Option Investor

Daily Newsletter, Wednesday, 12/20/2000

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The Option Investor Newsletter                Wednesday 12-20-2000
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MARKET WRAP  (view in courier font for table alignment)
        12-20-2000        High      Low     Volume Advance/Decline
DJIA    10318.90 -265.50 10581.00 10318.90 1.43 bln   1010/1933
NASDAQ   2332.78 -178.93  2432.83  2312.51 2.84 bln    828/3292
S&P 100   661.50 - 25.35   686.85   660.62   totals   1838/5225
S&P 500  1264.74 - 40.86  1305.60  1261.16           26.0%/74.0%
RUS 2000  443.80 - 19.45   458.78   442.32
DJ TRANS 2729.77 - 47.99  2775.22  2686.25
VIX        35.70 +  4.97    36.75    32.85
Put/Call Ratio      0.80

Was it? Could it be? Should we dare hope?

The debris from the Foundry explosion started falling back to
earth at the open this morning and continued raining on the
markets all day. Merrill Lynch added rocket fuel to the already
roaring fire with a downgrade of HWP, IBM and CSCO. These big
cap leaders were already under pressure and the additional
weight of the high profile downgrade sent them all to new
52-week lows. CSCO dropped -5.25 to $36.50, IBM -4.12 to $86
but HWP recovered to close only -.88 at $30.63 after saying
on CNBC that they saw no reason to change their current guidance.
How refreshing, a box maker that is comfortable with estimates.
Still IBM and CSCO remain the biggest potential problems with
worries about impending warnings from each. The Dow gapped down
to 10375 at the open, tried weakly to rally and then rolled over
to close at almost the low of the day at 10327, a -265 point loss.
The Nasdaq faired only slightly better closing only +20 points
off the low of 2312 and a drop of -178 points. The total loss
for the last seven days is almost -700 points or a -22% drop.

The bad news that drove the markets Wednesday is not over. After
the close another flood of bad news hit the wires. AT&T warned
that they would miss earnings and cut their dividend for the
first time in their over 100 year history. Not that anybody
expected AT&T to come roaring back from the brink of disaster
after several quarters of problems but it was just confirmation
of bad news. RealNetworks warned that weaker than expected
Internet related spending would cause them to miss estimates
going forward. TRW warned that earnings would fall about -33%
on recall charges and payment defaults by customers. Cendant
warned earnings would miss as well. SmartDisk, SMDK, warned
that earnings would miss based on slowing Apple Computer sales.
They said they were working on trying to increase their Windows
product sales to compensate for the Apple platform weakness.
Not a tech stock but IP warned today as well that slowing sales
and increased energy costs would cause reduced earnings.
ZRAN warned after the close that slowing worldwide demand
in the DVD and PC markets would cause them to miss estimates as

After the close Micron announced earnings that missed street
estimates by two cents on sales that dropped -30% for the quarter.
Citing weak demand as the problem MU dropped -$5 on the news.
Several analysts warned against buying MU even at these levels
until computer sales growth begins to rise again. The two major
tech problems from yesterday FDRY and JBL were taken out and shot
with FDRY losing -57% and JBL -24%.

PALM also announced earnings after the close that beat street
estimates by a penny but the stock got hammered in after hours
trading for -$6. Analysts were concerned about sales growth
and margins. RIMM also fell -$5 on the news. Once the hot PDA
products run out of steam after the holiday buying season it
remains to be seen if corporate IT spending will take up the

The biggest problem other than the warnings and missed earnings
was really the downgrade from Merrill Lynch. Citing a survey
of IT professionals MER said that in just the last two weeks
the number of companies planning new IT expenditures had dropped
substantially. Just Dec-4th Merrill had issued a note saying
spending was on track and looking good. What a difference two
weeks makes and we still have not heard from IBM or CSCO on
their possible earnings problems.

The Nasdaq was really ugly today. Really ugly! In many analysts
eyes this was a really good day. The complaint for weeks was
that there was no capitulation event to signal a real bottom.
Sure everyone wanted to put a bottom label on every three day
dip in that period of time but the qualification sentence was
always there. Today came as close to capitulation as we have
had in a very long time. One measure of a "C" event as recognized
by most long term analysts is the number of new lows. Normally
something in the area of 1000 is a normally accepted threshold.
Today there were 921 new lows on the Nasdaq. Another measurement
is the advance decline ratios. At the low of the day today the
decliners were overpowering advances by over 5:1. This is also
a normally accepted capitulation ratio. The volume was also
significant. At 2.8 billion shares traded on the Nasdaq there
was no shortage of sellers wanting out at any price. The real
tell tale sign imbedded within that number was the up volume
compared to down volume. At a little after 3:PM, just as the
last dip began the Up volume for the day was only 134 MILLION
shares compared to over 2 BILLION shares of down volume. That
is a 15:1 ratio of down to up. Capitulation anyone?

The Nasdaq is on track to post its worst year ever. Currently
down -54% from the high and -42.7% from Jan-1st it is considerably
worse than the -35% drop in 1974. The Nasdaq took five years
after that 1974 bottom to recover and make a new high. Market
analysts comparing that recovery with a recovery from the
current levels estimate that it will take three years to return
to the 5000 level. (Their estimates not mine.) This assumes a
historical +28% compounded growth rate. I can't imagine it would
take that long simply based on the current and projected tech
advancement but without the Internet driving change we will need
a new leadership group or two to fuel faster growth.

It only took one day and the rumors of a rate cut are heating
up again. After the market rocking news last night and the
significant drop today there is a new cry for an intermeeting
rate cut. Pointing to the increasingly intense earnings news
analysts are calling for Grinchspan to acknowledge they made
a bad call and cut rates immediately. I would not hold my
breath if I were you. He can do it but I can't imagine that
he would do it before sometime in January. The Fed will want
to see the final results from the holiday season as well as
gauge any market movements between now and Jan-2nd. Once the
Employment numbers are announced in January we could see a
change but I doubt before then.

So was it the big "C" today? No one knows. Remember there is a
lot of year end tax selling and I doubt everyone has completed
it yet. There were a few stocks that rebounded some just before
the close but very few. As a technician you would be hard pressed
to paint anything but a serious case for a relief rally very soon.
-700 points in seven days on huge volume with overwhelming new
low advance/decline ratios. The VIX spiked to 36, a number only
seen four times this year and each time represented the exact
bottom of the current trend. Still it could go higher. The put/call
ratio is hovering at .80 and indicates the higher level of caution
that is present near market bottoms. Still there is no real
conviction just severe turmoil. Last week there was a positive
inflow of cash into equity funds and this week the trend reversed
with -$9.5 billion flowing out of funds in the last five days.
Investors throwing in the towel is also an indicator of market
bottoms. The Raging Bull website, a leader in the investor chat
room fad, was put up for sale by CMGI. It seems that investors
are not as excited with talking about how much money their stocks
are losing as they were bragging about their wins in a bull market.
A sign of the times that investor sentiment has changed. Again,
another indicator that we are near a bottom. History has not
changed, just the speed at which we record it.

Was today the bottom, the capitulation event? Will the historical
trend of the next five days being bullish hold? We can only hope
the answer to both of those questions is yes but until the trend
actually changes nobody can say for sure. As traders we do not
want to try and catch the falling knife. Either go with the trend
or step aside. I loved the Art Cashin analogy today that traders
are so paranoid about getting beaten again that are not even
trying to catch falling safes. They want to see them hit bottom,
crack open and then look at the contents before placing a bid.
That pretty much sums up the days trading. With down volume 15:1
over up volume it is clear there were no buyers. Repeat, no buyers.
With three more weeks of earnings warnings ahead of us and tax
selling in full swing, other than bottom fishing, there is simply
no reason for traders to jump into the market. Investors yes, but
even they are unsure if CSCO is a buy at $36 or $30. Remember
when CMGI, down from $163, was a buy at $40, it is now $5. AKAM,
down from $345, a buy at $50, now $24. There is no shortage of
value available but until more stocks start trading at ASK than
BID we will not know the worst is over. There are still hundreds
of billions in cash on the sidelines. Big cap techs will benefit
when this cash is put to work but nobody has turned on the spigot

I agonized all afternoon about buying the dip. I wanted it bad
but there were no positive signs. Sectors were in flames, stocks
were not bouncing. Even those down double digits for several days
were still skidding lower. I could not bring myself to buy puts
after seven down days and -700 points. Even though IndexSkybox
is raking in money on a daily basis I felt I would be buying
puts on the bottom. There was several reports of some huge blocks
of S&P futures being closed this afternoon. Could this be the
institutions finally closing their short positions for huge
profits? Let's hope so! The Nasdaq hit the very bottom of the
down trend channel at 2312 which could be seen as technical
support. Does the term "grasping at straws" come to mind? As we
go to press tonight the S&P futures are actually up about +4 and
the Nasdaq futures are +8. None of the after hours news events
have had any material affect on trading other than on individual
issues. Maybe that is a positive sign. Still, until the trend
changes, trade in the direction of the trend or stand on the
sidelines and wait. Cash is king and patience is a very important

Good luck and don't buy too soon.

Jim Brown


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IVGN - Invitrogen Corporation $78.58 +2.67 (-0.17 this week)

Invitrogen develops, manufactures and markets research tools in
kit form and provides other research products and services to
corporate, academic and government entities.  These research kits
simplify and improve gene cloning, gene expression and gene
analysis techniques and are used for genomics and gene-based drug
discovery, among other molecular biology activities.  Founded in
1987, Invitrogen is headquartered in San Diego, California and
has operations in Huntsville, Alabama, Groningen, Netherlands,
and Heidelberg, Germany.

One of the metrics most investors focus on when analyzing a
Biotech company is the cash burn rate, which as the term implies,
is the rate at which a firm spends its cash reserves.  For many
such companies, it is a race against time, to come up with an
effective, viable, and FDA-approved product before the money runs
out.  This uncertainty and risk no doubt contributes to the
volatility of Biotech issues, but as a pick and shovel play of
the Biotechs, IVGN finds itself in a unique position.  No matter
which company develops a revolutionary new drug or treatment,
they will most likely do so with the help of IVGN's kits.  The
completion of the Human Genome Project this year has only helped
the stock, as investors are banking on this to be a driver of
increased research efforts, which would likely increase demand
for IVGN's research products.  Connecting the lows since
mid-October reveals that IVGN has maintained a solid uptrend
despite the recent market turmoil.  There are a number of minor
support levels for the stock, at $76, $75 and $74.  The 50-dma
(now at $71.80) would be the strongest support for IVGN.  We are
placing our stop price just above this level at $72.  A bounce
off support could provide for an aggressive entry but confirm
with volume.  For a safer entry, wait for the buyers to return,
with momentum carrying IVGN above the 10-dma at $80, before
jumping in.  Confirm sentiment and direction with that of the
AMEX Biotech Index (BTK) or Merrill Lynch's Biotech HOLDR (BBH).
It might also be a good idea to keep an eye on competitors such

BUY CALL JAN-75 IUV-AO OI=475 at $11.13 SL=8.25
BUY CALL JAN-80*IUV-AP OI= 22 at $ 8.63 SL=6.00
BUY CALL JAN-85 IUV-AQ OI=454 at $ 6.63 SL=4.50
BUY CALL FEB-80 IUV-BP OI=598 at $11.25 SL=8.25
BUY CALL FEB-85 IUV-BQ OI= 36 at $ 9.25 SL=6.25

SELL PUT JAN-70 IUV-MN OI=  0 at $ 4.25 SL=6.00  Wait for OI!!
(See risk of selling put in play legend)



SUNW - Sun Microsystems, Inc. $27.44 +0.50 (-3.00)

Since its inception in 1982, a singular vision "The Network Is The
Computer(TM)" has propelled Sun Microsystems, Inc., to its position
as a leading provider of industrial-strength hardware, software and
services that power the Internet and allow companies worldwide to
dot-com their businesses.

Today the market was horrid.  The NASDAQ had little to be
encouraged about after the Fed didn't gift the economy with a rate
cut.  Yet, relative to this disappointing sell off, SUNW proved
resilient right from the open.  It gapped down near the day low
and managed a nice recovery.  Even as the NASDAQ sold off into the
afternoon, SUNW consolidated and tested intraday support at $26.
This test was successful and the stock rallied into the close.
On top of that, the volume today was three times its ADV at a
hefty 100 mln shares.  We are not picking the bottom on the market
tomorrow, but SUNW acted extremely well considering the carnage
that was occurring.  Not to mention, SUNW shook off a downgrade
from AG Edwards today.  We are adding SUNW as a Long Term Call
because of its attractive valuation and its upside potential.
While both IBM and HWP were downgraded by Merrill Lynch today,
HWP issued a statement that the company is on track to meet its
previous guidance and was not adjusting it in anyway.  If true,
this bodes well for SUNW in the server market.  Look to enter
this play on pullbacks and bounces from intraday support at $25,
where buyers stepped in this morning.  SUNW has not traded this
low since October 1999.  There is longer term support at $23,
which is our stop loss level.  When timing entry into this Long
Term Play, watch for SUNW's action relative to the NASDAQ.

BUY CALL JAN-25 SUQ-AE OI= 4800 at $5.13 SL=3.25
BUY CALL JAN-30 SUX-AF OI=15504 at $2.63 SL=1.25
BUY CALL FEB-30*SUX-BF OI=  715 at $3.63 SL=1.75
BUY CALL FEB-35 SUX-BG OI= 1409 at $2.13 SL=1.00
BUY CALL MAR-35 CJT-CG OI= 1303 at $3.13 SL=1.50



No new puts today


IBM - put play
Adjust from $92 down to $90

EMC - put play
Adjust from $69 down to $62

SANM - put play
Adjust from $74 down to $69

PMCS - put play
Adjust from $98 down to $90

ARBA - put play
Adjust from $66 down to $55

CELG - put play
Adjust from $45 down to $40

AMCC - put play
Adjust from $68 down to $65

SBC - put play
Adjust from $49 down to $47.50


QCOM $77.13 -6.31 (-2.44) The good news is, there were many
positive announcements in the company's favor today.  A licensing
deal with RIMM, a successful next generation CDMA2000
transmission test with LU and higher sales in Japan in 2001 were
all good reasons to buy QCOM today.  The bad news is, all of this
failed to get investors interested, as they headed for the exits
en masse on a down day for the NASDAQ.  By the end of the day,
QCOM fell 7.57 percent on over 130% of ADV and in doing so,
closed below our stop price of $78.  With the possibility of
further downside now that key support has been broken, we are
dropping coverage of this play.

CVC $79.94 -3.81 (-4.38)  This stock got caught up in the selling
today and lost 4.5%.  As a result, CVC fell below its 10-dma at
$81.41 and our stop loss level of $80.  We are dropping this play
tonight for violating our stop, however, CVC did receive some late
buying.  A move back above $80 would be encouraging, but the
inability for CVC to get back above that level would be a warning.
Use tight stops to limit additional downside.


No dropped puts today


Advantages Of Day Trading
By Mary Redmond

In many ways, day trading is actually safer than holding a
position for several days or weeks in today's market.  This is
particularly true with short term options.  Holding a short
term option overnight can be a dangerous way to trade.  The
market has whipsawed traders around more this year than ever
before, and the factors which have contributed to this seem
likely to increase in the future.

Today's financial markets subject traders to unprecedented
levels of volatility.  This provides the opportunity for
short term profits, but also poses unprecedented levels of
risk.  It only takes one influential analyst to down grade
a stock, and almost every other stock in the sector can be
severely damaged.  It only takes one earnings warning by
a bellwether company to damage the entire market.

An example of this occurred on Monday.  Terayon warned that
their earnings would be lower-than-expectations, and in
addition, Goldman Sachs downgraded the internet infrastructure
sector.  Sycamore, Ciena, JDSU and NT all suffered as a result
of this.  This seems totally illogical, as all four of these
companies stated that they were on target to meet or exceed
expectations for the coming quarter.  However, in a nervous
market, investors are very quick to dump stocks at any sign of
weakness in the sector to avoid being burned severely.

An interesting phenomenon occurred on Tuesday morning, when the
market rallied before the Federal Reserve announced the decision.
Ciena dropped substantially after it announced it was acquiring
Cyras Systems in a stock deal.  In sympathy, SCMR and RBAK
dropped, even while the Nasdaq rallied.  However, JDSU, GLW and
NT rallied.  Why?  Possibly because stocks often trade in tandem
with the other stocks in their sector with similar market
capitalizations.  On Tuesday morning, the networking stocks with
market capitalizations of over $100 bln rallied and the small cap
networking stocks fell.

Most company news, earnings reports, and analyst upgrades or
downgrades are released after the market closes, or before it
opens.  This is the reason that holding positions over night
can be dangerous.  It is impossible to predict which companies
will release good and bad news, or how the market will respond
to it.  However, if you get in and out of positions the same day,
you may subject yourself to lower risk.

There are many different technical tools used in day trading.
You need to experiment to find the technical indicators which
work best for you, and which stocks you feel most comfortable
day trading.  However, there are a few good rules to remember
and methods which work consistently well.

Try to avoid the temptation to buy at the first few minutes of
the market open if you plan on holding the position for a few
hours.  It is almost always a very bad idea.  Many stocks often
gap open at a high level, then level off.  This is because there
are frequently imbalances between buy and sell orders at the open
since the market has been closed for several hours.

In addition, the element of hope persists.  Investors and traders
want the market to move up.  It's part of human nature.  We always
hope that today will be the day that we start a new rally.  Even
experienced traders who profit from put plays may feel this way,
as most people hold stocks in their IRAs for retirement.  While it
is possible to profit in a down market, it seems easier and more
fun to make money on the upside.

This can fuel excessive optimism at the market open, particularly
if the futures are high.  If the futures are way up, people often
assume that the market will rally all day.  However, the futures
are usually only indicative of the open of the market, and are
a poor indicator of the daily market direction.  There are many
days when the futures are higher into the open, and the markets
close down for the day.

Often, very fast moving stocks offer the opportunity for small
profits on imbalances at or near the market open, particularly
for adroit traders who can buy and sell within a few minutes.
However, it is generally not a good idea to trade this way with
options.  During the first hour of trading, market makers
typically price the options with high volatility when the stock
is moving quickly off the open.  After the stock settles a bit,
the market makers will either decrease or increase volatility in
the option, depending on whether the public is buying or selling
them.  It always tends to go against you, and naturally in favor
of the market makers.  Waiting until around 10:00 or 10:30 will
minimize this risk.  If it is a real rally, it will last past
the first hour and you have to trade what you're given.

If the averages are trending down, it is generally best to buy
puts, although certain stocks may buck the trend.  As an
example, PMC Sierra was a very weak looking stock on Tuesday
and Wednesday.  Although the company had not warned of a
slowdown in earnings, many analysts had downgraded the sector,
and the stock was way below all its major moving averages.
SMH, which is the holding stock for the semiconductor sector,
was trading down, and did not show any sign of technical strength.
The following is an example of a profitable entry point.

As a side note, it is informative to watch the amount of
cash that is going into both equity and money market funds on
a monthly and weekly basis.  The weekly reports on equity funds
in December reflect capital gains distributions as an outflow,
and are often lower than the actual amount.  However, the four
week moving average of cash to equity funds is a negative $4.5
bln, according to AMG Data Services.  We have only had one
other month in the last ten years in which equity funds showed
a net redemption, and that was in August of 1998.  Most equity
fund investors do not redeem their funds, even in bear markets.
This is indicative that many market participants may be starting
to panic.

However, we have enough cash in money market funds to sustain
a market rally, when the time comes that investors feel
comfortable buying stocks.  The Investment Company Institute
reported that money market funds currently hold $1.869 trln,
as of December 13th, an increase of $24.8 bln from the
previous week.  Money market funds have taken in $258 bln in
the last twelve months, or an average of $21 bln per month.

During the months of January through March of 2000, we saw
between $40 and $50 bln per month deposited into equity
funds, and the majority of the money was deposited to technology
funds.  This was partly responsible for the phenomenal Nasdaq
rally we saw during those months.  Since we have had more
losses this year, it is possible that the tax selling is more
intense.  However, the real catalyst for a rally may be
decent first quarter earnings reports, as well as a rate cut
from the Fed.

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IBM - Int'l Business Machines $86.00 -4.13 (-1.81 this week)

IBM develops, manufactures, and sells advanced technology
processing products.  They are the world's top provider of
computer hardware including PCs, mainframes, and network
servers. IBM is also an industry leader in software and
peripherals, second only to Microsoft.  The company owns
software pioneer Lotus development, maker of Lotus Notes.

Most Recent Write-Up

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.


"Beam," as we called it on the floor, got hit with a downgrade
today from Merril Lynch, along with HWP.  HWP issued a statement
reaffirming its guidance while IBM kept mumm.  Could a warning
be around the corner?  Quite possibly.  IBM is technically pinned
between support at $85 and resistance at $88, which it challenged
three times today.  Look for entry on rollovers from $88 and
watch for buyers at the $85 level.  A break above $88 and look
for resistance at $90.

BUY PUT JAN-90 IBM-MR OI=16359 at $8.38 SL=6.50
BUY PUT JAN-85*IBM-MQ OI=13909 at $5.88 SL=4.25
BUY PUT JAN-80 IBM-MP OI=10540 at $4.00 SL=2.50



Merry Christmas...but where are the presents?

The stock market was hammered today with blue chip technology
issues pacing the decline amid a slew of negative analysts'
comments.  Merrill Lynch set the stage for a bloody session,
issuing downgrades on bellwethers Cisco (CSCO), International
Business Machines (IBM) and Hewlett-Packard (HWP).  The drop
in Nasdaq valuations was quick and decisive, and the selling
pressure was particularly heavy in Internet, computer hardware
and networking shares.  There was little positive activity on
the Dow, with Walt Disney (DIS), Microsoft (MSFT), American
Express (AXP), Home Depot (HD) and International Paper (IP)
among the worst performing industrial issues.  In the broader
market, defensive sectors experienced small pockets of upward
movement with utilities, precious metals and healthcare among
the strongest performers.  At the same time, financial, paper
and biotechnology endured substantial losses.  Even with the
bearish activity, analysts say there is potential for further
downside movement in the coming weeks.  In addition, any lows
that are established in the next few sessions will have to be
tested before a recovery can begin.  With the potential for a
technology washout before years-end, technicians believe that
a move to 2,100 is likely for the Nasdaq and a Dow retreat to
10,000 is not inconceivable.  Regardless of your opinion for
the future, it's not a pretty picture for those who had hopes
that the bottom was near.

Summary of Previous Picks:

NOTE:  December prices as of Friday's Expiration

Covered Calls: (Margin would double the listed Monthly Return)

Stock  Strike Strike Cost   Current Profit  Monthly
Symbol Month  Price  Basis  Price   (Loss)  Return

EMLX    DEC   120   113.56 139.69    $6.44   4.7%
ADBE    DEC    67.5  64.44  62.44   -$2.00   0.0%

Naked Puts:

Stock  Strike Strike Cost   Current Profit  Monthly
Symbol Month  Price  Basis  Price   (Loss)  Return

BEAS    DEC    55    54.50  71.38    $0.50  11.0%
FNSR    DEC    22.5  21.94  35.06    $0.56  10.7%
CHIR    DEC    35    34.31  42.94    $0.69   9.6%
IDPH    DEC   155   153.94 209.44    $1.06   8.8%
PWAV    DEC    40    39.00  60.19    $1.00   8.3%
SAWS    DEC    35    34.12  65.00    $0.88   8.0%
GENZ    DEC    75    74.19  93.81    $0.81   6.9%
CMVT    DEC    85    83.37 105.38    $1.63   6.7%
QCOM    DEC    65    63.81  79.56    $1.19   6.7%
ADBE    DEC    55    54.00  62.44    $1.00   5.9%
FRX     DEC   125   123.69 135.38    $1.31   5.8%
PVN     DEC    35    34.75  44.94    $0.25   5.0% Adj 2-1 Split
SCMR    DEC    40    39.31  55.19    $0.69   4.9%
CRGN - Position closed.

IVGN    JAN    60    58.50  78.56    $1.50   7.0%
DCTM    JAN    40    38.94  50.16    $1.06   6.8%
EMLX    JAN    45    43.69  65.56    $1.32   6.3% Adj 2-1 Split
NOK     JAN    40    39.25  41.13    $0.75   4.7% Key Moment

Sell Strangles:

Stock  Strike Strike Cost   Current Profit  Monthly
Symbol Month  Price  Basis  Price   (Loss)  Return

CLFO -  Short-put position closed.
CFLO    DEC   165c  172.13  49.00    $7.13  23.2%
MANU    DEC    33p   32.16  47.44    $0.35  11.7% Adj 2-1 Split
MANU    DEC    70c   70.25  47.44    $0.25   8.4% Adj 2-1 Split

IMPH    JAN    35p   33.25  56.94    $1.75  11.7%
IMPH    JAN    80c   82.75  56.94    $2.75  17.0%
GMST    JAN    25p   24.37  40.06    $0.63   5.8%
GMST    JAN    65c   65.75  40.06    $0.75   6.8%

Naked Calls:

Stock  Strike Strike Cost   Current Profit  Monthly
Symbol Month  Price  Basis  Price   (Loss)  Return

MANU    DEC   135   136.75  47.44    $1.75  13.0%
CIEN    DEC   110   111.00 100.72    $1.00  12.2%
EMLX    DEC   185   187.19 139.69    $2.19  10.9%
IWOV    DEC   115   115.50  68.38    $0.50  10.6%
EMLX    DEC   175   176.06 139.69    $1.06   8.7%
CIEN    DEC   140   141.25 100.72    $1.25   8.3%

VRTS    JAN   160   161.69  80.38    $1.69   6.1%

Credit Spreads:

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

AFFX  $87.25  $65.00   DEC50P/60P  $1.12   $58.88  $0.88   Expr
AGN   $90.75  $91.81   DEC70P/75P  $0.75   $74.25  $0.75   Expr
AET   $33.03  $33.00   DEC28P/30P  $0.28   $29.72  $0.28   Expr *
APA   $62.44  $59.13   DEC50P/55P  $0.63   $54.43  $0.63   Expr
BMY   $67.94  $68.09   DEC60P/65P  $0.88   $64.13  $0.88   Expr
ELN   $53.38  $50.50   DEC47P/50P  $0.50   $49.50  $0.50   Expr
XL    $80.00  $80.69   DEC70P/75P  $0.62   $74.38  $0.62   Expr
* Split adjusted

ESRX  $88.88  $93.75   JAN65P/70P  $0.50   $69.50  $0.50   Open

Debit Straddles:

Stock  Pick    Last     Position   Debit    G/L    Status

FITB  $55.25  $54.00   DEC55C/55P  $3.00   $-2.00   Clsd *

* Closing the Straddle on DEC 6 provided a $0.62 credit - a 20%
return in one day.

New Candidates:

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


BULLISH PLAYS - Covered Calls, Naked Puts, & Combinations

AFFX - Affymetrix  $63.63  *** Looking For A Bottom! ***

Affymetrix is engaged in the field of DNA chip technology.  The
company has developed and intends to establish its GeneChip system
as the platform of choice for acquiring, analyzing and managing
complex genetic information in order to improve the diagnosis,
monitoring and treatment of disease.  The GeneChip system consists
of disposable DNA probe arrays containing gene sequences on a chip,
certain reagents for use with the probe arrays, a scanner and other
instruments to process the probe arrays, and software to analyze
and manage genetic information from the probe arrays.

Affymetrix is one of the leaders in the field of Genomics and
investors, as well as industry experts, are bullish on the
company's outlook.  Analysts say that Affymetrixs' GeneChip probe
arrays could significantly reduce the cost and time required for
high-volume polymorphism analysis, which is currently performed
through more labor intensive sequencing techniques. The GeneChip
probe array technology and systems integrate chip fabrication
techniques, solid phase chemistry, molecular biology, software and
robotics.  Affymetrix currently is selling a portfolio of custom
and standard expression monitoring GeneChip arrays including some
unique products that monitor the expression of the majority of full
length and partial gene sequences contained in publicly available
sequence databases that correspond to human, mouse, rat and yeast

The current pattern of consolidation has produced a relatively
stable trading range and a reasonable cost basis exists near the
current support area at $50.  Our conservative position offers a
method to participate in the future movement of the issue with
low risk and favorable reward.

AFFX - Affymetrix  $63.63

PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-40  FIQ-MH  OI=0   A=0.88
SELL PUT  JAN-45  FIQ-MI  OI=27  B=1.50
INITIAL NET CREDIT TARGET=$0.68-$0.75  ROI(max)=15%


IDPH - IDEC Pharmaceuticals  $184.06  *** Entry point! ***

IDEC Pharmaceuticals is a biopharmaceutical company engaged in
the research, development and commercialization of targeted
therapies for the treatment of cancer and auto-immune and
inflammatory diseases.  The company's first commercial product,
Rituxan, and its most advanced candidate, Zevalin, are for use
in the treatment of certain B-cell non-Hodgkin's lymphomas.
The company is also developing products for the treatment of
various auto-immune diseases, such as psoriasis, rheumatoid
arthritis and lupus.

IDPH shares tumbled today along with other leading issues in
the biotechnology group and the move has investors wondering
whether the stock is a "buy" at the current levels.  Banc of
America Securities is one of the company's primary supporters
and today they issued a new recommendation to look beyond the
expected seasonal weakness and focus on a strong 2001.  Shares
of the company's stock have slumped in recent sessions due to
concerns about limited upside in the fourth-quarter Rituxan
sales estimates.  BofA says that unique factors contributed to
the seasonal weakness of Rituxan sales in the fourth quarter
and that future revenues will be unaffected by the near-term
decline.  Traders who favor the company's overall outlook can
"target shoot" an entry point in the issue with these
conservative positions.

IDPH - IDEC Pharmaceuticals  $184.06

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  JAN 120  IDK MD  806       2.50   117.50     6.4% ***
Sell Put  JAN 125  IDK ME  133       3.00   122.00     7.6%
Sell Put  JAN 130  IDK MF  1388      3.63   126.37     9.1%


IMPH - Impath  $56.94  *** S&P 600 Addition! ***

Impath specializes in providing patient-specific cancer diagnostic
and prognostic information, with an expertise in difficult to
diagnose tumors, prognostic profiles in breast and other cancers,
and lymphoma/leukemia analysis.  The company currently works with
more than 7,400 physicians specializing in the treatment of cancer
patients, in 1,785 hospitals and 409 oncology practices.  Impath's
database currently contains more than 550,000 patient profiles.
In addition, Impath can link its information with that of its
tumor registry business to provide data on the full continuum of
care, from diagnosis through treatment and the outcomes on many
patients.  Impath is working on more than 50 projects with over 20
different pharmaceutical/biotechnology companies including 21 U.S.
based and four international clinical trials.

Impath made the list last week as a potential "premium selling"
position and today the issue rallied above a recent trading range
near $50, with the provider of cancer information scheduled to
replace Lilly Industries (LLY) in Standard & Poor's Small-Cap 600
Index after the close of trading.  The final hour of the session
was very active as fund managers moved to acquire the issue for
their index-tracking portfolios and now the question is whether
the stock can build on today's gains.  A study of chart patterns
and historical trends suggests that current option premiums are
overpriced and that "out-of-the-money" positions can be sold with
a favorable theoretical advantage.  Traders who have a bullish
outlook for the issue can speculate conservatively on its future
movement with these positions.

IMPH - Impath  $56.94

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Call JAN 45   QPH AI  70       14.25    42.69     5.5% ***

Sell Put  JAN 40   QPH MH  24        1.13    38.87     9.2% ***
Sell Put  JAN 42.5 QPH MV  7         1.69    40.81    13.1%
Sell Put  JAN 45   QPH MI  15        2.31    42.69    17.1%


VAR - Varian Medical Systems  $62.00  *** Hot Sector! ***

Varian Medical Systems is engaged in the design and production
of equipment for treating cancer with radiation, as well as
high-quality, cost-effective x-ray tubes for original equipment
manufacturers, replacement x-ray tubes and imaging subsystems.
Its oncology systems line encompasses a fully integrated system
of products embracing not only linear accelerators, but also
sophisticated ancillary products and services to extend their
capabilities and efficiency.  In addition to developing medical
hardware, VMS also develops clinical software products and
devices that enhance productivity and quality.  The company's
products are divided into three major categories, comprised of
oncology systems, x-ray products and breakthrough technologies.

There's not much news on Varian to explain the recent activity
but the Scientific and Medical Instruments group is performing
very well and technical indications suggest VAR has successfully
completed a recent consolidation and is poised for future gains.
In addition, the fundamental outlook for the company is excellent
and the recent rally to new highs has been on increasing volume;
both factors that lead us to a bullish position in the issue.
The favorable option premiums also help provide a conservative,
low risk position with a reasonable expectation of profit.

VAR - Varian Medical Systems  $62.00

PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-50  VAR-MJ  OI=0   A=0.43
SELL PUT  JAN-55  VAR-MK  OI=41  B=0.88
INITIAL NET CREDIT TARGET=$0.50-$0.56  ROI(max)=11%


Neutral Plays - Straddles & Strangles

CEPH - Cephalon  $53.69  *** Trading Range? ***

Cephalon markets PROVIGIL Tablets for treating excessive daytime
sleepiness associated with narcolepsy. Cephalon has completed
studies using PROVIGIL in patients suffering from fatigue that
is associated with multiple sclerosis, and excessive daytime
sleepiness due to obstructive sleep apnea, as well as a study
to demonstrate improvement in performance and alertness in a
simulated shiftwork environment.  The company has initiated a
new study to investigate PROVIGIL's use in treating attention
deficit hyperactivity disorder in adults and a second study in
obstructive sleep apnea.  In addition to its clinical program
focused on PROVIGIL, Cephalon has other significant research
programs that seek to discover and develop treatments for
neurological and oncological disorders.

This play is based on the current price of the underlying stock
and its recent technical history.  The probability of profit in
these positions is also higher than other plays in the same
strategy based on disparities in option pricing.  We will use
the recent volatility and the overpriced options to initiate a
neutral position with a favorable premium.  The probability of
the share value reaching our sold strikes is rather low, but
there is always the possibility of a break-out from the recent
trading range, so monitor the position for changes in technical

CEPH - Cephalon  $53.69

PLAY (aggressive - neutral/credit strangle):
Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  JAN 40   CQE MH  100       0.94    39.06     8.2% ***
Sell Call JAN 70   CQE AN  502       1.19    71.19    10.1% ***


Sell Call JAN 65   CQE AM  10        2.00    67.00    15.9%
Sell Put  JAN 45   CQE MI  27        2.19    42.81    14.8%



The issues are excellent candidates in the "premium-selling"
category of options trading.  Based on analysis of statistical
option pricing and the underlying stock's technical history,
these positions meet our fundamental criteria for profitable
naked-calls.  Each issue has robust option premiums, a well
defined resistance area and a high probability of remaining
below the target strike prices.  However, current news and
market sentiment will have an effect on these issues and, as
with any recommendations, these positions should be carefully
evaluated for portfolio suitability and reviewed with regard
to your strategic approach and personal trading style.  Some
traders may favor a more aggressive approach, selling options
that are closer to the current price of the issue, to produce
a higher initial return.  While that technique may be more
attractive, it also increases the theoretical risk of loss.
Only you can know what plays are suitable for your risk-reward
tolerance and portfolio outlook.

ADBE - Adobe Systems  $57.25  *** Technicals Only! ***

Adobe Systems is a provider of graphic design, publishing, and
imaging software for Web and print production.  The company
offers a line of application software products for creating,
distributing, and managing information of all types.  Adobe
licenses its industry-standard technologies to major hardware
manufacturers, software developers, and service providers, and
offer integrated software solutions to businesses of all sizes.
Professional Web designers use the company's web page layout,
digital video, and digital imaging software to enable virtual
presentations of products and services on the Web, to create
brand differentiation and a satisfying Web browsing and online
shopping experience for customers.  Graphic designers, artists,
technical writers, and pre-press professionals use the company's
solutions for professional page layout, illustration, business
publishing, and printing visually rich information.  The Adobe
Acrobat software allows users to publish and distribute business
documents using corporate e-mail and intranets and the Internet.

ADBE - Adobe Systems  $57.25

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Call JAN 75   AXX AO  2025      1.75    76.75    13.4%
Sell Call JAN 77.5 AXX AW  746       1.38    78.88    10.9%
Sell Call JAN 80   AXX AP  1377      1.00    81.00     8.1% ***


BEAS - BEA Systems  $56.50   *** Technicals Only! ***

BEA Systems is a provider of e-commerce infrastructure software
that helps companies of all sizes build e-commerce systems that
extend investments in existing computer systems and provide the
foundation for running a successful integrated e-business.  The
company's products have been adopted in a variety of industries,
including commercial and investment banking, securities trading,
telecommunications, airlines, retail, manufacturing, package
delivery, insurance and government, in many cases using the
Internet as a system component.  The company's products serve as
a platform or integration tool for applications such as billing,
provisioning, customer service, electronic funds transfers, ATM
networks, securities trading, Web-based banking, Internet sales,
supply chain management, scheduling and logistics, and hotel,
airline and rental car reservations.

BEAS - BEA Systems  $56.50

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Call JAN 80   BUC AP  2153      1.81    81.81    14.0%
Sell Call JAN 85   BUC AQ  3456      1.25    86.25    10.1% ***


QLGC - Qlogic  $67.44  *** Technicals Only! ***

QLogic Corporation is a designer and supplier of semiconductor
and board level input/output, or I/O, and management controller
products.  The company's I/O products provide an interface for
the direct attachment or networking of computer systems and
their data storage environments. The company provides these
interfaces for all enterprise server and storage products
including proprietary and open systems platforms, hard disk and
tape drives, removable disk drives, RAID (redundant array of
independent disks), subsystems and tape libraries.  In addition,
it designs and markets baseboard and enclosure management
products that monitor and communicate management information
related to components that are critical to computer system and
storage subsystem reliability and availability.

QLGC - Qlogic  $67.44

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Call JAN 120  QLC AD  1167      2.13   122.13    13.8%
Sell Call JAN 125  QOV AE  659       1.81   126.81    12.0%
Sell Call JAN 130  QOV AF  985       1.50   131.50    10.1% ***

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