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Daily Newsletter, Wednesday, 12/17/2003

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The Option Investor Newsletter                Wednesday 12-17-2003
Copyright 2003, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: The Home Stretch
Futures Wrap: Scam Week
Index Trader Wrap: Watch out for this tomorrow!
Traders Corner: CPTI Position Adjustment Alert
Traders Corner: The Rally That Never Was?


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
     12-17-2003            High     Low     Volume Advance/Decline
DJIA    10145.26 + 15.70 10146.38 10094.75 1.70 bln   1658/1141
NASDAQ   1921.33 -  2.96  1926.00  1910.24 1.48 bln   1379/1688
S&P 100   535.20 +  0.45   535.20   532.65   Totals   3037/2829
S&P 500  1076.48 +  1.35  1076.54  1071.14
RUS 2000  538.72 +  0.98   539.08   533.10
DJ TRANS 2966.30 -  0.98  2970.97  2924.52
VIX        15.58 -  0.35    16.27    15.52
VXO        15.35 -  0.35    16.20    14.97
VXN        25.12 -  1.03    26.61    25.12
Total Volume 3,518M
Total UpVol  1,731M
Total DnVol  1,742M
52wk Highs     408
52wk Lows       35
TRIN          1.13
PUT/CALL      0.69
*******************************************************************

The Home Stretch
by James Brown

There are only 8 1/2 trading days left in 2003 and the DJIA looks
determined to finish strong.  After a decent, triple-digit CPI-
fueled rally on Tuesday the Dow managed to etch yet another new
19-month high.  Struggling to keep up is the NASDAQ.  The tech-
heavy NASDAQ, which has strongly outpaced the Industrials all
year, seems tired.  Investors are selling into strength and
taking gains as they approach year's end.  However, don't count
the NASDAQ out just yet.  There are still plenty of investors
willing to buy the dip and we saw that again today as the NASDAQ
overcame a 35-point decline by the closing bell.  Jim's comments
yesterday about fund managers rotating our smaller cap stocks and
into large cap, more liquid equities is playing out before our
eyes.

Yet another drop in the U.S. dollar and the re-emergence of SARS
has put global markets on the defensive.  The Japanese NIKKEI
fell 178 points to close at 10,092.  The Hong Kong Hang Seng
followed suit with a 67-point drop to 12,193.  European markets
were generally lower but the British FTSE out performed the group
with a 21-point gain to 4354.  The German DAX lost 18 points to
close at 3847.

U.S. stocks were a mixed bag.  After Tuesday's big gain it would
be normal to see some profit taking.  Add to the mix this
Friday's quadruple-witching expiration and I'm surprised we
didn't see more volatility.  The pockets of selling that did show
up today were relatively shallow.  Hardest hit was the
semiconductor sector after yesterday's downgrade from Merrill
Lynch.  Internet stocks and networking stocks also took a step
back.  Airlines stocks paused again after the SARS news came out
yesterday.  Wednesday's best performers were the homebuilders,
after new mortgage data showed an increase in applications.
Retail stocks also produced a strong bounce after two days of
declines.  Gold stocks marched higher as gold futures added
another $4.30 to close at $412.70 an ounce.  Defense stocks were
strong again and oil issues gushed higher with crude oil hitting
new highs at $33.39 a barrel.

Market internals continued to paint a mixed picture.  Bulls lead
the way on the NYSE with advancers out numbering decliners 16 to
11 and up volume outweighing down volume 931 million to 741
million shares.  The profit taking in the NASDAQ was easy to see
with declining stocks pushing past advancers almost 17 to 14 and
new highs evaporating to a lowly 78.  Down volume of 907 million
significantly overshadowed up volume at 550 million.

Chart of the DJIA:



Chart of the NASDAQ:



We had several stocks making headlines today.  There were
widespread expectations for Wall Street brokers to turn in a
strong quarter and Bear Stearns and Lehman Brothers did not
disappoint.  Bear Stearns (BSC) reported net income of $2.19 per
share, well above estimates of $1.81.  Revenues jumped almost 36%
to $1.53 billion, besting the $1.38 billion estimate.

Lehman brothers (LEH) also turned in a strong performance.
Earnings were $1.71 a share compared to estimates of $1.57.
Outstanding results in its bond trading activities and
underwriting lead to a 49% jump in revenues at $2.3 billion for
the quarter.  Investors will get to hear from Goldman Sachs (GS)
and Morgan Stanley (MWD) tomorrow.  Estimates are $1.54 for GS
and $0.90 for MWD.  Overall 2003 has been an impressive year for
the securities industry.  Profits are expected to be the second
best on record, above the 1999 levels at $16.3 billion.

Contributing to the impressive results for the major brokers has
been a flood of IPO activity.  Today alone we had four IPOs.  The
biggest IPO of the year was China Life (LFC).  LFC is the biggest
Chinese insurance company; of course it doesn't hurt being run by
the government.  The IPO brought in $3 billion with an IPO price
of $18.68. By the close of business LFC had added more than $5
settling at $23.72.

Orbitz.com, the online travel destination, went public today.
The Orbitz.com (ORBZ) IPO, while highly anticipated, failed to
deliver.  The company priced about 12 million shares at $26 for
the open today.  The stock soared to $30.75 intraday but actually
closed for a loss at $24.98.  It was not the most glamorous first
day of trading.

Struggling for their own time in the spotlight were IPOs for
Universal Technical Institute (UTI) and Falcon Financial
Investment Trust (FLCN).  UTI is an Arizona-based training
college for automotive-related repair and refinishing.  FLCN
services loans to auto dealers.

Investors were also eager to hear from consumer electronic giants
Best Buy (BBY) and rival Circuit City (CC).  BBY's results
matched consensus estimates at 37 cents a share on revenue growth
of 18% to $6.03 billion.  In contrast CC's results continue to
deteriorate.  Net income was actually a net loss of 12 cents a
share, worse than the estimate for a 7-cent loss.  This was the
second earnings miss in a row for CC and the stock lost another
6.6% to close just above the $10 level of support.  Without a
doubt CC is losing the fight to BBY, who continues to steal
market share.

Looking ahead to tomorrow's forecast we can probably expect more
of the same.  The strength in the DJIA and S&P 500 is likely to
continue while the NASDAQ should continue to churn above the 1880
level.  Stocks are likely to gravitate toward their nearest
option strikes as the markets prepare for Friday's expiration.
Investors will also get to mull through a few economic reports.
Tomorrow brings the index of leading economic indicators.
Estimates are for a 0.3 percent rise in November on top of
October's 0.4 percent jump.  The Philly Fed Index will be
revealed tomorrow as well.  Economists are looking for a decline
to 25.0 in December from November's 25.9.  Last but not least is
the initial jobless claims, which are expected to decline.


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************
FUTURES WRAP
************

Scam Week
Jonathan Levinson

Options expiration week lived up to its reputation this week,
with prices racing this way, then that, and in the end
accomplishing mostly obfuscation as they raced to close at their
highs.  Treasuries rose, breaking resistance, gold and silver
rose, and the US Dollar Index broke to new bear market lows below
88.  The VIX and VXO printed new lows for the year, and those
were very low indeed, with the VXO touching 14.97 before my very
eyes, the lowest print I have ever seen for that indicator.


Daily Pivots (generated with a pivot algorithm and unverified):


Note regarding pivot matrix:  The support, pivot and resistance
levels above are derived from the high, low and closing price
levels by a simple mathematical formula.  They are not intended
to be predictive of market turning points or to serve as targets,
but rather represent the range retracement levels as generated by
the pivot algorithm.  Do not think of them as market "calls"
or predictions.  Like any technically-derived indicator or price
level, the pivot matrix values should be regarded as decision
points at which to evaluate current market conditions.  Visit us
in the Futures Monitor for our realtime views of the various
markets covered here.


10 minute chart of the US Dollar Index


The US Dollar Index got shellacked today, breaking below 88 and
staying there as the euro broke to new record highs above 1.24.
The CRB rose back above 261 on strength in natural gas, heating
oil and platinum futures, adding 2.09 to close at 261.40.


Daily chart of February gold


February gold continues to prove that bearish rising wedges can
be very rewarding for bulls who aren't afraid of heights.  Gold
printed  anew high at 413.90 today, not challenging the upper
rising trendline but also managing to confound the daily cycle
oscillators again.   The HUI gained 3.37 to close at 235.69, XAU
added 1.33 to close at 106.06, and March silver gained 7.9 cents
to close at 5.724.


Daily chart of the ten year note yield


Ten year bonds had a big day today, with the yield dropping 4.5
bps to close at 4.189%, below the secondary wedge support line
we've been monitoring.  The move brought further confirmation to
the daily cycle downphase in progress, and sets up resistance at
4.2%.    Next support is at lower Bollinger band support at
4.115%.  For the time being, extreme dollar weakness appears to
be bullish not just for gold, but also for US treasuries.


Daily NQ candles


A trader for whom I have great respect marveled at the VXO print
of 14.97, asked how the view was from 14,000 feet, and said that
he'd let that indicator speak for itself.  Well, the VXO closed
at 15.35, the QQV at 23.7, the VXN at 25.12.  The Nasdaq indices
did what most traders expected, which was to trade very weakly.
It went nowhere, barely crossing the finish line for its 2.5
point or .18% gain.  It's options volatility measures are very
low, but they're not even close to the pedal-to-the-metal, 100
mph stereo-blaring beer-can-between-the-knees glory-run that the
Dow and SPX are taking.

With that off my chest, I can review the day's progress.  The NQ
closed at 1407, depicting perfect confusion with a doji star.
This kind of wide-ranging action is typical of scam week, and we
can see that the NQ is being parked somewhere near the 1400 level
for options expiry purposes.  Whether they hold it here until
Friday or not remains to be seen, but such is the tendency of op-
ex trading.  The end of day blast higher caused the slightly
twitch in the daily cycle downphase, and not much else.


30 minute 20 day chart of the NQ


The 30 minute NQ shows today's listless trading, even including
the end of day buying spree.  That ramp higher, led by the YM,
caused the 30 minute cycle downphase to abort midway through its
run, and a preliminary buy signal was printed.  The NQ will need
to follow through tomorrow in order to convert this into an
upphase, and judging from the rejection below 1410, the NQ should
have trouble doing so.  1415, and 1425-30 remain strong
resistance overhead, and the daily cycle downphase should weather
any move that fails below that upper resistance level.


Daily ES candles


The ES behaved far more bullishly than the NQ, going out at its
session high with a bullish hammer on the daily candle chart.
The move left off right on upper rising trendline resistance, and
a move past the 1077-78 resistance area should do it.  The daily
cycle downphase is still intact, with the 10 day stochastic still
on a sell signal.  That will change if the bulls can take and
keep 1078 tomorrow.  The session high was 1076.75, with an
overnight high of 1077 as of 5:30 EST.


20 day 30 minute chart of the ES


The ES' 3 point gain was more technically significant than
nything else, as it crossed the 1074 resistance level from
yesterday.  It also converted the 30 minute cycle downphase to an
upphase.  If 1078 falls, then we're looking at a trending move
higher, and a push to the Saddam highs should be in the cards.


150-tick ES


The ES went out at spectacularly oversold levels on the intraday
oscillators, ad the word "trending" again comes to mind.  My
Keltner settings are pretty generous, and in this case portend an
immediate reversal.  So, incidentally, do the closing VXO and VIX
prints.  If the bulls can hold this up, then it's not
unreasonable to expect the rally to carry all the way to the new
year.  The cycles don't currently favor that scenario, but it's
getting closer than I expected up until about 3PM today.


Daily YM candles


That small bullish hammer understates the sound and fury of the
short covering after the cash close.  Whether it's sector
rotation or just good old fashioned manipulation of the
arithmetically-weighted Dow, I won't attempt to guess.  But, once
again, the YM is going higher, with 34 points added today.


20 day 30 minute chart of the YM


The YM was trading 10133 as of this writing.  The support and
resistance zones are depicted by the trendlines and Bollinger
bands.  The have gone beyond prudent or even technical trading,
as the sub-15 VXO attests.  If this proves to be sustainable,
then the case for a new cyclical as well as secular bull market
will gain a strong piece of evidence.  The history of the past 7
years demonstrates that we should be at a significant top, with
sentiment and volatility way over the deep end of bullish
optimism.  Like in March, 2000, traders need to be patient,
careful and calm.  Buy the top if you wish, but keep a tight,
active stop entered under it.  Bears, there are a great many
points to capture below, and rushing to pick the top is high risk
trading.  If you do it, be aware, underleverage, and enter your
stops when you enter the trade.  See you tomorrow.


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

Watch out for this tomorrow!

All session, I had this peaceful, yet uneasy feeling about my
recently bearish profile in the NASDAQ-100 Tracking Stock
(AMEX:QQQ) $34.91 +0.17%, as this QQQ bear (me) smells what could
be an option expiration trap, which I want all traders to be on
the lookout for tomorrow, as this QQQ bear's hide doesn't want to
end up on the wall.

The peaceful feeling cam as the QQQ didn't come as close to
testing its DAILY R1 of $35.11, where I had profiled bearish
stops to be placed just above.  Another bit of peaceful
tranquility was NASDAQ internals were once again weak, as at no
point in the session, did advancers ever outnumber decliners.

In a moment, I'll explain where I get the uneasy feeling from.
While I say this is a feeling, this feeling is based on one
observation, which doesn't make sense.  Actually it does make
sense in the broader scope of things, and thus the uneasy feeling
for my QQQ short.

Let's take a quick look at today's Market Snapshot / Internals,
and you tell me if it makes sense that we would see this type of
internal weakening early in the session (especially NASDAQ) flat
to lower price action throughout the day, but see the various
market volatility indices VIX.X -2.19%, VXN.X -3.9% and VXO.X -
2.22% trade what I consider to be notably lower in percentage
terms.  I'm going to follow up on the VIX.X, VXN.X and VXO.X in a
minute, but today's trade looks to me as being HEAVILY influenced
by this weeks option expiration, where institutions may have
really started to make some adjustments ahead of tomorrow's
expiration.

Market Snapshot / Internals - 12/17/03 Close



The major indices were rather range-bound throughout today's
session, and traded lower for the better part of the day, up
until about the last two hours of trade.  I do not monitor the
VIX.X or the VXN.X all that closely, but with Tuesday's trade and
nearly 1% decline in the broader NASDAQ Composite Bullish %
($BPCOMPQ), I checked the NASDAQ-100 Market Volatility Index
(VXN.X) 25.12 -3.93%, fully expecting it to at least be unchanged
or higher, ESPECIALLY when the NASDAQ advance/decline was as weak
as it was today.

What?  And this is where the BEARISH side of me thought.  Oh
goodness.  All the small retail traders (you and I) are in the
options market buying calls on thought that at some point the Q's
are going to rebound and play catch up to the other major
indices.  Hah!  They'll learn their lesson.  You want to be SHORT
this garbage.

But then.... I turned the table and became a bull.  Garbage?  Are
you calling the INDU, SPX, OEX, NYSE garbage?  Maybe you'd better
not have such a peaceful feeling about things, stick your nose up
in the air and sniff around a bit.

Why, make that HOW in the world do the various market volatility
indicators decline.  The quick and easy answer is.. either put
selling, or call buying outnumbering put buying and call selling.

Then I thought... why would ANYONE be pressed to buy calls, or
sell puts in such a flat trade and rather weak market internals?

Because they have to!!!!

I didn't give last night's comment about "Max Pain" in the SPX
being 1,025 a second thought, but suddenly, today's market
volatility, compared with today's internals and price action
becomes very suspicious.  By the way... SPX "max pain" moved up
to 1,030 with Tuesday's trade.

Who is the larger seller of calls and puts?  INSTITUTIONS.  Gosh!
The SPX is trading new 52-week highs at 1,076.  While the seller
of puts/calls at an average of 1,030 is in good shape on the put
side, what about the other part of the equation where the
INSTITUTION is nearing a delivery date, but may not have the
goods to deliver?

The goods that may be lacking for an institution would most
likely be INDU, SPX, OEX stocks, where the nearing expiration
creates a more hurried effort to get the mass amount of options
positions squared up.  Remember, a December contract is for
December delivery and with the INDU/SPX/OEX at 52-week highs, the
INSTITUTION that has been selling calls, may well have some
buying to do in order to make the December delivery.

So where does the QQQ come into play?  It's in check.  No trouble
here for the bear as it isn't as close to its highs as the other
major indices ahead of expiration.  Right?

That's right.  But the uneasy side of me becomes alert to the
potential that what the INSTITUION may at a loss in on the
INDU/SPX/OEX doesn't have them then trying to make up on in a
bullish trade with the QQQ.  Remember, the VXN.X fell today as
call buyers and put sellers outnumbers call sellers and put
buyers.

NASDAQ-100 Market Volatility Index (VXN.X) - Daily Intervals



I've benchmarked the 11/20/03 relative low in the QQQ, where the
QQQ traded just below the $34.00 for 4 sessions (11/18-11/21) and
where despite a spike lower in price for the QQQ on 12/20/03 to a
session low of $34.13, the VXN.X wasn't nearly as high.

What has me alert to some near-term volatility, ESPECIALLY in the
QQQ is today's decline, when really, the QQQ when nowhere.

What this has be ALERT to, is that while today's trade was QUIET
in the QQQ, the VXN.X fell.  A quick note as to today's OPTION
volume ahead of DECEMBER EXPIRATION, has the QQQ Jan. $35 put
(QQQMI) trading 34,292 contract, QQQ Dec. $35 put (QQQXI) trading
31,398 and QQQ Dec. $35 call (QQQLI) trading 16,796 contracts.
These were the three most actively trade options contracts in the
QQQ today.

The DECLINING VXN.X suggests SELLING of puts (outnumbering the
buying of puts), and the BUYING of calls (outnumbering the
selling of calls).  All a QQQ BEAR needs to be alert to tomorrow
is that INSTITUTIONS didn't set themselves up to BUY the
underlying QQQ, where the SELLING of the $35 puts has its premium
evaporating quickly (a day or two into DECEMBER EXPIRATION),
which would also benefit the DECEMBER CALL side of the trade.

Where's a QQQ have his/her stop?

Pivot Matrix -



Tomorrow's DAILY R1 is $35.08, and WEEKLY Pivot is $35.11, so I
still like the BEARISH stop just above $35.11.  This should "take
care" of any type of massive unfolding to the upside, should a
Triple Witching expiration actually be in play.

You would be CORRECT in thinking .... "but Jeff, if the QQQ falls
to your target of $34.11, where QQQ max pain is $34, the above
mentioned put/call observations would also pay off for a BEARISH
trade, if buying the PUTS and selling the call).  The potential
flaw with this is that the VXN.X fell today, thus my uneasy
feeling at tonight's close.

While tomorrow morning's economic data is "key" and may present
the catalyst for the move, I think the "key" is really the QQQ
$35.11 holding as a resistance point.

If you're an INDU/SPX/OEX trader I would strongly suggest keeping
an eye on the QQQ also.  Understand how option expiration may be
in play, and how the QQQ lagging, in itself, is currently
alerting you (if your bullish the INDU/SPX/OEX, you in a leader)
that the tail is weak, and trying to pull your trade lower.  A
SNAP back higher in the QQQ, should be expected to send your
INDU/SPX/OEX trade higher still.

My main point with all of the above, it to try and prepare trader
for what could be a very volatile session tomorrow.  Even as a
QQQ bear, I point out the potential negative of my bearish QQQ
trade, based on some of today's VXN.X observations.  If you
should read something like... "these economic numbers stink, and
with the QQQ at $35.50 you should be shorting the heck out of
it," then just be cognizant of what impact option expiration may
be having on the major indices trade over the next two days.

If I were to enter a BULLISH trade tomorrow, it would have to be
in the QQQ, but ABOVE $35.15, and it would be SHORT-TERM
oriented.  Remember that the bullish % are alerter to weakness.
How long?  I'm not certain, but my thinking is that in January,
we might see a pretty good pullback in the major indices.  This
would make some sense where some of this years gains are booked
early in the year, and taxes on those gains aren't paid until
April 2005.

S&P 100 Index Chart (OEX.X) - Daily Interval



Institutions that have been selling calls against the OEX may
indeed have to be buying calls today and even selling some puts
as December delivery comes at tomorrow's close.  It at least
makes sense that the VXO.X is falling as it relates to OEX price
action.  Today's range was narrow, but I've added the DAILY S2
and DAILY R2 on the OEX chart to depict what could be the day's
range.  First sign of any type of weakness is marked at 531.00.

S&P 500 Index (SPX.X) Chart - Daily Intervals



Today's trade in the SPX may also hint of computer buying.
Despite weak internals for the better part of the session, the
SPX traded 1,071.14 twice, at different hours as if computers
were simply saying.... I need to get squared up before
expiration.  I need to get squared up before expiration.  I need
to get squared up before expiration.

Dow Industrials (INDU) Chart - Daily Intervals



While it may be "scary" to be short the QQQ, I'd find it more
friegtening to be short the INDU/SPX/OEX with no overhead supply,
where at least there might be a bull eager to sell strength.
First sign of any weakness I can find in the INDU would be back
below 10,075 (deduct 10 points and 10,065).

NASDAQ-100 Tracking Stock (AMEX:QQQ) Chart - Daily Intervals



Disparity between QQQ and other major indices has been noted.  It
is the similarity in the VXN.X and other volatility indices that
has me alert that a short-term pop back higher, simply due to
option expiration may be at hand.  The only way I know how to
protect is stick with the levels.  DAILY R1 moves slightly lower
to $35.08, and again correlates with MONTHLY Pivot of $35.11,
thus a level I think bears continue to hold convictions, but
protect against potential expiration volatility.

Jeff Bailey


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

CPTI Position Adjustment Alert
By Mike Parnos, Investing With Attitude

Original Position:
OEX Credit Spread Boogie – 535.20
We sold 2 December OEX 520 calls @ $9.00
We bought 2 December OEX 545 calls @ $1.55
Total credit and potential maximum profit of $7.45 ($1,490).
Exposure $17.55 ($3,510).  Maintenance $25.00 ($5,000).

Position Adjustment:
Today we closed out the December OEX 520/545 bear-call spread (two
contracts) for $15.60 ($3,120).  We rolled out to five contracts
of the OEX January 535/505 bull-put spread for a credit of $6.70
($3,400).  New maintenance: $15,000.
______________________________________________________________

Original Position:
QQQ ITM Strangle – Ongoing Long Term -- $34.91
We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts
of the 2005 QQQ $29 calls for a total debit of $14,300.   We're
going to make money by selling near term puts and calls every
month.  Here's what we've done so far – all in 10 contract
quantities.
October: Sold Oct. $33 puts and Oct. $34 calls -- total credit of
$1,900.
November: Sold Nov. $34 puts and calls – total credit of $1,150.
December: Sold Dec. $34 puts and calls – total credit of $1,500.

Position Adjustment:
Today we bought back our 10 contracts of the December $34 puts for
$.05.  We will wait to sell the January $34 puts.
______________________________________________________________

Tomorrow's Column
Tomorrow I'll go into more depth about the above moves and we'll
take a look and see how or if the quickie trades worked out.
______________________________________________________________

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.

Mike Parnos
CPTI Master Strategist and HCP
_____________________________________________________________

Couch Potato Trading Institute Disclaimer

All results reported in this section are hypothetical. While the
numbers represented here may have been achieved or beaten by our
readers, we make no representation that any individual investor
achieved these exact results. The tracking for the plays listed in
this section uses closing prices for the day the newsletter is
published and it is not meant to imply that any reader actually
received those prices or participated in these recommendations.
The portfolio represented here is hypothetical and for investment
education purposes only. It is only an illustration of what type
of gains a knowledgeable investor might receive utilizing these
strategies.


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

The Rally That Never Was?
by Mark Phillips
mphillips@OptionInvestor.com

As I mentioned a couple weeks ago in my LEAPS column, I've been
spending a lot of time going through some unusual relative
strength charts lately.  At the core of my motivation is disbelief
in the rally we've been "enjoying" for the past several months.
You see, on a big-picture view, what we've been witnessing is both
bonds and stocks rising over the past few months, while at the
same time the U.S. Dollar has been drilling down to new multi-year
lows.  The logic is pretty simple -- if the dollar is falling,
then assets denominated in that weakening currency will increase
in price, even if the VALUE of that asset remains the same or
falls.

The $64,000 question is whether the rally in the US equity markets
is entirely attributable to currency weakness, or if it is only
part of the equation.  Put another way, is the rally in the DOW
reflecting a true increase in value, or is it just showing that
the DOW is strengthening against its underlying currency, the
dollar.  I fumbled around a bit, trying to find the right symbols
with which to make the appropriate comparisons -- should I use the
Euro, the South African Rand, the Yen, or the Australian Dollar?
Or should I just bypass all of the fiat paper currencies and go
straight for the real money benchmark - GOLD?

While I believe that gold is the best representation of true
value, in the end, I settled on using the South African Rand,
mainly because of the strong bias in that economy towards tangible
assets (gold and diamonds), but also because of the unfamiliarity
of the currency, minimizing my tendency to apply a bias to the
charts because of a lack of a preconceived idea of the
strength/weakness of the currency.  So let's start with a chart of
the DOW relative to the Rand ($ZAR) and see what it tells us.

Weekly Chart of the DOW vs. South African Rand



First off, we need to ignore the vertical scale.  I don't know
what the value of the Rand is and it doesn't matter.  What the
chart tells me is that the DOW is still quite weak against this
currency.  As we can see from the chart below (showing the DOW
relative to the price of gold), the DOW vs. Rand chart is a good
representation of what the DOW has done in terms of real value.

Weekly Chart of the DOW vs. Gold



All right, now that brings everyone up to speed with the material
we covered a couple weeks ago.  Now let's apply this observation
to something new.  There's been a lot of buzz about DOW stocks
breaking to new all-time highs recently.  Two of the names that
have captured my attention are UTX and CAT, both of which have
strongly broken out recently.  You can pull up a weekly chart of
either stock on your workstation and confirm for yourself that
indeed they are both in blue sky territory.  But let's remove the
currency effect and see what we're left with.

Weekly Chart of UTX vs. South African Rand



That certainly isn't the picture of strength we see when we pull
up a UTX chart, now is it?  A bullish resolution of this sideways
consolidation is certainly possible, but we shouldn't confuse the
price action in UTX with that of a strong bull market.

Weekly Chart of CAT vs. South African Rand



CAT definitely looks better, having broken out above horizontal
resistance in July, but since then it has been mired in a sideways
move as well.  Even a breakout over that 550 level still has a
ways to go to the highs from the spring of 2002 and that is
nowhere near new all-time highs now, is it?

Now let's look at something a bit different.  Retail stocks have
been getting clubbed lately and WMT is the poster child for the
Retail sector, good or bad.  After rolling over up near the $60
level, it has been one step lower after another, with the stock
now sitting right on its rising trendline from the July 2002 lows.
Or is it?

Weekly Chart of WMT vs. South African Rand



Put in terms of a real currency, we can see that WMT broke major
support in early November and just recently plunged to new bear
market lows?  You won't hear that on CNBC!

So how do you take this knowledge and put it to good use from this
point forward?  If there's a stock you think looks strong, turn
the tables a bit and view it in terms of different currencies.  If
it looks strong against those other currencies, then you probably
have a real instance of strength.  If not, then you'll know the
risks you are dealing with.

For reference, all of the charts above were generated using the
SharpCharts feature on www.stockcharts.com.  You can recreate all
this neat stuff on your own and verify that I'm not "pulling a
fast one".  The format for the WMT/RAND chart is "WMT:$ZAR".  Some
other important data you'll find useful are the symbols for a few
other currencies:

Canadian Dollar = $CDW
Japanese Yen = $XJY
Australian Dollar = $XAD
South African Rand = $ZAR
Swiss Franc = $XSF
British Pound = $XBP

Look at this as another tool to put in the arsenal.  I can't take
credit, as most of the brain power on this one came from my good
friend Rick.  If you find this is useful, then drop me a line and
I'll pass the good word on to him.  Of course the downside is that
will just motivate him to print up the bill for services rendered!
GRIN  This little process of discovery has once again driven the
point home that I've got some of the smartest readers on the
planet!

Have fun!!

Mark


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The Option Investor Newsletter                Wednesday 12-17-2003
Copyright 2003, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: None
Dropped Calls: None
Dropped Puts: None
Play of the Day: Put - CTSH
Spreads, Combinations & Premium-Selling Plays: A Mostly Merry
    Holiday Season
Watch List: Generally Bearish Candidates
Market Posture: Nothing Going


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*****************
STOP-LOSS UPDATES
*****************

None


*************
DROPPED CALLS
*************

None


************
DROPPED PUTS
************

None


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*********************
PLAY OF THE DAY - PUT
*********************

Cognizant Tech. - CTSH - close: 42.70 change: -2.18 stop: 47.25

-Company Description-
Cognizant Technology Solutions Corporation delivers full
lifecycle  solutions to complex software development and
maintenance problems that companies face as they transition to e-
business.  These information technology (IT) services are
delivered through the use of a seamless on-site and offshore
consulting project team.  The company's solutions include
application development and integration, application management
and re-engineering services.  Among CTSH's prominent clients are
ACNielsen Corporation, ADP, Inc., Brinker Int'l, Computer
Sciences, The Dun & Bradstreet Corporation, First Data
Corporation and Nielsen Media Research.


- Most Recent Update (Tuesday, Dec. 16, 2003) -
Technology stocks have been losing their appeal with investors
throughout the month of December, as the larger, industrial-
related stocks gain favor into the end of the year.  This was
clearly shown during Monday's sharp reversal from the highs, with
the declines led by Semiconductor and Software stocks.  While the
Software index (GSO.X) managed a solid rebound on Tuesday, the
same can't be said for our new bearish play, CTSH.  The stock
broke down out of its ascending channel last week and just in
classic textbook fashion, yesterday's early rally was turned back
right at the bottom of that broken channel.  CTSH continued to be
quite weak today, losing 4.85% after breaking below the 50-dma
($44.60) for the first time since early June.  There wasn't any
material news to explain Tuesday's plunge, but it does seem that
it is significant, as volume surged over 3 million shares, easily
tripling the ADV.  Today's breakdown was not just a violation of
the 50-dma, but also a break below what has been strong support
at $44.50 over the past several weeks (with only one violation in
late November).

Today's trade at $43 generated a P&F Sell signal (the first since
May), which gives a tentative bearish price target of $36, which
just happens to line up with strong historical support on the
daily chart.  While CTSH could continue to fall from here, a more
likely scenario will be a bounce that then fails below the 50-
dma.  Traders willing to wait for the bounce will want to enter
on the rollover when that rebound fails.  Aggressive momentum
traders can enter on a break below $42, as the stock takes out
today's low.  Next support is likely to appear near $40,
reinforced by the rising 100-dma ($39.53), and we can expect a
near-term bounce when that level is reached.  Intelligent stop
placement is a bit tricky, given the fact that the stock has
fallen more than $4 from yesterday's intraday high.  We'll set
our initial stop at $47.25 (just above yesterday's high).  That
level really shouldn't be challenged though and more conservative
traders can use a stop at $46.40, just above the intraday highs
from last Thursday and Friday, as well as the 20-dma ($45.79).
The downside target will be for a decline to that strong support
at $36.

- Play of the Day Comments -
The GSO software index actually managed to close in the green
today while its tech-related peers the GHA, INX, SOX and NWX
indices did not.  This makes CTSH's weakness even more appealing
as a bear.  The broken channel has been confirmed with today's
drop but traders might want to be patient when judging an entry
point.  The stock is approaching likely support at $40.00.
Considering the three days of declines the stock is short-term
oversold.  Look for a bounce/failed rally under $43.00 as a new
entry point for bearish positions.  More aggressive traders can
chase a breakdown under $40 if no bounce occurs.

- Suggested Options -
Aggressive short-term traders can use the January 40 Put, while
those with a more conservative approach will want to use the
January 45 put.  Our preferred option is the January 45 strike,
as it is already.

! Alert - December options expire this week!

BUY PUT JAN-45*UPU-MI OI=1806 at $4.80 SL=2.50
BUY PUT JAN-40 UPU-MH OI= 967 at $1.95 SL=1.00

Annotated Chart:




Picked on December 16th at    $42.70
Change since picked:           -1.68
Earnings Date                1/20/04 (unconfirmed)
Average Daily Volume =         986 K
Chart =



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Financial global presence and the convenience of one group for
all trading needs provide customers with the tools needed for
success.

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*********************************************
SPREADS, COMBINATIONS & PREMIUM-SELLING PLAYS
*********************************************

A Mostly Merry Holiday Season
By Ray Cummins

Stocks struggled to a mixed close Wednesday with the technology
segment limiting the market's gains amid weakness in chip and
networking shares.

The NASDAQ rebounded from an early 35-point drop, closing only
2 points lower at 1,921.  In contrast, the Dow Jones Industrial
Average closed the day 15 points higher at 10,145 with Home Depot
(NYSE:HD), Boeing (NYSE:BA) and Wal-Mart (NYSE:WMT) among the best
performers on the blue-chip average.  The broader market S&P 500
index ended up 1 point at 1,076 amid gains in integrated oil and
retail companies.  Advancers outpaced decliners 3 to 2 on the New
York Stock Exchange with trading volume of 1.4 billion shares.  On
the NASDAQ, losers outnumbered winners 6 to 5 on volume of nearly
1.5 billion shares.  In the bond market, the 10-year note was up
7/32 to end the session at 100 17/32.  Its yield closed at 4.18%.

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

SUMMARY OF CURRENT POSITIONS - AS OF 12/16/03

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

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 our subscribers, 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 editor of this section does not take actual positions in any
published plays and the summary comments are 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 in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.


MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE

The Maximum Yield (listed in the summary and with "naked" option
selling plays) 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 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 trade.


Naked Puts
**********

Stock   Strike Strike Cost  Current   Gain    Max    Simple
Symbol  Month  Price  Basis  Price   (Loss)  Yield   Yield

AMAT     DEC    22    22.05  21.32   (0.73)  0.00%   2.04%
EYE      DEC    20    19.65  22.64    0.35   5.21%   1.78%
ICOS     DEC    35    34.55  41.19    0.45   3.81%   1.30%
NVLS     DEC    40    39.20  39.26    0.06   0.35%   2.04%
PHTN     DEC    35    34.25  35.65    0.75   5.41%   2.19%
PMCS     DEC    17    17.10  19.03    0.40   6.88%   2.34%
ANPI     DEC    40    39.05  45.81    0.95   7.86%   2.43%
APPX     DEC    25    24.55  33.15    0.45   6.28%   1.83%
EASI     DEC    42    42.68  55.00    0.70   4.74%   1.64%
GPRO     DEC    25    24.65  31.19    0.35   4.88%   1.42%
INSP     DEC    22    21.85  24.08    0.65   8.33%   2.97%
MGAM     DEC    35    34.60  39.76    0.40   4.33%   1.16%
NEM      DEC    42    41.60  46.13    0.90   5.61%   2.16%
NVLS     DEC    37    36.95  39.26    0.55   4.49%   1.49%
PHS      DEC    50    49.40  64.75    0.60   3.91%   1.21%
UTSI     DEC    30    29.65  36.86    0.35   3.83%   1.18%
APPX     DEC    30    29.50  33.15    0.50   7.22%   1.69%
BRCM     DEC    32    32.10  32.52    0.40   4.65%   1.25%
EASI     DEC    47    46.08  55.00    0.55   4.75%   1.19%
GPRO     DEC    30    29.60  31.19    0.40   5.21%   1.35%
PHTN     DEC    35    34.60  35.65    0.40   4.79%   1.16%
BRCM     DEC    32    32.25  32.52    0.25   4.27%   0.78%
EASI     DEC    50    49.45  55.00    0.55   6.30%   1.11%
FCS      DEC    22    22.25  23.08    0.25   6.38%   1.12%
MICC     DEC    65    64.35  65.51    0.65   6.05%   1.01%
ONXX     DEC    25    24.65  26.79    0.35   7.96%   1.42%
RMBS     DEC    25    24.60  30.05    0.40  10.03%   1.63%
TELK     DEC    20    19.75  21.16    0.25   6.66%   1.27%
AMHC     DEC    45    44.70  47.16    0.30   6.08%   0.67%
FRX      DEC    55    54.70  59.67    0.30   4.89%   0.55%
NPSP     DEC    30    29.75  31.27    0.25   7.44%   0.84%
NTLI     DEC    60    59.65  66.20    0.35   5.72%   0.59%
ONXX     JAN    22    22.00  26.79    0.50   5.66%   2.27%
QCOM     JAN    45    44.25  49.79    0.75   3.64%   1.69%
RMBS     JAN    20    19.50  30.05    0.50   6.56%   2.56%

The recent sell-off made a number of positions "early-exit"
candidates and many of the issues in the portfolio are on
the "watch" list until Friday (options expiration).  Kmart's
(NASDAQ:KMRT) quarterly earnings announcement was a week ago
and the sharp drop in the stock price, below the sold (put)
strike at $30, forced an early exit in the position for a
small loss.


Naked Calls
***********

Stock  Strike Strike Cost  Current   Gain    Max     Simple
Symbol Month  Price  Basis  Price   (Loss)  Yield    Yield

IACI     DEC    37   35.90  31.04    0.40   3.22%    1.11%
WEBX     DEC    25   25.30  17.97    0.30   5.79%    1.19%
MERQ     DEC    50   50.40  46.58    0.40   3.21%    0.79%
SEPR     DEC    27   27.75  23.54    0.25   5.36%    0.90%
TTWO     DEC    40   40.40  29.20    0.40   5.84%    0.99%
CVTX     DEC    25   25.40  13.38    0.40  13.63%    1.57%
TTWO     DEC    37   37.95  29.20    0.45   6.65%    1.19%
CERN     DEC    50   50.30  37.73    0.30   6.08%    0.60%
CVTX     DEC    25   25.45  13.38    0.45  21.60%    1.77%
HYSL     DEC    35   35.40  29.70    0.40   6.95%    1.13%
AZO      DEC    85   85.35  80.88    0.35   4.27%    0.41%
MRVL     DEC    40   40.75  36.69    0.75   5.26%    1.84%
TTWO     DEC    32   32.75  29.20    0.25  11.67%    0.76%


Put-Credit Spreads
******************

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

BRCM    34.62  32.52   DEC  28  30   0.25  29.75   0.25   Open?
BRL     81.14  72.95   DEC  70  75   0.50  74.50  (1.55) Closed
TOL     38.27  39.68   DEC  30  35   0.55  34.45   0.55   Open
TARO    68.59  67.32   DEC  60  65   0.45  64.55   0.45   Open
TECD    36.13  37.47   DEC  30  35   0.60  34.40   0.60   Open
HAR     71.90  69.50   DEC  63  65   0.25  64.75   0.25   Open
SCHN    49.98  55.19   DEC  40  45   0.55  44.45   0.55   Open
NBIX    53.83  53.50   JAN  45  50   0.70  49.30   0.70   Open
NE      37.01  36.56   JAN  33  35   0.30  34.70   0.30   Open
WGO     60.60  60.38   JAN  50  55   0.50  54.50   0.50   Open

Barr Labs (NYSE:BRL) slumped last week after the #1 generic drug
maker Teva (NASDAQ:TEVA) and Andrx (NASDAQ:ADRX) said they would
team up to market birth-control pills in the United States.  The
news led Lehman Brothers and J.P. Morgan to downgrade BRL shares
however the decline was orderly, allowing for an exit well above
the sold strike price and for a much smaller than published loss.
KLA-Tencor (NASDAQ:KLAC), which is currently profitable, Michael's
(NYSE:MIK), and the Semiconductor Hldrs (SMH) position, have been
closed early to limit losses.


Call-Credit Spreads
*******************

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

HDI     45.17  46.11   DEC  50  47   0.25  47.75  $0.25   Open
AMGN    58.14  60.38   DEC  65  60   0.65  60.65  $0.27   Open
SNPS    29.57  33.44   DEC  35  32   0.25  32.75 ($0.69) Closed
AMZN    51.51  49.50   DEC  60  55   0.55  55.55  $0.55   Open
ERTS    42.27  44.47   DEC  47  45   0.25  45.25  $0.25   Open
COF     55.30  56.50   JAN  65  60   0.65  60.65  $0.65   Open
POWI    31.41  33.10   JAN  40  35   0.75  35.75  $0.75   Open
SRCL    44.20  44.95   DEC  50  45   0.45  45.45  $0.45   Open?

The bearish position in Noble (NYSE:NE) was a casualty of the
recent surge in oil service shares but fortunately, we recouped
the "early-exit" loss with a bullish synthetic position (12/7/03
Spreads/Combos).  The bear-call spread in Symantec (NASDAQ:SYMC),
although now profitable, has previously been closed to limit
potential losses.


Synthetic Positions
*******************

No Open Positions


Debit Straddles
***************

No Open Positions


Questions & comments on spreads/combos to Contact Support
*************

NEW POSITIONS

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As with
any new investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your personal skill level, risk-reward tolerance
and portfolio outlook.  In addition, we recommend that you avoid
any trading techniques in which you are not completely comfortable
with the potential capital loss, the necessary adjustments, and
the common entry-exit strategies.  The positions with "*" will be
included in the weekly summary.  Those with "TS" (Target-Shoot)
are below our minimum monthly return, but may offer a favorable
entry price with a limit order, due to the daily volatility of
the underlying issue.

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

BULLISH PLAYS - NAKED PUTS

All of these issues have robust option premiums and relatively
favorable technical indications.  However, current news and market
sentiment will have an effect on these stocks, so review each play
thoroughly and make your own decision about its future outcome.

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

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

**************
FARO - FARO Technologies  $21.93  *** Entry Point? ***

FARO Technologies (NASDAQ:FARO) designs, develops, markets and
supports portable, software-driven, 3-D measurement systems used
in a broad range of manufacturing and industrial applications.
The firm's principal products are the Faro-Arm Control Station
and Control Station Pro (articulated measuring devices), the Faro
Laser Tracker and Laser Control Station and their companion Soft
Check Tool and CAM2 software, respectively, which provide for
computer-aided design (CAD)-based inspection and factory-level
statistical process control.  Faro's products bring precision
measurement, quality inspection and specification conformance
capabilities, integrated with CAD software, to the factory floor.

FARO - FARO Technologies  $21.93

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  JAN 17.5  QEJ MW      0    0.45  17.05   9.1%   2.6% *
SELL PUT  JAN 20    QEJ MD     16    1.30  18.70  15.7%   7.0%


**************
FLML - Flamel Technologies  $26.10  *** Bottom-Fishing Only! ***

Flamel Technologies (NASDAQ:FLML) is a biopharmaceutical company
engaged mainly in the development of two polymer-based delivery
technologies for medical applications.  The company's Micro-pump
technology is a multi-particulate technology for oral ingestion
of small molecule drugs with applications in controlled release,
tastemasking and bioavailability enhancement.  The company has
three major products based on its Micropump technology: Asacard,
a controlled-release formulation of aspirin for the treatment of
cardiovascular disease; Metformin XL, a controlled-release form
of Metformin that is in development for use for the treatment of
Type II diabetes, and Genvir, a controlled-release acyclovir for
the treatment of genital herpes.  In addition, FLML has developed
new herbicide delivery systems and has patented a biomaterial,
ColCys.

FLML - Flamel Technologies  $26.10

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  JAN 20    FLU MD     179   0.30  19.70   5.3%   1.5% *
SELL PUT  JAN 22.5  FLU MX     159   0.90  21.60  11.4%   4.2%


**************
FRX - Forest Labs  $60.05  *** Rally Mode! ***

Forest Laboratories (NYSE:FRX) develops, manufactures and sells
both branded and generic forms of ethical drug products that
require a physician's prescription, as well as non-prescription
pharmaceutical products sold over-the-counter.  The company's
most important U.S. products consist of branded ethical drug
specialties marketed directly, or "detailed," to physicians by
its Forest Pharmaceuticals, Therapeutics and Specialty sales
forces.  The company's many products include those developed by
Forest and those acquired from other pharmaceutical companies
and integrated into Forest's marketing and distribution systems.
Principal products include Celexa, an SSRI for the treatment of
depression; the respiratory products Aerobid and Aerochamber;
Tiazac, a once-daily diltiazem for the treatment of hypertension
and angina; and Infasurf, a lung surfactant for the treatment and
prevention of respiratory distress syndrome in premature infants.

FRX - Forest Labs  $60.05

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  JAN 55    FHA MK    5671   0.75  54.25   3.7%   1.4% TS
SELL PUT  JAN 60    FHA ML    3406   2.25  57.75   8.4%   3.9%


**************
MGAM - Multimedia Games  $40.30  *** Next Leg Up? ***

Multimedia Games (NASDAQ:MGAM) is the leading supplier of
interactive electronic games and player stations to the rapidly
growing Native American gaming market.  The company's games are
delivered through a telecommunications network that links its
player stations with one another both within and among gaming
facilities.  Multimedia Games designs and develops networks,
software and content that provide its customers with a range of
gaming systems.  The company's development and marketing efforts
focus on Class II gaming systems and Class III video lottery
systems for use by Native American tribes throughout the United
States.

MGAM - Multimedia Games  $40.30

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  JAN 35    QMG MG    1339   0.75  34.25   6.5%   2.2% *
SELL PUT  JAN 40    QMG MH     153   2.30  37.70  12.6%   6.1%


**************
MSTR - MicroStrategy  $49.91  *** Consolidation Complete? ***

MicroStrategy (NASDAQ:MSTR) is a global leader in the increasingly
critical business intelligence software market.  Large and small
firms alike are harnessing MicroStrategy's business intelligence
software to gain vital insights from their data to help them
proactively enhance cost-efficiency, productivity and customer
relations and optimize revenue-generating strategies.  The firm's
business intelligence platform offers exceptional capabilities that
provide organizations, in virtually all facets of their operations,
with user-friendly solutions to their data query, reporting, and
advanced analytical needs, and distributes valuable insight on
this data to users via web, wireless, and voice.

MSTR - MicroStrategy  $49.91

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  JAN 40    EOU MH     184   0.35  39.65   3.3%   0.9% TS
SELL PUT  JAN 45    EOU MI     458   1.15  43.85   7.0%   2.6% *
SELL PUT  JAN 50    EOU MJ     302   3.00  47.00  12.8%   6.4%


**************
NCEN - New Century Financial  $37.95  *** Uptrend Intact! ***

New Century Financial Corporation (NASDAQ:NCEN) is one of the
nation's largest specialty mortgage companies, providing first
and second mortgage products to borrowers nationwide through its
operating subsidiaries.  It offers mortgage products to borrowers
who generally do not satisfy the credit, documentation or other
underwriting standards prescribed by conventional mortgage lenders
and loan buyers, such as the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation.  New Century is
committed to serving the communities in which it operates with
fair and responsible lending practices.

NCEN - New Century Financial  $37.95

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  JAN 33.37 NWR MX     459   0.50  32.88   4.4%   1.5% *
SELL PUT  JAN 35    URE MG     538   0.85  34.15   6.4%   2.5%


**************
NFLX - Netflix  $50.49  *** The Rally Resumes! ***

Netflix (NASDAQ:NFLX) is an online entertainment service in the
United States that provides more than 600,000 subscribers access
to a comprehensive library of more than 11,500 movie, television
and other filmed entertainment titles.  The company's standard
subscription plan allows subscribers to have three titles out at
the same time with no due dates, late fees or shipping charges.
Subscribers can view as many titles as they want in a month and
they select these titles at the firm's Website (www.netflix.com)
aided by its proprietary CineMatch technology.  They receive them
on DVD by first-class mail and return them to the company at their
convenience using prepaid mailers.  Once a title has been returned,
Netflix mails the next available title in a subscriber's queue.

NFLX - Netflix  $50.49

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  JAN 40    QNQ MH     831   0.60  39.40   5.5%   1.5% *
SELL PUT  JAN 42.5  QNQ MT     310   1.00  41.50   7.4%   2.4%
SELL PUT  JAN 45    QNQ MI     612   1.65  43.35   9.9%   3.8%


**************
PLMD - PolyMedica  $25.38  *** More Bottom-Fishing! ***

PolyMedica (NASDAQ:PLMD) is a provider of direct-to-consumer
medical products and services, conducting business through its
Chronic Care, Professional Products and Consumer Healthcare
segments.  The company sells diabetes supplies and products,
and provides services to Medicare-eligible seniors suffering
from diabetes and related chronic diseases through its Chronic
Care segment.  Through its Professional Products segment, it
provides direct-to-consumer prescription respiratory supplies
and services to Medicare-eligible seniors suffering from chronic
obstructive pulmonary disease.  It also markets, manufactures
and distributes a broad line of prescription urological and
suppository products.  PolyMedica markets prescription oral
medications not covered by Medicare to its existing customers
through its Professional Products segment.

PLMD - PolyMedica  $25.38

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  JAN 20    PM MD      172   0.25  19.75   4.6%   1.3% *
SELL PUT  JAN 22.5  PM MX      527   0.80  21.70   9.7%   3.7%
SELL PUT  JAN 25    PM ME      170   1.75  23.25  14.9%   7.5%


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

BULLISH PLAYS - CREDIT SPREADS

These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may also be higher than other plays in the same strategy, due to
small disparities in option pricing however, each play should be
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and trading style.

***************
DNA - Genetech  $91.20  *** New Multi-Year High! ***

Genentech (NYSE:DNA) is a biotechnology firm using human genetic
information to discover, develop, manufacture and commercialize
biotherapeutics for significant unmet medical needs.  The company
manufactures and commercializes 10 biotechnology products directly
in the United States.  These include Herceptin, Rituxan, TNKase,
Activase, Cathflo Activase, Nutropin Depot, Nutropin AQ, Nutropin
human growth hormone, Protropin and Pulmozyme.  The company also
licenses several additional products to other companies and its
product development efforts, including those of its collaborative
partners, cover a wide range of medical conditions, including
cancer, respiratory disorders, cardiovascular diseases, endocrine
disorders and inflammatory and immune problems.

DNA - Genetech  $91.20

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JAN-80.00  DNA-MP  OI=4341  ASK=$0.50
SELL PUT  JAN-85.00  DNA-MQ  OI=2731  BID=$1.10
INITIAL NET-CREDIT TARGET=$0.65-$0.75
POTENTIAL PROFIT(max)=15% B/E=$84.35


**************
DIGE - Digene  $38.47  *** Consolidation Complete? ***

Digene (NASDAQ:DIGE) develops, manufactures and markets proprietary
gene-based testing systems for screening, monitoring and diagnosis
of human diseases.  Its primary focus is in women's cancers and
infectious diseases.  The firm has applied its proprietary Hybrid
Capture technology to develop a unique diagnostic test for human
papillomavirus, which is the primary cause of cervical cancer and
is found in greater than 99% of all cervical cancer cases.  In
addition to its HPV Test, the company's product portfolio includes
gene-based tests for detecting chlamydia, gonorrhea, hepatitis B
virus and cytomegalovirus.

DIGE - Digene  $38.47

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JAN-30.00  QDG-MF  OI=10  ASK=$0.40
SELL PUT  JAN-35.00  QDG-MG  OI=80  BID=$1.10
INITIAL NET-CREDIT TARGET=$0.70-$0.80
POTENTIAL PROFIT(max)=16% B/E=$34.30


**************
MRO - Marathon Oil  $31.06  *** Strong Sector! ***

Marathon Oil (NYSE:MRO) is engaged in the worldwide exploration
and production of oil and natural gas; the domestic refining,
marketing and transportation of crude oil and petroleum products
primarily through Marathon Ashland Petroleum, and other related
businesses.  Marathon Ashland is a consolidated subsidiary of
the company that refines, markets and transports crude oil and
petroleum products, primarily in the Midwest, the upper Great
Plains and southeastern United States.

MRO - Marathon Oil  $31.06

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JAN-27.50  MRO-MY  OI=569   ASK=$0.15
SELL PUT  JAN-30.00  MRO-MF  OI=1467  BID=$0.50
INITIAL NET-CREDIT TARGET=$0.35-$0.40
POTENTIAL PROFIT(max)=16% B/E=$29.65


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

BEARISH PLAYS - NAKED CALLS

Based on analysis of option pricing and the underlying stock's
technical background, these positions meet our fundamental
criteria for bearish "premium-selling" strategies.  Each issue
has robust option premiums, a well-defined resistance area and
a high probability of remaining below the target strike prices.
As with any recommendations, these positions should be carefully
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and personal trading style.

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

The sale of uncovered calls entails considerable financial risk,
far more than the initial margin or collateral required to open
the position.  The maximum financial obligation for the sale of a
naked option 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 options must have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  The simple fact is: stocks often experience large price
swings, exponentially increasing the margin maintenance and very
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 price moves in
a volatile manner.  Many professional traders suggest closing the
position when the underlying share value moves beyond the sold
strike, or using a "buy-to-close" stop order at a price that is no
more than twice the original premium received from the sold option.

***************
CECO - Career Education  $37.85  *** Slumping Scholastic! ***

Career Education Corporation (NASDAQ:CECO)) is the world's largest
on-campus provider of private, for-profit postsecondary education
and has a rapidly growing presence in online education.  CEC's
Colleges, Schools and Universities Group operates 51 campuses in
the U.S., Canada, France, the United Kingdom and the United Arab
Emirates and offers master's degree, bachelor's degree, associate
degree and diploma programs in the career-oriented disciplines of
visual communication & design technologies, information technology,
business studies, culinary arts and health education.  The Online
Education Group's AIU Online Division offers master's degree,
bachelor's degree and associate degree programs in information
technology, business administration, visual communication and
education.

CECO - Career Education  $37.85

PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  JAN 45    CUY AI   2,545   0.60  45.60   6.9%   1.3% *
SELL CALL  JAN 42.5  CUY AV   1,186   1.05  43.55   8.9%   2.4%


**************
CRDN - Ceradyne  $35.26  *** Defense Sector Retreat! ***

Ceradyne (NASDAQ:CRDN) develops, manufactures and markets advanced
technical ceramic products and components for industrial, defense,
consumer, microwave communications and automotive applications.
The company derives a portion of its revenues from its traditional
products, which include lightweight-ceramic armor for military
helicopters and microwave tube products.  However, newer products
developed or being developed by Ceradyne for defense, industrial
and consumer applications represent an increasing share of its
business.

CRDN - Ceradyne  $35.26

PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  JAN 45    AUE AI     282   0.40  45.40   5.3%   0.9% *
SELL CALL  JAN 40    AUE AH     435   1.25  41.25  11.6%   3.0%


**************
PPDI - Pharmaceutical Product Dev.  $25.16  *** Mediocre Outlook! ***

Pharmaceutical Product Development (NASDAQ:PPDI) is a global
provider of drug discovery and development services to drug and
biotechnology companies.  The firm offers therapeutic expertise,
advanced technologies and extensive resources for both drug
discovery and drug development.  Its development services include
preclinical programs and Phase 1 to Phase 4 clinical development.
The company also has extensive clinical trial experience across
various therapeutic areas that encompass various parts of the
world, including regional, national and global studies.  Also,
the company offers post-market support services for drugs that
have received approval for market use.

PPDI - Pharmaceutical Product Dev.  $25.16

PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  JAN 27    PJQ AY     352   0.30  27.80   3.7%   1.1% TS
SELL CALL  JAN 25    PJQ AE     354   1.15  26.15   9.9%   4.4%


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

BEARISH PLAYS - CREDIT SPREADS

All of these positions are favorable candidates for "bear-call"
credit spreads, based on the current price or trading range of
the underlying issue and its recent technical history or trend.
The probability of profit from these positions may be higher
than other plays in the same strategy, due to disparities in
option pricing.  However, current news and market sentiment will
have an effect on these issues, so review each play individually
and make your own decision about its future outcome.

**************
CTSH - Cognizant Technology  $41.02  *** Sell-Off Underway! ***

Cognizant Technology Solutions (NASDAQ:CTSH) delivers full life
cycle solutions to complex software development and maintenance
problems that companies face as they transition to e-business.
These information technology (IT) services are delivered through
the use of a seamless on-site and offshore consulting project
team.  The company's solutions include application development
and integration, application management and re-engineering
services.  The company's customers include ACNielsen Corporation,
ADP, Incorporated, Brinker International, Incorporated, Computer
Sciences Corporation, The Dun & Bradstreet Corporation, First
Data Corporation, IMS Health Incorporated, Metropolitan Life
Insurance Company, Nielsen Media Research, Incorporated, PNC
Bank and Royal & SunAlliance USA.

CTSH - Cognizant Technology  $41.02

PLAY (less conservative - bearish/credit spread):

BUY  CALL  JAN-50.00  UPU-AJ  OI=1382  ASK=$0.25
SELL CALL  JAN-45.00  UPU-AI  OI=2360  BID=$0.80
INITIAL NET-CREDIT TARGET=$0.60-$0.70
POTENTIAL PROFIT(max)=14% B/E=$45.60


**************
MERQ - Mercury Interactive  $46.03  *** Revenge Play! ***

Mercury Interactive (NASDAQ:MERQ) is a provider of integrated
performance management solutions that enable businesses to test
and monitor their Web-based applications.  Its software products
and hosted services help Global 2003 companies enhance the user
experience by improving the performance, availability, reliability
and scalability of their Web-based applications.  Its many hosted
services provide its customers with a cost-effective solution that
quickly meets business needs without dedicating significant time
and internal resources.  Its integrated performance management
solutions enable customers to more quickly identify and correct
problems before users experience them.  The company also provides
outsourced load testing and Web performance monitoring services
that complement its software products.

MERQ - Mercury Interactive  $46.03

PLAY (moderately aggressive - bearish/credit spread):

BUY  CALL  JAN-55.00  RQB-AK  OI=3191  ASK=$0.30
SELL CALL  JAN-50.00  RQB-AJ  OI=2388  BID=$1.10
INITIAL NET-CREDIT TARGET=$0.80-$0.90
POTENTIAL PROFIT(max)=19% B/E=$50.80


**************
MXIM - Maxim Integrated Prod.  $47.10  *** Chip Sector Slump! ***

Maxim Integrated Products (NASDAQ:MXIM) designs, develops, makes
and markets a broad range of linear and mixed-signal integrated
circuits, commonly referred to as analog circuits.  The company
also provides a range of high-frequency design processes and
capabilities that can be used in custom design.  Maxim's products
include data converters, interface circuits, microprocessor
supervisors, operational amplifiers, power supplies, multiplexers,
delay lines, real-time clocks, microcontrollers, switches, battery
chargers, battery management circuits, radio frequency circuits,
fiber-optic transceivers, sensors and voltage references.  The
firm's unique products are sold to customers in various markets
including automotive, communications, consumer, industrial control,
instrumentation and data processing.

MXIM - Maxim Integrated Prod.  $47.10

PLAY (moderately aggressive - bearish/credit spread):

BUY  CALL  JAN-55.00  XIQ-AK  OI=3640  ASK=$0.20
SELL CALL  JAN-50.00  XIQ-AJ  OI=3418  BID=$0.95
INITIAL NET-CREDIT TARGET=$0.80-$0.90
POTENTIAL PROFIT(max)=19% B/E=$50.80


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

SEE DISCLAIMER - SECTION 1

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


**********
Watch List
**********

Generally Bearish Candidates

OmniVision Technologies - OVTI - close: 53.93 change: +0.23

WHAT TO WATCH:  Wow!  Shares of OVTI have shot up 400% from their
2003 lows.  The recent top near $68 is an all-time high.  Now
that investors are beginning to take profits in tech issues we've
seen OVTI drop back toward the $50 mark.  A pull back toward $50
would be a 25% haircut from the top.  While the stock is finding
short-term support at $52 a test of the $50 level looks like a
good bet.  Traders can wait for a bounce and try to ride it back
towards the $60 level or look for a breakdown and aim for the
200-dma near $40.00.

Chart=


---

Varian Semiconductor Equipment - VSEA - cls: 39.91 change: -0.77

WHAT TO WATCH:  VSEA is another chip stock that bears watching.
Shares have broken the long-term up trend from last spring.  The
close under psychological support at $40.00 looks like an entry
point for a retest of the 200-dma approaching $35.00 but watch
out for P&F support near $37.00.

Chart=


---

Graco Inc - GGG - close: 40.21 change: +0.16

WHAT TO WATCH:  Pushing near to new all-time highs is GGG.  The
company recently raised their dividends and the stock powered
back over the $40 level.  If GGG can break the $40.50 mark, then
bulls can chase the breakout.  Otherwise, a dip back to the
$39.00 area might be the best place to buy the bounce and then
wait on the breakout to new highs.

Chart=


---

American Standard Co - ASD - close: 97.58 change: +0.18


WHAT TO WATCH:  ASD produces an odd assortment of capital goods
from air conditioning systems, to bathroom and kitchen fixtures,
to vehicle control systems.  Investors have been pushing the
stock higher for months and now it looks primed for a stronger
bout of profit taking.  Watch for a breakdown under the 50-dma
near $95.00.  The easy target is $90 but ASD might actually hit
hold resistance near $87.50.

Chart=



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

Nothing Going
by - Nich Sheldon

Major Indexes were split pretty evenly today, albeit on weak
volume, as 15 closed in the green and 12 closed in the red.

The only index to lose more than one percent was the SOX
Semiconductor Index, which dropped -1.07 percent.  Today marked
the fourth session in a row of declines for the index, and we
suspect that the 450 range might be retested as we enter the new
year.

On a positive note, the RLX S&P Retail Index, recuperated from its
breach of 360 yesterday, rebounding +2.13 percent by the closing
bell.  Traders should note that the RLX has closed over its simple
10-DMA for the first time since December 4th.

The DJUSHB DJ US Home Construction Index tacked on nearly 2
percent on Wednesday, as well as closed over its 10-DMA for the
first time in more than a week's worth of trading sessions.

The OIX Oil Index, XAU Gold and Silver Index, and the DFI Defense
Index all closed more than one percent higher on the day


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