Option Investor

Daily Newsletter, Sunday, 12/16/2001

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The Option Investor Newsletter                   Sunday 12-16-2001
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The Option Investor Newsletter         Sunday  12-16-2001
Copyright 2001, All rights reserved.
Redistribution in any form strictly prohibited.

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
       WE 12-14         WE 12-07         WE 11-30         WE 11-23
DOW     9811.15 -238.31 10049.46 +197.90  9851.56 -108.15  + 92.72
Nasdaq  1953.17 - 68.09  2021.26 + 90.68  1930.58 + 27.39  +  4.61
S&P-100  572.38 - 19.40   591.78 +  6.98   584.80 -  8.47  +  5.20
S&P-500 1123.07 - 35.24  1158.31 + 18.96  1139.45 - 10.89  + 11.69
W5000  10443.56 -301.81 10745.37 +213.92 10531.45 - 64.95  +109.73
RUT      471.29 -  9.92   481.21 + 20.43   460.78 +  2.36  +  7.11
TRAN    2577.10 - 51.16  2628.26 +116.48  2511.78 - 23.12  + 37.53
VIX       25.97 +  1.08    24.89 -  1.25    26.14 +  1.36  -  2.39
VXN       52.79 +  2.61    50.18 +  1.73    48.45 -  2.36  -  4.23
TRIN       1.06             1.18             1.19             0.70
TICK       +388             +828             +852             +976
Put/Call    .72              .78              .63              .61

Tightrope Act Leaves Investors Confused!
by Jim Brown

The markets rallied slightly from their oversold conditions but
came to a stop exactly on critical technical levels. The rally
came on rumors that UBL had been captured or killed. While just a
rumor the shorts did not want to hold positions over the weekend and
be faced with a patriotic bounce at the open on Monday should the
rumor be found true. After the close a defense dept briefing was
held and the rumor proved to be untrue.

Other than the rumor bounce it was a very slow day. You can tell just
how slow when the three biggest news stories were on McDonalds, Home
Depot and GE. Not normally news drivers they shared the spotlight as
traders struggled to maintain interest a week before Christmas.

McDonalds said they were on track in their recovery program but they
would come in at the low end of estimates and a penny below consensus.
The European business was recovering from the mad cow scare but the
Japanese unit was now suffering the same fate after three cows have
tested positive since September. Weak Asia/Pacific economies were
also weighing on their business. Still on a slow news day McDonalds
"soared" +1.16 or +4.5% on the announcement. Are you excited yet?

Home Depot "rocketed" +1.81 on news that holiday shoppers were
spending money on home improvement items and stores were seeing
heavier traffic even though normal holiday retailers were facing
slowdowns. I know this is exciting stuff but please try to control
yourself while I wade through this market moving news. It appears
Lowes and Home Depot actually added some merchandise that would
appeal to shoppers as impulse gifts such as coffee makers, crock
pots, home electronics and Christmas lights. Wow! A major marketing
breakthrough! Stock what people will buy, I wonder if it will catch
on in the entire retail sector? This novel approach to retailing
caused HD to post the biggest gain of any Dow component. I told
you this was an exciting news day!

I hope your sitting down because you may need a drink after this
next paragraph. At least that is what the liquor industry hopes. GE
component NBC opened the spigot on allowing advertisements for hard
liquor on national television. The decades old informal prohibition
will come to an end with a spot for Smirnoff vodka which will air on
Saturday Night Live. The advertising market has gotten so bad that
it appears past taboos may become prime time gluts. Once the door is
opened to liquor ads all the major brands will have to ratchet up
their campaigns and throw massive amounts of money at the major
networks. The change in status could provide a replacement for the
tobacco ad revenue which disappeared many years ago. GE "spiked" the
markets with a +.60 gain.

I told you it was slow. Even the economic news was dull and uninspiring.
The Industrial Production number came in at -0.3% which was much better
than the -0.6% decline that was expected. Still it was the thirteenth
month of decline in the last fourteen months. Capacity utilization
fell to 74.7% and the lowest level since 1983. The good news was that
five of the twenty industries that make up the manufacturing component
showed gains and new orders are beginning to show signs of improvement.
This indicates that growth over the next two months will likely remain
negative but it is starting to get better.

Business inventories fell -1.4% which was twice the consensus and
the inventory-to-sales ratio fell to 1.39, the lowest level since June
2000. Many analysts believe the inventory correction is becoming so
overdone that the rebound off the bottom will be very strong. Once
inventory reaches maintenance levels orders will have to be processed
to maintain those levels and not slip into shortage territory. Once
this maintenance level is reached and manufacturing stabilizes then
analysts will feel more comfortable about predicting future trends.

The Consumer Price Index continued to gyrate and posted a flat month
when analysts had expected a drop. The Fed was expecting more drops
in inflation and the zero change in the rate was probably a shock.
One month does not make a trend but any resiliency in the core price
inflation will undermine support for further rate cuts. Of course
there are not many rate cuts left in the Fed's arsenal anyway. What
could happen would be a rush to take back those rate cuts if the
inflation monster starts to shadow us again. The calendar for next
week is very light with the only major report being the 3Q GDP on
Friday. Friday is triple witching option expiration day and coupled
with all the year end portfolio shuffle the volatility could be

The biggest problem we will face next week is not the economic
calendar but the tax selling calendar. Most funds will want to be
done before the holidays which means we could see more selling before
Santa arrives. The bounce at the close on Friday was simply short
covering in case the Eastern Alliance serves up a well known turban
on a platter for U.S. troops. The major indexes rose up to rest
exactly on support, now resistance, of 9800 (9811) 1950 (1953)
and 1125 (1123). You probably recognize those numbers as my entry-
exit points from the last two weeks. Could that many traders really
be reading my material? Just kidding. I obviously did not pull those
numbers out of my hat since they have now become something of a battle
ground between the bulls/bears. Since the indexes came to a stop
exactly on the edge of a breakout/breakdown we need to look a little
closer at the market movers to decide what direction next week might
take. To do this we can look at all the Dow stocks to see which are
likely to go up or down.

Dow 30 Stocks

AA   Alcoa            $37 trending down, support $35
AXP  American Express $32 trending down, support $30
T    AT&T             $16 trending down, support $15
BA   Boeing           $37 trending up, resistance $38
CAT  Caterpillar      $50 trending down, support $48
C    Citigroup        $47 trending down, support $45
DIS  Disney           $21 trending up, resistance $23
KO   Coca Cola        $46 flat - no risk
DD   Dupont           $41.5 trending down, support $40
EK   Kodak            $30.5 trending down, support $29
XOM  Exxon Mobil      $37 trending down, support $36
GE   General Electric $37.6 flat - resistance $38
GM   General Motors   $47.5 trending down, support $46
HD   Home Depot       $50 trending up but at strong resistance
HON  Honeywell        $32 trending down, support $30+
HWP  Hewlett Packard  $21 trending down but at support
IBM  IBM             $121 flat, resistance 122, support $119
INTC Intel            $33 flat, resistance at $34
IP   Intl Paper       $39 flat, at support
JPM  JP Morgan        $36 trending down, support $35
JNJ  Johnson&Johnson  $56 trending up, resistance at $57
MCD  McDonalds        $27 trending down, support $26
MRK  Merck            $58 trending down, at support
MSFT Microsoft        $67 trending down, support $66
MMM  3M              $115 trending down, support $114
MO   Phillip Morris   $46 flat, resistance $46, support $45
PG   ProctorGamble    $80 trending up but overextended
SBC  SBC Comm         $39 trending up, resistance $40
UTX  United Tech      $61 trending up, resistance $62
WMT  WalMart          $54 trending down, support $52

The bottom line from all the Dow analysis above is that
there are 17 down trending stocks, 7 up trending and 6 flat.
The difference between current prices and support on the
down stocks totals slightly more than $22.50. Using an average
weighting of seven to get Dow points you arrive at a downward
risk of -157.50. That would put us at 9656 but it also does
not take into account the up trending stocks. The stocks moving
up have a total of $7 between them and resistance which equates
to +49 Dow points. You cannot draw any specific point conclusions
since on any given day some stocks will be up and some down.

The conclusion you can draw is that the Dow is heavy. That
means that it will require more effort to produce a rally
than it will to cause a drop. With down trending stocks
outweighing stocks moving up by better than a 2:1 margin
the odds are better for another drop or at least no major
gains. This analysis is only good for a couple days since
the internals for each Dow stock will change daily based
on hundreds of factors.

The top Nasdaq stocks breakdown like this. I added the
percent of the Nasdaq for each stock.

DELL $28, trending down, support $26 - 2.46%
CSCO $19, trending down, at support  - 4.49%
ORCL $14, trending down, at support  - 3.08%
MSFT $67, trending down, support $66 - 11.1%
INTC $33, flat, resistance at $34    - 6.94%
QCOM $56, trending down, support $49 - 4.56%
WCOM $15, trending down, at support  - 1.41%
SUNW $12, trending down, at support  - 1.58%
PSFT $38, flat, at support           - 1.48%
MXIM $57, flat, at support           - 2.31%
AMGN $56, trending down, support $55 - 2.65%

Notice anything? With 42% of the Nasdaq represented in the
eleven stocks above, there are zero stocks trending up.
With the exception of QCOM however there is only $6 between
their current prices and support. While there are no winners
there are no losers either other than possibly QCOM. This
means that the Nasdaq is stronger than the Dow and could
wage a tough battle here at 1950 before giving up ground.

The low prices, and I am not talking about PE ratios, of the
stocks on the Nasdaq compared to where they started 2001 could
draw more tax sellers. HOWEVER, since the techs always lead the
market out of bottoms there is likely to be a lot of buyers as
well. These buyers, $4.5 trillion in cash on the sidelines, have
been waiting for a sign and a failure to fall any further next
week after posting huge gains since the attack could be that sign.

That sign may not be seen on Monday/Tuesday. After doing the
Dow/Nasdaq analysis above I went back and scanned my top 1000
stock charts. It was not a pretty picture. Many, and I repeat
many, of the stocks were completely broken down. Many had fallen
to support and were showing signs of failure. Chemical stocks,
networking, chips, materials, banks, there were very few leaders.
This appears to be a case of the soldiers getting crushed while
the generals are struggling to hold the high ground. If the
trend spreads next week that sign of end of year strength I
spoke of above will only be wishful thinking. It is entirely
possible we could see another washout drop if earnings warnings
pick up speed before the holidays. In my opinion that would be
the best scenario. Clear the desks, take profits, close the tax
books and let the next bull market begin.

Everyone knows we are in a recession. Old news! Everyone knows
that a recovery will likely appear in the second half of 2002,
give or take a quarter. Our task is to avoid losing money while
waiting for the next move up to begin. This is really a very
easy task. Instead of wondering each day if this is the day,
we only need to watch the technical entry points. We do not
need to worry if there will be tax selling. Or about the possibility
of a Santa Claus rally or even when the January Effect really
appears. We only need to worry about our planned entry point.

Our job became only slightly more difficult on Friday as the
markets came to rest exactly on those entry/exit points. Some
of us went long when the markets rallied over the entry points
on the Laden rumor and then saw those indexes fall right back
to the entry point at the close. We should not agonize over this
and simply keep to the plan. If we dip below those levels next
week then simply go flat and wait for the numbers to be crossed
again. The numbers I am referring to are Dow 9800, Nasdaq
1950 and S&P-1125. Stay flat below them and go long above them.
So simple it is scary!

Enter Very Passively, Exit Aggressively!

Jim Brown


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Technical Analysis Explained - Eric Utley

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This must be "dead cat bounce" week. The two plays I have selected
to highlight this week were slaughtered by investors on news events.
I view next week as risky in the market so the best way to avoid
risk is to play stocks with the risk removed.

AMGN - $56.03

Amgen took a fall this week after a story broke that it may be in
talks to buy Immunex. Initially the analysts thought AMGN was going
to pay too much for the company and would have trouble getting the
deal approved by 41% owner AHP.

After further review, there are a lot of positive points in this
transaction. With the deal AMGN would double its rheumatoid arthritis
drug franchise. IMNX has a drug called Enbrel that could easily be
as big as Prilosec in sales and AMGN recently announced its own
drug, Kineret for the same problem. Having two major drugs for the
same illness would make marketing easier and possibly promote both
drugs as a cocktail for severe cases. The deal would also give IMNX
a dose of cash to bolster its efforts to develop new drugs.

AHP needs the money as well and a few billion in cash and stock at
a time when drug companies are getting killed in the generic market
would not hurt. Both AMGN and IMNX are working on cancer and autoimmune
drugs and the combined entity could accelerate its research in those

I like this play because the risk has been removed from AMGN. The stock
has been crushed back to strong support at $55 and once the deal is
made public any details could provide a boost. Also, should the deal
crater then AMGN could quickly recover some of the almost -$15 it
has lost on the rumors. Minimum downside and positive upside.
Sounds good to me.

I would use the April-$60 call YAA-DL which closed at $4.70 on


PCYC $9.39 No brainer

This is as close to a no brainer as you can get. Pharmacyclics
reported that a phase III drug for treatment of brain cancer
failed to meet its primary goals. The stock, which has only one
other drug nearing completion in its pipeline, was crushed from
$23 to $9. What was overlooked by the press was positive reports
about the same drug being effective in lung cancer (still in tests)
and a change in the way the drug was going to be administered in
brain patients. It was supposed to be effective in patients who
had undergone chemo and was given during and after the process.
The company feels that if it is given before chemo it could be
much more effective.

Still, the main point here is a small cash thing. The company has
$8.80 in cash for each share of stock. That means you are getting
the entire company for $.59 cents. In reality the company will use
some of that cash to restart trials on the drug and push the other
drug to completion. More results are expected on the lung cancer
tests sometime in the first quarter.

Considering the cash position of the company the stock is not
likely to fall below $9.00 making the short term risk here very
minimal. Any favorable news about the two main drugs or any of the
drugs farther back in the process will renew investor hope and
increase the stock price again.

I would use the June $10 call QPY-FC $2.55.


Top 20 List

The number of long call plays was slimmer this week as the
market internals, as represented by the non-leader stocks,
is becoming very weak. Please only play these calls if the
market is in rally mode.


ACS  98.70 Slow mover, good trend
BOL  34.98 Steady trend
BRKS 40.25 Rising off support
CA   35.43 Buy breakout over $36
CC   24.15 On fire, new high, wait for pullback
CCMP 78.63 Buy breakout over $80
CDWC 54.53 Rebounding off support after profit taking
CEGE 23.13 Rebounding after pullback to support
CMTN  2.25 Nice rebound, buy the stock!
CPRT 35.00 Rebounding off support
CPWR 13.50 Breakout
EDMC 38.33 Buy breakout over $39
EMMS 19.59 Buy breakout over $20
FDC  75.16 Rebounding off support at $74
GNSS 69.80 Buy on next pullback
HP   30.18 Buy over $30
IKN  11.39 Profit taking over?
KBH  38.25 Near new high
KKD  40.62 Cult classic
MANU 17.24 New relative high
MDT  48.80 Buy breakout over $49
NVDA 65.66 Breakout to new high
OSIP 43.21 New life, back from the dead!
SEPR 55.50 New relative high
SRCL 61.64 New high
XMSR 16.24 Wait until it breaks $17 then hang on


CMVT 19.16 Multiple downgrades, support $15
ELNK 11.70 Bottom fell out
FON  19.05 New low
MIR  15.85 Energy loser

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

Good Luck



Mixed Signals
By Eric Utley

On the surface, Friday was a positive day.  After all, the major
averages finished higher.  They were fractional gains in the INDU,
SPX, and NDX, but gains nonetheless.

However, there was additional internal damage done last Friday.
Recall that in Thursday's column I highlighted the move to
Bear Confirmed in the Nasdaq-100.  A few of those tech stocks that
I referred in that column lost their support levels as evidenced
by the further drop in the Nasdaq-100 Bullish Percent.  It lost
three stocks in Friday's session.

To confound matters, the Nasdaq-100 COT report revealed an
interesting shift this weekend.  Commercial interests added a
meaningful number of longs, while small traders added a huge
number of shorts.  That could set-up a situation in which the
amateur bears are squeezed out of their positions.

Also worth noting was the shift in the New High/New Low index
on the NYSE.  The line was been positive up until Friday's
session, when the New Lows overtook the New Highs.  The
Nasdaq index, however, remained positive.

The market's sentiment is tough to gauge with the mixed signals.
Plus, the holiday and end-of-year issues are most definitely
at play.  And we can't forget the bin Laden factor.

Something could give as early as next week.  A big leg down in
the tech sector is possible with the Nasdaq-100 in Bear
Confirmed mode, but the COT report seems to suggest otherwise.

Editor's Note:

Eric Utley is on vacation next week.  Russ Moore of IndexSkyBox
will be filling in for Eric in the Market Sentiment.


Market Volatility

VIX   25.97
VXN   52.79


          Put/Call Ratio  Call Volume   Put Volume
Total          0.71        592,685       423,862
Equity Only    0.66        522,572       345,728
OEX            0.64         21,219        13,682
QQQ            1.37         36,437        49,866


Bullish Percent Data

           Current   Change   Status
NYSE          49      + 0     Bull Confirmed
NASDAQ-100    65      - 3     Bear Confirmed
DOW           60      - 3     Bull Confirmed
S&P 500       62      - 1     Bull Confirmed
S&P 100       63      - 1     Bull Confirmed

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

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


 5-Day Arms Index  1.22
10-Day Arms Index  1.03
21-Day Arms Index  1.10
55-Day Arms Index  1.07

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


        Advancers     Decliners
NYSE      1759           1348
NASDAQ    1833           1783

        New Highs      New Lows
NYSE       52             56
NASDAQ     78             38

        Volume (in millions)
NYSE     1,302
NASDAQ   1,868


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 interests grew their net bearish position last week,
although the % of OI was unchanged.  Small traders added a small
number of shorts and shed a few more longs.

Commercials   Long      Short      Net     % Of OI
11/27/01      371,336   421,405   (50,069)   (6.3%)
12/04/01      360,315   420,919   (60,604)   (7.8%)
12/11/01      367,397   429,640   (62,243)   (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
11/27/01      151,317     92,807   58,510     24.0%
12/04/01      159,336     86,534   72,802     29.6%
12/11/01      158,490     86,717   71,773     29.2%

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


Commercial traders added a significant number of longs last week,
while the group's short position declined.  In an interesting
turn, small traders added a significant number of short positions,
taking the net position to only a fractionally bullish stance.

Commercials   Long      Short      Net     % of OI
11/27/01       37,259     48,315   (11,056)  (12.9%)
12/04/01       42,191     51,426   ( 9,235)  ( 9.9%)
12/11/01       45,468     51,392   ( 5,924)  ( 6.1%)

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
11/27/01       12,540     8,359    4,181      20.0%
12/04/01       11,808     8,311    3,497      17.4%
12/11/01       12,425    11,754      671       2.7%

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


Commercial interests continued in the trend of reducing their
net bullish position during the most recent reporting period.
The % of OI long dropped by 6 percent.  The small traders
dumped a few longs and shorts for a slight decrease in their
net bearish position.

Commercials   Long      Short      Net     % of OI
11/27/01       24,243    11,496   12,747     35.7%
12/04/01       22,703    10,739   11,964     35.8%
12/11/01       23,135    12,576   10,559     29.6%

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

Small Traders  Long      Short     Net     % of OI
11/27/01        4,228    10,630    (6,402)   (43.1%)
12/04/01        3,677     9,799    (6,122)   (45.4%)
12/11/01        3,469     9,065    (5,569)   (44.4%)

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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Pass The Sunscreen
By Eric Utley

I was driven mad by the market late last week.  Anybody else
see the bond market?  After a brief rally, Treasuries pulled
back last week, which sent yields up to relative highs.  That
could've been a bullish development for stocks.  Why then did
the Nasdaq-100 Bullish Percent ($BPNDX) go Bear Confirmed last
Thursday?  Also, what's up, err, down with the CPI?  The Labor
Department reported that its consumer price index remained
flat in November.  Why then did Treasuries sell-off on the
news?  Why was the S&P Retail Sector Index (RLX) higher by 1.8
percent?  Why was energy higher?  What!?!  What in the world
was the Philly Gold and Silver Index (XAU) doing higher last
Friday by 3.87 percent?  Kind of smelled inflationary, didn't it?

When my head spins at the rate it was last Friday, I know it's
time for a reprieve.  Now is that time.  I'll be cruising for
warmer parts over the next two weeks.  Unfortunately, the ship
I'm traveling on doesn't have Internet access.  I know, I'm
disappointed, too.

It may be best to hold questions and requests until my return as
I won't be replying to any e-mails over the next two weeks.
Until then, I wish you and your close ones a happy and safe
holiday season.

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



Amgen has provided some good earning expectations going forward
and I have been looking for a pull back to its support to enter a
play.  Could you do some retrenchment work on this stock. - Thanks,

Thank you, Rich.  It's a good time to write about Amgen.

Amgen, with its $60 billion market cap, is the world's largest
biotech concern.  The company is reportedly in merger talks with
Immunex (NASDAQ:IMNX), a relatively small biotech company with a
big rheumatoid arthritis drug in Enbrel.

Interestingly enough, I wrote a piece detailing Amgen about a
month ago in an Option Investor Intraday Update.  At the time,
Amgen had just received FDA approval for its rheumatoid arthritis
drug, Kineret.  Several reports that I read suggested that Amgen
would try to combine its niche Kineret with Immunex's Enbrel in
a duel treatment fashion.  Little did I know that the reports I
read revealed a merger in the making.

The market didn't react positively to the merger talks as shares
of Amgen plunged late last week.  Some are concerned that Amgen's
$18 billion offer for Immunex is a bit of a stretch.  Amgen has
about $2.5 billion in cash and a bit more in liquid assets, which
it would use to pay for a portion of the acquisition.  The
remaining funds for the deal would come from shares of Amgen.

Analysts predict that the deal would be dilutive to Amgen and
some are concerned over the marketing rights for Immunex's
Enbrel.  That's so because American Home Products (NYSE:AHP)
owns about 41 percent of Immunex.  Sources close to the deal
have said that American Home Products supports the merger for
the most part, although AHP's sponsorship remains to be seen.
Amgen is expected to formally announce the merger next week.

The combination of the two would create a biotech behemoth,
broad and deep in research and development and far-reaching
in marketing prowess.  Indeed, the cross-marketing of Amgen's
and Immunex's arthritis offerings may have a long-term
positive impact.  But the essence of the market's negative
reaction is that Amgen is willing to pay too much.

(On a side note, the market has reacted rather poorly to the
recent acquisitions in the biotech sector.  The Millenium
(NASDAQ:MLNM) and Corr Therapeutics (NASDAQ:CORR) deal was
frowned upon.)

The market's negative reaction helped to retrace Amgen's
recent rally, which was spurred by the company's raising of
fiscal '02 guidance that Rich referred to.  Prior to the
breakout that was induced by the positive guidance, Amgen
traded in a base that had a solid bottom in place at $56.
Guess where the stock stopped Friday?

If you're bullish on the biotechs, the Amgen deal, or just want
to try to pick a bottom in a stock, I think it can be tried
here in Amgen.  My speculation that AMGN will bounce from $56
was reached by using a vacuum to view the current set-up.  In
other words, it's independent of other variables, such as the
merger falling through or the price action of the broader
biotech sector.  My thesis is based purely on the fact that
AMGN closed near a very meaningful support level last Friday
at $56.  Risk is incredibly easy to manage in this case: a stop
at $55.  Of course a formal merger announcement could create
a gap down situation, which is beyond my ability to forecast.
But there could be a bounce good for three points, while risk
is currently $1.


American International Group - (NYSE:AIG)

I jumped on your AIG put bandwagon last month, feeling very
impressed by all that point and figure charting, that I still
don't really understand, and the 'long term' 83% chance of
being correct in being bearish on AIG.  How do thinks look
now?  Are my long term puts still in good shape? - Cheers,

Thanks for the question, Damian.  I don't know if it was a
bandwagon, but I jumped into the S&P Insurance Sector Index
(IUX) play and was stopped out in early November.  I'm
terribly upset with that much.

Are your long-term puts in good shape?  I cannot comment on
a specific position, but I can give you my best assessment of
the IUX and AIG.

The IUX, of which AIG is a component, is again under
performing the S&P 500 -- the IUX is weak.  The index traded
back and forth during November and into early this month.  I
thought it was going to trace another triangle, which would
have been a most interesting development.  But the second
triangle never came to be.

The IUX's drop last Monday put it back on a sell signal.  The
index could not get above its 200-dma in late November and
early December.  The moving average finally pressured the IUX
lower last Monday.  What's especially upsetting to me is that
the IUX failed to reach its early October highs after stopping
me out in November.  Most other sectors of the market traded
past their early October highs during the most recent push
higher.  But that not the IUX.  That fact alone tells me that
the index is one of the weaker in the market without doing
any relative strength work.

So now we're back at the magical 700 level in the IUX.  The
index stopped at that level last Friday and traded a bit higher
into the close.  I think a trade below 700 could have the
IUX set-up to retest its lows in early November down around 680.

AIG is tracking the IUX closely.  AIG does have very, very
meaningful support immediately below its current level.  Between
$77 and $78 is serious support.  If that support level is lost,
then I think AIG works significantly lower.  With the relative
highs getting lower in AIG, the path of least resistance appears
skewed to the downside.  If I'm wrong, have a stop in place to
protect your capital.  I was wrong about the IUX triangle, but
it remains to be seen if the index eventually trades down to its


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


Monday, 12/17/01

Tuesday, 12/18/01
Housing Starts         Nov  Forecast:  1.53M  Previous:   1.55M
Housing Starts         Nov  Forecast:  1.47M  Previous:   1.47M

Wednesday, 12/19/01
Trade Balance          Oct  Forecast:-$27.5B  Previous: -$18.7B
Leading Indicators     Nov  Forecast:   0.2%  Previous:    0.3%

Thursday, 12/20/01
Initial Claims       12/15  Forecast:    N/A  Previous:    394K
Philadelphia Fed       Dec  Forecast:  -17.5  Previous:   -20.2
Treasury Budget      12/08  Forecast:-$47.5B  Previous: -$23.7B

Friday, 12/21/01
Personal Spending      Nov  Forecast:  -0.5%  Previous:    2.9%
Personal Income        Nov  Forecast:   0.0%  Previous:    0.0%
GDP-Final               Q3  Forecast:  -1.1%  Previous:   -1.1%
Chain Deflator-Final    Q3  Forecast:   2.1%  Previous:    2.1%
Mich Sentiment-Rev     Dec  Forecast:   85.7  Previous:    85.8

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The Option Investor Newsletter                   Sunday 12-16-2001
Sunday                                                      2 of 5

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CALLS              Mon    Tue    Wed    Thr   Week

CNXT     15.86    0.54  -0.37   0.08  -1.53  -0.57  Dropped
INTC     33.27   -0.29   0.24   0.89  -1.51   0.03  Near support
XMSR     16.24    0.01   0.55   0.53   0.01   3.30  Super!!!
AMR      23.12   -0.52  -0.07   0.25  -0.42  -0.22  Ready to fly?
CI       89.40   -2.82   0.46  -1.03  -0.85  -4.90  Dropped
FFIV     25.14   -0.30   2.30  -1.92   1.10  -0.31  Entry point
IBM     121.10   -0.74   1.84   1.70  -2.95   0.70  Dropped
LOW      45.89   -0.61  -0.19   0.63  -0.56  -0.42  Dropped
NVDA     65.64    0.61   2.17   1.95  -1.86   5.69  Giving gifts
QLGC     51.53    0.69   0.41   2.06  -3.83  -1.44  Dropped
AMZN     11.00   -0.39   0.59  -0.33  -0.42  -0.74  Dropped
RATL     20.86   -0.80   1.11   1.89  -0.65   0.06  Entry point!
ADIC     17.05   -0.38   0.04   0.49  -0.04   0.55  New, DDX.X
SEPR     55.47    1.07   0.93   0.00   0.05   3.47  New, strong
OAKT     14.69   -0.03   0.51  -0.08  -0.17   1.16  New, mending
MDT      48.85   -0.90  -0.26   0.27   0.39   0.85  New, breakout


VZ       47.20    0.45  -0.45  -0.49   0.16  -0.66  Make or break
FRE      64.05    0.75   0.20   0.50  -1.12  -0.20  Watch the bond
DYN      24.94   -2.48  -1.85  -0.84   1.47  -5.34  Debt downgrade
CAH      65.69   -1.37  -1.07   1.28  -1.33  -0.45  Dropped
CB       67.45   -1.60  -0.09   0.13   0.12  -0.26  Dropped
HGSI     33.60   -1.70  -0.35  -1.88   1.14  -2.49  Keeps falling
QCOM     55.84    0.06   0.50   0.14  -2.67  -1.13  Short covering
AFFX     33.65   -1.79   0.24  -1.19   0.74  -3.65  New, biowreck
CERN     49.00    0.74  -1.36  -1.34  -1.40  -4.69  New, downtrend


Call Play of the Day:

MDT - Medtronic, Inc. $48.85 (+0.85 last week)

See details in play list

Put Play of the Day:

CERN - Cerner Corporation $49.00 (-4.46 last week)

See details in play list

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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.

CNXT $15.86 (-0.57) CNXT bounced from the $15.50 stop level
last Friday, but failed to make much progress to the
upside thereafter.  The stock may come under pressure if
weakness persists in the SOX next week.  For that reason,
we're dropping trading coverage this weekend.  Traders may
continue to watch for a better entry point at lower prices
in this strong semi.

CI $89.40 (-4.90) One of many failed breakouts in the past
couple weeks, CI hasn't had a decent bullish day since closing
above the 200-dma a week ago.  Although our stop at the $89
level is still intact, we don't like the fact that the bulls
have been unable to gain any traction over the past 5 sessions.
Rather than hold our breath going into another week, we'll just
kick CI off the playlist this weekend.  There are plenty of
other fish in the sea.

IBM $121.10 (+0.70) It's time to lock in our gains and move on.
IBM has been on the playlist for the past 6 weeks, providing
numerous profitable trading opportunities, as the stock worked
up from the $106 level as high as $123.  Now that the stock has
broken out to new highs, it is probably a safe bet that we'll
see some sideways trade for awhile.  We're more than happy to
pocket our gains and move on to the next profitable play.

LOW $45.89 (-0.42) Our LOW play was D.O.A. (that's Dead On
Arrival).  After tracing a new all-time high, the bulls seem to
have gone into hibernation, as the stock has been drifting
sideways for more than a week.  Without any sign of life, the
momentum that was driving the stock higher has clearly
evaporated, and so has our interest in the play.  LOW moves to
the drop list this weekend.

QLGC $51.53 (-1.44) After several attempts to push through the
$56 resistance level, it looks like the bulls have been put out
to pasture and the bears are extending their claws again.
Falling below our $52 stop on Friday, QLGC has lost its bullish
bias, and rather than hope for another bounce and run at
resistance, we're pulling the plug this weekend.

AMZN $11.00 (-0.71) After rolling over near $12.50 on Wednesday,
AMZN was fighting a losing battle for the remainder of the week.
The bullish wedge failed to produce an upside breakout and
Friday's early weakness dragged the stock within a few pennies
of our $10 stop before there was any help from the buyers.
Although the stock got a decent bounce in the afternoon, the
chart pattern no longer looks attractive to the long side.
We'll move to the sidelines this weekend, and would recommend
using any strength next week to exit the play at a more
favorable level.

CAH $65.69 (-0.45) Our CAH play has been flirting with the
$63.50 level for most of the past week, and it looks like the
bulls are going to win this round.  With a solid bounce on
Friday and daily Stochastics turning up out of oversold, it's
clearly time to call an end to the play.  Use any weakness next
week to exit any open plays at a more favorable price.

CB $67.45 (-0.26) Oops!  That's not how a put play is supposed
to behave.  While we did manage some short-term gains in CB,
the stock is back in bullish favor as buying volume has been
strong.  While our $69 stop is still in place, we'll take the
opportunity to exit the play this weekend before the bulls gain
any more traction.


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

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

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

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

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

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


OAKT - Oak Technology $14.69 (+1.16 last week)

Oak Technology designs, develops and markets high-performance
integrated semiconductors, software and platform solutions to
original equipment manufacturers (OEMs) that serve the optical
storage, I-appliance and digital imaging equipment markets.
The company's products consist primarily of integrated circuits
and supporting software, all designed to store and distribute
digital content, enabling its OEM customers to deliver
cost-effective, powerful systems to home and enterprise end

Breakout alert!  Yep, that's right.  We've got another Tech
stock that is rocketing higher on heavy volume.  This move
really got started about 2 weeks ago when OAKT cleared the $12
resistance level and we've been waiting for the breakout to
fail.  Well, judging by the solid upward move since then, it
doesn't look like it is going to happen.  Especially not with
days like Friday, which say a 6.75% rally on volume more than
75% above the ADV.  There's very little in the way of overhead
resistance now until OAKT reaches the $18 level.  It might just
make sense to chase the stock higher from current levels!
Either look for an intraday dip in the $13.50-14.00 area to
initiate new positions or enter as the stock pushes through $15
resistance.  Since this is a clear momentum play, we are
initiating it with a fairly tight stop at $13.  It's not a lot
of wiggle room, but if OAKT can't hold above that level, it will
be an early sign that the bulls are losing their resolve.

BUY CALL JAN-12 KAU-AV OI=735 at $2.85 SL=1.50
BUY CALL JAN-15*KAU-AC OI= 48 at $1.30 SL=0.75
BUY CALL APR-15 KAU-DC OI=113 at $2.50 SL=1.25
BUY CALL APR-17 KAU-DW OI=  0 at $1.60 SL=0.75

Average Daily Volume = 831 K

MDT - Medtronic, Inc. $48.85 (+0.85 last week)

As a medical technology company that provides lifelong solutions
for people with chronic disease, MDT offers therapies to restore
patients to fuller, healthier lives.  Reading like a medical
journal, applications for the company's primary products
include bradycardia pacing, tachyarrhythmia management, atrial
fibrillation, heart failure, coronary and peripheral vascular
disease, cardiac surgery, spinal and neurosurgery and
neurodegenerative disorders.

Looking for a breakout?  So are MDT investors, and you can
almost taste the enthusiasm by looking at the big green candle
on Friday.  In addition to the nearly 3% rally, volume was solid
too, as the stock closed at a new post-attack high.  This makes
the fifth time MDT has challenged the $49 resistance level since
June.  Will it succeed this time?  Judging by the head of steam
being built up by the sharply rising daily Stochastics, it looks
like the answer is "Yes".  This is one of those rare occasions
where it looks like buying the breakout may provide the better
entry point.  Wait for MDT to clear the $49.25 level, ideally on
continued strong volume before taking a position.  For those
that can't resist trying to buy the dip, look for any intraday
dip above the $46.50 level to provide attractive entry points.
Set stops initially at $45.50.

BUY CALL JAN-45 MDT-AI OI=8376 at $4.60 SL=2.75
BUY CALL JAN-50*MDT-AJ OI=4270 at $1.25 SL=0.50
BUY CALL FEB-50 MDT-BJ OI=5825 at $1.90 SL=1.00
BUY CALL MAY-50 MDT-EJ OI=2956 at $3.30 SL=1.75
BUY CALL MAY-55 MDT-EK OI=1432 at $1.65 SL=0.75

Average Daily Volume = 4.19 mln

ADIC - Advanced Digital Information $17.05 (+0.55 last week)

A leading supplier of automated tape libraries, ADIC buys tape
drives from other manufacturers and outfits them with robotic
arms.  The arm then selects a tape from a multi-tape unit,
ranging in size from desktop-size to large standalone units,
and adds or accesses data.  With over 55,000 libraries installed
and a suite of innovative software solutions and Storage Area
Networking (SAN) products, ADIC is a leader in the rapidly
growing market to manage and protect computer network

There's nothing like a pending breakout to get the bulls lining
up.  ADIC has been working higher in a very deliberate manner
for the past 8 weeks.  Rally sharply and then consolidate.
Repeat.  Well, the past 2 weeks, the stock has consolidated
between the $16-17 price levels and is poised to break out next
week.  Buying volume has been rising dramatically, topping four
times the ADV on Friday.  You can bet there are plenty of shorts
betting against the breakout, and if it does happen, we could get
an additional pop when they have to cover.  Of course, it could
take a bit more time before the bulls are ready to push through
resistance, depending on the mood in the broad markets.
Consider initiating new positions on an intraday dip near $16,
so long as that level holds as support.  Otherwise, wait for the
stock to break out over $17 and take advantage of the momentum.
We are looking for a short-term move to the $18 resistance
level, and then a continuation to the $20 level in fairly short
order.  Place stops at $15.25, just below the 200-dma and major

BUY CALL JAN-15 QXG-AC OI=199 at $2.75 SL=1.50
BUY CALL JAN-17*QXG-AS OI=287 at $1.15 SL=0.50
BUY CALL APR-17 QXG-CS OI=359 at $2.05 SL=1.00
BUY CALL APR-20 QXG-CD OI=317 at $1.25 SL=0.50

Average Daily Volume = 568 K

SEPR - Sepracor $55.47 (+3.47 last week)

As a specialty pharmaceutical company, SEPR strive to develop
improved versions of widely prescribed drugs. Their Improved
Chemical Entities (ICE) program identifies existing, widely
prescribed drugs that might be replaced by improved, single-
isomer or active-metabolite forms of such drugs.  The company
then seeks to develop ICEs that offer one or more benefits
over the parent drugs, such as reduced side effects, improved
efficacy or effectiveness for new indications.  SEPR has
licensed or is developing ICEs to treat a broad range of
indications in areas including respiratory, urology/
gastroenterology, and psychiatry/neurology.

In the wake of the MRK meltdown last week, it's a bit
surprising to find a bullish play coming from the
Pharmaceutical sector, but here it is.  SEPR shrugged off the
negative news and just kept churning higher, closing just shy
of the $56 level on Friday.  That makes the highest close for
the stock since late February.  There's going to be some
resistance to work through near $57, followed by the $60 level,
but it is hard to argue with the bullish trend.  The ascending
trendline that began in late September remains unbroken and is
currently resting near $52, a recent level of resistance that
has been acting as support.  The 10-dma (currently $52.70) has
been supporting the stock on intraday dips as well.  With
looming resistance overhead, profit taking from the recent rise
is likely just around the corner.  We don't want to get caught
by it.  Instead, let's take advantage of it.  Don't chase SEPR
higher, but wait for the pullback before initiating new
positions.  A dip and bounce in the $52-53 area looks attractive
for new entries, with stops initially placed at $51.

BUY CALL JAN-55*ERQ-AK OI=1036 at $4.50 SL=2.75
BUY CALL JAN-57 ERQ-AS OI= 425 at $3.40 SL=1.75
BUY CALL JAN-60 ERQ-AL OI= 865 at $2.50 SL=1.25
BUY CALL APR-60 ERQ-DL OI=  46 at $6.70 SL=4.75

Average Daily Volume = 1.35 mln

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Trade instantly with Stop Losses at PreferredTrade Inc.
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Anything else is too slow!



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Contact Support

The Option Investor Newsletter                   Sunday 12-16-2001
Sunday                                                      4 of 5

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



* EASY screens for covered calls, spreads, and straddles
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Note: Options involve risk. Risk disclosure:


CERN - Cerner Corporation $49.00 (-4.46 last week)

Cerner Corporation designs, develops, markets, installs, hosts
and supports software information technology and content
solutions for healthcare organizations and consumers.  CERN's
product categories include Enterprise Systems, Financial and
Operational Management Systems, Decision Support Systems and
Knowledge Solutions, Point of Care Clinical Systems, Systems
for Clinical Centers, Personal Health Systems and Interface
Technologies.  Clearly the company has a product or service
for literally every phase of the healthcare process.

After a sharp rally from mid-September to mid-October, shares
of CERN have been in a persistent downtrend, and the bears seem
to be getting more tenacious by the day.  The most recent
rollover got started in early December, as the stock failed to
move through the 20-dma (then at $55.40) and it has really been
picking up speed over the past week.  Not only is the price
movement increasing, but so is the selling volume.  Friday's
selling came to a (temporary) halt near $48, giving the stock a
modest rise going into the closing bell.  The $48 level is the
site of prior support, so the rebound could just be reflexive.
We're looking to initiate new positions when the bounce runs out
of steam, ideally near the $52 resistance (old support level).
We could see a bit more strength before the stock rolls over
again (especially on a broad market rebound), but we're not
willing to let it go too far.  The descending trendline is
currently resting at $54, and that level should put a cap on any
rallies in the near term.  Higher risk players can target new
positions on a pop near that level, but remember that we are
placing our stop at $54 as well.

BUY PUT JAN-50*CQN-MJ OI=166 at $4.30 SL=2.75
BUY PUT JAN-45 CQN-MI OI=  0 at $1.90 SL=1.00

Average Daily Volume = 821 K

AFFX - Affymetrix Inc. $33.65 (-3.65 last week)

AFFX has established itself as a worldwide leader in the
field of DNA chip technology.  The Company has developed and
intends to establish its GeneChip system as the platform of
choice for acquiring, analyzing and managing complex genetic
information in order to improve the diagnosis, monitoring and
treatment of disease.  The Company's GeneChip system consists
of disposable DNA probe arrays containing gene sequences on a
chip, certain reagents for use with probe arrays, a scanner
and other instruments to process the probe arrays, and software
to analyze and manage genetic information from the probe
arrays.  The company sells its products to Drug and Biotech
companies involved in gene research.

It's time to pick on the weakling.  The weakling sector that is.
In case you haven't noticed, the Biotech sector (BTK.X) is still
leading the NASDAQ, only now it is leading it down.  After
breaking below the $585 level early last week, the index just
continued to weaken, and it looks like AFFX is about to join the
bearish party.  After completing a double-top near $38, the
stock has been drifting lower and is now resting just above the
$33 support level.  The first serious support exists near
$29.50, the site of the 38% retracement of the stock's gains
since the September lows.  Use any failed intraday rally to gain
a better entry into the stock, likely near the $35 level.
Alternatively, use a breakdown below the $33 level to enter
momentum-based plays.  Remember to keep an eye on the BTK, as
the movement in the broader sector will likely tell us the
direction AFFX is headed.  We are initially placing our stop at
$36, just above significant intraday resistance.

BUY PUT JAN-35*FIQ-MG OI=73 at $4.00 SL=2.50
BUY PUT JAN-30 FIQ-MF OI=76 at $1.65 SL=0.75

Average Daily Volume = 1.61 mln

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QCOM - Qualcomm $55.84 (-1.13 last week)

Qualcomm is engaged in developing and delivering digital
wireless communications products and services based on the
company's CDMA digital technology.  The company's business
area include integrated CDMA chipsets and system software,
technology licensing, Eudora email software, and satellite
based systems.

Gerard Klauer Mattison initiated coverage on QCOM last Friday
morning with a lukewarm outperform rating.  The brokerage firm
cited QCOM's dominant market position in the wireless segment.
The firm also said that QCOM had an impressive balance sheet
and was in a strong financial position.  The news may have
been partially responsible for the slight bounce in the stock
last Friday.  But more than likely, QCOM bounced higher on a
combination of short covering and the fractional gain in the
Nasdaq.  As we pointed out last Thursday, it's very important
to monitor the action of the broader Nasdaq as it relates to
QCOM.  If the Nasdaq continues higher early next week, look
for it to weaken in conjunction with a rollover in QCOM near
its 200-dma at $56.86.  That level is near last Thursday's
intraday high.  In a declining Nasdaq, watch for QCOM to
breakdown below the $55 short-term support level.

BUY PUT JAN-57 AAO-MY OI= 3566 at $4.90 SL=3.25
BUY PUT JAN-55*AAO-MK OI=14985 at $3.70 SL=2.25

Average Daily Volume = 16.7 mln

DYN - Dynergy $24.94 (-5.34 last week)

Dynergy is a provider of energy and communications solutions
to customers in North America, the United Kingdom and
Continental Europe.  The company's expertise extends across
the entire convergence value chain, from broadband, power
generation and wholesale and direct commercial and
industrial marketing and trading of power, natural gas, coal,
emission allowances, and weather derivatives.

The power plays remain a very much news driven segment of
the market.  The bearish news last Friday cause another shift
in sentiment after last Thursday's bounce.  Moody's Investor
Service put Calpine under review for a possible downgrade of
its credit rating.  Enron released a statement concerning
alleged "inaccurate news reports and statements" about the
company's 401K savings plan.  And Mirant tried to defend its
stock against associations with Enron.  The aforementioned
were all lower in Friday's session, including our DYN play.
While extremely difficult to gauge, the news flow from the
power companies will continue to dominate near term price
action in our DYN play.  Traders can watch for negative
news from the pertinent companies and confirm price action
in the market.  In DYN, look for selling below last Friday's
intraday low at the $23.50 level.  If negative sentiment
mounts and price action confirms, DYN could migrate back
down to the $20 level next week.

BUY PUT JAN-30 DYN-MF OI=7747 at $6.50 SL=4.75
BUY PUT JAN-25*DYN-ME OI=9970 at $3.10 SL=2.25

Average Daily Volume = 4.88 mln

FRE - Freddie Mac $64.05 (-0.20 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

The bond market is most relevant to this play because
mortgages are closely linked to the bond market.  Obviously
FRE is linked to the mortgage market.  The recent rise in
yields across the curve has some worried that mortgage
rates may rise too quickly.  Indeed, rates hit a 5 month
high late last week, with an advance in key mortgage rates
past the 7.00% level.  If rates rise too quickly, it may
deter consumers from refinancing and purchasing houses.  The
housing market has remained incredibly strong this year
because of the low rates, but that trend has the potential
to reverse if rates continue higher.  FRE traded lower on
the notion of rising rates last week, and may continue to
do in next week's trading.  The key here is to monitor the
bond market in the form of the 10-year Yield (TNX.X).  If
the TNX.X continues higher, then FRE could come under
further pressure.  Watch for the stock to fall back below
the $64 level early next week and confirm any such decline
with a breakdown below short-term support at $63.

BUY PUT JAN-70 FRE-MN OI=1285 at $6.40 SL=5.00
BUY PUT JAN-65*FRE-MM OI=3502 at $2.70 SL=2.00

Average Daily Volume = 3.23 mln

VZ -  Verizon $47.20 (-0.66 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

The Wireless Services Index (YLS.X) finished slightly
lower last Friday while VZ finished down by a little more than
its sector gauge.  The out performance to the downside was
encouraging.  More importantly, perhaps, was the inside day
traced by VZ last Friday.  The stock traded within the previous
day's high and low, which generally reveals indecision on the
part of market participants.  The stock could either be near
the end of its recent trend or ready to break to new lows.  Not
by coincidence, VZ is sitting right on its relative lows at the
$47 level, which has acted as support in the last two sessions.
Either the stock is going to breakdown below the $47 level in
the coming sessions or it's going to rebound in a big way.
That said, if you have open positions in this play, consider
setting a tight stop to protect against a potential pop higher.
If you're searching for a new entry into this weak telecom
stock, then look first for weakness in the YLS.X, and second
a breakdown in VZ below the $46.90 level.

BUY PUT JAN-50*VZ-MJ OI=15394 at $3.60 SL=2.75
BUY PUT JAN-45 VZ-MJ OI=15369 at $0.85 SL=0.25

Average Daily Volume = 814 K

HGSI - Human Genome Sciences $33.60 (-2.49 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.

It was a painful week in the Biotech sector (BTK.X), unless you
were playing the downside, that is.  And HGSI kept doing what it
was supposed to do; falling.  After dipping near the $31 level
on Thursday, some buying interest actually appeared, and we could
be nearing the end of the play.  While the volume was rather
mild, it did occur near major support.  We'll continue to target
failed rallies for initiating new positions, as more weakness on
the BTK could translate into HGSI challenging support near the
$28 level.  But with the intraday lows moving up over the past
couple days, we need to be careful.  Look for a rollover in the
$35 area to provide fresh entry points, but keep in mind that
our stop is at $35.50.  If HGSI closes above that level, we'll
be moving the play to the drop list in a hurry.

BUY PUT JAN-35*HHA-MG OI=2885 at $4.20 SL=2.50
BUY PUT JAN-30 HHA-MF OI= 557 at $1.85 SL=1.00

Average Daily Volume = 3.26 mln


Patience IS Rewarded
By Mark Phillips
Contact Support

It was a busy week here in LEAPS land, although we didn't manage
to add any new Portfolio plays this week.  No, most of the action
was related to cleaning up some collateral damage in the Drug
sector caused by the Merck (NYSE:MRK) earnings warning, and
finding some new plays that should help us profit from the
pending market correction.  At least we'll have a correction if
my expectations are met.

First up is MRK, and based on the company's dismal forecast for
2002, it should come as no surprise that we booted the stock off
of our Watch List.  I've covered the details below, but what was
really interesting was the reaction in shares of our Eli Lilly
(NYSE:LLY) play.  The guilt-by-association selling that took
place on LLY stopped us out of that play, and while I'm thankful
that our stop preserved our profits, I want back in.  I like the
way the stock reversed near the $78 level, and so I've recycled
the stock right back onto the Watch List.  See the LLY drop
below for more details.

Regular readers know I've been expecting this market to run out
of steam for weeks now, and it looks like the emergence of weak
economic reports and a rash of earnings warnings is bringing the
eternal optimists back to earth.  What I find interesting on the
financial news (and I use the term very loosely) programs, the
dominant question is whether we are going to resume the bull
market.  Excuse me?  After the carnage we've seen in every sector
of the market over the past 20 months, any rational observer
would have to be asking whether we are going to resume the bear
market.  But I digress...

Lo and behold, we're seeing many of our Watch List plays start
to come back towards our Entry Targets.  Granted, several of them
have a lot further to go, but it looks like our expected
retracement may be getting started.  General Electric (NYSE:GE)
got started ahead of the rest of the pack and is currently
bouncing around between $36-38.  While our target is for the
stock to hit $36, I'm not in a hurry on this one.  Ideally, I'd
like to see an intraday dip below $36 and recovery above that
level on strong volume (Hey, I can dream can't I?).  That weekly
Stochastic oscillator still has some room to fall, and the ideal
entry will come with the daily emerging from oversold with the
weekly bottomed in oversold as well.

Another Watch List play that I found rather interesting this week
was Johnson & Johnson (NYSE:JNJ).  Although price was relatively
flat in the $55-57 area, the daily Stochastics is recovering
towards overbought rather quickly.  Bullish stochastic without a
bullish move in price is inherently bearish.  We'll need to wait
for the next cycle to oversold on the daily chart, but that could
be the one that gives us our entry in the vicinity of $52.  Make
the play line up for you before actually taking a position, but
get ready.  Entry may be closer than I initially expected.

The balance of our Watch List call plays are coming back to us
and I think that we could see entries materializing left and
right in fairly short order.  Remember to wait for those entry
targets to be hit, followed by a volume-backed bounce, with the
appropriate alignment of the Stochastics in both daily and
weekly timeframes confirming the bullish potential of the play.
Take a look at the plays on the Watch List, and I think you'll
see what I do.

Nokia (NYSE:NOK) appears to be putting in a top near the $25-26
level and on its retracement looks entirely capable of giving us
an entry near the $20-21 level.  The drop in shares of Tyco
International (NYSE:TYC) is pulling the weekly Stochastics into
a rollover, and Broadcom (NASDAQ:BRCM) is even further along
that path after topping out near $52 recently.  I don't want to
analyze these (or the other Watch List plays) too much this
weekend.  We've done plenty of that in the recent past.  The
point I want to make is that, as I suspected, the current
bullish move is starting to run out of steam.  As some of these
stocks come back from their lofty heights, we should get some
nice entry points.  And given the strong performance these
stocks have delivered over the past 3 months, I would expect
them to be among the leaders in any kind of economic recovery

Moving on to the broad markets, it is hard to divine any great
wisdom from the churning we have seen in the past couple weeks.
If you're thinking that is typical of topping action, give
yourself a gold star.  In fact, I'm seeing some remarkable
similarities between the price action now as compared to the
tail end of the rally that ran out of steam in May of this year.
And why not?  Both rallies were sharp and jumpy, based upon the
hope that the aggressive action of the Fed would bring the
economic slowdown (now a full-fledged recession) to a quick end.
Well, the proof has yet to appear, and the bulls are getting
nervous.  The bears have yet to really crawl out of their caves
yet, so there could still be some decent rallies before stocks
start rolling over for real.

But there is no denying that some serious technical damage was
done to the case for a new bull market over the past couple
weeks.  Let's take a quick gander at some of the sectors that
have been leading the charge since the September lows.  The
Biotech sector was one of the first out of the gate, rallying
early and hard.  But the past week was not pretty.  After
rolling over at $620, it has broken both support at $575 and the
ascending trendline.  And the rollover on the weekly Stochastics
is just getting started.  Long-term bullish plays here are going
to be tough to game in this sector for awhile.

How about Software?  The GSO index ran hard until it reached the
200-dma, which is now gradually pressuring the index lower.  The
ascending trend here is in potential trouble too, with Friday's
lows posted just above the $177 support level, also the site of
the 20-dma.  It hasn't broken down yet, but neither is it a
paragon of strength.  Then there is the Networking sector
(NWX.X) which got taken to the cleaners this week due to a slew
of ugly earnings warnings from the likes of Lucent (NYSE:LU),
Ciena (NASDAQ:CIEN), etc.  The NWX recently rolled over right at
its 200-dma and has now seen a lot of technical damage, wiping
out all of the gains accrued over the past month.

Then we have the favorite of momentum investors, the
Semiconductor sector (SOX.X).  Much was made of the significance
of this index closing above its 200-dma a couple weeks ago.  So
where is it now?  Oops!  Back below the 200-dma and barely
hanging onto its ascending trendline by the tips of its fingers.
The fat lady hasn't sung yet, but I can hear her warming up back

So the leading sectors are struggling to maintain altitude.
Where is the strength in the market?  Retailers?  Nope, failed
breakout in the RLX index too.  Bank sector (BKX.X)?  Not
likely -- double top at the 200-dma and threatening to break
support.  How about a nice defensive sector like the
Pharmaceuticals?  Wait a minute...what was I thinking -- MRK put
a quick end to any thoughts of strength there.  I could go on,
but I think you get the picture.  Talk of a new bull market must
be tempered by the reality that currently exists in both the
economy and the stock market.  And it ain't pretty, as confirmed
this past week by the less-than-inspiring economic reports and
rash of earnings warnings.  Oh, and don't forget the continuing
stream of layoff announcements.

Underscoring the current indecision in the markets is the
meandering behavior of the VIX.  It has been wandering in the
middle of its range (24-28) for a month now, and it isn't
providing any clear direction at this time.  It looks like it is
settled back into its historical (20-30) range, and when it tests
the extremes, it is highly probable that we can use it for a
reliable trade filter again.  But for right now, it is stuck in
the middle again, just like the major market averages.

The waiting is still the hardest part, but when we are seeing
the markets begin to behave a little more rationally, it is a
little bit easier to wait.  Feel free to take advantage of any
entry points that materialize in accordance with your plan.  For
me, I don't expect to enter any new bullish plays this year.  I
could be wrong (an all-too-frequent occurrence), but for now my
efforts will be focused on capitalizing on any bearish
opportunities provided by Mr. Market.

Have a great week!

Mark Phillips
Contact Support

LEAPS Portfolio

Current Open Plays



AIG    11/07/01  '03 $ 80  VAF-MP  $ 8.40  $ 8.40    0.00%  $86.50
                 '04 $ 80  LAJ-MP  $10.60  $10.80  + 1.89%  $86.50

LEAPS Watchlist

Current Possibles


GE     08/12/01  $36           JAN-2003 $ 40  VGE-AH
                            CC JAN-2003 $ 30  VGE-AF
                               JAN-2004 $ 40  LGR-AH
                            CC JAN-2004 $ 30  LGR-AF
TYC    09/16/01  $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
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
LLY    12/16/01  $78-79        JAN-2003 $ 80  VIL-AP
                            CC JAN-2003 $ 75  VIL-AO
                               JAN-2004 $ 80  LZE-AP
                            CC JAN-2004 $ 80  LZE-AP
WCOM   12/16/01  $14           JAN-2003 $ 15  VQM-AC
                            CC JAN-2003 $12.5 VQM-AV
                               JAN-2004 $ 15  LQM-AC
                            CC JAN-2004 $ 10  LQM-AB


MO     12/09/01  $48, $50      JAN-2003 $ 50  VPM-MJ
                               JAN-2004 $ 50  LMO-MJ
GM     12/16/01  $50-51        JAN-2003 $ 50  VGN-MJ
                               JAN-2004 $ 50  LGM-MJ

New Portfolio Plays


New Watchlist Plays

WCOM - WorldCom Group $14.75  ** CALL PLAY**

With the market rally that we have seen since the September
lows, there are few sectors of the market that have NOT been
trending up, so it should come as no surprise that WCOM is
trading well off its lows.  The stock certainly hasn't set any
speed records heading higher, but the gradual ascent has
certainly been encouraging and has a much healthier look to it
than many Technology stocks that have seemingly had a vertical
rise.  The stock has built a solid base near $14 and achieved
an important milestone last week, trading above the $16 level
for the first time since mid-June.  What really got my attention
about the move was the fact that WCOM got above its 200-dma
(currently $15.50) for the first time since July of 2000.  With
the market weakness this past week, the stock has since fallen
below that important level, and that has dragged the weekly
Stochastic oscillator back into descent mode.  It will likely
need to see a retracement in price, and as it does, we'll look
for that oscillator to put in another trough and begin to
recover again.  But take a look at the monthly Stochastic, and
you can see that it is just starting to emerge from oversold,
setting the stage for a sustained recovery.  It isn't clear what
is causing conditions to improve for the company, as the
long-distance market is continuing the way of the dinosaur.  Oh
sure, the service will always be provided, but it certainly
won't be the bread and butter income stream that it once was.
Clearly, WCOM's futures are tied to the data market, and judging
from the string of upgrades to Buy and Strong Buy over the past
month, there are a lot of analysts that agree there is value in
the stock.  One other fundamental factor that is rather
interesting is that WCOM has not been issuing the string of
cap-ex spending reduction announcements common in the industry.
Quest Communications (NYSE:Q) comes to mind in this department.
Maybe that is what is capturing analysts' attention as well.
I'm looking for some consolidation in the $14-15 level over the
near term as the stock builds a higher base in order to take
another shot at the 200-dma.  Target new entries near the $14
level, and set initial stops at $12.  I don't expect to see the
stock reclaim its highs from last year anytime soon, but I think
the $25 level is realistic over the next year (especially if we
do see some sort of economic recovery) and given the cheap
LEAPS, that could hand us some tidy profits in the process.

BUY LEAP CALL JAN-2003 $12.50 VQM-AV **Covered Call**
BUY LEAP CALL JAN-2004 $10.00 LQM-AB **Covered Call**

GM - General Motors $47.48  ** PUT PLAY**

While technical analysis comes into all of the plays here in the
LEAPS column, our new play on GM is first and foremost about the
fundamental picture.  Unless you've been sleeping under a rock
for the past 3 months, you know that the automotive sector is
potentially in a world of hurt.  If it wasn't, then why would
they have offered the free financing that boosted sales in
October to the highest levels ever.  It doesn't take a rocket
scientist to see that the industry effectively front-loaded
sales that should have been spread throughout the next several
months.  That much became abundantly clear with the release of
the Retail Sales report last week, which showed a sharp decline
across the board, but most notably in the Auto sector.  You know
my thesis that the recession is far from over.  Well, if I'm
correct, don't you think it makes sense that auto sales are
going to be weak until we actually see evidence of both an
improvement in the economy and a recovery in employment?  That's
the basis of the play.  Now on to the technicals.  Since the
September lows, shares of GM have been enjoying a nice rally,
but it looks like that party is coming to an end.  Late last
week, the stock ran as high as $53.22, topping out just below
the 50% retracement of the July highs to September lows, and
since then has reversed sharply lower.  The stock received a
shock to the downside on the offering of Fiat convertible notes
(convertible into GM shares), which raised the spectre of
dilution for investors, sending them running for the exits.
Throw in the fact that GM is idling several thousand workers
next week, and I think you can see the validity of the
fundamental gloom and doom scenario I described above.
Additionally, I don't think it is any coincidence that the
200-dma is looming just overhead (currently $53.80) and I expect
that to provide a firm ceiling for awhile due to the poor
fundamental picture cited above.  While the weekly Stochastic
has just rolled over from overbought territory, the fact that
the daily is nearly back to oversold suggests that we get
another bullish bounce in price before the decline begins in
earnest.  Ideally, we'll fill the gap left last Tuesday,
bringing the price back into the $50-51 area, and I would
consider that to be an ideal entry point.  Traders with less
patience might want to pull the trigger near $49 (the bottom of
the gap), but make sure to wait for weakness to appear on the
daily chart with Stochastics once again rolling over near
(or in) overbought territory.  I'm expecting to see GM retrace
most (if not all) of its recent gains, which will take it back
into the $40-41 area.  Given the limited move (from $50 down to
$41) that we are targeting, I have again listed at-the-money
contracts, which should give us a solid move in the option
prices because of the higher delta.  Once we open the position,
we'll place our stop at $54, just above the recent highs and the



LLY $80.40 Everything was humming along nicely until MRK dropped
their bombshell (see details in the MRK drop below) on the
markets less than an hour after the FOMC meeting on Tuesday.
While the FOMC meeting produced a big yawn, the dismal forecast
from MRK was like shouting fire in a crowded theatre, sending
the Pharmaceutical index plunging below support.  LLY couldn't
hold back the flood of sellers, and we were stopped out of the
play at the closing bell.  I sure am glad we raised our stop to
$81 last week, as that got us out of the play on Tuesday,
avoiding the plunge to just above $78 on Wednesday.  But here's
an interesting twist.  Remember the neutral wedge that we were
playing on LLY?  The stock found support right at the upper
boundary of that wedge and bounced on Thursday.  While I'm happy
to be out of the play with a profit, I still like the stock to
the upside.  Therefore, we are cycling it right back onto the
Watch List.  If you are still holding open positions, I'd
recommend holding, but keep a firm stop at $78.  We'll be
looking to re-enter the play on another bounce in the $78-79
area, with our eyes still focused on a breakout over the $84
level.  Just be aware that the weekly Stochastics is looking a
bit toppy -- re-entering or holding here is higher risk than
when we initiated the play back in mid-October.  But I'm willing
to take the chance, given the positive price action over the
past couple months and the fact that the monthly Stochastics is
still in a gentle recovery.

MRK $60.70 Providing vivid proof that fundamentals will trump
chart patterns every time, MRK went into free fall on Tuesday,
less than an hour after the FOMC meeting.  What inspired the
drop was the company's "affirmation" of its earnings guidance
for 2001.  Well, that wasn't it exactly.  The company followed
up this good news with the prediction of "no growth" for 2002.
Apparently, management just figured out that patent expiration
on its two top-selling medicines (Vioxx for arthritis and Zocor
for high cholesterol) is going to have a detrimental effect on
earnings.  Ouch!  I'm sorry, but that is a major screw-up and
the street definitely agreed.  Less than an hour after that
bombshell, the stock was trading precariously just above $60,
down a whopping 9.4% from the day's opening price.  And the
decline continued through the end of the week with MRK settling
in near $58, its lowest level since March of 2000.  The negative
price action destroyed the neutral wedge pattern and has us
running for the exits.  Fortunately we didn't get so much as a
hint of an attractive entry point, so we can pull the plug on
this one with the only damage being the blow to my ego due to
having such a loser on the Watch List.

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The Option Investor Newsletter                   Sunday 12-16-2001
Sunday                                                      5 of 5

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Portfolio Management: The High Cost Of Emotional Judgments
By Mark Wnetrzak

Share values are constantly changing because stocks trade in a
market where humans make most of the decisions.  The gyrations
always include both upward and downward fluctuations in price
and although the movements often appear to be random, there is
a method to the madness.  Underlying fundamentals such as cash
flows, asset values and growth rates determine security values
over the long-term but in the present, emotion drives prices
and the difference between cost and fair value can occasionally
become extreme.  Hope and greed are the primary reasons for
inflated prices and fear, a much stronger emotion, can create
intense, short-lived periods of opportunity for adept traders.

Buy low and sell high!  That's the key to successful trading.
In reality, the concept is far more difficult than it appears.
Anyone who trades for an extended period will endure a number of
market declines and how one reacts during those extraordinary
periods will have a substantial influence on their total wealth.
Although brief market corrections rarely have a lasting financial
affect on long-term portfolios, a bruised ego generally prevents
one from recovering quickly.  Once a trader has sold in a panic,
it's unlikely they will think clearly enough in the short-term
to buy back in near the market bottom.  The withdrawn investor
will remain on the sidelines, slowly regaining the courage to
participate again, while the market hastily recovers it losses.
The healing process is accelerated by rising prices but in most
cases, traders who sell near the bottom fail to re-enter the
market until the recovery rally is almost over.

New traders fail to understand why selling near the low of sharp
market decline can be costly in more ways than one.  First, the
shares are often sold at the worst possible time, generally below
the cost basis, and certainly at loss when compared with earlier
prices.  Unloading portfolio holdings in a panic also causes an
emotional letdown, leaving most traders unable to partake in the
ensuing bullish phase.  This missed opportunity, every bit as
important as selling for a loss, is simply a gain not realized.
Of course, understanding the potential extent of a market decline
can help one pre-plan a strategy for timely exits.  In addition,
knowing how substantial a correction is likely to be will provide
a trader with a better perspective than those who can conceive of
nothing but catastrophic losses and endless financial suffering.

The word "crash" is often used to identify precipitous market
declines caused by specific events such as bankruptcies by major
financial institutions, credit defaults by foreign governments or
failures of their currencies.  Another practical and descriptive
phrase is "market correction," and this usually describes a sharp
drop that although distressing, does not carry the significance
or historical implications of a widespread crash.  Stock market
corrections occur frequently and in some instances, they become
severe enough to cause a brief panic among the general public
before the upward trend resumes.  Some traders favor the abstract
term "retracement" when describing a short-term market pullback,
because it captures the unemotional aspect of a mathematically
measurable decline in prices.  The severity of the movement and
its duration are the most important components in any analysis of
a falling market.  The severity of the event can be characterized
by the relative amount of damage in a specific time period.  Most
analysts identify a 10%-15% drop over a span of a few weeks as a
"correction" whereas a decline of 20% or more in less than a few
months would be considered a "crash."  This type of extensive
deterioration, far out of proportion to the market's underlying
fundamentals, generally does not exist for long because bargain
hunters eventually intervene with renewed buying pressure.

During a severe decline in the market, it is important to look
at each issue in your portfolio individually.  When a company's
share value is falling, there is not always a fundamental reason
for the drop.  Sometimes the stock price will simply be dragged
down by traders who are selling in conjunction with a slump in
the broader indices.  However, there are also occasions when a
problem with other companies in the sector, or in its suppliers
can significantly affect the perspective for an entire industry.
A recent example is Ciena (NASDAQ:CIEN), a communications giant
that changed the fundamental outlook for companies that provide
telecommunications equipment, specialized semiconductors, and
diversified electronics.  Traders must also evaluate the overall
condition of the market when reviewing portfolio positions.  The
reasons for widespread declines in share values are generally
obvious.  Weak consumer demand and falling earnings are signs of
an impending economic setback, and the prudent trader may decide
to pair his long-term holdings until a determination can be made
about the primary direction of the market.  At the same time, a
wise investor also develops perspective.  Imagine you could look
back to the current date from some point in the distant future.
Would the recent downtrend be viewed as significant or would it
simply be another of those periodic corrections?  Is the bearish
environment we are experiencing now likely to prove historically
important?  If not, unloading many of your long-term portfolio
positions is probably unwarranted.  Instead, you might consider
selling some covered-calls and adding to those issues that have
superior management and proven growth potential.

Trade Wisely!

Note:  Margin not used in calculations.

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

TELM    6.20   6.80   DEC   5.00  1.80  *$  0.60   9.9%
CANI    5.97   5.36   DEC   5.00  1.35  *$  0.38   8.9%
NPRO   11.32  11.70   DEC  10.00  1.85  *$  0.53   8.1%
TUNE   21.20  24.00   DEC  20.00  2.25  *$  1.05   8.0%
NTPA    5.68   6.20   DEC   5.00  1.10  *$  0.42   8.0%
MDCO   11.43  10.40   DEC  10.00  2.10  *$  0.67   7.8%
EMBT   19.16  19.95   DEC  17.50  2.25  *$  0.59   7.6%
SURE   12.20  10.55   DEC  10.00  3.10  *$  0.90   7.2%
QSFT   22.64  23.20   DEC  20.00  4.10  *$  1.46   6.8%
VTSS   11.61  12.99   DEC  10.00  2.45  *$  0.84   6.6%
SURE   12.38  10.55   DEC  10.00  2.80  *$  0.42   6.4%
PXLW   14.95  16.85   DEC  12.50  3.30  *$  0.85   6.3%
GMST   22.70  25.49   DEC  20.00  4.30  *$  1.60   6.3%
SNDK   14.19  16.93   DEC  12.50  2.20  *$  0.51   6.2%
RMBS    8.88   8.02   DEC   7.50  1.95  *$  0.57   6.0%
AMZN    8.95  11.00   DEC   7.50  1.90  *$  0.45   5.5%
MCDT   18.80  26.90   DEC  15.00  4.80  *$  1.00   5.2%
INVN   19.42  45.50   DEC  15.00  5.10  *$  0.68   5.2%
FMKT   19.75  22.05   DEC  17.50  2.85  *$  0.60   5.1%
STEL   23.54  27.00   DEC  20.00  4.20  *$  0.66   4.9%
VRTY   15.09  16.13   DEC  12.50  3.00  *$  0.41   4.9%
CRXA   14.74  15.57   DEC  12.50  2.90  *$  0.66   4.8%
ARQL   11.10  12.30   DEC  10.00  1.50  *$  0.40   4.5%
EXFO   14.18  11.41   DEC  12.50  2.55   $ -0.22   0.0%
PROX   11.50   9.22   DEC  10.00  1.90   $ -0.38   0.0%
JDSU   11.60   8.53   DEC  10.00  2.20   $ -0.87   0.0%
PCYC   25.82   9.39   DEC  22.50  5.20   $-11.23   0.0%

NPRO   11.81  11.70   JAN  10.00  2.70  *$  0.89   7.1%
FALC    8.81   9.12   JAN   7.50  1.90  *$  0.59   6.2%
OAKT   13.53  14.69   JAN  12.50  1.90  *$  0.87   5.4%
XICO   14.00  13.49   JAN  12.50  2.35  *$  0.85   5.3%
MRVL   36.96  38.30   JAN  32.50  6.60  *$  2.14   5.1%
NXTV    6.44   3.44   JAN   5.00  2.00   $ -1.00   0.0%

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


Is it time to digest some gains?  The DOW and SP-500 look suspect
in the short-term while the NASDAQ appears somewhat stronger.  I
vote for a lateral consolidation.  Pharmacyclics (NASDAQ:PCYC)
suffered a catastrophic loss on Friday after the drug developer
said its lead cancer drug failed to prove effective in the treat-
ment of cancer that has spread to the brain from another part of
the body.  As this is a short-term oriented section, we will
close the position.  Those investors who still believe in the
company's future (there is another drug in the pipeline and
Xcytrin did show that it was clinically active, especially in
lung cancer patients) will begin the tedious job of selling calls
and working their cost basis in the issue lower.  With one week
left until expiration, it is time to re-evaluate your long-term
outlook on any issues you choose own.  Consider the above issues:
JDS Uniphase (NASDAQ:JDSU), Proxim (NASDAQ:PROX), and Electro-
Optical Engineering (NASDAQ:EXFO).  Do you take the small loss
now or try to adjust the positions by rolling forward and or
down?  Not an easy decision.  As for January, the horrid action
this week in Next Level Communications (NASDAQ:NXTV) should have
prevented any entry into the position.  With the break-down below
the October and November highs, we will show the position closed.
Collateral damage from Lucent (NYSE:LU) and Qwest (NYSE:Q)?

Positions Closed: ELON, GNTA


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

ACXM   15.63  DEC 15.00   UQA AC  1.35 69    14.28   35    4.4%
CAMP    6.36  DEC  5.00   UMP AA  1.65 193    4.71   35    5.4%
DTHK   11.11  DEC 10.00   DTU AB  1.80 154    9.31   35    6.4%
NPRO   11.70  DEC 10.00   NYQ AB  2.60 612    9.10   35    8.6%
NTAP   21.04  DEC 17.50   NUL AW  4.50 1692  16.54   35    5.0%
PCLN    5.37  DEC  5.00   PUZ AA  0.95 14663  4.42   35   11.4%
VSNX   16.58  DEC 12.50   MQB AV  4.80 81    11.78   35    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

PCLN    5.37  DEC  5.00   PUZ AA  0.95 14663  4.42   35   11.4%
NPRO   11.70  DEC 10.00   NYQ AB  2.60 612    9.10   35    8.6%
DTHK   11.11  DEC 10.00   DTU AB  1.80 154    9.31   35    6.4%
CAMP    6.36  DEC  5.00   UMP AA  1.65 193    4.71   35    5.4%
VSNX   16.58  DEC 12.50   MQB AV  4.80 81    11.78   35    5.3%
NTAP   21.04  DEC 17.50   NUL AW  4.50 1692  16.54   35    5.0%
ACXM   15.63  DEC 15.00   UQA AC  1.35 69    14.28   35    4.4%

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).

ACXM - Acxiom  $15.63  *** Computerized Background Checks ***

Acxiom (NASDAQ:ACXM) enables businesses to develop and deepen
customer relationships by creating a single, accurate view of
their customers across the enterprise.  Acxiom achieves this by
providing customer data integration software, database management
services, and premier customer data content through its AbiliTec,
Solvitur and InfoBase products, while also offering a broad range
of information technology outsourcing services.  The company's
products and services enable its clients to use information to
improve their business decision-making processes and to manage
existing and prospective customer relationships.  Acxiom has 3
business segments:  Services, Data and Software Products, and
Information Technology Management.  Acxiom has been selected by
Intelligent Enterprise Magazine editors as one of the nation's
leading "Companies to Watch" in 2002 and beyond for strong
contributions to the development of intelligent enterprises.
The magazine also noted that Acxiom is using its Customer Data
Integration expertise to build and identify a verification system
to create safer air travel by helping screen out high-risk
passengers.  We simply favor the break-out above Acxiom's 150-dma
on heavy volume.  Reasonable speculation with a cost basis near

DEC 15.00 UQA AC LB=1.35 OI=69 CB=14.28 DE=35 TY=4.4%

CAMP - California Amplifier  $6.36  *** On The Mend? ***

California Amplifier (NASDAQ:CAMP) designs, manufactures and
markets microwave equipment used in the reception of video
transmitted from satellites and wireless terrestrial trans-
mission sites, and two-way wireless transceivers used in the
emerging fixed point wireless voice and data applications.  The
company also has a 50.5% controlling interest in Micro Pulse, a
company that designs, manufactures, and markets antennas for
various wireless applications, primarily for Global Positioning
Satellite applications.  CAMP suffered back in March after the
company's corporate controller abruptly resigned in the face of
accounting irregularities.  The stock appears to have formed a
strong support area around $4 and the current rally has moved
the share price above the October high (forming new support
near $5).  Investors appear to be anticipating good news as
results for the company's FY2002 3rd-quarter ended December 1,
2001, will be released after close of market on December 20.
Target-shoot a lower cost basis to improve the potential yield.

DEC 5.00 UMP AA LB=1.65 OI=193 CB=4.71 DE=35 TY=5.4%

DTHK - DigitalThink  $11.11  *** On The Move! ***

DigitalThink (NASDAQ:DTHK) provides e-learning solutions designed
to address the strategic business objectives of its customers
by helping them to improve workforce productivity, sales channel
effectiveness and customer loyalty and satisfaction.  DTHK's
Web-based solutions deliver content on new initiatives and
products or processes to large, geographically dispersed groups
who can access courses from anywhere, at anytime through a Web
browser.  The company also offers Web-based tracking and
reporting tools that its customers use to measure and evaluate
participants' progress and the effectiveness of its learning
programs.  There's little news to explain the recent bullish
activity in DigitalThink but the issue has moved above the
current trading range amid continued buying pressure and heavy
volume.  This position offers a great way to speculate on the
future movement of DigitalThink in a conservative manner.

DEC 10.00 DTU AB LB=1.80 OI=154 CB=9.31 DE=35 TY=6.4%

NPRO - NaPro BioTherapeutics  $11.70  *** Litigation Settled ***

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.

DEC 10.00 NYQ AB LB=2.60 OI=612 CB=9.10 DE=35 TY=8.6%

NTAP - Network Appliance  $21.04  *** Data Storage Sector  ***

Network Appliance (NASDAQ:NTAP) is engaged in the business of
network-attached data management and storage solutions.  Network
Appliance hardware, software, and service offerings are used to
create, manage and scale seamless data fabrics, moving information
to users globally.  Their products consist of filer storage and
caching appliances, data management and content delivery software,
and support services.  Network Appliance storage appliances, or
filers, are systems that provide highly reliable data storage
management.  The company's NetCache appliances allow customers to
scale network infrastructure, reduce bandwidth costs, ease network
bottlenecks, and simplify data management and content delivery.
The company's NetApp software offers a set of features that ensure
mission-critical availability and also reduce the complexity of
enterprise storage management.  Network Appliance has a customer
service and support organization to provide technical support,
education and training.  In November, Network Appliance beat Wall
Street's financial targets and the company recently announced
some new products and several contracts which should bode well
for the future.  The Data Storage sector has been improving and
this position offers a conservative entry point for those wishing
to add NTAP to their long-term portfolio.

DEC 17.50 NUL AW LB=4.50 OI=1692 CB=16.54 DE=35 TY=5.0%

PCLN - Priceline.com  $5.37  *** Bottom Fishing ***

Priceline.com (NASDAQ:PCLN) has pioneered an e-commerce pricing
system, known as a demand collection system, where consumers use
the Internet to save money on a range of products and services,
while enabling sellers to generate incremental revenue.  Using
its consumer proposition, "Name Your Own Price," Priceline.com
collects consumer demand, in the form of individual customer
offers, for a particular product or service at a price set by
the customer.  Priceline.com then either communicates that
demand directly to participating sellers or accesses a pro-
prietary database of inventory and elects whether or not to
accept a customer's offer.  Consumers agree to hold their offers
open for a specified period of time and, once fulfilled, offers
generally cannot be canceled.  The Air Transport Assoc. reported
on Friday that there is a "return to travel" as airports have
become increasingly busy and airlines report improvements.  That
is good news for Priceline.com, which is one of the only pure-play
Internet companies that generate a profit based on generally
accepted accounting rules.  Cheap speculation on an improving
stock and industry group.

DEC 5.00 PUZ AA LB=0.95 OI=14663 CB=4.42 DE=35 TY=11.4%

VSNX - Visionics  $16.58  *** Security Sector Speculation! ***

Visionics (NASDAQ:VSNX) is a worldwide producer of identification
technologies and systems.  Through its respective business lines,
FaceIt, live scan and IBIS, the company designs and manufacturers
forensic quality biometric identification systems and develops
deploys facial recognition technology.  The FaceIt technology
enables a broad range of products and applications which include
enhanced CCTV systems, identity fraud applications and authentic-
ation systems for information security, access control, travel,
banking and e-commerce.  The TENPRINTER and FingerPrinter CMS are
live scan systems used by government agencies, law enforcement,
airports, banks and other commercial institutions.  The IBIS is a
remote identification system that combines expertise in biometric
capture and connectivity, and is capable of capturing both forensic
quality fingerprints and photographs for transmission to law
enforcement and other legacy databases.  Visionics and security
related stocks have risen sharply since 9/11 and have continued
to benefit from demand for new aviation security technologies
under the government takeover of key airport and airline security
operations.  Visionics recently announced that it would expand
its work force by 6% to respond to rising interest in biometric
security from federal agencies.  We favor a conservative entry
point in the issue, closer to technical support.

DEC 12.50 MQB AV LB=4.80 OI=81 CB=11.78 DE=35 TY=5.3%



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

IBIS   10.84  DEC 10.00   UIB AB  1.80 444    9.04   35    9.2%
SNDK   16.93  DEC 15.00   SWQ AC  3.10 1697  13.83   35    7.4%
IGEN   34.25  DEC 30.00    GQ AF  6.50 986   27.75   35    7.0%
XICO   13.49  DEC 12.50   UOB AV  1.90 89    11.59   35    6.8%
VITR    5.75  DEC  5.00   TKU AA  1.10 168    4.65   35    6.5%
OSIS   20.30  DEC 17.50   UOJ AW  4.00 13    16.30   35    6.4%
CLRS    5.65  DEC  5.00   RPU AA  0.95 357    4.70   35    5.5%
BPRX   17.57  DEC 15.00   BUB AC  3.40 11    14.17   35    5.1%
DCLK   11.43  DEC 10.00   QWE AB  1.95 5796   9.48   35    4.8%


Success Basics: Finding The Right Broker
By Ray Cummins

One of our new readers asked for some guidelines to help in his
selection of an investment broker.  Finding the right brokerage
firm and a personal broker that meets your financial needs is
one of the key elements in becoming a successful trader.

The first decision you will have to make is whether you need a
full-service or a discount brokerage firm.  A full-service firm
usually provides execution services, recommendations, investment
advice, and also research support.  A discount (or online) broker
normally offers only execution services; they don't provide any
recommendations regarding specific stocks or trading techniques.
They are designed for "do-it-yourself" traders that manage their
own money without guidance from a professional financial advisor.
These brokers will make trades for you at a lower price because
they provide little in the way of service.  The most common area
of concern is inefficient order processing and the lack of timely
executions.  The best "buy" and "sell" signals are useless unless
you are able to act on them and cheap commissions are meaningless
if you can't close a trade or speak to a representative when the
need arises.  In most cases, discount brokers function more as
order takers and for that reason, it is important you understand
your trading strategies very well.  Since these types of brokers
cannot provide validation of a particular technique or position,
they offer relatively little help to new option traders.  With
that idea in mind, we will focus today's discussion on the full
service broker; one who can provide insight into current trends
and forecasts, and help inexperienced participants learn how to
be successful in the complex options market.

In the past, traders used full-service brokers because they were
the primary source for detailed financial data, analyst reports,
real-time quotes, and the latest in sector- or company-specific
news.  With the recent advances in communications technology and
the development of the world-wide-web, the needs of the average
investor have changed significantly.  No longer are we required
to pay for the services of a personal broker in order to access
the fundamentals of a specific company or industry; we simply get
on the Internet and go to one of the popular (and free) financial
sites.  The benefits of this unlimited exchange of information
are too numerous to list but it has also affected the brokerage
industry in a profound way: it has changed the primary function
of a broker from data provider to comprehensive asset-management
specialist.  Today's personal broker provides tax and estate
advice, retirement planning and full-service banking as well as
investment research and trade executions.  In addition, brokers
are more inclined to educate their clients about the intricate
workings of the global financial system and those who specialize
in a particular type of trading are happy to provide a thorough
explanation of the specific strategies available for your stock
or options portfolio.

In the current environment, brokers are paid for experience and
execution.  That means they must be familiar with the options
market and its characteristics and more importantly, they should
trade options themselves.  A broker must help you understand your
investment strategies and provide detailed portfolio management
guidance.  In order to accomplish that task, they must be able to
enter and execute any type of order efficiently and in a timely
manner.  The complex mechanisms of the options market requires
that successful participants be equipped with all the necessary
trading tools and it is important that your brokerage offer a
minimum selection of services.  This list should include the
ability to: trade spreads and combinations, both daily and on a
"good-until-cancelled" basis; place multiple orders as a single
position; fill orders inside the BID/ASK spread; auto-execute
"in-the-money" options at expiration; assign commissions based
on segments as well as individual orders; and maintain account
balances with the minimum collateral requirements.  Of course,
the number of brokers that have the ability and technology to
offer these services (at a reasonable price) is statistically
very limited, so you will need to be thorough and meticulous in
your search.  Fortunately, that diligence will eventually pay
off because a broker with knowledge and trading experience can
help you build a low risk portfolio that generates favorable,
long-term profits.

Good Luck!

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


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

LVLT    6.82   5.77   DEC   5.00  0.30  *$  0.30  15.7%
WGRD   11.92  11.59   DEC  10.00  0.60  *$  0.60  15.1%
RSTN   18.15  17.22   DEC  15.00  0.30  *$  0.30  14.8%
INVN   25.15  45.50   DEC  17.50  0.55  *$  0.55  14.3%
IGEN   35.95  34.25   DEC  30.00  0.90  *$  0.90  14.0%
OSIS   21.90  20.30   DEC  17.50  0.30  *$  0.30  13.9%
CRXA   15.01  15.57   DEC  12.50  0.35  *$  0.35  13.2%
FNSR   12.96  10.87   DEC  10.00  0.35  *$  0.35  12.9%
ICST   21.18  20.55   DEC  17.50  0.30  *$  0.30  12.8%
RIMM   23.48  23.57   DEC  20.00  0.35  *$  0.35  12.1%
NTAP   16.51  21.04   DEC  12.50  0.65  *$  0.65  11.9%
CRXA   15.32  15.57   DEC  12.50  0.40  *$  0.40  11.7%
IMNY    7.24   8.20   DEC   5.00  0.25  *$  0.25  10.7%
RSAS   15.75  15.29   DEC  12.50  0.25  *$  0.25  10.7%
MANU   10.66  17.24   DEC   7.50  0.35  *$  0.35  10.2%
MCDT   22.75  26.90   DEC  17.50  0.45  *$  0.45   9.8%
SLAB   28.26  33.29   DEC  22.50  0.85  *$  0.85   9.5%
MCDT   25.20  26.90   DEC  20.00  0.35  *$  0.35   9.4%
MCDT   21.10  26.90   DEC  15.00  0.50  *$  0.50   9.2%
TERN   13.19  10.77   DEC  10.00  0.30  *$  0.30   8.9%
SRNA   22.90  24.25   DEC  17.50  0.50  *$  0.50   8.6%
SRNA   22.25  24.25   DEC  17.50  0.35  *$  0.35   7.9%
PMCS   23.27  22.89   DEC  15.00  0.45  *$  0.45   7.7%
CEGE   22.86  23.10   DEC  20.00  0.35  *$  0.35   7.6%
CNXT   13.37  15.86   DEC  10.00  0.30  *$  0.30   7.3%
AFFX   37.13  33.65   DEC  30.00  0.55  *$  0.55   7.2%
CREE   25.25  25.92   DEC  20.00  0.45  *$  0.45   7.1%
IMMU   23.49  20.92   DEC  20.00  0.40  *$  0.40   6.9%
MCSI   24.00  23.00   DEC  20.00  0.50  *$  0.50   5.9%
SMTC   37.55  41.05   DEC  27.50  0.35  *$  0.35   4.8%
MACR   22.08  16.02   DEC  17.50  0.45   $ -1.03   0.0%
PCYC   25.49   9.39   DEC  17.50  0.65   $ -7.46   0.0%

RCOM   11.14  11.10   JAN  10.00  0.45  *$  0.45   8.6%
ALOY   19.06  17.64   JAN  15.00  0.35  *$  0.35   6.1%

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


Apparently, this was the week for catastrophic announcements
as Pharmacyclics (NASDAQ:PCYC) and Macromedia (NASDAQ:MACR)
both unleashed terrible news to the investing world.  Those
who performed the recommended "due diligence" on PCYC knew
that everything was riding on the results from a clinical
study of the cancer drug Xcytrin.  Specifically, researchers
were trying to determine whether trial patients live longer
and achieve higher neurocognitive function after combining
Xcytrin with radiation treatment.  In Thursday's announcement,
officials at Pharmacyclics said the pivotal phase III trial
of its unique drug failed to meet the primary goals and the
stock quickly lost more than half its value, plunging to a
record low.  Now you know why we continue to publish that
infamous "WARNING" disclaimer week after week; the primary
rule for selling "naked" puts is that you must want to own
the underlying issue.  Macromedia (NASDAQ:MACR) was also in
the news after the company slashed its third-quarter revenue
outlook due to "tough economic conditions" and said it does
not expect to post a profit by the end of its current fiscal
year.  The issue dropped 30% after the announcement but our
position at $17.50 was well below the initial trading range,
so there was ample opportunity to exit the play for a small

Level 3 (NASDAQ:LVLT) is now on the watch-list and based on
(bearish) technical indications, Immunomedics (NASDAQ:IMMU),
Finisar (NASDAQ:FNSR) and Terayon (NASDAQ:TERN) have been
closed to protect profits and limit potential losses.

Positions Closed:  Polymedica (NASDAQ:PLMD)


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

ASA    20.50  DEC 20.00   ASA MD  0.75 134   19.25   35    7.7%
CC     24.16  DEC 20.00    CC MD  0.60 3414  19.40   35    8.5%
ICST   20.55  DEC 15.00   IUY MC  0.30 37    14.70   35    5.9%
IDNX   13.77  DEC 10.00   IDX MB  0.45 72     9.55   35   12.2%
INRG   13.77  DEC 10.00   UME MB  0.35 70     9.65   35    9.8%
OAKT   14.69  DEC 12.50   KAU MV  0.35 136   12.15   35    7.5%
OSUR   12.38  DEC 10.00   QTP MB  0.45 43     9.55   35   12.9%
PPD    20.77  DEC 17.50   PPD MW  0.80 278   16.70   35   11.9%

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

OSUR   12.38  DEC 10.00   QTP MB  0.45 43     9.55   35   12.9%
IDNX   13.77  DEC 10.00   IDX MB  0.45 72     9.55   35   12.2%
PPD    20.77  DEC 17.50   PPD MW  0.80 278   16.70   35   11.9%
INRG   13.77  DEC 10.00   UME MB  0.35 70     9.65   35    9.8%
CC     24.16  DEC 20.00    CC MD  0.60 3414  19.40   35    8.5%
ASA    20.50  DEC 20.00   ASA MD  0.75 134   19.25   35    7.7%
OAKT   14.69  DEC 12.50   KAU MV  0.35 136   12.15   35    7.5%
ICST   20.55  DEC 15.00   IUY MC  0.30 37    14.70   35    5.9%

Company Descriptions

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

ASA - ASA Limited  $20.50  *** Gold Sector Hedge ***

ASA Limited (NYSE:ASA) is incorporated in the Republic of South
Africa and consequently values its investments at Johannesburg
Stock Exchange share prices translated into U.S. dollars at the
rand exchange rate.  ASA Limited invests its assets in common
shares of gold mining companies and other companies in South
Africa.  In addition, the weighting of Canadian Gold Mines was
recently increased and a small position in Ashanti Goldfields,
a Ghanaian gold mining company, was added in order to continue
the company's diversification away from a heavy concentration in
South African shares.  ASA also has approximately one third of
its total assets invested in non-gold investments such as Anglo
American Platinum Corporation Limited, Impala Platinum Holdings
Limited, Anglo American Corporation, and De Beers Consolidated
Mines Limited/Centenary AG, since demand for platinum has been
significant in world markets during the past year and the major
producers have been realizing very favorable prices.  Traders
who are concerned about a broad-market sell-off in the coming
weeks can use this gold stock to hedge their portfolio against
that outcome.

DEC 20.00 ASA MD LB=0.75 OI=134 CB=19.25 DE=35 TY=7.7%

CC - Circuit City Stores  $24.16  *** A Big Day! ***

Circuit City Group (NYSE:CC), a division of Circuit City Stores,
is a national retailer of brand-name electronics, personal
computers and entertainment software.  The company sells video
equipment, including televisions, digital satellite systems,
video cassette recorders, camcorders, cameras and DVD players;
audio equipment, including home stereo systems and compact disc
players; mobile electronics, including car stereo systems and
security systems; home office products, including computers,
printers, peripherals, software and facsimile machines; other
consumer electronic products, including cell-phones, telephones
and portable audio and video products; and entertainment software
and accessories.  Shares of Circuit City rallied last week after
an industry analyst offered a "buy" rating on the stock, citing
better than anticipated November sales data and expectations of
improved performance.  Banc of America Securities retail analyst
Shelly Hale placed a $26 price target on the retailer's stock
and said she sees a 40% rise in the company's bottom line for
the coming year.

DEC 20.00 CC MD LB=0.60 OI=3414 CB=19.40 DE=35 TY=8.5%

ICST - Integrated Circuit Systems  $20.55  *** 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 expected to perform well during
the coming year and this company is one of the more favorable,
low-cost issues in the group.  Traders can speculate on the
future performance of the chip segment with this conservative

DEC 15.00 IUY MC LB=0.30 OI=37 CB=14.70 DE=35 TY=5.9%

IDNX - Identix  $13.77  *** Security Technology! ***

Identix (NASDAQ:IDNX) provides authentication security platforms
and solutions for commercial and government marketplaces.  The
company's products and services are classified into three groups:
biometric security solutions that verify the identity of an
individual through the unique physical biological characteristics
of a fingerprint, including itrust, Identix's security software
solution that integrates authentication, access rights and
administration as a security service to safeguard information
sharing and data transfer on open wired and wireless networks;
biometric imaging solutions that electronically capture forensic
fingerprint images that are transmitted to automated fingerprint
identification systems, and information technology, engineering
and consulting services, including the installation/integration
of Identix products primarily to public sector agencies.  Stocks
in the security technology industry are "hot" and this position
offers a conservative entry point in one of the more promising
issues in the group.

DEC 10.00 IDX MB LB=0.45 OI=72 CB=9.55 DE=35 TY=12.2%

INRG - Inrange Technologies  $13.77  *** On The Move! ***

Inrange Technologies (NASDAQ:INRG) designs, manufactures, sells
and services switching and networking products for storage, data
and telecommunications networks.  Their products are designed to
address the volume of information that is captured, processed,
stored and manipulated over storage, data and telecommunications
networks, and to enhance the management capabilities of these
networks as they become more essential to business success.  The
company's key products include the IN-VSN family of directors,
switches, channel extenders and optical networking products for
storage networks; the Universal Touchpoint family of switches,
control systems and management applications used for management
of data networks, and their unique 7-View family of equipment for
monitoring telecommunications networks.  INRG shares rallied early
in December after the company upped its fourth-quarter targets and
announced a buyback of up to $20 million worth of its common stock.
The CEO said their business has rebounded from the difficult third
quarter and as a result, there is potential upside to the original
fourth-quarter guidance and the possibility of positive earnings
during the period.  Investors can establish a low risk basis in
the issue with this position.

DEC 10.00 UME MB LB=0.35 OI=70 CB=9.65 DE=35 TY=9.8%

OAKT - Oak Technology  $14.69  *** New 52-Week High! ***

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%.  Friday's
move to a new 52-week high suggests the issue has successfully
completed a recent consolidation phase and is poised for future

DEC 12.50 KAU MV LB=0.35 OI=136 CB=12.15 DE=35 TY=7.5%

OSUR - OraSure Technologies  $12.38  *** What's Up? ***

OraSure Technologies (NASDAQ:OSUR) develops, manufactures and
markets unique oral fluid specimen collection devices using its
proprietary oral fluid technologies, proprietary diagnostic
products including in vitro diagnostic tests, and other medical
devices.  These products are sold in the U.S. and certain foreign
countries to public and private-sector clients, laboratories,
physician offices, and hospitals, and for workplace testing.
OraSure Technologies' business focuses on the following principal
platform technologies: the OraSure oral fluid collection device;
the OraQuick rapid diagnostics device; and the new up-converting
phosphor technology.  In addition, OraSure sells certain other
products, including the Histofreezer cryosurgical system, certain
immunoassay tests and reagents for insurance risk assessment and
forensic toxicology applications, an oral fluid Western Blot
confirmatory test for HIV-1, and the Q.E.D. Saliva Alcohol Test.
Shares of OraSure rallied last week on heavy volume, despite the
fact there was no public news to explain the activity.  Traders
say the movement may be related to a recent home-office visit by
analysts from JP Morgan Chase, which suggests the potential for
a future upgrade or other positive news.

DEC 10.00 QTP MB LB=0.45 OI=43 CB=9.55 DE=35 TY=12.9%

PPD - Pre-Paid Legal Services  $20.77  *** Legal Eagles! ***

Pre-Paid Legal Services (NYSE:PPD) was one of the first companies
in the United States organized solely to design, underwrite and
market legal expense plans.  The company's legal expense plans
(referred to as Memberships) currently provide for a variety of
legal services in a manner similar to medical reimbursement plans.
Plan benefits are provided through a network of independent law
firms, typically one firm per state or province.  Members have
direct, toll-free access to their Provider law firm rather than
having to call for a referral.  Legal services include unlimited
attorney consultation, traffic violation defense, auto-related
criminal charges defense, letter writing/document preparation,
will preparation and review and a general trial defense benefit.
Prepaid's CEO says it all in his recent letter to shareholders:
"Pre-Paid is user-friendly with an ongoing real value and our
products make it significantly easier and cheaper for members to
have their legal needs or problems handled.  Because our service
is easy to use and is valuable, we believe we are enlarging the
market we serve."  That's a very optimistic attitude and traders
who agree with a bullish outlook for the company can establish
a discounted entry point in the issue with this conservative

DEC 17.50 PPD MW LB=0.80 OI=278 CB=16.70 DE=35 TY=11.9%



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

IONA   22.00  DEC 17.50   YWQ MW  0.85 12    16.65   35   14.1%
TUNE   24.00  DEC 20.00   TUF MD  0.70 333   19.30   35    9.7%
CEGE   23.10  DEC 20.00   UCG MD  0.70 153   19.30   35    8.9%
EMBT   19.95  DEC 15.00   MBQ MC  0.45 11    14.55   35    8.8%
ADIC   17.05  DEC 15.00   QXG MC  0.50 88    14.50   35    8.2%
SMTF   24.88  DEC 20.00   QAG MD  0.40 0     19.60   35    6.4%



Stocks Finish Difficult Week On A Positive Note!
By Ray Cummins

                         - MARKET RECAP -
Friday, December 14

The major equity averages edged higher Friday as traders factored
new data regarding business inventories and industrial production
into the outlook for the U.S. economy.

The Dow Jones Industrial Average closed up 44 points at 9,811 on
strength in McDonald's (NYSE:MCD), Home Depot (NYSE:HD), General
Electric (NYSE:GE) and Alcoa (NYSE:AA).  The NASDAQ moved up 6
points to 1,953 with semiconductor companies among the strongest
issues while networking shares continued to struggle.  The broad
market Standard & Poor's 500-stock index gained 3 points to 1,123
despite substantial losses in the biotechnology sector.  Shares
of gold, insurance, consumer, oil and oil service stocks managed
to lift the index into positive territory at the close of trading.
Volume was average with 1.29 billion shares exchanged on the NYSE
and 1.92 billion shares traded on the NASDAQ.  Market breadth was
mixed, with advancers beating decliners 18 to 14 on the Big Board
while winners roughly matched losers on the NASDAQ.  Bonds ended
lower with the 10-year Treasury note falling more than 1/2 point
to yield 5.08%.  The 30-year bond fell 1/2 point to yield 5.52%.
Trim Tabs reported that equity funds had outflows of $3.7 billion
this week, compared with inflows of $3.5 billion during the prior

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

WellPoint  (NYSE:WLP)   DEC110P/D115P   $0.55  credit  bull-put
Cooper     (NYSE:CBE)   DEC45C/DEC40C   $0.65  credit  bear-call
Tellium    (NSDQ:TELM)  JAN7.5C/JAN10C  $0.75  debit   bull-call
Pivotal    (NSDQ:PVTL)  JAN7.5C/JAN5P   $0.05  debit   synthetic

When we offered the bullish play in Wellpoint Health Networks
(with the belief that it would be a safe-haven issue) we had no
idea the Health Services sector would get hammered along with
with the majority of shares in the broader market.  Traders who
initiated the position Monday were surprised to see the issue
near the sold strike at the end of the week and the only viable
adjustment was a transition to the (short) JAN-$105 Put for a
small credit.  With near-term buying support near $110, that
appears to be a reasonable alternative to closing the position
prematurely for a loss.  Cooper Industries traded more like we
expected, offering a great entry point during Monday's brief
rebound before falling to new lows later in the week.  Our new
positions in Tellium and Pivotal were initiated at favorable
prices but unfortunately, the recent correction in technology
issues has ended any upside momentum for those stocks in the

Portfolio Activity:

This week's broad-market correction was not unexpected, but it
did surprise many of us who originally thought it would be more
of a consolidation rather than a retreat.  The downside activity
was greater than anticipated in some of the industrial sectors
and even the top NASDAQ issues were not immune to the selling
pressure.  While the technical retracement was beneficial for
our bearish positions in Hillenbrand (NYSE:HB), Kimberly Clark
(NYSE:KMB) and Unitedhealth Group (NYSE:UNH), and provided some
profit-taking opportunities in time-selling plays such as Intuit
(NASDAQ:INTU) and Biovail (NYSE:BVF), it did little to enhance
the outlook for the majority of issues in the portfolio.  In the
credit-spreads group, positions in Amdocs (NYSE:DOX) and Accredo
Health (NASDAQ:ACDO) were significantly affected by the bearish
trends and both plays warranted early exits to protect profits
and avoid losses.  Among the speculative positions, Redback
Networks (NASDAQ:RBAK) has fallen from grace in the wake of
recent negative forecasts by Ciena (NASDAQ:CIEN) and Lucent
(NYSE:LU) and although the bullish spread does not expire until
April, it is unlikely to produce any profits in the near future.

Despite the unfavorable activity during the past few sessions,
the Spreads/Combos section has enjoyed a relatively successful
month.  Synthetic positions in Sun Microsystems (NASDAQ:SUNW),
Leap Wireless (NASDAQ:LWIN), and Level 3 (NASDAQ:LVLT) yielded
satisfactory profits and neutral-outlook (volatility) plays in
Potash (NYSE:POT), Andrx (NASDAQ:ADRX), and Goldman Sachs Group
(NYSE:GS) also provided excellent gains.  The Covered-calls on
LEAPS position in Microsoft (NASDAQ:MSFT) is performing as well
as can be expected with the underlying issue hovering below the
sold strike at $70, and the bullish spreads in Best Buy Stores
(NYSE:BBY) and Avon Products (NYSE:AVP) are at maximum profit.

Questions & comments on spreads/combos to Contact Support
                           - NEW PLAYS -
PR - Price Communications  $19.10  *** Disparity Play! ***

Price Communications (NYSE:PR) is a nationwide communications
company that owns and then disposes of television, newspaper,
radio, cellular telephone and other communications and related
properties.  The company's main business strategy is to acquire
communications properties at prices it considers attractive,
finance such properties on terms satisfactory to it, manage
such properties in accordance with its operating strategy and
dispose of them if and when they determine such dispositions
to be in the best interests of the company.  Price is engaged,
through Price Communications Wireless, in the construction,
development, management and operation of cellular telephone
systems in the southeastern United States.  The Company markets
all of its products and services under the name CellularOne.
In November 2000, the company entered into a agreement whereby
Verizon Wireless will acquire the primary assets of Price
Communications Wireless.

Implied volatility and trading volume in PR's options have
been at historically high levels for the past few weeks and
there is no public news to explain the increased interest.
The recent bullish activity in the underlying issue has also
occurred will little fanfare and now the stock is approaching
a test of the 52-week high near $20.  With favorable premium
disparities in the front-month options, this position offers
an excellent speculation play for traders who participate in
time-selling strategies.

PLAY (conservative - bullish/calendar spread):

BUY  CALL  FEB-20  PR-BD  OI=1290  A=$1.35
SELL CALL  DEC-20  PR-LD  OI=2595  B=$0.40

AMGN - Amgen  $56.03  *** Unwanted Merger With Immunex! ***

Amgen (NASDAQ:AMGN) is a worldwide biotechnology company that
discovers, develops, manufactures and markets human therapeutics
based on advances in cellular and molecular biology.  The company
manufactures and markets four human therapeutic products, EPOGEN
(Epoetin alfa), NEUPOGEN (Filgrastim), INFERGEN (Interferon
alfacon-1) and STEMGEN (Ancestim).  Amgen utilizes wholesale
distributors of pharmaceutical products as the principal means
of distributing the company's products to clinics, hospitals
and pharmacies.

Shares of Amgen fell sharply last week after rumors of a buyout
offer for Immunex (NASDAQ:IMNX) became public knowledge.  Amgen
was reportedly offering $32 a share for Immunex and the rumors
were given credence by a CNBC report that said the companies are
in advanced merger talks.  Investors gave a lukewarm reception
to the proposed deal, one that could become the biggest-ever
biotechnology merger, and analysts issued skeptical comments
about AMGN's ability to complete the transaction.  Some traders
expressed negativity about the merger because it would dilute
Amgen's earnings significantly and others suggested the deal
would be vetoed by drug giant American Home Products (NYSE:AHP),
which owns about 41% of Immunex.

Regardless of the eventual outcome, the near-term technical
indications for AMGN are very unfavorable and this position
offers a way to speculate on the future (bearish) movement of
the issue in a conservative manner.  Target a higher premium
in the spread initially, to allow for a brief recovery in the
underlying issue.

PLAY (conservative - bearish/credit spread):

BUY  CALL  JAN-70  YAA-AN  OI=26173  A=$0.35
SELL CALL  JAN-65  YAA-AM  OI=20685  B=$0.90

SNDK - Sandisk  $16.93  *** Reader's Request! ***

SanDisk Corporation (NASDAQ:SNDK) designs, manufactures, and
markets flash memory storage products that are used in a wide
variety of electronic systems.  The company has designed its
flash memory solutions to address the storage requirements of
emerging applications in the consumer electronics as well as
the industrial communications markets.  The company's products
are used in a number of rapidly growing consumer electronics
applications; digital cameras, personal digital assistants,
portable digital music players, digital video recorders and
smart phones, as well as in industrial and communications
applications, such as communications routers and switches and
wireless communications base stations.  The company's products
include removable CompactFlash cards, MultiMediaCards, FlashDisk
cards and Secure Digital Cards and embedded FlashDrives and Flash
ChipSets with storage capacities ranging from 8 megabytes to 1.2

One of our readers asked for some bullish collars; a strategy
that provides reasonable profits in the event of a continued
recovery in equity values while protecting against future
corrections in the underlying issue or its industry group.
A collar is a stock/option strategy in which the trader buys
stock, sells an "out-of-the-money" call, and also purchases an
"out-of-the-money" put.  The ratio of potential profit to loss
is defined by the choice of strike prices in the position and
most investors establish collars in which the proceeds from the
sale of the call are used to pay for the put purchase.  In this
case, the initial cost of the collar is the same as the initial
cost for the outright purchase of stock.

Of course, the strategy is viable only if you have a bullish
outlook for the underlying issue and the option prices favor
premium "selling" on the call side and premium "buying" on the
put side.  Due to the effects of put-call parity and based on
the recent market conditions, finding suitable candidates for
this type of position can be difficult and it is also a very
subjective activity.  However, I was able to enlist the superb
services of the Covered-call editor and together we produced
some issues that have potential in the current environment.
Since the Data Storage sector has been improving technically,
even with the recent downturn, this issue offers better than
average upside potential with relatively low downside risk.

PLAY (very conservative - bullish/collar):

SELL CALL  APR-20.00  SWQ-DD  OI=884  A=$2.60
BUY  PUT   APR-15.00  SWQ-PC  OI=310  A=$2.70
INITIAL NET DEBIT TARGET=$16.75-$16.90  PROFIT(max)=18%

- or -

PLAY (conservative - bullish/collar):

SELL CALL  APR-22.50  SWQ-DX  OI=663  A=$1.90
BUY  PUT   APR-12.50  SWQ-PV  OI=65   A=$1.60
INITIAL NET DEBIT TARGET=$16.40-$16.50  PROFIT(max)=36%

GT - Goodyear Tire & Rubber  $24.04  *** Reader's Request! ***

Goodyear Tire & Rubber Company's (NYSE:GT) principal business is
the development, manufacture, distribution and sale of tires for
most applications.  Goodyear also manufactures and sells several
different lines of rubber and other related products for the
transportation industry and various other industrial and consumer
markets and rubber-related chemicals for related applications;
provides automotive repair and other services at retail and
commercial outlets; and sells various other products.

One of our new readers submitted this issue for a bullish play
and asked if we would make a suggestion as to how to speculate
conservatively on future upside movement in the stock.  Since
Goodyear is a stable company (almost a blue-chip) and one that
we wouldn't mind owning, the easiest way to profit from bullish
activity without owning shares is to use a synthetic position.

PLAY (speculative - bullish/synthetic position):

BUY  CALL  APR-30  GT-DF  OI=137   A=$0.70
SELL PUT   APR-20  GT-PD  OI=2080  B=$0.95

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $575 per contract.

                   - STRADDLES & STRANGLES -
YHOO - Yahoo!  $17.21  *** Cheap Speculation! ***

Yahoo! Inc. (NASDAQ:YHOO) is a global Internet communications,
commerce and media company that offers a comprehensive branded
network of services.  The company's principal site, yahoo.com,
is an online navigational guide to the Web.  The company also
provides online business and enterprise services designed to
enhance the productivity and Web presence of Yahoo's clients.
These services include Corporate Yahoo, a customized enterprise
portal solution; audio and video streaming; store hosting and
management; and Website tools and services.  Yahoo has offices
in Europe, Asia Pacific, Latin America, Canada and the United
States.  Under the Yahoo brand, the company provides broadcast
media, communications, business, enterprise and other commerce

Readers are always asking for more debit straddles and this play
topped our list of candidates in the low-cost "expiration-week"
category.  Based on the recent share price activity, the issue
meets our criteria for adequate movement and with the current
speculation on the buyout of HotJobs.com (NASDAQ:HOTJ), there
is excellent potential for future events or activities that can
create volatility in the stock.  In addition, the probability of
profit in this position is higher than other plays in the same
strategy due to disparities in theoretical option pricing.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  DEC-17.50  YHZ-LW  OI=6073  A=$0.65
BUY  PUT   DEC-17.50  YHZ-XW  OI=2720  A=$0.90

BGEN - Biogen  $56.46  *** Premium Selling! ***

Biogen (NASDAQ:BGEN) is a biopharmaceutical company principally
engaged in the business of developing, manufacturing and selling
drugs for human healthcare.  Biogen currently derives revenues
from sales of its Avonex (Interferon beta-1a) product for the
treatment of relapsing forms of multiple sclerosis, and from
royalties on worldwide sales by the company's licensees of a
number of products covered under patents controlled by Biogen.
Such products include forms of alpha interferon, hepatitis B
vaccines and hepatitis B diagnostic test kits, among others.
Biogen continues to have an active development program related
to Avonex, and is conducting several important clinical trials
of the product.  Biogen also continues to devote significant
resources to its other ongoing development efforts.

Biogen surfaced this week in a scan for issues with relatively
stable trading patterns and inflated option premiums.  Based on
analysis of historical option pricing and the issue's technical
background, this position meets the fundamental criteria for a
favorable credit-strangle.  The profit envelope is well within
the recent price range of the stock and there are no (expected)
events or activities that will change the fundamental outlook
for the company prior to the January options' expiration.  In
addition, the well-defined trading pattern should help in any
future adjustments that become necessary due to an unexpected
change of (technical) character.  As with any recommendation,
the position should be evaluate for portfolio suitability and
reviewed with regard to your strategic approach and trading

PLAY (aggressive - neutral/credit strangle):

SELL CALL  JAN-60  BGQ-AL  OI=10258   B=$1.90
SELL PUT   JAN-50  BGQ-MJ  OI=1965    B=$1.10
UPSIDE B/E=$63.00 DOWNSIDE B/E=$47.00


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