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Daily Newsletter, Monday, 01/08/2001

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The Option Investor Newsletter                   Monday 01-08-2001
Copyright 2001, All rights reserved.                        1 of 1
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        01-08-2001        High      Low     Volume Advance/Decline
DJIA    10621.30 - 40.70 10700.80 10516.00 1.10 bln   1613/1330
NASDAQ   2395.92 - 11.73  2397.06  2299.65 1.85 bln   1629/2224
S&P 100   677.31 -  4.36   680.76   667.28   totals   3242/3554
S&P 500  1295.86 -  2.49  1296.97  1276.29           47.7%/52.3%
RUS 2000  461.64 -  1.50   463.14   457.56
DJ TRANS 3142.03 + 28.04  3142.33  3083.17
VIX        33.35 +  1.32    34.61    33.00
Put/Call Ratio      0.64
******************************************************************

Quick To Cover

In a rare display of fear, the bears brought in their shorts
this afternoon after driving the Nasdaq down 300+ points
following the Fed surprise last week.  And was it a
coincidence the bears decided to cover their shorts as the
Nasdaq Composite approached 2300?  I don't think so.

After the Nasdaq Composite rolled over around the 2640 level
last Thursday, and sank into the weekend during Friday's
session, it wasn't a real big surprise the tech-heavy index
gapped down this morning.  Continued fears of slowing
economic growth and its impact on corporate earnings kept
most of the bulls at bay this morning and for the better
part of the afternoon session for that matter.  Add to the
macro economic fears the usual bearish bliss from Wall
Street's favorite weekend publication and its likely target
Cisco Systems, and a morning sell-off was in the cards.

But what many market participants didn't foreshadow,
especially the grouchy bears, was a nearly 100 point rebound
in the Nasdaq Composite (COMPX) in the final hour of
trading.  What's more, it was encouraging to see that
massive reversal take place from the 2300 level - a level
which seems like it continues to attract buyers.




It's difficult to say whether or not the 2300 level is the
low for the COMPX.  We just don't know yet.  And while we'd
like to see that level continue to hold and attract buyers,
we know the bears aren't going to go away without a fight.
We learned that last week following the Fed's announcement.

But what we may have witnessed, after today's big rebound
in the COMPX, is a sense of fear among the bears and their
collective reluctance to press their luck.  After all, the
Fed is now on the side of the bulls and it's awful difficult
to fight the Fed.  But the bears will continue to point to
the deteriorating fundamentals in the tech sector and the
poor earnings reports expected for the fourth quarter of 2000,
and the first quarter of 2001.  But as we all know by now,
the market has an uncanny ability to discount future events
out by six or nine months.  And with that argument, the bulls
will point to better times ahead.

And the bulls argument might have gained some acceptance
today among portfolio managers who are still sitting on the
sidelines with plenty of cash to deploy.  As I previously
mentioned, the COMPX found buyers at the 2300 level today for
the third time.  The first buying binge at that level took
place in late December and the second effort by the bulls was
seen last week prior to the Fed's surprise.  The Nasdaq's
third bounce off 2300 this afternoon has many market
participants suggesting the tech index has found a floor from
which to begin the base building process.  And although the
COMPX still must contend with its nasty downtrend, it was
definitely encouraging to see 2300 hold for the third time.




As you can see on the chart above, the COMPX will face
resistance at the 2400 level before extending today's
rebound.  And if this afternoon's short-covering rally is
similar to those we've witnessed over the past five months,
the Nasdaq has a good shot at clearing 2400 early tomorrow.
We've seen this pattern time and again where the shorts
buy back their stock and the COMPX trades up towards the
high end of its descending trend.  And any upward move at
this point might be exaggerated by fund managers who were
enticed by the Nasdaq's ability to hold 2300 today.
And if the short-covering/fund manager buying scenario plays
out over the next two or three days, we're likely to witness
big gains in the high-flyers on the Nasdaq as many of the
four-letter darlings are trading near the low ends of their
respective ranges, or oversold conditions.  And if you do trade
any of the Nasdaq high-flyers, it's imperative to use tight
stops and have clearly defined exit points.  On that note, if
the COMPX does advance towards the upper part of its
range, be very cognizant of resistance levels near 2500,
2560, 2600 and 2640 as detailed on the chart above.  But any
bull must remember that the Nasdaq is still in a descending
trend, made clear with the chart below.



Away from the Nasdaq and tech sector, the Dow Jones
Industrial Average (INDU) had problems of its own this
morning.  Continued concerns over the economy along with
credit problems among major banks weighed on the blue chip
index as Monday's session wore on.  The rumors revolving
around Bank of America last Friday, and the potential for
bad loans on its books continued to hamper the broader finance
sector today, despite the friendlier ways of the Fed.  But, the
same shorts who were scared into covering on the Nasdaq also
bought stock back in the listed names, which gave the INDU a
nice lift into the close of trading.  After the INDU's
head-fake above the 11,000 level following the Fed's
announcement last week, the blue chip index has fallen back
into its trading range between the 10,500 and 11,000 levels.
Similar to the Nasdaq's bounce, the INUD's rebound off the
key 10,500 level was encouraging to witness and may portend
an advance back towards 11,000 barring any major blowups
from the bank sector.  Here again, it may pay to ease into
some blue chip favorites as the INDU is oversold and may be
due for a pop in the coming days.  As is the case in the
Nasdaq, many INDU components are trading near oversold
conditions or have pulled back near key support levels such
as General Electric, Citigroup, United Technologies, American
Express, Home Depot and International Paper, among others.
Those names are by no means a buy recommendation, but traders
should be aware of their deeply oversold conditions and the
possibility for a bounce in the next two or three days.




After suffering three consecutive sessions of selling off,
the major market averages may very well be due for a lift
in the coming sessions.  However, my usual mantra of
remaining disciplined with sound money management and tight
stops holds true even after today's impressive rebound in
both the INDU and COMPX.  If we do see any extension of
this afternoon's short-covering early tomorrow, we may
see the fund managers ease back into the market and add
credence to the thesis of the Nasdaq finding a floor near
the 2300 level.  Any upside moves in the coming sessions in
either the INDU or COMPX can be traded as long as discipline
holds.

Along with the oversold conditions in the broader market,
there are two other factors to mention this evening, which
may or may not add to the possibility of an extended
advance.  There are several technology conferences taking
place this week where companies are letting analysts know
how their business is doing in the slowing economy.  Both
Salomon Smith Barney and Morgan Stanley are holding tech
conferences this week, with major players attending each.
These conferences can be tricky to game as both good and
bad news can freely flow.  If the tech companies at these
conferences please the analysts and refute the fears of
lower earnings estimates, we may soon hear the sell-side of
Wall Street reiterate buy ratings and raise earnings
estimates.  On the other hand, if the tech attendees to
these conferences confirm the market's worst fears, we may
see a retest of recent lows, which is all the more reason
to stay disciplined.

The second item to be aware of this evening revolves around
two pre-announcements after the bell.  But unlike the
recent warnings we've witnessed, two well-know tech stars
actually pre-announced good news after the bell this evening.
Amazon.com said its sales for the holiday period totaled
$960 million, which were short of the $1 billion goal, but
within the range of estimates.  The other major positive
announcement came from I2 Technologies, who said it expected
to beat analyst estimates for earnings and revenues in the
fourth-quarter.  Shares of Amazon closed the regular session
at $14.94 and traded above $15 in after hours action.  And
shares of I2 closed the regular session at $41.94 and settled
around $46.50 in after hours trading.  In light of the
positive news from I2, the bulls might want to watch the
B2B sector tomorrow for signs of extended short covering.

The positive news from the two aforementioned tech companies
gave a nice lift to the Nasdaq futures, which were up about
30 points at time of writing.  If the Nasdaq futures are a
sign of things to come early tomorrow, the bears might feel
a little bit more pain and be forced to buy back more stock
en route to sending the market higher.

Eric Utley
Assistant Editor


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*************
NEW CALL PLAY
*************

BRCM - Broadcom Corporation $93.44 +6.44 (+6.44 this week)

Broadcom Corporation is a provider of highly integrated silicon
solutions that enable broadband digital transmission of voice,
video and data to and 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 unique
proprietary technologies and advanced design methodologies, the
company designs, develops and supplies integrated circuits for a
number of the most significant broadband communications markets.

We are initiating coverage on BRCM based on number of positive
developments.  While the sell-off in communication chip stocks
has resulted in a series of lower highs for the stock, bullish
price/volume action in recent trading, signs that the stock may
have bottomed and news potentially driving the stock higher have
made this an attractive play.  Like most stocks last Wednesday,
shares of BRCM surged on high volume, thanks to the Fed's
surprise rate cut. Since then, while the stock has drifted lower,
it has done so on decreasing volume, suggesting normal profit
taking.  Today, the company announced the acquisition of
integrated circuit maker ServerWorks for $968 million.  This deal
was applauded by traders as they bid the stock up over 7.4
percent on almost 120% of ADV and in doing so, put BRCM back
above its 5 and 10-dma, currently at $92.75 and $91.75
respectively.  With earnings fast approaching on January 23rd and
what appears to a firm bottom in the low 70's, the stock looks
poised to move higher from here. However, connecting the highs
since October reveals a downtrend line, which BRCM must still
contend with.  Look for this trendline, currently sitting near
$105, to act as formidable resistance, especially since there is
also horizontal resistance at this point.  For higher risk
players, a bounce off the 5 and 10-dma could provide for an
aggressive entry point.  There is additional support at $90 and
$85 but confirm bounces with volume.  We are placing a protective
stop at $84, so make sure BRCM continues to close above this
level.  For an entry on strength, look for a break through $95 on
volume, confirming positive direction with the Philadelphia
Semiconductor Index (SOX) before taking a position.  From there,
it could be a quick trip to the psychological $100 and then, a
test of the intermediate term downtrend line.

***January contracts expire in two weeks***

BUY CALL JAN- 90 RDZ-AR OI=1388 at $12.50 SL= 9.50
BUY CALL JAN- 95*RDZ-AS OI=2175 at $10.13 SL= 7.00
BUY CALL JAN-100 RDZ-AT OI=2259 at $ 7.88 SL= 5.75
BUY CALL FEB- 95 RDZ-BS OI= 571 at $16.75 SL=12.00
BUY CALL FEB-100 RDZ-BT OI= 737 at $14.88 SL=11.00

SELL PUT JAN- 85 RDZ-MQ OI=1409 at $ 6.38 SL= 9.50
(See risks of selling puts in play legend)

http://www.premierinvestor.com/oi/profile.asp?symbol=BRCM


LRCX - Lam Research Corporation $19.25 +0.94 (+0.94 this week)

Founded in 1980, Lam Research Corporation is a leading supplier
of wafer fabrication equipment and services to the world's
semiconductor industry.  In particular, Lam is a technical leader
in etch products and expects similar acceptance for its Chemical
Mechanical Planarization (CMP) product and applications.  The
Company also offers next generation solutions for CMP cleaning.
Many of the technical advances that the Company introduces in its
newest products are also available as upgrades to Lam's installed
base of equipment.

With Chip stocks in a downward spiral since last Fall, shares of
LRCX were caught in the wake, forming a series of lower highs and
lower lows.  Recently however, the stock has broken its downtrend
and heavy buying volume in the past few trading sessions suggests
that more upside could forthcoming.  The unexpected 50 basis
point interest rate cut of last Wednesday resulted in a break
through formidable resistance from its 50-dma.  Despite being
downgraded by Tucker Anthony Capital Markets last Thursday, from
a Strong Buy to a Market Perform rating, the stock continued to
advance, as buyers rushed in on mass, especially with ABN AMRO
coming to defense of LRCX, upgrading the stock to a Buy.  Today,
in spite of a flat session for the NASDAQ, LRCX closed up over 5
percent on 120% of ADV, helped by a strong Chip sector.
Currently, LRCX has numerous areas of support, with the 5, 10 and
50-dma at $17.47, $16.13 and $16.77.  A pullback to these levels,
followed by a bounce on strong buying volume could allow for an
aggressive entry, but be aware that we have placed a stop at $16.
Overhead, resistance can be found at the $20 level and its
100-dma, currently at $20.39.  A break through $20 could allow
for an entry, but a wait for the stock to rally above the 100-dma
would be a safer entry, especially if Merrill Lynch's
Semiconductor HOLDR (SMH) is also moving up to confirm upward
momentum.

***January contracts expire in two weeks***

BUY CALL JAN-17.5 LMQ-AI OI= 997 at $2.44 SL=1.25
BUY CALL JAN-20   FUO-AD OI=3202 at $1.00 SL=0.00
BUY CALL JAN-22.5 LMQ-AQ OI= 348 at $0.38 SL=0.00
BUY CALL FEB-20   LMQ-BD OI= 186 at $2.13 SL=1.00
BUY CALL FEB-22.5*LMQ-BQ OI= 124 at $1.38 SL=0.75

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


****************************
NEW LOW VOLATILITY CALL PLAY
****************************

MAR - Marriott International Inc. $46.69 +1.81 (+1.81 this week)

Marriott International is a leading worldwide hospitality company
with over 2,000 operating units in the United States and 57 other
countries and territories.  Marriott Lodging operates and
franchises hotels under the Marriott, Renaissance, Residence Inn,
Courtyard, TownePlace Suites, Fairfield Inn, SpringHill Suites
and Ramada International brand names; develops and operates
vacation ownership resorts under the Marriott, Ritz-Carlton and
Horizons brands; operates executive apartments and conference
centers; and provides furnished corporate housing through its
ExecuStay by Marriott division.

Marriott has been a comfortable place for shareholders to stay so
far this New Year.  While the stock spent November and December
of 2000 consolidating in a tight range between $38 and $43,
shares of MAR recently broke out to the upside on strong volume
and since then, has been making new all-time highs.  Today, MAR
was upgraded by Lehman Brothers to a Buy rating, with a price
target of $60, citing that the price-earnings ratio for the stock
should expand in the coming quarters relative to the S&P 500.  An
environment where interest rates are easing will also help MAR's
earnings going forward and with that, Lehman upped their growth
estimates for the next year.  The possibility of increased
earnings and earnings multiple expansion attracted investors,
helping MAR to gain over 4 percent today on almost three times
the ADV.  For traders looking to enter on a dip, look for a
bounce off support at $45.80, $45 and the 5 and 10-dma at $44.62
and $42.80, near our stop price at $43 support.  If buyers
continue to drive the stock higher, then a new high at $47 could
be the signal to jump in.  When making a play, correlate entries
with movement in competitors FS and HLT.

***January contracts expire in two weeks***

BUY CALL JAN-40 MAR-AH OI= 638 at $6.88 SL=5.00
BUY CALL JAN-45 MAR-AI OI=1444 at $2.50 SL=1.25
BUY CALL FEB-45 MAR-BI OI= 125 at $3.50 SL=1.75
BUY CALL FEB-50 MAR-BJ OI=   3 at $1.19 SL=0.00
BUY CALL APR-50*MAR-DJ OI=  88 at $2.50 SL=1.25

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


************
NEW PUT PLAY
************

MMC - Marsh & McLennan Co $106.56 -0.44 (-0.44 this week)

Marsh & McLennan Companies is the world's largest insurance
brokerage company.  The professional services firm provides its
clients with analysis, advice and transactional capabilities in
the fields of risk and insurance services, investment
management, and consulting.  It operates worldwide through its
subsidiaries and affiliates, which include Marsh, a risk and
insurance services firm, Putnam Investments, one of the US's
biggest money managers, and Mercer Consulting Group, a global
provider of human resources and management consulting services.

Another defensive play bites the dust!  The diehard technology
traders just keep going back for more of the high rolling,
adrenaline plays.  And that's good news when it comes to our put
play on MMC.  Today, MMC demonstrated more weakness below the
$110 benchmark and shattered Friday's intraday low of $106.03 on
respectable volume.  The stock saw $105.06 during the last hour
of trading today, which indicates the selling may not be over.
A further breakdown from the current level offers a reasonable
entry; although you may want to lock in gains as MMC approaches
the century mark.  If MMC does move to the underside of the $100
historical support, you could always jump back into the play at
that time.  Very aggressive traders might consider taking
positions on a high-volume rollover at the 5-dma ($111.28), but
that's pretty risky.  We'll exit MMC on a bullish close above
$113.  Whichever entry/exit strategy you consider, keep an eye
on the S&P's Insurance Index (IUX.X) in addition to the overall
market sentiment and direction.  The IUX.X is currently finding
support at 750; a move below this level would indicate sector-
wide weakness.  In today's session, MMC diverged from the S&P's
Insurance Index, which was up 8.13 points.  The cross-currents
within the marketplace can wreck havoc on your portfolio, so
please, wait for the downward confirmation before jumping into
the play.  On the analyst front, Prudential Securities cut its
4Q profit estimate for Marsh McLennan to $0.95 from $0.98 and
dropped its six-month price target to $130 from $150 on concerns
of lower profits from its investment management operations.  The
company is expected to report earnings around February 1st.

***January contracts expire in two weeks***

BUY PUT JAN-110 MMC-MB OI= 66 at $6.00 SL=4.00
BUY PUT JAN-105*MMC-MA OI=312 at $3.25 SL=1.50
BUY PUT JAN-100 MMC-MT OI=144 at $1.56 SL=0.75

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


*****************
STOP-LOSS UPDATES
*****************

TBL  - call play
Adjust from $65 up to $68

AEOS - call play
Adjust from $42 up to $43

COST - call play
Adjust from $35 up to $39

CSC  - put  play
Adjust from $62 down to $59

CELG - put  play
Adjust from $35 down to $29

PDLI - put  play
Adjust from $66 down to $57

TQNT - put  play
Adjust from $49 down to $44


*************
DROPPED CALLS
*************

CAT $45.75 -0.13 (-0.13) The continued concerns over a slowing
economy have caused shares of Caterpillar to pullback in
recent sessions.  We didn't like the big sell-off in CAT late
last week, especially on such active trading.  Although the
pullback last Friday could have been no more than normal profit
taking, we're a little distressed with CAT's inability to
rebound during today's session.  And although the stock finished
only fractionally lower, we feel it may settle into a
consolidation as Wall Street continues to debate over the future
of corporate profits.  That said, we're dropping coverage on CAT
this evening and would exit any open positions on a bounce early
in Tuesday's session.


************
DROPPED PUTS
************

No dropped puts today


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

Methodical Trade Management
By Austin Passamonte (and Bill Kadlec)

Phew! Glad to be home in Trader's Corner again after a two
holiday break squeezed me out. Hope you've all held calls & puts
when daily conditions warranted. On to our lesson for tonight:

I had never in my life used a spread-sheet program before now.
Those of you who know me are aware that I'm a minimalist trader
dragged kicking & protesting into the technology world. Once out
of my comfort zone and into the 21st century... I loved it!

Bill Kadlec, contributing writer at IndexSkybox devised the
spreadsheet templates within this article on his own and sent
them to me. It was plain to see there were lessons to share within.

We hope to demonstrate that regardless of symbols traded or
current market conditions, a systematic account management allows
you to profit over time if you are willing to trade both calls
and puts without hesitation as prevailing trends dictate.

You may wish to review my recent OI Traders Corner article "Three
Steps Forward, One Step Back" from 12/04. It describes the account
management approach we use to methodically increase our balances
over time. You can review this within the OI Education section
under "Traders Corner link.

Our examples use the QQQ, OEX and SPX with parameters designed
specifically for them. We choose indexes because of their
frequent, dependable movement for maximum trade opportunities
but I know beyond doubt that traders can apply this specific
approach to any favorite symbols and accomplish much the same.
Such an approach will also work trading stocks, futures or any
other vehicle that requires a trading account balance to manage.

First and foremost let me state that what we present here is
absolutely in no way a statement of actual trade performance or
suggestion of future results. These documents include and
outline IS Swing Trade history for each index separately. What
we portray is a hypothetical account balance of $100,000 for
each of the QQQ, OEX and SPX trades taken from IS inception in
September through 12/14/2000.

No consideration was made or deducted for any trade costs such
as commissions, slippage or other factors. This is merely raw
data to illustrate an overall point and do not suggest actual
profit or loss.

Have we made our case for disclaimers yet? Now let's look at
these hypothetical results and elaborate on some key points to
learn from. The following measures are used to simulate an
account taking the actual trades as documented on the site.

As covered in the fore-mentioned article, we base our risk factor
on a maximum 5% of our current account balance prior to each new
trade. The number of option contracts we buy is determined
according to how many 5% of our account balance risked will
afford. A maximum number of contracts is determined for each
index on a conservative basis: it is possible to be filled on
many more but that goes beyond serving our lesson here.




Definitions:

Risk Level - The percentage of the total account value willing to
be lost if a trade is stopped out at the stop price. Total account
balance in play will never exceed 20% overall, even during weeks
of 25% stops on contract cost.

With that amount of time value remaining on contracts in play, it
is virtually impossible to suffer a complete loss on the total
amount of 20% account balance in play at that time. This risk
exposure is lessened as expiration week approaches and total
capital used is reduced.

For example, Week 1 would use $20,000 of capital to open enough
contracts with a $5,000 stop loss order. Week 4 would use
$10,000 to risk $5,000 on stop loss order as we approach
expiration.

Max Contracts - The maximum number of contracts that will be
traded on a single trade. When the computed number exceeds this
value, this value controls. While this is not documented in the
site, many online brokerages set a maximum number of shares
that can be traded at the same time.

Stop Levels - During each week of an option expiration cycle,
different stop loss parameters are used which directly affects
total $$ committed to a trade.

For each index, an overall summary of performance by month,
showing monthly changes in value, percentage of winning trades
and the total account value change across the entire period.
After the summary, a table of the trade-by-trade performance is
presented. For these detailed tables the following calculations
are used:

Stop Risk - Amount of capital willing to lose if the trade if
stopped at stop price

Calculation - Account value * Risk Level

Trade Amount - The amount of capital to be used in the trade
based the Stop Level being used for that particular week

Calculation - Stop Risk / Stop Level for appropriate week of
cycle

# contracts - Quantity of contracts to be purchased based on the
current market price of the option and the Trade Amount specified
above

Calculation - Trade Amount / Buy (only the whole number portion,
or INT())

Actual - The actual amount of capital committed to the trade
Calculation - # contracts * Buy

Exit - Value of contracts when sold
Calculation - # contracts * Sell

Net Acct - How much is the account worth after the trade is
completed

Calculation - Initial Account Value - Actual + Exit


SPX Performance
Overall Performance

For SPX, Max Contracts was set to 40.



Note that in the month of November we only managed to win 50% of
our trades. That means we lost the other 50%. Use of disciplined
stops and realizing greater returns than controlled losses, the
month resulted in favorable performance overall.

We don't always need to win more of our trades than lose but it
is absolutely critical to maintain small losses. The use of
wider stops or no stops at all could have easily resulted in a
negative performance for the month of November instead. This is
critical!

Trade-by-Trade Breakdown






*****

QQQ Performance
Overall Performance
For QQQ, Max Contracts was set to 200.




Once again, note that the month of November only managed to win
50% of our trades. That means we lost the other 50%. Better than
that, look at October. Swing Trade only managed to win 47% of its
trades yet overall results were still positive. By using tight
stops and realizing greater returns than controlled losses, those
months resulted in favorable performance overall.

Can you see why we always set stops and never move them away from
current price action, only move them UP to minimize trade loss?

Trade-by-Trade Breakdown







*****

OEX Performance
Overall Performance
For OEX trades, Max Contracts was set to 50.




Here's my favorite example of systematic account management; look
at the month of November for the OEX. Swing Trade only managed to
win a paltry 36% of all trades. That means we lost the other 64%.
One might expect to have a negative result for the month but
diligent use of tight stops to minimize each loss while enjoying
larger percentage wins results in a favorable performance for the
month.

Trade-by-Trade Breakdown







The lesson we hope to share here is that proper account
management is paramount to long-term success. Cutting losses
short is much more than a trading clichi... it is the foundation
of a dependable, long-term approach.

Also, during a period of time when many traders self-admittedly
suffered financially it was possible to enjoy positive results
by taking a market neutral approach. While these balances do not
represent actual or possible returns, they do suggest a trader
following each model closely could have enjoyed favorable
results during the prevailing broad market downtrend and
volatility while these models were recorded.

Traders adept at using spreadsheet software can easily design
trade analysis parameters catered to their specific markets. The
stop-loss/sell-target percentages we use trading index options
may be too tight on either side for volatile equity options.
Perhaps PDLI, SDLI, ITWO and others would require a 50% stop/100%
sell target regardless of which week in the expiration cycle we're
in.

Traders who are in adept at using spread sheets (count me in as
#1) can arrive at the same conclusion by working through each
trade's equation as described in the 12/04 OI Trader's Corner
article. You can easily follow how I scratched out results using
paper, pencil & calculator in primitive fashion to accomplish the
same.

If this seems like a lot of effort; it is. We've spent hours
compiling this data but for good reason. Now we have a visual
trading plan on paper to optimize our results and instill some
much-needed confidence to see us through times of losing trades.

Such an approach from late 1998 until March of 2000 wasn't
mandatory, although it would have helped a tremendous amount.
Traders could simply buy calls on the right symbol with enough
time-value remaining and most always come out on top.

Those days are long gone, most likely forever. That was a brief
moment in time not indicative of long-term trading conditions as
countless insistent bulls learned through the painful process of
going broke since. If we are to survive and thrive our entire
career during all market conditions, we must treat this as a
business and not a lucky streak at Vegas.

I hope that careful study of the 12/04 article on account
management together with these spread-sheet trade rule parameters
will allow you to customize a methodical account management
approach suited for you. A good place to start might be
back-testing a string of recent trades this year according to
these parameters and see if the final results differ from what
you actually experienced.

Next Monday we will take this one step further and break down
the components to make this work for any tradable market, and
especially why it works from a purely mechanical standpoint.

I'd like to extend a very special thanks to Bill Kadlec, an
outstanding trader and software analyst for bringing this topic
to light in a format we can all appreciate. Good luck designing
your own personal management plan and Best Trading Wishes!

Contact Support


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

NOK - Nokia $43.13 +0.81 (+0.81 this week)

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

Most Recent Write-Up

Considering the widespread carnage found in the technology
sector Friday, Nokia demonstrated its underlying technical
strength once again.  The low price of the week was $38.94
on Wednesday, before the surprise rate cut was announced.
Nokia immediately bounced up to resistance at $45.  Nokia hit
$45.50 on Thursday, and closed just above $44.  On Friday,
Nokia held up in the morning, but succumbed to market weakness
and rumors of various crises which plagued the market, however,
it held above the critical support level of $41.63.   Many
analysts have expressed their opinions regarding the issue
of capital spending on telecom, optical Internet and other
technology related spending in this slowing economy, but most
agree that wireless infrastructure is one area in which
corporate spending will continue at a pace of 20-30% annually,
driven by upgrades to existing digital networks.  Carriers
continue to invest in new wireless spectrum, and as one of the
top 5 vendors in this growing market, Nokia has a strong 30%
position.  In addition, Nokia is one of the few technology stocks
which stayed above its 200-dma during December.  A simple way
to play Nokia is to take bullish positions upon the stock’s
clearing the converged 200 and 50-dma of $43.53.  After that
level is cleared, Nokia has light resistance at $44, and
stronger resistance at $45.00, and $45.50.  Market conditions
permitting, we should see Nokia clear these levels in the near
future, and begin its next traverse to $50.  Continue to watch
the wireless telecom sector for strength, and keep stops at $40.

Comments

Given the tech sector's rebound this afternoon, we're coming
back to NOK and its relative strength in search of profits in
Tuesday's session.  Shares of the cell phone giant have held
up well as the fundamentals of its business improve.  And with
any cooperation from the Nasdaq early tomorrow, NOK has a shot
at trading back up to the $45 level.  New entries can be found
at current levels early tomorrow if the tech sector strengthens.
More conservative traders might wait for a volume-backed move
above the $44 level.

***January contracts expire in two weeks***

BUY CALL JAN-42.5*NZY-AV OI=29029 at $2.81 SL=1.50
BUY CALL JAN-45   NZY-AI OI=25329 at $1.75 SL=0.75
BUY CALL FEB-45   NZY-BI OI= 2359 at $3.75 SL=2.25
BUY CALL FEB-50   NZY-BJ OI= 3244 at $2.00 SL=1.00

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


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