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Daily Newsletter, Sunday, 12/31/2000

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The Option Investor Newsletter                   Sunday 12-31-2000
Copyright 2000, All rights reserved.                        1 of 5
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       WE 12-29         WE 12-22         WE 12-15          WE 12-8
DOW    10786.85 +151.29 10635.56 +200.60 10434.96 -277.95  +339.37
Nasdaq  2470.52 - 46.50  2517.02 -136.25  2653.27 -264.16  +272.14
S&P-100  686.45 +  2.22   684.23 -  5.25   689.48 - 37.58  + 31.07
S&P-500 1320.28 + 14.33  1305.95 -  6.20  1312.15 - 57.74  + 54.66
W5000  12167.00 +185.50 11981.50 -112.40 12093.90 -572.60  +629.10
RUT      483.53 + 20.54   462.99 +  4.96   458.03 - 21.04  + 22.23
TRAN    2946.60 + 96.67  2849.93 +151.25  2698.68 -181.27  +116.80
VIX       30.23 -  1.29    31.52 +   .32    31.20 +  5.07  -  5.46
Put/Call    .67              .61              .94              .59

A fitting end to trading in 2000.
By Jim Brown

In a fitting end to trading for 2000 investors threw in the towel
at the close and went home in disgust. After struggling all day
both major indexes saw selling accelerate as the closing bell
approached and huge order imbalances loomed over the markets.
The imbalances turned out to be pretty evenly mixed and not a
major factor but the selling was still widespread with the
exception of biotechs. The tech leaders still up strongly for
the year suffered the most with investors trying to take some
profits in the same year as losses for tax purposes. JNPR, BEAS,
SDLI, BRCM, NTAP, RBAK, JPM all up strongly for the year fell
at the close but the volume was light. JNPR -12, BEAS -8, SDLI
-9, BRCM -8, NTAP -8. Simply put, investors with losses in other
stocks took profits while they could do it tax free.

The year the bubble burst was the name being used by the talking
heads on Friday. It fit well with the Nasdaq dropping -39% for
the year and wiping out all the gains from the speculative
bubble started in 1999. The Nasdaq went into the record books
with the biggest loss for a major market index since 1937. The
Nasdaq drop took -$3.3 trillion dollars out of investor accounts
since Jan-1st. This could have paid off 58% of the national debt
and this negative wealth effect is being felt in all areas of
the economy.

The Dow finished down -6% and was the first yearly loss for the
Dow in ten years. The S&P-500 finished down -10% and the Russell
2000 finished the year with a -4% loss. The transports only lost
-1% and the Dow Utilities were up +45%. This was the first time
since 1990 that the Dow, Nasdaq and S&P all finished negative for
the year. Still the only index most traders care about is the
Nasdaq and the frustration Friday was so bad it was like a cloud
over traders everywhere.

The lack of a material year end rally and tax selling right up
to the bell, soured hopes for a rousing start next week. Traders
went home worried that when the earnings warnings start to fly
next week the Nasdaq may retest the December lows. What a way to
start the New Year! This of course is simply speculation and
may be the pessimism we need to close out this sell off.

Traders now fear that the expected January rate cut is now priced
into the market with the +300 point Nasdaq bounce and now we will
move into a wait and see mode. With earnings dropping to near
negative numbers there is nothing to power a January rally. First
Call said the earnings estimates for the first quarter have now
fallen to only +4% from +28% in the same quarter this year.
JPM Chase said on Friday that they were expecting only a +1.8%
GDP growth for all of 2001, down from over +5% in 2000. JPM Chase
is forecasting a hard landing but no recession AS LONG AS the Fed
starts cutting rates in January. This is not my gloom and doom
forecast, I am only reporting what happened on Friday.

There was further confirmation of the softening economy with the
release of the Help Wanted Index which fell to levels not seen
since 1993. Lack of job advertisements indicate that jobs are
dropping and unemployment is rising. The Non-Farm Payroll Report
will be out next Friday and investors will be watching with great
interest. This is a key factor in the Fed's decision to cut rates
and traders are hoping for a number that will cause the Fed to
cut rates BEFORE the next FOMC meeting on Jan-30th. This could
be a pivot point in the market if the report is Fed friendly.
In the 1991 recession the Fed cut rates four times between
meetings and did so when the payroll numbers were announced.

For a day that was supposed to be fairly quiet before the long
weekend the volume was huge. The Nasdaq managed almost 2.5 billion
shares and the NYSE over 1 billion. Advance/declines were dead
even on both exchanges but of the 300 stocks I follow on a daily
basis only 37 were positive. I view that as positive because it
means money was flowing into stocks that are not market leaders.
Near the close there was a flood of money into low priced biotech
stocks. Almost every biotech under $20 experienced a significant
spike of several dollars. This was obviously window dressing by
funds trying to show diversification out of techs on their year
end statements.

The Nasdaq has been having trouble for two days now because of
weakness in the big cap leaders. CSCO pulled back to within $2
of its 52-week low of $35.63. Same with MSFT at $42. Dell fell
within .75 of its low at $16.25. SUNW closed down -$5 from the
$32 bounce of last Monday and only $1 off its 52-week low. INTC
did close at a new 52-week low of $30.13 after trading under $30
intraday. Even ORCL which had been holding up well after a strong
earnings report earlier in the month also fell almost -$3 from
the intraday high of almost $32. Nothing was sacred with JDSU
slipping another -2.44 at the close. This weakness in the big
caps is especially disturbing to traders. The big caps should
hold up best since they are the most liquid. When funds decide
to move back into the markets the big caps will be consume a
large amount of their cash. They can move in and out with
relative ease should their entry point prove wrong. As long
as big caps are showing weakness these funds will stay on the
sidelines. Sure there is nibbling around the tech edges but
nobody is seeing money flow into the big techs yet.

The good news is still the speed at which this can all change.
There is literally hundreds of billions in cash sitting on the
sidelines. Once the starting gun is heard this money will be
invested and stocks will go up. My view is that all the bad
news is priced into the market already. 4% earnings, 1.8% GDP,
how much worse can it get short of a real economic disaster?
Do you think the Fed will let it get much worse before they act
aggressively? I doubt it. They are already behind the curve
and are likely to try and catch up in the first quarter. Stocks
would react strongly to several back to back rate cuts. The
biggest bad news already priced in is the earnings. Many feel
that with Reg-FD in force companies have been warning more than
before in order to protect themselves from shareholder lawsuits.
Many of these warnings and lowered estimates have been more
severe than necessary. This has set the stage for a lot of
upside surprises. Upside surprises will produce higher earnings
estimates for the next quarter and the cycle will start over.

As investors going forward into 2001 we should be very excited.
At 2400 the Nasdaq is back at June 1999 levels and we have the
opportunity to buy stocks at a very reasonable price. The huge
speculative excesses from the Internet bubble have been
eliminated. We have had some huge moves in almost every stock
on the Nasdaq and nobody can complain that there was not any
trading opportunities. Volatility was huge. In 1999 there were
only 10 days that the Nasdaq traded in over a 100 point range.
In 2000 there were 160 days of triple digit ranges. As traders
anything that does not bankrupt us makes us stronger. After
the market moves in 2000 we should be Olympic class traders.
In 1998/1999 you could pick almost any Nasdaq stock, buy calls
and have a 75% chance of making money. Many investors felt they
were market gurus based on their returns during this period.
After 2000 many of these "experts" are no longer investors,
having busted out trying to apply bull market strategies in a
bear market.

If you are reading this you have not busted out. You have not
given up. You should be excited about 2001 and you are making
plans to be even more successful than you were in 1998/1999.
Is it possible? You bet! You are at the right place at the
right time with the right plan. Will it be easy? Not hardly.
The Nasdaq ran up +100% from 1999 lows on the Internet bubble.
That bubble is over just like all the other bubbles before it.
The next driving force has yet to appear. Maybe it will be
biotechs, maybe a new wave of Internet appliances like smarter
PDAs or smaller portable computers. Whatever it is we need to
be ready to capitalize on it. Will the Nasdaq hit 5000 again
in 2001? Most doubt it. Historically it takes 2-3 years to
recover old highs after a major tech wreck. Most estimates for
Nasdaq 2001 follow historical norms and fall into the +25% to
+30% gains. This would put the index in the 3100-3400 range.
After 5000 even 3400 sounds really boring but did investors
become millionaires in the past with even smaller moves? You

What I think we will see in 2001 is a return to a stock pickers
market. Those investors that spend the time and effort to find
the right stocks at the right time will profit handsomely. Those
that simply throw money at the old favorites again will have
mixed results. Another by product of a more sedate market will
be lower option premiums. The volatility of 2000 placed option
premiums on fast moving stocks into the range of margin rates
instead of option premiums. Paying $25 for a current month call
$15 out of the money is obscene. Many of you remember premiums
from say 1996/97 when you could buy calls at or in the money on
decent stocks for well under $10. That does not mean you made
less money unless of course you were writing covered calls.

I am looking forward to 2001. That is an understatement. I am
REALLY looking forward to 2001! A stock pickers market is a
gold mine for traders who know how to find good plays and have
the time to do the research. For those who don't have the time
to do their own research we provide an invaluable team of over
35 researchers which scan thousands of stocks daily for our
suite of investment newsletters. There is no reason for any
investor to NOT profit handsomely in 2001. Sure there will be
losers as well as winners but active traders should easily beat
the market substantially. Experienced option traders routinely
place in the top 10% of all investors. The leverage is the key.
We don't need the $40-$50-$60 moves of 2000 to double and triple
our investments. Actually we do our best investing in options
that move from $3 to $6, or $5 to $10, not from $25 to $50.

We should not be depressed because the Nasdaq lost -39% in
2000. We should not complain if we get another flood of earnings
warnings next week. The market may make the rules but it is how
we play the game that counts. We should focus on market cycles,
stock cycles, entry points, exit points, money management and
diversification. We should practice patience above all else.
We should enter trades carefully and only after examining all
the factors. We should exit trades aggressively and take profits
whenever our targets are hit. We should not be greedy. Above all
we should be thankful for the opportunity to be option traders.
Many millions of investors are denied the opportunity we take
as a right. Whether by account size, experience, broker
limitations or risk profile, millions of traders only look into
our world and wish. Option traders are the elite and our returns
make others pale by comparison. Now shake off that frustration
from mistakes made in 2000 and make your first new years
resolution not to repeat those same mistakes in 2001. Regardless
of your account size today, $10,000, $100,000 or over $1 million,
and regardless of where the Nasdaq ends 2001, you have the
capability of doubling or tripling those funds next year. Resolve
now to 1) set a goal, 2) plan a strategy to hit that goal, 3)
execute that plan aggressively.

After that pep talk you would expect me to tell you that the
mother of all rallies was going to breakout on Tuesday morning.
Sorry, it may not happen. There will be tax selling next week.
Surprised? But 2000 is over? Yes, but investors with profits
in stocks they do not want to own any longer will put off selling
until next week to shift profits and taxes into the new tax year.
Hopefully they can sell the stocks they feel have topped out for
a profit, invest that profit in hot new candidates and pay their
taxes out of profits on the new stocks. It is the eternal circle.
Investors have been doing this for years and it is a never ending
loop. Can we capitalize on this trend? You bet! The Nasdaq
dropped -481 points from the Jan-3rd high to the Jan-7th low this
year. But remember the Nasdaq was also up +1560 points in the
previous 73 days. With the Nasdaq down -39% for the year at the
close on Friday, a drop of the same magnitude is highly unlikely.

So now we are back to the buyer/seller tug of war again. Buyers
on the sidelines waiting for a bottom will be looking for entry
points next week. Sellers will be hoping that prices hold until
they can bail out. The only sure thing is another week of
volatility as investors restructure their portfolios to begin
the New Year. For the markets the Jobs report on Friday could
be the starters gun for a rally on the following Monday. Our
task is to line up the stocks we want to play and look for signs
next week that a support level for those stocks has been reached.
Stocks already beaten severely should not suffer much and may rally
right off the bat. Stocks up strongly for 2000, even though they
may be well off their highs, will be likely targets for dip buying.
An example would be JNPR which started 2000 at $57 and although
well off its yearly high of $244 at $126 it is still up over 100%
for the year. CIEN started 2000 at $28 and closed the year at $81
for almost a 200% profit. Stocks like this could see tax selling.
I would buy either once the selling stops.

To recap I would not be as concerned about market direction on
Tuesday as I would be concerned about my trading strategy for
the year that begins on Tuesday. Make your first three new years
resolutions now to 1) set a goal, 2) plan a strategy to hit that
goal, 3) execute that plan aggressively.  Once you have a plan
you are ready to take the trades the market gives you. Rest
assured there will be plenty of trades in 2001! It will be a
Happy New Year!

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Trade smart, choose your entry points carefully!

Jim Brown


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Long time readers know that each December we offer our
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1.) Two of our 2001 Option Expiration Calendar Mouse pads
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Because this is the New Year and I feel many readers are
frustrated with their performance last year I am not going
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an Option Trader in 2001. If your results in 2000 were not
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December Effect Unexpected
By Austin Passamonte

1575 for the SPX? Market bulls would have happily settled for
1375 instead. First things first.

We fully expected a session-ending rally on Friday and were
caught totally by surprise when the slide intensified. A choice
to sit out the tumultuous action was wise, considering we had the
market direction all wrong!

Next week's forecast? That's a tough one to call right now.
Friday's afternoon sell off was unsettling. We fully expected the
waves of selling earlier in the day and then a rally into the
close. Forget window dressing... they broke the glass by 3:30pm.

Apparently we had some serious retail selling pressure to unload
stocks at the last minute when all hope was lost for a rally. We
didn't close on the lows but it was torrid for awhile. We
expected a round of bargain-hunting to ensue as often seen before
holiday weekends and quarterly-ends as well, but not even close.

Can we assume that a larger than expected number of traders hung
in there until the last possible minute? Funny how people think
they are one of the few with a simple idea. Trying to squeeze the
last few ticks out of their losers, the first wave of sellers met
with a buyer's boycott opened the floodgates from there.

Will this incredible rush to the exits set us up for a powerful
"January effect" rally next week? Remains to be seen. Any lasting
rally from here must survive continued selling pressure and
numerous fundamental challenges.

The driving force will always be investor sentiment. The exact-
same market crisis have been present but ignored by irrational
market mentality. When reality arrives it often pushes scales to
extreme opposites, and indeed we now have sobering fear of every
negative factor previously ignored.

The latest COT report shows commercial S&P 500 net-short interest
remains at historical proportions. Remember, the number of
contracts held is irrelevant; the percentage of net position is
what we need to focus on. We find this surprising, but it tells
us that institutions are waiting to see the same things we are...
the first rate cut, a stabilized economy and improved investor's
sentiment to return.

Long-term chart signals remain positive but do not show solid
strength from here. Failure to penetrate first levels of overhead
resistance indicates we could pull back a bit before making the
next rally run. By the same token, everything appears "cheap" at
current prices on its face and sideline cash may spark a strong
retail rally beginning Tuesday.

January 2001 is a crossroads. We'll either begin the rally from
here or revisit new market lows once again. Time will certainly
tell, and we need to follow any short-term trend until the next
long-term trend emerges once again.


Friday 12/29 close: 30.23

30-yr Bonds
Friday 12/29 close: 5.42%

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.

  (Open Interest)       Calls        Puts          Ratio
S&P 100 Index (OEX)
725 - 710               11,393        3,287         3.47
705 - 690                8,571        5,836         1.47

OEX close: 686.45

680 - 665                2,651       10,526         3.97
660 - 640                  380       10,912        28.72

Maximum calls: 720/5,276
Maximum puts : 600/9,253

Moving Averages
 10 DMA  684
 20 DMA  701
 50 DMA  717
200 DMA  769

NASDAQ 100 Index (NDX/QQQ)
 68 - 66                76,653        11,259         6.81
 65 - 63                50,268        34,025         1.48
 62 - 60                77,990        59,886         1.30

QQQ(NDX)close: 58.37


 57 - 55                19,991        24,140         1.21
 54 - 52                 1,333        11,901         8.93
 51 - 49                 5,241        15,537         2.96

Maximum calls: 70/48,867
Maximum puts : 60/38,633

Moving Averages
 10 DMA 60
 20 DMA 64
 50 DMA 71
200 DMA 87

S&P 500 (SPX)
1400                   17,969         9,252          1.94
1375                   10,801        10,021          1.08
1350                   35,831        34,890          1.03

SPX close: 1320.28

1300                    4,376        15,491          3.54
1275                      507        14,792         29.18
1250                    1,328        16,225         12.22

Maximum calls: 1350/35,831
Maximum puts : 1350/34,890

Moving Averages
 10 DMA 1308
 20 DMA 1330
 50 DMA 1360
200 DMA 1433


CBOT Commitment Of Traders Report: Friday 12/29
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          -818       -588         -2589      -1646

Total Open
interest %      (-12.51%)    (-7.52%)     (-11.60%)  (-8.22%)
                net-short    net-short    net-short  net-short

Open Interest
Net Value         +1428       +3385        -2569      -4239
Total Open
Interest %      (+8.65%)    (+19.05%)      (-4.43%)  (-8.24%)
                net-long    net-long      net-short  net-short

S&P 500
Open Interest
Net Value         +67807     +66148        -85776     -81998
Total Open
Interest %      (+38.16%)   (+36.56%)     (-11.94%)  (-11.60%)
                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
increased their net-short positions on the DJIA. (Bearish)

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

Currencies: Commercials heavily short Euro futures while small
specs build net long. Small specs are betting on interest rate
reduction while commercials remain skeptical. (Bearish)

Energies: Commercials are net-short all oil products. These
producers are hedgers and almost always take the opposite side of
expected market action to lock-in production prices. (Bullish)

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

Data compiled as of Tuesday 12/26 by the CFTC.


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Deviations From The Mean
By Eric Utley

The Nasdaq Composite gained 85 percent in 1999.  The Nasdaq
Composite lost approximately 40 percent in 2000.

Over the past two years of trading, we've witnessed the two most
historic years in the Nasdaq stock market since its inception in
1971.  To confound traders, those two years were back to back!
But was it really that surprising that the Nasdaq came crashing
back to earth this year since it nearly doubled its value in 1999?
Obviously I didn't have the vision to see it coming, but in
retrospect, a correction was in order.  By the way, I hate the
idea of retrospect when discussing financial matters.  Rear-looking
observations have an evil way of reinforcing errors.  But history
can also be a wonderful teacher.

Since the dawn of capitalism, free markets have been filled with
excesses both to the upside and downside.  On that note, I think
it may be an appropriate time to recall the Dutch tulip craze in
1637 and its subsequent cascade that carried Holland and the
majority of Europe into a credit crisis.  Also worth remembering
was the South Sea Bubble in early 1700's England, which ruined
numerous nouve speculators and caused severe political unrest.

In my very humble opinion, I don't think the U.S. financial
markets or economy are headed into significant trouble as has
been the case in historically excessive periods such as the
aforementioned events.  But the historical list of excesses in
free markets and subsequent crashes was just made longer after the
last two years in the Nasdaq.  And for those who have participated
in the Nasdaq over the past two years, know that you are part of a
fascinating historical event in capitalism.

As for what the immediate future holds for the Nasdaq, I'm not
going to bore you with any predictions.  But I will say that I'm
a long-term believer in technology - the essence of the Nasdaq -
and its devices to improve the human way of life.  As far as
Nasdaq-related traders and investors are concerned, I think it
would be prudent to consider the ramifications of the last two
years and how they have changed the psychology and strategy in
the marketplace.  Trading and investing are serious businesses
and should be viewed as such.

In review of the past year in the market, I think a quote from
one of my personal idols sums up the action pretty well.
The speculator icon, Jesse Livermore, once wrote, "Wall
Street never changes, the pockets change, the suckers change,
the stocks change, but Wall Street never changes, because human
nature never changes."  Remember those words when delving into
future market operations.

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


SDL Incorporated - SDLI

What is your short and long-term outlook for SDLI?  This stock
appears to be trading below any meaningful support and did not
participate in the tech updraft last Friday.  Is this still a
good candidate for puts?  Thanks for your column, it's great. -

SDLI opinion? - Richard

Thank you very much for the compliment, Jeff, and thank you,
Richard, for taking the time to write in!

Before we delve into the chart of SDLI, let's make it known that
the company is set to be acquired by JDS Uniphase.  Quite some
time ago, JDS Uniphase offered 3.8 of its shares for every share
of SDLI.  That means for those holding shares of SDLI, they will
receive 3.8 shares of JDS Uniphase if and when the deal closes,
which brings us to an interesting point.  It also means that
those trading SDLI must be very cognizant of the action in
shares of JDS Uniphase.

Until last week, the merger was expected to be completed during
the month of December.  However, due to regulatory concerns, the
date was pushed back to January.  I do believe the deal will
receive approval as JDS Uniphase has a history of appeasing
regulators with an example being the E-Tek Dynamics merger early
last year.  But the rolling back of the official merger date
by regulators should be known.

I've reviewed both JDS Uniphase and SDLI in the past, and my
long-term opinion on the two remains bullish.  Let's think about
this...JDS Uniphase is the #1 fiber optic component maker and
SDLI is #2.  The combined entity will create a - I hate to use
the word - monopoly in the optical component space.  And that's
the reason, I suspect, that regulators pushed back the merger
date while the two companies make the "necessary" adjustments
to complete the deal.  The worldwide optical network is far
from completed and JDS Uniphase and SDLI are right in the middle
of that effort and will make a ton of money as the build-out
progresses.  As the premier provider of components, the combined
entity WILL have pricing power!

While the long-term outlook for SDLI, I feel, is bullish, the
short-term is somewhat harder to game.  The slowdown in capital
spending from the major telecom carriers is still suppressing
both JDS Uniphase and SDLI.  Until we see a significant pickup
in spending I think SDLI will remain a bit dicey to game from
the long side.  Furthermore, if you're looking to short shares
of SDLI, or buy puts for that matter, be aware that there still
exists a narrow spread between it and shares of JDS Uniphase.
As of last Friday's closing prices, there was about a $10 spread
between shares of JDS Uniphase and SDLI.  That spread will
narrow as the merger comes to a close.  But without any clear
relief in shares of JDS Uniphase, SDLI might be a good short
right here for a near-term trade.  Obviously a lot of what
happens in shares of JDS Uniphase and SDLI will depend upon how
the Nasdaq trades in the coming weeks.

SDLI - the acquired

JDSU - the acquirer


Caterpillar - CAT

Here are two stock for your comments: CAT and CMGI. -  Thanks, Ben

Given the action in the Internet sector last year, Ben, I'll
take your first request in Caterpillar.

The "Big Cat" is one of the many companies that will benefit from
a more friendly interest rate environment and it will be one of
the first to benefit from a pickup in the business cycle.
Furthermore, the recession in the price of oil from its lofty
levels over the past year will aid the heavy equipment maker in
the coming quarters.

As is currently the case with shares of many cyclical companies,
those of Caterpillar have had a nice run over the last quarter
and looked poised for a continued advance.  Cat's shares formed
a nice double bottom around the $30 level last fall and have
since climbed towards the $50 level.  Some consolidation is in
order and I think that's exactly what the Cat was doing last
week around the $47 area.  As I feel the cyclicals still have
upside potential, Cat may provide investors with a nice return
over the next six to nine months.  The stock's all-time high
is around the $65 level, which may provide the bulls with a
realistic price objective.  At this point in the move, it's
best to wait for pullbacks to major support levels or trend
lines, where the institutions will be sitting and accumulating
shares.  Let us take a look at the chart!


Healthsouth - HRC

How does HRC look? - David

Healthsouth provides outpatient services through its network
healthcare facilities around the country.  The company has a
decent history of earnings growth and its shares trade at a
reasonable valuation.  Its business should benefit from the
shifting demographics over the next decade as the U.S.
population ages.  That fact in itself should make shares of
Healthsouth a good long-term investment for say, five maybe
ten years for those with patience.  But aside from the
long-term prospects for Healthsouth, let us focus on its
chart as I feel it presents a compelling case study.

Shares of Healthsouth bottomed at the beginning of 2000 around
the $5 level.  The stock subsequently staged an impressive
second-half rally en route to becoming one of the best performing
S&P 500 components of 2000.  As of last Friday's close, shares
of Healthsouth were sitting near a now triple-top resistance
level at $17.  The question at this point is whether the shorts
in the stock are willing to defend their positions or actually
cover and send shares above resistance.  According to the most
recent data, there are approximately 7.25 million shares sold
short in Healthsouth.  That's not a lot of stock, but it may
be enough to drive shares up to $20 should the bears decide
to cover.  Finally, should shares of Healthsouth actually
trade above the $20 level I think the stock could reach $30 in
a relatively short amount of time!


Carnival - CCL

Carnival Corp. (CCL) is one of my two choices to benefit most
from the anticipated benefits expected in 2001.  After looking at
its chart, it seems as though CCL has finally "broken out," and
after taking into consideration the effects of lower oil prices,
the possibility of lower taxes for customers and/or interest rates,
and the number of lesser competitors claiming Chapter 11, the
future looks good in my eyes for CCL.  Maybe too good. - Keep up
the good work and thanks, Jeff

I appreciate the kind words, Jeff, and also appreciate the help
in reviewing Carnival.  By that I mean you covered a lot of what's
good with Carnival right now in your request.  To reiterate your
words, Jeff, shares of Carnival look technically strong and the
company will benefit from the lower cost of oil, which is
obviously a large part of the ship operator's expenses.
Furthermore, lower interest rates (cheaper money) is good for
virtually every business!

After hitting rough seas early last year, shares of Carnival
are sailing smoothly and could visit the $45 level in 2001.  I
know the pun is cheesy, but I couldn't resist!  As I've been
preaching with many of the non-tech names that have graced
this column recently, wait for pullbacks to major support
areas before entering into the likes of Carnival.



I really enjoy your Ask the Analyst Column.  Following this
newsletter in 1999 and early 2000, I ran my six digit account
into seven digit.  Hats-off to your service!  I'm a full time
speculator now.  For past eight months, I've been reluctant to
trade with all my capital.  I've started to enter bull call
spreads on NOK, GLW, TXN, ADI, WCOM and BBY using their Jan
2003 leaps.  Please review these names and comment if these
names will likely outperform the next bull market.  Also,
please name a few likely winners that I may consider entering
in this clearance sale in tech stocks.  Thanks in advance. -

After reading Sanjay's request and of his successes as a
market operator, I asked him if he could share some of his
secrets.  Sanjay graciously agreed to share his story with the
rest of us, and here it is:

My story is very straight forward...I started to subscribe to OI
in early 1998.  In 1998 and early 1999, I'd pick calls and puts
from your play list and do decently and watch the plays take off
after I'd exit them for some profit or loss.  Mr. Murphy was
alive and well and was watching my every move - Jim says this all
the time and I agree with him 100%.

I modified my strategy in the latter half of 1999.  Using this
strategy, I'd buy calls in the money by at least 4 strikes and
with expiry four to six months away.  This I'd do to avoid paying
10% or more premium for at the money calls expiring in less than
a month.  I'd start with 5 - 10 calls.  If they would go up in
price in next few days, I'd buy another 10 - 20 calls.  A little
more up and I'd add a few more calls using any pull back by
looking at daily price volume charts and 10 and 20 day moving
averages.  Volume and price had to move in synch.  Otherwise I'd
take my profit or loss by putting in market order.  I found that
way multiplying my investment dollars.

I'd like to personally thank Sanjay for his story and I hope it
inspires the rest of our readers.  Sanjay is proof that money
can be taken out of the market!

As for Sanjay's request, I think he's touched upon something
that would be beneficial to most of our readers.  Namely,
what stocks have bottomed and which names will outperform
when the next bull emerges, especially in the tech sector?  I
think it would be a good idea over the next few weeks to
closely examine several high-profile tech names and what to
look for in a bottom in their share prices and some
strategies to capitalize over the next several years.  I'll
begin the review of some of the names Sanjay requested next
week and would be open to any other ideas our readers might
have.  Thanks again, Sanjay!  We'll get started on your
requests next week!


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.


For the week of January 01, 2001

None Scheduled

Auto Sales             Dec   Forecast:   6.3M    Previous:   6.5M
Truck Sales            Dec   Forecast:   7.1M    Previous:   7.2M
NAPM Index             Dec   Forecast:  47.1%    Previous:  47.7%

Construction Spending  Nov   Forecast:   0.2%    Previous:   0.9%

Initial Claims        12/30  Forecast:   350K    Previous:   333K
Factory Orders         Nov   Forecast:   1.0%    Previous:  -3.3%

Nonfarm Payrolls       Dec   Forecast:   133K    Previous:    94K
Hourly Earnings        Dec   Forecast:   0.3%    Previous:   0.4%
Unemployment Rate      Dec   Forecast:   4.1%    Previous:   4.0%
Average Workweek       Dec   Forecast:   34.3    Previous:   34.3
New Home Sales         Nov   Forecast:   925K    Previous:   928K

Week of January 8th

Jan 08  Consumer Credit
Jan 10  Wholesale Inventories
Jan 11  Initial claims
Jan 11  Export Prices ex-ag.
Jan 11  Import Prices ex-oil
Jan 12  PPI
Jan 12  Core PPI
Jan 12  Retail Sales
Jan 12  Retail Sales ex-auto
Jan 12  Mich Sentiment-Prelm.

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The Option Investor Newsletter                   Sunday 12-31-2000
Sunday                                                      2 of 5

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Tax Tips For Active Traders
By Jim Crimmins

Taxes can consume 50% of your trading profits.

Because most traders do not know how to manage this huge
expense we are providing this short column on how taxes can
affect our trading accounts. It will appear every other week
in this newsletter, and will try to address information which
we feel will be both of interest to you, and that type of
information which may save you money on your tax bill each

Click here for the full article on Tax Tips:



Exact instructions
By Jim Brown

Hi Jim, You wrote: "I believe that a trader who will follow
instructions EXACTLY can net $50,000 on a $10,000 account every
year without fail. Notice I said follows instructions EXACTLY."

If you give me your exact instructions I would follow them. I seem
to be floundering in the wind with the worst picks, worst entries,
and worst exits. I actually do worse now that I think I know
something. So what are those Exact instructions?

(sentiments sent by dozens of different readers after reading
that comment in a newsletter)

Now before you read this article, remember I said EXACTLY.

If you have decided that buying options has profit possibilities
but you just do not seem to be able to get the right combination
of techniques to work in your favor then maybe it is time for
the teacher to appear. Many readers find us, take the trial and
then just start blindly buying options just like they would stock.
This is not the same as stock investing. It is not even close.
This is also why the returns are so much greater. Readers that
blindly buy call options on faith after reading two or three
newsletters have about as much chance of success as a novice
bettor walking up to a craps table in Vegas and putting $2,000
down on the pass line. Actually your odds would be better on
the craps table.

An educated options trader however should profit from 70% of
their trades. It is all a question of timing. Like a surfer
facing endless waves or a batter in batting practice, eventually
you will get that perfect setup. You may swing at a few extra
pitches that were not perfect out of boredom but if you wait
long enough that perfect pitch will arrive. A surfer on a calm
day may sit on his surfboard for long periods of time waiting
on the best wave. The memory of the time and effort he spent
just getting to his launch point hundreds of yards off the coast
will force him to wait for the right one.

So our task is to prepare ourselves to execute and execute only
when the time is right. I know I lost half of the readers with
that last sentence. The type "A" personalities would rather
throw money at dozens of plays, hoping that the winners made
up for the losers, instead of only playing the winners. In
reality they need to make more money, more often in order to
make up for those losers. This is failure at a fast pace.

It never ceases to amaze me how so many people can read the
same play recommendation and get a different answer. People
emailed me asking for "exact instructions" because they were
losing on almost every play and others are emailing us with
success stories on the same plays. Janar Wasito, an ex marine
who wrote Traders Corner articles in the past, was the best
newsletter reader I have ever seen. I don't know if it is
his marine training or something else but when he read the
newsletter he "read" the newsletter. He followed the
instructions exactly on each play and posted huge gains every
month. In his case the key is discipline. He waited for the
entry points, EXACTLY. He sold for a profit. He cut his losses
quickly. He was not in the market every day. The data you need
to have successful investments is in the newsletter. It is up
to me to show you how to use it like Janar does.

These are the points you need to focus on in order to succeed.
I will cover each in detail.

Entry point
Stop loss
Selling for a profit


The type of stock YOU decide to play is crucial to your success.
A fact we have discovered since we started publishing the
newsletter is people with small accounts take the biggest risks.
Investors with large accounts tend to be less aggressive and
manage risk better. I think the people with only $5,000 are
so driven to double or triple their capital that they will
play only the high risk - high reward plays. The large account
holders are content with 20%-30% per month safely because they
don't need the money to make their mortgage payments or Porsche
lease. This proves the old axiom "the rich get richer and the
poor get poorer" again but on a different scale.

Since the number of emails I received appeared to be from
traders that were not having much success I am going to slant
this article to traders with less than $10,000 to invest. If
you use more than that to trade options this will still give
you a basic understanding of the right way to trade.

When selecting a stock/option trade you need to take into
account the difference between the bid and ask (spread) on
the options. If you can only afford to lose $500 on a trade
then a stock like BRCD with a spread of $2.00 is not where
you want to be. Yes, options on BRCD can be profitable due
to the trading range but the spread is tough to overcome
when the trade goes against you.  If there is a $2 spread
when the stock is moving up, then there is likely a $5 hit
when the stock turns sharply down.

I know you have seen it. Take this example:

BRCD $92 FEB-95 call GUF-BS Bid=$10.13 x Ask=$12.38

You buy the call and immediately you are down -$2.00 from
the spread alone. If the stock turns down and you know BRCD
can drop $5 in mere seconds, the ask may drop to $10 and the
Bid to $8 before you can even see it and react. If you have
several contracts you can be down -$2,000 in a heartbeat.
Don't even take into account stop losses on this stock until
you are profitable. The intraday option price swings can be
$10 and will knock you out for a loss and then rebound in
seconds. This is a stock not to play with a $10,000 account.
Does this mean you can't score the big gains? Of course not.

Using the example above only 2 contracts would cost you
$3,600 or 1/3 of your trading capital. Using the same capital
in a lower risk stock will let you sleep better and you can
still make the same returns.


VOD $34 - FEB-35 Call VOD-BG Bid=$3.25 Ask=$3.50

You can buy longer calls (FEB) and get 10 contracts for less
money. ($3,250) Now a $2.00 move in VOD x 10 will net you the
same as a $10 move in BRCD x 2 contracts. Now what is the
difference in risk? The spread is only $.25 -NOT- $2.00. You
can set a stop at -$.50 below the ask and not get thrown out
on intraday swings. If you do get stopped out you only lose
$500 not 1/3 of your investment. If you buy farther out, April,
July, etc, it will cost you more money and lower your margins
but you have the implied safety of time working for you.
Personally I feel more than two months out is a waste of money
because you should never hold an option for two months under
any circumstances. If it is flat you should sell it and enter
another play. If it goes up over 200% you should sell it and
use half of the money to enter a higher strike. You have no
risk at the higher strike because you already took your initial
investment off the table. If you keep the first position your
entire investment is still at risk. Invest smart not greedy.

When VOD was $41 a couple weeks ago the VODBG option was $6.25.
Remember, we are going to buy it at $3.50 while VOD is at $34.00.
If it hits $41 again next week the option will again be $6.00.
That is a 75% return on your investment in two weeks or less
and it is very safe. Why would you want to be reckless?

Recap: To get a 400% return on your investment in one year
you need to invest WISELY not recklessly. Minimize spreads,
maximize contracts to get the same returns safely.


When a duck hunter has a flock of ducks fly overhead he does
not just jump up and start firing at the whole flock. He must
single out one bird, identify it as to type, lead it according
to range and speed and then fire.

The same is true with the 3,000 optionable stocks. You must
narrow your universe to a manageable number. Normally ten
stocks is all a normal person can follow without missing the
moves. The more you follow, the more you miss. The fewer you
follow the more you get to know the individual characteristics
of each stock. There are people who make a good living only
trading AOL. Many others only trade Dell. They may only be in
a trade one or two weeks out of the month but when they are
in a trade they know exactly what to expect and when to get out.

Pick five stocks you want to trade from the current newsletter
plays. Watch them carefully for a week. Chart their support
and resistance. See how close you can come to timing their
next pull back. Practice, practice, practice.

Recap: To get a 400% return on your investment in one year
you need to invest WISELY not recklessly. Narrow your targets
to only 5-7 choices and study them closely.


If does not make any difference how much money you have to
invest. We have found that the more positions you try to manage
the smaller your overall returns. To maximize your returns on
a $10,000 account you should never play more than three positions
at any time. Two positions at $3,500 each is optimal for a
$10,000 account. This does not put all your capital at risk.
It gives you "breathing room" and lets you sleep at night.
Only having two positions will not impact your returns over
a years time. If you trade according to the plan you should
be out of every position every two to three weeks or less.
With two positions every two weeks you have 52 trades per year.
If 25% are stopped out for a 25% loss and the other 75% avg
a 40% gain using $3,500 as an average position you will have
a $43,225 gain at year end.

52 * 25% = 13 losers  @ 25% = -$ 875 x 13 = -$11,375
52 * 75% = 39 winners @ 40% = +$1400 x 39 = +$54,600

Net profit = $43,225 + $10,000 capital = $50,000

Yes, this is just an example.
Yes, the ratio of losers/winners may vary BUT not by much if
you follow the plan.
Yes, there may be some plays that are flat but there will also
be some plays that will rocket for more than the 40%. What if
you owned CIEN last Monday?
Yes, this is only calculated on 2 open plays of $3500 each at
any one time for one year.
Yes, you could increase your position size (and risk) or the
number of open plays (and amount of risk). Increasing the
size of your positions is acceptable within limits. Increasing
the number of open positions over three is not acceptable.
The more you have at risk, the more likely you will lose it.

Recap: To get a 400% return on your investment in one year
you need to invest WISELY not recklessly. No more than three
positions and preferably only two.


A good entry point is 90% of the trade. Failing to wait for
a good entry point causes 90% of the losses. If you did not
read my Entry Point article in the Options 101 archive please
GO BACK AND READ IT before going forward.

You can pick the best stocks at the wrong time and still
lose money.

Repeat after me - Every stock will correct. Nothing goes up
in a straight line. I can wait, I can wait, I can wait.
You need to remind yourself of this every trading day.
The penalty for not waiting is loss of money. If you rush
into a position you will have to rush out as well. If you
wait for the proper entry point then everything else is easy.

(not a current chart, example only)

This chart of Nokia shows two great entry points in ten days.
I you bought on five of those ten trading days you would have
been profitable. If you bought on the other five days you
could have been stopped out when the stock corrected.

(not a current chart, example only)

This chart shows a great entry point when the stock pulled
back to support at $80. The previous entry point on the
12th-16th would also have provided a good profit.

3-5-7 DAY RULES. That means every stock cycles every 3-7 days
and all you have to do is WAIT for the next cycle.

Do you remember the cartoon with the two vultures sitting high
up in a tree and the caption was "To hell with patience, I am
going to kill something"? In the markets "If you don't have
patience, you will get killed".

If you can't stand to wait then expand your possibles list
and look at more stocks. In any ten stocks there should be
at least one at an entry point every day.

Recap: To get a 400% return on your investment in one year
you need to invest WISELY not recklessly. You MUST wait for
an entry point before making a play.


I am not going into this very deep since I have covered it
in previous Options 101 articles. The most important thing
to remember is to set a loss limit before you enter a trade.
The thought process should be something like, "If I buy this
for $3.50 then my stop will be $2.50 for a -$500 loss" I can
live with that. Once you make the buy then place your stop.
Don't change it downward!

Once the play starts moving upward then you can move your stop
loss up higher each day as well. When the play finally corrects
you will be stopped out for a profit. This is called a trailing
stop. If you are using plays like the VOD mentioned above then
a -25% stop loss is more than adequate. That is -$850 on a
$3380 position. It would take a major event to drop the price
that far in one day. On a play like BRCD it can drop that far
on one large order.

The most important thing about stop losses is to have one and
stick to it. Money management is the only thing between you
and a broken account. If you can't force yourself to sell a
losing position then you do not need to be trading options.
Get a high performing, high tech mutual fund and let them
make the decisions for you.

Recap: To get a 400% return on your investment in one year
you need to invest WISELY not recklessly. You must use stop
losses to save capital in case of a bad entry or serious news


Be realistic in your expectations about the play. Every play
is not going to double in the next two weeks. It may never
double. Expectations start with the stock. Using the VOD
example and the chart below a reasonable expectation would be
for VOD to trade in the $52-53 range in the next week or so.
It may have trouble breaking out of that range but a close
over $53 could signal a move to a new and higher range. I
would not go into the play expecting $60.

My expectation would be to plan on closing the play on any
weakness around $53. If it ran up to $53 and then started
dropping again I would close and wait for another entry.
There is a nice pattern of higher lows shaping up. $42 was
the low in Oct, $43 in early Nov, $46 in late Nov. The next
pull back could bring it back to $48. I would look to re-enter
the play with a bounce off $52-53 around $48-49. The pattern
on VOD should be to take a $2-3 profit in the option price
and wait for another entry point. If you go into a play with
unrealistic expectations you will lose. You will always be
waiting for that big bounce that never comes. (read the
turkey hunter article at the bottom) If your expectation
is to just make $2-3 profit in each play then you will be
more successful than the person that is expecting a homerun
on every play.

(not a current chart, example only)

Recap: To get a 400% return on your investment in one year
you need to invest WISELY not recklessly. You must lower your
expectations to something realistic and plan your trades


This is one of the most difficult things to do in beginning
option trading. The greed factor is running full speed and
coupled with the hype factor it is almost a guaranteed failure.
Traders do not make 100%-200%-300% profits in option trades on
purpose. It does happen but it is an accident. In every major
stock move somebody bought at the previous low and then sold
at the exact high. This lucky person should buy a lottery
ticket. Unless they had insider knowledge AND were psychic
to know exactly where the top was going to be then they were
just lucky. The other 98% of us have to be content with grabbing
a profit out of the middle and then setting up for the next play.
More likely than not the trader with the windfall 400% win will
put it all back in trying to pick bottoms and tops of the next
ten stocks they play. It is like the new slot machine gambler
who walks in to the casino and gets $20 in coins. They walk
up to a bank of machines and "invest" a few. Suddenly the bells
start ringing and they have thousands of coins falling into
their tray. Did they have inside knowledge? No. Did they have
a special technique? No. Could they do it again if they played
every day for a month? No. They were lucky but the casino will
get tens of thousands of dollars of advertising for the couple
thousand the player won. The promise of big winners lures
thousands to the casino ready to reap the same rewards as
player X. Did the casino really lose the money? No. Did you
know that 94% of the people who win jackpots put the money
right back into the machines and go home with less money
than they came with? This is the same with huge gains in

Once a new trader scores a double or triple they are ruined
as traders. Their sights are now set on the stars and they
will swing for the fences with every play, no longer content
with the already huge 25%-40% monthly returns that normal
traders take home routinely.

Fighting the greed factor is hard work. After you have been
burned over and over with large gains evaporating before your
eyes, you will start to view selling for a profit in a different
light. Once you understand the idea of cash flow and compounding
you will see that 25% gains every two weeks really does add up
to big numbers over a years time.

25% every two weeks is 650% per year with out compounding. That
means if you only invested $3500 in every play and only made
one play every two weeks and all were successful (this is just
an example) you would have almost $25000 in 12 months.

You need to learn to treat option trading like a weekly
paycheck and not like a lottery ticket. After all, how many
readers do you think won the lottery last week? But almost
all of them got a paycheck from somebody!

Recap: To get a 400% return on your investment in one year
you need to invest WISELY not recklessly. You must sell for
a profit before the profit becomes a loss.


This may seem very basic for many readers but there are many
people who still think this is a get rich quick scheme. It is
a get rich scheme but just not as quick as most would hope.
If it was as easy as some claim then there would be no profit
in it. With every investment there are not equal parts of
risk and reward. If that was the case then you would be better
off throwing darts at the Wall Street Journal options page to
decide your next play. Option trading is very profitable to
those who will listen, learn and then put into practice what
they learned. Option trading is very expensive for traders
who think they know it all and don't bother to learn the rules.
Which path you take is entirely up to you and nobody but you
will ever know. Do you want to trade or do you want to be
successful? There is a difference.

Be successful!

Jim Brown

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The Turkey Story
from Fred Kelly's classic book Why You Win or Lose.

"I learned that men (or women) win or lose not so much because
of economic conditions as because of human psychology."

It dawned on me that my behavior was almost exactly the same
as that of an old man I knew in boyhood. He had a turkey trap,
a crude contrivance consisting of a big box with the door hinged
at the top. This door was kept open by a prop to which was tied
a piece of twine leading back a hundred feet or more to the
operator; a thin trail of corn scattered along a path lured
turkeys to the box. Once inside, they found an even more plentiful
supply of corn. When enough turkeys had wandered inside the box,
my friend would jerk away the prop and let the door fall shut.
Having once shut the door, he couldn't open it again without
going up to the box, and this would scare away any turkeys
lurking outside.

The time to pull away the prop was when as many turkeys were
inside as one could reasonably expect. I remember going out
with the old man one day and seeing a dozen turkeys in his box.
Then one sauntered out, leaving eleven.  'Gosh, I wish I had pulled
the string when all twelve were there,' said the old man. 'I'll wait
a minute and maybe the other one will go back.'  "But while he
waited for the twelfth turkey to return, two more walked out on him.
'I should have been satisfied with eleven,' the trapper said. 'Just
as soon as I get one more back, I'll pull the string.' "But three
more walked out. Still the man waited. Having once had twelve
turkeys, he disliked going home with less than eight. He couldn't
give up the idea that some of the original number would return.
When finally only one turkey was left in the trap, he said: 'I'll
wait until he walks out or another goes in, and then I'll quit.'
"The solitary turkey went to join the others, and the man
returned empty-handed."

Know anyone like this? Does this sound like your exit strategy?
The purpose of trading is to make money, not get all the turkeys
or the highest price. Kelly wrote his book in 1930. Most of it
could have been written yesterday. Are we turkey hunters or turkeys?


If this article helped you then do you want to miss out on
future educational articles in what is going to be an exciting
2001? Renew at the annual rate today and don't take a chance
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Call Play of the Day:

BRCD - Brocade Communications $91.81 (+6.75 last week)

See details in sector list

Put Play of the Day:

VSTR - VoiceStream Wireless $100.63 (-4.88 last week)

See details in sector list

Tired of waiting on trades to execute?
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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.


AOL $34.80 (-3.48) News of the Federal Communications
Commission's move to delay its approval of the mega media
merger between America Online and Time Warner last week caused
investors to become uneasy about the prospects of the deal.  The
delay in approval caused shares of AOL to slide lower into the
weekend and unfortunately the stock closed below our protective
stop at $35.  With the regulation risk now clear and present and
the violation of our stop we're dropping coverage on AOL this
weekend, despite its long-term status on the play list.  Use any
short-covering or relief rally early next week to exit existing


NO dropped puts this weekend


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.

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.


SEPR - Sepracor $80.13 (+8.25 last week)

Sepracor is a specialty pharmaceutical company that develops and
commercializes improved versions of widely prescribed drugs.
Referred to as Improved Chemical Entities (ICEs), Sepracor's
Pharmaceuticals are being developed as proprietary, single-isomer
or active metabolite versions of these leading drugs.  ICE
Pharmaceuticals are designed to offer meaningful improvements in
patient outcome through reduced side effects, increased
therapeutic efficiency, and in some cases, the opportunity for
additional indications.

Sepracor exhibited very bullish behavior last week, particularly
on Friday, a day when the broader market and biotech index were
weak.  After a steep correction in October, Sepracor has been
basing, and found strong support at $69.75, which has held for
the last month, even when the Nasdaq dropped below 2400.  The
stock found heavy resistance at the 50-dma for the last several
weeks.  However, the catalyst for Sepracor's climb last week
appears to have been excellent news which was released Dec 21st.
Sepracor announced that Schering-Plough Corporation had filed
a NDA (New Drug Application) with the FDA for approval of
Sepracor's non-sedating antihistamine desloratadine, as a
treatment for seasonal allergic rhinitis.  Sepracor and
Schering-Plough announced a licensing agreement for this drug
in 1997, in which Sepracor will receive fees in exchange for
marketing rights.  The NDA is the last step in the FDA approval
process, and is often processed in six to twelve months, which
could potentially mean an increase in Sepracor's earnings next
year.  This news sparked buying interest in Sepracor, and the
stock closed higher every day last week.  On Friday, Sepracor
cleared the 50-dma of $79.00, and appears poised to move higher
next week.  Traders can consider taking positions at the
current level, or waiting for a bounce from light support at
$79.00, or support at $75.00.  The next resistance level is
$82.50, and if Sepracor can clear this, it could be on its way
to the 200-dma of $87.88.  Sepracor bucked the down trend in
the biotech index (BTK.X) on Friday, however, more conservative
traders should wait for strength in this index and the biotech
holders (BBH) before taking positions.  Set stops at $74.

BUY CALL JAN-80 ERQ-AP OI=1162 at $ 6.63 SL=4.50
BUY CALL JAN-85*ERU-AQ OI=1260 at $ 4.75 SL=3.00
BUY CALL FEB-80 ERQ-BP OI=  35 at $10.38 SL=7.50
BUY CALL FEB-85 ERU-BQ OI=  43 at $ 8.25 SL=6.00


GILD - Gilead Sciences $82.94 (+9.56 last week)

Gilead Sciences Inc, headquartered in Foster City, CA, is an
independent biopharmaceutical company that seeks to provide
accelerated solutions for patients and the people who care for
them.  Gilead discovers, develops, manufactures and commercializes
proprietary therapeutics for challenging infectious diseases
(viral, fungal, and bacterial infections) and cancer.

Gilead has been trading in an ascending channel since Dec 21st,
And it's not surprising, since a flood of exciting news has been
released in December.  On December 5th, Gilead entered into an
agreement with Glaxo Wellcome, which gave Gilead exclusive
worldwide rights to market Glaxo's thymidylate synthase
inhibitor for treatment of cancer.  On December 14th, Gilead and
Hoffman-LaRoche received FDA marketing approval for pediatric
indication of tamiflu, the number one selling influenza
treatment.  On December 18th, Gilead entered into a licensing
agreement with Southern Research Institute for marketing a
nucleoside analogue cancer treatment.  The real catalyst for
the rally may have been an announcement made on the 21st that
Gilead is initiating Phase 2 Trials of their NX211 for patients
with small lung cell cancer.  This is more news than many
pharmaceutical companies release in six months, and investors
have started to become excited, as potential cancer cures
always offer the potential of huge financial rewards for
companies and their shareholders.  Gilead is now above the
200-dma of $79.59, and is just about to poke its head through the
50-dma of $83.19, which is the lower end of its current upward
channel.  A typical daily trading pattern for the last few
days has been a morning rally, an afternoon rollover, and a
rally at the close.  Since Friday's volume was light, additional
buying next week could push Gilead over resistance at $84.30,
and $85.00.  Traders might want to take positions at a clear
move over $83.19, or wait for a possible breakout over $85.
Ideally, you should wait for strength in the biotech index
(BTK.X) before initiating positions, and set stops at $78.

BUY CALL JAN-80 GDQ-AP OI= 37 at $ 9.63 SL= 6.50
BUY CALL JAN-85*GDQ-AQ OI=732 at $ 7.25 SL= 5.00
BUY CALL FEB-80 GDQ-BP OI=133 at $13.38 SL=10.00
BUY CALL FEB-85 GDQ-BQ OI=  4 at $11.13 SL= 8.50


ESRX - Express Scripts Inc $102.25 (+11.75 last week)

Express Scripts is an independent, full-service pharmacy benefit
management and specialty managed care company serving over 40
mln members throughout North America.  The Company's customers
include managed care organizations, insurance carriers, third-
party administrators, employers, and union-sponsored benefit
plans.  Express Scripts provides a combination of benefit
management services, including retail drug card programs, mail
pharmacy services, drug formulary management programs and other
clinical management programs.

Unlike its major rivals, Express Scripts is not owned by a drug
manufacturer or retailer, assuring wider purchase options for
the company.  This in itself gives the company a competitive
edge against leader in the industry like Merck (MRK), who
recently saw 3Q profits rise significantly as a result of its
own pharmaceutical benefit services through Merck-Medco Managed
Care.  We're beginning coverage on this lesser-known stock based
on its own technical credentials and the positive sentiment
within the healthcare sector.  Take a look at a one-month chart
to visually confirm the solid uptrend ESRX established amid the
capricious markets of December.  Once the stock broke the
historical resistance at the $80 level, ERSX didn't look back.
The trailing 5 and 10-dmas offered support on the climb through
the century mark; and it's here that we begin our play.  Set up
for entries on pullbacks to the 10-dma ($96.03), which is
currently in-line with our $96 stop mark, as long as there's
continued buying interest in the New Year.  A strong breakout
from the century mark and the 5-dma ($100) also offer viable
entries in an advancing market; although beware of the staunch
resistance at $107.  This mark proved frustrating in Thursday's
and Friday's session.  Open Interest is rather low, so the more
conservative types might want to wait increased trading activity
as well as a strong momentum move through the upper resistance.

BUY CALL JAN- 95 XTQ-AS OI=364 at $10.63 SL=7.50
BUY CALL JAN-100 XTQ-AT OI= 33 at $ 7.25 SL=5.00
BUY CALL JAN-105*XTQ-AA OI= 75 at $ 4.63 SL=2.75
BUY CALL FEB-100 XTQ-BT OI=321 at $ 9.13 SL=6.25
BUY CALL FEB-105 XTQ-BA OI=  0 at $ 6.75 SL=4.75  Wait for OI!


CEPH - Cephalon Inc $63.31 (+7.25 last week)

Cephalon is a biopharmaceutical company that develops and
markets products to treat neurological disorders and cancer.
Most of the company's sales are derived from its drug, PROVOGIL,
which treats excessive daytime sleepiness associated with
narcolepsy.  The are trying to extend the drug's use, eying
possible applications for other sleep-related conditions and
Alzheimer's disease.

As we cautiously move into 2001 and leave behind the battered
remnants of technology stocks, the healthcare stocks and old
economy types continue to gain the respect of investors.  Hence,
many stocks like BMY, JNJ, MRK and others such as BA, MO, MMM,
and IP have all experienced fantastic runs as investors fled the
tech sector.  CEPH is currently poised to challenge $83.63,
July's 52-week high going forward.  Friday's high-volume break
out of $4.63, or 8% through the $60 mark forecasts an overall
bullish sentiment going into next week.  Our protective stop at
$58, bolstered by the 10-dma ($56.86) and 5-dma ($58.28),
provides a reasonable entry gauge for the more enterprising
player.  It's true that many traders would find this type of
entry too risky.  A more safeguarded approach is too stay in the
wings until CEPH moves to the upside of $65 in heavy trading.
The company's earnings aren't expected until around February
22nd, so don't plan on earnings' excitement to drive the stock
higher over the near-term.  Instead pay attention to the stock's
individual developments in conjunction with the sector sentiment
and market direction.

BUY CALL JAN-60 CQE-AL OI=  49 at $7.00 SL=5.00
BUY CALL JAN-65*CQE-AM OI=  23 at $4.50 SL=2.75
BUY CALL JAN-70 CQE-AN OI=1084 at $2.69 SL=1.25
BUY CALL FEB-65 CQE-BM OI=  85 at $8.38 SL=6.00
BUY CALL FEB-70 CQE-BN OI= 229 at $6.38 SL=4.50



WPI - Watson Pharmaceuticals $51.19 (+3.19 last week)

Focused on niche pharmaceutical products that are hard to make,
WPI is engaged in the development, production, marketing and
distribution of both generic and branded drugs.  The company's
branded drugs are primarily in dermatology (acne medication),
women's health (contraceptives and hormone regulation), and
general products (antihypertensives and antipsychotics).  WPI
offers generic versions of hormone replacement therapies Estrace
and Ogen, analgesics Vicodin and Lortab, and ulcer drugs Zantac
and Carafate.  The company is also engaged in the development
of advanced drug delivery systems, primarily designed to enhance
the therapeutic benefits of pharmaceutical products.

It took awhile for WPI to get with the program, but the stock
is finally headed north with the rest of the Pharmaceutical
sector.  Although the Drug index (DRG.X) has been headed north
since Labor Day, WPI ran into overhead resistance near $67 in
early October, and proceeded to plummet more than 25% over the
succeeding 2 months.  Part of the problem was news on November
1st that the company received a non-approval letter from the
FDA concerning the new drug applications on an
Estradiol/Progestin transdermal combination patch.  The other
shoe dropped on November 13th, when the company announced
earnings that were shy of expectations by a penny, and the
selling resumed.  The net result was that by early December,
WPI was resting at major support in the $42-44 range, while
other Pharmaceutical companies were setting new yearly highs.
Over the past 3 weeks, WPI has really been rocking, gaining
enough ground to help it climb above the 200-dma ($52.25) for
a brief period this past week.  Given the trading on Friday,
it is clear that our new play will have to find new strength
in order to scale the combined resistance of the 50-dma and
200-dma, converged near the $52-53 historical resistance level.
Thursday's close above the upper Bollinger band required some
profit taking, and that's what we got on Friday.  Not only that,
but it could continue into next week as we allow the band time
to expand, before the next stage of the rally commences.
Aggressive traders can target shoot dips to the $49-50 support
level, while more conservative players will wait for the buyers
to scale the $53 resistance level before initiating new
positions.  Wait for the buying volume to pick up again before
playing, and confirm sector strength by monitoring the DRG.X.

BUY CALL JAN-50 WPI-AJ OI= 522 at $3.75 SL=2.25
BUY CALL JAN-55*WPI-AK OI= 744 at $1.50 SL=0.75
BUY CALL JAN-60 WPI-AL OI=1334 at $0.56 SL=0.00
BUY CALL FEB-55 WPI-BK OI= 459 at $3.25 SL=1.75
BUY CALL FEB-60 WPI-BL OI= 336 at $1.81 SL=1.00


GD - General Dynamics $78.00 (+3.31 last week)

General Dynamics, headquartered in Falls Church, Virginia, employs
approximately 44,000 people worldwide and has annualized sales of
approximately $10 billion.  The company has leading market
positions in telecommunications, ship building and marine systems,
land and amphibious combat systems, information systems, and
business aviation.

General Dynamics spent the first quarter of 2000 out of favor
with investors, and dipped below the 50 and 200-dmas at a 52-
week low of $37 in March.  However, since the end of June,
General Dynamics has stayed steadily above its major moving
averages on a slow upward trend line, which faltered slightly
only once in October.  The slow, steady moves exhibited by this
stock contribute to the low volatility of its options, which
is a bonus to options buyers.  In the last several weeks, GD
was awarded several significant new contracts, and investors
have started to notice that this may be more than just a play
on the defense sector.  Earlier in the month, GD's Overseas
Marine Division won a $24.8 million contract from the U.S.
government.  Two additional defense contracts totaling $739
million were awarded to GD from the U.S. Navy, and the U.S.
Naval Sea Systems Command.  However, the most exciting news
may have come from General Dynamics' Worldwide Telecommunication
Systems Unit, which won an award to design and construct a
complex telecommunications fiber optic infrastructure system
for the Haradh Gas Plant in Saudi Arabia.  This seems to have
alerted investors to the realization that GD is involved in
the dynamic field of fiber optic communications, without the
high valuation of other telecommunications equipment stocks.
GD made a substantial move last week, so consolidation is
likely.  A possible entry point could be a pullback to support
at $77.75.  Support is strong at $76, and the 5-dma of $76.75,
aggressive traders may want to wait for a possible pullback
to this level as an entry point, but set stops at $75.

BUY CALL JAN-75 GD-AO OI=637 at $4.63 SL=3.00
BUY CALL JAN-80*GD-AP OI=133 at $2.00 SL=1.00
BUY CALL FEB-75 GD-BO OI= 28 at $6.00 SL=4.00
BUY CALL FEB-80 GD-BP OI=142 at $3.38 SL=1.50


FRNT - Frontier Airlines, Inc. $30.94 (+1.81 last week)

Denver-based Frontier Airlines commenced operations on July 5,
1994.  Frontier is a low-fare, full service airline and is the
second largest jet service carrier of Denver International
Airport with an average of 114 daily system-wide departures and
arrivals.  Service features include advanced seat assignments,
electronic ticketing, quality inflight snacks and participation
in Continental Airlines' OnePass frequent flyer program.
Frontier offers all of its seats at various discount fares,
cutting the cost of travel in its markets by as much as 60

Shares of FRNT have been flying the friendly skies all year long,
tracing new all-time highs.  Up 200 percent in the year 2000, the
stock has steadily advanced, forming a technically beautiful
lower left to upper right pattern.  Despite a rocky year for most
airline issues, with rising oil prices, strikes and other
distractions, FRNT's stock price has not only survived, but has
flourished.  As a small airline, FRNT's high-caliber management
has been able to effectively use the advantage of its agility,
resulting in courteous, professional employees and a loyal client
base.  Savings from low promotion expenses and overhead have been
passed to the customer.  With ten consecutive profitable quarters
under its belt and a growth rate of 131 percent year-over-year
from its last earnings report and upward revisions of earnings
estimates, shares of FRNT have continued their ascent.  Support
can be found at $30.50, the 5-dma near $30 and the 10-dma near
our stop price of $29.  Bounces off these levels could serve as
aggressive entry points but confirm with volume.  If continued
buying momentum carries FRNT through $31, this could allow
conservative traders to take a position, but correlate entries
with direction in peers SKWY and LUV.

BUY CALL JAN-25 FUO-AE OI= 30 at $6.25 SL=4.25
BUY CALL JAN-30*FUO-AF OI=236 at $2.00 SL=1.00
BUY CALL FEB-25 FUO-BE OI= 72 at $6.50 SL=4.50
BUY CALL FEB-30 FUO-BF OI= 30 at $2.88 SL=1.50
BUY CALL MAY-35 FUO-EG OI= 25 at $2.06 SL=1.00


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Stop Losses based on the option price or the stock price.
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Anything else is too slow!



Please read our disclaimer at:

The Option Investor Newsletter                   Sunday 12-31-2000
Sunday                                                      3 of 5

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

Tired of waiting on trades to execute?
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Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with Preferred Capital

Anything else is too slow!



NOK - Nokia $43.50 (-0.19 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.

Nokia spent last week trading in a narrow range from support
at $42.44 to resistance at $44.69.  A five day pattern of
higher lows developed, with Nokia's base of support moving
from $42.50 to $43.50.  Considering Friday's sell-off, and
the fact that Nokia's volume each day this week was
approximately half the normal daily volume, this pattern bodes
well for the week ahead.  Good news has continued to be released.
CSFB upgraded Nokia to one of their top picks for the year.
In addition, on Friday, Nokia announced that they had signed an
agreement with China Mobile Communications Corporation to supply
GPRS core network infrastructure for four provincial networks.
China is already Nokia's second largest market, and this deal may
expand their network in China by an even larger degree.  Nokia is
now at the rare technical convergence of the 200, 50, 10 and
5-dmas, which are all between $43.50 and $43.71.  Traders can
consider taking  positions at current levels, as the most probable
breakout will be to the upside.  Alternatively, a more conservative
move would be to wait for a breakout above $44.50, from which
Nokia could easily break above the next resistance levels
at $47.30, and $50.00.  Watch the wireless telecommunications
sector before initiating positions, particularly QCOM, and
ERICY, and continue to set stops at $40.

BUY CALL JAN-42.5*NZY-AV OI=30434 at $3.50 SL=1.75
BUY CALL JAN-45   NZY-AI OI=22485 at $2.13 SL=1.00
BUY CALL FEB-40   NZY-BH OI=  650 at $6.50 SL=4.50
BUY CALL FEB-45   NZY-BI OI=  863 at $3.75 SL=2.00


COST - Costco - $39.94 (+2.56 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.

What a breakout! As if on cue, Costco surged out of its tight
six-month trading pattern with a burst of momentum, which
carried it as high as $41.50 on Friday morning.  Overall market
weakness and profit taking held Costco back at the close.
However, it held above $38.87, which is an important support
level to maintain.  Costco was helped by strength in the retail
sector (RLX.X) and a rotation of investor's money out of
tech stocks.  The important point is that Costco has now
released itself from the shackles of the tight trading range
of $30.25 to $38.38 that it had been trapped in from June to
December.  It is now well positioned to move higher, and
we can consider taking additional positions at the current
level of $39.89, or at Friday's support level of $38.87.  A
pullback to the 5-dma of $37.83 might provide a more
aggressive entry point.  A breakout over the resistance at $41.50
would be very bullish, and could lead Costco to the levels it
has not visited since last April.  Monitor the retail index for
strength before taking new positions, and continue to set stops
at $34.

BUY CALL JAN-35 PRQ-AG OI=7149 at $5.75 SL=3.75
BUY CALL JAN-40*PRQ-AH OI=2170 at $1.88 SL=1.00
BUY CALL FEB-35 PRQ-BG OI= 102 at $6.63 SL=4.50
BUY CALL FEB-40 PRQ-BH OI= 212 at $3.38 SL=2.25


COF - Capital One Financial $65.81 (+4.13 last week)

As one of the top 10 credit card issuers in the U.S., Capital
One's secret weapon is its vast databases.  The company uses
this data to match a potential Visa or MasterCard customer to
any one of its thousands of cards, varying in annual percentage
rates, credit limits, finance charges and fees.  Ranging from
platinum and gold cards for preferred customers to secured and
unsecured cards for customers with poor credit histories, the
company has a credit card for just about anyone.

Watching shares of Financial stocks over the past couple weeks,
it is clear that investors are convinced of an imminent
interest rate reduction by the Fed.  COF has been in rally mode
along with the broader Financial Sector, gaining as much as 16%
since the Fed meeting on December 19th.  The rally was due to
run into problems eventually, and this time, they came in the
form of the upper Bollinger band.  After closing above this
level on Thursday and then continuing higher on Friday morning,
a pullback was inevitable, and that is what we got as the week
and year came to a close.  Volume was decidedly light, coming in
at less than half the ADV, as our play fell back to close right
at the low of the day, while still posting a fractional gain
over Thursday's close.  We are looking for a bit more
consolidation next week before COF gets moving back into rally
mode, as we need to wait for the bands to expand a bit first.
The logical areas for consolidation are the historical support
levels near $64, followed by $62 (also the location of our
stop).  Wait for a return of buyers to give us a bounce off of
one of these two levels before initiating new positions.  Don't
forget to use the Banking Index (BKX.X) to confirm buying
interest is still strong in Financial issues before playing.

BUY CALL JAN-65*COF-AM OI=1613 at $4.13 SL=2.50
BUY CALL JAN-70 COF-AN OI= 165 at $1.88 SL=1.00
BUY CALL JAN-75 COF-AO OI=   0 at $0.81 SL=0.00  Wait for OI!
BUY CALL MAR-70 COF-CN OI= 512 at $4.88 SL=3.00
BUY CALL MAR-75 COF-CO OI=1179 at $3.00 SL=1.50


LH - Laboratory Corp. of America $176.00 (+10.06 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

The way LH has been moving, you'd think they had invented the
cure for cancer, but the truth is far more mundane.  As the #2
clinical laboratory service in the world, LH is simply executing
their business plan well, and happens to be firmly planted in a
rapidly growing industry.  We have been racking up some nice
gains in the past week as LH rallied through $170, and didn't
pause to catch its breath until clearing the $180 level.  When
the bulls paused, they quickly noticed the altitude to which
they had driven the stock, (above the upper Bollinger band),
and decided to take some profits off the table as the year drew
to a close.  LH dropped on Friday to hit a low of $169.50 (a
great entry point for those bold enough to take it), before
recovering in the afternoon.  As the day came to a close, LH
was trading just above $171.  Just after the regular close,
over 100,000 shares traded at $176, giving the price quite a
boost to close out the year.  The bounce near $170 was quite a
gift and the late day pop indicates that there is likely more
upside to come.  Our stop is still sitting at $170, and we
would consider any solid bounce near this level to be an
attractive entry point for aggressive players.  We normally
don't focus on after-hours session unless something significant
happens.  This would seem to qualify, as LH rarely trades in
the extended session.  Given the late day anomaly, LH could
open anywhere between $171-176 after the holiday weekend; adjust
your trading plan accordingly.  More conservative traders will
wait for confirmation that LH is still in favor by moving up
through the next level of resistance (either $173 or $177,
depending on the open) on solid volume.  Regardless of your
entry strategy, confirm sector strength by watching competitors
DGX and PPDI; if all three are moving up the chart, it seems
like a good sign that the rally still has legs.  Finally, make
sure to wait for open interest to accumulate in the newly
issued strikes for both January and February option contracts!

BUY CALL JAN-180 LH-AP OI=0 at $ 9.00 SL= 6.25  Wait for OI!
BUY CALL JAN-185 LH-AQ OI=0 at $ 6.63 SL= 4.50  Wait for OI!
BUY CALL JAN-190 LH-AR OI=5 at $ 5.00 SL= 3.00
BUY CALL FEB-180 LH-BP OI=0 at $16.13 SL=11.50  Wait for OI!
BUY CALL FEB-185 LH-BQ OI=0 at $14.50 SL=10.75  Wait for OI!

SELL PUT JAN-165 LH-MM OI=50 at $ 5.25 SL= 7.50
(See risks of selling puts in play legend)


BRCD - Brocade Communications $91.81 (+6.75 last week)

Brocade is leading the way in a new category of networking:
providing a scalable, reliable foundation for storage
environments.  They are the market leader in Fibre Channel Fabric
switches-the essential framework for networking servers and
storage systems.  Brocade switches deliver the flexible and
secure "Fabric" that supports the tremendous information and
storage demands of today's leading companies.  Brocade Fibre
Channel fabric switches and software provide a networking
foundation for storage area networks (SANs).

When investors first became aware of slowdowns in capital
equipment spending, this caused enterprise-level Tech stocks to
fall across the board.  Shares of almost any company that sold
anything to businesses large and small were marked down with
impunity, as the market factored in lower revenues going forward.
But a funny thing happened on the way to the fire sale.  It
seems that while firms are indeed tightening their budgets, they
are doing so selectively.  There are items that companies can do
without, such as new computer upgrades when current models will
suffice, much to the well-known detriment of PC makers.  However,
there are products and services that are so vital in generating
and maintaining business that a company would could not function
without them.  Storage, it appears, is one such necessity.
Imagine how a bank, a hospital, or Amazon.com would operate
without sufficient storage capacity.  Business would quite
simply, grind to a halt.  Positive comments to that effect from
Merrill Lynch and Gartner Dataquest, along with a survey
conducted by Morgan Stanley Dean Witter has helped BRCD to
rebound strongly this past week, The stock has formed a solid
up-trend channel during this time, making consistently higher
highs and higher lows.  While BRCD pulled back on Friday amidst a
weak NASDAQ, with support from the 5 and 10-dma (now at $89.20
and $86.76 respectively) holding up firmly.  Support can also be
found at the 200-dma, now at $90.58, making bounces off these
levels as aggressive opportunities for entry.  Just make sure
that BRCD closes above our stop price of $88.  For a safer play,
wait for BRCD to clear $95 on volume before jumping in, and
confirm sector sympathy with peers EMC, NTAP and VRTS.

BUY CALL JAN-85 GUF-AQ OI=12158 at $14.00 SL=10.50
BUY CALL JAN-90 GUF-AR OI= 3844 at $10.38 SL= 7.50
BUY CALL JAN-95*GUF-AS OI= 2722 at $ 7.00 SL= 5.00
BUY CALL FEB-90 GUF-BR OI=   42 at $14.50 SL=10.75
BUY CALL FEB-95 GUF-BS OI=   26 at $12.38 SL= 9.00

SELL PUT JAN-80 GUF-MP OI=12619 at $ 3.00 SL= 5.00
(See risks of selling puts in play legend)


IVGN - Invitrogen Corporation $86.38 (+7.00 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.

The Biotech sector has been one of the few bright spots for a
much-beleaguered NASDAQ, with the AMEX Biotechnology Index
posting gains of over 60 percent for the year.  The completion of
the Human Genome Project has brought new hope and excitement, not
only to doctors and patients, but to investors as well.  While
Biotech stocks have certainly had their share of volatility, the
final score will note that this has been a good year.  With so
much data mining left to do in the genomics space, the gold rush
is on for companies to turn that information into an FDA-approved
blockbuster treatment.  As an arms dealer in the battle of the
Biotechs, it doesn't matter which companies succeed and which
ones fail because win or lose, IVGN's research tools are a
necessary part of the process.  Being a pick-and-shovel player
gives IVGN the advantage of being cash flow positive and exempts
the company from being a direct victim of the dreaded cash burn
rate syndrome.  There is no race against time for IVGN to come up
with the goods before funding runs out because part of the funds
that flow out of Biotech companies finds its way into IVGN's
coffers.  At this point, the stock looks poised to take out its
all time high near the psychological $100 level, provided it
breaks through resistance at $87 with conviction, which should
provide conservative traders with an entry point.  For the more
aggressive, look for bounces off support at $85, the 5-dma at
$82.45, the 10-dma at $80.63 and our stop price of $79.  Look to
peers ABI, AFFX and CRA for guidance before initiating a play.

BUY CALL JAN-80 IUV-AP OI=  61 at $11.63 SL=8.50
BUY CALL JAN-85 IUV-AQ OI= 457 at $ 8.75 SL=6.00
BUY CALL JAN-90*IUV-AR OI= 575 at $ 6.63 SL=4.50
BUY CALL FEB-85 IUV-BQ OI=  26 at $12.38 SL=9.00
BUY CALL FEB-90 IUV-BR OI=3017 at $10.00 SL=7.00

SELL PUT JAN-75 IUV-MO OI=  50 at $ 2.63 SL=4.00
(See risk of selling put in play legend)


MWD - Morgan Stanley Dean Witter $79.25 (+5.00 last week)

Morgan Stanley Dean Witter & Co. is a preeminent global financial
services company and a market leader in securities, asset
management, and credit services.  The company's top-ranked
research, along with world class product origination, asset
management and other extensive resources create a unique
combination of capabilities that provide both individual and
institutional clients with access to the most comprehensive array
of high quality products and services in the financial services
industry today.  The Company has offices in New York, London,
Tokyo, Hong Kong and other principal financial centers around the
world and has over 450 branch offices serving individual
investors throughout the United States.

Despite a host of unfavorable fundamental forces, MWD has ended
the year higher.  Faced with rate hikes, fears of deteriorating
credit quality in corporate bonds, a weak IPO market, a slowing
economy, and a less-than-stellar earnings report, shares of MWD
ended the year on a positive note, up about 10 percent in Y2K. If
the company can hold up this well in such an inhospitable
environment, then the likelihood of a Fed rate cut, perhaps even
a series of them, will certainly give a boost to its shares.  It
appears at this point that the aforementioned concerns have been
factored into the stock price.  The anticipation of an improving
climate for the Financial sector could likely attract traders and
investors alike.  While it appeared that shares of MWD would end
the year in the red in the beginning of December, the stock has
rallied nicely, putting itself back on the right side of the
50-dma (currently sitting at $72.55).  With the 100 and 200-dma
looming overhead at $83.92 and $83.22, resistance could be
formidable.  A break through $80 could provide a possible entry
point, setting the stock up to test those last two major moving
averages.  A more conservative play would be to wait for MWD to
clear $84.  For entries on a pullback, look for support at
$78.50, $77.50 and $76.50.  Additional support can be found at
the 5 and 10-dma (at $77.20 and $73.36 respectively) and our stop
price at $74 but make sure the stock closes above this price to
ensure continued upward momentum.  When making a play, look to
peers AXP, MER and GS to confirm sector strength.

BUY CALL JAN-75 MFZ-AO OI=10676 at $7.88 SL=5.75
BUY CALL JAN-80*MFZ-AP OI=11829 at $5.13 SL=3.00
BUY CALL JAN-85 MFZ-AQ OI= 4783 at $3.13 SL=1.50
BUY CALL FEB-80 MFZ-BP OI=  300 at $6.88 SL=5.00
BUY CALL FEB-85 MFZ-BQ OI=  308 at $4.75 SL=3.00


RFMD - RF Micro Devices, Inc. $27.44 (+0.81 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.

It's been a rough year for shares of RFMD, of that there is no
doubt.  Hitting an all-time high of $92.25 in early March, the
stock spent the rest of the year in a pronounced downtrend.
Connecting the highs since then reveals to top of its regression
channel, as well as the break above that formidable level of
resistance this past month.  A number of factors help RFMD to
pull itself out of its downward spiral.  Most important recently
has been its partnership with CDMA giant Qualcomm.  An alliance
formed in February has so far been highly successful, resulting
in the completion of two new products.  The possibility that RFMD
could play a key role in the deployment of QCOM's next generation
wireless technology has brought renewed interest in the stock.
What's more, a recent report that has RFMD is leading its field
in sales per employee is an indication of the company's latent
strength.  Support for RFMD can currently be found at the 10-dma
(now at $26.66) and our stop price of $25.  Aggressive traders
could target-shoot these levels for entry but confirm a bounce
with volume.  For an entry on strength, look for RFMD to move
back above the 5-dma at $27.56 before making a play.  From there
the next level of resistance will be the 100-dma at $29.15.  Look
to trading in shares of related companies such as BRCM, CNXT and
TQNT as a gauge of sector sympathy along with the Philadelphia
Semiconductor Index (SOX).

BUY CALL JAN-20 RFZ-AD OI= 229 at $8.38 SL=6.00
BUY CALL JAN-25 RFZ-AE OI=1167 at $4.75 SL=3.00
BUY CALL JAN-30*RFZ-AF OI=2373 at $2.19 SL=1.00
BUY CALL FEB-25 RFZ-BE OI= 677 at $6.13 SL=4.00
BUY CALL FEB-30 RFZ-BF OI=1342 at $3.88 SL=2.50


TXN - Texas Instruments $47.38 (-0.25 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).

With the Philadelphia Semiconductor Index (SOX) down over 18
percent for the year, shares of TXN have fared relatively well,
down less than 2 percent during the same period of time.  While
hardly immune, the bulk of the damage was done to makers of
processors for personal computers such as AMD and INTC, both at
or near their 52-week lows.  TXN's recent bounce in December can
be largely attributed to the Qualcomm effect, as one of the
select few companies poised to benefit from its association with
the wireless giant.  A cross-licensing agreement with QCOM in
which the two companies would share the contents of their
respective patent portfolios was exciting news indeed.  The deal
would allow both companies to produce and supply integrated
circuits across all wireless standards.  This is especially
important since Ericksson and Nokia are large customers, a
relationship that TXN could leverage in providing CDMA-based
solutions, thereby greatly enhancing earnings prospects going
forward.  On Friday, both A.G. Edwards and UBS Warburg offered
their outlook on the market for 2001, both naming TXN as a top
stock pick.  While TXN fell $2.38 or 4.77 percent on Friday in
sympathy with other Chip stocks, volume was light, less than 70%
of ADV.  At this point, a bounce off support at from the 10-dma
at $47.11 and the 50-dma at $45.25 could allow aggressive traders
to take a position, but be aware that we have placed a protective
stop at $46.  For a more conservative play, look for TXN to break
back above its 5-dma at $48.30.  From there the stock may
encounter resistance at $49 and $50, so confirm strength in TXN
with volume and sector sympathy using the SOX and Merrill Lynch's
Semiconductor HOLDR (SMH).

BUY CALL JAN-40 TXN-AH OI=25319 at $8.75 SL=6.25
BUY CALL JAN-45 TNZ-AI OI= 6709 at $5.00 SL=3.00
BUY CALL JAN-50*TNZ-AJ OI=12788 at $2.56 SL=1.25
BUY CALL FEB-45 TNZ-BI OI=  441 at $7.13 SL=5.00
BUY CALL FEB-50 TNZ-BJ OI=  930 at $4.63 SL=2.75


JNJ - Johnson & Johnson $105.06 (+3.56 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.

A blue-chip rally put JNJ on this week's winner's list!  Along
with other drug stock competitors, Merck (MRK) and Bristol Myers
(BMY), JNJ's been making steadfast gains.  The nice follow-
through days provided conclusive evidence for conservative
traders to take entry on the upswing.  Early in the week, JNJ
shattered the $102 resistance and quickly established a higher
level of near-term support at $104.  In addition to the rallying
DOW, JNJ announced its own news, which was well received by
analysts and investors.  On Wednesday, JNJ announced it
completed the $62.8 mln acquisition of Atrionix, a company that
develops a system to treat heart disorder atrial fibrillation.
Although the all cash deal ultimately results in the company
taking a $0.04 charge from its net income in the 4Q, JNJ
continued to make significant gains and to receive positive
comments from the Street.  Both UBS Warburg and CSFB reiterated
Strong Buy recommendations and issued price targets of $115 and
$125, respectively.  On Friday, Gruntal & Co also restated a ST
Market Perform and LT Outperform.  Moving forward, our
protective stop remains set at the $102 previous resistance with
upper resistance now at the $106 mark.  Strong bounces off the
$104 support or the 5-dma ($103.88) provide reasonable entries
in an advancing marketplace.  Otherwise, wait for JNJ to move
through $106 with conviction (lots of volume) before taking
entry into this defensive play.  As the month progresses, let's
be aware of the company's earnings' date of January 23rd,
scheduled for BEFORE the opening bell.  This event may incite
create some volatility of its own as the date approaches.

BUY CALL JAN-100 JNJ-AT OI=10996 at $6.88 SL=4.75
BUY CALL JAN-105*JNJ-AA OI=11329 at $3.50 SL=1.75
BUY CALL JAN-110 JNJ-AB OI= 5973 at $1.31 SL=0.00
BUY CALL FEB-105 JNJ-BA OI=  575 at $5.13 SL=3.00
BUY CALL FEB-110 JNJ-BB OI=  743 at $2.88 SL=1.50


UTX - United Technologies Corp $78.63 (+2.63 last week)

United Technologies Corporation provides high-technology
products and support services to customers in the aerospace and
building industries worldwide. The Company's business segments
include Pratt & Whitney aircraft engines, Otis elevators and
escalators, Carrier heating and air conditioning, Sikorsky
helicopters, Hamilton Sundstrand aerospace systems, and
International Fuel Cell systems.  United Technologies, which
failed in a bid for Honeywell International, is however
acquiring Specialty Equipment Companies.

Once the DOW resurfaced from testing its lows at 10,300, the
conglomerates and older economy stocks such as MMM, PG, MO, and
JNJ came alive.  UTX broke free from the leg irons at $76 in
post-Christmas trading and has since maintained a steadfast
position above $78.  UTX made a strong show at the $79.75 to
challenge $80 on Wednesday, falling back to the $76 level for
support.  After nearly a month of tight consolidation, the
breakout to a new 52-week high ($79.75) was certainly a welcome
occurrence.  We're anticipating a breakout above the next level
of opposition at $80 as UTX gains momentum in an advancing
market and approaches its earnings' release this month.  United
Technologies Corp is confirmed to announce in just a couple of
weeks on January 18th, BEFORE the market.  Entries might be
found on strong bounces off the 10-dma ($75.88), which is just
BELOW our $76 stop loss; but this type of entry is rather
aggressive.  If you take this course of action, be sure there's
enough buyers to power UTX upwards.  A more conservative
approach is to be patient for a high-volume breakout through the
$80 resistance and buy into strength as UTX shatters the record

BUY CALL JAN-70 UTX-AN OI=1034 at $9.50 SL=6.50
BUY CALL JAN-75 UTX-AO OI=1857 at $5.25 SL=3.25
BUY CALL JAN-80*UTX-AP OI=1878 at $2.25 SL=1.00
BUY CALL FEB-75 UTX-BO OI= 744 at $7.00 SL=5.00
BUY CALL FEB-80 UTX-BP OI= 291 at $4.00 SL=2.50


LVLT - Level3 Communications Inc $32.81 (+0.00 last week)

Level3 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.

We initiated coverage on LVLT purely on the feasibility of a
technical bounce.  After a double bottom at $28 and $26.88 amid
heavy volume, LVLT regained composure above the $30 support
level.  The relative strength at $32, and now $33, provided
additional evidence of a potential breakout.  Friday's bullish
action amid a struggling NASDAQ also bodes well for this
particular issue.  LVLT cracked the immediate resistance at $34
with a fractional move to $34.50 early in Friday's session.  A
respectable close demonstrates strength and forecasts potential
gains going into the New Year.  A high-volume move off the
triple-intersected 5, 10 & 30 DMAs, in the proximity of $32 and
$33, warrant entries for the more speculative trader.  The nice
part of this play is the less expensive option prices, which
could lure the more prudent traders to take an early entry, too.
Nevertheless, a less risky strategy is to consider taking
positions in is technical play only after LVLT clears the 50-dma
($36.49) obstacle.  Take a look at a daily chart and you can
confirm how this technical line capped the stock's run in early
December.  Remember the basics.  Look for an advancing NASDAQ and
strong sector movement to give you the best odds of success.
Some stocks that are part of the "next generation" telecoms and
warrant attention include GX, MFNX, MCLD, and ALGX.  Take note
that these particular stocks aren't currently making advances;
therefore, there's additional risk playing a stock that's not
moving with its relative sector.  Our play on LVLT is based on
its individual technical developments.

BUY CALL JAN-30 HGY-AF OI= 545 at $5.25 SL=3.25
BUY CALL JAN-35*HGY-AG OI=3062 at $2.75 SL=1.25
BUY CALL JAN-40 HGY-AH OI=2295 at $1.25 SL=0.50
BUY CALL FEB-35 HGY-BG OI=  78 at $4.25 SL=2.50
BUY CALL FEB-40 HGY-BH OI= 129 at $2.75 SL=1.25


CIEN - Ciena Corp $81.25 (+4.25 last week)

CIENA Corporation's market-leading optical networking systems
form the core for the new era of networks and services
worldwide. CIENA's LightWork architecture enables next-
generation optical services to transmit signals simultaneously
over the same circuit.  This multiplexing system changes the
fundamental economics of service-provider networks by
simplifying the network and reducing the cost to operate it.
About 45% of sales come from outside the US markets.

The aggressive and high-rolling traders were more apt to take an
entry into this risky play last week, but oh what a payoff!  We
initiated coverage on CIEN after it fell a hefty 38% following
its agreement to buy closely held Cyras Systems for $2.13 bln in
stock and assumed debt.  CIEN hit a lower-bottom of $59.56 on
December 21st while getting a severe lashing from investors, who
were already in panic mode amid the surrendering NASDAQ.  We saw
the opportunity to ride a potential recovery wave after CIEN's
fantastic response to Santa's pre-Christmas rally.  The large
equipment stock recouped 28.6% of its value amid solid trading
momentum at 1.4 times the ADV.  The dynamic and bullish trading
that followed last week confirms our outlook.  As it is, the $70
level offers firm support; although, we have our protective stop
set higher at $75 to protect existing profits going forward.
The $80 obstacle and corroborating 5 and 10 DMA lines at $79.51
and $79.17, respectively, are now cleared.  We're looking for
CIEN to sustain a position above the 200-dma ($85.25) and
aggressively challenge the daunting resistance at the 30-dma
($90.11).  If Friday's earlier morning action is a prelude for
next week, then this objective should be easily achieved.  The
more risk-adverse may want to wait for a convincing breakout
before jumping into the recovering momentum, while others might
target shoot for lower entries near $75 in a bullish
environment.  Look for other optical stocks like JDSU, GLW, and
SCMR to help rekindle the optical sector as we move into the New

BUY CALL JAN-75 UEE-AO OI=1956 at $12.63 SL= 9.50
BUY CALL JAN-80 UEE-AP OI=3024 at $ 9.25 SL= 6.25
BUY CALL JAN-85*UEE-AQ OI=2430 at $ 7.38 SL= 5.25
BUY CALL FEB-80 UEE-BP OI= 172 at $14.75 SL=11.00
BUY CALL FEB-85 UEE-BQ OI= 273 at $12.50 SL= 9.50


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The Option Investor Newsletter                   Sunday 12-31-2000
Sunday                                                      4 of 5

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Anything else is too slow!



TQNT - Triquint Semiconductor $43.69 (+0.13 last week)

A leading global supplier of a broad range of high performance
integrated circuits, TQNT offers standard and customer specific
products as well as foundry services.  The company uses gallium
arsenide (GaAs) instead of silicon as the substrate (base) for
its analog, digital, and mixed-signal integrated circuits (ICs).
GaAs ICs operate at greater speeds than silicon chips, or at
the same speeds with less power consumption, making them ideal
for all sorts of gadgets, such as cell phones, pagers,
fiber-optic and satellite telecom equipment, and data
networking devices.

Largely due to its stellar earnings report on October 19th, TQNT
has been bucking the trend of the Semiconductor sector (SOX.X)
over the past 2 months.  Valiantly struggling higher, TQNT has
put in a series of higher highs and higher lows, bringing the
stock as high as $61.56 2 weeks ago - that's quite a recovery
from the October low of $21!  With such a strong recovery, you
are likely wondering what this play is doing in the Put section.
Simply put, it appears that the move is an example of "too far,
too fast", combined with a prominent downgrade.  The high 3
weeks ago punctured the upper Bollinger band, and that, combined
with a CSFB downgrade from Buy to Hold based on valuation, was
the catalyst for the pullback and bounce near $33.  The
succeeding rally took our play back up to $49 before rolling
over again, but with Friday's nearly 11% decline, TQNT is
looking decidedly weak again.  With several moving averages
(10-dma, 30-dma, and 200-dma) clustered around the $43-44
support/resistance level, this is likely to be a pivotal area.
Conservative traders can consider new positions on further
weakness that pushes our play below $43.  The next level of
support below that will appear near $40, reinforced by the
50-dma at $40.63.  More aggressive players will be looking to
buy puts as the stock rallies and then rolls over from the
vicinity of Friday's high near $49.  This is where we have
placed our stop, and short of a sharp reversal of fortune,
such as a miraculous recovery in the Semiconductor sector, we
should be well protected.  Trade with the trend and watch for
weakness in the SOX.X and NASDAQ before initiating new

BUY PUT JAN-45 TNN-MI OI=347 at $5.63 SL=3.50
BUY PUT JAN-40*TNN-MH OI=312 at $3.13 SL=1.50
BUY PUT JAN-35 TQN-MG OI=172 at $1.56 SL=0.75


VSTR - VoiceStream Wireless $100.63 (-4.88 last week)

Having expanded with the acquisitions of Omnipoint and Aerial
Communications, VoiceStream provides digital PCS to more than
2.5 million customers on its GSM (global system for mobile
communications) networks. It will expand into the southeastern
US with the acquisition of fellow GSM operator Powertel. In the
rapidly changing Telecom world, VSTR itself agreed to be
acquired by Deutsche Telekom in July, 2000.

Ever since accepting the acquisition offer by Deutsche Telekom
in July, shares of VSTR have been caught in a bearish downtrend
that has gotten even uglier in the past week.  The Telecom
sector has been under pressure over the past several months, and
that helped to force VSTR into a broad consolidation between
$100-135.  The trend is definitely down though, as each rally
attempt is being turned back at lower and lower levels, with the
most recent rejection less than 3 weeks ago at $122.  We are
looking for the increase in selling volume we saw the past few
days to continue into next week and pressure the stock below
$100.  Use any volume-backed move below the century mark as an
opportunity to enter the play, but beware of a head-fake.
Should the Telecom sector (AMEX:TTH) or NASDAQ enter into rally
mode, it will be tough for the bears to push the stock very far
below its current support level.  The wild card in this play is
that Deutsche Telekom shares have now declined below the level
at which VSTR can walk away from the deal, with no penalty.  It
does however seem unlikely that VSTR would call off the merger,
even in light of the declining value of the deal.  As investors
become increasingly concerned about profits, VSTR will need an
international partner to boost customer numbers while saving
money in back-office operations.  We have placed our stop at
$106, as there is significant intraday resistance between
$104-106.  Any rally that fails to penetrate this level on a
closing basis, will provide aggressive traders with better
entries as the bears take another run at the $100 support level.
Just remember that we really need to see this level fail as
support for our play to come to fruition.

BUY PUT JAN-105 UVT-MA OI=3902 at $9.50 SL=6.75
BUY PUT JAN-100*UVT-MT OI=4804 at $7.00 SL=5.00
BUY PUT JAN- 95 UVT-MS OI= 160 at $5.25 SL=3.25


P - Phillips Petroleum Co. $56.88 (-2.38 last week)

Phillips Petroleum Company is headquartered in Bartlesville,
Okla., where the company was founded in 1917.  Phillips 66 - the
company's trademark red and white shield - is recognized around
the world as the trademark of a major energy company.  An
integrated oil company, the Phillips of today has worldwide
operations.  The company's core activities are:  1. Petroleum
exploration and production on a worldwide scale;  2. Natural gas
gathering, processing and marketing in the United States and
Petroleum refining, marketing transportation, primarily in the
United States;  3. Chemicals and plastics production and
distribution worldwide.

With the average price of oil over 30 dollars a barrel this past
year - the highest since 1983 - it's no wonder that oil service and
energy stocks have rallied.  However, despite the continued
rising of oil prices and a fossil fuel friendly President-elect,
shares of Phillips Petroleum have been trending lower.  Lawsuits
recently have been both a blessing and a bane to the company.  On
December 18th, Phillips received a favorable ruling, where
damages due to a refinery explosion were reduced from $118
million to about $12 million.  The next day however, the company
found itself back in the throes of legal uncertainty, as
Greenpeace filed a lawsuit to prevent Phillips from proceeding
with an Arctic oil exploration project, citing inadequate oil
spill planning.  Unable to break through resistance in the $68-70
area, the stock has since made lower highs and lower lows.
Connecting the highs since mid-October reveals a downtrend line
and formidable resistance at the $59 level, with the 50-dma, the
top Bollinger band and its intermediate downtrend line all
converged at that point.  Candlestick fans will note that
Friday's close, down $1.31 or 2.24 percent on 78% of ADV, reveals
a doji evening star reversal pattern.  While confirmation and
volume is still necessary, the signs of a possible rollover are
already apparent.  For aggressive traders, a failed rally off the
key resistance level of $59 could provide for an ideal entry
point, but confirm a rollover with volume.  For the more risk
averse, wait for Phillips to break below the 5-dma (now at
$56.78) on strong selling pressure before making a play.  Sector
sympathy for a commodity-dependent company such as Phillips
usually plays an important role in direction so keep a close
watch of rivals TX and XOM on when planning an entry.

BUY PUT JAN-60*P-ML OI=209 at $4.13 SL=2.50
BUY PUT JAN-55 P-MK OI=422 at $1.50 SL=0.75



SNDK - Sandisk Corp. $27.75 (-4.31 last week)

What's in a name?  SNDK provides computer storage sans disk.
The company is a leading provider of flash memory storage
devices - integrated circuits that retain data when power is
off.  The company is involved in all aspects of flash memory
process development, chip design, controller development, and
system-level integration.  SNDK has customized its products to
address the needs of many emerging applications in the
consumer electronics and industrial/communications markets,
including digital cameras, smart phones, personal digital
assistants (PDA), and MP3 portable music players.

Another day, another 52-week low.  After a valiant attempt to
break out of its months long downtrend in early December, SNDK
seems to be setting new yearly lows on a daily basis and
Friday's decline made it 6 in a row.  The latest round of bad
news came a week ago Thursday when Merrill Lynch downgraded the
stock from Buy to Accumulate, resulting in a one-day loss of
$10, or 23%.  This shattered the $36 support level, and the
slide continued unabated over the past week, tracing a new low
of $27.50 on Friday.  Despite weak market-wide volume, SNDK is
seeing the selling intensify, and actually traded 3 million
shares today vs. the ADV of 2.7 million.  The bad news got
worse Thursday as Dan Auclair, SNDK's senior VP of business
development and licensing, announced that he will end his
extended leave of absence by retiring on December 31st.  While
it may not have any material affect on the company, it just
seemed to add to the negative sentiment affecting the company.
The slowdown in the PC sector, and weakness in holiday sales
of handheld devices such as MP3 players, PDAs, digital cameras
and smart phones has been the dominant negative effect, and
despite a single-digit PE ratio, investor sentiment towards
SNDK isn't showing any signs of getting better in the near term.
The price is now resting precariously above the $26-28 support
level, and if it is penetrated, SNDK could easily fall below
$20.  All of the moving averages and near-term support levels
are in the rear-view mirror, so all we have to focus on is
support between $18-20, which dates back to the first part of
1999.  Conservative traders will wait for the bears to push
prices below the $26 support level before opening new positions.
Our stop is still sitting at $31, and aggressive players can
target shoot failed rallies to the $30 resistance level in an
attempt to gain a better entry point on our play.  Just make
sure the NASDAQ is continuing to struggle, and selling volume
on SNDK is keeping the bulls on the defensive before jumping
into the fray.

BUY PUT JAN-30 SWQ-MF OI= 830 at $5.13 SL=3.00
BUY PUT JAN-25*SWQ-ME OI= 677 at $2.50 SL=1.25


SFA - Scientific-Atlantic Inc $32.56 (-2.19 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.

Interactive TV stocks saw incredible gains earlier in this year,
but investors have now realized that consumers aren't buying
these services as quickly as anticipated.  The combination of a
struggling NASDAQ and investors abandoning stocks like SFA,
LBRT, TIVO and GMST resulted in a hard and fast decline since
late summer.  The holiday week started off with additional
losses across the sector.  As the week progressed, SFA
experienced significant moves to the downside.  By Thursday, SFA
shattered the intraday support at $33.03 and moved to $32 on 1.3
times the normal volume.  On the upside, intraday gains were
limited by the $36 level, but at present, the $34 level is
keeping a tight lid on intraday gyrations.  This pattern of
lower-highs and lower-lows is definitely a bearish sign.
Although at this point in the play, let's look for a breakdown
below the $30 level in heavy trading for extended confirmation.
The depressed shares are merely 8+ points away from 52-week low
of $24.41, so be prepared bargain hunters looking to make
longer-term investment as we enter the New Year.  We've
maintained our $38 protective stop on the upside, but be weary
of taking entries at this level.  Instead it may be wiser to
look below the 10-dma line and enter on high-volume rollovers
from the 5-dma ($34.44) or simply buy into subsequent weakness
below the $30 mark in a decline market environment.

BUY PUT JAN-40 SFA-MH OI=5286 at $9.50 SL=6.50
BUY PUT JAN-35*SFA-MG OI= 410 at $5.75 SL=3.75
BUY PUT JAN-30 SFA-MF OI= 121 at $3.13 SL=1.75


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Does your broker offer Stop Losses on Options?

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

Anything else is too slow!



Lessons Learned
By Mark Phillips
Contact Support

Another year has come and gone, and what a turbulent year it
has been.  We began with absolute euphoria in the Technology
market, with names like QCOM eliciting 12-month price targets
of $1000 just prior to the bursting of the speculative bubble.
The dot.com craze has run its course with literally hundreds
of high-profile Internet startups going the way of the Do Do

The first wave of technology selling this past Spring cut some
valuations, but left the vast majority of stocks in leading
sectors like the Semiconductors and Networking virtually
untouched.  As we close out the year, these sectors are trading
near their lows of the year, their valuations severely trimmed
on concerns of a slowdown in demand for their products.
Ironically, the sector that first felt the pinch of profit
taking in the Spring, Biotechnology, has managed to hold its own
fairly well in the most recent round of technology selling.

So what can we learn from all of this?  First off, profits do
matter, and the old laws of supply/demand and economic cycles
have not been repealed, just because of the latest hot IPO.  The
Internet bubble burst, not because of a lack of capitalization,
but due to many companies with a lack of a sound business plan.
Once the music stopped playing, it became clear there were no
chairs to sit in, and everyone wanted out of the room.  Is the
Internet economy dead?  Not by a long shot, but in the future,
investors will require a plan for achieving profitability before
risking their hard earned cash on a wide-eyed entrepreneur's

We also learned that the "old economy" stocks are not dead,
despite the premature pronouncements to that effect as the
NASDAQ was charging to new highs in March.  Look at old Philip
Morris, up more than 100% since the end of March, while our
current spotlight play (WM), a boring old band stock has
delivered more than 350% returns in the same time frame.

It is a cliché, but worth repeating.  "The more things change,
the more they stay the same."  Greed and fear still drive stock
prices in the short-term, but profits drive them over the long
haul.  Our job as LEAPS investors is to identify stocks that
have come to the end of the short-term fear cycle and jump
aboard for the long-term recovery driven by increasing
profitability.  Technology will continue to drive our economy
forward, and those companies that are well managed will reap
the rewards.  Broad economic cycles are intact and cyclical
stocks will also have their time in the spotlight as we have
seen recently in names such as IP, MMM, and AA.  Anticipation of
an easing in interest rates is a significant catalyst, but you
can see that the moves in these stocks LED the bias change by
the Fed.  The markets are fluid and dynamic, but if we pay
attention, they will tell us which way the train is headed,
before we can even hear the whistle.

So in the year ahead, we will endeavor to focus on those stocks
that provide the best possible returns, regardless of whether it
is an exciting industry or not.  We don't care whether it is a
boring old paper stock or an exciting Biotech that promises the
cure for cancer.  All we want is a favorable economic climate
(and it looks like that is just about to be served up by Uncle
Alan), a well run and undervalued company, and the availability

A couple quick notes on the playlist before we finish up for
another week.  We haven't dropped any plays this week, but we
are placing 2 of them on injured reserve.  ADBE has been unable
to get moving north since violating the 200-dma near its
earnings report.  It is building a pretty ugly downtrend, and
if $55 fails to provide support, we will likely jettison the
play.  AOL is our other recent victim of the bears, pressured
by the poor performance of its merger partner TWX.  Add to that
the disappointment that the merger will not be completed in tax
year 2000, and investors seem more interested in selling the
issue.  The lows keep getting lower, with a fractional violation
of the $35 level on Friday.  If buyers can't lift the stock from
its current levels, we will be logging off of AOL as well.

While the near-term direction is unclear, it seems we are near a
longer-term inflection point for the markets, and this promises
to make for an exciting year for LEAPS investors.  Many solid
stocks are ridiculously cheap, and when it becomes clear that
the economy is still healthy, money will come pouring in as
investors strive to not miss the next wave.  Set your sights on
the plays you want to be in, but don't jump the gun.  Wait for
the big money to tell us that the tide is changing (Austin's
Market Sentiment is the tool to use on this front), and then
execute your game plan with gusto.

Have a Happy New Year!

Current Plays


EMC    11/07/99  JAN-2002 $ 45  WUE-AI   $ 9.50   $30.38   219.79%
       09/17/00  JAN-2003 $100  VUE-AT   $32.75   $15.38   -53.04%
CSCO   11/14/99  JAN-2002 $ 45  WIV-AI   $11.00   $ 8.38   -23.82%
       11/26/00  JAN-2003 $ 60  VYC-AL   $16.63   $ 8.00   -51.89%
NT     11/28/99  JAN-2002 $37.5 WNT-AU   $15.13   $ 8.00   -47.12%
       09/10/00  JAN-2003 $ 75  ODT-AO   $27.50   $ 4.00   -85.45%
AOL    03/12/00  JAN-2002 $ 65  WAN-AM   $18.63   $ 1.50   -91.95%
       08/13/00  JAN-2003 $ 55  VAN-AK   $17.50   $ 5.90   -66.29%
AXP    03/12/00  JAN-2002 $46.6 WXP-AQ   $ 9.33   $15.25    63.45%
WM     03/19/00  JAN-2002 $ 30  WWI-AF   $ 5.38   $24.63   357.81%
       10/22/00  JAN-2003 $ 45  VWI-AI   $ 7.88   $16.63   111.04%
NOK    05/21/00  JAN-2002 $ 50  IWX-AJ   $17.25   $ 8.50   -50.72%
       07/30/00  JAN-2003 $ 50  VOK-AJ   $17.75   $12.88   -27.44%
C      06/18/00  JAN-2002 $48.8 YSV-AW   $10.31   $10.88   - 5.53%
       10/01/00  JAN-2003 $ 60  VRN-AL   $12.25   $ 9.50   -22.45%
GENZ   07/16/00  JAN-2002 $ 70  YGZ-AN   $17.13   $34.75   102.86%
                 JAN-2003 $ 70  OZG-AN   $23.13   $43.13    86.47%
EXDS   08/06/00  JAN-2002 $ 55  WZZ-AK   $20.75   $ 2.31   -88.87%
                 JAN-2003 $ 60  VTQ-AL   $25.38   $ 4.25   -83.25%
QCOM   09/17/00  JAN-2002 $ 70  WBI-AN   $22.50   $30.88    37.24%
                 JAN-2003 $ 70  VLM-AN   $29.63   $39.00    31.62%
TXN    10/22/00  JAN-2002 $ 50  WTN-AJ   $13.75   $12.75   - 7.27%
                 JAN-2003 $ 50  VXT-AJ   $18.38   $17.75   - 3.43%
ADBE   10/29/00  JAN-2002 $ 80  YEJ-AP   $23.50   $12.88   -45.19%
                 JAN-2003 $ 80  VAE-AP   $30.75   $19.75   -35.77%
BGEN   11/05/00  JAN-2002 $ 70  WGN-AN   $17.25   $14.00   -18.84%
                 JAN-2003 $ 70  VNG-AN   $25.00   $21.63   -13.48%
MU     11/26/00  JAN-2002 $ 45  WGY-AI   $13.13   $ 9.38   -28.56%
                 JAN-2003 $ 45  VGY-AI   $17.25   $13.38   -22.43%
A      12/03/00  JAN-2002 $ 55  YA -AK   $16.88   $17.50     3.67%
                 JAN-2003 $ 60  OAE-AL   $19.88   $20.13     1.26%
ORCL   12/10/00  JAN-2002 $ 35  WOK-AG   $ 7.75   $ 6.88   -11.23%
                 JAN-2003 $ 35  VOR-AG   $11.13   $10.25   - 7.91%
QQQ    12/10/00  JAN-2002 $ 70  WNQ-AR   $15.13   $ 9.50   -37.21%
                 JAN-2003 $ 75  VZQ-AW   $19.25   $12.75   -33.80%
WMT    12/24/00  JAN-2002 $ 55  WWT-AK   $ 9.63   $ 9.88     2.60%
                 JAN-2003 $ 55  VWT-AK   $14.00   $14.13     0.93%

Spotlight Play

WM - Washington Mutual $53.06

WM is a case study in patience and riding the trend.  Over the
past few months the stock has moved up the charts and it has
been no slouch about it either.  A boring banking stock, WM now
leads our portfolio with the largest percentage gain, currently
sitting at 357%.  Looking at a chart, it becomes clear that this
is a stock that investors like.  Since mid-June, the stock has
been in rally mode, periodically finding support at the 50-dma
(currently $46), as it posts a series of higher highs and higher
lows.  With the easing of the Fed's bias on interest rates and
the chances of an actual rate cut increasing by the day, WM's
rate of ascent increased over the past 2 weeks, and it is now
far ahead of its 50-dma.  Each pullback over the past several
months has found support at the previous high, providing for a
new entry prior to the next leg of the rally.  Following that
reasoning, we are looking for the current round of profit taking
to reverse near the early December high of $50.  Wait for the
selling to wind down, and then nibble at new positions as WM
bounces from support on increasing volume as it continues its
quest for new highs.  Keep an eye on the Banking sector as a
whole, (BKX.X), and use this sentiment to confirm the health of
our play.  WM will release its quarterly earnings results on
January 16th, so take the normal pre-earnings rise and
post-earnings drop into account when planning your trade.

BUY LEAP JAN-2002 $55.00 WWI-AK at $ 7.63
BUY LEAP JAN-2003 $55.00 VWI-AK at $11.25

New Plays





At Least The Year Is Over
By Matt Russ

Well, ummmm, it wasn't a very fun ride unless you were short since
April, but at least we are free to focus on a New Year.  Today's
close seemed a suitable finish to the year as the shorts added
insult to injury.  But, let's be positive and focus on the
opportunities that lie ahead in 2001.

There were no split announcements this holiday week as the markets
whipsawed.  Window dressing and tax-loss selling caused some
volatile moves and even drove some of our split candidates to new
52-week highs.  Dominating the list this week are NYSE stocks
which have been the out-performers.  While they are not the high
flying types, they certainly have the momentum typical of
pre-split announcement moves.  In addition, many of them are
reaching historical split levels:  SWY, JNJ, AFL, and CAH.  It
can be profitable to play these types of stocks prior to the
anticipated announcement.  For more information on the stages
of split trading, visit www.splittrader.com.

Current Split Run Plays


Current Split Candidate Plays


Candidates That Are Not Current Plays


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

SCHL     AREM     GGG      EAT
FRX      DUK      STT

For our complete stock split calendar, click here...

Symbol  Company Name                Splits  Payable    Executable

IWOV - Interwoven                     2:1  12/29/2000  01/02/2001
USPH - U.S. Physical Therapy          2:1  01/05/2001  01/08/2001
SANM - Sanmina Corp.                  2:1  01/08/2001  01/09/2001
AREM - AremisSoft                     2:1  01/08/2001  01/09/2001
HWEN - Home Financial Bancorp         2:1  01/10/2001  01/11/2001
FRX  - Forest Labs                    2:1  01/11/2001  01/12/2001
GMCR - Green Mountain Coffee          2:1  01/11/2001  01/12/2001
DFXI - Direct Focus, Inc.             3:2  01/15/2001  01/16/2001
EAT  - Brinker International          3:2  01/16/2001  01/17/2001
SCHL - Scholastic Corp.               2:1  01/16/2001  01/17/2001
IDPH - IDEC Pharmaceuticals           3:1  01/17/2001  01/18/2001
AJG  - Arthur J. Gallagher & Co.      2:1  01/18/2001  01/19/2001
SWWC - Southwest Water                5:4  01/19/2001  01/22/2001
TALX - TALX Corp.                     3:2  01/19/2001  01/22/2001
DUK  - Duke Energy                    2:1  01/26/2001  01/29/2001
GGG  - Graco Inc.                     3:2  02/06/2001  02/07/2001
BOBJ - Business Objects               3:2  02/22/2001  02/23/2001
SEIC - SEI Investments                2:1  02/28/2001  03/01/2001
FSCR - Federal Screw Works            5:4  04/02/2001  04/03/2001

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Please read our disclaimer at:

The Option Investor Newsletter                   Sunday 12-31-2000
Sunday                                                      5 of 5

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


Resolved: 10 ways to be successful in the New Year!
By Mark Wnetrzak

The road to success is in the stock market is not an easy one and
each of us must work very hard to overcome our emotions and think
independently.  At the same time, it's important to reflect on our
past failures and use that knowledge to avoid the same mistakes in
the future.

Here are some of the most important concepts I have learned over
the past year.  Hopefully, I won't be including any of these items
in a forthcoming discussion on my personal trading lessons.

1.  Trading demands foresight, flexibility, patience, common sense
    and above all, sound judgment in a timely manner.

2.  Trade with a plan, and know your limits before you open any
    position!  Predetermine each potential entry and exit target.

3.  Manage your losses successfully, and profits will soon follow!

4.  Buy on weakness, and add to your position as the rebound above
    a trend-line (or moving average) confirms the upside potential.

5.  Sell on strength, and close out winning positions at the first
    sign of hesitation.  Protect your profits with trailing stops.

6.  Distribute risk with portfolio diversity, and avoid financial
    uncertainty with hedged positions.

7.  Don't be influenced by outside forces, including friendly
    advice.  Ignore the crowd and think for yourself!

8.  When hope becomes a major part of your outlook, it's time for
    a break.  Fall back, take inventory, define your motives and
    try again .

9.  Don't over-trade!  In addition, be careful not to increase
    your trading after a string of winners - savor your success!

10. Whenever you expect something to occur, remember that the market
    is famous for doing the unexpected.

Happy New Year!

PS:  And don't trade naked!

NOTE: Using Margin doubles the listed Monthly Return!

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

MCOM   10.75  10.06   JAN   7.50  3.88  *$  0.63  10.0%
MCLD   14.69  14.13   JAN  12.50  3.00  *$  0.81   7.5%
CRK    11.44  14.75   JAN  10.00  2.19  *$  0.75   7.0%
GLGC   21.25  18.38   JAN  17.50  5.25  *$  1.50   6.8%
FNSR   27.00  29.00   JAN  22.50  5.75  *$  1.25   6.4%
EXFO   32.00  26.13   JAN  22.50 11.25  *$  1.75   6.1%
KLAC   31.81  33.69   JAN  25.00  8.13  *$  1.32   6.1%
EDGW    5.63   6.50   JAN   5.00  1.00  *$  0.37   5.8%
BCGI   28.38  27.88   JAN  22.50  7.25  *$  1.37   5.6%
CPRT   18.69  21.50   JAN  17.50  2.19  *$  1.00   5.3%
PHI    17.56  17.81   JAN  15.00  3.25  *$  0.69   5.2%
QTRN   18.38  20.94   JAN  17.50  2.06  *$  1.18   5.2%
HSIC   30.63  34.63   JAN  30.00  2.31  *$  1.68   5.2%
AVID   18.63  18.27   JAN  17.50  2.06  *$  0.93   4.9%
WMS    19.00  20.13   JAN  17.50  2.25  *$  0.75   4.9%
MLHR   26.81  28.75   JAN  25.00  2.88  *$  1.07   4.9%
CVD    11.38  10.75   JAN  10.00  2.00  *$  0.62   4.8%
WMS    19.69  20.13   JAN  17.50  3.00  *$  0.81   4.2%
ARQL   33.75  32.00   JAN  25.00 10.00  *$  1.25   3.8%
RFMD   36.38  27.44   JAN  30.00  8.50   $ -0.44   0.0%
GZMO   14.19   9.19   JAN  12.50  2.69   $ -2.31   0.0%

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


Finisar's (FNSR) drop on Tuesday provided an even lower cost
basis than shown above.  More conservative investors could
have written a JAN-$20 call.  But you had to be quick!  The
question to ask yourself with Avid Technology (AVID):  Should
I have used the rally to exit the position?  Depends on your
long-term outlook.  Rf Micro Devices (RFMD) appears to be losing
strength as it approaches its 150 dma - maybe it's time to start
looking for an early exit.  Genzyme Molecular Oncology (GZMO)
dropped quickly to support after its warning - a key moment.
Exiting on any further weakness may be prudent.  The weakness
could be collateral damage after its parent company, Genzyme
(GENZ) received some negative news from the FDA.  Now, time
for a fresh start with a New Year!

Positions Closed:

Miravant (MRVT)


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

CHMD   12.13  JAN  10.00  HQC BB  2.50  252   9.63   21     5.6%
FIBR   16.06  JAN  12.50  FIV AV  4.75  10   11.31   21    15.2%
GETY   32.00  JAN  25.00  QGT AE  7.75  237  24.25   21     4.5%
LEXG   16.63  JAN  15.00  EIU AC  2.75  89   13.88   21    11.7%
MATX   17.13  JAN  15.00  UOD AC  2.69  10   14.44   21     5.7%
NRGN   35.13  JAN  30.00  NQO AF  6.75  180  28.38   21     8.3%
PHSY   15.00  JAN  12.50  HYQ AV  2.94  149  12.06   21     5.3%

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

FIBR   16.06  JAN  12.50  FIV AV  4.75  10   11.31   21    15.2%
LEXG   16.63  JAN  15.00  EIU AC  2.75  89   13.88   21    11.7%
NRGN   35.13  JAN  30.00  NQO AF  6.75  180  28.38   21     8.3%
MATX   17.13  JAN  15.00  UOD AC  2.69  10   14.44   21     5.7%
CHMD   12.13  JAN  10.00  HQC BB  2.50  252   9.63   21     5.6%
PHSY   15.00  JAN  12.50  HYQ AV  2.94  149  12.06   21     5.3%
GETY   32.00  JAN  25.00  QGT AE  7.75  237  24.25   21     4.5%

Company Descriptions

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

CHMD - Chronimed  $12.13  *** Hey, What's Up? ***

Chronimed is an integrated healthcare company also specializing in
pharmacy services and disease management for people with chronic
health conditions.  In addition to the development, manufacture,
and marketing of diagnostics products, Chronimed distributes
pharmaceuticals and provides specialized patient management
services nationwide for people with long-term chronic conditions
such as HIV/AIDS, diabetes, organ transplants, and diseases
treated with injectable medications.  Earlier this month, the
company announced a litigation settlement with Bayer and the sale
of their Diagnostic Product subsidiary.  Is that why the stock
price spiked on heavy volume the last couple days?  Something is
up, and it just isn't Chronimed's price.  A reasonable cost basis
for those speculators who believe the "tape" doesn't lie.

JAN 10.00 HQC BB LB=2.50 OI=252 CB=9.63 DE=21 MR=5.6%

FIBR - Osicom Technologies  $16.06  *** Buyout/Merger? ***

Osicom is a developer and marketer of metropolitan optical
networking systems, through its optical networking subsidiary
Sorrento Networks.  Osicom reported consolidated revenues for
its 3rd-quarter of $10.8 million.  After recently merging its
subsidiary, Entrada Networks with Sync Research, Osicom's stock
rallied Friday amid speculation Sycamore Networks was in talks
to acquire Sorrento Networks.  An Osicom spokesman has declined
to comment on the rumors.  The rumors speculate that with FIBR's
recent low stock price, Sorrento could be obtained at a bargain.
Investors cheered the idea, pushing Osicom up almost $4.  This
position offers a conservative entry for those inclined to
speculate on the rumor.  We favor the long-term support near
our cost basis.

JAN 12.50 FIV AV LB=4.75 OI=10 CB=11.31 DE=21 MR=15.2%

GETY - Getty Images  $32.00  *** Earnings Expectations? ***

Getty Images is a global visual content provider, offering imagery
and related products over the internet and through a diverse set of
distribution channels and media including digital downloads, CD ROMs,
demonstration reels and catalogs.  The Company estimates that it
controls over 70 million still images and more than 30,000 hours of
film footage.  Last quarter, Getty beat estimates when it reported
a net loss of $26.4 million.  Revenues grew to $127 million from
$60.8 million with Internet sales up 131 percent from a year ago.
Getty expects sales for the fourth quarter to come in between $133
million and $135 million.  Investors seem pleased with the results
as the technicals point to strong accumulation.  The stock continues
to forge a Stage 1 base with long-term support near our cost basis.

JAN 25.00 QGT AE LB=7.75 OI=237 CB=24.25 DE=21 MR=4.5%

LEXG - Lexicon Genetics  $16.63  *** Something Up? ***

Lexicon Genetics is a leader in defining the functions of genes
for drug discovery using large-scale knockout mouse technology.
Complementary to its gene-specific custom knockout technology,
Lexicon has invented high-throughput genome-wide gene trapping
technology to discover thousands of genes and expand its OmniBank
library of tens of thousands of knockout mouse clones.  The Company
uses an integrated platform of functional genomics technologies to
accelerate large-scale analysis of mammalian gene function for drug
discovery.  Last quarter, Lexicon reported that total revenues
increased 691%, and recent sublicense agreements with Eli Lilly
and Roche Bioscience should bode well for future earnings.  We
simply find the rally this week interesting.  There was no news
and the stock has now made a positive test of the previous lows
in May and June.  The next test will be the November high which
will negate the downtrend.

JAN 15.00 EIU AC LB=2.75 OI=89 CB=13.88 DE=21 MR=11.7%

MATX - Matrix Pharmaceutical  $17.13  *** Break-out! ***

Matrix develops novel local and systemic cancer treatments to
improve, extend and save the lives of cancer patients. MATX has
completed two registration-directed Phase III trials of IntraDose
in patients with recurrent or refractory head and neck cancer and
has been granted Orphan Drug designation and fast-track status by
the FDA for that indication.  The company is in the process of
completing an NDA submission.  In the systemic treatment arena,
Matrix is developing tezacitabine (FMdC), a next-generation
nucleoside analogue for treatment of solid tumors and hematologic
malignancies.  No recent news to explain this week's strong
volume supported rally which moved the stock to a new 5-month
high.  We simply favor the strong support near the sold strike
on the stock, but do not neglect your due diligence.

JAN 15.00 UOD AC LB=2.69 OI=10 CB=14.44 DE=21 MR=5.7%

NRGN - Neurogen  $35.13  *** Drug Sector! ***

Neurogen is a leader in both the discovery and development of new
drug candidates to treat large market psychiatric, metabolic and
inflammatory disorders, and in the development and integration of
new drug discovery technologies with its Accelerated Intelligent
Drug Discovery program.  Neurogen has generated a growing portfolio
of compelling new drug programs that promise improved efficacy and
reduced side effects.  NRGN recently announced that its research
collaboration with Pfizer has successfully resulted in the start
of a Phase II efficacy study of Neurogen's lead drug candidate to
treat anxiety disorders, NGD 91-3.  NGD 91-3 represents the next
generation of drugs to treat anxiety.  Neurogen has been in a
2-year up-trend and the recent strength suggest more upside

JAN 30.00 NQO AF LB=6.75 OI=180 CB=28.38 DE=21 MR=8.3%

PHSY - PacifiCare  $15.00  *** Bottom Fishing! ***

PacifiCare Health Systems is one of the nation's largest managed
health care services companies.  Primary operations include managed
care products for employer groups and Medicare beneficiaries in
nine states and Guam, serving approximately four million members.
PacifiCare took the plunge in October after warning that earnings
would not meet estimates due to higher-than-anticipated commercial
and Medicare health care costs.  The usual lawsuits have followed
and the CEO was ousted, recently replaced by Howard G. Phanstiel.
Investors apparently have faith the Mr. Phanstiel will restore
PacifiCare's strength and earnings power, as he has implemented
workforce reduction and restructuring.  We simply favor the Stage
1 base and improving technical signals.

JAN 12.50 HYQ AV LB=2.94 OI=149 CB=12.06 DE=21 MR=5.3%



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

SBGI   10.03  JAN  10.00  JQO AB  0.63  43    9.40   21     9.2%
ACLS    8.88  JAN   7.50  ULS AU  1.81  176   7.07   21     8.9%
SHRP   15.38  JAN  12.50  SAU AV  3.38  146  12.00   21     6.1%
GMST   46.13  JAN  35.00  QLF AG 12.38  330  33.75   21     5.4%
DS     25.63  JAN  22.50   DS AX  3.88  10   21.75   21     5.0%
NAV    26.19  JAN  22.50  NAV AX  4.38  2636 21.81   21     4.6%

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

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

Anything else is too slow!



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   58.19    55   AXX-MK    3.88   1455   27%      55
AFFX   74.44    65   FIQ-MM    3.38   1861   18%      65
AGN    96.81    90   AGN-MR    2.31   2420   10%      90
CMVT  108.63    95   CQZ-MS    3.00   2716   11%      90
DNA    81.50    75   DNA-MO    2.13   2038   10%      75
ESRX  102.25    90   XTQ-MR    2.00   2556    8%      90
FCEL   68.56    55   FQG-MK    2.38   1714   14%      57
GILD   82.94    70   GDQ-MN    2.44   2074   12%      70
GLW    52.88    50   GLW-MJ    3.25   1322   25%      50
GS    106.94    95    GS-MS    2.63   2674   10%      95
HGSI   69.31    60   HHA-ML    3.38   1733   20%      60
IDPH  189.50   170   IHD-MN    8.88   4738   19%     170
LH    176.00   165    LH-MM    4.25   4400   10%     167
MERQ   90.19    75   RQB-MO    4.00   2255   18%      70
MLNM   61.94    55   QMR-MK    3.25   1549   21%      55
NEWP   78.63    60   NZZ-ML    4.25   1966   22%      65
PDLI   85.88    75   RPV-MO    4.75   2147   22%      70
RIMM   80.00    65   RUL-MM    3.25   2000   16%      65
SEPR   80.13    70   ERQ-MN    2.13   2003   11%      67
SUNW   27.81    25   SUQ-ME    1.50    695   22%      25


The January Barometer: Will the Bear Market Continue?
By Ray Cummins

History suggests the first five days of January will determine
the market's direction in the coming year.  In fact, the month
of January has predicted the annual course of the S&P 500 Index
with amazing accuracy, achieving a perfect record of forecasting
market direction in odd-numbered years.  Since 1950, almost every
time the month of January ended negative, a bear market occurred.

We all know that the stock market moves in identifiable cycles,
and to be a successful investor, you must be able to determine
the current phase of activity.  This allows you to formulate an
accurate perception of the overall trend and manage the positions
in your portfolio with the appropriate outlook.  It is also very
important to be familiar with the common technical indicators
used to determine the overall movement of financial issues and
apply this knowledge as a practical part of your trading strategy.
The most accurate index for measuring broad-based market trends
is Standard & Poor's list of 500 stocks and a popular indicator
for technical analysis with this index is the advance/decline line.

There are several ways to use a statistical summary of advances
and declines.  Weekly figures offer a perspective for long-term
investment analysis while daily numbers can be charted to indicate
reversals of a short-term nature, suitable for trend-trading or
scalping.  The methods of A/D interpretation are basic to chart
analysis and the results are accurate and easy to understand.  One
of the most common evaluations is based on the divergence of the
A/D line and other market indices.  Another successful indication
involves the use of long-term moving averages of the daily data.
A well-known axiom suggests that a trend in motion can be expected
to continue until it reverses.  Utilizing a long-term average of
the A/D statistics can help identify this trend and recognize the
true momentum of the market.  Interpreting this type of indicator
is similar to other momentum-based techniques in that the primary
signal is a crossing (in either direction) of the median line.  A
move from one area to the other confirms a trend in that direction
and the longer the period that the gauge has been either above or
below the median, the more meaningful the signal when it occurs.

The most significant trends are those indicated when a move has
come from deep in positive or negative territory.  In a bearish
market, this indicator will usually achieve new lows before any
of the major indices and a preemptory buy signal is identified by
a sharp spike from the lowest range while it's still in negative
territory.  The most significant buy signals occur when the gauge
has been in the lower region for extended periods and reached the
furthest extreme before finally issuing a bullish signal.  This
unique indicator can help identify the beginning of a character
change well before the future trend surfaces and when utilized on
a regular basis, it can provide added insight into the strength
and character of the current cycle.  The ability to recognize
fundamental changes in the market outlook is a requirement for
successful investing.

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.


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

PLNR   28.88  24.88   JAN  22.50  0.63  *$  0.63  10.7%
CHTR   22.00  22.69   JAN  20.00  0.81  *$  0.81   9.3%
BSTE   37.50  40.44   JAN  25.00  0.69  *$  0.69   9.2%
NEM    16.25  17.06   JAN  15.00  0.88  *$  0.88   8.9%
AEIS   24.38  22.50   JAN  20.00  0.69  *$  0.69   8.2%
ADVP   39.50  45.50   JAN  30.00  0.81  *$  0.81   8.1%
HCR    19.69  20.63   JAN  17.50  0.44  *$  0.44   7.8%
MU     35.88  35.50   JAN  25.00  0.69  *$  0.69   7.6%
ADLAC  48.56  51.63   JAN  35.00  0.69  *$  0.69   7.2%
CPRT   20.25  21.50   JAN  17.50  0.38  *$  0.38   7.2%
LFG    38.38  40.44   JAN  35.00  1.00  *$  1.00   6.7%
PPDI   48.19  49.69   JAN  40.00  0.69  *$  0.69   6.4%
SPF    25.44  23.38   JAN  22.50  0.69  *$  0.69   6.3%
TXN    47.63  47.38   JAN  32.50  0.56  *$  0.56   6.0%
CORR   48.94  35.19   JAN  32.50  0.81  *$  0.81   5.5%
BSTE   36.94  40.44   JAN  22.50  0.50  *$  0.50   5.5%
NKE    51.19  55.81   JAN  45.00  0.75  *$  0.75   5.4%
TXCC   47.88  39.13   JAN  25.00  0.75  *$  0.75   5.3%
KLAC   35.94  33.69   JAN  22.50  0.56  *$  0.56   5.2%
SNPS   42.13  47.44   JAN  35.00  0.88  *$  0.88   5.2%
BCHE   28.38  32.00   JAN  25.00  0.50  *$  0.50   5.1%
CCR    41.69  50.25   JAN  35.00  0.75  *$  0.75   5.1%
FNSR   37.50  29.00   JAN  22.50  0.56  *$  0.56   5.0%
ADLAC  40.81  51.63   JAN  30.00  0.50  *$  0.50   5.0%
OXY    22.56  24.25   JAN  20.00  0.56  *$  0.56   4.9%

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


Planar System's (PLNR) bearish move Friday could just be year-
end profit taking.  Watch the position closely as it moves
into its support area near our sold strike.  Advanced Energy
(AEIS) continues to display weakening technicals - will the
selling abate in the New Year?  Pharmaceutical Products (PPDI)
had a bearish ending to this week.  First support area should
be around $45.00, though a move towards $40 seems probable.
Standard Pacific (SPF) still isn't out of the woods as Friday's
heavy volume indicates.  Cor Therapeutics (CORR) continues to
weaken technically and a move below the December low should
trigger an exit signal.  Ok, I'm ready, bring on the New Year!


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

ALSI   33.63  JAN  25.00  AIU ME  0.44  253  24.56   21     8.9%
CNF    33.81  JAN  30.00  CNF MF  0.69  169  29.31   21     9.6%
INSUA  39.88  JAN  35.00  ISQ MG  0.44  2    34.56   21     5.5%
KLAC   33.69  JAN  25.00  KCQ ME  0.75  949  24.25   21    14.5%
PHCC   40.81  JAN  32.50  UHP MZ  0.50  2    32.00   21     8.4%
PHI    17.81  JAN  15.00  PHI MC  0.50  429  14.50   21    15.0%
STAT   26.44  JAN  22.50  TAQ MX  0.44  50   22.06   21     9.0%

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

PHI    17.81  JAN  15.00  PHI MC  0.50  429  14.50   21    15.0%
KLAC   33.69  JAN  25.00  KCQ ME  0.75  949  24.25   21    14.5%
CNF    33.81  JAN  30.00  CNF MF  0.69  169  29.31   21     9.6%
STAT   26.44  JAN  22.50  TAQ MX  0.44  50   22.06   21     9.0%
ALSI   33.63  JAN  25.00  AIU ME  0.44  253  24.56   21     8.9%
PHCC   40.81  JAN  32.50  UHP MZ  0.50  2    32.00   21     8.4%
INSUA  39.88  JAN  35.00  ISQ MG  0.44  2    34.56   21     5.5%

Company Descriptions

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

ALSI - Advantage Learning Systems  $33.63  *** On The Move! ***

Advantage Learning Systems is a provider of learning information
systems to kindergarten through senior high (K-12) schools in the
United States and Canada.  The company's learning information
systems consist of computer software and related training to help
improve student academic performance by increasing the quality,
quantity and timeliness of performance data available to teachers
and by facilitating increased student practice of basic skills.
In addition, the company provides professional development for
educators through its programs to educational publishers and
software for training and management throughout organizations.
The education services group is performing well and the issue is
rallying to yearly highs on increasing volume.

JAN 25.00 AIU ME LB=0.44 OI=253 CB=24.56 DE=21 MR=8.9%

CNF - CNF Transportation  $33.81  *** Transport Hedge! ***

CNF, formerly CNF Transportation, is a management company of
global supply-chain services with interests in regional trucking,
multi-client warehousing and expedited ground transport along
with domestic and international freight, ocean freight, customs
brokerage and logistics services; full-service management; postal
sorting and transportation services, manufacturing and rebuilding
of trailers, converter dollies and other transportation equipment.
The operations of the company are primarily conducted in the U.S.
but to an increasing extent are conducted in foreign countries.
Friday's rally positions the issue for a test of the yearly high
and the cost basis is favorable for traders who like the outlook
for the transport industry.

JAN 30.00 CNF MF LB=0.69 OI=169 CB=29.31 DE=21 MR=9.6%

INSUA - Insituform Technologies  $39.88  *** Break-Out? ***

Insituform Technologies is a worldwide provider of proprietary
trench-less technologies for the rehabilitation and improvement
of sewer, water, gas and industrial pipes.  The company's primary
technology is the Insituform process, a "cured-in-place" pipeline
rehabilitation process that, during the most recent fiscal year,
contributed approximately 76% of the company's revenues.  Other
offerings include the NuPipe process, a rehabilitation technology
for repairing damaged pipes, and the TiteLiner process, a method
of lining steel lines with a corrosion/abrasion-resistant pipe.
The company has three major operating segments: rehabilitation,
tunneling and corrosion and abrasion operations.  The recent move
above a 4-month trading range near $35 indicates that INSUA has
excellent potential for future gains.

JAN 35.00 ISQ MG LB=0.44 OI=2 CB=34.56 DE=21 MR=5.5%

KLAC - KLA-Tencor  $33.69  *** 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 slumped.  The
stock has begun to forge a Stage I base and has recently moved
above its 30 dma.  Earnings are due the third week in January,
just before expiration.

JAN 25.00 KCQ ME LB=0.75 OI=949 CB=24.25 DE=21 MR=14.5%

PHCC - Priority Healthcare  $40.81  *** Hot Sector! ***

Priority Healthcare is a national distributor of specialty
pharmaceuticals and related medical supplies to the alternate
site healthcare market and is a provider of patient-specific,
self-injectable biopharmaceuticals and disease treatments to
individuals with chronic diseases.  The company also markets
specialty pharmaceuticals and medical supplies to outpatient
renal care centers and office-based physicians in oncology and
other physician specialty markets.  Through Priority Healthcare
Pharmacy, the company fills individual patient prescriptions for
self-injectable biopharmaceuticals.  The Pharmacy segment also
provides disease treatment for hepatitis, cancer, human growth
deficiency, rheumatoid arthritis, Crohn's disease, respiratory
syncytial virus infertility, and the complications of HIV.  The
healthcare sector is performing well and PHCC ended Friday's
session at a new all-time high.

JAN 32.50 UHP MZ LB=0.50 OI=2 CB=32.00 DE=21 MR=8.4%

PHI - Philippine L. D. Tele  $17.81  *** Triple Bottom? ***

Philippine Long Distance Telephone 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).  With a nationwide fiber-optic
network to support its digital microwave backbone, the carrier
provides local, long-distance (national and international), data
and network services using leased satellite and submarine cable
capacity.  The recent controversial political situation in the
Philippines is part of the reason for the current rally and 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
Friday's close at a 6-week high.  Speculators only please!

JAN 15.00 PHI MC LB=0.50 OI=429 CB=14.50 DE=21 MR=15.0%

STAT - i-STAT  $26.44  *** Technicals Only! ***

i-STAT Corporation develops, manufactures and markets medical
diagnostic products for blood analysis that provide health care
professionals with immediate and accurate critical diagnostic
information at the point of patient care.  The company's current
products consist of portable, hand-held analyzers and single-use
disposable cartridges, each of which performs combinations of
commonly ordered blood tests in approximately two minutes.  The
i-STAT System uses a simple, one-step procedure, the results of
which can be easily linked by infrared transmission to a health
care provider's information system.  i-STAT's primary customer is
Abbott Laboratories and they also market products to customers in
the United States, Japan, Europe, Canada, South America and Asia.
Friday's close at a new 3-year high suggests the issue is poised
for future gains.

JAN 22.50 TAQ MX LB=0.44 OI=50 CB=22.06 DE=21 MR=9.0%



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

PRGN   19.75  JAN  15.00  GQP MC  0.50  322  14.50   21    16.3%
DS     25.63  JAN  22.50   DS MX  0.75  20   21.75   21    13.8%
GETY   32.00  JAN  22.50  QGT MX  0.56  100  21.94   21    11.7%
EMIS   25.00  JAN  20.00  MTQ MD  0.38  10   19.62   21    10.2%
GMST   46.13  JAN  30.00  QLF MF  0.50  347  29.50   21     7.4%
ICOS   51.94  JAN  45.00  IIQ MI  0.56  635  44.44   21     5.6%

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

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

Anything else is too slow!



A Dismal Climax...

The stock market ended the year on a somber note, with the Nasdaq
enduring its biggest annual loss in history and the Dow recording
its first loss in a decade.

Friday, December 29

The stock market ended the year on a somber note, with the Nasdaq
enduring its biggest annual loss in history and the Dow recording
its first loss in a decade.  The technology index closed down 87
points to 2,470 and the Dow Jones industrial average retreated 80
points to 10,787.  The S&P 500 index fell back 13 points to 1,320.
Breadth ended negative on the NYSE as declines outpaced advances
1,492 to 1,478 on volume of 1.03 billion shares.  On the Nasdaq,
advances edged declines 2,107 to 2,043 on volume of 2.5 billion
shares.  In the bond market, the U.S. 30-year bond dropped 8/32 to
111 13/32 amid year-end adjustments, raising its yield to 5.46%.

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

Alliance Cap.   AC     JAN50C/JAN50P   $2.88   debit   straddle
Fifth Third     FITB   JAN60C/JAN60P   $4.38   debit   straddle
Oceaneering     OII    JAN20C/JAN20P   $1.93   debit   straddle

Our new straddles were a mixed lot with little trading activity
during the subdued session.  The target prices were achieved in
both the Alliance Capital and Fifth Third Bancorp plays, but the
Oceaneering position was more difficult to initiate.  A debit of
$1.93 was available more than once during the day, but with only
11 contracts traded in simultaneous orders it's difficult to say
whether the target of $1.88 (or better) could have been achieved
without separate entries.

Portfolio Plays:

Despite today's tax-loss selling, the Spreads portfolio enjoyed
a number of favorable moves in technology and industrial issues.
The surprise of the session was Conseco (CNC), climbing almost $2
to a recent high near $13.50 after a report that Warren Buffett's
Berkshire Hathaway has purchased several hundred million dollars
of the company's junk bonds.  Conseco's bonds have slid recently
amid weakened balance sheets and credit rating downgrades; their
9% notes maturing in October 2006 were recently offered at $0.73
after trading earlier this year in the mid-50s.  The move pushed
our synthetic position to a $1.75 profit after one week in play.
Home Depot (HD) was a big mover, up $2 to a recent high near $46
on strength in the retail group and the long-term credit spread
has now achieved profitability with a early-exit return of $2.12.
Food and Beverage group issues were also popular and positions in
Pepsico (PEP) and Pepsi Bottling (PBG) benefited from the upside
activity.  Ralston Purina (RAL) was also active and our bullish
calendar spread is now positive with almost three months until
the (long) options expire.  American Airlines (AMR) rallied over
$2 at mid-day, bringing our synthetic position to a $1.00 credit
overall.  In addition, the issue is poised to try for an all-time
high in the coming sessions.  In the premium-selling category,
Sepracor (SEPR) jumped $7, bringing the issue squarely into the
middle of our short-strangle, and the position can now be closed
for a favorable early-exit profit of $1.50.

Among our watch-list positions, Pfizer (PFE) rallied for most of
the day, only to finish at $46; very near the top of its recent
box pattern.  With each failure at that resistance level, the
likelihood of a successful breakout decreases.  Bowater (BOW) was
another issue that consolidated during today's bearish activity.
The stock fell $2.12 after testing the upper limits of a recent
trading range and for now, it appears the issue is content to
remain near $56-$57.  Costco (COST) was the standout, moving to
$40 in the first few minutes of the day on solid volume.  There
was little we could do as the activity was at the open, but the
indications suggest that the rally will continue and we plan to
use a future consolidation to cover the long option.  With our
current short position at $40, the easiest strategy will be the
purchase of stock, to offset the sold calls and allow for future
adjustments in case the rally fails.  Our cost basis, with the
initial credit of $1.38, should be near $37-$38 and the upside
profit limit will be at $40.  Among downside movers, Qualcomm
(QCOM) was a big loser and it will need to be monitored for any
further bearish activity.  With any luck, today's decline was
simply due to position-squaring by portfolio managers and we are
optimistic that the recovery will resume next week.

Happy New Year!

Questions & comments on spreads/combos to Contact Support
                         - NEW PLAYS -
AHC - Amerada Hess  $73.06  *** Oil Sector ***

Amerada Hess explores for, produces, purchases, transports and
sells crude oil and natural gas.  These widespread exploration
and production activities take place in the United States, the
United Kingdom, Norway, Denmark, Gabon, Indonesia, Azerbaijan,
Thailand, and in certain other countries.  They also manufacture
purchase, transport and market refined petroleum and many other
energy products.  The company owns 50% of a refinery venture in
the United States Virgin Islands, and another refining facility,
terminals and retail outlets in the Eastern United States.

Amerada Hess has been on the move in recent sessions, climbing
almost 20% in one week to an all-time high near $75.  Now the
issue will likely consolidate over the next few days and with
the favorable option premiums, this play offers a low-risk oil
sector hedge for traders who participate in conservative credit
spreads.  Target a higher premium initially, to allow for a
brief pullback in AHC's share value.

PLAY (very conservative - bullish/credit spread):

BUY  PUT  JAN-55  AHC-MK  OI=314  A=$0.31
SELL PUT  JAN-60  AHC-ML  OI=216  B=$0.69
INITIAL NET CREDIT TARGET=$0.43-$0.50  ROI(max)=11%

PRSF - Portal Software  $7.84  *** Reader's Request! ***

Portal Software develops, sells, and supports real-time, scalable
customer management and billing software for companies that
provide Internet-based services.  Their Infranet software is a
comprehensive platform that meets complex, mission-critical
provisioning, accounting, reporting and marketing needs and the
company's products enable the provisioning and reporting of many
services, including such functions as account creation, user
authentication and authorization, activity tracking, pricing and
rating, billing and customer service, including self-service, all
on a scale of up to millions of users.

Portal Software's stock tumbled in November, after the company
announced weak quarterly results and a revenue slowdown in North
America.  Portal did report higher-than-expected earnings for the
fiscal year, but the announcement also suggested several problems
relating to future revenue growth.  Net income for the October
quarter was $7 million, compared to a loss of $1.7 million in the
same period last year, however gross margins were 75%, the lowest
in four quarters.  Deferred revenues rose $8 million to a record
$45 million and the company signed up only 62 new customers last
quarter, down from 83 new customers in the previous period.  The
concern for analysts was a slowdown in licensing fee collection,
which company executives attributed to a reduction in orders from
telecommunications clients.  Despite the bearish report, there is
optimism for the future and after a review of the data, analysts
at Wit SoundView reiterated a "strong buy" rating on the company,
while Chase Hambrecht & Quist and Thomas Weisel Partners issued
"buy" ratings.  Proponents say that Portal will eventually acquire
a large part of the overall operations support systems, a market
that is expected to hit $14 billion within the next several years.

One of our readers requested some potential bottom-fishing plays
in this issue and traders who favor speculative positions can use
this limited-risk combination to benefit from any future upside

PLAY (speculative - bullish/collar):

SELL CALL  FEB-12.50  PFR-BV  OI=45   B=$0.62
BUY  PUT   FEB-5.00   PFR-NA  OI=30   A=$0.56
TARGET COST BASIS=$7.62-$7.75  ROI(max)=60% RISK(max)=37%

                          - STRADDLES -

These positions meet our criteria for favorable straddles; cheap
option premiums, a history of adequate price movement and future
events or activities that may generate volatility in the issue
or its industry.  This selection process provides the foremost
combination of low risk and potentially high reward.  As with
any recommendations, they should be evaluated for portfolio
suitability and reviewed with regard to your strategic approach
and trading style.

AFC - Allmerica Financial  $72.50  *** On The Move! ***

Allmerica Financial is a non-insurance holding company operating
in three major segments.  The company's Risk Management segment
consists primarily of its property and casualty operations, which
are generated through The Hanover Insurance Company and Citizens
Insurance Company of America.  Through its Allmerica Financial
Services segment, the company provides investment-oriented life
insurance and annuities to individuals and businesses throughout
the United States.  With the Allmerica Asset Management segment,
the company offers Stable Value Products, including as Guaranteed
Investment Contracts, to ERISA qualified retirement plans as well
as other institutional buyers, such as money funds, and corporate
cash management programs and securities collateral reinvestment
programs.  In addition to the three operating segments, Allmerica
also has a corporate segment, which consists primarily of cash,
investments, Corporate debt and Capital Securities.

We have offered this position in the past, and with a potential
change in interest rates in January, the financial group is sure
to encounter volatility.  AFC's options are priced favorably and
the previous 30-day period has seen 3 cycles through a range that
would yield a profitable outcome.  The only problem that can't be
overcome is the low Open Interest in the Put options.  However,
the current bid/ask spreads are acceptable and the trading volume
in both series will certainly increase as we move into January.

PLAY (aggressive - neutral/debit strangle):

BUY  CALL  FEB-75  AFC-BO  OI=211  A=$2.50
BUY  PUT   FEB-70  AFC-NN  OI=2    A=$2.12

CYT - Cytec Industries  $39.93  *** Long-term Position! ***

Cytec is a global specialty chemicals and materials company that
serves major markets for water and wastewater treatment, mineral
processing, paper manufacturing and recycling, automotive and
industrial coatings, plastics, adhesives, aerospace adhesives and
composites, and chemical intermediates.  The company operates in
four primary segments: water and industrial process chemicals,
performance products, specialty materials and building block
chemicals.  Water and industrial process chemicals principally
include water-treating chemicals, mining chemicals, paper and
phosphine chemicals.  Performance products principally include
specialty resins, surfactants and specialty monomers and polymer
additives.  Specialty materials principally include aerospace
materials and, before January 1999, molding compounds.  Building
block chemicals principally include acrylonitrile, acrylamide,
ammonia, hydrocyanic acid, melamine and sulfuric acid.

Cytec traded at a new 2-year on Friday, as investors maintained
a recent interest in defensive issues, including stocks in the
Specialty Chemicals sector.  Now the issue has little overhead
supply to restrict its upward movement and there will likely
be a test of the all-time near $55 in the next few months.  At
the same time, unexpected problems with earnings (due in January)
could be a catalyst for a retreat to the previous trading range
near $30-$34.  In any case, the option premiums are favorable and
the history of movement suggests that this position will profit
long before the expiration date in late May.

PLAY (conservative - neutral/debit straddle):

BUY  CALL  MAY-40  CYT-EH  OI=202  A=$3.88
BUY  PUT   MAY-40  CYT-QH  OI=200  A=$3.25

SWS - Southwest Securities Group  $25.88  *** Where To Now? ***

Southwest Securities is a full-service securities and banking
firm using technology to deliver a broad range of investment and
related financial services to its clients, which include a number
of individual and institutional investors, broker/dealers,
corporations, governmental entities and financial intermediaries.
The company's Brokerage Group provides clearing services to 200
correspondent broker/dealers and over 500 independent contract
brokers, as well as full-service and online discount brokerage
services to individual investors.  Its Asset Management Group
offers investment management, advisory and trust services through
three subsidiaries.  Under the Banking Group, the company offers
full-service, traditional banking through First Savings Bank.

Southwest Securities recently announced the termination of its
exclusive agreement with financial advisor Bear Stearns and now
plans to continue the vigorous pursuit of growth opportunities,
both internally and externally.  The CEO said he is confident
and excited about the future, as the company possesses a unique
state-of-the-art technology system that has capacity far greater
than their present requirements.  He also noted the firm is in a
position to add new customers rapidly, effectively and profitably
for the many financial services they offer.  That sounds like a
a good recipe for upcoming developments and with the company's
earnings due on or about January 25, this position offers great
"delta-neutral" speculation in the brokerage group.

PLAY (conservative - neutral/debit straddle):

BUY  CALL  MAR-25  SWS-CE  OI=276  A=$3.12
BUY  PUT   MAR-25  SWS-OE  OI=59   A=$2.43

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