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Daily Newsletter, Sunday, 01/13/2002

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The Option Investor Newsletter                   Sunday 01-13-2002
Copyright 2001, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

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Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
        WE 1-11           WE 1-4         WE 12-28         WE 12-21
DOW     9987.53 -272.21 10259.74 +122.75 10136.99 +101.65  +224.19
Nasdaq  2022.46 - 36.92  2059.38 + 72.12  1987.26 + 41.92  -  7.34
S&P-100  584.20 - 14.41   598.61 +  6.86   591.75 +  5.34  + 14.03
S&P-500 1145.60 - 26.91  1172.51 + 11.49  1161.02 + 16.13  + 21.82
W5000  10698.22 -234.10 10932.32 +113.75 10818.57 +173.64  +201.37
RUT      489.94 -  9.36   499.30 +  5.68   493.62 +  9.60  + 12.73
TRAN    2706.77 -123.43  2830.20 +187.15  2643.05 + 37.82  + 28.13
VIX       23.98 +  1.96    22.02 -   .31    22.33 -   .96  -  2.68
VXN       48.37 +  1.51    46.86 +   .92    45.94 -  5.02  -  1.83
TRIN       1.44              .94              .73             1.08
TICK       +290             +996            +1098            +1184
Put/Call    .68              .67              .69              .69
******************************************************************


 
Irrational Exuberance Meets Rational Confusion? 
by Jim Brown

The markets were Greenspamed again on Friday as the master of 
disaster took the podium to warn against "significant risks in 
the near term." Traders held their breath as his words were 
dissected for the real meaning beneath the constant barrage of 
adjectives, adverbs and $10 words. Unfortunately the most pertinent
points came out crystal clear. The recession may not be over and 
rocky times may still lay ahead. Even the fact that Greenspan laid
the ground work for yet another rate cut in late January could not
prevent the Dow from closing under 10000 for the first time in 2002.



 



 



 

Greenspan was not the only harbinger of doom on Friday. Ford 
surprised the markets with a restructuring program that was almost
twice as severe as analysts expected. Ford announced a cut of 35,000
jobs and the elimination of five plants and four cars from their 
product line. The massive restructuring including cutbacks at 20 
plants, which will remain open, will produce a massive $4.1 billion
charge in the 4Q of 2001. The cuts will take 15% off their North
American production capacity and eliminate the Escort, Cougar, 
Villager and the Lincoln Continental from their product line.
This huge admission that things are not going well at Ford plus
the huge economic impact of the changes started the markets off
in a bad mood.

Adding to this bad mood was a comment from Merrill Lynch that 70%
of their tech universe was over valued since the September bounce.
Leading their list of expensive stocks was CMVT, ORCL, MSFT, MXIM
and LLTC to name a few. They said an aggressive recovery and return
to strong earnings was already priced into most techs and there was
little upside for investors. They did say that some stocks were still
in the buy category including EDS, CSC, HWP, PSFT and surprisingly
CSCO. They said that based on projected growth rates for CSCO the
stock was undervalued. Still the blanket pronouncement of "over priced"
for 70% of tech stocks put a lid on any bullish sentiment at the open.
There was also a rumor that Cisco made some bearish comments in an
upcoming Business Week article.


Still not depressed? A federal judge killed the proposed Microsoft
class action settlement agreement where MSFT was to have donated 
over $1 billion in hardware and software to schools across the U.S.
Microsoft foe Apple Computer won on the argument that giving MSFT 
software to educational systems would have been very noncompetitive.
It was like starting kids on drugs while in school to insure they
will be addicts to your brand later. I had written about this 
unbelievable win by MSFT in the past and why it would probably not
fly so this was not a surprise. Microsoft is now faced with coming
up with an entirely new plan or fighting each case on its own merit.
Expect a new plan and another year of legal wrangling before any 
clouds are lifted from MSFT stock. The judge called the offer 
"critically under funded" which means more bucks when the next 
offer is negotiated. 

By far the biggest depressant for the day was the Greenspan comments.
While he tried to skillfully to walk the line between optimism and
pessimism, the negative points attracted bears like Al Queda attracts
bombs. The frustrated English professor tried to say things had gone
from bad to mixed but he came off sounding like Tommy Franks when
asked about Osama's whereabouts. Tommy Franks, "we just don't know
what we don't know." Greenspan's "we just don't know" of course took
several paragraphs to accomplish the same result. "Our economy has not
been weakening in recent weeks and is seeing signs of stabilization
in many respects." So far so good. However in closing, "I would 
emphasize that we continue to face significant risks in the near term."
There was about 25 paragraphs between those two sentences but the 
closing comment was the damaging one. 

Greenspan feels that there are five things that will weigh heavily 
on the economy going forward. Rising mortgage rates will stifle home 
sales. Auto sales are already slowing with the majority of the buyers
having been coerced into buying in the last three months leaving a 
black hole in sales going forward. Energy prices have fallen about 
as far as they are going to fall so manufacturing will not have the 
benefit of future price cuts. Unemployment is rising with well over
50,000 cuts announced this week alone. This will put a lid on consumer
spending without a significant economic rebound. And lastly something
investors know all too well. The wealth effect from the falling stock
market will impact consumer spending as well. This impact lags the
occurrence by about a year meaning the 2001 drop has yet to be felt 
in the economy. This will curb household spending and remain a 
dampening force until stocks rebound. That rebound will require an 
improvement in corporate earnings to something more than is already 
reflected in the share prices. (See the Merrill Lynch comments above).
All this pessimism triggered the shorts which had been ready to react 
to any negative Greenspan revelations and as they say, the rest is history.

The fear of darkness set in as the weekend approached and even the
psychological 10000 level on the Dow failed to put a bottom under 
the markets. The event risk over the weekend, Eneron news, Pakistan- 
India, Argentina, Japanese banks, Arab/Israeli conflict and the
continuing terrorist war, was too much for traders to handle. There
was a brief short covering rally and a small buy program in the last
hour of trading but neither were able to push the Dow back over 10040.

The Dow closed under 10,000 for the first time this year and only 37
points above decent support at 9950. Should that support fail it will
not be a pretty picture. 9725 could become the handwriting on the wall. 
Liquidity is still a problem. Thursday saw yet another outflow of
cash from mutual funds. Only $500 million but remember this is a
period when cash is supposed to be flowing into funds like water
from a tap. The Nasdaq stopped right on interim support at 2020 but
should that fail it could be a quick drop to 1940. The earnings 
picture will become much more clear next week as over 300 companies
announce. There will be some giants including GE, INTC, APPL, CPQ,
YHOO, IBM, MSFT, NT, UTX, SUNW. Some of the contract manufacturers
and smaller chip companies announce as well which should provide
a leading indicator for health of the tech sector.

At 9987 and 2020 the indexes closed right on my bearish bounce 
objectives. The markets are oversold, on support and in the case of
the Dow, down for five straight days. If it were not for the Greenspan
comments I would have bet on a positive day. We are ripe for a bounce
but obviously traders are fearing some negative earnings surprises or
there would be more underlying support and more money flowing into
funds. Last Sunday I warned about excessive bullishness built on 
wishful thinking and the probable desire by traders to take some
profits off the table before the end of the week. The markets broke
below my exit points and are now threatening to start a new leg down
if these support levels do not hold. This sets up a key situation for
us. I would go long on Monday on any positive move upward. This would
be a trading bounce only but one that could turn into a longer term 
play if the first few earnings reports surprised to the upside. Plan
B. If those levels fail (9950/2020) I would remain flat and wait for
a new support level to show up. That level could be significantly 
lower if those first few earnings surprise to the downside. This is
going to be an exciting week and one that should prove the worth of
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Today is the last time you will have to put up with the commercial
for the End of Year renewal special. It disappears for another year
on Monday so you need to act fast to take advantage of this
opportunity. 

Buckle your seat belts as we head into earnings next week because 
it could be an exciting ride. 

Enter Passively, Exit Aggressively!

Jim Brown
Editor@OptionInvestor.com


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

Orderly Decline
Austin Passamonte

I almost hate to say it, but market action since the first of 
this year has been very orderly in nature. After living thru the 
wild volatility and gyrations of 2001, we see a return to 
predictability in short-term market timing.

While unable to capitalize on viable swing trades this session, 
we were able to pick points of resistance on Thursday night and 
suggest put-play entry scenarios that intraday traders could have 
taken advantage of. It was a droll to boring session in the early 
going and I had great concern for SPX and DJX put plays that 
survived Thursday's close, but once again a late-day selloff 
tossed a gift in our laps as puts entered Thursday or Friday 
morning worked quite well indeed.

Can we have another serving of high-odds swing trade setups next 
week? Expiration week is usually good for one significant move 
offering several hundred to one thousand percent gains on 
contract cost over two sessions time. We'll do our dead-level 
best to harvest our chunk from the middle if it happens!

Which direction might that be? Let's see:

(Weekly Chart: OEX)


 

The OEX (S&P 100) is a great proxy example for all major indexes 
from which it is comprised, so let's ply this one for example. 

Weekly charts are mixed to bearish right now. The long-term 
descending channel from March 2001 held until last week before 
finally breaking out last week. Nix that now, as five sessions 
later saw a return below support on a Friday close this time.

Next viable, solid support? I'd say the 570 area below.


(Daily Chart: OEX)


 

Switching the exact-same chart to daily time frame instead, we 
see the channel lines acting as price magnets before and then 
ahead. If support breaks from current level tonight I'd wager we 
see the 575 area next. Looks like I was off a bit on my weekly 
chart support line guess (light blue) as it's easier to see in 
this picture.

With daily-chart stochatic values in a power-dive with no sign of 
recovery I'd look for lower prices on Monday. That 575 area could 
see an oversold bullish reversal bounce and we'll watch for that. 
Should price action fail to reverse from there, we could be 
looking at a very profitable down-move to the 550 area in the 
not-too-distant future.

Close Jan, Hold Feb & Later Option Contracts
More than a few readers asked me why we closed out Jan puts in 
Swing Trade model today for modest gains when it appears price 
action will open lower on Monday due to closing on session lows 
Friday.

First, time (theta) decay will shrivel those options if held over 
the weekend, especially from inflated prices juiced up by the 
fast drop into Friday's close. It would take a large gap-down 
open on Monday to offset closing out today and reentering on 
Monday.

Second, Monday morning opens often reverse Friday's action due to 
sentiment changes caused by two days for human emotions to 
regroup and major media outlets to spin their stories. When solid 
gains are in the account and no opening bell is slated for the 
next morning, sell first, count the money and ask questions 
later!

Summation
Long-term charts are very weak but mixed right now. If daily-
chart stochastic values turn higher this week we'll play calls, 
and if they remain downward we'll play puts with equal abandon. 
One thing is for sure: if markets keep up their methodical ways 
thru most of this year we won't be counting our money... we'll 
have to weigh it!

Best Trading Wishes,
austinp@OptionInvestor.com


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

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

Target Shooting Results and Expiration Week Plays?

Remember the premise for last weeks plays:

The premise here is that the Dow/Nasdaq/SOX has spiked up to a
level where profit taking may occur at any moment. I expect the
markets to rally at the open on Monday assuming we do not get 
any negative surprises. If they do rally that will put them 
even more overbought and hopefully fill our put options for
cheap prices as the bulls overextend themselves. 1-6-02

The profit taking came but we had two big bullish spikes that
would have triggered all our entry points. 


DOW (DJX) Jan-$103 put - Entry $1.25 Profit stop $1.95

The DJX missed the $1.25 entry on Monday by a dime but easily hit 
it on Wednesday. Both Thursday and Friday would have provided an 
exit at well over our $1.95 profit stop with a $2.75 and $3.20 high
respectively.



 


Nasdaq - (QQQ) 
Nasdaq QQQ Jan-$42 Put $1.25 entry, $1.90 Profit stop

The QQQ triggered the entry on Monday with a low of $1.10 and
again on Wednesday with a low of $.80. However the exit of $1.90
has yet to be hit with highs on three days just under at $1.75-$1.80.
The almost 100% swings twice during the week would have been nice
swing trades. We still have a good chance on Monday of seeing the
$1.90 exit at the open. Time will tell.



 


Semiconductor Holders (SMH) Jan-$47.50 puts $1.50 entry, $2.45 profit.


The SMH missed our entry of $1.50 on Monday but easily hit it
on Wednesday. The $2.45 exit would have been triggered on both
Thursday and Friday. 



 


All of the target shooting plays from last week would have been
very profitable with very little risk. The indexes were very oversold
and spiked to even more oversold on Wednesday. I hope you see how
options do not have to be expensive to be profitable and a $1.50
move in a cheap option can be very rewarding.

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

Providian Financial - Back from the Dead?


 

Remember PVN?  When I profiled it back in November in this 
section it was trading at $3.00. Since mid-December it has been
trending up and the P&F chart is showing a bullish target of over
$8.00. My point at the time was buying a $3.00 stock with no
expiration provided very little risk as long as you were comfortable
with the company. PVN traded over 10 million shares on Thursday
and 8 mil on Friday with 3 mil being the average volume. Is it all
blue skies ahead for PVN? I don't know but we added it as a call
play in OIN this weekend. Stay tuned! The Jan-03 $5 leap was 
selling for $1.15 when I first profiled this stock. Is that
cheap enough for a lottery play? It is $1.75 today. I feel a
homerun coming for somebody.

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

Expiration week plays

This may be a tough one to play. With the market likely to make
a huge move, direction unknown, it will be hard to pick the right
options. If support holds on Monday and the first few earnings are
positive then we could blast back over 10000. Should those earnings
be ugly then a retest of 9750 could easily be in the cards.

The best bet is to find some stocks that are likely to be in the
news and are sitting on a strike price and use a straddle strategy.

Intel is one of these stocks. With earnings next week and the
stock stuck at $35 we can play for a $2 move in either direction.
We have an added bonus event with the announcement of their new
P4 on Monday/Tuesday. 



 

The downside to this play is also huge. There are nearly 600,000
open call contracts between $22.50 and $40.00. This represents a
huge overhead burden for Intel to carry according to conventional
wisdom. However, many of those may have been written naked thinking
that 4Q PC sales would be down and INTC was sure to suffer. Should
INTC surprise to the upside a major short squeeze could develop.



 

This is a risky play in my opinion but with the call side only
bid at $.85 cents it is one that I might roll the dice on the 
upside only. I have spent $.85 in a lot worse places before.

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

Juniper

Another long shot with a possible big payoff could be Juniper.
Currently at $19.26 with strong support at $19 the Jan-$20 call
is only $.85 cents. Juniper also has earnings this week and a
positive comment or two could cause another short squeeze. 



 


If you want to cover yourself on the downside I would not go long
the $20 put at $1.55 but skip to the $17.50 at $.45 cents. If they
say something very negative the next support is in the $15 range.
That $.45 put could be $2.45 by weekend. 

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

Broadcom

This stock has been trying to break out over $50 for a week.
It pulled back some on Friday but held firm just under the line.
I would try and target shoot the $50 call at $1.25 to $1.50 on
any weakness on Monday.



 


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

Nortel

NT also announces earnings this week and has got to say something
either very positive or very negative. There is no middle ground
for NT. The $7.50 call is already $.53 in the money and is going 
for $.70. Insurance on the play in the form of the $7.50 put is
only $.20. It is almost worth just throwing a couple $20 bills
at the put and hoping they lower guidance again. A drop back to
the low $6 range again would be a huge win in percentage terms.
Caution - Don't bet a bundle here just because they are cheap.
If they don't die on earnings the premium will instantly evaporate.



 



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

These are all high-risk plays so be sure to only use HIGH RISK
capital to play them.

Good Luck

Jim


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

A Shift In Sentiment?
By Eric Utley

Ford (NYSE:F) announced 35,000 job cuts.  The Enron (NYSE:ENE)
debacle continued to unravel.  Greenspan said that the U.S.
economy faces "significant risks in the near-term."  The Dow
Jones Industrial Average ($INDU) closed below the psychologically
significant 10,000 level.  Are the bears back in business?

The fear gauges of the market are creeping higher, but remain
near the lower-end of their recent historical ranges.  Put/call
ratios aren't revealing signs of fear and only the Nasdaq-100
bullish percent ($BPNDX) is in bearish territory.  By most
measures, the bears are not back in business.

Consolidating last fall's massive rally is needed, and it feels
like that's what the market is currently doing or starting to
do.  The biggest variables are how much the market will pullback
by and for how long will the consolidation last.

The S&P 500 ($SPX), for example, could fall all the way back to
1085 and not cause so much damage as to negate the new bull
market.  In fact, such a pullback might be healthy.  But 1085 is
quite a distance from the current $SPX level.  I'm not suggesting
that it's going to happen, just trying to keep an open mind about
last week's weakness.  The last thing I want to see is the bubble
from 1998 to March of 2000 re-inflated.  A market that goes
straight up would push a lot of air back into the balloon.  And
the last bursting of the bubble was bad enough.

-----------------------------------------------------------------

Market Averages


DJIA ($INDU)

52-week High: 11350
52-week Low :  8062
Current     :  9988

Moving Averages:
(Simple)

 10-dma: 10116
 50-dma:  9877
200-dma: 10103



S&P 500 ($SPX)

52-week High: 1383
52-week Low :  945
Current     : 1146

Moving Averages:
(Simple)

 10-dma: 1160
 50-dma: 1137
200-dma: 1167



Nasdaq-100 ($NDX)

52-week High: 2771
52-week Low : 1089
Current     : 1634

Moving Averages:
(Simple)

 10-dma: 1641
 50-dma: 1593
200-dma: 1614



-----------------------------------------------------------------

Market Volatility

The VIX again spiked to the 25 level in last Friday's session,
only to fall back to its recent range near the close of trading.
It does appear that fear is on the rise, however, judging by the
recent ascending trend established in the VIX.

The VXN finished lower in last Friday's session, never reaching
the 50 level, which is the very short-term relative high in the
index.

CBOE Market Volatility Index (VIX) - 23.98 +0.85
Nasdaq-100 Volatility Index  (VXN) - 48.44 -0.22

-----------------------------------------------------------------

          Put/Call Ratio  Call Volume   Put Volume
Total          0.68        599,812       408,524
Equity Only    0.57        523,039       298,327
OEX            1.85         11,358        20,977
QQQ            0.73         36,090        26,370
 
-----------------------------------------------------------------

Bullish Percent Data

           Current   Change   Status
NYSE          56      + 0     Bull Alert
NASDAQ-100    63      + 0     Bear Correction
DOW           70      + 3     Bull Confirmed
S&P 500       68      + 0     Bull Confirmed
S&P 100       69      + 2     Bull Confirmed

Bullish percent measures the number of stocks in an index 
currently trading on a buy signal on their point and figure 
chart.  Readings above 70 are considered overbought, and readings 
below 30 are considered oversold.

Bull Confirmed  - Aggressively long
Bull Alert      - Cautiously long
Bull Correction - Pause or pullback in upward trend
Bear Alert      - Take defensive action if long
Bear Confirmed  - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend

-----------------------------------------------------------------

 5-Day Arms Index  1.45
10-Day Arms Index  1.33
21-Day Arms Index  1.16
55-Day Arms Index  1.12

Extreme readings above 1.5 are bullish, and readings below .85 
are bearish.  These signals don't occur often and tend be early, 
but when the do, they can signal significant market turning 
points.

-----------------------------------------------------------------

Market Internals

        Advancers     Decliners
NYSE      1304           1829
NASDAQ    1517           2100

        New Highs      New Lows
NYSE       77             23
NASDAQ    103             18

        Volume (in millions)
NYSE     1,203
NASDAQ   1,607

-----------------------------------------------------------------

Commitments Of Traders Report: 01/08/02

Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the 
Chicago Mercantile Exchange and Chicago Board of Trade. COT data 
can be found at www.cftc.gov.

Small specs are the general trading public with commercials being 
financial institutions. Commercials are historically on the 
correct side of future trend changes while small specs tend 
to be wrong.  

S&P 500

Commercial interests shed 4,500 long an 8,734 short positions in
the most recent reporting period.  Their net bearish position grew
to 64,544 contracts.  Meanwhile, small traders added more than
5,000 short positions while adding a fewer number of longs, for a
net decrease in their bullish position.

Commercials   Long      Short      Net     % Of OI 
12/18/01      391,995   456,968   (64,973)   (7.6%)
12/21/01      412,581   471,239   (58,658)   (6.6%)
01/08/02      333,742   398,286   (64,544)   (8.8%)

Most bearish reading of the year: (111,956) -   3/6/01
Most bullish reading of the year: ( 36,481) - 10/16/01

Small Traders Long      Short      Net     % of OI
12/21/01      152,521     79,444   73,077     31.5%
12/28/01      127,419     55,576   71,843     39.3%
01/08/02      130,335     60,780   69,555     36.4%

Most bearish reading of the year:  36,513 - 5/01/01
Most bullish reading of the year:  91,122 - 3/06/01
 
NASDAQ-100

Commercial interest remained decidedly bearish for the second
consecutive week in the Nasdaq-100 market.  Their net bearish
position grew by about 400 contracts.  Small traders remained
bullish, but reduced their net position by more than 1,000
contracts.

Commercials   Long      Short      Net     % of OI 
12/21/01       55,250     47,476      7,774    7.6%
12/28/01       29,801     37,497    (7,696) (11.4%)
01/08/02       30,786     38,913    (8,127) (11.7%)

Most bearish reading of the year: (15,521) -  3/13/01
Most bullish reading of the year:   7,774  - 12/21/01

Small Traders  Long     Short      Net     % of OI
12/21/01       15,810    25,687   (9,877)   (23.8%) 
12/28/01       10,649     5,913     4,736     28.6% 
01/08/02       10,073     6,404     3,669     22.3%

Most bearish reading of the year:  (9,877) - 12/21/01
Most bullish reading of the year:   8,460  -  3/13/01

DOW JONES INDUSTRIAL

Commercial interests added a small number and a few more short
positions.  Their net bullish position dropped by a small
amount from the prior reporting period.  Small traders added
about 1,000 longs and roughly 500 short positions for a net
reduction to their bearish position.

Commercials   Long      Short      Net     % of OI
12/21/01       15,492     7,335    8,157     35.7%
12/28/01       15,820     7,553    8,267     35.7% 
01/08/02       15,921     7,981    7,940     33.2%

Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
12/21/01        4,293     9,086    (4,793)   (35.8%)
12/28/01        3,368     8,668    (5,300)   (44.0%) 
01/08/02        4,380     9,188    (4,808)   (35.4%)

Most bearish reading of the year:  (8,777) - 10/12/01
Most bullish reading of the year:   1,909  -  1/16/01


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***************
ASK THE ANALYST
***************

Lost Dogs
By Eric Utley

I lost four of my puppies a few weeks back.  And I'm all broken
up about it.  Of course my puppies are sector indices.  The
Chicago Board Options Exchange (CBOE) ceased trading on four
sectors a few weeks back.  Those four sectors:

The S&P Transportation Index ($TRX)

The S&P Health Care Index ($HCX)

The S&P Insurance Index ($IUX)

The S&P Chemical Index ($CEX)

The loss of the $TRX wasn't that big of a deal because I can
track the Dow Jones Transports ($TRAN).  The loss of the $HCX
wasn't that big of a deal because I can track the AMEX Biotech
($BTK), the Pharma Index ($DRG), and MS Healthcare Index ($HMO).

The losses of the $IUX and $CEX, however, really upset me.
Especially the $IUX for its inclusion a few months ago in this
column and the fact that the trade has been working recently.
Yes, I'm still tracking American International Group (NYSE:AIG).

I don't know why the CBOE ceased trading on the four.  It's
been a pain.  Let me know if you find a replacement for the
insurance sector.

Please send your questions and suggestions to:

Contact Support 

----------------------------

SPX Corp. - (NYSE:SPW)

The stock has been rising all the time.  Where do you think
resistance lies? - Thanks, Sunil

Thanks, Sunil.

SPX, not to be confused with the ticker for the S&P 500, is a
diversified company whose stock Option Investor covered on the
call list in the recent past.  The company is amazingly
diverse.  Here are just a few of its products and services:

Networking and Switching products used in data storage and
telecom applications.

Building safety systems used for fire detection and life
safety systems.

Automated fare collection systems used for bus and rail transit
systems.

Large and medium power transformers.

Diagnostics systems used by original equipment manufacturers.

High-integrity aluminum and magnesium die-castings, forgings,
automatic transmission and small engine filters.

I didn't list the company's products to take up space.  My
point was to reveal SPX's diversity of operations because the
company can be used for a gauge of economic activity, much in
the same way General Electric (NYSE:GE) is used.

The price action of SPX since September has discounted a
significant reversal in its businesses.  Accordingly, I think
the stock adds credence to the prospects of an economic rebound
this year.



 

Where does resistance rest?  In order to find a potential level
of resistance in SPW, I've employed the use of a Weekly chart
and my trusty retracement bracket.  I've anchored the upper-end
(100%) of my bracket at the August 2000 high, around $186.  The
lower-end (0%) of my bracket is anchored at September 2001's
low, around $74.61.  This particular bracket shows me the
progress of SPW's long-term rebound.

The stock has, through Friday, retraced more than 50 percent of
its decline.  It's now working on the 61.8 percent retracement
level around $143.  Thereafter, it's the 80.9 percent retracement
level around $165.



 

----------------------------

Pixelworks - (NASDAQ:PXLW)

Based on the action of GNSS, (hot LCD flat screen sector) I have
been watching PXLW as a possible lower priced candidate for a
run.  Just acquired a company and chart has been looking
reasonably good.  PEG ratio is 1.13.  Entry here?  Thanks for your
thoughts. - Ed

Thank you, Ed.

Pixelworks makes software and semiconductors used in advanced
display applications.  It competes with the previously-alluded to
Genesis (NASDAQ:GNSS) and STMicro (NYSE:STM), among others.  The
flat panel display market is growing through applications in HD-TV,
DVD players, and Internet appliances.  The cost of flat panel
displays is coming down with new technology and increased
competition.

The increased demand for flat panel displays has obviously filtered
down to the component makers such as Genesis and Pixel.  But
Genesis, who is in the process of acquiring Sage (NASDAQ:SAGI), is
by far and away the dominant player in the space.  Once the
acquisition closes, it's been suggested that the combination of
Genesis and Sage will command about 65 percent of the market for
flat panel display components.  That's big!  If you're bullish on
this particular segment, I think it's smarter to go with the
leader, who is Genesis.

PXLW has fallen into a descending trend since early December.  The
stock broke down in Friday's session.  If you take a look at the
point and figure chart, you'll see bullish support at $13.50.  If
you are bullish on this company, you can try an entry at $13.50 for
a short-term bounce.  Beyond that, I don't like the lack of relative
strength or price action.  The stock acts like it's under
distribution.



 

----------------------------

DISCLAIMER:
This column is an information service only.  The information
provided herein is not to be construed as an offer to buy or
sell securities of any kind.  The Ask the Analyst picks are not
to be considered a recommendation of any stock or option but an
information resource to aid the investor in making an informed
decision regarding trading in options.  It is possible at this
or some subsequent date, the editor and staff of The Option
Investor Newsletter may own, buy or sell securities presented.
All investors should consult a qualified professional before
trading in any security.  The information provided has been
obtained from sources deemed reliable, but is not guaranteed
as to its accuracy.


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

Monday, 01/14/02
None

Tuesday, 01/15/02
Retail Sales           Dec  Forecast:  -1.1%  Previous:   -3.7%
Retail Sales ex-auto   Dec  Forecast:   0.0%  Previous:   -0.5%

Wednesday, 01/16/02
CPI                    Dec  Forecast:   0.1%  Previous:    0.0%
Core CPI               Dec  Forecast:   0.2%  Previous:    0.4%
Business Inventories   Nov  Forecast:  -0.5%  Previous:   -1.6%
Industrial Production  Dec  Forecast:   0.0%  Previous:   -0.3%
Capacity Utilization   Dec  Forecast:  74.6%  Previous:   74.7%
Fed’s Beige Book

Thursday, 01/17/02
Initial Claims       01/12  Forecast:    N/A  Previous:    395K
Housing Starts         Dec  Forecast: 1.610M  Previous:  1.645M
Building Permits       Dec  Forecast: 1.570M  Previous:  1.564M
Philadelphia Fed       Jan  Forecast:    0.0  Previous:   -12.6

Friday, 01/18/02
Trade Balance          Nov  Forecast:-$28.5B  Previous: -$29.4B
Mich Sentiment-Prel.   Jan  Forecast:   89.6  Previous:    88.8


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The Option Investor Newsletter                   Sunday 01-13-2002
Sunday                                                      2 of 5


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**********************
INDEX TRADER GAMEPLANS
**********************

IS Swing Trade Model: Friday 1/11/2002
Saved At the Bell

News & Notes:
------------
From last night's outlook: "I would look for an early pop to the 
592 - 595 zone where any failure from there as both stochastic 
values turn bearish would be a high-odds put play... Same thought 
for the SPX. A failed pop to 1160 area and break back below would 
make an ideal put-play entry. We will watch for that as well. 
Similar story with the QQQ. An attempt to fill the gap between 
41.50 and 42.00 is likely, and failure from there is a short I'd 
play in a heartbeat."

Both S&P indexes behaved perfectly for day traders watching 60/30 
charts and price action resistance levels for quick, intraday 
trades. No January index option contracts of any kind should be 
held over the close if long. Time (theta) decay between Friday's 
close and Monday's open will eat away several index point's move 
in the underlying symbol, at best.

Thursday put play entries saw the OEX and QQQ barely hit their 
stops on a late-session spike while the SPX and DJX plays barely 
squeaked thru into Friday. From there we saw markets tread water 
for hours before the afternoon slide allowed us to exit them near 
the close for modest gains. What had all the makings of a droll, 
boring session ended in profitable fashion again for aggressive 
traders playing hour's long trades with no time for error.


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


 

The OEX tested upside resistance right from the open and hovered 
up there for half the session. A break below 590 after that when 
both stochastic values turned bearish was a screaming put play 
entry. However, that trade came with a very short time-span to 
perform before the 4:00pm close. Not even close to swing trade 
parameters, but intraday scalpers could have caught roughly six 
index points of quick downside action.


[60/30-Min Chart: SPX]


 

Same for the SPX (as usual) when it broke below 1156 and fell 
eleven index points beyond there. An excellent day trade in 
hindsight by high-risk players in a short time-span to execute.


[60/30-Min Chart: QQQ]


 

The QQQ broke below 41.00 area and signaled entry we would have 
happily swung with one more trading session to hold into before 
the weekend loomed. 


Summation:
---------
Nice swing trade entries this afternoon after early price failure, 
but the lack of one more session to hold over into negated them 
from being anything more than quick day trades. Probable downside 
continuation if this weren't Friday, but Monday opens commonly 
reverse Friday's close due to weekend interruption of emotion and 
sentiment.

We enjoyed modestly predictable market patterns for most of the 
past two weeks. Unfortunately, that does not exist tonight. We 
have no chart signals or price pattern consolidation points of 
reference to look towards for Monday's action from here. Signs 
point to a market bounce early next week but more downside first 
is very probable. 

Monday may offer Swing Trade setups for later in the week. We've 
seen several recent trades for small moves and modest gains but 
continue to wait for the next solid, directional move that lets us 
capture bigger fish. With expiration week up next, there should be 
at least once viable chance to catch a move good for several 
hundred percent gains and we'll do our best to catch it!


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                 Long: BREAK BELOW 
Stop: Break Above                 Stop: Break Above 


=====

         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                 Long: BREAK BELOW 
Stop: Break Above                 Stop: Break Above 



Open Plays:
----------                                                  
Jan Puts: 100 (DJV-MV)
Long: BREAK BELOW 100.80
Stop: Break Above 102.00 [Exit: 99.70]

Jan Puts: 1150 (SPT-MJ)
BREAK BELOW 1155.25
Stop: Break Above 1152.00 [Exit 1147]


IS Position Trade Model: Friday 1/11/2002
Sliding Lower


News & Notes:
------------
Our Feb put play contracts were never threatened today. Markets 
popped higher at the open, traded sideways and slid lower into the 
close. We didn't catch the top of this recent move to track 
distant month puts with, but all are resting comfortably away from 
danger tonight except for PPH. Drug index popped in defense of 
broad market action and exited that play at stop-loss measure.


Featured Plays:
--------------
Charts in Index Wrap


Summation:
---------
We don't have conditions for buy & hold option plays to track 
tonight, but that may change in one or two sessions ahead. We will 
also trail up stop-loss orders to minimize/eliminate gains as 
market action permits.


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 [hit]

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


Sector Share Trade Model: Friday 1/11/2002
Falling Further


News & Notes:
------------
Broad markets continued to shed ground today and may not be 
finished yet. 


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


 

The XLI SPDR shorted over a week ago continues to slide and broke 
below its 50-DMA at the close. Looks like another point or two on 
the downside over the next short while ahead.


Summation:
---------
We are nearly flat right now as range-bound action now sees price 
levels trading near recent support. Some signs point to a possible 
bounce next week, but it's likely there will be testing of some 
key pivot points in broad indexes and narrow sectors ahead.

No viable buy & hold play entries exist right now, although we 
might be getting close.


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  27.60 


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

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


CALLS              Mon    Tue    Wed    Thr   Week

ACS     106.96   -0.75   1.80   2.18   0.55   2.21  Sailing higher
CCMP     78.27   -0.46  -0.03   0.98  -1.43  -5.48  Dropped
MANU     20.15   -0.09   0.17   0.13  -0.21   0.09  Still at $20
MCAF     38.65    0.99   2.53  -0.48   1.06   1.77  Earnings 01/16
EMLX     45.61   -0.14   1.65   0.43  -0.81   1.12  Still strong
GNSS     72.11   -0.74   1.54   2.96  -0.97   3.36  Above $70
VRTS     46.48    0.37   0.89  -1.67  -0.19  -1.73  Dropped
RSTN     20.55    1.13   0.07   0.28   0.49   2.07  Network-ing
LLY      76.40   -0.85  -1.20  -0.28   1.48  -1.30  Ready to rotate
EPNY     10.97   -0.73   0.11   1.50  -0.17   1.95  New, breakout
MRVL     41.52    0.03   0.35   1.10   0.35   2.67  New, chipper
PVN       4.33    0.00   0.17   0.10   0.54   1.00  New, rebound
   

PUTS

CORR     22.33   -0.70   0.21  -0.31   0.31  -1.12  Dropped
ADRX     63.82    1.39  -1.35  -0.92   0.90  -0.32  Watch 200-dma
ELBO     34.57   -2.42   1.57  -1.56   0.81  -2.43  Playing games
EBAY     63.87   -1.70   0.74  -0.65  -0.90  -4.63  Break down
QCOM     46.51   -3.21   0.99  -1.98   0.48  -3.90  Bad wireless
AZO      64.86   -0.86  -0.85  -1.09   1.00  -2.14  Mark down
BBOX     49.19   -2.66  -0.08  -0.74  -1.48  -5.13  Big goose
KBH      37.69   -0.05  -0.51   0.61  -0.41  -1.32  New, bad group
THQI     45.88   -0.50  -0.65  -1.25  -1.28  -5.87  New, steady



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

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

PVN – Providian Financial $4.33 (+1.00 last week)

See details in play list




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

THQI – THQ Inc. $45.88 (-5.87 last week)

See details in play list




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

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


CALLS
^^^^^

CCMP $78.27 (-5.48) Salomon Smith Barney downgraded CCMP last
Friday and the stock tumbled, shedding more than 6% on the day.
The downgrade was valuation-based, the worst kind in our
opinion for its subjectivity and analyst-based presumptions.
If your stop wasn't triggered last Friday, look to any strength
early next week as an exit opportunity to trim losses.

VRTS $46.48 (-1.73) As Technology stocks seemed to lose some of
their lustre last week, shares of VRTS tried to buck the trend,
taking one last run at the $49 resistance level on Wednesday.
But there wasn't enough juice to get the job done, and the past
few days have seen the stock continuing to work lower.  Daily
Stochastics are in full descent mode, and the stock is getting
ever closer to a serious test of support at the 200-dma.  VRTS
has given us several opportunities for short-term profits over
the past 3 weeks, but its inability to mount a serious breakout
has us growing impatient.  While our stop is still intact, the
bearish action on the broader Software index (GSO.X) has us
thinking the best move is to close out the play this weekend.
Take advantage of any rebound on Monday to exit the play at a
more favorable level.


PUTS
^^^^

CORR $22.33 (-1.12) MLNM and CORR have appeared to reach a
short-term bottom.  Instead of risking the $2 we've captured
in the last roughly two weeks, we're dropping coverage this
weekend with CORR finishing near support last Friday.  Look for
an intraday dip down around $22 to exit plays.


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

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

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

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

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

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

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




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


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

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support
The Option Investor Newsletter                   Sunday 01-13-2002
Sunday                                                      3 of 5



************************Advertisement*************************
Tired of waiting on trades to execute?
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!

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


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

EPNY - E.piphany $10.97 (+1.95 last week)

E.piphany develops, markets, and sells the E.piphany E. 5
System, an integrated suite of customer relationship
management (CRM) software solutions.  These CRM solutions
provide capabilities for the analysis of customer data, the
creation of inbound and outbound marketing campaigns and the
execution of sales and service customer interactions.

These little software stocks have been acting like it's 1999
again.  Maybe that's a bad thing.  In any case, we're looking
to get while the getting's good in these stocks back from the
dead.  EPNY is one of those stocks.  It broke above its 200-dma
in early December.  The move above the 200-dma was EPNY's first
in about 19 months.  Since breaking above the 200-dma about one
month ago, EPNY pulled back to consolidate its run from September
lows.  But that pullback ended last Thursday when EPNY broke
back above its 200-dma in a big way, reaching as high as $11.15
in last Friday's session.  Volume was extremely heavy on the
follow-through into Friday's session, adding credence to the
breakout.  Overhead, there exists resistance around the $12.50
level.  But beyond $12.50, it looks like a clear shot to the
$15 level.  While a $4 potential move may not sound like a lot,
consider the fact that EPNY is a very low price stock.
Accordingly, its options are cheap and responsive to movement
in the underlying.  Given the breakout, this is clearly a
momentum play.  Readers enter positions accordingly.  Look for
a strong market and Software Sector (GSO.X) early next week and
a break above last Friday's high at $11.15.  A pullback down into
the $9.75 range could offer dip buyers an entry opportunity.  Our
stop is initially in place at $9.

BUY CALL FEB-10*UEP-BB OI=142 at $1.70 SL=0.75
BUY CALL FEB-12 UEP-BV OI= 30 at $0.65 SL=0.00
BUY CALL APR-10 UEP-DB OI=605 at $2.65 SL=1.75
BUY CALL APR-12 UEP-DV OI= 88 at $1.55 SL=0.75

Average Daily Volume = 1.06 mln



MRVL - Marvell Tech $41.52 (+2.67 last week)

Marvell Technology Group 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 Semiconductor Sector Index (SOX.X) pulled back by about 3.5%
in last week's trading.  The index tried to breakout above the
600 level in last Wednesday's session, but was unable to follow
through thanks to weakness in the broader markets.  The SOX.X
pulled back to its 10-dma at 564 in last Friday's session.
Despite the weakness in the SOX.X last week, some chip shares
were able to reach new high ground.  Some encroached upon a
breakout.  MRVL was one such stock.  Bullish analysts comments
and actions early in the week helped MRLV along.  Frost
Securities initiated coverage last Monday and CIBC Markets
issued a Buy rating last Wednesday.  The stock traded higher in
all five sessions last week, displaying its awesome relative
strength versus the SOX.X.  If the SOX.X can mount a small
reversal next week and trade higher, MRVL should be able to
clear its very short-term overhead resistance and breakout to
new relative highs.  The stock traded up to $42 at the
beginning of 2001, which is where the stock traded up to again
last week.  With a little help from its sector next week, MRVL
should be able to clear the $42 level and head for blue sky
overhead.  This is a pretty straightforward breakout play.
Watch for strength in the SOX.X and look for MRVL to advance
past the $43 level on heavy intraday volume.  Pullbacks on
market and sector related weakness to the 10-dma at $38.75 can
be used to gain entry.  Our stop is in place at $38.50.

BUY CALL FEB-37 UVM-BT OI= 434 at $6.50 SL=4.25 
BUY CALL FEB-40*UVM-BH OI=1497 at $4.90 SL=3.25 
BUY CALL FEB-42 UVM-BR OI= 330 at $3.60 SL=2.25 
BUY CALL FEB-45 UVM-BI OI= 443 at $2.50 SL=2.25 

Average Daily Volume = 2.65 mln



PVN – Providian Financial $4.33 (+1.00 last week)

As one of the top ten US credit card companies, PVN issues
mainly secured credit cards to more than 12 million customers,
many of whom have spotty credit histories.  The company also
offers standard and premium crecit cards to those with better
credit.  In addition to credit card products, the company also
offers a suite of loan products and membership services.
Soliciting new customers via direct mail, phone calls, and
online advertising, PVN has more than $27 billion in assets
under management and over 14 million customers.

Does anybody else remember playing PVN when it was still a
triple-digit stock (not counting the decimal places)?  Those
days seem long-gone, as the stock is trading at a mere fraction
of its former self, after a 2-1 stock split followed by
persistent concerns about credit defaults.  Jim commented about
it a couple months ago, highlighting the low probability that
the company was headed for bankruptcy, with all of that
high-interest debt on its books.  It's hard to argue with cash
flow, and Jim appears to be right, even if a bit early.  It took
awhile for the market to wake up, but judging from the strong
buying volume over the past 2 days, PVN is garnering quite a bit
of bullish interest.  Now clear of the 10-week resistance level
at $4.00, the stock should start working towards the bottom of
the gap left in mid-October at $6.70.  Options are so cheap on
this one that stops hardly make sense, but we listed them just
the same.  With earnings set to be released on January 29th,
there is the distinct possibility that PVN could run into the
announcement, especially with the likelihood that the Fed will
slash rates again at its next meeting on the 30th.  Target
intraday dips near the $4.00 level, or possibly a more
substantial pullback to the $3.50-3.75 area.  Of course, we'd
prefer to continue riding this one higher, and if PVN rocks
higher on Monday, we'd give consideration to entering new
positions on a rally through the $4.50 level.  We are initially
placing our stop at $3.25, just below the 20-dma ($3.36).
Consider using the March or June contracts to give yourself
some insulation from time decay.

BUY CALL FEB-5 PVN-BA OI=4715 at $0.60 SL=0.00
BUY CALL MAR-5*PVN-CA OI=8018 at $0.95 SL=0.50
BUY CALL JUN-5 PVN-FA OI=3701 at $1.35 SL=0.75
BUY CALL JUN-7 PVN-FU OI= 750 at $0.70 SL=0.00

Average Daily Volume = 8.65 mln



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CURRENT CALL PLAYS
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ACS - Affiliated Computer Services $106.96 (+2.21 last week)

Affiliated Computer Services is a global company that delivers
comprehensive business process outsourcing and information
technology outsourcing solutions, as well as system integration
services, to both commercial and federal government clients.

ACS reports Tuesday, January 22nd, before the market opens.
The stock performed well last week despite the pullback in
the broader market averages.  For the week, ACS tacked on
another $2.21, en route to tracing another all-time high in
last Thursday's session at $108.60.  It wasn't out of
character for ACS to trade higher last week without the
support of the market, it's been doing that for more than a
year.  However, we would feel more comfortable pursuing bullish
positions in ACS in a bullish market.  With a bullish market,
ACS probably could've traded up to $110 late last week.  It's
still attainable early next week.  Traders holding positions
over the weekend might continue to target an upside move to
the $110 area for an exit point.  Conversely, continued market
weakness into early next week could pressure ACS back down to
a favorable entry point.  Depending on your risk tolerance,
bounces from between the $104 or $106 levels could be used to
gain entries on weakness.  Watch for open interest in the
FEB and APR contracts to build in the coming week.

BUY CALL FEB-105*ACS-BA OI=0 at $5.40 SL=4.25  Wait for OI! 
BUY CALL FEB-110 ACS-BB OI=0 at $2.85 SL=1.25  Wait for OI!
BUY CALL APR-105 ACS-DA OI=0 at $8.90 SL=7.00  Wait for OI!
BUY CALL APR-110 ACS-DB OI=0 at $6.50 SL=4.50  Wait for OI!

Average Daily Volume = 586 K
 


MANU - Manugistics $20.15 (+0.09 last week)

Manugistics is a global provider of Enterprise Profit
Optimization solutions, which is a category of solutions for
enterprise management.  Manugistics is also a provider of
solutions for supply chain management, pricing and revenue
optimization and electronic marketplaces.

Did you watch MANU last Friday?  There were some interesting
un-happenings in the stock.  Most notably, while the broader
market sold-off into the close, MANU continued to gyrate
around the $20 level.  More specifically, the stock rebounded
from exactly the 200-dma.  Friday's intraday low as set at
$19.66.  The level of the 200-dma last Friday was $19.66.
Traders with open positions or those looking for entry points
might continue to use the 200-dma into next week's trading as
a guide for measuring and managing risk.  A breakdown below
the 200-dma could be used as a stop for those with open
positions, while a trade down to and subsequent bounce from
the 200-dma could be used as an entry point.  The relative
strength of MANU is most impressive and hopefully will
continue to prop up the stock into next week.  In addition
to the 200-dma, continue using the Software Sector Index
(GSO.X) to time entries and exits in MANU.

BUY CALL FEB-20*ZUQ-BD OI=607 at $2.65 SL=1.25 
BUY CALL FEB-22 ZUQ-BR OI=244 at $1.60 SL=1.00
BUY CALL APR-20 ZUQ-DD OI=528 at $4.20 SL=2.75
BUY CALL APR-22 ZUQ-DR OI= 37 at $3.20 SL=2.25

Average Daily Volume = 2.95 mln



MCAF - McAfee.com $38.65 (+1.77 last week)

McAfee.com provides online personal computer management
products and services for consumers.  Through its Web site,
the company allows consumers to secure, repair, update and
upgrade their computers.

MCAF is scheduled to report earnings this coming Wednesday
after the bell, so make sure to keep that in mind when
planning entries and exits early next week.  MCAF pulled
back in a big way during last Friday's late sell-off in the
broader market.  The stock stopped just short of the $38.50
level, which is where it bounced from early last Thursday
morning.  We'll see if the buyers return again early next
week and carry this stock higher into its earnings report.
If MCAF breaks down below the $38.50 level early next week,
it might be a good indication that the stock is going lower
in the short-term and signal that traders with open positions
might consider exiting.  Conversely, if the $38.50 support
level does hold, traders might consider one last short-term
entry into this play ahead of Wednesday's report.  If you're
gaming a bounce from $38.50, make sure to confirm strength
in the broader Nasdaq as well as the broader software sector
through monitoring the GSO.X.  The stock has been bumping
into resistance around the $42 level.  If a bounce does
occur, look for exits around $42.

BUY CALL FEB-35*CFU-BG OI= 12 at $6.30 SL=4.25 
BUY CALL FEB-40 CFU-BH OI= 85 at $3.60 SL=2.25
BUY CALL MAR-35 CFU-CG OI=179 at $7.30 SL=5.75
BUY CALL MAR-40 CFU-CH OI=195 at $4.70 SL=3.25

Average Daily Volume = 565 K



RSTN - Riverstone Networks $20.55 (+2.07 last week)

Riverstone Networks builds routers that convert raw bandwidth
into profitable services for Metropolitan Area Networks.  The
company's products enable the creation of profitable services
and the delivery of these services over next-generation and
legacy networks.

RSTN bucked the trend in the broader technology space and the
networking sector last Friday and for the week.  In last
week's trading, RSTN tacked on more than $2, or about 11%.  In
comparison, the Networking Index (NWX.X) shed about 5% last
week.  RSTN's relative strength is encouraging.  We're in the
right stock with RSTN, so it's just a matter of getting the
broader tech space and the NWX.X cooperating and moving in our
favor.  For its part, the NWX.X pulled back to its converged
10- and 200-dmas last Friday.  The level of those two averages
is right around 342.  That's where the NWX.X stopped dropping
last Friday, so we may be in store for a bounce early next
week in networking shares.  If that level continues holding,
look for RSTN to start working higher.  Conversely, if the NWX.X
breaks down below its moving averages, then traders might
consider waiting for the NWX.X to stabilize before attempting
to swim against the tide with RSTN.  On the part of RSTN, traders
might look for an advance past the $21.10 level, just make sure
that the market and its sector is supporting such a breakout
attempt.  A market and sector-related pullback could have RSTN
back down to the $20 level, where bounces can be monitored.

BUY CALL FEB-17 RQJ-BW OI= 149 at $4.10 SL=2.75
BUY CALL FEB-20*RQJ-BD OI= 500 at $2.35 SL=1.25 
BUY CALL FEB-22 RQJ-BX OI= 492 at $1.30 SL=0.75
BUY CALL APR-20 RQJ-DD OI=1349 at $3.90 SL=2.75

Average Daily Volume = 3.37 mln



EMLX – Emulex Corporation $45.61 (+1.12 last week)

A leading networking company, EMLX designs, builds and
distributes three types of connectivity products: network
access servers, printer servers, and high-speed fibre channel
products.  It's fibre channel products, which are based on
internally developed ASIC technology, are deployable across
a variety of network configurations and operating systems to
support increasing volumes of stored data.  EMLX sells its
products directly throughout the world to OEMs and end users,
as well as through system integrators and industrial
distributors.

Profit taking has been the name of the game over the past 3 days
in the market, but our EMLX play has held up remarkably well.
After tagging a new post-attack high of $48.17 on Wednesday, the
stock has been consolidating near $45, as bullish traders prepare
for the next assault on the May highs, at $49.55.  Volume has
fallen off substantially in the past couple days, and on Friday
it fell to just above 50% of the ADV.  That's a good sign for the
consolidation theory, and it is entirely possible that investors
are planning on giving EMLX an earnings run into its announcement
on January 22nd.  During this waiting period, the 10-dma ($43.85)
has been creeping higher and now is in a position to provide
initial support at $44 before any bearish probe can take a shot
at our $43 stop.  So despite the fact that daily Stochastics are
falling from overbought territory, with price essentially holding
firm, we still have a bullish picture to deal with.  Target
intraday dips into the $43-44 level, although a rally that
commences from the $45 level is tradable too.  We would be
hesitant to trade the breakout over recent resistance ($48) due
to its proximity to the May highs.  If you want to buy the
breakout, we'd recommend waiting until EMLX manages to clear
$49.50.  Keep a sharp eye on the Networking sector (NWX.X) as
well.  It is currently resting just above its 200-dma ($342),
and a violation of that level could spell trouble for our play.

BUY CALL FEB-45 UMQ-BI OI= 710 at $5.50 SL=3.50
BUY CALL FEB-47*UMQ-BW OI= 322 at $4.40 SL=2.75
BUY CALL FEB-50 UMQ-BJ OI=1221 at $3.20 SL=1.50
BUY CALL APR-50 UMQ-DJ OI=1238 at $6.70 SL=4.75
BUY CALL APR-55 UMQ-DK OI= 992 at $5.00 SL=3.00

Average Daily Volume = 9.19 mln



GNSS – Genesis Microchip $72.11 (+3.36 last week)

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

Proving that patience pays off, GNSS finally gave us the breakout
that we were hoping for last week, blasting through the $71
resistance level, trading almost to the $75 level on Wednesday
before that pesky profit taking started.  Traders that saw it
coming harvested a tidy profit and were ready to plunge in when
the next opportunity presented itself with a dip down to support.
Both Thursday and Friday afternoons saw GNSS dipping to the
$71.50 level, and we got mild rebounds into the close.  While
nothing exciting, it is encouraging in light of the action in
the Semiconductor sector (SOX.X).  The SOX has been giving up
ground on a daily basis after the sharp afternoon selloff on
Wednesday and is once again threatening to break below its
10-dma.  While we are willing to give GNSS some room to breath
in terms of price (hence our stop is still down at $68, just
below the 20-dma), we're running out of time.  The company
reports earnings on January 17th after the closing bell, so we
only have a few more days to play.  Consider opening new
positions on a dip and bounce near the $70-71 support level, but
don't chase the stock higher unless the SOX reverses its decline
and the bulls go on a buying spree.  Win, lose or draw, we'll be
bringing the play to a close before GNSS' earnings announcement.

BUY CALL FEB-70 QFE-BN OI=418 at $8.10 SL=5.75
BUY CALL FEB-75*QFE-BO OI=438 at $5.40 SL=3.50
BUY CALL FEB-80 QFE-BP OI=122 at $3.60 SL=1.75

Average Daily Volume = 2.53 mln



LLY - Eli Lilly $76.40 (-1.30 last week)

LLY discovers, develops, manufactures and sells Pharmaceutical
products targeted at the diagnosis, prevention and treatment of
human diseases.  The company's best known commercial product is
the anti-depressant Prozac, although there are numerous other
lesser-known drugs that treat conditions such as Parkinson's
disease, diabetes, osteoporosis along with a broad range of
antibiotics.  The company also conducts research to find
products to treat diseases in animals and to increase the
efficiency of animal food production.

What a disappointing performance LLY handed us on Friday.  It
was looking good to follow through on Thursday's rally when the
stock just ran out of willing buyers.  After tagging a high of
$78 only 90 minutes into the trading day, the action was pretty
dismal, with the stock posting a series of lower highs and lows
until coming to rest at the closing bell fractionally below
Thursday's closing value.  While this may be setting us up for a
great entry point, we have to be concerned about the timeframe.
LLY announces earnings on January 17th before the opening bell,
which means we only have 3 trading days left on this defensive
play.  We're looking for a near-term rally to the 200-dma
($79.75) to put some quick cash in the trading account, but
we'll be taking our leave of the play Wednesday night to avoid
any surprises from the earnings announcement.  Look to initiate
new positions on a rebound from the $76 level, but keep in mind
that we're playing with a tight stop at $75.  Don't try to catch
a falling knife.  Wait for the rebound on solid volume and then
jump aboard.  LLY has been really gap-happy over the past month,
so we would avoid chasing any gap moves higher.  And given the
failed rally on Friday, you can see why we're favoring buying
the dips, rather than chasing LLY higher.

BUY CALL FEB-75*LLY-BO OI= 194 at $3.50 SL=1.75
BUY CALL FEB-80 LLY-BP OI= 629 at $1.00 SL=0.50
BUY CALL APR-80 LLY-DP OI=6436 at $2.50 SL=1.25

Average Daily Volume = 3.60 mln



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

KBH – KB Home $37.69 (-1.32 last week)

KB Home is a homebuilder with domestic operating divisions in
California, Arizona, Nevada, New Mexico, Colorado and Texas.
Kaufman & Broad, the company's majority-owned subsidiary, is a
homebuilding in France. In fiscal 2000, the company delivered
homes to 22,847 families in the U.S. and France.  KBH also
operates a full-service mortgage company, Kaufman and Broad
Mortgage Company, for the convenience of its buyers.  The
company builds homes that cater primarily to first-time
homebuyers, generally in medium-sized developments close to
major metropolitan areas.

The housing sector has been a bit of an anomaly over the past
year, continuing to show impressive strength in the face of the
painful slide in the broader economy.  With record housing
sales continuing to impress analysts and investors alike, shares
of KBH rocketed to a new all-time high in late December, finally
topping out near the $41 level.  Judging by the recent price
action though, it looks like all the good news was already
factored in and once the calendar rolled over to 2002, investors
started taking profits.  The company reported earnings on
Thursday, a whopping 20 cents ahead of estimates and after the
initial euphoric pop higher on the news, the stock continued
heading lower.  Now we've got the daily Stochastics buried deep
in oversold territory, but there isn't any tangible support for
the stock until it reaches the $36 level, and that support is
weak.  This looks like a fairly easy downside play to the $34
support level, although it could continue as low as $32, where
support becomes much stronger.  Ideal entries will come from
another failed rally near the 20-dma (currently $39.39), although
entering on a breakdown below Friday's low of $37.15 looks good
as well.  Set stops at $40.

BUY PUT FEB-40 KBH-NH OI=15 at $3.70 SL=2.00
BUY PUT FEB-35*KBH-NG OI=12 at $1.20 SL=0.75

Average Daily Volume = 571 K



THQI – THQ Inc. $45.88 (-5.87 last week)

THQ Incorporated is a developer, publisher and distributor of
interactive entertainment software for hardware platforms in
the home video game market.  The company publishes titles for
Sony's Playstation 2, Nintendo 64, Nintendo Game Boy Color and
personal computers in most interactive software genres,
including children's, action, adventure, driving, fighting,
puzzle, role playing, simulation, sports and strategy.  Its
customers include Wal-Mart, Toys "R" Us, Electronics Boutique,
Target, Kmart Stores, Best Buy, as well as other national and
regional retailers, discount store chains and specialty
retailers.

Despite encouraging sales numbers from the likes of Best Buy,
shares of game-maker THQI have been in a steady decline since
running out of gas in early December.  Since tagging an intraday
high of $65.10, the share price is down nearly 30%.  And judging
by the way selling volume has been on the rise, the end is not
yet in sight.  The first week of the new year saw the stock
battle back above its 200-dma and it looked like it might have
put in a bottom near the $46-47 level.  But bullish enthusiasm
was short-lived as the stock rolled over at its declining 20-dma
(now $51.09) last week and headed sharply lower, breaking below
the 200-dma ($49.28) on Thursday and closing on Friday below $46.
So much for support.  With the 10-dma ($49.17) crossing below
the 200-dma and the 20-dma not far behind, it looks like the
stock is going to have a hard time regaining the half-century
mark.  A bounce and rollover in the vicinity of the 200-dma
would make for an ideal entry, but we may not get that lucky. 
Looking at a retracement of the stock's rise between
mid-September and early December, we can see the 62% level
resting at $47.73, and a failed rally near that level certainly
makes sense as an entry into the play.  While momentum traders
can take advantage of a continued decline below $45, they'll
want to keep a sharp eye out for buying support near the $42
support level, also the site of the 81% retracement.  We're
initially placing our stop at $50.

BUY PUT FEB-45*QHI-NI OI= 67 at $3.70 SL=2.00
BUY PUT MAR-45 QHI-OI OI=114 at $4.80 SL=3.00
BUY PUT MAR-40 QHI-OH OI= 32 at $2.80 SL=1.50

Average Daily Volume = 1.56 mln



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The Option Investor Newsletter                   Sunday 01-13-2002
Sunday                                                      4 of 5


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

ADRX - Andrx $63.82 (-0.32 last week)

Andrx formulates and commercializes controlled-release oral
pharmaceuticals using its proprietary drug delivery technologies.
Andrx markets and sells Catria XT and Dilitia XT, its generic or
bioequivalent versions of Cardizem CD and Dilacor XR.

ADRX once again attempted to trade and stay above its 200-dma
last Friday but once again failed.  The stock reached as high
as the $65.69 level in last Friday's session, but ended below
the $64 level.  The site of the 200-dma last Friday was $64.99;
let's just call it $65.  The 200-dma capped every rally attempt
last week, which amounted to four tries.  The continued failure
of ADRX to close above its 200-dma is the reason we're
maintaining coverage this weekend.  Although the Biotechnology
Sector Index (BTK.X) finished fractionally higher last Friday,
we focused on the divergence in ADRX, which finished fractionally
lower.  Weakness in the BTK.X early next week should pressure
this stock lower.  But we first want to see the series of higher
relative lows broken before pressing our bearish stance.  Look
first for weakness in the BTK.X next week, then watch for ADRX
to breakdown below the $63.70 level.  If that happens, look for
confirmation of selling by watching for a decline below the $63
level.  From there, a retest of breakdown below relative lows
should take place if weakness persists in the BTK.X.  In the
event of sector strength, watch for additional rollovers at the
200-dma.

BUY PUT FEB-65*QAX-NM OI= 574 at $5.30 SL=3.50
BUY PUT FEB-60 QAX-NL OI=1077 at $3.00 SL=1.50

Average Daily Volume = 1.54 mln



AZO – AutoZone, Inc. $64.86 (-2.14 last week)

AutoZone is a retailer of automotive parts and accessories,
primarily focusing on do-it-yourself customers.  Each of its
more than 2900 stores in 42 states and Mexico carries an
extensive product line for cars, vans and light trucks,
including new and re-manufactured automotive hard parts,
maintenance items and accessories.  Approximately half of its
domestic stores also have a commercial sales program, which
provides commercial credit and prompt delivery of parts and
other products to local repair garages, dealers and service
stations.

Will it or won't it?  AZO has been bouncing around the $65 level
over the past few days, trying to decide if it will continue the
decline the really got started on December 31st.  With
Stochastics buried in oversold and the candles unable to make up
their mind, we need to turn to recent support and resistance to
nail down our entry triggers.  A failed rally near $67.50 would
make for the best entry scenario, especially with the sharply
declining 10-dma ($67.28) reinforcing that level.  On the
downside, the stock continues to find support at $64, so we'd
like to see a drop below that level on strong volume before
initiating new momentum positions.  Once below that level, AZO
could quickly decline to the $60 level and possibly $58, which
would make for a great location to harvest some profits.  Our
stop is still resting at $68, as a move back above that level
would indicate the bulls are feeling frisky again.

BUY PUT FEB-65*AZO-NM OI=858 at $3.10 SL=1.50
BUY PUT FEB-60 AZO-NL OI= 86 at $1.20 SL=0.75

Average Daily Volume = 1.39 mln



BBOX – Black Box Corporation $49.19 (-5.13 last week)

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

With the clock ticking towards earnings on January 15th before
the opening bell (yes, that's Tuesday), BBOX laid a big goose
egg on Friday, ending virtually unchanged and still sitting right
on support.  While nimble traders could have milked a little bit
out of the play by entering when the stock rolled over just above
$50, there just wasn't much to do.  And with earnings to contend
with, we only have one more market day to contend with.  If you
decide to play, make sure that you have all positions closed by
the closing bell on Monday.  With that out of the way, BBOX could
still give us a decent entry if it pops early and the rally runs
out of steam.  Use a failed rally near the $50-51 area to
initiate new positions or consider chasing the stock lower if it
breaks below $49.  We're lowering our stop to $52 this weekend.

BUY PUT FEB-50*QBX-NJ OI=176 at $4.00 SL=2.50
BUY PUT MAR-50 QBX-OJ OI= 32 at $5.10 SL=3.00
BUY PUT MAR-45 QBX-OI OI=102 at $2.95 SL=1.50

Average Daily Volume = 349 K



EBAY – eBay, Inc. $63.87 (-4.63 last week)

After developing a Web-based community in which buyers and
sellers are brought together in an efficient format, EBAY has
emerged as the dominant online auction site.  The eBay dynamic
pricing format permits sellers to list items for sale, buyers to
bid on items of interest and all eBay users to browse through
listed items.  Items listed on eBay include collectibles,
automobiles, art objects, jewelry, consumer electronics and a
host of practical and miscellaneous items.  Although based in
the United States, through its subsidiaries, EBAY also operates
trading platforms in Germany, the United Kingdom, Australia,
Japan, Canada, France, Austria, Italy and South Korea.

You've just got to love it when a play comes together the way
EBAY has for us.  Recall that we added the play near the $70
level in anticipation of a rollover, and did we ever get it!  It
took a little while to get going, but the past 3 days have been
nearly picture-perfect as the stock ran out of steam near $69 and
fell all the way to (and through) the $64 support level by
Friday's close.  After kissing the 50-dma ($63.78) Friday
afternoon, the big question is whether there is more downside in
the play.  If EBAY can break below $63, it has pretty good odds
of testing the $61 level, but we've got time working against us.
EBAY reports earnings on Tuesday after the closing bell, and we
don't want to hold over the announcement.  That means we'll be
dropping the play on Tuesday.  But that doesn't mean we can't try
to squeeze a bit more profit out of the play.  If you're in the
play from the highs on Wednesday, consider tightening up those
stops, possibly to the $65 level.  We're tightening our stop on
the play to $66, near Friday's opening price.  Use caution
initiating new positions near current levels.  With such a short
fuse on the play, target a failed intraday rally near the 20-dma
($66.43), but monitor the play closely.

BUY PUT FEB-65*QXB-NM OI=1558 at $5.00 SL=3.00
BUY PUT FEB-60 QXB-NL OI=1557 at $2.95 SL=1.50

Average Daily Volume = 7.49 mln



QCOM – Qualcomm, Inc. $46.51 (-3.90 last week)

Based on its proprietary CDMA technology, QCOM is engaged in
developing and delivering digital wireless communications
services.  The company's business areas include integrated
CDMA chipsets and system software and technology licensing.
QCOM owns patents that are essential to all of the CDMA
wireless telecommunications standards that have been adopted
or proposed for adoption by the worldwide standards-setting
bodies.  Currently, QCOM has licensed its CDMA patent portfolio
to more than 80 telecommunications equipment manufacturers
around the world.

While last week we were eyeing a breakdown below $50 in shares
of QCOM, which we got due to the deteriorating fundamental
picture in the Wireless space, now the stock is consolidating
just above the $46 level.  Could we be so lucky as to get another
breakdown next week?  With the weakening of the broad market,
anything is possible.  Should the NASDAQ push below the 2000
level, QCOM will likely take another hit due to its relative
weakness over the past month.  The one fly in the ointment is
the fact that QCOM reports earnings on January 24th, and
investors may start trying to establish a position for a possible
earnings run.  Hey, stranger things have happened!  But in the
absence of that sort of buying pressure, QCOM looks destined to
continue working lower.  The bearish target from the PnF chart
comes in at $38, and the column of O's used to calculated that
target is still growing.  With the stock trying to build a base
near current levels and daily Stochastics buried in oversold, the
best entry strategy is still to enter on a failed intraday rally,
possibly at the 62% retracement ($47.63) or as high as the $50
level, also the site of the 50% retracement and our stop.  Of
course, given the stock's refusal to break below the $46 level
this week, we could use a drop below that level to initiate new
momentum-based positions, looking out for support to form at $45
and then $43.

BUY PUT FEB-50 AAO-NJ OI=1973 at $5.50 SL=3.50
BUY PUT FEB-45*AAO-NI OI=4792 at $2.90 SL=1.50
BUY PUT FEB-40 AAW-NH OI=2748 at $1.35 SL=0.75

Average Daily Volume = 14.7 mln



ELBO - Electronics Boutique $34.57 (-2.43 last 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.

It was a wild week in ELBO last week.  When it was finally over,
ELBO shed $2.43 for the week.  The stock's big and fast drop to
its 200-dma in Thursday's session could've served up some
decent short-term gains for quick and nimble traders.  Hopefully
we'll get a retest of the 200-dma in next week's trading for
those who didn't get the chance to exit last Thursday morning.
We've been noticing a pattern of tech stocks bouncing from their
200-dmas on the first retest since last September.  After the
initial bounce, such as ELBO's last Thursday, a lot of the
stocks have retested their 200-dmas.  That's what we'll be
watching for next week.  Another trade down to the 200-dma at
$32.41 is the move to be on the alert for next week.  For
new entries, short-term traders can look for a quick breakdown
below the $34 level early next week for about a $1.50 move down
to the 200-dma.  A rally and subsequent rollover up around the
$36.50 area could serve as an entry on intraday strength.
Several of the game makers broke down in a big way last Friday,
most notably ERTS.  Continue to watch others in the group
when gaming entries and exits in ELBO.  Those others can
include ERTS, THQI, TTWO, ATVI, and MGAM.

BUY PUT FEB-40 LQB-NH OI=35 at $6.70 SL=4.75
BUY PUT FEB-35*LQB-NH OI=32 at $3.50 SL=2.25

Average Daily Volume = 545 K



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*****
LEAPS
*****

As The Bulls Tire, It's Time To Play Defense
By Mark Phillips
Contact Support

What more can I say except that the bulls appear to be losing
their resolve.  All three of the major indices pulled back from
their respective levels of resistance, but I think the most
notable of those is the S&P500 (SPX.X), as it failed to move
through the 1175 level.  There is going to be a pitched battle
fought in this vicinity before the SPX moves substantially
higher, and the increasing discussion in the media of the
recovery being pushed back to the latter half of 2002 is going
to really make the bulls earn any further ground they hope to
gain.

Did you catch the theme from the Federal Reserve over the past
couple weeks.  It seems every person related to the central bank
that could find a microphone (Alan Greenspan included), was doing
their level best to talk down hopes of a substantial economic
recovery in the near term.  Inquiring minds might be asking why,
and I think I have the answer.  Looking into their collective
crystal balls, they can see that the economy has a lot of
problems to deal with, and flooding it with liquidity can only do
so much.  And with long-term rates already so low, there isn't
much more that can be done in that direction.  The Fed knows this
and is trying to warn investors that hopes for a robust recovery
in 2002 are not going to be met.

In fact, in his speech on Friday, Uncle Alan actually said some
very bearish things about the Housing sector, including his
expectations that refinances and new home purchases are going to
be down significantly in the year ahead.

I'm going to dispense with the usual market commentary tonight,
because Jim will handle that better than I can in his Market
Wrap.  And we have plenty of excitement to talk about here with
respect to our various plays.  And with 3 new Portfolio plays,
I'm going to try to keep it rather brief this weekend.  So let's
get to it, shall we?

That was quite an ugly move in shares of Tyco International
(NYSE:TYC) on Friday, now wasn't it?  More than a 6% drop and we
saw some serious volume too!  Not only that, but the stock
sliced through the 200-dma ($52.32) like a hot knife through
butter.  While we're keeping it active on the Watch List, we
need to exercise caution.  The 38% retracement from the
September lows to December highs was right at $52.13, and
barring a snapback rally next week, this level could become
near-term resistance.  We're still looking to take a long
position near $50, also the site of the 50% retracement
($49.67).  Note that weekly Stochastics are still diving, so I
wouldn't be in a hurry.  Wait for some sign of stabilization in
price with the long-term oscillators showing some sign of life
before venturing into new positions.

While the decline in shares of TYC was pretty dramatic, our
hesitancy about bottom fishing on that play is a bit of a theme
here this weekend.  We reached our entry targets on several
Watch List plays this week, some of which we took, and others
we let pass due to unfavorable price action.  The theme that
seemed to be developing as the week wore on was nervousness on
the part of investors.

AOL Time Warner (NYSE:AOL) gave us a little pop early in the
week, but something just didn't feel right about it.  And it was
nothing tangible that I could put my finger on.  The stock
continued its rebound from the week before and volume remained
strong, but I couldn't bring myself to pull the trigger.  And
I'm glad for that now!  After Monday's brief rally, AOL spent
the remainder of the week drifting lower, coming to rest on
Friday right on its long-term ascending trendline just above
$30.50.  While in the middle of our target zone, I'm glad we're
waiting until next week to target an entry on this one.

Then there was the action in shares of Goldman Sachs (NYSE:GS).
On Tuesday, shares of the Brokerage firm gapped down and spend
the next 3 days consolidating just above the 20-dma, before
giving up the ghost on Friday to close just above $91.  Notice
that this is below our entry target, and the strong volume on
the drop doesn't leave me with a good feeling.  We're leaving
the entry target in place, but only want to target new
positions on a volume-backed rally (not a gap) through the $93
level.  

How about our WorldCom (NASDAQ:WCOM) play?  The stock finally
fell into our target zone ($13.50-14.00), but I sure wasn't
motivated to dip my toes into that one, especially with selling
volume running more than 50% above the ADV.  Weekly Stochastics
are almost back to oversold territory, so we could be setting up
for a nice entry.  Look for price to firm above $13.50 along
with daily Stochastics turning up.  That could make for a nice
entry over the next couple weeks if volume supports the rebound.
Otherwise, prudence demands that we wait.

We actually took a position in the Portfolio in Eli Lilly
(NYSE:LLY) on the positive price action right off of our $75
target level on Thursday.  What happened on Friday?  Sharp
reversal, which already has me nervous.  I just don't like these
supposedly favorable moves that reverse sharply one or two days
later.  But I think you can see the theme developing.  Helped
along by the weak markets, there just wasn't much strong buying
action this week.  But we're in the position and will play it
accordingly with our stop at $75.  As I mention in the play
below, more cautious players may want to wait for the results
of the company's earnings report on January 17th, targeting
new positions on a renewed bounce from support if it
materializes.

One of the few standouts was EMC Corporation (NYSE:EMC) this
week.  While it didn't really go very far, it was notable that
the stock managed a fractional advance as it continued to chip
away at the $18 resistance level.  While I'm only raising stops
to $13.50 until we see the stock crest that resistance level,
traders that got in near the $13 level should be looking to
tighten their stops to ensure at least a break-even play.  I
like the $14.75 level, as it is the bottom of the gap from
last Thursday, a significant support level and just below the
20-dma.  

Of course, with all the bullish failures in various sectors last
week, you'd think there were some significant developments on
the Put side of the equation, and you'd be right.  First up is
our trusty Insurance play on American International Group
(NYSE:AIG).  The stock is getting ever closer to that meaningful
breakdown (in my opinion), but it didn't happen this week, as the
stock once again found support near $76.  It has been bouncing
for the past 3 days, but I'd look for one more rollover before
closing this chapter.  Afterall the price is pulling further away
from the descending trendline, and the weekly Stochastics are
continuing to drift lower.  Use the next trip down to $76, or
ideally the 62% retracement near $74 to harvest profits and get
set for the next play.  We're lowering our stop this weekend to
$79.50.

We actually added 2 new Put plays to the portfolio this week and
I won't bore you with the details here.  I ran amuck at the
keyboard describing the gory details down below.  Both General
Motors (NYSE:GM) and Jones Apparel Group (NYSE:JNY) gave us
what I would call picture-perfect bearish entries last week.
Neither of them are going to be home runs, but we'll take any
opportunity to profit while we wait for oscillators to cycle
down and give us bullish entries on some of those plays on the
Call list.

Coming back to the call list, other than those plays I discussed
above, I think it is worth mentioning both General Electric
(NYSE:GE) and Nokia (NYSE:NOK) here.  Both of these stocks failed
at resistance again and are approaching our entry targets.  All
we need to see in conjunction with favorable price action is for
those pesky weekly Stochastics oscillators poking back down into
oversold territory.  Then we'll be ready to join the bullish
party -- at least a little bit.

I mentioned the theme of investor nervousness up above, and that
really is the key point on which I think we should end our
discussion for the weekend.  All we need for proof that investors
are not rampantly bullish is the recent action of the VIX.  While
it was flirting with new multi-month lows last week, it trudged
steadily higher this week, reaching an intraday high of 25.20 on
Friday.  While that is still just in the middle of its historical
range, it shows that investors are not blindly bullish.  That may
be providing just the wall of worry we need for this market to
continue trudging higher.  Until we see signs to the contrary,
this is a rangebound market, so we have to pick our plays (and
entries and exits) carefully.  Nimble trading will be the theme
for some time to come, so don't get married to either a position
or a market philosophy.  Trade the opportunities as they come
along and harvest profits when they are available.

Have a great week!


Mark Phillips
Contact Support



LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
EMC    01/02/02  '03 $12.5 VUE-AV  $ 4.90  $ 7.00  +42.86%  $13.50
                 '04 $12.5 LUE-AV  $ 6.10  $ 8.20  +34.43%  $13.50
LLY    01/10/02  '03 $ 80  VIL-AP  $ 7.70  $ 7.10  - 7.79%  $75
                 '04 $ 80  LZE-AP  $12.90  $11.50  -10.85%  $75


Puts:
AIG    11/07/01  '03 $ 80  VAF-MP  $ 8.40  $ 8.80  + 4.76%  $79.50
                 '04 $ 80  LAJ-MP  $10.60  $11.40  + 7.55%  $79.50
JNY    01/09/02  '03 $ 35  OOR-MG  $ 6.70  $ 6.80  + 1.49%  $35
                 '04 $ 30  KKZ-MF  $ 5.60  $ 5.80  + 3.57%  $35
GM     01/10/02  '03 $ 50  VGN-MJ  $ 6.50  $ 6.70  + 3.08%  $53.50
                 '04 $ 50  LGM-MJ  $ 8.40  $ 8.70  + 3.57%  $53.50



LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
GE     08/12/01  $36           JAN-2003 $ 40  VGE-AH
                            CC JAN-2003 $ 30  VGE-AF
                               JAN-2004 $ 40  LGR-AH
                            CC JAN-2004 $ 30  LGR-AF
TYC    09/16/01  $50           JAN-2003 $ 55  VYL-AK
                            CC JAN-2003 $ 50  VYL-AJ
                               JAN-2004 $ 60  LPA-AL
                            CC JAN-2004 $ 50  LPA-AJ
NOK    09/23/01  $20-21        JAN-2003 $ 25  VOK-AE
                            CC JAN-2003 $ 20  VOK-AD
                               JAN-2004 $ 25  LOK-AE
                            CC JAN-2004 $ 20  LOK-AD
BRCM   10/28/01  $31-32        JAN-2003 $ 35  OGJ-AG
                            CC JAN-2003 $ 30  OGJ-AF
                               JAN-2004 $ 35  LGJ-AG
                            CC JAN-2004 $ 30  LGJ-AF
JNJ    12/09/01  $54, $52.50   JAN-2003 $ 55  VJN-AK
                            CC JAN-2003 $ 50  VYN-AJ
                               JAN-2004 $ 55  LJN-AK
                            CC JAN-2004 $ 50  LJN-AJ
WCOM   12/16/01  $13.50-14     JAN-2003 $ 15  VQM-AC
                            CC JAN-2003 $12.5 VQM-AV
                               JAN-2004 $ 15  LQM-AC
                            CC JAN-2004 $ 10  LQM-AB
AOL    01/06/02  $30-31        JAN-2003 $ 30  VAN-AF
                            CC JAN-2003 $ 25  VAN-AE
                               JAN-2004 $ 30  LOL-AF
                            CC JAN-2004 $ 25  LOL-AE
GS     01/06/02  $92-93        JAN-2003 $ 90  VSD-AR
                            CC JAN-2003 $ 85  VSD-AQ
                               JAN-2004 $ 90  KGS-AR
                            CC JAN-2004 $ 80  KGS-AP



PUTS:

MO     12/09/01  $48, $50      JAN-2003 $ 50  VPM-MJ
                               JAN-2004 $ 50  LMO-MJ


New Portfolio Plays

LLY - Eli Lilly $76.80 **Call Play**

It wasn't so long ago that we profitably played LLY to the
upside, and it looks like we're getting another chance to do so
now.  As bullish enthusiasm is cooling for Technology stocks,
the natural tendency is for defensive plays, such as Drug stocks
to find favor with bullish investors looking for a bit more
safety.  On Thursday, the Pharmaceutical index appeared to
complete a double-bottom at the $375 level, which coincided
nicely with LLY's bounce from just above the $75 level.  LLY's
bounce seems to have stemmed from the announcement that Xigris
(the company's new Sepsis drug) sales are coming in on target.
What makes this level so important for LLY is that it just
happens to be the site of the ascending trendline that has been
supporting the stock since September of 2000.  Not only did this
give us an attractive entry point, but it also makes it easy to
manage our risk by placing our stop just below the trendline at
$74, a consistent level of support since last spring.  While the
weekly Stochastics never reached oversold, they appear to be
flattening out just above that level, which is an inherently
bullish sign.  And with daily Stochastics vigorously emerging
from oversold, it looks like everything is in alignment for
another successful play.  I would have preferred to nab our
entry closer to the $75 level, but Thursday's sharp rebound left
me no choice but to buy after the one-day rally.  There just
wasn't any sign of the bounce the day before.  If you missed
this entry, consider renewed bounces in the $75-76 area to be a
favorable second chance.  One thing to keep in mind is that the
company announces earnings on January 17th.  Cautious traders
may want to wait until after the announcement to avoid any
surprises.

BUY LEAP JAN-2003 $80.00 VIL-AP $ 7.70
BUY LEAP JAN-2004 $80.00 LZE-AP $12.90

GM - General Motors $50.07 **Put Play**

After twice failing to push through the $51 resistance level
last week, it looks like the bulls are finally losing their
grasp on the stock.  Of course, it didn't help that Ford is
still nowhere near correcting its internal problems, and news
of more layoffs and restructuring at that troubled auto maker
are surely weighing on shares of GM.  The fundamental picture
does not favor the automotive sector here at all, but I covered
my rationale pretty thoroughly in the Watch List write up on
December 16th.  What we want to cover here is what actually
ushered us into the play.  Simply put, all the technical
indicators appear to be lining up for a nice low-stress put
play -- I hope!  By Thursday's close, the daily Stochastics had
finally fallen out of overbought territory, and price appeared
to be weakening.  Coupled with a weekly Stochastic that is once
again weakening midway back to oversold, and I think there is
definitely some downside ahead of us.  While we took our entry
on Thursday, the price action just helped to confirm that
decision on Friday as it fell back below the 38% ($50.11)
retracement level of the stock's decline from July to
mid-September.  That just confirms this level as an area of
resistance.  Note that the 50% level ($53.49) rebuffed the bulls
advance in early December, and coupled with the declining
200-dma ($53.21), will make the $53.50 level a tough obstacle to
climb.  So while it is a bit on the generous side, I like the
$53.50 level for a stop, as it should give GM a little wiggle
room before it really starts to perform.  I'm not looking for a
home run here, but I think there is the likelihood of returning
to the $42-43 support level from October-November, as investors
begin to see the dismal fundamental picture play out.  The first
technical hurdle we need to watch is the stock's behavior at its
20-dma ($48.56).  Should this level fail to support the price,
(As I expect), we'll be watching for a breakdown under the
50-dma, currently $47.53.

BUY LEAP JAN-2003 $50.00 VGN-MJ $ 6.50
BUY LEAP JAN-2004 $50.00 LGM-MJ $ 8.40

JNY - Jones Apparel Group $33.62 **Put Play**

With the holiday season over, the sales results from that
period are gradually becoming known.  And investors are starting
to realize that while sales figures may have been better than
expected, in many instances, those better numbers were due to
incentives and discounts.  Logic is working its magic and those
same investors are putting 2 and 2 together and figuring out
that the net result will be a detrimental effect to many
retailers' (especially specialty retailers like JNY) earnings
results.  This realization can be most plainly seen in the daily
chart of the Retail index (RLX.X).  After failing once again to
clear the $940 resistance level, the RLX is once again
challenging the ascending trendline that has been supporting the
price action since the September lows.  If this support level
gives way, it will most likely put the whole sector into a
corrective mode, and that brings us back to our JNY play.
Recall from the commentary when we added the play 2 weeks ago
that it looked like the stock was substantially under performing
the RLX, so when the RLX rolled over, we expected to see a
magnified decline in shares of JNY.  Add in the fact that the JNY
chart is bearish on its own merits and I think you can see what
drew me to it.  Weekly Stochastics are just starting to roll over
as are the dailies, and we have the added benefit of bearish
divergence.  And all of this is taking place just below the
still-descending 200-dma ($34.97).  We could have taken our
entry on either Monday or Wednesday, but I opted to wait for the
second bearish candle before taking the plunge.  Note that the
current top in price for JNY is occurring right at the bottom of
the gap left in early August.  It appears to me that there is
more overhead resistance overhead than the bulls have the
strength to push through, and with the close proximity of the
200-dma, we can effectively control our risk with a tight stop
at $35.

BUY LEAP JAN-2003 $35.00 OOR-MG $ 6.70
BUY LEAP JAN-2004 $30.00 KKZ-MF $ 5.60


New Watchlist Plays

None


Drops

None


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

Looking At The Future(s)
Austin Passamonte

Will you forgive me if I cheat a little bit tonight? I had the 
day from heck with home office technology crashing all around me, 
but two new DELL towers en route should help thwart thwart future 
hardware issues. Meanwhile, I'd like to scribe this visit on a 
topic I'm able to do in my sleep and more importantly, one that 
garners plenty of email questions.

OI readers are a diverse crew. While options are of course the 
core focus in here, we do have numerous fellow peers who only 
trade stocks or futures contracts instead. Which is better and 
why? That is a question with no definable answer: each financial 
vehicle has great benefit and disadvantage to another when 
compared. 

Rock, paper and scissors is the best way I can equate these 
three. All have strengths and weakness alike, but let's stick 
with some basic description for the vast majority who've never 
visited the electronic futures market but have always wanted to.

First and foremost, tons of general information is available at 
the public website www.cme.com that covers all of the index 
futures contracts. There are numerous electronic miniature 
contracts (hence, "e-mini") traded on the GLOBEX exchange, 
including debt instruments and more. You can read all about any 
of them, but let's brush across the NASDAQ 100 and S&P 500 for 
now.

When we see pre and post-market futures pricing flashing across 
CNBC screens each day, it is these GLOBEX traded electronic 
futures contracts tracked. Basically, the market tries to guess 
where "fair value" is going to be at the open and beyond while 
the actual open outcry pits remain closed. This guesswork outside 
live trading action is based upon innumerable market pricing 
dynamics from everything that happens on a global basis while 
U.S. equity markets remain closed.

The electronic markets are based upon full-size contracts traded 
in Chicago at the Mercantile Exchange. A full-size S&P 500 
contract is valued at $250 per underlying index point. The cash 
market is $100 per point while the e-mini is 1/5th size the full 
futures contract or $50 per underlying index point. 

Using the cash index as a basis, the e-mini contract gains or 
loses $50 in value each time the cash index moves one point. By 
comparison, an SPX index option gains or loses $100 intrinsic 
value per each index point move. S&P e-mini contracts trade with 
a tiny 0.25 bid/ask spread and are all electronic execution. 
Market orders placed with platform brokers enjoy lightening fast 
fills unsurpassed in the equity world.

An NDX e-mini contract gains or loses $20 per each underlying 
index point of the cash index. It too has a small bid/ask spread 
of 0.50 points and fills at the speed of fiber as well.

Instead of paying a premium cost like we do to purchase an 
option, we merely keep enough money in our trading account to 
hold a position called "margin". This is not margin in the sense 
of borrowed money used for stocks we pay interest on, it is 
totally different. Margin held in a futures trading account is 
our cash used as a "down payment" to hold a contract long or 
short.

Each contract has a three-month expiration cycle without time 
decay, so to speak. They are subject to higher or lower margin 
requirements to trade based upon underlying market volatility. 
Right now the margins for each contract to trade is roughly 
$3,000+ and that fluctuates slightly all the time. However, there 
is no concern for wasting premium as margins do not decay. And 
margin capital used actually earns interest when held in T-Bills 
form instead of costing us like equity margin does! 

Speaking of accounts, no futures contracts can be traded within 
equity trading accounts. We must have a specific futures trading 
account that is held to CFTC regulations instead of SEC rules. 
Hence, we need a special account for trading e-mini futures in 
addition to what we have for stocks and their options now.

One nice thing about these futures contracts (and true index 
options as well) is the IRS classification of 1256 Event. In 
English that means index option and e-mini futures traders pay 
60% long-term capital gains and 40% short-term capital gains 
regardless of the time frame each trade is held.

A stock trader holding CSCO shares or calls long for 11.5 months 
will pay 100% short-term capital gains on the trade. An OEX, SPX 
or MNX option trader and those who play e-minis might hold a 
trade for ten minutes duration, but 60% of that transaction 
profit is long-term capital gains. If that doesn't matter to you 
now, do a couple $100K in profits next year and that 60% long 
term gains will explain itself to you!


(60-Minute Chart: ES02H)


 

Here's a recent example of price action in both e-mini markets, 
S&Ps first. On January 2nd the markets broke higher in New Year 
euphoria and ran higher from there. Of course, the rally failed 
and soon crashed back to reality but traders who bought the wedge 
break near 1142 and covered towards the top near 1172 captured 30 
index points of gain.

Each index point is a $50 profit, so the whole move would have 
yielded +$1,500 on a $3,000 margin requirement. Cash index 
options did better, but managing risk is easier in here. When the 
index broke above 1142 and we filled on the long side, a move up 
to 1150 or so allows us to advance or "trail" our stop-loss to 
just above entry at 1143. 

That gives the play 7 index points breathing room and locks in a 
"free play". If the index suddenly reverses and smashes back down 
against us, we would make $100 to offset the 0.25 bid/ask spread 
and +/- $20 round-trip commission as well. Trying to keep stops 
that tight in the SPX options would have us kicked put if price 
action slid back to 1146 area due to the wider bid/ask spread 
options trade with. More on that later.



 

Here's a Time & Sales chart of Friday's action at the close. This 
type of action goes on all day, and note the high liquidity and 
volume traded here. E-mini S&P 500 daily volume dwarfs most stock 
or index options on a daily basis.

(60-Minute Chart: NQ02H)


 

Same picture for the e-mini NDX futures contract. Exact-same move 
from Jan 2nd thru the 4th offered a +$2,000 profit as the NDX 
outperformed the S&P 500 during that time. Again, a $2,000 profit 
on $3,000+ margin is a nice return indeed. QQQ call options more 
than doubled during the same period and also have a tiny bid/ask 
spread, but suffer time decay when sharp moves like this don't 
happen fast.

Also, during times when the VIX reading is high and then falls 
while markets rally, premium value erodes from call options while 
e-mini contracts remain totally unaffected.



 

Time & Sales sheet for the EQ02H, March 2002 e-mini NDX contract. 
Far less liquidity than the e-mini S&P but still plenty of action 
for anyone to easily enter & exit on.

Which Should I Trade?
That's the question I field most often. The best answer I can 
offer is that e-mini futures are somewhere between stocks and 
options to trade. Stocks have no leverage (without margin) but 
suffer no time decay, volatility loss or any of the extrinsic 
value variances options have. 

Options have the greatest leverage advantage of all trading 
vehicles but the reverse side of that coin is a degree of 
difficulty higher than simply trading stocks. This is due to the 
many nuances that affect extrinsic value pricing on what is truly 
a wasting asset.

E-mini futures lie right in the middle. Better capital leverage 
than stocks. Instant, electric execution. Pure delta move in 
price value based on underlying action alone. Greater liquidity 
than most stocks or options and tiny bid/ask spreads as well. 
They also trade across pre and post-market time frames outside of 
9:30am to 4:15pm EST that U.S. equity markets do, offering more 
opportunity than stocks or options for trading.

Does that make e-mini contracts the best trading vehicle of all? 
No. There is no best or perfect vehicle, as each have their time 
in the sun. However, using these contracts as part of an overall 
trading approach does offer distinct advantages as all parts 
combined make the greatest whole of all.

We'll be sure to follow up this topic in our next visit soon. For 
now I'm out of time, space and production deadlines all at once!

Hope This Helps,
austinp@OptionInvestor.com


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

Option Trading 101: A Conservative Approach to Covered-Calls
By Mark Wnetrzak

Some of our new readers have been asking why we focus entirely on
"in-the-money" covered-calls:

Hello OIN,

I have a question about covered calls. It's about figuring out
profit/loss potential.  I am fairly new to options trading.  I
have been trading stocks for a while and started studying options
during the big tech run but never felt comfortable - and then the
bottom fell out.  So I never actually traded options with real
money.  I went looking for the Split Trader web-site; I liked the
concept and using this info and  other research and I was able to
produce good results.  This is how I found Option Investor (I was
ready to get back into the market more aggressively...

I have done pretty well so far and am very happy with the free trial.
Happy enough to sign up for a years worth and hopefully gain more
knowledge by reading the books that come with the renewal offer.
I am very grateful for the free trial.  I don't think I would have
tried your service without it.  There are a lot of people out there
trying to sell something; it is so nice to actually see what you
are getting, not some old newsletters that have been picked to show
great results...

Back to my question, the covered-call play (from what I have read)
seems like a good strategy for people who might not have the time
to sit in front of the computer/TV all day.  I am thinking, once I
find a job this would be ideal for me.  If you could give examples
or formulas for figuring out potential profit/loss.  I am having a
hard time with the selling an ITM call on a stock that I own.  First
what are the chances of getting called early?  And second, I just
don't see how buying a stock above the strike price you're selling
the call at, is going to make you money?  I understand there is the
time decay but you would be selling the stock at a lower price than
what you paid, if you get called out?

Thanks in advance,
RZ


RZ,

First, I am including a narrative with the "return on investment"
formulas (published in last Sunday's newsletter) to explain the
target yield calculations.

Second, the strategy we use in selecting our candidates is based
on a conservative covered-write using the "total return" concept
that Lawrence McMillan adeptly describes in his original book,
"Options: As a Strategic Investment."  With this conservative
approach, an investor considers the covered write as a single
entity and is not interested so much in stock ownership or bullish
movement, but in obtaining a consistent return on investment.

Some investors prefer to strive for higher potential returns with
an aggressive outlook, writing "out-of-the-money" calls on stocks
in their portfolios.  These (OTM) positions offer greater rewards
but also have less downside protection.  The maximum potential
profit of an OTM position, while greater than that of an "in-the-
money" (ITM) position, will always require an increase in price
by the underlying stock.  Thus, by utilizing an OTM option, the
success of the overall position depends more on the movement of
the stock price and less on the benefits of writing the call.
Since the premium generated from the sale of the call is smaller,
the overall position will be more susceptible to loss if the stock
price declines.  ITM plays are plainly more conservative, offering
less risk but also smaller reward potential.  Though our strategy
is less aggressive, it still requires a disciplined approach and
sound money management techniques, as there is risk of loss in all
trading.

If you aren't worried about keeping the stock, having it called
away early is not a problem and will actually increase your target
yield by providing the maximum return in a shorter time frame.
Generally, as long as there is time premium left in the call, the
risk of early assignment is relatively small (and you are earning
time premium by staying with the original position).  Once the
option trades at parity or a discount (or nears expiration), there
is a significant probability of exercise by arbitrageurs (floor
traders who don't pay commissions).  An option writer has several
choices at this point: do nothing, get called out and accept the
original profit established; if appropriate, close the position
early (evaluate extra commissions versus an increased annualized
return); or roll the call up/down and/or forward.

"Options: As a Strategic Investment" is an excellent resource and
covers all aspects of the "covered write" strategy and should be
available at the local library or the OIN bookstore.  Larry covers
in detail the strategy of selling calls on long-term portfolio
holdings.  Remember, it is very important to completely understand
any strategy you intend to use and, as with all recommendations, it
remains your responsibility to perform due diligence and thoroughly
research any issue you are interested in.  Also, it is still sound
advice not to enter a position on an issue you wouldn't mind owning,
as there is always that possibility.

Regards,

Mark W.
OIN

Editors Note:  The reader sent these final comments...
 
Thanks for the excel spreadsheet calculator.  I also want to thank
you for the personal response.  I had read the newsletter article
(which helped) and now reading your response helps some more.  I
was thinking more long-term, that I would sell covered calls on
stock I own and want to keep LT.  Now I see that it is more of a
short-term/less aggressive play than just outright buying naked
calls or puts.  I was also thinking I don't want to get called out
on this stock but now realize that this is not the case.

Thanks again,
RZ



Here is another excellent question about our approach to writing
covered-calls and the effects of commissions on "in-the-money"
positions.

Attn: Covered-calls Editor

  In your newsletter it says that you write covered calls that
are in-the-money.  Why wouldn't you write them one strike price
out-of-the-money?  The time value is about the same.  If the
stock sort of "sits" around you don't have to buy back the
option at the end of the month, and if it goes up and over the
strike price you get bonus cash, and if it goes lower than the
strike price you lose either way.  I don't have a lot of money
to put in the stock market and so I can't afford a lot of shares.
This means that commissions (even deep discount ones) sting bad.

Example: stock xyz is 8.00 a share 100 shares is 800 plus 20 in
commission I sell the 10 Feb call for 1.00 so I get 100 back
less 30 for commission (option commissions are higher than stock
ones)  I'm up 50 on an 800 investment.  If the stock goes above
10 I win again.  If I sell the in the money Feb 7.5 for 1.6, I
get 160 yea! 60 more $$$ but if I get called out I lose 50 on
the stock, or I can go to buy the option back IF it low enough
and I get "whacked" for another 30 in commission plus what ever
the option is.  If the stock drops below 7.5 I'm in bad shape
either way.  Anyways I'm wondering why you guys think in the
money is better than one out.

EO


Regarding commissions and the use of "in-the-money" covered-calls:

Again, the strategy we use in selecting our candidates is based
on a conservative covered-write using the "total return" concept.
With this conservative approach, we are interested solely in
obtaining a consistent return on investment.  Generally, our
recommendations require the purchase of 500 to 1000 shares to
reduce the impact of commissions.  On a 1000 share position, the
cost of the transaction at E*trade (2 stock commissions plus 1
option commission) would be about $78.00, or $0.08 a share.  It
is simply our personal preference to target a high probability
of obtaining a low return, which melds with our own risk-reward
tolerance.  Investors who wish to apply a different strategy, or
are more bullish, or have a higher risk tolerance can always move
up to the next strike, use OTM strikes, or a combination of ITM
and OTM strikes, thereby increasing the potential reward -- at
the expense of downside protection.  It is up to you to find a
strategy that fits your risk-reward tolerance.

"Options: As a Strategic Investment" is an excellent resource and
covers all aspects of the "covered write" strategy and should be
available at the local library or the OIN bookstore.  McMillan
explains in detail the various strategies of writing calls on
long-term portfolio holdings, selling different strike calls,
making position adjustments, etc.

Good Luck,

Mark W.
OIN


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

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

PCLN    5.37   5.71   JAN   5.00  0.95  *$  0.58  11.4%
NPRO   11.81  11.25   JAN  10.00  2.70  *$  0.89  10.6%
MANU   19.47  20.15   JAN  17.50  3.30  *$  1.33   8.9%
NPRO   11.70  11.25   JAN  10.00  2.60  *$  0.90   8.6%
SPWX   10.99  13.49   JAN  10.00  1.70  *$  0.71   8.3%
SIRI    8.98   7.62   JAN   7.50  2.00  *$  0.52   8.1%
GZTC    5.72   4.95   JAN   5.00  1.10   $  0.33   7.8%
GPS    15.45  15.78   JAN  15.00  0.95  *$  0.50   7.5%
MDR    11.37  12.90   JAN  10.00  2.00  *$  0.63   7.3%
NPRO   11.81  11.25   JAN  10.00  2.70  *$  0.89   7.1%
FALC    8.81  10.49   JAN   7.50  1.90  *$  0.59   6.2%
VRTY   19.56  21.99   JAN  17.50  3.00  *$  0.94   6.2%
PEGS   15.90  18.02   JAN  15.00  1.30  *$  0.40   6.0%
OAKT   15.75  14.99   JAN  15.00  1.15   $  0.39   5.8%
FCEL   18.20  19.12   JAN  17.50  1.35  *$  0.65   5.6%
MOGN   15.65  15.49   JAN  15.00  1.20  *$  0.55   5.5%
OAKT   13.53  14.99   JAN  12.50  1.90  *$  0.87   5.4%
DCTM   21.98  22.54   JAN  20.00  2.70  *$  0.72   5.4%
SPWX   11.49  13.49   JAN  10.00  1.85  *$  0.36   5.4%
CAMP    6.36   6.78   JAN   5.00  1.65  *$  0.29   5.4%
VSNX   16.58  15.30   JAN  12.50  4.80  *$  0.72   5.3%
MRVL   36.96  41.52   JAN  32.50  6.60  *$  2.14   5.1%
NTAP   21.04  22.55   JAN  17.50  4.50  *$  0.96   5.0%
ENZ    24.05  24.79   JAN  22.50  2.25  *$  0.70   4.7%
ACXM   15.63  18.55   JAN  15.00  1.35  *$  0.72   4.4%
SEBL   28.82  34.94   JAN  25.00  4.50  *$  0.68   4.0%
XICO   14.00  12.21   JAN  12.50  2.35   $  0.56   3.5%
LMNX   17.94  17.25   JAN  17.50  1.00   $  0.31   2.7%
DTHK   11.11   9.55   JAN  10.00  1.80   $  0.24   2.2%
TMAR    7.65   7.16   JAN   7.50  0.50   $  0.01   0.3%

ACRI   13.11  12.61   FEB  12.50  1.60  *$  0.99   6.2%
ADCT    5.38   5.15   FEB   5.00  0.75  *$  0.37   5.8%
SCMR    5.85   5.20   FEB   5.00  1.20  *$  0.35   5.5%

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

Comments:

Hmmm...one week to go before the January expiration and the
major averages are looking a bit suspect.  Next week is also
the start of earnings season, though I believe that investors
will be more influenced by the "future guidance" offered by
companies.  There are two issues that I would consider as
prime early exit candidates.  Sirius Satellite NASDAQ:SIRI)
continues to exhibit bearish technicals and the horrid action
in DigitalThink (NASDAQ:DTHK) suggests that investors are no
longer anticipating Wednesday's earnings report.  Some other
stocks remain on the watch list such as Xicor (NASDAQ:XICO),
Luminex (NASDAQ:LMNX), and Trico Marine (NASDAQ:TMAR).  These
stocks may offer an opportunity to roll forward and/or down.
Oak Technology (NASDAQ:OAKT) is moving towards a key moment;
the trend-line from the September low.  Genzyme Transgenics
(NASDAQ:GZTC) should offer favorable premiums in the future
for those with a long-term outlook -- if it can remain above
the early-December support area.


NEW CANDIDATES
*********

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

ADIC   18.32  FEB 17.50   QXG BS  1.70 258   16.62   35    4.6%
EPNY   10.97  FEB 10.00   UEP BB  1.50 142    9.47   35    4.9%
MONE   14.83  FEB 12.50   MOU BV  3.20 20    11.63   35    6.5%
PLUG   10.58  FEB 10.00   PQL BB  1.40 273    9.18   35    7.8%
RBAK    6.20  FEB  5.00   BUK BA  1.55 1534   4.65   35    6.5%
RNWK    8.13  FEB  7.50   QRN BU  1.30 2108   6.83   35    8.5%
RSTN   20.55  FEB 17.50   RQJ BW  3.90 149   16.65   35    4.4%

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

RNWK    8.13  FEB  7.50   QRN BU  1.30 2108   6.83   35    8.5%
PLUG   10.58  FEB 10.00   PQL BB  1.40 273    9.18   35    7.8%
MONE   14.83  FEB 12.50   MOU BV  3.20 20    11.63   35    6.5%
RBAK    6.20  FEB  5.00   BUK BA  1.55 1534   4.65   35    6.5%
EPNY   10.97  FEB 10.00   UEP BB  1.50 142    9.47   35    4.9%
ADIC   18.32  FEB 17.50   QXG BS  1.70 258   16.62   35    4.6%
RSTN   20.55  FEB 17.50   RQJ BW  3.90 149   16.65   35    4.4%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even 
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

*****
ADIC - Advanced Digital Information  $18.32  *** Data Storage ***

Advanced Digital Information (NASDAQ:ADIC) provides hardware and
software data storage solutions to the open systems marketplace.
Along with its value-added resellers, OEM partners and customers,
the company incorporates its products and services and supports
operations with third-party hardware and software products to 
deliver reliable, flexible and scalable storage solutions. Its 
storage solutions are designed to enable companies to organize,
protect and retrieve complex mission-critical data. ADIC's 
storage management software is an integrated family of inter-
national software products.  The Data Storage sector is per-
forming well and ADIC is one of the leading companies in the
industry.  We favor the current bullish momentum and this 
position offers a reasonable cost basis in the issue.

FEB 17.50 QXG BS LB=1.70 OI=258 CB=16.62 DE=35 TY=4.6%


*****
EPNY - E.piphany  $10.97  *** Suddenly...A BREAK-OUT! ***

E.piphany (NASDAQ:EPNY) develops, markets and sells the E.piphany
E.5 System, an integrated suite of CRM software solutions.  These
solutions provide capabilities for the analysis of customer data,
the creation of inbound and outbound marketing campaigns and the
execution of sales and service customer interactions. The E.5 
System includes multiple CRM software solutions designed to solve
specific business problems in areas, such as marketing, service
and sales.  Not much news to explain the strong rally over the 
last few days but the message is crystal clear: somebody wants
to own E.piphany.  The extremely heavy volume on Friday combined
with the move above the 150-dma is very bullish.  Not to mention
that a "head-n-shoulders" bottom is readily apparent from August
through October.  Can any clearer message be given? 

FEB 10.00 UEP BB LB=1.50 OI=142 CB=9.47 DE=35 TY=4.9%


*****
MONE - MatrixOne  $14.83   *** On The Rebound! ***

MatrixOne (NASDAQ:MONE) is a provider of product collaboration
software.  The company's primary offerings include its eMatrix
collaboration platform, Value Chain Portfolio, Application
Exchange Framework, development tools and integration products.
The company's products facilitate collaboration among employees
of global organizations and with an organization's customers,
suppliers and other business partners through the Internet.
The company's products also allow the integration of different
business processes and facilitate the exchange of information,
ideas and knowledge among parties collaborating on business
activities.  This collaboration allows customers to quickly and
cost-effectively bring the right products and services to market.
ThinkEquity Partners recently issued a "strong buy" rating on
MONE with a $15 target price, based on expectations of a future
recovery in revenue and earnings.  Our outlook is also bullish,
due to the recent technical strength and this position offers a
low risk cost basis in the issue.  Earnings are due Jan. 23.

FEB 12.50 MOU BV LB=3.20 OI=20 CB=11.63 DE=35 TY=6.5%


*****
PLUG - Plug Power  $10.58  *** The Energy Substitute ***

Plug Power (NASDAQ:PLUG) is a designer and developer of on-site, 
energy generation systems utilizing proton exchange membrane fuel
cells for stationary applications.  The company's goal is to 
manufacture reliable, efficient and safe fuel cell systems at 
affordable cost for mass-market consumption.   Plug is focusing
its efforts on overall system design, component and subsystem 
integration, assembly, as well as quality control processes.  The 
company was formed as a joint venture between Edison Development
Corp., a DTE Energy Company, and Mechanical Tech. Incorporated. 
Plug intends to manufacture residential and small commercial 
stationary systems that will be sold globally through a joint 
venture with GE MicroGen Inc.  DTE Energy Tech. will distribute
these systems in Michigan, Illinois, Ohio and Indiana.  Alternate 
energy source stocks rallied this week on reports that the U.S 
DOE plans to invest in research of fuel cells as an energy sub-
stitute.  Also, at Detroit's annual auto show this week, GM 
unveiled a new car which uses fuel cell technology.  We simply
favor the bullish move on heavy volume which suggests further
upside potential. 

FEB 10.00 PQL BB LB=1.40 OI=273 CB=9.18 DE=35 TY=7.8%


*****
RBAK - Redback Networks  $6.20  *** On The Rebound ***

Redback Networks (NASDAQ:RBAK) is a provider of advanced net-
working systems that enable broadband service providers to 
rapidly deploy high-speed access to the Internet and corporate
networks.  The company's product lines, which consist of the 
Subscriber Management System, the SmartEdge, and the Service 
Management product families, combine networking hardware and 
software.  Together, these product families are designed to 
enable its customers to create end-to-end regional and national 
networks that support major broadband access technologies, as
well as the new services that these high-speed connections
support.  Redback's shares have rallied recently on Wall 
Street's belief the company appears on track with its 4th-
quarter results.  Redback reports earnings on 1/16 and this
position offers a reasonable way to speculate on Redback's
potential recovery.

FEB 5.00 BUK BA LB=1.55 OI=1534 CB=4.65 DE=35 TY=6.5%


*****
RNWK - RealNetworks  $8.13  *** Another Break-Out! ***

RealNetworks (NASDAQ:RNWK) is a global provider of software
products and services for Internet media delivery.  The company
is engaged in the development of streaming media systems that
enable the creation, real-time delivery and playback of audio,
video and multimedia content on the Web.  RealNetworks is the 
manufacturer of streaming media systems such as RealAudio, 
RealVideo and other RealNetworks formats.  The Company has 
several services such as RealSystem iQ, RealPlayer, QuickTime,
etc., and two main websites, Real.com and RealNetworks.com.
Several new contracts and alliances over the last few months
have investors speculating on RealNetworks' future.  A recently
announced deal with TiVo (NASDAQ:TIVO) should help RNWK expand
beyond its traditional PC market and bring digital music and 
video to new gadgets.  We simply favor the bullish break-out
above a 5-month base and our conservative position offers a 
method to participate in the future movement of the issue with 
relatively low risk.  Earnings are scheduled for Jan. 29.

FEB 7.50 QRN BU LB=1.30 OI=2108 CB=6.83 DE=35 TY=8.5%


*****
RSTN - Riverstone Networks  $20.55  *** Earnings Rally! ***

Riverstone Networks (NASDAQ:RSTN) builds routers that convert raw
bandwidth into profitable services for Metropolitan Area Networks.
Riverstone's products enable the creation of profitable services
and the delivery of these services over next-generation and legacy
networks, including SONET/SDH, Gigabit Ethernet, T1/E1, T3/E3, ATM,
and Dense Wavelength Division Multiplexing (DWDM).  RSTN products
bring together fourth-generation Application Specific Integrated
Circuits, battle-tested routing software, and media versatility to
deliver comprehensive solutions for Metropolitan Area Networks.
In December, Riverstone posted 3rd-quarter results at the high end
of Wall Street estimates and said it was confident sales and profits
would meet expectations in the current quarter, driven by demand in 
Asian markets.  This week the company said it had made its biggest
sale yet, shipping 1,000 network routers to a subsidiary of Korea
Electric Power Corp.  The strong earnings report resulted in 
several upgrades with new coverage started this week.  We simply
favor a conservative entry point in a bullish stock.

FEB 17.50 RQJ BW LB=3.90 OI=149 CB=16.65 DE=35 TY=4.4%


*****

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

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

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

SONS    5.36  FEB  5.00   UJS BA  1.05 6038   4.31   35   13.9%
ITWO    8.34  FEB  7.50    JQ BU  1.50 3786   6.84   35    8.4%
CALP   17.66  FEB 17.50   DQQ BW  1.70 59    15.96   35    8.4%
IMNY    8.80  FEB  7.50   MQN BU  1.90 1624   6.90   35    7.6%
VISG    8.90  FEB  7.50   TUM BU  1.90 325    7.00   35    6.2%
RMBS    8.99  FEB  7.50   BNQ BU  1.90 955    7.09   35    5.0%
RATL   23.05  FEB 20.00   RAQ BD  4.00 151   19.05   35    4.3%


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

Option Trading 101: Strategy Selection
By Ray Cummins

This week I received a request for more information on spreads
and combination plays.  Since this section is focused on the sale
of puts, most readers are familiar with the put-credit spread.
However, there is another popular combination strategy that works
well with bullish issues.

One of the best methods for speculating on directional issues
with options is the synthetic position.  The simplest way to
explain synthetic positions in the financial world is to say
that they are simply alternate ways of constructing the same
risk/reward outlook with different instruments.  The term
"synthetic" is an appropriate description because a unit of the
underlying issue is simply being synthesized.  Futures traders
often use combinations of various derivatives to produce similar
profit/loss characteristics with commodities and fund managers
utilize many of the same techniques to reduce the risk of adverse
market movements in large equity portfolios.  Retail traders can
also benefit from those strategies by creating positions that
mirror the activity of specific stocks and indexes.  With the
purchase of a call and the sale of a put of the same strike and
duration, traders can capitalize on anticipated stock movement
without investing as much capital as they would when buying the
underlying issue on the open market.  Recall that when you buy
stock, you are considered "long", as you own it outright and will
participate fully in any price appreciation of the stock.  With a
synthetic position, the leverage of options magnifies any gain in
the underlying issue, thus providing exponential returns on any
upside
 
 activity.

 



These graphs illustrate a synthetic long position as compared to
ownership of the underlying stock.  Although the charts appear
equal, the line for the position constructed with options is
usually slightly below that for the stock position because of the
added cost of time value (premium) in the call options.  However,
this expense can often be negated through the careful selection
of favorably priced positions; selling expensive puts and buying
discounted calls.  At the same time, the synthetic position
generally requires a smaller capital outlay than the underlying
stock, thus the remaining funds can be used to produce profits
in other short-term investments.

The advantages to this unique strategy are numerous but the major
incentive for this type of approach is that its payoff structure
is very similar to holding a long stock position and yet traders
are not required to take physical delivery of the issue to benefit
from its activity.  Second, the initial capital requirements for
a synthetic position are much lower than being long on the stock,
even when using maximum margin in the purchase.  Finally, since
the synthetic delivers the same performance as a long position
in the underlying issue, there is no additional risk in using
derivatives to duplicate the basic stock ownership strategy.  Of
course, there are some basic requirements for participating in
this strategy, such as having a margin account and the ability to
sell cash-secured or "naked" options.  Another aspect that traders
should be aware of is the ongoing collateral requirement for the
sold (short) options due to the possibility of assignment.  That
expense must be factored into the final analysis of the strategy
when comparing it to other techniques, such as buying the issue
outright or using a combination of stocks and options to produce
a similar position.


Splitting The Strikes: An Aggressive Approach!

For most traders, the ability to profit from a stock's movement at
a fraction of the cost of owning the issue is the primary reason
for utilizing options.  The bullish, limited-risk approach falls
into two primary categories: option buying and (covered) option
selling, and the most common method of option trading among retail
participants has always been the purchase of calls.  That technique
can be very profitable but it requires an initial capital outlay
and in the case of in- or at-the-money options, leaves the trader
exposed to a large amount of downside risk.  In addition, traders
who purchase options during a strong directional movement in the
underlying will be forced to pay higher premiums, greatly reducing
the probability of profit.  Those who realize the unique difficulty
associated with this type of approach are forced to remain on the
sidelines until they discover an alternative method.  Fortunately,
there are numerous combination strategies that can help limit the
overall cost of the trade and simultaneously benefit from inflated
premiums.

One of these techniques is a variation of the synthetic position
using "out-of-the-money" options to construct a more speculative
outlook play with lower probability of profit and reduced risk.
In this case, you buy an out-of-the-money call to take advantage
of any extreme or rapid upward movement in the underlying issue,
and you sell an out-of-the-money put to pay for the call.  Buying
an OTM call costs less, at the expense of position Delta, but the
drawback is offset by the sale of an OTM put, which provides a
greater margin of downside risk.  As with any naked-put position,
you must be willing to own the underlying stock in the event of
an unexpected downturn but, by using OTM options, you will have a
larger cushion to absorb additional volatility in the issue.  At
first glance, this strategy may appear far too speculative to be
viable for conservative traders, but in truth, it works very well
with trending issues that have large upside potential and the risk
is little more than if you sold the identical cash-secured put to
collect premium on a bullish stock.

The great feature of options is they can be used in a number of
ingenious ways to create the most appropriate position for the
current market outlook and your personal risk/reward attitude.
The right combination of puts and calls can produce an effective
position with results that are similar to being long on the stock,
with less expense, and portfolio collateral can be used to finance
the entire transaction.  This approach also has the potential for
unlimited gain, thus providing an opportunity (one you don't have
with naked-puts alone) to overcome a number of losing plays.

As with any speculative strategy, be sure to thoroughly explore
the various outcomes and potential risk, so you can comfortably
execute the technique to its fullest potential.

Good Luck!
 

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


SUMMARY OF PREVIOUS CANDIDATES
*****

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

MONE   13.00  14.83   JAN  10.00  0.45  *$  0.45  21.4%
GSPN   17.08  16.61   JAN  15.00  0.35  *$  0.35  14.9%
MEDC   20.42  23.34   JAN  17.50  0.55  *$  0.55  13.7%
VRTY   20.03  21.99   JAN  17.50  0.55  *$  0.55  13.2%
OSUR   12.38  11.20   JAN  10.00  0.45  *$  0.45  12.9%
EMBT   25.00  21.60   JAN  20.00  0.65  *$  0.65  12.5%
MICC   13.92  12.59   JAN  12.50  0.25  *$  0.25  12.3%
IDNX   13.77  11.77   JAN  10.00  0.45  *$  0.45  12.2%
PPD    20.77  23.21   JAN  17.50  0.80  *$  0.80  11.9%
NTAP   22.60  22.55   JAN  17.50  0.55  *$  0.55  11.8%
NTAP   26.73  22.55   JAN  22.50  0.35  *$  0.35  11.2%
EMC    16.85  17.19   JAN  15.00  0.25  *$  0.25  10.6%
CALP   16.82  17.66   JAN  15.00  0.25  *$  0.25  10.5%
SEBL   32.70  34.94   JAN  27.50  0.40  *$  0.40  10.5%
IGEN   39.91  42.15   JAN  25.00  0.40  *$  0.40  10.4%
INRG   13.77  12.45   JAN  10.00  0.35  *$  0.35   9.8%
ADBE   35.90  36.03   JAN  32.50  0.50  *$  0.50   9.5%
RCOM   11.85  10.70   JAN  10.00  0.25  *$  0.25   8.6%
RCOM   11.14  10.70   JAN  10.00  0.45  *$  0.45   8.6%
CC     24.16  28.51   JAN  20.00  0.60  *$  0.60   8.5%
EMLX   39.45  45.61   JAN  27.50  0.65  *$  0.65   8.3%
AGIL   18.05  16.65   JAN  15.00  0.25  *$  0.25   8.2%
MANU   21.42  20.15   JAN  15.00  0.25  *$  0.25   8.0%
ASA    20.50  20.95   JAN  20.00  0.75  *$  0.75   7.7%
OCAS   16.05  15.95   JAN  15.00  0.30  *$  0.30   7.7%
COGN   23.30  25.67   JAN  20.00  0.45  *$  0.45   7.6%
OAKT   14.69  14.99   JAN  12.50  0.35  *$  0.35   7.5%
NTAP   22.95  22.55   JAN  17.50  0.25  *$  0.25   7.5%
JDAS   22.39  25.25   JAN  17.50  0.30  *$  0.30   6.8%
IGEN   40.44  42.15   JAN  25.00  0.50  *$  0.50   6.3%
ALOY   19.06  21.96   JAN  15.00  0.35  *$  0.35   6.1%
ICST   20.55  25.69   JAN  15.00  0.30  *$  0.30   5.9%
CC     26.32  28.51   JAN  20.00  0.30  *$  0.30   5.9%
FST    27.52  25.00   JAN  25.00  0.45   $  0.45   5.5%

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

Comments:

This week's tumble in broad-market equity values is providing
a preview of the trend for the next few weeks as the quarterly
earnings season gets underway.  Without some significant upside
surprises among the first few reporting companies, there will
likely be continued selling in all but the most bullish stocks.
In light of that outlook, we recommend "early exits" in any of
the issues you DO NOT want to own, and based on the flagging
technical indications, we also suggest you consider closing
these positions to lock-in profits and/or avoid future losses:
Forest Oil (NYSE:FST), Network Appliance (NASDAQ:NTAP); $22.50P,
and Embarcadero Technologies (NASDAQ:EMBT).  Issues currently
on the watch-list (for further downside activity) include: Agile
(NASDAQ:AGIL), Inrange Technologies (NASDAQ:INRG), Register.com
(NASDAQ:RCOM), Globespan (NASDAQ:GSPN), Millicom (NASDAQ:MICC),
and Orasure (NASDAQ:OSUR).

Positions Closed:

Identix (NASDAQ:IDNX); $12.50 Put


NEW CANDIDATES
*********

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

CMNT   23.75  FEB 20.00   QDO ND  0.50 0     19.50   35    7.0%
CRUS   19.15  FEB 15.00   CUQ NC  0.45 151   14.55   35    9.1%
FNSR   14.19  FEB 10.00   FQY NB  0.30 308    9.70   35    8.3%
ICST   25.69  FEB 20.00   IUY ND  0.45 20    19.55   35    7.0%
MEDC   23.34  FEB 17.50   MQH NW  0.35 100   17.15   35    6.1%
MIMS   20.63  FEB 17.50   OQX NW  0.70 77    16.80   35   10.4%
PPD    23.21  FEB 17.50   PPD NW  0.35 1209  17.15   35    6.1%
TMCS   19.95  FEB 17.50   QMF NW  0.45 0     17.05   35    6.5%

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

MIMS   20.63  FEB 17.50   OQX NW  0.70 77    16.80   35   10.4%
CRUS   19.15  FEB 15.00   CUQ NC  0.45 151   14.55   35    9.1%
FNSR   14.19  FEB 10.00   FQY NB  0.30 308    9.70   35    8.3%
CMNT   23.75  FEB 20.00   QDO ND  0.50 0     19.50   35    7.0%
ICST   25.69  FEB 20.00   IUY ND  0.45 20    19.55   35    7.0%
TMCS   19.95  FEB 17.50   QMF NW  0.45 0     17.05   35    6.5%
MEDC   23.34  FEB 17.50   MQH NW  0.35 100   17.15   35    6.1%
PPD    23.21  FEB 17.50   PPD NW  0.35 1209  17.15   35    6.1%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even 
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

*****
CMNT - Computer Network Technology  $23.75  *** Rally Mode! ***

Computer Network Technology (NASDAQ:CMNT) is a provider of unique
hardware and software products, related professional services and
managed services in the growing storage networking market.  The
company focuses mainly on helping its customers design, develop,
deploy and manage storage networks, a high speed network within
a business' existing computer system that allows the business to
manage its expanding data storage needs with greater efficiency
and less disruption.  The company designs, manufactures, markets
and supports a range of products for critical storage networking
applications including remote disk mirroring, or the real-time
backup of data to remotely located disks, and remote vaulting, or
the backup of data to remotely archived tapes.  CMNT climbed to
an 11-month high Friday on heavy volume after positive comments
from a conference with RBC Capital Markets.  Analysts say the
company is destined to profit from its status as the "largest
storage networking solutions provider in the world" and investors
who agree with that outlook can establish a discounted basis in
the issue with this position.

FEB 20.00 QDO ND LB=0.50 OI=0 CB=19.50 DE=35 TY=7.0%


*****
CRUS - Cirrus Logic  $19.15  *** On The Move! ***

Cirrus (NASDAQ:CRUS) is a supplier of high-performance analog and
DSP chip solutions for consumer entertainment electronics that
allow people to see, hear, connect and enjoy digital entertainment.
Building on its position in audio integrated circuits and its rich
mixed-signal patent portfolio, Cirrus targets mainstream audio,
video and web/online entertainment applications in the consumer
entertainment market.  A report from the Consumer Electronics Show
in Las Vegas suggested that Cirrus may become a leader in wireless
home entertainment through the use of their unique manufacturing
platform that enables the rapid development of inexpensive consumer
devices that support high-quality video streams on wireless home
networks.  Analysts at SG Cowen endorse that outlook and with the
company's recent affirmation of this quarter's earnings, traders
are flocking to the issue.  Technology investors can profit from
future upside activity in the stock with this low-risk position.

FEB 15.00 CUQ NC LB=0.45 OI=151 CB=14.55 DE=35 TY=9.1%


*****
FNSR - Finisar  $14.19  *** Bottom-Fishing! ***

Finisar (NASDAQ:FNSR) is a provider of fiber optic subsystems and
network test and monitoring systems that enable high-speed data
communications over local area networks, storage area networks and
metropolitan access networks.  They are focused on the application
of digital fiber optics to provide a broad line of sophisticated,
reliable, value-added optical subsystems for data networking and
storage equipment manufacturers.  Their line of optical components
and subsystems supports a large range of network applications,
transmission speeds, distances and physical mediums.  The company
provides network performance test and monitoring systems, which
assist networking and storage equipment manufacturers in the most
efficient design of reliable, high-speed networking systems and the
testing and monitoring of the performance of these systems.  CSFB
said it has raised its investment rating on Finisar to a "buy" due
to improvements in the outlook for OEMs in the storage business.
The analysts' note said the company's strong design activity was
encouraging and they expect positive reports from Finisar over the
next few quarters, along with an increase to financial forecasts.
This position allows investors to speculate on that outcome in a
conservative manner.

FEB 10.00 FQY NB LB=0.30 OI=308 CB=9.70 DE=35 TY=8.3%


*****
ICST - Integrated Circuit Systems  $25.69  *** Chip Sector! ***

Integrated Circuit Systems (NASDAQ:ICST) is engaged in the
business of designing and marketing custom application specific
integrated circuits (ASICs) for various industrial customers.
The company's business is divided into two categories: Core and
Non-Core Segments.  The Core segment supplies a broad line of
timing products for use in PC motherboard and also peripheral
applications. The Non-Core segment sells mixed-signal (analog
and digital) integrated circuits customized to the specific
requirements of a broad range of customers and applications.
Despite the recent slump in technology issues, the semiconductor
industry is expected to perform well during the coming year and
this company is one of the more favorable, low-cost issues in the
group.  ICST recently raised its fiscal second-quarter revenue
projections due to strong demand for personal computer and game
market products and traders can speculate on the earnings report,
due 1/24/01, with this conservative position.

FEB 20.00 IUY ND LB=0.45 OI=20 CB=19.55 DE=35 TY=7.0%


*****
MEDC - Med-Design  $23.34  *** Speculation Play! ***

Med-Design (NASDAQ:MEDC) principally is engaged in the design,
development and licensing of safety medical devices intended to
reduce the incidence of accidental needle sticks.  Each safety
medical device the company designs and develops incorporates
its proprietary needle retraction technology.  The company's
technology enables health care professionals to retract a needle
into the body of the medical device for safe disposal without any
substantial change in operating technique.  The company's unique
products  can be categorized into four main groups: hypodermic
syringes used to inject drugs and other fluids into the body;
fluid collection devices used to draw blood or other fluids from
the body; venous and arterial access devices used to provide
access to patients' veins and arteries; and specialty safety
devices for other needle based applications.  Med-Design rallied
last week on speculation that partner Becton Dickinson (NYSE:BDX)
would soon launch a syringe using Med-Design's technology.  The
company could receive as much as $10 million per year in royalty
payments if the syringes are hot-sellers and based on the recent
activity, traders are expecting that outcome.  Our OTM position
allows a conservative entry point into this speculative issue.

FEB 17.50 MQH NW LB=0.35 OI=100 CB=17.15 DE=35 TY=6.1%


*****
MIMS - MIM Corporation  $20.63  *** Hot Sector! ***

MIM (NASDAQ:MIMS) is a pharmacy benefit management, specialty
pharmaceutical and fulfillment and e-commerce organization that
partners with healthcare providers and other sponsors to control
prescription drug costs.  MIM's pharmacy benefit products and
services use clinically sound guidelines to ensure cost control
and quality care.  MIM's pharmaceutical business specializes in
serving the chronically ill patients who are afflicted with life
threatening diseases and genetic impairments.  MIM's fulfillment
and e-commerce pharmacy specializes in serving individuals that
require long-term maintenance medications.  MIM's online pharmacy,
www.MIMRx.com, develops private-label Websites to offer affinity
groups and healthcare providers with customized health information
services and products on the Internet for the benefit of their
members.  The Specialized Health Services group is performing well
and MIMS has rallied in recent sessions in the wake of favorable
company news.  Investors who agree with a bullish outlook for the
issue can establish a low-risk cost basis in the issue with this
position.

FEB 17.50 OQX NW LB=0.70 OI=77 CB=16.80 DE=35 TY=10.4%


*****
PPD - Pre-Paid Legal Services  $23.21  *** Premium Play! ***

Pre-Paid Legal Services (NYSE:PPD) was one of the first companies
in the United States organized solely to design, underwrite and
market legal expense plans.  The company's legal expense plans
(referred to as Memberships) currently provide for a variety of
legal services in a manner similar to medical reimbursement plans.
Plan benefits are provided through a network of independent law
firms, typically one firm per state or province.  Members have
direct, toll-free access to their Provider law firm rather than
having to call for a referral.  Legal services include unlimited
attorney consultation, traffic violation defense, auto-related
criminal charges defense, letter writing/document preparation,
will preparation and review and a general trial defense benefit.
Prepaid's options are always at a premium and the past volatility
in the issue makes it a aggressive position for both stock and
derivatives traders.  Those who agree with a bullish outlook for
the company can profit from continued upside activity in its share
value with this speculative play.

FEB 17.50 PPD NW LB=0.35 OI=1209 CB=17.15 DE=35 TY=6.1%


*****
TMCS - Ticketmaster  $19.95  *** Entry Point! ***

Ticketmaster (NASDAQ:TMCS) is engaged in two business segments:
ticketing, which includes both online and offline ticketing and
camping reservations operations, and city guides and classifieds,
which includes all of Ticketmaster's other online properties.
Within its ticketing segment, Ticketmaster provides automated
ticketing services worldwide, with over 6,200 domestic and foreign
clients, including many entertainment facilities, promoters and
professional sports franchises.  Ticketmaster Group and its major
operating subsidiaries, Ticketmaster Corporation and Ticketmaster
LLC were organized for the purpose of developing "stand-alone"
automated ticketing systems for sale to individual facilities.
Ticketmaster is also a local web portal and electronic commerce
company that provides in-depth local content and services online.
Shares of TMCS traded at a 16-month high Thursday and the recent
technical indications suggest the rally has more upside potential.
Investors who wouldn't mind owning the issue can speculate on its
continued bullish movement with this conservative position.

FEB 17.50 QMF NW LB=0.45 OI=0 CB=17.05 DE=35 TY=6.5%


*****

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

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

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

WEBM   21.96  FEB 17.50   UUW NW  0.75 397   16.75   35   12.7%
CALP   17.66  FEB 15.00   DQQ NC  0.50 25    14.50   35    8.9%
SEBL   34.94  FEB 27.50   SGQ NY  0.70 1371  26.80   35    7.9%
INVN   27.75  FEB 17.50   FQQ NW  0.50 112   17.00   35    7.2%
VRTY   21.99  FEB 17.50   YQV NW  0.40 23    17.10   35    7.2%
RATL   23.05  FEB 17.50   RAQ NQ  0.40 128   17.10   35    6.9%
SKIL   28.78  FEB 22.50   QKT NX  0.45 0     22.05   35    6.3%
BEAS   20.35  FEB 15.00   BUC NC  0.30 753   14.70   35    6.0%
MCDT   32.80  FEB 22.50   DXZ NX  0.45 15    22.05   35    5.6%
MU     35.13  FEB 27.50    MU NR  0.45 180   27.05   35    5.2%



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


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

******************************************************************
                         - MARKET RECAP -
******************************************************************
Friday, January 11

The major equity averages finished the week on a sour note after
Federal Reserve Chairman Alan Greenspan issued a cautious outlook
for the U.S. economy.

Despite favorable inflation data, comments from the Nation's top
central banker helped push the Dow lower for the fifth straight
session and drove the industrial-stock barometer to its first
close below 10,000 in three weeks.  The blue-chip average slid 80
points to 9,987 on weakness in Eastman Kodak (NYSE:EK), Boeing
(NYSE:BA), Hewlett-Packard (NYSE:HWP), Exxon Mobil (NYSE:XOM),
J.P. Morgan Chase (NYSE:JPM) and Wal-Mart (NYSE:WMT).  Technology
stocks fared even worse on a percentage basis, finishing down 24
points at 2,022 as software and networking shares retreated from
recent lofty valuations.  The Standard & Poor's 500 Index closed
little changed with mixed results as airline, oil service, retail,
bank and natural gas issues declined while biotechnology and gold
stocks enjoyed limited buying pressure.  Trading volume came in at
1.2 billion shares on the NYSE and at 1.6 million on the NASDAQ.
Market breadth was negative, with losers pacing winners 18 to 13
on the NYSE and 21 to 15 on the technology exchange.  On the fund
flow front, Trim Tabs estimated that all equity funds had inflows
of $5.9 billion during the week, compared with outflows of $9.5
billion in the prior week.  Bond prices ended with steep gains as
Greenspan's remarks appeared to leave the door open to additional
rate cuts.  The 10-year Treasury note jumped 26/32 to yield 4.87%
while the 30-year government bond tacked on 21/32 to yield 5.37%.


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

Andrx      (NSDQ:ADRX)   JAN75C/JAN70C  $0.60  credit  bear-call
Affymetrix (NSDQ:AFFX)   JAN40C/JAN40P  $4.00  debit   straddle
Adv. Dig.  (NSDQ:ADIC)   FEB20C/FEB17P  $0.10  credit  synthetic
Descartes  (NSDQ:DSGX)   FEB10C/FEB7P   $0.10  debit   synthetic
Knight     (NSDQ:NITE)   FEB15C/FEB12P  $0.15  credit  synthetic
Transwitch (NSDQ:TXCC)   MAY5C/MAY7C    $0.75  debit   bull-call

With only one bearish play in the portfolio, the credit spread in
Andrx couldn't help but get top billing this week after the recent
downside activity in the broader market.  The position offered an
excellent entry point during Monday's brief technical rally and
there is little indication that ADRX is going to recover in the
near future.  We can only hope the same fate is in store for our
new straddle issue Affymetrix as the bearish portion (JAN-$40P)
of the neutral position traded near break-even Thursday when the
stock fell to a weekly low.  Now the issue is testing support at
$37 and a move below that price should produce continued downside
activity, and a favorable profit, in the straddle.  Among the new
"Reader's Request" speculation plays, Advanced Digital was the
strongest issue while Descartes Systems and Knight Trading both
retreated with their respective industry groups.  The lone debit
spread in Transwitch also suffered as the issue pulled back from
recent gains however, we have over four months for the stock to
recover from last year's precipitous sell-off.


Portfolio Activity:

The recent bullish recovery in the broad-market came to an abrupt
end this week as investors decided the potential for an economic
recovery may already be factored into current share values.  In
the span of just a few days, the optimistic outlook among retail
traders turned to an attitude of doubt and insecurity, and the
less confident stance has turned the tables against equities in
the near term.  Our portfolio was fortunate to enjoy some small
gains early in the week, before the selling began in earnest.  A
number of small-cap issues moved higher including: I2 Technologies
(NASDAQ:ITWO), which hit a recent high near $10 Thursday; Aware
(NASDAQ:AWRE), which experienced similar results Wednesday; and
Redback Networks (NASDAQ:RBAK), the top "January Effect" issue in
the portfolio with a 60% rally since the beginning of the new year.
Speechworks (NASDAQ:SPWX) continued its winning ways, reaching a
high near $15.18 Wednesday and the speculative synthetic position
in that stock produced over $2 of profit in less than one month.
Honorable mention should go to Sonus (NASDAQ:SONS), which bounced
back to the $6 range in conjunction with the upside activity in
the networking group and 3com (NASDAQ:COMS), an issue that has
remained surprisingly strong even in the wake of recent selling
pressure among communication-equipment stocks.

With only one week until the January expiration, bearish credit
spreads in Amgen (NASDAQ:AMGN), KLA-Tencor (NASDAQ:KLAC), and
Andrx (NASDAQ:ADRX) are at maximum profit and the suggested
adjustment in Wellpoint Health (NYSE:WLP) is comfortably above
the sold strike (JAN-$105).  The premium-selling plays in Biogen
(NASDAQ:BGEN) and Semtech (NASDAQ:SMTC) are performing very well
but, at the same time, we are clinging to relatively small profit
margins in Idec Pharmaceuticals (NASDAQ:IVGN) and Invitrogen
(NASDAQ:IVGN).  Calendar spreads in Price Communications (NYSE:PR)
and Clarus (NASDAQ:CLRS) have slipped into hibernation during the
recent market downtrend but fortunately, the Covered-calls with
LEAPS position in Microsoft (NASDAQ:MSFT) is continuing to profit
as each option period provides a new premium-selling opportunity
with the near-term ($70) calls.  The only real surprise this
month came in the Abgenix (NASDAQ:ABGX) "bull-put" credit spread
but based on the recent activity, it appears the volatile issue
may provide a respectable finish for both bullish and bearish
traders as the stock is now established in a range that benefits
the majority of potential adjustment strategies.

Questions & comments on spreads/combos to Contact Support
******************************************************************
                          - STRADDLES -

Option-trading guru Larry McMillan noted this week that the VIX,
or Volatility Index, continues to decline and he also commented
that the recent low level suggests option traders are complacent;
a condition that often precedes a large market movement.  Indeed,
the current volatility levels are moving towards multi-year lows
and with the upcoming quarterly earnings announcements, we have
discovered some good candidates for "Earnings Season" straddles.
Each of these issues meets our criteria for a favorable straddle;
cheap option premiums, a history of adequate price movement and
the potential for volatility in the stock or its industry.  This
selection process provides the foremost combination of low risk
and potentially high reward but, as with any position, each play
must also be evaluated for portfolio suitability and reviewed
with regard to your strategic approach and trading style.

******************************************************************
JNPR - Juniper Networks  $19.26  *** An Old Favorite! ***

Juniper Networks (NASDAQ:JNPR) is a provider of purpose-built
Internet infrastructure solutions that meet the scalability,
performance, density and compatibility requirements of rapidly
evolving, optically enabled Internet Protocol networks.  Unlike
conventional routers, originally developed for enterprise
applications, the company's products are specifically designed,
or purpose-built, for service provider networks and also to
accommodate the size and scope of the Internet.  The company's
next-generation Internet backbone routers offer their customers
reliability, performance, scalability, interoperability and
flexibility.  The company's products combine high-performance,
ASIC-based packet-forwarding technology, the features of the
JUNOS Internet software and an Internet-optimized architecture
into a purpose-built solution for the service provider market.
The company's quarterly earnings announcement is on 1/15/02.

PLAY (conservative - neutral/debit straddle):

BUY  CALL  JUX-ND  FEB-20  OI=1394  A=$1.90
BUY  PUT   JUX-BD  FEB-20  OI=1920  A=$2.65
INITIAL NET DEBIT TARGET=$4.40-$4.40  TARGET PROFIT=25%


******************************************************************
BRCM - Broadcom Corporation  $49.32  *** Semiconductor Sector ***

Broadcom Corporation (NASDAQ:BRCM) is a provider of integrated
silicon solutions that enable broadband communications and
networking of voice, video and data services.  Using proprietary
technologies and advanced design methodologies, Broadcom designs,
develops and supplies system-on-a-chip solutions for applications
in digital cable set-top boxes and cable modems, high-speed local,
metropolitan and wide area and optical networks, home networking,
Voice over Internet Protocol (VoIP), carrier access, residential
broadband gateways, direct broadcast satellite and terrestrial
digital broadcast, digital subscriber line (xDSL), wireless
communications, server solutions, and network processing.

Broadcom's earnings are not scheduled for release until the week
after these options expire but the prices are very favorable and
the volatility in the semiconductor group should provide the
necessary catalyst for activity in this issue.

PLAY (very speculative - neutral/debit straddle):

BUY  CALL  JAN-50  RDZ-AJ  OI=9010  A=$1.70
BUY  PUT   JAN-50  RDZ-MJ  OI=4510  A=$2.35
INITIAL NET DEBIT TARGET=$3.75-$3.90  TARGET PROFIT=20%


******************************************************************
JBL - Jabil Circuit  $24.78  *** Probability Play! ***

Jabil Circuit (NYSE:JBL) is an independent provider of electronic
manufacturing services.  The company designs and manufactures
electronic circuit boards and systems for original equipment
manufacturers (OEMs) in the communications, computer peripherals
and personal computer, automotive and also the consumer products
industries.  The company serves its OEM customers with dedicated
work cell business units that combine volume, highly automated
continuous flow manufacturing with advanced electronic design and
design for manufacturability technologies.  Its work-cell business
units are capable of providing integrated design and engineering
services, component selection, sourcing and procurement, automated
assembly, design and implementation of product testing, parallel
global production, systems assembly and direct order fulfillment
services, repair and warranty services.

Jabil's earnings report is not due until March but once again,
the options premiums are very favorable and the volatility in
the computer hardware segment should provide a catalyst for
activity in the issue.

PLAY (conservative - neutral/debit straddle):

BUY  CALL  FEB-25  JBL-BE  OI=832  A=$2.20
BUY  PUT   FEB-25  JBL-NE  OI=140  A=$2.40
INITIAL NET DEBIT TARGET=$4.30-$4.40  TARGET PROFIT=25%-30%


******************************************************************
QQQ - Nasdaq-100 Trust Series  $40.85  *** Trade The NASDAQ! ***

The Nasdaq-100 Trust Series I is a pooled investment designed to
provide investment results that generally correspond to the price
and yield performance of the Nasdaq-100 Index.  With Nasdaq-100
Index Tracking Stock, you can buy or sell shares in the collective
performance of the Nasdaq-100 Index and the transaction gives you
ownership in the 100 stocks of the Nasdaq-100 Index.  When you
purchase Nasdaq-100 Index Tracking Stock, you're investing in the
Nasdaq-100 Trust, a unit investment trust that holds shares of the
companies in the Nasdaq-100 Index.  The Trust is designed to track
the price and yield performance of the Index, thus you can expect
your Nasdaq-100 Index Tracking Stock to move up or down in value
when the Index moves up or down.

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.  Traders who think the
volatility in technology stocks will increase this week as the
quarterly earnings season begins can attempt to profit from that
activity with this neutral-outlook position.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  JAN-41  QQQ-AO  OI=75791  A=$0.80
BUY  PUT   JAN-41  QQQ-MO  OI=46135  A=$1.00
INITIAL NET DEBIT TARGET=$1.70-$1.75 TARGET PROFIT=20%


******************************************************************
                       - TECHNICALS ONLY -

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

******************************************************************
BGEN - Biogen  $55.94  *** Trading Range! ***

Biogen (NASDAQ:BGEN) is a biopharmaceutical company principally
engaged in the business of developing, manufacturing and selling
drugs for human healthcare.  Biogen currently derives revenues
from sales of its Avonex (Interferon beta-1a) product for the
treatment of relapsing forms of multiple sclerosis, and from
royalties on worldwide sales by the company's licensees of a
number of products covered under patents controlled by Biogen.
Such products include forms of alpha interferon, hepatitis B
vaccines and hepatitis B diagnostic test kits, among others.
Biogen continues to have an active development program related
to Avonex, and is conducting several important clinical trials
of the product.  Biogen also continues to devote significant
resources to its other ongoing development efforts.

Biogen surfaced again this week in a scan/sort for issues with
stable trading patterns and inflated option premiums.  Based on
analysis of historical option pricing and the issue's technical
background, this position meets the fundamental criteria for a
bullish credit-spread.  The stock has been forming a Stage I
base for almost two years; trading in a range from $50 to $70.
More recently, Biogen has also formed a strong support area at
$52 with overhead resistance near $60.  The technicals suggest
the current lateral consolidation is likely to continue but, as
with any recommendation, the position should be evaluated for
portfolio suitability and reviewed with regard to your strategic
approach and trading style.

PLAY (conservative - bullish/credit spread):

BUY  PUT  FEB-45  BGQ-NI  OI=178  A=$0.35
SELL PUT  FEB-50  BGQ-NJ  OI=257  B=$0.85
INITIAL NET CREDIT TARGET=$0.60-$0.65  PROFIT(max)=14%


******************************************************************
CALP - Caliper Technologies  $17.66  *** On The Move! ***

Caliper Technologies (NASDAQ:CALP) is engaged in lab-on-a-chip
technologies.  The company's LabChip systems are designed to
miniaturize, integrate and automate many laboratory processes
and put them on a chip that could fit in the palm of one's hand.
Each chip contains a network of microscopic channels, through
which fluids and chemicals are propelled, using electricity or
pressure, in order to perform experiments.  The chips are the key
components of the Company's LabChip systems, which also include
reagents, as well as instruments and software, that control and
read the chips.

Caliper shares have been "on the move" in recent weeks after the
company adopted a "shareholder rights" plan to provide for fair
and equal treatment for all the stockholders, in the event any
unsolicited attempt is made to acquire Caliper.  Investors may
believe the move is in response to an acquisition offer but more
likely the company is just implementing a policy that should
previously have been in place.  In any case, we favor the recent
technical indications as Caliper has reversed the downtrend with
a rally above its 150-dma on increasing volume.  The stock has
also moved above previous resistance (near the March/April lows,
which coincides with the consolidation area near the August and
October highs) and that price range should now provide support
on any pullback.  A test of the July highs near $20 is next and
trader who agree with a bullish outlook for the issue can profit
from further upside movement with this position.  Target a lower
premium (debit) initially, to allow for a consolidation from the
recent rally.

PLAY (speculative - bullish/synthetic position):

BUY  CALL  FEB-20  DQQ-BD  OI=5   A=$1.00
SELL PUT   FEB-15  DQQ-NC  OI=25  B=$0.50
INITIAL NET CREDIT TARGET=$0.10-$0.25  TARGET PROFIT=$0.50-$0.75

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $465 per contract.


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


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