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Daily Newsletter, Sunday, 12/23/2001

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The Option Investor Newsletter                   Sunday 12-23-2001
Copyright 2001, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.


Entire newsletter best viewed in COURIER 10 font for alignment

Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       WE 12-21         WE 12-14         WE 12-07         WE 11-30
DOW    10035.34 +224.19  9811.15 -238.31 10049.46 +197.90  -108.15
Nasdaq  1945.83 -  7.34  1953.17 - 68.09  2021.26 + 90.68  + 27.39
S&P-100  586.41 + 14.03   572.38 - 19.40   591.78 +  6.98  -  8.47
S&P-500 1144.89 + 21.82  1123.07 - 35.24  1158.31 + 18.96  - 10.89
W5000  10644.93 +201.37 10443.56 -301.81 10745.37 +213.92  - 64.95
RUT      484.02 + 12.73   471.29 -  9.92   481.21 + 20.43  +  2.36
TRAN    2605.23 + 28.13  2577.10 - 51.16  2628.26 +116.48  - 23.12
VIX       23.29 -  2.68    25.97 +  1.08    24.89 -  1.25  +  1.36
VXN       50.96 -  1.83    52.79 +  2.61    50.18 +  1.73  -  2.36
TRIN       1.08             1.06             1.18             1.19
TICK      +1184             +388             +828             +852
Put/Call    .69              .72              .78              .63     
******************************************************************

 
Ready, Set, Shop!
by Jim Brown

The heading for this article was directed at the male population
and I should have actually said ready, set, BUY. As everyone who 
has been married for sometime knows, the males of the species are 
not adept at shopping. They are "buyers" not "shoppers' and will 
only venture into a retail environment after they have completely
made up their mind OR are forced to accompany their better half
on a "fun and exciting shopping experience." The other trigger
that can send males into a buying panic is the last shopping day
before Christmas. No longer able to procrastinate the task they
are forced to join the other hordes of last minute shoppers to 
find just the "perfect" gift among the scattered remains of the
billions of dollars of merchandise that "early" shoppers picked
over or already returned. With the good stuff already gone or
consigned to out of the way boutiques, places males would not be
caught dead visiting, the "perfect" gift for that special someone
more often than not becomes something that the someone wishes
they could return the day after but can't because "dad/husband/
boyfriend" bought it for them. Surely he spent days researching 
and shopping for this present and I could not be so heartless in
returning it. Just because it does not fit, is the wrong color
and 20 years out of my age bracket, I can't return it! It is the
thought that counts and he was so sweet to spend all that time
and effort picking it out. (If they only knew!)(Actually my wife
knows and that is why I am in the office writing at 11:PM Friday 
night and she is closing store after store always mindful of the
next store with a later closing schedule.)



 



 



 

The economic reports on Friday came in bullish and the markets 
jumped at the open and held their ground all day. The Consumer
Sentiment number surprised analysts and jumped up to 88.8 for
December which was a large increase from November's 83.9. The
index is still below last summer's levels but rebounding strongly
and indicates consumers are comfortable with the current environment.
This was the third month of increase and the expectations index
rose almost six points indicating they were encouraged about the
future. Only slightly below the 9/11 levels it shows that the
impact from the attacks has almost completely dissipated. 

The rise in consumer confidence is somewhat confusing since
personal income declined in November. Spending was down as well
by -.7%. Consumers earned less, spent less and were happier about
it. Something is wrong with this picture. We have heard the term
cocooning for three months and this economic data is clear evidence
of that impact. Consumers worked less, stayed home and saved their
money. Fears of impending layoffs and terrorist attacks kept a
lid on the economy. The positive consumer sentiment is a sign
that they may be starting to come out of their cave again.

That same cocooning was seen in the GDP revision which was revised
downward to -1.3%. The bright side to this entire set of reports
is simply a consumer that is reviving, at least for the 4Q, and
the prospect that the recession could be limited to one quarter
is good. We may still be in a recession but nowhere near the -1.3%
suffered in Q3. Some analysts are speculating on -0.5% for Q4.

All this bullish economic news was offset by some not so exciting
news in the semi book to bill report. New orders in November 
were only 73% of billings for orders shipped. In English this
means orders are still falling at an alarming rate. It appears
that the sector has yet to hit bottom. The percentage number was
up slightly from the prior months but the new bookings dropped to
a new low of $612 million. To put this in perspective shipments in
April were $1.654 billion. The bookings have stabilized for the
last three months at just over the $600 million level but do not
show any signs of growth. Considering the long lead times for new
chips it could appear that any recovery in the 1Q is out. Once
those orders start coming in, real signs of progress should appear
over the following three months. 

In the markets on Friday there was mostly good news and even the
warnings were ignored. Caterpillar said it was cutting 900 jobs
to increase efficiency and close a plant. Even with the job cuts
and $55 million charge they affirmed previous profit estimates.
Those estimates were for up to a -15% drop in profits but the
good news was they did not lower them again. Honeywell announced
that it would take a $540 million charge but it was on track for
achieving $1.3 billion in savings from 15,800 job cuts and closing
51 facilities. Excluding the charge HON said it was on track to
post earnings in the range of .54 to .56 and well within analyst's
estimates of .50 to .56 cents. 

Those press releases didn't hurt the Dow and even a warning from
Nortel failed to blunt enthusiasm. Nortel warned that they would
post a loss in the 4Q but it will be less than the 3Q loss. It will 
be bad but not as bad as analysts feared. NT gained +.77 on the news
and had a beneficial impact on several other stocks in the sector
like RSTN which jumped over $2. JNPR and CIEN also gained ground.

Airlines gained ground early after an UBS Warburg said in a research
note that those stocks could rise +80% to +200% over the next two
years. The euphoria was short lived when Moody's Investor Service
announced later they were cutting the debt ratings on UAL and CAL 
from junk to worse than junk. Earlier this week they cut AMR and 
DAL as well. Sometimes you just can't get a break.

The nice gains we saw on Friday were motivated in part by options
expiration and a rebalancing of the Nasdaq-100. The expiration
was quiet on Thursday but provided some of the volume at Friday's
open. The Nasdaq rebalancing helped the stocks going in and hurt
those being dropped. (duh!) 

Stocks being dropped for non-representation (read that as too cheap)
were ARBA, BVSN, CMGI, CNET, COMS, INKT, LVLT, MCLD, MFNX, NOVL, 
PALM, PMTC and RNWK. Stocks being added included IMCL, CHTR, CDWC,
SYMC, SEPR, IVGN, ESRX, CEPH, ICOS, CYTC, PDLI, IDTI and SNPS. 
Those being added saw sharp volume spikes, and I really mean 
sharp, in the last 15 min of trading. CYTC for instance sometimes
trades less than a million shares a day and almost eleven million
shares traded on Friday, much of it in the last hour. I am really
surprised the Nasdaq finished in positive territory considering
that several of the big cap Nasdaq stocks finished down. CSCO, 
SUNW, ORCL and the others were only fractionally positive. INTC,
+.43, MSFT +.78, DELL .00, JDSU +.25 and WCOM +.45.  

Other than the tame affirmations and the Nasdaq rebalance the news
was pretty mild. Traders were heartened by the consumer sentiment
numbers and started placing bets in front of the "expected" Santa
Claus rally. (sure going to be a lot of people disappointed if it
does not happen) Remember, we trade what we get. There has been
a lot of conflicting information about the expected rebound and
if the facts start showing that it is nowhere n sight investors
will move back to the sidelines. Things like the semi book to 
bill, which in my mind was bearish, were glossed over with holiday
sentiment. 

Retailers are reporting a wide mix of good news/bad news. While
sales are ahead of estimates "officially", those estimates were
already lowered. Unofficially, there is a war on in the retail
market place. Retailers get 40% of their annual sales between
Dec-18th and Dec-31st. 40%!! Many stores are having 30-50 even
75% off sales to get consumers to buy their merchandise with 
little success. Sure the malls are full three days before 
Christmas but retailers are giving away merchandise to draw 
them in. When the numbers are released in January it could be
a bloodbath. 

One retail analyst said this has been the worst holiday season
in a decade and the first quarter was shaping up as a serious
disaster. Retailers are pulling out all the stops to coerce
people to buy in December and they are compressing the available
sales into this quarter. Consumers who are buying are reported
to be putting most sales on credit cards which will come back
to haunt them in January. More rounds of layoffs are expected
in January as well as companies start a new year and look back
over the scorched financial statements from 2001. Remember the
consumer income above dropped last month. According to TrimTabs
tax collections from paycheck deductions in December are already 
more than 10% behind last December. There is a significant and
growing problem that many investors are overlooking. I personally
think that the markets are walking a very thin tightrope over 
these problems and as long as investors don't look down until
we get to the recovery we will be ok. Until then I expect the
markets to become more volatile the higher they climb.

Now, let me come out of my bear cave for a minute. Everyone
wants to rally into the new year. Good, no complaint there.
Everyone knows that markets perform best when they have to
climb a wall of worry. No complaint there, we got one in front
of us that looks more like a bed of hot coals than wall. Most
institutional investors feel there is little downside. I really
can't complain with that concept. I think the 9/11 event was
a pretty convincing washout and I can't imagine returning to 
those levels. So the case I am building here looks like this.
We are likely to rally next week because, big investors think
there is little downside and that should put a floor under the
market. Retail investors think stocks are cheap, relatively, 
and have been conditioned that the week after Christmas is a
good time to buy. Mutual funds are faced with a flood of new
retirement cash over the next several weeks and they have to
put it to work somewhere. Almost $10 billion has come into 
stock funds already in December. (Somebody out there must
have gotten a bonus although they are said to be 50-60% below
last years.) Volume on Friday was the best in recent memory
with 1.7 bil on the NYSE and almost 2.3 bil on the Nasdaq.
Tax selling is not over and can hit any stock at any time.
Funds holding winners could be waiting for that last pop up
next week before selling. Keep those stops close.

The scenario as I see it is a positive week ahead as bulls
trade on emotion. That emotion could push the indexes back
up to test resistance once again. That resistance for the 
Dow is just above 10150, Nasdaq 2050 and S&P 1175. Those
levels will not be broken without a lot more than emotion
behind the bulls. HOWEVER, should we get an upside surprise
a break above those levels next week could trigger the mother
of all short covering rallies since most technicians believe 
it is impossible. Based on the sentiment I think the plan is
to go long until the market tells us otherwise. I am going
to raise the exit points to Dow 9950, S&P 1135 and lower the
Nasdaq to 1900. Stay long above these levels and go flat if
they are broken.

Monday is only a half-day of trading and for obvious reasons
we will not be publishing a end of day newsletter. The market
monitor team, led by Jeff Bailey, will be hard at work however
until the market closes. The intra-day alerts will be limited
to market hours. That leaves a good 3-4 hours for the male
population to get all their shopping done!

Happy Holidays To All!

Jim Brown
Editor@OptionInvestor.com


************************  
YEAR END RENEWAL SPECIAL
************************ 

I am really happy to announce this years annual renewal special.
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**************
Editor's Plays
**************

A couple good candidates for this weeks plays and one stock
that is really ticking me off. 

The first one is ABI, a biotech company with a great chart.
This company was selling for over $100 late last year and
took a hit on some negative drug news like all companies
do from time to time. They are back on the road to recovery
and just set a new relative high.

ABI $37.45


 

I like the March $35 call for $5.20 which is already +2.45
in the money. Breakeven on this strike price is $40.20. The
$40 call is cheaper but the breakeven is much higher at $42.75.
My preference is the in the money strikes. 


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

Next is Bradley Pharmaceuticals a stock that closed at an all 
time high on Friday. It would be nice to catch this one on a
pull back but I doubt it will happen. Louis Naviller made this
his pick of the week and says it can go much higher.

BPRX $19.85


 

This is a tough one. The Jan-$20 call (ATM) is only $1.80 but
there is only four weeks till expiration. In the last four
weeks the stock gained +$5 but that may be too aggressive to
expect it to do it again. This means we are better off going
with a longer strike like the April-$20 but it is $4.00. We 
get four months instead of one but we need $28 to double. If
we are willing to pay $4.00 for April we should bite the bullet
and pay $5.10 for July and now we have seven months with a break
even of $25.10. Plenty of time for the stock to double again
and provide us with a nice profit.

Another way to play this would be to sell the July-$20 put
for $4.90 or wait for the new option series to post next week
and sell the July $25 put which should be something in the $8
range based on the current price for the $20. A 100% profit
would be gained if the stock moved over $25 by July. Almost
a sure bet based on the chart. (There are no sure bets, this
is just a figure of speech but you know what I mean) The down
side to this is you cap your profit at $8. Using the call you
have unlimited profit once the breakeven point is passed.

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

This stock is ticking me off. I have tried to get an entry
point in ACS for three weeks and just when I think it is
going to let me in it blasts off again. Of course now that
I am writing about it the turkey will probably roll over 
-20%.

ACS $102.96 



 

In theory it should eventually pull back to the 30 DMA (blue 
line) and give us an entry point. In practice it could run 
another $10 before pulling back and the retracement point 
would be higher than it is today!

I would probably use the front month options because of price.
The April $105 are $7.50 and the July $10.20. Both would require
a huge move to be profitable. The Jan-$100 at $6.00 and $2.90
in the money would be my choice. Breakeven would be $106 and
only $3 away. 

You could also sell the April $120 put for $18.50 and score a
full profit with a close over $120 by April expirations. 


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

Top 20 List

This is the last top-20 list I will be producing. It is very
time consuming and with some new features we will have on the
site in January it will be redundant. 

Please only play these calls if the market is in rally mode.

CALLS

AFC  43.31 Close to a breakout to new relative high.
AET  33.00 Near new high
ADVP 30.20 Strong bounce off bottom
ACF  29.10 Buy breakout over $30
CHS  40.21 New high
DGX  69.90 Buy breakout over $70
FMC  57.93 Strong bounce, new relative high
FRX  81.00 Buy breakout over $82
GE   41.35 Buy breakout over $41.50
HP   31.62 Buy breakout over $33
HRB  42.60 New high     
HSY  68.29 Chocolate is hot      
EMMS 21.58 New relative high
MDT  50.55 Replacing RAL in S&P 
GNSS 65.84 This is the pullback 
NTAP 22.60 Strong storage stock
ODP  17.91 New high 
PDII 21.69 Rising from the ashes 
RCII 33.55 Breakout
RDN  42.00 Buy breakout over $42.50
SBAC 13.20 New relative high
NVDA 64.58 This is the pullback
SII  51.90 Buy breakout over $52.50
SLAB 37.00 Strong chip in weak sector
SPWX 10.99 New relative high
TXN  28.00 Entry point?
UN   57.90 New relative high
WMT  57.57 Finally broke $55 to make new high

PUTS

AMCC 10.01 If it closes under $10, it could hit $6
AMZN 10.00 Why is it weak when Internet sales are so high?


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

Good Luck

Jim


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

Market Sentiment
Russ Moore

Calming words lead markets higher.

For those of bullish persuasion today’s earnings reaffirmation’s 
by Caterpillar and Honeywell was just what the Doctor ordered. In 
addition, Nortel Networks announced a narrower than expected 
fourth quarter loss, giving a boost to the tech sector.

The DOW tacked on +0.5 percent while the NASDAQ added +1.4 
percent and the NDX +1.3 percent. Volume was heavy with 1.68 
billion shares trading on the NYSE and 2.15 billion shares moving 
on the NASDAQ. Advancers were on top by a 21/11 at the NYSE and 
23/14 on the NASDAQ.

Broader market action saw Biotech, airline, oil service and 
retail sectors enjoying nice gains while gold, paper and forest, 
chemicals and banks were under pressure. On the tech side it was 
hardware, networking, Internet and chip sectors heading the pack.

The Michigan Sentiment Index increased to 88.8 from last months 
83.9. Personal spending slipped –0.7 percent, not quite as bad as 
the –0.8 percent forecast. Personal income declined –0.1 percent.

Trim Tab numbers seem to fall in line with the sentiment move as 
5.5 billion dollars flowed in to equity funds for the week ending 
December 19.

As far as expiration weeks go, this was not one of the most 
exciting with the SPX managing only a 38-point trading range for 
the entire week. I guess we shouldn’t be too surprised 
considering the mixed signals investors are faced with. It’s 
awfully difficult to take a firm stance on either side of the 
market under the current circumstances. .



Friday 12/21 close: 23.21


VXN
Friday 12/21 close: 50.96


30-yr Bonds
Friday 12/21 close: 5.46


Total Put/Call Ratio: .69


Equity Option Put/Call Ratio: .61


Index Option Put/Call Ratio: 2.36


===

NASDAQ 100 Index (NDX/QQQ)
52-Week High: 103.51
52-Week Low:   28.19
Current close: 39.48

Volume/Open Interest
Maximum calls: 40/118,173
Maximum puts : 40/ 77,955

Moving Averages
 10 DMA 40
 20 DMA 40
 50 DMA 38
200 DMA 40

Fibanocci Retracements
Relative High: 51.95 (05/22/01)
Relative Low:  27.00 (09/21/01)
38% 36.60
50% 39.57
62% 42.59

===

S&P 100 Index (OEX)
52-Week High:  834.93
52-Week Low:   491.70
Current close: 586.41

Volume/Open Interest
Maximum calls: 580/3,695
Maximum puts : 520/4,168
Moving Averages
 10 DMA  580
 20 DMA  584
 50 DMA  575
200 DMA  601

Fibanocci Retracements
Relative High: 680.03 (05/22/01)
Relative Low:  480.07 (09/21/01)
38% 556.14
50% 579.65
62% 603.55

===

S&P 500 (SPX)
52-Week High:  1530.01
52-Week Low:    965.80
Current close: 1144.89

Volume / Open Interest
Maximum calls: 1150/37,303
Maximum puts : 1150/30,674
Moving Averages
 10 DMA 1136
 20 DMA 1142
 50 DMA 11120
200 DMA 1169

Fibanocci Retracements
Relative High: 1315.93 (05/22/01)
Relative Low:   944.75 (09/21/01)
38% 1086.75
50% 1130.62
62% 1175.23

==

DJIA (INDU)
52-Week High:  11,518.83
52-Week Low:    8,235.81
Current close: 10,035.34

Volume / Open Interest
Maximum Calls: 100/13,823
Maximum Puts   100/25,748

Moving Averages:
 10 DMA  9,926
 20 DMA  9,921
 50 DMA  9,671
200 DMA 10,104

Fibanocci Retracements
Relative High: 11,350.05 (05/22/01)
Relative Low    8,062.34 (05/21/01)
38%  9,308.92
50%  9,693.99
62% 10,085.60

==

Biotech Index (BTK)
52-Week High:  811.61
52-Week Low:   383.28
Current close: 581.72

Volume / Open Interest
Maximum Calls: 650/231
Maximum Puts:  540/974

Moving Averages
 10 DMA 575
 20 DMA 589
 50 DMA 567
200 DMA 537

Fibanocci Retracements
Relative High: 811.61 (09/25/00)
Relative Low:  383.28 (03/22/01)
38% 546.22
50% 596.57
62% 646.71

==

Semiconductor Index (SOX)
52-Week High: 1280.84
52-Week Low:   362.00
Current close: 520.58

Volume / Open Interest
Maximum Calls: 440/1,125
Maximum Puts:  470/2,004

Moving Averages
 10 DMA 548
 20 DMA 545
 50 DMA 508
200 DMA 557

Fibanocci Retracements
Relative High: 710.78 (05/22/01)
Relative Low:  343.93 (09/27/01)
38% 484.50
50% 527.18
62% 570.57

==

Pharmaceutical Index (DRG)
52-Week High:  455.28
52-Week Low:   339.49
Current close: 386.00

Volume / Open Interest
Maximum Calls: 400/525
Maximum Puts:  400/253

Moving Averages
 10 DMA 381
 20 DMA 389
 50 DMA 392
200 DMA 390

Fibanocci Retracements
Relative High: 448.43 (12/29/00)
Relative Low:  339.49 (03/22/01)
38% 382.22
50% 395.69
62% 409.03

*****

CBOT Commitment Of Traders Report: Friday, 12/21. 
Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts on the 
Chicago Board Of Trade. 

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 are not. 
Extreme divergence between each signals a possible market turn in 
favor of the commercial trader’s direction.   

S&P 500
Commercials   Long      Short      Net     %Change 
12/04/01     360,315   420,919   (60,604)   21.0%
12/11/01     367,397   429,640   (62,243)    2.6%
12/18/01     391,995   456,968   (64,973)    4.3%

Most bearish reading of the year: (111,956) - 3/6/01
Most bullish reading of the year: (41,144)  - 5/1/01

Small Traders   Long      Short      Net      %Change
12/04/01       159,336    86,534    72,802    24.4%
12/11/01       158,490    86,717    71,773    (1.4%)
12/18/01       158,300    80,507    77,793     8.4%

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

NASDAQ-100
Commercials   Long      Short      Net     %Change 
12/04/01      42,191    51,426    (9,235)  (16.5%)
12/11/01      45,468    51,392    (5,924)  (35.9%)
12/18/01      55,276    58,433    (3,157)  (46.7%)

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      %Change
12/04/01       11,808     8,311    3,497     (16.4%)
12/11/01       12,425    11,754      671     (81.0%)
12/18/01       17,649    18,626     (977)   

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

DOW JONES INDUSTRIAL
Commercials   Long      Short      Net     %Change 
12/04/01      22,703    10,739   10,739    (15.7%)
12/11/01      23,135    12,576   10,559     (1.7%)
12/18/01      21,919    13,810    8,109    (23.2%)

Most bearish reading of the year: (8,322) - 1/16/01
Most bullish reading of the year:  8,925  - 5/22/01

Small Traders  Long      Short      Net      %Change
12/04/01       3,677     9,799    (6,122)     (4.4%)
12/11/01       3,469     9,065    (5,596)     (8.6%)
12/18/01       6,790    10,943    (4,153)    (25.8%)
 
Most bearish reading of the year:  (7,572) - 5/08/01
Most bullish reading of the year:   1,909  - 1/16/01


                    Small Specs               Commercials
S&P 500         (Current)  (Previous)     (Current) (Previous)
Open Interest
Net Value        +77,793     +71,773        -64,973     -62,243

Total Open
Interest %       (+32.58%)  (+29.27%)      (-7.65%)   (-7.81%)
                 net-long   net-long       net-short  net-short


                     Small Specs             Commercials
DJIA futures     (Current) (Previous)    (Current) (Previous)
Open Interest
Net Value          -4,153     -5,596          +8,109    10,559
Total Open
interest %       (-23.42%)    (-44.65%)      (+22.70%)  (+29.57)
                 net-short   net-short     net-long    net-long


                     Small Spec              Commercials
NASDAQ 100      (Current) (Previous)    (Current) (Previous)
Open Interest
Net Value         -977      +671         -3,157    -5,924

Total Open
Interest %        (-2.69%)   (+2.78%)     (-2.78%) (-6.12%)
                 net-short   net-long      net-short net-short


What COT Data Tells Us
----------------------
Indices:.Commercials held steady on the SPX while continuing to 
reduce their net-short positions on the NASDAQ 100. Small Specs 
were headed the other way on the NDX as they turned net-short. 
Increasing divergence is of key importance and something we’ll be 
watching closely on the tech index.

Gold: It’s easy to see why gold is so difficult to play. After 
two weeks of building net-long positions, Commercial players 
decided to take the opposite side and are now sitting with net-
short contracts. Looking at the charts we see that the XAU hit a 
high point on 12/18.before heading south.

11/20  2,489 contracts net-short
11/27  1,738 contracts net-long
12/04  2,534 contracts net-short
12/11 13,626 contracts net-long
12/18 15,198 contracts net-short

Data compiled as of Tuesday 12/11 by the CFTC.


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**************
Traders Corner
**************

Tales Of Woe: Lessons To Know
Austin Passamonte

Got a call this morning from a good friend of mine. He began with 
courteous small talk but rigid tightness in his voice told me idle 
chitchat about deer season past was not the purpose of our visit. 

(Weekly Chart: EEL)


 

My friend's father started a private company decades ago that grew 
into a very successful venture. Back in year 1999 he sold out to a 
conglomerate type holding company attempting to consolidate the 
industry by purchasing key players in every region of the country. 
Back then the stock of that "CMGI" type-company was trading near 
$25 and the share conversion was made. 

My friend (his son) was a major shareholder in the family business 
who wisely divested some money into hard assets but kept a solid 
chunk of the new issue. His father had plenty of outside money but 
an even larger stake in the stock as one might imagine. After all, 
his company, his baby, his life's work was represented in those 
shares and selling out would be akin to severing all emotional 
ties.

See where this story's going?

My friend asked for an opinion throughout this period on how the 
stock was looking. I reiterated each time that stock strength or 
weakness differed from company fundamentals. Good companies can 
have a bad stock and vice-versa at any moment in time. It's not a 
mirror relationship, so try to separate emotion from the equation. 

I suggested they sell or at the very least hedge somehow if it 
broke below $9 at the first wedge and then below $8 at the second 
wedge. Each time my friend consulted with his father who consulted 
with their broker. Guess what the broker said? "Sell now and walk 
away?" Come on now; does that sound like any broker you ever 
heard? Of course he didn't say that... told them to hang in there 
for the "long haul" until it bounced back above $10.

I'm thinking the broker has a license and maybe even more college 
degrees than a thermometer but that "professional" doesn't know 
the sheer, simple warning of a double-top failure when it smacks 
him in the chart. Assuming he even looks at any charts to begin 
with.

Needless to say, my friend made one last call today for my advice 
and then told me he was getting out. Had enough of the painful, 
gut-wrenching ride down. Cost him two year's salary for the buy & 
hold lesson and his daddy's still hanging in there. Hanging in 
there with a seven-figure paper loss and I don't mean barely seven 
figures, either.

Why didn't they listen when warned to get out, especially after 
seeking out advice? Think that's an anomaly? Please read on.

(Weekly Chart: GLW)


 

I grew up less than fifty miles from Corning and Rochester, New 
York respectively. Right betwixt both cities. Corning has GLW and 
Rochester has Kodak, Xerox, Bausch & Lomb and Global Crossing as 
the big employers there.

A middle-age couple's husband I'm friends with down in Corning 
worked at GLW all his life. Guess what his 401K was chock full of? 
That worked like crazy when prices took off and they saw their 
retirement wealth rocket up almost +300% in one year's time. The 
husband promptly retired early, locked in his 401K gains and they 
lived rich & happy ever aft.

Well, not quite.

Everything seemed groovy until GLW stock broke down to $80 level 
and they saw roughly $175K evaporate from the rosy future. Guess 
who got the infamous call? Yep... me again. I told them the truth: 
telecom and networking was going to (and still is) get whacked in 
a big way. That was the bulk of their retirement future at risk 
and they needed to either hedge it off with long GLW put LEAPS or 
switch to bonds. 

But there's a catch: they have an eldest son who sells insurance, 
who has a best buddy that's a stockbroker. Guess who got the 
second call? Rightio... they called sonny-boy who spoke to the 
broker. Broker said stay the course, forget about bonds and for 
gosh sakes don't get mixed up with options. 90% of options expire 
worthless and that wouldn't help them at all. I never heard from 
them again on this matter and forgot we even had the conversation.

When later told what the broker said to them I felt like reaching 
thru the phone to that broker's throat and squeezing until his 
eyeballs popped out. This joker passed a series-something test and 
didn't know enough to simply hedge a half-million dollars with 
puts? Come on... what do these clueless experts learn for their 
"professional" exams? His ill-advice changed my friend's lives and 
their families' lives forever, with one careless dismissal.

End result is my trusting, conservative, devout Christian middle-
aged friends listened to their son and his friend the expert. They 
did nothing except for watch more than $500K bleed away in front 
of their horrified eyes to the point it rests at today. That money 
invested in bonds back then would throw off enough yearly interest 
for them to live very well in Corning NY where expenses are cheap. 
I'm thinking interest earned on $40K remaining might not make ends 
meet quite so well.

Think these two cases are unique? I can tell you dozens of others 
who refused to sell Kodak, Xerox or Global Crossing for all the 
usual lame reasons after specifically asking my advice. Tax 
implications, averaging down, new products in the pipeline, 
restructuring at the various companies, analyst upgrades, etc ad 
nauseum.

Few Listen At The Top
Back in 1999 I told both my aforementioned friends about a simple 
strategy to earn +100% to +150% annually with almost zero risk to 
their capital. I assured them it was far less risky than holding 
stocks, covered calls etc but neither cared. After all, GLW was up 
almost +300% and my other friend did his stock conversion at the 
top and was fixated on just getting back to even. Back to even 
never arrived and back to $575K from $40K will never happen for 
the Corning couple in their lifetime.

Moral of the story? No one wanted a berth on Noah's Ark until the 
raindrops fell. Few people listen to words of warning when skies 
are bright and nary a cloud is seen. Why would they? To think of 
anything else brings on emotional feelings of worry, anxiety and 
distress. Pain. Ignore those thoughts and focus on the positive, 
the happy, the bright side. Pleasure. Tony Robbins touts that all 
living things seek pleasure and avoid pain. Is this what my 
friends did? How did such a comfortable approach turn out?

Know anyone else who might have fallen hapless prey to such 
circumstance yourself? More than a few emailed me over the past 
two years with tales of massive loss as well. Sadly, for many 
people their first lesson of significant loss in the markets was 
one that cannot be recovered from.

Will History Repeat?
For two years now we've heard that the worst is over, a recovery 
is straight ahead and all that drivel. Nobody knows that. Not at 
all. I hope & pray the markets return to new all-time highs ASAP 
myself but don't mistake hope for opinion. My opinion is that 
markets will move in one big sideways range for months and maybe 
even years to come. Dick Arms, John Bollinger, Bernie Schaeffer 
and Warren Buffett (among many others) believe the same thing and 
said so before long I did. 

What if that's true? Are we prepared to buy support and sell 
resistance as it appears? Are we prepared for a prolonged period 
where buy & hold doesn't work and mutual funds get gutted like 
fish? Do we have defensive strategies in mind or is all of that 
too painful to ponder? Is it easier and more pleasurable to block 
out all such possibility while hanging on the words of analysts 
who've called the last twelve bottoms since March 2000?

I wonder.

Let me share this fundamental reality with you: the telecom and 
networking sectors have been touted by many analysts to lead the 
"V-shaped" recovery in 2002. I promise you beyond shadow of a 
doubt that will not happen: matter of fact, telecom is poised to 
collapse in one big consolidation of players and will drag the 
dependant sectors with it. 

Such is not my wish or desire, but since when do the markets care 
about me? It is fundamental fact based upon inside insight from 
several dozen personal contacts scattered thru the telecom 
industry at all levels. Most of those companies are in huge, huge 
trouble and cannot survive any scenario except a return to the 
1999 go-go days. Anyone who cares to read more on this opinion can 
do so from this OI link:
http://www.asianinvestoronline.com/traderscorner/121301_1.asp

I share this educated, insider's opinion with you knowing that it 
could help a number of people hedge and defend current holdings or 
avoid stepping into an abyss. I also know full well that it will 
be met with anger, animosity, disbelief and probably flames from 
more than it helps. Why? Why would such a statement illicit strong 
emotional response? Could it be that many people NEED such a 
dismal forecast to be wrong in order to avoid pain and/or enjoy 
pleasure? 

If my opinion on telecom and networking sectors' future brings any 
kind of emotional response in you, please ask yourself why. Why 
does it matter what these sectors will do? If their future is 
insignificant to you there will be no emotional response. If by 
chance you need them to perform, there will certainly be an 
emotional response. 

That is basic human nature at work. That's what my friends 
experienced during their catastrophic rides down charts holding 
dead fish stocks praying they'd turn to caviar instead. See the 
emotional trap? See how easy it can ensnare any one of us?

Most importantly, are you prepared to spot such a noose lying in 
your financial path ahead? Please be careful where you step and 
don't be afraid to jump off the path when danger signs appear. 

Hope This Helps!
austinp@OptionInvestor.com


Defining The Market
Austin Passamonte

"The Market" means different things to many people. Trying to 
define that in one little corral is impossible. Believe me... I've 
tried!

Friday night I met Jeff Bailey at the end of his shift for dinner 
and drinks. Typical Bailey, he worked an extra two hours into the 
evening flipping thru, doodling on & copying charts for Premier 
Investor. I managed to scrounge up some dinner on the premises and 
our outing was reduced to drinks.

Over a few beers we swapped war stories mostly about (what else?) 
trading and markets in general. We agreed on a simple diagram I 
learned almost twenty years ago. "The Market" can be described as 
a triad consisting of three corners: U.S. dollar, U.S. Govt. bonds 
and U.S. stocks. From those three corners of the triad blooms 
everything else: foreign currencies against the dollar is one. 
U.S. corporate debt, foreign debt and the Euro against government 
bonds is another. 

The third is U.S. stocks, by far the most expansive of all. From 
there sprouts variations too numerous for coverage and the array 
grows wider and deeper all the time.

Of those three, smart (or informed) money plays strongly in the 
currency and bond markets. Those two corners of the triad hold 
little participation by the retail trader, otherwise known as dumb 
(or uninformed) money. In professional economists' view the stock 
market has a high degree of dumb money by comparison to the 
currency & bond markets, which is quite true.

Now I might resemb... uh, resent that statement that I'm "dumb 
money" but it's true. There is no way under the sun I could 
possibly match fundamental news research efforts with even the 
smallest brokerage house, let alone a big one. What am I to do? 

Two Streams Of Money Flow
There is essentially two streams of money in the marketplace. The 
first being active money at risk in one of the three triad 
corners, and the second is passive cash parked in safety away from 
market risk. 

Money flows from bonds to currencies to equities and around not in 
direct or obverse fashion but crisscrossed between the three. It 
is very important to watch bond yield and dollar against foreign 
currency behaviors to gauge what smart money is doing. It's safe 
to say that Bailey, Eric Utley and others have that pretty-well 
covered for us in here.

Part of the active money flow stream makes its way through sector 
rotation in the stock markets. This means the same weary dollars 
play "ring around the sector" as one sells off as another rallies. 
Part of the passive cash flow comes into play from time to time in 
the stock market as well, given the right catalyst to do so.

Watching The Sectors
There was a time when "the market" was NASDAQ Comp to most 
traders. One could say that the highest concentration of dumb 
money overall was found in that index and perhaps still is. After 
all, where is the percentage of retail traders highest? Simple 
question, simple answer.

Our job in this forum will be to keep an eye on the sexy sectors 
most retail traders love without neglecting more obscure ones that 
may offer profitable opportunity as well. Many retail traders get 
stuck in the mud watching one or two sectors or stocks 
concentrated within. That does create opportunity cost when money 
flows out of there, into another sector and leaves the beloved 
sector or components flat for awhile.

So, with input and contribution from all OI's cast of characters 
we will feature four - six indexes and sectors each night right 
here at Index Spotlight. We'll do our best to monitor markets on 
the move and uncover some relatively obscure sectors along the way 
that may just find sleeping stocks or options that turn to gold. 
How's that sound?

(Weekly Chart: NWX)


 

First up, the Networking Index. Stuck in this persistent channel 
since Spring of 2001, it finally looked like a bottom was in on 
that launch near early October. Since then price action spent five 
weeks just below resistance with hopes of cracking it.

In order for a market to smash thru overhead supply, it must 
gather energy, compress it and exert that force like a bullet 
fired from a gun. Sound like a familiar analogy? Instead, NWX 
posted higher highs AND lower lows, an expanding formation of 
bearish nature. Why is it bearish? Because precious energy needed 
to mount the assault on resistance is squandered, not stored.

With weekly stochastic values in full bearish reversal mode I 
would not be excited about bullish plays here, unless/until 
support is found and stochastic values reverse back up in bullish 
mode. Long puts, short shares, bear-debit and bear-call credit 
spreads on the Morgan Stanley Index Fund iShares (IGN) or index 
components showing similar weakness are high-odds plays right now.

(Weekly Chart: SOX)


 

Similar long-term story for the sexy semis. This index commonly 
gets two or three analyst upgrades and downgrades in a single 
week. Who can figure that out? Anyway, similar chart to the one we 
saw before (and QQQ in general, not pictured here). Support looks 
to be around 450+ area based on this channel support (black line, 
center) just below.

Long puts, short shares, bear-debit and bear-call credit spreads 
on the SOX, SMH HOLDR shares or options or SOX index components 
showing similar weakness are higher-odds plays right now.

(Weekly Chart: BTK)


 

Biotechs are an interesting study. The index made a clear bullish 
break from a long-term triangle ten weeks ago (count the candles). 
It has since consolidated with higher highs and higher lows (not 
drawn) that could be construed as a bear flag. However, let's look 
for support from the 550 area (blue line) down to 500 (green line) 
and finally 450 area (red line) below.

Why look for support? Who's to say it isn't going higher from 
here? Just might, but clearly bearish stochastic values show price 
action in this baby is full-bear mode right now until those 
oscillators reverse once more.

I'd personally lay off new entries either way until one of the 
various pivot points are reached to base risk/reward parameters 
from there.

(Weekly Chart: OSX)


 

Oil services are another story. Price action seems to be gettin' 
jiggy over there as a neutral wedge is being tested while 
stochastic values have turned to full-bull mode. How to play this 
one?

(Daily Charts: M.S. Oil Service Index / Oil Service HOLDR)


 

Could buy call options in the Morgan Stanley Oil Services Index 
(MGO) where the March 02 75 (MGO-CO) calls are fetching 6.00 at 
"ask" right now. Oil Service HOLDRs (OIH) are also a choice for 
trading options or shares. The April 65 calls (OIH-DM) fetching 
3.90 bid – 4.30 would get my nod as the option play here. 

The wedge measures a 15 index-point spread in the MGO from low to 
high. A break above 70 should run 15 points higher, listing a 
potential target of 85 ahead. The OIH wedge spans 48 to 62, or 14 
index points tacked onto a break above 60. Target? The 74 area 
above.

My only hesitation would be those toppy stochastic values at or in 
overbought extreme that could mark sideways to lower prices near 
term. I'd be quite happy to see those oscillators roll down out of 
overbought extreme and reverse higher below the 80% line where the 
better entry point than buying a breakout here would then emerge.

(Weekly/Daily Charts: XNG)


 

And how about natural gas? A weekly/daily view shows a little 
Beano may have been swallowed the past two days near 180 area of 
resistance. Daily chart stochastic values are kind of toppy and 
might suggest another trip to support near 170, but according to 
weekly charts that would be a gift entry for bullish plays there. 

How to play it? Natural gas iShares listed on Amex as linked here:
http://www.amex.com/asp/indexshares.asp?symbol=XLE

This shows a strong concentration of natural gas components and 
lists liquid option contracts as well. The March 27 calls (XLE-CA) 
have over 1,000 contracts open interest at bid 1.00 - ask 1.25. It 
has a good chance of doubling before expiration in three months if 
natural gas catches fire and pops a bit from here. 

Summation
Time to put the lens cap back on our spotlight for the night. This 
section will be a nightly feature in the new OI next week and 
we'll have two Gameplan sections that list sector share and sector 
option plays for lower gamma trades than most, but days like Enron 
recently had can make anything a bit wild!

There's no telling what we may cover in here, as the market means 
different things to different folks. I have a few multi-
millionaire friends when asked about the market will speak of 
northern heavy beaver pelts or winter, shearable muskrats. While 
it's safe to say we won't be covering either of those, I do 
understand high-grade muskrats might fetch $4 each if the Russians 
step in to buy low supply in strong demand for those Siberian 
trooper hats. 

Supply & demand are the only two things that move price action in 
any market, and we'll do our dead-level best ferreting out any 
index or sector about to switch from one balance to the other.

Watch For Coiled Markets!
Contact Support


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

Monday, 12/24/01
None -- markets closed early (1/2 day) --

Tuesday, 12/25/01
None -- markets closed --

Wednesday, 12/26/01
None

Thursday, 12/27/01
Initial Claims       12/22  Forecast:    N/A  Previous:     N/A
Help Wanted Index      Nov  Forecast:    N/A  Previous:      46

Friday, 12/28/01
Durable Orders         Nov  Forecast:  -5.5%  Previous:   12.8%
Consumer Confidence    Dec  Forecast:   82.0  Previous:    82.2
Chicago PMI            Dec  Forecast:    N/A  Previous:    41.1
Existing Home Sales    Nov  Forecast:  5.10M  Previous:   5.17M
New Home Sales         Nov  Forecast:   868K  Previous:    880K


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Anything else is too slow!

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The Option Investor Newsletter                   Sunday 12-23-2001
Sunday                                                      2 of 5



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

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

CALLS              Mon    Tue    Wed    Thr   Week

BRKS     41.38    1.37   0.48   0.85  -1.20   1.13   New, support
EMMS     21.58    0.06   1.35  -0.09   0.39   1.99   Media strength
ESRX     47.99    1.90   1.17   0.19   0.70   5.09   New, NDX
GNSS     65.84   -0.91  -0.21   0.47  -4.26  -3.97   Strong chip
KRON     49.41    0.76   1.59   0.16  -2.73   0.56   Dropped, weak
MDT      50.55    1.27  -1.33   0.91   0.33   1.70   Inching higher
NVDA     64.58    2.36  -1.75  -1.81  -2.54  -1.06   Ready to run
SLAB     37.00    1.68   3.54  -1.63  -2.53   3.71   New, strong
SYMC     65.91    0.09   2.52  -0.97  -4.68  -1.25   Back from dead
VRTS     43.99    0.35   1.72  -2.13  -2.14   0.04   Strong bounce
XMSR     17.88    0.48   0.33   0.25  -1.00   1.64   Breakout?


PUTS

ADVS     49.81   -0.69   0.74  -0.53  -3.01  -1.29   Below 200-dma
BBOX     53.08    1.32  -0.10  -0.99  -2.73   0.47   Short covering
DYN      24.71   -3.24  -0.80   3.08  -0.13  -0.23   Dropped, debt
ERTS     59.60    1.64  -0.45  -0.24  -1.89  -1.55   New, topping
FLIR     39.00    1.25   1.16  -4.21  -3.36  -5.00   Sagging
QCOM     49.99   -2.32   0.08  -1.32  -2.72  -5.85   Still falling
THC      57.42   -1.06  -0.25  -1.21   0.17  -3.43   New, weak
WEBX     24.75   -0.39  -1.66  -1.19  -1.71  -4.65   New, obsolete


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

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

BRKS – Brooks Automation $41.38 (+1.13 last week)

See details in play list




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

WEBX - WebEx Communications Inc. $24.75 +0.30 (-4.65)

See details in play list




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Stop Losses based on the option price or the stock price.
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Anything else is too slow!

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


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

Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


CALLS
^^^^^

KRON $49.41 (+0.56) While the selloff on Thursday seemed to be
excessive, the rebound in shares of KRON left a lot to be
desired.  The initial rebound looked good, but the stock
weakened in the afternoon, falling back significantly from its
intraday highs. Sure KRON might be setting up for another run
at its recent highs, but we think there are better opportunities
available.  We're dropping coverage of KRON this weekend.


PUTS
^^^^

DYN $24.71 (-0.23) Shares of energy-trader DYN continued to bounce 
in Friday's session but on lower volume.  Another energy company, 
Mirant (MIR), produced positive news for the sector as they raised 
new capital by selling stock and thus saved their credit rating.  
The group as a whole is pretty oversold and could be due for a 
correction (a.k.a. multi-day bounce higher).  Currently, DYN has 
rallied for three days but remains under round number price 
resistance at $25.  Its MACD is starting to reverse and shares did 
close above its 10-dma, a technical level that has acted as 
resistance.  We have not yet been stopped out but don't plan on 
waiting for it to occur.  


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

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

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

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

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

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

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


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

BRKS – Brooks Automation $41.38 (+1.13 last week)

Brooks Automation is a supplier of integrated tool and factory
automation solutions for the global semiconductor and related
industries such as the data storage and flat panel display
manufacturing industries.  The company's product offerings have
grown from individual robots used to transfer semiconductor
wafers in advanced production equipment to fully integrated
automation solutions that control the flow of resources in the
factory from process tools to factory scheduling and dispatching.

A technician's dream, BRKS has been steadily working higher
since hitting the $25 level in early October.  What is bound to
appeal to the technician is the consistency with which the
retracement levels have come into play over the past 2 months.
After the initial move higher, the stock spent more than a month
gradually working through the 38% retracement ($36) of its
decline from the early August highs.  Once clear of that level
in late November, BRKS quickly began using it as support, a
launching pad for its assault on the 50% level ($39.50).
Quickly clearing that level in early December paved the way for
a move to the 62% retracement at $43, which it has now tested
twice in the past 3 weeks.  The lows continue working higher,
supported by the 20-dma ($40.25), while resistance is being
reinforced by the 200-dma at $42.76.  If that sounds like a
bullish wedge, then you win the prize.  We're looking for the
next rally to take the stock through the 62% retracement level,
initiating the next leg of the rally.  On Friday, BRKS fell to
just above the 20-dma before bouncing into the close.  While
intraday support has been building in the $40-41 area, we might
get lucky enough to catch a brief dip as low as $39 for a great
entry point.  We would consider any such dip as an attractive
entry so long as the bounce is accompanied by solid buying
volume.  Our stop is initially set at $38.

BUY CALL JAN-40*BQE-AH OI= 58 at $4.40 SL=2.75
BUY CALL JAN-45 BQE-AI OI=236 at $2.10 SL=1.00
BUY CALL APR-45 BQE-DI OI=284 at $5.20 SL=3.25
BUY CALL APR-50 BQE-DJ OI=286 at $3.60 SL=1.75

Average Daily Volume = 775 K


ESRX – Express Scripts $47.99 (+5.09 last week)

Express Scripts provides health care management and
administration services on behalf of clients that include
health maintenance organizations, health insurers,
third-party administrators, employers and union-sponsored
benefit plans.  The company's fully integrated pharmacy
benefit management services include network claims processing,
mail pharmacy services, benefit design consultation, drug
utilization review, formulary management, disease management,
medical information management services and informed decision
counseling services through its Express Health Line division.

Finally, the much-anticipated reshuffling of the NASDAQ-100
is occurring on Monday, and along with the necessary re-weighting
of the existing components, several stocks are being added to
the benchmark index.  ESRX is one of those stocks and it is
entirely possible that this shift could give the stock another
boost.  While the stock's recovery from the October lows has
been more sedate than most, (a "paltry" 30%), the move has been
picking up steam in the past week since rebounding from the
20-dma near $42.  Perhaps it is anticipation of being added to
the NDX on Monday, or maybe it is due to the confluence of
technical indicators that point towards a move of some
significance.  On Friday, ESRX cleared the 200-dma ($47.67) for
the first time since mid October.  But the price advance stopped
just below the top of the gap left on October 18th.  Another
point of interest is that the high of the day on Friday just
happened to be the 50% retracement level of the decline from
October 11th to November 12th.  So we have a breakout of sorts,
but with significant resistance still needing to be conquered.
We'd prefer to nab new positions on a dip near the 38%
retracement level, but with the potential for a Santa Claus rally
next week, we may have to content ourselves with buying the
breakout over the $48.60 level.  More significant profit taking
could give us an entry near the $44.75 level (the site of the
most recent breakout, but given the recent strength, we view
that as rather unlikely.  Place stops at $44.50.

BUY CALL JAN-45 XTQ-AI OI= 206 at $4.70 SL=2.75
BUY CALL JAN-50*XTQ-AJ OI= 720 at $2.00 SL=1.00
BUY CALL FEB-50 XTQ-BJ OI= 181 at $3.90 SL=2.50
BUY CALL FEB-52 XTQ-BX OI=1176 at $2.60 SL=1.25
BUY CALL FEB-55 XTQ-BK OI=  77 at $1.80 SL=1.00

Average Daily Volume = 2.23 mln


SLAB – Sage Laboratories $37.00 (+3.71 last week)

Silicon Laboratories designs, manufactures and markets
proprietary high-performance mixed-signal integrated circuits
(ICs) for the wireless, wireline and optical communications
industries.  The company initially focused its efforts on
developing ICs for the personal computer modem market and is
now applying its mixed-signal and communications expertise to
the development of ICs for other high growth communications
devices, such as wireless telephones and optical network
applications.

With the strength seen in the Semiconductors sector (SOX.X) over
the past 3 months, volatility comes with the territory.  But the
bulls have managed to fend off each of the bears' assaults.
Strong chip stocks like SLAB (up 235% since the October lows)
are helping the bulls' case.  Despite the recent profit taking on
the SOX due to earnings warnings, SLAB bounced back strong on
Friday and as trading very near both post-attack and yearly
highs.  Trade has been rather volatile over the past week due to
the dueling influence of warnings in the chip sector and multiple
upgrades to SLAB from the analyst community over the past month,
the most recent of which came from Morgan Stanley on December
10th.  Citing expectations of increased earnings, the firm raised
their price target from $30 to $50.  The stage is set for a
continuation of the rally, but we'll need to see the SOX continue
to work higher as well.  Look to initiate new positions on a dip
to support at between $34-35 or possibly $32.50.  We're
initiating the play with our stop set at $31.50, just below the
20-dma ($31.71).  Due to the volatile trade that has been seen
over the past week, we would avoid chasing the stock higher, but
would instead wait for the inevitable pullbacks.

BUY CALL JAN-35 QFJ-AG OI=443 at $4.60 SL=2.75
BUY CALL JAN-40*QFJ-AH OI= 34 at $2.25 SL=1.00
BUY CALL APR-40 QFJ-DH OI=284 at $5.80 SL=4.00
BUY CALL APR-45 QFJ-DI OI=390 at $4.10 SL=2.50

Average Daily Volume = 625 K



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The Option Investor Newsletter                   Sunday 12-23-2001
Sunday                                                      3 of 5



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

EMMS – Emmis Communications $21.58 (+1.99 last week)

Emmis Communications is a diversified media company with radio
broadcasting, television broadcasting and magazine publishing
operations.  The company operates the sixth largest publicly
traded radio portfolio in the United States based on total
listeners.  The company serves the nation's three largest radio
markets of New York City, Los Angeles and Chicago.  EMMS' 15
television stations serve geographically diverse mid-sized
markets in the U.S., and the company has a variety of television
network affiliations including five with CBS, five with FOX,
three with NBC and one each with ABC and WB.

Initial signs that the advertising picture is starting to improve
for broadcasters has lit a fire under shares of EMMS over the
past 2 months, and the stock has now reclaimed almost all of its
post-9/11 losses.  Buying volume has been strong over the past
month as momentum players continue to drive the stock higher.
After completing its cup and handle formation in early December,
EMMS launched higher and is showing no signs of slowing down.
The only fly in the ointment is the looming resistance at $22,
followed by firmer resistance at $24, also the site of the
200-dma at $23.93.  But for now, we have a strong uptrend to
take advantage of, where dips are very buyable.  Note that the
stock tends to move strongly upwards before trading sideways for
a few days.  With the strong move last week, we're now waiting
for the next intraday dip to provide entry, likely near the $20
level, also the site of the 10-dma at $20.15).  Stronger support
exists at the $19.00-19.50 level, which would make for a really
solid entry point if followed by strong buying volume.  Stops
are currently set at $18.50.

BUY CALL JAN-20 QMJ-AD OI=62 at $2.45 SL=1.25
BUY CALL JAN-22*QMJ-AX OI= 0 at $1.15 SL=0.50
BUY CALL MAR-20 QMJ-CD OI=23 at $3.30 SL=1.75
BUY CALL MAR-22 QMJ-CX OI=10 at $1.95 SL=1.00

Average Daily Volume = 899 K


GNSS – Genesis Microchip $65.84 (-3.97 last week)

Genesis Microchip designs, develops and markets integrated
circuits that receive and process digital video and graphic
images.  Its integrated circuits are typically located inside a
display device and process images for viewing on that display.
The company also supplies reference boards and designs that
incorporate its proprietary integrated circuits.  GNSS is
focused on developing and marketing image-processing solutions
and targets the flat-panel computer monitor and other potential
mass markets.

True to form, expiration Friday had a little bit of excitement
in store for our play on GNSS.  The morning session was looking
unpleasant, as the stock fell right from the open, but the slide
was halted a mere 24 cent above our $63 stop.  Then the
afternoon buying spree began, helping the bulls to recapture all
the early losses, plus a bit more by the closing bell.  While the
daily gain was just under $1, the move was significant from a
technical standpoint, as it showed the resilience of the stock.
The bulls battled back from an early deficit to post a "doji"
candlestick, with the closing price above the ascending
trendline.  We're not out of the woods yet though, as there is
now resistance to scale at $66.50, and then $70.  And the daily
Stochastics have now dropped out of overbought territory,
potentially creating an uphill battle.  We'll continue to target
intraday dips in the $63-64 region for fresh entries, although a
rally next week would make a move through $66.50 the most likely
entry point.  The stock has failed to hold above $70 for 5 of the
last 6 trading days, so it is a safe bet that this level will
continue to be a point of contention between the bulls and the
bears.

BUY CALL JAN-65 QFE-AM OI= 598 at $6.00 SL=4.00
BUY CALL JAN-70*QFE-AN OI=2290 at $4.00 SL=2.50
BUY CALL JAN-75 QFE-AO OI= 247 at $2.30 SL=1.25
BUY CALL MAR-70 QFE-CN OI= 234 at $8.10 SL=5.75
BUY CALL MAR-75 QFE-CO OI= 267 at $6.00 SL=4.00

Average Daily Volume = 2.54 mln


MDT - Medtronic, Inc. $50.55 (+1.70 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.

It took all week to accomplish, but MDT finally completed that
breakout we talked about last weekend.  Monday's move above $50
was met by a sharp dip on Tuesday (which was a great entry, by
the way), and the rest of the week was owned by the bulls.  MDT
gradually worked its way higher and then on Friday, it actually
spent the entire day above the $50 level, closing right at the
high of the day on volume 20% above the ADV.  While the volume
picture may be less important due to expiration-related monkey
business, there is no arguing with the price movement.  There is
plenty of overhead congestion to work through, but the next
serious level of resistance will be between $52-53.  Target
intraday dips to the $49 level or even $48.50 support,
reinforced by the 10-dma ($48.66).  Given the stock's solid
advance over the past week, we're raising our stop to the $48
level this weekend.

BUY CALL JAN-50 MDT-AJ OI=5015 at $1.75 SL=1.00
BUY CALL FEB-50*MDT-BJ OI=6093 at $2.55 SL=1.00
BUY CALL FEB-55 MDT-BK OI=2453 at $0.75 SL=1.00
BUY CALL MAY-50 MDT-EJ OI=3485 at $4.10 SL=2.50
BUY CALL MAY-55 MDT-EK OI=2006 at $1.90 SL=1.00

Average Daily Volume = 4.12 mln


NVDA – NVIDIA Corporation $64.58 (-1.06 last week)

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

Another play that coerced us into temporarily repealing our
stop loss rule, NVDA provided rewards for that lack of
discipline on Friday.  The stop violation was small, and the
bullish action on Friday confirmed that the prior day's
selling was overdone as NVDA rebounded sharply, advancing
throughout the day and coming to rest more than 4% higher.
Will the rebound continue?  It's hard to say, with daily
Stochastics plunging towards oversold, but based on the way
price is holding up, any price dip in the next couple days
could prove to be just another entry point for the rally into
the end of the year.  Our stop is currently sitting at $60,
just below the 20-dma ($60.27), which hasn't been violated
since NVDA broke above the 200-dma in early October.  Jeff
Bailey has talked about the power of "inside day" formations,
and NVDA posted just that on Friday.  So we have a couple of
possible entry strategies to employ.  Dip buyers can continue
to target dips near $62 while those using the "inside day"
technique will want to enter on a break above Friday's high of
$65.  Inside day traders will want to play with a tighter stop
at the $62.50 level.

BUY CALL JAN-65 RVU-AM OI=2846 at $4.80 SL=3.00
BUY CALL JAN-67*RVU-AC OI=1411 at $3.80 SL=2.50
BUY CALL JAN-70 RVU-AN OI=2616 at $2.80 SL=1.50
BUY CALL MAR-70 RVU-CN OI=1356 at $6.80 SL=5.00

Average Daily Volume = 9.65 mln


SYMC – Symantec Corp. $65.91 (-1.25 last week)

A world leader in Internet security technology, SYMC provides
a broad range of content and network security solutions to
individuals and enterprises.  The company is a leading provider
of virus protection, risk management, Internet content and
e-mail filtering, remote management and mobile code detection
technologies.  The desktop battleground is where SYMC derives
nearly 60% of its sales.  Duking it out with Network Associates
in this arena, the company is best known for its security
software (Norton AntiVirus), desktop efficiency (Norton
CleanSweep), and PC utility (Norton Ghost) products.

Sometimes it pays to break the rules, and that is certainly
the case with our SYMC play.  Thursday's plunge looked like it
was overdone, and certainly was borne out by the price action
on Friday, which was consistently up.  With volume more than
doubling the ADV, it is clear that there were a lot of buyers
shopping for bargains on Friday, and they weren't all doing
last-minute Christmas shopping.  After violating our stop on
Thursday, we held our breath and reset the stop to the $60 level
and that violation of our discipline was well rewarded.  The
stock bounced right out of the gate on Friday and managed a 2.7%
bounce by the closing bell, ending very near the high of the day.
We're keeping our stop in place and will continue to target
intraday dips near the $64 level for fresh entries, as the
stock prepares for another run at the $70 resistance level.
Intraday resistance is now arrayed overhead at $67, $68 and $69,
making for acceptable entry levels for those that like to chase
momentum stocks.  Just keep in mind that chasing stock's higher
in an uncertain market environment increases your risk exposure.
Recall that we're playing this one for its 2-1 split run, with
the record date set for January 17th.  So long as the bulls can
maintain the upper hand, this could be a fun way to kick off the
new year.

BUY CALL JAN-65*SYQ-AM OI=3332 at $5.10 SL=3.00
BUY CALL JAN-70 SYQ-AN OI=2991 at $2.90 SL=1.50
BUY CALL JAN-75 SYQ-AO OI=1423 at $1.40 SL=0.75
BUY CALL APR-70 SYQ-DN OI= 481 at $7.60 SL=5.25
BUY CALL APR-75 SYQ-DO OI=1182 at $5.70 SL=3.75

Average Daily Volume = 2.67 mln


VRTS – Veritas Software $43.99 (+0.04 last week)

As an independent supplier of storage management software,
VRTS develops and sells products that protect against data
loss and file corruption, allowing rapid recovery after disk
or computer system failure.  The company's products provide
continuous data availability in clustered computer systems with
shared resources. This enables IT managers to work efficiently
with large file systems, making it possible to manage data
distributed on large computer network systems without harming
productivity or interrupting users.  VRTS provides products for
most popular operating systems, including UNIX and Windows NT,
as well as a full range of services to assist its customers in
planning and implementing their storage management solutions.

Did you catch a piece of that entry point?  The warnings-related
drop in the NASDAQ on Thursday, gave us a great entry, as VRTS
dipped right to the ascending trendline and 20-dma (currently
$41.94), which converged to present solid support.  Friday's
more than 5% rebound came on solid volume and cleared the 10-dma
($43.58), although it fell short of clearing the $44 resistance
level from July and August.  While there is some mild congestion
in the $44-45 area, the real test of bullish resolve will come
just a bit higher at the 200-dma ($46.36).  Then there is
resistance at $48, the top of the dramatic gap left in the middle
of July.  That's why we want to target intraday dips for new
entries, rather than chasing the stock higher, as it pushes
through resistance levels.  The action in the broader Software
index will be important to monitor as well.  The GSO has now
fallen below both the 200-dma (which acted as resistance on
Friday) and the ascending trendline, converged near $185.  Target
fresh entries on a dip and bounce near the $41-50-42.00 level and
keep stops set at $41.

BUY CALL JAN-40 VIV-AH OI=15276 at $6.30 SL=4.25
BUY CALL JAN-45*VIV-AI OI=10114 at $3.50 SL=1.75
BUY CALL JAN-50 VIV-AJ OI= 8185 at $1.75 SL=1.00
BUY CALL FEB-50 VIV-BI OI= 3832 at $5.00 SL=3.00
BUY CALL FEB-55 VIV-BJ OI= 1505 at $3.10 SL=1.50

Average Daily Volume = 15.2 mln


XMSR - XM Satellite Radio $17.88 (+1.64 last week)

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

Did you know that subscribers to XMSR's satellite radio can listen 
to CNBC in their car?  Personally, I have to turn down the noise 
all those talking heads produce but it would be an interesting 
feature to have in the car.  XMSR's product was highlighted on the 
TV show this Friday, which may have influenced the late day rally 
in the stock price.  Actually, shares of XMSR were strong all day 
after gapping up in the morning.  Friday's close did mark the 
first close over resistance at $17.50, which might have bears 
wondering if the stock is headed for $20.  We still think the 
stock is looking pretty extended and could deliver a painful bout 
of profit taking at any time but somehow the bulls kept the trend 
alive all week with shares never falling below new support at 
$16.30.  Thus, we're left with the market maxim, the trend is your 
friend.  The close at the high of the day is bullish for Monday 
and with our new stop it might make sense to try new positions if 
you get the right entry point.  We would consider dips back to $17 
or a breakout over $18.  Short-term resistance is the high from 
Monday near $18.50.  We're going to raise our stop to $16.49, 
which is more than a quarter below the intraday low on Friday.  
This is definitely becoming an enter passively and exit 
aggressively type of play.

BUY CALL JAN-15 QSY-AC OI=1862 at $3.60 SL=1.75 72 cent premium
BUY CALL JAN-17 QSY-AW OI=3231 at $2.55 SL=1.25
BUY CALL JAN-20*QSY-AD OI=3818 at $1.20 SL=0.60 more aggressive
BUY CALL APR-17 QSY-DW OI= 120 at $4.80 SL=3.00

Average Daily Volume = 1.30 mln



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


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

Please read our disclaimer at:
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Contact Support
The Option Investor Newsletter                   Sunday 12-23-2001
Sunday                                                      4 of 5


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

ERTS - Electronic Arts Inc $59.60 -0.61 (-1.55 last week)

Electronic Arts, headquartered in Redwood City, is the world's 
leading interactive entertainment software company. Founded in 
1982, Electronic Arts posted revenues of more than $1.3 billion 
for fiscal 2001. The company develops, publishes and distributes 
software worldwide for the Internet, personal computers and video 
game systems. (source: company press release)

For months we've heard that the gaming industry, make that the 
video gaming industry, is on the verge of a multiyear boom.  In 
response, the Nasdaq is down for the year but gaming stocks as a 
group have almost doubled.  One analyst estimates that 
interactive entertainment sales will grow by 80% in the next 
couple of years.  Frankly, we believe them.  The video game 
industry is poised to become the dominant form of entertainment.  
If this is true, then why are we turning bearish on ERTS, the 
current gorilla of game (title) producers?

Given a long-term horizon, we are not bearish on ERTS or the 
group but short-term the stock could see more selling pressure.  
The holiday season produces more than 60% of hardware and 
software game sales for the whole year.  Even though we expect 
sales to be very strong for ERTS based on America's new need to 
cocoon themselves at home and the introduction of MSFT's Xbox to 
the industry, the stock price could be in for a post-Christmas 
pull back and it looks like it has already begun. 

In the news you'll probably read several new game releases coming 
out from ERTS but these are to be expected this time of year.  
You might also notice that analysts seem to have different 
opinions.  Early last week one broker downgraded the stock from a 
"buy" to a "hold" based on valuations while on Friday another 
analysts initiated coverage with a "buy".  

Shares of ERTS saw a 25% rally about three weeks ago based on 
expectations of strong Christmas sales.  After closing at an all 
time high of $66 on Dec. 5th, the stock has been plagued by 
profit taking.  The stock built a bearish wedge against support 
near $60.  Friday's close at $59.60 may be the trigger to go 
short.  Initially, we're looking for a 7% to 8% drop to its 200-
dma just near the $55 mark.  If a more prolonged pull back is in 
the works ERTS might fall to $52.50 or even $50.  We glanced at 
the point-and-figure chart and the stock does appear to be on the 
verge of a more potent breakdown but it could find support at the 
ascending bullish trend line near $57.  We're going to start with 
our stop at $62.52, just above Wednesday's high.  Wall Street 
expects earnings for ERTS on 01/24/02.   

BUY PUT JAN-60 EZQ-ML OI= 625 at $3.70 SL=1.75
BUY PUT JAN-55*EZQ-MK OI=1764 at $1.60 SL=0.75
BUY PUT MAR-55 EZQ-OK OI= 388 at $4.10 SL=2.00

Average Daily Volume = 3.35M


---

THC - Tenet Healthcare $57.42 -1.08 (-3.43)

Tenet Healthcare, through its subsidiaries, owns and operates 116 
hospitals with about 28,750 beds and numerous related health care 
services. The company employs approximately 113,000 people 
serving communities in 17 states and services its hospitals from 
a Dallas-based operations center. Tenet's name reflects its core 
business philosophy: the important of shared values among 
partners -- including employees, physicians, insurers and 
communities -- in providing a full spectrum of health care. 
(source: company press release)

Believe it or not, the healthcare sector has been enjoying a very 
strong Santa Claus rally.  The HCX.X is up six days in a row and 
has reclaimed its 200-dma.  Yet for some reason we can't 
identify, shares of THC have been falling all week.  Is this a 
delayed reaction to their announcement to file for another $2B in 
debt on Dec. 6th?  Whatever the cause, THC has been trading lower 
on rising volume, which is never a good sign.  Friday's close put 
it under the $58 level that has acted as support for nearly four 
weeks.  With the MACD picking up steam to the downside we might 
be able to scalp a few points before buyers decide to defend the 
stock price again.  Be forewarned that many fund managers believe 
that healthcare will be a leader in the market's recovery next 
year and if we do see a first quarter pull back traditionally 
investors flee to drugs and healthcare stocks as "safe havens".

We are aiming for a move to the 200-dma near $52.50 where the 
stock has bounced twice in the last several months.  We'll start 
the play with a stop at $60.01 or several cents above Wednesday's 
high.  Traders should also take note that THC is expected to 
announce earnings on January 4th, 2002 and we will not likely 
hold over the event.

BUY PUT JAN-60 THC-ML OI=  37 at $3.90 SL=2.00
BUY PUT JAN-55*THC-MK OI= 153 at $1.65 SL=0.75
BUY PUT FEB-55 THC-NK OI=1022 at $2.20 SL=1.00

Average Daily Volume = 2.02M


---

WEBX - WebEx Communications Inc. $24.75 +0.30 (-4.65)

Founded in 1996, WebEx Communications, Inc. is the leader in 
Internet infrastructure for interactive business communications. 
WebEx provides Web-based carrier-class communication services 
using its multimedia-switching platform deployed over a global 
network. WebEx's services enable end-users to share 
presentations, documents, applications, voice, and video 
spontaneously in a seamless environment. WebEx services are used 
across the enterprise in sales, support, training, marketing, 
engineering, and various other functions. With its modular 
framework and standards-based APIs, WebEx's real-time 
communications platform is the "dial-tone" for meetings on the 
Web. (source: company press release)

As is normally the case on Wall Street, the professional stock 
watchers have opposite opinions of highly visible stocks in each 
sector but more on this later.  WEBX caught some attention in the 
post-9/11 rally as commentators speculated if the web-based 
meeting company would outperform now that corporate America was 
looking for safer alternatives to flying.  Shares certainly 
appreciated in the mid-September to mid-November time frame but 
after topping out near $37 the rally appears to have ended.  This 
last Friday produced differing opinions about WEBX's potential.  
Two analysts gave the stock positive comments while another, 
appearing on CNBC, felt the company's technology was already 
obsolete and thus the stock was overvalued.  I don't know if I 
agree with his assessment of WEBX being "obsolete" but the charts 
certainly seems to favor his convictions.  

WEBX has been in a terrible decline for most of December.  The 
stock bounced at support of $25 over a week ago but the bears 
returned and shares broke through this level on Thursday.  The 
positive comments on Friday were enough to provide a small bounce 
but not enough to reclaim the $25 level.  We glanced at the 
point-and-figure chart for WEBX and found the stock in new 
downtrend and on a fresh sell signal.  The bearish price 
objective points to $16, which would be great if we could get it 
but WEBX might find support at its 200-dma (near $20).  
Therefore, we're going to try and catch the 20% drop to $20 and 
reevaluate the put play when (if) it gets there.  We're going to 
start the play with a stop at $27.51, which is 53 cents above the 
10-dma.  More conservative traders might choose something tighter 
and very conservative traders might look to Friday's high.  
Another alternative for more risk-averse traders is to wait for 
shares to close below $24 (but then part of the risk is missing 
the move down).  Wall Street expects WEBX to announce earnings on 
01/16/02.  

BUY PUT JAN-25 UWB-ME OI=333 at $3.20 SL=1.60
BUY PUT JAN-22*UWB-MX OI= 79 at $1.95 SL=0.88
BUY PUT JAN-20 UWB-MD OI= 83 at $1.10 SL=0.50
BUY PUT MAR-20 UWB-OD OI=279 at $2.55 SL=1.25

Average Daily Volume = 1.67M



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

ADVS – Advent Software $49.81 (-1.29 last week)

ADVS is a provider of Enterprise Investment Management solutions
that automate and integrate mission-critical functions of
investment management organizations through software products,
services and data integration.  The company's solutions enable
organization of all sizes to run their business more effectively,
enhance client service and performance, and improve productivity
and communication throughout their organization.

A rebound, sure.  But is it for real?  After falling nearly
non-stop for the past w weeks, shares of ADVS got a boost on
Friday, helped in large part by the slight rebound in the
Software sector (GSO.X).  Volume picked up from the levels seen
on Thursday, but the move lacked conviction.  After the morning
gap up, the stock gradually recovered from Friday's sharp loss,
right up to the final 90 minutes, as sellers pushed it back from
the day's highs.  It is interesting to note that the highs
coincided almost exactly with the 200-dma ($50.46), which looks
like it could provide some resistance next week.  Just above
that, we have the 10-dma ($51.11) crossing down through the
20-dma ($51.46), and creating another level of resistance.  The
recovery in the daily Stochastics oscillator over the past week
lacks any sort of conviction, so all it has done is remove a bit
of the oversold condition in preparation for the next leg down
in price.  Target failed rallies between the 200-dma and the
20-dma, setting stops at the $52 level.  Those waiting for
renewed weakness will want to see ADVS fall back below the
ascending trendline ($48) before taking a position.

BUY PUT JAN-50 UIV-MJ OI=10 at $3.90 SL=2.50
BUY PUT JAN-45*UIV-MI OI=54 at $1.85 SL=1.00

Average Daily Volume = 792 K


BBOX – Black Box Corporation $53.08 (+0.47 last week)

As a technical services company, Black Box Corp. designs, builds
and maintains network infrastructure systems.  The Black Box
team serves more than 150,000 clients in 132 countries,
providing technical services on the phone, on site and online.
Through its catalogs and Website, the company offers more than
90,000 infrastructure and networking products, and designs and
builds more than 650,000 custom products each year.

Only a day after a very significant breakdown, shares of BBOX
were back in rally mode on Friday, recapturing Thursday's loss
and then some.  Not only did the bounce come on solid volume
(75% above the ADV), but the stock managed to regain the 200-dma
($52.94) and closed right at the ascending trendline ($53).  This
has the appearance of short-covering, possibly related to the
triple-witching expiration.  At any rate, we never got an entry
into the play on Friday, and new positions can now be considered
with significantly less risk.  With our stop set at $54 and
strong resistance at $53.50, also the site of the 20-dma
($53.63), we would look to initiate new positions on a rollover
near current levels.  Traders looking for some sort of
confirmation before playing will want to see BBOX fall below
$52, and preferably the $51.50 level, also the site of the
50-dma ($51.65) before initiating new positions.  Keep a sharp
eye on the volume too, as the increase in volume on Friday was
likely due to expiration-related activity.

BUY PUT JAN-55 QBX-MK OI= 7 at $4.40 SL=2.75
BUY PUT JAN-50*QBX-MJ OI=74 at $2.05 SL=1.00

Average Daily Volume = 395 K


FLIR – FLIR Systems $39.00 (-5.00 last week)

FLIR is engaged in the design, manufacture and marketing of
thermal imaging and stabilized camera systems for a wide variety
of commercial, industrial and government applications.  The
company's products are divided into two categories, which
include the thermography products and imaging products.  In the
Thermography division, FLIR manufactures products that are sold
to commercial, industrial, research and machine vision customers.
For industrial customers, FLIR has developed thermography
systems that feature accurate temperature measurement, storage
and analysis.  The Imaging division caters to military, law
enforcement, surveillance and security customers.

Still flirting with a breakdown under the $39 level, shares of
FLIR are still being pressured by the effect of the secondary
offering last week.  This is really a technical play, as the
drop on Thursday was only the second time since the middle of
June that the stock had closed below the impressive ascending
trendline.  The last time was a month ago, and was met the next
day with a strong bounce and subsequent rally.  No such luck
this time, as the stock was stuck in a tight range "doji" pattern
all day.  If not for a bounce in the final 20 minutes (more than
likely expiration related), the stock would have ended right at
the low of the day.  The ascending trendline ($39.75) appears to
have been solidly broken, allowing the bears to start taking back
some of the stellar gains accrued over the past year.  Look for
new entries to materialize on a rollover from the $40 level, or
even $42, setting stops at $43.  There's a lot of overhead
resistance at that level and a rally above there would be a sign
of hidden strength.  Consider following the stock lower only on a
drop below Friday's lows ($37.60) on strong volume.  We'll likely
see mild support near $35, followed my much stronger support in
the $27-30 area.

BUY PUT JAN-40 FFQ-MH OI=224 at $3.70 SL=2.25
BUY PUT JAN-35 FFQ-MG OI=146 at $1.65 SL=0.75

Average Daily Volume = 402 K


QCOM - Qualcomm $49.99 (-5.85 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.

It was a rough week for QCOM investors as they watched their
stock decline by more than 10% in a week when the overall
NASDAQ ended the week nearly unchanged.  Despite growing
implementation of the company's CDMA technology, investors are
seeing the reality that the revenue stream is growing slower
than originally anticipated.  That negative development, along
with overall weakness in the Wireless sector has kept the stock
locked in a steep downtrend for more than 2 weeks, and it is
showing no sign of letting up.  Even with the mild bounce in the
broad markets on Friday due to triple-witching expiration, QCOM
couldn't gain any traction, falling back again from the $51
level.  We could see a bit more consolidation or even a mild
bounce next week, before the stock resumes its downward motion.
Look to initiate new positions on a failed rally near $52 (the
site of the 2-week descending trendline) or $53, recent broken
support.  Alternatively, consider initiating new positions on a
drop below recent support at $49.  We're keeping our stop set
at $54

BUY PUT JAN-50 AAO-MJ OI=26613 at $3.50 SL=1.75
BUY PUT JAN-47*AAO-MW OI= 5399 at $2.35 SL=1.25
BUY PUT JAN-45 AAO-MI OI=16934 at $1.65 SL=0.75

Average Daily Volume = 16.7 mln



*****
LEAPS
*****

Year End Reflections
By Mark Phillips
Contact Support

It's hard for me to believe, but we are winding down another
year, and no matter what major index you use to measure the
progress in the markets, the past 12 months have been a victory
for the bears.  With only 5 trading days remaining until we bid
farewell to 2001 and usher in 2002, let's look at the statistics
as they currently exist.

Index                1/02/01      12/23/01     % Change
S&P 500              1283         1144         -10.83%
Dow Industrials      10656        10035        - 5.83%
NASDAQ Composite     2291         1945         -15.10%

And those losses are effectively the same for the Dow and the
S&P500 over the prior 12 months.  Due to the implosion of the
Tech bubble in 2000, the 17% loss in the NASDAQ Composite seems
rather tame when laid side-by-side with last year's 42.5%
12-month loss.  With back-to-back declines like that we had no
excuse for losing money with the rest of the herd, right?
Afterall, we are savvy enough to follow the smart analyst crowd
(you see where I'm going with this) and protect ourselves, right?
Wrong!  That's the lunacy of the supposed advice we receive from
the so-called professionals. If there is one thing I have learned
over the past 2 years, it is that I will NEVER believe one word I
hear from a broker or analyst without being able to verify the
veracity of what they have to say by doing my own research.  And
you should have come to the very same conclusion yourselves.  

And go ahead and lump me in with that crowd if you like.  I'm
getting paid to offer my opinion, just as they are.  Although I
think the telling difference is that I have no conflict of
interest.  I share with you each and every week in no uncertain
terms exactly what I think is the future for the major market
averages as well as whatever stocks seem to strike my fancy.
I'm frequently wrong, and when I am, I think I am pretty
forthright about sharing with you the error of my ways.  We're
all here to make money to provide a better and more secure
lifestyle for our respective families.  It is my job to help
you understand what is driving the market, so that at some point
in the future, you'll no longer need the wisdom I hopefully
provide.  I hope you'll still stick around though and help me
continue illuminating the path for the next wave of fledgling
investors.

Buzz Lynn over at sister site Index Skybox really encapsulated
the lunacy of listening to analysts in his Market Wrap on
Thursday.  Rather than paraphrase, I've copied his comments here
for all to enjoy.

"UBS Warburg's chief analyst and number one-rated analyst for
2000 called for a 27% increase on the S&P this year.  Goldman's
Abbey Joseph Cohen, top analyst in 1998 and 1999 called for a 25%
S&P increase this year.  The average of all top firm analysts was
for +21%.  Actual performance?  Negative 13% to date.  Not one of
them called for a loss.  

Still, the same group of fortunetellers calls for 10% gains on
the S&P next year - this while P/E ratios have never been higher
(at 37), even at the height of the bubble in March of 2000 (29).
Those P/E numbers aren't made up.  They come from Barron's 
calculations.  Analyst projections thus imply a forward P/E
target of 40.7 on the S&P IF (big IF) profits remain the same as
now  throughout 2002.  My personal bet is that profits will fall
further precisely because analysts, almost without exception,
think they will rise.  Anybody still want to bet with the herd?
Wherever the analysts go, bet against them."

Amen, Buzz!  I couldn't have said it better myself.

What really launched me on this long diatribe tonight is the kind
of reflection that all traders should do at the end of the year.
Reviewing what worked, what didn't and what you learned in
between.  The most painful lesson I have experienced in the past
12 months is the realization that you can't help someone that
doesn't want to be helped.  I'm not talking about a reader here,
but family members that can't see past the biggest lie on Wall
Street, namely that the only way to make money over the long haul
is to "Buy and Hold", as investors that attempt to time the
market miss out on most of the profits.

I won't name names, but someone very close to me watched a
fortune disappear in shares of Cisco Systems (NASDAQ:CSCO) over
the past 20 months.  Well-versed in the mantra of Buy and Hold,
this individual is still sitting on a profitable position due to
a the low cost basis from accumulating the shares during the
early 1990s.  But the paper loss has been devastating to his
once-rosy hopes of a comfortable retirement.  As the stock
culminated its meteoric rise in the spring of 2000, I implored
him to harvest some profits or at least take some protective
action like buying LEAP puts for protection.  My exhortations
fell on deaf ears, as his broker reassured him that any dip
would be short-lived.  We repeated this process several times
throughout the ensuing decline, when the stock broke support at
$50, then $35, then $20.  Each time, he turned to his "trusted"
broker and was reassured that CSCO would be back in no time.

Now he is watching the stock languish between $15-20 (20-25% of
its peak value), slowly coming to the realization that the glory
days may not return until well after he needs to sell the stock
for living expenses in his retirement years.  The irony is that
his rationale for not selling was that he didn't want to have to
pay capital gains taxes on the profit accrued on the position
over the past several years.  Yet even after paying taxes on a
sale near the $50 level (well off the highs and after numerous
strong sell signals), that amount of cash would nearly double
the value of the position at current market value.

I don't share this to pick on anyone or to disparage CSCO, which
I think is a very well run company.  My point is that there are
cycles to the market, and if we can identify those cycles and
take the correct action, we are going to be far more successful
over the long run.  There is no denying that the Telecom and
Networking sectors have had a very rough year, but none of us
should have enduring crushing losses because of it.  The
handwriting was on the wall well over a year ago that there was
going to be some pain.  Now is the time to re-evaluate our
strategy for the year ahead.  Do you think Networking stocks
are going to return to their momentum days in the next 12 months?
I don't, as I expect the downturn in that arena to involve more
pain and further consolidation before a healthy recovery can
begin.

This isn't an isolated story, as demonstrated by Austin's
Trader's Corner piece on Thursday, highlighting 2 similar tales
of woe.  For those few readers that have been patient enough
to stay with me this far, there actually is a common thread.
It is my belief that the days of Buy and Hold investment success
are gone for the foreseeable future.  Those that are able to
identify reliable buy and sell signals in the charts will
prosper, while those that continue to deny the reality of
rangebound markets will watch their investments stagnate.  I'm
not alone in this view either, as far more successful long-term
investors like Warren Buffet and John Templeton said it long
before I did.

The talking heads and Wall Street "pros" are calling for a
recovery in the first half of 2002, which they say justifies the
recent market recovery due to the market's forward-looking
nature.  But, as demonstrated by the comments from Buzz, we need
to see a LOT of earnings recovery, just to get back to the bubble
status that existed in March of 2000.  Stocks are tremendously
inflated right now, and buying just about anything because it is
a "compelling value" according to some analyst is simply
participation in the "greater fool" theory.  Speaking of Warren
Buffet, did you catch his comments on Thursday, where he said he
isn't finding any stocks that represent a good value right now?

I'm not saying we can't have very tradable rallies over the next
year, but I will consider each of them to be yet another
bear-market rally until proven wrong.  That means that the truly
successful investors over the next year will be those that can
recognize and trade the ebbs and flows of the market, selling
resistance and buying support.  And most importantly, harvesting
profits when they are available.  The markets will go up and the
markets will go down, and our job is to skim off profits in the
middle of these cycles.

Despite the stimulative action of the Fed, there is a lot of
weakness out there, and the best evidence of that is the series
of dire earnings warnings over the past couple weeks in the big
momentum sectors like Networking and Semiconductors.  With the
Biotechs also losing ground, the NASDAQ is going to have a hard
time mounting a serious advance over the near term.  But fear
isn't yet making a comeback in the markets, as demonstrated by
the VIX, which hit a post-attack low of 22.90 on Wednesday.
Taken together, I think we are nearing that near-term market top.
I would favor put plays at this point in time, and we've got a
few of them sitting on the Watch List.

American International Group (NYSE:AIG) has really gone nowhere
since we added it to the Portfolio, but the Insurance index
(IUX.X) continues to weaken as well, posting continuing lower
highs.  On the flip side, the IUX is posting higher lows too,
meaning that we have a wedge that is destined to break
eventually.  AIG has some decent support near $78-79, but if that
fails, we could be in store for drop back towards the $70 level,
possibly with a brief rest near $76.  This is the advantage of
playing slow moving stops with LEAPS -- it gives us the luxury
of time to be right while we wait for a stock to prove itself.

The Put plays currently on the Watch List, Philip Morris
(NYSE:MO) and General Motors (NYSE:GM) are not yet ripe for the
picking, but we have the luxury of time on our side.  We've laid
out the action plan that would usher us into these plays.  If the
entry conditions are satisfied, we have an entry that limits our
risk while giving us the opportunity to harvest some respectable
profits.  The current uncertainty in the market place has me
favoring lower risk plays right now, and these two certainly
qualify.  

I had an email this week questioning why we would pursue LEAP
Puts on MO with my expectations of such a limited potential move,
and I think the best explanation is that we can limit our risk,
while still positioning ourselves to picket a solid profit.  The
stock isn't going to move rapidly, and that is precisely what
makes the LEAP play so attractive.  They are relatively cheap and
will not suffer the ravages of time or volatility decay over the
near term.

For those that only want to play LEAP Calls, we've got some
selections for you as well, and several of them are making great
strides towards giving us some attractive entry points.  I felt
confident that they would come back to us.  Now the only question
is whether we've got the entries set too high, too low or just
right.

Without going into details on all of the LEAP Call plays
currently on the Watch List, I think the general theme is that
many of them are either running out of bullish steam right now
(preparing to come back towards our entry points) or are already
well under way towards that goal.  A good example of this
progress is Broadcom (NASDAQ:BRCM) which has given up quite a
bit of ground in recent weeks, falling as low as $36.57 on
Thursday.  With the daily Stochastics bottoming in oversold, we
are likely to see a bounce into the end of the year, but the
weekly chart tells an interesting story, with the Stochastics in
sharp decline, heading back for oversold territory.  And take
note of the 50-week moving average, which has rebuffed each
bullish move for the past 4 weeks.  Another cycle on the daily
chart should have the stock setting up for an attractive entry
very close to our listed target.

Nokia (NYSE:NOK) looks to be topping out as well, also thwarted
by the 50-week moving average.  Another tech stock that is
looking interesting is EMC Corp. (NYSE:EMC), as it has given up
a fair amount of strength and is nearing our entry target.  I've
been impressed with the resilience of stocks like General
Electric (NYSE:GE) and Tyco International (NYSE:TYC), both of
which are trading near their post-attack highs.  But the
longer-term charts tell me that we're likely to see our entry
targets achieved before either of these stocks trade
significantly higher.  Again, patience is key -- so long as we
can tune out the daily noise.

Readers that have been keeping an eye on our Eli Lilly (NYSE:LLY)
and WorldCom (NASDAQ:WCOM) plays will notice that we abstained
from taking an entry on either stock this week.  LLY got smacked
down as low as $76.69 on Friday before bouncing back to just
above $78 at the close.  While the dip on Friday could have been
a decent entry point, I'm concerned by the pattern we're seeing
across the Pharmaceutical sector, with earnings warnings and the
long list of products that are coming off patent protection.  A
continuation of Friday's rebound may be a decent entry, but given
the weakness on both the daily and weekly charts, I think we're
going to revisit the supportive trendline near $75 before
seriously challenging the $84 resistance level again.  So I have
lowered our target to $75.

As to the WCOM play, I think we are too early in the
consolidation cycle to take a position, so even though the stock
traded within 6 cents of our entry target on Thursday, I think
patience is the watchword here as well.  Give the stock some time
to consolidate for its next rally.  I wouldn't rule out a dip as
low as $13.50 before getting an attractive entry that is
confirmed by strength on the long-term chart.

In light of the holiday-shortened week, I decided to refrain from
adding any new plays to the Watch List.  There are plenty of plays
listed there currently to take advantage of any favorable action
in the broad markets.  Take advantage of the usual lull between
Christmas and New Years to recharge your batteries for what is
likely to be a lively trading year in 2002.  Rest assured that we
will be back to adding to the Watch List next weekend, as we
endeavor to pick the right areas for profit in the year ahead.

For those that observe it, have a very Merry Christmas!


Mark Phillips
Contact Support



LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
None

Puts:
AIG    11/07/01  '03 $ 80  VAF-MP  $ 8.40  $ 8.70   +3.57%  $86.50
                 '04 $ 80  LAJ-MP  $10.60  $10.70   +0.94%  $86.50


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
GE     08/12/01  $36           JAN-2003 $ 40  VGE-AH
                            CC JAN-2003 $ 30  VGE-AF
                               JAN-2004 $ 40  LGR-AH
                            CC JAN-2004 $ 30  LGR-AF
TYC    09/16/01  $50           JAN-2003 $ 55  VYL-AK
                            CC JAN-2003 $ 50  VYL-AJ
                               JAN-2004 $ 60  LPA-AL
                            CC JAN-2004 $ 50  LPA-AJ
NOK    09/23/01  $20-21        JAN-2003 $ 25  VOK-AE
                            CC JAN-2003 $ 20  VOK-AD
                               JAN-2004 $ 25  LOK-AE
                            CC JAN-2004 $ 20  LOK-AD
BRCM   10/28/01  $31-32        JAN-2003 $ 35  OGJ-AG
                            CC JAN-2003 $ 30  OGJ-AF
                               JAN-2004 $ 35  LGJ-AG
                            CC JAN-2004 $ 30  LGJ-AF
EMC    11/04/01  $12-13        JAN-2003 $12.5 VUE-AV
                            CC JAN-2003 $ 10  VUE-AB
                               JAN-2004 $12.5 LUE-AV
                            CC JAN-2004 $ 10  LUE-AB
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  $75           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  $13.50-14     JAN-2003 $ 15  VQM-AC
                            CC JAN-2003 $12.5 VQM-AV
                               JAN-2004 $ 15  LQM-AC
                            CC JAN-2004 $ 10  LQM-AB


PUTS:

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

None


New Watchlist Plays

None


Drops

None


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Does your broker offer Stop Losses on Options?

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Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!

http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN
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The Option Investor Newsletter                   Sunday 12-23-2001
Sunday                                                      5 of 5


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

Market Mentality: When In Doubt, Avoid The Crowd!
By Mark Wnetrzak

The abrupt end to the recent broad-market rally has investors
wondering if they should "buy the dip" in hopes of a long-term
economic recovery or "sell on strength" in anticipation of a
continued bearish environment.  In fact, the underlying basis
for that question echoed through a number of this week's E-mail
inquiries and with the outlook for stocks somewhat unclear, it
is a great time to review the concept of "contrarian" thinking.

Successful investing requires observation, comprehension and
action.  Experienced traders learn to understand the facts, and
the reasons behind market-moving events, observe the trends, and
identify the early stages of a rally or decline.  But, it is not
enough to merely observe the activity and discern the movements.
You must also develop a sense of market emotion and learn to put
a range of indicators together in context, including the ability
to perceive when a trend is approaching an extreme.  Of course,
all that aptitude will be worthless if you take no useful action.
Acting upon your observations is without doubt the most difficult
skill to master, and when the market is overwhelmed by rampant
selling pressure, the task can be all the more daunting.  Unless
you are a seasoned investor, it is difficult to evaluate the
market's unusual behavior for lack of past experience.  However,
there is one condition that is easy to observe: the opinion of
the masses.  For example, when the majority of participants are
in agreement on the current outlook, there is a high probability
that a move in the opposite direction is forthcoming.  In simple
terms, stocks will rally when every seller has been accommodated.
In contrast, when everyone who wants to buy is fully invested,
there is little potential for further upside activity.  You have
all heard the phrase, "In the stock market, the public is right
during the trends but wrong at both ends," and that statement was
never more correct than in the current environment.

When the market is in a bullish trend, the emotion of the moment
generally dictates the activity, causing the majority of typical
traders to enter new positions near the top, when most stocks are
finishing the rally.  At that point, everybody who is bullish on
the issue already has it and there is no one left to support the
price.  The professionals are the first to exit, quietly closing
out their positions while the public is overwhelmed by glowing
earnings reports and bullish forecasts.  As the stock struggles
to hold its gains, trading volume drifts lower and the primary
groups trading the issue; the technicians, the fundamentalists
and the general public compete to determine the next trend.  When
the historical pattern exhibits the first signs of failure, the
technical traders begin to sell in earnest.  Analysts raise the
company's targets to support the inflated share value, but when
the issue no longer responds to good news, the outcome is clear.
Soon the public becomes nervous and as the correction takes shape,
closing orders increase in number.  The fundamentalist is the last
to go, generally after a full-scale downtrend is in effect.  With
this type of psychological analysis, it obvious how human nature
determines our actions in the stock market.  Hope leads to fear,
and then to panic, and the few that remain through it all (the
inexperienced), eventually unload their positions for significant
losses.

After the market has endured a substantial decline, it's hard to
overcome the public's fear and loathing, and the widespread
disbelief that any recovery is forthcoming.  The general panic
propagated by dour doomsayers and the media's sensationalistic
coverage of every negative event often creates an apparently
insurmountable obstacle.  The act of buying into weakness, in
opposition of the crowd, will always feel uncomfortable and when
the time comes to make the trade, its unlikely you'll have all
the necessary information.  With that in mind, it's easy to see
why anticipating a change in the direction of the market is more
an art than a science.  In addition, those who hear your opposing
views and witness your contra-intuitive behavior will likely voice
their opinions, and they may eventually convince you to abandon
your independent line of thinking, at precisely the wrong time.
The important issue is to always consider the contrarian viewpoint,
even if the perspective leaves you alone in your outlook, without
confirmation from the masses.  Remember, the stock market moves
quickly from one extreme to the next, and success in investing
requires that you act as an individual during those times when
being part of the crowd simply contributes to the current market
behavior.

Trade To Profit!


SUMMARY OF PREVIOUS CANDIDATES
*****
Note:  Margin not used in calculations.

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

TELM    6.20   6.30   DEC   5.00  1.80  *$  0.60   9.9%
CANI    5.97   5.57   DEC   5.00  1.35  *$  0.38   8.9%
NPRO   11.32  11.81   DEC  10.00  1.85  *$  0.53   8.1%
TUNE   21.20  22.66   DEC  20.00  2.25  *$  1.05   8.0%
NTPA    5.68   5.80   DEC   5.00  1.10  *$  0.42   8.0%
MDCO   11.43  10.65   DEC  10.00  2.10  *$  0.67   7.8%
EMBT   19.16  25.00   DEC  17.50  2.25  *$  0.59   7.6%
SURE   12.20  10.80   DEC  10.00  3.10  *$  0.90   7.2%
QSFT   22.64  22.30   DEC  20.00  4.10  *$  1.46   6.8%
VTSS   11.61  11.60   DEC  10.00  2.45  *$  0.84   6.6%
SURE   12.38  10.80   DEC  10.00  2.80  *$  0.42   6.4%
PXLW   14.95  16.53   DEC  12.50  3.30  *$  0.85   6.3%
GMST   22.70  26.88   DEC  20.00  4.30  *$  1.60   6.3%
SNDK   14.19  13.41   DEC  12.50  2.20  *$  0.51   6.2%
RMBS    8.88   8.01   DEC   7.50  1.95  *$  0.57   6.0%
AMZN    8.95  10.00   DEC   7.50  1.90  *$  0.45   5.5%
MCDT   18.80  25.30   DEC  15.00  4.80  *$  1.00   5.2%
INVN   19.42  28.51   DEC  15.00  5.10  *$  0.68   5.2%
FMKT   19.75  22.97   DEC  17.50  2.85  *$  0.60   5.1%
STEL   23.54  29.60   DEC  20.00  4.20  *$  0.66   4.9%
VRTY   15.09  19.56   DEC  12.50  3.00  *$  0.41   4.9%
CRXA   14.74  16.00   DEC  12.50  2.90  *$  0.66   4.8%
ARQL   11.10  15.95   DEC  10.00  1.50  *$  0.40   4.5%
EXFO   14.18  11.25   DEC  12.50  2.55   $ -0.38   0.0%
PROX   11.50   9.04   DEC  10.00  1.90   $ -0.56   0.0%
JDSU   11.60   8.45   DEC  10.00  2.20   $ -0.95   0.0%

PCLN    5.37   5.41   JAN   5.00  0.95  *$  0.58  11.4%
NPRO   11.70  11.81   JAN  10.00  2.60  *$  0.90   8.6%
NPRO   11.81  11.81   JAN  10.00  2.70  *$  0.89   7.1%
DTHK   11.11  10.50   JAN  10.00  1.80  *$  0.69   6.4%
FALC    8.81   8.78   JAN   7.50  1.90  *$  0.59   6.2%
OAKT   13.53  14.00   JAN  12.50  1.90  *$  0.87   5.4%
CAMP    6.36   5.43   JAN   5.00  1.65  *$  0.29   5.4%
VSNX   16.58  15.17   JAN  12.50  4.80  *$  0.72   5.3%
MRVL   36.96  35.83   JAN  32.50  6.60  *$  2.14   5.1%
NTAP   21.04  22.60   JAN  17.50  4.50  *$  0.96   5.0%
ACXM   15.63  18.05   JAN  15.00  1.35  *$  0.72   4.4%
XICO   14.00  11.94   JAN  12.50  2.35   $  0.29   1.8%

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

Comments:

The Covered Call portfolio did fairly well during the December
expiration period.  Of the positions we closed, Pharmacyclics 
(NASDAQ:PCYC), Genta (NASDAQ:GNTA), and Echelon (NASDAQ:ELON);
Genta managed to move back above the sold strike.  Echelon 
appears to have formed a bottom and may offer some favorable
premiums for those investors looking to roll forward.  As we
said last week, JDS Uniphase (NASDAQ:JDSU), Proxim (NASDAQ:
PROX), and Electro-Optical Engineering (NASDAQ:EXFO) are a
toss-up: take the small loss and move on or try salvaging the
positions by rolling forward and/or down.  Anybody have a 
quarter?  Time to concentrate on January positions as this
year is almost toast.  Monitor closely any positions that are
acting weaker than expected and follow your exit plan without
fail.


NEW CANDIDATES
*********

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

GZTC    5.72  JAN  5.00   GEQ AA  1.10 99     4.62   28    8.9%
MANU   19.47  JAN 17.50   ZUQ AM  3.30 1393  16.17   28    8.9%
MDR    11.37  JAN 10.00   MDR AB  2.00 270    9.37   28    7.3%
NPRO   11.81  JAN 10.00   NYQ AB  2.70 732    9.11   28   10.6%
SIRI    8.98  JAN  7.50   QXO AU  2.00 1233   6.98   28    8.1%
SPWX   10.99  JAN 10.00   USP AB  1.70 98     9.29   28    8.3%
VRTY   19.56  JAN 17.50   YQV AW  3.00 311   16.56   28    6.2%

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

NPRO   11.81  JAN 10.00   NYQ AB  2.70 732    9.11   28   10.6%
GZTC    5.72  JAN  5.00   GEQ AA  1.10 99     4.62   28    8.9%
MANU   19.47  JAN 17.50   ZUQ AM  3.30 1393  16.17   28    8.9%
SPWX   10.99  JAN 10.00   USP AB  1.70 98     9.29   28    8.3%
SIRI    8.98  JAN  7.50   QXO AU  2.00 1233   6.98   28    8.1%
MDR    11.37  JAN 10.00   MDR AB  2.00 270    9.37   28    7.3%
VRTY   19.56  JAN 17.50   YQV AW  3.00 311   16.56   28    6.2%


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).

*****
GZTC - Genzyme Transgenics  $5.72  *** What's Up Doc? ***

Genzyme Transgenics (NASDAQ:GZTC) is engaged in the application
of transgenic technology to the development and production of 
recombinant proteins for therapeutic and other biomedical uses.
To date, GTC has produced more than 65 such proteins, 45 through
collaborations with various commercial and academic organizations
and 20 independently.  More than half of the transgenic proteins 
actively under development by the company are monoclonal anti-
bodies (MAB) or immunoglobulin (Ig) fusion proteins.  There is 
no news to explain Friday's heavy volume break-out.  The stock 
appears poised to move higher in the coming sessions and traders
who are bullish on the issue can speculate on the future of the
company with this conservative position.

JAN 5.00 GEQ AA LB=1.10 OI=99 CB=4.62 DE=28 TY=8.9%


*****
MANU - Manugistics Group  $19.47  *** Earnings Rally! ***

Manugistics Group (NASDAQ:MANU) is a global provider of Enterprise
Profit Optimization solutions, which is a category of solutions
for enterprise management.  Manugistics is also a provider of 
solutions for supply chain management, pricing and revenue optimiz-
ation and electronic marketplaces.  The company's solutions help
companies lower operating costs, increase revenues, enhance 
profitability and accelerate revenue and earnings growth.  The 
shares of Manugistics surged Friday after its quarterly loss beat
Wall Street analysts' expectations.  Investors were pleased when
Manugistics' CEO said: "We clearly have seen that the worst is
behind us" and "Stability has happened and growth has returned."
We simply favor the heavy volume rally above the 150-dma and the
improving fundamental outlook of the company.

JAN 17.50 ZUQ AM LB=3.30 OI=1393 CB=16.17 DE=28 TY=8.9%


*****
MDR - McDermott  $11.37  *** Oil Sector Recovery ***

McDermott International (NYSE:MDR) is the parent company of the 
McDermott group of companies that includes J. Ray McDermott, S.A., 
McDermott Incorporated, Babcock & Wilcox Investment Company, BWX 
Technologies, Inc., and The Babcock & Wilcox Company.  The company
operates in four business segments, Marine Construction Services,
Government Operations, Industrial Operations and Power Generation 
Systems.  J. Ray McDermott recently announced two contracts and
the Babcock & Wilcox Company has been awarded a contract, valued
at more than $37 million, to engineer, procure the materials for
and construct an environmental system to reduce nitrogen oxide
(NOx) from Dominion Generation's Chesapeake Energy Center near
Norfolk, Virginia.  We simply favor the technical support near 
the cost basis in this position for investors who are interested
in a long-term portfolio position in the Oil Services sector.

JAN 10.00 MDR AB LB=2.00 OI=270 CB=9.37 DE=28 TY=7.3%


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

JAN 10.00 NYQ AB LB=2.70 OI=732 CB=9.11 DE=28 TY=10.6%


*****
SIRI - Sirius  $8.98  *** Satellite Radio Stocks Soar! ***

Sirius Satellite Radio (NASDAQ:SIRI), formerly CD Radio Inc.,
is building a subscription radio service that will broadcast up
to 100 channels of audio entertainment directly from satellites
to vehicles throughout the continental US.  Sirius is one of 
only two companies licensed by the FCC to operate a national 
satellite radio system.  Upon commencing commercial operations,
the company expects its primary source of revenues to be sub-
scription fees, which Sirius expects will be included in the 
sale or lease of certain new vehicles.  In addition, Sirius 
expects to derive revenues from directly selling or bartering
limited advertising on its non-music channels.  Shares of 
Sirius rallied earlier this month on analysts' reports about
strong consumer demand for rival XM Satellite's (NASDAQ:XMSR)
service.  On Thursday, SG Cowen started coverage of Sirius 
with a "neutral" investment rating and a 12-month price target
of $10 a share.  Conservative speculators can profit from 
future bullish movement in the issue with this position.

JAN 7.50 QXO AU LB=2.00 OI=1233 CB=6.98 DE=28 TY=8.1%


*****
SPWX - SpeechWorks  $10.99  *** Bottom Fishing! ***

SpeechWorks International (NASDAQ:SPWX) is a provider of 
software products and professional services that enable
enterprises, communications carriers and voice portals to
offer automated, speech-activated services over any telephone.
The company offers two speech recognition solutions for over-
the-telephone applications, the SpeechWorks 6.5 platform and
the SpeechSite package.  SpeechWorks offers two text-to-speech 
products, Speechify and SpeechWorks ETI-Eloquence.  Finally,
the company offers a speaker verification solution, called 
SpeechSecure, which authenticates callers by their unique 
voiceprint.  SpeechWorks complements its products with a 
professional services organization that offers a range of 
services, including application development and project 
management.  We simply favor the bullish technical signals
and our conservative position offers a method to participate
in the future movement of the issue with relatively low risk.

JAN 10.00 USP AB LB=1.70 OI=98 CB=9.29 DE=28 TY=8.3%


*****
VRTY - Verity  $19.56  *** On The Move ***

Verity (NASDAQ:VRTY) is engaged in powering business portals. 
These include corporate portals used for sharing information 
within an enterprise, e-commerce portals for online selling, 
and market exchange portals for Business-to-Business activities.
Business portals provide personalized information to employees, 
partners, customers and suppliers.  The company's product suite
enables organizations to turn corporate intranets and extranets
into a powerful knowledge base, making business information 
accessible and reusable across the enterprise.  This month,
Verity posted a narrower than expected loss for its 2nd-quarter
and said it expects modest sequential revenue growth in its 
3rd-quarter.  Verity continues to develop its relationship
with IBM (NYSE:IBM) and recently announced that it has joined
the IBM Portlet Provider Program to provide advanced out-of-
the-box portlets for IBM WebSphere Portal.  We simply favor
the bullish break-out earlier this month and the recent move
above resistance near $18.

JAN 17.50 YQV AW LB=3.00 OI=311 CB=16.56 DE=28 TY=6.2%


*****

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

The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary. 

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

CANI    5.57  JAN  5.00   CDU AA  1.00 95     4.57   28   10.2%
IGEN   40.44  JAN 35.00    GQ AG  8.20 4083  32.24   28    9.3%
CTXS   23.49  JAN 22.50   XSQ AX  2.35 648   21.14   28    7.0%
ACXM   18.05  JAN 17.50   UQA AW  1.45 25    16.60   28    5.9%
TELM    6.30  JAN  5.00   UHE AA  1.55 221    4.75   28    5.7%
CAMZ   23.77  JAN 22.50   CGQ AX  2.35 8     21.42   28    5.5%
TUNE   22.66  JAN 20.00   TUF AD  3.60 163   19.06   28    5.4%
SEBL   28.85  JAN 25.00   SGQ AE  5.00 12490 23.85   28    5.2%
MEDC   18.35  JAN 15.00   MQH AC  4.00 68    14.35   28    4.9%



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

Investing 101: Understanding Trends And Cycles
By Ray Cummins

One of our new readers asked us to comment on the various types
of market analysis and suggest the best method for evaluating
stocks in the current uncertain environment.

Since last September, the market has enjoyed an unprecedented
recovery amid growing hopes for a rebound in the U.S. economy.
Despite the dour outlook for corporate profits and even with the
tragic events of 9/11, share values have rebounded on optimism
the recent correction will be over by mid-2002.  Unfortunately,
the rally stalled this week on renewed concerns the approaching
earnings reporting season will offer a dismal outlook for the
coming year.  The bearish activity came as a complete surprise
to a number of well known analysts who believed the projected
V-shaped recovery would establish a firm upward bias in the wake
of the holiday buying spree.  Now that the trend has reversed,
many experts are reviewing the latest economic data to determine
if the lagged effects of monetary and fiscal policy measures
enacted in 2001 will indeed provide a boost to the stock market
in the first half of 2002.

Determining the most likely outcome is a very difficult task and
although analysts continue to regard the events of the past with
considerable respect, rarely are they able to utilize this data
to accurately predict what will happen in the future.  In most
cases, they use one or another of the more common methods of
financial analysis.  The first approach is backward-looking; it
constitutes chart reading (technical analysis) or the study of an
issue's historic price behavior.  Unfortunately, past performance
of the economy, the stock market, or an individual issue is no
guarantee of future activity.  In addition, while trading on this
type of information (momentum-based) may appear easier and more
profitable in the near term, it is very difficult for investors
to achieve consistent returns in this manner.  The reason these
short-term trends are so difficult to profit from is that chart
formations rarely evolve in a completely predictable (manageable)
pattern; with a steady rise to the top, where there's an extensive
plateau that provides ample opportunity to assess the situation
and take profits before starting the trip back down.  Instead,
stock charts often resemble the contour of the Rocky Mountains,
with staggering peaks and precipitous gorges, and ranges that rise
sharply towards the tallest crest, with each getting higher than
the last until reaching the summit.  Traders that have recently
participated in the stock market know that in real life, the trip
down from the summit is always scarier (and more abrupt) than the
climb.

Another approach involves forward-looking analysis.  This method
is based on the economy and fundamental issues.  It anticipates
interest rate changes and other business and political conditions
that might impact future earnings or the public's attitude toward
the stock market.  Investors who use this method should remember
that market cycles usually precede economic cycles.  The various
facets of our economy, including the virtually limitless range of
elements that determine the financial health of the nation as a
whole are anticipated by the investing public and this sentiment
is exhibited by the emotion of the market.  A common example is
when stock prices move higher in expectation of rising profits and
down in anticipation of greater losses; an occurrence that we all
witnessed in the most recent earnings quarter.  In addition, the
market can be substantially affected by other circumstances, even
those that appear to have little outcome with regard to financial
instruments.  Any study of a detailed timeline that compares key
historical events with the movement of the major equity indices
will demonstrate how war, recession, or a presidential election
can influence the stock market.

The economy and the stock market both move in identifiable cycles.
To be successful, you must be able to identify the current phase
of activity.  Many investors will try to utilize various types of
analysis to spot the top and bottom of each cycle but the truth
is, nobody can do this on a regular basis.  The key to consistent
profits is to have an accurate perception of the market's overall
character and manage your portfolio with the correct risk/reward
outlook while using the appropriate strategies to profit from the
current trend.

Good Luck! 

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


SUMMARY OF PREVIOUS CANDIDATES
*****

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

WGRD   11.92  10.19   DEC  10.00  0.60  *$  0.60  15.1%
RSTN   18.15  17.09   DEC  15.00  0.30  *$  0.30  14.8%
INVN   25.15  28.51   DEC  17.50  0.55  *$  0.55  14.3%
IGEN   35.95  40.44   DEC  30.00  0.90  *$  0.90  14.0%
CRXA   15.01  16.00   DEC  12.50  0.35  *$  0.35  13.2%
FNSR   12.96  10.29   DEC  10.00  0.35  *$  0.35  12.9%
ICST   21.18  21.51   DEC  17.50  0.30  *$  0.30  12.8%
RIMM   23.48  22.49   DEC  20.00  0.35  *$  0.35  12.1%
NTAP   16.51  22.60   DEC  12.50  0.65  *$  0.65  11.9%
CRXA   15.32  16.00   DEC  12.50  0.40  *$  0.40  11.7%
IMNY    7.24  10.00   DEC   5.00  0.25  *$  0.25  10.7%
RSAS   15.75  15.13   DEC  12.50  0.25  *$  0.25  10.7%
LVLT    6.82   4.90   DEC   5.00  0.30   $  0.20  10.5%
MANU   10.66  19.47   DEC   7.50  0.35  *$  0.35  10.2%
MCDT   22.75  25.30   DEC  17.50  0.45  *$  0.45   9.8%
SLAB   28.26  37.00   DEC  22.50  0.85  *$  0.85   9.5%
MCDT   25.20  25.30   DEC  20.00  0.35  *$  0.35   9.4%
MCDT   21.10  25.30   DEC  15.00  0.50  *$  0.50   9.2%
SRNA   22.90  21.74   DEC  17.50  0.50  *$  0.50   8.6%
SRNA   22.25  21.74   DEC  17.50  0.35  *$  0.35   7.9%
PMCS   23.27  20.01   DEC  15.00  0.45  *$  0.45   7.7%
CEGE   22.86  23.24   DEC  20.00  0.35  *$  0.35   7.6%
CNXT   13.37  13.23   DEC  10.00  0.30  *$  0.30   7.3%
AFFX   37.13  34.82   DEC  30.00  0.55  *$  0.55   7.2%
CREE   25.25  29.69   DEC  20.00  0.45  *$  0.45   7.1%
IMMU   23.49  22.44   DEC  20.00  0.40  *$  0.40   6.9%
MCSI   24.00  23.13   DEC  20.00  0.50  *$  0.50   5.9%
SMTC   37.55  36.05   DEC  27.50  0.35  *$  0.35   4.8%
OSIS   21.90  14.50   DEC  17.50  0.30   $ -2.70   0.0%

OSUR   12.38  11.73   JAN  10.00  0.45  *$  0.45  12.9%
IDNX   13.77  14.24   JAN  10.00  0.45  *$  0.45  12.2%
PPD    20.77  20.70   JAN  17.50  0.80  *$  0.80  11.9%
INRG   13.77  13.46   JAN  10.00  0.35  *$  0.35   9.8%
RCOM   11.14  11.85   JAN  10.00  0.45  *$  0.45   8.6%
CC     24.16  26.32   JAN  20.00  0.60  *$  0.60   8.5%
ASA    20.50  20.34   JAN  20.00  0.75  *$  0.75   7.7%
OAKT   14.69  14.00   JAN  12.50  0.35  *$  0.35   7.5%
ALOY   19.06  19.36   JAN  15.00  0.35  *$  0.35   6.1%
ICST   20.55  21.51   JAN  15.00  0.30  *$  0.30   5.9%

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

Comments:

Friday's bullish activity was definitely a bonus for the
portfolio as it helped previously closed positions in
Immunomedics (NASDAQ:IMMU), Finisar (NASDAQ:FNSR), and
Macromedia (NASDAQ:MACR) finish the expiration period
positive.  However, it did not improve the condition of
Pharmacylics (NASDAQ:PCYC), Polymedica (NASDAQ:PLMD), or
Terayon (NASDAQ:TERN); three unprofitable positions that
have suffered from recent selling pressure.  Another
surprise occurred Tuesday when OSI Systems (NASDAQ:OSIS)
slumped in sympathy with the bearish activity in InVision
Technologies (NASDAQ:INVN).  Traders slashed the price of
Invision after a news article in the Wall Street Journal
suggested that the company's stock had become drastically
overvalued in the post-9/11 rally.  Shares of INVN were up
over 1,300% from their early September levels and everyone
knew it was a pace that couldn't be maintained.  It's too
bad (for OSIS shareholders) that traders chose this week
to act on that knowledge.


NEW CANDIDATES
*********

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

CC     26.32  JAN 20.00    CC MD  0.30 3626  19.70   28    5.9%
COGN   23.30  JAN 20.00   CRQ MD  0.45 22    19.55   28    7.6%
EMBT   25.00  JAN 20.00   MBQ MD  0.65 10    19.35   28   12.5%
EMLX   39.45  JAN 27.50   UMQ MY  0.65 223   26.85   28    8.3%
FST    27.52  JAN 25.00   FST ME  0.45 2     24.55   28    5.5%
IGEN   40.44  JAN 25.00    GQ ME  0.50 90    24.50   28    6.3%
JDAS   22.39  JAN 17.50   QAH MW  0.30 50    17.20   28    6.8%
NTAP   22.60  JAN 17.50   NUL MW  0.55 5167  16.95   28   11.8%
RCOM   11.85  JAN 10.00   RAU MB  0.25 60     9.75   28    8.6%

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

EMBT   25.00  JAN 20.00   MBQ MD  0.65 10    19.35   28   12.5%
NTAP   22.60  JAN 17.50   NUL MW  0.55 5167  16.95   28   11.8%
RCOM   11.85  JAN 10.00   RAU MB  0.25 60     9.75   28    8.6%
EMLX   39.45  JAN 27.50   UMQ MY  0.65 223   26.85   28    8.3%
COGN   23.30  JAN 20.00   CRQ MD  0.45 22    19.55   28    7.6%
JDAS   22.39  JAN 17.50   QAH MW  0.30 50    17.20   28    6.8%
IGEN   40.44  JAN 25.00    GQ ME  0.50 90    24.50   28    6.3%
CC     26.32  JAN 20.00    CC MD  0.30 3626  19.70   28    5.9%
FST    27.52  JAN 25.00   FST ME  0.45 2     24.55   28    5.5%


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).

*****
CC - Circuit City Stores  $26.32  *** Up, Up, And Away! ***

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 early in the
month after an industry analyst offered a "buy" rating on the
stock, citing better than anticipated November sales data and
expectations of improved performance.  BoA 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.  That's very optimistic but apparently
investors agree as the stock has moved up over 50% in the past
two weeks.  Investors who want a conservative cost basis in the
issue should consider this position.

JAN 20.00 CC MD LB=0.30 OI=3626 CB=19.70 DE=28 TY=5.9%


*****
COGN - Cognos  $23.30  *** A Big Day! ***

Cognos (NASDAQ:COGN) is a global provider of unique business
software solutions.  The company develops, sells, and supports
an integrated business intelligence platform that allows its
customers, as well as their partners, customers, and suppliers,
to analyze and report data from multiple perspectives and to
coordinate decision-making and actions across the extended
enterprise through intranets, extranets, and the Internet.
Cognos shares soared Friday in the wake of favorable earnings
and a slew upgrades from analysts.  Cognos posted quarterly
that were roughly the same as last year but industry experts
saw that performance as positive and issued bullish forecasts
on the news.  Canadian firm National Bank Financial, Goldman
Sachs, and Deutsche Banc Alex. upped their ratings, citing an
improvement in the Cognos' fundamentals.  Investors who agree
with a bullish outlook for the company can use this position
to establish a conservative cost basis in the issue.

JAN 20.00 CRQ MD LB=0.45 OI=22 CB=19.55 DE=28 TY=7.6%


*****
EMBT - Embarcadero Technologies  $25.00  *** Entry Point! ***

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

JAN 20.00 MBQ MD LB=0.65 OI=10 CB=19.35 DE=28 TY=12.5%


*****
EMLX - Emulex  $39.45  *** Portfolio Position! ***

Emulex (NASDAQ:EMLX) is a designer, developer and supplier of a
broad line of storage networking host bus adapters, application
specific computer chips and software products that provide the
connectivity solutions for storage area networks (SANs), network
attached storage and redundant array of independent disks storage.
The company's products are based on internally developed ASIC,
firmware and software technology, and offer support for a wide
variety of SAN protocols, configurations, system interfaces and
operating systems.  The company's architecture offers customers
a stable applications program interface that has been preserved
across multiple generations of adapters, and to which original
equipment manufacturers have customized software for mission
critical server and storage system applications.  When it comes
to leading-edge technology for data storage, Emulex is widely
recognized as one of the foremost companies in the industry.
From our perspective, Emulex is simply an "old favorite" that
has finally begun to recover from the recent market-wide slump
and it's certainly an issue for any long-term stock portfolio.
This position allows investors to establish a discounted cost
basis in the issue.

JAN 27.50 UMQ MY LB=0.65 OI=223 CB=26.85 DE=28 TY=8.3%


*****
FST - Forest Oil  $27.52  *** Oil Sector Bottom-Fishing! ***

Forest Oil Corporation (NYSE:FST) is an independent oil and gas
company engaged in the exploration, development, acquisition,
production and marketing of natural gas and liquids.  Forest
operates from production offices located in Lafayette and
Metairie, Louisiana; Denver, Colorado; Anchorage, Alaska; and
Calgary, Alberta.  The company runs its international business,
excluding Canada, from an office located in Houston, Texas.
Forest Oil is one of the smaller companies in the Alaska oil
industry but their presence has increased in the wake of a
ramp-up of investment in Anchorage's Cook Inlet.  J.P. Morgan
took note of this activity and recently upped its investment
rating on Forest Oil to a "long-term buy" based on a possible
20% surge in production during 2003.  We favor the technical
support near the cost basis in this position and investors who
are interested in a long-term portfolio position in the oil
sector should consider this issue.

JAN 25.00 FST ME LB=0.45 OI=2 CB=24.55 DE=28 TY=5.5%


*****
IGEN - Igen Intl.  $40.44  *** Favorable Settlement? ***

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

JAN 25.00 GQ ME LB=0.50 OI=90 CB=24.50 DE=28 TY=6.3%


*****
JDAS - JDA Software  $22.39  *** Low-Risk Entry Point ***

JDA Software Group (NASDAQ:JDAS) is a worldwide provider of
sophisticated software solutions designed specifically to
address the demand and supply chain management, business process,
analytic application and e-commerce requirements of the retail
industry and its suppliers.  The JDA Portfolio consists of
comprehensive, integrated software solutions designed to
specifically address the demand and supply chain management,
business process, decision support, e-commerce and other
collaborative planning requirements of the retail industry
and their suppliers.  In short, JDAS is a leader in providing
integrated software and professional services that address
real-world issues to help multi-channel companies manage their
mission critical operations.  That makes the company's products
very valuable in today's economy and the recent surge in JDAS'
share value demonstrates the widespread popularity of the stock.
Our outlook for the company is also bullish and this position
allows investors to establish a low-risk cost basis in the issue.
Target a higher premium in the position initially, to increase
the overall return on investment.

JAN 17.50 QAH MW LB=0.30 OI=50 CB=17.20 DE=28 TY=6.8%


*****
NTAP - Network Appliance  $22.60  *** 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 investors who
wouldn't mind having NTAP in their long-term technology portfolio.

JAN 17.50 NUL MW LB=0.55 OI=5167 CB=16.95 DE=28 TY=11.8%


*****
RCOM - Register.com  $11.85  *** Cheap Speculation! ***

Register.com (NASDAQ:RCOM) is a provider of Internet domain name
registration products and services worldwide for businesses and
individuals that want a unique address and branded identity on
the Internet.  Domain names serve as part of the infrastructure
for Internet communications, including Websites, e-mail, audio,
video and telephony.  They also offer a suite of value-added
products and services targeted to assist customers in developing
and maintaining their online identities, including real-time
domain name management, Website creation tools under the name
FirstStepSite, domain name forwarding and domain name re-sale
services, such as auctions, through its subsidiary Afternic.com.
RCOM shares rallied in early November with no public news to
explain the activity.  Traders say the move was related to an
article in Business Week in which a popular Internet analyst
said, "RCOM is a good play on the growth of the Net and is one
of the few attractive takeover targets around."  Now the issue
is comfortably above a support area near $9 and this position
offers conservative speculation on the company's future share
value.

JAN 10.00 RAU MB LB=0.25 OI=60 CB=9.75 DE=28 TY=8.6%


*****

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

The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary. 

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

SPWX   10.99  JAN 10.00   USP MB  0.70 28     9.30   28   18.5%
XMSR   17.88  JAN 15.00   QSY MC  0.85 721   14.15   28   18.0%
AWRE    8.50  JAN  7.50   WUQ MU  0.30 160    7.20   28   12.1%
MRVL   35.83  JAN 27.50   UVM MY  0.70 5     26.80   28    9.7%
CAMZ   23.77  JAN 20.00   CGQ MD  0.45 3     19.55   28    7.9%
PCS    24.25  JAN 20.00   PCS MD  0.30 13854 19.70   28    5.7%
SEBL   28.85  JAN 20.00   SGQ MD  0.30 9915  19.70   28    5.4%



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


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

Industrial Stocks Resume Holiday Rally!
By Ray Cummins

******************************************************************
                         - MARKET RECAP -
******************************************************************
Friday, December 21

The major equity averages finished higher today amid reassuring
reports from Dow heavyweights Honeywell and Caterpillar, and an
upbeat profit outlook from technology stalwart Nortel Networks.

The Dow Jones Industrial Average added 50 points to end at 10,035
on strength in American Express (NYSE:AXP), AT&T (NYSE:T), Intel
(NASDAQ:INTC), Caterpillar (NYSE:CAT), Wal-Mart (NYSE:WMT), and
Exxon Mobil (NYSE:XOM).  The NASDAQ Composite added 27 points to
finish at 1,945 with networking shares among the best technology
performers while semiconductor, software and hardware companies
helped boost the gains in the group.  The Standard & Poor's 500
Index edged up to 1,144 as the broader market found new buyers in
the airline, oil, oil service, retail, biotechnology and consumer
sectors.  Trading volume came in at 1.69 billion on the NYSE and
at 2.15 billion on the NASDAQ.  Market breadth was favorable with
winners surpassing losers 21 to 11 on the Big Board and 23 to 14
on the technology exchange.  On the fund-flow front, Trim Tabs
said equity funds had inflows of $5.5 billion in the week ending
December 19, compared with outflows of $3.7 billion in the prior
week.


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

Price    (NYSE:PR)    FEB20C/DEC20C  $0.85   debit   calendar
Sandisk  (NSDQ:SNDK)  APR20C/APR15P  $16.80  debit   collar
Goodyear (NYSE:GT)    APR30C/APR20P  $0.30   credit  synthetic
Amgen    (NSDQ:AMGN)  JAN70C/JAN65C  $0.75   credit  bear-call
Yahoo!   (NSDQ:YHOO)  DEC17C/DEC17P  $1.40   debit   straddle
Biogen   (NSDQ:BGEN)  JAN60C/JAN50P  $3.10   credit  strangle

The volatility play in Price Communications certainly lived up
to its title as the issue experienced some bizarre activity
during the week.  The movement was due to a unique revision in
the previously announced acquisition of Price Communications'
Wireless subsidiary (PCW) by Verizon Wireless.  Under the terms
of the new transaction, Verizon and Price will form a limited
partnership and the conditions of the deal state that Price may
exchange its interest for shares of Verizon Wireless stock at
the IPO price after the public offering is finalized.  Traders
were concerned about the revisions to the agreement initially
and they sold the issue down to $16 during Wednesday's session
before the deal could be thoroughly analyzed.  Now it seems that
investors are happy with the upside potential in the arrangement
and PR's share value has since recovered its losses.  Those who
want to reduce their investment in the long (FEB-$20C) should
consider selling the JAN-$20 Call for a premium of $0.40-$0.50.

The Reader's Request play in Sandisk (NASDAQ:SNDK) experienced
an unexpected surprise Wednesday when the company's share value
came under severe selling pressure after the global supplier of
flash-data storage products announced plans to sell up to $120
million of five-year convertible subordinated notes.  The notes
will generate cash for the development of new technologies and
fabrication facilities, and capital expenditures.  Traders were
less than pleased with the announcement and they fled the issue
in droves.  Fortunately, our position has downside protection at
$15 and over four months to recover from the current slump.

The speculative debit straddle in Yahoo! was the only other play
that deserves mention and despite the lack of significant news,
the issue did trade in a relatively large range during the week.
Thursday's movement was the most aggressive with the stock down
over $2 from the session high and the downward momentum yielded
a brief "break-even" opportunity in the bearish portion of the
position.  With the straddle just short of our profit goal, the
brisk sell-off in YHOO ended abruptly Friday morning in the wake
of a broad-market rally and there was nothing to do but exit the
play for a small loss.  Some days you win and some days...


Portfolio Activity:

The month of December offered spread and combination traders a
number of excellent opportunities and despite the volatility
during the last week, our portfolio finished the expiration
period with a majority of profitable positions.  As usual, the
credit-spreads section was the most successful and all of the
selections in that group expired with positive returns.  The
bearish spread in Hillenbrand (NYSE:HB) was the only play that
finished beyond the sold strike but the position still yielded
a small profit.  The time-selling plays in Intuit (NASDAQ:INTU)
and Biovail (NYSE:BVF) performed very well with both positions
offering favorable exits during the past two weeks.  Biovail
turned out to be an exceptional issue, finishing the expiration
period just $0.60 above the sold strike price, and traders who
closed the position Friday were rewarded with a +100% gain on
their initial investment.  The Covered-calls on LEAPS position
in Microsoft (NASDAQ:MSFT) finished the expiration period just
below the sold strike at $70, allowing traders to transition to
the (short) JAN-$70 calls for a sizable credit of $1.30-$1.40.
The cost basis in the long-term option (JAN03-$65C) is $6.45,
well below the current value ($12) of the position.  The small
group of neutral-outlook (volatility) plays; Potash (NYSE:POT),
Andrx (NASDAQ:ADRX), and Goldman Sachs Group (NYSE:GS) offered
acceptable gains during the period and synthetic positions in
Sun Microsystems (NASDAQ:SUNW), Leap Wireless (NASDAQ:LWIN),
and Level 3 (NASDAQ:LVLT) also yielded satisfactory profits.

One position we are concerned about during the coming week is
the neutral-outlook credit strangle in Biogen (NASDAQ:BGEN).
Our current position has an upside break-even point near $63
but the issue may soon test that area on momentum from Friday's
announcement that the company expects 2001 revenues to top $1
billion, a first for the biotechnology firm.  The company also
said its multiple-sclerosis treatment Avonex maintained its
position as the top-selling treatment for MS and since Biogen
generates the bulk of its revenue through sales of Avonex,
that is very favorable news.  The most recent rally (AUG-SEP)
failed near $62, so that is the price range we will focus on
in the coming weeks.  A move above that area on heavy volume
would signal an early exit (or adjustment) in the position.
 
Questions & comments on spreads/combos to Contact Support
******************************************************************
                      - SPECULATION PLAYS -

One of our readers asked for some speculation plays on low cost
stocks that may benefit from the historical "January Effect."
This is a seasonal trend in which small-cap stocks outperform
their larger-cap brethren during the first few months of the
new year.  The historically strong performance of lower-priced
issues in January, February and March is well known and easily
proven but there is no guarantee these stocks will duplicate
that activity, so review each issue individually and make your
own decision about the future outcome of the positions.

******************************************************************
COMS - 3Com  $6.24   *** Upbeat Outlook! ***

3Com (NASDAQ:COMS) is a provider of unique networking products
and solutions.  3Com specializes in products and services that
provide straightforward solutions to networking challenges,
particularly in the areas of broadband connections, wireless
network access, and Internet Protocol telephony.  The company
serves three primary customer markets: commercial enterprises
with small- to mid-sized locations, consumers, and carriers and
network service providers.  The company's commercial products
include traditional access products, advanced access products,
Local Area Network (LAN)/Wide Area Network infrastructure
products, LAN telephony products, and services.  The company's
consumer products include broadband connections, networking
products and Internet appliances.  3coms's carrier products
include enhanced data services and new technologies.

Shares of 3Com soared last week after the company posted a
narrower-than-expected quarterly loss amid modest revenue
growth and said it remains "on track or ahead of plan in
nearly all parts of its turnaround."  The networking-equipment
maker reported a fiscal second-quarter loss of $47.1 million,
or $0.14 per share, compared with $51.2 million, or $0.15 per
share, in the same period a year ago.  Analysts were upbeat
about the announcement, as they had expected a loss of $0.22
per share for the period.  In addition, they made positive
comments about 3Com's gross margins, which were $133 million
or 33.8%, an increase of $70 million from last quarter.

Investors appear to agree with the optimistic outlook as the
stock has moved up 25% during the past week.  Technically, the
issue appears to be successfully completing a basing phase and
we expect the company's share value to benefit significantly
from the next technology rally.  Target a smaller debit (or a
credit) in the play initially, to allow for a consolidation in
the underlying issue.

PLAY (speculative - bullish/synthetic position):

BUY  CALL  APR-7.50  THQ-DU  OI=3377  A=$0.55
SELL PUT   APR-5.00  THQ-PA  OI=1182  B=$0.35
INITIAL NET DEBIT TARGET=$0.00-$0.10  TARGET PROFIT=$0.75-$0.90

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $170 per contract.


******************************************************************
AWRE - Aware  $8.50  *** Rally Mode! ***

Aware (NASDAQ:AWRE) provides Digital Subscriber Line technology
to semiconductor and equipment companies that make products to
enable simultaneous high-speed data and voice transmissions over
copper telephone lines.  The company's many offerings include:
Full-rate ADSL technology; G.lite technology; Voice enabled DSL
technology; Dr. DSL technology; and DMTflex technology.  The
company also sells software-based compression products: WSQ by
Aware, NistPack by Aware, CJIS Web, JPEG 2000 Codec by Aware,
MotionWavelets Video, and SeisPact.

Aware has been "on the move" in recent sessions amid speculation
that Intel (NASDAQ:INTC) is preparing to rollout a new line of
DSL chipsets.  Intel is among AWRE's larger technology customers
and the potential revenue from the company's future development
of DSL chips could be substantial.  In addition, the fundamental
outlook for the company is improving and contracts with ADI,
Infineon and Samsung are expected to bolster Aware's bottom-line
in the coming quarters.  For investors who are bullish on the
issue, this position offers a reasonable expectation of profit
at the risk of owning the issue at a conservative cost basis.
Target a smaller debit (or a credit) in the play initially, to
allow for a consolidation in the underlying issue.

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  APR-10.00  WUQ-DB  OI=52  A=$1.15
SELL PUT   APR-7.50   WUQ-PU  OI=50  B=$1.00
INITIAL NET CREDIT TARGET=$0.05-$0.10  TARGET PROFIT=$0.70-$0.90

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $340 per contract.


******************************************************************
SPWX - SpeechWorks  $10.99  *** On The Move! ***

SpeechWorks International (NASDAQ:SPWX) is a provider of 
software products and professional services that enable
enterprises, communications carriers and voice portals to
offer automated, speech-activated services over any telephone.
The company offers two speech recognition solutions for over-
the-telephone applications, the SpeechWorks 6.5 platform and
the SpeechSite package.  SpeechWorks offers two text-to-speech 
products, Speechify and SpeechWorks ETI-Eloquence.  Finally,
the company offers a speaker verification solution, called 
SpeechSecure, which authenticates callers by their unique 
voiceprint.  SpeechWorks complements its products with a 
professional services organization that offers a range of 
services, including application development and project 
management.

The Covered-calls editor contributed this issue and based on
his assessment of the recent bullish technical indications,
this position offers a favorable method to participate in the
future movement of SPWX's share value with relatively low risk.

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  JAN-12.50  USP-AV  OI=50  A=$0.85
SELL PUT   JAN-10.00  USP-MB  OI=28  B=$0.70
INITIAL NET CREDIT TARGET=$0.05-$0.10  TARGET PROFIT=$0.50-$0.60

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $415 per contract.


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

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

******************************************************************
ADRX - Andrx  $69.75  *** Trading Range! ***

Andrx (NASDAQ:ADRX) formulates and commercializes a range of
controlled-release oral pharmaceuticals using its proprietary
drug delivery technologies.  Andrx markets and sells Cartia XT
and Diltia XT, its generic or bioequivalent versions of Cardizem
CD and Dilacor XR.  Andrx utilizes its proprietary drug delivery
technologies and formulation skills to develop bioequivalent
versions of selected controlled-release pharmaceuticals; and
brand name controlled-release formulations of immediate-release
or controlled-release drugs.  Andrx is developing bioequivalent
versions of specialty or niche pharmaceutical products.  Through
its distribution operations, Andrx primarily sells bioequivalent
drugs manufactured by third parties to independent pharmacies,
pharmacy chains which do not maintain warehousing facilities,
pharmacy buying groups and physicians' offices.

Andrx has been a popular issue in the "premium-selling" category
of options trading but this week, the issue has moved into the
credit-spreads section.  For a technical viewpoint, the issue is
comfortably entrenched in a 6-month trading range and unless a
significant change (review the ongoing patent litigation over
Omeprazole, a generic form of the heartburn/ulcer pill Prilosec)
in the company's outlook occurs, there is little reason to think
the trend will be altered significantly in the coming month.
  
PLAY (conservative - bearish/credit spread):

BUY  CALL  JAN-85  QAX-AQ  OI=683  A=$0.50
SELL CALL  JAN-80  QAX-AP  OI=436  B=$1.05
INITIAL NET CREDIT TARGET=$0.60-$0.65  PROFIT(max)=14%


******************************************************************
KLAC - KLA Tencor  $50.03  *** Sector Slump! ***

KLA-Tencor (NASDAQ:KLAC) is a supplier of process control and
yield management solutions for the semiconductor and related
microelectronics industries.  The company's large portfolio
of products, software, analysis, services and expertise is
designed to help integrated circuit manufacturers manage yield
throughout the entire wafer fabrication process, from research
and development to final mass production yield analysis.  The
company offers a broad spectrum of products and services that
are used by every major semiconductor manufacturer in the world.
These customers turn to the company for in-line wafer defect
monitoring; reticle and photomask defect inspection; CD SEM
metrology; wafer overlay; film and surface measurement; and
overall yield and fab-wide data analysis.

Computer hardware and semiconductor stocks retreated last week
amid gloomy economic data and a less than optimistic forecast
for the chip industry recovery.  The bearish activity began on
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.
Wednesday's news was no better as a Dataquest report showed that
semiconductor revenues fell 33% this year, the worst industry
decline in history.  The unfavorable news was a catalyst for
profit-taking in the semiconductor group and traders who agree
with a neutral-to-bearish outlook for the chip sector in the
near-term can profit from that outcome with this conservative
combination position.

PLAY (conservative - bearish/credit spread):

BUY  CALL  JAN-65  CKV-AM  OI=1097  A=$0.25
SELL CALL  JAN-60  KCQ-AL  OI=3491  B=$0.75
INITIAL NET CREDIT TARGET=$0.60-$0.65  PROFIT(max)=14%


******************************************************************
                   - STRADDLES AND STRANGLES -
******************************************************************
SMTC - Semtech  $36.05  *** Premium Selling! ***

Semtech (NASDAQ:SMTC) is a supplier of analog and mixed-signal
semiconductors.  Semtech designs, manufactures and markets a
wide range of products for commercial applications, most of
which are sold to the communications, industrial and computer
markets.  The company's semiconductors enable power management,
test, protection and a range of other functions in products
that require analog or mixed-signal processing.  The company's
end customers are primarily original equipment manufacturers
that produce and sell electronics.

Semtech shares slumped last week in sympathy with the sell-off
in semiconductor stocks.  The volatility quickly inflated the
front-month option prices and the downside bias has provided an
opportunity to sell "out-of-the-money" premium for credit to
establish a discounted cost basis in the issue.  The stock has
solid support at $25-$26 however, if it falls below the profit
envelope, we will consider a bearish adjustment in the position.
If the issue climbs above the current resistance area near $42,
we will buy the stock to cover the sold (short) call.  As with
any trading recommendation, the position should be evaluated
for portfolio suitability and reviewed with regard to your
strategic approach and investing style.
 
PLAY (aggressive - neutral/credit strangle):

SELL CALL  JAN-45.00  QTU-AI  OI=207  B=$0.45
SELL PUT   JAN-27.50  QTU-MS  OI=0    B=$0.45
INITIAL NET CREDIT TARGET=$0.90-$1.00 PROFIT(max)=11%
UPSIDE B/E=$45.90 DOWNSIDE B/E=$26.60


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


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