Option Investor

Daily Newsletter, Sunday, 11/11/2001

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The Option Investor Newsletter                   Sunday 11-11-2001
Copyright 2001, All rights reserved.                        1 of 5
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MARKET WRAP  (view in courier font for table alignment)
       WE 11-11         WE 11-02         WE 10-26         WE 10-19
DOW     9608.00 +284.46  9323.54 -221.63  9545.17 +341.06  -140.05
Nasdaq  1828.48 + 82.75  1745.73 - 23.23  1768.96 + 97.65  - 32.09
S&P-100  577.99 + 18.00   559.99 -  7.99   567.98 + 14.18  -  6.98
S&P-500 1120.31 + 33.11  1087.20 - 17.41  1104.61 + 31.13  - 18.17
W5000  10297.21 +280.40 10016.81 -168.72 10185.53 +290.64  -154.23
RUT      438.10 +  5.03   433.07 -  5.58   438.65 + 12.95  -  2.89
TRAN    2320.69 + 74.03  2246.66 -   .92  2247.58 + 73.30  - 60.45
VIX       28.76 -  3.64    32.40 +  1.87    30.53 -  5.31  -   .61
VXN       58.59 -  2.60    61.19 +  4.28    56.91 - 12.37  +  3.30
TRIN       0.90             0.92             0.87             1.19
TICK       +784             +701             +828             +342
Put/Call    .74              .70              .53              .80    

Bears Remain Frustrated From Lack of Sell Off!
by Jim Brown

How can you complain about a week with almost a +300 point Dow
gain? The Nasdaq posts almost a +5% gain for the week and many
traders are miffed because it did not roll over. Go figure! I
guess that is what happens when you have a preconceived idea 
about the market and the market moves in the opposite direction.
Everyone knows I have been on the wrong side many times but 
normally I am expecting a bullish direction. I guess the bears 
are now experiencing the same thing we bulls saw for over a year 
now. It is about time for a change!

Wow! More positive economic reports? Is that the sun actually 
peeking through the clouds? The PPI number announced on Friday
was the lowest since record keeping started in the 1940s. 
Producer prices fell -1.6% in October helped by sharply
falling energy prices. Producer prices of gasoline and fuel oil
fell by 21.2% and 20.9% respectively. Wholesale prices for crude
goods fell by 9.1% in October compared to September. Vegetables
fell by 11.4% and passenger cars were down 4.7% compared to the
prior month. Inflation has completely disappeared from the economy
and the Fed has no roadblocks to future rate cuts should they 
decide they are needed. Because of weak demand after the attack
producers have zero pricing power and some analysts are afraid
deflation is creeping in as a result. Since the fall out from 
the attack is an extraordinary one time event and the majority
of the drop was energy related, I doubt the deflation threat is
going to stick.

Also surprising traders on Friday was a better than expected 
consumer sentiment number showing that consumers are shaking 
off the impact of the attack and starting to go back to their
daily routines. Given the daily barrage of negative bioterror
news and continued terrorist alerts this was even more amazing.
We all know that "out of sight is out of mind" and it appears
that viewers are turning off news TV and going back to Friends,
football and soap operas. Some networks even elected to not show
the presidents speech on Thursday and kept regular programming
instead. Definitely a sign of boredom by the public. The hope
now is that maybe the holiday shopping season will be better
than previously expected especially since more consumers are
going to be spending the holidays at home instead of traveling
as much as normal. 

The markets were also bolstered by news that the Northern Alliance
has taken Mazar-e Sharif which would be a major victory if true.
The public has been warned for weeks that fighting for this city
would be long and hard and it appears the Taliban troops turned
tail and fled instead. If this is true then the morale of the
Taliban troops is worse than expected and the war may be farther
along then anyone thought. Capturing the airport in Mazar-e
Sharif will provide a ground base for coalition fighters and
allow them to fly many more sorties per day and be on target
quicker. We are far from an end to the conflict but the flow
of battle just took a significant turn against the Taliban if
the news reports are true. The news produced a rally off the 
lows of the day and provoked some short covering at the close
as well. Shorts do not want to be short if there really is a
major change in status over the weekend.

The Dow finished Friday with only a minor gain of +20 points
but closed above the September-10th pre-attack close of 9605. 
This is not a technical level but a sentiment level that could 
comfort investors and bring them back into the markets. The volume
was light in front of the long weekend as many traders will 
observe Veterans Day on Monday even though the stock markets
will be open. The bond markets will be closed and that means
stocks will be on their own and struggling for direction. 
Many times this is beneficial for stocks since arbitrage trading
is not active to put pressure on stocks. 

Given all the gains over the last two weeks the action on Friday
was very encouraging. Disney posted terrible earnings and warned
that business was still down and the stock was still up fractionally
on Friday. QCOM missed street estimates and warned that earnings
would be weaker going forward and after falling as low as $51.19
on Wednesday rallied to over $58 on Thursday and closed the week
on an uptrend and with a gain. Cisco beat estimates and had the
audacity to say orders were increasing. Nivida beat estimates
with a $.26 profit and flaunted in the face of the bears higher
guidance for not only 2002 but also 2003. Not all stocks recovered
from bad news and Heinz bled red, green and purple ketchup with
a warning that food service sales had slowed significantly since
the attack and their earnings would suffer. Yawn.

The markets traded on both sides of zero all day but the lack 
of a serious sell off is telling for future prospects. Whether
you are ready or not it appears the foundation for a recovery
in 2002 is slowly falling into place. Every day that passes with
no tales of further earnings drops puts us closer to a real rally
with legs. If you listen carefully there are tidbits of information
almost every day now that point to better earnings ahead. Come on,
how much worse can they get anyway? 

There appears to be a bottom under the market and the bears are
having a tougher time pushing and holding it down. Twice in the
last three days sellers have tried to take the Dow back down and
they were unable to even reach 9500. Support on Mon/Tue was in
the 9400 level and that support level is rising daily.

Traders still short are watching uneasily as every day the tape
goes against them. Noted technical analysts continue to call for
a retest of the September lows but sentiment is slowly but surely
turning against them. The old adage that the market needs a wall
of worry to climb in order to build a successful rally is proving
true. The continued news stories cover every gamut from terrorists,
earnings, bioterror, recession, deflation, cocooning, layoffs etc
but the markets continue to look ahead and build on their base.

I was criticized for being bullish this week. Sorry, come out of
your cave and enjoy the sunlight! There may be dips ahead but I
continue to believe that they will be buying opportunities. If
you took my advice to buy dips at 9500 you had two great entry
points in the last three days. Can the Dow fall below 9500
again? Sure! The next level of support is 9400 but nothing says
it has to stop there. Every market, regardless of time or era,
will cycle up and down regardless of trend or direction. The
current market is trending up but the dip on Nov-1st proves that
nothing goes up in a straight line. The -140 point drop from the
high of the day on Thursday was pure profit taking. More could
be in front of us. We have had a good, no great run. I personally
believe that we have move gains ahead of us but we while we 
position ourselves for those gains we should also protect 
ourselves against the next wave of profit taking. 

We take a risk just driving to work every day but that does not
mean we should cower in fear at home. You get in the car and
go, fully expecting to arrive safely. You do however maintain
insurance in case somebody runs into you. Using the same analogy
we should get in the market and fully expect gains as the projected
2002 recovery begins to take shape. While in the markets we need
to maintain insurance in case a bear mauls our expectations. That
insurance is a stop loss whether physical or mental. It separates
the real traders/investors from those who are gambling with their
future. What would happen to your retirement if you were in an
accident on the way to work on Monday, your car totaled and you
were laid up for three months in the hospital without insurance?
The same thing is true for investing in the stock market. Many
are afraid to get back in. They have post traumatic stress syndrome
and are afraid to lose again. They have been shell shocked by
month after month of dips since the May highs. Commentators have
beaten them senseless with story after story about how bad it is.
I have a clue for you. These stories are about how bad it WAS not
is. Everyone believes the worst is behind us, even the biggest
bears. So where is the beef? 

Now I will temper my bullishness with a little caution. We are 
setting exactly at the long term resistance of the S&P since
May of this year. If the markets are going to fail they should
fail here. If they don't it would signal a perfect Fall breakout 
buy signal like in Oct-1998 & 1999. We should be so lucky!

Next week should be an exciting week in the markets. The economic
calendar is slim with Retail Sales on Wednesday, Business Inventories 
on Thursday and CPI and Production/Utilization on Friday. There 
are several biotech conferences this week which should help the 
depressed biotech sector. IBM has an analyst conference and should
attempt to pump up expectations about their very broad product
line. Microsoft officially releases the XBox video game. The
smash hit Harry Potter makes its debut and is widely expected to
generate an economic recovery in the movie/video/toy sectors all
by itself. Estimated net profits for AOL Time Warner are somewhere
in the $350 million range. Did I mention COMDEX in Vegas this week?
Major earnings for the week include BEAS/NTAP on Tuesday, AMAT on
Wednesday and DELL/HWP on Thursday. The underlying thread here is 
that life is continuing and there are plenty of positive things to
encourage investors. 

Don't get me wrong the 4Q has already set a record for earnings
warnings. I just think it is already priced into the markets.
Consumers are refinancing homes and cashing out equity at a record 
pace thanks to the cheap interest and that money either saved by
cheaper payments or received from excess equity will find its 
way into the economy or into the markets. We know the end of the
story. The economy will recover. We will win the economic war at 
home and life as we know it will improve. Cash in money markets
at 2% a year will decide that a one day gain in most tech stocks
will equal that with ease. Option investors will continue to 
capitalize from those trends. Nasdaq 3,000 soon, not hardly,
but BRCM @ $50, NVDA $60, FDX $50, CHKP $40, count on it! The 
profit opportunities are there if you are not afraid to play
them. The trading plan for next week should be buy any rebound
from the 9500 level on the Dow and 1780 on the Nasdaq. Be prepared
for dips as well as bounces. Maintain stops on any open position
and let's roll!
Enter passively, exit aggressively!

Jim Brown

Letter to the editor:


As always, I really enjoy your market wraps. I know you guys 
deal with some very frustrated readers, especially if you talk 
bearish and all they want to hear is bullish views. Your wrap 
tonight (Thursday) was certainly bullish and I'm sure a lot of 
readers will be pleased. But, ...
I listened to John Murphy today on CNBC talk about the broker/dealers, 
XBD.X, and how they lead the market. At the time he reviewed the sector 
today it had just passed its 200-dma--very bullish. But with the 
pullback today, back below its 200-dma, it formed a very bearish 
gravestone doji with an especially bearish long tail. This in 
combination of being rejected at its 200-dma, above its upper BB 
and with daily/weekly stochastics overbought and beginning to roll, 
it can only be considered very bearish and a potential indicator of 
a major trend change about to occur.
I checked back for a similar pattern and found it in May of this year 
after the strong April rally--looks the same in every respect. Will 
the pattern repeat or will it pull back slightly (perhaps to the 20-dma) 
and force its way back up through the 200-dma? Who knows. My only point 
is that perhaps it would be better to temper readers' bullishness with 
caution at this point. You did say honor your stops, but how many get 
in trouble because they believe the market "must" turn around and go 
back up and therefore pull their stops--Jim told me to buy the dips! 
Money management is not your responsibility, and you guys make a better 
point than any educational/advisory service I know of about this, but 
too many traders will believe the experts (you) over their own 
The "Market" is made up of all of us with differing opinions and that's 
what makes this an exciting game. Your whole team does great work and 
I'd be lost without all of you. Keep up the great work and thank them 
for doing a job I know they're not doing for the money.
Keene Little


Great letter Keene, 

I don't know where to start. First, thank you for your kind comments
about our team. We try to call them like we see them and let the
chips fall where they may. You are right about the money, you could
not pay these guys enough for the number of hours they put in each 
week because they love the markets as well as the readers. You, the
readers are the drugs we live on. The email, positive and negative,
just encourages us to research harder and strive to do better. 
Nobody is right all the time and we try to teach that as well.

Now to Mr. Murphy. I created a chart like you described on the XBD.X
and listed it for your viewing below. I agree with the fact that the
XBD went up in conjunction with the market rally in April/May but
I am not sure I agree with the reasoning from that point on.

The Broker/Dealer index jumped with the market because traders
thought the 2000 bear market had climaxed with the April crash 
and a return to good times was ahead. Good times meant high
volume and a return to the high commissions of 1999. Unfortunately
the scenario did not pan out and the markets continued to crash
culminating in the Sept 21st bottom. The XBD is now recovering
on exactly the same sentiment that powered it in April except
that almost nobody expects a return to anything like the 1999
trading volumes anytime soon. What I am getting to is that the 
XBD is doomed to flounder since broker/dealer profits will take 
years to return to the same levels as before. 

This does not mean the markets are doomed as well. The markets
can continue to rise based on a favorable economic picture and
prospects of better tomorrows. Look at the smaller banks, they
are close to a breakout because their profits will increase in
the current low interest rate environment. (VLY, WABC, UB, BK,
FBF, STT) The brokers (XBD.X) exhibited problems on Thursday
because they hit resistance at 496 from the August highs. I
do not believe the Dow is tied to the XBD. The Dow is made up
of many other components besides financials. Citicorp and JPM
are not going to be Dow leaders at this point and neither is
the XBD. The real rally is going to come from less sexy stocks.
Have you noticed the materials sector? Check out DOW, ASD, AA,
AL, APD. All are doing great but you do not hear about them in
the news. Believe it or not MMM which said this was the worst
period in 30 years just hit a new 3 month high. 

I believe the markets will continue to move up (not rally)
because as I said in the commentary tonight, we will win the
economic war and life as we know it will improve including
the markets. 

My real problem with the analysis from John Murphy is simple.
John is a "technical analyst" bent on finding charts that fit
his idea of what is going to happen. He has had more airtime
lately than Bush and Osama combined. In each interview he tries
to find a different reason why the markets are going to crash.
He is trying to be a one man wrecking crew. I think the truth
came out on the final CNBC segment on Friday. When pressed he
said "I just think the markets are overbought and I wish they
would pull back some so we could get a little better entry." 
I have it on tape! He is frustrated because the market is running
away from him and his crash never came. (I know I will get mail 
on this!)

Secondly, John is a "pure technician". That means that sentiment
is immaterial and if it is not on a chart he does not care.
I heard him say one time several years ago when asked about
the earnings of a particular sector, "I don't care about 
earnings, everything I need to know is factored into my charts". 
I have several "pure technicians" that work for me and if you
have been reading their recent articles you know that we see the
current market differently. What I mean is that John's charts
only portray what has happened in the past and the XBD chart
for April for instance does not take into account massive sell
offs from terrorist attacks, ten Fed rate cuts, Cisco's increasing
orders, the capture of Mazar-e Sharif, Microsoft's XBox release,
the settlement of the Justice Dept case, GE breaking above $40, 
COMDEX, etc. All of these things make up the market, as we know 
it today. If I turned off TV, cancelled my subscription to the 
newspaper and locked myself in a closet with food, water and a 
charting system I would probably be bearish also! This is why 
you have to take EVERYTHING into account when planning your 
investing strategy. 

Don't get me wrong I like John and (at least before this
article) he had agreed to come to our next seminar and speak.
He is just one man with a set of ideas on the market just
like I am only one viewpoint. When planning your investment
strategy you need to have multiple viewpoints from multiple
analysts and then form your own opinion. John Dessauer and
I were talking in Switzerland recently about market direction 
and his comment to me was "who cares". It will go up and it 
will go down. He sees his task as being a cheerleader and 
keeping his readers fully invested at all times because nobody 
knows when the next bull market will begin. If you are invested 
you will profit from it and if you are out when it begins you 
could lose 35-50% of the move in individual stocks according 
to Dessauer. I admire his conviction and determination since 
CD, LU, ERICY, NOVL, GX and T are among his core holdings. 

The point here is that everyone should not bet the family
farm on any one analyst just because he has a big name or
makes a good case. Look at the whole picture, develop a
trading plan that should profit from future events and then
protect that plan with stops to prevent disaster.

Will the XBD lead the market up? I doubt it. Will it lead
it down again? I doubt that also! The XBD consists of only
13 companies and there are over 7000 stocks on the NYSE/Nasdaq.

Keene, I hope I did not bore you with my extended answer but
you just happened to hit my hot button today. Thank you for
your letter and good luck in your trading!

Jim Brown



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Editor's Plays

Recap, Expiration Week Options, Top 20 

The Barr Labs play from last week broke the 20DMA and fell
to a low of $65.50. While all fundamentals pointed to a bounce
the sector was under attack. If you took this play then the
put side should be doing very well. Look for a bounce from
the biotech conferences this week.


The Microsoft play from Sept-30th is proceeding according to plan.
Please refer to the Editors Play archives for the details. You can
compare the chart below from the 30th with the chart from today to
see the progress. 

The Jan-$ 55 call is now $12.20 for a nice profit with time still
on the clock. The $50 put was recommended at $4 or below and traded
at $2.50-$3.00 a couple days later. Resistance is at $70 on MSFT so 
I would close the call at about $68-69. Take your profit and buy 
something else.

November Expiration Plays

For the expiration week option plays this month I limited them
to a select few since the Top 20 list will accomplish the same
purpose. No opinion is expressed on any of these stocks. They
were chosen based on positive charts and closeness to a strike
price with a cheap option.

Stock Price Strike     Symbol  Ask
ASYT $11.19 12.50 call QQY-KV $ .20
CCUR $12.60 12.50 call URC-KV $ .70
CD   $14.55 15.00 call CD-KC  $ .35
CSCO $19.20 20.00 call CYQ-KD $ .35
FDX  $44.96 45.00 call FDX-KI $ .95
FON  $22.00 22.50 call FON-KX $ .35
GE   $40.41 40.00 call GE-KH  $1.10 ($.41 ITM)
RHAT $ 5.40  5.00 call RCV-KA $ .40 What is happening here?

Editors Play of The Day

Providian Financial $3.04

For the price of an option you can own a very good company
that has literally been taken out and shot based on fears
that the economic slowdown will cause loan problems. While
this may be true and PVN has taken additional loss reserves
to allow for it, the company itself is very strong and the
sell off is way over done. The ambulance chasing securities 
lawyers are out in force but Providian has $32 billion in high 
interest credit card loans at 18% or more plus fees. That is 
over $6 billion a year in interest and they were penalized for 
claiming a +2.7% jump in bad loans to only $900 million. They
can write that off in a heartbeat and never feel the pain
in the long run. I see almost zero risk and at the price of 
an option $3.04 you can own stock that will eventually
trade much higher. Want an even cheaper entry? The Jan-2003
$5.00 leap is $1.15.

Top 20 List

The following list is stocks that appeared as I was
doing my research for the weekend articles. I make no
representations for any individual stock but each has
a trend which I would not hesitate to play. Please do
your own research before going long on any of these
stocks. I have not checked for earnings dates or any
news relating to any of these stocks.

ALGX $ 9.06 Next resistance 12.25
AOL  $37.12 New relative high
ASYT $11.19 New relative high
BRCM $43.73 New relative high, resistance $50
CD   $14.55 New relative high, resistance $18
FDX  $44.95 New relative high
FFIV $19.20 Pull back provides new entry point    
CHKP $35.96 New relative high, resistance $45
CHS  $28.80 New relative high, resistance $34
KLAC $47.25 Pull back provides new entry point    
CNC  $ 3.99 Cheap play, could be the start of rebound
MRVL $30.00 Testing resistance                    
PMCS $19.44 A break over $20 would be bullish 
VTSS $11.56 Strong recovery off base at $7
RHAT $ 5.40 Strong recovery underway but slow mover
UTX  $57.05 At resistance, breakout soon?
UVN  $31.64 Breakout in progress
FON  $21.99 Resistance at $24.

These are just food for thought and not expected to be 
guaranteed winners. 

Good Luck


On Hold
By Eric Utley

The major averages spent last Friday on hold.  Ranges were fairly
tight and volume light.  Notable strength was observed in the
tech complex especially in the Internets (INX.X) and the Disk Drive
Sector (DDX.X).  Only the Semis (SOX.X) finished lower, but only

There was a number of new longs added in the NDX futures market
as evidenced by the COT report below.  The commercial buying of
the tech-laden NDX may have helped to lend the bid to that market
last week.  But the actions of futures market participants in the
SPX and INDU were muted, which echoed last Friday's trading in the
averages.  Rotation from financials, industrials, and healthcare
propped higher the energy and telecom sectors.

The ebb and flows from sector to sector late last week revealed
more non-commitment.  Not much progress is made in such a market.
The bullish percent data was virtually unchanged from Thursday
to Friday.  Yet another sign of waiting.

The case set forth last Thursday played into Friday's session.
The bulls would argue that Friday was a routine profit taking
day.  While the bears will label the market 'tired.'  Time will


Market Volatility
VIX   28.76
VXN   58.59


          Put/Call Ratio  Call Volume   Put Volume
Total          0.74        527,462       388,935
Equity Only    0.61        467,110       286,419
OEX            1.27         10,796        13,722
QQQ            1.37         42,826        58,685

Bullish Percent Data

           Current   Change   Status
NYSE          32      + 0     Bull Alert
NASDAQ-100    71      + 0     Bull Confirmed
DOW           57      + 0     Bull Confirmed
S&P 500       52      + 0     Bull Alert
S&P 100       51      + 1     Bull Confirmed

Bullish percent measures the number of stocks in an index 
currently trading on a buy signal on their point and figure 
chart.  Readings above 70 are considered overbought, and readings 
below 30 are considered oversold.

Bull Confirmed  - Aggressively long
Bull Alert      - Cautiously long
Bull Correction - Pause or pullback in upward trend
Bear Alert      - Take defensive action if long
Bear Confirmed  - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend


 5-Day Arms Index  0.99
10-Day Arms Index  1.24
21-Day Arms Index  1.14
55-Day Arms Index  1.16

Extreme readings above 1.5 are bullish, and readings below .85 
are bearish.  These signals don't occur often and tend be early, 
but when the do, they can signal significant market turning 


        Advancers     Decliners
NYSE      1593           1474
NASDAQ    1727           1804

        New Highs      New Lows
NYSE       73             29
NASDAQ     41             44

        Volume (in millions)
NYSE     1,095
NASDAQ   1,503


Commitments Of Traders Report: 11/06/01

Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the 
Chicago Mercantile Exchange and Chicago Board of Trade. COT data 
can be found at www.cftc.gov.

Small specs are the general trading public with commercials being 
financial institutions. Commercials are historically on the 
correct side of future trend changes while small specs tend 
to be wrong.  

S&P 500

Commercial traders grew slightly more bearish last week.  Their
positioning wasn't pronounced.  Small traders added more
contracts.  Their collective position grew less bullish.

Commercials   Long      Short      Net     % Of OI 
10/23/01      377,177   413,658   (36,481)   (4.6%)
10/30/01      377,468   413,729   (36,261)   (4.6%)
11/06/01      376,807   416,063   (39,256)   (5.0%)

Most bearish reading of the year: (111,956) -   3/6/01
Most bullish reading of the year: ( 36,481) - 10/16/01

Small Traders Long      Short      Net     % of OI
10/23/01      127,016     71,212   55,804     28.2%
10/30/01      123,546     71,225   52,321     26.9%
11/06/01      132,106     81,208   50,898     23.9%

Most bearish reading of the year:  36,513 - 5/01/01
Most bullish reading of the year:  91,122 - 3/06/01

Commercial interest grew measurably less bearish last week
by adding a substantial number of new long positions.  Their
net short position dropped by 5,000 contracts.  Small traders
went the other way by shedding long positions and adding to

Commercials   Long      Short      Net     % of OI 
10/23/01       29,920     40,358   (10,438)  (14.9%)
10/30/01       32,055     45,574   (13,519)  (17.4%)
11/06/01       39,410     47,890   ( 8,480)  ( 9.7%)

Most bearish reading of the year: (15,521) - 3/13/01
Most bullish reading of the year:  (1,825) - 1/02/01

Small Traders  Long     Short      Net     % of OI
10/23/01       11,567     6,934    4,633      25.0% 
10/30/01       12,725     6,475    6,250      32.5%
11/06/01       11,406     8,143    3,263      16.7% 

Most bearish reading of the year:  (1,028) - 1/02/01
Most bullish reading of the year:   8,460  - 3/13/01


Commercial traders added a few longs and covered a few shorts
last week to increase their bullish position, which is about
1,000 net long contracts away from the year's most bullish
reading.  Meanwhile, small traders went the other way.  Small
traders are 65 net short contracts away from their most
bearish reading of the year.

Commercials   Long      Short      Net     % of OI
10/23/01       25,568    11,832   13,736     36.7% 
10/30/01       25,872    12,556   13,316     34.7% 
11/06/01       25,977    11,951   14,026     37.0%

Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
10/23/01        4,902    11,900    (6,998)   (41.6%) 
10/30/01        4,261    11,220    (6,959)   (45.0%) 
11/06/01        3,569    12,281    (8,712)   (55.0%)

Most bearish reading of the year:  (8,777) - 10/12/01
Most bullish reading of the year:   1,909  -  1/16/01


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Anything else is too slow!



By Eric Utley

It comes in many forms.  And across many paths.  I'm referring
to risk, of course.  Not the board game.  But the bigger
idea of risk taking.  I suppose you take risks in everyday life.
The explorers took risks.  Einstein did.  So did Edison.  It's
a necessary aspect of capitalism and progress.

Risk is perhaps more pronounced, or identifiable, in 
speculative endeavors in the capital markets.  Yet, the salesman
that is Wall Street never addresses risk.  Correction: Wall
Street never sells risk.  It sells rewards.  Has Fidelity ever
instructed you on how to manage risk?  Maybe through a brief
discussion of Modern Portfolio Theory, but that's the extent
of it.  Has Merrill told you how to set stops?  Did Janus ever
elaborate on the potential risks of its funds?  The marketing
department of Janus, however, would like to point out that their
Twenty Fund has a 10-year average annual return of 12.56 percent.
Fair enough.

The average, individual, retail investor has been sold on the
idea of taking money out of the market without ever addressing
risk.  That's why Jeff Bailey, Austin Passamonte, and myself
use risk measuring tools such as point & figure charts,
retracement brackets, chart formations, and oscillators.  We
like to measure risk and hope to show you how to do the same.

It's been a process, but I've come from the average mindset of
searching only for rewards to one that addresses risk before
entering a trade.  It's not a self-righteous mindset.  It's the
right mindset.  Bailey and Austin live there, too.  I was
reminded of that Thursday night over dinner:

"Austin, did you hear [CNBC guest] talking about a buy-and-hold
strategy today," I asked.

"No, what's that?," Austin inquired.

"Don't know.  I thought you might," I replied.  "Never mind.
Please pass the pudding"

Please send your questions and suggestions to:

Contact Support 


Insurance Sector (IUX.X) Update: Frustration

They tell me not to let emotion into the game.  But I must
confess that I'm mad.  Very mad.

Those just joining might want to read the following two
pieces, for I am about to rant.



After the IUX gave the sell signal and completed its bearish
triangle, the rebound seemed natural and routine.  But the
rebound went further that I wished last Tuesday.  The IUX
ran up to its descending trend line on the Daily chart, just
slightly above its 61.8 percent retracement level around the
730 level.  There wasn't much damage done to the bearish
thesis on the Daily chart because the IUX rolled over at a
relatively lower high, near its descending trend line.  By all
accounts, the Daily chart reveals that the bearish thesis is
still strong.

Chart =

But the bearish thesis took a hit on the point & figure chart.
The conviction in the IUX bearish trade came from the bearish
triangle on the point & figure chart.  However, the bearish
triangle was negated last Tuesday when the IUX traded above the
730 box.  In doing so, generating a new buy signal, thus negating
the previous sell signal, which had completed the bearish

Moreover, the IUX's long standing bearish resistance line on the
point & figure chart was violated with the index's trade past
730.  But that's where it stopped.  So we have an index giving
a new buy signal, yet halting its advance at the bearish
resistance line on the point & figure chart.  Frustrating!
Stopped out on bearish plays with the buy signal, only to watch
the index rollover.

Chart =

It gets worse.  Late last week, the IUX gave up a significant
amount of relative strength versus the S&P 500 (SPX.X).  In
other words, it's getting weaker.  So that should make the
bearish thesis stronger.  Right?

I can't express how upset I am with this situation.  It's
eerily similar to two trades I botched over the summer.  They
were both bearish trades; one on PeopleSoft (NASDAQ:PSFT) and
the other on Abercrombie & Fitch (NYSE:ANF).  PSFT was up
around $40.  It traded as low as $17 a few months AFTER I was
stopped out.  ANF was up around $40, too.  It traded as low
as $16 a few months later AFTER I was stopped out.

Discipline should trump conviction, which is why I was
stopped out on the PSFT and ANF shorts, and is the reason I
was stopped out of my IUX short positions last week.  But
now, I'm trapped in a world of frustration, thinking that the
IUX is going lower.  Wondering why it "had" to trade at 730?

Looking Forward, Always Forward

The IUX did lose a lot of relative strength late last week.
It traded poorly versus the S&P 500.  That tells me that if
the S&P 500 works lower, the IUX should revisit, if not break
below, its relative low around 680.  But if the market
continues working higher, bearish trades are futile.  So it's
paramount to get a hold on the direction of the broader

The buy signal generated last week discounted the bearish
triangle.  That doesn't mean that the IUX can't go lower.
But it does require an alteration of the bearish thesis; a
loss of some conviction.  I'll continue writing about the IUX
set-up, so please stay tuned.


Check Point Software (NYSE:CHKP)

...I was trying to get a handle on CHKP and was wondering if you
could help me out?  Thanks for your opinion. - Marvin

Thanks, Marvin.

Check Point finally broke above its long standing descending
trend line a few weeks ago.  The stock also broke above its
bearish resistance line of the point & figure chart.  In other
words, the stock has made some significant progress to the
upside.  I'd dare speculate that CHKP reached an inflection
point recently, when its six month bearish trend was broken.

It still has a lot of work to do to the upside; a lot of
retracing of its past decline.  I don't know if the stock is
going straight back to its relative highs.  Much of its price
action will be linked to the Software Sector Index (GSO.X).
And if you're monitoring the GSO, you have to closely observe
Microsoft (NASDAQ:MSFT).

As for the short-term, CHKP broke out of it three week base
just last week with its breakout above $35.  The stock has a
key retracement level above current levels at $40.  I'd think
that CHKP would face some resistance around $40, noting not
only the retracement level but also the historical bounces at
that level prior to the breakdown in July.  Reason dictates to
buy stocks on breakouts, but I don't yet see a real incentive
to chase CHKP higher.  I think there are still quite a few
shorts in the stock who may be selling into the recent strength.
Those shorts, some of whom probably have a basis up around $60
or $70, won't have a real reason to cover until CHKP advances
past the $40 level, where risk may shift back to the upside,
from the downside.

Don't get me wrong.  There may be a trade in CHKP over the
short-term up to $40.  But if you're thinking longer term, it
might pay to have a few more buyers on your side.  And I think
the buyers will step-up if/when CHKP advances past $40.  At
that point, there may be an underlying bid in the stock, enough
to support pullbacks anyway.

chart =



Can you please give me your current views on SUNW?  - Thanks
and regards, Gruff

Thanks for the question, Gruff.

SUNW completed a lot of repair work over the past two weeks.
Over the recent past, the stock has reasserted its previously
held leadership status.  As of this weekend, SUNW is again one
of the stronger big cap tech stocks.

The question is whether or not to chase it higher from current
levels.  I think the risks in buying SUNW at current levels
outweigh the potential reward, OVER THE SHORT-TERM.  I think
the upside over the short-term is up around $15, while the
downside is somewhere between $9.50 to $11.  Not the best
risk/reward ratio for establishing new positions at current

The argument could be made that SUNW could find support at the
$13 level - a retracement level - or down around its unfilled
gap between $11.50 and $12.  Does the gap "need" to be filled?

Mo-mo traders might scoff at my assessment, but I think it's
better to wait for a pullback before buying the stock.  Hey,
if it runs higher from current levels, I'd use the same
process and wait for a better risk/reward ratio at higher
prices.  But until that happens, currently I think it's better
in terms of risk to wait for the stock to come in.

chart =


This column is an information service only.  The information
provided herein is not to be construed as an offer to buy or
sell securities of any kind.  The Ask the Analyst picks are not
to be considered a recommendation of any stock or option but an
information resource to aid the investor in making an informed
decision regarding trading in options.  It is possible at this
or some subsequent date, the editor and staff of The Option
Investor Newsletter may own, buy or sell securities presented.
All investors should consult a qualified professional before
trading in any security.  The information provided has been
obtained from sources deemed reliable, but is not guaranteed
as to its accuracy.


Monday, 11/12/01

Tuesday, 11/13/01

Wednesday, 11/14/01
Retail Sales           Oct  Forecast:   2.0%  Previous:  -2.4%
Retail Sales ex-auto   Oct  Forecast:   0.2%  Previous:  -1.6%

Thursday, 11/15/01
Business Inventories   Sep  Forecast:  -0.3%  Previous:  -0.1%
Initial Claims       11/10  Forecast:   475K  Previous:   450K
Philadelphia Fed       Nov  Forecast:  -25.0   Previous: -27.4

Friday, 11/16/01
CPI                    Oct  Forecast:  -0.1%  Previous:   0.4%
Core CPI               Oct  Forecast:   0.1%  Previous:   0.2%
Industrial Production  Oct  Forecast:  -0.9%  Previous:  -1.0%
Capacity Utilization   Oct  Forecast:  74.7%  Previous:  75.5%

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The Option Investor Newsletter                   Sunday 11-11-2001
Sunday                                                      2 of 5

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charts and graphs, click here:



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* FREE REAL-TIME quotes and custom option chains
* $1.50 Per Contract (10+ contracts) or $14.95 Minimum. No Hidden Fees.
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Note: Options involve risk. Risk disclosure:


Call Play of the Day:

FFIV - F5 Networks $19.19 (+2.28 last week)

See details in sector list

Put Play of the Day:

ENZN - Enzon $57.54 (-2.56 last week)

See details in sector list

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Anything else is too slow!



Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.

SIAL $39.23 (-0.18) The CEX.X pulled back ever so slightly
last Friday.  SIAL broke its ascending support line, but
rebounded later in the day.  Although the stock finished
fractionally higher, we didn't like the break of support and
are choosing to let this play go this weekend.  Look for any
strength early next week to exit positions.

AHC $61.86 (+3.50) The energy sector continued higher last
Friday.  The OSX.X and OIX.X were among the best performing
sectors last Friday.  AHC followed suit by gapping measurably
higher.  The stock finished well above our stop and we're
dropping coverage this weekend.  Look for weakness early next
week to cut losses.

PPDI $24.45 (-1.55) PPDI opened higher last Friday and
headed back down to the $24 level.  It bounced yet again from
that level.  Its reluctance to breakdown is becoming tiresome
and could lead to a sustained rebound in the coming days.  We're
dropping coverage this weekend, which means the stock will
probably breakdown next week below the $24 level.  So it goes.


SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.

The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.


PMCS - PMC-Sierra $19.52 (+2.12 last week)

PMC-Sierra designs, develops, markets and supports high
performance semiconductor networking solutions.  The company's
products are used in high speed transmission and networking
systems, where are being used to restructure the global
telecommunications and data communications infrastructure.

The networking sector has been on the mend recently thanks in
part to Cisco Systems.  The Networking Sector Index (NWX.X)
has been reflecting the renewed bullishness in the group.  The
NWX broke above the 300 level last week and is poised to work
higher next week if the Nasdaq continues its march to higher
highs.  PMCS is a key supplier to Cisco, which is why shares of
PMCS have been rallying in recent weeks.  The stock is
approaching the key $20 level again.  It actually broke above
that level briefly last week, but pulled back on profit taking
late last week.  The stock has very little resistance above
the $20 level.  The closest area of congestion is around the
$24 level, which is a nice $4 move away from current levels.
Traders looking for the breakout above $20 should keep a close
eye on the NWX early next week.  An continued advance in the
NWX would support a breakout in PMCS above the $20 level.
Traders should also keep close tabs on the Semiconductor Sector
Index (SOX.X).  A good set-up would be strength in both the
SOX.X and NWX.X in conjunction with the move we're looking for
in PMCS.  Stops are initially in place at the $17.50 level.

***November contracts expire next week***

BUY CALL NOV-17 SQL-KW OI=6559 at $2.70 SL=1.75
BUY CALL NOV-20*SQL-KD OI=4335 at $1.15 SL=0.50
BUY CALL DEC-17 SQL-LW OI= 647 at $4.10 SL=3.00 
BUY CALL DEC-20 SQL-LD OI=2333 at $2.90 SL=2.00
BUY CALL DEC-22 SQL-LX OI= 890 at $1.95 SL=1.00

Average Daily Volume = 10.1 mln


FFIV - F5 Networks $19.19 (+2.28 last week)

F5 Networks is a provider of integrated Internet traffic and
content management solutions designed to improve the
availability and performance of mission critical Internet
based servers and applications.

FFIV recently assumed a leadership role within the Networking
Sector (NWX.X).  The stock has been one of the strongest in
the group over the past several weeks.  Although it pulled back
last Thursday in a big way, it should resume its climb higher
if the NWX continues advancing.  That said, it's important to
key off of the NWX when trading this stock.  In an advancing
market and sector, FFIV should lead to the upside.  The stock
broke above its summer highs last week.  How many other
networking stocks did the same?  Its relative strength should
lead it even higher if the tech sector remains strong.  In
fact, a rally in the NWX and Nasdaq next week should see
FFIV revisit its relative highs around the $23 level.  That's
a solid move from current levels, especially in the options
because the stock is still relatively low priced its options
are cheaper.  Traders who take entries around current levels
can look for an exit point up around the $23 area.  If the
market and NWX pullback early next week, look for FFIV to
bounce from the $17.50 area, which is the site of its 10-dma.
Our stop is in place at $17.

***November contracts expire next week***

BUY CALL NOV-17 FLK-KW OI= 547 at $2.15 SL=1.25
BUY CALL NOV-20*FLK-KD OI=1197 at $0.80 SL=0.25
BUY CALL DEC-17 FLK-LW OI= 119 at $3.50 SL=2.25 
BUY CALL DEC-20 FLK-LD OI= 172 at $2.20 SL=1.25
BUY CALL DEC-22 FLK-LX OI= 278 at $1.25 SL=0.75

Average Daily Volume = 591 K


CHKP Check Point Software $35.96 (+5.65)

Check Point provides Internet security.  The company provides
secure enterprise networking solutions that enable customers
to implement centralized policy-based management with enterprise-
wide distributed deployment.  Simply put, CHKP has benefited
from rising demand for its virtual private networks software
which lets remote workers, business allies and customers
securely access corporate computer networks.

With Technology stocks back in favor, the Software index (GSO.X)
managed to break out above the $160 resistance level, helped by
the positive catalyst of the Microsoft settlement with the
Department of Justice.  The positive movement in the GSO index
has helped the stronger stocks in the sector, such as our new
play on CHKP, to break above their own resistance levels.  After
clearing the $34 resistance level early last week, the stock
repeatedly used that level as support and then advanced right to
the $36 level on Friday.  Look for some profit taking next week
to give us an attractive entry, either on a pullback to the $34
level or the converged 10-dma ($32.08) and 20-dma ($31.46), also
the site of major support (prior resistance).  Accordingly, we
are setting our stop at $31.  Once CHKP manages to work above
$36, its next challenge will come from major resistance in the
$39-40 range.  Keep a sharp eye on the GSO index, as we'll need
it to continue to advance if CHKP is going to work higher from

***November contracts expire this week***

BUY CALL NOV-35 KEQ-KG OI=11565 at $2.10 SL=1.00
BUY CALL DEC-35*KEQ-LG OI= 2274 at $4.30 SL=2.75
BUY CALL DEC-40 KEQ-LH OI= 5045 at $2.20 SL=1.00
BUY CALL DEC-45 KEQ-LI OI= 1092 at $1.00 SL=0.50
BUY CALL JAN-40 KEQ-AH OI= 4853 at $3.80 SL=2.50
BUY CALL JAN-45 KEQ-AI OI= 3984 at $2.25 SL=1.25

Average Daily Volume = 9.11 mln


CMVT - Comverse Technology $21.12 (+1.61)

Comverse is the world leader in multimedia telecommunications
applications.  Through its Comverse Network Systems division,
the company markets its Access NP and TRILOGUE INfinity Enhanced
Services Platforms, which enable wireless, wireline, and
internet companies to offer enhanced telecommunications services
to business and residential customers.  Among these services
are voice and fax messaging, call answering, and web
information services.  Comverse also offers Intelligent
Peripheral/Service Node, supporting next-generation personal
communication services such as pre-paid wireless, mobile
number portability, call screening, and mobile attendant

After the earnings-related tumble in July, shares of CMVT have
been working to build a new base, and judging from the recent
price action, the stock is ready to run.  The stock found support
near $16 in late October, and has been working hard to create a
new upward trend.  While it hasn't been a screamer, CMVT is
definitely looking more positive, now that the bulls have pushed
the price back over the $20.50 resistance level.  This level is
confirmed by the 3-week ascending trendline, and pullbacks to the
$20 level look good for new entry points.  There will be some
significant resistance between $25-26, but that is fully 20%
above the current price, giving us room to profit as the stock
rises to that level.  If the bulls really get excited, they
could drive CMVT all the way to the $30 level, which has acted
as resistance ever since the large gap down in early July.  That
would make a great point to harvest some profits.  Place stops
at $18.50.

***November contracts expire this week***

BUY CALL NOV-20   CQV-KD OI=2889 at $1.75 SL=1.00
BUY CALL DEC-20*  CQV-LS OI=2780 at $3.30 SL=1.75
BUY CALL DEC-22.5 CQV-LD OI= 465 at $2.20 SL=1.00
BUY CALL DEC-25   CQV-LX OI= 356 at $1.30 SL=0.75
BUY CALL JAN-22.5 CQV-AX OI=2162 at $2.95 SL=1.50
BUY CALL JAN-25   CQV-AE OI=4650 at $1.90 SL=1.00

Average Daily Volume = 6.00 mln

Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?

Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!



Please read our disclaimer at:


For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support

The Option Investor Newsletter                   Sunday 11-11-2001
Sunday                                                      3 of 5

To view this email newsletter in HTML format with embedded
charts and graphs, click here:



* EASY screens for covered calls, spreads, and straddles
* FREE REAL-TIME quotes and custom option chains
* $1.50 Per Contract (10+ contracts) or $14.95 Minimum. No Hidden Fees.
* ZERO minimum deposit required to open an account
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Note: Options involve risk. Risk disclosure:


SPW - SPX Corp. $106.25 (+2.60 last week)

SPX Corp is a global provider of technical products and systems,
industrial products and services, service solutions and
vehicle components  Its products include storage area network,
fire detection and building life-safety products, television and
radio broadcast antennas and towers, transformers, substations
and industrial mixers and valves.

SPW spent late last week consolidating its recent gains.  The
pullback at this point is routine and healthy, and may allow a
new entry point into the play.  The stock has been finding support
around the $105.75 to $106 area recently.  If the market continues
to hold, entries around that general support area can be pursued
with tight stops.  The price action of the broader market is
going to influence the trading of SPW as it has done in the
recent past.  Traders should be monitoring the S&P 500 (SPX.X)
closely when gauging SPW.  If the SPX continues advancing next
week, entries on a breakout above the 200-dma might be worth
consider if SPW does in fact breakout.  With the recent
consolidation, an entry on a breakout above the 200-dma is
worth considering as the stock has a short term base in place
that could potential propel it higher.  SPW doesn't have much
resistance immediately overhead.  The stock has some congestion
up around the $115 area, so a breakout above the 200-dma at
$108 could see some upside movement.  Also, the stock has an
unfilled gap around the $110 level, which is the level prior
to the September 11 attacks.  A breakout above the 200-dma
and subsequent follow-through past the $110 level could portend
a move up to the $115 area.

***November contracts expire next week***

BUY CALL NOV-100 SPW-KT OI= 36 at $7.60 SL=6.00
BUY CALL NOV-105 SPW-KA OI= 22 at $4.10 SL=2.50
BUY CALL NOV-110 SPW-KB OI=278 at $1.75 SL=1.00
BUY CALL DEC-105 SPW-LA OI=454 at $8.50 SL=7.25 
BUY CALL DEC-110*SPW-LB OI=445 at $5.80 SL=4.25

Average Daily Volume = 410 K


SUNW - Sun Microsystems $12.92 (+1.46 last week)

Sun Microsystems is a worldwide provider of products, services,
and support solutions for building and maintaining network
computing environments.  Sun sells scalable computer and storage
systems, high-speed microprocessors, and a comprehensive line
of high-performance software for operating network computing

SUNW pulled back last Friday on routine profit taking.  We knew
the pullback was coming.  After the stock made its big run up
to the $14 level, a pullback was necessary.  SUNW closed right
around the $13 level last Friday which could provide support
going forward into next week's trading, especially if the Nasdaq
market continues to hold.  If the Nasdaq advances next week,
traders targeting new entries into SUNW calls might look for a
bounce from the $13 level.  On the other hand, if the Nasdaq
weakens early next week, wait for SUNW to pullback to a lower
level.  The support area around $12 has held in the recent past,
which would make it a good target to look for entries on further
weakness.  We want to watch for relatively lighter volume on any
pullback as it would signal continued profit taking.  As for
further upside potential, SUNW has some strong resistance at the
$15 level.  If you're going to enter new plays around current
levels or into further strength, consider booking profits as
SUNW approaches the $15 resistance area.

***November contracts expire next week***

BUY CALL NOV-10 SUQ-KB OI=48007 at $3.00 SL=2.00
BUY CALL NOV-12 SUQ-KV OI=42185 at $0.85 SL=0.25
BUY CALL DEC-10 SUQ-LB OI=27827 at $3.30 SL=2.50 
BUY CALL DEC-12*SUQ-LV OI=34071 at $1.50 SL=0.75
BUY CALL JAN-15 SUQ-AC OI=88451 at $1.05 SL=0.50

Average Daily Volume = 46.9 mln


AMAT - Applied Materials $38.57 (+0.60 last week)

Applied Materials develops, manufactures, markets and services
semiconductor wafer fabrication equipment and related spare
parts for the worldwide semiconductor industry.  Many of
AMAT's products are single-wafer systems designed with two or
more process chambers attached to a base platform.  The
platform feeds a wafer to each chamber, allowing the
simultaneous processing of several wafers to enable high
manufacturing productivity and precise control of the process.
These platforms support chemical vapor deposition, physical
vapor deposition, etch and rapid thermal processing

As the broad markets capped off another positive week,
Semiconductor stocks resisted the surge to sell off, with the
SOX index remaining above the critical $500 level.  We could
still see some profit taking next week and the $480 level should
provide much stronger support and a potential entry point.
Shares of AMAT had a great week too, breaking out above the $38
resistance level and then finding support near that level on
both Thursday and Friday.  This level could provide for
attractive entries next week, although we would really like to
see an intraday dip to the 10-dma ($37.15) or the ascending
trendline at $36 for a truly great entry.  Overhead resistance
at $41 has been a tough nut to crack so far, so momentum traders
will want to wait for a volume-backed move through that level
before taking a position.  Keep in mind that AMAT has some
serious resistance at $42, and a move to that level might be a
good place to lock in some profits.  AMAT reports earnings
Wednesday after the market closes, so we'll be dropping the
play Tuesday night.  Keep stops in place at $36.

***November contracts expire this week***

BUY CALL NOV-37.5 ANQ-KU OI= 7267 at $2.40 SL=1.25
BUY CALL NOV-40   ANQ-KH OI=14613 at $1.15 SL=0.50
BUY CALL DEC-37.5 ANQ-LU OI= 3905 at $4.30 SL=2.75
BUY CALL DEC-40*  ANQ-LH OI= 4824 at $3.10 SL=1.50
BUY CALL DEC-42.5 ANQ-LV OI= 6412 at $2.10 SL=1.00

Average Daily Volume = 16.8 mln


AOL - AOL-Time Warner $37.10 (+5.09 last week)

AOL-Time Warner is an integrated, Internet-powered media and
communications company.  The company was formed when America
Online and Time Warner merged in January, 2001.  The company's
America Online branch consists of interactive services, Web
brands, Internet technologies and electronic commerce.  The
Time Warner division contributes cable television systems,
filmed entertainment and television production.  Additionally
the joint company is involved in cable and broadcast
television networks, recorded music, music publishing and
magazine and book publishing.

After the strong breakout in shares of AOL on Thursday, we
might have expected to see some profit taking ahead of the
weekend.  But it just didn't happen.  After a brief dip at the
open, AOL continued working its way higher, adding fractionally
to the week's gains and closing at its highest level since late
August.  Although partially motivated by gains in other
publishing stocks, there is also the breakout in the Internet
sector (INX.X) over the $120 level to consider.  This has the
looks of a solid breakout, both for the INX and AOL, and as such
appears to have some room to run.  Look for the INX to move
through the $124 level next week, which will likely push AOL
towards the next major obstacle near $40 (also the site of the
38% retracement of the decline since the May highs).  Consider
new positions either on a breakout over the $38 resistance level
or on a dip and bounce from the $34-35 support level.  The
10-dma ($33.62) is just crossing up through the 50-dma ($33.45),
making that a likely level of strong support.  Accordingly, we
are raising our stop to $33.50.

***November contracts expire this week***

BUY CALL NOV-35   AOE-KG OI=36405 at $2.50 SL=1.25
BUY CALL NOV-37.5 AOE-KU OI=11865 at $0.85 SL=0.00
BUY CALL DEC-35   AOE-LG OI=15642 at $3.80 SL=2.50
BUY CALL DEC-37.5*AOE-LU OI= 8386 at $2.30 SL=1.25
BUY CALL DEC-40   AOE-LH OI= 8615 at $1.25 SL=0.50

Average Daily Volume = 18.4 mln


BAC - Bank of America Corp. $63.05 (+2.18 last week)

Providing a diversified range of banking and certain
non-banking financial products and services, BAC's operations
consist of Consumer Banking, Commercial Banking, Global
Corporate and Investment Banking, and Principal Investing and
Asset Management.  Consumer Banking targets individuals and
small businesses, while Commercial Banking targets businesses
with annual revenues up to $500 million.  Global Corporate
and Investment Banking provides investment banking, trade
finance, treasury management, leasing and financial advisory
services.  Principal Investing includes direct equity
investments in businesses and general partnership funds, while
the Asset Management businesses are split into three branches;
Private Bank, Banc of America Capital Management and Banc of
America Investment Services.

Financial stocks are continuing to perform well, as the broad
markets chip away at overhead resistance, and shares of BAC
built nicely on the breakout over the $61 level last week.
Quickly rising as high as $64, it was a given that the stock
would have some trouble working through the $64 level, which is
an area of congestion from July and August.  There could be some
profit taking early next week, although it was interesting to
note that it didn't materialize at all as the week drew to a
close.  The ascending trendline is sitting right on top of the
10-dma ($61.03), making that a logical location for our stop.
Look for any weakness next week to provide fresh entry points
on a bounce from intraday support at $62 or at firmer support
at $61, also the location of our stop.  As an additional point
of reference, look for the $820 level to support the Banking
index (BKX.X) on a pullback, setting the index up to move
towards the next level of resistance, near $860.

***November contracts expire this week***

BUY CALL NOV-60 BAC-KL OI=32779 at $3.60 SL=1.75
BUY CALL NOV-65 BAC-KM OI=18091 at $0.50 SL=0.00
BUY CALL DEC-60 BAC-LL OI= 3878 at $4.80 SL=2.50
BUY CALL DEC-65*BAC-LM OI= 6986 at $1.75 SL=0.75
BUY CALL JAN-65 BAC-AM OI=12223 at $2.60 SL=1.25

Average Daily Volume = 6.45 mln


BRCM - Broadcom Corporation $43.73 (+5.88 last week)

Sitting in the sweet spot between the Broadband and
Semiconductor sectors, BRCM 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 proprietary technologies, the company designs,
develops and supplies integrated circuits for several markets
including digital cable set top boxes, cable modems, high-speed
office networks, home networking, and digital subscriber lines.

That sure was one heck of a rebound!  After tagging the
ascending trendline 9 days ago, BRCM has been marching steadily
higher, taking out one resistance level after another.  With
Friday's solid 5.6% rally, BRCM finally punched through the
200-dma ($42.35) and closed above it for the first time in over
a year.  While the stock isn't likely to return to triple-digit
status any time soon, the recent strength is certainly
encouraging.  The bulls are now setting their sights on the $45
resistance level, and once they clear that, they can target the
$48-49 level, which has turned back the bulls three times since
the April lows.  After the strong rally in the past 2 weeks,
BRCM is due for some profit-taking, and we would expect to see
buyers defend support between $40-41 or at the ascending
trendline at $39.  As a last line of defense, the $38 support
level should halt any selling and a bounce there would make for
a great entry point, so long as the Semiconductor index (SOX.X)
can continue its ascent.  Move stops up to $38.

***November contracts expire this week***

BUY CALL NOV-40 RCQ-KH OI=6209 at $4.70 SL=2.75
BUY CALL NOV-45 RCQ-KI OI=7621 at $1.60 SL=0.75
BUY CALL DEC-40 RCQ-LH OI=2569 at $7.20 SL=5.00
BUY CALL DEC-45*RCQ-LI OI=2018 at $4.70 SL=2.75
BUY CALL JAN-45 RCQ-AI OI=3893 at $6.50 SL=4.50

Average Daily Volume = 12.8 mln


GE - General Electric $40.41 (+2.45 last week)

As one of the largest and most diversified industrial companies
in the world, GE's products include major appliances, lighting
products, industrial automation equipment, medical diagnostic
equipment, electrical distribution and control equipment and
power generation and delivery products.  Additionally, GE
provides commercial and military aircraft jet engines,
locomotives and nuclear power support services.  Through the
National Broadcasting Company (NBC), GE delivers network
television services, operates television stations and provides
cable, Internet and multimedia programming and distribution

As a proxy for the broad market, GE tends to mirror the action
of the Dow Jones Industrials (DJIA), and last week was no
exception.  The DJIA managed to clear the 9600 level for the
first time since early September, and GE rallied through the $40
level for the first time since the first week of September.
This is a significant resistance level, and the stock's action
last week is a big positive sign for the broader markets.  It
took several attempts for GE to clear the $38 level and hold
above it for more than a day, as that is the 38% retracement of
the stock's decline from the May highs.  GE will need some more
strong buying volume to push through the $42 resistance level,
especially with the 50% retracement resting at $41.20.  That
makes buying the dips the best entry strategy, and we want to
target a pullback near the $38 level, so long as it is followed
by solid buying volume.  Our stop is resting at $37, as a drop
below there would definitely call into question the longevity of
the current rally.

BUY CALL DEC-40*  GE-LH OI=23056 at $2.15 SL=1.00
BUY CALL DEC-42.5 GE-LV OI=13241 at $1.10 SL=0.50
BUY CALL JAN-40   GE-AH OI=24332 at $2.70 SL=1.25
BUY CALL JAN-42.5 GE-AV OI=14532 at $1.65 SL=0.75

Average Daily Volume = 21.3 mln


IBM - Int'l Business Machines $114.08 (+4.58 last week)

International Business Machines uses advanced information
technology to provide customer solutions.  The company provides
value to its customers through a variety of solutions including
technologies, systems, products, services, software and
financing.  IBM's three hardware product segments are comprised
of Technology, Personal Systems and Enterprise Systems.  Other
major operations consist of a Global Services segment, a
Software segment, a Global Financing segment and an Enterprise
Investments segment.

Patience is rewarded.  We had to wait long enough, but IBM
finally delivered last week with a powerful breakout over the
$111 resistance level and quickly powered up near $115.  Just
as we expected, strength in the broad markets was just the shot
in the arm that our play needed.  Since then, the stock has been
consolidating near $114 in preparation for the next move.  With
last week's rally, IBM moved into the $111-120 trading range
from earlier in the year, and we can look forward to testing
both ends of that range again.  For new positions, we want to
wait for some profit taking to drag the stock back towards the
$111-112 level, and then we can enter on the ensuing bounce.
Our stop is currently resting at $109.  Alternatively, any
volume-backed move that clears the $115.50 level can be used
for initiating new momentum-based positions.  IBM will likely
move with the broad markets, so use the strength on the DJIA as
a measure of the strength of the current environment for our
play.  Consider locking in profits as IBM nears the $118 level,
as resistance between there and $120 will likely be met by
waves of eager sellers.

***November contracts expire this week***

BUY CALL NOV-110 IBM-KB OI=20098 at $4.90 SL=3.00
BUY CALL NOV-115 IBM-KC OI=15636 at $1.55 SL=0.75
BUY CALL DEC-115*IBM-LC OI= 5912 at $4.60 SL=2.75
BUY CALL DEC-120 IBM-LD OI= 7473 at $2.50 SL=1.25
BUY CALL JAN-115 IBM-AC OI=17986 at $6.50 SL=4.50
BUY CALL JAN-120 IBM-AD OI=35933 at $4.30 SL=2.75

Average Daily Volume = 8.79 mln


MSFT - Microsoft $65.21 (+3.81 last week)

Although best known for its ubiquitous Windows PC operating
system, MSFT develops, manufactures, licenses and supports a
wide range of software products for a multitude of computing
devices.  The company's software products include scalable
operating systems for servers, PCs and intelligent devices,
server applications for client/server environments and software
development tools.  The MSFT's online efforts include the MSN
network of Internet products and services and alliances with
companies involved with broadband access and various forms of
digital interactivity.

MSFT is once again trading on its own merits, now that the DOJ
decision is behind it, and things are still looking pretty
strong.  The breakout over the 200-dma (then at $62.42) last
Monday motivated more buyers, and by Friday's closing bell, the
stock had poked its nose through the $65 level for the first
time since early August.  There is some decent resistance just
below $66, so it is a good bet that we'll need to see some
profit taking before MSFT is ready to advance much higher.  The
best case for entry points will be on a pullback to the $63
support level, or possibly the 200-dma.  The ascending trendline
at $61 is resting just above the 20-dma (currently $60.79), and
the combined supportive effect should keep MSFT above there,
barring any unforeseen dire developments.  Accordingly, our stop
remains at $61.  The whole Software index (GSO.X) has been on a
tear lately (in large part due to the MSFT DOJ settlement), and
managed to clear the $160 resistance level early last week.
Look for continued strength in the GSO to confirm that MSFT is
still finding favor with the bulls.

***November contracts expire this week***

BUY CALL NOV-65 MSQ-KM OI=49664 at $1.55 SL=0.75
BUY CALL DEC-65*MSQ-LM OI=17916 at $3.70 SL=2.25
BUY CALL DEC-70 MSQ-LN OI=30515 at $1.50 SL=0.75
BUY CALL JAN-65 MSQ-AM OI=65254 at $4.80 SL=3.00
BUY CALL JAN-70 MSQ-AN OI=79054 at $2.55 SL=1.25

Average Daily Volume = 35.3 mln


QLGC - QLogic Corporation $46.00 (+5.16 last week)

Somebody has to make the equipment that lets your computer talk
to all its peripheral equipment, and QLGC does it well.  A
leading designer and supplier of semiconductor and board-level
input/output (I/O) management products, QLGC has been providing
SCSI-based connectivity solutions to this market sector for over
12 years.  QLGC's I/O products provide a high performance
interface between computer systems and their attached data
storage peripherals, such as hard disk and tape drives,
removable disk drives and RAID (redundant array of independent
disks) subsystems.  The company is also the market share leader
in Fibre Channel host bus adapters, a market segment that is
receiving tremendous attention from investors.

Even fear of darkness couldn't dampen the bulls' enthusiasm on
Friday, as they continued to snap up shares of QLGC.  The selloff
on Thursday afternoon turned out to be just another entry point,
as the stock continued to push skyward after clearing the 200-dma
(currently $42.47) on Monday.  Support is still looking solid in
the $43.50 area, and is backed up by the rising 10-dma (currently
$42.83), which has now crossed up through the 200-dma.  After
such a stellar rally (up nearly 200% since early October), we
need to be on the watch for some serious profit taking.  But in
the meantime, buying the dips seems to be the prudent course of
action.  Target intraday dips near support, so long as the
selling comes on lighter volume than the buying.  Our stop is
currently resting at $42, just below the 200-dma.  It is alright
to buy continued strength, but if that is your favored approach,
wait for the bulls to push the price above the formidable $50
resistance level.

***November contracts expire this week***

BUY CALL NOV-45 QLC-KI OI=4005 at $2.90 SL=1.50
BUY CALL NOV-50 QLC-KJ OI=3032 at $0.90 SL=0.50
BUY CALL DEC-45 QLC-LI OI=1185 at $6.30 SL=4.00
BUY CALL DEC-50*QLC-LJ OI=1075 at $4.10 SL=2.50
BUY CALL DEC-55 QLC-LK OI= 608 at $2.50 SL=1.25
BUY CALL JAN-50 QLC-AJ OI=1685 at $6.00 SL=4.00
BUY CALL JAN-55 QLC-AK OI= 856 at $4.20 SL=2.50

Average Daily Volume = 10.0 mln

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The Option Investor Newsletter                   Sunday 11-11-2001
Sunday                                                      4 of 5

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ENZN - Enzon $57.54 (-2.56 last week)

Enzon is a biopharmaceutical company that develops and
commercializes enhanced therapeutics for life threatening
diseases through the application of its two proprietary
platform technologies: polyethylene glycol (PEG) and single
chain antibodies.

The AMEX Biotechnology Sector Index (BTK.X) pulled back in
the last three trading days.  The index looks tired after its
big run from its lows and may be due for an extended profit
taking pullback.  Several stocks within the group displayed
breakdowns late last week, including ENZN.  The company
reported earnings last Thursday and apparently the market didn't
like the news.  The stock broke down below several support
levels, including the 200-dma at $59.26.  Volume was more
active during the sell-off which might suggest further downside
early next week, especially if the Biotech Sector continues to
weaken.  ENZN has some support around the $55 area, which could
serve as a short term downside target for those entering put
plays around current levels.  Below $55, ENZN doesn't have much
in the way of support until $50, which could serve as a longer
term price objective for put traders.  The stock close near
the low of its day last Friday.  Traders might enter new put
plays on further weakness early next week if the BTK and
market are declining.  In the event of a rebound, look for a
rollover around the 200-dma at $59.26 or near the $60 level.
Our stop is initially in place at $61.50.

***November contracts expire next week***

BUY PUT DEC-60*QYZ-XL OI= 68 at $6.20 SL=5.00
BUY PUT DEC-55 QYZ-XK OI=179 at $3.80 SL=2.75

Average Daily Volume = 1.15 mln

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BRL - Barr Labs $67.65 (-3.34 last week)

Barr Labs is a pharmaceutical company engaged in the development,
manufacture, and marketing of generic and proprietary prescription
pharmaceuticals.  The company was formed in October 2001 as the
result of a merger between a subsidiary of Barr Labs and Duramed

BRL rebounded last Friday but faded into the close of trading.
The rebound may have set up an entry early last Friday as BRL
rolled over from the $69 level.  The stock's 200-dma is up around
the $70 area, so traders might want to watch for a relief rally
up to that level followed by a rollover.  Such a situation would
set up a favorable entry point as traders can employ a tight
stop just above the 200-dma in order to manage risk.  The rebound
last Friday wasn't out of the ordinary following the stock's big
down day last Thursday.  And as long as BRL rolls over at
resistance on any forthcoming strength we'd feel comfortable with
higher prices.  Although, its divergence from the Drug Sector
Index (DRG.X) last Friday was a bit unsettling.  The DRG finished
slightly lower.  We'll want to watch the two closely early next
week to discern whether or not last Friday's strength was a one
day event or if it was the beginning of a new trend.  To the
downside, momentum traders might look for weakness below the
$66.50 level or a breakdown below the $65 level as possible entry

***November contracts expire next week***

BUY PUT NOV-70*BRL-WN OI=1250 at $3.80 SL=3.00
BUY PUT DEC-65 BRL-XM OI= 115 at $4.10 SL=3.00

Average Daily Volume = 1.3 mln


CAH - Cardinal Health $63.30 (-1.76 last week)

Cardinal Health is a provider of products and services to
healthcare providers and manufacturers, helping them improve
the efficiency and quality of their healthcare services and

CAH rebounded last Friday and closed near its day high.  The
stock had been down in the three consecutive sessions prior
to last Friday so a little relief rally wasn't out of the
ordinary.  The strength last Friday could've allowed put
traders to enter new positions at higher prices.  However, we
want to see CAH rollover near resistance if it continues
higher.  The stock could make its way up to the $64 level
early next Monday, which is the first site to look for a
potential rollover.  If it powers through the $64 level, then
traders might want to wait for signs of intraday weakness.
Above $64, CAH has some congestion up to the $66 level.  A
stumble in that congestion area might serve as an entry
point as well.  If CAH weakens early next week, traders might
look for a move back below the $62 level as a possible entry
point.  Make sure to confirm weakness in the Healthcare
Index (HCX.X) before entering put positions into weakness in
CAH.  The HCX did slip a bit further last Friday and we'll
want to see that trend continue, which should pressure CAH
if it does.

***November contracts expire next week***

BUY PUT NOV-65*CAH-WM OI=3616 at $2.65 SL=1.50
BUY PUT DEC-60 CAH-XL OI= 816 at $2.25 SL=1.25

Average Daily Volume = 1.88 mln


CVTX - CV Therapeutics $34.69 (-1.77 last week)

CVTX is a biopharmaceutical company engaged in the discovery
and development of new small-molecule drugs to treat
cardiovascular disease.  The company is conducting clinical
trials for three of its drug candidates.  Ranolazine, the first
in a new class of compounds known as partial fatty acid
oxidation inhibitors, is in Phase III trials for the potential
treatment of chronic angina.  CVT-510, is in Phase II clinical
trials for the potential treatment of atrial arrhythmias.
CVT-3146 is in Phase I trials for the potential use as an
adjunctive pharmacologic agent in cardiac perfusion imaging

Just like we expected, CVTX had a rough time this week, with
much of the carnage suffered on Thursday, when the stock dropped
more than $5 intraday.  And that came the day after it was kind
enough to give us an entry point right at the descending
trendline near $40.  The late-day bounce in the stock price on
Thursday provided a great opportunity to lock in some profits
and now we are waiting for the next good entry point.  It looks
like resistance may be building near $35, but we could get lucky
next week with an intraday spike near the $36.50 resistance
level, which just happens to be the current level of the
descending trendline.  Coincidence?  I think not!  It looks like
the downside may be limited to the $28-30 level, so that seems
like a likely level to take some profits on the next move down.
But for now, target new positions on the bounce up to resistance
and then hold on.  The premiums may be inflated, but that
doesn't mean we can't make money.  In fact, with inflated
premiums, it is almost a sure thing that the market pros know
something big is coming -- and that almost always means a big
move in the price of the stock.  Since the premiums still seem
overly inflated, there is likely some more excitement around the
corner.  Keep stops set at $38.

***November contracts expire this week***

BUY PUT NOV-35   UXC-WG OI= 947 at $6.70 SL=4.75
BUY PUT NOV-32.5 UXC-WZ OI= 122 at $5.30 SL=3.25
BUY PUT DEC-35   UXC-XG OI=  76 at $8.30 SL=6.00
BUY PUT DEC-32.5*UXC-XZ OI= 562 at $7.00 SL=5.00
BUY PUT DEC-30   UXC-XF OI= 107 at $5.70 SL=3.75

Average Daily Volume = 504 K


The Greenspan Bunny: It Keeps Going and Going...
By Mark Phillips
Contact Support

I spent most of this past week watching in stunned fascination
as the broad markets not only continued to rally, but broke
through serious resistance levels.  I lost count of the number
of Tech stocks that I saw power through multi-month resistance
levels and on strong volume to boot.  Simply put, I am truly
encouraged to see this show of strength and it is a strong
reminder of just how resilient our equity and capital markets
really are -- at least when 'Easy Al' is priming the pump with
free money.

And Congress isn't far behind, burning the midnight oil to bring
a stimulus package to the President, so that they can send
billions of our tax $$ back into the economy to get it revved up
again.  What do you figure the odds are that as soon as it is
humming along smoothly again, some government functionary will
step in to gum up the works again?  But I digress...

While the recent rally in the broad markets has been healthy in
my opinion, it has now gone too far.  I know many of you are
asking how I could make such a bold and inflammatory statement.
Easy.  Look at the questionable signs of economic recovery...
that is, if you can find them.  Do they justify 100-200% gains
on stocks in the Semiconductor, Networking and Software sectors?
Of course not, and that is precisely my point.  Investors have
ramped equities too far, too fast on anticipation that the
economy will be solidly on the road to recovery in 6-9 months,
due in large part to the stimulus from the Federal Reserve and
the Federal Government.

Along those lines, fear has been dropping steadily for the past
six weeks, and the VIX is walking an interesting path right now.
Throughout the summer, the VIX topped out four times between
27.50-28.75.  Well, don't look now, but the closing number for
the VIX on Friday was 28.76, just below the 200-dma (28.79).  So
here's the BIG QUESTION -- Are we entering the normal VIX range
again and this is a buying opportunity, or is the VIX about to
reverse and head higher as fear returns to the market?  Pardon
me for this bit of ambiguity, but I think we are going to get a
bit of both.

It is just one man's opinion, but I think that we could see the
VIX continuing lower (and the markets higher) over the near term,
but there is a price to pay.  Eventually it will become clear
that the 2nd half recovery that the current bullish hopes are
built upon will be shown to be overly optimistic and fear will
return.  It may happen by the end of the year, but I think more
realistically will be March/April of next year.  Returning fear
will likely pull the rug out from under the bulls, finally
sending us back down for a retest of the September lows.  When
we see whether those lows hold, we'll really have the answer as
to whether the bull is back in town.

My advice for the near-term is to enjoy (and profit from) the
current rally as long as it lasts, but be ready to grab a seat
as soon as the music stops.  This is precisely the reason why we
have added LEAP Put plays to this column, in hopes that we can
position ourselves to profit whether the markets rally or
collapse.  Hopefully we will be able to position ourselves to
profit on the downside from weak stocks and at the same time in
strong stocks that will lead the current rally.  If forced to
choose though, I'd say the current rally is running on borrowed
time, and would be very careful about initiating new long-term
positions.  Nearly every chart I looked at this week (and I
looked at a lot!) had both the daily and weekly Stochastics
trapped in overbought territory.  The one constant with
oscillators is that they, well, oscillate.  I for one will be
watching those weekly charts for indications that it is once
again relatively safe to buy.

As long-time readers know, I'm very hesitant to chase stocks
higher when they refuse to give me the entry point I'm looking
for.  I got burned several times this past spring, as the market
suckered me into moving my entry targets up just far enough to
catch the highs on several plays, only to be stopped out
shortly thereafter.

So it may come as a bit of a surprise to see that I increased
the entry targets on both General Electric (NYSE:GE) and Tyco
International (NYSE:TYC) this weekend.  While I don't want to go
into a lot of detail on the TYC play, suffice to say that it has
shown impressive strength in the latest market advance, clearing
several levels of resistance "in a single bound", as it were.
Along with the broad market strength, this goes a long way
towards convincing me on a subjective level that TYC isn't going
back to the $45-46 level anytime soon.  So if I want to be in
the play, I figured I better move up the target.

But I think it could be instructive to look at a veeerrrryyy
long-term chart of GE.  We've got a chart pattern setting up
that can be very powerful, depending on how things play out for
the rest of the year.

chart =

After three tests of the $36 support level (ignoring the
post-attack dip), we can see that the bulls have regained
control.  We are seeing the early stage of some bullish
divergence with declining price lows being accompanied by
increasing Stochastic lows -- usually a strong bullish
indication.  The fact that it is happening on the monthly
chart underscores the importance of the pattern in my mind.  So
long as that last candle remains white at the end of November
(we still have 3 weeks to go until the candle is complete), I
think the next cycle down on the weekly Stochastics will be a
very solid entry point.  Daily and weekly Stochastics are
currently overbought, but I expect the transition back down on
the weekly will likely give us a solid bounce in the vicinity
of the $36 support level, and we'll be in.

While we're looking at charts, how about we peek in on the Eli
Lilly chart?  This is another interesting chart pattern that is
getting close to resolution.  The neutral wedge has been
building since April of last year, and the range just keeps

Since any violation of the trendlines creating the wedge is
likely to be significant, we can tighten up our stop on LLY to
$74 this weekend, while we wait for the pattern to resolve
itself.  The only real violation of this pattern was the week
after the markets reopened in September, and you remember how
quickly the stock bounced back from that dip.  By the way, did
you notice how the stock just reversed from the upper edge of
the wedge over the past 2 weeks?

Speaking of stop adjustments, I raised our stop on Calpine
(NYSE:CPN) this week.  Things appear like they are improving,
even if only slightly.  The $23 support level looks like it is
going to hold going forward, and September 21st was the only
day that the stock closed below our new $21 stop.

Well it is official!  We've taken entries on both our first AND
second LEAP put plays.  Let's hope that I don't turn into the
"Mark Phillips Contrarian Indicator", as that would mean that
now the bull market is back!  But seriously, both eBay
(NASDAQ:EBAY) and American International Group (NYSE:AIG) gave
us the entry points we were looking for (although I jumped the
gun a bit on AIG), and the details are recorded below for all
those who are interested.

I've had several email questions lately on how to handle Covered
Calls, since we don't discuss that aspect of our plays on a
regular basis.  To review, the covered call strikes that are
listed in all of our LEAP Call plays are the recommended LEAPS
to buy when initiating the play to allow some room to sell
covered calls with the sold strike remaining above the LEAP
strike.  We spent a fair amount of time discussing this strategy
last summer, including how to enter, manage and exit these
combination positions.  For those of you that missed that series
of articles, I've included links to them below.  They should
answer most questions related to the Covered Call strategy, as
we utilize it here in the LEAPS column.  Of course, if there are
any questions unanswered by that series, feel free to email me
with specifics and I'll attempt to fill in the blanks.

Covered Calls on the Cheap

Covered Calls on the Cheap - A Success Story

Questions on LEAPS Covered Calls - Part 1

Questions on LEAPS Covered Calls - Part 2

AOL-Rest In Peace

More on Entry Points - The Covered Call

LEAPS Covered Calls Trade Management - Target:SUNW

In response to a number of emails asking for further
clarification on how to use our entry targets, and manage
positions from Watchlist to Portfolio to Drop, let me refer
all our newcomers to the Strategy section.  It can be accessed
through the Strategy link at the top of each week's LEAPS
column on the OIN website and should answer most of the basic
questions that arise.

Well, I think that just about does it for another week.  I'm out
of space and time and the old noodle is running out of gas.  Be
careful out there.  Remember to set up your plan of action while
the markets are closed, and it will be easier to make intelligent
trading decisions when they are open.

Have a great week, and take some time out on Monday and thank a
veteran for providing the incredible opportunities we enjoy in
this country!

Mark Phillips
Contact Support

LEAPS Portfolio

Current Open Plays


LLY    10/17/01  '03 $ 75  VIL-AO  $10.80  $12.50   15.74%  $ 74
                 '04 $ 80  LZE-AP  $12.20  $14.20   16.39%  $ 74
CPN    10/25/01  '03 $ 25  OLB-AE  $ 6.00  $ 7.60   26.67%  $ 21
                 '04 $ 30  LZC-AF  $ 6.50  $ 7.90   21.54%  $ 21

AIG    11/07/01  '03 $ 80  VAF-MP  $ 8.40  $ 9.30   10.71%  $86.50
                 '04 $ 80  LAJ-MP  $10.60  $11.40    7.55%  $86.50
EBAY   11/08/01  '03 $ 50  OIY-MJ  $12.50  $12.40  - 0.80%  $62
                 '04 $ 50  KAF-MJ  $16.20  $16.00  - 1.23%  $62

LEAPS Watchlist

Current Possibles


GE     08/12/01  $36           JAN-2003 $ 40  VGE-AH
                            CC JAN-2003 $ 30  VGE-AF
                               JAN-2004 $ 40  LGR-AH
                            CC JAN-2004 $ 30  LGR-AF
TYC    09/16/01  $47-48        JAN-2003 $ 45  VYL-AI
                            CC JAN-2003 $ 40  VYL-AH
                               JAN-2004 $ 50  LPA-AJ
                            CC JAN-2004 $ 40  LPA-AH
NOK    09/23/01  $16-17        JAN-2003 $17.5 VOK-AW
                            CC JAN-2003 $ 15  VOK-AC
                               JAN-2004 $17.5 LOK-AW
                            CC JAN-2004 $ 15  LOK-AC
BRCM   10/28/01  $27-28        JAN-2003 $ 30  OGJ-AF
                            CC JAN-2003 $ 25  OGJ-AE
                               JAN-2004 $ 30  LGJ-AF
                            CC JAN-2004 $ 25  LGJ-AE
EMC    11/04/01  $11           JAN-2003 $12.5 VUE-AV
                            CC JAN-2003 $ 10  VUE-AB
                               JAN-2004 $12.5 LUE-AV
                            CC JAN-2004 $ 10  LUE-AB
MRK    11/11/01  $60-61        JAN-2003 $ 65  VMK-AM
                            CC JAN-2003 $ 60  VMK-AL
                               JAN-2004 $ 70  LMK-AN
                            CC JAN-2004 $ 60  LMK-AL


New Portfolio Plays

AIG - American International Group $80.97  ** PUT PLAY**

Remember that neutral triangle in the Insurance sector (IUX.X)?
I have been watching it for weeks, and a couple weeks ago, we
saw the first indication that it was going to break in favor of
the bears.  Of course, the bulls are a stubborn lot, stepping in
near the $680 level to support the sector.  That bounce took the
IUX right to the upper edge of that triangle, and then the bears
were back.  The reversal earlier this week gave us a similar
reversal in shares of our AIG Watchlist play, and it quickly
fell back from the $83 level.  Now I know that we had our target
listed as $85-86, but dynamic markets demand flexibility.  With
the weekly Stochastics already rolling over, the developing
weakness in shares of AIG had me jumping in on Wednesday's sharp
downward move.  AIG is back under its 200-dma and we appear
headed lower over the near term, with the $75 support level a
speedbump on the way to testing the September lows near $68.
We'll initially place our stop just above the October highs at
$86.50, and look to move it lower as AIG falls below the $78
support level.  Any failed intraday rally below the $82.50 level
still looks attractive for new entries, so long as the IUX
continues to weaken.

BUY LEAP PUT JAN-2003 $80.00 VAF-MP $ 8.40
BUY LEAP PUT JAN-2004 $80.00 LAJ-MP $10.60


EBAY - eBay $55.35  ** PUT PLAY**

If it seems like we've been focusing too heavily on EBAY lately,
it isn't due so much to a fixation with the Internet auction
site, as a desire to describe the setup we were looking for to
give us an attractive entry into our first LEAP Put play.  The
analysis that we have gone through on this stock can (and
should) be applied to any prospective trade before taking a
position.  I won't rehash any of our prior commentary here
tonight -- those that have missed the prior commentary can find
all they want in the education department by reviewing my
commentaries on the subject (Wednesdays and Sundays) beginning
on October 21st.  Simply put, we finally got the attractive
entry I was looking for as the stock began to weaken Thursday
afternoon.  As the stock failed to hold above $58, that would
have given vigilant traders the signal to open new positions
based on weakness in both the daily and weekly Stochastics
oscillator.  The long-term descending trendline is currently
resting just below $62, so that is where we are initially
placing our stop.  If EBAY is able to rally through that level,
it will be a clear sign that I was wrong on this play.  We'll
wait for the $52 support level to fail before ratcheting our
stop loss lower.  I would continue to use failed intraday
rallies in the $58-59 area to initiate new positions, as the
bulls continue to rail against the developing downtrend.

BUY LEAP PUT JAN-2003 $50.00 OIY-MJ $12.50
BUY LEAP PUT JAN-2004 $50.00 KAF-MJ $16.20

New Watchlist Plays

MRK - Merck & Company $64.61  ** CALL PLAY**

Are you ready for another winning Pharmaceutical play?  The
Pharmaceutical index (DRG.X) has been consolidating for several
months now, and I would expect to see bullish interest in this
sector over the months ahead.  The first indication that things
are getting significantly better in the sector will be when the
DRG index pushes back through the $410 resistance level, which
has been capping rallies for much of the past year.  Once that
level is cleared, the sector will be in a position to move back
towards the late 2000 highs.  Similar to our Eli Lilly (NYSE:LLY)
play, MRK has been consolidating recently in an ever tightening
neutral wedge.  The upper trendline is capping the rallies and
currently rests near $68.50, while the supportive trendline
has risen to the $64 level.  Both the daily and weekly
Stochastics are currently pointing south, so we've got some time
before an ideal entry point arrives.  The monthly chart is just
starting to show signs of recovery, but the real clincher could
come in the form of bullish divergence on the weekly Stochastics
oscillator.  If it can bottom and turn up above the latest
trough, we'll have 3 ascending lows with price holding at higher
levels.  Additionally, we have solid support in the $60-61 level.
A dip near that level will likely provide for attractive entries,
especially if it coincides with bullish developments on the
weekly and daily oscillators.  While a dip near that level would
represent a break below the ascending trendline, I expect that
the dip would be short-lived.  We can protect ourselves from
significant weakness with a stop at $59, as MRK hasn't traded
that low since early 2000.  Once MRK begins to turn up, it will
have to slog through a lot of resistance, first at $68, and then
$71 (also the site of the 200-dma).  Once above that significant
level, MRK appears ready to move significantly higher, and we
want to take advantage of any near-term weakness in the stock
to position ourselves for the next big rally.

BUY LEAP CALL JAN-2003 $60 VMK-AL **Covered Call**
BUY LEAP CALL JAN-2004 $60 LMK-AL **Covered Call**



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The Option Investor Newsletter                   Sunday 11-11-2001
Sunday                                                      5 of 5

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Options 101: A Question About Electronic Trading
By Mark Wnetrzak

Today's discussion concerns the function of auto-execution with
regard to electronically-traded options.  The basic concept of
an electronic exchange system is to allow multiple participants
to trade simultaneously with one another using software that
provides automatic execution of corresponding orders.

Dear OIN,

I recently had a problem with an option order that was routed to
the "auto-execution" system at the CBOE.  I know the new process
allows trade requests to be automatically filled by a computer
system, without having to go to a market-maker, when the quoted
price of the option is equal to my order.  In my case, the order
(for twenty contracts) was not filled, even though the option was
offered at the price I agreed to pay in the (limit) order.  What
am I missing here?  Is there a special criteria for this type of
trading that I am unaware of?  Any help or information would be
much appreciated.



Concerning electronic trading and auto-execution:

Over the past decade, a truly unique marketplace for securities
has emerged through the development of interactive electronic
trading.  One of the key features of this mechanism is a matching
system that allows multiple participants to trade simultaneously
with each other using direct electronic access and software that
provides automatic execution of corresponding orders.  It is a
powerful tool that enhances the way stocks and options are traded
and despite the problems with this new process, the system is a
tremendous benefit to both public and professional participants.

In the derivatives markets, the function of "auto-execution" came
to pass when options on popular (mostly NASDAQ and large-cap Dow)
stocks began trading in higher volumes, causing delays in filling
the orders due to the limited capability of manual order-input
systems.  But, the advent of computerized order routing changed
the way stock and option exchanges do business and now the CBOE
claims that, "with very few exceptions, public customer market or
marketable limit orders of up to twenty contracts can be filled
automatically in seconds" using their proprietary system.  Through
RAES, or Retail Automatic Execution System, public customer orders
are executed instantaneously at the market price, and confirmation
is immediately returned.  RAES is a part of CBOE's ORS system that
automatically fills customer market and marketable limit orders at
the prevailing market quote in the most active series.  The CBOE's
"marketable limits" are defined as orders to buy at a limit price
equal to or greater than the market offer, or to sell at a price
equal to or less than the market bid.

The automated system has certainly improved the retail trader's
ability to execute orders during periods of heavy volume in a more
timely manner but there are still flaws in the procedure.  For
example, in the past there have been complaints that the options
exchanges' automated execution systems are programmed to route most
incoming orders that are eligible for execution against an order on
the limit-order book, including marketable limit orders, to manual
handling instead of routing them for automatic execution against
the order in the limit-order book.  While this activity can lead to
delays in order execution (and potential abuse of the system), most
retail complaints stem from the fact that auto-execution is still
based on the demand for options bid at that price, whether by a
market-maker or a public (book) order.  When traders say they have
been treated unfairly by the system, they usually discover (after
a trade inquiry) that there was simply no market for the number of
options they offered to buy (or sell) at the limit price.  To make
matters worse, the size of the order also alerts the market-maker
(or specialist) of an increased demand for that particular series
and the price is adjusted accordingly.  Another important fact is
there are some major differences among the various exchanges with
regard to the ability to provide liquidity enhancements, including
the size of "guaranteed" auto-executions.  In addition, all of the
option-trading exchanges (CBOE, PHLX, AMEX, PSE & ISE) have special
rules and policies regarding the kinds of orders and activities
that are prohibited from entry onto their automatic customer order
execution systems.

Traders who are interested in learning more about the way orders
are handled should visit the CBOE or one of the other exchanges for
a firsthand look at the trading floor and its unique systems.  Most
brokerages have representatives that can provide clients with a
guided tour of the facility and the people who work there are very
customer-oriented and happy to answer your questions.  The CBOE
also has a "virtual" tour that allows new traders to learn more
about the exchange without traveling to Chicago -- which is very
cold during this time of the year.

Trade Wisely!

Note:  Margin not used in calculations.

Stock  Price  Last   Call  Strike Price   Gain   Potential
Symbol Picked Price  Month Sold   Picked  /Loss  Mon. Yield

AVNT   11.30  11.28   NOV  10.00  2.30  *$  1.00  16.1%
GSPN   11.04  11.05   NOV  10.00  1.85  *$  0.81  12.8%
INFA    7.99  11.18   NOV   7.50  1.20  *$  0.71  11.4%
RETK   21.89  25.82   NOV  20.00  2.70  *$  0.81   9.2%
AMLN    8.59   7.87   NOV   7.50  1.65  *$  0.56   7.0%
ARXX   14.61  15.70   NOV  12.50  2.50  *$  0.39   7.0%
ISSX   19.01  25.75   NOV  15.00  5.10  *$  1.09   6.8%
ANAD   16.95  17.41   NOV  15.00  2.40  *$  0.45   6.7%
MEDC   21.20  19.00   NOV  17.50  4.20  *$  0.50   6.4%
KROL   13.75  16.75   NOV  12.50  2.10  *$  0.85   6.3%
LWIN   16.33  17.38   NOV  15.00  1.95  *$  0.62   6.2%
TERN    9.22  10.44   NOV   7.50  2.10  *$  0.38   5.8%
PCYC   23.15  21.39   NOV  20.00  3.90  *$  0.75   5.6%
IMDC   21.30  23.22   NOV  20.00  1.80  *$  0.50   5.6%
NMTC   25.44  25.51   NOV  22.50  3.50  *$  0.56   5.5%
FFIV   15.43  19.19   NOV  12.50  3.50  *$  0.57   5.2%
ALTR   22.65  23.62   NOV  20.00  3.10  *$  0.45   5.0%
BRCD   25.36  30.24   NOV  17.50  8.80  *$  0.94   4.9%
CIEN   17.13  17.18   NOV  12.50  5.30  *$  0.67   4.9%
CELG   33.44  34.98   NOV  30.00  4.40  *$  0.96   4.8%
ISSX   25.16  25.75   NOV  20.00  6.00  *$  0.84   4.8%
AFCI   21.98  18.25   NOV  17.50  5.20  *$  0.72   4.7%
OVER   19.19  23.38   NOV  15.00  4.80  *$  0.61   4.6%
BRCD   24.69  30.24   NOV  17.50  7.90  *$  0.71   4.6%
MCAF   21.35  26.18   NOV  17.50  4.70  *$  0.85   4.4%
GNTA   14.40  16.75   NOV  12.50  2.25  *$  0.35   4.2%
TRMB   18.26  16.36   NOV  17.50  1.50   $ -0.40   0.0%

*$ = Stock price is above the sold striking price.


Expiration week already!  Where does the time go?  For those
investors wishing to retain their stock positions, now is the
time to consider rolling forward: buying back the sold calls
and selling new calls with more time.  Rolling forward and up
(to a higher strike) is another solution which will increase
profit potential at the expense of downside protection.  It is
also time to re-evaluate any positions that did not act as ex-
pected or are now showing unusual weakness.  Amylin Pharma
(NASDAQ:AMLN) is continuing to consolidate and may test the
support area around $7.  The next few days should tell the tale.
Some issues that are displaying rather disturbing technical
signals and should be monitored closely during this last week
are: Internet Security Systems (NASDAQ:ISSX), Advanced Fibre
(NASDAQ:AFCI), and Pharmacyclics (NASDAQ:PCYC).  Trimble Nav.
(NASDAQ:TRMB) will be shown closed as it has moved below its
30- and 50-dmas.  Those investors with a longer-term outlook
may consider rolling down to a MAR-$15 call, which will lower
the cost basis to approximately $14.  So many decisions, so
little time...


Sequenced by Company
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

GMST   22.70  DEC 20.00   QLF LD  4.30 3436  18.40   42    6.3%
GNTA   16.75  DEC 15.00   GJU LC  2.85 561   13.90   42    5.7%
MCDT   18.80  DEC 15.00   DXZ LC  4.80 17    14.00   42    5.2%
RMBS    8.88  DEC  7.50   BNQ LU  1.95 93     6.93   42    6.0%
SURE   12.20  DEC 10.00   UGN LB  3.10 139    9.10   42    7.2%
TELM    6.20  DEC  5.00   UHE LA  1.80 42     4.40   42    9.9%
VTSS   11.61  DEC 10.00   VQT LB  2.45 641    9.16   42    6.6%

Sequenced by Target Yield (monthly basis)
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

TELM    6.20  DEC  5.00   UHE LA  1.80 42     4.40   42    9.9%
SURE   12.20  DEC 10.00   UGN LB  3.10 139    9.10   42    7.2%
VTSS   11.61  DEC 10.00   VQT LB  2.45 641    9.16   42    6.6%
GMST   22.70  DEC 20.00   QLF LD  4.30 3436  18.40   42    6.3%
RMBS    8.88  DEC  7.50   BNQ LU  1.95 93     6.93   42    6.0%
GNTA   16.75  DEC 15.00   GJU LC  2.85 561   13.90   42    5.7%
MCDT   18.80  DEC 15.00   DXZ LC  4.80 17    14.00   42    5.2%

Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even 
point, DE-Days to Expiry, TY-Target Yield (monthly basis).


GMST - Gemstar-TV Guide  $22.70  *** Bottom Fishing! ***

Gemstar-TV Guide (NASDAQ:GMST) is a global media and technology
company focused on developing, licensing and providing products
and services that simplify and enhance consumer entertainment. 
The company was formed on July 12, 2000 through the merger of 
Gemstar International, a technology company focused on consumer
entertainment, and TV Guide, a provider of television information
and guidance in the United States.  Gemstar-TV Guide's products
have a special emphasis on television-oriented technologies and 
services, in particular, program guidance products including 
those marketed under the TV Guide name.  Gemstar-TV Guide has
been forming a Stage I base though the company's shares did
fall a bit after it was announced that General Motors (NYSE:GM)
agreed to sell its satellite television unit to EchoStar Communi-
cations (NASDAQ:DISH).  Analysts downplayed the impact and have
noted that Gemstar-TV Guide's management had said several times 
that it expects to hit its year-end 2001 target of 20 million 
subscribers for its interactive program guides (IPGs) without a 
News/Hughes deal.  With earnings due on Wednesday, November 14,
investors can use this play to obtain a favorable cost basis
from which to speculate on the company's future.

DEC 20.00 QLF LD LB=4.30 OI=3436 CB=18.40 DE=42 TY=6.3%


GNTA - Genta  $16.75  *** New Multi-Year High! ***

Genta (NASDAQ:GNTA) is a biopharmaceutical company whose research 
efforts are focused on the development of new biopharmaceutical
products for the treatment of patients with cancer.  Genta's 
research portfolio is currently divided into 4 areas including
the Antisense Program, which involves the administration of 
synthetic oligonucleotides that are complementary to specific 
mRNA transcripts; the Gallium Products Franchise, which is a
bone-seeking element that exerts potent effects on the skeletal
system; Androgenics Compounds, which are products comprised of 
a portfolio of small molecules that are useful for the treatment
of prostate cancer; and Decoy Aptamers, which employ oligonucleo-
tides to bind to specific proteins known as transcription factors.
GNTA shares rallied strongly after announcing in September that
it had received notice from the FDA that Genasense(TM), its lead
anticancer compound, has been granted Fast Track designation for 
multiple myeloma.  Genasense(TM) had previously received such 
designation for treatment of patients with malignant melanoma. 
On Friday, UBS Warburg initiated coverage of Genta with a "buy"
rating on strong expectations for the company's experimental 
cancer treatment.  A reasonable entry point for investors who
wish to add GNTA to their stock portfolio.

DEC 15.00 GJU LC LB=2.85 OI=561 CB=13.90 DE=42 TY=5.7%


MCDT - McDATA  $18.80  *** Storage Networking sector ***

McDATA (NASDAQ:MCDT) is the worldwide leader in open storage 
networking solutions and provides highly available, scalable and
centrally managed storage area networks (SANs) that address
enterprise-wide storage problems.  McDATA's core-to-edge enter-
prise SAN solutions improve the reliability and availability of
data to simplify SAN management and reduce the total cost of 
ownership.  McDATA distributes its products through its OEMs, 
network of resellers and Elite Solution Partners.  On Thursday,
Deutsche Banc Alex. Brown analysts Sabrina Ricci and George 
Elling launched coverage of the Storage Networking sector, and
they included MCDT.  They believe that the right companies will
have a competitive advantage and command "premium" returns in
the future.  We simply favor the short-term "head-n-shoulders"
bottom that is emerging, which creates a support area (end-of
-August and Mid-October highs) near our cost basis.

DEC 15.00 DXZ LC LB=4.80 OI=17 CB=14.00 DE=42 TY=5.2%


RMBS - Rambus  $8.88  *** 5 Million Share Buy-back! ***

Rambus (NASDAQ:RMBS) is an intellectual property company that 
designs, develops and licenses high-bandwidth chip-connection 
technologies which enable semiconductor memory devices to keep
pace with faster generations of processors and controllers.  To
date, these efforts have resulted in more than 100 U.S. and 
foreign patents issued to Rambus.  Rambus has licensed its 
technology to approximately 30 semiconductor companies for the
development, manufacture and sale of Rambus-compatible ICs. 
Providers of Rambus-based integrated circuits include the 
world's leading DRAM, ASIC, controller and microprocessor 
manufacturers.  In October, Rambus reported a fairly large
drop in fourth-quarter operating income but did manage to 
report a pro forma profit that beat expectations.  Rambus also
authorized the repurchase of up to 5 million shares of its 
stock.  Though the company said next quarter revenue will 
drop by about 15%, Rambus still expects the quarter to be
profitable.  Reasonable speculation on a bottoming sector.

DEC 7.50 BNQ LU LB=1.95 OI=93 CB=6.93 DE=42 TY=6.0%


SURE - SureBeam  $12.20  *** Titan Contract Supplier ***

SureBeam (NASDAQ:SURE) is a provider of electronic irradiation
systems and services for the food industry.  Their electronic food
irradiation process significantly improves food safety, prolongs
shelf life and provides disinfestation, without compromising food
taste, texture or nutritional value.  The company offers services
for the electronic irradiation of food through in-line turnkey
systems and centrally located service centers allowing growers,
packers and processors to choose the most convenient and effective
way to utilize its SureBeam system for electronically irradiating
their products.  Titan Corporation (NYSE:TTN) received a contract
from the U.S.P.S. to irradiate the mail and they said they will
subcontract the order for the systems, which use electron beam and
X-ray technology to destroy harmful bacteria, to its majority owned
subsidiary SureBeam.  The Defense Department recently added to the
normal military food procurement authorization lists ground beef 
and poultry products that will be processed using electron beam 
food safety technology.  Attractive speculation on a company that
can "cure" the current fears of unsafe mail and food products.

DEC 10.00 UGN LB LB=3.10 OI=139 CB=9.10 DE=42 TY=7.2%


TELM - Tellium  $6.20  *** Cheap Speculation ***

Tellium (NASDAQ:TELM) designs, develops and markets high-
speed, high-capacity, intelligent optical switching solutions
that enable network service providers to quickly and cost-
effectively deliver new high-speed services.  The company's 
products include hardware, standards-based operating software 
and integrated network planning and management tools designed 
to deliver intelligent optical switching for public telecom-
munications networks.  Tellium's products are specifically 
designed to manage very high-speed optical signals and can be
easily expanded, enabling service providers to grow and manage
their networks quickly and efficiently to keep pace with 
dynamic requirements of data services.  In October, Tellium
reported revenues of $40.1 million for the 3rd-quarter, a 32%
increase over last year.  The company expects to meet the
high-end forecast for revenues this year, and believes 
revenues in 2002 will be approximately $288 million.  Just 
this week, the company again re-affirmed their year-end and
next year estimates.  We simply favor the positive technical
divergences as Tellium forges a Stage I base.

DEC 5.00 UHE LA LB=1.80 OI=42 CB=4.40 DE=42 TY=9.9%


VTSS - Vitesse Semiconductor  $11.61  *** Is This The Bottom? ***

Vitesse Semiconductor (NASDAQ:VTSS) is a supplier of high-
performance integrated circuits (ICs) principally targeted
at systems manufacturers in the communications markets.  The
company is also a supplier of ICs to other markets such as 
the automatic test equipment (ATE) market.  The company's 
major customers include Alcatel, Ciena, Cisco, Fujitsu, LTX,
Lucent, Nortel, Sycamore and Tellabs.  In October, Vitesse
reported a 4th-quarter loss in line with reduced guidance
as sales tumbled 73%.  No recent news since the end of October
when the Vitesse said it expects a 1st-quarter loss of between
11 cents and 14 cents a share.  The question that a potential
investor needs to ask is:  Has the bad news already been 
priced in?  This plays offer an exciting entry point for
speculators who believe they have already witnessed the
"bottom" in the Semiconductor sector.

DEC 10.00 VQT LB LB=2.45 OI=641 CB=9.16 DE=42 TY=6.6%



The following group of issues is a list of additional 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
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary. 

Sequenced by Target Yield (monthly basis)
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

ACPW    5.53  DEC  5.00   ACQ LA  1.10 111    4.43   42    9.3%
MONE    8.19  DEC  7.50   MOU LU  1.50 241    6.69   42    8.8%
ALGX    9.00  DEC  7.50   QGX LU  2.10 361    6.90   42    6.3%
ASYT   11.19  DEC 10.00   QQY LB  1.90 296    9.29   42    5.5%
MACR   22.08  DEC 20.00   MRQ LY  3.50 2997  18.58   42    5.5%
WEBX   34.10  DEC 30.00   UWB LF  6.20 1318  27.90   42    5.5%
AMCC   12.65  DEC 10.00   AEX LB  3.30 5311   9.35   42    5.0%


Option Trading Basics: Q&A with the Editor
By Ray Cummins

Last week, one of our readers asked about the strategy of selling
Put LEAPS to generate conservative, long-term profits or acquire
new stocks at substantially discounted prices.

Dear Ray,

There are stocks that appear to be in a bottom (consolidation)
process and I have been wondering about selling "naked" LEAPS
on some of them.  For example, Lucent is currently at $6.95
and the Jan 04 $10 Put sells for $4.40.  LU would have to fall
to $5.60 by expiration to break even.  It seems that there is
only a small risk here since the stock has been above $5 for a
long time.

In general, could this be a viable strategy?



Regarding the strategy of selling Put LEAPS:

In my opinion, selling (naked) Put LEAPS is a great strategy at
the present time for two reasons: the market appears to be near
the bottom of its recent correction and Put option premiums are
relatively favorable with regard to historic pricing trends.

First, about LEAPS...

LEAPS - Long-term Equity AnticiPation Securities are long-term
options with expiration dates as far as three years in the future
that allow investors to establish long or short positions.  The
strategies involving selling LEAPS do not differ much from those
involving shorter-term options.  LEAPS can be sold "naked" or
against an underlying stock or other options.  An investor that
writes LEAPS will take in a substantial premium when compared to
short-term Put options and thus has a smaller cash or collateral
investment, since he is selling a more expensive option.  The
larger premiums in LEAPS also establish a much lower break-even
price for the overall position and because of the additional
time value in these options, there is relatively little chance
of early assignment.
There are two ways to approach this popular strategy: writing
out-of-the-money (OTM) strikes for low risk and low return, or
selling in-the-money (ITM) Puts for potential stock ownership
or short-term capital appreciation.  Both techniques are viable
depending on your risk tolerance and outlook for the underlying
issue.  Writing OTM Put LEAPS offers a limited profit potential,
but will outperform the more aggressive strategy if the stock
price declines or remains relatively unchanged.  While the OTM
approach is most common, Jim's (OIN founder - managing editor)
popular ITM technique is also quite attractive.  You can learn
more about that strategy here:


The most significant difference in LEAPS is their slow rate of
time-value decay.  While this effect is initially beneficial to
option writers, it can be a major obstacle in future position
adjustments.  The premiums (due to future potential) inherent in
LEAPS prices can be very large even when they are substantially
in- or out-of-the-money.  This characteristic will significantly
affect a trader's ability to roll-out of a position because the
sold (short) option is relatively expensive to repurchase.  At
the same time, a short-term Put writer who is faced with rolling
down -- buying back the current short position and selling a new
option with a lower strike price -- may transition to LEAPS as a
means of reducing the overall basis in the underlying issue, even
though he may be moving to a potentially less profitable position.

The large absolute premiums available in this type of strategy
make these positions unusually attractive.  The key to a correct
assessment of this popular strategy, whether used for capital
appreciation or in an attempt to establish a new position in an
issue during a period of falling stock prices, lies in comparing
the difference in annualized returns generated from the sale of
LEAPS versus those that can be achieved from repeatedly writing
shorter-term options.

One point of advice: Never sell Puts on stocks you don't want to

Good Luck! 

                      *** WARNING!!! ***
Occasionally a company will experience catastrophic news causing
a severe drop in the stock price. This may cause a devastatingly
large loss which may wipe out all of your smaller gains. There is
one very important rule; Don't sell naked puts on stocks that you
don't want to own! It is also important that you consider using
trading STOPS on naked option positions to help limit losses when
the stock price drops. Many professional traders suggest closing
the position when the stock price falls below the sold strike or
using a buy-to-close STOP at a price that is no more than twice
the original premium from the sold option.


Stock  Price  Last   Call  Strike Price   Gain   Potential
Symbol Picked Price  Month Sold   Picked  /Loss  Mon. Yield

PWAV   15.52  16.11   NOV  12.50  0.40  *$  0.40  24.2%
MRVL   27.73  29.95   NOV  22.50  0.45  *$  0.45  15.5%
KLIC   17.34  17.06   NOV  15.00  0.35  *$  0.35  15.4%
GNSS   47.85  45.09   NOV  40.00  0.80  *$  0.80  14.4%
CNXT   10.15  13.37   NOV   7.50  0.35  *$  0.35  12.8%
TTN    27.00  25.82   NOV  22.50  0.60  *$  0.60  12.6%
SURE   13.25  12.20   NOV   7.50  0.25  *$  0.25  12.5%
FFIV   16.55  19.19   NOV  12.50  0.30  *$  0.30  12.0%
SMTC   41.69  39.82   NOV  35.00  0.55  *$  0.55  11.3%
GNSS   39.18  45.09   NOV  30.00  0.90  *$  0.90  11.2%
OVER   25.50  23.38   NOV  20.00  0.40  *$  0.40  10.5%
JNPR   23.66  23.44   NOV  15.00  0.50  *$  0.50  10.4%
PWAV   16.20  16.11   NOV  12.50  0.25  *$  0.25  10.4%
AFFX   30.04  29.99   NOV  25.00  0.35  *$  0.35  10.4%
SMTC   40.21  39.82   NOV  32.50  0.60  *$  0.60   9.7%
EMLX   24.65  27.86   NOV  15.00  0.45  *$  0.45   9.1%
CELG   34.58  34.98   NOV  30.00  0.40  *$  0.40   9.0%
SAGI   21.65  25.03   NOV  17.50  0.40  *$  0.40   8.8%
NETA   18.38  20.82   NOV  15.00  0.45  *$  0.45   8.8%
RFMD   24.30  23.90   NOV  15.00  0.55  *$  0.55   8.8%
IMMU   16.30  20.10   NOV  12.50  0.35  *$  0.35   8.4%
CMNT   15.25  15.47   NOV  12.50  0.35  *$  0.35   8.2%
AFFX   31.70  29.99   NOV  25.00  0.35  *$  0.35   7.6%
BRCM   31.80  43.73   NOV  20.00  0.60  *$  0.60   7.5%
QLGC   37.06  46.00   NOV  22.50  0.65  *$  0.65   7.0%
STE    23.24  23.08   NOV  20.00  0.30  *$  0.30   6.8%
WEBX   29.77  34.10   NOV  20.00  0.35  *$  0.35   6.0%
QLGC   38.50  46.00   NOV  22.50  0.45  *$  0.45   6.0%
VRTS   29.08  35.42   NOV  17.50  0.30  *$  0.30   5.3%

*$ = Stock price is above the sold striking price.


QLT Inc. (NASDAQ:QLTI) provided a great exit opportunity early
in the week for traders who were still in the bullish position
after last Friday's unexpected sell-off.  The closing debit in
the play was near $1.25, which produced a small loss overall.
All of our current positions are at maximum profit and with
only one week remaining until expiration, we expect November
to be another outstanding month for the Naked-Puts portfolio.

Positions Closed: QLT Inc. (NASDAQ:QLTI)


Sequenced by Company
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

CNXT   13.37  DEC 10.00   QXN XB  0.30 186    9.70   42    7.3%
IMNY    7.24  DEC  5.00   MQN XA  0.25 25     4.75   42   10.7%
MACR   22.08  DEC 17.50   MRQ XW  0.45 33    17.05   42    6.7%
MANU   10.66  DEC  7.50   ZUQ XU  0.35 172    7.15   42   10.2%
MCSI   24.00  DEC 20.00   QIP XD  0.50 0     19.50   42    5.9%
NTAP   16.51  DEC 12.50   NUL XV  0.65 1271  11.85   42   11.9%
SLAB   28.26  DEC 22.50   QFJ XX  0.85 52    21.65   42    9.5%

Sequenced by Target Yield (monthly basis)
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

NTAP   16.51  DEC 12.50   NUL XV  0.65 1271  11.85   42   11.9%
IMNY    7.24  DEC  5.00   MQN XA  0.25 25     4.75   42   10.7%
MANU   10.66  DEC  7.50   ZUQ XU  0.35 172    7.15   42   10.2%
SLAB   28.26  DEC 22.50   QFJ XX  0.85 52    21.65   42    9.5%
CNXT   13.37  DEC 10.00   QXN XB  0.30 186    9.70   42    7.3%
MACR   22.08  DEC 17.50   MRQ XW  0.45 33    17.05   42    6.7%
MCSI   24.00  DEC 20.00   QIP XD  0.50 0     19.50   42    5.9%

Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even 
point, DE-Days to Expiry, TY-Target Yield (monthly basis).


CNXT - Conexant Systems  $13.37  *** Entry Point! ***

Conexant Systems (NASDAQ:CNXT) provides semiconductor products
and system solutions for a variety of communications electronics.
Conexant delivers semiconductor integrated circuit products and
system-level solutions for a range of communications applications.
These products allow communications globally through wire-line
voice and data communications networks, cordless and cellular
wireless telephony systems, personal imaging devices and equipment,
and emerging cable and wireless broadband communications networks.
The company operates in two primary business segments: Personal
Networking and Internet Infrastructure, which it plans to spin-off
in the future.  CNXT has established a relatively stable support
area between $9 and $10 and this position offers a conservative
entry point in that price range.

DEC 10.00 QXN XB LB=0.30 OI=186 CB=9.70 DE=42 TY=7.3%


IMNY - I-Many  $7.24  *** Bottom-Fishing! ***

I-Many (NASDAQ:IMNY) provides unique software and Internet-based
solutions and related professional services that allow its clients
to effectively manage their business-to-business relationships.
The company's customers include supply chain participants in
different vertical markets that engage in business-to-business
commerce, such as manufacturers, distributors, demand aggregators,
retailers, public and also private business-to-business e-commerce
exchanges and purchasers.  The components and features of their
products are designed to address particular business areas.  In
combination they are referred to as Trade Relationship Management.
To date, substantially all of the company's revenues derive from
the sale of software licenses to healthcare manufacturers and from
the provision of related professional services.  IMNY shares have
established a relatively solid base near $5 and that's a reasonable
price from which to speculate on the future of this unique company.

DEC 5.00 MQN XA LB=0.25 OI=25 CB=4.75 DE=42 TY=10.7%


MACR - Macromedia  $22.08  *** Entry Point! ***

Macromedia (NASDAQ:MACR) develops, markets, and supports software
products, technologies, and services that enable people to define
what the Web can be.  The company's customers, from developers to
enterprises, use Macromedia solutions to help build compelling and
effective Websites and eBusiness applications.  The company has
one primary business segment, the Software segment, which develops
software that creates Website layout, graphics and media content
for Internet users and develops and markets aggregated content to
provide online entertainment on the Web.  Shares or MACR jumped
last week on news of an upgrade from USB Piper Jaffray and now the
issue is well established in a new bullish trend.  Investors can
either wait for a consolidation to buy the issue or they can open
this position for a cost basis near $17.00.

DEC 17.50 MRQ XW LB=0.45 OI=33 CB=17.05 DE=42 TY=6.7%


MANU - Manugistics  $10.66  *** Low Risk Speculation! ***

Manugistics Group (NASDAQ:MANU) is a global provider of Enterprise
Profit Optimization solutions, which is a category of solutions
for enterprise management.  MANU is also a provider of solutions
for supply chain management, pricing and revenue optimization and
electronic marketplaces.  The company's solutions help companies
lower operating costs, increase revenues, enhance profitability
and accelerate revenue and earnings growth.  Their products are
grouped in four categories: NetWORKS intelligent engines, NetWORKS
collaborative applications, WebConnect integration platform and
NetWORKS Marketplace platform.  Software stocks have recovered in
recent weeks on expectations the industry is will rebound in the
coming months.  Manugistics is one of the leaders in the sector
and traders can profit from future upside activity in the group
with this conservative position.

DEC 7.50 ZUQ XU LB=0.35 OI=172 CB=7.15 DE=42 TY=10.2%


MCSI - MCSi Inc.  $24.00  *** Video Conferencing ***

MCSi, Inc. (NASDAQ:MCSI) is a provider of integrated technical
services and audio-visual presentation, broadcast and computer
technology products.  The company is a unique computer technology
product reseller, designer and integrators of custom-configured
and integrated audio and video display, broadcasting, conferencing
and networking systems.  These systems are designed for use in
board and conference rooms, lecture halls, theaters, command and
control centers, museums, professional broadcast facilities and
streaming network facilities.  MCSi markets and supports more than
75,000 different audio-visual, presentation, broadcast and computer
technology and computer-consumable products, and regularly updates
its product line to reflect new advances in technology and avoid
product obsolescence.  Video conferencing has become very popular
for businesses since the 9/11 terrorist attacks and this issue has
moved higher amid new interest in the industry.  Investors can use
this position to speculate on the success of the technology with
relatively low risk.

DEC 20.00 QIP XD LB=0.50 OI=0 CB=19.50 DE=42 TY=5.9%


NTAP - Network Appliance  $16.51  *** Earnings Are Due! ***

Network Appliance (NASDAQ:NTAP) is engaged in the business of
network-attached data management and storage solutions.  Network
Appliance hardware, software, and service offerings are used to
create, manage and scale seamless data fabrics, moving information
to users globally.  Their products consist of filer storage and
caching appliances, data management and content delivery software,
and support services.  Network Appliance storage appliances, or
filers, are systems that provide highly reliable data storage
management.  The company's NetCache appliances allow customers to
scale network infrastructure, reduce bandwidth costs, ease network
bottlenecks, and simplify data management and content delivery.
The company's NetApp software offers a set of features that ensure
mission-critical availability and also reduce the complexity of
enterprise storage management.  Network Appliance has a customer
service and support organization to provide technical support,
education and training.  NTAP's earnings are due next week and
the option premiums reflect the potential volatility in the issue.
Investors who like the data storage sector can use this position
to establish a discounted basis in one of the industry leaders.

DEC 12.50 NUL XV LB=0.65 OI=1271 CB=11.85 DE=42 TY=11.9%


SLAB - Silicon Laboratories  $28.26  *** New 2001 High! ***

Silicon Laboratories (NASDAQ:SLAB) designs, manufactures and sells
proprietary high-performance mixed-signal integrated circuits (ICs)
for the wireless, wireline and optical communications industries.
The company initially focused its efforts on developing ICs for the
personal computer modem market and is now applying its mixed-signal
and communications expertise to the development of ICs for other
high growth communications devices, such as wireless telephones and
optical network applications.  The company's mixed-signal design
engineers use standard complementary metal oxide semiconductor, or
CMOS, technology to create ICs that can reduce the cost, size and
system power requirements of devices that the company's customers
sell to their end user customers.  The chip sector is "hot" and the
long-term trading range support near $20 along with the rally to a
11-month high makes this position in SLAB a favorable speculation

DEC 22.50 QFJ XX LB=0.85 OI=52 CB=21.65 DE=42 TY=9.5%



The following group of issues is a list of additional 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
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary. 

Sequenced by Target Yield (monthly basis)
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

RFMD   23.90  DEC 17.50   RFZ XQ  0.85 3503  16.65   42   10.9%
LWIN   17.38  DEC 15.00   UIN XC  0.80 206   14.20   42   10.8%
TERN   10.44  DEC  7.50   TUN XU  0.25 25     7.25   42    7.7%
CMNT   15.47  DEC 12.50   QDO XV  0.35 1     12.15   42    7.1%
AMAT   38.57  DEC 30.00   ANQ XF  0.80 2100  29.20   42    6.8%
IMDC   23.22  DEC 20.00   UZI XD  0.55 0     19.45   42    6.0%
ZIGO   17.11  DEC 12.50   UZY XV  0.30 0     12.20   42    5.8%



Blue-chip Stocks Finish The Week Strong!
By Ray Cummins

                         - MARKET RECAP -
Friday, November 9

The Dow Industrial Average achieved an important benchmark today,
closing at a level not seen since the terrorist attack that took
place in early September.  The bullish activity emerged after
investors were comforted by reports of growing consumer optimism
and a belief that 2002 will be a successful year for U.S. equity
markets.  The fact that short-term interest rates were slashed to
40-year lows also helped "old economy" stocks recover this week
and on Friday, the blue-chip average advanced 20 points to 9,608
on strength in Alcoa (NYSE:AA), Hewlett-Packard (NYSE:HWP), Exxon
Mobil (NYSE:XOM), Philip Morris (NYSE:MO), Wal-Mart (NYSE:WMT),
and SBC Communications (NYSE:SBC).  Most technology sectors ended
higher after a lackluster start with Internet, computer software
and networking shares among the best performers.   The NASDAQ 100
outdistanced the composite index, which ended almost unchanged at
1,828.  In the broader market, energy stocks led the charge after
a cut in crude oil production was announced by Russia.  Shares of
oil service, natural gas, utility, gold and retail issues climbed
while selling pressure in biotechnology, insurance, airline and
transportation stocks limited the advance of the S&P 500 index.
Trading volume was 1.09 billion shares on the Big Board and 1.53
billion shares on the NASDAQ exchange.  Market breadth was mixed,
with winners edging past losers on NYSE while decliners outpaced
advancers by a small margin on the NASDAQ.  The 10-year Treasury
note slumped 7/32 to yield 4.31% while the 30-year long bond gave
back 5/32 to yield 4.88%.

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

Sun Micro (NSDQ:SUNW)  DEC12C/DEC10P  $0.60  debit  synthetic
Biogen    (NSDQ:BGEN)  NOV65C/NOV60C  $0.60  credit bear-call
Intuit    (NSDQ:INTU)  JAN45C/NOV45C  $2.90  debit  calendar
Abiomed   (NSDQ:ABMD)  NOV22C/NOV22P  $2.25  debit  straddle
Juniper   (NSDQ:JNPR)  NOV20C/NOV20P  $3.75  debit  straddle
Stor-Tek  (NYSE:STK)   NOV20C/NOV20P  $1.65  debit  straddle

Sun Microsystems (NASDAQ:SUNW) was the big winner in the Spreads
portfolio this week with the synthetic position yielding up to a
$1.15 gain in only 4 days.  The Juniper Networks (NASDAQ:JNPR)
straddle was also an outstanding play, offering a $1.25 profit
on $3.75 invested for traders who closed the position Thursday.
The bullish calendar spread in Intuit (NASDAQ:INTU) was off to a
great start but an unexpected sell-off late in the week pushed
the volatile issue well below our sold strike at $45.  The recent
support area near $40 will provide the first test of technical
strength and the upcoming earnings report is certain to keep the
play interesting.  The speculative straddle positions in Storage
Technology (NYSE:STK) and Abiomed (NASDAQ:ABMD) were available
at favorable prices but they have yet to produce a profit.

Portfolio Activity:

The recent volatility in the market has provided some terrific
opportunities for option traders and with only one week until
the November expiration, our portfolio has enjoyed an excellent
month.  In the credit-spreads section, all of the current plays
are at maximum profit, including the dual positions in the S&P
100 index (OEX).  The calendar-spreads portfolio has offered a
number of potentially profitable candidates including Astoria
Financial (NASDAQ:ASFC), Hollywood Entertainment (NASDAQ:HLYW),
and Newell Rubbermaid (NYSE:NWL).  The sole Covered-calls with
LEAPS position in Microsoft (NASDAQ:MSFT) yielded a $2.50 gain
on $8 invested in only 4 weeks and the (adjusted) time-selling
position in Drexler Technology (NASDAQ:DRXR) has surpassed all
expectations with the underlying issue climbing over 50% since
mid-September.  Among the bullish synthetic plays, Cabot Micro
(NASDAQ:CCMP) was the top performer, providing a profit of up
to $3 in less than two weeks.  Other successful positions were
offered in Powerwave Technologies (NASDAQ:PWAV), JDS Uniphase
(NASDAQ:JDSU), RPM Inc. (NYSE:RPM), Vodaphone (NYSE:VOD) and
our newest winner, Open Text (NASDAQ:OTEX).  The delta-neutral
category has not been as popular recently, however both of the
current credit-strangles; Murphy Oil (NYSE:MUR) and Invitrogen
(NASDAQ:IVGN), are at maximum profit.  There is only one issue
on the watch-list and that is the bullish, time-selling spread
in Technitrol (NYSE:TNL).  The stock made a valiant "break-out"
effort early in the week but the rally failed again at $27, an
area that may prove to be insurmountable in the closing months
of 2001.  Since we do not want to ride the issue back down to 
the bottom of the recent trading range (near $22), we will use
any close below the current price as a potential "early-exit"
signal, due to the increased probability of further weakness.

Questions & comments on spreads/combos to Contact Support

                       - SPECULATION PLAYS -

One of our new readers asked for some low cost synthetic plays
on bullish issues.  All of these positions are based on recent
increased activity in the stock and underlying options.  While
these plays offer favorable risk/reward potential, they should
also be evaluated for portfolio suitability and reviewed with
regard to your strategic approach and trading style.

LWIN - Leap Wireless  $17.37  *** Bracing For A Rally? ***

Leap Wireless (NASDAQ:LWIN) is a wireless communications carrier
that offers digital wireless service in the U.S. under the brand 
Cricket.  Cricket service is operated by the company's wholly 
owned subsidiary, Cricket Communications, Inc., a wholly owned 
subsidiary of Cricket Communications Holdings, Inc.  Under a 
license from Leap, Chase Telecommunications, Inc., a company that
Leap acquired in March 2000, introduced the Cricket service in 
Chattanooga, Tennessee, in March 1999.  Leap has introduced 
Cricket service in additional markets in the U.S. in 2000, and 
plans to introduce Cricket service in additional markets in 2001,
and beyond.  The Company also has a 20.1% interest in Pegaso
Telecomunicaciones, S.A. de C.V., a Mexican company that operates 
a wireless network in Mexico.

In October, Leap Wireless posted a wider than expected net loss,
but said quarterly revenues jumped as it added more subscribers
to its "Cricket" wireless telephone service.  Despite the recent
slowdown in the economy, the company said it expects to become
EBITDA positive during 2002 and free-cash-flow positive in the
first half of 2003.  In addition, a recent decision by the FCC to
gradually relax, and then eliminate the current restrictions on
how much spectrum mobile telephone companies can hold in a single
urban market could generate a number of mergers in the wireless
industry.  LWIN is a popular target in this scenario and although
any deals are likely still a year away, analysts and traders are
beginning to speculate on the potential combinations among the
companies in the sector.

The recent technical indications suggest a bullish change of
character is taking place in LWIN and this position offers a
conservative method to speculate on the future performance of
the issue.

PLAY (speculative - bullish/synthetic position):

BUY  CALL  DEC-20  UIN-LD  OI=122  A=$1.10
SELL PUT   DEC-15  UIN-XC  OI=206  B=$0.80

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $550 per contract.


LVLT - Level Three  $4.97  *** Cheap Speculation! ***

Level 3 Communications (NASDAQ:LVLT) and its subsidiaries provide
a broad range of integrated communications services, and engage
in communications, information services and coal mining.  Level
Three is a facilities-based provider, a provider that owns or
leases a substantial portion of the plant, property and equipment
necessary to provide its services.  The company has also created,
by constructing its own assets, and through a combination of new
purchases and leasing of facilities, the Level Three Network; an
international, facilities-based communications system to provide
services that employ and leverage rapidly improving underlying
optical and Internet Protocol technologies.   The company has a
total of approximately 63 markets in service, comprised of 52
markets in the United States, nine in Europe and two in Asia.

Shares of this unique fiber-optic network builder rallied last
week after the company announced it had signed an agreement to
provide network services to the nation's #3 wireless telephone
firm, AT&T Wireless Services.  LVLT said it would provide AT&T
Wireless with dedicated amounts of bandwidth to connect fixed
locations, effectively bypassing common carrier networks.  The
company said the bandwidth would be used to transport voice and
data for AT&T Wireless' next-generation wireless network, which
offers high-quality voice and speedy Internet access.  Investors
were generally bullish on the news but most analysts believe the
deal will not substantially alter the company's near-term outlook.
At the same time, almost everyone is agrees that a "fundamental"
bottom is in place for the Wireless Telecom sector and there are
likely more contracts with major carriers in the company's future.

Technically, the issue appears to be successfully completing a
basing phase and we expect LVLT to benefit significantly from the
next technology rally.  Traders who are bullish on fiber-optic
networking stocks can use this synthetic position to speculate on
the future performance of the group.  Target a credit in the play
initially, to allow for a brief pullback in the underlying issue.

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  JAN-5.00  HGY-AA  OI=7988  A=$1.10
SELL PUT   JAN-5.00  HGY-MA  OI=2838  B=$0.95

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $300 per contract.

                       - TECHNICALS ONLY - 

Here are two favorable combination positions that emerged in a
search for "bearish" issues with speculative options activity.
Since these plays are so evenly matched with regard to technical
history and risk/reward outlook, we decided to publish them both
and let the readers make a choice.  In addition, news and market
sentiment will have an effect on these issues, so review each one
thoroughly before making your decision.


HB - Hillenbrand  $50.61  *** Rolling Over? ***

Hillenbrand Industries (NYSE:HB) is a diversified, public holding
company and the owner of 100% of the capital stock of its three
operating companies serving the funeral services and healthcare
industries.  The company's Health Care Group consists of Hill-Rom
company, a manufacturer of equipment for the healthcare market
and provider of wound care, and pulmonary and trauma management
services.  Hillenbrand's Funeral Services Group consists of the
Batesville Casket Company, a manufacturer of caskets and other
products for the funeral industry, and Forethought Financial
Services, a provider of funeral-planning financial products.

Note: Next week, the company plans to update earnings guidance
for the fourth quarter of 2001 and provide an initial earnings
outlook for its 2002 fiscal year.

PLAY (conservative - bearish/credit spread):

BUY  CALL  DEC-60  HB-LL  OI=122  A=$0.25
SELL CALL  DEC-55  HB-LK  OI=254  B=$0.75


KMB - Kimberly Clark  $55.90   *** No Safety Here! ***

Kimberly-Clark (NYSE:KMB) is engaged in the manufacturing and
marketing throughout the world of a range of consumer products.
The company is organized into three global business segments,
Tissue, Personal Care, and Health Care and Other.  The Tissue
segment includes facial and bathroom tissue, towels, wipers and
napkins for household and away-from-home use; disposable wipes;
printing, business and correspondence papers, and other related
products.  The Personal Care segment includes disposable diapers,
training, youth, and swim pants, feminine and incontinence care
products and related products.  The Health Care segment includes
healthcare products, consisting of surgical gowns, drapes, exam
gloves, infection-control products, sterilization wraps, masks,
respiratory products and other disposable medical products, as
well as specialty and technical papers and other products.

PLAY (conservative - bearish/credit spread):

BUY  CALL  DEC-65  KMB-LM  OI=45   A=$0.10
SELL CALL  DEC-60  KMB-LL  OI=709  B=$0.60

                   - STRADDLES AND STRANGLES -

MERQ - Mercury Interactive  $29.45  *** Expiration Week! ***

Mercury Interactive (NASDAQ:MERQ) is a provider of integrated
performance management solutions that enable businesses to test
and monitor their Web-based applications.  Its software products
and hosted services help Global 2000 companies enhance the user
experience by helping the performance, availability, reliability
and scalability of their Web-based applications.  The company's
hosted services provide its customers a cost-effective solution
that quickly meets business needs without dedicating significant
time and internal resources.  Mercury's integrated performance
management solutions enable customers to more quickly identify
and correct problems before users experience them.  Its hosted
services provide outsourced load testing and Web performance
monitoring services that complement its software products.

Here's a great "expiration week" straddle, based on the issue's
historical option-pricing trends and technical background.  The
stock has options that are undervalued (cheap) and also has the
potential to move more than enough to make the play profitable.
In addition, MERQ has a history of multiple movements through a
sufficient range in the required amount of time to justify the
overall risk/reward of the position.  

PLAY (speculative - neutral/debit straddle):

BUY  CALL  NOV-30  RQB-KF  OI=9766  A=$1.00
BUY  PUT   NOV-30  RQB-WF  OI=262   A=$1.60


POT - Potash  $60.10  *** Range-Bound! ***

Potash Corporation of Saskatchewan (NYSE:POT), along with its
direct and indirect subsidiaries, is an integrated fertilizer
and related industrial and feed products company.  Their main
customers for fertilizer products are retailers, cooperatives,
dealers, distributors and other fertilizer producers.  Their
primary customers for industrial products are chemical product
manufacturers.  The majority of their purified phosphoric acid
is sold directly to consumers of the product, with the balance
sold through an authorized non-exclusive distribution network.

Potash is a great candidate in the "premium-selling" category
of options trading.  The issue has robust option premiums, a
well-defined trading range and no expected news or events to
change its fundamental outlook in the coming weeks.  With this
combination of qualities, there is a high probability that the
issue will remain between the sold (short) strike prices until
next month.  In addition, the "range-bound" characteristics of
its recent price activity should provide an easy opportunity
for position adjustment, if the issue moves beyond the profit
envelope prior to the December options' expiration.  As with
any recommendation, the play should be carefully evaluated for
portfolio suitability and reviewed with regard to your strategic
approach and personal trading style.
PLAY (moderately aggressive - neutral/credit strangle):

SELL CALL  DEC-65  POT-LM  OI=690  B=$1.50
SELL PUT   DEC-55  POT-XK  OI=327  B=$1.25
UPSIDE B/E=$67.85  DOWNSIDE B/E=$52.15

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