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Daily Newsletter, Tuesday, 12/19/2000

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The Option Investor Newsletter                  Tuesday 12-19-2000
Copyright 2000, All rights reserved.                        1 of 2
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************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
        12-19-2000        High      Low     Volume Advance/Decline
DJIA    10584.40 - 61.00 10784.60 10582.80 1.32 bln   1468/1435
NASDAQ   2511.71 -112.81  2696.61  2509.76 2.31 bln   1339/2658
S&P 100   694.35 -  7.50   709.38   686.48   totals   2807/4093
S&P 500  1322.74 - 17.14  1346.44  1305.20           40.7%/59.3%
RUS 2000  463.25 -  4.47   466.91   458.42
DJ TRANS 2777.76 + 38.34  2825.68  2740.61
VIX        30.73 -  0.72    31.79    28.92
Put/Call Ratio      0.76
*************************************************************

Grinchspan fails to lower rates, markets vote for impeachment!

It was ugly, very ugly. With the expectation of innocent children
on Christmas morning traders begin buying selected stocks this
morning in anticipation of a rate cut. Even after being told over
and over that the Fed would probably not cut rates in December
without an overwhelming reason to do so, there was still the
irrational hope that the professionals were wrong. Fed Funds
futures indicated only a 35% chance of a cut but investor
sentiment was running as high as 75%. Alas, no cut was made and
with the shock equivalent to children unwrapping boxes of coal
on Christmas morning investors were met with bottomless stock
prices after the announcement. The sentiment was so great in
anticipating a cut that even a bias change that skipped neutral
and went immediately to a recession bias and an indication that
the next move would be a cut had no impact. There was the instant
volatility associated with a Fed decision which knocked the Dow
off its triple digit gains but the markets attempted to rally on
the bias change. Unfortunately, the more the news was analyzed,
filtered, cussed and discussed, the analyst outlook became negative.
In a word, the Fed failed to respond to what many see as an impending
recession and crash landing. Now they feel the Fed is behind the
curve and with the next meeting not until Jan-30th we are in for
yet another month of worsening economic conditions and a sinking
market. Merry Christmas to you too, Mr. Grinchspan.













As if on cue there was a flood of earnings warnings after the
close. As if waiting for a possible rate cut announcement to
blunt the expected carnage to their stocks there were several
whose worst fears came true. Heading the list was Jabil Circuits
which announced earnings after the close and missed street estimates
by two cents. The stock dropped from the $28 close to $22 in after
hours. Vishay (VSH) warned that slowing orders, delayed delivery
dates and cancellations would cause it to miss earnings going
forward. MERX warned that a slow down in customer demand would
cause it to miss earnings significantly and the stock dropped
from $25 to $12 losing half its value. PKE did not warn but after
the flood of negative news investors fled the stock before its
expected earnings report on Wednesday morning knocking more than
-$15 off its $35 stock price.

In perhaps the worst news of the day Foundry (FDRY) warned after
the close that changes in spending patterns over just the last
couple of weeks will cause them to miss estimates substantially.
Spending patterns in high performance Internet protocol communications
equipment were changing drastically. Why not just say an asteroid
will impact Wall Street at 9:31 Wednesday morning? Remember the
comments I made last week on CSCO and the impact of a CSCO statement
like this? It would be the end of the sector as we know it, probably
several sectors. Well the FDRY warning tonight may not be as bad
as the same statement from CSCO would be but at the open tomorrow
you may not be able to tell the difference. In after hours trading
other stocks in this sector were taking serious hits. JNPR -10 to
$104, EXTR -12 to $34, RBAK -6 to $49, BRCD -8 to $158, CSCO down
from an intraday recovery high of $46 to $40 and a new 52-week low.
Even stocks that are not directly related to FDRY are suffering.
SUNW, which has had more than its share of problem lately dropped
to yet another 52-week low of $26.25 in after hours trading.
Even YHOO which has nothing to do with networking dropped over
-$1 to a new low of $26.81. FDRY now trading at $16 was $220 in
March.

The fiber optic sector was also hammered today but not from a
forecast of a slow down. Ciena announced it was buying CYRAS for
$2 billion in a move that analysts liked but the stock dropped
-23 on worries that immediate earnings would suffer. The sector
fell after analysts pointed out that this would put CIEN higher
up on the food chain and enable it to compete against giants
like CSCO across the entire Internet spectrum. Could be buying
opportunity here? After trading at $120 last week a $70 CIEN
on Wednesday would look like a bargain. After doubling from the
previous low of $66 in November, traders may be drooling at the
possibility of doing it again.

The Dow suffered an early morning dip after SBC, a current put
play, warned that it would miss earnings and dropped -7 at the
open. After struggling back on the strength of financials and
rate cut hopes the Dow was hovering at +130 when the announcement
came. Fears of being 45 days closer to a recession before the
Fed will take action, ended up knocking -200 points off the high
of the day before being saved by the bell. The Nasdaq closed at
a new 52-week low of 2511. There were 329 new lows on the Nasdaq
and with the post close news we expect even more tomorrow. So
far this quarter there have been 395 earnings warnings from Nasdaq
stocks which is +78% higher than last year. The Nasdaq has dropped
for six sessions straight and has lost an even -500 points since
closing at 3014 last Monday. Can you say extremely oversold? Are
we there yet? I doubt it. The selling is not limited to the Nasdaq
anymore. The S&P-100 and S&P-100 both set new 52-week closing lows
which show the broader market is far weaker than the Dow numbers
would suggest.

Without a rate cut the outlook for the next two weeks is grim.
With millions of traders clinging to the hope that a rate cut
would provide an explosive rally and power their seriously broken
stocks out of the dumps and back into respectability there was
a collective groan at 2:15 today. Now faced with more weakness
before year end the urge to simply sell the losers and take the
tax loss rather than endure the brain damage of waking up every
day to yet another low will be very strong. Tax selling could
begin in earnest tomorrow. With only seven trading days left in
this year and two of those with very light volume the urge to hurry
may come over night. There is a bright side to this story. Cash
is still piling up on the sidelines as stocks get cheaper and
once the tax selling is over the temperature of cash in your
pocket increases about +100 degrees per day. Once free of the
black holes in their portfolios investors should start to look
for the stocks that will recover quickest in January when funds
are forced to apply the retirement cash. While the markets may
be very rocky the next day or two there is light at the end of
our tunnel. You have to go back to August-10th of 1999 a lower
close at 2490 and June-15th before that. We have given back
the entire 100% gain since the fall of 1999. What would you
have given in March of this year to have a time travel buying
opportunity to go back to March-1999?

For those of us with cash the future is bright. Once this storm
of tax selling is over there is only upside to consider. A sub
2500 Nasdaq is a bargain. SUNW 26, YHOO 27, CMGI 6, DELL 17,
ORCL 30, MSFT 44, INTC 33, CSCO 40, JDSU 50, CIEN 70, BRCM 90.
As investors we should be ecstatic! Is the tech revolution over?
Did the Internet go the way of the CB radio? Have electrons
developed a distaste for copper? Not hardly! There is a bottom
here somewhere and the markets WILL start betting on the eventual
Fed rate cut. It is just a matter of time. If you were long today
then lick your wounds, clean off your desk and start your after
Christmas shopping now. Shopping, not buying. Start planning your
plays based on a longer term perspective and get ready to reap
some huge profits when this bear market finally goes into
hibernation. The general public is shivering in the severe cold
now gripping the U.S. Their focus is on staying warm today. Very
few are thinking about spring only a few short weeks ahead.
Investors are more forward thinking than the general public.
They buy stocks based on returns months and years in advance.
We should be doing the same thing as option traders. We KNOW
that we will have a change in rates by April earnings. Stocks
will be higher, possibly much higher. My point here is to urge
you to shake off the negativity of the talking heads and plan
ahead. This is the ultimate Survivor game. Your challenge is
to Outwit, Outplay and Outlast the common investor. Your job
is to succeed were other fail. When common investors drop out
and run back to mutual funds or money market funds you will
win the rewards that others only dream of.

Ok, enough of the pep talks. You know the facts, now profit from
it! I will leave you with a piece of good news. Historically
the days around major holidays are bullish. The two days before
and three days after Christmas are normally up. Granted, a
continued flood of bad news may limit any historical repeat
but something about the joy of the holidays, not to mention
the Christmas bonuses, tend to fuel optimism in the markets.
The next two days may provide the best opportunity for entry
points for the rest of the year. Got your checkbook out?

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
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:

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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 mousepads 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


************************************
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
****************

Sometimes It's Easy
By Austin Passamonte

Successful trading can be a very challenging venture over time.
Darn good thing we occasionally get to enjoy days like these!

Whether the Fed should or shouldn't have lowered interest rates is
beyond our individual control and therefore concern; WHAT they
choose to do means everything in the world to small traders. The
results are something we do have direct control over, and thank
heavens for that.

Also, who actually thought odds were above 50/50 that we would see
any cut? Fed-Funds futures didn't forecast that and historical
behavior of the Fed as noted on CNBC all day tipped the scales
firmly in favor of "no-reduction". Like it or not, this is the
unemotional conclusion based on evidence and facts known to us
beforehand

There was a time in our recent past when the Fed would raise
interest rates and NASDAQ would rally on the news. Remember those?
Buying calls just before or after worked like a charm. It was
almost like taking money from the unsuspecting.

There will be a time in the future when the Fed cuts interest
rates and buying calls just before or after will work like a
charm. Not today.

Today we knew one thing with high-odds probability: a rate cut
should sustain a rally while no cut could create a decline. Simple
as that. We had five hours of live market action to choose our
favorite target, pick a level of support below current prices to
enter long puts and a level of resistance above current prices to
enter long calls.

Simple as that. When 2:30 comes, we buy calls above resistance or
puts below support. Purest form of trading that exists. Those who
did so and bought puts are sitting flush with profits now.

That is what conservative traders did. Aggressive traders bought
puts on everything with a symbol at 2:17pm when news confirmed
that no rate cuts had been issued. Those who did this are sitting
on doubles by the close.

Did anyone actually do this?  Our email "inbox" is filled with
dozens and dozens of examples and they continue to arrive. Money
flowed strongly on Wall Street today and astute traders captured
their share.

It doesn't get any easier than that. We all knew the markets would
move big and had hours to prepare for this event. Sometimes the
trading gods do smile on us, although chance always favors a
prepared mind!

Where to from here? The path of least resistance still lies below
us. The markets need a reason to rally. Buyers need a reason to
buy CSCO at $40 when it no longer looks so cheap. Part-time
traders who turned on tonight's news or read the paper might be
shocked to see where prices now rest. Sell-on-open and margin-call
orders could line up at the open.

NASDAQ markets are nearing critical support and after the last few
weeks, how couldn't they be? Our chart signals still show more
downside could lie ahead before a turn.

The Dow has more space to fall than techs, with 10,300 offering
fairly firm support. Below that would be a retest of 10,000 or
lower. Keep in mind that we've not seen the NDX and Dow at or near
extreme lows together, as cash rotation has always fled one to
another. Should each of them hit lows together, final capitulation
could happen right away.

Keep in mind that the pulse of all equity markets remains the S&P
500. The NASDAQ Comp was a brief measure but that time has passed
and may be awhile ahead as well. The SPX has managed to hold above
1300 up to this point and needs to do so. A break below could end
up bouncing from 1250 or lower and would take all others with it.

The VIX under 31 on a day like this is surprising. We expected it
to shoot straight out of its daily-chart upper Bollinger band at
33+. Not even close tells us levels of fear haven't sunk in yet. A
VIX at 35+ would have us eyeing distant-month calls and searching
for bullish chart signals everywhere. Still we wait.

Doom & gloom? Nope, just another powerful rally south. There are
incredible buy & hold bargains all around us for investors with
time on their side. As Jim so eloquently stated in his Saturday
Wrap, option traders seldom have the luxury of time. This is the
price we pay for ability to play the downside and Market Sentiment
will take that exchange every day for life!

A firm market bottom should be ahead and discovered within the
next six weeks. Don't hurry the process; there will be plenty of
time for call-LEAPs soon. Trade the daily trend until then and
prosper!

*****

VIX
Tuesday 12/19 close: 30.73

30-yr Bonds
Tuesday 12/19 close: 5.48%

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
                                 (12/19/2000)
  (Open Interest)       Calls        Puts          Ratio
S&P 100 Index (OEX)
Resistance:
725 - 710                4,923        3,671         1.34
705 - 690                3,581        5,182          .69

OEX close: 686.77

Support:
680 - 665                  120        8,514        70.95***
660 - 640                   21       11,267       536.52***

Maximum calls: 730/3,594
Maximum puts : 640/7,452

Moving Averages
 10 DMA  711
 20 DMA  710
 50 DMA  722
200 DMA  772


NASDAQ 100 Index (NDX/QQQ)
Resistance:
 68 - 66                45,733        10,398         4.40
 65 - 63                27,277        30,797          .89
 62 - 60                 9,858        36,823          .27

QQQ(NDX)close: 59.125
Support:

 58 - 56                   878         7,986         9.10
 55 - 53                   921         9,812        10.65
 52 - 50                 4,071         6,971         1.71

Maximum calls: 70/59,734
Maximum puts : 60/18,129

Moving Averages
 10 DMA 66
 20 DMA 66
 50 DMA 73
200 DMA 89


S&P 500 (SPX)
Resistance:
1375                    8,658        10,930           .79
1350                   31,217        36,468           .86
1325                    2,837         5,228           .54

SPX close: 1305.60

Support:
1275                      286         9,491         33.19***
1250                    1,009        10,663         10.57***
1225                       72        13,227        183.71***

Maximum calls: 1350/31,217
Maximum puts : 1350/36,468

Moving Averages
 10 DMA 1345
 20 DMA 1341
 50 DMA 1367
200 DMA 1436

*****

CBOT Commitment Of Traders Report: Friday 12/15
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        +179        -283            -2089     -770
Total Open
Interest %      (+2.24%)    (-3.13%)        (-5.50%)    (-2.64%)
                net-long    net-short       net-short   net-short

NASDAQ 100
Open Interest
Net Value        -1438        -3324          +1316      +2120
Total Open
Interest %      (-4.45%)    (-13.52%)       (+2.11%)    (+3.23%)
                net-short   net-short       net-long    net-long

S&P 500
Open Interest
Net Value        +80633      +76502         -90398      -86468
Total Open
Interest %      (+29.41%)    (+42.45%)      (-11.61%)   (-12.36)
                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.

Commercials have increased their net-short positions on the DOW
while the Small specs have turned net-long.

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


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

Please visit this link for Market Posture:

http://members.OptionInvestor.com/marketposture/121900_1.asp


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

Increasing The Odds
By David Popper

"Every gambler knows that the secret to survival is knowing what
to throw away and knowing what to keep.  Because every hand's a
winner and every hand's a loser..."  Boy, is any song more true
this year.  Two traders could have traded the exact same stocks
all year and the results would have been vastly different
depending on their timing.  If there was ever a year which
highlighted the need for understanding basic fundamental and
technical analysis, this was it.  Basic fundamental analysis
compels you to only trade quality, no matter how good the charts
look.  Remember, the dot coms looked technically sound for much
of the year, but many of their prices are now under $10.  Just
last year, these same stocks moved that much in an hour.

The fundamental problem for these companies is that they had no
earnings.  Earnings drive the stock price over the long run.
Their eventual doom was sealed because their business model did
not work.  Yes, a lot of people made plenty of money on these
stocks, but like the game of hot potato, the person who holds the
potato at the end of the game loses.  How could you avoid this
situation?  Only trade stocks that have solid earnings and are in
sectors which will grow over the next several years.  When you
buy these solid companies, you protect yourself because if you do
pick a bad entry point and quickly go underwater, there is a
decent chance that the quality will come back.  The easiest place
to check out a company's earnings compared to other companies in
its sector is the Investor's Business Daily.  This paper also
ranks and charts industry sectors.

Basic technical analysis is extremely helpful for getting into a
stock at a good price.  At a minimum, a trader should recognize
when a stock is in an uptrend, downtrend, or basing pattern and
how to trade in these three different scenarios.  In uncertain
times, a trader should not commit a large amount of money by
using just a six month chart.  The bull market of the 1990's has
conceded to the downtrending market of the past eight months.
Therefore, before committing a high percentage of your funds
consider reviewing the two year, three year and four year
charts.  These charts each tell a different story and a few of
them are scary.  Don't misunderstand me, there is money to be
made in short term trading and a lot of it.

On the other side of the coin, many of our favorites are priced
at their 52-week low, but on a multi-year chart, it is clear that
they could go lower.  When playing hot potato, make sure that you
will not be hurt if you are left holding the multi-year downturn
bag.  In an uncertain market environment, a prudent trader would
become no more fully invested, or worse yet, margined out than a
professional gambler risking his winnings on the hard numbers on
a craps table.  It just does not make sense.

Speaking of gambling, in the course of my job, I had to take the
deposition of a black jack dealer.  I asked him if there were
consistent winners at his table.  He said that there were a few and
their secret was to leave the table after winning a predetermined
reasonable amount.  He said that those players who stayed all night
always gave back their winnings and much more.  He said the persons
that he really could not understand were the people who spent more
than they planned, convinced that there losses would be reversed
with just one more roll.  They always lost.  Sounds a lot like
this year in the market.  By March, most people I know made a
fortune.  By November these same people were negative for the year.
Again, I am not suggesting that you stay totally on the sidelines,
just be careful in this environment and use just a portion of your
capital.

In short, by trading fundamentally sound companies while using
charts can greatly increase your odds of winning.  When you trade
off charts, you can buy CHKP, BRCM and other high fliers at or
near their lows and make short term profits.  CHKP has gone from
$165 to $89, back to $145 and now to $130 all in the space of three
weeks.  Some people bought in the $80's or $90's and sold in the
$120's, 130's, etc., making a nice profit.  Others panicked and
sold at the bottom only to repurchase again in the $140's and
watch it move down again.  Two traders, same stock, different
results.  The difference is that one guesses while the other
plans.  A little planning will increase the odds of success.


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

Review of My December Plays
By Scott Martindale

Crazy day.  The markets were eager and expectant, but they were
"Greenspanned" yet again.  After finding out last week that the
Microsoft earnings warning was not already factored in to the
market, today we found out that a rate cut was.  Either that or
else broad fear simply overwhelmed any bullish thoughts of buying
the usual initial sell off on the news.  The economy needed a
jolt of good tidings from the Fed today, but received only a
consolation prize in the form of implied intent to cut rates in
six weeks.

The market trend certainly has been down, and it was confirmed
today in the wake of the minimal Fed action, but is it bottoming?
It sure looks like capitulation selling in some sectors, like
software and even the beloved networkers.  Is the Nasdaq bracing
for a strong move up by January 30th -- now that the Fed has all but
promised a rate cut -- or is it going to crash hard through 2500
with no buyers willing to catch the knife?  The market is horribly
oversold and ready for a good relief rally, even if only within a
longer term bear, but nobody can find a compelling reason to start
buying.  Certainly Nasdaq prices are looking quite appealing, but
we must remember that valuations are still high on a historical
basis, and many "spec tech darlings" are still sporting triple-
digit P/E's.

As for my December plays, I experienced some frustration trading
QQQ and OEX.  I was getting good entry points, but not always
exiting at the most opportune times.  You know how it is when you
set a target price, and it just approaches the target before
falling off.  It has still been profitable, such as when I bought
Jan 66 Puts for $5.50 when QQQ peaked at mid-day on a Friday
(12/1), and then sold when they hit my $7.75 limit order (the high
price of the day) on the following Monday (12/4).  Sometimes it
works out nicely like that, but often it doesn't, such as when I
closed my Dec 60 position at the close of Monday (12/4) after it
had been eroding in time value while the QQQ gyrated around $63.

Things seemed good when I started following the Swing Trade
strategies for QQQ and OEX on the Index Skybox (IS).  The week
before last, I was making small gains on call plays, but I stopped
out on put plays a few too many times.  My worst day was last
Wednesday after the U.S. Supreme Court decision when QQQ rallied
at the open, then crashed down through the $71 trigger for Dec
puts, and then started rocketing up when the news reported that
Gore would address the nation that night, most likely to concede.
I had entered the Dec 70 puts at $1.63, but I eschewed the charts
and IS advice and tightened my stop to $1.00 for the apparent rally.
The stop executed, and then QQQ proceeded to sell-off and then lay
moribund until the final sell off that gave IS a nice gain but left
me out in the cold.  Even worse, while my puts were stopping out,
I went with my gut instead of the game plan and also bought Dec
calls to celebrate the long-awaited conclusion to the election!
Bad decision.  Lesson:  follow the plan!

When you are watching big intraday swings between the support and
resistance points that IS earmarks for possible breakouts, it's
tempting to trade the bounces.  I was making only modest gains
after the breakouts when I could have made much larger gains by
trading the bounce.  The trouble is, you never know if it's a
tradable bounce until it's too late to get a good entry.  For me,
the initial bounce on Wednesday turned out to be a trap.  IS kept
citing the technical weakness, but I was trying to be the cagey
contrarian, thinking for myself by predicting market psychology
and positioning for a brief rally that didn't follow through.

I've been more disciplined this week, ignoring my gut and trading
the technicals.  For example, I wanted to buy puts immediately
after the Fed announcement, but I held off and waited for
confirmation, even though this time I would have profited
immensely by getting in early.  I'm currently holding Jan puts on
QQQ and OEX, but I'll talk about my January plays next month.
Hopefully, I'll report phenomenal success from using a more
disciplined approach.

Outside of dabbling in Index swing trading, I position-traded only
lightly.  I made some money dabbling in calls on ADBE and PDLI.  I
sold December naked puts on only one stock, MRVC.  With a lot of
technical weakness on Nasdaq and after being burned by PRSF last
month, I wasn't confident that many of my favorite stocks would
hold up in a broad naked put strategy.  I chose MRVC because: (1)
it is a high-potential company in a high-growth sector, (2) it
appeared to be turning up from severely oversold conditions, and
(3) the option premiums were huge.  I sold Dec 15 puts for $1.50
on 12/1 as the stock closed at $17.50, which turned into a very nice
play.  I chose not to buy them back because the stock was holding
up strong even as others were crumbling around it, and I was not
planning to use the margin for anything else at the time.

One comment I'd like to make here is that being "severely
oversold" does not guarantee that the stock will bounce.  Always
look for technical indications that a recovery is starting.

In my long-term account, I was minding the store a little closer
this month.  I got out of some high-P/E stocks (like SCMR, GLW and
TMWD); sold covered calls to get called out of some others (like
MSTR and ABI) and covered calls that I didn't get called out of
(like BBH and CMGI); sold my holdings in some tech stocks on
technical peaks (like MSFT and TXN); and accumulated a few shares
of some blue chips on sell off days (like INTC, SUNW, HD, and HAL)
as well as some low-P/E speculatives (like CBR and CATS).  I am
holding no LEAPS at the moment.

I finally stopped waiting for a sustained rally and went ahead and
sold covered calls on the first signs of strength.  In retrospect,
this has been a great market for selling ITM covered calls at
technical resistance, such as Nasdaq 3000.  Perhaps because the
rally attempts have been unsustainably explosive, every apparent
start to a rally is met with selling pressure, which is great for
raking in juicy ITM covered call premiums.  Also, this kind of
market has been great for the strategy of using part of the
covered call premiums to buy OTM puts on the same stock.

For now, I'm continuing to expect more near-term downside, but I
doubt investors have given up on this market.  Swing traders have
been active, but position traders and long-term investors with day
jobs might be getting impatient.  It's like a group of vultures
waiting for the sick animal to take its last feeble breath before
rushing in to feed. Try not to be the first vulture to arrive,
because as I have experienced, the sick animal might still have
enough life to give you a swift kick in the face.


*************
READERS WRITE
*************

Dear Mr. Brown,

I have been planning to send you and your staff a Merry Christmas
message and decided to do it early for a change. Not only that but
your usual excellent commentary from the Thursday update spurred
me into action. What I want to say is, and I'm sure it goes without
saying, is please do not change a thing you are doing. I am amazed
at some of the e-mails you report knocking you for being bullish or
bearish or the ridiculous notion that you and Austin should be on
the same page because you were looking for the bull bounce and he's
looking to short the world. Personally I don't use your excellent
service for option picks, although I do look seriously at what you
recommend and sometimes go with them, but I view OIN as my personal
team of equity market specialists. This year has been a difficult
trading year for me and I had to look deep within myself to see what
I was doing wrong. I always thought of myself as a market neutral
options trader but found out I was only a call buyer who traded puts
as a side line. I'm embarrassed to say that it took me until about
September to realize this epiphany but thank goodness I realized it
while I still had capital to trade with. I found out that the bull
market lulled me into a complacency and that I was trading off the
seat of my pants. thanks to your service, and I might add the
articles and commentaries were very instrumental in helping me to
see this, I found that I was entering my trades when I should have
been exiting them consistently. I've also taken a very serious
attitude about my trading and I'm now happy to say that I've been
realizing some surprising returns. I'm paying strict attention to
trend lines, support/resistance, divergences, channels, formations,
etc. also, I'm reading Austin Passamonte's Market Sentiment which
helps me identify trends and danger areas to avoid. The COT data is
invaluable. I have printouts of Market Posture with me constantly
to help identify areas to enter/exit trades. (sell to soon!!) along
with printouts of your updates. I go through reams of printer paper
not to mention my own personal notes and references I concoct.. I'm
now more willing to take a small loss when a trade goes against me
and on days that I'm not sure, do nothing. Missed money is better
than lost money any day of the week. I know from first hand experience.
Another rally or sell off will come along, guaranteed. Please continue
your midday updates and alerts. I DO pay attention to them and have
been learning a great deal from them.

I currently think there may be some more downside to this market
but exited my QQQ puts this afternoon (almost a double) as I tend
to agree with you that there will probably be some nervous shorts
come Monday worrying about what Mr Greenspan is going to do about
rates and I didn't want to have to worry about an upside gap all
weekend. I was certain we were going to test 2500 today but the
support at 2600 was surprising to me. I think the late afternoon
rally attempt was short covering. in any event, my cash will still
be good come Monday and thanks to OIN it is great to be on the right
side of the market again. I also think a pretty strong relief rally
is coming along as the gloom and doom is getting pretty thick out
there.

Anyway, just be assured that there is someone out here that
appreciates the superb job you do. I utilize as much of what you
offer through your service as I can to make my decisions and now
when I make them I feel I've made the best trade available with the
best information available. I've tried other services and OIN is in
a league all its own. keep doing what you're doing. as long as I am
a trader I WILL be an OIN subscriber.

Oh...and I almost forgot. I wish the happiest Holidays to you Sir
and the Option Investor Newsletter staff. Thank you.

Sincerely,

Keith H. Tornetta

************

Thank you Keith. We receive many letters like this but due to
space considerations and trying to avoid the appearance of
being self-serving, we seldom print them. This particular one
so hit the theme of the week and so echoed the sentiments of the
rest that I felt compelled to publish it. When traders finally
come to the realization that you do not have to trade every day
and your money will still be there every morning until you decide
to trade again, that is the day they become successful traders.
When you decide that you are in control, do as much research as
you need to feel comfortable in your own decisions AND take small
losses when those decisions go against you, that is the day you
can call yourself a trader. Until then you are a gambler and the
market will eventually beat you.

Congratulations, Keith! You have won the war. You may lose some
battles along the way but you have won the war!

Jim


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index instead?

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those who know.

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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:
*****

CIEN $73.19 -23.19 (-27.53) Announcing a $2.6 billion buyout
of Telecom equipment maker Cyras Systems was not what CIEN
investors wanted for Christmas.  In an environment where
earnings growth is paramount, news that the deal will cut
sharply into earnings in the current fiscal year was not what
traders needed to hear.  They responded immediately, pushing
the stock below the $90 level at the open, and then it got ugly.
News that the Fed would not drop interest rates until sometime
next year just exacerbated the selling, and by the close CIEN
had lost more than $23, bringing its loss for the week to a
whopping 27%.  Fortunately, we never got a chance to make an
entry on this play as it has been in free fall since we added it
this past weekend.  With the NASDAQ closing at a new yearly low,
Networking stocks weak, and CIEN's severe technical violation,
we have no choice but to cut it loose tonight.


PUTS:
*****

KO $56.75 +1.88 (+3.25) Two days of advancing gains on the DOW
and Goldman Sachs' bullish recommendation for KO laid this play
to rest before it could begin.  In early afternoon trading on
Monday, KO saw a 2.6% rise on Goldman Sachs' reiteration of its
"recommended for purchase rating" and 12-month target price of
$70.  The brokerage firm commented that since the stock's nearly
15% drop over the past weeks, it now offers a winning
risk/reward profile for investors.  They took the bait hook,
line and sinker; and thus, a rollover at either the pivotal
200-dma ($55.02) or the 5-dma ($55.99) never transpired.  Instead,
the Fed's gift-wrapped sentiment set the stage for KO to rally
upwards into the vicinity of the $58 level.  A strong close
above our $56 stop on good volume put the final nail in the
coffin.

TRW $31.75 -0.25 (+0.50) Despite having its earnings estimates
lowered by Goldman Sachs Monday morning, shares of TRW rallied
along with the broader market.  TRW's strong trading yesterday
may indicate that all the bad news has already been discounted
into the stock.  That said, we're dropping coverage on the play
tonight in spite of the fractional losses today.  Existing
positions can be exited at current levels or on any weakness
early tomorrow warning.


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The Option Investor Newsletter                  Tuesday 12-19-2000
Copyright 2000, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

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********************
PLAY UPDATES - CALLS
********************

SGP $59.13 +0.56 (+1.19) The drug stocks hung on to recent gains
as traders digested Greenspan's version of 'The Night Before
Christmas.'  SGP extended its share price another fractional in
its attempt to shatter the $60 resistance, and set another 52-
week high at $59.81 along the way.  Competitors PFE and MRK also
experienced significant upside moves as the DOW struggled to
hold 10,600 in today's market.  Altogether, the increasing
evidence of a slowing economy and a barrage of profit warnings
scared many investors out of the technology stocks and into more
defensive plays, like SGP.  While history proves that the "once
bitten and twice shy" attitude eventually fades with a bullish
marketplace, the current trading environments lends itself to
additional gains for the drug makers over the short-term.
Schering-Plough isn't expected to release earnings until the end
of January, so don't expect a run into earnings just yet.
Accordingly, look for a pure momentum surge to launch SGP
through the $60 resistance level.  The more cautious traders
will wait patiently for a bold upside move before beginning new
plays.  Lower entries might be found on pullbacks to the 10-dma
($56.61), which trails above our adjusted protective stop, now a
point higher at the $56 mark.

QCOM $83.44 -2.00 (+3.88) Good news from the company yesterday,
positive analyst comments and a convincing bounce off the 50-dma
(now at $79.84) was what attracted us to this play yesterday, as
QCOM announced that a new breakthrough would allow them to
manufacture their products using less parts.  This helped QCOM to
close up $5.88 or 7.38% while supplier Sawtech headed sharply
lower.  Today, with Fed news and resistance from the 10-dma (now
at $92.41) QCOM closed back below its 5, 10 and 200-dmas (at
$85.56, $92.41 and $84.24, respectively).  For the day, QCOM
closed down 2.34 percent on 110% of ADV.  An aggressive entry
could be had on a bounce off the 50-dma but make sure the bounce
is backed by volume and QCOM closes above our stop price of $78.
For a safer play, wait for QCOM to break through its 5-dma to
confirm upward momentum before taking a position.  Either way,
make sure the NASDAQ is on your side when considering an entry.

LH $163.25 -0.50 (+6.19) As the NASDAQ continues to trace new
yearly lows, Medical stocks are turning into one of the
favorite defensive plays.  Going along for the ride as the DJIA
rallied sharply yesterday in anticipation of today's FOMC
meeting, LH gained $6.69 and managed to hang onto most of those
gains today.  Even the FOMC's failure to cut interest rates
wasn't enough to motivate selling in shares of the #2 clinical
laboratory service company.  If you are looking for relative
strength, LH is hard to beat.  It has even been performing
better than its competitors.  While the performance has been
impressive, we need a few words of caution.  Stochastics have
now moved solidly into overbought territory, and stock has been
riding the upper Bollinger band so far this week.  Some profit
taking would make sense, and to minimize the impact of such an
event, our stop has been moved up to $158.  It was encouraging
to see today's fractional loss accompanied by volume only 75% of
the ADV.  Consider new positions on a bounce from the $158-159
level, but only if accompanied by strong volume.  Watch LH's
primary competitors, DGX and PPDI, for confirmation of strength
in the Medical Testing sector.


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

IBM $90.13 -0.38 (+2.31) Greenspan spun a tale of good cheer for
the New Year, but the predisposition couldn't lift the
technology sector out of its recent slump.  The market confusion
intensified and IBM shares, which had rallied to $94.44 ahead of
the Fed Meeting, did an about-face on the news.  A swift decline
to the underside of our protective stop at $92 kept IBM in play.
It's also important to be aware of other vendors in the
industry, like DELL and HWP, for an overall picture of sector
direction and investor sentiment.  More specifically to our play
on IBM, the intraday bounces first at $92, and then at $90,
brought up previous concerns of these levels developing as
support while the market finds its footing.  Although the recent
trading behavior keeps us on alert, our negative bias remains
intact.  Today's convincing slide through the 10-dma ($93.02)
constituted a sense of confidence in regard to the downtrend
line and at the same time, offered aggressive entry
opportunities.  But without sounding like a broken record,
a definitive break through Friday's intraday low of $87.31 would
provide better confirmation for the more conservative types.

ARBA $59.25 -3.00 (-7.88) Since the break below support at $70
last Friday, this level has served as resistance for the stock as
a failed rally above this area in early morning trading on Monday
led to further selling.  ARBA ended the day down $4.88 or 7.26
percent on average volume.  Today, the stock attempted to rally
again with expectations of an easing Fed.  But resistance at the
lower point of $68, and an unfriendly Fed brought in the sellers,
who took ARBA down on heavy volume to close down 4.82 percent on
over 130% of ADV.  In doing so, the stock closed below its recent
support level of $60.  Look for a failed rally above this point
as well as resistance at $65 as a possible aggressive target for
entry but, be aware of our stop price at $66.  For the risk
averse, wait for ARBA to fall below $58 on volume before making a
play.  In both cases, keep an eye on Merrill Lynch's B2B HOLDR
(BHH) as an indicator of sector sympathy.

CELG $42.06 -3.06 (-2.69) When we started this play on Sunday, we
mentioned that it was likely that CELG would wait for the 5-dma
to catch up with the stock price before proceeding lower, and
that is exactly what happened.  A Biotech bounce helped CELG to
close fractionally positive on Monday, with the 5-dma acting as
resistance.  Today, that moving average continued to exert
pressure on the stock, as it closed down 6.79 percent on over
186% of ADV.  At this point it appears that further downside is
likely, with failed rallies above the 5-dma (now at $45.88)
continuing to provide for aggressive entry points, but make sure
CELG closes below our stop price, now adjusted to $45.  For
conservative traders, wait for CELG to break below $40 on volume
before taking a position.  Before initiating a play, be sure to
confirm direction and sentiment with that of the AMEX Biotech
Index (BTK) or Merrill Lynch's Biotech HOLDR (BBH).

SBC $46.56 -6.75 (-7.13) It's not Friday, but today can be
considered payday for those who owned SBC puts.  Remember this
line from our initial update on SBC..."Warnings have not been
uncommon in this group during recent quarters and they had been
floating over SBC's head."  That came to pass today as the
company lowered guidance for fiscal 2001.  They said a slowing
economy and delays in offering long-distance services will dampen
its financial results next year, putting its earnings and revenue
growth at the low end of expectations.  But despite what they
said, revenue growth will actually be at 8 or 9 percent growth
when the lowest estimate was 10 percent.  That may be splitting
hairs, but investors got the general idea and sold the stock.
SBC gapped down $6 on the open and never recovered.  Volume
was heavy as expected.  The key now will be to lock in profits
and see if we can't get SBC to trade down to the next support
level at $44.  This may be tricky as investors may perceive
the stock as a value play given their typically strong track
record.  Either way, we are sitting on profits now and will
exit on a rebound over $49.00.

AMCC $61.56 -3.94 (-5.94) There has been no safe haven for
Technology investors lately, with one leading sector/stock
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 this week
we got another technical breakdown as the stock failed to hold
above the 200-dma ($69).  The company has continued to surprise
the street over the past few quarters, and revenue growth is
currently (as of the October quarter) growing revenues 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 250) to even the most stellar
growth stocks.  Operating in both the Networking and
Semiconductor sectors, both of which have taken a beating
lately, AMCC really got moving to the downside again yesterday
and confirmed the move with today's penetration of the $65
support level.  The lack of an interest rate cut from the FOMC
meeting today led to more selling in the four-letter stocks, and
AMCC gave up nearly $4 and is now sitting just above the $60
support level.  Aggressive players may want to initiate new
positions on any failed rally below our stop, now lowered to
$68, while more conservative players will wait for selling
pressure to drive the price below $60 before playing.  The
November lows are near $45, and daily stochastics are just
exiting overbought territory, leaving plenty of room for our
play to fall.

EMC $63.00 -2.81 (-5.13) Bullish hope for a rally was dashed
this afternoon as the Federal Reserve refused to give the
optimists an early Christmas present.  Although they moved to
a loosening bias, they did not drop rates, and the reaction
was immediate.  Everything technology related sold off in
response, and the tenuous recovery in shares of EMC fell apart
in a hurry.  After recovering before the announcement to just
above $70, it was a quick and painful decline below the $65
level.  Closing right at the lows of the day, it looks like the
downside is still the favored direction for the enterprise
storage leader.  Aside from broad market direction and concerns
of excessive slowing in the economy there is no specific news to
drive EMC ever lower.  This continues to be a near-perfect play,
as the stock has now given up 30% since we began coverage a
little over a week ago.  We are leaving our stop at $69, and any
relief rally near this level looks attractive for aggressive
entry points.  Selling volume continues to rise, making a strong
case for further declines ahead.  More conservative players may
want to wait for the $60 support level to fail before initiating
new positions.  Following the broader market trend will continue
to keep you out of trouble; confirm a negative tone on the
NASDAQ before initiating new positions.


*************************ADVERTISEMENT*********************
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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=1161
************************************************************


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

LOW VOLATILITY:

EMN - Eastman Chemical Company $47.63 +0.81 (+0.94 this week)

Eastman Chemical Company is a leading international chemical
company with headquarters in Kingsport, Tennessee, producing more
than 400 chemicals, fibers and plastics.  Founded in 1920 to
supply basic photographic chemicals for Eastman Kodak Company,
Eastman Chemical Company became an independent publicly traded
company in January 1994.  Eastman is the world's largest supplier
of polyester plastics for packaging; a leading supplier of
coatings raw materials, specialty chemicals and plastics; and a
major supplier of cellulose acetate fibers and basic chemicals.

It appears that the Old Economy is alive and well, as shares of
EMN look poised to challenge $50, thanks to news that the company
expects earnings to grow going forward, despite a slowing
economy.  If this is the case, then the possibility of lower
interest rates in the future will only help EMN's bottom line.
Since bouncing off support at $35 in mid-October, EMN has rallied
higher into year's end.  Spending November in a trading range
between $40 and $45, the stock broke to the upside in December
and in doing so, put itself back above all its major moving
averages.  Connecting the highs and lows since October reveals a
strong upward regression channel.  Today, despite a highly
volatile day in the markets, EMN was solid, gaining 1.74 percent
on 157% of ADV.  For aggressive entries, look for a bounce off
the 5 and 10-dma (now at $46.67 and $46.18 respectively) as well
as our stop price of $45 on volume.  For an entry on strength,
look for a break above $48.50 on volume before making a play.
Confirm sector sentiment by watching the movements of competitors
such as BF, DD and UK as well as that of the DOW.

BUY CALL JAN-40 EMN-AH OI= 0 at $8.25 SL=5.75  Wait for OI!!
BUY CALL JAN-45 EMN-AI OI=20 at $3.88 SL=2.50
BUY CALL JAN-50*EMN-AJ OI=14 at $1.00 SL=0.00
BUY CALL FEB-45 EMN-BI OI= 0 at $4.88 SL=3.00  Wait for OI!!
BUY CALL FEB-50 EMN-BJ OI=19 at $2.19 SL=1.00

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


HRB - H&R Block, Inc. $39.31 +1.31 (+2.31 this week)

Founded in 1955, H&R Block Inc. is a diversified company with
subsidiaries providing a wide range of financial products and
services.  H&R Block Tax Services Inc. served 18.9 million
taxpayers in more than 10,000 offices located primarily in the
United States, Canada, Australia and the United Kingdom in 1999.
H&R Block Financial Advisors and Olde Discount Corporation
provide consumers with financial planning and investment
products.

As the dreaded tax season approaches, shares of HRB have been
rallying, thanks to a thumbs-up from Oakmark Select Fund's Bill
Nygren.  This is a value play with a solid up-trend since its
summer lows and appears to be on the verge of a breakout through
key resistance at $40.  The up-trend is supported by a share
repurchase plan, announced in March of this year, with as many as
7.2 million shares still to be repurchased.  With strong support
from the company itself as well as institutional support, a break
through $40 is quite likely.  Today the stock edged ever higher,
gaining 3.45 percent on 143% of ADV, on the heels of a volatile
day for the markets.  Aggressive entry points could be had on
bounces off the 5 and 10-dma, now at $37.70 and $37.42.  As well,
there is strong support at our stop price of $36.  If momentum
lifts HRB up above $40, backed by heavy buying volume, this would
be the signal for more conservative traders to jump in.  In
buying a bounce or a breakout, make sure market sentiment is in
your favor by keeping an eye on the DOW.

BUY CALL JAN-30 HRB-AF OI= 68 at $9.88 SL=7.00
BUY CALL JAN-35 HRB-AG OI=458 at $5.00 SL=3.00
BUY CALL JAN-40*HRB-AH OI=514 at $1.75 SL=1.00
BUY CALL FEB-35 HRB-BG OI=  0 at $5.88 SL=4.00  Wait for OI!!
BUY CALL FEB-40 HRB-BH OI=  0 at $2.94 SL=1.50  Wait for OI!!

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


CVC - Cablevision Systems Corp. $83.75 +2.19 (-0.56 this week)

Cablevision Systems Corporation owns and operates cable
television systems and has ownership interest in companies
that produce and distribute national and regional entertainment
and sports programming services.  Its Rainbow Media subsidiary
operates cable networks including American Movie Classics (AMC)
and Bravo.  Rainbow's majority-owned Madison Square Garden
properties include the famous sports arena, the New York Nicks
(NBA), the New York Rangers (NHL), and Radio City Entertainment
(the Music Hall and the Rockettes).  Other CVC units are
involved in electronics retailing (The Wiz), movie theaters,
and competitive telephone service.

While it isn't the hot Networking sector, media stocks have
been doing fairly well over the past few months.  CVC is really
leading the charge outperforming competitors CMCSK and ADLAC,
and gaining a hefty $20 since the September lows.  Since then
it has been marching higher, posting a series of higher highs
and higher lows, and the most recent uptrend has added more than
$11 over the past month.  Therein lies the concern; on Friday
CVC ran into its upper Bollinger band, and the daily Stochastics
are threatening to drop out of the overbought zone, so we only
want to enter new positions on renewed strength.  Yesterday's
sharp drop was likely due to the earnings warning from media
giant, Time Warner (TWX), as CVC was able to regain its footing
today while TWX added to its losses.  Buyers came back today,
erasing most of the losses, but CVC is vulnerable to further
profit taking, and we need to use appropriate caution in
initiating new plays.  The bounce came near the $80-81 support
level, so we are placing a tight stop, right at $80 to protect
against the play succumbing to broad market or sector weakness.
A bounce near support is definitely buyable, but make sure it
is accompanied by strong buying volume before taking the leap.

BUY CALL JAN-80 CVC-AP OI=483 at $6.88 SL=4.75
BUY CALL JAN-85 CVC-AQ OI=893 at $3.63 SL=2.25
BUY CALL JAN-90 CVC-AR OI=  5 at $1.94 SL=1.00
BUY CALL FEB-85 CVC-BQ OI=  0 at $5.13 SL=3.00  Wait for OI!!
BUY CALL FEB-90 CVC-BR OI=  0 at $3.13 SL=1.50  Wait for OI!!
BUY CALL MAR-85 CVC-CQ OI= 49 at $6.63 SL=4.75

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


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

AGGRESSIVE:

PMCS - PMC Sierra $87.50 -8.94 (-19.31 this week)

PMC Sierra is enabling the world's broadband communications
revolution.  The company derives its success by providing
broadband semiconductor technology that has become an essential
part of the global networking backbone.  PMC Sierra is helping
to allow network equipment manufacturers meet the requirement
for products to break the bandwidth bottleneck, with their
standard semiconductor architectural solutions.

PMC Sierra was one of the high flying semiconductor stocks
earlier this year.  However, the stock fell sharply after Cisco's
last earnings report, when they announced that they had an excess
inventory of certain semiconductor components.  Yesterday, the
semiconductor sector received another blow when CSFB reported
a widespread lack of visibility of demand for the first half of
2001 among all levels of the electronics components chain, with
inventory levels of up to 6 to 12 weeks in the PC supply chain.
PMC Sierra attempted to rally early Monday morning, but couldn't
hold and fell below the critical support level of $96.94.  On
Tuesday, PMC Sierra held above $100 in the morning, as a hopeful
Nasdaq waited for a Christmas present from the Federal Reserve
in the form of a rate cut.  A close look at the daily chart shows
that PMCS fell below $96.94 around 1:30, and after the decision
was announced at 2:15 pm the drop was sharp and steep.  The
message was clear that PMCS and the semiconductor sector needed
the rate cut badly.  The stock is now deeply below all of its
major moving averages, and is not likely to see the 200-dma of
$157.26 or the 50-dma of $136.20 anytime soon without help from
the Fed.  Aggressive traders may wait for a failed attempt to
rally past resistance at $90, and stronger resistance at $94.75.
PMCS's next level of strong support is at $79.38, which has not
been tested since January, and we may very well see it again.
Conservative traders can take positions at the current levels,
after waiting for weakness in the semiconductor sector (SMH).
Set stops at $98, as a close above this level could lead PMCS
above the 5-dma of $100.16.

BUY PUT JAN-90 SDL-MR OI=1957 at $15.25 SL=11.25
BUY PUT JAN-85*SDL-MQ OI= 172 at $12.87 SL= 9.63

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


SANM - Sanmina Corp $66.00 -6.13 (-7.09 this week)

Sanmina is a leading electronic component manufacturer in the
US.  They produce printed circuit board assemblies and backplane
assemblies as well as multi-layer printed circuit boards and
custom cable and wire harness assemblies.  The company's market
base is diversified and includes original equipment
manufacturers (OEMs) in the telecommunications, computer, data
communications, industrial, and medical instrumentation
industries.  The telecommunications market makes up about 50% of
Sanmina's sales with DSC Communications and Cisco Systems
accounting for nearly one-third of total sales.

Many of the electronic manufacturing stocks are trading at
depressed levels in spite of strong earnings and solid
forecasts.  Take SANM, for instance.  The company consistently
reports solid numbers and last quarter, topped consensus
estimates by 20%.  Last week Tektronix, the #2 maker of
electronics-testing equipment, set a bullish tone for the
current quarter with a solid earnings release.  And there was
Solectron (SLR), the world's biggest contract manufacturer for
electronics, who beat 1Q estimates by $0.03 on Monday.  With
that said, one might expect investors to have a bullish bias
towards these particular techs.  However, with the exception of
Agilent Technologies (A), many are currently trading below their
respective 200-dma lines.  Last Wednesday, ahead of a 2:1 stock
split announcement, SANM experienced a $9.44, or 10% cut.  The
loss put another knick in the stock's tarnishing armor.  The
failure of the 200-dma ($83.83) technical to keep SLR afloat
foreshadowed future breakdown, although it didn't guarantee
devastation.  In after-hours trading that evening, SANM traded
up on the stock split announcement, but couldn't hold any gains.
Today's confirmed weakness below the 5-dma ($72.32) and its
failure to resurface above $70.50 did however, prompt us to add
SANM to our put list.  The increased selling in the late
afternoon, which mimicked the NASDAQ's sharp drop, also heralds
the good possibility of extended losses.  We've set our
protective stop at $74 to allow SANM to operate freely during
wide intraday swings.  The $74 mark may seem a bit high, but
it's nevertheless far below the espied 10-dma, which is
currently near SANM's former support at $80.  Historically
speaking, there is some light support at the current price level
and more at $60, so be aware of the hazard and the potential for
a merciless reversal.  A conclusive rollover around the above-
mentioned 5-dma or lower at the $70 level provides an
enterprising entry for the more risk-oriented.  This play is
considered HIGH-RISK and certainly not for the cautious types.
Mark your calendars, too. Sanmina is planning to execute the
stock dividend on or around January 8th, 2001.

BUY PUT JAN-70 SQN-MN OI=1215 at $10.88 SL=8.25
BUY PUT JAN-65*SQN-MM OI= 920 at $ 8.13 SL=5.75
BUY PUT JAN-60 SQN-ML OI= 817 at $ 5.88 SL=4.00

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

LOW VOLATILITY:

AFCI - Advanced Fibre Comms $15.81 -1.13 (-2.56 this week)

AFCI designs and manufactures end-to-end distributed access
solutions for the portion of the telecommunications network
between the carrier's central office and its subscribers,
often referred to as the "local loop".  The company's Universal
Modular Carrier 1000 is a global product family consisting of
a variety of multi-service access platforms with integrated
optics and intelligent customer premises equipment.  Utilizing
a hybrid asynchronous transfer mode/time division multiplexing
(ATM/TDM) architecture, the product line provides a variety of
loop interfaces for analog and digital services including plain
old telephone service, ISDN, DSL, and T1.

Telecom and Networking stocks can't seem to catch a break, and
the poster child for this decline is CSCO.  Despite a lack of
bad news, this technology bellwether continues to trace new
yearly lows as the NASDAQ does the same.  For its own part, AFCI
has declined to new yearly lows as well, and now sits at major
support near $15.  Selling volume has been very heavy over the
past 3 weeks, as the stock has fallen through support at $27,
$24, and $19.  Each of these levels will provide formidable
resistance going forward, but in the current market environment,
it seems unlikely that even the $19 level will be challenged in
the near term.  We are looking for AFCI to continue south from
current levels, so we have set a tight stop at $17, just above
today's high of $16.63.  Further weakness looks like it could
produce a decline to the $12 support level or even break below
$10 to challenge multi-year lows near $7.  Look to initiate new
positions on a break below today's low of $14.75, or a failed
rally in the $16-17 range.  In either case, confirm further
weakness in the Networking Sector (NWX.X) before playing.

BUY PUT JAN-20   AQF-MD OI= 56 at $5.50 SL=3.50
BUY PUT JAN-17.5*AQF-MW OI=106 at $3.63 SL=2.25
BUY PUT JAN-15   AQF-MC OI=379 at $2.06 SL=1.00

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


*********************
PLAY OF THE DAY - PUT
*********************

EMC - EMC Corporation $63.00 -2.81 (-5.13 this week)

EMC wants to be your storage solution.  The company designs,
manufactures and markets a wide range of enterprise storage
systems, software, networks, and services.  The company's
products store, retrieve, manage, protect and share information
from all major computing environments including mainframe, UNIX,
and Windows NT.  With offices around the world and a 35% growth
rate for the first 9 months of the year, EMC is effectively
filling its role as the worldwide storage leader.

Most Recent Write-Up

Bullish hope for a rally was dashed this afternoon as the Federal
Reserve refused to give the optimists an early Christmas present.
Although they moved to a loosening bias, they did not drop rates,
and the reaction was immediate.  Everything technology related
sold off in response, and the tenuous recovery in shares of EMC
fell apart in a hurry.  After recovering before the announcement
to just above $70, it was a quick and painful decline below the
$65 level.  Closing right at the lows of the day, it looks like
the downside is still the favored direction for the enterprise
storage leader.  Aside from broad market direction and concerns
of excessive slowing in the economy there is no specific news to
drive EMC ever lower.  This continues to be a near-perfect play,
as the stock has now given up 30% since we began coverage a
little over a week ago.  We are leaving our stop at $69, and any
relief rally near this level looks attractive for aggressive
entry points.  Selling volume continues to rise, making a strong
case for further declines ahead.  More conservative players may
want to wait for the $60 support level to fail before initiating
new positions.  Following the broader market trend will continue
to keep you out of trouble; confirm a negative tone on the
NASDAQ before initiating new positions.

Comments

EMC accelerated downward into the close, finishing just near its
lows of the day.  The NASDAQ took out its most recent low of 2523
today and looks technically weak.  Look for entry on rollovers
from intraday resistance at $65, or stronger resistance at $70.
A continued sell-off below $60 would warrant entry as well.

BUY PUT JAN-70 EMB-MN OI=13821 at $11.00 SL=8.75
BUY PUT JAN-65*EMB-MM OI= 4095 at $ 7.88 SL=6.25
BUY PUT JAN-60 EMB-ML OI=14770 at $ 5.75 SL=4.00

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


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

FOMC Announcement Falls On Deaf Ears...

Technology stocks fell to new lows today as investors showed
their disappointment over the Fed's decision to keep interest
rates unchanged.

Monday, December 18

Industrial stocks rallied today on hopes that the Federal Reserve
will move toward an easing bias at its monetary policy meeting on
Tuesday.  At the same time, the Nasdaq Composite index fell for a
fifth consecutive session amid weakness in telecom and networking
stocks.  The Dow closed up 210 points at 10,645 while the Nasdaq
closed down 28 points at 2,624.  The S&P 500 index closed up 10
points at 1,322.  Volume on the NYSE reached 1.15 billion shares,
with advances beating declines 1,894 to 1,085.  Trading volume on
the Nasdaq hit 2.06 billion shares, with declines beating advances
2,444 to 1,607.  In the bond market, the 30-year Treasury was down
8/32, pushing its yield up to 5.43%.

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

Costco         COST  JAN40C/JAN30P   $1.38   credit   strangle
Pepsi Btg.     PBG   JAN45C/JAN40P   $0.25   credit   synthetic
AXF Financial  AXF   APR55C/APR55P   $3.62   debit    straddle
Equity Res.    EQR   APR55C/APR50P   $2.50   debit    strangle
Bowater        BOW   JAN60C/JAN55C   $1.50   credit   bear-call
Omnicare       OCR   JAN15C/JAN17C   $2.06   debit    bull-call

Most of our new positions offered favorable entry opportunities.
The Omnicare debit spread was the only play that did not trade
near the suggested entry price however, it was available at a
reasonable debit for traders who favor the outlook for the issue.

Portfolio Plays:

Blue chip stocks rallied today as investors awaited a key meeting
of the Federal Reserve, which is expected to signal that interest
rate cuts may be forthcoming to bolster the slowing economy.  The
rally was broad, led by interest-rate sensitive financial issues,
retail stocks, basic materials companies, energy shares and
conglomerates.  On the Dow, J.P. Morgan (JPM) topped the gainers
and Boeing (BA) and United Technologies (UTX) were also among the
frontrunners.  Brokerage issues rebounded and oil service shares
enjoyed an impressive performance after Salomon Smith Barney said
that the oilfield service industry is entering a multiyear growth
phase.  In contrast, the technology group slumped after an early
bounce lost momentum, with investors still worried over dwindling
earnings and inflated valuations.  The Nasdaq quickly moved lower
with Internet, networking and telecom stocks enduring the bulk of
the selling pressure.  One of the few issues that moved higher in
opposition of the trend was Qualcomm (QCOM) and our recent credit
spread is again in profitable territory.  Another bullish issue,
Pharmaceutical Product Development (PPDI) was a big winner today.
The stock jumped over $6 to a new high near $47 after the company
raised its outlook on fourth quarter earnings and revenues, and
said it had licensed a chemical compound that could help treat
premature ejaculation.  PPD GenuPro, a research and development
subsidiary of PPDI, announced it had given an exclusive license
to Alza (AZA) to develop and commercialize its unique compound,
dapoxetine, that treats problems with genitals and urinary organs.
Hanover Compressor (HC) was another surprise, moving up over $3 to
$36 on strength in the oil and gas equipment group.  Our bullish
position at $30 is expected to expire at maximum profit.  In the
retail sector, Home Depot (HD) rebounded from a recent slump as
investors moved back into "Old Economy" companies.  Analysts say
a slowing economy makes it more likely that we will see further
earnings erosion for high-tech companies and that outlook was
evident in the weakness of software giant Microsoft (MSFT), which
slid below $48.  The Dow component and Nasdaq heavyweight slumped
in the wake of a recent warning that a global slowdown, lower
personal computer sales and less corporate spending will reduce
earnings and revenues.

Tuesday, December 19

Technology stocks fell to new lows today as investors showed
their disappointment over the Fed's decision to keep interest
rates unchanged.  The Nasdaq closed down 112 points at 2,511
and the Dow was down 61 points to 10,584.  The S&P 500 index
finished down 17 points at 1,305.  Volume on the NYSE hit 1.3
billion shares, with advances edging declines 1,470 to 1,442.
Trading activity on the Nasdaq was extreme with 2.31 billion
shares exchanged.  Technology declines beat advances 2,661 to
1,344.  In the bond market, the 30-year Treasury closed down
12/32, pushing its yield up to 5.47%.

Portfolio Plays:

The stock market retreated in late afternoon trading Tuesday,
after the FOMC announced a widely expected decision to keep
interest rates steady for now and prepare to cut rates in coming
months.  The Fed's interest-rate-setting committee warned the
economy was slowing so quickly that there was risk of a sharp
downturn.  The warning was viewed as a signal that the central
bank would slash interest rates in the future and that may help
offset the affects of a recent barrage of profit warnings that
have battered the stock market.  Unfortunately, reductions in
interest rates take up to a year to filter through the economy
and benefit the corporate bottom line, so the prospects for the
slumping technology sector, where many stocks are still believed
to be too pricey, appears less optimistic.  On the bright side,
a number of specific stocks performed well today, even in the
wake of selling pressure among broader market issues.  Our new
position in Hanover Compressor (HC) continued to benefit from
the energy group's rally.  HC moved up another $2 to close near
an all-time high and our cost basis is almost $10 in-the-money.
Waters Corporation (WAT), which makes analytical instruments
used by pharmaceutical companies rebounded $2.62 to $81.56 as
investors moved back into defensive issues.  Analysts say that
even with a slowdown in the economy, people will still spend
money on companies in the pharmaceutical industries.  Another
defensive group is Food and Beverage and Kellogg (K) was a big
mover in that sector, up $1.31 to $26.31.  Our calendar spread
position in Kellogg (MAR30C/JAN30C) has a total debit of $0.25
and almost three months until expiration.  Among other mid-cap
issues, Safeco (SAFC) and AT&T (T) managed small advances and
in the small-cap category, Globo Cabo (GLCBY), Magnetek (MAG),
Pennaco Energy (PN), Pactiv (PTV), and Timken (TKR) also moved
higher.  One of our older debit straddles, Advanced Fibre (AFCI)
reached a new maximum profit today.  The issue traded as low as
$14.75, bringing the total credit for the neutral position to
$19, a $6.25 profit on $13.50 invested for less than two months.

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

One of our readers commented on the recent addition of synthetic
positions to the Spreads/Combos section and asked that we offer
more of these plays in the future.  Here are three speculative
positions on issues that have shown new technical strength even
as the broader market moved lower.  All of these positions offer
favorable risk/reward potential but they should also be evaluated
for portfolio suitability and reviewed carefully with regard to
your strategic approach and trading style.

******************************************************************
CNC - Conseco  $10.56  *** Restructuring On Track! ***

Conseco is a financial services holding company that conducts
its business through two major operating segments: insurance
and fee-based operations and finance operations.  The company's
insurance subsidiaries sell and administer supplemental health
insurance, annuity, individual life insurance, individual and
group major medical insurance and other insurance products.
The insurance segment also includes other asset accumulation
products such as mutual funds.  Conseco's finance subsidiaries
originate, purchase, sell and service consumer and commercial
finance loans throughout the United States.

Shares of Conseco rallied today as investors responded favorably
to a progress report concerning the company's restructuring plan.
A memo from CEO Gary C. Wendt was posted on Conseco's web site
suggesting that the company is 85% of the way toward its goal of
raising $2 billion for debt reduction from the sale of non-core
assets of the company.  That figure includes the just announced
sale of a minority stake in a casino to Argosy Gaming for $260
million.  The CEO also stated that earnings before goodwill will
be $1.18 to $1.38 a share in 2001 and that the new company will
focus on creating shareholder value in two primary businesses;
insurance and finance.  Investors appear to favor the optimistic
outlook for the company and traders who agree with the bullish
technical indications can use this position to speculate on the
future movement of the issue.

PLAY (speculative - bullish/synthetic position):

BUY  CALL  FEB-12.50  CNC-BV  OI=1440  A=$0.93
SELL PUT   FEB-10.00  CNC-NB  OI=824   B=$1.06
INITIAL NET CREDIT TARGET-$0.25-$0.38  TARGET ROI=25%

Note:  Using options, the position is equivalent to being long
on the stock.  The collateral requirement for the naked put is
approximately $390 per contract.


******************************************************************
TEK - Tektronix  $31.75  *** Up After Earnings?  Hmmm... ***

Tektronix is a technology company focused on providing test,
measurement, and monitoring solutions to the semiconductor,
computer and networking industries to enable them to design,
build, deploy and manage next-generation global communications
networks and Internet technologies.  The company develops and
markets a broad range of products in several key categories:
Instrumentation, including oscilloscopes, signal sources,
accessories and other products; Digital Systems, including
logic analyzers; Communications, including protocol analyzers,
network monitoring products, transmission test products for
optical networks, mobile handset and infrastructure equipment,
and mobile call generation systems; and Video Test, including
waveform monitors, digital video compression testers of Motion
Picture Engineering Group standards, and unique picture quality
analysis and monitoring products. In addition, TEK provides
support services for its products.

Last week, Tektronix reported fiscal second-quarter earnings
that surpassed consensus expectations on outstanding sales of
equipment for testing next-generation communications networks.
The company posted earnings from continuing operations of $36
million, or $0.38 per share for the most recent quarter, up
from $8.9 million or $0.09 a share, a year earlier.  Tektronix
said revenues grew 25% on continued strength in their strategic
markets; communications, computing and Internet technologies,
with especially strong demand for communications infrastructure
development and deployment.  Company officials expect quarterly
revenues to grow by 15% in the upcoming period and Tektronix
also announced that Hughes Electronics (GMH) has just purchased
more than $1 million of equipment to test its DIRECTV receivers.

The recent technical recovery is now well established and this
speculative position offers an excellent way to participate in
the future movement of the issue with relatively low risk.  We
will target a $0.25 credit initially, to allow for a brief
consolidation in the upward trend.

PLAY (speculative - bullish/synthetic position):

BUY   CALL  JAN-37.50  TEK-AU  OI=614  A=$1.12
SELL  PUT   JAN-27.50  TEK-MY  OI=38   B=$0.93
INITIAL NET CREDIT TARGET=$0.12-$0.25  TARGET ROI=20%

Note:  Using options, the position is equivalent to being long
on the stock.  The collateral requirement for the naked put is
approximately $870 per contract.


******************************************************************
NSS - NS Group  $8.29  *** Bottom Fishing! ***

NS Group conducts business in three industry segments: the
energy products segment, the industrial products segment;
special bar quality products, and the industrial products
segment; adhesives.  The energy products segment is a major
producer of tubular steel products for the energy industry.
Products produced by this segment include welded and seamless
tubular goods, primarily used in oil and natural gas drilling
and production operations, referred to as oil country tubular
goods; and welded and seamless line pipe.  OCTG products are
produced in numerous sizes, weights, grades and end finishes.
The industrial products segment manufactures products for a
specialized niche of the SBQ products market at its Koppel
facility.  The industrial products segment manufactures custom
water-borne, solvent-borne and hot-melt adhesives and footwear
finishes.

Some recent positive comments about the oil service industry
has NS Group investors hoping for a brighter future.  The
company's share value has slumped in recent months after
trading near a two-year high in late September, but renewed
demand for oil and gas drilling products may be just what
NSS needs to get back on track.  Since last January, the price
of natural gas has quadrupled and some experts predict that
new production must increase by 25% to meet increasing demand.
The number of rotary rigs operating in the U.S. has more than
doubled in the past 18 months, with more than 800 of them in
search of natural gas.  NSS stands to benefit greatly from
the expected industry expansion and traders who have a bullish
outlook for the energy products segment can speculate on its
movement with this bullish position.

PLAY (speculative - bullish/synthetic position):

BUY  CALL  APR-10.00  NSS-DB  OI=24  A=$1.40
SELL PUT   APR-7.50   NSS-PU  OI=30  B=$1.20
INITIAL NET CREDIT TARGET=$0.00-$0.12  TARGET ROI=50%

Note:  Using options, the position is equivalent to being long
on the stock.  The collateral requirement for the naked put is
approximately $265 per contract.




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**************************************************************


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

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