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Daily Newsletter, Tuesday, 01/02/2001

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The Option Investor Newsletter                  Tuesday 01-02-2001
Copyright 2001, All rights reserved.                        1 of 2
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************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
        01-02-2001        High      Low     Volume Advance/Decline
DJIA    10646.10 -140.70 10797.00 10585.40 1.10 bln   1348/1714
NASDAQ   2291.86 -178.66  2474.16  2273.07 1.91 bln   1645/2337
S&P 100   667.13 - 19.32   686.45   662.56   totals   2993/4051
S&P 500  1283.27 - 37.01  1320.28  1276.05           42.5%/57.5%
RUS 2000  462.49 - 21.04   483.55   461.38
DJ TRANS 2874.11 - 72.49  2950.11  2869.56
VIX        34.20 +  3.97    34.39    31.47
Put/Call Ratio      0.79
*************************************************************

Score one market drop for Robertson Stephens

Analyst Dane Lewis from Robertson Stephens probably stayed awake
all weekend planning his interviews after putting his finishing
touches on his tech sector downgrade. After the announcement this
morning he was in great demand by all the major networks. He was
probably on the top of most investors hate mail list as well. He
said a "significant slowdown" in information technology spending
will crimp average selling prices and total sales for a number of
high profile tech companies. Declines in IT spending by corporate
buyers as well as a slow down in spending by dot coms led to the
change in the brokerage's previous view. The resulting carnage in
the tech sector coupled with continued tax selling was not pretty.







Some of the stocks downgraded included VRTS -21, EMC -12, NTAP -13,
CFLO -3, NTIQ -22, NETE -13, ISSX -13, VRSN -13. With data storage
requirements slowing and the need for security software seen as
less critical for the contracting Internet sector the outlook is
seen as lasting several quarters. Slowing spending due to smaller
budgets will lengthen the sales cycles and shrink margins due to
more competition for the same dollar. As if to punctuate this
concept AAPL announced a massive price cut after the close on all
its business systems. Some of the cuts were more than -$1,000 and
according to Apple were designed to clear the more than 11 weeks
of inventory currently sitting on dealers shelves. That is a
quarters worth of sales which does not bode well for the next
round of earnings from Apple. I am sure Mr. Lewis could have
been influenced as well by the massive discounts and sale prices
in all the post holiday sale flyers. Many offered almost free
computers after rebates that approached 75% of the sales price.
About the only shoe left to drop here is an earnings warning from
CSCO which would go along with this sector downgrade. This fact
was not lost on investors as they fled CSCO in droves with over
122 million shares traded. CSCO lost -$5 to close at a new 52-week
low of 33.25.

After the close there was another flurry of earnings warnings as
expected. EVOL, EFNT, IMSC, JDAS and TSTN were the headliners.
I have been telling you for several weeks that historically 43%
of warnings occur in the first two weeks of January. In reality
I don't think there are that many stocks left that have not
already warned but we still need to be aware that all the bad
news has not been announced yet. IBM, CSCO, SUNW, JDSU are the
big caps that could create another disaster should they decide
to confess. It is not that everyone does not already know the
news, it is just the act that burns it into our collective
consciousness.

Tech stocks were not the only losers on Tuesday. The biggest Dow
stock GE dropped over -$4 to $43 after a WSJ article concerning
the safety of some of its jet engines. By itself this probably
would not have been a major event but coupled with the NAPM
number this morning the health of the GE manufacturing complex
as a whole was questioned. The NAPM index fell to 43.7 which was
more than expected and the lowest level since the 1991 recession.
This level is consistent with zero growth in the economy. The
employment index fell to 42.8% its lowest level since 1998 and
suggests the Jobs Report on Friday will be weaker than expected.
The NAPM numbers solidified the need for prompt and aggressive
Fed action which could come as soon as Friday. The Jobs Report
could be the trigger for an inter-meeting rate cut as it did four
times in 1991.

The tax selling today was very strong. Up volume on the Nasdaq
was beaten by down volume over 4:1. The stocks that suffered
most were the ones up the most from January of last year. Yes,
there were some stocks still up for the year. JNPR, which I
speculated on Sunday would be a major target, dropped -23. I
am sure the Robertson Stephens tech downgrade did not help but
across the board the biggest 2000 gainers were the biggest
Tuesday losers. This selling shifts capital gains into this
year and frees up cash to invest in some of the current bargains.
It normally only lasts for one week after which that same cash
is put back into the market. Analysts estimate that cash, now
on the sidelines and waiting for this last selling flurry to be
over, is at two year highs. Another example of tax selling would
be Laboratory Corp which dropped -$28 on no news after moving up
from $35 on 1/1/2000 to $183 last Thursday.




Ironically the lower the Nasdaq goes the easier to have big days
make it into the history books. Today the Nasdaq posted its 7th
largest percentage loss of -7.23% which percentage wise was more
than the Dow lost in all of 2000. Technically it sounds huge but
realistically it was a normal day. 15% of the Nasdaq set new
52-week lows and only 10 of the Nasdaq 100 finished positive.

The value investing funds which were considering closing last
year are probably dusting off their prospectus as investors
become more interested in slow growth value stocks instead of the
daily heartbreak of continued tech wrecks. Many are deciding that
+18% to +25% annual returns would be very nice considering the
current state of their accounts. This return to value investing
will prevent GE and companies like that from dropping much farther.
Companies with earnings and companies with tangible assets will
be money magnets when the pile of cash on the sidelines spills
over into the markets. GE was up +.75 in after hours trading
after coming within $1 of its 52-week low set last February.

Waiting to exhale? With the Jobs Report on Friday and all eyes
on the Fed there is not likely to be a rush to buy the current
dip. Even with the almost -300 point drop from Friday's high the
Nasdaq showed no signs of a bargain hunter bounce at the close.
Experienced traders are waiting patiently for the index to find
a bottom and the new 52-week low of 2273 from today may not be it.
Volume on both exchanges was good with 1.9 billion on the Nasdaq
and 1.1 billion on the NYSE but declines obviously overwhelmed
advances. The VIX spiked to close at the high of the day at 34.39
and very close to the numbers posted when the Dow and Nasdaq hit
their previous bottoms on Dec-21st. The Dow gained +600 points
and the Nasdaq +300 points starting the very next day. Nobody
can guarantee that will happen again tomorrow since we have a
completely different set of circumstances governing our current
market sentiment. With capital gains tax selling limited to those
stocks with gains from last year that does limit the extent of
that selling. If any Wednesday bounce holds, then traders could
start taking positions in front of the Jobs Report in hopes of
a favorable outcome.  As I said on Sunday, we should be watching
the stocks we want to buy this week and looking for bottoms. With
only two trading days left before the Jobs Report the possibility
of a bottom Wednesday is about 75%. Futures are up +4.40 already
and hopefully that is a leading indicator of tomorrows direction.
Still, be patient and make sure the market, sector and stock are
all positive and moving up as well as advances beating declines
before opening a new long position. If any of these are negative
then wait. We have all year, one day will not make a difference.

We had a huge response to our annual renewal offer and I would
like to thank everyone who chose OptionInvestor as their source
for investment ideas in 2001. We will work very hard to maintain
your confidence. We have some outstanding new features we will
be announcing next week and we are sure you will be excited as
well!

Good Luck, Don't buy too soon!

Jim Brown
Editor


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

More Of The Same
By Austin Passamonte

New calendar, new trading year... same market action. We started
off to the downside this morning and never looked back. Bullish
solace could be found as indexes closed off their lows, but that
is of little comfort for sustained upside bias right now.

Any January rally might have to wait for our next retest of new
lows first. Another relief bounce should emerge soon but it will
take plenty of bullish market news to move buyers into action.

Nothing short of a significant rate-cut by the Fed will move us
up strongly with duration at this time. A warning by CSCO, JDSU
or other tech darling could be capitulatory as well.

The VIX is rising into mid-30's but we need to see a spike above
35.6 (daily chart's upper Bollinger-band) to signal a relief
rally is near, and that could happen tomorrow with further
weakness.

Daily chart signals indicate more downside ahead is likely. The
following markets need to find support near listed levels if we
are to hold above recent lows:

Dow: 10,625; then 10,337
SPX:   1275; then   1264
OEX:    660; then    656

We cannot quantify any real support for the NASDAQ markets while
they are buried below recent daily-chart values. Trying to use
weekly chart support going back more than one year shows we could
see sub-2,000 level for the NDX and COMPX.

Keep in mind that the Dow and NDX have not traded near new lows
together since before year 2000. Should the Dow fall below 10,000
while the NDW remains in a trough, the OEX and SPX would hit
price levels unseen in years. Is this what S&P 500 commercial
traders are waiting for? Not a long shot by any means.

Market Sentiment does not see any technical evidence of a market
bounce next session, but anything is possible. Keep in mind that
a lack of bullish news to drive prices up leaves a path of least
resistance on the downside.

What is a trader to do? Buy puts on any failed bounce! It was
quite an easy session to play OTM puts on the QQQ, OEX and SPX
for +50% returns on cost or much more. Equity-option traders who
hit the right stocks headed down would have done extremely well
also.

Today's early break below recent support was a clear entry signal
for bearish plays, and price action moved steadily down from
there. A reverse rally (decline) is as simple to trade as markets
breaking resistance to move steadily higher. No difference in
entry approach at all.

Given the choice to "sit in cash" or trade with the trend, we'll
choose the latter every time! Until otherwise noted the trend
remains decidedly down and we will continue to target bearish
plays and the fast returns they offer until this trend changes.

Market Sentiment will consider any attempt to rally tomorrow our
next high-odds put play entry unless the VIX spikes above 36.00,
which would have our attention for a relief bounce soon after.
Take your trades as market direction dictates, and prosper in the
year 2001!

*****

VIX
Tuesday 01/02 close: 34.20


30-yr Bonds
Tuesday 01/02 close:  5.38%


Support/Resistance Indicator
The Index Support/Resistance(S/R)Ratio is a formula used to
gauge possible support or resistance based on open-interest
disparity. Ratio listed is percentage of calls to puts or
puts to calls respectively.

Support is factored from dividing puts by calls at strike
levels beneath index closing price. Resistance is factored
from dividing calls by puts at strike levels above current
closing price.

                                   Tuesday
                                 (01/02/2001)
  (Open Interest)       Calls        Puts          Ratio
S&P 100 Index (OEX)
Resistance:
705 - 690                8,546        5,861         1.46
685 - 670                2,399        7,484          .32

OEX close: 667.13

Support:
665 - 650                1,071        6,976         6.51
640 - 620                   32        9,471       295.97

Maximum calls: 720/5,274
Maximum puts : 600/9,334

Moving Averages
 10 DMA  682
 20 DMA  699
 50 DMA  716
200 DMA  769


NASDAQ 100 Index (NDX/QQQ)
Resistance:
 63 - 61                49,461        37,702         1.31
 60 - 58                49,619        49,333         1.01
 57 - 55                21,253        24,170          .88

QQQ(NDX)close: 53.43

Support:

 52 - 50                 5,372        17,507         3.26
 49 - 47                 1,032        11,794        11.43
 46 - 44                   940         2,516         2.68

Maximum calls: 70/49,704
Maximum puts : 60/40,040

Moving Averages
 10 DMA 59
 20 DMA 63
 50 DMA 70
200 DMA 87


S&P 500 (SPX)
Resistance:
1350                   35,879        34,962          1.03
1325                    5,550         5,922           .94
1300                    4,307        15,115           .28

SPX close: 1283.27

Support:
1275                      397        11,332         28.54
1250                    1,328        15,999         12.05
1225                       95        14,138        148.82

Maximum calls: 1350/35,879
Maximum puts : 1350/34,962

Moving Averages
 10 DMA 1305
 20 DMA 1329
 50 DMA 1358
200 DMA 1432

*****

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


NASDAQ 100
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.


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

Please visit this link for Market Posture:

http://members.OptionInvestor.com/marketposture/010201_1.asp


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

Long-Term Strategies in a Short-Term World
By David Popper

You've seen the commercials.  You've heard the arguments.
Indeed, the buzzards are circling.  The message is simple, "Now
that you novices have messed up your accounts, let a professional
handle it for you.  After all, you are not equipped to handle
your own account. Remember, you should not be concerned with
short-term market movements because real money is made over the
long haul. Further, a ten percent return per year is what you
should expect."

This logic may have been true at some point in history, but that
time is past.  There was a time where long-term holding made
sense.  Thirty years ago, a person leaving high school could
expect to take a job and have a career with one company.  Most
of his/her friends would work at the same company.  When times
were tough, the company would tighten their belts but they did
not fire people.  There was loyalty between employee and
employer.  Companies saw employees through the hard times and
on the other hand employees did not leave to make an extra
thousand dollars.  There was loyalty and long-term commitment.
Finally, company officers were compensated with reasonable
salaries. They personally benefited if the company performed
over the long run.  Therefore, a long-term strategy was employed.

What about now?  Companies that once considered employees as
family will not hesitate to send jobs overseas to save money.
Employees, even top level executives will not hesitate to leave
for even slightly greener pastures.  How often have we heard,
especially in the high tech world of executives leaving their
old company in which they played a key role to join a perceived
better opportunity.  Look no further than MSFT, DIS and ORCL.
Further, executives are often paid with stock options with short
exercise periods as a major component of their compensation.  This
method of compensation gives them every incentive to perform in
the short-term, while disregarding the long-term consequences
of their decisions.  As long as the stock price is up when they
are able to exercise their options, they will be fine.  Investors
are also different.  My grandfather bought stock in a company and
continued to buy shares in the same company at every opportunity.
Diversification was never considered and selling was not an
option.  Shareholders were fiercely loyal.  Today, the conservative
players are in mutual funds and more adventuresome traders such
as ourselves can be in and out of stocks in minutes, days, or
weeks.  There is little stockholder loyalty.

Don't get me wrong.  I do not bemoan the changes.  They are
exciting.  It makes trading a dynamic hobby.  It is almost a
contact sport.  It is important to recognize the environment
and realize that everything can change and change quickly.
Executives, employees and shareholders turnover rates quickly
change.  Industry prospects change from read hot to dead in a
matter of months.  Remember those AMZN investors who were "long
and strong forever?"  In such a setting, it is foolish not to
evaluate your equities on at least a weekly basis.  Going to sleep
at the wheel because you purchased a one decision stock may give
you an unhappy surprise.  Lucent and Xerox used to be considered
growth stocks safe enough for widows and orphans.  Now look at
them.  Sometimes in the law it is said that bad facts make bad
law.  This means that an extreme set of circumstances can lead to
the creation of law which does not make sense in normal situations.
So too, a bad year in trading can lead some to assume that it is
safer to hold for the long-term.  No, it is not better to hold for
the long-term, it is better to evaluate your trading and
eliminate as many mistakes as possible.

What changes am I going to employ in my trading next year?  I am
going to slow down the action to better fit my time limitation.
Specifically, I plan to limit my trading in the high fliers.
CHKP can yield tremendous gains if you catch it right but you
can get clobbered quickly.  Look at JDSU on Friday, December 22nd.
It ran up 12% with everything else, only to turn down 12% on an
analyst warning.  It was a good day on the Nasdaq, but a terrible
day for JDSU and SDLI shareholders.  How would the normal trader
know Thursday night that Friday would be a rally and that NTAP
would be up 20% while JDSU caves?  How would the normal trader
who can't watch the computer all day know when to sell JDSU on
Friday while it was still profitable?  You wouldn't.  In the mean
time, the QQQ's performed well.  Since the QQQ's are a weighted
composite of the top 100 Nasdaq stocks excluding financial
stocks, bad news on one stock will not hurt you too bad.  Since
the Nasdaq is still oversold, I am planning to scale into the
QQQ's and trade them with the majority of my funds.  I won't
get that one big day, but I won't get that one big fall either.
The QQQ's also still have enough fire to yield good returns if
traded properly.  Does this mean that I will abandon the high
fliers?  No, but I will trade them with less capital.  Will I
stick with my plan?  Only as long as it works.  It works if
I can successfully achieve an overall 33% return on my
portfolio while trading on a part-time basis.

I have found that trading requires constant learning and constant
maintenance of the account.  I am convinced that a reasonable
trader can beat a mutual fund's return.  I am convinced that
long-term strategies are not best employed in a short-term world.


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

A New Year Brings New Hope
By Scott Martindale

The year 2000 has ended, and not a moment too soon as far as I'm
concerned.  After a highly successful 1999, I struggled mightily
during 2000.  However, I think the lessons learned were extremely
important to my development as an investor and options trader, and
a glance at powerful market indicators offers hope that we might
yet see some sustained market strength.

Even 1999, as successful as it was for the indices as a whole,
provided many lessons from the standpoint of individual stocks.
For example, I had many naked put/covered call plays on small cap
stocks that were big losers.  I often based my selections strictly
on technicals, and sometimes they went south fast without the
underlying fundamentals in place.  So in 2000, I only played
stocks that I liked from both a technical and fundamental basis,
but still got burned on occasion because of the overall market
weakness (which I didn't expect to persist through the fall) and
my own hesitance to bail out on big down days ("It will surely
bounce!").

Santa's gift to the bulls turned out to be only a fleeting dose of
holiday cheer, much like the eggnog at the Christmas party.  His
rally had no follow-through, and he didn't hold the line at Nasdaq
2500 like I asked.  Is this another great entry point?  Or just a
sign of more gloom ahead?  Many market watchers have said that
they consider this to be one of the best buying opportunities in
the last 20 years.  Should we be listening?

There's some interesting stuff in the latest issue of Bloomberg's
Personal Finance magazine.  One article describes what they
believe are the five key market indicators.  The slope of the
yield curve (difference between 10-year and 3-month Treasury
yields), the Fed funds rate, and credit spreads (difference
between Treasuries and corporates) apply to sustainability of
growth in earnings and the economy.  The Yardeni Model (12-month
forward corporate earnings yield vs. 10-yr Treasury yield) applies
to stock valuation, and the consensus stock allocation
recommendation of Wall Street's top strategists applies to market
sentiment.  According to the article, the best situation for stock
appreciation is when sentiment is negative (below 50 percent
allocation), valuations are low, earnings growth is accelerating,
the Fed eases rates, the yield curve steepens positively, and
credit spreads narrow.

When I checked current numbers, however, the yield curve is still
inverted with a spread of -0.98 (although the Fed buyback program
has depressed 10-year yields), and corporate/Treasury credit
spreads have been widening as well -- both indicating economic
slowing.  Also, stock strategists are more bullish than ever,
recommending around 67 percent allocated to stocks, whereas stocks
tend to do poorly when the recommended allocation is over 60.

However, on the bright side, the Yardeni model (Ed Yardeni of
Deutsche Bank) indicates that stocks are nearing undervalued
levels for the first time since the fall 1998 correction.  And of
course, Fed futures contracts are increasingly weighting the
likelihood of both a 25 basis point rate cut in advance of the
next FOMC meeting, and a total of 50 basis points by month-end.

Another indicator used by contrarian traders is the percentage
futures traders that consider themselves bullish.  This has
dropped to the lowest levels seen since May 12th, 2000 and October
15th, 1999, which might be a positive sign.  Furthermore, gains in
the S&P 500 have averaged 10 percent three months after a Fed rate
cut, 19 percent six months after, and 23 percent one year after
(and even higher gains for Nasdaq).  We should expect investors to
be willing to pay more for earnings as interest rates are cut, oil
prices to stabilize under $30, and a firming Euro.

So which sectors should come back fastest?  Well, if S&P 500
revenues grow 5-8 percent in 2001 as some predict, the high-growth
cutting-edge technology leaders could see both revenues and
earnings growing by 40-70 percent or more!  And if you look at the
P/E to Earnings Growth rate ratio (PEG), the S&P tech index is
well below the rest of the S&P index.  Without a recession, this
valuation gap will likely correct to the benefit of the tech
leaders.

As for today, I certainly didn't expect such a massive sell off.
But surprisingly, my long-term stock account actually showed flat
or a little green in value holdings like TX, HAL, WCOM, MOT, LSI,
TSM, INTC, CLIC, and some REIT's, and relatively small red numbers
in some of my recent acquisitions like JDSU, IRF, CRA, and HD.
[My worst performer was EMC, which unfortunately I just bought on
Thursday.]

For what it's worth, I see this as a great opportunity in the
making.  I see today's weakness as a sign that we're shaking out
all the weak holders, finding a true bottom, inducing a Fed rate
cut (perhaps 50 basis points), and providing the impetus for a
sustained uptrend.  And as bad a day as today was, I still think
it was a great day to start getting your cash ready for the long
side, for the reasons described above.  I'm looking at naked puts
and long-term calls on top tech companies like ORCL, SUNW, CSCO,
EMC, QCOM, AMCC, ADBE, CMVT, VRTS, JNPR, CHKP, ITWO, and BEAS, as
well as some other players like CPST, MUSE, KANA, and EXTR.

To actually execute such trades today would have required a high-
risk approach that most of us should avoid, so I didn't move on
it, myself.  But I admit that I am still holding some naked put
positions from last week, and I stand ready to sell more at the
first signs of a reversal.


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PICKS WE DROPPED
****************
When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
*****

GILD $74.13 -8.81 (-8.81) Gilead rolled over at $82 this morning,
and held up at support at $78, albeit briefly.  However, the
overall weakness in the biotech sector was too much for the stock,
and profit taking followed.  Gilead may recover if the biotech
sector recovers in the next few days, however, it closed below
our stop level of $78, and so we are dropping it tonight, and
moving on to stronger plays.

CEPH $57.75 -5.56 (-5.56) CEPH's recent technical developments
were wiped out in today's very bearish session.  At first, the
stock managed quite well for the better part of the day, with
the $60 and $61 levels buoying the issue.  Unfortunately, the
intraday trend was broken in a heavy sell-off during late
afternoon trading.  Our $58 protective stop, bolstered by the
10-dma ($57.29), was violated.  This infraction coupled with the
dim market outlook solicits an exit this evening.

LVLT $30.81 -2.00 (-2.00) LVLT couldn't stand alone against the
bears in the New Year.  The issue quickly transgressed below our
$32 protective stop and landed on the $30 support level before
the end of amateur hour today.  The failure to recover and to
regain a bullish position above the converged 5 and 10-dmas at
the $32 level warrants an exit this evening.  If you have open
positions, consider selling into strength to protect existing
capital.

ESRX $93.63 -8.63 (-8.63) It's a shame this play never got a
chance.  Today's sharp, one session decline followed a pattern
of tremendous gains in December.  With the market starting off
the year on a bearish note, ESRX suffered heavy profit taking
right from the get-go.  ESRX was cut down a hefty 8.4%, which
put the stock well below the 10-dma and our $96 stop loss.  It's
very disappointing to have to drop the play before getting the
opportunity to lock in any profits.

CIEN $65.88 -15.38 (-15.38) CIEN, BRCM, SCMR and GLW were
literally bludgeoned into the New Year.  There was no specific
news to provoke the bloodshed - just more of the same profit
concerns of a slowing economy.  Generally, the techs were hit
especially hard today; but the optical sector, along with data
storage in particular, went down for the count.  CIEN saw a 19%,
or $15.38 loss in heavy selling, with the final score leaving
CIEN well below our $75 protective stop.  If you failed to set
stops, look for any intraday surges to repair losses.

UTX $75.25 -3.38 (-3.38) The bad news swirling around GE's
engine probe and Boeing's (BA) downgrade from First Union
Securities spilled over to other stocks in the industry.  UTX
didn't escape the carnage and gave back 4.3% on average volume.
The stock's position below our $76 protective stop and the 5 &
10-dmas line puts UTX in a precarious position.  Therefore,
we're exiting tonight in light of the weakness.  A breakdown
below the 30-dma ($73.20) spells big trouble, so if you have
open plays to repair, sell into intraday strength.  The
company's earnings release is confirmed for January 18th, BEFORE
the bell.

BRCD $75.50 -16.31 (-16.31) Negative sector sympathy was the name
of the game on the first trading day of the New Year.  With peers
EMC and VRTS down double-digit percentage points on high volume,
there was nowhere for BRCD to go but down.  The sell-off came on
the heels of a downgrade of EMC and VRTS, both from Buy to Long
Term Attractive ratings by Robertson Stephens.  For its part,
BRCD ended the day down almost 18 percent on over three times the
ADV.  While the stock did find support at the $70 level, the
massive volume to the downside and the close well below our stop
price of $88 leaves us with little choice but to cut this play
loose.

MWD $72.13 -7.13 (-7.13) With the DOW down over 140 points,
shares of MWD and most other financial stocks got caught in the
selling spree, as the bears took the first trading day of the new
year by storm.  Many financial issues rallied at the end of
December on hopes that the 2001 would bring an easing Fed but now
that hope has become something more urgent.  With today's weak
NAPM report (the lowest since recession-level 1991), it seems
that the issue is no longer about rate cuts, but rather, whether
the Fed can cut enough and in time.  Today, MWD closed down
almost 9 percent on 117% of ADV and in doing so, put itself back
below its 50-dma at $72.46 and our stop price at $72.  As a
result we are no longer recommending this play.

RFMD $24.25 -3.19 (-3.19) A morning downgrade by Robertson
Stephens on Networking stocks citing slowdowns in corporate IT
spending affected Tech issues across the board, and RFMD was no
exception.  Shares of communication chips stocks such as BRCM,
CNXT and TQNT fell sharply lower and with them in sympathy, RFMD.
The stock ended the day down over 11 percent.  While volume was
below average, only 58% of ADV, most of the volume was to the
sell side and the lack of buyers to support the stock was not a
good sign.  With RFMD's close below our stop price of $25, we are
taking our money off the table.

TXN $46.31 -1.06 (-1.06) While shares of TXN fared better than
most other Tech stocks, it did not fare well enough.  Compared to
other large cap semiconductor peers such as Intel and Applied
Materials, which managed to end the day positive, TXN's close in
negative territory was not a a bullish sign.  While down only
2.24 percent for the day on light volume, only 72% of ADV, the
close below both its 5 and 10-dma, currently sitting at $48.03
and $47.04 respectively suggests that there could be further
downside ahead.  Our stop price of $46 did hold up and there is
support from the 50-dma at $45.26 but the weak relative strength
compared to its peers and the possibility that the selling could
accelerate no longer makes this an attractive play.

COF $61.94 -3.88 (-3.88) COF didn't last very long on the
playlist, as it felt the pressure of continued tax-loss selling
on Friday.  But the problem only got worse today, as investors
sold first and asked questions later in response to the UBS
Warburg downgrade.  It seemed there was no place for the bulls
to hide in today's market, with Techs, Financials, Biotechs,
Drugs, and Retail stocks all coming under selling pressure.
Everything got sold, and it appears that at least part of the
problem was profit taking deferred until the first of the year.
Regardless of the cause, COF fell through our $62 stop this
morning, and despite an attempted late-day recovery, couldn't
regain its footing.  Needless to say, COF is a drop tonight.

LH $148.00 -28.00 (-28.00) Stop losses anyone?  LH has been a
stellar performer for us over the past couple weeks, but it
all came crashing down today.  Traders wanting to take profits,
but defer their taxable gains for another 12 months, waited
for the opening bell this morning before hitting the sell
button, which they did with a vengeance, driving volume more
than 50% over the ADV.  Posting a loss of $28 on top of last
Friday's loss drops LH through our stop and several levels of
support to end the first day of the new year right where it
began the month of December.  Stop losses took us out of the
play with some fat profits in our pockets.  If you didn't have
them in place, use any bounce as an opportunity to get out with
your skin intact.

QQQ $53.44 -4.94 (4.94) Several high-profile downgrades in the
tech sector this morning snowballed into a broad-based sell-off
across the Nasdaq.  The heavy selling witnessed in the Nasdaq
caused the QQQs to drop to a new 52-week low, en route to
falling through our protective stop at $55.  At this point,
we're dropping coverage on the QQQs and will wait for the
Nasdaq to find a solid bottom before initiating a trade on
the tech-heavy index again.

WPI $48.31 -2.88 (-2.88) Not even the defensive drug stocks
could escape the selling in the broader markets during Tuesday's
session.  After challenging its 50 and 200-dmas late last
week, WPI gapped down this morning and continued to slide into
the close of trading.  The gap down and subsequent slide this
morning didn't provide any solid entry points, but if you have
any open long positions in WPI use any bounce or strength to
exit positions early tomorrow.  Watch for a move back up to
the $49 or $50 levels and use such an advance to exit on
strength.

VOD $34.50 -1.31 (-1.31) Our technical-based play on shares of
Vodafone took a turn for the worse today.  The stock slipped
back towards its long-standing support at $33, the site of
our stop, and on very heavy volume.  The unusually active
trading is cause for concern, and may be related to the recent
news of cell phone-related health concerns.  Instead of
waiting around for additional bad news, we're dropping
coverage on VOD this evening and would exit any existing
positions early Wednesday morning on a move back up to the
$35 level.

ORCL $26.44 -2.63 (-2.63) The downgrade from Robertson Stephens
this morning on several Internet infrastructure plays spilled
over into our long-term play and Oracle.  Shares of the
database software giant fell sharply at the close this morning
and continued to decline into the close of trading.  We don't
like the fact that ORCL fell below the $28 level (our stop),
which had been a solid support level since early December.
Use any short-covering or relief rally early Wednesday
morning to exit positions.

FRNT $28.81 -2.13 (-2.13) We had been gaming the declining price
in energy when we initiated coverage on shares of Frontier and
as Murphy would have it, OPEC decided to "walk" the price of
crude up this morning.  Add to that fact the downgrade of peer
Southwest Airlines this morning, and we never really saw a
solid entry point into a FRNT trade.  In fact, the stock fell
precipitously at the opening bell this morning and continued
to slide past our protective stop at $29.  In light of the
stop violation and rising price of oil, we're dropping FRNT
tonight and would exit positions on any relief rally Wednesday.

GD $75.06 -2.94 (-2.94) Volume was unusually active during GD's
sell-off today.  The high-volume sell-off is somewhat
disconcerting and may lead to an extended pullback in shares of
General Dynamics.  And although the stock managed to close above
our protective stop at the $75 level this afternoon, we're
dropping coverage on GD tonight and will no longer initiate new
positions.  Use any bounce off the $75 level early tomorrow to
exit existing positions.


PUTS:
*****

No dropped puts tonight


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The Option Investor Newsletter                  Tuesday 01-02-2001
Copyright 2001, All rights reserved.                        2 of 2
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********************
PLAY UPDATES - CALLS
********************

COST $41.19 +1.25 (+1.25) Our strategy is working out as planned
for Costco, which  exhibited a high level of strength amidst the
bloodshed in most sectors, including the retail sector.  After
breaking out of resistance at $38.38 last week, Costco has been
moving up in a stair-step pattern of daily one point moves.  Old
resistance of $40 became support on Friday, and today Friday's
resistance level of $41 became support, which could be an
excellent entry point in the near future.  Costco has shown a
pattern over the last two days of making a surge early in the
morning trading, and leveling off during the day.  Today's volume
was strong, at 12.4 million shares, which is almost double the
average daily volume of 5.9 million shares.  The volume and
momentum should lead Costco to the next resistance level of $44,
which has not been visited since March.  After that, resistance
is light at $45, and $46, and heavier at $49 and $50. The point
of least resistance is up for Costco, however, to be completely
safe, wait for strength in the retail index (RTX.X) before
entering positions. Keep stops set at $34.

NOK $40.88 -2.63 (-2.63) Considering the widespread carnage in the
technology sector today, Nokia held up fairly well.  The stock
actually moved to $44.81 in the morning, however, the weak NAPM
report, and several analyst downgrades of technology stocks proved
to be too much for even Nokia to handle.  Strong support at $40
has held since mid-November, faltering only once on November 13th,
which brought Nokia to $37.56.  A possible entry point would
be a move above $43, which would position Nokia to move above
the major moving averages to the next resistance at $45.  Watch
the telecom sector for strength, and keep stops at $40.

SEPR $76.38 -3.75 (-3.75) Sepracor held up well in the widespread
sell-off today, particularly considering the sharp decline in the
biotech index late in the afternoon.  Sepracor rolled over at
$80.94 in the morning, stopped briefly at support at $77.50, and
actually rebounded slightly from the day's low at the close.
Considering Sepracor's relative strength we are keeping the play.
A good aggressive entry point could be an advance above $77.50,
or above the 50-dma at $79 for a more conservative trader.
Monitor the biotech index for strength (BTK.X) and continue to
set stops at $74.

IVGN $86.38 -5.31 (-5.31) With a dearth of news from the company
recently, technicals and sector sympathy have played a key role
in the movement of IVGN's stock price.  Today, with Biotech
issues pretty much down across the board, shares of IVGN got
caught in the downdraft.  For the day, the stock closed 6.14
percent lower but the good news is, volume was light, only about
half of ADV.  The close above its 5 and 10-dma (currently at
$82.78 and $80.86 respectively) was also a good sign.  A bounce
off these moving averages and well as the $80 level and our stock
price at $79 could allow aggressive traders to make a play but
confirm a bounce with buying volume.  For a safer entry, wait for
IVGN to move strongly above its 5-dma before taking a position.
A break through resistance at $82 is another possible entry but
make sure the conviction is there and keep a close eye on peers
ABI, AFFX and CRA to confirm strength in upward momentum.

JNJ $102.00 -3.06 (-3.06) The blue-chip rally put JNJ on last
week's winner's list and today, JNJ's strength amid the market
adversity kept it on the play list.  The stock closed smack on
our $102 safeguard.  A close below $102 and we would have bailed
out - in spite of JNJ's fantastic developments in recent
sessions.  There was also some good news on the wire today,
although it didn't have too much impact on JNJ trading.  The
drug maker announced that US regulators have expanded the use
for a common rheumatoid arthritis treatment to include the
slowing of joint damage that can result from the ailment.
Moving forward, look for convincing moves through the 5-dma
($103.44) and the $104 level to re-establish the up-trend line.
A high-volume break through $105 and Friday's 52-week high of
$105.94 warrants play consideration, even for the conservatives.
Keep stops tight.


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

P $57.06 +0.19 (+0.19) Resistance from the 50-dma, now at $58.69,
and from the key level of $59 is turning out to be formidable
indeed.  While the stock attempted to rally in the early going on
news that OPEC could hike prices, news of warmer than expected
weather in the short term helped to subdue Phillips' rally
attempt.  While the stock did close up fractionally on average
volume, most of that volume was to the downside.  As well, the
stock failed to close above the 5-dma, now at $57.27.  Our put
play could receive a little help in the near future as news that
Australia has cleared the way to let Phillips bid for oil and gas
explorer Petroz NL.  At this point, a failed rally above the 5
and 50-dma could provide for aggressive entry points buy confirm
a rollover with volume and be aware of our stop price at $59.
For the risk adverse, wait for a break below $56 before taking a
position, confirming direction with rivals TX and XOM.

SFA $30.00 -2.56 (-2.56) The descending trend line stretched down
another 7.9% amid respectable volume.  The embellishing pattern
of lower-highs and lower-lows continues to add credibility to the
notion of further losses over the near-term.  And within the
sector, even the pick of the litter GMST saw significant losses.
We persist in keeping our protective stop a bit high at the $38
level to allow SFA to operate freely during a volatile session.
However, your personal stop loss may be tighter to reflect a
more conservative play.  At this point in trading SFA, look for
a subsequent break below the $30 mark to further corroborate a
continued slide.  Remember the 52-week low sits at $24.41, so
expect some opposition in moving through that level even in a
declining market.

SNDK $25.75 -2.00 (-2.00) Pressured by the continued selling on
the NASDAQ, SNDK finally penetrated the $27 support level and
headed for new 52-week lows again.  The series of lower highs
and lower lows is creating a very tradable trend, despite the
fact the daily moves are fairly small.  The bulls have been
letting the bears have their way with everything technology
related, and our play is no different.  SNDK is currently
sitting on support at $25, but it doesn't look like it will take
much to drive it south from there to challenge the $19-20 level.
The Bollinger bands have expanded again, leaving plenty of room
for the stock to fall, and the only apparent hope for the bulls
is the fact that the daily Stochastics are now the most oversold
they have ever been.  A bounce seems imminent, so tighten up
those stops.  Our stop is still sitting at $31, and any bounce
that fails to clear this level is another entry opportunity.
Wait for the selling to begin and verify weakness on the NASDAQ
before playing.  Of course, further weakness can always be used
to add to open positions; use a drop through the $25 level as
your trigger.

TQNT $38.94 -4.75 (-4.75) Friday's meltdown continued unabated
today as TQNT gave up another 11% to land squarely on the
10-week trendline.  This is a critical test for our play; a drop
below the trendline ($38) will break the longer-term bullish
trend, putting the bears firmly in control.  If the bears are
successful at breaching support, they have a series of support
levels to target, starting with $36, then $32, and finally $26.
Stochastics have rolled over again, and with the lower Bollinger
band sitting down at $33, it seems there is more selling in
store.  We want to give our play room to run, so our stop is
still sitting at $49.  An intraday bounce near this level is
unlikely, but would provide a wonderful entry point for
aggressive traders.  More realistically, we would look for any
market-driven bounce to produce a rollover in the neighborhood
of the 200-dma ($43.56).  more conservative players will wait
for further weakness and open new positions as TQNT falls
through the $38 level.  The Semiconductor sector is continuing
to struggle, so confirm weakness on the SOX.X as well as the
NASDAQ before playing.

VSTR $101.00 +0.38 (+0.38) We're still holding our breath,
waiting for VSTR to penetrate support.  While the rest of the
technology market continued to slide into the abyss, VSTR
actually held up fairly well today, refusing to penetrate $100,
even on an intraday basis.  Aggressive traders got a nice entry
point though, as the bulls failed to rally the stock through the
$104-105 resistance level, leaving our $106 stop completely
untouched.  In the weak technology market though, they couldn't
hold the bears at bay and succumbed to the selling, right up to
the closing bell.  Ending the first day of the new year at $101,
VSTR is poised to take out the critical $100 level in the days
ahead.  Conservative players will watch for weakness in both
the Telecom sector (AMEX:TTH) and the broader NASDAQ and then
open new positions as VSTR falls below $100.  Volume has
recently increased to near the ADV again, and as long as it
stays heavy, that is a good confirmation that there is
significant selling pressure.


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

AGGRESSIVE:

SBC - SBC Communications $50.38 +2.63 (+2.63 this week)

With 61 million phone lines in 13 states, SBC is the #2 local
phone outfit in the United States.  It's not just a local
operation either, as the company has stakes in Telecom
operations in 23 other countries around the world.  The
services and products that SBC offers vary by market, and
include local exchange services, wireless communications, long
distance services, Internet services, cable and wireless
television services, security monitoring, telecommunications
equipment, messaging, paging, and directory advertising and
publishing.

Up until late November, SBC was one of the few Telecom stocks
that was still riding high.  At the time, it was looking like
the bulls might actually engineer a breakout to new highs, but
sector weakness combined with a deteriorating overall market
conspired to create a double-top near $59.  Once the top was in
place, the stock lost ground quickly, breaking below the 10-dma,
30-dma, and 50-dma in short order.  After finding resistance at
the 50-dma (then at $54.56), SBC really got the bears riled up
on December 19th by announcing that they would fail to meet the
current earnings projections.  That shock wave, combined with a
Merrill Lynch downgrade from Buy to Accumulate, sent shares
reeling all the way to $43 before buyers started showing up.
Given the sharp recovery over the past 2 weeks, it seems that
investors think the selloff was overdone, as they have been
bidding the price up, bouncing up from the 200-dma ($47.19) and
clearing the $50 resistance level today.  Telecom stocks did
well in today's session, beginning to claw their way out of the
hole dug by the bears in recent months.  Critical support lies
near the 200-dma, so we have placed our stop at $47; another
violation of this level would definitely put a crimp in our
bullish plans.  As long as our stop isn't violated, intraday
dips near the $47-48 level look like attractive entry points
for aggressive investors.  More conservative players will look
for SBC to find support near $50 and continue higher through
the $52 level before playing.  Confirm sector strength
(AMEX:TTH) and buying pressure in competitors such as VZ and
WCOM before initiating new positions.

BUY CALL JAN-45 SBC-AI OI= 4065 at $5.75 SL=3.75
BUY CALL JAN-50*SBC-AJ OI=10359 at $2.00 SL=1.00
BUY CALL JAN-55 SBC-AK OI=12446 at $0.50 SL=0.00  High Risk!
BUY CALL FEB-50 SBC-BJ OI=  506 at $3.50 SL=1.75
BUY CALL FEB-55 SBC-BK OI=  519 at $1.50 SL=0.75
BUY CALL APR-55 SBC-DK OI=15728 at $3.00 SL=1.50

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


LOW VOLATILITY:

RJR - RJ Reynolds Tobacco HLDGS $51.00 +2.25 (+2.25 this week)

RJR is a holding company for the #2 cigarette maker in the US,
after Philip Morris.  Some of its best-selling brands include
Camel, Doral, Salem and Winston.  And starting on January 22nd,
RJR plans to test sales of Eclipse cigarettes, which supposedly
releases less carcinogens because the tobacco is heated rather
than burned.

RJ Reynolds continues to deliver profitable earnings and gain
the respect of WallStreet investors despite the slew of lawsuits
and multibillion-dollar settlements that plague the company.
And it's not only RJR that's been on the move lately.  Fierce
competitor, Philip Morris' (MO) made significant gains as post-
tech investors look for solid, long-term investments to pad
their portfolios.  Since its submergence below the $20 level in
December 1999, the share price's made a healthy recovery (yes,
that could be a pun!) into the millennium.  The last six weeks
have been particularly impressive.  In a steady fashion, RJR
climbed from the mid-thirties and tacked on 45% to its share
value.  Today's 4.6% breakout above the $50 level, and the
positive sentiment of the sector going forward, prompted us to
add RJR to our low-volatility calls.  In a market environment
enveloped with dim profit outlooks and growing concerns of tech
stock valuations, this value play should bode well for the more
conservative option traders.  If you're conservative, but still
have a sense of trading adventure, then entries might be found
on pullbacks to our protective stop mark of $48.  Our stop loss
is currently sandwiched between the 10-dma ($47.54) and the 5-
dma ($49.20); and remember an entry at this level is much more
risky than jumping in at the $50 support.  Looking down the
road, there's also the potential for some sparks to fly ahead of
the company's earnings' release.  Look for high-volume breakouts
to forecast a run into the announcement.  RJ Reynolds is
confirmed to report earnings on January 25th, BEFORE the opening
bell.

BUY CALL JAN-45 RJR-AI OI=147 at $6.50 SL=4.50
BUY CALL JAN-50*RJR-AJ OI=123 at $2.63 SL=1.25
BUY CALL JAN-55 RJR-AK OI=  0 at $0.69 SL=0.00  Wait for OI!
BUY CALL FEB-50 RJR-BJ OI=130 at $3.88 SL=2.50
BUY CALL FEB-55 RJR-BK OI= 12 at $1.75 SL=0.75

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


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

AGGRESSIVE:

SEBL - Siebel Systems $54.00 -13.63 (-13.63 this week)

Siebel Systems Inc. is the world's leading provider of eBusiness
applications software.  Siebel Systems provides an integrated
family of eBusiness application software enabling multichannel
sales, marketing and customer service systems to be deployed over
the Web, call centers, field, reseller channels, and retail and
dealer networks.  Siebel Systems' sales and service facilities
are located in more than 28 locations around the world.

Siebel Systems took a big hit today, along with other software
and infrastructure companies.  The catalysts were one-two
punches from a very weak NAPM report, which increased investors'
fears of a recession, as well as a downgrade of
several internet infrastructure, storage, software and
security stocks from an influential analyst at Robertson Stephens.
According to Dane Lewis, several companies have told him
that their spending on IT technology will be lower than
expected in the first half of the year, and that sectors which
were previously considered immune, such as storage and security,
are no longer immune to spending slowdowns.  While Lewis did not
specifically downgrade SEBL, shock waves were felt throughout
the entire software and infrastructure sector.  Additional news
was released regarding Nortel entering Siebel's market for
eBusiness software, and helped to push Siebel below the key
support level of $59.81, which had held since June.  Siebel is
now deeply below the 200-dma of $79.58 and the 50-dma of $84.59,
and it seems only a miracle would pull the stock to those levels
anytime soon.  Volume was 50% above the 3 month average daily
volume.  A possible entry point could be taken on a roll over
from light resistance at $55.56, or resistance at $58.00.  The
next support level is $49.75, and Siebel could move there
very quickly.  Monitor the software index, and the software
holders (SWH), as well as internet infrastructure holders (IIH)
for weakness before buying puts, and set stops at $64.

BUY PUT JAN-55*SGW-MK OI=1295 at $8.50 SL=6.00
BUY PUT JAN-50 SGW-MJ OI=2472 at $6.00 SL=4.00

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


EXDS - Exodus Communications $16.56 -3.44 (-3.44 this week)

Exodus provides Internet system and network management solutions
for enterprises with mission-critical Internet operations. They
have pioneered the Internet Data Center (IDC) market and are one
of the leading providers of Internet server hosting to the
growing number of companies using the Internet.  At present,
Exodus also has twenty Internet Data Centers where clients store
their servers in secure vaults.  Clients include CBS Sports,
eBay, Lycos, Yahoo!, MSNBC, and Hewlett-Packard.

Big caps like CSCO and a broad range of networkers; particularly
the security and data storage stocks, effectively dragged the
NASDAQ lower as we entered 2001 trading today.  EXDS was caught
in the Internet dragnet and plunged 17%, or $3.44 on extremely
heavy volume.  By the close of business today, almost 25.8 mln
shares exchanged hands in comparison to an ADV of 10.7 mln.  If
you take a look at a one-month chart, you can visually confirm
the strong downtrend line, initiated in mid-December.  We
decided to add EXDS to our put line-up this evening because of
the technical breakdown below the bottom-of-the-barrel support
at $20.  Granted the share price is already dirt-cheap, but
there's no viable reason why EXDS can't move lower and return to
its pre-millennium prices.  And take a look at the options,
there's certainly not a lack of interested parties.  Another
possible profit opportunity would be to aggressively target
shoot entries/exits amid a volatile session - to play the
spread.  Whatever your course of action, we're anticipating that
EXDS will trade under the $19, going forward.  If this level is
violated on a bullish CLOSE, we'll quickly exit the play to
protect our capital.  There's some light, historical support at
$15, but the support is firmer at the $10 and $12 levels.  You
might consider aggressive entries on rollovers at the 5-dma
($20.04) or buying into weakness if EXDS slides through the $16
mark in a declining market.

BUY PUT JAN-25 DUB-ME OI=1335 at $9.13 SL=6.25
BUY PUT JAN-20*EXF-MD OI=3373 at $5.00 SL=3.00
BUY PUT JAN-15 EXF-MC OI=1297 at $1.94 SL=1.00

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


JNPR - Juniper Networks $102.56 -23.50 (-23.50 this week)

As a provider of Internet infrastructure solutions, JNPR serves
Internet service providers and other telecommunications service
providers, helping them to meet the demands resulting from the
rapid growth of the Internet.  The company delivers next
generation Internet backbone routers that are specifically
designed for service provider networks.  The routers provided by
the company combine the features of the JUNOS Internet Software,
high performance ASIC-based packet forwarding technology and
Internet-optimized architecture into a purpose-built solution
for service providers.

As a long-time favorite on OIN's call play list, we have made
substantial gains numerous times to the upside on JNPR.  But now,
it appears that we have the opportunity profit to the downside,
for reasons both fundamental and technical.  A soft market for
Tech stocks is no surprise, as JNPR is well off its highs from
mid-October of last year.  With the recent rise of value stocks,
traders have been eschewing high-growth, high-PE stocks for lower
growth-rate, lower-PE companies.  The market as a whole has been
in defensive mode, undergoing a compression in earnings
multiples, with a slowing economy.  With JNPR's current PE well
north of 400, it appears that there is plenty of room for the
stock to move, despite being 58 percent below its all-time high.
Connecting the highs and lows since its peak in mid-October
reveals a downward trending regression channel in which the stock
has been moving lower on accelerating volume, so much so that
JNPR is now well below all its moving averages, most notably the
200-dma at $150.  Today's downgrade of the Networking sector by
Robertson Stephens by analyst Dane Lewis, citing slower IT
spending and macro-economic issues resulted in a drop of over 18
percent on over 160% of ADV.  For aggressive traders, a bounce
leading to a failed rally above JNPR's 10-dma at $117.02 could
allow for a possible entry.  There is also resistance in
increments of $5 at $105, $110 and our stop price at $115 but
confirm a rollover with volume.  For an entry on weakness, wait
for further selling to take JNPR below $98 on volume before
making a play.  Correlate entries with sentiment in Networking
issues CSCO, EXTR and FDRY when making an entry.

BUY PUT JAN-105 JUY-MA OI= 557 at $15.50 SL=11.25
BUY PUT JAN-100*JUD-MT OI=1586 at $12.50 SL= 9.00
BUY PUT JAN- 95 JUX-MS OI= 335 at $10.00 SL= 7.00

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


QCOM - Qualcomm Inc. $70.88 -11.31 (-11.31 this week)

Qualcomm Incorporated is a leader in developing, delivering, and
enabling innovative digital wireless communications products and
services based on the Company's digital technologies.  As the
pioneer of Code Division Multiple Access (CDMA), the technology
of choice for next-generation wireless communications, Qualcomm
continues to lead the industry in the development of voice, data,
and wireless Internet products and solutions.  Qualcomm is also
transforming industries through its various satellite businesses
and technology partnerships.

Since hitting its 52-week low in early July of 2000, shares of
QCOM have been steadily rising despite a general malaise in Tech
stocks.  But now, it appears that the CDMA giant may not be
immune to worries of a slowing economy.  While news of a possible
breakthrough into China and an alliance with Texas Instruments
recently helped QCOM to move higher, this news already been
factored into the stock price.  Closer examination of the chart
reveals a breakdown in QCOM's technical picture, as the stock
appears to have formed a head and shoulders pattern over the past
few months.  Such a formation usually foretells a definitive end
to an intermediate-term up-trend and a strong move in the
opposite direction.  Drawing a line across the $91 level on a
3-month daily chart, the shoulder tops can clearly be seen, with
the first one in mid-to-late November and the most recent one
this past week.  The head can be seen in early December when the
stock topped out at the $107 area.  Drawing a line across the $78
mark reveals the neckline.  Today's drop, down almost 14 percent
on over 115% of ADV puts QCOM below this key support level as
well as its 50 and 100-dma (at $81.17 and $74.13 respectively).
At this point, a failed rally above resistance overhead at $74,
$75 and $78 could allow aggressive traders to take a position.
For a more conservative play, look for selling momentum to
accelerate in QCOM, taking the stock below $70 with conviction.
While the head and shoulders pattern is one that has been well
documented, past performance is not a guarantee of future
results.  As such, we are placing our protective stop at the
neckline at $78.  A close above this level could suggest a
reversal of negative momentum thus ending this play.  Use the
NASDAQ as a gauge of market sentiment when targeting an entry.

BUY PUT JAN-75 AAF-MO OI=6152 at $8.75 SL=6.25
BUY PUT JAN-70*AAO-MN OI=7812 at $6.13 SL=4.00
BUY PUT JAN-65 AAO-MM OI=6051 at $4.13 SL=2.50

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


LOW VOLATILITY:

AZA - ALZA Corporation $39.69 -2.81 (-2.81 this week)

As a research-based pharmaceutical company, AZA applies its
leading drug delivery technologies to develop products with
enhanced therapeutic value for its own portfolio and many of
the world's leading drug companies.  The company commercializes
products it develops, as well as those it acquires from third
parties.  AZA is currently focusing its sales and marketing
efforts on products for urology and oncology disorders, as well
as products for the treatment of pediatric and central nervous
system disorders.

The might of the Drug sector as a defensive haven is coming
under pressure, and the effects can be seen in Drug stocks
large and small.  Rolling over last week, AZA really felt the
pull of gravity in today's session, giving up more than 6.5%
on volume 75% above the ADV.  Resistance at $44 was just too
much for the bulls to penetrate, and the chart shows the
possibility of an extended head-and-shoulders formation.
Combine this with Stochastics just coming out of the overbought
zone, the flattening upper Bollinger band at $45, and today's
violation of both the 50-dma (currently $41.44) and the 30-dma
(currently $40.63), and it is hard to make a case for AZA to go
anywhere but down.  Add in declining market sentiment,
specifically the Drugs, and this looks like shooting fish in a
barrel.  Of course, that doesn't mean we can go off half-cocked.
Conservative players will want to wait for AZA to fall through
the $39 level before initiating new positions.  Since this is a
low volatility play, we are going with a nice tight stop, set at
$42.  More aggressive players will wait for a failed rally to
open new plays; a rollover anywhere between $40-42 looks like
the best entry we are likely to see.  Use the Drug index (DRG.X)
to confirm AZA's weakness and only play when both are headed
south.

BUY PUT JAN-40*AZA-MH OI= 577 at $2.44 SL=1.25
BUY PUT JAN-35 AZA-MG OI=2645 at $0.63 SL=0.00  High Risk!

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


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

COST - Costco - $41.19 +1.25 (+1.25 this 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.

Most Recent Write-Up

Our strategy is working out as planned for Costco, which exhibited
a high level of strength amidst the bloodshed in most sectors,
including the retail.  After breaking out of resistance at $38.38
last week, Costco has been moving up in a stair-step pattern of
daily one point moves.  Old resistance of $40 became support on
Friday, and today, Friday's resistance level of $41 became
support, which could be an excellent entry point in the near
future.  Costco has shown a pattern over the last two days of
making a surge early in the morning trading, and leveling off
during the day.  Today's volume was strong, at 12.4 million
shares, which is almost double the average daily volume of 5.9
million shares.  The volume and momentum should lead Costco to
the next resistance level of $44, which has not been visited
since March.  After that, resistance is light at $45, and $46,
and heavier at $49 and $50.  The path of least resistance is up
for Costco, however, to be completely safe, wait for strength in
the retail index (RTX.X) before entering positions.  Keep stops
set at $34.

Comments

Although the S&P Retail Index (RLX.X) finished slightly lower in
Tuesday's session, shares of Costco powered higher.  We're
encouraged by the stock's impressive relative strength and strong
technical position.  Volume continues to remain active, and we're
looking to that brisk buying to carry COST higher.  New positions
can be added on a breakout above resistance at $41.50 on active
trading.  Pullbacks on light volume to support at $41 or $40 would
offer additional entry opportunities.

BUY CALL JAN-35 PRQ-AG OI=7106 at $6.50 SL=4.50
BUY CALL JAN-40*PRQ-AH OI=3690 at $2.75 SL=1.50
BUY CALL JAN-45 PRQ-AI OI= 673 at $0.63 SL=0.00  High Risk!
BUY CALL FEB-40 PRQ-BH OI= 235 at $4.00 SL=2.50
BUY CALL FEB-45 PRQ-BI OI=   0 at $1.75 SL=1.00  Wait for OI!

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


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

The January barometer isn't looking too good...

The stock market plunged today amid continued earnings woes and
additional signs of an economic slowdown.

Tuesday, January 2

The stock market plunged today amid continued earnings woes and
additional signs of an economic slowdown.  The Dow Jones average
dropped 140 points to 10,646 and the Nasdaq Composite fell 178
points to 2291.  The S&P 500 index plunged 37 points to 1,283.
On the NYSE, declines outpaced advances 1,724 to 1,350 on volume
of 1.1 billion shares.  Nasdaq trades reached 1.9 billion shares
as declines outpaced advances 2,336 to 1,651.  In the U.S. bond
market, the 30-year treasury surged 1 27/32 to 113 8/32 as the
sell-off in equities continued, pushing its yield down to 5.34%.


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

Amerada Hess      AHC    JAN55P/JAN60P  $0.00   credit  bull-put
Portal Software   PRSF   FEB12C/FEB5P   $7.62   debit   collar
Allmerica         AFC    FEB75C/FEB70P  $4.62   debit   strangle
Cytec             CYT    MAY40C/MAY40P  $6.75   debit   straddle
SW Securities     SWS    MAR25C/MAR25P  $5.31   debit   straddle

Thanks to the incredible market volatility, the majority of our
new positions were opened at or near the target prices early in
the session.  Amerada Hess was one the only play that did not
offer a favorable entry opportunity.  Surprisingly, the Allmerica
straddle was profitable by mid-afternoon, providing a credit near
$4.81 as the stock plunged to session lows near 3:45 P.M.


Portfolio Plays:

The New Year did little to help the stock market as investors
renewed their bearish outlook on big-cap technology issues.  The
selling on the Nasdaq quickly spread to the broader market and
blue-chip stocks were also affected by the downward pressure.  In
the technology segment, Internet shares were among the big losers
following a number of downgrades in security and infrastructure
companies.  The computer hardware and software sectors also moved
sharply lower.  Semiconductor issues were the only bright spot on
the Nasdaq.  On the Dow, Alcoa (AA), Boeing (BA) and DuPont (DD)
led on the downside after analysts announced negative outlooks on
the three blue-chip stocks.  The broader market endured declines
in biotechnology, utility, banking and consumer products shares
while oil service, retail, drug, gold and transportation issues
edged higher.  The Spreads portfolio saw little bullish activity
today and even the issues that rallied were not all favorable.
One of our recent adjustment candidates, Costco (COST) moved up
$1.25 to $41.19 on momentum from a recent technical "break-out."
As we noted on Friday, the easiest way to transition to a bullish
outlook was the purchase of shares (to cover the sold option at
$40).  Unfortunately, the stock opened $0.50 higher and the best
we could achieve on the buy-in was $40.25.  Now our cost basis
in the covered-call is $38.88 and the maximum profit is $1.12.
Another position that required attention was Qualcomm (QCOM) and
depending on how you played the $11 move, the volatile activity
offered some excellent adjustment opportunities.  Our "roll-out"
strategy was very simple, move as far down as possible and still
maintain a credit in the position.  In the February series, the
60P/65P offered a reasonable cost basis (near the OCT-NOV lows)
and with the initial credit-spread premium of $0.75, we were able
to make the transition early in the session, without additional
cost.  The new position is FEB60P/65P at $0.12 credit.  Of course
the issue did not cooperate with our adjusted outlook, falling
another $7 to close near $71.  With any luck, it will find new
support at $65.

A Reader's Request issue, AT&T (T) was among the few Dow stocks
that advanced, climbing $1 to $18.25 after saying it closed its
$25 billion syndicated bank facility to provide liquidity support
against a comparable level of short-term borrowings.  AT&T said
it does not plan to borrow against this facility.  In other news,
its AT&T Broadband unit will increase cable prices in a month by
an average of 4.8%, citing the rising cost of providing services,
including programming, technical upgrades and customer service.
Another blue-chip technology issue, Intel (INTC) was a surprise
gainer, rising $1 to $31 after the hardware giant debuted a new
portable digital audio player, Pocket Concert, that provides up
to four hours of music programming and 20 hours of spoken-word
audio.  The player features 128 MB of memory for storing digital
audio in MP3 and Windows media audio formats.  Among smaller-cap
shares, Placer Dome (PDG), Landry's Restaurants (LNY), and Aksys
(AKSY) were the best performers.  In the delta-neutral category,
a number of issues moved to recent lows including ADC Telecom
(ADCT), Scm Microsystems (SCMM), and Three-Five Systems (TFS).
The financial stocks in the Straddles portfolio were also quite
active with Alliance Capital (AC) falling $3 and Fifth-Third
Bancorp (FITB) losing $2.53 to close at $57.22.  Traders who
opened new positions in these issues should monitor each play
carefully for potential "early-exit" opportunities.

Questions & comments on spreads/combos to Contact Support
******************************************************************
                     - SPECULATION PLAYS -
******************************************************************
WSM - Williams Sonoma  $21.63  ** On The Move! ***

Williams-Sonoma and its subsidiaries are specialty retailers of
products for the home.  The company's retail segment sells its
products through its three retail concepts: Williams-Sonoma,
Pottery Barn and Hold Everything.  The direct-to-customer segment
sells similar products through its five direct-mail catalogs,
Williams-Sonoma, Pottery Barn, Hold Everything and Chambers, and
the Internet (Williams-Sonoma only).  The principal concepts in
both retail and direct-to-customer are Williams-Sonoma & Pottery
Barn, which sell cookware essentials and contemporary tableware
and home furnishings, respectively.

Williams Sonoma (WSM) rallied again today, up $1.63 to a recent
high near $21 as bargain hunters continued to support the rising
price for the downtrodden retail issue.  Shares of WSM stock had
plunged after a September profit warning but today the issue was
upgraded by Thomas Weisel Partners to a "buy" and the analysts
also raised their earnings forecasts for the fiscal 4th quarter,
which ends this month.  WSM appears to be breaking out of a base
near $18 on good volume and traders who have a bullish outlook
for the issue can use this position to speculate on its movement
in the near-term.  A favorable premium disparity exist in the
January call options and after a brief consolidation, the issue
should continue to move towards a test of the November highs at
$23.


PLAY (aggressive - bullish/debit spread):

BUY  CALL  JAN-17.50  WSM-AW  OI=626  A=$4.62
SELL CALL  JAN-20.00  WSM-AD  OI=150  B=$2.62
INITIAL NET DEBIT TARGET=$1.75-$1.88  ROI(max)=32% B/E=$19.38

/charts/jan01/charts.asp?symbol=WSM
******************************************************************
WCOM - WorldCom  $15.94  *** Bottom Fishing! ***

WorldCom provides a broad range of communications, outsourcing,
and managed network services to corporations.  WorldCom is a
global communications company utilizing a facilities-based,
on-net strategy throughout the world.  Their core business is
communications services, which includes voice, data, Internet
and international services.  From private networking (such as
frame relay and asynchronous transfer mode) to high capacity
Internet and other related services, to hosting for complex,
high-volume mega-sites, to network management and outsourcing,
WorldCom provides one of the broadest range of Internet and
traditional, private networking services available from any
provider.

WorldCom (WCOM) was a big mover on the Nasdaq today, rising over
$2 to a recent high near $16 during the session, after Salomon
Smith Barney reiterated its "buy" rating on the stock and its
inclusion in Salomon's annual "Top Picks" publication.  Despite
Worldcom's decline in 2000, analysts say the company possesses
the best set of global network and IP assets to address data/IP
needs of corporate enterprises and WCOM is the firm's top pick
for telecom service provider in the upcoming year.  In addition,
the company also announced it agreed to settle past financial
disputes and drop all legal actions against Mexico's dominant
phone carrier, Telefonos de Mexico (TMX).  Telmex has agreed to
drop all legal actions against WorldCom's Avantel SA, except the
challenge by Telmex to rules issued in September that intend to
curb its dominant market position.  Telmex also agreed to lower
long-distance access fees for U.S. companies.

Traders who favor the change in WCOM's technical outlook can use
this position to speculate conservatively on the movement of the
issue.


PLAY (conservative - bullish/debit spread):

BUY  CALL  JAN-12.50  JQD-AV  OI=7342   A=$3.88
SELL CALL  JAN-15.00  JQD-AC  OI=51834  B=$1.81
INITIAL NET DEBIT TARGET=$1.88  ROI(max)=32% B/E=$14.38

/charts/jan01/charts.asp?symbol=WCOM
******************************************************************
                         - STRADDLES -

For all the traders who responded to our request for guidance on
this section, we thank you!  Here is another straddle candidate
that may meet your criteria for portfolio suitability with regard
to "delta-neutral" positions.

******************************************************************
TRIH - Triad Hospitals  $30.50  *** Range-Roller! ***

Triad Hospitals provides health care services through hospitals
and ambulatory surgery centers located in small cities and other
selected high growth urban markets in the southwestern, western
and south-central United States.  Triad's facilities include 30
general, acute care hospitals and 14 ambulatory surgery centers
located in the states of Alabama, Arizona, Arkansas, California,
Kansas, Louisiana, Missouri, New Mexico, Oklahoma, Oregon and
Texas.  The company also offers a variety of management services
to its health care facilities.  These services include ethics
and compliance programs, national supply and equipment purchasing
and leasing contracts, accounting, financial and clinical systems,
governmental reimbursement assistance, information systems, legal
support, personnel management and internal audit, access to
regional managed care networks, and resource management.

Profitable debit straddles are relatively simple to uncover and
there are three rules to identifying favorable conditions for a
straddle purchase.  First, the trader should select options that
are undervalued (cheap).  Next, the underlying security must have
the potential to move (high or low) enough to make the straddle
profitable.  Finally, the underlying stock should have a history
of multiple movements through a sufficient range in the required
amount of time to justify the overall risk/reward of the position.
We think this position meets the basic criteria and also offers a
great chance to play some rolling options on a low priced issue.


PLAY (conservative - neutral/debit straddle):

BUY  CALL  FEB-30  RIU-BF  OI=240  A=$2.93
BUY  PUT   FEB-30  RIU-NF  OI=10   A=$2.38
INITIAL NET DEBIT TARGET=$5.12-$5.25  TARGET ROI=20%

/charts/jan01/charts.asp?symbol=TRIH


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


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

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DISCLAIMER

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