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Daily Newsletter, Tuesday, 12/12/2000

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The Option Investor Newsletter                  Tuesday 12-12-2000
Copyright 2000, All rights reserved.                        1 of 2
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        12-12-2000        High      Low     Volume Advance/Decline
DJIA    10768.30 + 42.50 10856.30 10703.80 1.08 bln   1272/1593
NASDAQ   2931.77 - 83.33  3002.53  2930.99 1.92 bln   1559/2424
S&P 100   728.91 - 14.84   733.41   727.52   totals   2831/4017
S&P 500  1371.18 -  9.02  1380.27  1370.27           41.3%/58.7%
RUS 2000  477.76 -  9.47   487.23   477.73
DJ TRANS 2905.27 - 33.10  2944.72  2904.12
VIX        28.28 +  1.77    28.40    26.36
Put/Call Ratio      0.71
******************************************************************

Traders vote for a new earnings recount!

The Nasdaq struggled valiantly to hold 3000 but the flood of
earnings warnings on top of two days of strong gains and the
election nightmare was too much to bear. The Dow soared +126
points to 10856 on the strength of Proctor & Gamble and Colgate
before falling prey to warnings and the election. The longer
the wait for the Supreme Court answer, the more investors
worried that there would be a messy ruling that would force a
complete recount in Florida and delay the eventual result for
up to several more weeks. The Alfred Hitchcock like twists and
turns and the daily cliff hanger rulings continue to take all
the wind out of any positive market momentum. With no positive
sentiment every negative event becomes larger than life and
the result is renewed selling.







Earnings warning season is alive and well and in full swing.
The flood of warnings today came from almost every sector. From
giant corporations like GM to the smallest like RAZF. It appears
the only ones immune today were PG and CL. Both affirmed their
growth targets and said good things about their business. Still
+7% growth will not get a tech investor excited but value investors
did manage to add +2.88 to PG and +2.43 to Colgate. That was the
end of the good news.

Beginning with GM which warned as expected the day just got worse
as time passed. GM announced plans to close, restrict, reduce and
restructure plants world wide but the biggest news was the death
of the Oldsmobile product line. Olds was the oldest U.S. manufacturer
at 103 and second oldest to Mercedes world wide. The most popular car
in the 1970's, the Cutlass, will now go the way of the Delorean and
the Edsel. Analysts actually liked the move as one less competitor
in the crowded space. Even though produced by the same parent, GM,
the brand competed with Buick, Chevy and Cadillac brands and
dealers found themselves fighting for market share within the GM
space as well as against the other major brands like Ford and
Honda. By reducing product models internally the company expected
to increase prices and reduce costs.

The biggest company, GE, affirmed estimates going forward but did
speculate that we would see a possible mild recession. Their latest
acquisition, Honeywell, however warned that earnings would disappoint
and GE dropped -2.50 on the news and HON dropped -3.19. The warning
as discussed by analysts was actually do to a scrubbing of the
financials by GE prior to the merger. GE is very conservative with
their accounting and the changes were made to bring the struggling
Honeywell into line with GE accounting procedures. Still both stocks
finished the day down on the news.

Another Dow component, EK, warned that sales were slowing and profits
would be down. Eastman Kodak has not been in the forefront of the
earnings parade for some time and had been expected to warn again.
This was their second warning this quarter. The actual news and
explanations produced a relief bounce of +1.50 in EK. Go figure!

IBM was down on the day slightly at -1.50 after saying confusing
things about product mix going forward. The CEO said infrastructure
will be critical and they would outsource more in the future. The
CEO declined to comment on earnings and only focused on the challenges
he saw going forward. He felt IBM was well positioned to do well but
the market place was changing. Analysts are expecting another processor
announcement soon if IBM is going to pull out of the earnings worries
now hitting other companies. Saying the challenge to connect the 700
million PCs and about a trillion Internet devices would occupy IBM
for some time.

There was so much negative news today I could not begin to cover it
but I will try and hit some of the high spots. ARBA was downgraded,
dropping -$10 and taking ITWO with it for -$6. TQNT was downgraded
by CSFB and it lost -$12 taking the semiconductor sector down again.
AMD warned last night but everybody expected that after Intel. Compaq
warned after the close today but again, everybody knew it was coming.
CPQ only lost -.88 in after hours. DCLK warned, RAZF warned, RSYS
warned, NAVI warned, ONNN warned, COVD warned, DPH warned, getting
the picture? ENGA posted a bigger than expected loss. Something
about the Internet advertising revenue model?

SUNW went public with a disclaimer that they had no accounting
problems. Period. SUNW stock down to $33 from $48 just last week
had been hit by short seller rumors of all kinds and from all sides.
Unfortunately, when they said no accounting problems they did not
say no earnings problems. Would have been a perfect opportunity but
they didn't. You guessed it, if you can't deny then there must be
a warning coming. SUNW tested $32.25 again for the second day.
Personally I think this is a screaming buy but not until everyone
else thinks so too. While I am tempted to try and imagine a bottom
today and justify buying some I am also constrained by the same
question about the lack of earnings affirmation. While I would
like to think that SUNW is a heavyweight in the PC sector and not
subject to the soft retail PC demand, I will wait until a new trend
develops indicating that there are more buyers than sellers, or
a positive earnings statement from SUNW. Aggressive buyers could
beat us to the punch here but with the flood of earnings all
negative there could be a surprise in their future.





I think I can, I think I can. Rumors today speculated on NOK
making an offer for Lucent. Lucent market cap is $65 billion even
at its severely depressed stock price. Lucent rallied +$2 on the
news to $18.75 but analysts said it was not likely to be true.
NOK does not normally go for the super big targets but picks
off the smaller niche players on its way to world telecommunications
dominance. Lucent and Nokia would fit well together but the deal
would have too many roadblocks and the scale could cause NOK
problems in digestion. Still it was nice to see a +12% bounce
in LU stock!

Even though the volume was low today with only 1.9 billion on
the Nasdaq and 1.1 billion on the NYSE it was not a bad day.
Decliners beat advancers on both exchanges but price drops were
not bad. Considering the Nasdaq had gained +500 points in the
last eight days in the face of negative earnings and negative
election news I am not surprised we struggled at 3000. Had the
election news been completed with a final ruling from the Supreme
Court I think the outcome would have been very different. Remember
CPQ did not drop in after hours trading after its warning. GM
went up after warning. Big gainers over the last week in numbers
approaching +$50 like JNPR, BRCM, BRCD only dropped back -$2 to
-$3 on profit taking. While looking at possible plays with the
editors for tonight’s newsletter there were very few real pullbacks.
Most just settled as traders took profits and waited on the court.
It was almost impossible to find puts. You would think that the
flood of earnings warnings and the negative market would have
given us dozens to chose from. They did not exist. There were
pullbacks but not drastically or with no major change of trend.

Although I am disappointed the Nasdaq kept its string intact of
not being able to put three positive days back to back since Labor
day, I am still positive that there is an explosion ready to
happen. The only thing in our way I feel is the court decision.
If the court makes a ruling out of left field that extends the
pain and confusion for several more days or even weeks then the
market will react negatively. The market is ready for a winner
regardless of who it is.

On Wednesday we start loading up on economic reports and a series
of market friendly numbers will set the stage for the Fed rate
meeting next Tuesday. Tomorrow we get Import/Export prices and
Retail Sales. Thursday PPI, Friday CPI, Capacity Utilization
and Industrial Production. Without a favorable court decision
that stops the process in favor of somebody, traders are likely
to wait on the sidelines for the economic reports to pass as well.
With an election stopping decision traders are likely to buy the
economic reports hoping for a positive announcement at the Fed
meeting.

The bottom line, no decision, traders will wait. A knockout punch
by the court and traders are likely to buy. Technically we are
at a make or break point on the Nasdaq chart. The recent rally
brought us right up to the descending down trend line for the
last three months at 3000. We must break this down trend line
this week or be doomed to retest at least the 2700 lows again.
The fuse is lit and the court can fan the flames or douse the
fire. What you do with this analysis is of course up to you but
I would buy any dip unless the court hits us with another delay
of game penalty.

Good luck and don't buy too soon.

Jim Brown
Editor


*********************
2001 Renewal Offer!!!
Our best offer ever!!
*********************

Long time readers know that each December we offer our
subscribers an extra value package as a thank you for their
support. The package this year contains:

1.) Two of our 2001 Option Expiration Calendar Mousepads
     (one for home and one for your office)

2.) The expanded 2001 Stock Traders Almanac

3.) A one month subscription to www.IndexSkybox.com

4.) A three month subscription to www.SplitTrader.com

5.) And of course the annual subscription to OptionInvestor.com

This package has a retail value of almost $519 which includes
$169 of free merchandise in addition to the annual subscription
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************************************
JOHN DESSAUER "Dream Seminar at Sea"
************************************

You have seen me write about John Dessauer, a newsletter editor
with a 20-year history. John spoke at our March Expo here in
Denver to about 600 attendees. John uses a common sense bottom
up method of stock picking and has been very successful. He has
asked me to speak at his "Dream Seminar at Sea" in March. The
itinerary looks more like a vacation than a seminar with stops
in Aruba, Caracas, Grenada, Dominica, St Thomas and San Juan but
John will manage to keep us busy. If you have interest in this
event visit this link:

http://www.cruzproductions.com/dessauer/


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****************
MARKET SENTIMENT
****************

Continual Decay
By Austin Passamonte

That's what our short-term open plays have done this week while
we remain mori-bound by circumstances MS refuses to discuss out of
exasperation. Hopefully these words reach you after the unmentioned
decision but it didn't arrive in time to save early market action
in either direction to speak of.

Lost in the expectations of our eventual leadership selection is
the plain, simple fact that business in the U.S. stinks right now.
At least it has through Q3, Q4 and threatens to extend into 2001
as well.

European exposure has not been favorable for those on this side of
the Euro as well. With bitter cold weather sweeping the lower 48
in time to tap Christmas shopping budgets, retail may not lead the
charge into January either.

All this could be bad news for bulls or good news for bears as the
case may be. The choice in which direction to play is 100%
applicable to a trader's outlook. As we will continue to state
until blue in the face, profits will flow in equal measures
regardless which direction any markets or indexes choose to go.

Market Sentiment considers the following price levels important
near-term support:

Dow: 10,698
NDX:  2,834
QQQ:     70
Comp: 2,900
SPX:   1363
OEX:    725

A break below these could signal to protect longs or open short
positions. Overhead resistance is stacked at numerous levels.
Right now highest odds lie to the downside unless surprising news
above & beyond expectations is delivered.

Triple-Witch week is traditionally a positive close. Historical
upside bias could be negated by persistent downside pressure. A
tradable rally is possible on any given day but we see numerous
signs of continued weakness in the general markets.

The week following Triple-Witch is historically down. Coupled
with continual negative sentiment could make action beyond the
next three sessions interesting for downside players.

Plenty of analysts are calling recent market lows a possible
bottom. Those may very well be price levels tough to break but a
revisit to those depths is much more likely than a test of early
September highs first.

As traders we can only judge where highest odds lie to give us a
slight edge for long-term profit success. Clouding this with market
noise or bias stacks already formidable odds further against us.

Each recent rally has been sold into with vigor. While the next to
emerge may be tradable, Market Sentiment considers the near term
trend to remain down until solid proof of strength are clear in
the charts. Trade carefully with clear market trends!

*****

VIX
Tuesday 12/12 close; 28.28


30-yr Bonds
Tuesday 12/12 close; 5.55%

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.

                                   Tuesday
                                 (12/12/2000)
  (Open Interest)       Calls        Puts          Ratio
S&P 100 Index (OEX)
Resistance:
765 - 750               13,166          941        14.00***
745 - 730               20,953        5,244         4.00

OEX close: 728.91

Support:
725 - 710               10,194       17,035         1.67
705 - 690                  732       10,488        14.33
Maximum calls: 730/9,900
Maximum puts : 710/7,090

Moving Averages
 10 DMA 715
 20 DMA 716
 50 DMA 728
200 DMA 773


NASDAQ 100 Index (NDX/QQQ)
Resistance:
 81 - 79                64,447        36,283         1.78
 78 - 76                22,567         8,274         2.73
 75 - 73                49,183        66,253         0.74

QQQ(NDX)close: 71.65

Support:

 70 - 68                79,789        54,442          0.68
 67 - 65                28,132        56,813          2.02
 64 - 62                14,233        22,200          1.56
Maximum calls: 70/42,801
Maximum puts : 75/46,600

Moving Averages
 10 DMA 67
 20 DMA 69
 50 DMA 75
200 DMA 90


S&P 500 (SPX)
Resistance:
1450                   30,308        20,210          1.50
1425                   28,462        14,892          1.91
1400                   53,640        49,694          1.08

SPX close: 1371.18

Support:
1350                   41,511        48,704          1.17
1325                    6,699        16,983          2.54
1300                    7,054        20,369          2.89
Maximum calls: 1400/53,640
Maximum puts : 1400/49,694

Moving Averages
 10 DMA 1348
 20 DMA 1352
 50 DMA 1377
200 DMA 1437

*****

CBOT Commitment Of Traders Report: Friday 12/08
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         -283       +103            -770       -3136
Total Open
Interest %      (-3.13%)    (+1.14%)       (-2.64%)    (-11.59%)
                net-short   net-long       net-short   net-short

NASDAQ 100
Open Interest
Net Value        -3324        -1888          +2120       +673
Total Open
Interest %      (-13.52%)   (-8.21%)       (+3.23%)    (+1.17%)
                net-short   net-short      net-long    net-long

S&P 500
Open Interest
Net Value        +76502        +70473       -86468       -81,194
Total Open
Interest %      (+42.45%)   (+31.99)       (-12.36)    (-12.00%)
                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 Commercials are
showing a gradual increase in their net-long positions on the
NASDAQ 100 while the Small Specs have advanced their net-short
positions.

Data compiled as of Tuesday 12/05 by the CFTC.


**************
MARKET POSTURE
**************

Please visit this link for Market Posture:

http://members.OptionInvestor.com/marketposture/121200_1.asp


***********
OPTIONS 101
***********

Let's Be Crazy And Think Bull Market!
By Lee Lowell

Eventually the stock market will continue its long-term uptrend.
For those option traders who like to trade with the trend, they
have witnessed a whole new ballgame.  It's been a rough ride
trying to handle the volatility and gyrations.  The calls that
you bought yesterday were looking good for a few hours but then
the market collapsed.  You sold out of your position only to see
the market turn around and go back up.  You take a chance and sell
some put spreads (bullish), and then the market tanks again.  You
decide to buy back the short put spreads for a loss and of course
the market then turns higher again.  Losses on all sides.  It's
been happening to me recently.  It's been a tough market to say
the least!  The days of just buying any old calls and watching the
market go higher are over.

We've hit a phase in the market where it's so volatile, that you
have to take your profits when they are there.  Recently, that
means you must be glued to the screen because the profits can
happen at any time and then slip away.  If you can't watch the
computer all day, then you either stay out, or concentrate on
long-term strategies.  I've had multiple positions these past few
weeks that I could've taken small profits on, but I got greedy.
Some of them have now turned into small losers.  Since I trade
only option spreads, I know exactly what my maximum loss can be.
The uptrend has not formed yet, so you have to trade the swings
if you can.

Like my title says, let's be bullish and talk about some bullish
strategies. (when the day comes)  The first and easiest strategy
to implement is the "long call."  This is the position of choice
for most novice traders and much of the general investing public.
If you think the market is going up, you buy a call option.  It's
cheaper than buying the stock outright and the percentage return
can be many times greater.  Simple, right?

Not really.  There are a few things to consider before parting
with your hard-earned money.  You must decide which expiration
month and which strike price to choose.  The "closer to
expiration" options will be cheaper in dollar terms, but they also
have less time to be correct.  You have to have precise timing to
make consistent profits with short-term options.  Even if you
don't choose a front-month option, you still must decide if you
want to trade a three-month, six-month, nine-month, leap, etc.
Only you can decide.  Personally, I like to give myself at least
six months worth of time.  My timing has never been stellar, so
I'd rather pay a little more to get that extra chance.

The next step is choosing which strike price to pick.  An "out-
of-the-money" (OTM) option will be the cheapest but it will have
the least probability of profit.  An "in-the-money" (ITM) option
will be more expensive but it has a greater chance of being
profitable.  This is because it has a higher delta and it moves
in tandem with the moves of the underlying stock.  An OTM option is
less responsive to moves of the underlying stock.  An "at-the-
money" (ATM) option has a strike price that is equal to the price
of the underlying stock at that moment in time that you initiate
the position.  If the stock is trading at $100, then the ATM
strike is the $100 call.  An ATM option has a 50/50 chance of
profiting.

And of course you must check the implied volatility (IV) levels of
the options against its past levels.  If you buy options when IV
is high compared to previous levels, you are immediately put at a
disadvantage.  This is because you are buying an overpriced
option.  The options will eventually revert back to trading within
their "normal" range and it will take the option premiums down
with it no matter which way the stock moves.  Even though the
stock might move in your favor, your option position might not
gain in value.

Another bullish strategy to implement is called a "call spread."
It's a little more sophisticated as it entails two simultaneous
transactions.  A long call spread is achieved by buying a lower
strike call option and selling a higher strike call option on a
single ticket within the same expiration month.  The price of the
spread is the difference between the two individual option
premiums. The strikes can be as far apart or as close together
as you like.  You can do a front-month spread or a leaps call
spread.  The long leg can be ITM and the short leg can be OTM, or
both legs can be ITM or both can be OTM.  The choices are great
and it all depends on your risk tolerance and time frame.

My personal preference is to have the long leg ATM or slightly ITM
and the short leg OTM.  Again, my duration is about six months.
The farther apart the strike prices, the more expensive the spread
will be.  But that also gives you a chance for a bigger profit.
The spread will also cost more by having the long leg ITM and the
short leg OTM, but the long leg will gain value faster because it
will have a higher delta.

Just for example sake, here's what a bull call spread would look
like.  The stock is at $100.  You could purchase a three-month
$95/$125 call spread for 13 points. (hypothetical)  The long leg
is the $95 call which slightly ITM and costs $25 and the short leg
is the $125 call which is OTM and costs $12.  Since the spread is
30 points wide ($125-$95), and the total cost of the trade is 13
points, ($25-$12), the maximum gain could be 17 points.  The
maximum loss is always the amount that you paid for the spread.
In this case it's 13 points.  Your breakeven price is figured by
taking the long leg and adding the cost to it.  $95 + $13 = $108.
This spread starts to become profitable once the underlying stock
moves past $108.  This is only 8 points away from where it is
now ($100).

The pros of initiating a call spread versus an outright call
purchase is the lower outlay of cash.  A spread will always cost
less than an outright purchase, if you are considering using the
same strike.  The $95 call by itself in the example above costs
$25, whereas the whole spread only costs $13.  Some see a spread
as a hedge against a long call.  Say you wanted to own the $95
call but craved a little insurance against it in case your
market prediction was wrong.  Here's where selling the $125 call
comes into play.  You now have 12 points of downside protection
against your $95 call.  Some traders will implement the short leg
of the spread at a later time, but that is risky too because the
market may tank before you get a chance to put on the short leg.
That is not advisable unless you really know want you're doing.
I always put on a spread with both legs at the same time on a
single order ticket.

The only downside to using a call spread is that your profits are
capped once the underlying stock has moved past your short leg.
If our hypothetical stock starts trading at $130, we still can
only make 17 points on the whole trade.  If we purchased the $95
call outright, then we can participate in any major move that is
made.  It all comes down to how you feel about the market in terms
of its magnitude and duration.

These are two of the most basic option strategies to use when
participating in a bullish market.  In this environment of whipsaw
moves, it's best to pick expiration months as far out in time as
possible.  This will give you more margin for error in case the
market isn't too cooperative.  At this writing, those options
would be for the January '03 expiration.

Good luck.


**************
TRADERS CORNER
**************

Trends To Watch In 2001
By Scott Martindale

Well, well, well.  Thanks to the Florida Supreme Court, the only
court in which Vice President Gore has found a sympathetic ear
(twice!), here I am again writing my weekly column for the fifth
time since I first declared the election uncertainty finally over
on November 7th.  It still amazes me that opinions on whether to
continue counting votes fall firmly along party lines -- as if no
one is capable of an objective viewpoint.  It seems logical to me
that one should follow verbatim the procedures and deadlines
written in existing laws and statutes rather than appeal to
multiple courts looking for liberal "interpretations."  But I
supposed I’m just as biased as the next guy.

No matter how it turns out, the market desperately wants to run --
at least for a little while.  But like the antsy sprinter in the
starting blocks, it keeps false starting in anticipation of the
starting gun.  Today, some competitors got impatient and dropped
out of the race.  I sometimes write about volatile high-potential
companies and fledgling industries that are purely news-driven,
but lately the whole market seems to be news-driven.  Upside
alerts, downside alerts, yields are down, gold is up, Nasdaq is
weak, Dow is strong -- wait, a gold downside alert -- or was it
vice-versa?  I can’t take it anymore.

This too shall pass, eventually.  And when it does, what can we
expect for the balance of 2000 and into 2001?  My personal
predictions are:

1. Earnings shortfalls have already been priced in across the
board, so new warnings won’t have broad market-killing impact,
i.e., Nasdaq will not fall to 2000 (but may revisit 2500).

2. The markets will rally with a Bush victory and may sell off
briefly with a Gore victory, but will indulge in an overdue relief
rally either way, so long as there is an election decision.

3. The FOMC will change the bias to neutral on 12/19, in
preparation for a 0.25 point rate cut in January, followed by
another 0.25 point shortly thereafter.  The Fed has given a lot
of lip service to the risk of inflation, but the threat of a
dreaded recession is now all too real, and the Fed will do
whatever is necessary to avoid that.

4. After a Santa Claus/New Year’s/FOMC/post-election
rally/celebration, the markets will show renewed weakness early
next year as investor fear again outweighs greed.

5. U.S. rate cuts will help prop up the Euro, which will continue
to strengthen against the dollar, helping boost sales for U.S.
companies in Europe.  In fact, you will be able to make money in
currency markets next year by betting on a weakening dollar vs.
the Euro and the yen.  [Depending upon your long-term investment
strategy, you might even want to consider buying bonds now.]

6. There will be a new leg up for technology stocks, although not
in the dot-coms of the past run-up.   Although tech stock
valuations are still relatively high despite the steep correction,
there are pockets of exceptional value right now.  And when you
consider that 40% of corporate spending is technology-related,
there will be better times ahead.

7. I will be accurate on no more than half of my predictions (kind
of like flipping a coin).

Yes, I think there will be money to be made in the markets next
year, although not with the reckless abandon of 1999.  Where to
invest?  Let’s look at some areas that market-watchers are high on
for 2001, as well as some that are on the "avoid" list.  Stocks
that might benefit also are shown.

Here are some trends to consider for covered calls, buying stocks
and LEAPS, selling naked puts, and spread trading:

* As the information economy grows, with Internet traffic and
transmission capacity doubling annually, so grows the need for
data storage systems (EMC, NTAP, BRCD, MCDT, VRTS, SEG, EMLX).

* E-commerce software infrastructure will continue to see demand
growth, even in a slowing economy, as industry harnesses the
proven cost reduction and efficiencies of the Internet (ORCL,
BEAS, CHKP, MSTR, PRSF, SEBL, VIGN, ARTG, ARBA, ADBE, CMVT).

* Semiconductor growth will escalate as they continue to power
virtually all new technologies (AMAT, LSI, TXN, TSM, PMCS, AMCC,
IRF, CY, TQNT, BRCM).

* Distributed computing, including peer-to-peer (P2P), grid
computing, and distributed information technology infrastructure,
will make great strides in harnessing the true power and
efficiency of the Internet (CSCO, INTC, SUNW, INKT, AKAM, MUSE).

* There will be continued development and introduction of wireless
communications protocols and associated application software,
services, and equipment (QCOM, ARTT, BRCM, MOT, NOK, SCON).

* The shift in communications from electronic to optical
networking to build a broadband infrastructure for voice and data
transmission will accelerate (CSCO, GLW, JDSU, DIGL, CIEN, AVNX,
CORV, JNPR, SCMR, MRVC, FNSR, TLGD, NT, NEWP, ADCT, AFCI).

* The telecommunications shift from voice & data transmission to
high-bandwidth services will accelerate (GX, Q, WCOM, COVD, LBRT).

* We will see a stronger move towards international regulation of
the Internet, including taxation, privacy, virus-protection, and
backbone protocols (VRSN, ENTU, CHKP, CSCO, NT, TMWD, NETA, CA).

* More rapid implementation of alternative energy sources like
solar and fuel cells as petroleum prices remain high and new
technologies become more economic (APWR, BLDP, MKTY, FCEL, F).

* Biotech research will continue to feed off its successes,
especially the rapid development of commercial applications for
the breakthrough human genome mapping (CRA, AFFX, MLNM, ABI).

The ones to avoid?  Anything that depends upon or seeks to profit
from the following:  the integrity of intellectual property and
the prevention of piracy; Internet incubators; online trading and
ECN’s; online retailing; PC’s and PC software; Linux; DSL carriers
and equipment; video-on-demand; high-definition TV (HDTV); video-
conferencing; and Internet advertising.

Also, there seems to be some disagreement on the near-term
potential of Bluetooth wireless protocol, wireless Internet
devices, and Application Service Providers (ASP’s).  Some say they
are on the verge of commercial breakthrough, while others say
commercial success will be limited at best.

Finally, I’ll note that George Gilder was quoted at the recent Red
Herring Conference to say: "Before, unemployed people in Silicon
Valley used to call themselves consultants.  Now they call
themselves VC’s. Tomorrow they'll call themselves angels."

Hey, George, who are you calling unemployed?


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


CALLS:
*****

NT $38.75 -4.24 (-4.18) NT presented a superb opportunity for
day traders to profit on Monday, when it broke out above
resistance at $42.50 to reach a high of $45.63 during the
mid morning market rally, and close at $43.  Accordingly, we
adjusted our stop level to $39.00.  Unfortunately, the overall
environment of market uncertainty overwhelmed the bullish
momentum, and NT closed below our stop level on Tuesday.  While
it may rally with the indexes on any relief from election
uncertainty, the high volume on Tuesday is disturbing.  Thus,
we are dropping NT for now, and devoting our capital to other
opportunities.

IDPH $207.50 -10.50 (-5.81) Despite back-to-back days of all-
time highs for IDPH, the stock finally gave up ground this
afternoon.  IDPH dropped below our stop level of $208 and we
will let the play go for now.  It's not that we don't like the
recent uptrend either, but the stock may fall to the 10-dma
at $194 before finding support.  This level coincides with
the $195 support IDPH found last week.  There is no need to
suffer the $12 down if the stock is set on revisiting that
price.  There was no news to spur this recent move, just a
bit of profit-taking.  As always, we will keep a close eye on
IDPH for new plays in the future.

QCOM $89.81 -9.69 (-13.44) Unable to break through resistance at
$107, it appears that QCOM may need to test some lower levels of
support before it can go higher.  Yesterday the stock closed down
$3.75 or 3.63 percent on stronger than average volume on news
that it would take an $80 million charge because the company
would have to share certain royalties in South Korea.  Today,
with a down day on the NASDSAQ, investors continued to sell on
the news, with the stock falling another 9.74 percent, this time
on even higher volume.  Having tripped out stop price of $95 and
closing below a key support level at $90, we are no longer
recommending this play.

ARBA $76.69 -10.19 (-5.81) The strong market action and news of
a software alliance with DiCarta sent shares of Ariba
upward to the $90 level during Monday's session.  Subsequently,
we raised our stop loss to $78 to reflect the solid gains and
higher intraday support level at $85.  Unfortunately, the
combined synergy of a slight pullback in the NASDAQ and a
neutral rating from Lehman Brothers today took ARBA down for the
count.  The selling, which took ARBA through our exit point
today, was accompanied by zealous trading activity.  Other B2B
stocks that have risen in recent sessions, such as PPRO and even
CMRC (who received an Outperform rating and $55 price target
from Lehman Brothers, too), also took it on the chin.  If you
didn't pocket the gains in yesterday's session, then consider
selling into strength on a rally to repair losses.


PUTS:
*****

No dropped puts today


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The Option Investor Newsletter                  Tuesday 12-12-2000
Copyright 2000, All rights reserved.                        2 of 2
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********************
PLAY UPDATES - CALLS
********************

EXTR $82.25 -6.50 (-0.19) After staging such an impressive run
over the past two weeks, EXTR was due for a little profit taking
and consolidation, which is exactly what happened during
Tuesday's session.  Volume came in at a mere 2.5 million shares,
far lower than the 6+ million share days EXTR experienced during
its recent rally.  What's more, the buyers stepped in near the
50-dma at $80, and lifted EXTR off its lows into the close of
trading.  Today's dip is not that disconcerting considering
the light volume and general weakness in the tech sector.
However, we'd like to see the buyers return with strong volume
either Wednesday or Thursday.  That said, if EXTR resumes its
rally, make sure to confirm strength in the NASDAQ and look to
enter on a move back above the $85 level.  The more conservative
might wait for EXTR to burst through the $90 level on heavy
trade.  Remember that our stop has been set at $79, and we'd
close positions if EXTR settled below that level.

BRCM $141.06 -1.75 (+12.88) A positive day for Semiconductor
stocks all across the board on Monday allowed BRCM to lead the
charge, up $14.36 or over 11 percent on 125% of ADV.  News of a
broad strategic alliance with COMS in which the two companies
will co-develop new products, cross-license technology, and share
in marketing and supply-chain management duties certainly added
fuel to the rally.  Today, the stock gave back a little, just
1.49 percent, in sympathy with a downgrade of TQNT by CS First
Boston.  But there's good news.  Banc of America Securities
reiterated their Strong Buy rating on BRCM, saying that the
company's earnings were on track going forward and saying that
the company's unique position puts it in a position of having no
rivals but itself.  Despite today's pullback, the up-trend is
firmly intact.  For aggressive traders, look for a bounce off the
5-dma at $127.66 as a possible target to shoot for.  There is
also support in increments of $5 from $140 to $125 but be aware
of our stop price at $129.  For an entry on strength, look for a
break through $147 on volume, confirmed by a strong Chip sector
(SOX) and NASDAQ.

NTAP $82.69 -1.69 (-4.50) After gaining over 60 percent last
week, it's no surprise that NTAP is taking a little breather,
allowing time for some possible entry points before its next big
move.  Yesterday, the stock pulled back $2.81 or 3.23 percent on
average volume, finding support at $80 as well as its 5-dma.
This was despite news that TXN has selected NTAP as its storage
solution in its research and development center in India.  Today
was another day of consolidation, as NTAP edged lower by 2
percent, this time on declining volume, less than 70% of ADV.  In
the past three sessions, the stock has traded in a range, with
support at $80 and resistance at $90.  Look for a bounce off $80
as a possible aggressive entry point.  NTAP's current uptrend can
support a pullback to our stop price at $75 as well, but make
sure the stock closes above this point.  For a conservative
entry, wait for momentum to carry NTAP through $85, confirmed by
a strong NASDAQ and Storage sector, with peers BRCD, EMC, VRTS
posting gains, before making a play.

PALM $52.50 -4.13 (-1.69) Excitement on the first day of PALM's
annual developers conference on Monday helped the stock move
higher, up $2.44 or 4.5 percent on over 120% of ADV.  CE
Unterberg pointed out that the possibility for new product
announcements would likely lead to more upside over the course of
the conference.  Apple's software division Filemaker announced a
Palm-based companion, which would allow handheld computing
devices to interface with its flagship database application.
HealtheTech also announced that it would bundle Palm m100 devices
with its personal-health suite of applications.  Today. despite a
positive keynote address from the CEO and news for Samsung would
license Palm OS for use with its next-generation smart phones,
the stock pulled back in sympathy with a weak NASDAQ.  However,
PALM's bounce off its 50-dma support at $50.22 was a positive
sign.  Aggressive traders could target-shoot that level of
support as well as the 5-dma at $51.21 and our stop price at $50.
A safer entry however, would be to wait for buying volume to
life PALM above $54, backed by a strong NASDAQ and positive
momentum in peers HAND and RIMM.

RSAS $53.13 +0.00 (+3.25) Our patience with RSAS was duly
rewarded on Monday, as its recent consolidation at the 50-dma
level resolved itself with a positive day.  Closing up $3.25 or
6.52 percent on higher than average volume, on the heels of a
positive announcement from the company.  RSAS introduced a new
product, the RSA Kean Web Passport, which will allow users to
more easily conduct secure e-commerce transactions across
multiple platforms and applications.  Today, news that smart card
solutions provider Datakey would use the RSA BSAFE software for
its encryption did little to ignite buying interest, as the stock
closed unchanged on less than half the ADV.  Considering that the
NASDAQ closed in the red, we'll this day of rest.  For aggressive
traders, look for a bounce off support at $52, the 5-dma at
$50.63, $50 and our stop price at $48, just above the 10-dma as
possible entry points but confirm with volume.  If buying
momentum in the stock comes back, look for a break through $54 on
volume, backed by a rallying NASDAQ and positive sector sentiment
in peers such as CHKP and VRSN as a possible conservative entry
point.

JNPR $161.06 -2.94 (-5.06) The high-octane fuel that has been
powering JNPR's ascent has been the combination of the stock's
oversold condition, optimism that the worst may be behind the
Technology sector, and hope that the election may soon be over.
Don't look now, but all three sources are showing signs of
depletion.  JNPR has moved from Oversold to Overbought on the
daily stochastics, earnings warnings continue to flow in, and
the election situation is still showing signs of dragging out.
The effect can be seen in JNPR's chart, as the stock ran out of
upward momentum this week, and fell back under profit taking
pressure in the broader Networking Sector (NWX.X).  Yesterday,
the company agreed to acquire Micro Magic Inc. (MMI) for approx.
$260 million, in an effort to deepen its expertise in IP
infrastructure technology.  The recent rise pushed our play
through the 200-dma ($148.50), resistance at $156-157, and the
30-dma ($158.31).  JNPR is currently consolidating above the
30-dma, and a strong bounce at this level looks attractive for
new entries, especially if confirmed by strength in the NWX.X.
Of course, any profit taking that halts and reverses above our
$150 stop can be considered a viable entry for aggressive
traders.  Just make sure it is a bounce (check the buying volume
and sector strength) before playing.  Any closure to the
election could provide a boost to JNPR, and a rally through
the $170 resistance level could provide a decent conservative
entry point.

A $57.25 -0.50 (-2.19) The stock's recent move above the $57
mark and its attempt to grab the $60 brass ring demonstrates a
very bullish sentiment.  Since mid-November's recovery from the
underside of the $40 level, the upward trendline continues to
remain steadfast.  The share price is currently consolidating at
the higher levels between $57 and $60 on respectable volume.
Taking into account the narrow range, we're maintaining our $53
stop loss on this play.  In the coming days, the election saga
and the Feds will act as volatile catalysts across the broad
markets.  Keep stops tight.  If you're planning an entry, look
for A to break to the upside of the formidable resistance ($60)
before initiating new plays.  If a rally ensues, the next level
of contention is at the 200-dma ($69.22) line.

MEDX $46.88 -4.88 (-1.38) At the Monday morning bell, the bulls
stepped in and took MEDX to the $54 level in a flash.  All look
good for a day of strong action, but as we've heard again and
again - never take positions until AFTER amateur hour!  Well,
here's a prime example of what can happen.  In despite of the
rallying market yesterday, MEDX's upward momentum subsided a bit
following the mild profit taking which ensued.  While the
previous resistance at the $51 level supported the share price
on the downdraft, it failed to buoy the share price during
today's extended profit taking.  Our elevated stop loss at $45
was not however violated and thus, MEDX remains on our call
list.  Please don't assume doom and gloom.  If take a look at a
daily chart, you can see that this biotech is faring well at the
higher trading levels.  Others in its sector, like BGEN and
HGSI, are also demonstrating relative strength at there
respective support levels.  Look for a convincing bounce, in an
ascending marketplace, from the current price level if you're
interested in a more aggressive entry.  Otherwise, stay in cash
until MEDX moves back through the 30 & 50 DMA lines at $48.50
and 51.26, respectively.  Buying into strength as MEDX overcomes
the recent intraday high of $54 offers even better confirmation
for the risk-adverse traders that momentum can take the share
price higher.  Today UBS Warburg started new Buy coverage on
MEDX.

MUSE $144.50 -1.31 (+8.88) This week's trading action gave
momentum traders the green light to take entries into this
volatile Internet.  MUSE blasted through the $140 level and the
corresponding 200-dma technical ($140.05) as the NASDAQ said
"Hello 3000!".  Gains extended throughout Monday's session with
the share price hitting $151 before finishing in the positive
$10.19, or 7.5% for the day.  A healthy pullback today would not
have been unwarranted; particularly in light of the tremendous
advances of late.  However as the day unfolded, the bears
couldn't take MUSE below $140.50 and by late afternoon, MUSE was
challenging the intraday resistance at $145.  Under rallying
conditions, bounces off the 50-dma ($144.81) offer reasonable
entries into the building momentum.  If a deep pullback is in
the stars, then look to take a lower and more enterprising entry
near our stop of $128 or the 5-dma, currently trailing at
$132.56.  In the news, Micromuse announced that Cidera Inc., the
Internet Broadcast Backbone, has selected the Netcool. suite as
its core network operations management solution.

ADBE $70.69 -3.44 (+2.31) As if on cue, ADBE found support right
on the 200-dma ($62.75) on Thursday, and launched higher with
the market recovery on Friday.  The rally in shares of ADBE
continued through yesterday's trading, as investors focused on
the upcoming earnings report, scheduled for Thursday after the
market close.  General lack of enthusiasm due to the unresolved
state of the election, mixed with a few more earnings warnings
kept technology stocks under pressure today, providing
aggressive bulls with one more chance to buy the dip before the
earnings report Thursday night.  While earnings are expected to
be strong, we would only advocate new positions for aggressive
traders, and even they need to wait for the stock to bottom and
head higher again.  Consider buying a bounce at $70, $68, or
even $65, but confirm positive market direction first.  We'll
be dropping ADBE tomorrow night to provide traders with an
opportunity to exit any open positions prior to the earnings
announcement.

BRCD $217.75 -7.38 (-2.00) What was gained in Monday's extended
tech rally, BRCD gave back during today's pullback.  However,
let's look at it the bigger picture.  Today's return
to the near-term support level around $215 and the correlating
50-dma ($217.75) offers traders another opportunity to ride a
bullish wave upward.  Of course the market must cooperate, but
the potential for another run up ahead of the stock split on
December 22nd looks good.  Consider taking additional positions
from the above-mentioned level if BRCD resumes an uptrend backed
by strong volume.  We have upped our exit point to the $210
level to protect against a severe backlash, but nonetheless are
anticipating BRCD to challenge the new intraday high of $231 in
coming sessions.  Overall, other networking infrastructure
stocks like CFLO and NTAP also demonstrated strength in today's
downdraft in the NASDAQ.


*******************
PLAY UPDATES - PUTS
*******************

SBC $52.25 +1.44 (-0.56) A sector rally helped pull SBC out of
a free-fall that began last Thursday.  This rally stemmed from
the FCC beginning the sale of new airways for mobile wireless
use.  Many of the big names were bidding millions of dollars
to secure these new lines and the market reacted positively to
the news.  Although not a major bidder, SBC rallied on Tuesday
with the sector.  Another factor that weighed in on Monday's
trade was continuing rumors of SBC merging with AT&T.  SBC
would be the acquirer in the transaction.  This is not a new
rumor, but did add support to the stock.  Typically, a company
doing the purchase would be expected to see their stock fall,
but AT&T is considered a valuable prize worth the cost.  SBC
found support at $51 on Monday on the news.  We need to see
SBC rollover again and break this level.  If so, we expect the
trip to $48 to continue.  Nevertheless, we have our stop in
place at $55.00 just in case another rally ensues.

BBOX $51.81 -0.60 (-0.88) Bouncing off support at $50 yesterday,
BBOX closed down fractionally on higher than average volume,
despite help from a rallying NASDAQ and positive announcements
from the company.  A minor new product release and its UK
subsidiary being named "Best All-Round Catalogue Business" did
little to excite investors.  Today the stock drifted ever lower,
closing down 1.31 percent on anemic volume, less than half of
ADV.  What appears to be happening at this point is a digestion
Of recent losses.  With the 5 and 10-dma (now at $54.71 and $55.87
respectively) moving lower and newfound resistance at the $53
level, it could just be a matter of time before BBOX falls below
the key support of $50.  A break through this point, backed by
strong selling interest will allow conservative traders to take a
position.  For those willing to take a little more risk, look for
a failed rally above resistance at $53, the 5 and 10-dma and our
stop price near the 50-dma at $58 as a possible entry.

EMC $82.13 -7.88 (-4.81) As difficult as it can be to play puts
on a stock with the strong fundamentals that EMC has, in this
market you can't afford to ignore the technicals.  After
recovering sharply with the rest of the technology-related
market last week, EMC banged its head into the upper Bollinger
band at $92, and the profit taking appeared almost immediately.
In the past week, daily stochastics have rolled over and are
just emerging from the overbought zone, while the stock price
has dropped back below the 10-dma ($83), 30-dma ($85.38), and
50-dma ($87.97), and is sitting just above the $80 support
level, supported by the 200-dma ($79.25). The series of lower
highs is still in place and it looks like the stock will head
lower again before it gets healthy enough to rally back above
our stop, currently set at $92.  The rollover at $91 yesterday
was an almost perfect entry point, as EMC fell out of bed again
today, trading as low as $81.50, before bouncing weakly at the
close.  Resistance is intact near the $90 level, and any rally
that fails near this level looks attractive for new aggressive
entries.  More conservative players will want to wait for the
sellers to come out in force and pressure EMC below the 200-dma
before initiating new positions.  EMC has been trading in
sympathy with the broader technology sector lately, so use
weakness on the NASDAQ to confirm market direction before
initiating new positions.

ABT $50.19 +0.13 (+0.50) Is that the bottom, or is ABT setting
us up for a fresh entry point?  After the sharp decline last
week, buyers have stepped in to support the price near the $49,
helping the stock to put in a mild recovery so far this week.
The recovery has been weak though, and volume has been falling
off too.  This is a classic sign that we are headed for further
declines, and all we have to do is wait for a confirmation
signal from the stock.  The conservative approach will be to
wait for selling pressure to increase, dropping ABT below the
$49 support level.  Adding new positions here, will allow you to
profit as the stock heads down for a test of the next support
level, between $44-45.  Adding to the downward pressure has been
weakness in Drug stocks (DRG.X), and as long as this weakness
persists, ABT should continue to decline.  With the 50-dma
($51.50) resting just below our $52 stop, a rollover near this
level look like a great place for starting new aggressive plays.
Wait for selling volume to pick up and confirm weakness in the
Drug Index (DRG.X) before playing.


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**************
NEW CALL PLAYS
**************

AGGRESSIVE:

CMVT - Comverse Technology, Inc. $113.75 +1.88 (+7.81 this week)

Comverse Technology Inc. is the world leader in multimedia
telecommunications applications. Founded in 1984 and
publicly-traded since 1986, Comverse Technology Inc. is based in
Woodbury, Long Island, New York and is a NASDAQ-100 Index
company.  Through its Comverse Network Systems division, the
market leader, the Company markets its Access NP and TRILOGUE
Infinity Enhanced Services Platforms, which enable wireless,
wireline, and internet companies to offer, to their residential
and business customers, a growing range of revenue-generating
enhanced services.

Bouncing off its lows of $80 in late November, the stock has made
a dramatic comeback so far this month.  What's more, buying
volume has been gradually increasing to match the stock's upward
movement.  Using support from the 5 and 10-dma, the stock has put
itself back on the right side of all its major moving averages.
The main theme last week for the company was earnings, as CMVT
reported record third-quarter results on December 5th.  For the
quarter, the company beat Street estimates by 2 cents, matching
the dreaded whisper number of 38 cents.  With profits growing by
52 percent and sales up 37 percent year-over-year, investors were
obviously pleased, as the company was rewarded with a richer
valuation instead of the customary post-earnings sell-off.
Positive comments from Goldman Sachs, Lehman Brothers and US
Bancorp Piper Jaffray are also helping the stock, which appears
poised to challenge its all time-high.  Today, CMVT bucked the
trend of a weak NASDAQ, closing up 1.68 percent on 157% of ADV.
Support levels abound for the stock, with possible aggressive
targets to shoot for at $110, the 5-dma at $105.37, the 50-dma at
$102.56, the psychological $100 and 10-dma at $99. In buying off
a bounce, make sure that the bulls are out in force before
jumping in.  Also, make sure that CMVT closes above our stop
price of $106.  For the risk averse, an entry on strength can be
had if CMVT breaks through resistance at $115 with conviction. It
would not be a bad idea to confirm direction and sentiment with
the NASDAQ as well as with rival Openwave Systems (OPWV),
formerly Phone.com and Sofware.com.

BUY CALL JAN-110 CQZ-AB OI=3452 at $13.63 SL= 9.75
BUY CALL JAN-115*CQZ-AC OI=1817 at $11.25 SL= 8.25
BUY CALL JAN-120 CQZ-AD OI=2287 at $ 9.00 SL= 6.25
BUY CALL APR-115 CQZ-DC OI= 268 at $20.50 SL=14.50
BUY CALL APR-120 CQZ-DD OI=1628 at $18.63 SL=13.50

SELL PUT JAN-105 CQZ-MA OI= 564 at $ 6.25 SL= 8.50
(See risks of selling puts in play legend)

http://www.premierinvestor.net/oi/profile.asp?ticker=CMVT


NTIQ - NetIQ Corporation $109.38 +4.38 (+4.63 this week)

Operating in the e-Business marketplace, NTIQ is a provider of
eBusiness infrastructure management software that enables
organizations to optimized the performance and availability of
Windows 2000 and Windows NT-based systems and applications.
Its AppManager suite detects and identifies bottlenecks, lags
in e-mail response time, and other network problems; the
software then makes the necessary corrections and issues the
appropriate reports.  NTIQ's customers include AT&T, Dell
Computer, Charles Schwab, General Electric, Pfizer, and
Microsoft.

While the broader technology markets continue to struggle, NTIQ
has shrugged it off.  Not only is the stock running higher on a
daily basis, but it has charged to new all-time closing highs
the past 3 days.  Not only that, but buying volume is confirming
the price gains, coming in 75% above the ADV in today's session.
The most recent surge up in the stock price began on December
5th, the day after the company began shipping the industry's
first security management solution that combines both intrusion
detection and vulnerability assessment capabilities for Windows
NT and Windows 2000.  Whether the new product release had any
bearing on the stock price, it is clear that investors like the
stock and have continued to bid it higher, despite the fact that
the company has yet to achieve profitability.  What really seems
to be getting their attention is the fact that NTIQ is growing
revenues north of 300% year-over-year.  Buyers jumped in to
support the price at the 50-dma (then at $78.31), and the
increase in volume over the past 10 days confirms that it is
more than a passing fad.  It is particularly encouraging that
NTIQ is making this run in the midst of weakness in the broader
technology market.  Support is resting at the $101-102 level,
confirmed by the rising 5-dma (currently $101.81), and we are
placing our stop just below this level, at $99.  We are looking
to jump into this momentum run, and when it slows, we will be
looking to get off.  For that reason, we don't want to look for
dips below $100 as viable entry points.  A mild dip to support
is buyable, but keep an eye on the sentiment in the NASDAQ.  If
tech stocks begin to rally and NTIQ is falling back, it may be
an early sign that the stock has exhausted its supply of buyers.
More conservative players can enter on a breakout over $110, but
only if strong buying volume is continuing to confirm the rally.

BUY CALL JAN-105 CQT-AA OI= 95 at $17.63 SL=12.75
BUY CALL JAN-110 CQT-AB OI=125 at $15.50 SL=11.25
BUY CALL JAN-115*CQT-AC OI= 67 at $13.25 SL= 9.75
BUY CALL JAN-120 CQT-AD OI= 37 at $11.63 SL= 8.75
BUY CALL APR-115 CQT-DC OI=  0 at $25.63 SL=19.25  Wait for OI!
BUY CALL APR-120 CQT-DD OI= 32 at $23.75 SL=17.75

SELL PUT JAN- 90 CQT-MR OI= 25 at $ 6.00 SL= 8.50
(See risks of selling puts in play legend)

http://www.premierinvestor.net/oi/profile.asp?ticker=NTIQ


NEWP - Newport Corporation $123.44 -1.56 (+11.81 this week)

The Newport Corporation is a global supplier of precision
components and automated assembly, measurement, and test
equipment for use in the fiber-optic communications,
semiconductor equipment, computer peripherals, and scientific
research markets.  The Company's high precision products enhance
productivity and capabilities of the Fortune 500 corporations,
government agencies, and the other technology clients it serves.
Optical components and devices for vibration and motion control
account for about two-thirds of the company's sales.

The recent Buy coverage, and now surpassed $85 price target,
given by First Union Securities on December 1st coupled with the
NASDAQ's rise out of the trenches acted as a strong catalyst for
NEWP's resurgence.  The stock fell face-first off a cliff
last October following a respectable earnings report on the 18th
and a series of downgrades by the ever-so-influential brokerage
firms.  Most certainly, the black veil hanging over the broader
markets during October offered no relief from the pounding.  But
now, the tables are turning in favor of NEWP and the share price
is making a stellar recovery amid the market volatility.  A
return to a price level above $150 is attainable, if the bulls
can take control of the NASDAQ and drive it through the
technical resistance.  Look for an advancing market to aid
NEWP's run to the higher trading realms.  After last Thursday's
break through the 50-dma, now at $109.51, there's no technical
lines to offer resistance; however, the first line of opposition
sits at the $130, which is just a stone's throw from recent
intraday highs near the $127 mark.  Conservative traders want to
see high-volume moves through these levels before strategizing
for a position.  Our stop loss is set at $115, which leaves
plenty of room for NEWP to gyrate in a choppy marketplace.  The
more enterprising traders might find viable entry points during
pullback or intraday downdrafts, but if you take the more
aggressive route, make sure the buyers step in first!

BUY CALL JAN-120*NOQ-AD OI=202 at $22.25 SL=17.00
BUY CALL JAN-125 NOQ-AE OI=  0 at $19.25 SL=14.00  Wait for OI!
BUY CALL JAN-130 NOQ-AF OI=  0 at $17.63 SL=12.50  Wait for OI!
BUY CALL FEB-125 NOQ-BE OI=104 at $24.75 SL=19.25
BUY CALL FEB-130 NOQ-BF OI=184 at $22.13 SL=17.00

http://www.premierinvestor.net/oi/profile.asp?ticker=NEWP


LOW VOLATILITY:

EXDS - Exodus Communications $34.88 +0.63 (+4.25 this week)

Founded in 1994, Exodus Communications pioneered the Internet
Data Center market and in 1999 climbed from a rank of 76 to
number 11 in Business Week's "Info Tech 100".  Exodus is a
leading provider of complex Internet hosting for enterprises with
mission-critical Internet operations.  The company offers
sophisticated system and network management solutions, along with
technology professional services to provide optimal performance
for customers’ Web sites.  Exodus manages its network
infrastructure via a worldwide network of Internet Data Centers
(IDCs) located in North America, Europe and Asia Pacific.

Since bottoming out in late November, shares of Exodus have been
quietly making a comeback.  On Monday, the stock broke through
its 50-dma, a level that it hasn't seen since late September.
Recently, rumors that Sprint may be looking to acquire a web
hosting company have helped the sector to move higher.  Analysts
have come in defense of EXDS as well, with Robertson Stephens
giving the stock a Strong Buy rating and a target price of $66,
recommending aggressive buying on any significant weakness.
Today, US Bancorp Piper Jaffray initiated coverage with a Strong
Buy rating and a $60 price target.  This helped the stock to
close in positive territory, with former resistance from the
50-dma now acting as support.  For an aggressive entry point, a
bounce off the 50-dma, now at $32.24 as well as the 5-dma just
below at $31.32, are possible targets to shoot for.  We would
drop coverage however, if EXDS closes below our stop price of
$31.  A break through resistance at $36 on volume with a strong
NASDAQ and positive sentiment in peers such as DIGX, LVLT and
NAVI could allow for a conservative entry.

BUY CALL JAN-30 DUB-AF OI=1597 at $8.38 SL=6.00
BUY CALL JAN-35*DUB-AG OI= 993 at $5.88 SL=4.00
BUY CALL JAN-40 DUB-AH OI=1520 at $3.88 SL=2.50
BUY CALL MAR-35 DUB-CG OI=1859 at $7.75 SL=5.50
BUY CALL MAR-40 DUB-CH OI=2636 at $6.00 SL=4.00

http://www.premierinvestor.net/oi/profile.asp?ticker=EXDS


*************
NEW PUT PLAYS
*************

LOW VOLATILITY:

TRW - TRW Inc. $31.00 -0.19 (-0.94 this week)

TRW provides advanced technology products and services for the
global automotive, aerospace, telecommunications, and
information systems markets.  TRW's 1999 sales totaled
approximately $17 billion.

While TRW's aerospace operations are deemed valuable, the
company's automotive business is considered less than
attractive.  The reason for the bearish sentiment: the slowing
US economy.  The broader automotive sector has fallen under
pressure recently, as signaled Tuesday by the restructuring news
from General Motors.  And the selling in TRW may not abate
until investors see an up-tick in the economy.  In the
meantime, we can profit from TRW's low-priced options and
steady downtrend.  New put positions can be added on a failed
rally above the 10-dma at $32.25, which has been a site of
solid resistance for the last four sessions.  Additionally,
entries could be taken on a breakdown below the $31 level.
The more conservative might wait for TRW to plunge below
support at $30 on heavy volume.  We've set an upside stop at
$33, and would exit positions if TRW closed above that level.

BUY PUT JAN-35 TRW-MG OI= 81 at $4.88 SL=3.00
BUY PUT JAN-30*TRW-MF OI=438 at $1.75 SL=1.00

http://www.premierinvestor.net/oi/profile.asp?ticker=TRW


**********************
PLAY OF THE DAY - CALL
**********************

JNPR - Juniper Networks $161.06 -2.94 (-5.06 this week)

As a provider of Internet infrastructure solutions, JNPR serves
Internet service providers and other telecommunications service
providers, helping them to meet the demands resulting from the
rapid growth of the Internet.  The company delivers next
generation Internet backbone routers that are specifically
designed for service provider networks.  The routers provided by
the company combine the features of the JUNOS Internet Software,
high performance ASIC-based packet forwarding technology and
Internet-optimized architecture into a purpose-built solution
for service providers.

Most Recent Write-Up

The high-octane fuel that has been powering JNPR's ascent has been
the combination of the stock's oversold condition, optimism that
the worst may be behind the Technology sector, and hope that the
election may soon be over.  Don't look now, but all three sources
are showing signs of depletion.  JNPR has moved from oversold to
overbought on the daily stochastics, earnings warnings continue to
flow in, and the election situation is still showing signs of
dragging out.  The effect can be seen in JNPR's chart, as the stock
ran out of upward momentum this week, and fell back under profit
taking pressure in the broader Networking Sector(NWX.X).
Yesterday, the company agreed to acquire Micro Magic Inc.(MMI) for
approx. $260 mln, in an effort to deepen its expertise in IP
infrastructure technology.  The recent rise pushed our play through
the 200-dma ($148.50), resistance at $156-157, and the
30-dma ($158.31).  JNPR is currently consolidating above the 30-dma,
and a strong bounce at this level looks attractive for new entries,
especially if confirmed by strength in the NWX.X.  Of course, any
profit taking that halts and reverses above our $150 stop can be
considered a viable entry for aggressive traders.  Just make sure
it is a bounce (check the buying volume and sector strength)
before playing.  Any closure to the election could provide a boost
to JNPR, and a rally through the $170 resistance level could
provide a decent conservative entry point.

Comments

JNPR has been in a holding pattern between $155 and $165 for the
past three days.  This trading action is good to see since it is
a sign of consolidation.  With the 200-dma near $150, support is
strengthening there.  Look for bounces from this area on a
pullback to enter the play.  Otherwise a breakout over $168.50
on strong volume would also offer an entry point.

BUY CALL JAN-150 JUY-AJ OI=1009 at $29.38 SL=23.00
BUY CALL JAN-160 JUD-AL OI=3418 at $24.13 SL=18.75
BUY CALL JAN-170*JUD-AN OI=1324 at $19.75 SL=15.50
BUY CALL JAN-180 JUD-DP OI=4087 at $16.25 SL=12.75

SELL PUT JAN-140 JUY-MH OI=1060 at $12.38 SL=16.25
(See risks of selling puts in play legend)

http://www.premierinvestor.net/oi/profile.asp?ticker=JNPR


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************************
COMBOS/SPREADS/STRADDLES
************************

No Decision Yet...

Industrial stocks enjoyed modest gains today as investors awaited
the outcome of the presidential election.


Tuesday, December 12

Industrial stocks enjoyed modest gains today as investors awaited
the outcome of the presidential election.  The Dow finished up 42
points at 10,768.  The Nasdaq Composite retreated after recent
advances, closing down 83 points at 2,931.  The S&P 500 Index was
down 9 points at 1371.  Activity on the Nasdaq was moderate at
1.9 billion shares exchanged, with declines outpacing advances
2,425 to 1,563.  Trading volume on the NYSE reached 1.07 billion
shares, with declines beating advances 1,598 to 1,285.  In the
bond market, the 30-year Treasury was up 4/32, pushing its yield
down to 5.53%.


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

American     AMR   JAN40C/JAN35P   $0.38   debit   synthetic
Pennaco      PN    JAN15C/JAN12P   $13.81  debit   collar
Hanover      HC    JAN30P/JAN35P   $0.56   credit  bull-put
Pharma Prod. PPDI  JAN30P/JAN35P   $0.75   credit  bull-put

Based on Time and Sales data, the bullish play in Pharma Products
and the Pennaco collar both traded at the suggested entry prices.
The Hanover spread and the synthetic position in AMR Corporation
were slightly beyond our recommended targets, but they did offer
reasonably favorable entry opportunities.


Monday's Portfolio Plays:

The stock market moved much as expected on Monday, opening with
a small sell-off in technology issues before the recovery rally
began in earnest.  At the close, the Nasdaq managed to retain a
gain of 97 points, ending at 3,015.  The Dow was less fortunate,
finishing up just 12 points at 10,725, underpinned by advances
in financial services and technology components.  The world's #1
semiconductor maker, Intel (INTC) was a major catalyst in both
indices and also posted the heaviest trading on the Nasdaq as it
moved up over $3 to $37.43.  The rally ensued after the company
unveiled a leading-edge transistor, and investors shrugged off
its recent warning of weak sales.  The Spreads portfolio enjoyed
a number of favorable moves, but I was not able to monitor the
activity or participate in the rebound.  I was at the OIN's home
office in Denver to attend the annual Christmas Party and meet
all the other researchers.

There were many outstanding performances among hardware issues
and stocks in the bank, brokerage, major drug and health care
sectors also finished higher.  One of the recent debit straddle
positions achieved an outstanding early-exit profit in just two
days.  Allied Capital (AC) traded as high as $54.43 during the
session and Sunday's debit straddle ended the day at $5.12 credit
overall, a 24% profit.  Biochem (BCHE) was another surprise, up
$2 to $30 after Shire Pharmaceuticals (SHPGY) announced it will
acquire the company for $37 in stock.  The purchase would reduce
Shire's dependence on its primary product, Adderall, a drug for
treating hyperactivity.  Our bullish calendar spread was closed
near maximum profit for a 175% gain in just two months.  One of
the older debit spread candidates, McleodUSA (MCLD) experienced
an unexpected rally ahead of an upgrade by CIBC World Markets.
The issue jumped $2 to a high near $16.62 and the move provided
a great opportunity to close the bullish call-debit spread at a
break-even cost basis.  Micron Technology (MU) was the leading
performer in the semiconductor category, up almost $3 to a high
near $37.  Unfortunately, we had adjusted the position to reflect
the recent bearish trend in the chip group and now we are faced
with the potential liability of a short DEC-$37.50 call.  Our
plan is to cover the position with the purchase of stock on any
close above $38 (on strong volume), as that area appears to be
the current level of overhead supply.


Tuesday's Portfolio Plays:

The market ended mixed today as technology issues consolidated
from the recent rally and blue chip stocks advanced in the face
of additional profit warnings.  I managed to catch some of the
session, after returning from Denver to my home near Anchorage,
Alaska on one of the early morning flights.  The opportunity to
meet all the members of the OIN research team was an incredible
experience and I can say with confidence that we are fortunate
to have such an extraordinary selection of writers, editors and
staff members to help produce this newsletter.  As a trader and
strategist, I was humbled by the combined intellect and wisdom
of the group and I have never before seen that level of market
experience assembled at such a remote event.  In any case, the
market recap and "New Plays" will be somewhat limited as I was
unable to observe much of today's trading activity.  However, I
did notice a few positions in the portfolio that may require
attention before options' expiration on Friday.  A number of
calendar and diagonal spread plays will need to be adjusted,
along with any short positions that are "in-the-money".  The
bearish call-credit spread in Pfizer (PFE) will also need to be
monitored closely in the event of a George W. Bush presidential
victory.  In addition, we had another winner in the Straddles
section.  Unibanco (UBB) rallied to a recent high near $29 and
the overall credit for the neutral position was $5.12, a $1.50
profit on $3.62 invested in less than one month.  The straddle
in Compass Bancshares (CBSS) also achieved a favorable turning
point this week, with the long call option paying for the entire
position as the issue approached a recent high near $22.  With
the stock trading near the top of a 30-day envelope channel and
a 52-week high, probability suggests that moving to a risk-free
bearish position (the APR-20 Put) is a viable adjustment to the
original play.

Questions & comments on spreads/combos to Contact Support
******************************************************************
                         - NEW PLAYS -
******************************************************************
WAT - Waters  $81.50  *** Reader's Request ***

Waters Corporation, through Waters Technologies, operates in the
analytical instrument industry, with extensive manufacturing and
distribution expertise in three complementary technologies: high
performance liquid chromatography instruments, chromatography
columns and other consumables, and related services; and mass
spectrometry instruments that can be integrated and used along
with other analytical instruments, especially HPLC; and thermal
analysis and rheology instruments.  Instruments comprise about
two thirds of the company's revenue, while consumable products
and services comprise the remaining one third.

A recent forward-looking article suggested that "smart money" is
betting on health care and major drug stocks next year, because
analysts say these sectors are least likely to be affected by a
worldwide economic slowdown and high energy costs.  Major drug
producers and companies that make analytical instruments used
by pharmaceutical developers will benefit significantly from
this trend and based on the recent performance of WAT's stock,
investors agree with that outlook.  One of our readers suggested
a position in this issue and with a favorable disparity in the
January premiums, this "deep-in-the-money" debit spread offers
excellent (conservative) speculation for traders who are bullish
on the company.


PLAY (conservative - bullish/debit spread):

BUY  CALL  JAN-60  WAT-AL  OI=0    A=$22.75
SELL CALL  JAN-70  WAT-AN  OI=270  B=$13.62
INITIAL NET DEBIT TARGET=$8.88-$9.00  ROI(max)=11% B/E=$69.00


******************************************************************
T - AT&T  $21.44  *** Reader's Request ***

AT&T Corporation provides voice, data and video communications
services to large and small businesses, consumers and government
entities.  AT&T and its subsidiaries furnish a range of domestic
and international long distance, regional, local and wireless
communications services, cable television and Internet services.
AT&T also provides billing, directory and calling card services
to support its communications business.  AT&T's primary lines of
business are business services, consumer services, broadband
services and wireless services.  In addition, AT&T's other lines
of business include network management and professional services
through AT&T Solutions and international operations and ventures.
AT&T recently completed the acquisition of MediaOne Group and
with the addition of MediaOne's 5 million cable subscribers,
AT&T becomes the country's largest cable operator, with about 16
million customers.

Telecommunications stocks rallied today, even as the majority of
technology issues consolidated.  Analysts say these stocks have
not seen the sharp rebound that other Nasdaq issues have enjoyed
over the last two sessions.  AT&T, Sprint PCS and Worldcom were
among the best performers and Lucent Technologies also climbed
higher amid rumors that it may soon be acquired by Nokia.  AT&T
has endured some rough treatment this year, falling to long-term
lows along with other giants in the telecom industry.  But with
the recent up-trend, there has been a spike in bullish options
activity and traders are once again speculating on AT&T's future
potential.  One of our readers requested a "Covered-calls with
LEAPS" play in the stock and since we already track the issue in
the Spreads/Combos portfolio, we decided to augment our position
as well.  Traders who enjoy time-selling strategies can use the
favorable option premiums to initiate a conservative, long-term
calendar spread.


Calendar Spread Basics:

The basic premise in a calendar spread is simple; time erodes
the value of the near-term option at a faster rate than it will
the far-term option.  A less neutral and more bullish type of
calendar spread is when the underlying issue is some distance
below the strike price of the options.  The outlook is aggressive
with low initial cost and large potential profits.  Two favorable
outcomes can occur: the stock rallies in the short-term and the
position is closed for a profit as time value erosion in the
short option produces a net gain or; the stock consolidates,
allowing the sold option to expire and then eventually rallies
above the long option strike price.

The strategy is best initiated when the near-term options are
trading at a premium with respect to longer-term volatility.
Most investors prefer to establish these positions at least 3-5
months before the long options expire, to allow the sale of a
number of short-term options.  The basic concept in this type of
spread is selling time value in the call options when they are
overpriced (high implied volatility) and buying it back, if
necessary, when the options return to intrinsic value.  Ideally,
the trader would like to have the stock finish just below the
sold strike when the near-term option expires.  However, when
the short-term position is in-the-money on the last day of the
strike period, you must buy it back so that you don't have to
exercise the long-term options to cover your obligation; that
would defeat the purpose of the strategy.  At the beginning of
each expiration period, you simply sell the next month's call to
further reduce the cost basis of the long position.


PLAY (conservative - bullish/calendar spread):

BUY  CALL  JAN02-25  WT-E  OI=18874  A=$3.62
SELL CALL  JAN01-25  T-E   OI=18320  B=$0.43
INITIAL NET DEBIT TARGET=$3.00  TARGET ROI=100% (12 months)

Note: There is also a bullish credit spread; JAN17P/JAN20P that
offers a favorable risk/reward ratio.


******************************************************************
     - TECHNICALS ONLY -

These plays are based on the current price or trading range of
the underlying issue and the recent technical history or trend.
The probability of profit from these positions is also higher
than other plays in the same strategy based on disparities in
option pricing.  Current news and market sentiment will have an
effect on these issues.  Review each play individually and make
your own decision about the future outcome of the position.

******************************************************************
AKSY - Aksys  $17.00  *** Blue Sky Territory! ***

Aksys provides hemodialysis products and services for patients
suffering from end-stage renal disease (ESRD), commonly known as
chronic kidney failure.  The company has developed an automated
personal hemodialysis system, known as the Aksys PHD Personal
Hemodialysis System, which is designed to enable patients to
perform daily hemodialysis at alternate sites, such as the
patient's home, and to thereby improve clinical outcomes, reduce
total ESRD treatment costs and enhance the patients' quality of
life.

There's not much news on AKSY to explain the recent recovery but
the technical indications suggest the issue has successfully
completed a recent consolidation and is poised for future gains.
In addition, the technical outlook for the Medical Instrument
group is excellent and the rebound has been on increasing volume;
both factors that lead us to a bullish position in the issue.
The favorable option premiums also help provide a low risk cost
basis with a reasonable expectation of profit.


PLAY (conservative - bullish/collar):

BUY  STOCK  AKSY  LAST=$17.00
SELL CALL   JAN-17.50  KQK-AW  OI=22  B=$1.62
BUY  PUT    JAN-15.00  KQK-MC  OI=0   A=$1.00
TARGET COST BASIS=$16.25-$16.38 ROI=14%(margin)




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**********
DISCLAIMER
**********

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DISCLAIMER

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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