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Daily Newsletter, Sunday, 12/02/2001

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The Option Investor Newsletter                   Sunday 12-02-2001
Copyright 2001, All rights reserved.                        1 of 5
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       WE 11-30         WE 11-23         WE 11-16         WE 11-11
DOW     9851.56 -108.15  9959.71 + 92.72  9866.99 +258.99  +284.46
Nasdaq  1930.58 + 27.39  1903.19 +  4.61  1898.58 + 70.10  + 82.75
S&P-100  584.80 -  8.47   593.27 +  5.20   588.07 + 10.08  + 18.00
S&P-500 1139.45 - 10.89  1150.34 + 11.69  1138.65 + 18.34  + 33.11
W5000  10531.45 - 64.95 10596.40 +109.73 10486.67 +189.46  +280.40
RUT      460.78 +  2.36   458.42 +  7.11   451.31 + 13.21  +  5.03
TRAN    2511.78 - 23.12  2534.90 + 37.53  2497.37 +176.68  + 74.03
VIX       26.14 +  1.36    24.78 -  2.39    27.17 -  1.59  -  3.64
VXN       48.45 -  2.36    50.81 -  4.23    55.04 -  3.55  -  2.60
TRIN       1.19             0.70             0.99             0.90
TICK       +852             +976             +750             +784
Put/Call    .63              .61              .50              .74
******************************************************************

 
Close But No Cigar!
by Jim Brown

I think I can, I think I can, well maybe not. The Dow struggled
back from another visit to 9800 at the open and tried valiantly
to reach the high ground again but was unsuccessful. The Nasdaq 
traded on both sides of negative as well but even positive comments 
from Greenspan could not keep it in the green. For the week the Dow
lost -108 points and the Nasdaq gained +27 but the Friday numbers
showed just how troubled the markets are becoming. 

 

 

The Dow posted the best November since 1962 with a +8%, +775 point
gain. The Nasdaq posted the best November ever and the sixth best 
month overall with a +14%, +240 point gain. While this may be a
good running start into historically the best month of the year,
the battle still lies ahead. In order to close the year where we
started 2001 the Dow will have to gain +900 points and the Nasdaq
+540 points in December. Now that would be a record December that
we could all celebrate! Any bettors out there that feel this will
happen?

The CSFB tech conference last week gave us plenty of positive news
and the Nasdaq ended the week flat. Dell, Cisco, Intel, Palm, Brocade,
Siebel, Xilinx and several others affirmed earnings guidance and 
stocks still had trouble moving ahead. Next week we get more
in-depth guidance from tech big caps INTC, SUNW, CSCO and ORCL but
a warning from Novellus on Thursday may have poisoned the air.

Granted the majority of the weakness we saw last week was due to 
the Enron destruction but any confirmation of a longer recovery
period than previously expected could be equally disastrous. On
Friday the 3Q GDP was restated at -1.1% from a previously estimated
-0.4% and investors were not happy. Everyone expected the number
to be revised downward but consumer consumption was cut by more
than half to only a +1.1% rate. The only positive aspect was a big
decrease in business inventories by -$60 billion which would give
hope to a bottom soon. When the recovery begins the steeper the
prior inventory drop the steeper the rebound according to economists.
If anything this report again cements another Fed rate cut on Dec.
11th and possibly again in January. The GDP number was the worst
in a decade.

Adding to the gloom was the Chicago PMI which fell in Nov to 41.1 
from 46.2 in October. Any number under 50 represents a contraction
in manufacturing. After two months of rebound to the 46 level the
drop back to the lowest level since July's 38 brought doubts about
the bottom being behind us. The employment index lost five points
to 37.2% in November indicating that jobs are continuing to be lost.
This is the 15th consecutive month of declines in the PMI and the
drop after two months at higher levels did not help stock prices.
There were 1,816 mass layoffs (more than 50 employees) in October
with more than 200,000 workers fired.

Prior to the Intel conference next week Dan Niles raised earnings
estimates and many analysts speculated aloud that they expected
Intel to do the same. That would be a real shock. Intel is one
of the companies that manages earnings about as well as IBM. If
they did have a windfall profit they would shift some of that 
profit into the next quarter or book a write down somewhere else
to avoid a premature bullish announcement. With all this said you
could also believe that if Intel did raise guidance then things
are going very well and they could not hide it all. We need to
hope that they raise guidance or at least perform better than
analysts expect in order for the tech rally to continue. After
the Fall bounce the tech big caps are trading at very high PE
multiples compared with 2001 earnings. For instance, Intel's
PE is 61, Cisco 146 and SunMicro 476. Sound like Internet stocks
again? The reason for the high PE is not a huge rebound in stock
prices but a crushing drop in earnings over the last year. The
recent thought process was a recovery from a September bottom
into 2Q of 2002. That recovery would spike earnings back up into
more recent 2000 levels and drive the PE ratios back down. If 
those earnings do not return soon then PE compression and a drop
in stock prices is inevitable. 

The 4Q earnings warnings period begins in earnest next week but
there is some good news in that event. The ratio of negative to
positive warnings so far in the fourth quarter has been better
than anytime earlier this year. There has been a flurry of affirmed
estimates and even some raised guidance. Actual warnings have been
fewer but then next week will tell the tale. AVCI beat the rush
after the close on Friday saying they would cut another -12% of
their workforce and cut costs further in light of current conditions.
They said they expected the Internet router market to remain flat
through the first HALF of 2002. When companies have been warning
this is the predominant excuse, "No recovery THROUGH the second 
half of 2002." Hopefully the analyst conferences for the big four 
(ORCL, INTC, CSCO, SUNW) will overshadow any negative news we 
receive from earnings. Of course, negative news at any of those 
meetings could be very bad for the market.

From a technical standpoint it would appear we are in trouble.
Historically December is normally the best month of the year
for the markets followed by January as second best. However we 
are not normally coming out of a +25% Dow gain off the September 
lows or a +39% gain for the Nasdaq. Those gains will be tempered 
by tax selling as the residue of the great Tech Wreck is flushed 
by disappointed investors. The bottom line, December should be 
very interesting. Dow 10,000 may happen but 10,200, 10,300, 10,500 
may be very tough to hit. The same with the Nasdaq. We have stalled 
at resistance just below the 200DMA at 1954. Should we break through
this level the next 300 points will be very hard to conquer. There
is very strong resistance from 2000 to 2300. There may not be any
sustained drive but a daily battle for each point.

The Fed is not going to be a factor even if they cut rates again
in January. Greenspan said on Friday that productivity should
rise unscathed in the fourth quarter. That provided a small
bounce but it evaporated at the close. There was some strong
market on close orders across multiple sectors but it was
attributed to a rebalancing of the Morgan Stanley Indexes. 
That rebalancing does not explain a three day drop in GE which
closed at the low of the day on Friday. Banks, a critical 
component to any sustained rally, are flat to down. The big
banks are under pressure due to concerns about Enron loans
or loans to others who may suffer from an Enron bankruptcy.
Were it not for Home Depot posting a +2.63 gain the Dow
could have closed in negative territory. While it sounds like
I am painting a very negative picture there are some bright
spots. Intel is $.34 away from breaking a nine month high and
is looking very strong. All that could of course change with
their analyst meeting next week. Dell is just a few cents away
from hitting highs not seen since July and April. Cisco is right
at its high from the summer. Again, conference this week. SUNW
is at a three month high. Conference this week! The other big 
caps MSFT, WCOM, QCOM and ORCL are not look healthy. The leaders 
can extend their lead with positive comments or shoot themselves
and the market in the foot with cautionary statements.

I would be very cautious about opening any new long call positions
this week. We need to remain objective and unbiased, (despite
what I said above), and only trade when it is profitable to trade.
I would use 9800/1900/1125 as my triggers to go flat. (Note that
I have modified those slightly from Thursday's 9800/1925/1150.)
Should any of these indexes fall below those levels I would move
to the sidelines until they trade above them again. This makes
the "should I" or "shouldn't I" trade decision painless. Open new
positions on any rebound from BELOW those numbers. If you are
currently flat and the market moves up from here I would not
open new positions until we pass 10000/1955/1165. Why open
positions below those numbers if each has produced a solid top
over the last several weeks? If the market is going to rally
there will be plenty of time for profits. If it is going to
fail again then you don't want to be long. Right? Trade what
the market gives you or don't trade at all!

Enter very passively, Exit aggressively!

Jim Brown
Editor@OptionInvestor.com


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

Plays From the Darkside

Not every option play is a call. That could come as a shock to
many traders but and based on the email I receive I know it to
be true. Because of the weak market from last week I decided to
highlight several put plays for this edition. Each has a story
so we are not just betting on the chart.


Capital One - $50.00

Capital One is a large sub prime credit card lender. They rallied
out of the September drop but they were already under pressure 
from the weak economy and rising unemployment. Twice in the last
two weeks the stock has bounced off $50 as support. Friday it
came to rest exactly on that threshold. If the Jobs Report next
Friday is highly negative then investors will likely dump more
shares of COF.

This is a speculative play and should only be entered if COF
trades under $50.

 

 

The Dec-$50 put, COF-XJ is $2.80 and the Jan-$50 put, COF-MT is $2.90.



NSI $15.92

National Service Industries is spun off AYI, a lighting services
arm, on Friday. AYI will start trading on the NYSE on Monday.
Normally when a company spins off a portion of its assets the
parent company loses value.

NSI has already dropped from $24 to $16 in the last three months
but other factors could continue to pressure the stock. S&P
dropped it from the index on Friday as "no longer representative"
and that news knocked off another dollar earlier in the week. 

This is a speculative play and should only be entered if further
weakness is seen in NSI.

 

The January-$15 put, NSI-MC is only $.65 cents.




RiteAid (RAD) $4.69

Would somebody just shoot this stock, please ! RiteAid has been the
poster child for mismanagement for some time. Recently management
appeared to get control and the stock rallied from a low of $1.50
in Oct-2000 to $10.00 in June of this year. Since June it has been
all down hill and accelerating. 

Two weeks ago they announced an offer of $125 million of immediately
convertible notes. At a $4 share price that is like selling 32 million
new shares and it appears that there are no takers.

One analyst said $1.50 looks like a magnet again. 

This is a speculative play and should only be entered if RAD trades
below $4.50.

 

The Dec-$5.00 put, RAD-XA is $.55 cents. 
The Jan-$5.00 put, RAD-MA is $.80 cents and has over 34,000 open interest.


Top 20 List

This was really hard. There were a large number of plays that 
looked good but each requires a positive market to continue.
Please only play these calls if the market is in rally mode.

CALLS

ABT  55.00 breakout (BO) over $55
AET  31.17 recovering from attack worries
BVF  54.78 new relative high
CD   17.00 new relative high
CHTR 15.38 new relative high
EBAY 68.07 my fingers rebel when typing this symbol
EMLX 32.60 new relative high
GNSS 56.84 entry point?
HLIT 12.17 BO over $12.50
HSIC 40.11 BO over $40
INTC 32.66 BO over $33
MCDT 25.20 strongest stock in list
MLNM 34.09 BO over $35
SURE 12.64 good trend
TSN  12.01 new relative high
UTX  60.27 recovering from terrorists

PUTS

NEWP 17.77 support $15
PRSE 19.45 below $20 support
SLM  85.07 free fall under $85
ATK  78.80 defense boom is over?
AWE  13.97 making a bid for @Home ?
BAC  61.46 Enron exposure?
CPN  21.55 Enron exposure?
CSGS 30.92 look out below.
DUK  36.16 Enron exposure
JCP  25.36 No holiday rush?
JWN  18.95 Consumer boycott?




All of the above plays involve risk. You need to do your own
research before initiating any of these plays.

Good Luck

Jim


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

Weekend Roundup
By Eric Utley

I was wrong about one thing last week.  Friday afternoon didn't
offer much in the way of insight into future short-term direction.
The major averages ended mixed.  The Dow pulled back later in the
day, but ended slightly higher.  The S&P followed the Dow, but
finished slightly lower.  While the Nasdaq-100 traded back and
forth.

The lack of follow-through from Thursday's late-day rally into
Friday's session makes me believe all the more that Thursday's
rally was a product of end-of-the month shufflings.  

The sentiment data isn't offering much help.  The fear gauges
of the market, the CBOE Market Volatility Index (VIX) and
Nasdaq-100 Volatility Index (VXN), are back to what I would
consider historical norms.  However, a few traders I speak with
frequently consider the fear gauges more complacent than I do.

The put/call ratios are bouncing around from one day to the
next.  The one reading that stuck out again last Friday was the
QQQs put/call ratio.  It spiked higher last Thursday and went
even higher in Friday's session.  Again, I think the trader
types of the market shorted into the rally Thursday and again
Friday.  The QQQ put/call ratio is more volatile than the others
and is normally below 1.00.  I find it very interesting that the
ratio spiked to 3.00.  It's a powder keg if the right catalyst
arrives that sends the shorts scrambling to cover.

The bullish percent data of the major averages was relatively
flat last week.  The sell-off Wednesday wasn't nearly deep
enough to put a lot of stocks on sell signals after their
recent big runs.  It's going to take a bigger sell-off to get
the bullish percent data lower, but sound of the groundwork for
sell signals was laid last Wednesday.  Four out of the five
averages remain in bull confirmed, which is the strongest of
bull markets according to bullish percent data.

The ARMS Index (INDEX:TRIN) is creeping higher, but still
well off of extreme levels.  It's revealing that the short-term
selling has picked up through the spike in the 5-dma.  But I
don't like to read into this indicator too much until it's at
an extreme level.

The advance/decline line reflected price action in the averages
Friday.  The line was negative, but not by a large amount.
However, the new high/new low line remained decidedly bullish,
which was a positive.

The most recent COT report revealed more of a bearish tone.
Maybe not exactly bearish, but less bullish.  Shorts were
added and longs were liquidated.  That's to be expected after
a big run in the averages.  And also reflects cautiousness ahead
of December warnings season.

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

Market Volatility
    
VIX   25.87
VXN   48.45

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.63        448,568       281,771
Equity Only    0.56        404,684       227,385
OEX            1.94          3,987         7,746
QQQ            3.00          7,947        23,891
 
-----------------------------------------------------------------

Bullish Percent Data

           Current   Change   Status
NYSE          46      + 0     Bull Confirmed
NASDAQ-100    74      + 1     Bull Correction
DOW           60      + 0     Bull Confirmed
S&P 500       61      + 1     Bull Confirmed
S&P 100       61      + 0     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  1.37
10-Day Arms Index  1.19
21-Day Arms Index  1.14
55-Day Arms Index  1.10

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      1549           1580
NASDAQ    1772           1887

        New Highs      New Lows
NYSE       82             33
NASDAQ     84             44

        Volume (in millions)
NYSE     1,343
NASDAQ   1,796

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

Commitments Of Traders Report: 11/27/01

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 backed off their most bullish reading of the
year over the past two weeks.  While the number of short
contracts remained relative flat, about 10,000 longs were closed.
Meanwhile, small traders added a significant number of new long
positions for a net bullish increase of 10,000 contracts.

Commercials   Long      Short      Net     % Of OI 
11/06/01      376,807   416,063   (39,256)   (5.0%)
11/13/01      381,539   421,284   (39,745)   (5.7%)
11/27/01      371,336   421,405   (50,069)   (6.3%)

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
11/06/01      132,106     81,208   50,898     23.9%
11/13/01      136,047     87,645   48,402     22.0%
11/27/01      151,317     92,807   58,510     24.0%

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 and small traders shifted in the same direction
recently.  Commercial traders added to their net bearish
position while small traders reduced their net bullish
position.

Commercials   Long      Short      Net     % of OI 
11/06/01       39,410     47,890   ( 8,480)  ( 9.7%)
11/13/01       38,751     49,257   (10,506)  (12.0%)
11/27/01       37,259     48,315   (11,056)  (12.9%)

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
11/06/01       11,406     8,143    3,263      16.7% 
11/13/01       11,568     6,505    5,063      28.0% 
11/27/01       12,540     8,359    4,181      20.0%

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

Neither commercial nor small traders shifted positions on a
large scale since the last reporting period.  Commercials
remained decidedly bullish while the small traders continued
to lean bearish on the Dow.

Commercials   Long      Short      Net     % of OI
11/06/01       25,977    11,951   14,026     37.0%
11/13/01       24,145    10,204   13,941     40.6% 
11/27/01       24,243    11,496   12,747     35.7% 

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
11/06/01        3,569    12,281    (8,712)   (55.0%)
11/13/01        4,094    12,121    (8,027)   (50.0%) 
11/27/01        4,228    10,630    (6,402)   (43.1%) 

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

And The Winner Is...
By Eric Utley

I received a lot of responses to my contest last week.  So I had
that going for me, which was nice.  The first correct response
I received was from Rick, whose e-mail succinctly read:

44

That was the price objective for the Gold and Silver Index
(XAU) based upon the chart in last week's column and still is
the price objective for that matter.  I noticed a lot of
common mistakes made in the number of incorrect responses I
received.  I'll go over the calculation to clear up any
questions this weekend.

Lucky for me, Rick is a fan of sushi.

I'm grateful for the effort and time taken to participate in
my little contest.  I'll have to think of another.  I tried to
reply to everyone who sent in a response; I really enjoy
establishing a dialouge with readers.  Although it's electronic,
I really think communication adds to this column.  I'm always
open to questions.

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 

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

Price Objectives Continued

A prize fighter in the corner is told
Hit where it hurts, silver and gold

Last weekend, I explained how to calculate price objectives.
I was once told that penning instructions is the most difficult
form of writing.  I hope mine were clear, concise, and easy to
follow.  Here are the instructions for calculating both bullish
and bearish price objectives, reprinted with my permission:

Bullish Price Objective - 

1)  Find the first buy signal following the most recent sell
signal.

2)  Count the number of 'Xs' in the column in which the buy
signal was generated.

3)  Multiply the number of 'Xs' in the column by 3.

4)  Multiply the number from Step 3 by the size of the box on
the point & figure chart.

5)  Add the number from Step 4 to the first 'X' in the column
that generated the buy signal.

Bearish Price Objective - 

1)  Find the first sell signal following the most recent buy
signal.

2)  Count the number of 'Os' in the column in which the sell
signal was generated.

3)  Multiply the number of 'Os' in the column by 2.

4)  Multiply the number from Step 3 by the size of the box on
the point & figure chart.

5)  Subtract the number from Step 4 from the first 'O' in the
column that generated the sell signal.

Gold and Silver Index (XAU)

When you first pull up a point and figure chart, you need to
determine whether or not the stock/index/market is on a buy
or sell signal.  Once you determine whether the security is
on a buy signal or sell signal you can then start with the
calculation of the price objective.

The XAU is currently on a sell signal.  If the index is on a
sell signal, then it's bearish.  If the index is bearish,
then we're looking to calculate its bearish price objective.
Let's walk through the five steps:

1)  The first sell signal following the most recent buy signal
was generated when the XAU declined below the 55 box.  Its most
recent buy signal was generated with the advance past the
double-top at 58 (1).  Therefore, the first sell signal generated
after the most recent buy signal was the decline below 55 (2).

2)  Next, simply count the number of 'Os' in the column in which
the sell signal was generated.  There are a total of 7 'Os' in the
column that generated the sell signal (3).

3)  Once the 'Os' have been counted, multiply that number by 2.
Here's where a lot of mistakes were made.  Note that 3 is the
multiplier used when calculating BULLISH price objectives and
2 is used when calculating BEARISH price objectives.  Why?  Stocks
can only go to zero, where the downside is limited.  To the upside,
stocks can go to infinity, where the upside is unlimited.  The
different multipliers reflect that logic.  With 7 'Os' totaled,
we multiply by 2: 7 X 2 = 14.

4)  Multiply the number calculated in step 3 by the size of the
box.  This step is used for relevancy.  When calculating the
price objective for a stock below $5, you'll use a smaller box
size to reduce the number reached in step 3.  While a stock
priced above $100, for example, will have a higher box size and
require an increase in the number reached in step 3.  Stocks, or
in this case an index, priced between $21 and $99 will always have
a $1 box, so this step can be skipped in a lot of cases because:
14 X 1 = 14.

5)  Because we're calculating a bearish price objective, we
subtract the number reached in step 4 from the FIRST 'O' in the
column that generated the sell signal.  Here's another step in
which some readers were wrong.  Don't subtract from where the
sell signal was generated.  Subtract from the first 'O' in the
column (4), which in the case of the XAU was at the 58 box.  The
final calculation: 58 - 14 = 44.  That's the bearish price
objective for the XAU.

 

Questions & Answers

I received a lot of good questions in conjunction with the
replies last weekend.  For instance, several readers asked about
the accuracy of the price objectives.  From what I've observed,
the more liquid, efficient stocks and markets tend to follow
their price objectives more closely.  Stocks such as General
Electric (NYSE:GE), AOL-Time Warner (NYSE:AOL), and AT&T (NYSE:T)
like to follow their price objectives.  That's because the
stocks are extremely efficient and widely held.  They're traded
by a lot of people and monitored by even more.  I would dare say
that the price objectives become a self-fulfilling prophecy in
some of these stocks.  The more volatile, less liquid stocks
such as those found on the Nasdaq market don't follow their
price objectives as closely.  There's more emotion in the Nasdaq
market which is why I think the price objectives of four-letter
stocks aren't reached as often as those listed on the NYSE.
Indexes are more efficient than stocks, and tend to track their
price objectives.

Several readers asked how to use price objectives and what to
infer from them.  I think the price objectives are more
relevant over a longer time period, anywhere from three to
six months.  I don't think they're a crucial tool for the
short-term trader.  However, I think it's important to at
least know where the current price objectives rest of the stocks
you're trading.  Many times I've seen a stock hit its bearish
or bullish price objective on the nose then reverse.  In that
case, you wouldn't want to short a stock right at its bearish
price objective only to watch it reverse on you.

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

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

There may be a number of economic reports out this week but
Wall Street will probably spend much of its time betting,
talking, and arguing over the Fed's decision at the FOMC
meeting on Dec. 11th.  Earnings have dwindled to a handful
of companies but we approach that wonderful time of year
called "warnings season" which always precedes earnings 
season.  There may be a few corporations that surprise 
investors early in December.


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

Monday, 12/03/01
Auto Sales             Nov  Forecast:   6.8M  Previous:   7.8M
Truck Sales            Nov  Forecast:   7.9M  Previous:   9.8M
Personal Income        Oct  Forecast:   0.1%  Previous:   0.1%
Personal Spending      Oct  Forecast:   1.9%  Previous:  -1.8%
NAPM Index             Nov  Forecast:   41.9  Previous:   39.8
Construction Spending  Oct  Forecast:  -0.5%  Previous:  -0.4%

Tuesday, 12/04/01
None

Wednesday, 12/05/01
NAPM Services          Nov  Forecast:   42.5  Previous:   40.6

Thursday, 12/06/01
Initial Claims       12/01  Forecast:    N/A  Previous:   488K
Productivity-Rev.       Q3  Forecast:   2.6%  Previous:   2.7%
Factory Orders         Oct  Forecast:   1.0%  Previous:  -6.2%

Friday, 12/07/01
Nonfarm Payrolls       Nov  Forecast:  -210K  Previous:  -415K
Unemployment Rate      Nov  Forecast:   5.6%  Previous:   5.4%
Hourly Earnings        Nov  Forecast:   0.2%  Previous:   0.1%
Average Workweek       Nov  Forecast:   34.0  Previous:   34.0
Consumer Credit        Oct  Forecast:  $1.5B  Previous:  $3.2B


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The Option Investor Newsletter                   Sunday 12-02-2001
Sunday                                                      2 of 5

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* ZERO minimum deposit required to open an account
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Note: Options involve risk. Risk disclosure:
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**************************************************************


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

CALLS              Mon    Tue    Wed    Thr   Week    

SPW     121.50    4.85  -0.90   1.48  -2.29   2.93  Pulling back
PMCS     22.79    1.76   0.07  -1.49   1.20  -1.31  Popped higher
PDLI     37.69    2.59  -0.73  -1.94   1.40   1.50  Bounding bio
AFFX     36.22    0.74  -0.74  -0.77   0.65  -0.91  Dropped
BRCM     43.99    3.45  -0.07  -2.97  -0.92  -2.46  Dropped
IBM     115.59    0.98  -2.13  -2.05   2.28   0.24  Consistent
JNPR     24.58    0.54  -0.09  -2.13   0.57  -1.27  Entry point
QCOM     58.72    0.91  -1.29  -2.73   1.13  -2.59  Dropped
CNXT     14.89    0.79   0.77  -0.43   0.41   0.95  Profit taking
FFIV     22.33    0.84   0.05  -1.69   1.26  -0.39  Dropped
MLNM     34.09    2.29   0.02  -2.09   1.67   2.87  Reliable trend
INTC     32.66    0.80   0.44  -0.55   0.56   1.59  New, $33
MCDT     25.20    0.55   0.31  -0.46   1.91   2.45  New, storage
IMCL     72.00    3.14  -0.15   0.15   2.16   4.34  New, biotech


PUTS

NOC      93.88   -2.25   0.49   1.18  -0.13  -0.17  Diverging
KKD      37.25   -0.80  -0.81  -1.64  -0.50  -2.70  Up on relief
WWCA     24.57   -0.64  -0.26   0.57  -0.51  -1.28  New low
LH       76.90   -0.90  -3.50  -1.40   1.25  -4.90  200-dma
VRSN     37.73    0.01   0.01  -0.73  -1.57  -2.66  Violation
YUM      47.45    0.34  -0.47  -0.41  -0.15  -1.26  New, yummy
VZ       47.00   -0.15  -0.85  -0.15  -0.39  -2.00  New, hang-up
SEBL     22.35    0.24  -0.49  -1.83   1.48  -2.19  New, extended


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

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

INTC - Intel $32.66 (+1.59 last week)

See details in play list




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

SEBL - Siebel Systems $22.35 (-2.19 last week)

See details in play 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
^^^^^
AFFX $36.22 (-0.91) Have you noticed that a lot of our call
plays are just plain running out of steam?  That's the case
with AFFX, which has barely moved in the past week after running
into firm resistance at $38.  While still holding above our $34
stop, it doesn't look like the bulls are interested in driving
this stock significantly higher.  We'll drop the play this
weekend and focus on healthier plays for the week ahead.

BRCM $43.99 (-2.46) The comments from NVLS Thursday night sent
the chip sector reeling, and coupled with BRCM's own lukewarm
comments at the CSFB Tech Conference this week, sent shares of
BRCM sharply lower.  After just managing to claw its way above
our $46 stop at the close on Thursday, the damage done on Friday
finishes the job of kicking the play off the call list this
weekend.  Despite several valiant attempts, the bulls just
couldn't get the stock back into positive territory on Friday
and it looks like the rollover has begun in earnest.  Use a
bounce from the $44 level next week to exit any remaining open
positions.

FFIV $22.33 (-0.39) Every healthy rally needs to pause for
consolidation from time to time, but the consolidation in shares
of FFIV is just taking too long.  After breaking out on the
heels of the strong rally in the Networking sector (NWX.X), the
stock has been stuck below $24 for the past 2 weeks and has lost
its upward momentum.  Our stop is still intact just above $20,
but we'll take this opportunity to exit the play before the
bears really get serious.  Use any bounce from the ascending
trendline to achieve a more favorable exit.

QCOM $58.72 (-2.59) So much for last week's breakout.  QCOM
spent this week drifting lower and came dangerously close to
making the drop list on Wednesday, dipping to just above our $57
stop.  But the bulls came to its defense just in time, and began
buying right at the 20-dma (then at $57).  The past couple days
have seen a mild recovery in price, but the bulls ran out of
steam right at the $60 level, which is obviously still a level
of resistance.  With the lack of follow through above $60, we're
dropping QCOM this weekend in favor of stronger plays even
though the $57 stop is still intact.  Right now the risk of
breakdown outweighs the potential reward, so use any strength
next week to gain a better exit point.


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

INTC - Intel $32.66 (+1.59 last week)

Intel is a semiconductor chip maker, supplying the computing and
communications industries with chips, boards and system building
blocks that are integral to computers, servers and networking
and communications products.  Its products are offered at various
levels of integration, and are used by industry members to create
advanced computing and communications systems.

Will the biggest of tech breakouts materialize next week?  We'll
probably find out.  Intel hasn't traded above the $33 level since
March 8th.  The stock came within a penny of that level last
week.  While INTC has had a big run and it could be argued that
the stock is overbought, a breakout above the $33 level next
week would most likely cause a short covering and momentum-based
rally that could be good for a few points.  After the $33 level,
INTC doesn't have meaningful resistance until $36.  While
there's no sure thing in the market, we like the prospects of
a good move on a breakout above $33 as institutions are likely
to jump all over the breakout.  The potential catalyst behind
a breakout is Intel's mid-quarter update after the bell next
Thursday.  The conference call is highly anticipated and
could serve as the launching pad for the stock if positive.
Of course a negative call would temper the prospects for a
breakout.  There's risk with holding positions over the
conference call.  Hopefully the stock will breakout ahead of
the call.  The play is straightforward, but readers might want
to keep an eye on the SOX when gaming an Intel breakout above
$33.  Just look for the SOX to trade higher in conjunction
with an advance past $33.  Our stop is at $30.

BUY CALL DEC-30 INQ-LF OI= 53833 at $3.30 SL=2.25
BUY CALL DEC-32*INQ-LZ OI= 74620 at $1.55 SL=0.75
BUY CALL JAN-30 INQ-AF OI= 88964 at $4.00 SL=3.00
BUY CALL JAN-32 INQ-AZ OI= 73673 at $2.45 SL=1.75
BUY CALL JAN-35 INQ-AG OI=185890 at $1.30 SL=0.75

Average Daily Volume = 4.71 mln



MCDT - McDATA $25.20 (+2.45 last week)

McDATA is a provider of high availability storage area network
director switching devices that enable enterprises to connect
and centrally manage large numbers of storage and networking
devices.  McDATA designs, develops, manufactures and sells
switching devices that enable enterprise-wide high performance
storage area networks (SANs).

The storage and server stocks traded well late last week.
IBM bounced from its support level, SUNW broke above its
resistance, and EMC edged higher.  The suppliers to the
aforementioned manufactures traded strongly too.  Stocks such
as QLGC, EMLX, and MCDT powered higher.  MCDT is our focus
for this new bullish play, which is more of a play on the
entire storage group.  MCDT was one of the stronger late last
week as it traced a new relative high Friday and closed in
the green for the day.  The stock broke above its 200-dma
about two weeks ago and followed through last week.
Amazingly, the stock doesn't have meaningful resistance
until the $38 level.  That doesn't mean MCDT will trade
straight up to that level, but it's worth noting in this
play and reveals that the stock could have substantial
upside from current levels.  Bullish traders can look for
new entries on an advance from current levels early next
week.  Confirm strength in the others mentioned above.
Those who'd prefer entering call plays on a pullback might
wait for weakness down around $23.  Our stop is initially
in place at $22.

BUY CALL DEC-22 DXZ-LX OI=1267 at $3.80 SL=2.75
BUY CALL DEC-25*DMU-LW OI= 113 at $2.20 SL=0.75
BUY CALL JAN-25 DMU-AW OI= 456 at $3.60 SL=2.50
BUY CALL JAN-30 DMU-AX OI= 645 at $1.65 SL=0.75

Average Daily Volume = 4.71 mln



IMCL - Imclone Systems $72.00 (+4.34 last week)

Engaged in the research and development of novel cancer
treatments, IMCL focuses on growth factor inhibitors,
therapeutic cancer vaccines and angiogenesis inhibitors.  The
company's lead product candidate, IMC-C225, is a therapeutic
monoclonal antibody that inhibits stimulation of a receptor for
growth factors upon which certain tumors depend.  Phase I/II
clinical trials have been promising.  The lead candidate for
angiogenesis inhibition, IMC-1C11 is an antibody that binds
selectively and with high affinity to KDR, a principal
Vascular Endothelial Growth Factor (VEGF) receptor, thus
inhibiting angiogenesis.

While the Biotechnology sector (BTK.X) has been one of the
leaders of the NASDAQ rally off the September lows, the sector's
nearly 50% rise over the past 2 months is not nearly as
impressive as the rally in shares of IMCL.  While the stock is
'only' up 44% from late September, IMCL didn't so much as flinch
while the rest of the market tanked after the September attacks.
Take a look at the charts of IMCL vs. the BTK and you can see
the relative strength.  So we've got a strong sector that looks
like it wants to continue northward, and a stock within the
sector that is outperforming.  Sounds like the perfect recipe
for a call play, don't you think?  IMCL blasted through the $63
resistance level 2 weeks ago and then vaulted through the $67
resistance this week.  Now clearly in breakout territory, IMCL
is trading at levels not seen since March of 2000.  Have you
seen any other stocks trading that strongly lately?  Clearly,
this is a momentum run that we're looking to take advantage of,
and as such, pullbacks to support are likely to be fleeting.
Support and resistance can currently be defined by the ascending
channel the stock has been trading in for the past 2 weeks, with
support currently at $71.50.  Target either intraday bounces
from the supportive trendline or a breakout to new yearly highs
above $73.50.  Of course, IMCL might not remain in this
aggressive channel for long, and we'd consider it a gift to get
a pullback near intraday support at $70 or even $68.  Place
stops initially at $67.

BUY CALL DEC-70*QCI-LN OI=1520 at $4.10 SL=2.50
BUY CALL DEC-75 QCI-LO OI=3537 at $1.65 SL=0.75
BUY CALL JAN-70 QCI-AN OI=1196 at $6.40 SL=4.25
BUY CALL JAN-75 QCI-AO OI=1308 at $3.70 SL=2.25
BUY CALL JAN-80 QCI-AP OI= 880 at $1.90 SL=1.00

Average Daily Volume = 2.14 mln



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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 12-02-2001
Sunday                                                      3 of 5

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/8321_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 $22.79 (-1.31 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 popped above its very short-term resistance last Friday
but couldn't follow-through on its rally attempt.  The stock
was most likely held back by selling pressure in the Semi
(SOX) sector although the Networkers (NWX) finished
fractionally higher.  The stock is still in a trading range
and should break out next week.  It's unclear which way the
stock is going to break.  It could be up or down, depending
on how the Nasdaq and the SOX and NWX next week.  PMCS is
still one of the stronger in its group.  It could get a lift
from the Cisco analyst meeting next week as PMCS is one of
Cisco's big suppliers.  The stock is sitting near its
ascending trend line that has been in place since early
October.  Entries near the trend line, based upon the
prospects of a bounce, could be controlled with a relatively
tight stop.  Look for weakness near $22 for a possible
entry.  New entries can be targeted around current levels
next week if the Nasdaq and SOX and NWX are advancing.
Otherwise, wait for a breakout above $24.50.

BUY CALL DEC-20 SQL-LD OI=3108 at $3.90 SL=2.75
BUY CALL DEC-22*SQL-LX OI=2976 at $2.40 SL=1.25
BUY CALL DEC-25 SQL-LE OI=3303 at $1.20 SL=0.50
BUY CALL JAN-22 SQL-AX OI= 746 at $3.50 SL=2.25
BUY CALL JAN-25 SQL-AE OI=5975 at $2.60 SL=1.25

Average Daily Volume = 10.1 mln



SPW - SPX Corp. $121.50 (+2.93 last week)

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

SPW continued to weaken last Friday.  But its day loss was
only fractional and most likely market-related as the S&P
500 (SPX) finished fractionally lower.  SPW ever-so-slightly
bounced from the $121 area, which was the same level that the
stock bounced from in Thursday's session.  Short-term traders,
such as day traders, might consider looking for another bounce
from that level early next week and playing an upside move of
maybe $2 or $3.  Those who hold positions for more than one
or two days might consider waiting for the stock to pullback
lower somewhere down around the $120 level.  That's the current
site of the stock's 10-dma and may offer a slightly better
risk versus reward set-up, allowing for a tight stop.  The
stock's historical congestion lies between the $120 and $130
levels as we've highlighted in past updates.  The recent
weakness makes sense after the stock's big run and is by no
means out of the ordinary.  However, traders with open
positions that were entered at much lower prices shouldn't
get careless by letting gains slip away.  Use a tight trailing
stop to protect profits.

BUY CALL DEC-110 SPW-LB OI= 872 at $13.80 SL=10.50
BUY CALL DEC-115 SPW-LC OI= 579 at $ 9.50 SL= 7.25 
BUY CALL DEC-120*SPW-LD OI=1108 at $ 6.50 SL= 4.75
BUY CALL MAR-115 SPW-CC OI= 210 at $16.10 SL=13.75
BUY CALL MAR-120 SPW-CD OI= 605 at $13.10 SL=11.00

Average Daily Volume = 410 K



CNXT - Conexant Systems $14.89 (+0.95 last week)

Conexant provides semiconductor products and system solutions
for a wide variety of communications electronics.  Conexant
delivers semiconductor integrated circuit products and system
level solutions for a broad range of communications applications.

The weakness we wrote about a few updates ago developed late
last week in shares of Conexant.  The company's raised guidance
Thursday may have been the catalyst, in a backwards way, to
start the profit taking pullback we witnessed into Friday's
session.  Of course the weakness in the SOX pressured CNXT,
but it was due for a pullback after the breakout to new
relative highs.  We're actually happy with last week's
weakness as it should allow longer term traders to start
looking for favorable entry points into this strong chip
stock.  CNXT's 10-dma currently sits at $14.21 which may be
one possible such entry point.  The $14 level may serve the
same purpose of gaining a favorable entry.  A protracted
pullback in the SOX could pressure CNXT below the $14 area,
however, in which case a lower entry point should be
considered.  If the stock's pattern of higher relative lows
continues, CNXT has room to trade down to the $13 level and
keep the pattern intact.  Yes that is a long way down from
current levels, but the wait may be worth it because the
risk in entering a bullish play down around $13 is easy to
manage with a stop at $12.50.  Whatever level you consider
targeting a bullish entry in CNXT make sure you monitor
the SOX before doing so.

BUY CALL DEC-12 QXN-LV OI=5974 at $2.90 SL=1.75
BUY CALL DEC-15*QXN-LY OI=3827 at $1.15 SL=0.75
BUY CALL JAN-15 QXN-AY OI=3183 at $1.95 SL=1.25
BUY CALL JAN-17 QXN-AW OI= 982 at $1.05 SL=0.50

Average Daily Volume = 4.71 mln



PDLI - Protein Design Labs $37.69 (+1.50 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 pattern of relatively higher lows continued last week
with the stock's bounce and subsequent advance from the $36
area.  We're hoping that the pattern will lead to a new high
in PDLI next week, possibly above the $40 level.  The Biotech
(BTK) group traded well last Friday, which obviously bodes
well for PDLI going into next week's trading.  With its slight
advance last Friday, PDLI moved into the middle of its very
short-term trading range.  The "better" entries in this stock
have come on weakness.  The failed rally two weeks ago on the
advance past $38 helped to reinforce the notion of entering
on weakness.  The problem with the stock trading in the middle
of its recent range is that it might not pullback to support
for another week depending on how the BTK trades.  Given its
current position, traders might consider entering on an
advance past $38 with the understanding that there's more
risk involved at current levels as opposed to slightly lower
prices.  Then again, the potential upside from current levels
may justify the added risk if PDLI goes onto to trace a new
relative high.  Let your risk tolerance be the guide.  And
watch for the BTK for confirmation.  In other words, if the
BTK is powering higher then it may be prudent to enter new
call plays on strength.

BUY CALL DEC-30 PQI-LF OI= 193 at $8.00 SL=6.75
BUY CALL DEC-35*PQI-LG OI=5344 at $4.10 SL=3.25
BUY CALL DEC-40 RPV-LH OI=1507 at $1.55 SL=0.75 
BUY CALL FEB-35 PQI-BG OI=1544 at $6.60 SL=5.25
BUY CALL FEB-40 RPV-BH OI= 853 at $4.30 SL=3.00

Average Daily Volume = 2.17 mln
 


JNPR - Juniper Networks $24.58 (-1.27 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 running up to the $27.50 level early in the week, JNPR
was unable to get out of the way of the bears, falling to just
above $23 before buyers appeared to stop the stock's slide.  The
past two days have seen a pitched battle between the bulls and
bears, as the stock has been stuck between $24-25.  This range
will break, and likely sooner than later.  We'll use the
direction of that break to determine the health of our play, but
for now it remains active.  A renewed bounce from the $24 level
is likely to be our best entry, but those looking for some sort
of confirmation of bullish intent can wait for a rally through
$25 before taking a position.  Keep in mind that our stop is
still resting at $24, and a close below that level will bring
the play to an inauspicious conclusion.  A large part of the
weakness last week was due to the pullback in the Networking
sector (NWX.X), which is currently consolidating between
$320-330, holding just above the 2-month ascending trendline
(now at $325).  If the NWX can move up from this trendline next
week, the buoyant effect should lift JNPR back towards its
recent highs and possibly the $29-30 resistance level.

BUY CALL DEC-22 JUX-LX OI= 2141 at $3.50 SL=1.75
BUY CALL DEC-25*JUX-LE OI=17795 at $1.85 SL=1.00
BUY CALL JAN-25 JUX-AE OI= 5655 at $3.10 SL=1.50
BUY CALL JAN-30 JUX-AF OI= 8447 at $1.35 SL=0.75

Average Daily Volume = 22.2 mln



MLNM - Millennium Pharmaceuticals $34.09 (+2.87 this week)

Through an integrated approach called "gene to patient", MLNM
is engaged in the development of breakthrough drugs and
predictive medicine products for the treatment of major human
illnesses.  By discovering disease-related genes, the company
seeks to produce validated drug targets and develop new,
proprietary drugs to treat cancer, metabolic disease (including
obesity) and inflammation.  MLNM's LeukoSite subsidiary has
developed Campath, a potential leukemia treatment that has
received FDA fast-track status.  The company also has
significant programs in infectious diseases, cardiovascular
diseases and diseases of the central nervous system.  MLNM
derives its revenue from research and development alliances
with such companies as Bayer AG, Pharmacia and American Home
Products.

You've just got to love that reliable ascending channel in
shares of MLNM.  As the Biotech index (BTK.X) has continued
working higher over the past two months, MLNM has been riding
a nice tight bullish channel, providing numerous entry and
profit-taking opportunities for bullish traders.  This sort of
pattern will eventually break down, but while it remains intact,
can be a powerful trading tool.  The upper trendline is
currently $35, and the bulls actually made a run towards it the
past two days, running the price to the $34.50 level before
giving up a bit of ground heading into the closing bell.  We
don't want to chase MLNM higher here, but instead want to wait
for it to come back near the lower trendline (currently $31.50)
and just below the supportive 10-dma ($31.86).  A bounce near
that level should make for an attractive entry into the play,
and we can protect ourselves with a tight stop at $29.75.  That
is just above the 200-dma ($29.84), which the 20-dma is in the
process of climbing through right now.

BUY CALL DEC-30 QMN-LF OI=5392 at $5.00 SL=3.00
BUY CALL DEC-35*QMR-LG OI=2312 at $1.80 SL=1.00
BUY CALL JAN-30 QMN-AF OI= 158 at $6.10 SL=4.00
BUY CALL JAN-35 QMR-AG OI= 511 at $3.20 SL=1.50
BUY CALL JAN-40 QMR-AH OI= 252 at $1.60 SL=0.75

Average Daily Volume = 3.23 mln



IBM - Int'l Business Machines $115.59 (+0.24 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.

IBM has been nothing if not consistent, as it continues to
bounce between the $112 support level and recent resistance near
$117.  This range continues to provide profits for traders that
can buy at support and sell at resistance, while the buy-and-hold
approach can be frustrating.  The past 2 days trading is a
perfect example of this action, as IBM dipped to just below $112
and then bounced sharply Thursday afternoon, before continuing
upward on Friday.  Ending just below $116, IBM provided a nearly
$4 range for those with the nerve to play it.  We'll continue to
play the range, as IBM should be one of the big beneficiaries if
the DOW can clear the 10,000 level.  That sort of broad market
move would likely vault IBM through the $117 level and give the
bulls an honest shot at $120, resistance from earlier this year.
Continue to target new entries near the $112 level and consider
harvesting profits as IBM nears the $117-118 level, especially
if the DOW starts showing signs of weakness.  Keep stops in
place at $112.

BUY CALL DEC-115*IBM-LC OI=12832 at $3.70 SL=2.25
BUY CALL DEC-120 IBM-LD OI=77060 at $1.30 SL=0.75
BUY CALL JAN-115 IBM-AC OI=25929 at $6.00 SL=4.00
BUY CALL JAN-120 IBM-AD OI=38999 at $3.60 SL=1.75
BUY CALL JAN-125 IBM-AE OI=27078 at $1.90 SL=1.00

Average Daily Volume = 8.65 mln



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The Option Investor Newsletter                   Sunday 12-02-2001
Sunday                                                      4 of 5

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

YUM - Tricon Global Restaurants $47.45 (-1.26 last week)

Tricon Global Restaurants is a quick service restaurant
company with more than 30,400 units in over 100 countries and
territories.  The Tricon organization is currently ade up of
four operating companies organized around its three core
concepts, KFC, Pizza Hut and Taco Bell.

The bears are licking their paws over this restaurant stock.
Recent price action seems to confirm the bearish bias.
YUM has been on the slide since early November.  The stock
has followed a path of lower relative lows over the last
four sessions and is poised to trade lower into next week.
Rotation out of the defensive issues, such as restaurant
stocks, could be at play in YUM.  In addition, the company
reported lackluster same store sales figures of 1 percent
growth earlier in the month.  Bearish traders can look for
further weakness below current levels early next week.  Those
who'd rather wait for more downside confirmation can look for
a breakdown below the $46 level on increasing volume.  A
bounce and subsequent rollover from the 10-dma at $48.78
would offer another entry opportunity.  Our stop is in
place at $49.

BUY PUT DEC-50*YUM-XJ OI=107 at $3.20 SL=1.75
BUY PUT DEC-35 YUM-XI OI=394 at $0.75 SL=0.50

Average Daily Volume = 814 K



VZ -  Verizon $47.00 (-2.00 last week)

Verizon provides communications services.  The company has
four reportable segments, which it operates and manages as
strategic business units and organize by products and
services.  

The Wireless (YLS) sector has produced some winners recently.
But the majority of the strength in the sector has come from
the equipment makers such as Qualcomm.  The service
providers haven't fared as well especially Verizon.  The stock
broke down to levels last week not seen since the spring.  Its
weakness has been in stark contrast to the strength in the
YLS.  As such, further weakness in the YLS should lead to
a further decline in VZ.  The stock has moderate historical
support at the $46 level and again at $44.  But immediately
below current levels exists no support.  Bearish traders can
watch for the stair-step pattern of lower lows to continue
by monitoring the aforementioned support levels and their
hopefully forthcoming failure.  Watch the YLS for weakness.
If the YLS continues lower early next week, bearish traders
might consider entering new put plays at current levels.
A relief rally could take VZ back up to the $48.50 area
where traders can look for a rollover.  Our stop is initially
in place at $49.

BUY PUT DEC-50*VZ-XJ OI= 2872 at $3.20 SL=1.75
BUY PUT JAN-50 VZ-MJ OI=15359 at $4.00 SL=2.50

Average Daily Volume = 814 K



SEBL - Siebel Systems $22.35 (-2.19 last week)

Siebel Systems is a provider of eBusiness applications.  The
company's products enable organizations to sell to, market to,
and service their customers across multiple channels, including
the Web, call centers, resellers, retail, and dealer networks.
SEBL's eBusiness applications are available in
industry-specific versions designed for the pharmaceutical,
healthcare, telecommunications, insurance, energy, apparel,
automotive, and finance markets.  Through SEBL's applications,
companies can create a single source of customer information
that sales, service, and marketing professionals can use to
tailor product and service offerings to meet each of their
customer's unique needs.

After a 50% rally from the September lows, the Software sector
(GSO.X) has run into a brick wall of resistance near $177.
After banging its head into this resistance level for the past
2 weeks, it looks like the index is about to fall below the
2-month ascending trendline, so let's pick on one of the weaker
stocks in the sector.  SEBL ran out of steam over 2 weeks ago,
near the $26 level and has been drifting lower ever since.
Bullish traders tried to prop the stock up at the 20-dma
(currently $23.43) on Thursday, but that level turned into
resistance on Friday as selling volume surged more than 60%
above the ADV.  Stochastics are still pointing south and nearing
oversold, it looks like a foregone conclusion that SEBL will
retest the $20 level before finding any serious buying support.
And it wouldn't be out of the question to see the stock decline
to the $17-18 level before the bears are done playing.  Target
failed rallies in the $24-25 area for initiating new positions
and set stops at $25.50.  Alternative entries can be considered
on a breakdown below $22.

BUY PUT DEC-25 SGQ-XE OI=3021 at $3.50 SL=1.75
BUY PUT DEC-22*SGQ-XX OI=2648 at $1.95 SL=1.00

Average Daily Volume = 16.2 mln



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CURRENT PUT PLAYS
*****************

WWCA - Western Wireless $24.57 (-1.28 last week)

Western Wireless provides wireless communications services in
the United States, principally through the ownership and
operation of cellular systems.  The cellular operations are
primarily in rural areas.

WWCA broke down last Friday, setting a new low at the $24
mark.  The Wireless (YLS) sector moved lower too.  Continued
weakness in the broad market, specifically the Nasdaq, should
continue pressuring WWCA lower.  In addition, bearish traders
should look for continued weakness in the YLS.  Momentum
traders can look for a breakdown below the $24 level early
next week for a potential entry point with the understanding
that WWCA is still relatively oversold.  A few more days of
sideways trading would help to work off the oversold condition
and may be more conducive to entering momentum-based breakdowns.
The stock's rally up to its 10-dma last Wednesday offered a
favorable entry point into strength.  A bounce in the market
could carry WWCA higher and offer another rollover entry
opportunity near resistance at $25.50.

BUY PUT DEC-30 WRQ-XF OI= 80 at $5.80 SL=4.25
BUY PUT DEC-25*WRQ-XE OI=118 at $1.55 SL=0.75

Average Daily Volume = 822 K



NOC - Northrup Gruman $93.88 (-0.17 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.

NOC edged higher last Friday, but so did the Defense (DFI)
sector.  For its part, the DFI tacked on 0.91 percent in
Friday's session, which wasn't a big move.  Interestingly,
NOC continued to diverged from its sector.  The stock only
tacked on 0.57 percent.  The fact that NOC didn't advance as
much as its sector on a percentage basis was again encouraging
to observe, but it didn't hide the fact that the stock
finished higher Friday.  If the DFI continues working higher
then NOC will probably be dragged along for the advance.  Keep
that risk in mind if you have open put positions on NOC.  The
stock is again approaching overhead resistance and could
rollover anywhere between current levels and $95.  Weakness
in the DFI should spur a rollover in NOC.

BUY PUT DEC-95*NOC-XS OI=1017 at $3.40 SL=2.50
BUY PUT DEC-90 NOC-XR OI=1674 at $1.35 SL=0.75

Average Daily Volume = 1.19 mln



KKD - Krispy Kreme $37.25 (-2.70 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.

The oversold nature of KKD led to its relief rally last Friday.
Hopefully traders with open positions were able to book gains
before the majority of the stock's advance.  The rally wasn't
entirely unexpected.  KKD had closed lower in several
consecutive sessions going into Friday's trading and a little
pop higher is part of the process.  In fact, higher prices
would provide a better entry into new put plays.  KKD advanced
past the $37 level, which we thought might provide resistance,
which it did not during Friday's session.  Bearish traders
might watch for selling to increase near the $38 level, but
up around the $39 level might provide a more solid entry
point into new put plays.  The $39 area is the current site
of KKD's 10-dma.

BUY PUT DEC-40*KKD-XH OI=1511 at $3.90 SL=2.75
BUY PUT DEC-35 KKD-XG OI=2989 at $1.10 SL=0.50

Average Daily Volume = 814 K



LH - Laboratory Corp. of America $76.90 (-4.90 last week)

Laboratory Corporation of America Holdings (LabCorp) is the #2
clinical laboratory service in the world, behind Quest
Diagnostics.  LH performs 2000 types of tests for more than
100,000 clients, including health care providers, pharmaceutical
firms, physicians, government agencies and employers.  With 25
major laboratories and some 1200 service sites nationwide, the
company emphasizes specialty and niche testing such as allergy
tests, HIV tests, blood analyses, and substance abuse
screenings.

Falling sharply from the 20-dma last week, shares of LH provided
a quick in and out profit this week as the stock fell as low as
$73 on Wednesday.  That was enough to prompt buyers to nibble at
the stock and since then, shares of LH have recovered back near
$77, right where they were when we initiated coverage on
Tuesday.  So the big question is whether the bulls or the bears
are going to win this tug of war.  Given the bearish trend over
the past month, we'd have to say the bears have the upper hand,
even though daily Stochastics are starting to emerge from
oversold territory.  Resistance looks firm near $79, and a
failed rally near that level would make for a good entry into
the play, as it looks like support at the 200-dma ($75.85) is
weakening.  The descending trendline is currently resting just
below $80, giving us the ability to manage our risk with a tight
stop at $80.  Look for a breakdown under the 200-dma to trigger
another test of the long-term ascending trendline, currently at
$72.  Should buyers support the stock near that level, it will
make for a good opportunity to lock in profits and wait for the
next entry point.

BUY PUT DEC-80 LH-XP OI= 542 at $5.40 SL=3.25
BUY PUT DEC-75*LH-XO OI= 271 at $2.85 SL=1.50

Average Daily Volume = 762 K



VRSN - VeriSign, Inc. $37.36 (-2.66 last week)

VeriSign is the leading provider of Internet trust services
and digital certificate solutions needed by Web sites,
enterprises and individuals in order to conduct secure
electronic commerce and communications over IP networks.  VRSN
has used its secure online infrastructure to issue over 100,000
of its Website digital certificates and over 3.5 million of its
digital certificates for individuals.  The company also offers
the VeriSign Onsite service, which allows an organization to
leverage the company's trusted service infrastructure to develop
and deploy customized digital certificate services for use by an
organization's employees, customers and business partners.  To
date, over 300 enterprises have subscribed to the OnSite service
and VRSN has strategic relationships with industry leaders
including Cisco, Microsoft ,RSA, Security Dynamics, and VISA.

Shares of VRSN have been underperforming relative to the NASDAQ
for the past couple weeks, and unless the bulls can push the
tech index higher, the stock looks like it is going to take out
support just above $36 in the near future.  The stock has been
laboring under a descending trendline since hitting $68 in May.
That trendline turned back the bulls near $47 a couple weeks ago,
and the bears are salivating at the prospects of pushing the
stock under the $36 level.  In fact they managed an intraday
violation on Friday, letting the bulls know their intent.
Volume has been well above the ADV over the past 2 days, and
should pick up again when support is breached.  The best entries
will continue to come on the failed intraday rallies, with
resistance likely to turn back the buyers at $38, followed by
$39 and then $40.  We currently have our stop set at $41, as any
rally through that level would indicate we're on the wrong side
of the trade.  Firmer support exists in the $32 area and we
would consider taking profits near that level in anticipation
of another oversold bounce.  Note that the options volume in the
December strikes has been extraordinarily heavy over the past
few days (both puts and calls), indicating market participants
are expecting a big move one way or the other in the near future.

BUY PUT DEC-40*QVR-XH OI= 3946 at $4.70 SL=2.75
BUY PUT DEC-35 QVR-XG OI=11090 at $2.10 SL=1.00

Average Daily Volume = 11.8 mln



*****
LEAPS
*****

The Waiting Is The Hardest Part
By Mark Phillips
Contact Support

The past month has been excruciatingly tedious for those (like
me) that "know" the markets have run too far, too fast.  We want
to jump into some of these stocks that have shown such great
strength in the past 2 months, but we're afraid to jump in
without a decent pullback for fear of buying near the high and
then having to take a loss when the market proves that we were
indeed the "greater fool".  So the Tom Petty lyrics above are an
apt description of what prudent long-term traders are
experiencing right now.  Either you plunged in near the
September lows and have held on through some wild volatility or
you (like me) have waited in vain for that rational pullback to
support before exposing your capital to long-term risk.

I've been looking in vain for a chart that doesn't look
overbought for the past month, but the only ones that pop up are
those that you wouldn't want to own anyways.  Distressed
companies in distressed industries are about the only stocks
that don't look overextended.  Enron certainly comes to mind,
but the airline stocks are another group that certainly isn't
overextended...or is it?  It is hard to gauge what would be a
fair value for a company that is operating under the unfavorable
conditions that currently exist in the airline industry, and
don't even get me started on the mountain of debt this group
carries, and the recent pattern of worsening losses sure doesn't
make me want to play the long side there.

Speaking of Enron, did you notice the flurry of downgrades that
flew the past 2 weeks as it became clear that the company was on
the endangered species list?  Thursday RBC Capital Markets
downgraded the stock from Buy to Market Underperform, which came
on the heels of UBS Warburg's reduction from Strong Buy to Hold.
How about good old Goldman Sachs?  Downgrade from Recommended
List to Market Perform on November 21st, the same day that CIBC
World Markets dropped their rating from Buy to Hold.  Long-time
readers know I like to pick on Goldman, mainly because I like
pointing out any silly thing that Abbey Cohen has to say.  Well,
I'll leave her along tonight, and I won't even single out her
firm.

What I want to point out is that in the past 2 weeks there have
not been any new SELL ratings!  CIBC and UBS think a Hold is the
appropriate rating??  And Goldman actually thinks that the stock
will perform on par with the broader market?  Who are they
kidding?  I mean, come on.  Even I could see the handwriting on
the wall, removing the stock from our Watch List at the end of
October when the stock fell below the $20 level?  Am I really
that much smarter than all these so-called professionals?  I
really doubt it, but I do think I've got a much better grasp on
the concept of ethics.  It is my job to give you the best advice
I can and tell you what I honestly think.  That's the analyst's
job too, but I think that function is routinely subordinated to
the firms' other interests -- namely keeping those investment
banking dollars rolling in, even if it means fleecing our retail
clients.

I'll tell you a firm that I like.  Prudential Securities.  They
issued a SELL rating on ENE on October 24th, the same day I would
have if it weren't for our once-per-week publishing schedule.
Why was Prudential so prompt with sounding the alarm for their
clients?  Could it be that it is due to the fact the firm has
very little investment banking business?  I'll let you be the
judge.  JP Morgan still has a LT Buy rating, Merrill Lynch is
Neutral (well that's a big help!) and Banc of America Securities
downgraded to Market Perform on October 25th and hasn't made a
peep since then.

What's the point of my rant-of-the-week?  Simply that we need
to be responsible for all of our investment decisions.
Education is paramount, because once we learn how to evaluate
the health of a company and the attractiveness of its stock, we
don't need to listen to anyone else's advice.  We can then
successfully plot our own financial course, where the seas are
calmer, and we know all the hidden agendas of our trusted
financial professionals (or at least we should). 

Which brings me full circle back to our discussion of the fact
that there are no new plays.  Despite all the talk of the "new
bull market", you can't fool me.  This "bull" is running out of
steam and I can see it in virtually every chart that comes
across my trading screen.  Oh sure, the markets might stumble
their way a little bit higher, but this is not the time to join
the party.  All the major (and most of the minor) indices are
getting very close to major resistance, and hope for an
improving economy or another 50-basis point rate cut are not
going to be enough to clear those levels.  It's time to let some
air out of this bubble before it bursts again, and I will gladly
wait for more rational thinking to prevail before venturing into
new long-term bullish plays.

But what about LEAP Puts, you ask?  Well, let's just say that
the jury is still out on the advisability of LEAP Puts at this
time.  I thought I had a lead-pipe lock with our EBAY play, and
judging by the Drop writeup you'll find down below, you can see
how wrong I was.  Our other LEAP Put could be in trouble too, as
AIG is definitely seeing some support from the company's
share-buyback plan and is also being helped by the broad
Insurance index (IUX.X), which is threatening to break out over
the $740 level.  We've still got our stop in place, and I'm
watching for confirmation of either being right or wrong,
because I've got my eye on some other stocks that I think MIGHT
make good long-term Put plays.  Two of the front-runners right
now are Home Depot (NYSE:HD) and Intel (NASDAQ:INTC), both of
which look ready for a fall.  Both stocks are still on bullish
trends, but both of them look wholly unsustainable, in my book.
I just might have to take advantage of one of them in the weeks
ahead.  Send me an email if you'd like to see a breakdown of my
thinking and I'll dissect one or both of the stocks in my
Wednesday column this week.

One positive development this week was the fact that Merck
(NYSE:MRK) finally poked its nose above the upper bound of its
confining wedge on Friday.  That was enough for me to remove the
play from probation and it is back on the Watch List this
weekend with an entry target at $64, right at the lower edge of
the wedge.

The Calpine (NYSE:CPN) play is just barely hanging in there, as
it is feeling the pain of guilt-by-association to the ENE
debacle.  We've got our stop sitting at $21, and it will either
hold or we'll get taken out.  Only time will tell.  Hang in
there, baby!

One thing to take note of is the fact that some of our Watch
List plays are starting to come back to us, most notably of
which is General Electric (NYSE:GE).  It plunged back under the
$40 level last week and judging from the position of the daily
Stochastics, we could get a decent entry near our $36 target.
Let's just hope the weekly Stochastics doesn't roll over, as
that would change the equation entirely.  Even Broadcom
(NASDAQ:BRCM) is having a hard time maintaining altitude and
it looks like I may have been right to avoid chasing it higher.
The only remaining question is whether I've been too stingy on
the listed entry point.  I know it sounds like a broken record,
but only time will tell.

The VIX is hovering near 26-27, which says to me that it isn't
a screaming market-top signal, as there is still enough fear in
the markets to give the bulls a sufficient wall of worry to
climb.  I would expect them to keep clawing their way higher
until each of the major indices creep up to their 200-dmas
and/or 62% retracements that we listed 2 weeks ago.  By that
time, I'll be looking for the VIX to have slipped down towards
the 22-23 area and that will be a much better time to consider
fresh bearish positions. 

Of course, I could be entirely wrong and we might start selling
off on Monday morning, bringing those entry points to us sooner
than we might have hoped.  Hey, I can dream, can't I?  Either
way, we must trade what the market gives us, not what we
believe.  And for right now, I believe I'll wait for a better
opportunity.

The waiting really is the hardest part...

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  $14.80   37.04%  $ 79.50
                 '04 $ 80  LZE-AP  $12.20  $16.60   36.07%  $ 79.50
CPN    10/25/01  '03 $ 25  OLB-AE  $ 6.00  $ 4.70  -21.67%  $ 21
                 '04 $ 30  LZC-AF  $ 6.50  $ 5.30  -18.46%  $ 21

Puts:
AIG    11/07/01  '03 $ 80  VAF-MP  $ 8.40  $ 8.20  - 2.38%  $86.50
                 '04 $ 80  LAJ-MP  $10.60  $10.60    0.00%  $86.50


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  $64           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

EBAY $65.16 Have you ever had one of those plays that just makes
you mad?  Well, our EBAY play made me mad!  I did all the
research, had the technical picture nailed down and had what I
thought was a great entry.  Ok, I was a bit early according to
the daily chart, but other than that, had all the ducks lined up.
So what happened?  Game warden showed up and fined me for
hunting ducks out of season!  But seriously, that isn't far from
the truth.  By all rights the stock SHOULD be going down (at
least in my opinion), but the market obviously disagrees with me.
What nerve!  But that's what stop losses are for.  After you've
done all your homework and intelligently laid out your plan for
the trade, you put that stop in place in case you are dead wrong.
In the case of EBAY, I was wrong, as demonstrated by this week's
strong bullish move that shattered our $64 stop right out of the
gate Monday morning.  That completed the breakout over the
descending trendline and set a new post-attack high.  Puts are
not the instrument to apply under those conditions (they are out
of season) and that leaves us with no choice but to take the
loss (accept the fine) and move on.  Maybe I was really wrong
about EBAY and maybe I was just early.  Only time will tell.
And believe me, I'll be watching.


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The Option Investor Newsletter                   Sunday 12-02-2001
Sunday                                                      5 of 5

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

Option Pricing Theory: Premium and Volatility
By Mark Wnetrzak

Each week we receive a number of emails concerning the basics of
pricing theory and how we determine which options are favorable.

Most new traders that enter the derivatives market are quickly
overwhelmed by the incredible number of choices to be made when
selecting an issue for a specific strategy.  Even when you limit
the candidates to short-term positions (90-days or less), there
are still a large assortment of contracts from which to choose.
The choices are so numerous that many beginning traders give up
long before they learn how to select the correct position (with
the highest probability of profit) for the underlying instrument.
 
The successful option trader must be able to identify potentially
profitable strategies given the current market conditions.  Before
he can accurately assess a position's value, a trader must fully
understand the components of theoretical option pricing.  Two of
the most common statistical measurements; Implied and historical
volatility, can help a trader determine if an option is cheap or
expensive.

The volatility component of option valuation is a measure of the
range the underlying security is expected to change over a given
period of time.  The measurement of volatility is the standard
deviation of the daily price changes in the security.  In simpler
terms, the more volatile the stock, the greater the price of the
option.

Historical volatility estimates volatility based on past prices.
Because it can be so erratic from one day to the next, moving
averages are generally used in pricing models to determine the
fair value of an option.  Once again, the larger the statistical
volatility, the more an option is worth.

Implied volatility starts with the current option price and works
backward to calculate the theoretical value of volatility that is
equal to the market price minus intrinsic value.  It is a computed
value that has more to do with the option price rather than the
underlying asset.  The simple definition: Implied volatility is
the volatility value that makes an option's fair value equal to
its actual market price.

Most traders refer to implied volatility as "premium" even though
the word premium refers to the option price relative to the price
of the underlying security.  What the trader is really referring
to is the implied volatility.  The moral of the story: when the
implied volatility is low, options are effectively under-priced.
When the implied volatility is high, options are effectively
overpriced.

In our next discussion on pricing theory, we will discuss how to
select the correct time frame and option strike when assessing
covered-call candidates.

Trade Wisely!


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

PCYC   25.82  25.52   DEC  22.50  5.20  *$  1.88   9.9%
TELM    6.20   6.97   DEC   5.00  1.80  *$  0.60   9.9%
CANI    5.97   6.65   DEC   5.00  1.35  *$  0.38   8.9%
NTPA    5.68   5.45   DEC   5.00  1.10  *$  0.42   8.0%
MDCO   11.43  10.88   DEC  10.00  2.10  *$  0.67   7.8%
SURE   12.20  12.38   DEC  10.00  3.10  *$  0.90   7.2%
QSFT   22.64  24.31   DEC  20.00  4.10  *$  1.46   6.8%
VTSS   11.61  12.19   DEC  10.00  2.45  *$  0.84   6.6%
EXFO   14.18  12.60   DEC  12.50  2.55  *$  0.87   6.5%
PXLW   14.95  17.05   DEC  12.50  3.30  *$  0.85   6.3%
GMST   22.70  27.73   DEC  20.00  4.30  *$  1.60   6.3%
RMBS    8.88   8.55   DEC   7.50  1.95  *$  0.57   6.0%
GNTA   16.75  16.01   DEC  15.00  2.85  *$  1.10   5.7%
AMZN    8.95  11.32   DEC   7.50  1.90  *$  0.45   5.5%
JDSU   11.60  10.08   DEC  10.00  2.20  *$  0.60   5.5%
MCDT   18.80  25.20   DEC  15.00  4.80  *$  1.00   5.2%
INVN   19.42  25.15   DEC  15.00  5.10  *$  0.68   5.2%
CRXA   14.74  15.01   DEC  12.50  2.90  *$  0.66   4.8%
ARQL   11.10  12.83   DEC  10.00  1.50  *$  0.40   4.5%
PROX   11.50  11.00   DEC  10.00  1.90  *$  0.40   4.5%
ELON   17.30  14.20   DEC  15.00  3.00   $ -0.10   0.0%

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

Comments:

Have we finally entered into a consolidation phase for the major 
averages?  Will the Bulls be able to push stocks higher or will
profit-taking become in vogue?  Next week should offer some clues.
InVision Technologies (NASDAQ:INVN) continues to scream higher
and may be causing some call "selling" regret.  Such is the life
of a time merchant.  A few issues in the covered call portfolio 
are acting a bit worrisome.  Echelon (NASDAQ:ELON) is an early
exit candidate as the company received a "sell" recommendation
from Prudential and the share price has dropped to support near
$14.  We will show the position closed in the name of capital
preservation.  Other issues on the watch list are Rambus (NASDAQ:
RMBS) and JDS Uniphase (NASDAQ:JDSU), as both have moved lower
and are testing support.  


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

FMKT   19.75  DEC 17.50   FAQ LW  2.85 809   16.90   21    5.1%
NPRO   11.32  DEC 10.00   NYQ LB  1.85 428    9.47   21    8.1%
SNDK   14.19  DEC 12.50   SWQ LV  2.20 1082  11.99   21    6.2%
STEL   23.54  DEC 20.00   URU LD  4.20 26    19.34   21    4.9%
SURE   12.38  DEC 10.00   UGN LB  2.80 922    9.58   21    6.4%
TUNE   21.20  DEC 20.00   TUF LD  2.25 130   18.95   21    8.0%
VRTY   15.09  DEC 12.50   YQV LV  3.00 970   12.09   21    4.9%

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

NPRO   11.32  DEC 10.00   NYQ LB  1.85 428    9.47   21    8.1%
TUNE   21.20  DEC 20.00   TUF LD  2.25 130   18.95   21    8.0%
SURE   12.38  DEC 10.00   UGN LB  2.80 922    9.58   21    6.4%
SNDK   14.19  DEC 12.50   SWQ LV  2.20 1082  11.99   21    6.2%
FMKT   19.75  DEC 17.50   FAQ LW  2.85 809   16.90   21    5.1%
STEL   23.54  DEC 20.00   URU LD  4.20 26    19.34   21    4.9%
VRTY   15.09  DEC 12.50   YQV LV  3.00 970   12.09   21    4.9%


Company Descriptions

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

*****
FMKT - FreeMarkets  $19.75  *** Breaking Out ***

FreeMarkets (NASDAQ:FMKT) creates business-to-business online 
markets and provides electronic commerce technology and services
for the procurement of industrial parts, raw materials, commodities
and services.  FreeMarkets has created over 9,200 online markets
and has enabled its customers to source products from more than
165 supply verticals.  In addition to its FullSource offering, 
which provides customers with the full range of FreeMarkets' 
technology, services and information, the company offers its 
DirectSource and QuickSource hosted services, which enable 
customers to run their own online markets.  FreeMarkets also 
operates the FreeMarkets Asset Exchange for buyers and sellers
of surplus assets and inventory.  On Wednesday, FreeMarkets
raised its revenue and profit outlook for the 4th-quarter after
several large customers renewed long-term contracts.  The company
said it expects operational profits of 5 to 9 cents a share 
compared to Wall Street estimates of 1 cent to 2 cents a share.
We simply favor the strong rally supported by heavy volume 
which suggest further upside potential.  

DEC 17.50 FAQ LW LB=2.85 OI=809 CB=16.90 DE=21 TY=5.1%


*****
NPRO - NaPro BioTherapeutics  $11.32  *** Good News ***

NaPro BioTherapeutics (NASDAQ:NPRO) is a biopharmaceutical 
company focused on the development, production and licensing
of complex natural-product pharmaceuticals.  NaPro is also 
engaged in the development and licensing of novel genetic 
technologies for applications in human therapeutics and 
diagnostics.  NaPro has partnerships with Abbott Labs, F.H. 
Faulding & Co., Tzamal Pharma and JCR Pharmaceuticals Co.
NaPro's lead product is the cancer drug paclitaxel.  NaPro
believes its resources, technology and international partner-
ships position it for significant participation in the growing 
worldwide paclitaxel market.  NaPro's stock surged this week
after it announced an agreement with Bristol-Myers Squibb 
(NYSE:BMY), to market a paclitaxel injection, pursuant to an 
ANDA approval (expected later this month).  This agreement
also settles the paclitaxel-related litigation currently
pending between the two companies.  A conservative entry
point from which to speculate on the company's future.

DEC 10.00 NYQ LB LB=1.85 OI=428 CB=9.47 DE=21 TY=8.1%


*****
SNDK - SanDisk  $14.19  *** Bottom Fishing ***

SanDisk (NASDAQ:SNDK) designs, manufactures, and markets flash
memory storage products that are used in a wide variety of 
electronic systems.  The company has designed its flash memory
storage solutions to address the storage requirements of emerging
applications in the consumer electronics and industrial/communi-
cations markets.  SNDK's products include removable CompactFlash 
cards, MultiMediaCards, FlashDisk cards and Secure Digital Cards
and embedded FlashDrives and Flash ChipSets.  Toshiba Corporation
and SanDisk have recently jointly introduced the world's first 
commercial one gigabit NAND flash memory chip, a new generation
of flash memory that effectively doubles the amount of storage
in flash memory cards.  The stock has been forging a Stage I 
base for the last couple months after the 'September' drop, and
is forming a support area around $12.  This position offers a 
reasonable entry point from which to speculate on a storage 
sector rebound.

DEC 12.50 SWQ LV LB=2.20 OI=1082 CB=11.99 DE=21 TY=6.2%


*****
STEL - Stellent  $23.54  *** Bracing For A Rally ***

Stellent (NASDAQ:STEL), formerly known as IntraNet Solutions,
is a leading provider of business content management solutions, 
providing browser-based Web and wireless access to content-centric
business Websites and content-supported e-business applications. 
The company's software products provide for business and Web 
content from a wide variety of enterprise sources, including 
desktop applications, business applications, and templates, to be
automatically converted to output formats.  Stellent has more than
1,500 customers, including Merrill Lynch, Agilent Technologies, 
Target Corp., Cox Communications, Yahoo!, Hewlett-Packard and 
Ericsson Telecom AB.  Stellent was upgraded to a 'strong buy'
after reporting earnings in October, showing 2nd-quarter revenues
up 48% compared to the prior year.  Several new products and 
alliances, including Microsoft elevating the company to the Gold
level of its Windows Embedded Partner Program (WEP), should bode
well for the future of Stellent.  The stock continues to remain
above its 50-dma and a move above its 150-dma should improve the
long-term outlook.  We simply favor the support area around $20.

DEC 20.00 URU LD LB=4.20 OI=26 CB=19.34 DE=21 TY=4.9%


*****
SURE - - SureBeam  $12.38  *** Titan Contract Supplier ***

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

DEC 10.00 UGN LB LB=2.80 OI=922 CB=9.58 DE=21 TY=6.4%


*****
TUNE - Microtune  $21.20  *** On The Move ***

Microtune (NASDAQ:TUNE) is a radio frequency silicon and systems
company, providing radio frequency tuners, upstream amplifiers 
and transceivers to the broadband communications markets.  Using
proprietary technologies and design methodologies, the company 
has designed and developed radio frequency integrated circuits
and radio frequency systems (modules) for a variety of broadband 
communications access and other consumer electronic devices, 
including cable modems, multimedia personal computers with broad-
band reception capabilities (PC/TVs), set-top boxes, digital
televisions, and other consumer electronic devices.  Microtune
and STMicroelectronics (NYSE:STM) recently announced plans to
jointly develop a cable set-top box reference designs that 
feature their complementary digital and radio frequency silicon
technologies.  STM's strong market position, coupled with Tune's
industry-leading IC technologies and systems expertise, should
position the company to aggressively meet the requirements of
their customers with premier, cost-efficient solutions.  The
move above the October high (which is now support) on heavy
volume suggests a successful test of the June-July resistance
area.  Reasonable speculation on a bullish stock. 

DEC 20.00 TUF LD LB=2.25 OI=130 CB=18.95 DE=21 TY=8.0%


*****
VRTY - Verity  $15.09  *** More Bottom Fishing ***

Verity (NASDAQ:VRTY) is engaged in powering business portals. 
These include corporate portals used for sharing information 
within an enterprise, e-commerce portals for online selling, 
and market exchange portals for Business-to-Business activities.
Business portals provide personalized information to employees, 
partners, customers and suppliers.  The company's product suite
enables organizations to turn corporate intranets and extranets
into a powerful knowledge base, making business information 
accessible and reusable across the enterprise.  Verity recently
announced that Roche Diagnostics has licensed Verity's advanced
portal infrastructure software for the Roche Diagnostics' global
intranet.  We simply favor the bullish move off the September 
low that has moved the share price above several layers of 
support: the 30-dma ($13.50), the 50-dma ($13), and the October
high ($12).  Verity appears on the mend and this position offers
a discounted cost basis in the issue.

DEC 12.50 YQV LV LB=3.00 OI=970 CB=12.09 DE=21 TY=4.9%


*****

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

RSAS   15.75  DEC 15.00   QSD LC  1.75 1510  14.00   21   10.3%
LVLT    5.58  DEC  5.00   HGY LA  0.90 9335   4.68   21    9.9%
ARQL   12.83  DEC 12.50   ARQ LV  1.05 241   11.78   21    8.9%
CCRD   17.99  DEC 17.50   UCD LW  1.50 73    16.49   21    8.9%
QVDX   10.34  DEC 10.00   XUC LB  0.85 63     9.49   21    7.8%
IVX    20.60  DEC 20.00   IVX LD  1.55 2731  19.05   21    7.2%
INVN   25.15  DEC 20.00   FQQ LD  6.00 3333  19.15   21    6.4%
EMLX   32.61  DEC 27.50   UMQ LY  6.10 57    26.51   21    5.4%
UTSI   23.94  DEC 22.50   UON LX  2.25 426   21.69   21    5.4%
MCDT   25.20  DEC 22.50   DXZ LX  3.50 1267  21.70   21    5.3%


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

Investing Basics: An Explanation Of Structured Products
By Ray Cummins

Most people believe that investing in the stock market is one
of the best ways to increase personal wealth over the long run.

Unfortunately, the potential downside risk of owning stock keeps
many people from investing in this manner, even where long-term
growth, such as planning for retirement is the objective.  While
there are few investments that offer the potential for favorable
returns without the possibility of loss, a number of new products
such as "protected growth" trusts have been developed to attract
risk averse customers.  These financial instruments allow you to
profit from the growth of the stock market while insuring that
your principal investment is preserved in the event of a severe,
prolonged downtrend in the economy.

There are three main categories of these guaranteed investments:
Index Annuities offered by major insurance companies; Index CDs
offered by institutions (such as Banker's Trust); and Protected
Growth trusts offered by the larger brokerages.  Merrill Lynch
is a pioneer in this category and they offer a number of unique
products that combine participation in the appreciation potential
of stocks and other opportunities, with protection of principal.
Protected Growth assets are financial instruments with features
of both stocks and bonds.  The benefits of these complex issues
also include diversification, reduced minimum investment and
liquidity.  The most common products provide for a market-based
return linked to a range of potential growth opportunities such
as major indexes, individual stocks or other popular financial
indicators.  In most cases, the issues are tied to index funds
that are (initially) offered at $10 a share and usually mature in
seven years or less.  If you retain the issue to maturity, you
profit from the growth of the index.  In the event of substantial
price declines, these instruments guarantee repayment of their
principal amount at maturity.

The purpose of Protected Growth investing is simple, to allow the 
pursuit of growth with less risk.  The low initial cost of these
assets provide investors an affordable means of participating in
the long-term performance of a number of financial instruments
and industry groups.  The diversification possibilities available
through these investments is often greater, and at a lower price
than that which could be achieved by purchasing individual issues.
The majority of these instruments are listed on the major stock
exchanges.  This feature allows you to trade the assets publicly,
as well as monitor their progress through daily price quotations
on the Internet or in the financial pages of major newspapers.

There are many advantages to investing with structured products
such as Protected Growth trusts, but they are complicated assets
requiring careful examination and specific strategies to maximize
potential profits.  One of the most critical factors associated
with many of the newer instruments is the "annual adjustment
factor."  Typically, a structured product allows an investor to
capture the percent increase of an index over the offering price,
any time up to the maturity date of the issue.  If there is no
increase, the principal investment is returned.  However, in the
case of recent products, an annual adjustment factor is used to
reduce the index value before the final cash settlement amount is
determined.  The adjustment factor will vary but even when the
amount is only 2% or 3%, the reduction in overall return can be
substantial.  

When aversion to risk stands in the way of achieving long-term
personal goals, alternate solutions must be explored to remedy
the situation.  If your financial outlook dictates the need for
capital growth, but you are concerned about the volatility or
potential downside associated with stocks, you might consider
including structured products as part of your portfolio.  This
type of investing allows you to participate in numerous growth
opportunities that may otherwise be too extreme for your risk
tolerance.  Regardless of your personal financial outlook, a
sound investing strategy includes diversification and low-risk
capital appreciation, and these relatively unknown issues can be
an excellent and profitable way to achieve that objective.

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

LVLT    6.82   5.58   DEC   5.00  0.30  *$  0.30  15.7%
WGRD   11.92  11.11   DEC  10.00  0.60  *$  0.60  15.1%
FNSR   12.96  10.82   DEC  10.00  0.35  *$  0.35  12.9%
NTAP   16.51  15.43   DEC  12.50  0.65  *$  0.65  11.9%
CRXA   15.32  15.01   DEC  12.50  0.40  *$  0.40  11.7%
IMNY    7.24   8.10   DEC   5.00  0.25  *$  0.25  10.7%
MANU   10.66  11.80   DEC   7.50  0.35  *$  0.35  10.2%
MCDT   22.75  25.20   DEC  17.50  0.45  *$  0.45   9.8%
SLAB   28.26  25.76   DEC  22.50  0.85  *$  0.85   9.5%
MCDT   21.10  25.20   DEC  15.00  0.50  *$  0.50   9.2%
TERN   13.19  12.06   DEC  10.00  0.30  *$  0.30   8.9%
SRNA   22.90  23.46   DEC  17.50  0.50  *$  0.50   8.6%
SRNA   22.25  23.46   DEC  17.50  0.35  *$  0.35   7.9%
PMCS   23.27  22.79   DEC  15.00  0.45  *$  0.45   7.7%
CNXT   13.37  14.89   DEC  10.00  0.30  *$  0.30   7.3%
AFFX   37.13  36.22   DEC  30.00  0.55  *$  0.55   7.2%
CREE   25.25  24.86   DEC  20.00  0.45  *$  0.45   7.1%
IMMU   23.49  23.80   DEC  20.00  0.40  *$  0.40   6.9%
MACR   22.08  22.20   DEC  17.50  0.45  *$  0.45   6.7%
MCSI   24.00  20.75   DEC  20.00  0.50  *$  0.50   5.9%
SMTC   37.55  38.52   DEC  27.50  0.35  *$  0.35   4.8%

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

Comments:

Mcsi Inc. (NASDAQ:MCSI), Level 3 Communications (NASDAQ:LVLT),
Finisar (NASDAQ:FNSR), and Silicon Laboratories (NASDAQ:SLAB)
are all candidates for early exit or adjustment.  Traders must
evaluate each individual play, based on the current technical
outlook for the underlying issue and make a decision about the
future outcome of the position. 


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

CEGE   22.86  DEC 20.00   UCG XD  0.35 167   19.65   21    7.6%
CRXA   15.01  DEC 12.50   CVQ XV  0.35 66    12.15   21   13.2%
IGEN   35.95  DEC 30.00    GQ XF  0.90 974   29.10   21   14.0%
INVN   25.15  DEC 17.50   FQQ XW  0.55 1139  16.95   21   14.3%
MCDT   25.20  DEC 20.00   DXZ XD  0.35 155   19.65   21    9.4%
PLMD   23.00  DEC 20.00    PM XD  0.65 482   19.35   21   13.7%
RSAS   15.75  DEC 12.50   QSD XV  0.25 472   12.25   21   10.7%

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   25.15  DEC 17.50   FQQ XW  0.55 1139  16.95   21   14.3%
IGEN   35.95  DEC 30.00    GQ XF  0.90 974   29.10   21   14.0%
PLMD   23.00  DEC 20.00    PM XD  0.65 482   19.35   21   13.7%
CRXA   15.01  DEC 12.50   CVQ XV  0.35 66    12.15   21   13.2%
RSAS   15.75  DEC 12.50   QSD XV  0.25 472   12.25   21   10.7%
MCDT   25.20  DEC 20.00   DXZ XD  0.35 155   19.65   21    9.4%
CEGE   22.86  DEC 20.00   UCG XD  0.35 167   19.65   21    7.6%


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).

*****
CEGE - Cell Genesys  $22.86  *** Big News! ***

Cell Genesys (NASDAQ:CEGE), a gene therapy company, is focused
on the development and commercialization of cancer vaccines and
gene therapies to treat major, life-threatening diseases.  The
company is conducting multicenter clinical trials for its GVAX
cancer vaccines in prostate and lung cancer, pancreatic cancer
and myeloma, and expects to initiate additional vaccine trials
in many of these cancers, as well as leukemia, during the next
year.  In addition, Cell Genesys has a number of opportunities
at the preclinical stage, including in vivo gene therapies for
cancer, hemophilia and cardiovascular disease.   Shares of CEGE
rallied recently after the company announced it is initiating a
multicenter Phase II clinical trial of GVAX cancer vaccine for
acute myelogenous leukemia (AML), the most common form of adult
leukemia.  The trial is strongly supported by preclinical data
demonstrating that GVAX cancer vaccine in combination with bone
marrow transplantation helped prevent relapse of leukemia and
increased the overall survival rate.  Investors appear to be
impressed by the outlook for this unique drug and traders can
speculate on the future movement of the company’s share value
with this position.

DEC 20.00 UCG XD LB=0.35 OI=167 CB=19.65 DE=21 TY=7.6%


*****
CRXA - Corixa  $15.01  *** Own This One! ***

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.  They are also working on a new technology
involving radio-isotopes and last week, CRXA was added to the
NASDAQ Biotechnology Index.  With the current bullish outlook,
this position offers great speculation on a unique small-cap
issue for investors who like the biotechnology group.

DEC 12.50 CVQ XV LB=0.35 OI=66 CB=12.15 DE=21 TY=13.2%


*****
IGEN - Igen Intl.  $35.95  *** Favorable Settlement? ***

IGEN International (NASDAQ:IGEN) develops and markets products
that incorporate the company's proprietary ORIGEN technology,
which permits detection and measurement of biological substances.
ORIGEN is incorporated into instrument systems and consumable
reagents.  The company also offers assay development and other
services used to perform analytical testing.  Products based on
the company's ORIGEN technology currently address the following
markets: Life Science; Clinical Testing-In Vitro; and Industrial
Testing.  IGEN International is currently in litigation with
Hoffmann-La Roche and the recent favorable outcome of a trial
in the U.S. District Court in Delaware has boosted the outlook
for the issue.  Traders can speculate on the future outcome of
the lawsuit with this conservative position.

DEC 30.00 GQ XF LB=0.90 OI=974 CB=29.10 DE=21 TY=14.0%


*****
INVN - InVision Technologies  $25.15  *** Big FAA Order! ***

InVision Technologies (NASDAQ:INVN) markets advanced detection
and inspection products by adapting various medical and laboratory
technologies for government and commercial uses, such as security,
defense and process control.  InVision is the worldwide leader in 
explosive detection technology and has produced the first automated
explosive detection systems to be certified by the FAA as meeting
its stringent requirements.  Shares of InVision rallied this week
after the firm won a contract to provide the U.S. Federal Aviation
Administration with imaging systems to detect concealed weapons.
The FAA bought from InVision's Quantum Magnetics subsidiary several
i-Portal 100 imaging detection systems that will be installed at
undisclosed locations in the United States.  This issue is heavily
shorted and that could increase the buying pressure in the current
rally.  This conservative play offers a favorable way to speculate
on the company's future share value.

DEC 17.50 FQQ XW LB=0.55 OI=1139 CB=16.95 DE=21 TY=14.3%


*****
MCDT - McDATA  $25.20 *** The Rally Continues! ***

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 when analyst Dane Lewis initiated coverage on company
with comments that MCDT is "positioned for growth driven by the
expanding fire channel storage switching market."  This week,
JP Morgan issued a long-term BUY rating on the issue, based on
growing demand for its storage products.  The technical trend is
bullish and this position offers a low risk basis in the issue.

DEC 20.00 DXZ XD LB=0.35 OI=155 CB=19.65 DE=21 TY=9.4%


*****
PLMD - PolyMedica  $23.00  *** Entry Point ***

PolyMedica (NASDAQ:PLMD) is a provider of direct-to-consumer
specialty medical products and services, conducting business
in the Chronic Care, Professional Products and Healthcare
markets.  The company sells diabetes supplies and related
products through its Chronic Care segment.  The company also
provides direct-to-consumer prescription respiratory supplies
and services to Medicare-eligible seniors suffering from
chronic obstructive pulmonary disease and sells, manufactures
and distributes a wide range of prescription urological and
suppository products through its Professional Products group.
The company's AZO products for urinary health are distributed
primarily to food and drug retailers and mass merchandisers
nationwide through its Consumer Healthcare segment.  PLMD is
on the mend and this position offers a discounted cost basis
in the issue.

DEC 20.00 PM XD LB=0.65 OI=482 CB=19.35 DE=21 TY=13.7%


*****
RSAS - RSA Security  $15.75  *** On The Move! ***

RSA Security (NASDAQ:RSAS) is a provider of electronic security
solutions.  The company has two business segments: e-Security
Solutions and RSA Capital.  The operations of the e-Security
Solutions segment consist of the sale of software licenses,
hardware, maintenance and professional services through two
product groups: Enterprise solutions and Developer solutions.
Enterprise solutions include sales of RSA SecurID authenticators,
RSA ACE/ Server software, RSA Keon software, and maintenance and
professional services and Developer solutions include sales of
RSA BSAFE cryptographic software and protocol products, RSA Keon
components, and maintenance and professional services.  The RSA
Capital segment includes the activities relating to the company's
existing and future investments in e-businesses and technology
companies.  RSAS is on the move and with the heavy-volume rally
Friday, the issue appears poised for future upside movement.

DEC 12.50 QSD XV LB=0.25 OI=472 CB=12.25 DE=21 TY=10.7%


*****

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

XMSR   11.59  DEC 10.00   QSY XB  0.45 440    9.55   21   18.6%
RSTN   15.68  DEC 12.50   RQJ XV  0.30 756   12.20   21   12.6%
SRNA   23.46  DEC 20.00   NHU XD  0.55 104   19.45   21   12.3%
CAL    22.98  DEC 20.00   CAL XD  0.55 622   19.45   21   11.8%
PMCS   22.79  DEC 17.50   SQL XW  0.35 1652  17.15   21   10.3%
OVER   25.55  DEC 20.00   GUO XD  0.35 136   19.65   21    9.3%
PZZA   25.82  DEC 25.00   ZZQ XE  0.50 54    24.50   21    7.2%
DFXI   27.97  DEC 22.50   DQF XX  0.25 584   22.25   21    6.1%
SMTC   38.52  DEC 30.00   QTU XF  0.30 1090  29.70   21    5.4%


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


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

Option Trading Fundamentals: Strategy Selection Is Important!
By Ray Cummins

The key to success in options trading is to utilize strategies
that provide reasonable profit potential while maintaining a
minimum amount of risk.


The Spreads/Combos editor is in Europe so there will be no new
candidates this week.  However, with the recent volatility and
indecision in the market, we have a great opportunity to review
the fundamentals of option trading and strategy selection.


Success Requires A Methodical Approach

There are many types of investors and no single strategy can work
for all of them.  By definition, trading is a risky venture but
you know there are people who profit regularly in this business.
What do these successful traders have in common?  As a group, they
all conform to the same fundamental plan.  They develop sound and
sensible methods for participating in the market, using strategies
that work best for each particular situation.  They also acquire
the proper tools for accurate analysis of their candidates and
potential plays, and they construct positions with regard to the
appropriate risk-reward attitude of their financial situation.


Basic Strategies:

There are a number of ways to be successful in the options market.
The primary uses of options are speculating and portfolio hedging.
Both of these practices involve the management of risk, with each 
strategy approaching the potential for loss in a different manner.
Fund managers and institutional traders reduce risk by offsetting
a portion of their holdings with option positions.  Many of them
purchase Puts to insure their equity portfolios while others use
option writing strategies, selling both Puts and Calls to improve
returns from their long-term investments.  Speculative strategies
include buying and selling options and in most cases, traders use
these techniques to generate additional leverage in directional
positions.  Ownership of an option can produce large profits when
the underlying instrument moves as expected and on those occasions
when the forecast is incorrect, the loss is limited to the initial
cost of the position.

Another popular approach, spread (or combination) trading, seeks
to produce option positions with less risk than the speculative
strategies.  The majority of spread techniques involve buying and
selling simultaneous but opposing positions in different option
series.  Common spread strategies include calendar Spreads, price
(or vertical) spreads, and various combinations of the two.  The
calendar spread (also known as a horizontal spread) involves the
purchase of an option with one expiration date and the sale of
another option at the same price but a different expiration date.
The philosophy for using calendar spreads is that time will erode
the value of the short-term option at a faster rate than it will
the long-term option, providing a profit if the underlying issue
remains in a relatively small (target) range.  Traders who attempt
to forecast the future direction of specific issues generally use
price spreads.  These positions consist of a long (bought) option
and a short (sold) option, where both options are of the same type
(calls or puts) and expire at the same time.  Vertical spreads are
commonly used by traders who want to use options to take advantage
of a directional market move.  The benefit of this technique is
that it is aptly suited to situations where the underlying issue's
trend is relatively well established and option pricing concerns
are of secondary importance.  One of the most commonly utilized
neutral-outlook strategies is the debit (or long) straddle.  The
debit straddle involves the simultaneous purchase of both call and
put options and the position benefits from a large movement in the
underlying issue.  Based on the size and timeliness of the move,
the technique can generate large profits.  In most spread and
combination strategies, the returns are far smaller than those
generated by speculative positions in exchange for reduced risk.


Advantages & Pitfalls

There are two primary benefits of derivatives.  They can be used
to generate large (relative) profits on correctly forecast market
activity and alter the risk profile of a portfolio.  A trader who
purchases calls can profit from an increase in the price of the
underlying asset and the maximum loss from buying the option is
limited to its initial cost.  The potential gains in this type of
position are restricted only by the future price change in the
underlying issue.  Since the asset's price is the most important
factor affecting an option's value, the success of directional
strategies is primarily based on an accurate assessment of future
market movement.  Technical and fundamental analyses are typical
procedures used to identify potential direction and magnitude of
movement in the underlying issue.  Once a group of candidates has
been identified, time frame and leverage become primary factors
in selecting a specific position.  Obviously, the major drawback
for options is they are a wasting asset; the extrinsic value of
the option falls as the expiration date approaches.  Timing is a
critical concern with derivatives because the initial premium for
time value can be larger than any profit resulting from favorable
movements in the underlying instrument.  In addition, the future
potential (Implied Volatility) of an option can be difficult to
assess and that particular concept can be overwhelming for novice
market players.  The most common result is that an investor will
correctly forecast the movement of the underlying instrument but,
having paid an excessive premium for the option, will eventually
experience a loss in the position.  Leverage is also an important
component of option-trading strategy as it allows an investor to
achieve large profits with a relatively small cash investment.
 
The most prevalent failure among new traders is the inability to
assess the suitability of a specific position in terms of its
risk and profitability characteristics, and the basic lack of
theoretical option-pricing knowledge.  In addition, many novice
option traders base their selection of plays on the potential
for return rather than the appropriate position or strategy for
each combination of market direction and volatility.  Retail
option buyers are a great example.  They consistently purchase
options that are "out-of-the-money" with only a short period
remaining before they expire.  They usually avoid theoretical
option-pricing models due to their confidence concerning the
future movement of the underlying issue and their distorted
assumptions about profit potential.  In fact, many investors
partake in the options market without paying any attention to
Fair Value and Implied Volatility.  As a result, they purchase
overpriced options and fail to profit even when they are correct
about the character of the underlying issue.


Limiting Risk With Combination Positions

Options possess characteristics that differ from other financial 
instruments.  These unique attributes provide option traders with
advantages unavailable to the majority of market participants.
Although the initial learning curve can be difficult to overcome,
the evidence concerning spread trading suggests that a structured
plan with strategies for limiting losses and maximizing gains can 
produce favorable portfolio growth in the long-term.  The majority
of experienced traders utilize spreads to reduce the cost and the
risk of option ownership.  They construct combination plays with 
partially offsetting option positions to reduce the potential for 
capital loss.  Spreads can also be designed to generate return
diagrams of almost any character.  For the investor who is not
familiar with spread and combination strategies, this type of
approach also offers a great opportunity to learn the basics of
derivatives trading in a low risk environment.  The fundamental
concepts are relatively easy to understand and once established,
most positions can usually be managed with little difficulty.  The
occasional adjustments also provide the necessary background for
more advanced techniques.  Those who enjoy aggressive, directional
trading can construct combination positions to fit their style as
well.  Although the potential for upside profit is reduced, the
limited downside exposure provides a favorable risk/reward ratio
for the majority of investors.

The options market offers a number of tools and techniques that
can help the astute trader construct a powerful portfolio; one
which possesses a high degree of safety with consistent returns.
Through the use of combinations, the trader has a vehicle to
pursue a wide variety of strategies.  The complete option player
can profit with both bullish and bearish plays, in situations
that dictate either aggressive or conservative positions.  With
an understanding of the risk/reward relationships between long
and short options at different prices in varying time periods, he
can benefit from the most advanced techniques available in the
derivatives market.  Based on the E-mail I receive, spread and
combination trading is a very popular approach among our readers
and one we will continue to explore in future editions.

Good Luck!


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