Option Investor
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Daily Newsletter, Wednesday, 01/09/2002

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The Option Investor Newsletter                Wednesday 01-09-2002
Copyright 2001, All rights reserved.                        1 of 2
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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      01-09-2002          High     Low     Volume Advance/Decline
DJIA    10094.09 - 56.46 10270.88 10069.45 1.45 bln   1527/1599	
NASDAQ   2044.89 - 10.85  2098.88  2034.09 2.28 bln   1693/1946
S&P 100   589.62 -  2.88   600.02   587.80   Totals   3220/3545
S&P 500  1155.14 -  5.57  1174.26  1151.89             
RUS 2000  494.74 -  3.16   503.08   494.74
DJ TRANS 2775.15 - 48.19  2826.65  2769.27
VIX        23.29 +  0.79    23.68    22.03 
VXN        48.28 +  0.87    48.71    45.98
TRIN        1.31 
Put/Call    0.55
*******************************************************************

A Beautiful Day?
Austin Passamonte

"It's a beautiful day in the neighborhood, a beautiful day for 
trading" crooned Mr. Rodgers if he played the S&Ps lower this 
afternoon. 

What looked to be a non-trading session early on finished the 
final two hours with handsome potential gains ripe for the 
picking, but just beyond outstretched grasp for many. More on that 
later. First let's deal with what lies ahead.

Purportedly bullish fundamental news propelled markets higher on a 
gap-up open and rapid ascent to recent index highs ensued from 
there. But price action soon stalled right where resistance has 
held on several tests before. Various companies said this & that 
construed as reasons to buy the open or cover shorts for traders 
who hang on market news. I never get too caught up in those 
details myself. That stuff was once very important back in the go-
go days of 1999 and early 2000 but as witnessed today, news-driven 
stocks are often best played on a fade than along with opening 
momentum.

Different Fed heads strolled up to podiums last night and today 
after the close, jawboning how recent bad economic indicators are 
now improved towards benign. Can we therefore kiss any further 
rate cuts goodbye? Is that their way of telegraphing what comes 
next in the easing cycle?

Companies are pre-warning less and pre-announcing more, with some 
insiders believing they sandbagged last time for upside surprises 
this time around. Such are the usual dynamics of broad market 
fundamental news found across all the public wire services. In the 
end, all that stuff is factored into price charts as people with 
more knowledge and money than us act upon their advantage and 
cause chart signal movement readily apparent from there. I 
personally cannot trade market news: I can only trade the market's 
REACTION to that news.

It was said that today's late-session drop came from global event 
rumors, dried up volume, etc. I want to know why indexes stalled 
right at clear points of resistance first thing this morning and 
failed right from there? If buying volume dried up and there was a 
lack of selling, why didn't price action trade flat instead of 
plunging? It appears to me that massive resistance lies near those 
key measures tested today and yet another firm rejection tells us 
some we really need to know.

So let's peruse some charts together and see what they have to 
offer. Our only rule is to enter each picture as a blank canvas 
and see what vision appears before us without favor or bias. Fair 
enough? Here we go:

(Daily Chart: SPX)


 

We begin with professional money's index. Commercial traders rule 
the S&P, retail traders focus on NASDAQ Comp. 

Still trading within a channel and struggling mightily to hold 
above its 200-DMA and recent highs. Nothing doing. Right now we 
have price action drifting in space with firm support down near 
the lower channel line (red) and 50-DMA (green) before looking 
lower towards Fib retracement levels from September lows to recent 
highs. Stochastic values are in full-bear mode as well.

(Daily Chart: NDX)


 

NDX is very similar to the SPX except it holds above 200-DMA. Note 
how three points of support now converge: 50 and 200-DMA together 
with that lower channel line. If it cannot hold the fort right 
there, look for another –100 to –200 points shed in short order. 
Stochastic values are also beginning to tip over from overbought 
extreme in bearish fashion as well.

(Daily Chart: Dow)


 

And the Dow trades right between SPX and NDX with price action 
sitting squarely on its 200-DMA. Other than that, mirror image of 
the first two. Currently sitting on support, a break lower from 
here sees strong arms at 50-DMA near 9,843 and then subsequent 
retracement levels below.

(60/30-Min Chart: OEX)


 

For traders with a short-term outlook, I would not be waiting for 
sustained strength early tomorrow. Using the OEX as a general (and 
very good) proxy for all major indexes, we see price action in the 
hourly chart (left) just below 50% retrace of last week's range. 
It appears looking to drop a few points lower. Intraday stochastic 
values in full-bear mode would suggest continuation lower for the 
start of Thursday.

(60/30 Min Charts: QQQ)


 

Likewise the QQQs for traders who favor this symbol. Hourly chart 
price action (left) seems to be tracing a bearish expanding wedge 
pattern. It is bearish because higher-high and lower-low 
instability expends market energy rather than store it. Therefore, 
how can it break above resistance while weakening in the process?

Support should be found in the same area we've watched as 
resistance since last week: its 40.50 price level.

Conclusion
Much as we hate to admit it, market action is still going nowhere 
for the ninth straight week and counting. Traders who think such 
sideways action is just working off a rapid ascent and overbought 
extreme in healthy basing mode may indeed be right, but watch out 
for that low VIX falling to 20 or below. It's in a relatively 
neutral zone right now and must remain above 21 level to give 
bulls comfort that this sideways market will break and trend 
higher above recent marks.

Those who know me well realize I'm as unbiased for market 
direction as they come. Up or down 1,000 Dow points from here make 
zero difference to me. I don't care because I cannot afford to 
care: biased traders are doomed to face market direction they 
cannot handle and it parts them from precious capital far quicker 
than was doled out in the favored times.

That being said, I simply cannot see the indexes breaking out in a 
big way either direction right now. A strong case with numerous 
valid points can be made for Dow 12,000 or 8,000 next. I believe 
the markets will break one way or the other soon, but no clear 
signs exist for that tonight. Let those ascending channels shown 
above fail to hold price action within and I'll change my outlook 
in a hurry!

For now I'm prepared for more sideways, choppy action ahead. If 
forced to pick a direction at gunpoint it'd still be lower due to 
overbought oscillators, price action failing to break resistance 
and a low VIX. But that's not enough to convince me a slide is 
about to begin from here.

These are indeed very tough markets to trade. By popular email 
request we'll quickly review what is possible to accomplish, 
although I'm the first to say that short-term trading in V-turn 
markets like this is anything but easy at all:

(OI Market Monitor: 12:59pm)


 

Near 12:59pm EST today we noted that intraday charts were making 
the first coiled consolidations as price action peaked earlier and 
moved sideways from there. I remarked that major index intraday 
charts were looking overbought and bull-flag patterns forming, so 
watch for a break either way. With bearish stochastic values 
forming, a downside failure of these patterns coupled with falling 
oscillators would be a tradable event. Tradable for whom? Risk-
averse, daring day traders only! This was a high-odds downside 
play and limited upside play suited only for those who know how to 
manage risk in the first place. 

(30 Min Charts: SPX)


 

The left chart has price action backed up to just before 2:00pm 
levels. Note the highs and lows traced within that pattern for 
three hours straight (six candles = three hours) hinting of a 
market pause before continuing the move higher. Traders who only 
rely on patterns without using a measure of price strength 
(oscillators) only saw half the story. Stochastic values were 
bearish all the way, tipping downside odds more in our favor with 
each passing tick. 

The MM posting almost an hour before this market failure noted to 
watch for a break up or down. Where? We didn't know then... the 
pattern was still in its formation. But extending trendlines above 
30-min highs and lows gave us measures or resistance and support 
to gauge, noted in green and red. A break either way was tradable 
in short-term mode with a high bias to the downside via chart 
signals turned bearish.

Sure enough, support near 1169 broke and traders had ample time to 
get short this whipsaw market move. Easy? Heck no... who ever said 
that! But possible for those who've honed their skills by watching 
& learning within educational services such as this.

Reward For Tedious Study
Pass the short-term trading test and potential gains exist for 
those who dare within two market-hour's duration:

SPX Jan 1175 put (SPT-MO)
Entry near 15.50
Current sale 24.00
Gain on contract cost: +54.8%

SPX Jan 1150 Put (SPT-MJ)
Entry near 7.00
Current sale 11.80
Gain on contract cost: +68.6%

S&P e-mini short at 1169 cash index: lowest level 1152 or 17 index 
points captured @+$50 per index point, which is +$850 per short 
futures contract. Margin to hold: $3,000 per contract. Gain on 
contract cost: +28.3%

Folks, this is tough sledding but possible to accomplish. The 
little book I wrote for annual subscription renewals explains the 
basics here and how-to articles archived and to follow will 
continue to help nudge the learning curve along. No need to rush 
it: the indexes will be trading long after we retire, so let's 
begin when we're ready and retire rich instead!

Summation
Those who know me best also realize I'd prefer to enter plays each 
Monday and ignore them until Thursday afternoon. Then close out 
for massive profit and take a three-day weekend before repeating 
the process. Does that sound good to you? Sounds great to me but 
the markets just don't care. They refuse to oblige for what I 
want, instead delivering exactly what they dictate instead. 

I can either try to mold my methods with their demand, stand out 
of the way or get plowed under in the process. For me it's a 
constant struggle to accomplish the first two while avoiding the 
third. How about you? These are challenging markets that force me 
to give it my all and sometimes that falls short of good enough. 
It won't always be this way, of that I can assure you. Better 
times are ahead and easier days lie in our path down the road.

But for now we must willingly accept the markets that are given us 
because nothing changes that fact. My advice is to trade careful, 
trade a bit smaller than usual (if at all), don't marry a position 
and for gosh sakes do not fall in love with either direction. That 
is a sure way to break your heart before long!

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
***********

More on the Selection Between LEAPS vs. Stock
By Mark Phillips

Last week we started discussing the decision process necessary
to intelligently select between LEAPS and the underlying stock.
Recall that the primary incentive for choosing LEAPS over shares
is the ability to garner a greater reward through leverage,
while exposing our account to less risk by implementing the
trade with less money on the line.

We went through a fairly detailed example using current prices
on International Business Machines (NYSE:IBM) and came to the
conclusion that there wasn't a clear advantage (at least on a
potential reward basis) for selecting LEAPS over the shares.
But the advantage clearly resided with buying the underlying
stock in the event that IBM behaves contrary to our
expectations, staying flat over the next 12 months or even
declining.  

If IBM were to cease trading a year from now at the $125 level,
the stock position would be unchanged, while the LEAPS position
would have suffered a 33% loss.  And if the stock actually
declines in value, the performance of the stock position will
continue to shine with respect to the LEAPS position.  With IBM
trading only $10 lower at $115, the stock position would have
suffered a $1000 loss ($10 x 100 shares).  By contrast, our 2004
$120 (LIB-AD) would likely have declined to near $14 (based on
the current value of the 2003 $130 LEAP).  That represents a
loss of 46% from our initial investment of $25.90.

This little hypothetical example should once again underscore
the importance of both timing and direction when contemplating
any options purchase, even those with an expiration cycle that
is measured in years.  Options give us great leverage, but that
leverage can work against us when the stock in question fails to
live up to our expectations.  Unless the option is deep in the
money, it is a wasting asset, losing value each and every day as
time marches on.

So with that as our background, let's look at a couple more
examples to hopefully make the decision process more clear.  My
first example will be one that clearly favors a purchase of the
stock.  Let's say you're bullish on the Optical Equipment stocks
(I know it's a long shot, but work with me on this one), and you
like the base that has been building in shares of JDS Uniphase
(NASDAQ:JDSU) over the past 6 months.  You want to initiate a
long-term position at current levels in anticipation of a
recovery in the economy later in 2002.

So with JDSU currently trading at $9.58 per share, buying 100
shares would cost $479 using a 2-1 margin account.  Given the
currently depressed condition of the industry, let's make our
assessment based on a fairly tame 50% move, with JDSU working
its way up to the $15 level over the next 12 months.  That would
give us a gain of $5.42 ($542) on our stock purchase, or a 113%
gain.  Even subtracting out the 7% margin interest expense of
$33.53, our gain on the JDSU stock purchase would come in at
106%.  That's not bad, but we need to keep in mind that in the
worst case (JDSU going to zero), we would be liable for the
entire value of the original position, $958.  That is our
maximum risk, but we can control that effectively with judicious
use of a stop loss order.

So what would we be likely to expect from the same stock movement
if we chose to invest in LEAPS instead?  Let's use the $10 2004
LEAP (KAJ-AB) for our discussion here.  It is currently trading
for $4.40, which makes our initial risk in the trade $440.
Looking forward to JDSU trading at $15 in 12 months, we can get a
good estimate of the value of our position by looking at the
current value of the 2003 $5 LEAP (OVU-AA), which is currently
trading at $5.50.  Do you notice what I do?  That's only an
appreciation of $110 on our original investment or a gain of 25%!
This is a perfect example of the impact of time decay.  Most of
the increase in value to our LEAP that came from the stock moving
higher was negated by the loss of time value over the intervening
12 months.  Even the initial cost basis only presents a slight
advantage over buying the underlying stock.  No matter how you
slice, it if you want to play the severely depressed Optical
Networking stocks, the best bang for the buck is likely to come
from buying the stock outright and holding on for the long-haul.

So how about an example that clearly favors LEAP buyers over
stock investors?  Well, you know sometimes things don't work out
the way you planned!  I went through this pricing exercise on
several dozen stocks today, and could not find a single example
where the reward from a reasonable price move in the stock
yielded a substantially better return on the LEAP than buying
the underlying shares on margin.  While that's frustrating, it
does provide a couple of important lessons.  The first is the
issue of time decay.  While buying a LEAP gives you the luxury
of time to be right, we don't want to take too much time in the
trade.  Holding a LEAP for a year exposes us to too much time
decay to make it an advantageous strategy over buying the stock.
Buzz Lynn made the comment at the end of his Wrap on Monday,
"Trade them, don't keep them" and that certainly applies here.
The big return advantage in LEAPS comes from a solid move in
the stock over a relatively short period of time (in the area
of 3-6 months).  In that period of time, time decay doesn't take
nearly as large a bite out of our option premium.

The other important point to keep in mind is that our downside
risk is substantially less when buying LEAPS due to the lower
initial cost.  And we don't want to overlook the inherent risk
associated with buying stock on margin.  When a margined position
goes against us, it can do so with a vengeance, as so many
investors learned over the past 2 years.  Having an option
expire worthless is an unpleasant experience as well, but at
least we know precisely our maximum risk when we enter the trade.

And for investors that are not comfortable with the risk inherent
to investing on margin, using LEAPS is a great way to control
risk while at the same time taking advantage of the concept of
leverage.  When compared against buying the stock outright, LEAPS
will almost always (except in cases of extreme volatility)
outperform by a wide margin.

Remember that there are a whole bunch of factors such as current
and future volatility, strike selection, and actual price
movement (along with the time period the price movement takes)
that can affect these hypothetical calculations.  While my
examples didn't come together the way I had hoped, it is my hope
that you have a better understanding of the advantages and
disadvantages of choosing LEAPS over buying the underlying stock.

Have a great week!

Mark


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

Fundamentals Guy Takes a Field Trip
Buzz Lynn
buzz@indexskybox.com

For what it's worth, let me offer up an axiom of business 
management.  In addition to time spent working IN our business 
(trading in this case), ultimately profitability is directly 
related to working ON the business.  That is to say that setting 
goals, working out better procedures, getting educated to how 
others do their jobs, and adapting information from different 
business models provides the foundation, framework, and knowledge 
background that guides our profit-seeking endeavors.

I have a friend in the building maintenance business (9-digits of 
annual billings) that told me many bull sessions ago that his 
business could now run itself on cruise control and that he would 
now take more time off.  He suggested that his loyal lieutenants 
could run the day to day operations of the business, which would 
then leave my friend more time for other matters of interest to him.  

I disagreed with him then and explained that he was the guiding 
force, character, brains, and reputation of the company.  No way 
would his business survive in the long run without his skills and 
acumen when strategic decisions needed to be planned and 
implemented.  It would only be a matter of time before the 
business landscape/economic environment changed and would 
ultimately require him to answer the hard questions, something 
like, "Well Sir, many of our customers' facilities are closing.  
What do we do now?"  

In fact, that turned out to be the case.  It wasn't just a matter 
of how many nights per week the trash was emptied and floors 
mopped, but rather how to stay successful delivering a product 
that exceeded their customers' expectation at a very fair price in 
a difficult economic environment.

That is where working ON the business comes into play and is the 
reason I actually played hooky from the markets today - to get 
educated from those far smarter than I in hopes that I might gauge 
current business conditions and be able share my observations with 
you this evening.  We still aim to bring you the best information 
from the brightest people out there, including ourselves (we 
hope).

So what was my field trip where I got to listen to smart people 
provide observations for me to share?  I attended the "Directions 
2002" business conference sponsored by the Reno-Sparks (Nevada) 
Chamber of Commerce and EDAWN (Economic Development Authority of 
Western Nevada.  While speakers were top caliber on the subject of 
economic development, the keynote speaker was Steve Forbes, 
namesake of Forbes Magazine and former Presidential candidate, and 
a guy whose opinion I immensely respect after having read his 
stuff for 20 years.  He's extremely well read, and like me, a 
radical for capitalism.  I went in hopes of hearing it from the 
horse's mouth that "this is the bottom".  Alas, he offered no 
opinion on future economic direction.  But what he did convey was 
equally interesting and helps explain our current economic 
condition.

He opined that there were actually four factors that contributed 
to the worldwide slowdown.  It wasn't just a matter of a tech 
wreck, as many pundits would have us believe.  

The first item he cites are mistakes made by Alan Greenspan and 
the Federal Reserve Board - a bunch of central bankers who Forbes 
contends are a generally mentally unhappy bunch who want us to be 
miserable too.  He asserts that they are miserable because they 
(central bankers in general) believe in the Phillips Curve (no 
relation to our own Rocketman and LEAPS editor, Mark Phillips), an 
economic theory that says prosperity causes inflation.  He also 
asserts that notion as garbage, as do I.  One need only look at 
the 1980's and 1990's as proof that inflation is not a problem in 
a growing economy.  In 1999, the Fed began raising rates because 
of inflation fears - we were too prosperous!  Imagine your doctor 
trying to make you sick out of fear that good health is not 
healthy - silly!  The Fed in fact may have made us TOO sick and 
tried to un-do its damage by dropping rates 475 points total over 
10 separate occasions in 2001.

For those interested, Forbes contends the patient is not better 
and to expect another rate cut this month, small as it may be.  
Greenspan's greatest fear of cutting rates to the bone early and 
often to re-stimulate growth is that he believes to do so would 
ignite inflation.  The upshot is to deliberately and slowly ease 
while business meanwhile chokes to death.  

How can that be with all that cash on the sidelines?  Like any 
situation where scarcity is perceived, people stock up as the 
investing public has done with cash.  Forbes equates that buying 
all the water you can in anticipation of a water shortage.  When 
Greenspan shows up at our houses, all he sees is how liquid we 
are!  That's scary for a misguided Phillips curve guy.

Second, 70% of the dollars produced here actually find their way 
overseas since many countries tie their currency to the value of 
the dollar and actually use the dollar for trade.  No surprise 
then that the Fed's actions affect the conditions of dollar-backed 
foreign countries - long tentacles, that dollar.

Third, Forbes cites the nutty tax structure in this country.  
Forbes calls taxes a "price and a burden" or a "cost" of success, 
not just a revenue source for the government.  The heavier burden 
or cost means less good stuff demanded and produced.  Lighten the 
burden and the demand and production of good stuff goes up.  He 
points out that about every 20 years, we get a tax break - 
Kennedy, Reagan, now Bush.  But he equates the Bush tax as a light 
tea passed off by an obstinate Senate as high-test bourbon.  The 
solution of course is a cut in capital gains and the death tax in 
addition to simplification of the tax code (aka flat tax).

Of course, you'd expect him to say this, as he flat said too that 
he would run again for President in the 2004 election.  One thing 
about Forbes - he's consistent and sticks to his message.  Even if 
you think he's just on the campaign trail, it's worth noting that 
Russia went to a 13% flat tax and thus doubled its intake to the 
treasury.  

Another little simplification metaphor that he used was to note 
the Bible has 783,000 words and houses much wisdom, (please, no 
hate mail - we're not arguing interpretation here) while the U.S. 
tax code contains 8,000,000 words and nobody really knows how to 
interpret that.  Let's see an archeologist translate thing when 
digs it up 8,000 years from now!  The point is that simplification 
could be extremely beneficial here too, but a lot of accountants 
and tax planners would be unemployed; so don't look for that to 
happen soon.

One business opinion that did offer was that the airwaves, aka 
spectrum will be practically free much like ocean water that makes 
a cruise possible and air that makes international flight 
possible.  The notion that somehow we should pay for the water we 
cruise on and the air we fly through is silly.  So too with the 
spectrum with communicate through.  It is infinite and ubiquitous.  
My take:  Look for FCC chief, Michael Powell (yes, Colin's son) to 
break open the dam and send wireless communications through the 
roof.  I don't know who will be the winner, but abundance will 
insure many of them.

Finally, Forbes notes that the world economy is bad shape because 
sound economic principles are ignored by the likes of the IMF.  
For those who don't know about the IMF, its m.o. is to have 
countries raise taxes and devalue their currency in order to get 
the bailouts they seek.  The inevitable result is inflation and 
stagnation.  It amounts to economic poison "accidentally" 
administered as medicine.  In fact, Forbes equates them doctors 
200 years ago that "bled" their patients at the first sign of 
illness.  Bleeding them only made things worse and hastened a 
death that need not have happened.  Same with economies that go to 
the IMF for help.

Solution to the ills that might turn around the market?  None that 
look like a very short-term fix that would restore the economies 
around the world.  While I was really interested in finding out 
his views about what happens next, he offered none, and my written 
question asking the same evaded the moderator's selection.  Oh 
well.  While artfully dodging a prediction, he did offer five 
principles that would lead to progress if implemented.

1.  Implement and enforce the rule of law that would allow simple 
inalienable property right to free up the $9 trillion in real 
estate values worldwide.  It would thus be possible to enter long-
term contracts and offer security for borrowed capital.

2.  Implement a sound currency based on gold or the dollar

3.  Lower or eliminate, and simplify taxes.

4.  Make it easy to set up a business in a foreign country.  For 
instance, Bulgaria currently requires permits from 16 different 
agencies to operate the simplest of businesses.  Not much 
commercial activity as a result.

5.  Drop trade barriers.

Were we to start by doing all of those things in our own country, 
we would be setting a great example in which the rest of the world 
could follow and would want to follow.  

That's it from Fundamentals Guy's field trip.  While not finding 
the answer I was looking for, it certainly was interesting to hear 
Forbes live in person.  More to the point, it got me away from the 
trading screen and opened my eyes to a bigger universe than just 
Wall Street so that perhaps a tidbit of outside knowledge would 
seep in and help me make better business and trading decisions.  
That is why we spend time ON the business rather than all of our 
time IN the business.

Until next time. . .

F.G.

Oh, and one more thing - should Forbes be elected, he promised to 
replace Alan Greenspan.  No argument from me!




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

IS Swing Trade Model: Wednesday 1/09/2002
So Much For Methodical Markets

News & Notes:
------------
I had to go and open my mouth! Celebrating methodical markets over 
the past few sessions and thinking that could last forever. Silly 
me! 

Call plays would have worked a bit from the open and put plays 
even better towards the close. A true day-trader's session at a 
time when actual swing trades are still tough to find.


Featured Markets:
----------------
[60/30-Min Chart: OEX]


 

The OEX popped early, went flat and fell out of bed like all the 
others. looks like more downside action is possible, especially 
with a daily chart (depicted in Market Wrap) turned bearish as 
well.

[60/30-Min Chart: SPX]


 

Same story here... looks to break lower.


[60/30-Min Chart: QQQ]


 

Likewise the QQQ. All are sitting on support but daily charts are 
poised for further decline from here, albeit possibly limited.

Summation
It goes without saying we'd have loved to short the top of this 
market, but that didn't happen. Conservative traders may opt to 
wait for new put play entries if/when Wednesday session lows are
broken below. however, we will list put play entries right below 
current closing prices and hope to catch a flat to slightly higher 
open that falls thru our triggers somewhat above support to give 
us "breathing room" should an upside bounce emerge from there.

These are not what I consider screaming plays, but based on daily 
chart bearishness shown in Market Wrap coupled with intraday 
closes below recent support, chances are good we start off lower 
from here. For those who wish to play whenever the chance arises 
to tip scales in our favor, I'd say downside continuation is the 
most likely scenario judging from here.

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                 Long: BREAK ABOVE 
Stop: Break Below                 Stop: Break Below 
                                

Jan Puts:  41 (QQQ-MM)            Jan Puts: 100 (DJV-MV)
Long: BREAK BELOW 41.00           Long: BREAK BELOW 100.80
Stop: Break Above 41.75           Stop: Break Above 102.00


=====

         OEX                         SPX
Jan Calls: 600 (OEY-AT)           Jan Calls: 1125 (SPT-AE)
Long: BREAK ABOVE                 Long: BREAK ABOVE 
Stop: Break Below                 Stop: Break Below 


Jan Puts: 580 (OEB-MP)            Jan Puts: 1150 (SPT-MJ)
Long: BREAK BELOW 589.00          Long: BREAK BELOW 1155.25
Stop: Break Above 592.25          Stop: Break Above 1162.00



Open Plays:
----------                                                              
None


IS Position Trade Model: Wednesday 1/09/2002
Here We Go Again

News & Notes:
------------
Like a rerun soap opera with bad actors, the indexes popped right 
up to resistance and fell back to support within Wednesday's 
session. If ever there was a market treading water, this is it. A 
directional break is imminent somewhere in the future and it gets 
closer every day, but we're glad to be tracking put options with 
5+ weeks of time value left until expiration!


Featured Plays:
--------------
No charts... nothing material has changed.


Summation:
---------
No real changes as we bounce within the range looking for 
favorable execution of open plays tracked. With all long term 
chart signals looking bearish right now, odds are with us for 
current plays working soon.


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:
----------------
None


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

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         


Sector Share Trade Model: Wednesday 1/09/2002
Directionless

News & Notes:
------------
Another pop & drop session took out our PPH HOLDR short play at 
the trailed stop for a 1.00 gain from entry. Our intention here is 
not to dink & dunk for a point or two either way: we would love to 
open and track plays in a trending market that swell with 
impressive gains over time.

Pipe dreams for now!


Featured Plays:
--------------
No charts: see Market Wrap


Summation
No new plays at this time, but Thursday could offer a different 
picture from here.


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.

* Asterisk means stop-loss level changed since prior posting


New Play Targets:
----------------
None


Open Short Plays:
----------
01/02
XLI
Short: BREAK BELOW  27.70
Stop:  Break Above  29.00 

PPH
Short: BREAK BELOW  98.50
Stop:  Break Above  97.50 [hit]
Result: +1.00


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


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

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**************************************************************
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The Option Investor Newsletter                 Wednesday 01-09-2002
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.



************************Advertisement*************************
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Does your broker offer Stop Losses on Options?

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

Anything else is too slow!

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


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

ACS  - call
Adjust from $101 up to $102

CCMP - call
Adjust from $78.50 up to $80

MANU - call
Adjust from $18 up to $18.25

EMLX - call
Adjust from $42 up to $43

GNSS - call
Adjust from $65.50 up to $68

CORR - put
Adjust from $25 down to $24.60

ADRX - put
Adjust from $67 down to $65.50

CERN - put
Adjust from $51 down to $50

AZO  - put
Adjust from $70 down to $68


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

None


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

None


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

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*********************
PLAY OF THE DAY - PUT
*********************

ELBO - Electronics Boutique $34.59 -1.56 (-2.41 this week)

Electronics Boutique is a specialty retailer of electronic
games.  The company sells video games and PC entertainment
software, supported by the sale of video game hardware, PC
productivity software, PC accessories and related products.

Most Recent Update

ELBO reported less than impressive December sales figures Monday
which caused the stock to trade substantially lower.  We were
obviously pleased with the way our bearish play began on ELBO.
But the stock rebounded in today's session.  Two others in the
group traded higher in Tuesday's session, MGAM and TTWO.  There
may have been a sector sympathy bid in ELBO or simply a
retracement of yesterday's big drop.  Because of ELBO's gap
lower yesterday morning, the stock may have not offered the most
ideal entry point.  Those looking for new entries might
consider rollovers near the site of the gap, around the
$36.50 level.  Also look for a breakdown below $35.50 after
confirming weakness in others, such as ERTS, ATVI, and THQI.

Comments

ELBO, like most Nasdaq stocks, sharply reversed during Wednesday's
session.  The stock traded above our coverage stop at $37 early
in the day, but fell off a cliff into the close.  The stock's
reversal could lead to further downside in the short-term if
selling continues in the Nasdaq.  Watch others in the video
gaming sector for industry sentiment and consider entries on a
decline below Wednesday's intraday low at $34.10.  Target the
200-dma at $32.25 to the downside.

***January contracts expire in less than two weeks***

BUY PUT JAN-40 LQB-MH OI=48 at $5.80 SL=4.00
BUY PUT FEB-35*LQB-NG OI=12 at $3.50 SL=2.00

Average Daily Volume = 545 K



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

Option Trading 101: Understanding Premium Disparities
By Ray Cummins

One of our readers submitted a great question about the small
variations in option pricing and the need to take advantage of
excess premiums to create the best possible position.


Dear OIN,

I have a question.  I recently read a passage from your E-mail
replies (concerning spread trading and combinations):

"When opening any type of spread, it's important to take advantage
of disparities in option pricing to create the best possible
position.  Always try to initiate new positions when there is
little premium in the long option and excess value in the sold
option."

I am under the impression that all options (long and short) are
undervalued when implied volatility for a given security is low
and all options are overvalued when implied volatility is high.
How can one enter a spread when there is "little premium in the
long option and excess value in the sold option"?

Thank you.

MN


Regarding Option Pricing Disparities:

First, I am glad to hear you are using the OIN to supplement your
search for profitable trading positions.  All of us at Premier
Investing Group pride ourselves in working for a company that
offers some of the best stock/option research at a reasonable
price.

As far as your question about option pricing disparities, it is
true in a general sense that most options (long and short) in a
given class or series are undervalued when implied volatility for
the underlying security is low and vice-versa.  That condition
exists because the prices for exchange-listed options are
initially determined by computerized pricing models however,
buyers and sellers (and the economic interplay between supply and
demand) do exert a strong influence on the actual market value of
the options.  Derivatives, being highly leveraged, exaggerate the
emotional optimism or pessimism of the market, causing prices to
vary widely from their true worth and that effect occasionally
produces disparities in option pricing, even among options in the
same series.  This condition creates opportunities for spread
traders to enter positions with a theoretical edge and as I noted,
"It's important to take advantage of disparities in option pricing
to create the best possible position."  A good example of this
approach can be seen in the recent, speculative calendar-spread
candidate; Clarus (NASDAQ:CLRS), where the front-month options are
substantially inflated when compared to the longer-term options.
In this case, the near-term implied volatility is at the upper
extreme and that's the underlying basis for choosing a spread
strategy; the ability to take advantage of under/over pricing,
premium disparity, and time decay.

The most important factors in option trading are market movement,
option volatility, and time decay, and understanding and utilizing
these concepts correctly can result in a theoretical edge for
traders.  Since we have the ability to measure the fair value and
the rate of decay of an option through mathematical calculations,
we should be able to reduce our primary risk to that of market
movement.  Clearly, there are always stocks that are moving in
well-defined trends, as opposed to moving randomly and if you can
identify those stocks (and the strategies/positions that will
benefit most from their movement), you can achieve an edge in the
options market.  Much of our effort at the OIN is devoted to
finding stocks that will continue moving in such trends, so our
subscribers can profit from buying undervalued options, selling
overvalued options, or initiating limited-risk spreads on those
issues.

Good Luck!


Summary of Current Positions (as of 01-08-2002):


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   48.73   2.58    5.7%
NBIX    JAN     45    43.35   50.54   1.65    3.9%
ACF     JAN     30    27.65   28.60   0.95    3.5%
MRVL    JAN     32.5  31.66   39.23   0.84    5.0%
MU      JAN     32.5  31.14   35.30   1.36    8.3%
SEBL    JAN     27.5  26.30   33.30   1.20    8.7%

With the recent consolidation in AmeriCredit (NYSE:ACF), a
transition to the FEB-$30 Option (to lower the cost basis in
the position) or an early exit (to avoid any losses) may be
prudent.


Naked Puts:

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

VRTS    JAN     35   43.80   48.73   1.20    9.8%
NVDA    JAN     50   48.95   68.55   1.05    6.2%
EMLX    JAN     27.5 26.80   46.00   0.70    6.5%
IGEN    JAN     25   24.50   39.93   0.50    6.1%
GENZ    JAN     55   53.90   53.41  (0.49)   0.0%
NBIX    JAN     40   39.45   50.54   0.55    5.1%
ACF     JAN     25   24.35   28.60   0.65    8.8%
EBAY    JAN     55   54.10   67.54   0.90    7.4%
EMLX    JAN     30   29.40   46.00   0.60    9.1%
NVDA    JAN     55   54.25   68.55   0.75    6.6%
VRTS    JAN     35   34.45   48.73   0.55    7.5%
MRVL    JAN     30   29.50   39.23   0.50   11.3%
MU      JAN     30   29.35   35.30   0.65   11.5%
SEBL    JAN     25   24.40   33.30   0.60   14.2%
NVDA    JAN     55   54.60   68.55   0.40    5.1%
EMLX    JAN     30   29.75   46.00   0.25    5.5%

Genzynme (NASDAQ:GENZ) tanked on the first trading day of
the year after analyst Mark Augustine at US Bancorp Piper
Jaffray cut his rating on the stock to "market perform,"
citing competitive pressure on two of the company's key
medications.  With the widespread slump in biotechnology
shares, it was a good time to exit the bullish position.
Traders who favor the long-term outlook for the company
can roll down and forward to a FEB-$50 Put (short) for a
potential "break-even" exit.


Naked Calls:

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

ICOS    JAN    65    65.95   53.47   0.95     5.1%
IMCL    JAN    75    75.95   36.85   0.95     7.3%
ADI     JAN    55    55.55   46.59   0.55     5.8%


Synthetic Positions:

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

DGX    71.40    67.85   FEB85C/60P  0.10   59.90   0.10   Open
WMT    58.23    57.84   JAN60C/55P  0.10   54.90   0.10   Open

    
Credit Spreads:

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

ADSK   39.39    39.38  JAN30P/35P   0.50   34.50   0.50   Open
KBH    40.10    38.45  JAN30P/35P   0.55   34.45   0.55   Open
MCHP   40.33    41.15  JAN30P/35P   0.75   34.25   0.75   Open
LXK    58.70    59.00  JAN45P/50P   0.50   49.50   0.50   Open
CMA    56.93    57.62  JAN50P/55P   0.65   54.35   0.65   Open
DIAN   61.51    53.85  JAN50P/55P   0.60   54.40  (0.65)  Open
IMPH   44.00    44.51  JAN35P/40P   0.80   39.20   0.80   Open
SII    55.12    51.57  JAN45P/50P   0.70   49.30   0.70   Open
HMC    81.78    79.50  JAN70P/75P   0.45   74.55   0.45   Open
SPW   138.86   145.00  J125P/130P   0.50  129.50   0.50   Open
CEPH   72.70    77.24  JAN85C/80C   0.60   80.60   0.60   Open

Shares of Dianon Systems (NASDAQ:DIAN) were hammered on 1/2/01
after Credit Suisse First Boston slashed its rating on the stock,
citing possible cutbacks in Medicare and Medicaid programs, and
the potential for a weakening of reimbursement rates in the
private sector.  The unexpected news dealt a severe blow to the
recent rally and the precipitous decline left little opportunity
to exit the play with a profit.  Some traders rolled-out to the
FEB-$50 Put (short) for a basis near $49.75 and that may provide
a sufficient margin of downside protection, based on the previous
trading-range "top" near that price.


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 ***).

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

HEALTH SECTOR - READER'S REQUEST

One of our readers asked if we would look for some bullish plays
in the Health Services segment.  Here are two positions that offer
favorable speculation on bullish issues in that industry.
 
***************
ACDO - Accredo Health  $50.79  *** A Valuable Acquisition! ***

Accredo Health (NASDAQ:ACDO) provides specialized contract
pharmacy services on behalf of biopharmaceutical manufacturers
to patients with chronic diseases.  The company's services help
simplify the difficult and often challenging medication process
for patients with a chronic disease and help ensure that patients
receive and take their medication as prescribed.  The company's
services benefit biopharmaceutical manufacturers by accelerating
patient acceptance of new drugs, facilitating patient compliance
with the prescribed treatment and capturing valuable clinical
information about a new drug's effectiveness.  Their services
include contract pharmacy services, reimbursement services,
clinical services, and delivery services.

Accredo Health climbed to a new, all-time high today in the
wake of recent buying pressure after the company announced a
deal to purchase the specialty pharmaceutical services business
from Gentiva Health Services.  The deal makes ACDO the largest
specialty distributor of pharmaceuticals, with a market share
of over 17%, leaving retail pharmacies as the only companies
that have a larger presence.  Analysts were optimistic about
the announcement and Steven Halper, an analyst at Thomas Weisel
Partners LLC, said the deal is a, "landmark transaction for
Accredo."

The Health Services sector is an excellent broad-market hedge
and in addition to being one of the leading companies in the
industry, Accredo Health is a stock we would love to have in
our long-term growth portfolio.

ACDO - Accredo Health  $50.79

PLAY (sell naked put):

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

SELL PUT  JAN 45   DZU MI   256      0.70    44.30      15.5%
SELL PUT  FEB 40   DZU NH   32       0.90    39.10       6.5% ***
SELL PUT  FEB 45   DZU NI   115      1.85    43.15       9.0%


***************
THC - Tenet Healthcare  $62.10  *** Solid Earnings! ***

Tenet Healthcare is the second largest investor-owned healthcare
services company in the United States.  Tenet's subsidiaries and
affiliates own or operate over 110 general hospitals with 27,000
licensed beds and related healthcare facilities serving urban and
rural communities in 17 states, and they hold investments in other
healthcare companies.  The related healthcare facilities include
a small number of rehabilitation hospitals, specialty hospitals,
long-term care facilities, a psychiatric facility and many medical
office buildings located on the same campus as, or nearby, its
general hospitals, physician practices and various ancillary
health care businesses, including outpatient surgery centers,
home healthcare agencies, occupational and rural healthcare
clinics and health maintenance organizations.
  
Shares of Tenet Healthcare traded at record highs earlier this
week after the company announced that second-quarter earnings
were up 42% from the previous year's quarter and fiscal 2002
earnings are expected to be 35% more than 2001.  The robust
numbers surprised analysts and news that admissions to Tenet's
hospitals jumped 5.9% overall was also completely unexpected.
With the excellent fundamental outlook for the company and the
recent bullish technical indications, many investors believe
the issue will move up and out of its recent trading range near
$60 in the next few weeks.  Those who agree with that outlook
can speculate on the future movement of the stock with this
combination position.

THC - Tenet Healthcare  $62.10
  
PLAY (moderately aggressive - bullish/credit spread):

BUY  PUT  FEB-55  THC-NK  OI=1115  A=$0.55
SELL PUT  FEB-60  THC-NL  OI=128   B=$1.30
INITIAL NET CREDIT TARGET=$0.80-$0.85  PROFIT(max)=19%


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

BULLISH PLAYS - Naked Puts Galore!

Today's late-session retreat in the technology segment produced a
number of excellent "premium-selling" opportunities and based on
recent technical indications and favorable option pricing, all of
these positions offer excellent risk versus reward for traders who
are bullish on the underlying issues.

***************
BRKS - Brooks Automation  $49.19   *** Rally Underway! ***

Brooks Automation (NASDAQ:BRKS) is a supplier of integrated tool
and factory automation solutions for the global semiconductor
and related industries such as the data storage and flat panel
display manufacturing industries.  The company's offerings have
grown from individual robots used to transfer semiconductor wafers
in advanced production equipment to fully integrated automation
solutions that control the flow of resources in the factory from
process tools to factory scheduling and dispatching.  Quarterly
earnings for Brooks are due on 1/23/02.

BRKS - Brooks Automation  $49.19

PLAY (sell naked put):

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

SELL PUT  JAN 45   BQE MI  100       0.50    44.50      10.6%
SELL PUT  FEB 40   BQE NH  0         0.85    39.15       6.0% ***
SELL PUT  FEB 45   BQE NI  0         2.35    42.65      10.5%


***************
CHKP - Check Point Software  $47.14  *** New Trading Range? ***

Check Point Software Technologies (NASDAQ:CHKP), together with
its subsidiaries, develops, sells and supports Internet security
solutions for enterprise networks and service providers (Telcos,
ISPs, ASPs and MSPs) including virtual private networks (VPNs),
firewalls, intranet and extranet security.  The company delivers
solutions that enable secure and reliable business-to-business
communications over any Internet protocol network, including the
Internet, intranets and extranets.  Check Point product offerings
also include traffic control/quality of service and IP address
management.  Check Point products are fully integrated as a part
of the company's secure virtual network architecture and provide
centralized management, distributed deployment and comprehensive
policy administration.  The company's quarterly earnings are due
on 1/15/02.

CHKP - Check Point Software  $47.14

PLAY (sell naked put):

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

SELL PUT  FEB 35   KEQ NG  1,825     0.50    34.50      4.0% "TS"
SELL PUT  FEB 40   KEQ NH  878       1.25    38.75      7.7% ***
SELL PUT  FEB 45   KEQ NI  1,007     2.80    42.20     11.5%


***************
EMLX - Emulex  $46.43  *** New 6-month High! ***

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.  The company's 
quarterly earnings are due on 1/22/02.

EMLX - Emulex  $46.43

PLAY (sell naked put):

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

SELL PUT  FEB 32.5 UMQ NZ   50       0.65    31.85      5.2%
SELL PUT  FEB 35   UMQ NG   291      1.15    33.85      8.8% ***
SELL PUT  FEB 40   UMQ NH   680      2.45    37.55     13.4%


***************
MRVL - Marvell Technology  $40.33  *** 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  $40.33

PLAY (sell naked put):

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

SELL PUT  JAN 35   UVM MG   450      0.25    34.75      7.6%
SELL PUT  FEB 30   UVM NF   165      0.65    29.35      6.0% ***
SELL PUT  FEB 33   UVM NZ   38       1.10    31.40      9.4%
SELL PUT  FEB 35   UVM NG   231      1.75    33.25     11.2%


***************
SEBL - Siebel Systems  $34.56  *** 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  $34.56

PLAY (sell naked put):

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

SELL PUT  JAN 30   SGQ MF  4,723     0.25    29.75      8.9%
SELL PUT  FEB 25   SGQ NE  1,668     0.45    24.55      4.9%
SELL PUT  FEB 28   SGQ NY  1,373     0.85    26.65      8.8% ***
SELL PUT  FEB 30   SGQ NF  3,566     1.35    28.65     10.2%


***************
SYMC - Symantec  $73.25  *** 2-for-1 Stock Split! ***

Symantec (NASDAQ:SYMC) provides a broad range of content and
network security solutions to individuals and enterprises.  The
company is a provider of virus protection, firewall, virtual
private network, vulnerability management, intrusion detection,
remote management technologies and security services to consumers
and enterprises around the world.  The company currently views
its business in five operating segments: Consumer Products,
Enterprise Security, Enterprise Administration, Services and
Other.  The company's quarterly earnings are due on 1/16/02 and
a 2-for-1 stock split will occur 2/1/02.

SYMC - Symantec  $73.25  

PLAY (sell naked put):

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

SELL PUT  JAN 65   SYQ MM  902       0.40    64.60      6.3% ***
SELL PUT  FEB 60   SYQ NL  417       1.10    58.90      5.1%
SELL PUT  FEB 65   SYQ NM  92        2.00    63.00      6.9%


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

BULLISH PLAYS - Synthetic Positions

***************
MER - Merrill Lynch  $57.99  *** Brokerage Sector Rally! ***

Merrill Lynch (NYSE:MER) is a holding company that, through its
subsidiaries and affiliates, provides investment, financing,
advisory, insurance and related products and services on a global
basis.  Merrill Lynch provides these products and services to a
wide array of clients, including individual investors, small
businesses, corporations, governments, governmental agencies and
financial institutions.  Merrill Lynch has three major business
segments, the Corporate and Institutional Client Group, the
Private Client Group and Merrill Lynch Investment Managers.  The
company provides financial services worldwide through various
subsidiaries and affiliates that frequently participate in the
facilitation and consummation of a single transaction.  Merrill
Lynch has organized its operations outside the U.S. into five
regions, Europe, Middle East, and Africa; Pacific/Australia;
Asia and Japan; Canada, and Latin America.

Shares of Merrill Lynch, the #1 U.S. brokerage, rallied today
after the company announced it will cut 9,000 jobs, or 16% of
its work force, and take a $2.2 billion charge as it tries to
reduce costs and achieve a profit in the flagging U.S. economy.
Merrill officials said the decisive action, which includes the
resizing of selected businesses and other structural changes,
is necessary to position the company for improved profitability
and growth.  Analysts from J.P. Morgan were bullish on the news,
upping the company's rating to a "BUY", based on Merrill's cost
capitulation and subsequent expense savings.  JPM also raised
its 2002 earnings estimates and set a new 12-month price target
of $71, amid a belief that, "the removal of a potential charge
overhang should provide some positive energy for the stock."

The recent technical trends are favorable and this position
offers a great way to speculate on the future movement of the
issue in a conservative manner.

MER - Merrill Lynch  $57.99

PLAY (speculative - bullish/synthetic position):

BUY  CALL  FEB-65  MER-BM  OI=871   A=$0.55
SELL PUT   FEB-50  MER-NJ  OI=5788  B=$0.60
INITIAL NET CREDIT TARGET=$0.15-$0.25  TARGET PROFIT=$1.00-$1.25

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $1575 per contract.


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

Neutral Plays - Straddles & Strangles

***************
GPT - GreenPoint Financial  $34.14  *** Cheap Speculation! ***

GreenPoint Financial (NYSE:GPT), a bank holding company, is a
national specialty housing finance company that provides a
variety of financial services, primarily through its three
subsidiaries, GreenPoint Bank (the Bank), a chartered savings
bank, and GreenPoint Mortgage Funding, and GreenPoint Credit,
which are both wholly owned by the Bank.  GPM originates both
adjustable and fixed rate mortgage loans, primarily through a
network of mortgage brokers, mortgage bankers, attorneys and
other real estate professionals and, to a lesser extent, from
customers and members of the local communities in GreenPoint's
lending area.  GPC is also engaged in originating and servicing
manufactured housing loans.  Their revenues are derived mainly
from interest on its loan portfolio and investment securities,
proceeds from the sales or securitizations of mortgage and also
manufactured housing loans and fees from servicing these loans.

Shares of Greenpoint Financial soared last week after the firm
said it will take $663 million in after-tax charges and slash
400 jobs, almost 10% of its work force, as it exits the risky
business of making loans to buyers of prefabricated homes.  The
New York-based specialty housing finance and banking company, a
leader in the prefab lending business, said the charges would
leave it with net losses for the 2001 fourth quarter and full
year but the company also noted it had a strong fourth quarter
in its continuing operations with GreenPoint Mortgage providing
a record $8.5 billion of residential mortgages, up $5 billion
from a year earlier and up $1.7 billion from the third quarter.
After the announcement, a slew of analysts exchanged opposing
viewpoints on the company's outlook but for now, it appears the
bullish proponents have won the day.

Regardless of Greenpoint's future performance, the issue has
been very active in recent sessions and with so much confusion
as to its fundamental value, there may be some more volatility
prior to the upcoming earnings report (1/17) and the January
options' expiration.

GPT - GreenPoint Financial  $34.14
  
PLAY (very speculative - neutral/debit straddle):

BUY  CALL  JAN-45  GPT-AI  OI=138  A=$0.80
BUY  PUT   JAN-45  GPT-MI  OI=26   A=$1.40
INITIAL NET DEBIT TARGET=$2.00 TARGET PROFIT=20%-25%

Note:  The Delta or "hedge ratio" in the position suggests that
we should buy 3 calls for every 2 puts (3:2 ratio) to maintain
a neutral outlook.  However, any upward movement in the issue on
thursday should allow both sides of the position to be purchased
at similar prices.


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

BULLISH PLAYS:

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

VLO    41.65  FEB-35P  0.40   FEB-37P  0.70   0.35     16%
IRF    40.20  FEB-30P  0.45   FEB-35P  1.00   0.60     14%
DFXI   35.09  FEB-25P  0.35   FEB-30P  0.80   0.55     12%
WLP   118.86  FE-105P  1.00   FE-110P  1.50   0.55     12%

BEARISH PLAYS:

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

QCOM   46.21  FEB-60C  0.35   FEB-55C  0.85   0.55     12%
LLY    75.32  FEB-85C  0.20   FEB-85C  0.70   0.55     12%
ATK    76.01  FEB-90C  0.60   FEB-85C  1.05   0.50     11%

***************
 
INDEX-OPTION SPREADS

As a trader, you may be familiar with options on individual stocks
where you have the right to buy (call option) or the right to sell
(put option) a particular stock at some predetermined price within
some predetermined time.  The buyer has the rights and the seller
the obligations.  With index options the basic ideas are the same.
Index options allow you to make investment decisions on a specific
industry group or on the market as a whole.  Spread strategies can
be made with index options similar to those made with individual
stock options and professional traders also employ index spreads
in hedge strategies.

***************
OEX - S&P 100 Index  $589.62  *** OTM Credit-Spreads ***

The Standard & Poor's 100 Index is a capitalization-weighted index
of 100 stocks from a broad range of industries.  The component
stocks are weighted according to the total market value of their
outstanding shares.  The impact of a component's price change is
proportional to the issue's total market value, which is the share
price times the number of shares outstanding.

Traders who participate in OTM credit-spreads often utilize S&P
100 (OEX) options because they generally contain more premium
than options on individual stocks and also provide an underlying
instrument less prone to huge, gapping moves.  The strategy will
profit if the underlying remains in a relatively small range and
from a technical viewpoint, the overall market seems likely to
move in constrained price pattern as the long-term outlook is
somewhat uncertain.  Review the OIN's Market Sentiment section
for more specific technical information on the current trends in
equities.


A Conservative, Neutral-Outlook Strategy:

By combining two credit-spread positions, you can participate
in a popular neutral strategy known as the "Long Iron Condor."
It is often used with range-bound issues and it is a limited
risk, limited profit position that gives you a wide range for
success.  The benefit to this technique is that some brokers
require less collateral for the combined position, as only one
spread can lose money at expiration.  You should consult your
brokerage to determine the maximum margin requirements before
initiating the position.

Target a higher premium in the bullish portion of the position,
due to the large BID/ASK spreads in the option prices.

OEX - S&P 100 Index  $589.62

PLAY (very conservative - bearish/credit spread):

BUY  CALL  FEB-640 OEY-BH  OI=711   A=$1.25
SELL CALL  FEB-630 OEY-BF  OI=1578  B=$2.00
NET CREDIT TARGET=$0.80-$0.95 PROFIT(max)=8%

- and -

PLAY (very conservative - bullish/credit spread):

BUY  PUT  FEB-530  OEB-NF  OI=64    A=$3.40
SELL PUT  FEB-540  OEB-NH  OI=3674  B=$3.90
NET CREDIT TARGET=$0.65-$0.85 PROFIT(max)=7%



***************
XAU - PHLX Gold & Silver Sector  $58.07  *** Bullish Outlook? ***

The PHLX Gold & Silver Sector is a capitalization-weighted index
composed of the common stocks of 9 companies involved in the gold
and silver mining industry.  XAUSM was set to an initial value of
100 in January 1979 and options on the index commenced trading on
December 19, 1983.  More information on the index and its options
can be found at: http://www.phlx.com/products/xau.html

The gold index was "on the move" today with gold futures up more
than $5 an ounce to their highest levels in three months as new
strength in demand and recent gains in silver prices combined to
push the precious metal over $284 an ounce.  Erik Gebhard, an
analyst at Altavest.com, said the bullish activity was technical
and that a close over $282 an ounce could prompt further short
covering and a "stab" toward $300 an ounce.  He also noted that,
"With equities a bit stronger, the implication is that the economy
will strengthen soon, and therefore maybe demand for gold in retail
and industrial uses looks more favorable in the near future."  In
addition, gold has seen steady physical demand in major consuming
areas with reports of increased interest in the Far East and as of
late Tuesday, Comex gold inventories were down 257 at 1.21 million
ounces.

Indeed, the technical indications of the XAU appear favorable and
traders who agree with a bullish outlook for gold and silver prices
can profit from that activity with this conservative position.

XAU - PHLX Gold & Silver Sector  $58.07
  
PLAY (conservative - bullish/credit spread):

BUY  PUT  FEB-50  XAU-NJ  OI=56   A=$0.35
SELL PUT  FEB-55  XAU-NK  OI=280  B=$1.10
INITIAL NET CREDIT TARGET=$0.80-$0.90  PROFIT(max)=19%


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


SEE DISCLAIMER
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