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Daily Newsletter, Sunday, 12/24/2000

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The Option Investor Newsletter                   Sunday 12-24-2000
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******************************************************************
MARKET STATS FOR LAST WEEK AND PRIOR WEEKS
******************************************************************
       WE 12-22         WE 12-15          WE 12-8         WE 12-01
DOW    10635.56 +200.60 10434.96 -277.95 10712.91 +339.37  - 96.69
Nasdaq  2517.02 -136.25  2653.27 -264.16  2917.43 +272.14  -259.09
S&P-100  684.23 -  5.25   689.48 - 37.58   727.06 + 31.07  - 15.17
S&P-500 1305.95 -  6.20  1312.15 - 57.74  1369.89 + 54.66  - 26.54
W5000  11981.50 -112.40 12093.90 -572.60 12666.50 +629.10  -316.20
RUT      462.99 +  4.96   458.03 - 21.04   479.07 + 22.23  - 15.03
TRAN    2849.93 +151.25  2698.68 -181.27  2879.95 +116.80  - 86.74
VIX       31.52 +   .32    31.20 +  5.07    26.13 -  5.46  +  2.01
Put/Call    .61              .94              .59              .61
******************************************************************

History returns with a roar!
By Jim Brown

With an explosion of good will and holiday euphoria the markets
roared open at the bell and never looked back. On what is typically
a low volume trading day the normally bullish sentiment returned
with a vengeance. Santa Claus came early with a +176 point gain
on the Nasdaq and +148 gain on the Dow. Almost nothing was spared
the outpouring of investor Christmas money with many stocks gaining
+20% to +30%. Is it the rally everyone has been waiting for or just
a holiday aberration? Several factors will help us decipher this
puzzle.










There was no material good news between Thursday's close at the
low of the day and the gap open on Friday morning. There was still
a flood of earnings warnings but no high flyers. Warning Friday
was UAL, LZB, DNY, STTS, CRO, AVCT, CRN, GLK and MDS to name a few.
You probably don't recognize most of those symbols and maybe that
is the reason the market did not drop. Actually many of those
stocks finished positive for the day!

Some of the news that prompted the strong market was positive talk
by analysts on some of the biggest tech stocks. John Jones at
Salomon Smith Barney came out on IBM saying the earnings warning
worry was way over done. He feels they will make their quarter and
called them the super star of the tech sector. IBM rallied off
Thursday's 52-week low of $80 for a +7.44 gain and added +38 points
to the Dow. Other major Dow movers included AA +3.06, CAT +1.88,
XOM +2.06, HWP +2.81, IP +2.69 and MSFT +3.0. Notice anything about
the big gainer list? AA, CAT, XOM, IP are not tech stocks. That
means there was not a total sell out in favor of the Nasdaq. We
should be encouraged about that. Investors in those stocks are
normally longer term investors and that means breadth is alive
and well. Other analysts made positive comments about SUNW, ORCl
HWP and EMC which helped the promote the positive tech sentiment.

The Nasdaq was not without some real superstars with stocks that
closed at the lows Thursday on heavy volume rocketing double
digits on Friday. Check out these gains, JNPR +29, CHKP +25,
QLGC +18, CIEN +17, BRCM +16, BRCD +16, EMLX +15, NTAP +14.
Almost anything tech rallied back to recover yesterday's losses
and then some. Did I miss some news item about a magic economic
recovery? Did the Fed cut rates over night? Not to my knowledge.
The miraculous gains were the combination of several factors.
First the January effect is still alive and well. The outflow
of cash from stock funds, -$9.5 billion this week alone from
equity funds, will stop abruptly next week. Retirement funds,
Christmas bonuses and gifts will begin flowing toward the markets.
Funds that have been hoarding cash for year end redemption's will
start to breath easier and put some of that cash to work with
expectations of more to come.

Another factor was the end of tax selling. Not really but the
biggest chunk anyway. Funds faced with skeleton work forces next
week dumped stocks this week when it became apparent that the
Santa Claus rally was not going to make an appearance. Most of
the heavy volume on Thursday was funds cleaning house. With only
five trading days left in the year time was running out.

The Nasdaq was also simply way oversold and the apparent final
capitulation Thursday afternoon was the signal for bargain
hunters to start shopping. You won't see anybody complaining
today but let's look at the numbers. I said on Thursday night
we would probably get a short covering rally on Friday and the
shorts ran for cover after the opening gap failed to roll over
as it has so many times in the past. We got the relief bounce,
it held and the highly profitable shorts started covering with
wild abandon. The spiking stocks drew buyers fearing a runaway
which fueled the gains. You know it was short covering when stocks
like JNPR gain +$29 in one day from a close of $89. That is a +31%
gain. CIEN +29%, CHKP +22%, QLGC +29%, BRCM +21%, BRCD +24%.
Do you think funds were throwing money at stocks up +25% for the
day? Not hardly. The fear from the shorts was that the holiday
history lesson would repeat itself next week as well with a
continued rally and they just wanted to be flat before the close.
One of the most spectacular performances was by SUNW which posted
a +$5 gain or +18%. A new pick on Wednesday night at $27.44, SUNW
gapped open and only briefly hesitated on the JDSU scare before
closing at the high of the day. Good volume and a steady climb
all day.

After the opening gap the Nasdaq ran up to 2500 and stopped dead
for the rest of the morning. The midday dip you will see on the
chart was due to JDSU. DB Alex Brown made some negative comments
to their sales force about JDSU and the possibility of a warning
and the rally came really close to self-destructing. JDSU dropped
from $48 to $37 on the news before a qualification took the sting
out of the rumor. CIEN dropped from $77 to $67 in sympathy as
well as drops in the other big caps also. It was the fear that
every daytrader feels just when they get all their trades in place
and profitable and suddenly the balloon bursts. Fortunately it
turned into a buying dip and there were plenty of buyers ready
to take a chance after seeing those same stocks run away from
them at the open. Intel also failed to take part in the rally
after Banc of America Securities and Wachovia Securities both
expressed concern that Intel will miss its already lowered
estimates.

Even with the +7.6% gain today the Nasdaq finished the week down
-136 points, and -38% for the year. The two-day Dow rebound however
added +200 points for the week. With the Nasdaq closing over 2500
analysts could not say enough good things about the future. The
economic reports provided no smoking inflation gun with Personal
income up +0.4% and Spending up +0.3%. Durable Goods rose +2.3%
in November compared with a drop of -6.5% in October. No major
surprises and the economy is still slowing. This seems to continue
the feeling that the Fed will make an inter-meeting rate cut
the second week of January. The Fed funds futures are slowly
factoring in almost a 44% chance. Adding to the pressure on the
Fed is the anemic earnings forecast for next year. First Call
said that based on the current consensus estimates for the S&P
500 companies, earnings growth is expected to be up only +5.9%
for the current quarter and +6% for the first and second quarter
of 2001. Compared with the +24% growth rate from earlier this year
that is a recession! Granted it is not negative growth but the
impact to the economy will feel like a recession. This is what
is prompting the analysts to expect a rate cut. The Nasdaq has
priced in this earnings drought and is now prepared to rally on
the expectation of better times ahead. The tech market tends
to anticipate the results of rate cuts by two to three quarters
in advance. This is all analyst speak and expectations can change
faster than bids in a falling market. Let the Fed say anything
next week that even remotely suggests they will wait for the next
Fed meeting and storm clouds will instantly appear. The economic
calendar next week is devoid of anything meaningful so there
will be nothing material to take investors eyes off the market.

Next week should be exciting. Tuesday we will see if the rally
has legs or it is just another one day wonder. The week is
normally up but we went from seriously oversold to some absurd
gains in only one day. The VIX is still hovering around 32 which
considering the monster rally on Friday is disturbing. It means
there is still a lot of uneasiness in the market. The -60 point
drop in the Nasdaq on the JDSU rumor illustrates this point.
The last major tax selling day is Tuesday with the last three
days of the year reserved for window dressing portfolios for
those year-end statements. With no economic reports to speak of,
all eyes will be focused on the December Non-Farm Payroll Report
the following Friday. This would be the trigger for an interim
rate cut. Earnings challenges for next week should be slim, but
the following week could be a killer. Historically 43% of the
earnings warnings for the fourth quarter occur in January. The
first week is normally when companies get their first look at
the year-end books and decide to confess early and avoid the
rush. Still, in spite of the clouds still on the horizon, the
week after Christmas is historically up. If you are in the market
then tighten up those stops. Expect some profit taking on those
rockets from Friday. If you are on the sidelines then spend some
time this weekend deciding what you are willing to pay for the
stocks you want next week. Set some limit orders and hope for
a profit taking dip to get a fill. If you sat by Friday in
frustration as stocks ran away from you, be patient. You may
get another chance. A JDSU warning next week or somebody similar
and we could be right back where we started again.

There is only seven days left to take advantage of our special
annual renewal offer and get all the free stuff. Don't wait any
longer! http://secure.sungrp.com/01renewal.asp

I would like to take this opportunity to wish everyone a very
Merry Christmas. Take some time out from your investing pursuits
and reflect on why you are doing it. Most of us will never benefit
from the accounts we are building. The benefits will go to our
families and that may be the best reward of all. We all need
to remember who we are working for and if the truth be known
those same family members would probably rather have us spend
more quality time with them now instead of promises about later.
Just a thought. The markets are closed for the holidays.
That is not just a coincidence.

Trade smart, choose your entry points carefully!

Jim Brown
Editor



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




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**************
EDITOR'S PLAYS
**************

Another fun week for longs. I was stopped out of all my
naked puts on Monday when the market rolled over at the
open. I patiently waited until Thursday to put them back
on and found myself hesitant to pull the trigger at the
close. With the stocks I was watching dropping like a rock
I chose to stay on the sidelines. The gap open on Friday
killed call players but I was able to put my naked puts
back on and capture some decent gains from the rest of
the day. I was still expecting a pullback at the close
so I limited my positions.

As I was sitting and watching the +$15, $20, $25 gains on
the fast moving techs I started looking for some stocks
that had not run out of sight that I could play calls for
January. With premiums on the fast movers approaching the
price of margin on the stock I refuse to pay those prices.

Naked puts on cheaper stocks do not carry the risk/reward
ratio of the fast movers so calls are the answer. I am going
to list some of what I would call lottery plays for January.
These stocks have been so beaten up that any buying interest
should provide an upward move.

I am not making any claims as to the value of the stocks
or the companies, just that there is likely to be some
money move into the cheaper stocks in the next week or two.
If that happens we could see some decent profits. Do your
own research and decide if any of these work for you.

The Internet sector and stocks like KANA and LBRT have been
so decimated that they are likely to see investors in denial
come back into them simply because of the appearance of value.
CMGI, SFE, ICGE are $5 stocks but their image is much higher.
If the Nasdaq rallies these cheap stocks will benefit from
association. Just keep your stops tight because $5 stocks can
still get cheaper!




I like VOD which has had a solid bottom at $34 for four months
with several bounces back to $40.

PHG has strong support at $32 and is rolling to $40 and back.

KANA pulled a dead stop at $9 three days ago and gained on Friday.

RFMD put in a higher low at $23 and could run +$10.

FNSR has strong support at $25 and could run +10 easily.

LBRT made a higher low and has been up two days.

These are highly speculative plays and you should not put
a lot of money into any one play. Treat them as a lottery
play and set your stops at about half your cost. They are
much cheaper than CIEN, BRCM and BRCD but CHEAP is not the
same thing as GOOD. They can be good plays but only time
will tell.

Good Luck, good trading!

Jim Brown


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

Santa Rang The Rally Bell
By Austin Passamonte

Santa Claus rang Friday's closing bell at the big board and he
sure picked the right day for sledding into town. One more session
like Wednesday would've found Santa getting his bell rung while
trying to escape from the floor instead. Mobs of angry traders
might have shot his reindeer and pilfered the sled of its bag
filled with toys.

Just kidding. Everyone loves Santa. Especially when the NASDAQ is
back over 2,600 and the SPX above 1300. Did you ever think those
would be upside targets to strive for by year's end?

Believe it or not we are now poised for a serious rally up the
charts, one that could actually last beyond two sessions. Will it?
We didn't say that; we said it COULD. Time to dial up the charts
and see what's cookin':




Offering a break from the tedium of put-plays and their massive
profit returns, we now have bullish divergence on the S&P 500
daily chart. See how price action made lower lows while stochastic
slow bar values (red line) held fast? That indicates we should
test/exceed the previous highs right before this setup developed,
which would be +/- 1435 from early November.

The 20-DMA at 1333 and descending trend line at 1370 area offer
the next two overhead resistance points. Excellent places to exit
one trade or enter another as they break or hold. We'll keep our
eye on these.


(Daily Chart: NDX)



No divergence in the NDX/QQQ, but daily stochastic & MACD signals
are turning positive as prices release from the lower Bollinger
band. Three main points of overhead resistance are seen but could
be mere speed bumps along the way. We think the 70 range by Friday
next is possible.




Here's a test for you: Where are stochastic values from late
November until now versus index price levels over the same period?
Are they both making lower-lows, higher-lows or do we now see
early divergence?

The Dow has two descending trend lines and it's upper Bollinger
band to clear before testing 11,000. Hey, the upside seldom
unfolds fast as downside moves do! Put-plays are easier than call
plays when it comes to quick execution, without question.




Speaking of put plays, the Drug index may have seen an end of its
ascension for now. Bearish divergence, failing stochastic values
and the threat of breaking out from the long-term ascending
channel (bear flag) will also merit watching for bearish plays.

Friday was a good start to what may be our next market reversal.
we're not ready to call a long-term bottom just yet but welcome
any strong move the market is willing to offer. High-odds are we
will enjoy a very tradable rally at the least.

Tax selling is probably over. Any traders left holding onto losers
have seen prices improve over the last two sessions and it's very
tough to cut losses when they are bouncing. Something to do with
greed. Maybe INTC will return to $70 after all and let them out at
breakeven... no sense in dumping it now.

Bad news is being discounted. Massive selling across every sector
has slain so many stocks in sympathy that by the time their turn
comes around to warn, they've already been cut off at the waist.

Expectations for the "January effect" are alive & well. Cash on
the sidelines will go to work. New Year's resolutions to make more
money will bring fringe players back to the table.

Falling oil prices are seen as a market boon. Will they remain
lower? We'll watch the energy future's market and COT data for
clues about what the commercials are doing over there. They are
hedging against lower prices for Crude Oil and Natural Gas with
net-long positions at this time.

Unlike equity commercials who speculate, energy commercials are
large producers and manufacturers predominantly concerned with
locking in fixed prices. Therefore, they tend to stake positions
in the opposite direction of expected market action.

Interest rate cuts? Yep, it's a lead-pipe lock and traders will
rally in anticipation. We wonder what a pre-FOMC rally that blows
all markets back up the charts will do for rate-reduction chances.
Does the Fed really ignore the stock markets? Would the NASDAQ at
4,000 and Dow at 11,200 cause them to drop rates immediately or
sit back one more time? Will a powerful rally boost chances for an
inter-meeting action? Hmmm. Let's deal with this rally first.

Keep in mind that the overall trend is still down and if we rally
it will be bucking the trend. Don't think for a minute that a
solid bottom is in place without further proof. What proof? Here's
what We're looking for:

1.	Higher subsequent highs than the last rally reached. If we
      fail to break the descending trend lines and turn them into
      support, new market lows await us on the downside.

2     Interest rate cuts. We will have no confirmed bottom
      until at least the first cut is officially announced and
      there is no promise when. It could surprise us next week or
      wait beyond the next meeting if markets show new-found
      signs of life.

3.	COT report. We want to see the S&P 500 historical short
      covered and resting on net-neutral. When the big boys
      signal money is flowing positive, we can too.

This week's report is mostly unchanged by official compilation
after Tuesday's close. There were reports of large SP00S blocks
trading to the long side late Wednesday and Thursday after data
was compiled. Next Friday's report will paint a clearer picture as
to where interest lies then.

The COT report will not let you catch the very bottom tick of any
market turn ever, so don't even worry about that. Settle for
knowing a bottom is in place and ride the next 1,500 NDX points up
once it occurs.

We're expecting a sustained rally, but prepared for whatever the
market chooses to do and strongly encourage the same for you.

*****

VIX
Friday 12/22 close: 31.52

30-yr Bonds
Friday 12/22 close: 5.44%

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.

                                   Saturday
                                 (12/23/2000)
  (Open Interest)       Calls        Puts          Ratio
S&P 100 Index (OEX)
Resistance:
725 - 710                8,451        3,401         2.48
705 - 690                9,426        5,268         1.79

OEX close: 684.23

Support:
680 - 665                2,612       10,572         4.05
660 - 640                  364       11,180        30.71***

Maximum calls: 730/5,013
Maximum puts : 600/10,245

Moving Averages
 10 DMA  698
 20 DMA  705
 50 DMA  719
200 DMA  771


NASDAQ 100 Index (NDX/QQQ)
Resistance:
 70 - 68                69,785        18,702         3.73
 67 - 65                86,834        20,093         4.32
 64 - 62                26,833        34,905          .77

QQQ(NDX)close: 60.50

Support:

 59 - 57                12,976        14,290         1.10
 56 - 54                23,551        15,860          .67
 53 - 51                 1,061        12,163        11.46

Maximum calls: 70/50,380
Maximum puts : 60/21,822

Moving Averages
 10 DMA 63
 20 DMA 65
 50 DMA 72
200 DMA 88


S&P 500 (SPX)
Resistance:
1375                   11,227        10,035          1.12
1350                   35,221        34,638          1.02
1325                    5,339         5,887           .91

SPX close: 1305.95

Support:
1275                      600        12,785         21.31***
1250                    1,356        16,968         12.51
1225                       93        13,560        145.81***

Maximum calls: 1350/35,221
Maximum puts : 1350/34,638

Moving Averages
 10 DMA 1323
 20 DMA 1333
 50 DMA 1363
200 DMA 1434

*****

CBOT Commitment Of Traders Report: Friday 12/22
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        -588        +179            -1646       -2089
Total Open
interest %       (-7.52%)   (+2.24%)        (-8.22%)    (-5.50%)
                 net-short  net-long        net-short   net-short

NASDAQ 100
Open Interest
Net Value        +3385       -1438           -4239       +1316
Total Open
Interest %      (+19.05%)   (-4.45%)        (-8.24%)    (+2.11%)
                 net-long   net-short       net-short   net-long

S&P 500
Open Interest
Net Value         +66148      +80633         -81998      -90398
Total Open
Interest %      (+36.56%)   (+29.41%)      (-11.60%)   (-11.61%)
                 net-long   net-long        net-short  net-short


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

Commercials and Small Specs have reversed their positions on the
NASDAQ 100 with the Commercials now moving to a net-short position
and the Small Specs moving to a substantial net-long position.

Interest Rates: Commercials are still heavily short T-Bond and T-
Note futures. (Bearish)

Currencies: Commercials heavily short Euro futures. May consider
it artificially propped. (Bearish)

Energies: Commercials are net-long Crude Oil and Unleaded Gas
while net-short Heating Oil & Natural Gas. These producers are
hedgers and almost always take the opposite side of expected
market action to lock-in production prices. Crude Oil and Unleaded
Gas (Bearish), Heating Oil and Natural Gas (Bullish)

Metals: Commercials are moving from net-long towards neutral in
Gold, could be under distribution. Silver, Copper and Platinum are
net-short.

Bonus:(Soybean Meal - Huge commercial net shorts. Futures traders
may consider selling distant-month call credit spreads!)

Data compiled as of Tuesday 12/19 by the CFTC.


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

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***************
ASK THE ANALYST
***************

What's Working?
By Eric Utley

The bear market in tech stocks has changed the game for many of
us.  And until tech reasserts its leadership role, there are
other ways to take money out of the market.  Although less
sexy and volatile, the cyclical stocks are making a huge
comeback and stand to continue advancing as Doc Greenspan and
his bunch begin lowering interest rates.  In this week's
column, I've provided a list of names to start your search
for profit opportunities in the cyclical space.

Additionally, many readers have asked about the phenomenon
revolving around stocks' inclusions into major indices,
most notably the S&P 500.  If you're not aware, Standard &
Poor's regularly makes changes to its many indices including
the aforementioned, Small Cap and Mid Cap indices.  The
premise behind Standard & Poor's changes is the index funds
which mirror its indices are required to buy an equity ahead
of its inclusion.  The furious buying that accompanies a
stock's inclusion into an index can be capitalized upon by
traders ahead of the indexers.  The index funds generally
start buying like mad about an hour before the close on the
day in which a stock is to be included into a particular
index.  I've witnessed the index-effect on many occasions
and have traded the event a few times.  It's by no means a
sure way to make money - that doesn't exist.  But it's
another strategy to be aware of.  If you'd like to study
the event, watch shares of Applied Micro Circuits (AMCC) near
the close of trading on Friday, December 29th.  AMCC is
scheduled to replace J.P. Morgan in the S&P 500 after the
close of trading on Friday.  Morgan is being acquired by
Chase Manhattan Bank.

Send your stock requests to Contact Support.
Please put the symbol of your requests in the subject line of
the e-mail.

----------------------------

The Cyclical Story

Please advise the names of some solid cyclical stocks which I can
follow closely for investment.  Your remarks on each stock and its
behavior pattern will be greatly appreciated. - Thanks, Sunil

I'd be interested in reading about your take on cyclicals. - Thank
you, Paul

The recent shift in the capital markets from the tech sector and
into the interest rate sensitive names has prompted several
requests from our readers for a strategy to capitalize on the move.
The major move in shares of deeply cyclical companies began about
three months ago - in early October.  I failed to direct our
readers to the shift taking place at that time.  However, I don't
believe the rotation out of tech and into the cyclical names is
complete.  As I regularly write, the market tends to discount
economic events six or nine months into the future.  And I don't
feel the market is done discounting.  But before we go on, let me
make three quick points:

1 - I'm not bearish on tech, over the long-term.  Historically,
the tech sector has outperformed and that trend WILL continue.  The
greatest risks are found in tech and it follows that the greatest
rewards accompany that risk.  However, for the next six months or
so, tech could remain dormant.  Does that mean you can't trade
tech?  No!  You can, but it takes discipline.  Can you still invest
in tech?  Yes!  Investing in the best of tech will likely yield the
highest returns two or three years out.

2 - Have you heard the Muppets on CNBC talk much about the stealth
rally in select sectors such as Savings and Loans or Paper Stocks?
No!  Why?  Because institutions are busy accumulating stock in the
aforementioned sectors.  When will we hear about the boom in
cyclicals on CNBC and in the general financial media?  About six or
nine months out when shares are trading near record highs and the
pros are looking to dump stock on retail investors and rotate back
into the tech sector as the economy picks up.

3 - There's been talk recently that the U.S. economy is headed into
a recession.  I don't believe most of what I hear.  First, I don't
think Doc Greenspan - the grinch he is - will let growth contract
at a detrimental rate.  Second, I don't believe we'd be witnessing
such major advances in sectors such as Savings and Loans and
Regional Banks if the U.S. economy was truly headed into a major
recession.  Growth might slow or even contract, but in the bigger
scheme of things, the market is telling us that everything's gonna
be alright!

Back to business.  The general premise behind the Cyclical Story
right now is that the Fed is expected to begin easing interest
rates in order to stimulate growth in the U.S. economy.  The
companies that benefit first from an interest rate cut are those
that are most dependent on the business cycle - hence the name
cyclical.  We know the Fed is going to cut rates soon because the
market has been telling us that in the form of rallies in paper
stocks and select financials, among many others.  As you glance
over the charts of the companies below, you'll notice that shares
are trading at or very near 52-week highs.  That said, it's
obvious that the moves in these groups of stocks have already
begun, but they still have room to climb.  Since the major move
has already begun, it may be prudent at this time to wait for a
pullback, which is exactly what the big institutions will be
doing.  Watch for bounces off key support levels and confirm with
strong volume coming in on the reactions.  You're not going to
see explosive rallies that may have been enjoyed in the past in
the tech names.  But what we're likely to see is a gradual
accumulation in shares of companies that will immediately benefit
from a lower cost of capital.

As you research the names that follow, keep in mind this is in
no way a recommendation to go out with guns blazing and load up
on these stocks.  The following names are merely a starting
place to look for ways to put capital to work for the next two
or three quarters.  Do your own research.  Delve into sectors,
and compare and contrast competitors.  And as always, use
discipline with any market operation!

I'd also like to make clear that this is only one man's
opinion based on observation.  My role here is to relay what
I see in the market in an attempt to educate our readers and
help them make money.  In the end, it's up to you the
reader to gather all the data and make an informed decision
and use discipline.  Finally, I'd like to see a few more
cyclical names make it onto the request list in the coming
weeks.  I know I can count on Sunil to provide a few!!!

The following list encompasses a wide variety of sectors
ranging from machinery makers to chemical makers to regional
banks.  The following names appear in no particular order:

FED   DSL   WM   GSB   NDE   BNKU   AMFH   ASFC   GPT   DME
CF    SIB   CFB  WFSL  BOH   PVN    COF    SLM    HI    OLN
DD    DOW   PPG  CBT   ROH   ICI    UK     EMN    DE    JAC
CAT   TEX   IR   IP    BCC   WY     MEA    TIN    BOW   PG

----------------------------

Applied Materials - AMAT

Now that AMAT broke support at 38.5 what would be the next support
level and recommended entry point if a bounce was to occur with
volume?  I have been monitoring this and would like to go long but
would appreciate your technical opinion.  Would leaps be a good
choice? - Thank you, Joe

Thank you for writing in, Joe.

In my very humble opinion, I think $40 was the key support level
for shares of Applied Materials to trade above.  The $40 support
level had held for quite some time until early last week when the
sellers gained enough momentum to drive shares below that key
level.  Do shares of Applied have more downside from their
current levels?  Maybe.

In the current bear market for tech stocks it is so difficult
to pick the bottom.  The fact that Applied is a chip stock, I
think, makes it even more difficult.  The semiconductor sector
is suffering from inventory issues right now, and until those
problems are clearly resolved and demand picks up again I don't
see a real catalyst to lift shares of Applied from their
downtrend.

However, if you're going to attempt to trade from the long
side in Applied, I do feel you're on the right track, Joe, in
looking for bounces off major support levels.  In a bear
market, it is NOT very wise to buy breakouts because they
are likely head fakes or bull traps.  Furthermore, it's
absolutely critical to set extremely tight stops when
attempting to trade any relief rallies!  If your time
horizon is three of four years out you can probably pick up
some shares or leaps on Applied here and make some money
down the road.  The safer play, as opposed to buying
bounces of support levels, is to wait for shares of Applied
to break their downtrend.  But we need to see a pickup in the
chip business before entering on such a move!   Let's take a
look at some support levels and the downtrend I keep referring
to on the charts below.




Long-Term AMAT




----------------------------

Triad Guaranty - TGIC

Can you comment on either of these, please:  Insight - NSIT
Triad Guaranty - TGIC. - Thanks, Dave

I'm glad you requested Triad, Dave, as it represents one of
the many stocks that will benefit from a friendlier Fed.  In
fact, shares of Triad could have been included in the list of
cyclical stocks that I provided above.  Shares of Insight, on
the other hand, aren't faring so well.  But let us focus on
the positive for now and that means taking a closer look at
Triad.

Triad is a holding company that provides insurance coverage to
mortgage bankers, brokers and savings and loans.  Mortgage
interest rates dropped to a one and a half year low last week,
which follows our premise that interest rates in general are
coming down and that means bigger profits for the likes of
Triad.

As you can see on the chart below, shares of Triad have been
anticipating an easier interest rate environment for quite
some time.  The risk here is the stock has discounted a lot
of the good news we'll be hearing six or nine months down the
road about the pick-up in the economy.  But as I mentioned
before, I still think these types of stocks have room to
run.  For shares of Triad, their all-time high lies around
the $42 mark, which provides you with a price objective if
you choose to get into the stock now.  And as far as entry
points go, I think it would be prudent to wait for a pullback
especially after the stock's big ramp last week.  As you can
see on the chart below, shares of Triad are on autopilot.



----------------------------

Emulex - EMLX

If people are questioning valuations in the current environment,
why do EMLX and BRCD continue to have such strong buying after
every dip?  It seems people would say it sold down for a reason
and isn't worth the high pe ratio? - Thanks, Tom

You bring up a very interesting conundrum, Tom.  Why are shares
of Emulex still flying high while the rest of tech has been
whacked?  Especially given the stock's lofty triple digit
multiple!  What's more, when you look at Emulex's competitors in
Celestica, Foundry and Brocade all of their share prices are well
off their 52-week highs.  Emulex's share price is a mere $20 off
its 52-week high.  But why?

I can think of two related reasons why shares of Emulex are
still sailing.  First, the stock may be benefiting from
end of the quarter window dressing.  I tried to explain in
detail a few weeks ago of the tendency of portfolio managers
to "run" stocks up into the end of each quarter in order to
make their funds look better positioned.  If I recall
correctly, Emulex was on the list of likely candidates of
window dressing.

Second, there may be a few large funds dealing in shares of
Emulex, who are willing to defend their long positions
against the bears and keep the stock's chart looking strong.
The agenda behind such a strategy is, again, to keep a fund's
performance looking better and dressing the portfolio.  The
danger with shares of Emulex right here is whether the bulls
have enough staying power (capital) to fend off any bear
attacks that may ensue.  It just doesn't make sense that
shares of its competitors are getting whacked while shares of
Emulex are trading near their 52-week high.  Then again, if
it weren't for last Friday's move, shares of Emulex would
look a lot worse.

Also worth noting is the peculiar pattern near the right
edge of the chart below.  It would appear the shares of
Emulex may be tracing a head-and-shoulders top, which may
result in its eventual correction like virtually every
other tech stock.




----------------------------

Network Appliance - NTAP

I'm a bit concerned with the recent weakness in EMC which may
carry over to NTAP.  NTAP appears to have substantial support
at $62.  Looking to climb.  Your take? - Jeff

Before the downgrade on shares of EMC, Network Appliance was
having its own problems with that very competitor.  There
were concerns raised during NTAP's last conference call that
it would face increased competition from EMC, which could
result in pricing pressures and lower margins.  Those
concerns resulted in a swift drop from the $150 peak that
shares of Network Appliance reached in mid-October.  Since
that time, the stock has become a target of the bears.

Whether or not the bears remain in control of Network
Appliance remains to be seen.  Although the chart is looking
a little more positive, shares are still trading in a
precarious technical position.  NTAP has the possibility of
tracing an ugly double bottom with the first leg set at the
$45 level in late November and the second set last week
around $51.  The fact the second bottom was somewhat higher
than the first may lend to the possibility the bulls have
regained some control over the stock.  At this point, Jeff,
I think it is critical for shares of Network to hold its
ascending trend line and not so much the $62 level.  If they
don't, support at $51 is equally critical.  In addition,
before the repair work can really begin, shares of Network
need to break above their descending trend line!




----------------------------

DISCLAIMER:
This column is an information service only.  The information
provided herein is not to be construed as an offer to buy or
sell securities of any kind.  The Ask the Analyst picks are not
to be considered a recommendation of any stock or option but an
information resource to aid the investor in making an informed
decision regarding trading in options.  It is possible at this
or some subsequent date, the editor and staff of The Option
Investor Newsletter may own, buy or sell securities presented.
All investors should consult a qualified professional before
trading in any security.  The information provided has been
obtained from sources deemed reliable, but is not guaranteed
as to its accuracy.


*************
COMING EVENTS
*************

For the week of December 25, 2000

Monday
======

None Scheduled


Tuesday
=======

Existing Home Sales     Nov  Forecast:  5.10M   Previous:   4.96M
Consumer Confidence     Dec  Forecast:   128    Previous:  133.5


Wednesday
=========

Leading Indicators      Nov  Forecast: -0.20%   Previous:  -0.20%
Oil & Gas Inventory  15-Dec  Forecast:291.8MB   Previous:     NA


Thursday
========

Initial Claims       23-Dec  Forecast:    NA    Previous:     NA
Help-Wanted Index       Nov  Forecast:    NA    Previous:     79
Consumer Confidence     Nov  Forecast: 133.5    Previous:     NA
Existing Home Sales     Nov  Forecast:   5.1M   Previous:     NA


Friday
======

Chicago PMI             Dec  Forecast: 43.50%   Previous:  41.70%
Online Help Wanted Idx. Dec  Forecast: 122.8    Previous:     NA
ECRI Weekly Idx.     22-Dec  Forecast:  -3.3%   Previous:     NA


Week of January 1st
====================

Jan 02  Auto Sales
Jan 02  Truck Sales
Jan 02  NAPM Index
Jan 03  Construction Spending
Jan 04  Initial Claims
Jan 04  Factory Orders
Jan 04  NAPM Services
Jan 05  Nonfarm Payrolls
Jan 05  Hourly Earnings
Jan 05  Unemployment Rate
Jan 05  Average Workweek
Jan 05  New Home Sales


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The Option Investor Newsletter                   Sunday 12-24-2000
Sunday                                                      2 of 5

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/122400_2.asp

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

Making A List And Checking It Twice
By Lynda Schuepp

A couple of weeks ago, I made my Christmas list of stocks I
thought that would lead us out of oblivion, if and when that
happens.  I have held out a lot of cash waiting for the bottom
to come.  I'm not ready to dump all my money back into the
market, because I think we won't see a rapid reversal of this
severe downtrend.  In fact, I suspect we will have a long
sideways market (with an upward bias).  It really doesn't matter
if I'm wrong or right, because you have to deal with what the
market gives you at the time.  Always be ready to change your
strategy when the market delivers you something other than what
you expected.

Out of a list of ten stocks, I picked the best two out of my ten
to invest in on Thursday.  The two I picked were Siebel and I2
Technologies.  Siebel Systems has had remarkable earnings growth.
Yes, they actually have earnings and have had earnings growth from
$.01 in 1995 to $.48 (estimated) for 2000.  Siebel Systems, Inc is
a provider of e-Business applications, enabling organizations to
sell to, market to, and service their customers across multiple
channels, including the Web, call centers and retail and dealer
networks (source is Yahoo finance).   Institutions own 82% of the
float and their buying is up 9% over last quarter.  Let's face it,
E-business is here to stay, and the guys with the best software
will get a lion's share of the business.  I'm more interested in
the infrastructure than the retailers.  That's why I like Siebel.
I TWO, like Siebel, also has a nice pattern of earnings growth
($.01 in 1995 to $.23 estimated in 2000).  i2 Technologies, Inc.
is a global provider of intelligent e-Business solutions that
help enterprises optimize business processes both internally and
among trading partners. Institutions own 50% of the float and
their buying has also increased 9% from the previous quarter.
(source =yahoo finance).

Now for my strategy:  I could have simply bought calls on the
two stocks, but you will recall that volatility was VERY high
on Thursday.  VIX was as high as 37!  We hadn't seen those levels
since October.   Because of the high volatility, the calls were
very expensive.  My fear is that I would buy them and they
wouldn't move, and volatility would go back down and I'd be
out of luck.  Instead, I purchased 1000 shares of each and decided
to see if I could sell some premium against them.

I was tempted to sell the calls at the end of day but decided
to hold off on selling calls on Thursday, because I liked the
volume and the price increases at the end of the day.  Friday,
the market popped at the open and my two stocks climbed.  I was
tempted to just hold on, but I decided to take a cautious approach,
articularly over a long weekend.  I bought ITWO at 45 and SEBL
for 61 on Thursday.  After looking at the call premiums, I decided
to sell the January 50 calls against ITWO and the January 70 calls
against SEBL.  I sold the ITWO 50 calls for 7.375 and the SEBL 70
calls for 9.

Let's do the math here and review this conservative play.  ITWO
Price paid 45, the January 50 calls sold for 7.375. Breakeven =
45 minus 7.375 or 37.625.  Maximum profit would be 12.375 (50 minus
45 plus 7.375).  About 28% return for 4 weeks or about a 360%
annualized return.

SEBL Price paid 61, sold the January 70 calls for 9.  Breakeven is
52 (61-9).  Maximum profit would be 70 minus 61 plus 9 or 18 points
or about 370% annualized return.

Hindsight is everything, so if the market heads off for the races
I will make paltry returns when compared with a straight
directional play like buying a call, but if the market goes
sideways, I get to keep, the stock and the premium.  I'm not
anticipating that ITWO and SEBL will go lower than 37.625 or 52
respectively, which are my break-evens.  As you can see, covered
calls can give you a nice range to play with.

Remember you can always get in the play again.  If signals
indicate that we are off to the races, you can be sure I will
make more directional plays, but until that is confirmed I'll go
my "Merry" way, with my conservative returns and thank Santa for a
Merry Christmas.

Merry Christmas to all.


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********************
THE PLAYS OF THE DAY
********************

Call Play of the Day:
*********************

NOK - Nokia $43.69 (-3.31 last week)

See details in sector list




Put Play of the Day:
********************

HAND - Handspring $36.06 (-11.50 last week)

See details in sector list




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market updates, plays, education and daily commentaries by
those who know.

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


**************************
PICKS WE DROPPED THIS WEEK
**************************

Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


CALLS

SGP $56.63 (+1.31) The drug sector remains strong across the
board and the market is faring better, but SGP's upward momentum
simply faded.  It's unfortunate the bulls couldn't take SGP
through the formidable resistance line of $60.  But we're not
going to fight the trend.  Two sessions of weakness resulted in
SGP's violation of the trailing 5 and 10-dmas, which previously
offered support.  The bearish close near our protective stop of
$56, which parallels SGP's former resistance/support level,
provided enough evidence for us to drop SGP this weekend.  If
you're still interested in more defensive-type plays, then take
a look at our write-up on JNJ.

FRE $64.44 (-1.94) When picked up coverage on FRE around the
$66.50 level the stock quickly moved up to the $70 level.  After
such an impressive move over the past two weeks we had expected
a pullback in order to consolidate some of FRE's gains.  However,
we didn't anticipate the news last Friday of mortgage rates
slipping to their lowest levels in a year and a half.  That news
prompted a sharp sell-off in FRE last Friday.  And although the
buyers stepped in latter in the day and FRE bounced off our stop
at $62, we are dropping coverage on the play this weekend.  We'd
use any strength early next week to exit existing positions.


PUTS

SANM $71.75 (-1.34) Was Friday's action on the NASDAQ the start
of a "Santa Claus" rally or just a quick sleigh ride to the
rooftops?   While the outcome is important and weighs on many
traders' minds, there's no question that our play on SANM is
over.  Today's 16.8% jump through the 5-dma ($66.65) and bullish
close above our $69 stop warrants an immediate drop from our put
list.  Other stocks in the sector like SLR, TEK, and A also saw
gains going into the holiday weekend.

IBM $89.00 (+1.19) It was only a matter of time before investors
found IBM's depressed price levels too tempting to pass up and
analysts came forward with positive comments about the
bellwether.  After all, the strong decline brought IBM to two-
year lows and rivaled more recent support at $85 and $90.  But
let's not cry over spilled milk here.  The put play on IBM
reaped handsome rewards from the moment we entered near the $95
level.  If you still have open positions, consider exiting on
any intraday weakness next week.  It's true there's still the
possibility of IBM or another blue chip like CSCO warning ahead
of earnings and knocking the markets off-kilter, but Friday's
upswing was too powerful for us to ignore.  IBM rose as high as
9% intraday.  We're not waiting for another burst of momentum to
push the stock through our protective stop of $90 before
exiting.  Instead, we're considering the whole picture and
erring on the side of caution.

AMCC $65.69 (-1.81) A brief, but profitable play, AMCC caught
the updraft in the NASDAQ on Friday and rallied sharply, ending
the week nearly unchanged.  It doesn't matter whether you
attribute the solid bullish performance to a belated Santa Claus
rally, an end to the tax-loss selling, or an overdue bounce in
the Semiconductor and Networking stocks, the fact remains that
the stock rallied right through our $62 stop early in the
morning.  Despite some mid-day profit taking that tested support
near $59, AMCC ended the day by rallying through the $65 level
to close very near its high of the day.  Adding to the strength
of the move was volume solidly above the ADV, and this buying
volume strengthened right up to the end of the day.  AMCC has
provided some nice profits for aggressive put buyers over the
past week, especially those that have traded in and out of
positions on short-term strength and weakness.  Breaking above
the 2-week descending trendline was the straw that broke this
camel's back, as it looks like this may be the end of the party
for the bears.  We will gladly take our profits and move on to
new plays as we place AMCC back on the bench.

EMC $68.25 (+0.13) On Thursday, we posed the question of whether
the rebound in shares of EMC was the end of the current move or
just the next buying opportunity for our very profitable put
play.  Friday gave us the answer, and it clearly spelled the end
to our play, as the bulls continued their buying spree,
propelling EMC higher by nearly 15% on volume 20% above the ADV.
Our tight $62 stop was taken out at the open, and the day's
continuous uptrend confirmed the wisdom of using stop losses.
Those of you that have been in the play from the beginning saw
some juicy profits materialize over the past 2 weeks, so
hopefully you let your stops take you out of the play in the
morning, keeping the lion's share of those profits in your
trading account.  If not, take advantage of weakness on Tuesday
to exit the play, as it looks like the tide has turned for
stocks in the Storage sector.

ARBA $54.61 (-12.52) As a highly volatile stock this past year,
we have been able to reap substantial profits in ARBA, both to
the upside and to the downside.  With the year drawing to a
close, we are taking our gains off the table on our most recent
foray into this B2B leader.  It appears that the stock has found
a temporary bottom at the $43-44 area.  Now deeply oversold, a
rallying NASDAQ could lift ARBA higher.  With the stock having
closed higher than our stop price of $52 and the 5-dma now at
$54.24, we are no longer recommending this put play.  Thank you
ARBA for making our holidays a happy one!

RBAK $53.25 (-33.25) It appears that our put play in RBAK has
been put to a quick end.  When we started this play on Thursday,
we mentioned a break below its 52-week low as a possible
conservative entry point.  Gapping up at the open the stock
headed higher and never looked back.  We also mentioned
aggressive targets at $40 and $44 but the strong volume to the
upside and pullbacks on low volume gave no confirmation of a
signal to enter.  The close above our stop price of $44 suggests
a possible reversal of RBAK's downtrend.  With no entries made,
we are dropping coverage and in this case, the best play was the
one that was never made.


***********
DEFINITIONS
***********

SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.

RISKS of SELLING PUTS:
The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.



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

COST - Costco - $37.38 (+2.38 last week)

Costco Wholesale Corporation operates membership warehouses
based on the concept that offering members very low prices on
a limited selection of nationally branded and selected private
label products in a wide range of merchandise categories will
provide high sales volumes and rapid inventory turnover. Costco's
warehouses generally operate on a seven day, 68-hour week, and
are open somewhat longer during the holiday season.

Our reasons for choosing this play are primarily technical.
Costco's weekly chart shows a strong rally last fall and winter,
a steep drop in April with the indexes, and a subsequent six
month period of tight consolidation.  From June to December,
Costco has been trading between $30 and $38, forming a strong
base of support which did not falter during the severe sell-
offs we experienced this fall.  It appears poised to breakout
from its tight trading range on strong volume, as the retail
specialty sector is looking up.  A positive news release
regarding a deal with McKesson, which is expected to generate
$2.2 billion in revenue over the next four years, as well as
an upgrade from Merrill Lynch helped to boost the stock last
week.  Costco has been making a series of higher lows over the
last two weeks, with strong support at the 50-dma of $34.51.
We want to see Costco break above heavy resistance at $38.46,
which would mean a move out of the flat daily trading channel.
A breakout above this level could easily push Costco above $40,
to the next resistance level at $45. Conservative traders should
wait until the stock clears this level on strong volume before
initiating positions.  Aggressive traders might want to initiate
positions on a bounce off the support at $36.61, but only if it
is accompanied by strong volume and a market rally.  Set stops
at $34, and watch for strength in the retail sector before
initiating positions.

BUY CALL JAN-35 PRQ-AG OI=7172 at $3.87 SL=2.50
BUY CALL JAN-40*PRQ-AH OI=2143 at $1.25 SL=0.75
BUY CALL FEB-35 PRQ-BG OI=   5 at $4.75 SL=3.00
BUY CALL FEB-40 PRQ-BH OI= 125 at $2.38 SL=1.25

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


LVLT - Level 3 Communications Inc $32.81 (-1.94 last week)

Level 3 Communications is a global telecommunications and
information services company that is building an international
fiber-optic network based on internet protocol (IP).  Their
focus is primarily on the business market.  Services include
local, long distance, and data transmission as well as other
enhanced services. Currently they serve 20 cities in the US and
Europe.  LVLT also has its hands in the coal mining business.

Are you searching for a silver lining within the
telecommunications service industry?  Well, you might want to
take a look at the CLECs, competitive local exchange carriers,
which are emerging as potential gorillas.  A leader in this
industry niche is Colorado's Level 3 Communications.  Just
recently on December 13th, the company came forward and said
it'll raise its estimate for 2001 sales on higher capital
spending.  This bold move is quite a contrast to the bulk of
other communication companies who are scaling back or
postponing capital spending.  Plus, there was Thursday's dismal
announcement by AT&T that it'll raise revenue-loss percentages
in the consumer business from 11% to 14-16%, which boosted
investor confidence in the CLECs.  Despite being debt-laden, the
likes of Level 3 Communications, Global Crossing (GX), and
MetroMedia Fiber Network (MFNX) are expanding their networks and
gaining market share much quicker than anticipated.  But let's
get to our specific play on LVLT.  We're starting coverage based
purely on the feasibility of a technical bounce.  During the
high-volume decline on Wednesday and Thursday, LVLT tested lows
at $28 and $26.88, respectively.  The double bottom portends
that a technical rebound may be in the cards.  If Friday's
impressive $3.94, or 13.6% is a prelude to next week's action,
then back up the trucks.  Alright that may be too aggressive, so
until we see more technical developments, let's keep the motors
running in neutral gear.  The stock's current price level sits
at the converged 5-dma ($31.98) and 30-dma ($32.96) lines.  A
strong upside move off this level and through the 10-dma
($35.01) warrants an entry even for the very conservative.  And
the nice part of this play is the inexpensive option prices!
Nonetheless, money is money.  Protect profits with stop losses.
We'll exit if LVLT retests its recent bottoms and closes under
$27.  On a breakout, be prepared for opposition at the 50-dma
($38.31), which could be a tough line to penetrate even in an
advancing marketplace.

BUY CALL JAN-30 HGY-AF OI= 574 at $5.75 SL=3.75
BUY CALL JAN-35*HGY-AG OI=2971 at $3.13 SL=1.50
BUY CALL JAN-40 HGY-AH OI=1897 at $1.69 SL=0.75
BUY CALL FEB-35 HGY-BG OI=   7 at $4.50 SL=2.75
BUY CALL FEB-40 HGY-BH OI=  25 at $2.94 SL=1.50

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


NOK - Nokia $43.69 (-3.31 last week)

Nokia is the world leader in mobile communications.  Backed by
its experience, innovation, user-friendliness and secure
solutions, the company has become the leading supplier of mobile
phones, and a leading supplier of mobile, fixed and IP networks.
By adding mobility to the Internet, Nokia creates new
opportunities for companies, and further enriches the daily
lives of people.

In a market deluged by earnings warnings, Nokia has offered
much needed reassurance to investors starved for optimistic
forecasts.  Earlier in December, Nokia's CEO stated the company
had extended its revenue growth targets of 25 to 35% from 2002
to 2003.  In addition, Nokia's Chairman stated they expect
growth to be at the high level of 25 to 35% for the first half
of 2001.  Nokia is benefiting immensely from the growth in
handheld mobile networks, as well as the WCDMA market.  The
company believes that there will be as many web connected
handsets as PCs by 2002, and that the PC market's loss is their
potential gain.  Nokia's market share is over 30%, and, most
importantly, they expect 70 to 80% of this year's cellular
phone buyers to upgrade to a new unit in subsequent years.  With
all this good news, Nokia has demonstrated superior technical
strength, holding above the 50-dma of $42.05 since mid November,
until the severe sell-off last week.  The stock has now rebounded
from ascending support dating back to mid October, and is poised
to bounce higher, market conditions permitting.  Conservative
traders may want to watch for a move above the 10-dma of $45.92
on strong volume.  A breakout above $47.29 would be very bullish,
and likely lead to a move above $50, which we saw earlier in
December.  More aggressive traders might wait for a pullback to
$42.50.  Watch the cellular telecommunications equipment sector,
particularly QCOM, for strength before initiating positions.  Set
stops at $38.00 and exit positions is NOK closes below that
level.

BUY CALL JAN-40 NAY-AH OI=20924 at $5.50 SL=3.50
BUY CALL JAN-45*NZY-AI OI=22440 at $2.44 SL=1.25
BUY CALL FEB-40 NAY-BH OI=  651 at $7.00 SL=5.00
BUY CALL FEB-45 NZY-BI OI=  778 at $4.50 SL=2.75

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


RFMD - RF Micro Devices, Inc. $26.63 (-0.63 last week)

RF Micro Devices, Inc. is a leading supplier of radio frequency
integrated circuits (RFICs) for the wireless, broadband and cable
communications industries.  RFMD designs and manufactures
components for many communications applications, from cellular to
CATV.  The ever-expanding RFMD(TM) product line includes power
amplifiers, linear amplifiers, LNA/mixers, quadrature
modulators/demodulators, upconverters, front ends, attenuators,
switches and transceivers.

While shares of RFMD are still down for the year, it appears that
the stock is determined to close out 2000 on a bullish note.
Earlier in the month, RFMD was added to Standard & Poor's MidCap
400 Index, giving the company a much-needed thumbs-up and
increasing investor awareness.  Also, an alliance with Qualcomm
has been highly successful, with its second co-developed product
recently announced since its inception in February.  Continued
success could see the company play an important role in the
deployment of next generation CDMA technology.  This would be a
positive development indeed, in light of QCOM's recent success in
China.  What's more, a new product announcement in the form of
Gallium Arsenide-based amplifiers for third-generation
applications all but confirms RFMD's ever-increasing role and
importance in the emerging next-generation CDMA space. Connecting
the highs since March, we can see that RFMD has not only broken
above an intermediate term downtrend line, but has also found
support at that level.  On Friday, the stock rallied $2.81 or
almost 12 percent to end the week.  While volume was light, the
direction was right and with support from the 5 and 50-dma at
$25.65 and $23.18 respectively, consider entries on bounces off
these levels as well as $25 and our stop price of $22.  However,
a strong move to the upside leading to a break through resistance
at $27 could provide for a safer entry.  Confirm sentiment with
peers such as BRCM, CNXT and TQNT as well as the Philadelphia
Semiconductor Index (SOX).

BUY CALL JAN-20 RFZ-AD OI= 236 at $7.75 SL=5.75
BUY CALL JAN-25*RFZ-AE OI=1014 at $4.38 SL=2.75
BUY CALL JAN-30 RFZ-AF OI=1976 at $2.25 SL=1.00
BUY CALL FEB-25 RFZ-BE OI= 669 at $5.75 SL=4.00
BUY CALL FEB-30 RFZ-BF OI=1325 at $3.75 SL=2.50

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


TXN - Texas Instruments $47.63 (+0.63 last week)

Texas Instruments Incorporated is a global semiconductor company
and the world's leading designer and supplier of digital signal
processing and analog technologies, the engines driving the
digitization of electronics.  TI is a leader in the real-time
technologies that help people communicate.  We are moving fast to
drive the Internet era forward with semiconductor solutions for
large markets such as digital wireless and broadband access.  TI
envisions a world where every wireless call, every phone call and
every Internet connection is touched by a Digital Signal
Processor (DSP).

Since hitting a bottom of $35 in mid-October, TXN has been in a
basing pattern, but it appears now that the stock may be ready to
break out to higher ground.  A cross-licensing agreement with
Qualcomm has recently put some excitement back into shares of
TXN.  As part of the deal, the two companies would share
information in their respective patent portfolios, allowing them
to produce and supply integrated circuits across all wireless
standards.  This puts TXN in a select group of companies that are
in a position to benefit from the highly anticipated third
generation of CDMA-driven technology.  In such a scenario, what
could happen is that larger companies would deal directly with
Qualcomm to purchase 3G CDMA chipsets, leaving TXN in a position
to sell to the remaining companies.  TXN also appears to have an
advantage in dealing with Ericksson and Nokia.  Already
customers, the two cell phone giants could also rely on TXN for
CDMA chipsets.  Such demand would no doubt have a positive effect
on TXN's top and bottom line.  Recently, Prudential Securities
reiterated their Strong Buy rating and despite lowering estimates,
traders bid the stock up on the news.  Support levels abound,
with the 5-dma at $46, $45, the 50-dma at $44.67, $43 and our
stop price at $42.  For an entry on strength, wait for TXN to
take out its 10-dma at $47.91 before making a play, but be aware
of resistance overhead at $48, 49 and $50.  Target your entries
based on your risk tolerance levels and make sure that TXN closes
above our stop price as a close below will result in our dropping
this call play.  Look to the Philadelphia Semiconductor Index
(SOX) and Merrill Lynch's Semiconductor HOLDR (SMH) for guidance
when considering new plays.

BUY CALL JAN-40 TXN-AH OI=25417 at $9.38 SL=6.50
BUY CALL JAN-45 TNZ-AI OI= 6868 at $5.75 SL=4.00
BUY CALL JAN-50*TNZ-AJ OI=12860 at $3.13 SL=1.50
BUY CALL FEB-45 TNZ-BI OI=  495 at $7.63 SL=5.25
BUY CALL FEB-50 TNZ-BJ OI=  826 at $5.13 SL=3.00

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


*****************************
NEW LOW VOLATILITY CALL PLAYS
*****************************

VOD - Vodafone Group Plc $34.44 (-3.06 last week)

Vodafone is primarily concerned with the development and
provision of mobile communications.  Following the EU's clearence
to proceed with the agreed acquisition of Mannesmann, Vodafone is
now the largest mobile telecommunications company in the world,
and one of the top ten companies in the world.  Vodafone has a
controlling interest in 13 of the 25 networks in which it is a
shareholder.  In April 2000, the Group had over 53 million
proportionate customers worldwide.

We are initiating a call play on VOD primarily based on its
technical outlook.  From September to present, the stock has
found support at the $33.50 level numerous times, resulting in
strong bounces of anywhere from 5 to 10 points.  This has played
out a number of times in the past few months and with the low
option prices, such a play would have resulted in significant
gains.  For aggressive traders looking for the best price, a
pullback to $33.50 is the target to shoot for, but make sure that
there is buying to support the bounce.  For those looking for
confirmation of upward momentum before entering, wait for VOD to
break through $35 with conviction, but be aware that the stock
could encounter resistance from the 5-dma at $35.41.  Because
past performance does not necessarily guarantee future results,
we are placing a protective stop at $33.  A close below this
point would be a violation of key support and signal the
possibility that the stock could head lower.

BUY CALL JAN-25 VOD-AE OI= 1822 at $10.00 SL=7.50
BUY CALL JAN-30*VOD-AF OI= 4400 at $ 5.50 SL=3.50
BUY CALL JAN-35 VOD-AG OI=12249 at $ 2.06 SL=1.00
BUY CALL FEB-30 VOD-BF OI=    1 at $ 6.00 SL=4.00
BUY CALL FEB-35 VOD-BG OI=   50 at $ 2.88 SL=1.50

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


NKE - Nike, Inc. $51.19 (+3.56 last week)

At Nike, there's more to shoe performance than an eye-popping
creative silhouette or the flashy colors of a shoe.  Years of
intensive research and testing back up Nike's leading-edge design
and innovation.  Where that research and testing gets done is in
the Nike Footwear Advanced Research and Design department housed
on the first floor of the Mia Hamm building on the Nike World
Headquarters campus in Beaverton, Oregon.  Two of the departments
are the Nike Sports Research Lab and the Materials & Mechanical
Test Lab.

Shares of Nike have been on the run lately, with the success of
its new products, a stellar earnings report and an improving
fundamental picture for the footwear sector.  NKE's new line of
shoes, the "Shox", has been greeted with an excitement level not
seen since its heyday of the Michael Jordan era.  As well, NKE's
foray into the world of golf has been highly successful, thanks
to an endorsement deal with Tiger Woods.  The addition of David
Duval this week will also help marketing efforts.  A better than
expected earnings report gave analysts reason to believe that
Nike's still got game.  What's more, the footwear sector has been
hot despite a slowing economy and the outlook for 2001 appears
bullish.  All these factors have allowed the stock to break a
downtrend that has been in place since May of 1999.  At this
point, look for pullbacks to support at $50, the 5-dma at $48.76
and our stop price of $48 as possible entry points but confirm
bounces with buying volume.  For an entry on strength, wait for
momentum to carry NKE above $52, confirming direction with peers
such as FTS, RBK and Z.

BUY CALL JAN-45 NKE-AI OI=1020 at $7.38 SL=5.25
BUY CALL JAN-50*NKE-AJ OI=1702 at $5.00 SL=3.00
BUY CALL JAN-55 NKE-AK OI=1610 at $1.88 SL=1.00
BUY CALL FEB-50 NKE-BJ OI= 262 at $5.38 SL=3.50
BUY CALL FEB-55 NKE-BK OI=  84 at $3.25 SL=1.50

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


***********************
NEW LONG TERM CALL PLAY
***********************

C - Citigroup Inc. $50.06 (+2.00 last week)

The creation of Citigroup brings together organizations that are
extraordinary in their individual capabilities and in the ways
they enhance and complement each other.  Together, they offer
customers a range of quality products and services unmatched in
the financial services industry.  Citigroup serves a broader
spectrum of customers, in more places and by more means of access
and delivery, than any other financial organization.  With all of
Citigroup's divisions working together to provide their customers
with the best service and products, they are forming a model for
the industry's future.

We are adding C as a Long Term Call Play based on expectations of
future rate cuts favoring the financial sector and the
potentially bullish resolution of a key technical formation.
Connecting the highs and lows since October reveals a series of
higher lows and lower highs culminating in a symmetrical triangle
pattern.  Like a spring coiling up, at some point it will break
one way or the other.  The likelihood of an easing interest rate
environment could mean a break to the upside and a protracted
rally.  While there are lingering credit concerns among the
larger banks, we feel that much of the bad news has already been
factored into the stock price, allowing the financials to rally
on an improving fundamental backdrop.  While the tightening
trading range is still quite tradable, this is really a longer
term play and as such, we recommend options that go out several
months, allowing traders the opportunity to capture the bulk of a
possible significant upside move.  Look for a bounce off $50, the
5-dma at $49.28 and our stop price of $47 as aggressive targets
of entry.  A break above the 10-dma at $50.37 could result in a
quick trip to $53.  When making a play, confirm sentiment in the
financials with the AMEX Banking Index (BIX).

BUY CALL JAN-45 C-AI OI= 2687 at $6.25 SL=4.25
BUY CALL JAN-50 C-AJ OI=21562 at $2.75 SL=1.25
BUY CALL FEB-50*C-BJ OI=  417 at $3.63 SL=1.75
BUY CALL FEB-55 C-BK OI=  713 at $1.63 SL=0.75
BUY CALL MAR-55 C-CK OI= 7275 at $2.38 SL=1.25

http://www.premierinvestor.net/oi/profile.asp?symbol=C


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

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

The Option Investor Newsletter                   Sunday 12-24-2000
Sunday                                                      3 of 5

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
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******************
CURRENT CALL PLAYS
******************

JNJ - Johnson & Johnson $101.50 (+2.94 last week)

Johnson & Johnson is one of the world's largest and diversified
makers of healthcare products.  JNJ has three distinct business
segments serving the consumer, professional, and pharmaceutical
markets.  As a consumer you're probably most familiar with their
over-the-counter brands like Tylenol, Band-Aids, and "no tears"
baby shampoo.  But Johnson & Johnson reaches beyond that realm
and expands all aspects of its product lines through acquisitions.

The healthcare sector continues to offer a safe haven for
investors seeking shelter from the volatile technology stocks.
Additionally, an "economic slowdown" doesn't generally hurt the
drugmakers' bottom-lines, which makes all the difference in the
world to investors.  The rationale is simple.  Consumers are
much more inclined to put off making a major purchase than not
buy necessary medical products.  The increasing elderly
population also adds to this sector's potential for higher
revenues over the long-term.  In other words, earnings numbers!
Johnson & Johnson is confirmed to report its own earnings on
January 23rd, BEFORE the market.  Bullish sentiment is strong
and it's predicted that the company will disclose double-digit
gains along with a positive forecast.  This week, JNJ
established a solid uptrend line through the ever-so
psychological century mark and is precariously poised for an
upside breakout.  Other industry leaders like MRK, SGP, PHA, and
AHP are also demonstrating strength at their respective trading
levels amid the volatile shifts in the marketplace.  JNJ's
immediate resistance is at the recent intraday high of $102,
followed by the $103 52-week record high.  A double whammy, so
to speak.  Lower and more risky entries might be found at the 5
and 10-dmas at $100.18 and $99, respectively.  However keep in
mind, we have our protective stop set at $98 and will exit on a
close below that mark.  A less venturesome entry, but one that
can reap hefty profits too, is to take positions on a momentum
breakout above the $102 and $103 resistance.  In these uncertain
times, it's very important to confirm an advancing marketplace
backed by bullish internals before going long.  Remember too,
watch not only a stock's specific performance, but also that of
the whole sector.  Stay disciplined.

BUY CALL JAN- 95 JNJ-AS OI= 7414 at $8.38 SL=6.00
BUY CALL JAN-100*JNJ-AT OI=11315 at $4.63 SL=2.75
BUY CALL JAN-105 JNJ-AA OI= 9843 at $2.06 SL=1.00
BUY CALL FEB-100 JNJ-BT OI=  136 at $6.25 SL=4.25
BUY CALL FEB-105 JNJ-BA OI=  369 at $3.63 SL=2.00

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


LH - Laboratory Corp. of America $165.94 (+8.88 last week)

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

Like the Energizer Bunny, LH is the stock that keeps going and
going.  While nothing compared to the seemingly irrational rally
in shares of competitor DGX on Friday (see the new Put play this
weekend), LH did manage a solid gain of $2.19 to close out the
week at a new all-time closing high, just below $166.  Vigilant
traders were rewarded with an attractive entry point as the
stock bounced near $161 shortly after the noon hour, before
rallying sharply into the close.  Increasing volume confirmed
the strength of the move, although the daily volume came in at
less than half the ADV.  Having McDonald Investments initiate
coverage with a Buy rating Wednesday evening may have been
partially responsible for the nearly $9 gain over the past 2
days, priming our play for yet another upside breakout.  The
upper Bollinger band and upper channel line are now converged
near $170-171, giving us plenty of upside room to initiate new
positions on a rally through the recently formed $167 resistance
level.  Intraday pullbacks may provide a better entry point for
aggressive traders; target shoot the $161-162 level if this fits
your risk profile.  More significant support sits near $158-159,
and with our stop at $158, any solid bounce from this level
could provide an outstanding entry point for any gun slinging
dip-buyers out there.  Just make sure that buyers are stepping
forward to buy the stock before opening your positions and check
that competitor PPDI is showing a positive trend as well.

BUY CALL JAN-165 LH -AM OI=1015 at $11.88 SL= 9.00
BUY CALL JAN-170*LH -AN OI=  17 at $ 9.38 SL= 6.50
BUY CALL FEB-150 LH -BM OI=   0 at $19.00 SL=13.75  Wait for OI!
BUY CALL FEB-160 LH -BN OI=   0 at $16.75 SL=12.00  Wait for OI!

SELL PUT JAN-155 LH -MK OI= 500 at $ 5.75 SL= 8.00
(See risks of selling puts in play legend)

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


IVGN - Invitrogen Corporation $79.38 (+0.63 last 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.

Biotech companies face many pressures internally as well as
externally.  With a plethora of firms developing a myriad of
treatments, competition is fierce in acquiring talented and
accomplished researchers, in raising funds and in clinical trials
to meet FDA approval, not to mention the possibility that a
better solution could be just beyond the horizon.  Internally,
the cash burn rate plays a large role in how a company is able to
compete, what strategies it may or may not pursue and how it can
position itself in the market.  But no matter what happens, there
are certain tools of the trade, which are necessary, and to the
company sells them comes great rewards.  It is with this in mind
that investors have given IVGN a rich valuation, with a solid
uptrend line since May despite a tumultuous market during that
time. The completion of the Human Genome Project has only served
to help the stock move ever higher, since that data has inspired
increased research efforts, leading to increased sales.  As well,
the pick and shovel business model has made IVGN a profitable and
cash flow positive company, an enviable position in the high cash
burn rate Biotech space.  With strong support at the 50-dma at
$72.62, we have placed our stop price just below, at $72.  A
bounce off this level as well as $74, $75, $76 and the 5-dma at
$78.95 could be aggressive targets to shoot for.  For the risk
averse, a break through the 10-dma at $80.15 on volume would be
the signal to jump in.  In both cases, correlate entries with
positive direction in peers such as ABI, AFFX and CRA.

BUY CALL JAN-75 IUV-AO OI=475 at $11.00 SL=8.25
BUY CALL JAN-80*IUV-AP OI= 58 at $ 8.38 SL=6.00
BUY CALL JAN-85 IUV-AQ OI=454 at $ 6.38 SL=4.50
BUY CALL FEB-80 IUV-BP OI=618 at $11.25 SL=8.25
BUY CALL FEB-85 IUV-BQ OI= 26 at $ 9.13 SL=6.25

SELL PUT JAN-70 IUV-MN OI= 31 at $ 4.00 SL=6.00
(See risk of selling put in play legend)

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


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

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

The Option Investor Newsletter                   Sunday 12-24-2000
Sunday                                                      4 of 5

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
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*************
NEW PUT PLAYS
*************

SFA - Scientific-Atlantic Inc $34.75 (-10.63 last week)

Scientific-Atlanta provides products and services for advanced
communications networks that deliver voice, data and video.  The
company is one of the largest makers of set-top boxes (those
cable boxes that sit on your TV), which accounts for about 40%
of sales.  SFA is currently moving out of the satellite
networking business and focusing on digital broadband equipment
to fuel growth.

The proverbial saga of interactive TV continues to take the road
of "all talk and no action."  This distinctive niche, shadowed
by a Telecom industry already plagued by spending slowdowns,
has fallen hard.  Take a look at other stocks in the sector:
Liberate Technologies (LBRT), TiVo (TIVO), and Gemstar-TV Guide
International (GMST), for instance.  All have experienced slow
suicides in the new millennium; although the strongest of the
lot, GMST, demonstrated some spunk in Friday's session.  But
overall, the only event that's likely to rekindle the fallen
stars is for a major cable television operator, such as the
battered and beaten AT&T, to announce actual deployment of the
advanced set-top boxes and to provide the interactive services.
This isn't expected to happen until 2002.  And at the moment,
SFA is floundering helplessly below previous support.  At the
beginning of last week, SFA broke rank with the 10-dma and slid
through the $45 level.  The real kicker came when the $40 level
also failed to sustain the troubled stock on Wednesday.  The
bearish move by CIBC World Markets to cut SFA's price target
from $90 down to $50 incited a high-volume downswing in Friday's
session; in spite of the rebounding broader markets.  That
type of behavior is definitely bearish and indicates investors
are losing confidence in the company.  The depressed shares now
sit just 10.34 points away from reaching a new 52-week low - a
tragic tale for a stock that saw a pinnacle of $94 on August
11th.  Anyway, let's play the downtrend for all it's worth.
Look for strong volume to continue leading SFA into the lower
trading realms.  Aggressive entries might be found on rollovers
at the 5-dma ($38.41), which is just below our protective
stop at the $40 mark.  A conclusive break through Friday's
intraday bottom of $33.03 offers better confirmation as well as
lessens the chance of a technical bounce.  So if you prefer to
err more on the side of caution, be patient for heavy downside
action to move SFA lower before taking positions.

BUY PUT JAN-45 SFA-MI OI=3900 at $11.63 SL=8.75
BUY PUT JAN-40 SFA-MH OI= 602 at $ 8.00 SL=5.75
BUY PUT JAN-35*SFA-MG OI= 220 at $ 4.75 SL=2.75

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


INTU - Intuit Inc $35.25 (-13.00 last week)

Intuit develops and markets financial software products and
related Web services.  Their flagship products are Quicken, the
#1 personal finance program in the world, and TurboTax used for
tax preparation.  Founder Scott Cook maintains a 12% stake in
the company.

Typically, this player follows the Nasdaq's trend lines like an
obedient puppy.  But sometimes relentless market pressure and/or
a company-specific event can send a stock into a downward spiral
of its own.  This appears to be the case with INTU.  When the
NASDAQ rebounded off the 2300 level on Friday, INTU deviated
from its characteristic pattern and faltered.  It's very
possible that the news of its completed acquisition of
EmployeeMatters on Thursday evening provoked the sharp decline.
Intuit acquired the human resource management company in a
registered stock transaction, valued at approximately $41 mln,
including assumed liabilities.  Intuit said it expects no
material impact in fiscal 2001 revenue growth, but honestly,
that doesn't always make a difference to traders.  It's not
unusual for the parent company to drop on acquisition news while
the Street digests the purchase.  Not only did INTU drop, but
it also violated a firm support level.  Friday's breach of
the $40 level and the 5-dma ($40.41) created a climate for
devastation.  The technical breakdown occurred on double the
average volume, which indicates the strong selling may extend
into next week.  But again keep in mind, Friday's action was not
in-line with neither the Nasdaq nor the sector.  Others in the
software field such as CHKP, ERTS, and AGIL all saw significant
advances.  These factors make the play on INTU even that much
more risky.  So accordingly, it may be wise to keep stops tight
for protection - we're setting a defensive stop at the $39
level.  If we're afforded an entry into subsequent downdrafts,
there is some light support at $35, bolstered by more chronicled
support at $30.  As we've seen with many of the tech stocks
lately, previous support levels are failing at a rapid pace.
Still the more conservative approach is to buy into weakness as
INTU moves through $35 on strong volume.  A more aggressive
design is to enter on a failed attempt to move through the
5-dma.  Take a look at a daily chart and you can visually
confirm how this technical line is serving as a ceiling on the
decline.  If you take the more aggressive route, make sure the
sellers are in control before jumping into the play.

BUY PUT JAN-40 IQU-MH OI= 495 at $7.00 SL=5.00
BUY PUT JAN-35*IQU-MG OI= 306 at $3.88 SL=2.50
BUY PUT JAN-30 IQU-MF OI= 304 at $1.75 SL=1.00

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


DGX - Quest Diagnostics $138.00 (+10.50 last week)

Quest Diagnostics was the result of a 1996 Corning spin-off,
and currently holds the title of the world's #1 clinical
laboratory.  DGX performs more than 100 million routine tests
annually, including cholesterol, HIV, pregnancy, alcohol, and
pap smear tests.  Operating laboratories throughout the US and
in Brazil, Mexico, and the UK, DGX also performs esoteric
testing (complex, low-volume tests) and clinical trials.  The
company serves doctors, hospitals, HMOs, and other labs as well
as corporations, government agencies, and prisons.

Are there any bears out there who are up for an aggressive put
play?  If so, we may have just the ticket.  DGX operates in the
same space as LH (current Call play) and PPDI, and the three
stocks tend to trade as a group.  While LH has been gradually
marching higher, DGX rallied sharply over the past 2 days,
tacking on nearly $20 or 17%.  While momentum stocks in the
red-hot Networking sector can routinely move like that, it is
highly unusual for a medical stock with a PE north of 100 and
a pedestrian, single-digit growth rate to do so.  Friday's
nearly $14 surge pushed the stock up to close at $138, clearly
outside the upper Bollinger band, making the stock ripe for a
pullback early next week.  While it is unusual for us to offer
both a Call play (LH) and Put play (DGX) on two stocks that are
so similar, the move in shares of DGX looks unsustainable on a
purely technical basis, especially given the lack of news and
light volume on Friday.  Combined with the highs in early
September and mid-October, both near $140, DGX looks like it is
about to complete a triple top and should roll over sharply from
the vicinity of Friday's close.  In order to give our play some
room for just a little more irrational exuberance, we have
placed our stop at $145, and we will look for a rollover to
commence near the $140-141 level before initiating new
positions.  This is an aggressive, high-risk play, and we need
to wait for both the stock and the broader market to roll over
before initiating new positions.

BUY PUT JAN-130*DGX-MU OI=0 at $ 6.25 SL= 4.25  Wait for OI!
BUY PUT FEB-140 DGX-NY OI=3 at $15.63 SL=11.25

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


***************************
NEW LOW VOLATILITY PUT PLAY
***************************

VZ - Verizon Communications $48.13 (-7.19 last week)

Formed by the merger of Bell Atlantic and GTE, VZ is one of the
world's leading providers of communications services.  As the
largest provider of wireline and wireless communications in the
United States, VZ has 95 million access lines and 26 million
wireless customers.  Outside the United States, Verizon
affiliates serve 6 million wireless customers and operate 4
million access lines in 40 countries throughout the Americas,
Europe, Asia and the Pacific.

Telecom stocks, whether wireless or landline, have come under
renewed pressure in the past week, and despite reassuring
investors that they are on track to meet current earnings
estimates, VZ hasn't been able to dodge the sellers.  Kicking
off the latest round of selling was SBC Communications, warning
Tuesday of an earnings shortfall, followed closely by the
stunning news that AT&T would slash its quarterly dividend for
the first time in the company's history.  This double-whammy
rocked the sector and kicked VZ into a sharp decline.  Adding
to the downside pressure is news that the company is the leading
bidder in the current FCC wireless auction.  While it looks good
on the surface, investors are worried that the exorbitant prices
being paid for the licenses will make it increasingly difficult
for wireless providers to recoup their costs while continuing to
grow revenues.  Tuesday's news pushed VZ solidly below the $55
support level, and when Wednesday's decline violated the $52
support level, it opened the door for more losses.  Even as the
broader markets rallied on Friday, VZ fell as low as $46.50
before managing to stage a mild rally above $48 in the final 30
minutes of trading.  The negative climate for stocks in this
sector should continue to pressure VZ, and we are looking for
the sellers to push the stock down to the $44 level and possibly
the long-term support level near $40.  We have placed our stop
at $51, to terminate the play early if buying pressure lifts the
stock out of its current doldrums.  This event looks rather
unlikely though, and would consider a failed rally near this
level to be a nearly ideal entry point.  More conservative
players will want to wait for strong selling volume to drive VZ
below Friday's low at $46.50 before initiating new positions.
Before jumping into the play, look for continued weakness in
other major Telecom players such as T, WCOM, PCS and SBC to
confirm that the downward trend is intact.

BUY PUT JAN-50*VZ-MJ OI=11204 at $3.75 SL=2.25
BUY PUT JAN-45 VZ-MI OI= 9064 at $1.38 SL=0.75

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


*****************
CURRENT PUT PLAYS
*****************

PMCS - PMC Sierra $79.25 (-8.25 last 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 rallied with the Nasdaq on Friday, however, it is
likely that this may be a bull trap for certain semiconductor
stocks.  While the rally was broad based, certain sectors
exhibited significantly more strength than others.  PMCS was
highly oversold, having lost 50% percentage of its market value
in two weeks.  However, we feel that the selling may not be
over yet.  Remember, one day does not make a trend, and PMCS
and the other semiconductor stocks must be able to cross their
major moving averages, and overcome the stigma of multiple
downgrades, earnings warnings, and bad news which has plagued
the sector for months.  We need to hear that inventory levels
are dropping, and that demand for semiconductor chips is
increasing before true recovery can occur.  Considering the
double digit gains exhibited by many Nasdaq stocks on Friday,
PMCS's Friday gain was not that impressive.  In addition,
Friday's volume was lower than that exhibited on down days, and
not indicative of heavy buying. If PMCS cannot close over the
5-dma of $83.31 then the most likely path for the stock
remains downward.  PMCS was unable to penetrate resistance of
$80 at the close and continued rollovers at that level would
provide solid entry points.  However, remember that it is risky
to buy puts if the Nasdaq is trending up and with that our
upside protective stop remains at $81.  That said, watch for
overall weakness in the Nasdaq, as well as weakness in the
semiconductor sector (SMH, SOX.X) and stocks like BRCM before
taking a position.  Addtional enties can be taken if PMCS
falls below support at the $70 level on heavy volume.

BUY PUT JAN-80 SDL-MP OI=574 at $13.38 SL=10.00
BUY PUT JAN-75*SDL-MO OI=729 at $10.75 SL= 8.00

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


HAND - Handspring $36.06 (-11.50 last week)

HAND is a provider of handheld computers, and is best known for
its Visor Handheld computer, based on the popular PALM
operating system.  The company's platform is known as
Springboard, and provides the advantage of an open expansion,
which can be used to integrate modules such as a digital camera,
an MP3 player, a two-way pager, a global positioning module and
content such as books and games.  Since the Visor's
introduction, more than 2500 developers have signed on board to
receive support in developing these modules, adding to the
unit's rapid adoption.

Is consumer demand for handheld PCs coming to an abrupt end?
Not likely, but similar to the decline that has affected the
box-makers, investor enthusiasm for Handheld stocks seems to be
waning in the face of the economic slowdown that is expected to
produce weak holiday sales of these popular devices.  Shares of
HAND began to decline from their highs near $100 in late
October, and since then the stock has been locked in a
persistent downtrend along with just about every technology
related issue.  The latest rally attempt failed 2 weeks ago and
the stock rolled over right at the descending trendline, near
$66.  Since then, sellers have definitely been in charge pushing
shares ever lower on volume significantly over the ADV.  The
bottom that had been forming near $44 earlier this week was
shattered by the earnings report from HAND's competitor, PALM.
Although they beat the street by a penny, the revenue number
didn't sit well with investors and they sold the stock
mercilessly on Thursday, slashing 32% from the stock.  HAND felt
the guilt-by-association selling, as it gave up more than $11 on
volume more than double the ADV.  Despite a solid rally on the
NASDAQ on Friday, HAND just couldn't manage to capitalize on it
and ended the day right where it began, at $36.  Our $40 stop is
still intact and any failed rally intraday rally near this level
looks like an ideal level for initiating new positions.  While
new positions can be considered as HAND declines below the $33
level, a more prudent approach may be to wait for a bounce
before playing.  Despite the fact that competitors RIMM and
PALM managed solid gains on Friday, HAND just couldn't attract
enough buyers, making it the weakest stock in the sector.
Weakness in these other stocks should translate to even more
weakness in our play, and should provide solid confirmation that
the near-term direction is still down.

BUY PUT JAN-45 HQA-MI OI=298 at $12.00 SL=9.00
BUY PUT JAN-40*HQA-MH OI=776 at $ 9.13 SL=6.25

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


BLDP - Ballard Power Systems $64.00 (-4.75 last week)

Ballard Power Systems, Inc. was founded in 1979 to conduct
research and development in high energy lithium batteries. In
1983, Ballard began developing proton exchange membrane (PEM)
fuel cells.  Today, these systems have evolved into
pre-commercial prototypes proving the practicality of the Ballard
fuel cell and fuel cells are widely viewed as viable alternatives
to conventional technologies.  Ballard's focus is now on working
with its strategic partners to develop competitive products for
mass markets by reducing cost and implementing high volume
manufacturing processes.

Recent shifts in the fundamental picture, combined with
deteriorating techincals suggesting further downside ahead has
led to the addition of BLDP to our put play list.  In California,
legislators in the California Air Resources Board (CARB) are
meeting on January 25th to vote on a new proposal to make changes
to the original Zero-Emissions Vehicles program, which will
decrease the mandatory number of clean air vehicles for sale by
the year 2003 from 10 percent down to 2 percent.  If such a
change goes through, makers of fuel cell powered cars such as
BLDP will find themselves suffering a major setback in the form
of a significantly smaller market.  Electric power as well as
natural gas power are putting pressure on battery makers too,
along with hybrid vehicles, which run on gasoline and batteries.
This has caused much concern from investors and analysts alike,
as the stock has recently been downgraded by CS First Boston from
a Strong Buy rating to a Buy rating, and by Bear Stearns, who
dropped the stock from a Buy to a Neutral rating.  With the
Election uncertainty now resolved, BLDP also finds itself in a
less than favorable political climate, with a President-elect who
is expected to favor traditional fuel companies such as coal and
oil.  Closing below the key support level of $60 this past
Thursday, the stock enjoyed a bounce from deeply oversold
conditions, but it appears that technical damage has been done.
A failed rally above the 10-dma at $68.45 as well as our stop
price at a key resistance level at $65 could provide aggressive
targets but confirm a rollover with volume.  A break below the
5-dma at $63.47 on volume should provide enough negative momentum
to take the stock quickly to $60, allowing for a more
conservative entry, but make sure that peers such as FCEL are
moving lower when initiating a play.

BUY PUT JAN-65 DFQ-MM OI=504 at $7.13 SL=5.00
BUY PUT JAN-60*DFQ-ML OI=146 at $4.75 SL=3.00

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


CELG - Celgene Corp. $36.06 (-8.69 last week)

Celgene is a pharmaceutical company with a major focus on the
discovery, development and commercialization of small molecules
for cancer and immunological diseases. Celgene's medical research
and development team is working to extend the boundaries in the
areas of small molecule immunotherapeutic and biocatalytic chiral
chemistry by developing pure versions of existing drugs.

Recent violations of a long-term up-trend line as well as key
horizontal technical support levels has led to further selling in
shares of CELG.  It appears that recently, lack of news has been
an enemy for the company.  In late November, the stock enjoyed a
brief rally, with excitement surrounding its presentation at the
American Society of Hematology (ASH) meeting, a forum that has
led to the announcement of blockbuster drugs in the past.  While
the news was for the most part good, the data presented was
merely a variation of a now worn-out theme.  With over 90 percent
of CELG's revenues generated from sales of its cancer drug
Thalomid, every new use found for it has resulting in the
prospect of higher earnings, leading to analyst upgrades and
investor enthusiasm.  With over 40 different applications for
Thalomid so far, it's no wonder prospects were exciting and
optimistic.  A recent development however, has turned this
sentiment against the company.  Campath, a new drug developed by
IXLO and MLNM, appears to have the potential to cut into sales of
Thalomid, has been a factor resulting in severe technical damage
to the stock.  Breaking an up-trend line from December of 1999,
the stock has headed lower, breaking through key support levels
of $45, $43 and most recently, $40.  At this point, bounces off
these resistance levels and the 5-dma at $38.86 could provide for
aggressive entries but make sure CELG closes below our stop price
of $45.  For a more conservative entry, wait for CELG to fall
below $35 on strong selling volume.  As mentioned,
company-specific news has been thin so sector sympathy will most
likely play an increased role in CELG's movements.  Confirm
direction with that of the Amex Biotech Index (BTK) and Merrill
Lynch's Biotech HOLDR before pulling the trigger.

BUY PUT JAN-40 LQH-MH OI=253 at $7.00 SL=5.00
BUY PUT JAN-35*LQH-MG OI= 91 at $4.50 SL=2.75
BUY PUT JAN-30 LQH-MF OI=141 at $2.06 SL=1.00

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


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*****
LEAPS
*****

Merry Christmas!
By Mark Phillips
Contact Support

Santa Claus finally showed up on Wall Street on the last trading
day before Christmas (the jolly old man even rang the closing
bell), and gave the bulls a broad-based rally to kick off their
holiday weekend on the right foot.  Even though it is normally a
light volume day, the NASDAQ traded a hefty 2.2 billion shares
while the NYSE handily topped a billion shares, with both
indices posting solid triple-digit gains to close at their
respective highs of the day.  Merry Christmas!

Even our old nemesis/friend the VIX remained friendly to the
bulls, holding above the 30 level for the sixth day in a row,
and closing out the week at 31.62.  While this marks a
significant drop from the 37.72 intraday high on Thursday, it is
still in the buy zone for long term positions.  What we need to
see now is whether the markets are stabilizing for a long
recovery in 2001 or if it is yet another head fake for the
bulls.  The days surrounding Christmas typically have a bullish
bias, and given the normally light volume in the week ahead, the
prudent course of action may be to wait until after the New
Years holiday before jumping heavily into new positions.  A
one-day rally does not change the fact that we have been in a
persistent bear market for the past 9 months.  While the
oscillators favor a continuation of the rally in the week ahead,
prudence and caution are still the best course of action.

For myself, I have had a full year of trading - with winners and
losers, and I'm looking forward to the week ahead.  Not because
I expect to make some great trades, but because I don't.  Family
and friends began arriving on Wednesday, and I am looking
forward to taking the next week off to spend time on the things
that are really important to me.  The markets will still be here
after the New Year, and are unlikely to run away in the week
ahead.  The economy is still weak, and earnings warnings are
still looming on the horizon ahead of the January earnings
cycle.  This looks like a recipe for more attractive entry
points in the weeks ahead, but it is not the time to back up the
truck and buy everything with a four-letter symbol on Monday.
The week between Christmas and New Years is normally a light
volume affair, and we will be better served by waiting for the
confirmation of heavy volume after the holidays.

If you absolutely can't stay away from the markets this week,
instead of actually opening new positions, consider doing some
planning for what you want to buy in 2001.  A concrete game
plan, properly executed, will serve us well in the year ahead,
and now is the time to start laying the foundation of that plan.
LEAPS investing is best applied by finding a bullish trend and
hopping on board for an extended upward move, and it is hard to
find uptrending stocks at this point in the game.  There are
HINTS of recovery in some of our plays, but it won't hurt to
give them another week to mature before putting our cash at
risk.  As Jim is fond of saying, "Cash is King".

As you can see from the Drops this weekend, all is not rosy in
Technology-land, as one of our long-time favorites, JDSU,
finally got the axe for poor performance.  2001 is likely to be
a very profitable year for LEAPS investors, but good entry
points and money management rules will be the hallmarks of those
that do well.  Take the time to develop your trading plan in the
week ahead.  The dividends it pays will become apparent as the
profits mount in your account next year.

Enjoy your family, recharge your batteries and get ready for an
exciting year ahead.

Happy Holidays


Current Plays

SYMBOL  SINCE     LEAPS         SYMBOL   PICKED   CURRENT  RETURN

EMC    11/07/99  JAN-2002 $ 45  WUE-AI   $ 9.50   $32.13   238.16%
       09/17/00  JAN-2003 $100  VUE-AT   $32.75   $16.63   -49.24%
CSCO   11/14/99  JAN-2002 $ 45  WIV-AI   $11.00   $10.25   - 6.82%
       11/26/00  JAN-2003 $ 60  VYC-AL   $16.63   $ 9.50   -42.86%
NT     11/28/99  JAN-2002 $37.5 WNT-AU   $15.13   $ 8.13   -46.30%
       09/10/00  JAN-2003 $ 75  ODT-AO   $27.50   $ 4.25   -84.55%
AOL    03/12/00  JAN-2002 $ 65  WAN-AM   $18.63   $ 2.40   -87.12%
       08/13/00  JAN-2003 $ 55  VAN-AK   $17.50   $ 7.30   -58.29%
AXP    03/12/00  JAN-2002 $46.6 WXP-AQ   $ 9.33   $14.00    50.05%
WM     03/19/00  JAN-2002 $ 30  WWI-AF   $ 5.38   $25.38   371.65%
       10/22/00  JAN-2003 $ 45  VWI-AI   $ 7.88   $17.00   115.87%
JDSU   04/16/00  JAN-2002 $ 80  YJU-AP   $39.63   $ 5.88   -85.18%
       08/27/00  JAN-2003 $130  VEQ-AF   $55.25   $ 5.63   -89.82%
NOK    05/21/00  JAN-2002 $ 50  IWX-AJ   $17.25   $ 8.63   -50.00%
       07/30/00  JAN-2003 $ 50  VOK-AJ   $17.75   $13.00   -26.76%
C      06/18/00  JAN-2002 $48.8 YSV-AW   $10.31   $10.25   - 0.58%
       10/01/00  JAN-2003 $ 60  VRN-AL   $12.25   $ 9.25   -24.49%
GENZ   07/16/00  JAN-2002 $ 70  YGZ-AN   $17.13   $38.38   124.02%
                 JAN-2003 $ 70  OZG-AN   $23.13   $46.75   102.12%
EXDS   08/06/00  JAN-2002 $ 55  WZZ-AK   $20.75   $ 2.75   -86.75%
                 JAN-2003 $ 60  VTQ-AL   $25.38   $ 4.75   -81.28%
FRX    08/13/00  JAN-2002 $ 95  WRT-AS   $31.38   $39.38    25.48%
                 JAN-2003 $100  VFB-AT   $37.38   $45.13    20.72%
QCOM   09/17/00  JAN-2002 $ 70  WBI-AN   $22.50   $34.13    51.67%
                 JAN-2003 $ 70  VLM-AN   $29.63   $41.88    41.33%
TXN    10/22/00  JAN-2002 $ 50  WTN-AJ   $13.75   $13.00   - 5.45%
                 JAN-2003 $ 50  VXT-AJ   $18.38   $18.00   - 2.04%
ADBE   10/29/00  JAN-2002 $ 80  YEJ-AP   $23.50   $17.13   -27.13%
                 JAN-2003 $ 80  VAE-AP   $30.75   $24.50   -20.33%
BGEN   11/05/00  JAN-2002 $ 70  WGN-AN   $17.25   $14.13   -18.12%
                 JAN-2003 $ 70  VNG-AN   $25.00   $21.75   -13.00%
MU     11/26/00  JAN-2002 $ 45  WGY-AI   $13.13   $ 9.00   -31.43%
                 JAN-2003 $ 45  VGY-AI   $17.25   $13.13   -23.91%
A      12/03/00  JAN-2002 $ 55  YA -AK   $16.88   $17.50     3.70%
                 JAN-2003 $ 60  OAE-AL   $19.88   $20.75     4.40%
ORCL   12/10/00  JAN-2002 $ 35  WOK-AG   $ 7.75   $ 8.25     6.45%
                 JAN-2003 $ 35  VOR-AG   $11.13   $12.13     8.94%
QQQ    12/10/00  JAN-2002 $ 70  WNQ-AR   $15.13   $10.88   -28.12%
                 JAN-2003 $ 75  VZQ-AW   $19.25   $14.13   -26.62%


Spotlight Play

ORCL - Oracle Corp. $31.88

Added only 2 weeks ago, ORCL is already proving itself to be a
solid play.  The company announced earnings on December 14th
that beat estimates by a penny, accompanied by stronger than
expected growth in the company's key application software
segment.  While the stock had suffered ahead of the news due to
the broad-based technology weakness, the positive report halted
the stock's decline right at the 30-dma ($27).  Since the news,
the stock has been trading in a range between $27-32, clearly
defining the near-term support and resistance necessary for
initiating new positions.  After years of playing second fiddle
to the likes of MSFT, CEO Larry Ellison is now being vindicated
in his view that, "the network is the computer".  While PC
related stocks are continuing to weaken , Ellison is pointing
to strengthening sales of ORCL's e-Business software suite as
evidence that his long-term vision is finally coming to pass.
Some pundits are even calling this the watershed event where
demand for Internet application software will continue to grow
at the expense of traditional operating system software, such as
Microsoft Windows.  If this in fact is an emerging trend, shares
of ORCL are downright cheap and should undergo a nice upward
move over the next several months.  The $27 support level still
looks great for initiating new positions, although more
conservative players will want to wait for a volume-backed
breakout above the $32 resistance level before playing.

BUY LEAP JAN-2002 $35.00 WOK-AG at $ 8.25
BUY LEAP JAN-2003 $35.00 VOR-AG at $12.13


New Plays

WMT - Wal-Mart Stores $52.50

After the rampant excitement that propelled shares of WMT to
new all time highs a year ago, its shareholders have had a
rough year, as the stock has been locked in a persistent
downtrend.  Defined by the descending trendline (currently at
$55) and year-long support at $45, the stock is coiling for a
strong move in one way or the other.  With declining interest
rates on the horizon, retail stocks should begin to recover in
the months ahead.  Don't run right out and buy LEAPS on Monday
though.  Friday's rally needs some follow through to get us out
of the current bearish market environment, so while we wait for
the tone to change, we can patiently look for attractive entry
points for the year ahead.  Since stabilizing above $45 again
in early November, WMT charged up to the descending trendline
before profit taking appeared once again, and it was encouraging
to see the selling abate this time significantly above the $45
support level.  In fact, the 50-dma (currently $48.69) is in
ascent mode once again and providing support on the pullbacks.
We would look for a pullback to the $49-50 area, or the 50-dma
to provide an attractive entry point.  In the event of a more
significant decline, look for $45 to be rock-solid support.  It
seems unlikely that we will challenge it again anytime soon, but
a failure there would definitely spell the end of our play.
With Stochastics back in ascent mode, new entries can be
considered as WMT can rally above the 200-dma at $53, but make
sure the broader market is in ascent mode first.

BUY LEAP JAN-2002 $55.00 WWT-AK at $ 9.63
BUY LEAP JAN-2003 $55.00 VWT-AK at $14.00


Drops

FRX $121.00 The need for stop losses is alive and well.  Recall
our review of FRX 2 weeks ago, where we mentioned the stock's
ascending trendline?  " Use the ascending trendline, in place
since early September to keep you in the play during minor
retracements.  When the stock fails to bounce at this trendline,
we will drop FRX from the playlist."  Well, the stock did just
that this week, closing on the trendline at $133 on Monday.
FRX provided us with nice steady profits over the past 4 months
as the stock moved up from the $90 area to rock solid resistance
at $140 over the past month.  This week's sharp decline came on
the heels of the previous Friday's Morgan Stanley downgrade and
the company's announcement of a 2-for-1 stock split.  This past
Tuesday gave us one last opportunity to exit on strength before
investors decided they definitely wanted out and the decline
began in earnest.  By the close on Wednesday, it was clear that
a major technical failure had occurred, as our play opened below
the trendline and continued down from there.  Any open plays
should have been stopped out over the past week, but if you are
still hanging on, our drop this weekend is your signal to take
the money and run, while there are still profits on the table.

JDSU $40.94 A long-time OIN favorite, JDSU has been reduced to
a mere shadow of its former self.  It has been on our playlist
since April, and since picking it, we have watched the stock
soar from the $80 support level to just shy of $140, netting
some impressive gains on our LEAPS.  Although we didn't know it
at the time, that party ended on Labor Day, and the stock has
been in a long, not-so-slow decline ever since.  As with many
of our recent Drops, JDSU is a classic example of why we have to
play with stops, even when we trade LEAPS.  We had high hopes of
a bottom forming in the vicinity of $50 and made mention of that
in our update 2 weeks ago.  Alas, it was not to be, as the
decline began anew exactly 2 weeks ago.  This time $50 support
was completely ignored as the stock fell as low as $37 Friday
afternoon.  This is an amazing 74% decline from the stock's July
highs, and in the same amount of time we have watched the profit
percentage on our recommended 2002 LEAP decline from +125% to
-85% and there are still no signs of the trend reversing.  While
we still like the long-term prospects for the stock, we are
tired of waiting for this falling knife to reach the earth and
stick.  Rather than desperately grab at it, we'll remove it from
the playlist so there is no doubt that we consider new positions
in JDSU to be foolhardy and ill-advised.


***********
SPLIT PLAYS
***********

Greenspan Snubs The Market
By Matt Russ

I guess I should have rephrased last week's Split title to "Will
Greenspan Set Stock Prices Free?"  Of course he "Can" and could
have relieved the tension on stocks last week at the FOMC meeting
by cutting rates by 25 basis points, but he did not.  With the
market already pricing in the shift to an easing bias on Tuesday,
the disappointment of not receiving an early Holiday rate cut
sent the markets tumbling.  However, the rhetoric was focused on
the slowing economy.  While the shift is not an explicit decision,
the move to an easing bias can be ascertained from the FOMC's
following statement:  "The Committee consequently believes that
the risks are weighted mainly toward conditions that may generate
economic weakness in the foreseeable future."  This is quite a
contrast from previous hawkish rhetoric citing "heightened
inflation pressures."

Many previous split candidates fell from the list this week because
their prices were halved without their shares doubling.  Even with
all of the market activity and volatility, we were able to hit on
one of our Split Candidates this week.  Forest Labs, FRX, announced
on Monday a 2-for-1 split payable on January 11th, 2001.  Since
the news, FRX has sold off with the broader market in a typical
post-split announcement depression.  But the run-up in anticipation
has been highly profitable to split traders.  For more information
on split trading, visit www.splittrader.com.


Current Split Run Plays

None


Current Split Candidate Plays

JNJ
LH
RE


Candidates That Are Not Current Plays

AFL
CHKP
CMVT
CAH
GENZ
LTR
RKY
UHS
VRTS
WLP


10 Most Recent Announcements We Predicted

FRX  - 12/18 (most recent announcement)
BRCD - 11/29
MANU - 11/08
MUSE - 10/25
AMCC - 10/11
DNA  - 10/05
LEH  - 09/20
ORCL - 09/14
SUNW - 08/17
GLW  - 08/16

Major Announcements So Far This Month = 15

HWEN     GMCR     BOBJ     DFXI
FSCR     HOTT     SANM     SEIC
SCHL     AREM     GGG      EAT
FRX      DUK      STT

For our complete stock split calendar, click here...
http://members.OptionInvestor.com/splits/index.asp


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

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


The Option Investor Newsletter                   Sunday 12-24-2000
Sunday                                                      5 of 5

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/122400_5.asp

*************
COVERED CALLS
*************

Trading Strategies: A Plan for Success
By Mark Wnetrzak

There are a number of general guidelines that can help a trader
become more successful.  These principles have value no matter
what type of investments you participate in and they can often
help you make more effective choices when selecting a specific
position.  As a profitable trader, your first obligation is to
state your goals and identify a portfolio outlook.  What seems
like an excellent trade, in terms of potential return, may not
be appropriate for all individuals, and each position should be
thoroughly evaluated for portfolio suitability and reviewed with
regard to your strategic approach and trading style.  In simple
terms, if you are planning for retirement, you should probably
avoid speculating in short-term call options.  In contrast, if
you are attempting to achieve immediate capital growth, mutual
funds are not the preferred financial vehicle.  The most common
mistake that a new trader can make is not matching his needs and
expectations to a strategy that can eventually accomplish them.
In addition, most investors do not fully understand the unique
relationship between personal portfolio goals and the methods
they utilize to attain those objectives.  Unfortunately, this
confusion virtually guarantees disappointment because even when
a trade returns a favorable profit, it's very hard to duplicate
on a regular basis if you don't have clear idea of what you are
trying to achieve.

The second step to building a profitable portfolio is to list
the attributes of the perfect trading strategy.  Of course the
perfect strategy doesn't really exist but the characteristics
of most successful techniques include a favorable risk/reward
outlook and ease of implementation.  The basic requirements for
a successful strategy are also determined by its objectives.
For example, with trading systems, you need a market outlook, a
strategy with which to profit and a method for timing entry and
exit transactions.  Then you must decide on a money management
system: a set of rules or guidelines for determining potential
risk.  The ultimate arrangement will be strict yet flexible,
with a method for adjustments as the position progresses.  The
ideal process entails far more than a mechanical system that
simply follows a recent trend and waits for a stop order to be
executed.  Regardless of the attributes of your strategy, it
should include two fundamental features: leverage and stability.
Leverage refers to the ability to profit quickly and effectively
from an accurate assessment of the market's future direction or
character.  Stability pertains to the reasonable expectation of
profit with limited potential of a substantial loss of capital.
For professional traders, this concept is very important as it
helps identify the boundaries of pure speculation as opposed to
conservative, income-generating strategies.

After analyzing the most popular trading techniques, you may
discover that there are really very few strategies that fit
your personal portfolio criteria.  For most traders, a careful
and deliberate approach that offers a reasonable return along
with a moderate element of risk is best.  Safety should be a
primary factor in determining your choice of strategies and in
most cases, the simplest way to find a happy medium is to start
with realistic expectations and build a pattern of consistent
success before worrying about higher returns.  In addition, it
is important to be prepared for the enormous amount of mental
control that is required to build a successful portfolio.  New
traders begin with a positive outlook and most have a good idea
of how they expect to manage a particular position, but few of
them understand how difficult it is to follow a pre-determined
plan when emotional elements enter the equation.  They have the
best of intentions, knowing that an orderly and disciplined
method is the easiest way to achieve profits on regular basis,
but executing the strategy is where the trouble usually begins.
In fact, many experts believe that this step can be one of the
biggest obstacles to profitable trading and it's a subject that
receives little attention in the popular investing manuals.

Next week, we will examine some of the most common problems that
traders encounter when they attempt to "follow the game plan".

Good Luck!



SUMMARY OF PREVIOUS PICKS
*****
NOTE: Using Margin doubles the listed Monthly Return!

Stock  Price  Last   Call  Strike Price   Profit  Monthly
Symbol Picked Price  Month Sold   Picked  /Loss   Return

CRK    11.44  12.50   JAN  10.00  2.19  *$  0.75   7.0%
GLGC   21.25  17.50   JAN  17.50  5.25   $  1.50   6.8%
EXFO   32.00  23.38   JAN  22.50 11.25  *$  1.75   6.1%
EDGW    5.63   6.47   JAN   5.00  1.00  *$  0.37   5.8%
BCGI   28.38  27.00   JAN  22.50  7.25  *$  1.37   5.6%
CPRT   18.69  20.25   JAN  17.50  2.19  *$  1.00   5.3%
QTRN   18.38  20.06   JAN  17.50  2.06  *$  1.18   5.2%
HSIC   30.63  33.88   JAN  30.00  2.31  *$  1.68   5.2%
WMS    19.69  19.00   JAN  17.50  3.00  *$  0.81   4.2%
ARQL   33.75  27.88   JAN  25.00 10.00  *$  1.25   3.8%
CVD    11.38   9.69   JAN  10.00  2.00   $  0.31   2.4%
AVID   18.63  16.44   JAN  17.50  2.06   $ -0.13   0.0%
RFMD   36.38  26.63   JAN  30.00  8.50   $ -1.25   0.0%
MRVT   17.94  12.25   JAN  15.00  4.13   $ -1.56   0.0%
GZMO   14.19   9.88   JAN  12.50  2.69   $ -1.62   0.0%

*$ = Stock price is above the sold striking price.

Comments:

Gene Logic (GLGC) appears to have made a successful test of the
November low.  Exfo Electro-Optical (EXFO) is testing support
near our sold strike - it was originally deep ITM.  Quintiles
(QTRN) has been quite volatile over the last two weeks but it
appears to be moving higher overall.  Is Friday's rally going
to last for Arqule (ARQL)?  Of the four positions above that are
negative, Miravant (MRVT) may warrant a quick exit, depending
on your outlook, as the technicals continue to deteriorate.
The other positions; GZMO, RFMD, and AVID, have more favorable
technicals and should benefit from an easing of the Bear!
However, if they continue to weaken, rolling down or simply
exiting the position would preserve capital for another play.


NEW PICKS
*********

Sequenced by Return
*****
Stock  Last  Call  Strike Option  Last  Open Cost  Days to Monthly
Symbol Price Month Price  Symbol  Bid   Intr Basis Expiry  Return

MCOM   10.75  JAN   7.50  MQM AU  3.88  120   6.87   28    10.0%
MCLD   14.69  JAN  12.50  QMD AQ  3.00  734  11.69   28     7.5%
FNSR   27.00  JAN  22.50  FQY AN  5.75  44   21.25   28     6.4%
KLAC   31.81  JAN  25.00  KCQ AE  8.13  183  23.68   28     6.1%
PHI    17.56  JAN  15.00  PHI AC  3.25  20   14.31   28     5.2%
MLHR   26.81  JAN  25.00  MHQ AE  2.88  50   23.93   28     4.9%
WMS    19.00  JAN  17.50  WMS AW  2.25  1065 16.75   28     4.9%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, MR-Monthly Return.

*****
FNSR - Finisar  $27.00  *** Entry Point? ***

Finisar is a provider of fiber optic subsystems and network
performance test systems that enable high-speed communications
over Gigabit Ethernet LANs and Fibre Channel based storage area
networks (SANs).  FNSR's optical subsystems convert electrical
signals into optical signals (light pulses) for high speed,
reliable transmission over fiber optic lines.  The company sells
its optical subsystems to manufacturers of networking and
storage equipment that in turn develop and market systems based
on Gigabit Ethernet and Fibre Channel technology.  FNSR's shares
rallied in late November after the fiber-optics systems maker
beat analysts' expectations for the second quarter and announced
a slew of acquisitions.  Finisar has two potentially profitable
fiber-optic products in the pipeline, Transviewer and Opticity.
The current consolidation appears to have made a successful test
of the November low and we favor the long-term support near the
sold strike.

JAN 22.50 FQY AN LB=5.75 OI=44 CB=21.25 DE=28 MR=6.4%


*****
KLAC - KLA-Tencor  $31.81  *** Bottom Fishing! ***

KLA-Tencor is the world's leading supplier of process control
and yield management solutions for the semiconductor and related
microelectronics industries.  Their portfolio of products and
analysis services is designed to help IC manufacturers manage
yield throughout the entire wafer fabrication process, from
research and development to final production yield analysis.
KLA-Tencor's advanced products, coupled with its yield management
consulting practice, allow the company to deliver the complete
yield management solutions customers need to accelerate their
yield learning rates, reduce their yield excursion risks and
adopt industry-leading yield management practices.  KLA-Tencor
has shown resilience as the semiconductor sector was taken out
back and shot.  The stock has begun to forge a Stage I base
and has recently moved above its 30 dma.  Earnings are due
near the third week in January - just before expiration.

JAN 25.00 KCQ AE LB=8.13 OI=183 CB=23.68 DE=28 MR=6.1%


*****
MCLD - McLeodUSA  $14.69  *** More Bottom Fishing! ***

McLeodUSA provides selected telecommunications services to customers
nationwide:  Integrated communications including local services are
currently available in several Midwest and Rocky Mountain states;
long distance and advanced data and Internet services are available
in all 50 states.  McLeodUSA has recently completed its acquisition
of CapRock Communications, a southwestern U.S. facilities-based
integrated communications provider, which reported an outstanding
quarter in November.  Several buy recommendations have spurred
investor interest and the recent downtrend has abated.  We favor
the technical support above our cost basis and the improving
technicals.

JAN 12.50 QMD AQ LB=3.00 OI=734 CB=11.69 DE=28 MR=7.5%


*****
MCOM - Metricom  $10.75  *** On The Rebound! ***

Metricom is a leading high-speed wireless data company.  With its
high-speed Ricochet mobile access, Metricom is making "information
anytime" possible - at home, at the office, on the road, and on
many devices.  Metricom recently launched Ricochet(TM) - 128 kbps
access with true wireless mobility, in Denver and Detroit.   This
is further proof that Metricom is delivering on its strategy of
bringing Ricochet to pivotal markets across the country.  As MCOM
continues to expand, its stock has begun displaying heavy accumul-
ation suggesting a possible change in character.  This position
offers a reasonable cost basis for those investors who believe
Metricom is exiting its Stage IV downtrend and is moving to a
lateral Stage I base.

JAN 7.50 MQM AU LB=3.88 OI=120 CB=6.87 DE=28 MR=10.0%


*****
MLHR - Herman Miller  $26.81  *** Post-Earnings Rally! ***

Herman Miller creates great places to work by researching, designing,
manufacturing, and distributing innovative interior furnishings that
support companies, organizations, and individuals all over the world.
MLHR's award-winning products, complemented by primary furniture-
management services, generated nearly $2 billion in revenue during
fiscal 2000.  The Company just reported its 2nd-quarter earnings:
Sales, net income, and EPS were all records, exceeding any quarter
in the company's 77-year history.  It appears Herman Miller has
truly enlarged their market opportunity, and their strong backlog
bodes well for the 3rd-quarter.  Investors applauded the results,
rallying the stock higher with a "Hammer" bottom forming on both a
daily as well as a weekly chart.

JAN 25.00 MHQ AE LB=2.88 OI=50 CB=23.93 DE=28 MR=4.9%


*****
PHI - Philippine L. D. Tele  $17.56  *** Triple Bottom? ***

Philippine Long Distance Telephone Company is the leading Filipino
telecommunications provider.  With operations centered in the Manila
metro area, it maintains about 1.8 million access lines (60% of the
country's total).  Backed with a nationwide fiber-optic network to
accompany its digital microwave backbone, the carrier provides local,
long-distance (national and international), data and network services
using leased satellite and submarine cable capacity.   PHI appears
to be making a stand at $15, forming a triple bottom.  We simply
favor the strong support at the sold strike and the heavy-volume
supported rally on Friday.  Speculators only please!

JAN 15.00 PHI AC LB=3.25 OI=20 CB=14.31 DE=28 MR=5.2%


*****
WMS - WMS Industries  $19.00  *** On The Rebound! ***

WMS Industries designs, manufactures and markets video and reel-
spinning gaming machines and video lottery terminals.  Its gaming
machines are installed in all of the major gaming jurisdictions
in the U.S. and in numerous foreign jurisdictions.  WMS conducts
its gaming machine business through its subsidiary, WMS Gaming.
Talk about a post-earnings drop!  WMS dropped almost 50% after
posting strong earnings November 1st, as analysts worried over
deceleration in sold units and installed game base.  The stock
has since rallied back above its 150 dma and Bear Stearns has
recently upgraded their recommendation.  WMS has reported that
it continues to outpace its internal sales goal of 4,000 units
for fiscal 2001 due to high customer acceptance of its products.
A conservative entry point for traders who have a bullish outlook
and believe the sell-off was overdone.

JAN 17.50 WMS AW LB=2.25 OI=1065 CB=16.75 DE=28 MR=4.9%


*****

*****************
SUPPLEMENTAL COVERED CALLS
*****************

The following group of issues is a list of additional 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
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

Sequenced by Return
*****
Stock  Last  Call  Strike Option  Last  Open Cost  Days to Monthly
Symbol Price Month Price  Symbol  Bid   Intr Basis Expiry  Return

CRK    12.50  JAN  12.50  CRK AV  1.00  205  11.50   28     9.4%
IMMU   21.25  JAN  20.00  QUI AD  2.56  213  18.69   28     7.6%
GETY   29.75  JAN  25.00  QGT AE  6.38  200  23.37   28     7.6%
PATH   25.13  JAN  25.00  AQE AE  1.69  0    23.44   28     7.2%
PPRO   17.13  JAN  12.50  PXZ AV  5.38  96   11.75   28     6.9%
ORLY   23.00  JAN  22.50  OQR AX  1.44  31   21.56   28     4.7%
PCAR   47.88  JAN  45.00  PAQ AI  4.25  81   43.63   28     3.4%


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


*************************
NAKED PUT PERCENTAGE LIST
*************************

Naked Put Percentage List
By Matt Russ

Stock  Stock  Strike Option  Option Margin Percent Support
Symbol Price  Price  Symbol  Price  At 25% Return  Level

ADBE   62.44    55   AXX-MK    2.81   1561   18%      55
NEWP   81.00    60   NZZ-ML    4.38   2025   22%      65
AFFX   71.25    60   FIQ-ML    4.00   1781   22%      60
AGN    92.13    85   AGN-MQ    3.13   2303   14%      90
DNA    79.38    70   DNA-MN    2.06   1985   10%      73
CMVT  108.94    90   CQZ-MR    4.38   2724   16%      90
GLW    56.25    50   GLW-MJ    3.25   1406   23%      50
IDPH  195.94   170   IHD-MN    9.50   4899   19%     170
ESRX   90.50    80   XTQ-MQ    3.00   2263   13%      80
FCEL   64.00    50   FQG-MJ    2.63   1600   16%      57
MERQ   94.75    70   RQB-MN    3.25   2369   14%      70
PDLI   87.50    75   RPV-MO    5.25   2188   24%      70
GS     98.81    90    GS-MR    3.38   2470   14%      90
QCOM   85.00    75   AAF-MO    3.50   2125   16%      73
HGSI   71.50    60   HHA-ML    3.50   1788   20%      60
RIMM   79.88    65   RUL-MM    5.00   1997   25%      65
MLNM   60.75    50   QMR-MJ    2.56   1519   17%      50
SUNW   31.88    25   SUQ-ME    0.94    797   12%      25
SEPR   71.88    65   ERQ-MM    3.75   1797   21%      60
VRTS   98.50    80   VUQ-MZ    4.75   2463   19%      80


***********************
CONSERVATIVE NAKED PUTS
***********************

Technical Analysis: Our Approach to Play Selection...
By Ray Cummins

One of our readers asked about the different types of analysis
that we use to select candidates for the "Covered Calls" and
"Naked Puts" sections.  For the majority of our selections, we
rely heavily on basic technical analysis.

There are three types of information that most traders use to
determine a bias or opinion on a specific stock.  The first is
"fundamental" analysis; income statements, balance sheets, and
the future projections for revenues and earnings.  The second
is "sentiment" analysis; investor expectations of market and
individual stock performance, news or upcoming events and other
possible activities such as mergers and stock splits.  The final
category is "charting".  This method relies on the history of
trading and price movement in a specific stock.  The issue can
also be a future, index, or industry group.  Most analysts (and
we agree with this outlook) believe that charts reflect all of
the known information and public opinion surrounding a specific
stock or security.

Technical analysis involves the use of historical pricing to
identify trends and patterns.  Many different indicators are
displayed on price charts.  Moving averages, support/resistance
lines, envelopes, Bollinger bands, and momentum curves are all
common measures.  Price, time and volume are basic inputs into
these indicators.  Price reflects the level of change in the
attitude of investors.  Time measures the cycle or period of
change and volume (relative to its past history) measures the
intensity of that change.  Together, these indicators reveal
buying and selling patterns that are difficult to discern by
tracking stock quotes in a textual format.  Charting can also
display selling pressure that develops when an issue reaches a
certain level, or repeated buying at a lower price.  There are
a number of simple charting techniques that can help a trader
better understand the market and technicians have popular names
for the most common patterns.  To avoid complexity, new traders
should focus on three basic concepts: the stock's price trend;
its support and resistance levels (the prices at which a stock
typically reverses course); and the relationship between price
movement and volume activity.

Various systems have been developed to help traders form an
opinion based on the chart patterns and predict future turning
points (and direction) in the underlying issue.  The analysis
begins by determining the strength and direction of a trend.
The basis for future predictions is supported by the fact that
once a trend is in motion, it will continue in that direction
until a change in character occurs.  The more times the stock
tests and remains above the current trend line, the greater the
significance of any subsequent price decline that violates the
line.  Occasionally stocks simply bounce back and forth in a
trading range and when that happens, it's helpful to identify
the boundaries of the pattern for clues to its future direction.
For example, if a stock breaks decisively below a support level,
it is likely to continue falling until a new level of support
is established.  In contrast, when an issue rallies above a
previous resistance level, it is likely to continue higher as
there is no overhead supply to restrict its upward movement.

Successful analysts will look at many indicators from different
perspectives and identify signals that forecast upcoming changes
or trend reversals.  When you can do this accurately on a regular
basis, your portfolio value will grow consistently, regardless
of the overall market character.

Good Luck!


                      *** WARNING!!! ***
Occasionally a company will experience catastrophic news causing
a severe drop in the stock price. This may cause a devastatingly
large loss which may wipe out all of your smaller gains. There is
one very important rule; Don't sell naked puts on stocks that you
don't want to own! It is also important that you consider using
trading STOPS on naked option positions to help limit losses when
the stock price drops. Many professional traders suggest closing
the position when the stock price falls below the sold strike or
using a buy-to-close STOP at a price that is no more than twice
the original premium from the sold option.


SUMMARY OF PREVIOUS PICKS
*****

Stock  Price  Last   Put   Strike Price   Profit  Monthly
Symbol Picked Price  Month Sold   Picked  /Loss   Return

CHTR   22.00  22.56   JAN  20.00  0.81  *$  0.81   9.3%
NEM    16.25  17.69   JAN  15.00  0.88  *$  0.88   8.9%
AEIS   24.38  20.50   JAN  20.00  0.69  *$  0.69   8.2%
ADVP   39.50  39.25   JAN  30.00  0.81  *$  0.81   8.1%
MU     35.88  34.94   JAN  25.00  0.69  *$  0.69   7.6%
LFG    38.38  39.81   JAN  35.00  1.00  *$  1.00   6.7%
CORR   48.94  37.50   JAN  32.50  0.81  *$  0.81   5.5%
BSTE   36.94  37.50   JAN  22.50  0.50  *$  0.50   5.5%
TXCC   47.88  43.19   JAN  25.00  0.75  *$  0.75   5.3%
KLAC   35.94  31.81   JAN  22.50  0.56  *$  0.56   5.2%
SPF    25.44  22.38   JAN  22.50  0.69   $  0.57   5.2%
SNPS   42.13  47.56   JAN  35.00  0.88  *$  0.88   5.2%
BCHE   28.38  31.75   JAN  25.00  0.50  *$  0.50   5.1%
CCR    41.69  48.38   JAN  35.00  0.75  *$  0.75   5.1%
FNSR   37.50  27.00   JAN  22.50  0.56  *$  0.56   5.0%
ADLAC  40.81  48.56   JAN  30.00  0.50  *$  0.50   5.0%
OXY    22.56  23.75   JAN  20.00  0.56  *$  0.56   4.9%

*$ = Stock price is above the sold striking price.

Comments:

Standard Pacific (SPF) appears to have made a successful test
of its 50 dma - but monitor it closely for changes.  Advanced
Energy (AEIS) is again showing signs of heavy selling after
the recent downgrade by Merrill Lynch.  An early exit or roll
down appears to be the appropriate course of action.  Lots of
buying support for Micron (MU) around $30, even after earnings.
Cor Therapeutics (CORR) is testing the November low - a key
support area.  Biochem Pharma (BCHE) is another one of those,
"I should have bought calls" positions.  Add Countrywide Credit
(CCR) and Adelphia (ADLAC) to that list also!


NEW PICKS
*********

Sequenced by Return
******
Stock  Last  Put   Strike Option  Last  Open Cost  Days to Monthly
Symbol Price Month Price  Symbol  Bid   Intr Basis Expiry  Return

PLNR   28.88  JAN  22.50  PNQ MX  0.63  210  21.87   28    10.7%
BSTE   37.50  JAN  25.00  BQS ME  0.69  253  24.31   28     9.2%
HCR    19.69  JAN  17.50  HCR MW  0.44  0    17.06   28     7.8%
ADLAC  48.56  JAN  35.00  ADU MG  0.69  224  34.31   28     7.2%
CPRT   20.25  JAN  17.50  KQJ MW  0.38  50   17.12   28     7.2%
PPDI   48.19  JAN  40.00  PJQ MH  0.69  40   39.31   28     6.4%
TXN    47.63  JAN  32.50  TXN MZ  0.56  4598 31.94   28     6.0%
NKE    51.19  JAN  45.00  NKE MI  0.75  724  44.25   28     5.4%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, MR-Monthly Return.

*****
ADLAC - Adelphia Communications  $48.56  *** On The Move! ***

Adelphia Communications is a leader in the telecommunications
industry with cable television and local telephone operations.
Adelphia's operations consist of providing telecommunications
services primarily over networks, which are commonly referred
to as broadband networks because they can transmit quantities
of voice, video and data by way of digital or analog signals.
After hinting about several important strategic initiatives at
investor conferences last week, the company announced that its
Adelphia Business Solutions (ABIZ) will significantly scale
back its network expansion.  Adelphia also formalized plans to
divest its cable systems in Puerto Rico and explore the sale of
other non-strategic systems.  Investors appear to favor the
announcement and a recent upgrade has helped propel the stock
to a 6-month high.  Last week offered a better entry point but
the issue shows no signs of slowing in its upward movement.
Target a higher premium initially, to open the play.

JAN 35.00 ADU MG LB=0.69 OI=224 CB=34.31 DE=28 MR=7.2%


*****
BSTE - Biosite Diagnostics  $37.50  *** FDA Approval! ***

Biosite Diagnostics serves clinical needs in emergency medicine
by speeding the flow of critical diagnostic information.  Through
its integrated discovery and diagnostics businesses, Biosite is
developing rapid diagnostic tests that improve clinical outcomes
for acute diseases.  Biosite's Triage. products are used in 45%
of U.S. hospitals and in 40 international markets.  On November
22, Biosite announced that it had received FDA clearance to market
the Triage. BNP Test in the U.S.  This is the first blood test to
be cleared in the U.S. as an aid in the diagnosis of congestive
heart failure.  Investors cheered this news as the stock rallied
above its 150 dma on strong volume.  A brief consolidation took
the issue back to a recent support level and now it appears the
up-trend is ready to resume.  BSTE is another second-chance play
and the position offers favorable speculation for traders who are
interested in the drug sector.

JAN 25.00 BQS ME LB=0.69 OI=253 CB=24.31 DE=28 MR=9.2%


*****
CPRT - Copart  $20.25  *** Post-Earnings Rally! ***

Copart provides vehicle suppliers, primarily insurance companies,
a full range of services to process and sell salvage vehicles
through auctions, principally to licensed dismantlers, rebuilders
and used vehicle dealers.  Copart recently reported 1st quarter
earnings with net income of $8.9 million which generated a 45%
increase in earnings per share, on revenues of $57.1 million.
The results were ahead of expectations due to strong performance
from new and existing stores, and continued growth of Internet
sales.  We simply favor the strong rally above the September
high, which completes a short-term "double-bottom" formation and
suggests that a test of the all-time high is forthcoming.

JAN 17.50 KQJ MW LB=0.38 OI=50 CB=17.12 DE=28 MR=7.2%


*****
HCR - Manor Care  $19.69  *** Congressional Decision! ***

Manor Care is a provider of a range of health care services,
including skilled nursing care, assisted living, sub-acute
medical care, rehabilitation therapy, home health care and
management services for sub-acute care, rehabilitation therapy,
vision care and eye surgery.  The company's assisted living
facilities also operate under the brand names Arden Courts and
Springhouse.  The Arden Courts facilities are focused on care for
persons suffering from early to middle-stage Alzheimer's disease
and related memory impairment, while the Springhouse facilities
serve the general assisted living population of frail elderly.
Manor Care shares rose after the Medicare and Medicaid Benefits
Improvement and Protection Act was passed last Friday by the
lame-duck Congress.  The company hailed the act as an important
step toward achieving a payment system that reimburses providers
more appropriately for treating Medicare patients, and officials
said that future profits will likely be improved by the decision.

JAN 17.50 HCR MW LB=0.44 OI=0 CB=17.06 DE=28 MR=7.8%


*****
NKE - Nike  $51.19  *** Solid Earnings! ***

Nike designs, develops and markets high quality footwear, apparel,
equipment, and accessory products.  Nike is the largest seller of
athletic footwear and athletic apparel in the world.  The company
sells its products to 19,000 retail accounts in the United States
and through a mix of independent distributors, licensees and other
subsidiaries in 140 countries around the world.  Virtually all of
its products are manufactured by independent contractors and most
footwear products are produced outside the United States, while
apparel products are produced both in the United States and abroad.
The sports shoe and apparel giant recently reported that quarterly
profits rose 16%, in line with Wall Street forecasts, as revenues
increased 7%.  The company also reaffirmed its full-year earnings
target of mid-teens percentage growth as the company's revenues
have been bolstered by tremendous international sales and surging
equipment sales.

JAN 45.00 NKE MI LB=0.75 OI=724 CB=44.25 DE=28 MR=5.4%


*****
PLNR - Planar Systems  $28.88  *** Blue Sky Territory! ***

Planar is a worldwide leader in the development and marketing of
high performance information display systems currently supplied to
more than 1,000 customers.  The company is at the leading edge in
providing customers in the medical, transportation and industrial
markets with value-added products that allow digital and video
information to be viewed in a wide range of applications.  The
company reported a strong 4th quarter with higher-than-expected
sales and net income before accounting for non-recurring charges.
Sales for the quarter rose to $47 million, up 42%, as Planar
benefited from a favorable product mix and improved yield in the
company's LCD and CRT operations.  The stock has rallied strongly
on heavy volume, breaking out to a new all-time high and this play
offers a favorable cost basis for traders who are bullish on the
issue.

JAN 22.50 PNQ MX LB=0.63 OI=210 CB=21.87 DE=28 MR=10.7%


*****
PPDI - Pharmaceutical Product Dev.  $48.19  *** All Time High! ***

Pharmaceutical Product Development and its subsidiaries provide
a broad range of research and development and consulting services
in the life and discovery sciences segments.  PPD Development,
the company's life sciences subsidiary, is the fourth largest
contract research organization (CRO) in the world, providing
integrated product development resources on a global basis to
complement the research and development activities of companies
in the pharmaceutical and biotechnology industries.  PPD recently
raised its outlook for fourth quarter earnings and revenues, and
said it had licensed a chemical compound that could help treat
premature ejaculation.  Investors and analysts applauded the news
and based on the strong up-trend, our outlook for the issue is
cautiously bullish.  The recent momentum should propel the share
value well clear of our target cost basis.

JAN 40.00 PJQ MH LB=0.69 OI=40 CB=39.31 DE=28 MR=6.4%


*****
TXN - Texas Instruments  $47.63  *** Blue-Chip Technology! ***

Texas Instruments is a global semiconductor maker and the world's
leading designer and supplier of digital signal processors and
analog integrated circuits, the engines driving the digitization
of electronics.  TI also is a world leader in the design and
manufacturing of other semiconductor products including standard
logic, application-specific ICs, unique reduced instruction-set
computing microprocessors, micro-controllers and digital imaging
devices.  TI has manufacturing, design or sales operations in 27
countries around the world an is an industry leader in virtually
every product it offers.  A trading-range bottom appears to be
well established near $37 and we favor the opportunity to own
this blue-chip at a discount price.

JAN 32.50 TXN MZ LB=0.56 OI=4598 CB=31.94 DE=28 MR=6.0%


*****

*****************
SUPPLEMENTAL NAKED PUTS
*****************

The following group of issues is a list of additional 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
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

Sequenced by Return
******
Stock  Last  Put   Strike Option  Last  Open Cost  Days to Monthly
Symbol Price Month Price  Symbol  Bid   Intr Basis Expiry  Return

MU     34.94  JAN  25.00   MU ME  0.63  6886 24.37   28     9.0%
GETY   29.75  JAN  20.00  QGT MD  0.50  338  19.50   28     8.4%
KLAC   31.81  JAN  20.00  KCQ MD  0.44  498  19.56   28     7.0%
PATH   25.13  JAN  22.50  AQE MX  0.50  0    22.00   28     6.9%
GMST   49.50  JAN  30.00  QLF MF  0.63  315  29.37   28     6.5%
ERTS   42.19  JAN  30.00  EZQ MF  0.50  309  29.50   28     6.1%


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

Santa Claus arrives...just in time!

The stock market enjoyed an impressive rally today as investors
looked for technology bargains on the last trading day before
Christmas.

Friday, December 22

The stock market enjoyed an impressive rally today as investors
looked for technology bargains on the last trading day before
Christmas.  The Nasdaq closed up 176 points at 2,517 and the Dow
was up 148 points at 10,635.  The S&P 500 index ended 31 points
higher at 1,305.  Trading volume on the NYSE reached 1.1 billion
shares, with advances outpacing declines 2,043 to 895.  Activity
on the Nasdaq was heavy at 2.2 billion shares exchanged, with
advances beating declines 2,672 to 1,293.  In the bond market,
the 30-year Treasury rose 8/32, pushing its yield down to 5.39%.


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

Pfizer       PFE    JAN46C/JAN45P   $0.50   credit   bear-call
ADC Telecom  ADCT   FEB17C/FEB17P   $5.50   debit    straddle
Placer Dome  PDG    JAN10C/JAN10P   $0.12   debit    synthetic

Pfizer rebounded from Thursday's slump and our credit spread was
easily opened at the target credit.  Now we will watch for signs
of another attempt to break-out of the recent trading range and
the first indication will be a close near $47 on heavy volume.
ADC Telecom moved in a relatively small range during the morning
session and although it is difficult to determine whether any
contracts were traded in our position, the straddle was offered
at $5.56 debit just after 1:00 P.M.  Placer Dome traded lower as
the equity markets moved higher and the synthetic position was
available at the target debit.


Portfolio Plays:

The stock market gave investors a much-needed Christmas present
today with triple-digit gains in both major indices.  Analysts
said that much of the negative outlook for earnings has already
been priced into the market and investors are optimistic about
a potential interest rate cut in January.  Among Nasdaq groups,
Internet, computer hardware and software, networking, and chip
shares moved higher.  Wireless telecom stocks were also among
the top performers and our recent position in Qualcomm (QCOM)
benefited from the upside activity.  Technology companies also
boosted the Dow and International Business Machines (IBM) was
the biggest gainer, rising $7 to $89 after Salomon Smith Barney
reiterated its "buy" rating on the stock and said rumors of an
earnings warning were unfounded.  Software developer Microsoft
(MSFT) and computer giant Hewlett-Packard (HWP) rebounded from
recent selling pressure and in the industrial group, Alcoa (AA)
and International Paper (IP) were among the blue-chip winners.
Economists say that although the recent performance of cyclical
stocks indicates the probability of a recession is relatively
low, there is still potential for extended bear market activity
in the coming months.  In addition, the broader market is mired
in a strong downtrend and even with today's technical recovery,
continued tax-loss selling by fund managers will likely keep
stocks under pressure until the New Year.

The Combos section experienced mixed results in today's bullish
session.  While a number of plays recovered from recent losses,
there were also some positions that suffered during the upside
activity.  However, the movement provides a good opportunity to
explain some of the roll-out techniques discussed in Thursday's
newsletter.  The examples we will use today are Costco (COST),
where we have a neutral credit strangle; JAN-40C/JAN-30P, and
Bowater (BOW), which is the underlying issue for a call-credit
spread; JAN-60C/JAN-55C.  Both of these issues have new upside
potential that could result in capital losses if the plays are
not managed correctly.  Lets look at the Costco position first:

We are currently short 10 contracts in the JAN-30 Put and also
short 10 contracts in the JAN-40 Call.  The original position
was a (credit) strangle with an initial credit of $1.38.  Thus,
our break-even cost basis is $41.38 on the upside and $28.62 on
the downside.  The well-established trading range for the issue
was the primary reason for initiating the neutral position and
the option prices also favored a premium-selling strategy.  Now
the stock has made a strong move to the top of the recent range
with three consecutive "up" days and volume increasing during
the rally.  The first indication of a significant change in
character will be a close above the August and September highs
near $39, preferably on heavy trading volume.  If that occurs,
the simple alternatives are: close the short option at $40 for
a small loss and accept the outcome (a closing cost greater than
$1.38 will create a negative return); or buy stock to cover the
short option and use the premium from the original position to
adjust (lower) the overall cost basis in the issue.  Of course,
there are other more complex adjustments; you might purchase an
"in-the-money" call option to create a bullish debit spread, or
an "out-of-the-money" call option to limit losses if the rally
continues.  The choices are almost endless and that is why it
is important to understand the most common methods of position
adjustment before the play is initiated.  In addition, almost
every modification to the original play will be based on your
future outlook for the underlying issue and that can only be
determined with a thorough understanding of technical analysis.

With the Bowater credit spread, the choices are very similar:

We are currently long 10 contracts in the JAN-60 Call and also
short 10 contracts in the JAN-55 Call.  The original position
was a call-credit spread with an initial credit of $1.50.  Our
break-even cost basis is $56.50 and above that price, losses are
incurred up to a maximum of $3.50 at $60.  The recent technical
indications suggest that the resistance near $58 will be tested
in the near future.  Whether the outcome will be successful, no
one can know, but there is a common technique for rolling out of
a credit spread.  I'll reprint the short version here for those
of you that haven't seen it before.  To "roll-out" of a bearish
credit spread, place an order to exit the short option anytime
the issue closes above technical resistance with a sustained
movement, preferably on heavier-than-average trading volume.
The technique is based on the probability that the stock should
continue to move in that direction.  After the short position
is repurchased, wait for the rally to lose momentum and sell the
long position to close the entire play.  That's just one method
of exiting the play and it is by no means the solution to every
failed credit spread.  There are a number of other adjustments
that can enhance the profit potential of the position such as
buying additional calls at the $60 strike to offset the losses
in the (short) $55 options or buying stock (or deep ITM options)
and selling new OTM options to establish a bullish outlook in
the position.  They key to successful position management is to
think like a market-maker, using all of the possible hedge and
covering techniques and carefully review each alternative before
making a final decision.  Regardless of how you choose to adjust
the play, be prepared for further draw-downs and always trade
within the limits of your portfolio and your experience level.

Merry Christmas!

Questions & comments on spreads/combos to Contact Support
******************************************************************
                         - NEW PLAYS -
******************************************************************
CVTX - CV Therapeutics  $65.31  *** Technicals Only! ***

CV Therapeutics is a biopharmaceutical company engaged in the
discovery and development of new small molecule drugs for the
treatment of cardiovascular diseases.  The company currently is
conducting clinical trials for two of its drug candidates,
including ranolazine, which is in its second Phase III trial.
In addition, the company has several research and pre-clinical
development programs designed to bring more drug candidates into
human clinical testing.  Consistent with its business strategy,
the company currently retains United States marketing rights to
its two lead clinical candidates, ranolazine and CVT-510.  Since
inception, substantially all of its resources have been dedicated
to research and development.  The company expect its sources of
revenue, if any, for the next few years to consist of payments
under corporate partnerships and interest income.

Cv Therapeutics continues to weaken technically and the recent
move below a 150 dma suggests there is little chance the stock
can power through the layers of resistance near our sold strike.
A bearish "head-n-shoulders" pattern is readily apparent over the
past six months, and any move below $60 should signal the next
downtrend.  The premiums for the (OTM) call options are slightly
inflated and the potential for a successful (technical) recovery
is significantly affected by the overhead supply near $80-$85; a
perfect condition for a bearish credit spread.


PLAY (very conservative - bearish/credit spread):

BUY  CALL  JAN-90  UXC-AR  OI=18  A=$0.69
SELL CALL  JAN-85  UXC-AQ  OI=43  B=$1.00
INITIAL NET CREDIT TARGET=$0.50  ROI(max)=11% B/E=$85.50


******************************************************************
SFAM - Speedfam-IPEC  $5.63  *** Bottom Fishing! ***

SpeedFam designs, develops, manufactures, markets and supports
CMP systems used in the fabrication of semiconductor devices and
also manufactures high-throughput precision surface processing
systems.  The company's flat surface processing systems are used
in general industrial applications markets.  The company also
markets and distributes polishing liquids (slurries), parts and
consumables used in its customers' manufacturing processes.  The
company offers the broadest range of CMP systems available to the
semiconductor industry and their product lines include orbital
and rotational technology.

Last week, SFAM announced better-than-expected quarterly results
with a 49% increase in revenue over the prior year, and up 11%
from the first quarter of this fiscal year.  The CEO said the
introduction of their revolutionary Momentum CMP system remains
on schedule with initial shipments planned for the third fiscal
quarter and a ramp to volume production in the fourth quarter.
He also noted that the company is poised to take advantage of a
growing CMP equipment market and that process results from the
new Momentum system suggests it will surpass the competition for
the most advanced applications.  Investors appear pleased with
the company's outlook as the issue has finally begun to rebound
from an extended downward trend.  Traders who like to speculate
on oversold technology issues in the chip industry can use this
position to profit from any future recovery.


PLAY (very conservative - bullish/collar):

BUY STOCK - SFAM  ASK=$5.62
SELL CALL  APR-7.50  FQF-DA  OI=135  B=$1.25
BUY  PUT   APR-5.00  FQF-PA  OI=30   A=$1.50
TARGET COST BASIS=$5.75  ROI(max)=30% DOWNSIDE RISK(max)=$0.75


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

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

******************************************************************
IWOV - Interwoven  $64.25  *** Premium Selling! ***

Interwoven is a provider of enterprise-class content management
software.  The company's flagship product, TeamSite, controls the
development, management and deployment of business-critical Web
sites.  Interwoven solutions are based on an inclusive content
architecture that empowers all content contributors and leverages
diverse Web assets including XML, Java, rich html, multimedia and
database content.  TeamSite is available for both the Sun Solaris
operating system and Microsoft Windows platform.

In this conservative, premium-selling position, we will use the
recent volatility and the inflated option prices to initiate a
neutral play 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 significant change in character, so
monitor the position on a regular basis.


PLAY (conservative - neutral/credit strangle):

SELL CALL  JAN-115  IQG-AC  OI=44  B=$1.12
SELL PUT   JAN-35   IUW-MG  OI=1   B=$1.19
INITIAL NET CREDIT TARGET=$2.25-$2.50  ROI(max)=16%
UPSIDE B/E=$117.25 DOWNSIDE B/E=$32.75


******************************************************************
                        - STRADDLES -

This week we are proud to introduce the first of a number of new
features in the Spreads section; a staff researcher to furnish
conservative "delta-neutral" positions on a regular basis.  Our
goal is to offer at least two plays each week in this category
and if the feedback is favorable, we will expand to other, more
complex techniques such as ratio and butterfly spreads.  Please
let us know if you would like to see this section continue or
if there are additional strategies that we should explore, and
we will try to accommodate your requests in the coming year.

******************************************************************
WGO - Winnebago Industries  $16.75   *** Probability Play! ***

Winnebago Industries headquartered in Forest City, Iowa, is a
leading United States manufacturer of motor homes, self-contained
recreation vehicles used primarily in leisure travel and outdoor
recreation activities.  The company builds quality motor homes
with state-of-the-art computer-aided design and manufacturing
systems on automotive-styled assembly lines.  The company markets
its recreation vehicles on a wholesale basis to a broadly
diversified dealer organizations located throughout the United
States, and to a limited extent, in Canada.

There is no particular news behind the selection of WGO.  The
company did report quarterly results on December 13, coming in
well ahead of estimates.  Their better-than-expected earnings
certainly didn't hurt the stock's chances of moving higher.  In
addition, the issue has held up extremely well given the current
market environment.  While WGO is approaching a technically
overbought area, the momentum has obviously been in favor of the
bulls.  The volatility in option premiums hasn't followed the
expansion in the stock.  Our new straddle for April will likely
produce a respectable profit whether the bulls pull some money
off the table or keep their focus on the "Buy" button.

Note:  Traders preferring to add a bit more time to this position
could consider July options.  Based on Friday's close, a straddle
could be purchased for approximately $4.00 debit.


PLAY (conservative - neutral/debit strangle):

BUY CALL  APR-17.50  WGO-DW  OI=0   A=$1.38
BUY PUT   APR-15.00  WGO-PC  OI=10  A=$0.81
INITIAL NET DEBIT TARGET=$2.00-$2.12  TARGET ROI=50%


******************************************************************
TFS - Three-Five Systems  $17.06  *** Speculation Only! ***

Three-Five Systems specializes in the design, development and
manufacture of custom displays and display systems employing
liquid crystal display and liquid crystal on silicon (LCoS)
microdisplay technology.  With high volume manufacturing
facilities and regional sales offices located throughout the
world, Three-Five is truly a global company with world class
credentials in display technology.

The only news of any significance for TFS came from its board
of directors earlier this month, when officials announced a $30
million buyback of the company's stock.  From a technical view,
TFS has suffered along with the rest of the technology sector
and the semiconductor industry, but Friday's bounce off the new
52-week low suggests there is potential for future volatility.
Other than speculation of an oversold rally or the buyback of
company shares, there is little to suggest TFS could be on the
road to a sustained recovery anytime soon.  However, a rebound
to short-term resistance near $24 could find this play sitting
mighty pretty.


PLAY (speculative - neutral/debit strangle):

BUY CALL  JAN-20.00  TFS-AD  OI=151  A=$1.43
BUY PUT   JAN-15.00  TFS-MC  OI=0    A=$1.38
INITIAL NET DEBIT TARGET=$2.50-$2.63  TARGET ROI=20%




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