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Daily Newsletter, Sunday, 11/24/2002

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The Option Investor Newsletter                   Sunday 11-24-2002
Copyright 2002, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.


Entire newsletter best viewed in COURIER 10 font for alignment

In Section One:

Wrap: Is It Real?
Futures Market: It’s History
Index Trader Wrap: Thank you, thank you and thank you!
Editor’s Plays: Cheap Stocks
Market Sentiment: Reading Between the Lines
Ask the Analyst: Plan the trade and trade the plan
Coming Events: Earnings, Splits, Economic Events

Updated on the site tonight:
Swing Trade Game Plan: Movin' On Up


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       WE 11-22        WE 11-15        WE 11-08        WE 11-01 
DOW     8804.84 +226.75 8579.09 + 41.96 8537.13 + 19.49 + 73.65  
Nasdaq  1468.74 + 57.60 1411.14 + 51.86 1359.29 -  1.41 + 29.57 
S&P-100  475.03 + 11.31  463.72 +  6.33  457.39 -  0.77 +  2.51 
S&P-500  930.55 + 20.72  909.83 + 15.09  894.74 -  6.22 +  3.31 
W5000   8783.13 +199.08 8584.05 +145.25 8438.80 - 63.40 + 51.56 
RUT      400.00 + 14.08  385.92 +  6.93  378.99 -  4.46 + 10.81 
TRAN    2313.98 - 19.12 2333.20 - 13.68 2346.88 + 31.20 +  2.37 
VIX       26.73 -  4.10   30.83 -  2.73   33.56 -  0.42 -  2.29 
VXN       46.49 -  3.19   49.68 -  2.33   52.01 +  2.15 -  0.53 
TRIN       1.05            0.67            1.80            0.95 
Put/Call   0.70            0.57            1.05            0.71
******************************************************************

 
Is It Real?
by Jim Brown

The markets pulled back slightly on Friday but the Dow still 
managed to post a +226 point gain for the week and stretch its
winning streak to seven weeks. Considering the gains over the
last seven weeks this was an impressive feat. The Nasdaq also
managed to close at levels not seen since June. Overall it was 
a great week and the streak of consecutive years this week was
positive has now stretched to ten. 

Dow Chart – Daily


 

Nasdaq Chart – Daily


 


Friday was a sleeper day. We traded very close to the flat line
all day and only a late afternoon drop kept the averages from
closing positive. Comments out of Russia contained a warning 
from Putin to Bush to not attack Iraq without full UN consent. 
This caused traders who were starting to feel bullish again to 
decide being safe meant being flat over the weekend. That -65
point Dow drop just before the close managed to push the index
to the low of the day. 

Friday started off bad but quickly recovered after Cisco was
cut to a "sell" by Fulcrum after they said revenue growth for
2003- and 2004 will not be sufficient to offset the impact of
declining grow margins. They set a 12-month price target of $11
and said the cost of expensing options could cut earnings by
as much as 60%. Cisco was only down marginally by -.35 cents
on the news but the tone was set for the day. 

Salomon Smith Barney cut PSFT and SEBL on valuation concerns
from a lack of any corporate IT recovery. Brocade warned that
earnings would fall and the COO was leaving. BRCD lost -27% on
the news with a drop to $5.27. All these events cast a spell 
over the tech sector and the Nasdaq lost -20 points in early 
trading. 

On better note Taiwan Semiconductor, the biggest foundry in the
world said an anticipated -7% drop in demand had not materialized
and they were adding capacity to accommodate a brisk increase in
orders for PC products. Did anybody pickup on that? The expected
drop in demand did not appear and capacity utilization was 
increasing due to orders for computer products. This is not a
small side sector manufacturer. This is the largest chip foundry
in the world. 

This good news offset the negative semiconductor book-to-bill
report from Thursday night. That ratio dropped to .73 from .84
the prior month. This was the fourth month of significant decline
and indicated there was no recovery in the chip sector in October. 
This is the STEEPEST three-month decline on record and orders
are approaching the lows from last year. It is not expected to
get better soon. AMAT said they expected orders in Q4 to drop
another -20%. This is directly contrary to the comments from 
Taiwan Semi today. However, the B-t-B ratio is backward looking 
and is for October. The TSM data is for the current month and 
to some extent is forward looking since they are having to add 
capacity for current order flow. 

This brings up the distinct possibility that the October period
was the bottom and as the largest foundry in the world and the
most likely to see the first swell of orders, the TSM data could
be the leading indicator of a coming rebound. According to the
latest CIO Magazine Tech poll in October, more CIOs expected to 
decrease spending in the current quarter than increase spending. 
This was the first time in eight months the sentiment was negative. 
If something has suddenly appeared to turn the economy around then
it is a stealth attack and it appeared in the last four weeks. 
Maybe the Fed has decided cutting rates is not working and just
decided to replace all the government computers instead. 

There are mixed messages coming out of the box makers. Dell gave
a glowing outlook for its own business but was criticized for 
not being even more aggressive. HPQ beat estimates and affirmed
guidance for the 4Q and were criticized for "possible" channel 
stuffing and number manipulation. It appears the bears have
taken over the analyst community but then bad news always sells
more newspapers than good. Dan Niles has gone on record several
times recently as saying a rebound was underway and even called
the HPQ surprise in advance. Both Dell and HPQ showed gains in 
Europe of +15% so obviously there was plenty of market share for 
both. 

Other areas strong for both companies and for IBM was the server
market. All showed gains and Dell was knocking the cover off
the ball. If companies are quietly using their IT budget dollars
to beef up their server farms then the next wave will be desktop
computers. You don't upgrade the desktops and then try to feed
them with servers that are multiple generations old. You do the
infrastructure first and then the individual computers. Another
problem in the computer sector is price deflation. In 1999 the
average 400MHZ desktop replacement for the Y2K upgrade was $2,500. 
The average 2.4 MHZ desktop replacement today costs less than 
$1,000 without a monitor. Today I installed a 2.4GHZ, 1GB ram, 
360GB of disk, CD burner, DVD player plus all the bells and 
whistles and it cost me less than $900 using an existing monitor. 

PC box makers are faced with trying to produce revenue growth
while computer prices are falling 10%-15% per month. In order
to get +15% growth they have to sell +30% more boxes than they
did the prior period. Just selling the same number of units
would cut their revenue by -15% every quarter. It is a cutthroat
market and it is not expected to see any sudden price surges. 
The fact that HPQ and Dell are showing revenue growth at all
in the current economy is amazing. Obviously investors have not
picked up on this fact of life as Dell stock has dropped -10%
since they announced earnings one week ago. 

Now, back to the TSM news. I don't want to apply too much to 
the event just in case it is a blip and not the start of a new
trend. If you remember a month ago I reported that they also 
said they were seeing a flurry of last minute rush orders to 
fill holiday shipments. So consider this. In October they say 
they have a flurry of unexpected orders. In November the expected 
drop did not appear and they are having to add capacity for 
December. This is normally a slow period for chipmakers with 
forced plant closings and mandatory holiday vacations. Do you 
see the possible conclusions here? Rising demand during a 
normally slow period. It could be a blip, just an inventory
replenishment phase, but it could also be the real thing. The 
Fed has cut rates 12 times in two years and cheap money may 
finally be doing its job. 

I know the preceding paragraphs may be bordering on heresy to
some readers but after three years of gloom and doom it may be
time to start considering the bullish alternative. Another 
leading indicator of impending economic rebound is copper. 
Copper has risen nearly 15% since mid October and there is only
one reason for buying copper. You are going to make wire, pipe,
circuit boards and things like industrial equipment. Copper has
historically led manufacturing rebounds by 6-9 months. 

Another measure of a real rally is the small caps. The Russell
2000 stocks. The Russell has risen +23% since the October lows. 
This is less than the Nasdaq's gain of +32% but still very
respectable. When rebound rallies are bear market rallies the
big cap indexes tend to outperform the small caps. They are
liquid and easy to move in and out with large sums of cash. 
They are a favorite of funds when there is no conviction. When
funds think the rally is for real they spread out into small
caps to capture the maximum price appreciation of any future
rally cycle. The Russell is up +8% in the last two weeks. There
is definitely money flowing into this group. Personally I think
the Nasdaq has out performed because the majority of Nasdaq
stocks are no longer mid or big caps with many high flyers now
priced in the single digits. They are not specifically "small
caps" due to the number of shares outstanding but were definitely
"small prices" and that attracted larger dollars. 

Going forward we are just not going to explode to Dow 12,000
over the Thanksgiving holidays. There are far too few signs of
a pending recovery and there are still sectors under attack.
Airlines, health care, oil, financial, etc. Fourth quarter
warning season starts after Thanksgiving. There is also strong
resistance just above us. The Dow has resistance at 9050 and
9205. The Nasdaq at 1485 and 1504. These are significant 
resistance levels and are not likely to be broken on the first
attempt. Many analysts think Dow 9200 will be the high for the
rest of the year. That remains to be seen but we could hit that
area just as the first wave of warnings hits us. That resistance
coupled with a little reinforcement of negative sentiment could
slow the momentum. Many think that a recovery will appear by 
Q3-2003 but that the recent market gains have already priced in
that conclusion. It is almost a sure thing that there will be 
another "spectacular" terrorist event between now and Q3 and 
with the increased news coverage of what a soft target our malls
are the holiday retail season could be a disaster. 

The bottom line for me is still optimism. I see bullishness 
breaking out all over and glimmers of hope on the horizon. Chip 
orders picking up, auto sales not as bad as expected, home sales 
are still strong and we have a rising market to help rebuild 
consumer confidence. This type of good news tends to feed on 
itself and we have seen many times recently that bad news is 
being ignored. While I would not go out and borrow against my 
home equity to invest in the market now I would not bet against 
it either. We may be headed higher. Maybe not straight up but if 
the last seven weeks are any indication the trend has definitely
changed. Is it real? It is for everybody that bought the dip on 
October 10th. Don't you wish you had that time machine now.

Enter Very Passively, Exit Very Aggressively!

Jim Brown

"The stock market is that creation of man which humbles him
the most".  - Anonymous


**************
FUTURES MARKET
**************

It’s History 
By John Seckinger
jseckinger@OptionInvestor.com

Looking at monthly and weekly charts dating back to 1999 seems to 
shed light on long-term psychology and expectations of traders 
with an extended time horizon.  

Friday, November 23rd at 4:15 P.M. 

Contract          Net Change     High        Low        Volume    

ES02Z     928.75     -6.75      937.50      927.25      464,042
YM02Z    8796.00    -63.00     8875.00     8805.00       14,874
NQ02Z    1116.50     -1.00     1124.50     1100.50      243,851

ES02Z  =  E-mini SP500 futures    
YM02Z  =  E-mini Dow $5 futures    
NQ02Z  =  E-mini NDX 100 futures     

Note:  The 02Z suffix stands for 2002, December, and will change 
as the exchanges shift the contract month.  The contract months 
are March, June, September, and December.  The volume stats are 
from Q-charts.  

Fundamental News:  The equity markets had to digest a weak 0.73 
book-to-bill ratio, as well as a warning from Brocade (BRCD, -
27.5% to 5.28) about disappointing quarterly revenue and the 
announcement that 150 jobs, or 12% of its work force, will be 
cut.  Other negative news included a downgrade of PeopleSoft 
(PSFT, -5% to 19.99), Siebel (SEBL, +0.91% at 8.74), Cisco (CSCO, 
-2.3% at 14.89), and Adobe (ADBE, -1.29% at 29.81).  Other notes 
included the announcement from Wal-Mart that Sam's Club will 
enter the Canadian market; possibly having a negative impact on 
Costco (COST).  Costco derives 18% of operating earnings from 
Canada.  Additionally, it is reported that the US will launch an 
investigation into Micron's (MU) complaint that the S. Korean 
government subsidized DRAM makers Hynix and Samsung

Technical News:  The Dow Jones finished the week higher by 260, 
and has now posted seven straight weekly gains.  Since 1987, the 
Dow has gained every year except three over the Thanksgiving week 
including the following Monday.  Note: There are no major 
earnings reports all week; however, a few noteworthy economic 
reports are scheduled to be released.  Existing Home Sales on 
Monday; GDP, New Home Sales, and Consumer Confidence on Tuesday; 
and Durable Goods Orders on Wednesday.  A few sectors making 
headlines on Friday were Biotech (BTK, 379), Networking (NWX, 
152), and Utilities (UTY, 248).  The Biotech Index tested solid 
resistance between 380-385 (intra-day high of 385), the NWX index 
rose 3.62% and above 150, while the UTY index cleared 343 and 
looks poised to trade towards 257.  

=================================================================

The December Mini-sized Dow Contract (YM02Z)

As always, it makes sense to start with a longer-term chart and 
try to get a reading on sentiment and expectations of traders 
with an extended time horizon.  With that said, I decided to pull 
up a monthly chart of the Dow and look for potential long-term 
pivot areas.  It was only a few years ago when all eyes were on 
the “diamond” formation in the Dow and the possibility of an 
extended move either way.  After a relative high (11750) and low 
(9731) were established, traders had their 2,019-point objective. 
The question was:  Which way will the Dow go, and where is the 
apex?  I calculated 10,841 as the apex (based on volume), and 
once 9731 was taken out, the 8822 objective became set in stone 
(which was eventually reached after a tremendous amount of 
volatility, and a number of bull traps).  In conclusion, long-
term traders most likely remember the 8800 to 8900 area; 
moreover, the psychological importance of 8800 has just become 
even more magnified.  

Chart of Dow Jones Industrial Average, Monthly 


 

The real question now is, where is the Dow headed?  Looking at a 
weekly chart between April 1999 to July 2000, there appears a 
pattern that somewhat resembles current events (Note:  impossible 
to match psychology).  The Dow broke out higher, appeared to show 
a relative high (recently seen with the Bearish Shooting Star 
formation), and then went on to close above all previous weekly 
highs.  

As the chart shows, prices went on to rise an additional 300 
points higher (would put Dow at 9100); however, more importantly, 
the Dow really began to fall once prices CLOSED underneath these 
psychologically important levels.  Will history repeat itself?  I 
do believe that least resistance is HIGHER at current levels; 
however, in the back of my mind, I worry about the next wave 
higher being carried by retailers thinking that a great rally is 
about to begin.  I wish they are right; however, a weekly close 
back under the previous relative weekly highs could be very
troublesome for longs.    

Chart of Dow, Weekly (April 1999 to July 2000) 


 

Getting to a chart of the YM02Z contract, the objective of 8996 
remains untested; however, there is some nice support underneath 
at 8725 and below at 8638.  Short-term pivot is at 8800, while 
resistance before 8996 is seen at 8951 (Dow DMA).  Above 8996, 
resistance is felt at 9018 (YM 200 DMA) and 9077.   

Chart of Mini-sized Dow (YM02Z), 120-minute 


 

YM02Z

Support               Resistance                  Pivot    
	
8800				8900				8800
8725				8935				8638
8685				8951				8540
9000
9018
9077

Bold signifies levels within the Dow Jones.  

The December E-mini Nasdaq 100 Contract (NQ02Z)

The Nasdaq 100 appears to be more rational and less volatile than 
the other two futures contracts.  However, that could all change 
very soon.  With the contract pulling back towards the highly 
watched 1100 area (Friday’s intra-day low at 1100), the strength 
of this pivot becomes greater.  Additionally, there is a bearish 
divergence in the RSI oscillator that could do one of two things.  
One, squeeze shorts towards 1172 if the 1124.50 level is taken 
out, or, secondly, have shorts get aggressive once under the 1100 
pivot and look to test the wedge support at 1073.  Note:  
Conservative bears might be looking for a break of the rising 
blue support line, currently matching the 50 DMA at 1053.  

Chart of E-Mini Nasdaq 100, 120-minute 


 

NQ02Z

Support              Resistance                  Pivot    
	
					1124
1110				1131				1100
1000				1154				1088
1072				1163				1073
	1020				1172				1053
	1000

Bold signifies levels within the NDX.  

The December E-mini S&P 500 Contract (ES02Z)

Close, but no cigar.  The ES02Z contract briefly rose above the 
936 pivotal level (corresponding with a bearish trend line from 
March); however, late-day profit taking easily closed the index 
underneath at 930.55.  If the index can close above this trend 
line, there some solid resistance levels to be concerned about.  
One is at 945, and, more importantly, at 965.  Downside 
intermediate support is felt at 930 and then much lower just 
under 900 (22 WMA at 894).  Another worry for longs could be the 
ADX oscillator, falling from above 40 to under 40 and signaling 
that the recent momentum may be running out of steam.  Note:  If 
the Dow does rise an additional 300 points (based on top 
paragraph), this could place the S&P 500 near the 965-971 level.

Chart of S&P 500 Index, Weekly 


 

A 90-minute chart of the ES02Z contract continues to show the 
bearish divergence, but prices remain above the 926-927 pivotal 
level.  A move under this pivot could pressure the index back 
towards 912 and the middle of the regression channel.  New buyers 
might not get involved until the 937 level is taken out, and a 
rise above 937 might have to be confirmed with better RSI 
numbers.  

Chart of E-Mini S&P 500, 90-minute


 

ES02Z

Support              Resistance                  Pivot    
	
926-27			936				926.50
910				956				927
902				965
					971

Bold signifies levels within the S&P 500.  

Good Luck.

Questions are welcomed,

John Seckinger
jseckinger@OptionInvestor.com 


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

Thank you, thank you and thank you! 
By Leigh Stevens
lstevens@OptionInvestor.com 

The bulls had something to be thankful for again last week with 
another strong run up – the 7th. week in row for the S&P, Dow and
the Nasdaq, at least for the Nas 100 (NDX). The S&P 500 was up
30 points, for a 3.3% gain and the Nasdaq Composite (COMPX) was
higher by 58 points and a 4% increase.  Weeks like this makes
stock owners feel like more such stuffing and with some prospect
for yet another week of the same ahead – for at least the last 9
years in a row, the market has been higher in the holiday 
shortened week ahead.

TRADING ACTIVITY AND OUTLOOK –
Round up the usual suspects at least from market of yesteryear 
– the financials and technology led the way last week. Just the 
leadership we would expect if in fact the economy is reviving. 
However, a week’s end, a reduction in earnings estimates from 
Brocade Communications reminded the flock that there were still 
going to be some rough spots.  

Hard to believe but Nasdaq is leading the way as the fallen tech 
angels rise again. And, in terms of the Nasdaq market, the 
technical mavens – as in “technical” analysis – can give 
“official” word of an emerging UP-trend in the technology heavy 
Nasdaq, with its penetration of its August price peak. 

An uptrend being defined as a series of higher rally peaks makes 
the August (up) swing highs the defining points. It looks to me 
that the big cap “old” economy stock averages will follow suit in 
a move to new highs ahead. As I’ve said before, the market often 
“climbs a wall of worry” when emerging from a bear market. Of 
course, fundamentally Iraq is the wild card with a major oil 
price spike as a danger. Big worries indeed, but there is usually 
something that keeps too many people from getting too bullish too 
quickly - funny how that works. 

I notice that a lot of technicians are now being quoted for their 
two cents worth on what is going on – trotting out this group 
defines the times when the market is telling us something that we 
don’t see or trust yet. I know because this is when I would get 
called to go on CNBC occasionally.  

When the market is a mystery, call in the technical analysts as 
they have these kind of weird crystal balls.  Understandable I 
guess, when the market is acting as a somewhat mysterious 
“discounting” mechanism as equity prices adjust for better 
prospective earnings a half or full year out.  Because the 
“market” is usually right on what lies ahead, we have things like 
the rule of thumb about higher highs and higher reaction lows.  

Last week’s improvement in jobless claims and a factory activity 
pickup in the Philly Fed report were a couple of factors seized 
on by the market.  The other thing I find significant as a 
student of market psychology and market history is that there is 
not much bullishness out there and, in fact, not a lot of market 
interest. (Charles) Dow defined this as the 3rd. and final phase 
of bear markets – lack of interest in stocks especially in terms 
of new buying.  Professional money managers are another story, as 
they continue to nibble away at select stocks.  

The week ahead will have some things to watch for – October 
existing and new home sales, October durable goods orders, 
personal income and spending figures – can we all just please 
continue to SPEND! – also, comes any revision to Q3 GDP and a 
last say by the University of Michigan on their consumer 
sentiment index – oh, and I shouldn’t fail to mention the Fed 
Beige book or musings by the federal reserve on what is going on 
out there in the economic hinterlands.   

If you want to watch bellwether tech stocks – IBM, Cisco and 
Microsoft continue to rally advance above their 200-day moving 
averages.  GE is my S&P bellwether and it has at least broken out 
above its 50-day average.  Jack Welch where are you when we need 
you! 

MY INDEX OUTLOOKS - 
I generally let my pictures do the talking and I have a number of 
notations on the 4 key charts that follow that form my market 
outlook, which is basically bullish but with expectations that 
it’s not going to be just “up, up and away”. 

S&P 100 Index (OEX) – Daily and Hourly charts: 

My bullish outlook case for the S&P 100 index (OEX) stems from 
the rebound off the double bottom low of late July/early-October 
and the subsequent move in the Index above the March-October down 
trendline. However, this is not to say that there will not still 
be two-sided trading swings. 

In terms of the OEX, “pivotal” near support is 470, at the prior 
recent highs that were exceeded last week. Above 470, OEX is in a 
position to test key overhead resistance at the August peak at 
486. (By “test” is meant OEX gets up this level to determine if 
the Index can/will get through resistance implied by this prior 
high or not.) A move below 470 implies that price action has 
become bearish.  

I peg the most significant resistance as from 486 (the August 
top), then on up to the 200-day moving average at 495 – 
therefore, the down arrows on the daily chart, left, below.  



 

Given the increasingly near-term overbought condition highlighted 
by the hourly and daily stochastic indicators, the 486-495 price 
zone could cap the present rally for a time. I suggest selling 
around 495 on up to the psychological important 500 level, either 
to take profits on stock or Index calls held from lower levels 
and/or for a bearish trade: long puts or shorting representative 
S&P stocks.

Near technical support implied by the hourly chart is at 462, 
which is the approximate low end of the current hourly uptrend 
channel. If OEX falls from recent highs in the 475-478 area per 
the downside momentum showing on the hourly stochastics, the most 
bullish technical action is where OEX finds support at its lower 
hourly channel boundary – see the right hand chart above. 

I suggest buying in the 460-462 area unless it knifes through. 
Assuming a buy, an exit point is on a 5-point further drop, 
especially a close under 455 or chart support implied by the 
prior hourly low.  A decisive downside penetration of 455 would 
be a cautionary “signal” to exit long stock/long OEX calls.  

On the daily chart 445 is the significant must-hold prior low. A 
downside penetration of 445 calls into question the S&P 100 
remaining in an uptrend. Better for the bullish case is for OEX 
to hold at or above 455.  

DJ Industrial Index (1/100 of Dow Avg.- $DJX) Daily/Hourly:


 

In terms of the Dow, 8800 is the pivotal near support – what was 
resistance “becomes” support.  Next lower DJX support is 85 and 
is a suggested buy area in the DJX, at the low end of the hourly 
uptrend channel.  Better to call support as between 86 to 85. 
Support levels below 85 are at the prior lows – 84, then 83. 

91 is pivotal resistance based on the top end of the hourly 
channel. 92-93 is the zone where I would turn seller and look at 
put plays – 93 puts DJX up against the March-May down trendline. 

The most bullish possibility comes in with a move through 
resistance at 92-93, followed by an eventual move to 98-99, 
without more than minor corrections along the way. This outcome 
is mentioned because there is a “bull flag” pattern on the daily 
chart that could suggest it – I rate this possibility as least 
likely but it is a “measuring” implications of the pattern per 
the daily chart notations above (left).  Stay tuned! 

NASDAQ COMPOSITE (COMPX) Daily chart – 


 

As I mentioned before, the move in the Nasdaq Composite to above 
its prior August high suggested that this sector of the market is 
now in a “confirmed” uptrend.  

1500 next looms as very key resistance and a possible area to 
trade on the short side - but not if it sails much above this 
level, such as by more than 10 points - especially on a closing 
basis. 

1400-1425 is near support – a close under 1400 breaks the bullish 
Nasdaq pattern and suggests bearish trading strategies would pay 
off again. However, only a downside penetration of the last low 
around 1320 “confirms” the bear is back.  
 
QQQ Daily/Hourly charts:


 

The resistance area I suggested last week in QQQ as being at 27-
28 still looks basically like the main resistance, as considered 
on a closing basis.  At most I currently see potential for QQQ to 
again get back to 29-30, before a deeper correction sets – 
however, I should also note that a close above 30 is evidence 
that the trend is stronger than what I am laying out in this view 
of the Nasdaq 100.   

The chart and indicator picture is somewhat mixed – price and 
volume trends remain bullish overall, but there are some 
cautionary signals that I see – namely, the “extended” nature of 
the near-term trend (length of time without a correction and the 
“overbought” reading in RSI) and the bearish Price/RSI divergence 
on the daily chart Relative Strength Indicator as RSI fails to 
“confirm” the latest high.  

My suggestion is to trade out of QQQ longs and get short or buy 
puts on further rallies - specifically, I would do so in the 
28.5-29.5 area, looking for a pullback back to the low end of the 
steep hourly uptrend channel at a minimum. 

24-25 is an area where I would have buying interest again if  QQQ 
corrects back to this zone. 


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**************
Editor's Plays
**************

Cheap Stocks

The Nasdaq rebound has brought new life back into many previously
dead stocks. Many of these stocks were well under $10 and are
now starting to make a comeback. 

This level is critical as many funds will not buy stocks under
$10. Once that level is broken to the upside there can be a swift
ramp to $20 if the market is favorable. 

These stocks normally have cheap options because the range
of movement under $10 limits risk to the market makers and
the premium shrinks. 

A couple pure momentum plays this weekend include TLAB and RATL.
Both are nearing $10 and both are showing good momentum. 

These plays are not based on fundamentals so there is not 
a long explanation. You can buy them now while they are cheap
and hope for the breakout or set a buy stop just above $10
and only buy the breakout. 


TLAB - March $10 call $1.25


 



 

Rational Software - April $10 call $2.15

RATL is showing signs of increased fund interest with sharp
buying spurts every 3-4 days. The 200 DMA is 10.60 and possible
resistance. Once over 10.60 there is only gradual resistance
until around $20. The inverted head and shoulders could add
some strength to a break over $10. 



 


*****************    
Play Recap: 
*****************    

AEOS Breakout call

The AEOS call play from last week was never triggered as the
stock never touched $19.30 before rolling over on profit taking. 
Cancel that suggestion. 


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

Microsoft Breakout call

Microsoft broke the $57.30 trigger point on Thursday and the 
Jan-$60 target call was trading at $1.95 at the time. Any
continued Nasdaq rally will involve MSFT and a strong rally
could be led by MSFT if funds decide to jump in strong. The
profit target is currently $65. 


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

Remember, these are high risk plays and should only be made
with risk capital.

Good Luck

Jim Brown  


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

Reading Between the Lines
by Steven Price

Not much happened you say?  I beg to differ.  After a week that 
saw the broader markets take out significant resistance levels, 
today's movement (or lack of it) was significant in and of 
itself.  The Dow avoiding the bearish head and shoulders pattern, 
by trading above 8800, took some serious buying. The fact that 
today's 40-point pull back stopped at 8804 is not merely a 
coincidence. It appears we have a new support level in the blue 
chips.  Our next focus will be on the August high of 9077. 

The August high was not a challenge for the Nasdaq Composite, 
which had rallied 93 points in the previous two days.  Some pull 
back could have been expected today after blasting through that 
level of resistance, which had served as a ceiling on four 
previous rally attempts.  But the bulls wouldn't allow that to 
happen, and the COMP finished up slightly on the day.   One of 
the big reasons there was no pull back, in spite of the fourth 
straight monthly decline in the semiconductor book-to-bill ratio, 
was news from Taiwan Semiconductor. The world's largest chip 
foundry raised capacity utilization and shipment forecast, duo to 
an upturn in demand for PCs and communications products.   An 
increase in PC demand!  Had to repeat that sentence, since it was 
the first time we've heard it in an awfully long time. Certainly 
some of that demand is seasonal, due to the holiday season, 
however, it is still significant.  The Semiconductor Sector Index 
(SOX), which had posted a 70% gain from its low of 214 on October 
9, looked as though it would pull back after its 53-point gain 
from the last two days, following the book to bill number 
Thursday evening. However, following the TSM news, the pullback 
was a non-event, giving back only 2.66 on the day.

The Market Volatility Index (VIX) continues to sink, as the 
market consolidates at successively higher levels.  After 
venturing over 50 on October 10, it finished the day at 26.73, 
giving up almost 50% from its highs.  The VIX can be used to 
measure fear in the marketplace and right now it's showing a 
great deal of complacency. It has dropped more than 10 points in 
less than a week and a half.

One thing to be cautious of after this recent rally is the fact 
that the bullish percentages are reaching levels that could 
indicate a slowing of the rally, or a pullback.  The SPX bullish 
percent is now at 64, right below its bearish resistance line at 
66.   The last two rebounds fell short of that mark and a 
breakthrough above it could be considered bullish.  However, when 
combined with the bullish percent in the NDX, COMPX and Dow, red 
flags are starting to pop up.  The NDX bullish percent has 
reached 76, which is 6 points into overbought territory. The COMP 
bullish percent is still down at 44, but only two boxes below its 
bearish resistance line at 48 (bullish percent is measured in 2% 
boxes). The Dow bullish percent broke through its bearish 
resistance line down at 60, but has now entered overbought 
territory, like the NDX, with a reading of 70.  

After so much activity this week, we should see a severe drop off 
in volume as we head into the holiday week.  Ahead of 
Thanksgiving, many traders head home early, or go on vacation.  
It is certainly a good sign that we got the breakout to the 
upside this week, when the volume was still strong and traders 
were getting their activity out of the way before the lull.   

The one thing we need to be cautious of is the retail sales 
environment.  As we get closer to the end of the month, year over 
year sales comparisons will suffer from the fact that 
Thanksgiving falls later and creates six fewer official shopping 
days before Christmas.  The buying may simply shift to December 
and that will probably be the spin most retailers put on 
November's numbers.  However, most mall traffic is down for the 
year and if it doesn't come back in December, then we may see 
investors and analysts concerned about a lack of consumer 
spending.  Consumer spending makes up 2/3 of GDP, so you can do 
the math.  

Right now the trend is up and should be played that way.  
However, don't expect much guidance from this week's action (or 
lack thereof).  As long as the Dow holds 8800 and the Nasdaq 
remains above 1426, then we have indeed reached higher ground.  
I'm certainly not ready to declare the bear market behind us, and 
Dow 9077 will give us a better indication as to just where we 
stand; so as we approach 9000, be cautious protect long positions 
with a few extra puts. 


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

Market Averages

DJIA ($INDU)

52-week High: 10673
52-week Low :  7197
Current     :  8804

Moving Averages:
(Simple)

 10-dma: 8549
 50-dma: 8192
200-dma: 9205



S&P 500 ($SPX)

52-week High: 1176
52-week Low :  768
Current     :  930

Moving Averages:
(Simple)

 10-dma:  903
 50-dma:  868
200-dma:  986



Nasdaq-100 ($NDX)

52-week High: 1734
52-week Low :  795
Current     : 1116

Moving Averages:
(Simple)

 10-dma: 1048
 50-dma:  945
200-dma: 1128



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

The Semiconductor Index (SOX.X):  Last night's book-to-bill ratio 
was the fourth straight monthly decline, and looked as though it 
would weigh on the sector after a tremendous run up through the 
August highs.  However, Taiwan Semiconductor came to the rescue 
by raising guidance for fourth quarter capacity utilization and 
shipments.  The company cited increased PC demand, and suddenly 
the correction in the SOX was a mere 2.66.  The sector continues 
to look bullish for the short term and the bullish vertical count 
of 412 (which coincides with the 200-dma) is the next target to 
the upside. 

52-week High: 657
52-week Low : 214
Current     : 362

Moving Averages:
(Simple)

 10-dma: 321
 50-dma: 276
200-dma: 411


Market Volatility

The VIX has given up almost 50% of its value in the last 6 weeks, 
and is now approaching 25 for the first time since June.  That 
was prior to the July crash and the drop in premiums shows the 
lack of fear currently in the market, with the Dow holding up 
over 8800.  If we manage to break out above the August high in 
the Dow of 9077, we could actually see the VIX back in the low 
20s.  Some of today's VIX drop may be attributed to traders 
avoiding premium buying before a holiday week, when many will be 
on vacation.  Traders who are long options manage those positions 
by trading stock against the position, which is harder to do when 
they are not in the pits. However, if the market had broken down
below 8800, we likely would have seen an increase, rather than a 
drop. 



CBOE Market Volatility Index (VIX) = 26.73 –0.64
Nasdaq-100 Volatility Index  (VXN) = 46.49 +1.79

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.70        555,217       390,571
Equity Only    0.60        425,700       256,483
OEX            0.97         13,984        13,504
QQQ            1.28         21,692        27,786


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

Bullish Percent Data

           Current   Change   Status
NYSE          46      + 1     Bull Confirmed
NASDAQ-100    77      + 2     Bull Confirmed
Dow Indust.   70      + 0     Bull Confirmed
S&P 500       65      + 2     Bull Confirmed
S&P 100       70      + 3     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   0.94
10-Day Arms Index  1.00
21-Day Arms Index  1.12
55-Day Arms Index  1.19


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 they do, they can signal significant market turning 
points.

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

Market Internals

        Advancers     Decliners
NYSE       1460          1281
NASDAQ     1718          1463

        New Highs      New Lows
NYSE         37              26
NASDAQ       89              3739

        Volume (in millions)
NYSE     1,979
NASDAQ   1,902


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

Commitments Of Traders Report: 11/19/02

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

Commercials added 9,000 long contracts, while adding only 3,700 
shorts.  Small traders added 2,000 longs to their positions, 
while adding 7,000 short contracts.

Commercials   Long      Short      Net     % Of OI 
10/29/02      437,565   468,557   (30,992)   (3.4%)
11/05/02      438,546   472,384   (33,838)   (3.7%)
11/12/02      437,683   476,540   (38,857)   (4.3%)
11/19/02      446,668   480,270   (33,602)   (3.6%)

Most bearish reading of the year: (111,956) -   3/6/02
Most bullish reading of the year: ( 16,472) - 10/01/02

Small Traders Long      Short      Net     % of OI
10/29/02      137,740    75,587    62,153     29.1%
11/05/02      138,604    76,032    65,572     30.5%
11/12/02      141,389    70,624    70,765     33.4%
11/19/02      143,070    77,332    65,738     29.8%

Most bearish reading of the year:  36,513 - 5/01/01
Most bullish reading of the year: 114,510 - 3/26/02
 
NASDAQ-100

Commercials reduced both long and short positions by 
approximately 3,000 contracts.  Small traders added 4,000 to the 
long side and 2,000 to the short side.


Commercials   Long      Short      Net     % of OI 
10/29/02       47,837     55,261    (7,324) ( 7.1%)
11/05/02       49,128     56,121    (6,993) ( 6.6%)
11/12/02       45,647     55,892   (10,245) (10.1%)
11/19/02       42,074     52,302   (10,228) (10.7%)

Most bearish reading of the year: (15,521) -  3/13/02
Most bullish reading of the year:   9,068  - 06/11/02

Small Traders  Long     Short      Net     % of OI
10/29/02       10,584     9,419     1,165     5.8%
11/05/02       13,355    12,903       452     1.7%
11/12/02       12,698     8,801     3,897    18.1%
11/19/02       16,292    10,540     5,752    21.4%

Most bearish reading of the year: (10,769) - 06/11/02
Most bullish reading of the year:   8,460  -  3/13/02

DOW JONES INDUSTRIAL

Commercials added 1,000 contracts to both the long and short 
side, while small traders reduced the long side by 1,300 
contracts and shorts by only 300.

Commercials   Long      Short      Net     % of OI
10/29/02       21,800    13,337    8,463      24.1%
11/05/02       22,533    15,687    6,846      17.9%
11/12/02       22,283    14,953    7,330      19.6%
11/19/02       23,535    15,741    7,794      19.8%

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
10/29/02        5,602    11,090    (5,488)   (32.9%)
11/05/02        5,089     8,735    (3,646)   (26.4%)
11/12/02        5,736     8,513    (2,777)   (19.5%)
11/19/02        4,428     8,203    (3,775)   (29.9%)

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

Plan the trade and trade the plan

Question:  What would you like to see addressed in this weekends 
"Ask the Analyst" column?

Responses:  I like the plan the trade, trade the plan idea. Maybe 
show some of the good business plans that people sent too.  
You're a stud, thanks.

Trading like a market maker and trading levels.
How to hedge a trade.  (long/short stock, credit/debit spread)

There was a great deal of response to my question regarding what 
this weekend's "Ask the Analyst" topic would be about.  I'd love 
to try and attempt an answer at all of them, but the overriding 
response was in regards to planning a trade and then trading a 
plan.

However, if a trader will absorb this topic on planning a trade 
and trading a plan, then with time, and other topics discussed in 
the future (like those above) a trader/investor, not unlike a 
weight lifter that starts out with a 5 lb. dumbbell (I weigh more 
than 5 lbs. and I'm a "stud"... as proof, see first response to 
my poll question) should begin seeing some type of "bulk" added 
to their knowledge of the markets, tools of the trade, and the 
bottom line of their accounts.

One reason I think the "plan the trade and trade the plan" found 
a more overwhelming response is that some traders took time out 
of some busy schedules this week and actually sat down with a pen 
and paper and developed a business/trading plan.  The business 
plan is the foundation that a successful/investor begins with.  
It's also the first step toward DISCIPLINE.

Think about it.  If you live in Denver, CO and are taking the 
family on a road trip/Thanksgiving vacation miles from home and 
have never been there before, the first thing you reach for to 
plan that trip is a roadmap.  Something that gives you a sense of 
direction or course that should be followed to eventually reach 
your destination.  Without it, you end up like National Lampoon's 
Clarke Griswold in the movie "Vacation" and find yourself 
stranded in the middle of nowhere with flat tires and a dead 
loved one strapped to the top of the family's station wagon.  The 
"dead loved one" is analogous to that stock we bought at $50 that 
now trades $20, or the 40 put contracts we over leveraged on that 
went "no bid" two days after we bought them.

Upon review, it's often found that we "knew" we should not have 
really initiated some of those terrible trades to begin with, as 
nowhere on our road map did the road we just traveled down lead 
to where we wanted to go or had PLANNED on going.

Believe it or not, one of the greatest challenges a trader faces 
is sticking with a plan they had laid out based on a scenario 
they had built (stock fundamentals, economic developments, 
geopolitical event, industry/sector trends, etc.) and for a 
technical analyst like myself and perhaps you, an observation 
from the MARKET that looks to either AGREE with you scenario, or 
DISAGREE with that you or I think should be taking place.

How many times do we buy a call/put or go long/short a stock and 
1, 2, or 3 day's later, find we're not as rich as our scenario 
was supposed to have us?  A good plan has some type of time plan 
associated with it.  

To build a trading plan, one of the best ways I've found to 
undertake this process is to first lay out a scenario.  It can be 
anything that makes SENSE to you.

Once the scenario is in place, I like to think like a computer 
and develop a plan that fits the scenario, which will simply be 
controlled with three simple commands.  

If, then, else.  

If you're a computer programmer, these terms are familiar to you.  
I'm not a computer programmer, but I took some Fortran and Pascal 
in college.  Are these languages even around anymore?

Let's take an e-mail that a subscriber sent me yesterday.  We can 
perhaps tackle the "plan" and "damage control," which other 
subscribers have requested commentary.

Here is the subscriber's e-mail.

Hi Jeff,

Help! Need your opinion, I'm lost.

I've got a QQQ short straddle in the Jan. 25 '05 call and a Jan. 
25 '05 put a while ago, I received total $10.40.

At that time, QQQ was $24.75.  Call and put were both $5.20 even.

Now, QQQ trading at $27.75.  

The call ask $7.80 and the put still at $3.90.  Total is $11.70.  

I don't understand why????  Supposedly, I can earn some time from 
the premium, isn't it?

What do you think the proper way to lower the losses or don't 
worry, it's 2005?

Now... I'm going to take this subscriber's trade and paraphrase 
what the subscriber was thinking (scenario) at the time the trade 
was placed.  I also received a follow up e-mail from the 
subscriber stating that he/she felt the current economic data was 
weak and that the economy would stay flat over the next couple of 
years.  I'm then going to develop the plan with a specific set of 
rules (If, then, else) that would then be derived from the 
trader/investor's trader's business plan.  You know, the LIMITS 
OF RISK.

Scenario:  For the most part, technology stocks as depicted by 
the NASDAQ-100 Tracking Stock (QQQ) will stay range bound or 
close between $19.80 and $30.20 between now and January 
expiration of 2005 as I expect economic activity to be stagnate 
during this time period.  Should this come true, I will profit by 
selling QQQ call and put option premiums and walk away with a 
minimum 50% profit.

(Note:  The ranges of $19.80 and $30.20 are simply calculated by 
taking the $25.00 strike and then subtracting the $5.20 premium 
received by selling each put and call).

Now.  The above trade really doesn't have a trigger point on it.  
But for example purposes, lets pretend we started thinking about 
this back in early October when the QQQ was trading $20 and began 
thinking that I'd sure like to initiate a 2-year short straddle 
on the Q's if they ever rallied back near $24.73.

So I'd start out with an "if" "then" statement for the plan.  

1)  IF the QQQ trades $24.75, THEN sell 1 Jan. 05 $25 call and 1 
Jan. 05 $25 put.

OK.... the QQQ traded $24.75 and the trade has been run.  That's 
it right?  We've loaded up the family in the station wagon and 
pulled out of the driveway.  Guess what?  We're about 2 day's 
into a two-year world tour and we might have a tire starting to 
deflate.  "Oh goodness, I hope the spare tire has air in it.  
Honey, can you reach into the glove box and see if there is some 
type of service area at the next exit where we can pull off and 
get the tire changed?"  The significant other responds.... "Map?  
What map?  I thought YOU knew where we were going and made sure 
the car was prepared for this trip!  What kind of spouse are you 
that we'd be so unprepared!"

You see where I'm going here don't you?  It was great to run the 
trade (get in the car and go on vacation) as we knew we'd have a 
great time (keep option premiums for our account).  But wouldn't 
it have been nice to have a detailed plan, really think things 
through before we set off on this journey (run the trade)?  
Should we really have decided to take the station wagon on this 
trip (the QQQ) or was there a better mode of transportation to 
have taken over this extended journey of two years.

Now this is a 2-year trade.  At any point, we can turn back home 
as long as the motor is running (haven't blown the account up) 
and have four good tires (don't let one trade get away from us).

You and I know this.  The first thing we need to do is assess the 
DOWNSIDE risk this trade presents if things don't go exactly as 
the SCENARIO depicts (economy grows or economy goes into 
recession).  

We also know that the MAXIMUM gain we could achieve from this 
trade is $1,040.00 (based on 1 contract sold in each put and 
call).  

We also know that to keep the ENTIRE $1,040.00, the QQQ needs to 
close at $25.00 on January 2005.

Hmmm... Can I possibly get in my station wagon, drive non-stop 
from Denver to New York City and approximate within 1 second my 
arrival time?  In essence, that's kind of what needs to be done 
with the trade above if we're to keep 100% of the premiums.

Statement of Risk:  (Check you business plan and answer this).  
For a gain potential MAXIMUM gain of $1,040.00 what am I allowed 
to risk?  (10% = $104.00, 20% = $208.00, etc.)

Let's look at a chart of the QQQ.  Since this trade/investment is 
longer-term we need to run some numbers and define some ranges 
that give us a feel for risk levels.  Once those risk levels are 
defined, then we can put together some type of "damage" control 
plan.  As mentioned in last week's column, option premiums are 
VARIABLES as will fluctuate with market volatility as depicted by 
the NASDAQ-100 Market Volatility Index (VXN.X) 46.49 at today's 
close.

NASDAQ-100 Trust (QQQ) - Daily Interval


 

The first thing we could do is draw a "waterline" where the short 
straddle was initiated at $24.75 (near $25).  At that level, it 
is helpful to understand what we were paid (reward) in return for 
the OBLIGATION (risk) this trade takes on.  Next, identify a 
RANGE or levels away from the "waterline" where upon expiration, 
the trade would have us running a net loss for the TOTAL trade 
(put and call positions combined).  Since option premium is a 
VARIABLE, which can not be accurately forecast based on a two-
year time horizon, it is left out of the equation.

Once the outer limits are calculated, the trader begins to make 
observations as it relates to a two-year time frame as mandated 
by the January 2005 expiration. (straddle/strangle/spread traders 
use same plan outline, but in scope of expiration they're 
playing).

It is notable however from the subscriber's e-mail that despite 
our defined range; the trade is running at a net loss right now. 

Now, QQQ trading at $27.75.  

The call ask $7.80 and the put still at $3.90.  Total is $11.70.  

I don't understand why????  Supposedly, I can earn some time from 
the premium, isn't it?

Aha!  Again... option premiums are VARIABLES and difficult to 
assess/measure, especially over a two-year time frame.  With a 
VOLATILE security like the QQQ, one can make the analogy that the 
trader has crammed the 4-member family into the 2-seat sports car 
and embarked on a two-year tour.  

While the QQQ is still within our range of profitability, it's 
the VOLATILITY of this investment vehicle (car) that's going to 
create a bumpy ride between now and January 2005.

Quick review:

I don't know about you and I'm not criticizing the subscriber.  
From his/her own admission in a follow up e-mail, he/she is in a 
learning process.  But as we begin "planning" (always plan before 
you trade) this trade and laying things out with a two-year time 
frame, I sense a rather large amount of RISK relative to the 
MAXIMUM $1,040.00 potential gain (per 1 contract).  Add to that 
the more volatile instrument and one may question the true 
comfort level one can have with a trade such as this.  However, 
sometimes in the planning stage, a trader may uncover some type 
of RISK that he/she isn't really all that comfortable with.  If 
so, the trade is usually avoided.

Plan Stated:

1)  IF the QQQ trades $24.75, THEN Sell 1 QQQ Jan. 05 $25 call 
for $5.20 and sell 1 QQQ Jan. 05 $25 put.

2)  Once the trade is taken, do nothing until stock trades 
outside of defined range.

3)  IF the QQQ trades outside the defined range (or begins to 
generate a loss, which threatens business plan goals) THEN close 
the trade for loss at predetermined % allowable and move on, ELSE 
hedge the trade (buy insurance) with a trade that helps protect 
against greater loss.  IF hedge (insurance) is too costly THEN 
close the trade.  

There is NO else after that.  If the trader does not follow the 
outline plan, which accounts for preservation of capital, then 
all that is left is HOPE.  

When it comes to trading, HOPE has no place in a trade.  If you 
don't believe me, then let Hanger Orthopedic (NASDAQ:

Once the plan is reviewed (before the trade in initiated) the 
trader/investor has a clear understanding of risk and potential 
return (even if its a trade in a stock or option with a defined 
target).  If after reviewing the plan and the trader/investor 
finds anything he/she is uncomfortable with, then most likely the 
trade needs to be rethought or avoided all together.  Similar to 
the "Fresh Seafood" roadside stand in the middle of Kansas.

Once your trade is underway, then trade your plan.  Do NOT 
deviate from your plan UNLESS....

1) Some KNOWN event or new information is discovered that has 
your original scenario flawed.

2) Adverse price action has the trade creating GREATER LOSS that 
now threatens your business plan goals.

3) You're profitable in a trade, have not yet achieved your 
object, but current events unfolding play AGAINST your scenario 
and warrant profits being locked in.

Anticipating a question:

Jeff:  Why would a trader be willing expose their account to 

1)  Potentially unlimited risk should the QQQ trade $30 or higher 
(to infinity)?  Or...

2)  Potential risk of $2,500 - 1,040 (premiums received) = $1,460 

Note:  If we think or don't plan for potential risk of "infinity" 
or "$1,460" as it relates to the above trade, then how good is 
our trading plan?  Our trade plan should ALWAYS define MAXIMUM 
risk.  It's scary, but it also provides the smelling salts for 
each fight (trade) we're about to initiate.

Selling short spreads like the trade asked about is a trade 
designed to produce income for an account.  

As you can see from the trade plan, to make money in such a 
trade, MAXIMUM gain must have the security closing EXACTLY on the 
stated strike.

While I know of no way to assess "odds" or probabilities of a 
security pegging a strike, my observations over the years is that 
more volatile trading securities are probably not the best 
instrument to try and even attempt to have peg a certain level, 
especially when considering a 2-year time period.

Where am I going to be in 2-years?  Will I have all my hair in 
two years?  How much will I weigh two years from now?  

Where will I be 4 months from now?  I think I have a higher 
probability of predicting where I'll be 4-months from now.  I 
think I've got a better than 95% chance I'll have all my hair 4-
months from now.  I'll bet $5,000 that I'll weigh 3 lbs. either 
side of 180 lbs. 4-months from now.  If I'm a little heavier or 
lighter than 180 lbs, then I can easily make adjustments to my 
eating habits to make darned sure I meet my 180 lb. goal.

Final review:

I do feel that at some time, all of us have perhaps gotten into a 
trade that really didn't "match" what we were originally 
thinking.

Sometimes, trades that are laid out with the best of plans are 
impacted by some "unforeseen" or "unpredictable" developments.  

As negative as it seems a trader MUST have a predetermined action 
plan it place should a trade move against them, especially a 
trade with unlimited risk potential.

It is the great trading plan that defines entry, profitable 
target exit point and addresses a finite point where adverse 
price action threatens your business/trading account or begins to 
DISSPROVE your original trading scenario.  

One thing I learned to appreciate from point and figure charts 
and trading plans that use the IF, THEN and ELSE type of 
systematic and methodical "rules" is how well they mesh together.

Bar chartists will use moving averages, Bollinger Bands and 
retracement brackets to define various levels where they assign 
their IF, THEN, ELSE trading plan statements.

Did anyone notice or make the tie in the chart of the QQQ with 
the horizontal lines drawn, the similarity perhaps between those 
three levels and retracement?  While those levels are equidistant 
from the "waterline" of $25, is that any different than the 50% 
retracement level with 61.8% and 38.2% on either side?

Now put yourself in the shoes of a market maker or specialist and 
controlling millions of dollars RISK (equity exposed long or 
short) in shares of CSCO or the QQQ.  Their "scenarios" are a bit 
different than yours and mine, but their trading plans are very 
similar to that outline above.  For an educational piece on 
retracement and market making, you might like to read 
"Retracement Levels" in the Bailey's Basics section.

The CBOE market maker.  His/her job for the most part is to SELL 
options and BUY options to meet the MARKETS liquidity needs.

Think about the trader that SELLS options NAKED and when doing so 
ALWAYS exposes himself to potentially greater risk than the 
premiums received.

When we buy puts and calls, we KNOW what our MAXIMUM loss is 
before we run the trade.  If not OVER LEVERAGED and were to use a 
business plan like that addressed last weekend, then we don't 
really need a hedge strategy as risk was addressed and losses 
conceded before the trade was ever run.

Well.... this was another long column and I may have rambled a 
bit, but hopefully you will see that by actually planning a trade 
before you click that mouse button you will have mapped out a 
route that you expect a trade to follow.  It's when that trade 
develops a "flat tire," or "blown radiator" hose that your plan 
needs to address a point where you either pull off the road (stop 
out) or find a service station close by to help you make repairs.  
In many states, it's illegal to drive a car without insurance.  
If you're going to trade options that carry potentially unlimited 
risk, then you'd better have some type of plan in place to deal 
with that risk at some finite point.

Jeff Bailey


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

==========================================
Market Watch for the week of November 24th
==========================================

------------------------
Major Earnings This Week
------------------------

Symbol  Company               Date           Comment      EPS Est

------------------------- MONDAY -------------------------------

ITY    Imperial Tobacco Grp  Mon, Nov 25  Before the Bell     1.08
SMTC   Semtech               Mon, Nov 25  After the Bell      0.14
TECD   Tech Data Corporation Mon, Nov 25  -----N/A-----       0.57


------------------------- TUESDAY ------------------------------

BMO    Bank Of Montreal      Tue, Nov 26  -----N/A-----        N/A
CMVT   Comverse Technology   Tue, Nov 26  After the Bell     -0.15
DG     Dollar General Corp.  Tue, Nov 26  After the Bell      0.18
EV     Eaton Vance Corp.     Tue, Nov 26  Before the Bell     0.38
HRB    H&R Block, Inc.       Tue, Nov 26  After the Bell     -0.05
MIK    Michaels Stores       Tue, Nov 26  After the Bell      0.40
NGG    National Grid Transco Tue, Nov 26  -----N/A-----        N/A
ULCM   Ulticom               Tue, Nov 26  After the Bell     -0.01
V      Vivendi Universal     Tue, Nov 26  -----N/A-----       0.33


-----------------------  WEDNESDAY -----------------------------

BCM    Canadian Impl Bnk Com Wed, Nov 27  -----N/A-----        N/A
DT     Deutsche Telekom      Wed, Nov 27  -----N/A-----        N/A
OTE    Hellenic Telecomm     Wed, Nov 27  -----N/A-----        N/A
HRL    Hormel Foods Corp     Wed, Nov 27  Before the Bell     0.49
TD     Toronto Dominion Bank Wed, Nov 27  Before the Bell      N/A


------------------------- THURSDAY -----------------------------

No major earnings


------------------------- FRIDAY -------------------------------

No major earnings


----------------------------------------------
Upcoming Stock Splits In The Next Two Weeks...
----------------------------------------------

Symbol  Company Name              Ratio    Payable     Executable

COO     Cooper Cos                2:1      Nov. 22nd   Nov. 25th
CHTT    Chattem Inc.              2:1      Nov. 29th   Dec.  2nd
BYFC    Broadway Financial        2:1      Nov. 30th   Dec.  2nd
GSOF    Group 1 Software          2:1      Dec.  2nd   Dec.  3rd
ACDO    Accredo Health            3:2      Dec.  2nd   Dec.  3rd
CLBK    Commercial Bank           5:4      Dec.  3rd   Dec.  4th


--------------------------
Economic Reports This Week
--------------------------

Thanksgiving week is traditionally a bullish time for the 
stock market.  However, given that the Industrials have been up 
this many weeks in a row it could prove tough to add one more week
to the rally.  Keep an eye on Wednesday as there are several economic 
reports that could influence the market sentiment.

==============================================================
                       -For-           

Monday, 11/25/02
----------------
Existing Home Sales (DM)Oct  Forecast:  5.35M  Previous:    5.40M


Tuesday, 11/26/02
-----------------
GDP-Prel. (BB)           Q3  Forecast:   3.2%  Previous:     3.1%
Chain Deflator-Prel.(BB) Q3  Forecast:   1.1%  Previous:     1.1%
Consumer Confidence(DM) Nov  Forecast:   83.0  Previous:     79.4
New Home Sales (DM)     Oct  Forecast:   980K  Previous:   1.021M


Wednesday, 11/27/02
-------------------
Initial Claims (BB)   11/23  Forecast:    N/A  Previous:     376K
Personal Income (BB)    Oct  Forecast:   0.0%  Previous:     0.4%
Personal Spending (BB)  Oct  Forecast:   0.2%  Previous:    -0.4%
Mich Sentiment-Rev.(DM) Nov  Forecast:   85.0  Previous:     85.0
Durable Orders (DM)     Oct  Forecast:   3.0%  Previous:    -4.9%
Chicago PMI (DM)        Nov  Forecast:   47.5  Previous:     45.9
Help-Wanted Index (DM)  Oct  Forecast:    N/A  Previous:       43
Fed’s Beige Book (DM)


Thursday, 11/28/02
------------------
None


Friday, 11/29/02
----------------
None


Definitions:
DM=  During the Market
BB=  Before the Bell
AB=  After the Bell
NA=  Not Available


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*********************
SWING TRADE GAME PLAN
*********************

Movin' On Up

I will be taking over the swing trade model this week from Jim.  
For those readers following the model the last few months, you 
are bound to see some differences in trading styles. Each trader 
is different and assesses risk in his or her own manner.

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**********
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The Option Investor Newsletter                   Sunday 11-24-2002
Sunday                                                      2 of 5


In Section Two:

Daily Results
Call Play of the Day: MSFT
Put Play of the Day: HSIC
Dropped Calls: CEPH, HOV
Dropped Puts: PG

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

For Best Alignment view in Courier Ten Font
*******************************************

CALLS              Mon    Tue    Wed   Thu  Week

ADBE    29.81    -0.77  -0.79  -0.71  1.84  1.21  minor pullback
CEPH    57.74     0.71  -1.39  -1.80  2.08  1.99  Drop, $60 tough
ETN     75.42    -1.24  -0.03   1.48  2.77  1.42  regrouping
GNSS    18.99     0.01  -1.26   1.67  0.90  1.40  still strong
HOV     33.25    -1.35  -0.95   0.55  1.35 –0.75  Drop, sideways
ICOS    30.66    -0.42  -1.16   0.72  1.82  2.55  New, breakout
IMCL    15.04    -0.77   1.15   0.82  1.43  2.83  support at $15
MSFT    58.20    -1.10  -0.72   1.61  0.86  1.25  New, above $57


PUTS               

HSIC    43.60    -0.79  -1.13   0.86 –2.79 –6.84  New, failing 
JBLU    33.02    -0.77  -0.79  -0.71 –1.01 –5.30  PnF breakdown
PG      86.58    -1.15   0.95   1.44 –1.26 –0.72  Drop, sideways
SLM     98.60    -2.85   1.00   0.71 –2.40 –7.15  New,1st yr free
TRMS    50.96    -1.97  -0.62   1.06  2.33  0.66  no entry


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

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

MSFT - Microsoft - $58.20 +0.36 (+1.50 for the week)

See details in play list




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

HSIC – Henry Schein, Inc. $43.60 (-6.62 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
^^^^^

CEPH  $57.74 -1.31 (+2.03 for the week) Cephalon experienced 
another pull back today and the stock has stayed true to its 
current volatility.  While it rebounded from a higher low today, 
over the top of its previous consolidation, the resistance around 
$60 from earlier this year seems to be staying true to form.  
Rather than fight that resistance while our premium decays, we'll 
close the play for a gain and invest elsewhere.  Traders who wish 
to stay in the play can raise stops to $57 and look for a 
breakthrough over $60 as the next bullish signal.  The stock got 
a fresh buy signal on the PnF chart, but today's pullback, came 
at previous resistance on that chart, as well. A $60 breakthrough 
could see the stock at $63-64.

---

HOV $33.25 -0.45 (-0.75 for the week)  Hovanian has rebounded for 
the fifth straight time from the rising 200-dma, currently at 
$30.81.  The problem we see with the play is that the rebounds 
are failing at successively lowere levels and don't seem to have 
the same "pop" as previous bounces.  Rather than let our premium 
decay while the stock consolidates, we'll close the play and wait 
for a more decisive breakout.  This week's conflicting data on 
housing starts (down) and mortgage applications (up) seems to 
have investors confused and the home construction stocks are 
moving sideways. 


PUTS
^^^^

PG $86.58 (-0.70) While Consumer-oriented stocks continued to
show weakness relative to the rest of the market, PG has really
been a disappointing play.  The stock has been mired between
$85-88 for more than 2 weeks now, and we've grown tired of
waiting for the breakdown.  With the improving internals in the
overall market, it appears unlikely that the stock will see a
significant breakdown.  The potential reward just doesn't
justify the risk of keeping the play open, so we're dropping
coverage of PG this weekend.  There are better trading
candidates available, and that's where we want to focus our
attention.


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

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The Option Investor Newsletter                   Sunday 11-24-2002
Sunday                                                      3 of 5


In Section Three:

New Calls: MSFT, ICOS
Current Calls: GNSS, ADBE, ETN, IMCL
New Puts: SLM, HSIC

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

MSFT - Microsoft - $58.20 +0.36 (+1.50 for the week)

Company Summary:
Founded in 1975, Microsoft is the worldwide leader in software, 
services and Internet technologies for personal and business 
computing. The company offers a wide range of products and 
services designed to empower people through great software - any 
time, any place and on any device. (source: company release)

Why We Like It:
Microsoft has benefited from the recent market rally, which has 
led both blue chips and techs alike.  It is one of the few tech 
companies to actually plan a hiring expansion in the last year 
and has expanded it R&D budget by 20%.  The company announced 
that its new Xbox live gaming consoles, which is part of 
company's $2 billion strategy to make its video game console the 
center of a networked home entertainment system, sold out in 
about a week on retail shelves.  Not a bad sign heading into the 
holiday shopping season.  While retailers are concerned about how 
much consumers will be spending this year, there is obviously one 
product with no lack of demand.   Today's news from Taiwan 
Semiconductor, which said it was raising its fourth quarter 
utilization and shipment rate goals, could be huge for MSFT 
stock. The new guidance from TSM was due to a recent increase in 
demand for PCs and communications products. More PCs equals more 
demand for MSFT's windows products. 

The stock jumped back on November 4, following a judge's 
acceptance of the company's antitrust settlement with the 
government. Ever since then it has been consolidating around $55, 
with a top of $57, until the recent breakout. The stock not only 
broke above resistance on the daily chart, but established a new 
point and figure buy signal, as well. The trade of $58 was a 
double top buy signal on the PnF, and has a current bullish 
vertical count of $84.the fact that it consolidated after a long 
run, and has now broken out once again underscores the bullish 
patterns on both charts. As a member of both the Dow and Nasdaq, 
MSFT is bound to benefit from the Dow breakout over 8800, and 
Friday's support at that level, and also the Nasdaq's 
breakthrough of its August highs.  The next significant level of 
resistance appears to be the March high of $65, with some minor 
resistance just over $60. We like the current level for entry, 
after breaking clear of consolidation, however, traders can also 
enter on a pullback to support at $57, if we get some broad 
market profit taking after the recent run. Place stops at $55, 
below the recent consolidation floor.

BUY CALL DEC-55.00* MSQ-LK OI=  31150 at $4.30 SL=2.15
BUY CALL DEC-60.00* MSQ-LL OI=  56311 at $1.30 SL=0.00
BUY CALL JAN-55.00  MSQ-AK OI=  74045 at $5.30 SL=2.70
BUY CALL JAN-60.00  MSQ-AK OI= 106181 at $2.50 SL=1.25

Average Daily Volume = 45.4 mil


---

ICOS – ICOS Corporation $30.66 (+2.51 last week)

Company Summary:
ICOS Corporation develops pharmaceutical products with
significant commercial potential by combining its capabilities
in molecular, cellular and structural biology, high-throughput
drug screening, medicinal chemistry and gene expression
profiling.  The company applies its integrated approach to
erectile dysfunction and other urologic disorders, sepsis,
pulmonary arterial hypertension and other cardiovascular
diseases, as well as inflammatory diseases.  ICOS has
established collaborations with pharmaceutical and
biotechnology companies to enhance its internal development
capabilities and to offset a substantial portion of the
financial risks of developing its product candidates.

Why We Like It:
Breakouts in the Biotechnology sector (BTK.X) are becoming as
commonplace as those in the Semiconductor sector lately.  And
it shouldn't come as any surprise either, with the BTK itself
breaking out above major resistance.  More important than
clearing the $370 level is the fact that the BTK has now broken
above the descending trendline that has kept the index under
pressure over the past year.  Much like the BTK, shares of ICOS
have been muddling their way sideways, finding consistent
resistance near the $25 level for over a month.  Even beating
earnings estimates on November 5th wasn't enough to get the
buyers interested.  But then a week ago, the stock shot higher
by $4 in one day on very heavy volume.  That surge found
resistance near $28.50 (near the 200-dma) before pulling back
once again.  This time, the stock found support near $27 and
then vaulted higher with the rest of the BTK index over the past
3 days, once again on strong and increasing buying volume.
Helping to make the case for a sustained move, ICOS has now
closed above the 200-dma for 2 consecutive days and is now
solidly into the gap left behind in late April.  Last week's
surge higher generated a new PnF Buy signal, and the vertical
count is giving a bullish price target of $50.  That level isn't
likely to be seen any time soon, but ICOS now has a solid shot
at extending its rally towards the top of that gap, which rests
at $39.  The consolidation before last week's breakout has left
solid support in the $27-28 area, and a dip and rebound from
that area would make for a solid entry into the play.  Given the
fact that the stock is up so strongly in the past 7 days (26% to
be exact), momentum traders need to be careful about buying
into strength.  But the increasing buying volume (70% above the
ADV on Friday) indicate that there is some power behind this
move.  If trading the breakout, wait for a push through $31.25
(just above Friday's intraday high) on continued strong volume
before entering and then place a stop at $28.50.  Our coverage
stop for the play will be lower at $26.50, as a violation of
that level would break the string of higher lows.

BUY CALL DEC-30*IIQ-LF OI=1098 at $2.60 SL=1.25
BUY CALL DEC-35 IIQ-LG OI= 204 at $0.70 SL=0.25
BUY CALL JAN-30 IIQ-AF OI=1699 at $3.60 SL=1.75
BUY CALL JAN-35 IIQ-AG OI= 971 at $1.50 SL=0.75

Average Daily Volume = 1.09 mln



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“7 Steps to Success – Trading Options Online”.

Order today and save 25% (only $15) by clicking on PreferredTrade 
and clicking on the link to the book on its home page.

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


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

GNSS - Genesis Microchip - $18.99 +0.09 (+1.82 for the week)

Company summary:
Genesis Microchip Inc. is a leading provider of image processing 
systems enabling superior picture quality for a variety of 
consumer and PC-display products. Featuring Genesis Display 
Perfection(TM) technologies and Emmy-award winning Faroudja video 
technology, Genesis system-on-a-chip solutions are used worldwide 
by display manufacturers to produce visibly better images across 
a broad set of devices including flat-panel displays, digital 
TVs, digital CRTs, projectors and DVD players. Genesis boasts a 
technology portfolio that features 135 patents, including analog 
and mixed signal System-on-a-chip design, DCDi(TM) deinterlacing, 
TrueLife(TM) video enhancement and IntelliComb(TM) video 
decoding. Founded in 1987, Genesis supports its leading-brand 
name customers with offices in the U.S., Canada, India, Taiwan, 
Korea, China and Japan. (source: company release)

Why We Like It:
Genesis took a breather today, along with the Semiconductor Index 
(SOX).  Both the stock and the sector have been on an incredible 
run the last few days, and reached their August highs on 
Thursday.  Thursday night's news that the book to bill ratio for 
the sector had fallen for the fourth straight month was shaken 
off, and the sector strength continues to amaze.  There was some 
good news for the group, as well, from Taiwan Semiconductor 
(TSM), the world's largest chip foundry. TSM said it no longer 
expects the fourth quarter decline in capacity utilization and 
shipments that it predicted in late October. The company raised 
its fourth quarter shipment forecast based on rising demand for 
computers and communications products. It has been an awfully 
long time since we have seen a company predicting an increase in 
computer demand and this should further support the continuing 
growth in flat panel monitors, one of GNSS's specialties. The 
stock continues to pullback to support and establish new buy 
signals on the PnF chart, the most recent coming at $19.00.  
After trading up to $19.87 on Thursday, traders can use one of 
two strategies for entry.  A move over $20 would constitute an 
upside breakout and provide an entry point for momentum traders.  
An alternative would be a pullback to support above $18.00.  This 
would establish a PnF reversal down, but would be in keeping with 
the recent pattern, if it finds support and climbs higher from 
there.

BUY CALL DEC-15.00* QFE-LC OI= 3013 at $4.40 SL=2.20
BUY CALL DEC-17.50  QFE-LW OI= 2224 at $2.60 SL=1.30
BUY CALL MAR-15.00  QFE-CC OI=  834 at $5.90 SL=3.00
BUY CALL MAR-17.50  QFE-LW OI=  321 at $4.50 SL=2.25

Average Daily Volume = 1.96 mil


---

ADBE – Adobe Systems $29.81 (+0.86 this week)

Company Summary:
A long-time leader in desktop publishing software, ADBE
provides graphic design, publishing, and imaging software
for Web and print production.  Offering a line of application
software products for creating, distributing, and managing
information of all types, the company generates nearly 75% of
sales through publishing software products such as Photoshop,
Illustrator, and PageMaker.  Its Acrobat Reader, which uses
portable document format (PDF) is popping up all over the
Internet, as businesses shift from print to digital
communications.  In addition, ADBE licenses its industry
standard technologies to major hardware manufacturers,
software developers, and service providers, as well as
offering integrated software solutions to businesses of all
sizes.

Why We Like It:
Seeing a bit of profit taking on Friday was about what was
expected, except the fact that it was so mild.  After its
breakout through both the $29 level and the 200-dma on Thursday,
ADBE gapped lower on Friday, beginning the day just below $29.
The initial volatility sent the stock back to $30 and then the
stock spent the day drifting between those two levels.  However,
it was encouraging to see the bulls prevail at the end of the
day, closing the session out above the 200-dma.  As a measure
of the strength in the Software sector, note that the GSO index
ended the day with a fractional loss, but up nearly 7% for the
week.  Adding to the bullish picture was MSFT, as that huge
Software stock solidified its breakout by holding above the $58
level.  Against this backdrop, ADBE's pattern of higher highs and
higher lows off of the October bottom looks particularly
encouraging.  Clearing the 200-dma and then holding that level
on Friday just adds to our conviction.  Another potential bullish
catalyst is that ADBE reports earnings in mid-December and that
expectations of improved results should keep the stock in its
steady ascending pattern.  Solid support near $28.50 (also the
site of the 2-week ascending trendline) should provide a solid
level to initiate new positions.  Traders looking to enter on
further strength will want to wait for ADBE to push through the
$30.50 level (just above Thursday's intraday high), along with
renewed buying in the Software sector.  Our stop remains at $27.

BUY CALL DEC-25 AEQ-LE OI= 949 at $5.60 SL=3.50
BUY CALL DEC-30*AEQ-LF OI=1857 at $2.15 SL=1.00
BUY CALL JAN-30 AEQ-AF OI=2536 at $3.10 SL=1.50
BUY CALL JAN-35 AEQ-AG OI=1664 at $1.35 SL=0.75

Average Daily Volume = 3.65 mln


---

ETN – Eaton Corporation $75.42 (+2.24 last week)

Company Summary:
Eaton Corporation is a global diversified industrial manufacturer
with businesses in fluid power systems, electrical power quality,
distribution and control, automotive engine air management and
fuel economy and intelligent truck systems for fuel economy and
safety.    The principal markets for the company's Fluid Power,
Automotive and Truck segments are original equipment
manufacturers and after market customers of heavy-, medium- and
light-duty trucks, passenger cars, off-highway vehicles,
industrial equipment, and aerospace products and systems.  The
principal markets for the company's Industrial and Commercial
Controls segment are industrial, construction, commercial,
automotive and government customers.

Why We Like It:
Didn't we say that some profit taking was likely after the solid
run of the prior two days?  Cyclical stocks have been on a steady
climb lately and ETN has been one of the leaders.  Thursday's
breakout over both the $74 resistance level and the 200-dma at
$74.58 was an important technical development, but it seemed a
pretty safe bet that price would soften going into the weekend.
Sure enough, after pushing slightly above the prior day's highs,
shares of ETN drifted lower throughout the day on Friday, giving
back only about 1.5% on the day.  This is still solidly above
the $74.00-74.50 area where we'd like to initiate new positions
on a rebound from support.  Note that the Cyclical index (CYC.X)
only suffered a fractional loss and looks like it could easily
extend its gains next week.  Momentum traders now have a solid
entry trigger they can use to initiate new positions -- look for
ETN to push through Friday's intraday highs (above $77), while
the CYC index advances through the $465 resistance level.  Stops
remain at $72.

BUY CALL DEC-75*ETN-LO OI=218 at $4.00 SL=2.75
BUY CALL DEC-80 ETN-LP OI=  0 at $1.50 SL=2.75
BUY CALL JAN-75 ETN-AO OI=363 at $5.40 SL=3.50
BUY CALL JAN-80 ETN-AP OI=131 at $3.00 SL=1.50

Average Daily Volume = 464 K


---

IMCL – Imclone Systems $15.04 (+3.27 last week)

Company Summary:
Engaged in the research and development of novel cancer
treatments, IMCL focuses on growth factor inhibitors,
therapeutic cancer vaccines and angiogenesis inhibitors.  The
company's lead product candidate, IMC-C225, is a therapeutic
monoclonal antibody that inhibits stimulation of a receptor for
growth factors upon which certain tumors depend.  Phase I/II
clinical trials have been promising.  The lead candidate for
angiogenesis inhibition, IMC-1C11 is an antibody that binds
selectively and with high affinity to KDR, a principal
Vascular Endothelial Growth Factor (VEGF) receptor, thus
inhibiting angiogenesis.

Why We Like It:
While Friday's session may not have looked very exciting, IMCL
actually made some important progress in its trek up the chart.
After coming to rest just below $15 on Thursday, the Biotech
stock pushed through that level early on Friday and managed to
consistently find support there all the way to the closing bell.
The trading range got incredibly tight towards the end of the day,
as it became clear that traders had squared their positions ahead
of the weekend.  But it was really impressive that the stock
didn't sell off with the rest of the market in the final 30
minutes of trade.  While we'd like to think that the $15 level is
now a new, higher base from which the stock can take off running
again next week, it appears the more likely outcome is a mild
pullback to support, ideally in the $13.50-14.00 range, but
possibly as low as strong support at $12.  Such a pullback would
provide a solid entry into the play, but only after the rebound
from support gets underway.  The trading pattern in the
Biotechnology index (BTK.X) was similar to that in IMCL again on
Friday, so it appears that the stock is moving more in sync with
the sector, and less on the rumors of a possible BMY buyout.
That's good for our play, as it likely means the price moves
will be a bit more predictable going forward.  The BTK index is
solidifying its advance over the $365 level and as long as that
level isn't violated on any profit taking, the bullish run
should continue.  Momentum traders will want to look for IMCL to
push through the $15.50 level along with the BTK index advancing
through $385 resistance before adding new positions.  Keep stops
set at $11.50.

BUY CALL DEC-12 QCI-LV OI=1597 at $3.50 SL=1.75
BUY CALL DEC-15*QCI-LC OI=2460 at $1.90 SL=1.00
BUY CALL DEC-17 QCI-LW OI= 803 at $1.05 SL=0.50
BUY CALL JAN-15 QCI-AC OI=2672 at $2.90 SL=1.50
BUY CALL JAN-20 QCI-AD OI=3548 at $1.15 SL=0.50

Average Daily Volume = 2.00 mln



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

SLM - Sallie Mae - $98.60 -5.35 (-6.40 for the week) 

Company Summary:
Sallie Mae is the nation's leading provider of education funding, 
managing more than $77 billion in student loans for more than 
seven million borrowers. The company primarily provides federally 
guaranteed student loans originated under the Federal Family 
Education Loan Program (FFELP), and offers comprehensive 
information and resources to guide students, parents and guidance 
professionals through the financial aid process. The company was 
founded in 1972 as a government-sponsored enterprise (GSE) called 
the Student Loan Marketing Association, and began the 
privatization process in 1997. Since then, Sallie Mae's parent 
company name has changed, most recently to SLM Corporation 
(effective May 17, 2002). Through its specialized subsidiaries 
and divisions, the company also provides an array of consumer 
credit loans, including those for lifelong learning and K-12 
education, and business and technical outsourcing services for 
colleges and universities. (source: company release)

Why We Like it:
This short play could be classified as a high risk play, given 
today's big drop and the chance for a bounce.  The stock has been 
on a tear lately, setting a series of higher highs and higher 
lows. As rates have dropped, the theory is that more student loan 
holders will consolidate student loans from other lenders, 
bringing in more business for Sallie Mae.  That may be true, but 
the pattern of higher highs ended over the past month.  After 
reaching a high of just under $107 in late October, the stock 
fell to support over $100, before making another jump.  The 
second set of highs over the last week found resistance at $105.  
Today, the stock fell off a cliff, following a report on Thursday 
that Senator John Edwards made a speech in which he proposed 
creating a program that would make the first year of college 
free.  While that may sound good top parents, it could cut deep 
into Sallie Mae's profits, as they are the country's largest 
provider of education funding.  that would amount to an immediate 
25% drop in profits from undergraduate loans, and while it is 
still just an idea, it is an idea from someone who has the power 
to sponsor a bill. 

The idea of those lost profits sent the stock tumbling through 
support levels, most notably the $100 mark. The next level of 
support on the daily chart is $90, and given the selling into the 
close, a bounce looks unlikely on Monday.  That being said, 
traders still must be aware of the possibility after such a big 
drop.  There is bullish support on the point and figure chart at 
$95, which coincides with the 200-dma of $95.24 and that will 
certainly be a challenge for the short play on the way down. 
However, it is $3.60 away and even if it gives the stock a 
bounce, we could see a nice gain on the play at that level. The 
tricky part of this play is entry.  We would like to see a bounce 
to resistance under $101, which acted as intraday resistance 
today on two separate rebound attempts, for an ideal entry.  
Momentum traders can look for a break under today's low of 
$98.47.  If the stock continues the end of day sell-off below 
that level, then it is a sign investors want nothing to do with 
the possibility of a 25% drop in earnings and grabbing puts on 
the way down could be very profitable.  If we get another gap 
down anywhere below $96, then we'll step aside and let the stock 
test the 200-dma before entering the play. Place stops above 
today's high at $103.00.

BUY PUT DEC-100 SLM-XT OI= 649 at $4.00 SL=2.00
BUY PUT DEC- 95 SLM-XS OI= 219 at $1.95 SL=1.00

Average Daily Volume = 948 k


---

HSIC – Henry Schein, Inc. $43.60 (-6.62 last week)

Company Summary:
HSIC is a distributor of healthcare products and services to
office-based healthcare practitioners in the combined North
American and European markets.  The company's healthcare
distribution segment consists of the company's dental, medical,
veterinary and international groups.  The technology segment
consists of the company's practice management software business
and certain other value-added products and services.

Why We Like It:
Despite the very encouraging breakout in the broad markets last
week, there were some notable areas of weakness that clearly got
the bears' attention.  On Thursday, it was the HMO stocks that
got hit with the bulk of the selling, and that focus shifted
slightly on Friday to shares of the medical supply companies.
The selling didn't appear to be company specific, but there was
clearly something that motivated a mass exodus out of the group.
Some of the names hit by the selling were HSIC, ZMH and PDCO.
Both HSIC and PDCO announced earnings on Thursday, so that could
be part of the catalyst.  The downdraft in ZMH seemed to be
unrelated, as rumors about a potential acquisition, which the
company later refuted.  While this weakness in the sector is
what initially got our attention, it was HSIC's chart that got
us to stick around for a second look.  The stock appeared to top
out in early October, and since then has been heading down in a
volatile and high-volume decline.  Confirming the stock's weakness
was the rollover from the 20-dma (then at $50.50) early last week.
Then the company released earnings and something set off the
sellers, as the stock fell more than $3 on Thursday and then an
additional $2 on Friday.  That loss came on very heavy volume and
with the substantial break of the $46 support level, HSIC looks
like it is just getting started on this downward move.  Not only
did the stock break its bullish ascending trendline on the PnF
chart, but generated another Sell signal with the trade at $45.
The vertical count now projects down to the $34 level.  This play
may be right up the alley of aggressive momentum traders, who will
want to target entries on a drop under $42.  If taking that entry,
keep an eye out for a potential bounce in the $40 area, the site
of the July lows.  Traders looking for a failed rally before
entering the play will want to look for a rollover near $46 to
allow entry into the play.  Place stops initially at $46.50.

BUY PUT DEC-45*HQE-XI OI=375 at $3.10 SL=1.50
BUY PUT DEC-40 HQE-XH OI= 13 at $1.00 SL=0.50

Average Daily Volume = 520 K



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The Option Investor Newsletter                   Sunday 11-24-2002
Sunday                                                      4 of 5


In Section Four:

Current Put Plays: JBLU
Leaps: Home, Home IN The Range
Traders Corner: Here It Is On A Silver Platter


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

JBLU - Jet Blue - $33.02 -1.98 (-5.73 for the week)

Company Summary:
It was a good day for some of the airlines, following the 
announcement from United that it had reached an agreement with 
its machinists for $1.5 billion in wage cuts.  While the Airline 
Index (XAL.X) was rebounding, Jet Blue continued its recent drop. 
The stock began its recent descent when J.P. Morgan dumped almost 
its entire stake in the airline as soon as its IPO restriction 
came off. JPM was one of JBLU's biggest initial investors and the 
dumping of stock scared investors off for more than just the day 
it sold the stock.  Ever since, JBLU has been setting lower daily 
highs and lower lows and looks to have now completed a bearish 
head and shoulders pattern.  Today's drop came in spite of the 
222-point gain in the Dow and followed more bad news on the 
competition front. Delta Airlines announced on Wednesday that 
they are creating a new lost cost airline within an airline to 
compete with airlines such as JBLU. The number 3 U.S. carrier has 
the power to cut into the low-cost market and steal market share 
from airlines such as Jet Blue, Southwest and AirTran. 

Why We Like It:
Jet Blue continued its slide today, begun on November 15.  News 
that JPM had dumped almost its entire share in the company when 
IPO restrictions were lifted October 9 has given investors a 
scare. The news that Delta Airlines was expanding to the lost 
cost airline arena, intending to compete with airlines such as 
Jet Blue, Southwest and Air Tran, only convinced more 
stockholders to get out before market share began heading south. 
Other full-cost carriers have attempted the strategy, with 
limited success, but the affect on Delta's books won't help JBLU 
in the short term.  JBLU continues to set lower relative lows and 
lower highs, with support at $35 now appearing as strong intraday 
resistance on the intraday charts.  The trade of $34 not only 
established a new PnF sell signal, but also a breakdown in the 
bullish support line.  We like the show of resistance under $35 
for entry here, and the sell-off into the close. The best entry 
point will be on a rebound under $35, which should act as 
resistance and still avoid a PnF reversal up.  Momentum traders 
can look for a trade below $33, but keep in mind our initial 
target is $30.

BUY PUT DEC-35*JGQ-XG OI= 505 at $3.70 SL=1.90
BUY PUT DEC-30 JGQ-XF OI= 315 at $1.40 SL=0.00

Average Daily Volume = 756 k



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*****
LEAPS
*****

Home, Home IN The Range
By Mark Phillips
mphillips@OptionInvestor.com

In my opinion, last week was all about the VIX.  We talked about
the Volatility index last week, and I wondered aloud whether it
was about to break down into its normal 20-30 range or if 30
would provide a floor once again.  We got hints of that answer on
Monday as the VIX dipped its toe under the 30 level, hitting an
intraday low of 29.96.  It took until Wednesday afternoon to
really break below 30 and then it was all over when HPQ said
wonderful things in its earnings conference call.  That unleashed
the bulls on Thursday, leading the DOW and SPX  to break their
November highs, voiding the potential Head & Shoulders patterns
that had been setting up for the past few weeks.  With the VIX
ending the week below 27, it is clear that the pattern of fear
that had kept the markets rangebound has now been broken.

But does this mean it is full bull ahead?  Not quite.  While the
strong buying on Thursday propelled the Bullish Percent measures
closer to overbought (the DOW, NDX and OEX are already there),
that good news carries with it some not-so-good news, that there
is a lot more risk to the downside now then there is to the
upside.  Jeff Bailey covers this in plenty of detail on a regular
basis, so I won't elaborate here.  Make no mistake, the breakout
on Thursday was impressive, both in terms of price action and
volume, making it look like there was finally some institutional
participation in the rally.  That means strong hands buying
stocks and that's encouraging into the end of the year.  

What makes me nervous (in addition to the elevated Bullish
Percent readings) is the fact that the weekly Stochastics on all
the major indices (and numerous sectors) are all topped out in
overbought territory.  That tells me that without a pullback to
consolidate the upside is likely limited.  Of the two S&P indices
that we follow here, the OEX has been the strongest in recent
months, failing to penetrate its July lows in October.  The
pattern of higher lows is impressive and I expect there is still
a bit more upside in this index before the next correction
arrives.  But looking at a long-term chart of the index, shows
there is some major resistance just above.  Care to take a look
with me?



 

My apologies for the very messy chart, but there is just a lot
of important information there.  Look at the confluence of
resistance measures that are just about to come into play.
The descending trendline from the September 2000 highs at $485,
the 50% retracement of the March-July decline at $489, major
resistance at $490 (late June/early July, as well as the closing
lows from September 2001), and then the 200-dma at $495.  Given
the right conditions, I'd say this market would continue to
churn through resistance.  But this isn't a normal situation.
The market has used up a tremendous amount of strength just
getting to this point, and that is reflected in the Bullish
Percent readings and the overbought oscillators.  

Bringing the VIX back into this equation, it has significant
support in place now at the 25-26 area, and that area will make
sense for a near term reversal that corresponds with the OEX
reversing from that $485-495 resistance level.  That sums up my
market view for the week.  The intermediate term has certainly
improved, but we ought to be looking for a near-term pullback
to consolidate these gains and build up a head of steam so that
we can add to them.

Enough about the broad market, let's take some time to look at
the plays on our list, because there have certainly been some
interesting developments in the past week.

Portfolio:

LEN - The breakdown we were hoping for last week never quite
materialized and the lift in the broad markets last week was
enough to keep the Housing sector in the green in the latter
half of last week.  The $DJUSHB index crawled back over $300
and LEN clawed its way to near $53.  Here's what's interesting
though.  Did you notice that LEN couldn't hold above the
20-dma?  Not only that, but it never got close to the converged
50-dma and 200-dma, which represent solid resistance just below
our $55 stop.  Keep a sharp eye on the stock (and sector)
performance following the Existing Home Sales number due out
Monday morning.  If it confirms the weak Housing Starts number
from last week, then we ought to be heading back down to test
that $50 support again.

JNJ - Without a doubt, our JNJ play has been a big
disappointment to me.  While it looked good at first, while
gradually marching to higher highs, that pattern looks about to
end.  The stock was unable to push through the $61 level and
appears to be in the early stage of a rollover.  Normally, I'd
drop the play this weekend, but I'm swayed to keep it alive with
the strength in the broader market.  The play will only survive
if the rally broadens out to the Drug stocks, and I don't like
the bearish ascending wedge in the DRG index that has been
building since late July.  The apex of that wedge is right
around the $320 level, and the 200-dma is lying in wait just
above at $323.  The DRG index needs to break out with conviction
in order for JNJ to clear the $61 resistance level.
Conservative players may want to exit the play on any strength
on Monday.  We'll stick with the play for now, keeping our stop
set at $58.

NEM - Gold continues to trade sideways in that neutral wedge,
and I continue to believe that the direction of the break will
determine the future of our NEM play.  After disappointing
earnings a couple weeks ago, the stock seems to have settled
into a trading range between $23-25.  Likely, Gold will need to
break solidly above the top of its wedge (currently $324.50)
before NEM will be able to make significant upside progress.
Like we said at the outset, this is going to be a slow-mover
and requires patience.  Keep stops set at $22.

SMH - Whoa!  Who hit the up button?  Our SMH play was looking
nice and sedate last weekend, with the SOX comfortably under
significant resistance.  Last week was a different story
altogether, with a strong updraft on Wednesday ahead of HPQ's
earnings.  The positive earnings report sent the SOX skyrocketing
again on Thursday, and we came to rest at the end of the week
right at the $363 resistance level.  This is a critical time for
our play.  Either we are very near where this rally will fail, or
we are about to break out and the play will die a quick death. 
Next week is likely to be hard to read, with trading volume light
ahead of the long weekend.  The bearish Book to Bill report was
blunted by the positive comments from TSM on Friday about
increasing demand.  Right now I'm leaning to the upside, and I
almost pulled the plug on this play this weekend.  Aggressive
traders could consider initiating new positions on a rally
failure near current levels, but I would prefer to wait for a
break back under the $330 level ($26.50 on the SMH) before
considering new positions.  Our stop remains at $29.25, just
above the August highs.

MO - The Consumer stocks have been completely left out of the
breakout move in the broad market, and MO spent last week
consistently losing ground.  By the end of the week, MO was
hanging out just above the $37 level and not looking at all
bullish.  I'm rapidly losing conviction on this play, but I'm
willing to give it a bit more time on the theory that if this
rally broadens out a bit more, these Consumer stocks will go
along for the ride.  I'm really not wild about adding new
positions unless old MO can get a taste of the 'Big Mo' and
break back above $40.  For now, we'll sit tight with our stops
set at $35

Watch List:

BBH - While the tight range continues to hold in the BBH, I'm
starting to see some disturbing signs in the BTK index, as it
managed a solid breakout last week.  Rather than looking like
a put opportunity, the series of higher lows and now higher
highs has me thinking that I am once again on the wrong side
of this trade.  Sure we have the beginnings of a rollover on
the weekly Stochastics chart, but price action is starting to
look pretty bullish.  But I'm not yet convinced, as on the BBH
chart, price is just barely above the descending trendline, we
have horizontal resistance at $92.50-93.00 (depending on how
you draw the line) and the 200-dma at $93.38.  Aggressive
traders could try gaming a new entry on a rollover from this
level, but I would prefer to see a drop back under $89 to give
me some bearish confidence.  A close over the 200-dma will have
us dropping the play without question.

GM - Either I'm picking the wrong plays, or picking the wrong
direction.  GM finally got moving and last week actually pushed
above the $38 level.  You'd think that would have me initiating
a new position, but you'd be wrong.  That rise generated a fresh
PnF Buy signal and that raises a caution flag.  With auto
manufacturers saying sales aren't as bad as expected now, perhaps
we've seen the bottom for this cycle.  That's entirely possible,
but I'm not quite ready to concede defeat.  With the stock
closing between $37-38 on Friday, let's ignore entries on a drop
back out of that range, and instead focus on the $40-41 area.
That is now very strong resistance and a rally to that level
ought to provide a solid entry opportunity when it fails.  In
that event, stops will be very tight at $42.

I mentioned last weekend that the next two weeks would likely
give us a clearer picture as to near-term market direction, and
last week certainly didn't disappoint, with the VIX breaking
back into its historically normal range.  That decrease in
volatility is a welcome sight, as hopefully it is indicating
that we are heading towards more predictable market conditions.
The downside of course, is that the drop in volatility is
causing option premiums to deflate as well.  That can be seen
in most of our open plays, as some of them are underwater, even
though the price of the respective stocks have moved in our
favor, albeit marginally.

My view has changed over the past week to cautiously bullish
into the end of the year, but with the caveat that there is a
lot more potential downside risk then upside reward over the
near term.  Lots of significant resistance looms just overhead
in all the major indices.  If things are really getting better,
then we'll have plenty of time to pile onto the bullish train.
But if this is just another rally that is doomed to failure, I
certainly don't want to be the last one onto the train just
before it reverses course.  Patience is the key right now, as
we wait for the market to reveal its intentions.

Have a great week and then long holiday weekend with friends and
family!  You can bet that's what I'll be doing!

Mark


LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
None
JNJ    10/10/02  '04 $ 60  LJN-AL  $ 6.50  $ 6.70  + 3.08%  $58
                 '05 $ 60  ZJN-AL  $ 9.10  $10.10  +10.99%  $58
NEM    10/30/02  '04 $ 30  LIE-AF  $ 3.90  $ 3.00  -23.08%  $22
                 '05 $ 30  ZIE-AF  $ 6.10  $ 5.30  -13.11%  $22
MO     11/13/02  '04 $ 40  LMO-AH  $ 3.90  $ 3.50  -10.25%  $35
                 '05 $ 40  ZMO-AH  $ 4.80  $ 4.50  - 6.25%  $35


Puts:
LEN    10/02/02  '04 $ 50  KJM-MJ  $ 8.60  $10.10  +17.44%  $55
                 '05 $ 50  XFF-MJ  $11.20  $12.10  + 8.11%  $55
SMH    11/04/02  '04 $ 25  KBS-ME  $ 5.00  $ 4.50  -10.00%  $29.25
                 '05 $ 25  ZTO-ME  $ 6.20  $ 6.00  - 3.23%  $29.25



LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
DELL   11/24/02  $26-27        JAN-2004 $ 30  LDE-AF
                            CC JAN-2004 $ 25  LDE-AE
                               JAN-2005 $ 30  ZDE-AF
                            CC JAN-2005 $ 25  ZDE-AE
GD     11/24/02  $78-80        JAN-2004 $ 80  KJD-AP
                            CC JAN-2004 $ 70  KJD-AN
                               JAN-2005 $ 80  ZZJ-AP
                            CC JAN-2005 $ 75  ZZJ-AO


PUTS:
GM     10/27/02  $40-41        JAN-2004 $ 35  LGM-MG
                               JAN-2005 $ 35  ZGM-MG
BBH    11/10/02  $88-90        JAN-2004 $ 85  KBB-MQ
                               JAN-2005 $ 80  XBB-MP



New Portfolio Plays

None


New Watchlist Plays

DELL - Dell Computer $28.98  **Call Play**

Has anyone else noticed the consistent improving tone that we're
hearing from the box-makers?  The big surprise last week was the
strong earnings and bullish forecast from Hewlett Packard.  That
was good for a strong run in the techs on Thursday, and the
market held onto those gains heading into the weekend.  DELL is
the de facto 800 lb gorilla in the PC market, and anybody in that
market knows that DELL is about to eat their lunch.  In the DELL
conference call on November 14th, the CEO had good things to say
about their business growth and it looks like the company is
firing on all cylinders.  This good news was already factored
into the stock ahead of the report and as a result the stock has
been rather weak since then.  But there are a couple of
interesting observations that caught my attention.  First is the
fact that the $9.1 billion revenue number was the company's
highest-revenue quarter ever.  Added to that fact is revenues
that have been steadily climbing for the past four quarters.  So
is that translating to earnings? You Betcha!  While not growing
at a huge rate, they have been increasing each of the past
several quarters.  DELL has been essentially range-bound for the
past 2 years, but if I'm reading the charts right, and the
hints of increasing PC demand are true, that range is getting
ready to break to the upside.  We don't want to work ourselves
into a lather and try to chase the stock higher.  I don't think
there is any risk of the stock running away from us anytime soon,
but with the PnF Buy signal generated with the recent rally and
a bullish price target of $41, I definitely think we have
something we can work with.  An argument could be made for the
stock now finding support near $28 (previous resistance), but I
think the more prudent site to look for new entries is down in
the $26-27 area.  The 50-dma is currently at $27.40 and above
the 200-dma, which is at $26.37.  Use an intraday dip in this
area to initiate new positions and we'll then look to set our
stop at $23.  The reason for such a wide stop is that it is just
below the late September lows and it would take a print of $23
to invalidate the current Buy signal on the PnF chart.  For those
of you that favor the strategy, I think DELL will make a great
candidate for writing covered calls against the long-term LEAP.

BUY LEAP JAN-2004 $30 LDE-AF
BUY LEAP JAN-2004 $25 LDE-AE **Covered Call**
BUY LEAP JAN-2005 $30 LDE-AF
BUY LEAP JAN-2005 $25 LDE-AE **Covered Call**

GD - General Dynamics $82.80  **Call Play**

Remember back in June when we captured a nice downhill slide in
shares of GD?  A large part of that weakness centered around
the company's Gulfstream division, as with all the corporate
cutbacks, it seemed a foregone conclusion that there was going
to be a dearth of orders for new executive jets.  Well, that
crisis played itself out (and to our benefit, I might add), and
the stock has been consolidating in an ever-tightening range for
the past four months.  In fact, the price has traced out a nice
neutral wedge, with the top of the wedge at $85 right now, and
the bottom of the wedge at 77.50.  Take note of the continuing
series of higher lows.  That's a good sign as this consolidation
is building up energy to go one way or the other, and with war
with Iraq looming as a near-certainty, I'm betting the break will
be to the upside.  In fact, we got a hint of that eventual break
last week, when the stock popped up above $84, creating a new PnF
Buy signal.  While it has only broken out by one box so far, the
bullish price target is currently $99.  It would take a trade of
$76 to invalidate that Buy signal.  Call me crazy, but that looks
like a pretty favorable risk to reward ratio!  Another pullback
seems the likely next course of action for the stock, and we want
to look at new entries on a rebound from anywhere in the $78-80
range.  Note that the 10-, 20- and 50-dmas are all clustered
between $79.50-80.50.  My expectation is that any drop below
these moving averages will result in a quick rebound.  Another
bullish indication is that the Stochastics and MACD on the
weekly chart are just starting to turn bullish again, indicating
that the long-term picture is turning in favor of the bulls.
After entry, we'll set our stop at $76, as a trade below that
level would have the PnF chart back in Sell mode.

BUY LEAP JAN-2004 $80 KJD-AP
BUY LEAP JAN-2004 $70 KJD-AN **Covered Call**
BUY LEAP JAN-2005 $80 ZZJ-AP
BUY LEAP JAN-2005 $75 ZZJ-AO **Covered Call**


Drops

None


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

Here It Is On A Silver Platter
By Mike Parnos, Investing With Attitude

OK.  You want easy?  I’ll give you easy.  At the Couch Potato 
Trading Institute (CPTI) we hand it to you on a silver platter.  
No, it’s not a pizza or a six-pack.  It’s not a TV Guide or new 
pajamas.  It’s not a real silver platter either, but, if you 
never get your butt off the couch, you can’t be too picky.

With each strategy there are several things to consider before 
entering the trade.  Each strategy requires its own specific 
research and, to increase the probability of success, as many as 
possible of the criteria should line up.  

Some instructors suggest a trading journal for you to record 
notes and reasons why you enter and exit a trade.  Reviewing 
these journals helps to point out trading strengths and 
weaknesses.

I figured that a way to simplify the decision making process 
would be to have a separate checklist for each strategy.  That 
way, as you fill it out, you’ll be able to better determine the 
viability of the trade.  Choices, good and bad, will become very 
obvious when you can see the facts in black and white.  It takes 
away the memory variable and reduces some of the emotion.

Each week I’ll include a checklist for a specific strategy along 
with a description of the strategy itself.  Some of these 
strategies we will have discussed in previous columns, but 
statistics tell us that most concepts aren’t grasped until at 
least five or six exposures.

As I write this, it’s uncertain how this checklist will print 
out.  If you have a problem getting it on one sheet, email me 
(mparnos@OptionInvestor.com) and I’ll be glad to send you a 
Microsoft Word file with everything already laid out and ready to 
print.  Once you print out a good copy, take it to your friendly 
Office Depot or Office Max and copy it onto 3-hole punch paper.  
Keep these sheets in a trading loose-leaf for easy reference.
___________________________________________________________

The Straddle – CPTI Style
In its simplest terms, a normal straddle is the simultaneous 
purchase of a put and a call with the same strike price and the 
same expiration.  For example, as the underlying makes a large 
move up, the call option will increase in value more rapidly than 
the put option will decline in value.

Since we at the CPTI are far from normal (thank God), we wouldn’t 
dare buy the straddle only one month out.  If you believe there 
will be a substantial movement in the next month, buy the 
straddle at least 3-4 months out.

Why?  Because, in the first month of a four-month option, time 
premium erodes very slowly.   Only about 10%-15% of the time 
value will disappear during that first month.   So, you may have 
to pay for some additional time premium when you buy puts and 
calls three months out, but this additional money is not really 
at risk.

Let’s take a hypothetical look at the DOW (DIA) – trading at 
$88.19.  
Scenario A:
Buy the DIA Dec. $88 calls @ $2.45
Buy the DIA Dec. $88 puts @ $2.30
You are exposed for $4.75

Scenario B:
Buy the DIA Mar. 03 $88 calls @ $5.00
Buy the DIA Mar. 03 $88 puts @ $5.00
You are exposed for $10.00 – or are you?

You are only exposed for the full $10.00 if you plan to hold the 
position to expiration in March.  However, we’re going to exit 
this position in ONE MONTH or less.  During this time, the 
options may lose 15% of their value because this is the first 
month of a five-month option.  Fifteen percent of $10.00 is only 
$1.50.  That’s a hell-of-a-lot LESS than the $4.75 in Scenario A.

You may be tying up the $10.00 for that first month, but the bulk 
of that money is NOT at risk.  Why risk $4.75 when you can risk 
$1.50?
Stock Selection
This is where the checklist will come in very handy.  Ideally, 
you’d like to be buying undervalued options.  So, check and see 
if the implied volatility is greater than or less than the 
historical volatility.  Hopefully, it will be less.  Then, when 
the stock begins to move, the implied volatility will increase, 
adding value to both the put and the call.

Support and Resistance 
Support and resistance levels are also a key factor.  If the DIA 
is trading at $88.19 and there is strong support at $85 and then 
below that at $83, the stock will have a very tough time breaking 
through those two support levels to make a large enough move to 
make the straddle worthwhile in the down direction.

The same holds true for the other direction.  Is there 
resistance?  How much and where?  The support may be in the form 
of a trend line, a moving average, and (if you believe in all 
that Franco American chart spaghetti) a variety of other 
indicators.

Possibly the Best Time
Probably the best scenario is to put on a trade right as the 
underlying is at a support or resistance level.  It may stay 
there a few days, but the odds are pretty good that it’s either 
going to bounce back down with a thump or breakout through the 
resistance toward the next level.

That’s why, at the end of the checklist, I put a choice of either 
trading or placing this particular security on your watch list.  
It’s much more advisable to wait for the most opportune time to 
put on a trade.  The sun will come up tomorrow, and so might your 
stock, to the best place to trade.  Make use of the “Notes” 
section on the checklist.  

Using this support and resistance information you so diligently 
dug up, you can get an idea of a target price for the stock.  
Will that target price be enough for you to make a respectable 
return on your risk?  If the Dow moves 500 points in a few weeks, 
there’s a good chance you’d be able to liquidate your straddle 
for $10.75 or more.  You just made $.75.  Sounds like peanuts, 
doesn’t it?  But, in reality, you made $.75 on a risk of only 
$1.50.  That’s a 50% return in a relatively short period of time.  
I’ll take that any day!

Another reason why straddles are so popular at the CPTI, is that 
any option trader can do it.  It doesn’t require any high trading 
approval level.  The position consists of just buying options.  
Brokerages don’t get paranoid until you start to sell options.

The CPTI Straddle Checklist
Stock / Symbol: ____________________________________________
Last Trade: ______________
Current Bid: _____________	Current Ask: ________________
At-The-Money Put: (Month, Strike): ___________ Ask:  ____________
At-The-Money Call: (Month, Strike): ___________ Ask: ____________
Total Cost of Put & Call: ___________________
Potential Risk:  (10% x Total): _____________
Date To Exit Trade: _________________________
Implied Volatility: _________________________
Historical Volatility: ______________________
Primary Support Level: ______________________
Secondary Support Level: ____________________
Primary Resistance Level 1: _________________
Secondary Resistance Level 2: _______________
Trend Line Support: _________________________
Trend Line Resistance: ______________________
Target Price: (Bullish) ___________  (Bearish) _______________
Average Monthly Move: ____________________
Notes: _______________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
Date Entered Trade: ________________________
Keep It On The Watch List: _____ (Yes)    _____ (No)

So, are you ready to get organized?  Are you ready to turn your 
trading into a methodical, business-like money making proposition 
instead of it being a quick-draw contest?  If you have the 
quickest trading finger in the west, find something else for that 
finger to do (do I need to give you suggestions?) while you’re 
doing your due diligence.

I keep a “To Do” list of all the things I need to accomplish, 
both big and small.  It’s a great organizational tool.  Now, if I 
can just remember where I put the damn thing!
______________________________________________________________

CPTI Portfolio Update – As of Friday’s Close.

BBH Iron Condor – Currently trading at $90.95
We want BBH to finish the December option cycle anywhere between 
$80 and $95.  The biotechs were strong this week, but we’re still 
looking good!

TTWO Short Strangle – Currently trading at $29.60.
We want TTWO to finish the December option cycle anywhere between 
$22.50 and $35.00. Looking good!  We’re about halfway between the 
strikes.

IMCL Covered Call – Currently trading at $15.05.
We want IMCL to finish the December option cycle over $10 so it 
will be called away.  Looking strong!  Now we have a 5-point 
cushion.

QQQ ITM Strangle – Currently trading at $27.76.  Went as high as 
$27.94 on Friday.  The QQQs finally made its predicted 3-point 
move – and then some.  CPTI students, who were bullish and put on 
the $23/$25 strangle, could have sold the $23 call for $5.00.  
That’s a profit of $.65 and you now own the $25 put free and 
clear with a month to go.  CPTI students, who were slightly 
bearish and put on the $24/$26 strangle could have sold the $24 
call for $4.10 and own the $26 put at only $.25 with a month to 
go.  Now we can hope for a typical Fibonacci retracement.  
Prepare for a potential cash infusion!
____________________________________________________________

Happy trading! 
Remember the CPTI credo: May our remote batteries and self-
discipline last forever, but mierde happens. Be prepared! In 
trading, as in life, it's not the cards we're dealt. It's how we 
play them.
 
Your questions and comments are always welcome.
mparnos@OptionInvestor.com 


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The Option Investor Newsletter                   Sunday 11-24-2002
Sunday                                                      5 of 5


In Section Five:

Covered Calls: Trading Basics: More Q&A With The Editor
Naked Puts: Options 101: Understanding Market Cycles
Spreads/Straddles/Combos: A Consolidation Is Definitely In Order!

Updated In The Site Tonight:
Market Watch
Market Posture


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

Trading Basics: More Q&A With The Editor
By Mark Wnetrzak

Based on the recent influx of questions, the strategy of writing
covered-calls is becoming popular again.


Attn: Covered-Calls Editor
Subject: Buy-Write Orders

Mark,
 
After following your "Covered Call" column for a while, I have
begun  to do live trading today using your recommendations. I
have a question about placing a "Buy-Write" order. Should you
mark the order "All or None" to ensure that the shares of stock
bought is equivalent to the number of Calls sold or is that
imply by this type of order? I seem to be having a very hard
time getting anything filled even though it appears that the
"net debit" to fill is available.
 
Thanks in advance for your help.
 
A Humble Subscriber,
 
RD


Hello RD,

When you place a "buy-write" order, you are issuing a combination
order to buy the stock and sell the call at a specific "net" debit.
The "all or none" condition pertains to whether your whole order 
must be filled.  Without the conditional, you could get a partial
fill, say 200 shares of stock and 2 calls sold  as opposed to a 
1000 shares and 10 calls.  Usually the conditional isn't required
except in very thinly traded stocks.  Also, an "all or none" order
generally has the least precedence (it is filled last) in the order
flow.  In any case, you should check with your brokerage to verify
how they fill combination orders and what restrictions apply.

If your orders are being executed electronically (not through a
human broker), both the stock and option will have to trade exactly
at the specified net debit before the order is filled.  With most
traditional (personal) brokers, the specialist has the flexibility
to make the individual trades at different times or to combine the
positions with larger orders.  He may even try to "leg" into the
order to meet your specified net-debit; buying the stock in the
morning and selling the calls later in the trading session.

The "buy-write" order is an excellent method to enter trades only 
at the price you want, especially when you can't monitor the market
throughout the day.  However, if you don't get filled, there is
always another day and another stock.

Hope this helps,

Mark W.
mark@OptionInvestor.com

Editor's note:  The "buy-write" order is a popular method of
initiating a covered-call.  A buy-write involves buying a stock
and selling its option simultaneously.  When placing a buy-write
order, you are requesting to purchase the shares and sell the
call options for a specific "net" price, with both transactions
occurring at the same time.  Since the cost basis is established
prior to the trade, a buy-write order can be a useful method to
guarantee the cost basis in new stock.  The exact phraseology is
not important but a specific "net-debit" must be given when the
trade instructions are delivered to the agent.  The floor broker
or clearing-house will fill the order if the specified net-debit
can be achieved through any combination of stock and call-option
prices.

One of the advantages of this technique is that it prevents the
possibility of "slippage" during the position entry process when
the premium in the call option declines.  This problem happens
frequently in the plays we list as many are opened in the first
hour of trading on the Monday after the newsletter is published.
If too many calls are sold without any buying pressure, the bid
premium drops quickly towards intrinsic value and the (ITM) play
becomes unfavorable.  Traders who attempt to "leg-in" to these
positions (buying the stock with plans to sell the call later)
are often surprised to see the previously overvalued premiums
disappear before they can write the options that complete the
play.  Using this technique, the stock and options prices do not
have to be monitored during the day's activity, as the order will
be executed only when the appropriate net-debit is achieved.  In
addition, this type of trading works very well with low volume
issues and provides the market-maker with an opportunity to fill
the request based on other orders in the pits.  The buy-write can
also be used with unusually volatile stocks that novice investors
might otherwise avoid when choosing candidates for a conservative
covered-write position.



SUMMARY OF PREVIOUS CANDIDATES
*****

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of actual traders, due to the variety of ways
in which each play can be opened, closed and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The play commentary (when provided) is simply a service to help
new traders understand when positions might be opened and closed.
In most cases, actions taken based on the commentary would be far
too late to be effective, thus it is not intended as a substitute
for personal trade management nor does it replace your duty to
diligently monitor and manage the positions in your portfolio.

Note:  Margin not used in calculations.

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

RSTO    5.48   7.30   DEC   5.00  1.05  *$  0.57  11.2%
SIMG    5.44   7.07   DEC   5.00  1.10  *$  0.66  11.0%
INHL    7.96   8.95   DEC   7.50  1.05  *$  0.59   7.4%
IMCL    8.97  15.04   DEC   7.50  2.15  *$  0.68   7.2%
V      13.96  14.34   DEC  12.50  2.35  *$  0.89   5.6%
USG     6.25   7.14   DEC   5.00  1.60  *$  0.35   5.5%
CTIC    8.60   8.80   DEC   7.50  1.50  *$  0.40   4.9%
IDCC   15.20  16.09   DEC  12.50  3.30  *$  0.60   4.4%
MDCO   14.33  16.49   DEC  10.00  4.90  *$  0.57   4.4%
DCTM   18.13  19.90   DEC  15.00  3.80  *$  0.67   4.1%
IDCC   14.74  16.09   DEC  12.50  2.90  *$  0.66   4.0%
BRCM   15.45  20.64   DEC  12.50  3.50  *$  0.55   4.0%
SEE    18.26  21.33   DEC  15.00  3.90  *$  0.64   3.9%
OSUR    7.97   6.26   DEC   7.50  1.45   $ -0.26   0.0%

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

Comments:

No rest for the weary as the major averages continue to party like
it's 1999!  Suffering a little "call-selling" regret?  (Sigh...) A
time-merchant's bane: an extremely bullish market phase.  The key
question is, "Will support hold during the inevitable consolidation
phase?"  For obvious reasons, the covered-call portfolio is doing
quite well except for OraSure Technologies (NASDAQ:OSUR), which
continues to work off its recent rally.  Even Vivendi Universal
(NYSE:V) has moved out of danger after receiving a bid for its
media assets.  We remain cautiously optimistic, for without a 
base to build from, the higher we go, the farther we can fall.



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

BLDP   13.80  DEC 12.50   DUJ LV  1.80 3019  12.00   28    4.5%
CIEN    5.58  DEC  5.00   EUQ LA  1.00 7870   4.58   28   10.0%
CMOS   11.11  DEC 10.00   CQS LB  1.65 179    9.46   28    6.2%
DCTM   19.90  DEC 17.50   QDC LW  3.10 258   16.80   28    4.5%
ISSX   24.48  DEC 22.50   ISU LX  3.50 564   20.98   28    7.9%
MATK   22.07  DEC 20.00   KQT LD  3.30 454   18.77   28    7.1%
TXN    19.22  DEC 17.50   TXN LS  2.40 15677 16.82   28    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

CIEN    5.58  DEC  5.00   EUQ LA  1.00 7870   4.58   28   10.0%
ISSX   24.48  DEC 22.50   ISU LX  3.50 564   20.98   28    7.9%
MATK   22.07  DEC 20.00   KQT LD  3.30 454   18.77   28    7.1%
CMOS   11.11  DEC 10.00   CQS LB  1.65 179    9.46   28    6.2%
BLDP   13.80  DEC 12.50   DUJ LV  1.80 3019  12.00   28    4.5%
DCTM   19.90  DEC 17.50   QDC LW  3.10 258   16.80   28    4.5%
TXN    19.22  DEC 17.50   TXN LS  2.40 15677 16.82   28    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).

*****
BLDP - Ballard Power Systems  $13.80  *** Re-Energized! ***

Ballard Power Systems (NASDAQ:BLDP) develops, manufactures and
markets zero-emission proton exchange membrane (PEM) fuel cells.
BLDP is commercializing fuel cell engines for the transportation
market, electric drives for both fuel cell and battery-powered
electric vehicles, power conversion products for fuel cell 
generators, microturbines and other distributed generation
technologies, and fuel cell systems for markets ranging from
portable power products to larger stationary generation products.
Ballard is a Tier 1 automotive supplier of friction materials for
power train components.  Ballard has supplied fuel cells to Honda,
Nissan, Volkswagen, Yamaha, Cinergy, Coleman Powermate, and etc.
Ballard moved up sharply on Friday, taking out the October high 
and the technical signals suggest further upside potential.  
Regardless of the recent slump in share value, Ballard is one
of the top companies in the Fuel Cell sector and among many
institutional investors, it is also one of the core holdings.
The current technical outlook is recovering and our position
offers an excellent reward potential at the risk of owning this
industry-leading issue at a favorable cost basis.

DEC 12.50 DUJ LV LB=1.80 OI=3019 CB=12.00 DE=28 TY=4.5%


*****
CIEN - Ciena  $5.58  *** Ride The "Telecom Recovery" Train ***

Ciena Corporation (NASDAQ:CIEN) is engaged in the intelligent
optical networking equipment market.  Ciena offers a portfolio
of products for communications service providers worldwide. The
company's customers include long-distance carriers, competitive
and incumbent CLECs, ISPs, and wireless/wholesale carriers.  CIEN
offers optical transport and intelligent optical switching systems
that enable service providers to provision, manage and deliver 
high-bandwidth services to their customers.  Ciena's intelligent
optical networking products are designed to enable carriers to 
deliver any time, any size, any priority bandwidth to their 
customers.  The Telecom sector is on the mend and this week's
move in Ciena suggests a bullish change of character.  The stock
rallied on very heavy volume, closing above its 150-dma and above
a strong resistance area near $4 - $4.50.  Traders can speculate
on the near-term performance of the issue with this conservative
position.

DEC 5.00 EUQ LA LB=1.00 OI=7870 CB=4.58 DE=28 TY=10.0%


*****
CMOS - Credence  $11.11  *** On The Rebound! ***

Credence Systems (NASDAQ:CMOS) designs, manufactures, sells and
services engineering validation test and automatic test equipment
used for testing semiconductor integrated circuits.  The company
also develops, licenses and distributes software products that 
provide automation solutions in the design and test flow fields.
It serves a broad spectrum of the semiconductor industry's testing
needs through products that test digital logic, mixed-signal, 
system-on-a-chip, radio frequency, volatile, static and non-
volatile memory semiconductors.  Their customers include major
semiconductor manufacturers, fabless design houses, foundries and
assembly and test services companies.  With earnings due the day
before Thanksgiving, investors are grabbing shares of Credence,
which suggests any "bad" news has already been priced in.  Our
outlook is also bullish due to the recent rally on heavy volume
and this position offers a cost basis below technical support.

DEC 10.00 CQS LB LB=1.65 OI=179 CB=9.46 DE=28 TY=6.2%


*****
DCTM - Documentum  $19.90 *** Bracing For A Break-Out ***

Documentum (NASDAQ:DCTM) provides enterprise content management
software solutions that bring intelligence and automation to the
creation, management, personalization and distribution of vast
quantities and types of content, including documents, Web pages,
XML files and rich media, in one common content platform and 
repository.  DCTM's platform makes it possible for companies to
distribute content globally across all internal and external 
systems, applications and user communities.  Documentum's products
include site delivery services, content personalization services
and document control managers, among others.  Documentum has been
trading in a lateral base for almost 2 years and has completed a
short-term "double-bottom" formation.  The stock is on the move
to take out the March high and this position offers a favorable
way to speculate on the near-term performance of the issue.

DEC 17.50 QDC LW LB=3.10 OI=258 CB=16.80 DE=28 TY=4.5%


*****
ISSX - Internet Security Systems  $24.48  *** Hot Sector! ***

Internet Security Systems (NASDAQ:ISSX) is a security software
company engaged in information protection solutions dedicated to
protecting online assets.  The company's security management
solutions include software products, managed security services
and professional services that are made up of both consulting
and training services.  The company offers a comprehensive line
of products and services for enterprise, smaller enterprise,
consumer and service provider customers.  The company provides
its security management solutions in three primary geographic
areas: the Americas (United States, Canada and Latin America),
which accounted for 71% of total revenues in 2001, EMEA (Europe,
Middle East and Africa), which accounted for 15% of revenues in
2001 and Asia/Pacific Rim, which accounted of 14% of revenues in
2001.  Internet stocks remain among the leaders in the current
technology rally and a noticeable recovery is underway in ISSX
shares.  Investors who want to establish a conservative basis in
a leading Internet security stock should consider this position.

DEC 22.50 ISU LX LB=3.50 OI=564 CB=20.98 DE=28 TY=7.9%


*****
MATK - Martek Biosciences  $22.07  *** Healthy Stuff! ***

Martek Biosciences )NASDAQ:MATK) develops and sells products
from microalgae.  Microalgae are microplants.  The company is
engaged in the commercial development of microalgae into a
portfolio of high value products and new product candidates
consisting of Nutritional Products, Advanced Detection Systems
and Other Products, primarily Algal Genomics.  Their nutritional
products include nutritional oils for infant formula, dietary
supplementation and other products. Advanced Detection Systems
products include fluorescent dyes from various algae for use
in scientific applications for detection of certain biological
processes.  Martek announced Friday that its popular supplement
DHA improves overweight children's cardiovascular health, thus
reducing the risk factor for early coronary heart disease.  A
recent American Heart Association (AHA) Scientific Statement
also outlined the health benefit of omega-3 fatty acids from
plant and fish sources, specifically docosahexaenoic acid (DHA),
which Martek offers to the public as an adult nutritional aid
under the trade name "Neuromins.  Investors who are interested
in a unique Biotechnology company should consider this position.

DEC 20.00 KQT LD LB=3.30 OI=454 CB=18.77 DE=28 TY=7.1%


*****
TXN - Texas Instruments  $19.22  *** Blue Chip Bottom-Fishing *** 

Texas Instruments (NYSE:TXN) is a global semiconductor company
and a designer and supplier of digital signal processors and 
analog integrated circuits.  TXN also designs and manufactures 
other semiconductor products.  Those products include standard 
logic devices, application-specific integrated circuits, reduced
instruction-set computing microprocessors, microcontrollers and
digital imaging devices.  In addition to semiconductors, TXN has
two other principal segments.  Sensors & Controls sells electrical 
and electronic controls, sensors and RF ID systems into commercial
and industrial markets.  Educational & Productivity Solutions is a
supplier of graphing and educational calculators.  On Tuesday, at
the Lehman Brothers semiconductor and computer systems conference,
Texas Instruments' COO Rich Templeton reiterated the company's 4th-
quarter financial targets.  We simply favor the technical support
area at our cost basis and the current bullish momentum in the
sector.  Investors can use this position to obtain a conservative
entry point in the issue.

DEC 17.50 TXN LS LB=2.40 OI=15677 CB=16.82 DE=28 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

SRNA   18.86  DEC 17.50   NHU LW  2.30 128   16.56   28    6.2%
ZRAN   18.80  DEC 17.50   ZUO LW  2.20 436   16.60   28    5.9%
LGTO    6.00  DEC  5.00   EQN LR  1.25 1327   4.75   28    5.7%
PKTR    8.14  DEC  7.50   XOU LU  1.00 5      7.14   28    5.5%
UNTD   16.40  DEC 15.00   QAB LC  2.10 3228  14.30   28    5.3%
MEDI   28.07  DEC 25.00   MEQ LE  4.20 21744 23.87   28    5.1%
RMBS    8.79  DEC  7.50   BNQ LU  1.60 3549   7.19   28    4.7%
RFMD   10.94  DEC 10.00   RFZ LB  1.35 6894   9.59   28    4.6%
PATH   16.54  DEC 15.00   AQE LC  2.15 328   14.39   28    4.6%
NTAP   14.35  DEC 12.50   NUL LV  2.30 6272  12.05   28    4.1%
CELG   25.00  DEC 22.50   LQH LX  3.30 339   21.70   28    4.0%
INHL    8.95  DEC  7.50   QNX LU  1.70 349    7.25   28    3.7%


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

Options 101: Understanding Market Cycles
By Ray Cummins

Once again, it is time to start thinking about the historical,
year-end relationship between small-cap and large-cap stocks.

January has become known as a month when stocks, especially small
company stocks, provide solid gains.  Investors have noticed the
pattern and adjusted their buying and selling habits accordingly,
creating what many experts refer to as the "January Effect."  A
less noticeable phenomena that often precedes the January Effect
occurs from mid-November to mid-December, when large-cap stocks
outperform smaller-cap issues.  Some traders say this is due to
profit taking in the lower-priced stocks and some believe it is
caused by annual tax-loss selling, where investors create losses
in some holdings to offset gains in others, thus reducing their
tax liability.  In this scenario, investors sell stocks that have
fallen in value during the year, and then purchase new (small-cap)
shares in January to complete the cycle.  Other explanations are
centered on the large asset inflows from institutional investors
or the year-end repositioning of fund portfolios by professional
money managers.  However, many of these investors are not likely
to transition into small company stocks (in January) because they
are often restricted by portfolio guidelines to focus on large-cap
and mid-cap companies.  With these facts in mind, a case could be
made that the phenomenon is just a self-fulfilling prophecy, much
like many of the current trends that occur in the stock market.

The historically strong performance of small stocks in the first
few months of the year is well known and easily proven.  The less
obvious cycle in November and December is often more profitable
as the majority of traders don't use the trend to their advantage,
thus leaving the effect intact for those that are aware of it's
existence.  Some experts believe the flagging economy may affect
the historical trend, but it appears that much of that condition
has already been factored into the current pricing of equities.
Indeed, the impressive performance of technology stocks over the
last few weeks supports a bullish outlook in the near-term and if
the phenomenon becomes more well known, it will also transition
to a self-fulfilling prophecy.  Once the notion of a "Pre-January
Effect" becomes widespread, investors who do not want to miss the
opportunity for above-average returns will put available cash into
large-cap stocks towards the end of the year, thus confirming the
hypothesis that this group rises near Thanksgiving and into the
holiday season.

Regardless of whether the pre-January effect provides a profitable
trading opportunity, it is important to remember that throughout
the history of the stock market, there have been many lesser known
trends that have perpetuated into well-defined cycles.  If you hope
to make money in the stock market, it is absolutely essential that
you understand the importance of these historical tendencies.  You
must also learn to discern the broader, more technical movements in
the market, in contrast to those produced by short-term "emotional"
factors.  As you have probably observed, the economy also moves in
identifiable cycles that precede bullish and bearish trends and you
can not expect to be a successful investor until you can correctly
judge whether the current trend is a part of a primary wave (which
is a bull or bear market cycle of several years duration) or rather
a short-term component of a secondary wave, which lasts from a few
weeks to a few months.  While no one has demonstrated the ability
to spot the top of a bull market or the bottom of a bearish phase
on a consistent basis, it is important to be conscious of these
repetitive tendencies and use that knowledge to your advantage.
The key to success is to maintain a general awareness of the overall
condition of the market, and the economy, and adjust your portfolio
and trading style accordingly.

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 
*****

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of actual traders, due to the variety of ways
in which each play can be opened, closed and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The play commentary (when provided) is simply a service to help
new traders understand when positions might be opened and closed.
In most cases, actions taken based on the commentary would be far
too late to be effective, thus it is not intended as a substitute
for personal trade management nor does it replace your duty to
diligently monitor and manage the positions in your portfolio.

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

NWRE   17.68  17.75   DEC  12.50  0.55  *$  0.55   9.7%
ESIO   22.99  24.50   DEC  17.50  0.55  *$  0.55   9.3%
IMCL   11.77  15.04   DEC   7.50  0.25  *$  0.25   8.4%
ISSX   22.19  24.48   DEC  17.50  0.45  *$  0.45   8.0%
BSTE   31.02  30.40   DEC  22.50  0.75  *$  0.75   7.8%
HAL    17.85  18.85   DEC  12.50  0.35  *$  0.35   7.8%
CYMI   33.43  37.40   DEC  25.00  0.60  *$  0.60   7.2%
PHTN   28.50  31.26   DEC  22.50  0.50  *$  0.50   7.0%
GNSS   17.17  18.98   DEC  12.50  0.30  *$  0.30   7.0%
PLMD   30.31  29.71   DEC  22.50  0.60  *$  0.60   6.5%
KOSP   19.13  20.92   DEC  15.00  0.35  *$  0.35   6.1%
RIMM   16.58  14.05   DEC  12.50  0.30  *$  0.30   6.0%
NPSP   28.24  29.01   DEC  20.00  0.50  *$  0.50   5.9%
POSS   14.20  15.90   DEC  12.50  0.35  *$  0.35   5.9%
IGEN   38.65  38.89   DEC  30.00  0.55  *$  0.55   5.8%
ESIO   21.15  24.50   DEC  15.00  0.35  *$  0.35   5.5%
AMZN   22.21  23.99   DEC  17.50  0.30  *$  0.30   5.5%
PPD    27.08  24.84   DEC  20.00  0.35  *$  0.35   5.3%

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

Comments:

The market soared to recent highs this week, thus Friday's minor
consolidation was expected as stocks took a breather to absorb
the bullish activity.  It is encouraging that the market held its
gains but next week will include some pre-holiday (low volume)
sessions, so it will be interesting to see how stock prices react.
Some technical traders are looking for spike to the 950-960 range
(S&P 500 Index - SPX) while others believe we have seen the "top"
in the short-term.  Despite the overbought conditions, we remain
optimistic that equities will edge higher in the coming weeks but
it pays to be cautious in this environment.  Positions on the
"early-exit" watch-list include: Research In Motion (NASDAQ:RIMM).
A federal recently ruled that the wireless company infringed on
patents held by NTP and the award of damages in the case could
potentially include a one-time payment by RIM of approximately $23
million.  With this new development in mind, it may be best to
close the play now for a small gain rather than risk a potential
loss.



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

ALXN   17.55  DEC 12.50   XQN XV  0.30 101   12.20   28    8.6%
ESIO   24.50  DEC 17.50   EQO XW  0.30 624   17.20   28    6.3%
HAL    18.85  DEC 15.00   HAL XC  0.35 8558  14.65   28    9.2%
IMCL   15.04  DEC 10.00   QCI XB  0.30 1035   9.70   28    9.9%
MATK   22.07  DEC 17.50   KQT XW  0.45 50    17.05   28   10.1%
MEDI   28.07  DEC 20.00   MEQ XD  0.30 4943  19.70   28    5.5%
MSTR   18.16  DEC 12.50   EOU XV  0.30 16    12.20   28    8.3%
SEE    21.33  DEC 15.00   SEE XC  0.25 4075  14.75   28    6.0%

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

MATK   22.07  DEC 17.50   KQT XW  0.45 50    17.05   28   10.1%
IMCL   15.04  DEC 10.00   QCI XB  0.30 1035   9.70   28    9.9%
HAL    18.85  DEC 15.00   HAL XC  0.35 8558  14.65   28    9.2%
ALXN   17.55  DEC 12.50   XQN XV  0.30 101   12.20   28    8.6%
MSTR   18.16  DEC 12.50   EOU XV  0.30 16    12.20   28    8.3%
ESIO   24.50  DEC 17.50   EQO XW  0.30 624   17.20   28    6.3%
SEE    21.33  DEC 15.00   SEE XC  0.25 4075  14.75   28    6.0%
MEDI   28.07  DEC 20.00   MEQ XD  0.30 4943  19.70   28    5.5%


Company Descriptions

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

*****
ALXN - Alexion  $17.55  *** New Drug Speculation! ***

Alexion Pharmaceuticals (NASDAQ:ALXN) develops pharmaceutical 
products for the treatment of heart disease, inflammation, cancer
and diseases of the immune system.  The company's two lead product
candidates are genetically altered antibodies that target specific
diseases that arise when the human immune system induces undesired 
1inflammation in the human body.  Alexion's product candidates are
designed to block components of the human immune system that cause
undesired inflammation while allowing beneficial components of the 
immune system to remain functional.  Alexion shares rallied last
week after the firm said its experimental drug pexelizumab failed
to meet its primary goal in two clinical trials of heart-attack 
patients, but showed much-improved survival rates in one of the
studies.  Alexion said it was encouraged by the "robust" reduction
of mortality with patients who received angioplasties and that it
would discuss with U.S. regulators the appropriate development of
the medicine.  This position offers great short-term speculation
with a relatively low-risk cost basis.

DEC 12.50 XQN XV LB=0.30 OI=101 CB=12.20 DE=28 TY=8.6%


*****
ESIO - Electro Scientific Industries  $24.50  *** New Orders! ***

Electro Scientific Industries (NASDAQ:ESIO) makes high technology
manufacturing equipment for the global electronics market.  The
company is a supplier of advanced laser systems used to improve
the production yield of semiconductor devices; high-speed test
and termination equipment used in the high-volume production of
multi-layer ceramic capacitors as well as other passive electronic
components, and advanced laser systems used to fine tune various
components and circuitry.  In addition, Electro produces a family
of drilling systems for production of high-density interconnect
circuit boards and advanced electronic packaging, as well as
inspection systems and original equipment manufacturer machine
vision products.  Its customers are primarily manufacturers of
semiconductors, passive electronic components and electronic
interconnect devices.  On 10/28, Electro Scientific Industries
received an order for seven Model 2300 Chip Resistor trimming
systems to be shipped to Beihai Yinhe Hi-Tech Industrial during
ESI's second fiscal quarter.  This announcement followed a $1.25
million order in October for Electronic Component Systems from
Amotech, a manufacturer of varistors used in home appliances,
computers, automobiles, telecommunications and other industrial
equipment.  On Thursday, Esio announced an order for Electronic
Component Systems equipment from Innochips Technology, a leading
circuit design service company.  Traders who like the outlook for
the company can establish a low risk cost basis in the issue with
this position.

DEC 17.50 EQO XW LB=0.30 OI=624 CB=17.20 DE=28 TY=6.3%


*****
HAL - Halliburton  $18.85  *** Asbestos Settlement Pending ***

Halliburton (NYSE:HAL) provides a variety of services, products,
maintenance, engineering and construction to energy, industrial
and governmental customers.  The company operates in 2 business
segments: the Energy Services Group, consisting of Halliburton
Energy Services and Landmark Graphics, and the operations of 
product service lines; and the Engineering and Construction Group,
which provides a wide range of services to energy and industrial
customers and government entities worldwide.  Halliburton shares
have rallied in recent weeks on speculation the opposing sides in
asbestos liability lawsuits are close to an agreement that would
settle hundreds of thousands of claims against the company.  The
main unresolved issue was the amount of money to be paid to the
claimants but Halliburton is striving to come up with a solution
that will satisfy the opposing entities.  Traders can speculate
on the near-term results of the current asbestos litigation with
this position.

DEC 15.00 HAL XC LB=0.35 OI=8558 CB=14.65 DE=28 TY=9.2%


*****
IMCL - ImClone  $15.04  *** All Is Forgiven Now ***

ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company
whose mission is to advance oncology care by developing a
portfolio of targeted biologic treatments designed to address
the medical needs of patients with a variety of cancers.  The
company's lead product candidate, Erbitux (cetuximab), is a
therapeutic monoclonal antibody that inhibits stimulation of
epidermal growth factor receptor upon which certain solid
tumors depend in order to grow.  ImClone's next most advanced
product candidate, BEC2, is a cancer vaccine.  In addition to
the development of its lead product candidates, the company
conducts research, both independently and in collaboration
with academic and corporate partners, in a number of areas
related to its core focus of growth factor blockers, cancer
vaccines and angiogenesis inhibitors.  IMCL has also developed
diagnostic products and vaccines for certain infectious diseases.
Shares of IMCL soared recently amid a rumor that Bristol-Myers
will buy the company.  There are other reasons for the stock's
strength, such as short-covering and some positive fundamental
news on the company's drug products, and this position benefits
from over-priced options and recent technical support near the
cost basis.

DEC 10.00 QCI XB LB=0.30 OI=1035 CB=9.70 DE=28 TY=9.9%


*****
MATK - Martek Biosciences  $22.07  *** Healthy Stuff! ***

Martek Biosciences )NASDAQ:MATK) develops and sells products
from microalgae.  Microalgae are microplants.  The company is
engaged in the commercial development of microalgae into a
portfolio of high value products and new product candidates
consisting of Nutritional Products, Advanced Detection Systems
and Other Products, primarily Algal Genomics.  Their nutritional
products include nutritional oils for infant formula, dietary
supplementation and other products. Advanced Detection Systems
products include fluorescent dyes from various algae for use
in scientific applications for detection of certain biological
processes.  Martek announced Friday that its popular supplement
DHA improves overweight children's cardiovascular health, thus
reducing the risk factor for early coronary heart disease.  A
recent American Heart Association (AHA) Scientific Statement
also outlined the health benefit of omega-3 fatty acids from
plant and fish sources, specifically docosahexaenoic acid (DHA),
which Martek offers to the public as an adult nutritional aid
under the trade name "Neuromins.  Investors who are interested
in a unique Biotechnology company should consider this position.

DEC 17.50 KQT XW LB=0.45 OI=50 CB=17.05 DE=28 TY=10.1%


*****
MEDI - MedImmune  $28.07  *** Speculation Stock! ***

MedImmune (NASDAQ:MEDI) is a biotechnology company with 5 products
on the market and a diverse product pipeline.  MedImmune is focused
on using advances in immunology and other biological sciences to
develop new products that address significantly unmet medical needs
in areas of infectious disease and immune regulation.  The company
also focuses on oncology through its wholly owned subsidiary, 
MedImmune Oncology, Inc.  In addition, the company owns Aviron, a
biotech company.  In January 2002, MedImmune acquired Aviron, a
company focused on the prevention of disease through vaccine 
technology.  MedImmune shares have been climbing since the biotech
firm's partner Wyeth announced it was discontinuing a flu vaccine
as the pharmaceutical company focusing on "new flu immunization
technologies."  Specifically, Wyeth is working with MedImmune to
win approval for a new nasal spray flu vaccine, called FluMist.  An
FDA advisory panel is scheduled to review FluMist on 12/17.  There
is also speculation that the company could be a take-over candidate,
especially if its lead drug, Actimmune, becomes the first and only
effective treatment for patients with idiopathic pulmonary fibrosis,
a fatal disorder marked by scarring of the lungs.

DEC 20.00 MEQ XD LB=0.30 OI=4943 CB=19.70 DE=28 TY=5.5%


*****
MSTR - MicroStrategy  $18.16  *** Expanding Its Markets! ***

MicroStrategy (NASDAQ:MSTR) is a global leader in the increasingly
critical business intelligence software market.  Large and small
firms alike are harnessing MicroStrategy's business intelligence
software to gain vital insights from their data to help them
proactively enhance cost-efficiency, productivity and customer
relations and optimize revenue-generating strategies.  The firm's
business intelligence platform offers exceptional capabilities that
provide organizations, in virtually all facets of their operations,
with user-friendly solutions to their data query, reporting, and
advanced analytical needs, and distributes valuable insight on this
data to users via Web, wireless, and voice.  PC Magazine selected
MicroStrategy 7 as the "Editor's Choice" in 2001 for business
intelligence software.  MicroStrategy has expanded its market in
recent months and its shares have been among the best performing
issues in the business software group.  Investors who wouldn't mind
owning the stock near a cost basis of $12 should consider this
position.

DEC 12.50 EOU XV LB=0.30 OI=16 CB=12.20 DE=28 TY=8.3%


*****
SEE - Sealed Air  $21.33  *** Asbestos Claims Speculation ***

Sealed Air (NYSE:SEE) through its subsidiaries, is engaged in
the manufacture and sale of a wide range of food, protective 
and specialty packaging products.  The company operates in two
business segments: Food Packaging, which provides a variety of
flexible films, bags and associated packaging and absorbent 
pads, and Protective and Specialty Packaging, which include
its cushioning and surface protection products and certain 
other products.  Sealed Air conducts substantially all of its
business through two direct wholly owned subsidiaries, Cryovac,
Inc. and Sealed Air Corporation (US).  These two subsidiaries
directly and indirectly own substantially all of the assets of
the business and conduct operations themselves and through
subsidiaries around the globe.  Shares of corporations facing
asbestos-related liabilities have rallied since the Republicans
won control of the U.S. Congress, based on investor's optimism
that new legislation will limit future asbestos lawsuits against
businesses.  Sealed Air has an asbestos claims trial due to
start in early December that will determine whether the company
is liable for part of the asbestos claims faced by W.R. Grace
& Co. because of Sealed Air's 1998 acquisition of the specialty
chemical maker's food packaging business.  Speculative traders
can profit from a continued recovery in the issue with this
position.

DEC 15.00 SEE XC LB=0.25 OI=4075 CB=14.75 DE=28 TY=6.0%


*****

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

ELX    24.67  DEC 20.00   ELX XD  0.55 2004  19.45   28   10.4%
CMVT   11.89  DEC 10.00   CQV XB  0.30 2862   9.70   28   10.3%
CVC    17.55  DEC 15.00   CVC XC  0.45 2399  14.55   28    9.9%
ZRAN   18.80  DEC 15.00   ZUO XC  0.35 585   14.65   28    9.3%
GNSS   18.98  DEC 15.00   QFE XC  0.35 917   14.65   28    9.2%
AMZN   23.99  DEC 20.00   ZQN XD  0.35 7055  19.65   28    6.4%
QCOM   40.68  DEC 35.00   AAW XG  0.65 10592 34.35   28    6.3%
BRCM   20.64  DEC 15.00   RCQ XC  0.25 3604  14.75   28    6.2%
CREE   22.49  DEC 17.50   CVO XW  0.25 842   17.25   28    5.7%
ISSX   24.48  DEC 17.50   ISU XW  0.25 135   17.25   28    5.3%


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


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

A Consolidation Is Definitely In Order!
By Ray Cummins

Stocks ended mixed Friday as investors took profits after another
week of bullish activity.

Technology shares led a brief rally during the morning session
but eventually faded to a mildly positive close with the NASDAQ
finishing up 1 point at 1,468.  Despite ending 40 points lower at
8,804, the Dow posted its seventh-consecutive positive week; a
feat not seen in the past four years.  The broader S&P 500-stock
index was down 3 points at 930.  All three major averages have
enjoyed substantial gains since the early October lows.  Trading
volume came in at 1.61 billion on the NYSE and at 1.96 billion on
the technology exchange.  Winners just edged past losers on both
the NYSE and on the NASDAQ.  In the bond market, the 10-year note
lost 6/32 to yield 4.18% while the 30-year government bond moved
up 3/32 to yield 5.02%.  On the equity fund-flow front, Trim Tabs
estimated that all equity funds had outflows of $3.2 billion in
the week ending November 20 compared with inflows of $2.6 billion
in the prior week.  Equity funds that invest mainly in U.S. stocks
saw outflows of $3.2 billion versus inflows of $1.8 billion in the
prior week.  Surprisingly, bond funds had inflows of $2.4 billion
for the second consecutive week.

*****************
PORTFOLIO SUMMARY
*****************

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of actual traders, due to the variety of ways
in which each play can be opened, closed and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The play commentary (when provided) is simply a service to help
new traders understand when positions might be opened and closed.
In most cases, actions taken based on the commentary would be far
too late to be effective, thus it is not intended as a substitute
for personal trade management nor does it replace your duty to
diligently monitor and manage the positions in your portfolio.


PUT CREDIT SPREADS
******************

Symbol  Pick   Last  Month L/P S/P Credit   C/B   (G/L)  Status

BR      42.01  40.99  DEC   35  37  0.30   37.20  $0.30   Open
EBAY    64.79  70.09  DEC   50  55  0.55   54.45  $0.55   Open
IGEN    36.49  38.89  DEC   25  30  0.65   29.35  $0.65   Open
SLM    102.94  98.60  DEC   85  90  0.65   89.35  $0.65   Open?
DE      49.00  49.72  DEC   40  45  0.65   44.35  $0.65   Open
INTU    52.91  53.00  DEC   40  45  0.50   44.50  $0.50   Open
LLY     62.24  65.73  DEC   50  55  0.55   54.45  $0.55   Open
IGT     77.06  79.20  DEC   65  70  0.55   69.45  $0.55   Open
KSS     66.90  65.45  DEC   55  60  0.55   59.45  $0.55   Open
PIXR    55.67  58.10  DEC   45  50  0.50   49.50  $0.50   Open

Strangely, shares of Sallie Mae (SLM Corp. - NYSE:SLM) plunged $5
after a speech by N.C. Senator John Edwards in which he proposed
creating a program that would make the first year of college free.
It remains to be seen whether this was the real cause for the drop
thus traders should monitor the issue closely in the coming week.


CALL CREDIT SPREADS
*******************

Symbol  Pick   Last  Month L/C S/C Credit   C/B   (G/L)  Status

ABC     72.45  59.31  DEC   85  80  0.65   80.65  $0.65   Open
SBGI    10.60  13.28  DEC   15  12  0.70   13.20 ($0.08) Closed
MCO     45.12  43.48  DEC   55  50  0.40   50.40  $0.40   Open
WLP     74.04  69.74  DEC   90  85  0.60   85.60  $0.60   Open
UNH     86.83  84.62  DEC  105 100  0.55  100.55  $0.55   Open
DNA     35.46  35.40  DEC   45  40  0.60   40.60  $0.60   Open
DP      40.40  36.74  DEC   50  45  0.40   45.40  $0.40   Open
LXK     63.75  66.17  DEC   75  70  0.60   70.60  $0.60   Open?

Sinclair Broadcast Group (NASDAQ:SBGI) has rallied in conjunction
with the bullish activity in the media group and conservative
traders should consider closing the position.  Lexmark (NYSE:LXK)
has also renewed its upward trend, thanks to the strength in
Hewlett-Packard (NYSE:HPQ), however the issue has another level
of resistance near the sold strike at $70.


SYNTHETIC (BULLISH)
*******************

Symbol  Pick   Last  Month L/C S/P Credit  M/V    G/L   Status

ABT    45.89  43.80   DEC  50  40   0.10   0.00   0.10   Open
NXTL    9.69  13.83   JAN  12   7   0.10   2.50   2.60   Open?
FCS    13.30  13.40   FEB  17  10   0.10   1.00   1.10   Open
LTXX    6.83   8.29   FEB  10   5   0.00   0.50   0.50   Open
MENT    10.35 11.21   JAN  12   7   0.10   0.80   0.90   Open
COX     30.25 30.81   DEC  35  25   0.10   0.20   0.30   Open
OMC     66.32 66.58   DEC  75  55   0.15   0.00   0.15   Open

Nextel (NASDAQ:NXTL) has been one of the best plays this month,
offering up to $2.60 profit in the speculative position.  The
"Reader's Request" positions in FCS, LTXX, and MENT have also
performed very well, offering favorable early-exit opportunities
during the bullish activity.
  

CALENDAR SPREADS
****************

Symbol  Pick   Last   Long-Opt  Short-Opt  Debit  M/V   Status

HNT    25.75  26.30   JAN-30C   NOV-30C    0.75   0.60   Open
SHRP   22.90  23.43   FEB-25C   DEC-25C    1.00   1.00  Closed
WSM    24.53  25.18   FEB-30C   DEC-30C    0.80   1.00   Open
GISX   20.21  19.41   FEB-22C   DEC-22C    0.95   0.75   Open

The Sharper Image (NASDAQ:SHRP) took a turn for the worse this
week despite reporting higher revenues and a smaller quarterly
loss compared with a year earlier.  The results exceeded the
current consensus estimates amid excellent sales and greatly
improved operating performance, but investors did not shower
the stock with affection after the news.  Based on the bearish
activity, it may be time to move on to another play.  Among the
new positions, Williams Sonoma (NYSE:WSM) has already achieved
a small profit while Global Imaging Systems (NASDAQ:GISX) has
moved back to the middle of its recent trading range near $19.


SHORT-PUT COMBOS
****************

Symbol  Pick   Last  Short-Opt  Long-Opt  Credit  G/L   Status

AES     2.92   1.77   J04-7.5P  J03-2.5P   4.50   0.25   Open
IMCL    7.77  15.04   J04-15P   JO3-5P     8.00   2.25   Open?

After over a month in the position, ImClone (NASDAQ:IMCL) has
paid off nicely and with the issue now trading above $15, the
profit in the play is up to $2.25.


CREDIT STRANGLES
****************

Symbol  Pick   Last  Month S/C S/P Credit  C/V    G/L    Status

ERTS   64.13  67.18   DEC  70  55   2.40   1.50   0.90    Open
MDCO   12.70  16.49   DEC  17   7   1.25   0.75   0.75   No Play

The Medicine Company (NASDAQ:MDCO) gapped-up at the open Monday
after the company presented clinical data Sunday suggesting that
its blood-thinning drug, Angiomax, is as effective as heparin,
but safer and less costly for patients undergoing procedures to
remove blockages from coronary arteries.  Had the position been
initiated, it would be profitable but conservative traders would
likely have avoided the issue until the volatility receded.

Questions & comments on spreads/combos to Contact Support

*************
NEW POSITIONS
*************

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

****************
CALENDAR SPREADS
****************

A calendar spread (or time spread) consists of the sale of one
option and the simultaneous purchase of an option of the same
type and strike price, but with a future expiration date.  The
premise in a calendar spread is simple: time erodes the value of
the near-term option at a faster rate than the far-term option.
The positions in this section are speculative (out-of-the-money)
spreads with low initial costs and large potential profits.

*****
UAL - United Airlines  $3.59  *** Cheap Speculation! ***

UAL (NYSE:UAL) is a holding company, the principal subsidiary of
which is United Air Lines, Inc. (United), which is wholly owned.
United accounted for most of the company's revenues and expenses
in 2001.  United is a major commercial air transportation company
throughout the United States and abroad.  United's global network
provides transportation service within its North America segment
and to international destinations within its Pacific, Atlantic,
and Latin America segments.

This position offers favorable speculation with minimum risk and
reasonable reward potential for traders who to profit from UAL's
recent recovery and their attempt to avoid bankruptcy.

PLAY (very speculative - bullish/calendar spread):

BUY  CALL  FEB-5.00  UAL-BA  OI=14444  A=$0.90
SELL CALL  DEC-5.00  UAL-LA  OI=14354  B=$0.55
HV(100 day)=179 LONG OPTION IV=177 SHORT OPTION IV=227
INITIAL NET DEBIT TARGET=$0.35-$0.40  TARGET PROFIT=0.30-$0.50


**************
CREDIT SPREADS
**************

These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may be higher than other plays in the same strategy, due to
small disparities in option pricing.  Current news and market
sentiment will have an effect on these issues, so review each
play individually and make your own decision about its outcome.

*****
AZO - Autozone  $85.32  *** Earnings Speculation! ***

AutoZone (NYSE:AZO) is a specialty retailer of automotive parts
and accessories, primarily focusing on do-it-yourself customers.
The company operated over 3,000 auto parts stores in the United
States and 21 in Mexico.  Each store carries an extensive product
line for cars, vans and light trucks, including new as well as
re-manufactured automotive hard parts, maintenance items and car
accessories.  The company also has a commercial sales program in
the United States that provides commercial credit and prompt local
delivery of parts and other products to repair garages, dealers
and service stations.  AutoZone does not sell tires or perform
automotive repair or installation.  In addition, the company sells
automotive diagnostic and repair information software through its
ALLDATA subsidiary, and diagnostic and repair information through
alldatadiy.com.  The company's quarterly earnings are due 12/12.

PLAY (very conservative - bullish/credit spread):

BUY  PUT  DEC-70  AZO-XN  OI=1992  A=$0.70
SELL PUT  DEC-75  AZO-XO  OI=3279  B=$1.00
INITIAL NET-CREDIT TARGET=$0.45-$0.60
POTENTIAL PROFIT(max)=9% B/E=$74.55
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=89%


*****
FPL - FPL Group  $59.87  *** Utility Sector Hedge ***

FPL Group (NYSE:FPL) is focused on energy-related products and
services.  The Company has a growing presence in 24 states and its
principal subsidiary, Florida Power & Light Company, serves almost
four million customer accounts in Florida.  FPL Energy, LLC, FPL
Group's energy-generating subsidiary, operates over 75 generating
facilities in 16 states, with more than 6,500 megawatts of capacity.

PLAY (conservative - bullish/credit spread):

BUY  PUT  DEC-50  FPL-XJ  OI=10229  A=$0.50
SELL PUT  DEC-55  FPL-XK  OI=882    B=$1.00
INITIAL NET-CREDIT TARGET=$0.55-$0.60
POTENTIAL PROFIT(max)=12% B/E=$54.45
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=80%


*****
UOPX - University of Phoenix Online  $36.65  *** Rally Mode! ***

University of Phoenix Online (NASDAQ:UOPX) is a provider of unique,
accessible, and accredited educational programs for working adults.
The firm began operations in 1989 by modifying courses developed by
University of Phoenix's physical campuses for delivery via modem to
students worldwide.  University of Phoenix Online now offers 11
accredited degree programs in business, education, information
technology and nursing.  Students can participate in their online
classes anytime via the Internet by using basic technology such as
a Pentium-class personal computer, a 28.8K modem and an Internet
service provider, thereby enhancing the accessibility of and the
potential market for its programs.  

PLAY (more aggressive - bullish/credit spread):

BUY  PUT  DEC-30.00  JSX-XF  OI=141  A=$0.35
SELL PUT  DEC-33.75  JSX-XZ  OI=31   B=$0.80
INITIAL NET-CREDIT TARGET=$0.45-$0.50
POTENTIAL PROFIT(max)=15% B/E=$33.30
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=72%


*****
IDPH - IDEC Pharmaceuticals  $39.27  *** Trading Range? ***

IDEC Pharmaceuticals (NASDAQ:IDPH) is a biopharmaceutical company
engaged primarily in the research, development, manufacture and
commercialization of targeted therapies for the treatment of many
cancer and autoimmune and inflammatory diseases.  The company's
two primary commercial products, Rituxan and Zevalin (ibritumomab
tiuxetan), are for use in the treatment of B-cell non-Hodgkin's
lymphomas.  The company is also developing new products for the
treatment of cancer and various other autoimmune diseases such
as rheumatoid arthritis, psoriasis, allergic asthma and allergic
rhinitis.  Rituxan, the company's first product, and Zevalin, its
second product approved for marketing in the United States, as
well as its other primary products under development, address
immune system disorders such as lymphomas, autoimmune and many
inflammatory diseases.  In addition, the company has discovered
other product candidates through the application of its unique
technology platform.

PLAY (conservative - bearish/credit spread):

BUY  CALL  DEC-50  IDK-LJ  OI=2202   A=$0.25
SELL CALL  DEC-45  IDK-LI  OI=16657  B=$0.80
INITIAL NET CREDIT TARGET=$0.60-$0.65
POTENTIAL PROFIT(max)=14% B/E=$45.60
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=80%


*****
UHS - Universal Health Services  $44.85  *** Sector Slump! ***

Universal Health Services (NYSE:UHS) owns and operates acute care
hospitals, behavioral health centers, ambulatory surgery centers,
radiation oncology centers and women's centers.  The firm currently
operates 73 hospitals, consisting of 35 acute care hospitals and 38
behavioral health centers located in Arkansas, California, Delaware,
the District of Columbia, Florida, Georgia, Illinois, Indiana, New 
Jersey, Kentucky, Louisiana, Massachusetts, Michigan, Mississippi,
Missouri, Nevada, Oklahoma, Pennsylvania, Puerto Rico, Tennessee,
South Carolina, Texas, Utah, Washington and also France.  Universal
Health, as part of its Ambulatory Treatment Centers Division, owns
outright or in partnership with physicians, and operates or manages,
23 surgery and radiation oncology centers located in 12 states.

PLAY (conservative - bearish/credit spread):

BUY  CALL  DEC-55  UHS-LK  OI=50   A=$0.30
SELL CALL  DEC-50  UHS-LJ  OI=204  B=$0.80
INITIAL NET CREDIT TARGET=$0.55-$0.65
POTENTIAL PROFIT(max)=12% B/E=$50.55
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=85%


*******************
SYNTHETIC POSITIONS
*******************

These stocks have established trends and favorable option premiums.
Traders with a directional outlook on the underlying issues may
find the risk-reward outlook in these momentum plays attractive.

*****
FLEX - Flextronics  $11.15  *** Earnings On Track! ***

Flextronics International (NASDAQ:FLEX) is a provider of advanced
electronics manufacturing services to a unique group of original
equipment manufacturers, primarily in the hand-held electronics
devices, information technologies infrastructure, communications
infrastructure, computer and office automation and consumer devices
industries.  The company provides a network of design, engineering
and manufacturing operations in 28 countries across four continents.
The company's strategy is to provide its customers with end-to-end
operational solutions where it takes responsibility for engineering,
new product introduction & implementation, supply chain management,
manufacturing and logistics management, with the goal of delivering
a complete packaged product.

PLAY (speculative - bullish/synthetic position):

BUY  CALL  JAN-12.50  QFL-AV  OI=7812  A=$0.60
SELL PUT   JAN-10.00  QFL-MB  OI=4500  B=$0.65
INITIAL NET CREDIT TARGET=$0.10-$0.15  TARGET PROFIT=$0.50-$0.75

Note:  Using options, the position is similar to being long the
stock.  The initial collateral requirement for the sold (short)
put is approximately $400 per contract.


*****
ZRAN - Zoran Corporation  $18.80  *** On The Rebound! ***

Zoran Corporation (NASDAQ:ZRAN) develops and markets integrated
circuits, integrated circuit cores and embedded software used by
original equipment manufacturers (OEMs) in digital video and audio
products for commercial and consumer markets.  The firm's unique
multimedia product line consists of four primary product families:
DVD, comprised of video and audio decompression products based on
MPEG, Dolby Digital and DTS; filmless digital cameras, comprised
of video compression and decompression products; PC Video, based
on video compression and decompression products that utilize JPEG
technology and universal serial bus multimedia controllers, and
Digital Audio, comprised of audio decompression products.

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  DEC-22.50  ZUO-LX  OI=60   A=$0.35
SELL PUT   DEC-15.00  ZUO-XC  OI=585  B=$0.35
INITIAL NET CREDIT TARGET=$0.10-$0.15  TARGET PROFIT=$0.40-$0.65

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


***********************
STRADDLES AND STRANGLES
***********************

Based on analysis of the historical option pricing and technical
background, these positions meet the fundamental criteria for
favorable volatility-based plays.

*****
SLAB - Silicon Laboratories  $25.16  *** Premium Selling! ***

Silicon Laboratories (NASDAQ:SLAB) designs, manufactures and sells
proprietary high-performance mixed-signal integrated circuits (ICs)
for the wireless, wireline and optical communications industries.
Mixed-signal ICs are electronic components that convert real-world
analog signals, such as sound and radio waves, into digital signals
that electronic products can process.  The company's mixed-signal
engineers use standard complementary metal oxide semiconductor
(CMOS) technology to create ICs that can reduce the cost, size and
system power requirements of devices that the company's customers
sell to their end user customers.  The firm's expertise in analog
CMOS and mixed-signal IC design allows the company to develop new
products rapidly, which enables their customers to improve their
time-to-market with end products that respond to consumer demand in
the communications industry.

PLAY (aggressive - neutral/credit strangle):

SELL CALL  DEC-30.00  QFJ-LF  OI=333  B=$0.55
SELL PUT   DEC-20.00  QFJ-XD  OI=324  B=$0.40
INITIAL NET-CREDIT TARGET=$1.00-1.10 PROFIT(max)=16%
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=70%
UPSIDE B/E=$31.00 DOWNSIDE B/E=$19.00


*****


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************
MARKET WATCH
************

Ready for the Next Leg Up


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/wl_112202.asp


**************
MARKET POSTURE
**************

Leaning Bullish


To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/MP_112402.asp


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