Option Investor

Daily Newsletter, Tuesday, 04/10/2001

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The Option Investor Newsletter                  Tuesday 04-10-2001
Copyright 2001, All rights reserved.                        1 of 2
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MARKET WRAP  (view in courier font for table alignment)
        04-10-2001        High      Low     Volume Advance/Decline
DJIA    10102.74 +257.59 10155.24  9849.57 1.35 bln   2098/992 
NASDAQ   1852.03 +106.32  1868.10  1771.68 2.20 bln   2759/1169
S&P 100   597.85 + 16.38   601.01   581.47  totals    4857/2161
S&P 500  1168.38 + 30.79  1173.92  1137.59           69.2%/30.8%
RUS 2000  451.84 + 10.17   452.44   441.67
DJ TRANS 2791.65 + 74.67  2798.13  2718.50
VIX        33.30 -  3.44    35.35    32.44
Put/Call Ratio      0.59

Was That a Real Rally I Saw?

We will have to wait a week or so to see if it has legs but I
will gladly take a +29, +402, -126, +54, +257 five day series.
The +616 point gain off a serious oversold condition is very
exciting but all the big earnings reports ahead of us also
makes us very cautious. Most of the spike on Tuesday can be
tracked to short covering after a failure of the markets to
follow through on the Friday profit taking.

Outstanding if you were long! Very frustrating if you were short.
I can just hear it now, "but why are they going up in front of
obviously bad news?" Shorts were caught with their shorts down
and gave back some of their gains from the huge market drop.
There was a rumor during the day today that shorts were buying
to close positions to pay their taxes. WOW!! What a concept! In
past years it has always the longs which had to sell in April
to raise cash for the tax man but if you think about it the
shorts have profited considerably more than the longs in the
last year. The fact that longs were profiting off the shorts
today is kind of ironic.

A preview of future market moving news events came after the
bell with Motorola being the first big name to miss estimates
and post a larger than expected loss. MOT reported its first
quarterly loss since 1985 and missed already lowered estimates
by two cents. The CEO for Motorola used the "R" word to describe
the economic outlook for the U.S. economy in general and
technology companies in particular. Sales in their mobile
phone segment dropped by -29% from the first quarter of last
year. The company said sales were down all over the world
with some areas down over -50%. Ouch! MOT fell over -$1 after
the bell to $12.05.

The market move today was explained away by the talking heads
as all the bad news being already priced into the market. The
bond market reacted strongly to the market rally by selling
off significantly. The asset allocation shift from bonds into
stocks may be just surface money and not a real change in
attitude. Other factors causing the sell off was the assumption
that an inter-meeting rate cut was doomed. Fed member Poole
said that the next meeting in May would be the right timing
for another rate cut. A head fake by the Fed? Not likely. The
Fed heads do telegraph their intentions as time passes and this
was probably a scripted response after the big gains last
Thursday to tell the markets to not expect any rate help soon.
Give them the bad news during a rally instead of a sell off!

Changes In Attitude

The broader market averages advanced during Tuesday's session
on what appeared to be a major shift in the dynamic of investor
psychology.  The market's ability to advance in the wake of two
relatively noteworthy earnings disappointments yesterday morning
signals, in my mind, a shift in market psychology.

Cypress Semiconductor (NYSE:CY) announced Tuesday morning that
its revenues for the first quarter fell short of estimates by
roughly 20 million.  Albeit a small miss, Cypress fell short
of estimates nonetheless.  However, shares of the communications
chip maker finished at 16.34, higher by 0.94 cents, or 6.1

In addition, Aetna (NYSE:AET), the Nation's largest health
insurer, warned of substantially lower profits for its first
quarter, due to increased costs.  The company said it would not
give guidance for fiscal 2001.  Shares of Aetna shed 6.35, or
17.5 percent during Tuesday's session, finishing at 29.80.

Despite the two previous warnings, the market plowed forward
on very impressive price action.  The advance in terms of
price Tuesday was similar to the initial rally attempt across
the broader markets last Thursday. Although the volume on the
Nasdaq was a bit on the light side I noticed several issues
that advanced steadily throughout the session, which appeared
to be under normal accumulation.

Last Thursday's rally in the market, and the follow-through
Tuesday may have the shorts in the tech sector running
scared. If the market can hold these gains for the final two
trading days of this week then investors still sitting on the
sidelines will start worrying about missing the train. Everybody
agrees stocks are undervalued and nervous fingers are poised
over mouse and phone buttons everywhere. They are doing
the same thing the traders still short are doing tonight,
trying to decide if the rally is for real.

The Nasdaq closed right under resistance from the end of March
and about -125 points under serious resistance of 1975. Any
rally from here will have to have some serious volume behind
it in order to break through these levels. The Dow did manage
to break out of the sub 10000 dungeon but the next level to
test is strong resistance at 10300. This had been a floor for
the Dow's trading range for about two years and support becomes
resistance once broken.

Significant earnings events for this week are limited to YHOO
and LRCX on Wednesday and RMBS on Thursday. Not much chance
for an earnings explosion. Next week however is when the flood
begins including IBM, INTC and MSFT as the leading tech giants
which can influence market direction. As traders we would hate
to miss the beginning of a market rally but do we really want
to commit capital before a potentially rocky earnings week?
Consider Motorola tonight. Multiple that by the over 150
companies that will announce next week. This creates a very
rocky road full of potential landmines for the rally to
traverse. However, this produces the kind of environment in
which real bottoms are formed and real rallies appear. Since
the downside for most stocks is limited the possibility for
a positive reaction may outweigh the risk to the downside.
It is a call that each individual investor may make and presents
a very good case for scaling into positions. If the market is
going to rally you will benefit and if it rolls over again your
downside is limited. I would however be careful about jumping
on rockets like CIEN after a +25% gain of $9.25 today. The
urge to take profits after that kind of gain is huge.

Enter VERY passively, exit VERY aggressively!

Jim Brown

Update for Seminar Attendees

The naked put play I started in the Monday session is profitable
but not in the manner we expected. I am not going to mention the
symbol so we can continue to follow it without a build up of open
interest. I was "exercised" on 9 contracts at the strike price
we sold on Monday. The reason for the exercise was probably due
to the -2.50 drop in the stock price on Monday. The market maker
was able to close the trade for a profit since the stock had
dropped before the end of the day. However, if you look at the
stock for today I was able to sell the 900 shares at a profit of
$4.35 over the price of the stock when I sold the put yesterday.
For 9 contracts this resulted in almost a $4000 gain. I was not
forced to use the long put which I had bought on the downside
since the stock had increased significantly. Because of the big
increase in the stock price I held off reselling the naked put
to see if the stock would suffer after the Motorola earnings
tonight. If you look at a chart of the after hours trading you
will see it sold off over -$1 and had a solid top indicating
resistance. I intend to reinitiate the position again on
Wednesday once direction is determined. Obviously if the stock
is trending down I will wait until it starts up again. Even
though I still have the protective long put in place there is
no reason to resell the short put until a positive move is seen.
The farther down it falls increases the premium I will receive.
I did buy 10 more of the long puts today for $1.00 when the stock
started rolling over at midday. If it does fall back to Monday's
price I can sell 10 of those contracts and my remaining protective
position will be free.  Almost 1 million shares were bought at
the close. Obviously a short running for cover. Stay tuned! Hope
everyone had a safe trip home. Those in the U.S. who got home
yesterday, think about the many attendees from Spain, Hungary,
Turkey, Brazil, France, etc who did not arrive until today. Those
attendees displayed real commitment in improving their trading
skills. We salute them!

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

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Absence Of Malice
By Austin Passamonte

Just like Thursday last, today's equity session began with a
large gap-up move and roared off from there. Aggressive traders
who bought calls on the early ticks made money and those who
waited for the train to return were left sitting on the tracks.
The very same traders who jumped early on Monday's opening pop
better have sold fast or they endured a beating, so all things do
tend to even out.

Traders caught holding puts in front of today's train got
splattered on those tracks as we continue to experience extreme
price swings from session to the next. Talking heads say this is
a market in the stages of forming a bottom. Could be; reminds us
of extreme turbulence last spring before the major trend-change
from upward to downward. Will the next trend reversal occur the
same way?

Thursday rallied on heavy volume, Friday held up 50% of those
gains on less volume and Monday's lower session occurred on this
year's lightest volume to date. Then today's surprise rally came
on heavy volume again. Advances swamped declines and up-volume
swamped down-volume again. Add to that a falling VIX with last
week's ARMs index bullish reversal and we have some technical
proof of pending market strength.

All broad indexes broke out of neutral wedges to the upside in a
big way today. Buying took place across most sectors and symbols
as short-covering has evolved into accumulation. The Dow closed
well above 10,000 & Nasdaq Comp above 1,800 key levels of

And what catalyst caused such a sentiment reversal from last
week? None. Nothing. Just an emotional swing from selling fear to
buying exuberance.

Oh sure, all market pundits who refuse to believe or admit the
markets are irrational and illogical will offer numerous lame
excuses why it's all different now, a mere four sessions later.
The very same stocks unceremoniously dumped in gutters four days
ago are wiped clean of grime, polished off and placed back on the
alters of worship. Did a fundamental basis for this 180-degree
reversal change over the same period of time? Market Sentiment
thinks the answer is a resounding NOT.

Which leads us to the other side of this equation. We are still
in a bear market and year long downtrend far from broken quite
yet. The powerful rallies have quickly breached first levels of
resistance and now trades almost to more significant congestion.

Earnings are assumed to be dismal this time and rightly so. What
forward guidance companies can offer (if any) will make or break
the markets and that seems cloudy from here. Any major market
leaders who surprise to the downside will send their stock price,
sector price and possibly broad market price the same direction
as well. Can we safely assume there might be one or two big caps
who won't have stellar results and outlook to forecast?

The VIX is now trading back near its low range for the recent
past and today's equity put/call ratio reached a nine-week low as
everyone loaded up on calls. Intraday chart signals are rolling
from overbought extremes and William's %R is in a bearish
reversal zone for the big indexes and VIX as well.

What do we make from this mix of evidence? Simple... we should
continue to rally unless given reason not to. An absence of
malicious news is good enough for pent-up bulls eager to rescue
their fallen angels at a time of need. Straight up the charts
from here could be expecting too much as resistance lies
interwoven above and shorts have not forgotten easy riches
gleaned in the recent past.

This rally began and persists for no fundamental reason, which
makes it possible to sustain but tenuous at best. We expect
prices to tread higher unless/until the first fundamental news
changes this euphoria.

No bad news? We rally. More bad news? Down the charts we go. The
ultimate bottom could easily lie below but straight up from here
without visiting those levels again this year is not the high
odds scenario in our opinion. We will readily & happily accept a
trending market that offers us easy trade entry in either
direction. The gap-open moves and volatile reversals are quite
lucrative for day-traders but tedious at best.

Trade the daily trend with trepidation!


Tuesday 04/10 close: 33.30

Tuesday 04/10 close: 74.40

30-yr Bonds
Tuesday 04/10 close: 5.63%

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)
635 - 620               12,112        1,142        10.61
615 - 600               13,047        3,800         3.43

OEX close: 597.85

595 - 580               10,621       10,773         1.01
575 - 560                4,708       14,549         3.09

Maximum calls: 600/ 6,957
Maximum puts : 520/12,253

Moving Averages
 10 DMA  581
 20 DMA  584
 50 DMA  634
200 DMA  724

NASDAQ 100 Index (NDX/QQQ)
 49 - 47               192,758        23,581         8.17
 46 - 44               223,317        69,301         3.22
 43 - 41               202,544       122,343         1.66

QQQ(NDX)close: 39.80

 38 - 36                100,686        92,637           .92
 35 - 33                 40,819        97,205          2.38
 32 - 30                  4,224        62,007         14.68

Maximum calls: 40/154,435
Maximum puts : 43/72,788

Moving Averages
 10 DMA 37
 20 DMA 39
 50 DMA 48
200 DMA 73

S&P 500 (SPX)
1225                    9,123         8,118          1.12
1200                   10,314        14,119           .73
1175                    9,222         6,926          1.33

SPX close: 1168.38

1150                   18,726        18,514           .99
1125                    6,461        12,225          1.89
1100                    2,622        23,391          8.92

Maximum calls: 1275/23,805
Maximum puts : 1100/23,391

Moving Averages
 10 DMA 1140
 20 DMA 1146
 50 DMA 1231
200 DMA 1366


CBOT Commitment Of Traders Report: Friday 04/06
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         +55279     +64946        -56907     -65571

Total Open
Interest %       (+25.70%)  (+30.79%)      (-8.05%)   (-9.15%)
                 net-long   net-long       net-short  net-short

                      Small Specs              Commercials
DJIA futures     (Current)  (Previous)    (Current)  (Previous)
Open Interest
Net Value         -2607      -3269         +4835      +3299

Total Open
interest %       (-13.39%)  (-24.49%)     (+19.06%)  (+14.22%)
                 net-short  net-short     net-long   net-long

                      Small Specs              Commercials
NASDAQ 100       (Current)  (Previous)    (Current)  (Previous)
Open Interest
Net Value         +2827       +431         -7344      -4461

Total Open
Interest %       (+11.07%)  (+2.03%)      (-9.63%)   (-5.89%)
                 net-long   net-long      net-short  net-short

What COT Data Tells Us
Indices: Commercials have reduced their S&P short positions by
one percent while increasing their NASDAQ 100 shorts by 4
percent. Commercials have also added to their net-long positions
on the DJIA.

Data compiled as of Tuesday 04/03 by the CFTC


Please visit this link for Market Posture:



The Opportunity Of A Lifetime
By David Popper

We are now veterans.  Anyone who has traded for the past three
years has witnessed a complete market cycle and the panorama of
emotions that go with each phase.  I have felt every emotion from
giddiness to frustration over this time.  Even though I understand
many aspects of the market, I constantly have to fight the emotions
that would influence me to behave in an irrational and detrimental
manner.  There are times when it pays to step back, look at the
big picture and evaluate anew what is really going on in the
market.  This is one of those times.  First, we now have
experience.  There will be a certain security that we will have
when we see similar market action in the future.  Second, we have
another chance to trade those great stocks at an extremely
long-term entry point, once the market gives us the green light.
Below is a personal antidote that may shed a bit of light on what
will eventually happen in the market.

In 1992, Hurricane Andrew visited Miami, Florida and caused
horrible damage. The hurricane not only destroyed several billion
dollars of property, it also caused several economic winners and
losers.  The insurance companies, of course, were losers in the
aftermath as were people who were inadequately insured.  The
construction industry was a huge winner however.  Hurricane Andrew
created an economic boom for certain sectors of the economy.  This
hurricane altered the lives of everyone.  For those who were
prepared, the hurricane turned out to be a good thing.  For those
who were not prepared, the hurricane was devastating.  We too are
surviving a hurricane.  This economic hurricane is called the Bear
Market of 2001.  For those who are prepared and protect their cash,
this is the opportunity of a lifetime.

After Hurricane Andrew, I traveled often to Miami.  I was an
attorney ired by a large insurance company to evaluate their
exposure and defend any lawsuits that emerged.  I noted the
bustling of activity.  Contractors from all over the country were
trying to get their piece of the pie.  I noted that several
million yards of carpet were sold over an extremely short period
of time.  By 1994, most of the construction was done and the
carpet market went down the tubes.  People were terminated as
companies struggled to stay in business.  The outlook appeared

Three years later, however, people needed carpet again.  Businesses
were profitable again.  The business just had to go through its
cycle.  At the lowest point of the business cycle, astute investors
bought many of these businesses from owners who just did not
realize that the economy would turn in their favor in due time.
Those astute buyers made a fortune.

Likewise, all of this discussion in the tech industries about the
"lack of visibility" will eventually be replaced by optimistic
reports by analysts.  There is still a lot of internet
infrastructure to build and rebuild.  The internet is not going
away.  The infrastructure is just temporarily overdone.  The great
tech companies that we know and love will eventually have their
day.  Those that have cash at that point will have the opportunity
of a lifetime.  The good news is that you don't have to guess
the bottom to make a fortune.  Remember October 8yj, 1998?  The
market "crashed" for the second time in 45 days, but it turned out
to be the bottom.  Stocks then began to rocket.  Those who waited
for "all clear" signals and waited until November did not miss too

Here is the dilemma. The lower stocks go, the more attractive they
seem.  However, because everything that seems cheap today is 10%
cheaper next week, I have become gun shy.  The Investor's Business
Daily recommends that an investor stay out until a bottom is
clearly formed, and that is probably good advice.  The problem,
however, is me.  I like to be in the market when it explodes, but
what happens if stocks go down 50% from here?  If that happens, I
lose my opportunity of a lifetime.  So how can this dilemma be
resolved?  Options can help.

I can buy stock and buy puts.  This gives all of the potential
upside of owning the stock, plus crash insurance.  I could also
just buy a small number of calls.  This would provide substantially
the same upside potential but at only a small percentage of the
risk.  In this kind of market, if a call cost 10% of the actual
stock, it is the equivalent of setting a 10% stop on your stock.
Additionally, if the stock dips, the investor who owned stock would
be out.  You would still be in just in case the market turns
around.  As you know, however, if the stock is at or below the
strike price at expiration, the option expires worthless.

The question now arises, what duration and what strike price to
pick?  This is a hard question.  Longer term LEAPs can cost a lot
more, but you have additional time.  It is really a personal

Purchasing a few calls is a great way to be "in" the market without
waiting for the bottom to form.  You may catch the bottom and make
substantial profits.  If you are wrong, however, you have not bet
the farm.  You are still in position to take advantage of the
upcoming opportunity of a lifetime.


A Sea of Green on My Screen
By Scott Martindale

Ah, another day like last Thursday.  A high volume advance across
the board.  Advancers over decliners 2 to 1.  In fact, virtually
nothing on my watchlist was negative (except the VIX, of course).
Tech, energy, REITs, cyclicals -- even gold.  But with tax day
right around the corner, it again might be difficult to maintain
the rally.  Nevertheless, I'm going to savor today's sea of green
across my watchlist.

Early last week, prior to Thursday's big rally, the CBOE put/call
volume ratio actually approached 1.0, indicating that almost as
many put contracts traded as call contracts.  And even after the
market strengthened on Thursday, the 21-day moving average
continued to hover near 0.70.  Some analysts say that such a high
level signals a market bottom, but generally an impending rally is
signaled when the put/call ratio begins to fall, which it is now
showing signs that it will.

Also, apparently much of last week's call writing was not naked
calls, which would indicate bearish sentiment, but instead was
covered call writing by institutional investors, which indicates
neutral to bullish sentiment in that it locks in some gains or
hedges a portfolio by reducing the cost basis.  In other words,
it's a far cry from the distinctly bearish approach of selling
equities and buying puts.  So is that good or bad?  The contrarian
would say there is still not enough bearish sentiment to signal a
bottom, but if the institutional buyers are thinking neutral to
bullish, that might be a good sign, at least for the near term.

Bears would say that past bubbles (high valuations and
unsustainable cap-ex spending) have always resulted in a crash.
But since the technology sector only represents about 10% of the
economy, the bursting of the tech bubble is unlikely to bring the
entire global economy to its knees, so long as the Federal Reserve
and Japanese central bank continue with monetary easing.
Moreover, strength in bonds and real estate refutes the idea of
broad economic meltdown.

Where does the sustained market strength lie?  Well, the power
generation and distribution sector continues to outperform, led by
current OIN call play Calpine (NYSE: CPN), and including AES Corp.
(NYSE: AES), NRG Energy (NYSE: NRG), Reliant Energy (NYSE: REI),
and El Paso Energy (NYSE: EPG).  Some of these companies with a
strong presence in California finally sold off a bit late last
week when Pacific Gas & Electric (NYSE: PCG) filed for bankruptcy
protection, providing a nice entry point, and they are beginning
to gain strength again.  For example, CPN dropped over $6 intraday
on Friday, dipping below $46, and today it closed near $52.  With
that short-term weakness in CPN within the longer-term uptrend
going into its earnings report later this month, I wrote April 45
naked puts.

Let's again look briefly at that basket of techs I've been
watching that seem to have the greatest gains when the Nasdaq
rallies and likely will lead the next sustained advance.  Although
I picked this bunch on the spur of the moment based on their
excellent leadership on an up day several weeks ago, I'm really
getting to like them as a diverse play on the future of new
technology and biotechnology.  BEA Systems (NASDAQ: BEAS), the
dominant player in e-commerce infrastructure software, was up over
$6 (21%). Human Genome Sciences (NASDAQ: HGSI) stands to profit
from products that result from the recent breakthrough mapping of
the human genome. Juniper Networks (NASDAQ: JNPR), considered to
be one of the biggest upstart threats to the Cisco (NASDAQ: CSCO)
networking infrastructure empire, was up a whopping $7.28 (22%).
Mercury Interactive (NASDAQ: MERQ) provides performance management
software for Internet applications.  And Ballard Power (NASDAQ:
BLDP) is the leader in the promising field of alternative power
generation through fuel cells, particularly automotive fuel cells.
They were each up an average of 14% today.

Despite relatively high valuations, these high-volatility stocks
refuse to die, even after the sweeping market carnage of the past
couple of weeks.  These stocks remain at the top of my watchlist.
But despite today's strength, I don't want to chase stocks for
long-term investments, LEAPS, or even short-term options plays
(calls and ITM naked puts) in what might be merely a trading rally
within a bottoming process.  I still expect profit taking as
traders raise cash to pay taxes (unless of course, they all lost
money last year).  However, these are great stocks for options
plays if you can get in on intraday pullbacks and keep the ride
short.  And hopefully this is a market that has learned from
experience not to get too ahead of itself (at least not until it
gets cocky again).  If this sentiment is correct, we might see a
bit of a pullback tomorrow morning, and perhaps a larger pullback
later in the week.

Also worth mentioning, I just read an article in Red Herring
listing ten great bargains in tech stocks.  Their list includes a
few favorites of mine, including Autodesk (NASDAQ: ADSK), Comverse
Technology (NASDAQ: CMVT), EMC (NYSE: EMC), Linear Technology
(NASDAQ: LLTC), Network Appliance (NASDAQ: NTAP), and
ST Microelectronics (NYSE: STM).  A couple of important technology
enabling software plays, two strong semiconductor companies, and a
couple of network data storage dynamos.  All are indeed excellent
bets to outperform in a flat or uptrending overall market.  These
might merit a place on your watchlist, too.

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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.


GPS $23.06 -0.74 (-1.89 ) The retail sector rallied to 850 with
the market indexes, but some of the enthusiasm was dampened by
a Redbook report on retail sales.  The Redbook Average for U.S.
same store sales rose a meager 2.2 percent in March, compared
with a monthly 3.2 percent expected.  In addition, GPS suffered
the weight of a downgrade from Sanford Bernstein, as analyst
Emme Koslof predicted poor comparative performance for the
quarter.  While GPS might be able to regain its momentum if
the market rally continues, the stock closed below our stop
level of $23.50, and we are dropping it tonight.


XLNX $35.03 +3.63 (+2.84) After seeing XLNX move over $5, or
15.2% into the negative since beginning coverage on March 30th,
it's time to make room for other opportunistic plays.  The
semiconductor index's (SOX.X) early breakout through the 500
level initially warned traders of the bulls charging on the
horizon.  Today's overall bullish action knocked XLNX into the
positive and pushed the share price through our $33 protective
stop, on the close.  As it was, the $35 level evolved as
intraday support.

NSM $23.40 +1.56 (+1.06) After playing the decline from highs of
$26 to lows in the vicinity of $21, it's time to retire the
play.  The sustaining rally across the board saw the
semiconductors rise from the muddy trenches.  The SOX.X finished
up +44.90 at 520.12, shattering its 10-dma line and the crucial
500 level.  More specifically, the bullish activity saw NSM
demonstrate relative strength above $23 and trade in a very
narrow range.  Now while it's true that NSM couldn't penetrate
the $24 near-term resistance, the fact remains that it closed
above our $23 stop.

LEH $62.70 +3.20 (+2.70) After Monday's unusually quiet session,
trader's were left guessing which way LEH (and the rest of the
Brokerage sector) would move.  We got our answer first thing
this morning as virtually every sector of the market rallied
sharply right from the opening bell.  By the end of amateur
hour, our $62 stop was in the rear-view mirror, and the bears
were never able to push prices back below this level all day.
While there wasn't much follow-through, and we could be looking
at the beginnings of weakness in the stock, we need to honor our
stop and move LEH to the drop list tonight.

MRX $46.46 +1.11 (+2.96) Was that a breakout?  Yes, it certainly
appears that way.  After meandering sideways for nearly 2 weeks,
MRX got a lift from the bulls over the past 2 days, breaking
above the descending trendline and resistance near $46 today.
Sure, volume was still on the light side, but the important
factor here seems to be the price action relative to the broader
Drug sector, as measured by the Pharmaceutical index (DRG.X).
While the sector headed lower, MRX posted a gain, painting a
picture of relative strength.  Combine that with the fact that
the stock closed above our $46 stop today, and you can see why
MRX made it onto the Drop list tonight.

CIEN $45.99 +9.25 (+11.74) Yesterday the stock gained $2.49 or
7.27 percent on 115% of ADV and in doing so, closed right at the
top of its recent downward trending regression channel.  With
strength in the markets today, CIEN broke clean through its
downtrend line, closing up over 25 percent on over twice the
average daily volume.  This strong move higher resulted in a
close above our stop price of $38.  As such, we are dropping
coverage on this put play and no longer recommend taking on new

GMST $31.10 +3.22 (+4.35) On Monday, shares of interactive media
giant GMST managed to edge up $1.13 or 4.22 percent on less than
half the ADV.  This move put the stock above its 10-dma (now at
$27.66) for the first time since early last month.  Today, a huge
customer win in the form of a 10-year exclusive deal signed with
Cogeco Cable, along with a rallying NASDAQ, helped GMST to add
another 11.55 percent to its gains, this time on one and a half
times the ADV.  Now trading above its recent downtrend line
and our stop price set at $28, we're dropping GMST from our put
play list.

PMCS $23.67 +3.18 (+3.80) The Chip sector, as measured by the
Philadelphia Semiconductor Index (SOX), tested last week's lows
and support at the 450 level on Monday and with that, shares of
PMCS followed suit.  But bouncing strongly late in the day, the
stock managed to end the day in the positive, closing up 62 cents
or 3.12 percent on a little over 70% of ADV.  Today PMCS and the
Semiconductor stocks built upon yesterday's bounce, despite an
earnings warning from CY.  Rallying 15.52 percent today, volume
was only 80% of ADV, but the closing price was above our stop set
at $22.  In accordance with our sell rules, we are taking our
money off the table.

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The Option Investor Newsletter                  Tuesday 04-10-2001
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

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CPN $51.88 +3.88 (+5.63) Shares of Calpine received a boost
Tuesday as the utility sector recuperated from the initial shock
reaction which occurred last Friday when PCG's subsidiary filed
for bankruptcy protection.  PCG's deteriorating financial
conditions have been well publicized over the last three months,
and the bankruptcy merely represents a transfer of jurisdiction
over their assets from the state government to the judicial
system.  In addition, investors applauded the news that Southern
Cal Edison will sell some of its power lines to the state of
California as a way to avoid a bankruptcy filing.  The fundamental
issue of a shortage of supply of energy versus the increasing
demand for energy should continue to attract investors to the
rapidly growing power producing stocks.  Today's move has
positioned CPN back in the middle of its upward channel which
commenced with a pattern of higher lows the first week in
February.  With CPN's earnings date approaching in two weeks,
we could see a move to the high of $57.80 on March 30.  After
today's big move, a little consolidation is likely, and traders
could take positions on a pullback to support at $51.50.
More conservative traders might want to wait for a breakout
above $53 with heavy volume.  We are moving stops to $49, so
close positions if CPN closes below this level.

AEP $48.59 -0.02 (+1.04) Power companies moved higher for most
of Tuesday on the news that Southern California Edison will
sell some of its power lines to the state of California in order
to avoid bankruptcy filing.  After reaching a new 52-week high
of $49 on Monday, and passing it with another 52-week high of
$49.50 on Tuesday, AEP experienced consolidation toward the
close with a move back to the $48.50 level.  This is significant
as, prior to yesterday, AEP had not closed above $48.50 since
October of 1998.  Traders could take positions at current levels
if other power producers like CPN and AES are rallying.  If the
pattern of higher lows continues, we may see AEP move above $50
with heavy volume, which could be a more conservative entry
level.  AEP reports earnings on April 24, so traders have time
to scale into an earnings run.  We are moving stops to $47 so
close positions if AEP closes below this level.

WCOM $20.04 +1.03 (+1.58) Worldcom broke out above resistance
at $19.50 with a surge of volume at the open, bouyed by momentum
in the telecom sector.  At this point, WCOM is poised to rally
into its scheduled earnings date on April 24.  Since the company
management has reaffirmed previous guidance for the quarter, WCOM
just might be able to surge to the 200 dma of $25.11, market
conditions permitting.  Considering the rally we experienced on
Tuesday, the indexes are likely to consolidate going into the
holiday weekend.  Traders can take positions at the current level,
or possibly at a pullback to support at $19.50 with continued
strength in the telecom sector.  A push through the next
resistance level at $21 could be a more conservative entry point.
Continue to watch others like Q and SBC, for an indication of
sector strength.  We are setting new tight stops at the $19
level, as it is imperative that WCOM continues to close above
$19.50 in order to sustain bullish momentum.

EQT $75.63 +2.53 (+3.18) Up until today, EQT had been struggling
with formidable resistance at $74.  Yesterday was no exception,
as the stock did manage to end the day slightly green, but was
denied a move above $74.  Strength in the broader markets today
helped EQT to advance 3.46 percent and in doing so, put the stock
above $74 resistance to make yet another new all-time high.  With
this play being a nicely profitable one for us already, and with
the steepness of EQT's recent ascent, we are moving our closing
stop price up from $71 to $73.  Bounces off support at the 5-dma
at $73.29, $73, $74 and $75 may provide aggressive traders with
targets to shoot for, but confirm with volume.  A bullish surge
above $76 could be the signal for the more cautious to jump in.
Track sector sentiment by keeping an eye on peers DYN and SRE.

MRK $78.39 +0.39 (+1.97) Despite the low volume, yesterday's
surge of $1.58 or 2.07 percent on 80% of ADV was an important
move for drug maker MRK, as this put the stock above its 50-dma
(now at $77.06) for the first time since early this year.
Positive news from the FDA today came in the form of an approval
letter for MRK's arthritis treatment Vioxx.  This will allow the
company to revise its labeling information in light of positive
results in a gastrointestinal study.  This combined with an up
day for the markets helped the stock to add to its gains today.
With 50-dma resistance now broken, look for the $77 area to
provide support, as this is also where we have placed our closing
stop price.  Aggressive players may look for pullbacks to these
levels as potential entry points while the more risk averse will
want to wait for MRK to take out its 200-dma (just overhead at
$78.83) on volume before making play.  In both cases, make sure
that sector sentiment is on your side by watching Merrill Lynch's
Pharmaceutical HOLDR (PPH).


QCOM $48.80 +3.56 (+4.18) The spy plane stand-off continued into
this week; notwithstanding an impressive rally across the board
today that fueled QCOM's commanding advances.  The silver lining
in today's trading was the multiple tests of $50 and $50.50 amid
healthy volume.  The late day sell-off was, however, the better
evidence of QCOM's existing weakness and this, coupled with a
CLOSE below our $49 stop, is precisely why QCOM remains on our
put list tonight.  Going forward, aggressive entries might be
found on subsequent rollovers from the 10-dma ($49.35), which is
currently acting as staunch resistance.  Conservatively, a more
cautious approach would be to wait for a negative market
sentiment and for QCOM to resume a downtrend below $46 and the
correlating 5-dma ($46.07).  A break through $43 and $44 would,
of course, provide more definitive confirmation.  This type of
bearish action should prompt momentum traders to jump into the
put play.  Lock in gains aggressively.  Our protective stop
remains set at $49 - remember, we'll drop coverage if QCOM
closes above that mark.  On the analyst front, Qualcomm's risk
rating was cut by Michael Ching of Merrill Lynch citing higher
than average risk due to its volatile stock price, increasing
chipset inventory and bottom-line, sales.  Look for more
dissenting coverage to negatively impact the stock price.

AMGN $51.50 -2.46 (-3.30) A stock which can't rally on a day
like Tuesday is likely to collapse on a weak day in the markets.
The biotechnology index rallied on Tuesday, but AMGN wasn't
invited to the party.  A failed rally past the 5 dma of $54.65
started heavy selling, which continued toward the close.  AMGN
is now approaching heavy support at the $50 level.  If the
$50 level fails, support is light until the $45 level.
Conservative put players might want to wait for a break below
$50 with continued heavy volume before initiating positions.
Alternatively, traders could take positions on another rollover
from $52, particularly if BTK.X is rolling over from its current
levels.  AMGN reports earnings on April 26, but any earnings
run at this point is likely to be weak.  We are moving stops to
$55, so close positions if AMGN closes below this level.

AGIL $13.95 +1.25 (+0.82) Software stocks continue to be in
favor as the NASDAQ attempts to recover from the beating it
has taken in recent months.  Although it led the move in the
Computer Software index (GSO.X) last week, AGIL is looking a
little winded right now.  That shouldn't come as any great
surprise, as the stock has now rebounded more than 50% from
its lows just over a week ago.  While there is still room to
run to the upper Bollinger band ($16.42), and the daily
Stochastics has yet to enter overbought, the bulls are having
a hard time breaking through the $14 resistance level.  For
that reason, we are cinching up our stop, bringing it up to the
$13 level.  That way we preserve our gains, even if the bears
come out of hibernation.  Another interesting fact is that while
AGIL has been finding resistance at $14, the GSO.X managed to
break above its own resistance (near 180), to post a higher
closing price.  The significance of this observation is that
AGIL appears to be losing strength relative to the broader
sector, a sign that the bears could be lurking around the next
corner.  We need to play cautiously, but aggressive traders
can consider new entries on an intraday dip and bounce near the
$13 level.  More conservative entries will come on continued
strength as AGIL breaks above the $14.50 level.

STT $93.20 +1.50 (+3.48) Only one day old and our STT play is
either in big trouble or giving us a great entry point.  Only
time will tell, but early in the day, it was looking like a drop
before we ever got a chance to play, as the stock had rallied
all the way to $95.60.  Fortunately, the bears had their say in
the afternoon, pressuring the stock downwards right into the
closing bell.  Aggressive traders had a good entry opportunity
as the stock rolled over and fell back through our $94 stop.
While Financial stocks managed to rally today, there is a lot
of overhead resistance (and fear of bad news) to overcome before
this sector is out of bear territory.  STT finished the session
right on its descending trendline, and given the fact that the
stock gave back most of its intraday gains (not counting the
gap-up open), we are looking for weakness to intensify as the
week rolls forward.  Aggressive traders can continue to target
shoot entries on failed rallies near the $94 resistance level,
while more conservative players will want to wait for a drop
through $89 before entering positions.  STT is scheduled to
announce earnings Tuesday, April 17; we'll look to be out of
positions ahead of the announcement.

UNH $59.15 -0.63 (+0.19) Gradually stumbling lower, UNH gave us
a taste of what likely lays in store for the stock when it fell
sharply at the opening bell.  Aggressive (and nimble) traders
that had open positions from yesterday could have taken the
opportunity to lock in some profits before the recovery began.
So what was the catalyst for the early morning plunge, you ask?
An earnings warning from Aetna (AET) plunged the entire HMO
sector for early losses before some eager bulls stepped forward
to support prices for the remainder of the session.  When all
was said and done, UNH still lost ground for the day, prompting
us to lower our stop to $60, the level of intraday resistance
yesterday.  Daily Stochastics are in rollover mode, and we have
plenty of room to fall before support begins to materialize in
the $53-54 region.  All we need are a couple more high-profile
warnings in the sector, and we could see those levels in a
hurry.  Aggressive traders will want to target new entries on
intraday rallies near the $60 level, while more conservative
players will want to wait for a drop below the $58 support level
before jumping into new positions.

TLAB $32.84 +0.68 (-0.91) We started our put play on TLAB
yesterday based on fundamental weakness in the Networking sector.
With already two earnings warnings in the past month, TLAB stood
out as a weak link in the Networking chain.  Despite an up day
for the NASDAQ on Monday, the stock fell $1.59 or 4.71 percent on
2.8 times the ADV on the heels of a downgrade by Robertson
Stephens, from a Buy to a Long-Term Attractive rating.  Today
TLAB continued to show its relative weakness, as a large up day
for Tech stocks in general translated into only a 2.11 percent
gain.  The heavy volume, over 2.8 times the ADV, suggests that
the sellers managed to keep a lid on the stock's advance.
Further selling leading to a break below today's low of $31.70
could allow for an entry on weakness.  With industry peer RBAK
reporting tomorrow and JNPR on Friday, we are tightening our
closing stop from $36 to $34.  Failed rallies at this level along
with horizontal resistance at $33 may allow higher risk players
to take a position.

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VRTX - Vertex Pharmaceuticals Inc $40.49 +3.19 (+4.68 this week)

Vertex Pharmaceuticals discovers, develops and markets small
molecule drugs that address unmet medical needs. Vertex has nine
drug candidates in clinical development to treat viral diseases,
inflammation, cancer, autoimmune diseases and neurological
disorders. Vertex has created its pipeline using a proprietary,
information-intensive approach to drug design that integrates
multiple technologies - biology, chemistry, biophysics, and
computer-based modeling - aimed at increasing the speed and
success rate of drug discovery.  Vertex Pharmaceuticals has
collaborative agreements with major drug companies like
Novartis, Eli Lilly, Kissei Pharmaceuticals, and Schering AG.

Rated a Strong Buy or Buy by most analysts gives credence to the
stock's potential in a dynamic market environment.  A superb
blast through the $37.50 formidable resistance level caught our
immediate attention.  Today's big ramp does portend some caution
going into tomorrow; however VRTX's technicals look great.  Take
a gander at a daily chart for visual confirmation.  After two
tests of the 30-dma line (read: resistance) in the previous two
sessions, this biopharmaceutical was launched $3.19, or 8.6% to
the topside of $40 on stronger-than-average volume today.  If
you're interested in jumping into a momentum wave off the
current level (in an advancing marketplace of course!), pin your
objective to the $45 level as the 50-dma ($46.05) currently
serves as the technical ceiling.  Another factor to consider is
the Biotech Index (BTK.X), which measures a variety of VRTX's
competitors and otherwise related companies.  Look for the BTK.X
to keep its head above the 475 level and ultimately, make a
convincing break of 500 to confirm sector strength.  In regard
to stock-specific pullbacks or mild consolidation, traders might
take positions in VRTX on solid bounces off the above-mentioned
30-dma, at the $36 & $37 levels.  But please make note that
while entries at these levels offer viable entries for the more
risk-oriented, we'll drop coverage if VRTX closes below $37
despite intraday activity.  It's true that Vertex
Pharmaceuticals is poised to deliver great results to investors
over the longer-term, but for us, this play is based on pure
momentum over the very short-term.

***April contracts expire next week***

BUY CALL APR-35 VQR-DG OI=1540 at $6.80 SL=4.75
BUY CALL APR-40*VQR-DH OI= 327 at $3.20 SL=1.50
BUY CALL MAY-35 VQR-EG OI= 405 at $8.60 SL=6.00
BUY CALL MAY-40 VQR-EH OI=  43 at $5.50 SL=3.50
BUY CALL MAY-45 VQR-EI OI=  46 at $3.50 SL=1.75




MBI - MBIA, Inc. $74.85 -0.85 (-0.25 this week)

Not necessarily a household name, MBI is engaged in providing
financial guarantee insurance, investment management and
financial services to public finance clients and financial
institutions on a global basis.  The company's subsidiary,
MBIA Insurance, provides financial guarantees for municipal
bonds, asset-backed and mortgage-backed securities and
investor-owned utility bonds.  The company also provides
investment management products and financial services through
a group of subsidiary companies.  These services include cash
management, municipal investment agreements and discretionary
asset management.

Between the evolving power crisis in California, leading to
utility bankruptcies, and an earnings warning this morning
from insurance giant, Aetna (AET), stocks like MBI are caught
between a rock and a hard place.  Concerns about loan defaults
as well as revenue concerns in the current economic slowdown
have bears licking their chops and rooting for more losses for
our new play.  With direct exposure to the PG&E (PCG) bankruptcy
of approximately $590 million, it's no wonder that Morgan
Stanley decided to downgrade the stock to Neutral yesterday
afternoon.  After news of the PCG bankruptcy filing hit the
newswires last week, MBI plunged more than $7 to the $75 level
where it has been consolidating so far this week.  The $74
support level is looking like it could break, and if it does,
conservative traders will have an attractive entry point.  We
are looking for the news to continue to favor the bears, but
want to play cautiously.  While aggressive traders may want to
catch an intraday bounce, don't get too excited chasing the
stock higher.  We have placed a tight stop at $76.  If MBI
rallies through that level, it will likely indicate that most
of the damage has been done, and the stock is on the mend.

***April contracts expire next week***

BUY PUT APR-80 MBI-PP OI=140 at $6.30 SL=4.25
BUY PUT APR-75*MBI-PO OI= 72 at $3.00 SL=1.50
BUY PUT MAY-75 MBI-QO OI=461 at $5.40 SL=3.50
BUY PUT MAY-70 MBI-QN OI=376 at $3.00 SL=1.50



TLAB - Tellabs, Inc. $32.84 +0.68 (+0.81 this week)

TLAB designs, manufactures, markets and services data, voice and
video transport, switching/routing and network access systems
that are used worldwide by public telephone companies,
long-distance carriers, alternate service providers, cellular
service providers, cable operators, government agencies and
utilities.  Through its various acquisitions, the company is also
able to offer voice-quality enhancement products for wireless,
satellite-based, cable communication and wireline
telecommunications, as well as managed high-speed transport
solutions which operate in Synchronous Digital Hierarchy and
Dense Wavelength-Division Multiplexing (DWDM) environments.

Most Recent Write-Up

We started our put play on TLAB yesterday based on fundamental
weakness in the Networking sector.  With already two earnings
warnings in the past month, TLAB stood out as a weak link in the
Networking chain.  Despite an up day for the NASDAQ on Monday,
the stock fell $1.59 or 4.71 percent on 2.8 times the ADV on the
heels of a downgrade by Robertson Stephens, from a Buy to a
Long-Term Attractive rating.  Today TLAB continued to show its
relative weakness, as a large up day for Tech stocks in general
translated into only a 2.11 percent gain.  The heavy volume,
over 2.8 times the ADV, suggests that the sellers managed to
keep a lid on the stock's advance.  Further selling leading to
a break below today's low of $31.70 could allow for an entry on
weakness.  With industry peer RBAK reporting tomorrow and JNPR
on Friday, we are tightening our closing stop from $36 to $34.
Failed rallies at this level along with horizontal resistance
at $33 may allow higher risk players to take a position.


TLAB traded relatively weak during Tuesday's ramp in the tech
sector.  This under performance on the part of TLAB could set
up a favorable bearish trade in terms of risk-to-reward.
Furthermore, the Motorola miss could pressure telecom-related
issues early Wednesday morning.  Aggressive traders could look
to enter new put positions near the open Wednesday morning,
or wait for the stock to take out resistance at $32.  However,
make sure to confirm weakness in the broader tech and telecom
sectors before placing a bearish bet on TLAB.

***April contracts expire next week***

BUY PUT APR-35*TEQ-PG OI=2101 at $3.40 SL=1.75
BUY PUT APR-30 TEQ-PF OI= 794 at $1.15 SL=0.25


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Evidence of a Shifting Tide...

The Dow industrials moved back above 10,000 today as investors
shopped for bargains amid optimism that current stock valuations
more accurately reflect the outlook for corporate earnings.

Monday, April 9th

Stocks edged higher today as investors speculated that quarterly
earnings shortfalls had already been factored into the market.
The NASDAQ ended up 25 points at 1,745 and the Dow finished 54
points higher at 9,845.  The S&P 500 index closed up 9 points at
1,137.  Trading volume came in at 788 million on the NYSE and at
1.14 billion on the NASDAQ exchange.  Market breadth was mixed,
with advancers beating decliners by 18 to 11 on the NYSE while
technology losers bested winners by 19 to 18.  In the U.S. bond
market, the 30-year Treasury fell 15/32, pushing its yield up to

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

Avery Denn.  (NYSE:AVY)    APR60C/55C   $0.45  credit   bear-call
Genzyme      (NASDAQ:GENZ) APR75P/80P   $0.50  credit   bull-put
Min. Mining  (NYSE:MMM) AP115C/110C  $0.75  credit   bear-call
Data Broad.  (NASDAQ:DBCC) MAY7C/APR7C  $0.35  debit    calendar
Wal-Mart     (NYSE:WMT) APR55C/47P   $0.20  credit   synthetic

Today's market activity provided some favorable opportunities to
participate in the new combination positions.  Wal-Mart slumped
late in the session, allowing an acceptable opening credit in the
synthetic position.  The rally in cyclical issues helped traders
achieve the target entry prices in the MMM and AVY spreads.  GENZ
and DBCC were less cooperative and although the opening prices did
not meet our targets, there were brief periods of opportunity for
adept traders to enter those plays.

Portfolio Activity:

The stock market finished positive today thanks to new buying in
a number of broad market groups.  Comments from Federal Reserve
Bank of Dallas President Robert McTeer added to the optimistic
tone.  McTeer said an inter-meeting interest rate cut by the Fed
prior to its May 15 Federal Open Market Committee meeting should
not be ruled out.  He also said the FOMC is very concerned about
the weakened state of the U.S. economy and that it will not be
complacent in implementing policy.  Cyclical and defensive issues
led the Dow industrials higher with Minnesota Mining (NYSE:MMM),
Merck (NYSE:MRK) and United Technologies (NYSE:UTX) among the top
performers.  On the NASDAQ, a rally in Internet stocks offset a
slew of negative analyst comments on the chip industry.  Shares
of Amazon.com (NASDAQ:AMZN) gave technology stocks a boost after
the company said it expects a first-quarter loss of only $0.22 a
share, much narrower than analyst's consensus expectations.  The
company also reiterated guidance for the full year and received
bullish comments in a Barron's magazine article.  Among telecom
stocks, Motorola (NYSE:MOT) continued to be a sector catalyst as
Morgan Stanley upgraded the issue to "strong buy," suggesting the
recent concerns are overblown.  Software stocks also advanced but
computer hardware and chip issues slumped following two negative
research notes.  Lehman Brothers analyst Dan Niles said upcoming
semiconductor revenues may fall 10% quarter over quarter, with no
signs of growth for the third quarter.  He also predicted that
revenues will be down 18% to 20% in 2001, making this the worst
year for chip companies in the history of the industry.  In the
broader market, only gold and retail stocks endured losses while
gains were seen in shares of finance, biotechnology, chemical and
oil service issues.  The utility group also rebounded after the
big sell-off Friday following news that Pacific Gas & Electric
had filed for Chapter 11 bankruptcy protection.

The Spreads/Combos Portfolio enjoyed advances in both industrial
and technology issues and the leading groups were oil service and
telecom shares.  Bullish positions in The Shaw Group (NYSE:SGR),
Kerr Mcgee (NYSE:KMG), Amerada Hess (NYSE:AHC) and Weatherford
(NYSE:WFT) benefited from the upside activity.  Calendar spreads
in Sprint (NYSE:FON), AT&T (NYSE:T) and Worldcom (NASDAQ:WCOM)
were also positively affected by the renewed buying pressure and
another time-selling play, Ocular Sciences (NASDAQ:OCLR) provided
a favorable closing credit as the issue climbed $1.69 to $18.88.
Olin (NYSE:OLN) and Dupont (NYSE:DD) led the chemicals sector and
Lennar (NYSE:LEN) was a big winner in the construction segment as
interest-rate-sensitive issues rallied.  Among other industrial
companies, Cummins Engine (NYSE:CUM) and Liz Claiborne (NYSE:LIZ)
moved higher and both of those bullish positions may yet provide
profitable outcomes.  Surprisingly, defensive issues in the drug
and pharmaceutical group did not participate in the recovery and
bear-call spreads in Polymedica (NASDAQ:PLMD), Amgen (NASDAQ:AMGN)
and Varian (NYSE:VAR) ended the session near maximum profit.  On
the downside, analysts say the market appears to have stabilized
for now and some of our bearish spreads may come under pressure
if the recovery continues.  Recent positions in Elan (NYSE:ELN),
Biochem Pharma (NASDAQ:BCHE) and our new play in Avery Dennison
(NYSE:AVY) may need to be adjusted in the event of a future rally.

Tuesday, April 10th

The Dow industrials moved back above 10,000 today as investors
shopped for bargains amid optimism that current stock valuations
more accurately reflect the outlook for corporate earnings.  The
blue-chip average finished 257 points higher at 10,102 while the
NASDAQ ended up 106 points at 1,851.  The S&P 500 index closed up
30 points at 1,168.  Trading volume on the Big Board reached 1.37
billion shares and activity on the NASDAQ was also heavier than
normal with 2.19 billion shares changing hands.  Winners outpaced
losers by more than 2-to-1 on both exchanges.  In the bond market,
the U.S. 30-year Treasury plunged 1 28/32, pushing its yield up
to 5.63% as traders shifted money out of bonds into equities.

Portfolio Activity:

Stocks rallied today with the NASDAQ's big-cap issues leading the
technology recovery while advances in the broad market helped the
Dow eclipse the 10,000 mark for the first time in a month.  The
top industrial issues were Alcoa (NYSE:AA), Citigroup (NYSE:C),
Minnesota Mining (NYSE:MMM) and J.P. Morgan Chase (NYSE:JPM).  In
the technology group, blue-chip stocks Hewlett-Packard (NYSE:HWP)
and Intel (NASDAQ:INTC) were among the best performers and other
past bellwethers including Sun Microsystems (NASDAQ:SUNW), Cisco
Systems (NASDAQ:CSCO), JDS Uniphase (NASDAQ:JDSU) and Qualcomm
(NASDAQ:QCOM) also enjoyed excellent gains.  Semiconductor stocks
were among the biggest upside movers within the technology group,
but analysts continued to offer cautious notes on the chip sector.
CS First Boston lowered its growth rate for semiconductor capital
spending in 2001 to negative 30%-35%.  CSFB said it believes that
investors are too focused on the cyclical issues of inventory and
capacity and not focused enough on the more structural issues of
product cycles.  The firm also said it expects the second quarter
earnings season to bring more disappointments.  Among the broader
market sectors, almost every group participated in the rally with
the exception of gold and drug shares.  Outstanding advances were
seen in the software, utility, biotechnology and banking segments.
Analysts say there are bargains to be had for long-term investors
and today's rally may be sustainable because the market's earnings
expectations are now in line with the actual results.  At the same
time, most traders expect the technology industry to take longer
to recover and companies in that group may need to endure further
consolidation at current valuation levels before any rallies can
be maintained.

There were a number of big moves in the Spreads portfolio today
and most of the activity was favorable.  Stocks in the technology
group saw renewed interest with chip and telecom shares leading
the rally while the industrial segment was dominated by cyclical
and major manufacturing issues.  Sprint (NYSE:FON), AT&T (NYSE:T)
and Worldcom (NASDAQ:WCOM) were again popular in today's session
and the bullish activity produced favorable exit and adjustment
opportunities in these positions.  The time-selling spreads in
Earthlink (NASDAQ:ELNK) and Lennar (NYSE:LEN) benefited from the
upside movement and both of these plays also offered potential
early-exit profits.  In the computer group, Intel (NASDAQ:INTC),
Hewlett-Packard (NYSE:HWP) and Microsoft (NASDAQ:MSFT) were big
winners and International Rectifier (NYSE:IRF) also recovered
from recent selling pressure.  Among the portfolio's industrial
issues, both Cummins Engine (NYSE:CUM) and Dupont E I Nemours
(NYSE:DD) rallied again today and most of the positions in the
oil service group ended the upbeat session at highs for the year.
Although the bullish activity was welcomed by the majority of
public investors, some of our recent positions are at risk from
continued upward movement and adjustments may have to be made if
the rally continues.  Avery Dennison (NYSE:AVY) and Minnesota
Mining (NYSE:MMM) are the most obvious candidates and any close
above the recent resistance areas in the underlying issues should
be seen as a potential change in character.  In the case of the
Avery Dennison bear-call spread, we would likely roll up and out
to the $60 strike in May, based on the additional overhead supply
near that price.  With Minnesota Mining, we might consider a long
position in the stock to offset the sold options at $110, as the
issue is a popular portfolio holding among long-term investors.

Questions & comments on spreads/combos to Contact Support

                           - NEW PLAYS -
IBM - International Business Machines  $98.67  *** Big Blue! ***

International Business Machines Corporation (NYSE: IBM) utilizes
advanced information technology to provide customer solutions.
The company operates using several segments that create value by
offering a variety of solutions, including, either singularly or
in some combination, technologies, systems, products, services,
software and financing.  Organizationally, the company's three
hardware product segments are comprised of Technology, Personal
Systems and Enterprise Systems.  IBM's other major operations
consist of Global Services, Software, Global Financing, and the
Enterprise Investments segment.  The company's earnings are due
on April 18.

Next week, IBM will report its first-quarter earnings and unlike
most of its industry competitors, the company has yet to issue a
revenue or sales warning.  In addition, IBM is one of the few
big-cap companies that has met consensus earnings targets during
the last two quarters and the company should achieve favorable
numbers again this period, when compared to last year's dismal
showing (sales were down 5% to $19 billion for the first three
months of 2000).  Sales of services and hardware have been helped
by a relatively new initiative in software partnerships and some
positive activity in the software segment could push the company
past the earnings-per-share consensus estimate of $0.98 for the
first quarter.  Since it participates so many different markets,
IBM is subject to the trends in a variety of industries but even
amid the recent selling pressure in computer companies, its share
value has remained relatively stable.  Indeed, IBM has long been
a bellwether for technology stocks and when the market returns to
its bullish form, Big Blue will be one of the issues leading the

PLAY (conservative - bullish/credit spread):

BUY  PUT  APR-85  IBM-PQ  OI=12905  A=$1.10
SELL PUT  APR-90  IBM-PR  OI=26108  B=$1.80
INITIAL NET CREDIT TARGET=$0.75-$0.80  ROI(max)=17% B/E=$89.25

- or -

PLAY (moderately aggressive - bullish/diagonal spread):

BUY  CALL  MAY-100  IBM-ET  OI=6089   A=$6.40
SELL CALL  APR-105  IBM-DA  OI=18275  B=$1.95

WLP - Wellpoint Health Network  $92.86  *** Sector Slump! ***

WellPoint Health Networks (NYSE:WLP) is a managed health care
company which has over 7 million medical members and over 30
million specialty members.  The company offers a broad spectrum
of quality network-based managed care plans, including preferred
provider organizations, health maintenance organizations and
point-of-service and other hybrid plans and traditional indemnity
plans.  In addition, the company offers managed care services;
underwriting, actuarial services, network access, medical cost
management and claims processing.  The company also provides a
broad array of specialty and other products, including pharmacy,
dental, utilization management, life insurance, preventive care,
disability insurance, behavioral health, COBRA and flexible
benefits account administration.

Here is a new candidate in the category of "low risk/low reward"
spreads.  Although the last play in this group, Avery Dennison
(NYSE:AVY) has been more exciting than expected, this position
should provide very little stress until it expires next Friday.
Stocks in the Health Services segment have slumped recently and
the news that Aetna (NYSE:AET), the leading health insurer in
the United States, would record first quarter earnings that were
significantly lower than expected due to increased medical costs,
put additional downward pressure on the industry.  Aetna reported
that expenses in its commercial health maintenance organization
segment were considerably higher than previous projections and
most of the managed-care stocks fell on concerns that medical
costs may exceed expectations at other companies in the group.
Even without the negative news from AET, WLP has suffered from
recent selling pressure and the sector is no longer seen as a
panacea to the bearish trends in the broader markets.  Traders
who believe the issue has little upside potential in the next
two weeks can speculate on that outcome with this conservative

PLAY (very conservative - bearish/credit spread):

BUY  CALL  APR-105  WLP-DA  OI=146  A=$0.35
SELL CALL  APR-100  WLP-DT  OI=324  B=$0.70


                         - STRADDLES -

Traders have been asking for new debit-straddles and although the
recent volatile market activity has limited the number of issues
that are theoretically favorable, this position meets our basic
criteria with regard to option pricing and probability of profit.


GVA - Granite Construction  $35.16  *** Big Mover! ***

Granite Construction (NYSE:GVA) is one of the largest heavy civil
construction contractors in the United States and they operate
nationwide.  Its focus is primarily in the West, Southwest, and
Southeast serving both public and private sector clients.  Within
the public sector, the company concentrates on infrastructure
projects, including the construction of roads, highways, bridges,
dams, tunnels, canals, mass transit facilities and airports.  In
the private sector, the company performs site preparation services
for buildings, plants, subdivisions and other facilities.  The
principal operating company, Granite Construction, is organized
into two business segments, the Branch Division and the Heavy
Construction Division.

This issue falls within our guidelines for a favorable debit
straddle, based on its inexpensive option premiums and a history
of adequate price movement.  This selection process provides the
foremost combination of low risk and potentially high reward.
As with any recommendation, it should be evaluated for portfolio
suitability and reviewed with regard to your strategic approach
and trading style.

PLAY (aggressive - neutral/debit straddle):

BUY  CALL  APR-35  GVA-DG  OI=17  A=$1.00
BUY  PUT   APR-35  GVA-PG  OI=20  A=$0.80


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