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Daily Newsletter, Thursday, 01/04/2001

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The Option Investor Newsletter                 Thursday 01-04-2001
Copyright 2001, All rights reserved.                        1 of 2
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************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
        01-04-2001        High      Low     Volume Advance/Decline
DJIA    10912.40 - 33.40 11028.00 10888.40 2.11 bln   1600/1363
NASDAQ   2566.83 - 49.86  2644.80  2549.83 2.61 bln   2193/1797
S&P 100   700.92 -  3.05   709.68   698.58   totals   3793/3160
S&P 500  1333.34 - 14.22  1350.24  1329.14           54.6%/45.4%
RUS 2000  477.20 -  7.19   484.39   475.90
DJ TRANS 3145.65 +130.58  3157.44  3011.78
VIX        29.96 +  1.29    30.48    28.47
Put/Call Ratio      0.55
*************************************************************

Did you buy the dip?

If you were anticipating the bottom on Wednesday as we had
suggested and bought either dip recovery from the morning 2251
or the afternoon higher low of 2264 then you should be a happy
camper. We all know what happened at 1:15PM and the explosion
that resulted. Today's wimpy profit taking sell off was a big
win and should go down as a plus instead of a minus. Volume was
huge again with the NYSE trading over two billion shares for
the first time ever. The Nasdaq volume was 2.6 billion with
advances beating decliners on both exchanges even though both
finished the day slightly negative.










This was simply a consolidation day after both exchanges set
records on Wednesday. Traders took profits while investors
bought stock for the long term. Companies up high double
digits on Wednesday managed to hold onto most of their gains.
CIEN +19 only lost -2.44 today, BRCM +30 only lost -6.63 today.
Give me $30 and take back $6 any day! With the Nasdaq up +17%
from the Wednesday low the only -1.9% retracement today was a
non-event!

The keyword for today was rotation. Every defensive stock, which
had benefited from investors moving into apparent safety over
the last two months, suffered today as those same investors
dumped them to raise cash for the anticipated rally. BUD dropped
-$5 at the low of the day, MRK accelerated the drop started with
the Fed announcement yesterday with a -$5 loss intraday. Biotechs
looked more like lepers with most taking big losses. PDLI led the
loser list at -10 with GENZ, ABGX, AFFX, IMCL, CRA, DNA following
closely. LH, Laboratory Corp, which I highlighted on Tuesday as
a capital gains tax sale loser, finally bounced at $130 today
after dropping -$53 from last Thursday's high. Forest Labs also
found a bottom at $113 after falling -$26. The good news has got
to be there is only one day left in this week. Tax sellers are
normally done by Friday's close and that money will be put back
to work next week. Investors still holding these previous high
flyers will start to breathe easier as the bleeding stops.

As if financial stocks needed any more good news other than the
Fed rate cut, Lehman and Bear Stearns both announced earnings
today and both beat estimates easily. LEH beat estimates by +.20
and BSC by +.25 on increased trading volume in Nov/Dec. This
helped revitalize the brokerage community which had been decimated
by the lack of volume in our bear market. NITE gained +15%, AMTD
+20%, EGRP +13%. The major financials managed to hold onto or
even add to their gains from yesterday with C and JPM the
standouts.

Lest you think everything was rosy today there were the usual
problems. Some of the warnings today included WGRD, RSNT, CYBS,
SAPE, NXTV, ETYS, KEYN, BRKT and SMTC. Just cutting rates has
not waved a magic wand over earnings and there are still dozens
of warnings coming. YHOO was widely rumored to be the next major
Internet to warn but the company has been quiet. Since it takes
six months for rate hikes or cuts to filter through the economy
and end up as earnings we can expect at least two more quarters
of problems. However the market will discount that fact and short
of specific disasters stocks should trade higher. First Call said
today that there have been 92% more warnings this quarter than
for the same quarter last year. Real earnings begin next week
but other than YHOO and ARBA there are not any high profile
releases due out. The following week however is when the flood
gates open and investors will be reacting to real news, not
speculation.

Economic reports today continued to confirm the slowing economy
with the Initial Jobless Claims at 375,000 posting their fourth
consecutive increase. The really key report is the Jobs Report
on Friday. The outcome is probably already known based on the
Fed rate cut. Since they get advance information you could bet
that the Jobs Report will be weak and point to more economic
declines. It remains to be seen if the actual release will have
any direct impact on the market. With the pressure already off
and no Fed action anticipated on the release the market may just
ignore it and focus on rebuilding portfolios. Still part of the
weakness at the close today could have been traders closing
positions in front of the unknown Jobs impact.

George W, call Alan before making important decisions. That was
basically the message Alan sent to President elect Bush with
the -.50% rate cut on Wednesday. Do you think it was just a
coincidence that Alan announced the cut while Bush was holding
an economic summit in Austin designed to build support for his
$1.6 trillion tax cut? What was the purpose of announcing in
the middle of the week, in the middle of a trading day? In the
past this type of action occurred after the Jobs Report. Just
a coincidence that it was two days early and during the summit,
right? Alan has said in the past that tax cuts should be delayed
to continue reducing the debt. A massive tax cut could be seen
as a lack of confidence in Greenspan's ability to control the
economy. With a war of words and methods shaping up between
Alan and George, Alan fired the first shot with an aggressive
cut and effectively drew a line in the sand. Squaring off
against Bush may be good for us but may have a career shortening
long term result. Of course, how much career does Greenspan have
left anyway? It is not like he needs the job. For traders the
result may be a more aggressive Fed posture than in the past as
the FOMC team tries to pump the economy back up quickly to reduce
reasons for a massive Bush tax cut. Go for it Alan, we will be
happy to get another -.50% cut at the Jan-30th meeting. I doubt
it but I would take it. Many analysts speculate that Alan could
step down as early as this year and go out at the height of his
popularity instead of waiting for the next disaster to knock him
off. If this is his plan then launching an aggressive series of
rate cuts to fire up the economy before he leaves makes sense.
An economy running at 5% GDP and producing low unemployment is
harder for any political party to screw up quickly with bad
economic choices. Essentially Greenspan's destiny is in his own
hands and the next six months should be interesting and traders
should benefit.

For traders Friday is a toss up. The Jobs Report is a wild card
with no real impact. There should not be a lot of tax sellers
left. There is no real reason to sell stock and plenty of reasons
to buy. With the Fed on our team and another meeting only three
weeks away the prospects are bright. Money on the sidelines has
now gotten everything they wanted. A double bottom on Dec-21st
and again this week along with a rate cut. The future is clearly
in the Fed's hands and the Fed has said they will continue
cutting until the economy is under control again. There is little
downside. Historically January rallies begin next Monday as fund
managers put retirement cash to work. This historical fact could
provide a bullish bias to Friday's trading considering our current
mostly oversold conditions. Traders still on the sidelines should
consider any dip on Friday as a buying opportunity.

Good Luck, Sell too soon!

Jim Brown
Editor


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

The Bull Is Back In Town(?)
By Austin Passamonte

Yesterday's sudden and some have said drastic rate-cut by the Fed
has traders looking that gift-horse right in the mouth. What
prompted such a sudden action? Are we about to receive extremely
bad economic news? Will the "soft" landing break only half the
bones in our body? Paranoid minds want to know.

Market Sentiment wonders what the problem is. Traders bid stock
prices to the moon in 1999 with no hope of making any profit, let
alone their whisper numbers soon. How bad could earnings news be
this year that would whack near-term performance in relation to
all those back in the bubble?

The answer is none, but everyone has now admitted the emperor is
naked. No longer will investors totally ignore earnings while
price action screams up a chart. That's why new market highs in
the tech sector will wait a long time before being challenged
once again.

Good news for bullish action is that the Fed has not forgotten us
after all. Disdain for short-term traders maybe, but they do care
about long-term investors despite recent behavior. Questions have
been raised about the timing of this cut, and frankly we were of
the many who did. How bad could the economy have looked yesterday
compared to a couple weeks ago with the SPX at 1250? Did clueless
Al consider the massive negative shift of wealth (or the lack
thereof) that would surely occur in the final weeks of December?

One week earlier could have saved a few billion dollars of tax-
loss selling. Three hours later could have saved shorts from
getting slain, bulls from being locked out of live action and
senseless volatility from occurring without reason. We wonder if
any market-makers filed complaints in protest?

We are convinced beyond shadow of doubt that the Fed harbors no
love for short-term traders. They seem to take every opportunity
to teach us a lesson on the danger and downside of speculation.
Thanks for the parental thought, but we have challenges enough
trying to deal with adverse conditions beyond anyone's control,
let alone those that can easily be prevented.

A session of consolidation was in order, especially in front of
our next vital report. Friday will either dissuade or confirm
suspicions of gravity for economic condition, and traders may be
ready to play in either direction accordingly.

Record volume on one massive up-session and one moderate pullback
set us up for a bullish follow through before long. We could see
massive amounts of cash flowing from the sidelines tomorrow, and
a break above recent highs with all markets positive past 10:00am
could be the green light traders have waited for.

The rate cut behind us and others soon to come have us shifted
into bullish territory, but we don't have all four hooves in the
pasture just yet. Let's see a bit more proof that all is well
before declaring the bears hibernating for a long, cold winter.
Friday will be one important step in that direction for sure!

*****

VIX
Thursday 01/04 close: 29.96

30-yr Bonds
Thursday 01/04 close: 5.46%

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.
                                    Thursday
                                 (01/04/2001)
  (Open Interest)       Calls        Puts          Ratio
S&P 100 Index (OEX)
Resistance:
740 - 725                9,528        2,082         4.58
720 - 705               11,488        3,815         3.01

OEX close: 700.92

Support:
695 - 680                5,437        7,865         1.45
675 - 660                3,372        8,151         2.42

Maximum calls: 720/5,682
Maximum puts : 640/5,437

Moving Averages
 10 DMA  684
 20 DMA  698
 50 DMA  714
200 DMA  768


NASDAQ 100 Index (NDX/QQQ)
Resistance:
 71 - 69                72,026        17,748         4.06
 68 - 66                93,637        11,189         8.37
 65 - 63                57,165        32,931         1.74

QQQ(NDX)close: 61.32

Support:

 60 - 58                56,308        49,624          .88
 57 - 55                26,817        24,124          .90
 54 - 52                 4,030        15,046         3.73

Maximum calls: 70/52,446
Maximum puts : 60/39,768

Moving Averages
 10 DMA 59
 20 DMA 63
 50 DMA 69
200 DMA 86


S&P 500 (SPX)
Resistance:
1400                   17,899         9,191          1.95
1375                   10,712        10,425          1.03
1350                   37,938        33,049          1.15

SPX close: 1333.29

Support:
1325                    6,028         6,613          1.10
1300                    6,394        15,335          2.40
1275                      401        12,761         31.82

Maximum calls: 1350/37,938
Maximum puts : 1350/33,049

Moving Averages
 10 DMA 1310
 20 DMA 1328
 50 DMA 1355
200 DMA 1431

*****

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/010401_1.asp


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

The 2001 Trading Plan
By Molly Evans

As promised, I have devised a business plan for a personal
guidance of trading in the New Year.  Out with the whimsical
plays, out with the impulsive and risky "can't miss on this one"
trades, and out with the "ahh I'll just give it one more day"
concessions.  If you hadn't read the introductory article to
business trading plan necessity - here is the link for your
quick review:

http://members.OptionInvestor.com/archive/traderscorner/121400_1.asp

I'll admit, this was more difficult than I thought it would
be.  Each trader's methods are highly individualized.  Each
trader's resources are highly personal.  This was NOT easy for
me to commit myself.  I don't like being told what to do even
when it's myself doing the telling!  These are rules and they're
not meant to be broken.  They're designed to keep myself out
of trouble but in doing so they take out much of the wild ride
potential.  The market isn't the place to be getting one's
kicks though.  I guess I'll just have to go spend a few days in
Vegas to get my wild side tended to.  I want and need to survive
the casinos here so I submit for your inspection, a business
trading plan.

I don't think that this will be the final version that I settle
upon for the year.  Rather, I believe this plan is going to be a
work in progress for the entire year.  I thought that I had spent
all of last year learning my own style.  Of course I did but it
becomes readily obvious that trading isn't something you just
pick up one day and become wildly successful on the next.  This
will be something a long time in evolving and aspects of this plan
are going to be shown to be too restrictive in some situations
and too lenient in others.  It is a start though.

In the previous article, I had asked a series of questions to
stimulate one's thought processes in considering all types of
situations in trading.  The market is so dynamic though!  What
worked last year, doesn't this year.  What worked last week
doesn't work this week!  The only constant variable is the self
and if we are honest, we will admit that even we are far from
static.  So, the best we can do is to ask the questions and
visualize ourselves in reaction to a scenario.  We must "see"
ourselves successfully orchestrating our trades and building our
own wealth.  We have to be able to fall back onto something
concrete, "this is how I handle this situation; it's in my
business plan because..."  The "because" may be a dictum out
of experience or out of a book's recommendation.  The key is to
have a conceived tactic and preparation for any and every
situation.

In devising this plan I did have a sort of revelation about my
personal trading: I try too hard.  I overanalyze.  I read
everything.  I try to conjure up every scenario towards
relationships: If this, then that; if that, then this.  This
causes me headaches and brain damage.  Trading is hard but jeez
Louise, it's not THAT hard.  I'm tired of being on the wrong side
of the trade because I've overanalyzed a situation and thought
that if it was "so obvious" I must be wrong and I then go for the
opposite side of what I thought in the first place.  Seriously!
I've DONE that!  No more though!  I'm sticking to the plan and
charts.  If it's overbought, AND the bias is down, I'm buying
puts.  If it's oversold and unloved but fundamentally "ok" - I'm
buying it.  Example - and I'm probably going to look like a
hypocrite here:  I wrote the wrap for Index Skybox site last night.
In that missive, I showed two charts of the Healthcare Index and
the Pharmaceutical Index.  The two were being crushed by the
rotation out of defensive stocks and into sexies.  It's true what
they say, they come down a lot faster than they go up.







And - well, now I see they're already oversold - at least on the
60-minute charts - so I put in a low ball order for ONE March
contract (those babies are expensive) and what do you know?  I
got filled near the lows of the day.  In fact, right now I'm green
on both of them and they haven't even begun to bounce.  Might they
go down further?  You betcha.  And I'll step into my other half of
it if it does go appreciably further.  I may end up being the
biggest fool that ever was but seriously, I think these are
high-odds plays and I'm willing to take the chance in this
uncertain market environment.  Healthcare and drug stocks are
defensive plays and once this rate hike news becomes a yawn, we
might just see some renewed interest there again.  Oh, I should
add that the MRK puts I had were a double on their way down.  Yes!
How about that?  We CAN play both ways!

A Trader's Business Plan
For 2001

Markets to Trade:

Lean more towards:

The S & P
The OEX                    > options
The Nasdaq Q's

Individual Equities or sector indices may be entered upon a very
convincing entry setup originated by fundamental and technical
indications.

May enter equities for scalps when the technical indicators are
conducive to either shorting or going long.  These are very short
term trades and thus should be out of these by the end of the
day.  If there is a compelling reason to stay long or short, then
exit the stock and enter the options for a longer-term play.

Position Size:

$3000 - $6000 on options positions

For equity scalps --- 100 - 500 shares depending on the stock
price.  This is for days that the market is range bound.

100 - 150  shares for stocks over $200/share
200 shares for stocks over $125 - $150
300 shares for stocks $75 - $100
400 shares for stocks $60 - $75
500 shares for stocks $50 - $60
600 - 800 shares for stocks $30 - $50
1000 shares for stocks $15 - $30

May not go over $30,000 into one equity on a scalp.  May go
under but not over.

Capital:

Building through profits.  No paycheck until there is $500K
in the account.  At that point may take out $50K (10%) to live
on.  NO $ to be added to these accounts.

At the $1M mark - go out and buy that Jaguar S - write a check
and take another $50K to live on.

Order Entry:

Limit orders only.  NO chasing whether on options or on scalp
trades.

For the options order - put on half or 1/3 of the desired
position at a reasonable oversold or overbought point - whether
it be on the daily, 60 or 30-minute chart, should be at least two
of the three lining up.  If it goes more oversold or overbought
within the entry window - (daily, 60, 30 - reevaluate the play
and put on the other half or third of the position or exit.)  If
the play is immediately profitable, reevaluate it within the time
frame that it was entered --- 30 minute chart = reevaluate at
30 minutes - 60 - daily = same.  If the play is still viable -
initiate the other half / thirds of the position or exit, taking
the profit.

Get SMALLER!!  Reduce Risk!  Reduce Exposure!

Loss Management:

When the bid is at 30% loss of my entry on the entire option
position, AND the chart has turned out of the oversold/overbought
condition, must exit.  Can always get back in but need to get out,
re-evaluate the play and determine the better entry points and
profit potential.

If a position is at a loss by end of the third day - exit.

Scalp losses - need to be very careful here.  Have a reason for
the entry! The stock is on a support/resistance level and showing
strength or weakness or is perhaps in a full-blown breakout or
breakdown.  This is where can get killed with multiple small
losses and no winners.  If the stock doesn't do what you thought
it was going to do immediately get out immediately.  If traded on
the five-minute chart and it turns the trend within that five
minutes, exit.  If the candle on entry is superseded to my
detriment in the next candle - out.

To let winners run, take off half the position when get a 50%
gain, let the house money run.

If have multiple positions open - and taking profits on a winner,
consider taking off an equal amount of a losing position.

Drawdowns to less than $3000 / day.  You hit this - you're done -
get out for the day.

Shutdown Rules:

Shut down for 2 weeks if have two losing weeks in a row.  You're
out of sync, need some fresh air and quiet reflective time.

Reflection and Evaluation:

Each day discussed in journal - no matter how brief - grade on
trades.

Personal Attributes - Strengths/Weaknesses

Strength = Risk tolerance - high pain threshold.  Weakness =
Impatience.  The strength of the risk tolerance allows me to not
get shaken out so easily.  I can be a strong long or short.   To
be so requires that I have very good money and risk management.
To maximize this strength - must overcome the weakness of
impatience.  I have to develop the patience to WAIT for the
proper time to instigate the trade.  Then, must have the patience
when the trade is working for me not to give it up too soon.

Strength = Contrarian  Weakness = Contrarian.
Again, patience will be rewarded.  Entry points don't come
everyday - they might come once in a week.  Be watching - ready
to pounce only when the technicals indicate siding with the play
I see.

Strength - unconventional -  Weakness = too big of a risk taker
Simply can't do it.  Must cut myself off at predetermined levels.
Rome wasn't built in a day and you've got to be here to trade
another day.  Don't risk it all on a couple plays.  PERIOD.

Environment:

If start to trade futures, going to have to have a better quote
service.

Market Preparation:

Each day, plan for what to watch, which markets, which levels
constitute entry/exit

Label bias and expectations for the day - how it will go - note
the degree that it does or doesn't and the newsworthy items that
caused it to do so or to go against.

This Plan is a WORK IN PROGRESS, needs revision, needs tweaking,
needs re-evaluation and is a binding contract.

MKE


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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:
*****

SEPR $73.06 -3.00 (-3.31) While Sepracor held up well on
Wednesday, the Federal Reserve's surprise decision to cut
interest rates changed the sector favorites around almost
instantaneously.  Health care stocks, particularly the major
pharmaceuticals, are losing ground to technology, telecom and
financials, and the biotech index is suffering along with
health care.  Sepracor has closed below our stop level of $74,
thus we are dropping it tonight and moving on to plays which are
likely to benefit directly from the interest rate cuts.

ASFC $51.38 -0.88 (-2.94) Shares of Astoria Financial have had
a great run since last October and now appear to be in need of a
breather.  Since we initiated coverage on the financial play, the
stock ran up to the $55 level but was unable to advance above that
resistance area.  It appears ASFC now may be due for some
consolidation and we are dropping coverage on the play in search
of better opportunities in the financial space.  Use any strength
early tomorrow morning to exit existing positions.

CTAS $49.75 -0.31 (-3.44) After tracing a new all-time high last
week, shares of Cintas have pulled back into consolidation mode
so far this week.  In the process of pulling back, CTAS fell below
our protective stop at the $50 level this morning and have forced
us to drop coverage on the play.  Look for a pop above the $50
level early tomorrow morning and exit any existing positions on
strength.

RJR $45.69 -2.56 (-3.06) Following the surprise cut in interest
rates yesterday, shares of the defensive RJR sold off as the
growth areas of the market rallied on the positive Fed news.
We liked the fact that RJR held above its 10-dma yesterday, but
unfortunately that 10-day gave way to more selling today.  The
posturing by big fund managers back into the growth areas of the
market is leaving RJR to the bears and we're dropping coverage
this evening before the selling gets worse.  Use any short
covering or relief rally tomorrow to exit any open call
positions.

SLC $22.75 -1.69 (-3.88) Over the past two sessions of trading,
SLC fell victim to the vicious profit takers.  The stock has
had a very bullish run since early fall, perhaps predicting
the Fed's actions yesterday.  But since the cut in rates
yesterday, SLC has continued to drop.  The stock sold-off in
today's session all the way down to the 50-dma on very heavy
volume.  En route to finding its way to the 50-dma, SLC
violated our protective stop at $23.50, and because of that
slide, we're dropping coverage tonight.  Use a bounce off the
50-dma around $22.50 to exit any open positions.

WFC $52.00 -1.13 (-3.69) Over the last two days, shares of Wells
Fargo have received two consecutive downgrades.  Yesterday,
Sanford Bernstein downgraded WFC on a "valuation basis."  And
this morning, Prudential downgraded WFC for the same reason -
its valuation.  We don't like these valuation-based downgrades
of WFC, especially in light of the friendlier interest
environment ahead.  We still like WFC over the next three to
six months in light of the lower interest rates ahead, but in
the near-term we don't like the technical damage done from the
downgrades.  Use any relief rally early Friday morning to
exit open call positions.

RE $62.25 -6.31 (-9.38) The insurance sector has been a place
of profits over the last six months and now looks like it may
need time to consolidate.  Over the last six months, shares of
RE have followed its sector's trend and have risen steadily.
However, over the past four trading sessions, it appears
traders have been locking in profits earned over the last six
months and causing RE to sell-off dramatically.  The stock
fell below our protective stop during today's session and we
are saying goodbye to RE this evening.  Use any bounce off the
50-dma at $62 to exit existing positions.


PUTS:
*****

SNDK $31.00 +0.56 (+3.25) Most technology stocks benefited from
the surprise interest rate reduction yesterday, and SNDK was
among them, posting a nearly 25% intraday gain.  The bulls
failed to take out our $31 stop though, so we let it ride one
more day.  Today saw more gains, and although it gave most of
them back, the stock ended right on the $31 level, prompting us
to follow our discipline and eject it from the playlist.  The
stock still looks weak, but the action over the past two days
has weakened the downtrend.  With plenty of better plays out
there, we'll chase them instead of waiting for SNDK to give
us an entry.


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The Option Investor Newsletter                 Thursday 01-04-2001
Copyright 2001, All rights reserved.                        2 of 2
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********************
PLAY UPDATES - CALLS
********************

NOK $44.25 -.44 (+3.31) Like most tech stocks that made large
percentage gains yesterday, Nokia consolidated today, after
trading as high as $45.63.  Strong support was found at the
converged 200 and 50-dmas of $43.53 when the Nasdaq dropped to its
lowest point of the day.  According to a CSFB report, the
spending on wireless infrastructure will continue at a pace of
20-30% annually, even in an economic slowdown, and Nokia is one
of the top five leading vendors positioned to benefit from this.
Nokia has taken a leading share in the major technology standards
GSM, CDMA and TDMA.  Subscriber growth continues to demand
Capacity upgrades just to handle voice, and carriers continue to
invest in new spectrum.  We want to see resistance at $44.56 and
$45 broken, which could be a potential entry point.  After this,
the next resistance level is $50, and Nokia appears well
positioned to reach this level.  Continue to monitor the
wireless equipment sector, and set stops at $40.

MER $73.31 -0.18 (+5.44) In adding this call play yesterday, we
mentioned that a pullback was likely, after Wednesday's rally of
$7.69 or almost 12 percent on over twice the ADV.  Today, we got
just that, as the stock found horizontal support at $72.25.
While MER did attempt to rally, resistance at $75 was strong,
with sellers outnumbering buyers at that level.  At the end of
the day, MER closed pretty much unchanged, down fractionally on
volume of once again, over twice the ADV.  Despite today's pause,
the 5-dma, at $69.80 still needs to catch up with the stock
price, as does the 10-dma at $67.09.  Patience is the name of the
game in entering this play.  An entry on a pullback is still
likely, with support at $72.25, $70, and the 5-dma as possible
targets, but confirm a bounce with strong buying volume.  For an
entry on strength, wait for a break through $75 with conviction
before taking a position, correlating entries with direction in
peers GS and LEH.  As a note, we are maintaining our protective
stop at the $68 level.

COST  $43.63 +0.94 (+3.63)  Right on target, Costco burst out
of its trap of $38.38 last week, and hasn't looked back since,
except for a brief pause at $39.30 on Tuesday.  The Fed's
surprise interest rate cut stimulated buying interest in Costco,
and the stock is now strongly positioned above previous heavy
resistance at $40.  Today's volume was more than triple the daily
average, and Costco is now well situated to break the next
resistance level at $45.  Profit taking will likely follow,
and positions can be taken on bounces off support at $42.50,
$42.00, and the 5 dma of $41.14.  A sharp pullback to the
10-dma of $38.64 is possible, but not likely at this point.
Continue to monitor the retail sector index (RLX.X) for strength
and to set stops at $35.

ONE $39.81 +0.25 (+3.19) As expected, the strength of the
Financial rally yesterday was insufficient to produce a
sustained rally in ONE without some consolidation.  Statistics
always wins in the long run, and the stock needed to pull back
from the upper Bollinger band before continuing the rally that
began 3 weeks ago.  After surging as high as $41.56 this
morning, profit taking hit hard, dragging the stock almost
down to $39 before some late day buying boosted the price for
a fractional gain at the close.  Volume today came in at a
whopping 13 million shares (more than 3.5 times the ADV),
lending credence to the theory that this move has legs.  Just
beware that further profit taking is possible whenever the
price extends too far into the upper Bollinger band (currently
$39.69).  Given that reality, the most prudent course for new
entries is to buy the intraday dips, but ONLY after the bounce
is confirmed by strong buying volume.  We would look for support
to hold near $36-37 on any profit taking, and have placed our
stop at $35 to protect against any unforeseen events.  A bounce
near this level would make for a great entry as ONE gets set to
rally into its earnings announcement.  That's right, the company
is set to release its quarterly numbers on January 17th before
the opening bell, giving us just 2 weeks in which to play.

SBC $51.75 +0.75 (+4.00) The Telecoms really kicked into rally
mode earlier this week and got an additional kick from the
positive change to the interest rate environment in yesterday's
session.  For its part SBC has largely ignored the wild swings
seen in many Technology names.  Its investors seem more content
to string together consistent profits, and the tally so far this
week sits at better than an 8% gain.  Volume is running
significantly over the ADV, as the bulls attempt to take out the
$52-53 resistance level.  In the improving interest rate
environment, it seems investors have forgotten the company's
earnings warning in mid-December, and have begun to focus on
conciliatory analyst comments to the effect that the current
shortfall is an aberration that will work itself out in the next
couple quarters.  Conservative traders will want to wait for a
sustained move through the $53 level before opening new plays.
For the less risk-averse, consider initiating new positions on a
bounce from support in the $49-50 area.  This is just above our
$47 stop, and should provide a good entry for the next leg of
the rally.


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

FRX $114.63 -6.88 (-18.25) When we started this put play
yesterday, we noted that the stock was perched precipitously
above its 100-dma, after closing down $6.69 or 5.22 percent on
over twice the ADV in the face of an up market.  Today the
selling continued, as the stock fell through it's 100-dma and key
support level of $120 in the early going and from there, spent
the rest of the day heading deeper into negative territory to
close down 5.66 percent on over twice the ADV.  Overhead
resistance now abounds, at $115, $118 and $120.  Look for failed
rallies at these levels as aggressive targets to shoot for.  In
order to protect an already profitable play, we are moving our
stop price down, from $130 to $120.  Make sure that FRX closes
below this level as a close above could signal a halt in downward
momentum.  For an entry on weakness, look for a break below
today's low of $113 on volume as a signal to jump in, confirming
direction with Merrill Lynch's Pharmaceutical HOLDR.

P $54.88 -0.69 (-2.00) Our put play in Phillips got some help
yesterday, as a downgrade from Prudential Securities, from a
Strong Buy to a Hold rating resulted in a negative close for the
stock despite an up market, closing down $1.50 or 2.63 percent on
112% of ADV.  In doing so, the stock closed below its 10-dma
(currently sitting at $55.78), which should now act as resistance
going forward.  Today was a volatile day for shares of Phillips
as the stock gapped down at the open and from there, sold off buy
finding support at $53.  Helped by the possibility of higher oil
prices in the near term, Phillips rallied into the close but for
the day, closed down 1.25 percent on stronger than average
volume.  Look for failed rallies off resistance at the 5-dma
($56.51) and the 10-dma as well as our stop price, moved down
from $59 to $57, as possible opportunities for entry.  For the
more risk averse, wait for a break below $54.50 on volume, making
sure that rivals TX and XOM and heading lower before jumping in
but be aware of support at $53.

CELG $25.31 -4.69 (-7.19) The problems at CELG are not going to
be fixed with a reduction in interest rates, and that became
clear this morning, as investors continued to sell the Biotech
issue.  The $30 support level finally gave way under the bears'
onslaught, and with the heavy selling volume (more than double
the ADV again), it didn't take long before the $24-25 support
level was being tested.  While the stock did manage a slight
bounce, the stock closed very near the low of the day, posting
more than a 15% loss.  So what should we expect tomorrow?
Continue watching the Biotech Index (BTK.X), as it was weak
again today.  CELG has been under performing the sector of late,
so as long as the Biotechs are weak, expect more selling of CELG
to follow.  We are looking for the bears to take another run at
the current support level, as they set their sights on the $21
level followed by $19.  A continuation of the downward trend is
entirely possible, with the lower Bollinger band currently
positioned below $18.  A drop below today's low of $24.50 can be
used for opening new positions, but be on the lookout for profit
taking by the shorts.  Waiting for a failed rally near $30 may
be the better course of action.  Our stop is still sitting at
$35, right at the next resistance level.  It looks unlikely that
the bulls will be able to challenge this level in the near term,
and as long as the selling continues, look for our stop to
ratchet lower this weekend.

TQNT $46.38 -1.31 (+2.69) Yesterday's short-covering rally in
TQNT ran into a brick wall, right at the $49 resistance level
(also the location of our stop) and the bulls didn't have any
better luck scaling that level today.  Even yesterday's Buy
rating from Wit SoundView didn't have any staying power today,
as the markets needed time to digest their record gains.
Technology sectors like the Semiconductors had a hard time
holding onto their gains, and the current lack of upside
pressure could be setting us up for a great entry point on our
play.  Although the consolidation could continue into the
weekend, TQNT is still susceptible to a selloff, whether news
or economic related.  Aggressive traders will want to initiate
new positions as the stock rolls over from current levels on
increasing selling volume, while more conservative players will
want to wait for the $45 level to fall victim to the bears
again.  The 10-dma, 30-dma, and 200-dma are all clustered
between $43-44.50, and once the selling breaches this level,
look for another drop to the ascending trendline near $39 as
the next major level of support.  As always, confirm market
(NASDAQ) and Sector (SOX.X) direction before playing.


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

AGGRESSIVE:

VZ - Verizon Communications Inc $54.69 +1.56 (+4.44 this week)

Verizon Communications is the largest wireless-telephone company
in the US; although they have operations worldwide.  They
provide wireline voice and data services, wireless services,
Internet services, and published directory information.  In
addition, the company provides network services such as business
phone lines, data services, telecommunications equipment, and
payphones for the federal government.

In a rate-cut rally, Verizon (VZ), AT&T (T) and Vodaphone (VOD)
rang in the New Year with merriment.  And more specifically,
Verizon Wireless, the venture company of Verizon Communications
and Vodaphone, announced today it added more than 1.2 mln
customers in the 4Q, representing a 6% increase from the same
period a year ago.  For the year 2000, the wireless entity had
16% more users than the year before for a grand total of 27.5
mln customers.  This good news gave VZ the competitive edge
in the marketplace.  The issue saw a conclusive break through
the $50 level with a $2.88, or 5.7% move in yesterday's historic
run up.  The high-volume gains extended into today's session,
which is where we start our coverage on VZ.  Near-term support
is firming at $53 and $54, a strong technical development at the
converged 30 and 50 DMAs.  Strong bounces off these levels offer
reasonable entries into this sector play.  More aggressive
entries might be found lower at previous support ($50) or at our
$51 exit point on deep pullbacks.  Whatever your strategy, look
for high-volume to sustain the momentum over the shorter-term.
The upcoming earnings' release may also offer some trading
excitement over the next few weeks.  Verizon is confirmed to
report on February 1st, BEFORE the market.  Keep stops tight
while the markets digest the recent economic events.

BUY CALL JAN-50 VZ-AJ OI=10387 at $5.13 SL=3.00
BUY CALL JAN-55*VZ-AK OI= 9003 at $1.75 SL=0.75
BUY CALL JAN-60 VZ-AL OI= 7716 at $0.38 SL=0.00
BUY CALL FEB-55 VZ-BK OI=  521 at $3.25 SL=1.50
BUY CALL FEB-60 VZ-BL OI=  378 at $1.25 SL=0.00

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


CIEN - CIENA Corporation $82.44 -2.50 (+1.19 this week)

Helping to satisfy our insatiable demand for bandwidth, CIEN
makes dense-wavelength division multiplexing (DWDM) systems for
use with long-distance fiber-optic communications networks.
CIEN offers optical transport, intelligent switching and multi-
service delivery systems that enable service providers to
deliver and manage high-bandwidth services to their customers.
The company's MultiWave DWDM systems allow optical fiber to
carry up to 40 times more data and voice information without
requiring more lines.  CIEN's customers include long-distance
carrier, competitive local exchange carriers (CLECs), Internet
service providers and wholesale carriers.

If you love volatility, then the Optical stocks are the place
for you.  As the sector has undergone valuation compression over
recent months, the price swings have been violent, providing
lots of profit opportunity for aggressive traders.  Make no
mistake, this sector and our new play on CIEN are for high risk
players, and stop losses are a must.  With that being said,
let's look at the chart.  CIEN has been caught in a persistent
downtrend since late October, but it looks like the tide is
finally turning, thanks in no small measure to Uncle Alan
finally giving us the drop in interest rates we have been
waiting for.  Yesterday's low, if it holds, represents the
first higher low for the stock since NT cratered the entire
sector in late October with their earnings report.  After
soaring as much as $23 (37%) from its intraday low yesterday,
it would have been surprising to see the rally continue unabated
today.  So it was actually reassuring to see the stock stop to
catch its breath, but not sell off sharply.  With the change in
investor sentiment created by yesterday's Fed move, we are
looking for CIEN to break out of its downtrend, and clear its
3-month descending trendline in the $89-90 area.  This is also
the site of significant historical resistance (prior support),
but first the bulls have to clear the 200-dma ($85.38), which
has proved a tough nut to crack in recent weeks.  Consider
target shooting intraday dips in the vicinity of support near
$80, or even $76-77, but don't get carried away.  Our stop is
sitting at $75, and a violation of this level will call into
question the validity of our play.  A more conservative approach
will be to wait for CIEN to break above the 200-dma before
committing cash to the play.  Of course, we need to see any
positive move confirmed by the Networking sector, so watch the
NWX.X for a gauge of market direction.

BUY CALL JAN-80 UEE-AP OI=3248 at $10.13 SL= 7.00
BUY CALL JAN-85*UEE-AQ OI=2644 at $ 7.88 SL= 5.75
BUY CALL JAN-90 UEE-AR OI=3324 at $ 6.00 SL= 4.00
BUY CALL FEB-85 UEE-BQ OI= 485 at $13.75 SL=10.25
BUY CALL FEB-90 UEE-BR OI= 751 at $11.63 SL= 8.75
BUY CALL FEB-95 UEE-BS OI= 331 at $ 9.75 SL= 6.75

SELL PUT JAN-70 UEE-MN OI=2980 at $ 3.25 SL= 5.25
(See risks of selling puts in play legend)

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


LOW VOLATILITY:

ACF - Americredit - $29.19 +1.19 (+1.82 this week)

Americredit is the largest independent middle market automobile
finance company in North America specializing in purchasing and
servicing automobile loans.  Americredit specializes in extending
credit to customers who are unable to obtain financing from
traditional sources.  Americredit purchases loans made by
franchised and select independent auto dealers through their
extensive North American branch network, as well as through
strategic alliances with select auto groups and banks.

This is a play on a low volatility, high growth stock in the
specialty finance sector, which is likely to benefit quickly
and directly from the Federal Reserve's past and future interest
rate cuts.  Americredit's propensity toward slow gradual moves
gives a low implied volatility to its call options, a plus for
call option buyers.  The key issue is that the Fed's rate cuts
will lower spreads on corporate borrowing, and stimulate
higher business volume for consumer finance companies.  This
cycle of easing is different from previous cycles in that it
has occurred before any significant evidence of consumer credit
deterioration has showed up.  A lower cost of funds works its
way very quickly into these companies' earnings.  The auto
finance sector stands to benefit because lower market rates
improve the affordability of cars, and stimulate buying.
While Americredit, and the other specialty finance stocks rallied
on the anticipation of rate cuts, the Fed's action spurred heavy
buying, as today's volume was double the average daily volume
of 500,000 shares.  Americredit is now solidly above the 200-dma
of $22.00, and the 50-dma of $25.00.  Today's close above heavy
resistance at $29 is a bullish indicator, and traders can take
positions at current levels, or at a breakout over $30.  As an
alternative, consider waiting for a possible pullback to support
at $28.50, or the 5-dma of $27.90.  Watch others in the sector
like PVN, and COF for strength, and set stops at $27.

BUY CALL JAN-25 ACF-AE OI=1675 at $4.75 SL=3.00
BUY CALL JAN-30*ACF-AF OI= 389 at $1.56 SL=0.75
BUY CALL FEB-25 ACF-BE OI= 701 at $5.38 SL=3.50
BUY CALL FEB-30 ACF-BF OI=1785 at $2.38 SL=1.50

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


ASD - American Standard Cos Inc $51.25 +2.63 (+1.94 this week)

American Standard is a leading maker of air-conditioning
systems, plumbing products, and automotive braking systems. Its
air-conditioning unit accounts for 60% of company sales, with
plumbing fixtures trailing at 25%.  The automotive braking
systems are sold through its WABCO subsidiary to OEM's such as
DaimlerChrysler and Volvo.

Most people are familiar with the American Standard name - it's
stamped on many toilets across the globe!  But let's not dwell
on that branding.  During 2000, ASD saw a very respectable 7.5%
increase in its share price and is currently poised to rise over
the short-term.  On December 28th, the company announced
"operational consolidation and streamlining actions" to improve
overall productivity and enhance efficiency.  In other words,
1200 job cuts across the board.  The reduction will effect all
three business units and involve closing the Hamilton Township,
New Jersey plant in a plan to cut $50 mln in expenses.  Overall,
the actions will result in a pre-tax charge of approximately $82
mln in the 4Q 2000.  You'd think this would scare off investors,
but to the contrary.  ASD has seen significant advances since
the announcement.  The trump card is simply that the charge will
be fully offset by a gain from the recently announced sale of
its Calorex water heater business; and thus, the bottom-line is
secure.  Today's strong break through the $49 resistance and the
$50 all-time high compelled us to take a closer look.  The
steadfast trendline and recent gains offer the more risk-adverse
trader a good opportunity to lock in profits.  Currently, the
$48 mark at the 5-dma technical line is considered the more
aggressive level to take positions in an advancing marketplace.
But keep in mind, this $48 level also represents our exit point
if ASD were to close down.  A less risky prospect might be to
buy into strength as ASD continues to rally above the $50 mark.
ASD's bullish close on the new 52-week high ($51.25) promotes a
promising outlook going forward - and what a nice touch to a
great day in the markets!

BUY CALL JAN-45 ASD-AI OI= 92 at $6.63 SL=4.50
BUY CALL JAN-50*ASD-AJ OI=109 at $2.56 SL=1.25
BUY CALL FEB-45 ASD-BI OI=  0 at $7.25 SL=5.00  Wait for OI!
BUY CALL FEB-50 ASD-BJ OI=  4 at $3.75 SL=2.00

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


PSUN - Pacific Sunwear of CA $28.06 +2.25 (+2.44 this week)

Pacific Sunwear provides fashion wear for the skaters, surfers
and snow bunnies.  The specialty retailer offers hip-hop type
threads and accessories for the more trendy young men and women
of the world.  Their stores feature clothing by JNCO, Mudd,
Billabong, Rusty, and Stussy, as well as footwear by Vans and
Skechers.  PacSun and d.e.m.o. also sells its own private-label
merchandise in its 560 mall-based stores in 48 states and Puerto
Rico.

The historical rally and company-specific internals launched
this specialty retailer into new territory.  PSUN reported
record sales of $99.5 mln for the 5-week holiday season, a 32.9%
increase over sales of $74.9 mln for the comparable period ended
January 2nd, 2000.  The same-store sales numbers also increased
5.7% overall with PacSun sales up 5.3% and d.e.m.o. sales up
10.8%.  Basically, Pacific Sunwear's business is booming and
investors see the long-term profit opportunities.  Over the
shorter-term PSUN, is likely to see gains as the broad-based
rally entices investors to take additional positions.  On the
analyst front, First Security Van Kasper recently initiated new
Buy coverage and a bullish price target of $38 going forward.
We're anticipating steady gains as the market relishes in the
rate-cuts and a less dismal economic future.  If you can afford
a more aggressive entry into the momentum, an intraday dip to
the 5-dma ($25.68) or previous resistance at $26 might be viable
entries if there's volume on the bounce.  Otherwise, consider
taking entries as PSUN moves the $28 level.  We'll exit on a
close below $25.  The company's earnings aren't expected until
late February, so don't anticipate an announcement to incite a
run up.  This low-volatility play is based purely on sector
strength and the stock's own technical merits.

BUY CALL JAN-20 PVQ-AD OI= 10 at $8.38 SL=6.00
BUY CALL JAN-25*PVQ-AE OI= 72 at $4.00 SL=2.50
BUY CALL JAN-30 PVQ-AF OI= 40 at $1.38 SL=0.00
BUY CALL FEB-25 PVQ-BE OI=404 at $5.50 SL=3.50
BUY CALL FEB-30 PVQ-BF OI=  0 at $2.88 SL=1.50  Wait for OI!

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


CAT - Caterpillar Inc $48.69 +2.19 (+1.38 this week)

Caterpillar designs, manufactures, and markets construction,
mining, agricultural, and forestry machinery.  The company
operates in three principal business segments: Machinery,
Engines and Financial Products.  They distribute their products
through a worldwide organization of dealers under the names
Caterpillar, Cat, Solar, Barber-Greene, MaK, Perkins, F.G.
Wilson and Olympian.

The stunning rate-cut yesterday enticed investors to jump into
the capital goods industry.  CAT and DE were obvious choices in
light of their blue-chip reputation amongst the old economy
stocks.  CAT saw a whopping 3+ point jump off intraday lows on
the Fed announcement yesterday.  The mid-day move to the upside
returned CAT to a respectable position, in-line with the 10-dma
($46.61).  Investor enthusiasm continued drive the share price
higher today with another $2.19, or 4.7% advance.  The issue
demonstrated strength at the $48 level throughout the trading
session and now, $49.63 represents immediate resistance.  In
light of the stocks general lack of volatility, the more
conservative option traders might consider taking entry into
this play amid an advancing market.  Strong upside moves off the
$48 level offer practical entries if CAT can generate enough
momentum to break through the $50 level first.  Another possible
strategy is to enter on pullback near the 10-dma line; but take
note that this is much more risky.  OIN will exit the play on a
close below the $46 mark.  There is good news on the horizon.
The US and Yugoslav governments are renewing economic ties,
which could bring $1 bln into US private investment and offer
new opportunities for US companies as Caterpillar and General
Electric (GE).  Closer to the home front and our trading time-
frame, CAT's earnings are quickly approaching.  The company is
confirmed to report in just a couple weeks on January 18th,
BEFORE the opening bell.  This event and today's Buy reiteration
from Bear, Stearns & Co should help send shares of CAT higher
over the short-term.  The brokerage firm also issued a $55
target price, a mere fraction from the stock's 52-week high of
$55.13, established in January 2000.

BUY CALL JAN-40 CAT-AH OI=2916 at $9.00 SL=6.25
BUY CALL JAN-45 CAT-AI OI=2782 at $4.25 SL=2.50
BUY CALL JAN-50*CAT-AJ OI=1631 at $1.06 SL=0.00
BUY CALL JAN-55 CAT-AK OI=1033 at $0.19 SL=0.00  High Risk!
BUY CALL FEB-45 CAT-BI OI= 958 at $5.00 SL=3.00
BUY CALL FEB-50 CAT-BJ OI= 213 at $2.25 SL=1.00

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


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

AGGRESSIVE:

ARTG - Art Technology Group $17.94 -6.06 (-12.63 this week)

Art Technology Group offers an integrated suite of Internet
customer relationship management and e-commerce software
applications, as well as related application development,
integration and support services.  The Company's solution
enables businesses to understand, manage and build online
customer relationships and to market, sell and support products
and services over the Internet more effectively.  About 40% of
sales are derived from Web site design, consulting, and other
support services.  Global clientele include Forbes and General
Motors.

Once the darling of the High-Tech world, the B2B sector has
languished in a pronounced downtrend since their highs in the
summer of 2000.  The B2B space has always been a controversial
and volatile one, a battleground between hope and doubt about the
future, as earnings were factored in and out faster than one
could say "eCommerce."  The bull argument was that as businesses
both old and new ventured online, they would need the help of B2B
companies for management software, to create marketplaces and to
act as transactional intermediaries.  With three potentially
lucrative revenue streams, shares of B2B stocks were bid up
enthusiastically as the sector became the shining star of the
dotcom industry.  But as time progressed, competition in the
software industry became more fierce, companies found that they
could create their own marketplaces, and they did not need an
electronic middleman to conduct transactions online.  With this
in mind, sentiment clearly shifted in favor of the bears.  Now
over 85 percent off its all-time high, shares of second-tier
player ARTG continues to slide deeper into negative territory on
accelerating volume.  Recently, the company was forced to
withdraw a 4 million-share secondary offering, citing market
conditions.  With the stock at current levels, it appears that
fundraising efforts for ARTG will be difficult at best.  While
already a low-priced stock, if the share price of peers such as
ICGE and VERT are any indication, then even a deep in the money
put could become highly profitable.  A failed rally off
resistance at $19, $20 and our stop price at $21 could offer
aggressive targets to shoot for while a break below today's low
of $17.56 on volume could allow for an entry on weakness.  Make
sure that market sentiment is on your side, using Merrill Lynch's
B2B HOLDR (BHH), when initiating a play.

BUY PUT JAN-30 AYQ-MF OI=46 at $13.50 SL=10.00
BUY PUT JAN-25*AYQ-ME OI=57 at $ 8.38 SL= 6.00

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


UNH - UnitedHealth Group Inc. $53.19 -4.00 (-8.19 this week)

UnitedHealthcare designs and operates health benefits systems
with commercial, Medicare and Medicaid products.  Today, the
company serves approximately 8.6 million individual consumers as
members of its health service systems.  On behalf of these
members, the company arranges access to care with more than
340,000 physicians and 3,500 hospitals across 44 U.S. markets and
several international markets.  UnitedHealthcare helps members
achieve improved health and well-being by designing innovative,
people-oriented health benefit plans and services that value
individual choice and control in accessing health care.

While it's been said that nothing goes straight up, shares of UNH
came as close to that as a stock could go, gaining over 330
percent in the year 2000.  But now, it appears that the very
factors which helped UNH to rise this past year are in the
process of reversing, turning the stock's momentum from positive
to negative.  UNH and other Healthcare stocks served as an
antidote to traders of ailing Tech stocks last year.  With a
tightening Fed and what was deemed an overvalued NASDAQ,
investors focused on the Healthcare sector, driving up UNH and
its peers.  So strong was UNH's upward momentum that dips to the
50-dma were few and far in between, serving as Holy Grail entry
points.  But now, with an easing Fed and a much less richly
valued NASDAQ, extended profit-taking has resulted in the stock
closing below its 50-dma (now at $57.40) for the first time in
half a year.  Today, the selling continued as news of lowered
growth estimates going forward are in the process of being
factored into the stock price.  With it's long-term uptrend line
now definitively broken, UNH is now perched perilously above its
100-dma at $52.95.  A break below this level on volume could
allow conservative players to take a position, with its last line
of moving average support from the 200-dma, way down at $45.  For
higher-risk players looking to enter on failed rally, resistance
overhead can be found at $55, $57, the 50-dma, and our stop price
at $60.  In making a play, keep an eye on peers AET and CI to
gauge sector sentiment.

BUY PUT JAN-60 UNH-ML OI=3391 at $7.50 SL=5.25
BUY PUT JAN-55*UNH-MK OI= 983 at $3.63 SL=1.75
BUY PUT JAN-50 UNH-MJ OI=2416 at $1.25 SL=0.00

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


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

ONE - Bank One $39.81 +0.25 (+3.19 this week)

Headquartered in Chicago, Illinois, Bank One is the #4 bank in
the U.S., (after Bank of America, Chase Manhattan, and
Citigroup).  ONE operates some 1800 banking offices in 14
mostly Midwestern and Wouthwestern states, providing domestic
retail banking, finance and credit card services.  Its other
business activities, which span the U.S. and more than 10
other countries, include commercial, corporate, and
institutional banking, as well as loan and leasing services,
and investment, brokerage, and insurance services.

Most Recent Write-Up

As expected, the strength of the Financial rally yesterday was
insufficient to produce a sustained rally in ONE without some
consolidation.  Statistics always wins in the long run, and the
stock needed to pull back from the upper Bollinger band before
continuing the rally that began 3 weeks ago.  After surging as
high as $41.56 this morning, profit taking hit hard, dragging the
stock almost down to $39 before some late day buying boosted the
price for a fractional gain at the close.  Volume today came in
at a whopping 13 million shares (more than 3.5 times the ADV),
lending credence to the theory that this move has legs.  Just
beware that further profit taking is possible whenever the
price extends too far into the upper Bollinger band (currently
$39.69).  Given that reality, the most prudent course for new
entries is to buy the intraday dips, but ONLY after the bounce
is confirmed by strong buying volume.  We would look for support
to hold near $36-37 on any profit taking, and have placed our
stop at $35 to protect against any unforeseen events.  A bounce
near this level would make for a great entry as ONE gets set to
rally into its earnings announcement.  That's right, the company
is set to release its quarterly numbers on January 17th before
the opening bell, giving us just 2 weeks in which to play.

Comments

ONE held strong today as the broader markets closed lower on
profit-taking.  Consolidation was to be expected after Wednesday's
rally.  Today, ONE challenged $41.50 and rolled over.  A break of
this level would certainly attract buyers and present an entry.
An ideal entry would come on a pullback to intraday support at
$38, accompanied by a bounce with good volume.  Below that, the
10-dma at $37.33 has been providing support for the stock.

BUY CALL JAN-35   ONE-AG OI=12330 at $5.25 SL=3.50
BUY CALL JAN-37.5*ONE-AU OI= 8649 at $3.00 SL=1.50
BUY CALL JAN-40   ONE-AH OI=15080 at $1.31 SL=0.50
BUY CALL FEB-37.5 ONE-BU OI= 2944 at $3.88 SL=2.25
BUY CALL FEB-40   ONE-BH OI= 4507 at $2.44 SL=1.25
BUY CALL FEB-42.5 ONE-DV OI=  743 at $1.19 SL=0.50

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


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

Time to fall back and regroup...

Stocks consolidated today following a powerful rally Wednesday,
after a surprise decision by the Fed to lower interest rates.

Wednesday, January 3

Technology stocks achieved record gains today after the Federal
Reserve made a surprise 50-basis-point cut in interest rates.
The Nasdaq closed up 324 points at 2,616.  The Dow industrials
also rallied on record volume, ending up 299 points at 10,945.
The S&P 500 index jumped 64 points to 1347.  Volume on the NYSE
was a record 1.87 billion shares, with advances ousting declines
2,305 to 788.  Volume on the Nasdaq also reached record levels
near 3.17 billion shares, with winners tripling losers 3,065 to
988.  In the bond market, the 30-year Treasury plunged 2 12/32,
pushing its yield up to 5.49% as investors rotated into stocks.


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

Williams Sonoma   WSM   JAN17C/20C   debit   $1.93   bull-call
Worldcom          WCOM  JAN12C/15C   debit   $2.00   bull-call
Triad Hospitals   TRIH  FEB30C/30P   debit   $5.25   straddle

All of our new positions offered favorable entries during the
session, but you had to be aggressive with the Worldcom play as
the underlying issue was a big mover.  Fortunately, there were
plenty of buyers for the sold option at $15 and it remained
overpriced (even as it moved deep ITM) for most of the morning.
Those of you who waited for an entry in the Amerada Hess credit
spread were rewarded today as the position was offered at $0.38
near the end of the session.  That may not seem like a great
premium, but it does provide a 9% return for two weeks with a
cost basis 15% below the current price of the issue.


Portfolio plays:

It was a strange day indeed as Federal Reserve decision-makers
announced an unexpected shift in their monetary stance between
regularly scheduled policy meetings, lowering the federal funds
rate target by 50 basis points.  The FOMC also signaled it is
willing to reduce rates further if necessary and that statement
led to a market rally with blue-chip technology issues leading
the way.  Among the best performers, Internet and chip shares
surged over 20% while telecom and software issues rose 16% and
computer hardware stocks enjoyed substantial gains.  On the Dow,
interest-rate sensitive companies moved higher with J.P. Morgan
Chase (JPM) rising almost $7 to $50.62.  Home Depot (HD) was
another big winner as retail stocks rallied on the news.  In the
broader market, chip equipment, computer, telecom and investment
brokerage issues saw major gains, while tobacco, healthcare and
alcohol issues retreated.  Utility and Precious Metals stocks,
which performed well over the past few months, were also lower
as investors exited the safety of defensive sectors.

Today's market rally was a boon for the Spreads/Combos portfolio
but it also signaled a possible end to the success of many plays
in safe-haven groups such as Food and Beverage, Healthcare, Gold
and Pharmaceuticals.  Bullish positions in PepsiCo (PEP), Pepsi
Bottling (PBG), Ralston Purina (RAL) and Kellogg (K) along with
spreads on Laboratory Holdings (LH), Omnicare (OCR), Waters (WAT)
and Placer Dome (PDG) should be reviewed carefully for potential
exits or adjustments as the rotation out of defensive issues will
likely drive their shares lower.  As an example, PepsiCo offered
a break-even exit in the bullish credit spread and Laboratory
Holdings was a good "roll-out" candidate as it rebounded to $158
after Tuesday's giant sell-off.  Omnicare provided a number of
profitable opportunities when it was trading $5 ITM, and Ralston
Purina and Kellogg have also offered favorable early-exits in the
past month.  On the bright side, transportation issues continued
to rally and our bullish position in American Airlines Holdings
(AMR) reached an overall credit of $2.50, a total profit of $2.12
in the play.  Globo Cabo (GLCBY) traded as high as $12.38 during
the session, providing a $0.75 profit to close the play.  In the
Straddles section, ADC Telecom (ADCT) was a big winner, spiking
to a high near $21, and providing an overall credit of $1.12 on
$5.50 invested in less than one month. Those of you remaining in
Compass Bancshares also received a nice surprise as the straddle
reached a new closing profit $2.00 on the original $2.75 invested
in mid-December.


Thursday, January 4

Stocks consolidated today following a powerful rally Wednesday,
after a surprise decision by the Fed to lower interest rates.
The Nasdaq closed 49 points lower at 2,566 and the Dow was down
33 points at 10,912.  The S&P 500 index fell 14 points to 1,333.
Volume on the NYSE was the heaviest on record Thursday, with 2
billion shares changing hands as advances beat declines 1,603 to
1,371.  Exchange volume on the Nasdaq was heavy at 2.6 billion
shares, with winners outpacing losers 2,197 to 1,795.  In the
bond market, the 30-year Treasury rose 24/32, pushing its yield
down to 5.44%.


Portfolio Plays:

The recovery in technology shares faded quickly today as traders
sold for profits in the aftermath of Tuesday's giant rally.  The
selling was most notable in Internet, semiconductor and software
shares while stocks in the computer hardware segment remained
relatively unchanged.  Inside the broader industries, investors
continued to rotate out of traditionally defensive areas of the
marketplace, such as drug, healthcare, utility, precious metals
and consumer products stocks.  Investors also shunned oil service,
retail and biotechnology issues but added to positions in airline
and financial shares.  Analysts believe the rate cut may be the
catalyst for better performance in technology stocks (that many
investors have been waiting for) and the effect of the rotation
was obvious in the Spreads portfolio.  Among industrial issues,
American Airlines Holdings (AMR) was again one of the big movers,
up $1.50 to $43 on strength in the transport group.  Our bullish
synthetic position is now offering a $3 profit.  Costco (COST)
was another positive issue, climbing $0.93 to $43.50 on momentum
from its recent technical breakout.  One of the older Reader's
Request positions, AT&T (T) is showing some spark as the issue
moved back above $20 Thursday on heavy volume.  In the small-cap
category Aksys (AKSY), Conseco (CNC), Magnetek (MAG), Speedfam
(SFAM), and Timken (TKR) all enjoyed upside activity.

In the Straddles group, Allmerica Financial (AFC) was a surprise
winner, dropping almost $5 during the day without any major news.
The move provided a $3.12 profit on the $4.62 invested Monday, a
65% profit in less than three days!  Another awesome opportunity
was offered in Oceaneering (OII), as the issue dropped to $17 on
weakness in the oil-service sector.  Our new straddle traded as
high as $3.00, a $1.06 return on $1.93 debit, also in less than
one week.  Sunday's play in Southwest Securities (SWS) was a big
mover as the issue rallied to $29.62 with the bullish brokerage
sector.  The upside activity providing a 3-day profit of $1.00 on
an investment of $5.31, an 18% return.  Winnebago (WGO) hit a new
high near $18.25 today, moving that straddle to a profitable area
and Triad Hospitals (TRIH) has already traded in a $5.62 range
since the "rolling options" position was offered in Tuesday's
newsletter.

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

One of our readers asked for some additional "premium selling"
positions, based on the recent spike in market volatility and a
belief that options premiums have reached a short-term climax.
While we agree that there are a number of favorable candidates
for neutral-outlook (credit) strategies, there is still a great
potential for volatile activity in the coming weeks and these
types of positions must be evaluated for portfolio suitability
and reviewed with regard to your strategic approach and trading
style.

******************************************************************
BEAS - BEA Systems  $61.00  *** Sector Sell-off! ***

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

Internet infrastructure stocks slumped today after warnings from
two well-known companies in the sector.  Inktomi (INKT) was one
of the big losers, falling to a two-year low near $13 after the
company said it expects to report a $0.01 per share profit in its
fiscal first quarter, while the 24 analysts polled by First Call
expect a profit of $0.03.  Vitria Technology (VITR) also tumbled,
dropping to an all-time low near $4 after saying it expects to
post a fourth quarter loss of up to $0.03 a share.  The consensus
estimate was a profit of a penny a share.  Fortunately, BEAS is
one of the world's top e-business infrastructure software makers
and it was recently honored as an industry leader for its unique
e-business software in Interactive Week's "Fast 50."  Interactive
Week said the supplier of software to power business-to-business
exchanges and application integration solutions leaped ahead on
the strength of its improving profitability and the recognition
it has won from investors.  BEAS has also demonstrated momentum
in its core market, increasing profits from basic operations on
quarterly and annual basis, and is now positioning itself for a
bright future.

That sounds incredibly optimistic considering the current outlook
for the group, but we like the possibility of owning of the issue
near $38.  If the price of the stock moves above its all-time
high near $85 on a (heavy volume) rally, we will simply buy the
issue to cover our sold options.


PLAY (conservative - neutral/credit strangle):

SELL CALL  JAN-85  BUC-AQ  OI=2456  B=$0.88
SELL PUT   JAN-40  BUC-MH  OI=2520  B=$0.75
INITIAL NET CREDIT TARGET=$1.75-$2.00  ROI(max)=12%
UPSIDE B/E=$86.75 DOWNSIDE B/E=$38.25

/charts/jan01/charts.asp?symbol=BEAS
******************************************************************
BRCM - Broadcom  $100.25  *** Revenge Play! ***

Broadcom Corporation is a provider of highly integrated silicon
solutions that enable broadband digital transmission of voice,
video and data throughout the home and within the business
enterprise.  These integrated circuits permit the cost-effective
delivery of high-speed, high-bandwidth networking using existing
communications infrastructures that were not originally designed
for the transmission of broadband digital content.  Using their
proprietary technologies and advanced design methodologies, the
company designs, develops and supplies integrated circuits for a
number of the most significant broadband communications markets,
including the markets for digital set-top boxes, cable modems,
high-speed office networks, home networking, direct broadcast
satellite and terrestrial digital broadcast, and DSL (digital
subscriber lines).

Broadcom was one of our few losers in this category during last
year's market slump and now it's time to start repaying the debt.
We favor the issue for a bullish position but there are not too
many ways to approach the wide bid/ask spreads, and the $30 rally
on Tuesday will likely fall victim to some future consolidation.
In this conservative premium-selling position, we will use the
recent volatility and the inflated option prices to initiate a
neutral play with a favorable premium.  The probability of the
share value reaching our sold strikes is rather low, but there
is always the possibility of a significant change in character,
so monitor the position on a regular basis.


PLAY (conservative - neutral/credit strangle):

SELL CALL  JAN-160  RDU-AL  OI=833  B=$0.88
SELL PUT   JAN-55   RDZ-MK  OI=845  B=$1.00
INITIAL NET CREDIT TARGET=$2.12-$2.25 ROI(max)=9%
UPSIDE B/E=$162.12 DOWNSIDE B/E=$52.88

/charts/jan01/charts.asp?symbol=BRCM
******************************************************************
EMLX - Emulex  $78.81  *** Trading Range? ***

Emulex Corporation is a designer, developer and supplier of a
broad line of Fibre Channel adapters, hubs, application-specific
computer chips, and software products that provide connectivity
solutions for Fibre Channel storage area networks (SANs), network
attached storage (NAS), and redundant array of independent disks
(RAID) storage.  Its products are based on internally developed
ASIC technology, and are deployable across a variety of storage
area network configurations, system buses and operating systems,
enhancing data flow between computers and peripherals.  Emulex's
products offer customers the unique combination of reliability,
scalability, and high performance, and can be customized for
mission-critical server and storage system applications.

Emulex is an excellent candidate in the premium-selling category
of options trading.  The issue has great option premiums, a well
defined trading range and a high probability of remaining between
the sold (short) strike prices.  Based on historical analysis of
option pricing and the underlying stock's technical history, the
issue meets our basic criteria for a favorable credit strangle,
and we wouldn't mind having the issue in our portfolio at a cost
basis near $48.  The company's earnings are due on January 18.


PLAY (conservative - neutral/credit strangle):

SELL CALL  JAN-105  UEL-AA  OI=181   B=$1.12
SELL PUT   JAN-50   UMQ-MJ  OI=1292  B=$0.93
INITIAL NET CREDIT TARGET=$2.12-$2.25 ROI(max)=12%
UPSIDE B/E=$107.12 DOWNSIDE B/E=$47.88

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


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Stop Losses based on the option price or the stock price.
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**************************************************************


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

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