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Daily Newsletter, Sunday, 11/18/2001

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The Option Investor Newsletter                   Sunday 11-18-2001
Copyright 2001, All rights reserved.                        1 of 5
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       WE 11-16         WE 11-11         WE 11-02         WE 10-26
DOW     9866.99 +258.99  9608.00 +284.46  9323.54 -221.63  +341.06
Nasdaq  1898.58 + 70.10  1828.48 + 82.75  1745.73 - 23.23  + 97.65
S&P-100  588.07 + 10.08   577.99 + 18.00   559.99 -  7.99  + 14.18
S&P-500 1138.65 + 18.34  1120.31 + 33.11  1087.20 - 17.41  + 31.13
W5000  10486.67 +189.46 10297.21 +280.40 10016.81 -168.72  +290.64
RUT      451.31 + 13.21   438.10 +  5.03   433.07 -  5.58  + 12.95
TRAN    2497.37 +176.68  2320.69 + 74.03  2246.66 -   .92  + 73.30
VIX       27.17 -  1.59    28.76 -  3.64    32.40 +  1.87  -  5.31
VXN       55.04 -  3.55    58.59 -  2.60    61.19 +  4.28  - 12.37
TRIN       0.99             0.90             0.92             0.87
TICK       +750             +784             +701             +828
Put/Call    .50              .74              .70              .53
******************************************************************


Surprising Strength For Overbought Markets!
by Jim Brown

The expected Friday sell off on profit taking came right on schedule
but was met at the close by ready buyers. After sprinting to resistance
at 9900 at the open, the Dow fell back to 9792 and a -80 point loss
before end of day buying almost brought it back to positive territory.
The Nasdaq was a carbon copy except the morning high was the second
day in a row that the index posted a lower high which could indicate
weaker internals and the beginning of a declining trend.





The markets traded on economic enthusiasm at the open after the CPI
came in weaker than expected and continuing show that inflation is
nonexistent. The main factor continues to be cheaper energy prices
being passed through to consumer prices. Industrial Production fell
again in October for the thirteenth straight month and to the lowest
level since the great depression. Capacity Utilization fell to 74.8%,
which is the lowest level since 1983. Low capacity eliminates supply
bottlenecks and has virtually eliminated inflationary pressure from
the economy. Growth continues to remain negative and could be a
warning that the 4Q GDP will show a deeper recession

Probably the best news for a sleepy Friday was a comment from
Continental Airlines that holiday travel was stronger than expected.
This along with cheaper oil powered the airline stocks to highs for
the week. This was even more remarkable due to the American Airlines
crash on Monday and the news that American was going to cancel a
couple dozen airplane orders in light of the decreased passenger
traffic.

About the only period of serious weakness on Friday was when the
Atlanta airport was closed due to a security breech. Bids were
cancelled as the markets hit their lows but they quickly returned
when the all clear signal was given.

The Taliban and Al Queda suffered several new blows including the
loss of Osama's right hand man. Mullah Omar reportedly offered to
turn over Kandahar if he could get safe passage out of the area.
Things are not going well for the Taliban as it appears they have
collapsed as a government and a fighting force. Coalition special
forces are acting with impunity within the country and most feel it
is only a matter of days before all the likely suspects are killed
or captured. The continuing good news from Afghanistan continued to
support a market that is clearly overbought.

Friday was options expiration day and while cruising through my
watch list it was evident in the stock prices. There were many
stocks that had good runs recently that were "pinging" at a major
strike price. This means the stock will run up to exactly the strike
price or a few cents under the strike and fail to break it. The
market makers and hedge funds hold the price down so that the
covered calls written at that strike price expire worthless. They
do this by outright shorting or by sacrificing a portion of their
holdings to protect the rest. If a fund had five million shares of
XYZ stock purchased at $7-$10 and wrote $20 calls after it passed
say $17 they would be at risk for losing their stock if the stock
closed over $20. Many funds use options to increase returns and
it is not unusual for them to get caught close to a strike price
in expiration week. By selling stock as the price threatens to go
over the strike price it pressures the stock and many times holds
the prices under the strike. By sacrificing a few thousand they
save the majority of their position.

Market makers also hedge the positions they take during the month
by buying/selling options and many times they would rather those
options expire worthless instead of expire in the money. These
market makers work on 10-20 times the margin that regular traders
enjoy and they use this leverage to prevent breakouts if it would
hurt them financially. Without the options expiring on Friday I
doubt we would have had any volume at all. It was very anemic with
only 1.3 billion on the NYSE and 1.7 on the Nasdaq.

While the market momentum appeared to be slowing near the end of
the week the underlying strength is still there. I was worried
that a pull back could occur on Friday and carry over into Monday.
Instead the finish on Friday was bullish and even though we did
not close in positive territory there was decent strength coming
back from the dip. The Dell earnings hit only Dell and not the
markets. Despite the AMAT caution many chips continued upward.
When I was going through my watch list on Wed/Thr there were many
stocks rolling over at resistance which gave me a reason for
caution. When going over the same watch list on Friday night many
of those same stocks were back up at resistance and threatening to
breakout. Many smaller stocks were accelerating while blue chips
were showing minor weakness from profit taking. Bonds continued to
sell off as asset allocations shift back to stocks.

If you have been reading my comments for the last three weeks you
would know that I have been bullish and telling you to go long
even when everyone else was calling for another major sell off.
There has been a gain of over 800 points on the Dow and over 200
points on the Nasdaq in that time. Thursday I said don't buy the
dip on Friday because I was afraid it could be the beginning of
a multi-day profit taking sell off. As I sat and watched the market
move towards the close on Friday, with almost everyone now bullish,
I was pondering the coming week. The VIX and the VXN closed
at new three months lows and the advancers beat decliners on a down
day. Bullishness is rampant going into a normally bullish week
but the put/call ratio is very bearish.

What we have is a very confused market. The long term investor is
looking at ten rate cuts and expecting a roaring economy next year.
The bond markets are now looking at the December Fed meeting and
factoring OUT another rate cut. The home mortgage rates spiked
this week in reaction to the ten year bond yields. Inventory
levels are rising again and tech giants are dodging comments
about a 2Q recovery. What do you think will happen if the Fed
does not cut again and changes their bias to neutral on Dec-11th?
Even though the markets know the change will eventually come
nobody wants to think it will be in December. That is only three
weeks away.

So now investors are about to be confused as well. Investors are
finally turning bullish just as the market is showing signs of topping.
The economic recovery hopes have dimmed significantly in the last
two days but investors have not caught on yet. The week before
and after Thanksgiving is normally bullish. Does that mean we
buy with reckless abandon just because the period is normally
bullish? I hope not. I saw a lot of bullishness in my charts
this weekend but my subconscious still says be careful. We have
bounced off overhead resistance for three days now and it will
take more than wishful thinking to get through it. I just don't
think the minor selling we saw on Friday was enough to compensate
for the three weeks of gains. There is profit taking in our future
and it will not be pretty. It could come any day next week and the
longer it takes the more severe it will be.

Support levels are still 9750 on the Dow, which is only -110 points
away. The Nasdaq could easily drop to 1868 but that is only a good
days move from Friday's close at 1898. The S&P is more critical to
the continued rally than either the Dow or Nasdaq and it looks weak.
Support on the S&P is 1130 which barely held on Friday with a
drop back to 1129.92 but the rebound was not as convincing. Real
support is 1115 which is a good two day drop away.

As I close this article I am struggling. I went back and reviewed
charts again and MANY look like pending breakouts. BUT, most big
drops are after the most bullish days. I could easily see a huge
relief rally on Monday if nothing negative happens over the
weekend. I could also see those pending breakouts roll over instead
as the negative economic news starts to weigh on the markets again.
Most investors are relieved to hear that airline load factors are
up and the retail holiday may be better than expected but that is
already factored into the markets. Investors are also bullish
because gas is so cheap but that condition can change overnight.
The last +1800 points from the September lows has been easy money.
The next 600 points on the Dow will have to be fought for on a
day by day basis. We no longer have the September panic drop into
severely oversold conditions to power us. We are now largely
overbought and the fight is in front of us. Valuation downgrades
are becoming an everyday occurrence. Cisco for example on Friday.

The bottom line for me this weekend is still the same as Thursday,
caution. I don't want everyone to sit on the sidelines should the
market rally against reason. (now there is a thought, when has
the market ever been reasonable?) I also do not want readers to
venture blissfully into next week expecting a turkey rally. Farm
turkeys eat really well for several weeks before thanksgiving then
their world comes to an end. We have eaten very well in the market
for the last three weeks. Let's just be on the lookout for the guy
with an ax this week. Keep those stops close. One more thought,
I said don't buy the dip on Friday. I am changing that to buy any
"rebound" from the support levels I stated above. Let's see if we
can tempt fate and buy one more dip before we start worrying about
December earnings warnings. Yes, it is almost that time again!

Enter passively, exit aggressively!

Jim Brown
Editor@OptionInvestor.com


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**************
Editor's Plays
**************

MSFT, PVN, Top 20

Last week I recapped the Microsoft play and suggested closing
the play at $68-$69 because of resistance in that level. The
high on Wednesday was $68.34 and you should have triggered a
sell when you saw it roll over. The call was trading at $14.20
at that time. Not a bad profit on a $4.10 starting price.





Providian Financial

I caught a world of grief on my PVN play from last week. The
company is a sub prime lender offering credit cards to people
with less than stellar credit. Last Sunday the stock was at
$3.04 and I said that for the price of an option you could
own stock in a company that traded for $60 last July. Nobody
complained when AG Edwards upgraded them on Tuesday and the
stock rose almost 33% to $3.95 from $3.00. The bad news and
the complaints came on Wednesday night when Providian withdrew
guidance and announced restructuring plans. The stock dropped
back to $3.00 again. I got a ton of email complaining about
the downgrade and the drop in price.

Guys, when I wrote the article the stock was trending up from
a low of $2.05 and appeared to have started a positive trend.
The company is in trouble. That is why it is $3.00. If it was
turning in double digit earnings it would be $60 again. The
point I was trying to make was that at $3, the price of an
option, you could own stock in a company with $32 billion in
high interest loans that would either recover or be taken out
by somebody else.

We always urge readers to do their own analysis on the companies
we highlight before making any investment decisions. Secondly,
any option investment or high risk stock in the case of PVN
should only be done with risk capital and only capital you
can afford to lose. I personally think PVN will recover but
that is no guarantee. It is an opinion! It is intended as a
starting point for your own research.





Top 20 List (way more this week!)

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.

I found a lot of stocks this week that were at resistance
and would suggest opening positions ONLY after they pass
the resistance level I have noted. Use that same level
as a stop loss should they roll over.

PMCS buy now
SRCL buy now
NOK  buy now
AMCC buy over $16.00
BSX  buy over $24.75
CIEN buy over $20.00
CUM  buy over $36.00
DPH  buy over $13.50
EMMS buy over $17.00
EMN  buy over $38.25
ETS  buy over $11.00
EXTR buy over $17.50
FNSR buy over $13.25
FON  buy over $22.00
KTC  buy over $33.00
ADVS buy over $46.00
AFFX buy over $35.00
APD  buy over $45.00
CLS  buy over $41.50
CREE buy over $25.00
CSX  buy over $37.00
DOV  buy over $38.50
ETN  buy over $70.00
JNPR buy over $26.00
KLAC buy over $50.00
LZB  buy over $21.00
MGAM buy over $30.00
NXTL buy over $11.00
PG   buy over $79.00
PHG  buy over $30.00
SI   buy over $60.00
SNA  buy over $31.00
STM  buy over $35.00
TSM  buy over $17.50
SFA  buy over $27.50
ITWO buy over $7.50
BVSN buy over $3.50
CMGI buy over $2.75

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

Good Luck


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

On The Run
By Eric Utley

Like the Taliban, the bears are running for cover.  Will the
bulls push ahead next week?  It sure feels that way.  The
Thanksgiving Holiday week has historically been bullish for
stocks.  And despite the slightly negative close in the major
averages last Friday, the internals of the market remained
solidly bullish.  The new high/new low index stayed positive
and advancers outpaced decliners, again.

Wow!  What's up, err, down with bonds.  Treasuries were
whacked last week to the tune of a 13 percent rally in the
benchmark 10-year (TNX.X) yield.  Money fled the Treasury
market last week at its fastest rate in a long, long time.
Where did it go?  Some of it moved into corporate bonds
noting the narrowing spread between corporates and
treasuries.  Some of it may have moved into high yield
debt instruments, also known as junk bonds.  And some of that
money may be earmarked for stocks.

But the averages are still overbought in the short-term.  Why
do we care whether a market is overbought or oversold?  An
overbought market reveals that the majority of buyers have
already bought.  Who's left to carry stocks higher?  Shorts
can carry stocks higher in an overbought market.  And those
late to the game, fearful of missing the next leg higher, can
carry stocks higher in an overbought market.  An overbought
market, therefore, can always grow increasingly overbought.
Anybody who was in the game in 1995 should remember that the
S&P 500 (SPX.X) stayed overbought for the whole year.  It
could happen again.  However, some backing and filling in
the averages would be a healthy development.

-----------------------------------------------------------------

Market Volatility

VIX   27.17
VXN   55.04

-----------------------------------------------------------------

          Put/Call Ratio  Call Volume   Put Volume
Total          0.50      1,317,788       664,860
Equity Only    0.42      1,223,867       513,848
OEX            1.24         37,023        45,787
QQQ            0.70         66,116        46,138

-----------------------------------------------------------------

Bullish Percent Data

           Current   Change   Status
NYSE          34      + 0     Bull Alert
NASDAQ-100    75      + 1     Bull Confirmed
DOW           63      + 3     Bull Confirmed
S&P 500       59      + 2     Bull Confirmed
S&P 100       59      + 4     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  0.88
10-Day Arms Index  0.93
21-Day Arms Index  1.12
55-Day Arms Index  1.12

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
points.

-----------------------------------------------------------------

        Advancers     Decliners
NYSE      1681           1429
NASDAQ    1955           1636

        New Highs      New Lows
NYSE       71             24
NASDAQ     60             32

        Volume (in millions)
NYSE     1,347
NASDAQ   1,692

-----------------------------------------------------------------

Commitments Of Traders Report: 11/13/01

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 added to long and short positions last week
with a slight bias to bearish positions.  Small traders did the
same.

Commercials   Long      Short      Net     % Of OI
10/30/01      377,468   413,729   (36,261)   (4.6%)
11/06/01      376,807   416,063   (39,256)   (5.0%)
11/13/01      381,539   421,284   (39,745)   (5.7%)

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
10/30/01      123,546     71,225   52,321     26.9%
11/06/01      132,106     81,208   50,898     23.9%
11/13/01      136,047     87,645   48,402     22.0%

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

NASDAQ-100

Commercial interests dropped a few long positions and added more
short positions for a bearish gain in their net position.  Small
traders went the opposite direction by adding to longs and shedding
short positions for a net bullish gain.

Commercials   Long      Short      Net     % of OI
10/30/01       32,055     45,574   (13,519)  (17.4%)
11/06/01       39,410     47,890   ( 8,480)  ( 9.7%)
11/13/01       38,751     49,257   (10,506)  (12.0%)

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
10/30/01       12,725     6,475    6,250      32.5%
11/06/01       11,406     8,143    3,263      16.7%
11/13/01       11,568     6,505    5,063      28.0%

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

DOW JONES INDUSTRIAL

Commercial traders shed a few more longs than shorts last week,
which lowered the net bullish position from the previous week's
reading.  However, the % of OI net long grew.  Small traders
added to long positions and lightened short positions.  The
small traders remain decidedly bearish on the Dow.

Commercials   Long      Short      Net     % of OI
10/30/01       25,872    12,556   13,316     34.7%
11/06/01       25,977    11,951   14,026     37.0%
11/13/01       24,145    10,204   13,941     40.6%

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
10/30/01        4,261    11,220    (6,959)   (45.0%)
11/06/01        3,569    12,281    (8,712)   (55.0%)
11/13/01        4,094    12,121    (8,027)   (50.0%)

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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***************
ASK THE ANALYST
***************

Enough Already
By Eric Utley

I'm upset with the Philadelphia (PHLX) and American (AMEX)
Stock Exchanges.  They both created new sector indices.  I
have enough on my plate.  Aren't the 30 sectors I follow daily
enough?  What the...

The AMEX and PHLX recently released their own defense
industry indices.  The AMEX's trades under the symbol DFI.X
and the PHLX's trades under DFX.X.  Isn't it interesting that
the two released a defense sector index now?

The new defense sector indices will help traders to better
gauge stocks in the group, such as OI's current NOC put play.
For that reason I thought it might be beneficial to pass along
the components of each:

AMEX Defense Index (DFI.X) Components -

ATK   BA   DRS   EASI   EDO   FLIR  GD   LLL
LMT   NNS  NOC   RTN    SSSS  TTN   UIC

PHLX Defense Index (DFX.X) Components -

ATK   BA   DRS   EDO    ERJ   EASI   ESL   GY   GD
GE    ITT  LLL   LMT    NNS   NOC    RTN   TDY  UTX

There's overlap in the two and no need to follow both.  I'm
choosing to track the AMEX's DFI.X because I've never been
to Philadelphia.  Either one will work.

In addition to its defense index, the PHLX also launched its
very own Fiber Optics Sector Index (FOP.X).  From the PHLX Web
site:

In the not too distant past, the thought of sending data and
voice traffic as signals of light over fiber optic cables was
the domain of science fiction and fantasy.  Today, optical
networking is the technology of choice for long distance
communications.

In the not too distant past, the thought of unlimited growth
and productivity gains through investment in information
technology and through harnessing the power of Internet was
the domain of science fiction and fantasy.  It still is.

Nevertheless, the PHLX's FOP.X is yet another tool to add to
the mix.  The sector was one of the best performing last
week.  Come on baby light my fiber.

PHLX Fiber Optics Index (FOP.X) Components -

ALA   AMCC   CDT   CIEN   CSCO   GLW   EXFO   FNSR
HLIT  JDSU   JNPR  LU     NEWP   NT    ONIS   PMCS
Q     SFA    TLAB  TCM

The point and figure charts that appear in this column were
created using www.StockCharts.com.

Please send your questions and suggestions to:

Contact Support

----------------------------

Washington Mutual (NYSE:WM)

I have not read your Ask the Analyst column for a while, but
nevertheless thought I will put this query to you.  Washington
Mutual - last year when the Tech stocks were crashing, WM was
a star performer in the Leaps article that Mark [Phillips]
writes.  WM had an alarming drop recently - at which time I
bought the stock at $28.65.  It has recovered somewhat, but am
looking for your valued opinion on the stock, both short and
longer term.  It is riding up in the Stochastics and MACD while
volume is back to normal.  I wonder whether you could also do a
P&F chart analysis on it to assess future levels. - Many
thanks, Kevin

Intelligent question, Kevin.  Thoughtful and well done.  Passing
on my column, however, is uncool.

What was happening with interest rates last year when tech was
crashing?  Take a look at the chart of the 10-year Note (TNX.X).
Rates peaked in early 2000, slid lower through all of 2000, and
finally hit what looked like a bottom two weeks ago.  Meanwhile,
Wamu traded in the opposite direction.  The stock hit a bottom in
early 2000 when rates peaked and proceeded to rally through all of
2000 while rates were falling.

Wamu is levered to interest rates for obvious reasons: the company
is the nation's largest savings and loan (S&L).  The stock's big
rally last year was a precursor to the Fed's benign monetary
policy this year.  If you take a look at the company's most
recent income statement you'll find a 76 percent increase in
net interest income over last year, which was directly linked
with lower rates.

The time to buy Wamu is six to nine months ahead of a benign
monetary cycle.  The stock moves in cycles closely tied
to interest rates.  Therefore, if you're going to buy the stock
you want to do it near the peak in rates, not near the trough.
We're near or at the trough right now.  In fact, I wouldn't be
surprised if the Fed raises rates in Q3 of next year.  Wamu is
not the stock to own ahead of an increase in rates.

I've heard the bullish argument for stocks like Wamu currently.
Its low valuation, high dividend yield, and stock buyback program
make it a buy candidate.  That may be so, but you don't buy S&Ls
near the trough of a benign monetary policy, it's just that
simple.  What follows a bottom in rates?  The hawk.

In addition to its traditional banking business lines, Wamu has
a big presence in the mortgage business.  The Treasury's recent
withdrawl of the long bond (TYX.X) may partially explain the
recent sell-off in WM.  The company is an adjustable rate
mortgage lender, which puts it at risk in the event of
re-financings at lower rates or for the potential for customers
to search out better deals at lenders of fixed rates.  The
cessation of 30-year bond issuance whacked mortgage rates and
spurred a new wave of re-fis, potentially hurting Wamu's
mortgage business.

The stock may be buoyed by the market over the short- and
intermediate-terms.  An economic recovery tends to lift all
boats as credit quality improves, balance sheets are
re-liquefied, and defaults dissipate.  But at this point in the
businesses cycle, it's better to play that dynamic through a
larger, more diversified financial, something like Citi (NYSE:C)
or Bank of America (NYSE:BAC), and not an S&L such as Wamu.

Over the short- and intermediate-term, Wamu may catch a bid.
But over the longer-term (12-18 months), I think there are
better ways to play the economic recovery.

Let's see if the charts agree with me.

Prior to October 17, Wamu hadn't give a sell signal on its
point & figure chart in over 18 months!  18 months!!  In
other words, Wamu had been on a buy signal for the last year-
and-a-half.  Until mid-October that is.  What happened on
October 17?  The stock took out its previous column of 'Os'
by declining below $33.  That move generated the first sell
signal in 18 months.  Obviously something changed on October
17.  Along with the sell signal, the column of 'Os' generated
a bearish price objective of $14.

The sell signal is the overriding theme on Wamu's point and
figure chart.  But, I also think that the stock has been
under distribution since early August.  The lower highs into
October hint of institutional selling and the big column of
'Os' from $38 to $27, which generated the sell signal, is a
classic sign of a long liquidation.



The weekly chart of WM below reveals a significant change in
trend.  Again, it looks like a long liquidation to me.  I've
laid a retracement bracket over the stock's two year advance
to get a better handle on risk levels.  I liked the fit to the
$40 level because that level appeared significant on the point
and figure chart above.  For whatever reason, WM couldn't get
back above $40 in September and October.  Note that the lower
end of the bracket is a familiar number...maybe the bottom of
the cycle?



I can't emphasize enough how important it is to monitor
interest rates when trading the S&Ls.  To take it a step
further, I've included a chart of the 10-year, which is a
security that can be used to monitor rates.  Notice the
correlation between yield and Wamu's highs and lows.  What
happened to WM when yields bottomed in late 1998/early 1999?



----------------------------

Genesis Microchip (NASDAQ:GNSS)

Recently I read an article about GNSS, Genesis Microchip.  It
makes chips for the flat panel screens, which my son said he
is going to get for his computer in college.  Do you see any
stock or option opportunities with this stock? - Thanks, Mr.
G

This little sucker looks hot - any thoughts?  Looks like a great
stock in the LCD area. - Thanks, Ed

Thanks for the questions, Ed and Mr. G.

Flat panel displays are at the high-end of the computer
monitor spectrum.  They're expensive but prices have come down
considerably this year to adjust for the oversupply and lack of
demand.  The price reductions this year have spurred end demand.
Prices have been cut so much that the manufactures of flat panel
displays are currently selling at or below cost.  However, the
pick-up in demand for flat panel displays has been of benefit to
the makers of the components that go into the monitors, such as
Genesis.

The flat panel displays are primarily used by business and
organizations such as medical facilities and the military.  But
the demand from consumers is on the rise.  I'm not sure if the
Windows XP release will spur demand for flat panel displays, but
it's something to consider.

GNSS has been one of the best performing stocks in the market
year-to-date; it's up more than 300 percent through Friday.  But
in the last three weeks the stock has given up a significant
amount of strength relative to the market and its sector, the
Semiconductor Sector (SOX.X).

Last Friday GNSS sold-off by 10 percent, while the SOX finished
fractionally lower.  There were reports of insider selling in
October which may have been the catalyst behind the blow-off.
The stock staged a similar sell-off on November 8, which looked
like a distribution day to me.  The two big sell-off days would
have me cautious on entering bullish positions at current levels.
There's no denying that GNSS is a strong stock and its business
may continue improving, but I don't like the recent loss of
strength.

I wouldn't necessarily look to short a stock like GNSS for the
simple fact that it's been one of the strongest this year.  But
I don't want to step into a retracement early.  I would feel much
better about buying the stock at a meaningful support level,
waiting for consolidation and retracing of recent gains.  Enter
the point and figure chart.

GNSS fell below all of its meaningful short-term support levels
last Friday.  I don't see the next level meaningful support until
the bullish support line, which currently sits at $34.  That'd be
the place to look for the stock to rebound from or begin a new
base.  Why?  Because I can set a stop at $31 or $33.  Risk is then
measured and easily managed.  It's a long way down from current
levels.  However, I'd rather have the stock come to me than try
to recklessly pick a bottom.


----------------------------

DISCLAIMER:
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.


*************
COMING EVENTS
*************

===============================================================
Economic Reports

The earnings announcements are really starting to taper
off as we move into the Thanksgiving holiday week. The
markets will be closed on Thursday in observance of the
national holiday and only open half a day on Friday.
The main economic report to watch is the Michigan Sentiment
report on Wednesday.

===============================================================

Monday, 11/19/01
Housing Starts Oct Forecast: 1.515M Previous: 1.574M
Building Permits Oct Forecast: 1.490M Previous: 1.524M

Tuesday, 11/20/01
Trade Balance Sep Forecast:-$26.0B Previous:-$27.1B
Leading Indicators Oct Forecast: 0.0% Previous: -0.5%

Wednesday, 11/21/01
Initial Claims 11/17 Forecast: N/A Previous: 444K
Mich Sentiment-Rev. Nov Forecast: 83.5 Previous: 83.5
Treasury Budget Oct Forecast: -$8.7B Previous:-$11.3B

Thursday, 11/22/01
None -- Markets closed for Holiday --

Friday, 11/23/01
None -- Markets open half a day --


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The Option Investor Newsletter                   Sunday 11-18-2001
Sunday                                                      2 of 5

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***********************************************************
DAILY RESULTS
***********************************************************

Please view this in COURIER 10 font for alignment
*************************************************


CALLS              Mon    Tue    Wed    Thu   Week

SPW     114.14    0.18   2.93   4.69   0.27   9.10  Moving higher
SUNW     13.39   -0.19   0.40   0.13   0.27   0.47  Dropped
PMCS     23.24    1.05   1.53   0.19  -0.29   3.72  Breakout
FFIV     21.51    1.23   1.59   1.13  -1.87   2.32  Dropped
PDLI     35.94    0.27   3.12  -0.79   0.18   2.22  Still holding
BRCM     45.81    0.71   1.15  -0.21  -1.02   2.08  Strong semi
IBM     114.50    0.78   1.84  -2.35  -0.30   0.42  Entry point
BAC      62.54   -0.03   0.44   0.04  -0.21  -0.51  Dropped
AOL      36.90    0.67   1.57   0.25  -0.77  -0.20  Entry point
GE       40.85   -0.98   1.13   0.32   0.55   0.44  Dropped
QLGC     46.66    1.01   1.08  -0.79   0.51   0.66  Dropped
MSFT     65.75    0.58   2.11  -1.87  -0.01   0.54  Profit taking
CMVT     23.92    0.14   2.15   1.28  -0.81   2.80  Watch NWX.X
CHKP     39.36    2.55   3.39  -1.15  -0.49   3.40  Rebound ahead
NOK      24.99    0.32   1.00   1.12  -0.27   2.93  New, 200-dma
CREE     25.25    0.14   0.33   0.83   1.60   4.10  New, hybrid
FNSR     12.59    0.27   0.71   0.04   0.84   2.51  New, optical
QCOM     60.08    0.81   1.33   0.51   0.80   4.66  New, wireless
JNPR     25.60    0.55  -0.11   1.38  -0.12   2.16  New, networker


PUTS

BRL      65.19    0.66  -5.82   1.57   0.94  -2.46  Ready to roll
NOC      91.50   -1.04  -4.17  -0.88  -2.49  -0.89  Relief rally
MXIM     54.10    1.70   2.24  -0.87  -0.18   2.23  Weak chip
KKD      40.50    0.83   1.72   2.07  -1.09   5.13  New, catalyst?
WEBX     26.43   -0.43  -2.57   0.26  -3.21  -7.67  New, obsolete


********************
THE PLAYS OF THE DAY
********************

Call Play of the Day:
*********************

QCOM - Qualcomm, Inc. $60.08 (+4.66 last week)

See details in sector list




Put Play of the Day:
********************

KKD - Krispy Kreme $40.50 (+5.13 last week)

See details in sector list




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**************************
PICKS WE DROPPED THIS WEEK
**************************

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.


CALLS
^^^^^
SUNW $13.39 (+0.47) SUNW's trading range has become tedious.
Time is of the essence to options traders.  And SUNW's
sideways trading is costing precious theta.  The stock could
very well work higher next week if the Nasdaq continues
advancing.  But instead of risking more time value, waiting
for the move, we're dropping coverage this weekend.

FFIV $21.51 (+2.32) FFIV attempted to rebound Friday but
encountered selling pressure on the rally attempt.  Its
failure to move higher late Friday is a cause for concern.
Look for strength early next week to exit positions.

BAC $62.54 (-0.51) After rising steadily since the September
lows, the Banking index (BKX.X) has apparently run out of eager
buyers and on Friday began to roll over from the $850
resistance level.  We've been playing the upward trend in
shares of BAC, and after more than a week of struggling with
the $64 resistance level, it looks like the bulls have lost
their resolve.  While our $62 stop is still in place, the stock
is not looking very healthy.  We'll take this opportunity to
exit the play before the bears start getting bold.  Take profits
near current levels and look to initiate new positions in the
next leadership group as the markets continue to work higher.

GE $40.85 (+0.44) Shares of GE helped to lead the DJIA through
numerous levels of resistance over recent weeks, but it looks
like the stock is getting tired.  After moving as high as
$41.60 last week, it looks like resistance is going to win this
battle.  Rather than wait for the bears to trigger our stop,
we'll harvest our gains near current levels and look for
stronger plays.

QLGC $46.66 (+0.66) Storage stocks have had a nice run in recent
weeks, and QLGC has been one of the strongest performers, nearly
tripling from the September lows.  But the past week has shown
the bulls losing their enthusiasm for the stock as it has
failed several times to clear resistance in the $49-50 area.
Friday's weakness has QLGC threatening to break its ascending
trendline, and it looks like it is time to go.  We're content
to take the gains accrued so far and move on.  Use any strength
next week to exit the play at a better level.


PUTS
^^^^
No Dropped Puts for the weekend.


***********
DEFINITIONS
***********

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.

RISKS of SELLING PUTS:
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.


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

NOK - Nokia $24.99 (+2.93 last week)

Nokia is a mobile phone manufacturer and a supplier of mobile,
fixed, and Internet protocol (IP) networks and related services,
as well as multimedia terminals.  Nokia has two business groups,
Nokia Networks and Nokia Mobile Phones, and also includes the
Nokia Ventures Organization and the Nokia Research Center.

The wireless business is rebounding.  Demand for mobile phones
and associated products is returning.  The recent price action
of the service providers and handset manufacturers confirms the
preceding assertions.  Nokia is one of the stronger in the group,
both in fundamentals and price.  The company has been taking
market share from its weaker competitors such as ERICY.  And its
shares have been reflecting the renewed optimism for the company.
Early last week, NOK broke above its 200-dma.  The stock had not
traded above its 200-dma in the last eleven months prior to last
week's advance.  In addition, the stock moved into its gap, which
was created in early June when the company warned.  The gap left
empty space up to the $28.71 level.  In other words, NOK doesn't
have any resistance above current levels until $28.71.  That
doesn't mean the stock will work straight higher.  What it does
mean is that there is less overhead supply immediately above
current levels.  Bullish traders can look for an advance from
current levels early next week for an entry point.  Monitor the
Nasdaq as well as the Wireless Services Index (YLS.X).  Strength
in both of the aforementioned indexes would confirm entries into
strength early next week.  A pullback down to the 200-dma could
offer an entry on weakness.  The 200-dma currently sits at $23.50
and is reinforced by the 10-dma at $23.20.  Our stop is initially
in place at $22.50.

BUY CALL DEC-22 NAY-LX OI=19468 at $3.50 SL=2.50
BUY CALL DEC-25*NAY-LE OI=12774 at $1.70 SL=1.00
BUY CALL DEC-27 NAY-LY OI= 4684 at $0.85 SL=0.25
BUY CALL JAN-25 NAY-AE OI=19479 at $2.50 SL=1.50
BUY CALL JAN-27 NAY-AY OI= 5550 at $1.45 SL=0.75

Average Daily Volume = 13.7 mln



CREE - Cree $25.25 (+4.10 last week)

Cree develops and manufactures compound semiconductor materials
and electronic devices made from commercialized silicon carbide
and gallium nitride.  The company operates in two business
segments: the Cree segment, which consists of its semiconductor
products; and the UltraRF segment, which consists of radio
frequency (RF) transistors and amplifiers on a silicon platform.

A combination of catalysts is carrying this chip higher.  The
record auto sales in October helped.  Cree manufactures light
emitting diodes (LEDs): the miniature lights used in dashboards
and consumer electronics.  In addition to the increased demand
for its LEDs, Cree may be seeing an up-tick in orders for its
radio frequency (RF) circuits, which are used by handset
manufacturers.  Shares of the stock have recently been
reflecting an upturn in the company's two business segments.
The stock exploded from its consolidation beneath the 200-dma
last week.  Its breakout above $22 last Wednesday followed
through in a big way in Thursday and Friday's sessions.  The
stock now faces mild congestion between the $25 and $27 range.
A brief pullback from current levels may be in order, which
could bring CREE back down to the $24 level.  A bounce from
$24 would provide a solid entry into this solid semi.  If
the stock continues pushing higher, look for a breakout
above $27 on relatively heavier volume.  Our stop is set at
$22.

BUY CALL DEC-22 CVO-LX OI= 689 at $4.10 SL=2.75
BUY CALL DEC-25*CQR-LE OI=3074 at $2.45 SL=1.75
BUY CALL DEC-30 CQR-LF OI= 387 at $0.80 SL=0.25
BUY CALL JAN-25 CQR-AE OI=1143 at $3.40 SL=2.25
BUY CALL JAN-30 CQR-AF OI=1657 at $1.60 SL=1.00

Average Daily Volume = 1.47 mln



FNSR - Finisar $12.59 (+2.51 last week)

Finisar is a provider of fiber optic subsystems and network
test and monitoring systems that enable high speed data
communications over local area networks, storage area networks,
and metropolitan access networks.  The company is focused on
the application of digital fiber optics to provide a broad line
of high performance, reliable, value-added optical subsystems
for data networking and storage equipment manufacturers.

Do optical stocks see the light at the end of tunnel?  It would
appear that way judging by the recent rebound in the group.
Heavy hitters such as CIEN, JDSU, PMCS, and JNPR have all
recently rallied despite the flow of negative news from the
sector.  Perhaps the worst is over for the group and demand is
about to return.  One of the smaller players in the field, FNSR
has been on a tear.  The stock is up by more than 200% from its
September lows.  It traded up to the 200-dma last Friday at
$13 and change, but could continue working higher over the
short term if the optical group continues advancing.  Traders
can look for a breakout above the 200-dma early next week and
confirm a rally attempt with an advance past the $13.50 level.
Beyond $13.50, FNSR doesn't have any resistance until the $16.
A more than $2 move in such a low priced stock can translate
into a solid gain in an option.  A pullback down to the $11
level and subsequent bounce would offer an entry on weakness.
Watch others in the group such as the aforementioned leaders.
Our coverage stop is in place at $10.50.

BUY CALL DEC-10 FQY-LB OI=1550 at $3.30 SL=2.25
BUY CALL DEC-12*FQY-LV OI=6137 at $1.55 SL=0.75
BUY CALL DEC-15 FQY-LC OI= 735 at $0.80 SL=0.25
BUY CALL MAR-12 FQY-CV OI= 246 at $3.00 SL=2.00
BUY CALL MAR-15 FQY-CC OI= 576 at $2.00 SL=1.25

Average Daily Volume = 4.42 mln



QCOM - Qualcomm, Inc. $60.08 (+4.66 this week)

Based on its proprietary CDMA technology, QCOM is engaged in
developing and delivering digital wireless communications
services.  The company's business areas include integrated
CDMA chipsets and system software and technology licensing.
QCOM owns patents that are essential to all of the CDMA
wireless telecommunications standards that have been adopted
or proposed for adoption by the worldwide standards-setting
bodies.  Currently, QCOM has licensed its CDMA patent portfolio
to more than 80 telecommunications equipment manufacturers
around the world.

Wireless stocks were among the first to recover in the wake of
the September attacks, although shares of QCOM experienced a bit
of a delay.  The stock dipped in early October as low as $38
before finding solid buying and it has been a steady rise ever
since.  The bulls thought they might be in trouble on the heels
of the companies earnings report, which definitely could have
been better.  But buyers swooped in to snatch up the shares at
a bargain and the rally just keeps on going.  Drawing an
ascending trendline (which currently rests at $55), shows that
the stock hasn't violated it since it began in the second week
of October, and it currently rests right between the 10-dma
($56.55) and the 20-dma ($54.13) both of which are in a steady
ascent.  The real important development though is the fact that
on Friday QCOM pushed through the 11-month descending trendline
and the 200-dma, both of which are just below $59.  Target fresh
entries on mild support near $59 or firmer support near $56.50.
We are initiating the play with a fairly wide stop at $54, just
below the 20-dma.

BUY CALL DEC-60*AAO-LL OI=24014 at $4.10 SL=2.50
BUY CALL DEC-65 AAO-LM OI= 8366 at $1.95 SL=1.00
BUY CALL JAN-60 AAO-AL OI=14412 at $6.10 SL=4.00
BUY CALL JAN-62 AAO-AZ OI= 5357 at $5.00 SL=3.00
BUY CALL JAN-65 AAO-AM OI=17774 at $3.80 SL=2.25

Average Daily Volume = 17.0 mln



JNPR - Juniper Networks $25.60 (+2.16 last week)

As a provider of Internet infrastructure solutions, JNPR serves
Internet service providers and other telecommunications service
providers, helping them to meet the demands resulting from the
rapid growth of the Internet.  The company delivers next
generation Internet backbone routers that are specifically
designed for service provider networks.  JNPR's flagship product
is the M40 Internet backbone router, which complements the
recently-introduced M20, which is a router built specifically
for emerging service providers.  The routers provided by the
company combine the features of the JUNOS Internet Software,
high performance ASIC-based packet forwarding technology and
Internet-optimized architecture into a purpose-built solution
for service providers.

After digesting CSCO's earnings report a couple weeks ago, the
Networking sector (NWX.X) has gotten its second wind.  First
clearing the $310 resistance level, now the NWX is really
running into the $344 resistance level on Friday and still
looking strong.  Although a mere shadow of its former self,
JNPR has shown some impressive strength over the past month,
rising nearly 200% from its early-October lows, and it looks
like it has further to run.  The rally over the past 2 weeks has
been a bit more sedate than what took place during the month of
October, and that just might mean that it is sustainable.  Up
until the past couple days, volume has remained very strong, and
we'll need to see a return of heavy buying volume if JNPR is
going to break out over the resistance that begins at $28 and
culminates near $31.50.  Looking at an intraday chart
demonstrates that buyers are appearing at ever higher levels,
with the $24.50 resistance level now effectively acting as
support.  Consider new entries on a bounce from this level or
intraday support at $23 and $22.  We are initially placing our
stop at $21 and will be looking to lock in profits near the $31
level.  It goes without saying that we'll need to monitor the
NWX for signs of continued sector strength.

BUY CALL DEC-22 JUX-LX OI= 1593 at $4.90 SL=3.00
BUY CALL DEC-25*JUX-LE OI=12953 at $3.40 SL=1.75
BUY CALL DEC-30 JUX-LF OI= 7054 at $1.45 SL=0.75
BUY CALL JAN-25 JUX-AE OI= 5566 at $4.50 SL=2.75
BUY CALL JAN-30 JUX-AF OI= 6411 at $2.60 SL=1.25

Average Daily Volume = 21.5 mln



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Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!

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


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

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


**************************************************************
ADVERTISING INFORMATION

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

Contact Support

The Option Investor Newsletter                   Sunday 11-18-2001
Sunday                                                      3 of 5

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/1545_3.asp


************************Advertisement*************************

GREAT TECHNOLOGY, LOW RATES

* 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
Visit: http://www.optionsxpress.com/marketing.asp?source=optinv1

Note: Options involve risk. Risk disclosure:
http://www.optionsxpress.com/welcome_risk_index.htm
**************************************************************


******************
CURRENT CALL PLAYS
******************

PMCS - PMC-Sierra $23.24 (+3.72 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.

PMCS broke to a new relative high last Friday.  The Networking
Sector (NWX.X) continued to advance but the Semiconductor
Sector (SOX.X) pulled back.  Since PMCS is a hybrid of both a
semi and networker, its advance last Friday was most impressive
in terms of relative strength.  The stock doesn't have resistance
immediately above current levels.  The next hurdle lies at the
$25 level.  Should the NWX.X and SOX.X continue higher next
week, PMCS should work its way up to $25.  Traders who took
entries around $21 could look to book gains on a move up to $25.
Those looking for new entries can consider taking positions on
further strength from current levels with the understanding that
risk is increasing to the downside at this point in the trend.
A pullback on relatively lighter volume to the $22.50 level, or
lower at $21.75, may offer a more favorable entry into new call
trades.  One of PMCS' competitors in AMCC traded exceptionally
well last Friday.  Traders operating in PMCS might do well to
keep an eye on AMCC to confirm the price action of the former.

BUY CALL DEC-20 SQL-LD OI=2713 at $4.90 SL=3.75
BUY CALL DEC-22 SQL-LX OI=1803 at $3.50 SL=2.25
BUY CALL DEC-25*SQL-LE OI=1663 at $2.35 SL=1.50
BUY CALL JAN-22 SQL-AX OI= 512 at $4.40 SL=3.25
BUY CALL DEC-25 SQL-AE OI=1238 at $3.35 SL=1.50

Average Daily Volume = 10.1 mln



SPW - SPX Corp. $115.35 (+9.10 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.

Solid!  SPW continues to work higher without interruption.  Yes
the stock is overbought and for that reason traders with open
positions might consider taking gains off the table.  Plus, the
stock hit our bullish price objective of $115 last Friday.  That
doesn't mean it won't work higher.  But those who've captured
$5, maybe $10, in the play recently should use money management
and take gains.  With that said, the stock may continue advancing
to the $120 level.  But, it's difficult justifying entering new
call plays after the stock's recent run and its overbought nature.
We've been writing in recent updates that we'd like to see a
pullback to support before entering new positions.  Although we
have not yet witnessed the pullback, we still would prefer taking
new plays on a pullback.  The reasoning behind waiting for a
pullback is for some of the downside risk to be removed from the
play.  With SPW's recent run, it's incredibly difficult to gauge
and manage risk.  Those with open plays can simply trail stops
higher.  But those looking for new entries might have a hard time
discerning where exactly risk lies to the downside.  We feel that
a pullback down to the $110 to $112 area would offer a more
favorable entry point whereby risk could be managed more easily;
for example, an entry at $110 could be accompanied with a stop
at $109 or $108.  In the meantime, those with open positions
should either look to exit on further strength or at least
tighten stops.

BUY CALL DEC-110 SPW-LB OI= 445 at $ 5.80 SL= 4.25
BUY CALL DEC-115*SPW-LC OI=   0 at $ 6.90 SL= 5.25  Wait for OI!!
BUY CALL DEC-120 SPW-LD OI=1055 at $ 4.70 SL= 3.00
BUY CALL MAR-115 SPW-CC OI= 210 at $13.10 SL=10.00
BUY CALL MAR-120 SPW-CD OI= 605 at $10.30 SL= 8.50

Average Daily Volume = 410 K



PDLI - Protein Design Labs $35.94 (+2.22 last week)

Protein Design Labs is engaged in the development of humanized
monoclonal antibodies for the prevention and treatment of
disease.  The company has licensed certain rights to its first
humanized antibody product, Zenapaz, to Hoffman-La Rouche and
its affiliates Roche, which markets Zenapaz for the prevention
of kidney transplant rejection.

PDLI's price action tracked the AMEX Biotechnology Sector
(BTK.X) very closely late last week.  Both PDLI and BTK.X coiled.
For its part, PDLI traced two consecutive inside days last
Thursday and Friday.  In other words, PDLI's price is tightening.
The price action portends a big move in one direction or another.
Whichever direction PDLI breaks will depend upon the action of the
BTK.X.  Continue to monitor the sector closely when following this
play.  A strong advance in the BTK.X should allow PDLI to
breakout above its resistance range between $37 and $37.50.  A
solid advance above that resistance area should signal that PDLI
is taking the high road and could be used as an entry point.
Volume should also increase on such a rally attempt.  Increased
volume on a move above $37.50 would help to confirm a forthcoming
breakout.  Those who prefer to get in before a breakout can target
entries near support, which currently sits between $35.50 and
$35.75.  Tight stops should accompany entries from support.  Also,
because PDLI's recent price action portends a big move in one
direction or another, traders might consider this stock as a
potential straddle/strangle candidate.  Should the stock breakout
from its range, it could advance up to the low $40s, while a
breakdown should pressure PDLI down to the low $30s.

BUY CALL DEC-30 PQI-LF OI= 121 at $7.40 SL=6.00
BUY CALL DEC-35*PQI-LG OI=1180 at $4.10 SL=3.00
BUY CALL DEC-40 RPV-LH OI= 628 at $2.05 SL=1.25
BUY CALL FEB-35 PQI-BG OI=1526 at $6.20 SL=5.00
BUY CALL FEB-40 RPV-BH OI= 578 at $4.30 SL=3.00

Average Daily Volume = 2.17 mln



MSFT - Microsoft $65.75 (+0.54 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.

While it appears the rally in Software stocks was begun on news
of the MSFT settlement with the Department of Justice, the
positive benefit of that piece of news has now run its course.
The latest bit of excitement for MSFT is the release of the
software giant's game system, the X-Box.  Whether sales of this
latest gadget will juice the company's bottom line remains to be
seen, but the action in the stock hasn't been impressive over
the past few days.  Looks like investors are taking profits from
the stock's stellar run over the past 6-weeks and it is up to us
to determine if we are going to get another entry point, or if
the ride is over.  The ascending trendline at $64.50 is still
intact and that will be our decision point.  We're moving our
stop up to that level and will consider fresh entries on a
bounce above there.  If it fails as support, we'll take our
gains and move on to the next play.  By the same token,
resistance is pretty firm in the $68-69 area and a return to
that area would have prudent investors locking in their profits.
Keep an eye on the broader Software sector (GSO.X) for early
signs of strength/weakness as well.

BUY CALL DEC-65*MSQ-LM OI=22890 at $3.50 SL=1.75
BUY CALL DEC-70 MSQ-LN OI=42447 at $1.15 SL=0.50
BUY CALL JAN-65 MSQ-AM OI=64214 at $4.80 SL=3.00
BUY CALL JAN-70 MSQ-AN OI=81276 at $2.50 SL=1.25

Average Daily Volume = 36.2 mln



AOL - AOL-Time Warner $36.90 (-0.20 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.

Media stocks have lost some of their upward momentum from a week
ago, and we've seen shares of AOL come back from the $39 level.
This looks like another attractive entry point in the making,
as the stock pulled back to just above the supportive 10-dma
($36.38) on Friday before recovering modestly into the close.
This weekend hosts the opening of the Harry Potter movie across
the country, and many investors will be watching how it is
received.  Positive box-office results could be just what is
needed to reinvigorate the bulls and prompt another run at the
$40 resistance level, also the site of the 38% retracement from
the May highs to September lows.  Of course, it doesn't hurt
that the Internet index (INX.X) continues to move to new
post-attack highs, clearing the $130 level last week.  The
underlying buying interest can be seen in the option trade, as
call volume surged over the last week, indicating that there is
strong expectation that shares will continue to rise.
Unfortunately, we have daily Stochastics rolling south after
the last few days of weakness, so we'll need the bulls to step
up to the plate soon.  Our stop is currently at $35.25, and
we would consider new entries on a solid bounce above that
level, ideally near the $36 intraday support level.

BUY CALL DEC-35 AOE-LG OI=28230 at $3.50 SL=1.75
BUY CALL DEC-37*AOE-LU OI=10608 at $2.05 SL=1.00
BUY CALL DEC-40 AOE-LH OI=22432 at $1.05 SL=0.50
BUY CALL JAN-37 AOE-LU OI=22404 at $2.90 SL=1.50
BUY CALL JAN-40 AOE-LH OI=52823 at $1.75 SL=1.00
BUY CALL JAN-42 AOE-LV OI=18966 at $1.00 SL=0.50

Average Daily Volume = 18.9 mln



BRCM - Broadcom Corporation $45.81 (+2.08 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.

Supported by solid rallies in both the Semiconductor sector
(SOX.X) and the Networking sector (NWX.X), BRCM has had quite
a run since the early October lows.  The stock has recovered all
the ground lost since the September attacks, and then some.  In
fact, the bulls are nearing major resistance in the $47-48 area,
and it is taking some time for them to work through all of the
overhead supply from the 3 failed breakouts above this level in
May and August.  Despite the fact that buying interest has been
weakening over the past few days, BRCM s still well above its
ascending trendline ($40.50), also the site of the 200-dma.
Even the supportive 10-dma ($43.33) hasn't been seriously
challenged since early Monday morning.  BRCM has been building
solid support near $44 all week and then took off again Friday
afternoon, once again nearing the $46 level.  As long as the
SOX can continue working higher, BRCM looks poised to break out
in the near future.  Target fresh entries from the $44 level or
for the really adventurous dip-buyers, a bounce near the $41
level, also the site of our stop.

BUY CALL DEC-45*RCQ-LI OI= 3507 at $5.20 SL=3.00
BUY CALL DEC-50 RCQ-LJ OI=13187 at $3.20 SL=1.50
BUY CALL JAN-45 RCQ-AI OI= 4195 at $6.90 SL=5.00
BUY CALL JAN-50 RCQ-AJ OI= 1812 at $5.00 SL=3.00
BUY CALL JAN-55 RDZ-AK OI= 2454 at $3.20 SL=1.50

Average Daily Volume = 13.3 mln



CHKP Check Point Software $39.36 (+3.40 last week)

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.

Like the Energizer Bunny, the Software sector (GSO.X) just keeps
on going.  There is no doubt that it is looking a bit tired, but
that is to be expected after rising 46% from the September lows.
Our CHKP play is doing even better, handily outdistancing the
GSO with a 120% rise from its post-attack low, as of Wednesday's
high of $43.  That move took CHKP just a shade below the 38%
retracement of the April highs to September lows, and the
current pullback could be setting the stage for another run at
that level.  We need to be careful with daily Stochastics
rolling over from overbought, but it is encouraging to see the
light selling volume over the past 2 days.  So long as the GSO
can keep from going into a selloff, CHKP should give us an
attractive entry point near current levels.  A dip to the $38
level would be nice as that would complete the task of filling
the gap left at the open on Tuesday.  Keep stops in place at
$37, which is just below the 10-dma ($37.29).  A close below
that level would mean the bulls are losing their grip on the
current rally.

BUY CALL DEC-35 KEQ-LG OI=2893 at $6.30 SL=4.25
BUY CALL DEC-40*KEQ-LH OI=6194 at $3.30 SL=1.75
BUY CALL DEC-45 KEQ-LI OI=2467 at $1.60 SL=0.75
BUY CALL JAN-40 KEQ-AH OI=6706 at $5.20 SL=3.25
BUY CALL JAN-45 KEQ-AI OI=4117 at $3.00 SL=1.50

Average Daily Volume = 9.58 mln



CMVT - Comverse Technology $23.92 (+2.80 last week)

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
functions.

Sectors are breaking out all over the place and the next addition
to the list may be the North American Telecommunications index
(XTC.X), which moved right up to the $850 resistance level on
Friday.  This capped off an impressive week-long rally from the
$780 level.  CMVT has benefited from (or contributed to,
depending on your perspective) this rally, rising from $19 to as
high as $26.25 Wednesday morning.  Since then, the stock has been
consolidating its gains between $23-24, filling the Wednesday gap
and preparing for the next leg of the rally.  While the
resilience of the bulls during this profit-taking phase has been
impressive, we would really like to see a dip near the $22 level
(the site of both the 10-dma ($22.03) and ascending trendline
($22.30)) before initiating new positions.  Of course, the way
this market has been acting, it wouldn't be out of the question
to see the stock continue upwards without dipping that far.
Aggressive traders might want to consider dipping their toes
into the water near the $23 level, so long as buying support
remains strong.  Keep stops in place at $21, and watch for the
XTC index to break out over support, confirming this bull still
has some room to run.

BUY CALL DEC-22*CQV-LX OI=1766 at $3.50 SL=1.75
BUY CALL DEC-25 CQV-LE OI= 771 at $2.20 SL=1.00
BUY CALL JAN-22 CQV-AX OI=2203 at $4.30 SL=2.75
BUY CALL JAN-25 CQV-AE OI=4733 at $3.10 SL=1.50
BUY CALL JAN-30 CQV-AF OI=2998 at $1.65 SL=0.75

Average Daily Volume = 6.10 mln



IBM - Int'l Business Machines $114.50 (+0.42 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.

Despite the fact that it is looking a bit tired, IBM just keeps
refusing to succumb to selling pressure.  After succeeding in
pushing the stock through the $111-112 resistance level a couple
weeks ago, the bulls are tenaciously defending the stock every
time sellers appear.  Even in the wake of DELL's less than
stellar earnings report, we only saw a dip to the $112.50 level
on Friday.  All that did was provide another bullish entry point
and excuse for buyers to drive the price up into the close.  As
IBM danced around the $114 level all week, there were plenty of
entry and exit points for short term traders who were able to
trade the intraday charts.  So long as support holds, we'd
consider bounces above our $112 stop to be attractive for fresh
entries, while weakness near the $118 resistance level will be
a good trigger for taking profits.  Eventually this range will
break, but until then, it should provide traders with some
consistent profits.

BUY CALL DEC-110 IBM-LB OI= 8955 at $7.00 SL=5.00
BUY CALL DEC-115*IBM-LC OI= 7401 at $4.00 SL=2.50
BUY CALL DEC-120 IBM-LD OI=11477 at $2.05 SL=1.00
BUY CALL JAN-115 IBM-AC OI=18674 at $6.40 SL=4.50
BUY CALL JAN-120 IBM-AD OI=37472 at $4.00 SL=2.50

Average Daily Volume = 8.86 mln



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The Option Investor Newsletter                   Sunday 11-18-2001
Sunday                                                      4 of 5

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

KKD - Krispy Kreme $40.50 (+5.13 last week)

Kripy Kreme is a branded specialty retailer of premium quality
doughnuts.  Krispy Kreme is a vertically integrated company
structured to support and profit from the high volume production
and sale of high quality doughnut products.

Was it already baked into the cake?  Actually, the doughnut?  KKD
reported third-quarter earnings last week that exceeded
expectations.  The company also raised guidance for its fiscal
fourth-quarter and year.  The question then becomes whether or
not the good news had already been discounted into the stock
ahead of the report.  KKD rallied into its earnings report last
week, which may have been a precursor to the good news.  With
the news out, the stock may not have anything to carry it
higher over the short term.  In addition, KKD is trading near the
historical highs.  Plus, the daily oscillators are in oversold
territory and began to roll last Friday.  The risks are weighted
to the downside currently and we want to be there if KKD slides
lower.  Look for weakness early next week with a slide back
below the $40 level.  Short-term support could be provided by
the $38.50 level.  Rollovers around the $41 level have been
working recently.  Our stop is initially in place at $42.25.

BUY PUT DEC-40*KKD-XH OI= 960 at $2.95 SL=1.75
BUY PUT DEC-35 KKD-XG OI=1498 at $1.20 SL=0.50

Average Daily Volume = 814 K



WEBX - WebEx $26.43 (-7.67 last week)

WebEx develops and markets services that allow end users to
conduct meetings and share software applications, documents,
presentations and other content on the Internet using a
standard Web browser.

Business travelers are once again taking to the air.  They're
staying in hotels, too.  Bookings for flights and rooms
rebounded in recent weeks, which revealed that businesses
people are once again traveling.  The rebound in business
travel is hurting the demand for remote meeting services,
such as the product that WEBX promotes.  The stock has been
on the slide for more than a week and looks to be headed
lower over the short term.  WEBX staged a sharp rally in the
wake of the terrorist attacks as businesses scrambled to
hold meetings via the Internet.  But with renewed confidence
in air travel, WEBX's product may fall back into a niche
instead of a widely used tool of businesses.  Bearish
traders can look for a breakdown below the $25 level early
next week for an entry point.  Watch for volume to increase
on any decline below $25.  A relief rally could take WEBX
back up to $30 where traders can look for a rollover.  Stops
are in place at $30.50

BUY PUT DEC-30 UWB-XF OI= 667 at $5.60 SL=4.00
BUY PUT DEC-25*UWB-XE OI=1446 at $2.75 SL=1.75

Average Daily Volume = 1.46 mln



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CURRENT PUT PLAYS
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BRL - Barr Labs $65.19 (-2.46 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
Pharmaceuticals.

BRL didn't follow-through to the upside last Friday.  Its
fractional positive close could've been a product of two
factors: Strength in Drugs (DRG.X) and options expiration.  Do
you find it interesting that BRL closed right on the $65 level
last Friday?  Isn't that level a strike price?  Anyway, the
stock's failure to move higher has us thinking one thing:
rollover.  Weakness in the DRG.X early next week should pressure
BRL lower.  The stock appears to be running out of steam after the
company raised its guidance last Wednesday, which caused the big
pop higher.  With momentum abating, bearish traders might target
an entry near the $66 to $66.50 range early next week.  Those
looking for more confirmation of weakness might wait for the
DRG.X to breakdown and look for BRL to decline below the $64
level on active volume.

BUY PUT DEC-65*BRL-XM OI=611 at $4.80 SL=3.50
BUY PUT DEC-60 BRL-XL OI=609 at $2.65 SL=1.50

Average Daily Volume = 1.3 mln



NOC - Northrup Gruman $91.50 (-0.89 last week)

Northrop Gruman is a global aerospace and defense company.  The
company provides technologically advanced products, services and
solutions in defense and commercial electronics, systems
integration, information technology and non-nuclear shipbuilding
and systems.

The bounce in the defense sector was due.  It came last Friday.
Whether or not it was a one day relief rally remains to be
seen.  The broad sector rebound in defense issues carried NOC
higher.  The stock closed at its high for the day, which is
discouraging going into next week's trading.  Volume was
extremely heavy in NOC Friday, which was a product of the
company's offering.  NOC announced Friday morning that it would
offer 8 million shares of common at $88.50 and 6 million shares
of a senior equity holding.  NOC's strength could've been in
part from the offering, but the majority of the rally was due to
the bounce in the broader defense sector.  With as oversold as
NOC is, it may rally for a few more days before pulling back.
But a rally up to resistance would offer bearish traders a
chance to enter put positions at a favorable level.  However, a
further rally would be detrimental to those holding put plays.
Make sure to have the appropriate risk management measures in
place.  As for a possible rollover level, look for resistance to
form near the $95 level, or potentially higher at $97.  Continue
to monitor others in the group, such as ATK, GD, RTN, LLL, BA,
and LMT, to gain better insight into the defense sector's
direction.

BUY PUT DEC-95*NOC-XS OI=239 at $5.70 SL=4.00
BUY PUT DEC-90 NOC-XR OI=857 at $3.00 SL=2.00

Average Daily Volume = 1.19 mln



MXIM - Maxim Integrated Products $54.10 (+2.23 last week)

MXIM designs, develops, manufactures and markets a broad range
of linear and mixed-signal integrated circuits, commonly
referred to as analog circuits.  The company also provides a
range of high-frequency design processes and capabilities that
can be used in custom design.  MXIM's objective is to develop
and market both proprietary and industry-standard analog
integrated circuits that meet the increasingly stringent
quality standards demanded by customers.

The Semiconductor sector (SOX.X) rallied hard from the October
lows right up to major resistance near $550 last week.  The big
question is whether that bull still has any grass in the tank.
If you think the answer is 'no', then MXIM just might be your
sort of play.  After a rally from $32 to $57 as of Wednesday
morning, MXIM is due to take a break and all we have to do is
wait for confirmation that the SOX is weakening and we'll be in
the play.  The stock has been riding an ascending trendline
(currently $52.75) over the past 6 weeks and if it breaks below
that level (especially on strong volume) with the SOX weakening,
that would make for a great bearish entry.  And the position
will just pick up speed to the downside after falling below the
$51 support level.  Alternatively, failed intraday rallies near
the $57 resistance level could also make for attractive entry
points, as long as the SOX can't clear the $550 level.  Once
MXIM breaks down, it won't find major support until the $46-47
area, and that will be a great spot to harvest some profits.
Stops are set at $59.

BUY PUT DEC-55*XIQ-XK OI=1072 at $4.80 SL=3.00
BUY PUT DEC-50 XIQ-XJ OI= 628 at $2.65 SL=1.25
BUY PUT DEC-45 XIQ-XI OI=2049 at $1.35 SL=0.75

Average Daily Volume = 5.80 mln



*****
LEAPS
*****

Bullish Scent Is In The Air
By Mark Phillips
Contact Support

There is no question that the bulls have been in control for the
past couple months, driving the markets well off their September
lows, and quite frankly much higher than I expected would be
possible in such a short span of time.  The dramatic progress on
the war front along with positively-received economic reports are
two of the dominant bullish factors.  And that has left an
unmistakable bullish scent in the air.

I have drawn retracement brackets on all the major indices,
starting with the May highs and ending at the September lows,
and the results are impressive and interesting.  All three
indices have reached or exceeded their 50% retracement levels,
bringing up the question of how much more upside there can be
without some serious profit taking.  I've listed the current
value and important retracement levels for each of the big
three indices for reference below.

Index               Current       38%         50%          62%
Dow Industrials     9867          9420        9787         10153
S&P 500             1138          1097        1138         1178
NASDAQ Composite    1898          1746        1855         1963

Pardon my skepticism, but I think the scent is starting to
change.  The bulls have spent the past 6 weeks gorging themselves
on stocks and we all know what comes next...and that scent is not
nearly as pleasant.  As I discussed on Wednesday, long-term
charts do not yet indicate that the bear market is done chewing
up bullish investors.

All of the recent bullish action seems to be based on
expectations of tangible economic improvement by the middle of
next year.  Could it happen?  I suppose so, but I am still
unconvinced.  Two of the economic reports out this week were
taken as positive, but under the headline numbers are lurking
some potential problems.  First we had Retail Sales jumping more
than 7% for the month of October, but most of that gain came
from autos, thanks to the industry's free financing program.  It
looked good for one month, but isn't that just front-loading
expenditures that would have happened anyways?  What do you
think the numbers will look like over the next several months?
I'm betting they are going to dry up.

And how about the Employment report that showed Initial Claims
dropping by 8000 over the prior month.  That's fine, but
continuing claims rose to an 18-year high of more than 3.8
million!  Where's the beef?  Fewer new jobless claims, but
those on the unemployment rolls are not finding new jobs very
quickly.  And did you notice the fresh round of layoffs in the
Brokerage industry?  Goldman Sachs, Merrill Lynch and Salomon
Smith Barney are among those that are cutting large portions
of their staffs in the Investment Banking arena.  Is that a
sign of pending economic recovery?  Not in my book.  Did you
notice that Industrial Production fell again in October, and is
now in the longest sustained downturn since the Great Depression?

So the markets are rising (and sharply too!) in anticipation of
an improving economy, but the evidence isn't there yet.  I lost
count of how many times I heard speculation over the past 2 weeks
that this is the birth of the next bull market.  Could the
markets continue to rise from current levels?  Sure, but I am
still leaning towards one more sizable pullback.  That doesn't
mean it will happen next week, but it can't be far off.  I'm a
technician first and fundamental analyst second, so I prefer to
rely on the charts.  And of the 500+ charts I looked at on
Friday, nearly all of them have daily and weekly Stochastics
oscillators topped out in overbought territory.  While they can
remain overbought for quite some time as the markets work
higher, this is definitely NOT the environment in which to
initiate new long-term bullish positions.  Accordingly, you can
see that we didn't feature any new plays this week.  While I
have lots of candidates that I want to consider, I sure don't
want to try it until we see some profit taking from current
levels.

Which brings me back to the retracement levels listed above.
With all the major indices trading near their 50% retracements,
I think we have two possibilities to consider: either we work
higher until finding heavy resistance near the 61% retracement
level or we fail to hold above the 50% level and head back
towards the 38% level.  In either case, as long-term investors,
we want to see how the markets hold up in the face of profit
taking when it occurs before we start initiating new bullish
positions.

Given the constructive rally over the past 2 months, with the
VIX falling back into its historic range between 20-30 (27.17
on Friday) and the sharp rebound in bond yields, I think it is
entirely possible that we have seen THE BOTTOM in the markets.
However, equities have risen too far, too fast to consider new
long positions near current levels.  Our job now is to create
a Watch List of stocks that should both provide us with
attractive entries in the months ahead as the economic picture
becomes clearer and produce handsome upside profits as the
markets continue to undo the damage done over the past 20
months.

The selloff that followed the events of September 11th attacks
stopped us out of several good plays and sadly had me erring on
the side of excess caution since then.  The result is that we
missed out on some stellar gains over the past couple months.
But here's the important point.  If (and it's still a big 'IF')
this is the beginning of a new bull market, there will still be
many opportunities (at much better entry points) to get aboard.
For now I'm more than happy to see the recent improvements that
will pave the way for solid bullish gains as we move back into
an economic expansion.

Due to the recent positive market action, I have made several
changes to the Watch List entry targets.  Tyco International
(NYSE:TYC) has had an incredible run, and is now once again
nearing major resistance near $59.  The good news is that much
of the overhead supply has now been absorbed, and I no longer
expect to see the stock trade under the $50 level.  We've seen
impressive strength in shares of Broadcom (NASDAQ:BRCM), Nokia
(NYSE:NOK) and EMC Corp. (NYSE:EMC) in recent weeks, which has
prompted me to raise the targets on all these plays.  There is
one play that I'm having second thoughts on though.  This week
I looked at the Point and Figure (PnF) chart on Merck (NYSE:MRK)
and noticed that it is still caught under a persistent bearish
resistance line.  While entries near the $60-61 level might
prove to be profitable, I have decided to put that play on hold
until I see some constructive movement above that resistance
line.

While we're on the subject of PnF charts, I need to say a few
words about our eBay (NASDAQ:EBAY) Put play.  We took a position
last week and I set the stop at $62.  Unfortunately, I neglected
to look at the PnF chart before setting that stop.  After
reviewing the chart this past week, I've decided that the $64
level is more appropriate for managing risk as well as keeping
us in the play as long as is practical.  As a matter of fact,
the run up to the $62 level last week could have made for an
attractive entry point in the play.

So let's summarize.  We've had an impressive rally, and it may
not be over yet.  But we need to see some profit taking before
stocks will be able to advance much further.  That profit taking
will help to build the base from which the new bull market can
be born, provided that the next set of lows are solidly above
the September lows.  When that correction occurs, we'll look to
initiate new positions on several new plays (some of which are
on the Watch List and several of which aren't yet there) based
on bounces from solid support levels that correspond to oversold
weekly charts.  It takes patience, but it is my firm belief that
that patience will be richly rewarded over the next year if the
economy truly begins to recover.

Take advantage of the holiday-shortened week and enjoy some time
away from the markets.  I for one am looking forward to some
additional time with my family.


Mark Phillips
Contact Support



LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
LLY    10/17/01  '03 $ 75  VIL-AO  $10.80  $13.00   20.37%  $ 74
                 '04 $ 80  LZE-AP  $12.20  $14.80   21.31%  $ 74
CPN    10/25/01  '03 $ 25  OLB-AE  $ 6.00  $ 7.80   30.00%  $ 21
                 '04 $ 30  LZC-AF  $ 6.50  $ 8.20   26.15%  $ 21

Puts:
AIG    11/07/01  '03 $ 80  VAF-MP  $ 8.40  $ 8.60    2.38%  $86.50
                 '04 $ 80  LAJ-MP  $10.60  $10.90    2.83%  $86.50
EBAY   11/08/01  '03 $ 50  OIY-MJ  $12.50  $11.10  -11.20%  $64
                 '04 $ 50  KAF-MJ  $16.20  $14.70  - 9.26%  $64


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
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  $50           JAN-2003 $ 55  VYL-AK
                            CC JAN-2003 $ 50  VYL-AJ
                               JAN-2004 $ 60  LPA-AL
                            CC JAN-2004 $ 50  LPA-AJ
NOK    09/23/01  $20-21        JAN-2003 $ 25  VOK-AE
                            CC JAN-2003 $ 20  VOK-AD
                               JAN-2004 $ 25  LOK-AE
                            CC JAN-2004 $ 20  LOK-AD
BRCM   10/28/01  $31-32        JAN-2003 $ 35  OGJ-AG
                            CC JAN-2003 $ 30  OGJ-AF
                               JAN-2004 $ 35  LGJ-AG
                            CC JAN-2004 $ 30  LGJ-AF
EMC    11/04/01  $12-13        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  HOLD          JAN-2003 $ 65  VMK-AM
                            CC JAN-2003 $ 60  VMK-AL
                               JAN-2004 $ 70  LMK-AN
                            CC JAN-2004 $ 60  LMK-AL


PUTS:
None


New Portfolio Plays

None


New Watchlist Plays

None


Drops

None


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The Option Investor Newsletter                   Sunday 11-18-2001
Sunday                                                      5 of 5

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*************
COVERED CALLS
*************

Trading 101: Covered-Calls On LEAPS
By Mark Wnetrzak

With the recent recovery in the stock market, we have received
a number of new requests for information about writing covered
calls on LEAPS.  Today's narrative provides an explanation of
the basic concepts and techniques that will help you profit
from this conservative, long-term strategy.

LEAPS can be an ideal investment tool for the option trader who
expects future growth in an underlying stock but does not want
to make the substantial capital outlay required for entering an
outright position in the issue.  With expiration dates months or
years in the future, time decay occurs very slowly for LEAPS so
they are much less affected by premium erosion; the fundamental
drawback to option ownership.  This unique quality allows these
instruments to offer an effective way to benefit from a stock's
appreciation without incurring the higher costs associated with
the actual purchase of shares.  Buying LEAPS is considered an
excellent strategy for conservative investors that finds the
happy medium between aggressive, short-term option trading and
simply buying the underlying issue.

Covered-call writing is a stock-option trading strategy that many
traders use when they are looking for a conservative risk/return
profile, while maintaining a meaningful profit potential in either
neutral to bullish market environments.  An investor will usually
write a covered call to generate income, collecting a premium for
the sale of an option against a particular stock in his portfolio.
This strategy can also be used with LEAPS, but it differs because
it does not involve direct ownership of shares of the underlying
stock; LEAPS are substituted for the long position.  The technique
is similar to a calendar spread (or time spread).  The strategy
generally consists of the sale of one call and the simultaneous
purchase of another call, both on the identical underlying stock,
with the same strike price but one option near-term and the other
option further out.  The theory behind calendar-spread profits is
based on a neutral philosophy in which time erodes the value of
the near-term option at a faster rate than the far-term option.
The most common type of time spread is bullish, where the price
of the underlying issue is some distance below the strike price
of the options.  This position is somewhat speculative with low
initial cost and large potential profits.  Two favorable outcomes
can occur: The stock rallies in the short-term and the position
is closed for a profit as time value erosion in the short option
produces a net gain or; the stock consolidates, allowing the sold
option to expire and then it eventually rallies above the long
option's strike price.

Covered-calls with LEAPS positions can be constructed for any
market outlook or bias on both volatile and stagnant positions.
The strategy is best initiated when the front-month options are
trading at a premium with respect to longer-term volatility.
Most investors prefer to establish these positions at least 3-6
months before the LEAPS expire, capitalizing on the ability to
sell a number of short-term options.  This is an added benefit
that comes from writing calls against the long position on a
regular basis; lowering the overall cost of the LEAPS as each
short-term option expires.  The basic concept in this type of
spread is selling time value in the call options when they are
overpriced (high implied volatility) and buying it back, if
necessary, when the options return to intrinsic value.  Ideally,
the trader would like to have the stock finish just below the
sold strike when the near-term option expires.  However, when
the short-term position is in-the-money on the last day of the
strike period, you must buy it back so that you don't have to
exercise the LEAPS to cover your obligation; that would defeat
the purpose of the strategy.  Then, at the beginning of each
strike period, you sell the next month's call to further reduce
the cost basis of the LEAPS.

Larry McMillan's book, "Options as a Strategic Investment" has
some excellent information on calendar spreads and other time
selling strategies.  It is available in the OIN bookstore.

Good Luck!


SUMMARY OF PREVIOUS CANDIDATES
*****
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  10.48   NOV  10.00  2.30  *$  1.00  16.1%
GSPN   11.04  12.47   NOV  10.00  1.85  *$  0.81  12.8%
INFA    7.99  11.79   NOV   7.50  1.20  *$  0.71  11.4%
RETK   21.89  28.80   NOV  20.00  2.70  *$  0.81   9.2%
AMLN    8.59   8.77   NOV   7.50  1.65  *$  0.56   7.0%
ARXX   14.61  17.01   NOV  12.50  2.50  *$  0.39   7.0%
ISSX   19.01  30.09   NOV  15.00  5.10  *$  1.09   6.8%
ANAD   16.95  18.80   NOV  15.00  2.40  *$  0.45   6.7%
KROL   13.75  14.40   NOV  12.50  2.10  *$  0.85   6.3%
LWIN   16.33  19.03   NOV  15.00  1.95  *$  0.62   6.2%
TERN    9.22  13.19   NOV   7.50  2.10  *$  0.38   5.8%
PCYC   23.15  22.52   NOV  20.00  3.90  *$  0.75   5.6%
IMDC   21.30  23.67   NOV  20.00  1.80  *$  0.50   5.6%
NMTC   25.44  25.08   NOV  22.50  3.50  *$  0.56   5.5%
FFIV   15.43  21.51   NOV  12.50  3.50  *$  0.57   5.2%
ALTR   22.65  25.05   NOV  20.00  3.10  *$  0.45   5.0%
BRCD   25.36  29.47   NOV  17.50  8.80  *$  0.94   4.9%
CIEN   17.13  19.42   NOV  12.50  5.30  *$  0.67   4.9%
CELG   33.44  35.91   NOV  30.00  4.40  *$  0.96   4.8%
ISSX   25.16  30.09   NOV  20.00  6.00  *$  0.84   4.8%
AFCI   21.98  20.60   NOV  17.50  5.20  *$  0.72   4.7%
OVER   19.19  24.24   NOV  15.00  4.80  *$  0.61   4.6%
BRCD   24.69  29.47   NOV  17.50  7.90  *$  0.71   4.6%
MCAF   21.35  26.52   NOV  17.50  4.70  *$  0.85   4.4%
GNTA   14.40  16.55   NOV  12.50  2.25  *$  0.35   4.2%
MEDC   21.20  16.05   NOV  17.50  4.20   $ -0.95   0.0%

TELM    6.20   5.65   DEC   5.00  1.80  *$  0.60   9.9%
VTSS   11.61  13.45   DEC  10.00  2.45  *$  0.84   6.6%
GMST   22.70  25.54   DEC  20.00  4.30  *$  1.60   6.3%
RMBS    8.88   9.56   DEC   7.50  1.95  *$  0.57   6.0%
GNTA   16.75  16.55   DEC  15.00  2.85  *$  1.10   5.7%
SURE   12.20   9.75   DEC  10.00  3.10   $  0.65   5.2%
MCDT   18.80  21.10   DEC  15.00  4.80  *$  1.00   5.2%

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

Comments:

Our conservative portfolio did quite well during the month of
November as the overall bullish momentum did not wane.  Only
one position was a disappointment and there was no news on why
Med-Design (NASDAQ:MEDC) dropped so drastically on Friday.
The horrid action suggests a quick exit to limit losses may be
prudent.  Trimble Navigation (NASDAQ:TRMB), which was closed
last week, did manage to sneak into positive territory.  The
move should have offered a favorable second-chance exit or a
reasonable new cost basis after rolling forward and/or down.
As for December, the technical signals in Tellium (NASDAQ:TELM)
are a bit worrisome even though on Thursday, Tellium's manage-
ment signed new agreements to extend the lock-up period for
their shares.  We will keep a close watch on the issue as it
moves towards support.  SureBeam (NASDAQ:SURE) is also on this
week's watch-list as the pullback towards support appears a bit
excessive.  All we are hoping for is a lateral consolidation.

Positions Closed:

Trimble Navigation (NASDAQ:TRMB)


NEW CANDIDATES
*********

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

AMZN    8.95  DEC  7.50   ZQN LP  1.90 5984   7.05   35    5.5%
CRXA   14.74  DEC 12.50   CVQ LV  2.90 25    11.84   35    4.8%
EXFO   14.18  DEC 12.50   FQO LV  2.55 23    11.63   35    6.5%
JDSU   11.60  DEC 10.00   UQD LB  2.20 25969  9.40   35    5.5%
NTPA    5.68  DEC  5.00   NQD LA  1.10 5064   4.58   35    8.0%
PXLW   14.95  DEC 12.50   PUO LV  3.30 279   11.65   35    6.3%
QSFT   22.64  DEC 20.00   QUD LD  4.10 109   18.54   35    6.8%

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

NTPA    5.68  DEC  5.00   NQD LA  1.10 5064   4.58   35    8.0%
QSFT   22.64  DEC 20.00   QUD LD  4.10 109   18.54   35    6.8%
EXFO   14.18  DEC 12.50   FQO LV  2.55 23    11.63   35    6.5%
PXLW   14.95  DEC 12.50   PUO LV  3.30 279   11.65   35    6.3%
AMZN    8.95  DEC  7.50   ZQN LP  1.90 5984   7.05   35    5.5%
JDSU   11.60  DEC 10.00   UQD LB  2.20 25969  9.40   35    5.5%
CRXA   14.74  DEC 12.50   CVQ LV  2.90 25    11.84   35    4.8%


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).

*****
AMZN - Amazon.com  $8.95  *** Shopping For A Bargain ***

Amazon.com (NASDAQ:AMZN) is a Website where customers can find
and discover anything they may want to buy online.  The company
lists millions of unique items in categories such as books,
music, DVDs, videos, consumer electronics, toys, camera and
photo items, software, computer and video games, tools and
hardware, lawn and patio items, kitchen products, and wireless
products.  Through its Amazon Marketplace, Auctions and zShops
services, any business or individual can sell virtually anything
to the company's approximately 30 million cumulative customers.
The company also operates four internationally focused Websites.
Analysts believe business for online retailers is picking up
following the Sept. 11 attacks.  The positive retail data this
week helped Amazon's shares rally on heavy volume as investors
speculate on consumer demand in the holiday season.  For those
who agree with a bullish outlook, this position offers a great
cost basis near technical support.

DEC 7.50 ZQN LP LB=1.90 OI=5984 CB=7.05 DE=35 TY=5.5%


*****
CRXA - Corixa  $14.74  *** New Member: NASDAQ Biotech Index ***

Corixa (NASDAQ:CRXA) is a developer of immunotherapies with
a commitment to treating and preventing autoimmune diseases,
cancer and infectious diseases by understanding and directing
the immune system.  The company has a broad range of technology
platforms, which enable both integrated vaccine product design
and the use of its separate proprietary technologies (antigens,
monoclonal antibodies, adjuvants, antigen delivery technology
and tumor activated peptide, or TAP, pro-drug technology) on a
stand-alone, POWERED BY CORIXA basis.  Corixa is awaiting word
from the FDA regarding its application for Bexxar, an experi-
mental lymphoma drug, but has not been scheduled for the FDA's
December agenda.  On Monday, November 19, Corixa, will be added
to the NASDAQ Biotechnology Index, which should help buoy the
current bullish momentum.  Reasonable speculation with little
chance of adverse news prior to the December expiration.

DEC 12.50 CVQ LV LB=2.90 OI=25 CB=11.84 DE=35 TY=4.8%


*****
EXFO - Electro-Optical Engineering  $14.18  *** Bottom-Fishing ***

Electro-Optical Engineering (NASDAQ:EXFO) designs, manufactures
and markets fiber-optic test, measurement and monitoring equipment
and instruments for the telecommunications industry. The company's
Portable and Monitoring Division provides solutions primarily to
telecommunications carriers, cable television companies, public
utilities, and private network operators, as well as third-party
installers and equipment rental companies.  The Industrial and
Scientific Division designs an extensive line of high performance
instruments for manufacturers of optical components, optical
modules and optical networking systems, as well as for research
and development markets.  EXFO recently acquired Avantas Networks
which should help the company gain a highly experienced research
and development team to penetrate the critical protocol-layer
testing market and double its addressable market size.  We simply
favor the bullish change in character as EXFO forges a Stage I base.

DEC 12.50 FQO LV LB=2.55 OI=23 CB=11.63 DE=35 TY=6.5%


*****
JDSU - JDS Uniphase  $11.60  *** Technicals Only! ***

JDS Uniphase (NASDAQ:JDSU) designs, develops, manufactures and
distributes fiber optic components, modules and subsystems for
the fiber optic communications industry.  Their products are
deployed in advanced optical communications networks for the
telecommunications and cable television industries.  The company
has two principal operating segments through which it develops
and manufactures its telecommunications products:  Amplification
and Transmission; and Wavelength Division Multiplexing (WDM),
Switching and Thin Film Filters.  Investor are starting to
speculate that the telecommunications sector is finally forming
a bottom.  Over the last 6 months, JDS Uniphase has been forging
a "saucer bottom" and has recently moved above the October highs.
With room to rally and support near the cost basis, investors
can conservatively speculate on the company's future with this
position.

DEC 10.00 UQD LB LB=2.20 OI=25969 CB=9.40 DE=35 TY=5.5%


*****
NTPA - Netopia  $5.68  *** Bracing For A Rally? ***

Netopia (NASDAQ:NTPA) develops, markets, and supports broadband
Internet equipment and e-commerce Web platforms for small and
medium-size businesses.  The company's platforms are designed to
enable carriers and service providers to create and offer value-
added, bundled service offerings for their business customers.
These bundled service offerings often include digital subscriber
line service bundled with back-up, bonding, virtual private
networking, and Website and e-store hosting.  Exactly what did
Alan Lefkof, Netopia's President and CEO, and Bill Baker,
Netopia's Senior Vice President and CFO, say at the UBS Warburg
Global Telecom Conference on November 13?  If you want to listen,
go to www.netopia.com and click on the Conference Highlights
link.  Or maybe it was a delayed post-earnings rally?  We like
the rally back above NTPA's 150-dma, which suggests further upside
movement in the future.

DEC 5.00 NQD LA LB=1.10 OI=5064 CB=4.58 DE=35 TY=8.0%


*****
PXLW - Pixelworks  $14.95  *** A Double-Bottom (Twice!) ***

Pixelworks (NASDAQ:PXLW) is a designer, developer and marketer
of semiconductors and software for the advanced display industry.
The company develops products that integrate a microprocessor,
memory and image processing circuits that function as a computer
on a single chip, or system-on-a-chip.  Pixelworks develops
its products for the most technically demanding advanced display
devices; multimedia projectors, multimedia flat panel monitors,
and high-definition televisions.  In October, Pixelworks reported
record 3rd-quarter revenue of $24.1 million, an increase of 58%
over last year, and record pro forma net income of $3.9 million.
Investors are beginning to concentrate on the future and have
reacted favorable to Pixelworks' presentation at the Deutsche
Banc Alex. Brown 2001 Technology Conference.  We simply favor
the formation of a short-term (and long-term) "double-bottom"
pattern and the current bullish momentum in the sector.

DEC 12.50 PUO LV LB=3.30 OI=279 CB=11.65 DE=35 TY=6.3%


*****
QSFT - Quest Software  $22.64  *** Software Sector ***

Quest Software (NASDAQ:QSFT) provides application and database
management software solutions that enhance its customers'
return on their information technology (IT) investments.  Each
product family consists of an integrated suite of software
tools that enable IT organizations to manage and administer
packaged and internally developed business applications and
the databases on which they run.  The types of applications
Quest supports with its products include financial reporting
systems, enterprise resource planning systems, customer
relationship management systems, B2B e-commerce systems, human
resources systems, supply chain management systems and corporate
messaging systems.  Quest's 3rd-quarter suffered from the
compound effects of slow IT spending and the disruption caused
by the Sept. 11 attack.  Quest appears to be positioned
competitively for an economic recovery and should benefit
from their product cycle over the next several quarters.
The support area near $17.50 (the October high) makes this
a favorable speculation play for investors who are neutral to
bullish on the sector.

DEC 20.00 QUD LD LB=4.10 OI=109 CB=18.54 DE=35 TY=6.8%


*****

*****************
SUPPLEMENTAL COVERED CALL CANDIDATES
*****************

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

RBAK    5.30  DEC  5.00   BUK LA  0.95 1000   4.35   35   13.0%
SONS    5.74  DEC  5.00   UJS LA  1.35 4212   4.39   35   12.1%
PMCS   23.27  DEC 20.00   SQL LD  4.80 2713  18.47   35    7.2%
AVNX    8.73  DEC  7.50   GUH LU  1.80 614    6.93   35    7.1%
TVLY   17.95  DEC 15.00   QUT LC  3.90 43    14.05   35    5.9%
GMST   25.54  DEC 22.50   QLF LX  4.40 732   21.14   35    5.6%
MANU   12.60  DEC 10.00   ZUQ LB  3.20 6103   9.40   35    5.5%
OPWV   12.09  DEC 10.00   UGE LB  2.65 6113   9.44   35    5.2%


*****************
NAKED PUT SECTION
*****************

Stock Buying Basics: Timing The Entry
By Ray Cummins

Determining when to enter the market is one of the most difficult
tasks that new investors encounter in their quest for success.

A thorough grasp of technical analysis is only one aspect of the
knowledge and skill required to prevail in the current volatile
environment.  For any trader, the end objective is profit and the
most effective method to achieving this result is to form a view
that eventually proves to be accurate.  At the same time, one must
also be positioned to obtain the greatest return from the correct
forecast of future market trends.  That step requires a complete
mastery of trading techniques and the ability to correctly apply
a specific strategy to any particular situation.  With this simple
approach, the route to consistent profits is simply a matter of
identifying the trend and using a proven trading system to exploit
each position for maximum potential.

Before an investor can successfully initiate a position, there are
a number of factors to consider.  The most important being the
overall condition of the market and the economy in general.  What
types of indications are bonds, basic commodities and currencies
offering in relation to the outlook for equities?  Is the stock
market rebounding due to lower interest rates and when will the
Federal Reserve's prolonged battle against recession expend its
maximum effect?  Will the recent influence of the weakening dollar
significantly reduce profits in the leading American corporations
over the long-term and more importantly, will their bottom-line
growth be restored in the course of renewed demand and economic
expansion?  Finally, is all the available information reflected in
the current share values or is the market's recovery simply due to
the public's present interpretation of the most popular news items.
As you can see, a successful investor must possess a comprehensive
understanding of market fundamentals to interpret and act upon the
numerous statistical releases and ongoing analysis of financial
trends.

Technical and sentimental analyses are also very effective means
to determine the future direction of the market.  The key is to
identify situations in which the "trend is (really) your friend"
and conversely, when it is more appropriate to have a contrarian
approach.  Some questions that should be answered include: Is the
market currently in a strong trend and if so, how far can it go?
Has the ideal opportunity already passed or is it viable to enter
a new position at this time?  In short, how many traders have the
same outlook and have they previously acted on that assessment or
is there additional potential for favorable activity in the issue?
A common a rule of thumb is that when all the retail participants
finally begin to support the movement, it is generally a good time
to think about exiting the position.  One concept that cannot be
overlooked is the value of historical indicators.  Professional
traders pay serious attention to them and they have too great an
impact on equity markets to be disregarded.  All investors should
understand at least the basic chart patterns, such as support and
resistance and simple moving averages.  Complex indicators such as
Stochastics and Moving Average Convergence/Divergence (MACD) can
be used, as a trader gains experience, to help identify overbought
and oversold situations.  In addition, information sources need to
be studied as part of the process of market awareness.  Analysis
from well known gurus, screening services, charting products and
statistics and other related data can provide valuable assistance.
Stocks and their respective industries, and the overall condition
of the market are so intertwined that in most cases, the need to
remain in tune with current attitudes is paramount to success.

Determining the future direction of the market is only the first
step in profiting from a particular position.  Investors need to
consider a variety of issues that will affect the strategy used
to achieve the highest return from an accurate forecast of market
trends.  First, what is the time frame of the expected movement
and is it critical to enter the trade at specific point or can
the position be initiated gradually as the activity progresses?
What constitutes the ideal "buy" or "sell" signal and is there
a chance the indications will be incorrect?  What is the likely
size of the movement, and is the market expected to gap or move
slowly in the predicted direction?  Is there any limitation to
the magnitude of the movement (resistance/support) and are there
any upcoming events or circumstances that might cause a reversal
in the market?  If the position is based on technical analysis,
where should the stop-loss orders and profit targets be placed?
Will it be practical to exit the trade incrementally, achieving
some profit from future favorable movement, or will quick actions
and minimal exposure be more successful overall?  Finally, how
convinced are you that the outlook for the position is correct
and that the risk is worth the potential reward?

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.


SUMMARY OF PREVIOUS CANDIDATES
*****

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

PWAV   15.52  17.96   NOV  12.50  0.40  *$  0.40  24.2%
MRVL   27.73  32.80   NOV  22.50  0.45  *$  0.45  15.5%
KLIC   17.34  17.30   NOV  15.00  0.35  *$  0.35  15.4%
GNSS   47.85  43.69   NOV  40.00  0.80  *$  0.80  14.4%
CNXT   10.15  13.84   NOV   7.50  0.35  *$  0.35  12.8%
TTN    27.00  23.03   NOV  22.50  0.60  *$  0.60  12.6%
SURE   13.25   9.75   NOV   7.50  0.25  *$  0.25  12.5%
FFIV   16.55  21.51   NOV  12.50  0.30  *$  0.30  12.0%
SMTC   41.69  38.40   NOV  35.00  0.55  *$  0.55  11.3%
GNSS   39.18  43.69   NOV  30.00  0.90  *$  0.90  11.2%
OVER   25.50  24.24   NOV  20.00  0.40  *$  0.40  10.5%
JNPR   23.66  25.60   NOV  15.00  0.50  *$  0.50  10.4%
PWAV   16.20  17.96   NOV  12.50  0.25  *$  0.25  10.4%
AFFX   30.04  33.80   NOV  25.00  0.35  *$  0.35  10.4%
SMTC   40.21  38.40   NOV  32.50  0.60  *$  0.60   9.7%
EMLX   24.65  26.58   NOV  15.00  0.45  *$  0.45   9.1%
CELG   34.58  35.91   NOV  30.00  0.40  *$  0.40   9.0%
SAGI   21.65  23.90   NOV  17.50  0.40  *$  0.40   8.8%
NETA   18.38  21.90   NOV  15.00  0.45  *$  0.45   8.8%
RFMD   24.30  27.02   NOV  15.00  0.55  *$  0.55   8.8%
IMMU   16.30  20.71   NOV  12.50  0.35  *$  0.35   8.4%
CMNT   15.25  18.80   NOV  12.50  0.35  *$  0.35   8.2%
AFFX   31.70  33.80   NOV  25.00  0.35  *$  0.35   7.6%
BRCM   31.80  45.81   NOV  20.00  0.60  *$  0.60   7.5%
QLGC   37.06  46.66   NOV  22.50  0.65  *$  0.65   7.0%
STE    23.24  22.65   NOV  20.00  0.30  *$  0.30   6.8%
WEBX   29.77  26.43   NOV  20.00  0.35  *$  0.35   6.0%
QLGC   38.50  46.66   NOV  22.50  0.45  *$  0.45   6.0%
VRTS   29.08  38.90   NOV  17.50  0.30  *$  0.30   5.3%

NTAP   16.51  15.95   DEC  12.50  0.65  *$  0.65  11.9%
IMNY    7.24   7.35   DEC   5.00  0.25  *$  0.25  10.7%
MANU   10.66  12.60   DEC   7.50  0.35  *$  0.35  10.2%
SLAB   28.26  28.62   DEC  22.50  0.85  *$  0.85   9.5%
CNXT   13.37  13.84   DEC  10.00  0.30  *$  0.30   7.3%
MACR   22.08  21.98   DEC  17.50  0.45  *$  0.45   6.7%
MCSI   24.00  22.40   DEC  20.00  0.50  *$  0.50   5.9%

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

Comments:

The month of November offered some great opportunities for
option traders and the Naked-Puts portfolio benefited from
the recent bullish activity, finishing with an outstanding
100% success-rate.  Even the position that was closed early
QLT Inc. (NASDAQ:QLTI) ended the expiration period positive
and the outlook for December is cautiously optimistic.  The
only issue on our watch-list is Mcsi Inc. (NASDAQ:MCSI) and
if MCSI's share value closes below the near-term technical
support at $22, we will consider an early-exit in the play.

Positions Closed:

QLT Inc. (NASDAQ:QLTI)


NEW CANDIDATES
*********

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

CREE   25.25  DEC 20.00   CVO XD  0.45 333   19.55   35    7.1%
LVLT    6.82  DEC  5.00   HGY XA  0.30 3667   4.70   35   15.7%
MCDT   21.10  DEC 15.00   DXZ XC  0.50 81    14.50   35    9.2%
PMCS   23.27  DEC 15.00   SQL XC  0.45 3015  14.55   35    7.7%
SRNA   22.90  DEC 17.50   NHU XW  0.50 77    17.00   35    8.6%
TERN   13.19  DEC 10.00   TUN XB  0.30 280    9.70   35    8.9%
WGRD   11.92  DEC 10.00   RUH XB  0.60 0      9.40   35   15.1%

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

LVLT    6.82  DEC  5.00   HGY XA  0.30 3667   4.70   35   15.7%
WGRD   11.92  DEC 10.00   RUH XB  0.60 0      9.40   35   15.1%
MCDT   21.10  DEC 15.00   DXZ XC  0.50 81    14.50   35    9.2%
TERN   13.19  DEC 10.00   TUN XB  0.30 280    9.70   35    8.9%
SRNA   22.90  DEC 17.50   NHU XW  0.50 77    17.00   35    8.6%
PMCS   23.27  DEC 15.00   SQL XC  0.45 3015  14.55   35    7.7%
CREE   25.25  DEC 20.00   CVO XD  0.45 333   19.55   35    7.1%


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).

*****
CREE - Cree Inc.  $25.25  *** Chip Sector Leader! ***

Cree (NASDAQ:CREE) develops and makes compound semiconductor
materials and electronic devices made from commercialize silicon
carbide (SiC) and gallium nitride (GaN).  The company operates
its business in two segments: the Cree segment, which consists
of its SiC based products; and the UltraRF segment, which consists
of radio frequency (RF) transistors and amplifiers on a silicon
platform.  The company's customers include Siemens AG, Sumitomo
Corporation and Spectrian.  In mid-October, Cree posted favorable
earnings, exceeding consensus EPS expectations for the quarter on
gross margins that increased to 46%.  The CEO says they intend to
continue to leverage their strong financial position by investing
in development activities designed to drive both their operating
performance and new product pipeline.  The outlook is optimistic
and traders have supported the issue since the report.  Our play
offers a profit even with a consolidation from the recent rally.

DEC 20.00 CVO XD LB=0.45 OI=333 CB=19.55 DE=35 TY=7.1%


*****
LVLT - Level Three  $6.82  *** Speculation Only! ***

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.   Shares of Level 3
rallied in early November after the company announced it signed
an agreement to provide network services to AT&T Wireless.  LVLT
said it would provide AT&T Wireless with dedicated amounts of
bandwidth to transport voice and data for their next-generation
wireless network.  Investors are generally bullish on the outlook
for the company and analysts agree that a "fundamental" bottom is
in place for the Wireless Telecom sector.  Traders can speculate
on that viewpoint with this low cost position.

DEC 5.00 HGY XA LB=0.30 OI=3667 CB=4.70 DE=35 TY=15.7%


*****
MCDT - McDATA  $21.10  *** Data Storage/Networking Rally! ***

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.  Earlier this
month, Deutsche Banc Alex. Brown launched coverage of the Storage
Networking sector, which includes McDATA, saying that the right
companies will have a competitive advantage and command "premium"
returns in the future.  Robertson Stephens backed that bullish
opinion this week when analyst Dane Lewis initiated coverage on
company with comments that the company is "positioned for growth
driven by the expanding fire channel storage switching market."
Our position offers a discounted cost basis in the issue.

DEC 15.00 DXZ XC LB=0.50 OI=81 CB=14.50 DE=35 TY=9.2%


*****
PMCS - PMCS Sierra  $23.27  *** Own This One! ***

PMC-Sierra (NASDAQ:PMCS) designs, develops, markets and supports
high-performance semiconductor networking solutions.  PMC-Sierra's
products are utilized in high-speed transmission and networking
systems, which are being used to restructure the global telecom
and data communications infrastructure.  The company's strategy is
to provide its customers with networking semiconductor solutions
that address a broad range of products and applications.  PMCS
develops Internet Protocol (IP), ATM, SONET/SDH, T1/E1, T3/E3,
Packet-over-SONET, Voice-over-Packet, wireless infrastructure,
MIPS microprocessor, and Gigabit Ethernet solutions for wide area
network (WAN), and Internet networking equipment.  Traders are
always asking for picks in the semiconductor segment and one of
our favorite companies is PMC-Sierra.  This position establishes
a favorable entry point in a long-term portfolio holding.

DEC 15.00 SQL XC LB=0.45 OI=3015 CB=14.55 DE=35 TY=7.7%


*****
SRNA - Serena Software  $22.90  *** On The Move! ***

Serena Software (NASDAQ:SRNA) is a provider of unique e-business
infrastructure software change management (SCM) solutions.  The
company's products and services are used to manage and control
software change for organizations whose business operations are
dependent on managing information technology.  Serena develops,
markets and supports a full suite of mainframe SCM products for
managing and controlling change during the software application
life cycle.  Serena's product offerings support the standard IBM
mainframe platforms and in addition, the company develops, sells,
and supports an SCM product suite for the distributed systems
environment to support Microsoft Windows 95/98/NT, UNIX, LINUX
and HP e-3000 platforms.  Shares of SRNA rallied this week after
the company reported financial results that came in $0.02 above
Wall Street's lowered consensus, and reiterated prior guidance
for the fourth quarter.  Prudential Securities promptly issued
a "buy" rating on the stock and raised its 12-month price target
to $26.  This position offers a conservative way to profit from
future bullish activity.

DEC 17.50 NHU XW LB=0.50 OI=77 CB=17.00 DE=35 TY=8.6%


*****
TERN - Terayon Communication  $13.19  *** Analyst Upgrade! ***

Terayon Communication Systems (NASDAQ:TERN) develops, markets and
sells broadband access systems that enable cable operators, telco
carriers and other providers of broadband services to effectively
deploy reliable voice, video and data services over cable, copper
wire (DSL) and satellite networks.  The company sells broadband
access products through a direct sales force worldwide, and also
distributes its products via resellers and systems integrators.
Its major cable customers include Adelphia Communications, Cox
Communications, Rogers Cable TV, and Shaw Communications.  Some of
its major telco customers include ILEC's (incumbent local exchange
carriers) in the United States, including Southwestern Bell, Bell
South, Qwest Communications and Verizon, and CLEC's (competitive
local exchange carriers), including NUBOX, Matanuska Telephone
Association (in Alaska) and Encore Communications.  Terayon was
the beneficiary of a recent upgrade from W.R. Hambrecht and now
the issue has rallied above an old trading range and up to a new
yearly high near $13.  The support area near $10 makes this a
favorable speculation play for investors who are bullish on the
Telecom Systems group.

DEC 10.00 TUN XB LB=0.30 OI=280 CB=9.70 DE=35 TY=8.9%


*****
WGRD - Watchguard Technologies  $11.92  *** Hot Sector! ***

WatchGuard Technologies (NASDAQ:WGRD) is a provider of Internet
security solutions designed to protect enterprises that use the
Internet for electronic commerce and secure communications.  The
company products and services are used by thousands of large and
small businesses worldwide who need firewalls for access control,
virtual private networks (VPNs) for secure communications and
ServerLock products for server content and application security.
The company's core market includes small to mid-sized enterprises;
large Internet-distributed enterprises with high-speed connections
supporting VPNs for their geographically dispersed offices as well
as telecommuters.  Internet/Intranet Security stocks are "hot" and
WGRD is one the leaders in this unique sector.  Bullish investors
have pushed the issue significantly higher in recent sessions and
the robust volume suggests a test of the 9-month highs near $13 is
not far away.

DEC 10.00 RUH XB LB=0.60 OI=0 CB=9.40 DE=35 TY=15.1%


*****

*****************
SUPPLEMENTAL NAKED PUT CANDIDATES
*****************

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

INVN   14.83  DEC 10.00   FQQ XB  0.95 164    9.05   35   21.1%
TVLY   17.95  DEC 12.50   QUT XV  0.50 33    12.00   35   10.6%
JDEC   11.25  DEC 10.00   QJD XB  0.45 170    9.55   35   10.6%
GMST   25.54  DEC 20.00   QLF XD  0.65 3252  19.35   35    9.8%
PLMD   20.44  DEC 15.00    PM XC  0.50 2036  14.50   35    9.5%
PLXT   12.55  DEC 10.00   PIU XB  0.30 0      9.70   35    9.3%
MRVL   32.80  DEC 25.00   UVM XE  0.75 48    24.25   35    8.9%
YHOO   15.47  DEC 12.50   YHZ XV  0.35 15018 12.15   35    8.5%
DFXI   26.01  DEC 20.00   DQF XD  0.55 176   19.45   35    8.3%
SMTC   38.40  DEC 27.50   QTU XS  0.50 156   27.00   35    5.3%


SEE DISCLAIMER IN SECTION ONE
*****************************


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

******************************************************************
                         - MARKET RECAP -
******************************************************************
Friday, November 16

The major U.S. equity averages took a breather today, ending the
session almost unchanged after nearly a week of bullish activity.

The Dow, which was on a three-day winning streak, backpedaled 5
points to 9,866 amid a sell-off in financial issues.  Citigroup
(NYSE:C), American Express (NYSE:AXP) and J.P. Morgan (NYSE:JPM)
were among the hardest hit while Walt Disney (NYSE:DIS), Boeing
(NYSE:BA), Caterpillar (NYSE:CAT), Eastman Kodak (NYSED:EK) and
Honeywell (NYSE:HON) kept the losses on the blue-chip average to
a minimum.  The NASDAQ composite fared slightly better, falling
only 2 points to 1,898 on weakness in semiconductor and hardware
issues.  The broader-market S&P 500 Index finished down 3 points
at 1138.65 after a poor performance by banking and retail stocks.
Trading volume came in at 1.34 million on the Big Board and 1.72
billion on the NASDAQ.  Market breadth was positive, with winners
outpacing losers 17 to 14 on the NYSE and 20 to 16 on the NASDAQ.
Government bond prices continued to fall after a week of severe
declines with the 10-year Treasury note off 27/32 to yield 4.85%
and the 30-year long bond closing 31/32 lower at a yield of 5.28%.


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

Leap Wireless (NSDQ:LWIN)  DEC20C/DEC15P  $0.10  debit   synthetic
Level Three   (NSDQ:LVLT)  JAN5C/JAN5P    $0.00  credit  synthetic
Mercury Int.  (NSDQ:MERQ)  NOV30C/NOV30P  $2.35  debit   straddle
Potash        (NYSE:POT)   DEC65C/DEC55P  $2.85  credit  strangle
Hillenbrand   (NYSE:HB)    DEC60C/DEC55C  $0.65  credit  bear-call
Kimberly Cl.  (NYSE:KMB)   DEC65C/DEC60C  $0.60  credit  bear-call

The recent bullish activity produced two new winners this week as
the synthetic positions in Leap Wireless (NASDAQ:LWIN) and Level 3
Communications (NASDAQ:LVLT) achieved their profit targets.  The
LWIN play yielded a $0.90 gain while the LVLT position offered a
$2.00 profit, both in only a few days.  The bearish credit spreads
in Hillenbrand Industries (NYSE:HB) and Kimberly-Clark (NYSE:KMB)
are off to a good start and the neutral credit strangle in Potash
(NYSE:POT) was available at an acceptable credit.  The only play
that didn't perform as expected was the speculative debit straddle
in Mercury Interactive (NASDAQ:MERQ).  MERQ traded in a volatile
manner on Monday, moving through a $3 range, however the activity
became more subdued as the week went by and we decided to exit
the play on Thursday for a small loss.


Portfolio Activity:

The Spreads/Combos portfolio offered some outstanding candidates
this month and the November expiration period ended with a large
number of profitable selections.  Among the various categories,
the debit-straddle portfolio and the bullish synthetic plays were
the most productive.  In addition, all of the positions in the
credit-spreads section were profitable and there were some great
opportunities in the calendar-spreads group for traders who use
time-selling strategies.  The Covered-calls with LEAPS position
in Microsoft (NASDAQ:MSFT) was a success and both of the premium
plays in the credit-strangles section expired at maximum profit.
This week's big winner was the delta-neutral position in Abiomed
(NASDAQ:ABMD) as the issue plummeted on unfavorable news about the
company's replacement heart product.  The straddle yielded up to a
90% gain in less than two weeks, easily exceeding the performance
of the recent position in Juniper Networks (NASDAQ:JNPR).  Storage
Technologies (NYSE:STK) was not as volatile as we expected but the
rally on Thursday provided an acceptable (loss-limiting) exit for
traders who participated in the speculative position.

The calendar spread in Intuit (NASDAQ:INTU) was on our watch-list
this week and the much-anticipated quarterly earnings report did
produce a small increase in the issue's volatility.  As noted in
the initial play narrative, our plan was to make an adjustment
prior to the announcement.  The logical choice was a transition to
the DEC-$45 calls (in the short options) for a credit of $1.75 to
$2.00, reducing the cost of the JAN-$45 calls to $1.00 to $1.25.
However, Intuit did not cooperate with our plan as the company
reported earnings that were less than outstanding.  The issue was
promptly sold-off, down to a level not seen since late October and
it may be some time before the stock can recover from the bearish
activity.  Traders who initiated the bullish long-term spread in
Microsoft (NASDAQ:MSFT) were blessed with any easy adjustment for
the month of December.  The short calls in the original position;
JAN03-$65C/NOV-$65C, were $0.75 "in-the-money" at the close and a
transition to the DEC-$70 calls yielded a credit of $0.25-$0.30.
The issue that has us completely baffled is Technitrol (NYSE:TNL)
and our bullish time-selling spread has yet to produce a profit
as the stock cannot break above the recent trading-range top at
$27.  Fortunately, Wednesday's spike offered an acceptable closing
credit for the long option (JAN-$30C) and unless future rallies
are supported by an increase in volume, that will probably be the
best opportunity we get to exit the play.

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

One of our new subscribers offered some positive comments on the
recent "cheap speculation" positions and asked if we would list
more conservative candidates in that category.  Here are two new
selections for investors that favor low cost spreads with large
potential returns.  These "bottom-fishing" plays may benefit from
the January Effect; a seasonal trend in which small-cap stocks
outperform their larger-cap brethren during the first few months
of the year.  The historically strong performance of lower-priced
issues in January, February and March is well known and easily
proven but there is no guarantee these stocks will duplicate that
activity, so review each position individually and make your own
decision about the future outcome of the plays.

******************************************************************
RBAK - Redback Networks  $5.30  *** The Road To Recovery! ***

Redback Networks (NASDA:RBAK) is a provider of unique networking
systems that enable broadband service providers to rapidly deploy
high-speed access to the Internet and corporate networks.  The
company's primary product lines, which consist of the Subscriber
Management System, the SmartEdge, and the Service Management
product families, combine the best features of current networking
hardware and software.  Together, these unique product families
are designed to enable its customers to create end-to-end regional
and national networks that support broadband access technologies,
as well as the services that these high-speed connections support.

The Networking sector has performed very well over the past few
weeks and some of the darlings of the group are finally starting
to rebound from the excessive selling pressure.  Redback Networks
is one of these issues and analysts say the company's new router,
which was unveiled recently, is generating most of the excitement.
The dismal economic environment will likely prevent the issue from
returning to double-digits anytime soon but the long-term outlook
is positive and traders who believe the company's share value is
destined for higher prices in the future can profit from upside
movement with this low cost combination position.

PLAY (conservative - bullish/debit spread):

BUY  CALL  APR-5.00  BUK-DA  OI=348  A=$1.95
SELL CALL  APR-7.50  BUK-DU  OI=418  B=$1.05
INITIAL NET DEBIT TARGET=$0.85-$0.90  PROFIT(max)=$1.60%


******************************************************************
SONS - Sonus Networks  $5.74  *** More Networking! ***

Sonus Networks (NASDAQ:SONS) is a worldwide provider of voice
infrastructure products for the new public network.  Their unique
products are carrier-class switching equipment and software that
enable voice services to be delivered over packet-based networks.
Packet-based networks, which transport traffic in small bundles,
or packets, are designed to offer a more flexible, cost-effective
and efficient means for providing communications services than
circuit-based networks designed for telephone calls.  Their target
customers include new and established communications providers,
such as common long distance carriers, competitive local exchange
carriers (CLECs), Internet service providers, cable operators,
international telephone companies and carriers that also provide
services to other carriers.

Stocks in this unique "niche" industry have become the target of
bargain-hunting investors and analysts believe it may be time to
consider a position in Sonus.  Over the past few weeks, the issue
has received favorable coverage from three different firms and
investors appear to agree with the bullish assessment as the stock
has moved up over 25% in the last four sessions.  Technically, the
issue appears to be establishing a relatively solid base near $4
and we expect its share value to benefit significantly from the
next technology rally.  Traders who participate in conservative
combination plays should consider this bullish debit spread.

PLAY (conservative - bullish/debit spread):

BUY  CALL  APR-5.00  UJS-DA  OI=1360  A=$2.30
SELL CALL  APR-7.50  UJS-DU  OI=254   B=$1.35
INITIAL NET DEBIT TARGET=$0.85-$0.95  PROFIT(max)=$1.55


******************************************************************
                       - CREDIT SPREADS -

This strategy has become the most requested technique among our
readership and with one full month remaining until the December
expiration, we decided it would be an excellent time to list a
selection of new candidates.  While all of these plays offer an
acceptable risk/reward ratio, they should also be evaluated for
portfolio suitability and reviewed with regard to your strategic
approach and trading style.

******************************************************************
DOX - Amdocs Limited  $33.31  *** On The Move! ***

Amdocs Limited (NYSE:DOX) is a provider of software products and
services to major communications companies in North America,
Europe and the rest of the world.  The company's Business Support
Systems products consist of many families of customized software
products and services designed to meet the critical business needs
of specific communications market sectors.  The company provides
primarily Customer Care, Billing and Order Management Systems for
communications and IP service providers.  Its systems support a
wide range of communications services including wireline/wireless,
broadband, electronic and mobile commerce and Internet services.
The company also supports companies that offer multiple service
packages.  In addition, Amdocs provides a full range of Directory
Sales and Publishing Systems to publishers of both traditional
printed yellow page and white page directories and electronic
Internet directories.

Shares of Amdocs rallied last week after analyst Ed Brown made
positive comments about the company on Wall Street Week and
Prudential issued a "buy" rating on the issue.  The news helped
propel the stock up and out of a two month-long basing pattern
near $30.  Based on the heavy buying pressure, the issue is now
poised for future gains and conservative traders can profit from
further upside movement in the issue with this bullish position.

PLAY (conservative - bullish/credit spread):

BUY  PUT  DEC-25  DOX-XE  OI=511  A=$0.35
SELL PUT  DEC-30  DOX-XF  OI=61   B=$1.05
INITIAL NET CREDIT TARGET=$0.75-$0.80  PROFIT(max)=17%


******************************************************************
AVP - Avon Products  $48.05  *** Technicals Only! ***

Avon Products (NYSE:AVP) is a global manufacturer and marketer
of beauty and related products, including cosmetics, fragrance
and toiletries, Beauty Plus, which consists of jewelry, watches
and accessories, and apparel, and Beyond Beauty, which consists
of gift and decorative, home entertainment and health and also
nutrition products.  Avon's business is focused primarily on
direct selling, which is conducted in North and South America,
the Pacific and Europe.  The company now has operations in 52
countries outside the United States and its products are also
distributed in 86 other countries, for coverage in 139 markets.
Avon has entered 26 new markets since 1990, including Russia
and China, as well as nations throughout Central Europe, and
is evaluating several other markets in Eastern Europe and the
Pacific region.

From a technical viewpoint, the outlook for Avon is neutral to
bullish as the stock remains above its long-term (100 and 150)
daily moving average.  The current trading channel depicts a
range from $45.50 to $49.50 and AVP has rarely violated its
50-dma during the past few months.  The issue is currently in
a slightly upward trend, comfortably above its 30-dma, and the
chart indications suggest that Avon may be bracing to test the
September high.

PLAY (very conservative - bullish/credit spread):

BUY  PUT  DEC-40  AVP-XH  OI=20   A=$0.20
SELL PUT  DEC-45  AVP-XI  OI=280  B=$0.70
INITIAL NET CREDIT TARGET=$0.55-$0.65  PROFIT(max)=12%


******************************************************************
UNH - United Health Group  $65.44  *** Rolling Over? ***

UnitedHealth Group (NYSE:UNH) forms and operates markets for the
exchange of health and well being services.  The company's Health
Care Services segment consists of UnitedHealthcare and Ovations
and UnitedHealthcare also coordinates network-based health and
well being services on behalf of local employers and consumers
nationwide.  Ovations is a business dedicated to advancing the
health and well being goals of Americans age 50 and older.  The
company also has other businesses including Uniprise, Specialized
Care Services and Ingenix.  The Uniprise business is devoted to
serving the needs of large organizations.  The Specialized Care
Services business is an expanding portfolio of health and well
being companies, each serving a specialized market need with a
blend of benefits, provider networks, services and resources.
The Ingenix business is engaged in the field of health care data
and information, research, analysis and application.

UnitedHealth Group is currently experiencing a technical bounce
off its 150-dma but since the indications remain bearish, the
move may simply be providing a "second-chance" entry point for
short-sellers.  The stock has formed an extended Stage III top
and in the near term, the emergence of a "head-n-shoulders"
pattern is a strong possibility.  The heavy overhead resistance
at $69 makes it improbable that the stock price will be able to
rally above our sold (short) option in the coming month.

PLAY (conservative - bearish/credit spread):

BUY  CALL  DEC-75  UHB-LO  OI=729   A=$0.25
SELL CALL  DEC-70  UHB-LN  OI=2854  B=$0.75
INITIAL NET CREDIT TARGET=$0.55-$0.65  PROFIT(max)=12%


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


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