Option Investor

Daily Newsletter, Wednesday, 12/19/2001

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The Option Investor Newsletter                Wednesday 12-19-2001
Copyright 2001, All rights reserved.                        1 of 1
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MARKET WRAP  (view in courier font for table alignment)
        12-19-2001        High      Low     Volume Advance/Decline
DJIA    10070.50 + 72.10 10088.30  9919.80 1.45 bln   1528/1643	
NASDAQ   1982.80 - 21.90  2007.76  1971.07 1.90 bln   1605/2059
S&P 100   588.72 +  5.34   590.25   580.10   totals   3133/3702
S&P 500  1149.56 +  6.64  1152.44  1134.75
RUS 2000  482.07 -  3.42   485.49   480.02
DJ TRANS 2644.66 - 12.61  2662.08  2632.30
VIX        23.57 -  0.59    25.01    22.90
Put/Call Ratio      0.61

To Stimulate Or Not To Stimulate...

That is the question.  The political battle is heating up in
Washington, as business as usual has replaced the love-fest of
cooperation that existed in the wake of the September attacks.
Partisan politics are back, and are serving to bog down approval
process for the much-hyped economic stimulus package.  President
Bush spoke of a compromise, but Senate Majority Leader Daschle
argued that a compromise had not yet been reached.  So the waiting
game continues.

On the economic front, the Leading Economic Indicator provided
the initial push to the upside this morning, as it came in
stronger than expected (+0.5% vs. expectations of +0.3%).  While
this is encouraging for those counting on a recovery in the first
half of 2002, it should be noted that the uptick was due entirely
to factors already well known; namely the recent rally in the
stock market, steepening yield curve and a decline in jobless
claims.  Good news, yes.  But already priced into the market.

Energy and in particular Oil Service stocks were at the top of the
leader board today following a news report that the U.S.
intercepted an oil tanker in the Persian Gulf.  The Oil Services
sector (OSX.X) tacked on 4.6%, bringing it right back to the $85
resistance level that has kept a lid on each rally for the past
month.  Will the third time be the charm, or just another
opportunity to buy puts?  Whatever the outcome, it is likely
there could be some profits in store for those that manage to
guess the outcome correctly.  My guess is that it is going to be
another failed rally.

Regardless of what the underlying cause was, the DJIA managed to
claw its way back over the psychologically important 10,000
level again today, and it looks like another test of the highs
is in the cards for tomorrow.  Financial stocks such as Citigroup
(NYSE:C) and American Express (NYSE:AXP) led the charge with
gains of 3.95% and 3.65% respectively.  International Business
Machines (NYSE:IBM) helped out too, closing at another 52-week
high after trading as high as $124.70 in late-afternoon trading.
Not to be left out of the bullish party, General Electric pushed
back above $40 to close at its highest level since November 27th.
The biggest drag on the Industrials came from Alcoa (NYSE:AA),
losing more than 6% on the heels of the company's earnings
warning last night.

So the battle continues with the bulls focused on economic
recovery in the first half of 2002 and the bears gaining traction
as the pace of earnings warnings accelerates into the end of the
year.  The winning camp is hard to pick right now, but the
near-term bias is favoring the bulls.  With the bullish bias
that normally accompanies triple witching expiration, I would
look for a retest of the recent highs before the end of the week.

The real problem is what to expect after that.  The DJIA is once
again nearing the 200-dma at 10109, with the 62% retracement of
the May-September decline looming at 10,153.  And that is just
the beginning of the challenge for the bulls, as they then have
to contend with A LOT of overhead resistance between
10,200-10,600.  It was encouraging to see the participation from
the Financials, particularly the Brokerage sector (XBD.X) today,
which managed a 1.9% advance, closing right at resistance.  But
the internals are certainly not convincing, with decliners
slightly ahead of advancers on fairly solid volume.  Conviction
isn't there, at least not yet.

After last night's trifecta of earnings warnings in the
Semiconductor sector (SOX.X) from Motorola (NYSE:MOT), Micron
(NYSE:MU) and Triquint Semiconductor (NASDAQ:TQNT), it was no
surprise to see the SOX at the top of the loser list today.
Weak right from the opening bell, the chip index dropped 5.2%
by the closing bell, closing right at the low of the day and
just above critical support at $536.50.  This level has served
as a price magnet for the SOX for over a month now as hopes for
economic recovery are doing battle with the reality that all is
not rosy in Tech-land.

I continue to focus on the SOX as an indicator of the health of
the recent rally, as it typically leads any recovery in the
broader Technology market.  That recovery is now clearly in
jeopardy, as demonstrated by the following chart.

Just over 2 weeks ago, pundits were falling all over themselves
saying that the breakout over the 200-dma (grey line) and the
long-term descending trendline meant that the bottom was in for
the techs and the sky was the limit.  The price action (not to
mention the less-than-inspiring news) since then is casting a
dark cloud over that bullish prediction.  This is the second
time in a week that the SOX has posted a steep decline, stopping
right at the red support line.  If this sector is going to
remain in a leadership role, it has to hold above support.  The
battle lines are drawn, and the outcome is likely to determine
the fate of the broader NASDAQ, at least over the near term.

So what's the outlook for tomorrow?  Initial Jobless Claims are
out before the opening bell tomorrow, with expectations of 440K
vs. the last report at 394K.  Anything near the consensus is
likely to be a non-event, but lookout for a blowout in either
direction.  A drop in claims could be just what the bulls need
to test recent resistance, while a sharp increase could have the
bears sharpening their claws ahead of the holiday weekend in
anticipation of fresh ground sirloin on the menu.

All of the major indices are back over Jim's trigger levels of
9800/1950/1125 for the DJIA/COMPX/SPX, so cautious bulls should
have already staked out their claims for the anticipated rally.
Trade the rally as long as it lasts, but watch out for profit
taking.  The market is always right, so don't argue with it.
Your trading account will thank you.

Mark Phillips
Research Analyst



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Anatomy of LEAPS Candidate Selection
By Mark Phillips
Contact Support

If I've said it once, I've said it a hundred times; some of the
best ideas for my articles come from you, my faithful readers.
After my article last week, I got the following email:

The latest drop on CIEN has made me curious about entering into
Jan'03 Leaps.  Any comments?  I would love to see some chart
analysis on this stock with its latest drop.

To be honest, my first reaction to this idea was that it was
ludicrous.  Not that it was a bad idea to look at the stock, but
that no matter what I saw in the charts, I really didn't like
the fundamental picture.  Then it hit me -- this would be a
perfect opportunity to lay out the evaluation process I
routinely go through in selecting new LEAP plays.

Assuming that I am starting with just a symbol (CIEN in this
case), the first thing I want to know is what the company does
and in what industry it operates.  So here's the quick synopsis:

CIEN makes dense-wavelength division multiplexing (DWDM) systems
for use with long-distance fiber-optic communications networks.
CIEN offers optical transport, intelligent switching and multi-
service delivery systems that enable service providers to
deliver and manage high-bandwidth services to their customers.
The company’s MultiWave DWDM systems allow optical fiber to
carry up to 40 times more data and voice information without
requiring more lines.  CIEN's customers include long-distance
carrier, competitive local exchange carriers (CLECs), Internet
service providers and wholesale carriers.

There was a time in the not-too-distant past when any company
doing anything remotely connected with the buildout of the
optical internet would get any self-respecting bull salivating
and typing in an aggressive Buy order.  But with the collapse
of capital expenditures in this arena, those days are long gone.
All you have to do is look at the big players like Lucent
(NYSE:LU), Nortel Networks (NYSE:NT) and JDS Uniphase
(NASDAQ:JDSU) to determine that the industry has fallen on hard
times.  CIEN was one of the last to fall, and rightly so, given
the fact that it still has earnings (albeit pro-forma) with
which to calculate a P/E ratio.

But that P/E ratio is a lofty 136 based on the past 12 months
earnings, and a quick look at the earnings trend in that space
of time is not encouraging.  The per-share earnings last May
topped out at 20 cents, fell to 17 cents in August, and then
plunged to just a nickel in the most recent quarter.  But that's
all water under the bridge, right?  What is truly important is
what we can expect from the company in the future.  Last
Thursday, in the earnings conference call, the company forecast
more hard times ahead, saying they expect sales to fall 30-40%
in the fourth quarter, producing a pro-forma loss of 8-12 cents.
Ouch!  No matter how you slice it, that is some bad news.
Investors agreed, knocking the stock back for a nearly 17% loss,
its worst one-day performance since the August earnings release,
which resulted in a 30% decline.

Adding insult to injury was yet another warning from ailing LU.
Ostensibly reaffirming their outlook that they expect the
current quarter to be the low point for the revenues in the
current downturn, the company is still expected to post a
pro-forma loss of 23-26 cents, but return to profitability
sometime in 2002.  No matter what type of spin you put on it,
there is little to pin bullish hopes on other than the
oft-repeated refrain of economic recovery by mid-2002.

Similar comments continue to come from other players in the
industry, and boiling it all down to a quick summary leaves me
with the following assessment.  Demand for optical networking
equipment is still abysmal and there is no concrete indication
of an improvement.  Any hopes for a recovery rest on hope of an
economic rebound, the evidence of which cannot be seen.  So if
we are going to dabble in this sector from the bullish side, we
need to understand that we are attempting to pick a bottom, or
put another way, catch a falling knife.  This is a high-risk
proposition, but maybe there is an indication from the charts
that we could manage that risk with long-term options (LEAPS),
combined with a solid entry and a tight stop.

On to the charts!

Starting with the daily chart, we can see the damage inflicted
by the past 2 earnings reports.  The report in August dropped
CIEN below the $20 level, and the top of that gap has served as
resistance for the past four months.

The stock appeared to have put in a significant bottom near the
$9 level in early October and then proceeded to recover all the
way to the $22 resistance level.  Since then, a series of lower
price highs (with corresponding lower Stochastic highs) has
continued to paint a bearish picture.  Last Thursday's earnings
disappointment dropped CIEN back to the $15 support level, and
the recent price action is indicating that this level may be
changing to resistance.

I sure wouldn't be excited about trying to pick a bottom here,
unless we can see a more constructive picture on the longer-term
charts.  So let's pull up my trusty weekly/monthly chart montage
and see what they have to say.

Boy, that's a nasty decline!  While there is a slight hint of a
bottom forming on the monthly chart, the weekly is once again
diving towards oversold.  Definitely not an entry yet.  The
monthly Stochastics turning up could be signaling that a bottom
is in, all we need to activate the caution flag is the picture
from earlier this year, as the oscillator turned south again
without ever exiting the oversold region.  Based on the recent
price action and the less-than-inspiring news from the company,
I think it is a pretty solid bet that we'll see the monthly
turn south again before breaking above the 20 level.

So here's what I see.  The fundamental outlook for both the
Optical Networking industry and CIEN looks ugly.  On top of
that, the picture on both the near-term and long-term charts is
favoring the bears.  Venturing into a play such as this would
not be high on my list of fun activities, as it looks like a
stacked deck, and it is stacked against us.

But for those brave souls that still want to fish for a bottom
in the sector, CIEN could be a place to dabble, but ONLY with
high-risk capital.  Here's the scenario I would look for.  Wait
for the weekly Stochastics to flatten out in oversold territory
again, and then go back to the daily chart.  If CIEN is holding
in the support zone ($11.00-12.50) defined on the daily chart, a
bounce near $11 in conjunction with the daily Stochastics
emerging from oversold would be the best setup for entering new
positions.  I wouldn't play using 2003 LEAPS though, as I think
it is going to be a longer-term story.  In this type of
situation, we want to buy as much time as possible (read:2004
LEAPS), both to insulate our position against the ravages of
time decay and to give it as much time as possible to move in
our favor.  Additionally, we would want to place a tight stop
just below the October lows ($9) to prevent a catastrophic
loss should conditions continue to deteriorate.

While this play wouldn't fit my personal risk profile, I hope
the details I've gone through here this evening helps you to see
the process I go through when trying to find attractive
long-term bullish plays.

Happy Holidays, and we'll talk again next week.


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XMSR - XM Satellite Radio $17.30 +0.25 (+1.06 this week)

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

Most Recent Write-Up

A couple of our analysts had suspected
that XMSR could be in the middle of a short squeeze but without
any short interest data we couldn't confirm it.  The stock does
have at least 58M shares in float but a squeeze is/was possible.
The huge move on Friday could have scared a few bears into
covering their positions.  Add to that any momentum traders
willing to chase the stock and we get a big gap up on Monday
morning at the open.  XMSR opened at $17.37 then traded to a high
of $18.48 before sliding back to close at $16.72 on Monday.  We
mentioned in the weekend letter that it may have been a good time
to consider taking profits and the fading rally on Monday could
have been affected by profit takers.  However, the stock has
continue to make gains as it tries to hold on to its new position
above the $16 level.  We get the impression that buyers may be too
eager to buy XMSR.  The high on Friday was $16.30.  XMSR continued
to consolidate on Tuesday and bounced several times at $16.30
effectively "filling the gap" from Monday's open.  More volume
followed this bounce and the stock traded higher again on Tuesday
afternoon.  We're going to raise our stop on the play to $15.99
now that shares have bounced at $16.30.  XMSR could see resistance
at $18 or $18.50.


Shares of the satellite radio company XMSR continue to orbit the
$17 level and appear close to breaking above that level for real.
Despite the weakness seen in the broader Technology sector on
Wednesday, the stock posted another fractional gain, after an
intraday dip near $16 that provided for a fresh entry point.  The
$18 level has been acting as resistance, but once the stock
clears that level, it is likely to make a quick trip to the next
level of resistance, $20.  Continue targeting new positions on
bounces above $16, or on a volume-backed move above $18.

BUY CALL JAN-15 QSY-AC OI=1860 at $3.50 SL=1.75
BUY CALL JAN-17*QSY-AW OI=2930 at $2.40 SL=1.25
BUY CALL JAN-20 QSY-AD OI=3752 at $1.60 SL=0.75
BUY CALL APR-17 QSY-DW OI= 107 at $4.20 SL=2.50
BUY CALL APR-20 QSY-DD OI= 591 at $3.50 SL=1.75

Average Daily Volume = 1.74 mln


Santa Claus Rally Continues For Blue-Chip Stocks
By Ray Cummins

The Dow Industrials climbed for the fifth consecutive session
today, breaching the 10,000 mark on speculation the slumping
U.S. economy is on the road to recovery.

Despite an early session sell-off, "old economy" stocks made
a sharp recovery as investors overlooked negative earnings
news and continued the recent buying streak amid hopes that
President Bush and congress will soon be able to finalize an
economic stimulus deal.  Traders also took comfort in bullish
data from a key economic forecasting gauge; the Conference
Board's index of leading indicators, which rose for a second
straight month in November.  The report points to possible
economic recovery in the first half of 2002 and analysts were
quick to point out the "recession could be losing steam."  The
blue-chip average was bolstered by shares of Citigroup (NYSE:C),
which rallied after the nation's largest financial services
company said it would sell up to 20% of its Travelers Property
Casualty unit in an initial public offering early next year.
General Electric (NYSE:GE) was also a popular issue, rising on
news of an upbeat earnings outlook.  On the downside, shares of
Alcoa (NYSE:AA) tumbled after the company warned its quarterly
profits would fall well short of consensus expectations.  The
NASDAQ struggled to limit its losses following a rash of profit
warnings from Motorola (NYSE:MOT), Micron Technology (NYSE:MU)
and other leading companies.  Chip stocks were hardest hit with
much of the bearish activity due to Micron's announcement of a
wider-than-expected loss and Dataquest data showing that chip
industry revenues fell 33% this year; the worst decline in the
history of the group.  Telecom-equipment issues also slid lower
after Motorola announced it is expecting a bigger first-quarter
loss and that it plans to cut 9,400 employees from its payroll
and shut more chip manufacturing plants over the next year.  In
the broader market, tensions between the U.S. and Iran helped
oil stocks as crude prices rose over uncertainty about exports.
Oil and oil services issues were the top gainers among S&P 500
sectors but financial shares also rallied after Morgan Stanley
(NYSE:MWD) reported better-than-expected profits, despite the
flagging U.S. economy.  One analyst noted that the market is
showing great resilience amid negative earnings news and appears
set to rise ahead of Friday's "triple witching" of stock and
derivative products.  Sam Stovall, senior investment strategist
at S&P, suggested that investors would do best to buy companies
that are going to benefit from an economic turnaround next year
such as banks and financials, consumer products, health care and
select technology stocks.  If those optimistic opinions do come
true, it would be a great Christmas present for everyone.

Happy Holidays!

Summary of Current Positions (as of 12/18/01):

Covered Calls: (Margin not used in calculations)

Stock  Strike Strike Cost   Current  Gain  Potential
Symbol Month  Price  Basis   Price  (Loss) Mon. Yield

INTU    DEC     45   40.85   43.60   2.88     4.8%
TMPW    DEC     35   33.20   43.91   1.80     4.5%
ELBO    DEC     35   33.50   42.09   1.50     3.7%
VRTS    JAN     40   37.42   46.02   2.58     5.7%

Naked Puts:

Stock  Strike Strike Cost   Current  Gain  Potential
Symbol Month  Price  Basis   Price  (Loss) Mon. Yield

INTU    DEC     35   34.20   43.60   0.80    5.6%
ELBO    DEC     30   29.50   42.09   0.50    5.0%
TMPW    DEC     30   29.40   43.91   0.60    6.0%
EBAY    DEC     50   48.85   66.81   1.15    6.8%
BBY     DEC     55   54.00   72.55   1.00    5.1%
PCSA    DEC     45   44.05   46.66   0.95    6.0%
CVTX    DEC     42.5 41.90   55.55   0.60    5.1%
IGEN    DEC     30   24.65   36.39   0.35    4.5%
SMTC    DEC     30   29.50   40.23   0.50    7.9%
NVDA    DEC     57.5 57.10   66.25   0.40    7.1%
VRTS    DEC     40   29.50   46.02   0.60   14.5%
NVDA    JAN     50   48.95   66.25   1.05    6.2%
VRTS    JAN     35   43.80   46.02   1.20    9.8%
EMLX    JAN     27.5 26.80   38.64   0.70    6.5%

Naked Calls:

Stock  Strike Strike Cost   Current  Gain  Potential
Symbol Month  Price  Basis   Price  (Loss) Mon. Yield

CCMP    DEC    80    80.65   80.15   0.50     4.2%
CHIR    DEC    50    50.45   45.75   0.45     5.3%
IDPH    DEC    75    75.70   71.16   0.70     5.2%
EASI    DEC    55    55.50   30.40   0.50     4.5%
ICOS    JAN    65    65.95   63.90   0.95     5.1%

Sell Strangles:

Stock  Strike Strike Cost   Current  Gain   Potential
Symbol Month  Price  Basis   Price  (Loss) Mon. Yield

AZN     DEC    50-P  51.30   44.69   1.30     4.9%
AZN     DEC    45-P  43.60   44.69   1.09     4.1%
ERTS    DEC    50-P  48.45   62.34   1.55     7.9%

Closed: Electronic Arts (NASDAQ:ERTS) DEC-$60 call.

Credit Spreads:

Stock  Pick     Last    Position   Credit   C/B    G/L   Status

PCAR   62.59    65.43  DEC50P/55P   0.70   54.30   0.70   Open
AHP    58.75    58.25  DEC65C/60C   0.65   60.65   0.65   Open
CSC    45.09    47.24  DEC35P/40P   0.60   39.40   0.60   Open
PEP    50.28    47.38  DEC45P/47P   0.35   47.15   0.23  Closed
NKE    51.56    52.78  DEC45P/47P   0.40   47.10   0.40   Open
AGN    76.10    72.73  DEC65P/70P   0.60   69.30   0.60   Open
LLY    83.33    82.64  DEC75P/80P   0.80   79.20   0.80  Closed
CHIR   45.59    45.75  DEC55C/50C   0.60   50.60   0.60   Open
IGEN   35.44    36.39  DEC25P/30P   0.85   29.15   0.85   Open
ENZN   54.79    53.50  DEC70C/65C   0.60   65.60   0.60   Open
BMY    50.45    51.19  DEC60C/55C   0.30   55.80   0.30   Open
ADSK   39.39    39.18  JAN30P/35P   0.50   34.50   0.50   Open
KBH    37.82    39.63  JAN30P/35P   0.55   34.45   0.55   Open
MCHP   40.33    41.67  JAN30P/35P   0.75   34.25   0.75   Open

Murphy's Law has always been a big part of our portfolio and
since we closed the positions in Pepsi (NYSE:PEP) and Eli Lilly
(NYSE:LLY), both issues are staging a comeback and the bullish
plays are profitable again.

New Candidates:

This following group of plays is simply a list of 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
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.  (We monitor the positions marked with ***).


BULLISH PLAYS - Covered Calls & Naked Puts

ACF - Americredit  $30.20  *** Bottom Fishing! ***

AmeriCredit (NYSE:ACF) has been operating in the automobile
finance business since September 1992.  Through its branch
network, the company purchases auto finance contracts without
recourse from franchised and select independent automobile
dealerships and makes loans directly to consumers buying late
model used and new vehicles.  AmeriCredit targets consumers
who are typically unable to obtain financing from traditional
sources.  Funding for the company's auto lending activities
is obtained mainly through the sale of loans in securitization
transactions.  The company services its automobile lending
portfolio at regional centers using automated loan servicing
and collection systems.  AmeriCredit's typical borrowers have
experienced prior credit difficulties or have limited credit

Americredit was on the move today as rumors spread after a
number of blocks were traded that "shorts" are covering their
positions.  The commentary from Briefing.com suggested that,
"Despite general skepticism on lending-related operations,
many people are financing new cars, which benefits ACF; also,
aggressive monetary policy could produce a liquidity-driven
rally, which should cause the economy to rebound and auto
sales to improve."  That's a very likely outcome, given the
current economic conditions and the Fed's recent actions,
and this position offers investors a way for investors to
speculate conservatively on a recovery in the company's share

ACF - Americredit  $30.20

PLAY (buy stock and sell covered call; or sell naked put):

Action    Month &  Option  Open     Closing  Cost     Target
Req'd     Strike   Symbol  Int.     Price    Basis    Mon. Yield

SELL CALL JAN 30   ACF AF  325       2.55    27.65      8.6% ***

SELL PUT  JAN 25   ACF ME  734       0.65    24.35      8.8% ***
SELL PUT  JAN 30   ACF MF  43        2.25    27.75     16.1%

GENZ - Genzyme General  $60.80  *** New S&P 500 Addition! ***

Genzyme General Division (NASDAQ:GENZ) is a division of Genzyme
Corporation, a biotechnology and human healthcare company that
develops products and provides services for major unmet medical
needs.  Genzyme General develops and markets therapeutic and
diagnostic products and services with an emphasis on genetic
disorders and other chronic debilitating diseases with defined
patient populations.  Genzyme General primarily consists of the
Therapeutics and Diagnostics business units and its wholly owned
subsidiary GelTex Pharmaceuticals, which the company acquired in
December 2000.

Genzyme General recently announced it was added to the S&P 500
Index.  Genzyme is now included in the Biotechnology group
within the Global Industry Classification Standard health care
sector and in the Biotechnology industry group.  The issue has
replaced pet-food group Ralston-Purina (NYSE:RAL) as Ralston
was acquired by Swiss food group Nestle Holdings.  The S&P 500
is tracked by fund managers and changes to the index are usually
followed by heavy trading in shares of the companies affected as
funds holdings are adjusted to match the popular market gauge.
In other news, Genzyme recently announced it will receive Dutch
biotechnology firm Pharming's licences to intellectual property,
pre-clinical and clinical data for its unique alpha-Glucosidase
treatment for Pompe's disease.  Genzyme will also purchase all
shares in Pharming's Belgium subsidiary that owned manufacturing
facilities and in return, the company is releasing Pharming from
claims for agreed capital contributions to their joint venture
and will forgive, under certain conditions, a promissory note.
Genzyme is also moving towards an appeal in the ongoing patent
infringement suit against Transkaryotic Therapies (NASDAQ:TKTX)
and that may eventually result in a favorable judgment.

From a technical viewpoint, GENZ is once again established in a
bullish trend and those who favor the biotechnology sector can
use this position to speculate conservatively on the future
movement of the issue.

GENZ - Genzyme General  $60.80

PLAY (sell naked put):

Action    Month &  Option  Open     Closing  Cost     Target
Req'd     Strike   Symbol  Int.     Price    Basis    Mon. Yield

SELL PUT  JAN 55   GZQ MK  1,931     1.10    53.90      5.7% ***
SELL PUT  JAN 57.5 GZQ MY  375       1.75    55.75      7.8%
SELL PUT  JAN 60   GZQ ML  984       2.65    57.35     10.3%

IGEN - IGEN International  $38.99  *** Legal Successes? ***

IGEN International (NASDAQ:IGEN) develops and markets products
that incorporate the company's proprietary ORIGEN technology,
which permits the detection and measurement of unique biological
substances.  ORIGEN is incorporated into instrument systems and
related consumable reagents.  IGEN also offers assay development
and other services used to perform analytical testing.  Products
based on the company's ORIGEN technology currently address the
following markets: Life Science; Clinical Testing-In Vitro; and
Industrial Testing.

Shares of IGEN have rallied in recent weeks amid speculation the
company will eventually win a lucrative settlement in its ongoing
legal fight with German medical company Roche Diagnostics.  In a
lawsuit filed in 1997, IGEN charged that Roche, a subsidiary of
Swiss health-care giant F. Hoffman-La Roche, breached an earlier
contract in which Roche licensed IGEN's biological-detection
technology, called Origen, for use in clinical testing products.
Among other claims, IGEN accuses Roche of violating the contract
by underreporting royalties and selling Origen-based systems in
markets not covered by the contract.  Earlier this year, a U.S.
judge granted a summary judgment in IGEN's favor on three of 14
claims and analysts believe the final settlement could exceed $1
billion.  Separately, Roche has dismissed all claims against IGEN
in a patent infringement action and is reimbursing IGEN for the
legal fees that IGEN incurred in defending that suit, which total
approximately $5.7 million.  The company also recently announced
a $30 million private placement, under which it sold a total of
1,018,808 shares of stock to Acqua Wellington Private Placement
Fund and Acqua Wellington Opportunity I Limited.  The Wellington
group targets investment opportunities in mid-cap and small-cap
publicly traded companies with a primary focus in the technology
and life science sectors.

We simply favor today's bullish "break-out" and this position
offers a great way to speculate on the future movement of the
issue in a conservative manner.

IGEN - IGEN International  $38.99

PLAY (sell naked put):

Action    Month &  Option  Open     Closing  Cost     Target
Req'd     Strike   Symbol  Int.     Price    Basis    Mon. Yield

SELL PUT  JAN 25   GQ ME   70        0.50    24.50       6.1% ***
SELL PUT  JAN 30   GQ MF   1,018     1.35    28.65      15.0%
SELL PUT  JAN 35   GQ MG   154       2.80    32.20      19.7%

LXK - Lexmark  $57.37  *** On The Rebound! ***

Lexmark International (NYSE"LXK) is a developer, manufacturer
and supplier of printing solutions, including laser and inkjet
printers, associated supplies and services for offices and homes.
Lexmark develops and owns most of the technology for its laser
and color inkjet printers and associated supplies, and that
quality differentiates the company from a number of its major
competitors, including Hewlett Packard, which purchases its
laser engines and cartridges from a third party.  Lexmark also
sells dot matrix printers for printing single and multi-part
forms by business users.  In addition, Lexmark develops, makes
and markets a broad line of other office imaging products, which
include supplies for select IBM branded printers, aftermarket
supplies for original equipment manufacturer products, and also
typewriters and typewriter supplies that are sold under the IBM

Lexmark has been under pressure in recent weeks from a barrage
of class-action lawsuits, all of which specify in broad language
that: "The complaint alleges that during the Period, defendants
issued to the investing public false and misleading information
that materially misstated the company's condition and prospects."
Strangely enough, the company's current investors don't seem to
care about the news as the issue has moved up 10% over the last
two weeks.  From our perspective, Lexmark is one of the leading
companies in the computer hardware industry and among numerous
institutional investors, it is also a popular core holding.  The
current technical outlook is favorable and our position offers
excellent reward potential for traders who agree with a bullish
future for the issue.

LXK - Lexmark  $57.37

PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-45  LXK-MI  OI=1905  A=$0.35
SELL PUT  JAN-50  LXK-MJ  OI=2584  B=$0.75

NBIX - Neurocrine Biosciences  $51.65  *** Speculation Only! ***

Neurocrine Biosciences (NASDAQ:NBIX) is a unique, product-based
biopharmaceutical company focused on neurologic and endocrine
diseases and disorders.  The company's primary products address
pharmaceutical markets such as insomnia, anxiety, depression,
cancer and diabetes.  The company's product candidates include
gamma amino-butyric acid, Corticotropin-Releasing Factor, IL-4
Fusion Toxin, Altered Peptide Ligands and Gonadotropin-Releasing
Hormone Receptor.  The company's unique research products include
Excitatory Amino Acid Transporters, CRF R1 Peripheral Uses, CRF
R2 Antagonists, CRF R2 Agonists/Urocortin Agonist, Melanocortin
Receptor Agonists/Antagonists, Melanin-Concentrating Hormone
Antagonists and Hypocretin.

Shares of Neurocrine Biosciences rallied earlier this week after
the results of the company's recent Phase II Clinical Trial with
NBI-34060 in elderly patients with primary (chronic) insomnia
were discussed with its shareholders.  Based on the optimistic
report, analysts at UBS said Neurocrine is one of its top picks,
and it is "highly positive" on the future clinical and commercial
prospects for NBI-34060.  The investment bank said it believes
that Neurocrine may sign a commercialization agreement with a
large pharmaceuticals partner in the second half of next year
and it now holds a "buy" rating on the issue with a target of
$58, based on its belief in the potential commercial success
of the new product.

Apparently, investors are pleased with the news as the issue
continues to show strength in the recent bullish trend and these
positions offer a way to speculate conservatively on the future
share value of the company.

NBIX - Neurocrine Biosciences  $51.65

PLAY (buy stock and sell covered call; or sell naked put):

Action    Month &  Option  Open     Closing  Cost     Target
Req'd     Strike   Symbol  Int.     Price    Basis    Mon. Yield

SELL CALL JAN 45   UOT AI   61       8.30    43.35      3.9%

SELL PUT  JAN 40   UOT MH   5        0.55     0.75      5.1% ***
SELL PUT  JAN 45   UOT MI   13       1.65     1.90     10.7%


BEARISH PLAYS - Naked Calls & Combinations

ADI - Analog Devices  $45.13  *** Semiconductor Slump! ***

Analog Devices (NYSE:ADI) is engaged in the design, manufacture
and sales of high-performance analog, mixed-signal and digital
signal processing (DSP) integrated circuits (ICs) used in signal
processing applications.  The company has a generic list of
approximately 2,000 products, with the highest revenue product
accounting for approximately 4% of its revenue in fiscal 2000.
Analog also designs, manufactures and sells a range of assembled
products.  Applications for its products include communications,
cellular telephones, computers and computer peripherals, consumer
electronics, automotive electronics, factory automation, process
control and military and space systems.

The overall weakness in technology shares was driven primarily
by semiconductor issues today, which retreated broadly under
heavy selling volume pushing the Philadelphia Semiconductor
Index (SOX) down over 5% to a two-week low near 537.  Some of
the bearish pressure began Tuesday when Timothy Arcuri, an
analyst at Deutsche Banc Alex. Brown, released 2003 earnings
estimates for the chip-equipment group that were on average 25%
below the existing consensus.  Arcuri cited what he said were
"unrealistic expectations" for a rebound in capital spending.
Wednesday's news was no better as a Dataquest report showed that
semiconductor revenues fell 33% this year, the worst industry
decline in history.  That's not good news for the semiconductor
sector and with the recent pessimistic forecasts for the group,
these positions offer favorable speculation for traders who agree
with a bearish outlook for chip stocks.

ADI - Analog Devices  $45.13

PLAY (aggressive - sell naked call):

Action    Month &  Option  Open     Closing  Cost     Target
Req'd     Strike   Symbol  Int.     Price    Basis    Mon. Yield

SELL CALL JAN 55   ADI AK  2,267     0.55    55.55      5.8% ***
SELL CALL JAN 52.5 ADI AR  2,249     0.90    53.40      7.9%
SELL CALL JAN 50   ADI AJ  2,821     1.50    51.50     10.4%
SELL CALL JAN 47.5 ADI AS  2,173     2.30    49.80     13.0%

IMCL - Imclone  $61.60  *** Unfavorable Rumors! ***

ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company that
is developing a portfolio of targeted biologic treatments designed
to address the medical needs of patients with a variety of cancers.
Imclone focuses on three strategies for treating cancer, growth
factor blockers, cancer vaccines and angiogenesis inhibitors.  The
company's primary product candidate, IMC-C225, is a therapeutic
monoclonal antibody that inhibits stimulation of a receptor for
growth factors upon which certain solid tumors depend in order to
grow.  IMC-C225 has been shown in several Phase I/II trials to have
an acceptable safety profile, to be very well tolerated and, when
administered with either radiation therapy or chemotherapy, to
enhance tumor reduction.

Shares of Imclone were hammered again today in the wake of market
rumors that the FDA will ask for additional information on the
company's primary product candidate Erbitux, previously known as
IMC-C225.  Imclone filed an approval application for Erbitux with
the Food and Drug Administration at the end of October but fears
are rising that the FDA's acceptance of that application, expected
by December 31, could be delayed.  In addition, a boutique research
firm, OffWallStreet, is weighing in with its own concerns on the
response rate of Erbitux in clinical trials.  The company says its
interpretation of the data leads it to doubt that the new drug will
be approved and they also see unresolved patent issues with Genetech
(NYSE:DNA) as another potential problem.  Regardless of the eventual
outcome, the near-term technical indications for IMCL are unfavorable
and these positions offers a way to speculate on the future (bearish)
movement of the issue in a conservative manner.  Target a higher
premium in the options initially, to allow for a brief recovery in
the underlying issue.

IMCL - Imclone  $61.60

PLAY (aggressive - sell naked call):

Action    Month &  Option  Open     Closing  Cost     Target
Req'd     Strike   Symbol  Int.     Price    Basis    Mon. Yield

SELL CALL JAN 75   QCI AO  1,670     0.95    75.95      7.3% ***
SELL CALL JAN 70   QCI AN  1,459     2.00    72.00     11.6%
SELL CALL JAN 65   QCI AM  2,391     4.00    69.00     16.6%



Stock  Last    Long    Ask    Short    Bid   Target  Monthly
Symbol Price  Option   Price  Option   Price Credit   Gain

SRCL   62.10  JAN-50P  0.40   JAN-55P  0.85   0.55     12%
PCAR   66.55  JAN-55P  0.40   JAN-60P  0.90   0.60     13%
TOL    44.45  JAN-35P  0.30   JAN-40P  0.90   0.70     16%
RYL    73.20  JAN-60P  0.50   JAN-65P  1.10   0.70     16%
FAST   64.99  JAN-55P  0.35   JAN-60P  1.00   0.75     17%


Stock  Last    Long    Ask    Short    Bid   Target  Monthly
Symbol Price  Option   Price  Option   Price Credit   Gain

VAR    67.25  JAN-80C  0.50   JAN-75C  0.95   0.55     12%
SGP    36.86  JAN-42C  0.30   JAN-40C  0.55   0.30     13%
RMD    54.76  JAN-65C  0.55   JAN-60C  1.05   0.60     13%



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