Option Investor
Newsletter

Daily Newsletter, Wednesday, 12/26/2001

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The Option Investor Newsletter                Wednesday 12-26-2001
Copyright 2001, All rights reserved.                        1 of 1
Redistribution in any form strictly prohibited.


Posted online for subscribers at http://www.OptionInvestor.com
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MARKET WRAP  (view in courier font for table alignment)
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      12-26-2001          High     Low     Volume Advance/Decline
DJIA    10088.14 + 52.80 10169.09 10034.93  801 K     2066/1074	
NASDAQ   1960.70 + 16.22  1983.84  1948.77 1.11 bln   2183/1494
S&P 100   587.50 +  2.31   592.84   585.19   Totals   4249/2568
S&P 500  1149.37 +  4.72  1159.18  1144.65
RUS 2000  490.19 +  4.38   490.60   485.76
DJ TRANS 2630.22 + 24.65  2632.24  2602.44
VIX        22.93 -  0.28    24.56    22.38
VXN        49.06 -  0.38    49.61    48.79
TRIN        0.93
Put/Call    0.54
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Holiday Cheers and Jeers

Post-holiday emotion and a rally in retail pushed the major
averages higher early Wednesday.  But a late-day report of a new
bin Laden video appearance quickly reversed sentiment.

Stocks shot higher at the open due in part to the retail sector.
UBS Warburg's weekly chain store sales index roes by 2.9 percent
during the week ended December 22.  The index is compiled using
major discount, department, and chain stores including J.C.
Penney (NYSE:JCP), Sears (NYSE:S), Target (NYSE:TGT), Kmart
(NYSE:KM), Wal-Mart (NYSE:WMT), Federated (NYSE:FD), and May
Department Stores (NYSE:MAY).  Separately, the Redbook Retail
Sales Average showed a less-then-expected decline during the
first three weeks of December.

The heavyweight in the group, Wal-Mart, confirmed the upside
surprise in retail sales.  The world's largest retailer reported
that bullish business in the days before the holiday carried
December sales figures to the upper-end of previous forecasts.
Wal-Mart said that it expected same-store sales to reach 6
percent during the period.  Other discount retailers, such as
Target, reported similar bullish sales figures, which reinforced
the recent trend of consumers shunning high-priced department
stores for the better values offered by major discount shops.
For instance, Federated, parent of Macy's and Bloomingdale's,
reiterated on Monday that it expected a decline in sales during
the month.

The consumer's search for bargains played into the strength in
the e-tailers Wednesday.  Amazon (NASDAQ:AMZN) gained nearly
13 percent after an analyst said that holiday-related traffic
to the company's site continued to show signs of strength.
Yahoo (NASDAQ:YHOO) echoed the AMZN analyst's comments when
the Web portal said that its sales volumes increased by about
86 percent over last year's figures.  Shares of Yahoo finished
5 percent higher.  eBay (NASDAQ:EBAY), another Internet/retail
hybrid, traded well, tacking on $2.53, or about four percent.
Although not components of the sector, the e-tailers added
bullish sentiment to the broader group.  The S&P Retail Sector
Index (RLX) finished 0.86 percent higher.  Wal-Mart contributed
to the strength in the index with its $1.02 gain.

The RLX finished off of its day high, which was traced at 932.
However, Wednesday's intraday high was about five points away
from the RLX's 52-week high at 937.  Interestingly, the RLX has
rallied up to and subsequently rolled over from the 937 area on
four separate occasions this year.  The RLX has come a long way
from its September 21 low at 670 -- 38 percent in three months!
It therefore may be due for a period of consolidation near its
52-week high.  Of course, the RLX could breakout to new highs.  In
either case, the RLX offers important insight into the consumer,
who has kept the economy afloat during the downturn.  I think
a breakout would be a bullish development and bode well for the
health of the economy and market.  I'm not necessarily suggesting
that a breakout should be bought.  Rather, a breakout in the RLX
could be incorporated into a bullish thesis for the market and
economy as a whole.  And a breakout, from where I sit, would occur
with an advance past 940.



The averages were drifting sideways into the final hour of trading
Wednesday when a new videotape of bin Laden aired on Al-Jazeera
TV.  Although bin Laden looked tired and weary, his mere appearance
was blamed for the late-day rollover in the averages.  The S&P 500
(SPX) shed about seven points in the hour following the release of
the tape.  Apparently there had been a bin Laden "neutralization"
premium built into the tape.  Or, bin Laden's appearance was simply
a reason to book profits Wednesday afternoon.  Whatever the reason,
the price action in the final hour of trading Wednesday was seriously
negative.  However, volume was very light.  With minimal liquidity
and a lot of participants sitting the week out, it's difficult to
read into the late-day sell-off too much.

The SPX is still between key support and resistance levels.  The
average is well above the 1135 support level that Jim highlighted
over the weekend, which is reinforced by the 10-dma currently at
1138.  Meanwhile, the 200-dma continues to lurk above current
levels.  The 200-dma now sits at the 1167 level.  The SPX's day
high Wednesday was set at 1159.  A breakout above the 200-dma could
spark another round of buying and the next leg higher in the
broader market, while a breakdown could portend weakness over the
short-term.  The catalyst to spark either move is the unknown
variable.  Remember that Q4 earnings season is around the corner.



There's an interesting dynamic developing in the energy sector
which could play into the strength and duration of the recovery
in the market and economy.  The cost of energy has been extremely
low for the better part of this year due to the slowdown in demand
obviously, but also because of the big build out in the last two
years.  The overcapacity in the energy space has kept the price of
crude and natural gas relatively low, which has in turn kept
inflation in check and put more money into the pockets of those who
consume energy: businesses and consumers.  But the trend of low
energy prices may reverse.

Crude oil rallied back above $21 a barrel Wednesday in anticipation
of another 1.5 million barrel per day production cut by OPEC.  The
cartel is scheduled to meet Friday, when it's expected to make an
official announcement.  The market has all but discounted another
cut, which was reflected in a rise in gasoline and natural gas
prices.  The cold weather hitting the Eastern United States also
added to the rally in energy.

While a rally in energy prices isn't the best development for the
economy and consumers, it certainly helps the energy segment of
the market.  Specifically, the PHLX Oil Service Sector Index (OSX).
It was the best performing sector Wednesday with a 3.78 percent
gain.  The OSX was beaten up earlier this year during the big slide
in energy prices but appears to have put in a bottom in the last
four months.  The OSX flirted with a breakout above 90 Wednesday --
it missed a breakout by 0.15 points.  The 90 level is a triple-top in
the OSX and a breakout above that level could have the index set-up
for an advance to its next resistance at 96 over the coming weeks.
A six point move in the OSX is big and could lead to a substantial
move in one of the stronger components of the sector.

Similar to the RLX profile, I'm not suggesting buying a breakout in
the OSX at current levels.  The index seems to have already
discounted the production cut by OPEC this Friday and could sell-off
on the news.  However, if the recent rebound in energy prices
continues, there's more upside potential in the OSX.  It's only a
matter of finding a favorable entry point, such as a pullback in
one of the strongest stocks in the group, such as BJ Services
(NYSE:BJS) or Noble Drilling (NYSE:NE).  Both stocks gained more
than five percent Wednesday.



The rise in the OSX Wednesday didn't necessarily indicate a return
of inflation.  The PHLX Gold and Silver Sector Index (XAU) finished
lower for the day.  If oil, retail, AND gold would've traded higher
Wednesday, then I'd be more worried about inflation.  But the lack
of participation by the XAU told me that inflation will remain in
check for the time being.

The bullish prognosis from the retail sales reports was definitely
a positive for this market and economy.  It was very encouraging to
hear that the consumer is alive and well.  We'll find out more
about the current state of the consumer in the coming days.  New
and existing home sales are scheduled for release Friday morning
in conjunction with the Conference Board's release of its December
consumer confidence index.  Economists expect new home sales to
have remained at a high of 880,000 annual sales during the month of
November.  Existing home sales are expected to slip to 5.12 million
annual sales.  Consumer confidence is expected to have slightly
risen during December to 82.7 from November's reading of 82.2.

Positive economic data could keep this week's positive trend intact
and carry stocks slightly higher into the New Year.

Eric Utley
Option Investor


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*****************
STOP-LOSS UPDATES
*****************

EMMS - call
Adjust from $18.50 up to $20.50

ESRX - call
Adjust from $44.50 up to $45

MDT  - call
Adjust from $48.00 up to $49.25

NVDA - call
Adjust from $59.50 up to $63

SLAB - call
Adjust from $31.50 up to $36

SYMC - call
Adjust from $60.00 up to $61.75

VRTS - call
Adjust from $41.00 up to $41.50

XMSR - call
Adjust from $15.99 up to $16.70

ERTS - put
Adjust from $62.52 down to $61.50

FLIR - put
Adjust from $43.00 down to $42.00

QCOM - put
Adjust from $54.00 down to $53.50

WEBX - put
Adjust from $27.51 down to $27.25


*************
DROPPED CALLS
*************

No Dropped Calls for Wednesday.


************
DROPPED PUTS
************

BBOX $54.19 +1.15 (+1.11) BBOX continued higher today, above
its converged 10- and 200-dmas.  The stock's pop higher was
most likely due to the early strength in the broader tech
sector, which may have induced some short covering above the
aforementioned moving averages.  Volume was extremely light
during today's 2% move, which could lead to a rollover in a
weak tech sector tomorrow.  In light of the stop violation,
we're dropping coverage this evening.


**************
TRADERS CORNER
**************

Emotion Trumps Logic
By Mark Phillips

To be a successful investor, it is necessary to have a
fundamental understanding of the philosophy that drives the
stock market. The mass psychology of human nature is the biggest
single factor you must comprehend if you expect to trade
profitably on a consistent basis. This emotional and
psychological ingredient doesn't necessarily have anything to
do with the state of the economy, but it does have an
overwhelming affect on the movement of the market.

The first unwritten rule is that rumors are the prime movers of
the stock market. It's amazing how quickly speculation of
upcoming events can change the character of the current trend.
When investors and analysts begin to discuss bearish trends, the
market generally reacts negatively because the public believes
it is destined for a downturn.  Similarly, we have recently seen
the slightest hint of an economic uptick launch many Technology
related stocks on 200-300% rallies since the September 11th
attacks.  Is that logic at work?  I think not.

Serious mention of inflation can cause investors to rush for the
exits in order to dump their holdings.  This type of activity
will often precipitate a general market decline long before the
economy actually changes into that state or condition. The market
anticipates the movement of the economy and shows us in advance
what we can expect with regard to corporate health, unemployment,
interest rates and other financial trends. It is also said that
a crash in the market is foretold by events that are mostly
psychological, not economic.  Sure enough, the euphoria that
preceded the current bear market would have led any new investor
to expect the markets to rise to the sky.  Why didn't they?
Because an extreme emotion cannot be sustained by either an
individual or a group of individuals.  Once that euphoric mood
had affected all those involved, it was bound to dissipate.  As
it began to diminish, investors became increasingly aware of the
lunacy in which they had participated, and each wave of selling
generated more selling.  This created waves like those that
emanate out from a stone dropped in a lake, affecting all those
in the water.

When a major financial report is rumored as favorable, the
market erupts far in advance of the actual announcement.
Rumblings of interest rate reductions can have the same effect
as rocket fuel - it provides a quick boost until investors come
to their senses and realize the folly of their just-completed
buying frenzy.  Once the initial surge and consolidation has run
its course though, investors will step back and evaluate the
situation in a more rational manner.  They are still ruled by
their emotions, but at least they are not completely blinded by
them.  If they believe the economy is about to turn upwards, and
more importantly, that other investors believe the same thing,
they will trample one another in their rush to buy equities.
This in turn leads to increasing equity prices, fueled by more
investors coming off the sidelines, their greed overwhelming
their fears, as the markets move into rally mode.  Emotion
taking precedence over logic.

This all happens before the first signs of true economic
recovery.  The recovery in equity prices will begin 1-2 quarters
before the signs of recovery can be seen in the economy.
Investors know this, and not wanting to be left behind when the
market takes off again, many will follow the emotion of greed and
jump into the markets prematurely, only to be justly punished for
their over-exuberance.  Buying the dips on the way down has
decimated many an investors account, and the psychological
beating inflicted by watching the losses mount, conspires to
make investors afraid to get into the market even when all the
signs are positive.  Emotion rules again.

After having been flattened by the freight train known as a bear
market, many investors will be paralyzed by fear, unable to step
back onto the tracks, even though they can see that the train
has passed.  Afterall, the last time they stepped into the
markets (following the crowd at the last market peak or trying to
buy the dips on the way down), they got flattened.  Just because
this train has passed, doesn't mean there isn't another one
speeding down the track right at that moment.  Not wanting to
repeat that painful experience, they stand on the sidelines,
waiting for the next major pullback to give them the "thumbs up"
signal to jump in with both feet.  Alas, it never seems to look
quite good enough to overcome their fear.  With each pullback
that results in markets running higher, a bit of that fear
dissipates, until they finally have enough courage to overcome
their fear.  Sound familiar?

Let's look at the typical cycle of hope to exuberance to despair,
in order to learn something about how human psychology fits into
the movement of the markets.  After a significant market decline,
all but the most adventurous investors are afraid to venture back
in.  They have had one position after another go bad and have
begun to question their own abilities.  As the bolder investors
venture into the markets near the bottom, the recovery begins
slowly, gradually attracting more players from the sidelines.
Despair begins to give way to hope, as those that were beaten up
by the market on its way down, timidly venture back into the
fray.  The cycle begins to feed on itself with increased buying
volume attracting more buyers, which in turn creates more buying
volume, driving prices higher and attracting more buyers.  At the
same time, broad investor sentiment moves from despair to hope
to enthusiasm.  This phase of the market growth cycle is
entirely healthy, but the next step is dangerous.

Investors see everything go up on a weekly basis, and their
enthusiasm gives way to unbridled exuberance.  Everyone is an
equity investor now, buying stocks with abandon and without any
consideration of whether the inflated prices are warranted.
Voices of caution can be heard in the mainstream media, but the
crowd drowns them out, as they believe new market highs will
continue forever, punctuated by brief dips that offer new entry
points.  When investors' emotions have become uniformly bullish,
and they consistently ignore signs of slowing economic growth, we
know the end is near.  If every investor is long the market, who
is left to bid prices still higher?  The first few to jump ship
are ignored by the majority, who "know" that the law of gravity
has been repealed, and that prices will go up indefinitely,
punctuated by brief, inconsequential dips.

Emotions have driven the markets too high, and the inevitable
correction will have the impact of yelling fire in a crowded
theatre.  People can't get out fast enough, and many are trampled
in the panicky process.  The market decline will be met first
with surprise, then disappointment, as investors see support
levels give way to selling pressure in the midst of signs of
slowing economic growth.  That disappointment will give way to
despair as investors who have held onto "invincible" stocks,
watch them crumble to prices they thought would never be seen
again.  This despair feeds on itself and the bulk of investors
become myopic, able only to see gloom and doom around every
corner.  When every one is lined up in the bearish camp, that is
where the seeds of a market recovery are sown.  Hope begins to
emerge in select areas, and the cycle repeats itself.

Once again, emotion trumps logic.  But there is the seed of
opportunity for sharp-eyed investors.  If you can perform your
analysis devoid of human emotion, then you know that your
decisions are based on logic.  Selecting stocks that should lead
an economic recovery is only the first step.  The next, and
perhaps more important step is to identify what I call the
"Pinnacle of Fear" in the market.  This is the confluence of
events that has driven all but the strongest hands out of
equities, allowing those of us with vision to step forward and
scoop up bargains at nearly every turn.  It sounds so easy and
is likely one of the hardest things to practice, because it means
that you have to step forward and hit the "Buy" button when all
those around you are screaming that the sky is falling.

Separating your logical market analysis from the emotions present
in the daily gyrations of the market is one of the most difficult
(and important) tasks that will face an investor.  It is a long
process and requires much work (heck, I'm still working on it!),
but the rewards far exceed the price because it allows you to
know that your actions are based on the bedrock of solid
knowledge, not the shifting sands of group psychology.  A key to
this process on a daily and weekly basis is to perform your
research and analysis when the markets are closed, with the
evidence upon which you will base your decision sitting before
you in black and white.  Whether that evidence is fundamental or
technical (depending on your individual preference), if we each
take responsibility for our own analysis, and do it in the
absence of real-time market noise, we are far less apt to make
rash decisions with our investment capital.

So emotion trumps logic over the near term.  But here's where
the rubber meets the road.  Over the long term, logic will win,
meaning that the markets will rise so long as earnings are
growing, and fall if earnings are falling.  But if you can stand
aside from the emotional masses without having your
decision-making process affected by them, it will allow you to
buy near the emotional troughs (extreme depression) and sell
near the emotional peaks (extreme optimism), supercharging your
investment results over a lifetime in the markets.  And that
will produce the most-desired emotion (feeling) of which I am
aware -- Security.

Happy Holidays!


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**********************
PLAY OF THE DAY - CALL
**********************

NVDA - NVIDIA Corporation $67.81 +1.62 (+3.23 this 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.

Most Recent Update

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.

Comments

NVDA traded today like it wanted to trace a new 52-week high
by the end of the year.  The stock held onto the majority of
its gains and continued to outpace the SOX.X.  Look for the
chip sector to trade higher again tomorrow and watch for NVDA
to break above its high today at $68.94.

BUY CALL JAN-65 RVU-AM OI=3421 at $6.20 SL=4.00
BUY CALL JAN-67*RVU-AC OI=1399 at $4.70 SL=3.50
BUY CALL JAN-70 RVU-AN OI=3108 at $3.50 SL=2.50
BUY CALL MAR-70 RVU-CN OI=1350 at $8.20 SL=6.75

Average Daily Volume = 9.44 mln



*****************************************
BIG CAP COVERED CALLS & NAKED PUT SECTION
*****************************************

Investing 101: Back To The Basics In 2002!
By Ray Cummins

One of our new subscribers requested some guidelines for buying
and selling stocks in the current market environment.

When professional traders discuss common traits, you will often
hear how important it is to understand the elements of technical
analysis and basic market timing.  At the same time, many of the
older investors are more comfortable with fundamental analysis.
That is the process where one attempts to forecast the future
profits of a company by analyzing their market share, revenue,
pricing structure, and other components regarding the operation
of the company's business.  Most of the positions that we offer
are of a short-term nature and thus we favor technical analysis
as the primary means for stock selection.  The study of pricing
trends and chart patterns has nothing at all to do with the daily
operations of the company.  Instead, technical analysis of price
patterns is a technique used to predict the future direction and
magnitude of a stock’s movement.  Although each style is often
viewed as less than adequate by the opposing group, there is an
inherent value in both methods and either system can produce
favorable results.

Technical analysis is generally more suitable to markets with
extreme volatility and unusual conditions, since it offers the
best method for timing entries and exits.  Unfortunately, new
investors are so overwhelmed by the incredible number of chart
patterns and indicators, they overlook the most common rule for
consistent profits; buy low and sell high!  Fundamental analysis
provides an accurate picture of the long-range outlook, but it is
miserably late in predicting the actual movement of stock prices.
However, analyzing the value of a company can help to forecast
potential profits (or losses) and in the end, earnings usually
determine share value.  Quarterly reports will also affect the
short-term outlook for a stock and the most significant changes
occur when a company reports earnings that are different from the
analysts’ consensus estimates.  As we have seen in recent weeks,
even a "met expectations" earnings report will inevitably cause
a company's share value to fall as soon as the information become
public news.  When this happens, brokerages are often first to
change their opinions on the company, downgrading the issue and
causing further damage to the stock price.  This is one of the
best occasions when fundamental analysis might be helpful in a
short-term trading scenario.

The dilemma facing many investors is simple; they want to own
good stocks but yet they are afraid to buy amid bearish market
conditions.  The key to success is to become proficient with
the various types of stock analysis and use the one that best
suits your skill level, risk tolerance and portfolio outlook.
While strategy is important, it is also imperative to approach
investment activities with the right attitude and expectations.
Trying to achieve too much from a portfolio can put the account
in the red quickly (greed can lead to terrible decisions), and
accepting returns that barely surpass current inflation rates
will prevent a portfolio from growing.  While most investors who
make the effort to learn about the stock market are not satisfied
to achieve the same return as the Dow or the S&P 500, others will
actively seek mediocrity.  Just look at the number of index funds
that are sold to investors who then are relegated to losing what
the market loses and gaining no more than what the market gains.
So how do you determine a reasonable expectation?  Most investors
who participate in historically profitable strategies will easily
average 15%-20% return on an annual basis.  In the long-term, 10%
a year is the typical return for broad market stocks in general.
Of course, you must decide what rate of return (and corresponding
risk level) is appropriate for your personal portfolio.

Here are just a few of the most common guidelines that may help
you avoid the pitfalls of stock ownership.  While we can't take
credit for these rules (many are as old as the market itself),
it's important to use this knowledge to improve your success in
this vicious game that is the stock market.


Before opening any position:

Check the overall market indicators for direction.  Analyze the
sector and industry in which your issue resides.  Study the
performance of similar groups and make sure it coincides with
your outlook.  Choose only those stocks with the most favorable
technical formations.  Once you have a candidate in mind, do your
homework!  Know the company and the calendar; upcoming events,
earnings dates, and scheduled announcements.


Before entering an order:

Double-check the chart!  Make sure you are absolutely ready to
own the issue at the target price.  Don't buy a stock that's in a
downtrend (Stage IV) and never open a position right after good
news, especially if the chart shows a significant advance prior to
the announcement.  Never buy a stock just because it appears cheap
after a big sell-off.  Always use simple, proven techniques and
develop target prices for potential plays.  Take the human factor
out of trading by using LIMIT orders to open your positions.  When
news or events change the character of the underlying issue, make
the necessary adjustments.


After you have established the position:

The #1 rule: Know your exit and use a mental or mechanical stop.
Stay informed by monitoring all the news and announcements
affecting your position.  Never hold a stock in an established
downtrend no matter how fundamentally sound the company appears
to be.  Hope is an expensive emotion!


Closing the position:

Determining when to exit a play is a matter of personal preference
and you are the only one who can decide how you will trade.  The
best advice is, be consistent!  If you find that you're frequently
buying and selling in similar situations, something is wrong with
your system.  There are a number of proven techniques for managing
portfolio positions, and maximizing gains while limiting losses is
an important aspect of successful investing.  The most difficult
lesson is learning to close losing positions.  It can be painful
but the simple fact is: There is no reason to hang on to a losing
position when there are so many other profitable positions that
deserve your time and money.  Accept your losses, learn from your
mistakes (evaluate each one critically) and move on!

Good Luck!


Summary of Current Positions (as of 12/25/01):


Covered Calls: (Margin not used in calculations)

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

VRTS    JAN     40   37.42   44.63   2.58    5.7%
NBIX    JAN     45   43.35   53.46   1.65    3.9%
ACF     JAN     30   27.65   29.70   2.05    7.5%


Naked Puts:

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

NVDA    JAN     50   48.95   66.19   1.05    6.2%
VRTS    JAN     35   43.80   44.63   1.20    9.8%
EMLX    JAN     27.5 26.80   39.12   0.70    6.5%
IGEN    JAN     25   24.50   39.28   0.50    6.1%
GENZ    JAN     55   53.90   59.26   1.10    5.7%
NBIX    JAN     40   39.45   53.46   0.55    5.1%
ACF     JAN     25   24.35   29.70   0.65    8.8%


Naked Calls:

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

ICOS    JAN    65    65.95   60.71   0.95     5.1%
IMCL    JAN    75    75.95   62.80   0.95     7.3%
ADI     JAN    55    55.55   43.10   0.55     5.8%


Credit Spreads:

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

ADSK   39.39    37.94  JAN30P/35P   0.50   34.50   0.50   Open
KBH    40.48    39.63  JAN30P/35P   0.55   34.45   0.55   Open
MCHP   40.33    37.34  JAN30P/35P   0.75   34.25   0.75   Open
LXK    57.37    58.70  JAN45P/50P   0.50   49.50   0.50   Open


New Candidates:

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.  (We monitor the positions marked with ***).

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

BULLISH PLAYS - Naked Puts

Today's group of "naked" put candidates include some of the most
popular long-term portfolio issues in the technology segment.
These quality companies are leaders in their respective industry
groups and based on technical and fundamental analysis, they offer
above-average upside potential in the coming months.  As with any
recommendations, these positions should be carefully evaluated for
portfolio suitability and reviewed with regard to your strategic
approach and personal trading style.

***************
EBAY - eBay  $66.34  *** On The Move Again! ***

eBay (NASDAQ:EBAY) is a United States-based dynamic pricing online
trading platform.  eBay developed a Web-based community in which
buyers and sellers are brought together in an efficient format to
buy and sell items, such as collectibles, automobiles, high-end or
premium art items, jewelry, consumer electronics and a host of
practical and miscellaneous items.  The eBay auction-style format
permits sellers to list items for sale, buyers to bid on items of
interest and all eBay users to browse through listed items.  eBay's
service is fully automated, topically arranged and easy to use.
Through its wholly owned and partially owned subsidiaries and
affiliates, the company operates trading platforms in the United
States, Germany, the United Kingdom, Australia, Japan, Canada,
France, Austria, Italy and South Korea.  eBay expects to expand its
online trading to include Spain, the Netherlands, Belgium, Portugal,
Sweden and Brazil.

Shares of EBAY shined today in the wake of festive news that sales
for the leading online retailers were turning out to be better than
expected.  Yahoo! (NASDAQ:YHOO) was the primary catalyst for the
upside activity in the group, boasting an 86% jump in sales between
11/23 and 12/24, versus the same period in 2000.  The media giant
said Yahoo Shopping users spent $10 billion on products sold online,
generating a wave of optimism among other Internet retailers.  From
a technical viewpoint, EBAY is in the process of recovering from a
recent bout of profit-taking and based on today's upside movement,
it may be time to consider a new bullish position in the issue.
The stock is certainly an excellent candidate for any long-term
portfolio and these positions offer favorable reward potential at
the risk of owning this unique company at a discounted cost basis.

EBAY - eBay  $66.34

PLAY (sell naked put):

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

SELL PUT  JAN 50   QXB MJ  3,516     0.5     49.50      4.8%
SELL PUT  JAN 55   QXB MK  5,320     0.9     54.10      7.4% ***
SELL PUT  JAN 60   QXB ML  6,052     1.75    58.25      10.5%


***************
EMLX - Emulex  $40.50  *** Data Storage - Networking Giant! ***

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.  Their products have been selected by the world's top
server and storage providers, including EMC, Fujitsu-Siemens,
Dell, Compaq, Hewlett-Packard, Hitachi Data Systems, IBM, NEC,
Network Appliance and Unisys.  In addition, Emulex includes a
number of technology industry leaders such as Brocade, INRANGE,
Intel, Legato, McDATA, Microsoft, and Veritas among its current
strategic partners.  From our perspective, Emulex is simply an
"old favorite" that has finally begun to recover from the recent
market-wide slump and it is definitely an issue we would like to
have in our long-term stock portfolio.  These positions allow
investors to establish a discounted cost basis in the issue.

EMLX - Emulex  $40.50

PLAY (sell naked put):

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

SELL PUT  JAN 27.5 UMQ MY  308       0.30    27.20       4.7%
SELL PUT  JAN 30   UMQ MF  1,335     0.60    29.40       9.1% ***
SELL PUT  JAN 35   UMQ MG  1,880     1.70    33.30      18.1%


***************
NVDA - Nvidia  $67.81  *** Video Games Need Graphics! ***

Nvidia (NASDAQ:NVDA) designs, develops and markets unique graphics
processors and related software for personal computers and digital
entertainment platforms.  Nvidia provides a "top-to-bottom" family
of performance graphics processors and graphics processing units
that has set the standard for performance, quality and features
for a broad range of desktop PCs, from professional workstations
to low-cost PCs, and mobile PCs, to performance laptops.

Nvidia is one of the top companies in the Specialty Semiconductor
group and among our readers, it is also a popular portfolio issue.
The fundamental outlook for the company is excellent and the chip
sector will likely be a top performer in the broader market in the
coming year; both factors that lead us to a bullish position in the
issue.  In addition, NVDA closed very near to a new all-time high
today and the long-term technical trend is very favorable.  The
premiums in these options provide excellent reward potential at
the risk of owning the issue at a favorable cost basis.

NVDA - Nvidia  $67.81

PLAY (sell naked put):

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

SELL PUT  JAN 52.5 RVU MT  912       0.45    52.05      4.2%
SELL PUT  JAN 55   RVU MK  1,958     0.75    54.25      6.6% ***
SELL PUT  JAN 57.5 RVU MA  568       1.05    56.45      7.8%
SELL PUT  JAN 60   RVU ML  2,643     1.55    58.45      9.8%


***************
VRTS - Veritas  $45.56  *** "Hot" Software Sector ***

Veritas Software (NASDAQ:VRTS) is a supplier of data availability
software products.  Its unique products are designed to enable
continuous productivity for computing environments ranging from
desktop computers to the large enterprise data center, including
storage area networks.  The company offers a wide range of data
availability software products to manage the growth of available
data and increasing complexity and size of networked environments
that its customers face.  Its products allow businesses to improve
the management of their data, to protect their data and increase
the availability of their data.  Veritas develops products for
operating systems, including versions of UNIX, Windows NT and
Linux.  Its software solutions are used by customers across a wide
range of industries, including many global corporations and other
e-commerce businesses.  The company also provides a full range of
services to assist its customers in planning and implementing
their data availability solutions.

Veritas is recognized as one of the leading independent storage
software companies in the industry and a number of analysts are
bullish on the issue.  Analyst H. Clinton Vaughan of Salomon
Smith Barney recently upped VRTS shares to a "buy" with a price
target of $56, based on several factors.  Vaughan reported that
Veritas' pipeline is very strong and that since the attacks of
9/11, IT managers are focusing spending more on data protection,
data management and data availability, areas where Veritas has
strength.  His expectation is that the company will easily beat
his estimate for per-share earnings of $0.60 in 2002.  That is
certainly a bullish outlook and investors appear to agree with
the assessment.  These positions allow a more conservative entry
point in the issue with a reasonable expectation of profit.

VRTS - Veritas  $45.56

PLAY (sell naked put):

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

SELL PUT  JAN 35   VIV MG  7,745     0.55    34.45       7.5% ***
SELL PUT  JAN 40   VIV MH  16,766    1.35    38.65      12.7%
SELL PUT  JAN 45   VIV MI  2,794     3.20    41.80      20.3%


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

BULLISH PLAYS - Synthetic Positions

***************
DGX - Quest Diagnostics  $71.40  *** Reader's Request! ***

Quest Diagnostics (NASDAQ:DGX) is a provider of testing and other
related services for the healthcare industry.  The company offers
a broad range of clinical laboratory testing services used by
physicians in the detection, diagnosis, evaluation, monitoring
and treatment of diseases and other medical conditions.  Quest is
engaged in clinical laboratory testing and esoteric testing,
including molecular diagnostics, as well as anatomic pathology
services and testing for drugs of abuse.  Quest has a network of
principal laboratories located in approximately 30 metropolitan
areas throughout the United States including several joint-venture
laboratories and a number of smaller rapid-response laboratories
and 1,300 patient service centers.  The company also operates an
esoteric testing laboratory and development facility, known as
Nichols Institute, located in San Juan Capistrano, California, as
well as laboratory facilities in Mexico City, Mexico and near
London, England.

One of our readers asked for some speculative bullish synthetic
positions on large-cap issues and based on the recent performance
of this stock, it easily qualifies for a bullish position.  The
issue has casually moved up and out of a month-long consolidation
area with support at $60 (our cost basis) and current short-term
indications suggest the bullish trend will continue as the stock
nears a test of resistance at $75.  That will be the "key moment"
for DGX in the coming weeks and we will monitor the issue for any
signs of a failed rally near that price.  Current news and market
sentiment will also have an effect on the position, so review the
play thoroughly and make your own decision about its outcome.

DGX - Quest Diagnostics  $71.40

PLAY (conservative - bullish/synthetic position):

BUY  CALL  FEB-85  DGX-BQ  OI=376  A=$0.75
SELL PUT   FEB-60  DGX-MM  OI=240  B=$0.65
INITIAL NET CREDIT TARGET=$0.10-$0.20  TARGET PROFIT=$0.75-$1.25

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $1,795 per contract.


***************
WMT - Wal-Mart  $58.23  *** Bullish Outlook! ***

Wal-Mart Stores (NYSE:WMT) is principally engaged in the operation
of mass merchandising stores.  Wal-Mart discount stores and the
general merchandise area of the Supercenters are organized with
40 departments and offer a wide variety of merchandise, including
apparel for women, girls, men, boys and infants.  Each store also
carries domestics, fabrics and notions, stationery and books,
shoes, housewares, hardware, electronics, home furnishings, small
appliances, automotive accessories, horticulture and accessories,
sporting goods, toys, pet food and accessories, cameras and other
supplies, health and beauty aids, pharmaceuticals and jewelry.
In addition, the stores offer an assortment of grocery merchandise,
with the grocery assortment in Supercenters being broader and
including meat, produce, deli, bakery, dairy, frozen foods and
dry grocery.  At the beginning of 2001, Wal-Mart operated 1,736
Wal-mart discount stores, 888 Supercenters, 475 SAM'S Clubs and
19 Neighborhood Markets.   Internationally, the company operates
units in Argentina (11), Brazil (20), Canada (174), Germany (94),
Korea (6) Mexico (499), Puerto Rico (15) and the United Kingdom
(241), and under joint venture agreements, in China (11).  The
company operates through three segments, the Wal-Mart Stores
segment, the SAM'S Club segment and the International segment.

Wal-Mart shares rallied today after the world's largest retailer
said December sales would be above earlier forecasts as shoppers
searched for holiday bargains in the midst of a slowing economy.
Consumers flocked to the popular discount chain and shunned
high-line department stores and specialty outlets, despite the
anticipated slowdown in retail spending for the entire sector.
Analysts say this could be the worst holiday shopping period in
a decade but officials at Wal-Mart are even optimistic about the
post-Christmas results because the company has limited markdowns
on seasonal merchandise in the wake of favorable sales reports.
The current technical outlook for WMT is very favorable and our
conservative synthetic position offers a way to participate in
the future movement of the issue with relatively low risk.

PLAY (speculative - bullish/synthetic position):

BUY  CALL  JAN-60  WMT-AL  OI=40219  A=$0.70
SELL PUT   JAN-55  WMT-MK  OI=17173  B=$0.60
INITIAL NET CREDIT TARGET=$0.10-$0.20  TARGET PROFIT=$0.55-$0.70

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $2,000 per contract.


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

BULLISH PLAYS - 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.

***************
CMA - Comerica  $56.93  *** Banking Recovery! ***

Comerica (NYSE:CMA) is a multistate financial services provider
formed to acquire the outstanding common stock of Comerica Bank.
The company owns, directly or indirectly, all the outstanding
common stock of seven banking and 35 non-banking subsidiaries.
Comerica has strategically aligned its operations into the three
major lines of the Business Bank, the Individual Bank and the
Investment Bank.  The Business Bank is comprised of middle market
lending, asset-based lending, large corporate banking and also
international financial services.  The Individual Bank includes
consumer lending, consumer deposit gathering, loan origination
and servicing, small business banking (sales under $5 million)
and private banking.  The Investment Bank is responsible for the
marketing of mutual fund and annuity products, as well as life,
disability and long-term care insurance products.

Big banks and financial services companies have under-performed
the broader market in 2001 but in recent months, the group has
started to show some life.  Comerica is one of the leaders in
the banking industry and their solid fundamental outlook reflects
that position.  In early December, Saloman Smith Barney upped its
rating on the bank holding firm to a "BUY," citing good prospects
for the issue in the event of an economic recovery.   The analyst
noted that, "The stock appears to be sufficiently washed out at
its current 20 percent to 25 percent price/earnings discount to
the group, and we believe it offers the highest earnings and
valuation leverage in an economic recovery of the mid cap banks."

We simply favor the recent bullish technical indications and our
conservative position offers a great way to participate in the
future upside movement of the issue with relatively low risk.

CMA - Comerica  $56.93

PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-50  CMA-MJ  OI=1727  A=$0.20
SELL PUT  JAN-55  CMA-MK  OI=296   B=$0.80
INITIAL NET CREDIT TARGET=$0.65-$0.70  PROFIT(max)=15%


***************
DIAN - Dianon Systems  $61.51  *** New All-Time High! ***

Dianon Systems (NASDAQ:DIAN) provides a full line of anatomic
pathology testing services and a number of genetic and clinical
chemistry testing services to patients, physicians and managed
care organizations throughout the United States.  The company's
principal physician audience for these services includes almost
50,000 clinicians engaged in the fields of medical oncology,
urology, dermatology, gynecology and gastroenterology.  Dianon
performs all testing at either its main facility in Stratford,
Connecticut, or at its other facilities in Tampa, Florida; New
City, New York; Woodbury, New York, or Englewood, Colorado.  The
company provides most test results to physicians within 48 hours.

There's not much news on DIAN to explain today's continued rally
but the technical indications suggest the issue has successfully
completed a recent consolidation and is poised for future gains.
Regardless of the reason for the activity, DIAN is established in
a strong bullish trend and those who favor the Health Services
sector can use this position to speculate conservatively on the
future movement of the issue.

DIAN - Dianon Systems  $61.51

PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-50  UID-MJ  OI=20  A=$0.55
SELL PUT  JAN-55  UID-MK  OI=22  B=$1.05
INITIAL NET CREDIT TARGET=$0.60-$0.65  PROFIT(max)=14%


***************
IMPH - Impath  $44.00  *** A Big Day! ***

Impath (NASDAQ:IMPH) focuses on the clinical application of
advanced technologies in the community-based hospital environment
to enable clinicians to make better treatment decisions for their
cancer patients.  The company expanded its focus to harness the
information it was creating from performing analyses on thousands
of cancer specimens annually, and to broaden the future value of
applications from that biological information.  The company has
also completed multiple strategic acquisitions that have provided
new technologies; complementary cancer information; longitudinal
treatment and outcomes data; unique pharmacoeconomic analytical
capabilities, and a tissue/serology archive of well-characterized,
fully documented cancer specimens.  Impath serves the oncology
community through three operating divisions: Physician Services,
IMPATH Predictive Oncology (formerly BioPharmaceutical/Genomics
Services (Biopharma) and Information Services.

Impath is another issue that rallied today despite any public news
to explain the bullish activity.  In this case, the heavy-volume
buying pressure suggests that positive news or another favorable
event is forthcoming and traders who favor the strong upside move
can use this position to speculate conservatively on the company's
future share value.  Target a higher premium initially, to allow
for a brief consolidation in the issue.

IMPH - Impath  $44.00

PLAY (moderately aggressive - bullish/credit spread):

BUY  PUT  JAN-35  QPH-MG  OI=65  A=$0.45
SELL PUT  JAN-40  QPH-MH  OI=18  B=$1.15
INITIAL NET CREDIT TARGET=$0.80-$0.90  PROFIT(max)=18%


***************
SII - Smith International  $55.12  *** Hot Sector! ***

Smith International (NYSE:SII) is a global supplier of products
and services to the oil and gas exploration and the production
industry, the petrochemical industry and its industrial markets.
The company provides a comprehensive line of technologically
advanced products and engineering services, including drilling
and completion fluid systems, solids-control equipment, waste
management services, three-cone and diamond drill bits, fishing
services, drilling tools, under-reamers, casing exit and also
multilateral systems, packers and liner hangers.  The company
offers supply chain management solutions through an extensive
branch network, providing pipe, valves, fittings, mill, safety
and other maintenance products.  The company's operations are
organized into two business segments, Oilfield Products and
Services and Distribution.

Shares of Smith International continued to move higher today in
conjunction with the recent recovery rally in Oil Service sector
issues.  The upside activity in SII shares was also bolstered by
an upgrade from Deutsche Banc Alex. Brown analyst Arvind Sanger,
who initiated coverage of Smith with a "BUY" investment rating
and a 12-month target price of $70.  The bullish trend is well
established with good institutional buying support and the
premiums in the spread help provide a low risk cost basis with
a reasonable expectation of profit.

SII - Smith International  $55.12

PLAY (conservative - bullish/credit spread):

BUY  PUT  SII-MI  OI=550  A=$0.40
SELL PUT  SII-MJ  OI=308  B=$1.05
INITIAL NET CREDIT TARGET=$0.70-$0.75  PROFIT(max)=16%


***************
SUPPLEMENTAL CREDIT-SPREAD CANDIDATES
***************

BULLISH PLAYS:

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

CSGS   41.99  JAN-35P  0.30   JAN-40P   1.05   0.80    18%
APA    53.85  JAN-45P  0.25   JAN-50P   0.80   0.60    14%
IBM   122.40  JA-110P  0.65   JA-115P   1.15   0.55    12%
KKD    44.47  JAN-35P  0.25   JAN-40P   0.70   0.50    11%
UTX    64.55  JAN-55P  0.25   JAN-60P   0.70   0.50    11%


BEARISH PLAYS:

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

BBY    72.87  JAN-85C  0.40   JAN-80C  0.90   0.55     12%
ERTS   59.05  JAN-70C  0.35   JAN-65C  0.80   0.50     11%
EASI   34.19  JAN-45C  0.20   JAN-40C  0.65   0.50     11%
SYMC   65.31  JAN-80C  0.35   JAN-75C  0.80   0.50     11%

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


SEE DISCLAIMER
*****************************


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