Option Investor
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Daily Newsletter, Wednesday, 11/07/2001

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The Option Investor Newsletter                Wednesday 11-07-2001
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*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
      11-07-2001          High     Low     Volume Advance/Decline
DJIA     9554.37 - 36.75  9644.12  9522.41 1.42 bln   1601/1526
NASDAQ   1837.53 +  2.45  1868.31  1820.28 2.04 bln   1669/1921
S&P 100   573.64 -  2.66   579.46   572.03   Totals   3270/3447
S&P 500  1115.80 -  3.06  1126.62  1112.98
RUS 2000  440.80 -  1.98   444.66   440.64
DJ TRANS 2307.50 + 16.35  2309.64  2275.94
VIX        30.47 +  0.62    31.72    29.67
VXN        57.20 -  0.11    59.95    48.28
TRIN        1.30
Put/Call    0.48
*******************************************************************

Natural Reaction

Wednesday was a routine day of profit taking following the big
ramp into the close Tuesday.  Surprisingly, big cap tech carried
the torch again despite Qualcomm's (NASDAQ:QCOM) slight misstep.
The major averages gapped slightly lower after the bell.  But
keeping stocks down recently has become a lot like holding a
balloon underwater.  Stocks just don't want to go down.  The gap
lower Wednesday morning wasn't met with enough supply from longs
liquidating.  Guess what?  The shorts who'd sold into Tuesday's
ramp had to cover Wednesday morning.

Qualcomm's behavior Wednesday was picturesque short-covering.
Obviously a few too many traders had shorted the stock going into
the company's report Tuesday night.  By no means did the company
knock the cover off the ball with its report.  Judging by the
reaction in Tuesday's evening session, shorts had a minor victory.
But no.  Qualcomm rebounded in full force early Wednesday, and
exploded as it surpassed Tuesday's highs.  The velocity and
magnitude of Qualcomm's intraday move revealed one thing: Fear.
Fear on the part of shorts who'd bet the wrong way.



The short covering rally Qualcomm displayed Wednesday afternoon
has been popping up all over the market.  Heck, QCOM staged a
more than $5 reversal from Wednesday's lows to highs.  Find these
situations and exploit them!  They're quick and so must you be.
If you have the ability to monitor the market on an intraday
basis, there's some money to be made in these short covering
situations.

My trusted colleague, Jeff Bailey, and I were enjoying a few
pieces of sushi for lunch, Hamachi Maki and Unagi Maki to be
specific, and discussing the Oil Service Index (OSX.X).  Short
covering may have been at play in the OSX.X in the last two days.
The energy group as a whole was knocked down over the past week
but rebounded late Tuesday and followed through Wednesday.  Of
the 30 sectors I monitor, the OSX.X was the second best
performing group of the day with its 3.62 percent gain.  (The
Internet Index (INX.X) was the best performing sector with its
3.68 percent gain.)

The rebound in crude futures back above the $20 level was
the main driver behind the OSX.X's recent advance.  The
commodity moved higher Wednesday on news of declining gasoline
futures and ahead of OPEC's meeting next week.  An OPEC member
stated that the cartel would cut production by at least 1
million barrels per day if not by 1.5 million barrels.

The OSX.X looks like it could move higher.  A breakout above the
$80 level would increase my conviction level, so readers
tracking the Amerada (NYSE:AHC) put play may want to watch the
index closely in Thursday's session.  More importantly, I wanted
to point out the set-up in the OSX.X that Jeff Bailey alluded to
in the Option Investor Market Monitor Tuesday afternoon.  I think
the set-up the OSX.X delivered Tuesday is going to be a recurring
theme going forward.

The OSX.X pulled back to a key retracement level around the 75
level as displayed on the Daily chart.  The level also happened
to be the site of its 200-PERIOD moving average on the 60-minute
chart.  The timeframes aren't significant.  The bigger picture
here is that after the OSX.X staged a big rally up to the 90
level, it pulled back to a key support area, which sits at the
75 level.  One-and-a-half days later, the OSX.X is five points
higher.



The process of rallying, retracing, and bouncing is something
I think we're going to see repeated over the next several months.
I could be wrong.  The market could go straight higher, or lower
from here.  But, if the market thinks the economy and corporate
profits are on the mend, which is the way it's been acting, then
stocks should continue discounting the good news to come in the
next six to nine months methodically.  Not irrationally.

The process of picking your targets, such as the OSX.X example
I highlighted, may be the more rational approach.  Yes, there's
money to be made in the Qualcomm-type short covering scenario
above.  But, consider the fact that QCOM closed near the
inflection point that induced the short covering.  The stock
finished about $2 off of its day high.  In other words, buying
breakouts should be done selectively and only when the market
is supporting such a strategy.

Major Market Averages

The Dow Jones Industrial Average ($INDU) worked slightly higher
Wednesday, but pulled back later in the day.  The INDU closed
about 50 points off the 9500 level, which is the first potential
support level to monitor.  Below 9500, the 9300 retracement area
is technically strong.

The INDU has some serious resistance at the 9700 level.  That
level is the site of a retracement level as well as the bearish
resistance line of the point & figure chart.  If the INDU breaks
above the 9700 level in the coming days, then the index is a
lot stronger than most people think right now.



The S&P 500 (SPX.X) also has serious resistance above current
levels.  The key retracement level to monitor in the SPX is
1130.  The SPX's high Wednesday was at 1126.  I think a similar
situation exists in the S&P in that if it can rally past
resistance at 1130, then it's a lot stronger and probably
headed much higher over the short-term.



Meanwhile, the Nasdaq-100 (NDX.X) also has some heavy congestion
between the 1575 to 1600 area.  The 1575 level is the 50%
retracement level of the May highs and 1600 was the level that
support the NDX through July and August.  There're a lot of
positions waiting to get back to breakeven around 1600, so it's
going to be difficult for the NDX to move through that level.
Support for the NDX is located around 1500 over the very short-
term.



Summary

The major averages are growing overbought on the Daily
Stochastics readings and nearing meaningful resistance.  A
profit taking pullback from current levels makes the most
sense to me.  But a lot of what the market has been doing
lately hasn't made sense to me.  Ideally, the markets will
routinely pullback to their various support levels, in
similar fashion to what the OSX.X recently did, and allow
traders new bullish entries.  But, they could keep going
higher and readers can gauge the strength of any forthcoming
rally attempt by the averages' abilities to push through the
overhead congestion.

Eric Utley
Option Investor


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

ZION - call
Adjust from $48 up to $48.50

SPW  - call
Adjust from $101 up to $102

SUNW - call
Adjust from $10.50 up to $10.75

SIAL - call
Adjust from $38 up to $39

NVDA - call
Adjust from $45 up to $46

BAC  - call
Adjust from $60 up to $61

DYN  - put
Adjust from $37 down to $36.50


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

No Dropped Calls for Wednesday.


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

No Dropped Puts for Wednesday.


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

Timing Is Everything
By Mark Phillips
Contact Support

As option traders, we know that the timing of our entries and
exits is crucial to our long-term success.  Options are a
wasting asset, as the time value we purchase when we open a new
position decays over time.  So just picking the right trade and
direction is not enough.  We also need to enter our trades when
the underlying security is ready to move in our favor.

Not only do we need to pick the right time for entries and
exits, but we need to know how long the anticipated move should
take to come to fruition.  Have you ever entered a trade,
"knowing" that you had the direction correct, only to watch your
purchased options expire worthless just as the move you were
expecting got started?  Or am I the only one?  When that happens
to a trade, we need to ask ourselves where we went wrong.  Did
we pick the wrong direction, or the wrong timeframe?  Why?
Could it be that the charts we used for picking the trade were
too long or short in their timeframes?  In an effort to
highlight the important factors involved in picking the right
entry, timing and timeframe, I'd like to look at our potential
Put play on eBay (NASDAQ:EBAY) today.  Care to join me?

We added the stock to our Watch List a couple weeks ago, based
on emerging weakness in the longer-term charts.  Given the
stock's rich valuation and my expectation for more economic
weakness in the months ahead, it seemed like an attractive
bearish play.  Let's review what the charts looked like at the
time.



Traders with stronger intestinal fortitude than I could have
entered LEAP Put positions near the then-current price of
$56.75, due to the developing weakness on the weekly chart and
the well-established downtrend on the monthly chart (not shown).
But the daily chart clearly showed that a better entry would
materialize later, due to Stochastics just beginning to emerge
from oversold territory.  Sure enough, they would have managed
a solid profit over the near term as EBAY got slammed early the
following week due to poor reception of the company's annual
analyst meeting.  The stock sold off sharply, as shown in the
daily chart below, dragging EBAY down to test the $52 support
level.  Support held again, allowing the bulls to take control,
pushing back towards the $60 resistance level.



So why did I go through this repeat analysis on the EBAY chart,
which we have already analyzed to death over the past 2 weeks?
Simply to point out the importance of timing.  While we are
looking to initiate a long-term position, the shorter-term chart
MUST be used if we want to achieve a lower-stress entry point.

It all goes back to defining our trading objectives.  For LEAPS
plays, the weekly and monthly charts determine the trend that we
want to capitalize on, but the daily is used for entries.  The
other important factor is trade duration.  Judging by the time
between troughs and peaks on the weekly chart, we can see that a
move from overbought to oversold should take on the order of 2-3
months.  Judging from the past trading of EBAY, the monthly
oscillator takes from 8-10 months to fully transition from one
extreme to the other.  The monthly trend is half-way through its
current decline, while the weekly appears just about ready to
start down.

That gives us a reasonable target for the duration of the play
from 2-5 months once the daily chart gives us that clear entry
signal.  Since we want to avoid the effect of time decay in our
play, we want to use option contracts that will still have a
minimum of 9 months until expiration when we expect the play to
come to a reasonable close.  That leads us to the conclusion
that we can reasonably use 2003 LEAPS, with an expiration in
January 2003.

Since we began looking at the stock a couple weeks ago, the
daily Stochastics oscillator dropped near oversold, bounced from
support and is nearing overbought territory again, while still
remaining below resistance.  Short-term traders can choose to
take advantage of these near-term moves, but their entry/exit
triggers will come from the intraday (60-min/30-min) charts.
For those traders, the daily chart defines the "longer-term"
trend from which they want to profit.  Since they are looking to
play trends that last for a few days to as much as a couple
weeks, they can profitably use shorter-term options.  Ideally
they will choose those options with 60-90 days until expiration
to shield their trade from the effects of time-decay that
accelerates as expiration day draws near.

But for us, the moves on the daily chart only portray near-term
"noise" that will eventually set us up for our long-term play.
We utilize LEAPS for the simple purpose of profiting from a
longer-lived trend, with lower time-decay risk.  The price we
pay is that the LEAPS are significantly more expensive (because
we are buying more time), so our annualized rate of return will
be lower than what can be achieved by the accomplished swing
trader.  We pay more up front and reap a lower percentage gain,
but do so with less stress (and I believe, less risk) due to the
fact that we have more time to be right, and to a certain extent
can ignore the fluctuations on the shorter-term charts.

So let's see what we have learned about EBAY that can guide us
into a profitable put play.  The monthly chart is about halfway
through its move towards oversold and the weekly chart is just
beginning to roll over.  This gives us a reasonable duration of
the play of from 2-5 months, guiding us towards a selection of
the 2003 LEAP Puts.  We can reasonably expect the daily chart to
go through numerous overbought/oversold cycles throughout the
duration of the play, and is one of our best tools for
determining our trade entry trigger.

So long as the $60 resistance level remains intact, the next
rollover of the daily oscillator is likely to be our high-odds
long-term entry.  Then we place our stop just above resistance
and settle in to ride the stock lower over the months ahead.
Using the weekly Stochastics as our guide, we can ride the
long-term trend south, taking defensive action (tightening our
stop or closing the play completely), as the oscillator bottoms
in oversold again and begins to show signs of life.  Depending
on developments between now and then and how long the next
weekly cycle lasts, we might even get a chance to play EBAY to
the downside again before the monthly chart reaches the end of
its downward move.  Only time will tell...

With the weekly Stochastics rolling over, the 50-dma now
crossing below the 200-dma again and a formidable downtrend in
place on the price chart, it appears that we are getting close
to confirmation that we are on the right side of the long-term
trend.  Look for increasing bearish pressure to drive EBAY
decisively below the $52 support level, as that will be an
important confirmation that we are right.

I hope this little discussion helps you to better understand
the important factors involved in trade selection, based on your
time horizon and the maturity of the trend from which you wish
to profit.

Have a great week!


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


*********************
PLAY OF THE DAY - PUT
*********************

PPDI - Pharmaceutical Product Dev. $24.09 -0.22 (-1.91 this week)

Pharmaceutical Product Development and its subsidiaries provide
a broad range of research and development and consulting services
in two segments, development and discovery sciences.  The
company provides services under contract to clients in the
pharmaceutical, general, chemical, agrochemical, biotechnology,
and other industries.

Most Recent Update

Most stocks have rallied recently.  Most stocks.  There have been
a few diverging from the rally.  Defensive stocks have been
under selling pressure recently; possibly a product of rotation
into the cyclical and growth areas of the market.  PPDI is more
of a defensive stock given the nature of its business.  Some of
its recent weakness may be attributable to sector rotation, but
not all of its weakness.  The stock has measurably under performed
recently and looks to be heading back towards its relative lows.
Shares were downgraded today from a buy to an accumulate rating
by Jeffries.  That downgrade may have contributed to PPDI's
divergence from the major averages.  The stock has been in a
descending trend since breaking down four sessions ago.  Traders
who like playing downside momentum might take a closer look at
PPDI.  The stock bounced from the $24 level late Tuesday.  A
breakdown below $24 could signal further weakness, especially if
the major averages pullback.  PPDI doesn't have much support
immediately below current levels, which is why the stock could
revisit its relative lows around the $20 area over the short
term.  Our stop is initially in place at the $27 level.

Comments

A breakdown below $24 feels close.  Weakness in the broader
market Thursday could pressure PPDI below its near-term support
level.  Look for volume to pick-up on any decline below $24 and
wait for the Nasdaq to weaken.  Keep an eye on the Biotech
Sector (BTK.X) as well as the Drug Sector (DRG.X).

***November contracts expire next week***

BUY PUT NOV-25*PJQ-WE OI=119 at $1.80 SL=1.00
BUY PUT DEC-25 PJQ-XE OI= 47 at $3.60 SL=2.75

Average Daily Volume = 751 K



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

Time For A Breather...
By Ray Cummins

Stocks ended mixed today after volatile session that saw lots
of bullish activity a day after the Fed slashed the overnight
lending rate to a 40-year low.  News of an unexpected increase
in productivity also boosted optimism among investors as did a
report that inflation was very limited in the third quarter.


Time For A Review...

With the recent recovery rally in the broader markets, some of
our readers have been asking about adjustment strategies for
bearish credit (bear-call) spreads.  The following narrative
(excerpted from an E-mail reply) offers a brief explanation of
our approach to the strategy and some common techniques that
other traders use to manage their positions.


Bearish Credit Spreads

The most common way traders participate in credit spreads is
with "out-of-the-money" (OTM) options and that produces a high
probability/low profit position that must be managed correctly
to avoid significant losses.  One big loser can erase the gains
of three or four winners and that is why it is so important to
be diligent in position adjustments.  Most of the credit spreads
offered in the OIN are also high probability/low profit plays.
This strategy is great for new traders because the majority of
positions are winners and the need for an adjustment (or exit)
occurs on a limited basis.  In addition, the issues we target
generally have well defined price resistance, trend-lines, or
trading ranges to help identify significant changes in technical
character.  Using a conservative approach, we strive for capital
preservation in any (potentially) losing position and attempt to
minimize its impact on our overall portfolio balance.  The ratio
of winners to losers, while very favorable, is not as important
as position management, which involves timely adjustments and
when necessary, closing a play early for a small, but acceptable
loss.

"Bear-call" spreads are a very popular among conservative option
traders and there are a few ways to limit potential losses or
even capitalize on a reversal (or transition) to a new, upward
trend.  There are three common methods to exit or cover a losing
credit spread and the alternatives range from "legging-out" or
rolling into a longer-term spread (or naked call) to "buying to
cover" the underlying issue.  First, you can simply close the
spread at a debit and register the loss.  Another popular method
involves buying the underlying stock or (another long option) to
cover the short position as the issue's price moves through the
sold strike.  This is an excellent method for saving gains on an
issue that has reversed course, but you must also be prepared to
unload the stock or option in the event of a sell-off.  You can
also move up and forward to a future spread (or short call) and
another common exit technique is to "roll out" of the spread for
a profit (or break-even).  To roll out of a credit spread, place
an order to close the short option anytime the underlying stock
trades (and preferably closes) above technical resistance or a
defined range or trend-line (moving average) on heavy volume.
There are other, more precise signals that can be used to spot
reversals but this technique is based on the probability that the
stock should continue to move in that direction.  After the sold
position is repurchased, wait for the issue to lose momentum and
sell the long position to close the entire play.  Of course, it's
a difficult technique to perform when emotion enters the formula
but it works well once you become experienced at it.  The key to
success is using the method at known resistance levels or after
obvious reversal signals, otherwise you are simply speculating
about the stock's next move.

The great thing about Spreads: once you understand them, you can
turn many losing plays into winning ones with the effective use
of STOPS and by rolling out-of/into new positions when the stock
moves against you.  When you do lose, at least you have reduced
your losses by leveraging against another position.  In all cases
where an attempt to recover a losing position is made, you must be
prepared for further draw-downs and have thorough knowledge of the
adjustment strategy.

Good Luck!


Summary of Current Positions (as of 11/06/01):


Covered Calls: (Margin not used in calculations)

Stock  Strike Strike Cost   Current  Gain  Potential
Symbol Month  Price  Basis   Price  (Loss) Mon. Yield

EBAY    NOV     50   47.28   55.68   2.72     4.6%
ELNT    NOV     30   28.95   38.05   1.05     4.6%


Naked Puts:

Stock  Strike Strike Cost   Current  Gain  Potential
Symbol Month  Price  Basis   Price  (Loss) Mon. Yield

CERN    NOV    45    44.20   54.60   0.80     5.0%
EBAY    NOV    40    39.05   55.68   0.95     6.2%
GILD    NOV    50    48.85   65.45   1.15     6.7%
IMCL    NOV    45    43.85   60.87   1.15     7.2%
SYMC    NOV    35    34.40   62.00   0.60     4.8%
ACS     NOV    80    78.90   93.65   1.10     4.1%
ELNT    NOV    25    24.60   38.05   0.40     7.0%
GILD    NOV    55    54.30   65.45   0.70     6.0%
IMCL    NOV    50    49.35   60.87   0.65     6.1%
SEPR    NOV    40    39.35   51.65   0.65     7.2%
SYMC    NOV    45    44.40   62.00   0.60     6.3%
CCMP    NOV    55    54.30   69.58   0.70     7.9%
SEPR    NOV    40    39.45   51.65   0.55     8.1%


Naked Calls:

Stock  Strike Strike Cost   Current  Gain  Potential
Symbol Month  Price  Basis   Price  (Loss) Mon. Yield

ABK     NOV     60   60.85   51.80   0.85     4.1%
ADVP    NOV     37   37.82   30.73   0.32     6.8%
QCOM    NOV     60   60.45   54.73   0.45     7.8%


Sell Strangles:

Stock  Strike Strike Cost   Current  Gain   Potential
Symbol Month  Price  Basis   Price  (Loss) Mon. Yield

IDPH    NOV    40-P  39.25   59.21   0.75     6.6%
IDPH    NOV    65-C  65.65   65.51   0.14     1.2%
CVTX    NOV    25-P  23.60   38.10   1.40    27.0%
CVTX    NOV    55-C  56.20   38.10   1.20    23.6%

Idec Pharmaceuticals (NASDAQ:IDPH) is a approaching the
break-even point in the bullish portion of our neutral
position.  Traders who want to remain in the play for a
credit should consider transitioning to the December $75
call.


Credit Spreads:

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

FDC    66.02   71.11   NOV55P/60P   0.70   54.30   0.70   Open
PCSA   58.17   52.25   NOV45P/50P   0.75   49.25   0.75   Open
PEP    49.90   48.74   NOV45P/47P   0.45   47.05   0.45   Open
JNJ    57.77   59.00   NOV50P/55P   0.65   49.35   0.65   Open
MMC   102.51  103.58   NOV85P/90P   0.50   89.50   0.50   Open
ERTS   52.70   55.31   NOV65C/60C   0.90   60.90   0.90   Open
LLY    75.00   79.60   NOV85C/80C   1.00   81.00   1.00   Open
IBM   108.57  114.19   NO95P/100P   0.60   99.40   0.60   Open
TECD   45.00   46.05   NOV35P/40P   0.55   39.45   0.55   Open
HI     55.44   56.53   NOV65C/60C   0.65   60.65   0.65   Open
CHIR   53.82   56.80   NOV45P/50P   0.55   49.45   0.55   Open
WLP   111.59  115.20   N100P/105P   0.50  104.50   0.50   Open
ACS    88.05   93.65   NO100C/95C   0.50   95.50   0.50   Open

Eli Lilly (NYSE:LLY) is testing a recent resistance area at
$80 and with the near-term bullish outlook for the broader
market, it may be best to roll up and forward to the DEC-$85
call.  The transition would provide a small credit, raising
the break-even point to approximately $86.25.  The bearish
spread in Affiliated Computers (NASDAQ:ACS) may also need an
adjustment, but with no strike prices above $100 in December,
it may be best to simply close (or leg-out) of the play on
any rally beyond the short call at $95.  Another issue on the
watch-list is Household International (NYSE:HI) and any close
above the near-term resistance at $58 will signal an early-exit
or adjustment.


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 - Covered Calls, Naked Puts, & Combinations

***************
INTU - Intuit  $44.35  *** Earnings Rally! ***

Intuit (NASDAQ:INTU) offers a wide variety of small business, tax
preparation and personal finance software products and related
products and services that enable people and small businesses to
revolutionize how they manage their activities.  The company's
products and services include QuickBooks, Quicken, TurboTax and
Lacerte desktop software products, as well as an expanding array
of Internet-based products and services, including QuickBooks
Deluxe Payroll service, QuickBooks Internet Gateway services, the
Site Builder website tool, TurboTax for the Web, Quicken.com,
Quicken Loans and QuickenInsurance.  Intuit offers its products
and services through four principal business divisions: Small
Business, Tax, Consumer Finance and International.

INTU shares have rallied in recent sessions in anticipation of
the company's upcoming earnings report, due out after the bell
on November 15.  Traders have been speculating on the outcome of
that event and the increased interest has driven option premiums
well above normal levels, providing some excellent opportunities
for investors who are bullish on the issue.  The current chart
indications suggest there is solid buying support near $40 and
these conservative positions offer a method to participate in
the future movement of the issue with relatively low risk.

INTU - Intuit  $44.35

PLAY (buy stock and sell covered call; or sell naked put):

Action    Month &  Option  Open     Closing  Cost     Target
Req'd     Strike   Symbol  Int.     Price    Basis    Mon. Yield

SELL CALL NOV 45   IQU-KI  3053      1.50    42.85      15.3%
SELL CALL DEC 45   IQU-LI  2215      3.50    40.85       6.9% ***

SELL PUT  NOV 40   IQU-WH  2974      0.45    39.55       9.9%
SELL PUT  DEC 35   IXU-XG  1543      0.80    34.20       5.6% ***


***************
NVDA - Nvidia  $50.63  *** Own This One! ***

Nvidia (NASDAQ:NVDA) designs, develops and markets unique graphics
processors and related software for personal computers and digital
entertainment platforms.  Nvidia provides a "top-to-bottom" family
of performance graphics processors and graphics processing units
that has set the standard for performance, quality and features
for a broad range of desktop PCs, from professional workstations
to low-cost PCs, and mobile PCs, to performance laptops.

Nvidia is one of the top companies in the Specialty Semiconductor
group and among our readers, it is also a popular portfolio issue.
The fundamental outlook for the company is excellent and the chip
sector has performed well in recent sessions; both factors that
lead us to a bullish position in the issue.  In addition, NVDA
traded at a new all-time high today and the long-term technical
trend is very favorable.  The premiums in these options provide
excellent reward potential at the risk of owning the issue at a
favorable cost basis.

NVDA - Nvidia  $50.63

PLAY (sell naked put):

Action    Month &  Option  Open     Closing  Cost     Target
Req'd     Strike   Symbol  Int.     Price    Basis    Mon. Yield

SELL PUT  NOV 40   RVU-WH  6110      0.35    39.65      10.2% ***
SELL PUT  NOV 45   RVU-WI  4376      0.85    44.15      16.7%
SELL PUT  NOV 50   RVU-WJ  1809      2.35    47.65      32.5%


***************
PCAR - Paccar  $62.59  *** Hot Sector! ***

PACCAR (NASDAQ:PCAR) operates in two principal industry segments:
manufacture and distribution of light-, medium- and heavy-duty
trucks and related aftermarket distribution of parts; and finance
and leasing services provided to customers and dealers.  PACCAR
also has an All Other segment, which is comprised of the company's
industrial winch manufacturing business and the retail auto parts
business, which was sold in October 1999.

Paccar shares have been "on the move" in recent sessions and the
issue is now within a few dollars of an all-time high.  The rally
has occurred in conjunction with strong bullish activity in the
Automotive Trucking segment but there is little public news to
explain the explosive climb in PCAR's stock price.  Technically,
the issue has excellent buying support near our break-even point
and the favorable premiums in this spread will allow traders to
speculate, in a conservative manner, on the future movement of
the company's share value.

PCAR - Paccar  $62.59

PLAY (conservative - bullish/credit spread):

BUY  PUT  DEC-50  PAQ-XJ  OI=100  A=$0.50
SELL PUT  DEC-55  PAQ-XK  OI=100  B=$1.10
INITIAL NET CREDIT TARGET=$0.70-$0.75  PROFIT(max)=16%


***************
TARO - Taro Pharmaceutical  $47.54  *** On The Move! ***

Taro Pharmaceutical Industries (NYSE:TARO) is a multinational,
science-based pharmaceutical company dedicated to meeting the
needs of its customers through the discovery, development,
manufacturing and marketing of the highest quality healthcare
products.  The company was founded with the goal of building a
pharmaceutical company in Israel that would provide high quality
pharmaceutical products while investing in research to develop
an international presence.

There is no news to explain today's rally to a 3-month high but
Taro Pharmaceuticals is widely recognized as an industry leader
and the company's earnings have historically been outstanding.
Taro is also very innovative and they are moving into other
growth opportunities such as Cardiovascular-related products
and a unique spill-resistant liquid delivery system which has
potential applications in a wide variety of both prescription
and over-the-counter pharmaceuticals.  The CEO says Taro has
plenty of cash to maintain the company's long and short-term
growth and they plan to continue investing in infrastructure
and targeted R&D programs, as well as broadening their product
lines in the U.S. and increasing penetration of other markets.

The technical outlook for TARO is favorable and our speculative
position offers an excellent way to participate in the future
movement of the stock with relatively low risk.  Target a small
credit in the position initially, to allow for a brief pullback
in the issue.

TARO - Taro Pharmaceutical  $47.54

PLAY (speculative - bullish/synthetic position):

BUY  CALL  JAN-55  QTT-AK  OI=33   A=$1.90
SELL PUT   JAN-40  QTT-MH  OI=326  B=$1.70
INITIAL NET CREDIT TARGET=$0.00-$0.20  TARGET PROFIT=$1.25-$1.50

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $1,325 per contract.


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

Neutral Plays - Straddles & Strangles

***************
PDLI - Protein Design Labs  $36.23  *** Reader's Request ***

Protein Design Labs (NASDAQ:PDLI) is engaged in the development of
humanized monoclonal antibodies for the prevention and treatment
of disease.  The company has licensed certain rights to its first
humanized antibody product, Zenapax, to Hoffmann-La Roche and its
affiliates (Roche), which markets Zenapax for the prevention of
kidney transplant rejection.  The company is also testing Zenapax
for the treatment of autoimmune disease.  In addition, the company
has several other humanized antibodies in clinical development for
autoimmune and inflammatory conditions, asthma and cancer.  The
company has fundamental patents in the United States, Europe and
Japan, that cover many humanized antibodies. Eleven companies have
licenses under these patents for humanized antibodies that they
have developed.  The company receives royalties on sales of the
three humanized antibodies developed by other companies that are
currently being marketed.

One of our readers submitted this candidate for a speculative
debit strangle and asked if we would review the issue for a
potential play.  Based on analysis of PDLI's historical option
pricing and technical background, the issue does qualify as a
favorable (straddle) candidate.  In addition, the stock has a
history of multiple movements through a sufficient price range
in the required amount of time to justify the overall risk of
the position.  As always, review the play individually and make
your own decision about the future outcome of the position.

PDLI - Protein Design Labs  $36.23

PLAY (speculative - neutral/debit strangle):

BUY  CALL  NOV-37.50  RPV-KU  OI=3575  A=$1.05
BUY  PUT   NOV-35.00  PQI-WG  OI=1160  A=$1.20
INITIAL NET DEBIT TARGET=$2.00-$2.15 TARGET PROFIT=15%-20%


***************
AZN - AstraZeneca  $47.55  *** Premium Selling! ***

AstraZeneca (NYSE:AZN) is a pharmaceutical company that provides
products to fight disease in important areas of medical need.  The
company focuses on seven major therapeutic areas: cancer/oncology;
cardiovascular; the nervous system; gastrointestinal; infection;
pain control and anesthesia, and respiratory.  Non-pharmaceutical
businesses include Astra Tech, Salick Health Care and Cellmark
Diagnostics.  Astra Tech develops and markets advanced medical
devices and implants, focusing primarily on urology, surgery,
dental implants and diagnostic imaging. SHC provides a range of
services to health insurers, oncologists, other specialists and
their patients in the United States, principally in the diagnosis
and treatment of cancer and kidney failure.  Cellmark Diagnostics
is engaged in DNA fingerprinting outside the United States.

AZN is a great candidate for premium-selling strategies, based
on the issue's technical background and its favorable option
premiums.  AZN has a relatively stable trading range from $45 to
$50, well inside our profit envelope, and no (expected) upcoming
events that will substantially change its fundamental outlook or
technical character prior to the December options' expiration.
Traders that enjoy premium-selling plays can utilize the recent
volatility and the robust options to initiate a neutral position
with a favorable credit.  The probability of the share value
reaching our sold strikes is rather low, but there is always the
possibility of a break-out from the recent range, so monitor the
position daily for changes in technical character.

AZN - AstraZeneca  $47.55

PLAY (conservative - neutral/credit strangle):

Action    Month &  Option  Open     Closing  Cost     Target
Req'd     Strike   Symbol  Int.     Price    Basis    Mon. Yield

SELL CALL DEC 50   AZN-LJ  1068      1.30    51.30      4.9%
SELL PUT  DEC 45   AZN-XI  1400      1.40    43.60      5.3%


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

BEARISH PLAYS - Naked Calls & Combinations

***************
AHP - American Home Products  $56.47  *** Trading Range! ***

American Home Products (NYSE:AHP) is engaged in the discovery,
development, manufacture, distribution and marketing of a large
and diversified line of products for two primary businesses,
Pharmaceuticals and Consumer Health Care.  AHP's Pharmaceuticals
products include branded and generic human pharmaceuticals,
biologicals, nutritionals and also animal biologicals and
pharmaceuticals.  AHP's Consumer Health Care products include
analgesics, cough/cold/allergy remedies, nutritional supplements,
herbal products, hemorrhoidal, antacid, asthma and other relief
items sold over-the-counter.

This play is simply based on the current price or trading range
of the underlying stock and its recent technical history.  The
near-term price trend in AHP is slightly bearish and the small
negative divergence from an intermediate-period moving average
suggests the share value will test its recent lows near $54.  In
addition, the failures at $60 in September and October identify
the current maximum price for buyers and until there is a major
positive news event or announcement, there is little reason to
expect a bullish change of character.

AHP - American Home Products  $56.47

PLAY (conservative - bearish/credit spread):

BUY  CALL  DEC-65  AHP-LM  OI=2094  A=$0.20
SELL CALL  DEC-60  AHP-LL  OI=1333  B=$0.75
INITIAL NET CREDIT TARGET=$0.65-$0.75  PROFIT(max)=15%








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