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Daily Newsletter, Wednesday, 01/10/2001

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The Option Investor Newsletter                Wednesday 01-10-2001
Copyright 2001, All rights reserved.                        1 of 1
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        01-10-2001        High      Low     Volume Advance/Decline
DJIA    10604.30 + 31.80 10611.60 10472.50 1.29 bln   1868/1052
NASDAQ   2524.18 + 82.88  2525.28  2376.49 2.46 bln   2558/1256
S&P 100   684.78 +  5.33   685.13   671.59   totals   4426/2308
S&P 500  1313.27 + 12.48  1313.76  1287.28           65.7%/34.3%
RUS 2000  475.45 + 11.50   475.45   461.54
DJ TRANS 3070.13 +  1.53  3081.34  3050.69
VIX        30.15 -  0.64    32.09    30.01
Put/Call Ratio      0.57
******************************************************************

The Markets Turn Bad News Into Good

Prior to the open this morning, NASDAQ futures were down 40 points
on a CIBC World Markets downgrade of tech bellwether CSCO.  But
this type of scenario set up the perfect opportunity for the
market to prove itself.  And prove its relative strength it did.
The NASDAQ traded at the low of the day right off the open and
yesterday's momentum re-emerged, shaking off the bad news.  Today's
action not only represented the first back-to-back positive days
for the NASDAQ this year, but also a glimmer of hope for what
appears to be a stealth rally.

As more and more talk circulates about a possible NASDAQ bottom,
one thing is certain: the NASDAQ has been attracting buyers even
in the face of disconcerting news.  While the euphoria over last
week's rate cut has subsided, the technical outlook for the NASDAQ
continues to improve.  It has been lingering in deeply oversold
conditions and the initiation of Fed easing policy is the exact
catalyst that the market needed.  With the economic effects of
this recent rate cut six to nine months away, the effect on the
market psyche is immediate.  Just take a look at the NASDAQ's
morning climb to 2521.




This 145 point climb came to a halt when John Chambers, CSCO CEO,
essentially warned of a slowdown in revenues going forward.  His
concern is that revenue visibility will remain tough in the next
quarter.  The stock and the NASDAQ swiftly sold off on the news
of Chambers comments which were disseminated on the Internet.  But
even this bad news for the market was short-lived as buyers were
waiting in the wings to gain entry points.  Volume was huge in
CSCO today, 211 mln shares, which is the second heaviest volume
for a stock in one day in NASDAQ history.  CSCO rallied into the
close and recaptured most of the morning's gains.  Other networking
stocks managed similar recoveries:  RBAK(+5.44), NT(+0.31), and
JNPR(+2.13) which traded in a $19 range today.  NASDAQ advancers
beat decliners 2-1.

While the markets whipsawed today on every bit of news, YHOO traded
up fractionally in anticipation of its earnings report after the
bell.  The Internet portal announced in-line earnings of 13 cents
for the 4th quarter as expected but all eyes were on the revenue
guidance for the year 2001.  On the conference call, YHOO stated
that they foresee 1st quarter revenue to be lower-than-expected at
$220 - $240 mln.  This will be significantly lower than today's
reported $310 mln for the 4th quarter, which was just shy of the
expected $315 mln.  In addition, YHOO severely cut its EPS for the
full year 2001 to $0.33 - $0.43 from previous forecasts of $0.57.
They cited slowing Internet advertising as the culprit.  As a
result of this shift in guidance, YHOO shares plummeted 20% in
after-hours trading, finishing at $24.63.  This is the first of the
high profile NASDAQ stocks to come clean about the upcoming year's
projections.  MOT also matched its downwardly revised earnings
estimates, but saw revenues fall short.  Tomorrow's open will
reflect the decline with NASDAQ futures currently down 32 points.
The NASDAQ will be tested again to prove its resilience.  Will
buyers take advantage of the dip?

The California energy crisis continued to deteriorate today as
PG&E, Pacific Gas & Electric, teeters on the brink of bankruptcy.
Unable to obtain cash loans to pay its bills, PG&E took the drastic
step to suspend its dividend and without any immediate government
relief, the company may be forced into default.  They also
announced that their 4th quarter earnings will be delayed.  This
raises the issue of credit risk on the West Coast and a possible
recession in California.  Richard Berner, chief economic
strategist with Morgan Stanley Dean Witter, clearly thinks
California is going into recession and that the utility problem
could spread outside of the state and beyond the sector.

Yet, the market remained strong.  DaimlerChrysler(DCX) warns that
it that it is out of cash.  And the market remains strong.  It is
evident that the current economic conditions are beginning to
wear on Corporate America.  But, with the Fed on our side again,
aggressively cutting rates, the market claws from its oversold
levels.  The INDU even rallied impressively into the close,
finishing at 10604.  Financials and consumer cyclicals led the
rally:  JPM(+2.25), C(+1.75), HD(+1.56), and UTX(+1.63).  Both
INTC(+0.75) and MSFT(+1.06) contributed as well.

The entire market is going to be curiously and nervously watching
the earnings announcements as the season begins.  We are at a very
precarious point for the market.  Reiterating what Jim said last
night, we could see companies announce in-line earnings like YHOO,
but have dismal outlooks for the coming quarters.  With the time
for pre-earnings warnings past, the market's strength will be
tested as it digests Corporate America's 2001 economic outlook.
While the NASDAQ has not given any clear signals of a true reversal
or bottom, it is technically acting well.  How it deals with YHOO's
report tomorrow will be very telling.  Tomorrow's open certainly
will be soft.  Look for tests of support on the NASDAQ at 2425 and
2400 where the buyers have been showing up.  When initiating any
trades, watch these key levels for upside intraday reversals like
we saw today at 2425.  Friday's PPI and Retail Sales reports will
be closely monitored for further economic visibility and foresight
into how the Fed will act at the next FOMC meeting.  Traders will be
positioning themselves tomorrow ahead of Friday's reports.  On
the earnings slate tomorrow after the close are ARBA, CREE, DCLK,
and RMBS.  To minimize overnight risk during this earnings season,
consider closing positions during the day to avoid opening gaps
based on the previous night's reports.  Trade smart.

Matt Russ
Editor


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

SLR - Solectron Corporation $36.05 +0.15 (+2.02 this week)

Founded in 1977, Solectron Corporation is the world's largest
electronics manufacturing services company offering a full range
of integrated supply-chain solutions for the world's leading
electronics original equipment manufacturers.  Solectron's
integrated technology solutions, materials, manufacturing and
operations, and global services offer customers competitive
outsourcing advantages, such as access to advanced manufacturing
technologies, shortened product time-to-market, reduced total
cost of ownership and more effective asset utilization.

The maturity of the PC industry and fears of decreased capital
expenditures did little to help SLR's stock price late in the
year 2000, as the company's shares got caught in a downward
spiral, making a series of lower highs and lower lows.  However,
speculation in December that the Fed could ease interest rates
going forward along with a Buy rating from CIBC helped the stock
to break a downtrend that had been in place since this past
October.  Recently, stock has drifted up, carried higher by its 5
and 10-dma and a bullish outlook from Merrill Lynch.  The 50
basis point cut last Wednesday turned hope for better rates into
reality and with further rate cuts projected ahead, the improving
fundamental backdrop gave SLR enough strength to close above its
50-dma for the first time since last October.  For aggressive
traders, a pullback to the 5-dma at $35.17 or support at $35
could provide for an entry, but confirm a bounce with buying
volume.  Support at $34.50 could provide for an ideal target to
shoot for, with the 10 and 50-dma currently converged at that
level.  We are placing a protective stop just below at $34.  A
close below this price could mean a reversal of SLR's recent
upward momentum.  If buying pressure increases, powering SLR
through the $36.50 level, this could allow conservative traders
to take a position.  From there the stock would be poised to
challenge formidable resistance at $40, with the 100 and 200-dma
converged at that point.  When making a play, keep a close eye on
competitors CLS, FLEX, JBL to gauge sector sentiment.

***January contracts expire next week***

BUY CALL JAN-30 SLR-AF OI=2683 at $6.60 SL=4.75
BUY CALL JAN-35 SLR-AG OI=2651 at $2.55 SL=1.25
BUY CALL FEB-35*SLR-BG OI= 327 at $4.30 SL=2.75
BUY CALL FEB-40 SLR-BU OI= 588 at $2.10 SL=1.00

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


WCOM - WorldCom, Inc. $21.25 +1.44 (+2.81 this week)

WorldCom is a new kind of communications company.  WorldCom
combines financial strength and a depth of resources to pursue
the industry's best growth opportunities with an advanced global
network built for the data-intensive era of communications.
WorldCom's strategy is to capitalize on the industry's fastest
growing segments.  It has a unique set of attributes to pursue
this strategy, including approximately 77,000 employees based in
more than 65 countries, comprising an expert workforce of
Information Age architects and sales and service specialists.

As one of the four horsemen of the NASDAQ, shares of WCOM were
less than equine last year, with the stock languishing in the
lower reaches of the Tech index for the year 2000.  Hitting a
local top of $50 in mid-July, the stock fell into pronounced
downtrend, as can be seen by connecting the highs during that
time.  But with a new year comes new life for the stock, as WCOM
broke its long-term downtrend line on the very first trading day
of 2001.  Since then the stock has rallied with conviction,
breaking through its 50-dma, a level it hasn't traded above in
almost half a year.  A combination of heavy short covering,
desire amongst investors for long term value plays with
attractive growth potential and a friendly Fed all helped the
Telecom sector move strongly higher.  Morgan Stanley Dean Witter
upgraded peer AT&T yesterday, giving a further boost to Phone
stocks across the board.  Having moved so far so fast, a pause to
consolidate gains is quite possible, allowing for entries on
support at $20, the 5-dma near $19.50 and our stop price at
$18.50, but make sure buying volume confirms the bounce.  If the
stock continues to power forward on positive momentum, then a
break through resistance at $21.50 could allow for an entry on
strength, confirming positive direction with Merrill Lynch's
Telecom HOLDR (TTH).  WCOM's break from its long-term downtrend
could mean the beginning of a significant move up.  Because of
the low option prices and the leverage that this affords, we
recommend buying more time, allowing this play enough room to
appreciate.

***January contracts expire next week***

BUY CALL JAN-15   JQD-AC OI=40356 at $6.38 SL=4.50
BUY CALL JAN-17.5 JQD-AW OI=43166 at $3.88 SL=2.50
BUY CALL JAN-20  *LDQ-AD OI=57892 at $1.88 SL=1.00
BUY CALL FEB-20   LDQ-BD OI= 7583 at $3.00 SL=1.50
BUY CALL FEB-22.5 LDQ-BX OI=11468 at $1.81 SL=1.00

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


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

No new puts today.


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

NKE  - call play
Adjust from $53 up to $55

Q - call play
Adjust from $41 up to $43

LU - call play
Adjust from $12 up to $15

VZ  - call play
Adjust from $51 up to $53

SBC - call play
Adjust from $47 up to $50

BRCM - call play
Adjust from $84 up to $93

AEOS - call play
Adjust from $43 up to $44

CTXS - call play
Adjust from $23 up to $25

LRCX - call play
Adjust from $16 up to $18.50

MMC - put play
Adjust from $113 down to $108

CB - put play
Adjust from $80 down to $77


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

No dropped calls tonight.


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

PDLI $56.00 +5.75 (-3.50) Good news from the company and a bounce
in the Biotech space helped shares of PDLI to gain over 11
percent on almost twice the ADV today.  PDLI announced that its
SMART Anti-Gamma Interferon Antibody, engineered to treat Crohn's
disease, had entered Phase I/II testing,.  Upgrades to peers DNA,
HGSI, MLNM helped lift the entire sector, especially Genomics
issues, with PDLI joining in on the rally.  While the stock
closed below our stop price of $57 and resistance from the 5-dma
(currently sitting at $57.57), we are taking profits on this
play.  With such a large gain today, look for a possible dip
tomorrow to close out open positions.


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

Liquidity Trends And Corporate Yields
By Mary Redmond

The markets seem to be poised in suspended animation, as traders
wait for a strong bullish trend to develop.  We need to remember
that it may take some time to recuperate from the severe damage
which was inflicted on the markets last year.  We may need to see
a higher level of cash flowing into equity funds and the market
before a true sustainable rally can develop.

Studies have shown that there is a very close correlation between
the four week moving average of cash to equity funds and the
movement of the market.  The Nasdaq and NYSE have reported that
institutions generally account for approximately 20% of the
volume on the exchanges.  However, individual investors tend to
buy in their brokerage accounts at the same time they are
making deposits to their mutual funds.  Tracking fund flows can
be an informative tool to gauge investor sentiment and market
liquidity.

It is almost impossible to track daily flows of cash into the
thousands of equity funds, which is why the four week moving
average of cash to equity funds is a more reliable indicator.
The four week moving average of cash to equity funds was
a negative $16.5 billion last week, according to AMG Data.  The
significance of this is the fact that this is the worst monthly
redemption rate in over ten years.  Studies by the Investment
Company Institute of very long term patterns of fund investing
show that the vast majority of equity fund investors are in for
the long term and usually do not redeem their funds in bear
markets.  We have only had one other month in the last ten years
in which investors redeemed their mutual funds, and that was
August of 1998.  However, the level of redemptions is far greater
at this point.

Since these statistics are a week delayed, it is possible that
next week’s reports may show that money is starting to go back
into equity funds in the levels we saw earlier in the year.
This can become a self-perpetuating trend, as investors dip in
a little bit at a time, until a true rally starts to develop.

Most people buy equity funds in their retirement plans, and do
not use funds as short-term trading vehicles.  It seems that
there may be a maximum pain threshold people can tolerate
before they sell their funds and convert to cash.  Most people
who started investing in the 1990s had never been through
anything as severe as this year's market, and many are still
suffering from shock of losses they never would have believed
possible.

While most market investors suffered losses this year, the
ICI and the Fed have reported that the levels of cash being
deposited to money market funds, savings accounts, and CDs
are higher than ever.  In fact, money market funds have
taken in over $100 billion in cash since October, and currently
have over $1.87 trillion in deposits.  All we need is to
have a fraction of this deposited to the market to sustain
a strong rally.

Considering the high level of fund redemptions, the market's
movement this week was very encouraging.  If the market is
stabilizing when fund flows are negative, then think what
could happen if they become positive again.

So what is the catalyst going to be?  There are a number of
important events which could trigger individual investors
to begin to deposit money to funds again, which would stimulate
buying by fund managers.

The first is obviously the fact that the market must stop
going down and start to stabilize.  This has already started
to occur on the Nasdaq.  Earnings reports will be another
stimulus.  At this point it seems that the worst case scenario
is priced in to earnings.  We will need to assess the market's
reaction to the earnings coming out this week.

We need to consider that there is a very high short position
in many NYSE and Nasdaq stocks, particularly in many telecom
and technology stocks.  Holding short positions when the Fed
is lowering rates aggressively can be more dangerous than
holding long positions during a rate hike cycle.  These short
positions will have to be covered, and this could be the start
of a rally.

Another point to remember is the sectors which tend to lead
the market higher during rate decreases, financials and
telecoms, will be directly impacted by lower corporate yields
in the near term future.

There is an interesting correlation between the VIX.X and
the spread between high yield corporate bonds and Treasuries.
This spread became widely distorted during the last rate hike
cycle.  C rated debt is considered high risk, and during most
of the 1990s, has generally yielded between three hundred to
four hundred basis points above the Treasury rate.  But with
this cycle of hikes, the rates soared to over 800 basis points
above the Treasury rate.  This phenomenon also occurred
simultaneously with a high VIX.X during the summer of 1998,
and more recently, this fall.




There are a number of reasons why this could have happened.
The stock and bond markets are inextricably intertwined, and
both individual and institutional investors were highly risk
prone during late 1998 and 1999.  The issuance of high yield
debt soared after the Fed's last cycle of rate cuts, and the
IPO market issued more stock than ever before during 1999, an
average of between $20 and $30 billion per month.

While the investment grade corporate debt market yields rose
roughly in tandem with the Fed's rate hikes, the high risk
corporate yields rose by a much greater percentage toward the
second half of 2000.  Commercial and institutional investors
started to shun risk oriented investments as the stock market
declined, and these investors demanded a higher yield from
companies which were increasingly perceived as high risk as
their stock market values declined.

The important point is that high risk yields have dropped
significantly in the last couple of weeks, since Fed
Chairman Greenspan hinted of rate cuts in December.  Since
that time, a number of telecom companies have successfully
issued high yield bonds, and the telecom sector is showing
signs of recuperation.  We may need to wait until most of
the major financial stocks start to report earnings before
investors start to commit funds to this sector.

Considering the Fed’s actions taken the last time we
experienced very high credit spreads, it is likely that this
may have been their primary motivation for easing rates,
and not some phantom menace plaguing the markets, as
some the rumors would have had one think last week.


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

BRCM - Broadcom Corporation $110.00 +13.00 (+23.00 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.

Most Recent Write-Up

Positive price-volume action was one of reasons we added BRCM to
our call play list yesterday, as the stock rallied $6.44 or 7.40
percent on almost 120% of ADV despite a down day for the NASDAQ.
The surge came on news that the company had acquired privately
held chipmaker ServerWorks for about $1 billion in stock.  This
was a deal which analysts applauded, and for good reason, since
this gives BRCM an entry into the lucrative server market.  JP
Morgan re-iterated their Long-Term Buy rating and offered bullish
comments about the company going forward, helping BRCM to gain
another 3.81 percent on 120% of ADV today.  Currently sitting right
on its 5-dma, an entry at these levels could be a good idea but
make sure buying volume confirms positive direction before entering.
A bounce off $95 and the 10-dma at $92 could also provide for
aggressive entry points.  There is also support at $90 and our stop
price of $84, but make sure BRCM closes above this level.  For an
entry on strength, a break through today's resistance at $103 could
be a possible play, but resistance at $105 is formidable so we
recommend waiting for this level to be taken out before taking a
position, confirming entries with the Philadelphia Semiconductor
Index (SOX).

Comments

With the NASDAQ shaking off bad news today, BRCM found some strong
buying to push the stock through the century mark.  Although YHOO
is trading down in after-hours, the probable dip tomorrow will be
met again with buyers.  Look for an entry point on bounces from
intraday support at $100.  If profit-taking is more severe, the
10-dma at $93.84 would be the next area of support.  Watch the
sentiment in the NASDAQ for direction.  The NASDAQ's technically
oversold condition has sparked a stealth rally.

***January contracts expire next week***

BUY CALL JAN-105*RDW-AA OI=3807 at $12.00 SL= 9.50
BUY CALL JAN-110 RDW-AB OI=1494 at $ 9.00 SL= 6.75
BUY CALL JAN-115 RDW-AC OI=2991 at $ 7.13 SL= 5.25
BUY CALL FEB-110 RDW-BB OI= 310 at $18.00 SL=14.00
BUY CALL FEB-120 RDW-BD OI= 495 at $14.00 SL=11.25

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


*****************************************
BIG CAP COVERED CALLS & NAKED PUT SECTION
*****************************************

Traders see a light! Is it the end of the tunnel or another train?

The stock market battled its way to a positive finish Wednesday,
even as unruly bears tried valiantly to push the Nasdaq lower in
the wake of another downgrade of bellwether Cisco Systems (CSCO).
Networking issues were among the biggest losers in the group as
CIBC World Markets issued a bearish outlook for Cisco, saying the
company is not ready to meet future changes in the telecom market.
Analysts also suggested it is unlikely Cisco will meet consensus
revenue estimates in fiscal year 2002 and the company's strategy
of acquisition-based expansion must give way to internal growth.
Among other popular groups, software issues continued to recover
and semiconductor issues rebounded from early selling to achieve
favorable gains.  Many technicians believe chip companies will be
one of the first groups to complete a bottoming process and move
back to a bullish trend.  Stocks in the Internet infrastructure
and wireless telecom groups were mixed after a report from Lehman
Brothers portrayed a "challenging environment for telecom capital
expenditures with uncertainty over enterprise spending levels."
At the same time, pure Internet issues continued to rebound with
shares of America Online (AOL) and EBay (EBAY) leading the rally.
On The Dow, bank and brokerage issues enjoyed substantial gains,
with Citigroup (C) and J.P. Morgan Chase (JPM) among the leaders
on the blue-chip average.  Merrill Lynch identified JPM as a new
"Focus One" stock, indicating that the company's shares appear to
be undervalued when viewed as an emerging global securities play.
On the downside, Wal-Mart (WMT), Caterpillar (CAT) and General
Motors slumped during the session.  In S&P 500 sectors, oil and
natural gas service, telecom carriers and biotechnology companies
generally moved higher while paper, chemical, utility, transport,
retail and drug issues struggled in the rising market.  Overall,
the technical pattern unfolding in the Nasdaq suggests a rally
may be in the making but the optimism could be short-lived as a
pair of important quarterly reports are due after the close of
trading.  Motorola (MOT) and Yahoo! (YHOO) will announce results
for the past three months and they will be the first technology
companies to report in the final quarter of 2000.  Analysts will
be looking for guidance in the coming year and Thursday's session
will likely be driven by the market's reaction to these earnings.

Summary of Previous Picks:

Covered Calls: (Margin would double the listed Monthly Return)

Stock  Strike Strike Cost   Current Profit  Monthly
Symbol Month  Price  Basis  Price   (Loss)  Return

NEWP    JAN    65    62.56  77.13    $2.44   7.4%
IMPH    JAN    45    42.69  55.31    $2.31   5.5%

Naked Puts:

Stock  Strike Strike Cost   Current Profit  Monthly
Symbol Month  Price  Basis  Price   (Loss)  Return

NEWP    JAN    55    53.88  77.13    $1.13  11.2%
QCOM    JAN    70    68.50  72.44    $1.50  10.2% Key Moment
AFFX    JAN    55    53.81  56.69    $1.19   9.6% Support?
IMPH    JAN    40    38.87  55.31    $1.13   9.2%
LEH     JAN    55    54.12  77.31    $0.88   7.8%
JNPR    JAN    70    68.94 119.31    $1.06   7.3%
IVGN    JAN    60    58.50  70.31    $1.50   7.0%
DCTM    JAN    40    38.94  48.69    $1.06   6.8%
IDPH    JAN   120   117.50 158.13    $2.50   6.4% 3-1 split 01/18
EMLX    JAN    45    43.69  77.63    $1.32   6.3% Adj 2-1 Split
BGEN    JAN    50    49.37  51.31    $0.63   6.3% Be Ready!
MWD     JAN    65    64.44  86.00    $0.56   6.2%
NOK     JAN    40    39.25  39.56    $0.31   1.9% Key Moment

Sell Strangles:

Stock  Strike Strike Cost   Current Profit  Monthly
Symbol Month  Price  Basis  Price   (Loss)  Return

BRCM    JAN    45    43.75 109.94    $1.25   8.6%
BRCM    JAN   160   161.06 109.94    $1.06   7.4%

CEPH    JAN    40    39.06  49.00    $0.94   8.2%
CEPH    JAN    70    71.19  49.00    $1.19  10.1%

GMST    JAN    25    24.37  44.63    $0.63   5.8%
GMST    JAN    65    65.75  44.63    $0.75   6.8%

IMPH    JAN    35    33.25  55.31    $1.75  11.7%
IMPH    JAN    80    82.75  55.31    $2.75  17.0%

MERQ    JAN    60    59.31  69.75    $0.69   6.7%
MERQ    JAN   140   141.00  69.75    $1.00   9.6%

RIMM    JAN    50    48.44  52.56    $1.56  12.1% Alert
RIMM    JAN   115   115.94  52.56    $0.94   7.6%

Naked Calls:

Stock  Strike Strike Cost   Current Profit  Monthly
Symbol Month  Price  Basis  Price   (Loss)  Return

RIMM    JAN   110   111.06  52.56    $1.06  13.4%
QLGC    JAN   130   131.50  73.00    $1.50  10.1%
BEAS    JAN    85    86.25  56.25    $1.25  10.1%
ADBE    JAN    80    81.00  45.75    $1.00   8.1%
IVGN    JAN   100   100.63  70.31    $0.63   7.7%
VRTS    JAN   160   161.69  91.06    $1.69   6.1%

Credit Spreads:

Stock  Pick    Last     Position    Credit    C/B    G/L   Status

ESRX  $88.88  $89.91   JAN65p/70p   $0.50   $69.50  $0.50   Open
AFFX  $63.63  $56.69   JAN40p/45p   $0.69   $44.31  $0.69   Open
VAR   $62.00  $61.13   JAN50p/55p   $0.50   $54.50  $0.50   Open
FCEL  $72.25  $56.50   JAN45p/55p   $0.56   $49.44  $0.56   Alert

MRK   $89.13  $83.19   JAN100c/95c  $0.62   $95.62  $0.62   Open

New Candidates:

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.  (We monitor the positions marked with ***).

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

BULLISH PLAYS - Naked Puts

***************
DPMI - Dupont Photomask  $64.00  *** On The Rebound! ***

Dupont Photomask is one of the largest photomask manufacturers
in the world.  Photomasks are high-purity quartz or glass plates
containing precision images of integrated circuits and are used
as masters by semiconductor manufacturers to optically transfer
these images onto semiconductor wafers.  Photomasks are also a
necessary component in the production of semiconductors, and
advanced photomask technologies are critical to enabling the
manufacture of increasingly complex semiconductor devices.  The
company manufactures a range of photomasks based on customer
supplied design data, including photomasks that meet critical
design specifications required by semiconductor manufacturers.

There's little news to explain the recent bullish activity in
DPMI but one thing is clear, investors are willing to support
the price of the issue in its new range.  The stock has traded
higher in each of the last four sessions and volume has also
increased during the rally.  The company's quarterly report is
due after the January options expiration, so it is unlikely
that earnings are driving the share value.  In any case, the
current technical outlook is favorable and our position offers
an excellent reward potential at the risk of owning this issue
at a favorable cost basis.

DPMI - Dupont Photomask  $64.00

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  JAN 40   DUD MH  60        0.38    39.62     9.7% ***
Sell Put  JAN 45   DUD MI  20        0.44    44.56    11.2%
Sell Put  JAN 50   DUD MJ  203       0.56    49.44    14.2%

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

*******

JNPR - Juniper Networks  $119.31  *** Entry Point! ***

Juniper Networks is a provider of Internet infrastructure
solutions that enable Internet service providers and other
telecommunications service providers, to meet the demands
resulting from the rapid growth of the Internet.  Juniper
delivers next generation Internet backbone routers that are
specifically designed, or purpose-built, for service provider
networks.  The company's flagship product is the M40 Internet
backbone router, and it recently introduced the M20, an new
Internet backbone router purpose-built for emerging service
providers.  The company's Internet backbone routers combine
the features of the JUNOS Internet Software, high performance
ASIC-based packet forwarding technology and Internet-optimized
architecture into a unique, purpose-built solution for service
providers.

Networking stocks have been under enormous pressure in recent
weeks and today's acknowledgement form Cisco Systems (CSCO) that
business slowed during the past month simply added to the bearish
outlook.  Cisco's CEO John Chambers told a Morgan Stanley Dean
Witter conference this morning that business from both business
and service provider customers slowed in mid-December.  Of course
Juniper will be affect by the slowing growth but the company has
much better fundamentals and will likely emerge as the new leader
in the industry.  We see the current slump as a buying opportunity
and with the incredible option premiums, it may be a good time to
speculate on the future activity of this volatile issue.

JNPR - Juniper Networks  $119.31

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  JAN 70   JUX MN  596       0.75    69.25    10.3% ***
Sell Put  JAN 72.5 JUX MV  188       0.81    71.69    11.1%
Sell Put  JAN 75   JUX MO  610       1.06    73.94    14.4%
Sell Put  JAN 77.5 JUX MW  186       1.25    76.25    16.8%

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

*******

XLNX - Xilinx  $52.00  *** Hot Sector! ***

Xilinx designs, develops and markets complete programmable
logic solutions, including advanced integrated circuits,
software design tools, predefined system functions delivered
as cores of logic and field engineering support.  The company's
programmable logic devices (PLDs) include field programmable
gate arrays and complex programmable logic devices.  These
devices are standard products that customers program to perform
desired logic functions.  Their products are designed to provide
integration and quick time-to-market for electronic equipment
manufacturers, primarily in the telecommunications, networking,
computing, industrial and consumer markets.  The company offers
complete software design tool solutions, which enable customers
to implement their design specifications into its PLDs.

Semiconductors are performing well and XLNX appears to be one
of the stronger issues in the group, rallying to recent highs
during the past week even as analysts announced new downgrades on
the company's shares.  With earnings due next week, no one knows
how the market (or the semiconductor industry) will perform after
the quarterly announcements, but we believe the cost basis in the
target position is a reasonable price to pay for this issue in
the long run.

XLNX - Xilinx  $52.00

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  JAN 30   XLQ MF  1724      0.38    29.62    11.9% ***
Sell Put  JAN 35   XLQ MG  5764      0.56    34.44    17.3%
Sell Put  JAN 40   XLQ MH  4028      0.94    39.06    28.0%

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

***************
Neutral Plays - Credit Strangles

Many of our readers have asked for 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 week and these
types of positions must be evaluated for portfolio suitability
and reviewed with regard to your strategic approach and trading
style.
***************
CMVT - Comverse Technology  $101.63  *** Trading Range! ***

Comverse Technology designs, develops, manufactures, markets
and supports computer and telecommunications systems and
software for a wide range of multimedia communications and
information processing applications.  The company's products
are used in a number of applications by wireless and wireline
telephone network operators, government agencies, call centers,
financial institutions, and public and commercial organizations
worldwide.  The company provides enhanced services platform
products, digital monitoring and recording systems for call
centers, customer relationship management applications, public
networks and government agencies, network signaling software for
wireless, wireline and Internet communication services known as
signalware, and other telecommunications hardware and software
products and services.

We like this issue for a premium-selling position because it has
a relatively well-defined trading range and no apparent news or
events that will substantially change its character prior to the
January options expiration.  The company's earnings announcement
is not expected until early in March and our profit envelope is
outside the most recent trading range at $85-$120.  Our plan is
to sell the OTM options for credit and use the earned income to
offset any losses on the downside.  If the price of the stock
continues to move through the resistance area near $115 in the
coming week, we will close the play at a small loss or buy the
stock to cover our sold options.

CMVT - Comverse Technology  $101.63

PLAY (aggressive - neutral/credit strangle):

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  JAN 75   CQV MO  2604      0.63    74.37    10.2% ***
Sell Call JAN 125  CQZ AE  2398      0.63   125.63    10.2% ***

- or -

Sell Put  JAN 80   CQZ MP  1640      0.81    79.19    13.0%
Sell Call JAN 120  CQZ AD  2301      1.13   121.13    16.3%

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

*******

EMLX - Emulex  $77.63  *** Range-bound! ***

Emulex is a designer, developer and supplier of a broad line of
Fibre Channel host adapters, hubs, application-specific computer
chips (ASICs), 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 SAN
configurations, system buses and operating systems, enhancing data
flow between computers and peripherals.  Emulex's products offer
customers a combination of critical reliability, scalability, and
high performance, and can be also 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 $54.  The company's earnings are due on January 18.

EMLX - Emulex  $77.63

PLAY (aggressive - neutral/credit strangle):

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  JAN 55   UMQ MK  814       0.56    54.44    11.8% ***
Sell Call JAN 97.5 UEL AM  471       0.56    98.06    11.8% ***

- or -

Sell Put  JAN 57.5 UMQ MY  925       0.94    56.56    19.3%
Sell Call JAN 95   UEL AS  1659      0.94    95.94    19.3%

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

*******

ITWO - i2 Technologies  $48.00  *** Solid Earnings! ***

i2 Technologies is a global provider of intelligent eBusiness
solutions that help enterprises optimize business processes
both internally and among trading partners.  Its solutions
enable enterprises to significantly improve efficiencies,
collaborate with suppliers and customers, respond to market
demands and engage in dynamic business interactions over the
Internet.  The company has recently launched TradeMatrix, a
robust platform of business-to-business solutions, services
and marketplaces that will allow customers, partners, suppliers
and service providers to do business together in real time.  The
company's RHYTHM product suite principally includes solutions
for supply chain management, customer management, product
lifecycle management, inter-process planning and strategic
planning.

ITWO rallied today in the wake of a positive earnings preview
and an upgrade from Salomon Smith Barney.  On Monday, i2 said
its fourth-quarter revenues were seen in excess of $370 million,
beating the consensus estimate of $342 million.  Based on the
strong fundamentals and valuation, analysts upgraded the maker
of supply-chain management software to a "buy" and commented
that i2 is one of the few companies well-positioned for 2001,
given the gloomy projections for IT spending.  We also favor
the issue for a bullish position, but there are not many ways
to approach the wide bid/ask spreads and there are two primary
resistance areas to overcome as the share value recovers.  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.

ITWO - i2 Technologies  $48.00

PLAY (aggressive - neutral/credit strangle):

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  JAN 30   QYJ MF  1358      0.50    29.50    16.7% ***
Sell Call JAN 70   QYI AN  1445      0.56    70.56    18.6% ***

- or -

Sell Put  JAN 35   QYJ MG  756       0.88    34.12    28.4%
Sell Call JAN 67.5 QYI AU  348       0.69    68.19    22.7%

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

*******

NTIQ - NetIQ  $72.44  *** Looking For A Bottom! ***

NetIQ is a provider of eBusiness infrastructures management
software that enables organizations to optimize the performance
and availability of Windows NT and Windows 2000-based systems
and applications.  The company's Administration, Operations and
Network Performance Management product lines are designed to
help reduce the cost of operations and increase the security,
performance and availability of unique eBusiness applications,
directories, servers and networks.

Internet infrastructure stocks slumped early in the month after
investment bank Robertson Stephens slashed their ratings on a
number of issues in the group.  Analyst Dane Lewis' report cited
a slowdown in spending on information technology as well as
heightened competition that will likely squeeze margins in the
coming months.  His reasons for downgrading the sector are easy
to understand, as corporate customers can do little to help the
problem amidst their own spending concerns.  NetIQ fell to a new
3-month low (near $58) on the news, but found excellent buying
support near that range as the broader software industry began
to recover from recent selling pressure.  With today's Nasdaq
rally, the issue has moved back above a short-term ceiling and
the path of least resistance appears to be a bullish one.  At
the same time, the area near $100 has heavy overhead supply and
the likelihood of the stock reaching that price in one week is
statistically very low.

NTIQ - NetIQ  $72.44

PLAY (aggressive - neutral/credit strangle):

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  JAN 50   CQT MJ  185       0.56    49.44    12.6% ***
Sell Call JAN 105  CQT AA  224       0.56   105.56    12.6% ***

- or -

Sell Put  JAN 55   CQT MK  32        1.19    53.81    25.7%
Sell Call JAN 100  CQT AT  187       0.88   100.88    19.4%

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


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