Option Investor

Daily Newsletter, Sunday, 12/01/2002

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The Option Investor Newsletter                   Sunday 12-01-2002
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: Eight Weeks and Counting
Futures Market: A Little Indigestion
Index Trader Wrap: Down in flames!
Editor’s Plays: Stand Aside
Market Sentiment: Knocking on the Door
Ask the Analyst: Leftovers
Coming Events: Earnings, Splits, Economic Events

Updated on the site tonight:
Swing Trade Game Plan: Digestion Pause

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
       WE 11-29        WE 11-22        WE 11-15        WE 11-08
DOW     8896.09 + 91.25 8804.84 +226.75 8579.09 + 41.96 + 19.49
Nasdaq  1478.74 + 10.05 1468.74 + 57.60 1411.14 + 51.86 -  1.41
S&P-100  478.85 +  3.82  475.03 + 11.31  463.72 +  6.33 -  0.77
S&P-500  936.31 +  5.76  930.55 + 20.72  909.83 + 15.09 -  6.22
W5000   8846.68 + 63.55 8783.13 +199.08 8584.05 +145.25 - 63.40
RUT      406.36 +  6.36  400.00 + 14.08  385.92 +  6.93 -  4.46
TRAN    2360.62 + 46.64 2313.98 - 19.12 2333.20 - 13.68 + 31.20
VIX       31.08 +  4.35   26.73 -  4.10   30.83 -  2.73 -  0.42
VXN       49.48 +  2.00   46.49 -  3.19   49.68 -  2.33 +  2.15
TRIN       1.04            1.05            0.67            1.80
Put/Call   0.62            0.70            0.57            1.05

Eight Weeks and Counting
by Jim Brown

For the first time since March 1998 the Dow has stretched it's
winning streak to eight weeks. It did so with a +91 point gain
for the week which was 1/3 of the Wednesday total. That gain
was the largest Thanksgiving Wednesday gain ever. The challenge
we will continue to face now is the nearly +1600 point Dow rise
since the October lows that culminated on last Wednesday.

Dow Chart – Daily

Nasdaq Chart – Daily

The markets tried to rally on Friday after the Semiconductor
Industry Association said chip sales rose in October by +1.8%.
Flash memory was up +6.9%, PC chips +6.5% and DSP chips +4.4%.
This unexpected growth is pointing to a better than expected
2003 and some stealth growth possibilities for December. The
Nasdaq Compx ran up to within three points of 1500 on the news
but sold off to 1479 on profit taking in the shortened session.

There were no economic reports on Friday and the negative sentiment
came from UAL. Talks with labor unions regarding required cuts
in labor costs had failed and it now appears more likely UAL
will have to file bankruptcy because it cannot get a government
guaranteed loan. The impact of a UAL bankruptcy would be the
bankruptcy of several other airlines to avoid giving UAL an
unfair advantage of a reduced cost structure. A bankruptcy would
give an airline the opportunity to drop unprofitable routes,
cancel rental contracts on unused gates, restructure debt and
break unfavorable union contracts. Other airlines cannot afford
to allow a major carrier like UAL to gain these advantages. This
sets up a series of domino events if UAL files.

After the bell Massachusetts announced it was going to appeal
the federal judge's decision to accept the MSFT settlement. They
were one of several states that had until Monday to file an appeal.
Iowa issued a statement late Friday saying it had declined to
appeal and West Virginia was the only state left which had not
made an announcement. That announcement would be made on Monday.
MSFT has traded flat for the last three weeks as the clock
wound down on the appeal process. If Massachusetts is the only
state to decline the settlement then MSFT should rally as fighting
one state would have far less impact than a consortium of nine.

In addition to the weight of an eight week winning streak the
markets will have to fight a solid economic calendar and the
beginning of earnings warning season next week. Economically
the week begins with the ISM Index and Construction Spending
on Monday, Productivity, Factory Orders and ISM Non-manufacturing
on Wednesday. The big report comes on Friday with Non-farm
payrolls. The triple threat of two ISM reports and the Non-farm
payrolls could keep a lid on future gains.

The trading on Friday was lackluster at best with the NYSE
posting the lowest volume day for the year at 638 million shares.
Nasdaq volume was less than 850 million shares. Ironically the
VIX gained +4.35 for the week and closed well over the 26.73
level from the prior Friday. With the market up for the week
and pressing upper resistance it is very clear that investors
are scared this rally is about to fail. It is very rare that
the VIX moves up this strongly on positive market gains. This
increase in bearishness is actually good for the markets despite
the possibility of profit taking next week. It simply means that
the current irrational bullishness may have run its course and
we are moving back into a more fundamental basis.

The Nasdaq NDX fell back below its 200 DMA at 1121 despite the
positive semiconductor news. This could be a clear indication
that the tech stocks are running out of steam at this level and
the +40% gains from the October low are about to shrink. Warnings
from tech companies next week could accelerate this demise. The
Compx has the same 200 DMA resistance at 1495. The Dow has plenty
of room before hitting it's 200 DMA at 9183 but has plenty of
resistance in the 9000-9050 range to keep it busy.

Trading will be complicated by several high profile analysts
meetings. Cisco will host a meeting on Tue/Wed to update
analysts. HPQ will do the same thing on Tue/Wed with AOL also
presenting on Tuesday and INTC on Thursday. Any of these meetings
can cause serious market volatility with any unexpected positive
or negative guidance.

The outlook for next week is bullish on a sentiment basis and
bearish on a technical basis. Without additional positive news
from the economic reports or positive guidance from stocks, any
attempt to move higher through current resistance will be difficult.
Sentiment can only provide so much lift without some confirming
fundamentals. With warnings likely to start next week this sets
up some rocky days ahead. I fully believe there will be some
dips but I also believe those dips will be bought by bargain
hunters looking to stuff their mattress for the years ahead
as well as stockings for the holiday season.

Enter Very Passively, Exit Very Aggressively!

Jim Brown

"There is only one side to the market and it is not the bull
side or the bear side, but the right side".  - Jesse livermore


A Little Indigestion
By John Seckinger

The major markets seemed to have a little indigestion after the
impressive gains seen on Wednesday.  Following Friday's shortened
session, has anything changed?  You might be surprised.

Friday, November 29th at 1:15 p.m.

Contract          Net Change     High        Low        Volume

ES02Z     933.50     -4.50      942.50      931.00      151,426
YM02Z    8870.00    -57.00     8960.00     8850.00        4,813
NQ02Z    1117.00     -8.00     1136.00     1084.00      177,026

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:  There were no economic reports released during
Friday's shortened session, and a lot of attention during Black
Friday was towards the retail sector.  A few companies making
headlines was UAL and Sealed Air (SEE).  UAL mechanics voted to
reject pay cuts that was critical for the airline ability to
receive financial aid, sending shares of UAL 23% lower to 2.79.
The intra-day low was 1.72.  Shares of Sealed Air (SEE) rose
13.33 points, or 54.45%, after reports on settling its W.R. Grace
asbestos litigation.

Technical News:  The Dow posted its eight consecutive weekly
gain, a streak not achieved since 1998.  For the Nasdaq, seven
out of the last eight weeks have resulted in gains.  On Friday,
there was solid buying in shorter-term maturities and is viewed
as slightly bearish for equities.  The dollar (DX00Y) did come
under slight pressure, and solid resistance at 106.75-106.90
level proved to be too much for longs.  A close above 106.90
would be viewed as bullish for stocks, while a move back under
106 could pressure stocks going forward.  Another index to watch
the next few weeks will be the Retail Sector ($RLX), lower on
Friday but solidly higher for the week.  Currently at 291.87,
price compression seen from mid-September indicates an increase
in volatility is likely.  A move either above 300 or below 275
should be the catalyst for an extended move towards either 325 or
260, respectively.


The slight weakness in the YM, NQ, and ES contract didn't
threaten to erase this week's gains; however, it would have been
nice for bulls if prices stayed above the resistance cleared just
a few days earlier.  With the ISM report due out on Monday at
10:00 a.m. (estimates for 49.5 versus 48.5, month prior),
sentiment should be clearly defined and either the 9077 or 8650
level will come into play.  Note:  Because of the significant
increase in the Chicago PMI report, I would not be surprised to
see a 51 ISM number.  Currently, least resistance is still
higher; however, for the first time, we are starting to see
PRICE confirmation within short-term charts on the possible
bearish divergence profiled last week.  Disclaimer:  The only
time I would recommend trading a bearish divergence BEFORE price
confirmation is on a weekly chart.  Currently, we do NOT have a
bearish confirmation on a weekly basis.  Moreover, if the Dow
closes above 9077, there is a good chance the market(s) will
begin a new wave higher and squeeze traders selling based off
unconfirmed longer-term bearish divergence readings.

The December Mini-sized Dow Contract (YM02Z)

With the Dow unable to test the 50% retracement at 8935 and 200
DMA (exp) at 8946 (most likely triggering a move to 9077), it is
once again time to see if the slight weakness could amount to
something.  It is interesting that trading volume has been weak
while prices have been rising, a weak sign.  Of course, we could
get a spike in volume and technicians could call it a top.  Since
On Balance Volume is not making a lower high and still showing
signs of demand, we will keep this weak volume on the back
burner, for now.

Chart of Dow Jones, Weekly

Looking at a chart of the YM contract, prices falling under 8785
does give an indication of technical weakness (confirming bearish
divergence); however, light volume on Friday does become a
factor.  Fortunately, there was not any more technical damage,
and going forward bulls will have to make sure the 8650 area
holds.  There should be support at 8750 along the way.  If taking
things on a short-term basis, traders can look for a bounce at
both 8825 and 8800.  In order to keep the bullish sentiment
intact, prices will need to rise above 9000 and turn the
resistance (diagonal blue line) sloping upward into support.

Chart of YM02Z, 60-minute


Support               Resistance                Pivot

8850				8915				9077
8825				9000				9000
8800				9077				8750
8750				9102				8650

Bold signifies levels within the Dow Jones.

The December E-mini Nasdaq 100 Contract (NQ02Z

The Nasdaq 100 closed above the 1000 level once again, but unable
to test solid resistance from 1138 to 1142.  A close back
underneath 1000 should have the index falling to the 1070-80
area.  Sentiment would turn neutral near 1080, but a close under
1070 would certainly have bearish implications.  As always, a
close above serious resistance (1142) should keep the market
above 1142 until a test near 1175 is attained.

Chart of NDX, Daily

A chart of the mini-Nasdaq contract (NQ02Z) shows prices selling
off shortly after 1 p.m. on Friday (1114 to 1084 on basically no
volume) and almost setting a new relative low.  With the On
Balance Volume (OBV) indicator compressing, look for a decrease
in OBV on a pullback for confirmation if short.  A rise in OBV
will be expected if the ND02Z index finds a bid.  Since the
contract is within a range of 1145 to near 1080, aggressive
traders can use 1000 as a pivot and play for a move either to
1030 or 1090 once above or below 1000.

Chart of NQ02Z, 60-minute


Support              Resistance                 Pivot

1100				1130				1142
1079				1138				1085
1072				1142				
1065				1172
1058				1200

Bold signifies levels within the NDX.

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

The positives within the ES contract include prices staying above
the bearish trend line that began in March, as well as a weekly
close above 936.  Moreover, there was a higher high and low for
the week.  If prices continue to bid, look for resistance at
944.75 and then, more importantly, near the 50% retracement level
of 971.  The negatives regarding the ES contract include
declining volume and lack of strength in the on balance volume
indicator (note: there is not a bearish divergence).  Weakness
should be accompanied by support at 927 and 912 (weekly low).

Chart of S&P 500 Index, Weekly

A chart of the ES02Z contract shows prices setting a new high at
942.50; however, late day weakness did manage to take the index
back below 941 (previous high) and even the 931.50 slightly after
the 1 p.m. close.  Nevertheless, this could be viewed as a
"bearish hook reversal" and might signal some longs are trapped.
Bulls will now most likely need a move back above 942, or be
forced to liquidate.  If the ES contract stayed above the 937.50
to 941 area, we would now be talking about a quick move to 950.
Going forward, the 927 area can only be tested so many times
before failing to hold.  If prices do fall underneath, a move to
918.75 will most likely materialize.  Key support under 918.75 is
seen at 908.50.

Chart of ES02Z, 60-minute


Support              Resistance                 Pivot

927				941-942			918.75
923				944.75			944.75
918.75			965				
908-910			971

Bold signifies levels within the S&P 500.  Good Luck.

Questions are welcomed,

John Seckinger


Down in flames!
By Leigh Stevens

Not the market, but it looks like this will be the fate of UAL
after the UAL Machinists Union requested pay cuts vital to the
airlines survival or at least to keep it out of bankruptcy. This
news helped put a lid on further upside in the Indices, which was
in light post-holiday trade anyway.  If I was a different person
I might get on a RANT about how short-sighted unions and their
members can be! – they would seemingly rather go down in flames
also rather than think of the larger good of the company that
makes the money that pays their wages. Not too many far-sighted
workers these days, especially when they see senior managers
making off with millions from the company coffers and they are
looking at hourly earnings as their sole way to get a piece of
the pie.

Shares of UAL plunged $1.18 (33%), to $2.45 in heavy trading in
Friday's shortened session. The stock had already fallen to 40-
year lows this fall. UAL is in the Dow Transportation average.

The labor savings are the backbone of the airline's request for a
$1.8 billion federal loan guarantee, and UAL has warned of a
likely Chapter 11 bankruptcy filing soon if the government
rejects its request. The Air Transportation Stabilization Board
is expected to announce its decision at any time now.

United's pilots and other employee groups have accepted proposed
wage cuts, but their agreements expire Dec. 31 unless all the
airline's workers agree to concessions. United faces a $375
million debt payment Monday and says it is in urgent need of a $2
billion loan to shore up dwindling cash reserves, believed to
have fallen to less than $1 billion. It says lenders are
unwilling to grant such a loan without the government
guaranteeing 90% of it.  Stay tuned on Monday – a missed loan
payment may roil the market and it (the market) looks due for a
correction technically as I will get into shortly.

The Dow lost 36.68 to end at 8895 in very light trading, while
the Nasdaq Composite Index gave back about 9 points to end at
1478.77. The bond market also had an shortened trading days,
ending at 2 p.m.

While stocks slipped a bit on Friday, they still managed to end
in the black for the week, marking the 8th straight week of
advances. The Dow industrials rose 1% for the week, while the
Nasdaq Composite (COMPX) climbed 0.7% and the S&P 500 index (SPX)
was up 0.6%. It was the longest winning streak for the Dow since
early-98, when the Industrials moved higher every week for some
11 weeks.

Investors and traders focused on consumer spending for the
shopping season ahead. The look is for evidence that the
consumer, THE key pillar for the economy this year, is still
shelling out big bucks for goods and services. Friday market the
optning of the holiday-shopping season, and retailers
are offering shoppers a promotional frenzy aimed at generating
spending. A lack of must-haves, combined with a season 6 days
shorter than a year earlier, exacerbates what is already expected
to be a difficult holiday given the sluggish economy. Moreover,
there are expectations of fewer goods on the shelves as the 10-
day West Coast dock strike slowed down crucial merchandise

Renewed violence overseas also kept a lid on bullish sentiment.
Terrorism is a restraining factor whenever we have seen these big
“events” – we got this in the coordinated assault on Israelis in
Kenya involving a car bombing and an attempted missile attack on
a chartered Israeli passenger jet – the reports were that two
shoulder fired missiles were used but they fortunately missed
their intended target. I can certainly imagine a bigger market
reaction if this jetliner had been brought down.  This is a new
threatening element if these guys have Stinger missiles in their
arsenal of evil.


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

We still cannot say from a technical perspective that the trend
is UP in the S&P indices.  The S&P 100 or OEX would have to climb
above it August high in the 486 area to “confirm” a reversal of
its trend from down to up.  The equivalent figure in the S&P 500
(SPX) is 960 – the 100 index has come close to its prior high, as
can be seen on the chart below.  (SPX has been shy of its prior
high by 20 points so far.)

My commentary is unchanged from last week in one respect –
“pivotal” near support is seen at 470, at the prior
recent highs that were exceeded the week before last.

While OEX could still get above 486 in the coming week, I think
there is more likely to be a corrective pullback or correction
than there is a move to a new high.  This based on the approach
of prices last week to the major weekly down trendline and the
overbought condition registering on the 14-day stochastic model
and, which is being approached by the 8-week RSI – see these
oscillator type indicators on the charts below:

I am still of the view that recent highs or the 486 prior price
peak will cap the present rally for the near-term and a
correction follows.  My suggestions are to take trading profits
on OEX long calls held from lower levels and purchase OEX puts as
a play on the downside. Risk to a new high close above 486 –
although one day above 486 would not be enough to make a
convincing case for a new up “leg” – better that we see two
consecutive closes above the prior (August) 486 high.

On the downside, the suggested “layers” of support in OEX are 470
– if penetrated, then next support is pegged at 455.  A 30 point
correction off the recent high is about what I would expect, with
a possible drop to 445 in a retest of technical support in this
area. A close under 445 for 1-2 days would suggest that OEX is
still in a bear trend and the recent rally has been a bear market
rally only – which, of course, is the view of our fuzzy furry
bear friends.  My view is that the market may be turning or
emerging into a moderate bull market.  However, the case must
still be made (or “proven”) in terms of the S&P and the Dow.

DJ Industrial Index (INDU) Daily:

In terms of the Dow, 9000 is pivotal resistance – 9077 is the
prior (up) swing high from August.  A “minimum” upside objective
based on the bullish flag consolidation has been met already.
I think its tougher sledding from here and suggest selling
rallies for a next trade for the Dow 30 Index, if not already
long DJX puts.

Risk to reward of a bearish play here looks favorable - I
estimate downside potential to at least near trendline support in
the 8600 area – versus “risk” to a close over 9000, which would
be my exit point in a bearish put play.

I said last week that the most bullish outlook was suggested by a
“bull flag” pattern on the daily Dow chart, suggesting  a
“minimum” upside objective to the 8900 area without much pause or
only minor corrections.  Flag patterns imply typically that after
the brief consolidation (e.g., a few days) that forms the flag
formation, this will be followed by another rapid and strong move
in the same direction as the prior initial thrust.

Sometimes flag patterns work out the way described on the
indices, sometimes not – the pattern is more reliable on stocks
in terms of “fulfilling” the minimum objective implied by the
pattern and for the tendency to have a rapid further move in the
same direction.  For more on flags, you can go to my Trader’s
Corner article on the subject at –


As suggested previously, COMPX achieved the predicted move to
1500, which I thought would be significant technical and
psychological resistance.  Since 1500 appears to be the key
resistance it was also an area to at least take all or partial
profits on Nasdaq index calls and then to possibly also go the
other way - into puts.

Also, the risk-to-reward looks favorable here for puts in that
the index is both “overbought” (from having had a prolonged move
already) and is up against significant technical resistance (in
this case implied by its 200-day moving average) at 1500. By
“risk” being favorable relative to reward or downside potential,
what is meant is that the index hit a significant target (1500)
and an “exit” point on puts makes sense at just above 1500; i.e.,
not far from the entry point which also makes sense from the
chart perspective.

Risking a small amount doesn’t always make sense if only a minor
fluctuation will cause a “stop” point to be triggered.  However,
when at a significant support/resistance point, achieving a
breakout above/below this point is tough.  Its like when the home
team is 5 yards from an opposing team touchdown – they dig in and
its tough going to get that last little bit of ground.  Yes
Virginia, the market is like a football game.

Relative to an amount “risked” in this kind of situation where an
index is hitting resistance - downside potential can be 2-3 times
greater (than the risk/stop point) as the odds build that there
will be a reaction or pullback from that resistance. In this case
exit on a close over 1500 or an intraday move to above 1510.

Near support is 1400-1425, with a close below 1400 suggesting
further downside potential to the next estimated support at 1375;
next lower technical support then looks to be around 1320.

QQQ Daily/Hourly charts:

The resistance area I’ve been suggested around 28 has been
capping QQQ rallies so far.  The odds of further upside, say to
the 29-30 zone looks to be less after viewing the past week’s
action and considering the odds for some profit taking selling in
the Nasdaq 100 stocks considering the run up they’ve had.

A close above 30 is my exit point for QQQ shorts and QQQ put
positions.  What is suggesting to me that the Q’s are due for a
correction is the slowing volume trend – volume is no longer
expanding – and the bearish price/RSI divergence as QQQ has gone
to a new high on less “relative” strength.  Moreover, the
tracking stock has gotten up to resistance implied by the top end
of its uptrend channel on the daily chart and to its upper
trendline on the hourly chart – see the side by side charts

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Editor's Plays

Stand Aside

This was one of those frustrating weekends where I simply found
nothing that I was willing to bet on. With bullish sentiment
running rampant and about to hit a resistance wall do you buy
the leaders and hope for a break through or do you sell the
weak stocks and hope for a break down? Either way you are
betting on hope and nothing stronger than a directional chart.

If you buy strong charts like RMFD or ORCL they could end up
looking like TLAB today.

RFMD Chart

TLAB Chart

The coming week is going to be pivotal. I expect some volatility
to come back into the markets and with CSCO, HPQ, AOL and INTC
all providing updates on Tue/Wed/Thr there will be no shortage
of news. Hopefully good news but that is just hope at this point.

I can't see playing calls on Monday and buying puts could be
stepping in front of the train. I know this is heresy to some
but I would favor staying flat unless the Nasdaq broke above
1500 or bounced off 1425. Anything in the middle is dangerous.

For those of you that must buy something on Monday I think
RFMD is looking strong. Very extended but over the 200 DMA and
strong. Very risky!

If you want to play the mid-quarter analysts meetings then
the Dec-$15 straddle on CSCO is only $1.60 and the odds are
very good it will move more than $1.60 in either direction.

The INTC $20.00 put/$22.50 call strangle is $1.30 with INTC
at $20.87. It could easily hit $15 or $25 depending on the
news on Thursday.

There is just nothing that just jumps out at me. I think there
is a good chance the QQQ could hit support at $25.50 again but
with four large tech companies having analyst meetings it
could explode just as easily. I would much rather buy the
straddle on CSCO for $1.60 than bet $1.00 naked on the QQQ.
If you do not want to remain flat then that would be my
suggested play.

Play Recap:

Rational Software call

RATL never penetrated to the 10.60 resistance level with 10.20
being the high for the week on Monday. It pulled back to
consolidate at the 9.00-9.25 level. We are patiently waiting
for the eventual breakout.


TLAB Breakout call

Tellabs did not break the $10 entry level with a $9.57 high
for the week. We are still waiting for an entry above $10.00
but it appears the trend might have changed.


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

Good Luck

Jim Brown


Knocking on the Door
By Steven Price

Not much to report on a day when most traders stayed home and
most investors either went shopping or found themselves in a food
coma following Thanksgiving.  We are approaching some significant
resistance levels in the broader indices and even in today’s
abbreviated session, we got some tests to decipher.

After seeing gains of over 1700 points in the Dow, 370 points in
the Nasdaq Composite and 300 points in the NDX, over the last six
weeks, we are staring right at the 200-dmas in all three
averages.  It will take a renewed round of buying to blast
through those averages, and today simply did not attract enough
activity to get over the hump.  That doesn’t mean we should be
taking a bearish market view.  In fact, we have tested these
averages for the last few days in the tech indices and the
pullbacks have fallen to successively higher levels.  It
certainly looks like the formation of another bullish triangle
formation in the COMP and NDX, with a rising bottom and a flat
top.  The last time we saw this formation, we broke out in a
powerful up move just a week ago.  The August highs had formed
the ceiling on the COMP, with the NDX finding a ceiling just
above that level.  The NDX was the first to break the August
high, but it took a breakout in the COMP to confirm and get them
both moving; the Dow and SPX followed. With the 200-dma now
forming resistance in both of the techs, we have a pretty good
idea what the breakout point will be.  Both indices actually
spent some time above the 200-dmas today, but were turned back by
an end of day sell-off.  The COMP made it over for the first time
since March, while the NDX has closed above that level on 2 of
the last 4 trading sessions.   The NDX has been the first average
to give us a directional signal recently and the fact that it
seems to be building strength at this level looks good for the

A close of both averages above the 200-dma could be the catalyst
for the next wave of buying.  That breakout would coincide with a
similar breakout in the COMP bullish percent.  Right now the COMP
is directly on top of the bearish resistance line that has
contained the last few rallies.  The current rally has already
led to a higher high in the current column of “X,” following
lower highs on the last two rebound attempts. A breakthrough of
bearish resistance, when combined with a 200-dma breakout, will
look very bullish, especially considering the signs of a
turnaround we are starting to see in recent economic reports.

The durable goods report that was released earlier this week
showed a 65% increase in demand for communications equipment.
Taiwan Semiconductor, the world’s largest chip foundry, recently
said it saw an increase in PC demand for the fourth quarter.
Today, the Semiconductor Industry Association reported that
worldwide chip sales rose 1.8% sequentially in October,
indicating demand is recovering.  The economy is not going to
turn around 180 degrees in a few days.  We will most likely begin
to see positive reports mixed in with the negative during the
turnaround period. That seems to be what we are now seeing.

If the techs get rolling, the broader indices should follow, if
history is any indication.  The Dow also has the 200-dma sitting
just above it at 9183 and its August high at 9077.  We may
continue to see a struggle with these averages so close to the
200-dmas.  This level no doubt brings in some shorts looking to
pick a top. However, we continue to test the top of the range and
each attempt is bringing us a little higher.  The Dow, COMP and
NDX all set new relative intraday highs again today and the sell-
off at the end of the day looks like end of the month profit
taking.  While I have been bearish about the spending environment
during much of the recent rally, I am starting to see signs of
life.  While the rally seems overdone, the previous sell-off
during the fall seemed overdone, as well. Right now we are seeing
most dips bring in more buyers, and this is a healthy sign for a
continuing rally.

As I write from a window that looks out on Chicago’s Michigan
Avenue, I must admit that there is one seed of doubt that
continues to cloud my vision of a rally.  We are heading into the
busiest shopping season of the year.  While we are seeing some
signs of an economic turnaround, we are certainly not there yet.
There will be fewer Christmas bonuses this year and this week’s
jobs report showed an increase in continuing claims, indicating
it is taking longer for people to find jobs once they are
unemployed.  If retail numbers come in below already lowered
expectations, we could see a more pronounced market pullback.
After years of fighting crowds immediately after Thanksgiving, I
didn’t have much trouble negotiating the walk from my hotel, down
Michigan Avenue.  This is the street that contains the majority
of the high-end shops and malls in the downtown area.  While
there is certainly an increase from a normal shopping day, it is
certainly not what I had grown accustomed to.   Bebe warned today
that same store sales were below expectations this month,
following similar warnings from Wal-Mart and Federated. A poor
shopping season could certainly slow down the rally, but still
the tide seems to be turning in the right direction.

We may not be beyond the possibility of another pullback, but I
expect the pullbacks to continue to find higher levels of
support. Look for a breakout above the 200-dmas in the tech
indices as another long signal.  The Dow is also finding
resistance at the 38.2% retracement level from The January 2000
high, to last month’s low. That level lies at 8936 and not only
adds to the current resistance, but also the significance of a
breakout. While there will be short opportunities, I expect most
dips to find buyers, so be quick to take profits on the downside,
at least until the tide changes direction.


Market Averages


52-week High: 10673
52-week Low :  7197
Current     :  8896

Moving Averages:

 10-dma: 8716
 50-dma: 8245
200-dma: 9183

S&P 500 ($SPX)

52-week High: 1176
52-week Low :  768
Current     :  936

Moving Averages:

 10-dma:  920
 50-dma:  873
200-dma:  983

Nasdaq-100 ($NDX)

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

Moving Averages:

 10-dma: 1089
 50-dma:  963
200-dma: 1121

The Semiconductor Index (SOX.X): The SOX pulled back 2% today,
but after a gain of almost 80% since the middle of October, this
does not seem like more than a slight correction.  The last four
pullbacks have come at successively higher levels and continue to
look bullish.  Traders should not expect the torrid pace of the
recent rally to continue, but that doesn’t mean we aren’t headed
higher.  Remember, however, that the more furious the rally, the
bigger a pullback can be without changing the trend.  If we
continue to see buyers each time we get a dip, then there is no
reason to close long positions until we test 400.  If, however,
we get even a single lower low, traders may want to take profits
and sit on the sidelines until the consolidation ends.

52-week High: 657
52-week Low : 214
Current : 373

Moving Averages:

10-dma: 350
50-dma: 285
200-dma: 408


The VIX held up over 30, as the Dow pulled back under 8900 and
the Nasdaq and NDX failed their 200-dmas.  After the big run of
the last few weeks, traders were reminded that there is still a
downside, and kept the puts pumped up.  Readers should note the
VIX increase the last couple of days, and be cautious with long
plays. Someone is buying puts, indicating some downside fear
still exists. While a market pullback may not be as severe as
those in the past, the possibility still exists and is being
reflected in the volatility measurement.

CBOE Market Volatility Index (VIX) = 31.08 +0.24
Nasdaq-100 Volatility Index  (VXN) = 49.48 +2.06


          Put/Call Ratio  Call Volume   Put Volume

Total          0.62        249,801       154,025
Equity Only    0.47        195,139        92,248
OEX            1.01          7,618         7,747
QQQ            1.04         15,367        16,074


Bullish Percent Data

           Current   Change   Status
NYSE          49      + 2     Bull Confirmed
NASDAQ-100    81      + 3     Bull Confirmed
Dow Indust.   73      + 3     Bull Confirmed
S&P 500       67      + 2     Bull Confirmed
S&P 100       73      + 2     Bull Confirmed

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

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


5-Day Arms Index   1.17
10-Day Arms Index  1.00
21-Day Arms Index  1.13
55-Day Arms Index  1.18

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


Market Internals

        Advancers     Decliners
NYSE       1238          1499
NASDAQ     1982          1529

        New Highs      New Lows
NYSE         42              26
NASDAQ       96              28

        Volume (in millions)
NYSE       827
NASDAQ     821


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
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
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


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
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
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


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
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
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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Jeff:  If by any chance as the majority people pick, would like

This is my last "Thanksgiving themed" article.  You can probably
tell that the Thanksgiving holiday is one of my favorite times of
year and perhaps in an earlier life I lived during that time.

As it relates to "leftovers," we could discuss the coming week's
lunch and dinner menu, but last week's "Ask the Analyst" poll had
quite a few respondents asking me for come comments on how to
trade stocks, or get in the mindset, of how a market maker will
trade.  I'll call those questions, which by count came in second
to "Plan the trade and trade the plan" as "leftover questions."

Then, as if that's not enough "leftovers," I'd like to start out
with some technicals that a trader may look for as the bullish %
charts get back into the upper ends of their more "overbought"

Trading like a market maker has nothing to do with some type of
forecast toward the fundamentals of a stock.  At least not from
the market maker's perspective.

In its purest form, trading like a market maker has only to do
with order flow (supply/demand), which you and I can't accurately
measure, and matching that order flow between supply (sellers)
and demand (buyers) as it relates to inventory held (long or
short) and directional price movement of the stock, that latter
of which you and I can easily ascertain.

For a market maker, he/she is responsible for providing liquidity
to market participants under ANY market condition.  This is a
rule that is enforceable by the NASDAQ on any market maker that
has registered to take on market making activities in NASDAQ
listed stocks.  For an NYSE listed stock, orders are either
matched between ECNs or the specialist where buyer and seller
come in direct contact.

In essence, when trading NASDAQ stocks, unless the order is
matched directly through an ECN, then more times than not, a
larger amount of stock is traded at the market maker level than
any other means.

With the premise of providing liquidity to market participants
under ANY market CONDITION it is then understood how important it
becomes to understand and monitor inventory RISK.  With emphasis
on RISK.

Now... before you the trader thinks that this article has no
impact on you as a trader, then I encourage you to read further.

If you're short or long Intel (NASDAQ:INTC), Cisco Systems
(NASDAQ:CSCO), Microsoft (NASDAQ:MSFT) or any other NASDAQ stock,
the bearish position you hold is INVENTORY or the bullish
position you hold long is INVENTORY.  As an options trader, if
you're long calls, think of yourself as being long INVENTORY of
the underlying stock at strike + premium paid.  If you're long
puts, think of yourself as being short INVENTORY as strike +
premium paid.  Then think of yourself as a MARKET MAKER and at
any time, must be willing and able to provide liquidity to the
markets.  Don't "brush off" the simplicity of an option trader
thinking strike + premium paid as this can come into play when
looking at establishing a call/put position.  If a stock is
trading $55 and you're looking at paying $5.00 for the calls,
then the stock needs to trade $60.01 or higher on or before
expiration for the trade to be profitable.

The MAIN reason a market maker makes markets in stocks is to
generate revenue from ticket orders (buy or sell) in the form of
a fee.  This can be validated by looking at more illiquid stocks
that do not trade heavy volume on a daily basis.  When looking at
Level II, you will often times see just 10 market maker IDs for
stocks that trade low volume.  Conversely, stocks that trade
millions of shares daily tend to have hundreds of market makers
in the underlying stock as there is greater likelihood that your
institutional client will be looking to buy/sell that stock at
some point in the future and you must have the "right" inventory
balance in order to facilitate the trade.

Making markets in a stock is NOT to try and benefit financially
from inventory held long or short.  Inventory held long or short
is to be thought of as "icing on the cake."  However, it is that
INVENTORY position, and net profitability/loss over time which
can dictate to a market maker a bullish or bearish influence with
respect to their market making activity.  It is that very
"bullish" or "bearish" bias, which then creates support and
resistance LEVELS until an inventory position is brought to
"neutral" or PROFITABLE and order flow from buyers or sellers
begins to dry up.

Once you and I the trader begin thinking in terms of millions of
shares instead of hundreds or thousands can we begin thinking
like market makers as it relates to inventory risk and future
LEVELS of trading.

To drive home this point, imagine yourself being LONG 1 million
shares of stock at net $25 and the stock currently trading in the
market at $20 or $30.

In our November 17th column, we talked about how good traders and
investors have some type of business/trading plan, which serves
as a longer-term guide, or stated set of rules/discipline, that
helps keep the trader/investor focused on achieving some type of
goal.  Just as YOU now have a stated business/plan, which
outlines MAXIMUM risk allowed and GOALS to be achieved, so does
the market maker when relating to his/her inventory levels.

Since you and I are not a market maker and constantly trading at
the bid or offer during a day, then week and month, or answering
phone calls from other traders "looking for stock to buy" or
"looking to see if you're a buyer for a 3 million share block",
you and I are not able to get as accurate of a feel for order

But!  We do have the bullish % charts to give us an observation
of "market risk" and a tool called RETRACEMENT which helps us
ascertain LEVELS within a range.

For the trader that has ever "wondered" why stocks tend to
"suspiciously" trade these LEVELS of retracement, then think
about the market maker who's job it is to provide LIQUIDITY to
market participants under ANY market condition and not get
sideways in his her inventory.

If YOU are a market maker and are net short 10 million shares of
MSFT and an institutional client of yours is looking to buy 1
million shares of the stock as it's on the move higher and you're
unable to provide that liquidity as you're already sideways (at a
loss) in inventory, then you most likely have to either short
more stock to that client to keep his/her business and begin
getting more aggressive from the buy side to get inventory to
neutral, or lose the trade/business to your competition.  Anyone
that understands the business world understands that you run the
risk of losing future business when you tell a current customer
you can not facilitate their current needs and to go visit the
competition for the product and service they currently desire.

A market makers business plan is simply stated.  I'm in business
to provide liquidity (long or short) to my customers (the market)
regardless of market conditions.  At the same time, I must be
able to do so without blowing my business up and getting too
lopsided in my inventory.  For MAXIMUM business success, the keys
to my future success is to be a willing and able seller when my
clients want or need to buy, and be a willing and able buyer when
my clients want or need to sell.

As we progress through this weekend's column, we now "know" this.
The market maker has a better feel for order flow than you and I.
This gives the market maker and advantage when a stock reaches
its eventual "top" or "bottom" as the market maker begins to make
observation of order flow.  To make this point, you can I can
look at the volume bar on a chart and see a volume spike on the
chart.  However, only the market maker that is fielding phone
calls from buyers and sellers and actually seeing order fills at
his/her bid and ask can truly sense order flow and if that order
flow is buy or sell biased.

When a stock is tanking lower and there's no bottom in sight, the
MARKET MAKER that is net short 10 million shares in inventory
that is the one market participant that can step in and
facilitate the "sell order" for his/her institutional client that
needs to sell (mutual fund redemptions, news on the stock,
geopolitical worries).  Once those sellers are through selling
and the "sell phone" quits ringing and the "buy phone" begins
ringing and the market maker finds he/she is getting hit at the
offer more frequently than at the bid, does the market maker then
sense a bottom in the stock and a "bullish bias" then begin to
present itself.

Now... for the fundamentalist, the above may be absurd to think
that such thinking could actually have any type of impact on
stock price.  However, with some of the basics in place on how a
market maker must think, lets apply that thinking to the world of
a technician and a market maker.

In our weekend "Ask the Analyst" column from November 17th, we
showed a weekly interval chart of CMGI Inc. (NASDAQ:CMGI) as it
related to a business plan and account management.  In that
article, we showed a horrific looking chart in the Internet
incubator when it closed at $0.69.

So lets reach into our toolbox, pull out the retracement bracket
tool and define a range that a market maker might use in order to
make some type of buy/sell decisions or INVENTORY-related
adjustments to.  Just as we consider the bullish % charts
"playing field" or range from 0%-100% as a range of RISK, let us
make a similar tie between 0% retracement and 100% retracement.

However, let us understand that while the bullish % readings
CANNOT exceed 100% or drop below 0%, a stock CAN exceed its 100%
retracement level and fall below its 0% retracement.  Still, for
a market maker, the retracement from 0% to 100% now has YOU the
trader that thinks like a market maker beginning to make some
risk/reward adjustments (without knowledge of order flow) and
beginning to trade levels.

I use CMGI only as a stock that currently lacks any type of
"fundamentals" from an earnings standpoint.  The only reason to
be a market maker in the stock is if you thought you might find
some trade revenue from order flow, and were disciplined enough
in your trade/account management to garnish that trade revenue
without blowing yourself up in the inventory management process.

CMGI Inc. (CMGI) - Daily Chart (11/15/02 close)

As a trader, it is helpful to place a retracement bracket on a
stock that attempts to define a range that a market maker looks
to trade within and use the levels of retracement for buy/sell
decisions.  While the market maker has the benefit of order flow,
technical traders can attempt to interpret volume and price
action related with the volume to determine if it is buy or sell
influenced.  The LEVELS of retracement must have a good
correlation with past levels traded by the MARKET and market
makers otherwise these levels have no credence going forward.

Once the retracement is in place, the trader (you and I) place
TWO trading plans in place using our IF, THEN and ELSE execution
statements in place and look to plan the trade, then trade the

CMGI Inc Chart - Daily Chart (11/21/02 close)

On 11/21/02, CMGI would have traded a previously BULLISH trading
plan as the stock traded the $0.77 level.  A systematic approach
to market making would have had a market maker seeing some
increase in order flow (note the pick up in volume that day at
7.7 million shares) and perhaps not being a BIG seller at the
offer/ask and perhaps becoming a more aggressive buyer at his/her
bid.  If so, then the thinking of a trader (you and I) is stock
should firm up, if not continue higher should order flow increase
from the buy side.

But... what does a market maker do that is trading this
retracement IF the stock breaks above $0.89?  Where might he/she
look as further upside levels where he will be called upon to
provide liquidity to buyers under ANY market condition?  Let's be
very systematic and look to "roll up" our retracement to the next
relative high, but make sure we have some type of correlative
levels still being represented from a historical perspective.

CMGI Inc. Chart - Daily Interval (11/22/02)

The chart directly above now uses a "rolled up" retracement that
gives the market maker new upside levels to assess inventory
against and might systematically have the market maker bidding
stock more aggressively should order flow from the bulls build.
The market maker already defined downside levels in the previous
chart.  For you and I, we don't "know" what the true order flow
is, but price action hints that there must be some type of demand
building if price is rising at this point.  For a trader like you
and I, the first trade is the most uncertain, but now, just like
a market maker we have levels to monitor going forward.  When I
profiled the bullish trade in CMGI, target was $1.50, stop $0.50
to begin with.  Does that profile of entry, target and stop make
sense to the above retracement?  My "mindset" as it relates to
the market maker is that he/she would have a "buy side" influence
currently, but more so on a pullback to $0.52, providing support
above our stop, but the market maker's RANGE on a break much
above the August relative high would have further upside to 100%
retracement of 100%.

CMGI Inc. Chart - Daily Interval (11/29/02)

Now, a trader that may have traded CMGI bullish from $0.77 with a
$10K account most likely would have only been interested in a
rather small position (4% of capital with wider % stop loss).

It may not have mattered that the company lacks fundamentals,
that Stochastics may have been "overbought" or "oversold" or that
MACD was trending a particular direction.  Maybe it only MATTERED
that upside levels were being violated and unbeknownst to you and
I the individual trader, order flow at the market maker level was
heaviest from the "buy side" or market maker phones were ringing
as some shorts were looking to lock in gains from $100, $50 or
even $20 as the market has been in a bullish phase as depicted by
the bullish %.

Now, a trader could view the point and figure chart of CMGI and
see a "less than" bullish picture from the supply/demand chart
(traditional $0.25 box size at current levels to $5.00), but
using the retracement brackets and thinking like a market makers
helps the trader not only look back and put themselves in the
market makers shoes BEFORE a trade is run (long or short), but
then define a very systematic approach to trading LEVELS with IF,
THEN and ELSE statements.

In the November 26th market monitor, I did suggest that traders
take some profits off the table at $1.16.  I may have deviated
from plan of $1.50, but as I said before, it is OK to deviate
from plan if it means BUILDING a PROFIT in your account.  It is
also OK to not have sold original target of $1.50, as long as a
trader is comfortable with giving up potential gains from $1.50,
with a stop just under $1.30.  After all, when looking at the
trade as it relates to current retracement, a market maker just
showing up on the scene is faced with the same buy/sell decision
that was outlined in the first chart shown in tonight's "Ask the
Analyst" column.

For all you traders than only trade listed NYSE stocks, this
technique of thinking like a market maker can also be used.
Specialists are there to simply match buyers and sellers
together, but all those traders you see running around on the
floor of the NYSE serve their institutional clients and will hold
long/short inventory in their firm's accounts.  Don't think for a
second that those traders moving blocks of 100,000 shares of IBM
or HPQ run up to the post and ask the specialist if he will sell
them 100,000, many trades are crossed between the floor trader
holding inventory from his/her firms trading account to their
institutional client looking for some liquidity.  Same
disciplined approach to trading levels and managing a position
that is held in inventory.

Understand.  What we've done here is take a much "closer look" at
levels and how to use the retracement tool in the mindset of a
market maker.  But that doesn't mean the point and figure charts
which are VERY good at establishing bullish and bearish
risk/reward on both a near-term and longer-term basis aren't also
useful.  If a stock's p/f chart currently shows just $2 loner-
term bullish price vertical counts and trades in the upper end of
retracement when the bullish % charts are all "overbought," then
without order flow knowledge, put together a "buy" and "sell"
type of trading plan from a market makers perspective.  If the
plan unfolds for selling or buying, then most likely, that's what
you the trader might want to do.

The technique of "trading like a market maker" is not 100%
foolproof.  NO TRADING SYSTEM IS!!!!!  However, what it FORCES
you and I the trader to do, is LOOK BACK and try to figure out
what a market maker that has his/her inventory under control or
on the right side of things has done.  The BEST trades come when
we figure out at what POINT or LEVEL those market makers that
don't have their inventory under control or other market
participants that find their position out of control and moving
AGAINST them become AGGRESSIVE buyers or sellers of the stock we
look to trade.  Then, using a systematic approach of IF, THEN and
ELSE can we plan the trade and then trade the plan.

Jeff Bailey


Market Watch for the week of December 2nd

Major Earnings This Week

Symbol  Company               Date           Comment      EPS Est

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


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

ADCT   ADC                   Tue, Dec 3  After the Bell      -0.09
CHS    Chico's FAS           Tue, Dec 3  Before the Bell      0.18
JDEC   J.D. Edwards          Tue, Dec 3  After the Bell       0.11
NAV    Navistar Intl         Tue, Dec 3  Before the Bell     -1.07
PETM   PETsMART              Tue, Dec 3  Before the Bell      0.12

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

BTH  Blyth Inc.              Wed, Dec 4  Before the Bell      0.63
LYG  Lloyds TSB Group        Wed, Dec 4  02:00 am ET           N/A
PLL  Pall Corp.              Wed, Dec 4  After the Bell       0.17
SIGY  Signet Group           Wed, Dec 4  07:00 am ET          0.11
SNPS  Synopsys               Wed, Dec 4  After the Bell       0.93

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

CSG    Cadbury Schweppes     Thu, Dec 5  -----N/A-----         N/A
ENL    Elsevier NV ADS       Thu, Dec 5  -----N/A-----         N/A
MBG    Mandalay Resort Group Thu, Dec 5  After the Bell       0.50
RUK    Reed Elsevier NV/Plc. Thu, Dec 5  -----N/A-----         N/A
SXC    Six Conts Htl Rsrts   Thu, Dec 5  -----N/A-----         N/A
UU     United Utilities      Thu, Dec 5  -----N/A-----         N/A

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

NSM    National Semicon      Fri, Dec 6  12:15 pm ET         -0.03

Upcoming Stock Splits In The Next Two Weeks...

Symbol  Company Name              Ratio    Payable     Executable

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

Economic Reports This Week

December is traditionally a bullish time of year for equities
but Wall Street will be paying close attention to the Auto &
Truck sales out on Monday as well as the Construction spending
numbers.  Wednesday reveals the productivity report and Friday
will have several reports before the opening bell.


Monday, 12/02/02
Auto Sales (NA)         Nov  Forecast:   5.5M  Previous:     5.3M
Truck Sales (NA)        Nov  Forecast:   7.5M  Previous:     7.1M
ISM Index (DM)          Nov  Forecast:   49.5  Previous:     48.5
Construction Spnding(DM)Oct  Forecast:  -0.2%  Previous:     0.6%

Tuesday, 12/03/02

Wednesday, 12/04/02
Productivity-Rev. (BB)   Q3  Forecast:   4.5%  Previous:     4.0%
ISM Services (DM)       Nov  Forecast:   53.2  Previous:     53.1
Factory Orders (DM)     Oct  Forecast:   0.9%  Previous:    -2.3%

Thursday, 12/05/02
Initial Claims (BB)   11/30  Forecast:    N/A  Previous:     364K

Friday, 12/06/02
Nonfarm Payrolls (BB)   Nov  Forecast:    13K  Previous:      -5K
Unemployment Rate (BB)  Nov  Forecast:   5.8%  Previous:     5.7%
Average Workweek (BB)   Nov  Forecast:   34.2  Previous:     34.1
Hourly Earnings (BB)    Nov  Forecast:   0.3%  Previous:     0.2%
Consumer Credit (AB)    Oct  Forecast:  $7.3B  Previous:    $9.9B

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

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Digestion Pause

There wasn’t much follow through after Wednesday’s resistance
breakout, as the markets paused to take a breath with most
traders and investors still taking it easy the day after
Thanksgiving.  The session was abbreviated and Jim decided to
raise the stop on the LONG signal, to avoid a slow bleed down on
a pullback.  We certainly think Wednesday’s breakout is a bullish
signal for the near term, but without any follow through Friday,
we could be settling in for some more consolidation.  In any
case, we did not want to see another three days of premium decay
over the weekend, so when the OEX dropped under 479, we closed
the play.

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The Option Investor Newsletter                   Sunday 12-01-2002
Sunday                                                      2 of 5

In Section Two:

Stock Pick: Long stock with put insurance
Daily Results
Call Play of the Day: NVDA
Put Play of the Day: SLM
Dropped Calls: ADBE, IMCL
Dropped Puts: JBLU

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Stock Pick

TYC - $17.75
Strategy: Long stock with put insurance

In the last ten months Tyco has been the headline story more
times than most of us would care to remember.  It was just over
ten months ago that a negative article in Barron’s hit the
newsstands addressing accounting concerns within the
conglomerate.  Then came the disclosure from the TYC that the
company had made a $20 mln. payment to a director and his
charity to broker a deal.  Our intent is not to dwell on the
Kozlowski mess, the company’s acquisitions or accounting
problems, although the turmoil surrounding the company pushed
the price of TYC from near $60 to a low this past summer at

Is the worst over?  The company has a new CEO in Edward Breen.
Breen was the former president at Motorola.  Michael Useem, a
Wharton professor came on board to advise in matters of
corporate governance.  In his time at the helm, the new CEO has
restated earnings for three quarters and has indicated to Wall
Street that there should be no more surprise restatements
forthcoming.  The CEO is in restructuring negotiations in an
attempt to handle Tyco’s $26 billion debt load.

Last week news circulated that TYC plans to raise about $3.5
billion from the sale of securities convertible into company
Stock by early February.  A convertible sale could make sense
for the conglomerate as mot only did TYC see its share price
fall by more than 80%, it also lost its investment-grade credit
rating from Moody’s Investor service.  Depending on how it’s
structured, a convertible sale might help restore it.  In
addition it was reported Tyco may try to concurrently obtain
a new bank credit line. Demand for convertibles has been strong,
including “junk” and lower-rated convertibles.  A convertible
sale along with a restructuring of its debt load could be just
what the doctor ordered to help get TYC back on its feet again.

A look at the chart would seem to indicate that TYC has done
little to spur investor excitement or confidence in the past
few months. In fact since early June, most trades have taken
place in a fairly narrow range between $11 and $16. A closer
look shows that since late July, TYC has been quietly
consolidating and edging higher.  The volume’s been somewhat
moderate, compared to the norm, although respectable averaging
just over 15.0 mln. shares per day.

So what makes TYC so attractive at this time?  Frankly the
conglomerate has been beaten down and tossed aside like a
rag doll.  Yet with all the negativity surrounding the
company, investors seem to be stepping back in to give TYC
another chance.  For those that still consider analysts comments,
forecasts for fiscal 2003 earnings are projected at 1.58 per
share.  While it may take a while to turn this ship around,
in the long term Tyco prove to be a solid play.
the long-term.

So here’s our play. Technically, TYC has support between $12
and $14.  For those looking for a pullback, a bounce off those
levels could prove to be a suitable entry. If Tyco continues
find buyers standing in line, the a pullback and consolidation
to $16 to $17 area may be suitable as well.

Option 1.  Purchase TYC stock at the current level and purchase
1, July 15 Put for every 100 shares of stock.  If stock is under
$15.00 buy July expiration, then exercise the put and sell
the stock.

Option 2.  Purchase TYC stock at current level and wait for
Stock to approach resistance near $20.00. At that time buy
1 $17.50 put or a $15.00 put for every 100 shares of stock
owned incase of a rollover from those levels. This option
provides less downside protection, but is more bullish
initially, while locking in profit at a higher level and
also letting the stock run on a breakthrough the $20 level.

Option 3. Purchase stock without protection and sell the underlying
if it falls below support near $12.00..


For Best Alignment view in Courier Ten Font

CALLS              Mon    Tue    Wed   Thu  Week

ADBE     29.56    0.47  -1.40   0.73  0.00 –0.25  Drop, resistance
GNSS     19.90    2.21  -1.91  -0.26  0.00  0.70  hanging on
ICOS     31.56    1.37  -1.91   1.37  0.00  0.81  up against $32
IMCL     13.78   -0.78  -1.04  -0.47  0.00  1.71  drop, sideways
MSFT     57.70    0.17  -1.33   0.48  0.00  0.06  over $57
NVDA     17.15   -0.16  -0.52   0.56  0.00  0.70  New, consistent
QCOM     41.30    1.24  -1.45   0.47  0.00  0.64  higher support


APOL     41.39   -0.09  -2.21   0.70  0.00 –2.39  New, giving in
BDK      42.97   -0.20  -1.33   0.52  0.00 –0.73  weak bounce
HSIC     42.38   -1.76  -0.47   1.20  0.00 –0.91  bounce stalled
JBLU     37.01    0.99   0.46   1.64  0.00  3.15  drop,trend break
MEDI     26.42   -0.06  -0.95   0.39  0.00 –1.66  New,risk/reward
SLM      97.73    1.76  -2.91  -0.34  0.00 –1.27  weak under $98

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Call Play of the Day:

NVDA – NVIDIA Corporation $17.15 (+1.43 last week)

See details in play list

Put Play of the Day:

SLM – SLM Corporation $97.73 (-0.87 last week)

See details in play list


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.


ADBE $29.56 (-0.25) Despite holding over the 200-dma again on
Friday, the strength of the Software index (GSO.X) looks like
it is starting to fade, and this could be seen in our ADBE
play, which once again tested its 200-dma.  While it didn't
fall below this important level on Friday, with daily
oscillators rolling over, it looks like the bulls are carrying
the bulk of the risk and we would prefer to err on the side of
caution.  Our preference is to exit here and look for another
opportunity to play this strong Software stock bullish from a
lower level.


IMCL $13.78 (-1.26) After the strong push through the $15
resistance level, IMCL looked like it was in the midst of a
strong momentum run, but lately appears to have lost that
loving feeling.  Last week saw only declines in price, which
is not a good sign considering the stock fell with the broad
market on Tuesday and then fell further as the broad market
rallied on Wednesday.  As expected, Friday was a quiet day
of consolidation, leaving us with the impression that IMCL
is done with its upside move for now.  Rather than wait for
our stop to be triggered, we're dropping IMCL this weekend.
Use a rebound on Monday to exit open positions.


JBLU $37.01 (+4.00) After bottoming at $33, JBLU has been
going ballistic, rising on strong volume.  After taking out
the $36 resistance level on Wednesday, it looked like Friday's
session could provide the breakout attempt on the 20-dma and
50-dma near $37.50.  While the stock couldn't hold above that
level, it was likely only due to a lack of buying volume to get
the job done.  We want to use this weakness to exit the play
before the bulls attempt another run at resistance next week.


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.

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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Contact Support
The Option Investor Newsletter                   Sunday 12-01-2002
Sunday                                                      3 of 5

In Section Three:

New Calls: NVDA
Current Calls: GNSS, ICOS, MSFT, QCOM
New Puts: APOL, MEDI

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offers true direct access to each option exchange offers stop and
stop loss online option orders offers contingent option
orders based on the price of the option or stock offers
online spread order entry for net debit or credit offers fast
option executions

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more; call 1-888-889-9178 or click for more information.



NVDA – NVIDIA Corporation $17.15 (+1.43 last week)

Company Summary:
NVIDIA Corporation designs, develops and markets 3D graphics
processors, graphics processing units and related software that
set the standard for performance, quality and features for
every type of desktop personal computer user.  Used in a wide
variety of application including games, the Internet and
industrial design, the company's products were the first to
incorporate a 128-bit multi-texturing graphics architecture.
This design approach delivers to users a highly immersive,
interactive 3D experience with compelling visual quality and
stunning effects at real-time frame rates.  NVDA sells its
products to major PC manufacturers such as Compaq, Dell,
Gateway, Hewlett-Packard and IBM.

Why We Like It:
Throughout the summer and the early autumn, investors were asking
themselves if the Semiconductor stocks would ever stop falling.
Lately, the question seems to be whether they will ever stop
rising.  The Semiconductor index (SOX.X) has rebounded an
astounding 78% from its low in early October, predominantly on a
string of bad news.  The only bright light in the sector came
from last week's TSM comment about a drop in demand failing to
appear.  NVDA has been riding this wave higher, having more than
doubled from its early October lows.  Judging by the price
action, investors are gobbling up the good news and ignoring the
bad.  A week ago, UBS Warburg downgraded the stock citing pricing
pressures and a continuation of the PC slump.  But on the same
day, the company's CFO made some bullish comments, pointing to
improving demand for the company's graphics processors.
Investors focused on the positive news in a historically bullish
time period and NVDA spent the bulk of last week creeping higher.
While we can certainly see that the stock appears to be getting
a bit extended up here, with the move above $16.50, we've got to
give the benefit of the doubt to the bulls.  And rightly so, with
the PnF chart giving another Buy signal and the Bullish vertical
count now pointing to $29.  There is still some formidable
overhead resistance to contend with, first in the $18-19 area and
then again up near $23.  So clearly the best entries will come on
a rebound from support.  The $15.50-16.00 are is now shaping up
as strong support, helped along by the 10-dma, which has risen
to $15.47.  Look to enter the play on a successful bounce above
this level, so long as the SOX is continuing to hold above the
important $360 support level.  Place stops initially at $14.50.

BUY CALL DEC-15 UVA-LC OI=11330 at $2.80 SL=1.50
BUY CALL DEC-17 UVA-LW OI= 8215 at $1.30 SL=0.75
BUY CALL JAN-17*UVA-AW OI= 3552 at $2.05 SL=1.00
BUY CALL JAN-20 UVA-AD OI= 3770 at $1.15 SL=0.50

Average Daily Volume = 9.23 mln

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GNSS – Genesis Microchip $19.88 (+0.90 last week)

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

Why We Like It:
After the stock's meteoric rise of the past month, shares of
GNSS have been taking a brief siesta over the past few sessions.
With a stock price that has more than tripled since the October
lows, a bit of a rest is definitely in order.  Actually, traders
are probably just waiting for the outcome of the company's
mid-quarter update on Monday after the closing bell.  The way
Chip stocks have been rallying lately, the stock should continue
its upward trend following that meeting, so long as there isn't
any really bad news.  Aggressive traders can take advantage of
the lull before the storm, looking to initiate new positions on
another intraday rebound above our $19 stop, so long as we don't
see appreciable weakness in the Semiconductor index (SOX.X).
More conservative traders will want to wait until after the
meeting before playing, either gaming a rebound above the $19
level or entering on a breakout to new recent highs above $21.50.
The one big concern we have is that the consolidation over the
past few days (Friday not included, because it clearly didn't
matter) have come on heavy volume.  That is not typical of a
consolidation pattern, it is more typical of a topping formation.
The solution is to manage the risk by sticking to your stop at

BUY CALL DEC-17 QFE-LW OI=2161 at $3.30 SL=1.75
BUY CALL DEC-20*QFE-LD OI=3228 at $1.75 SL=0.75
BUY CALL DEC-22 QFE-LX OI=1861 at $0.85 SL=0.40
BUY CALL JAN-20 QFE-AD OI= 400 at $2.60 SL=1.25
BUY CALL JAN-22 QFE-AX OI= 147 at $1.65 SL=0.75

Average Daily Volume = 2.30 mln


ICOS – ICOS Corporation $31.56 (+0.90 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:
Prudent investors avoided Friday's low-volume session and the
result was that not much of anything went anywhere.  Some groups
moved up, and others moved down, but all of the moves were
fractional, reinforcing the message that if you're looking for
direction, you're going to have to wait until next week.  ICOS
held onto the bulk of its Wednesday gains, leaving the stock
poised to go either way on Monday.  It could break out above
recent resistance ($32.25) or we could see a bit more
consolidation.  It is worth pointing out that the stock is up
strongly in the past few weeks, and it may need to trade sideways
before continuing up the chart.  Likely, ICOS is going to need
the Biotechnology index (BTK.X) to break decisively through the
$390 level (just above the 200-dma at $388) if it is going to
break out to new highs.  Alternatively, a pullback to the $29-30
area along with the BTK pulling back and finding support near
the $360 level.  Make no mistake, there is risk in the play due
to the recent run.  But now that ICOS is above the bottom of the
late-April gap and the 200-dma, it should continue to work its
way up the chart until encountering the next stiff level of
resistance near $39.  Momentum traders need to wait for a
breakout accompanied by strong volume before jumping into the
play, but when it occurs, it should provide a strong entry for
the next leg up.  Keep stops set at $28.50.

BUY CALL DEC-30*IIQ-LF OI=1234 at $3.00 SL=1.50
BUY CALL DEC-35 IIQ-LG OI= 545 at $0.70 SL=0.25
BUY CALL JAN-30 IIQ-AF OI=1617 at $2.80 SL=1.50
BUY CALL JAN-35 IIQ-AG OI= 900 at $1.10 SL=0.50

Average Daily Volume = 1.10 mln


MSFT – Microsoft $57.70 (-0.52 last week)

Company Summary:
Although best known for its ubiquitous Windows PC operating
system, MSFT develops, manufactures, licenses and supports a
wide range of software products for a multitude of computing
devices.  The company's software products include scalable
operating systems for servers, PCs and intelligent devices,
server applications for client/server environments and software
development tools.  The MSFT's online efforts include the MSN
network of Internet products and services and alliances with
companies involved with broadband access and various forms of
digital interactivity.

Why We Like It:
MSFT has been churning around the $57-58 area for over a week
now, as though it is waiting for something.  Friday's session
was no different, with the stock giving back a portion of
Wednesday's gains, but without the conviction of volume.  Once
again, the stock is sitting above the $57 level, but below the
$58 level, which the stock needs to hold above to be able to
confirm a breakout.  Perhaps what investors are waiting for is
the answer to whether the company's anti-trust woes are truly
behind it.  Monday is the deadline for eight states to either
accept the settlement worked out by the Bush administration, or
appeal to the courts for tougher penalties.  Late-breaking news
Friday night, had all these states buy Massachusetts agreeing to
accept the settlement.  The breakdown of the coalition of states
likely points to the problems for MSFT truly being behind, and
that could finally give us the breakout we've been waiting for.
Friday's price action is inconsequential now.  What we want to
see is either a dip and rebound from the vicinity of $57 (also
the site of the 10-dma) or possibly as low as $56 (just below
the 20-dma) to provide for more attractive entries into the play.
If the settlement news is well-received, then look for a breakout
to be the next move.  Momentum traders can jump on board with a
breakout over $58.75, so long as volume is robust and the broad
market is going along for the ride.

BUY CALL DEC-55 MSQ-LK OI= 31078 at $3.90 SL=2.50
BUY CALL DEC-60 MSQ-LL OI= 71904 at $1.10 SL=1.25
BUY CALL JAN-55 MSQ-AK OI= 70251 at $5.00 SL=3.00
BUY CALL JAN-60*MSQ-AL OI=111443 at $2.20 SL=1.00

Average Daily Volume = 45.3 mln


QCOM – Qualcomm, Inc. $41.30 (+0.62 this week)

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

Why We Like It:
One thing is certain and that is that Friday's session failed
to shed any light on what the markets might do next week.  All
of the major indices vacillated in very narrow ranges, and when
you look at the price action of individual equities, the reason
becomes clear.  There just wasn't much trading interest and as
a result, not much happened.  QCOM gave back a portion of
Wednesday's gains, but still is looking strong.  The $40 level
is shaping up as pretty decent support now, with the backing of
the 10-dma at $40.06.  Intraday dips and rebounds from the
$39-40 area can be used for new entry points, provided the
Wireless Telecom index (YLS.X) continues to show strength.
Without a pullback first, new entries are going to fall into the
realm of the momentum traders, as QCOM breaks out over the $42
level.  Of course, we'll need to keep an eye out for a head-fake
move, as there is more resistance up near $44.  A breakout over
$45 will take out another important level of resistance and
bring the stock's PnF vertical count of $60 that much closer to
reality.  Until we get the breakout over $42, keep stops set at

BUY CALL DEC-40 AAW-LH OI=11318 at $2.80 SL=1.50
BUY CALL DEC-42 AAO-LV OI= 5407 at $1.45 SL=0.75
BUY CALL JAN-40 AAW-AH OI=17771 at $4.00 SL=2.50
BUY CALL JAN-42*AAO-AV OI= 5649 at $2.70 SL=1.25
BUY CALL JAN-45 AAO-AI OI=13188 at $1.70 SL=0.75

Average Daily Volume = 16.6 mln


APOL – Apollo Group, Inc. $41.39 (-2.41 this week)

Company Summary:
The Apollo Group provides higher education to working adults.
The company operates through its subsidiaries, The University
of Phoenix, Inc., Institute for Professional Development, The
College for Financial Planning Institutes Corporation and
Western International University, Inc.  APOL offers its programs
and services at 58 campuses and 102 learning centers in 36
states, Puerto Rico, and Vancouver, British Columbia.

Why We Like It:
Have the Education stocks topped out?  While this group spent
the bulk of the past year heading up, that trend is looking a
bit tired, and we think there is an attractive downside play
shaping up.  APOL has avoided the bane of many sectors of the
market over the past year, that of setting new 52-week lows.
Instead, the stock has been setting new 52-week highs up until
recently.  But something appears to be changing, as the recent
peak just below $45 marks the first lower high since late July
and the first time in many months that it has done so when the
broad market is strong.  It's not lights out yet, but apparently
investors are moving out of stocks like APOL and into the hotter
areas again.  Momentum traders need to be very careful with this
play due to significant support between $40-41 and then the
200-dma down at $38.16.  Rather than try to initiate new
positions on a breakdown, we think the better approach will be
to fade a failed rally near the $44.50-45.00 area, which has now
proven itself to be a significant level of resistance.  Should
the bulls fail to generate that strong of a bounce, we can also
look to leg into new positions on a failed rally near the $42.50
level, which in addition to being solid resistance, is also the
site of the 50-dma.  Set stops at $45.

BUY PUT DEC-45 OAQ-XI OI=  63 at $4.20 SL=2.50
BUY PUT DEC-40*OAQ-XH OI=1078 at $1.25 SL=0.50

Average Daily Volume = 2.46 mln


MEDI – MedImmune Inc. $26.42 (-1.65 last week)

Company Summary:
MedImmune is a biotech company focused on developing and
marketing products that address medical needs in areas such
as infectious disease, autoimmune disorders, cancer, and
transplantation medicine.  The company has six products on
the market and a diverse product development portfolio.  The
products currently on the market include Synagis, CytoGam,
RespiGam, Ethyol, Neutrexin, and Hexalen.

Why We Like It:
Contrary to popular belief, not every sector of the Technology
market is breaking out to new multi-month highs.  Some are
languishing just below important resistance, unable to muster
the strength to stage the breakout.  The Biotechs are one such
sector, with the BTK.X index being smacked down from a breakout
attempt early last week, by a dual downgrade of BGEN and IDPH.
While the BTK did struggle back from the initial selloff, the
damage was done.  By looking at the stocks in the industry that
are failing to recover from the downgrade-related selloff, we
can uncover some pockets of relative weakness that are
susceptible to further downside.  MEDI is one such stock,
having fractionally broken Tuesday's closing low on Friday.  The
other interesting aspect of the stock's behavior is that Friday's
selling volume was almost as large as the buying volume during
Wednesday's oversold bounce.  This hints that supply is in
control and the stock has further to fall.  The other sign of
weakness is that the recent rally ran into a brick wall near $29,
just above the site of the August highs before rolling over.  And
if the bulls did manage to break out over that level, they'll
have to contend with the 200-dma at $29.84.  Look for another
failed rally in the $28-29 area to provide for the best entries
into the play, although a breakdown under $26 (just under
Friday's intraday high) can be used for entries as well, so long
as the BTK index is showing signs of weakness.  Initial stops
are set at $30, just above the 200-dma.

BUY PUT DEC-30 MEQ-XF OI= 729 at $4.70 SL=2.75
BUY PUT DEC-25*MEQ-XE OI=5063 at $1.90 SL=1.00

Average Daily Volume = 4.42 mln

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The Option Investor Newsletter                   Sunday 12-01-2002
Sunday                                                      4 of 5

In Section Four:

Current Put Plays: BDK, HSIC, SLM
Leaps: The VIX - Anomaly or Portent?
Traders Corner: Giving Thanks – Not Just One Day A Year

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BDK – Black & Decker Corporation $42.97 (-0.73 this week)

Company Summary:
Black & Decker is a global manufacturer and marketer of power
tools and accessories, hardware and home improvement products,
and technology-based fastening systems.  BDK operates in three
reportable business segments: Power Tools and Accessories,
Hardware and Home Improvement and Fastening and Assembly
Systems.  The Tools and Accessories segment includes consumer
and professional power tools and accessories, electric lawn an
 garden tools, electric cleaning and lighting products and
product service.  Hardware and Home Improvement includes
security hardware and plumbing products.  The company's
products and services are marketed in over 100 countries.

Why We Like It:
Just as investors have apparently thrown in the towel on the
home-improvement related stocks, so too did they throw in the
towel on Friday's session.  As expected, volume was anemic and
there wasn't even a hint of a directional bias.  The bulls tried
to push BDK up in a continuation of Wednesday's late-day rebound,
but it wasn't to be.  The stock fell under its own weight,
closing very near the flat line in the abbreviated session.
Given the fact that we've now had a nice little oversold rebound
and that rebound failed right at the $43.50 level, we're looking
for the bearish trend to reassert itself next week.  Above this
intraday resistance level, there's more resistance at $44, which
happens to be the site of the converged 10-dma and 50-dma.
Traders looking for a fresh entry into our BDK play will want to
target a rollover near this level, preferably in conjunction with
a failed rally in the broader market.  Momentum entries are going
to be a bit tougher to come by, as we first need to see a break
down under recent support down at $41.90.  Keep stops set at
$44.50, as a closing price above that level would hint at a
change in the recent bearish trend.

BUY PUT DEC-45*BDK-XI OI=280 at $3.10 SL=1.50
BUY PUT DEC-40 BDK-XH OI= 71 at $0.85 SL=0.40

Average Daily Volume = 804 K


HSIC – Henry Schein, Inc. $42.40 (-1.20 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:
With no material news events to drive shares of HSIC on Friday,
the stock was left to trade at the whims of the few traders that
bothered to show up.  As you can see from the almost nonexistent
price movement and volume that tracked right around half the ADV,
there wasn't much enthusiasm for the stock to move either way.
We can look at Fridays' action as a continuation of the oversold
bounce seen on Wednesday.  The real question is whether this
rebound is on its last legs, or if we are at the edge of an actual
trend change.  Given the stock's lack of participation in
Wednesday's rally, we're still leaning to the downside on HSIC.
The stock has been building intraday resistance near the $43
level, although the stronger level of resistance is up at $44,
backed up by our stop at $45.  Traders still looking for an entry
will want to target the next rollover below resistance, while
momentum traders are still waiting for a breakdown under $40.50
before playing.  Like most other plays, Friday's action can be
ignored, meaning we need to look to next week to give us clues
about the market's intent.  Should the broad market rally, then
we'll want to see signs of a rally failure in HSIC.  Should the
rest of the market weaken, then we'll need to see HSIC finally
break down.  It's as simple as that.

BUY PUT DEC-45*HQE-XI OI=385 at $3.60 SL=1.75
BUY PUT DEC-40 HQE-XH OI=125 at $1.15 SL=0.50

Average Daily Volume = 563 K


SLM – SLM Corporation $97.73 (-0.87 last week)

Company Summary:
Formerly USA Education, Inc., SLM is a private source of funding,
delivery and servicing support for higher education loans for
students and their parents in the United States.  The company
provides a wide range of financial services, processing
capabilities and information technology to meet the needs of
educational institutions, lenders, students and guarantee
agencies.  Primarily a provider of education credit, the company
serves a diverse range of clients, including approximately
6000 educational and financial institutions and guarantee
agencies.  SLM serves in excess of 7 million borrowers through
its ownership or management of student loans.

Why We Like It:
Typical of everything else in the market, SLM traded in an
exceedingly narrow range on Friday, refusing to give an
indication of what it might do next week.  Such is the nature
of light-volume holiday-shortened sessions.  That forces us to
base our decisions on what came before that session.  Up through
Wednesday, SLM was continuing to make solid downhill progress,
but there could be trouble brewing for the bears.  While the
stock has broken near-term support at $100 and subsequently
found resistance at $101, the stock has yet to generate a PnF
Sell signal, which will occur with a print at $95.  Not only
would that put the stock on a Sell signal, but it would also
break the bullish support line.  Alas, that has not yet happened,
so we are still stuck in the middle where SLM looks like a good
bearish play, but has yet to really prove that fact.  Another
failed rally below $101 resistance is really the best approach
for initiating new positions, as momentum players really don't
want to press their luck to the downside until SLM breaks below
$95 (also the site of the 200-dma).  Another potential resistance
level that could generate a rollover would be the 50-dma (now at
$99.73).  As you can see, the best risk/reward for this play is
to be found in fading a rally near resistance.

BUY PUT DEC-100*SLM-XT OI=555 at $4.40 SL=2.75
BUY PUT DEC- 95 SLM-XS OI=382 at $2.00 SL=1.00

Average Daily Volume = 972 K

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The VIX - Anomaly or Portent?
By Mark Phillips

Considering all the impressive bullish action last week, I find
it interesting that the technical levels I laid out last weekend
related to the OEX are still very much in play.  That's right, it
took until Wednesday afternoon for the OEX to finally claw its
way above the $479 resistance level.  This historical trend
surrounding the Thanksgiving holiday is playing out in typical
bullish fashion, and it will really be interesting to see what
develops next week.  I've included the chart from last week's
article for reference, with the updated price action through
Wednesday's close.

S&P 100 (OEX) Daily Chart

While the descending trendline has now fallen near the $484
level and the 200-dma has dropped a bit to the $494 level, we
can see that the highs from August ($487), 50% retracement at
$489 and strong resistance at $490 are all still obstacles that
need to be scaled.  This puts last week's action in a different
perspective, don't you think?  Suddenly, the action around the
$479 resistance level becomes less significant in light of all
of the significant resistance levels that are about to come
into play.  They may in fact do that on Friday, if the bulls
still sitting in front of their computers have their way.  I
won't be one of them, having taken leave of my technological
accouterments Wednesday night.

This brings us back to the title of this week's column, the
VIX.  It has been a long time since we saw a large gain in
the broad market (+2.84% for the OEX) that was accompanied by
a large gain (+7.30%) in the VIX.  That's a marked departure
from normal market action, and I think what it is telling us is
that there was a significant increase in put buying on
Wednesday.  This may be speculation on an imminent market drop,
or it could just be traders looking to hedge their bullish
positions over the long weekend.  Whatever the cause, traders
were clearly concerned about the downside risks and I think that
stems directly from the array of technical resistance levels
looming overhead.  We've focused on the OEX here due to its
position of relative strength, but I think you can find some
very similar levels in the other major indices.  They may be
closer (in the case of the NASDAQ Composite, which is right at
its 200-dma) or further away (in the case of the DOW, which is
still 250 points below its 200-dma), but the bottom line is that
traders should be focusing on the downside risks here, taking
action to prevent a pullback from taking too large a bite out
of their recent bullish gains.  I believe it is that dynamic
which is responsible for the large rise in the VIX on Wednesday.

As I see it, there are two possible outcomes over the near-term.
The first possibility is that the OEX rallies up to this
$484-494 resistance area and then promptly reverses.  That
scenario is actually the one that I feel would be the healthiest,
as it would likely usher in the next bout of profit taking.
We've had a nice run over the past few weeks and a push up to
resistance should then see a healthy pullback into the $455-460
area.  So long as the market internals (read: Bullish Percent)
stay strong, that level should provide a solid base to break
decisively through the $500 level and possibly give us a
pleasant Santa Claus rally into the end of the year.

The second possibility is that the OEX rockets unperturbed
through all of those resistance levels without so much as a
hiccup.  While it would be encouraging due to the confirmation
of the double-bottom formation down at $384 (which required us
to breakout over the August highs to confirm), I think it could
set us up for a painful failure near the $500 level.  Whether it
happens below the defined resistance I listed above, or after
moving up to test resistance, I think a significant pullback is
necessary over the next week or two.  There are some substantial
recent gains that need to be digested, and we are going to need
to see confirmation that they are sustainable with a pullback to
a higher low.

I suppose there is a third possibility, where we pullback from
current levels without seriously probing those resistance levels,
but I find that unlikely, based on Wednesday's strong finish.
Note that no matter what scenario you tend to believe, breaking
out over resistance and then continuing up the chart without a
pause is an unlikely scenario.  For this reason, I would caution
you against trying to enter new bullish positions (except for
short-term trades) prior to that pullback.  Conversely, when
that rollover at resistance comes to pass, I would consider it
an advantageous time to be cautiously probing the downside with
longer-term bearish plays.

Having given you my broad market forecast (which is now
guaranteed to be wrong, now that I've put it in print! GRIN),
let's turn our attention to our list of plays.  Needless to
say, it didn't fare quite so well this week.


LEN - Those pesky, stubborn bulls just keep propping up the
shares of the home building stocks every time it looks like
they're ready to break down.  Of course, it doesn't help that
the housing-related economic reports have not yet revealed the
weakness that I believe to be present in the industry.
Tuesday's decline looked like the beginning of the next leg
lower, but positive economic reports on Wednesday had the
stock reversing higher again, albeit on rather anemic volume.
The past couple weeks action is rather interesting, as it has
LEN rising on declining volume, which is a bearish sign.  The
stock is also continuing to find resistance below the trendline
that had provided support up until the breakdown in early
November.  Look for this resistance line (former support) to
act in concert with the 50-dma and 200-dma to turn back the
bulls below our $55 stop again next week.

NEM - Gold and Gold stocks had another rough week, with the broad
market looking strong.  On Wednesday, NEM once again challenged
its $22 support level, but found buyers at the end of the day.
While the battle seems to be going against us on this one, I
still like the way both the Gold Futures (GC02Z) and NEM continue
to consolidate in their neutral wedges.  In order to feel more
confident, I really want to see the GC02Z contract hold above
$320 and NEM hold back over $25.  In the meantime, we wait and
watch with our stop set at $22.

MO - The action in shares of MO has been as exciting as watching
grass grow -- well almost.  Don't get me wrong, I actually like
what I see, as the stock seems to be building a new base from
which the next rally can sprout.  The lack of positive action in
any of the other Consumer Cyclicals like PG tells us that this
sector is currently out of favor, but I expect it to turn in our
favor as sector rotation takes hold in the near term.  In the
meantime, we continue to hold and wait, with our stop remaining
at the $35 level.

Watch List:

BBH - What a wild week for the Biotechs.  The early weakness on
Monday could have had aggressive traders taking an entry into
the play as the rollover commenced right at the site of the
August highs.  But I decided to stick with our prescribed entry
plan, looking for a drop below $89 before entry.  Well, we got
that on Tuesday and in a big way, following downgrades of both
BGEN and IDPH.  The problem is that the downgrades created a
sizable gap down (which as you know, I detest using for new
entries) that sent the BBH below $87 by the end of the day.
True to form, the market reversed on Wednesday, pushing the BBH
back as high as $89.74, almost completely filling the gap from
Tuesday.  I like the location of the rollover early in the week,
and still like the prospects of our play.  But given the positive
market tone, I'm leaning toward taking a more aggressive approach
and targeting a failed rally near resistance in the $92-93 area,
the top of which is reinforced by the 200-dma at $92.90.  More
conservative traders will want to wait for a decline back under
$89 (without a gap) before entering the play.

GM - I just had a feeling that we ought to hold off on new entries
in GM last week.  With the bullish market action, GM actually
broke out over $38 and the PnF chart is looking downright bullish
with a fresh Buy signal and vertical count that stretches up to
$52.  Clearly, with the play still on our Put Watch List, I think
that is a rather unrealistic and lofty target for GM.  While auto
sales may not have been as bad as expected lately, neither is
there much hope for incentives to ride in and save the day either.
Consumers have about all the vehicles they need, and that can be
seen in the glut of used cars in the secondary market.  Stopping
just shy of $40 on Wednesday, I like a rollover anywhere in the
$40-42 area for new entries.  I want to give the play room to
move though, so I've softened my stance a bit since last week.
Having reviewed support and resistance over the past several
months, I now think a stop at $45 makes more sense from a risk
management perspective.

DELL - In contrast to the action in the broad market last week,
DELL really didn't do much.  The stock continues to consolidate
in the $28-29 area, as the 50-dma rises to meet this support
level.  While aggressive players could possibly take an entry
near the $28 level, with the weekly Stochastics early in their
decline from overbought, I still favor a rebound from the $26-27
area for new entries.

GD - Tuesday's dip into the area of all those moving averages did
seem a bit tempting, and the rebound on Wednesday was encouraging
as well.  But I remain of the mindset that the trading over the
past 2 days has been rather artificial.  Rather than pile into a
new bullish position before it runs away from me, I want to
exercise a bit more patience.  Look for a dip closer to the $78
level.  Additionally, we want to see the rebound come on more
convincing volume, preferably close to 2 million shares.
Remember, we're trying to enter this play close to support to
maximize the risk/reward dynamic.  If we can get an entry near
$78, that gives us downside risk of only $2 and a potential
reward (according to the PnF vertical count) of $21.  Those are
my kind of odds.

While I'm still holding onto my cautious bullish stance, the
steady rise of the Bullish Percent readings has me more concerned
about the potential downside over the near term.  There really
aren't any meaningful signs of weakness yet, so it is clearly too
early to be getting aggressive with bearish trades.  But the
broad market is getting pretty extended up here and any
significant gains next week may be tough to come by until we get
another period of consolidation.  The rise in the VIX on
Wednesday (in the face of a strong rise in the broad market)
tells me that I'm not the only one with this concern.  This rise
in the VIX is likely the result of increased put buying, as
traders look to hedge their downside risks while not quite yet
giving up on the upside.

In keeping with the theme of Options 101 article on Wednesday,
I'm getting an early start on the weekend, writing this column
Wednesday night so that I can enjoy an extended visit with
family.  In that vein, all of the play updates above were done
without the benefit of seeing Friday's action.  Please take that
into account when reading the updates, in case something
meaningful did occur on Friday.  If anything slipped through
the cracks, then we'll catch up next week.  Additionally, as
you can see, I refrained from adding any new Watch List plays
this weekend.  Certainly, I found a couple that looked
interesting, but nothing that couldn't mature for another week
before we add it to the list.  Let's wait and see whether last
week's push higher was the last hurrah for the bulls or
another important technical development.

Now would be a good time to have another one of those tasty
turkey sandwiches!  Enjoy, and I'll see you next week!


LEAPS Portfolio

Current Open Plays


NEM    10/30/02  '04 $ 30  LIE-AF  $ 3.90  $ 2.65  -32.05%  $22
                 '05 $ 30  ZIE-AF  $ 6.10  $ 4.90  -19.67%  $22
MO     11/13/02  '04 $ 40  LMO-AH  $ 3.90  $ 3.60  - 7.69%  $35
                 '05 $ 40  ZMO-AH  $ 4.80  $ 4.70  - 2.08%  $35

LEN    10/02/02  '04 $ 50  KJM-MJ  $ 8.60  $ 9.30  + 8.14%  $55
                 '05 $ 50  XFF-MJ  $11.20  $12.00  + 7.14%  $55

LEAPS Watchlist

Current Possibles


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

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


New Watchlist Plays



SMH - $29.31 As I mentioned last week, our SMH play was making me
nervous, the way it had been blasting through resistance levels.
I still left our liberal stop up at $29.25, just above the August
highs on the theory that this would be in important level.  Sure
enough it was, but not the way I had expected.  On Monday, the SMH
closed at $29.31 (just barely stopping us out of the play), before
reversing sharply lower on Tuesday.  But Wednesday's action proved
that we did the right thing by sticking to our stop, as the SMH
trekked higher throughout the day, coming to rest just shy of the
$30 level.  Needless to say, our bearish play on the Chip stocks
didn't play out as well as the last time, and we're out with a
small loss.

JNJ - $56.41 JNJ's trend was looking a bit weak last week, and
this week's action proved that point.  While Monday's action
provided an intraday dip below support, it didn't last and the
stock held above $58 at the close.  That all came to a screeching
halt on Tuesday, with the DOW losing close to 200 points and JNJ
plunging to just above $56.  That left no question as to our
violated stop.  The bullish trend has now clearly been broken
(although we don't yet have a lower low) and it is time to get out
of the play.  Wednesday's bounce provided an opportunity to do
just that, and subsequent failed rallies at the 200-dma should be
used to exit any remaining bullish positions.


Giving Thanks – Not Just One Day A Year
By Mike Parnos, Investing With Attitude

Thursday, Thanksgiving, was a very special day!  It was a day to
give thanks – for countless things that have blessed our lives
throughout the year.  It shouldn’t be the only day of the year
that we show our gratitude.  But, for many people, Thanksgiving
is the only day they bother – and that’s only between forkfuls of
turkey and wiping the gravy stains from their shirt.

In all seriousness, I want you to know how incredibly gratifying
it is for me to impart knowledge and a smile at the same time.
I can tell by the many astute questions and positive comments
that the CPTI student body is developing very nicely.   A large
number of CPTI readers have put some of our strategies to use and
walked away with a pocketful of crisp green lettuce for their
retirement salad.  Once you’ve grasped the strategies we talk
about here every week, you’re in a position to potentially
generate a consistent healthy income while risking relatively

When I first started writing for OI, back in July, the bulk of
the questions I received started with – HELP!!!  They were from
readers who had entered positions, were losing money, and who
were desperate to know how they could salvage some of their
trading capital.   The market makes David Copperfield look like
an amateur.  It can make your money disappear before your eyes –
IF you don’t know what you’re doing.

As weeks and months passed, those “HELP!!” questions have
diminished and I’m now getting suggestions from these same
readers on how they’ve thought of a variation that might improve
upon the strategies that we discuss.  Wow!  It doesn’t get any
better than that.  To stimulate thought and creativity is an
educator’s dream.  And once a person has learned to think,
analyze and develop self-discipline, it doesn’t stop there.  It
spreads and enhances other areas of life.

I especially want to give a Thanksgiving thanks to OI, my fellow
writers, and, above all, to Jim Brown who has created this
magnificent interactive information source for option traders.
This has been, and continues to be, a goldmine for those who
seriously want to learn to trade – recognizing that these skills
will serve them well for the rest of their lives.  Teach a man to
fish and he’ll . . . . . need a lot of tarter sauce.

Not only will these skills you well, they will serve you steak
and lobster and soy products (can’t leave out the vegetarians).
Vegetarians need this knowledge even more than the rest of us.
They think they’re going to live forever so they have to be
prepared to make money for a long long time.

Of course, there are always a few who use OI as a tout sheet,
randomly buying puts and calls – winning a few and losing a few.
I give thanks for these readers as well.  They have no idea why
they’re doing it, but they like the action.  They salivate at the
thought of big winning trades and are willing to lay their hard
earned dollars on the line in the hope of doubling and tripling
their money.  These straight buy and sell traders are the primary
source of income for CPTI graduates and students – may their
funds never run out.

Then, there are others who deserve our thanks:
1.  Thanks for Black & Scholes – Clint, for the great songs and
to Dr. Scholes, for those great footpads.
2.  Thanks for all retail investors – who are wrong most of the
3.  Thanks for the Internet – without which we’d have to actually
speak to a broker who knows less than we do!
4.  Thanks for free charting sites – the price is right and even
I can figure them out.
5.  Thanks for earnings warnings – they consistently cause panic
while we stay calm and profit from panic.
6.  Thanks for CEO indiscretions – if they were all honest, we
wouldn’t need skepticism – which is a good thing.  Too many
people didn’t learn skepticism after they found out there was no
Santa Claus.  Now they’re learning the hard way.
7.  Thanks for cable and DSL modems – Remember dial-ups?  I’d
rather fight than switch (with apologies to Tarryton cigarettes).
8.  Thanks for “premium” – It used to be the toaster we received
for opening a bank account.  Now we collect premium and put it IN
our bank account.
9.  Thanks for fast food and fast women – you can fit both into a
commercial break and together usually cost less than a bad trade.
10.  Thanks for televised baseball – so boring that it will never
interfere with your trading.
11.  Thanks for CNBC’s Martha MacCallum – who listens?  But she
sure is cute.
12.  Thanks for CNBC’s Joe Kernan – who knows it’s all a crock
and doesn’t take himself that seriously.
13.  Thanks for Dr. Kevorkian – who is always ready to assist
deep in-the-money call buyers and put sellers.

and finally a thanks goes out to Tim Allen who, in For Richer or
Poorer, provided us with the perfect prayer before Thanksgiving
(and other) meals:  “Good Food, Good Meat, Good God – Let’s

Remember to smile – it’s the second best thing you can do with
your lips.

And when you’re shopping this week, think of this sign seen
recently in the window of a jewelry store: “Now is your chance to
have your ears pierced and get an extra pair to take home, too.”

CPTI PORTFOLIO UPDATE– As of Wednesday’s Close.

BBH Iron Condor – Currently trading at $88.21
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 – right near the middle of the range.

TTWO Short Strangle – Currently trading at $29.93.
We want TTWO to finish the December option cycle anywhere between
$22.50 and $35.00. TTWO is showing strength and may be breaking
through some strong resistance around $30-$31.  But we’re still
in good shape, comfortably 4+ points below our short $35 call.

IMCL Covered Call – Currently trading at $13.73.
We want IMCL to finish the December option cycle over $10 so it
will be called away.  Looking strong!  IMCL ran up to over $15
and is now retracing a little.  But we are still holding
comfortably above the $10 strike price with a nice cushion.

QQQ ITM Strangle – Currently trading at $27.62.  Went as high as
$28.20 on Wednesday.  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 a
few days ago.  Those that held on and kept a close stop, could
have made an extra $.15 by selling on Wednesday.  Either way, you
now own the $25 put free and clear with a 3+ weeks to go and
you’ve already put some profits in your pockets.  CPTI students,
who were slightly bearish and put on the $24/$26 strangle could
have recently sold the $24 call for $4.20 and own the $26 put at
only $.15 with 3-1/2 weeks to go.  We’re still looking for a
typical Fibonacci retracement.  Prepare for a potential cash
infusion!  Essentially, we have a free or almost a free trade
going here.  You gotta’ love it!

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.

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The Option Investor Newsletter                   Sunday 12-01-2002
Sunday                                                      5 of 5

In Section Five:

Covered Calls: Trading Basics: Q&A With The Editor
Naked Puts: Options 101: Position Selection For Naked Puts
Spreads/Straddles/Combos: Another Bullish Week!

Updated In The Site Tonight:
Market Watch
Market Posture

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

One of our readers asked for an explanation of the benefits of
writing covered-calls: A tale of the tortoise and the hare?

Attn: Covered-calls editor
Subject: Covered-call benefits

Hello Mark,

I recently sent in a question and I appreciated the response.
I do have another one and from researching the archives I can't
seem to find the answer to it.  I am sure it has been asked

Here's the question...

I'm trying to understand the benefit of using covered calls.
When I look at the returns it seems like one could just use a
stop loss strategy to accomplish the same thing.  In addition,
you then have the upside run potential.  Seems like for the
most part the downside risk is about the same.  I guess you do
have little more protection as your cost basis would be less
then if you just purchased the stock outright.  However, from
what I understand the idea is to have the stocks called away.
I guess I'm just a bit confused.  Have I missed something?

Still trying to learn this stuff!




As you said, covered-calls have less risk than outright stock
ownership because the premium received reduces the cost basis in
the underlying issue.  Still, whether the covered-write strategy
is applied short-term or longer-term, it requires a neutral to
slightly bullish outlook on the underlying equity and the overall
market.  As with stock ownership, you are exposed to the risk of
a drop in the stock price and the premium you receive for writing
a covered call may not be enough insurance to protect yourself
against this risk.  Therefore, utilizing proven money-management
techniques will be required (as it is in all trading) to preserve
capital and limit excessive losses.

In-the-money (ITM) covered-calls simply offer a higher probability
of success and require no movement in the underlying equity.  The
fact that it is really difficult to predict stock movement (just
ask the shorts over the last few weeks) reinforces our reasoning
to hedge stock ownership with ITM covered writes.  The key to this
strategy is the "magic" of compound interest: earning 3% per month
(on average) may not seem like "big" money, but a 36% yield for
the year is definitely better than the "average" investor's return
for 2002.  Many investors lose sight of the magic of compound
interest and start to focus more on single-transaction returns.
In short, they become greedy, especially during extremely bullish
market environments!

If you're good at picking stock movement, I agree that it would
be better to just trade the stock (or buy calls and puts) instead
of capping your potential profits with a covered-call position.
It simply depends on your risk-reward tolerance.  The other, more
aggressive sections of the newsletter may be better suited to your
temperament and trading style.

The ITM covered-write strategy is for conservative investors who
prefer the higher probability of obtaining an acceptable return,
which correlates with a low risk-reward tolerance.  Excitement
(Greed) is for those other guys!

Good Luck,



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   8.00   DEC   5.00  1.05  *$  0.57  11.2%
SIMG    5.44   6.99   DEC   5.00  1.10  *$  0.66  11.0%
CIEN    5.58   6.65   DEC   5.00  1.00  *$  0.42  10.0%
ISSX   24.48  25.03   DEC  22.50  3.50  *$  1.52   7.9%
INHL    7.96   9.13   DEC   7.50  1.05  *$  0.59   7.4%
IMCL    8.97  13.73   DEC   7.50  2.15  *$  0.68   7.2%
MATK   22.07  23.16   DEC  20.00  3.30  *$  1.23   7.1%
CMOS   11.11  10.82   DEC  10.00  1.65  *$  0.54   6.2%
V      13.96  16.20   DEC  12.50  2.35  *$  0.89   5.6%
USG     6.25   7.85   DEC   5.00  1.60  *$  0.35   5.5%
CTIC    8.60   9.60   DEC   7.50  1.50  *$  0.40   4.9%
DCTM   19.90  18.62   DEC  17.50  3.10  *$  0.70   4.5%
BLDP   13.80  15.03   DEC  12.50  1.80  *$  0.50   4.5%
TXN    19.22  20.11   DEC  17.50  2.40  *$  0.68   4.4%
IDCC   15.20  18.25   DEC  12.50  3.30  *$  0.60   4.4%
MDCO   14.33  16.78   DEC  10.00  4.90  *$  0.57   4.4%
DCTM   18.13  18.62   DEC  15.00  3.80  *$  0.67   4.1%
IDCC   14.74  18.25   DEC  12.50  2.90  *$  0.66   4.0%
BRCM   15.45  19.55   DEC  12.50  3.50  *$  0.55   4.0%
SEE    18.26  37.81   DEC  15.00  3.90  *$  0.64   3.9%
OSUR    7.97   5.99   DEC   7.50  1.45   $ -0.53   0.0%

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


Will the DOW and SP-500 follow the NASDAQ and take out the August
high?  Now isn't that a loaded question; which will be answered in
the next few days.  The bullish euphoria of the last decade seems
to be slowly creeping back into the markets.  Not necessarily a
bad thing, but symptomatic of some "call-selling" regret as stocks
power up day after day or rocket higher like Sealed Air (NYSE:SEE).
Remember though, even with the recent rally, there are a lot of
long-term investors (and fund managers) who still have a long way
to go just to break-even for the year.  As for the covered-call
portfolio, OraSure Technologies (NASDAQ:OSUR) remains on our watch
list this week as the stock approaches a key support area: the
convergence of the October high and its 150-dma.  Be optimistic,
but don't drop your guard.


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

ALXN   17.53  DEC 15.00   XQN LC  2.95 347   14.58   21    4.2%
CRYP    5.57  DEC  5.00   UFW LA  0.80 175    4.77   21    7.0%
FLEX   11.01  DEC 10.00   QFL LB  1.40 12076  9.61   21    5.9%
JDEC   14.13  DEC 12.50   QJD LV  2.15 1652  11.98   21    6.3%
LAVA   11.59  DEC 10.00   UPB LB  1.95 128    9.64   21    5.4%
MATK   23.16  DEC 20.00   KQT LD  3.70 450   19.46   21    4.0%
MVSN   18.68  DEC 17.50   MVU LW  1.85 60    16.83   21    5.8%

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

CRYP    5.57  DEC  5.00   UFW LA  0.80 175    4.77   21    7.0%
JDEC   14.13  DEC 12.50   QJD LV  2.15 1652  11.98   21    6.3%
FLEX   11.01  DEC 10.00   QFL LB  1.40 12076  9.61   21    5.9%
MVSN   18.68  DEC 17.50   MVU LW  1.85 60    16.83   21    5.8%
LAVA   11.59  DEC 10.00   UPB LB  1.95 128    9.64   21    5.4%
ALXN   17.53  DEC 15.00   XQN LC  2.95 347   14.58   21    4.2%
MATK   23.16  DEC 20.00   KQT LD  3.70 450   19.46   21    4.0%

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  $17.53  *** 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.  ALXN shares rallied recently
after the company said its experimental drug pexelizumab failed to
achieve 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 at technical support.

DEC 15.00 XQN LC LB=2.95 OI=347 CB=14.58 DE=21 TY=4.2%

CRYP - CryptoLogic   $5.57  *** Betting On The Rally! ***

CryptoLogic (NASDAQ:CRYP) is an Internet software development and
licensing company operating in the Internet transaction processing
market.  The principal focus of the company is the development,
licensing and support of Internet-based software and e-commerce
software for the Internet gaming industry.  The company, through
WagerLogic Limited, licenses and supports its proprietary Internet-
based software package to 17 Internet casino licensees located in
various countries around the world.  The company provides support
and technology to WagerLogic licensees, and maintains, through
subsidiaries, accounts for both merchants of its software and their
end users.  The company reports and remits to its licensees their
respective share of the net transaction revenues.  Investors have
grabbed-up shares of CRYP after several bills to prohibit Internet
gaming have failed.  Recently, the first US federal legislation
that shares the company's position in favor of the regulation of
online gaming has been introduced in congress.  We simply favor
the bullish breakout on heavy volume that suggests further upside
potential in the near-term.

DEC 5.00 UFW LA LB=0.80 OI=175 CB=4.77 DE=21 TY=7.0%

FLEX - Flextronics  $11.01  *** New Trading Range? ***

Flextronics (NASDAQ:FLEX) is a provider of advanced electronics
manufacturing services to OEMs, primarily in the hand-held
electronics devices, information technologies infrastructure,
communications infrastructure, computer and office automation
and consumer devices industries.  FLEX provides a network of
design, engineering and manufacturing operations in 28 countries
across four continents.  The company's strategy is to provide
customers with end-to-end operational solutions where it takes
responsibility for engineering, new product introduction and
implementation, supply chain management, manufacturing and
logistics management, with the goal of delivering a complete
packaged product.  Flextronics has confirmed that it remains
on track to meet its previous financial forecasts for the next
two quarters.  This week, the U.S. October durable goods report
showed a jump in orders for computers, electronic products and
communications gear, which should bode well for future earnings.
We simply like the move above a six-month base and this position
offers excellent reward potential at the risk of owning an
industry-leading issue at a favorable cost basis.

DEC 10.00 QFL LB LB=1.40 OI=12076 CB=9.61 DE=21 TY=5.9%

JDEC - J.D. Edwards  $14.13  *** Bracing For A Break-Out? ***

J.D. Edwards (NASDAQ:JDEC) is a provider of agile, collaborative
solutions for the connected economy.  JDEC delivers integrated,
collaborative software for supply chain management (planning and
execution) procurement and customer relationship management, in
addition to workforce management and other functional support.
Its enterprise software is designed to help organizations manage
and execute internal business functions, such as manufacturing,
finance, distribution/logistics and other core operational
processes.  The company distributes, implements and supports its
software worldwide through 55 offices and more than 350 3rd-party
business partners. JDEC has been in a trading range from $9 to $14
for the last 8 months as the stock forms a long-term stage I base.
This position offers favorable short-term speculation at the risk
of owning this issue with a cost basis at near-term technical

DEC 12.50 QJD LV LB=2.15 OI=1652 CB=11.98 DE=21 TY=6.3%

LAVA - Magma Design  $11.59  *** On The Mend? ***

Magma Design Automation (NASDAQ:LAVA) provides design and
implementation software that enables chip designers to reduce
the time it takes to design and produce complex ICs used in
the communications, computing, consumer electronics, networking
and semiconductor industries.  Its Blast Fusion and Blast Chip
products utilize a new methodology for complex, deep submicron
chip design that combines into one integrated design flow what
traditionally has been separate logic design and physical design
processes.  In addition, LAVA provides consulting, training and
chip design services to help its customers more rapidly adopt
its technology, as well as post-contract support, or maintenance,
for its products.  There's little news to explain the recent
bullish activity in LAVA but the issue has moved above the
October consolidation area amid continued buying pressure and
excellent volume.  Traders can speculate on the near-term
performance of the issue with this conservative position.

DEC 10.00 UPB LB LB=1.95 OI=128 CB=9.64 DE=21 TY=5.4%

MATK - Martek Biosciences  $23.16  *** 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 recently announced 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=3.70 OI=450 CB=19.46 DE=21 TY=4.0%

MVSN - Macrovision   $18.68  *** Rally Mode! ***

Macrovision (NASDAQ:MVSN) develops and licenses rights management
and copy protection technologies.  The company's customers include
Hollywood studios, independent video producers, enterprise and
consumer software vendors, digital set-top box manufacturers and
digital pay-per-view (PPV) network operators. Macrovision provides
content owners with the means to market, distribute, manage and
protect video, software and audio content.  The company also is
in the business of consumer software copy protection.  Macrovision
offers CD-ROM copy protection and rights management technologies
to a variety of software publishers in the personal computer games,
home education, information publishing and desktop applications
software markets.  Macrovision doubled its share value in little
over a month and the break-out above the August high completed a
short-term double bottom.  We favor the technical support near
the cost basis in this position and investors who are interested
in a long-term portfolio stock in the media sector should consider

DEC 17.50 MVU LW LB=1.85 OI=60 CB=16.83 DE=21 TY=5.8%



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

ROXI    5.55  DEC  5.00   RXU LA  0.85 187    4.70   21    9.2%
WDC     8.45  DEC  7.50   WDC LU  1.25 3353   7.20   21    6.0%
USG     7.85  DEC  7.50   USG LU  0.65 549    7.20   21    6.0%
RATL    9.25  DEC  7.50   RAQ LU  2.05 6392   7.20   21    6.0%
NTAP   13.87  DEC 12.50   NUL LV  1.85 6085  12.02   21    5.8%
PCS     5.76  DEC  5.00   PCS LA  0.95 10824  4.81   21    5.7%
BRCM   19.55  DEC 17.50   RCQ LW  2.70 6719  16.85   21    5.6%
PLNR   20.82  DEC 20.00   PNQ LD  1.55 105   19.27   21    5.5%
MERX   11.17  DEC 10.00   KXQ LB  1.50 27     9.67   21    4.9%
FHRX    6.09  DEC  5.00   FUF LA  1.25 30     4.84   21    4.8%
ADSK   15.49  DEC 15.00   ADQ LC  0.95 1159  14.54   21    4.6%
NWRE   20.19  DEC 17.50   QQA LW  3.20 946   16.99   21    4.3%
ELX    24.14  DEC 20.00   ELX LD  4.70 3826  19.44   21    4.2%
WEBX   19.46  DEC 17.50   UWB LW  2.45 502   17.01   21    4.2%


Options 101: Position Selection For Naked Puts
By Ray Cummins

One of our new readers wants to know how we choose the plays for
this section.

Attn: questions@OptionInvestor.com
Subject: Stock Selection

To The Naked-Puts Editor,

I recently started my trial with the newsletter and I am trying
to figure out which section I should focus on.  My experience is
mostly related to long-term investing but I know a person can
buy stock by selling puts and having it "put" to them.  That is
a strategy I am interested in so I would like to find out more
about the naked puts section.  Mainly, how do you pick stocks
for selling puts?  Also, do you say when to exit the trades and
how much money do you expect to make on each one?

Thank You,


Hello DL,

First, thanks for your inquiry concerning the Naked-Puts section
of the Option Investor Newsletter.

The Naked-Puts section is produced mainly for new option traders
who need relatively conservative, easy-to-understand strategies.
To generate the initial group of candidates, we (Mark Wnetrzak
and I) evaluate stocks with overpriced options, reviewing the
technical outlook of the underlying issue as well as its industry
group or sector.  If we feel a position has a high probability of
success and a reasonable risk-reward outlook, it is placed on a
list for further evaluation.  After we have reviewed all of the
potential selections for a specific day, we simply choose those
which, in our opinion, appear most favorable.  Generally, we try
to achieve a 4-8% monthly profit with at least 10-15% downside
protection.  That can be a difficult task when the market is in a
bearish trend but since our readers expect new plays regardless
of the outlook for stocks, we list a minimum of seven candidates
each week.  The truth is, writing naked puts is generally not a
favorable strategy unless the current trend is neutral or bullish
but one thing should be understood: If we don't have confidence
in what we have to offer, it won't be published, and that's the
overriding measure of any candidate we provide in the section.

We also provide a group of additional candidates to supplement
your search for profitable trades.  These plays, for one reason
or another, simply did not make the final list.  As you might
expect, the process of choosing the "published" positions is very
subjective and there are always additional issues that warrant
consideration.  That is why we now include some of the candidates
that missed our final cut -- so that YOU may decide if they meet
your criteria for a favorable play.  Remember, our primary job is
to provide you with a list of potential plays, greatly reducing
your research time.  Your task is to decide which ones fit your
risk-reward profile and hopefully, with research and analysis far
beyond that which we can perform in the few hours between Friday's
closing bell and Saturday's publishing deadline, you will select
only those positions that are winners.

As far as commentary and analysis after the position is open: I
try to monitor the plays in each section regularly but I do not
make specific recommendations about when they should be closed or
adjusted.  Again, my job is to provide candidates for your careful
scrutiny and to identify plays that have a favorable risk-reward
outlook.  The determination of how and when to trade is solely
yours.  I will, however, try to point out those occasions when a
position offers a favorable "early-exit" return, or when I notice
an issue that has reversed direction and may require adjustment or
an exit trade to avoid substantial losses.  Keep in mind, I often
monitor over 100 positions in three sections on a daily basis and
I may not always observe the crucial turning point or change in
character of a specific issue.  The weekly summary "comments" are
not intended as a substitute for your own trading techniques nor
does it replace your fundamental duty to manage the positions in
your portfolio.  In addition, any actions based on the commentary
would generally be far too late to be effective.

I hope this has helped you understand the difficulties associated
with producing the Naked-Puts and maybe you will eventually benefit
from some of the plays offered in that section.  Always remember,
they are really just candidates and should only be considered with
respect to your personal risk-reward attitudes and trading style.

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.


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

MATK   22.07  23.16   DEC  17.50  0.45  *$  0.45  10.1%
IMCL   15.04  13.73   DEC  10.00  0.30  *$  0.30   9.8%
NWRE   17.68  20.19   DEC  12.50  0.55  *$  0.55   9.7%
ESIO   22.99  24.37   DEC  17.50  0.55  *$  0.55   9.3%
HAL    18.85  21.38   DEC  15.00  0.35  *$  0.35   9.2%
ALXN   17.55  17.53   DEC  12.50  0.30  *$  0.30   8.6%
IMCL   11.77  13.73   DEC   7.50  0.25  *$  0.25   8.4%
MSTR   18.16  18.24   DEC  12.50  0.30  *$  0.30   8.3%
ISSX   22.19  25.03   DEC  17.50  0.45  *$  0.45   8.0%
BSTE   31.02  28.52   DEC  22.50  0.75  *$  0.75   7.8%
HAL    17.85  21.38   DEC  12.50  0.35  *$  0.35   7.8%
CYMI   33.43  36.33   DEC  25.00  0.60  *$  0.60   7.2%
PHTN   28.50  35.25   DEC  22.50  0.50  *$  0.50   7.0%
GNSS   17.17  19.90   DEC  12.50  0.30  *$  0.30   7.0%
PLMD   30.31  28.74   DEC  22.50  0.60  *$  0.60   6.5%
ESIO   24.50  24.37   DEC  17.50  0.30  *$  0.30   6.3%
KOSP   19.13  20.64   DEC  15.00  0.35  *$  0.35   6.1%
SEE    21.33  37.81   DEC  15.00  0.25  *$  0.25   6.0%
RIMM   16.58  15.28   DEC  12.50  0.30  *$  0.30   6.0%
NPSP   28.24  29.56   DEC  20.00  0.50  *$  0.50   5.9%
POSS   14.20  16.18   DEC  12.50  0.35  *$  0.35   5.9%
IGEN   38.65  37.78   DEC  30.00  0.55  *$  0.55   5.8%
ESIO   21.15  24.37   DEC  15.00  0.35  *$  0.35   5.5%
MEDI   28.07  26.38   DEC  20.00  0.30  *$  0.30   5.5%
AMZN   22.21  23.35   DEC  17.50  0.30  *$  0.30   5.5%
PPD    27.08  28.65   DEC  20.00  0.35  *$  0.35   5.3%

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


Friday's lackluster session provided a rather dull ending to the
Thanksgiving holiday week, however the recent bullish activity
leaves the door open for additional upside movement in the final
month of 2002.  Analysts are looking for a move above the August
highs to confirm the recovery rally but without that event, a
fairly strong decline will likely occur in early December.  With
that in mind, investors should continue to closely monitor the
issues in their portfolios daily and exit any positions that
exhibit unfavorable technical indications.  Research In Motion
(NASDAQ:RIMM) rebounded Monday and moved higher all week, thus
the stock may have successfully weathered the news of RIM's patent
infringements on products made by NTP Inc.  We will continue to
watch the issue for signs of a renewed downtrend.


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

BBY    27.68  DEC 22.50   BBY XX  0.35 9930  22.15   21    8.1%
GP     20.62  DEC 17.50    GP XW  0.45 287   17.05   21   11.7%
HAL    21.37  DEC 17.50   HAL XW  0.45 5002  17.05   21   12.7%
JEC    36.31  DEC 35.00   JEC XG  0.50 0     34.50   21    5.3%
NWRE   20.19  DEC 15.00   QQA XC  0.30 308   14.70   21   10.0%
PHTN   35.25  DEC 27.50   PDU XY  0.40 502   27.10   21    7.8%
PPD    28.65  DEC 22.50   PPD XX  0.30 2213  22.20   21    7.2%
RINO   19.40  DEC 17.50   AGQ XW  0.30 82    17.20   21    7.1%

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

HAL    21.37  DEC 17.50   HAL XW  0.45 5002  17.05   21   12.7%
GP     20.62  DEC 17.50    GP XW  0.45 287   17.05   21   11.7%
NWRE   20.19  DEC 15.00   QQA XC  0.30 308   14.70   21   10.0%
BBY    27.68  DEC 22.50   BBY XX  0.35 9930  22.15   21    8.1%
PHTN   35.25  DEC 27.50   PDU XY  0.40 502   27.10   21    7.8%
PPD    28.65  DEC 22.50   PPD XX  0.30 2213  22.20   21    7.2%
RINO   19.40  DEC 17.50   AGQ XW  0.30 82    17.20   21    7.1%
JEC    36.31  DEC 35.00   JEC XG  0.50 0     34.50   21    5.3%

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).

BBY - Best Buy Company  $27.68  *** Hot Sector! ***

Best Buy Company (NYSE:BBY) is a specialty retailer of consumer
electronics, personal computers, entertainment software and
appliances.  The company operates retail stores and commercial
Websites under the brand names Best Buy, Media Play, On Cue,
Sam Goody, Suncoast, Magnolia Hi-Fi and Future Shop.  Traders
took to retail stocks this week amid a slew of economic reports
that suggest consumers are buying and will continue to do so in
the near future.  BBY shares benefited from the upside activity
and investors who believe the trend will continue can profit
from that outcome with this position.

DEC 22.50 BBY XX LB=0.35 OI=9930 CB=22.15 DE=21 TY=8.1%

GP - Georgia-Pacific  $20.62  *** Asbestos Settlements ***

Headquartered in Atlanta, Georgia-Pacific (NYSE:GP) is one of
the world's leading manufacturers and distributors of tissue,
packaging, paper, building products, pulp and related chemicals.
With 2001 sales of $25 billion, the firm employs approximately
60,000 people at 400 locations in North America and Europe.  Its
familiar consumer tissue brands include Quilted Northern, Angel
Soft, Brawny, Sparkle, Soft 'n Gentle, Mardi Gras, So-Dri, Green
Forest and Vanity Fair, as well as the Dixie brand of disposable
cups, plates and cutlery.  Georgia-Pacific's building products
distribution segment has long been among the nation's leading
wholesale suppliers of building products to lumber and building
materials dealers and large do-it-yourself warehouse retailers.
Georgia-Pacific has benefited from the bullish news related to
asbestos lawsuit settlements and based on the recent technical
indications, the risk-reward outlook in this play is favorable.

DEC 17.50 GP XW LB=0.45 OI=287 CB=17.05 DE=21 TY=11.7%

HAL - Halliburton  $21.37  *** More Asbestos Settlements ***

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
rallied again this week amid bullish developments in the asbestos
litigation arena.  Both Sealed Air and Fresenius Medical reported
they had settled all current and future asbestos claims and the
news was positive for other firms in similar situations.  Traders
can speculate on the near-term results of the ongoing asbestos
litigation with this position.

DEC 17.50 HAL XW LB=0.45 OI=5002 CB=17.05 DE=21 TY=12.7%

JEC - Jacobs Engineering Group  $36.31  *** New Trading Range! ***

Jacobs Engineering Group (NYSE:JEC) is a professional services
firm focused exclusively on providing a broad range of technical
professional services to a large number of industrial, commercial
and governmental clients worldwide.  The types of technical and
professional services the firm provides to its clients include
project services, process, scientific and systems consulting
services, operations and maintenance services and construction
services.  The company concentrates its services on selected
industry groups and markets, including chemicals and polymers,
buildings (including projects in the fields of healthcare and
education, as well as commercial and governmental buildings),
federal programs, pharmaceuticals and biotechnology, exploration,
production and refining, infrastructure, technology and also the
manufacturing and pulp and paper.  Shares of JEC vaulted to the
top of a recent trading range near $32 and the issue now appears
poised for future upside activity.

DEC 35.00 JEC XG LB=0.50 OI=0 CB=34.50 DE=21 TY=5.3%

NWRE - Neoware Systems  $20.19  *** Entry Point? ***

Neoware Systems (NASDAQ:NWRE) provides software and solutions to
enable appliance computing, a web-based computing architecture
targeted at business customers that is designed to be simpler
and easier than traditional personal computer-based computing.
The company's software and management tools power and manage a
new generation of smart computing appliances that utilize the
benefits of open, industry-standard technologies to create new
alternatives to PCs used in business and a variety of proprietary
business devices.  Neoware Systems provides its software on top
of a number of embedded operating systems, including Microsoft's
Windows CE and NT Embedded, as well as an embedded version of the
Linux operating system.  Shares of Neoware Systems moved higher
this week after a business publication gave the computer company
an A-plus overall rating compared with its computer-manufacturer
peers.  Investor's Business Daily's Web site ranked Neoware the
best stock overall in the computer-manufacturer group and the
company garnered top rankings in the technical, fundamental and
attractiveness categories.  Investors looking for a long-term
portfolio holding in the technology segment can use this play
to obtain a low risk entry point in the issue.

DEC 15.00 QQA XC LB=0.30 OI=308 CB=14.70 DE=21 TY=10.0%

PHTN - Photon  $35.25  *** Sector Rally Continues! ***

Photon Dynamics (NASDAQ:PHTN) is a provider of yield management
solutions to the flat panel display (FPD) industry.  The company
also offers yield management solutions for the printed circuit
board assembly and advanced semiconductor packaging industries
and the cathode ray tube display and CRT glass and auto glass
industries.  The firm's test, repair and inspection systems are
used by manufacturers to collect data, analyze product quality
and identify and repair product defects at critical steps in the
manufacturing.  Stocks in the Semiconductor-Equipment group have
continued to perform very well and Photon Dynamics is one of the
leading issues in the segment.  Traders who believe the trend
will continue can profit from that outcome with this position.

DEC 27.50 PDU XY LB=0.40 OI=502 CB=27.10 DE=21 TY=7.8%

PPD - Pre-Paid Legal  $28.65  *** Premium Selling! ***

Pre-Paid Legal Services (NYSE:PPD) was one of the first companies
in the United States organized solely to design, underwrite and
market legal expense plans.  The company's legal expense plans
(referred to as Memberships) currently provide for a variety of
legal services in a manner similar to medical reimbursement plans.
Plan benefits are provided through a network of independent law
firms, typically one firm per state or province.  Members have
direct, toll-free access to their Provider law firm rather than
having to call for a referral.  Legal services include unlimited
attorney consultation, traffic violation defense, auto-related
criminal charges defense, letter writing/document preparation,
will preparation and review and a general trial defense benefit.
Pre-Paid has always been a controversial issue and its shares
rallied again last week after Thestreet.com published a report by
Gotham Partners that argues a bullish case for the company.  The
news generated some large moves in the stock, but that has often
been the character of PPD and traders who want to speculate on
the future movement of the issue should consider this position.

DEC 22.50 PPD XX LB=0.30 OI=2213 CB=22.20 DE=21 TY=7.2%

RINO - Blue Rhino  $19.40  *** Bullish Outlook! ***

Blue Rhino (NASDAQ:RINO) is a top national provider of branded
propane cylinder exchange and complementary propane-fueled
products to consumers.  Blue Rhino cylinder exchange is offered
at leading home center/hardware, mass merchants, grocery and
convenience stores, with branded cylinder displays at more than
26,000 retail locations in 48 states plus Puerto Rico.  Rhino's
cylinders are delivered to retailers through a national network
of 46 distributors.  The firm's propane-fueled products segment
is focused on appliances such as grills and patio heaters that
use cylinders as their fuel source.  These products are marketed
through many of the same retailers that offer the firm's branded
cylinder exchange service.  The company's quarterly report was
outstanding and the future earnings outlook is also favorable.
Investors who want to establish a conservative cost basis in the
issue should consider this position.

DEC 17.50 AGQ XW LB=0.30 OI=82 CB=17.20 DE=21 TY=7.1%



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

CLHB   14.69  DEC 12.50   QPB XV  0.30 332   12.20   21   10.9%
IDCC   18.25  DEC 15.00   DAQ XC  0.30 679   14.70   21   10.0%
FEIC   18.65  DEC 15.00   FQE XC  0.25 107   14.75   21    8.9%
AFCO   20.25  DEC 17.50   UOF XW  0.35 2     17.15   21    8.9%
VRST   20.39  DEC 17.50   UVQ XW  0.30 77    17.20   21    7.8%
GENZ   32.80  DEC 30.00   GZQ XF  0.55 580   29.45   21    7.3%
ELX    24.14  DEC 17.50   ELX XW  0.25 1386  17.25   21    7.1%
SNDK   27.75  DEC 22.50   SWQ XX  0.30 490   22.20   21    7.1%
NOK    19.21  DEC 17.50   NOK XW  0.30 2328  17.20   21    6.9%
QCOM   41.22  DEC 35.00   AAW XG  0.45 25992 34.55   21    6.1%



Another Bullish Week!
By Ray Cummins

The major equity averages ended lower Friday but the consolidation
was seen as acceptable for a market that has rallied over 20% from
its 2002 nadir.

The Dow Jones Industrial Average slid 35 points to 8,886 despite
large gains in Honeywell (NYSE:HON), which rebounded 6% amid news
of a key asbestos settlement related to a company it had acquired.
The tech-laden NASDAQ index slumped 9 points to 1,478 as computer
hardware and semiconductor shares retreated after recent advances.
The broader S&P 500-stock index finished slightly negative, down 2
points as retail, airline, building materials, and home healthcare
stocks turned lower.  Volume was light during the holiday-shortened
trading session with only 637 million shares changing hands on the
Big Board and 833 million shares traded on the NASDAQ.  Breadth was
neutral with advances and declines roughly equal on the major stock
exchanges.  The bond market was upbeat as Treasurys advanced in an
abbreviated session.  The 10-year note rose 10/32 to yield 4.21%
while the 30-year bond added 1 4/32 to yield 5.04%.


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.


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

BR      42.01  42.12  DEC   35  37  0.30   37.20  $0.30   Open
EBAY    64.79  68.92  DEC   50  55  0.55   54.45  $0.55   Open
IGEN    36.49  37.78  DEC   25  30  0.65   29.35  $0.65   Open
SLM    102.94  97.73  DEC   85  90  0.65   89.35  $0.65   Open
DE      49.00  51.15  DEC   40  45  0.65   44.35  $0.65   Open
INTU    52.91  53.94  DEC   40  45  0.50   44.50  $0.50   Open
LLY     62.24  68.30  DEC   50  55  0.55   54.45  $0.55   Open
IGT     77.06  77.72  DEC   65  70  0.55   69.45  $0.55   Open
KSS     66.90  68.50  DEC   55  60  0.55   59.45  $0.55   Open
PIXR    55.67  57.74  DEC   45  50  0.50   49.50  $0.50   Open
AZO     85.32  81.70  DEC   70  75  0.45   74.55  $0.45   Open
FPL     59.87  58.80  DEC   50  55  0.55   54.45  $0.55   Open
UOPX    36.65  35.15  DEC   30  33  0.45   33.30  $0.45   Open

SLM Corporation (NYSE:SLM) and Autozone (NYSE:AZO) are on the
watch-list but both issues appear to be stabilizing after recent
declines.  University of Phoenix Online (NASDAQ:UOPX) has also
endured some profit-taking but for now, the bullish trend remains


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

ABC     72.45  58.02  DEC   85  80  0.65   80.65  $0.65   Open
MCO     45.12  44.02  DEC   55  50  0.40   50.40  $0.40   Open
WLP     74.04  65.83  DEC   90  85  0.60   85.60  $0.60   Open
UNH     86.83  81.45  DEC  105 100  0.55  100.55  $0.55   Open
DNA     35.46  33.00  DEC   45  40  0.60   40.60  $0.60   Open
DP      40.40  36.28  DEC   50  45  0.40   45.40  $0.40   Open
LXK     63.75  66.14  DEC   75  70  0.60   70.60  $0.60   Open
IDPH    39.27  32.90  DEC   45  40  0.45   40.45  $0.45   Open
UHS     44.85  44.75  DEC   55  50  0.30   50.30  $0.30   Open

Sinclair Broadcast Group (NASDAQ:SBGI) rallied in conjunction
with the bullish activity in the media group and the position
has been closed to protect profits and/or limit losses.  The
bearish spread in Lexmark (NYSE:LXK) is also on the watch-list
as the issue has renewed its upward trend during the recovery
in technology stocks.  However, the issue has another level of
resistance near the sold strike at $70 and the supply at that
price should provide significant opposition to further upside


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

ABT    45.89  43.78   DEC  50  40   0.10   0.00   0.10   Open
NXTL    9.69  13.75   JAN  12   7   0.10   2.50   2.60   Open?
FCS    13.30  15.31   FEB  17  10   0.10   1.40   1.50   Open
LTXX    6.83   9.22   FEB  10   5   0.00   0.90   0.90   Open
MENT    10.35 12.06   JAN  12   7   0.10   0.80   0.90   Open
COX     30.25 30.28   DEC  35  25   0.10   0.20   0.30   Open
OMC     66.32 68.05   DEC  75  55   0.15   0.10   0.25   Open
FLEX    11.15 11.01   JAN  12  10   0.10   0.15   0.25   Open
ZRAN    18.80 21.53   DEC  22  15  (0.25)  1.00   0.75  No Play

Nextel (NASDAQ:NXTL) remains 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 and the speculative play in ZRAN, although
not available at our target price, achieved a favorable gain.


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

HNT    25.75  25.81   JAN-30C   NOV-30C    0.75   0.60   Open
WSM    24.53  26.34   FEB-30C   DEC-30C    0.80   1.10   Open
GISX   20.21  19.41   FEB-22C   DEC-22C    0.95   0.75   Open
UAL     3.59   2.45   FEB-5C    DEC-5C     0.35   0.25   Open

United Airlines (NYSE:UAL) was the big mover this week, falling
to a recent low near $2.50 after the group's mechanics rejected
pay cuts that are a key element of its financial recovery plan.
Fortunately, the premium in the sold option reduced our basis
to a price near the current value of the long position.  The
question now is whether or not UAL can come to terms with the
mechanics' union before the deadline for financing.  The Sharper
Image (NASDAQ:SHRP) position has been closed to limit losses.


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

AES     2.92   2.12   J04-7.5P  J03-2.5P   4.50   0.25   Open
IMCL    7.77  13.73   J04-15P   JO3-5P     8.00   2.25   Open?

After over a month in the position, ImClone (NASDAQ:IMCL) has
paid off nicely with a profit of up to $2.25 in the speculative


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

ERTS   64.13  67.86   DEC  70  55   2.40   1.50   0.90    Open
MDCO   12.70  16.78   DEC  17   7   1.25   0.75   0.75   No Play
SLAB   25.16  29.29   DEC  30  20   1.00   2.00  (1.00)   Open

Silicon Laboratories (NASDAQ:SLAB) has been very active with the
technology group and any continued upside activity will suggest
an exit (or adjustment) in the bearish portion of the position.
Traders with a bullish outlook on the semiconductor sector may
consider buying the stock to cover the sold (short) call at $30.
The Medicine Company (NASDAQ:MDCO) position, although profitable,
was not initiated due to a significant "pre-open" announcement.

Questions & comments on spreads/combos to Contact Support


Attn: Contact Support
Subject: Abbreviations & Acronyms

To The Spreads Editor,

Ray, I feel kind of stupid because I have been reading these for
several years, but have not done a lot of spreads.  What does C/B
mean in the spread tables as well as M/V and C/V.

Thanks in advance!

Have a great day,


Hello PE,

Thanks for your interest in the Spreads/Combos section.  The
abbreviations used in that segment of the OIN are generally
straight-forward but a few deserve further explanation.

C/B = Cost Basis

The break-even or "profit/loss point" in a position -- can be both
upside and downside break-even if a volatility based play (such as
a straddle or strangle).

M/V = Maximum Value

The maximum value observed in a suggested position.  Either a
credit or a debit depending on the strategy and often involves
subtracting the cost (to close) of the short option from the
value (bid price) in the long option.  For example, the maximum
value in a synthetic position would be the initial credit plus
any premium received in selling the long option and buying the
short option).

CV = Current Value

The composite total of the closing prices (bid or ask as appropriate)
as of the summary date.  For example, the Current Value of a debit
straddle would be the (bid) price of the long put added to the (bid)
price of the long call, thus giving the trader an indication of the
gain or loss in the position (based on the initial debit in the
straddle).  In the case of a credit strangle, Current Value is the
sum of the ask prices of both the call and the put options -- the
total cost of repurchasing both (short) options.  Once again, it is
intended to help reflect the current profit or loss in a play.

Hope that helps...and remember, the weekly play summary is nothing
more than a reasonable (Interquote-based) account of the positions
previously offered in this section.  No representation is being made
as to the actual performance of the portfolio, due to the many ways
which each play can be opened, closed and/or adjusted.  In addition,
trade suggestions made in the OIN are simply candidates to supplement
your search for profitable trading positions.  As with any investment,
you must decide if the selections meet your criteria for potential

Have a great day!


Editors note:  Readers often ask about the different summaries for
for the "Premium-Selling" section, which is published on Wednesday
and the "Spreads-Combos" section, which is offered in the week-end
edition of the OIN.  The Premium-Selling plays (previously called
Big-Cap plays) published during the week are completely separate
from the Spreads-Combos candidates listed on Saturday afternoon.
As such, the play summaries are also separate; they do not include
positions from the other sections.  The most obvious reason for
this is the time-consuming nature of the summary, which has to be
done after the market closes but prior to any research (and the
publishing deadline) for new positions.  You may have noticed that
the mid-week "Premium-Selling" summary is now based on Tuesday's
market prices, which allows for a full three hours of research
after the market closes (on Wednesday) before the plays are sent to
the home-office for publishing.  A similar condition exists Friday
after the market close, as the summary must be completed before
research can begin on the new candidates.  In short, dividing the
two sections (and their respective summaries) allows more time to
be devoted to the most important newsletter service: finding new
candidates for our readers.


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.


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.

ABK - Ambac Financial  $62.51  *** Another Trend Reversal! ***

Ambac Financial (NYSE:ABK) is a holding company that, through its
many subsidiaries provides financial guarantee products and other
financial services to clients in the public and private sectors
around the world.  The company provides financial guarantees for
municipal and structured finance obligations through its primary
operating subsidiary, Ambac Assurance Corporation.  Through its
financial services subsidiaries, the company provides financial
and investment products including investment agreements, interest
rate swaps, funding conduits, investment advisory and financial
management services, principally to its guarantee clients, which
include municipalities and their authorities, school districts,
healthcare organizations and asset-backed issuers.

PLAY (very conservative - bullish/credit spread):

BUY  PUT  DEC-50  ABK-XJ  OI=356   A=$0.35
SELL PUT  DEC-55  ABK-XK  OI=2677  B=$0.65
POTENTIAL PROFIT(monthly)=9% B/E=$54.65

AGN - Allergan  $58.79  *** Trading Range? ***

Allergan (NYSE:AGN) is a technology-driven, global healthcare
company that develops and commercializes specialty pharmaceutical
products for the ophthalmic, neurological, dermatological and
other specialty markets, as well as ophthalmic surgical devices
and contact lens care solutions.  Its worldwide, consolidated
revenues are generated by prescription and also non-prescription
pharmaceutical products in the areas of ophthalmology and skin
care, neurotoxins, intraocular lenses and other ophthalmic
surgical products, and contact lens care products.  The company's
products are sold to drug wholesalers, independent and chain drug
stores, pharmacies, commercial optical chains, opticians, mass
merchandisers, food stores, hospitals, ambulatory surgery centers
and medical practitioners, including neurologists, dermatologists
and plastic surgeons.

PLAY (conservative - bullish/credit spread):

BUY  PUT  DEC-50  AGN-XJ  OI=361  A=$0.25
SELL PUT  DEC-55  AGN-XK  OI=147  B=$0.75
POTENTIAL PROFIT(max)=12% B/E=$54.45

RE - Everest Re Group  $57.90  *** Recovery Underway? ***

Everest Re Group (NYSE:RE), through its subsidiaries, principally
provides reinsurance and insurance in the United States, Bermuda
and international markets.  The company underwrites reinsurance
both through brokers and directly with ceding companies.  Everest
underwrites insurance mainly through general agency relationships.
Everest Reinsurance company specializes in property and casualty
reinsurance and insurance.  Everest Reinsurance (Bermuda), Ltd.,
established in 2000, principally writes property and casualty
reinsurance and also offers reinsurance and insurance with respect
to life and annuity classes of business.

PLAY (conservative - bullish/credit spread):

BUY  PUT  DEC-50  RE-XJ  OI=70  A=$0.30
SELL PUT  DEC-55  RE-XK  OI=97  B=$0.80
POTENTIAL PROFIT(max)=12% B/E=$54.45

AAP - Advance Auto Parts  $51.55  *** Trading Range? ***

Advance Auto Parts (NYSE:AAP) is a specialty retailer of auto
parts, accessories and maintenance items for "do-it-yourself"
customers in the United States.  The company had 2,444 stores
operating under the Advance Auto Parts and Discount Auto Parts
trade names in 37 states in the northeastern, southeastern and
midwestern regions of the United States at December 29, 2001.
In addition, as of that date, Advance Auto Parts had 40 stores
operating under the Western Auto trade name located in Puerto
Rico, the Virgin Islands and California.  Its stores offer a wide
selection of brand-name and private-label automotive products for
domestic and imported cars and light trucks.  The firm also serves
do-it-for-me (DIFM) customers via sales to commercial accounts.
Additionally, Advance Auto Parts operates a wholesale distribution
network, which offers automotive parts, accessories and certain
other merchandise to approximately 470 independently-owned dealer
stores in 44 states.

PLAY (conservative - bearish/credit spread):

BUY  CALL  DEC-60  AAP-LL  OI=2290  A=$0.20
SELL CALL  DEC-55  AAP-LK  OI=5080  B=$0.70
POTENTIAL PROFIT(max)=12% B/E=$55.55

ACDO - Accredo Health  $53.32  *** Pure Premium-Selling! ***

Accredo Health (NASDAQ:ACDO) provides specialized contract
pharmacy services on behalf of biopharmaceutical manufacturers
to patients with chronic diseases.  The company's services help
simplify the difficult and often challenging medication process
for patients with a chronic disease and help ensure that patients
receive and take their medication as prescribed.  The company's
services benefit biopharmaceutical manufacturers by accelerating
patient acceptance of new drugs, facilitating patient compliance
with the prescribed treatment and capturing valuable clinical
information about a new drug's effectiveness.  Their services
include contract pharmacy services, reimbursement services,
clinical services, and delivery services.  The company's stock
will split 3-for-2 on 12/03/02.

PLAY (less conservative - bearish/credit spread):

BUY  CALL  DEC-65  DZU-LM  OI=50   A=$0.25
SELL CALL  DEC-60  DZU-LL  OI=204  B=$0.80
POTENTIAL PROFIT(max)=14% B/E=$60.60


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.

CY - Cypress Semiconductor  $8.64  *** Bottom-Fishing! ***

Cypress Semiconductor Corporation (NYSE:CY) designs, develops,
manufactures and markets a broad line of high-performance digital
and mixed-signal integrated circuits for a wide range of markets,
including data communications, telecommunications, computing,
consumer and instrumentation systems.  The company's products are
sold to a wide range of customers, including Alcatel Alsthom S.A.,
Cisco Systems, Inc., Ericsson AG, International Business Machines
Corporation, Intel Corporation, Lucent Technologies, Motorola, NEC
Corporation, Nortel Networks Corporation, Philips Corporation, 3Com
Corporation and Sony Corporation.  The company's core product lines
are Memory, Datacom, Timing Technology and Personal Communication.
The company has traditionally organized its product offerings in
two business segments, memory products and non-memory products.

PLAY (speculative - bullish/synthetic position):

BUY  CALL  JAN-10.00  CY-AB  OI=417  A=$0.65
SELL PUT   JAN-7.50   CY-MU  OI=529  B=$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 $300 per contract.

SCIO - Scios  $32.84  *** Cheap Speculation! ***

Scios (NASDAQ:SCIO) is a biopharmaceutical company developing
novel treatments for cardiovascular and inflammatory diseases.
The company's disease-based technology platform integrates new
protein biology with computational and medicinal chemistry to
identify novel targets and rationally design molecule compounds
for large markets with unmet medical needs.  Scios is focused on
the development of three primary product candidates: Natrecor,
for the treatment of acute congestive heart failure, SCIO-469,
an oral small-molecule inhibitor of p38 kinase for the treatment
of rheumatoid arthritis, and small molecule inhibitors of the
receptor for TGF-beta, a cytokine that has been implicated in
diseases characterized by chronic scar formation, or fibrosis.

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  JAN-40.00  UIO-AH  OI=30   A=$0.45
SELL PUT   JAN-25.00  UIO-ME  OI=465  B=$0.30

Note:  Using options, the position is similar to being long the
stock.  The initial collateral requirement for the sold (short)
put is approximately $700 per contract.


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