Option Investor

Daily Newsletter, Tuesday, 03/27/2001

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The Option Investor Newsletter                  Tuesday 03-27-2001
Copyright 2001, All rights reserved.                        1 of 2
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MARKET WRAP  (view in courier font for table alignment)
        03-27-2001        High      Low     Volume Advance/Decline
DJIA     9947.50 +260.00  9960.900 9649.80 1.31 bln   1941/1111	
NASDAQ   1972.24 + 53.75  2004.09  1922.78 1.93 bln   2205/1565
S&P 100   605.58 + 17.13   606.35   587.69   totals   4146/2676
S&P 500  1182.17 + 29.50  1183.35  1150.96           60.8%/39.2%
RUS 2000  452.88 +  5.50   452.88   444.39
DJ TRANS 2802.49 + 74.62  2811.20  2724.22
VIX        30.69 -  2.50    33.36    30.09
Put/Call Ratio      0.68

Nortel calls in sick, 15000 employees go home!

After an excellent day in the markets the warning virus returns
to haunt the recovery. You knew it was coming. Everybody has
been warning about coming warnings but when they appear the
damage is still severe. Nortel, Palm, Disney and Biogen were
just several of the big names which warned after the bell. On
the Nasdaq, which was positive but still shaky, that takes out
three sectors for Wednesday. The Networkers, PC and Biotechs
could all see renewed selling.

The warnings were expected. Not by name but still expected.
Writers for news sources everywhere had already blocked out
space for the after the bell news and only needed to pencil
in the names of the stocks and begin accumulating the
background material. The biggest name to warn was Nortel
which said the continuing economic slowdown would require
them to cut 15,000 jobs. Worse than the job cuts was the
guidance going forward. "No visible guidance is available
for the next twelve months." Translation, sales are really
bad, getting worse and we don't want to admit how bad it may
be or you will really trash our stock. Sorry but NT got
trashed anyway.

The real damage is not to NT stock but to everyone else that
is guilty by association. CSCO, SCMR, JNPR, GLW, JDSU, WCOM,
CIEN, etc. Just when the Nasdaq appeared to be gaining speed
for a breakout NT may have helped blow out the tires.

NT was not the only drag on the Nasdaq in after hours. PALM
announced earnings and it was not pretty. The actual earnings
beat the street but their guidance going forward was dreary.
They expect revenues to only be $300-315 million when analysts
were expecting over $500 million. Sales fell by -15% in
America and the average selling prices declined by -20%.
Let's see, slowing sales and falling prices, not a good recipe
for stronger earnings. Needless to say the other stocks in
this sector were killed along with PALM which fell from $16
to $10 in after hours. RIMM lost -$5 to $20, HAND fell from
$16 to $11. PC stocks like Dell and chip stocks fell in
sympathy and the outlook for weaker demand.

Problems were not limited to tech stocks but included biotechs
as well. BGEN reaffirmed their guidance for the quarter and
the year. The stock spiked up several dollars on the good news.
Wrong! The news was not good. The guidance they reaffirmed
was less than analyst estimates and when reality struck the
stock lost those gains and was trading significantly lower in
after hours. It is not nice to fool the analysts!

The good news, bad news joke for the day was the Consumer
Confidence Report. Just when you think everyone has the
economy figured out, something always surprises you. The
number came in at 117 which was the first gain in the index
since Sept-2000 and considerably more than the 104.9 estimate.
Investors cheered and began to throw money at stocks. But wait?
Yes, the consumer confidence may mean the fear of recession has
eased but it also means the Fed just moved from an aggressive
rate cut policy to a flat bias again. No more rate cuts? Has
the collective consciousness completely spaced this important
fact? That would mean investors are ready to look only at
earnings as a yardstick for investing. Earnings like PALM,
NT, BGEN and company. This proves that nobody can predict
market direction routinely. Ask any analyst yesterday what
would happen if the consumer confidence blew out the numbers.
They would have been falling all over themselves forecasting
a serious market drop. Quick to cover their bases today
analysts focused on the commitment by the Fed to inject
liquidity back into the economy and said consumer confidence
was not really that important anyway. Go figure!

Investor Warren Buffet made the news today when he said U.S.
stocks were still over valued and his companies were seeing
increasing impact from the shrinking economy. Still the bond
market continued to sell off with both the 10yr and 30yr
losing over a full point as investors raised cash to put
into equities. The Dow has now bounced +854 points from
last Thursday's low of 9106 with almost zero profit taking.
Before the NT warning analysts were expecting an assault on
10,000 again on Wednesday. Now the direction is up for grabs.
S&P futures are currently down over -7 in after hours and
would indicate a possible weak opening tomorrow.

With the Nasdaq showing weakness tonight in Biotechs,
Networking, Chips and the PC sector every investor will
be looking for that magic bounce. This is the bounce that
comes after bad news that says, "it was already priced in"
and would be the equivalent of a green light for investors
still on the sidelines. If these investors believe there
is no material risk at these levels then money will start
flowing again. Wednesday is shaping up to be a pivotal
day in determining if the recent three day rally has any
legs. This oversold rally has surprised everyone with the
Dow already recovering almost half of the previous drop.
Fund managers are now faced with an 800 point gain and
wondering if they missed the boat. Any strength from this
level could cause them to rush into the market in hopes
that the Thursday bottom was really a bottom and not just
another new low.

Enough about the market let's talk donuts. Krispy Kreme
to be exact. I am sorry, I thought all the hype over
the last year was just hype and the donut bubble would
eventually bust. I must confess, Denver did not have a
KREM store. Sure I have eaten them before in Vegas but
it is just a donut. A very good donut however. My eyes
have seen the light. The first Krispy Krem store opened
here in Denver on Tuesday. Opened to rock concert style
fanfare. People camped out at the store starting the day
before. People parked their cars in the drive through
since yesterday morning just to be first when it opened.
Really! When it opened at 6:AM this morning there was
a contingent of police to handle the hundreds of cars
lined up for blocks in every direction. Really! News
helicopters were everywhere reporting on the event. My
wife saw the news and thought she would run by and pick
up some donuts for our Tuesday editors lunch at noon.
There were still over a hundred cars in line waiting to
get into the parking lot and this was lunch time. I would
like to take this opportunity to apologize for the many
pointed comments I have made in the past year about KREM.
Little did I know it was the equivalent of taking shots
at DELL, QCOM or JDSU in their prime. I stand amazed at
the market power of KREM. Judging by the volume of donuts
sold in Denver today, a breakout over $40 has got to be

Enter passively, exit aggressively!

Jim Brown

If you have not reserved your seat at the Spring Trading
Expo here in Denver on April 5th-9th then you are missing
the best seminar we have ever held. This power packed
four-day event is structured to fully educate you not
only on advanced option strategies but stock analysis
as well. This will make you a better and more profitable

3rd Annual Trading Expo
April 5th-9th, Denver Colorado

Jeff Bailey, Editor, PremierBriefing.com
Learn the basics of Point and Figure Charting while analyzing
how supply and demand on an institutional level affects the
markets and the stocks you want to trade.

Mark Skousen, Ph.D., Editor, FORECASTS & STRATEGIES
The Global Economy and its Impact on Us.
Learn from a professional economist who turns his understanding
of economics into highly valuable investing advice.

Harry Browne, Author of Fail-Safe Investing
Sixteen Golden Rules of Failsafe Investing.
A powerful session that translates the essence of the book
into guiding principles.

Jim Brown, Founder, OptionInvestor.com
Austin Passamonte, Editor, IndexSkybox.com
Jeff Bailey, Editor, PremierBriefing.com
Preparing for Battle.  This is a very popular session where
multiple speakers team together offering insights on: planning
your trades and the combination of research, market factors, and
choosing your hot list.

Tom DeMark, Author of three books on DayTrading Options
Day Trading Options.  An extremely popular subject taught by one
of the world's foremost authorities on chart analysis.  Tom wrote
the book on day trading options, literally.

Steve Nison, Author, Japanese Candlestick Charting Techniques
Candlestick Charting.  Is that a doji or an evening star formation?
How can this benefit your trading success?  Candlestick chart
analysis is another hot topic that traders are always eager to
learn.  Nison is internationally recognized as the "Father of
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Austin Passamonte, Editor, IndexSkybox.com
Buzz Lynn, Contributing Editor, IndexSkybox.com
Beating the Market with Indexes.  This is another tag team event
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they discuss topics like:  Don't Pick Stocks, Pick Markets; and
Market Timing Equals Sector Profits.

Rance Masheck, President, SpreadTrader.com
Calendar Spreads & Bull Call Spreads.  Some of the first strategies
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Both simple and effective they continue to draw experienced traders
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Mark Skousen, Ph.D., Editor, FORECASTS & STRATEGIES
Scrooge Investing - The Best Bargains in Beaten Down Stocks for
2001.  This is a great topic and Mark's background as an economist
really offers some new insight into the challenge of choosing your

Jeff Bailey, Editor, PremierBriefing.com
Calculating the Bullish Percent.  Applying your new knowledge
in Point and Figure charting to decipher how many stocks in
a sector are showing buy signals.

Jim Brown, Founder, OptionInvestor.com
Austin Passamonte, Editor, IndexSkybox.com
Pre-Market Analysis.  A very popular session where multiple
speakers team together offering insights on: Pulling the Trigger,
Amateur Hour, and Market Hype.

Dick Arms, Inventor of the Arms Index, Founder, ArmsInsider.com
Increase your profit potential with Equivolume Charting, volume
adjusted moving averages and the TRIN

Derek Baltimore, Co-Editor, IntradayTrader.com
Risk Management in a declining Market

Buzz Lynn, Contributing Editor, IndexSkybox.com
Sector Trading with IShares.  You may know of DIAMONDS for the
Dow Jones, SPDRs for the S&P 500, and the QQQs for the NASDAQ but
there is a growing list of IShares and HOLDRS that offer great
trading potential.

Jon Najarian, Founder, Mercury Trading, Floor-Trader CBOE
Successful Option Trading. "Doctor J" is the name and options is
the game.  Jon has twenty years of experience as a professional
option trader.  His firm makes markets in over 90 high-tech and
biotech stocks and trades up to 40,000 options per day.

Matt Russ, Editor, OptionInvestor.com
How to Profit from Option Pricing, Market Making and Volatility

Rance Masheck, President, SpreadTrader.com
Straddles. An excellent strategy for today's markets.  Traders
should be very familiar with the proper execution of a straddle to
benefit from expected volatility.

Jeff Wright, Preferred Trade
Understanding Option Basics and the roll of an options floor trader.

Buzz Lynn, Contributing Editor, IndexSkybox.com
Slump Busting.  Are you on a losing streak?  Learn what you need
to do to BUST out and break the pattern.

Jim Brown, Founder, OptionInvestor.com
Big Cap Strategies, Naked Puts, Zero Risk Trading, Making Dollars
not Dimes.

Jim Crimmins, President, TraderAccounting.com
Tax Strategies for the Active Trader.  It's that time of year
again and Uncle Sam wants a cut of your trading profits.  Let Jim
offer some advice on how traders should handle such taxing issues.

Molly Evans, Writer/Trader, IndexSkybox & OptionInvestor.com
The Organized Trader.

Rance Masheck, President, SpreadTrader.com
Five Point Star Trader System.  Learn what you need to know
about a stock before making a decision to trade.

Austin Passamonte, Editor, IndexSkybox.com
Swing Trading & Day Trading Index Options.  Many consider Index
option trading to be the pinnacle of equity options.  Learn more
about the do's and don'ts for Index Option trading.

Eric Utley, OptionInvestor.com & IntradayTrader.com
Psychology of trading and the Importance of the top down
approach to trading.

Buzz Lynn, Contributing Editor, IndexSkybox.com
Trading with Qcharts.  Learn how to properly set up,
use, and deploy the best features and techniques.

Derek Baltimore, Co-Editor, IntradayTrader.com
Exit Strategies, knowing when to quit

Tim Taylor - Preferred Trade
Using Direct Access Trading Platforms

Each topic will be covered in 1-2 hr general sessions
taught by over 20 professional traders and presented on
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Unlike other seminars with only two or three instructors, you
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have attended a prior OIN seminar.

This is not a prepackaged presentation that gets repeated over
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Learn how to invest in the OEX, QQQ, and SPX.  Get intraday
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Banish The Bear
By Austin Passamonte

It's official: The bear market is dead! Our bottom is in place
and a return to new market highs is only a matter of time &
distance from here.

Well, first things first.

Traders decided that a surprisingly strong consumer confidence
report was bad for bonds & good for stocks. The fact that
interest rates wouldn't need pruning again real soon suddenly
turned bullish for equities. Hmm... we wonder how that concept
would have been viewed at this point in time last week or the
week prior.

Regardless, the markets are never wrong, just traders on the
wrong side of markets. Many were all scratching collective heads
(their own, not each other's) over the weakness in bonds this
morning, struggling SOX, dismal fundamentals etc. and still the
markets soared. Were there any clues we could have heeded?

Well, Jeff Bailey in PremiereBriefing.com pointed out last Friday
and this Monday how money began flowing out of 10-year notes as
their yields crept up to recent resistance. We noticed a clear
bull pennant forming on the daily charts and it was convincingly
broken this morning just past 10:00am. Soaring bond yields mean
money is rushing out, and where could it possibly go? Not in
techs as we learned but broad-market indexes proved the landing
pad today.

We happened to notice a surge in S&P 500 and Nasdaq 100 futures
contract volume with corresponding drop in open interest just
prior to Monday's closing bell over at the Chicago Mercantile
Exchange. What would that mean? Considering most of the open
interest is short, a rise in volume and drop in OI equates to
short covering on a quick & furious scale. Some players with lots
of short contracts suddenly decided they wanted out (or flat).
Interesting. Molly Evans pointed that out on the charts in last
night's IndexSkybox Market Wrap.

So we had an inkling, but still... the markets took off from
10:00am and never looked back. Just like that, the pain is over.

It Doesn't Make Sense
We know some fundamentalists who are beside themselves over such
irrational behavior. The exact-same stocks gutted like fish four
sessions ago are snapped up like caviar today. Has the current
global outlook changed that fast? Not at all; just human emotion
remaining the same.

The market is not rational, logical or understandable. How could
it be? Market action is nothing more than a collective vote of
every dollar invested and the human emotion behind it. Trying to
quantify that can drive a rational person insane. Less than sane
helps one survive a lengthy career in trading, for sure.

Where To Next?
So where is this collective vote registering now? Decidedly up,

Bonds got shredded, short covering turned to panic buying and all
systems go. We see the next points of overhead resistance likely
to cause upward action's pause for the moment:

Dow: 10,100
SPX: 1192
OEX: 611
NDX: 1786
QQQ: 44.50
Comp: 2017

These 20 day moving averages and points of recent resistance may
be reached soon as tomorrow and cause consolidation from there.
That may be a challenge, especially for the techs as a few minor
warnings ripple through the marketplace. No telling what impact
that will have on tomorrow's overall action until we get past
10:00am or later.

The Market Is Flat!
Actually, Nasdaq indexes have been consolidating for the past two
weeks with very little movement on their part. Tech bulls who
recall past glory may long for the days of big movement in the
Nasdaq markets, but it could be a long wait for such to return.
We are gradually seeing an avoidance of techs and most of the
action taking place in other broad market sectors.

Please understand we do not bash the Nasdaq here, but simply
state the obvious: most of their components have fallen and
cannot get up in our lifetime. That means a new crop must
materialize and emerge to lead techs forward from here. Yahoo or
Inktomi at $300? Qualcomm at $800? Never again while we exist to

The Dow has gained 840 index points from it's low last Thursday,
while the NDX is up a paltry 135 and the COMPX 172. Those used to
be gap-open moves back in the day, not 3 1/2 full session's
movement. Heck, the SPX itself is up 100+ points to almost
surpass the NDX itself!

We elaborate here to make a very important point: Nasdaq are NOT
the market. For a very brief moment in time that was true and
could happen again in the future but it won't be tomorrow.
Traders must be prepared to follow the money and right now that
flows within other sectors.

Bye-Bye Bear?
Sure, if no more big caps or blue chips warn. If no banks or
funds actually fail, if the energy crisis solves itself and the
Fed continues to cut interest rates at every turn the bottom is
behind us.

It will be awhile before the prevailing downtrend is broken and
bull market resumes. A common occurrence in bear market rallies
is the fact that no one believes in them while they unfold, and
everyone starts to relax & turn bullish just when the move is
over. It's the constant change and whipsaw action that makes
trading such a challenge during these times.

We still expect further tests of recent market lows somewhere in
the medium future. Ultimate bottoms do not usually form when
everyone stares in anticipation. They usually happen when no one
really cares anymore. Meanwhile, we should see tradable action in
both directions as volatility reigns.

Long-term plays are out of the question right now. Distant-month
puts get trashed on spikes like this and distant-month calls
against the trend is not a recipe for fiscal success, either.
Short-term plays, small amounts of capital, defined profit
targets and especially exit points are paramount these days and
into the future from here.

Trade the daily trend with care and seize modest profits when


Tuesday 03/27 close: 30.69

Tuesday 03/27 close: 66.60

30-yr Bonds
Tuesday 03/27 close: 5.46%

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. A reading above 10.00 is considered viable
resistance or support respectively within that general strike
price range.

  (Open Interest)        Calls         Puts        Ratio
S&P 100 Index (OEX)
645 - 630                6,414        2,323         2.76
625 - 610                7,477        2,074         3.61

OEX close: 605.58

600 - 585                9,648        7,294          .76
580 - 565                2,650        9,344         3.53

Maximum calls: 600/ 3,981
Maximum puts : 520/ 7,994

Moving Averages
 10 DMA  587
 20 DMA  611
 50 DMA  659
200 DMA  734

NASDAQ 100 Index (NDX/QQQ)
 52 - 50               106,050        14,626         7.25
 49 - 47               174,382        41,268         4.23
 46 - 44               194,342        63,965         3.04

QQQ(NDX)close: 43.25

 42 - 40               122,183       102,738           .84
 39 - 37                11,071        73,345          6.63
 36 - 34                 7,834        59,201          7.56

Maximum calls: 45/120,826
Maximum puts : 43/75,480

Moving Averages
 10 DMA 42
 20 DMA 44
 50 DMA 53
200 DMA 76

S&P 500 (SPX)
1250                   15,912        16,959           .94
1225                    7,111         6,957          1.02
1200                   12,304        14,303          0.86

SPX close: 1182.17

1175                    5,656         6,907          1.22
1150                   13,454        15,966          1.19
1125                    1,053         7,787          7.40

Maximum calls: 1275/19,775
Maximum puts : 1100/19,443

Moving Averages
 10 DMA 1151
 20 DMA 1193
 50 DMA 1273
200 DMA 1382


CBOT Commitment Of Traders Report: Friday 03/23
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	
S&P 500          (Current) (Previous)     (Current) (Previous)
Open Interest
Net Value         +70479     +78245        -69490     -94842
Total Open
Interest %       (+38.13%)  (+29.35%)     (-9.63%)   (-11.74%)
                 net-long   net-long      net-short  net-short

DJIA futures
Open Interest
Net Value          -2516      -1981         -2696     -1491
Total Open
interest %       (-19.73%)  (-15.88%)     (-11.17%)  (-4.35%)
                 net-short  net-short     net-short  net-short

Open Interest
Net Value          +3555                    -8928
Total Open
Interest %       (+21.46%)                (-12.57%)
                 net-long                 net-short

What COT Data Tells Us
Indices: For the second week in a row the Commercials have
reduced their net-short positions on the S&P 500. In addition,
Commercials have added substantially to their net-short positions
on the DJIA.

Currencies: Commercial traders continue to build net-long
positions in the Japanese Yen

Metals: Commercials in the silver market are near a five-year net
long extreme.

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 03/20 by the CFTC.


Please visit this link for Market Posture:



Dollar Cost Averaging
By David Popper

One of the oldest and most highly recommended methods of
investing espoused by investment professionals to the
public is the concept of dollar cost averaging.  The idea
behind dollar cost averaging is that from their view, it is
impossible to time the market.  Therefore, it makes sense not
to become fully invested all at once, but rather to put in a
fixed amount monthly.  When the market is low, you will buy
more shares and when the market is higher, you will buy less
shares.  In this way, an investor can take advantage of market
volatility without having even the faintest understanding of
technical analysis.  Though long-term "buy and hold" is not
my cup of tea, I believe that lessons can be learned from our
mutual fund long-term holding friends.

When one buys mutual funds through the dollar cost averaging
method, two safety features become built into the investment
plan.  The first is diversity of holdings.  Obviously, the
mutual fund holder will not be exposed to the risks or rewards
of a highly concentrated tech portfolio.  The fund holder will
be less lucrative in the good times but it will be much safer
in the poor times.  The second safety feature is diversity of
timing.  If one bought a slate of mutual funds in March 2000,
that investor would be in trouble.  Those same funds invested
incrementally over the next 12 months would have yielded a
substantially better result.

What if traders could employ these two safety features and still
obtain excellent returns? It only makes sense to employ as many
safety features into a trading method as is possible, while still
achieving a trader's goal.  As a matter of fact, most serious
books on trading spend most of the time on discipline and safety.
Without trading disciplines that protect a trader during a downturn,
an account will surely blow up.  So, back to the question,
how can a trader employ these two safety features?  I will try
to outline a plan below:

diversity. For example, one could trade the QQQ (NASDAQ:QQQ).
The QQQ is a weighted composite of the top 100 NASDAQ
stocks, excluding financial stocks. It covers a variety of
sectors. Therefore, when one stock falls out of bed, the QQQ
doesn't move much.  There is the protection of diversity.
There are other trading vehicles.  Currently, many are
products developed by Merrill Lynch and are listed on the
American Stock exchange's website.  These products allow you
to be represented in a sector without being responsible for
picking an individual stock.  The holders typically include
twenty or more positions which represent stocks in the sector.
You can write covered calls against the QQQ or Holders.  You
can also write covered calls against certain index funds
representing the S&P 500.

MONTHS.  No matter what you may have purchased over the past
year, unless you are an excellent daytrader with the time to
watch the market on a tick by tick basis, chances are your
positions are underwater. If you were to divide your assets
into four equal parts and begin to buy the QQQ and write a
covered call out 3 months, your premium would be between 12 to
15%.  You would only have 25% of your portfolio at risk.  If
the market dropped, you would have serious protection.  If
the market ran up, so be it.  The next month, you would employ
another 25% of your assets.  This would be an entirely
different play, even if still using the QQQ because the entry
point into the stock and the strike price of the option would
be very different.  Now you have 50% of your assets employed.
On the third month, you would again repeat the process and
would have 75% of your assets in the market.  At the end of
the third month, the original options on the first 25%
position would expire and so that same 25% would be redeployed
and so forth.  After three months, there would be an option cycle
 expiring every month and thus a monthly premium would
be captured. You would be able to stay in sync with the market
because you are never fully invested and so you always have
some flexibility.  You may have noticed that the final 25% was
never discussed.  In my opinion, there should always be some
cash in a portfolio for flexibility and for emergencies.  That
25% would stay in cash in my portfolio.

In real life, how would this work?  For simplicity's sake, let's
use $100,000.  On month one, if $25,000 of QQQ was purchased,
and calls were written for the July expiration, I could expect
to recover a premium of $3000 to $3750.  At May expiration,
I would employ the next $25,000 and write August calls and
receive a similar premium.  At the June expiration, I would
write the September calls.  At the July expiration, the first
calls would have expired and I can deploy that 25%. After
the initial startup, I would be receiving between $3000 and
$3750 monthly, while keeping $25,000 in reserve.  True if the
market implodes, even this method will not save you.  Even
mutual funds are down now.  You will be hurt less, however,
while still drawing a nice monthly premium.


A Further Look at Valuations: Semiconductors
By Scott Martindale

According to Lawrence Kudlow on CNBC last week, a signal of good
growth and liquidity would be a normal yield curve and a $30
bounce in gold prices, and these should be the objectives of the
FOMC.  Do you think they are?  The Fed has certainly been slow to
correct their previous overly aggressive rate hikes. The good news
is that rates are gradually rolling back, the Fed is creating
money faster than ever, and they are encouraging banks to lend
aggressively. Since 1921, there have been 13 cases when the Fed
has eased rates three times. The market has gained an average
28.7% to its high in the 12 months thereafter. In 1998, the Nasdaq
gained 77% in 10 months after the Fed cut a third time. Similar
relief rallies occurred in 1975, 1982, 1985, 1991 and 1996. When
the Fed gets serious about "saving" the economy, you can generally
count on them to succeed.

Furthermore, keep in mind that the Nasdaq's outsized weighted-
average P/E you often hear about is a bit misleading since it is
skewed by a few unprofitable big names.  But the median P/E (equal
number of stocks above and below) is only around 30, which implies
a PEG ratio in the range of 1.5 - 2.0 -- certainly not outrageous
for an index that tracks a lot of young, high-growth companies.
The only problem has been finding enough players (i.e., buyers) to
participate.  Some of them are starting to gather, including some
friends of mine who have stayed in cash for months.

John Bollinger was on CNBC today telling us that the NYSE
advance/decline line is rising in a way that is not indicative of
bear market behavior.  So although the Nasdaq has experienced a
nasty bear, NYSE stocks have not.  These companies are the primary
buyers of new technology, so if monetary and fiscal policy succeed
in preventing a recession, we may have seen the bottom in the

Two weeks ago, after one of the recent short-lived rally attempts,
I mentioned that I was quite impressed with the day's performance
of BEA Systems (NASDAQ:BEAS), Human Genome Sciences (NASDAQ:HGSI),
Juniper Networks (NASDAQ:JNPR), Mercury Interactive (NASDAQ:MERQ),
and Ballard Power (NASDAQ:BLDP).  Despite relatively high
valuations, I observed that they are fast growers and may be some
of the bigger gainers in the next sustained rally.  How are they
doing in this current rally?  They are all either holding steady
or rallying strongly.  I'm beginning to think that this might be
a nice little basket of high-potential stocks to hold.

Nevertheless, I'm staying cautious until any tax selling (raising
cash to pay 2000 taxes) over the next two weeks is over.  In fact,
I'll be looking to sell covered calls this week into strength on
some of my long-term positions.

Finally, I'd like to talk again today about valuations,
particularly in the sector that is the engine of all new
technologies and the leading indicator of a recovery -
semiconductors.  Let's compare a random sampling of some players
in this sector with respect to their historical volatility, P/E
(TTM -- trailing 12 months), P/E (estimated fiscal year 2001), and
PEG (ratio of P/E to consensus estimate of 5-year earnings growth
rate).  [Listed in descending order of market cap.]

                                 Volat.  P/E(TTM)  P/E(2001)  PEG
Texas Instruments (NYSE: TXN)     78%      21        36       1.63
Applied Materials (NASDAQ: AMAT)  81       19        26       1.05
STMicroelectronics (NYSE: STM)    73       21        21       0.94
Xilinx (NASDAQ: XLNX)             83       53        29       1.07
Broadcom (NASDAQ: BRCM)          136        0        67       1.37
Applied Micro (NASDAQ: AMCC)     153        0        38       0.89
PMC-Sierra (NASDAQ: PMCS)        160       62        40       0.95
QLogic (NASDAQ: QLGC)            151       42        26       0.73
Int'l Rectifier (NYSE: IRF)      123       21        17       0.64
TriQuint Semi (NASDAQ: TQNT)     114       21        28       0.88
Elantec Semi (NASDAQ: ELNT)      180       28        26       0.74
Ibis Tech (NASDAQ: IBIS)         145        0       241       48.0

Many consider AMAT to be the sector leader because of its dominant
position in wafer fabrication equipment and spare parts. The SOX
index has consolidated a bit this week after last week's run-up,
but if it's true that technology cannot recover without the chip
sector leading, and if it's true that AMAT is the flagship for the
chip sector, then it should lead any resurgence in the Nasdaq.
However, AMAT, TXN, STM, and XLNX, probably won't be the biggest
percentage movers due to their lower historical volatilities.

For higher volatility, and thus greater potential moves, you can
look to the mid and lower cap stocks, whose volatilities reach
well above 100.  The call options are more expensive, but the
potential is greater, and of course the premiums for put writing
are more lucrative.

Almost all on the list have reasonable valuations.  My favorites:
AMAT for its low business risk and general market dominance, IRF
because of its market position in power chips, and AMCC because of
its strength in communications chips.

Mark Leibovit, the #1 market timer in the nation.

Mark is Chief Market Strategist for VRTrader.com, a Premier
Investor Network website, a technical consultant and former
'Elf' on Louis Rukeyser's Wall Street Week for 7 years.
His Annual Forecast Model has been subscribed to by Wall
Street's most elite. Mark is presently ranked #1 timer in
the nation by TIMER DIGEST and #2 on AmericasBestTimers.com.

For information on his extremely accurate Annual Forecast
Model for your own viewing, click here:


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.


NEWP $35.31 -4.90 (-4.79) Up until this afternoon, NEWP's stock
had been acting fairly well, making a series of higher lows and
higher highs over the past few trading sessions.  The stock
started out today trading higher but just after lunchtime, NEWP
fell sharply on accelerating selling volume.  Rumors that large
customer Corning (GLW) had cancelled orders may explain the drop,
but the CEO came out to say that there were no order
cancellations and reaffirmed guidance going forward.  While NEWP
attempted to bounce near the end of the day, the damage was
already done.  Closing below our stop price of $37, we are taking
our money off the table.


BMC $22.13 +1.88 (+1.54) Throughout this past month, the 5 and
10-dma have acted as formidable resistance for the stock during
its recent decline.  Yesterday, the company announced a
multi-year customer win in Computer Sciences Corporation, and
while the stock did close down for the day, it's short-term
moving average provided support along with the psychological $20
mark.  Today, BMC gained over 9 percent in sympathy with a
rallying market.  While volume was low, less than 30% of ADV, the
move suggests that momentum from the downside may now be in the
process of reversing.  With that, and the close above our stop
price of $21, we are dropping coverage of this play.

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The Option Investor Newsletter                  Tuesday 03-27-2001
Copyright 2001, All rights reserved.                        2 of 2
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ELNT $29.94 -0.81 (-1.75) Today, the leader in high-performance
analog ICs and Central Office DSL line drivers introduced a new
family of CPE line drivers to their comprehensive suite of
solutions.  Although the news didn't give ELNT a much-needed
boost of adrenaline, the share price nonetheless towed the line
at the $29 and $30 support.  A high-volume move off the 5-dma
($29.54), in conjunction with a flurry of activity above the $32
level, implies future strength and signals that additional
entries may be the cards.  If you prefer more conservative
strategies, wait for the big breakout through $33.  Bullish
action to the upside of overhead resistance at the 50-dma
($35.50) would be the icing on the cake; particularly if you
have open positions.  In light of the current consolidation
following last week's run-up, we've revised our closing stop to
$29 to safeguard against weakness.  And coming up after the
close of trading on Friday, ELNT will replace Morrison
Management Specialists (MHI) in the Standard & Poor's SmallCap
600 Index.

VRSN $37.63 +2.38 (+4.25) One of the reasons we initiated
coverage on this highly aggressive call play yesterday was due to
the favorable risk/reward ratio.  We recommended high-risk
entries on bounces off the 5 and 10-dma.  Coupled with a closing
stop at $32, and the strong possibility of a bounce with a clear
path to $37, the potential gains appeared to outweigh the
inherent risks.  Nimble traders who executed this play on a
bounce off short term moving average support (with the 5 and
10-dma converged just above $34.50) this morning were amply
rewarded, as the stock used this level as a launching pad to end
the day up 6.74 percent on above average volume.  At this point,
it appears that the bears have drawn their line in the sand at
$39.  A bullish surge above this point should give conservative
traders a potential entry while the more aggressive may target
pullbacks to support at $37, $36, $35 and $34.50.  Correlate
entries with strength in sector sisters CHKP and RSAS.  Please
note that we have adjusted our closing stop price up, from $32 to

PMI $61.19 -1.02 (+1.31) On Monday, PMI broke out above heavy
resistance at $61, with a burst of momemtum which carried the
stock all the way up to $63.95, before profit taking ensued.
Traders who took positions last week at proper entry points
could have been richly rewarded by this move.  On Tuesday, PMI
consolidated just below the 10 dma of $61.49, establishing
support at a new higher low.  A nice smooth line connects the
higher lows and higher highs since March 14, and PMI has moved
back into this channel on Tuesday, after breaking out to the
upside.  At this point the most likely scenario would seem to
be a move up to the next resistance level at $62.  Traders could
take positions at the current level in anticipation of such a
move.  More conservative traders might want to wait for another
hyperactive breakout like the type PMI experienced on Monday.
It looks like the insurance sector, IUX.X, is ready and able
to lead the way, as the sector surged up toward the close with
a bullish candlestick pattern.  Remember that PMI has an average
daily volume of only 360,000 shares, so a little volume goes a
long way.  We are moving stops to $60, so close positions if
PMI closes below the $60 level.


AETH $15.00 -0.56 (-1.44) Things continue to be quiet on the news
front for AETH and with that, the stock has resumed it slow and
steady descent.  Opening near resistance yesterday from the
10-dma, the stock drifted lower to also close below its 5-dma.
While volume was light, the action was most certainly bearish.
Today, in the face of a rising NASDAQ, shares of the wireless
software maker gave up another 3.61 percent on over 1.3 times the
ADV.  This move came despite positive comments from US Bancorp
Piper Jaffray, who re-iterated their Strong Buy rating and $100
price target.  Closing right at key support at $15, continued
selling pressure tomorrow could allow for an entry on weakness,
provided that peers CMVT and OPWV confirm downside movement.
Aggressive entries may be gained on failed rallies at the 5 and
10-dma (now at $15.82 and $16.68 respectively), along with our
closing stop price of $17.  When considering such an entry, wait
for selling volume to confirm the rollover before making a play.

MDT $45.44 +1.43 (-0.44) MDT traded in a very narrow range on
Monday, from $44.30 to $45.09, after reiterating its previously
forecast guidance for earnings growth in the mid teens.  On
Tuesday, MDT rallied to $46.50 in the morning, probably due
to the excitement in the health care sector due to Johnson &
Johnson's takeover of Alza.  By mid afternoon the excitement
wore off, and MDT rolled over from $46 to $45.44, confirming
the series of lower highs established early in March at major
resistance levels of $50, $48, and $45.44.  Volume increased
on the downside, indicating that sellers took control of the
situation.  The medical products and services sector performed
well today, but it is too early to confirm a true trend, as this
may have been a reaction to the J & J Alza deal.  Traders can
take positions on a roll over from current levels, which would
most likely lead to support at $44.  Conservative traders might
want to wait for a break below $44 on heavy volume, which could
lead to the next support level at $42.  Watch others in the sector
like BAX and BDX, and move stops to $46.  We will close the
position if MDT closes above $46.

OPWV $23.00 -1.84 (-1.56) OPWV bucked the trend on one of the
strongest market rallies we have had in weeks.  While OPWV moved
in a vary narrow range between $24.56 and $25.49 on Monday,
OPWV experienced a sharp drop to $21.15 on Tuesday morning, and
a subsequent rally to a lower high consistent with the two week
pattern.  Tuesday's selling occurred on heavy volume of over
7 million shares, nearly 15% higher than the average daily
volume, which sets OPWV in a precarious position going forward.
If the markets experience a pullback or any profit taking in the
next couple of days, OPWV is likely to roll over from the $23
level to the next support level at $21.  The near term outlook
for OPWV seems particularly bleak, considering the fact that
Robertson Stephens downgraded the stock from a strong buy to a
buy on Monday.  While analyst Marianne Wolk states that OPWV has
a $300 million backlog of business, the company is experiencing
some near term weakness in messaging due to the difficult macro
environment.  Aggressive traders could take positions at current
levels, particularly if others in the sector such as CMVT are
weak.  Conservative traders could wait for a break below $22.62
on strong volume, particularly if accompanied by weakness in
the broad indexes.  We are keeping stops at $26, so close the
position if OPWV closes below this level.

ENE $60.46 -1.02 (+1.06) Waiting for conviction in the middle
of another powerful broad market advance, ENE did manage a
slight drop today.  The premise behind our play is the
descending wedge that has been developing over the past 6
weeks.  With the descending trendline now resting at $61.75, we
have a clearly defined level at which to initiate new plays
should the broad market run out of gas in the days ahead.  The
DJIA has now recovered approximately half of its staggering loss
from last week, and is only about 60 points from major
resistance at 10,000.  Should the bears return, ENE is likely to
head further south, pressured by the descending trendline and
the 10-dma ($60.65).  A rollover from either of these levels
looks attractive for aggressive traders to initiate new
positions, while the more conservative approach will be to wait
for shares to fall through the $59 intraday support level before
taking a position.  Given the lack of an upside bias today, we
are adjusting our stop down to $62.

LLL $77.48 +2.48 (+2.48) Observant bears got an attractive entry
point into our LLL play midday today, as the stock rolled just
below $79, right at the 10-dma ($78.81).  Propelled higher with
the broader market in the morning, bulls had to have been
disappointed by their stock's inability to hold onto all its
early gains.  In defense of the bulls' positions, LLL did still
manage to close positive for the day, just above the $77 support
level, helped by a buying surge near the close.  The volume
picture was actually pretty bullish today, as the daily volume
came in nearly 70% above the ADV, with most of it on the buy
side.  So where do we go from here?  Aggressive entries can
still be considered on a failed rally below our $80 stop.  More
conservative traders will want to see the $77 intraday support
level violated on strong volume before taking a position.  Keep
an eye on the $73 level, as it has managed to provide support
over the past week.  This is a good point to take profits or at
least tighten up your stops.

VRTS $54.92 +4.86 (+1.04) Avoiding the drop list by a whisker
tonight, VRTS had quite a bullish day indeed.  Gaining nearly $5
on the session, our play continued yesterday's recovery on solid
volume, ending the day just a fraction below our $55 stop.
Either the stock is poised to break higher, or we are setting up
for an attractive entry point as the bulls are turned back near
the $55 resistance level.  Yesterday's dip below $50 put the
first chink in that level as support, and renewed Technology
selling tomorrow could be just what we need to drive VRTS to new
lows.  Earnings warning season is upon us, and as companies step
forward with their confessions, (we've already heard from NT,
PMCS), Technology stocks are likely to remain under pressure.
This continued bearish sentiment is just what conservative
investors will be looking for in order to initiate new positions
on a drop below support.  Target a drop below $52.50, and then
$49 for new entries.  Watch the Computer Software index (GSO.X)
for confirmation of weakness in the sector before playing.

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ERTS - Electronic Arts Inc. $54.75 +3.00 (+2.75 this week)

Electronic Arts is the leading independent interactive
entertainment software company that develops, publishes and
distributes products for personal computers and advanced
entertainment systems such as the PlayStation and Nintendo 64.
Since its inception, EA has garnered more than 700 awards for
outstanding software in the U.S. and Europe.  Combining such
diverse media as video, photographic images, computer graphics,
and stereo sound with the work of professional story writers and
Hollywood film directors, EA is breaking traditional boundaries
and evolving into a 21st century high-technology entertainment

It's been said in real estate that the secret to making money is
location, location and location.  As the leader in the gaming
software space, ERTS has found itself in the right place, at the
right time and owning some of the hottest properties.  In the New
Economy, the world of video games is undergoing a fundamental
change.  Where once, users contented themselves with blasting
computer-controlled sprites, the Internet has taken gaming to a
whole new level, connecting users all over the world in
interactive competition.  What's more, the demographic for
computer-based entertainment has expanded.  No longer the sole
domain of children and teenagers, video games have captured (or
some would suggest, retained) a wider and more mature audience,
with penetration especially evident in the sweet spot in the ages
of 20-30.  With well-known brands such as Origin Systems (known
for their Ultima series, which has been in existence for over a
decade) and bestseller EA Sports under their control, the company
appears poised to take advantage of newer and higher-powered
gaming consoles (including the upcoming X-Box from Microsoft)
coming later this year.  A breakout above formidable resistance
at $55 on strong buying volume could provide conservative traders
with an entry on strength.  From there ERTS could challenge its
52-week high, just below resistance at $58.  Entries on pullbacks
may be found below, with support from the 5 and 10-dma, at $51.95
and $51.01 respectively.  Just be aware that we are placing our
closing stop right below the 10-dma, at $51.  When making an
entry, keep an eye on rivals ATVI and THQI to confirm upward

BUY CALL APR-50 EZQ-DJ OI=2810 at $7.50 SL=5.25
BUY CALL APR-55*EZQ-DK OI=2011 at $4.50 SL=2.75
BUY CALL APR-60 EZQ-DL OI=1316 at $2.50 SL=1.25
BUY CALL MAY-55 EZQ-EK OI=  67 at $6.75 SL=5.00
BUY CALL MAY-60 EZQ-EL OI= 135 at $4.63 SL=2.75


QCOM - Qualcomm Inc. $59.88 +3.25 (+1.00 this week)

Qualcomm Incorporated is a leader in developing, delivering, and
enabling innovative digital wireless communications products and
services based on the Company's digital technologies.  As the
pioneer of Code Division Multiple Access (CDMA), the technology
of choice for next-generation wireless communications, Qualcomm
continues to lead the industry in the development of voice, data,
and wireless Internet products and solutions.  Qualcomm is also
transforming industries through its various satellite businesses
and technology partnerships.

Since finding support at the $57 level in the middle of March,
shares of CDMA wireless networking giant Qualcomm have been
drifting up, as can be seen in a series of higher lows and higher
highs.  A large capital expenditure on the part Verizon Wireless
(VZ) to the tune of $5 billion helped to boost QCOM's share price
recently, as expectations that VZ would adopt CDMA2000 ignited
investor interest.  The company has also been announcing and
showcasing a host of new products aimed at promoting its 3G
wireless architecture.  News today that Korea is favoring QCOM's
solution for their next generation wireless deployment program
combined with a good day for the NASDAQ resulted in a gain of
5.75 percent on over 1.3 times the ADV.  If QCOM can clear strong
resistance at $60 with conviction, this could provide more
cautious traders with an opportunity for entry.  Pullbacks
intra-day to support from the 5 and 10-dma (near horizontal
support at $58 and $55.63 respectively) may allow higher risk
players to take a position.  Just make sure that the stock closes
above our protective stop price, placed at $57.  With QCOM being
one of the larger stocks in the NASDAQ by virtue of its market
capitalization, keep track of changes in the NASDAQ 100 (NDX,
QQQ), as movement in the large cap Tech stocks could provide a
clue as to where QCOM could move next.

BUY CALL APR-55 AAO-DK OI=5357 at $ 8.38 SL=6.00
BUY CALL APR-60*AAO-DL OI=9458 at $ 5.25 SL=3.00
BUY CALL APR-65 AAO-DM OI=8744 at $ 3.13 SL=1.50
BUY CALL MAY-60 AAO-EL OI= 448 at $ 7.75 SL=5.75
BUY CALL MAY-65 AAO-EM OI= 837 at $ 5.75 SL=4.00


M0 - Philip Morris Cos $47.23 +1.98 (+3.83 this week)

Philip Morris Companies is the world's largest tobacco firm,
controlling about half of the US tobacco market.  The Marlboro
name is their most valuable brand; although Benson & Hedges,
Parliament, and Virginia Slims brands have made their mark
across the globe, too.  The company also derives a large
proportion of its profits from its Kraft food and Miller beer
subsidiaries.  Its Kraft Foods unit is the #1 food company in
the US and #2 throughout the world.  Some household brands that
you're likely familiar with include Jell-O, Oreo, Ritz, Kool-
Aid, Maxwell House, and Post cereal.

If there ever was a market to pick and choose with care, it's
this one.  Investors are treading softly as key economic data
effectively plays havoc with market sentiment and their pocket
books!  And despite the dirt-bottom prices of the tech stocks,
it now appears more fashionable (and safe!) to invest in the
slower growing, or so-called value stocks, rather than the high-
flying growth stocks.  As it is, MO has been making a strong
charge off last Thursday's $41.47 low.  The building intensity,
especially if accompanied by a sustaining rally on the DOW, is
likely to carry the share price back above the $50 level.  A
challenge of March 9th's 52-week high ($52.04) would be optimum.
For now, we're looking for the strong uptrend to remain intact;
and importantly, for MO to make a clean break of the immediate
resistance at the 30-dma line, currently tracing the $47 level.
A convincing bounce off the $45 support on a pullback or a
direct move off $47 invites the more risk-oriented traders to
jump into the developing momentum - wait until after amateur
hour!  Consider taking profits as MO approaches the $50
resistance.  Locking in gains early protects against getting
caught in a sharp rollover.  Remember, there's still money to be
made if MO moves 3 to 5 points over the short-term and then
cycles back again for another round.  The company is confirmed
to report earnings on April 17th, so there's also the
possibility of this momentum play developing into an earnings
run.  It's not likely there'll be any earnings surprises from
the company.  And today, CEO Geoffrey Bible reiterated that
Phillip Morris Cos still isn't interested in separating its
tobacco business from its food and beverage units;
notwithstanding investor pressure.  Instead earlier in the
month, Kraft filed with the SEC to raise as much as $5 bln in an
IPO, the third-biggest such filing in U.S. history - Phillip
Morris would maintain over 80% of the new company.

BUY CALL APR-40 MO-DH OI=  852 at $7.60 SL=5.25
BUY CALL APR-45*MO-DI OI= 8050 at $3.40 SL=1.75
BUY CALL MAY-40 MO-EH OI=  277 at $8.20 SL=5.75
BUY CALL MAY-45 MO-EI OI=  443 at $4.50 SL=2.75
BUY CALL MAY-50 MO-EJ OI= 1346 at $2.00 SL=1.00




DPMI - DuPont Photomasks Inc. $47.01 -3.24 (-2.97 this week)

DuPont Photomasks leads the photomasks industry with one of the
most technically advanced manufacturing networks.  The company
supplies photomasks to the global semiconductor industry from
13 strategically located facilities in North America, Europe,
and Asia, and derives 25 percent of its current revenues from
leading edge photomasks with .18 micron or smaller design rules.
DuPont photomasks also produces and supplies photoblanks and
pellicles.  Headquartered in Round Rock, Texas, DuPont Photomasks
posted worldwide sales of approximately $328 million in fiscal

DPMI shareholders were subjected to a wild roller coaster-type
ride with their shares over the last several months, as DPMI
surged from $38.82 on November 30, to a high of $88.80 on
February 15.  Subsequently, the stock failed to rally past
$84.68 on March 7, and made an extraordinarily steep and sharp
plunge to $40 on March 22, losing over half of its market
capitalization in two weeks.  While DPMI reported record
second fiscal quarter earnings on January 23 of 64 cents per
share, compared with 27 cents the year ago quarter, DPMI's
CEO Peter Kirlin stated that photomask unit demand is
principally driven by new product designs, and tends to lag the
semiconductor industry by six to eight quarters.  This news
was not received well by investors, as DPMI may not yet have
seen the impact of slowing demand and inventory buildups in
the semiconductor sector.  On March 19, DPMI cut their guidance
for the third fiscal quarter by over 16%, stating that their
earnings should be in the range of 53 to 66 cents, compared
to the analysts' expectations of 79 cents per share, due to
slowing demand in the semiconductor industry.  While some
analysts think that the inventory correction in the SOX.X could
be over in the next two quarters, DPMI might not have seen the
worst of it, as their demand lags the action in the chip sector.
DPMI is now deeply below the 200 dma of $63.45, and the 50 dma
of $70.86.  Over the last few days, DPMI has rolled over from
its 10 dma of $50.15 to find temporary support at the $47 level.
Aggressive traders could take positions at current levels if
accompanied by weakness in the SOX.X   A break below $45 on
heavy volume would be very bearish, and another good entry point.
We are setting stops at $51, so close positions if DPMI closes
above this level.

BUY PUT APR-45*DUD-PI OI= 77 at $3.00 SL=1.50
BUY PUT APR-40 DUD-PH OI-154 at $1.45 SL=0.75


GENZ - Genzyme General $89.51 +2.56 (+5.26 this week)

Genzyme General, a division of Genzyme Corporation, is focused
on developing innovative products and services to solve major
unmet medical needs.  GENZ has nearly 600 products and services
on the  market and a strong pipeline of therapeutic products for
the treatment of rare genetic diseases.  The Diagnostics
business unit develops, markets and distributes in vitro
diagnostic products and genetic testing services. With a solid,
profitable revenue base, this research is intended to maintain
the company’s high rate of earnings growth.

We may be a bit early to this party, but we are looking for a
rollover in shares of GENZ to provide us with an aggressive put
play over the next several days.  After bottoming with the
broader Biotechnology index (BTK.X) last Thursday, the stock
has bounced from a low of $72 to a just north of $90 in today's
session, a 25% move in less than 4 days.  In the current market
environment, it seems the stock has come too far too fast, and
with the looming resistance at $90-91, the bears are bound to
come calling soon.  Getting the current recovery underway last
Thursday was Goldman Sachs, upgrading the stock from Market
Perform to Market Outperform.  Whether the upgrade had anything
to do with the recent gains, it seems safe to say that the stock
has exhausted that fuel by now.  Volume has dropped back to the
ADV, and aggressive traders can consider new positions as the
stock heads south from current levels.  We are playing this one
with tight stops, set at $91, as a move above that level will
indicate the rally still has legs.  Keep an eye on the BTK.X, as
weakness in the broader sector is likely to lead GENZ lower.
More conservative players will want to wait for weakness to
develop before playing and a drop through the $86 support level
(just above today's gap open) will be the trigger to watch for.

BUY PUT APR-90*GZQ-PR OI=675 at $6.00 SL=4.00
BUY PUT APR-85 GZQ-PQ OI=182 at $3.90 SL=2.50
BUY PUT APR-80 GZQ-PP OI=471 at $2.45 SL=1.25



VRTS - Veritas Software $54.92 +4.86 (+1.04 this week)

As an independent supplier of storage management software,
VRTS develops and sells products that protect against data
loss and file corruption, allowing rapid recovery after disk
or computer system failure.  The company's products provide
continuous data availability in clustered computer systems with
shared resources. This enables IT managers to work efficiently
with large file systems, making it possible to manage data
distributed on large computer network systems without harming
productivity or interrupting users.  VRTS provides products for
most popular operating systems, including UNIX and Windows NT,
as well as a full range of services to assist its customers in
planning and implementing their storage management solutions.

Most Recent Write-Up

Avoiding the drop list by a whisker tonight, VRTS had quite a
bullish day indeed.  Gaining nearly $5 on the session, our play
continued yesterday's recovery on solid volume, ending the day
just a fraction below our $55 stop.  Either the stock is poised to
break higher, or we are setting up for an attractive entry point
as the bulls are turned back near the $55 resistance level.
Yesterday's dip below $50 put the first chink in that level as
support, and renewed Technology selling tomorrow could be just
what we need to drive VRTS to new lows.  Earnings warning season
is upon us, and as companies step forward with their confessions,
(we've already heard from NT, PMCS), Technology stocks are likely
to remain under pressure.  This continued bearish sentiment is
just what conservative investors will be looking for in order to
initiate new positions on a drop below support.  Target a drop
below $52.50, and then $49 for new entries.  Watch the Computer
Software index (GSO.X) for confirmation of weakness in the sector
before playing.


VRTS had difficulty with the $55 level toward the end of the
session, which also happens to be our stop loss.  This was the
level that VRTS could not conquer on Monday and from where the
shorts took control.  Given the negative NASDAQ sentiment after
the NT and PALM warnings, we would look to enter puts on a break
of $53 or $52.  Downside target will be $50.  If VRTS finds a
bid tomorrow for some reason, watch for rollovers from $55 for

BUY PUT APR-55*VIV-PK OI=6495 at $6.20 SL=4.50
BUY PUT APR-50 VIV-PJ OI=6627	at $3.80 SL=2.25
BUY PUT APR-45 VIV-PI OI=3810 at $2.25 SL=1.25


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The Recovery Continues...

Stocks rallied today in the wake of favorable consumer confidence
data and optimism about the future of the economy.

Monday, March 26

Industrial stocks rallied today helping the broader market post
favorable gains as the recent recovery in stocks continued.  The
Dow was up 182 points at 9,687.  The NASDAQ finished 10 points
lower at 1,918 amid a new group of profit warnings in the chip
sector.  The S&P 500 closed up 12 points at 1,152.  Volume on the
NYSE was relatively light at 1.11 billion shares, with winners
beating losers 2,007 to 1,071.  Activity on the NASDAQ was also
limited at 1.7 billion shares exchanged.  Technology advances led
declines 2,004 to 1,635.  In the U.S. bond market, the 30-year
Treasury fell 29/32, pushing its yield up to 5.36%.

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

Worldcom       (NASDAQ:WCOM)  J0220/J20C  $2.69  debit   calendar
Biochem        (NASDAQ:BCHE)  APR40C/35C  $0.43  credit  bear-call
Intl Rectifier (NYSE:IRF)     APR30P/35P  $0.55  credit  bull-put
Hnc Software   (NASDAQ:HNCS)  APR20C/20P  $3.75  debit   straddle
Capstone       (NASDAQ:CPST)  APR35C/22P  $0.50  debit   synthetic

The upside activity in the market made it difficult to enter the
bullish combination positions at the suggested prices.  WCOM moved
higher near the open and there was little opportunity to enter the
calendar spread (with a simultaneous order) at the target debit.
A similar dilemma occurred with CPST, but traders who participated
in the synthetic play earned a $1.50 profit by the end of the day.
BCHE and IRF offered favorable opening credits and the HNCS debit
straddle also traded at (and below) the target entry price in the
afternoon session.

Portfolio Activity:

Today's broad recovery in industrial stocks was a welcome event
for the market and investors are hopeful that the recent selling
pressure has come to an end.  On the Dow Jones average, United
Technologies (NYSE:UTX) led the gainers with AT&T (NYSE:T), Home
Depot (NYSE:HD), Boeing (NYSE:BA), Wal-Mart (NYSE:WMT), Philip
Morris (NYSE:MO) and International Paper (IP) among the leading
blue-chip issues.  The big loser was Johnson & Johnson (NYSE:JNJ),
one of our bearish positions, which slumped to $85 on unconfirmed
rumors that the company plans to acquire Alza (NYSE:AZA) for $12
billion in stock.  On the NASDAQ, semiconductor stocks declined
after PMC Sierra (NASDAQ:PMCS) warned that earnings and revenues
for the first quarter will miss consensus estimates because of
weak demand and cancellation of backlog orders.  The company also
announced it was cutting 230 jobs, resulting in a one-time charge
in the quarter.  Communications-related chip companies weighed on
the technology group after investment bank Goldman Sachs slashed
their earnings estimates for the sector.  Networking stocks also
slumped after Cisco (NASDAQ:CSCO) CEO John Chambers suggested in
an interview that the U.S. economic downturn would last for "at
least three more quarters" and perhaps longer.  He said Cisco's
earnings outlook has deteriorated significantly since the company
warned in January that it expected the slump to continue for two
quarters or more.  Inside the broader market, transportation and
biotechnology stocks rallied and utility issues also rose after
California utility regulators announced plans to approve another
electric rate increase.

The Spreads portfolio experienced a number of favorable moves in
today's session as investors searched the market for bargains.
Widespread advances were seen in industrial shares including oil
service, diversified machinery, and materials and construction.
Our bullish position in Lennar (NYSE:LEN) was a beneficiary as
the issue rallied to a recent high near $40.  The move provided
a small credit in the calendar spread and boosted the margin of
safety in the short Put at $35.  Traders who intend to remain in
the time-selling position should plan to cover the short Call at
$40 (or roll out and up to a future series) if the issue breaks
above $40 on heavy volume.  A new candidate in this category, LSI
Logic (NYSE:LSI) was in the news today after agreeing to purchase
C-Cube Microsystems (NASDAQ:CUBE) for $900 million in stock.  The
company will exchange 0.79 of its shares for each C-Cube share,
and plans to complete the transaction by the end of June.  The
unexpected announcement had a negative affect on LSI, ending the
recent rally as the share value fell to $18.  Traders who avoided
the new position on Friday, due to the inflated prices, should be
grateful that the buyout was made public before the opening bell.
Rumors of another merger were rampant today after the Wall Street
Journal online edition reported that Johnson & Johnson (NYSE:JNJ)
is in advanced discussions to acquire Alza (NYSE:AZA) for more
than $12 billion.  Analysts say the move will bolster JNJ's drug
pipeline and capture some important pharmaceutical technology.
Both companies' boards were scheduled to discuss the transaction
Monday, and although exact terms weren't divulged, some traders
say the deal would value Alza at $42 to $48 a share.  While the
speculation had a favorable affect on our bearish position in JNJ
(an unnecessary roll-out from last month), the bullish activity
among other issues in the drug delivery group was not as welcome.
The most significant movement was seen in Elan (NYSE:ELN) and
with renewed optimism that it could also be a take-over target,
the potential for a continued recovery is excellent.  We will
monitor the issue for further signs of technical reversal in the
coming sessions.

Tuesday, March 27

Stocks rallied today in the wake of favorable consumer confidence
data and optimism about the future of the economy.  The Dow rose
260 points to 9947 and the NASDAQ closed up 53 points at 1,972.
The S&P 500 finished up 29 points at 1,182.  Trading volume on
the NYSE reached 1.31 billion shares, with winners beating losers
1,944 to 1,114.  Activity on the NASDAQ was above average at 1.93
billion shares exchanged.  Technology advances outpaced declines
2,208 to 1,568.  In the bond market, the U.S. 30-year Treasury
fell 1 11/32, pushing its yield up to 5.46%.

Portfolio Activity:

A rise in consumer confidence helped boost the major averages
today in a broad-based advance that spread to almost every
sector of the market.  The Dow Industrial average climbed for
a third consecutive session on strength in SBC Communications
(NYSE:SBC), Walt Disney (NYSE:DIS), American Express (NYSE:AXP),
Alcoa (NYSE:AA), Home Depot (NYSE:HD), Honeywell (NYSE:HON) and
General Electric (NYSE:GE).  Blue-chip technology stocks also
supported the rally with Microsoft (NASDAQ:MSFT), International
Business Machines (NSYE:IBM), Hewlett-Packard (NYSE:HWP) and
Intel (NASDAQ:INTC) enjoying upside activity.  On the NASDAQ,
software, telecom, Internet and select networking issues were
popular with Dell Computer (NASDAQ:DELL), Oracle (NASDSAQ:ORCL),
JDS Uniphase (NASDAQ:JDSU) and Qualcomm (NASDAQ:QCOM) posting
the biggest gains.  In the broader market, transportation, bank,
utility, retail, paper, drug and biotechnology issues rallied
while oil service, natural gas and gold shares declined.

The big news in today's session was the published confirmation
that Johnson & Johnson (NYSE:JNJ) will acquire Alza (NYSE:AZA)
for $10 billion in stock to strengthen its drug pipeline and
allow it to deliver medicines in better ways.  The acquisition
will give JNJ several promising new drugs, including Ditropan
for treating overactive bladder and Concerta, a treatment for
attention deficit disorder.  The products and technologies of
Alza will also boost the company's strengths in the areas of
oncology, women's health, urology, pain management and central
nervous system problems.  Johnson & Johnson's CEO stated that
the purchase will lead to long-term earnings growth but many
analysts frowned on the deal, saying that JNJ overpaid for the
drug delivery company.  Our recent bearish position in JNJ is
not in danger but the effects of the merger announcement has
been felt in other positions.  Today's upward activity in Elan
(NYSE:ELN), a drug-delivery industry competitor, was directly
related to the JNJ-AZA pact and it appears that the trend may
continue.  With the most recent resistance area near $55, the
position is a candidate for exit (or adjustment) on any rally
beyond that price range, supported by heavy volume.

There were a number of other bullish issues in the portfolio
today and the activity in the telecom group deserves mention.
Sprint (NYSE:FON), Worldcom (NASDAQ:WCOM) and AT&T (NYSE:T)
all enjoyed favorable rallies even as analysts reported that
competition and price pressures will continue to plague the
group.  WorldCom eased investor's fears about their outlook,
saying the company has seen solid growth in data and Internet
operations and also in its European business, despite weakness
in the euro.  A Salomon Smith Barney analyst recently raised
his first-quarter revenue growth expectations for WCOM's data
unit and increased the 2001 target to 14%.  Sprint (NYSE:FON),
the #3 U.S. long-distance company, reported it has witnessed
a small slowdown in some of its businesses, but also said it
has not been materially hurt by the lagging economy.  That may
be part of the reason the issue rallied today, long after the
Bellsouth (NYSE:BLS) takeover rumors have faded.  The bullish
activity in AT&T was likely due to positive comments from a
Morgan Stanley Dean Witter analyst, who boosted his rating on
AT&T shares to a "strong buy" from "neutral" and called AT&T
one of the most interesting stocks in the telecom sector.  The
analyst said the company does not need improved visibility,
takeovers or other dramatic economic or pricing improvements
to drive performance.  In addition, he commented that AT&T's
wireless stock distribution is an important catalyst for the
stock, as are the initial public offering of its broadband
unit and spin-off of its cable tracker that will soon follow.
That's great news for the company and traders who participated
in the Covered-calls with LEAPS position should continue to
profit from that play in the coming months.

Questions & comments on spreads/combos to Contact Support

                         - STRATEGIES -

This week, I will be travelling abroad on a visit to one of the
most popular European trading venues; The London International
Financial Futures and Options Exchange (LIFFE).  There will be
no new plays or portfolio summaries but if time permits, I will
share some of my experiences at that unique facility.  In the
interim, readers who participate in combination techniques may
benefit from a review of these common option-trading strategies.


Delta Neutral Trading: Advanced Techniques

There are many ways to take advantage of theoretically mispriced
options in the retail market.  Most traders will buy or sell a
concurrent (and possibly opposing position) in the underlying
issue or open a spread with options on the same instrument in a
similar series.  Those who wish to participate in delta-neutral
strategies may choose to trade options which are theoretically
equivalent.  Spreads with this type of "hedged" outlook generally
fall into the category of "volatility plays".  Two of the more
advanced volatility spreads are the "Back-spread" and the "Ratio
Vertical Spread".

The first concept one notices about these two techniques is they
have many common characteristics:

Both spreads are initially "delta neutral".
Both spreads are affected by changes in the underlying issue.
Both spreads are affected by the passage of time.
Both spreads are affected by changes in implied volatility.

The Back-spread:

A back-spread exists when more long positions are purchased than
those which are sold (2x1,3x1 etc..) and all the contracts expire
at the same time.  In order for a call back-spread to be delta
neutral, the purchased calls must have a higher exercise price
than those which are sold.  A put back-spread requires just the
opposite; the purchase of puts with a lower exercise price than
those which are sold.  The primary characteristic of a profitable
call or put back-spread is an increase in volatility; a move away
from the long (purchased) option's exercise price will increase
the value of the spread.

Depending on the type of back-spread, movement in one direction
will be preferable to movement in the other direction.  In a call
back-spread, upside potential is unlimited and a put back-spread
has unlimited downside potential.  Traders should choose the type
of back-spread that reflects their opinion about future market
direction and avoid this strategy during stable cycles.  In most
cases, regardless of direction the strategy requires movement.
If the underlying issue remains in a small range, a back-spread
will rarely profit.

One way to ensure profit from a volatile market (regardless of
direction) is to open the position for a credit.  That means the
amount of money received from the sold options is greater than
the cost of those which are purchased.  If the market collapses
in the case of a call back-spread, or explodes in the case of a
put back-spread, all options will expire worthless and the play
will profit from the credit of the initial transaction.

Ratio Vertical Spread

Some traders refer to the opposite of a back-spread as a ratio
vertical spread or front-spread.  This position consists of more
short (sold) contracts than long (purchased) contracts, with all
contracts expiring in the same month.  A ratio vertical spread
will realize the maximum profit at expiration if the underlying
issue finishes at the short (sold) option's exercise price.  The
value of the position will decrease if the underlying contract
moves away from this exercise price.  While the ratio vertical
spread will generally profit in a stable market, the type of
position (bullish/bearish) should still be based on the future
outlook for the underlying issue.

Since the ratio vertical spreader assumes the opposite risks of
the back-spreader, the amount of loss is unlimited on the upside
in a call ratio vertical spread, and just the opposite in a put
ratio vertical spread.  With the recent market outlook in mind,
we will focus on the bearish form of this strategy; the ratio
call spread.

The ratio call spread is a neutral strategy in which one buys a
number of calls at a lower strike price and sells more calls at
a higher strike.  This type of play offers a large probability of
making a limited profit with low downside risk and a relatively
small investment.  It is one of the more attractive delta-neutral
spreading techniques since the trader is buying mostly intrinsic
value and selling a relatively large amount of time value.

The ratio call spread has a defined range within which a profit
can be made at expiration.  If the spread is initially established
for a credit, there is no downside risk.  The profit or loss at
expiration is constant below the lower strike price because both
options are worthless in that area.  Maximum profit occurs when
the issue finishes exactly at the strike price of the sold option.
The greatest risk in a ratio call spread lies to the upside, where
the loss is theoretically (although not realistically) unlimited.

Many delta-neutral traders prefer ratio call spreads because the
downside risk or gain is predetermined in the opening ratio and
therefore the position requires little monitoring in a bearish
market.  The margin investment required for a ratio call spread
is fairly nominal since (on the long side) one is buying a call
rather than buying the stock.  The actual position is really the
combination of a bull-call spread and a naked call, thus the net
investment is equal to the collateral required for the naked call
plus (or minus) the net debit (or credit) of the spread.

As in many spreads, there is more than one way to implement the
strategy.  The most common philosophy is that ratio call spreads
should be established for credits so that there is no chance of
losing money on the downside.  Traders that use this method want
the underlying stock to be below the sold strike price when the
spread is established.  The further the stock is below the strike,
the more attractive the spread will be.  Once again, this type of
position has no downside risk; even if the stock collapses, the
profit will be equal to the initial credit received.

The trader that plays both debit and credit (ratio call) spreads
will generally have a better selection of candidates to choose
from and will also be able to assume a more neutral posture on
the underlying issue.  Those who trade only credit spreads will
generally return smaller profits (when the price of the security
remains relatively unchanged) but will not have to worry about
risk with a declining market.

If the stock price falls significantly after the play is opened,
a downside follow-up is not required when the initial spread was
for a credit.  If the initial spread was a debit, the trader may
want to roll-down the written calls.  The follow-up action for an
upside move usually consists of buying additional long calls to
reduce the ratio in the spread.  Eventually, the goal would be to
adjust the spread ratio to 1:1 (a bull-call spread).  In addition
to these defensive actions, ratio call spreads can also be closed
early to take profits or limit losses.  The most common situation
occurs when the stock price is close to the higher strike price
and the time value on the sold position has eroded significantly.
Another alternative is to re-adjust the ratio to reflect any new
opinion on the underlying security or to re-establish a neutral
profit range.

Good Luck!

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