Option Investor

Daily Newsletter, Wednesday, 10/24/2001

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The Option Investor Newsletter                Wednesday 10-24-2001
Copyright 2001, All rights reserved.                        1 of 1
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MARKET WRAP  (view in courier font for table alignment)
      10-24-2001          High     Low     Volume Advance/Decline
DJIA     9345.62 +  5.54  9388.86  9278.70 1.34 bln   1359/1733
NASDAQ   1731.54 + 27.10  1763.17  1697.69 1.86 bln   1931/1646
S&P 100   558.69 -  0.36   561.94   556.55   Totals   3290/3379
S&P 500  1085.20 +  0.42  1090.26  1079.98
RUS 2000  427.65 +  0.28   428.00   426.33
DJ TRANS 2221.01 - 40.98  2281.85  2216.04
VIX        32.87 -  0.32    34.49    32.31
VXN        61.91 -  1.82    64.90    61.91
TRIN        1.01
Put/Call    0.49

A Little Bit Of Everything

Mixed earnings reports and ugly economic data led to flat trading
in the Dow Jones Industrial Average ($INDU) and S&P 500 (SPX.X).
Meanwhile, big cap tech worked higher as measured by the almost
three percent gain in the Nasdaq-100 (NDX.X).  All the while,
bonds advanced as measured by the decline in yields across the
gamut of treasuries.

The Federal Reserve released its Beige Book report on the
economy Wednesday afternoon for the period between September to
early October, which revealed that the U.S. economy further
weakened in the wake of the September 11 attacks.  The report was
expected to be weak, so it didn't do much to embolden the bears.
The Fed reported that some businesses have recovered, but that
retail and manufacturing remained weaker than during the
pre-attack period.  The Fed also reiterated that inflation
remained in check as mounting layoffs have eased pressure on
wages and prices.

Two old economy companies added to the layoffs that the Fed
referred to.  Eastman Kodak (NYSE:EK) - a component of the INDU -
guided lower Wednesday morning.  The company said that it may
have difficulty meeting its fourth-quarter numbers, which would
necessitate the elimination of 3,500 to 4,000 jobs, which is on
top of previously planned job cuts.  Shares of Kodak shed $3.46,
or 10 percent.

The oldest U.S. department-store chain, Sears (NYSE:S), reported
numbers that met estimates.  In conjunction with its earnings
release, Sears announced that it would undergo a massive
restructuring over the next three years, which includes cutting
4,900 jobs.  The stock finished fractionally higher by 1.37

What's the Catalyst?

With dismal economic and earnings reports filtering out over the
past two weeks, I've been wondering what's been driving stock
prices higher.  Going into September 21, the market was so
historically oversold that it had nowhere to go but up.  But, the
rally over the past five days has been somewhat perplexing insofar
as the driving force behind it, especially in technology (NDX).

I, by far and away, give the most credence to price action, or
supply and demand, but still like to form a market thesis based
upon fundamental findings.  Naturally, I've been curious about
the recent moves in Broadcom (NASDAQ:BRCM), QLogic (NASDAQ:QLGC),
Brocade (NASDAQ:BRCD), and the like.

The recent moves in the aforementioned stocks, and others like
them, have been illogical to me because they are expensive stocks;
their current earnings don't justify their valuations.  That's
not to say that I haven't tried to take advantage of recent
rallies in the aforementioned because, in the end, I defer to
supply and demand.  But the moves just haven't made sense.

My good friend and colleague, Jeff Bailey, quite often curls up
his nose and adopts a funny little accent and says, "Trade what
you observe."

I've been observing a dynamic demand situation, especially in
big cap tech, over the past five days.  I suppose that there are
myriad justifications for the rise in stocks, such as the
massive amounts of liquidity that the Fed has pumped into the
system, the historically low level of rates, and the accompanying
low level of interest bearing cash accounts, to name just a
few.  More concrete, perhaps, are the current goings on amongst
U.S. politicians.

Late Wednesday, the House narrowly passed a $100 billion economic
stimulus package.  There are several facets to the package, but
the important parts of the package are the ones aimed at
stimulating business investment because the current recession,
unlike so many others, has been a business-led contraction.

The bill proposes to repeal the corporate alternative
minimum tax, or AMT, refunding payments dating back more than
15 years.  The refunding of past payments would "give back"
billions to corporate America.  For instance, some estimates
have suggested that IBM (NYSE:IBM) would get a $1.4 billion
refund.  Suddenly, the $2.60 move in IBM Wednesday doesn't seem
all that illogical.  In addition to the repeal of the AMT, the
bill proposes to temporarily increase business capital loss
deductions, which would expedite the write-down process and
clearing of inventories.

I don't know if the package will eventually pass, nor do I know
if the news of the House passage has already been factored into
stock prices.  What I do know, however, is that bringing biases
to the trading terminal is awful costly.  Very few individual
traders are privy to the information that the large institutions
are, such as whether or not a certain economic package will
receive the necessary votes in the House.  Because of that fact,
it's paramount for individual traders to "trade what [they]

The Big Three

The INDU and SPX made no progress in either direction Wednesday.
For its part, the INDU continued to churn around the 9300
retracement level that I've been writing about.  Meanwhile, the
SPX closed at 1085.20, need I write more?  Check out Tuesday's
Market Wrap if these levels are unfamiliar.

The "Pullback or Push Higher" thesis is coiling with anticipation.
I don't think that the INDU and SPX are going to spend the next
several weeks toying around their retracement levels.  When least
expected, the INDU and SPX will either breakout or breakdown.  The
way to trade any forthcoming move, like I wrote Tuesday, is to have
the appropriate levels in place to detect a change in price
patterns.  Or, in the words of my partner in adventure, Austin
Passamonte, "watch for the wedges."

It could be argued that the NDX is forming an ascending wedge with
a top around the 1440 level.  The NDX did snug right up to its
short-term resistance at 1420 near the close Wednesday, reaching
as high as 1430 earlier in the day.  But there are two problems I
have with trading a breakout above 1440: First, so far, there's
really only one reference as resistance at 1440 from last
Wednesday.  Second, the 1460 (38.2 percent retracement level) level
sits just above the upper-end of the wedge.

For bullish plays, ideally, I'd like to enter on a pullback down
to the NDX's ascending support line with an ultra-tight stop.
That way, I can easily manage risk and be in ahead of any breakout
attempt above 1440.  Also, if the breakout fails, then I have some
room to manage positions.

Tech Sector Take

The Networking Sector Index (NWX.X) has out performed the NDX to
the downside for the past year-and-a-half.  But starting back on
October 11, it began to out perform to the upside.  In fact, the
NWX.X out performed again Wednesday.  Its strength may be
stemming from the proposal to temporarily increase write-downs
for businesses.

The index could breakout in the coming days above the 284 level.
A breakout attempt is worth watching in here in the NWX.X because
the index really doesn't have much resistance immediately above
current levels.  From where I sit, the NWX.X's next major
resistance area lies between 308 and 314.  CIENA (NASDAQ:CIEN)
and Juniper (NASDAQ:JNPR) have been two of the stronger stocks
in the group.

The Software Sector Index (GSO.X) gave a buy signal Wednesday
with its advance past the 156 level, albeit only fractionally.
It could have 10, or possibly 16, more points of upside if they
keep buying tech stocks.  Notice the similarities and differences
between the GSO.X chart and the NDX chart above.  Of the components
of the GSO.X, Symantec (NASDAQ:SYMC) and Intuit (NASDAQ:INTU) have
been two of the stronger performing stocks in the group.

The GSO.X and NWX.X could serve as leading indicators of the NDX
over the coming days.  If we witness follow-through in the two
sectors into Thursday's session, then we could see the next wave
of short capitulation, which would carry the tech sector higher.
Then again, Wednesday's late-day pop could've been a head fake.
In either case, "trade what you observe."  And for profit's sake,
be objective about it.

Eric Utley
Option Investor



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FFIV - call
Adjust from $14 up to $14.50

DELL - call
Adjust from $21.50 up to $23

NVDA - call
Adjust from $40 up to $42

ORCL - call
Adjust from $13.50 up to $14

JNPR - call
Adjust from $20.50 up to $22.50

JNJ  - call
Adjust from $56 up to $57

SNPS - call
Adjust from $44 up to $45

IMNX - call
Adjust from $20 up to $22

BRCM - call
Adjust from $27.50 up to $30


No Dropped Calls for Wednesday.


EMLX $26.29 +3.13 (+1.64) EMLX didn't offer many entry
opportunities early today with its charge out of the gates after
the opening bell.  The stock did rollover midday at $26.50, but
finished the day strongly and above our stop at $26.  For
readers who did enter plays today, consider using a tight stop
above relative highs to protect against any further upside.


Putting Our Best Foot Forward
By Mark Phillips
Contact Support

I've been soliciting your input for some time now on the
advisability of adding put plays to the LEAPS section and I must
say the variety of responses has been rather interesting.  I've
had readers write that it is too late to play the downside, as
the markets have bottomed and are in the process of building the
base from which they will recover later this year and next.  At
the other end of the spectrum, I've gotten bearish responses,
which point to valuations that are still too rich to sustain any
sort of long-term bullish market movement.  In fact, I've had
some readers write telling me their projections for ultimate
bottoms in the major indices far below current levels.  Namely
DOW 5000 and NASDAQ below 1000.

I happen to believe the truth lies somewhere in the middle.
While I don't expect to see extreme bearish levels like those
listed above, I can see how investors could arrive at those
conclusions.  We've been mired in a bear market for 18 months
now, and die-hard bulls have been repeatedly punished for failing
to accept that it was possible for prior levels of support to be
smashed to bits on the next downleg.  The tragic events of
September 11th didn't really change anything in the market
itself, although it did hasten the drop to index levels not seen
for years.

That created an oversold condition that needed to be unwound and
the market recovery of the past month has relieved much of that
pressure.  What that means to me is that we are once again faced
with a market that can respond to real economic and
market-related factors.  There has been a concerted effort from
the Federal Reserve and the Federal government to stimulate the
economy for much of this year, and that effort was further
intensified after September 11th.  And that stimulus will move
our economy back into an expansion phase...the big question is
when.  There is no question we are currently in a recession and
that fundamental factor is reflected in the currently depressed
levels of the major market averages.  But that doesn't mean that
the negative fundamentals are fully reflected in the financial

One of the most common metrics used to gauge the health of the
market is the Price to Earnings (P/E) ratio.  With prices coming
down so precipitously, many stocks have seen their P/E ratio
decline to more reasonable levels, but there are still some
troubling signs.  Price declines, particularly in many Technology
stocks have been matched by even greater declines in earnings
and earnings estimates for 2002.  The net result is that the
average P/E ratio for the S&P500 is actually increasing, which
isn't a healthy sign in a recessionary environment.  If you've
been following the earnings releases in the past few weeks, you
should have noticed that visibility is still elusive and many
CEOs are still reluctant to give guidance beyond the end of
2001.  Clearly the economic recovery we are all waiting for is
not here yet.

With that lack of fundamental health as our backdrop, I'd like
to spend the remainder of our time together here talking about
EBAY, our first LEAP Put play.  As one of the few remaining
Internet stocks that can still claim a triple-digit P/E ratio
(currently 187), the stock is starting to show some of the signs
of weakness we saw from the bulk of Internet stocks as the
dot-com bubble began to deflate.  First up is the company's
earnings growth, which continues to slow.  The company released
its most recent earnings report last Thursday and apparently
EBAY investors didn't like what the company had to say.  While
they posted earnings a penny ahead of estimates, they didn't
report real GAAP earnings, but instead issued those murky
pro-forma earnings that allow companies to hide one-time
items so that they can still meet or beat their estimates.  The
revenue growth rate has continued to atrophy in recent quarters,
and with the most recent results rests near 71%.  No question
that is impressive, particularly in the current economic
environment, but does it deserve a Price to Earnings multiple
of 187?

There is no question that EBAY is a very well run Technology
company, and I don't mean to suggest that there is any funny
business going on with the company's balance sheets.  But the
sharp drop the day after earnings indicates that I'm not the
only investor who is nervous about the company's future.
Anything that points to uncertainty is liable to induce selling
in the current market environment, and concerns that the company
will not see its traditional strong fourth quarter results, had
investors rethinking their exposure to the stock.

But that didn't stop bottom-fishers from snapping up the stock
at a perceived bargain over the past several days.  That buying
interest has helped to lift EBAY off its recent lows and we've
now seen the post-earnings gap get filled.  While I think there
may be a bit more upside in the near-term, I would be very
surprised to see EBAY manage to fight its way above $62-63.  It
has been caught in a downtrend since topping out in early July
and I think the necessary valuation compression is just getting

The monthly chart of EBAY shows the long-term downtrend is still
in place, as the descending series of highs is likely to continue
until the stock can post a monthly close above the trendline,
currently at $67.

The monthly chart identifies the dominant trend, but does little
to pinpoint entry/exit points for traders.  For that sort of
information, we need to take a look at the weekly/daily charts,
and there we can see an attractive put opportunity beginning to
set up.

Here we can see the weekly Stochastics beginning to weaken, but
they aren't yet into the overbought zone.  With the daily
oscillator just beginning to reverse out of oversold, I would
expect EBAY to continue to recover in price over the next couple
weeks.  That should lift the weekly oscillator closer to the
overbought region and price should top out in the $58-60 area.
We've now filled the post-earnings gap, so our likely firm
resistance will be in the $62-63 area as shown on the charts

So what we are looking for in terms of a long-term put entry is
for daily Stochastics to begin their next rollover from
overbought as price begins to weaken below resistance, ideally
in the $58-59 area.  Should the bulls manage to push EBAY
through resistance without a rollover in the daily/weekly
Stochastics, it would be a clear sign that my premise is flawed
and we obviously would be standing aside from the play.

Remember our approach in the LEAPS column is to define the entry
setup we are looking for and trade ONLY if the conditions we are
looking for actually materialize.  It does us no good to try and
force a trade when the market is telling us we are wrong.  With
such a rich valuation, EBAY has a lot of room to fall if
conditions continue to worsen in the economy, and that is
clearly what we are hoping for in this play.  For now, we watch
and wait.  Stay tuned to the LEAPS column, as we will update
this play in the Watch List as we look for confirmation of our

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DELL - Dell Computer $24.90 +0.26 (+0.85 this week)

Dell Computer is a direct computer systems company.  The
company offers its customers a full range of computer systems,
including desktop computer systems, notebook computers,
workstations, network servers and storage products, as well as
an extended selection of peripheral hardware, computing
software and related services.

Most Recent Update

A bit at a time, DELL is inching closer to breaking above the $25
resistance level, which has kept buyers in check for much of the
past 2 weeks.  As the clear winner in the PC war, DELL was
unaffected in the afterhours session by the CPQ earnings report
and appears poised to continue working higher in the days ahead.
Target fresh positions on intraday pullbacks near the aggressive
ascending trendline at $24, or near $23.  We'll need solid buying
volume to continue the advance, but for now we're content to
continue riding the gradual advance.  Alternative entry points
will materialized as DELL pushes through resistance, and more
cautious investors will want to wait for this development before
stepping into the play.


If the Nasdaq continues higher Thursday DELL should move past
the $25 level.  The stock has been basing for the past several
sessions and could be ready to rally over the next few days.
Look for an advancing Nasdaq in conjunction with a high volume
breakout past relative highs around $25.30.  The stock could
move up to the $27 level if the Nasdaq continues to strengthen.

BUY CALL NOV-22 DLQ-KX OI=16627 at $3.20 SL=2.25
BUY CALL NOV-25*DLQ-KE OI=44265 at $1.55 SL=0.75
BUY CALL NOV-27 DLQ-KY OI=37786 at $0.55 SL=0.25
BUY CALL JAN-25 DLQ-AE OI=47128 at $2.95 SL=2.00
BUY CALL JAN-27 DLQ-AY OI=12335 at $1.85 SL=1.00

Average Daily Volume = 27.3 mln


Option Pricing Fundamentals
By Ray Cummins!

One of the most common questions we receive concerns the "fair
value" of options.  To understand this complex term, you must be
familiar with the various "Greeks" and the concept of "Delta,"
which measures the rate of change in an option's price compared
to the movement in the underlying security.

Learn The Greeks...

An option's price is determined by mathematical equations that
use variables from all of the factors affecting its value.  Each
aspect of option pricing is a separate component of the formula
and they have Greek titles; Delta, Gamma, Theta, Vega, and Rho.
The primary influence on an option's price is the movement of the
underlying security.   This concept relates directly to the first
and most important of the Greeks; Delta.  Delta measures the rate
of change in an option's price compared to a one point movement
in the underlying security.  It can be thought of as a percentage
of the movement of the stock price.  If the stock price moves up
$2 while the option on that stock gains $1, it has a delta of 50
(or 50%).  An at-the-money (ATM) call option will typically have
a delta of 50.  In-the-money (ITM) calls will have higher deltas;
a greater percentage move, based on the change in the underlying
issue.  The opposite is true for out-of-the-money (OTM) call
options; their deltas are lower.  A deeply out-of-the-money call
option will have a delta very close to zero.

Call deltas are positive; put deltas are negative, reflecting the
fact that the put option price and the underlying stock price are
inversely related.  The delta of an option is also occasionally
called the "hedge ratio" and it can be used to determine the
number of calls one would need to be short to create a risk-less
hedge; a position which would be worth the same whether the stock
price rose by a very small amount or fell by a very small amount.
In such a "delta-neutral" portfolio, any gain in the value of the
shares held due to a rise in the share price would be exactly
offset by a loss on the value of the calls written.  Of course,
as the delta changes with the stock price and time to expiration,
the number of shares would need to be adjusted to maintain the
hedge.  How quickly the delta changes with regard to the stock
price is given by Gamma, one of the lesser known Greeks.

Gamma is sometimes considered the "delta" of the delta.  Market
makers use this component almost exclusively in the management of
large option accounts.  Specialists who hedge portfolios using the
delta technique try to keep gamma as small as possible to help
limit the adjustments necessary to maintain a risk-free position.
If the position gamma is too large, a small change in stock price
can devastate the hedge.  Adjusting gamma can be difficult, thus
computers are used to monitor portfolio positions and alert the
specialists when corrections are needed to maintain the complex

Vega is the change in option price given a one-percentage point
change in volatility.  Similar to delta and gamma, vega is also
used for hedging.

Theta is the change in option price given a one-day decrease in
time to expiration.  This component is basically a measure of
time decay.  Time value and time decay are actually two of the
easiest aspects of option pricing to understand.  The time value
of any option can be simply viewed as everything but the intrinsic
value.  Time costs money and more time equals more money.  The
amount of time value in an option's price decays each day it is in
existence.  The closer the option gets to expiration, the faster
it decays.  In a strictly mathematical sense, time value decays at
its square root and this rate of decay is known as theta.

Rho, while not commonly used by retail traders, is the change in
option price given a one-percentage-point change in the risk-free
interest rate.

Option Pricing Is Important!

The most important factors in option trading are market movement,
option volatility (with regard to pricing and probability), and
time decay.  The knowledge of these concepts is paramount to
profitable trading and without a suitable basis, you will likely
enter the market at a theoretical disadvantage.  The primary
requirement is familiarity with option pricing.  In volatile
issues, the emotional optimism of traders can cause prices to
vary widely from their true worth.  Without a realistic estimate
of the value of an option, you will often pay an excessive amount
for the rights inherent in the contract and that usually results
in a much lower return (if any) when the issue finally makes the
expected move.  As intelligent traders, we have the ability to
measure the value of an option through mathematical evaluation,
but if you aren't partial to formulas, pricing models will help
you determine the fair market value of an option.  Many of the
established tools for pricing options are free and they should be
used before opening any new position.  Remember, in the majority
of trading techniques, the end result is almost always a product
of what you know, and how well you act upon it.

There are option pricing and volatility calculators at various
sites on the Internet.  One of the most popular (free) tools is
available at the CBOE's website (www.cboe.com).  In addition,
there is a great freeware program that downloads data from the
CBOE website and displays a quote montage along with the Greek
values available from Rocky Point Software (www.rpsw.com).

Good Luck!

Summary of Current Positions (as of 10/23/01):

Covered Calls: (Margin not used in calculations)

Stock  Strike Strike Cost   Current  Gain  Potential
Symbol Month  Price  Basis   Price  (Loss) Mon. Yield

EBAY    NOV     50   47.28   55.58   2.72     4.6%

Naked Puts:

Stock  Strike Strike Cost   Current  Gain  Potential
Symbol Month  Price  Basis   Price  (Loss) Mon. Yield

CERN    NOV    45    44.20   56.01   0.80     5.0%
EBAY    NOV    40    39.05   55.58   0.95     6.2%
GILD    NOV    50    48.85   66.10   1.15     6.7%
IMCL    NOV    45    43.85   60.86   1.15     7.2%
SYMC    NOV    35    34.40   56.44   0.60     4.8%
ACS     NOV    80    78.90   91.82   1.10     4.1%

The new position in Symantec (NASDAQ:SYMC) was not available
at the target price as the stock gapped higher (the next day)
after reporting positive earnings.  The "target-shooting"
order in Affiliated Computer (NYSE:ACS) was available at a
better-than-expected credit of $1.10.

Naked Calls:

Stock  Strike Strike Cost   Current  Gain  Potential
Symbol Month  Price  Basis   Price  (Loss) Mon. Yield

ABK     NOV     60   60.85   48.20   0.85     4.1%

Sell Strangles:

Stock  Strike Strike Cost   Current  Gain   Potential
Symbol Month  Price  Basis   Price  (Loss) Mon. Yield

IDPH    NOV    40-P  39.25   57.12   0.75     6.6%
IDPH    NOV    65-C  65.65   57.12   0.65     5.8%

Credit Spreads:

Stock  Pick     Last    Position   Credit   C/B    G/L   Status

FDC    66.02    67.86  NOV55P/60P   0.70   54.30   0.70   Open
PCSA   58.17    53.50  NOV45P/50P   0.75   49.25   0.75   Open
PEP    49.90    47.90  NOV45P/47P   0.45   47.05   0.45   Open
SBC    47.44    38.78  NOV35P/40P   0.05   39.95  (1.17) Closed
JNJ    57.77    58.85  NOV50P/55P   0.65   49.35   0.65   Open
MMC   102.51   101.10  NOV85P/90P   0.50   89.50   0.50   Open
ERTS   52.70    54.94  NOV65C/60C   0.90   60.90   0.90   Open
LLY    75.00    77.56  NOV85C/80C   1.00   81.00   1.00   Open

The recent adjustment in SBC Communications (NYSE:SBC) bought a
little extra time for the issue to recover but the additional
downside margin was not enough to offset the earnings-related
decline in its share value.  Monday's move below a near-term
technical support level (near $43) was ominous and Tuesday's
activity left the no doubt that the position should be closed
for a loss.

New Candidates:

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.  (We monitor the positions marked with ***).


BULLISH PLAYS - Covered Calls, Naked Puts, & Combinations

ELNT - Elantec  $34.15  *** Earnings Speculation! ***

Elantec Semiconductor (NASDAQ:ELNT) is a designer, manufacturer
and marketer of high performance analog integrated circuits,
which provide specific analog solutions to manufacturers in the
high growth markets for video, optical storage, communications
and power management products.  The company presently offers
approximately 150 products, including amplifiers, drivers, faders,
transceivers and multiplexers.  The company's principal markets
include North America, Asia, Europe and other countries and their
products are sold to leading original equipment manufacturers such
as Globespan, Hitachi, Lucent, Lucky Goldstar, Motorola, Olympus,
Philips, Ricoh, Samsung, Sanyo, Sony, Toshiba and Yamaha, either
directly or through its distributors, such as Microtek Intl., and
Insight Electronics.

Shares of ELNT rallied today in tandem with other semiconductor
issues as investors became optimistic for the group after some
recent upbeat earnings reports.  Indeed, chip stocks were among
the standouts in the technology sector, with a broad rally that
extended to the equipment-makers as well as the communications
companies.  Traders ignored data from the Semiconductor Equipment
& Materials International that revealed orders for chip equipment
in North America dropped 11% in September due to weak consumer
and corporate spending.  SEMI reported that recent global events
have exacerbated the already poor outlook for hi-tech industries
but investors chose to look with a positive perspective at the
timing of the recovery for semiconductor and capital equipment

Today's bullish activity was supported by heavy trading volume,
suggesting that investors are confident about the company's
earnings report due on Thursday after the close.  The stock has
recent buying support near our cost basis and the robust option
premiums will allow traders to speculate, in a conservative
manner, on the future movement of the company's share value.

ELNT - Elantec  $34.15

PLAY (buy stock and sell covered call; or sell naked put):

Action    Month &  Option  Open     Closing  Cost     Target
Req'd     Strike   Symbol  Int.     Price    Basis    Mon. Yield

SELL CALL NOV 30   UET KF   79       5.20    28.95      4.6%

- or -

SELL PUT  NOV 30   UET WF   44       1.15    28.85     13.7%
SELL PUT  NOV 25   UET WE   130      0.40    24.60      7.0% ***

GILD - Gilead  $68.30  *** Another New High! ***

Gilead Sciences (NASDAQ:GILD) is an independent biopharmaceutical
company that seeks to provide accelerated solutions for patients
and the people who care for them.  Gilead discovers, develops,
manufactures and commercializes proprietary therapeutics for
challenging infectious diseases (viral, fungal and bacterial
infections) and cancer.  Gilead also has expertise in liposomal
drug delivery technology.  Currently, Gilead markets AmBisome
(amphotericin B) liposome for injection), an antifungal agent,
DaunoXome (daunorubicin citrate liposome injection), a drug
approved for the treatment of Kaposi's Sarcoma, and VISTIDE
(cidofovir injection) for the treatment of cytomegalovirus (CMV)
retinitis.  Roche markets Tamiflu (oseltamivir phosphate) for the
treatment of influenza, in a collaborative agreement with Gilead.
In addition, Gilead is developing products to treat diseases
caused by human immunodeficiency virus and hepatitis B virus,
bacterial infections and cancer.

The recent buying interest in Gilead Sciences began last month
after the company said that a U.S. Food and Drug Administration
panel was scheduled to review Viread, the company's new drug to
treat HIV infection, on October 3.  Viread is a single tablet
taken once daily and works by blocking an enzyme crucial to the
replication of HIV.  The company filed a New Drug Application for
Viread earlier in the year and the agency issued priority review
status that could allow for action by the FDA by November 1.  In
the weeks following the news, GILD shares suffered from extreme
profit-taking but in late September, Goldman Sachs gave investors
a new catalyst to buy the issue as they initiated coverage of
Gilead with a "market out-performer" rating, saying the company's
future growth is linked to their unique AIDS drug.  The brokerage
said the company had established a strong clinical and commercial
track record and that at maturity, Viread may see a market worth
more than $400 million.  In early October, a U.S. advisory panel
backed GILD's HIV-fighting drug, saying it supports experimental
use of the antiviral treatment on adults who have already received
antiretroviral therapy.  Based on evidence in Gilead's application,
members of the FDA's antiviral drugs advisory committee recommended
adult use of Viread and the committee's decision, while not binding,
usually is heeded by the full FDA.

Investors were pleased with the news and the issue has shown signs
of a new bullish trend.  These positions offer a way to speculate
conservatively on the company's future share value.

PLAY (sell naked put):

Action    Month &  Option  Open     Closing  Cost     Target
Req'd     Strike   Symbol  Int.     Price    Basis    Mon. Yield

SELL PUT  NOV 65   GDQ WM  1,236     2.60    62.40      12.4%
SELL PUT  NOV 60   GDQ WL  247       1.35    58.65       8.4%
SELL PUT  NOV 55   GDQ WK  3,084     0.70    54.30       6.0% ***

IBM - Intl. Business Machines  $108.57  *** Reader's Request! ***

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 the Global Services segment, the Software segment,
the Global Financing segment and Enterprise Investments segment.

International Business Machines has been among the leaders in
the recent technology rally and one of our subscribers requested
that we identify a favorable spread position in the issue.  Based
on today's continued upside and the excellent buying support near
$100, this position offers a great speculation play for those who
are bullish on "Big Blue."

IBM - Intl. Business Machines  $108.57

PLAY (conservative - bullish/credit spread):

BUY  PUT  NOV-95   IBM-WS  OI=10973   A=$0.60
SELL PUT  NOV-100  IBM-WT  OI= 14406  B=$1.10

IMCL - Imclone Systems  $61.98  *** New 2001 High! ***

ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company that
is developing a portfolio of targeted biologic treatments designed
to address the medical needs of patients with a variety of cancers.
The company focuses on three main strategies for treating cancer,
growth factor blockers, cancer vaccines and unique angio-genesis
inhibitors.  The company's lead product candidate, IMC-C225, is a
therapeutic monoclonal antibody that inhibits stimulation of a
receptor for growth factors upon which certain solid tumors depend
in order to grow.  IMC-C225 has been shown in clinical trials to
have an acceptable safety profile, to be well tolerated and, when
administered with either radiation therapy or chemotherapy, to
enhance tumor reduction.

Bristol-Myers Squibb's (NYSE:BMY) recent $2 billion agreement to
co-develop a cancer drug formulated by ImClone Systems is the main
reason for the company's bullish share-price activity.  Last month,
Bristol-Myers said it will pay $1 billion for a 20% stake in IMCL,
and will co-develop and sell the biotechnology firm's experimental
cancer drug, IMC-C225.  The companies believe this investigational
drug already has great potential in the treatment of many cancers,
including colon, head and neck, pancreatic and non-small cell lung
cancer.  Analysts predict ImClone's new drug will generate annual
sales of $1 billion and that's the rationale behind Bristol Myers
contract to buy 14 million IMCL shares at a price of $70 per share.

Today Bristol Myers reported higher third-quarter profits, driven
by robust sales of key prescription medicines and the company says
it is in the process of closing lower-margin businesses to focus
on its more-profitable core drug operations.  That's positive news
IMCL shareholders and traders who agree with a positive outlook for
the co-development of the company's new drug can use these positions
to speculate on the future movement of the issue in a conservative

IMCL - Imclone Systems  $61.98

PLAY (sell naked put):

Action    Month &  Option  Open     Closing  Cost     Target
Req'd     Strike   Symbol  Int.     Price    Basis    Mon. Yield

SELL PUT  NOV 55   QCI WK  3,998     1.60    53.40     10.4%
SELL PUT  NOV 50   QCI WJ  808       0.65    49.35      6.1% ***

SEPR  - Sepracor  $48.58  *** Own This One! ***

Sepracor (NASDAQ:SEPR) is a research-based pharmaceutical company
dedicated to treating and preventing human disease through the
discovery, development and commercialization of pharmaceutical
products that are directed toward serving unmet medical needs.
Sepracor's drug development program has yielded an extensive
portfolio of pharmaceutical candidates that are focused on the
treatment of respiratory, urology and central nervous system

There is little news to explain the recent rally in SEPR shares
but analysts say the company has one of the best pipelines in the
specialty pharmaceuticals business and will benefit financially
as more drug manufactures enlist Sepracor to improve products
already on the market.  The fundamental outlook for the company
is improving and their segment of the pharmaceutical sector is
performing very well.  The bullish technical indications suggest
the issue is poised for additional gains and these conservative
positions provide a low risk cost basis in SEPR with a reasonable
expectation of profit.

SEPR  - Sepracor  $48.58

PLAY (sell naked put):

Action    Month &  Option  Open     Closing  Cost     Target
Req'd     Strike   Symbol  Int.     Price    Basis    Mon. Yield

SELL PUT  NOV 45   ERQ WI  160       1.85    43.15      13.2%
SELL PUT  NOV 40   ERQ WH  183       0.65    39.35       7.2% ***

SYMC - Symantec  $57.71  *** Solid Earnings! ***

Symantec (NASDAQ:SYMC) provides a broad range of content and
network security solutions to individuals and enterprises.  The
company is a provider of virus protection, firewall, virtual
private network, vulnerability management, intrusion detection,
remote management technologies and security services to consumers
and enterprises around the world.  The company currently views its
business in five operating segments: Consumer Products, Enterprise
Security, Enterprise Administration, Services and Other.

Shares of software and Internet security firm Symantec rallied
last week after the company issued a positive earnings report.
Symantec beat analysts' earnings expectations by $0.13 per share,
citing a streamlined approach and increased demand for anti-virus
security.  The trend for more security was obvious as Symantec's
total anti-virus product sales increased 46% during the quarter
as compared to the year ago quarter, nearly double the industry
growth rate.  Sales of the company's intrusion detection solution
increased 43% from the same quarter a year ago, with sequential
growth of 25%, and demand for Symantec's vulnerability management
solution grew 53% sequentially.  The growth statistics offer a
great example of the demand for the company's unique products and
the trend is expected to continue in the coming year.

Based on the recent bullish activity, traders believe that SYMC
is one of the leading issues in the Internet Security sector and
the company would certainly be a candidate for any conservative
stock portfolio.  These positions allow investors to establish a
discounted cost basis in the issue.

SYMC - Symantec  $57.71

PLAY (sell naked put):

Action    Month &  Option  Open     Closing  Cost     Target
Req'd     Strike   Symbol  Int.     Price    Basis    Mon. Yield

SELL PUT  NOV 55   SYQ WK  11,683    3.00    52.00      16.3%
SELL PUT  NOV 50   SYQ WJ  314       1.30    48.70       9.9%
SELL PUT  NOV 45   SYQ WI  1,256     0.60    44.40       6.3% ***

TECD - Tech Data  $45.00  *** Break-out Coming? ***

Tech Data (NASDAQ:TECD) is a provider of IT products, logistics
management and other value-added services, and is the second
largest based on worldwide sales.  The company distributes unique
microcomputer hardware and software products to value-added
resellers, corporate resellers, retailers, direct marketers and
Internet resellers.  The company and its subsidiaries distribute
to more than 70 countries and serve over 100,000 resellers in the
United States, Canada, the Caribbean, Latin America, Europe and
the Middle East.

The recent rally in TECD shares continued today with the closing
price falling just $0.25 short of the 52-week high.  Traders say
the upward movement is due to the bullish outlook for technology
stocks and the belief that the company is poised to benefit from
the return of demand in IT services.  Tech Data projects it will
earn $27 million to $31 million ($0.49 to $0.55 per share) in the
third quarter, well above the most recent consensus estimates,
and analysts say the company continues to execute their business
plan very well.  The stock will likely test the yearly high in
the coming sessions and conservative traders can profit from
bullish movement in the issue with this combination position.

TECD - Tech Data  $45.00

PLAY (conservative - bullish/credit spread):

BUY  PUT  NOV-35  TDQ-WG  OI=9    A=$0.30
SELL PUT  NOV-40  TDQ-WH  OI=383  B=$0.80


BEARISH PLAYS - Naked Calls & Combinations

ADVP - AdvancePCS  $57.37  *** Sell-off Underway! ***

AdvancePCS (NASDAQ:ADVP) is a provider of health improvement
services in the United States.  As a pharmacy benefit management
company (PBM) AdvancePCS currently serves more than 75 million
health plan members and manages $20 billion in prescription drug
spending on an annualized basis on behalf of the company's health
plan sponsors.  In addition, the company offers a range of other
health improvement products and services, such as prescription
discount cards for the uninsured and under-insured, Web-based
programs, ongoing disease management, clinical research trials
and outcomes studies. The Company generates revenues by providing
its health improvement services to two primary customer groups:
health plan sponsors and pharmaceutical manufacturers.

ADVP shares have slumped over the past few sessions and there is
little news to explain the decline.  The majority of stocks in
the Specialized Health Services sector have performed well in
recent weeks and only a few issues have endured selling pressure
similar to that in ADVP.  The sell-off has been so severe that
the company issued a statement saying it was "unaware of any
information that would cause the recent decline in its stock
price."  In addition to the abrupt change in technical character,
the issue experienced additional profit-taking from the passing
of the record date for the company's split, which was on 10/23.
Now the stock is established in major downtrend and traders that
employ premium-selling strategies can use the recent volatility
and the overpriced options to initiate a bearish position in the
issue with a favorable credit.  The probability of the share
value reaching our target strike price is rather low, but there
is always the possibility of an unexpected reversal from the
recent trend, so monitor the stock daily for any changes in
technical character.

ADVP - AdvancePCS  $57.37

PLAY (moderately aggressive - sell naked call):

Action     Month &  Option  Open    Closing  Cost     Target
Req'd      Strike   Symbol  Int.    Price    Basis    Mon. Yield

SELL CALL  NOV 65   QVD KM  387      2.25    67.25      16.2%
SELL CALL  NOV 70   QVD KN  744      1.30    71.30      12.9%
SELL CALL  NOV 75   QVD KO  318      0.65    75.65       6.8% ***

HI - Household International  $55.44  *** Technicals Only! ***

Household International (NYSE:HI) is principally a non-operating
holding company.  The company's subsidiaries primarily provide
middle-market consumers with several types of loan products in
the United States, the United Kingdom and Canada.  The company
offers real estate secured loans, auto finance loans, MasterCard
and Visa credit cards, private-label credit cards, tax refund
anticipation loans, retail installment sales finance loans and
other types of unsecured loans, as well as credit and specialty
insurance.  The company's operations are divided into three major
segments, Consumer, Credit Card Services and International.  The
Company's Consumer segment includes its consumer lending, retail
services and auto finance businesses.  The Company's Credit Card
Services segment includes its domestic MasterCard and Visa credit
card business.  The company's International segment includes its
foreign operations in the United Kingdom and Canada.

Stocks in the financial services industry have been in a slump
recently and with interest rates expected to move lower, the
trend will likely continue for the next few months.  Household
International is one of the companies that has been hit hard by
the effects of lowered borrowing costs and the sharp decline in
its share value suggests that most investors are bearish on the
issue.  From a purely technical viewpoint, the potential for a
successful recovery is significantly affected by the resistance
at $60 and the premiums in this position provide an excellent
opportunity for conservative credit spread at that price.

HI - Household International  $55.44

PLAY (conservative - bearish/credit spread):

BUY  CALL  NOV-65  HI-KM  OI=819  A=$0.25
SELL CALL  NOV-60  HI-KL  OI=275  B=$0.80


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