Option Investor
Newsletter

Daily Newsletter, Monday, 12/18/2000

HAVING TROUBLE PRINTING?
Printer friendly version
The Option Investor Newsletter                   Monday 12-18-2000
Copyright 2000, All rights reserved.                        1 of 1
Redistribution in any form strictly prohibited.

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/121800_1.asp

Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        12-18-2000        High      Low     Volume Advance/Decline
DJIA    10645.40 +210.40 10679.90 10433.30 1.16 bln   1882/1083
NASDAQ   2624.52 - 28.75  2726.20  2597.47 2.07 bln   1604/2438
S&P 100   694.35 +  4.87   701.16   691.15   totals   3486/3521
S&P 500  1322.74 + 10.59  1332.32  1316.32           49.8%/50.2%
RUS 2000  463.25 +  5.22   464.58   458.03
DJ TRANS 2739.42 + 40.74  2753.01  2701.67
VIX        31.45 +  0.25    31.83    29.30
Put/Call Ratio      0.55
******************************************************************

All Eyes On Greenspan

The markets will turn their focus on the FOMC meeting tomorrow in
hopes of a rate cut from Greenspan and his elves.  At this point,
whether the Fed cuts rates is a tossup.  About a week ago, the
Washington Post reported that the Fed is unlikely to cut rates
this time around.  Instead, the Fed is expected to maintain a
neutral bias ahead of cutting rates later in January.  However,
an article in the Wall Street Journal this morning suggested
that the Fed may pursue a more aggressive stance at its meeting
tomorrow and actually cut rates.  That article helped to spur a
broad and significant rally across several sectors today, which
added credence to the Journal's claims.

Moreover, the Fed Funds Futures are now discounting about a 50%
probability of an ease tomorrow.  Those same futures have already
discounted a full two rate cuts by at least this spring.  The
bottom-line is a cut in interest rates is coming, but the question
remains as to how soon the Fed will move, which brings us back to
tomorrow's meeting.  Traders should pay heed to the ramifications
of an interest rate cut tomorrow.  If the Fed does cut rates,
we'll likely see an extended rally in the most interest rate
sensitive groups such as financials, utilities, and consumer
product makers, among others.  On the other hand, if the Fed
merely shifts its bias to neutral and doesn't cut rates, we
could see a pullback in the aforementioned groups as the usual
"sell the news" crowd surfaces.  The impact of a rate cut on
the likes of financial and consumer product makers is rather
obvious, but the impact on the tech names is a little more
clouded.

As we witnessed today, after the Wall Street Journal's
suggestion of a rate cut, the interest rate sensitive groups
rallied, but the Nasdaq rolled over.  The poor action in the
tech sector today is a direct reflection of the deteriorating
fundamentals in that group.  Continued earnings warnings, bearish
news and analyst downgrades are weighing on the Nasdaq.  And If
the Fed does actually cut rates tomorrow, the impact on the tech
sector is harder to game.  Any rally off the news of a rate cut
tomorrow could be met with heavy selling as we've witnessed time
and again in the Nasdaq over the last several months.  Until the
last of the tech generals warn, and all the bad news is discounted
in the Nasdaq, the path of least resistance may remain to the
downside.  That's the problem we face with the Nasdaq tomorrow if
the Fed actually does cut rates.  The tech sector is still
coping with poor fundamentals, but will an interest rate cut be
enough to shift sentiment in the near-term?

If there's one positive event we can write about in the Nasdaq,
it's the fact the tech-heavy index bounced off support at the
2600 level for the second consecutive day.  It was somewhat
reassuring to see the buyers step in at 2600 and carry the
Nasdaq higher.  At least we know some institutions are willing
to let the Nasdaq fall only so far before stepping up and taking
some stock in.  We'll be watching the action in the Nasdaq around
the 2600 level very closely tomorrow to see if it continues to
hold.  If 2600 does fail, the next likely level of support will be
found at 2567, which was the low on December 4th.



The weakness in the Nasdaq today can be attributed to the further
signs of the worsening fundamentals we mentioned above.  Terayon
(TERN), a maker of broadband network systems, warned this morning
that it wouldn't meet its estimates for the fourth-quarter.  The
company blamed its shortfall on an unexpected slowdown in sales
and on canceled orders from cash-short customers.  Although
Terayon is not considered a big player in the networking space,
its warning caused a widespread sell-off among others in its
sector including Avanex (AVNX), Sycamore (SCMR), Ciena (CIEN),
Extreme (EXTR), and the mighty Cisco (CSCO).  Shares of Cisco
were hit especially hard with a 10% loss.  The stock fell over
$5 and was responsible for much of the losses in the Nasdaq
Composite (COMPX).  The sell-off in Cisco today reinforces just
how hard it is in the tech sector right now.  Not too long ago,
Cisco reported earnings that beat estimates (as usual) and
actually raised guidance for 2001 - its shares now sit at a
new 52-week low after today's session.

Time Warner (TWX) joined the ranks of company's to preannounce
an earnings shortfall.  The media giant said it would fall
short of earnings this quarter due to weakness in advertising,
softness in music sales and losing money of its recent box
office bomb, "Little Nicky."  Time Warner's merger partner,
America Online (AOL), reaffirmed guidance for its fourth
quarter.  Despite the reassurance from AOL, shares of the two
merger partners both fell by about 13%.

Despite the two above-mentioned warnings in the tech and
media sectors, the prospects of a rate cut tomorrow powered
the Dow Jones Industrial Average (INDU) higher.  Every
financial component in the INDU enjoyed gains, which included:
JP Morgan (JPM), American Express (AXP) and Citigroup (C).
Among many others, the three aforementioned financial names
will be ones to watch ahead of the Fed meeting tomorrow.

The highly-visible diamond formation from which the INDU
broke to the downside last week has now turned into resistance
for the interest rate sensitive index.  In fact, the INDU
rolled over right near its previous support line this afternoon
as profit takers locked in their recent gains.  The key levels
to watch tomorrow in the INDU will be today's intraday high at
10,679 followed by the 10,700 level, with the latter a
psychologically and technically significant level.  If the INDU
can break back above its previous support line, it has a good
shot at retesting its near-term highs around the 11,000 level,
especially if the Fed cuts rates.



Also worth noting this evening is the Electoral College's vote
to certify George W. Bush as the next president of the United
States.  Some traders had speculated that foreign investors
would wait until Bush was officially certified before moving
capital back into the domestic markets.  The news tonight might
help to give equities a lift tomorrow if the foreign investors
haven't already moved back into the U.S. markets.

As we've been writing, the markets will trade around the FOMC
meeting tomorrow, which is expected around 2:15 EST.  Whether
the Fed actually lowers rates is at best a guess right now.
Although the Wall Street Journal's article this morning lends
to that course of action, it's still up in the air.  It's
impossible to say with certainty what the Fed will do.  The
market has discounted a shift to a neutral bias, but not a cut
in rates.  And with that uncertainty comes greater risk for
options traders who choose to take positions ahead of the
announcement.  The more prudent and less-risky approach would
be to wait for the official announcement from the Fed before
betting on either direction in the markets.  As we've detailed,
the direct and almost immediate beneficiaries of a rate cut
are likely to be financials, consumer products makers, and
utilities, among others.  If the Fed does actually cut rates,
those groups of stocks will likely enjoy a sustained rally
that can be taken advantage of after the announcement.  On
the other hand, if the Fed just shifts its bias, we're likely
to see a sell on the news event, in which case the
aforementioned sectors pullback.  In either case, it's very
crucial in the current market environment to trade with the
prevailing trend.  Let the market dictate!

As for the tech sector, there's still a lot of uncertainty in
that group of stocks in the form of earnings worries and
continued bearish sentiment.  A cut in rates, at this point
in time, may not be enough to kick the Nasdaq into rally
mode.  Then again, sentiment can shift rather quickly, so it's
key to be on your toes and very nimble in the Nasdaq.

With continued weakness in the leaders of the Nasdaq such as
Cisco, Sun Microsystems and Microsoft, it will be hard for
that index to sustain a substantial rally.  But that doesn't
mean the upside moves cannot be traded.  What it does entail,
however, is discipline!  Consider entry points carefully,
calculate risks and gauge exit points.  For those who continue
to operate in the Nasdaq, it's best to do so without any
emotion.  By planning ahead - before the trade - a lot of
emotion can be removed.

Whatever transpires tomorrow, it's sure to be exciting and
provide plenty of opportunities to profit.  Let the market
be your guide and good luck!


Eric Utley
Assistant 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
to the Option Investor Newsletter. The total price for this
offer is still only $349 which is the regular annual subscription
price for the newsletter. The additional $169 of merchandise and
subscriptions are free as an added value!

Click here for more info:

http://secure.sungrp.com/01renewal.asp


The terms of the offer are simple. Just renew your OptionInvestor
subscription for the annual rate of $349 ($29.08 mo) by Dec-31st
and you will get all the free stuff.

The supply of mouse pads and almanacs is limited so renew now
to avoid any delay.

You know the newsletter is the best source for option plays,
timely market commentary and educational articles. Don't
wait until the supplies are gone! Renew now!


http://secure.sungrp.com/01renewal.asp


************************Advertisement*************************
Try Investor's Business Daily today! Click here for 10 FREE
issues. No obligation. Nothing to cancel.
http://www.sungrp.com/tracking.asp?campaignid=1128
**************************************************************


*************
NEW CALL PLAY
*************

QCOM - Qualcomm Inc. $85.44 +5.88 (+5.88 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.

There's nothing like a little innovation, and some positive
comments from analysts to get a stock going.  Despite a
lackluster day for the NASDAQ, shares of QCOM got a boost from
news that it had developed a new technology, which will cut the
number of parts necessary to build their CDMA products.  Less
parts needed means lower costs to build a product leading to
wider profit margins and a higher bottom line.  This was bad news
for supplier Sawtek, but good news for QCOM.  What's more, First
Union Securities issued a report outlining its Strong Buy rating
and $90 price target on QCOM today.  Expectations of new licenses
from Korea, QCOM's improving position as the next generation
standard for wireless communications in W-CDMA and possible
interest from CSCO in CDMA technology are just some of the
reasons for the bullish outlook.  With that, QCOM closed the day
up 7.38 percent and in doing so, is back above the 200-dma at
$84.46.  With expectations of more good news ahead, support
appears to be strong at the 50-dma, now at $79.75.  We are
placing our stop right below this point, at $79.  An aggressive
entry could be had on bounces off the 50 and 200-dma.  A bounce
of $85 and $80 could also serve as possible targets.  For a more
conservative entry, look for QCOM to break through resistance
from the 5-dma at $87, backed by strong buying volume, before
taking a position.  Ideally, an entry should be made only with a
NASDAQ moving in the right direction accompanied by buying
volume.

BUY CALL JAN-80 AAF-AP OI= 7619 at $12.00 SL=9.00
BUY CALL JAN-85*AAF-AQ OI= 8173 at $ 9.38 SL=6.50
BUY CALL JAN-90 AAF-AR OI=10471 at $ 7.13 SL=5.00
BUY CALL FEB-85 AAF-BQ OI=    0 at $12.25 SL=9.00  Wait for OI!!
BUY CALL FEB-90 AAF-BR OI=    0 at $10.38 SL=7.50  Wait for OI!!

SELL PUT JAN-75 AAF-MO OI= 5311 at $ 4.00 SL=6.00
(See risk of selling put in play legend)

http://www.premierinvestor.com/oi/profile.asp?ticker=QCOM


****************************
NEW LOW VOLATILITY CALL PLAY
****************************

G - Gillette Company $34.81 +1.00 (+1.00 this week)

The Gillette Company is a globally focused consumer products
company that seeks competitive advantage in quality, value-added
personal care and personal use products.  They compete in three
large, worldwide businesses: personal-grooming products, consumer
portable power products and oral care products. They are
committed to a plan of sustained sales and profit growth that
recognizes and balances both short and long-term objectives.
Their mission is to achieve or enhance clear leadership,
worldwide, in the existing or new core consumer product
categories in which they choose to compete.

One of Warren Buffett's favorite companies, shares of Gillette
have held up well this year despite the shaving that many stocks
have had.  In times of uncertainty, traders and investors alike
prefer to move to those areas which are perceived to be safe
havens.  Today, the company announced a major restructuring, in
an effort to increase its cash flow position and accelerate its
earnings growth.  As part of the plan, the company closed down a
number of plants and cut 8 percent of its workforce.  According
to comments from the acting CEO, the restructuring program
should, "accelerate earnings gains, thus maximizing shareholder
value."  With that, traders bid the stock up almost 3 percent
today on 180% of ADV, despite lowered estimates from Credit
Suisse First Boston going forward.  Support just above $33 should
hold up well, with the 10, 50 and 200-dmas reinforcing that level.
But just in case, we have placed our stop price at $32.  A
bounce off these levels could provide for an aggressive entry but
for those looking to enter on strength, look a break through its
today's high of $35.13 with conviction.  From there it could be a
quick trip to its next resistance at $37.  Confirm direction with
that of the Dow when making a play.

BUY CALL JAN-25 G-AE OI= 2017 at $10.00 SL=7.00
BUY CALL JAN-30 G-AF OI= 3821 at $ 5.38 SL=3.50
BUY CALL JAN-35*G-AG OI=10277 at $ 1.75 SL=1.00
BUY CALL FEB-30 G-BF OI=    0 at $ 5.75 SL=4.00  Wait for OI!
BUY CALL FEB-35 G-BG OI=    0 at $ 2.38 SL=1.25  Wait for OI!

http://www.premierinvestor.com/oi/profile.asp?ticker=G


************
NEW PUT PLAY
************

AMCC - Applied Micro Circuits $65.50 -2.00 (-2.00 this week)

Fulfilling the need for speed, AMCC is a global provider of
high-performance, high-bandwidth integrated circuits used to
control the high-speed flow of transmissions through fiber-optic
telephone networks.  Communications products, used in LANs and
WANs, account for 55% of the company's sales.  The company's
chips are also used in automated test equipment, high-speed
computing, HDTV, and military applications.  The company which
is growing through acquisitions, has a top-flite client list,
including Nortel, Raytheon, Alcatel, Cisco, 3Com and Lucent.

There has been no safe haven for Technology investors lately,
with one sacred cow after another falling from grace.  Fears
that a slowdown in corporate IT spending will affect even the
strongest players has had an unpleasant effect on shares of
AMCC, and it is on the verge of another technical breakdown.
The company has continued to surprise the street over the past
few quarters, and revenue growth is currently (as of the October
quarter) growing at better than 150% year-over-year.
But in a negative economic climate, investors are less willing
to assign such high valuations (AMCC's PE ratio is still above
280) to even the most stellar growth stocks.  Networking stocks
led off the month of December with what looked to be a powerful
rally, and AMCC managed a 63% recovery off its $46 low.  The
move through the 200-dma ($69) proved to be a head-fake, and the
weakness over the past week has pushed our new play back below
this critical level.  Over the past week, AMCC has been
threatening to break back under the $65 support level, and if it
does, this looks like an ideal point to initiate new positions.
Resistance at $70-72, combined with the 200-dma should cap any
short-term rallies unless there is a broad recovery in
Networking stocks.  We have placed our stop at $73, and a failed
rally near this level could provide an attractive entry for more
aggressive players.  Weakness in CSCO, which hit a new yearly
low today, has been a powerful negative effect on the entire
Networking sector, and further losses in the share price of this
technology bellwether will make it hard for any of the players
in this sector to move higher.    Keep in mind that AMCC has the
ability to post double-digit daily moves, making this a higher
risk play.  Keep an eye on the Networking Index (NWX.X) and make
sure it is still showing signs of weakness before playing.  AMCC
is affected by moves in the Semiconductors as well, so weakness
on the Semiconductor Index (SOX.X) could also pressure our play
to the downside.  If both the SOX.X and NWX.X are headed south
with AMCC falling through support, that will be a strong
confirming indicator for players to initiate new positions.
Fighting the trend in this market can be disastrous, so trade in
the direction of the market and the above-mentioned indices.

BUY PUT JAN-70 AZV-MO OI=670 at $12.00 SL=9.00
BUY PUT JAN-65*AZV-MN OI=780 at $ 9.13 SL=6.25
BUY PUT JAN-60 AZV-MM OI=517 at $ 6.75 SL=4.75

http://www.premierinvestor.com/oi/profile.asp?ticker=AMCC


*****************
STOP-LOSS UPDATES
*****************

LH - call play
Adjust from $149 up to $158

EMC  - put play
Adjust from $72 down to $69

ARBA  - put play
Adjust from $73 down to $66


*************
DROPPED CALLS
*************

BRCM $105.44 -17.69 (-17.69) Resistance at the 5 and 10-dmas (now
converged near $125) proved to be too formidable for the stock,
as weakness in communication chips companies, including peers
such as CNXT and TQNT was too much for BRCM to overcome.  Falling
over 14 percent on over 150% of ADV to close near its lows of the
day, the stock did manage to say above the key psychological
support level of $100.  However, the volume accompanying today's
move down, the break below its recent up-trend line and the close
below our stop price of $129 puts this play on the drop list.
Look for a bounce from oversold conditions tomorrow as a possible
opportunity to exit.

RBAK $71.31 -11.69 (-11.69) A failed rally above 5-dma resistance
(now at $82.56), along with overall weakness in DSL-related
issues such as CMTN and GSPN conspired to lead RBAK lower,
despite the announcement of a new customer in Hargray
Communications.  For the day, RBAK fell over 14 percent on 128%
of ADV and in doing so, closed below our stop price of $74. The
strong selling right at the close was not a good sign either.
While there is support for the stock at the $69-70 area, the
selling volume suggests that it could test strong support at $60.
Instead of waiting for that to happen, we are taking our money
off the table to put towards plays with upside potential.

A $57.00 +0.13 (+0.13) The high visible resistance level at $60
is proving to be a formidable hurdle for our play on A.  The
stock's inability to trade above that level has us a bit
concerned that a rollover may transpire in the near future.
Instead of waiting around to see our hard-earned profits
dissipate, we're locking in gains that may have been earned
since picking up A around $51.  Traders may elect to jump ship
early tomorrow if A experiences any weakness in order to lock
in profits.  Otherwise, if the stock advances, consider fading
into any rally up to the $58 resistance level.

MEDX $46.88 -1.81 (-1.81) We're growing concerned with MEDX's
continued failed attempts to close above the $50 level.  The
stock attempted to get above that level this morning only to
fail once again.  What's more disconcerting is the fact MEDX
traded down below our stop at $45 while the broader Biotech
sector enjoyed a solid day.  And although MEDX didn't settle
below our protective stop, we're electing to drop the play
tonight in light of its poor relative performance.  If MEDX
falls below the $45 level early tomorrow, consider exiting
existing positions.  On the other hand, if the stock
advances, look for exit points near resistance at $47.50 or
slightly higher near $48.

SCMR $50.13 -5.06 (-5.06) The unforeseen earnings warning
from competitor Terayon (TERN) sent our recently-added SCMR
play into a tailspin this morning.  Although SCMR actually
gapped higher this morning, along with the rest of the
NASDAQ, the sellers came in with full force near the $58
level and subsequently drove SCMR near our protective stop
at $49.  Although SCMR didn't close below that level, we're
dropping coverage on the play tonight in order to prevent
any further damage.  Look to exit any existing positions on
a relief rally ahead of the FOMC meeting tomorrow.

AOL $42.24 -6.72 (-6.72) Despite reaffirming its guidance, AOL
fell victim to its merger partner's earnings warning this
morning.  Time Warner said it would fall short of its current
quarter estimates due to several factors.  The news results in
both stock shedding more than 13% and closing near their day
lows.  We had our stop set at $45 for AOL, and hopefully that
alone allowed for traders to exit existing positions and lock
in any profits that may have been earned since we initiated
coverage.  If the stop didn't get you out, use any bounce
tomorrow as an opportunity to exit positions.


************
DROPPED PUTS
************

KMB $66.00 +1.50 (+1.50) In spite of its weak technical
position, we're dropping coverage on KMB tonight.  The stock
rallied today on the prospects of an interest rate cut
tomorrow.  Volume was a little tepid as KMB failed to close
above its 10-dma near $66.25.  Those two facts may portend a
rollover in tomorrow's session before the FOMC announcement.
If the sellers do return, look to exit existing positions on
any weakness.  Conversely, if KMB continues to advance look
to exit positions on any move above $66.50 - our stop.


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

Virtual Trading: A Free Education (Well, Almost)
By Austin Passamonte

A rash of recent email questions prompted me to write this article
instead of the intended topic covering ITM/OTM contracts. We will
visit that one real soon, but I feel this one takes priority
first.

We've all heard how record levels of cash have recently been
piling on the sidelines. Not all is from market pros. A share of
that belongs to brand-new traders trying to break into our
profession. We welcome any & all with wide-open arms and feel
compelled to help them get started on the right foot.

People are accepting of the fact that they need a four-year
college education before beginning most any professional career.
Doctors, attorneys and other high-level professions require much
more study beyond this. Such education comes at a high cost in
tuition dollars. Most college students readily assume massive debt
before ever expecting to earn their first career penny years down
the road.

Not so when it comes to trading. The overwhelming misconception
has always been that if one has money to "play" with, they are
ready to elbow-in beside the big boys. A profession complex as
trading is dismissed as nothing more than a game.

This approach will almost always result in great financial pain if
not outright devastation over time. Yes I know how many stock
players and call-option buyers recently got filthy rich while
knowing little or nothing about trading. I'm aware of the week
long, day-trading "crash courses" guaranteed to teach all the
secrets to winning the greatest game.

Most of those ignorance-to-riches stories we heard prior to March
2000 have turned once again to rags or worse as rich but still
ignorant traders eagerly bought every dip this year on a long
escalator down. Accounts have suffered six, seven and eight-figure
losses from people I'm familiar with who only knew how to play in
a straight-up bullish market.

They were sheep in the pasture, gleefully sheared by a bear market
that reclaimed much, most, all and then some of recent financial
winnings. Who lies squarely to blame? Traders that refused to
become students of their profession need only look in the nearest
mirror for that answer.

A career trading any financial market can either be the highest
paying effort you'll ever enjoy or the lowest paying work you'll
ever suffer through. Which of those you experience is totally up
to you.

An education in trading options will only cost whatever amount you
are willing to spend. I'm going to outline an approach here that's
cheaper than monthly meal (beer) money at any college. Or you can
simply open an account with $X thousand dollars and the markets
will happily teach you the same things in exchange for your
account balance.

I'm going to take a wild guess here: Is it possible that any new
trader feels he/she is different, that they can just stick some
money in an account and learn to trade on the run while profits
steadily accrue? What are the chances anyone has ever thought such
a thing?

Legions of us are here to testify that this feat is almost
impossible over time, any more than a year of medical school
prepares one for a long-term surgical career.

Type-A personalities with visions of get-rich-now dancing in their
heads already clicked away from this article to scour the naked
puts section for hot plays. They refuse to believe a painful truth
but rest assured it will be learned one way or the other. If not
here, it will be evident within their accounts before long.

I began trading options after more than a decade of following
commodities and stocks. They taught me enough to know that I had
plenty to learn in this new venture. I began trading options with
pencil & paper, and strongly suggest you do the same.

The very best way to learn mechanics of options trading is by
setting yourself up in a virtual world and holding yourself honest
and accountable to "actual" results.

You will need a chart service and quote feed. That part is easy:
you can use the live chart applets found within OIN and IS to do
so. They also provide specific option-contract prices as well. All
quotes beyond the major indexes are delayed but that's fine for
paper trading. No extra cost for tools than monthly subscription
to one/both websites.

Then you need a couple of notebook tablets, pencils and a simple
calculator. That's it; trading college is now open in the luxury
of your own home. I configure one notebook to look like this on
each page. You might modify & duplicate to print out yourself:


Date: 12/18/00
Account Balance: $10,000

New Trade
Market: QQQ
Call/Put: two Jan 64 Calls
Symbol: QUE-AL
Entry Price: 4.00
Stop loss: 2.00
Exit Price: 8.00
Result: sold @ 8.00 on sell-limit order

Comments: "I expected the index to rally based on charts signals,
news reports and pre-FOMC expectations of a rate reduction"


Date: 12/18/00
Current balance: $11,600

New Trade
Market: OEX
Call/Put: one Jan 710 Call
Symbol: OEZ-AB
Entry Price: 19.00
Stop loss: 14.50
Exit Price: 25.50
Result: Open

Comments: "I saw a double-bottom form on the daily charts as my
favorite technical signals indicate we should move higher soon."

This is how I began to virtual trade. I would analyze the markets
to the best of my limited ability, decide what to buy and "open"
the play. Stops and sell targets were chosen and the "purchase"
deducted from my virtual starting balance to adjust buying power.

The "comments" section was especially valuable. It records market
outlook and thoughts prior to luxury of hindsight. I listed all
reasons I could possibly think of to justify each trade. It should
surprise no one that many of the losers were entered simply on a
whim with no clear technical or fundamental evidence to support my
decision.

Written record is paramount to keeping ourselves honest. It's a
natural human desire to forget about or erase bad trades in order
to make ourselves feel good. This is especially true in the
beginning when we lack experience and confidence bred from long
history of actual wins & losses.

Burying bad trades and tweaking written decisions to reflect a
better result in the virtual world is akin to shaving scores on
the golf course. While I will never admit to doing either (high-
grade shredder in my office), it does nothing but harm when live
on the golf course or in the markets where actual results depend
on our ability to perform.

If you're like me, you will delve into this and discover a number
of vital facts. The first may be how easy it is to lose money in
the process. A second could be that sure-thing trading approaches
touted in books and videos have plenty of "catches" in the real
world. Another might be that the trading approach you thought
would suit you best actually doesn't.

These can either be learned at the cost of paper, pencil & spare
time of massive chunks of your trading account instead. Which
tuition price sounds better to you?

Even now I would not consider trading any new markets or approach
without following it in virtual form until comfortable. Why would
I? Experience and expertise in one area does not carry over 100%
to any others that I've ever seen. Nuances are vast and all come
at a price. I will never be above "paper-trading" new ideas. Ego
will not get in the way of my wallet when it comes to trading.

Baseball players and golfers practice their swing. Musicians
practice their notes. Bungee jumpers practice... well, they just
get drunk and have at it. Option trading is not bungee jumping.
Please practice before you leap! You have every prudent veterans
permission to do so, and the markets will patiently wait. We
promise. Best trading wishes!

Contact Support


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

Learn how to invest in the OEX, QQQ, and SPX.  Get intraday
market updates, plays, education and daily commentaries by
those who know.

Sign up for a two week free trial and see for yourself at
IndexSkybox.com:
http://www.sungrp.com/tracking.asp?campaignid=1162
************************************************************


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

LH - Laboratory Corp. of America $163.75 +6.69 (+6.69 this week)

Laboratory Corporation of America Holdings (LabCorp) is the #2
clinical laboratory service in the world, behind Quest
Diagnostics.  LH performs 2000 types of tests for more than
100,000 clients, including health care providers, pharmaceutical
firms, physicians, government agencies and employers.  With 25
major laboratories and some 1200 service sites nationwide, the
company emphasizes specialty and niche testing such as allergy
tests, HIV tests, blood analyses, and substance abuse
screenings.

Most Recent Write-Up

Relative strength is the name of the game in this market.  While
the major indices cratered again on Friday, LH managed to eke
out a gain on the day.  Granted, it was only $0.06, but a gain
is a gain.  As the #2 clinical laboratory service in the world,
LH has ridden the wave of enthusiasm for Medical stocks for a
nearly 300% gain since the April lows.  The new growth industry
seems to be anything tied to the Health Care industry, and LH is
winning big time, providing the tests necessary for everything
from blood tests to HIV testing.  Driving the increase in the
stock's value has been good old earnings.  The company has handily
beat estimates the last 2 quarters, and with the current demand
for medical testing and services, this looks like a trend that
will continue.  The up-trend that has been in place since the
April lows has continued to provide a predictable trading range,
and looks like it will continue to do so into the end of the
year.  The sharp drop in the broader markets on Friday dragged our
play down to test our $149 stop, from which it sharply rebounded,
gaining back all of its intraday losses, plus a little bit extra by
the close.  This was an ideal entry point for aggressive traders,
as the same pattern could be seen in the share prices of
competitors DGX and PPDI.  Additional intraday dips that are met
with strong buying look attractive for new entries in the week
ahead.  Watch LH's primary competitors, DGX and PPDI, for
confirmation of strength in the Medical Testing sector.  More
timid players will want to wait for LH to trade through the $160
resistance level before taking a position, and then ride the stock
up to the top of the channel, near $168.

Comments

LH's relative strength came through again Monday as the stock
traced yet another all-time high.  That strength has carried LH
through tumultuous markets this year and may continue to do so
into the end of the year.  The markets will likely be volatile
ahead of the FOMC meeting tomorrow and we're looking to take
advantage of LH's steady trend ahead of that meeting.  Given
LH's rally Monday, a pullback is likely early Tuesday, in which
case traders may look for bounces off support near $160 or
lower near the $155 level.  We've raised our stop to $158, so
make sure LH rebounds if it does fall as low as support at $155.
Additionally, entries may be found on a move above $165 or today's
high at $166.75.

BUY CALL JAN-155 LH-AK OI=877 at $18.13 SL=13.00
BUY CALL JAN-160*LH-AL OI= 34 at $15.13 SL=11.00
BUY CALL FEB-155 LH-BK OI= 50 at $23.88 SL=18.00
BUY CALL FEB-160 LH-BL OI=  1 at $21.25 SL=16.00

http://www.premierinvestor.com/oi/profile.asp?ticker=LH


************************Advertisement*************************
Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?

Trade instantly with Stop Losses at Preferred Capital Markets
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with Preferred Capital

Anything else is too slow!

http://www.sungrp.com/tracking.asp?campaignid=1141
**************************************************************


*******************
FREE TRIAL READERS
*******************

If you like the results you have been receiving we
would welcome you as a permanent subscriber.

The monthly subscription price is 39.95. The quarterly
price is 99.95 which is $20 off the monthly rate.


We would like to have you as a subscriber. You may
subscribe at any time but your subscription will not
start until your free trial is over.

To subscribe you may go to our website at

www.OptionInvestor.com

and click on "subscribe" to use our secure credit
card server or you may simply send an email to

 "Contact Support"

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the
information over the phone.

You may also fax the information to: 303-797-1333


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

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
tp://www.OptionInvestor.com/disclaimer.html

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.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives