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Daily Newsletter, Sunday, 12/09/2001

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The Option Investor Newsletter                   Sunday 12-09-2001
Copyright 2001, All rights reserved.                        1 of 5
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       WE 12-07         WE 11-30         WE 11-23         WE 11-16
DOW    10049.46 +197.90  9851.56 -108.15  9959.71 + 92.72  +258.99
Nasdaq  2021.26 + 90.68  1930.58 + 27.39  1903.19 +  4.61  + 70.10
S&P-100  591.78 +  6.98   584.80 -  8.47   593.27 +  5.20  + 10.08
S&P-500 1158.31 + 18.96  1139.45 - 10.89  1150.34 + 11.69  + 18.34
W5000  10745.37 +213.92 10531.45 - 64.95 10596.40 +109.73  +189.46
RUT      481.21 + 20.43   460.78 +  2.36   458.42 +  7.11  + 13.21
TRAN    2628.26 +116.48  2511.78 - 23.12  2534.90 + 37.53  +176.68
VIX       24.89 -  1.25    26.14 +  1.36    24.78 -  2.39  -  1.59
VXN       50.18 +  1.73    48.45 -  2.36    50.81 -  4.23  -  3.55
TRIN       1.18             1.19             0.70             0.99
TICK       +828             +852             +976             +750
Put/Call    .78              .63              .61              .50
******************************************************************

Profit Takers Get Their Fill!
by Jim Brown

Weaker than expected economic reports provide another excuse
for traders to take profits from the recent rally. In reality
we should thank them for providing us another buying opportunity.
Despite the down day all the major indexes finished the week with
another healthy gain. Even a major hit to many stocks by a ruling
in an asbestos case could not push the Dow/Nasdaq below 10000/2000.

Chart of the Nasdaq


Chart of the Dow


The best news of the day in my opinion was interpreted by 
traders as an excuse to sell. The Jobs Report showed a larger 
than expected drop in November with -331,000 jobs lost. Analysts 
had expected only -200,000. October job losses were revised 
downward to -468,000 as well which was a 25 year low. The 
unemployment rate increased to 5.7% and a six year high. The impact 
of the 9/11 attack is slowing but increasingly being felt in the 
service sector which had been stronger before September. Manufacturing 
cuts accounted for almost half of the job losses. Remember, this
is a trailing indicator. This was the picture for November and
it shows an improving trend over October. Still the numbers will
almost certainly cement another rate cut when the Fed meets on
Tuesday. The numbers may have been negative on the surface but 
the lasting impact is bullish.

The other positive economic news was a jump in consumer sentiment
to 85.8 and the third consecutive monthly improvement. At 85.8
it has yet to achieve the pre-attack levels of 91.5 but it is
accelerating from the 81.8 September bottom. The expectation
portion of the index rose to 76.6 and the present conditions
component rose to 95.3. In light of the increasing unemployment 
any gains now point to an explosion when the economy actually
turns around.

With traders looking at this news as positive one analyst suggested
stock prices were already looking farther ahead than Nostradams.
Chip stock investors must have seen a negative prediction in the
three tech affirmations on Thursday. Investors sold the news from
Intel as "not good enough" and SUNW as too vague. AMD was the only
winner with news that sales of the Athalon processor were hot. The
chip sector also took a hit with a downgrade on Altera. Morgan
Stanley cut ALTR to neutral from outperform. They also increased
the price targets on SLAB from $30 to $50 and XLNX from $40 to $50.
The Semiconductor index had been close to breaking the 600 level
but rolled over as investors sold the INTC/AMD news to close at
571. Investors should not interpret this news and reaction as 
negative but just a normal reactionary event. INTC had gained +20%
since Nov-21st in anticipation of the quarterly update. This was
simple profit taking again.

Microsoft help influence the major averages to the downside after
the dissenting states filed their own plan to remedy the antitrust
concerns. They want a stripped down Windows or unbundled product
which is cheaper and more affordable. They also want full release
of Internet Explorer as an independent product and an release of 
the Java code for developers. An independent "special master" would
oversee the plan and complaints for a ten year period. MSFT fell
to an intraday low of $66.60 before analysts shrugged off the 
proposal as no big deal. It has to go to the court and it will
be mid-2002 before any action is taken on it.

Hewlett-Packard rose in after hours after the family foundation voted 
against the Compaq merger. The Packard Foundation, which controls
10% of HWP stock, sided with other family members already on record
and bringing the total to 17% of the voting stock against the
transaction. HWP jumped to $25 in after hours and CPQ fell to $10. 
The foundation said the merger would over expose HWP to very low 
margin products like personal computers. I am still on record as
suggesting Dell buy CPQ. It takes out a huge competitor and puts 
them into the retailer marketplace. The additional volume would 
only decrease their costs. Of course it would probably not pass 
the regulators but it should be worth a try. You can't tell me 
Michael Dell has not thought about it.

The major averages came right back down to "psychological" support
intraday on Friday but the minor selling was bullish in my mind.
There were several negative events, which could have easily killed
the markets just weeks ago. Argentina was at deaths door again as
Economy Minister Domingo Cavallo was in Washington trying to get
a last ditch reprieve from the IMF. After a strong run on the banks
over the last two weeks it was feared that Argentina would default
as early as this weekend. This event has been predicted for months
and is already priced into the markets but the actual event could
have caused a knee jerk reaction. There was a flurry of rumors that
the drop in the U.S. bond market was due to Argentina selling U.S.
Zero coupon bonds, which had been held to secure their debt, to raise
cash and avoid a weekend default. This rumor was never substantiated 
but the bond market sold off heavily. Japan announced another 
recessionary quarter and continues to spiral downward. Nobody even
noticed.

Halliburton (HAL) fell more than -40% on news that a Baltimore jury
had awarded $30 million in asbestos damages against its Dresser
subsidiary. The verdict brings the total to over $150 million in
awards against the company. The recent flurry of verdicts in asbestos
cases have brought the problem to the forefront again. Other companies
including GP, CBE, GR, SEE and even Viacom dropped on worries about
their own exposure problems. Why does Viacom (VIA), a media company,
have asbestos exposure? VIA purchased CBS many years ago and CBS
was originally Westinghouse which was involved in manufacturing.
It appears that you can't distance yourself far enough from the
problem to escape it. Many of the companies have sold or divested
themselves of the problem units decades ago but the problem continues
to haunt them even through bankruptcies. The point to this paragraph
is that even a major loss by over a dozen companies, HAL dropped from
$22 to $11, failed to crash the markets. That is bullish in my opinion.

The bottom line to this article today is good times are still ahead.
The Fed will likely cut rates yet again and even though they will
take back some of these cuts next year the low interest rates are
impacting the economy in a positive way. The rebound is beginning
and huge rallies always follow recessions. The only question remaining
is how soon the recovery will catch fire and rocket the markets.
The absence of earnings warnings should be our clue to the future.
On Friday the Dow and Nasdaq pulled back to within two points of 
their critical psychological support of 10000/2000. No kidding both 
hit 10002/2002 before the rebound. Slap a retracement bracket on 
both of them and you will see exactly a 38.2% Fibonacci retracement 
of the gains from the Monday close to the Thursday's high. The 
convergence of the technical numbers with the psychological numbers 
may be pure coincidence but the drop stopped and as traders we should 
be happy. The selling in the bond market over the last three days
has produced billions in cash which could be poised to enter the
stock market next week. Normally a jobs report like we saw Friday
would have sent investors running for the safety of the bond market.
Exactly the opposite of what happened. This could be a leading 
indicator of next weeks trading. 

No, I have not lost my mind since my Thursday commentary where I 
restated the strength of the resistance above us. It is still there
but just maybe it will take the place of the wall of worry that is
eroding daily. The only almost sure thing is that the markets will
go up over the next several months and they will not go up in a 
straight line. For traders that is a great scenario. Rallies that
create profits and dips on profit taking that will create new entry
points. As option traders we do not want to be married to our positions
like some stock investors. Rapid rises increase call premiums and
profits for those that capture those gains. Rapid drops decrease
call premiums and produce profitable entry points for new positions.
As traders we need to be alert for these cycles. I said on Thursday
that there was a better entry point ahead and someone sent me an 
email saying I was an idiot for not realizing we were in a rally.
Fortunately our "rally" produced a better entry point on Friday as
expected. It is not heresy to teach market cycles. It is sound
investing to expect them. My directions for next week have not 
changed. A. Buy the dips. B. Take profits early. C. Repeat A&B.

Enter Passively, Exit Aggressively!

Jim Brown
Editor@OptionInvestor.com


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

Rebound Candidates

Today I am going to focus on several stocks that have been beaten
severely but still have considerable value which will eventually
be rediscovered by traders. 


AMR $23.34

chart=


AMR was hit with massive selling after the 9/11 attacks. Two
of their planes were used in the attack but the real problem 
was the drop in passenger traffic. With no follow on attacks
and the holidays approaching the passenger traffic has increased.
The cheap oil and reduced flight schedules will make airlines
more profitable once passenger traffic reaches prior levels.

I would play the longer term May options to benefit from first
quarter earnings which could show a significant rebound.

The May-2002 $25 call, AMR-EE is $2.75


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

Boeing $37.30 

chart=


Boeing (BA) suffered from the attack as airlines postponed or
cancelled orders for planes. Many of those orders have now
returned or been replaced by other airlines. Fewer flights and
grounding of older planes which are expensive to operate along
with the need to compete on equal with more modern carriers 
have taken up the slack at Boeing. Not yet up to the same level
of orders as pre-attack but they did not suffer as much as 
investors first thought. This company also has a significant 
defense business and will benefit from the war buildup.

BA is poised to breakout to a new post attack high next week
and could easily be back at $50 once an economic recovery gains
speed in 2002.

I would use the May-2002 options. I prefer the $35 call since
breakeven on it is $40.10. The $40 call is cheaper but breakeven
is $42.85. A rise to $45 would double your money on either option.


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

WPI $32.13

chart=


Watson missed earnings in November and announced a restructuring
to take the company out of the competitive and cut throat generic
drug sector. They are going to focus on more profitable drugs
and the switch will depress earnings slightly in 2002 but increase
them in 2003. Investors don't like surprises and WPI was knocked 
for a big loss. They are recovering and should eventually regain
their old price.

I would use the May-2002 $30 call at $5.60 (2.13 in the money)
because the breakeven is $35. Using the cheaper $35 call at $3.30
makes the breakeven $38.30. A rise to $41 would probably double
either position.


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

Top 20 List

There were a lot of good looking plays this week. Many had
pulled back to support and offered a better entry point.
Please only play these calls if the market is in rally mode.

CALLS

ACS  97.54 Play breakout over $98
BRL  77.14 Nice breakout over $75 on drug news
CBRL 29.25 Held gains from recent rally
CCL  27.57 Excellent recovery from attack
CI   94.30 Resistance at 102
CR   24.23 Friday pullback to uptrend line
DAL  30.61 Post attack high
DLX  40.90 No weakness here
FDC  77.43 New high
FFIV 25.45 New relative high
GAP  25.60 No tech risk
GTW   9.90 Back to support, catchy ads
IKN  11.32 Wait for breakout over $11.50
IMNY  8.76 New relative high
INTC 33.23 Pullback to support. Entry point?
KRON 48.20 Nice trend, no weakness.
LOW  46.33 Pullback to support, entry point
MAR  40.16 Post attack high
MCDT 28.10 Entry point
MGAM 38.53 Games are hottest gift item
MTSN  8.16 Strong recovery in progress
NXTP 10.32 Strong trend
PDII 19.75 New life, back from the dead!
PVTL  5.88 Stock for the price of an option
RATL 20.88 Break over $20
SANM 23.95 Strong chip stock
SEPR 52.00 Entry point?
SKYW 26.44 Back from the dead
SLR  16.25 Recovering tech
SNA  33.73 No weakness here
TELM  7.95 Back to support?
WFMI 45.62 New high
XMSR 12.90 Thinking about buying one...


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

Market Mechanics
By Eric Utley

I've received a lot of reader e-mail recently expressing
disbelief in the current rally.  Some suggest that valuations
are too high.  Others believe the economy will stumble next
year.  The extremists think the market has reached the mother
of all put opportunities.  My buddy, Buzz Lynn, created an
acronym for that expression: MOPO.

In the end, whenever that may be, stocks trade on earnings.  But
the market is a forward-looking mechanism, which means it
discounts the future in the present by about six to nine months.
Therefore, the recent rally in stocks discounted a significant
rebound in corporate earnings next year.  Right?  The market is
omniscient; it is efficient.  At least that's what academia and
Vanguard would have you believe.

Traders, however, know that inefficiency and irrationality
coexist in the market.  The two exist because a free market is
comprised of humans.  Humans are fallible.

There are two explanations for the recent rally: Corporate profits
will rebound by a significant margin next year.  or  The big
buyers are carrying stocks higher into the end of the year, no
matter the price paid; in fact, the higher the better.  If it's
the latter, then the market is currently inefficient and
irrational.

Mutual funds, part of the buy-side of Wall Street, are powerful
entities that control a lot of cash.  The managers of many funds
are in a tight spot again this year.  Perhaps on the brink of
losing their jobs.  Fight or flight, which is it going to be?

I hate to use Janus as an example, but they're such an easy
target.  Take, for instance, the Janus Fund (JANSX).  Assets are
down and so is performance.  The fund is down by about 25 percent
year-to-date.  As of a few weeks ago, Enron (NYSE:ENE) was among
the funds top holdings, which partially explains the fund's
under performance.  But also among its top holdings is eBay
(NASDAQ:EBAY).  As of December 7, the Janus Fund held about 3
million shares of eBay.

If the Janus Fund wanted to make-up performance in a quick way,
it could deploy its cash into EBAY, which has been one of the
better performing tech stocks this year.  In carrying the stock
higher into the end of the year, the fund could "mark-up" its
existing position, in doing so, boosting performance.  Hence the
higher the price paid the better.

eBay could very well hit its $5 billion revenue target before
'05.  It could meet or exceed its lofty 50 percent growth targets
in the coming years.  Either accomplishment would justify the
stock's recent rally; at the very least, it would weaken the
valuation argument.  Conversely, eBay could disappoint.  Hell,
I don't know if the stock is worth 90 times next year's earnings.
I don't think the funds know either.  I don't think the funds
care.

What the funds care about is performance because that is what
attracts assets and assets are what constitute compensation.
Compensation is a powerful force that can cause irrational
behavior.

I don't know if Janus is "marking up" EBAY.  They could be
selling it for all I know.  But Janus in only one fund in a
universe of thousands and EBAY is just one stock among thousands
of others.  The practice of "marking up" stocks exists on a
very large scale in the universe of funds and stocks.  When
the stars align, it becomes a very powerful force, next to
unstoppable.

The stars may be in-line now, which could help to explain the
"unjustified" rally.  That's not my term.  Quite frankly, I
really don't care if the rally is justified.  It's for real,
I know that much.  And so long as funds need to make-up
performance, it could continue into the end of the year.  Why?
If the Janus Fund, for example, can squeeze out a few more
basis points from EBAY while the stock is still on the books,
then its performance may turn out better for 2001, attracting
or retaining more assets.

Maybe the recent rally is justified.  Maybe it isn't.  We won't
know for sure until next spring and summer.  In the meantime,
all a trader can do is be willing to operate from either side of
the market.  The most important trader attribute, in my opinion,
is objective observation.  If you can find that, you're light
years ahead of most mutual fund managers.

I'm not pooh-poohing the rally.  Not at all.  I've been trading
from the long side.  And will continue to do so until the market
dictates otherwise.  Whether you "think" the rally is for real
or not, you have to be able to set your beliefs aside and trade
what you observe.  Psychology is a powerful force.  More powerful
than fundamentals over the short- and intermediate-terms.  For
that reason, objective observation is a necessity.

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

Market Volatility
    
VIX   24.89
VXN   50.18

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.78        569,600       445,743
Equity Only    0.59        506,900       348,421
OEX            1.27         11,868        15,033
QQQ            2.38         12,851        30,548
 
-----------------------------------------------------------------

Bullish Percent Data

           Current   Change   Status
NYSE          50      + 1     Bull Confirmed
NASDAQ-100    77      - 1     Bull Confirmed
DOW           63      + 0     Bull Confirmed
S&P 500       66      + 1     Bull Confirmed
S&P 100       65      + 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  0.84
10-Day Arms Index  1.10
21-Day Arms Index  1.03
55-Day Arms Index  1.05

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      1401           1680
NASDAQ    1753           1876

        New Highs      New Lows
NYSE       94             30
NASDAQ    102             30

        Volume (in millions)
NYSE     1,243
NASDAQ   1,897

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

Commitments Of Traders Report: 12/04/01

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 shed a significant number of longs in the
prior reporting period, while the group's short position
remained relatively flat.  While the commercials' net position
is far off from the year's most bearish reading, it did increase
by a measurable amount last week.  Meanwhile, small traders
added a meaningful number of long positions and simultaneously
dumped a number of short positions.

Commercials   Long      Short      Net     % Of OI 
11/13/01      381,539   421,284   (39,745)   (5.7%)
11/27/01      371,336   421,405   (50,069)   (6.3%)
12/04/01      360,315   420,919   (60,604)   (7.8%)

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
11/13/01      136,047     87,645   48,402     22.0%
11/27/01      151,317     92,807   58,510     24.0%
12/04/01      159,336     86,534   72,802     29.6%

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 traders added to both long and short positions, with
a decrease in their net short position.  Small traders exited
a few long positions while holding their total short position
relatively flat during the prior reporting period.

Commercials   Long      Short      Net     % of OI 
11/13/01       38,751     49,257   (10,506)  (12.0%)
11/27/01       37,259     48,315   (11,056)  (12.9%)
12/04/01       42,191     51,426   ( 9,235)  ( 9.9%)

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
11/13/01       11,568     6,505    5,063      28.0% 
11/27/01       12,540     8,359    4,181      20.0%
12/04/01       11,808     8,311    3,497      17.4% 

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

Both commercial and small traders held to their biases in the
prior week.  Commercials shed long and short positions, amounting
to unchanged % of OI.  Small traders shed long and short
positions, growing slightly more bearish.

Commercials   Long      Short      Net     % of OI
11/13/01       24,145    10,204   13,941     40.6% 
11/27/01       24,243    11,496   12,747     35.7% 
12/04/01       22,703    10,739   11,964     35.8%

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
11/13/01        4,094    12,121    (8,027)   (50.0%) 
11/27/01        4,228    10,630    (6,402)   (43.1%) 
12/04/01        3,677     9,799    (6,122)   (45.4%)

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

The Hierarchy of Needs
By Eric Utley

Maslow, who was a psychologist, thought the better of people.
He believed that humans searched for growth and love.  Maslow,
unlike other psychologists who studied the mentally ill,
studied exceptional humans such as Albert Einstein and
Frederick Douglas.  Freud, for example, came to the conclusion
that there existed marginal differences between the behavior
of animals and humans.  I like to believe that humans are
motivated by more than the search for food and sex.  Needless
to say, I didn't enjoy reading Freud in Psych 101.

Maslow developed a hierarchy of needs, which explained how
humans were motivated by unsatisfied needs.  The "higher" needs
in the hierarchy could only be met, explained Maslow, after the
"lower" needs had been fulfilled.  The hierarchy looks like this:

image=


Physiological needs are at the bottom of the pyramid because
they are the most basic of needs, such as food, water, and
sleep.  Only after physiological needs have been met can a
human move onto Safety needs, which are synonymous with a
family and home.  After Safety needs have been met, a human
graduates to Love needs.  Love needs are universal, not the
romantic; they incorporate the sense of belonging to a group.
After Love needs are met, humans search for Esteem needs, which
come in two forms: self-esteem and recognition by others.  The
peak of the pyramid is Self-actualization, which is the full
potential of humans.

Self-actualization is unique to each individual.  Maslow said
that Self-actualization is "the desire to become more and more
what one is, to become everything that one is capable of
becoming."  For some, Self-actualization is the insatiable
desire for knowledge, while others search for peace or
self-fulfillment in whatever forms they may come.

The Point:

For me, fulfillment comes in many forms.  Oftentimes, it comes
in the form of a 20 inch rainbow trout.  Recently, fulfillment
has come from my readers.  It's so very cool to receive
questions from readers based upon the strategies and methods
I write about in this column.  For instance, several of this
weekend's questions incorporate the ideas of point & figure
charting, including price objectives.

I'm not a good teacher, never will be.  But if I can relay my
experiences and ideas about the market to my audience in a
way that helps them to make more money, then I'm one step
closer to self-actualization.  The peak of the pyramid is a
goal of mine, so I thank each and every one of my readers who
have ever taken the time and effort to send in a thoughtful
question.  

That's all mushy, I know.  I just wanted to express my
gratitude, that's all.  Now, on with show!

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 

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

EMC - (NYSE:EMC)

EMC once a darling of many.  What are your views on this company?
Please give some details on their business and what will be the
future prospects with economy on the rebound. - Thanks, Sunil

Thanks for the question, Sunil.  It's nice to hear from you.

EMC was once the darling of many.  I made the mistake of being
bullish on the stock around $50 and again around $30.  It's
in the teens now.  I'm working on redeeming myself for that
mistake.

The problem with EMC is that it's facing stiff competition from
the likes of Sun Micro (NASDAQ:SUNW), Big Blue (NYSE:IBM), and
even Dell (NASDAQ:DELL).  For a long time, EMC enjoyed fat
margins, which allowed its bottom-line to blossom during the last
decade.  The company controlled a massive amount of the data
storage business.  It still does control the majority, but its
market share is shrinking because of the entrance of the
aforementioned competitors.  As a result, margins are shrinking.
Such is capitalism.

Even if the data storage business rebounds to its levels of a
few years ago, which I don't think it will, it won't benefit
EMC as much because of the new players in the business.
Nevertheless, EMC is one of the best-managed IT companies in the
world and controls a lot of market share.

Suppliers in the data storage business have been reporting good
things recently.  For example, Brocade (NASDAQ:BRCD) reported
a decent quarter a week ago and analysts raised forecasts for
its next quarter.  Indeed, QLogic (NASDAQ:QLGC) and Emulex
(NASDAQ:EMLX) have been among the better performing stocks in
the tech space recently -- both are data storage suppliers.

With added competition among the manufacturers of data storage
equipment -- the big box sellers -- it may be more intelligent
to play a rebound in the business through the suppliers, who
still enjoy relatively fat margins.  That's not to say EMC
won't rebound along with the data storage business and the
economy, but its advance may be less than others in the group
because of the added competition in EMC's specific space.

If you disagree with my findings and want to be in EMC now,
I think it would be best to wait for a pullback in the stock.
Between $15.50 and $16.50 might offer a better risk/reward
scenario than buys at current levels.  From a purely technical
standpoint, the stock appears to have put in a solid base
during September and late October, from which it recently
broke out.  The next meaningful level of resistance sits at
$21.

chart of EMC



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

WorldCom - (NASDAQ:WCOM)

I've really been enjoying your column lately (well I always have
enjoyed it, just more so lately).  Anyway, I've happened to notice
WorldCom today.  It is sitting just under resistance at 15.5 on
the P&F chart, not to mention the double top buy signal it just
made.  So if I've done this right, the double top suggests a 38%
gain ($5.89) and the bullish price objective is 26.  Plus the
daily stochastic look to be sailing northbound very nicely.  I
guess my question is, first, is my analysis right, and second, is
there any reason that one shouldn't be getting longer here? - 
Thanks, Michael

Michael, very cool question!  And thank you for the compliment.

Your analysis is almost correct.  WCOM's advance to the 15.50
box last week generated its most recent buy signal.  Remember,
when determining a bullish price objective, you want to find
the BUY signal following the most recent SELL signal.  The
most recent sell signal was generated in the column of 'Os'
from 15.00 to 11.50 (A).  Therefore, use the most recent buy
signal to determine the bullish price objective.

The buy signal to focus on when determining WCOM's bullish
price objective was generated in the current column of 'Xs.'
Since the column could extend higher before reversing, the
bullish price objective could increase.  Based upon Friday's
rally to the 16.00 box, WCOM's current bullish price objective
is: $24.50.

Point and figure chart of WCOM


WCOM hasn't traded above $16 since mid-June.  I view last
Friday's advance past $16 as very meaningful.  I can't
present a fundamental argument for the stock, but know that
the technical argument is growing stronger.  Does price lead
fundamentals?

The stock broke out last Friday and in doing so went on a
buy signal.  Is that reason enough to get long?  I think so.
But how do you get long at current levels?  That depends on
the market and WCOM's sector, the North American Telecom
Index (XTC).  With the support of the market and the XTC, I
think a breakout can be pursued.  WCOM recently gained
ground relative to the market and its sector, which I think
will continue and support a further advance above $16 assuming
the market and its sector continue higher.

The problem with chasing a stock higher on a breakout is that
risk becomes difficult to measure and manage.  Where do you
set your stop?  At a certain percent loss?  At a support
level on the daily chart?  Maybe at the 10-dma?  Of course
difficulty in managing risk doesn't mean the stock can't or
won't go higher.

WCOM, in my opinion, is a good stock to look to get long on
a pullback.  Maybe down to its 10-dma, which currently sits
at $15.00.  Or maybe a little lower.  Where you look to get
long depends on your unique risk preference, trading style,
et cetera.  To be clear, I like the stock and think it makes
sense for a bullish play so long as you have risk managed.

chart of WCOM



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

Harmonic Lightwave - (NASDAQ:HLIT)

Would you please comment on HLIT strength and near-term
(1-2 weeks) potential.  HLIT "just came back from an abyss";
a 100% P&F low pole reversal of 10 boxes.  How would you play
the stock, if at all, at this point in time.  A trade of $13
would put it on a P&F buy, resistance is at $13.5 and $17.5. - 
Thanks, Villi

Villi, very cool question.  Thank you.

HLIT has had a substantial run over the last few weeks.  How
would I play it?  I wouldn't.

The Networking Index (NWX), of which HLIT is a component, has
had an equally impressive run over the last several weeks.
There exists risk to the downside in the NWX and HLIT after
such big rallies.  Yes, the NWX and HLIT could continue higher,
but not with me.  If I miss the next leg higher in the NWX and
HLIT, so be it.  That's part of the game.

How do I know there exists risks to the downside in HLIT and
the NWX?  That's definitely a judgment call on my part, and
very subjective.  I look at HLIT's recent run from $8 to $15
and its overbought daily Stochastics and come to the conclusion
that risk is skewed to the downside.  In addition, I see on its
point and figure chart that the stock's recent rally stopped at
a previous high at $15.  No coincidence there.  Your findings
might disagree with my mine.  But that's quite all right because
two sides make a market.

Because I wouldn't buy HLIT, does that mean I should short
it?  NO!  HLIT is one of the stronger stocks in the NWX.  The
NWX is one of the stronger sectors of tech.  I don't like
shorting strong stocks in strong sectors.

What I would look for is a period of consolidation in HLIT,
then work from there.  The low pole reversal that Villi alluded
to has left a lot of empty space below current levels on the
point and figure chart.  (The low pole reversal was the move off
the bottom from 8.00 to 15.00.)  You can see on the chart below
that HLIT is in no man's land currently.  It's quite a distance
away from support with resistance just above at 15.00.  What
to do, what to do?  Nothing.  Find a stock that you can better
visualize risk and wait for HLIT to consolidate.

point and figure chart of HLIT



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

J.P. Morgan Chase - (NYSE:JPM)

What's your outlook for JPM?  I understand that JPM was pretty
hot sometime in 1999 due to their Internet investment.  Now that
tech bubble has busted, the ENE and third country potential
default on loan, JPM may not come back to their prior level for
some time. - Thank you!, Yung

Thank you for the question, Yung.

JPM is referred to as a money-center bank, it's a one-stop
shop for financial products and services.  The current entity
was created through the merger of J.P. Morgan and Chase
Manhattan Bank, which was completed almost exactly one year ago.

JPM has exposure to the Enron debacle.  Along with Citigroup
(NYSE:C), JPM invested several hundred million dollars of equity
into Enron in addition to both secured and unsecured debt.
Moody's, the credit rating agency, said Friday that JPM's exposure
to Enron was "manageable."  Debt analysts are much more
trustworthy than stock analysts, so I give Moody's comments
credence.  (Although, the debt rating agencies didn't handle the
Enron demise as well as I wish they would have.  But that's
another topic.)

I don't know what exposure JPM has to Argentina.  I'm sure JPM
has some, but I don't know to what extent.  It's something
worth researching if you're looking into this stock.  Sorry, I
ran out of time.

Problem loans and defaults have been on the rise with the
continued loss of jobs and the slumping economy.  At the same
time, however, there are signs of a pick-up.  As the economy
rebounds and consumers and companies re-liquify there balance
sheets, the loan loss problem becomes less of one.  In addition,
IPOs are slowly returning, which is a big profit source for
JPM's investment banking business.  Plus, at this point in the
business cycle, the money-center banks are better plays than
the pure play interest rate companies such as savings and loans.
That's because a rebounding economy tends to snuff out the
aforementioned problems and increases the higher margin
businesses such as investment banking.

JPM isn't one of the strongest banking stocks.  I think that's
because of its loan loss risks.  Citi and Bank of America
(NYSE:BAC) have been among the better performing bank stocks.
But JPM may warrant a closer look right here and now.  Demand
has been building for the stock, noting its relatively higher
lows recently.  The stock is on the verge of a big breakout,
which would be marked with an advance past $41.  There may be
a trade here up to $44.  But JPM will need the support of the
Bank Sector Index (BKX) to sustain any rally attempt.

chart of JPM



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

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

Last Friday's employment number was the big economic report that
the Fed was waiting for.  The Fed meets next week, on Tuesday,
and is expected to cut rates again.  In addition to the Fed's
official announcement on interest rates, traders will focus on
the November retail sales numbers on Thursday and the wholesale
inflation figures.  Retail inflation figures will be released
on Friday.
==============================================================

Monday, 12/10/01
None

Tuesday, 12/11/01
Wholesale Inventories  Oct  Forecast:  -0.3%  Previous:   -0.1%
FOMC Meeting

Wednesday, 12/12/01
Export Prices ex-ag.   Nov  Forecast:    N/A  Previous:   -0.7%
Import Prices ex-oil   Nov  Forecast:    N/A  Previous:   -0.7%
Current Account         Q3  Forecast:-$94.2B  Previous:-$106.5B

Thursday, 12/13/01
Retail Sales ex-auto   Nov  Forecast:   0.2%  Previous:    1.0%
Retail Sales           Nov  Forecast:  -2.8%  Previous:    7.1%
PPI                    Nov  Forecast:  -0.3%  Previous:   -1.6%
Initial Claims       12/08  Forecast:    N/A  Previous:    475K
Core PPI               Nov  Forecast:   0.0%  Previous:   -0.5%
FOMC Minutes         11/06

Friday, 12/14/01
Business Inventories   Oct  Forecast:  -0.4%  Previous:   -0.5%
CPI                    Nov  Forecast:  -0.1%  Previous:   -0.3%
Core CPI               Nov  Forecast:   0.2%  Previous:    0.2%
Industrial Production  Nov  Forecast:  -0.5%  Previous:   -1.2%
Capacity Utilization   Nov  Forecast:  74.2%  Previous:   74.6%



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The Option Investor Newsletter                   Sunday 12-09-2001
Sunday                                                      2 of 5

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

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


CALLS              Mon    Tue    Wed    Thr   Week   

SPW     131.73   -0.99   3.55   3.82   3.51  10.23  Higher still
PMCS     27.42   -0.91   2.66   2.84   1.86   4.63  Big pullback
PDLI     37.95   -0.99   0.34   2.52   1.01  -0.26  Dropped
CNXT     17.05   -0.14   1.56   1.19  -0.02   2.16  Profit taking
MCDT     28.10   -0.52   1.37   3.85  -1.05   2.90  Light volume
INTC     33.24   -0.62   0.77   1.80  -0.45   0.58  Sell the news
IBM     120.40   -1.46   2.51   4.76  -1.26   4.81  Above $120
IMCL     70.45   -0.05   0.40   2.18  -1.89  -1.55  Dropped
NVDA     59.95    0.83   4.33   4.69  -0.99   5.31  Drifting lower
QLGC     52.97   -1.12   4.62   3.23  -0.69   3.52  Taking a rest
XMSR     12.94   -0.34  -0.19   1.72  -0.75   1.35  New, testing
AMR      23.34   -0.42   0.35   0.91  -0.16   1.98  New, flying
CI       94.30   -0.08   0.35  -0.35   1.80   3.07  New, marching
FFIV     25.40   -0.19   1.96   1.00   0.00   3.12  New, stepping
LOW      46.31    0.24  -0.03   1.28  -0.51   1.00  New, breaking


PUTS

NOC      94.81    1.22   1.03  -1.06  -0.07   0.93  Dropped
KKD      40.00   -0.05  -0.51   1.49   0.67   2.75  Dropped
WWCA     23.68   -0.78   0.08  -0.10  -0.15  -0.89  Another low
VZ       47.86    0.47   0.51   0.26   0.41   0.86  Entry point!
LH       76.25    0.20   0.43   0.75  -0.45  -0.65  At the 200-dma
CB       67.71   -1.15  -0.47   0.06  -1.95  -2.35  Relief rally
CAH      66.14    0.20   0.37  -1.35  -1.57  -2.18  Halted slide
FRE      64.25   -0.39  -0.08  -0.25  -2.14  -1.92  New, sliding
HGSI     36.09    1.03  -2.26   0.12   1.38  -6.42  New, running


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

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

XMSR - XM Satellite Radio $12.94 (+1.35 last week)

See details in play list

chart=



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

FRE - Freddie Mac $64.25 (-1.92 last week) 

See details in play list

chart=



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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
^^^^^
PDLI $37.95 (-0.26) PDLI's release of the data on its cancer
drug was mixed last Friday.  The company reported that the
drug increased patient response but it did not increase
remission rates.  The street didn't like the news as PDLI
shed more than 6%.  Traders with open positions should look
for a bounce early next week to exit plays and cut losses.

IMCL $70.45 (-1.55) It's been a heck of a run, but IMCL appears
to be out of gas.  After trading as high as $75 on Thursday, the
bears took control and pushed the stock right back to the $70
level.  While our $69 stop is still intact, IMCL's momentum has
stagnated.  Rather than wait for a substantial breakdown, we'll
drop the play this weekend and go fishing for other
opportunities, of which there are plenty.


PUTS
^^^^
NOC $94.81 (+0.93) NOC attempted to breakdown in last Friday's
session but once again bounced.  The stock is testing our
patience and rather than watch more time value erode, we're
dropping coverage this weekend in search of a play that will
move more.  Traders waiting for the breakdown can watch for a
decline below the 10-dma at $94.09 early next week.

KKD $40.00 (+2.75) KKD rallied up to and closed at our stop at
$40 last Friday.  The stock's strong close in the face of a
weak market has us concerned with the prospects of further
upside.  Those who took entries near $40 last week should have
a tight stop in place to protect against further upside.


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

XMSR - XM Satellite Radio $12.94 (+1.35 last week)

XM Satellite Radio is a development stage company that seeks to
become a premier nationwide provider of audio entertainment and
information programming.  The company owns one of two FCC licenses
to provide a satellite digital radio serve in the United States.
It plans to transmit its XM Radio service by satellites to
vehicle, home and portable radios.

If you like trading breakouts from wedges read on.  This one is
ready to go.  XMSR rallied above the $13 mark every so slightly
last week.  The stock staged a breakout attempt on Wednesday but
pulled back in Tuesday's trading based on the news of its
secondary offering.  The company sold 10 million shares in the
secondary market last week, for an average price of $11.25.  The
cash raised from the offering is reportedly going towards
funding operations.  It helped to fund XMSR through the end of
next year.  While the news initially caused weakness, the stock
immediately rebounded in Friday's session, which reinforced the
underlying strength.  A shorter time frame chart reveals a
distinct pattern of relatively higher lows, with a top in place
at the $13 level.  XMSR rallied up to the $13.05 level on
Wednesday, which is the level that traders will want to monitor
in next week's trading.  A rally past $13.05 is the action
point.  Ideally we'll see an advancing market in conjunction with
any breakout attempt above $13.05.  Above $13.05, the stock has
resistance between $14.50 and $15.  That's the area to target
for an exit point.  Our stop is initially in place at $11.

***December contracts expire in 2 weeks***

BUY CALL DEC-10 QSY-LB OI=1514 at $3.40 SL=2.25
BUY CALL DEC-12*QSY-LV OI=1235 at $1.00 SL=0.50
BUY CALL JAN-12 QSY-AV OI=1298 at $1.75 SL=1.00
BUY CALL JAN-15 QSY-AC OI=1199 at $1.45 SL=0.75

Average Daily Volume = 1.30 mln



AMR - AMR Corp. $23.34 (+1.98 last week)

AMR is engaged in the airline industry through its principal
subsidiary, American Airlines.  American provides scheduled jet
service to more than 169 destinations throughout North
America, the Caribbean, Latin America, Europe and the Pacific.

The lower cost of fuel is helping this play along.  Returning
demand is too.  A report Friday revealed that air traffic was
on the rise during the month of November.  The report also
suggested that recent pricing trends are reversing.  While
not good for consumers, the firming in pricing is boosting
shares of AMR.  In addition to the industry related positives,
AMR is close to completing the integration of TWA, which it
acquired late last year.  With several catalysts under its
wings, AMR is set to fly higher.  The stock broke out to a
post-09/11 high last Friday on increasing volume.  With the
unfilled gap up to $30, the path of least resistance appears
to be to the upside.  The Airline Sector Index (XAL) is close
to breaking out to a post-09/11 high.  Watch for the XAL to
advance past 93 early next week.  If that happens, target
entries in AMR around its current levels.  For a pullback
related entry, look for weakness down around the $22 level.
Our stop is initially in place at $21.

***December contracts expire in 2 weeks***

BUY CALL DEC-20 AMR-LD OI=1841 at $3.70 SL=2.75
BUY CALL DEC-22*AMR-LX OI=1397 at $1.50 SL=0.75
BUY CALL JAN-22 AMR-AX OI= 692 at $2.50 SL=1.25
BUY CALL JAN-25 AMR-AE OI=3121 at $1.25 SL=0.75

Average Daily Volume = 2.38 mln



CI - CIGNA Corporation $94.30 (+3.07 last week)

CIGNA is an employee benefits organization in the United States.
The company and its subsidiaries are major providers of employee
benefits offered through the workplace, including healthcare
products and services, group life, accident and disability
insurance, retirement products and services and investment
management.  

Somebody has neglected to inform CI investors that the Insurance
index (IUX.X) can't seem to gain any bullish traction.  The
stock has been marching steadily higher since gapping higher on
November 2nd.  The catalyst for that jump in price was the
company's surprisingly strong earnings report.  Since that
report, the stock has added more than 31%, capping off the
recent rise by blasting through the 200-dma ($93.49) on Friday.
What we're talking about here is relative strength, and it looks
like the stock is intent on maintaining that leadership
position.  After clearing the $92 resistance level last week, CI
has a solid base (with solid support at $90) from which to
launch itself at the $96 resistance level.  After that, the
bulls will likely be setting their sights on the century mark,
which also happens to be the top of two separate gaps from July
(read: strong resistance).  Target intraday dips near the $92
level (or even $90 on heavy profit taking) for the initiation
of new positions and set stops at $89.

***December contracts expire in 2 weeks***

BUY CALL DEC- 90 CI-LS OI=596 at $5.20 SL=3.25
BUY CALL DEC- 95*CI-LR OI=322 at $2.00 SL=1.00
BUY CALL JAN- 95 CI-AS OI=233 at $4.10 SL=2.50
BUY CALL JAN-100 CI-AT OI=335 at $2.15 SL=1.00
BUY CALL JAN-105 CI-AA OI= 63 at $1.10 SL=0.50

Average Daily Volume = 911 K



FFIV - F5 Networks $25.45 (+3.12 last week)

F5 Networks is a provider of integrated Internet traffic and
content management solutions designed to improve the
availability and performance of mission-critical Internet-based
servers and applications.  The company's products monitor and
manage local and geographically dispersed servers and
intelligently direct traffic to the server best able to handle
a user's request.  FFIV's content management products enable
network managers to increase access to content by capturing and
storing it at points between production servers and end users,
while ensuring that newly published or updated files and
applications are replicated uniformly across all target servers.

Since bottoming near $7 in early October, FFIV has
stutter-stepped its way up the charts, performing one amazing
breakout after another.  Just when it seems that it will finally
violate its upward trendline (currently $22.75), a fresh surge
of buying volume arrives to launch the stock through its next
level of resistance.  And the stock did it again on Wednesday,
vaulting through the $24.25 level on strong volume, and coming
to rest just above $25.  Since then the price action has been
rather impressive, continuing to advance while the Networking
sector (NWX.X) attempts to solidify its breakout over the
200-dma ($363).  Make no mistake, FFIV will need to see the NWX
continue to move higher if it is going to continue its winning
ways, but for now the bullish trend looks tradable.  Throughout
the 2-month rally, FFIV has been finding support on the major
pullbacks, right at the 20-dma ($22.74), and it did it again
early last week.  Look for a mild dip near $23.50 to provide an
attractive entry into the play and set stops at $22.50, just
below the 20-dma.  There is a lot of resistance arrayed just
overhead, so we would lean towards buying the dips rather than
trying to chase the stock higher on breakouts.

***December contracts expire in 2 weeks***

BUY CALL DEC-22 FLK-LX OI= 916 at $3.50 SL=1.75
BUY CALL DEC-25*FLK-LE OI=1270 at $1.95 SL=1.00
BUY CALL DEC-30 FLK-LF OI=   8 at $0.40 SL=0.00
BUY CALL JAN-25 FLK-AE OI= 426 at $3.20 SL=1.50
BUY CALL JAN-30 FLK-AF OI= 231 at $1.20 SL=0.50

Average Daily Volume = 648 K



LOW - Lowe's Companies $46.31 (+1.00 last week)

As a retailer of home improvement products, Lowe's has a
specific emphasis on retail do-it-yourself and commercial
business customers.  The company specializes in offering
products and services for home improvement, home décor, home
maintenance, home repair and remodeling and maintenance of
commercial buildings.

While Home Depot (symbol:HD) may be better known as the home
improvement store, LOW has been the stronger of the two stocks
lately.  The stock had already broken out above the $40
resistance level in mid-November ahead of their earnings report,
and beating estimates just added fuel to the rocket.  Since then,
the stock has tacked on an additional $6 and doesn't look like
it is going to stop anytime soon.  Last week HD broke out over
its descending trendline amid bullish comments about the future
and LOW is benefiting from that as well.  Since breaking above
the 10-dma (currently $44.90) in early November, the stock has
been finding support at that moving average each time there is a
bout of profit taking.  This is clearly a momentum run, so we'll
ride the trend as long as it lasts.  Look to initiate new
positions on intraday dips to the 10-dma, so long as the dips
are met by solid buying support.  More aggressive traders may
want to look for new entries near stronger support at $43 (also
the site of the 20-dma), but only if support holds.  We are
initially placing our stop at $43.

***December contracts expire in 2 weeks***

BUY CALL DEC-45*LOW-LI OI=6490 at $2.10 SL=1.00
BUY CALL DEC-47 LOW-LT OI=1076 at $0.85 SL=0.25
BUY CALL JAN-45 LOW-AI OI=6308 at $3.10 SL=1.50
BUY CALL JAN-47 LOW-AT OI=1048 at $1.75 SL=1.00
BUY CALL JAN-50 LOW-AJ OI= 647 at $0.85 SL=0.25

Average Daily Volume = 9.37 mln



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The Option Investor Newsletter                   Sunday 12-09-2001
Sunday                                                      3 of 5

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/1209_3.asp


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

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Note: Options involve risk. Risk disclosure:
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******************
CURRENT CALL PLAYS
******************

PMCS - PMC-Sierra $27.42 (+4.63 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 pulled back to the tune of 6.22% last Friday.  That's
certainly more than we wanted to see in one day, especially
for our readers holding open positions.  PMCS sold off
significantly more than the SOX and NWX, but we need to keep
in mind that the stock rallied more than the two sector
measures last week.  That's why the stock is considered high
beta, it goes up more than the market and does the same to
the downside.  The good news is that PMCS bounced last
Friday ever so slightly from the $26.50 area.  Traders might
look for that level to continue attracting buyers early
next week.  If it does, then traders might consider entry
points around the $26.50 level.  Below, support is likely
to materialize between the $25 and $26 levels.  Although our
stop is currently in place at $26, weakness down to that
zone may offer a favorable entry point on further sector
related weakness.  If PMCS trades higher early next week,
look for an advance past the $27.50 to $28 congestion zone.
Confirm strength in the NWX and SOX before entering on
strength.

***December contracts expire in 2 weeks***

BUY CALL DEC-22 SQL-LX OI=3132 at $5.60 SL=4.25
BUY CALL DEC-25*SQL-LE OI=3757 at $3.60 SL=2.50
BUY CALL DEC-30 SQL-LF OI=2491 at $1.00 SL=0.50
BUY CALL JAN-25 SQL-AE OI=5985 at $5.10 SL=4.00
BUY CALL JAN-30 SQL-AF OI=3302 at $2.80 SL=1.75

Average Daily Volume = 10.1 mln



SPW - SPX Corp. $131.73 (+10.23 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 finished fractionally higher last Friday to cap off a week
that saw the stock advance by more than $10.  Not bad for five
days of trading!  SPW's advance last week put it above its
historical congestion zone, which was traced between May and
August of this year.  The breakout could very well portend
further upside in this super strong stock.  Last Friday, SPW
bounced from the $130 level in a similar fashion to its rebound
from the $120 level early in the week.  It remains to be seen
whether or not the $130 level continues to hold.  Monitor it
closely next week.  If SPW refuses to go below $130 on any
further market weakness, then that may be the level to consider
new entries at.  If the stock does lose the $130 support level,
then wait for a pullback down around the $125 to $126 area.
A tight stop can accompany any entry taken near that area, such
as the 10-dma at $124.87.  If you're thinking about taking a
momentum entry into further strength, consider waiting for a
few more days of sideways trading, which would help to work
off some of SPW's short-term overbought condition.

***December contracts expire in 2 weeks***

BUY CALL DEC-125 SPW-LE OI=135 at $ 9.20 SL= 7.50
BUY CALL DEC-130*SPW-LF OI=445 at $ 5.80 SL= 3.50 
BUY CALL DEC-135 SPW-LG OI=486 at $ 3.00 SL= 1.75
BUY CALL JAN-130 SPW-AF OI= 91 at $ 8.60 SL= 6.75
BUY CALL MAR-130 SPW-CF OI=261 at $13.50 SL=11.00

Average Daily Volume = 410 K



CNXT - Conexant Systems $17.05 (+2.16 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.

CNXT pulled back in routine fashion in Friday's session.  Its
decline pretty much mirrored the 2% drop in the SOX.  A few
more days of sector related weakness could pressure CNXT down
to another favorable entry target.  The stock added more than
$2 during last week's trading, so we view the late week
weakness as normal profit taking.  Volume was relatively
lighter in last Thursday and Friday's sessions, which supports
the profit taking thesis.  As long as volume continues to
decline, we'll hold to that view on any further weakness.  If
CNXT's pattern of relatively higher lows continues, then the
stock could have downside potential to between $14 and $15.
That's a big drop from current levels, but it could occur if
the necessary market and sector weakness shows up next week.
If the SOX and Nasdaq stabilize early next week, then look for
CNXT to bounce between $15 and $16.  However, if protracted
weakness occurs in the SOX and Nasdaq, then look for CNXT
to be pressured down to between the $14 or $15 levels, where
a low risk potentially high reward entry could be taken.  The
10-dma currently resides at $15.88, which is another potential
bounce point.

***December contracts expire in 2 weeks***

BUY CALL DEC-15*QXN-LY OI=3320 at $2.60 SL=1.75
BUY CALL DEC-17 QXN-LW OI=5974 at $1.10 SL=0.50
BUY CALL JAN-15 QXN-AY OI=3135 at $3.30 SL=2.25
BUY CALL JAN-17 QXN-AW OI=1275 at $2.05 SL=1.25

Average Daily Volume = 4.71 mln



INTC - Intel $33.24 (+0.58 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.

INTC pulled back on a typical buy the rumor sell the news event.
Unfortunately the after hours strength we observed late Thursday
didn't follow-through into Friday's session.  The pullback in
Friday's session was routine, noting the similar decline in the
SOX.  We were encouraged to see the stock rebound from its 10-dma
at $32.78.  Going forward, traders might consider taking entries
on weakness near the 10-dma.  Below, our stop resides at the $32
level, which is another potential entry level on further sector
related weakness.  Continue monitoring the SOX when targeting
new entries in INTC early next week.  If the SOX stabilizes, look
for a rebound in the index and an ensuing bounce in INTC.  If
the SOX charges out of the gates early next week, then look for
entries into strength above current levels.  Traders might
confirm any early strength in INTC with an advance back above the
$34 level.

***December contracts expire in 2 weeks***

BUY CALL DEC-30 INQ-LF OI= 50375 at $3.70 SL=2.50
BUY CALL DEC-32*INQ-LZ OI= 77392 at $1.65 SL=0.75
BUY CALL JAN-30 INQ-AF OI= 81637 at $4.30 SL=3.25
BUY CALL JAN-32 INQ-AZ OI= 91436 at $2.60 SL=1.75
BUY CALL JAN-35 INQ-AG OI=193986 at $1.35 SL=0.75

Average Daily Volume = 4.71 mln



MCDT - McDATA $28.10 (+2.90 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).

MCDT pulled back in the last two sessions.  But the volume
during the weakness was relatively light, which indicated that
the pullback was profit taking related.  MCDT followed the
price action of others in the storage sector late last week, so
we are now looking for another entry near support in this stock.
The stock's 10-dma currently sits at the $25.79 which may be a
level to consider taking new entries.  The stock hasn't traded
below its 10-dma since November 15th, so the first retest may
lead to a bounce.  If the stock does breakdown below its 10-dma
then readers might turn to the $25 level for a possible entry
point.  The $25 level is significant because it was the
breakout point from early last week.  Coming back down, it may
now serve as support.  Continue watching others in the group
such as SUWN, EMC, QLGC, EMLX, and BRCD.  Take your cue from
the price action of the group.

***December contracts expire in 2 weeks***

BUY CALL DEC-22 DXZ-LX OI=1144 at $6.20 SL=4.75
BUY CALL DEC-25*DMU-LW OI= 143 at $4.10 SL=3.25
BUY CALL JAN-25 DMU-AW OI= 506 at $5.40 SL=4.00
BUY CALL JAN-30 DMU-AX OI= 781 at $2.75 SL=1.75

Average Daily Volume = 4.71 mln
 


IBM - Int'l Business Machines $120.40 (+4.81 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.

Stealing the show on Wednesday, IBM rocketed through recent
resistance and the $120 level to set a new 52-week high, coming
to rest at $121.40.  After its stellar 2-day move, it is only
natural to expect a bit of consolidation before the bulls charge
ahead again.  That has been the story for the past 2 days, with
the stock building intraday support near $119.  What remains to
be seen is whether this is all there is to the rally in IBM or
if the stock can use support in the $117-119 area to launch
another powerful leg up.  To be sure, if the DJIA continues to
work higher, we expect IBM to lead that charge.  Target fresh
entries on a bounce from the support level listed above, but
watch out if the broad market doesn't confirm the strength.
We've raised our stop to $115, just in case the bears get hungry
and manage to push IBM below its ascending 20-dma (currently
$115.73).

***December contracts expire in 2 weeks***

BUY CALL DEC-120*IBM-LD OI=39876 at $2.55 SL=1.25
BUY CALL DEC-125 IBM-LE OI=16185 at $0.80 SL=0.25
BUY CALL JAN-120 IBM-AD OI=38563 at $5.30 SL=3.25
BUY CALL JAN-125 IBM-AE OI=28622 at $2.95 SL=1.50
BUY CALL JAN-130 IBM-AF OI=21198 at $1.45 SL=0.75

Average Daily Volume = 8.56 mln



NVDA - NVIDIA Corporation $59.95 (+5.31 last week)

NVIDIA Corporation designs, develops and markets 3D graphics
processors, graphics processing units and related software that
set the standard for performance, quality and features for
every type of desktop personal computer user.  Used in a wide
variety of application including games, the Internet and
industrial design, the company's products were the first to
incorporate a 128-bit multi-texturing graphics architecture.
This design approach delivers to users a highly immersive,
interactive 3D experience with compelling visual quality and
stunning effects at real-time frame rates.  NVDA sells its
products to major PC manufacturers such as Compaq, Dell,
Gateway, Hewlett-Packard and IBM.

Living proof that stocks don't move in a straight line, shares
of NVDA have been drifting lower over the past 2 days as
investors digest the stellar gains from earlier in the week.
While intraday support has been building just below $59, we
can't rule out a drop near the $56 level before the bulls
reassert their control.  The biggest concern for bullish
investors will be the behavior of the Semiconductor index
(SOX.X).  After its breakout over $550 last week, a retest of
that level as support will likely be necessary before the rally
can continue.  Aggressive traders can target new entries near
the $59.50 if buying volume picks up, but they need to watch out
for more concerted selling in the SOX.  The better entry will
come on the heels of a dip near $56, with support being provided
by the 10-dma (currently $56.38).  A bounce from that level,
confirmed by a rebound in the SOX from support near $550 looks
like a high-odds entry for the next bullish leg up the charts.
Keep stops set at $55.

***December contracts expire in 2 weeks***

BUY CALL DEC-57*RVU-LA OI=5088 at $4.60 SL=2.75
BUY CALL DEC-60 RVU-LL OI=6611 at $3.00 SL=1.50
BUY CALL DEC-62 RVU-LB OI=1838 at $1.85 SL=1.00
BUY CALL JAN-60 RVU-AL OI=7247 at $5.60 SL=3.50
BUY CALL JAN-62 RVU-AB OI=1903 at $4.40 SL=2.75
BUY CALL JAN-65 RVU-AM OI=2156 at $3.40 SL=1.75

Average Daily Volume = 9.37 mln



QLGC - QLogic Corporation $52.97 (+3.52 last week)

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

After leading the charge as the NASDAQ broke through major
resistance last week, QLGC took a rest as we headed into the
weekend.  After the stock launched through major resistance near
$50, a bit of profit taking is to be expected and it was
encouraging to see the price hold up rather well.  Although
intraday support seems to be building near the $53 level, it was
a bit disconcerting to see the consolidation take place on
rather heavy volume on Friday (15 million shares vs. the ADV of
11.3 million).  While we can consider initiating new positions
on a bounce from current levels next week, the higher odds play
will mean waiting for a bounce near the $50 level, possibly at
the 10-dma ($50.67), confirming the solidity of the breakout
over that level.  We now have our stop set at $50, as a close
below that level would give us a failed breakout, and we would
be forced to remove QLGC from the call list.  Keep a sharp eye
on the broader NASDAQ, as we need to see it confirm support and
work higher as well if QLGC is going to challenge its recent
highs.  

***December contracts expire in 2 weeks***

BUY CALL DEC-50*QLC-LJ OI=4239 at $5.30 SL=3.25
BUY CALL DEC-55 QLC-LK OI=3338 at $2.55 SL=1.25
BUY CALL DEC-60 QLC-LL OI=2491 at $1.10 SL=0.50
BUY CALL JAN-55 QLC-AK OI=1847 at $5.10 SL=3.00
BUY CALL JAN-60 QLC-AL OI=3009 at $3.10 SL=1.50
BUY CALL JAN-65 QLC-AM OI= 888 at $1.90 SL=1.00

Average Daily Volume = 11.3 mln



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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 12-09-2001
Sunday                                                      4 of 5

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/1209_4.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
**************************************************************


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

FRE - Freddie Mac $64.25 (-1.92 last week) 

Freddie Mac is a stockholder-owned corporation that was
established by Congress in 1970 to support home ownership
and rental housing.  Freddie Mac purchases single family and
multifamily residential mortgages and mortgage related
securities, which it finances primarily by issuing mortgage
passthrough securities and debt instruments in the capital
markets.

The mortgage related stocks have been on the slide recently.
The prospects of the Fed ending its easing cycle could be
pressuring these stocks lower.  FRE broke below its 200-dma
early last week.  The stock's 200-dma currently sits overhead
at the $65.79 level.  Following the break below its big moving
average, FRE continued to slide lower throughout the week.
The stock rebounded last Friday on what appeared to be short
covering off of the lousy economic data.  But on an intraday
basis, the stock rolled over near its recently established
descending trend line.  That trend line currently sits around
the $65 level.  FRE's pattern of relatively lower daily
highs in last week's trading is unmistakably a descending
trend.  In light of its rollover last Friday, we're looking
for the downside to continue in next week's trading.  Look
first for another rollover near the $65 area if the stock
pops higher in next week's early trading.  If it rolls over
early Monday, then look for a decline back below the $64 level.
Our stop is set at $66.

***December contracts expire in 2 weeks***

BUY PUT DEC-65*FRE-XM OI=2566 at $1.85 SL=1.00
BUY PUT JAN-65 FRE-MM OI=3146 at $2.85 SL=2.00

Average Daily Volume = 3.23 mln



HGSI - Human Genome Sciences $36.09 (-6.42 last week)

Possessing one of the largest human and microbial genetic
databases, HGSI licenses its database of knowledge to
pharmaceutical heavyweights like GlaxoSmithKline and Merck.
Management has chosen to forgo the race to decode the entire
human genome, and has instead focused on finding and patenting
genes involved in developing gene-based therapeutics.  Its
four compounds currently in clinical trials are intended to
limit the toxic effects of chemotherapy, promote the repair of
damaged cells, stimulate antibody production, and spur regrowth
of blood vessels.

Although the Biotechnology sector (BTK.X) has continued to
whittle away at overhead resistance near $620, you sure wouldn't
know it if you looked at the chart of HGSI.  After running out
of steam near $47 two weeks ago, the stock has lost more than
23% and selling volume has been on the rise.  In fact on Friday,
HGSI saw selling volume more than double the ADV as the BTK gave
up 2.5% and threatened to break its ascending trendline.  While
the BTK managed to salvage some dignity and recover a bit near
the close, the late-day bounce in shares of HGSI had no staying
power, and the stock fell back again to close just above $36 for
a nearly 10% loss on the day.  Since breaking the 20-dma (then
at $44.62) a couple weeks ago, the bulls haven't been able to
even seriously challenge the steeply declining 10-dma (now at
$41.30).  There is some support near $35 (the bottom of the gap
from October 11th), it looks like the stock is intent on
revisiting the $30 level and possibly the September lows near
$28.  The stock has been increasingly volatile in recent days,
and we can take advantage of this volatility by targeting new
entries on failed intraday rallies, first near $38.50 and then
near $40.  Should the selling continue without a bounce next
week, look to enter the play as the stock falls below the $35
level.  Initial stops are in place at $41.50, just above the
10-dma.

***December contracts expire in 2 weeks***

BUY PUT DEC-40*HHA-XH OI=1458 at $4.80 SL=3.00
BUY PUT DEC-35 HHA-XG OI= 535 at $1.85 SL=1.00
BUY PUT JAN-35 HHA-MG OI=1838 at $3.30 SL=1.75
BUY PUT JAN-30 HHA-MF OI= 457 at $1.45 SL=0.75

Average Daily Volume = 2.96 mln



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

WWCA - Western Wireless $23.68 (-0.89 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 traced another new low last Friday at $23.  Following the
tracing of its new low, the stock rebounded throughout the day
but encountered selling at the $24 level.  We would've liked to
of seen more of a rebound to offer a better entry point into
this weak stock, but it didn't materialize.  We'd actually like
to see WWCA rally up to around its 10-dma at $24.38 and then
a rollover to provide at an entry point at a higher price.  If
you look to enter puts on weakness below current levels, then
you run the risk of a quick short covering rally such as the
one we saw last Friday.  The best strategy may be to wait for
a rally to carry the stock slightly higher above current
levels then look to exit the put plays on the setting of a new
relative low, below the $23 level.  Watch the YLS for more
insight into this play.  The YLS ran into its 200-dma last
Thursday and rolled over during Friday's session.  Continued
weakness in the YLS should pressure WWCA lower.

***December contracts expire in 2 weeks***

BUY PUT DEC-30 WRQ-XF OI=80 at $6.70 SL=5.25
BUY PUT DEC-25*WRQ-XE OI=72 at $1.80 SL=1.00

Average Daily Volume = 822 K



VZ -  Verizon $47.86 (+0.86 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.  

VZ rolled over right near our resistance level at $49 last
Friday.  The stock's daily stochastics reading began to
head lower in last Friday's trading too.  Hopefully that
was a sign that the stock's recent strength is coming to an
end and that it's trend is now reversing lower.  Traders who
took entries near resistance last Friday might look for
confirmation of weakness with a decline below the $47 level
early next week.  Those looking for new entries into the
play might use a breakdown below the $37 level as an entry
point.  The Wireless Services Sector Index (YLS.X) was
lower last week.  If the YLS.X continues lower, it should
help our VZ play along to the downside.

***December contracts expire in 2 weeks***

BUY PUT DEC-50*VZ-XJ OI= 2747 at $2.40 SL=1.75
BUY PUT JAN-50 VZ-MJ OI=15369 at $3.20 SL=2.00

Average Daily Volume = 814 K



CAH - Cardinal Health $66.14 (-2.18 last week)

Cardinal Health is the second largest US wholesaler of
pharmaceuticals, surgical and hospital supplies.  The healthcare
service provider offers these products and services to
independent and chain drugstores, hospitals, alternate care
centers, and the pharmacy departments of supermarkets throughout
the United States.  The company also offers support services
including computerized order entry and confirmation systems.
Through its subsidiary, Pyxis Corporation, CAH develops,
manufactures, leases, sells and services systems that automate
the distribution, management, and control of medications and
supplies in healthcare facilities.

After 2 days of heavy losses, shares of CAH halted their slide
near $66 and traded fairly flat going into the weekend.  A quick
look at the Health Care index (HCX.X) shows there was little
movement in the sector on Friday, so it was no great surprise to
see a bit of consolidation in our play.  The big technical
problem for shares of CAH was the sharp drop under the 20-dma
($67.33) on Thursday and this level (along with failed support
at $67.50) will make it tough for the bulls to repair much of
the damage done last week.  But that doesn't mean the stock has
to keep falling, just that odds favor that direction right now.
We want to target a rollover near the $67.50 level or possibly
near the 10-dma ($67.95) for initiating new positions.
Alternatively, look for the stock to drop under near term
support at $65.50 before opening new positions.  Major
resistance now rests at $69, making that an ideal location for
our stop.

***December contracts expire in 2 weeks***

BUY PUT DEC-70*CAH-XN OI=3360 at $4.20 SL=2.50
BUY PUT DEC-65 CAH-XM OI=2690 at $1.55 SL=0.75
BUY PUT JAN-65 CAH-MM OI=1063 at $2.55 SL=1.25
BUY PUT JAN-60 CAH-ML OI= 779 at $1.10 SL=0.50

Average Daily Volume = 2.32 mln



CB - Chubb Corporation $67.71 (-2.35 last week)

Chubb Corporation, incorporated in June 1967, is a holding
company with subsidiaries principally engaged in the property and
casualty insurance business. The Company presently underwrites
most forms of property and casualty insurance. The Company's
Property and Casualty Insurance Group writes non-participating
policies. Several members of the Property and Casualty Insurance
Group also write participating policies, particularly in the
workers' compensation class of business, under which dividends
are paid to the policyholders.

CB investors breathed a sigh of relief on Friday, as their
precious stock finally found a bid and lifted off the lows
created by the selling frenzy on Thursday.  While buying volume
was solid and came in above the ADV, it was far less than that
seen on Thursday, indicating this could be no more than an
oversold bounce.  Thursday's gap likely needs to be filled in
the near term, and that process could provide us with an
attractive entry to the downside.  The top of the gap sits near
$68.50, right at historical support (now resistance), and then
there are the converged and descending 10-dma and 20-dma, just
above $69.  Target new entries on weakness near these levels,
but keep in mind that our stop is set at $69.  A daily close
above that level would be in favor of the bulls and having us
moving to the sidelines.  The Insurance index (IUX.X) looked
weak all last week, but hasn't broken down yet.  Look for the
IUX to drop under its 20-dma ($720), as that will add further
pressure on CB and likely push it back into its downtrend.

***December contracts expire in 2 weeks***

BUY PUT DEC-70*CB-XN OI=304 at $3.50 SL=1.75
BUY PUT DEC-65 CB-XM OI=192 at $1.00 SL=0.50
BUY PUT JAN-70 CB-MN OI=240 at $4.50 SL=2.75
BUY PUT JAN-65 CB-MM OI=545 at $1.95 SL=1.00

Average Daily Volume = 1.30 mln



LH - Laboratory Corp. of America $76.25 (-0.65 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.

Like the cat on the poster, LH is hanging in there.  The wedge
continues to narrow, as bullish moves are still being capped by
the descending trendline (now at $77.75), while support at the
200-dma ($76) is keeping the bears in check.  Despite the weak
price action, daily Stochastics have been rising over the past
week, but that came to an end on Friday, as they once again
turned south.  This wedge will likely break in the next couple
days and the direction of the break will either prove us correct
or bring the play to an end.  More favorable entries can be
taken on failed intraday rallies near the descending trendline,
although more cautious investors may want to wait for price to
fall below the 200-dma before taking a position.  Volume has
been downright anemic for the past week, and Friday's session
was no exception, barely reaching half the ADV.  Look for an
increase in volume to further illuminate the picture and confirm
a continuation of the bearish trend.  Keep stops in place at $80.

***December contracts expire in 2 weeks***

BUY PUT DEC-80*LH-XP OI= 570 at $5.10 SL=3.00
BUY PUT DEC-75 LH-XO OI= 400 at $2.40 SL=1.25
BUY PUT DEC-70 LH-XN OI=1237 at $0.85 SL=0.25
BUY PUT JAN-75 LH-MO OI= 125 at $4.20 SL=2.50
BUY PUT JAN-70 LH-MN OI= 171 at $2.45 SL=1.25

Average Daily Volume = 738 K



*****
LEAPS
*****

The Big MO is back!
By Mark Phillips
Contact Support

And I'm not talking about Philip Morris (NYSE:MO).  Try as I
might to deny it, Momentum (the Big MO) has made one heck of a
comeback in recent weeks.  Despite what I consider to be
questionable justification for the recent rise in equity prices,
the bulls have been driving virtually every sector of the
market (especially Technology) higher and they are doing it on
impressive volume.

While my long-term outlook for the markets remains unchanged (I
still expect a substantial selloff in the markets when the
current rosy expectations for a strong rebound in the economy
early next year fail to be met, it looks like we aren't going to
see that pullback this year.  By focusing so heavily on the
bearish case for the economy, I fear I have done my readers a
great disservice.  While we have positioned the Portfolio and
Watch List in anticipation of that pullback, it has never
materialized and we've been left on the sidelines watching the
broad markets rise to levels I never expected to see in such
short order.

Although I still think I'm right in my belief that we are still
in a bear market, this is the most impressive rally in the past
20 months, and there are indeed indications that the economy is
bottoming.  There is no question that I was dead wrong about the
strength and longevity of the current bull run, and I have no
choice but to offer you, my readers, my most sincere apologies.
Loading up the truck with momentum stocks like Broadcom
(NASDAQ:BRCM), Nvidia (NASDAQ:NVDA) and Veritas (NASDAQ:VRTS) in
early October would have paid off huge in the past 2 months, as
each of them are up 120-225% since the lows of a couple short
months ago.  2003 LEAPS are up 300-500% in that time, proving
that price action far outpaces the effect of declining
volatility in option premiums.  Even our Tyco International
(NYSE:TYC) play, which is still sitting on the Watch List, is up
more than 50% from its lows, having climbed steadily through
one resistance level after another.

And what about my bearish comments targeted at Intel
(NASDAQ:INTC) and Home Depot (NYSE:HD) last weekend?  Wrong
again as both stocks broke out above strong support this week.
Don't get me wrong.  I still have a bearish slant on these
stocks, but I'm clearly too early to that party.  Thanks so much
to all of you that wrote in asking for more details on my
thoughts for those two stocks.  Despite the charts that are
arguing with me as of this writing, I'll explore my long-term
outlook for INTC on Wednesday.  I may be wrong, but I will
paint the picture for you, at least the way I see it.

So where did I go wrong?  In my desire to get attractive entry
points by waiting for the "inevitable" pullback that never came,
I was left watching from the sidelines as the markets snapped
back from the extreme pessimism of late September.  I think the
real key to avoiding such a frustrating experience in the future
lies in one of my favorite indicators, the VIX.  I had been
waiting for months in the expectation of extreme pessimism, and
when we got it following the terrorist attacks in September, I
froze like a deer in headlights, wondering how much worse things
would get.

That spike in the VIX to 57.31 was a screaming "Buy" signal for
long-term investors and I neglected to heed its instructions due
to my fear of loss (both for myself and for my readers).  Let me
share the conclusion that I have belatedly come to.  When the
VIX spikes well above its traditional range (above 45) it is
always a screaming buy for long-term investors.  Rest assured
that the next time (because there is always a next time) the VIX
moves that high, I'll have an action plan in place (both for
myself and my readers) that will capture handsome profits from
the inevitable reactionary rally.

Now the markets are up sharply while the VIX has steadily
fallen, now back in the middle of its traditional 20-30 range at
24.80.  Is now the time to buy?  I really don't think so.  There
has been too much bullish movement in the past 2 months, and now
many stocks are trading well ahead of where their anticipated
earnings will be, even at the end of 2003!  The markets cannot
go up forever, just as they cannot go down forever without
periods of trade in the opposite direction.  I believe the risk
is currently weighted much more heavily to the downside than to
the upside.  Of course, I've been saying that for weeks now, and
look what the bulls have accomplished in the interim.

I think select bullish plays could still provide solid profits
over the near- to medium-term, but we need to be very careful,
given the stellar rise that the markets have seen in recent
weeks.  Areas that are getting my attention for long plays are
those defensive sectors that have recently pulled back and ought
to move well in a corrective phase for the broader markets.  It
may take until early next year when earnings disappointments put
a damper on momentum traders' bullish hopes, but it is coming.
When that happens, defensive stocks like Johnson and Johnson
(NYSE:JNJ) could be set for a run at new highs.  See the new
play write up below.

LEAP Puts are looking more attractive too, although the
potential gains will be more sedate.  I think the place to be
looking for new plays right now is on stocks that are starting
to weaken relative to the broader market.  While we've made
money on the stock to the upside in the recent past, I like the
bearish prospects for shares of Philip Morris.  See, you knew
I'd get back to MO before our discussion came to an end.  At
any rate, MO is a new put play this weekend.

Unfortunately, we've had to pull the plug on our Calpine
Corporation (NYSE:CPN) play this week.  The Enron debacle really
shot a hole in many of the Utility stocks and CPN was no
exception.  With the violated stop and poor technical
performance of the stock, there's no way to justify continuing
to feature CPN in either our Portfolio or on the Watch List.

For the most part, our Portfolio and Watch List remain unchanged
this week (with the exception of the new plays) and I'm leaving
the entry targets unchanged until we see the resolution of the
current battle at resistance.  I'm expecting more near-term
strength that will ultimately weaken and don't want to put the
Portfolio in new positions near the top.  That's what happened
to us in May and June, and I don't want to repeat that
experience.  One note about the current Watch List is necessary
though.  Did you notice the action in General Electric (NYSE:GE)
this week?  It gave up a fair amount of relative strength and
declined very near our $36 entry target.  My primary reason for
not jumping into a new Portfolio position is the overextended
condition of the broad markets and my expectation that GE will
see more weakness before bottoming -- especially with the steep
downward slope of the weekly Stochastics.  We'll give this one
some more time to come back to us.

Since its breakout just over 2 weeks ago, Eli Lilly (NYSE:LLY)
has been consolidating just above the $81 level.  While I think
there is more upside in the play, its inability to move through
the $84 level has me a bit nervous.  Rather than risk giving
back our gains, I'm snugging up the stop to $81 this weekend.
This is just below the 20-dma ($81.15), as a drop below this
moving average would likely set the stage for LLY to fall back
into its old trading range.  We would want to exit the play if
that were to occur.

In a nutshell, I think the upside for the broad markets is
limited due to looming heavy overhead resistance.  The bull
market may be back, but prudence still demands that we err on
the side of caution, waiting for that pullback, which will give
us higher odds bullish entries.  Having missed the recent
bullish run is frustrating, but that doesn't mean we should
throw caution to the wind and chase the recent leaders higher.
Unfortunately, we need to wait for the markets to realize that
their current bullish hopes are overextended.  When this
realization hits, we'll be in position to take advantage of the
selloff by positioning our Watch List accordingly over the next
couple months.  I know patience is a virtue, but I want it right
now!

Maybe my admission of the current bullish strength will be just
what the markets are waiting for to commence with the necessary
profit taking.  Hey, I can hope, can't I?  Just remember that
missed opportunities are always preferable to lost money, and
there is always another opportunity just around the corner.
I'll do my best to uncover some in the weeks ahead.

The waiting is still 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  $14.10   30.56%  $81
                 '04 $ 80  LZE-AP  $12.20  $16.00   31.15%  $81

Puts:
AIG    11/07/01  '03 $ 80  VAF-MP  $ 8.40  $ 8.00  - 4.76%  $86.50
                 '04 $ 80  LAJ-MP  $10.60  $10.40  - 1.89%  $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
JNJ    12/09/01  $54, $52.50   JAN-2003 $ 55  VJN-AK
                            CC JAN-2003 $ 50  VYN-AJ
                               JAN-2004 $ 55  LJN-AK
                            CC JAN-2004 $ 50  LJN-AJ

PUTS:

MO     12/09/01  $48, $50      JAN-2003 $ 50  VPM-MJ
                               JAN-2004 $ 50  LMO-MJ



New Portfolio Plays

None


New Watchlist Plays

JNJ - Johnson & Johnson $56.65  ** CALL PLAY**

What General Electric is to the broad industrial sector, JNJ is
to the Health Care sector.  Engaged in the manufacture and sale
of a broad range of health-related products in virtually every
corner of the world, JNJ is riding the wave of increasing health
care costs that permeate our society.  While the stock has had
one heck of a run over the past 7 months from the $40 level in
late March, it looks like it could still have some gas in the
tank.  Last month, JNJ topped out near the $61 level and has
been under some fairly heavy selling pressure, as money has
rotated out of defensive stocks and into the sexier Technology
sector.  While that rotation isn't quite yet complete, now is
the time to start setting up an action plan for how to take
advantage of the stock when it resumes its upward trend.
Drawing an ascending trendline shows support should materialize
near the $54 level, and we got pretty close to that on Friday
before buying support appeared near $55.50.  The daily
Stochastics oscillator is just starting to turn up from oversold
territory, but I don't think this is the screaming buy signal.
Rather, I think we'll get another cycle into oversold before we
want to take a position, either near $54 or ideally at the
200-dma (currently $52.25).  But what about the weekly
oscillator you ask?  Afterall, it is just midway back to
oversold territory.  Here's the interesting point -- the weekly
Stochastics hasn't made it to oversold since January and with
the current upward bias in the broad markets, I don't think it
will make it there this time either.  Let this cycle on the
daily chart run its course, and then we'll look to initiate new
positions on the next dip.  Contrary to our usual procedure, I'm
listing two entry targets, the first at $54 and the second at
$52.50, which I think would be a gift.  We'll be setting our
stop near $49 and will be looking to ride the stock back up to
its November highs.

BUY LEAP CALL JAN-2003 $55.00 VJN-AK
BUY LEAP CALL JAN-2003 $50.00 VYN-AJ **Covered Call**
BUY LEAP CALL JAN-2004 $55.00 LJN-AK
BUY LEAP CALL JAN-2004 $50.00 LJN-AJ **Covered Call**


MO - Philip Morris $45.08  ** PUT PLAY**

While typically viewed as a defensive play due to its
broad-based consumer staples business, MO has been losing its
attractiveness to investors in recent months.  To be fair, the
stock had quite a run over the past 18 months, but quite
frankly, it is looking tired.  While perusing some Point and
Figure charts this week, my compatriot, Eric Utley pointed out
that the stock has given up a lot of strength relative to the
broader S&P500.  The tobacco litigation issue seems to have run
its course for the time being, but there could be another
bogeyman on the horizon.  Whether it is economic weakness, fear
of inflation, or a rotation back into more exciting stocks, I
can't say.  But the company's recent announcement that they
would be changing their name caught my attention.  It seems as
though the company is trying to distance the corporate image
from that evil tobacco image, and that sort of obfuscation never
sits well with investors.  But I digress.  Recently, the stock
has traced a broad head-and-shoulders pattern, with the neckline
resting near $43.  And over the past 2 months, MO has been
tracing a series of lower lows and lower highs.  During that
process, the weekly Stochastics has been dragged back near
oversold territory, so now is definitely not the time to consider
a new position.  I want to see a solid upward move before
initiating new positions.  I think the ideal entry will
materialize on a move up near $48, seeing as how the 200-dma is
currently at $47.81.  Of course, there is the outside chance
that the bulls could push the price as high as the $50 level and
I would consider that a gift of an entry point.  This is not the
type of play that is going to produce a home run, but I think we
could see a solid double, with the stock declining near the $41
level (the site of the 38% retracement of the gains since the
lows in early 2000).  Remember to wait for the oscillators to
get back towards overbought territory before taking the plunge,
and then jump into what I think is a high-odds play.  Given the
limited move (from $48-50 down to $41) that we are targeting, I
have actually listed in-the-money contracts, which should give
us a solid move in the option prices because of the higher
delta.  Once we initiate the position, we'll place our stop at
$52, just above the recent highs.

BUY LEAP PUT JAN-2003 $50.00 VPM-MJ
BUY LEAP PUT JAN-2004 $50.00 LMO-MJ


Drops

CPN $18.50 So much for that ascending trend we were watching in
shares of CPN.  The meltdown in Enron shot a hole in the stock
price of many utility stocks and the declaration of bankruptcy
over the weekend really rocked the boat for CPN shareholders,
sending the stock down to a new yearly low, closing at $18.50
and closing our play with a whimper.  So much for moving our
stop up to $21, as the stock danced around just above that level
for several days, before cratering last Monday.  In retrospect,
I should have raised the stop near $25 to get us out if the
ascending trendline had been broken.  An interesting side note
is that the violation of the trendline came at the same time as
the stock violated the 20-dma.  That makes it a double bearish
signal that should have had us exiting the play nearly 3 weeks
ago at a profit rather than this week at a loss.  I would use
any strength over the next week to obtain a better exit, as I
think the worst news has now been factored into the stock.  But
I wouldn't use the current low price to initiate new positions,
as the technicals do not support a bullish move over the near
to medium term with the weekly Stochastics in a power dive.


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The Option Investor Newsletter                   Sunday 12-09-2001
Sunday                                                      5 of 5

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

Option Pricing Basics: Volatility Fundamentals - Part II
By Mark Wnetrzak

The first requirement for successful option trading is to
understand the basic laws of pricing theory.
 
Before a trader can accurately assess a position's value, he must
fully comprehend the components of option pricing.  These are the
primary factors that determine the value of an option:

1. The price of the underlying stock 
2. The strike price of the option itself 
3. The time remaining until the option expires 
4. The volatility of the underlying stock 

There are two, less important factors that also affect the price
of an option:

5. The current risk free interest rate (usually the 90 day T-Bill
   is used for this calculation)
6. The dividend rate of the underlying stock

Volatility is the most important variable in valuing an option.
All other factors are known: share value, option strike price,
dividends, interest rates, and time remaining until expiration.
The volatility of the underlying issue is also the most difficult
value to accurately determine.  Professional traders use several
different timeframes to assess a stock's potential movement.  In
most cases, the 20-day historical volatility provides a reasonable
projection of the short-term volatility of any instrument.  But,
for longer-term strategies, the 50-day and/or 100-day historical
volatility values should be compared with the near-term numbers to
identify any disparities in the recent character of the issue.  A
significant move in the underlying instrument, due to an earnings
report or other major event, can cause an artificial change in
volatility, thus skewing the short-term data.  In general, 20-day,
50-day, 90-day and 1-year periods are the most common timeframes
used to reflect the magnitude of future movement that can be
expected over the life of an option.

Comparing historic volatility to implied volatility helps a trader
determine whether options are cheap or expensive.  The most common
way to use implied volatility is to observe an average of some
past period of time, such as a 100-dma.  Experienced traders also
use an adverse volatility estimate, based on historical volatility,
in order to provide a more conservative appraisal of an option's
true value.  By definition, implied volatility is a mathematical
measure of the relative cost of an option, and it is largely based
on the historical volatility of the underlying issue.  In reality,
the implied volatility of an option is mostly determined by market
expectations of the underlying security.

When evaluating historical and implied volatility for specific
option trades, it is best to use the most conservative values in
pricing calculations.  For example, if you are going to sell an
an option, use a high estimate, perhaps the maximum value of the
most common (20-, 50- and 100-dma) short-term volatility data.  
With that approach, the current price of the option will have to be
inflated for the premium to appear "overpriced."  In contrast, if
you plan to engage in a strategy where you expect the underlying
issue to be active, then a low volatility estimate (the minimum of
the 20-, 50-, or 100-dma) would be more appropriate.  Using that
technique, the option will look "cheap" only when it is relatively
inexpensive, based on historical stock movement.

For more information, read the appropriate chapters in McMillan's
"Options as a Strategic Investment" and Sheldon Natenburg's "Option
Volatility and Pricing."  These are the bibles of floor traders and
they will help you understand the complex subject of volatility and
theoretical derivatives pricing.

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  25.50   DEC  22.50  5.20  *$  1.88   9.9%
TELM    6.20   7.85   DEC   5.00  1.80  *$  0.60   9.9%
CANI    5.97   6.10   DEC   5.00  1.35  *$  0.38   8.9%
NPRO   11.32  11.81   DEC  10.00  1.85  *$  0.53   8.1%
TUNE   21.20  22.65   DEC  20.00  2.25  *$  1.05   8.0%
NTPA    5.68   6.42   DEC   5.00  1.10  *$  0.42   8.0%
MDCO   11.43  10.37   DEC  10.00  2.10  *$  0.67   7.8%
SURE   12.20  11.60   DEC  10.00  3.10  *$  0.90   7.2%
QSFT   22.64  25.17   DEC  20.00  4.10  *$  1.46   6.8%
VTSS   11.61  14.82   DEC  10.00  2.45  *$  0.84   6.6%
EXFO   14.18  12.60   DEC  12.50  2.55  *$  0.87   6.5%
SURE   12.38  11.60   DEC  10.00  2.80  *$  0.42   6.4%
PXLW   14.95  17.75   DEC  12.50  3.30  *$  0.85   6.3%
GMST   22.70  29.67   DEC  20.00  4.30  *$  1.60   6.3%
SNDK   14.19  15.88   DEC  12.50  2.20  *$  0.51   6.2%
RMBS    8.88   9.38   DEC   7.50  1.95  *$  0.57   6.0%
AMZN    8.95  11.71   DEC   7.50  1.90  *$  0.45   5.5%
JDSU   11.60  10.53   DEC  10.00  2.20  *$  0.60   5.5%
MCDT   18.80  28.10   DEC  15.00  4.80  *$  1.00   5.2%
INVN   19.42  31.25   DEC  15.00  5.10  *$  0.68   5.2%
FMKT   19.75  22.09   DEC  17.50  2.85  *$  0.60   5.1%
STEL   23.54  26.57   DEC  20.00  4.20  *$  0.66   4.9%
VRTY   15.09  16.28   DEC  12.50  3.00  *$  0.41   4.9%
CRXA   14.74  14.78   DEC  12.50  2.90  *$  0.66   4.8%
ARQL   11.10  13.48   DEC  10.00  1.50  *$  0.40   4.5%
PROX   11.50  10.42   DEC  10.00  1.90  *$  0.40   4.5%
GNTA   16.75  13.35   DEC  15.00  2.85   $ -0.55   0.0%

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

Comments:

Next week should be interesting with the FOMC meeting on Tuesday:
Will they or won't they?  Cut interest rates one more time, that
is.  A few issues above are at key moments and should be monitored
closely:  Pharmacyclics (NASDAQ:PCYC) continues to consolidate at
its 150-dma; The Medicines Company (NASDAQ:MDCO) appears to be
holding at $10 but a test towards the 50-dma around $9.25 seems
likely; JDS Uniphase (NASDAQ:JDSU) is looking a bit weak after
failing to move above the November high; Corixa (NASDAQ:CRXA) is
still having problems moving through $16, suggesting a retest of
of support near $12.50 may be needed; and Proxim (NASDAQ:PROX)
may still fill that November gap.  Echelon (NASDAQ:ELON) allowed
a second-chance exit this week for those still in the position.
Genta (NASDAQ:GNTA) is the lone issue that acted horrid this week.
We will "listen to the tape" and show the position closed.  The
congestion from June through July should provide support but the
heavy volume drop on Friday doesn't bode well for the near term.
Those investors who remain bullish on the issue may consider
adjusting the position by rolling forward and/or down to a lower
strike price (and cost basis).

Positions Closed: ELON 


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

EMBT   19.16  DEC 17.50   MBQ LW  2.25 20    16.91   14    7.6%
FALC    8.81  JAN  7.50   XMQ AU  1.90 0      6.91   42    6.2%
MRVL   36.96  JAN 32.50   UVM AZ  6.60 6     30.36   42    5.1%
NPRO   11.81  JAN 10.00   NYQ AB  2.70 602    9.11   42    7.1%
NXTV    6.44  JAN  5.00   NUZ AA  2.00 563    4.44   42    9.1%
OAKT   13.53  JAN 12.50   KAU AV  1.90 734   11.63   42    5.4%
XICO   14.00  JAN 12.50   UOB AV  2.35 77    11.65   42    5.3%

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

NXTV    6.44  JAN  5.00   NUZ AA  2.00 563    4.44   42    9.1%
EMBT   19.16  DEC 17.50   MBQ LW  2.25 20    16.91   14    7.6%
NPRO   11.81  JAN 10.00   NYQ AB  2.70 602    9.11   42    7.1%
FALC    8.81  JAN  7.50   XMQ AU  1.90 0      6.91   42    6.2%
OAKT   13.53  JAN 12.50   KAU AV  1.90 734   11.63   42    5.4%
XICO   14.00  JAN 12.50   UOB AV  2.35 77    11.65   42    5.3%
MRVL   36.96  JAN 32.50   UVM AZ  6.60 6     30.36   42    5.1%


Company Descriptions

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

*****
EMBT - Embarcadero  $19.16  *** Bottom Fishing! ***

Embarcadero Technologies (NASDAQ:EMBT) provides software products
that enable organizations to build and manage e-business appli-
cations and their underlying databases.  The company's suite of 
products allows customers to manage the database life cycle, 
which is the process of creating, deploying and enhancing e-
business applications and their underlying databases, in response
to evolving business requirements.   During the 4th-quarter of 
2000, Embarcadero completed 3 acquisitions: Embarcadero Europe,
Advanced Software Technologies, and Engineering Performance. 
J.P. Morgan recently upgraded its rating on the company to a
"long-term buy" from "market perform."  Analysts believe that
Embarcadero's business will stabilize in the 4th-quarter and
have recently raised their estimates.  Apparently, investors
agree as the issue has shown new signs of a bullish trend and
this "short-term" position offers a way to conservatively
speculate on the company's future share value.

DEC 17.50 MBQ LW LB=2.25 OI=20 CB=16.91 DE=14 TY=7.6%


*****
FALC - FalconStor Software  $8.81  *** Bracing For A Rally? ***

FalconStor Software (NASDAQ:FALC) is a provider of storage net-
working infrastructure software.  The company's open software 
approach to storage networking enables companies to capture and 
manipulate the expanding volume of enterprise data and existing
storage solutions, without rendering those solutions obsolete.
IPStor, the company's flagship product, is a storage solution 
that combines industry-standard connectivity with next-generation 
network storage services.  On August 23, 2001, FalconStor, Inc. 
completed a reverse merger with Network Peripherals, Inc. to form
FalconStor Software, Inc.  Hmmm...very complex indeed.  However,
the technical indications suggest a "head-n-shoulders" bottom
may be in the making.  The stock appears poised to move higher in
the coming sessions and traders who believe the issue is destined
for a future rally can profit from upside movement with this
conservative position.

JAN 7.50 XMQ AU LB=1.90 OI=0 CB=6.91 DE=42 TY=6.2%


*****
MRVL - Marvell Technology  $36.96  *** Earnings Rally! ***

Marvell Technology (NASDAQ:MRVL) designs, develops and markets
integrated circuits utilizing proprietary communications mixed
signal and digital signal processing technology for communication
markets.  The company's products provide the critical interface
between analog signals and the digital information in computing
and communications systems and enables its customers to store and
transmit digital information quickly and reliably.  The company
also develops high-performance communications internetworking and
switching products for the broadband communications market.  MRVL
has continued to rally after a bullish earnings report in November.
Net revenue for the 3rd-quarter of fiscal 2002 was $73.1 million,
an increase of 102% over last year and a 6% sequential increase 
last quarter.  Based on the bullish technicals, investors agree
that MRVL had a tremendous quarter in terms of solid revenue 
growth and this company would certainly be a candidate for any
long-term portfolio.

JAN 32.50 UVM AZ LB=6.60 OI=6 CB=30.36 DE=42 TY=5.1%


*****
NPRO - NaPro BioTherapeutics  $11.81  *** 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 recently
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.

JAN 10.00 NYQ AB LB=2.70 OI=602 CB=9.11 DE=42 TY=7.1%


*****
NXTV - Next Level  $6.44  *** What's UP?  NXTV! ***

Next Level Communications (NASDAQ:NXTV) designs and markets
broadband communications equipment that is designed to enable 
telephone companies and other communications service providers
to cost-effectively deliver a full suite of voice, high-speed 
data and digital video services over the existing copper tele-
phone wire infrastructure.  Next Level's products consist of 
equipment located at the telephone company's central office or
exchange, in the field and at the subscriber's home or business.
The company's customers include Qwest, Hutchinson Telephone, 
Paul Bunyan Rural Telephone, Chibardun Telephone, Horizon, New
ULM, Washington, Wood County, Hickory Tech, Clearlake, Cable-
vision, Bell Canada, All West and Northstar Telephone.  No news
to explain the strong 2-day rally but the "tape" is speaking
loud and clear!  We simply favor the technical break-out and
this position offers a great way to speculate on the future 
movement of the issue in a conservative manner.

JAN 5.00 NUZ AA LB=2.00 OI=563 CB=4.44 DE=42 TY=9.1%


*****
OAKT - Oak Technology  $13.53  *** Heading Higher? ***

Oak Technology (NASDAQ:OAKT) designs, develops and markets high-
performance integrated semiconductors, software and platform 
solutions to OEMs worldwide that serve the optical storage and
digital imaging equipment markets.  The company's products 
consist primarily of ICs and supporting software and firmware,
all designed to store and distribute digital content, thereby
enabling the company's OEM customers to deliver systems to the
end user for the home and enterprise.  OAKT's operations are
organized along its two market-focused groups: the Optical 
Storage Group and the Imaging Group.  OAKT met expectations in
October and the company said that it anticipates revenues for
this quarter to increase by approximately 5 - 10%.  The chart
indications suggest the issue has successfully completed a
year-long consolidation and is poised for future gains.

JAN 12.50 KAU AV LB=1.90 OI=734 CB=11.63 DE=42 TY=5.4%


*****
XICO - Xicor  $14.00  *** On The Move! ***

Xicor (NASDAQ:XICO) designs, develops, manufactures and markets 
a wide variety of programmable mixed-signal integrated circuits
and nonvolatile memory products used in networking, computing, 
communication, consumer and industrial applications.  Xicor's
products are sold in a variety of packages, including plastic,
ceramic and chip scale packages for small footprint and height.
Xicor's sales are derived from two product groups, mixed-signal 
products (their core market) and memory products.  Xicor is "on
the move" and this week's rally to a new 18-month high on heavy
volume suggests there is further upside potential for the issue.

JAN 12.50 UOB AV LB=2.35 OI=77 CB=11.65 DE=42 TY=5.3%


*****

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

ENTU   10.11  DEC 10.00   EXH LB  0.65 54     9.46   14   12.4%
CRUS   15.50  DEC 15.00   CUQ LC  1.25 3553  14.25   14   11.4%
ICST   21.18  DEC 20.00   IUY LD  2.05 791   19.13   14    9.9%
OSIS   21.90  DEC 20.00   UOJ LD  2.75 74    19.15   14    9.6%
PRCS    5.00  JAN  5.00   FGU AA  0.55 104    4.45   42    9.0%
ARIA    5.29  JAN  5.00   UAQ AA  0.80 95     4.49   42    8.2%
IMNY    8.76  JAN  7.50   MQN AU  2.00 500    6.76   42    7.9%
INVN   31.34  DEC 25.00   FQQ LE  7.20 2649  24.14   14    7.7%
CMOS   20.90  DEC 20.00   CQS LD  1.50 131   19.40   14    6.7%
AMZN   11.71  JAN 10.00   ZQN AB  2.55 12257  9.16   42    6.6%
ULCM   11.80  JAN 10.00   UUL AB  2.60 244    9.20   42    6.3%
MCDT   28.10  DEC 25.00   DMU LW  3.70 143   24.40   14    5.3%



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

Secrets Of Success: Stick To The Basics In Volatile Markets!
By Ray Cummins

Investing can be lots of fun and playing the market is the best
game there is, providing you study diligently, learn the rules
and acquire the necessary trading and analysis tools.

In this unique game, the education never ends, and since stocks
are dynamic, ever-changing entities, investors must continuously
improve their skills to be successful.  When the market becomes
unruly or difficult to forecast, it's important to focus on
historically proven methods that provide the most accurate means
of identifying primary directional trends and the character of
individual issues.  In most cases, the preferred technique for
experienced traders is charting or technical analysis.

The recent rally in technology and industrial issues highlights
the renewed optimism now prevalent in the stock market.  It also
accounts for the widespread speculation among investors, and the
rise of the "buy-it-now-or-never" analysts.  However, technical
traders should not be persuaded by the onslaught of stock hype
and propaganda, such as "blanket" upgrades, that is fashioning
much of the current market sentiment.  Historical charts should
continue to guide your decisions and during periods of excessive
pessimism, the most important patterns to study are long-term.
Traders generally use daily charts for entry and exit signals but
the best way to determine major support and resistance levels is
through the analysis of weekly or monthly time frames.  Primary
support and resistance levels are especially significant during
periods when the market appears to be overextended or near a
potential climax and by carefully reviewing long-term cycles and
trends, a trader can identify areas where significant supply or
demand will likely be encountered.  In addition, major reversal
and continuation patterns found in daily charts also occur with
both weekly and monthly periods and the significance of these
formations is strikingly similar.

In the Covered-Call and Naked-Put sections, our methodology of
selecting stocks with chart analysis and option pricing models
has been very successful regardless of the market's condition.
In most cases, we take a purely technical view with regard to
each individual issue and our decision-making process is based
on the stock's past trading history along with its current share
value and primary directional trend.  We carefully analyze the
price action of each candidate using a wide range of technical
indicators to determine if the issue meets our minimum criteria
for a favorable position.  The secret is to identify relatively
strong issues early in a bullish cycle where there is far less
downside risk and longer time frames often provide more accurate
indications in that respect.  After we have compiled a list of
potential stocks, a thorough review of the option premiums is
conducted to determine if the overall position offers sufficient
downside protection, relative to the issue's technical history
and price support.  Once the minimum acceptable cost basis has
been established, it is relatively easy to select positions in
which the return on investment warrants our participation in a
play.

Most traders agree that technical analysis is an art and this
concept is even more apparent when we are near the end of a
bearish market environment.  The best indicators can be highly
unreliable when extreme emotion dictates the daily movements in
stocks and it is far more difficult to earn consistent returns
under these conditions.  The best we can do is focus on methods
that have worked well in the past and simply let the technical
condition of each individual issue be our guide.  In short, we
use the more recent price action of the stock to alert us to
favorable opportunities while at the same time relying on the
longer-term patterns to determine if the movement is likely to
continue.  After the position is initiated, the performance of
the issue will determine our future actions.  If we are wrong
about the character of the underlying stock, we simply exit the
position and look for another potential play.  The worst outcome
that can occur with this approach is a modest loss in capital
and usually, that limited shortfall is more than offset by other
gains in the portfolio.  In fact, the primary reason that novice
investors achieve poor results with low risk, low return trading
strategies is not due to a deficiency in play selection, but
rather their inability to effectively manage failing positions
for minimum loss.  Of course, that's another subject entirely...

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   6.40   DEC   5.00  0.30  *$  0.30  15.7%
WGRD   11.92  11.40   DEC  10.00  0.60  *$  0.60  15.1%
INVN   25.15  31.25   DEC  17.50  0.55  *$  0.55  14.3%
IGEN   35.95  32.97   DEC  30.00  0.90  *$  0.90  14.0%
CRXA   15.01  14.78   DEC  12.50  0.35  *$  0.35  13.2%
FNSR   12.96  12.37   DEC  10.00  0.35  *$  0.35  12.9%
NTAP   16.51  19.03   DEC  12.50  0.65  *$  0.65  11.9%
CRXA   15.32  14.78   DEC  12.50  0.40  *$  0.40  11.7%
IMNY    7.24   8.76   DEC   5.00  0.25  *$  0.25  10.7%
RSAS   15.75  16.65   DEC  12.50  0.25  *$  0.25  10.7%
MANU   10.66  15.60   DEC   7.50  0.35  *$  0.35  10.2%
MCDT   22.75  28.10   DEC  17.50  0.45  *$  0.45   9.8%
SLAB   28.26  32.56   DEC  22.50  0.85  *$  0.85   9.5%
MCDT   25.20  28.10   DEC  20.00  0.35  *$  0.35   9.4%
MCDT   21.10  28.10   DEC  15.00  0.50  *$  0.50   9.2%
TERN   13.19  13.25   DEC  10.00  0.30  *$  0.30   8.9%
SRNA   22.90  25.42   DEC  17.50  0.50  *$  0.50   8.6%
SRNA   22.25  25.42   DEC  17.50  0.35  *$  0.35   7.9%
PMCS   23.27  27.36   DEC  15.00  0.45  *$  0.45   7.7%
CEGE   22.86  23.59   DEC  20.00  0.35  *$  0.35   7.6%
CNXT   13.37  17.05   DEC  10.00  0.30  *$  0.30   7.3%
AFFX   37.13  37.30   DEC  30.00  0.55  *$  0.55   7.2%
CREE   25.25  26.13   DEC  20.00  0.45  *$  0.45   7.1%
IMMU   23.49  21.80   DEC  20.00  0.40  *$  0.40   6.9%
MACR   22.08  22.63   DEC  17.50  0.45  *$  0.45   6.7%
MCSI   24.00  21.62   DEC  20.00  0.50  *$  0.50   5.9%
SMTC   37.55  41.47   DEC  27.50  0.35  *$  0.35   4.8%
PLMD   23.00  19.37   DEC  20.00  0.65   $  0.02   0.4%

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

Comments:

Our position in Polymedica (NASDAQ:PLMD) received an unwanted
surprise this week when the issue dropped over 25% after the
medical supply company revealed it is being investigated by
the Securities and Exchange Commission.  Their subsidiary
Liberty Medical Supply is already the subject of a federal
criminal probe and the new investigation into "accounting
matters, financial reports, other public disclosures and
sales of the company's securities," did not bode well for
its share value.  The issue closed Friday's session at our
cost basis and from this point, it's anybody's guess as to
how it will perform in the coming weeks.  Since it was a
speculative position, the volatility was somewhat expected
but that does not mean we can simply wait for the outcome
and hope for the best.  Traders should evaluate the current
small loss versus the possibility of owning the issue at an
unfavorable price and act in accordance with their personal
risk/reward attitude and portfolio outlook.


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

ALOY   19.06  JAN 15.00   YLQ MC  0.35 10    14.65   42    6.1%
ICST   21.18  DEC 17.50   IUY XW  0.30 2325  17.20   14   12.8%
OSIS   21.90  DEC 17.50   UOJ XW  0.30 11    17.20   14   13.9%
PCYC   25.49  DEC 17.50   QPY XW  0.65 850   16.85   14   24.6%
RCOM   11.14  JAN 10.00   RAU MB  0.45 45     9.55   42    8.7%
RIMM   23.48  DEC 20.00   RUL XD  0.35 5133  19.65   14   12.1%
RSTN   18.15  DEC 15.00   RQJ XC  0.30 696   14.70   14   14.8%

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

PCYC   25.49  DEC 17.50   QPY XW  0.65 850   16.85   14   24.6%
RSTN   18.15  DEC 15.00   RQJ XC  0.30 696   14.70   14   14.8%
OSIS   21.90  DEC 17.50   UOJ XW  0.30 11    17.20   14   13.9%
ICST   21.18  DEC 17.50   IUY XW  0.30 2325  17.20   14   12.8%
RIMM   23.48  DEC 20.00   RUL XD  0.35 5133  19.65   14   12.1%
RCOM   11.14  JAN 10.00   RAU MB  0.45 45     9.55   42    8.7%
ALOY   19.06  JAN 15.00   YLQ MC  0.35 10    14.65   42    6.1%


Company Descriptions

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

*****
ALOY - Alloy  $19.06  *** The Next Generation! ***

Alloy (NASDAQ:ALOY), formerly Alloy Online, is a multi-channel
media company and direct marketer providing community, content
and commerce to Generation Y, the approximately 58 million boys
and girls between the ages of 10 and 24.  Alloy has developed
and aggregated a wide array of branded media properties that
interact directly with the Generation Y group.  Through these
media properties, Alloy sells Generation Y-focused merchandise
and provides engaging content and community services that appeal
to teenagers.  Alloy's media-based properties include catalogs,
web-sites, books, and magazines.  Alloy recently enjoyed its
most profitable quarter to date and the eleventh consecutive
quarter of meeting or beating EPS consensus since Alloy's IPO.
Total revenues for the third quarter of 2001 increased 58% to
$44.5 million due to strong sales performances in the Alloy
and CCS direct marketing operations and the company expects to
improve on those numbers in the coming year.  Investors can
establish a conservative cost basis in the company's stock
with this position.

JAN 15.00 YLQ MC LB=0.35 OI=10 CB=14.65 DE=42 TY=6.1%


*****
ICST - Integrated Circuit Systems  $21.18  *** Chip Sector! ***

Integrated Circuit Systems (NASDAQ:ICST) is engaged in the
business of designing and marketing custom application specific
integrated circuits (ASICs) for various industrial customers.
The company's business is divided into two categories: Core and
Non-Core Segments.  The Core segment supplies a broad line of
timing products for use in PC motherboard and also peripheral
applications. The Non-Core segment sells mixed-signal (analog
and digital) integrated circuits customized to the specific
requirements of a broad range of customers and applications.
The semiconductor sector is performing well and this company
is one of the more favorable, low cost issues in the industry.
Traders can speculate on the future performance of the group
with this conservative position.

DEC 17.50 IUY XW LB=0.30 OI=2325 CB=17.20 DE=14 TY=12.8%


*****
OSIS - OSI Systems  $21.90  *** On The Move! ***

OSI Systems (NASDAQ:OSIS) is a vertically integrated, global
provider of devices, subsystems and end products based on
opto-electronic technology.  The company designs and builds
these devices and other value-added subsystems for original
equipment manufacturers for use in a range of applications;
security, medical diagnostics, fiber optics, telecommunications,
gaming, office automation, aerospace and defense electronics,
computer peripherals and industrial automation.  In addition,
the company utilizes its opto-electronic technology and design
capabilities to manufacture security and inspection products
that are used to inspect people, baggage, cargo and objects for
weapons, explosives, drugs and other contraband.  In the medical
field, the company manufactures and sells bone densitometers,
which are used to provide measurements in the diagnosis of
osteoporosis.  The security business is booming and Rapiscan
Security Products, a subsidiary of OSI, is one of the leading
manufacturers of X-ray-based detectors for aviation security.
The parent issue is performing well and speculators can use
this position to attempt to profit, in a conservative manner,
from the bullish activity.

DEC 17.50 UOJ XW LB=0.30 OI=11 CB=17.20 DE=14 TY=13.9%


*****
PCYC - Pharmacyclics  $25.49  *** Speculation Only! ***

Pharmacyclics (NASDAQ:PCYC) is a pharmaceutical company that
develops products to improve upon current therapeutic approaches
to the treatment of cancer, atherosclerosis and retinal disease.
The company uses its expertise in the chemistry of porphyrin-like
biomolecules to develop patented compounds called texaphyrins.
Texaphyrins are a new class of molecules that are rationally 
designed to accumulate in diseased cells and disrupt energy 
metabolism.  Pharmacyclics' lead texaphyrin-based product 
candidates are XCYTRIN, LUTRIN, ANTRIN and OPTRIN.  PCYC 
expects to report its late-stage Xcytrin test results during
the latter part of December.  Investors are beginning to 
speculate on the expanded use of Xcytrin which could turn
the drug into a billion-dollar seller.  The stock has rallied
strongly off the September low and has recently moved above a
trading range near $23, suggesting higher prices in the future.
Extensive due-diligence is mandatory on this volatile issue!

DEC 17.50 QPY XW LB=0.65 OI=850 CB=16.85 DE=14 TY=24.6%


*****
RCOM - Register.com  $11.14  *** Everything In A Name! ***

Register.com (NASDAQ:RCOM) is a provider of Internet domain name
registration products and services worldwide for businesses and
individuals that want a unique address and branded identity on
the Internet.  Domain names serve as part of the infrastructure
for Internet communications, including Websites, e-mail, audio,
video and telephony.  They also offer a suite of value-added
products and services targeted to assist customers in developing
and maintaining their online identities, including real-time
domain name management, Website creation tools under the name
FirstStepSite, domain name forwarding and domain name re-sale
services, such as auctions, through its subsidiary Afternic.com.
RCOM shares jumped last week with no public news to explain the
activity.  Now the issue is comfortably above a support area
near $9 and this position offers a low risk entry point in the
unique company.

JAN 10.00 RAU MB LB=0.45 OI=45 CB=9.55 DE=42 TY=8.7%


*****
RIMM - Research In Motion  $23.48  *** A Wireless World! ***

Research In Motion Limited (NASDAQ:RIMM) is a designer, maker
and marketer of wireless solutions for the mobile communications
market.  Through development and integration of hardware, software
and services, RIM provides solutions for seamless access to time-
sensitive information including e-mail, messaging, Internet and
Intranet-based applications.  RIM technology also enables a broad
array of third party developers and manufacturers in North America
and around the world to enhance their products and services with
wireless connectivity.  RIM's portfolio of products includes the
RIM Wireless Handheld product line, the BlackBerry wireless email
solution, wireless personal computer card adapters, embedded radio
modems and software development tools.  BlackBerry is the first
completely integrated wireless mobile email solution.  The unique
technology means that BlackBerry users are 'always on' and always
connected to their business email and that emails are received
automatically without the need to log in to a server or network.
Wireless communication is the way of the future and investors who
want to own RIMM can use this position to establish a discounted
cost basis in the issue.

DEC 20.00 RUL XD LB=0.35 OI=5133 CB=19.65 DE=14 TY=12.1%


*****
RSTN - Riverstone Networks  $18.15  *** Earnings Speculation! ***

Riverstone Networks (NASDAQ:RSTN) builds routers that convert raw
bandwidth into profitable services for Metropolitan Area Networks.
Riverstone's products enable the creation of profitable services
and the delivery of these services over next-generation and legacy
networks, including SONET/SDH, Gigabit Ethernet, T1/E1, T3/E3, ATM,
and Dense Wavelength Division Multiplexing (DWDM).  RSTN products
bring together fourth-generation Application Specific Integrated
Circuits, battle-tested routing software, and media versatility to
deliver comprehensive solutions for Metropolitan Area Networks.
Riverstone's products are deployed in more than 40 countries and
in some of the world's largest networks, including British Telecom,
Korea Telecom, Qwest Communications, MAE West Ames, EarthLink, NTT,
and Telefonica.  The company's quarterly earnings are due in two
weeks and traders are already speculating on the outcome of the
report.  Our position offers a (potentially) favorable reward with
relatively low risk.

DEC 15.00 RQJ XC LB=0.30 OI=696 CB=14.70 DE=14 TY=14.8%


*****

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

TUNE   22.65  DEC 20.00   TUF XD  0.45 240   19.55   14   14.3%
STEL   26.57  DEC 22.50   URU XX  0.45 25    22.05   14   14.0%
INVN   31.34  DEC 20.00   FQQ XD  0.40 896   19.60   14   13.0%
FFIV   25.45  DEC 22.50   FLK XX  0.45 157   22.05   14   12.7%
RATL   20.87  DEC 17.50   RAQ XQ  0.30 2630  17.20   14   12.3%
OAKT   13.53  DEC 12.50   KAU XV  0.25 3     12.25   14   11.7%
JDAS   19.36  JAN 17.50   QAH MW  0.70 50    16.80   42    7.7%
FEIC   35.03  DEC 30.00   FQE XF  0.30 164   29.70   14    7.0%



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

Time To Lock-In Some Profits!
By Ray Cummins

******************************************************************
                         - MARKET RECAP -
******************************************************************
Friday, December 7

U.S. equities retreated today as investors reacted negatively to
a report showing continued signs of weakness in the labor market.

The Labor Department said that the unemployment rate rose to 5.7%
last month from 5.4% in October.  Economists surveyed by Thomson
Global Markets expected a jobless rate of 5.6%.  The news weighed
on the market, as analysts fretted that a recovery in the economy
may not come as quickly as some were anticipating.  The blue-chip
average slumped 49 points to 10,049 on weakness in oil shares and
the NASDAQ slid 33 points to 2,021 as computer hardware, software
and Internet sectors all lost ground.  The Standard & Poor's 500
Index edged down 8 points to 1,158 with the biotechnology sector
among the worst performers.  Decliners beat advancers by a 1,680
to 1,401 margin on the NYSE and by a 1,876 to 1,749 margin on the
NASDAQ.  Total trading volume hit 1.23 billion on the Big Board
and 1.92 billion on the technology exchange.  Bond prices moved
lower while yields surged, despite the ominous labor data.  The
yield on the 10-year Treasury bond was up to 5.13%, the highest
level since August 8.  Some analysts said Friday's profit-taking
came at just the right time, with investors correctly exercising
caution in a market with recent heavy gains.  In addition, the
jobs report provided the Fed with ample ammunition for another
rate cut at Tuesday's FOMC meeting, and that could fuel the next
rally.


Portfolio Activity:

Well, it's good to be back and although I had little opportunity
to follow the Spreads/Combos section while overseas, it appears
the market acted favorably during my absence.  My laptop computer
was rendered inoperable by a power surge on the third day of the
trip but thankfully, there were plenty of Internet Cafes along
my route and they allowed me to correspond with the home office
as well as get some closing quotes after each session.  The week
started off at a mediocre pace but after the bullish activity on
Thursday, the Combos portfolio was in excellent shape.  All but
one of the current credit-spread positions are at maximum profit
and the lone dissenter, United Health Group (NYSE:UNH) offered a
a number of great adjustment opportunities after the unexpected
recovery rally late in November.  Some traders chose to exit the
bearish play (on the 11/26 dip) while others decided to roll up
to a December position with a cost basis near $75.  Our outlook
was cautiously neutral, even after the sudden trend reversal but
it now appears that $70 is the support level for the near-term
and that means a "break-even" exit is probably the best that can
be expected.  Sonus Networks (NASDAQ:SONS) was the big winner in
the group of synthetic positions, with the issue up over 35% in
the last three days.  The bullish play yielded a nice profit for
less than three weeks in the position and there will likely be
further upside in the long-term spread over the next few months.
In the Straddles Group, Goldman Sachs (NYSE:GS) was a big mover,
trading in a $10 range over a three-day period last week.  The
play offered a favorable short-term gain for aggressive traders.
The premium-selling category is on track this month and both of
our neutral credit strangles; Andrx (NASDAQ:ADRX) and Potash
(NYSE:POT) are at maximum profit.  The small group of calendar
spreads has also performed very well with Intuit (NASDAQ:INTU)
enjoying a healthy rebound, up to our sold strike at $45, while
Biovail (NYSE:BVF) produced a small gain after just one week in
the play.  The Covered-calls with LEAPS position in Microsoft
(NASDAQ:MSFT) is trading almost to a script with the issue near
the sold call at $70.  MSFT appears comfortable in the current
range with the long-term resistance at that price and we should
be able to safely sell another $70 call for the month of January.

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

These positions are based on recent increased activity in the
stock or underlying options.  Both of these plays offer favorable
risk/reward potential but they should be evaluated for portfolio
suitability and reviewed with regard to your strategic approach
and trading style.
  
******************************************************************
PVTL - Pivotal  $5.88  *** Cheap Speculation! ***

Pivotal (NASDAQ:PVTL) enables large and medium-sized businesses
worldwide to acquire, serve and manage customers by providing
customer relationship management and other electronic business
solutions.  The company refers to its solutions as the Pivotal
Customer Relationship Management and eBusiness solution suite.
The Customer Relationship Management and eBusiness solution
suite is designed to complement and integrate with a business'
supply chain, thus enabling businesses to improve efficiency
and increase revenues.

PVTL shares have been "on the move" in recent sessions and the
rebound potential for this downtrodden issue is excellent.  The
distinctive company offers functionality in a wide range of CRM
applications from marketing to sales and commerce.  Its software
is relatively easy to customize and integrate, and it is priced
within the reach of small businesses, yet is complex enough to
serve the needs of the middle market.  With regard to growth,
Pivotal has recently signed 38 new customers, including a global
financial institution, a Fortune 500 property developer and an
international cosmetics company.  The new CEO, Bo Manning, says
"things have finally bottomed-out" and traders apparently agree
with that outlook as they have pushed the price of PVTL up 50%
in the last week.  The technical indications are bullish and
this speculative position offers a method to participate in the
future movement of the issue with relatively low risk.

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  JAN-7.50  QFK-AU  OI=1   A=$0.50
SELL PUT   JAN-5.00  QFK-MA  OI=70  B=$0.30
INITIAL NET DEBIT TARGET=$0.05-$0.10  TARGET PROFIT=$0.35-$0.50

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $185 per contract.


******************************************************************
TELM - Tellium  $7.98  *** Bottom Fishing! ***

Tellium (NASDAQ:TELM) designs, develops and markets high-speed,
high-capacity, intelligent optical switching solutions that
enable network service providers to quickly and cost-effectively
deliver new high-speed services.  The company's products include
hardware, standards-based operating software and integrated
network planning and management tools designed to help deliver
intelligent optical switching for public telecommunications
networks.  Tellium's products are designed to manage high-speed
optical signals and can be easily expanded, enabling service
providers to grow and manage their networks quickly and more
efficiently to keep pace with the dynamic requirements of data
services.  The company's optical switches operate with existing
optical networking equipment to support the transition from
older networks to advanced, intelligent optical networks without
service disruption.  This capability protects service providers'
prior investment in fiber optics and transmission equipment.

Tellium shares have been active in recent sessions, due in part
to management's decision to extend the lock-up period for their
personal stock positions and an optimistic report that suggests
the company's market share is growing at a better-than-expected
rate.  The Tellium management team recently signed new contracts
with the company to extend the lock-up period for their shares
for an additional 75 days; until after the company posts fourth
quarter 2001 results.  Tellium's chairman and CEO noted that the
actions of Tellium's management team are "a strong indication of
the commitment of the team and their confidence in our future."
In addition, a new study released by a leading market research
firm said Tellium will increase its market share of the global
optical core switching market in 2001 by more than 50% from a
year ago.  According to the study's data, Ciena (NASDAQ:CIEN)
will maintain its leadership in the switching equipment market
with a 46% share, dropping from 60% a year ago.  Tellium will be
second in market share, with 29% of the market, an increase of
53% compared to its 19% share a year ago.  Tellium was the only
company in the study to see double-digit market growth, not to
mention a nearly ten-fold increase in projected annual revenues.

Based on the outlook for the industry, Tellium is well poised to
benefit from future growth and traders who agree with a bullish
outlook for the issue can speculate on that outcome with this
combination position.

PLAY (speculative - bullish/debit spread):

BUY  CALL  JAN-7.50   UHE-AU  OI=1541  A=$1.25
SELL CALL  JAN-10.00  UHE-AB  OI=336   B=$0.40
INITIAL NET DEBIT TARGET=$0.75-$0.80  PROFIT(max)=$1.70


******************************************************************
                       - TECHNICALS ONLY -

These plays are based on the current price or trading range of
the underlying issue and the recent technical history or trend.
Current news and market sentiment will have an effect on these
issues, so review each position individually and make your own
decision about its outcome.

******************************************************************
WLP - Wellpoint Health  $120.00  *** Safety Stock! ***

WellPoint Health Networks (NYSE:WLP) is a United States managed
healthcare company.  Wellpoint offers a range of network-based
managed care plans.  The company offers these plans to the large
and small employer, individual, Medicaid and senior markets.
The company's managed care plans include preferred provider
organizations, health maintenance organizations and standard
point-of-service and hybrid plans and traditional indemnity
plans.  In addition, the company offers managed care services,
including underwriting, actuarial services, network access,
medical cost management and claims processing.  The company
also provides a broad array of specialty and other products,
including pharmacy, dental, utilization management, life and
specialized healthcare insurance, preventive care, disability
insurance, behavioral health services, COBRA and flexible
benefits account administration.

Wellpoint is widely recognized as a leader its industry and the
balance sheet for the company has historically been very good.
Wellpoint is also very innovative and they are adding to their
best growth opportunities such as managed-care related products.
The technical outlook for WLP is favorable and our conservative
position offers an excellent way to participate in the future
movement of the issue with relatively low risk.

PLAY (conservative - bullish/credit spread):

BUY  PUT  DEC-110  WLP-XB  OI=39   A=$0.30
SELL PUT  DEC-115  WLP-XC  OI=182  B=$0.75
INITIAL NET CREDIT TARGET=$0.50-$0.55  PROFIT(max)=11%


******************************************************************
CBE - Cooper Industries  $35.75  *** Asbestos Woes? ***

Cooper Industries (NYSE:CBE) operates in two business segments:
Electrical Products and Tools & Hardware.  Cooper manufactures,
markets and sells its products and provides services throughout
the world.  Cooper serves three major markets: construction,
industrial and electrical power distribution.  The markets for
Cooper's products and services are worldwide, though the United
States is the largest market.  Cooper believes that it is among
the top manufacturers in the world of electrical distribution
equipment, wiring devices, support systems, hazardous duty
electrical equipment, emergency lighting, lighting fixtures,
fuses, non-power hand tools and industrial power tools.

Cooper's stock price plummeted Friday in sympathy with the drop
in Halliburton (NYSE:HAL).  Shares of Halliburton fell to their
lowest level in almost 10 years after the U.S. Securities and
Exchange Committee announced that a Baltimore jury had awarded
$30 million in asbestos damages against its Dresser Industries
subsidiary.  Cooper Industries' past association with Federal
Mogul is the reason for concern in the wake of Halliburton's
precipitous decline and traders can speculate on the issue's
asbestos-related activity with this combination position.

PLAY (conservative - bearish/credit spread):

BUY  CALL  DEC-45  CBE-LI  OI=12596  A=$0.40
SELL CALL  DEC-40  CBE-LH  OI=1294   B=$1.00
INITIAL NET CREDIT TARGET=$0.65-$0.75  PROFIT(max)=14%


******************************************************************
                   - STRADDLES AND STRANGLES -

I received some new requests for debit straddles this week and
since there are a number of favorable candidates in the category
of "speculative" plays, I have decided to publish a variety of
of issues and let you decide if any of the positions meet your
personal risk/reward criteria.  These plays will not be tracked
with the regular portfolio positions.
 
******************************************************************
AH - Armor Holdings  $25.40  *** Active Sector! ***

Armor Holdings (NYSE:AH) is a manufacturer of security products
for law enforcement personnel around the world through its Armor
Holdings Products division.  The company is a global provider of
security risk management service to multi-national corporations
and governmental agencies with its ArmorGroup Services division.
Armor Holdings Products Division offerings include: ballistic
resistant vests and tactical armor, hard armor, police batons,
forensic, fingerprint and evidence collection equipment, unique
less-lethal munitions, holsters and duty gear, and anti-riot
products, among others.  ArmorGroup Services division provides
complicated security planning and risk management, humanitarian
support, demining, mine awareness training, electronic security
systems integration, computer forensic, consulting and training
services, as well as intellectual property asset protection,
business intelligence and investigative services.

PLAY (speculative - neutral/debit straddle):

BUY  CALL DEC-25  AH-LE  OI=713  A=$1.10
BUY  PUT  DEC-25  AH-XE  OI=335  A=$0.65
INITIAL NET DEBIT TARGET=$1.60-$1.70  TARGET PROFIT=20%


******************************************************************
FMKT - FreeMarkets  $22.05  *** Big Mover! ***

FreeMarkets (NASDAQ:FMKT) creates business-to-business online
markets and provides electronic commerce technology and services
for the procurement of industrial parts, 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.  More than 9,300 suppliers from over 55
countries have participated in unique online markets created by
FreeMarkets.  In addition to its new FullSource offering, which
provides customers with the range of its technology, services and
information, FreeMarkets offers its DirectSource and QuickSource
hosted services, which enable customers to run their own online
markets.  FreeMarkets also operates the Asset Exchange for buyers
and sellers of surplus assets and inventory.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  DEC-22.50  FAQ-LX  OI=186  A=$1.20
BUY  PUT   DEC-22.50  FAQ-XX  OI=25   A=$1.65
INITIAL NET DEBIT TARGET=$2.65-$2.75  TARGET PROFIT=20%


******************************************************************
CRA - Celera Genomics  $28.95  *** Earnings Speculation! ***

Celera Genomics (NASDAQ:CRA), a business of Applera, conducts
its business through two groups: the Applied Biosystems Group
(Applied Biosystems), which is engaged mainly in the development,
manufacture, marketing, and service of instrument systems and
associated consumable products for life science and related
applications; and the Celera Genomics Group (Celera Genomics),
which is engaged principally in integrating high throughput
technologies to create therapeutic discovery and development
capabilities for internal use and for its many customers and
collaborators.  Celera Genomics' businesses are its online
information business and its therapeutic discovery business.
The company's quarterly earnings and shareholder report are
scheduled for December 12.

PLAY (very speculative - neutral/debit straddle):

BUY  CALL DEC-30  CRA-LF  OI=2623  A=$0.85
BUY  PUT  DEC-30  CRA-XF  OI=197   A=$1.90
INITIAL NET DEBIT TARGET=$2.50-$2.65  TARGET PROFIT=20%

Note:  The Delta or "hedge ratio" in the position suggests that
we should buy two calls for every put (2:1 ratio) to maintain a
neutral outlook.  However, any upward movement in the issue on
Monday should allow both sides of the position to be purchased
at similar prices.


******************************************************************
FLEX - Flextronics  $27.56  *** Active Sector! ***

Flextronics International (NASDAQ:FLEX) is a global provider of
electronics manufacturing services to equipment manufacturers,
mainly in telecommunications, networking, consumer electronics
and computer industries.  The company's manufacturing services
include the fabrication and assembly of plastic/metal enclosures,
printed circuit boards or PCBs, backplanes and the assembly of
complete systems and products.  In addition, with its photonics
division, the company makes and assembles photonics components
and integrates them into PCB assemblies and systems.  During
the production process, the company offers design and technology
services; logistics services, such as materials procurement,
inventory and vendor management, packaging and distribution;
and automation of key components of the supply chain through
advanced information technologies.  In addition, the company has
added other after-market services such as network installation.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  DEC-27.50  QFL-LY  OI=5211  A=$1.50
BUY  PUT   DEC-27.50  QFL-XY  OI=590   A=$1.35
INITIAL NET DEBIT TARGET=$2.65-$2.75  TARGET PROFIT=20%


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



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