Option Investor

Daily Newsletter, Sunday, 12/08/2002

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The Option Investor Newsletter                   Sunday 12-08-2002
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: Got Work?
Futures Market: White and Red makes Green
Index Trader Wrap: PAUL WHO? 
Editor’s Plays: Setting Up for the Fall
Market Sentiment: Out With the Old
Ask the Analyst: Selecting strike, expiration then exit points
Coming Events: Earnings, Splits, Economic Events

Updated on the site tonight:
Swing Trade Game Plan: Resigning Ourselves to New Levels

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
       WE 12-06        WE 11-29        WE 11-22        WE 11-15 
DOW     8645.77 -250.32 8896.09 + 91.25 8804.84 +226.75 + 41.96  
Nasdaq  1422.44 - 56.30 1478.74 + 10.05 1468.74 + 57.60 + 51.86  
S&P-100  464.42 - 14.43  478.85 +  3.82  475.03 + 11.31 +  6.33  
S&P-500  912.23 - 24.08  936.31 +  5.76  930.55 + 20.72 + 15.09  
W5000   8629.16 -217.52 8846.68 + 63.55 8783.13 +199.08 +145.25  
RUT      396.72 -  9.64  406.36 +  6.36  400.00 + 14.08 +  6.93  
TRAN    2388.81 + 28.19 2360.62 + 46.64 2313.98 - 19.12 - 13.68  
VIX       32.68 +  1.60   31.08 +  4.35   26.73 -  4.10 -  2.73  
VXN       52.28 +  2.80   49.48 +  2.00   46.49 -  3.19 -  2.33  
TRIN       1.11            1.04            1.05            0.67   
Put/Call   0.91            0.62            0.70            0.57   

Got Work?
by Jim Brown

If you have work then you are better off than the 8,508,000 
currently unemployed. The markets did not take well to Friday's
economic numbers and without the "timely" resignation of O'Neil 
and Lindsey the trading outcome could have been much different. 

Dow Chart – Daily


Nasdaq Chart – Daily


The big economic news on Friday was the jobs report and it was
news the markets could have done without. The unemployment rose
to 6.0% matching the high from April and the highest number in
years. Jobs fell by -40,000 in November and was well below the
consensus estimate for a gain of +28,000. This was the biggest
drop in jobs since February. Manufacturers continued to cut
employees and the retail sector lost -39,000 jobs. If the 
consumer is still buying then why would retail cut jobs just
before the holiday season? Inquiring minds want to know! The
numbers for Sept/Oct were revised up by +10,000 on better data
but the total drop in private payrolls for the last three months
was fixed at -103,000. If the recovery is really under way then
it is being supported by fewer workers and we are far from a
major improvement. With job losses declining in the supposedly
strong seasonal period this does not bode well for the economy.

The rising unemployment is also being felt in the consumer
credit numbers. The October consumer credit came in at an 
increase of only +$1.4 billion instead of the +$8.5 billion 
expected. Come on guys, some of your wives are not contributing
to the recovery. Give them back the credit cards! (grin) The
numbers for Aug/Sept were also revised down considerably. The
October number was the low for the year and well under the 
cycle peak in May. Considering the number of new auto loans 
undertaken in the last 90 days this means the retail consumer
was positively hoarding money. Analysts claim that the mortgage
refinancing boom has put money into consumer pockets and 
reduced the need to press the plastic into use. The trouble
with this theory is that the cash is not flowing into the
retail sector. If cash is available then consumers are stashing 
it for a rainy/snowy day. 

In a startling coincidence the resignation of O'Neil and Lindsey
occurred on the same morning that very negative "economic" reports 
are announced and one day before the Iraq papers go public. What
a stroke of luck for the markets! (grin) The administration
instantly distracted the public from a possible market meltdown
and a potential main event on the Iraqi front. The resignations
had been rumored for several months and several analysts were
on record as saying they had probably been in the hopper for
several weeks in anticipation of a bad news event. Another 
report had VP Cheney delivering the bad news to O'Neil in his
office yesterday and offering to let him resign. Whatever story
you believe there is the problem of no immediate successor for
either position. Had this been in the works for weeks you would
have expected the administration to have a replacement ready. 
There are so many possible conspiracy theories as to why now
that it is impossible to decide who is right. I sometimes think
the simplest answer is the right answer. Bad economic news and
potentially bad war news along with the start of the 2004
campaign required strong action to assure the public that the
administration was in control and felt their pain. I would 
expect a flood of tax cut measures immediately to continue the
distraction process and try to pump up consumer confidence. 
O'Neil was against further tax cuts. One of the front-runners
for O'Neil's position is Charles Schwab.

Next week we have a Fed meeting on the calendar on Tuesday
but traders will be free to ignore it. They already said they
were not going to cut again and the Fed funds futures are 
only showing a 10% chance of a hike. Now that would be a real
surprise! With no change in posture expected the governors
could go in the front, close the doors and go right out the
back for a day of shopping and nobody would know. Put out a
press release at 2:15 for no change, risks balanced and 
recovery under way. The next meeting is two days on Jan 28/29
and the rate hike rumors could be running rampant by then.    

After two moderately positive mid quarter updates by AMD and
INTC the tech sector failed to follow through on Friday. There
was news from IDC that the disk storage market had fallen on
hard times and global demand was down -3% in the 3Q. IDC also
said PC "shipments" would grow only +8% in 2003 and most of 
that would occur in the third or fourth quarter. Gateway 
computer instructed employees to take a mandatory five
extra days off later this month. HPQ has instructed contract
workers to take an additional 20 days off in December. This
continued cost cutting shows that things are not picking up
quickly in the PC sector. IBM was an exception and said they
were not requiring anyone to take off. The IBM spokesman said
"I guess we're busy." It was not exactly a strong vote of
confidence. Dell Computer was initially included in the time 
off announcement but Dow Jones later printed a retraction. 

Dan Niles went on record as saying investors with a long time
horizon should be aggressive about buying chip stocks on any 
pullback. QCOM, the leading maker of mobile phone chips, raised 
their forecast for chip shipments in the near term. They said 
demand in China and India as well as the U.S. was strong. The 
news reflected the strong demand for their CDMA technology. 
They said "aggressive holiday pricing" was behind the demand 
in the states. Even with the AMD, Intel and QCOM news the 
semiconductor index finished with a fractional loss. The 
Semiconductor Equipment and Materials International group
said sales of equipment to make chips would fall by -30% this
year. They had previously expected a -19% decline in their 
latest forecast. The said the non-existence of an upturn had
soured their outlook. For 2003 the group is now expecting 
only a +15% increase to $21.8 billion instead of their 
earlier estimate of $29.4 billion. The $21.8 billion only
represents a +$3 billion increase and they expect that gain
to come late in the year. FLEX said it was closing circuit 
board fabrication facilities in California and Sweden to 
cut costs and reduce excess capacity. Niles says buy 
aggressively on dips but only if you have a long time 
horizon. The long awaited upgrade cycle will come eventually, 
maybe not until 2004 but it will come. 

Rumors were circulating that Gateway CEO Ted Wait had made
the discouraging comments on Thursday in an effort to drive
down the stock so the company could be taken back private. 
With a high in 1999 near $85 the company is trading near
$3.50 now. Surely Ted has an extra billion laying around
which with 324 million shares outstanding is what it would
take to buy it back. That of course assumes he wants it
back. With Dell and HPQ eating their lunch and the company
having to resort to selling flat screen televisions to make
a living he may be ready to bail instead. Kent Barton 
suggested on the Market Monitor on Friday that a better 
deal would be for Wal-Mart to buy them. WMT has said it
wants to get into the computer business and what better
way than to buy one already in production and put the WMT
marketing power behind an established brand. An extra billion 
to WMT is pocket change which they could easily recover in 
the first year on marketing power alone. Talk about putting 
a crimp in the Dell/HPQ momentum. Way to think out of the
box Kent! 

I received numerous emails on my retail comments on Tuesday.
Far too many to answer individually. The vast majority were
in agreement that keeping your eyes open to the world around
you was a prudent task for an investor. Numerous emails 
recounted books by Peter Lynch on investing as well as 
nuggets from Warren Buffet, John Dessauer and others who
make it a practice to be alert to trends before they make
it into the news sources. I also got quite a few from readers
recounting their mall trips of late. Only a couple reported
packed malls. Dozens reported scarce shoppers carrying no
packages and no lines at the registers. With only two weeks
left before Christmas any buying frenzy will have to appear
very soon. WMT, TGT and Sears were the stores of choice and
most high end stores were mentioned as vacant. I would urge
readers to continue to send me your observations and let's
see if the "official" results match our unofficial poll by
educated investors.

Next week should be interesting. The economic schedule is
very light until Thursday and the FOMC meeting on Tuesday
is a non-event. The challenge will continue to be earnings
warnings as we move full speed into the 4Q cycle. The 
break in the eight week winning streak for the Dow was
no big deal and it was due for a breather. If we only have
a one week drop after eight weeks of gains we would all be
excited. The Dow dropped to support at 8500 on the jobs
news and rocketed back +140 points. While this was pleasing
to watch it did not really have enough power to convince
traders that it would stick. Overhead resistance at Dow
8700 and 8800 should keep a lid on any rebound and strong 
support at 8350 should prevent any serious drop, this time. 

The consensus of opinion is that we could get an oversold 
bounce on Monday to something in the Dow 8800 range and 
then another bout of selling. The strong gains from the
last eight weeks may not have been digested with only one
week of profit taking. If we do roll over again then the
key level is 8350. If that holds then the Santa Claus rally
could begin. If it fails Santa could be delivering lumps of
coal to all the bullish investors. Dan Niles may be suggesting
aggressive buying and the coming tax changes may be very
bullish but there is still a minefield to cross in our
immediate future. 

Enter Very Passively, Exit Very Aggressively!

Jim Brown

"It is not the return on my investment that I am concerned 
about; it is the return of my investment." - Will Rogers


White and Red makes Green 
By John Seckinger

Futures sold off sharply following a soft jobs report; however, a 
statement from the White House became the catalyst for all three
contracts to go from red to green.  Will the rebound have legs?

Friday, December 6th at 4:15 P.M. 

Contract          Net Change     High        Low        Volume    

ES02Z     913.75     +5.25      916.00      891.75      700,990
YM02Z    8674.00    +34.00     8682.00     8486.00       22,278
NQ02Z    1067.00     +1.04     1075.00     1030.00      325,662

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:  Equities were on the defensive early, as a 
weaker-than-expected November employment report (-40k versus 
expectations of a 35k rise) included a rise in the unemployment 
rate to 6.0% (5.8% estimates).  Also weighing on stocks was a 
downgrade of IBM by Salomon Smith Barney (“in-line” from 
“outperform”) based on valuation concerns.  Then came the bullish
catalyst, as Treasury Secretary Paul O’Neill and Chief White 
House Economic Advisor Lawrence Lindsey both announced their 
resignations (one after the other).  This allowed for the 
increased possibility of an aggressive fiscal stimulus package 
being passed.  Mr. O’Neill was know for being supportive of a 
strong dollar (as well as not admitting the U.S. was in a 
recession), and it will be interesting to see if the dollar is 
allowed to slide and help multinationals.  In other news, 
Qualcomm (QCOM) raised its fiscal Q1 MSM chip shipment guidance; 
propelling shares higher on Friday 4.8% to close at 41.48.  

Note:  The Iraqi weapons declaration deadline is December 8th.  

Technical News:  The XAU index and the 30-year (ZB03H) both hit 
solid resistance levels on Friday, and the resignation from Mr. 
O’Neill seems to apply to both.  The Gold and Silver Index rose 
3.43% to 71.29, closing just underneath a strong P&F buy signal 
at 72.  The strength in Gold seemed to be related to the weakness 
in the dollar, falling 0.74 points to 105.36.  The 30-year was 
higher by a full point and a half, only to fall two full points 
(64/32) before slightly recovering as the session ended.  There 
is a daily trend line from the high on October 8th that bisects 
with the high on November 13th; coming in on Friday at 110’23.  
The intra-day high was 110’26.  Going forward, a move above 72 in 
the XAU should be accompanied by a weakness in the dollar and 
bonds.  The relationship to stocks under this scenario is 
actually unclear, and will depend on price pressure from 
multinationals able to take advantage of a weak dollar.    


The December Mini-sized Dow Contract (YM02Z)

Let us take a step back and look at the long-term picture first.  
With the Dow recording its first weekly loss in nine weeks, odds 
have to favor prices being lower this time next week.  With the 
weekly divergence now a reality, does it make sense to load the 
boat up on short positions and take a vacation for the next few 
months?  If only it was that easy.  

There are two approaches shorts might take:  One is selling as 
soon as next week goes into the red (could of course happen on 
Monday’s open); the other waiting until the 8500 level is taken 
out.  Ideally, the market attempts at a rally and then comes back 
through 8645 and begins printing red.  Risk to the upside is 
tiered: 8750, 8800-8825 area, and then near 9025.  If the market 
does rally back above 8750, I would look for underpinning bids 
until the 8645 area is taken out.  The reason is because 
traders most likely expect the downward trend to continue, and 
there should be a fair number of shorts ready to get squeezed 
during a rise higher.  

Chart of Dow Jones, Weekly


It really does come down to trading levels.  If the market opens 
significantly lower on Monday, say 8400, does it make sense to go 
short?  At 8400, begin to establish the risk parameters.  If 
flat, I would give the market 30 minutes to trade and then use 
8400 as a pivot.  If above, look for a move back to 8500.  If 
below, look for a move to 8250 in the next few days while keeping 
a stop at 8410.  Since this scenario occurred on Friday (market 
almost immediately hitting the 8490 area and then rising), begin 
to think like a market maker in all the stocks that influence the 
YM contract.  They are all hedging their risk, using these levels 
to manage their inventory.  

With the YM contract on the top of the previous wedge, sentiment 
can still be slightly bearish; however, there is no confirmation 
and the next intermediate pivotal levels are far away (8500 and 
8825).  Short-term traders can use the tiered levels mentioned 
above, adding the 22 PMA to the list.  I certainly think traders 
can benefit from the long side; however, solid bullish readings 
will not be achieved until the high above 9000 is taken out (or 
the market trades to 8000).  A move from one pivot to the next 
(8750 to 8825) can certainly exist, however.  

Chart of YM02Z, 60-minute 



Support               Resistance                Pivot    

	8585				8700				8825
	8475				8750				8585
	8425				8825
8350	8900.  

The December E-mini Nasdaq 100 Contract (NQ02Z)

There appears to be more negatives than positives within the NDX 
(under pivotal zone, bearish cross within PMA’s, and lower highs 
and lower lows), but the 1065.97 settlement does not paint an 
extremely clear picture for bears.  Traders certainly have to 
debate the fallout from the O’Neill’s resignation, soft jobs 
report, and Iraqi situation.  It should not be long before the 
picture becomes a little more transparent.  Without the 
fundamentals, all signs still point towards a test of 1023 in the 
near term.  Note:  The previous 1083-85 pivotal area is now being 
adjusted upward because of the rising regression channel.  1085 
corresponded with the channel on Friday, but 1085 will be 
underneath during trading on Monday and going forward.  

Chart of NDX, 120-minute


Gap openings have defined trading on Thursday and Friday, with 
the NQ02Z contract outlining a solid 30-point channel (1086 to 
1036).  The 50% retracement of this range comes in at 1061.  
Looking at a 5-minute chart of the NQ, the recent level appears 
to be in an extremely efficient area; however, the 1067 level 
does have the contract above both the 50% retracement and the 
apex of a pennant formed near 1063.  This should give the 
contract a very slight bullish tilt.  Expectations?  1075, and 
then ideally a test of 1086 and a challenge to shorts.  
Intermediate traders can wait until either 1086 or 1036 is 
tested, and then evaluate conditions there.  Once outside these 
levels, prices should stay outside by session’s end.  

Chart of NQ02Z, 5-minute 



Support              Resistance                 Pivot 

1046				1075				1100
1035				1085				1085
1023				1100				1055
1000				1110				1040

Bold signifies levels within the NDX.  

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

The S&P 500 contract almost traded the entire range seen on 
November 20th, when the SPX moved from 894 to 915 and really set 
the stage for the rally afterwards.  Also important is the fact 
that the long-term bearish trend line (from March) was tested 
once again.  Additionally, this index closed right on its 22 DMA.  
So, what should a trader be looking for?  If price action on 
Monday takes out Friday’s high (give a cushion of 3 points), 
expect some short covering back to the 927 level.  Bears will be 
watching to see if the +DI oscillator moves underneath the –DI 
and gives a sell signal.  They are touching at present.  

Chart of S&P 500 Index, Daily


A chart of the ES contract shows resistance currently being 
tested (also seen on the MACD), but bears are certainly not out 
of the woods.  A few things to watch for:  If the contract bids, 
look to see if the shorter-term moving averages (22 and 50, exp) 
cross above the 200.  Also look for the MACD oscillator to be 
higher.  As far as the downside is concerned, a move under 905 
should take sentiment to slightly bearish readings and quickly 
test 900.  Note:  If the contract does come under weakness, make 
sure Friday’s low is taken out before adding to positions.  A 
common occurrence is for the contract to not quite test the 
relative low and trap shorts hoping for such a sell-off.  

Chart of ES02Z, 30-minute 



Support              Resistance                 Pivot    

905.25			918.75			927
900				927				915
890				937				905

Bold signifies levels within the S&P 500.  

Good Luck.

Questions are welcomed,

John Seckinger


By Leigh Stevens

Well, most informed investors/traders and maybe the general 
public – this is the “public” mind you who can’t pick out Iraq on 
a map either – could probably tell you that the Secretary of the 
Treasury is or rather WAS Paul O’Neill.  Not so the other guy – 
Larry Lindsay, the White House economic advisor.  But I didn’t 
know who is his counterpart was under Clinton – but I and 
everyone else sure knew who Robert Rubin was as he was visible, 
elegant and articulate on the U.S. economy.

Anyway, of course, on Friday both Mr. O’Neill and Mr. Lindsay 
announced their resignations – this on a day when the U.S. 
Unemployment rate jumped to 6% in November, from 5.7% in Oct. and 
the important non-farm payroll headcount fell by some 40,000 
versus a 33,000 expected gain.  Payrolls don’t foretell the 
future of course, but it’s a sharp reminder of that manufacturing 
is continuing to suffer. This situation helps the bond market as 
was seen Friday, but the fall in yields tends to make equities 
more attractive too, looking at the long haul.   

Speculation on replacement for the Treasury Secretary is that it 
may be a Wall Street veteran, in contrast to from the 
manufacturing sector wince came Paul O’Neill – makers of things 
such as Mr. O’Neill can tend to be more blunt and not the glib 
talkers and thinkers from the Street of Dreams. Secretary O’Neill 
was famous for his gaffs, apparent insensitivities and for going 
his own way – this, the kiss of death in the Bush team of pull 
together, on the same page always, kind of guys and gals. 

Anyway, the news of the sharp fall in folks on payroll – a 
precious thing these days (and I noticed that the out of work 
were out of luck as far as congress failing to pass an extension 
of added Federal Unemployment benefits once the State allotment 
was done) – and the jump in the jobless numbers was enough to 
send early trading on Friday into a swoon.  

However, enough buying surfaced after the resignations news to 
bring back the averages on the thought, hope or expectation that 
President Bush was serious about doing something to revive the 
economy. It seems that not only does he want to better Bush 
Senior and take out Saddam, but he remembers the reason why his 
father was NOT reelected – remember Clinton’s campaign watchword 
“it’s the economy stupid”? 

It didn’t hurt the rebound any that the indices got down to some 
technical support areas and were oversold according to my 21-
(trading) hour stochastic.  Nevertheless the winning streak was 
snapped as Dow was off nearly 3% for the week and the Nasdaq down 

Bellwether stocks influencing the Indexes –

Intel (INTC) increased its outlook for Q4 sales late Thursday and 
so this was out there in market news on Friday. However, INTC was 
down a quarter point to 18.71 – their announcement had been 
expected for days and semiconductor stocks had been in a rally 
for some weeks already. 

Tech stocks got a boost when IBM announced that it would cough up 
$2.1 billion for Rational Software (RAIL). Not much for IBM but 
not chicken feed either – more importantly, it reinforces the 
perception that the strong and smart tech companies are preparing 
for the next upturn in the business cycle which should boost tech 

The IPO market – remember Initial Public Offerings, where 
companies actually go public? – was given a boost by the Chicago 
Mercantile Exchange (CME) offering which was priced above 
expectation (at $35) and ran up to near $40 by the close.  These 
are the folks that trade pork bellies (bacon) and Eurodollar 
futures – and, oh yes, have the most successful stock index 
futures contract in the S&P 500!  

UAL still has to resolve its situation – reports were that they 
were headed to bankruptcy court on Sunday – their remains the 
slim possibility that their Unions get sensible, along with a 
revised business plan that reflects the new air travel realities 
which gets federal support for a loan, which staves off 
bankruptcy – as I pointed out last week: the airline’s 
difficulties would rain on the bullish parade. I guess as we near 
Christmas I start to believe in Santa Claus again! UAL fell to 
under a buck last week and was taken out of the Dow 
Transportation Index – how the mighty have fallen. 

The threat of war with Iraq looms ahead also, as we come up on 
the initial 12/8 deadline for them to “declare” their weapons of 
mass destruction – it will then take the bean counters and CIA a 
day or two to figure out that Saddam is NOT going to suddenly 
become this open guy and make a confession of what he’s got.  A 
dictatorship seems ever the same in regards to hiding the truth! 

Retail sales and consumer confidence will also provide key 
readings on the economy and are anticipated to be modestly 
favorable. The Federal Reserve's policy board will also meet, 
though there is almost not expectation of another rate cut


S&P 500 Index (SPX) – Hourly chart: 

The “easy” part of the decline is probably behind us but key 
support looms in the low-900 area in the S&P 500 (SPX).  903 is a 
fibonacci 62% retracement of the previous advance and 900 is a 
key psychological support level.  


Given the near-term oversold condition on the hourly stochastic, 
especially with both the 5 and 21-hour models at the bottom of 
their range, I would not be expecting another down leg just at 
this juncture.  On the other hand, expect the 920-925 area to 
“cap” rally attempts and provide resistance. 

However, if 900 is penetrated on an hourly closing basis and SPX 
does not rebound over subsequent trading then I have to assume 
that the Index is vulnerable to falling back to the rally 
starting point in the low-870 area. 870-875 then becomes a 

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


The 465 support area held in the 100 (S&P) or OEX and there may 
be some further attempts to rally, such as back up to near 
resistance in the 470 area.  OEX has to get, and stay, above 470 
to suggest more than a temporary rebound.  The basic “problem” to 
a resumption of a bullish outlook from a technical perspective, 
is that OEX needs to get again to an oversold reading on the 
DAILY stochastic model before the Index has the potential to 
rally in a more sustained manner.  

465 is key near technical support – if penetrated, OEX is 
vulnerable to a fall of another 20 points and I would play it 
accordingly in OEX puts.  

DJ Industrial Index (INDU) Daily:


Not surprisingly the Dow found initial support at 8500.  This 
should continue short term, but the Industrials are vulnerable to 
a move to the 8400-8340 zone.  I would be a buyer in the 8350 
area in terms of the purchase of DJX calls.  



For now, 1420 support has held as support in that there has not 
been two consecutive daily closes below this “line” of expected 
support given the rebound on Friday.  1400-1420 is the key 
support; then, if exceeded, 1375, with 1320-1325 as an area 
where, if reached, I would again have some confidence in going 
back into Nasdaq related call positions. 

My best guess is that we basically drift sideways this week in a 
fairly narrow (trading) range.  “Basing” action in the 1400 area 
would be the most bullish outcome in terms of the Index mounting 
a challenge to very key resistance in the 1500 area. 

QQQ Daily/Hourly charts:


As with the S&P, I would key off from the Q’s ability to hold (or 
not) a 62% retracement of the prior upswing.  This view suggests 
that if QQQ can hold at or above about 25.70, a “normal” 
correction is suggested, still within an uptrend.  25.40 on an 
hourly closing basis is the next level to watch on the downside – 
a break of this level suggests further downside potential the 
(down) swing low in the 24.25 area.  

Near-term I see minor rally potential, given the hourly oversold 
readings – but 27.50-28.00 would have to be exceeded on the 
upside to suggest that the Nasdaq 100 was going to do anything 
more than go sideways for awhile in a consolidation of recent 
gains which could then better set the stage for the appearance of 
the “Santa Claus” rally later in the month. Stay tuned!    

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Editor's Plays

Setting Up for the Fall

Remember my comments from last week? I showed you a chart of 
RFMD as a prime example of why we did not want to go long
despite the bullish sentiment. I reprinted that chart below
along with a chart from this week. It reminds me of those
drug commercials with the eggs in the skillet. This is your
brain, this is your brain on drugs. Well the RFMD chart 
below I changed the saying slightly. "This is a bullish
stock on hope followed by a bullish stock on profit taking." 
Glad we did not go long yet there was not enough conviction
to go short. 

RFMD Chart

RFMD Chart on profit taking


The Cisco straddle did not move enough to be profitable but
CSCO gapped up on Monday to $15.50 at the open and the put side
could have been purchased for .55 to .60 cents. It traded as
high as $1.40 on Wednesday after Chambers comments. If you were
quick on the trigger you could have been well rewarded. 


Climbing the ladder again. 

This is a directional play for the coming week. I personally
feel the markets have a lot of overhead resistance around 9000
and strong support at 8350. I may be crazy but I am expecting 
a rally back to somewhere in the 8850-9000 range and then 
another sell off over the next couple weeks. We have tax
selling, portfolio rebalancing and simple profit taking ahead
of us as well as two weeks of earnings warnings. I think this
process will be over by Christmas week and therefore by expiration
Friday. Christmas week is normally bullish so fund managers will
want to be done with selling and loaded up for the rally by
expiration Friday as well. This gives us about eight days 
for this play to work. 

The plan is to similar to ones shown here in the past. I would
ideally like to buy 50 contracts of the DJX Dec-85 put for an
average cost of about .75 cents. It is currently $1.35. 

I want to buy 10 contracts at each of five different levels 
on the DJX. This lowers our cost by averaging down as each
level is passed. 

I always get the question "Why not just buy 50 contracts when 
the DJX hits the top level?" I would gladly do that if anyone
could tell me where that top level is going to be in advance. 
The high for next week could be 8750, 8850 or even 9050. We
simply do not know. 

By purchasing a small number of contracts at each level as the 
Dow moves up we are always in the trade once the first level
is hit and we can profit from any drop not just a drop from
the very top. 

Here is the plan:

Buy 10 DJX Dec-85 puts at DJX $87.00 (est $1.15)
Buy 10 DJX Dec-85 puts at DJX $87.50 (est $1.00)
Buy 10 DJX Dec-85 puts at DJX $88.00 (est $0.75)
Buy 10 DJX Dec-85 puts at DJX $88.50 (est $0.60)
Buy 10 DJX Dec-85 puts at DJX $89.00 (est $0.45)
Estimated cost = $3,950 or $.79 each. 

You can obviously modify this in any manner you like that
fits your trading profile. Buy fewer at the bottom and
more at the higher ranges. Double up on the last buy if
$89.00 is hit. There are many possibilities. 

If the Dow does retest 8350 before expiration as I expect
then the $85 puts will be worth $1.65 or more each. That
is $8,250 for 50 contracts. 

I strongly suggest putting in a sell stop well in advance
at 83.50 or even 83.75 to exit as any dip to that level
could be short and fast like the dip to 8500 on Friday 
morning. You want to get out while the excitement is high
and not after the rebound has started. 

To protect against a total loss if the Dow suddenly 
rallied and never sold off again I suggest buying 20
contracts of the DJX Dec-90 call on Monday morning. They
should be $.50 cents and would cost you about $1,000. A
rally to 9000 or above would easily double the price and 
a rapid move to 9050 could triple it. This is only an 
insurance policy against a run away market and not intended 
to replace the entire amount spent on the puts. If we did 
break 9050 on the upside I would close the puts for any 
remaining value and ride the calls for as much as I could 

There is no magic potion and no miracle trade. I have 
outlined several like this that have turned into really
profitable winners and several that did not work out. It
is up to the individual trader to consider the risks and
make their own decision to enter the trade or not. 

Obviously this is predicated on my opinion that the market
will A) go up early next week and B) drop back to something
below 8400 before expiration. Obviously I do not have a
crystal ball or divine guidance. This is a calculated guess
on my part. 

DOW/DJX Chart - 90 min


If you are not convinced that this scenario will play out as
outlined then maybe you should take the other side of the trade.
If you follow the logic then a drop to 8350-8400 and a rally
through Christmas week could easily setup a call play of the
same type. The only difference would be that you would need
to buy January or longer options since the best chance of a
rally will occur after expiration. 

If you are really a type "A" trader then do both as neither
are mutually exclusive. 

For the bullish trader:

Buy 10 DJX Jan-90 Calls at DJX $86.00 (est $1.75)
Buy 10 DJX Jan-90 Calls at DJX $85.00 (est $1.45)
Buy 10 DJX Jan-90 Calls at DJX $84.00 (est $1.15)
Buy 10 DJX Jan-90 Calls at DJX $83.50 (est $0.80)
Buy 10 DJX Jan-90 Calls at DJX $83.00 (est $0.45)
Estimated cost = $5,600 or $1.12 each.

You may notice that I skewed the entry points to favor a
slower entry and a larger position at the low point. This
was due to the larger cost of the January options. 

My exit point would be 89.00, maybe 89.50. If you are 
planning on using both strategies then you don't need
insurance on the calls as your puts from the first move
would protect you on the downside. 

The ideal scenario, just remember ideal never happens, 
would be for a rally on Mon/Tue to 8950 and a crash by
Friday to 8350 then a rebound by the week after Christmas
to 9000. After that all bets are off. 

Remember, ideal never happens. Protect yourself and engage
your brain before entering either side of this scenario. 


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

Good Luck

Jim Brown  


Out With the Old
by Steven Price 

The schizophrenia continues!  Last night Intel released good 
news, raising its revenue guidance for the fourth quarter, 
sending the stock briefly higher in the after hours session.  The 
bulls were getting ready for an end of the week run after five 
straight down days in the Dow.  That was until a disappointing 
jobs report this morning showed the unemployment rate rose to a 
higher than expected 6%.  This was the same number we saw back in 
April 2002 and the highest since July 1994. Economists were 
expecting a gain of about 30,000 jobs, and instead we got a loss 
of 40,000.  So much for the positive initial claims report 
earlier in the week. That report was based on a short week, but 
still came in better than expected.  The markets sold off hard on 
the open, with the Dow crashing through yesterday's support at 
8600 and bouncing just above 8500.  The low was 8501.86, giving 
us a snapshot of the new floor. 

The drop was short lived, however, as news hit the wire that 
Treasury Secretary Paul O'Neill had resigned, at the request of 
the White House, clearing the way for President Bush's economic 
stimulus package.  The package includes further tax cuts that 
O'Neill opposed, saying the economy was fundamentally strong and 
that growth would eventually pick up steam.  With O'Neill out of 
the way and the now republican Congress set to convene next 
month, the markets reacted positively, tacking on almost 180 
points from the low intraday.  By the close, the Dow had 
revisited both sides of 8600, eventually finishing the day up 
22.49 points at 8645.77.  Top Bush economic adviser Larry 
Lindsey, the architect of the President's $1.3 trillion, ten-year 
tax cut, also resigned.

While conspiracy theorists will say the announcement was timed to 
take attention away from the poor jobs report, there is no 
denying we are still seeing a downtrend developing in the broader 
markets.  The Dow had given up 542 points from Monday's high to 
this morning's low and was due for a bounce. In fact, I was 
getting nervous about short plays with so many down days in a 
row.  Today's bounce may have shaken out some of the bottom 
feeders, but it is possible that we may re-test the 8700-8800 
range once more before a more pronounced sell-off. Markets do not 
go straight down, or straight up. Too many days in one direction 
are bound to lead to a correction, before resuming the trend. In 
this case, if we roll back over below 8500, then I expect a re-
test of 8350 before the next bounce.   That would support the 
formation of a new head and shoulders, as I mentioned in last 
night's Sentiment, but we'll wait for another failed bounce 
before declaring a right shoulder.   For those readers who missed 
it, I'm looking at the possibility of a left shoulder at 8800, 
with the head at 9043.

The Semiconductor Index (SOX) dropped hard this morning, as well, 
in spite of the positive Intel news.  AMD also raised guidance 
yesterday, so the drop over the last two days, after losing 63 
points from Monday's high, has looked very bearish.  However, the 
SOX did recover for the second day in a row to finish over 329, 
which had been previous resistance on the way up and appears to 
be the new support level. For those traders tracking this average 
(few of whom still have hair that hasn't fallen out or turned 
gray over the last couple of months), we saw a tremendous rally 
the past couple of months, on disappointing earnings and 
predictions of lower revenue.  Now that we are getting raised 
guidance and some evidence of an uptick in PC demand, the sector 
is selling off severely.   There seems no better time to rely on 
technical analysis, since the fundamentals seem to run contrary 
to the price action we are seeing. Relying on the price action is 
simply giving us a better indication of how institutions are 
valuing the stocks in the sector.  National Semiconductor (NSM) 
also released earnings today that beat estimates by 7 cents per 
share, but said it expects revenues to be flat to down 5% this 
quarter.  However, with the Intel and AMD news, we still could 
have expected a jump. It seems that if we are going to get a 
bounce, then this level, which has now held for the last few 
days, should be that bounce point. For that reason, I am weary 
about shorting chip stocks until the 329 level is broken on a 
closing basis, or until we get that failed bounce.  If we do get 
a bounce, then I'll be looking to short it on a rollover 
underneath the August high around 365.  There is additional 
support below 329 at 310, 300 and 280.  

The Nasdaq Composite also broke down through support at 1400 in 
the morning, and followed the rally back up to its August high of 
1426.  It broke through briefly, trading as high as 1430, but 
fell back to close at 1422. If the COMP continues to fail that 
level, then the old resistance level may be back in play again 
and can be used as a gauge for long plays on a breakout, or 
shorting resistance.  With the choppiness of the last couple 
days, however, traders should wait for a more defined range to 
develop here before choosing levels. 

Today's action is a little hard to interpret because of the one 
time news event and light trading volume - the NYSE traded only 
1.2 billion shares and the Nasdaq 1.5 billion. However, we 
continued to see another day of lower highs, with today's rally 
topping out at Dow 8679, and lower lows (8500).  The trend is 
still down, but we are definitely in bounce territory.  Traders 
should look for the earlier mentioned resistance below 8800 to 
short on a bounce, or a break below 8500 to land at 8350.


Market Averages


52-week High: 10673
52-week Low :  7197
Current     :  8645

Moving Averages:

 10-dma: 8777
 50-dma: 8330
200-dma: 9154

S&P 500 ($SPX)

52-week High: 1176
52-week Low :  768
Current     :  912

Moving Averages:

 10-dma:  926
 50-dma:  879
200-dma:  980

Nasdaq-100 ($NDX)

52-week High: 1734
52-week Low :  795
Current     : 1065

Moving Averages:

 10-dma: 1097
 50-dma:  984
200-dma: 1113


The Retail Index (RLX.X): The Retail Index has sold off the last 
few days, following mixed same store sales results after the 
Thanksgiving weekend.  Many stores have said that even better 
than expected sales following the holiday have not been 
significant enough to improve disappointing November sales 
numbers by much. While some specialty retailers posted better 
than expected numbers, Federated (FD), which owns Macy's and 
Bloomingdale's, said that that better than expected Thanksgiving 
sales did not offset weakness early in the month and now sees 
November-December holiday sales at the lower end of its prior 
guidance of flat to down 2.5%.  Wal-Mart posted same store sales 
gains of 2.6% for November, after predicting 2-4% growth, in 
spite of record one day revenues on the Friday following 
Thanksgiving.   According to Avalon, Kohl's (KSS) sales will 
suffer due to bigger than expected department store discounting 
designed to drive sales at the expense of revenues, which is a 
trend that we will likely see more of as we approach Christmas.  
The shortened shopping season, due to a late Thanksgiving, may 
not result in fewer purchases, but a higher percentage of 
purchases in the last two weeks before Christmas, when prices are 
marked down aggressively.

52-week High: n/a
52-week Low : 244
Current     : 283

Moving Averages:

 10-dma: 288
 50-dma: 281
 200-dma: 314

A combination of factors brought down the VIX today.  First, the 
rally off of 8500 in the Dow after 5 straight down days reassured 
traders that there may be a bottom between the current levels and 
the October lows.  Second, a look at the intraday charts shows 
weekend premium pirates selling hard into the close, over the 
last half hour of trading.  While this coincided roughly with the 
end of day bump in the Dow, the VIX still ended the day lower 
than it was when the Dow was testing 8700.

CBOE Market Volatility Index (VIX) = 32.68 –1.60
Nasdaq-100 Volatility Index  (VXN) = 52.28 –1.88


          Put/Call Ratio  Call Volume   Put Volume

Total          0.91        483,530       438,535
Equity Only    0.73        347,703       253,584
OEX            1.00         24,385        24,502
QQQ            2.04         35,332        72,095

Bullish Percent Data

           Current   Change   Status
NYSE          50      + 0     Bull Confirmed
NASDAQ-100    75      + 0     Bull Correction
Dow Indust.   70      + 0     Bull Confirmed
S&P 500       67      + 0     Bull Confirmed
S&P 100       68      + 0     Bear Alert

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   1.52
10-Day Arms Index  1.35
21-Day Arms Index  1.27
55-Day Arms Index  1.17

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       1741          1095
NASDAQ     1706          1480

        New Highs      New Lows
NYSE         36              21
NASDAQ       54              27

        Volume (in millions)
NYSE       1499
NASDAQ     1509


Commitments Of Traders Report: 12/03/02

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 reduced long positions by about 3,000 contracts, while 
reducing shorts by only 800. Small traders increased long 
positions by 6,000 contracts and shorts by 600.

Commercials   Long      Short      Net     % Of OI 
11/12/02      437,683   476,540   (38,857)   (4.3%)
11/19/02      446,668   480,270   (33,602)   (3.6%)
11/26/02      447,024   488,250   (41,226)   (4.4%)
12/03/02      444,345   487,411   (43,066)   (4.6%)

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
11/12/02      141,389    70,624    70,765     33.4%
11/19/02      143,070    77,332    65,738     29.8%
11/26/02      155,975    81,962    74,013     31.1%
12/03/02      162,192    82,584    79,608     32.5%

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

Commercials left positions mostly unchanged with a small 
percentage increase to the long side and a small decrease to the 
short position. Small traders reduced long positions by 4,000 
contracts, while reducing shorts by 2,500. 

Commercials   Long      Short      Net     % of OI 
11/12/02       45,647     55,892   (10,245) (10.1%)
11/19/02       42,074     52,302   (10,228) (10.7%)
11/26/02       43,231     52,425   ( 9,194) ( 9.6%)
12/03/02       43,709     51,977   ( 8,268) ( 8.6%)

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
11/12/02       12,698     8,801     3,897    18.1%
11/19/02       16,292    10,540     5,752    21.4%
11/26/02       17,574    12,329     5,245    17.5%
12/03/02       13,749     9,869     3,880    16.4%

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


Commercials maintained the status quo, while small traders showed 
small reductions to long and short positions. 

Commercials   Long      Short      Net     % of OI
11/12/02       22,283    14,953    7,330      19.6%
11/19/02       23,535    15,741    7,794      19.8%
11/26/02       20,499    15,015    5,484      15.4%
12/03/02       20,176    15,427    4,749      13.3%

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
11/12/02        5,736     8,513    (2,777)   (19.5%)
11/19/02        4,428     8,203    (3,775)   (29.9%)
11/26/02        6,544    10,350    (3,806)   (22.5%)
12/03/02        5,885     9,781    (3,896)   (24.9%)

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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Selecting strike, expiration then exit points

Jeff:  What strike and expiration would you suggest for your 
bearish profile in BRCM on the break at $18?

I receive a lot of e-mails from subscribers asking, "what strike 
and expiration should I buy" in a particular put or call option.  

This type of question, believe it or not, is rather open ended 
and one must consider their own trading style (outlined in the 
trader's business plan) as to the trader being a very short-term 
options trader (1 to 5-day holder), swing trader (6-days to 3-
weeks), or trend trader (as long as the trend lasts to my 
target).  LEAPS traders are really "investors" that have a much 
longer time frame and will not be addressed in this commentary.

While both strike and expiration selection will really depend on 
each individual trader's time horizon, the analysis I use is to 
first analyze the MARKET/INDEX I'm trading in, then the SECTOR of 
the STOCK I'm looking to trade.

It's my (Jeff Bailey's) view that the broader S&P 500 generally 
depicts the MARKET.  If it were to rise 25% from 800 to 1000, 
then generally speaking, the bulk of SECTORS and STOCKS would 
tend to show price appreciation.  Granted, some SECTORS would 
outperform to the upside, as will certain stocks, but generally 
speaking a rising tide tends to lift most boats.

It is also my opinion, that the MARKET is pretty smart and 
somehow, it is NEVER wrong.  As to why the market is so smart, I 
simply don't know.  However, I do know that the MARKET is NEVER 
wrong.  I have come to reason that the MARKET will usually, and 
with rather great success, sell high and buy low.  I have yet to 
read any book that discredits such a notion.

One tool that some subscribers have come to know over the years 
which tends to fluctuate from high to low and low to high is the 
bullish % charts.  The bullish % is simply a tool designed to 
measure and then chart the percentage of stocks showing a point 
and figure (supply/demand) buy signal.  Many believe that the 
bullish % charts are very good at quantitatively measuring risk.

So what does the bullish percent have to do with strike and 
expiration selection in options?  The bullish % is perhaps useful 
for beginning to establish what type of option expiration is 

The assumptions made with the bullish % chart are this.  The 
market tends to buy low risk environments which we will call 
"oversold" levels, and sell higher risk market environments.  As 
time passes, the MARKETS will efficiently reduce risk to a level 
where the market will then determine a sufficient amount of risk 
has been reduced to warrant attractive value and more favorable 
risk reward.

Using history as a guide a trader/investor that wants to mimic 
historical tendency of the MARKET, which is NEVER wrong, can 
begin analyzing the bullish % charts to get a feel for what level 
of RISK the market is currently at, but then look back at 
historical data to begin making TIME assumptions, which is KEY to 
selecting option expirations.

Using Broadcom (NASDAQ:BRCM) $17.61 +2.68% as an example, we can 
make note that it is a component of the NASDAQ-100, which 
contains the NASDAQ market's largest publicly traded companies.  
We will call the NASDAQ-100 a MARKET.  It is every traders GOAL 
to beat the MARKET.  Therefore, we must first understand what the 
MARKET has been capable of as this serves as a traders benchmark.

NASDAQ-100 Bullish % ($BPNDX) - 2% box


On a quantifiable basis, a trader/investor can make the statement 
that the NASDAQ-100 shows a more bullish, yet more "overbought" 
level of bullish % than in December of last year.  It is always 
helpful to make additional observations of relative high and low 
bullish % readings, and I have made note in prior commentary that 
the recent 82% level of bullish %, challenged the 82% level in 
late April of last year, but still falls short of the 92% high 
found in mid-November of 1999.  

Still, we can begin making reference to TIME and perhaps the 
amount of time a trader would have needed to buy if buying put 
options on certain NASDAQ-100 stocks with the thought that the 
higher levels of bullish % would eventually be reversed and 
market risk removed.  It would make sense that as risk is 
removed, prices are falling.  This can be "double tested" as the 
only way the NASDAQ-100 Bullish % can decline is by stocks 
generating sell signals.  Conversely, once risk is removed to the 
MARKET's satisfaction and value be perceived, can prices then 
begin to rise and buy signals be generated.

MINIMUM expiration considerations

Under a technical scenario, based solely on the NASDAQ-100 
Bullish %, a trader looking for a reversal from current 
"overbought" to "oversold" conditions would most likely plan on a 
MINIMUM expiration of two months if looking for the MARKET to 
reduce enough risk to have the NASDAQ-100 Bullish % reversing 
back to a more oversold position.

The bullish % address the "market risk" portion of how higher 
levels of risk eventually gets sold as the MARKET begins to 
assess risk/reward and can be a starting point of what type of 
option expiration needs to be considered.

We can also make observation from the bullish % charts back in 
December of last year that the bullish % did NOT IMMEDIATELY 
correct itself from oversold to overbought in a month.  

While the bullish % was lower in January (red 1) at 64%, than 
early December of last year at 70%, a trader that prefers buying 
near-term expiration begins to understand that a higher degree of 
in/out trade accuracy is needed as expiration 

Since we just looked at the NASDAQ-100 Bullish % and made a 
statement that a MINIMUM of two months was needed.  Let's make 
direct reference to the NASDAQ-100 Trust (AMEX:QQQ) over the 
course of that 2 month time frame.  From there we can move on to 
Broadcom and look to build on observations.

NASDAQ-100 Trust (QQQ) - $1 box


Reference points are made and easily found on the point and 
figure chart of the QQQ as it relates to early December and early 
February.  I will note that the "red 2" was charted on February 

Based on historical QQQ trading as it relates to similar bullish 
% and "MARKET RISK" conditions as depicted by the NASDAQ-100 
Bullish %, a short-term trader, trading near-month expiration 
begins to understand that it may take a VERY high degree of 
accuracy, with a limited window of opportunity to trade the QQQ 
if seeking a QQQ move of 9%.  This may be particularly true 
during a more bullish market condition after a move higher from 
"oversold" conditions as there are undoubtedly some market 
participants arriving or still betting on the MARKET making new 
highs.  Trading of near-term options is similar to a "race 
against time" and requires a VERY disciplined trader that CANNOT 
be swayed from selling his/her profit targets.  

When using history as a guide, the importance of calculating 
percentage move, not just $ moves should be noted.  A $4 decline 
or gain in a $40 stock represents an entirely different 
percentage loss/gain than a $4 decline/gain in at $28 stock.  

A shorter-term QQQ trader buying near-month expiration can 
perhaps use a 9% MAXIMUM monthly decline based on correlative 
bullish % market conditions in the QQQ.  

By combining both the NASDAQ-100 Bullish % and tying in a "full 
range" of overbought to oversold condition, and "measuring" the 
potential impact it can have on QQQ price action, it becomes 
somewhat clear that to have an opportunity to participate in a 
meaningful move, MINIMUM expiration to be purchased is a full two 
month expiration.  To allow for error, it is often the belief of 
option traders that it is better to buy more time than you may 
think is necessary.


Let's move on to Broadcom (NASDAQ:BRCM).  Unfortunately, I do not 
have permission to show you Dorsey/Wright and Associates 
semiconductor bullish % (BPSEMI).  This is a long story, but more 
than a year ago, I did have their permission to show their sector 
bullish % charts, until one of their clients saw us showing our 
subscribers the sector bullish % charts and became somewhat 
angry.  However, I've noticed over time that many of the 
subsectors of technology-related sector bullish % charts 
generally mimic the NASDAQ-100 Bullish % ($BPNDX) from 
www.stockcharts.com.  Currently, Dorsey/Wright and Associates 
semiconductor bullish % (BPSEMI) is "bull confirmed" at 68.8%, 
with the recent high bullish % chart reading having been 74%.  It 
would take a reading of 68% to have this sector reversing lower 
into "bear alert" status.  As you can envision, the sector 
bullish % is within 0.8% of a "mimicking" reversal like the 
NASDAQ-100 reversal after Thursday's action.

As a benchmark against the NASDAQ-100 Bullish %, in December (red 
C) of last year, Dorsey's semiconductor bullish % was at 70%, 
then in January (red 1) had fallen to 64%, and at its February 
lows (after red 2) fell to 30%.  These levels of bullish % are 
almost "identical" to the NASDAQ-100 Bullish % readings from 

Broadcom Chart - $1 box (Dec - Feb historical test)


A quick historical test between BRMC, the NASDAQ-100 Bullish % 
and the QQQ shows "amazingly" similar 9% decline from early 
December (red C) to early February (red 2).  However, we see that 
BRCM put up a fight in the first half of January as the still 
high levels of bullish % found bulls aggressive bulls still 
willing to buy the stock to a new relative high.  

Once again, an options trader that didn't OVERLEVERAGE in a put 
trade, risked only in the option what his/her trading discipline 
had stated, may have been "saved" by the higher levels of risk 
that were eventually removed from the MARKET, SECTOR and stock.

Just for grins, I went back to BRCM news that was being released 
at the time (Late-December, early January).  Jan. 04.  CNBC 
reported that JP Morgan had made positive comments on BRCM.  
Later that day, JP Morgan said it saw short-term upside with 
company expected to announce new design wins, but stock was 
richly valued.  On January 9, when BRCM hits its high of $53, 
company says at Morgan Stanley Conference that it expects to 
profitability later this year (2002) and expects to return to 
historical growth rate of 50% later this year (2002).  Prudential 
excited on news and with stock trading $52.78 at 01:39 PM Pru 
raises price target to $68 from $48.  

Oh goodness!  I wonder if Pru took some profits at their initial 
target of $48?  Everything on BRCM's p/f chart was saying "buy."  
The only thing that advised caution?  The high levels of bullish 
% in both the NASDAQ-100 Bullish % and Semiconductor Bullish %.

So lets look at current action in BRCM.  With what we know 
happened around this time last year what expiration are we 
thinking about, if the trade fits your trading/business plan?  
We'll get to strike in a minute.  Are you leaning toward the 
bullish or bearish side in BRCM, which is a "semiconductor" 
related stock and a component of the NASDAQ-100.

Broadcom Chart - $1 & $0.50 box


Based on historical evidence, I would prefer February expiration.  
March would be ideal as it gets me an extra month.  Unfortunately 
there are currently no March or April expiration right now.  On 
Tuesday evening, I had no risk/reward profile as I had no bearish 
count to work with at that point.  The stock had not given a sell 
signal yet.  If the stock did trade $18, the initial bearish 
count would begin as .... $19.50-((4*2)*0.5) = $15.50.  So, at 
$18, I'm risking $4 to a stop at $22 with potential reward to 
$15.50 of $3.50.

However, the bearish vertical count column has now grown to the 
$17 level and bearish count is now still building to $13.50.  
Risk reward from $18 has improved a bit.  What if the bearish 
count column grows to $16.50 or $16 or $15.50 or $15 before BRCM 
reverses 3-boxes?  This is why I profiled 1/4 or 1/2.

Now that I have a pretty good feel for time that may be needed 
for a put trade to stand a higher probability of working in my 
favor, I can then begin making some assumptions toward price 
targets using initial bearish counts, but also have an idea from 
PAST trading under similar MARKET and SECTOR conditions to select 
a strike.

Broadcom Put Option Montage - $17.50 and $20 strikes


On Wednesday morning, shares of BRCM opened for trading at 
$17.49.  On Friday, the stock closed at $17.61, so the put 
options are going to be fairly close in price today as they were 
Wednesday morning (Feb $20's traded $4.40 at open).  

If a STOCK trader is willing to short BRCD at $18 with stop at 
$22, then his/her price target had better be at least $10 on a 
dollar-to-dollar risk/reward minimum of 1:2.  While I admit, a 
stop at $22 is "generous" that stop appears to be warranted on a 
technical basis, especially if Prudential upgrades the stock 
again with the bullish % so high.

If a stock trader were willing to risk $4 to a stop, then an 
options trader might look at the February $20 puts (RCQND) which 
are currently bid/offer $4/$4.10.  This would allow an options 
trader bearish exposure to the stock, with risk immediately 
assessed at $4.10/contract.  If my account management formula 
allowed for a $5,000 full short position in the stock, then that 
would be equivalent to a $2,500 1/2 short position in the stock, 
or at $18, 138 shares ($2,500 / $18 = 138 shares).  This would 
equate to 1 contract, maybe two.  However, with last year's 
ability show some bullishness a trader that is buying some time 
may want to establish just 1 contract and keep some powder dry in 
case history were to repeat itself.

I also placed a * by the May $20 puts, as that would allow 
additional time for a bearish trader, where last year, the 
NASDAQ-100 Bullish % fell further below the 30% "oversold" level 
on the bullish % chart (May is red 5), and also found BRCM 
trading $30, which would have represented a 28.5% decline from 

Hmmmm.... these May numbers don't look very good based on stock 
percentage decline of 28.5% from $18.50 do they?  Therefore, I 
would tend to shy away from this expiration with the data 
currently at hand.

What about the February $17.50's?  To break-even, and not 
considering any type of time premium, I would need a BRCM trade 
at $14.85 to have that strike being "break-even."  I calculate 
that $14.85 by simply taking the strike=$17.50 and subtracting 
the $2.65 premium I'd have to pay at the offer.  

If I think BRCM has $15.00 in it, then I begin to think that the 
$20.00 strike is the higher probability trade for profit.


There really isn't a "cookie cutter" approach to selecting the 
"best" option expiration or strike, but there can be a method to 
this madness.

At first, it seems like a lot of work.  However, once the 
trader/investor analyzes the MARKET condition they're in and 
assesses who has the greater degree of "risk" and which way that 
risk is shifting toward, the trader can then begin making 
observations as to any historical significance.

In the above commentary, I think an OPTIONS trader can see the 
correlative nature of the NASDAQ-100 Bullish % ($BPNDX) and the 
NASDAQ-100 Trust (QQQ).  The same would be true for the NASDAQ-
100 Index (NDX.X) itself.  Now, this isn't a revelation as the 
two are derived from each other.  But the QQQ or the NDX used 
solely by itself does little good in the scheme of "buy low, sell 

For highest odds of winning, it is theory that trader/investors 
make money when they are buying low and selling high.  The 
Bullish % does appear to have a very unbiased approach to the 
"buy low, sell high" profit strategy.  Yes, there will be stocks 
that continue to give buy signals and move higher when the NASDAQ 
bullish % is falling and more and more stocks are generating sell 
signals.  However, it is often times the stocks with strong 
RELATIVE STRENGTH that have been outperforming against the group 
and that have broken above LARGE basis that tend to outperform.

History is NO guarantee of the future.  Even when performing a 
historical check on BRCM last December, January and February, we 
see that the stock was trading strong relative to the QQQ and the 
NASDAQ-100 Bullish % for at least a month.  But then, despite the 
COMPANY issuing some positive comments and Prudential raising it 
price target the MARKET seemed to think differently and sent the 
stock lower and it performed "in line" with the QQQ.  Did the 
MARKET know something the Pru and perhaps even BRCM didn't know?  
Or was the MARKET simply too risky and "overbought" as depicted 
by the bullish %?  I could argue in favor in of all four.  The 
MARKET always knows and in NEVER wrong, Pru evidently didn't 
know, BRCM didn't know, but bullish % seemed to know or at least 
tell bullish traders that they were in a high risk environment.

Once a trader has his/her MARKET analysis complete, then they can 
work on the sector and eventually the stock.  As you do this, you 
will find similarity of how most stocks "all look the same" 
technically.  It's similar to a school of salmon.  Most of them 
look the same and they usually all swim together.

As you roll to stock selection, in an overbought market and 
sector environment, its usually the weaker fish in the school 
that begin to lag.  Perhaps give a sell signal before others in 
the group.  Why is it that a stock falls below a previous level 
where demand held firm?  Does the MARKET know something about 
that stock that has yet to be revealed?

Once a trade candidate is identified the correlative time 
horizons from the bullish % and the Index can be correlated 
against the sector.  If it's true a school of fish tend to swim 
together, then most likely the stock will correlate on a time 
basis for option expiration selection.  Most often, the weaker 
fish reach their destination first on a downward move, and lag a 
move higher when strength resumes.

We didn't discuss the impact of higher levels of Market 
Volatility, but that impacts option premiums and there's nothing 
an option trader can do about that.  The only way to deal with it 
is to weigh it against risk/reward profiles not only in the stock 
you're trading, but the MARKET and SECTOR.  Odds are, if you buy 
a put option on an apparently weak stock near a top when the 
bullish % are high, volatility will rise should the broader 
markets fall.  

If a trader buys enough time, he/she can live with higher 

Jeff Bailey


Market Watch for the week of December 9th

Major Earnings This Week

Symbol  Company               Date           Comment      EPS Est

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

ABS    Albertson's           Mon, Dec 9  Before the Bell      0.48
HOV    Hovnanian Ent, Inc.   Mon, Dec 9  -----N/A-----        1.45
IDT    IDT Corporation       Mon, Dec 9  After the Bell        N/A

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


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

ROP  Roper Industries        Wed, Dec 11  After the Bell      0.60
TOL  Toll Brothers           Wed, Dec 11  Before the Bell     0.89

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

ADBE  Adobe Systems          Thu, Dec 12  After the Bell      0.23
AZO  AutoZone                Thu, Dec 12  Before the Bell     0.95
CIEN  CIENA Corporation      Thu, Dec 12  Before the Bell    -0.17
COST  Costco Wholesale Corp  Thu, Dec 12  Before the Bell     0.31
FDS  FactSet Research Sys    Thu, Dec 12  Before the Bell     0.32
GTK  GTECH Holdings Corp.    Thu, Dec 12  Before the Bell     0.52
HNZ  H.J. Heinz Company      Thu, Dec 12  Before the Bell     0.58
MDZ  MDS Inc.                Thu, Dec 12  Before the Bell      N/A

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

PSO    Pearson plc           Fri, Dec 13  -----N/A-----        N/A

Upcoming Stock Splits In The Next Two Weeks...

Symbol  Company Name              Ratio    Payable     Executable

JBLU    JetBlue                   3:2      Dec. 12th   Dec. 13th
CCFH    CCF Holding Co.           3:2      Dec. 19th   Dec. 20th

Economic Reports This Week

Corporate confession season continues with only two and a half
weeks left before Christmas.  Aside from the FOMC meeting on
Tuesday, most of the economic events and reports are scheduled
for Friday morning.


Monday, 12/09/02

Tuesday, 12/10/02
Wholesale Inventories (DM)   Forecast:   0.2%  Previous:     0.5%
FOMC Meeting (DM)

Wednesday, 12/11/02

Thursday, 12/12/02
Initial Claims (BB)   12/07  Forecast:   393K  Previous:     355K
Current Account (BB)     Q3  Forecast:-$135.0B Previous:  $130.0B
Retail Sales (BB)       Nov  Forecast:   0.3%  Previous:     0.0%
Retail Sales ex-auto(BB)Nov  Forecast:   0.2%  Previous:     0.7%
Export Prices ex-ag.(BB)Nov  Forecast:    N/A  Previous:     0.1%
Import Prices ex-oil(BB)Nov  Forecast:    N/A  Previous:    -0.1%
FOMC Minutes (DM)     11/06

Friday, 12/13/02
PPI (BB)                Nov  Forecast:   0.0%  Previous:     1.1%
Core PPI (BB)           Nov  Forecast:   0.0%  Previous:     0.5%
Business Inventories(BB)Oct  Forecast:   0.1%  Previous:     0.6%
Mich Sentiment-Prel.(BB)Dec  Forecast:   85.0  Previous:     84.2

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

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Resigning Ourselves to New Levels

Now, normally when the CFO of a corporation resigns, we see a 
sell-off. But when the corporation happens to be the United States 
and the Treasury Secretary was seen as a stumbling block to the 
President's tax-cut laden fiscal stimulus package, it was time for 
investors to pop the champagne.

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Contact Support
The Option Investor Newsletter                   Sunday 12-08-2002
Sunday                                                      2 of 5

In Section Two:

Stock Pick: Long stock with put insurance
Daily Results
Call Play of the Day: CTXS
Put Play of the Day: CDWC
Dropped Calls: None
Dropped Puts: APOL, BDK

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offers true direct access to each option exchange offers stop and 
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online spread order entry for net debit or credit offers fast 
option executions

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Stock Pick

MON - $18.66
Strategy: Long stock with put insurance

St. Louis Missouri is the home of our latest addition to the
stock plays section.  Monsanto (NYSE:MON) provides agricultural
products and integrated solutions that bring together chemicals,
seeds, and biotechnology traits to improve farm productivity
and food quality. (Source company web site.)

You normally won’t here Monsanto mentioned in the same breath
as many of the high flying technology stocks of days gone by.
Some sources list Monsanto as a Specialty Chemical company,
while others place MON in their list of Biotechnology stocks.
Regardless of the sector, Monsanto has certainly experienced
its share of rough times the past six months.

For most of 2001, into May of 2002, MON actually held up fairly
well, trading between $28 and $38.  Shortly after filing for a
$2 bln. debt offering in the middle of May, the bottom began to
fall out for the company and its shareholders. Monsanto also came
out with a negative pre-announcement.  The negative news
and the lack of a catalyst to turn the company around sent shares
of MON to a low of $13.80 by the end of July.

So what’s changed that makes Monsanto an attractive play at this
time?  In the middle of August MON replaced PALM in the S&P 500,
putting the company into the limelight a bit more. During the
month of August the company was also completely spun off from
Pharmacia Corp. In early October, Monsanto warned again,
saying sales of its Roundup herbicide plunged.  Admittedly the 
news in recent months surrounding MON, has been anything but 
positive. However, and this IS significant, many times it’s not 
necessarily the news that’s important; it’s how a stock reacts to 
the news that’s important. With all the negative press, shares of 
Monsanto have managed to consolidate and edge higher since the 
retest of the May lows in late September. Overall, the volume 
behind the recent move has been strong, which further indicates 
MON is gaining momentum.  The stock has now established its fourth 
higher low and third higher high on the recent consolidation above 

This past Wednesday the company’s CFO spoke at a Chemical
Conference, saying MON backed its 2002 earnings guidance. CFO
Terry Cruz also said MON expects to be able to sustain a
“strong free cash flow through 2004.” Later in the day, Wall
Street applauded the news that Monsanto and Chemical Products
Technologies were dismissing lawsuits against each other, that
involved the use of glyphosate, an herbicide technology.  

How do we approach our new play?  We believe there are several
viable alternatives depending on your outlook and personal risk
tolerance. Monsanto is approaching resistance at $18.75. 
Technically it’s also moving into overbought territory on the
daily charts, but remains on a buy signal on both MACD and 
stochastic oscillators.  We may see a bit of consolidation
or a pullback to intraday support between $16 and $17. Solid
support is found at $15.50. However, if MON moves through
resistance on strong volume, we would expect the bulls continue
to support the price of MON shares up to the next resistance
level at $20. A challenge of the 200 dma at $22.08 over the near
term, may not be out of line.

Option 1.  Purchase MON stock at the current level and purchase
1, July 15 or $17.50 Put for every 100 shares of stock.  If the
stock is under $15.00 by July expiration, then exercise the put
and sell the stock. In the event you are still bullish on the
stock, you may also want to consider taking whatever profit you
have from the original put and buy another put six to nine months
out, however this strategy will increase your breakeven level.

Option 2.  Consider buying a January 2004 or 2005 deep In-the-
Money LEAP Call, rather than purchasing the stock. As of Friday’s
Close, Jan 2004 & 2005 $12.50 LEAP Calls were priced at $7.30 and
$8.10 respectively.  For those that want added protection, the
purchase of 1, July $15 or $17.50 put for each LEAP Call 
purchased, could also be considered. However, be advised, the
premium paid for all the options can begin to add up, and have
a significant effect the breakeven levels of the position.

Option 3.  Purchase MON stock at the current level and wait
for the stock to move through resistance near $20.00. At that
time buy 1 $17.50 Put or a $15.00 Put for every 100 shares of
stock owned in case 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 4. Purchase stock or a LEAP Call without protection and 
close out the position if it MON falls below support near $15.50.

Monsanto(MON) Weekly Chart



For Best Alignment view in Courier Ten Font

CALLS              Mon    Tue    Wed   Thu  Week

CTXS     13.00   -0.17   0.17  -0.11  0.69  1.00  new support
GENZ     34.43    1.34   0.96  -1.64 –0.14  0.53  consolidation
ICOS     31.01    0.37  -0.57  -1.36 –0.17 –1.16  nice bounce
OMC      67.90   -0.19  -1.96   0.20 –0.12 –1.45  New, uptrend


AIG      60.49   -2.36  -0.67  -0.17 –1.46 –2.36  very weak
APOL     42.08   -0.50  -0.80   1.26 –0.29  0.28  Drop, sideways
BDK      42.03   -1.54  -1.09   0.58  0.38 –1.32  Drop, back up
CDWC     47.76   -1.44  -0.70  -0.97 –1.66 –4.34  New,weak bounce
DLX      43.81   -0.77  -1.44   1.00  0.15  0.20  200-dma failure 

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options,” claims author Larry Spears in his new compact guide book:

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Call Play of the Day:

CTXS – Citrix Systems $13.00 (+1.25 last week)

See details in play list

Put Play of the Day:

CDWC – CDW Computer Centers $47.76 (-3.21 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.




APOL $42.08 (+0.55) APOL seems to have a hard time deciding which 
way it should be heading.  While it's not rebounding with any 
strength, it hasn't broken down the way were hoping for, either. 
Today's bounce could certainly be the formation of a right 
shoulder in a head and shoulders pattern, but with the number of 
bounces we've seen from $40 the last few days, along with today's 
bounce, it is going to take some real selling pressure to break 
that level.  We'll close the play and re-visit if APOL breaks 
$40, rather than allow further premium decay. Traders wishing to 
give the stock a little more time can look for another bounce at 
that level as confirmation to close the position.


BDK $42.03 (-0.94) It has been interesting how some of these
stocks that were getting punished when the broad market was
rallying, seem to have reversed course.  BDK couldn't find a
buyer earlier in the week, as it plunged down to just above
$40.  But the past few days have seen consistent improvement.
It isn't a bullish trend yet, but there's enough strength that
we no longer want to try leaning on the stock to the downside.
The 10-dma turned back the buyers on Friday afternoon, but the
fractional gain made it three in a row for BDK.  Take advantage
of any weakness on Monday to exit open positions or else adhere
to strict stops at $42.50.


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 12-08-2002
Sunday                                                      3 of 5

In Section Three:

New Calls: OMC
Current Calls: CTXS, ICOS, GENZ
New Puts: CDWC

If you trade options online, then you need an online broker that:
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.



OMC – Omnicom Group $67.90 (-0.15 last week)

Company Summary:
Omnicom Group is a marketing and corporate communications company.
The company has grown its strategic holdings to over 1500
subsidiary agencies operating in more than 100 countries.  OMC's
wholly and partially owned businesses provide communications
services to clients on a global, pan-regional and national basis.
The company's agencies provide an extensive range of marketing
and corporate communications services, including advertising,
brand consultancy, crisis communications, custom publishing,
database management, digital and interactive marketing,
business-to-business advertising, employee communications and
environmental design.  OMC also provides field marketing,
healthcare communications, marketing research, promotional
marketing and sports and event marketing.

Why We Like It:
Judging from the dismal comments from AOL last week, the
prospects in the advertising business are not encouraging over
the near term.  But perhaps that is just a company-specific
problem and not an indication of the industry trend overall.
That argument would certainly seem to hold water if you look at
the chart of OMC.  Recall that the stock got pummeled back in
June and July on concerns about accounting irregularities.  Now
that those problems appear to be solidly in the past, the stock
is making some solid progress up the chart.  After putting in a
significantly higher low back in October, OMC has been steadily
advancing, leaving a string of higher lows and higher highs in
its wake.  The most recent high (last Monday) coincided with the
first test of the 200-dma near the $70 level.  It's no surprise
that the first attempt was turned back, but the limited nature
of the stock's pullback suggests the bulls are getting ready to
take another run at it.  Apparently CSFB agrees with this bullish
view, as they started coverage of the stock with an Overweight
rating on Friday.  Note that the $64-65 area of prior resistance
now appears to be providing solid support on the pullbacks.  A
subsequent rebound from the $65 area would make for a solid
entry into the play ahead of the next breakout attempt.  In
addition to historical support, OMC is likely to find support at
the 20-dma ($65.10) and its ascending trendline (from the
October lows) near $65.50.  Momentum traders will want to see
the stock push through the 200-dma (currently $69.80) and the
$70.50 level (site of Monday's high) before initiating a
position.  We are initially placing our stop at $64.

*** December contracts expire in two weeks ***

BUY CALL DEC-65*OMC-LM OI=1551 at $4.20 SL=2.50
BUY CALL DEC-70 OMC-LN OI=2311 at $1.25 SL=0.50
BUY CALL JAN-65 OMC-AM OI=1865 at $5.90 SL=4.00
BUY CALL JAN-70 OMC-AN OI=8691 at $3.10 SL=1.50

Average Daily Volume = 2.40 mln

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options,” claims author Larry Spears in his new compact guide book:

“7 Steps to Success – Trading Options Online”.

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



CTXS – Citrix Systems $13.00 (+1.25 last week)

Company Summary:
Supplying application server products and technologies that
enable effective and efficient enterprise-wide deployment and
management of Microsoft Windows applications is Citrix Systems’
core business.  The company's MetaFrame and WinFrame product
lines, developed under license and strategic alliance agreements
with Microsoft, permit organization to deploy Windows
applications without regard to location, network connection, or
type of client hardware platforms.  Its products are marketed
through multiple indirect channels such as distributors,
value-added resellers and original equipment manufacturers in
the United States, Europe and the Asia-Pacific region.

Why We Like It:
While we are admittedly late to the party on our bullish play on
CTXS, up until recently, it looked like the stock was rallying on
the same catalyst as the rest of the Technology sector - Short
Covering.  When the company updated its guidance last Monday, the
true catalyst became clear -- the company's business was
improving!  Wow!  After raising its guidance for the fourth
quarter to 12-17 cents per share, CSFB and Lehman Brothers
upgraded the stock and that was enough to push it through the
$12 resistance level.  We initiated coverage of the stock,
expecting to get a pullback to support to afford us easy entry
into the play, but that hasn't been the case so far.  Despite
the weakness in the broad market, CTXS has continued to push
higher, hitting a new recent intraday high of $13.48 on Friday,
before dropping back a bit at the close to end right at $13.
Recall our cautious stance about trying to buy a breakout in the
stock due to the significant resistance that begins near $13.50
and extends up to about $15.50?  It's not that we don't expect
the stock to push through this zone, it's just that risk is so
much easier to manage by entering on a pullback to support.
Speaking of support, that $12 level is certainly looking strong
and a dip and bounce near that level would make for a solid
entry.  Should we get a continuation of last week's broad market
weakness, then a more substantial dip near the $11.00-11.50 level
would give us an even better entry point.  Until CTXS can close
above the $13.50 level, let's keep a loose stop set at $10.50.

*** December contracts expire in two weeks ***

BUY CALL DEC-10 XSQ-LB OI=2614 at $3.20 SL=1.50
BUY CALL DEC-12 XSQ-LV OI=2963 at $1.10 SL=0.50
BUY CALL JAN-12*XSQ-AV OI=1484 at $1.60 SL=0.75
BUY CALL JAN-15 XSQ-AC OI=1353 at $0.60 SL=0.25

Average Daily Volume = 3.65 mln


GENZ – Genzyme General $34.43 (+1.63 last week)

Company Summary:
Genzyme General, a division of Genzyme Corporation, is focused
on developing innovative products and services to solve major
unmet medical needs.  GENZ has nearly 600 products and services
on the  market and a strong pipeline of therapeutic products for
the treatment of rare genetic diseases.  The Diagnostics
business unit develops, markets and distributes in vitro
diagnostic products and genetic testing services. With a solid,
profitable revenue base, this research is intended to maintain
the company’s high rate of earnings growth.

Why We Like It:
It wasn't an exciting week for the bulls in any sector, but
Friday's action certainly was sufficient to inject new hope for
those bullish Biotech investors.  Sure, the whole market
rebounded smartly from its intraday lows, but the BTK index
looks good, not so much for the rebound, but for the limited
selloff the sector experienced throughout the week.  This hints
that perhaps the group doesn't have as much downside risk built
into it right now, and could outperform the broad market to the
upside in the near future.  Our GENZ play was clearly a bit
disappointing in that it really couldn't make any progress off
its lows on Friday, but we like the way it is stabilizing just
above $34, while the oscillators are rapidly bleeding off their
overbought condition.  There hasn't been any meaningful news
over the past few days, so we're just left to work with the
natural supply and demand equation in the stock.  That equation
appears to be stabilizing near current levels and a dip and
bounce near $34 can be used for implementing new positions.
More cautious traders may want to wait for that rebound to
extend back over the $35.50 (just above the intraday highs of
the past several days) before putting fresh capital to work.
Those with a bent towards momentum trading will need to see a
volume-backed push through the $37 level to have a solid entry
into the play.  Speaking of volume, it has been declining
throughout the past week, providing additional confirmation
that the recent weakness is likely just some controlled profit
taking, rather than a potential end of the bullish trend.  Keep
stops set at $33.50, just in case selling volume does pick up
and change the nature of the trend.

*** December contracts expire in two weeks ***

BUY CALL DEC-32 GZQ-LP OI=2282 at $2.65 SL=1.25
BUY CALL DEC-35 GZQ-LG OI= 919 at $1.15 SL=0.50
BUY CALL JAN-32 GZQ-AP OI=3958 at $4.30 SL=2.75
BUY CALL JAN-35*GZQ-AG OI=3776 at $2.90 SL=1.50
BUY CALL JAN-37 GZQ-AO OI=1568 at $1.80 SL=1.00

Average Daily Volume = 3.72 mln


ICOS – ICOS Corporation $31.02 (-0.81 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:
The recent trading in the Biotechnology sector (BTK.X) certainly
looks like controlled profit taking.  Despite a pretty sharp
pullback in the broad market last week, the BTK kept finding
buyers in sufficient quantities to keep the index above the
critical $360 level.  That resilience was evident in the
trading of ICOS, as the stock consistently found support near
the $30 level throughout the week.  Friday's early dip down to
the $27.50 level seems to have been an anomaly, generated by the
broad market weakness.  Note how fast the stock rebounded back
over the $30 level and then continued improving during the course
of the day, closing out right on the $31 level.  Kudos to those
of you that recognized the early selloff for what it was (a great
entry point) and ventured into new positions.  It was an
aggressive entry, but profitable for those with the intestinal
fortitude.  The stock still appears to be in consolidation mode,
but could start marching higher next week, especially if the
broad market can shake off its blues.  Look to open new positions
on another rebound from the $30 level or on a decisive
(read:volume) breakout over $31.50 (intraday highs of the past
few days).  A true momentum trader will need to wait for renewed
buying volume and the sector strength to propel ICOS through the
$33 level before playing.  Recall that once above $33, the stock
is back to working its way back towards the top of the gap near
the $39 level.  For now, keep stops in place at $28.50.

*** December contracts expire in two weeks ***

BUY CALL DEC-30 IIQ-LF OI=1282 at $2.20 SL=1.00
BUY CALL JAN-30*IIQ-AF OI=1306 at $3.50 SL=1.75
BUY CALL JAN-35 IIQ-AG OI=1048 at $1.20 SL=0.50

Average Daily Volume = 1.03 mln


CDWC – CDW Computer Centers $47.76 (-3.21 last week)

Company Summary:
Providing customized computing solutions to its customers, CDWC
is a direct marketer of over 80,000 computer products, including
hardware, software, peripherals, networking/communication and
accessories.  The company provides a nearly endless list of
products, from companies such as Apple, Canon, Epson,
Hewlett-Packard, IBM, Microsoft, Adobe, Cisco, and 3Com.
Using catalogs, telesales, and the Internet, the company has
over 630,000 customers and receives most of its business

Why We Like It:
Is there a new PC upgrade cycle in progress?  To listen to DELL,
there just might be, while that could just be an indication of
how well that company runs its business.  Throughout the
remainder of Tech-land, signs of a new spending binge either
by consumers or corporate IT departments are few and far
between.  Price action tends to trump everything else in the
stock market, and based on the recent pattern in shares of CDWC,
the news is not good.  After topping out near $56.50 in early
November, the stock has been posting a series of lower highs
and lower lows.  Just over a week ago, CDWDC fell to test the
200-dma, and eager bulls rushed in to support the stock at those
levels.  But this past week was a different story.  Without the
support of a buoyant market, CDWC failed on its second test of
the 200-dma, plunging through it to the downside and generating
a fresh PnF Sell signal on Thursday.  Unfortunately, that column
of O's needs to extend to at least $46 to eliminate the
possibility of a bear trap setup.  CDWC rebounded with the rest
of the broad market on Friday and it looks like we could be
setting up for another test of the 200-dma next week, this time
from below.  A rally failure at that level, or possibly as high
as $50 should set up a solid bearish entry point, ahead of the
next shot at $46 support.  Those looking to trade the breakdown
will need to wait for the $46 level to be cracked (preferably on
strong volume) before taking a position.  We're initially placing
our stop at $51.

*** December contracts expire in two weeks ***

BUY PUT DEC-50*DWQ-XJ OI=1241 at $3.40 SL=1.75
BUY PUT DEC-45 DWQ-XI OI= 760 at $1.05 SL=0.50
BUY PUT JAN-45 DWQ-MI OI=1019 at $2.75 SL=1.25

Average Daily Volume = 1.89 mln

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The Option Investor Newsletter                   Sunday 12-08-2002
Sunday                                                      4 of 5

In Section Four:

Current Put Plays: DLX, AIG
Leaps: Decision Time!
Traders Corner: The Iron Condor Rises Again – On Schedule

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AIG - American Intl. $60.49 -0.66 (-4.66 for the week)

Company Description:
AIG is the world's leading U.S.-based international insurance and 
financial services organization, the largest underwriter of 
commercial and industrial insurance in the United States, and 
among the top-ranked U.S. life insurers. Its member companies 
write a wide range of general insurance and life insurance 
products for commercial, institutional and individual customers 
through a variety of distribution channels in approximately 130 
countries and jurisdictions throughout the world. AIG's global 
businesses also include financial services, retirement savings 
and asset management. AIG's financial services businesses include 
aircraft leasing, financial products, trading and market making, 
and consumer finance. (source: company press release)

Why We Like It:
An unexpected rise in unemployment numbers sent the market lower 
on Friday morning.  AIG gapped down with the major indices and 
bounced just over the PnF bullish resistance breakdown level of 
$60.00, hitting a low of $60.05.  The stock remained rangebound 
between $60.50 and $61.00 for most of the day before a late-
session breakdown took AIG to the $60.05 level.  Bulls will point 
to the subsequent rebound as a positive sign, but we wouldn't 
read too much into this successful test of support - It looked 
like many short traders simply wanted to get flat before the 
weekend.  Today's relative weakness versus the Dow Jones and 
IUX.X Insurance index (which violated its 50-dma on an intraday 
basis) bodes well for the bears.  The recent triple-bottom 
breakdown on the PnF chart sure isn't going to inspire much 
buying either.  New entries can be gauged on a move below $60.00.  
We think AIG could quickly fall to the $55.00 area once this 
level of support gives way.  Our stop is set at $65.51, twelve 
cents above the 200-dma.

BUY PUT DEC-65*AIG-XM OI= 6795 at $5.00 SL=2.50
BUY PUT DEC-60 AIG-XL OI= 6022 at $1.85 SL=0.95

Average Daily Volume = 6.45 mil


DLX  - Deluxe Corp. - $43.81 +1.26 (+0.41 for the week)

Company Description:
Deluxe Corporation's business units provide personal and business 
checks, business forms, labels, self-inking stamps, fraud 
prevention services and customer retention programs to banks, 
credit unions, financial services companies, consumers and small 
businesses. The Deluxe group of businesses reaches clients and 
customers through a number of distribution channels: the 
Internet, direct mail, the telephone and a nationwide sales 
force. (source: company press release)

Why We Like It:
We initiated this play with a stop above the 200-dma, based on 
the probability that any near-term rebound in DLX would peter out 
below that moving average.  Now our expectations are being put to 
the test.  DLX has had a distinct buy-side bias ever since it 
bounced from the $41.00 level on Wednesday.  Shares showed 
relative strength throughout today's session and finished with a 
gain of nearly 3%.  The buying finally subsided just below short-
term resistance at $44.00, two cents under the declining 200-dma.  
At this point it's hard to make a bearish case for DLX.  The 
recent reversal has sent the oscillators higher, and today's 
gains took the stock above its short-term descending channel.  
We'd fully expect this play to be stopped out if the market shows 
any kind of strength on Monday.  However, today's failure to move 
above resistance suggests that the bears may offer a spirited 
defense at the 200-dma.  A rollover from current levels would 
give speculative traders an opportunity to add to short 
positions, but not until DLX falls below intraday 
support/resistance at $43.50.  Our alternate, low risk entry, 
came on a rollover from the $44 level, with the stop set at 
$44.25 and this may be that opportunity.  Traders should be 
patient and wait for the breakdown, but the failure at the 200-
dma is no coincidence. 

BUY PUT DEC-45*DLX-XI OI=  84 at $1.90 SL=1.00
BUY PUT DEC-40 DLX-XH OI= 184 at $0.30 SL=0.00

Average Daily Volume = 344 k

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Decision Time!
By Mark Phillips

After 8 weeks of gains (although several of those weekly gains
were pretty anemic), the broad market finally broke its winning
streak with a loss across the board.  No matter what index you
use for reference or how you draw the trendlines, the ascending
trends that have been in place since mid-October were all tested.
In the process, we also some internal weakening in the various
indices, with the OEX reversing into Bear Alert and the NDX
reversing into Bull Correction.  This is the first time since
the October lows that we've seen any appreciable weakening in
these measures of market risk, and I believe we can attribute
it to investors taking profits and removing some of the risk in
their portfolios after running up to test major resistance.

Since we've been talking about the OEX in this column lately, I
want to continue to use it as our benchmark for what is happening
in the broad market.  This isn't to say that it is the most
appropriate, but I think we are developing a level of familiarity
and it does show some of the very important levels that are
coming (have come) into play.

Daily Chart of the OEX (S&P 100)


Given the steep slope, it was only a matter of time until the
aggressive ascending trendline off of the October lows was
broken, and testing major resistance between $487 (August high)
and $489 (50% retracement) was the key.  While we're looking
in hindsight right here, you can scroll back a couple weeks in
this column and see how we were talking about the significance
of that resistance level.  But before we stumble over ourselves
launching bearish trades galore, I think a closer view is
warranted.  Take a look at the chart below and I think you'll see
what I mean.  Note that the 180-minute scale has no significance
other than that was what was necessary to compress the data so
you can see enough of the chart.

Closer View of the OEX (S&P 100) - 180 Minute


After two successful tests of the aggressive ascending trendline,
it finally failed and broke down after Monday's rejection at
resistance.  That got the markets in profit-taking mode for
the remainder of the week, culminating with Friday's early sell
off and rebound.  Ignoring the initial launch off of the October
lows, I've started this ascending trendline (red) at the low on
October 15th.  We got our second data point (allowing for the
construction of the trendline) on November 13th and lo and
behold, the bulls defended support there last Friday.  

To be sure, there is still a lot of downside risk in this market,
but given the bullish seasonality in play, the still very bullish
position of the Bullish % readings and strong support near
$455-458, I think we're setting up for another assault on
resistance.  It may not commence on Monday, but I think bearish
traders looking for a big breakdown and selloff next week are
setting themselves up to be disappointed.  Don't forget that it
now appears the Bush administration is getting serious about
fixing the economy through stimulus (details to be released soon,
if we can believe what we hear on CNBC).  This has the potential
to revive any tired bulls.

Lest you think I'm basing my near-term bullish opinion on a
convenient trendline on the OEX, I invite you to apply a similar
trendline to the major index of your choice -- DOW, SPX, NDX or
NASDAQ Composite.  They all rebounded (to varying degrees) on
Friday from very similar trendlines, all of which began on or
about October 15th.  Coincidence?  I think not!

And that brings me to the topic of the VIX.  We were all
wondering if it was just going to continue downwards after
falling below 27 prior to Thanksgiving.  My thesis last week was
that the significant rise in the VIX with the rally surrounding
the holiday, meant that we were very soon due for some weakness
in the market, which was being reflected in an increase in put
buying, and hence a suspicious rise in the VIX.  Sure enough,
after the initial spike higher on Monday, the market sold off,
and the VIX spent the remainder of the week charging higher.  The
high for the week was pegged on Friday morning at 35.58.  Look
at a daily chart of the VIX and you can see this is an important
level of support turned resistance (35-36) on the way down in
mid-November.  That sharp reversal on Friday hints to me that a
lot of the feat that had moved into the market a week ago is
already beginning to dissipate.  

All clear for the bulls?  Not by a long shot, as there is still a
lot of downside risk in this market.  By the same token, I don't
think you can make a strong argument for the bottom falling out
of this market anytime in the next 3 weeks.  We're in that
indecision zone, where the most prudent trades will consist of
selling resistance and buying support.

Speaking of trades, we had a lot of action in our list of plays
this week, with nice gains in the Portfolio, and a couple new
entries too.  Let's get to it!


LEN - Now that's more like it!  I mentioned last week that LEN
was looking a bit top-heavy as it was resting right below its
50-dma and 200-dma, both of which were rolling lower.  Sure
enough, the stock got a slight pop on Monday morning and then it
was all downhill from there.  The real key was the $49 level, as
we needed a print at $49 to generate that PnF Sell signal.
Thursday's decline suspiciously stopped at $49.10, but the
bears delivered on Friday morning, with the stock trading as
low as $48.76 give us that quad-bottom breakdown.  Now we can
calculate our tentative bearish price target to be at least
$44, depending on how long this column of O's becomes.  In the
near-term, we still aren't out of the woods yet.  This could
simply be a bear-trap Sell signal, and we need a print at $48
to remove that risk.  My gut feel says we still might get a bit
of a bounce before selling off further down the chart.  So let's
refrain from getting too aggressive with our stop.  I'm lowering
it to $54 this weekend, which is just above the late-November
highs.  Note that a trade at $54 would also create a PnF Buy
signal, negating this week's Sell signal.  Traders that are
sitting on a solid gain and don't want to risk giving it back
could consider closing the trade here and then look for a new
entry on the next failed rebound.

NEM - Patience IS rewarded!  It was nip and tuck for a few
weeks there as NEM muddled along just above its $22 support
level.  But things improved dramatically this week, with
currency fears translating into a nice move up in the price of
Gold.  Looking at the daily chart of NEM, I sure do like the
increasing buying volume throughout the week, culminating with
Friday's $.4% advance on nearly double the average daily volume.
We definitely need to exercise caution here though, as the XAU
index was unable to generate a PnF Buy signal, despite the fact
that the Gold futures did.  The December contract (GC02Z) hit
$328 - EXACTLY - on two separate occasions on Friday before
pulling back.  My interpretation is there just wasn't enough
buying pressure to constitute a real breakout.  This is perhaps
more clearly seen in the chart of NEM, which moved up right
to significant resistance on Friday, closing just a few pennies
under the 200-dma.  Once clear of that obstacle, we're going to
need to see the stock finally break out over the descending
trendline resistance.  The top of the descending trendline on
the candle chart is $27.25, but I want to see $28 to convince
me the breakout is for real.  Looking at the PnF chart, a trade
at $27 generates a fresh Buy signal, but again, I want to see
a trade at $28 to convince me, as that will remove the
possibility of a bull-trap pattern.  Over the near-term, my
expectations are for a pullback from Friday's high, most likely
into the $24-25 area, before the gold bulls take a serious run
at breaking out of the current neutral wedge.  Things are
looking good, but let's not get too aggressive on the stop just
yet.  I'll raise it to $23 this weekend, but that's as far as
I'm willing to go until we see a real breakout.

MO - The Consumer Cyclicals were left out of the most recent
market run up the charts, and they continued to trade contrary
to the broad market again this week.  Our bullish MO play
worked out quite nicely, getting the party started on Wednesday,
when the stock blasted out of the base it had been confined in
since mid-November.  Don't break out the champagne just yet,
as the stock still has a lot of work to do to get back on the
recovery path.  There's going to be stiff resistance in the
$41-43 area, and I won't breathe easy until I see a close above
$45.  Incidentally, a print above $45 is what we need to get
the PnF chart back on a Buy signal.  The chart looks like the
early stage of a recovery is in process, but only time will
tell from here.  Keep stops set at $35.

Watch List:

DELL - We're getting closer on a daily basis to an actionable
entry point.  It should come as no surprise that the stock has
been weakening steadily since its strong earnings report, as
investors likely bought the stock in advance, expecting a
positive report.  It has been interesting to note that there
sure isn't a rush for the exits over the past couple weeks,
with consistent support being found near the $28 level.  But
we don't want to rush into a rash entry here, as there is
likely some more downside before we'll be presented with what
I think is a good entry.  Friday's rebound back through the
50-dma is likely just a tease, and I'm more interested in what
happens when the stock gets back down near the 200-dma, which
is positioned conveniently in the $26-27 area, which is where
we want to enter the play.

GD - See how GD is still vacillating in the low $80s?  That's a
sure sign that investors haven't yet made up their mind about
this stock.  While there isn't a rush to exit the stock (that
was taken care of back in July), there also isn't an
overwhelming urge to buy it here.  Sounds like a perfect time
to start hunting for an attractive entry point, don't you think?
And that's precisely why I haven't been in a hurry to take an
entry yet - I think we still have the luxury of time on our
side.  If I'm wrong, then we miss out on the play.  But first
and foremost, we want to manage our risk by getting the
appropriate entry close to support.  my preference is still for
a dip and rebound near the $78 area, and we'll follow that up
with a stop at $76.

During the process of writing this column, I always go back and
review what I said the week before.  Sometimes a blind squirrel
does find an acorn, but I invite you to check out what I wrote
last weekend.  Recall my preference was for a failed OEX rally
to the $484-494 area and then a subsequent pullback into the
$455-460 area to test strong support.  I don't think I could
have scripted it any better, with a Monday moonshot up to
487.94 and then a low on Friday morning of 455.94.  Eerie,
isn't it?  Nobody gets it that accurate on a regular basis, so
to be honest, I'll be surprised if I captured the future with
this week's prognostications quite as accurately.  But time
will tell.

Without sounding too much like a broken record, Sell Resistance
and Buy Support appears to be the game plan for now.  The bull
run isn't over just yet, but I'll be surprised if we're able to
move higher in December and then continue that move into the
new year.  My forecast (subject to change, just like the weather)
is for some limited upside and then another significant leg down,
hopefully after the New Year begins.  Here are the two things to
watch for that would give a clear indication that I'm dead wrong
in my forecast.

1. A violation of that new trendline (beginning in mid-October)
   on a closing basis.

2. The VIX closing above the 36.50 level, indicating a renewed
   surge in fear.

Barring those events coming to pass, I like the odds of my
forecast being on target.  Keep listening to what the market
has to say, and we should all have a very Happy Holiday season!

IMPORTANT REQUEST: In my never-ending quest to provide what you
(my readers) want, I think it's time I solicited some feedback.
After all, with the caveat that I need to express my true market
view, this column needs to be all about what makes the most
sense to the most of you.  So tell me what you want me to
change.  I want to respect everyone's time, and this week's
column ran to nearly 9 full pages -- I know that takes a lot of
time to read.  So what would you like?  Leave it the way it is? 
Less commentary or more?  More plays or less?  More aggressive
or more conservative plays?  How's the weekly coverage of the
current Watch List and Portfolio plays.  The only thing that
I'll tell you up front that I can't do is intra-week updates
on the LEAPS plays.  I don't have the time to do that with my
other writing duties, and there isn't space to cram it into
the newsletter.  But other than that issue, your wish is my
command.  Thanks for your time!


LEAPS Portfolio

Current Open Plays


NEM    10/30/02  '04 $ 30  LIE-AF  $ 3.90  $ 4.40  +12.82%  $23
                 '05 $ 30  ZIE-AF  $ 6.10  $ 6.10  + 0.00%  $23
MO     11/13/02  '04 $ 40  LMO-AH  $ 3.90  $ 4.80  +23.07%  $35
                 '05 $ 40  ZMO-AH  $ 4.80  $ 5.70  +18.75%  $35

LEN    10/02/02  '04 $ 50  KJM-MJ  $ 8.60  $10.70  +24.41%  $54
                 '05 $ 50  XFF-MJ  $11.20  $15.10  +34.82%  $54
BBH    12/02/02  '04 $ 85  KBB-MQ  $12.10  $12.30  + 1.65%  $93.50
                 '05 $ 80  XBB-MP  $14.40  $14.40  + 0.00%  $93.50
GM     12/02/02  '04 $ 35  LGM-MG  $ 5.20  $ 6.60  +26.92%  $45
                 '05 $ 30  ZGM-MF  $ 5.50  $ 6.50  +18.18%  $45

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

DJX    12/08/02  $90-91        DEC-2003 $ 88  ZDJ-XJ
                               DEC-2004 $ 88  YDJ-XJ

New Portfolio Plays

BBH - Biotech HOLDR $89.52  **Put Play**

We've been hemming and hawing about taking an entry in the BBH
for a few weeks now, and the sharp reversal of Monday's rally
attempt in the broad market finally pushed me off the fence.
While I would have liked to entered the play up in the $91-92
area, we'll have to take what we can get.  The rally failure
is easier to see in the BTK index, as it moved up to just below
the late-November highs before rolling over.  At any rate, I
logged the entry into the play as of the close of trading on
Monday, and was feeling pretty smug about in on Wednesday
morning as the BBH dropped back under $87.  But the past few
days have seen the bulls active in the sector, and at the end
of the week, the BBH came to rest at $89.66, fractionally above
our entry level.  So what comes next?  My expectation is that
we're going to get another rally attempt, and the critical
feature of this next rally will be to see how it behaves if it
moves up to test the 200-dma, currently at $92.  A failure below
that level should get the bears active again, while a breakout
will send the signal that I was premature in trying to short
this group.  Traders still looking for an entry will want to
look for entry on the hoped-for rollover near the 200-dma.
While the weekly Stochastics are looking like they want to
roll over, they haven't really done so just yet, so caution is
advised.  I'm initially placing the stop at $93.50, just above
the August high.

BUY LEAP JAN-2004 $85 KBB-MQ $12.10
BUY LEAP JAN-2005 $80 XBB-MP $14.40

GM - General Motors $39.95  **Put Play**

Ask, and it will be given!  At least that's what I was thinking
on Monday, after GM soared with the rest of the market to trade
as high as $41.50, before collapsing down to close just below
$40 at $39.95.  Any bullish aspirations for the stock were
quickly dashed as the broad market fell, and the picture got
even gloomier (good for us) on Tuesday when each of the major
auto manufacturers revealed that auto sales were far from robust,
with each of the company's reported double-digit sales declines.
That's good for our play and led the stock to trade back under
$37 on Friday before recovering a bit with the rest of the
market.  There was apparently a bad tick on Thursday down to the
$33.05 level, which has the PnF chart showing a larger column
of O's than actually occurred.  But no matter, that will be
corrected soon enough.  What really has me excited about the
play is the fact that we have bearish divergence setting up on
the weekly Stochastics, and that bodes well for the downside.
That's right, the weekly Stochastics reached just a bit higher
than they did in August, but price didn't get anywhere near the
August highs.  I expect we'll see some pretty substantial support
in the $35-37 area and we should get a bounce in the stock
between here and the end of the year, which will probably
challenge the $41-42 area once again.  So this isn't the point to
plunge into new positions.  If you missed the rollover last week,
then you've got time to wait for the next failed rally.  Look for
it over the next few weeks.  To allow for the stock to move
around without tripping us out of the play, we're going to start
with a pretty wide stop at $45.  We'll look to lower it once the
stock breaks down below $35.

BUY LEAP JAN-2004 $40 LGM-MG $5.20
BUY LEAP JAN-2005 $40 ZGM-MF $5.50

New Watchlist Plays

DJX - Dow Jones 30 Index $86.46  **Put Play**

If you're looking at the bullish percent readings and thinking
we're a bit early to be gaming a long-term play to the downside
in the DOW, then you're thinking exactly the same as I am.
After giving back a fair amount of ground in the past week, the
DOW looks to me like it is due for a rebound in the near-term.
But with the DOW bullish percent already up in overbought
territory, the risk has definitely shifted to the downside.
With the bullish tendencies due to seasonality, I'm looking for
the index to remain strong through the end of the year, but my
expectation is that we'll then have a nice setup for a
longer-term bearish play in the index.  Monday's rally
effectively tested the August highs near the 9000 level and
we immediately sold off from there.  Stubborn bulls will want
to take another run at that resistance level and if they fail
to break through it decisively, those growling bears will be
back with a vengeance.  You see, the bulls have used up a lot
of their strength just getting the market back to the level
of the August highs and right now they're catching their breath
for another attempt.  If they fail at the same level (which by
the way, will likely be close to the 200-dma by that time), we
ought to see at least a 38% and maybe even a 50% retracement
of the rally off of the October lows.  Note that we are
predicting a breakdown below those lows right now.  While that
could happen, we don't want to get overzealous expecting a
total collapse.  Ideally, that next ramp up to resistance will
have the VIX falling back down into the low 20s again as well.
For now, we wait and watch for the right entry.  I think that
will occur with a failed rally in the $90-91 area.  After we
enter a position, we'll set our stop at $94.  While that induces
a fair amount of upside risk into the play, it is the best point
for an initial technical stop, as it is the site of the July
highs before the breakdown.





The Iron Condor Rises Again – On Schedule
By Mike Parnos, Investing With Attitude

Just as the silver birds of United Airlines are about to come 
tumbling down to earth, the Couch Potato Trading Institute is 
proud to announce that our Iron Condors have once again taken 
flight and are alive and well and PROFITABLE!

Call and put buyers are plastered to their computer all day, day 
after day, hoping and praying for a few dollar move.  The only 
move CPTI students are concerned about is the five-yard dash to 
the refrigerator for a slice and a beer during the commercial.  
The five-yard snack dash is rumored to soon be an Olympic event.

We discussed Iron Condors in previous columns, but this 
discussion will be enlightening for new CPTI students and a 
welcome refresher for our “oldies but goodies.”  Many CPTI 
students have been following our monthly portfolios and been 
consistently collecting profits on their Iron Condors.

Today’s column includes a checklist for the Iron Condor strategy.
It will help you organize the information you accumulate as you 
research each potential Condor trade.   If you have a problem 
getting the checklist on one sheet, email me 
(mparnos@OptionInvestor.com) and I’ll be glad to send you a 
Microsoft Word file with everything already laid out and ready to 
print.  Once you print out a good copy, take it to your friendly 
Office Depot or Office Max and copy it onto 3-hole punch paper.  
Keep these sheets in a trading loose-leaf for easy reference.  It 
will be a valuable trading tool for you.
The Iron Condor Rises
The Iron Condor often has a wide wingspan, but a intentionally 
short life span.  We’re trying to establish a position that will 
allow a stock (or index) to vacillate (no, it’s not a lubricant) 
up and down within a trading range without violating the 
integrity of the position.

The Iron Condor consists of establishing a bear call spread on 
top of a trading range and a bull put spread at the bottom of the 
trading range.  We normally use the front month for both spread 

The Iron Condor is a credit strategy.  That means the maximum we 
can make on the trade will be the credits we take in at the 
inception of the position.  We will take in a credit from both 
spreads and, if the option Gods smile upon us, we’ll keep all the 
money.  All the options will expire worthless and ascend to 
option heaven -- where all good expired options go to when they 

The Underlying
We want to find a relatively volatile stock that is trading 
within a range.  The volatility will provide us with some decent 
premium.  Hopefully, the support and resistance levels will hold 
the underlying within its range and we all live happily ever 
after.  If not, there are adjustments we can make when necessary.

Let’s use an old favorite – QLGC (Q-Logic Corp.) – closed Friday 
at $39.19.  It’s had a history of trading within the $35-$45 
range.  It has good volatility and should be good for this 
hypothetical example.

The Actual Trade
The Bear Call Spread:
Sell 10 contracts of Jan. $45 call 		@ $1.70
Buy 10 contracts of Jan. $50 call 		@ $.75
Credit for Bear Call spread:			$.95

The Bull Put Spread:
Sell 10 contracts of Jan. $35 put		@ $2.35
Buy 10 contracts of Jan. $30 put		@ $1.30
Credit for Bull Put spread:			$1.05

From the two spreads, we have taken in a total of $2.00.  If 
you’re a shrewd trader, you might be able to get another dime, 
but let’s go with the $2.00 for our calculations.

Our Exposure
The nice part about the Iron Condor is that you can’t be wrong in 
both directions.  Technically it’s possible, but the likelihood 
of it happening is infinitesimal (another big word, huh?).  

Let’s say CEO of QLGC suddenly publicly quits to have an 
operation and join the Dixie Chicks -- causing QLGC to drop to 
$20 overnight.  Our exposure is only the difference between the 
strike prices of the bull-put spread -- $5.00 ($35.00 - $30.00).   
Now, considering that we’ve already taken in $2.00 in credit when 
we put on the Condor, our actual risk is only $3.00 ($5.00 – 

Our Return
This is the fun part.  This part is truly exciting.  It causes 
heart palpitations, eyebrows and various other body parts to rise 
just at the thought of these returns.   Based on what you read in 
the paragraph above, you can see that we took in $2.00.  Our risk 
is only $3.00.  If QLGC behaves and finishes inside the 
predetermined range, our return on our risk is 67% -- for six 
weeks!!  Sure beats the Hell out of a Treasury Note!!

Maintenance Requirement
Your brokerage firm will want to hold $5,000 per spread in your 
account as collateral in case to cover catastrophic situations.  
That would be a total of $10,000 (for a 10 contract position) for 
the two spreads – less the $2,000 that you took in.  The 
requirement can be in the form of cash or marginable securities.  
If you are using cash to handle the trade requirement, it will 
continue to earn money-market interest while it’s resting 
comfortably in your account.  Check your brokerage to confirm 
their policy.

If, and when, QLGC moves up or down through the short strike, we 
can simply buy 1,000 shares of the stock to cover the call or 
short the stock to cover the put.  When QLGC returns back below 
the short strike, we simply sell the stock or cover our short 
shares.  You may incur a few commissions and a little slippage, 
but it’s the best way to cover your positions.

At the CPTI, we like to limit and define our risk so we can sleep 
nights and wake up with money in our pocket.  As George Carlin so 
aptly put it – “Don’t sweat the petty things and don’t pet the 
sweaty things.”

The CPTI Iron Condor Checklist
Stock / Symbol: ____________________________________________
Last Trade: ______________
Current Bid: _____________	Current Ask: ________________
Bear Call Spread:  	Long Call:	 Ask:  ___________
Short Call:  Bid: ____________
Bull Put Spread:		Long Put:	  Ask: ___________
				Short Put:	  Bid: ____________
Total Credit From Both Spreads: _________________
Potential Risk:  ________________
Maintenance Requirements: _____________________
Implied Volatility: _________ 
Historical Volatility: _________
Primary Support Level: ______________________
Secondary Support Level: ____________________
Primary Resistance Level: ______________________
Secondary Resistance Level: ____________________
Trend Line Support: _______________ 
Resistance: ___________________
Average Monthly Move: ____________________
Date Entered Trade: ________________________
Time Remaining to Expiration: ___________________
Keep It On The Watch List: _____ (Yes)    _____ (No)
Notes: ____________________________________________________



BBH Iron Condor – Currently trading at $89.66
We want BBH to finish the December option cycle anywhere between 
$80 and $95.  Big up day on Friday. We’re still looking good – 
till in mid-range.

TTWO Short Strangle – Currently trading at $28.92.
We want TTWO to finish the December option cycle anywhere between 
$22.50 and $35.00. Looking good!  We’re about halfway between the 

IMCL Covered Call – Currently trading at $13.50.
We want IMCL to finish the December option cycle over $10 so it 
will be called away.  Looking good!  IMCL has pulled back from 
the $15 level, but we still have a nice cushion with only two 
weeks to go.

QQQ ITM Strangle – Currently trading at $26.45.  Before rallying 
later in the day Friday, the QQQs dipped to $25.74.  For the 
traders who were still holding their long $26 or $25 put, it was 
a good profit-taking opportunity.  I suspect that most CPTI 
students are already out of the position.

Last week, the QQQs finally made its predicted 3-point move – and 
then some – it turned out to be a $4.25 move.  CPTI students, 
sold their long calls, covered the cost of the strangle, and are 
now profiting from the long puts as the market has reversed 

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 12-08-2002
Sunday                                                      5 of 5

In Section Five:

Covered Calls: Understanding Terms & Definitions
Naked Puts: Q&A With The Naked-Puts Editor
Spreads/Straddles/Combos: A Key Test Approaches!

Updated In The Site Tonight:
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Trading Basics: Understanding Terms & Definitions
By Mark Wnetrzak

Some of the most common questions I receive from new readers
concern the meaning of a word, phrase, or term used in this

Attn: Covered-Calls Editor
Subject: Terms used in the Covered-Calls section


In your comments for the Covered-Call play summary, I have often
seen you mention the term overbought and oversold.  I assume you
are referring to the chart pattern that occurs with the use of
indicators like Stochastics?!?.  Also, when you talk about the
"premium" levels in options, what exactly are you referring to?



Greetings FJ,

Most traders refer to implied volatility as "premium."  However,
the word premium can be confused with the option price relative
to the underlying security and traders often make comments such
as "premium levels are high" when they are really referring to
the implied volatility in options.  A more correct statement
would be "implied volatility is high" or "implied volatility is

To understand premium, you need to be aware of the basic types
of volatility: historical volatility and implied volatility.
Historical (statistical) volatility is based on past prices.  It
is derived through mathematical computation, and it is stated as
a percentage, which reflects how much the price of an asset has
changed in a given period of time.  Historical volatility is used
in option pricing models to determine the fair value of an option
and to calculate the probability of a given move (magnitude) in
price.  In contrast, implied volatility starts with the option
price as a given and extrapolates the theoretical value of
volatility equal to the market price minus any intrinsic value.
Without going into great detail, implied volatility is simply the
volatility value that makes an option's fair value equal to its
actual market price.

From a purely statistical viewpoint, the measurement of volatility
is the standard deviation of the daily price fluctuations in the
underlying instrument.  The more volatile the underlying issue,
the greater the price of the option.  Of course, lots of other
things affect the "premium" in an option price and option pricing
knowledge is one of the keys to success in this game.  That is why
option pricing theory (and many other subjects) are explained so
thoroughly in Options 101, Trader's Corner and Broker's Corner, on
the OIN website.  If you really want to understand this stuff (and
you must to be successful), read the appropriate chapters in
"Option Pricing and Volatility" by Sheldon Natenburg.  This is one
of the bibles of floor traders and it will shed some more light on
the subject.

As far as overbought/oversold indicators: The use of Stochastics,
which is a technical indicator in the category of oscillators, is
common among traders who are trying to identify potential entry
and exit points.  At the same time they are also among the most
misunderstood chart indicators.

In the study of stock and other financial instruments, oscillators
offer a mathematically derived measure of the underlying market's
momentum; its rate of acceleration or deceleration.  In any trend,
stock prices are always gaining, maintaining, or losing momentum.
A loss of momentum can be a hidden reversal signal or a warning
sign that "the trend may be coming to an end."  The stochastic
oscillator compares the current stock price to its price range
over a specifically identified period of time.  This technique is
based on the idea that in an upward trending market, stocks tend
to close near their highs while in a downward trending market,
stocks tend to close near their lows.  This idea suggests that as
an upward trend erodes, stocks close further away from the highs
and vice versa.  The stochastic indicator attempts to show when
prices start to group around their lows in an bullish market, and
just the opposite in a down-trending market.  The theory is that
these are the conditions which indicate a trend reversal is about
to occur.

The stochastic indicator is plotted as two lines on a chart with
values ranging from 0 to 100.  They are the %D line and %K line
and the %D line is considered the more significant of the two.
Readings above the 80 line are extreme and indicate that the price
is probably closing near its high and likewise, readings below 20
indicate that price is closing near its low.  Analysts identify
these extreme areas of the chart with the terms "overbought" and
"oversold" and when used correctly, the stochastic oscillator can
often demonstrate a change in price before the reversal actually
occurs, and that can be very helpful in determining the best time
to enter or exit a position.

Trade Wisely!


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   5.99   DEC   5.00  1.05  *$  0.57  11.2%
SIMG    5.44   5.90   DEC   5.00  1.10  *$  0.66  11.0%
CIEN    5.58   5.96   DEC   5.00  1.00  *$  0.42  10.0%
INHL    7.96   9.02   DEC   7.50  1.05  *$  0.59   7.4%
IMCL    8.97  13.50   DEC   7.50  2.15  *$  0.68   7.2%
MATK   22.07  22.68   DEC  20.00  3.30  *$  1.23   7.1%
CRYP    5.57   5.20   DEC   5.00  0.80  *$  0.23   7.0%
ISSX   24.48  22.15   DEC  22.50  3.50   $  1.17   6.1%
FLEX   11.01  10.08   DEC  10.00  1.40  *$  0.39   5.9%
MVSN   18.68  17.51   DEC  17.50  1.85  *$  0.67   5.8%
V      13.96  16.22   DEC  12.50  2.35  *$  0.89   5.6%
USG     6.25   7.56   DEC   5.00  1.60  *$  0.35   5.5%
LAVA   11.59  12.72   DEC  10.00  1.95  *$  0.36   5.4%
CMOS   11.11   9.91   DEC  10.00  1.65   $  0.45   5.2%
CTIC    8.60   8.27   DEC   7.50  1.50  *$  0.40   4.9%
BLDP   13.80  13.70   DEC  12.50  1.80  *$  0.50   4.5%
TXN    19.22  18.23   DEC  17.50  2.40  *$  0.68   4.4%
IDCC   15.20  17.82   DEC  12.50  3.30  *$  0.60   4.4%
MDCO   14.33  15.97   DEC  10.00  4.90  *$  0.57   4.4%
ALXN   17.53  15.90   DEC  15.00  2.95  *$  0.42   4.2%
DCTM   18.13  16.56   DEC  15.00  3.80  *$  0.67   4.1%
IDCC   14.74  17.82   DEC  12.50  2.90  *$  0.66   4.0%
MATK   23.16  22.68   DEC  20.00  3.70  *$  0.54   4.0%
BRCM   15.45  17.61   DEC  12.50  3.50  *$  0.55   4.0%
SEE    18.26  36.57   DEC  15.00  3.90  *$  0.64   3.9%
JDEC   14.13  11.97   DEC  12.50  2.15   $ -0.01   0.0%
DCTM   19.90  16.56   DEC  17.50  3.10   $ -0.24   0.0%
OSUR    7.97   5.75   DEC   7.50  1.45   $ -0.77   0.0%

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


Well, it was fun while it lasted, but all "good" things must come
to an end.  The major averages finally succumbed to well deserved
profit taking after rising for 8 straight weeks.  Time to evaluate
the strength of your positions as they consolidate and jettison 
any issues that act weaker than expected.  OraSure Technologies 
(NASDAQ:OSUR) is now at a key moment: the convergence of the Oct.
high and its 150-dma.  Time to exit on further weakness or roll
forward and/or down to the April or July expiration?  Other issues
that might warrant an early exit or adjustment include: Ballard
Power Systems (NASDAQ:BLDP), Restoration Hardware (NASDAQ:RSTO),
Documentum (NASDAQ:DCTM), and J.D. Edwards (NASDAQ:JDEC)


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

AVGN    9.40  DEC  7.50   GKU LU  2.20 125    7.20   14    9.1% 
DNDN    5.72  DEC  5.00   UKO LA  1.00 13     4.72   14   12.9% 
ELN     2.90  JAN  2.50   ELN AZ  0.65 15322  2.25   42    8.0% 
IMCL   13.50  JAN 10.00   QCI AB  4.10 2138   9.40   42    4.6% 
MLNM   11.19  DEC 10.00   QMN LB  1.55 8518   9.64   14    8.1% 
SEBL    8.30  DEC  7.50   SGQ LU  1.05 26947  7.25   14    7.5% 
VISG    5.72  JAN  5.00   TUM AA  1.05 950    4.67   42    5.1%

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

DNDN    5.72  DEC  5.00   UKO LA  1.00 13     4.72   14   12.9% 
AVGN    9.40  DEC  7.50   GKU LU  2.20 125    7.20   14    9.1% 
MLNM   11.19  DEC 10.00   QMN LB  1.55 8518   9.64   14    8.1% 
ELN     2.90  JAN  2.50   ELN AZ  0.65 15322  2.25   42    8.0% 
SEBL    8.30  DEC  7.50   SGQ LU  1.05 26947  7.25   14    7.5% 
VISG    5.72  JAN  5.00   TUM AA  1.05 950    4.67   42    5.1%
IMCL   13.50  JAN 10.00   QCI AB  4.10 2138   9.40   42    4.6% 

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).

AVGN - Avigen  $9.40  *** What's Up Doc? ***

Avigen (NASDAQ:AVGN) is focused on the development of gene
therapy products for the treatment of disease.  Avigen has
developed a proprietary technology based on adeno-associated
virus (AAV) vectors.  This technology is designed to deliver
DNA into cells of patients in order to produce therapeutic
results as an alternative to existing pharmaceutical and 
surgical treatments.  Traditional medicine primarily focuses
on treating the symptoms of disease.  The company's gene-based
products target the root cause of the disease at the fundamental
cellular level, which may assist in treating a wide variety of
diseases and conditions that are not adequately addressed by 
medical science.  No recent news to explain the strong rally
off the November lows but the technical indications suggest the
issue has successfully completed a recent consolidation and is
undergoing a change-of-character.  Investors who agree can 
use this position to speculate conservatively on the future 
movement of the issue.

DEC 7.50 GKU LU LB=2.20 OI=125 CB=7.20 DE=14 TY=9.1% 

DNDN – Dendreon  $5.72  *** Phase III Trial Adjustment ***

Dendreon (NASDAQ:DNDN) is devoted to the discovery as well as
development of novel products for the treatment of diseases 
through its manipulation of the immune system.  Dendreon's 
product pipeline is focused on cancer, and includes therapeutic
vaccines, monoclonal antibodies and a pathway to small molecules.
Their most advanced potential products are therapeutic vaccines
that stimulate a patient's immunity for the treatment of cancer.
Provenge is a therapeutic vaccine for the treatment of prostate
cancer and is in Phase III clinical trials, the final stage of
product development.  The company is conducting Phase II clinical
trials for Mylovenge, its therapeutic vaccine for the treatment of
multiple myeloma, and Phase I clinical trials for APC8024, its 
therapeutic vaccine for the treatment of breast, ovarian and colon
cancers.  Shares of Dendreon surged this week after the company
said it's moving forward with late-stage patient testing of an 
experimental treatment for prostate cancer.  We simply like the
bullish break-out on high volume and traders can speculate on the
near-term performance of the issue with this conservative position.
Try target shooting a smaller "net-debit" to lower the cost basis
and increase the potential yield in the position.

DEC 5.00 UKO LA LB=1.00 OI=13 CB=4.72 DE=14 TY=12.9% 

ELN  - Elan  $2.90  *** Bottom-Fishing ***

Elan (NYSE:ELN) is a worldwide biopharmaceutical company.  Prior
to June 10, 2002, the company conducted its operations through
two primary business units: Biopharmaceuticals and Drug Delivery.
As of June 10, 2002, Elan reorganized its business units to focus
on three core areas: neurology, pain management and autoimmune 
diseases.  The company will still operate the Drug Delivery unit
as a stand-alone, discrete business, and has created a new business
unit, Elan Enterprises, which focuses on optimizing the company's
venture program.  In late November, Elan sold majority-owned Athena 
Diagnostics for $122 million as the company strives to cut its
debt.  The stock has formed a 6-month stage I base and has recently
moved above its November high on increasing volume.  Investors who
believe the company will succeed in its restructuring attempt can
use this position to obtain a favorable cost basis in the issue.

JAN 2.50 ELN AZ LB=0.65 OI=15322 CB=2.25 DE=42 TY=8.0% 

IMCL - ImClone  $13.50  *** All Is Forgiven Now ***

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

JAN 10.00 QCI AB LB=4.10 OI=2138 CB=9.40 DE=42 TY=4.6% 

MLNM – Millennium  $11.19  *** Filing For Approval ***

Millennium Pharmaceuticals (NASDAQ:MLNM) is a biopharmaceutical
company focused on applying its comprehensive and integrated 
science and technology platform to discover and accelerate the
development of drugs and predictive medicine products.  These 
drugs and products could enable physicians to more closely 
customize medical treatment by combining knowledge of the 
genetic basis for disease and the genetic characteristics of
a patient.  Millennium Pharmaceuticals primarily focuses its
research and development and commercialization activities in
four key disease areas: cardiovascular, oncology, inflammatory
and metabolic.  This week, Millennium announced that the company
plans to file for FDA approval on Velcade, a cancer treatment for
multiple myeloma, in early 2003.  Velcade is the most promising
product in Millennium's near-term drug pipeline.  Investors who
believe Millennium will ultimately gain approval can use this
position to establish a low risk cost basis in the issue.

DEC 10.00 QMN LB LB=1.55 OI=8518 CB=9.64 DE=14 TY=8.1% 

SEBL - Siebel Systems  $8.30  *** Bottom-Fishing: Part II ***

Siebel (NASDAQ:SEBL) is a provider of e-business applications
software.  Siebel eBusiness Applications are designed to meet
the information system requirements needed to manage these 
relationships from small businesses to the largest multinational
organizations and government agencies.  The company's customer
relationship management applications enable an organization to
sell to, market to and service its customers across the Web, 
call centers, field, resellers, retail and dealer networks. 
Siebel's partner relationship management applications seamlessly
unite the organization's partners, resellers and customers in
one global information system to facilitate greater collaboration
and increased revenues, productivity and customer satisfaction.
Siebel's employee relationship management applications enable an
organization to drive employee and organizational performance and
increase employee satisfaction through the support of each stage
of the employee life cycle.  Siebel Systems has been forming a 
5-month stage I base and this position offers traders a favorable
entry point from which to speculate on the company's future. 

DEC 7.50 SGQ LU LB=1.05 OI=26947 CB=7.25 DE=14 TY=7.5% 

VISG – Viisage  $5.72  *** New Contracts ***

Viisage Technology (NASDAQ:VISG) is engaged in the field of
biometrics technology and in providing digital identification
systems and solutions.  The company focuses on ID solutions
that improve personal convenience and security, deter fraud
and reduce identification program costs.  Viisage combines its
systems integration and software design capabilities with its
proprietary software and hardware products and other industry-
standard products to create complete customized solutions.   
These turnkey solutions integrate image and data capture,
create relational databases, incorporate multiple biometrics
and improve customers' ability to move and manage information.
Applications can include driver's licenses, voter registration,
national ID's, law enforcement, social services, access control
and PC network and Internet access security.  Viisage rallied
in November after the company announced that is had been awarded
a $20 million contract from the state of Georgia to design, 
develop and implement a new digital driver's license program.
This week, Viisage announced that the company has added the 
state of Delaware to its recent drivers' license contract wins.
We simply favor the bullish technical indications and our
conservative position offers a method to participate in the
future movement of the issue with relatively low risk.

JAN 5.00 TUM AA LB=1.05 OI=950 CB=4.67 DE=42 TY=5.1%



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

CRXA    7.84  DEC  7.50   CVQ LU  1.45 6189   6.39   14   37.7% 
FHRX    7.31  DEC  7.50   FUF LU  0.50 74     6.81   14   16.0% 
IGEN   42.08  DEC 40.00    GQ LH  3.80 5654  38.28   14    9.8% 
MEDI   26.21  DEC 20.00   MEQ LD  7.00 1595  19.21   14    8.9% 
CTXS   13.00  DEC 12.50   XSQ LV  0.95 2963  12.05   14    8.1% 
HAL    20.19  DEC 17.50   HAL LW  3.30 19638 16.89   14    7.8% 
BCGI   14.74  DEC 15.00   QGB LC  0.50 21    14.24   14    7.6% 
MATK   22.68  DEC 20.00   KQT LD  3.20 447   19.48   14    5.8% 
GFI    13.08  DEC 12.50   GFI LV  0.90 1805  12.18   14    5.7% 
ORCL   11.28  DEC 10.00   ORQ LB  1.50 61744  9.78   14    4.9% 
DAKT   12.79  DEC 12.50   QKC LV  0.55 1     12.24   14    4.6%
XMSR    3.05  JAN  2.50   QSY AZ  0.85 3372   2.20   42    9.9% 
BMRN    8.10  JAN  7.50   NUR AU  1.25 123    6.85   42    6.9% 
JDSU    2.99  JAN  2.50   UQD AZ  0.70 18885  2.29   42    6.6% 


Options 101: Q&A With The Naked-Puts Editor
By Ray Cummins

One of our readers submitted a question about naked-put recovery

Attn: Contact Support
Subject: Potential recovery strategies

Hi Ray,

I have a naked put position that has gone awry and I was hoping
you could help me with a recovery strategy.  The stock is Humana
(NYSE:HUM) and my position is (short) DEC-$12.50 Puts.  I sold 5
of these options back in October for a $1.25 credit and thought
I was safe with the trading range support near $12.  In November,
the healthcare sector slumped and Humana went with it.  Now the
stock is at 2002 lows and although it seems heavily oversold, I
don't know whether to close the play for large loss or hold and
wait for a recovery.

I would appreciate some expert advice on how to get out of this

Thank You,


Hello EL,

Unfortunately, advice is the one thing I can't give but that's
not necessarily a bad thing because I don't know where HUM is
going any more than you do.  At this point, there are no magic
answers to your situation.  Any action relative to an exit or
"roll-out" strategy would have been more timely when the issue
moved through the sold strike.  Now the alternatives are based
simply on your outlook for the issue.  The obvious options are:
close the position for a loss; roll it down and/or forward to a
different strike option; accept assignment of 500 HUM shares in
anticipation of a future recovery (and possibly writing covered
calls on the issue); or simply wait for two weeks and hope for
a significant rebound in the stock.  Of course there are other,
more complex adjustment strategies but they usually include far
too much downside risk to warrant their use.  You will have to
determine the outlook for HUM and act accordingly.  If you have
any further questions on the strategies listed above, please
send me another E-mail and I will happily explain them further.

Additional Information:

An option seller has a number of different alternatives when the
underlying issue moves beyond the sold strike price (call or put)
in a short position but in most cases, the appropriate action
should be taken prior to that event, when the issue experiences
a technical change in character (such as breaking out of a recent
trading range or closing above/below a near-term moving average).
Most methods for taking profits and preventing losses (as well as
making adjustments or rolling up/down and out to new positions)
fit into one of two categories: a pre-arranged target profit or
loss limit; or a technical exit based on the chart indications of
the underlying issue.  The most popular technique; using a mental
or mechanical closing stop to terminate a position or initiate a
roll-out, is very simple as long as you adhere to the originally
established limits.  The alternative method, a technicals-based
exit, can be slightly more difficult.  However, there are a wide
variety of indicators available to establish an acceptable exit
point; moving averages, trend-lines, previous highs/lows, etc.,
and with this type of loss-limiting system, you simply close the
play after a violation of a pre-determined level.

Another common question concerns the most difficult decision that
traders face: when (and also why) to exit or adjust an existing
portfolio position.  In general terms, that determination should
be based on the existing market/sector/industry conditions as well
as the current outlook for the underlying issue and the ratio of
potential gain to additional risk.  While this idea is relatively
simple, one outstanding principle that new traders fail to adhere
to is the need to outline a basic exit strategy, before initiating
any position, to eliminate emotional decisions.  This plan must be
simple enough to implement while monitoring a portfolio of plays
in a volatile market.  In addition, these exit (adjustment) rules
should apply across a wide range of situations and be designed to
compensate for one's weaknesses and inadequacies.  To be effective
in the long term, they must be formulated to help maintain one's
discipline, and at the same time, offer a timely memory aid for
difficult situations.  Utilizing this type of system addresses a
number of problems, but the most significant obstacle it removes
is the need for "judgment under fire."  In short, a proven exit
strategy will help you avoid exposing your portfolio to excessive
losses and that's very important because the science of successful
trading is far less dependent on making profits, but rather on
avoiding undue outflows.

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

HAL    21.37  20.19   DEC  17.50  0.45  *$  0.45  12.7%
MATK   22.07  22.68   DEC  17.50  0.45  *$  0.45  10.1%
NWRE   20.19  17.31   DEC  15.00  0.30  *$  0.30  10.0%
IMCL   15.04  13.50   DEC  10.00  0.30  *$  0.30   9.8%
NWRE   17.68  17.31   DEC  12.50  0.55  *$  0.55   9.7%
ESIO   22.99  22.93   DEC  17.50  0.55  *$  0.55   9.3%
HAL    18.85  20.19   DEC  15.00  0.35  *$  0.35   9.2%
ALXN   17.55  15.90   DEC  12.50  0.30  *$  0.30   8.6%
IMCL   11.77  13.50   DEC   7.50  0.25  *$  0.25   8.4%
MSTR   18.16  17.27   DEC  12.50  0.30  *$  0.30   8.3%
BBY    27.68  26.60   DEC  22.50  0.35  *$  0.35   8.1%
ISSX   22.19  22.15   DEC  17.50  0.45  *$  0.45   8.0%
BSTE   31.02  31.70   DEC  22.50  0.75  *$  0.75   7.8%
PHTN   35.25  32.32   DEC  27.50  0.40  *$  0.40   7.8%
HAL    17.85  20.19   DEC  12.50  0.35  *$  0.35   7.8%
PPD    28.65  28.40   DEC  22.50  0.30  *$  0.30   7.2%
CYMI   33.43  33.33   DEC  25.00  0.60  *$  0.60   7.2%
RINO   19.40  18.37   DEC  17.50  0.30  *$  0.30   7.1%
PHTN   28.50  32.32   DEC  22.50  0.50  *$  0.50   7.0%
GNSS   17.17  18.40   DEC  12.50  0.30  *$  0.30   7.0%
PLMD   30.31  31.05   DEC  22.50  0.60  *$  0.60   6.5%
ESIO   24.50  22.93   DEC  17.50  0.30  *$  0.30   6.3%
KOSP   19.13  19.76   DEC  15.00  0.35  *$  0.35   6.1%
SEE    21.33  36.57   DEC  15.00  0.25  *$  0.25   6.0%
RIMM   16.58  14.73   DEC  12.50  0.30  *$  0.30   6.0%
NPSP   28.24  29.67   DEC  20.00  0.50  *$  0.50   5.9%
POSS   14.20  14.42   DEC  12.50  0.35  *$  0.35   5.9%
IGEN   38.65  42.08   DEC  30.00  0.55  *$  0.55   5.8%
ESIO   21.15  22.93   DEC  15.00  0.35  *$  0.35   5.5%
MEDI   28.07  26.21   DEC  20.00  0.30  *$  0.30   5.5%
AMZN   22.21  22.61   DEC  17.50  0.30  *$  0.30   5.5%
JEC    36.31  36.20   DEC  35.00  0.50  *$  0.50   5.3%
PPD    27.08  28.40   DEC  20.00  0.35  *$  0.35   5.3%
GP     20.62  17.10   DEC  17.50  0.45   $  0.05   1.3%

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


The recent decline in the major equity averages came as little
surprise with the overbought condition of stocks and no catalyst
to drive prices higher.  Friday's recovery rally, although at a
key technical support area, should be viewed with caution until
the bullish trend is firmly established.  In the event of further
consolidation, buying pressure should emerge near 870 (SPX) but
below that range, the bear market resumes.  With that (cautious)
outlook in mind, investors should monitor their portfolios daily
and exit any issues that have poor technical indications.  Plays
on the watch-list include: Research In Motion (NASDAQ:RIMM), JEC
Engineering (NYSE:JEC), Blue Rhino (NASDAQ:RINO), and Neoware
(NASDAQ:NWRE).  Conservative traders should consider exiting the
Georgia-Pacific (NYSE:GP) position on any close below the current
price support near $17.


Sequenced by Company
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield
FAST   38.25  DEC 35.00   FQA XG  0.35 62    34.65   14    6.1% 
HAL    20.19  DEC 15.00   HAL XC  0.25 6087  14.75   14   12.7% 
IGEN   42.08  DEC 35.00    GQ XG  0.50 2149  34.50   14   10.6% 
NEM    26.77  DEC 25.00   NEM XE  0.35 4351  24.65   14    8.2% 
PHTN   32.32  DEC 27.50   PDU XY  0.50 507   27.00   14   12.6% 
PPD    28.40  DEC 22.50   PPD XX  0.30 2136  22.20   14   10.9% 
SCIO   33.72  DEC 30.00   UIO XF  0.50 339   29.50   14   10.6% 

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    20.19  DEC 15.00   HAL XC  0.25 6087  14.75   14   12.7% 
PHTN   32.32  DEC 27.50   PDU XY  0.50 507   27.00   14   12.6% 
PPD    28.40  DEC 22.50   PPD XX  0.30 2136  22.20   14   10.9% 
IGEN   42.08  DEC 35.00    GQ XG  0.50 2149  34.50   14   10.6% 
SCIO   33.72  DEC 30.00   UIO XF  0.50 339   29.50   14   10.6%
NEM    26.77  DEC 25.00   NEM XE  0.35 4351  24.65   14    8.2% 
FAST   38.25  DEC 35.00   FQA XG  0.35 62    34.65   14    6.1% 

Company Descriptions

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

FAST - Fastenal  $38.25  *** On The Rebound! ***

Fastenal (NASDAQ:FAST) was founded in 1967 and the unique company
has expanded to become the fastest growing full-line industrial
distributor, and is the largest fastener distributor in the nation.
The firm's service-oriented business network currently includes an
in-house Manufacturing Division, a product Quality Assurance and
Engineering Department, a strategic system of Distribution Centers
in the U.S., a fleet of over 100 company-owned semi-trucks and
trailers and over 1100 branch sites with locations all across the
United States as well as Canada, Mexico, Puerto Rico and Singapore.
Shares of FAST have rebounded in recent sessions and the bullish
technical indications suggest the rally will continue.  Traders
can profit from future upside activity in FAST with this position.

DEC 35.00 FQA XG LB=0.35 OI=62 CB=34.65 DE=14 TY=6.1% 

HAL - Halliburton  $20.19  *** 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 recently amid bullish news in the asbestos litigation
arena.  Sealed Air and Fresenius Medical said they had settled
all current and future asbestos claims and the announcement was
positive for other firms in similar circumstances.  Traders can
speculate on the near-term results of the ongoing asbestos
litigation with this position.

DEC 15.00 HAL XC LB=0.25 OI=6087 CB=14.75 DE=14 TY=12.7% 

IGEN - IGEN International  $42.08  *** Rally Mode! ***

IGEN International (NASDAQ:IGEN) develops and markets products
that utilize its proprietary electrochemiluminescence (ORIGEN)
technology, which permits the detection and measurement of
biological substances.  ORIGEN provides a combination of speed,
sensitivity, flexibility and throughput in a single technology
platform.  ORIGEN is incorporated into instrument systems and
related consumable reagents, and the company also offers assay
development as well as other services used to perform analytical
testing.  Products based on IGEN's ORIGEN technology address the
Life Sciences, Clinical Testing and Industrial Testing worldwide
markets.  Lots of speculation on this issue recently due in part
to ongoing litigation and also a potential deal (merger/buyout?)
with Roche Diagnostics, which markets products based on IGEN's
ORIGEN technology.  Aggressive traders can profit from future
upside activity in the stock with this speculative position.

DEC 35.00 GQ XG LB=0.50 OI=2149 CB=34.50 DE=14 TY=10.6% 

NEM - Newmont Mining  $26.77  *** Broad Market Hedge! ***

Newmont Mining (NYSE:NEM), along with its subsidiaries, is a
worldwide company engaged in the production of gold, exploration
for gold and acquisition of gold properties.  The company also
has an interest in a copper/gold mine that commenced production
in late 1999.  In addition, the company produces zinc, lead and
copper concentrates at its property in Western Australia.  The
company approved earlier this year a restructuring to facilitate
the acquisitions of Normandy Mining Limited and Franco-Nevada
Mining Corporation Limited, and to create a flexible corporate
structure.  Gold stocks climbed Friday for a fourth consecutive
session to close at their highest levels in more than two months
as gold futures ended the week higher by 3%.  Traders who want
to hedge against further selling pressure in the broader market
should consider this position.

DEC 25.00 NEM XE LB=0.35 OI=4351 CB=24.65 DE=14 TY=8.2% 

PHTN - Photon  $32.32  *** Just One Chip Stock! ***

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
performed very well in recent weeks but the rally has come to an
end in the near-term.  However, Photon Dynamics is one of the
leading issues in the segment and traders who believe the upside
activity in semiconductors will eventually continue can profit
from that outcome with this position.

DEC 27.50 PDU XY LB=0.50 OI=507 CB=27.00 DE=14 TY=12.6% 

PPD - Pre-Paid Legal  $28.40  *** More 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 recently after Thestreet.com published a report by
Gotham Partners that argues a bullish case for the company.  The
news generated some volatile moves in the stock, as buyers and
short-sellers battled for control, but that has often been the
character of this unique issue.  Traders who want to speculate
on the future trend of the stock should consider this position.

DEC 22.50 PPD XX LB=0.30 OI=2136 CB=22.20 DE=14 TY=10.9% 

SCIO - Scios  $33.72  *** New All-Time High! ***

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.
Shares of SCIO closed at a new "all-time" high Friday and the
bullish technical indications suggest the trend will continue
in the near-term.

DEC 30.00 UIO XF LB=0.50 OI=339 CB=29.50 DE=14 TY=10.6% 



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

CREE   20.02  DEC 17.50   CVO XW  0.50 947   17.00   14   18.1% 
ESIO   22.93  DEC 20.00   EQO XD  0.45 1157  19.55   14   14.6% 
BRCM   17.61  DEC 15.00   RCQ XC  0.30 3111  14.70   14   13.8% 
GFI    13.08  DEC 12.50   GFI XV  0.30 900   12.20   14   13.2%
AFCO   19.52  DEC 17.50   UOF XW  0.30 10    17.20   14   10.7%
AMZN   22.61  DEC 20.00   ZQN XD  0.30 7305  19.70   14    9.7%
BBY    26.60  DEC 22.50   BBY XX  0.30 10582 22.20   14    9.5%
QCOM   41.48  DEC 37.50   AAW XU  0.50 6727  37.00   14    8.3%
VZ     40.19  DEC 37.50    VZ XU  0.50 1669  37.00   14    7.8%

IMCL   13.50  JAN  7.50   QCI MU  0.25 1086   7.25   42    6.1%



A Key Test Approaches!
By Ray Cummins

The recent correction in equity values paused Friday but market
bears say the fundamental and technical indications suggest a
resumption in the overall downtrend.

The Dow Jones Industrial Average fought back from early losses
to close the session 22 points higher at 8,645.  The blue-chip
group found strength in Hewlett-Packard (NYSE:HPQ), J.P. Morgan
Chase (NYSE:JPM) and Dupont (NYSE:DD).  Technology stocks were
boosted by International Business Machine's (NYSE:IBM) surprise
buy-out of Rational Software (NASDAQ:RATL) and the optimism led
the NASDAQ to a 11 point gain at 1,422.  The broader Standard &
Poor's 500 Index finished 5 points at 912 with restaurant, drug
and shipping stocks among the best performers.  Gold issues also
rallied as futures prices vaulted to two-month highs.  Market
breadth was positive as advancing stocks outpaced decliners by
roughly a 3-to-2 margin on the New York Stock Exchange and by a
6-to-5 ratio on the NASDAQ.  Volume was 1.2 billion on the Big
Board and 1.5 billion on the technology exchange.  In the bond
market, Treasurys rallied as the yield on the 10-year note fell
to 3.99%, with prices up more than a point.  Trim Tabs reported
that $1.3 billion flowed out of stock mutual funds in the seven
days ending Wednesday, as compared to inflows of $800 million
during the previous week.


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  41.45  DEC   35  37  0.30   37.20  $0.30   Open
EBAY    64.79  68.54  DEC   50  55  0.55   54.45  $0.55   Open
IGEN    36.49  42.08  DEC   25  30  0.65   29.35  $0.65   Open
SLM    102.94 100.64  DEC   85  90  0.65   89.35  $0.65   Open
DE      49.00  48.55  DEC   40  45  0.65   44.35  $0.65   Open
INTU    52.91  51.90  DEC   40  45  0.50   44.50  $0.50   Open
LLY     62.24  65.44  DEC   50  55  0.55   54.45  $0.55   Open
IGT     77.06  76.05  DEC   65  70  0.55   69.45  $0.55   Open
KSS     66.90  61.88  DEC   55  60  0.55   59.45  $0.55   Open
PIXR    55.67  59.22  DEC   45  50  0.50   49.50  $0.50   Open
AZO     85.32  79.96  DEC   70  75  0.45   74.55  $0.45   Open
FPL     59.87  57.35  DEC   50  55  0.55   54.45  $0.55   Open
UOPX    36.65  36.31  DEC   30  33  0.45   33.30  $0.45   Open
ABK     62.51  59.60  DEC   50  55  0.40   54.60  $0.40   Open
AGN     58.79  57.99  DEC   50  55  0.55   54.45  $0.55   Open
RE      57.90  55.74  DEC   50  55  0.55   54.45  $0.55   Open

Kohls' (NYSE:KSS) is the new issue on the watch-list and a close
below the sold strike at $60 will signal our exit in the spread.
Everest RE Group (NYSE:RE) has also lost its upward momentum and
a key test awaits the issue as it approaches recent support near
the sold strike at $55.


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

ABC     72.45  62.31  DEC   85  80  0.65   80.65  $0.65   Open
MCO     45.12  43.91  DEC   55  50  0.40   50.40  $0.40   Open
WLP     74.04  69.05  DEC   90  85  0.60   85.60  $0.60   Open
UNH     86.83  83.35  DEC  105 100  0.55  100.55  $0.55   Open
DNA     35.46  34.15  DEC   45  40  0.60   40.60  $0.60   Open
DP      40.40  35.18  DEC   50  45  0.40   45.40  $0.40   Open
LXK     63.75  65.52  DEC   75  70  0.60   70.60  $0.60   Open
IDPH    39.27  32.61  DEC   45  40  0.45   40.45  $0.45   Open
UHS     44.85  45.65  DEC   55  50  0.30   50.30  $0.30   Open
AAP     51.55  50.75  DEC   60  55  0.50   55.50  $0.50   Open
ACDO    35.19  35.93  DEC   43  40  0.35   40.35  $0.35   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) remains 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

NXTL    9.69  12.90   JAN  12   7   0.10   2.50   2.60  Closed
FCS    13.30  12.23   FEB  17  10   0.10   1.40   1.50  Closed
LTXX    6.83   6.99   FEB  10   5   0.00   1.10   1.10  Closed
MENT    10.35  8.55   JAN  12   7   0.10   1.00   1.10  Closed
FLEX    11.15 10.08   JAN  12  10   0.10   0.50   0.60  Closed
ABT     45.89 42.94   DEC  50  40   0.10   0.00   0.10   Open
COX     30.25 29.89   DEC  35  25   0.10   0.20   0.30   Open
OMC     66.32 67.90   DEC  75  55   0.15   0.30   0.45   Open
SCIO    32.84 33.72   JAN  40  25   0.00   0.25   0.25   Open
CY       8.64  7.00   JAN  10   7   0.10   0.10   0.20   Open?
ZRAN    18.80 21.53   DEC  22  15  (0.25)  2.00   1.75  No Play

All of the speculative small-cap positions were closed this week
as the market retreated from its recent rally.  The position in
Nextel (NASDAQ:NXTL) was the best performer, however FCS, LTXX,
MENT and FLEX also offered favorable profits.  The bullish play
in ZRAN, although not available at our target price, achieved an
excellent gain.  The new positions were a mixed lot as Cypress
Semiconductor (NYSE:CY) faded with the technology stocks while
Scios (NASDAQ:SCIO) enjoyed a small profit during Friday's rally
in the drug sector.


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

HNT    25.75  26.50   JAN-30C   DEC-30C    0.60   0.60   Open
WSM    24.53  27.93   FEB-30C   DEC-30C    0.80   1.35   Open
GISX   20.21  19.08   FEB-22C   DEC-22C    0.95   0.75   Open
UAL     3.59   0.93   FEB-5C    DEC-5C     0.35   0.25  Closed

After a brief rally early in the week, United Airlines (NYSE:UAL)
fell to all-time lows near $1 after the government decided not to
bail out the #2 U.S. carrier.  United is now preparing to operate
in bankruptcy and it looks like the company's stock will soon be
worthless.  The only consolation comes from one reader who said
he used Monday's rally to close the speculative spread for a small
($0.05) gain.  Unfortunately, our exit was not as fortuitous.  On
the positive side, Williams Sonoma (NYSE:WSM) has been a great
performer and the position offered up to a $1.35 closing credit
this week; a potential profit of over 65% in only 14 days.


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

AES     2.92   2.59   J04-7.5P  J03-2.5P   4.50   0.25   Open
IMCL    7.77  13.50   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
play.  AES Corporation (NYSE:AES) has finally begun to rebound
with the issue closing near a recent resistance area (above $3)
on Thursday.  Stocks in the utility industry should continue to
recover in the coming months so we will remain in the position
unless the trend turns bearish.


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

ERTS   64.13  66.02   DEC  70  55   2.40   0.85   1.55    Open
SLAB   25.16  21.90   DEC  30  20   1.00   1.10  (0.10)   Open
MDCO   12.70  16.78   DEC  17   7   1.25   0.45   0.80   No Play

Silicon Laboratories (NASDAQ:SLAB) has been very active with the
technology group and after a vigorous rally to the sold call at
$30, the issue has retreated to a recent low near $21.  Traders
said the sell-off was due to two major brokerage downgrades, thus
it will be interesting to see if the issue can remain above buying
support at $20.  Those who don't want to own SLAB at a cost basis
near $19 should exit the play now at a break-even or better debit.
The Medicine Company (NASDAQ:MDCO) position, although profitable,
was not initiated due to a significant "pre-open" announcement on

Questions & comments on spreads/combos to Contact Support

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.

APC - Anadarko Petroleum  $49.59  *** Bullish Sector! ***

Anadarko Petroleum (NYSE:APC), through RME Petroleum Company,
RME Holding Company, Anadarko Canada Energy, Anadarko Canada
Corporation, RME Land and Anadarko Algeria Company, is a global
independent oil and gas exploration and production company.  The
The company's major areas of operations are located in the United
States, primarily in Texas, Louisiana, the mid-continent region
and the western states, Alaska and in the shallow and deep waters
of the Gulf of Mexico, as well as in Canada and Algeria.  APC is
also active in Venezuela, Qatar, Oman, Egypt, Australia, Tunisia,
Congo and Gabon.

PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-40  APC-MH  OI=2419  A=$0.40
SELL PUT  JAN-45  APC-MI  OI=1185  B=$0.90
POTENTIAL PROFIT(monthly)=12% B/E=$44.45

VLO - Valero Energy  $36.39  *** On The Rebound! ***

Valero Energy Corporation (NYSE:VLO) is a United States refining
company that operates in two business segments: refining and
retail.  Valero's refining segment includes refinery, wholesale
marketing, product supply and distribution, and transportation
operations.  The refining segment is segregated geographically
into the Gulf Coast, Mid-Continent, West Coast and Northeast
regions.  Valero's retail segment includes their company-operated
convenience stores, Canadian dealers, truck stops, card-lock and
home heating oil operations.  Valero also has a logistics system
that complements its refining and marketing assets in the United
States Gulf Coast and Mid-Continent regions.

PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-30.00  VLO-MF  OI=580  A=$0.50
SELL PUT  JAN-32.50  VLO-MZ  OI=303  B=$0.75
POTENTIAL PROFIT(max)=14% B/E=$32.20

JCI - Johnson Controls  $81.79  *** Trading Range? ***

Johnson Controls (NYSE:JCI) is engaged in automotive systems and
facility management and control.  In the automotive market, the
company is a major supplier of seating and interior systems, and
batteries.  For non-residential facilities, JCI provides building
control systems and services, energy management and integrated
facility management. Johnson Controls conducts business in two
operating segments: Controls Group and Automotive Systems Group.
The Controls Group is a worldwide supplier of control systems,
services and integrated facility management to the commercial
buildings market.  The Automotive Systems Group makes automotive
interior systems for original equipment manufacturers (OEMS) and
automotive batteries for the replacement and original equipment

PLAY (moderately aggressive - bearish/credit spread):

BUY  CALL  DEC-90  JCI-LR  OI=78   A=$0.20
SELL CALL  DEC-85  JCI-LQ  OI=450  B=$0.65
POTENTIAL PROFIT(max)=11% B/E=$85.50

LEH - Lehman Brothers  $56.72  *** Sector Slump! ***

Lehman Brothers Holdings (NYSE:LEH) is a global investment bank
serving institutional, corporate, government and high-net-worth
individual clients and customers.  The firm is engaged primarily
in providing financial services and operates in three business
segments: Investment Banking, Capital Markets and Client Services.
Other businesses in which the firm is engaged represent less than
10% of consolidated assets, revenues or pre-tax income.  Lehman's
business includes capital raising for clients through securities
underwriting and direct placements, corporate finance and other
strategic advisory services, private equity investments, stock
sales and trading, research and the trading of foreign exchange
and derivative products and certain commodities.  The firm acts
as a market-maker in all major equity and fixed-income products
in both the domestic and international markets.

PLAY (aggressive - bearish/credit spread):

BUY  CALL  DEC-65  LEH-LM  OI=3732  A=$0.15
SELL CALL  DEC-60  LEH-LL  OI=3801  B=$0.65
POTENTIAL PROFIT(max)=12% B/E=$60.55


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.

GG - Goldcorp  $11.15  *** Market Slump = Gold Rally! ***

Goldcorp (NYSE:GG) is a North American-based gold producer with a
high grade mine in Red Lake, Northwestern Ontario, Canada and its
Wharf Mine in the historic Lead Mining area in the Black Hills of
South Dakota, United States.  In addition, the company owns an
industrial minerals operation in Saskatchewan, Canada.  Goldcorp's
newest mine at Red Lake, located in northwestern Ontario, began
commercial production last year and high grade reserves are now
estimated to be in excess of three million ounces.  The Wharf Mine
in the Black Hills of South Dakota produces approximately 100,000
ounces of gold annually and has produced over 1.2 million ounces
since 1983.  Another subsidiary, Saskatchewan Minerals is a North
American producer of high-quality natural sodium sulfate.

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  JAN-12.50  GG-AV  OI=7541  A=$0.45
SELL PUT   JAN-10.00  GG-MB  OI=2014  B=$0.45

Note:  Using options, the position is similar to being long the
stock.  The initial collateral requirement for the sold (short)
put is approximately $380 per contract.

PXD - Pioneer Natural Resources  $26.11  *** Hot Sector! ***

Pioneer Natural Resources Company (NYSE:PXD) is an oil and gas
exploration and production company with ownership interests in
oil and gas properties located in the United States, Argentina,
Canada, Gabon, South Africa and Tunisia.  The company is an
independent oil and gas exploration and development firm.  PXD
explores for, develops and produces oil, natural gas liquids,
and gas reserves.  The company's asset base is anchored by the
Spraberry oil field, located in West Texas; the Hugoton gas
field, located in Southwest Kansas and the West Panhandle; and
a gas field located in the Texas Panhandle.  Complementing these
areas, the company has exploration and development opportunities
and oil and gas production activities in the United States Gulf
of Mexico and onshore Gulf Coast areas, and internationally in
Argentina, Canada, Gabon, South Africa and Tunisia.

PLAY (conservative - bullish/synthetic position):

BUY  CALL  MAR-30.00  PXD-CF  OI=180  A=$0.95
SELL PUT   MAR-22.50  PXD-OX  OI=52   B=$0.90

Note:  Using options, the position is similar to being long the
stock.  The initial collateral requirement for the sold (short)
put is approximately $775 per contract.


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

GENZ - Genzyme General  $34.43  *** Reader's Request! ***

Genzyme General Division (NASDAQ:GENZ) is a division of Genzyme
Corporation, a biotechnology and human healthcare company that
develops products and provides services for unmet medical needs.
Genzyme General develops and markets therapeutic products and
diagnostic products and services with an emphasis on genetic
disorders and other chronic debilitating diseases with defined
patient populations.  The firm is organized into two segments,
Therapeutics, which focuses on developing and marketing products
for genetic diseases and other chronic debilitating diseases,
including a family of unique diseases known as lysosomal storage
disorders, and specialty therapeutics, and Diagnostic Products,
which develops, markets and distributes in-vitro diagnostic
products.  Genzyme's new drug, Fabrazyme is up for review by the
Food and Drug Administration review on January 13, 2003.

One of our readers suggested we offer some speculative straddles,
to take advantage of the recent drop in implied volatility.  All
of the (straddle) candidates in today's section have relatively
cheap option premiums, a history of adequate price movement and
the potential for volatility in the near future.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  JAN-35.00  GZQ-AG  OI=3776  A=$2.90
BUY  PUT   JAN-35.00  GZQ-MG  OI=3024  A=$3.50
INITIAL PROFIT TARGET=$1.50-$2.40 (25-40%)

XLNX - Xilinx  $22.06  *** Chip Sector Volatility! ***

Xilinx (NASDAQ:XLNX) designs, develops and markets a wide range
of complete programmable logic solutions, including advanced
integrated circuits, software design tools, predefined system
functions delivered as intellectual property cores, design
services, customer training, field engineering and technical
support.  The programmable logic devices include various field
programmable gate arrays and complex programmable logic devices.
These devices are standard products that its customers program
to perform desired logic functions.  Its products are designed
to provide high integration and quick time-to-market for those
electronic equipment manufacturers primarily in the telecom,
networking, computing, industrial and consumer markets.

PLAY (very speculative - neutral/debit straddle):

BUY  CALL  DEC-22.50  XLU-LX  OI=7898  A=$1.00
BUY  PUT   DEC-22.50  XLU-XX  OI=5228  A=$1.45
INITIAL PROFIT TARGET=$0.35-$0.60 (15-25%)

L - Liberty Media  $9.95  *** Cheap Speculation! ***

Liberty Media Corporation (NYSE:L) is a holding company with a
variety of subsidiaries and investments operating in the media,
communications and entertainment industries.  The company owns
interests in a variety of video programming and communications
businesses in the United States, Europe, South America and Asia.
Liberty Media's principal assets include major interests in the
Starz Encore Group LLC, Liberty Livewire Corporation, On Command
Corporation, Discovery Communications, AOL Time Warner, QVC, USA
Networks, Telewest Communications, Motorola, Sprint PCS and The
News Corporation Limited.  The firm has five operating segments:
Starz Encore Group, Liberty Livewire, On Command, Telewest and
Other.  Liberty Media was previously a wholly owned subsidiary
of AT&T.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  JAN-10.00  L-AB  OI=27386  A=$0.75
BUY  PUT   JAN-10.00  L-MB  OI=4326   A=$0.75
INITIAL PROFIT TARGET=$0.35-$0.55 (25%-40%)

MEDI - MedImmune  $26.21  *** More Premium Selling! ***

MedImmune (NASDAQ:MEDI) is a biotechnology company with 5 major
products on the market and a diverse product pipeline.  MedImmune
is focused on using advances in immunology and other biological
sciences to develop new products that address significantly unmet
medical needs in the areas of infectious disease and also immune
regulation.  The company focuses on oncology through its wholly
owned subsidiary, MedImmune Oncology.  In addition, the company
owns Aviron, a biotech firm focused on the prevention of disease
through vaccine technology.

MediImmune and Wyeth are trying to win approval for a new nasal
spray flu vaccine (FluMist) and a Food and Drug Administration
advisory panel is scheduled to review the product on December 17.
Our plan is to close this position (hopefully for a small profit)
prior to that date.

PLAY (very aggressive - neutral/credit strangle):

SELL CALL  DEC-30  MEQ-LF  OI=16776  B=$0.85
SELL PUT   DEC-20  MEQ-XD  OI=11715  B=$0.75
UPSIDE B/E=$31.60 DOWNSIDE B/E=$18.40


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