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Daily Newsletter, Tuesday, 12/05/2000

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The Option Investor Newsletter                  Tuesday 12-05-2000
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MARKET WRAP  (view in courier font for table alignment)
        12-05-2000        High      Low     Volume Advance/Decline
DJIA    10898.70 +338.60 10917.30 10576.80 1.40 bln   2080/840
NASDAQ   2889.80 +274.05  2889.80  2694.41 2.47 bln   2782/1200
S&P 100   732.09 + 10.42   732.09   706.82   totals   4862/2040
S&P 500  1376.54 +  0.28  1376.56  1333.47           70.4%/29.6%
RUS 2000  471.17 + 20.78   471.35   450.39
DJ TRANS 2843.67 + 75.90  2847.26  2765.21
VIX        26.94 -  3.37    29.71    26.88
Put/Call Ratio      0.67

Greenspan wins recount for president!

Who was that masked man? The Lone Ranger rode off into the sunset
today after rescuing the markets from three months of being held
hostage by the Fed bears. Alan Greenspan stepped up to the podium
at 10:30 this morning and let fly with several market moving points
which calmed investor fears and ignited the mother of all relief
rallies. Claiming that the economy had moderated appreciably and
the stock market woes had negatively impacted the wealth effect
he set the stage for at least a bias change to neutral in December
if not a complete rate cut. Saying the situation was not as bad as
the 1998 crisis he was none the less encouraged by the change. His
"don't worry, be happy, the Fed is in charge" speech lit a fire
under the already exploding market. The possibility that the election
was almost over after a series of setbacks for Gore had already gotten
the market off to a flying start at the open and the kinder gentler
Greenspan was more than traders could even dream.

The bounce on Friday and then the rise this morning had shorts on
the run and the unexpectedly clear good news from Greenspan sent
traders into a buying panic. Anybody still short was met with a
massive jump in almost all the leaders. The Nasdaq was full of
double digit gainers like EMLX +33, BRCD +28, MUSE +33, PMCS +27,
JNPR +26, QLGC +22, ITWO +19, CIEN +19, IWOV +24, NTAP +23, CHKP
+23, and SDLI +32 to name a few. The light at the end of the tunnel
turned into a possible "Santa Claus Rally." The Nasdaq rose +274
points, the biggest point and percentage gain ever. The Dow rose
+338 for the third largest point gain ever. The good news was so
overwhelming that almost no sector was ignored. That is except the
defensive sectors which saw an outflow of funds as traders threw
money at tech stocks. The possibility of lower interest rates ahead
powered banks and brokers to strong gains with JPM +13 leading the
list. The transport sector rallied along with the market with oil
prices falling again.

"Santa Claus Rally", wow! From testing new lows to S.C.R. in only
48 hours. What stretch of the imagination will the talking heads
come up with next? Before you start buying calls on every double
digit gainer from today lets look at the facts. Earnings are still
down. Greenspan cannot change earnings with a carefully constructed
string of adjectives. While he may be giving the market a green
light several others on the FOMC are not convinced. Perry said this
afternoon that he did see slower growth but it was too soon to be
talking about rate cuts and he wanted to see lower inflation first.
Mike Moscow said it was too soon and he felt the risk of inflation
was greater than the risk of recession. OOPS! Looks like some
dissention in the ranks. This means we will not likely see a rate
cut on Dec-19th. Maybe a bias change but there is still a lot of
convincing still to be done.

Earnings warning season is about to heat up with the next three
weeks a real serious risk. Today alone we had XLNX, COMS and AAPL
confess they were not going to make estimates. XLNX had the audacity
to actually gain after their warning which says something about how
beat up the semiconductor sector is currently. 3Com said lower than
expected sales to telecommunications customers would increase their
losses to over double the current estimates. COMS dropped -25% on
the news. BRCM struggled after the COMS announcement since 14% of
BRCM business comes from COMS. BRCM finished up +6 for the day but
without the negative news it could have easily been up double digits.
AAPL warned after the close today that it would lose money this
quarter for the first time in three years. Saying the inventory
channels were full and holiday sales were flat the computer company
confirmed what analysts were speculating for the sector over the
last two weeks. Dell and Compaq both fell in after hours trading
and even though AAPL is seen to be almost in a sector by itself
the implications of dead holiday computer sales took some of the
bloom off the rally.

Holiday sales were seen as mediocre at best over the Thanksgiving
weekend and according to Telecheck sales of all goods have slowed
significantly since then. This news was glossed over by traders
consumed by election news and Greenspanisms but it will come back
to haunt us soon. Wal-Mart fell almost -$2 at the close on the
AAPL news and the other retailers like BBY, FD and CC could see
another round of drops on Wednesday.

3M spiked over +$16 in the last three days on the news that GE
executive James McNerney Jr. had been named as its new chairman
and CEO. This makes the first time in 98 years that an outsider
has taken the helm of the company. When McNerney lost out to
Jeffrey Immelt as successor to Jack Welch last week is was
widely speculated that he would leave. Good news for MMM but +16
in three days? We feel MMM may be a little over extended with
almost $7 billion in market cap being added simply due to a new
CEO. He may be good but $7 billion?

+338, +274, I love it but I am not convinced. Bah humbug I am
not but the volume did not confirm the jump. The Nasdaq managed
2.3 billion shares and the NYSE 1.3 which is not heavy volume.
Good volume yes, but not heavy. The advance decline ratio was only
2:1 in favor in advances. Now think about it. The Nasdaq was down
-50% from the years highs and almost -1000 points from the Nov
highs. A +274 point gain was amazing but it should have been on
much closer to 3 billion shares and advancers beating declines
by 3:1 or even 4:1. The problem as I see it is trader anxiety.
Everybody wanted to believe it but after getting their hands
slapped when buying bounces on a weekly basis for the last three
months they are just cautious. A caution that comes from pain.
The "ask me again Thursday" crowd wants to see more than one day
of panic buying. They want to see what happens when the euphoria
wears off then decide if they want to buy. Remember, earnings
warnings and tax selling are still in our immediate future.
Resistance on the Nasdaq is at 2900 and then again 3000. Once
we close over 3000 many more traders will start to relax and
feel like Santa Claus is really coming to town and start making
up a Christmas shopping list. I am not saying we should not take
advantage of this rally. Trade away! I just caution you that
nothing material has changed. Everybody expected a bias change
in December, this is just a confirmation that it might actually
happen. The good news is of course the money built up on the
sidelines. Add to that the retirement funds that are beginning
to flow and we have all the earmarks of a possible rally now that
the head of the Fed has put on his Santa's hat. So chill the
champagne, get out the glasses but wait for tomorrows close before
popping the cork.

Good luck and don't buy too soon.

Jim Brown


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Santa Greenspan's Coming To Town
By Austin Passamonte

Who's been naughty & nice? All those massive retail shorts
that failed to cover early this session saw their cash
turned to lumps of coal. Make no mistake: short covering
blew up these markets today. Are any market bulls feeling
sorry for wounded bears?

Oil falls below $30, the Bush Presidency is all but assured
and our equity bull's hero Alan Greenspan came together on
one given day to usher in the long-awaited Christmas rally.

Maybe. Market Sentiment will never discount the duration of
any surprise rally. After all, most long-term rallies begin
from the depths of market depravity.

The technical picture has turned almost 180 degrees. As
Dow - Well above all major moving averages
SPX - Above 10 & 20 DMAs
NDX - Above 10 & 20 DMAs
OEX - Above 10 & 20 DMAs, closed right on 50 DMA
Comp - Above 10 DMA

All indexes closed on session highs and posted very bullish
long white candles on their daily charts. Volume was high
across the board and up-volume swamped down-volume of

Friday's COT report includes trading data gathered as of
today's close over in the CME. Interesting to see where
short interest may lie from here.

Certainly shades of December 1999. Are we on track for new
market highs by/before March 2001? Time will tell. It was an
incredible day for the bulls to rejoice and continue to
build from here.

Which is exactly what the markets must do... build from
here. They must continue up over the next few sessions to
take out stubborn points of resistance. They must shrug off
the slew of earnings warnings that certainly lie ahead
across the spectrum. AAPL will be the first test. They must
survive overwhelming euphoria from this day and parlay that
into a string of green days on the charts.

We expect further upside from here into the FOMC meeting in
two weeks. As stated before and now more than ever, rumors
will fly about a rate cut at that time. Traders already
quietly hope for such and expectations will grow. If the Fed
does indeed reduce rates at that time we expect the mother
of all rallies to ensue. A simple shift in bias coupled with
further earnings pressure might not be enough to support
massive rumor-buying that leads up.

A few clouds always hover on the trading horizon. We watched
numerous large blocks of OTM SPX and OEX puts clear at the
prevailing "ask" all afternoon as reported at IndexSkybox
real-time alerts. This happened prior to that big price
spike into the close. Millions of dollars were played on
blocks of hundreds and thousands put-option contracts that
are now below water but still open. Is this a collective,
high eight-figures foolish gamble?

Friends of ours in the futures arena warn of underlying
weakness and forecast another highly volatile day in store
tomorrow. What else is new?

In either case we don't care. Today was an incredibly-easy
trading session as 300+ point market moves usually are. Just
as easy would be a plunge of equal points on another rally
south. Market Sentiment holds no bias or favoritism: up or
down, just let these big moves carry on forever!


Tuesday 12/05 close: 26.94

30-yr Bonds
Tuesday 12/05 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.

  (Open Interest)       Calls        Puts          Ratio
S&P 100 Index (OEX)
770 - 755               10,496          496        25.79***
750 - 735               16,681        2,225         7.50

OEX close: 732.09

730 - 715                13,354       6,418          .48
710 - 695                 7,985       9,876         1.24
Maximum calls: 750/5,793
Maximum puts : 640/9,896

Moving Averages
 10 DMA  708
 20 DMA  719
 50 DMA  732
200 DMA  773

NASDAQ 100 Index (NDX/QQQ)
 80 - 78                76,747        39,409         1.95
 77 - 75                46,348        37,065         1.25
 74 - 72                24,351        22,951         1.06

QQQ(NDX)close: 70.6875


 69 - 67                 54,351       14,987          .28
 66 - 64                 46,556       33,127          .71
 63 - 61                  8,323       10,338         1.24

Maximum calls: 70/62,709
Maximum puts : 80/33,889
Moving Averages
 10 DMA 66
 20 DMA 70
 50 DMA 77
200 DMA 91

S&P 500 (SPX)
1450                   31,743        21,663          1.47
1425                   29,501        15,330          1.92
1400                   64,368        50,942          1.26

SPX close: 1376.50

1350                   19,811        33,161          1.67
1325                    6,280        16,990          2.71
1300                    7,088        27,091          3.12

Maximum calls: 1400/64,368
Maximum puts : 1400/50,942

Moving Averages
 10 DMA 1337
 20 DMA 1359
 50 DMA 1384
200 DMA 1437


CBOT Commitment Of Traders Report: Friday 12/01
Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts on the
Chicago Board Of Trade. Small specs are the general trading
public with commercials being financial institutions.

Commercials are historically on the correct side of future
trend changes while small specs are not. Extreme divergence
between each signals a possible market turn in favor of the
commercial trader's direction.

                     Small Specs                Commercials
DJIA futures    (Current)  (Previous)      (Current)  (Previous)
Open Interest
Net Value         +103       -138            -3136       2462
Total Open
Interest %      (+1.14%)     (-1.94%)      (-11.59%)   (-9.76%)
                net-long     net-short     net-short  net-short

Open Interest
Net Value         -1888       -363            +673       -223
Total Open
Interest %      (-8.21%)     (-1.76%)       (+1.17%)    (-0.42%)
                net-short    net-short      net-long   net-short

S&P 500
Open Interest
Net Value        +70473       +68303        -81,194     -79145
Total Open
Interest %      (+31.99)     (+34.74%)     (-12.00%)   (-11.76%)
                net-long     net-long      net-short   net-short

What COT Data Tells Us: The disparity remains between the
Commercial positions and Small Specs on the S&P 500.

The DJIA sees the Commercials increasing their net-shorts
while the Small Specs turn net-long.  The reverse is true on
the NASDAQ 100 with the Commercials turning to a net-long
position and the Small Specs increasing their shorts.

Data compiled as of Tuesday 11/28 by the CFTC.


Please visit this link for Market Posture:



By David Popper

Every family has traditions.  Over Thanksgiving we typically
travel to Birmingham, Alabama to visit my wife's family.  This
year was a bit different because my youngest was out of school
for aweek while my daughter was in school until Tuesday.  The
long and short of it is that my wife and son flew while my
daughter and  I drove.  On the way, we spent the night in
Bainbridge, Georgia.  We ate breakfast at the local greasy spoon.
It was a popular spot.  Most of the men wore flannel shirts, blue
jeans and a John Deere baseball cap.  No one had any idea that
the Nasdaq was in a horrible trend and quite frankly no one cared.
They laughed, visited with neighbors, and did not rush to get to
work in order to squeeze out one last dollar.

Bainbridge would not be my choice of places to live, but I
couldn't help but be impressed by the relative simplicity and
peacefulness of their lives.  Notwithstanding the fact that my
income is probably larger than the average citizen there, I could
not say that my life was better.  One person came up to our table
to talk politics.  His take on things emanated from simple common
sense, as opposed to tortured political rhetoric.  After we left,
I couldn't help but consider that as a trader, I have oscillators,
proprietary indicators, Bollinger bands, moving averages and other
aids galore, but sometimes substitute these for simple common

Sometimes simple common sense can allow me to see through the fog
and correctly analyze my situation.  So what is the situation?
Well in these last two months I have given back a lot of money.
At this point, I wish that I never heard of fiber optics and chips.
I have to remember, though, that I would not have made nearly the
amount of money that I did but for fiber optics and chips.  My
mistake was listening to the glowing reports instead of watching
the charts and maintaining a selling discipline.  The thing that
I did well, however, was to monitor my greed by maintaining a
decent amount of cash to buy the dips.

So, as a position trader, who can't watch the machine all day,
what are my plans?  Just stay the course and continue to undergird
my fundamental and technical analysis with common sense.  Common
sense is what will save your account when everyone else is losing
money.  At this point, we have experienced many two day counter-
trend rallies.  These rallies are bear traps which are designed to
catch anxious/desperate traders into jumping too soon.  Sure,
short term professionals like Austin and Jim can make money in
these conditions, but you have to remember that they have the time
and resources to play the game during these compressed rallies.

If you are only experienced in playing the long side of the market,
it is best stay out of the market now, or if you can't resist,
place only a small portion of your capital at risk.  Wait until
the general market conditions are right before committing major
funds.  What do I mean by favorable market conditions?  Utilize
your chart reading experience.  When the Nasdaq, your favorite
sector, and identified stock all have charts that are favorable,
it would be time to heavily invest.  Until then only play hit and
run with a little bit.  Remember that most people are wrong about
the market most of the time.  Most analysts upgrade after the
stock has already topped.  They typically downgrade after the
stock is already hit.  The only entities that they are protecting
are themselves, their clients and the companies that used them in
the underwriting process.  Brokers are often wrong.  I currently
am involved in cases against brokers, where horrible advice was
given and hundreds of thousands of dollars were lost.

Often the emotion of the moment and the market's panic of the day
are just noise.  Your best bet is to tune out the noise and
concentrate on trading only top quality stocks when the technical
conditions are correct.  So what if you blew it last time and
are underwater in some positions?  Just remember that quality
stocks did not cease to be quality just because the market is
experiencing a temporary spasm.  Quality stocks do go up over
time.  Yeah, you may have lost a few months of profit, but
you are not out of the game.  Don't lose heart and don't try
to make it all up at once.  Stay the course.  Maybe you can make
up some ground with OTM covered calls.  Most importantly, be
patient and take a long term view.  Do not take untoward risks
with your account.  I know that it isn't easy, but it is the
common sense thing to do.


Another Beaten Down Sector To Watch: ASPs
By Scott Martindale

The fat lady is warming up her voice backstage of the election
show.  Can you hear it, too?  Doe, ray, me...  Judge Sauls has
given the queue.  Next, the Florida Supreme Court is almost
certain to uphold his surprisingly firm decision, especially now
that the U.S. Supreme Court has served notice that they are
watching.  And despite the apparent merit of the Seminole County
citizen lawsuit regarding the illegal pre-handling of 5,000
Republican absentee ballots, as one Democratic partisan admitted,
the remedy in that case would be too extreme, i.e., it would
change the election result, which is a greater penalty than the
transgression warrants.  Every observer this side of the Gore
trial team is now acknowledging the inevitable.  This will put the
election uncertainty behind us in short order.  In fact, the
market is already responding, at least short term.

Regarding the more ominous problem of the economic slowdown and
earnings warnings, help may be on the way.  Greenspan hinted today
of a move to a more favorable bias in two weeks, in advance of a
possible rate cut in January.  [Many observers had speculated
earlier this year that the Fed was raising rates too much too
fast, without waiting for the effect to filter through.]  In fact,
this was the main reason that the markets accelerated mid-day in
what otherwise may have been another failed rally.  Furthermore,
the Fed has already accelerated the money creation process (M3),
which is an even more powerful force to stop a recession than
interest rate cuts.  Let's keep our fingers crossed that these
tactics will be enough.

Many of us have felt that a market turnaround would be explosive,
but...wow!  The most notable aspect to me today was the lack of
any significant profit taking, even near the close.  Instead of
panic selling we had panic buying.  I'll take that for a change
since I'm still heavily invested.  But it's hard to chase a stock
in this shaky environment.

As for my short-term trading, I've been giving the QQQs a go of
it lately, although it has been a bit frustrating at times.  I've
been getting good entry points, but I'm not always exiting at the
most opportune times.  You know how it is when you set a target
price, and it begins to approach the target before falling off.  I
am still profitable, such as when I bought Jan 66 Puts for 5.50
when QQQ peaked at mid-day on Friday, and then sold when they hit
my 7.75 limit order (the high price of the day) on Monday.
Sometimes it works out nicely like that, but often it doesn't,
such as when I closed my Dec 60 position at Monday's close after
it had been eroding in time value while the QQQ gyrated around 63.
[At least I got out before today, though.]

I just signed up for a free trial of the Index Skybox, and today I
daytraded the Dec 68 Call for a modest gain following the Swing
Trader strategy. But I sold on the first signs of a pullback, and
could only watch as QQQ took off again while I waited for a good
dip to buy.  I hate it when that happens.

Let's talk about something else today.  There are so many highly
volatile sectors that have been beaten into dust that I'm having a
hard time deciding which one to discuss.  But I think I'll talk
about Application Service Providers, since they are on my topic
list and they happen to be getting some attention in the
investment media these days.

Last year, the ASP business model was held up as an example of how
customers would pay for software in the future. Instead of
licensing software and having in-house technology staffers
maintain it, companies would pay a monthly service fee to use
software developed by name-brand firms such as Oracle, Microsoft,
SAP, and J.D. Edwards.  It saves the customers a lot of money and
gives them better IT skills, which are particularly important to
small or startup businesses on tight budgets.  Red Herring
Magazine named enterprise ASPs as one of their Top Trends for
2000.  Everyone knew that, using the Internet, ASPs simply
provided a new distribution method for software, not a whole new
business concept.  But from the customer's perspective, software
that lets you pay as you go and that's easy to license and
unlicense has many advantages.

Now many observers are going negative on the sector.  In fact,
Technology Investor Magazine named the ASP as one of its "doomed
technologies."  The business of hosting third-party applications
for a monthly fee clearly has not taken off. And many who watch
the ASP market say the model is flawed.  They think it is on the
verge of thinning out through shutdowns and mergers, much like
what is happening now among e-tailers.  ASPs that have already
shut down include Pandesic and Red Gorilla.  Interliant (INIT)
and Futurelink (FTRL) are cutting staff.  Some ASPs are in merger
discussions, including Corio (CRIO) and USinternetworking (USIX).
Other big names in the sector include Digex (DIGX) and Citrix
Systems (CTXS).

Some observers say that ASPs were accurate in that many customers
want their software delivered over the Internet, but were mistaken
about how to make money providing it.  It's too costly to host and
expertly manage a wide range of third-party software.  Perhaps one
way ASPs can become profitable is to turn themselves into
"vertical service providers" (rather than offering the typical
"horizontal" range of service), providing all technology services
that can be delivered over the Internet to a particular (focused)
industry sector.  Some companies that develop specialized software
and support it in the field are now offering the ASP hosting
facility as well.  We'll see if more companies begin to take this
approach.  In any case, all ASPs will need to work out the
problems associated with reliability and security.

Investors including Microsoft, Aether Systems, and GE Capital have
propped up USIX, pledging $300 million in new equity and credit.
When you have big players like that who still believe in the
concept, it might be worth keeping on your watchlist for a good
time to play.

Trading in all of the ASP stocks has been fairly quiet lately as
they consolidate.  An occasional announcement or news story will
start a temporary rally, but then the consolidation continues.
All of these companies are severely oversold technically, and may
be starting to show signs of life.  They are ripe for a move at
any time.  Both CRIO and USIX closed near $3, down from 52-week
highs of $21.75 and $71.63, respectively.  Neither moved up at all
on today's big market gains.  Both DIGX and CTXS closed up nicely
today in the high 20's, but are down from 52-week highs of $184
and $122, respectively.  CTXS actually is profitable, sporting a
P/E around 50, which may make it a relatively safer play.

Of course, another way to benefit is to buy stock or long term
options while it is severely oversold, and just wait for the next
move to happen.  Also, while these stocks are consolidating at
strong support, you can take advantage of juicy options premiums
by selling naked puts.

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don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
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want them to look at any current pick as a valid play.


SWY $55.19 -2.75 (-3.38) Our low volatility play on SWY came to
an abrupt halt today for several reasons.  First, the rebound
in the tech sector carried capital away from the defensive
plays such as SWY.  Second, SWY announced this morning that it
would acquire Genuardi's Family Markets.  Third, an earnings
miss from competitor Albertson's hampered the entire grocery
sector.  And finally, because of that Albertson's warning,
Goldman Sachs downgraded shares of SWY.  Needless to say,
the preceding four events combined to drive SWY below our
protective stop and bring an end to our play.


YHOO $43.88 +5.94 (+4.94) For the first time in three weeks
Yahoo was able to close over the 10-dma and therefore, stop us
out of our put play.  With no YHOO specific news released today,
you can pinpoint the gain on the record rise for the Nasdaq.
The largest one-day gain took almost everything higher on a
massive short-covering rally prompted by this morning's comments
from Alan Greenspan.  The stock has given us profits as it
continually  rallied to resistance before plunging back to
support at $36 over the past two weeks.  This pattern produced
many potential plays.  Now we shift gears and try to determine
which stocks will profit in the coming weeks.  Of course, we will
keep YHOO on the put radar as the fundamental concerns will
likely linger.

SLR $31.11 +2.66 (+1.50)  Solectron has been a fantastic put
play for us, as the stock lost thirty percent of its value, from
$44.50 several weeks ago, to a low of $28.50 yesterday.  However,
the time has come to say goodbye to SLR as a put play.  Today
the stock moved up on volume of 6.5 million shares, which is
about 20% more than the average daily volume.  The stock cleared
its 5-dma of $29.87 in the morning, and moved up from there in
the afternoon, almost reaching the 10-dma of $31.81.  Solectron
announced today that they will acquire IBM's European repair
center in Amsterdam, and the market liked the news.  It is now
time for SLR put players to take their profits and move to other

CREE $74.38 +12.81 (+11.57) Day traders could have made a quick
profit on CREE on Monday, as the stock rolled over at $66.94, and
immediately dropped to $59.  However, today's explosive rally
brought strength back into CREE, as today's volume nearly doubled
the average volume.  While it may take some time before CREE can
clear the 50-dma of $95, it never offered an acceptable entry
point, as the stock moved to $70 very quickly this morning.  In
addition, CREE closed today with an unmistakable bullish
candlestick pattern.  So it is time to drop CREE as a short term
put play and move on to more profitable plays.

AKAM $37.50 +11.19 (+10.50) Starting the week off on an undecided
note, traders and investors alike were cautious on Monday ahead
of election news.  Closing the day down fractionally on average
volume, the stock did manage to make a new all-time intra-day and
closing low.  Today, with news that the political uncertainty may
soon be over and what was interpreted as a green light from the
Fed, the NASDAQ rallied and with that, the bulls took full
control.  With the stock jumping over 42 percent on 228% of ADV,
it appears that the downtrend channel since early November has
been broken.  Having closed above our stop price of $31, we are
dropping coverage of this play.

SEBL $90.38 +16.94 (+16.00) No matter how you slice it, this
was a great day for the technology bulls.  Even stocks that have
been experiencing weakness lately were up strongly.  SEBL was
lifted by the rising tide, charging through one resistance level
after another.  Gapping up to resistance at $78 was a precursor
of the rest of the days action, as SEBL charged higher
throughout the day.  The initial bump came from expectation that
the election uncertainty will soon be over, but Alan Greenspan
sealed the deal with conciliatory comments about the economy.
Once SEBL shattered our $80 stop, it was all over but the
shouting.  Closing right at the high of the day, just below the
next level of resistance at $90.  All open positions should have
been taken out by stop losses today, but if you are still
hanging on, use any profit taking tomorrow as an opportunity to
obtain a better exit.

VRSN $101.38 +14.38 (+16.50) The Internet bulls got their
long-overdue relief rally, helping to launch the NASDAQ to
its biggest point gain in over 6 weeks.  The bears would have
had a hard time pressuring VRSN to the downside in the wake
of the positively received election developments from last
night, but Alan Greenspan sealed the deal with dovish comments
in his speech this morning.  The opening gap took VRSN above our
stop at $91, and after a bounce at $90, strong buying quickly
pushed the stock through the $94 resistance level.  With hardly
a pause, the stock rallied north of $100, and managed to keep
most of those gains into the close.  This is precisely why we
advocate always using stop losses.  VRSN has been a wildly
profitable put play, but if you didn't have stops set, you would
have given up most of those profits by today's close.  Use any
profit taking as an opportunity to close out positions at a
better level, but new puts on VRSN look like a foolhardy venture
at this point.

IBM $103.38 +5.00 (+7.75)  Big Blue closed above our stop loss
level of $102 today as two major news pieces hit the market today,
forcing the shorts to cover.  The first was the Leon Cty. Court
decision last night in favor of the Bush team, and the second was
the unexpected friendly words by Alan Greenspan.  With this
combination, IBM gapped up and never looked back.  Today's gains
took Big Blue over its 50-dma at $102.68 and our stop, so we are
dropping this Lottery put play tonight.  

IRF $35.00 +3.81 (-4.31) The massive rebound across all tech
sectors Tuesday brought an abrupt end to our attempt to
capitalize on IRF from the short side.  On top of the record
rebound in the tech sector, IRF announced this morning that
it would acquire Unisem, a leading supplier of analog chips.
Analysts viewed the acquisition as a strategic fit to IRF,
which helped propel the stock past our stop.  In light of
IRF's rebound and the fact the stock closed above our stop,
we are dropping coverage this evening and would exit any
positions on weakness tomorrow that may result from the
Apple earnings warning.

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The Option Investor Newsletter                  Tuesday 12-05-2000
Copyright 2000, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

To view this email newsletter in HTML format with embedded
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BRCM $118.25 +6.50 (+13.50) Buying continues to be strong for
shares of BRCM.  Since bouncing off support at $85 last week, the
stock has moved steadily higher as willing investors have stepped
in on volume.  Monday was a continuation of that trend as a
bounce off support at the 5-dma provided an aggressive entry
point.  From there, BRCM took out its 10-dma to close up $7 or
6.68 percent on twice the ADV.  Today, with a renewed NASDAQ,
BRCM did as we expected as it gained another 5.82 percent.
Trading volume was once again brisk, over twice the ADV.  This
was in spite of a downgrade by Prudential from a Strong Buy to an
Accumulate rating.  For aggressive traders, there is strong
support at $106, where the 5 and 10-dma are converged.  There is
also support in increments of $5 at $115, $110, $105 but confirm
a bounce with volume.  For the more risk averse, wait for BRCM to
break through $120, confirmed by a continued NASDAQ rally, before
taking a position.  To protect our profits, we are moving our
stop price up from $100 to $108.

CELG $69.50 +7.63 (+7.48) The American Society of Hematology
(ASH) Meeting, which ended today has no doubt, been a success for
CELG.  Yesterday, results of clinical trials for Thalomid used in
combination with Dexamethason for the treatment of Myeloma were
presented.  The results were encouraging indeed, as the response
rate was as high as 86 percent.  While further studies will be
needed to confirm and analyze results, those at the conference
were impressed.  While the stock closed down fractionally on
Monday on almost twice the ADV on a volatile day, more good news
today at the meeting for Thalomid along with a broad market rally
helped CELG gain over 12 percent on over 150% of ADV.  A break
through resistance at $70 with conviction, confirmed by positive
sentiment in the Biotech Index (BTK) could allow for a
conservative entry while a pullback to support at $66 as well as
$65 could offer an aggressive entry point.  As a note, we have
moved our stop price up from $52 to $63.  A close below this
level will lead to us taking our profits and dropping this play.

NTAP $81.56 +23.69 (+27.63) As a component in the NASDAQ 100
(QQQ), where the NASDAQ goes, NTAP follows.  When we started this
play, we mentioned that a relief rally in the Tech index would
likely see NTAP as one of the leaders.  This has been the case
this week as NTAP gained $3.94 or 7.3 percent on 110% of ADV on
Monday ahead of the Supreme Court ruling and the Fed speech.
With both influences on the market giving the green light today,
it was all up for the NASDAQ.  Along with comments from analysts
saying that NTAP has little to worry about from EMC's Chameleon
product, which launched today, the stock gained over 40% on over
twice the ADV.  With such a strong move up today, a pullback from
profit taking is likely, which is why we have moved our stop from
$50 up to $65.  There is support in increments of $5 at $80 all
the way down to $65.  If strength in buying continues, wait for
NTAP to clear $85.  In either case, confirm a move with volume
and with strength in the NASDAQ.

RSAS $49.88 +3.38 (+3.75) RSAS started the week off with an
announcement of yet another new customer, this time, American
General Finance.  This helped the stock to close in the positive,
although only fractionally and on low volume, ahead of the
Supreme Court ruling and a speech from Alan Greenspan.  Today,
thanks to positive news on both fronts, the bulls came out in
force on the NASDAQ, helping RSAS to close up 7.26 percent.
While volume was once again light, the close above the 50-dma,
now at $48.85 was a good sign indeed.  As well, support from the
5 and the 10-dma (now at $45.20 and $44.12 respectively) have
been holding up.  This should provide strong support at the $45
level but there is also support at $47.  As a result we have
moved our stop price from $43 up to $46.  For aggressive traders,
a bounce support could provide an entry but make sure a bounce is
confirmed with volume.  If the NASDAQ continues to move higher
without pause tomorrow, then a break through $50 with conviction
could allow conservative traders to enter this play.

IMCL $49.75 +2.72 (+0.81) It was tough to find any losing
technology stocks and the Biotechs didn't want to be left out.
Although it only made it up to the $50 resistance level, buying
volume was solid for IMCL, coming in 80% above the ADV.
Enthusiasm was generated first by hope that the election is
coming to an end, but Greenspan's positive comments about the
economy really lit a fire under the bulls today.  After gapping
up at the open, IMCL dropped midday to confirm support at $48
before rallying into the close to end the day fractionally below
the high of the day.  The last 2 days action was a nice
confirmation of support at the 200-dma ($47.25), so we are
moving our stop up to $46.  The strong market gains today are
likely to be met with some profit taking in the days ahead,
so aggressive traders will look for a dip to support near the
$47-48 as an opportunity to initiate new positions.  A safer
strategy will be to wait for the bulls to clear the $50
resistance level before jumping into new positions.  As always,
verify strength in both the NASDAQ and the Biotechs (BTK.X)
before playing.

JNPR $156.00 +26.53 (+24.13) The nascent recovery in Networking
stocks really got a shot in the arm today with Greenspan's kind
comments, where he acknowledged the moderating economy.  This
came on the heels of positive election news last night, and JNPR
took the ball and ran with it all day.  After amateur hour, the
bulls promptly pushed the stock through the $140 resistance
level and didn't even pause to catch their breath as JNPR moved
above the 200-dma ($148.69).  The Stochastics and MACD have now
turned solidly upwards and our play has now closed the gap which
was left when JNPR dropped sharply on November 20th.  One
possible land mine to keep an eye on is Ciena, which reports
earnings on Thursday morning.  Any negative news in their
earnings report would likely have a negative effect on the
entire Networking sector.  Because of the strong gains since we
added JNPR last Thursday, we are moving our stop up to $136, just
below the $140 level, which should provide support during any
profit taking.  Aggressive traders will target shoot new entries
on any intraday profit-taking dip, with the 200-dma, and then
the $140 level being attractive targets.  With the sharp gains
today, we would be hesitant to open new positions until JNPR
has consolidated a little - more cautious players will then want
to buy a breakout over resistance, which now sits at $156.
Confirm strong buying volume and a positive trend in the
Networking index (NWX.X) before jumping into this high-risk

MLNM $54.00 +6.25 (+0.50) Although the Biotechs did not lead
the technology rally today, stocks in the sector were not about
to be left behind.  MLNM shot higher at the open, and then
slowly added to those gains throughout the day, ending
fractionally below the day's high of $54.25.  The gain on the
day was a solid 13%, wiping out the losses from yesterday, and
moving the stock ever closer to resistance at the 200-dma
($55.75).  MLNM has been building a bullish wedge over the past
2 weeks, with upside resistance sitting right at the $54 level,
so and volume backed move through that level will be a good
trigger point for conservative entry point.  The ascending
trendline is resting at the recent support level of $50, and we
need to see the price hold above this level in order to keep our
play healthy.  Aggressive traders can target shoot intraday dips
to this level, but make sure buying volume supports the bounce
before playing.  We are moving our stop up to $50, and a close
below there will be our signal to step aside from MLNM.  While
there was positive news out on the company yesterday regarding
their LDP(PS)-341 anti-cancer agent, it likely had a negligible
effect in the buying frenzy that took place today.  This was a
widespread rally, and for MLNM to continue higher, we will need
to see continued strength in both the NASDAQ and the Biotech
Index (BTK.X).

MUSE $119.00 +33.50 (+24.88) Did you keep those horns and party
hats from the last tech explosion?  Well the celebration's
begun!  Money flowed into the networking sector and MUSE was one
of the top recipients.  Its stunning 39% advance propelled it
through the overhead resistance that it was bumping into at the
5 and 10-dmas, near $92 and $93, respectively.  The share price
was bolstered by the $85 level during yesterday's bearish
session, but after today's fantastic move, we're raising our
stop from $82 to $100.  And MUSE's recent list of upgrades
continues to grow, too.  On Monday, Bear, Stearns & Co also was
there to buoy the share price with its Buy recommendation on
MUSE.  Let's stop drinking in the helium for a minute and
remember that what the explosive market did for MUSE today,
could easily take away tomorrow.  At these lofty new levels,
watch for profit mongers selling into extended strength.  In
other words, if the rally extends into tomorrow and you chose to
take entries on a climb, take profits quickly so you don't get
caught holding the bag.  Expect some light resistance at the
$120 and $125 levels, with more opposition to face at $140 and

MEDX $38.25 +2.25 (-4.38) In what should have been a positive
day of trading for MEDX on Monday, instead was rather gloomy.
The company's experimental drug, MDX-33, was found to boost
levels of key blood cells in a small trial of patients suffering
from a life threatening blood disorder called Idiopathic
Thrombocytopenia Purpura, or ITP.  The positive results of the
Phase II clinical trial were presented at the Annual Meeting of
the American Society of Hematology in San Francisco.  MEDX
initially peaked at $43.88 during Monday's amateur hour, but
quickly fell sway to the overall market conditions.   Today's
action was respectable, but not outstanding amid the triple
digit gains of the broader marketplace.  The $37 level,
bolstered by the 5 and 10-dmas, continued to effectively serve
as shorter-term support and traders looking for a more
aggressive entry might take positions there on a strong rally.
But be prepared for resistance at the $40 mark, which has posed
a threat of resistance in recent times.  If you're taking a
conservative approach, look for MEDX to rally back through the
$40 level and challenge $44 before jumping in this dicey biotech

A $55.06 +4.06 (+2.06) In the news today, Agilent Technologies
introduced Bluetooth test solutions, strengthening its position
as a leading-edge maker of analysis equipment.  Bluetooth is a
commercial specification for short-range wireless connectivity,
which lets consumers connect information appliances such as
printers, PDAs, headsets, keyboards, cellular phones and
computers without cables.  The news was welcome; although,
today's gains were more likely a result of the broad market
action.  The steadfast momentum and consistent advances of late
have prompted us to raise our stop from $44 to $51.  Our new
stop on this steady climber is in-line with the 10-dma ($51.39).
This lower level can also serve as a practical entry point for
the more adventurous traders during downdrafts.  But keep in
mind, taking entries at the lower end of the trading channel can
pose more risk.  On the upside, watch for some contention at the
$55 level.  While today's break through $55 is certainly
bullish, the more cautious will look for the gains to extend in
a cooperating market before beginning new plays.  Key word -
cooperating market.

BRCD $189.81 +28.00 (+21.96) The leading provider of Storage
Area Networking infrastructure, along with the likes of JNPR,
BRCM and MUSE, took the NASDAQ by storm today.  These heavy-
weights led the NASDAQ into its biggest one-day gain ever.
Today's monstrous $28, or 17.3%, advance and break through
the 200-dma ($177.97) was more than we could have asked from
Santa.  The literal explosion of its share price, backed by the
triple digit gains in the NASDAQ, provide the perfect synergy
for BRCD to run into its 2:1 stock split, slated for December
22nd.  We're looking for BRCD to rally through the $200 level
and return to its more pristine price levels, seen just last
month. BRCD's share price should find short-term support at
$185, and perhaps lower at $180.  But take note, we have raised
our stop from $159 to $175 to protect against back-filling in
the coming sessions.  Consider new entries only if you can
handle HIGH-RISK and potentially volatile trading.  A move
through the $200 level would entice more momentum traders to
jump into the upswing.


BLDP $74.94 +6.94 (+4.94) Carried higher with the broader
technology market, BLDP managed to add 10% today, bringing it
within striking distance of our stop at $76.  Actually touching
this level shortly before the close, we are keeping the play
alive, pending profit taking tomorrow.  Since there has been no
company-specific news this week, it seems clear that the rally
is strictly driven by the broader market.  The downtrend is
still intact with the descending month-long trendline resting
right at the $76 resistance level.  Further gains will break
this pattern and kick BLDP off our put list in a hurry.  On the
bright side, a failure to continue higher will provide
aggressive traders an attractive entry point as the stock rolls
over.  Wait for the bears to come back out of hibernation, and
jump in as the selling volume increases.  Intraday support is
sitting at $72, and conservative entries can be had as this
level fails to hold up under the bears' assault.  Due to the
fact that the stock's negative trend is still intact, we can
use weakness on the NASDAQ as an indication of the likelihood of
profit taking on BLDP.  Don't fight the trend.  Wait for the
stock to roll over on increased selling volume before initiating
new positions.

FMKT $32.13 +6.44 (+3.31) The market turned the corner today and
the B2B stocks, battered in recent weeks, were lit on fire.
FMKT finished up 25%, along with Commerce One (+29%) and Ariba
(+29%).  The sector, as a whole, showed some of the strongest
gains in today's broad market rally.  The bullish gains lead us
to put up a caution flag, although yesterday's strong decline
from Friday's 52-week low of $28.69 to the $25 level was
promising.  The volume was almost double the ADV during both
FMKT's ascent and descent.  Therefore, it's essential to pay
particular attention to the market's sentiment and direction in
the coming sessions.  Don't fight the trend.  The stock's
price level, just above the 5-dma ($30.35) and 10-dma ($31.98),
is critical.  A high-volume rollover followed by a return to a
sub-$30 level is essential before the conservatives consider
taking additional positions.  Keep in mind that we will exit
the play on a close above $34.

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QCOM - Qualcomm Inc. $99.63 +9.63 (+16.63 this week)

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

Hitting an all-time high of $200 at the beginning of this year,
the wireless giant has been hibernating these past 11 months, as
a spring correction led to a summer of basing.  Now, it appears
that the CMDA giant may be ready to wake up, just in time for a
Christmas rally.  One of the major on-going concerns with QCOM
all year long has been whether or not China would implement the
company's CDMA technology.  A number of times the stock has
rallied on the possibility that China would give the go-ahead
signal, only to change their mind at the last minute.  On Monday,
the company signed a Memorandum of Understanding with China's
Ministry of Information Industry.  As the fastest growing
wireless market in the world, with over 70 million subscribers,
this is no small victory for QCOM.  The Memorandum outlines a
partnership between China and QCOM in developing CDMA
technologies as well as the deployment of a CDMA network that
will span nationwide.  Add to that a cross-licensing deal with
Texas Instruments and positive comments from First Union
Securities and it's no wonder that the stock powered right
through its last line of moving average resistance, the 200-dma
($86.47).  At this point, we would advise caution in entering
this play, as a pullback from the rally this week is quite
possible.  We have set our stop price at $90.  A bounce off this
level would allow for an ideal entry point, filling today's gap
at the market open.  There is also support at $95 and at $91.50
for the more aggressive.  If the bulls continue to lead the
NASDAQ higher, and QCOM breaks through the psychologically
important $100 level on volume, this would allow conservative
traders to enter the play.

***December contracts expire next week***

BUY CALL DEC- 95 AAF-LS OI= 7425 at $ 8.13 SL=5.75
BUY CALL DEC-100*AAF-LT OI=10738 at $ 5.25 SL=3.25
BUY CALL DEC-105 AAF-LA OI= 4124 at $ 3.25 SL=1.75
BUY CALL JAN-100 AAF-AT OI=12261 at $11.50 SL=8.50
BUY CALL JAN-105 AAF-AA OI= 2925 at $ 9.13 SL=6.25



KMB - Kimberly Clark $67.23 -4.57 (-3.58 this week)

Kimberly Clark is a leading consumer and medical products company.
Its global tissue, personal care and health care brands include
Huggies, Pull-Ups, Kotex, Depend, Kleenex, Scott, Safeskin, and
Kimwipes, among others.  Other brands well known outside the U.S.
include Andrex, Scottex, Page, Popee, and Kimbies.  Kimberly Clark
also is a major producer of premium business, correspondence and
technical papers.

The return of the tech sector should spell trouble for the
recently run-up defensive sectors.  Since early September, shares
of Kimberly Clark have been on a steady rise as investors fled
the frightening NASDAQ.  However, the return of the tech bulls
Tuesday shifted capital back into the techs and away from the
cyclical and defensive plays such as KMB.  What's more, because
of its recent run-up, shares of Kimberly were downgraded by
Salomon Smith Barney Tuesday morning on a valuation basis.
Because of that downgrade, KMB dropped rather precipitously
and may be due for a reprieve in the coming days.  We'd look to
initiate new positions in KMB should the stock fail to rally
above resistance at $70, which is also the site of our
protective stop.  If KMB doesn't make it back to $70, look for
a rollover near $68 or $69.  Conversely, if KMB continues to
sell-off look to enter on a move below support at $67, or lower
at the $66 level for traders seeking more confirmation of
weakness.  Make sure to confirm heavy volume upon entering new
positions on weakness.

***December contracts expire next week***

BUY PUT DEC-70 KMB-XN OI=135 at $3.60 SL=1.75
BUY PUT DEC-65 KMB-XM OI=675 at $0.80 SL=0.00
BUY PUT JAN-70 KMB-MN OI= 92 at $4.80 SL=3.00
BUY PUT JAN-65*KMB-MM OI=212 at $2.45 SL=1.25



MMM - 3M Company $117.00 +11.63 (+17.38 this week)

3M is a diversified, international company with a 50-plus year
health care business consisting of more than 10,000 medical,
surgical, consumer and home health care, dental and pharmaceutical
products.  3M Health Care is committed to supplying reliable
products and services that make a difference in the practice,
delivery and outcome of health care.

Impressive chart, two days of incredible gains, it must be a call
play, right?  Nope.  MMM is our new Lottery put play today and we
are looking to take advantage of the excessive run-up in the stock.
On Monday, the stock broke out over $100 on rumors that MMM was
courting GE executive James McNerney Jr. for the CEO position.
Then, today the rumor became fact as MMM announced that McNerney,
who was passed over for the GE CEO position last week, will
succeed 3M CEO Desi DeSimone, effective January 1st.  The stock
continued to soar, tacking on an additional 11%.  Nothing has
fundamentally changed to truly warrant these extreme moves.
Consider it in these terms:  MMM added $5.4 bln in market cap in
the past two days.  Our premise is to ride this lottery play down
as traders take profits from this move.  This is yesterday's news
and we expect sellers to step in.  To gain entry, look for weakness
in the stock on either a rollover from resistance at $119 or a
break down below intraday support at $115.  Below that, support is
thin all the way to $105.  Given that this is a Lottery play, we
have set a stop at $119, which was today's high, and if the stock
shows strength and closes above it, we would not initiate new

***December contracts expire next week***

BUY CALL DEC-110*MMM-XB OI= 26 at $1.38 SL=0.75
BUY CALL DEC-105 MMM-XA OI=405 at $0.69 SL=0.00  High Risk!
BUY CALL JAN-110 MMM-MB OI= 61 at $3.38 SL=1.75



No new puts today


BRCM - Broadcom Corporation $118.25 +6.50 (+13.50)

Broadcom Corporation is a provider of highly integrated silicon
solutions that enable broadband digital transmission of voice,
video and data to and throughout the home and within the business
enterprise.  These integrated circuits permit the cost-effective
delivery of high-speed, high-bandwidth networking using existing
communications infrastructures that were not originally designed
for the transmission of broadband digital content.  Using unique
proprietary technologies and advanced design methodologies, the
company designs, develops and supplies integrated circuits for a
number of the most significant broadband communications markets.

Most Recent Write-Up

Buying continues to be strong for shares of BRCM.  Since bouncing
off support at $85 last week, the stock has moved steadily higher
as willing investors have stepped in on volume.  Monday was a
continuation of that trend as a bounce off support at the 5-dma
provided an aggressive entry point.  From there, BRCM took out its
10-dma to close up $7 or 6.68 percent on twice the ADV.  Today,
with a renewed NASDAQ, BRCM did as we expected as it gained
another 5.82 percent.  Trading volume was once again brisk, over
twice the ADV.  This was in spite of a downgrade by Prudential
from a Strong Buy to an Accumulate rating.  For aggressive
traders, there is strong support at $106, where the 5 and 10-dma
are converged.  There is also support in increments of $5 at $115,
$110, $105 but confirm a bounce with volume.  For the more risk
averse, wait for BRCM to break through $120, confirmed by a
continued NASDAQ rally, before taking a position.  To protect our
profits, we are moving our stop price up from $100 to $108.


While other high fliers soared with $20 and $25 gains, BRCM stuck
to its steady trend since bottoming at $85.  The stock ran into
resistance at $120 twice today, but it is building an ascending
wedge and is poised to breakout very soon.  To entry this call
play, look for a pullback to the $115-$116 accompanied by a bounce
and a continuation of the trend.  Otherwise, a breakout above
$120 certainly will attract buyers and warrant an entry.

***December contracts expire next week***

BUY CALL DEC-110 RDW-LB OI=2229 at $14.25 SL=11.50
BUY CALL DEC-115*RDW-LC OI= 738 at $12.13 SL= 9.50
BUY CALL DEC-120 RDW-LD OI=1334 at $ 9.63 SL= 7.25
BUY CALL DEC-125 RDW-LE OI= 693 at $ 7.50 SL= 5.75
BUY CALL JAN-120 RDW-AD OI= 214 at $20.25 SL=16.00
BUY CALL JAN-125 RDW-AE OI= 407 at $18.13 SL=14.00

SELL PUT DEC-105 RDW-XA OI= 320 at $ 4.00 SL= 5.50
(See risk of selling put in play legend)


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Finally, Some Relief!

The Nasdaq achieved a record gain Tuesday, rising more than 10%
on speculation that the Federal Open Market Committee would move
to a "neutral" bias later this month.

Monday, December 4

Technology stocks resumed a downward trend Monday amid continued
worries over the outlook for future earnings.  Industrial stocks
rallied sharply, however, as investors moved money into cyclical
issues.  The Nasdaq closed down 29 points at 2,615 while the Dow
finished up 186 points at 10,560.  The S&P 500 index closed up 9
points at 1,324.  Trading volume on the NYSE reached 1.1 billion
shares, with advances beating declines 1,436 to 1,440.  Activity
on the Nasdaq was moderate at 1.84 billion shares, with declines
beating advances 2,524 to 1,433.  In the bond market, the 30-year
Treasury fell 14/32, pushing its yield up to 5.67%.

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

Saber Holdings   TSG     DEC35C/37C   $1.81   debit    bull-call
Compass Banc     CBSS    APR20C/20P   $2.75   debit    straddle
Readers Digest   RDA     JAN40C/40P   $4.12   debit    straddle
Safeco           SAFC    JAN30C/25P   $0.06   credit   strangle
Albertsons       ABS     DEC30C/27C   $0.25   credit   bear-call

Most of our new positions offered favorable entry opportunities
during Monday's session.  Some of the plays, such as the credit
spread in Albertsons and the straddle in Readers Digest, required
timely action in early trading to achieve entries near the target

Portfolio Plays:

The broad market moved higher today as money continued to rotate
into older, more established blue chip issues.  On the Dow, heavy
equipment maker Caterpillar (CAT) jumped $3 to $43 after ABN Amro
reiterated its buy rating on the stock, saying the company may be
in the beginning stages of a cyclical recovery.  Shares of DuPont
(DD) and Alcoa (AA) also rallied, and 3M (MMM) edged higher after
press reports said the company plans to name General Electric's
James McNerney as their CEO.  On the downside, American Express
(AXP), Intel (INTC), and Citigroup (C) were the big losers.  On
the Nasdaq, semiconductor stocks were very strong after a Merrill
Lynch analyst said there has been an easing of downward pressure
on DRAM spot prices.  But even with the recovery in chip stocks,
the Nasdaq sell-off continued and telecommunications, computer
hardware and biotechnology issues all retreated.  A number of
networking stocks also slumped, with Cisco Systems (CSCO) sliding
to $45 even as the company reaffirmed the outlook for its second
quarter earnings.  In the broader market, energy stocks were weak
as crude oil futures fell to $32.  Concerns about supply from Iraq
eased following comments indicating Baghdad and the U.N. are close
to an agreement on a new oil price formula and that other nations
would quickly fill the gap if Iraq's export disruption persists.

Our portfolio enjoyed a number of positive events during a session
of bullish activity among cyclical issues.  PepsiCo (PEP) reported
it will now buy Quaker Oats (OAT) in a share-swap deal worth over
$13 billion, giving it control of the best-selling Gatorade sports
drink.  Quaker Oats rose 3% to $91 and our bullish position is at
maximum profit.  Another food group issue that performed well in
the wake of the Quaker buyout announcement was Ralston Purina (RAL).
The stock moved back to a recent trading range near $27 and our
bullish calendar spread at $30 is once again profitable.  As the
December option expiration approaches, we must determine when to
roll the current position; MAR-30C/DEC-30C, to the JAN-30 calls.
In the pharmaceutical group, Forest Laboratories (FRX) was the big
winner, up $3.50 to $138.  Our bullish credit spread is almost $20
"in-the-money."  Invitrogen (IVGN) enjoyed favorable activity and
companies in the consumer products industry, including Johnson &
Johnson (JNJ) and Baxter International (BAX), were among the best
performers.  We experienced bullish movement in many broad market
sectors: Home Depot (HD) led the retailers, US Air (U) topped the
transportation group, and Unitedhealth (UNH) paced the healthcare
domain.  In lower priced issues, Landry's Seafood (LNY) moved up
to $9.75, $0.25 below the strike price of our long-term synthetic
position.  A recent play in the time-selling category, Englehard
(EC) is now approaching an area of maximum return near $22, and
we will roll to JAN-$22.50 options in the next few sessions.  The
leading technology stock was Broadcom (BRCM), and after weeks of
selling, it appears the issue may be on the rebound.  Our recent
adjustment to the JAN-$120 Put (short) may yet produce a positive
return.  One of the older debit straddles, Advanced Fibre (AFCI)
reached a new peak-profit today.  The original play; MAR-35C/35P
at $13.50 debit, is now trading at a $16.00 credit with 3 months
until expiration.

Tuesday, December 5

The Nasdaq achieved a record gain Tuesday, rising more than 10%
on speculation that the Federal Open Market Committee would move
to a "neutral" bias later this month.  The Nasdaq ended up 274
points at 2,889 and the Dow closed up 338 points at 10,898.  The
broader market also rallied, with the S&P 500 index finishing up
51 points at 1,376.  Activity on the Nasdaq was extreme at 2.46
billion shares traded, with advances beating declines 2,788 to
1,200.  Volume on the NYSE was the sixth heaviest on record at
1.39 billion shares, with advances beating declines 2,085 to 842.
In the bond market, the 30-year Treasury jumped 1 15/32, pushing
its yield down to 5.59%.

Portfolio Plays:

The stock market rallied today, after bullish comments from Fed
chief Alan Greenspan gave investors new hope for the future.  In
addition, the Florida court ruling Monday increased optimism that
an end to the presidential election is near.  Greenspan said the
abating wealth effect from the stock market is dampening demand,
and he also noted the pace of economic expansion has moderated
appreciably, as tighter financial conditions have impacted the
most interest-sensitive industries.  Analysts say the Fed will
almost certainly shift its policy directive to "neutral" when it
meets again on December 19 and the FOMC may even decide to lower
interest rates at the January meeting.  The major indices rallied
from deeply oversold conditions with both the Nasdaq and the Dow
achieving recent highs amid active trading.  Blue-chip technology
issues such as Microsoft (MSFT), Intel (INTC), Yahoo (YHOO), and
American Online (AOL) paced the Nasdaq's advance while industrial
issues were led by J.P. Morgan (JPM), 3M (MMM), Home Depot (HD),
Boeing (BA), Citigroup (C), and Minnesota Mining & Manufacturing
(MMM).  In the broader market, biotechnology, financial, cyclical,
transportation and major drug shares all moved higher.  Bank and
brokerage stocks were bullish on Greenspan's comments, which also
produced a rally in the fixed-income market.  On the downside,
defensive issues including healthcare, consumer products, metals
and utilities generally consolidated.  Oil service companies also
slumped as January crude dropped below $30, reaching its lowest
level in over three months amid OPEC's assurance that it's ready
to boost output to meet any shortfall in global supplies.

The Spreads/Combos section saw advances in almost every category
and there were a number of big winners.  The networking sector
was one of the popular areas for bullish speculation and Juniper
Networks (JNPR) led the group with a $26 gain to close at $156.
The move came amid strength in other networking companies after
Cisco Systems (CSCO) reiterated that their yearly revenue will be
50%-60% higher than 2000 levels.  Data storage stocks also moved
higher with EMC (EMC) gaining almost $10 to finish at $90.  The
company unveiled a slew of hardware and software products aimed
at grabbing more of the growing "networked" storage market.  Our
new LEAPS/CCs position is again profitable.  Among pharmaceutical
issues, Vertex (VERT) was the top performer, up $8 to $70, while
Invitrogen (IVGN), Curagen (CRGN) and Pharmacyclics (PCYC) also
moved higher.  Small-cap issues participated in today's bullish
activity with Central Garden (CENT), Genesco (GCO), Mattel (MAT),
Medquist (MEDQ), and Miravant (MRVT) moving higher.  A number of
new bullish plays are off to a good start including Fiserv (FISV),
Safeco (SAFC), Saber Holdings (TSG) and Skywest (SKYW).  The new
bearish position in Albertson's (ABS) was also on target as the
company reported earnings of $0.45 a share, three cents shy of
the First Call estimate.  The company also lowered guidance for
fourth-quarter earnings and warned that it expects to post in
a range that is well short of consensus estimates.

The upside trend was seen in most sectors and there are far too
many issues to list.  In addition, it's far more important that
the recovery be used to roll-forward in some of the long-term
positions and adjust or exit those plays that have not performed
as well as expected.  At the same time, bearish positions such as
Pfizer (PFE) must be monitored for upside activity and our recent
loss-limiting adjustments in Micron (MU) and Hewlett Packard (HWP)
also require close attention.  With any luck, the recovery will
continue and the year will end profitably for the majority of OIN

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

With today's incredible rally in the broad market, there is once
again a strong possibility of near-term selling pressure.  With
that in mind, we have decided to offer some speculation plays on
low-priced issues in a variety of "old-economy" industries.

MAG - Magnatek  $14.00  *** Technicals Only! ***

MagneTek supplies digital power products used in information
technology and industrial/instrumentation markets.  The company
is an acknowledged innovator in mixed-signal (analog-to-digital)
power electronic sub-system design, heat reduction technology
and the application of microprocessors and micro-controllers in
digital power products.  The products usually take the form of
sub-systems. They are sold directly or through agents to original
equipment manufacturers for incorporation into their products, to
system integrators and value-added resellers for assembly and
installation in telecommunications and other end-user systems,
and to distributors for resale to OEMs, contractors and end users
for repair and replacement purposes.

This stock came up in our technical search/sort for potential
"break-out" issues.  With favorable option premiums and today's
upward move, this play offers a great speculation opportunity
for traders who agree with a bullish outlook.  As always, current
news and market sentiment will have an effect on this issue, so
review each play thoroughly and make your own decision about the
future profitability of the position.

PLAY (aggressive - bullish/covered combination):

SELL CALL   JAN-15.00  MAG-AC  OI=10  B=$1.12
SELL PUT    JAN-12.50  ECQ-MV  OI=0   B=$0.62
TARGET COST BASIS=$12.00-$12.12 COMBINED ROI(approx)=25%

- or -

PLAY (conservative - bullish/collar):

SELL CALL   JAN-15.00  MAG-AC  OI=10  B=$1.12
BUY  PUT    JAN-12.50  ECQ-MV  OI=0   A=$0.88
TARGET COST BASIS=$13.75 ROI(max)=9% DOWNSIDE RISK(max)=$1.25

PTV - Pactiv  $12.50  *** On The Move! ***

Pactiv Corporation, formerly Tenneco Packaging, is a supplier of
specialty packaging and consumer products.  The company makes,
markets and sells consumer products, such as plastic storage bags
for food and household items, plastic waste bags, foam and molded
fiber tableware, and aluminum cookware.  Many of these products
are sold under such recognized brand names as Hefty, Baggies,
Hefty OneZip, Kordite and E-Z Foil.  These products, which are
typically used by consumers in their homes, are sold through a
variety of retailers, including supermarkets, mass merchandisers
and other stores where consumers purchase household goods.  In
addition to consumer products, the company manufactures plastic
zipper closures for a variety of other packaging applications.

The consumer products sector has performed well in recent weeks
and the outlook for the group is favorable as valuations return
to more reasonable levels in the broader market.  Pactiv has been
a leader in its industry for years and the company's quarterly
earnings suggest the trend will continue.  In October, Pactiv
reported income of $38 million, or $0.24 per share, up from $4
million, or $0.10 per share (adjusted for tax rate), last year.
Product sales in the third quarter were up 4.5% and the increase
was driven primarily by core product growth in the Consumer and
Foodservice/Food Packaging segment.  Despite significantly higher
raw material costs, the third-quarter operating margin of 13.8%
exceeded last year's level as a result of pricing actions and the
impact of cost improvements since the company's spin-off.  Gross
margin continued to improve and Pactiv's shares are beginning to
reflect its true earnings potential.

Investors demonstrated their affinity for the company Tuesday,
driving its share value to an all-time high.  Traders who agree
with a bullish outlook for the issue can use this position to
speculate on the future movement of the stock.

PLAY (conservative - bullish/diagonal spread):

BUY  CALL  FEB-10.00  PTV-BB  OI=130  A=$2.88
SELL CALL  JAN-12.50  PTV-AV  OI=6    B=$0.69

TKR - Timken  $15.06  *** On The Rebound! ***

The Timken Company is divided into two primary industry segments,
anti-friction bearings and steel.  Unique anti-friction bearings
constitute Timken's principal industry product and the tapered
roller bearing made by Timken is its principal product in the
anti-friction industry segment.  In addition to bearing products,
Timken provides bearing reconditioning services for industrial
and railroad markets both globally and domestically.  TKR's steel
products include steels of low and intermediate alloy, along with
vacuum-processed alloys, tool steel and some carbon grades.  These
are available in a wide range of solid and tubular sections with
a variety of finishes.

This position is also based on recent technical indications and
the potential for a substantial recovery in Timken's shares as
investors transition to "old economy" issues.  The rally above
November's highs produced a bullish "w" pattern and the trend in
the steel manufacturing group suggests the issue has additional
upside in its future.

PLAY (speculative - bullish/synthetic position):

BUY  CALL  MAR-17.50  TKR-CW  OI=70  A=$0.75
SELL PUT   MAR-12.50  TKR-OV  OI=70  B=$0.31

Note:  Using options, the position is equivalent to being long
on the stock.  The collateral requirement for the naked put is
approximately $375 per contract.

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Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

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