I had a gain in the puts until
SUNW made a retracement back up.  The puts became almost worthless
and I was somewhat upset that I hadn't sold out for a profit.  But
I held on anyway only due to the trend of the market.  Well, I got
lucky this time because the market once again turned lower and my
puts became profitable once again and I immediately sold out for a
gain.  Yes, it did happen this time for me, but this was once for
about the other fifteen that I held for a complete loss.

We all think we're different and that it won't happen to me.  Well,
if you've been in the market over the last year, then chances are
some of your portfolio has dwindled.  If you've been buying puts
for the last year, well congratulations then and I commend you for
your fine trading abilities.  I'm in it for the long haul with long
stocks in my retirement accounts.  This has been the way to
generate wealth in this country for the last century.  I'm not going
to go against that trend.  But I also make my living trading the
markets, so I need to execute the trades that will give me the best
return.  Always hedge a trade and take a profit or cut a loss short.
You'll see.

Next time I'll start up with a few sessions of specific trading

Until then...good luck.


Review of My March Plays
By Scott Martindale

I have been buying stocks and going naked the dips to a small
extent, just to stay exposed to any rallies.  Although I do play
the short side, the extreme oversold condition of the major
indices, particularly Nasdaq, has indicated to me a greater chance
of near-term upside rather than downside.  Too bad for me it
hasn’t worked out that way.

However, I keep thinking back to 1999 through early 2000 when
stocks would rally 25% overnight or in the blink of an eye.  My
fear has been that with so many fast-movers deeply oversold, I
would hate to be caught short.  Not even a stop order can prevent
a big loss following a large opening gap, as many of us learned on
the downside over the past year.  With the Nasdaq below 2000, the
risks appear to be further drifting to the downside vs. huge moves
to the upside.

Winners in my long-term portfolio continue to be focused in the
high-yielding REITs and royalty trusts, natural gas
producers/traders, drug makers, and retailers; whereas my
remaining tech holdings are moribund.  Furthermore, the income
portfolio that I have managed for my mother-in-law since last
April is flying high because of its heavy weighting toward high-
yielding utilities, REITs, petroleum preferred shares and royalty
trusts, MIPS, PIES, corporate and GNMA bond funds, munis and
zeroes.  The only thing that held back her return is the small
exposure to technology mutual funds I’ve maintained.  [At least it
has provided opportunity for some tax loss offsets.]  When the
markets turn back up with confidence, I’ll consider covered call
strategies for further enhancing her portfolio’s cash flow.

Trading in my aggressive account has been pretty limited.  Last
month, I decided to take assignment of both Adobe Systems (NASDAQ:
ADBE) and Superconductor Technologies (NASDAQ: SCON) for covered
call writing in anticipation of these issues coming back quickly
with the next tech rally.  They have pretty much languished since,
but ADBE in particular is starting to perk up, and is in fact
looking strong.

I’m still reluctant to buy long-term options in either direction.
Even short-term options have been too unpredictable for me these
days.  Nonetheless, I bought Ciena (NASDAQ: CIEN) March 75 calls
in late February in anticipation of an oversold rally in the
important optical networking sector.  The stock had held up well
as a top performer despite its high valuation (see my column from
March 6th), so I expected it to outperform in a rally.  Last month.
I tried deep in-the-money naked puts on CIEN, but bought back at
breakeven (with great relief), so this month I tried buying calls
to limit my downside.  On March 7th, the calls were looking great,
well-positioned to continue what seemed like the start to a modest
rally, but then two days later the bottom fell out and I sold for
a 75% loss.  Ouch, burned again.  Will I ever learn that when you
get a little bit of a run going with an expiring option in this
kind of market, it’s best to take your profit and get out rather
than continue to push your luck holding over yet another night?

I timidly tested these unpredictable waters by writing a few naked
puts on only two stocks, continuing with my focus on the deeply
oversold optical networking sector.  In late February, the
technicals (volume, stochastics, money flow, MACD, RSI, Bollinger
Bands) were looking like they were poised for a bit of a rally for
JDS Uniphase (NASDAQ: JDSU) and Extreme Networks (NASDAQ: EXTR),
so I wrote in-the-money March 35’s and March 25’s, respectively.
On expiration day, I went ahead and took some shares of JDSU,
which is a dominant company with a bottoming formation.  But I
bought back the EXTR puts at a loss and rolled out to April.
Yesterday, that looked like a pretty smart play as the stock
gained almost $4 and the put price began to drop.  But as it
approached the $25 strike, the price of the option slowed its
descent as more of the premium simply moved from intrinsic to time
value.  Today, of course, the stock tanked with the rest of
technology.  I missed an opportunity to leg in to a credit spread
by buying the 20 or 22.50 options, but I’m still optimistic about
a near-term bottom in this sector.

During the month, I was looking to write covered calls to generate
cash on a number of my long-term holdings showing technical
strength, but alas few sectors managed to gather much strength.  I
sold in-the-money calls on energy holdings Texaco (NYSE: TX) and
Seitel (NYSE: SEI), looking for a bit of a pullback.  SEI did
indeed pull back below the $20 sold strike, so I wasn't called
out, but TX kept climbing, so I was called out at $60 for a decent
gain.  I was planning to sell shares or covered calls on some of
my tech holdings this week if strength continued, but alas the
post-Fed selloff this afternoon may have postponed those plans.
We'll see how things progress from here.

By the way, today was unusually busy for me as I was not only
consulting, writing, and monitoring trades, but I also took in my
younger daughter for surgery on her adenoids this morning and
attended my older daughter's parent/teacher conference this
afternoon -- all with the threat of a rolling blackout at any time
as California deals with our self-created energy crisis.
Yesterday, I got hit with a one-hour mid-afternoon blackout.  It's
funny that we generally take our electricity for granted -- much
like air and water.  When it's not there, it can be a big problem
in this information age.

When I lived on the Gulf Coast, thunderstorms, hurricanes, and
tornadoes frequently threatened power outages -- but somehow that
was understandable.  This is something else.  Let's see, there must
be an investment opportunity here somewhere.  How about power
generation companies like AES Corp. (NYSE: AES), Calpine
(NYSE: CPN), and NRG Energy (NYSE: NRG)?  How about alternative
energy companies that create products for providing on-site energy
self-sufficiency, like Capstone Turbine (NASDAQ: CPST), Plug Power
(NASDAQ: PLUG), and Astropower (APWR)?  Not surprisingly, almost
all were up strongly today.  The technicals looked weak yesterday
on AES and CPN, so I was waiting patiently for more price weakness
this week before buying more shares.

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


LEH $65.90 -3.38 (-0.50) Rallying into the close yesterday, LEH
gave aggressive traders an opportunity for a quick hit-and-run
profit before the bears returned this morning.  The stock
weakened right from the open and didn't stop falling until the
closing bell, as the selling pressure intensified after the Fed
cut rates by "only" 50 basis points.  Even though LEH didn't
violate our $64 stop in today's selloff, the quick violation of
the $68 and $66 support levels, combined with the company's
pending earnings announcement tomorrow morning should have
prompted you to close any open plays.

PIXR $32.88 -1.13 (-1.13) The broader market weakness has
caused detrimental technical damage to our PIXR play.  We
actually feel pretty good about the play considering the
terrible action of the tape.  However, its breakdown below our
protective stop at the $33.75 level has forced PIXR's
exclusion from our call list.


No dropped puts tonight

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The Option Investor Newsletter                  Tuesday 03-20-2001
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

To view this email newsletter in HTML format with embedded
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WM $51.28 -0.74 (-0.21) This week's earlier climb saw WM
tackling $53.35, hinting that a strong burst of momentum could
power the share price through the 52-week high ($55.93).
Unfortunately, disappointed investors took profits in late
afternoon trading today and shares of WM reversed their current
uptrend.  But alas, the good news is two-fold.  The 10-dma
($51.31), bolstered by the 5-dma ($50.57), provided firm support
amidst the triple digit market decline.  And furthermore, the
pullback offers the opportunity to take positions IF WM makes
another charge.  Be patient for strength to return to the
financials and a more cooperative market environment before
opting to go long.

WCOM $17.19 -1.19 (-0.25) The converged 5, 10 & 30 DMA lines in
the vicinity of the $17 level kept WCOM afloat while the markets
reacted to the Fed's 50-basis point cut.  Volume was rather
light on the decline, which also bodes well for the future
success of this call play.  However, let's trade prudently.
We've tightened our closing stop mark to $17 from $15 to
safeguard existing profits.  And please take note, while it's
characteristic for aggressive players to look for entries on
dips below a stop loss, the current environment doesn't portend
favorable results for traders employing that strategy;
particularly in the case of WCOM.  While it's true that WCOM has
flirted with the upper resistance, WCOM's lower volatility makes
it a candidate for narrow trading.  Conservatively, wait for
better confirmation to present itself in an advancing market.  A
good sign of continued strength is for WCOM to crack the 50-dma
($18.93) resistance and trade convincingly above that level.
And remember to keep in mind, WCOM's strength is based on its
own company-specific merits.  Many of the other big telecoms
like VZ and SBC are not faring well these days.

SMTC $27.38 -0.38 (+0.02) Semtech hovered between $27 and $28
on Monday, as the company released news regarding the sale of its
foundry service business.  SMTC is in negotiations to sell its
Santa Clara wafer fabrication facility, as part of a strategy to
source a majority of its silicon wafers from outside foundries.
Apparently, the market liked the news, as SMTC rallied all the
way up to $30.13 on Tuesday morning before the Fed meeting.
While the rest of the market collapsed after the announcement,
SMTC hit a low of $27.25 and rebounded from there to its closing
level.  At this point, SMTC remains in the upward channel which
was established a week ago, and is poised to make another attempt
to clear the $30 level.  A move past the $28 level on strong
volume could present a possible entry point.  A break above
$30 on heavy volume would be an entry point for more conservative
traders.  Continue to monitor the SOX.X for strength, and set
stops at $27.  We will exit positions if SMTC closes below $27.


RATL $22.25 -0.44 (-1.94) The pre-Fed rally led RATL through our
$23 closing stop; however, the robust volume couldn't generate
enough momentum to hold the course following the rate-cut
letdown.  A strong rollover, just below the 10-dma ($25.94)
resistance, offered put players nice entries as the NASDAQ gave
back its earlier gains.  Going forward, heed some caution before
buying into future weakness.  In the past two sessions, the 5-
dma ($22.43) showed signs of serving as an intraday support.  A
clean break through this level in a declining market environment
would however, be a signal to jump on this put play.

OPWV $23.49 -4.01 (-2.25) OPWV sold off to a new 52-week low
of $22.45 on Monday, and then rebounded with the market to close
at the high point of the day.  On Tuesday OPWV demonstrated
an even higher level of volatility, as it rallied with the
markets in the morning to hit a high of $29.60 before the
Federal Reserve's decision on interest rates was announced.
Subsequently, the stock made a sharp, steep drop of over 6
points in less than two hours.  The sharp moves can yield big
profits to traders on the right side of positions, but the
volatility levels also increase option premiums, so use
caution going forward.  A failed rally from the $25 level could
be a possible entry point for aggressive traders, if accompanied
by weakness in the market and communications software sector.
In addition, further selling could take the stock below $22.45,
which could be an additional entry level.  Continue to monitor
others in the communications software sector, like CMVT, and move
stops to $27.  We will exit positions if OPWV closes above the
$27 level.

ABGX $16.75 -2.69 (-2.44) Abgenix rolled over from $19.75 this
morning, and dropped to $18.75 even before the Federal Reserve
announced the decision.  Following the decision, we saw
continued heavy selling which brought the stock all the way
to a new 52-week low at $16.50.  The $13 level represents the next
major support level, and ABGX could easily reach this level in
the current market environment.  However, remember that we are
near or approaching oversold levels in the major indexes, and
that an oversold bounce is likely to occur.  If ABGX rolls over
from $18.50, aggressive traders could take positions.  More
conservative traders could take positions at current levels, if
accompanied by weakness in BTK.X.  Watch others in the sector,
like MEDX, and move stops at $20.  We have moved our stop on
ABGX down to the $20 level.

AETH $16.19 -2.75 (-0.38) Optimism amongst traders going into the
Fed meeting was apparent on Monday, with a rising NASDAQ ahead of
today's news.  As such, shares of AETH got off to an auspicious
start this week, gaining $2.38 or over 14 percent on Monday.
However, the move was on only half the ADV, suggesting that it
was the lack of selling pressure rather than buying interest that
lifted AETH.  Yesterday's optimism became today's disappointment
however, and for aggressive traders who took a position in this
put play when the stock was at higher levels, they benefited
greatly, as AETH gave back all of yesterday's gains, and then
some.  While volume was still light, it was heavier than on
yesterday's rally.  Continued selling tomorrow, taking AETH below
$16 could allow for an entry on weakness but confirm with volume.
 Aggressive traders may target the 5 and 10-dma near $17.50 and
$19.50 for potential entries, but confirm weakness with peers
CMVT and OPWV before jumping in, and keep in mind our closing
stop price of $19.

BMC $20.35 -0.60 (+1.18) Already deep in oversold territory, BMC
got a much-needed bounce yesterday in sympathy with the rising
markets.  Opening at the low of the day and closing at the high,
the stock gained $1.78 or over 9 percent.  While on surface this
appeared to be a bullish sign, BMC's rise was on less than half
its ADV, and resistance from the 5-dma continued to hold.  Today,
the stock opened higher but finished lower on a volatile day,
giving back 2.86 percent of yesterday's gains on increased
selling volume.  With resistance overhead from the 5 and 10-dma
(at $20.69 and $22.55 respectively), weakness as BMC approaches
these levels may offer an attractive entry for higher risk
players, but confirm with volume.  A break below the
psychological $20 support level with conviction could allow for a
less risky play, but make sure Goldman Sachs' Software Index
(GSO) confirms negative sector sentiment before taking a
position.  Please note that our stop price is currently at $22.
A close above this point would be our signal to exit.

BRCM $30.50 -3.81 (-2.88) A string of new product announcements
combined with a rally in the NASDAQ yesterday was enough for
traders to overlook the continuing stream of lawsuits, if only
for just one day, allowing BRCM to move up 2.81 percent on half
the ADV.  Like the rest of the market, traders were tentative
ahead of the Fed meeting, allowing stocks to bounce, as
speculators bid most shares up on low volume.  Today, the sellers
returned in force, as a failed attempt to break through the
10-dma along with a downdraft in the markets post-Fed
announcement resulted in BRCM dropping over 11 percent on about
average volume, making a new 52-week low in the process.  If the
stock breaks below today's intra-day low of $30.44, this may
allow conservative traders to jump in, but for an even safer
play, wait for BRCM to take out $30 support on volume.
Aggressive traders may target failed rallies above resistance
from the 5 and 10-dma (at $33.37 and $35.58) respectively.  To
further protect our gains, we are moving our closing stop down
from $37 to $36.  Track sector sentiment using the Philadelphia
Semiconductor Index (SOX) when monitoring plays.

VTSS $33.50 -7.81 (-5.56) Caution on the part of the sellers
yesterday in light of the impending Fed announcement allowed Tech
stocks to float higher and with that, VTSS moved ahead $2.25 or
5.76 percent on light trading, about 70% of ADV.  Today, with
traders disappointed from a 50 basis point rate cut, the bears
once again took control.  VTSS for its part lost almost 19
percent on over 1.35 times the ADV and in doing so, made a new
52-week low.  Now a highly profitable play, we are reducing our
risk exposure and as such, we are lowering our protective stop
price from $42 to $36.  A close above this level will result in
profit taking on our part and dropping coverage.  Weakness as
VTSS approaches resistance at $34.75, $35 and $36 may allow for
an aggressive play while the more risk averse may find an entry
if the selling continues, taking the stock below today's closing
price.  Correlate entries with movement in industry peers QCOM
and TQNT.

RIMM $24.71 -4.79 (-1.48) After the sharp drop at the end of
last week, RIMM was due for an oversold bounce ahead of the
FOMC meeting today.  That's exactly what happened, as investors
gingerly bought ahead of the interest rate decision, pushing
the stock as high as $29.50 yesterday.  Although closing near
the high of the day, the stock's inability to even clear
Friday's high provided an early sign of the inherent weakness.
This provided aggressive traders with an attractive entry near
the close.  An even better entry materialized this morning as
RIMM gapped open near the $31.50 level, and then quickly headed
south.  More conservative traders got their entry point this
afternoon as the stock continued its descent below $28 on heavy
volume, enroute to testing the lows from last week.  Weak
reception of the Fed's interest rate move today should continue
to pressure Technology stocks to the downside, and conservative
entry points will materialize as RIMM falls through last week's
lows near $23.  Aggressive traders will want to wait for a
bounce before opening new positions - consider a rollover near
the $28-29 level to be an attractive entry point.  Our stop has
now moved to $29, so any close above that level will indicate
the bears' assault is losing its strength, and will bring our
play to an end.

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ADBE - Adobe Systems $32.81 +1.06 (+4.19 this week)

A long-time leader in desktop publishing software, ADBE provides
graphic design, publishing, and imaging software for Web and
print production.  Offering a line of application software
products for creating, distributing, and managing information of
all types, the company generates nearly 75% of sales through
publishing software products such as Photoshop, Illustrator, and
PageMaker.  Its Acrobat Reader, which uses portable document
format (PDF) is popping up all over the Internet, as businesses
shift from print to digital communications.  In addition, ADBE
licenses its industry standard technologies.

Software stocks have borne the brunt of the damage in the NASDAQ
downturn so far this year, as tracked by Goldman Sachs' Software
Index (GSO).  With concerns of decreasing capital expenditures
ravaging the Software sector all but confirmed by Oracle's recent
warning, fear was rampant to say the least.  However, a better
than expected earnings report has helped desktop publishing
leader Adobe to move strongly higher.  Last Thursday the company
reported earnings, beating Street estimates by 5 cents.  While
ADBE did lower its revenue outlook going forward, it appears that
things were not as bad as previously thought.  What's more, the
company authorized a 5 million share repurchase program. With
that, analysts for the most part were a little more optimistic,
as a number of brokerage firms re-iterated their Buy or Strong
Buy ratings.  WR Hambrecht called ADBE's report a "relative
blowout" considering the economic climate.  CS First Boston
upgraded the stock last Friday while today, Thomas Weisel
initiated coverage with a Market Perform rating.  But actions
appear to be speaking louder than words, as there has been heavy
buying volume lately.  Today, the stock managed to buck negative
market sentiment, gaining 3.35 percent on over 1.4 times the ADV.
Pullbacks intra-day to support at $31.50 and $30 may provide
ideal targets for aggressive traders, but confirm bounces with
buying volume, and make sure that ADBE remains above our
protective stop price of $31 by the closing bell.  A solid break
above resistance at $34 may allow more cautious traders to enter
on strength.  Correlate entries with industry peers CORL and MACR

BUY CALL APR-30*AEQ-DF OI=3476 at $5.13 SL=3.00
BUY CALL APR-35 AEQ-DG OI=1689 at $2.63 SL=1.25
BUY CALL MAY-35 AEQ-EG OI=  40 at $3.75 SL=2.50
BUY CALL MAY-40 AEQ-EH OI=  77 at $2.13 SL=1.00



FLEX - Flextronics International $19.00 -4.38 (-1.81 this week)

One of several "contract manufacturers" serving the
telecommunications, networking, consumer electronics, and
computer industries, FLEX provides its customers with the
opportunity to outsource a complete product.  The company
takes responsibility for engineering, supply chain management,
assembly, integration, test and logistics management.  FLEX
provides complete product design services, including electrical
and mechanical, circuit and layout, radio frequency, and test
development engineering services.  Among FLEX's long list of
customers are Cisco, Hewlett-Packard, Lucent, Microsoft, Nokia,
Motorolla, and Palm Computing.

After the January rally, shares of virtually everything
Technology-related went back into a nose dive and FLEX joined
the bearish party along with all the other contract
manufacturers like JBL and SLR.  Now down more than 50% from
the late-January high of $40, one has to ask the question, "How
low can it go?".  Based on today's heavy selling pressure
(losing 19% on volume more than double the ADV), FLEX has more
room to fall.  Sure there will be oversold bounces, but it
doesn't look likely tomorrow morning after the bearish guidance
from competitor JBL.  JBL announced earnings after the close,
and although the company beat estimates by a penny, they guided
revenue estimates lower for the next 2 quarters.  The Fed's
50 bp rate cut this afternoon had the effect of driving shares
of FLEX sharply lower, as selling volume picked up and continued
right up to the final 20 minutes.  A minor bounce took the price
$1 above its lows, but we don't expect that to last.  Adding to
the bearish pressure, Bear Stearns, ING Barings and SG Cowen all
piled on to downgrade the stock this afternoon after the close.
There is little evidence that any bullish developments are
hiding around the corner, so our job is to ride the existing
trend as long as it lasts.  To that end, aggressive investors
will want to target new entries on any bounce that fails to take
out the $21 intraday resistance level (also the location of our
stop).  More cautious entries will materialize as the selling
intensifies again, driving FLEX below today's low near $18.
Keep an eye on the action in shares of other contract
manufacturers and the overall NASDAQ.  As long as that remains
negative, FLEX doesn't have much chance of mounting a sustained

BUY PUT APR-20  *QFL-PD OI=3166 at $3.50 SL=1.75
BUY PUT APR-17.5 QFL-PS OI= 326 at $2.06 SL=1.00


RIMM - Research in Motion $24.71 -4.79 (-1.48 this 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.

Most Recent Write-Up

After the sharp drop at the end of last week, RIMM was due for an
oversold bounce ahead of the FOMC meeting today.  That's exactly
what happened, as investors gingerly bought ahead of the interest
rate decision, pushing the stock as high as $29.50 yesterday.
Although closing near the high of the day, the stock's inability
to even clear Friday's high provided an early sign of the inherent
weakness.  This provided aggressive traders with an attractive
entry near the close.  An even better entry materialized this
morning as RIMM gapped open near the $31.50 level, and then
quickly headed south.  More conservative traders got their entry
point this afternoon as the stock continued its descent below $28
on heavy volume, enroute to testing the lows from last week.
Weak reception of the Fed's interest rate move today should
continue to pressure Technology stocks to the downside, and
conservative entry points will materialize as RIMM falls through
last week's lows near $23.  Aggressive traders will want to wait
for a bounce before opening new positions - consider a rollover
near the $28-29 level to be an attractive entry point.  Our stop
has now moved to $29, so any close above that level will indicate
the bears' assault is losing its strength, and will bring our
play to an end.


Sticking to our thesis of selling weak tech stocks, we are making
RIMM our put Play of the Day.  After the expected 50 basis point
rate cut, the NASDAQ and INDU sold off to new lows.  If the
weakness continues tomorrow, we will look to jump on RIMM puts on
a drop below $24.  If RIMM finds bids early, watch for a rollover
near intraday resistance at $27, $28 or $29 to obtain an aggressive

BUY PUT APR-30 RUL-PF OI=1071 at $7.40 SL=4.75
BUY PUT APR-25*RUL-PE OI= 884 at $4.10 SL=2.25


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Almost As If It Was Scripted!

Equity markets ended sharply lower today after the FOMC's widely
expected decision to lower interest rates by 50-basis points.

Monday, March 19

The stock market edged higher today amid bargain hunting and a
flurry of speculation ahead of Tuesday's meeting of the Federal
Reserve.  The Dow Jones industrial average rallied 135 points to
9,959 and the NASDAQ closed 60 points higher at 1,951.  The S&P
500 index rose 20 points to 1,170.  Trading volume on the NYSE
totaled 1.1 billion shares, with winners beating losers 1,963 to
1,103.  Activity on the NASDAQ was average at 1.7 billion shares
traded, with advances outpacing declines 2,198 to 1,527.  In the
U.S. bond market, the 30-year Treasury fell 9/32 to 101 9/32,
with its yield up to 5.28% as stocks enjoyed new buying interest.

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

Guidant     (NYSE:GDT)    APR60C/55C  $0.25   credit  bear-call
PolyMedica  (NASDAQ:PLMD) APR50C/45C  $0.55   credit  bear-call
Varian      (NYSE:VAR)    APR75C/70C  $0.80   credit  bear-call
Costco      (NASDAQ:COST)	APR45C/32P  $1.25   credit  strangle
SPX Corp.   (NYSE:SPW)    APR95C/95P  $11.00  debit   straddle

Today's volatile market activity provided some good opportunities
to participate in our new combination positions.  PLMD, VAR and
COST provided entries near the target prices and the SPW straddle
offered an excellent opening debit.  The GDT spread was the only
position that did not offer a favorable credit however, we will
monitor the play for future entry opportunities.

Portfolio Activity:

The major indices closed near the session highs Monday, after a
midday dip to recent lows as the market rebounded from extremely
oversold levels.  Bargain hunting and short-covering accounted
for much of the bullish movement in anticipation of a reduction
in interest rates at the Tuesday meeting of the Federal Reserve.
Among the Dow industrial issues, Hewlett-Packard (NYSE:HWP) led
the gainers with a $2 rally to $30.50 even as Goldman Sachs cut
its estimate for HWP's 2001 earnings.  Boeing (NYSE:BA) was also
a big gainer, rallying to $56 after a week of consecutive losses.
The aerospace giant won a $69 million contract from the Navy for
production of the Advanced Targeting Forward Looking Infrared
system.  DuPont (NYSE:DD) added to the blue-chip average's gains,
bouncing back to $43 after a six-session decline.  An unexpected
profit warning from the technology sector and negative comments
from US Bancorp Piper Jaffray about the personal computer market
weighed heavily on the NASDAQ.  Intel (NASDAQ:INTC) finished at
$27 after hitting a new 52-week low of $25.38 and analyst notes
suggested a recession in the commercial and consumer segments is
expected to result in a negative growth rate for the PC market in
2001.  Intel is suffering from this bearish outlook and our LEAPS
with Covered-calls position in the issue will likely fall as well.
Ciena (NASDAQ:CIEN) initially was another blue-chip loser on the
technology composite, reaching a low near $47 after the New York
Times reported that some analysts think Ciena will be forced to
lower its earnings projections because its customers, primarily
telecommunications carriers, are in worse financial condition
than previously expected.  Other optical-networking stocks were
pressured by a profit warning from Corning (NYSE:GLW), which said
it will miss analysts' estimates for 2001 earnings because of the
economic slowdown in the telecom segment.  In the broader market,
interest-rate sensitive financial stocks wavered for much of the
day before finishing mildly higher.  Some cyclical and consumer
product shares also rallied along with issues in the utility and
oil service sectors.

The Spreads portfolio saw little significant activity during the
choppy session but there was some interesting movement in one of
our bullish plays.  The Shaw Group (NYSE:SGR) dropped over $7
after FPL Group and Entergy raised the possibility that their
pending merger might be in jeopardy, suggesting they have run
into difficulties over the value of their deal and how to combine
the two utility companies.  In a joint statement, the companies
said certain issues have arisen in connection with their pending
merger, including governance structure/value-related issues and
integration of the two companies going forward.  Analysts say the
FPL-Entergy merger issues raise questions for the Shaw Group, a
power plant developer that counts both companies as customers,
because SGR has a joint venture with Entergy to build all of its
new power plants.  Apparently, the addition of FPL's construction
program to the joint venture would double the work available to
Shaw and make it more front-end loaded.  However, the effect on
SGR's profits may be less significant as the company is projected
to make only 10% of its revenue this year from the joint venture.
Based on that fact, the reaction may have been somewhat overdone
and we will monitor the issue for signs of a continued downtrend
before making any adjustment.  There was also some new volatility
in the Straddles section.  Telecom Brazil (NYSE:TBH) dropped over
$2 to the $54 range and the movement increased the profit in the
APR-$65 straddle to $10, a return of $2.40 on $7.60 in less than
one month.  Imperial Chemicals (NYSE:ICI) traded at a recent low
near $27 and that position is approaching the downside break-even
point.  We will monitor the straddle for a favorable "early-exit"

Tuesday, March 20

Equity markets ended sharply lower today after the FOMC's widely
expected decision to lower interest rates by 50-basis points.  A
slew of profit warnings also helped push the major averages lower
with precipitous losses occurring in blue-chip technology issues.
The Dow Jones industrial average dropped 238 points to 9,720 and
the NASDAQ composite slid 93 points to 1,857.  The S&P 500 index
fell 28 points to 1,142.62.  Trading volume on the NYSE totaled
1.23 billion shares, with losers ousting winners 1,756 to 1,308.
Activity on the NASDAQ was heavy at 2.02 billion shares exchanged,
with declines beating advances 2,261 to 1,375.   In the U.S. bond
market, the 30-year Treasury rose 11/32 to 101 20/32, pushing its
yield down to 5.26%.

Portfolio Activity:

Stocks tumbled again today after the Federal Open Market Committee
cut its target for the federal funds rate by an expected 50-basis
points, to 5%.  The Fed said it decided to cut rates today for a
third time this year because pressure on profit margins have hurt
investment and consumption in the United States.  The Fed also cut
the discount rate by 50-basis points to 4.5% but the move was seen
as too little, too late by market watchers.  Comments from the Fed
that "the economic slowdown could continue for some time" and that
the potential for weakness in global economic conditions suggest
substantial risks that demand and production could remain soft"
were perhaps overly pessimistic in light of the current market
conditions.  Investors were unhappy with the despairing outlook
and the selling pressure quickly surfaced in computer hardware and
networking issues.  Among other technology groups, chip stocks and
electronics manufacturing issues also ended significantly lower in
the wake of recent profit warnings from KLA Tencor (NASDAQ:KLAC)
and Solectron (NYSE:SLR).  On the Dow, Intel (NASDAQ:INTC) led the
average lower, falling to a 52-week low after analysts at Morgan
Stanley Dean Witter said a slowdown in demand would likely drive a
20% sequential decline in chip industry revenues during the first
quarter.  International Business Machines (NYSE:IBM), Microsoft
(NASDAQ:MSFT) and Hewlett-Packard (NYSE:HWP) also finished lower.
The Dow's financial components lost ground with J.P. Morgan Chase
(NYSE:JPM), Citigroup (NYSE:C) and American Express (NYSE:AXP) in
the red.  AT&T (NYSE:T) pushed the telecom group lower after CIBC
World Markets cut its price target and 2001 earnings estimates for
the company, due to higher expenses in long-distance spending.  In
the broader markets, major drug, biotechnology and brokerage stocks
generally moved lower while select oil service, retail, utility,
natural gas, paper and airline shares saw limited buying pressure.

The bullish activity prior to the Federal Reserve's announcement
regarding interest rates helped a number of issues in the Spreads
portfolio.  One of our recent calendar-spread positions, Advanta
(NASDAQ:ADVNB) traded near $13.25, providing a minimum of $1.06
closing credit for the APR-$12.50 call.  The time-selling spread
provided a 0.43 credit on $0.62 invested in less than one month,
a 70% return before commissions.  A new position in that group,
Earthlink (NASDAQ:ELNK) rallied early in the session and the play
is off to good start, even with the closing sell-off in technology
issues.  The Shaw Group (NYSE:SGR) bounced back from yesterday's
losses after Merrill Lynch upgraded the issue with a near-term
target price of $55.  Our short Put option at $45 is safe for now
but conservative traders may consider rolling down and forward to
the MAY-$40 Put if the downtrend resumes.  A number of stocks in
the oil service segment moved higher including Patterson Energy
(NASDAQ:PTEN), Kerr McGee (NYSE:KMG), Amerada Hess (NYSE:AHC) and
Weatherford (NYSE:WFT).  Among bearish positions, drug stocks and
pharmaceutical shares fell during the session and the sell-off in
these sectors also helped a number of portfolio plays.  On the
downside, many of our technology issues continue to suffer from
institutional selling pressure and the negative effects of mutual
fund "window dressing" will probably continue for the next few

Questions & comments on spreads/combos to Contact Support
                           - NEW PLAYS -
LEN - Lennar  $37.75  *** Reader's Request! ***

Lennar (NYSE:LEN) is a homebuilder and a provider of residential
financial services.  Headquartered in Miami, Florida, the company
has homebuilding operations in a number of Eastern states and is
one of the nation's leading builders of quality homes for all
generations, building affordable first-time family, move-up and
retirement homes.  The company's homebuilding operations also
include the purchase, development and sale of residential land.
The purchase, development and sale of residential land is mainly
conducted through its own efforts and its partnership interests.
The financial services operations provide mortgage financing,
title insurance and closing services for Lennar homebuyers and
others, package and resell residential mortgage loans and also
mortgage-backed securities, perform mortgage loan servicing
activities, and provide cable television and alarm monitoring
services to residents of Lennar communities and others.

One of our readers commented that today's interest rate reduction
is going to benefit the home building industry in the long-term
and he suggested that we look for some potential candidates in
that segment.  Lennar is one of our favorite companies in the
group and the recent announcement concerning its new home orders
suggests that their quarterly profits will be favorable.  Lennar
reported earlier in the month that preliminary new home orders
in the three months ended February 28, 2001 totaled 6,092 homes,
compared to 2,758 homes in the same period in 2000.  The growth
should be apparent in the company's earnings report, due to be
released tomorrow during the morning session.

Traders who agree with a bullish outlook for the issue should
consider one of these positions, depending on their strategic
approach and trading style.

PLAY (conservative - bullish/calendar spread):

BUY  CALL  AUG-40  LEN-HH  OI=82  A=$3.90
SELL CALL  APR-40  LEN-DH  OI=40  B=$1.20

- or -

PLAY (aggressive - bullish/credit spread):

BUY  PUT  APR-30  LEN-PF  OI=40  A=$0.35
SELL PUT  APR-35  LEN-PG  OI=13  B=$1.35
INITIAL NET CREDIT TARGET=$1.10-$1.20  ROI(max)=28% B/E=$33.90

                     - TECHNICALS ONLY -

Here are some additional candidates for traders who believe the
recent downtrend in broader market stocks will continue.  These
plays are based on the current price or trading range of the
underlying issue and the recent technical history or trend.
However, current news and market sentiment will have an effect
on these issues, so review each play individually and make your
own decision about the future outcome of the position.

ELN - Elan Corporation PLC  $49.94  *** Trading Range? ***

Elan (NYSE:ELN) is a worldwide pharmaceutical and biotechnology
company focused on the development and commercialization of
products.  Elan focuses on drug delivery systems and has expanded
its therapeutic lines with the development and commercialization
of new pharmaceutical products for the selected target markets of
neurology, pain management and oncology.  Elan currently conducts
its operations through two primary business units: Pharmaceuticals
and Pharmaceutical Technologies.  EP is engaged in the discovery,
development and marketing of therapeutic products for neurological
disorders and pain management, as well as diagnostic services for
neurological disorders.  EP's principal research and development
activities focus on Alzheimer's disease, pain management, epilepsy,
multiple sclerosis, Parkinson's disease, dystonias and a number of
other neurological disorders.  EPT is engaged in the development,
licensing and marketing of drug delivery products and technologies.

There is nothing fundamentally wrong with Elan.  The company has
an excellent growth profile within the pharmaceutical industry and
is outpacing most of its peers from a revenue and earnings-growth
standpoint.  In addition, the company has a solid product pipeline
consisting of two recently FDA-approved drugs and two more poised
for approval.  The company is also in the process of successfully
transforming from a drug delivery company into a fully integrated
pharmaceutical company and this change in product mix will serve
to enhance margins.  At the same time, most of the profit growth
potential appears to be in the distant future and with quarterly
earnings due after the April options expiration, there is little
reason for the issue to rally in the near-term.  In addition, the
past history of resistance near $56 (DEC00-FEB01 highs) provides a
reasonable cushion for any necessary spread adjustments.  Plan to
cover or exit the short option on any heavy-volume move through
the recent supply area at $55.

PLAY (conservative - bearish/credit spread):

BUY  CALL  APR-60  ELN-DL  OI=4587  A=$0.35
SELL CALL  APR-55  ELN-DK  OI=5068  B=$1.05
INITIAL NET CREDIT TARGET=$0.75-0.80  ROI(max)=17% B/E=$55.75

PFCB - P.F. Chang's  $32.69  *** Low Risk - Low Reward! ***

P.F. Chang's China Bistro (NYSE:PFCB) consists of full-service
restaurants throughout the United States.  P.F. Chang's owns and
operates approximately 50 full-service restaurants that feature
a blend of traditional Chinese cuisine and American hospitality
in a sophisticated, contemporary bistro setting.  Its restaurants
offer culinary creations, prepared from fresh ingredients with
herbs and spices imported directly from China.  Chang's menu is
focused on select dishes created to capture the distinct flavors
and styles of the five major culinary regions of China (Canton,
Hunan, Mongolia, Shanghai and Szechwan).  The Company's unique
restaurants operate under the name of P.F. Chang's China Bistro
and Pei Wei Asian Diner.  Pei Wei is a limited-service restaurant
that caters to a quicker, more casual dining experience than P.F.
Chang's China Bistro.

This position emerged in a scan of bearish spread candidates with
premium disparities and although there is a relatively small
credit in the position, the risk is very low as well.  Novice
traders might consider this play as a way to participate in their
first combination position and the well-defined resistance area
near the sold strike ($40) will make any potential adjustments
relatively easy for those who are new to spread-exit strategies.

PLAY (conservative - bearish/credit spread):

BUY  CALL  APR-45  HUO-DI  OI=1072  A=$0.25
SELL CALL  APR-40  HUO-DH  OI=207   B=$0.56
INITIAL NET CREDIT TARGET=$0.43-0.50  ROI(max)=9% B/E=$45.43


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