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Daily Newsletter, Sunday, 12/15/2002

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The Option Investor Newsletter                   Sunday 12-15-2002
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: Buyers Strike
Futures Market: Seeking Support
Index Trader Wrap: NO BULL FOR THE NEW YEAR
Editor’s Plays: Nasdaq-100 Shuffle
Market Sentiment: What Good News?
Ask the Analyst: Buy/Sell Program Premium Levels
Coming Events: Earnings, Splits, Economic Events

Updated on the site tonight:
Swing Trade Game Plan: Next Leg Down


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       WE 12-15        WE 12-06        WE 11-29        WE 11-22 
DOW     8433.85 -211.92 8645.77 -250.32 8896.09 + 91.25 +226.75 
Nasdaq  1362.42 - 60.02 1422.44 - 56.30 1478.74 + 10.05 + 57.60 
S&P-100  451.81 - 12.61  464.42 - 14.43  478.85 +  3.82 + 11.31 
S&P-500  889.48 - 22.75  912.23 - 24.08  936.31 +  5.76 + 20.72 
W5000   8426.26 -202.90 8629.16 -217.52 8846.68 + 63.55 +199.08 
RUT      387.98 -  8.74  396.72 -  9.64  406.36 +  6.36 + 14.08 
TRAN    2318.47 - 70.34 2388.81 + 28.19 2360.62 + 46.64 - 19.12 
VIX       32.12 -  0.56   32.68 +  1.60   31.08 +  4.35 -  4.10 
VXN       50.92 -  1.36   52.28 +  2.80   49.48 +  2.00 -  3.19 
TRIN       1.34            1.11            1.04            1.05 
Put/Call   0.87            0.91            0.62            0.70
******************************************************************


 
Buyers Strike
by Jim Brown

Worries over global problems weighed on the markets on Friday 
and lack of volume suggested more of a buyers strike than a
rush to sell. A continued sell off in overseas markets and a
weak dollar combined to knock the markets back to near key 
support levels at Friday's open. 

Dow Chart – Daily


 

Nasdaq Chart – Daily


 

The morning began with several shocks. The PPI fell by -0.4%
when analysts had expected it to be flat. This was the largest
drop since May and indicates that inflation is nowhere in sight.
Also deflationary pressures appear to be abating as well. Core
intermediate and crude prices are rising slightly. Unless the
core prices begin to fall it indicates manufacturing is holding
steady. The current glut in global capacity is slowly being
absorbed into the outlook for 2003. Business inventories also
rose slightly for the sixth consecutive month but not enough
to change the current trend. The +0.2% growth was slightly less
than the growth in sales at +0.4% and left the inventory-to-sales
ratio at 1.36. Most of the gain was due to a buildup in retail
inventories for the holidays. The low I-T-S ratio will help
produce a stronger rebound when the recovery eventually occurs. 
There will be a rush to restock once demand exceeds the current
maintenance levels. 

The University of Michigan Consumer Sentiment bounced +2.8 points
to 87.0 in early December and while more than expected it did
not paint a picture of a bullish consumer hitting the malls. 
This was the second monthly gain from the October low of 80.6 
but the rate of increase is less than exciting. The gains in
the market from the October lows have been evaporating and with
them the bounce in bullish sentiment. With unemployment rising
and credit becoming harder to get the lower interest rates are
becoming less of a stimulus for the economy and for consumers. 
This bounce is another step in the right direction but at a
snail's pace compared to what economists would like to see.

Global problems included a -192 point slide in Tokyo adding to
the eight day drop so far in December. Continued rumblings
about Iraq continue to point to an imminent war. One source
said only 300 pages of the 12,000 page disclosure was new with
the rest being left over from the last inspection effort. 
According to the U.S. there are massive omissions and according
to inspectors most of the Iraq scientists are missing. Traders 
know where this is headed. 

In South America the riots in Venezuela are increasing and oil
output is on the verge of a complete stoppage. President Bush
called on Hugo Chavez to hold early elections to resolve the
current civil problems. Since elections are likely to replace
Chavez I would not hold my breath for that to happen soon. Oil
futures closed near $28 and a two month high. If a civil war 
breaks out in Venezuela there are fears that unrest could 
spread to other neighboring countries with additional financial
risk to U.S. companies.

The holiday shopping season is running into further snags as
shoppers accelerate their last minute buying. There are reports
of lack of inventory on store shelves and selection deteriorating. 
It appears many retailers were not very confident about ordering 
for this holiday season and were worried about getting stuck with
excess inventory. They ordered less and are now suffering from
lack of sales. While this is a problem for shoppers it is going
to be a bigger problem for retailers when profits come in below
estimates. One spot check on Amazon showed a drought in popcorn 
poppers with only three models in inventory on Friday, down from 
a dozen models just a week before.  

On the flip side are the retailers that did order too much and
are now frantically trying to blow out slow inventory at fire sale
prices well before the last minute. Omaha Steaks for instance
sent out a mass email Friday offering their popular $52.95 top 
sirloin package at 50% off and get 12 quarter pound burgers free. 
A visit to the webpage for this offer showed many other 50% off
products. This may have been their planned strategy from the 
start to capture last minute shoppers but a quick walk through 
the malls shows the same markdowns. I strolled through a Kohl's 
on Wednesday night and carts of marked down merchandise filled 
the isles. This was good since a quick count showed less than 
40 customers in the entire store. There were no customers in 
line and three checkers sitting idly by waiting for someone 
to help. 

These two paragraphs may seem like a conflict of events but I
think it shows the hit or miss buying patterns of consumers
this holiday. The high demand items are quickly disappearing
due to low inventory levels while the mass merchandise categories
are not seeing mass buying. Wal-Mart, with full parking lots, 
hit a new two-month low on Friday while Sears is actually 
showing strength. I attribute this strength to the Lands End 
business Sears acquired and which appears to be performing 
well online this season. Reports from UPS drivers claim Lands 
End packages are running a close second to Amazon in numbers. 
I suggested Sears as an investment buy in the Market Monitor 
earlier this week. 

Another challenge for this holiday season was a profit warning
from TSG on Friday. Sabre Holdings, TSG, includes Travelocity.com
and they are a major booker of holiday travel. They said demand
continued to be weak and they were cutting the 4Q and full year
estimates. They said dropping capacity and lack of travelers
would continue to haunt the industry well into 2003. The fear
of another terrorist attack as well as lack of business travel
is making the travel business very difficult. In the same sector
the UAL bankruptcy is sending ripples through the economy in 
ways many had not expected. Since most planes are purchased
by investors and corporations and then leased to the airlines
the bankruptcy allows UAL to cancel those leases. UAL has already
cancelled over 100 planes and considering the depressed airline
sector those planes are now worth far less to investors than
they were just a year ago. Several companies have already 
warned that earnings will be impacted by lack of revenue from
prior leases. Some companies with heavy exposure to airline
leases include GE, BA, F, MO and DIS. Those companies must 
now remarket or resell the planes in an economy where parking 
spaces for out of service aircraft is already at a premium. 
Not only can they not resell them but there is no place to 
park them while trying. If UAL can lower costs by dumping 
hundreds of plane and gate contracts then others may have 
to file to achieve the same benefits. This chain reaction 
could reach all the way to American Airlines. US Air has 
already rejected 75 leases and has permission to abandon 
another 125. This gives you some indications of how serious
the UAL lease abandonment could be. 

The chip sector took another hit on Friday as Intel and AMD 
were rated at "underweight" by JPM. They said the company is
under pressure from slowing growth of PC sales. They said
slowing growth and over capacity remains a problem and the 
estimated 2003 growth of only +2% to +4% is still questionable.
Adding to the chip slump was a warning from CRUS that revenue
would be down due to both lower sales and cancelled orders. 
Cirrus makes chips for consumer electronics gear like audio
and video products. They said a wide range of manufacturers
had cancelled orders for chips to make these products. ZRAN,
another maker of these chips fell as well. 

It has been a rough two years for chipmakers and the Nasdaq-100
rebalancing on Monday Dec-23rd proves it. These 15 companies
will be dropped from the Nasdaq. AMCC, ATML, CHTR, CNXT, IDTI, 
PMCS, VTSS, ABGX, ADRX, CYTC, IMCL, ITWO, PDLI, RATL, SEPR.
Half of them are chip stocks. All of them are previous high
flyers and sold for many times their current values. While I
am at it the 15 stocks being added to the Nasdaq-100 are: 
EXPD, ROST, XRAY, LAMR, WFMI, FHCC, PETM, PIXR, FAST, APCC, 
CHRW, PTEN, GNTX, HSIC and RYAAY. The Nasdaq-100 is supposed
to represent the 100 largest non-financial stocks on the Nasdaq
stock market. The rebalancing occurs in December each year and
is timed to coincide with the triple witch expiration Friday.

Got your smallpox vaccination yet? Of course you don't but the
airwaves have been full of the news that we could be at risk from
terrorists using the disease sometime in the future. Considering
the risk from actually receiving the vaccination the government is 
taking the threat seriously. Still the market appears to have 
already contracted it just from the repeated mention in the news. 
You can say what you want about earnings, oil and riots but when 
you start adding in news about bio-terrorism and rogue nations
trying to acquire nuclear weapons somebody is bound to start
thinking about investing for safety. That appears to be what 
is happening. Gold is hitting new five-year highs, treasuries 
are up, utilities are up and money market funds saw an influx 
of $10 billion in new cash last week. The Fed is watching this 
economic plight and trying to float the markets on an ocean of 
cash. M2, the indicator of the nations money supply soared by 
+$142 billion last week. Interest rates are low and can't get 
much lower but the Fed is determined to keep this boat afloat
if it has to buy new presses to print money faster. Inflation
may not be a problem now but stick around a couple years. 

The long-term fundamentals, say for December 2003, are excellent
but the outlook for the next 60 days is still rocky. By most 
estimates there is between $6 and $7.5 trillion in idle cash
waiting on the sidelines earning minimal interest. This money
will eventually find its way into the markets. There are tax 
cuts on the horizon and the Fed is hooked on speed. Bears have 
a very limited life expectancy at this point. 

Last Sunday I said I expected a small bounce and then another 
dip with 8350 as eventual support before the holidays. The 
bounce was weak and the dip did not quite reach 8350. Monday's 
open could finish that dip. Despite all the negative views I 
expressed above I think most of them are already priced into 
the market. We know we are going to attack Iraq next year. 
We know there will be a recovery in the PC sector eventually. 
Remember the much-anticipated second half recovery of 2002? 
Well that has now slipped slightly, by about twelve months. 
This lack of recovery means the markets rallied off the 
October lows a little prematurely and we have to tread 
water until the recovery catches up with the markets. We 
can still have a holiday rally but there are still some 
challenges ahead. 

If we are going to see Santa then we should see a change in
the markets early in the week. I would not be surprised to see
one last attempt to test solid support at 8350-8400 on Monday
and then sideways to up from there. The 50 and 100 DMA are at
8408 and should blunt any drop attempt. I would be a buyer of 
the market at Dow 8425 with a stop loss at 8250. This would be 
to capture any end of year rally and I would sell on weakness 
after Dec-26th. Think of it as returning unwanted presents
to spend the money on sale items later. 

The long awaited end of year renewal special begins this weekend
and there is wealth of bonuses for readers who elect to lock in
their subscription at the current rate. We will be raising the
rates on Feb-1st so don't delay. 

Enter Very Passively, Exit Very Aggressively!

Jim Brown

"I'd be a bum on the street with a tin cup if the markets 
were always efficient." - Warren Buffett


**********************  
Annual Renewal Special
**********************  

The annual special this year is far too large to put into an
email. The highlights include two option expiration mousepads
to which we have added the FOMC meeting dates this year. There
are also two videos with Jim, Jeff and Buzz and seven books 
by leading market professionals like John Murphy and and Jim 
Rodgers. We even brought back the Trading Strategies CD from 
last year for all the new subscribers who have been asking 
for it. 

Click here for the full details:  
https://secure.sungrp.com/03renewal/#m


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

Seeking Support 
By John Seckinger
jseckinger@OptionInvestor.com

One of these futures contracts (ES, NQ, or YM) closed on Friday 
on a solid support level.  If support does in fact hold, will the 
other two contracts be pulled higher?  They just might.  

Friday, December 13th at 4:15 P.M. 

Contract          Net Change     High        Low        Volume    

ES03H     886.50    -14.50      902.75      885.75      465,340
YM03H    8400.00   -125.00     8515.00     8382.00       15,429
NQ03H    1010.50    -34.00     1045.00     1009.50      191,749

ES03H  =  E-mini SP500 futures    
YM03H  =  E-mini Dow $5 futures    
NQ03H  =  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.  

The December Contract is set to expire on December 20th.  Volume 
has picked up dramatically in the 03H contracts, and all 
contracts will now be quoted in March.  

Fundamental News:  Not even a better-than-expected Michigan 
Sentiment report (87.0 versus the estimates of 85.0) could help 
equities on Friday.  Before the equity markets opened, economists 
did seem surprised by the Producer Price Index falling 0.4% in 
November after October’s rise of 1.1%.  Most estimates revolved 
around an unchanged figure.  Also weighing on the markets was 
JP Morgan noting that the end markets within computing, wireline, 
and wireless communication should remain depressed through the 
first quarter.  Further negatives included a WSJ article implying 
that retailers planned too conservatively for the holiday 
shopping season, as well as a rumor that EBAY might be mentioned 
in a negative article in Barron’s due to possible accounting 
irregularities.  Looking globally, a Venezuelan strike aimed at 
ousting President Chavez seemed to be responsible for a spike in 
oil prices.  

Technical News:  The dollar imploded against the euro and yen on 
Friday, falling overall to 103.98 and hitting levels not seen 
since July 30th.  The 52-week low for the DX00Y contract comes in 
at 103.54, seen on July 17th.  Before July, the Dollar had not 
traded as low as 104 since February 2000.  Looking elsewhere, the 
XAU index accelerated upward to 77.46 on Friday (closed at 77.11) 
and took out the last relative high at 77.34 during mid-September 
on an intra-day basis.  Double top?  If the XAU does go higher, 
more resistance is felt just above 81.  Interesting enough, the 
30-year bond fell ’28 ticks to 110’01 as equities came under 
pressure.  Inflationary worries?  Stagflation?  Note:  Bonds, the 
dollar, and stocks all moving lower definitely brings back 
memories of ’87.  

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

The December Mini-sized Dow Contract (YM03H)

When I look at a chart of the Dow, I think of the quote “broke, 
but not broken.”  I certainly expected more selling pressure 
under 8470; however, the market did not completely disappoint as 
selling took over during the last few hours of trading.  If 
short, look for a rally to be firmly capped at the 50 DMA (exp) 
near 8517.  Ideally for shorts, the Dow never rises above 8470.  
Looking downward, there certainly is support at 8400 and the 
38.2% retracement at 8338.  So, if flat, how do you play the 
market going forward?  Responsively.  Look for bids just 
underneath 8400,while expect selling if a move towards 8517 
develops.  

Chart of Dow Jones, Daily


 

A chart of the YM03H contract shows the contract in the middle of 
a regression channel; however, the pivot is calculated to be a 
few points higher at 8432.  Notice how the 22 PMA is “poised” 
(read: did not yet) to cross under the 200 DMA, a bearish sign.  
It is not uncommon for shorts to trade based off a projected 
cross, but looking at other oscillators (MACD and RSI) shows the 
potential for a near-term bounce.  With the Dow now falling for 
two weeks and all attempted rallies over the last few weeks sold 
into, there is no reason to fight the trend.  With that said, 
look for resistance at 8482 and 8565 within the YM contract.  
Only a close above 8565 would have me thinking slightly bullish 
(would depend if Dow would be over 8625 – based on current 
arbitrage, Dow would be slightly under this level).  

Chart of YM03H, 60-minute


 

YM03H

Support               Resistance                Pivot    

8349				8482				8432
8299				8565
869.0	8625					
8725	

Bold signifies levels based on Pivot Analysis.

The December E-mini Nasdaq 100 Contract (NQ03H)

When the open as the high and the close as the low, finding 
bullish things to say about the NDX becomes difficult.  
Institutions were most likely selling early and often.  Will 
support be found at the 1000 area?  Pivotal analysis thinks so, 
as support is calculated to come in at 998.33.  Does this match 
up with other analysis?  Except for a high back during the week 
of November 21st, this area appears to have more of a 
psychological meaning than anything else.  If the 998.33 area is 
broken, I would get nervous (if short) if the NDX rose back above 
1000.  The intermediate objective remains at 973-975 area, but 
bids should be found near 986.17 along the way.  

What about if the market bids?  Ideally for shorts the NDX does 
not rise above 1018 area until the 50% retracement area is hit.  
The 50 DMA is currently at 1020, but should slope down near 1018 
during trading over the next few days.  A close above the 50 DMA 
would definitely take sentiment towards more neutral levels.  

Chart of NDX, Daily


 

The NQ03H contract formed another “b” liquidation pattern within 
a five-minute chart during trading on Friday.  Notice how the 
contract failed to hit its objective of 1030 after retracing more 
than 50% of the day’s range (not including night session).  In 
theory, after retracing more than 50% of a day’s range, the 
contract should come back to the 9:30 opening level before 
testing the 50% again.  If the 50% area (1021) is penetrated and 
the contract comes back to 1021 before hitting 1030, look for 
more selling to take place as a failure has just occurred.  This 
is a common practice by market makers, and does have a nice 
probability of success.  Also, the apex on Friday came in at 1017 
and shorts most likely got more aggressive once that area was 
taken out.  These patterns occur quite frequently on all 
timeframes, so please look for them.  

Chart of NQ03H, 5-minute


 

NQ03H

Support              Resistance                 Pivot 

	998.33			1018.00			1021.66
986.17			1033.82			
973.00			1057.15
	

Bold signifies levels based on Pivot Analysis (Globex included).  

The December E-mini S&P 500 Contract (ES03H)

The SPX contract, more than the other two, certainly looks as 
though support could be found at certain levels.  An upward trend 
line (blue) bisects the falling trend line (green) and matches 
the low seen during trading on Friday.  If support is found at 
current levels, look for a move to 897.57 and coming close to 
testing its 50 DMA (not 200) as seen below.  If these trend lines 
fail to act as support, support should be found from 880-883 and 
the SPX contract will then use these lines as resistance.  The 
downside objective comes in at 875.  Since trade on Monday should 
be based solely on these aforementioned trend lines, execution 
will become even more important.  Remember, if other oscillators 
look bullish, expect a bounce at 883 and then look to sell 
against these trend lines as they should turn into resistance.  
Note:  I will be looking for the SPX contract as pivotal towards 
both the YM and NQ during trading on Monday.  

Chart of S&P 500 Index, 120-minute


 

The ES03H contract also performed a “b” long liquidation pattern, 
but, unlike the NQ03H contract, the upside objective was hit.  
Notice that the ES contract rose above the 50% retracement and 
then hit 897 before coming back and testing the 50% area.  Then, 
once the contract softened, the 50% acted slightly pivotal but 
couldn’t control the late day sell programs.  Once the 891 apex 
area was broken, traders witnessed a nice failure into the close.  
According to my “open to close” article,  
(http://www.OptionInvestor.com/traderscorner/tc_100802_2.asp) 
there will normally be resistance at the day’s opening level (not 
including globex) if the market initially falls and then acts as 
a responsive market.  In my opinion, it is more difficult than it 
looks; nevertheless, recognizing short-term patterns within these 
futures contracts can make all the difference.   

Chart of ES03H, 10-minute


 

ES03H

Support              Resistance                 Pivot    

880.58			897.57			891.66
874.67			908.65
869.0	910-915

Bold signifies levels based on Pivot Analysis (Globex included).  

Good Luck.

Questions are welcomed,

John Seckinger
jseckinger@OptionInvestor.com 


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

NO BULL FOR THE NEW YEAR
By Leigh Stevens
lstevens@OptionInvestor.com 

BOTTOM LINE – 
A bullish case has not been demonstrated given the failure of the 
S&P to take out its prior high (leaving a double top formation), 
the failure of the (Nasdaq) Composite to find support at its 
prior peak and the break of layers of technical support last 
week. As well, I will highlight the lower objectives than I’ve 
had previously given the formation of bear flag patterns on the 
charts and the fact that gold is poised for a multiyear breakout 
– if the financial assets can’t beat the gold uncertainty hedge, 
then this is telling us that Santa Claus may be bringing coal to 
investors’ stockings instead of a hoped for year-end rally.


TRADING ACTIVITY –
On Friday, the indices ended another week down, making two in a 
row – the main pockets of strength were defensive in nature, 
namely utilities and gold.  More on gold further on. The Nasdaq 
Composite (COMPX) which had been leading the market higher, 
closed down on the week by nearly 60 points; the S&P 500 (SPX) 
was off 23 points and the Dow down by 212 points.  

Coming into Friday, the main bearish news was the dollar’s sharp 
decline against the Euro and the Yen and a spike in oil prices 
driven by OPEC’s move to cut quotas and the increasingly nasty 
Venezuelan general strike which has managed to shut down most oil 
production there – the U.S. imports a significant amount of crude 
from this southern neighbor. The market got a bit of a boast from 
the better than expected U. of M. Sentiment report – at 87, 
versus a consensus 85 – but not enough to offset other bearish 
influences.  

In particular, weak biotech sector and tech sectors in general 
lead by the semiconductor group.  JP Morgan and Deutsche 
Securities can take the blame by calling it as they see it in 
chip land – they came out with some bearish ratings on stocks in 
this sector. In the blue chip stocks, weakness was seen in 
financial, transportation, drug and retail stocks.  

The Wall Street Journal ran an article that suggested that 
retailers planned too conservatively for the holiday season and 
that some of their hottest items were selling out – if they had 
been aggressive and consumers were in a lukewarm buying mood no 
doubt they (the retail companies) would have been lambasted for 
this!

NEWS FROM TECHLAND – 
As you probably knew, the Nasdaq 100 (NDX) index is going to have 
15 new component stocks and NONE of them (sign of the times?) 
represent high tech businesses. Issues going in:
Expeditors International of Washington (EXPD); Ross Stores (ROST)
Dentsply International Inc. (XRAY); Lamar Advertising (LAMR);
 Whole Foods Market (my favorite story) (WFMI); First Health 
Group (PETM); PetsMart (PETM); Pixar (PIXR); Fastenal (FAST); 
American Power Conversion (APCC); C.H. Robinson Worldwide (CHRW); 
Patterson-UTI Energy (PTEN); Gentex (GNTX); Henry Schein (HSIC); 
Ryanair Holdings (RYAAY). 

American Power Conversion, Fastenal, First Health Group, Petsmart 
and Ross Stores rejoin the Nas 100. Of course, the biggest share 
of the NDX which is capitalization weighted, remains Microsoft, 
Cisco Systems and Oracle. Technology related companies still make 
up about 2/3rds of the NDX.  

Companies being removed from the Nasdaq 100 index are: 
Abgenix (ABGX); Andrx Group (ADRX); Applied Micro Circuits 
(AMCC); Atmel (ATML); Charter Communications (CHTR); Conexant 
(CNXT); Cytyc (CYTC); Integrated Device Technology (IDTI); 
ImClone Systems (IMCL); 12 Technologies (ITWO); Protein Design 
Labs (PDLI); PMC-Sierra (PMCS); Rational Software (RATL); 
Sepracor (SEPR) and Vitesse Semiconductor (VTSS). 

Shares of each company being removed are included in the Nasdaq 
100 tracking stock (QQQ) and the stock was also adjusted.  
Adjustment day was Friday and some of the drop in the Nasdaq was 
attributed to the portfolio rebalancing that was going on. A lot 
of change and all at once, considering that in all of 2001 only 
13 stocks were added to the Nasdaq 100 – of course, the index was 
not down 33% for the year either. 

NEXT WEEK’S MARKET MOVING EVENTS – 
The week ahead is the last full week of trading before a couple 
of holiday shortened ones.  If the market doesn’t rally, the Dow 
will have the lowest yearly close since ’97.  Considering that 
money managers are winding down their activities I can’t see 
where a lift is going to come from. 

We will see some earnings coming in next week, such as from 
brokers Morgan Stanley (MWD) and Goldman (GS), retailer Best Buy 
(BBY), Micron Technology (MU), Nike (NKE), FedEx (FDX), and 
General Mills (GIS) – enough earnings news to perhaps provide 
some direction.  

Economic data includes November leading indicators, updates on 
GDP and Industrial Production and November housing starts.     

GOLD IN THEM THAR HILLS? -
Gold stocks continued to outperform the market as this sector 
rose in conjunction with gold prices, which was buoyed by the 
weaker dollar (gold in typically priced in dollar terms), 
weakness in equities and flight to safety concerns – hey, I don’t 
see Iraq coming clean either! 

GOLD’S LONGER-TERM TECHNICAL OUTLOOK – 
Gold is an important harbinger of financial trends and tends to 
move inversely (opposite) to financial assets like bonds and 
stocks. Thom Calandra, at CBS Marketwatch has been highlighting 
in past months the viewpoints of the gold bulls, who see trouble 
ahead for the U.S. Stock and Bond markets in general, but a safe 
haven in gold with a related substantial further upside potential 
for gold stocks and bullion. 

To add my technical viewpoint, I looked at the longer term gold 
chart picture in various ways. 

The nearest-futures contract chart (monthly & weekly), which is 
“backward adjusted” to take out the effects of the interest rate 
“carrying” charge in order to give a truer picture of the actual 
price swings in the bullion, is shown below - 



 

Gold bullion prices have come up to long-term resistance as 
implied by a long-term monthly down trendline (see upper chart). 
However, the yellow metal has also penetrated near resistance as 
represented by its prior weekly closing high on the 100 oz.  
Comex exchange contract and gold looks like it will move still 
higher. 

Moreover, weekly price action as shown on the lower chart section 
above, has traced out a bullish “triangle” which the recent rally 
has penetrated to the upside, suggesting a next objective to at 
least $352 in terms of the front month bullion contract. 353 
would represent a 62% retracement of the last big decline (’96-
’99)- the 350-355 area is likely a good “marker” for gold prices 
– if it climbs above this zone, it would look to have potential 
to move higher still, say toward 400 – conversely, a deflection 
from this area suggests a cap to the current rally. 

A move above 350 in gold is a bearish indicator for equities 
prices in my estimation. 

In terms of the widely followed Philly Gold stocks Index (XAU.X), 
its chart is shown next - 



 

What would suggest further staying power to XAU is the bullish 
rounding bottom formation.  However, key resistance levels are 
close at hand also – at 80 and 86.  A new high weekly close would 
suggest upside potential to the 100 to 110 area and also would 
also have a bearish correlation for a continued bearish view on 
the broader market. 

MY INDEX OUTLOOKS - 

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

With last week’s price action the chart/technical picture becomes 
more bearish with greater likelihood that the double top is 
suggesting that OEX remains in a bear market trend. The most 
bearish part of the pattern, besides the break of the prior 
downswing low around 455 is the look of recent price action which 
has the appearance of a bear flag.  Breakdown below this kind of 
formation then suggests a downside objective to around 430 and 
suggests that the 445 prior low will not hold as support, even 
though on a near-term basis the Index is oversold.  



 


It looks like there is an increasing likelihood that OEX is 
headed back down to “fill” or tough the (upside) gap area seen on 
the way up in early October and noted on the chart above – the 
price gap is also in the 430 area and becomes my next downside 
objective.  Of course if the prior 445 low “held” as support, 
this has to be respected also – as always prior (down) swing lows 
are definitely a level to watch also. I noted that the Index was 
“oversold” – however, this is not the case on the weekly chart, 
where the RSI is showing downside momentum.    

To turn the technical chart picture back to one having renewed 
bullish potential would require a close above 455 and ability to 
hold above this level on subsequent price dips. This level (455) 
in fact could be a stop out or exit point for OEX puts.   

DJ Industrial Index (INDU) Daily:


 

I would hold on my suggestion to again look at (purchasing) DJX 
calls on a move back down to the 8350 area.  With last weeks 
price action, I see vulnerability for a fall to below near 
support in the 8400 area.  8300 should be watch – the prior 
downswing low is there – but I can see potential back to a retest 
of the 8000 region.  Maybe the Dow will be in an 8000 to 9000 
trading range.  

The Dow has to climb back above 8500 to suggest bullish potential 
again – absent that, sell rallies and play the downside with the 
DJX puts.    

NASDAQ COMPOSITE (COMPX) Daily chart – 

A key technical “failure” or breakdown began when the Composite 
retreated to below its prior rally high as highlighted by the 
level dashed line on the daily chart below - 


 

I now see lower objectives based on a Head & Shoulder’s top 
pattern in the Nasdaq Composite.  1275 is a “minimum” downside 
objective based on the bear flag outlined on the COMPX chart 
above.  A minimum downside objective implied by the H&S top 
pattern is in the 1275-1250 area. We have this lower gap area to 
give a target to around 1225.  I would stay bearish on Nasdaq 
unless the Composite can climb back above 1400 and stay there. 

QQQ Daily/Hourly charts:


 

The bearish rising wedge on the hourly chart and the lack of a 
further volume confirmation in QQQ were telling bearish technical 
factors. Now that the Q’s have retraced MORE than a fibonacci 62% 
retracement, we can anticipate a “round trip” for a 100% 
retracement or back to the recent rally starting point on an 
hourly closing basis – to around 24.25. 

If 24 gives way, the main technical support doesn’t appear until 
about 2 points lower, or to around $22.  If there was a rally 
back up toward the 25.75-26 area I would look to short the stock 
with (buy) stop protection at 26.50. My objective in that case 
would be to the 23.50-23.00 area.    


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

Nasdaq-100 Shuffle 

There are several potential plays for this weekend. With the
Dow closing very close to strong support at 8350-8400 and only
14 points above its 50 and 100 DMA there is a very strong chance
there will be a bounce on Monday assuming there are no major
news events over the weekend. 

For those wishing to capture that potential bounce I would 
suggest the Jan-DJX call options that we are currently using 
in the laddered entry from last Sunday. There is a recap of
that play at the end of this section. I would buy the January
DJX-$90 call which closed at $.70 on Friday. I would buy any
opening dip on Monday and use Dow 8250 as my stop loss. 

The other news event is the Nasdaq-100 rebalancing. There are
15 stocks being dropped from the NDX and 15 stocks being added.
The complete list is in my weekend market wrap. 

Since index funds will have to buy huge amounts of the stocks
being added there is a very good possibility they will rally
into the first of the year. Many funds will buy as of next
Friday but many others will wait for the hype to fade and 
buy the stocks as of Jan-2nd. There will be an initial bounce
on Monday and then a potential rally with the markets into 
the holidays. 

The two stocks I would look at from the list are XRAY and
PTEN. Both have good trends with decent volume and have
options far enough out of the money to absorb the opening
bounce and still provide potential to profit. 

XRAY - Dentsply Intl. 

For call buyers I would look at the Jan-$40 call, which is well 
out of the money as of Friday and closed at $.55 cents. It 
will open higher on Monday due to the announcement. XRAY has
resistance at $43 and it remains to be seen if the millions
in extra volume over the next two weeks can push it over. 

Because of the potential premium bounce at the open on Monday
a better option could be a put spread where you buy the Jan
$35 put, currently $1.10 but should be much less at the open 
on Monday, and selling the Jan-$45 put which closed at $8.20.
This takes the premium risk out of the trade and you can profit
from any move over the Monday open. 

If you can sell naked puts I would pull the trigger on the
Jan-$45 immediately once a bid price appears on Monday morning. 



 


PTEN - Patterson Energy

The same scenario exists on PTEN. I would look at the Jan-$35
call which closed Friday at $.95. The Jan $30/$40 put spread
or the Jan-$40 naked put would be my choice. 



 


Play recap from last week

Not even close! The potential short play was never activated 
because the DJX gapped down at the open on Monday and never
recovered to the initial trigger point at 87.00. 

The long call side of the ladder got off to a good start due 
to the premium deflation from the Monday gap down. If you were
playing the drop for a rebound into the holidays then you 
should have filled at the $86 level for $1.30 and the $85
level for $1.10. The call closed at $.70 on Friday so any
opening dip on Monday could fill your $84 trigger even lower
than that. The current unfilled limits are 84, 83.50 and 83. 
I don't think 83 has a chance but 84 looks possible depending
on weekend events. It is possible we may not get an opening 
dip to 84 because the 50 and 100 DMA are both at 8408. I would
look to raise my trigger to 84.25 for the next entry. This
difference is not material in the long term and it could mean
the difference between having 1/3 more contracts in your
portfolio. 

See the editors plays from Sunday Dec-8th for a full description
of this play. 

http://members.OptionInvestor.com/editorplays/edply_120802_1.asp

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

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

Good Luck

Jim Brown  


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

What Good News?
by Steven Price

Looks like that recent consolidation was just a pit stop on the 
way to new relative lows.  After a slow week, during which the 
Dow set a series of higher lows, but could not manage to break 
out to the upside, the downside finally gave in. The sell-off 
came in spite of evidence from a falling Producer Price Index 
(PPI) that inflation was not a concern and a better than expected 
Consumer Sentiment reading of 87.0. 

The Consumer Sentiment bounce took the index to its highest level 
since August and represented a significant gain from its 9-year 
low reading of 80.6 in October.  The expectations component rose 
to its highest level since June, giving retailers hope for a 
better than expected holiday shopping season.  So far, sales have 
reflected anything but a higher degree of confidence, with the 
exception of home-related purchases.  However, the news should 
still be considered positive and there hasn't been much of that 
recently.

The PPI number actually stoked fears of deflation.  While the 
economy may not have to worry about prices getting out of line, 
the report showed many prices are actually falling, meaning 
manufacturers have less pricing power.  This could lead to a 
bottom line squeeze, eventually taking a bite out of earnings. 
The report doesn't take into account many of the services inputs, 
such as the cost of medical care, which has been on the rise. 

The market took out relative lows this morning, with the Dow, OEX 
and SPX all testing 50-dmas and getting failed rebounds off those 
levels.  A mid-day rally looked as though we had finally found a 
bottom, with the bounce off those 50-dmas, but the last couple 
hours of trading saw a steady sell-off and a breakdown of that 
support into the close.  The OEX actually finished below its 50-
dma for the day.  We are now approaching strong support from the 
beginning of November that should at least put a temporary halt 
to the slide. Combined with a traditionally bullish final couple 
weeks of the calendar year, traders should expect some type of 
bounce off Dow 8300/SPX 880/OEX 446.

The Nasdaq also got creamed, losing 37.13 and approaching its 50-
dma down at 1345.88.  The index looks to have completed its own 
little head and shoulders pattern, but the shoulders at 1425 and 
1411 are not well enough defined for me to bet on them. However, 
the measuring objective of the pattern would have the breakdown 
leading all the way down to 1200, for those interested. 

I referred in past articles to the possible formation of a head 
and shoulders in the Dow, as well.  If that prediction were to 
come true, we are approaching a point at which we can expect a 
bounce and the formation of a right shoulder.  It is far too 
early to tell if that will be the end result of the recent market 
action, but we're about 2/3 into the formation if it does take 
place.  What that means is that if we do get a significant bounce 
in the near future, traders may want to get long for the ride up 
to around Dow 8800.

The chip stocks also saw red today, but stopped short of recent 
support at 307 in the Semiconductor Index (SOX).  The recent drop 
on December 9 took the index down to 307 and today's drop bounced 
at 308, finishing the day at 309.  With previous support at 310 
and 300, as well as the 50-dma at 302, there is an awful lot of 
congestion in the index and it will likely take a continued move 
under 300 to gain downside momentum.  As these stocks tend to 
lead the Nasdaq, keep an eye on these support levels before 
either getting in short, or playing a bounce on the broader tech 
indices. Some of today's sector drop can be attributed to ratings 
released this morning. J.P. Morgan said the top three 
semiconductor end markets - computing, wireline and wireless 
communications - should remain depressed with the possibility of 
inventory corrections and pricing pressure through the first 
quarter.  It initiated coverage of industry heavyweights Intel 
(INTC) and Advanced Micro Devices (AMD) with underweight ratings.  
Deutsche Securities also initiated coverage of a host of 
semiconductor stocks with sell ratings, including Texas 
Instruments and AMD.  However, the firm rated Intel as a buy.  
While there was also disagreement between firms over MCHP (JPM- 
overweight, DB - sell), the message was clear to investors that 
the picture isn't as rosy as Taiwan Semiconductor's recent 
guidance increase may have indicated. 

After today's drop, it will be hard to simply step in and pick a 
bottom.  After last week's slide, it seems the last few days were 
just a bear-pennant type reprieve, before today's drop.  If we 
are going to bounce, the two most logical levels are the 50-dmas, 
which all indices are approaching together, or the late-October/ 
early-November lows.   If that happens, then don't be too 
aggressive in shorting the first failed rally, as we may be 
headed for that right shoulder.


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

Market Averages

DJIA ($INDU)

52-week High: 10673
52-week Low :  7197
Current     :  8433

Moving Averages:
(Simple)

 10-dma: 8622
 50-dma: 8408
200-dma: 9113

http://www.OptionInvestor.com/charts/financial.asp?ticker=$INDU

S&P 500 ($SPX)

52-week High: 1176
52-week Low :  768
Current     :  889

Moving Averages:
(Simple)

 10-dma:  908
 50-dma:  888
200-dma:  973

http://www.OptionInvestor.com/charts/financial.asp?ticker=$SPX

Nasdaq-100 ($NDX)

52-week High: 1734
52-week Low :  795
Current     : 1005

Moving Averages:
(Simple)

 10-dma: 1052
 50-dma: 1002
200-dma: 1104

http://www.OptionInvestor.com/charts/financial.asp?ticker=$NDX

-----------------------------------------------------------------
The Semiconductor Index (SOX.X):  The SOX dropped almost 4% 
today, after coverage was initiated with negative ratings on a 
number of stocks in the sector. J.P. Morgan and Deutsche 
Securities disagreed on ratings for Intel and AMD, but other 
stocks getting 'SELL' or 'UNDERWEIGHT' ratings were RFMD, TQNT, 
ATML and TXN.  JPM also said the top three semi end markets 
should remain depressed through the first quarter of 2003. While 
this was not news, as many chipmakers have said they do not 
necessarily see a recovery anytime soon (most recently Intel), 
the group still led the Nasdaq Composite through its recent lows. 
It is revisiting support around 300, after testing resistance at 
400 just a couple of weeks ago, giving traders little clue as to 
its appropriate valuation.  For the time being, traders can watch 
support and resistance levels, highlighted in the above article, 
for clues as to when we will get a breakdown, or bounce.

52-week High: 657
52-week Low : 214
Current     : 309

Moving Averages:
(Simple)

 10-dma: 331
 50-dma: 302
200-dma: 398


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

Market Volatility

The VIX rebounded on today's broad market sell-off.  However, we 
only saw a gain of just over a point, as we are about to head 
into the weekend and essentially three days of time decay.  Keep 
in mind that if institutions thought we were about to head back 
toward the October/July lows, we most likely would have seen a 
bigger gain in the VIX, as there would have been many more put 
buyers. The VXN actually dropped on the day, in spite of the NDX 
and COMPX taking out recent lows and testing the NDX's 50-dma at 
1002. This would seem to contradict the day's market action and 
lend a less serious tone to today's drop in the techs.


CBOE Market Volatility Index (VIX) = 32.12 +1.31
Nasdaq-100 Volatility Index  (VXN) = 50.92 –0.13

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.87        467,567       405,748
Equity Only    0.67        357,394       240,328
OEX            1.13         27,405        30,929
QQQ            3.54         23,248        82,191


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

Bullish Percent Data

           Current   Change   Status
NYSE          50      + 0     Bull Confirmed
NASDAQ-100    66      - 4     Bear Alert
Dow Indust.   63      + 0     Bear Alert
S&P 500       63      - 1     Bull Confirmed
S&P 100       64      + 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   1.32
10-Day Arms Index  1.42
21-Day Arms Index  1.18
55-Day Arms Index  1.18


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

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

Market Internals

        Advancers     Decliners
NYSE        928          1888
NASDAQ      974          2233

        New Highs      New Lows
NYSE         46              34
NASDAQ       46              41

        Volume (in millions)
NYSE       1521
NASDAQ     1308


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

Commitments Of Traders Report: 12/10/02

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

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

S&P 500

Commercials added 2,000 long contracts and 16,000 shorts, leading 
to a 30% increase in the net short position. Small traders took 
the opposite approach, leaving the net long position unchanged, 
while reducing shorts by 9,000 contracts. 

Commercials   Long      Short      Net     % Of OI 
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%)
12/10/02      446,831   503,583   (56,752)   (5.9%)

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
11/19/02      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%
12/10/02      162,115    71,505    90,610     38.8%

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

Commercials saw a small gain to the long side, but left shorts 
virtually unchanged.  Small traders increased long positions by 
1,300 contracts, while slightly reducing the short side. 


Commercials   Long      Short      Net     % of OI 
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%)
12/10/02       44,651     51,716   ( 7,065) ( 7.3%)

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
11/19/02       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%
12/10/02       15,026     9,242     5,784    23.8%

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

DOW JONES INDUSTRIAL

Commercials maintained the status quo, with no significant 
changes to positions.  Small traders followed suit, making only 
slight reductions to both the long and short side. 

Commercials   Long      Short      Net     % of OI
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%
12/10/02       19,953    15,759    4,194      11.7%

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
11/19/02        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%)
12/10/02        5,394     9,499    (4,105)   (27.6%)

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

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


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

Buy/Sell Program Premium Levels
Jeff:

I do not understand the buy and sell numbers you gave this 
morning for the buy and sell programs: $0.25 and $-2.72.

What do they mean? Could you give examples and correlate them to 
what to watch for in the indices, for example at what value of an 
index are the programs to kick in? Could this be said in a single 
liner on the monitor? Explicitly?

This is perhaps a timely question, but also a very frequently 
asked question as it relates to each morning's 09:00 Intra-day 
Update that PremierInvestor.com and OptionInvestor.com 
subscribers will either browse across, or find interesting, but 
feel there's no way they could ever find it useful.  Even some 
"experienced" traders feel this tool has no application and is of 
little use.

I will attempt to keep this simple and not get into all of the 
complexities of arbitrage trading, but that's exactly what these 
buy/sell program execution levels from HL Camp & Company will 
generate if the their "buy" or "sell" program premium level is 
traded.

Lets start out with the "cash" market.  The S&P 500 "cash" market 
is the S&P 500 Index (SPX.X) 889 -1.33%.  At any second in time 
during market hours, the combined total of the 500 stocks in the 
S&P 500 Index will equal the SPX.X.  In essence, its the current 
"cash" price of these 500 stocks combined.  You will see why you 
need this to then "generate" the eventual buy/sell program alert.

Each morning, we also talk about the S&P 500 futures (sp03h), 
which at 04:00 PM EST were trading 888.  Here however is a price 
of a security that traders are actually trading based on FUTURE 
expiration in March.  Notice the price difference?

Sometimes we see a wider margin of discrepancy between the "cash" 
(SPX.X) and futures market quotes.  That's when the also quoted 
"fair value" given in each morning's comments come into play, but 
that's a different topic all together.  

It should also be noted that S&P 500 futures don't ALWAY trade 
below the cash price like they are right now.  There are times 
when they trade above the cash price.

But its the "difference" between the cash and futures markets 
that then comes into play as it relates to the buy/sell programs 
that HL Camp & Company gives each day that can alert traders to 
institutional buy/sell programs being triggered.

Now, we just noted a $-1.00 difference in the cash versus futures 
S&P 500 quotes didn't we?  Do you see where I'm going?  That's 
getting close to HL Camp & Company's ... computer sell programs 
are set for $-1.25.

So.  How do I "know" if some type of computer program is 
triggered?

You and I could sit and watch the S&P futures trade with one eye, 
while watching the stock we're trading with the other eye.  The 
thinking being "boy... if a computer sell program comes in and 
futures trades lower, then the stock I'm trading that's part of 
the S&P 500 could also see selling."  Wow!  That would make for a 
real efficient stock trader wouldn't it?  Only thing is, I 
couldn't be watching much else if I had to always keep my eye on 
the futures for some type of sharp move lower.

By establishing a buy/sell premium execution level, a trader 
using a trading station like Qcharts, which is what I'm using on 
a daily basis, can set some upside and downside alerts at what is 
called the S&P Premium levels.  For Qcharts, the symbol is 
$prem.x .

All this does is MEASURE the DIFFERENCE between the cash price of 
the S&P 500 and the futures price of the S&P 500.  The DIFFERENCE 
can be thought of as the arbitrage spread.  

It's when the PREMIUM levels are achieved, that the market 
suddenly experiences a moment of inefficiency and "things get a 
little too far apart."  It's at these "inefficient" moments that 
the premium alerts can be triggered, and alert the trader to a 
program buy or sell program coming into the market.

Once again, the trader that thinks like an institution will 
better understand.  If you're a Goldman Sachs, carrying billion 
of dollars in stock inventory and the markets are declining, is 
it feasible to coordinate an effort among your human traders to 
control the risk, or hedge that inventory risk?  Certainly not.  
But if you've got a computer, that "knows" to the last share how 
much stock you have in inventory (or don't have if you're net 
short a stock in inventory) and what the cash market price is for 
all those different stocks, you can set market levels as buy or 
sell points and have your computer systematically buy or sell the 
S&P 500 to help hedge your broader inventory.

How could I do this if I'm long $10 billion worth of S&P 500 
socks in my inventory.  If my net cost is SPX.X 850 at what lower 
level do I need to hedge that risk?  I might consult my chief 
technical analyst and ask... "at what lower level should we hedge 
our downside?"  The analyst might say... "if we trade below 900, 
then we might have downside risk to 880 and 61.8% retracement."  
OK, then if we trade below 900 we'll need to sell $3 million S&P 
futures short as a hedge, and sell $20 million worth inventory 
that we bought at SPX 835.  The sell program for the futures is 
placed with the computer to sell $2.

The above is a very simplistic example.  Computer programs are 
actually being used on an minute-by-minute basis, but what a 
trader will be concerned about or perhaps monitoring is the more 
meaningful points where a buy/sell program is triggered.

So without have to look at or monitor the minute-by-minute 
differences between the cash and futures market, lets simply look 
at a chart of the Premium of S&P 500 Futures ($prem.x) from 
Qcharts.  What I'll do is build a "collar" on this chart, using 
the buy/sell program premium levels of $0.25 and -$2.72 that were 
given on Friday morning.  With Qcharts, I can also set an 
"upside" alert on this chart at $0.25, and a "downside" alert at 
-$2.72.  Then, if those levels are achieved, I will be "alert" to 
some type of computer program having been triggered that tells me 
that some institutional buying/selling is taking place.

Premium of S&P 500 Futures ($prem.x) - 10-minute interval


 

I show the above chart of the $prem.x only to give us a visual 
"perspective" of what's taking place as the "spread" between the 
futures and cash index varies marginally during a trading day.  
It's at the "extremes" of the buy/sell program levels that we 
want to be alert.  That's when the market becomes "inefficient" 
and an arbitrage opportunity presents itself.  As you can see 
from the above chart, there really were only "two" premium alerts 
generated.  Sure, there were undoubtedly many other "computer 
programs" being run during the day, but nothing "major."

Here's how a trader can perhaps "use" these alerts.  If you're 
thinking that this information is only good for short-term 
traders, you'd be partially correct.  After all, these buy/sell 
program levels change EACH DAY.  

But put on your thinking cap for a moment.  What if you're 
trading the indexes, or a stock and you're getting close to your 
targeted level for closing the trade?  After all, in your trading 
plan you probably had an entry point, profit target and stopping 
point defined right?  Wouldn't it be helpful if you were $0.25 
way from your bearish target in a stock option trade and all of a 
sudden you start getting "buy program" alerts in the broader S&P 
500?  That might alert you to lower a profit stop wouldn't it?  
What if you got a "sell program" alert as the stock option your 
trading nears its target and all of a sudden your stock fall 
$0.50 below your profit target?  Is there something wrong with 
the stock, or is it trading with the computer programs that were 
just generated?  This might have the trader simply lowering a 
trailing profit stop to his target and looking to see if the 
stock might not drop further as bulls simply want out and 
continue selling it lower.

Couldn't a trader also make some sort of observations as to "why 
all of a sudden does the program alert get triggered here?  Is 
there something important about this level that needs to be 
understood?  Maybe I'd better make a note at what $spx.x level 
that program was triggered as it could come into play at a later 
date and time."  I've found that good technical traders are 
always inquisitive and asking themselves questions and looking 
for answers in the charts.

To get a better understanding that the S&P buy/sell premium 
alerts are a RESULT of the cash and futures markets, lets look at 
both the cash and futures charts on a 1-minute time interval.  
We'll also ask some question, make some observations, and chart 
those observations later on as the trading day unfolds.

S&P 500 Index (top) versus S&P 500 futures (bottom) - 1-mnt chart


 

It made "sense" that we'd get a "sell program" at the open as S&P 
futures (lower chart) had traded down last night and were around 
893 when the cash market (upper chart) opened for trading at 
09:30 AM EST.  Institutional computers sold some stocks in order 
to "catch up" to what had happened between Thursday's close and 
Friday morning's open.  

Observation #1:  Why is the cash breaking below a level of 
"support" that seemed to form early at 894, when the futures 
seemed more "disciplined" and held their low in neater fashion?  
Hmmm.... never sure, but 894 might be "key" level in cash, and 
892 "key" level in futures.

Obeservation #2:  I set the "black box" in each chart to reflect 
the 09:47 AM time frame.  You can look at a 1-minute interval of 
the $prem.x chart too and see the premium jumping to above $0.25, 
which was the buy program.  Yes, its a sudden move higher, but 
that's what a little institutional capital hitting at once can 
do.  Hey, if you were a bear and shorted/put the SPX or SPY on 
the break to a morning low below 894, the sudden jerk higher 
against you was at least "understood."  Hey!  That stinks.  I 
just shorted and had a buy program crammed down my throat.  I'd 
better make note of that 894 cash level as it might serve support 
later on today, but I'd sure feel better if no more buy programs 
are triggered in the next hour and the SPX falls back below.  
Then it might become resistance.

Observation #3:  6-minutes later (you don't know it at the time) 
the SPX reaches a relative high, reverses lower and takes out the 
894 level and breaks to a new intraday low.  Hmmmm..... What's 
with this 898 level in the SPX?  No buy programs, no sell program 
alerts, somebody doesn't like the SPX there.  It's probably 
nothing, but I'll make a note of it.  I also have a level at 900 
marked as a potential "psychological" level of resistance.

So lets look at the entire day of trading and see if our "buy" 
program level had any type of influence on today's trading.  
Let's also see if our "rally reversal" levels had any influence 
where we didn't find any "premium alerts" but may have been 
traded by "human intervention."

S&P 500 Index (top) versus S&P 500 futures (bottom) - 10-mnt


 

Remember, all of the above "levels" are based on today's trading 
and may not have any historical significance to past levels that 
may carry greater technical significance.  I looked at the SPX 
daily chart and the only 894 level that I find interesting is two 
consecutive closes on November 12th and 13th, which ended up 
being pullback levels before the SPX made it recent relative high 
at 953 on December 12th.  Maybe, just maybe there were some 
institutional buy programs set at this 894 that have this being 
some type of pivot.  However, with just one buy program there, I 
can't put a lot of "faith" in it having significance.  I can make 
a note in my journal about it, but nothing to major.

However, our "human intervention" level near SPX.X 898 did find 
some technical significance at least on an intra-day basis.  My 
thinking here is that "loss of faith bulls" may have simply "sold 
too early before 900" as Jim Brown always teaches, with the 
thought of "why try with the weekend just ahead."

So... Friday's 1 "sell" (at the open) and 1 "buy" premium 
execution level in a day isn't that meaningful in the above 
example, but some days, several buy or sell premium execution 
levels are generated.

These "buy/sell" premium levels aren't something I think a trader 
"has to have" to be successful in trading.  However, like some 
tools in your toolbox, like that odd shaped screwdriver, you just 
never know when it might "come in handy."  Like the time we 
shorted a full position in the SPY into a powerful rally and 
didn't know that 5 "buy programs" had been triggered in the 
previous hour, which found the newswires reporting 30-minutes 
later that world peace had been achieved.

Hopefully this helps traders "understand" the basics of how and 
why we place the buy/sell premium execution levels in the 09:00 
updates each morning.

I think it would be neat if a trader set an alert at some target 
in the SPX, or stock they're trading and if short and the stock 
trades your target you had set, or very close, and all of a 
sudden you receive a "buy program" premium alert, instead of 
wondering if the trade should be closed out, you be ALERT as your 
trading station has given you two alerts at a level YOU deemed 
important is also deemed important by the market.  At that point 
YOU the trader begins to exude confidence and become more 
disciplined in getting ready to trade your end-plan.  YOU 
immediately think... "Aha! I need to be alert here for a 
potential reversal and can't hesitate if the stock/index I'm 
trading begin to rebound."

It would also be neat if a trader set an alert at some type of 
bullish entry point where he/she thought a stock would either 
rebound from support or break-out of congestion and that 
technical alert on your trading station was triggered.  However, 
you look at the S&P 500 trading sideways and perhaps lack some 
conviction in the trade due to lack of broader participation.  
But minutes later... you get a "buy program" premium alert!  Hey, 
that's two bullish types of alerts.  Then perhaps, the 
confirmation of prior thought that bullishness might take place 
at this level gets some confirmation.

Are you holding current month index options that will expire next 
week?  If so, then this shorter-term tool of daily buy/sell 
premium levels may give the SPX index trader some near-term 
levels to begin working with.  If you hold some SPX 900 puts, you 
might at least think a stop above 892 is warranted.  Is the SPX 
going to "peg" the 900 level at expiration?  It might, but it 
might not if we get 10 sell programs at 892 on Monday.  However, 
if we were to see a buy program at 892 on Monday, followed by a 
little pop to 895, then a pullback to 892 and get another buy 
program alert, then it might be a good idea to close out a 
December 900 SPX put.

Conclusion:  As you can perhaps see, the buy/sell premium levels 
aren't necessarily "tied" to an identifiable level in the SPX for 
S&P futures.  In its most simplistic form, the premium alerts are 
generated by meaningful DISPARITY between the cash and futures 
markets.  It the sudden and sometimes "unexplainable" level where 
a large amount of buying or selling in either the futures or cash 
markets becomes powerful enough to create a sudden inefficient 
market that "wakes traders up" to something.  

It's been said that "smart money" always knows first.  If you 
knew that world peace was going to be announced in the next 30-
minutes, most people would probably take their last dollar and 
either buy S&P futures or S&P January 900 calls wouldn't they?  
It's not that institutions are the "smartest" money in the 
market, but its institutions that have the most money in the 
market and its money on the buy or sell side that will drive 
price action.  Institutions also use computers, which are very 
unemotional, to control their stock portfolio risks.  It's these 
darned computers that can have impact on how the markets trade 
and one way to be alerted to a meaningful move in equities is the 
buy/sell premium levels.

Last notes:  1)  Interesting how the cash and futures both 
settled right on their 50-day SMA's.  Monday morning will be 
interesting won't it?  I would want to set an upside and downside 
alert on the SPX or S&P 500 futures (sp03h) and then Monday 
morning, set the buy/sell premium alerts for $prem.x.  

2)  I also made some final observations at the last part of 
today's trading between the SPX and futures chart.  There we see 
that the futures extended losses in the final 15-minutes of 
trading.  While fair value, which we also report each morning, is 
only to inform traders of how stocks will most likely open the 
session (up or down), we can envision how futures might be up 1-
point at 887.20, but if fair value were $4.00, then a lower open 
in the cash market would be the likely result.

3)  You've seen on CNBC when the market has made an up or down 
move greater than 160 Dow points, that they post "curbs in."  
That was put in place to limit computer initiated buy or sell 
programs.  Again, computers are computers they don't "reason" 
anything.  Can you imagine what could happen if a computer 
program had a software flaw and all of a sudden started buying $5 
billion worth of S&P futures every 10 minutes?  The only thing to 
shut it down is for trading curbs to go in place and not allow 
any further computer program trades to execute.

4)  During the week, S&P futures trade around the clock for the 
most part.  Did you know that?  S&P futures didn't just fall from 
their 04:15 PM daily close on Thursday to our 09:00 AM update 
Friday morning.  They worked their way lower as traders from 
around the world traded the contract lower.  

For the most part, fair value isn't "that important," but does 
give the trader a quick "feel" for how the cash market will open 
for trading.

Well... I hope everyone has a great weekend!  Once again, I can 
get a little long winded in my writing.  I find this kind of 
stuff simply fascinating.  What will they think of next?  Single 
stock futures is my guess.  Oh goodness, maybe I should develop 
buy/sell premiums for every single stock that trades futures on 
the underlying stock too!

Jeff Bailey


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

==========================================
Market Watch for the week of December 16th
==========================================

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

Symbol  Company               Date           Comment      EPS Est

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

None


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

BBY   Best Buy Co., Inc.      Tue, Dec 17  Before the Bell     0.25
CC    Circuit City Stores Inc Tue, Dec 17  Before the Bell    -0.13
DRI   Darden Restaurants      Tue, Dec 17  -----N/A-----       0.22
IBC   Int Bakeries Corp       Tue, Dec 17  -----N/A-----       0.48
MU    Micron Technology       Tue, Dec 17  After the Bell     -0.23
PIR   Pier 1 Imports, Inc.    Tue, Dec 17  Before the Bell     0.33
RHAT  Red Hat, Inc.           Tue, Dec 17  -----N/A-----       0.01


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

APOL  Apollo Group            Wed, Dec 18  Before the Bell     0.22
ATYT  ATI Technologies        Wed, Dec 18  Before the Bell     0.04
BSC   Bear Stearns            Wed, Dec 18  Before the Bell     1.23
BBBY  Bed Bath & Beyond Inc.  Wed, Dec 18  -----N/A-----       0.23
BMET  Biomet, Inc.            Wed, Dec 18  -----N/A-----       0.26
KMX   CarMax, Inc             Wed, Dec 18  Before the Bell     0.17
FDX   FedEx                   Wed, Dec 18  08:00 am ET         0.79
GIS   General Mills, Inc.     Wed, Dec 18  Before the Bell     0.74
GPN   Global Payments Inc.    Wed, Dec 18  After the Bell      0.35
MLHR  Herman Miller           Wed, Dec 18  After the Bell      0.13
ORCL  Oracle                  Wed, Dec 18  After the Bell      0.08
SCS   Steelcase Inc.          Wed, Dec 18  4:00 pm ET         -0.08
SVU   Supervalu Inc.          Wed, Dec 18  -----N/A-----       0.43
TIBX  TIBCO Software          Wed, Dec 18  After the Bell      0.01
WOR   Worthington Industries  Wed, Dec 18  Before the Bell     0.25


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

COMS  3Com                   Thu, Dec 19  After the Bell     -0.03
CCL   Carnival Corporation   Thu, Dec 19  Before the Bell     0.30
CTAS  Cintas Corporation     Thu, Dec 19  -----N/A-----       0.38
COGN  Cognos                 Thu, Dec 19  After the Bell      0.19
CAG   ConAgra Foods, Inc.    Thu, Dec 19  08:00 am ET         0.46
FDO   Family Dollar          Thu, Dec 19  -----N/A-----       0.32
GS    Goldman Sachs          Thu, Dec 19  Before the Bell     0.97
GUC   Gucci Group NV         Thu, Dec 19  Before the Bell     0.49
JBL   Jabil                  Thu, Dec 19  2:30 pm ET          0.15
LEH   Lehman Brothers        Thu, Dec 19  Before the Bell     0.88
MWD   Morgan Stanley         Thu, Dec 19  Before the Bell     0.75
NKE   Nike                   Thu, Dec 19  After the Bell      0.56
PAYX  Paychex                Thu, Dec 19  After the Bell      0.19
RAD   Rite Aid Corporation   Thu, Dec 19  -----N/A-----      -0.09
SCHL  Scholastic             Thu, Dec 19  After the Bell      1.91
SLR   Solectron              Thu, Dec 19  After the Bell     -0.02
TEK   Tektronix Inc.         Thu, Dec 19  After the Bell      0.09


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

None


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

Symbol  Company Name              Ratio    Payable     Executable

CCFH    CCF Holding Co.           3:2      Dec. 19th   Dec. 20th


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

Despite the holiday season, which is typically a bullish time
for Wall Street, investors will have to watch out for those
corporations who will be warning about their Q4 earnings numbers.
This Tuesday we have the CPI, Housing Starts, and Industrial
production numbers.  Check the calendar for additional reports
this week.  

==============================================================
                       -For-           
Monday, 12/16/02
----------------
None

Tuesday, 12/17/02
-----------------
CPI (BB)                Nov  Forecast:   0.2%  Previous:     0.3%
Core CPI (BB)           Nov  Forecast:   0.2%  Previous:     0.2%
Housing Starts (BB)     Nov  Forecast: 1.693M  Previous:   1.603M
Building Permits (BB)   Nov  Forecast: 1.700M  Previous:   1.772M
Industrial Prduction(DM)Nov  Forecast:   0.2%  Previous:    -0.8%
Capacity Utilization(DM)Nov  Forecast:  75.4%  Previous:    75.2%

Wednesday, 12/18/02
-------------------
Trade Balance (BB)      Oct  Forecast: -$37.0B Previous:  -$38.0B


Thursday, 12/19/02
------------------
Initial Claims (BB)   12/14  Forecast:    N/A  Previous:     441K
Leading Indicators (DM) Nov  Forecast:   0.3%  Previous:     0.0%
Philadelphia Fed (DM)   Dec  Forecast:    5.3  Previous:      6.1
Treasury Budget (DM)    Nov  Forecast:-$50.0B  Previous:  -$54.3B

Friday, 12/20/02
----------------
GDP-Final (BB)           Q3  Forecast:   4.0%  Previous:     4.0%
Chain Deflator-Final(BB) Q3  Forecast:   1.0%  Previous:     1.0%


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


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

Next Leg Down

The opening bell brought a move below recent support in the 
Dow/OEX/SPX. It took the Nasdaq Composite a while longer, but 
eventually it too took out its recent low, as well.

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The Option Investor Newsletter                   Sunday 12-15-2002
Sunday                                                      2 of 5


In Section Two:

Stock Pick: Back in Business
Daily Results
Call Play of the Day: ISSX
Put Play of the Day: MMM
Dropped Calls: IDPH
Dropped Puts: None

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**********
Stock Pick
**********


Back in Business
EDS - $19.64
Strategy: Long stock with put insurance

While the major indices closed out the week sitting in red ink,
shareholders of EDS enjoyed a 16.2% gain.  We realize closing at
$19.64 is a far cry from $68.55, where the Information (IT)
Services company started the year, but for now Electronic Data
Systems appears to have weathered the storm. It’s not that we
expect it to be clear sailing for EDS, however this is a company
that could very well be on the mend.

The chart below not only displays the carnage, but also shows why
we believe EDS could provide an exceptional return in the coming
months. In late June, Wall Street began to learn of EDS’s
exposure to the problems at WorldCom.  Several analysts tried to
paint a pretty picture, maintaining profit estimates and keeping
the company on their recommended lists.  As you can see the 
picture on the chart is anything but pretty.  Shares of EDS
plunged from just over $46 to under $28 in the next four trading
sessions. Large price moves up or down are generally exaggerated
by fear or greed. It took EDS nearly two months to repair the
damage done by the fear created when the WorldCom news hit the
streets. By late August EDS began to loose its momentum as it
approached the top of its channel consolidating between $37 and
$40.

The next shoe to drop came in the form of an earnings warning.
This was not your everyday earnings warning. In an after hours
conference call on September 18th, company officials caused the
bottom to fall out, telling investors they expected a third
quarter profit of just $0.12 to $0.15 per share, compared to
the consensus estimates of $0.74. The announcement produced a
$14 gap down at the start of trading the following morning.
The price continued to plummet to a low of $11.68 over the next
four sessions. The company did manage to muster profit of $0.18,
when they announced third-quarter results at the end of October.

This past Monday another potentially negative hurdle surfaced for
the IT services company.  Care to guess where this one came from?
UAL Corp. UAL’s bankruptcy announcement will force EDS to shave
5 cents per share from its fourth-quarter earnings.  EDS will
take a charge to write down the value of some investments in
aircraft leases with UAL. Now here’s the exciting part, EDS did
trade lower on the day, but the losses were negligible compared
to the earlier warnings, and frankly we view that as a positive
for our new play. EDS Chairman, Dick Brown, was out doing damage
control as he spoke at a meeting for industry analysts on Monday.
Brown said his company remains “rock solid”, which probably helped 
prop up the price of company shares. Rumors circulated
early in the week concerning a deal between EDS and Bank of
America. The deal could be huge for EDS as it is the first
multibillion-dollar contract won since their warning in
September.  Thursday, EDS and BAC announced a 10-year deal,
worth $4.5 billion.  Essentially, EDS will help Bank of America
transform its voice and data network systems.

The past two months EDS has formed a solid base between $13 and
$15. A succession of higher lows and higher highs has began to
appear.  The volume on the move higher has not been stellar,
however advances have come on average or better volume which
further supports our bullish outlook. The technical picture has
improved with stochastics and MACD beginning to point north as 
well.  This week the investors pushed the price of EDS shares
through resistance from earlier this month at $18.98.  We realize
stocks don’t go straight up or down, however there is little
overhead resistance until the $27 to $30 area, which happens to
be the top of the current channel. There are several different
strategies that can be considered when entering our new play.
Investors looking for a consolidation or pullback from current
levels may consider a bounce off support between $16 and $17 for
their entry.  Others are outlined below:


     
Option 1.  Purchase EDS stock at the current level and purchase
one June $15 or $17.50 Put for every 100 shares of stock
purchased. If the stock is under $15.00 by June expiration, then
exercise the put and sell the stock. In the event you are still
bullish on the stock, you may consider taking whatever profit you
have from the original put and roll down, buying another put six
to nine months out, however this strategy can increase your
breakeven level substantially.

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 $10.00 LEAP Calls were priced at $10.60
and $11.20 respectively.  For those that want added protection,
the purchase of one June $17.50 or $20.00 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 EDS stock at the current level and wait
for the stock to move higher. Once you feel EDS has reached
a point of consolidation or are expecting a pullback, buy 1
$20 Put or a $17.50 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 EDS falls below support between
$14 and $15.00.

Electronic Data Systems (EDS) Weekly Chart


 


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

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

CALLS              Mon    Tue    Wed   Thu  Week

CPS      38.91    0.46   1.22   0.76 –0.09  1.31  above breakout
CTXS     12.09   -0.26  -0.13  -0.12  0.05 –0.82  holding $12
IDPH     33.43    0.77  -0.43   0.05  0.63  0.88  Drop, fading
ISSX     22.30   -2.05   1.41  -0.83  1.62  0.35  New, strong
MERQ     30.31   -0.80   0.99   1.37  0.32  0.70  Over support
OMC      66.91   -2.34   1.88   1.13  0.42 –0.65  need 200-dma

PUTS

AIG      59.00   -0.68   1.18   0.87 –1.57 –1.25  PnF breakdown
DLX      41.00   -1.26  -0.22  -0.37  0.13 –2.71  Below support
MMM     121.77   -2.06   0.75  -0.39 –1.06 –4.34  Through 200-dma
RKY      61.49   -0.48   0.13  -0.88 –0.87 –3.91  New, quick drop
ROOM     59.45   -0.92  -1.72   1.19 –0.74 –5.72  New, bad bounce


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

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

ISSX - Internet Security Systems - $22.30 +0.25 (+0.15 for the 
week)

See details in play list




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

MMM – 3M Company $121.77 (-4.33 last week)

See details in play list




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

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


CALLS
^^^^^

IDPH $33.43 -1.41  (+0.82 for the week) IDPH appeared on the 
verge of a breakout after trading above $35 and starting into its 
gap.  While most of the market pulled back today, IDPH lost over 
4% and if we were picking it today, we would not view it as a 
call candidate.  The positive results from the recent Rituxan 
study have not been able to help the stock crack the $35 level.  
While the stock hasn't broken down, it appears to be out of gas 
on the current run.   Without getting the ideal entry point for 
conservative traders, we are simply going to let this one go. 
We don't like dumping a stock after one day on the list, but the 
pull back was strong enough from a significant level that it 
shook our faith. Traders who would like to give it a little more 
time can look for support at $31 as a breakdown signal.


PUTS
^^^^

None


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

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

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

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

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

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

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


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**********

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The Option Investor Newsletter                   Sunday 12-15-2002
Sunday                                                      3 of 5


In Section Three:

New Calls: ISSX
Current Calls: MERQ, CPS, CTXS, OMC
New Puts: RKY, ROOM


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

ISSX - Internet Security Systems - $22.30 +0.25 (+0.15 for the 
week)

Company Summary:
Internet Security Systems (ISS) is a world leader in software and 
services that protect critical information assets from an ever-
changing spectrum of threats and misuse. Software from Internet 
Security Systems dynamically detects, prevents and responds to 
sophisticated threats to networks, servers and desktops. Services 
include 24/7 system monitoring, emergency response and access to 
the X-Force, Internet Security Systems' renowned research and 
development team. Internet Security Systems is the trusted 
security provider for more than 10,000 corporate customers, 
including all of the Fortune 50, the top 10 largest U.S. 
securities firms, 10 of the world's largest telecommunications 
companies and major agencies and departments within U.S. local, 
state and federal governments. Headquartered in Atlanta, Ga., 
Internet Security Systems has additional operations throughout 
the Americas, Asia, Australia, Europe and the Middle East. 
(source: company summary)

Why We Like It: 

ISSX is the classic example of a company benefiting from the 
recent surge in internet security spending.  The company has 
already made inroads with the U.S. government, having been 
selected by the United States Department of Health and Human 
Services for comprehensive security protection across 12 
divisions of the department, following a partnership with 
Northrop Grumman. Merrill Lynch estimates that the computer-
security market will grow 11% a year over the next five years, 
from $9.8 billion in 2002 to $15 billion in 2006.  The stock saw 
its price target raised to $24 today by Lehman, which gave ISSX 
an 'overweight' rating and said the company was well-positioned 
for growth in 2003 due to a new product cycle and growing 
momentum for intrusion protection software.

While we've learned not to trust everything an analyst says, the 
price action in ISSX seems to confirm the bullish sentiment in 
the market for the stock. ISSX bottomed out just over $11 back in 
September, before taking off on a run to $25.  The stock pulled 
back to its 50-dma, currently $19.86, a week ago, where it 
bounced and has been climbing higher ever since.  ISSX has been 
impervious to the recent broad market sell-off the last couple of 
days, posting more than a 10% gain, in spite of a 156-point drop 
in the Dow and a 50-point drop in the Nasdaq.  A look at the 
point and figure chart shows ISSX having pulled back to its 
ascending triple top breakout level and now reversing back up 
into a column of "X."  The current bullish vertical count is 
$30.50, indicating plenty of room to run if the stock can make it 
past its recent top just under $27.  Even if it struggles at that 
level, we'll still be happy with a gain of over $4.  Our initial 
target on the stock will be that recent top, but our eventual 
goal will be fulfillment of the $30 count.  We will enter the 
play at the current level, however more conservative traders can 
look for a move above the 21-dma of $22.99 with a trade of $23. 
Place initial stops at $19, just below the 50-dma and recent 
support. 

*** December contracts expire next week ***

BUY CALL JAN-22.50*ISU-AX OI= 734 at $2.30 SL=1.15
BUY CALL JAN-25.00 ISU-AE OI=1454 at $1.30 SL=0.65
BUY CALL APR-22.50 ISU-DX OI= 734 at $4.20 SL=2.10
BUY CALL APR-25.00 ISU-DE OI= 228 at $3.30 SL=1.65

Average Daily Volume = 515 K



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

MERQ - Mercury Interactive - $30.31 -1.19 (+0.29 for the week)

Company Summary:
Mercury Interactive, the global leader in business technology 
optimization (BTO), delivers Optane(TM), a suite of integrated 
products for enterprise testing, production tuning and 
performance management, that enables customers to optimize 
business processes and maximize business results. Customers 
worldwide -- including 75% of the Fortune 500 -- use Mercury 
Interactive solutions across their application and technology 
infrastructures to continuously measure, maximize and manage 
performance at every level of the business process and each stage 
of the application lifecycle to improve quality, reduce costs, 
and align IT with business goals.

Why We Like It:
Ouch!  The entire market suddenly turned defensive on Friday as 
traders chose not to hold some positions over the weekend due to 
the higher geo-political risk.  What does that mean in English?  
It means Wall Street is ready and willing to take some money off 
the table, we mean a whole lot of it, should the war in Iraq 
start soon or the North Koreans continue to thumb their noses at 
the U.S. over their nuclear plans.  The NASDAQ fell, as did the 
GSO software index.  The later was probably due to the big drop 
in MSFT, the biggest software component of the group, which will 
lead the group and thus affect shares of MERQ.  Shares of MSFT 
fell sharply and closed below both its 50-dma and the 200-dma.  
Why the drop?  We don't know.  We doubt it was the new Windows 
vulnerability warning that came out late Thursday night.  More 
likely it could be the rumors that MSFT is interested and a 
potential buyer for Borland Software and Rational (RATL) 
software.  Yup, the same RATL that IBM just agreed to buy a few 
days ago.  What are the odds of IBM and MSFT getting in a bidding 
war?  Does MSFT see IBM's move as serious competition?  We can't 
answer these questions today but the drag on the sector was felt 
in MERQ with a 3.7% drop.  Our play managed to maintain support 
at the $30 level but we would be hesitant to jump into new 
positions right now.  Let's wait and see what happens over the 
weekend and how Wall Street opens on Monday.  If shares begin to 
bounce, then evaluate a new position.  A move above $32.00 would 
evidence a strong recovery and new entries can target that level 
to initiate the play. 

*** December contracts expire next week ***

BUY CALL JAN-30*RQB-AF OI=2441 at $3.10 SL=1.55
BUY CALL JAN-35 RQB-AG OI=4169 at $1.25 SL=0.00
BUY CALL APR-25 RQB-DE OI= 255 at $8.60 SL=4.30
BUY CALL APR-30 RQB-DF OI=1846 at $5.70 SL=3.00

Average Daily Volume = 3.96 mil


---

CPS – ChoicePoint, Inc. $38.91 (+1.08 last week)

Company Summary:
ChoicePoint is a provider of identification and credential
verification services.  The company provides risk management
and fraud prevention information and related technology solutions
to the insurance industry.  CPS also offers risk management and
fraud prevention solutions to organizations in other industries.
The company operates its business through two primary service
groups, Insurance Services, and Business & Government Services.
The Insurance Services group provides information products and
services used in the underwriting, claims and marketing
processes by property and casualty insurers.  The Business &
Government Services group provides information products and
services and direct marketing services primarily to Fortune
1000 corporations, consumer finance companies, asset-based
lenders, legal and professional service providers, healthcare
service providers and federal, state and local government
agencies.

Why We Like It:
Be careful what you wish for, you just might get it.  When we
began coverage of CPS last week, we were looking for confirmation
of the stock's recent breakout with a dip back to that breakout
level followed by a rebound.  Well, based on Friday's action, it
looks like we're going to get our wish, as the stock gave up more
than 2.5% to fall back slightly under the $39 level.  While this
is the top of the breakout area, the support (former resistance)
doesn't really start to become significant until the stock pulls
back into the $38.00-38.50 area.  A rebound from that vicinity
should make for a solid entry point into the play, with strong
confirmation coming with a subsequent rebound over last week's
highs near $40.30.  In the meantime, CPS seems to be at the mercy
of the direction of the broader market, and for now that appears
to be gradually down.  Demonstrating the lack of conviction
behind Friday's drop was volume which only came in around 60% of
the ADV.  Not an excess of sellers, just a lack of buyers.  CPS
generated a powerful triple-top breakout on its PnF chart last
week when it cleared the $39 level, and barring a major negative
news event, that bullish setup should continue to keep the bulls
interested.  Traders that prefer to enter on strength will need
-to wait for a volume-backed move through the $40.50 level (just
above last week's intraday highs) before taking a position.  Our
stop remains at $37, just below the ascending trendline that has
supported the stock for the past 2 months.

*** December contracts expire next week ***

BUY CALL DEC-35 CPS-LG OI=  5 at $4.20 SL=2.50
BUY CALL DEC-40 CPS-LH OI= 30 at $0.50 SL=0.25
BUY CALL JAN-35 CPS-AG OI= 25 at $4.70 SL=2.75
BUY CALL JAN-40*CPS-AH OI=139 at $1.85 SL=1.00

Average Daily Volume = 515 K


---

CTXS – Citrix Systems $12.09 (-0.91 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:
To say that last week's market action was lackluster would be an
understatement, as the major averages churned their way slightly
lower but without any conviction.  Such would be an apt
description of our CTXS play as well, with the stock drifting
lower, but without any conviction.  Despite the fact that there
wasn't enough selling pressure to break any important support
levels, neither was there enough buying interest to give us a
decent bounce.  There was the sharp dip and rebound Wednesday
morning, but that was more of an anomaly than a real move. 
Suffice to say, CTXS managed to creep its way right down to the
bottom of the channel that has been supporting the stock's rise
since late October.  To be fair, the stock actually drifted
through the bottom of the channel on Friday, as the channel rose
to the $12.20 level.  But the $12 level continued to provide
support throughout the day.  This still looks like an attractive
level to initiate new positions, as the 20-dma (currently $11.66)
rises to provide additional support.  Clearly, this stock is
going to need some renewed buying interest in the Technology
sector to get moving northwards again, and that lack of buying
volume (rather than heavy selling) is in large part responsible
for the stock's lackluster performance last week.  While new
entries near current levels provide a solid risk/reward ratio
(with our stop still set at $11.50), we really would prefer to
see CTXS charge back into its ascending channel on stronger
volume before taking a position.  More conservative traders will
still want to wait for a convincing move over $12.90 before
playing.  Those looking to trade another breakout move (not our
favorite strategy for this stock) will need to wait for a
volume-backed move through $13.50.  Regardless of your entry
strategy, look for confirmation from a rising NASDAQ.

*** December contracts expire next week ***

BUY CALL DEC-10 XSQ-LB OI=2604 at $2.15 SL=1.00
BUY CALL DEC-12 XSQ-LV OI=3262 at $0.35 SL=0.00
BUY CALL JAN-12*XSQ-AV OI=1696 at $1.00 SL=0.50
BUY CALL JAN-15 XSQ-AC OI=1531 at $0.30 SL=0.00

Average Daily Volume = 3.73 mln


---

OMC – Omnicom Group $66.91 (-0.99 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:
So you say the action of the past week has left you confused and
not knowing which way to jump?  Judging by the price action in
shares of OMC, you aren't alone.  On November 14th, the stock
broke out above the $66 level, clearing the August highs and
making a convincing case that it wanted to run higher.  Here we
are one month later, and the stock closed at $66.92, for a
whopping 61-cent gain.  Over that period of time, OMC has traded
down to the $64 level and then as high as $70.50, but neither the
bulls or the bears have had sufficient conviction to break out
of this range.  Since the PnF chart is still quite bullish, with
the current vertical count of $86, we have a couple of different
ways to play.  Bargain-hunters can look to initiate new positions
on successful rebounds from the $65-66 area in anticipation of a
successful breakout to the upside.  On the other hand, momentum
traders will want to see a breakout over the $71 level (which
would generate another PnF Buy signal) before committing cash
to the trade.  The thing that is creating so much overhead
resistance is that pesky 200-dma, which has now fallen to $69.06.
Note that this moving average capped the rally on December 2nd
and then again this past Wednesday.  While a successful breakout
over the 200-dma will still have to contend with mild resistance
just over the $70 level, such a breakout should generate more
buying and get us out of this range.  Of course, on the off
chance that the bulls just plain run out of gas and OMC falls
back through support, we've got our stop in place at $64.  Not
only would that break the current range in a bearish manner, but
it would also generate a PnF Sell signal, negating the current
bullish price target.

*** December contracts expire next week ***

BUY CALL DEC-65 OMC-LM OI=1568 at $2.80 SL=1.50
BUY CALL DEC-70 OMC-LN OI=2417 at $0.55 SL=0.25
BUY CALL JAN-65*OMC-AM OI=1857 at $4.90 SL=3.00
BUY CALL JAN-70 OMC-AN OI=8480 at $2.35 SL=1.25

Average Daily Volume = 2.40 mln



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

RKY – Adolph Coors Company $61.49 (-3.89 last week)

Company Summary:
Adolph Coors is a producer of beer, with a portfolio of brands
designed to appeal to a wide range of consumer taste, style and
price preferences.  In addition to its principal subsidiary,
Coors Brewing Company, the company also owns a brewer in the
United Kingdom, Coors Brewers Limited, and has brewing and
packaging facilities in Virginia and Tennessee.  RKY owns
major facilities in Colorado to manufacture aluminum cans and
ends, as well as bottles and is a partner in ventures that
operate these plants.  Historically, RKY's beverages have been
sold throughout the United States and in select international
markets.

Why We Like It:
You know the economy is really having problems when "Joe Six
Pack" is cutting back on his weekly brew consumption.  If the
price action of the major beer breweries is any indication, the
economy isn't healthy.  RKY moved to a new yearly high in late
October, stalled out and has been sliding down the slippery
slope of hope ever since then.  Last Tuesday things started to
unravel when the stock broke below the 50-dma (currently $64.99)
and it went from bad to worse on Thursday with the violation of
the 200-dma (now at $63.20).  Just to cap off a rather dismal
week for the bulls, RKY dropped below $62 on Friday, extending
the column of O's on the PnF chart, removing the possibility of
a bear trap.  The Sell signal from last week projects down to
$55 and now that the October 21st gap has been filled, that
level looks like a definite possibility.  While there is some
mile support in the $60-61 area, the next real firm level of
support appears to be down at $58 and then $56, the site of the
October lows.  Due to the various levels of support arrayed
between here and our eventual target of $55, the best entries
are likely to come from a failed rally near resistance.  The
$63.50-64.00 area looks like pretty solid resistance and that
would be our choice for an entry on a failed rally.  We are
initially placing our stop at $65, the top of last Tuesday's
gap and the site of the 50-dma.

*** December contracts expire next week ***

BUY PUT DEC-65 RKY-XM OI= 31 at $3.80 SL=2.25
BUY PUT JAN-65 RKY-MM OI=180 at $4.60 SL=2.75
BUY PUT JAN-60*RKY-ML OI=208 at $2.05 SL=1.00

Average Daily Volume = 386 K


---

ROOM – Hotels.com $59.45 (-5.80 last week)

Company Summary:
Hotels.com is a provider of discount hotel rooms and other
lodging accommodations, allowing customers to select and book
hotel rooms in major cities through the company's websites and
its toll-free call centers.  ROOM contracts with hotels in
advance for volume purchases and guaranteed availability of
hotel rooms and vacation rentals at wholesale prices and sells
these rooms to consumers, often at discounts to published rates.
In addition, its hotel supply relationships often allow the
company to offer its customers hotel accommodation alternatives
for otherwise unavailable dates.  At the end of 2001, ROOM had
room supply agreements with over 4500 lodging properties in 178
major markets in North America, the Caribbean, Western Europe
and Asia.

Why We Like It:
While clearly not the only cause, UAL's failure to secure a
government loan guarantee has cast a pall over the travel
industry, with weakness being felt throughout the leisure "food
chain".  What appears to be an even larger factor is the
realization by investors that people just aren't traveling that
much, leaving a glut of supply in this industry just like so
many others.  It was only a couple short weeks ago that ROOM
broke out over the $70 level and posted a new all-time high of
$75.  Then, like Wile E. Coyote after running off the edge of
the cliff, the stock has been plummeting, partially due to broad
market weakness and other warning signs from the overall economy.
While not a major factor, there was the slight downgrade from
Pacific Crest Securities on Tuesday.  Following the downgrade,
ROOM traded down to the 50-dma near $61, found support and
rebounded back above $63.  But that's as good as it got.  The
wind had been taken out of its sails, and with the broad market
weak on Friday, ROOM fell below $60, finally generating a new
PnF Sell signal, and due to the long column of O's necessary to
create the signal, it's a whopper!  ROOM came to rest just below
$60 on Friday and the PnF price target is currently $44. 
Friday's selloff violated the 50-dma in a big way and now the
200-dma is the only one currently capable of providing support,
and it is clear down at $53.  Aggressive traders can consider
new entries on a break below the $59 level next week, while more
patient traders will want to wait for a failed rally in the
$61-62 area.  That level of resistance will now be reinforced by
the 50-dma.  We are initially setting our stop at $63, just above
Friday's intraday high.

*** December contracts expire next week ***

BUY PUT DEC-60 URD-XL OI= 944 at $2.20 SL=1.00
BUY PUT JAN-60*URD-ML OI=2044 at $4.90 SL=3.00
BUY PUT JAN-55 URD-MK OI=1722 at $2.80 SL=1.50

Average Daily Volume = 896 K




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The Option Investor Newsletter                   Sunday 12-15-2002
Sunday                                                      4 of 5


In Section Four:

Current Put Plays: AIG, DLX, MMM
Leaps: Still Undecided
Traders Corner: A Strangle For Midgets With Brass
Traders Corner: Of Chickens and Eggs:  Technical Analysis and 
Fundamentals


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orders based on the price of the option or stock offers 
online spread order entry for net debit or credit offers fast 
option executions

PreferredTrade offers these online option trading features and 
more; call 1-888-889-9178 or click for more information.

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


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

AIG - American International Group - $59.00 -1.09 (-1.49 for the 
week)

Company Summary:
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:
Breakdown!  The technical picture for AIG has been deteriorating 
for nearly two weeks.  First, shares rolled over from the 200-
dma.  This was followed by a break under the 50-dma ($62.59) and 
bullish support on the p-n-f chart (along with a tasty triple-
bottom sell signal).  The bulls managed to prop the stock up 
after it initially moved under support at $60.00, but were 
quickly turned back at the 50-dma.  This bearish trend led to 
Friday's 1.8% decline, which took shares to fresh relative lows.  
AIG underperformed both the Dow Jones and IUX.X insurance index 
after stair-stepping lower throughout the session.  With the 
stock now trading below the $60.00 congestion area, we'll be 
looking for shares to continue to retrace the mid-October rally 
and fall towards $52.00.  Shorter-term traders can think about 
closing positions if AIG bounces from the $55.00 area.  Those 
looking for new positions can target another rollover from $60.00 
or a move below $58.86, but be aware that the late-September 
highs near $58.00 may provide support.  Our stop has been lowered 
to $62.76, slightly above the 50-dma.

BUY PUT JAN-60 AIG-ML OI=19542 at $3.50 SL=1.75
BUY PUT FEB-60 AIG-NL OI= 2741 at $4.50 SL=2.25

Average Daily Volume = 6.44 mln


---

DLX - Deluxe - $41.00 -0.99 (-2.81 for the week)

Company Summary:
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:
It looks like our patience has been rewarded.  We added this 
short play when DLX fell to multi-month lows, just before the 
stock rebounded and retraced its late-November losses.  But as we 
had hoped would be the case, the 200-dma near $44.00 provided a 
ceiling.  The past week has seen shares trend lower after rolling 
over from that moving average.  The decline accelerated today 
after shares sold off from short-term support/resistance at 
$42.00.  Shares underperformed the broader market and moved below 
$41.00 for the first time since early August.  The daily chart 
shows no clear support until $37.00.  But as much as we'd like to 
see a swift decline to that level, the stock will first have to 
break below its descending regression channel.  If the current 
downtrend remains intact, DLX could fall to psychological support 
at $40.00, get a brief pop, and then roll over near $41.50.  A 
wholesale violation of the $40.00 level would be decidedly 
bearish.

BUY PUT JAN-45 DLX-MI OI=163 at $4.40 SL=2.20
BUY PUT JAN-40 DLX-MH OI=320 at $1.65 SL=0.80

Average Daily Volume = 370 K


---

MMM – 3M Company $121.77 (-4.33 last week)

Company Summary:
Commonly known as the maker of the ubiquitous, adhesive-backed
Post-It Notes, MMM is also a leading manufacturer of a variety
of industrial, consumer, and medical products.  Reflective
sheeting on highway signs, respirators, spill-control sorbents,
and Thinsulate brand insulations are just some of the company's
industrial products.  MMM also makes microbiology products,
making it easier for food processors to test for the
microbiological quality of food.

Why We Like It:
Mmm, mmm, good!  That was the sound the bears were making on
Friday as they inflicted some significant technical damage on
shares of MMM.  We initiated coverage of the stock on Thursday,
as it had been trading rather weakly and looked like it was
about to fall through the 200-dma just above the $123 level.
That breakdown didn't take long at all, as MMM opened in the
red, fell through $123 early in the session and one failed
rebound below that level continued southward right up until
the close.  While the price loss was fairly small at $1.88,
the technical damage is more significant.  As we've already
stated, the stock broke the 200-dma, and then fell below the
$122.72 level (38% retracement of the rally off the October
lows) and then came to rest right at the top of the October
15th gap.  If that gap (the bottom of which is $120.95) fails
to support the stock, then we could be treated to a drop all
the way back to $116, the level from which the October rally
commenced.  Traders that missed out on today's entry point will
need to look for a failed bounce near the 200-dma, or possibly
as high as $125 to provide entry.  Due to the sometimes-volatile
nature of MMM, we're going to leave our stop rather wide up at
$127 this weekend in case of a bounce early next week.

*** December contracts expire next week ***

BUY PUT DEC-125 MMM-XE OI=4472 at $3.90 SL=2.50
BUY PUT JAN-125 MMM-ME OI=4400 at $6.10 SL=4.00
BUY PUT JAN-120*MMM-MD OI=6236 at $3.70 SL=2.00

Average Daily Volume = 2.73 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.

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


*****
LEAPS
*****

Still Undecided
By Mark Phillips
mphillips@OptionInvestor.com

For all the false starts and reversals last week, you'd think we
would have gone somewhere.  But neither the bulls or the bears
were able to garner a firm advantage, leaving us with the net
result that the market drifted lower to post its second
consecutive weekly close in the red.  After the drop on Monday,
the market basically went up a little and then down a little,
ending near the low end of the weekly range.

While there is strong support not too far below where we came to
rest on Friday (445 for the OEX and 8350 for the DOW), there
hasn't been enough selling pressure to give us a decent test.
On the other hand, each fractionally lower low is being met with
just enough buying to keep the market from falling, but not
enough to break the string of lower highs.  The result is that
we continue drifting lower until the immovable object (support)
meets the irresistible force (selling pressure).  My gut feel
says the result will be a decent oversold rally, but the
evidence for that 'gut feel' certainly isn't present in the
charts.

Proving that we all get egg on our face on a regular basis when
trying to prognosticate the market's future (hence the moniker,
The Great Humiliator), all my analysis and trendlines last week
were for naught.  The market gapped down on Monday and that
perceived support was toast.  The only thing I see that gives a
slight (very slight) nod to the upside next week (other than
seasonality and triple-witch expiration) is the fact that the
fear shown in the VIX early in the week has been slowly melting
away.  I guess that 36 level really was a meaningful level of
resistance.  After reversing from a high of 35.58, the VIX fell
as low as 30.38 on Thursday before coming to rest at 32.12.  Note
that the VIX closed again just slightly above the 200-dma of the
VIX at 31.73.  Coincidence?  I think not!  Even the VIX is
confused about what to expect next.

Recall that last week I was looking for a break of the ascending
trendlines on the major indices and a breakout in the VIX to
tell me that my forecast was wrong.  While we got the breakdown
in the market, the VIX clearly didn't cooperate.  That leaves
us with mixed signals.  Speaking of mixed signals, the market
was full of them last week.  For months and months, the equity
market and bond market have been trading contrary to one
another -- bonds up, stocks down or bonds down, stocks up.  That
relationship failed to work all week, leaving another question
mark in traders' minds.

The only concrete action that took place last week was that
between the Dollar and Gold.  Thursday's session saw the dollar
index (DX00Y) breaking down hard, falling far enough on Friday
to take out the October low and challenge the lows from July.
There are as many opinions as to the root cause of the dollar's
weakness as there are analysts, but it seems to have been driven
by a combination of geopolitical concerns, as well as a belief
that the US will no longer defend their strong dollar policy,
now that Paul O'Neill has been replaced as Treasury Secretary.

Corresponding to this weakness in the dollar, Gold absolutely
exploded on Thursday and continued to rise on Friday, with the
February futures contract hitting an intraday high of $336.70.
Just for the record, Gold hasn't been that expensive since late
1997!  The yellow metal fell back from its morning high on
Friday, but the important work has already been done.  In the
process of rising to new multi-year highs, the PnF chart of
the composite Gold Futures contract ($GOLD on stockcharts.com)
issued a new Buy signal.  But it isn't just any Buy signal,
it’s a Bullish Triangle breakout, one of the strongest signals
in PnF-land.  At the same time, the XAU index generated another
Buy signal, working ever closer to its current bullish price
target of $94.  Looks like there's still some upside to be had
in gold trades, don't you think?  Needless to say, I'm pretty
pleased with the action we've seen in our NEM play, but more
on that below.

Based on the violation of what I though was strong support in
the OEX near $455, you might think I'd be leaning big-time
bearish heading into next week.  Sorry to disappoint you.  I
think I was a bit too optimistic in my expectation for the $455
level to provide support.  Going back to the daily chart, it
looks like the real line in the sand is going to be near $445,
a level that was repeatedly tested (and held) in late October
and then early November.  I would be very surprised if the bulls
gave up without a fight near that level.  Perhaps that's what
they're waiting for is a successful test of support at that
level before stepping back into the fray.  After resting up for
a couple weeks, I can see the possibility that they're looking
forward to stampeding a few weak-handed bears.  Only time will
tell, and the technicals certainly do not yet warrant siding
with the bulls, at least as far as the broad market goes.

With respect to our individual plays, let's see what's shaking.


Portfolio:

LEN - Much like the rest of the market, LEN spent the week
consolidating and trying to claw its way back over the $50 level.
While Thursday's rebound may have been encouraging to the bulls,
giving most of it back on Friday certainly doesn't look
encouraging.  On the other hand, I'm surprised there hasn't been
more downside follow-through after the stock broke the $49 level.
That quad-bottom breakdown on the PnF chart looks like a bear's
dream, but we need to err on the side of caution.  Until LEN
prints $48, adding another O to the current column, we are faced
with the risk that the breakdown is a bear trap.  The result
should be known soon, but until we see either a breakdown or
bullish reversal, the best course of action is to stand pat.
Since it would take a print of $54 to negate the current Sell
signal, that's where we'll leave our stop.

NEM - Wow!  I thought last week's action was encouraging, but
this week's moonshot was a real treat, with big breakouts in the
Gold Futures and the XAU index helping NEM to really launch
higher at the end of the week.  Wednesday's trade at $27 created
the PnF Buy signal and that combined with the weakness in the
dollar, sent NEM surging north of $29 before the closing bell on
Friday.  To say we have a powerful bullish signal would be an
understatement.  With that said, now is NOT the time to go out
and establish a position in the yellow metal or NEM.  NEM has
surged nearly $6 (25%) in the past 2 weeks.  That is not the time
to be entering long-term positions.  If you missed entering on
the last dip, then wait for the next one.  My expectation is
that we'll see a pullback into the $26-27 area, with historical
support (former resistance) at $26.50 and the 200-dma at $26.88.
Look to establish new positions (or add to existing positions)
on a rebound from that level.  Strong support should now exist
at the $25 level, so that is the new site of our stop.

MO - It certainly isn't exciting like the NEM play was last
week, but we're starting to see some faint signs of recovery in
MO.  There's no huge volume or rush to enter the stock, but this
beaten-down consumer stock is gradually advancing.  The first
obstacle was to get above the $40 level and the bulls
accomplished that last week.  But there is lots of overhead
resistance to push through -- starting with the descending
trendline at $42.50, then historical resistance in the $43-44
area and finally the PnF bearish resistance line at $45.  As if
that wasn't enough, there's the 200-dma, currently just below
$48.  But, I expect MO to slog through each of these resistance
levels in the months ahead -- it's just going to take time.
That's what makes it an ideal candidate for a LEAPS play.  Buy
on the pullbacks, and the next one ought to be coming along
over the next week or so, ideally just below $40, at the site
of the curling higher 50-dma.  

GM - Don't you just love it when a plan comes together?  Our
entry strategy was aggressive, but the market gave us precisely
what we were looking for and it has been a steady downhill slide
for GM ever since.  The first bounce off the 50-dma was
short-lived and it looks like we're going to get another test
next week.  My gut feel is that it will produce another rally
into the $38-39 area, but that's going to be all she wrote.  Then
we'll commence with the downward trend anew.  Of course, we've
still got quite a ways to go before the PnF chart is going to
give us a corresponding Sell signal on the traditional scale.
But if we back out to a larger-scale view with a 2-point box,
we see that GM is still laboring under the Sell signal generated
back in August and September.  The vertical count on that signal
projects down to $12.  We may not get there, but I think it shows
that supply is still very much in control.  I've lowered the
stop to $40 this weekend, ensuring a break-even trade at worst.

BBH - The sideways churn continues.  BBH has been stuck in this
$85-92 range for the better part of two months now, with neither
the bulls or the bears able to garner a meaningful advantage.
All the while, volume has been declining steadily, underscoring
the lack of conviction in this area of the market.  Until this
range breaks, we sit on our hands, hoping for the breakdown
under $85 and protecting ourselves against a breakout with our
stop in place at $93.50.

Watch List:

DELL - As I mentioned on Friday in the Market Monitor, DELL is
creeping closer to giving us a decent entry point.  Ever since
the company announced earnings last month, the excitement has
been deflating out of the stock.  That's precisely what we want
to see so that we can but it on the cheap.  Friday's session
was not kind to the PC stock, as it lost nearly 3%, falling back
to just above the 200-dma.  This is exactly why we didn't want
to rush into a position up near $28.  My expectation is that
DELL will drop back below the 200-dma and likely test the $26
area before catching a meaningful bounce.  In my opinion, the
closer the stock gets to the $25 level, the better the entry.
It would require a print of $23 to break the string of higher
lows on the PnF chart, so that is where we'll place our stop
after entry.

GD - How many different ways can I say "Uh-oh"?  I do not like
GD's drop last Friday.  I do not like it, Sam I am.  Seriously,
I've kept talking about wanting a drop down to the $78 level and
then a rebound.  Well, Friday's 3% loss dropped GD below that
level, and right to a major support level that has held for the
past couple months.  What's not to like?  Well, it's the way in
which price got there.  We've now seen a couple of three-box
reversals higher on the PnF chart, both of which have resulted
in new Sell signals, each of which went lower than the one
before.  Not only that, but Friday's selling volume was the
heaviest in the past 3 weeks.  I took a fresh look at the price
pattern of the past several months, and rather than seeing a
neutral wedge forming over the past four months, I see the
possibility that this is just a sideways consolidation pattern
in preparation for a continuation of what came before.  Well,
what came before was a $30 plunge, and preserving that symmetry,
would suggest a subsequent $30 plunge once the pattern breaks
to the downside.  I may be wrong, and this may turn out to be a
good entry into the play, but I'm not willing to take that risk
without seeing some more constructive price action first.  Place
GD on HOLD, pending future price action.

DJX - Well, I was clearly in too much of a hurry to get this
play on the list.  Either that, or I waiting one week too long.
In all seriousness, I think the timing of adding it was just
about right and now we just have to wait and see whether the
market will deliver to us the entry point we want.  The DJX is
getting awfully close to where I think it has to bounce (near
$83.50) or else things are going to get very ugly for the
bulls.  The strength of that bounce will determine our success
in this play.  I'm now leaning towards the likelihood that the
DJX will top out on the next rally near the $88 level and then
proceed to give us a H&S top.  If that does in fact come to
fruition, we'll be looking at a decline down into the $76 area.
That is the sort of move that will make all the waiting
worthwhile.  Accordingly, I'm lowering our entry target to
$88 this weekend, and if filled, we'll more than likely start
with a stop at $90.50, just above the early December high.

Last week's forecast was for another leg up to get under way
before the market tipped over big time (hopefully) after the
first of the year.  Well, we certainly didn't get any meaningful
upside last week.  Is next week going to be any different?
Well, maybe.  How's that for ambivalent?  In actuality, I think
we are due for a rebound and a pretty decent one at that.  But
I expect it will fall short of the highs posted just 2 short
weeks ago, and that rollover should start the New Years
rollover in earnest.  Hey, I'm no Arch Crawford, but I get one
right from time to time.

I'm taking a week off from adding new plays this weekend, as
the broad market picture is so muddled.  I have my own view of
what I expect, but right now I need to see some confirmation
of that view.  We have a fairly balanced Portfolio and Watch
List, so I think we are well positioned heading into the end
of the year.

My earnest thanks to all those of you that sent me your comments
about changes to the LEAPS column.  For the most part, you told
me to leave it like it is, so that's what I'm going to do.  The
only meaningful change requested was to do mid-week updates to
the LEAPS plays, perhaps in the Market Monitor.  Well, ask and
you shall receive!  I got the ball rolling on that effort on
Friday, and we'll look to continue it from here on out.

For those of you that tuned in, I hope you found my brief
comments in the Market Monitor to be useful.  My plan is to
regularly update plays throughout the week as changing market
conditions warrant.  In addition, if I find something that
looks good for a new LEAPS play during the week, the Market
Monitor will provide a good forum to share that information
with you.  Of course, timing is everything.  After getting off
to a solid start in that forum on Friday, I'll be absent on
Monday, as it is time to give my wife some much-needed
undivided attention.  Well, maybe that isn't an accurate
description -- we're going to Vegas for a long weekend!  I'll
be back on Tuesday.

Have a great weekend!

Mark


LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
None
NEM    10/30/02  '04 $ 30  LIE-AF  $ 3.90  $ 5.60  +43.59%  $25
                 '05 $ 30  ZIE-AF  $ 6.10  $ 8.30  +36.07%  $25
MO     11/13/02  '04 $ 40  LMO-AH  $ 3.90  $ 5.20  +33.33%  $37
                 '05 $ 40  ZMO-AH  $ 4.80  $ 6.30  +31.25%  $37


Puts:
LEN    10/02/02  '04 $ 50  KJM-MJ  $ 8.60  $10.30  +19.77%  $54
                 '05 $ 50  XFF-MJ  $11.20  $14.80  +32.14%  $54
BBH    12/02/02  '04 $ 85  KBB-MQ  $12.10  $13.00  + 7.44%  $93.50
                 '05 $ 80  XBB-MP  $14.40  $14.60  + 1.39%  $93.50
GM     12/02/02  '04 $ 35  LGM-MG  $ 5.20  $ 6.80  +30.77%  $40
                 '05 $ 30  ZGM-MF  $ 5.50  $ 6.70  +21.82%  $40



LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

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


PUTS:
DJX    12/08/02  $88           DEC-2003 $ 88  ZDJ-XJ
                               DEC-2004 $ 88  YDJ-XJ



New Portfolio Plays

None

New Watchlist Plays

None

Drops

None


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




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

Of Chickens and Eggs:  Technical Analysis and Fundamentals
 
The word "speculator" is derived from the latin speculare, 
meaning "to spy or to observe".  There are countless types of 
speculators in the financial markets, and what distinguishes them 
tends to be their methodology-  what is the object of their 
speculation?  Well, we can distinguish between two broad 
categories-  technical speculation and fundamental speculation.
 
Technical traders watch the charts.  Technical analysis ("TA") is 
premised on the assumption that everything is reflected in the 
charts.  While the most rudimentary focus of TA is price, the 
possibilities are endless, and chartists have come a long way 
since W.D. Gann first drew his crisscrossing angles by hand 
projecting from high and low points on the graphs.  We chart 
complex ratios and measure their rates of change with exponential 
moving averages and oscillators.   The big boys and hedge funds 
hire applied mathematicians for a king's ransom and all the 
trims, to design "black box" models that don't sweat, get greedy, 
and only occasionally panic (Jim's "Attack of the Program 
Trades").  Going by memory, we've seen months this year when over 
40% of all the trades executed on the NYSE were fired off by 
machines.
 
Fundamentalists, on the other hand, focus on company and economic 
data as a means of determining valuation, and then seek to 
exploit divergences between actual price and idealized 
valuation.  Their argument against TA is that a chart can't 
possibly predict the future, and "gaming the tape" is little more 
than gambling.  They watch the news, they play "what if" scenario 
games, and they are the most interesting people with whom to chat 
at parties.
 
This year has been revelatory for many traders, as investor focus 
was drawn to accounting scandals, countless revisions of 
government data, and the gap between GAAP and pro forma numbers.  
What's a trader to do?  Is it fundamentals or technicals that 
ultimately drives price?  The consensus in the mainstream media 
is that the market is a "discounting mechanism" that anticipates 
conditions 6 months out.  I have difficulty rendering that model 
even remotely profitable, and in fact, tend to think the reverse 
- that the market is the driver of news in the short to medium 
term.  The University of Michigan consumer confidence numbers are 
a very simplistic example.  Ignoring the methodological flaw in 
attempting to gauge US consumer confidence from a telephone 
survey of a few hundred subjects, one must nevertheless conclude 
that a consumer whose retirement account has lost 5% of its value 
in the past 2 weeks will be less confident than one who's account 
has grown.  Yet, this trailing indicator moves markets in the 
present, the instant of its release.
 
The market is thus a complex feedback system, and the job of 
traders is to try to anticipate what the crowd will do.  The very 
decisions of the crowd become part of the pricing mechanism that 
determines what the crowd will see and do  next.  The fact that 
the crowd is bidding a stock will attract additional bids, and 
the same when it offers a stock.  Thus the hysterical buying and 
selling seen at significant tops and bottoms, and the 
understandable fear of bears to short overvalued, money-losing 
stocks such as YHOO and AMZN in their gogo-days (daze).  Despite 
stratospheric valuations, the negative balance sheets, and an 
irritatingly exuberant "what me worry" culture, dotbomb companies 
marched ever higher, as traders relied on the "greater fool 
theory" and bidded the Nasdaq to record highs, day after day for 
week after week.
 
I believe it is impossible to time the markets with any degree of 
success on a purely fundamental basis.  When, for example, the 
weekly oscillators have bottomed and are pointed up, traders are 
often astounded (at least the dozens who emailed me during the 
October rally) by the "bad news is good" phenomenon.  Quite 
simply, the markets want to go up, having been sold off too 
heavily, and run-of-the-mill bad news cannot overcome the 
"technical" pressure.  The technical indicators are reproducing 
faithfully the minutiae of the crowd's behaviour, and, like a 
school of fish following each other in a simple pattern but 
seemingly random direction, one can nevertheless attempt to 
predict "turns" or significant changes of direction using these 
precise measuring tools.  The particular news prevailing at those 
moments is clearly of secondary importance as the market "does 
its thing", where even days earlier similar news would have had a 
massive impact. 
 
Going beyond the "good news is bad / bad news is good" dilemma, 
another example of the inconsistencies to which fundamental 
analysis falls prey is found in the market's inconsistent scaling 
of stock valuations.  Why is a valuation of 1000x future earnings 
tolerated in one market environment while a valuation of 10x will 
be sold off in another?  The facile explanation of "future 
expectations and optimism" is awfully light to carry some of the 
astounding market capitalizations we've seen since Y2K.  Simply 
put, the market cannot be understood by fundamental analysis on 
its own, or at least not readily, accurately and easily enough to 
be meaningful for individual traders such as we are.
 
Technical analysis is therefore required.  Why does it work so 
well where fundamental analysis fails?  As noted above, it's the 
most accurate means of measuring the past and the present.  It 
helps, though, that market technicians and the "black boxes" they 
devise tend to follow or at least take cognizance of the same 
types of indicators and measurements.  While I believe in 
Fibonacci's Golden Sequence, one needn't be spiritual to use it, 
particularly because each and every trader is aware of it, if not 
actually watching the retracement levels.  No wonder those 
lines, and all the other technical indicators we all follow work-
  they're self-fulfilling prophesies.  More than this merely 
psychological explanation, however, I believe as well that 
history tends to repeat itself, as Gann said.  Reversion to the 
mean is a principle that is implicit in most every tool of TA.
 
TA is not a mechanism for telling the future, but rather the most 
accurate method by which we can view the past and the present.  
From this simple fact emerge some of our most valuable rules:  
Never anticipate a signal.  Trade only what you see.   Do not 
overfocus, and adopt a broad view.  By being methodical in one's 
method of viewing the past and the present, one can begin to 
"remember" the future, and it is here that fundamental analysis 
comes into play.
 
Going beyond merely technical indicators, in order to understand 
the longer term price movements and trends, I submit that the 
best way to model the market is as a liquidity meter.  When money 
and/or credit are plentiful, we can expect higher prices.  When 
excess liquidity gets channeled into particular sectors, we get 
bubbles.  The market is simply too complex to reduce one's focus 
to fundamentals versus technicals, and the trader has no choice 
but to follow everything possible.  It is here that one must be 
cognizant of money flows, and again, this is a technical issue, 
measured precisely on our charts.
 
The holy grail of every trader is to anticipate future moves.  It 
is this hunger which the media exploits in its constant barrage 
of leading and misleading messages.  Without showering you with 
examples of bad advice from the financial media, I will only 
stress that it is not the message that the wise trader notes, but 
rather the fact of the message that is significant.  It is not 
the that INTC was upgraded that I might find significant, 
but rather the timing of the upgrade- at what point on its chart 
the upgrade came.  When you begin keeping track of upgrades and 
downgrades, it becomes apparent that there is a tendency to 
upgrade stocks that are topping out or rolling over-  they rarely 
if ever get upgraded at the bottom.  A wise trader will smell 
"distribution" when a toppy stock gets upgraded, then will follow 
the chart and the oscillator, and get ready to short the 
inevitable decline.  As Joe Granville put it, News is of little 
or no value in playing the market game successfully. News is 
generally for suckers. It misleads more often than it guides. It 
creates mistimed fears, which provoke selling at the wrong time, 
and raises hopes, which encourages buying . . . at the wrong 
time.  The reason why news has very little relationship to what 
the market is going to do is simply because the market is moving 
on tomorrow's news, and thus the current news is a stale factor 
to the market.
 
I believe that statement to be an oversimplification.  Obviously, 
an airplane colliding with a building is vital and timely market 
news.  The market is moving on every input imaginable in the 
shorter time frames, but over time, if forced to select a single 
variable, one would have to conclude that liquidity is the key- 
when there is more of it, the market rises and when there is 
less, it falls.  Should investors completely avoid fundamental 
analysis and news entirely?  Many technicians do just that.  
While GE's financial media property, CNBC, spins the news with 
its relentlessly bullish bias (one of my favorite technicians 
refers to CNBC as the world's longest running infomercial), there 
is no room for spin on a chart, where the only talking is done by 
money.  Nevertheless, I continue to follow the news, and my own 
view has evolved to treat fundamental analysis as an invaluable 
tool in identifying broad trends to inform my own TA.  Without a 
broad understanding of the macroeconomic environment, a trader is 
left without the tools to anticipate the broad trends that 
eventually resolve themselves into trades.  I find it very 
difficult to trade without some kind of a bias.  In 1999 it was 
generally bullish, and in 2002 it's been generally bearish.  Most 
importantly, however, it is fundamental analysis that should 
guide the technician to the specific sectors and issues within 
the market that are likely to be impacted by liquidity flows.  
Based on non-technical indicators such as Jim's declining 
"Parking lot index", the increasingly aggressive financing offers 
from auto makers and relentless advertisements for same, the 
incredible boom in auto and home purchases over the past year, 
and the multi-decade low interest rates, a technical trader will 
casting attention on homebuilders, automakers, retailers, and 
consumer credit lenders, for starters.  It certainly beats 
watching the various market "heatmaps" to try to get a clear 
read.
 
More than anything, however, it is essential that each trader be 
consistent in his or her methodology.  The goal is to make 
money.  If following the news works, don't stop.  If ignoring it 
works, ditto.  My own trading has improved significantly since I 
began attempting to understand global financial trends and to 
follow the news, but I've learned not to trade on it 
exclusively.  And, of course, I wouldn't dream of entering a 
trade without knowing what the charts were saying across 
different timeframes.
 
My view on technical analysis is that it is the trader's single 
most powerful tool.  As for fundamental analysis, reader JB, with 
whom I've been lucky enough to be discussing these questions, 
puts it most eloquently:
 
It brings up something which became painfully obvious to me as I 
studied for the CFA exam this year.  The entire focus of the 
analytical community is almost worse than useless to the stock 
market as an investment.  The CFA is fabulously armed to value 
companies as acquisitions, to value real estate transactions, 
etc.
 
They dismiss technical analysis as ineffective sorcery.  They 
insert hypotheticals, influenced by anticipation, twisted by 
hope, and leavened with ego.  Extrapolate those out a few 
quarters and drunken dart throwers are their equals if any 
assumption collapses.  As if the past three years aren't enough 
evidence to the contrary.  As someone who has run companies, 
bought companies, started companies, I can say without 
equivocation, the analysts are data collectors, nothing more.  
They are so brilliant that manipulation of data to arrive at a 
conclusion is second nature.  I recall one of the telecom 
equipment analysts dropping his valuation on a company by 50% in 
ONE MONTH.  Why? Because business conditions changed. The 
analysts have NO concept of commercial behaviour, only 
financial.  They don't seem to realize that sales in business 
doesn't tend to decrease smoothly in a sine wave.  The phone just 
stops ringing one day.  
 
I do believe fundamental analysis particularly macro analysis to 
be of value in providing reason to trends or scenarios to be 
alert to.  But analysts?  They are articulate conduits of wealth 
transfer to their firms.  If compensation was the sum of money 
made for the firm and lost by clients following their advice, I 
question whether they would have money enough to eat.


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

A Strangle For Midgets With Brass
By Mike Parnos, Investing With Attitude

A Short Strangle is one of the most dangerous plays that we will 
learn about at the Couch Potato Trading Institute.  So put on 
your catcher’s mask, your chastity belt, your body armor and your 
deodorant and prepare yourself for the option wars.

The Short Strangle is rated “R” for risky.  It is a credit spread 
that consists of the sale of a put and a call with different 
strike prices, but the same expiration month.  The objective is
for the stock to finish, at expiration, between the sold strikes.  
The two options will then expire worthless, you’ll keep all the 
credit and live happily ever after.

The Short Strangle is really the Iron Condor’s evil twin.  Our 
old friend, the Iron Condor, is simply a Short Strangle that has 
protection in the form of long puts and calls purchased one 
strike further out-of-the-money respectively.

Today’s column includes a checklist for the Short Strangle 
strategy.  It will help you organize the information you 
accumulate as you research each potential Short Strangle trade.   
OI is arranging a direct download of the checklist from the OI 
website.  Hopefully, there will be a link at the end of this 
article to take you there.  If you have a problem getting the 
checklist, don’t hesitate to email me 
(mparnos@OptionInvestor.com) and I’ll be glad to send you the 
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 Short Strangle
Let’s look at an example.  Keep in mind that this example is 
hypothetical and for educational purposes only.  It is not 
intended as a recommendation.  That is something you will need to 
evaluate on your own.

IBM closed Friday at $80.00.  It recently moved up to almost 
$90.00, but bounced back down, with the rest of the market.  
There is some degree of resistance at $70.00.  For this example, 
we will use a 10-contract position.

Putting On The Trade – This is the easy part.  The only problem 
is that you must have the highest trading approval level from 
your brokerage firm to trade “uncovered” options.  Brokerage 
firms usually assign this level very carefully to traders who 
have had extensive experience and who have an account with a 
substantial assets.

Sell 10 contracts of the IBM Jan. 03 $70 puts @ $1.30 = $1,300
Sell 10 contracts of the IBM Jan. 03 $90 calls @ $.70 = $700
Total amount of credit taken in = $2,000

Your Exposure –
Both the sold puts and calls are uncovered.  The puts are exposed 
from the sold strike ($70) down to zero while the calls have 
unlimited exposure from the sold strike ($90) to the moon.  Now 
that sounds a little melodramatic, but technically it’s true.  
That’s why brokerage firms are careful about handing out 
“uncovered” approval levels.  Inexperienced traders are less 
likely to know how to make necessary adjustments when an 
“uncovered” option strike is threatened or violated.

Many brokers will not allow any of their clients to sell 
“uncovered” options because they are afraid of lawsuits.  There 
are countless horror stories about traders who lost six figures 
trading naked options.  Then, they turned around and sued the 
brokerage firms who allowed them to trade.  – and WON!  
Unbelievable!  There are plenty of slip-and-fall-give-me-a-call 
attorneys who now specialize in stock market cases.

Just as unbelievable are those giant cans of Crisco with 
heartbeats that are banding together to bring suits against fast 
food chains – blaming McDonalds for making them fat.  These are 
probably the same blobs who can’t fit into an airline seat and 
are angry when the airline wants to charge them for two seats.  
Doesn’t ANYONE take responsibility for his/her own actions 
anymore?  It could be a new game show on TV – Who Can We Blame?

OK, I’ll get off of the soapbox (for awhile) and get back to the 
business of options.

Maintenance
If you are able to put on the Short Strangle trade, your 
brokerage firm will want to hold some money, or assets, in your 
account for their (and your) protection.  The stock price is part 
of the equation, so the requirement will vary daily as the stock 
price moves.  This is money you will need to leave in your 
brokerage account in the form of cash or other marginable 
securities.

Here is the formula that is normally used:  IBM at $80
The initial margin requirement for the transaction is 20% of the 
underlying stock plus the credit received, less the amount out of 
the money.  
20% of the value of the underlying ($80) = $16.00
Add premium received from Jan. $70 put = $1.30 
Total:  $17.30 ($16.00 + $1.30)
Subtract amount out-of-the-money = $10.00
Margin Requirement: $730 per contract 
For a 10 contract position:  $730 x 10 contracts = $7,300

Adjustments
When the stock is about to violate one of the sold strikes or an 
important support or resistance level, you have to be prepared to 
act.  This is your first line of defense.  You can (using the 
short call as an example):
1.  Close out the short position by buying back the short call.
2.  Roll the short call out to a later month at a higher strike, 
increasing the number of contracts to make up the deficit.
3.  Close out the short call position and sell an additional 
number of puts to make up the deficit.
4.  Buy an appropriate number of shares of stock to cover the 
short call.
5.  Buy a deep in-the-money call to cover the short call.

Well, there it is -- the Short Strangle.  For all its glory, it’s 
risky, but if you have the approval level, and you find a stock 
with a nice wide trading range, you can make a nice monthly cash 
flow.  

Whatever you do, think it through.  Know the strategy inside and 
out.  Write me if you have any questions.  I’ll do my best to 
answer them.  But, whatever you decide, take responsibility for 
it – in good times and bad times.  If you learn nothing else at 
the Couch Potato Trading Institute, be someone your kids could be 
proud of – it’s called Integrity 101.  
___________________________________________________________

The CPTI Short Strangle Checklist
Stock / Symbol: _________________  Last Trade: ______________
Current Bid: _____________	Current Ask: ________________
Put: (Month, Strike): ___________  Best Bid:  ____________
Call: (Month, Strike): ___________ Best Bid:  ____________
Total Credit From Sale of Put & Call: ___________________
Maintenance Req:  20% of Stock Value: __________________
    			   Plus Credit Received: _(+)_______________
    Less the Amount Out-Of-The-Money: _(-)_______________
Total: ________ x  # of Contracts: ________ = ________________
Implied Volatility: __________________________
Historical Volatility: ________________________
Primary Support Level: ______________________
Secondary Support Level: ____________________
Primary Resistance Level: ____________________
Secondary Resistance Level: __________________
Trend Line Support: _________________________
Trend Line Resistance: _______________________
Upcoming News: (Earnings, Annual Meeting): _____________________
___________________________________________________________
Average Monthly Move: ____________________
Keep It On The Watch List: _____ (Yes)    _____ (No)
Notes: ______________________________________________________
____________________________________________________________
____________________________________________________________

CPTI PORTFOLIO UPDATE – As Of Friday’s Close

BBH Iron Condor – Currently trading at $87.66
We want BBH to finish the December option cycle anywhere between 
$80 and $95.  We’re still looking good – still in mid-range.

TTWO Short Strangle – Currently trading at $23.36.
We want TTWO to finish the December option cycle anywhere between 
$22.50 and $35.00. TTWO has pulled back with the market.  Out 
level of safety is less than $1.  We have to be on alert and be 
prepared to short the stock at $22.50 if the downturn continues.

IMCL Covered Call – Currently trading at $11.55.
We want IMCL to finish the December option cycle over $10 so it 
will be called away.  IMCL has pulled back from the $15 level, 
but we still have a $1.55 cushion with a week to go.

QQQ ITM Strangle – Currently trading at $25.04.  The QQQs 
finished near their lows on Friday.  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 upward move.  CPTI 
students, sold their long calls, covered the cost of the 
strangle, and have profited (or are now profiting) handsomely 
from the long puts as the market has reversed direction.
____________________________________________________________

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


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The Option Investor Newsletter                   Sunday 12-15-2002
Sunday                                                      5 of 5


In Section Five:

Covered Calls: Another Popular Strategy Using "Covered" Calls
Naked Puts: The "Real" Risk In Selling Naked Puts
Spreads/Straddles/Combos: The Hammer Falls!

Updated In The Site Tonight:
Market Watch
Market Posture


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

Trading Basics: Another Popular Strategy Using "Covered" Calls
By Mark Wnetrzak

One of our readers asked for an explanation of the strategy of
using covered calls with LEAPS in long-term calendar spreads.

Most new traders are unaware that one of the best and most popular
strategies associated with LEAPS is the covered call (or calendar
spread) with the LEAPS position.  A bullish calendar spread (time
spread) using calls consists of the purchase of a long-term option
and the simultaneous sale of a call on the same underlying stock,
with the same price, but with an expiration date in the near-term.

First, experienced traders try to open calendar spreads when there
is excess time value in the sold call or a discount on the LEAPS.
That gives you a theoretical edge.  At the same time, calendar
spreads can be based more on technical indications than option
pricing as long as the recent trend suggests a high probability of
a profitable outcome.  Of course, there are potential adjustments
after you open the initial LEAPS with covered-calls position.  If
the stock price remains relatively unchanged, or moves up slightly,
the play will likely profit.  If the stock price rallies and the
short-term position is "in-the-money" on the last day of the option
expiration period, you will have to buy it back so that you don't
have to exercise the long-term position -- that would defeat the
whole purpose of the strategy.  Hopefully, the stock won't climb
too far above the sold strike because then you lose your leverage
in the play (as both positions go deeply in-the-money.  The only
positive in that case is that the LEAPS are going up in value also
and, on the last day of the expiration period, the sold calls will
shrink down to parity (intrinsic value) so you may be ahead in the
play when you buy them back.  Then you can look for another rally
to sell next month's calls.  In fact, that's basically the goal of
the strategy: selling the calls when they are overpriced and buying
them back (if absolutely necessary) when they return to intrinsic
value.

As far as position management and adjustments, most novice traders
prefer to wait until the last day of the strike period to close out
the short option (if necessary) but that doesn't mean you can forego
position management.  Indeed, you may have to roll-up or roll-down
if the stock price moves very far away from your sold option, just
to keep the play profitable.  Some investors also attempt to leg-in
or out of each new position, selling and buying-back the sold calls
as the issue cycles through short-term gyrations.  Obviously, that's
a personal decision and not really part of the basic "time-selling"
strategy; a trading technique as opposed to spread technique.  In
addition, there is always the risk of early exercise in a calendar
spread.  The degree of risk depends on which options are bought and
sold and the distance to the underlying stock price.  The greater
the time value in the sold option, the lower the probability of it
being exercised.  If it does occur, a trader can always fulfill the
obligation by simply purchasing the underlying stock or offsetting
the sold calls with the purchase of another series of options.  The
important issue is to be notified by the broker in a timely manner
so that the appropriate action can be taken before the stock price
increases substantially.

For more information on this popular strategy, read the appropriate
chapter (calendar/time spreads) in Larry McMillan's "Options as a
Strategic Investment," available in the OIN bookstore.

Trade Wisely!


SUMMARY OF PREVIOUS CANDIDATES
*****

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

Note:  Margin not used in calculations.

Stock   Price   Last    Option    Price   Gain  Potential
Symbol  Picked  Price   Series    Sold   /Loss  Mon. Yield

DNDN     5.72    5.65  DEC  5.00  1.00    0.28*  12.9%
RSTO     5.48    6.07  DEC  5.00  1.05    0.57*  11.2%
SIMG     5.44    5.48  DEC  5.00  1.10    0.66*  11.0%
CIEN     5.58    5.87  DEC  5.00  1.00    0.42*  10.0%
SEBL     8.30    7.69  DEC  7.50  1.05    0.25*   7.5%
INHL     7.96    8.05  DEC  7.50  1.05    0.59*   7.4%
IMCL     8.97   11.55  DEC  7.50  2.15    0.68*   7.2%
MATK    22.07   23.37  DEC 20.00  3.30    1.23*   7.1%
CRYP     5.57    5.22  DEC  5.00  0.80    0.23*   7.0%
ISSX    24.48   22.30  DEC 22.50  3.50    1.32    6.8%
V       13.96   15.65  DEC 12.50  2.35    0.89*   5.6%
USG      6.25    7.02  DEC  5.00  1.60    0.35*   5.5%
LAVA    11.59   10.10  DEC 10.00  1.95    0.36*   5.4%
CTIC     8.60    7.57  DEC  7.50  1.50    0.40*   4.9%
IDCC    15.20   15.20  DEC 12.50  3.30    0.60*   4.4%
MDCO    14.33   15.16  DEC 10.00  4.90    0.57*   4.4%
ALXN    17.53   15.30  DEC 15.00  2.95    0.42*   4.2%
DCTM    18.13   16.11  DEC 15.00  3.80    0.67*   4.1%
IDCC    14.74   15.20  DEC 12.50  2.90    0.66*   4.0%
MATK    23.16   23.37  DEC 20.00  3.70    0.54*   4.0%
BRCM    15.45   16.23  DEC 12.50  3.50    0.55*   4.0%
SEE     18.26   34.75  DEC 15.00  3.90    0.64*   3.9%
MVSN    18.68   16.92  DEC 17.50  1.85    0.09    0.8%
CMOS    11.11    9.50  DEC 10.00  1.65    0.04    0.5%
DCTM    19.90   16.11  DEC 17.50  3.10   -0.69    0.0%
FLEX    11.01    9.08  DEC 10.00  1.40   -0.53    0.0%
MLNM    11.19    8.91  DEC 10.00  1.55   -0.73    0.0%
OSUR     7.97    5.97  DEC  7.50  1.45   -0.55    0.0%
TXN     19.22   16.70  DEC 17.50  2.40   -0.12    0.0%

ELN      2.90    2.69  JAN  2.50  0.65    0.25*   8.0%
VISG     5.72    5.14  JAN  5.00  1.05    0.33*   5.1%
IMCL    13.50   11.55  JAN 10.00  4.10    0.60*   4.6%

* = Stock price is above the sold striking price.

Comments:

The major averages continue to falter and any hope for a year-end 
rally has begun to diminish.  With Friday's bearish drop into the
close, the DOW, SP-500, and NASDAQ have now closed below their 50-
day moving averages.  Shares of Avigen (NASDAQ:AVGN) sold off this
week after news that its treatment for hemophilia was effective for
the first time in a person, but there were puzzling side effects 
and the data is still early-stage.  The technical outlook changed
drastically and we will show the position closed, though an entry
point was unlikely given the reaction to the news.  With one week
left until the December expiration, time to decide if you really
want to own any issues that are acting weaker than expected.  It
just depends on your long-term outlook on the market, sector and
stock.  With the increasing bearish momentum and geo-political
environment, many of the above candidates may qualify for an early 
exit/adjustment watch list.  

Positions Closed: BallardPower Systems (NASDAQ:BLDP), J.D. Edwards
(NASDAQ:JDEC), Avigen (NASDAQ:AVGN).



NEW CANDIDATES
*********

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

AES     3.25  JAN  2.50   AES AZ  1.05 7007   2.20   35   11.9%
ALXN   15.30  JAN 12.50   XQN AV  3.40 0     11.90   35    4.4%
BMRN    7.74  JAN  7.50   NUR AU  1.05 116    6.69   35   10.5%
MEE    10.65  JAN 10.00   MEE AB  1.25 1083   9.40   35    5.5%
MMR     5.20  JAN  5.00   MMR AA  0.60 20     4.60   35    7.6%
MOGN    8.30  JAN  7.50   QOG AU  1.15 176    7.15   35    4.3%
ZIXI    5.51  JAN  5.00   HQU AA  0.90 519    4.61   35    7.4%

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

AES     3.25  JAN  2.50   AES AZ  1.05 7007   2.20   35   11.9%
BMRN    7.74  JAN  7.50   NUR AU  1.05 116    6.69   35   10.5%
MMR     5.20  JAN  5.00   MMR AA  0.60 20     4.60   35    7.6%
ZIXI    5.51  JAN  5.00   HQU AA  0.90 519    4.61   35    7.4%
MEE    10.65  JAN 10.00   MEE AB  1.25 1083   9.40   35    5.5%
ALXN   15.30  JAN 12.50   XQN AV  3.40 0     11.90   35    4.4%
MOGN    8.30  JAN  7.50   QOG AU  1.15 176    7.15   35    4.3%


Company Descriptions

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

*****
AES - AES Corp.  $3.25  *** Another United Airlines...Not! ***

The AES Corp. (NYSE:AES) is a global power company comprised of
four lines of business.  The contract generation segment includes
generating plants that have entered into contracts with initial
durations of five years or greater, accounting for at least 75%
of the company's estimated revenue stream.  The competitive supply
segment includes both wholesale and retail sales of electricity 
directly to end users such as commercial, industrial, governmental
and residential customers.  The utility segment is characterized
by distribution businesses of significant size that often combine
generation, transmission and distribution capabilities, and are
subject to extensive local, state and national regulation.  The 
growth distribution segment includes distribution facilities 
facing challenges relating to operational difficulties that are
located in emerging markets and offer significant potential for
improved financial and operational performance.  AES has rallied
while the company worked to restructure its debt and avert a
bankruptcy filing.  The refinancing, finalized this week, will
allow AES to push off most of its maturing debt until November
2004.  With the threat of bankruptcy delayed a couple years, this

position offers bottom-fishers a favorable risk-reward scenario.

JAN 2.50 AES AZ LB=1.05 OI=7007 CB=2.20 DE=35 TY=11.9%

http://www.OptionInvestor.com/charts/dec02/charts.asp?symbol=AES
*****
ALXN – Alexion  $15.30  *** New Drug Speculation! ***

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

JAN 12.50 XQN AV LB=3.40 OI=0 CB=11.90 DE=35 TY=4.4%

http://www.OptionInvestor.com/charts/dec02/charts.asp?symbol=ALXN
*****
BMRN – Biomarin  $7.74  *** New Drug Speculation: Part II ***

Biomarin Pharmaceutical (NASDAQ:BMRN) develops enzyme therapies
to treat serious, life-threatening diseases and conditions. The
company's lead product candidate Aldurazyme, is being developed
for the treatment of Mucopolysaccharidosis I (MPS I) disease.  
The company is developing its 2nd product candidate, Neutralase,
for reversal of anticoagulation by heparin in patients undergoing
Coronary Artery Bypass Graft (CABG) surgery and angioplasty.  In
addition to Aldurazyme and Neutralase, Biomarin is developing 
other enzyme-based therapeutics for the treatment of a variety
of diseases and conditions.  Investors have been grabbing shares
of Biomarin ahead of a January 15 FDA review of BioMarin's and 
Genzyme Corp.'s (NASDAQ:GENZ) biologics license application for 
Aldurazyme.  We simply favor the bullish, 4-month rally which
has moved the stock above its 150-dma, suggesting further upside
potential.  Favorable new-drug speculation with a cost basis near
technical support.

JAN 7.50 NUR AU LB=1.05 OI=116 CB=6.69 DE=35 TY=10.5%

http://www.OptionInvestor.com/charts/dec02/charts.asp?symbol=BMRN
*****
MEE - Massey Energy  $10.65  *** On The Move! ***

Massey Energy (NYSE:MEE) a coal company in the U.S., produces,
processes and sells bituminous, low sulfur coal of steam and
metallurgical grades through its 18 processing and shipping 
centers, called resource groups, many of which receive coal 
from multiple coal mines.  Massey operates 37 underground mines
and 14 surface mines in West Virginia, Kentucky and Virginia. 
Its steam coal is primarily purchased by utilities and industrial
clients as fuel for power plants.  Its metallurgical coal is used
primarily to make coke for use in the manufacture of steel.  The
tape shows a stock breaking out on heavy volume even though a 
Massey subsidiary is in the midst of a trial in which it is 
accused by of knowingly locating a facility up wind of Sylvester
town residents.  Regardless of the previous slump in share value,
Massey is one of the top companies in its industry and among many
institutional investors, it is also one of the core holdings. The
current technical outlook is recovering and this position offers
an excellent reward potential at the risk of owning this industry-
leading issue at a favorable cost basis.

JAN 10.00 MEE AB LB=1.25 OI=1083 CB=9.40 DE=35 TY=5.5%

http://www.OptionInvestor.com/charts/dec02/charts.asp?symbol=MEE
*****
MMR – McMoRan  $5.20  *** Well Discovery = Rally Mode ***

McMoRan Exploration (NYSE:MMR) is engaged in the exploration,
development and production of oil and gas offshore in the Gulf
of Mexico and onshore in the Gulf Coast region.  The company
has rights to explore on over 400,000 gross acres, which is
one of the largest exploration acreages held by any independent
company in the Gulf of Mexico.  In November, shares of McMoRan
rallied sharply after it said it found hydrocarbons at an 
exploratory well in the Gulf of Mexico.  We simply favor the
bullish break-out on increasing volume and the current bullish
momentum in the Oil and Gas industry.  This position offers
excellent reward potential at the risk of owning MMR stock.

JAN 5.00 MMR AA LB=0.60 OI=20 CB=4.60 DE=35 TY=7.6%

http://www.OptionInvestor.com/charts/dec02/charts.asp?symbol=MMR
*****
MOGN - MGI Pharma  $8.30  *** New Drug Speculation: Part III ***

MGI Pharma (NASDAQ:MOGN) is an oncology-focused pharmaceutical
company that acquires, develops and commercializes proprietary
pharmaceutical products that meet patient needs.  The company's
current product candidates are at various stages of development
with an emphasis on advanced stages of development, and are 
intended to have diverse roles in treating cancer patients. Of
the company's product candidates, two are in Phase III, one in
Phase II and two in preclinical development programs.  Of these
programs, one is with a supportive care product candidate (i.e.,
a product candidate that may treat the symptoms associated with
chemotherapy), two are with cytotoxic product candidates (i.e.,
product candidates that may cause cancer cells to die), and two
are with cytostatic product candidates (i.e., product candidates
that may slow or stop the growth of cancer cells).  In November,
MGI Pharma filed a new drug application with the FDA, seeking 
marketing approval for palonosetron, a treatment for chemotherapy-
induced nausea and vomiting.  Technically, the stock has been in
a stage I base for 8 months with support near our cost basis.
Investors who retain a bullish outlook on the company and its
drug pipeline can use this position to obtain a relatively low
risk entry point in the issue.

JAN 7.50 QOG AU LB=1.15 OI=176 CB=7.15 DE=35 TY=4.3%

http://www.OptionInvestor.com/charts/dec02/charts.asp?symbol=MOGN
*****
ZIXI – Zix  $5.51  *** Free Of Debt ***

Zix Corp. (NASDAQ:ZIXI), formerly known as ZixIt, is a global
provider of secure content delivery and management solutions
and services that enable enterprises to enhance their current
e-mail networks and enterprise applications to securely send
and receive electronic communications.  The company has four
primary product offerings: ZixVPM (virtual private messenger),
ZixMail, ZixAuditor and ZixBlast.  On December 4, Zix announced
that $8 million in convertible notes issued as part of the $16
million in funds raised by the company in September 2002 has 
been fully converted into shares of the company's common stock.
With this conversion, all debt has now been eliminated from the
company's balance sheet, and all associated restrictions on the
company's cash balances have been removed.  Investors apparently
are please with this news as the stock has rallied above the 
October high on heavy volume.  The stock appears to be ending
a multi-year downtrend which suggests a change of character.
Bottom-fishers can speculate on the near-term performance of
the issue with this conservative position.

JAN 5.00 HQU AA LB=0.90 OI=519 CB=4.61 DE=35 TY=7.4%

http://www.OptionInvestor.com/charts/dec02/charts.asp?symbol=ZIXI
*****

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

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

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

DNDN    5.65  JAN  5.00   UKO AA  1.20 11     4.45   35   10.7%
ASIA    5.49  JAN  5.00   EUJ AA  0.95 86     4.54   35    8.8%
OVTI   17.04  JAN 15.00   UCM AC  3.10 47    13.94   35    6.6%
MEDI   26.64  JAN 22.50   MEQ AX  5.70 200   20.94   35    6.5%
XMSR    3.23  JAN  2.50   QSY AZ  0.90 4203   2.33   35    6.3%
CIEN    5.87  JAN  5.00   EUQ AA  1.15 18931  4.72   35    5.2%
BCGI   13.44  JAN 12.50   QGB AV  1.55 2     11.89   35    4.5%
AMZN   22.18  JAN 20.00   ZQN AD  3.10 17400 19.08   35    4.2%
IGEN   41.10  JAN 35.00    GQ AG  7.70 722   33.40   35    4.2%
GENZ   32.28  JAN 27.50   GZQ AQ  6.00 3379  26.28   35    4.0%



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

Options 101: The "Real" Risk In Selling Naked Puts
By Ray Cummins

One of our readers suggested that we explain the potential risk
in writing uncovered options.

This week, I participated in a very interesting discussion with
one of our readers.  The person I spoke with is successful both
as a business owner and as a trader, and the size of his account
lends substantial credence to his views.  At issue was the use
of margin in calculating potential yield in "uncovered" option
positions, but the more important ideal that emerged (from the
ongoing conversation) was the desire for new investors to have a
clear and unambiguous understanding of the real risks involved
in selling naked puts.

In simple terms, the potential loss in this strategy is similar
to owning an equivalent number of shares (with a cost basis near
the sold strike price) in the underlying.  Stock ownership, while
not necessarily a "bad" thing, can be disadvantageous because as
recent events have shown, a stock's value can fall substantially
(even to zero).  Recall that when you write (sell) an option, you
assume the obligation to buy the underlying security at a specific
price in return for a premium.  A successful outcome occurs when
the stock remains above the strike price of the sold put.  If the
price of the underlying stock declines and the put is exercised,
the cost basis of the stock will be the exercise price less any
premium received for the sale of the option.  In addition, this
"assignment" can occur prior to option expiration, thus a put
writer must be prepared to buy the underlying stock at any time.
With that in mind, a put writer must always be "covered" by
portfolio capital (or other collateral) equal to the exercise
value of the put.  But, and this fact has led to the demise of
many investors, the broker will reduce the amount of portfolio
collateral necessary to open the position if you agree to the use
of "margin."

Margin is an integral part of the financial world and when used
correctly, it can substantially increase the potential profits in
specific strategies including the sale of stock (and stock index)
options.  From a trader's viewpoint, the margin requirement is
simply a deposit that must be provided to guarantee that he will
cover any written options in the event they are exercised and it
can be vastly different than that which is used with stocks.  The
problem with using reduced collateral requirements is the minimum
equity levels are woefully inappropriate for the retail investor
(they were originally designed for institutional traders) and the
end result is many novice participants fall victim to the "margin
trap" because they do not comprehend the potential downside risk
involved in the sale of uncovered options.

To understand this problem more clearly, traders must be aware of
the fundamentals of margin and its two major categories: Initial
Margin and Maintenance Margin.


INITIAL MARGIN 

The Initial Margin is the amount of collateral you must have in
your account to initiate the position.  In specific terms, margin
refers to cash or securities required of an option writer by his
brokerage firm as collateral for the writer's obligation to buy
or sell the underlying interest, or in the case of cash-settled
options, to pay the cash settlement amount, if assigned through
an exercise.  The minimum margin requirements are imposed by the
Board of Governors of the Federal Reserve, the options markets,
and other self-regulatory organizations, however higher margin
requirements may be imposed either generally or in individual
cases by various brokerage firms.  The most widely used margin
requirements are based on the regulations at the Chicago Board
Options Exchange:

Writers of uncovered puts or calls must deposit and maintain 100%
of the option proceeds* plus 20% of the aggregate contract value
(current equity price x $100) minus the amount by which the option
is out-of-the-money, if any, subject to a minimum for calls of
option proceeds* plus 10% of the aggregate contract value and a
minimum for puts of option proceeds* plus 10% of the aggregate
exercise price amount. (*For calculating maintenance margin, use
the option's market value instead of the option's proceeds.)

(http://www.cboe.com/LearnCenter/pdf/MarginManual2000.pdf)


MAINTENANCE MARGIN 

The Maintenance Margin is the amount of cash (or securities)
required to offset the changing collateral requirements of the
written options in your portfolio.  As the price of the option
and the underlying stock changes, so does the maintenance margin.
With (short) put options, the margin requirements can increase
when the underlying stock price declines and also when it rises
significantly.  The reason is the manner in which the collateral
amount is determined (with the formula listed above) and traders
should always consider not only the initial margin requirement,
but also the maximum margin needed for the life of the position.
Option writers occasionally have to meet calls for additional
margin during adverse market movements and even when there is
enough equity in the account to avoid a margin call, the need
for increased collateral will make that equity unavailable for
other purposes.  Please consider these facts carefully before
you initiate any "naked" option positions.

In order to highlight the potential downside inherent in selling
uncovered options, and to allow a suitable risk/reward comparison
in similar strategies, a new data field (Simple Yield) has been
added to the position specifics for the weekly candidates.  Also,
there will be additional information concerning margin/collateral
requirements in the Naked Puts section on a permanent basis.

More on this subject next week...



SUMMARY OF PREVIOUS CANDIDATES 
*****

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

Stock   Price   Last    Option    Price   Gain    Max   Simple
Symbol  Picked  Price   Series    Sold   /Loss   Yield  Yield

HAL     21.37   19.75  DEC 17.50  0.45    0.45*  12.7%   3.8%
HAL     20.19   19.75  DEC 15.00  0.25    0.25*  12.7%   3.7%
PHTN    32.32   28.88  DEC 27.50  0.50    0.50*  12.6%   4.0%
PPD     28.40   27.20  DEC 22.50  0.30    0.30*  10.9%   2.9%
AFCO    19.52   18.70  DEC 17.50  0.30    0.30*  10.7%   3.8%
IGEN    42.08   41.10  DEC 35.00  0.50    0.50*  10.6%   3.1%
SCIO    33.72   32.74  DEC 30.00  0.50    0.50*  10.6%   3.7%
MATK    22.07   23.37  DEC 17.50  0.45    0.45*  10.1%   2.9%
NWRE    20.19   16.82  DEC 15.00  0.30    0.30*  10.0%   3.0%
IMCL    15.04   11.55  DEC 10.00  0.30    0.30*   9.8%   3.4%
NWRE    17.68   16.82  DEC 12.50  0.55    0.55*   9.7%   3.3%
BBY     26.60   25.80  DEC 22.50  0.30    0.30*   9.5%   2.9%
ESIO    22.99   21.44  DEC 17.50  0.55    0.55*   9.3%   2.8%
HAL     18.85   19.75  DEC 15.00  0.35    0.35*   9.2%   2.6%
ALXN    17.55   15.30  DEC 12.50  0.30    0.30*   8.6%   2.7%
IMCL    11.77   11.55  DEC  7.50  0.25    0.25*   8.4%   3.0%
MSTR    18.16   15.75  DEC 12.50  0.30    0.30*   8.3%   2.7%
NEM     26.77   29.00  DEC 25.00  0.35    0.35*   8.2%   3.1%
BBY     27.68   25.80  DEC 22.50  0.35    0.35*   8.1%   2.3%
ISSX    22.19   22.30  DEC 17.50  0.45    0.45*   8.0%   2.3%
BSTE    31.02   31.41  DEC 22.50  0.75    0.75*   7.8%   2.5%
PHTN    35.25   28.88  DEC 27.50  0.40    0.40*   7.8%   2.1%
HAL     17.85   19.75  DEC 12.50  0.35    0.35*   7.8%   2.5%
PPD     28.65   27.20  DEC 22.50  0.30    0.30*   7.2%   2.0%
CYMI    33.43   32.95  DEC 25.00  0.60    0.60*   7.2%   2.1%
PHTN    28.50   28.88  DEC 22.50  0.50    0.50*   7.0%   2.0%
GNSS    17.17   14.61  DEC 12.50  0.30    0.30*   7.0%   2.1%
PLMD    30.31   31.65  DEC 22.50  0.60    0.60*   6.5%   2.0%
ESIO    24.50   21.44  DEC 17.50  0.30    0.30*   6.3%   1.9%
FAST    38.25   37.83  DEC 35.00  0.35    0.35*   6.1%   2.2%
KOSP    19.13   19.87  DEC 15.00  0.35    0.35*   6.1%   1.7%
SEE     21.33   34.75  DEC 15.00  0.25    0.25*   6.0%   1.8%
RIMM    16.58   13.97  DEC 12.50  0.30    0.30*   6.0%   1.8%
NPSP    28.24   27.22  DEC 20.00  0.50    0.50*   5.9%   1.9%
RINO    19.40   17.45  DEC 17.50  0.30    0.25    5.9%   2.1%
POSS    14.20   14.25  DEC 12.50  0.35    0.35*   5.9%   2.1%
IGEN    38.65   41.10  DEC 30.00  0.55    0.55*   5.8%   1.6%
ESIO    21.15   21.44  DEC 15.00  0.35    0.35*   5.5%   1.7%
MEDI    28.07   26.64  DEC 20.00  0.30    0.30*   5.5%   1.7%
AMZN    22.21   22.18  DEC 17.50  0.30    0.30*   5.5%   1.5%
JEC     36.31   36.12  DEC 35.00  0.50    0.50*   5.3%   2.1%
PPD     27.08   27.20  DEC 20.00  0.35    0.35*   5.3%   1.5%
GP      20.62   15.97  DEC 17.50  0.45   -1.08    0.0%   0.0%

* = Stock price is above the sold striking price.

Comments:

The apparent optimism among investors did little to support the
market Friday as stocks fell precipitously after a report that the
PPI endured its largest decline in six months.  The "deflation"
mongers were quick to point-out the deficiency and the new data
simply added to the market's woes.  Among the other negatives
were North Korea's decision to reactivate a nuclear power-plant,
worries about Iran's nuclear capabilities, and a report that
extremists linked to al Qaeda received a chemical weapon in Iraq.
All these events have combined to make the environment unfavorable
and there is little reason for a change of character in the coming
weeks.  With that in mind, investors should monitor closely any
issues with less than outstanding technical indications and make
timely exits (or adjustments) in questionable positions.  The sold
put in Georgia-Pacific (NYSE:GP) has been closed to limit losses.
Other candidates for early exit include: Blue Rhino (NASDAQ:RINO),
Research In Motion (NASDAQ:RIMM), Neoware (NASDAQ:NWRE), Photon
Dynamics (NASDAQ:PHTN), ImClone (NASDAQ:IMCL), Genesis Microchip
(NASDAQ:GNSS) and Applied Films (NASDAQ:AFCO).

Positions Closed: Georgia-Pacific (NYSE:GP)



WARNING: THE RISK IN SELLING NAKED PUTS IS SUBSTANTIAL!
*****

The sale of uncovered puts entails considerable financial risk,
far more than the initial margin or collateral required to open
a position.  The maximum financial obligation for the sale of a
naked put is the strike price (of the underlying stock) that is
sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of puts should have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  In addition, there is one very important rule when using
this strategy: Don't sell puts on stocks that you don't want to
own!  Why?  Because stocks occasionally experience catastrophic
declines, exponentially increasing the margin maintenance and
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading STOPS on naked
option positions to help limit losses when a stock's price falls.
Many professional traders suggest closing the position when the
underlying share value moves below the sold strike, or using a
"buy-to-close" STOP at a price that is no more than twice the
original premium received from the sold option.


MONTHLY YIELD: MAXIMUM AND SIMPLE

The Maximum Monthly Yield (listed in the summary and with each
new candidate) is the greatest possible profit available in the
position.  This amount, expressed as a percentage, is based on
the initial margin requirement as determined by the Board of
Governors of the Federal Reserve, the U.S. options markets and
other self-regulatory organizations.  Although increased margin
requirements may be imposed either generally or in individual
cases by various brokerage firms, our calculations use the widely
accepted margin formulas from the Chicago Board Options Exchange.
The Simple Monthly Yield is based on the cost of the underlying
issue (in the event of assignment), including the premium from
the sold option, and it reflects the maximum potential loss in
the position.


NEW CANDIDATES
*****

Sequenced by Company
*****
Stock  Last   Option   Option Last Open  Cost  Days   Max   Simple
Symbol Price  Series   Symbol Bid  Int   Basis Exp.  Yield  Yield

AU     33.99 JAN 30.00  AU MF 0.65 669   29.35  35    5.5%   1.9%
BSTE   31.41 JAN 22.50 BQS MX 0.45 57    22.05  35    5.8%   1.8%
GFI    14.68 JAN 12.50 GFI MV 0.35 1463  12.15  35    7.5%   2.5%
GG     12.62 JAN 11.25  GG MT 0.40 590   10.85  35    8.5%   3.2%
IGEN   41.10 JAN 30.00  GQ MF 0.55 522   29.45  35    5.5%   1.6%
MATK   23.37 JAN 17.50 KQT MW 0.35 10    17.15  35    6.1%   1.8%
OVER   28.99 JAN 22.50 GUO MX 0.40 23    22.10  35    5.6%   1.6%

Sequenced by Maximum Yield (monthly basis - using margin)
******
Stock  Last   Option   Option Last Open  Cost  Days   Max   Simple
Symbol Price  Series   Symbol Bid  Int   Basis Exp.  Yield  Yield

GG     12.62 JAN 11.25  GG MT 0.40 590   10.85  35    8.5%   3.2%
GFI    14.68 JAN 12.50 GFI MV 0.35 1463  12.15  35    7.5%   2.5%
MATK   23.37 JAN 17.50 KQT MW 0.35 10    17.15  35    6.1%   1.8%
BSTE   31.41 JAN 22.50 BQS MX 0.45 57    22.05  35    5.8%   1.8%
OVER   28.99 JAN 22.50 GUO MX 0.40 23    22.10  35    5.6%   1.6%
AU     33.99 JAN 30.00  AU MF 0.65 669   29.35  35    5.5%   1.9%
IGEN   41.10 JAN 30.00  GQ MF 0.55 522   29.45  35    5.5%   1.6%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, MY-Maximum Yield (monthly basis - using
margin), SY-Simple Yield (monthly basis - without margin).

*****
AU - AngloGold  $33.99  *** Hot Commodity! ***

AngloGold Limited (NYSE:AU) conducts gold mining operations in
Africa, North America, South America and Australia.  The firm
owns or has interests in 21 operations around the world.  In
2001, AngloGold produced approximately six million ounces of
gold.  AngloGold's production base spans four continents, with
its mixture of underground and open-pit operations and interests
in Argentina, Australia, Brazil, Mali, South Africa, Tanzania
and the United States of America.  The firm's global exploration
programs encompass 10 countries on four continents.  Gold is a
"hot" commodity right now and traders who think the trend will
continue should consider this position.

JAN 30.00 AU MF LB=0.65 OI=669 CB=29.35 DE=35 MY=5.5% SY=1.9%

http://www.OptionInvestor.com/charts/dec02/charts.asp?symbol=AU
*****
BSTE - Biosite  $31.41  *** Premium Selling! ***

A leader in the drive to advance diagnosis, Biosite (NASDAQ:BSTE)
is a unique research-based company dedicated to the discovery and
development of novel protein-based diagnostic tests that improve
a doctor's ability to diagnose debilitating and life-threatening
diseases.  The firm combines integrated discovery and diagnostics
businesses to access proteomics research, identify proteins with
high diagnostic utility, develop and commercialize products and
educate the medical community on new diagnostic approaches that
improve health care outcomes.  Biosite's "Triage" rapid diagnostic
tests are used in approximately 50 percent of U.S. hospitals and
in approximately 40 international markets.  In October, Biosite
reported strong growth for the third quarter of 2002 and projected
continuing growth in fiscal year 2003.  The company said that it
expects revenues in 2003 to be 35 to 40 percent higher than in
2002, with the possibility for upside from new products and new
markets that are currently under development.  But, the real story
with BSTE is told by the option premiums and the inflated prices
suggest there is potential for extreme volatility.  Speculative
traders can profit from continued lateral activity in the issue
with this position.

JAN 22.50 BQS MX LB=0.45 OI=57 CB=22.05 DE=35 MY=5.8% SY=1.8%

http://www.OptionInvestor.com/charts/dec02/charts.asp?symbol=BSTE
*****
GFI  - Gold Fields  $14.68  *** Market Slump = Gold Rally! ***

Gold Fields Limited (NYSE:GFI) is an independent precious-metals
company that primarily engages in exploration and mining.  Gold
Fields produces approximately 4.7 million ounces of gold annually.
The company has proven and probable reserves of approximately 84.5
million ounces and resources of approximately 150.7 million ounces
in South Africa and Ghana.  Gold Fields is focused on international
growth through development of precious metals mining projects in
Australasia, North and South America, Europe and Africa.  The firm
also has a 51% stake in an advanced stage exploration project, the
Arctic Platinum Partnership, in Finland.  When the broad market is
in a primary downtrend, gold stocks generally perform well and the
current technical indications suggest continued bullish activity in
the Precious Metals group.

JAN 12.50 GFI MV LB=0.35 OI=1463 CB=12.15 DE=35 MY=7.5% SY=2.5%

http://www.OptionInvestor.com/charts/dec02/charts.asp?symbol=GFI
*****
GG - Goldcorp  $12.62  *** Good As Gold! ***

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.  This
company is one of our favorites in the gold sector and the recent
upside trend in gold prices bodes well for the entire industry in
the near-term.

JAN 11.25 GG MT LB=0.40 OI=590 CB=10.85 DE=35 MY=8.5% SY=3.2%

http://www.OptionInvestor.com/charts/dec02/charts.asp?symbol=GG
*****
IGEN - IGEN International  $41.10  *** More Premium Selling! ***

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?),
possibly with Roche Diagnostics, which markets products based on
IGEN's ORIGEN technology.  Aggressive traders can profit from
continued lateral activity in the stock with this speculative
position.

JAN 30.00 GQ MF LB=0.55 OI=522 CB=29.45 DE=35 MY=5.5% SY=1.6%

http://www.OptionInvestor.com/charts/dec02/charts.asp?symbol=IGEN
*****
MATK - Martek Biosciences  $23.37  *** A Big Day! ***

Martek Biosciences )NASDAQ:MATK) develops and sells products
from microalgae.  Microalgae are microplants.  The company is
engaged in the commercial development of microalgae into a
portfolio of high value products and new product candidates
consisting of Nutritional Products, Advanced Detection Systems
and Other Products, primarily Algal Genomics.  Their nutritional
products include nutritional oils for infant formula, dietary
supplementation and other products. Advanced Detection Systems
products include fluorescent dyes from various algae for use
in scientific applications for detection of certain biological
processes.  Martek has been in the news since announcing that
Abbot Labs would produce an infant formula supplemented with
Martek's DHA and ARA oils.  On Friday, its shares soared after
a favorable Q4 report and the near-term outlook is definitely
bullish.  Investors who are interested in a unique biotechnology
company should consider this position.

JAN 17.50 KQT MW LB=0.35 OI=10 CB=17.15 DE=35 MY=6.1% SY=1.8%

http://www.OptionInvestor.com/charts/dec02/charts.asp?symbol=MATK
*****
OVER - Overture Services  $28.99  *** New CNN Contract! ***

Overture Services (NASDAQ:OVER) is engaged in the provision of
pay-for-performance search services on the Internet.  Overture
operates an online marketplace that introduces consumers and
businesses that search the Internet to advertisers that provide
products, services and information.  Advertisers participating
in the company's marketplace include retail merchants, wholesale
and service businesses and manufacturers.  Overture facilitates
these introductions through its search service, which enables
advertisers to bid in an ongoing auction for priority placement
in the company's search results after editorial approval.  The
company's marketplace offers consumers and businesses quick,
easy and relevant search results for products, services and
information, while providing advertisers with a cost-effective
way to target them.  CNN, the 24-hour news network owned by AOL
Time Warner, recently signed a three-year deal with Overture to
use the company's commercial online search listings.  Also, S&P
announced that OVER has been added to the S&P Mid-Cap 400 Index.
Traders who think the stock will continue to move higher in the
coming weeks can speculate on that outcome in a conservative
manner with this position.

JAN 22.50 GUO MX LB=0.40 OI=23 CB=22.10 DE=35 MY=5.6% SY=1.6%

http://www.OptionInvestor.com/charts/dec02/charts.asp?symbol=OVER
*****

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

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

Sequenced by Maximum Yield (monthly basis – using margin)
******
Stock  Last   Option   Option Last Open  Cost  Days   Max   Simple
Symbol Price  Series   Symbol Bid  Int   Basis Exp.  Yield  Yield

WMB     2.82 JAN  2.50 WMB MZ 0.25 6868   2.25  35   20.5%   9.7%
VNT    14.18 JAN 12.50 VNT MV 0.85 172   11.65  35   15.3%   6.3%
SWKS    9.79 JAN  7.50 GAK MU 0.35 284    7.15  35   13.2%   4.3%
BRCM   16.23 JAN 12.50 RCQ MV 0.45 1327  12.05  35   10.6%   3.2%
ISSX   22.30 JAN 17.50 ISU MW 0.55 522   16.95  35    9.5%   2.8%
VRTY   13.85 JAN 12.50 YQV MV 0.50 65    12.00  35    9.3%   3.6%
CNA    25.79 JAN 22.50 CNA MX 0.80 130   21.70  35    8.9%   3.2%
REGN   20.54 JAN 17.50 RQP MW 0.50 9     17.00  35    7.7%   2.6%
ESPD   17.00 JAN 15.00 ENU MC 0.40 4     14.60  35    6.7%   2.4%
MERQ   30.31 JAN 22.50 RQB MX 0.50 791   22.00  35    6.6%   2.0%
IVGN   31.51 JAN 27.50 IUV MY 0.55 1725  26.95  35    5.2%   1.8%


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


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

The Hammer Falls!
By Ray Cummins

U.S. equities plunged Friday amid renewed concerns about corporate
earnings, the flagging dollar, and the potential for terrorism.

The Dow Jones Industrials slid 104 points to 8,433 on weakness in
Home Depot (NYSE:HD), United Technologies (NYSE:UTX) and Honeywell
(NYSE:HON).  The NASDAQ Composite dropped 36 points to 1,362 with
bellwethers such as Microsoft (NASDAQ:MSFT) and Intel (NASDAQ:INTC)
leading the sell-off.  The broader S&P 500-stock index declined 12
points to 889 as almost every market segment enduring some selling
pressure.  Only a few groups such as gold, oil-related and utility
were positive.  Market breadth was shoddy as declining issues more
than doubled advancers on both the NYSE and the NASDAQ.  Trading
volume remained muted with 1.2 billion shares changing hands on
the Big Board while 1.4 billion shares traded on the NASDAQ.  The
bond market flourished as traders sought calmer waters.  The yield
on the 10-year note finished strong at 4.06%.  TrimTabs estimated
that all equity funds had inflows of $4.8 billion during the past
week, compared with outflows of $3.4 billion during the prior week.
Bond funds had inflows of $2.0 billion, for the second consecutive
week.

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

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


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

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

BR      42.01  42.50  DEC   35  37  0.30  37.20  $0.30   Open
EBAY    64.79  67.41  DEC   50  55  0.55  54.45  $0.55   Open
IGEN    36.49  41.10  DEC   25  30  0.65  29.35  $0.65   Open
SLM    102.94 101.42  DEC   85  90  0.65  89.35  $0.65   Open
DE      49.00  45.55  DEC   40  45  0.65  44.35  $0.65   Open
INTU    52.91  46.60  DEC   40  45  0.50  44.50  $0.50   Open
LLY     62.24  64.47  DEC   50  55  0.55  54.45  $0.55   Open
IGT     77.06  73.12  DEC   65  70  0.55  69.45  $0.55   Open
KSS     66.90  59.81  DEC   55  60  0.55  59.45  $0.36  Closed
PIXR    55.67  60.18  DEC   45  50  0.50  49.50  $0.50   Open
AZO     85.32  68.51  DEC   70  75  0.45  74.55 ($1.65) Closed *
FPL     59.87  59.65  DEC   50  55  0.55  54.45  $0.55   Open
UOPX    36.65  35.27  DEC   30  33  0.45  33.30  $0.45   Open
ABK     62.51  58.24  DEC   50  55  0.40  54.60  $0.40   Open
AGN     58.79  58.01  DEC   50  55  0.55  54.45  $0.55   Open
RE      57.90  54.52  DEC   50  55  0.55  54.45  $0.07  Closed
APC     49.59  49.92  JAN   40  45  0.55  44.45  $0.55   Open
VLO     36.39  35.16  JAN   30  32  0.30  32.20  $0.30   Open

LP = Long Put  SP = Short Put  C/B = Cost Basis  G/L = Gain/Loss
 
Thursday's sell-off in Autozone (NYSE:AZO) ousted us from the
bullish position with a small loss ($1.65) but it appears the
exit was timely as traders continued to dump the issue during
Friday's session.  Surprisingly, all of the selling came in the
wake of a favorable earnings report.  Kohls' (NYSE:KSS) was a
victim of Friday's broad retreat as well and the finish below
the sold strike is our exit signal in the position.  A similar
situation exists with Everest RE Group (NYSE:RE), thus we will
show the play closed in the interest of capital preservation.

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

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

ABC    72.45   57.16  DEC   85  80  0.65   80.65  $0.65   Open
MCO    45.12   41.37  DEC   55  50  0.40   50.40  $0.40   Open
WLP    74.04   70.69  DEC   90  85  0.60   85.60  $0.60   Open
UNH    86.83   81.92  DEC  105 100  0.55  100.55  $0.55   Open
DNA    35.46   34.02  DEC   45  40  0.60   40.60  $0.60   Open
DP     40.40   36.19  DEC   50  45  0.40   45.40  $0.40   Open
LXK    63.75   61.93  DEC   75  70  0.60   70.60  $0.60   Open
IDPH   39.27   33.43  DEC   45  40  0.45   40.45  $0.45   Open
UHS    44.85   44.63  DEC   55  50  0.30   50.30  $0.30   Open
AAP    51.55   48.22  DEC   60  55  0.50   55.50  $0.50   Open
ACDO   35.19   36.30  DEC   43  40  0.35   40.35  $0.35   Open
JCI    81.79   78.63  JAN   90  85  0.20   85.20  $0.20   Open
LEH    56.72   54.41  JAN   65  60  0.25   60.25  $0.25   Open

LC = Long Call  SC = Short Call  C/B = Cost Basis  G/L = Gain/Loss

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.


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

Stock   Pick   Last   Expir.  Long  Short  Initial  Max.    Play
Symbol  Price  Price  Month   Call   Put   Credit   Value  Status

ABT     45.89  40.48   DEC     50    40     0.10    0.10   Closed
COX     30.25  29.45   DEC     35    25     0.10    0.30    Open
OMC     66.32  66.91   DEC     75    55     0.15    0.45    Open
SCIO    32.84  32.74   JAN     40    25     0.00    0.25    Open
CY       8.64   6.01   JAN     10     7     0.10    0.20   Closed
GG      11.15  12.62   JAN     12    10     0.10    0.80    Open?
PXD     26.11  25.87   MAR     30    23     0.10    0.20    Open

All of the speculative small-cap positions were closed last week
as the market began to retreat from its recent rally.  The Nextel
(NASDAQ:NXTL) position 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.  Cypress Semiconductor (NYSE:CY) faded quickly as
technology stocks slumped but Scios (NASDAQ:SCIO) has achieved a
small profit.  The new position in Goldcorp (NYSE:GG) has been a
standout and Pioneer Natural Resources (NYSE:PXD) has held up well
despite the market-wide declines.  Tuesday's drop below a recent
support area by Abbott Labs (NYSE:ABT) signaled our exit in that
position.

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

Stock   Pick   Last     Long     Short    Initial  Max.     Play
Symbol  Price  Price   Option    Option    Debit   Value   Status

HNT     25.75  26.72   JAN-30C   DEC-30C   0.60    0.60     Open
WSM     24.53  28.25   FEB-30C   DEC-30C   0.80    1.55     Open
GISX    20.21  17.84   FEB-22C   DEC-22C   0.95    0.75     Open?
      
Positions in United Airlines (NYSE:UAL) and The Sharper Image
(NASDAQ:SHRP) have been closed to limit losses.  Global Imaging
Systems (NASDAQ:GISX) is moving towards the lower end of its
trading range and the issue will likely reach a "key" moment in
the coming week.


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

Stock   Pick   Last    Short      Long    Initial  Max.     Play
Symbol  Price  Price   Option    Option   Credit   Gain    Status

AES     2.92   3.25    J04-7.5P  J03-2.5P  4.50    0.25     Open
IMCL    7.77  11.55    J04-15P   JO3-5P    8.00    2.25    Closed

ImClone (NASDAQ:IMCL) has performed well with a profit of up to
$2.25 in the speculative play.  AES Corporation (NYSE:AES) has
finally begun to rebound with the issue testing $4 in Friday's
session and we will remain in the position unless the trend turns
bearish.


CREDIT STRANGLES
****************
 
Stock   Pick   Last   Exp.   Short Short  Initial Current   Play
Symbol  Price  Price  Month  Call   Put   Credit   Debit   Status

ERTS    64.13  66.02   DEC    70    55     2.40    0.95    Closed
SLAB    25.16  22.11   DEC    30    20     1.00    0.65     Open
MEDI    26.21  26.64   DEC    30    20     1.45    1.40     Open

The recent sell-off in Electronic Arts (NASDAQ:ERTS) forced us to
exit the position early for a small profit.  The new position in
Medimmune (NASDAQ:MEDI) will be closed next week, prior to the FDA
advisory panel meeting for the firm's new nasal spray flu vaccine.
The Medicine Company (NASDAQ:MDCO) position, although profitable,
was not initiated due to a significant "pre-open" announcement on
11/18/02.


DEBIT STRADDLES
***************
 
Stock   Pick   Last   Exp.   Long  Long  Initial  Max.     Play
Symbol  Price  Price  Month  Call  Put    Debit   Value   Status

GENZ    34.43  32.28   JAN    35    35    6.15    6.00     Open
L        9.95   9.28   JAN    10    10    1.35    1.20     Open
XLNX    22.06  20.37   JAN    22    22    2.30    2.25     Open

All three of our new straddle positions were active early Monday
morning, thus the initial debits were adjusted.  The short-term
position in Xilinx (NASDAQ:XLNX) has quickly reached the downside
break-even point in the bearish portion of the play.

Questions & comments on spreads/combos to ray@OptionInvestor.com
*************
NEW POSITIONS
*************

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

*****************
SPECULATION PLAYS
*****************

These positions are based on recent increased activity in the
stock and underlying options.  All of these plays offer favorable
risk/reward potential but they should be evaluated for portfolio
suitability and reviewed with regard to your strategic approach
and trading style.

*****
EDS - Electronic Data Systems  $19.64  ** Is The Recovery Real? **

Electronic Data Systems Corporation (NYSE:EDS) is a provider of
strategy, implementation and hosting services and solutions for
clients managing the digital economy.  The company's end-to-end
portfolio of services integrates its five lines of business,
Information Solutions, Business Process Management, E Solutions,
A.T. Kearney and Product Lifecycle Management Solutions.  The
company's eight Global Industry Groups, Communications, Energy,
Financial, Government, Healthcare, Manufacturing, Retail and
Transportation, work with each of the firm's lines of business
and client executive teams.

This speculative short-put combination utilizes Jim Brown's (OIN
Founder/Chief Editor) popular technique of writing "in-the-money"
Puts to profit from upward movement in the underlying issue.  A
near-term Put is also purchased to limit downside risk in the
position, if the recovery does not begin in the next few months.

More information on this unique strategy can be found at:

http://members.OptionInvestor.com/archive/editorplays/2001/042201_1.asp

PLAY (very speculative - bullish/short-put combination):

SELL PUT  JAN04-25.00  LED-ME  OI=1782   B=$8.00
BUY  PUT  MAR03-17.50  EDS-OT  OI=1670   A=$1.65
INITIAL NET CREDIT TARGET=$6.50-$6.60  TARGET PROFIT=$2.25-???

Note:  There is a collateral requirement for the sold (short)
Put, whether it is partially covered in the initial spread or
exists "naked" when the long option expires.  Please review
the terms of the collateral requirements with your broker.

http://www.OptionInvestor.com/charts/dec02/charts.asp?symbol=EDS
**************
CREDIT SPREADS
**************

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

*****
ASA - ASA Limited  $39.30  *** Gold = Broad Market Hedge! ***

ASA Limited is a closed-end investment company.  The company was
organized to provide investors with a vehicle to invest in a
portfolio consisting primarily of stocks of companies conducting,
as a major portion of their business, gold mining and related
activities in South Africa.  The company is permitted to invest
up to 20% of the value of its assets outside of South Africa and
may also invest up to 25% of the value of its assets in gold or
gold certificates.

PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-32.50  ASA-MZ  OI=66   A=$0.35
SELL PUT  JAN-35.00  ASA-MG  OI=298  B=$0.75
INITIAL NET-CREDIT TARGET=$0.40-$0.50
POTENTIAL PROFIT(monthly)=18% B/E=$34.60
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=79%

http://www.OptionInvestor.com/charts/dec02/charts.asp?symbol=ASA
*****
FNM - Federal National Mortgage  $66.61  *** Bottom-Fishing! ***

Federal National Mortgage Association (NYSE:FNM), commonly known
as Fannie Mae, is a company that works to assure that mortgage
money is readily available for existing and potential homeowners
in the United States.  Fannie Mae does not directly lend money
to homebuyers, but works with lenders to ensure that there is no
shortage of funds available for mortgage loans.  The method in
which Fannie Mae accomplishes this is by purchasing mortgages
from a variety of institutions that make up the primary mortgage
market.  Primary market lenders include mortgage companies,
savings and loans, commercial banks, credit unions and state and
local housing finance agencies. These are the businesses where
the mortgages are originated and the funds are loaned directly
to the borrower.  Fannie Mae then purchases the mortgage, thus
allowing the primary market lender to replenish their funds and
lend more money to homebuyers.

PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-55.00  FNM-MK  OI=7464   A=$0.45
SELL PUT  JAN-60.00  FNM-ML  OI=41584  B=$0.85
INITIAL NET-CREDIT TARGET=$0.45-$0.55
POTENTIAL PROFIT(max)=9% B/E=$59.55
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=85%

http://www.OptionInvestor.com/charts/dec02/charts.asp?symbol=FNM
*****
NBR - Nabors Industries  $37.75  *** Bullish Oil Driller! ***

Nabors Industries (NYSE:NBR) is a land drilling contractor, with
over 550 land drilling rigs.  The company conducts oil, gas and
geothermal land drilling operations in the lower 48 states,
Alaska and Canada, and internationally, primarily in South and
Central America, the Middle East and Africa.  Nabors also is a
land well-servicing and workover contractor in the United States.
The company owns 745 land workover and well-servicing rigs, in
the southwestern and western United States, and 40 well-servicing
and workover rigs in certain international markets.  Nabors also
provides offshore platform workover and drilling rigs.  Nabors
markets 42 platform, 16 jackup and three barge rigs in the Gulf
of Mexico and international markets.  These rigs provide well
servicing, workover and drilling services.  The company also owns
and operates a net of nine rigs through an international joint
venture in Saudi Arabia.

PLAY (very conservative - bullish/credit spread):

BUY  PUT  JAN-30.00  NBR-MF  OI=3331  A=$0.40
SELL PUT  JAN-32.50  NBR-MZ  OI=2191  B=$0.60
INITIAL NET-CREDIT TARGET=$0.25-$0.30
POTENTIAL PROFIT(max)=11% B/E=$32.25
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=85%

http://www.OptionInvestor.com/charts/dec02/charts.asp?symbol=NBR
*****
GS - Goldman Sachs  $73.10  *** Bearish Brokerage ***

The Goldman Sachs Group (NYSE:GS) is a global investment banking
and securities firm that provides a range of services worldwide
to a substantial and diversified client base.  The firm operates
offices in over 20 countries with activities are divided into two
primary segments: Global Capital Markets, and Asset Management
and Securities Services.  The Global Capital Markets segment,
which represented 64% of the firm's 2001 net revenues, consists
of Investment Banking, and Trading and Principal Investments.
Goldman's Asset Management segment offers investment strategies
and advice across all major asset classes: global equity; fixed
income, including money market instruments; currency, as well as
alternative investment products.  The firm's Securities Services
activities include brokerage, financing services and securities
lending.

PLAY (conservative - bearish/credit spread):

BUY  CALL  JAN-85  GS-AQ  OI=17661   A=$0.30
SELL CALL  JAN-80  GS-AP  OI=416182  B=$0.85
INITIAL NET CREDIT TARGET=$0.55-$0.65
POTENTIAL PROFIT(max)=12% B/E=$80.55
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=80%

http://www.OptionInvestor.com/charts/dec02/charts.asp?symbol=GS
*****
LXK - Lexmark Intl.  $61.93  *** Lateral Consolidation! ***

Lexmark International (NYSE:LXK) is a developer, manufacturer
and supplier of printing solutions, including laser and inkjet
printers, multifunction products and associated supplies and
services for offices and homes.  The company also markets dot
matrix printers for printing single and multi-part forms for
business users and develops, manufactures and markets a broad
line of other office imaging products.

PLAY (conservative - bearish/credit spread):

BUY  CALL  JAN-75  LXK-AO  OI=1186  A=$0.30
SELL CALL  JAN-70  LXK-AN  OI=883   B=$0.85
INITIAL NET-CREDIT TARGET=$0.55-$0.60
POTENTIAL PROFIT(max)=12% B/E=$70.55
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=82%

http://www.OptionInvestor.com/charts/dec02/charts.asp?symbol=LXK
*****
MMM - 3M Corporation  $121.77  *** An Old Favorite! ***

3M Company (NYSE:MMM), formerly known as Minnesota Mining and
Manufacturing Company, is an integrated enterprise characterized
by intercompany cooperation in research, manufacturing and sale
of products.  3M's business has developed from its research and
technology in coating and bonding for coated abrasives, the
company's original product.  Coating and bonding is the process
of applying one material to another, such as abrasive granules
to paper or cloth (coated abrasives), adhesives to a backing
(pressure-sensitive tapes), ceramic coating to granular mineral
(roofing granules), glass beads to plastic backing (reflective
sheeting) and low-tack adhesives to paper (repositionable notes).
The company conducts business through six operating segments:
Industrial Markets; Transportation, Graphics and Safety Markets;
Health Care Markets; Consumer and Office Markets; Electro and
Communications Markets, and Specialty Material Markets.

PLAY (moderately aggressive - bearish/credit spread):

BUY  CALL  JAN-135  MMM-AG  OI=3289  A=$0.55
SELL CALL  JAN-130  MMM-AF  OI=6371  B=$1.30
INITIAL NET CREDIT TARGET=$0.75-$0.85
POTENTIAL PROFIT(max)=17% B/E=$130.75
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=80%

http://www.OptionInvestor.com/charts/dec02/charts.asp?symbol=MMM
*************
DEBIT SPREADS
*************

These candidates offer a risk/reward outlook similar to credit
spreads, however there is no margin requirement as the initial
debit for the position is also the maximum loss.  Since these
positions are based primarily on technical indications, traders
should review the current news and market sentiment surrounding
each issue and make their own decision about the outcome of the
position.

*****
WMT - Wal-Mart  $50.54  *** Slumping Retail Giant ***

With annual sales of $218 billion, Wal-Mart Stores (NYSE:WMT)
operates more than 2,800 discount stores, Super-Centers and
Neighborhood Markets, and more than 515 SAM'S CLUBS in the U.S.
Internationally, the firm operates over 1,200 units and employs
1.3 million associates worldwide.  Last year, Wal-Mart associates
raised and contributed $196 million to support communities and
local non-profit organizations.  FORTUNE magazine recently named
Wal-Mart the third "most admired" company in America and one of
the 100 best companies to work for in the U.S.  According to a
recent study, Americans say Wal-Mart is the company they think of
first in supporting local causes and issues, and that is one of
the main reasons people shop at Wal-Mart.

PLAY (conservative - bearish/debit spread):

BUY  PUT  JAN-60  WMT-ML  OI=7968   A=$9.70
SELL PUT  JAN-55  WMT-MK  OI=17463  B=$5.10
INITIAL NET-DEBIT TARGET=$4.40-$4.50
POTENTIAL PROFIT(max)=11% B/E=$55.50
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=81%

http://www.OptionInvestor.com/charts/dec02/charts.asp?symbol=WMT
*******************
SYNTHETIC POSITIONS
*******************

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

*****
IMN - Imation  $35.00  *** Rolling Over? ***

Imation (NYSE:IMN) is a global company widely recognized as a
leader in development, manufacture and sale of removable magnetic
and optical data storage recording media.  Their product line is
one of the broadest in the industry with removable media products
for the enterprise data center, the network environment, and the
consumer.  Imation's data storage roots extend back 50 years to
the introduction of the first magnetic data storage tape and the
company continues to meet customer needs for reliable, efficient
removable media to store, back up, and move digital information.
Imation's technology expertise spans several critical areas, from
competitive high-quality tape coating to advanced capability in
servo-writing, media packaging, cartridge design and fabrication,
optical thin film coating and material science.

PLAY (very aggressive - bearish/synthetic position):

BUY  PUT   APR-30.00  IMN-PF  OI=60   A=$1.95
SELL CALL  APR-40.00  IMN-DH  OI=265  B=$1.70
INITIAL NET CREDIT TARGET=$0.00-$0.25  TARGET PROFIT=$0.75-$1.25

Note:  Using options, the position is similar to being short the
stock.  The initial margin/collateral requirement for the sold
call is approximately $1,075 per contract.

http://www.OptionInvestor.com/charts/dec02/charts.asp?symbol=IMN
*****


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

New Territory


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/wl_121502.asp


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

Close to a Bounce?


To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/MP_121502.asp


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

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


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