Option Investor

Daily Newsletter, Sunday, 12/22/2002

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The Option Investor Newsletter                   Sunday 12-22-2002
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: Lott Trots, Frist First.
Futures Market: Gauging Least Resistance
Index Trader Wrap: Santa Claus and the January “effect”
Editor’s Plays: Current Events
Market Sentiment: Holiday Cheer
Ask the Analyst: Point and figure buy signals
Coming Events: Earnings, Splits, Economic Events

Updated on the site tonight:
Swing Trade Game Plan: Jingle Bell Rock

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
       WE 12-20        WE 12-15        WE 12-06        WE 11-29
DOW     8512.01 + 78.16 8433.85 -211.92 8645.77 -250.32 + 91.25
Nasdaq  1363.05 +  0.63 1362.42 - 60.02 1422.44 - 56.30 + 10.05
S&P-100  455.46 +  3.65  451.81 - 12.61  464.42 - 14.43 +  3.82
S&P-500  895.76 +  6.28  889.48 - 22.75  912.23 - 24.08 +  5.76
W5000   8475.23 + 48.97 8426.26 -202.90 8629.16 -217.52 + 63.55
RUT      386.88 -  1.10  387.98 -  8.74  396.72 -  9.64 +  6.36
TRAN    2324.22 +  5.75 2318.47 - 70.34 2388.81 + 28.19 + 46.64
VIX       31.47 -  0.65   32.12 -  0.56   32.68 +  1.60 +  4.35
VXN       48.51 -  2.41   50.92 -  1.36   52.28 +  2.80 +  2.00
TRIN       0.66            1.34            1.11            1.04
Put/Call   0.88            0.87            0.91            0.62

Lott Trots, Frist First.
by Jim Brown

Senator Trent Lott finally bowed to pressure and said he will
step down as Senate Majority Leader. Tennessee Senator Bill
Frist is now first in line to take over the post. What does
this have to do with the markets? Nothing really but it is
one more distraction out of the way as we move into the
normally bullish holiday period.

Dow Chart – Daily

Nasdaq Chart – Daily

Friday began with a bang on several counts. The final Q3 GDP
came in at +4.0% growth as expected and helped to allay fears
that the economy had slipped at the end of the quarter. The
top line number was strong and there was plenty to worry about
internally but the markets ignored the news. Auto sales have
dropped significantly from the 3Q levels. Retails sales are
coming in at the low end of estimates. Inventories are being
allowed to deplete due to lack of orders in the pipeline. Even
mortgage rates have started to bounce off their lows as the
expectation of future rate hikes grows. The rising unemployment
indicates that the rate of consumer spending in the 1Q should
slow. Despite the negative internals the outlook is still
positive and no change in the headline number eased many traders

Greenspan provided an upbeat view of the economy Thursday night
and said the economy was working its way through the soft patch
and would eventually emerge stronger for the long term. He
emphasized that inflation, a decades old monster, was under
control and would remain under control and he squashed fears
that deflation could be in our future. He said the Fed was
watching for approaching signs of D-monster and would take
prompt and decisive action if conditions changed. He commented
that since the bursting of stock market bubbles caused such
serious economic problems that maybe they should be prevented
in advance. What? He went on to prove why that idea would not
work and stressed that the passage of time required to erode the
traumatic memories was deterrence enough. He tried to diffuse
the idea that the Fed had collapsed the bubble by raising
rates and stressed it fell from a lack of emerging profits
instead. New technology burst onto the scene filled with promise
of a new era but that new era actually leveled the playing field
for everyone and massive profits never appeared for most companies.
Overall it was seen as a bullish speech and the markets celebrated
his outlook at the open on Friday.

The first quadruple witching event coupled with an NDX and S&P
rebalancing went off pretty smoothly. It appears most positions
were squared earlier in the week and the bounce off 8350 at the
open did not really trigger that much short covering. Surprisingly
the stocks being deleted from the NDX tended to rise on Friday
while the stocks being added have mostly been trending down this
week. It appears the speculators who bought/sold the NDX stocks
or options on them got caught holding the bag when the index
funds failed to show up on time. The index changes actually take
place at the opening of trading on Monday and index funds generally
have three days on either side of Monday to dump the old ones
and add the new ones. With the quadruple witching Friday it
appears many funds have opted to wait till next week to shuffle
the deck.

The big news for Friday was not the rebalancing of stocks but
the rebalancing of funds from the major brokerages and into the
pockets of regulators with a $1.4 billion settlement. Considering
over $7.5 trillion in stock market value went up in smoke while
these brokers were touting stocks in the press and trashing
them internally it looks like a bargain. That equates to about
$1 in penalty for every $5,357 dollars lost. This is far from
over and there are thousands of shareholder suits that will
extract billions more from the banks in the near future. Don't
worry about the banks having enough money to pay the fine.
Citigroup for instance averaged $65 million profit for every
business day in the third quarter. The real blow will come from
the class action law suits which could run in the tens of
billions in settlements.

Jack Grubman agreed to a fine of $15 million and a lifetime
ban on working in the US securities industry for his role in
the scandal. Guess he will have to sell his WCOM stock to pay
the fine. Surely he owns millions of shares of the companies
he recommended, right? He bragged he was close friends with
CEO Bernie Ebbers. He can probably get a loan from him as soon
as Ebbers repays the $1 billion he owes WCOM. He could probably
apply as a high profile securities analyst for some foreign
power. I hear Saddam has an opening coming up and their
communications sector will be exploding soon.

The semiconductor sector shook off the flat book-to-bill numbers
and the seven semi stocks being dropped from the NDX and closed
slightly positive for the day at 297. This was significantly
below the recent resistance at 330 but it appears to be holding
at a higher low despite negative news. Could it be that semis
are about to find a new life? If the Nasdaq is going to have
any chance next week it will require the semis to participate.
The Nasdaq comp rallied to close right at the 38% retracement
level at 1367 and the 50 DMA at 1369. Now that the stocks
leaving the NDX are gone and can no longer impact the index
we have a better chance of breaking through that resistance on
Monday. As I stated several times in the last three weeks I
think any holiday rally will fail in the 1415-1425 range on the
Nasdaq. That gives us a narrow range to trade in the holiday
shortened week.

The Dow took the news that Boeing was dropping its high speed
jet in stride and the stock helped power the +146 point gain.
Only five Dow stocks ended the day negative, MSFT, KO, HD, HON
and HPQ. MMM led the charge on the improvement in the ECRI
Weekly Leading Index and the bullish comments from Greenspan.
After two negative weeks the Dow bounce put it back into positive
territory for the week. Once there it ran into strong resistance
at the 50 DMA at 8512. Once over that 8512 level the Dow is in a
little better shape than the Nasdaq but has strong resistance
just over 8600 and then 8750-8850 range. Despite the historical
trend for a holiday rally there may not be much upside in our
future. I am still looking for the rally but I am also expecting
a post holiday sell off as well. The economy may be improving
slowly but until more indications appear the gains from the
October lows are still at risk. If you are following my
suggestions for the week you should be long from 8350-8450
and looking for 8750 as an exit after the holiday.

Enter Very Passively, Exit Very Aggressively!

Jim Brown

"If you can count your money, you don't have a billion dollars."
J. Paul Getty

Annual Renewal Special

The annual renewal special is off to a rousing start. The
renewals are pouring in and choice of the varied bonus options
gives everyone something to cheer about. We added the FOMC
meeting dates to the mouse pads 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.

The deadline for taking advantage of this special is Jan-13th.

Click here for the full details:



Gauging Least Resistance
By John Seckinger

It appears to be the market’s job to settle on defined pivotal
levels.  Well, it is our job to look beyond the “noise” and get a
true sense of least resistance while taking risk into

Friday, December 20th at 4:15 P.M.

Contract          Net Change     High        Low        Volume

YM03H    8535.00   +180.00     8545.00     8365.00       15,665
NQ03H    1023.50    +11.00     1027.00     1011.00      167,615
ES03H     896.75     +1.35      897.25      884.25      361,823

ES03H  = E-mini SP500 futures
YM03H  = E-mini Dow $5 futures
NQ03H  = E-mini NDX 100 futures

Note:  The 03H suffix stands for 2003, March, and will change
as the exchanges shift the contract month.  The contract months
are March, June, September, and December.  The volume stats are
from Q-charts.

Fundamental News:  Federal Reserve Chairman Alan Greenspan told
the Economic Club of New York Thursday night that the US economy
is emerging from its "soft patch".  Mr. Greenspan also said that
he thought geopolitical uncertainty easing could help business
spending.  In other news, St. Louis Fed Pres Poole s noted that
deflation is unlikely and that consumer spending is expected to
be 3% in 2003.  In other news, Senator Trent Lott said he will
not remain majority leader, since stepping down is "in the
interest of pursuing the best possible agenda for the future of
our country."  Additionally, a WSJ report said OPEC may not be
able to make up for lost supply due to problems in Iraq & the
strike in Venezuela.  Feb Crude Oil rose fractionally to 30.35
during trading on Friday.  In economic news, the final revision
of Q3 GDP remained unchanged at 4.0%, which was in line with the
consensus estimate.  Looking at specific sectors, brokerage
stocks rose after the nation's biggest financial institutions
agreed to pay $1.4 billion in fines in an effort to overhaul
research departments.

Technical News:  The Utility Index (UTY) finished near its best
levels of the week at 258.78, and will now confront solid
resistance at 260.  If 260 is broken, look for this area act as
solid support.  A rise in the UTY should help equities in
general.  The Sox index closed well below its 320 intermediate
pivot level, and even softened under 300 as the weekend
approached.  On a daily chart, the Sox did perform a higher high
and higher low from Thursday, but still looking somewhat weak
going forward.  A move under 295 should pressure the index.  A
rally above 320 would be viewed as bullish.  The 30-year (ZB03H),
on the other hand, closed at 110’31 and right on a bearish trend
line that dates back to the beginning of October.  With that
said, direction is hard to gauge; however, look for a move to
111’16 in order to confirm a bullish move in bonds.  This would
be bearish for stocks.  A move in bonds under 110 would take
sentiment to more neutral levels.


The December Mini-sized Dow Contract (YM03H)

It should not be a surprise that the Dow came back and closed
almost exactly on the intermediate pivotal level of 8515.  It is
almost the market’s job to make traders re-think the current
environment.  The Dow, as profiled, bounced above the 38.2%
retracement area and was at the bottom of the Bollinger Bands
heading into Friday’s session.  Closing under 8400 did give the
impression of further weakness, but a trader’s job is to gauge
risk and use what the market gives him (or her).  The thought of
a bounce clearly existed, and we now have a solid range in the
from 8625 to the 38.2% retracement level, closing on Friday about
as neutral as it could.

When gauging the importance of this 8515 level, it comes down to
TIME.  How long has the contract consolidated around this 8515
area?  In my experience, I would say long enough.  Therefore, if
the 22 PMA (8559) is taken out to the upside, bids should
continue to enter the market in the form of short covering and
longs afraid to miss the move higher.  From the 9000 area, the
Dow traded “inefficiently” down to 8502 on December 6th.  This is
the first step in the “b” distribution.  The chart below then
shows how the bottom consolidation pattern formed from 8625 to
near 8400.  Then we had a break lower from near 8515 (always
starts from near the pivot) and gave the impression of another
wave lower.  However, now that prices are almost right back at
the 8515 pivot, shorts from near 8515 have to be extremely
worried about a major trap taking place.  It is very nice that
the pivot in the YM is just under current prices, because
weakness lower without testing the pivot is a good sign that a
trap will not develop and bears still have full control.  To me,
this is as pivotal as when the Dow traded above 9000.

Chart of Dow Jones, Daily

The Pivot in the YM contract was 8386 heading into Friday.  The
low was 8365 and the high 8535.  Therefore, as a trader, it was
not long before sentiment shifted short-term bullish and things
were looked at from the long side.  As noted in the monitor, it
was continually bullish that after the first five minutes the
biggest pullback didn’t even test the 50% retracement of the
range during the first five minutes.  This showed underpinning
bids and increased the odds of a move in the Dow towards 8515.

Remember the 22 Weekly Moving Average (8620) profiled about a
week ago.  Well, the YM did move explosively off that area, and
we now have a chance to come back and test this area once again.
That would be a near term objective for bulls, possible if the YM
can get above 8580 (correlate to Dow at its 22 DMA).  If the YM
contract starts to weaken, look for support at 8418.50; however,
expect look for 8418.50 to become good resistance once 8390 is
taken out.

Chart of YM03H, 60-minute


Support               Resistance                Pivot

8418.50               8598.50                   8481.75
8301.75               8661.75

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

The December E-mini Nasdaq 100 Contract (NQ03H)

One of the big questions within the Nasdaq-100 Index is the
rebalancing of 15 stocks taking place over the weekend.  For a
list of these names, please see the link below (note how Jeff
used the expression “John Seckinger Pivot” in one of his charts).


There appears to be a discrepancy in least resistance between the
NDX and the NQ03H contract.  The NDX closed under 1019 and failed
to test its 50 PMA (exp) at 1025 as the Dow rallied.  The NQ
contract, however, bid after the cash market closed and gave a
different look.  As far as the NDX is concerned, look to use the
50 PMA area (will most likely fall towards 1019) as a pivotal
area during trading on Monday.  If the contract rises above,
expect a move to resistance at 1036 – which lines up nicely with
the 200 PMA.  On the other hand, a drop below the 995 area should
have bears looking to initiate positions and once again expecting
a move to 973.  Remember, think “sell resistance, buy support”.
If the NDX tries to rally and the oscillators look overbought or
signal a bearish divergence, look to sell resistance and then get
a solid entry as the index rolls.  Then look to add around 995
(get stops out of the way just under 1000).

Chart of NDX, 60 Minute

The NQ03H contract moved higher after the NYSE exchange closed,
propelling the contract to the 200 PMA and above the 38.2%
retracement area shown below.  Going forward, the pivot is at
120.50 and looks very appropriate.  Also nice is how both
resistance levels line up with the retracement areas from the
recent cycle lower.  Notice how the 61.8% level worked perfectly
during the rebound from the first low.  If the contract does fall
under the pivot and give a sell signal, the 1014 support area
should line up with the rising blue trend line.  If weakness
continues and the next support level is tested at 1004, I would
move a stop down to 1011 to protect profits.  Until the pivot is
penetrated, the contract has a slightly bullish look.

Chart of NQ03H, 10 Minute


Support              Resistance                 Pivot

1014.00              1030.00                    1020.50
1004.50              1036.50

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

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

The SPX contract once again bounced higher from the intersection
of the two trend lines (green and blue), and this rebound managed
launched the contract above both bullish trend lines.  Even
though the contract failed to close above 900 (analogous to the
Dow at 8515), the contract has to be given credit with its close
above 893.00 (blue trend line).  Going forward, look a move
higher once above 901 and use 910 as a short-term objective.  If
the move there is explosive, most likely the contract will
pullback slightly and then breakout to 915.  If 893 fails, look
for that level to become resistance and pressure the contract
back down to 883.

Chart of S&P 500 Index, 120-minute

The ES03H contract is currently equidistant from the 911 to 880,
and still rests below the neckline of the H&S formation profiled
a few days prior.  Going forward, the 901.25 resistance level is
above the 200 PMA and should quickly become support if penetrated
early in the session.  If 888.25 is broken early on, look for
that level to act as resistance and get longs to rethink Friday’s
move.  An interesting bullish move would be if the contract can
get above 911 and most likely take out stops that have been there
for a few days now.  That would certainly be a nice step in a
huge change in sentiment.  As the session on Monday progresses,
use the MACD oscillator as an indicator of whether or not the
market is in the process of forming a bearish or bullish
divergence.  Example:  A move below the 879 relative low in
price; however, the MACD fails to take out its relative low.  By
definition, a bullish divergence and longs will most likely step

Chart of ES03H, 30-minute


Support              Resistance                 Pivot

888.25               901.25                     892.75
879.75               905.75

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

Good Luck.

Questions are welcomed,

John Seckinger

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:



Santa Claus and the January “effect”
By Leigh Stevens

While the “Santa Claus” rally might be happening and the “January
effect” is a tendency for stocks to lift during the first part of
the New Year, there is no “confirmation” of a bullish trend until
or unless the summer highs in the indexes are exceeded.  On the
bearish side, the S&P and Nasdaq indices are trading under their
key 50-day moving averages (the Dow just eked above it on Friday)
showing fading upside momentum. A bearish breakdown is indicated
if SPX (S&P 500) closes below 876, OEX (S&P 100) under 448, COMPX
(Nasdaq Composite) 1319 and NDX (Nasdaq 100) closing under 981.

For the week, the Dow broke its losing streak and close up 1% (79
points, to 8512) from the prior week – the S&P 500 also was
slightly higher on the week by 6 points to 895 or +0.6%. The
Nasdaq (COMPX) was up only 1 point, to 1363 – but it did also
break its recent fall.

Next week is a shorted one of course, with the market closing
early on Tuesday, the day before the Christmas day holiday, when
it is closed all day.

Stocks rebounded strongly on Friday after a settlement was
announced involving collective fines of close to a billion
dollars from the major Wall Street “full-service” brokerage
companies; e.g., Merrill Lynch, Salomon Smith Barney (Citigroup),
Credit Swiss First Boston, Goldman Sachs, and Morgan Stanley.
They will also separate their research and investment banking
activities – this, by buying research from independent companies.
The long standing so-called “Chinese Wall” separating investment
banking from the research arms didn’t keep out the Mongol hordes
any better than the one in ancient China.

The actual “cost” to the firms was more than a billion if you
also count $450 million to fund independent stock research over
the next 5 years and 85 million on investor education – of
course, these same firms would be otherwise spending the money on
their in-house research, so don’t take the 1.4 billion figure at
face value.  Knight in shining armor Elliott Spitzer (NY Attorney
General), who forced the barons of  Wall Street to cough up the
dough - and give up the possibility of lucrative investment
banking fees by touting stocks to the Main Street little guy/gal
investors – also gained a ban on allocation of IPO shares to
insiders at public companies (called “spinning”).  You know –
those same hot IPO shares that YOU could NEVER get from your
“full-service” broker!

By the way, YOU don’t get the 900+ million, as it will be split
between the Feds and the States. By the way, for those of us who
kind of like to see the same barons of Wall Street led away in
handcuffs, part of the deal was no prosecution of the brokerage
execs – Sandy Weill (CEO of Citigroup) was one of my favorite
choices for this treatment but there will not be any more charges
against him.  Of course, Sandy and I go way back as I worked for
Shearson Hayden Stone (& Weill) back when he was only ambitious
and not yet obscenely rich.

The Dow Industrial average benefited the most from this news.
And, Friday was the advent of “quadruple witching” – wasn’t 3
witches enough!? – as, besides the usual culprits of activity
related to expiring stock and index options and index futures,
for the first time there were single-stock futures expiring.
Hey, haven’t we had enough derivatives and the futures guys
getting into the stock playpen! Guess not.

In addition of course, we had the S&P 500 and the Nasdaq 100
adjusting their makeup on Friday.

Repeating from last week – OUT of the NDX is:
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).

IN is:
Expeditors International of Washington (EXPD); Ross Stores (ROST)
Dentsply International Inc. (XRAY); Lamar Advertising (LAMR);
 Whole Foods Market (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).

The re-balancing took place on this past Friday, not the week
before as I indicated in my 12/15 weekly commentary. I was
thinking of the fund manager portfolio buying and selling that
has started as soon as the as the Nasdaq had announced the new
lineup.  Actually, there is a tendency to guess the new stocks
and buy AHEAD of the announcement.  Definitely, fund managers buy
ahead of the actual day of rebalancing as they know that there
will be a lot of last minute buying that will tend to put prices

Global tensions heated up again by Friday, as Secretary of State
Powell summarized the critical U.N. chief weapon inspector’s
findings (related to Iraqi documents on its Weapons of Mass
Destruction) as a “material breach” by Iraq.  This phrase of
course is by now famous as a definite statement that Iraq is NOT
doing what the U.N. Security Council says it must do – declare
its WMD and then destroy them. And, by inference leads to the
U.S. armed forces going in and doing the same by force.

Advancers led decliners by 2 to 1 on the NYSE on Friday – in the
Nasdaq, 1890 issues advanced versus 1428 decliners.  Bond prices
lost an 1/8th on Friday, as a $1,000 10-year note was fetching
about a $1.25 less than the day before.  The dollar was mixed –
the Euro continues to trade over $1.02 but fell slightly (from
1.0275 to 1.0265).

Consumer, housing data and some more info on durable goods orders
are on tap.  On Monday we’re due to get personal income and
spending data – expectations are that the consumer is holding up
well thank you.  Tuesday brings Durable goods orders and Thursday
is initial jobless claims per usual. Jobless claims are going to
be an influence as it reflects current conditions. No major
earnings announcements as you would expect.

As widely noted, only a scant percentage of past Decembers in the
last 50 years have been down months – hence the term of a “Santa
Claus” rally for this month.  The dollar doesn’t take a break for
Christmas although trader slows way down. Likewise, gold and oil
trading, but these will be watched closely.

The two biggest risks are war in the Middle East and a possible
terrorist attack, but the investor confidence, and (Corporate)
earnings have stabilized and are growing again. The market might
be able to take off if the war issue was resolved.

Durable goods orders (minus depressed aircraft orders) are
expected to show a positive upward track.  New home sales are
reported Friday and are not expected to ease much if any from
their strong 2002 pace.

Gold prices hit new 5-year highs last week and I am keeping an
eye on bullion prices - a move above $350 per oz. in gold (Fri
close: 341), particularly on a weekly closing basis, is a bearish
indicator for equities prices in my opinion. The wild talk from
the gold bulls on how high it will go THIS time is however also
suggesting to keep the periodic outbreaks of gold fever in some
perspective – been down that road before and it came and went.

The PHLX Gold & Silver Index (XAU.X) above 80 (weekly close:
74.29) at its current down trendline would be also a bearish
indicator for the financial assets, although XAU would not
“technically” be in a bullish trend until the Index clears its
prior weekly closing high at 86.


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

The rally has defined a down trendline that is the technical
aspect to watch – that and the 50-day moving average which comes
in at the same place around 457 currently.  A close above this
line is needed to renew some upside momentum – in that case, next
resistance comes in at 470, where I would look at selling any
rally failure to this area.

Key OEX downside support is at the prior swing low at 445 – if
this level is penetrated to the downside, my next lower objective
is to 430. If short by participation in puts, I would stay with
them, with stop protection just above 457-460, given the oversold
condition near term and the seasonal tendency to rally.

DJ Industrial Index (INDU) Daily:

Most of my downside objectives in terms of the Dow has been met,
with last week’s move to near 8300.  My trading parameters for
DJX is to play puts in the 8600-8630 area and calls around 8300
as I suspect that this will be the range for a while longer.  A
move above 8630 would suggest exiting puts however as it would
suggest upside potential back up to the 8775-8800 area.


The chart remains in a bearish pattern and a move possible to
support in the 1300-1320 area.

A close above 1400 would cause me to exit puts or an intraday
move above 1450.

QQQ Daily/Hourly charts:

The Q’s remain in a bearish pattern as well.  There has been
substantial selling and resistance when the stock has gotten up
into the 26.30 – 26.70 zone and this is what I am keying off from
in terms of resistance – above here I want to cover shorts and
exit puts.

Absent that, look for a continued drift lower toward support
which looks to be in the 24 area, which is my downside profit
objective and a place where I will be want to see if there is a
play on the long side (with stop protection at 23.30)
– assuming QQQ stabilizes on a move down to this area and volume
picks up on a rebound.


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:


Editor's Plays

Current Events

I don't know if it was just the mixed up market or me but I had
a hard time finding anything I was really excited about to profile
this weekend. Many of the bullish stocks have rebounded to close
resistance but are not showing any material signs of breaking
out. Many bearish stocks rallied on Friday to resistance but
with a potentially bullish period over the next week I am not
that excited about going short without a good story.

The market is in trouble. The lack of a ramp into the holiday
week is disturbing. The dead stop on Friday at 8512 (50 DMA)
was unlike a pre-holiday bounce. With strong resistance at 8625
and again at 8750-8800 there is only a slim chance we can post
any major gains. Anything is possible, as we have seen a couple
times in the last couple weeks. Any good news can supply the
spark and retail traders are ready to believe anything.

The main challenge is to try and trade the expected bounce
without being hung out to dry by the also expected drop once
the week is over. I pass, thank you.

Instead of trying to focus on speculative plays for next week
I picked one long term short and one event driven long.

Goldman Sachs  $71.69 Short

With the government case over and a huge admission of guilt and
whopper fine the class action lawsuits just got a mega dose of
vitamins. They will have access to the documents that convicted
the brokers and even where there was no "admission of guilt"
the size of the fine will make juries think otherwise. Goldman
is the highest priced stock of the major brokerages. As the
news shifts to the shareholder suits the settlement numbers are
going to start climbing with every news report. Goldman has
support at $70. Once that support fails the bottom could fall
out of the price as funds begin dumping the wounded overboard.

GS rallied off Thursday's test of $70 on Friday's news. It
was not convincing. GS also has strong resistance at $74. If
it rallies on a positive market next week then $74 is likely to
be the top.

If GS shows no strength next week I would look to short or buy
puts on GS with a break under $70. If it rallies with the market
to $74 I would be looking to short/put GS at $74 and thankful
for a better entry point. Either way my target is $60.

Because this could take sometime I would suggest April or July
options and they are not going to be cheap. Buying deep in the
money reduces the time premium but risks more cash.

APR-$65 GS-PM $3.80
APR-$70 GS-PN $5.30
APR-$75 GS-PO $7.60
APR-$80 GS-PP $11.10 ($8.31 ITM)

JUL-$65 GS-SM $5.80
JUL-$70 GS-SN $7.70
JUL-$75 GS-SO $9.80
JUL-$80 GS-SP $13.10 ($8.31 ITM)

Obviously the longer-term options are safer and will increase
in value quicker once a drop begins. They will also bleed less
if we get a bounce next week.

The strategy for me would be to hope for a bounce to $74 and
then buy the APR/JUL $80 put. This may not be the strategy
everyone else would use.

I know the majority of traders will buy the APR-$70 put on
a bounce to $74. There is nothing wrong with that. It just
leaves you exposed to lots of premium bleed if GS hovers
between support at $70 and resistance at $74 for several
weeks. Once a strong move develops the premium on the OTM
option will rapidly escalate as the stock drops below $70.

The percentage gain will be larger than the deep ITM option
but the dollars gained should be less. Since this is a teaching
section I am going to profile all the options and prices as
the weeks progress and you can then decide how you want to
play your options in the future.

I will use $74 and $70 as the trigger points for the play with
a stop loss of $81 on the $74 trigger and a stop of $76 on
the $70 trigger. We will go with whichever trigger is touched


Forrest Labs $98.70 Call 2:1 Split Jan-9th

FRX is a simple split run call play. It has been a long time
since we have had any decent split runs. FRX has a bullish
wedge with a top at $99.00 and a breakout could cause some short
covering. Using the current upslope the target would be $104
by the 9th. With any positive market and some short covering
it could be higher.

For those who are unfamiliar with split plays the trick at
this point is to close the play BEFORE the split. Once the
split occurs many traders will sell their new stock and this
causes a negative reaction. Funds with limits on the number
of shares they own will be forced to sell the excess shares
as well.

The 9th is on a Thursday, which means I would be a seller on
Tuesday or Wednesday at the latest. DO NOT hold over. I have
seen numerous stocks drop several dollars at the open after
a split.

Since you are selling before January expiration there is no
need to buy longer term options. If you want to invest the
extra money and take on the risk of an unexpected event either
in the stock or the market then the longer options are worthwhile
because there will not be any premium decay in the first week
of January like there will be with January options. The premiums
will hold up longer but be sure to close before the split. Just
because you have Feb/May options does not prevent the stock
from dropping.

Set your profit target at 50% on the JAN call, 30% on the FEB.

Jan-$95 Call FHA-AS $6.40
Feb-$95 Call FHA-BS $8.60

Play updates:

XRAY Jan-$40 Call

Traders thinking about the XRAY call play from last Sunday
got a gift on Monday with a gap down to $35.50 at the open.
The Jan-$40 call dropped to $.25 cents at the open and traded
in that range for about 90 min. The stock rebounded by Friday
on NDX buying to touch $38 again at the close. With four days
of NDX buying still ahead there is a good possibility that
$40 level will be broken for a strong win.

Those that sold naked puts are much better off as the Jan-$45
put, which was suggested, traded in the $9.10-$9.20 range
until 11:00. That put closed on Friday at $7.30 for nearly
a $2 gain and the play is far from over.

PTEN - Patterson Energy

Unfortunately the PTEN call play did not do as well. The
stock gapped up as expected to $33 but then sold off on
Wednesday as traders took profits from the strong gains
from the Nov drop. It rallied back to $32 by the close
on Friday but is looking like a breakeven at best if the
NDX buyers do not appear in volume next week. The call
opened at $1.00 on Monday and closed at 50 cents on Friday.

DJX Laddered call

The laddered call play should have filled two more increments
at 84.00 and 83.50 and came very close to the last trigger
at 83.00.

The entry at 84.00 should have filled for around 50 cents
and the entry at 83.50 should have filled at 45 cents.

This makes our total for 40 contracts look like this:

10 @ $86.00 for $1.30
10 @ $85.00 for $1.10
10 @ $84.00 for $0.50
10 @ $83.50 for $0.45
Total		    $3.35 or .8375 average

We are slightly underwater with the option closing at 50x65
on Friday.

At this point I do not have high hopes for the trade. Initially
I thought we would get the sell off earlier in the cycle and
ramp up for the potential holiday rally a little sooner.
Now we are faced with the Dow stuck at 8512, decent resistance
at 8625 and strong resistance at 8750-8800. Getting back over
8800 is going to take a strong change in sentiment and a really
good triple digit day. There have been numerous strong days
during the holidays in the past and we really need one to
pull us out of this hole. Breakeven should occur around 8600
so getting out should not be a problem. Making a large profit
is a different task. We really need the Dow to hit that 8800
level and hit it in the next four days to have a chance for
a double. At this point I would set a profit stop at $1.25 or
$1.50 depending on what Monday brings and hope for a big one
day spike.

See the editors plays from Sunday Dec-8th for a full description
of this play and the update on 12/15.



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

Good Luck

Jim Brown


Holiday Cheer
by Steven Price

Now that investors have digested the Iraq news, we may finally be
back on track for a Christmas rally. Over the last 34 years, we
have seen an average gain of over 10% in the Dow from the
November/December low, to the December/January high.  Thursday's
drop took us down to within 30 points of the November low and
today's big bounce made up for that drop and more. Interestingly,
the rally found resistance at the 50 day moving averages in the
Dow, SPX and OEX.   That 50-dma is rising and a move above that
level would seem to confirm the rally.  That average in the
various indices is Dow 8512.90 (close of 8512.01), SPX 899.27
(high of 897.79), OEX 457.90 (high 456.71).  It is probably not a
coincidence that the rallies stopped at that level. If we get a
continued move over those averages heading into a traditionally
bullish week, along with some support, we can probably expect the
"Santa Claus" rally to continue into the end of the year.

There are a couple of red flags traders need to be aware of,
however.   First is the descending trend line in the Dow that
closely coincides with its 50-dma.  That trend line is taken from
the recent high just over 9000 on December 2 and extends through
the high of 8638 on December 17.  It neatly reaches today's high
and can be used to gauge the action on a pullback and then
continued rally after the big gain today, as the 50-dma changes
value in the next few days.   Second is the Nasdaq Composite,
which also failed its 50-dma, as well as its 38.2% Fib
retracement level of the recent rally from October to December.
That retracement level had provided support prior to Thursday's
breakdown and today's rebound stopped short by a couple of
points.  The retracement sits at 1363.05, versus today's close of
1361.51.  Contributing to the Nasdaq failure was the non-
participation in today's rally by the chip stocks.  The
Semiconductor Index (SOX) barely moved, staying beneath 300 with
a finish of 297 (+0.96).  The SOX did trade as high as 305
intraday, but was unable to hold that gain.  There is an awful
lot of resistance just above for these stocks, with additional
speed bumps at 307, 310 and 330.   Any continued rally in the
broader markets will have to weave its way through these
resistance levels in an index that has been a market leader in
recent months.

Another warning sign is that the bond market did not see selling.
Usually in a significant equity rally, cash shifts from bonds to
stocks.  While we saw some selling of the 5-year note today, we
also saw buying of 30-year and 10-year notes.  The 10s and 30s
are both still rising and approaching resistance at 114 and 112,
respectively.  A move over these levels would correspond loosely
to a move below 8300 in the Dow and could signal another leg
lower if today's bounce turns out to be just that, and not the
beginning of a big run. The fact that the dollar ended the day
slightly lower is also a bearish signal that calls the rally into

A number of investment banks finally settled conflict of interest
charges by New York Attorney General Eliot Spitzer.  The total
amount of the settlement was $1.4 billion with the biggest
contributor being Citigroup's Salomon Smith Barney unit, which
will pony up $325 million. The settlement includes the separation
of research analysts from investment banking, a ban on awarding
shares in initial public offerings to executives who are in a
position to influence investment banking decisions, and an
obligation to furnish independent research to investors.  The
settlement sent the banks higher with the bank indices (BKX
+2.39% BIX +1.85%) and Broker Dealer Index (XBD +2.32%) all
leading the charge in the Dow. Spitzer has certainly made a
difference in the way Wall Street does business, as I'm sure
he'll remind us in whatever political campaign he undertakes
next.  I think the last prosecutor to spend this much time in
front of the TV cameras was Marcia Clark.

The 34 year trends of the Santa Claus rally is hard to argue
with, but even if we continue higher for the next several days,
traders need to be aware of the other factors weighing against a
continuing rally. The fact that the bullish percentages have
reversed down in the Dow, OEX, SPX and NDX are also painting an
overall bearish picture. Bulls can certainly feel confident that
history is on their side in the short term, but be sure to keep
tight stops and be ready to jump ship on a rollover below recent


Market Averages


52-week High: 10673
52-week Low :  7197
Current     :  8511

Moving Averages:

 10-dma: 8509
 50-dma: 8513
200-dma: 8367

S&P 500 ($SPX)

52-week High: 1176
52-week Low :  768
Current     :  895

Moving Averages:

 10-dma:  897
 50-dma:  899
200-dma:  966

Nasdaq-100 ($NDX)

52-week High: 1734
52-week Low :  795
Current     : 1013

Moving Averages:

 10-dma: 1024
 50-dma: 1023
200-dma: 1092


The Semiconductor Index (SOX.X): The Semiconductor Index has been
relatively stable the last two days, hovering around the 300
level.  This is significant for a couple of reasons.  First, it
barely moved on a big down day after the news hit on Thursday
that the U.S. would declare Iraq in violation of its agreement
with the U.N.  On Friday, we got a big snap back rally and once
again the SOX did virtually nothing.  This index has been a
market leader for the past year and Thursday's lack of movement
was an indication that the market collapse was oversold.  It
would seem then that today's lack of movement would indicate that
the bounce was overzealous as well. Until the SOX breaks through
resistance at 300, 310, and 330, it will be tough to get a
continued broad market rally. While some analysts may attribute
the lack of a rally to mediocre book-to-bill numbers yesterday,
if these numbers were really behind the lackluster performance
then we should have seen a bigger drop on Thursday when the
numbers were released. What we are probably seeing is simply a
market that would have seen little activity if not for the Iraq

52-week High: 657
52-week Low : 214
Current     : 297

Moving Averages:

 10-dma: 312
 50-dma: 311
200-dma: 390


Market Volatility

Today's rally sent the VIX plummeting almost 9% ahead of the
holiday week.  Traders were unwilling to hold onto long premium
ahead of a week that promises to see low volume and little option
order flow to trade out of time decay if necessary.  If the sell-
off had continued, traders would likely have kept the put bids
high, but with the scare of a big drop fading on today's rally,
it was like a game of musical chairs, with no one wanting to be
the highest bid on the board.   The VXN was not nearly as
reactive, as the tech rally was far weaker, indicating remaining
weakness in the sector.

CBOE Market Volatility Index (VIX) = 31.47 –3.08
Nasdaq-100 Volatility Index  (VXN) = 48.51 –0.96


          Put/Call Ratio  Call Volume   Put Volume

Total          0.88        623,736       551,172
Equity Only    0.70        519,857       353,278
OEX            1.03         38,838        40,145
QQQ            1.70         32,927        56,062


Bullish Percent Data

           Current   Change   Status
NYSE          49      - 0     Bull Confirmed
NASDAQ-100    62      - 0     Bear Alert
Dow Indust.   56      - 1     Bear Alert
S&P 500       59      - 1     Bull Correction
S&P 100       57      - 1     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   1.31
10-Day Arms Index  1.32
21-Day Arms Index  1.29
55-Day Arms Index  1.14

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


Market Internals

        Advancers     Decliners
NYSE       1926           920
NASDAQ     1853          1398

        New Highs      New Lows
NYSE         73              48
NASDAQ       69              77

        Volume (in millions)
NYSE       2022
NASDAQ     1928


Commitments Of Traders Report: 12/17/02

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 significantly to both long and short positions,
however added 7,000 more short contracts.  Small traders took a
similar approach in adding to both sides, but came out decidedly
longer, by about 13,000 contracts.

Commercials   Long      Short      Net     % Of OI
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%)
12/17/02      465,361   528,896   (63,535)   (6.4%)

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
11/26/02      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%
12/17/02      194,740    90,803   103,937     36.4%

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


Commercials reduced the net short position by about 5,000
contracts, while small traders left positions relatively
 unchanged, with a net reduction in the long position of about
800 contracts.

Commercials   Long      Short      Net     % of OI
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%)
12/17/02       51,999     54,383   ( 2,384) ( 2.2%)

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
11/26/02       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%
12/17/02       23,027    18,027     5,000    12.2%

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


Commercials added to both sides of the position in approximately
equal numbers, while small traders cut down on the short position
by about 400 contracts.

Commercials   Long      Short      Net     % of OI
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%
12/17/02       23,782    20,605    3,177       7.2%

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

Small Traders  Long      Short     Net     % of OI
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%)
12/17/02        5,498     9,045    (3,547)   (24.4%)

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


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:



Point and figure buy signals

Can you explain what typically happens after a stock hits a
double-top breakout?  For example, does this typically trigger
short covering, causing a rise in price?  I'm curious if your
expertise on PnF charts has given you any insight as to how
things usually progress after this supply/demand change takes

This is a great question and something that bar chartists will
look to try and understand.

The subscriber's mentioning of "short covering" is very much a
part of the supply/demand equation for higher stock price action
and something that a bullish trader/investor will look for in
order to provide that extra "umph" in addition to bullish buying
on a breakout move to the upside.

It's one thing to have bullish buying moving a stock's price
higher, but better yet to get bearish traders also buying the
stock as they look to cover positions as they either lock in
gains or cut losses on higher price action.

I view the "double-top" buy signal as the "least powerful" types
of point and figure buy signals.  This is a very general comment,
but Professor Davis' study of probabilities under "bull market"
conditions shows the double top buy signal being profitable 80.3%
of the time, for an average gain of 38.7% in approximately 11.5
months on average.

Compare that to the "more powerful" triple-top, which Professor
Davis' study showed as being profitable 87.9% of the time with an
average gain of 28.7% in just 6.8 months.

"Now wait a minute!" you say.  The double top buy signal seems
more powerful on a percentage gain basis compared to the triple
top.  This is true.  But I also believe that time is a factor and
we all know that "time is money."

A trader/investor looking at double-top buy signals must also
"understand" or recognize what type of PATTERN that double top
buy signal is coming from.  You see, there's the plain old
"double top buy signal" and there's the double-top buy signal at
could come from the "bearish signal reversed," or the "bullish
triangle" PATTERNS.

You will see the words PATTERN in uppercase as to emphasize
importance.  This is perhaps where the subscribers mentioning of
SHORT COVERING and its impact on supply/demand can drive price

While PATTERN is important when looking at double-top buy
signals, MARKET CONDITION as depicted by the bullish % is also

Lets try and understand these dynamics, and look at a point and
figure chart of Intl. Business Machines (NYSE:IBM) $79.79 +1.43%.
We'll find several double-top buy signals, but we will also
review the very important bullish % chart that tells us about
MARKET CONDITION and addresses risk (who has the risk, bulls or
bears) and then follow IBM as it generates other double-top buy
signals on an impressive run higher.

What I'm hoping traders AND investors begin to understand is that
there a "buy signals" and there are BUY signals.

Intl. Business Machines (IBM) - $1 box

Let's start to in the center of the chart (left to right) where
we see some rather alarming distribution or selling in IBM from
the $82 level down to $72, then a rebound back up to $77, then a
reversal back lower with a sell signal at $71 and a break of
trend at $70.  Imagine YOU shorted the stock on that breakdown.
Boom!  IBM fell to $60.  Then see the series of small $4 rallies
that found selling to new lows.  Imagine the number of bearish
traders smiling on every rally, shorting the stock and seeing it
fall to a new low.  The pattern repeats and bears begin getting
more confident and aggressive with their shorting on each rally
as it becomes an "easy money trade."  That PATTERN of lower highs
and lower lows and repeated over at least 7 columns was nothing
at the time.  It was simply thought of as a longer distribution
of stock and took place into October.  Can you perhaps "feel" the
complacency and confidence building by bears as they short each
rally with success to new lows?

And then... it happened!  Boom!  A quick and sudden reversal
higher and a "double-top buy signal" (column of X exceeded a
previous column of X).  It's not just the "double-top" buy signal
that created the eventual long column of X from the bottom, but
the double-top buy signal from the PATTERN called the "bearish
signal reversed."  Bearish signal reversed.  It "sounds" just
like what it does.  Bears are having a hay day, shorting each
rally to a new low and all of a sudden, the stock trades a level
it wasn't supposed to and a bear has to make a decision has
he/she becomes "surprised."  Short covering combined with bull's
buying create somewhat of a "powder keg" explosion as we get
somewhat of a double-demand scenario from bulls buying and bears
covering.  We'll look at a bar chart too but it's the bearish
signal reversed PATTERN that may have made the double-top buy
signal at $63 a little more "important" than a normal double-top
buy signal.

After the first double-top buy signal at $63 from the bearish
signal reversed PATTER, we see at points (aa), (bb) and (cc)
three more double-top buy signals.

Here's something I think is important to observe.  Look at the
pullbacks (O's) after each column of X is built.  The pullback
just prior to (aa) was 3-boxes and came right to the $65 level,
which was suspiciously right where a rally from $60 to $64 was
sold lower.  An observation here would be that every short below
that level was now starting to question things.  We'll "know" why
when we look at the bullish % charts and figure out who had the
risk in October.

Also observe the 3-box pullback just prior to another double-top
buy signal at point (bb).  Hmmmm.... that pullback seems to match
the pullback in early September (red 9), but didn't come close to
pulling back to the previous buy signal at (aa).  Maybe there's
still bullishness building.  Maybe some shorts from $79-$72 are
questioning things.

Then at point (bb) IBM generates another double-top buy signal at
$76 and another nice moves to $83 unfolds.  This time, the
reversal is a little more than 3-boxes and the pullback gets a
little closer to the (bb) double-top buy signal.  No worries.
The stock has made a nice move and probably some profits being
taken by some crazy institutional bulls that took some pain from
$65 to $55 when the bullish % was low and risk was low for
bullish accumulation.  Hey, institutions can take that kind of
heat, but most of us individual trader don't and really don't
have to anyway.  We wait for the bullish % charts to reverse up
or the stock to give us some type of "buy signal."

Then at $84, IBM gives another double-top buy signal at (cc).
Another nice move to $89 takes place before a 10-box reversal.
What?  A $10 box reversal!  Why so much?  The first two were 3-
box, the next was 6-box and the last one a 10-box?  What's up
with that?

Risk... It's all about risk.  I'll admit, it would have been
tough to take on a full position in IBM at its first double-top
buy signal at $65 as my risk to a sell signal was $54 right?  All
I had going for me was Professor Davis' study, the Dow
Industrials Bullish % ($BPINDU) had also reversed up into "bull
alert" status.  But risking $9 to make what?  I did not yet
really have a feel for a bullish price objective, other than
Professor Davis' study that had the bearish signal reversed being
profitable 92% of the time for an average gain of 23.2% in 2.5
months.  What!!!!! 92% probability of a 23.2% gain in 2.5 months?
OK, put me down for 1/4 or 1/2 position at $65.

But what about risk at $69, point (aa) and that double top buy
signal?  Now what's my risk to a sell signal?  At $69, I'm
risking $5, I've got the PATTERN of the bearish signal reversed
on my side, I've also got a bullish vertical count of $95, and
the bullish % continues to build as more stocks are finding
reversing point and figure buy signals.  Heck, risk $5 to
potentially make a target of $95?  Better put me down for another
1/4 or 1/2 position, as risk/reward is $5/$26 from $69.

But what about risk at $76.  At the double-top buy signal of $76,
point (bb) risk to a sell signal at $71 is risking $5 to
potentially make $19.  That fits my written business plan
risk/reward profile.  Heck, better put me down for another 1/4
position, this bugger might just make it to $95.  (What's a bear
thinking at this point?)

But what about risk at $84, point (cc) and that double-top buy
signal?  My risk to a sell signal is $8 and my potential reward
to $95 is $11.  Ooops!  If my stated business plan says "you
should only trade in stocks that have better than 1:2
risk/reward, then I've got to think about buying IBM at the
double top at $84.  Ah, what the heck.  Maybe I've got 3/4 of a
position, it is all profitable and this thing might just get to
$95.  Put me down for another 1/4, making me full position, and
stop at $76.

I'm not trying to "dodge" the question about double-tops and
"does it typically trigger short covering" in the subscriber's
question, but hopefully you see that the answer really is "it
depends" on the bullish % (first and foremost) and where the
double-top buy signal(s) are generated, and even risk/reward
analysis.  It's not just YOU that makes an assessment of
risk/reward, the MARKET does it every second of every hour of
every day as it gathers information.

The bullish vertical counts and pattern probability gains from
Professor Davis' study are ONLY to be used for risk/reward
analysis.  The bullish counts and pattern probabilities are NOT
set in stone.

But as we worked through the chart of IBM, what do you sense?
Could it be that the MARKET perceives a less favorable
risk/reward developing as price rises?  Is it IBM or is it the
higher levels of risk that the bullish % charts have been
alerting us to in recent weeks that may have bulls a little less
eager to buy IBM at $84?

If you're long IBM a full position with cost basis of 1/4
positions at $63, $69, $76 and $84, where's your stop?

Conclusion:  There is no "set rule of thumb" to double-top buy
signals.  Yes, there is undoubtedly short covering by aggressive
bears that will try and pick a top and use the stop just above
bearish entry point at the double-top buy signal as their
stopping point.  I could imagine a bearish shorting IBM after the
big move up from the bottom thinking it might retrace half that
move and have the bear placing a stop at $69.

Right now I can envision a bear shorting IBM at $79, with a stop
at $83, which would be a double-top buy signal.  But the bullish
% tell us that BEARS had a greater amount of risk in their
shorting back in mid-October at $65, than they may have now at
$79 with the Dow Industrials Bullish % ($BPINDU) in "bear alert"

So my thinking on this subject is that while another double-top
buy signal at $83 in IBM might trigger some short covering and
could very well see a test of the highs, I also need to
understand the different level of RISK or condition the Dow
Industrials are in as depicted by the bullish %.  It doesn't hurt
to understand the OEX and SPX bullish % either as IBM is a
component of those bullish % too.

You can look at a free bullish % chart at www.stockcharts.com for
the Dow ($BPINDU), the S&P 100 ($BPOEX) and S&P 500 ($BPSPX) and
make a tie to the "read A", "read B" and even the "red C" on
IBM's point and figure chart.

Why would IBM suddenly reverse from $89 to a low of $79?  What
was the potential reward to $95, when IBM traded $89?  At $89,
what was the risk to a sell signal?  What was the Dow Industrial
Bullish % ($BPINDU) reading at its "red C" in early December?
Was it above the "overbought" 70% level and higher risk
environment for bulls?

Let's quickly look at the bar chart of IBM.  Hopefully a bar
chartist will see how the combination of the point and figure
observations may have been used, and perhaps BE used in the

Intl. Business Machines (IBM) - Daily Intervals

Wow!  I'm convinced I need about 20-sets of eyeballs to see all
the different p/f charts and bar charts.  We can certainly see
where bears where having success shorting IBM down the chain into
early October.  Then... Boom!  The gap higher.  We can picture
the face of a bear that's been eating a bunch of berries for
weeks, suddenly have his eyes pop open as if to say, "Oh shoot!
The bearish signal reversed pattern."

While bulls might have been looking for IBM to backfill the gap
higher, we can only imagine what a bearish trader was doing can't
we?  Bears had 1 day after the gap higher to get things covered
didn't they?  Then Boom!  Another gap higher.  That bear's eyes
got a little bigger at $68.42 didn't they?  Hmmm... interesting
that the stock found resistance near 50% retracement.  Good short
to fill that gap huh?  Then the decline to $65.02, almost pegged
the close right on 38.2% retracement.  While IBM is traded
through a specialist, are you thinking like a market maker? (See
December 01 Ask the Analyst)

Well... to tell you the truth, about 80% of the information
discussed tonight, I observed tonight for the first time!  I
didn't plan much of this.  All I was really looking for was a
chart that had several "double-top buy signals" in it.

But if you've got a friend that owns some IBM or trades the
market, now what do we begin to think about the future?

This week, the Dow Industrials broke the 8,400 level and broke
bullish support trend and triggered a spread-triple-bottom didn't

Then on Friday, we get what I felt was an option expiration
related rally.

BUUUUUUT!  What if IBM is going to eventually trade its bullish
vertical count of $95?  I could see that taking place with the
proverbial "Santa Clause Rally" couldn't you?

On the flip side of things, if the Dow is going to "crater" and
is now in a correction mode and ready to go lower, what might
happen to IBM?  Where's that double-bottom sell signal at in
IBM's p/f chart?  $78 right?  Where's our current "market maker"
support if we're trading like a market maker?  $77.34 right?
Where's my "next level of resistance" that a specialist, with NO
order flow might look to short IBM if he/she senses no order flow
and needs to be getting short?  $82.85 right?  Where would IBM
give yet another "double-top buy signal" at?  $83 right.

Do you see the correlation between the bar chart above and the
point and figure chart?

On Thursday, I talked about a potential bearish trade "at the
market" in IBM puts as the Dow was breaking support.  I'm getting
the feeling here that I may have been a little early and should
have waited for $78.

This week, IBM becomes my KEY stock to be following, and may well
be "the stock" that gives us confirmation to one of two

Is a decline in the Dow still in play?  Was Friday's rebound
simply due to option expiration?  IBM traded $80 and that was it.
A break above $83 does have the scenario of "Santa Claus" rally
coming into play doesn't it?

Alarms set on IBM at $78 and $83.  With the bullish % still high,
a bull is hesitant, but might look to play the break higher as a
bear like me that is short the stock looks to close out.

Do you see the POTENTIAL head/shoulder top on IBM?  Left shoulder
at $83, head at $88, and right shoulder maybe not quite put in

Wow!  This has my juices flowing and to tell the truth, I never
really "realized" what was at play until I walked through all of
the above.  And to think all of this started with a little ol
"double-top buy signal" at $63.

Jeff Bailey


Market Watch for the week of December 23rd

Major Earnings This Week

Symbol  Company               Date           Comment      EPS Est

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

AM    American Greetings Co  Mon, Dec 23  Before Market Open  0.61

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


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


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


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

WACLY Wacoal Corporation     Fri, Dec 27  Time Not Supplied    N/A

Upcoming Stock Splits In The Next Two Weeks...

Symbol  Company Name              Ratio    Payable     Executable

MUR     Murphy Oil                2:1      Dec. 30th   Dec. 31st
IBCP    Independent Bank Corp.    3:2      Dec. 31st   Jan.  2nd
CLBK    Commercial Bancshares     5:4      Jan.  3rd   Jan.  4th

Economic Reports This Week

Is the traditional Santa Claus rally upon us?  The last two weeks
of the year are a historically bullish phase for the markets.
There is very little economic and earnings activity and most major
players are home for the holidays.  Check for the Personal
Income/Spending numbers on Monday.  Consumer Sentiment and New
Home Sales come out on Friday.


Monday, 12/23/02
Personal Income (BB)    Nov  Forecast:   0.2%  Previous:     0.1%
Personal Spending (BB)  Nov  Forecast:   0.4%  Previous:     0.4%

Tuesday, 12/24/02
Durable Orders (BB)     Nov  Forecast:   0.9%  Previous:     2.4%

Wednesday, 12/25/02

Thursday, 12/26/02
Initial Claims (BB)   12/21  Forecast:   400K  Previous:     433K

Friday, 12/27/02
Mich Sentiment-Rev. (DM)Dec  Forecast:   86.5  Previous:     87.0
New Home Sales (DM)     Nov  Forecast:  1000K  Previous:    1007K
Help-Wanted Index (DM)  Nov  Forecast:    N/A  Previous:       40

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

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:



Jingle Bell Rock

While the numbers I quoted in last night's Swing Wrap suggest a
remarkably consistent "Santa Claus" rally over the past 34 years,
there were some red flags today that traders need to take into

To read the rest of the Swing Trader Game Plan click here:


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Contact Support
The Option Investor Newsletter                   Sunday 12-22-2002
Sunday                                                      2 of 5

In Section Two:

Stock Pick: A Second Chance
Daily Results
Call Play of the Day: ACS
Put Play of the Day: AIG
Dropped Calls: None
Dropped Puts: MMM, DLX

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:


Stock Pick

A Second Chance

PSFT - $19.01
Strategy: Long stock with put insurance

The Information Technology arena has been out of favor for so
long that there are actually some attractive values available,
if you know where to look. PSFT designs, develops, markets and
supports a family of enterprise application software products
for use throughout large and medium-sized applications.  Yawn!
When you think PSFT, think ORCL and SEBL, as those are the
company’s primary competitors.

Think the above paragraph sounds or looks familiar? What’s
that old clichi? “Dij` Vu all over again?” No, you’re not
reliving the past nor has a previous article been posted into
our stock plays section. If you missed the opportunity to
consider PSFT in early October, we’re giving you another chance.

We first profiled PSFT on October 3rd, when the software company
was trading at $12.42, just two days after making a new 52-week
low. Since that time, PSFT challenged the $22 level, and has
spent most of the month of December consolidating between $16
and $19. Investors that pulled the trigger on PSFT in October
hopefully have enjoyed the fruits of their labor.

There are several factors influencing our renewed our interest
in the software company. PeopleSoft reported better that expected
quarterly results in October, beating analyst’s estimates by
$0.02. Although revenues fell, they also came in better than
expected. The exciting aspect at that time, sparking the move to
higher prices, was the company’s comments.  While PSFT President
and CEO, Craig Conway, prefaced his remarks with “it is still
very challenging to make predictions”, he did boast “PeopleSoft
continues to deliver strong financial results at a time when
many companies are struggling.”

Currently several software analysts are looking for 2003 to be
the year of suites, the integrated software packages designed to
run all aspects of customers’ business. Some suggest the quality
of PSFT’s products has improved enough to win over customers that
in the past have bought five or six separate applications and
had to hire consultants to integrate them.

Earlier this month, Conway said in an interview that while many
companies aren’t planning to increase computer-related spending
next year, he intends to grow PeopleSoft by taking business from
rivals. It seems his strategy could very well be working.  The
CEO also said that the company is getting “tremendous traction”
in Europe, which is traditionally SAP’s turf.

The software industry has seen its share of hard times this year,
however investor confidence seems to have strengthened in recent
weeks. Oracle (ORCL) did its part to help prop up the sector,
reporting quarterly results Wednesday after the close. The
software giant beat its own cautious estimates, and said they
believe the worst is over and that they would return to growth.
Thursday, shares of PSFT rose 3% on nearly twice the normal
volume, in response to the ORCL news.  PSFT is scheduled to bare
its financial soul, and announce its current quarterly results on
January 23. Estimates call for a profit of $0.14 per share.

Let’s look at the chart for some technical guidance on our new
play. In the third week of November PSFT stuck its head above its
200-dma, closing at $21.03. As the stock pulled back and
consolidated near the $17 area traders were ready to click
their buy buttons once again. The 50-dma provided support
during the consolidation these past two weeks and is sitting at
$18.24. PSFT has set up to do battle with its 200-dma once
again, which as of Friday’s close was pegged at $19.61. A move
through $20, supported by strong volume, could supply our play
with the momentum needed to move substantially higher in coming
months. While our chart below doesn’t show it, there is an $8 gap
between $28 and $35 from back in early April when the company
issued an earnings warning. Most technicians would agree that
while it may take months and sometimes even years, gaps in charts
usually do get filled.  Your approach to our new play may vary
depending on your comfort level. Some may prefer to enter our new
play at current levels, while others may choose to see if PSFT
can garner the momentum to move through resistance with better
than average volume.

Option 1.  Purchase PSFT stock at the current level and purchase
one July $15 or $17.50 Put(PQO-SW) for every 100 shares of stock
purchased. If the stock is under $17.50 by July 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, remember 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 $10.80
and $12.20 respectively.  For those that want added protection,
the purchase of one July $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 PSFT stock at the current level and wait
for the stock to move higher. Once you feel PSFT has reached
a point of consolidation or are expecting a pullback, buy one
$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-$22 level.

Option 4. Purchase stock or a LEAP Call without protection and close
out the position if it PSFT falls below support between $15.00 and

PeopleSoft, Inc. (PSFT) Daily Chart


For Best Alignment view in Courier Ten Font

CALLS              Mon    Tue    Wed   Thu  Week

ACS      51.86    0.40   0.65   0.05  0.91  3.54  New, breakout
BEAS     12.15    0.33   0.69   0.27 –0.28  1.60  New, Buy signal
BSX      44.18    1.38  -0.33   0.97  0.45  2.43  Trending higher
CTXS     13.00    0.62   0.49  -0.24  0.26  0.82  Support at $13
TRMS     44.32   -0.20   1.43  -1.38  2.49  4.20  Nice start


AIG      59.07    2.05  -0.73  -1.54 –0.95 –0.18  Failed bounce
COST     27.88    0.13  -0.97  -0.17  0.06 –0.67  Weak rebound
DLX      41.70    0.19  -0.09  -0.45 –0.31  1.00  Drop, Support
MMM     124.13    1.74  -2.15   0.11 –0.56  2.22  Drop, Stopped
RKY      60.86   -0.40  -1.15   0.31  0.17 –1.04  Down week
ROOM     59.45    2.59  -1.33  -0.20 –2.20 –0.45  Under $60

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:



Call Play of the Day:

ACS – Affiliated Computer Services, Inc. $51.86 (+3.63 last week)

See details in play list

Put Play of the Day:

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

See details in play list


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




MMM $124.13 (+2.36) As we mentioned on Thursday, MMM looked a
bit suspicious due to the fact that it didn't break below $120.
We tightened up the stop to $122.50 to protect against the
possibility of a strong bounce, and it's a good thing we did.
The broad market bounced and after a bit of hemming an hawing
around our stop level, MMM blew through it midday and churned
higher right up to the closing bell.  Any open positions should
have been stopped out today.  With the likelihood that the
markets continue to drift higher through the holidays, we're
dropping the play tonight.


DLX $41.70 +1.61  (+0.70 for the week)  While a gain of only
$0.70 for the week would not normally justify the dropping of a
put play, Deluxe seems to have gotten a bounce from a level it
has had a very tough time breaking down through.  It has flirted
with $40 the last several days and we mentioned on the Market
Monitor that traders who had entered at our alternative entry
point on the failed rebound at the 200-dma near $44 might want to
take profits when it was sitting just above $40.  Bears will
suggest that today's bounce is similar to the last failed rally
that provided an excellent short entry.  The stock has moved
slowly, however, and with its hold above $40, we will simply let
the play go and look elsewhere.


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

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

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

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

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

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

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:



Please read our disclaimer at:


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

Contact Support
The Option Investor Newsletter                   Sunday 12-22-2002
Sunday                                                      3 of 5

In Section Three:

New Calls: ACS, BEAS
Current Calls: CTXS, TRMS, BSX
New Puts: None

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:



ACS – Affiliated Computer Services, Inc. $51.86 (+3.63 last week)

Company Summary:
ACS is a global Fortune 1000 company that delivers comprehensive
business process outsourcing and information technology
outsourcing solutions, as well as system integration services,
to both commercial and federal government clients.

Why We Like It:
While traders may be backing off on their activity around the
holidays, that doesn't mean that corporate America isn't still
busy inking beneficial and profitable deals.  Given the recent
weakness in the markets, new contracts and signs of business
growth are the kind of thing that will really get investors'
attention.  That was certainly the case with shares of ACS over
the past couple days.  News broke yesterday morning that the
company had inked a 10-year Human Resources contract with
Motorola, which prompted Soundview to initiate coverage of the
stock with an Outperform rating.  Those two factors galvanized
the bulls and they pushed the stock up through the $50 level on
Thursday, testing resistance, but not breaking through it.  With
a positive market on Friday and the good feelings from
yesterday's positive press, the bulls got serious and continued
their buying spree.  By the end of the week, ACS came to rest
just shy of the $52 level, having solidly broken above the
$50-51 resistance level that had held the stock in check since
the breakdown in late June.  Pushing through resistance was
enough to extend the current column of X's far enough to
generate a fresh PnF Buy signal, and the length of that column
now has the bulls working with a vertical count up to $76.  With
the stock's all-time high of $57, that certainly gives some room
to run to the upside.  But first, the bulls are going to have to
work through resistance staggered throughout the $52-57 area.
Given the strong move over the past 2 days and looming overhead
resistance, a bit of a pullback seems in order to give us a solid
entry into the play.  Look to initiate new positions on a dip
and rebound from the vicinity of $50, possibly near the top of
Friday's gap at $50.50.  ACS has built a pretty good base of
support near $48 over the past few weeks, which is further
supported by the 200-dma at $48.40.  If the current move is the
beginning of something larger, than that level shouldn't be
violated on any near-term pullback.  Set stops initially at $48.

BUY CALL JAN-50*ACS-AJ OI=1978 at $3.70 SL=0.50
BUY CALL JAN-55 ACS-AK OI=1824 at $1.20 SL=0.00
BUY CALL FEB-50 ACS-DJ OI=1158 at $7.00 SL=5.00
BUY CALL FEB-55 ACS-DK OI=1196 at $4.20 SL=2.50

Average Daily Volume = 1.83 mln


BEAS – BEA Systems $12.15 (+1.95 last week)

Company Summary:
As a provider of e-commerce infrastructure software, BEAS
helps companies of all sizes extend investments in existing
computer systems and provide the foundation for running a
successful integrated e-business.  The company's products have
been adopted in a wide variety of industries, including
commercial and investment banking, securities trading,
telecommunications, airlines, retail, manufacturing and
government.  BEAS' products serve as a platform or integration
tool for applications such as billing, customer service,
electronic funds transfers, ATM networks, Internet sales,
supply chain management, and hotel, airline and rental car

Why We Like It:
Traders looking to capitalize on bullish moves want to have as
many factors in their favor as possible, especially in an
uncertain market environment like we've seen over the last few
weeks.  A breakout above significant highs is good, but when it
comes on huge volume, that's a nice bonus.  BEAS had a great run
from the October lows, moving from below $5 to above $11 in the
space of about 6 weeks.  That's nothing special, as a lot of
Technology stocks can lay claim to that sort of performance.
Where BEAS distances itself from the crowd though is in the
shallowness of its pullback and the subsequent price action over
the past two weeks.  The stock drifted down to the $9 level,
rebounded from the 200-dma and as of Friday's close, is up 33%
from its December 9th close.  Throughout the rally of the past 2
weeks, volume has been expanding, and the stock broke out above
its late-November highs on Friday, with volume 2.5 times the ADV.
In other words, serious, give it to me now, buying.  The PnF
chart is a thing of beauty as well, with the initial Buy signal
off the October lows generating a price target of $20, which is
still very much in play.  Friday's breakout confirmed the bullish
strength with another PnF Buy signal.  Friday's breakout also
pushed On Balance Volume to its highest level since January,
confirming that we've got serious buying in progress.  There's
one more bullish factor at work as well, as we got the bullish
cross of the 50-dma ($9.11) over the 200-dma ($9.05).  This is
the first time the 50-dma has been above the 200-dma since
February 2001.  Clearly, BEAS is under accumulation, but that
doesn't mean its going to go straight up the charts.  In fact,
with solid resistance at $12.50-13.00 and then again at $15,
there will definitely be some bumps in the carpet on the way to
that $20 target.  With light volume likely to be the rule next
week, we're looking for a pullback near $11.50 or even $11 to
provide for a more palatable entry point into the play.
Momentum traders can certainly chase the stock higher, but it
would seem prudent to only do so on a decisive move above $13
on continued heavy buying volume.  To give BEAS room to move in
the near-term, we're initially setting our stop at $10, just
below the intraday lows following the gap up on December 12th.

BUY CALL JAN-10*BUC-AB OI=18726 at $2.35 SL=1.25
BUY CALL JAN-12 BUC-AV OI= 4161 at $0.90 SL=0.50
BUY CALL MAR-12 BUC-CV OI= 1197 at $1.70 SL=0.75
BUY CALL MAR-15 BUC-CC OI=  763 at $0.95 SL=0.50

Average Daily Volume = 10.4 mln

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:



CTXS – Citrix Systems $13.00 (+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:
As expiration week ended on a positive note, CTXS drifted back
down to the $13 level at the close.  While it may sound like a
bit of a broken record, that put the stock right at the lower
edge of its ascending channel -- again.  Sure there was the
intraday volatility to contend with, and it was interesting to
see the intraday high right at the $13.50 level, which had been
an important inflection point throughout the week.  The net
result was that the stock gained just under a dollar on the
week, continually supported by that ascending channel.  Looking
at support levels, throughout the week, CTXS found support just
below $13 on several occasions, and we're looking for this
level to continue to find buyers next week.  Additionally, the
10-dma has flattened out at $12.72, and it should help to
support the stock on any mild dips.  We want to continue to
initiate new positions on rebounds from the $12.75-13.00 area
and shy away from buying strength until we see a sustained rally
through the $13.50 level.  Keep stops in place at $12.50.

BUY CALL JAN-12*XSQ-AV OI=1712 at $1.45 SL=0.75
BUY CALL JAN-15 XSQ-AC OI=1619 at $0.45 SL=0.25
BUY CALL MAR-12 XSQ-CV OI=1168 at $2.25 SL=1.00
BUY CALL MAR-15 XSQ-CC OI= 589 at $1.20 SL=0.50

Average Daily Volume = 3.88 mln


TRMS – Trimeris, Inc. $44.32 (+3.98 last week)

Company Summary:
Trimeris is a biopharmaceutical company engaged in the
discovery and development of a class of antiviral therapeutics
called viral fusion inhibitors (Fis).  The company's most
advanced product candidates, T-20 and T-1249, are for the
treatment of human immunodeficiency virus (HIV), type I.
T-20 is a first-generation FI that prevents HIV from entering
and infecting cells, while T-1249 is a rationally designed
second-generation FI in an earlier stage of development.  Using
its proprietary viral fusion platform technology, TRMS has
identified and filed patent applications disclosing numerous
discrete peptide sequences that appear to inhibit fusion for
several viruses.

Why We Like It:
The wild gyrations seen in TRMS on Thursday do seem to have
washed out the weak hands, both long and short, as the stock
continued its upward march on Friday.  Beginning the day with
an upward spurt, the stock then consolidated near the $43 level
until midday and then began clicking off a series of higher lows
and higher highs, that brought it up above $44 by the closing
bell.  Certainly part of the bullish action was due to the
strength in the broad market, and a 1.7% gain in the BTK sector
certainly didn't hurt.  But the real story appears to be that
the market had fully discounted the manufacturing problems the
company admitted to late on Wednesday.  Now that the news is out,
the stock is working its way back to where it was before those
rumors first surfaced at the beginning of the month.  One
important development on Friday was that TRMS managed to close
back over the 20-dma ($44.05) for the first time since early
November.  That would seem to indicate there is some conviction
to this rebound, rather than it being just an oversold bounce.
With all of the oscillators turning upwards, it certainly looks
like the bulls are back in charge.  We now have intraday support
at $42 and $43 and an intraday dip and bounce from either of
these levels should serve well for initiating new positions.
Momentum traders are getting close to a decent entry point as
well, and a rally through the $45 level (intraday resistance
since the drop in early December) can be used as the entry
trigger.  Any retracement in price should not take out the $41
support level at this point, so we are raising our stop to $41
this weekend.

BUY CALL JAN-45 RQM-AI OI=1009 at $1.85 SL=1.00
BUY CALL JAN-50*RQM-AJ OI=1297 at $0.55 SL=0.25
BUY CALL APR-45 RQM-DI OI= 510 at $5.10 SL=3.00
BUY CALL APR-50 RQM-DJ OI= 946 at $3.10 SL=1.50

Average Daily Volume = 652 K


BSX - Boston Scientific - 43.70 +0.45 (+1.95 for the week)

Company Description:
Boston Scientific is a worldwide developer, manufacturer and
marketer of medical devices whose products are used in a broad
range of interventional medical specialties. (source: company
press release)

Why We Like It:
Friday's morning's news that one of Boston Scientific's rivals
had received FDA approval for a competing tumor treatment fell on
deaf ears.  BSX joined the broader market in an early rally and
traded in positive territory for most of the session.  Shares
reached our entry trigger at $44.01 shortly after 12:30 EST.  The
stock's 1.0% gain mirrored the action in the DRG.X pharmaceutical
index.  Now that BSX has broken to fresh multi-year highs, we
think odds are good that shares will continue to move higher in
the ascending regression channel.  New entries can be targeted on
a move above $44.25, but keep in mind that the top of the channel
(currently near $45.50) may provide some overhead resistance.  A
move above this level would be a decidedly bullish development.
Our stop for this play is set at $40.99.  Very conservative
traders could use a stop just below $42.00.

BUY CALL JAN-40*BSX-AH OI=4517 at $5.10 SL=2.55
BUY CALL JAN-42.50 BSX-AV OI=952 at $3.20 SL=1.60
BUY CALL FEB-40 BSX-BH OI=1287 at $6.00 SL=3.00
BUY CALL FEB-42.50 BSX-AV OI=624 at $4.30 SL=2.15

Average Daily Volume = 2.59 mil



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:



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Contact Support
The Option Investor Newsletter                   Sunday 12-22-2002
Sunday                                                      4 of 5

In Section Four:

Current Put Plays: RKY, ROOM, COST, AIG
Leaps: Santa Claus Is Coming To Town
Traders Corner: On A Roll – As Smooth As Mayo – As Sweet As Honey –
Or Should I Say “Money”?

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:



RKY – Adolph Coors Company $60.86 (-0.63 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

Why We Like It:
After consistently drifting lower throughout the past couple
weeks, RKY seems to be finding some support.  While some of that
support could have come from the artificiality of options
expiration, we also know that the $59-60 level is important from
a support level, due both to historical support levels, as well
as the PnF bullish support line at $59.  The price action was
actually pretty weak throughout the day on Friday, and we
actually saw a low trade of $60.01 before the rebound got
underway.  That rebound really got going in the final 30 minutes,
driving the stock up to $60.86 by the closing bell.  The
important takeaway from the past few days trading is that the
$61 level is growing in strength as resistance, and it is going
to take some significant buying interest to penetrate it.  With
volume likely to be light next week, there probably won't be
enough buyers to get the job done.  If RKY does get through that
resistance there is more waiting near $62, which is where we
would prefer to initiate new positions on a rally failure.  Note
that our stop is now at $62.25, as a close above that level
would confirm a trend change in the making.  Remember, with the
$59-60 support level just below, that momentum traders will need
to see a breakdown under $59 before chasing price weakness lower.

BUY PUT JAN-65 RKY-MM OI=176 at $4.90 SL=3.00
BUY PUT JAN-60*RKY-ML OI=218 at $2.00 SL=1.00

Average Daily Volume = 402 K


ROOM – Hotels.com $59.45 (+0.00 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:
The significant price action in ROOM last week can be summed up
quite succinctly -- rollover at resistance, followed by a
breakdown and then resistance coming into play at a lower level.
Sounds like an ideal put play, doesn't it?  Early in the week,
ROOM tested our nerves by probing above the $63 resistance level
before rolling over with conviction and then breaking below $58
on Thursday.  With the positive market bias on Friday, we got a
decent rebound off the lows, but it was interesting that the
stock couldn't push through the $60 level.  It wasn't so long
ago that this level provided support, and the fact that it is
now creating resistance adds credence to the idea that the bulls
are losing their conviction.  The PnF chart shows us that supply
is very much in control once again, with the confirmation of
another double-bottom Sell signal on Thursday.  Even if a
positive market helps the stock to scale the $60 level on light
volume next week, ROOM has even stronger resistance now in the
$61-62 area.  A rebound and subsequent rally failure in that
area would give us a solid lower high that we could use for
initiating new positions.  On the downside, we really need a
volume-backed move below $57.50 to motivate us to initiate
momentum-based entries.  Keep stops in place at $63 until we
get that breakdown.

BUY PUT JAN-60*URD-ML OI=2341 at $4.30 SL=2.75
BUY PUT JAN-55 URD-MK OI=1982 at $2.40 SL=1.25

Average Daily Volume = 888 K


COST - Costco Wholesale Corp - $27.71 -0.97 (-0.81 for the week)

Company Description:
Costco Wholesale Corporation operates an international chain of
membership warehouses, mainly under the "Costco Wholesale" name,
that carry quality, brand name merchandise at substantially lower
prices than are typically found at conventional wholesale or
retail sources. The warehouses are designed to help small-to-
medium-sized businesses reduce costs in purchasing for resale and
for everyday business use. Individuals belonging to certain
qualified groups are also able to purchase for their personal
needs. (source: company website)

Why We Like It:

A small gain in the RLX.X retail index helped to lift COST off
its multi-year lows on Friday.  Shares finished in the green by
1.1% but weren't able to move above short-term resistance at
$28.20.  Bulls will point out that the oscillators are beginning
to move higher from oversold levels.  However, a small
retracement of the recent sell-off might simply give the bears
another entry point.  With the point-and-figure chart showing a
triple-bottom sell signal, we don't expect that COST will be able
to plow through congestion in the $29-$30 area.  While
speculative entries could be targeted on a rollover from this
region, the most prudent strategy for entering new positions
would entail waiting for a move under the relative low of $27.20.
Our stop remains set at $30.00; conservative traders may want to
use a stop slightly above Monday's high of $28.99.

BUY PUT JAN 32.50 PRQ-MZ OI=1119 at $5.00 SL=2.50
BUY PUT JAN 30 PRQ-MF OI=4975 at $2.85 SL=1.40

Average Daily Volume = 5.82 mil


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

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:
AIG rose in tandem with the Dow Jones on Friday and gained 1.6%.
In last night's update we suggested that traders looking to add
short positions might want to wait for a rollover from $60.00.
Well, the bulls couldn't even push AIG above $59.50.  Although
volume was quite brisk at 9 million shares, the stock wasn't able
to move over Thursday's high.  This completed a perfect streak of
lower highs for the week.  The recent downtrend is still intact
and a small rebound off of the relative lows isn't enough to
alter our bearish expectations for AIG.  Those looking for new
entries can continue to watch for a failed rally at $60.00.
We'll be looking for this level to provide resistance if shares
continue higher on Monday.  Our stop-loss is located at $62.00.
Slightly more aggressive traders may want to force AIG to trade
above the 50-dma at $63.19 before being stopped out.

BUY PUT JAN-60 AIG-ML OI=21815 at $2.95 SL=1.50
BUY PUT FEB-60 AIG-NL OI= 2792 at $4.20 SL=2.10

Average Daily Volume = 6.44 mln

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:



Santa Claus Is Coming To Town
By Mark Phillips

Just when most investors had accepted the "fact" that Santa Claus
wasn't going to pay a visit to Wall Street this year, the markets
turned on a dime Friday, giving us a very nice one-day rebound.
We don't want to read too much into Friday's rally, especially
since part of the action could have been due to expiration
shenanigans.  But I must say I was encouraged that the bears
couldn't break the 8300 support level on the DOW.  Major support
for the OEX is in the $440-445 area, so I don't think it is any
coincidence that the intraday low on Thursday was $446.81.

I certainly don't expect new recent highs in the market over the
next two weeks, especially not with the light volume expected
around the holidays.  But at the same time, I am looking for a
gradual rise into the end of the year.  Apparently I'm not the
only one with such aspirations, as the VIX plunged nearly 9% on
Friday, closing out the week at 31.47 -- back under the 200-dma
(31.98).  All of the fear that crept into the market on Thursday
was drained out on Friday.  Again, a big part of the gyrations
over the past 2 days is probably expiration related, but I like
what I see from a bullish standpoint.  Did you notice that the
VIX reversed near the 35 level, being capped by the 50-dma?
Isn't it interesting that the 35-36 area is clearly acting as
resistance?  Which way we break from here is unknown to me, but
I'm betting on the downside over the near term.

That should bode well for broad market action through the end of
the year, although there are a couple of issues that we need to
be aware of.  First, the dollar continues to look sick, and that
is keeping money flowing into bonds, even with the bullish equity
action on Friday.  If investors liked the prospects for the
equity markets for more than a quick trade, then money should be
coming out of bonds, not going into them.  The other warning sign
that caught my attention was the action of the major indices
around their respective 50-dmas.  The DOW, SPX, OEX and NDX all
finished below their 50-dmas on Friday -- this, after a strong
rebound off of Thursday's lows.  If these market averages can't
get through their 50-dmas, then any hopes for a Santa Claus
rally will dim rapidly.

Lest you think I'm just bearish for the long-term, think again.
We now have a perfectly balanced Portfolio and Watch List.  Three
calls and three puts in the Portfolio and two calls and two puts
on the Watch List.  Regardless of which direction the broad
market moves, we should be in a good position to benefit from
that movement.  So without further ado, let's see what's shaking
with the plays.


LEN - Everything appeared like it was going according to the
script last week, with LEN once again rolling over at resistance,
this time near the $53 level and the 50-dma.  Then Friday's
rally appeared, breaking through that resistance and LEN closed
at its highest point since early November.  Uh-oh!  But all hope
is not yet lost.  I found it encouraging, that the stock was
unable to move above the $54 level, even on an intraday basis.
Recall that a print at $54 will generate a PnF Buy signal, and
there just wasn't enough buying interest to get the job done on
Friday.  It could happen next week, but with the light holiday
volume, I think LEN ought to start drifting lower again.
Regardless of what I think, the stock will trade as it sees fit,
so keep those stops set at $54.  A trade above there will clearly
remove a big part of the bearish bias in the stock over the near
term and we'll want to preserve our gains and move to the
sidelines for now.

NEM - See why I've been talking about not chasing NEM higher
after last week's big breakout.  We've still had some very
bullish action in the trade of the physical metal, but both
the XAU index and NEM appear to be consolidating those recent
gains.  It was interesting to see NEM actually trade as low as
$27.60 on Friday before rebounding throughout the remainder of
the day.  There's still a huge short position in Gold and it's
going to take some time to work that off.  But make no mistake,
the long-term trend is bullish and I think we have a solid
position in NEM.  Those still looking to initiate a position or
add to existing positions will want to use a drop back into the
$27 area (the site of the 200-dma and the top of the bullish
wedge) to initiate new positions.  Even a dip near the $26 level
looks good, so long as Gold futures (GC03G) hold above the
$325-330 area, the site of its recent breakout.  Keep stops set
at $25.

MO - You didn't think MO was just going to plow through all of
that resistance without a fight, did you?  The action in MO has
actually been very encouraging to me over the past few weeks,
as it appears to be solidifying its advance over the $40 level.
Note that the descending trendline (now at $42) put a cap on
the most recent upward move, but there hasn't been much selling
following that rejection.  Look for more sideways movement and
possibly even a brief dip below $40 before MO takes another
serious run at resistance.  Once above $42, we'll be able to
tighten our stop up a little to guarantee we can't lose on the
position.  In the meantime, we need to remain patient, as the
stock continually improves, albeit in a slow and steady fashion.

GM - Following the early December drop, there has been little
further evidence about the health of the automotive market to
drive the stock either higher or lower.  So GM has continued to
drift lower, although continuing to find support at the 50-dma.
This level provided support once again on Friday, and if Santa
Claus is going to pay a visit to Broad and Wall this year, it
looks like GM could make another attempt to push up towards the
$40 level, the site of our stop.  There is significant support
in the $34-36 level, and it is going to take some significant
negativity (like a breakdown in the broad market) to penetrate
down into the low-$30s.  Given the action in the broad market
on Friday, it appears that is unlikely ahead of the holidays.
But so long as our stop isn't violated, odds favor that
breakdown occurring early in the new year.  Another rally
failure below $40 can be used for initiating new positions, so
long as the DOW is unable to challenge its recent highs.

BBH - We could almost get away with no update on our BBH play
this week, as there were no significant developments.  The
consolidation continues, with the intraday highs being capped
by the declining 200-dma (now at $90.38) and support being
provided by the rising 50-dma (currently $87.81).  This ever
narrowing range is bound to break, and quite possibly this
week.  Given the extended nature of the weekly oscillators,
which are starting to show the first hints of weakness, I still
expect the break to be to the downside.  In the meantime, we
watch and wait, with our stop at $93.50.  I still like new
entries on failed rallies below the $91 level.  Confirmation
of our bearish bias will come with the breakdown under first
the 50-dma and then the $85 support level that has been
supporting the stock since the middle of October.

DELL - New entry this week.  See below for details.

Watch List:

GD - I'm definitely losing my appetite for this play, but I'm
not quite ready to pull the plug.  Price action continues to
coil in the $77-80 area, and I'd prefer to see which way it
breaks before making a decision.  A break below $76, and it will
be gone from the list for sure.  My rationale for keeping it
around is expectation that it is basing for a renewed upward
move, but as I discussed last week, the recent consolidation
could be just marking the halfway point of the downward move that
began in July.  If that's the case, then we could be looking at
an eventual breakdown towards the $50 level.  Clearly, we don't
want to be involved on the bullish side if that chain of events
play out. So we'll keep GD on the Watch List, but on HOLD.  Look
for updates intra-week in the Market Monitor.

DJX - Now that's what I wanted to see.  The DJX finally found
support late last week near the $83 level, and Friday's rebound
certainly hints that the Santa Claus rally has arrived.  Ideally,
some bullish action in the next couple weeks will have the DJX
pushing up towards the $88 level, our ideal entry level.  A
rally failure near there would be nice because it will keep the
possibility of a Head & Shoulders top in play.  If that pattern
does play out, we'll likely be targeting the $76 level on the
downside, which would make for a very nice start to the new year.
But that speculation is clearly putting the cart before the
horse.  First we need to get an entry into the play.  The
weakening market internals (declining bullish percent), as well
as other technicals certainly indicate that the next substantial
move is going to be down and I intend to be onboard.

Beyond what I covered above, I really don't have any bold
prognostications for the next couple weeks.  Starting on Monday,
I expect volume to be increasingly light until January 2nd.
With light volume, price action could move violently or just
drift into the end of the year.  Regardless of how it plays out
though, it will be hard to attach much significance to the price
action without the conviction of volume.  Since we've got a lot
of data below on new plays, I went rather light on the market
commentary this week.  Part of that was driven by time
constraints, but there's also the fact that I don't think there
is a lot to read into the current market action until we get
past the holidays when we ought to see normal trading volume

My recommendation is to tread lightly around the holidays.
Whether you observe them or not, you need to be cognizant of the
impact they have on trading activity this time of the year.  I've
talked recently about using certain periods to step away from
the markets and recharge your batteries.  The next two weeks is
certainly one of them.  Enjoy yourself and your family.  I know
I will! (My family, that is...GRIN)

Happy Holidays!


LEAPS Portfolio

Current Open Plays


NEM    10/30/02  '04 $ 30  LIE-AF  $ 3.90  $ 5.20  +33.33%  $25
                 '05 $ 30  ZIE-AF  $ 6.10  $ 8.00  +31.15%  $25
MO     11/13/02  '04 $ 40  LMO-AH  $ 3.90  $ 5.30  +35.90%  $37
                 '05 $ 40  ZMO-AH  $ 4.80  $ 6.40  +33.33%  $37
DELL   12/19/02  '04 $ 30  LDE-AF  $ 3.70  $ 4.20  +13.51%  $23
                 '05 $ 30  ZDE-AF  $6.10   $ 6.60  + 8.20%  $23

LEN    10/02/02  '04 $ 50  KJM-MJ  $ 8.60  $ 8.80  + 2.33%  $54
                 '05 $ 50  XFF-MJ  $11.20  $13.50  +20.54%  $54
BBH    12/02/02  '04 $ 85  KBB-MQ  $12.10  $12.40  + 2.48%  $93.50
                 '05 $ 80  XBB-MP  $14.40  $14.70  + 2.08%  $93.50
GM     12/02/02  '04 $ 35  LGM-MG  $ 5.20  $ 6.50  +25.00%  $40
                 '05 $ 30  ZGM-MF  $ 5.50  $ 6.40  +20.00%  $40

LEAPS Watchlist

Current Possibles


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
BEAS   12/22/02  $10-11        JAN-2004 $ 12  LZP-AV
                            CC JAN-2004 $ 10  LZP-AB
                               JAN-2005 $ 12  ZWP-AV
                            CC JAN-2005 $ 10  ZWP-AB

DJX    12/08/02  $88           DEC-2003 $ 84  ZDJ-XF
                               DEC-2004 $ 84  YDJ-XF
GS     12/22/02  $74-75        JAN-2004 $ 70  KGS-MN
                               JAN-2005 $ 70  ZSD-MN

New Portfolio Plays

DELL - Dell Computer $26.81  **Call Play**

While I was hoping for a dip into the $25-26 range to give us a
better entry, the price action late last week was just too good
to pass up.  With the broad markets threatening to break down
in the middle of the week, DELL stubbornly held onto the 200-dma
as support.  I had intended to make s post in the Market Monitor
late on Thursday, but apparently that task fell through the
cracks, and I didn't get it posted until discovering my omission
in the middle of the day on Friday.  We've discussed the
technicals on DELL at great length already, but here's the quick
recap.  The PnF chart is bullish with a price target of $41.
After drifting lower for the past few weeks, the price is getting
awfully close to the bullish support line at $25, which should
provide strong support.  Note that $25 is also the site of the
ascending support line on the candle chart as well.  So long as
DELL doesn't break below $25 or break out above $30, it remains
in the bullish triangle formation that has been forming since the
lows in September of last year.  This is a long-term pattern,
which lends it more significance.  Should the pattern resolve
itself normally, we should see a solid breakout to the upside
probably in the second quarter of next year.  We're trying to
enter near the bottom of the current range in advance of the
expected breakout.  More cautious traders can wait for an entry
near $25, as I certainly wouldn't rule out that possibility in
conjunction with an early January market dip following the
expected Santa Claus rally over the next couple weeks.  In other
words, don't be in a hurry to chase the stock higher.  If you
can get an entry between $26-27, then that still looks good.
Otherwise wait for the next dip.  It would take a trade at $23
to invalidate the current bullish signal on the PnF chart, so
that is where we are initially placing our stop.

BUY LEAP JAN-2004 $30 LDE-AF $3.70
BUY LEAP JAN-2005 $30 ZDE-AF $6.10

New Watchlist Plays

BEAS - BEA Systems $12.15  **Call Play**

It isn't often that a stock finds its way onto both the Call list
and the LEAPS Watch List on the same day.  To be entirely honest,
I can't take credit for this play -- it wasn't my idea.  In
writing up the BEAS play for the regular OI Call section, I was
struck by how many factors were lining up in favor of an extended
bullish move in the stock.  BEAS is an applications software
company with annual revenues just south of $1 billion and annual
profits of a mere $60 million.  But these are real profits and
that is a rarity in the Technology world.  For a full description
of all the factors I really like, read the BEAS play writeup in
the Calls section this weekend.  I just want to hit the high
points.  The PnF chart is very bullish and currently has a
vertical count of $20.  The 50-dma just crossed up through the
200-dma on Friday, as the stock broke out above the $12 level on
huge volume.  That is a clear sign of a stock under accumulation,
and that fact is borne out by the OBV (On Balance Volume) moving
to its highest level since last January.  There were some
comments on the message boards about rumors that the stock is a
buyout candidate.  Personally, I don't care.  Rumors are just
that.  I trust the charts, and they tell me that there is some
serious accumulation under way.  But that doesn't mean we want
to leap (pun intended) into new positions first thing on Monday.
A Santa Claus rally could give the stock a continued boost
through the end of the year, but then I'll look for some profit
taking across the market to drag BEAS down to give us a much
more attractive entry.  We've recently seen some mild support
building near the $11 level, and then there is stronger support
near $10, the bottom of the gap up just over a week ago.  I like
long-term entries as close to the bottom of that $10-11 range as
we can get them, and we can manage the position with a tight stop
at $9, just below the site of the 50-dma/200-dma crossover.

BUY LEAP JAN-2004 $10 LZP-AB **Covered Call**
BUY LEAP JAN-2005 $10 ZWP-AB **Covered Call**

GS - Goldman Sachs $71.86  **Put Play**

Look out below!  Ok, maybe not yet, but soon.  If you thought
that the settlement between US regulators and the Brokerage
industry was the end of that industry's woes, think again.  This
is just the tip of the iceberg, as all of the documents and
evidence will now be fodder for the dozens, or maybe even
hundreds of class-action lawsuits.  The judgments that are
likely to come out of that process will make last week's $1.4
billion settlement look like pocket change.  Everybody knows
that I've liked the short side in GS for quite some time, and
with last week's legal settlement out of the way, I like it even
better.  GS had been laboring under a strong descending trendline
from the highs in January until finally managing to break out a
month ago.  Well, it looks like that breakout has failed and in
a big way.  After falling back under that trendline earlier this
month, the stock battled its way to just above it before falling
hard on Thursday.  That big drop down to the $70 level violated
both the trendline and the 50-dma (currently $74.04), and I would
expect to see strong resistance at that level going forward.  The
PnF chart bears out weakness in the stock, with the recent Sell
signal giving us a tentative bearish price target of $61.  But I
don't expect the selloff to commence just yet.  It's time for
Santa Claus to come to town, and I would expect the seasonal
bullishness of the next 2 weeks to lend a bid to GS, along with
the rest of the Financial stocks.  The ideal entry into the play
will come from a rally failure in the $74-75 area, which ought
to coincide with our DJX play giving us an entry near the $88
level.  The November rally in GS topped out near the $80 level,
so that is where we'll initially look to place our stop after
entry.  That's a little wider than I normally would prefer, but
I want to give GS room to move before the big breakdown, without
stopping us out.





On A Roll – As Smooth As Mayo – As Sweet As Honey –
Or Should I Say “Money”?
By Mike Parnos, Investing With Attitude

“In some circles, people have come to sneer at success if it
costs hard work, training and sacrifice,” – Knute Rockne.

At the Couch Potato Trading Institute we firmly believe in
training.  Education is what this column is all about.  But we
have to draw the line somewhere.

“Hard work and sacrifice” don’t appear in the CPTI bylaws.  They
may be valuable in football, but not in trading.   If you want to
get tackled, just stand in the path between my refrigerator and
me during a commercial.  When you wake up you’ll think you
insulted Warren Sapp’s mama.

What we do have in common with Knute Rockne is that we don’t like
losing.  So we don’t.  Or, at least, haven’t so far.

Four weeks ago we initiated three new positions in the CPTI
Portfolio.  Three of the positions were scheduled to expire at
December expiration while a fourth is a December QQQ play we
established in October.   December expiration has come and gone.
However, the money has come and stayed! How sweet it is -- when
you have a plan and it works!

The Breakdown
1.  BBH Iron Condor – Closed at $89.32.  We wanted BBH to finish
between $80 and $95 at December expiration.  Our risk was $3,400.
We took in a credit of $1,600 on a ten-contract position.  That
was so much fun we might just do it again.  It’s becoming a

2. TTWO Short Strangle – Closed at $22.40.  We wanted it to
finish between $22.50 and $35 at December expiration.  Our risk
was technically unlimited because the positions were uncovered,
but about $4,400 was held as maintenance for the positions.  We
took in a credit of $1,050 on a ten-contract position.

On Wednesday, the short strike ($22.50) was violated.  We shorted
shares at $22.50 and repurchased them as TTWO bounced back over
$22.50.  Thursday, TTWO twice broke below $22.50 and we repeated
the process.  Thus far, we’ve accumulated three round trip
commissions and $150 of slippage for a total additional cost of
$210.  Early Friday morning, we took advantage of an opportunity
to buy our short call back for a nickel.  So, we incurred a total
of $260 in additional costs.  We still made $790 on a risk of
about $4,400.

3.  IMCL ITM Covered Call – Closed at $11.81.  This was not a
typical CPTI trade, but it provided us a nice cushion.  We bought
the stock at $11.76 and sold the December 10 call at $2.60.  We
used a 1500 share position and, when all was said and done, we
kept $1,260.  The stock was called away.  Another winner for the
good guys.

4.  QQQ ITM Strangle – Closed at $25.32.  The close doesn’t
really matter because we were out of this two-month position over
a week ago.  In order to figure out the profits, we’re going to
make a few assumptions because there were a number of variables.

With the QQQs trading at $24.62 back at October expiration, we
bought the December $23c/$25p or $24c/$26p strangle, depending on
whether the trader was bullish or bearish.  To make a long story
a little shorter, we got our anticipated move up – all the way up
to about $28.75.  Our long calls paid for our puts and yielded
some profits as well.  When the QQQs reversed, we took in an
average of $1.00 on the long puts and the profits from the long
calls.  What I’m trying to say is – the damn thing worked like a
charm and we made about $1,000 on a risk of $2.40.  Chalk up some
more nice profits.

It’s Adding Up Nicely
The total amount of premium we collected, and kept, from the four
positions was $4,650 (less commissions) – and we never missed an
episode of Fear Factor, Leave It To Beaver, or Family Feud.  Will
this continue to happen every month?  It’s unlikely.  We may have
months of less profit.  We may even have losing months, but not
many.  Why not?  If we put on reasonable trades with defined
risks and we know how to make the necessary adjustments, only
truly bizarre market activity will get in our way.

So What Have You Done For Me Lately?
CPTI students, who followed the plan, made $4,500 in November and
$4,650 in December for a total of $9,160.  They’re never
satisfied – and they shouldn’t be.   Hide that $9,160 under the
mattress for a rainy day (the rain will come – count on it).

Like last month, we’ll start with a $50,000 trading account.  We
will continue to go on the assumption that you have other
marginable securities in your account that will enable you to
make necessary adjustments on our newly established positions.

Now, let’s see what we can do to bring in some green to start off
the New Year right.

There will be a few familiar faces in these new December
positions.  The stories are still good.  The integrity of the
ranges is still valid.  There’s a school of thought that suggests
that the longer a stock trades within a range, the more likely it
is that it will break out of the range.  Maybe so, but I’m one of
those “show me” guys – in trading too!  So, I figure “if it ain’t
broke, we won’t fix it.”

Position #1: Iron Condor – Third Time’s A Charm!
An Iron Condor is a credit position consisting of both a bull put
spread and a bear call spread. The objective is that the
underlying, at expiration, finish anywhere within the spread.

Since it worked so well the last two months, we’ll use BBH
(Biotech Index) again. Friday it closed at $89.32.  The support
at $80 once again seems strong enough and resistance at $95
should give BBH enough room (15 points) to bounce around for the
next four weeks. So we will:
Sell 10 contracts of the BBH Jan. $80 puts (BBHMP) @ $1.25
Buy 10 contracts of the BBH Jan. $75 puts (BBHMO)  @ $ .70

Sell 10 contracts of the BBH Jan. $95 calls (BBHAS) @ $ 1.75
Buy 10 contracts of the BBH Jan. $100 calls (BBHAT) @ $.80

The credit for our bull put spread is $.55 and for the bear call
spread is $.95. Total credit (and potential profit) for the
position is $1.50. Risk is $3.50 ($5.00 - $1.50). Total margin
requirement is $10,000 ($5,000 for each credit spread). The
potential return on risk is 42%.

Position #2:  XAU Calendar Spread
A Calendar Spread, using calls, is a neutral to bullish strategy.
In this instance, however, a calendar spread on the Gold/Silver
index is actually a neutral to bearish market strategy because
Gold usually trades opposite the market.  XAU is trading at
$74.88.  There is resistance at $80.  As the market continues to
falter, it’s likely that the XAU will move up slowly.  As XAU
increases in value, we will sell calls each month to reduce our
cost basis and, eventually, put bucks in our pocket.  We will:

Buy 10 contracts of XAU June $80 call (XAUFP) @ $7.20
Sell 10 contracts of XAU January $80 call (XAUAP) @ $2.20

The out of pocket cost for this trade is $5.00 ($7.20 - $2.20).
Think about it.  There are five more option cycles before June.
If we get $2.20 each month for the next five months, we’ll have
taken in $11.  Plus, there will likely still be value in the June
call.  This will take a little time to develop, but we’re in no
hurry.  There is no maintenance requirement for this calendar
spread because it is a long position.  If all goes well, there
will be a pot of gold at the end of the rainbow.

Position #3:  QQQ ITM Strangle -With A Twist
This is a strategy we touched on this summer and it seems like a
good time to put it to work.  ISt’s a neutral strategy consisting
of two calendar spreads working together.  For the long options,
we’ll be using LEAPS.  The short options will be sold two months
out.  We’ll make money, and reduce our cost basis, every time we
sell the short options.  Next Sunday I’ll go into much greater
detail on this long term strangle.  I’ll also include one of our

With the QQQs trading at $25.32, we will:
Buy 10 contracts of the Jan. 05 QQQ $21 call (ZWQAT) @ $8.20
Buy 10 contracts of the Jan. 05 QQQ $29 put (ZWQMC) @ $7.00
Sell 10 contracts of the Feb. 03 QQQ $29 call (QAVBC) @ $.50
Sell 10 contracts of the Feb. 03 QQQ $21 put (QAVNT) @ $.45

We will take $15.20 out of our pocket to buy the LEAPS.  However,
there is an intrinsic value of $8.00 that will never be at risk.
That leaves only $7.20 at risk.  We have two years to sell near
term calls against these LEAPS.  Our first near term sale is for
a total of $.95.  That’s a 13% return on the $7.20 risk.  We
don’t particularly care if the QQQs go up or down.  We’ll make
our money either way.

Next Sunday
Don’t forget that next Sunday we will dissect this Long Term ITM
Strangle strategy.  Plus, we may also add another position to the
CPTI portfolio.

By The Way
We’ve been doing really well with the CPTI portfolio.  I believe
we’ve just scratched the surface.   Jim has a special offer on
new subscriptions and renewals.  Take advantage of it.  I don’t
want to lose any of my CPTI students and there’s always room for

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.

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:



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Contact Support
The Option Investor Newsletter                   Sunday 12-22-2002
Sunday                                                      5 of 5

In Section Five:

Covered Calls: Q&A With The Editor
Naked Puts: More Q&A With The Naked-Puts Editor
Spreads/Straddles/Combos: A Last-Minute Christmas Present!

Updated In The Site Tonight:
Market Watch
Market Posture

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:



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

This week's narrative focuses on position adjustments with

Attn: Covered-Calls Editor
Subject: Need Help with Strategy


I am using your "in the money" covered call strategy with some
success. My question is: If, and when, a stock moves down through
the short strike, can we simply short shares of the stock to cover
the stock.  When the stock returns back above the short strike, we
simply buy the stock to cover our short shares.  You may incur a
few commissions and a little slippage, but it's the best way to
cover your positions.

I understand this concept but how do I set the limits.  With a
stock swinging $2 in a day, do I set the short sell right under
my strike price, or a few cents under, or at break-even point.  It
gets to be a lot of monitoring with the gyrations.  This goes for
covered calls sold "in the money" too.  If the stock drops to the
strike price do I sell short and run the risk of it moving back
over the strike price, get out of the position altogether (usually
at a loss, since I now have to buy the call back), or sell at the
breakeven point?

I'm having trouble setting this aspect of the strategy in my plans.


Hello MD,

It sounds like you're mixing strategies.  Selling stock short is
a method to cover a "naked put," and as you mentioned, slippage
can be a problem, especially if the stock moves through the sold
strike several times.

When a trader writes (sells) a call on stock he or she already
owns, the position is "covered," hence the name: covered call.
If the stock price is above the sold strike price at expiration,
the option will be exercised and the stock will be "called" away.
If the stock price is below the sold strike-price at expiration,
the sold call will expire worthless and the trader will keep the
stock (as well as the premium received from the sold call).

As for exiting covered-call positions, there are many stop-loss
signals an investor can employ: a specific percentage of one's
overall portfolio value or a fixed dollar amount; a technical
violation of a moving average or trend-line, etc.  Once you have
decided to close a covered-call position, you simply buy back the
calls (at the "ask") and then sell the stock (at the "bid").  A
"net" order can also be used in closing a covered-write to ensure
an efficient exit.  In this case, you place an order with your
broker to "sell" the stock and "buy to close" the calls for a net
(credit) amount that is reasonably close to parity.

For example, if you bought XYZ stock at $13.88 and sold XYZ-$12.50
calls for $2.00, your cost basis (or break-even point) would be
$11.88 (not including commissions).  Several days later, the stock
breaks down technically and when it hits $11.50 on a closing basis,
you decide to close the position to preserve trading capital.  The
next day, you buy back the calls for about $0.45 and then sell the
stock at $11.45, incurring a loss of $0.88.

The math: 11.88 - 11.45 = 0.43 + 0.45 = 0.88 (not including cost
of commissions).

There are several methods to adjust a covered-write: you could
roll up (a bullish adjustment), roll forward, roll down, or even
use a combination of the ratio call-spread.  Generally, if you are
defensive and trying to lower your cost basis in a covered-call
position, you would roll down and/or forward.  If this is done
before expiration, you would need to buy back your current "sold"
calls.  To roll down, you sell a lower strike call and to roll
forward, you move forward in time.  An investor who is bullish in
the long-term will do this to protect against short-term weakness,
but ultimately expects the stock to recover.  Usually, you will
have to move forward several months (or use LEAPS) in order to
obtain a credit in the new position.  Sometimes, the best result
that can be accomplished is to lock-in a loss, which would still
be less than the current loss, providing the stock doesn't drop

Using the above example: after buying back the sold calls, your
new cost basis (11.88 + 0.45) is $12.33.  You check the news and
realize the stock fell because of a short-term problem.  You feel
the stock may drop to around $10.00 but ultimately will recover.
You decide to roll down and forward to the XYZ MAR-$10.00 strike,
which is selling for $3.15.  The adjusted position offers a new
cost basis of $9.18 (12.33 - 3.15 not including commissions),
which allows for further downside protection while also offering
a reasonable return at the "expense" of tying up your capital for
a longer period of time.

The link below leads to a previous narrative on a the "ratio call
spread" method used to adjust a covered call position:


Again, the ability to manage losses is paramount to a successful
portfolio.  Many professionals to use technical analysis identify
areas of support or resistance, which assists in applying exit or
adjustment points.  The book: "Secrets for Profiting in Bull and
Bear Markets" by Stan Weinstein, provides a basic explanation of
the use of technical analysis in evaluating stocks.  In addition,
the OIN bookstore offers several other technical analysis books
and Larry McMillan's book, "Options as a Strategic Investment"
includes some excellent information on covered-calls.  The book
is a great resource, covering all aspects of the "covered write"
strategy and it is available in the OIN bookstore.  McMillan also
covers in detail the strategy of selling call options on long-term
portfolio holdings.

Hope this helps,

Mark W.


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

SIMG     5.44    5.52  DEC  5.00  1.10    0.66*  11.0%
CIEN     5.58    5.33  DEC  5.00  1.00    0.42*  10.0%
DNDN     5.72    4.89  DEC  5.00  1.00    0.17    7.8%
SEBL     8.30    7.57  DEC  7.50  1.05    0.25*   7.5%
INHL     7.96    8.52  DEC  7.50  1.05    0.59*   7.4%
IMCL     8.97   11.91  DEC  7.50  2.15    0.68*   7.2%
MATK    22.07   24.94  DEC 20.00  3.30    1.23*   7.1%
V       13.96   16.39  DEC 12.50  2.35    0.89*   5.6%
USG      6.25    7.73  DEC  5.00  1.60    0.35*   5.5%
CTIC     8.60    7.59  DEC  7.50  1.50    0.40*   4.9%
IDCC    15.20   15.50  DEC 12.50  3.30    0.60*   4.4%
MDCO    14.33   16.02  DEC 10.00  4.90    0.57*   4.4%
ALXN    17.53   14.99  DEC 15.00  2.95    0.41    4.1%
DCTM    18.13   16.55  DEC 15.00  3.80    0.67*   4.1%
IDCC    14.74   15.50  DEC 12.50  2.90    0.66*   4.0%
MATK    23.16   24.94  DEC 20.00  3.70    0.54*   4.0%
BRCM    15.45   15.84  DEC 12.50  3.50    0.55*   4.0%
SEE     18.26   38.00  DEC 15.00  3.90    0.64*   3.9%
CRYP     5.57    4.82  DEC  5.00  0.80    0.05    1.5%
MVSN    18.68   16.80  DEC 17.50  1.85   -0.03    0.0%
RSTO     5.48    4.38  DEC  5.00  1.05   -0.05    0.0%
CMOS    11.11    9.21  DEC 10.00  1.65   -0.25    0.0%
DCTM    19.90   16.55  DEC 17.50  3.10   -0.25    0.0%
LAVA    11.59    9.39  DEC 10.00  1.95   -0.25    0.0%
OSUR     7.97    6.14  DEC  7.50  1.45   -0.38    0.0%
MLNM    11.19    8.73  DEC 10.00  1.55   -0.91    0.0%
FLEX    11.01    8.60  DEC 10.00  1.40   -1.01    0.0%
TXN     19.22   15.74  DEC 17.50  2.40   -1.08    0.0%
ISSX    24.48   19.43  DEC 22.50  3.50   -1.55    0.0%

AES      3.25    3.10  JAN  2.50  1.05    0.30*  11.9%
ELN      2.90    2.52  JAN  2.50  0.65    0.25*   8.0%
BMRN     7.74    7.30  JAN  7.50  1.05    0.61    7.9%
MEE     10.65   10.09  JAN 10.00  1.25    0.60*   5.5%
IMCL    13.50   11.91  JAN 10.00  4.10    0.60*   4.6%
ALXN    15.30   14.99  JAN 12.50  3.40    0.60*   4.4%
MOGN     8.30    8.11  JAN  7.50  1.15    0.35*   4.3%
MMR      5.20    4.80  JAN  5.00  0.60    0.20    3.8%
ZIXI     5.51    4.66  JAN  5.00  0.90    0.05    0.9%
VISG     5.72    4.49  JAN  5.00  1.05   -0.18    0.0%

* = Stock price is above the sold striking price.


Well, Christmas is almost here so I must ask: Where is the Santa
Claus Rally?  Maybe it will arrive next week -- if Friday is any
indication -- and not a moment too soon.  Time to re-evaluate your
long-term outlook on stocks you may own after the December options
expiration.  Several of the above December positions remain above
their 150-dmas but: (1) Are they holding at support and (2) Have
they pulled back farther than expected.  For Example, Restoration
Hardware (NASDAQ:RSTO) has broken a trend-line from the August low
to the November low, which suggests a bearish future.  As for the
January positions, BioMarin Pharma (NASDAQ:BMRN) is now testing a
"confirmed" trend-line (AUG to NOV lows) and should be monitored
closely.  A few other stocks are testing support (or could trend
lower towards support) and should be watched closely as we move
into next week.

On a side note, I will be joining the Market Monitor this week...

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


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

AVID   22.03  JAN 20.00   AQI AD  2.75 29    19.28   28    4.1%
BEAS   12.15  JAN 10.00   BUC AB  2.60 18726  9.55   28    5.1%
EYE    10.27  JAN 10.00   EYE AB  0.70 132    9.57   28    4.9%
LVLT    5.13  JAN  5.00   HGY AA  0.50 14125  4.63   28    8.7%
LWSN    5.26  JAN  5.00   QPA AA  0.55 20     4.71   28    6.7%
SEPR    9.48  JAN  7.50   ERQ AU  2.35 2488   7.13   28    5.6%
XMSR    3.00  JAN  2.50   QSY AZ  0.80 4252   2.20   28   14.8%

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

XMSR    3.00  JAN  2.50   QSY AZ  0.80 4252   2.20   28   14.8%
LVLT    5.13  JAN  5.00   HGY AA  0.50 14125  4.63   28    8.7%
LWSN    5.26  JAN  5.00   QPA AA  0.55 20     4.71   28    6.7%
SEPR    9.48  JAN  7.50   ERQ AU  2.35 2488   7.13   28    5.6%
BEAS   12.15  JAN 10.00   BUC AB  2.60 18726  9.55   28    5.1%
EYE    10.27  JAN 10.00   EYE AB  0.70 132    9.57   28    4.9%
AVID   22.03  JAN 20.00   AQI AD  2.75 29    19.28   28    4.1%

Company Descriptions

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

AVID - Avid Technology $22.03  *** Stage II Rally ***

Avid (NASDAQ:AVID) develops, markets, sells and supports a wide
range of software, and hardware and software systems, for digital
media production, management and distribution.  Avid Technology
participates in two principal markets transitioning from well-
established analog content-creation processes to digital content-
creation tools.  The company's products, which are categorized
into the two principal markets in which they are sold, are used
worldwide in production and post-production facilities, film
studios, network, affiliate, independent and cable television
stations, recording studios, advertising agencies, government
and educational institutions, corporate communication departments,
and by game developers and Internet professionals.  A contract
win this week sparked a rally which moved shares of Avid to a
new two-year high.  The recent price history of Avid Technology
reveals one of the better charts we've seen in the broader-market
groups and investors who want to diversify their portfolio should
consider this position.

JAN 20.00 AQI AD LB=2.75 OI=29 CB=19.28 DE=28 TY=4.1%

BEAS - BEA Systems  $12.15  *** On The Move! ***

BEA Systems (NASDAQ:BEAS) is an application infrastructure software
provider.  The company's WebLogic Enterprise Platform delivers a
scalable software infrastructure designed to bring new services to
market quickly, to lower operational costs by automating processes
and to automate relationships with suppliers and distributors.
BEA's WebLogic Enterprise Platform includes BEA WebLogic Server, a
standards-based application server that serves as a platform for
deployment of enterprise scale applications and Web services; BEA
WebLogic Integration, a standards-based platform for workflow,
application integration, Web services and B2B integration; BEA
WebLogic Portal, a sophisticated rules-based infrastructure for
rich user interfaces to a wide variety of enterprise data, and BEA
WebLogic Workshop, a rich framework for development and deployment
of Web services and Java-based applications.  This week, BEA's
CEO said he expects the company to meet its fourth-quarter earnings
target of eight cents per share.  There is also some speculation
that BEA Systems could buy Borland Software (NASDAQ:BORL) in
response to International Business Machines' (NYSE:IBM) buyout
of Rational Software (NASDAQ:RATL).  In any case, BEA is in "rally
mode" and the heavy-volume buying suggests further upside potential.

JAN 10.00 BUC AB LB=2.60 OI=18726 CB=9.55 DE=28 TY=5.1%

EYE - VISX  $10.27  *** Bracing For A Rally? ***

VISX (NYSE:EYE) is engaged in the development of proprietary
technologies and systems for laser vision correction (LVC).
LVC relies on a computerized laser to treat nearsightedness,
farsightedness and astigmatism with the goal of eliminating or
reducing reliance on eyeglasses and contact lenses.  EYE's
VISX Excimer Laser System (the VISX System) ablates or removes
submicron layers of tissue from the surface of the cornea to
reshape the eye, thereby improving vision.  The VISX System
also treats certain types of corneal pathologies in an outpatient
procedure known as PhotoTherapeutic Keratectomy.  The company's
significant customers include Laser Vision Centers, Inc. and TLC
Laser Eye Centers, Inc.  VISX has been in a Stage I base for 6
months and the recent move above its 150-dma is bullish.  This
position offers a method to participate in the future movement
of the issue with a cost basis closer to technical support.

JAN 10.00 EYE AB LB=0.70 OI=132 CB=9.57 DE=28 TY=4.9%

LVLT - Level 3  $5.13  *** Will The Trend Be Our Friend? ***

Level 3 Communications (NASDAQ:LVLT) and its subsidiaries engage in
the communications, information services and coal mining businesses
through ownership of operating subsidiaries and substantial equity
positions in public companies.  The company is a facilities-based
provider of a broad range of integrated communications services.
Level 3 has created, generally by constructing its own assets, but
also through a combination of purchasing and leasing of facilities,
the Level 3 Network, an advanced, international, facilities-based
communications network.  LVLT has designed the Level 3 Network to
provide communications services that employ and leverage rapidly
improving underlying optical and Internet Protocol technologies.
Level 3, which is in the process of acquiring the assets of the
bankrupt Genuity Inc., has been in a lateral trend with support
near $4 for over a year.  This position allows investors to obtain
a reasonable entry point in Level 3 from which to speculate on a
continuation of the current trading range.

JAN 5.00 HGY AA LB=0.50 OI=14125 CB=4.63 DE=28 TY=8.7%

LWSN - Lawson Software  $5.26  *** On The Rebound ***

Lawson Software (NASDAQ:LWSN) is a provider of enterprise software
solutions targeting specific service industries.  In the markets
it serves, the company offers comprehensive financial management,
human resources, services automation, procurement, distribution
and merchandising solutions designed to manage, analyze & improve
its customers' businesses.  The company also provides professional
services that optimize and support the selection, implementation
and execution of a customer's e-business technology and solutions
infrastructure.  Lawson has over 2,000 customers, primarily in the
healthcare, professional & financial services, public sector, and
retail markets.  Lawson generates revenue through license fees and
separate fees for professional services.  Lawson Software reported
better than expected earnings this week and also said the company
will repurchase up to $15 million of its stock.  The stock appears
poised to move higher in the coming sessions and this position
offers a favorable cost basis in the issue.  Try "target shooting"
a lower net-debit to increase the potential yield in the position
and further reduce the cost basis of the issue.

JAN 5.00 QPA AA LB=0.55 OI=20 CB=4.71 DE=28 TY=6.7%

SEPR - Sepracor  $9.48  *** New Drug Speculation ***

Sepracor (NASDAQ:SEPR) is a research-based pharmaceutical company
dedicated to treating and preventing human disease through the
discovery, development and commercialization of pharmaceutical
compounds, including product candidates directed toward serving
unmet medical needs.  The company's proprietary compounds are
either single-isomer or active metabolite forms of existing drugs,
which Sepracor refers to as improved chemical entities, or new
chemical entity compounds, which are unrelated to currently
marketed products.  Shares of Sepracor spiked this week after the
company said it is on track to seek government marketing approval
for its new insomnia drug, Estorra, which could be on the market
by 2004 if approved by the FDA.  The current technical outlook is
recovering and this position offers an excellent reward potential
at the risk of owning Sepracor at a favorable cost basis.

JAN 7.50 ERQ AU LB=2.35 OI=2488 CB=7.13 DE=28 TY=5.6%

XMSR - XM Satellite Radio  $3.00  *** Get Some Air Time! ***

XM Satellite Radio Holdings (NASDAQ:XMSR) seeks to become a
nationwide provider of audio entertainment and information
programming for reception by vehicle, home and portable radios.
Through its two high-power satellites "Rock" and "Roll," the
company's XM Radio service offers 101 channels of music, news,
talk, sports and children's programming developed by XMSR or
third parties.  The company will build a subscriber base for
XM Radio through multiple distribution channels, including an
exclusive distribution arrangement with GM, other automotive
manufacturers, car audio dealers and electronics retailers.
XMSR rallied earlier this month when Avis said it would add
about 50,000 XM-equipped General Motors vehicles to its fleet
from the first quarter of next year.  The stock is forging
a stage I base with support near our cost basis and this position
offers investors who believe in the company's future, a way to
participate in the future movement of the issue with relatively
low risk.

JAN 2.50 QSY AZ LB=0.80 OI=4252 CB=2.20 DE=28 TY=14.8%



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

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

FSII    5.12  JAN  5.00   FQH AA  0.60 100    4.52   28   11.5%
ARRS    2.85  JAN  2.50   AQC AZ  0.55 25     2.30   28    9.4%
SWKS    8.86  JAN  7.50   GAK AU  1.85 45     7.01   28    7.6%
BSTE   34.98  JAN 35.00   BQS AG  2.20 827   32.78   28    7.3%
Q       5.30  JAN  5.00     Q AA  0.60 16227  4.70   28    6.9%
BORL   13.11  JAN 12.50   BLQ AV  1.35 648   11.76   28    6.8%
ESPD   17.75  JAN 17.50   ENU AW  1.25 19    16.50   28    6.6%
COF    31.54  JAN 27.50   COF AY  5.50 732   26.04   28    6.1%
ADLR   13.86  JAN 12.50   UAH AV  2.00 29    11.86   28    5.9%
WBSN   22.15  JAN 20.00   DQH AD  3.10 144   19.05   28    5.4%
ADRX   14.81  JAN 12.50   QAX AV  2.90 2235  11.91   28    5.4%
GG     12.23  JAN 11.25    GG AT  1.50 5953  10.73   28    5.3%
UNTD   16.40  JAN 15.00   QAB AC  2.05 36    14.35   28    4.9%
CLHB   16.85  JAN 15.00   QPB AC  2.50 486   14.35   28    4.9%
GFI    13.75  JAN 12.50   GFI AV  1.75 2709  12.00   28    4.5%


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

Last week's discussion about the "real" risk in writing uncovered
options prompted one reader to ask if the benefits of selling puts
outweigh the disadvantages of the strategy.

Attn: Ray Cummins (Naked Puts Editor)
Subject: Put Selling - Risk/Reward

Hello Ray,

The article on the risk involved in selling naked puts hit home
with me as I have owned a few stocks that almost went to zero
(and the jury is still out on a couple of my technology stocks).
Although only one of these losers came from sold puts I have to
take the blame for that mistake because I did not use the proper
exit strategies that are necessary in any type of trading.  The
phrase "cut your losses early" comes to mind and if only I had
learned that lesson before the real bear market arrived.  Anyway,
my question is simple.  Based on past history, is the strategy of
selling naked options (puts in this case) a useful and productive
strategy in the long run?  In short, should it be part of a
conservative trader's portfolio or is it better left to the

I am sure your opinion would be appreciated by the readership.


Hello Again TY,

First, thanks for your interest in the Naked Puts section and I
am glad you have (apparently) learned the most important lesson
new traders must be taught.  That is the need to limit losses
whenever they occur, so they do not significantly affect your
portfolio capital.  Of course, it's "easier said than done" but
the simple fact is, position management is far more crucial to
long-term success than any other facet of trading.  With "naked"
options, this truth is even more applicable because the risk in
each position is so large, in percentage terms, when compared to
the profit potential.

The first question you asked: "Is the strategy of selling naked
options (puts in this case) useful and productive...?" is easily
answered.  Yes, selling uncovered options is a viable technique,
when utilized properly in the appropriate market conditions.  The
validation for this statement can be substantiated in many ways
however a simple observation of the activity at a major exchange
reflects the popularity of the strategy among both professional
and retail traders, fund managers, and institutions such as large
corporations.  Having made that assertion, the second question:
"Should it be part of a conservative trader's portfolio?" is far
more difficult to answer.  In my opinion, the most efficient way
to evaluate an option-trading strategy is to examine its basic
advantages and weaknesses.  These would include: ease of use and
management; risk versus reward potential; the affects of pricing
components such as time decay, volatility and leverage (delta);
and the capital required to effectively employ the technique on
a regular basis.  Writing uncovered options ranks fairly well in
all of these areas except one -- the ratio of risk to reward.
Not surprisingly, that component is also the most misunderstood
aspect of selling naked puts and it leads to the worst drawback
of all; the possibility of a catastrophic loss where only minimal
collateral is required.

Based on that observation, the sale of uncovered (put) options is
definitely not appropriate for everyone.  However, to suggest that
"conservative" traders should not use the strategy is analogous to
saying they are also incompetent or incapable of understanding the
various attributes of a particular position or technique.  Instead,
I would venture that most market participants, regardless of their
level of experience, can be educated about the shortcomings of the
strategy and be taught to implement and manage it correctly in
market conditions that are appropriate for its use.  With that idea
in mind, it is obvious that one must become knowledgeable, as well
as proficient, to succeed in this unique (and often controversial)
method of option trading.  The best way to achieve those goals is
to read all you can about the strategy and fortunately, there are
number of excellent books on the subject, as well as articles about
position management and adjustments, available on the OIN website.

Let me know if there is any way I can help you with the process.

Merry Christmas & Happy Holidays!


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   19.08  DEC 17.50  0.45    0.45*  12.7%   3.8%
HAL     20.19   19.08  DEC 15.00  0.25    0.25*  12.7%   3.7%
PPD     28.40   26.80  DEC 22.50  0.30    0.30*  10.9%   2.9%
AFCO    19.52   19.09  DEC 17.50  0.30    0.30*  10.7%   3.8%
IGEN    42.08   41.96  DEC 35.00  0.50    0.50*  10.6%   3.1%
SCIO    33.72   33.46  DEC 30.00  0.50    0.50*  10.6%   3.7%
MATK    22.07   24.94  DEC 17.50  0.45    0.45*  10.1%   2.9%
NWRE    20.19   15.50  DEC 15.00  0.30    0.30*  10.0%   3.0%
IMCL    15.04   11.91  DEC 10.00  0.30    0.30*   9.8%   3.4%
NWRE    17.68   15.50  DEC 12.50  0.55    0.55*   9.7%   3.3%
BBY     26.60   24.75  DEC 22.50  0.30    0.30*   9.5%   2.9%
ESIO    22.99   20.05  DEC 17.50  0.55    0.55*   9.3%   2.8%
HAL     18.85   19.08  DEC 15.00  0.35    0.35*   9.2%   2.6%
ALXN    17.55   14.99  DEC 12.50  0.30    0.30*   8.6%   2.7%
IMCL    11.77   11.91  DEC  7.50  0.25    0.25*   8.4%   3.0%
MSTR    18.16   14.70  DEC 12.50  0.30    0.30*   8.3%   2.7%
NEM     26.77   28.61  DEC 25.00  0.35    0.35*   8.2%   3.1%
BBY     27.68   24.75  DEC 22.50  0.35    0.35*   8.1%   2.3%
ISSX    22.19   19.43  DEC 17.50  0.45    0.45*   8.0%   2.3%
BSTE    31.02   34.98  DEC 22.50  0.75    0.75*   7.8%   2.5%
HAL     17.85   19.08  DEC 12.50  0.35    0.35*   7.8%   2.5%
PPD     28.65   26.80  DEC 22.50  0.30    0.30*   7.2%   2.0%
CYMI    33.43   31.60  DEC 25.00  0.60    0.60*   7.2%   2.1%
GNSS    17.17   14.30  DEC 12.50  0.30    0.30*   7.0%   2.1%
PLMD    30.31   32.77  DEC 22.50  0.60    0.60*   6.5%   2.0%
ESIO    24.50   20.05  DEC 17.50  0.30    0.30*   6.3%   1.9%
FAST    38.25   38.04  DEC 35.00  0.35    0.35*   6.1%   2.2%
KOSP    19.13   19.78  DEC 15.00  0.35    0.35*   6.1%   1.7%
SEE     21.33   38.00  DEC 15.00  0.25    0.25*   6.0%   1.8%
RIMM    16.58   13.06  DEC 12.50  0.30    0.30*   6.0%   1.8%
NPSP    28.24   26.07  DEC 20.00  0.50    0.50*   5.9%   1.9%
POSS    14.20   14.92  DEC 12.50  0.35    0.35*   5.9%   2.1%
IGEN    38.65   41.96  DEC 30.00  0.55    0.55*   5.8%   1.6%
ESIO    21.15   20.05  DEC 15.00  0.35    0.35*   5.5%   1.7%
MEDI    28.07   27.91  DEC 20.00  0.30    0.30*   5.5%   1.7%
AMZN    22.21   21.93  DEC 17.50  0.30    0.30*   5.5%   1.5%
PPD     27.08   26.80  DEC 20.00  0.35    0.35*   5.3%   1.5%
PHTN    28.50   22.30  DEC 22.50  0.50    0.30    4.2%   1.2%
JEC     36.31   34.75  DEC 35.00  0.50    0.25    2.6%   1.0%
RINO    19.40   17.16  DEC 17.50  0.30   -0.04    0.0%   0.0%
PHTN    32.32   22.30  DEC 27.50  0.50   -4.70    0.0%   0.0% **
PHTN    35.25   22.30  DEC 27.50  0.40   -4.80    0.0%   0.0% **

GG      12.62   12.23  JAN 11.25  0.40    0.40*   8.5%   3.2%
GFI     14.68   13.75  JAN 12.50  0.35    0.35*   7.5%   2.5%
MATK    23.37   24.94  JAN 17.50  0.35    0.35*   6.1%   1.8%
BSTE    31.41   34.98  JAN 22.50  0.45    0.45*   5.8%   1.8%
OVER    28.99   28.15  JAN 22.50  0.40    0.40*   5.6%   1.6%
AU      33.99   32.20  JAN 30.00  0.65    0.65*   5.5%   1.9%
IGEN    41.10   41.96  JAN 30.00  0.55    0.55*   5.5%   1.6%

*  = Stock price is above the sold strike price.
** = Posted losses do not reflect a timely exit trade based on
     Thursday's move below the sold strike.


There is little for investors to be cheerful about this Holiday
season as concerns over the economy and tensions overseas have
conspired to thwart all attempts at a "Santa Claus" rally.  The
late-week surge on Friday, while comforting for market bulls,
did little to help the overall outlook for stocks.  The current
technical indications suggest further consolidation in the coming
month, thus it is paramount for traders to closely monitor their
portfolios and initiate timely exits in questionable positions.
Photon Dynamics (NASDAQ:PHTN) was a perfect example of that fact
as the issue fell almost $5 after announcing it will miss first
quarter sales projections by up to 20%.  Thursday's move below
a long-term moving average (and the sold strike at $27.50) was a
great indicator of things to come but traders who did not heed
the warning were punished for their indolence.  For those of you
who have yet to learn (the hard way) the necessity of keeping
losses small, I hope the large (negative) numbers in the summary
will give you enough motivation to make position management a
priority.  Issues on the watch-list include: all gold stocks in
a bullish market; all other issues in a bearish market.

Positions Previously Closed: Georgia-Pacific (NYSE:GP)


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.


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 if assigned through an exercise.
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.

For more information on margin requirements, please refer to:



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, thus it reflects the maximum potential loss in
the position.


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

COF   31.54  JAN 20.00 COF MD 0.40 5362  19.60  28    6.5%   2.2%
DISH  22.20  JAN 20.00 UAB MD 0.40 4470  19.60  28    6.1%   2.2%
GRMN  28.95  JAN 25.00 GQR ME 0.40 110   24.60  28    5.4%   1.8%
IMPH  19.48  JAN 17.50 QPH MW 0.35 0     17.15  28    6.2%   2.2%
MATK  24.94  JAN 20.00 KQT MD 0.50 52    19.50  28    9.8%   2.8%
PLMD  32.77  JAN 25.00  PM ME 0.45 676   24.55  28    7.0%   2.0%
WERN  22.21  JAN 20.00 QEH MD 0.40 40    19.60  28    6.1%   2.2%

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

MATK  24.94  JAN 20.00 KQT MD 0.50 52    19.50  28    9.8%   2.8%
PLMD  32.77  JAN 25.00  PM ME 0.45 676   24.55  28    7.0%   2.0%
COF   31.54  JAN 20.00 COF MD 0.40 5362  19.60  28    6.5%   2.2%
IMPH  19.48  JAN 17.50 QPH MW 0.35 0     17.15  28    6.2%   2.2%
DISH  22.20  JAN 20.00 UAB MD 0.40 4470  19.60  28    6.1%   2.2%
WERN  22.21  JAN 20.00 QEH MD 0.40 40    19.60  28    6.1%   2.2%
GRMN  28.95  JAN 25.00 GQR ME 0.40 110   24.60  28    5.4%   1.8%

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).

COF - Capital One Financial  $31.54  *** Bad News Priced-In? ***

Capital One Financial Corporation (NYSE:COF) is a holding company
whose principal subsidiaries, Capital One Bank and Capital One,
F.S.B., offer consumer lending products.  Capital One's principal
subsidiaries are among the largest providers of MasterCard and
Visa credit cards in the world.  The firm's businesses include
other consumer lending services such as unsecured installment
lending and automobile financing.  Credit-quality fears and an
increase in bad loans have hampered Capital One's profit outlook
over the past few months but bullish investors say the condition
is "priced-in" to the current share value.  Traders who agree with
that assessment can attempt sell the inflated option premium for a
profit in this speculative position.

JAN 20.00 COF MD LB=0.40 OI=5362 CB=19.60 DE=28 MY=6.5% SY=2.2%

DISH - EchoStar Communications  $22.20  *** Recent Deals ***

EchoStar Communications (NASDAQ:DISH) operates through two major
business units, the DISH Network and EchoStar Technologies.  The
DISH Network offers a direct broadcast satellite subscription TV
service in the United States with almost 7 million DISH Network
subscribers.  EchoStar Technologies Corporation is engaged in the
design, development, distribution and sale of DBS set-top boxes,
antennae and other digital equipment for the DISH Network and the
design, development and distribution of similar equipment for a
range of international satellite service providers.  Dish recently
announced a deal to buy back 57 million shares of its stock from
Vivendi Universal at a discount to the current value and below the
original purchase price.  The news comes on the heels of another
favorable agreement which voids an obligation to purchase Hughes
Electronics' stake in PanAmSat.  Both of the events were positive
for DISH and the near-term outlook for the stock reflects that
bullish condition.

JAN 20.00 UAB MD LB=0.40 OI=4470 CB=19.60 DE=28 MY=6.1% SY=2.2%

GRMN - Garmin  $28.95  *** Solid Revenue Outlook! ***

Garmin (NASDAQ:GRMN) is a provider of navigation, communications
and information devices, most of which are enabled by GPS (global
positioning system) technology.  The company designs, develops,
manufactures and markets under the Garmin brand a diverse family
of hand-held, portable and fixed-mount, GPS-enabled products and
other navigation, communications and information products for the
general aviation and consumer markets.  Each of the company's GPS
products utilizes its proprietary integrated circuit and receiver
designs to collect, calculate and display location, direction,
speed and other information in forms optimized for specific uses.
Last week, Garmin raised its quarterly revenue outlook, citing
increased holiday demand for consumer products and significant
shipments of back-ordered aviation products.  The company also
recently received a prestigious Consumer Electronics Association
Best of Innovations Award for its iQue 3600 PDA with integrated
GPS technology.  Investors who wouldn't mind a basis near $25 in
the issue should consider this position.

JAN 25.00 GQR ME LB=0.40 OI=110 CB=24.60 DE=28 MY=5.4% SY=1.8%

IMPH - IMPATH  $19.48  *** New 6-Month High! ***

IMPATH (NASDAQ:IMPH) is a cancer information company that focuses
on the clinical application of various advanced technologies in
the community-based hospital environment to enable clinicians to
make better treatment decisions for their cancer patients.  The
company harnesses the information it generates from performing
analyses on thousands of cancer specimens annually to broaden the
applications of this biological information.  The company has also
completed multiple strategic acquisitions including technologies,
software, complementary cancer information such as treatment and
outcomes data, pharmacoeconomic analytical capabilities, a tissue
and serology archive of well-characterized cancer specimens linked
to longitudinal information on donors of those specimens, and a
network of clinical trial sites in the U.S. that provides protocol
design and review, patient recruitment, data storage and analytical
services.  IMPH shares hit a new 6-month high Friday and despite
the lack of bullish (public) news, the share value appears to be
headed higher in the near-term.

JAN 17.50 QPH MW LB=0.35 OI=0 CB=17.15 DE=28 MY=6.2% SY=2.2%

MATK - Martek Biosciences  $24.94  *** The Rally Resumes! ***

Martek Biosciences (NASDAQ:MATK) develops and sells products
made from microalgae.  Microalgae are microplants.  The firm
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.  Last week, MATK shares soared after
a favorable Q4 report and the near-term outlook is definitely
bullish.  Investors who are interested in a portfolio addition
of a unique biotechnology company should consider this position.

JAN 20.00 KQT MD LB=0.50 OI=52 CB=19.50 DE=28 MY=9.8% SY=2.8%

PLMD - PolyMedica   $32.77  *** Positive Earnings Guidance ***

PolyMedica (NASDAQ:PLMD) is a provider of direct-to-consumer
medical products and services, conducting business through its
Chronic Care, Professional Products and Consumer Healthcare
segments.  The company sells diabetes supplies and products,
and provides services to Medicare-eligible seniors suffering
from diabetes and related chronic diseases through its Chronic
Care segment.  Through its Professional Products segment, it
provides direct-to-consumer prescription respiratory supplies
and services to Medicare-eligible seniors suffering from chronic
obstructive pulmonary disease.  It also markets, manufactures
and distributes a broad line of prescription urological and
suppository products.  PolyMedica markets prescription oral
medications not covered by Medicare to its existing customers
through its Professional Products segment.  PolyMedica recently
reaffirmed its net revenue guidance for the current quarter and
raised EPS guidance for the coming quarter, based on lower than
expected legal expenses.  Traders who favor "premium-selling"
strategies on potentially volatile issues should consider this
speculative position.

JAN 25.00 PM ME LB=0.45 OI=676 CB=24.55 DE=28 MY=7.0% SY=2.0%

WERN - Werner Enterprises  $22.21  *** Trucking Sector ***

Werner Enterprises (NASDAQ:WERN) is a transportation company
engaged primarily in hauling truckload shipments of general
commodities in both interstate and intrastate commerce.  Werner
has a fleet of over 7,000 trucks and the principal types of
freight transported by the company include consumer products,
retail store merchandise, food and paper products, beverages,
industrial products and building materials.  The firm operates
in the 48 contiguous states pursuant to operating authority,
both common and contract, granted by the United States D.O.T
and pursuant to intrastate authority granted by various states.
Werner also has authority to operate in the 10 provinces of
Canada, and provides through trailer service in and out of
Mexico.  WERN emerged in scan of bullish issues with recent
high trading volume and the combination has proven to be very
accurate in identifying short-term rallies.  Traders who think
the upside activity will continue over the next few weeks can
profit from that outcome with this position.

JAN 20.00 QEH MD LB=0.40 OI=40 CB=19.60 DE=28 MY=6.1% SY=2.2%



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 - margin)
Stock  Last   Option   Option Last Open  Cost  Days   Max   Simple
Symbol Price  Series   Symbol Bid  Int   Basis Exp.  Yield  Yield

IDCC  15.50  JAN 12.50 DAQ MV 0.40 50    12.10  28   12.1%   3.6%
WBSN  22.15  JAN 17.50 DQH MW 0.45 11    17.05  28   10.0%   2.9%
NBIX  44.25  JAN 40.00 UOT MH 1.35 33    38.65  28    9.9%   3.8%
BSTE  34.98  JAN 30.00 BQS MF 0.90 174   29.10  28    9.9%   3.4%
IGEN  41.96  JAN 35.00  GQ MG 0.95 435   34.05  28    9.6%   3.0%
XLNX  21.26  JAN 17.50 XLQ MW 0.45 5728  17.05  28    9.4%   2.9%
CELG  22.76  JAN 20.00 LQH MD 0.60 1621  19.40  28    9.4%   3.4%
PSFT  19.01  JAN 15.00 PQO MC 0.35 2504  14.65  28    9.2%   2.6%
PPD   26.80  JAN 20.00 PPD MD 0.35 210   19.65  28    6.7%   1.9%
BMC   17.22  JAN 15.00 BMC MC 0.25 3654  14.75  28    5.5%   1.8%



A Last-Minute Christmas Present!
By Ray Cummins

Stocks rebounded Friday as investors shopped for holiday bargains
after a government report showed the U.S. economy expanded briskly
in the third quarter.

The Dow Jones industrial average closed up 147 points at 8,512
amid strong performances from J.P. Morgan Chase (NYSE:JPM), AT&T
(NYSE:T) and Alcoa (NYSE:AA).  The NASDAQ Composite index of
technology stocks rose 9 points to 1,363 as semiconductor shares
bounced-back from recent losses.  The broader Standard & Poor's
500 index climbed 11 points to 895 with biotechnology, finance,
home furnishing, casino and shoe stocks among the day's leaders.
Trading volume was heavy as traders adjusted their portfolios
during the quadruple-witching expiration of futures and options
contracts.  On the Big Board, 1.8 billion shares changed hands
while 1.7 billion shares were exchanged on the NASDAQ.  Market
breadth was positive with winners outpacing losers by a 2 to 1
margin on NYSE while advancers bested decliners 4 to 3 on the
technology exchange.  The bond market retreated from recent gains
with the yield on the 10-year note finishing at 3.95%.

Merry Christmas!


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


Symbol  Pick   Last  Month  LP  SP Credit   CB    G/L   Status

BR      42.01  42.67  DEC   35  38  0.30  37.20  $0.30  Closed
EBAY    64.79  69.84  DEC   50  55  0.55  54.45  $0.55  Closed
IGEN    36.49  41.96  DEC   25  30  0.65  29.35  $0.65  Closed
SLM    102.94 105.58  DEC   85  90  0.65  89.35  $0.65  Closed
DE      49.00  47.57  DEC   40  45  0.65  44.35  $0.65  Closed
INTU    52.91  48.20  DEC   40  45  0.50  44.50  $0.50  Closed
LLY     62.24  63.25  DEC   50  55  0.55  54.45  $0.55  Closed
IGT     77.06  74.30  DEC   65  70  0.55  69.45  $0.55  Closed
PIXR    55.67  57.50  DEC   45  50  0.50  49.50  $0.50  Closed
FPL     59.87  59.60  DEC   50  55  0.55  54.45  $0.55  Closed
UOPX    36.65  36.26  DEC   30  34  0.45  33.30  $0.45  Closed
ABK     62.51  57.71  DEC   50  55  0.40  54.60  $0.40  Closed
AGN     58.79  53.68  DEC   50  55  0.55  54.45 ($0.77) Closed
APC     49.59  48.53  JAN   40  45  0.55  44.45  $0.55   Open
VLO     36.39  37.40  JAN   30  32  0.30  32.20  $0.30   Open
ASA     39.30  38.71  JAN   32  35  0.35  34.65  $0.35   Open
FNM     66.61  66.70  JAN   55  60  0.40  59.60  $0.40   Open
NBR     37.75  37.55  JAN   30  32  0.30  32.20  $0.30   Open

LP = Long Put  SP = Short Put  CB = Cost Basis  G/L = Gain/Loss

Previously closed (losing) positions include: Kohl's (NYSE:KSS)
and Autozone (NYSE:AZO).  Everest RE Group (NYSE:RE) rebounded
to end the month positive while the bullish spread in Allergan
(NYSE:AGN), which was closed Thursday, finished the expiration
period negative.


Symbol  Pick   Last  Month  LC  SC Credit   CB     G/L   Status

ABC     72.45  51.30  DEC   85  80  0.65   80.65  $0.65  Closed
MCO     45.12  42.50  DEC   55  50  0.40   50.40  $0.40  Closed
WLP     74.04  71.88  DEC   90  85  0.60   85.60  $0.60  Closed
UNH     86.83  81.09  DEC  105 100  0.55  100.55  $0.55  Closed
DNA     35.46  35.00  DEC   45  40  0.60   40.60  $0.60  Closed
DP      40.40  38.20  DEC   50  45  0.40   45.40  $0.40  Closed
LXK     63.75  61.91  DEC   75  70  0.60   70.60  $0.60  Closed
IDPH    39.27  34.35  DEC   45  40  0.45   40.45  $0.45  Closed
UHS     44.85  45.10  DEC   55  50  0.30   50.30  $0.30  Closed
AAP     51.55  49.30  DEC   60  55  0.50   55.50  $0.50  Closed
ACDO    35.19  35.33  DEC   43  40  0.35   40.35  $0.35  Closed
JCI     81.79  80.10  JAN   90  85  0.20   85.20  $0.20   Open
LEH     56.72  56.35  JAN   65  60  0.25   60.25  $0.25   Open
GS      73.10  71.86  JAN   85  80  0.60   80.60  $0.60   Open
LXK     61.93  61.91  JAN   75  70  0.55   70.55  $0.55   Open
MMM    121.77 124.13  JAN  135 130  0.70  130.70  $0.70   Open

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

Previously closed (losing) positions include: Sinclair Broadcast


Symbol  Pick   Last  Month  LP  SP   Debit   B/E   G/L   Status

WMT     50.54  50.79  JAN   60  55   4.45   54.45  0.55   Open

LP = Long Put  SP = Short Put  B/E = Break-Even  G/L = Gain/Loss


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

COX     30.25  28.50   DEC     35    25     0.10    0.30   Closed
OMC     66.32  63.80   DEC     75    55     0.15    0.45   Closed
SCIO    32.84  33.46   JAN     40    25     0.00    0.25    Open
GG      11.15  12.23   JAN     12    10     0.10    1.10   Closed
PXD     26.11  25.97   MAR     30    23     0.10    0.20    Open

All of the speculative small-cap positions were closed when the
market began to retreat from its recent rally.  The position in
Nextel (NASDAQ:NXTL) was the best performer, however FCS, LTXX,
MENT and FLEX also offered favorable profits.  The bullish play
in ZRAN, although not available at our target price, achieved an
excellent gain.  Cypress Semiconductor (NYSE:CY) was closed early
to limit losses, but Scios (NASDAQ:SCIO) achieved a small profit.
The hedge position in Goldcorp (NYSE:GG) was very successful and
Pioneer Natural Resources (NYSE:PXD) has held up well despite the
market-wide declines.  Last week's slump below a recent support
area by Abbott Labs (NYSE:ABT) signaled our exit in that position.


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

IMN     35.00  35.70   APR     30    40      0.15    0.00   Open

Imation may be forming a base near the current price thus traders
are advised to monitor the issue regularly for signs of a bullish


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

HNT     25.75  27.00   JAN-30C   DEC-30C   0.60    0.60     Open
WSM     24.53  27.55   FEB-30C   DEC-30C   0.80    1.55     Open?
GISX    20.21  17.69   FEB-22C   DEC-22C   0.95    0.75     Open?

Global Imaging Systems (NASDAQ:GISX) has rebounded off of the lower
end of its recent trading range and the hopefully, the issue will
continue to recover in the coming week.  Healthnet (NYSE:HNT) is
also showing signs of bullish activity in the near-term.  Positions
in United Airlines (NYSE:UAL) and The Sharper Image (NASDAQ:SHRP)
have previously been closed to limit losses.


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

AES     2.92   3.25    J04-7.5P  J03-2.5P  4.50    0.25     Open
EDS    19.64  18.38    J04-25P   M03-17P   6.50    0.00     Open

ImClone (NASDAQ:IMCL), which was previously closed, offered a gain
of up to $2.25 in the speculative play.


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

ERTS    64.13  52.52   DEC    70    55     2.40    2.50    Closed
SLAB    25.16  20.86   DEC    30    20     1.00    0.00    Closed
MEDI    26.21  27.91   DEC    30    20     1.45    0.00    Closed

Last week's sell-off in Electronic Arts (NASDAQ:ERTS) forced us to
exit the position early for a small profit.  The speculative play
in Medimmune (NASDAQ:MEDI) was closed prior to the company's FDA
advisory panel meeting for a minimal gain.  The Medicine Company
(NASDAQ:MDCO) position, although profitable, was not initiated due
to a significant "pre-open" announcement on 11/18/02.


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

GENZ    34.43  31.79   JAN    35    35    6.15    6.00     Open
L        9.95   9.00   JAN    10    10    1.35    1.30     Open
XLNX    22.06  20.37   DEC    22    22    2.30    2.25    Closed

The short-term position in Xilinx (NASDAQ:XLNX) was very volatile
and also came within $0.05 of the break-even point in the bearish
portion of the play, however the straddle was not profitable on a
simultaneous order basis.

Questions & comments on spreads/combos to Contact Support

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


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

DHR - Danaher Corporation  $65.10  *** A Big Day! ***

Danaher Corporation (NYSE:DHR) is a producer of precision motion
control products, scientific and technical tools and instruments
for commercial and industrial applications.  The firm conducts its
operations through two business segments: Process/Environmental
Controls and Tools & Components.  Process/Environmental Controls,
in 2001, encompassed three strategic platforms, which included
Motion Control, Environmental and Electronic Test, and also three
focused niche businesses, which included Power Quality, Aviation &
Defense and Industrial Controls.  Another strategic platform was
recently added; Product Identification, to the segment through the
purchase of Videojet Technologies.  The Tools & Components segment
encompasses one strategic platform, Mechanics Hand Tools, and five
focused niche businesses, which include Jacobs Chuck Manufacturing
Company, Delta Consolidated Industries, Jacobs Vehicle Systems,
Hennessy Industries and Joslyn Manufacturing Company.

PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-55.00  DHR-MK  OI=166  A=$0.40
SELL PUT  JAN-60.00  DHR-ML  OI=215  B=$0.80
POTENTIAL PROFIT(max)=9% B/E=$59.55

IGEN - IGEN International  $41.96  *** Testing 2002 Highs! ***

IGEN International develops and markets products that incorporate
its proprietary electrochemiluminescence (ORIGEN) technology,
which permits the detection and measurement of various biological
substances.  ORIGEN provides a combination of speed, sensitivity,
flexibility and throughput in a single technology platform.  The
product is incorporated into instrument systems and other related
consumable reagents, and IGEN also offers assay development and
services used to perform analytical testing.  Products based on
ORIGEN technology address the Life Sciences, Clinical Testing and
Industrial Testing worldwide markets.

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JAN-30.00  GQ-MF  OI=548  A=$0.40
SELL PUT  JAN-35.00  GQ-MG  OI=435  B=$0.95
POTENTIAL PROFIT(max)=12% B/E=$34.45

RD - Royal Dutch Petroleum  $43.21  *** Oil Sector Hedge ***

Royal Dutch Petroleum (NYSE:RD) is a holding company that owns,
directly or indirectly, investments in the companies constituting
the Royal Dutch/Shell Group of Companies.  The Group includes a
range of other businesses such as Shell Hydrogen, Shell Internet
Works and Shell Capital.  The company has a 60% interest in the
Group.  The Operating Companies of the Group are also engaged in
various activities related to oil and natural gas, chemicals,
power generation, renewable resources and other energy businesses
in over 135 countries.  The companies of the Royal Dutch/Shell
Group are engaged in the business of exploration and production,
gas and power, oil products and chemicals and renewables, as well
as other related activities.  Royal Dutch/Shell has grown out of
an alliance made in 1907 between Royal Dutch and Shell Transport,
by which the two companies agreed to merge their interests on a
60:40 basis, while remaining separate and distinct entities.

PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-37.50  RD-MU  OI=10564  A=$0.20
SELL PUT  JAN-40.00  RD-MH  OI=7349   B=$0.45
POTENTIAL PROFIT(monthly)=11% B/E=$39.75

CDWC - CDW Computer Centers  $44.06  *** Lower Q4 Revenues! ***

CDW Computer Centers (NASDAQ:CDWC) is a direct marketer of a wide
range of computers and related technology products and services.
CDW's extensive offering of products, including hardware, software
and accessories, combined with its service offerings, provide
comprehensive solutions for its customers' technology needs.  The
company offers more than 80,000 products, which include a variety
of product types from manufacturers such as Cisco, Compaq, Intel,
Hewlett Packard, IBM, Microsoft, Sony and Toshiba, among others.
The firm's value-added services include its ability to configure
multi-branded solutions for its customers and offer technical
support 24 hours a day, seven days a week.  The company has two
operating segments, corporate, which is primarily comprised of
business customers, but includes consumers as well, and the public
sector, which is comprised of federal, state and local government
and educational institutions who are served by CDW Government, a
wholly owned subsidiary.

PLAY (conservative - bearish/credit spread):

BUY  CALL  JAN-55  DWQ-AK  OI=1954  A=$0.30
SELL CALL  JAN-50  DWQ-AJ  OI=2905  B=$0.80
POTENTIAL PROFIT(max)=12% B/E=$50.55

GD - General Dynamics  $78.87  *** No War Until January? ***

General Dynamics (NYSE:GD) operates a range of businesses that
produce information and communications technology, land and
amphibious combat systems, and is engaged in naval and commercial
shipbuilding, and business aviation.  These are high technology
businesses that use design, manufacturing and program management
expertise together with advanced technology and the integration
of complex systems as part of their everyday operations.  The
company operates in four primary business groups: Information
Systems and Technology, Combat Systems, Marine Systems, and
Aerospace.  The company employs approximately 54,000 people
worldwide and anticipates 2002 revenues of $14-$15 billion.

PLAY (conservative - bearish/credit spread):

BUY  CALL  JAN-90  GD-AR  OI=3056   A=$0.25
SELL CALL  JAN-85  GD-AQ  OI=45232  B=$0.65
POTENTIAL PROFIT(max)=9% B/E=$85.45


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

GDW - Golden West Financial  $72.33  *** Strong Sector! ***

Golden West Financial Corporation (NYSE:GDW) is a savings and loan
holding company, the principal business of which is the operation
of a savings bank business through its wholly owned savings bank
subsidiary, World Savings Bank, FSB (WSB).  Golden West also has
two operating subsidiaries, Atlas Advisers and Atlas Securities.
These two firms were formed to provide services to Atlas Assets, a
registered open-end management investment company sponsored by the
company.  Atlas Advisers is a registered investment adviser and the
investment manager of Atlas Assets' 14 portfolios; the Atlas Funds.
Atlas Securities is a registered broker-dealer and the distributor
of Atlas Fund shares.  The principal business of the firm, through
WSB, is attracting funds from the investing public and the capital
markets and investing those funds principally in loans secured by
deeds of trust or mortgages on residential real estate, and other
mortgage-backed securities.

PLAY (less conservative - bullish/debit spread):

BUY  CALL  JAN-65.00  GDW-AM  OI=61   A=$8.10
SELL CALL  JAN-70.00  GDW-AN  OI=299  B=$3.70
POTENTIAL PROFIT(max)=16% B/E=$69.30

HSY - Hershey Foods  $67.76  *** Something Different! ***

Hershey Foods Company (NYSE:HSY) and its subsidiaries are engaged
in the manufacture, distribution and sale of consumer food products.
The company produces and distributes a broad line of chocolate and
non-chocolate confectionery and grocery products.  Hershey's major
product groups include chocolate and non-chocolate confectioneries
sold in the form of bar goods, bagged items and boxed items; and
grocery products in the form of baking ingredients, chocolate drink
mixes, peanut butter, dessert toppings, and beverages.

PLAY (speculative - bullish/diagonal spread):

BUY  CALL  FEB-65.00  HSY-BM  OI=4334  A=$4.10
SELL CALL  JAN-70.00  HSY-AN  OI=3248  B=$0.70
POTENTIAL PROFIT(max)=50% B/E=$68.30


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.

VAR - Varian Medical Systems  $50.38  *** Reader's Request! ***

Varian Medical Systems (NYSE:VAR) is engaged in the design and
production of equipment for treating cancer with radiation, as
well as high-quality, cost-effective X-ray tubes for original
equipment manufacturers, replacement X-ray tubes and imaging
subsystems.  In serving the market for advanced medical systems
(primarily for cancer care), the company continues to broaden its
offerings to address the continuing demand to contain costs and
enhance efficacy of healthcare. In addition to developing medical
equipment, the company develops software products and devices
designed to enhance the productivity and quality of its equipment,
devices manufactured by other companies and the general delivery
of healthcare services.

PLAY (speculative - bullish/synthetic position):

BUY  CALL  FEB-55.00  VAR-BK  OI=137  A=$1.15
SELL PUT   FEB-45.00  VAR-NI  OI=107  B=$1.10

Note:  Using options, the position is similar to being long the
stock.  The initial margin/collateral requirement for the sold
put is approximately $1,600 per contract.  Do not initiate this
position if you can not afford to purchase the stock at the sold
strike price!


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:



Line 'em Up

To Read The Rest of The OptionInvestor.com Market Watch Click Here


Cautious Optimism

To Read The Rest of The OptionInvestor.com Market Posture Click Here


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Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

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