Option Investor

Daily Newsletter, Sunday, 12/29/2002

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The Option Investor Newsletter                   Sunday 12-29-2002
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: Traders Return Stocks Purchased in November
Futures Market: When Support Becomes Resistance
Index Trader Wrap: Get this year behind us!
Editor’s Plays: Option PowerBall  
Market Sentiment: South for the Winter
Ask the Analyst: Relative strength, but with X's and O's
Coming Events: Earnings, Splits, Economic Events

Updated on the site tonight:
Swing Trade Game Plan: Down the Chimney...and then some

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
       WE 12-27        WE 12-20        WE 12-15        WE 12-06
DOW     8303.78 -208.22 8512.01 + 78.16 8433.85 -211.92 -250.32
Nasdaq  1348.46 - 14.59 1363.05 +  0.63 1362.42 - 60.02 - 56.30
S&P-100  443.06 - 12.40  455.46 +  3.65  451.81 - 12.61 - 14.43
S&P-500  875.42 - 20.34  895.76 +  6.28  889.48 - 22.75 - 24.08
W5000   8305.63 -169.60 8475.23 + 48.97 8426.26 -202.90 -217.52
RUT      384.16 -  2.72  386.88 -  1.10  387.98 -  8.74 -  9.64
TRAN    2291.66 - 32.56 2324.22 +  5.75 2318.47 - 70.34 + 28.19
VIX       34.15 +  2.68   31.47 -  0.65   32.12 -  0.56 +  1.60
VXN       46.71 -  1.80   48.51 -  2.41   50.92 -  1.36 +  2.80
TRIN       3.60            0.66            1.34            1.11
Put/Call   0.94            0.88            0.87            0.91

Traders Return Stocks Purchased in November
by Jim Brown

Traders may have returned stocks Friday for cash but the bargain
hunting was confined to the malls. Market volume was very low
at only 1.8 billion across all markets but 1.5 billion of that
was down volume. Considering the holiday period is normally 
bullish there is a definite trend change in progress.

Dow Chart – Daily


Nasdaq Chart – Daily


Friday began with another surprising economic announcement. 
New home sales soared to a record annual rate of 1,069,000 and
well over consensus estimates. This +5.7% bounce caught everyone
off guard considering mortgage applications were down significantly
on Thursday. On a deeper look the internals showed that most of
the gains came from the Midwest with a sharp -26% decline in the
Northeast and a -4% decline in the West. Sales rose +41% in the
Midwest and only +2.4% in the South. Inventories fell to a 3.8
month supply due to a flurry of price cutting. Median home prices
fell -6.5% as builders competed to sell excess inventory before
mortgage rates begin to rise. The median home price fell from
$191,900 in June to $167,300 in November. With pricing power 
falling the stocks of the major homebuilders also were knocked
for a loss. The additional sales obviously came as the result
of strong incentives and is not something we should expect to

The Conference Board help Wanted Index remained at 40 in November
for the second consecutive month. This is the low for the year,
very close to a historic 40 year low, and indicates there has 
not been any surge in help wanted ads that would indicate a 
recovery in progress. If there is a recovery in progress it is
obviously a jobless one and many analysts think this could 
continue until the 2H of 2003. Several high profile analysts
are now expecting unemployment to go as high as 6.5% before the
economy recovers. The nonfarm payroll report for December will
be delayed by the holiday to Jan-10th. 

The positive home sales report only managed to hold up the 
market for a very few minutes. Other factors quickly came 
into play and the descent began. North Korea ordered the IAEA 
inspectors to leave the country as they prepared to begin
nuclear work. They are currently thought to be moving 1000
plutonium fuel rods back to the reactor complex every day. 
Scientists thought North Korea was only a couple months away
from making a bomb when the last treaty was brokered. Since 
North Korea recently admitted they never quit their bomb
making efforts like they had agreed eight years ago the risk
is now that they have the capability and only need to extract
the plutonium to complete the weapons. This means within 60
to 90 days they can have those weapons in their arsenal. This
overt "in your face" threat to go nuclear is a wildcard the
markets are not prepared to deal with. 

Add to this problem the news of the attack in Grozny, which 
could have killed as many as 200, when suicide bombers drove
truck bombs into a government building. This is not a problem
for the world as it is more of a civil war but it was just
one more negative news event. 

Oil prices spiked to $32.72 and will be much more of an impact
to the markets than the Russian civil war. Most investors think
the Iraq war will impact prices but they are wrong. Iraq is
only pumping 400,000 barrels a day, which is down from millions 
a day. The US has not used any Iraq oil for over a year. The
real problem is Venezuela and there does not appear to be any
resolution in sight. The US imports 14% of its oil from Venezuela
and that pipeline has been shut off. This is the same amount as
we import from Saudi Arabia. There will be additional purchases 
from other countries but the price of oil is going up. For 
every $1 increase it represents a monthly $7 billion undeclared 
tax on US consumers. Every recession since 1970 has been 
preceded by a large spike in oil prices. This is the kind of
news that makes investor nightmares. 

The lack of retail sales continues to make headlines with the
official estimates falling to only +1.5% sales gains for the 
season. This is the lowest sales growth since 1970 and means
the profit forecast for retailers is grim. There is still
hope by some that the returns and post holiday discounts will
help lift the numbers but reports from the malls are very

Adding to bearish investor sentiment was the call up of another
25,000 troops to go to Iraq. This makes over 150,000 officially
called up but there was as many as 60,000 in the area before
the build up "officially" started. 4,000 marines were put on
alert and told to prepare to leave. Orders were issued to put
four or more carrier battle groups in the oceans around Iraq
by Jan-27th. Orders were given to begin moving aircraft from 
US locations to attack launch points in the area. The intent
is clear. The pressure is building on Saddam to come clean or
face the consequences with a Jan-27th deadline. This is the
date the inspectors have to formally report to the UN on the
status of the search. The most recent news from their spokesman
was Iraq had failed to comply with the resolution. They have
not claimed to have found any weapons and the weapons they
already knew about have disappeared. Considering Saddam had
years to move/hide them I am not surprised. 250,000 troops
are expected to be in theater before Feb-1st so investors 
know there is more bad news coming. The US does not have near
the consensus of opinion this time and there are going to be
dissenters at the UN. The current indications are that the US
will attack regardless of the opposition and that could cause
grave global repercussions. Investors flight to gold and bonds
is increasing with gold hitting $349 on Friday and a five year
high. The dollar fell again on the world markets as Asian and
European investors shifted their positions.  

Volume on the NYSE was the second lightest day of the year
with Thursday being the lightest. 83% of the volume across
all the US markets was down volume. While there was no rush
to the exits it was a steady procession. Just because it was
an orderly exit does not mean investors should not panic. The
Dow closed only 3 points above 8300 and the lowest close since
Oct-17th. Make no mistake, this is a critical area for the
markets. Serious technical damage has been done and there is
only the bare minimum of support between us and disaster. By
disaster I am speaking about a move to 8127 and the 50%
retracement level or even lower to 8000 or below. A break 
below 8000 sets up a possible retest of the October lows at

The Dow is on track to post the worst December since 1931
and the Nasdaq will post its first three down years in a
row ever. The Dow has lost -1717 points or -17% for the 
year. The Nasdaq is even worse with a -602 point loss and
a -31% drop. Despite these numbers there are still some 
significant problems in our immediate future. There will
be a flurry of earnings warnings over the next three weeks. 
Because of the holidays the January warnings period is 
normally compressed into the first two full weeks of the 
year instead of stretched out over 4-5 weeks. This means
we could get a serious dose of bad news in a short period
of time. As is normally the case the COT report is showing
the retail traders lined up on the wrong side of the playing
field. On the Nasdaq, commercial traders increased their 
net short positions by 600% and small traders just posted 
their most bullish position of the year at a 3:1 net long.
Retail traders are clearly betting on the typical holiday
tech bounce and commercial traders are happy to take those 

I see considerable risk over the next three weeks. I have 
been telling readers for three weeks I expected a drop after
Christmas and it appears that drop is underway. There is a
significant chance that we will see a bounce on Monday simply
because of the oversold conditions. The TRIN closed on Friday
at 3.60 which is extremely bullish. It is an indicator of 
very oversold conditions and is powered by advancing/declining
volume. At this level the indicator typically predicts a very
quick bounce to equalize pressure. With much of Friday's drop
related to weekend event risk that bounce could be traders
coming back into the market on Monday. However, the oversold
conditions can be relieved very quickly with a very small
spike so I would not look to it for salvation. I would look
to short any real bounce over the next week. I believe the
earnings warnings, the increasing buildup in Iraq and the
increasing noise out of North Korea will weigh heavily on
trading until companies begin announcing real earnings the
week of Jan-13th. To put it bluntly, we are entering a 
period where negative news is likely to outweigh fundamentals
and the path of least resistance is down. 

I will leave you with the bright side. I would be very 
surprised if the current weakness will last much longer. 
Looking at the problems long term provides much more hope.
The Iraq problem will go away once the shooting starts. There
are considerable indications the Iraqi army will evaporate
once the war begins. Privately the Iraq citizen would
love to see Saddam depart. Want proof? The Iraq stock market
has soared recently as the threat of a forced regime change
gets nearer. Iraqi civilians cannot speak out about Saddam
but they can vote with their money. The implications are
not that the country will be obliterated by attacks but that
the post Saddam regime will be pro-business and life will be
better for all. 

The Korean thing will not deteriorate into a war because 
their army is too strong and South Korea would suffer too 
much damage. It is likely to be only an attempt by North 
Korea to blackmail the world powers into yet another payoff 
to "stop" nuclear research. They have a history of this and 
eventually somebody will pay their bribe or blockade them
into submission. They can't afford to feed their people much
less risk a real war. In Venezuela, Chavez will eventually be
toppled by either internal or external forces and oil will
flow again. 

On the home front the Y2K PC upgrade wave will eventually 
take place. Too many companies have already paid MSFT for
licenses they are not using and rumors are surfacing about
multiple bids being floated for 20,000 to 50,000 PC lots for 
delivery later in the year. One OIN reader emailed that his
company was scheduled to replace 24,000 Intel PII laptops 
with 28,000 new P4s in 2003. I am pretty convinced that 
despite the serious problems in our immediate future there
is a recovery about to take place. Flaws in that theory are
the rising unemployment, lack of consumer spending and the
possibility of a double dip recession before the recovery
appears. With the 4Q GDP estimated to be only 1.5% any
second dip recession will be in the 1Q. The Fed has gone 
into overdrive and is pumping large sums of money into the 
system. If another economic dip occurs it should be short 
and the rebound from a double dip could be strong. Once any 
real signs of a recovery appear the race to upgrade and the
release of pent up spending could be violent. 

Technically I think the current dip in the market is being
artificially created. I think institutions want to invest
in the market since bonds have peaked and money market rates
are near zero. They are afraid to make heavy bets with all
the uncertainty. My view is that they are trying to force
a retest of the October lows. Many institutions missed the
bounce in October because they were expecting a stronger
dip later. They will not miss it this time. If they can
force a retest by pulling bids and some strategic short
selling then they will be ready to go long for the recovery
when the retest is complete. That retest would have a tough
time breaking below 7700 so that is where I think the real 
buyers will begin to appear. The next likely support point 
for the current market is Nasdaq 1320. This is the confluence 
of the 50% retracement and the 100 DMA and with the Nasdaq
bullish sentiment at the high of the year I see that as a
potential bounce point.  

On the Rukeyser show on Friday he hosted his four best 
market forecasters for 2002. They were quizzed on their
outlook for 2003. The average of their predictions were
Dow high 9913, low 7505, close 9155. The Nasdaq high 1732,
low 1186 and close 1525. What is your guess? On New Years 
Day we are going to activate our "Guess the Dow" contest 
and award a total of $2003 to the top three forecasters. 
Get out your charts and get ready to place a bet. We will 
be asking for the Dow high, low and close for 2003. 

Enter Very Passively, Exit Very Aggressively!

Jim Brown

"Don't gamble in the market; take all your savings and buy 
some good stock and hold it till it goes up, then sell it. 
If it don't go up, don't buy it." - Will Rogers

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 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:  



When Support Becomes Resistance
By John Seckinger

All three futures contracts closed under important retracement 
levels on Friday, turning support into resistance as Christmas 
becomes a memory and the New Year approaches. 

Friday, December 27th at 3:15 P.M. 

Contract     Last    Net Change     High        Low        Volume    

Dow Jones.. 8303.78   -128.83      8449.41     8285.14
YM03H       8275.00   -160.00      8437        8261        12,079

Nasdaq-100   997.85    -18.63      1018.16     996.10      
NQ03H       1001.50    -18.50      1025.00     997.50     108,357

S&P 500      875.40    -14.26      890.46       873.62
ES03H        871.75    -19.00      891.50       871.25    256,017

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:  Geopolitical concerns took headlines once 
again on Friday, as reports that North Korea will expel two 
nuclear inspectors dispatched by the U.N. International Atomic 
Energy Agency made headlines.  This is the agencies only 
remaining means to monitor the state’s nuclear weapons program.  
In other news, there was talk of Morgan Stanley (MWD), JP Morgan 
(JPM), and other large financial firms will be severely cutting 
back on the investment-banking sector due to a two-year revenue 
fall of 40%.  In economic news, November New Housing Sales rose a 
better-than-expected 5.7% to 1.069 million.

Technical News:  The Dollar continued to implode on Friday, 
hitting multi-year lows against the yen as cash from Foreign 
Central Banks made its way towards the Euro instead.  However, 
Gold failed to rally and follow a common inverse relationship 
with the Greenback.  Looking elsewhere, the Sox just missed the 
profiled 295 level with a low of 295.25, but IBM did give a sell 
signal by trading $78.  IBM is a bellwether, and only a move 
above $83 would turn sentiment around.  The OEX gave a sell 
signal as well when the index traded 445 (noted in the monitor 
after noting IBM).  Going forward, if short, watch the dollar 
(Dx00Y) for confirmation and expect additional buying with bonds 
(ZB03H) following Friday’s impressive rally towards the 113 
handle.  If the Sox does weaken, it should have a broad based 
effect on stocks as well. 


The March Mini-sized Dow Contract (YM03H)

A weekly chart of the Dow shows prices falling under both the 
mid-point of a Bollinger Band as well as under the 38.2% 
retracement level from October’s low to the high during the first 
week of December.  Moreover, a 38.2% retracement of the move from 
March to October comes in at 8525.  The Dow failed at this level 
as well.  With that said, least resistance has to remain lower 
until prices can close back above the 8525 level.  I know I have 
been saying this for some time, but the blue chips evidently 
continue to let shorts know that selling can be profitable.  The 
long-term objective remains at 8035, and expect support at 8120 
and the 50% retracement level along the way.  For Monday, support 
is seen at 8242 and 8181.  If looking to go long, 8181 seems like 
the better of the two levels; moreover, a move above 8338 could 
be a start as well.  

Chart of Dow Jones, Daily


Dow Jones

Support              Resistance                 Pivot    

8242.81              8407.08                    8346.11
8181.84              8510.38

Bullish Percent:  54% (Recent High at 72%, Last Significant Low 
at 10%) – This is new to the section.  I use Bullish Percent to 
gauge risk and get a feel if the market is coming down from 
relatively high levels, or falling from low levels to even lower 
levels.  54%, to me, means there is some more downside left in 
this move.  If under 30%, risk for selling is high.  If above 
70%, risk for buying is high.  I will experiment a lot with this 
area in the next few months.  For a chart, go to stockcharts.com 
and type in BPDJIA.  For more information, see link:


A chart of the YM contract on a daily basis shows a similar 
pattern, and look to see if 8187 lines up with the bottom of the 
regression channel (this is based on time).  It looks like it 
could if prices trade there on Monday.  If prices hit the 8150 
area and then quickly rise above 8187 and back into the channel, 
longs should get an opportunity back towards 8280.  The pivot for 
Monday comes in at 8324.  Just like with the Dow, there is no 
reason to buy until price action begins to act bullish.  Very 
aggressive traders could use 8282 as the pivot, while somewhat 
aggressive longs could look for a move above 8356 as a reason to 

Chart of YM03H, Daily 



Support               Resistance                Pivot    

8211.75               8387.75                   8324.25
8150.25               8500.25

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

The March E-mini Nasdaq 100 Contract (NQ03H)

The NDX appears pretty straightforward.  Prices should find 
support between 982 and 990, while a move above the pivot of 1004 
would make me begin thinking of a possible trap scenario.  Least 
resistance in MACD is lower as well, while stochastics continue 
to struggle and remain buried during a week that should have been 
bullish for traders.  Note:  The intermediate term objective in 
the NDX is for a move to 972-975 area.  A close above the 19.1% 
level at 1029.50 would take sentiment to more neutral levels.  
Whenever a chart looks this week, any sign of hope (move above 
1004) could really become a catalyst for a nice short-covering 
rally.  I recommend using a 30-minute chart and look for a period 
close above this level (1004) for confirmation.  

Chart of NDX, Daily



Support              Resistance                 Pivot    

989.91               1011.97                    1004.03
981.97               1026.09

Bullish Percent:  62% (Recent High at 82%, Last Significant Low at 14%)
There is definitely more risk to the downside.  

The NQ03H contract looks a lot like the NDX, showing support at 
983 and the 50% retracement level of 983.  Before 983 is reached, 
look for a pause at 991 along the way.  The pivot comes in at 
1008, while the same theory outlined above applies regarding a 
possible trap.  I think there are some shorts getting interested 
at current levels, and there are certainly longs nervous about 
their profits from October and November.  Looking at the ADX 
oscillator, the +DI remains underneath the –DI and still gives a 
bearish perspective.  Because the spread between the +DI and –DI 
isn’t that great, I don’t think this oscillator is signaling a 
bottom just yet. 

Chart of NQ03H, Daily



Support              Resistance                 Pivot 

991.00               1018.50                    1008.00
980.50               1035.50

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

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

The SPX contract is comfortably near the bottom of the Bollinger 
Bands and long-term support line (green).  This area correlates 
to 869.  If this level fails to hold on Monday, look for a move 
to the 50% retracement area at 861.18 before bids appear.  If 
prices fall outside the Bollinger Band, look for a close back 
inside before expecting a nice rebound back towards 904.7 (mid-
part of Band).  I do think that the 861 area should be able to 
temporarily stop some of the selling pressure and possibly 
portend a bounce back to 883.  Note:  Monday’s pivot comes in at 

Chart of S&P 500 Index, Daily


S&P 500

Support              Resistance                 Pivot    

869.19               886.03                     879.83
862.98               896.67

Bullish Percent:  60% (Recent High at 66%, Last Significant Low 
at 20%).  Certainly more risk to the downside.  

The ES contract is underneath the lower Bollinger Band on a 120-
minute chart and also portending more weakness for Monday.  But, 
as mentioned above, a move higher might become a catalyst for 
shorts to cover.  Where could this happen?  Above the pivot at 
878.25 would be a start.  Note:  50% of the move from October to 
December comes in at 861, while a 61.8% retracement is seen at 
839.50.  If 861 is reached on Monday, look for an initial bounce 
possibly back towards the 38.2% area.  This is normally how 
market makers work; support at one level with expectations of the 
above level to be solid resistance.  If the market does bounce at 
50% retracement and then fails to hit 38.2% on the rebound, this 
is a nice failure and should be followed by solid selling.  If 
the 50% area become resistance, market makers look towards the 
61.8% level.  The MACD oscillator shows solid resistance at the 
zero level; therefore, if the pivot is taken out, look for 
confirmation via a move of the MACD back into positive territory.  

Chart of ES03H, 60-minute



Support              Resistance                 Pivot    

864.75               885.00                     878.25
858.00               898.50

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:  



Get this year behind us! 
By Leigh Stevens

Sell rallies. The market is continuing to drift lower in line 
with slowing upside momentum and this looks likely to continue as 
rallies lack volume and conviction.  The key 50-moving averages 
continue to define near resistance. As I suggested last week 
there were bearish breakdowns when the SPX (S&P 500) closed under 
876 and the 100 Index (OEX) below 448.  

The COMPX (Nasdaq Composite) is heading toward my suspected 
target in the 1320-1300 area and NDX (Nasdaq 100) is flirting 
with key psychological support at 1000 but the more key technical 
level is the risk to close below 980. The Indices are “oversold” 
on an hourly and daily chart basis (not on the weekly charts 
yet), but it takes more than just being oversold to spark a 

The market extended its losses on Friday on soft retail sales, 
political worries with Iraq and now especially North Korea – with 
a lack of corporate earnings news not providing any fundamental 

The Santa Claus rally has not set in as old Saint Nick takes his 
own holiday.  The Dow ended off 2.5% or some 200 points.  The S&P 
(SPX) was down 20 points for the week (2.2%) and the Nasdaq 
Composite (COMPX) fell 15 points or about 1%.  

Most down January market months have tended to precede extensions 
of bear markets.  There is a seasonal tendency for January to 
start higher – time will tell on this.  Invasion plans seem to be 
well underway and could be realized by the end of January as 

Most profession traders and money managers have more or less 
closed their books on 20002 and would just like it over with – 
OUT with the old and IN with the new.  Trading was light most of 
last week.  Prices continue to rise in the oil and gold markets 
and this is not the increases that will cheer Wall Street.  Oil 
gained about 2 bucks a barrel last week.  

Better than expected U.S. home sales failed to provide much lift.  
November new home sales hit a record 1.07 million – a gain of 
nearly 6%. 

Downbeat retail sales estimates such as from Wal-Mart, was 
another overhang – Xmas sales are shaping up as not much or 
nothing to cheer about.   

Existing home sales comes on Monday, as well as the Chicago 
purchasing managers index for the current month. December 
consumer confidence numbers come Tuesday. Release of the ISM 
Index on Thursday is expected to provide a window on the level of 
industrial activity. Friday will bring the construction spending 
report. Normally the unemployment report would be on the first 
Friday of the month – but it will be put off until January 10th. 

Corporate earnings reporting does not get underway until later in 
January – with the exception of a couple of reports (e.g., WAG), 
there is nothing on the earnings front that will help the market 
and it continues to react to the upward march of oil prices, the 
downward slide of the dollar and other fundamental worries.


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

Friday’s breakdown below the low end of the recent trading range 
was the most bearish development – that and the way that the 50-
day moving average provided a deflection to the Thursday rebound.  
The Thursday rally was typical of bear market rallies – given the 
low volume and a lack of conviction, as soon as concerted selling 
came in, down we went. 

I suggested selling a “failed” rally to the area of the 50-day 
moving average and this turned out to be THE place to stake a new 
bearish put position in the OEX.  In that area it was possible to 
place tight stops as only a decisive upside penetration of the 
average would have possibly suggested that the bulls were back in 


I also suggested that a break of the prior swing low at 445 would 
set up a technical objective to around 430.  OEX is now at the 
low end of the its hourly downtrend channel as you can see by the 
chart above and is oversold on both the short-term and longer 
term stochastic models – this tends to mean there is potential 
for a short-covering or “technical” rebound.  

It looks ok to buy some further puts on a rally back up the 447-
450 area, if that develops, at the recent “breakdown point” – the  
hourly down trendline intersects around 455 currently and a move 
ABOVE this line would suggest a stopping out point.  

DJ Industrial Index (INDU) Daily:


It is hard to measure sometimes the exact “minimum” downside 
objectives implied by “flag” type formations, such as the bear 
flag that formed on the daily chart above.  I could see 8300 as 
one possibility and that target has been met.  The other 
technical target is to the 8200 area. 

I suggested in my last Sunday’s weekly Index Trader’s wrap to buy 
DJX puts on a move to the 8600 area basis the Dow Average.  I 
also suggested that call purchases might then be the play back 
down at 8300.  I think I would just hold the puts and take a new 
profit objective for 8200 – in this area, a cal play might be a 
possibility but I lack the conviction to suggest this ahead of 
time. Profit taking (in the 8200 area) on puts does look 
favorable on a risk to reward basis – the further reward 
potential may be to 8000, but the risk is giving up profits if 
there is first a rebound to the 8400 area.  I would rather sell 
rallies than buy dips and trade WITH the dominant current trend 
which is down.   


I continue to view the chart bearishly and see potential for a 
move to the 1300-1320 area as this is the next potential support 
implied by the prior (swing) low and fulfills my “bear flag” 


QQQ Daily/Hourly charts:

The trend is your friend and trendlines are your best buddy – 
notice how the rebound that came in toward the end of last week, 
put the Q’s back up at that resistance.  You may have noticed 
also the downward volume trend in daily volume.  


As suggested last week: only a move through or above the 26.30 – 
26.70 resistance zone would be a cause to cover short positions – 
this is still the case, although near resistance is now more like 
25.75 in QQQ and definitely at 26.00 on an hourly closing basis. 
Better to say that TWO consecutive hourly closes above 26.00 
would suggest decent upside momentum on a short-term basis.    

Next potential support continues to look like it’s at the prior 
downswing low at 24 and this area remains my downside profit 
objective for short stock and long puts.  I’m however now less 
convinced now that it’s ALSO a place to play the long side.  It 
depends on whether you are close to the action (watching it 
intraday) and nimble. 

The low $23 area, basis the Nasdaq 100 tracking stock MAY turn 
out to the place to take a stab on a long side play.  If you take 
at look at the 14-day RSI above, you’ll see that this indicator 
is getting near the level where rallies often develop - but a 
fully oversold condition is not yet here and this might take 
another 2-3 weeks to set up; so, there’s no apparent hurry.  I 
“worry” less about peace breaking out than the opposite.  

Still, we can hope for a peaceful resolution to current conflicts 
and wish for a better New Year – my closing comments this week to 
all Option Investor.com readers is that 2003 is good for you – 
meanwhile, be careful out there! 

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

Option PowerBall  

I think we have an opportunity to buy some Powerball tickets in
the market this week. No, you will not have a chance to win $314
million but you do have a good chance to double or triple your
money over the next 12 months. 

I did say "chance" since the options I am going to list below
are extremely risky. The low prices and potential returns are
roughly equivalent to an option lottery. 

With the first three year crash in the tech sector there are 
many stocks that have been beaten severely. This does not mean
they are going out of business. It just means that during a 
tech recession their sales and profits did not justify the 
previously enormous prices their stocks garnered. 

The market tends to price stocks in extremes. Either way over
priced or way under priced and rarely exactly where they should
be. These stocks below have been beaten so badly that the odds
are good they are currently under priced. Once a recovery begins
they should rise quickly in price but not necessarily to prior

Still the possibility exists to reap significant profits from
a material move. With the markets in the tank and expected to 
drop further the prices for Jan-2004 options are relatively 
cheap. Some of the stocks I am listing will fall even lower
over the next couple of weeks if my market outlook is correct. 

So here is the plan. Would you bet $50 that ADCT will move
from its current $2.25 to something a little closer to its 
2000 high of $49? It does not have to move much to break even
but even a $4 move will double your money by Jan-2004. 

Would you bet $55 that JDSU will rise from its current $2.53
to $6 or better? Its high in 2000 was $153. Nobody expects 
those lofty prices but what about $10? That would return a
profit of about 900%. 

I am not claiming any of these stocks are going to be comets
again but I do suspect they will all move $7-$10 or more over
the next 12 months. Some of them are pricier than the 50
cent options for ADCT or JDSU but then the possibility of a
stronger move also exists. 

Most of the options listed are for Jan-2004, which allows for 
the second half 2003 recovery. You know the one we were
supposed to get in 2002? (grin) I am betting it shows up in
2003. I know, I have about 100 PII and PIII computers of my
own that are gathering dust. Major corporations may have
phased out many workers and have computers stacked up by 
the pallet but they are all obsolete. When they start
hiring again they will have to buy new computers for each

Here they are the top 10+ lottery plays for 2003. They are
not the top ten stocks I would pick on a stock basis. They
are the stocks where I think you can get the most bang for
your buck on a decent move. These are not trading plays but
a 10-12 month hold. 

Company Price Option Symbol Price

ADCT $ 2.25 Jan-2004 $5.00 KTL-AA $ .50
VTSS $ 2.30 Jul-2003 $5.00 VQT-GA $ .35 shorter = more risk
JDSU $ 2.55 Jan-2004 $5.00 KAJ-AA $ .55
SUNW $ 3.31 Jan-2004 $5.00 LSU-AA $ .75 close to sure bet
AMCC $ 3.72 Jan-2004 $5.00 KXF-AA $1.00
BRCD $ 4.48 Jan-2004 $7.50 KNU-AU $1.05 found a bottom?
TLAB $ 7.45 Jan-2004 10.00 KDM-AB $1.35
RFMD $ 7.50 Jan-2004 10.00 LKN-AB $2.50 worth it?
IDTI $ 8.40 Aug-2003 10.00 ITQ-HB $1.60 Mikey likes it!
FLEX $ 8.50 Jan-2004 12.50 KPB-AV $1.65 expensive potential
CMVT $10.23 Jan-2004 12.50 KNZ-AV $2.30

I am going to update the prices as of Thursday morning
Jan-2nd to reflect purchases at the open of trading for 2003.

I am not making any claims about the value of these companies.
I simply think they are recognized tech names that will attract
money once the recovery begins. 

Be very careful with the Jul/Aug entries as that is before
any real recovery is expected to be strong. Fall is the most
likely scenario for any major gains. 

You can buy one contract of each for less than $1400. If
only a couple make a big move they could make it all worth

I will update this list once a month so we can see if I 
have a winning ticket.


Play updates:

Goldman Sachs  $67.80 Short

Goldman was profiled as a long term Put play if it broke $70 
or $74. It rallied slightly on Monday and then gapped down at
the open on Tuesday to below $70. The play has a target of $60
and a stop loss of $76. I am going to leave the stop at $76
this week but if we get another significant drop I will lower
it next Sunday. 

Goldman Sachs broke $70 at 9:32 on Tuesday 12/24. The numbers below 
represent what you could have paid for each option at that time, 
Friday's closing bid and the percentage gain. 

APR-$65 GS-PM Tuesday $4.00 12/27 bid $4.40 +10%
APR-$70 GS-PN Tuesday $5.00 12/27 bid $6.60 +32% 
APR-$75 GS-PO Tuesday $8.25 12/27 bid $9.60 +16%
APR-$80 GS-PP Tuesday $11.50 12/27 bid $13.10 +14%

JUL-$65 GS-SM Tuesday $5.50 12/27 bid $6.50 +18%
JUL-$70 GS-SN Tuesday $7.80 12/27 bid $8.70 +11%
JUL-$75 GS-SO Tuesday $10.10 12/27 bid $11.50 +14%
JUL-$80 GS-SP Tuesday $13.50 12/27 bid $14.80 +10%

We will continue to follow these options until the play is

See the Editors Plays from Sunday 12/22 for the play 


Forrest Labs $97.80 Call 2:1 Split Jan-9th

Forrest rallied above the $99 top on Monday and traded as
high as $100.75 before getting taken down with the market. 
This is a split run play with a 2:1 split on Jan-9th. 

I think the pull back was all market related but we have
to go with what the market gives us. I am not sure FRX
will rally enough with only five trading days left before
the split to make it a winner. I would plan on exiting the 
play for a breakeven or better at the first opportunity. 

Good stock, good run, bad market.  


XRAY Jan-$40 Call

The XRAY call play was also looking really good until 
about 1:30 on Thursday when the market dive finally got
the best of it. XRAY was stuck at 38.50 and trying to break
out but the sucking sound from the Nasdaq pulled it back
to close Friday at $37. The 38.50 level was the 200 DMA
and we knew in advance it would be hard to break on the
first try.  


DJX Laddered call

As expected in last weeks update the DJX call play went down
in flames. The lack of any momentum by the Dow kept a lid
on the options. They traded as high as 65 cents on Monday 
but it was all down hill from there. We will call this one
dead and blame North Korea for being the Christmas grinch.  


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

Good Luck

Jim Brown  


South for the Winter
by Steven Price

Did someone say something about a traditional year-end rally?  
We're getting awfully close to the end of the year and with only 
a couple of days left, things are looking awfully weak.  We are 
at the low end of the recent trading range, going all the way 
back to October, and a break below those recent lows could mean a 
gloomy start to 2003. 

The morning started off slow, with the Dow drifting slightly to 
the negative side prior to the new home sales report.  That 
report came out better than expected, with a gain of 5.7% and an 
annualized rate of 1.07 million in November. Expectations had 
been for a rate of less than a million.  The interesting part of 
the report was a shift from the hotbed of sales in the Northeast, 
to the Midwest.  Sales jumped 41% in the Midwest, while dropping 
26% in the Northeast.  The supposed "good news" gave us a boost, 
but that boost was short-lived, with the Dow Jones U.S. Home 
Construction Index (DJUSHB) dropping almost 2% on a broad market 

That broad market sell-off took the Dow down through 8300, where 
it gave a fresh point and figure sell signal.  The SPX also broke 
down through 880, giving its own sell signal, and tacked on an 
additional "O" to the downside at 875, where it found closing 
support.   The Dow traded as low as 8285 intraday, which was its 
lowest close since October 29, when it traded down to 8198, 
before a furious afternoon rally took it back to a close of 8368.  
We are now resting on a cluster of support in the Dow 8250-8300 
range and if we get a year-end bounce, this should be the level. 
If that bounce ends up shy of recent resistance in the 8625-8650 
range, then traders might want to look for a failed rally to 
short.  I've been talking about the possibility of a head and 
shoulders possibly forming, with the right shoulder in the Dow 
around 8800.  That is looking far less likely, as the recent 
bounces have failed to hold up enough to form a base for a 
bullish move.  Our best shot appeared to be on Thursday, when the 
morning rally appeared to have changed the trend of lower lows 
and lower highs.  However, that rally failed miserably and we 
ended today with yet another lower low.   If the last rally to 
8638 turns out to have been a sloppy right shoulder, then the 
downside target for the Dow would be in the 7800 area, based on a 
neckline at 8400.  I'm not ready to identify that bounce as a 
shoulder, since it is not very neatly defined, but the 
possibility remains. 

For now however, we are simply seeing a series of lower lows and 
lower highs.  We have sold off over 250 points from Thursday's 
high. We could be in for an end of year bounce on Monday and 
Tuesday, but it is possible that we got our year end rally back 
in November.  We have now seen reversals in the bullish percents 
in the Dow, SPX, OEX and NDX.  The Nasdaq Composite has yet to 
reverse itself, but is right up against its bearish resistance 
line and will be hard pressed to continue higher with reversals 
in the other indices.  The picture is certainly looking ugly for 
the beginning of the New Year.  With the bullish percents in 
reverse at the same time we are getting PnF sell signals, traders 
can certainly lean short with confidence. The resistance directly 
below us will take an awful lot of selling pressure to break 
through and we may end up trapped between levels on the way down.  
Traders playing bounces from this level should be quick to take 
profits on market rallies, as those rallies are swimming against 
the tide. If we break down below this support, and that October 
low of 8198 in the Dow, then there will be little argument for 
any bounce until we approach the July lows in the Dow 7500 range. 


Market Averages


52-week High: 10673
52-week Low :  7197
Current     :  8303

Moving Averages:

 10-dma: 8459
 50-dma: 8546
200-dma: 9019

S&P 500 ($SPX)

52-week High: 1176
52-week Low :  768
Current     :  875

Moving Averages:

 10-dma:  892
 50-dma:  902
200-dma:  961

Nasdaq-100 ($NDX)

52-week High: 1734
52-week Low :  795
Current     :  997

Moving Averages:

 10-dma: 1019
 50-dma: 1031
200-dma: 1082


The Gold and Silver Index (XAU): The XAU has been on a tear 
recently, as the dollar has sunk to new relative lows on an 
almost daily basis. Gold futures have been in rally mode and are 
finally starting to appear as though they may have reached an 
exhaustion point.  They were still up on the day on a big drop 
for the equity markets, but ended well off their highs, which 
were reached mid-day. Those futures mirrored the action in the 
XAU, which is approaching resistance at 80 and has failed in its 
attempts to crack the barrier.  Those traders long gold stocks 
may want to consider taking some profits as we continue to fail 
at that level, however, if we break above 81 in the XAU, it could 
be fast trip up to 89.  Given the recent bearishness in the 
equities, gold bugs should probably give it a chance to break 
that resistance, but a move back under 74 in the XAU would be a 
sign to take profits. 

52-week High: 89
52-week Low : 53
Current     : 78

Moving Averages:

 10-dma: 76
 50-dma: 68
200-dma: 70


Market Volatility

The VIX jumped 3 points today, as the Dow sold off into the low 
end of its range over the last several months.  Volatility kicked 
in as we rallied on Thursday morning, giving traders a warning 
sign in regards to long positions.  The premium buyers who drove 
that volatility higher were rewarded today on an uncharacteristic 
drop heading into the end of the year.  If we see the Dow drop 
below 8200, the VIX could well be on its way back to another test 
of 50 and the July lows in the equities. We don't usually see 
this much activity with traders on vacation, but this year has 
been anything but normal. Volume was once again light and with 
fewer buyers to support drops and fewer sellers to combat 
rallies, it seems that the moves are heading to extremes the last 
several days.  If these swings continue, option straddle holders 
will be the only ones seeing a happy New Year. 

CBOE Market Volatility Index (VIX) = 34.15 +3.07
Nasdaq-100 Volatility Index  (VXN) = 46.71 +1.35


          Put/Call Ratio  Call Volume   Put Volume

Total          0.96        281,391       265,939
Equity Only    0.78        207,461       162,682
OEX            1.25         14,505        18,124
QQQ            2.95         17,236        51,696


Bullish Percent Data

           Current   Change   Status
NYSE          49      + 0     Bull Confirmed
NASDAQ-100    61      - 2     Bear Alert
Dow Indust.   53      - 4     Bear Alert
S&P 500       60      + 0     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   1.71
10-Day Arms Index  1.58
21-Day Arms Index  1.45
55-Day Arms Index  1.20

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        795          2005
NASDAQ     1121          2084

        New Highs      New Lows
NYSE         47              31
NASDAQ       55              41

        Volume (in millions)
NYSE        909
NASDAQ      789


Commitments Of Traders Report: 12/23/02

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

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

S&P 500

Commercials reduced both sides of their positions, shaving 57,000 
contracts off the long side and 61,000 contracts off the short 
side.  Small traders also reduced significantly, with long 
positions losing 56,000 contracts and short positions dropping by 

Commercials   Long      Short      Net     % Of OI 
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%)
12/23/02      408,592   467,259   (58,667)   (6.7%)

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
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%
12/23/02      138,756    58,236    80,520     40.9%

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

Commercials reduced long positions by 20,000 contracts and shorts 
by 10,000.  Small traders, on the other hand, got longer,
reducing the long side by 6,000 contracts, while closing 12,000
on the short side. 

Commercials   Long      Short      Net     % of OI 
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%)
12/23/02       32,067     44,451   (12,384) (16.2%)

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
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%
12/23/02       17,009     5,865    11,144

Most bearish reading of the year: (10,769) - 06/11/02
Most bullish reading of the year:  11,144  - 12/23/02


Commercials reduced both long and short positions by about 9,000 
contracts, Small traders got slightly longer, losing 900 long 
contracts and 3,000 shorts. 

Commercials   Long      Short      Net     % of OI
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%
12/23/02       14,991    11,103    3,888      14.9%

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
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%)
12/23/02        4,584     6,296    (1,712)   (15.7%)

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:  



Relative strength, but with X's and O's

I've been using point and figure charts with some pretty good 
success in recent months, both for call and put trades.  I'm more 
of a 2 to 3-month type of options trader.  When I first started 
trading, I incorporated relative strength into my stock selection 
and found this indicator useful.  I see Stockcharts.com has a 
relative strength comparison button at the bottom of a stock's 
p/f chart, but not really sure how to interpret the relative 
strength chart.  Can you help?

Ahhhh.... you are wise beyond your years when using relative 
strength when looking to make a trade (long/short) in a specific 
stock or sector.

Relative strength is one of those indicators that doesn't really 
tell a trader all that much about future price direction, but 
tells a trader/investor one heck of a lot about what's in favor 
or out of favor with a market.

I've learned to enjoy the point and figure methodology of 
charting relative strength, as a trader/investor can make several 
comparisons.  Not only can a trader compare the relative strength 
of a stock to a major market index to try and determine the 
strength/weakness of a stock versus the MARKET, but the point and 
figure system also allow for comparison of a stock's price 
"strength" versus it's sector.

It is widely thought, and perhaps backed up by historical 
evidence, that WEAKNESS leads WEAKNESS lower, while STRENGTH 
leads STRENGTH higher.  In essence, a weak stock or sector will 
be the first to lead a broader market move lover as the 
stock/sector was really not in favor during a market advance and 
simply traded higher as broader market bullishness dictated.

From the strength side of things during a market/sector decline, 
a stock/sector that declines 5% versus a market that declines 10% 
is considered a "win" from the institutional perspective.  Ask 
any mutual fund investor that holds a MANAGED mutual fund 
(indexed mutual funds are not managed funds) if he/she would 
rather be down 10% this year or 22% like the S&P 500 and most 
will say 10%.

However.  It's every trader's goal to OUTPERFORM the market.  If 
the SPX is down 22% then a BEARISH trader's benchmark is to be up 
at least 22%, if not more, while a BULLISH trader takes some 
comfort if his/her account is down 15%.  

One can begin to envision, the best way to "beat" a 22% market 
decline, is to have at least stacked some type of odds in favor 
of trading bearish in a stock/sector that is weaker, or "out of 
favor" with the market, especially during a decline.  Even in an 
advancing market it is best to avoid "out of favor" 
stocks/sectors, as a sudden change in tone toward a bullish 
market environment may have the weaker stock/sector we're holding 
long turning south first!

True, there are some sectors/stocks that trade directly inverse 
of a bullish and bearish market environment, but that would be an 
entirely different subject.  Still, relative strength would be a 
way of determining which stocks/sector tend to trade inverse the 
broader market.

So let us use last weekend's "Ask the Analyst" column and 
discussion of International Business Machines (NYSE:IBM) $77.36 
-1.45% as our "guinea pig" stock when trying to better understand 
the point and figure methodology of tracking relative strength.  
Many of the observations we made last weekend as it relates to 
TIME (monthly benchmarks) and perhaps "double-top" buy signals or 
pattern recognition may have not only been present in IBM's p/f 
chart, but perhaps IBM's relative strength chart.

Let's also look at a picture of Stockcharts.com p/f chart "radio 
button" that the subscriber is asking about regarding relative 
strength.  If I wanted to make a relative strength observation as 
it relates to IBM versus the SPX, then I'd want to select (put a 
checkmark) in the "Show Relative Strength vs. ____" box, then 
type in the major market average/index that I want to compare IBM 

Example of how to get a relative strength p/f chart


All I wanted to show here was what "boxes" to check, spaces to 
fill in with the index/sector you want to compare your 
stock/sector against, and finally what button to press to get 
your relative strength chart.  It's really as simple as 1,2,3.

Now.  Before we look at the resulting relative strength chart, 
you're going to see a "scale" on the right that you might not 
fully understand.  All we are doing with this relative strength 
chart is this.

At the END of each DAY.  We would take the PRICE of IBM $77.36 
and DIVIDE it by the PRICE of the S&P 500 Index (SPX.X) 875.40.

Equation ... Relative strength = $77.36 / 875.40 = 0.88371

Now, there's no way I can easily chart 0.88371, so lets multiply 
it by some scale factor, say 1,000, so I can get a chartable 
value.  Equation.... 0.88371 * 1,000 = 88.371.  I have done 
nothing abnormal to the RS number, just multiplied it to get a 
chartable number.

So let's see if this relative strength chart, charted on 1-point 
increments "tells us anything" or would have been useful.  
Remember, last week, we might have thought IBM was worth 1/4 or 
1/2 bullish position when the stock triggered a "bearish signal 
reversed" pattern and "double-top" buy signal at $63, in mid-
October, which would be sometime after a "red A" on the p/f 

Before you look at the chart, ask yourself this.  Do you think or 
perceive that IBM is STRONGER or WEAKER than the SPX?

Relative Strength Chart of IBM vs. $SPX - 1-point box


Now.  Clear your mind for a minute and just view the RS chart of 
IBM vs. the SPX as you would a regular point and figure chart.  
At each day's close, you would take IBM's price and divide it by 
the SPX closing price, then chart the value using the 3-box 
reversal technique of charting.  

I will admit that this 1-point box doesn't show enough "detail" 
or noise to really "confirm" what the regular p/f chart of IBM 
was saying back on October 11th, but we'll address that in a 
moment by introducing some more "noise" and decreasing the scale 
to 0.50 increments.  But do you see how the RS chart would have 
at least reversed up into X's on October 11th? (pink text).

In "green text" we see the RS chart of IBM actually give a 
relative strength "buy signal."  That is, a column of X exceeded 
a previous column of X.  What that "tells us" is that for the 
first time in a while; IBM is really starting to outperform the 
SPX on a more MEANINGFUL basis.  This RS "buy signal" was 
achieved on October 30th (IBM=$78.67 : SPX=890.71).  While IBM 
was a stronger performer after early October (red A), it really 
started outperforming the SPX at a greater degree when RS 
achieved an 87 reading.

In "blue text" I make a general observation, but can 
QUANTITATIVELY back it up by saying that IBM is a STRONG stock
RELATIVE to the SPX if benchmarked to October (red A), but is 
still a WEAKER stock longer-term if compared to mid-February 
(after red 2) and March (red 3) when IBM's RS chart was 
generating some RS "sell signals."

So... right now, what would I "conclude."  In last weekend's 
column I wrote.... "Right now I can envision a bear shorting IBM 
at $79, with a stop at $83....."  As I look at the above RS chart 
of IBM, I think I should have written, "Right now, I can envision 
a bear shorting 1/4 or 1/2 position IBM with a stop at $83.

As we look at the RS chart of IBM versus the SPX, would I want to 
be "full position" short on IBM?  Right now, on the above chart, 
I would read it as "IBM's RS chart is currently on a buy signal, 
but in a column of O."  I interpret this to mean.  IBM is 
CURRENTLY a STRONGER stock RELATIVE to OCTOBER, but showing some 
near-term weakness RELATIVE to the SPX.  If IBM's RS chart were 
to give a RS "sell signal" at RS=86, then I become more 
comfortable with current bearish positions and begin to look for 
IBM to OUTPERFORM to the downside.

Relative Strength Chart of IBM vs. $SPX - 1-point box


Even when I reduce the scale to 0.50 box size I can't "get" IBM's 
RS chart versus the SPX to give me a sell signal.  This is a 
great "test" for any stock or sector your looking to trade when 
comparing the stock's/sector's relative strength versus a major 
market index.  However, do you see how reducing the box size of 
the chart to 0.50, we pick up more "noise" and actually get more 
RS "buy signals" as IBM started moving higher in early October?  
See the little RS pullbacks (O's) that were then reversed higher 
and a new buy signal generated?

We would still read the above RS chart as "IBM's relative 
strength versus the SPX is still on a "buy signal," but column of 
O, and would take a RS reading of 87 to have me observing that 
IBM is outperforming the SPX to the DOWNSIDE."  In essence, if 
short/put IBM right now, it would be considered very EARLY.

Now, let's make something clear.  It might certainly seem that a 
trader or investor could simply make buy/sell decisions on 
stocks/sectors when only looking at a RS chart.  This however is 
NOT true.  Remember, to ALWAYS trade your stock/sector on its OWN 
technical merits.  NOT its RS, NOT its sector bullish %, NOT its 
stochastics, NOT its MACD.

As it relates to relative strength, use it to "confirm" strength 
or weakness of the stock you're trading.  Does it do any good for 
you and I to trade bullish in a stock "just because" it has 
strong relative strength?  What if the market indexes are down 
10% and our bullish trade is down 5%.  The stock we're trading 
bullish in still has good relative strength, but it's because it 
isn't down as much as the major index.

My assessment of IBM right now is that the technicals don't lead 
me to believe that there is "wrong" with it (fundamentally, 
geopolitical, etc. etc.).  To think that, then I would want to 
observe some type of relative strength weakness that at least 
hints of OUTPERFORMANCE to the downside.

So "why" did IBM give the double-bottom sell signal on Friday?  
You know the answer to this.  BECAUSE market risk has been HIGH 
as depicted by the BULLISH % CHARTS, and the market is removing 
risk, just as it has several other times the past couple of years 
that subscribers have been following the bullish % charts.

The relative strength charts give a trader/investor a quick 
snapshot look at how their stock/option positions are trading 
RELATIVE to another security.

Here's how a SECTOR trader might use relative strength to make an 
investment decision.  

I had a couple of question's from subscribers this week about 
trading bullish in the Semiconductor HOLDRs (AMEX:SMH) $22.98 
-1.58%, as they look to be trying to hold support at $22.50.  
Let's see if they are "in favor" or "out of favor" as it relates 
to relative strength.  How would you read this chart.  If 
determined that the sector is going to get a bounce, but it 
doesn't happen, where would a stop loss be placed under a bullish 
trade?  Here's the RS chart of the SMH versus the SPX.  

Relative Strength chart of Semi HOLDRs vs. SPX - 1-point box


If you simply looked at the SMH vs. SPX relative strength chart 
as you would a normal p/f chart of a stock, you'd observe 
weakness.  At least I do.  While I can't establish what the 
"odds" are of a successful bullish trade, I'd say they are less 
that 50/50 as the RS chart would read "SMH RS chart is on a sell 
signal and column of O."  The sell signal was established in May 
(just after red 5) and the SMH has yet to achieve enough strength 
versus the SPX to generate a buy signal.  Now, this doesn't mean 
that SMH or semiconductor sector hasn't had some nice bullish 
runs.  It's my turn to ask YOU the subscriber some questions as 
to "why" certain things played out the way they did.  I'm going 
to try and answer them, but lets see if you understand how "risk" 
plays into things.

Why were the RS reversals UP in October of 2001 and 2002 "longer-
lasting" and reversing with more X's on the RS chart?  Was it 
because RS had been so weak?  No, that's not the answer.  It was 
because RISK for bulls was so LOW, and RISK for bears was so 

That RS "buy signal" in March, after the "red 3."  That was a 
sign of SMH really starting to outperform the SPX.  Why did that 
fail and reverse lower by April (red 4)?  Was it because RS was 
too strong?  No, that's not the answer.  It was because RISK for 
bulls was HIGH, and RISK for bears was so LOW.

Why did the two upward reversals in the SMH RS chart at RS=39 and 
RS=33 get reversed back lower?  The answer to this question is 
more difficult to answer and would only come from the bearish 
technicals of the SMH that were in play and the sector bullish % 
of the semiconductors from Dorsey/Wright and Associates, which I 
unfortunately can't show a chart of.

But this is why the BULLISH % charts are so darned important.  
Especially when answering the first two questions of the more 
powerful looking reversals up in the SMH chart from October 
periods of 2001 and 2002.  And the "failed" RS buy signal in 
March of this year.  It was all about "risk" and the markets 
unwinding the risk.  Here's what I'm talking about.  Our main 
observation points are October 2001 and 2002 (red A's) and March 
(red 3).  Since we're still in December, lets also see what RISK 
or the bullish % for the NASDAQ-100 was saying about who had the 
most risk (bulls or bears).

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


The "best" bullish moves in the SMH came from "oversold" levels 
in the more heavily technology weighted NASDAQ-100 Bullish % 
($BPNDX).  This is the "best" bullish % from www.stockcharts.com 
that I can show that would correlate with the Semiconductor 
Bullish % (BPSEMI) from Dorsey/Wright & Assoc.  However, it is 
worth noting that currently, Dorsey's semiconductor bullish % is 
"bear alert" status at 50%.  Compare that to the NASDAQ-100 
Bullish % being "bear alert" status at 61%.  A comparison between 
the bullish % tells us the semiconductor sector has a greater % 
of stocks giving sell signals than the NASDAQ-100 itself and that 
the SMH is perhaps LEADING WEAKNESS in the NASDAQ-100.  You could 
check this for yourself with an RS chart of the SMH vs. the $NDX.

Where the relative strength charts kept a bull out of some 
trouble, was between May (red 5) and September (red 9).  Or at 
least the bullish SMH trader understood he/she was trading in a 
weak sector relative to the broader SMH and not a leading 
strength sector.  Under these types of conditions a bull 
understands they are trading bullish in a low probability trade 
and any gains found are protected with very tight trailing stops 
as most likely, the sector will be one of the first to reverse 
into weakness and LEAD index weakness to the downside.  These are 
more difficult trades for bulls to manage, as there is little 
"alert" to the renewed weakness.  Thus the need for tight 
trailing stops and greater need for taking of gains when/if 

In March (red 3) when the RS chart of the SMH vs. SPX gave a RS 
"buy" signal, the NASDAQ-100 Bullish % ($BPNDX) soon reached a 
more "overbought" condition when it neared the 70% level of 
bullishness.  This can be viewed as a "high risk" level for 
technology bulls.  The eventual reversal in both the NASDAQ-100 
Bullish % ($BPNDX) in April (red 4) and confirming relative 
strength reversal in the SMH vs. the broader SPX gave some 
confirmation that semiconductors as a group were loosing some 
favor on a near-term basis and in May (red 5) the relative 
strength sell signal of the SMH vs. SPX was sign that the 
semiconductor sector was losing longer-term favor vs. the broader 
SPX and that loss of favor continues on a longer-term basis and 
shorter-term basis currently.

I said earlier to use relative strength, bullish % and other 
indicators that a trader trusts, but to always honor the 
technicals of the stock/sector you're trading and trade it on its 
own merits.  This is SO important as it relates to INDIVIDUAL 
STOCKS, as it is not unlikely to see ONE stock trade AGAINST the 
sector or market.  That's DIVERGENCE and often indicates that the 
MARKET "knows" something about that stock, which can have the 
stock trading against broader market and sector trend.

Here's a chart of the SMH where a trader begins to associate 
bullish % observations AND relative strength observations, while 
looking at the SMH and honoring its technicals.

Semiconductor HOLDRs (SMH) - $1 and $0.50 box


With the NASDAQ-100 Bullish % ($BPNDX) and Dorsey's semiconductor 
bullish % (BPSEMI) in "bear alert" status, I'm at least cautious 
toward any bullish trades.  With the SMH relative strength chart 
reading "sell signal and column of O" versus the SPX and even the 
NDX (I checked its RS chart comparison too) I'm further cautious.

For bullish traders that think the saying "buy what's out of 
favor as someday, it will come into favor again" is a good 
investment axiom, a test against that would be to say we should 
have bought the SMH in May of this year at $37 when its relative 
strength chart gave a sell signal versus the broader S&P 500 and 
continue to hold it as it is longer-term out of favor.

To "drive home" the point of honoring the security you're 
trading, while the NASDAQ-100 Bullish % ($BPNDX) was at some very 
overold levels from May-September periods, the SMH was in a 
rather severe longer-term downward trend.  Little RS reversals, 
while RS was in a downward trend (similar to current readings) 
found little "double-top" buy signals in the SMH, but the SMH 
itself reversed back lower and gave another sell signal.  Right 
now, I think this is an IMPORTANT observation to make if looking 
to trade the SMH.

I've pointed out the "high pole warning" in the SMH.  In last 
weekend's column we discussed a "high pole warning" in IBM.  Do 
semiconductors have any type of tie to IBM?  IBM and several 
semiconductor companies are "reliant" on each other is a broadly 
accepted fundamental observation.  From a trading perspective, 
I'd argue that as IBM's business grows/slows, the semiconductor 
sector/industry grows/slows.

One might look for IBM's "sell signal" on Friday at $78, and even 
current trading near $77 to tie in with the SMH trading near $23.  
We can surely see the "red C" in both the SMH and IBM chart 
showing some type of correlation.  One might say that IBM isn't 
just a "key stock" for the Dow Industrials, SPX and OEX, but 
perhaps the SMH and semiconductor sector as well.

Currently, I'd associate a trade at $76 in IBM, with an SMH trade 
at $22.  Should the SMH trade $22 without reversing into a column 
of X currently, what would the bearish vertical count be?  I 
calculate $12.  This might not correlate with IBM's currently 
building bearish count of $71, but if both begin seeing further 
weakness, then some correlative thoughts to lower price targets 
become interesting.


Relative Strength will not ALWAYS give a trader/investor the 
"heads up" for stock/sector price action, but is VERY VALUABLE in 
helping the trader/investor understand if he/she is attempting to 
trade both short or longer-term strength weakness.  

From the p/f perspective of relative strength, a technician first 
wants to see if relative strength is on a "buy" or "sell" signal 
on the p/f chart.  This is the "longer-term" strength analysis.

Then, the observation is made if the RS chart is in a column of X 
or O.  If in X, then the shorter-term observation is of strength.  
If in O, then shorter-term observation is weakness.  Ideally, a 
bullish trader looks for longer-term and shorter-term strength 
from which to trade.  A bearish trader prefers longer-term and 
shorter-term weakness indications.

The most powerful bullish moves come from the broader market 
condition of reversing higher from "oversold" market conditions 
of which the BULLISH % charts depict.  Stocks with both shorter-
term and longer-term bullish relative strength, when market 
internals begin to recover from "oversold" levels are often times 
the BEST performing sectors/stocks in the bullish phase.  Those 
sectors/stocks that exhibit both shorter-term and longer-term 
relative weakness tend to outperform to the downside when market 
internals weaken from an "overbought" condition.

Traders, both bullish and bearish learn to appreciate "heads up" 
or "alerts" to strength and weakness.  A bull that trades both 
shorter-term and longer-term strength often finds he/she is 
alerted to potential weakness in the sector/stock they are 
trading as the WEAKEST sectors/stocks begin to fade lower first.  
Again, this is based on the thought that WEAKNESS leads lower.

A bear that trade both shorter-term and longer-term weakness will 
often find that they are alerted to strength, as the stronger 
sectors/stocks begin to lead higher, and as broader market 
bullishness build, the stocks/sectors the trader is short/put, 
will then begin to ride the coattails of bullishness.

The problems that present themselves for shorting/putting 
stronger sectors/stocks, especially with FULL positions, is that 
the stock/sector you're short/put may well be the first 
stock/sector to show renewed short-term strength, especially if 
longer-term relative strength is still in play.

In my bearish comments regarding IBM, it should be understood 
that the bearish play is based on an "overbought" market 
condition that is weakening (bullish %), there are some outward 
technical signs from the SPX and OEX that the markets are 
breaking down, and that IBM's technicals were giving hint that 
distribution was taking place.

Today, we find IBM having just generated a "double-bottom" sell 
signal at $78.  This is favorable for a bearish trader. (Trade 
the stock on its own merits).  However, the longer-term trend, as 
depicted by the bullish support trend at $64 is UP and this is 
longer-term negative for bearish trader, but does represent some 
further "risk" that could eventually be taken out of the stock.

The Bullish % charts are still relatively high and showing 
further weakness.  This is favorable for a bearish trader.  

The relative strength chart of IBM is in a column of O.  This is 
short-term weakness.  The only thing missing from the equation is 
a longer-term relative strength sell signal.

Put your stocks/sectors to the test.  How strong or weak are 
they?  If a stock is giving a significant buy/sell signal, is 
there some confirmation from the relative strength that the stock 
giving the buy/sell signal is either coming into or has been 
holding favor with the market as depicted by the relative 
strength chart?  If a significant sell signal is taking place, 
has the stock been out of favor or just now losing favor with a 
fresh relative strength sell signal?

Jeff Bailey


Market Watch for the week of December 30th

Major Earnings This Week

Symbol  Company               Date           Comment      EPS Est

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


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


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


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


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

WAG   Walgreen               Fri, Jan  3  -----N/A-----       0.20

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
CVBF    CVB Financial Corp        5:4      Jan.  3rd   Jan.  3rd
FRX     Forest Labs               2:1      Jan.  8th   Jan.  9th

Economic Reports This Week

Wall Street moving from one holiday week to another with the
New Year's holiday and market closure this Wednesday.  Volume
will continue to be light.  Reports to watch this week are the
Consumer Confidence on Tuesday, Vehicle sales and the ISM index
on Thursday, plus the Construction spending numbers on Friday.


Monday, 12/30/02
Existing Home Sales(DM) Nov  Forecast:  5.69M  Previous:    5.77M

Tuesday, 12/31/02
Consumer Confidence(DM) Dec  Forecast:   86.0  Previous:     84.1
Chicago PMI (DM)        Dec  Forecast:   52.8  Previous:     54.3

Wednesday, 01/01/02

Thursday, 01/02/02
Auto Sales (NA)         Dec  Forecast:   5.8M  Previous:     5.6M
Truck Sales (NA)        Dec  Forecast:   7.3M  Previous:     7.0M
Initial Claims (BB)   12/28  Forecast:   384K  Previous:     378K
ISM Index (DM)          Dec  Forecast:   50.2  Previous:     49.2

Friday, 01/03/02
Construction Spnding(DM)Nov  Forecast:   0.1%  Previous:     0.3%

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 
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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:  



Down the Chimney...and then some

That Santa Claus rally is certainly taking its own sweet time. 
With only a couple of trading days left before the end of the 
year, we are closer to support than resistance and if we are going 
to get a bounce, then it will most likely come from this level.

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


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The Option Investor Newsletter                   Sunday 12-29-2002
Sunday                                                      2 of 5

In Section Two:

Stock Pick: Long Distance Play
Daily Results
Call Play of the Day: SNPS
Put Play of the Day: BSC
Dropped Calls: BSX, CTXS
Dropped 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:  


Stock Pick

Long Distance Play

Q – Qwest Communications Int. $5.09
Strategy: Long stock with put insurance

The company profile reads: Qwest Communications International is
a leader in broadband Internet-based data, voice and image
communications.  In a nutshell the company provides local
telecommunications and related services, wireless services and
directory assistance services in its 14-state local service

You’ve undoubtedly heard all of the stories surrounding the
embattled telecom company. From the subpoena in the Global
Crossing case, the cloud surrounding the resignation of former
CEO, Joseph Nacchio, accounting concerns, accusations of secret
deals, a criminal investigation and rumors of bankruptcy, Qwest
shareholders have had to digest more than their share this past
year.  We won’t rehash all of old news as it’s certainly already
“priced into the stock”, as they say on Wall Street.

The announcement that the U.S. Attorney’s office had began a
criminal investigation in mid July seemed to be the final straw,
pushing the price of Qwest shares down near the $1 area. The
stock hovered between $1.05 and $1.25 for the next few weeks.
In mid August the company announced that it believed the US
Attorneys office was investigating matters that were also the
subject of investigations by the SEC and Congress.  Not exactly
news that should bring the bulls stampeding back into the pits.
Interestingly though, Qwest gained 35% on the news.  A few days
later reports surfaced that Q had agreed to sell its yellow-pages
business for more than $7 billion.

Over the next couple of months, Qwest stock made a nice recovery,
pushing its way just past the $4 level, as analysts took a stab
at enlightening investors of their opinions on the future telecom
company.  In the middle of November the next shoe dropped when
Q said it had found further accounting mistakes that would force
it to erase $358 million in EBITDA for 2000-01, and that it would
be unable to file its quarterly reports on time.  That’s the kind
of news that easily could have tanked the stock, however there
were very few sellers waiting in the wings.

Last Friday, Qwest completed a $5.2 billion bond swap.  The
company estimated its debt load fell to about $22.6 billion
from $24.5 billion.  The bond swap gives Qwest as much as 
three extra years to repay some of its more burdensome debts.
This past Monday, Q’s shareholders received an early Christmas
present. It came after the Federal Communications Commission
approved Qwest’s application to provide long-distance service
in nine states in the west.  Company officials see the approval
as a chance for Qwest to offer their customers simplified long-
distance service, with the convenience of getting all of their
telecommunication services from one company.  The underlying
positive from the announcement has some suggesting income at
the telecom company could double in the coming year.

When the FCC news hit the trading floor, investors bid the price
of Q stock to nearly $6 on Tuesday, before traders began to take
some money off the table.  While we believe Qwest has faced more
than its share of problems and that the company may not be out of
the woods just yet, the stock has performed exceptionally in the
last few months in spite of the negative press.  The additional
income created by the long-distance services should bolster
confidence, and cause investors to add shares of Qwest stock to
their portfolios in coming months.

Technically, Q’s move to the top of its channel near $6 came
on solid volume. The pull back to the bottom of the channel has
come on light volume, which suggests the momentum to higher prices 
should continue. The bottom of the channel and support is
just under $5.  If current support fails, the next area buyers
could step in is near $4.20.  However, if investors continue to
show up to the party and push Q through the top of its channel,
resistance may not come into play until $7, $10 or $15. The 50-
dma just crossed over the 200-dma, which is also considered
by many technicians to be a buy signal. How do we suggest you
approach our new play?  Since this is a long-term position,
further strength or a bounce off the support levels mentioned
above could provide a good entry depending on your personal risk
Option 1. Purchase Q stock at the current level and purchase
1, July $5 Put(Q-SA) for every 100 shares of stock purchased.
If the stock is under $5.00 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, or buy another $5 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 In-the-Money
LEAP Call, rather than purchasing the stock. As of Friday’s
close, Jan 2004(LWH-AZ) & 2005(ZWK-AZ) $2.50 strike LEAP Calls 
were priced at $3.20 and $3.60 respectively.  For those that want
added protection, the purchase of 1, July $5.00 put(Q-SA) 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 on the breakeven levels of the 

Option 3.  Purchase Q stock at the current level and wait
for the stock to move higher. Once you feel Qwest has reached
a point of consolidation or are expecting a pullback, buy 1 July
$5.00 Put(Q-SA) or a $7.50(Q-SU) 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 $6-$7 level.

Option 4. Purchase the stock or a LEAP Call without protection
and close out the position if it Q falls below support between
$3.50 and $3.60
Qwest Communications Intl. (Q) Daily Chart



For Best Alignment view in Courier Ten Font

For Best Alignment view in Courier Ten Font

CALLS              Mon    Tue    Wed   Thu  Week

ACS      51.73   -0.97   1.74   0.00  0.10 –0.13  Market pullback
BEAS     11.85    0.55  -0.13   0.00 –0.09 –0.10  Hanging in
BSX      42.08    0.30  -0.35   0.00 –0.52 –1.83  Drop, trend 
CTXS     12.66    0.25   0.29   0.00 –0.27 –0.44  Drop, stalled
SNPS     46.25    0.74   0.27   0.00  0.39  1.30  New, Strength
TRMS     43.38   -0.25   1.03   0.00 –0.28 –0.94  above bounce


AIG      56.68    0.33  -0.13   0.00 –0.99 –2.40  Got breakdown
BSC      59.78   -0.29  -0.58   0.00 –0.25 –2.06  New, on verge
CEPH     49.02    0.88  -0.33   0.00 –1.34  0.88  New, $50 break
COST     27.39   -0.56  -0.10   0.00  0.43 –0.56  Stubborn
RKY      60.04    0.35  -0.34   0.00  0.02 –0.57  $60 trigger
ROOM     53.17    0.42  -1.89   0.00 –1.44 –5.72  Sinking fast

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:

SNPS - Synopsis, Inc. $46.25 (+1.28 last week)

See details in play list

Put Play of the Day:

BSC - Bear Stearns - $59.78 -1.37 (-2.05 for the week)

See details in play list


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


BSX $42.08 -1.26 (-2.10 for the week)  BSX has remained above 
horizontal support on its recent drop over the last couple of 
days.  However, it has broken the rising trend line, mirrored by 
the 21-dma, that has served as support since the beginning of 
October.  That trend was the move we were trying to capture and 
the severe drop in both the Biotech Index (BTK.X) and 
Pharmaceutical Index (DRG.X) have taken BSX out of that pattern.  
Traders who wish to give the play a little more time can stick to 
the stop loss of $40.99 and continue to seek ongoing analysis on 
the Market Monitor. However, we will close the play and look for 
a more consistent trend to follow.


CTXS $12.66 (-0.34) Despite every attempt to rebound off the
bottom of its ascending channel over the past couple weeks, it
has become clear since Wednesday, that the stock is simply out
of gas.  On Thursday, CTXS closed below the bottom of the
channel for the first time in months and then continued to head
lower on Friday, closing at the low of the day.  While still
above our $12.50 stop, it doesn't take a genius to see that this
bullish run is over and we had better look elsewhere for winning
bullish plays.  If still holding open positions, use any rebound
into from current levels as an opportunity to exit the trade.




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 12-29-2002
Sunday                                                      3 of 5

In Section Three:

New Calls: SNPS
Current Calls: ACS, BEAS, TRMS
New Puts: BSC, CEPH

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:  



SNPS - Synopsis, Inc. $46.25 (+1.28 last week)

Company Summary:
Synopsis is a supplier of electronic design automation software
to the global electronics industry.  The company's products are
used by designers of integrated circuits (ICs), including
system-on-a-chip ICs, and the electronic products (such as
computers, cell phones, and internet routers) that use such ICs
to automate significant portions of their chip design process.
SNPS' products offer its customers the opportunity to design ICs
that are optimized for speed, area, power consumption and
production cost, while reducing overall design time.

Why We Like It:
There have really been some volatile swings in the Semiconductor
sector (SOX.X) over the past few months, with a nearly 100% gain
from the October lows to the early December highs.  Since then,
the SOX has given back over 50% of that advance, and looking
vulnerable to further downside.  Against that backdrop, we're
really seeing a divergence in shares of SNPS.  The stock rallied
with the rest of the sector through October and November, before
being knocked back due to poor reception of its Q4 earnings
report on December 4th.  The resulting weakness dropped the stock
down to the $43 area in short order, but since then, it has been
looking pretty solid.  Despite the continuing weakness in the SOX,
SNPS has been gradually moving higher.  While we'd be hard-pressed
to label the move last week as a breakout, it is encouraging to
the bulls that it managed to close above both its 20-dma ($46.15)
and 200-dma ($46.13).  This followed closely on the heels of
another successful rebound from the 50-dma (currently $44.72).
With the move above $46, SNPS has now moved into the gap left
after its earnings report.  The one missing ingredient to a
continuation of this move is volume, which likely won't appear
until after the first of the year.  While aggressive traders can
pursue SNPS higher on a breakout over the $46.50 level, without
strong volume to support the move, we prefer to enter on a
pullback to support in the $45.00-45.50 area, or possibly as low
as $44.  Initial stops are in place at $43, which has held up
well as support throughout the past month.

BUY CALL JAN-45*YPQ-AI OI= 381 at $2.95 SL=1.50
BUY CALL JAN-50 YPQ-AJ OI=3725 at $0.70 SL=0.25
BUY CALL FEB-45 YPQ-BI OI=  10 at $4.40 SL=2.75
BUY CALL FEB-50 YPQ-BJ OI=  51 at $2.00 SL=1.00

Average Daily Volume = 1.89 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:  



ACS – Affiliated Computer Services, Inc. $51.73 (-0.13 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:
Based on the price action earlier in the week, it looked like our 
ACS play was going to charge higher right into the end of the 
year.  But a dose of reality hit Thursday morning, and the 
euphoria that drove ACS up to the $54 level quickly faded, making 
way for some orderly profit taking into the end of the week.  A 
large part of the stock's weakness over the past two days is 
likely due to the broad market weakness and a lack of volume to 
continue the upward trend.  There is some mild support near 
$51.50 and then again near $50.75, before ACS drops into the 
strong support offered at the $49.50-50.00 area.  The early part 
of next week is likely to still be dominated by light volume, so 
we'll want to take advantage of that light volume to initiate new 
bullish positions on a rebound from support.  The PnF chart has 
given us a strong Buy signal with a price target up in the 
stratosphere ($76), so it definitely appears that the bulls are 
still very much in charge.  Dips should provide solid entry 
points, so long as the broad market doesn't completely break 
down.  Keep stops set at $48.

BUY CALL JAN-50*ACS-AJ OI=2565 at $3.30 SL=1.75
BUY CALL JAN-55 ACS-AK OI=1946 at $0.85 SL=0.40
BUY CALL FEB-50 ACS-BJ OI=  25 at $4.80 SL=2.75
BUY CALL FEB-55 ACS-BK OI=  32 at $2.10 SL=1.00

Average Daily Volume = 1.68 mln


BEAS - BEA Systems $11.85 (-0.30 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:
Since we began coverage of BEAS last weekend, we've been looking
for a bit of profit-taking to let us in at a more attractive
price point, and it looks like that is just what has been
happening over the past couple days.  After failing to push
through near-term resistance at $12.65 on Thursday (likely due
to a lack of sufficient buying volume to get the job done), BEAS
drifted lower right up until the closing bell on Friday.
Following last week's breakout over the $12 level, the stock has
solid support between $11.00-11.50, and we're looking for a
rebound from that area to provide for a solid entry point.  The
PnF chart has been strongly bullish since late October, and
continues to be so even now, with a bullish price target of
$20.  Despite the decline in price, the action in BEAS last week
is rather encouraging as it has come on extraordinarily light
volume (less than half the ADV on Friday).  This is ideal
consolidation behavior, and should set the stage for a renewed
rally once trading volumes return to normal after the first of
the year.  Either use a rebound from support to initiate new
positions, or else wait for a rally through $12.75 (just above
the recent highs) on strong volume before playing.  

BUY CALL JAN-10*BUC-AB OI=19289 at $2.30 SL=1.25
BUY CALL JAN-12 BUC-AV OI= 6981 at $0.70 SL=0.25
BUY CALL FEB-10 BUC-BB OI=   40 at $2.75 SL=1.25
BUY CALL FEB-12 BUC-BV OI=  165 at $1.45 SL=0.75

Average Daily Volume = 10.3 mln


TRMS - Trimeris, Inc. $43.31 (-1.01 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:
After reclaiming most of its December losses, shares of TRMS 
finally ran into some selling pressure on Thursday near the $45 
level.  With the Biotechnology index (BTK.X) getting hit hard by 
the sellers on Thursday and Friday, TRMS was unable to continue 
its ascent.  The stock's drop is still rather mild, and it is 
still resting just above the 20-dma ($43.07).  Along with the 10-
dma at $42.51 and historical support near $42.50, TRMS ought to 
have strong support coming in near current levels.  The one fly 
in the ointment is the BTK index, as Friday's 3.4% drop put the 
index at its lowest level since November 1st, and at this point, 
the index looks vulnerable to the $330 level, which is the site 
of the ascending trendline connecting the July and October lows.  
As of right now, the pullback in TRMS looks like a normal 
pullback before continuing higher, but it will need the BTK to 
hold above support if it is going to stage another leg of this 
rally.  Look to initiate new positions on a successful bounce in 
the $42.50-43.00 area.  Keep in mind that volume will likely 
continue to be light ahead of next Thursday, so take that into 
account in your trading.  We've raised our stop on TRMS to 
$41.50, as a close below that level would clearly indicate that 
the bulls have lost control.

BUY CALL JAN-40 RQM-AH OI= 240 at $5.10 SL=3.00
BUY CALL JAN-45*RQM-AI OI=1263 at $1.75 SL=0.75
BUY CALL FEB-40 RQM-BH OI=   0 at $6.50 SL=4.50
BUY CALL FEB-45 RQM-BI OI=  11 at $3.50 SL=1.75

Average Daily Volume = 618 K


BSC - Bear Stearns - $59.78 -1.37 (-2.05 for the week)

Company Summary:
Founded in 1923, The Bear Stearns Companies Inc. is the parent 
company of Bear, Stearns & Co. Inc., a leading investment banking 
and securities trading and brokerage firm. With approximately 
$30.6 billion in total capital, Bear Stearns serves governments, 
corporations, institutions and individuals worldwide. The 
company's business includes corporate finance and mergers and 
acquisitions, institutional equities and fixed income sales, 
trading and research, private client services, derivatives, 
foreign exchange and futures sales and trading, asset management 
and custody services. Through Bear, Stearns Securities Corp., it 
offers financing, securities lending, clearing and technology 
solutions to hedge funds, broker-dealers and investment advisors. 
Headquartered in New York City, the company has approximately 
10,500 employees worldwide.

Why We Like It:
BSC followed the brokerage sector higher a week ago, following 
the announcement of a settlement with the New York Attorney 
General regarding the not so tidy relationship between investment 
banking and brokerage divisions at many of the larger investment 
banks.  BSC's portion of the $1.4 billion settlement was only 
about $80 million, a pittance compared to the penalty paid by 
Citigroup, CSFB and Morgan Stanley.  After scooping these stocks 
for a day, investors switched gears and it has been downhill ever 
since.  In fact the stock has now given back the entire post-
settlement rally and then some. 

Bear Stearns problems are not just its own; however it is one of 
the higher priced stocks in the group, with an awful lot of room 
to the downside if the sector sell-off continues. Merger and 
acquisition business, which comprises a large portion of BSC's 
business, is off more than 40% in the last year.  At the current 
rate, it will finish at its lowest yearly total since 1994. That 
trend figures to continue into 2003, as investment banks continue 
to shed staff in order to adjust to the business slowdown. The 
industry shed almost 80,000 jobs between April and November of 
this year and continues to downsize.  According to J.P. Morgan 
Investment Bank chairman Walter Gubert, " The economic 
environment will remain difficult next year, and the investment-
banking environment may not be substantially different from what 
we've seen in 2002."  That is certainly not good news for an 
industry that is still adjusting to the drop-off in activity from 
the boom-boom 90s.

BSC has been testing support just below 460 since the beginning 
of December.  Its lows have come above $59.00, a trade of which 
would give a fresh PnF sell signal and trigger a spread triple 
bottom breakdown. The trade of $59 would also establish a bearish 
vertical count down to $51, which would be derived from the 
current column of "O." The stock has already cleared its 200-dma, 
50-dma and 21-dma and has little support between $59 and 
horizontal support of $55 on the daily chart.  That support at 
$55 is not terribly strong and a trip to $52 seems entirely 
reasonable if we can get the break below $59.  The ascending PnF 
bullish support line at $57 is likely to give it some minor 
support, as well, but does not have corresponding horizontal 
support on the daily chart. Traders can use a trade of $58.99 as 
a trigger for the short play, in order to avoid another bounce 
from the same level once again. Once triggered, we'll use an 
initial stop loss of $63, which is above recent resistance and 
the 50-dma that contained the stock on Thursday morning's broad 
market rally.

BUY PUT JAN-60*BSC-ML OI= 4186 at $2.05 SL=1.00
BUY PUT FEB-60*BSC-NL OI=   12 at $3.20 SL=1.60

Average Daily Volume = 1.12 mil


CEPH - Cephalon Inc - 49.02 -1.31 (-2.15 for the week) 

Company Description:
Founded in 1987, Cephalon, Inc. is an international 
biopharmaceutical company dedicated to the discovery, development 
and marketing of innovative products to treat sleep and 
neurological disorders, cancer and pain. (source: company press 

Why We Like It:
Cephalon has developed perhaps one of the most intriguing 
"lifestyle" drugs to come down the pipeline in recent years.  On 
Monday the company submitted an application with the FDA to 
market its Provigil drug, which is currently approved for use 
with epilepsy patients, for treatment of "excessive sleepiness 
associated with disorders of sleep and wakefulness in adults."  
Studies have shown that Provigil has been effective in allowing 
individuals to stay awake and alert for up to 48 hours without 
any major side effects.  Should Cephalon receive a green light 
from the FDA, thousands of Americans would be eligible to receive 
the drug.  However, some have speculated that doctors may use a 
broad interpretation of "sleep disorders" to prescribe the 
treatment to anyone dealing with sleep deprivation.  This brings 
to mind images of pilots, truck drivers, and overworked grad 
students regularly popping Provigil.  Needless to say, this would 
have a very positive effect on Cephalon's bottom line.

But as promising as Provigil is, we don't think the prospect of 
an FDA approval is enough to keep CEPH afloat in the short-run.  
For one thing, the agency probably won't make its decision for 
several months.  It's unlikely that the company's request will be 
approved anytime soon.  A more pressing issue for shareholders of 
Cephalon is the recent weakness in the biotech sector.  The BTK.X 
biotech index is looking decidedly bearish after falling to new 
relative lows on Friday.  This breakdown produced a quadruple-
bottom breakdown on the p-n-f chart and also took the index below 
bullish support.  Not surprisingly, CEPH has also been subjected 
to a large amount of selling pressure.  The past two sessions saw 
the stock rollover from its 50-dma ($52.31) and fall below the 
200-dma at $50.54.  Shares also violated the December low of 
$49.30.  The falling daily stochastics and MACD indicate that 
CEPH could retrace a large chunk of its rapid October gains.  
Given the current sector weakness, we think shares could 
eventually reach the $42-$43 area.  As far as action points are 
concerned, we'll enter this short play if/when CEPH falls under 
today's low of $48.78.  If we're triggered our stop-loss will be 
placed at $53.00, above the relative highs and the rising 50-dma.  
More conservative traders could use a stop just above the 200-dma 
at $51.

BUY PUT JAN 50 CQE-MJ OI= 2469 at $3.40 SL=1.70
BUY PUT FEB 50 CQE-NJ OI=  765 at $5.10 SL=2.55

Average Daily Volume = 2.25 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:  



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 12-29-2002
Sunday                                                      4 of 5

In Section Four:

Current Put Plays: AIG, COST, RKY, ROOM
Leaps: Lump of Coal
Traders Corner: Manufacturing Wealth -- Among Other Things

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:  



AIG - American Intl. $56.68 -1.62 (-2.39 for the week)

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

Why We Like It:
It's not looking good for shareholders of AIG.  The stock 
rebounded from the $58.00 area earlier this week and briefly 
moved above $60.00 on Thursday morning.  However, the bears 
regained control after shares failed to move above the Monday 
high of $60.50.  This reversal carried over into today's session, 
leading to a violation of the previous relative low at $57.71.  
Shares posted a loss of 2.7% and underperformed the Dow Jones and 
the IUX.X insurance index.  AIG and the IUX.X are both trading at 
fresh multi-week lows.  So far this play has proceeded as we 
hoped it would, with AIG retracing its rapid mid-October rally.  
More weakness next week could take the stock to the next level of 
psychological support at $55.00.  Conservative traders may want 
consider taking profits if shares bounce from this area.  We're 
going to be a little more optimistic and place our exit-target at 
$53.06, more than a point above the October low.  Also note that 
we're lowering our stop to $60.11.  Traders looking to protect a 
larger gain could use a stop just above today's high of $58.61.

BUY PUT DEC-65*AIG-XM OI= 6802 at $4.50 SL=2.25
BUY PUT DEC-60 AIG-XL OI= 6352 at $1.65 SL=0.80

Average Daily Volume = 6.45 mil


COST - Costco Wholesale Corp - $27.38 -0.26 (-0.49 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:
COST is really trying our patience here.  The stock has been 
trading sideways in a narrow one-point range for more than a 
week, despite negative news from retail giants such as WMT and 
TGT.  With the RLX.X retail index breaking to new multi-week lows 
today, we'd been expecting that COST would at least retest the 
relative low of $27.09.  The stock instead traded an Inside Day 
and finished with a loss of less than 1.0%.  While a 15-minute 
chart shows a bearish trend of lower highs during the recent 
consolidation period, we need to be prepared for the possibility 
that COST will break to the upside.  With this in mind, we're 
going to lower our stop to $28.32.  Very conservative traders 
might want to use a stop just above today's high of $27.79.  
Going forward, we'll be looking for COST to break down and join 
the RLX.X at new relative lows.  New entries can be targeted on a 
move below $27.00.  In the news this week, Costco lowered its 
capital spending estimate for 2003 from $1.25 billion to $900 
million.  The company did not give a reason for the capex 

BUY PUT FEB 30 PRQ-NF OI=   10 at $3.50 SL=1.75
BUY PUT JAN 30 PRQ-MF OI= 4899 at $3.00 SL=1.50

Average Daily Volume = 5.82 mil


RKY – Adolph Coors Company $60.04 (-0.82 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:
While the rest of the market has been getting closer to a major
breakdown, our RKY play is inching closer to its own breakdown.
The mid-December selloff pushed shares of the brewer down near
the $60 level, which is significant as a support level.  There
is solid support in the $59-60 area, and $59 is the site of the
bullish support line on the PnF chart.  It has been interesting
to note just how weak RKY has performed over the past several
sessions.  There hasn't been any heavy selling, but the rebound
attempts have been downright anemic, topping out near the $61.60
level.  The bulls made another attempt on resistance on Thursday
and when it failed, it led to Friday's selling, complete with an
intraday break below $60.  Traders that took advantage of the
failed rally to initiate new positions are in good shape, with
risk controlled with a stop set at $62.  Momentum traders are
still sitting on their hands, waiting for a breakdown under $59
before entering the play.  The current PnF vertical count is
pointing to a price target of $51 (coincidentally the site of
the July lows) and the way the stock is acting that target still
looks achievable.  Should the broad market catch an oversold
bounce early next week, that could give us one more chance to
enter on a failed rally below the $62 level.  Just keep in mind
that is the site of our stop, and a close above there will tell
us that the downtrend has prematurely ended, prompting us to
drop the play.

BUY PUT JAN-65 RKY-MM OI=174 at $5.30 SL=3.25
BUY PUT JAN-60*RKY-ML OI=255 at $1.70 SL=0.75

Average Daily Volume = 379 K


ROOM – Hotels.com $53.17 (-6.28 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:
ROOM has performed like a champ this week, at least if you were
in on the bearish side.  Monday's failed rally attempt at the $60
level set the stage for the decline that has unfolded over the
past few days.  Mild support at $57.75 was taken out ahead of
the holiday and selling volume has been on the rise over the past
two days, which culminated with Friday's nearly 5% slide.  By the
end of the day on Friday, ROOM was just fractionally above the
$53 level and the 200-dma at $52.98.  As pointed out in the
Market Monitor on Friday, this level makes a lot of sense for
harvesting at least partial gains in the play, as an oversold
rebound from this level seems quite likely.  So why are we
keeping the play active, rather than dropping it as a successful
play?  Simply put, it looks like there could still be some decent
downside in the play if it closes under the 200-dma.  Below there,
we have the ascending trendline at $49.50 and then strong chart
support near $48, and with the PnF chart looking very weak and
giving us a bearish price target of $44, it seems entirely
possible that we'll see those support levels tested over the near
term.  We don't want to initiate new positions on a breakdown
here, as the risk/reward is not that favorable.  But traders
already in the play can look to manage their positions with a
tight stop at $55, where intraday resistance came into play this
morning after the initial drop. A failed rally below that level
can be used for opening new positions in anticipation of a
breakdown and eventual test of the $50 level.

BUY PUT JAN-55*URD-MK OI=2073 at $4.00 SL=2.50
BUY PUT JAN-50 URD-MJ OI=2558 at $1.85 SL=1.00

Average Daily Volume = 889 K

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:  



Lump of Coal
By Mark Phillips

Investors seemed in a jubilant mood on Thursday following the
mid-week holiday, bidding all the major averages higher.  But
something strange happened on the way to Dow 9000.  Almost as a
group, investors discovered that the gift left in their stocking
was not the newest reason to rally, but actually a lump of coal.
Once the discovery was made, the weak impetus for a Santa Claus
rally evaporated and the broad market headed south right into
the close of trading on Friday.

The DOW just barely managed to hang onto the 8300 level at the
close, while the S&P 500 closed just above 875, and the OEX just
above 442.50.  The NASDAQ indices didn't fare quite so well, with
the NDX falling below 1000 for the first time since mid-November
and the Composite breaching the 1350 level.  The PnF charts of
all the major indices look horrible from a bull's perspective --
The DOW and S&Ps are all on Sell Signals, while the NASDAQ
indices are still barely bullish.

Bullish Percent readings aren't looking any better, with the
NDX, DOW, and OEX all in Bear Alert status and the SPX looking
only slightly better, in Bull Correction.  The question we need
to ask ourselves here is whether we're going to see the Bullish
Percent readings cave in an head down to the 10-20% area like
we've seen on the last two failed rally attempts.  Despite my
long-term bearish bias for the equity markets, I don't think so
this time.  The market weakness this time around has been coming
on rather light volume surrounding the holidays, and I expect to
see another bold rally attempt before we push to new lows on any
of the major indices.

What could change my mind?  Part of my bias is based on the
historical tendency for the market to do well in the
November-April time frame and the fact that the Bush
administration seems determined to do whatever is humanly
possible to 'fix' the economy.  But those are rather nebulous,
touchy-feely kind of aspects to the market, that I really don't
put too much credence in.  The action on the charts is my
consistent guide and so far it just isn't showing me the major
weakness that I would expect.  Oh sure, there are hints of
weakness, and the VIX is solidly back over 30, but still very
much rangebound.  Whether you view it on the candle or PnF chart,
the VIX is stuck in a range between 29-36.  Is this a glimpse
of the VIX moving into a new range?  I don't know, but recent
action certainly hints that there is enough fear in the market
to make a return to the low 20s look very unlikely over the
near to intermediate term.  

So despite the fact that it is a lagging indicator, I'm keeping
a sharp eye on the VIX.  A trade at 36 will put it back on a PnF
Buy signal and indicate a tentative target of 49.  We know from
past experience that we won't see a VIX in the high 40s unless
the markets are trading substantially lower than they are right
now, so I would take a VIX of 36 as a very bearish sign for the
first quarter of 2003.  On the other hand, if the VIX fails to
push that high and instead reverses to trade below 29, then I
would take that as a more bullish sign, as it would keep the
current PnF target of 19 in play.

There are a lot of cross-currents in play in the current market
right now, and to be entirely honest, I'm having a hard time
resolving them into a coherent picture of what to expect.  We
have the Dollar breaking to new lows and Gold breaking out to
its highest level since March of 1997.  Those two factors are
bearish for the equity market.  At the same time, we have bond
yields breaking down hard across the maturity spectrum, and
quite possibly heading down to retest the October lows.  Against
that backdrop, the major market averages aren't yet seeing
heavy selling, even when important support levels are broken.
If there's one thing I've learned in my time analyzing the
markets, it is that they very rarely do as we expect or want.
I see a lot of factors pointing to significant downside ahead,
but then I see conflicting or non-confirming signals and I am
forced to ask the questions, What am I missing, and What is
different this time.  Right now, I don't know the answer, but
when (if) I do, I'll be sure to share it with you.

Now let's take a more focused look at our plays and see what
excitement occurred last week.


LEN - Well now, that was pretty exciting, don't you think?
Twice last week, the bulls managed to push LEN slightly above
the $54 level, but were unable to hold that level on a closing
basis.  So while it did generate a PnF Buy signal, we have the
very real possibility of a bull trap, as it occurred right at
the bearish resistance line.  News out of the Housing sector
continues to be very bullish with record sales numbers again
last week.  But judging by the price action in the homebuilding
stocks, that good news is already factored in.  The $DJUSHB
index reversed from its descending trendline again last week
and LEN really looked weak on Friday.  Keep those stops at $54
(closing basis) and watch to see what happens as the stock nears
the $50 level.  Each cycle of the stock since mid-October has
produced lower highs and lower lows.  But last week's rally
attempt produced a slightly higher high.  If we get a higher
low from this cycle, then we'll have a pretty good indication
that LEN is done moving down for awhile and we'll take our cue
and close the play.  In the meantime, keep those stops in place
or lock in gains on a failure to break below the recent lows.

NEM - Did you buy NEM's breakout over $30 on Friday?  If you've
been listening to me, I certainly hope not.  The action in gold
and gold shares continues to be very bullish, but keep in mind
that this group has had a heck of a run over the past month and
is due for a bit of consolidation, and possibly some downright
weakness.  Certainly currency and geopolitical concerns are
factoring heavily into the rise in the yellow metal to the $350
level.  But I would be surprised to see much more of a rise in
the near-term without some constructive consolidation.  Look for
NEM to drift down to support before we have another high-odds
entry point.  While one possibility is to enter on a rebound
from the $28 level which recently provided support, my personal
preference is to look for a drop into the $26.50-27.00 area to
provide that solid entry opportunity.  With historical support
just above $26 and the 200-dma at $27.10, this should be a tough
level to break on the downside.  Note that the 50-dma ($25.66)
is also rising sharply towards the 200-dma, and when the two of
them cross (probably near the $2750 level in mid January), it
will just add one more longer-term bullish factor to the mix.
While it isn't much of a change, let's raise our stop to $25.50
this weekend, just below the 50-dma.

MO - Traders looking for some excitement last week could
certainly have done better than to watch shares of MO.  While
it was nice to see a brief foray above the $42 level on
Thursday, it didn't last and MO fell back to end the week with
a mere 20 cent gain.  For now, all looks good as the stock
consolidates its rise back over the $40 level.  Now we just
wait (im)patiently for the stock to get through the $42 level
and then challenge the $43.50-44.00 area.  With the first half
of next week likely to be dominated by light volume, I don't
have any hopes of a significant move before the end of the
year.  Traders that are still looking to enter the play will
want to look for a rebound near the $40 level to provide that
opportunity.  Until we can get a close over the $42 level, our
stop remains at $37.

GM - Light volume leads to negligible price moves.  That's
certainly been the case with GM since we entered the play back
in early December.  For the past three weeks, the stock has been
stuck in a tight range between $35.75 and $37 on continually
weakening volume.  That pattern will break eventually, and
we're obviously biased towards a downside move.  The 20-dma
seems is rolling over again and appears to be pressuring the
price action in GM over the past few weeks.  In contrast, the
50-dma is trying to turn up and has been providing support.
Since those two moving averages are rapidly approaching one
another, this duel will soon be resolved, and I think with a
breakdown under the 50-dma.  Once we get a solid breakdown
under $35.50, then I'll look to tighten the stop to $38, just
above the recent highs.  Until then, keep stops set at $40.

BBH - Last week brought a lot of things into focus with respect
to our BBH play.  It looked like the bulls might manage a
breakout to the upside, with the BBH once again moving above
$90, and this time clearing both the descending trendline and
the 200-dma.  But without broad market strength or strong
volume, it couldn't last and the stock fell back into its
consolidation range.  Friday's large drop was very encouraging
from our perspective though, as it gets us very close to the
bottom of the range ($84.50-85.00) that has held since the
middle of October.  The BBH is now back under its 50-dma,
which is rolling over below the 200-dma, adding to the bearish
tone.  Look for confirmation of this weakness with a drop under
$84 next week, but keep in mind that we need volume to confirm
the validity of any move.  For now, keep stops set at $93.50.
It may seem rather wide, but that's necessary until we get a
decisive break from this broad trading range.

DELL - Well, I guess we didn't need to be in a hurry entering
the DELL play last week.  As expected from a light-volume
holiday week, the stock wasn't able to sustain much upward
action.  After running into resistance at the 20-dma just
below $28, DELL fell back towards its 200-dma.  I still like
entries on a successful rebound from the 200-dma or even as low
as the $25.50-26.00 area, with strong support likely to be
provided by the ascending trendline (now at $25.25).  This play
won't rocket higher, but should provide a solid gain over the
next several months as DELL breaks out above the top of the
bullish triangle that has been building since September of
last year.

Watch List:

GD - Nothing significant has occurred with shares of GD, except
that it continues to look more weak than strong.  If not for the
fact that we're in a very tenuous geopolitical situation and in
the midst of the light holiday volume season, I probably would
have dropped the play by now.  The PnF chart looks bearish, as
does the candle chart, but GD is still in the middle of the
neutral wedge that has been building since September.  The
recent weakness down near $77 may turn out to be a good entry
point, but we won't really know until we see a decisive breakout
over the $84 level.  For now, the plan remains the same -- watch
and wait, with a bias towards dropping the play.

DJX - This is one of those plays where I was definitely a day
late and a dollar short.  Just saying "buy puts now" in the
initial play writeup would have us up by a tidy sum, but that's
not how I run the plays in this column, as I strive to teach
and demonstrate discipline at the same time that I work to put
together winning plays.  While the DJX has headed lower
throughout the past several weeks, it really hasn't fallen
apart. Based on the charts, we'll either get a breakdown next
week or another failed rally.  I'm sticking to my guns and
looking to enter on that rally failure.  If it is a weak rally,
then look to enter on a rollover near $86.  Otherwise, we'll
look for a push up to the $87.50-88.00 area to allow entry.

BEAS - As expected in a light-volume holiday week, shares of
BEAS didn't do too much.  By the end of the week, the broad
market weakness was beginning to wear on the stock, which
drifted down below the $12 level.  Since we're looking for a
decline to the $11 level (or possibly a bit lower) before we
contemplate new entries, we can safely say nothing material
happened last week.  Wait for the right entry.

GS - Santa stiffed us!  I was counting on a bit of holiday
cheer to drive GS up towards the $74-75 area and give us a
solid entry.  Stingy was definitely not the way to go, as
the stock broke $70 early in the week and continued down from
there.  My gut feel is that we could get an oversold bounce
next week, but I don't expect any great upside from it.  Look
for any rally to fail in the $70-71 area, and that's where
we'll want to enter the play.  Remember, we're looking for an
eventual decline into the $58-60 area, driven in large part by
the class action lawsuits that are bound to come.  

As you can see from the play list, there just wasn't a lot
of meaningful price action last week, making it difficult to
make prudent decisions either on new or existing plays.  Rather
than try to read something in the light-volume noise that just
isn't there, I've abstained from adding any new Watch List
plays this weekend.  By this time next week, we should be
starting to see some clarity emerge due to a resurgence of
volume and the early stages of earnings warnings season.  Take
advantage of the few remaining days of light volume action to
get ready for what promises to be a busy and exciting 2003.

Happy New Year!


LEAPS Portfolio

Current Open Plays


NEM    10/30/02  '04 $ 30  LIE-AF  $ 3.90  $ 5.90  +51.28%  $25.50
                 '05 $ 30  ZIE-AF  $ 6.10  $ 8.60  +40.98%  $25.50
MO     11/13/02  '04 $ 40  LMO-AH  $ 3.90  $ 5.30  +35.90%  $37
                 '05 $ 40  ZMO-AH  $ 4.80  $ 6.20  +29.17%  $37
DELL   12/19/02  '04 $ 30  LDE-AF  $ 3.70  $ 3.90  + 5.41%  $23
                 '05 $ 30  ZDE-AF  $ 6.10  $ 6.30  + 3.28%  $23

LEN    10/02/02  '04 $ 50  KJM-MJ  $ 8.60  $ 9.10  + 5.81%  $54
                 '05 $ 50  XFF-MJ  $11.20  $12.70  +13.39%  $54
BBH    12/02/02  '04 $ 85  KBB-MQ  $12.10  $13.90  +14.88%  $93.50
                 '05 $ 80  XBB-MP  $14.40  $16.10  +11.81%  $93.50
GM     12/02/02  '04 $ 35  LGM-MG  $ 5.20  $ 6.40  +23.08%  $40
                 '05 $ 30  ZGM-MF  $ 5.50  $ 6.50  +18.18%  $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  $86, $88      DEC-2003 $ 84  ZDJ-XF
                               DEC-2004 $ 84  YDJ-XF
GS     12/22/02  $70-71        JAN-2004 $ 70  KGS-MN
                               JAN-2005 $ 70  ZSD-MN

New Portfolio Plays


New Watchlist Plays





Manufacturing Wealth -- Among Other Things
By Mike Parnos, Investing With Attitude

That well-known, profound wordsmith “Anon” once said, “We are all 
manufacturers – making good, making trouble or making excuses.”   
Anon obviously overlooked a few CPTI staples like making pizza, 
making cookies, and making it back to the couch before the 
commercial is over.

Anon’s observations are accurate, though, when it comes to 
trading.  Making “good” is executing and overseeing a successful 
trade.  Making “trouble” is using an improper strategy or using 
the correct strategy improperly.  And, finally, making “excuses” 
is finding someone else to blame for the “trouble.”

When you add a tablespoon of education, a teaspoon of discipline, 
and a package of Twinkies, you can eliminate the “trouble” and 
the “excuses.”  What we will have manufactured is an astute, 
successful trader with an overflowing wallet, a few cavities and 
a well-rounded appearance.

As Promised
As promised, today we’re going to go over the details of the ITM 
QQQ Long Term Strangle position we put on in the CPTI Portfolio 
in last Sunday’s newsletter.  We’ll use the prices as of last 
Sunday to keep everything consistent, and hopefully, less 
confusing.  I’m constructing a CPTI checklist for the Long Term 
ITM Strangle.  Send me an email and I’ll forward it to you 

The Long Term ITM Strangle
The ITM (In-The-Money) Strangle consists of the purchase of an 
in-the-money LEAP put and an in-the-money LEAP call with the same 

For example:
The QQQs were trading at $25.32.  We know that the QQQs can 
easily make a 3-4 point move in a month’s time.  However, it 
seems likely that the QQQs will remain in a trading range for the 
foreseeable future.  We will use the $21 to $29 strike trading 
range for our new ITM Strangle position.  Let’s take it step by 
step.  For our trade we’ll use a 10-contract position.

Ideally, we would like to put on the ITM Strangle when volatility 
is low and there is an expected increase in volatility.   It’s 
not a necessity, but we should avoid putting on the position when 
volatility is particularly high.

With the QQQs trading at $25.32, we will first:
Buy 10 Jan. 05 QQQ $21 calls (ZWQAT) @ $8.20 = $8,200
Buy 10 Jan. 05 QQQ $29 puts (ZWQMC) @ $7.00 = $7,000

Here’s the tricky part.  We just spent $15,200.  Sounds like a 
lot, doesn’t it?  However, our actual risk is substantially less.  
By buying this ITM Strangle, we’ve established a position that, 
regardless of where the QQQs trade, there will be a minimum 
intrinsic value of $8.00 – the difference between the strike 
prices ($20 - $21 = $8).

Try it.  If, at expiration, the QQQs are at $22, the $21 call is 
worth $1.00 and the $29 put is worth $7.00, totaling $8.00.  If 
the QQQs are at $26, the $21 call is worth $5 and the $29 put is 
worth $3.  But, stocks/indexes rarely remain in trading ranges 
for long periods, so it’s not likely we will hold this position 
to expiration in 2005.

So our actual risk in this position is the initial out of pocket 
($15,200) less the minimum intrinsic value ($8,000) -- $7,200.

Now, we have 25 months to make money.  Let’s get started.
Sell 10 Feb. 03 QQQ $29 call (QAVBC) @ $.50 = $500
Sell 10 Feb. 03 QQQ $21 put (QAVNT) @ $.45 = $450
We’ve just taken in a total of $950.  A 13% return on a risk of 
$7,200 for four weeks.  Our risk is now only $6,250 ($7,200 – 
$950 = $6,250)

That was so much fun we may do it again for the next option 
expiration.  We may sell two months out and further reduce our 
risk.  After we sell the seventh time, our risk is likely gone 
and it’s all gravy the rest of the way.  Plus, on a two-year 
LEAPS option, a relatively small percentage of the time value 
will erode in the first year. 

Think about it.  If we can do that 15 times during the 25-month 
life of the position, we would take in $14,200 on our original 
risk of $7,200.  Plus, the put and call LEAPS can also have time 
value over and above the $8 of intrinsic value. 

OK.  Read everything again up to this point.  Is it clear?  Jot 
down your questions and send them to me.  This is not a simple 
strategy.  It can be very profitable, but you need to understand 
it.  Now let’s address a few scenarios that may come up along the 
way.  It may answer a few of your questions.

What would happen if . . .
Since we don’t live in a perfect world, there will be 
complications – count on it.  Into each life some rain must fall.  
But if you have an umbrella, a little rain “ain’t no big deal.” 
We have a plan, right? 

Q:  QQQs threaten to break upper resistance and is at $29 with 
two weeks to go before expiration of our short-term call option 
and the cost to buy it back is $1.25?
A:  We would do nothing.  (CPTI students love that answer) 
Remember, you are covered by the long Jan. 05 $21.00 call that is 
now $8.00 in the money.  That means you have a high delta that 
will continue to be higher than the delta of the short option 
until the last few days prior to expiration. It makes no sense to 
buy back a short option (especially one that’s covered by a long 
position) while there is still time value.  Why pay $1.25 to buy 
back an option when it will cost you nothing to buy back that 
same option in two weeks?

The same logic applies if the QQQs would go down to $21.  The 
long Jan. 05 $29 put would be increasing in value faster than the 
short February $21.00 put.

Not to worry, it’s entirely possible the stock will retrace and 
return to the trading range.  Remember, the $29 and $21 strikes 
were chosen because they represent approximate resistance and 
support levels.

If, at an expiration, the QQQs have gone too far in a particular 
direction, you can always unwind the position and you should 
still show a profit.  The risk is minimal.  The likelihood that 
this position will last (as originally constructed) until 
expiration, is remote.  We will be making adjustments along the 

As you become more sophisticated option traders, there are ways 
you can play the bounces by repurchasing and reselling the short 
options at appropriate times to take in additional premium.  It’s 
not the CPTI way, but for you “players” out there, it’s a way to 
do some wheeling and dealing within the parameters of a basically 
conservative trade.  
The point is, take your time, evaluate and understand everything 
before you put on a trade.  Remember, the early bird may get the 
worm, but it’s the second mouse that usually gets the cheese.

In next week’s column, we will address the possible adjustments 
and variations of this Long Term ITM Strangle.  The fun starts 
when our QQQs make their typical 3-4 point move.

And remember to – SMILE -- it’s the second best thing you can do 
with your lips.


BBH Iron Condor – Currently trading at $86.25.
We want BBH to finish the January option cycle anywhere between 
$80 and $95.  We’re still looking good – still in mid-range.

XAU Calendar Spread  –  Currently trading at $78.52
We bought the June $80 call for $7.20 and sold the January $80 
call for $2.20.  Our debit (or cost basis) is $5.00.  We want XAU 
(Gold & Silver Index) to move up slowly and finish as close as 
possible to $80.  This is a longer-term cash flow generating 
strategy in which we sell against the June $80 call as many times 
as we can.  It’s a neutral to bullish strategy on gold.  Gold is 
moving up, perhaps a little too rapidly.  We’ll keep an eye on 

We might be faced with making an adjustment on the XAU spread if 
it continues up too quickly.  Basically, the delta of the June 
$80 call is still higher than the January $80 call.  The time to 
close out the spread is when the June $80 call no longer has an 

For example:  if we had to close it out today (as I write this), 
we could buy back the Jan. $80 for $3.40 and sell the June $80 
for $9.00.  Since our cost basis is $5, we'd end up with a profit 
of $.60.  It's possible that the trade could be entered as a 
spread and we could negotiate another $.20.

QQQ ITM Strangle  – Currently trading at $24.82.
This is another long-term position to generate a monthly cash 
flow.  We own the January 2005 $21 LEAPS call and the January 
2005 $29 LEAPS puts.  We’ve sold the February $29 calls and 
February $21 puts.  Now, it’s just a matter of being patient. 
(See discussion of strategy above)

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 12-29-2002
Sunday                                                      5 of 5

In Section Five:

Covered Calls: Profit/Loss And Return On Investment
Naked Puts: New Year's Resolutions!
Spreads/Straddles/Combos: The Grinch Steals The Show!

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: Profit/Loss And Return On Investment
By Mark Wnetrzak

Some questions from one of our new readers provided us with a
great opportunity to review the OIN's Covered-Call calculator.

Attn: Covered-Calls Editor
Subject: Using the CC Calculator

Thank you very much for the link info.  I really like the
calculator, but I have some questions if you would be kind
enough to answer them for me.

(1) I don't know how it figured my cost basis for a PCS CC
that I made.  Here are the vitals:

Stock Price  - 4.40 per share
Share Amt.   - 300
Com.         - 10.99
Strike       - 5.00
Prem.        - .70
No. of con.  - 3
Option comm. - 15.49

It says my CB would be 3.90. But 4.48 -.70 = 3.78...so how does
the other 12 cents figure into it?

(2) In the profit and returns columns, the numbers are tremendously
skewed to the high side.  Is this because I entered my original
share price from the purchase on 11/19/02?  Or rather is it because
I have entered the CURRENT days to expiration, instead of the
original date?

(3) Is this calculator used primarily to judge the quality of a
trade one is CONSIDERING to play rather than as a monitoring device
after the play has been made?

By the way, I entered the VISG CC play on 12/11 and got a little
scared when the share price got very close to my cost basis of
4.60 today.  What do you think of this play now?

Thanks for your kind help.  I really appreciate it, Mark.


Hello Again KM,

(1) If you scroll down to the bottom of the calculator, each page
has notes explaining the columns above.  The Cost Basis (or break-
even price), which includes the cost of commissions to initiate the
play, also includes one extra stock commission and assumes the stock
is sold after expiration.  If the share price of PCS closes below
the sold strike ($5.00) at expiration, you would still retain the
stock the following Monday.  If you managed to sell the stock the
next week at $3.90, you would incur no loss, including commissions,
and anything above $3.90 would be a profit.

(2) If you change the column, "Days To Expiration," you will effect
the profit calculations because they are based on a Monthly yield.
Essentially I annualize the return and divide by 12.  This helps
me visualize the value of compounding a seemingly small return over
and over again.  Notice if you change the "Days To Expiration" from
30 to 15, you double the potential yields.  This column shouldn't
be changed once a position is in play.

(3) That is correct -- the calculator is just a tool one can use to
evaluate and compare potential candidates for a covered-write.  The
data in the spreadsheet should remain static on an active position
unless an adjustment is made.  For example, in rolling-forward, a
new "Share Price" (based on the new cost basis), "Option Premium,"
and "Days To Expiration" could be entered.

As for VISG, I did make a comment in Thursday's Market Monitor:

12/26/02  3:39:57 PM   Viisage Tech. (NASDAQ:VISG)

A reader asked about Viisage Technology: The stock is testing
several key support areas and should be monitored closely.  Today's
rebound is encouraging in the short-term, especially in the face of
a down market. A break-even exit is available now (a profit if the
calls were bought back on weakness), or rolling-forward to the
April- or July-5.00 calls is also a viable move. (Just depends on
your long-term outlook.)

Mark Wnetrzak

Editor's Note:  The link to download the covered-calls (and
naked-puts/spreads/combinations) calculator is at the top of
the page here:


Trade Wisely!


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

Note:  Margin not used in calculations.

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

XMSR     3.00    2.84  JAN  2.50  0.80    0.30*  14.8%
AES      3.25    2.92  JAN  2.50  1.05    0.30*  11.9%
LWSN     5.26    5.55  JAN  5.00  0.55    0.29*   6.7%
MMR      5.20    4.95  JAN  5.00  0.60    0.35    6.6%
SEPR     9.48    9.45  JAN  7.50  2.35    0.37*   5.6%
BEAS    12.15   11.85  JAN 10.00  2.60    0.45*   5.1%
IMCL    13.50   10.82  JAN 10.00  4.10    0.60*   4.6%
LVLT     5.13    4.82  JAN  5.00  0.50    0.19    4.5%
ALXN    15.30   14.30  JAN 12.50  3.40    0.60*   4.4%
ELN      2.90    2.38  JAN  2.50  0.65    0.13    4.2%
AVID    22.03   22.80  JAN 20.00  2.75    0.72*   4.1%
MEE     10.65    9.70  JAN 10.00  1.25    0.30    2.8%
ZIXI     5.51    4.68  JAN  5.00  0.90    0.07    1.3%
VISG     5.72    4.75  JAN  5.00  1.05    0.08    1.2%
EYE     10.27    9.66  JAN 10.00  0.70    0.09    1.0%
MOGN     8.30    6.98  JAN  7.50  1.15   -0.17    0.0%
BMRN     7.74    6.51  JAN  7.50  1.05   -0.18    0.0%

* = Stock price is above the sold striking price.


Ok, so Santa dropped off a sock of coal at Broad and Wall.  Time
to be a bit defensive as the major averages threaten a move toward
their respective October lows.  Still, in the midst of all the
"bearishness," Avid Technology (NASDAQ:AVID) continues to be one
of the few issues demonstrating strength.  Some of the weaker
looking stocks include: Imclone Systems (NASDAQ:IMCL), MGI Pharma
(NASDAQ:MOGN), Level 3 (NASDAQ:LVLT), BioMarin Pharmaceuticals
(NASDAQ:BMRN) and Viisage Technology (NASDAQ:VISG).  Massey Energy
(NYSE:MEE) and Visx (NYSE:EYE) should also be monitored closely for
further indications of renewed downward trends.


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

ADVS   13.51  JAN 12.50   UIV AV  1.50 54    12.01   21    5.9%
AGIL    8.10  JAN  7.50   AUG AU  1.00 73     7.10   21    8.2%
DNDN    5.43  JAN  5.00   UKO AA  0.70 119    4.73   21    8.3%
FEIC   15.88  JAN 15.00   FQE AC  1.75 14    14.13   21    8.9%
IDNX    5.40  JAN  5.00   IDX AA  0.70 903    4.70   21    9.2%
RAD     2.46  JAN  2.50   RAD AZ  0.15 10222  2.31   21    9.4%
TKLC   10.33  JAN 10.00    KQ AB  0.80 7      9.53   21    7.1%

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

RAD     2.46  JAN  2.50   RAD AZ  0.15 10222  2.31   21    9.4%
IDNX    5.40  JAN  5.00   IDX AA  0.70 903    4.70   21    9.2%
FEIC   15.88  JAN 15.00   FQE AC  1.75 14    14.13   21    8.9%
DNDN    5.43  JAN  5.00   UKO AA  0.70 119    4.73   21    8.3%
AGIL    8.10  JAN  7.50   AUG AU  1.00 73     7.10   21    8.2%
TKLC   10.33  JAN 10.00    KQ AB  0.80 7      9.53   21    7.1%
ADVS   13.51  JAN 12.50   UIV AV  1.50 54    12.01   21    5.9%

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).

ADVS - Advent  $13.51  *** Bottom Fishing: Part I ***

Advent Software (NASDAQ:ADVS) is a seller of enterprise investment
management solutions that automate and integrate mission-critical
functions of investment management organizations through software
products, services and data integration.  Advent Office, a suite
of integrated products, addresses the demand to automate the entire
range of investment management functions, including portfolio
management, client relationship management, trade order management,
data warehousing, partnership accounting, reconciliation management
and Web-based portfolio, performance and analytic reporting.  ADVS
has been forming a stage I base for several months and the recent
technicals suggest the selling has abated.  This position offers
speculators a reasonable return at the risk of owning ADVS at a
favorable cost basis.

JAN 12.50 UIV AV LB=1.50 OI=54 CB=12.01 DE=21 TY=5.9%

AGIL – Agile  $8.10  *** On The Mend? ***

Agile Software (NASDAQ:AGIL) develops and markets product chain
management solutions to help companies work internally and with
their suppliers and customers to build better, more profitable
products faster.  The company's solutions manage the system of
record for a company's products and provide business applications
for critical communication and collaboration about the product
record among manufacturers, outsourced manufacturing providers,
suppliers and customers.  Agile has licensed its products to more
than 800 customers in the following sectors: computers, consumer 
electronics, data networking, telecom equipment, electronics
manufacturing services, medical devices & equipment, automotive,
aerospace and industrial equipment.  Agile rallied strongly in
November after the company beat estimates (smaller loss) for its
2nd-quarter earnings.  We simply favor the breakout above the
recent lateral consolidation phase and this position offers an
ideal way to establish a low-risk cost basis in the issue.

JAN 7.50 AUG AU LB=1.00 OI=73 CB=7.10 DE=21 TY=8.2%

DNDN – Dendreon  $5.43  *** Favorable Clinical Trials ***

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

JAN 5.00 UKO AA LB=0.70 OI=119 CB=4.73 DE=21 TY=8.3%

FEIC - FEI Company  $15.88   *** Bottom Fishing: Part II ***

FEI Company (NASDAQ:FEI) is a supplier of equipment and solutions
to the high-growth segments of the semiconductor, data storage
and industry and institute markets.  The company's solutions are
based on a combination of patented and proprietary technologies
that produce highly focused electron and ion beams.  These
solutions enable FEI's customers to view and analyze structures
in three dimensions and to measure, analyze, diagnose and modify
deep sub-micron and atomic structures below the surface in 
semiconductor wafers and devices, data storage components and
biological and industrial materials.  FEI and Veeco Instruments
(NASDAQ:VECO) recently announced that they will not be able to
complete their pending merger by the Dec. 31 deadline and it 
may be to FEI's benefit not to extend the deadline.  Investors
can speculate on the potential fallout of the deal with this

JAN 15.00 FQE AC LB=1.75 OI=14 CB=14.13 DE=21 TY=8.9%

IDNX – Identix  $5.40  *** Government Order = Rally! ***

Identix (NASDAQ:IDNX) provides a broad range of fingerprint and
facial recognition technology offerings that facilitate the 
identification of individuals who wish to gain access to 
information or facilities, conduct transactions and obtain
identifications.  The company's products serve a broad range
of industries and market segments, most notably, government and
law enforcement, aviation, financial, healthcare and corporate
enterprises.  Identix' offerings can be classified into five
categories: technology, products, platforms, project management
services and fingerprinting services.  Identix shares jumped
this week after the company said the Department of Defense 
ordered 450 of its fingerprint readers.  We simply favor the
long-term support (look at a 2-year chart) near our cost basis
as this position offers a method to participate in the future
movement of the issue with relatively low risk.

JAN 5.00 IDX AA LB=0.70 OI=903 CB=4.70 DE=21 TY=9.2%

RAD - Rite Aid  $2.46  *** Cheap Speculation! ***

Rite Aid (NYSE:RAD) is a retail drugstore chain.  The company
operates 3,497 retail drugstores in 28 states and in the District
of Columbia.  Rite Aid sells prescription drugs, which accounted
for approximately 61.3% of its total sales during fiscal 2002. 
Its drugstores also offer other products including non-prescription
medications, health and beauty aids and personal care items, 
cosmetics, photo processing and convenience items.  The stores
range in size from approximately 5,000 to 40,000 square feet. 
Earlier this month, Rite Aid reported a smaller quarterly loss
than expected and increased its cash-flow outlook for the current
year and next year.  This position offers a favorable entry point 
for investors who believe that Rite Aid will continue to improve
its performance and once again be profitable.

JAN 2.50 RAD AZ LB=0.15 OI=10222 CB=2.31 DE=21 TY=9.4%

TKLC – TEKELEC  $10.33  *** Bottom Fishing: Part III ***

TEKELEC (NASDAQ:TKLC) is a designer and developer of telephone-
communications signaling infrastructure, packet telephony
solutions, diagnostic tools and service applications.  TEKELEC
offers products in 3 broad categories: network systems products,
which help direct and control voice and data communications; 
network diagnostics products, which simulate a controlled network
environment; and contact center products, which provide planning,
management and call routing and control tools for single contact
centers and for complex, multiple-site contact center environments.
TEKELEC's customers include telecommunications carriers, network
service providers, equipment manufacturers and contact center
operators.  TEKELEC appears to be forming a stage I base and the
improving technicals suggest the lateral trend should continue in
the near-term.  With the current technical outlook recovering, 
this position offers an excellent reward potential at the risk of
owning this industry-leading issue at a favorable cost basis.

JAN 10.00 KQ AB LB=0.80 OI=7 CB=9.53 DE=21 TY=7.1%



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

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

UNTD   16.19  JAN 15.00   QAB AC  1.95 63    14.24   21    7.7%
VXGN   17.55  JAN 15.00   UWG AC  3.30 319   14.25   21    7.6%
PDLI    8.37  JAN  7.50   PQI AU  1.20 376    7.17   21    6.7%
PLMD   32.67  JAN 30.00    PM AF  3.70 219   28.97   21    5.1%
IGEN   43.56  JAN 40.00    GQ AH  4.90 2948  38.66   21    5.0%
BEAS   11.85  JAN 10.00   BUC AB  2.15 19289  9.70   21    4.5%
VMSI   23.79  JAN 22.50   QMP AX  1.95 24    21.84   21    4.4%


Options 101: New Year's Resolutions!
By Ray Cummins

With 2003 just a few days away, it's a great time to discuss the
traits and abilities that make traders successful in the long run.

To be a profitable in this business, it is important to review
proven trading methods and techniques on a regular basis.  There
are always new interpretations or processes to be integrated into
your current system but maintaining a structured approach to the
market is the best way to achieve consistent returns.  It is also
paramount to have a precise set of rules to govern your actions
when positions don't react as expected.  These guidelines must be
simple enough to recall and implement while monitoring a portfolio
of complex positions in volatile conditions.  As well, the rules
should apply across a wide range of situations and be designed to
compensate for one's weaknesses and inadequacies.  To be effective
in the long-term, they must be formulated to help you maintain
discipline on a general basis and offer a timely memory aid for
difficult situations.

Before you trade next year, consider these well-known maxims:

1. Learn to limit losses and your profits will grow.

The science of successful trading is less dependent on making
profits, but rather on avoiding losses.  The need to restrict
draw-downs and prevent losing plays from significantly eroding
capital should be a dominant theme in any type of trading.  To
reduce losses, most traders prefer to use a specific plan with
pre-determined exits.  Stop-loss orders can be used to remove
urgent decision-making from the equation and "trailing" stops
can be utilized to follow a position into greater profits while
protecting for unexpected reversals.  In addition, not only must
losses be limited, but all positions must be reviewed regularly
to ensure that the total portfolio risk is kept to a practical

2. Know your limits before you open any position!

Just as setting stops on each individual trade is an absolute
must, a "maximum allowable loss" must be considered when managing
portfolio positions.  The rule is simple: Never trade with more
money than you can reasonably afford to lose and always maintain
adequate cash reserves.  When assessing position size and cash or
collateral requirements, ensure that funds for active trades are
not co-mingled with capital for other functions.  It is also very
important to set a "loss limit" at the beginning of each month or
option expiration period.  When this level is reached, trading
should be halted for the duration of that period.  Of course, if
your losses are consistently higher than your gains, stop trading!
Step back and take a few days off.  When you are ready to try
again, evaluate your current trading strategies and review the
most recent plays (to learn from your mistakes), then move on.
When you begin to make money, put some of the profits in a small
reserve account, just in case there are unexpected developments
in the future.

3. Know your strategy, its advantages and weaknesses and only use
techniques that fit your trading style and portfolio outlook.
You can't make good decisions without knowing the mechanics of a
specific technique and the best traders are those who are acutely
aware of the shortcomings of their particular approach.  Focus on
positions whose trading characteristics match your ability and
risk-reward attitude.  Don't use complex or advanced methods simply
because they are intriguing.  In addition, if the strategy is not
appropriate for your financial condition, it should be avoided,
regardless of how attractive it appears.  Obviously every strategy
has risk.  The key is to develop an arsenal of profitable methods,
use only those that fit the market outlook, and manage each play
for maximum potential.

4. Learn the art of patience because timing is the key to success!

The opening trade is of particular importance.  It deserves your
best analysis and judgment and it is vital to assess all potential
trades well in advance.  In the case of stocks, the issue should
be one you want to own and the price must be technically favorable
with minimal downside risk.  Correctly timing the initial purchase
requires a thorough knowledge of charting techniques and market
trends.  The entire process is something a trader must completely
understand because a successful exit is by and large the product
of a proper entry.  Those who are guilty of "over-trading" should
assess their past results in this careless practice whenever they
are tempted to participate in such activities.

5.  Be diligent and after you develop a plan, stick with it!

Success will come when you create a favorable balance between hard
work, sound judgment and patience.  Too many traders give up after
a few losing plays, long before they have time to learn and absorb
the various methods required for profitable trading...

Good Luck!


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

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

MATK    24.94   25.55  JAN 20.00  0.50    0.50*   9.8%   2.8%
GG      12.62   13.09  JAN 11.25  0.40    0.40*   8.5%   3.2%
GFI     14.68   14.45  JAN 12.50  0.35    0.35*   7.5%   2.5%
PLMD    32.77   32.67  JAN 25.00  0.45    0.45*   7.0%   2.0%
COF     31.54   29.65  JAN 20.00  0.40    0.40*   6.5%   2.2%
IMPH    19.48   20.01  JAN 17.50  0.35    0.35*   6.2%   2.2%
WERN    22.21   21.67  JAN 20.00  0.40    0.40*   6.1%   2.2%
DISH    22.20   21.97  JAN 20.00  0.40    0.40*   6.1%   2.2%
MATK    23.37   25.55  JAN 17.50  0.35    0.35*   6.1%   1.8%
BSTE    31.41   34.48  JAN 22.50  0.45    0.45*   5.8%   1.8%
OVER    28.99   28.61  JAN 22.50  0.40    0.40*   5.6%   1.6%
AU      33.99   34.81  JAN 30.00  0.65    0.65*   5.5%   1.9%
IGEN    41.10   43.56  JAN 30.00  0.55    0.55*   5.5%   1.6%
GRMN    28.95   29.78  JAN 25.00  0.40    0.40*   5.4%   1.8%

* = Stock price is above the sold striking price.


Over the past few sessions, the technical indicators suggested
the market was building a "shelf" near 885-890 (SPX) and since
these patterns often end with sharp declines, Friday's activity
was no surprise to many traders.  The question now is, "Where
will buying support resume?"  Obviously, corporate earnings are
not going to recover in the near future and if the short-term
political and economic outlook continues to plague investors,
we may be in for a long, hard ride.  With that viewpoint in mind,
traders are urged to maintain a constant watch over their current
positions and exit any issues with questionable chart patterns.


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

ACAS  22.69 JAN 20.00  DQS MD 0.40 180   19.60  21    8.5%   3.0%
AVID  22.80 JAN 20.00  AQI MD 0.40 48    19.60  21    8.6%   3.0%
BSTE  34.48 JAN 30.00  BQS MF 0.60 452   29.40  21    8.8%   3.0%
ESPD  16.90 JAN 15.00  ENU MC 0.30 19    14.70  21    8.4%   3.0%
GRMN  29.78 JAN 25.00  GQR ME 0.25 60    24.75  21    4.9%   1.5%
IGEN  43.56 JAN 35.00   GQ MG 0.35 816   34.65  21    5.5%   1.5%
MATK  25.55 JAN 22.50  KQT MX 0.60 0     21.90  21   11.2%   4.0%
RGLD  26.08 JAN 22.50  MJQ MX 0.35 464   22.15  21    7.0%   2.3%

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  25.55 JAN 22.50  KQT MX 0.60 0     21.90  21   11.2%   4.0%
BSTE  34.48 JAN 30.00  BQS MF 0.60 452   29.40  21    8.8%   3.0%
AVID  22.80 JAN 20.00  AQI MD 0.40 48    19.60  21    8.6%   3.0%
ACAS  22.69 JAN 20.00  DQS MD 0.40 180   19.60  21    8.5%   3.0%
ESPD  16.90 JAN 15.00  ENU MC 0.30 19    14.70  21    8.4%   3.0%
RGLD  26.08 JAN 22.50  MJQ MX 0.35 464   22.15  21    7.0%   2.3%
IGEN  43.56 JAN 35.00   GQ MG 0.35 816   34.65  21    5.5%   1.5%
GRMN  29.78 JAN 25.00  GQR ME 0.25 60    24.75  21    4.9%   1.5%

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).

ACAS - American Capital  $22.69  *** An Investment Alternative ***

American Capital Strategies (NASDAQ:ACAS) provides financial
advisory services to, and invests in, middle-market companies.
The firm is also principally engaged in providing senior debt,
subordinated debt and equity to middle-market companies in need
of capital for management buyouts, including employee stock
ownership plan (ESOP) buyouts, growth, acquisitions, liquidity
and restructuring.  American Capital Strategies is regulated as
a business development company and has a publicly traded stock
as well as approximately $1.5 billion of capital resources.  A
recent news items suggests the company is successfully pursuing
the "wonderful investment opportunities available in the market
today" and ACAS shares reflect the firm's recent achievements.
The stock rallied to 3-month highs last week before succumbing
to the wide-spread slump in equities during Friday's session.
The question now is whether or not the issue can remain in its
new bullish trend with the broader market destined to move lower.

JAN 20.00 DQS MD LB=0.40 OI=180 CB=19.60 DE=21 MY=8.5% SY=3.0%

AVID - Avid Technology $22.80  *** The Rally Continues! ***

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 in mid-December sparked a rally which has helped propel AVID
to a new two-year high.  The technical indications are favorable
and traders who believe the upside activity will continue can
profit from that outcome with this position.

JAN 20.00 AQI MD LB=0.40 OI=48 CB=19.60 DE=21 MY=8.6% SY=3.0%

BSTE - Biosite  $34.48  *** Premium Selling! ***

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

JAN 30.00 BQS MF LB=0.60 OI=452 CB=29.40 DE=21 MY=8.8% SY=3.0%

ESPD - eSpeed  $16.90  *** Entry Point? ***

eSpeed (NASDAQ:ESPD) is a provider of electronic marketplace and
related trading technology solutions that operates multiple buyer,
multiple seller real-time electronic marketplaces.  The company's
suite of marketplace tools offers end-to-end transaction solutions
for the purchase and sale of financial and non-financial products
via the Internet or over its global private network.  In 2001, the
Company processed over 3.5 million electronic transactions by over
700 clients, including fixed-income trading firms and natural gas
and electricity trading firms.  The firm has offices in the United
States, Europe and Asia that can transact trading 24 hours a day,
around the world.  ESPD is one of the few bullish stocks in the
technology segment and investors who believe the company has an
encouraging future in the electronic trading industry can achieve
a conservative cost basis in the issue with this position.

JAN 15.00 ENU MC LB=0.30 OI=19 CB=14.70 DE=21 MY=8.4% SY=3.0%

GRMN - Garmin  $29.78  *** 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 a "target-shooting" order (at $0.30 or
better) in this position.

JAN 25.00 GQR ME LB=0.25 OI=60 CB=24.75 DE=21 MY=4.9% SY=1.5%

IGEN - IGEN International  $43.56  *** More Premium Selling! ***

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

JAN 35.00 GQ MG LB=0.35 OI=816 CB=34.65 DE=21 MY=5.5% SY=1.5%

MATK - Martek Biosciences  $25.55  *** Entry Point? ***

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.  In mid-December, MATK shares rallied
after a favorable Q4 report and the near-term outlook is bullish.
Investors who are interested in adding this unique biotechnology
company to their portfolio should consider using this position
to establish a conservative cost basis in the issue.

JAN 22.50 KQT MX LB=0.60 OI=0 CB=21.90 DE=21 MY=11.2% SY=4.0%

RGLD - Royal Gold  $26.08  *** Broad-Market Hedge ***

Royal Gold (NASDAQ:RGLD) is the largest U.S.-based royalty firm
engaging in the acquisition and management of precious metal
royalty interests.  Royal Gold seeks to acquire existing royalties
or to finance projects that are in production or near production
in exchange for royalty interests.  The firm, to a reduced extent,
also explores and develops properties thought to contain precious
metals and seeks to obtain royalty and other carried ownership
interests in these properties through the subsequent transfer of
operating interests to other mining companies.  Substantially all
of the firm's revenues are and can be expected to be derived from
royalty interests, rather than from mining operations conducted by
the company.  During 2001, the company focused on the acquisition
of royalty interests, rather than the creation of such interests
through exploration, followed by further development and property
transfers to larger mining companies.  Royal Gold is a favorable
candidate for a broad-market hedge and traders who want to profit
from a decline in the major equity averages should consider this

JAN 22.50 MJQ MX LB=0.35 OI=464 CB=22.15 DE=21 MY=7.0% SY=2.3%



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

OVTI  15.43 JAN 12.50  UCM MV 0.40 77    12.10  21   15.9%   4.8%
CTAC  27.15 JAN 22.50  QCJ MX 0.65 19    21.85  21   13.7%   4.3%
PPD   26.36 JAN 22.50  PPD MX 0.50 889   22.00  21   10.1%   3.3%
IDCC  15.20 JAN 12.50  DAQ MV 0.25 125   12.25  21   10.0%   3.0%
LF    26.00 JAN 20.00   LF MD 0.35 25    19.65  21    9.1%   2.6%
GLG   11.29 JAN 10.00  GLG MB 0.20 312    9.80  21    8.5%   3.0%
TVX   16.39 JAN 15.00  TVX MC 0.30 7     14.70  21    7.9%   3.0%
NEM   29.73 JAN 27.50  NEM MY 0.45 6066  27.05  21    6.4%   2.4%
PLMD  32.67 JAN 25.00   PM ME 0.25 677   24.75  21    5.3%   1.5%
ASA   41.78 JAN 37.50  ASA MU 0.45 378   37.05  21    5.1%   1.8%
AU    34.81 JAN 30.00   AU MF 0.25 821   29.75  21    3.9%   1.2%



The Grinch Steals The Show!
By Ray Cummins
The title of a popular book by Dr. Seuss may be the best way to
explain the recent activity in the stock market.

The Dow Jones Industrial Average endured a triple-digit loss Friday,
closing the week down over 200 points at 8,303.  Only one blue-chip
component, AT&T (NYSE:T) moved higher during the troubled session.
The NASDAQ fared little better, down 19 points to 1,348 as traders
exited positions ahead of the final week of 2002.  The S&P 500 slid
14 points to 875 as stocks weakened in virtually every major market
sector.  Trading was light with Big Board volume near 750 million
while 805 million shares were exchanged on the NASDAQ.  Declining
stocks outnumbered advancers by roughly 2 to 1 on both the NYSE and
the technology exchange.  Short-term treasury yields reached record
lows as global tensions drove investors to safe-haven issues.  The
yield on the 10-year bond closed at 3.80%.

Happy New Year!


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

APC     49.59  48.10  JAN   40  45  0.55  44.45  $0.55   Open
VLO     36.39  36.02  JAN   30  32  0.30  32.20  $0.30   Open
ASA     39.30  41.78  JAN   32  35  0.35  34.65  $0.35   Open
FNM     66.61  65.20  JAN   55  60  0.40  59.60  $0.40   Open
NBR     37.75  35.59  JAN   30  32  0.30  32.20  $0.30   Open
DHR     65.10  64.96  JAN   55  60  0.40  59.60  $0.40   Open
IGEN    41.96  43.56  JAN   30  35  0.55  34.45  $0.55   Open
RD      43.21  43.41  JAN   37  40  0.15  39.85  $0.15   Open

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


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

JCI     81.79  79.60  JAN   90  85  0.20   85.20  $0.20   Open
LEH     56.72  54.17  JAN   65  60  0.25   60.25  $0.25   Open
GS      73.10  67.92  JAN   85  80  0.60   80.60  $0.60   Open
LXK     61.93  60.65  JAN   75  70  0.55   70.55  $0.55   Open
MMM    121.77 121.34  JAN  135 130  0.70  130.70  $0.70   Open
GD      78.87  79.10  JAN   90  85  0.40   85.40  $0.40   Open
CDWC    44.06  41.99  JAN   55  50  0.45   50.45  $0.45   Open

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


Symbol  Pick   Last  Month  LP  SP   Debit   B/E   G/L   Status
WMT     50.54  49.16  JAN   60  55   4.45   54.45  0.55   Open

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


Symbol  Pick   Last  Month  LC  SC   Debit   B/E   G/L   Status

GDW     72.33  72.50  JAN   65  70   4.25   69.25  4.10   Open

LC = Long Call  SC = Short Call  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

SCIO    32.84  33.02   JAN     40    25     0.00    0.25    Open
PXD     26.11  25.05   MAR     30    23     0.10    0.20    Open?
VAR     50.38  49.13   FEB     55    45     0.10    0.00    Open

Scios traded near a new "all-time" high Thursday before succumbing
to the market-wide slump during Friday's session.  On the downside,
Pioneer National Resources has retreated to a recent trading range
near $24-$25 and it is unlikely the issue will rally in the near


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

IMN     35.00  35.77  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  26.76   JAN-30C   DEC-30C   0.60    0.60     Open
GISX    20.21  17.95   FEB-22C   DEC-22C   0.95    0.75     Open?
HSY     67.76  67.15   FEB-65C   JAN-70C   3.25    3.10     Open

The bullish position in Williams Sonoma (NYSE:WSM) was closed early,
after the expiration of the (short) December option, for a favorable
gain.  The position in Global Imaging Systems (NASDAQ:GISX) has some
hope as the issue recently rallied off of the bottom of its current
trading range.  Hopefully, the stock will continue to recover in the
coming weeks.  Prior to Friday's sell-off, Healthnet (NYSE:HNT) was
also showing signs of renewed bullish activity.


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

AES     2.92   2.92    J04-7.5P  J03-2.5P  4.50    0.25     Open
EDS    19.64  18.00    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

No Positions

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

GENZ    34.43  30.00   JAN    35    35    6.15    6.00     Open
L        9.95   8.45   JAN    10    10    1.35    1.55     Open

The speculative position in Liberty Media offered a small profit
as the issue crashed to a recent low of $8.45.  Genzyme has also
been on the move with the issue approaching the break-even point
in the bearish portion of the play.

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.

LMT - Lockheed Martin  $57.70  *** New Contract Win! ***

Lockheed Martin (NYSE:LMT) is a customer-focused, worldwide
enterprise engaged in the research, design, development,
manufacture and integration of advanced technology systems,
products and services for government and commercial customers.
The corporation's core business areas are systems integration,
aeronautics, space and technology services.  The company's
Systems Integration segment engages in the design, development,
integration and production of electronic systems for undersea,
shipboard, land and airborne applications.  Space Systems is
engaged in the design, development, engineering and production
of commercial and military space systems. Aeronautics designs,
researches and develops, produces, and supports combat and air
mobility aircraft, surveillance/command, reconnaissance,
platform systems integration and advanced development programs.
Technology Services provides information management, engineering,
scientific and logistic services.

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JAN-50.00  LMT-MJ  OI=2432  A=$0.15
SELL PUT  JAN-55.00  LMT-MK  OI=1464  B=$0.65
POTENTIAL PROFIT(max)=11% B/E=$54.50

STJ - St. Jude Medical  $39.17  *** J.P. Morgan Upgrade! ***

St. Jude Medical (NYSE:STJ) is engaged in the design, development,
manufacturing and distribution of cardiovascular medical devices
for the global cardiac rhythm management, cardiology and vascular
access and cardiac surgery markets.  The firm's primary products
in each of these minor markets are bradycardia pacemaker systems,
tachycardia implantable cardioverter defibrillator systems ,and
electrophysiology catheters; vascular closure devices, catheters,
guidewires and introducers, and mechanical and tissue heart valves,
valve repair products and suture-free devices to promote coronary
artery bypass graft anastomoses in cardiac surgery.  The company
markets its products mainly in the United States, Western Europe
and Japan.  The company also sells its products in Eastern Europe,
Africa, the Middle East, Canada, Latin America and the Asia-Pacific
region through employee-based sales organizations and independent

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JAN-35.00  STJ-MG  OI=287   A=$0.30
SELL PUT  JAN-37.50  STJ-MU  OI=1171  B=$0.60
POTENTIAL PROFIT(max)=14% B/E=$37.20

CEPH - Cephalon  $49.02  *** Consolidation In Progress! ***

Cephalon (NASDAQ:CEPH) is an international biopharmaceutical firm
dedicated to the discovery, development and marketing of products
to treat sleep disorders, neurological disorders, cancer and pain.
In addition to conducting a very active research and development
program, the company markets three products in the United States
and a number of products in various countries throughout Europe.
Cephalon's United States products are comprised of Provigil, for
the treatment of excessive daytime sleepiness associated with
narcolepsy, Actiq for cancer pain management, and Gabitril for
the treatment of partial seizures associated with epilepsy.

PLAY (conservative - bearish/credit spread):

BUY  CALL  JAN-60.00  CQE-AL  OI=3895  A=$0.10
SELL CALL  JAN-55.00  CQE-AK  OI=4566  B=$0.50
POTENTIAL PROFIT(max)=9% B/E=$55.45

GILD - Gilead Sciences  $34.57   *** Range-Bound? ***

Gilead Sciences (NASDAQ:GILD) is an independent biopharmaceutical
company that discovers, develops and commercializes therapeutics
to advance the care of patients suffering from life-threatening
diseases.  The company has five products that are marketed in the
United States and in other countries worldwide.  These are Viread,
a drug for treating HIV infection; AmBisome, a drug for treating
and preventing life-threatening fungal infections; Tamiflu, a drug
for treating and preventing influenza; Vistide, a unique drug for
treating cytomegalovirus (or CMV) retinitis in AIDS patients, and
DaunoXome, a drug for treating AIDS-related Kaposi's sarcoma.

PLAY (conservative - bearish/credit spread):

BUY  CALL  JAN-40.00  GDQ-AH  OI=1788  A=$0.25
SELL CALL  JAN-37.50  GDQ-AU  OI=3355  B=$0.45
POTENTIAL PROFIT(max)=11% B/E=$37.75

UBS - UBS AG  $47.56  *** Rolling Over? ***

UBS AG (NYSE:UBS) is a global, integrated investment services firm
and bank, in Switzerland, with offices in over 50 countries around
the world.  UBS' business is managed through four primary business
groups and its Corporate Center.  The business groups include: UBS
Wealth Management & Business Banking, UBS Warburg, UBS PaineWebber
and UBS Global Asset Management.  The company's clients include
international corporations, small and medium-sized businesses in
Switzerland, governments and other public bodies, as well as many
financial  institutions, market participants and individuals.  UBS
was formed on June 29, 1998 by the merger of two Swiss financial
services groups: Union Bank of Switzerland and Swiss Bank.

PLAY (conservative - bearish/credit spread):

BUY  CALL  JAN-53.37  UBS-AV  OI=710   A=$0.15
SELL CALL  JAN-50.00  UBS-AJ  OI=3035  B=$0.45
POTENTIAL PROFIT(max)=9% B/E=$50.30


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

RTN - Raytheon  $30.47  *** Reader's Request! ***

Raytheon Company (NYSE:RTN) is a provider of defense electronics
such as missiles; radar; sensors and electro-optics; intelligence,
surveillance and reconnaissance; command, control, communication
and information systems; naval systems; air traffic control and
aircraft integration systems; and technical services.  Raytheon's
commercial electronics businesses leverage defense technologies
in commercial markets while Raytheon Aircraft is a provider of
business and special mission aircraft.  The company also delivers
a broad line of jet, turboprop and piston-powered airplanes.

PLAY (speculative - bullish/diagonal spread):

BUY  CALL  FEB-30.00  RTN-BF  OI=1533  A=$2.20
SELL CALL  JAN-32.50  RTN-AZ  OI=682   B=$0.35
POTENTIAL PROFIT(max)=38% B/E=$31.80


A calendar spread (or time spread) consists of the sale of one
option and the simultaneous purchase of an option of the same
type and strike price, but with a future expiration date.  The
premise in a calendar spread is simple: time erodes the value of
the near-term option at a faster rate than the far-term option.

COF - Capital One Financial  $29.65  *** Volatility = Premium ***

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.

Strategy Explanation:

A more aggressive type of calendar or time spread (with puts)
is initiated when the current value of the underlying issue is
well above the strike price of the options.  The position is
speculative with low initial cost and large potential profits.
Two favorable outcomes can occur: the underlying issue declines
further in the near-term and the position is closed for a gain
as time value erosion in the short option produces a net profit
or; the stock consolidates, allowing the sold option to expire
and then eventually moves below the long option's strike price.

PLAY (speculative - bearish/calendar spread):

BUY  PUT  FEB-25.00  COF-NE  OI=15     A=$1.80
SELL PUT  JAN-25.00  COF-ME  OI=13063  B=$0.75


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.

AMZN - Amazon.com  $18.86  *** Retail Sector Slump! ***

Amazon.com (NASDAQ:AMZN) is a website where customers can find
and discover anything they may want to buy online.  The company
lists millions of items in categories such as books, music, DVDs,
videos, consumer electronics, toys, camera and photo items, PC
software, computer and video games, tools and hardware, outdoor
living items, kitchen and house-wares products, toys, baby and
baby registry, travel services and magazine subscriptions.  At
its Amazon Marketplace, Auctions and zShops services, businesses
and individuals can sell virtually any product to millions of
customers, and with Amazon.com Payments, sellers are able to
accept credit card transactions in addition to other methods of
payment.  The company operates a U.S.-based Website: amazon.com,
and four internationally focused Websites: www.amazon.co.uk,
www.amazon.de, www.amazon.fr and www.amazon.co.jp.

PLAY (speculative - bearish/synthetic position):

BUY  PUT   FEB-15.00  ZQN-NC  OI=3227  A=$0.90
SELL CALL  FEB-22.50  ZQN-BS  OI=115   B=$0.80

Note:  Using options, the position is similar to being short the
stock.  The minimum initial margin/collateral requirement for the
sold call approximately $480 per contract.  However, do not open
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:  



Failing Fast

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


Turn of Events

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


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