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Daily Newsletter, Wednesday, 01/02/2002

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The Option Investor Newsletter                Wednesday 01-02-2002
Copyright 2001, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


***Special Notice***

Today's newsletter includes two new sections, Index Trader
Summary and Game Plans.  The analysts at IndexSkyBox, led by
Austin Passamonte, have combined forces with OptionInvestor to
provide readers with more value than ever before.  Make sure
to check out the new sections, including the Index Trader
Game Plans, in today's newsletter.

Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
      01-02-2002          High     Low     Volume Advance/Decline
DJIA    10073.40 + 51.90 10074.02  9935.70 1.18 bln   1649/1541	
NASDAQ   1979.25 + 25.85  1979.26  1936.56 1.48 bln   1984/1697
S&P 100   588.98 +  4.70   588.98   579.44   Totals   3633/3238
S&P 500  1154.67 +  6.59  1154.67  1136.23
RUS 2000  487.19 -  1.31   489.85   479.20
DJ TRANS 2619.98 - 20.01  2651.65  2606.16
VIX        23.92 +  0.70    25.26    23.69
VXN        48.20 +  0.94    50.41    48.05
TRIN        1.02
Put/Call    0.63
*******************************************************************

Bulls Ring In The New Year

After early weakness, stocks traded higher into the close to start
the new year on a bullish note.  Technology stocks led the late-day
rally.  All eight of the technology sectors I track finished higher
Wednesday.  The leaders included Networking (NWX), Hardware (GHA),
Fiber Optic (FOP), and the Semiconductors (SOX).  The four sectors
helped the Nasdaq-100 (NDX) to a 2.11 percent gain on the day.  For
its part, the NDX finished back above the 1600 level.

The 1600 level is more psychologically significant than
technically.  The technical area to monitor in the short-term
concerning the NDX is between the 1560 and 1575 levels.  The index
continues to attract buyers in that area as it did again Wednesday.
While the bounce was positive for the bulls, it didn't hide the
fact that the NDX remains in a descending short-term tend that has
been in place since early December.  For the series of lower highs
to be broken, the NDX would need to trade above 1640, while the
descending trend line currently sits at the 1620 level.



Whether the short-term descending trend in the NDX is a
consolidation of the recent rally or signals an end in the trend
remains to be seen.  The economic and industry reports released
Wednesday morning were more conducive to the former and a
continuation of the rally in technology shares.

The ISM index, formerly known as the National Association of
Purchasing Management (NAPM) Index, came in at 48.2 percent for
the month of December, which was well above November's reading
of 44.5 percent.  December's reading came in well ahead of the
consensus expectation of 45.6 percent.  The December number was
not only better-than-expected, but it also marked the second
consecutive month in which the index rose.  While a reading
below 50 percent still signals contraction, the rate at which
the index is rebounding is encouraging for the progress of the
economy.  The overall index reading remained below 50, but
two components, new orders and production, rose above 50 during
December, which indicated expansion in those two categories.  The
better-than-expected ISM number had several economists calling
for an end to the Fed's interest rate cuts.  The FOMC is
scheduled to meet next at the end of this month.

The Semiconductor Industry Association (SIA) offered its own
bullish news.  The SIA reported that worldwide sales of chips
reached $10.6 billion in November, which was a slight increase
over October's total sales.  In addition, World Semiconductor
Trade Statistics said that worldwide DRAM demand grew by 17
percent in November, bolstered by demand for PCs thanks to
Microsoft's (NASDAQ:MSFT) new Windows XP operating system.

The analyst commentary that accompanied the data releases was
not as bullish as the data itself.  Several of Wall Street's
sell-side members said that while it appeared that the chip
business had bottomed, semiconductor stocks remained richly
valued and were due for a pullback in the first part of this
year.  The market disagreed with the analyst community as the
Philly Chip Sector Index (SOX) tacked on 4.45 percent.  In
the process, the SOX moved back above the 545 level, which
had previously acted as resistance.  Follow-through into
Thursday's session could place the SOX back above the 550
level, which would be a bullish short-term development for
technology as a whole.



Thanks to the SOX and the rest of technology, the S&P 500 (SPX)
edged into positive territory Wednesday.  Technology and
financial are the two largest industry groups in the S&P 500.
It was because of the weakness in financial, as well as energy
and healthcare, that the SPX under performed.  Without
participation from at least two of the three aforementioned
industry groups, the SPX will have difficulty advancing past its
200-dma, which currently sits overhead at 1166.  The 200-dma of
the SPX is one of the biggest indicators I'm currently monitoring.
I think an advance above the 200-dma would bode very well for
the continuation of the '01 Q4 rally.



After briefly dipping below, the Dow Jones Industrial Average
(INDU) closed above the psychologically significant 10,000
level.  The Dow was carried higher by solid gains in
Hewlett-Packard (NYSE:HWP), Intel (NYSE:INTFC), Disney (NYSE:DIS),
AT&T (NYSE:T), and General Electric (NYSE:GE).

Treasuries finished measurably lower on the positive ISM index
number.  The benchmark 10-year Note (TY02H) dipped 0.79 percent
to 104.100, while its yield rose to 5.16 percent.  The trading
in Treasuries will revolve around additional economic data in
the coming days.

The Labor Department will release jobless claims for the week
ended December 29 on Thursday morning, in addition to the
payrolls and jobless rate on Friday morning.  The employment
report is expected to reveal a 5.8% unemployment rate.  The
number will impact the retail sector as it relates to the
consumer and could influence trading in the broader market.
While most are expecting the Fed to ease off of the
accelerator, the employment report could sway Greenspan & Co.
one way or another.  Obviously a worse-than-expected number
would argue the case for another rate cut, while a
better-than-expected number would point to a rebound in
consumer confidence and less of a need for another rate cut.

But the Fed's action or inaction later this month will take a
backseat to fourth-quarter earnings season, which begins in
earnest in about two weeks.  That also means that if company's
are going to warn on fourth-quarter earnings, they will need to
do it in the next few weeks.  Preliminary data reveals that
warnings thus far are much lower than in the same period a
year ago.  That's good for the bulls.

Further confirmation of a return in corporate earnings combined
with the recent positive economic data would reinforce the notion
that the economy is indeed on the mend and better times lie
ahead.  From a price action standpoint, the major averages
discounted a rebound last fall and into the end of the year.
The recent sideways trading is a natural consolidation process
of the rally seeing how the averages have held support levels.
As long as the averages continue to trade sideways, and don't
breakdown, then a continuation of the rally is probable,
especially if things like the SPX advancing above its 200-dma
start happening.

In addition to the upcoming earnings season, traders will have
to operate around tax-related issues for another week or two.
Wednesday's market saw some of last year's best performers
trade lower, such as the housing stocks, retailers, and biotechs.
The tax-gain selling impact could pressure 2001's leaders this
week and possibly into next week.

Eric Utley
Option Investor


********************
INDEX TRADER SUMMARY
********************

Pavlov's Dogs Of The NDX?
By Austin Passamonte

Year 2001 went out in red while 2002 finished the session in
green. The last-hour plunge on Monday was flip-flopped with a
final hour ascent on Wednesday to recapture nearly half of the
former's decline.

Tech sectors carried the Dow and the day as investors and traders
clamber back to what they know & love: technology stocks. Whether
they will end up performing like thoroughbred racehorses or aged
greyhounds retired from the track remains to be seen, but human
nature is predictable as sunrise. When in doubt, seek the comfort
zone of familiar, tried and true. That of course is instinctual
behavior Pavlov demonstrated the power of long ago.

As depicted in tonight's various Index Gamelan sections we still
see long-term charts in mixed to bearish fashion. today's rally
meant nothing more than Monday's drop but signs point to evidence
that we're getting close. Weekly and daily chart price action is
nearing the apex of very clear wedge formations, some dating back
to May 2001. When they break and price action closes above or
below, we should be able to readily guess the next trend direction
and properly manage risk/reward from there.

If a straw were needed to tip the balanced scales of index
direction bias for me, a low VIX and grossly overbought stochastic
values added to bearish point & figure charts as noted by Eric and
Jeff give the downside nod. Actually, that would be three straws
so add a little mud and we've got a small brick to toss on the
bearish side of our objectively-bias scale.

Cautiously tracking downside plays and adding to them on further
weakness is the best a buy & hold trader can do right now, and I
suspect the odds of probability will increase soon when current
market ranges trapped within these past eight weeks (and counting)
finally break!

Best Trading Wishes,
austinp@OptionInvestor.com


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

I am really happy to announce this years annual renewal special.
We spent considerable time and effort deciding what would be
something traders could actually use instead of something to
collect dust. Each of the editors was tasked to produce an
investor guide covering the topics that our readers have requested
most. We spent hundreds of hours compiling these five special
investor guides to help our readers be better investors. Each
is done with full color charts and graphs and is something you
can refer back to for years to come.

Winning Option Strategies - By Jim Brown

Over 200 pages of strategies from simple calls and puts to
spreads, straddles, naked puts, combination plays, leaps etc.
Each strategy is explained in detail and then followed with
real life applications of how to profit from each one. Jim
teaches entry points, market cycles and general trading
psychology as well as money management and money saving
tips for dealing with your broker when errors occur.

Swing Trading For Success - Austin Passamonte

A descriptive outline providing simple guidelines that allow
you to identify current market direction and profit from the
high-odds price swings that occur within.

The secret of swing trading is exposed: Identify underlying
price direction and wait for brief market moves counter to
that trend. Enter short-term trades at key points where price
action is poised to snap back with the trend and enjoy a large
percentage of winning trades!

This guide has been written as only Austin can and is full of
real tips and profitable trading knowledge. Lots of full color
charts enhance the readers understanding.

Point-and-Figure Charting - Jeff Bailey

In this trading guide, Jeff Bailey reveals the secrets to
interpreting those intriguing supply and demand charts
characterized by columns of X's and O's - Point & Figure
charts.

If you have never used Point-&-Figure charts in your investment
analysis you're missing a vital clue that institutional traders
have been using for years.

Jeff illustrates the basic interpretations for beginners while
also discussing more advanced concepts like the bullish percent
for advanced traders. Those readers who have seen the power in
Jeff's point-and-figure charts can now understand and profit
from this powerful charting method. Real winning tips from our
point-and-figure pro.

Technical Analysis Explained - Eric Utley

There are myriad technical analysis tools for today's trader. Eric
has sorted through the choices and found a mix that provides traders
with a solid foundation for observing and operating in the market.

Long-time subscribers of Option Investor have seen tools such as
Fibonacci retracement brackets used by Eric Utley and Bollinger bands
used by our Leaps Editor, Mark Phillips. This manual details the
aforementioned indicators and others used by the Option Investor
staff. Within the manual, subscribers will discover the philosophy,
integration, and application of many of the most effective technical
analysis tools used by the professionals. For the first time, the
tools used by the Option Investor staff will be made available in
a resource that will enrich and educate its readers.

2002 Mutual Fund Guide - Steve Wagner

Our 2002 Mutual Fund Guide has everything you need to know about
mutual funds. It covers the basics of mutual funds, such as what
they are, how they work and are traded, as well as the different
types and objectives of mutual funds. The guide also offers our
top fund choices in eight broad investment objectives for 2002
and beyond. We provide an unbiased perspective on fund performance,
risks and costs, speaking in terms you can understand and use.

As of May 2001, 93 million individuals, representing 52 percent
of all U.S. households, owned mutual funds. Whether you are an
experienced mutual fund investor or new to mutual funds, you'll
find something of value in our 2002 Mutual Fund Guide.

Aggressive, conservative or income producing, there are funds for
everyone. Where should your retirement savings be? Not in options
we hope!

2002 Options Expiration Calendar Mousepads

You will get two of these handy mousepads with the 2002 options
expirations dates including a reference of month and strike price
codes. These are very popular and this will be our fourth year
of providing these to our readers. You get two, one for home
and one for your office. This way you will never be scrambling
for that date of code.


This may be our best annual renewal special yet. Don't miss out
on this offer.

Click here for more details:

https://secure.sungrp.com/02renewal.asp


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***********
OPTIONS 101
***********

LEAPS or Shares? -- Another Important Question
by Mark Phillips

With the dramatic reductions in the share price of many stocks
over the past year, investors that are looking to benefit from
the eventual economic (and subsequent price) recovery are
confronted by a host of questions, but one that is frequently
overlooked is that of whether the best alternative is to buy
LEAPS or the underlying stock.

Two or three years ago, that was a clearer decision, as buying
the underlying stock was too expensive for many investors.
Buying LEAPS was attractive because of the significantly lower
investment required.  Let's face it, when the stock you wanted
to buy was trading for $100, with 100 shares costing $10,000
($6000) on margin, a 2-year LEAP priced at $25 ($2500) was far
more palatable to the average investor.  But what do we do with
a stock that has now been reduced to the $10-15 range?  Does it
make more sense to buy the LEAP, or just snatch up the shares,
since there is no expiration date attached to the underlying
stock?

Investors need to have some sort of decision criteria that they
can apply on an equity-by-equity basis.  If that sounds like a
valuable discussion, then join me while we head down the road
to discovery.

Fortunately for us, this is a question that can be addressed
with some hard quantitative rules.  There are 2 criteria that
are pertinent.  As with most decisions in the investing world,
risk and reward must be quantified before initiating any trade,
and that is the central theme of deciding whether to invest
using LEAPS or the underlying stock.

When buying stocks, your risk is defined by the cost of
acquiring the shares.  If stock XYZ is currently trading for
$100, then the cost of 100 shares is $10,000.  Already I can
hear the argument from investors that use margin, stating that
you don't need that full $10k in order to establish the
position.  Right, you are!  Although day-traders can now
access margin in their accounts at a 4-1 ratio, we're going to
utilize the more widely-used 2-1 ratio for our discussion.
Afterall, if we're talking about stock vs. LEAPS, we are going
to have a much longer investing time-frame in mind.

For those new to the discussion of margin, it quite simply
refers to our ability to borrow money from our broker to purchase
more stock than we would be able to using just the cash in our
account.  With access to 2-1 margin in a brokerage account, it
only takes $5000 cash to purchase the $10,000 worth of XYZ.
Effectively, we are borrowing the additional $5000 from our
broker, allowing us to leverage our available cash to buy more
stock and derive a greater rate of return.  Margin is a
double-edged sword though, as many investors learned over the
past 2 years.  If the stock that you bought on margin declines
significantly, you may be subject to a margin call, meaning that
you must either deposit more cash in your account to maintain
the proper maintenance margin or sell some of your stock to
satisfy the margin call.  Either way, it can be a painful
experience.  Margin should only be used if you fully understand
the attendant risks.  Each broker will have slightly different
margin requirements, and you need to determine your broker's
margin policy before utilizing this method of leverage.

Fortunately, there is another way of gaining the advantage of
leverage; namely utilizing LEAPS (long term options).  I've
written a fair amount on the basics of LEAPS, so I won't repeat
myself here today.  For those new to LEAPS, I'll direct you to
the Strategy section of the LEAPS column:

http://members.OptionInvestor.com/leaps/strategy2.asp

There you'll find a basic description of what we do in the LEAPS
column, as well as some basic education on what LEAPS are and
how to utilize them to achieve your long-term investment goals.

So let's come back to the focus of our discussion.  A LEAP
controls 100 shares of the underlying stock, so the comparison
we need to make is whether we should buy a LEAP or 100 shares
of stock.  Buying a LEAP will be significantly cheaper than
buying the stock, allowing us to keep our risk significantly
less.  The downside to LEAPS is that, like all options, they
have an expiration date.  That means that we need to be correct
both in terms of direction of the underlying stock, as well as
the timeframe in which that move takes place.

Simply put, we want to choose the alternative that both
minimizes our risk exposure, while at the same time maximizing
our potential return.  I think the best way to describe the
process is to look at some examples.  Let's start off with an
old favorite, International Business Machines (NYSE:IBM), which
is currently trading for $121.50.  Let's use a 12-month
timeframe for our discussions here, as that will give us a basis
for comparison.

If we expected IBM would be trading at $150 a year from now, we
can either buy the stock or purchase a 2004 LEAP.  Purchasing
100 shares of IBM would cost $12,150 in a cash account or $6075
in a margin account.  If our expectations are met, a year from
now, our 100 shares would be worth $15,000, netting us a profit
of $2850, or 47% on our initial investment of $6075.  That's a
pretty good rate of return, so let's see how it compares to
investing in an at-the-money LEAP over the same period of time.

The $120 2004 LEAP (Symbol:LIB-AD) is currently trading for
$25.90, so the investment would cost us $2590.  That gives us
much better leverage than the margined stock purchase, as the
LEAP costs less than half the amount as the stock.  There are
a lot of factors that will affect the LEAP's price 12-months
from now, like volatility and the amount of time decay, but
the dominant factor will be the movement of the underlying
stock.  Since we are expecting a roughly $30 increase in the
price of IBM, we can get a rough idea of how much the price of
the LEAP should appreciate in the 1-year period of interest.
The way we do this is by looking at the current price of the
$90 2003 LEAP (Symbol:VIB-AR).  This LEAP is currently $30 in
the money, but with one year less of time value.  As a
first-order estimate, this is a fairly accurate measure of
what our 2004 LEAP should be trading for a year from now if
IBM is trading at $150.

Are you with me so far?  Good!  The VIB-AR LEAP is currently
trading for $37.10, and that is a reasonable estimate of where
our LIB-AD LEAP would be trading next January with IBM at $150.
Doing some quick math, we can see that we would net a profit of
$11.20 or $1120.  That yields a return of 43%.  Seems like
buying the stock would be a better approach, right?  Even
multiplying that $1120 profit by 2.34 (we could buy 2.34 of the
LEAPS for the same $6075 we spent on stock in our margin
account), we are left with a profit of $2620.  That means
purchasing the stock on margin actually gives us greater
leverage than the LEAP.  But it gets even more interesting,
because we have to take into account the interest we will pay
on the margin ($6075) we used to establish the position.
Assuming margin interest of 7%, for a total interest cost of
$420, the actual profit on the stock position would be reduced
to $2430, making the actual return on the stock purchase equal
to 40%.

If this seems overly complicated, I apologize.  It really
doesn't need to be.  Simply determine the cost to establish
the position by buying stock.  Then calculate your anticipated
return in percentage terms.  Then determine the actual cost
and theoretical return on the LEAP over the time period in
question.

The cost of the LEAP must be less than the cost to establish
the margined stock position to even make the LEAP feasible as
an investment alternative.  If the 2004 LEAP were priced
greater than $60 (if volatility were excessively high), then
it wouldn't make sense to consider LEAPS.  There is no
leverage advantage in that case.  But if the LEAP gives a
significant advantage in terms of initial cost (and initial
risk), we can proceed to the next step, that of determining
the relative performance of the stock position vs. the LEAP
purchase.

Coming back to our IBM example, I think the results are fairly
inconclusive as there isn't a strong case to be made for either
alternative.  Although the LEAP investment will theoretically
give a higher rate of return, it carries with it a greater
level of risk.  If IBM didn't move at all over the next year,
the LEAP would decline in value by $8.60 ($860) due to time
decay.  That would result in a loss in value of the LEAP
position of 33%, while the stock position would be unchanged.
I determined the theoretical value a year from now by looking
at the current value of the $120 2003 LEAP (Symbol:VIB-AD),
which is currently trading for $17.30, or $8.60 less than our
$120 2004 LEAP.

When trying to decide whether to use LEAPS or stock, we would
prefer to see a clear advantage one way or the other.  Next
week we'll cover a couple more examples, one with a clear
advantage for the stock purchase and one that shows a clear
preference for LEAPS.  Then we'll tie it all together with
some concrete rules.  But for now, I'm out of space and need
to get this sent to press.  Hopefully by the time I finish
with next week's article, you'll all have another useful tool
in your hands for fine-tuning your investing strategy.

See you next time!

Mark


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***********************
INDEX TRADER GAME PLANS
***********************

IS Swing Trade Model: Wednesday 01/02/2002
Another Day Trader's Day

News & Notes:
------------
There continues to be a distinct lack of actual, viable swing
trade entries to game. Long puts at the open or long calls in the
afternoon both offered minimal gains. Downside action halted soon
and remains to be seen if markets continue the trek higher on
Thursday.

Featured Markets:

[60/30-Min Chart: OEX]



The OEX is coiling into wedges right now (as are other indexes)
and looks to make a directional move soon. Long-term charts
suggest that will be lower, but we'll prepare for either way. A
break above 590 or break below 583 should be decisive. Individual
traders may have the chance to buy puts near 587 or calls near
585 which would be my preference, but that requires reactionary
trading to live market action.

In either case, markets appear poised to cover a bit of distance
soon.

[60/30-Min Chart: SPX]



A slightly different look in the SPX doesn't really alter things
that much. 1156 up or 1142 down should be breakout pivots that
work. Puts on a drop thru 1150 or calls on a bounce from 1147
would offer the nimble trader a few more point's breathing room
either way IF price action rebounds within the pattern another
time around.

[60/30-Min Chart: QQQ]



QQQs give a similar picture: 40.50 up or 39.00 down are the wedge
points of resistance and support to break. Trades may get whipped
out on one side or the other before our next real directional
move begins, but these are lines of demarcation to be long above
or short below respectively.


Summation
All that we've seen for the most part lately has been range-bound
market noise. These mini-moves are tradable for adept scalpers
but lie outside true swing trade parameters. We expect to catch
the next significant market move, but that could follow a bit
more sideways chop ahead of it. Current trade listings are
considered medium odds that could result in considerable gain or
chopped out in sideways action. No defined trend exists right
now, which makes it impossible to enter a high-odds setup based
on chart evidence tonight.


Trade Management:
----------------
Option traders may choose listed In-The-Money (ITM) or Out-The-
Money (OTM) contracts by personal preference. They are selected
based on volume, open interest and "Delta" values in that order.
Our preference is usually OTM contracts except for the last few
days of expiration when ATM or ITM contracts are preferred.

Entry triggers are points where plays are tracked when price
action breaks above for calls or below for puts. Stops are the
exact opposite of that. Sell targets are points to exit based on
index levels or %gain on option contract price as noted.

*No entry targets listed mean the models are idle at that time.


New Play Targets:
----------------
         QQQ                          DJX
Jan Calls: 41 (QQQ-AO)            Jan Calls: 102 (DJV-AX)
Long: BREAK ABOVE 41.60           Long: BREAK ABOVE 101.00
Stop: Break Below 39.00           Stop: Break Below 100.30


Jan Puts: ITM 38 (QQQ-ML)         Jan Puts: ITM 99 (DJV-MP)
Long: BREAK BELOW 38.90           Long: BREAK BELOW 100.00
Stop: Break Above 41.00           Stop: Break Above 100.75


=====

         OEX                         SPX
Jan Calls: OTM 600 (OEY-AT)       Jan Calls: ITM 1125 (SPT-AE)
Long: BREAK ABOVE 590.00          Long: BREAK ABOVE 1156.00
Stop: Break Below 585.00          Stop: Break Below 1149.00


Jan Puts: ITM 580 (OEB-MP)        Jan Puts: ITM 1150 (SPT-MJ)
Long: BREAK BELOW 583.00          Long: BREAK BELOW 1142.00
Stop: Break Above 588.00          Stop: Break Above 1151.00


Sector Share Trade Model: Wednesday 01/02/2002
Bound To Break Soon?

News & Notes:
------------
Major indexes and sectors have been coiling into wedges for
quite some time. Like a wound-up spring, energy stored will
soon be released. All that is needed would be sufficient
catalyst to unleash kinetic energy and current range-bound
action may cease for some time.

Wednesday's action only served to tighten the wedges more.
Monday's large slide was partially recovered in the final hour
on Wednesday. Resistance sells and support is bought as both
sides struggle with no victor yet. Evidence suggests this may
not last much longer.

Featured Plays:
--------------

[Weekly/Daily Charts: QQQ]



The QQQ has traded near 40 over these past nine weeks straight. A
building wedge should break soon, good for at least five index
points either direction when it does. Wednesday's action remain
pinned between below its 200-DMA and above its 50-DMA (right).
Look for a breakout soon, and stochastic values are mixed to
bearish at this time.

[Weekly/Daily Charts: Dow]



The Dow has also formed a long-term wedge (and ascending channel)
we can measure mid-term action from. The 50 and 200 week moving
averages (left) are very tight right now, and price action is
still pinned between. Daily-chart resistance lies at recent
highs, and stochastic values across both time frames are
overbought and bearish.

Summation
Long-term charts remain weighted to the bearish side and chart
pattern consolidations depicted here and in Sector Share
section demonstrate why we are short and what action points to
look towards in the coming sessions ahead.


Trade Management:
----------------
Entry triggers are points where plays are tracked when price
action breaks above for calls or below for puts. Stops are the
exact opposite of that. Sell targets are points to exit based on
index levels or %gain on share price as noted.

*No entry targets listed mean the model is idle at that time.


New Play Targets:
----------------
QQQ
Short: BREAK BELOW 38.90
Stop:  Break Above 40.60

IAH
Short: BREAK BELOW 38.35
Stop:  Break Above 40.00


Open Plays:
----------
SPY
Short: BREAK BELOW 114.80
Stop: Break Above 116.00


XLI
Short: BREAK BELOW  27.70
Stop:  Break Above 30.00

DIA
Short: BREAK BELOW 100.00
Stop:  Break Above 103.00

OEF
Short: BREAK BELOW  58.75
Stop:  Break Above  60.00

RTH
Short: BREAK BELOW 96.45
Stop:  Break Above 99.00

PPH
Short: BREAK BELOW  98.50
Stop:  Break Above 101.00


IS Position Trade Model: Wednesday 01/02/2002
No Further Evidence

News & Notes:
------------
Wednesday's action offered no confirmation of a trend direction
either way. The final-hour gains recaptured somewhat less than
half of Monday's loss in continued sideways fashion. The SPX has
been trapped between 1122 and 1164 over the past eight weeks. By
comparison, we've all seen single sessions where that index has
gained or lost more than 42 index points and continued from there!

Featured Plays:
--------------
[Weekly/Daily Charts: SPX]



Weekly price action (left) remained pinned between its 62% and 50%
retracement of May 2001 highs to Sep 2001 lows and will eventually
break either way. Daily chart wedge over the same period (right)
shows price action reaching the tip of this coiled spring. Which
way will it go? If stochastic values or other oscillators tip the
scale it would be downward from here. Both time frames are very
overbought and cannot remain that way forever. Hence, we are
short the SPX, OEX and DJX according to these reasons across
their respective charts.

[Weekly/Daily Charts: RTH]



Retail Index HOLDRs gapped lower today in similar overbought
fashion to the big indexes depicted above. Weekly and daily
charts are overbought and turning bearish right now. Next
support appears to be near 93 and then 90 areas in the RTH. We
are also tracking Feb 95 put contracts that would fare quite
well if price action pulled back to the 90 area over the next
six weeks.


Summation:
---------
We are tracking a handful of open Feb contract put plays due to
weekly/daily charts that strongly suggest downside direction is
more likely than up from here. However, market action has been
very choppy and sideways for several weeks now and may continue
for some time. This is the best risk/reward scenarios to be
found across indexes and sectors right now as the VIX falls,
charts turn bearish and range-bound markets continue their
sideways range!


Trade Management:
----------------
Option traders may choose listed In-The-Money (ITM) or Out-The-
Money (OTM) contracts by personal preference. They are selected
based on volume, open interest and "Delta" values in that order.
Position Trade model usually tracks OTM contracts with several
weeks of time premium left until expiration for buy & hold plays.

Entry triggers are points where plays are tracked when price
action breaks above for calls or below for puts. Stops are the
exact opposite of that. Sell targets are points to exit based on
index levels or %gain on option contract price as noted.

*No entry targets listed mean the models are idle at that time.


New Play Targets:
----------------
QQQ
Feb Puts: OTM 38 (QQQ-NL)
Long: BREAK BELOW 38.90
Stop: -50% of entry price

IAH
Feb Puts: OTM 35 (IAH-NG)
Long: BREAK BELOW 38.35
Stop: -50% of entry price



Open Plays:
----------
DJX
Feb Puts: OTM 98 (DJV-NT)
Long: 2.00
Stop: 1.00

OEX
Feb Puts: OTM 560 (OEB-NL)
Long: 11.10
Stop:  5.50

SPX
Feb Puts:  OTM 1125 (SPT-NE)
Long: 24.60
Stop: 13.00

RTH
Feb Puts: ITM 41 (RTH-NR)
Long: 1.60
Stop: 0.90

PPH
Feb Puts: ITM 95 (PPH-NS)
Long: 1.70
Stop: 0.90

XLI
Feb Puts: ITM 28 (XLI-NB)
Long: 1.00
Stop: 0.60


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


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The Option Investor Newsletter                Wednesday 01-02-2002
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.



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

ABI  - call
Adjust from $36 up to $37

WEBX - put
Adjust from $27 down to $26.50


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

CEPH $72.70 -2.89 (-4.88) CEPH was pressured lower today by
the continued selling in the broader biotech sector.  The BTK.X
finished down by 1.6% even though the Nasdaq finished solidly
higher.  CEPH did rebound from its day lows, but still closed
below its 10-dma, which may have signaled an end to the stock's
recent bullish trend.  The biotech stocks could bounce tomorrow
if the selling subsides, which would allow traders with open
positions to trim losses.


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

No Dropped Puts for Wednesday.


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Anything else is too slow!

http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN
**************************************************************


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

VRTS - Veritas Software $45.81 +0.98 (-0.64 this 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.

Most Recent Update

There were plenty of opportunities for shares of VRTS to weaken
last week, but it just never happened.  While the stock closed
unchanged on Friday (slightly down from the gap open), the bulls
managed to hold their ground, keeping the stock above the
critical 200-dma ($45.99).  While this is an important step, the
real struggle will now commence near $48, the top of the gap
left in mid-July.  That battle will be a tough one for the bulls
to win if the Software index (GSO.X) can't get moving again.
After struggling all week, the GSO finally got back over its own
200-dma ($184.60), and that's a good start.  But for the rally
to have any kind of staying power, the GSO will need to
successfully challenge the $191 resistance level.  Which brings
us back to our VRTS play.  If the GSO is making bullish strides,
we would look for fresh entries to materialize either on a dip
and bounce from the $45.50 intraday support level or on a bounce
from stronger support near $43.  Momentum traders can play a
break over the $47 level, but need to be watchful for profit
taking as the stock challenges the top of the July gap.

Comments

VRTS staged a spectacular intraday rally late Wednesday.  The
stock spiked above the $46 level near the close, settling just
below its 200-dma for the day.  The 200-dma rests at $45.88.  If
VRTS pops above that level early tomorrow, the stock could be in
a position to retest its recent highs up around $47.  Look for
early strength in the Software Sector (GSO) and the Nasdaq.

BUY CALL JAN-45*VIV-AI OI=13739 at $3.50 SL=2.25
BUY CALL JAN-50 VIV-AJ OI=10255 at $1.45 SL=0.75
BUY CALL FEB-45 VIV-BI OI= 3932 at $5.30 SL=4.00
BUY CALL FEB-50 VIV-BJ OI= 1979 at $3.20 SL=2.00
BUY CALL FEB-55 VIV-BK OI= 2477 at $1.75 SL=1.00

Average Daily Volume = 14.3 mln



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

Blue-Chips Spark Afternoon Rally!
By Ray Cummins

The investing New Year began on a positive note today as the major
equity indices closed higher despite expectations of a requisite
pause in the recent bullish activity.

Uncertainties over the outlook for the economy and new concerns
about valuations weighed heavily on stocks during most of the
session.  Even the positive data from the Institute for Supply
Management Manufacturing, formerly known as the NAPM, or National
Association of Purchasing Management, which said its December
report on U.S. manufacturing came in better than economists
expected, could not forestall the early selling pressure.  Dow
issues were hardest hit with Home Depot (NYSE:HD), Honeywell
(NYSE:HON), Boeing (NYSE:BA), Kodak (NYSE:EK), Johnson & Johnson
(NYSE:JNJ), and Minnesota Mining (NYSE:MMM) among the morning's
downside movers.  In the technology segment, chip stocks enjoyed
small gains after South Korea's Hynix Semiconductor, the world's
third-largest memory-chip maker, said it has raised prices for
long-term contract customers for the third time in a month.  The
group also got a boost from a report issued by the Semiconductor
Industry Association that said worldwide chip sales rose 1.6% to
$10.6 billion in November.  Networking and hardware shares were
popular while Internet and software issues generally consolidated.
Most S&P 500 sectors suffered from the lackluster buying activity
in early trading and the worst performers overall were oil service
and biotechnology stocks.  Financial and major drug shares also
fell victim to the bearish activity and retail issues struggled
after news of an unexpected downgrade on Kmart (NYSE:KM).  Gold,
airline, and utility stocks were among the broad-market's more
bullish groups for most of the day.

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

MAILBAG - Reader's Comments & Questions

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

Hello OIN,

I am not new to option trading, and I'm quite embarrassed that I
can not figure this out by myself.  But, as the saying goes, "No
question is too silly to ask," so here goes...

I have problem understanding your naked-put recommendations:

This is from Wednesday, December 26.

As an example I picked selling puts on eBay, you recommend selling
Jan-55 put at $0.90.  With the stock at $66.34, why would anybody
pay you anything to be able to put the stock to you at $55, which
is over $11 below the market price.


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%

Thank you,

JG


Regarding Option Pricing and the Derivatives Market:

JG,

It's obvious you know a great deal about the market -- I think
you simply overlooked a few of the basic concepts of option
trading/pricing.

The primary issue in your question seems to be, "Why would anyone
pay for an option that (to you) appears worthless?"  Fortunately,
we don't need to find someone to participate in the opposing side
of our trades; we have market-makers and option specialists for
that purpose.  In the early days of derivatives trading, there was
a need to search out a buyer for every seller and vice-versa, but
no more.  The option exchanges provide that service through the
market-maker system, where floor specialists supply liquidity for
option trading by risking their own capital (for personal or
institutional gain).  They are the core of the current free market
system in derivatives trading as they take the opposite side of
public orders by competing in an open outcry auction market with
the floor brokers, who generally act as agents executing orders
for retail traders or brokerage firm accounts.

So, we have a market in which to trade regardless of the current
demand for a particular series or class of options.  The question
now is, "How do market-makers determine the value of an option?"
The theoretical price of an option is initially established by
mathematical calculations, which are then adjusted by the less
tangible effects of the economic interplay between supply and
demand.

As you know, there are four major factors that determine the
theoretical price of an option:

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

There are two less important factors that also affect the
theoretical price of an option: The current risk free interest
rate and the dividend rate of the underlying stock.

The second variable, volatility, is generally the most important
as it is the component that can help you choose and implement the
appropriate option strategy, identify overpriced and under-priced
options, and improve market timing in entering/exiting positions.

Volatility is one of the most important factors in an option's
price because it measures the amount by which an underlying asset
is expected to fluctuate over a given period.  It significantly
impacts the price of an option's premium and heavily contributes
to an option's time value.

There are two basic kinds of volatility: implied and historical.
Historical volatility is calculated by using the standard deviation
of underlying asset price changes from close to close of trading
going back a certain number of days.  Implied volatility is a
computed value that measures an option's volatility, rather than
the underlying asset.  The fair value of an option is calculated by
entering the historical volatility of the underlying asset into an
option-pricing model.  However, the computed value may differ from
the actual market price of the option (because of demand) and that's
why implied volatility is needed to achieve the option's actual
market price.  In more basic terms, historical volatility (also
called statistical volatility) gauges price movement in terms of
past performance and implied volatility approximates how much the
market thinks prices will move.

Since implied volatility is a computed value, it is best calculated
with the aid of a computer that can easily match theoretical option
prices with current market prices of the option.  The formulas for
pricing options provide a good estimate of the fair value of an
option but because they are highly leveraged instruments, options
exaggerate the emotional optimism or pessimism of the market,
causing prices to vary widely from their true worth.  Examining the
difference between a stock's historical volatility and implied
volatility can help you recognize when an option is under-priced
or over-priced.  If the option's implied volatility is higher than
the historical volatility, the option is theoretically over-priced.
Option sellers look for these kinds of opportunities to sell high
and buy low.  In contrast, option buyers look for under-priced
options by searching for market situations in which the implied
volatility of an option is lower than the historical volatility
(buy low and sell high).  In general, you should sell options with
high volatility and buy options with low volatility.

Volatility is indeed a very important piece of the puzzle, not only
for analyzing an option's fair value, but also for assessing an
issue's market's potential for dramatic price movement.  Although
prices for exchange-listed options are set in the marketplace by
computerized pricing models, buyers and sellers do exert a strong
influence on its actual market value.  More importantly, pricing
models are based upon the mistaken assumption that all stock price
movement is "random."  Of course, there are always stocks that are
moving in well-defined trends and if you can identify those stocks
whose price momentum is likely to continue, you can achieve an edge
against the pricing model.

I hope I have shed some light on your question.  For additional
information on option pricing concepts, consult the bibles of
option trading: "Option Volatility & Pricing: Advanced Trading
Strategies and Techniques" by Sheldon Natenberg, and "Options As
A Strategic Investment" by Lawrence G. McMillan.

Good Luck!


Summary of Current Positions (as of 01-01-2002):


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   44.83   2.58    5.7%
NBIX    JAN     45   43.35   51.31   1.65    3.9%
ACF     JAN     30   27.65   31.55   2.05    7.5%


Naked Puts:

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

VRTS    JAN     35   43.80   44.83   1.20    9.8%
NVDA    JAN     50   48.95   66.90   1.05    6.2%
EMLX    JAN     27.5 26.80   39.51   0.70    6.5%
IGEN    JAN     25   24.50   40.10   0.50    6.1%
GENZ    JAN     55   53.90   59.86   1.10    5.7%
NBIX    JAN     40   39.45   51.31   0.55    5.1%
ACF     JAN     25   24.35   31.55   0.65    8.8%
EBAY    JAN     55   54.10   66.90   0.90    7.4%
EMLX    JAN     30   29.40   39.51   0.60    9.1%
NVDA    JAN     55   54.25   66.90   0.75    6.6%
VRTS    JAN     35   34.45   44.83   0.55    7.5%


Naked Calls:

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

ICOS    JAN    65    65.95   57.44   0.95     5.1%
IMCL    JAN    75    75.95   46.46   0.95     7.3%
ADI     JAN    55    55.55   44.39   0.55     5.8%


Synthetic Positions:

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

DGX    71.40    71.71   FEB85C/60P  0.10   59.90   0.10   Open
WMT    58.23    57.55   JAN60C/55P  0.10   54.90   0.10   Open


Credit Spreads:

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

ADSK   39.39    37.27  JAN30P/35P   0.50   34.50   0.50   Open
KBH    40.10    39.63  JAN30P/35P   0.55   34.45   0.55   Open
MCHP   40.33    38.74  JAN30P/35P   0.75   34.25   0.75   Open
LXK    57.37    59.00  JAN45P/50P   0.50   49.50   0.50   Open
CMA    56.93    57.30  JAN50P/55P   0.65   54.35   0.65   Open
DIAN   61.51    60.80  JAN50P/55P   0.60   54.40   0.60   Open
IMPH   44.00    44.51  JAN35P/40P   0.80   39.20   0.80   Open
SII    55.12    53.62  JAN45P/50P   0.70   49.30   0.70   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 - Covered Calls, Naked Puts, & Combinations

The Spreads/Combos editor was away from the market today, so the
selection of plays will be limited.  However, we have a number of
new candidates from our readers, and those issues will be listed
to augment the assortment of potential trading positions.  While
all of these companies have excellent fundamental outlooks and
relatively bullish technical indications, they should also be
evaluated for portfolio suitability and reviewed with regard to
your personal investing criteria.

***************
MRVL - Marvell Technology  $36.76  *** Industry Leader! ***

Marvell Technology Group (NASDAQ:MRVL) designs, develops and
markets integrated circuits utilizing proprietary communications
mixed-signal and digital signal processing technology for
communications-related markets.  The company's products provide
the critical interface between analog signals and the digital
information used in computing and communications systems and
enables its customers to store and transmit digital information
reliably and at high speeds.  The company designs, develops and
markets integrated circuits using proprietary communications
mixed-signal processing and digital signal processing technologies
for communications-related markets.  Marvell Technology also makes
high-performance communications internetworking and switching
products for the broadband communications market.

MRVL - Marvell Technology  $36.76

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

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

SELL CALL JAN 32.5 UVM AZ   32       5.10    31.66      5.0% ***
SELL CALL JAN 35   UVM AG   264      3.20    33.56      8.2%
SELL CALL FEB 32.5 UVM BZ   133      6.40    30.36      4.8% ***

SELL PUT  JAN 30   UVM MF   584      0.50    29.50     11.3% ***


***************
MU - Micron Technology  $33.24  *** Chip Sector Rally! ***

Micron Technology (NYSE:MU) and its subsidiaries are principally
engaged in the design, development, manufacturing and marketing
of semiconductor memory products.  The company offers products
that include dynamic random access memory, synchronous dynamic
random access memory, double data rate dynamic access memory,
legacy dynamic random access memory products, static random
access memory products and Flash products.  Dynamic random
access memory (DRAM) is the Company's primary semiconductor
memory product.  DRAMs are high-density, low-cost-per-bit,
random access memory components that store digital information
and provide high-speed storage and retrieval of data and DRAMs
are a widely used semiconductor memory component in computer
systems.  DRAM sales represented approximately 87%, 94% and 95%
of the company's net sales in 2001, 2000 and 1999, respectively.

MU - Micron Technology  $33.24

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

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

SELL CALL JAN 32.5  MU AS  9,652     2.10    31.14      8.3% ***
SELL CALL FEB 30    MU BF  167       4.80    28.44      3.7%
SELL CALL FEB 32.5  MU BS  139       3.20    30.04      5.5% ***

SELL PUT  JAN 30    MU MF  13,190    0.65    29.35     11.5% ***


***************
SEBL - Siebel Systems  $29.25  *** Application Software Giant! ***

Siebel Systems (NASDAQ:SEBL) is a provider of unique eBusiness
applications software.  Siebel Business Applications comprise a
family of Web-based applications software designed to meet the
sales, marketing and customer service information requirements
of even the largest multinational organizations.  The company's
eBusiness Applications enable organizations to sell to, market
to, and service customers across multiple channels, including
the Web, call centers, field, resellers, retail and other dealer
networks.  By employing comprehensive eBusiness applications to
better manage their customer relationships, Siebel's customers
achieve high levels of customer satisfaction and continue to be
competitive in their markets.

SEBL - Siebel Systems  $29.25

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

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

SELL CALL JAN 27.5 SGQ AY  7,230     2.95    26.30      8.7% ***
SELL CALL JAN 30   SGQ AF  15,575    1.50    27.75     15.4%
SELL CALL FEB 27.5 SGQ BY  4,903     4.00    25.25      6.0% ***

SELL PUT  JAN 25   SGQ ME  5,655     0.60    24.40     14.2% ***
SELL PUT  JAN 27.5 SGQ MY  2,732     1.10    26.40     18.9%


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

Long-Term Portfolio Favorites

***************
EMLX - Emulex  $42.06  *** The Recovery Continues! ***

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  $42.06

PLAY (sell naked put):

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

SELL PUT  JAN 30   UMQ MF  1,588     0.25    29.75      5.5% ***
SELL PUT  JAN 35   UMQ MG  2,317     0.90    34.10     16.0%

SELL PUT  FEB 27.5 UMQ NY  20        0.85    26.65      6.2% ***
SELL PUT  FEB 30   UMQ NF  123       1.20    28.80      8.4%


***************
NVDA - Nvidia  $67.30  *** The Best Graphics Chips! ***

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 continues to trade near its all-time high
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  $67.30

PLAY (sell naked put):

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

SELL PUT  JAN 55   RVU MK  2,528     0.40    54.60      5.1% ***
SELL PUT  JAN 58   RVU MA  1,018     0.65    57.00      7.0%
SELL PUT  JAN 60   RVU ML  3,103     1.00    59.00      9.2%


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

Credit Spreads

***************
HMC - Honda Motor  $81.78  *** On The Rebound! ***

Honda Motor (NYSE:HMC) is a leading manufacturer of automobiles
and the largest manufacturer of motorcycles in the world.  The
company is recognized internationally for its expertise and
leadership in developing and manufacturing a wide variety of
products, ranging from small general-purpose engines to specialty
sports cars that incorporate Honda's highly efficient internal
combustion engine technology.  By following a corporate policy
that emphasizes originality, innovation and efficiency in every
facet of the company's operations, from product development and
manufacturing to marketing, Honda strives to attain its goal of
satisfying its customers.  Through a worldwide commitment to
advancing this goal, Honda and its many partners who share in
this commitment have succeeded in creating a global network
comprising 119 production facilities in 33 countries that supply
Honda products to most industrialized countries in the world.

Analysts say that Japanese stocks are expected to rebound in
2002 based on the outlook for a U.S. economic recovery and the
Japanese government's structural reform plans.  Exporters are
projected to be especially bullish as they benefit most from a
weak yen and an expected increase in U.S. and global demand in
the first half of the year.  Honda Motor is one of the leading
companies in this group with a solid business outlook and a
strong brand name.  Based on the recent technical indications,
investors are anticipating a future recovery in the company's
share value and we can speculate on that activity with this
conservative combination position.

HMC - Honda Motor  $81.78

PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-70  HMC-MN  OI=62  A=$0.30
SELL PUT  JAN-75  HMC-MO  OI=51  B=$0.65
INITIAL NET CREDIT TARGET=$0.40-$0.45  MONTHLY PROFIT(max)=15%


***************
SPW - SPX Corporation  $138.86  *** New All-Time High! ***

SPX Corporation (NYSE:SPW) is a worldwide provider of technical
products and systems, industrial products and services, service
solutions and vehicle components.  Its products include storage
area network, fire detection and building life-safety products,
television and radio broadcast antennas and towers, transformers,
substations and industrial mixers and valves.  Its products and
services also include specialty service tools, diagnostic systems,
service equipment, technical information services and vehicle
components.  The company is a multinational firm with operations
in 19 countries.

SPX is one of those unique industrial conglomerates that benefits
from diversity across a large number of broad-market sectors and
manufacturing groups.  The company is engaged in everything from
making fire detection products and integrated life-safety systems
to protect buildings and their occupants, to the design, marketing
and service of networking and switching products for storage, data
and telecommunications networks, including fiber channel directors
for SANs.  Their subsidiaries are leaders in the manufacture of a
wide range of technical products and systems and the fundamental
condition of the parent company is excellent.  The recent technical
outlook for SPW is also favorable and our conservative position
offers an excellent way to participate in the future movement of
the issue with relatively low risk.

SPW - SPX Corporation  $138.86

PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-125  SPW-ME  OI=54  A=$0.65
SELL PUT  JAN-130  SPW-MF  OI=10  B=$1.05
INITIAL NET CREDIT TARGET=$0.50-$0.55  MONTHLY PROFIT(max)=20%


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

BEARISH PLAYS - Naked Calls & Combinations

***************
CEPH - Cephalon  $72.70  *** Profit-Taking Underway! ***

Cephalon (NASDAQ:CEPH) is a global biopharmaceutical firm focused
on the discovery, development and marketing of products to treat
sleep disorders, neurological disorders, cancer and pain.  In the
United States, Cephalon markets three products, Provigil Tablets
for treating excessive daytime sleepiness and narcolepsy, Actiq
for the management of cancer pain in opioid tolerant patients,
and Gabitril for the treatment of partial seizures associated
with epilepsy.  In the United Kingdom, Cephalon markets Provigil
and five other products, including Tegretol, a treatment for
epilepsy, and Ritalin, a treatment for ADHD, or attention deficit
hyperactivity disorder.  The company also markets other products
in France, Germany, Austria and Switzerland.

Cephalon has performed very well in recent sessions but today's
sell-off in major drug shares has temporarily brought the rally
to a halt.  CEPH's near-term technical strength is weakening and
from a longer-term (3-6 month outlook) viewpoint, it is certainly
time for investors to lock-in some profits.  The current overhead
supply area near $75-$76 will give us ample warning of a renewed
upward trend and with the overpriced premiums in the OTM options,
this position offers favorable speculation for traders who agree
with a neutral-to-bearish outlook for the issue.

CEPH - Cephalon  $72.70

PLAY (speculative - bearish/credit spread):

BUY  CALL  JAN-85  CQE-AQ  OI=60   A=$0.35
SELL CALL  JAN-80  CQE-AP  OI=797  B=$0.90
INITIAL NET CREDIT TARGET=$0.60-$0.65  MONTHLY PROFIT(max)=26%


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

BULLISH PLAYS:

Stock  Last    Long    Ask    Short    Bid   Target  Target
Symbol Price  Option   Price  Option   Price Credit  Profit

ADRX   70.92  JAN-60P  0.55   JAN-65P  1.10   0.60     14%
SYMC   67.03  JAN-55P  0.40   JAN-60P  0.95   0.60     14%
WLL    50.65  JAN-40P  0.60   JAN-45P  1.15   0.60     14%
CCMP   81.65  JAN-65P  0.45   JAN-70P  0.95   0.55     12%
LXK    59.75  JAN-50P  0.30   JAN-55P  0.80   0.55     12%


BEARISH PLAYS:

Stock  Last    Long    Ask    Short    Bid   Target  Target
Symbol Price  Option   Price  Option   Price Credit  Profit

MUR    81.90  JAN-90C  0.35   JAN-85C  0.90   0.60     14%
JEC    65.79  JAN-75C  0.35   JAN-70C  0.90   0.60     14%
IDPH   67.80  JAN-80C  0.25   JAN-75C  0.75   0.55     12%
IMCL   43.38  JAN-55C  0.30   JAN-50C  0.80   0.55     12%
TYC    57.25  JAN-65C  0.20   JAN-60C  0.65   0.50     11%

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


SEE DISCLAIMER
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