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Daily Newsletter, Sunday, 12/21/2003

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The Option Investor Newsletter                   Sunday 12-21-2003
Copyright 2003, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Going Out At The Top
Futures Market: Opex Extravaganza
Index Trader Wrap: Rollercoaster Week
Editor's Plays: Are We There Yet?
Market Sentiment: Ho Ho Ho...Merry Markets!
Ask the Analyst: See Note
Coming Events: Earnings, Splits, Economic Events


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       WE 12-19        WE 12-12        WE 12-05        WE 11-28
DOW    10278.22 +236.06 10042.1 +179.48 9862.68 + 80.22 +153.93
Nasdaq  1951.02 +  2.02 1949.00 + 11.18 1937.82 - 22.44 + 66.38
S&P-100  540.26 +  8.48  531.78 +  8.27  523.51 +  2.77 +  8.97
S&P-500 1088.66 + 14.52 1074.14 + 12.64 1061.50 +  3.30 + 22.92
W5000  10579.42 +114.94 10464.4 +111.88 10352.6 +  0.38 +253.34
RUT      546.88 -  0.71  547.59 +  8.58  539.01 -  7.50 + 20.58
TRAN    2987.43 +  4.02 2983.41 + 72.83 2910.58 - 10.65 + 75.91
VIX       16.42 +  0.01   16.41 -  0.68   17.09 +  0.79 -  2.68
VXO       16.05 +  0.10   15.95 -  1.39   17.34 +  0.63 -  3.18
VXN       24.89 -  0.97   25.86 -  1.19   27.05 +  1.44 -  3.47
TRIN       1.02            1.02            1.86            1.04
Put/Call   0.80            0.75            0.84            0.69
******************************************************************

Going Out At The Top
by Jim Brown

If you had asked any market pundit last March how they would
have liked the markets to finish the year I doubt you would
have gotten our current results from anybody. Any professional
who suggested on March 12th (7416) that we would see a +40%
gain in the Dow by year end would have been laughed off
the planet. Well at Friday's close we are up +38.59% from
that March low. Add in a +55% jump in the Nasdaq and you
have a spectacular year in normal market terms. Nothing
like finishing the year on a high note and going out at
the top. Wait, you mean the year is not over yet?

Dow Chart - Daily



Nasdaq Chart - Daily



While the year is not over according to the calendar it is
over as far as traders are concerned. The option expiration
climax last week was the crowning touch. On Friday the Dow
came VERY close to 10300 (10293) and very close to not only
the very optimistic upper end of my range but well over most
estimates for the year.

Remember our Guess the Dow contest last January? The average
entry for the high of the year was 9878. Pretty close on the
surface but the range of estimates was from 6970 to 13000.
40% of the readers had estimates for the year's high over
10,000 and only 13% had estimates under 9000. Over 45% of
our readers expected a close under 9000 on 12/31/03. Only
14% expected a year-end close over 10,000.

Any way you cut it the end of 2003 has definitely surprised
the majority of investors. Nobody is complaining but the
next question is where are we going in 2004? The short
story from the bullish analysts you see on TV is a gain of
+10% to +12% for the year. With the Dow at 10275 today that
would give us a range from 11,300 to 11,700 for the end of
2004. I don't know about you but that +1000 to +1400 point
gain would be very boring after the gains in 2003. Assuming
the Dow went straight up it would only need to gain 5.5
points per day to hit the 11,700 level by year end.
Obviously this is not going to happen. To put this in
perspective the average gain since March 12th 2003 has been
12.3 points per day and the markets have been very bullish.
For 2004 bullish analysts are looking for a +4.5% GDP and
about a +12% earnings growth for Q1 and Q2. Those earnings
estimates are trending down slightly. They are also well
below the Q4-2003 estimates of +21.7%. Get the picture?

The bearish commentators range from a 7500 Dow close for
2004 and 9000. I do not believe anybody has a crystal ball
that allows them to see in the future so it is up to us to
decide what we believe.

I think the key above is the 4.5% GDP and 12% quarterly
earnings. Compared to this year those earnings are
positively sparse. The last two quarters we have been
growing at +16% (Q3) to +21% (Q4) for the quarter. How?
Because the comparisons to 2002 were so bad. Any
improvement over 2002 where losses instead of earnings
were common produced a strong percentage gain. With the
strong bounce in 2003 Q3/Q4 it is going to be very hard
to produce any strong gains in 2004 Q3/Q4. It will be
easier in the other quarters but the bar is still a lot
higher.

The main things investors are going to be focused on in
2004 is the economy and the Fed. According to all the
recent reports the economy is alive and well and actually
picking up speed. We just do not know if this is seasonal
4Q speed or a real pickup in the economy. Neither does
the Fed. Based on their latest statement they are far
from convinced the economy is exploding. The comments
about no sustained pickup in employment until late 2005
is very telling. The considerable period statement has
moved the potential for a rate hike to June according to
the Fed Funds Futures. The Fed has effectively stepped
aside and turned us loose to make it on our own. Just like
a dad running beside a kids bicycle the first time without
the training wheels they have turned us loose. It is
up to business now to maintain balance and speed. The
administration has provided us one last burst of momentum
with the $165 billion tax stimulus in the Q1-2004. The
equivalent of the dad pushing us off over the top of a
hill to help with our momentum. It is entirely up to us
to add enough to that momentum to climb the next hill.

Tthe range of movement from last year is probably a
larger range than we could expect for 2004 but at least
a starting place. 2002 closed at 8341. We are up +23% from
that close and at the lows were down -11%. Considering it
was the end of a bear market that -11% drop was not bad.
If we were to see a corresponding -11% drop in 2004 that
would target 9144 as a low using Friday's close as a
starting point. A 23% intra year bounce would take us to
12,638. I think even the most ardent bulls do not expect
another +23% after our +38% rebound from the lows already.
(+23% for the year). I also think all but the most leading
edge prognosticators also expect that we could see more
than -11% downside on a temporary basis.

Normal bull markets have normal corrections of -5% or more
on a routine basis. We have not had a -5% correction in
more than ten months. We are long over due for any serious
profit taking. Using the estimates above and assuming that
most analysts hedge on the upside and downside to avoid
looking stupid later we can speculate on the ranges. The
-11% drop in 2003 was the last gasp of a three-year bear
market where we were already way oversold. This suggests
that a profit taking correction at the end of a long bull
run could be as much as 12%-15% of the index. The normal
retracement level for a strong bullish run is -38.2% of
the run. Using Friday's close a -12% dip would take us
back to 9042. Using the -38.2% retracement bracket of the
gains since the March low takes us to 9194. It should be
stressed that any dip of that magnitude is still just a
correction and not a failure of the new bull market. We
are just speculating in order to avoid being surprised.

If analysts are hedging their bets on the upside then +12%
may be light. Using a +15% gain from Friday's close puts
us at 11,800. This may be very optimistic. Making statistical
projections is one thing but when you compare them to the
charts a different reality appears. That reality based on
the charts shows 11000 to be very strong resistance. It
held for over a year in 2000 with only three short spikes
to about 11300 during that period. To move up from here
the Dow has to break the resistance at 10300 and then even
stronger resistance at 10650. Breaking through that 10650
barrier could be very hard and we should not expect a
serious attempt until late March or early April at best.
If it happens sooner then we are living a charmed life.

Dow Prediction Chart - Weekly



Merging the analysts estimates and the historical charts we
end up with some glaring targets. It appears the downside
risk should be contained in the Dow 9000-9200 range. The
upside may be capped in the 11000-11300 range. Using the
outside ranges that is a 2300 point spread. That is nearly
double the average analyst estimate of the gain (+1200) for
the year. Having the range at twice the gain makes perfect
sense to me. Unfortunately the markets rarely make perfect
sense and if it makes sense there is something wrong. The
anchor on the upside is the election. Investors are cautious
in second term election years because they are afraid of
changes after the election. This historical trend for this
predicts a flat to slightly up market for 2004. The offset
for this trend is the strong economic reports of late and
the Fed blessing for 2004. If the 1Q earnings in April are
strong (over the +12% estimate) then the election curse
could be broken. If they are only "ok" then the curse will
probably prevail. Investors are aggressive when there are
potential rewards. They tend to be conservative when the
rewards are muted.

Many class the 2003 bull market as a flight to garbage
rally. The stocks with the largest gains were the low
priced, highly leveraged issues. Many of those were up
+200% to +400% for the year. The blue chips did not join
the rally until just recently, some as late as October.
This cyclical rally added the extra boost we needed to
break over the small cap resistance seen at 500 on the
Russell-2000.

The last three weeks the small and midcaps have been
lagging the blue chips as funds rotate into the more
liquid blue chips for year end statements and January
exits. Still the Russell has not died. It is only slightly
off its highs and still very healthy. The value stocks are
strong, cyclicals are strong and market breadth refuses to
fade. We are only five real trading days from year end and
four of those days are normally bullish.

The Dow only tacked on +30 points on Friday but was up
+236 for the week. Compared to the weak performance for
the Nasdaq at +2 and -1 for the Russell it was an amazing
showing. The close at 10275 is right on the edge of my
10000-10300 range I was expecting for the rest of the year.
With four of the remaining days (24th, 26th, 29th and 30th)
bullish 65% of the time we "should" remain close to these
highs. Dec-31st has seen the Nasdaq up 29 of the last 31
years but the Dow down 5 of the last 6 years.

The wild cards here are Monday and Tuesday. The last two
days were up strongly on option expiration events with a
help from some strongly bullish economic reports. Monday
has no economic reports. Typically expirations with an
upward bias tend to produce weak Mondays. Tuesday has a
raft of economic reports including Chain Store Sales, GDP,
Personal Income, Consumer Sentiment and Monthly Mass Layoffs.
This suggests we could see some weakness on Monday that is
bought on Tuesday in advance of the four bullish days to
come. The key will be the depth of any weakness. I doubt
we will drop far and would be surprised if we broke 10100.

A word of caution however. There were multiple terror threat
warnings on Friday. Warnings against the northeast, including
NYC and Boston. Warnings against the Vatican where intelligence
suggests there will be an attack on Christmas. More warnings
in Turkey and Saudi Arabia. The US is offering free flights
out of Saudi for American government employees and
recommending all Americans leave the country. Late this
afternoon the number two man in Al-Queda released a tape
claiming a major attack was coming on the American homeland.
Analysts suggested this was more of a propaganda move than
reality but you never know. What we do know is there is an
attack in our future and the longer we go without one the
closer it gets. I mention this because it could drag on
the holiday markets. I do not expect it to push them down
but it could keep them from moving up strongly.

We are setting up for a classic January move. The markets
are poised to see some profit taking on Monday and then
move up into the end of the year. Year-end retirement cash
will begin to flow and hit the markets on the 4th-5th. This
should setup a new market high the first week of January.
The only reason it would fail to occur would simply be the
acceleration of profit taking ahead of the normal average
start on the 5th trading day of the year. Institutions
count on this cash inflow to offset their profit taking
and ease the impact of their exits. We have planned the
trades in the Top-50 Stocks CD to take advantage of this
dip as a buying opportunity.

I heard 2004 referred to by one analyst as the "Year of
Living Dangerously". Most feel a lot of good news is already
priced into the market and they are looking at January as
a barometer of the rest of the year. According to statistics
the first six weeks of the year normally sees the markets
gain +3%. A remarkable achievement considering the average
drop from the January opening high is -750 points over the
last six years. Still +3% is +308 points over the next six
weeks and that puts us right at 10600 with 10650 as strong
resistance as we near the end of the Q4 earnings cycle.

I have vastly overstayed my welcome today and I am sure
the numbers have all run together by now. I am not trying
to scare anyone or produce a bearish outlook because that
is not my desire. I am only trying to lead you through
the possible outcomes for 2004 and more importantly the
first six weeks because that is where the next money will
be made or lost. Once into February we will begin speculating
on March-April. You can't go on a road trip without a map.
It is also foolish to worry about what turn you make onto
aunt Martha's street when you are still 2000 miles away.
Let's keep our eyes on the road immediately ahead and
focus more on avoiding the potholes and finding the next
scenic turnout than worrying about the +15% gain for the
year.

If you have not signed up for the Top-50 Stocks for 2004
and the Top-20 Lottery Picks before close of business on
Monday you will not receive them before the holidays. You
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the January dip/rebound. Do it today!

Enter Very Passively, Exit Very Aggressively!

Jim Brown


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

Opex Extravaganza
Jonathan Levinson

Friday's pre-cash open saw some of the most violent equity price
action I've seen in a long time, with the YM gapping 20 points in
either direction within split-seconds.  A gap and crap open
ensued, and the indices bled lower throughout the day until a
short cycle bottom printed just after 2PM.  Treasuries rose
slightly, gold declined slightly, and the US dollar index moved
back above 88.  For the week, treasuries were bullish, equities
bullish, the US Dollar Index mixed but printing a possible double
bottom, with gold a possible double top.

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 continues to benefit from the universal
consensus that it is going substantially lower.  This type of
unanimity of sentiment tends to occur at significant turning
points, and combined with the weekly double bottom in the 88
area, the probability of a bounce from here is good.  I say this
fully ignoring fundamental and technical arguments to the
contrary, and my own feeling is that any bounce from here should
be corrective.  The price action in gold looks as toppy as the
dollar looks bottomy.  The CRB dropped .30 to close at 260.84,
with strength in lean hogs, cotton, coffee and copper futures.


Daily chart of February gold


I never thought I'd be harping on weakness in gold above 410, and
given that it’s among the sole assets about which I have truly
bullish fundamental feelings, readers should note my diligent
professional and technical detachment.  The daily cycle
oscillators have been bumping and grinding their way along the
top of their ranges as price extends in a well developed bearish
rising wedge.  Support is now at 408 (tested Friday), resistance
415 for the February contract.  It lost 1.40 to close at 409.70,
still within the wedge but nearing its apex.  The lack of loft on
the lower trendline has me expecting a gap down move, and
combined with Friday's bounce in the dollar, Monday could see it
break.


Daily chart of the ten year note yield


Ten year bonds have been behaving relatively predictably, just
advancing day after day.  The weekly print for the ten year note
yield (TNX) was bearish, confirming the daily cycle oscillator
downphase in progress.  The TNX dropped .8 bps to close at 4.133%
on Friday, targeting 4.1% support.


Daily NQ candles


The NQ resumed its position as the laggard among equities after
having led to the upside on Thursday as the rotation out of the
speculative darlings continued.  The NQ dropped 4.50 points, a
small correction following Thursday's upside blowout.  The small
gain left a bearish tint to an otherwise bullish doji, retracing
roughly half of Thursday's move and bouncing to close higher.
The drop was insufficient to reverse the bullish kiss printed on
the daily cycle oscillators, but a new buy signal was not issued
either.  Assuming more pinning of price for the unwinding of
December options on Monday morning, we could see more churning
before the market gives us an indication as to the direction of
its next big move.  On the daily chart, there is little to
persuade me strongly in either direction.


30 minute 20 day chart of the NQ


The NQ provided relatively little selling on its 30 minute cycle
downphase commencing from Thursday afternoon, and while downside
at the open looks most likely for Monday, the Macd shows signs of
turning up from above the zero line.  With price wedging itself
into a pennant, this cyclic ambiguity is not surprising.  Given
the force of the upside and downside moves seen this week, new
positions at current levels are speculative in the extreme, and
while the market feels awfully toppy to me, the technical picture
is not nearly so clear.

Pennant resistance is at 1445, support at 1400, with shorter term
resistance at 1433, support at 1425.


Daily ES candles


The ES printed a doji on Friday, revealing a lack of commitment
on the part of both buyers and sellers.  The intraday high, a 52
week high, was at 1090.25 in the early going, and the ES bled
from there.  However, it bounced nicely off the upper wedge
trendline, now support at 1082, a stunning show of strength after
the week's rise from 1064 support.  The daily cycle oscillators
are toppy and trying to move higher, but until 1090 falls, bulls
will have to wait it out.


20 day 30 minute chart of the ES


The chop has become unreadable to me, and the clearest pattern is
the rising channel I've overlaid on the 30 minute ES.  The 30
minute cycle downphase delivered shockingly little downside, and
whether this strength persists once the op-ex influence is
removed remains the main technical question for the weekend.  The
30 minute cycle downphase projects more selling for Monday, as
does the toppy short cycle upphase on the 150-tick ES chart
below.


150-tick ES


The entire picture since Thursday looks suspiciously head and
shoulders-esque to me, and 1082 should be point of no return
for bulls.  Again, however, the picture this week has been many
things, but it has not been clear.


Daily YM candles


The daily YM shows Friday's touch of the upper flag resistance
line, as well as the bounce from its lows above 10,200.  Price
continues to hug the upper Bollinger band, and bull or bear, it
looks due for a correction.


20 day 30 minute chart of the YM


Zooming in on the bear flag, we see the same trendline touch and
failure.  However, the 30 minute cycle hesitated in the last hour
on Friday, and Monday morning will tell us whether that cycle is
going to test the lower support line or not.

Seasonality would dictate a Santa Claus rally.  The stratospheric
gains from Thursday approaching op-ex Friday could imply further
upside as call writers square their positions.  That said, the
gains since Dow 10K was crossed were quick and violent, and a
pullback could be equally so.  With low volume price swings
expected and the national terror alert level raised, Monday will
be a great day to be patient and careful.


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

Rollercoaster Week
Jonathan Levinson

The week opened with a Sunday night upside explosion following a
day's worth of "We got him" bytes, followed by a selloff that
lasted the day, followed by a tentative bounce that erupted into
hysterical buying on Thursday and Friday morning.  The remainder
of Friday was spent churning along near the recent top.  52 week
highs were printed by the Dow and SPX, while the Nasdaq was the
notable laggard.

The Dow gained 30 points or .3% on Friday, a 2.4% gain on the
week and 23.2% for the year.   The SPX was down .52 of a point on
Friday, a 1.4% gain for the week and 23.7% gain for the year,
while the Nasdaq dropped 5.16 points Friday or .3%, a .1% gain
for the week and a 46.1% gain on the year.

The volatility indices provided plenty of action during this op-
ex week, with the VXO crashing to new lows in the mid 14's on
Thursday.  The VIX printed similarly outrageous lows, while the
QQV and VXN were merely very oversold.  The exceptionally low
volatility raises the question of whether a severe market
correction is lurking behind the next sell program, or whether a
new bull market is in progress.  I do not believe that we are,
but many no doubt will disagree.


Weekly COMPX candles


The weekly view of the Nasdaq shows the index holding above the
lower rising wedge trendline by the skin of its teeth.  For the
past two weeks, we've had false breaks below it, always within
the context of a negative oscillator divergence on the 10 week
stochastic.  By the same token, those doji hammers are bullish
reversal candles along rising support, and so until the 1930
level is broken on a closing basis, the trend remains up.  The
oscillators are toped out and bending lower, but a clear,
unequivocal, short-n-hold sell signal has yet to be given.


Weekly INDU candles


The weekly chart of the Dow, however, is an entirely different
kettle of fish: wedge breakout or wedge fakeout?  Throwover or
bull?  The week's strong break above the rising trendline we've
been using for months can mean different things to different
traders.  It's either a breakout or it isn't, and that's the best
we can conclude for now.  The weekly oscillators ticked higher,
trending in overbought, and while the Macd is no long diverging,
the 10 week stochastic is still at a lower high than it was at in
June.  If next week is positive, then 10,450, followed by 10,600
is the next stop.  I sold out of equities at Dow 10,600 in early
2002, and I never thought we'd see those levels again.   It's
only fitting that I raise the possibility of its occurring so
soon thereafter.


Daily OEX candles


The daily chart of the OEX shows Friday's fractional pullback to
close at 540.26.  The sweeping rise along the top of the upper
Bollinger band is most impressive and most due for a pullback.
The daily cycle oscillators are overbought and running out of
racetrack, but they're not in a downphase yet either.  535 is
first support, and any pullback needs to break through that level
in order to initiate a new downphase.


20 day 30 minute chart of the OEX


The 30 minute OEX has been accelerating to the upside in a rising
channel for the past three weeks, and the exhaustion of more than
half of the 30 minute cycle downphase on Friday for less than a 1
point correction is very bullish. However, the closing candle
leaves the slight suggestion of the right side of a head and
shoulders top, and for that reason, Monday's open will be
crucial.  Any further downside from the 30 minute downphase could
trigger the head and shoulders breakdown to the 535-6 area, while
more upside could abort the downphase and imply a test back above
the 540 level.


Daily QQQ candles


QQQ has been much weaker than the OEX for the past two weeks, and
for that reason the daily cycle is not only not toppy, but is in
fact verging on a new upphase from a higher low.  The lower
rising support line has been in play far more than for the OEX,
but it has held without serious challenge.  36 is Bollinger band
and confluence resistance, and I don't expect to see it fall
without a fight.  34.80 is downside support.


20 day 30 minute chart of the QQQ


QQQ is coiling into a neutral pennant, also sporting a remarkably
week 30 minute cycle downphase.  Another uptick on Monday morning
could kick off a run to 35.80-36 resistance, while a move lower
will challenge 35.20 support on the way to 34.80.

The cyclical picture is mixed, and it's at times like these that
patience is a trader's best friend.  A new rally from here should
have good upside, while a breakdown should be good for a very
substantial correction.  With the weekly, daily and 30 minute
cycles all in states of varying uncertainty following this epic
op-ex week, it's far wiser to wait for support or resistance to
fail before committing to a direction.

Happy holiday season to all, and we'll see you on Monday.


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

Are We There Yet?

You probably did not even need to open this article today
to know what I am planning. I had several readers email me
on Thr/Fri asking if it was time yet.

We should be very close to a market top. Very close but
there are still several normally bullish days ahead. Four
of the next seven days are typically bullish. Add in the
first couple days of January and that is a lot of buying
pressure even in a very overbought market.

I want to play a laddered DJX put but the options are
too expensive today. With expiration Friday behind us we
need a couple days of market activity for the prices to
stabilize. I suspect Monday will be flat to down so that
should give us the cooling off period we need.

I am looking at the Feb-100 puts, DJV-NV, currently $1.60.
With the Dow at 10278 today we could see those decline to
$1.40 next week. However, that decline may be offset by
any decline in the market.

The beauty here is the potential for a rebound on Tuesday
that continues for a week. I can't believe those words are
flowing from my fingers as I type this. With only three
red candles since Nov-24th and the Dow at new 52-week highs
it is almost inconceivable that we will go higher BUT we
have a very good track record for the next seven days.

With the Dow at 10278 I would hope for a dip under 10200
and then a rebound. I doubt we will be that lucky. Probably
the best we can hope for is a dip under 10250 before the
dip buyers arrive.

I want to use 10250, 10300, 10350, 10400 as the trigger
points. I would find it very unlikely we hit 350 and 400
but if we do I want to add to my short position. I am
looking to end up with a total of 10 contracts if we do
hit the 400 level.

Here are the trigger levels but it is important to remember
we only want to enter the trade at 102.50 after a dip below
and a rebound to that level. We do not want to enter it on
a drop. Put premiums increase when the index is dropping
and decrease when rising.

If we do not dip below that 102.50 level on Monday and
move higher instead then I would reluctantly enter the
higher triggers as hit. Hopefully it will not happen
that way. I am hoping we do not hit 10300 until
Wednesday or later.

Buy 3 DJX 100 puts DJV-NV with a trade at 102.50
Buy 3 DJX 100 puts DJV-NV with a trade at 103.00
Buy 2 DJX 100 puts DJV-NV with a trade at 103.50
Buy 2 DJX 100 puts DJV-NV with a trade at 104.00

I am not putting a stop loss on this trade so don't buy
more than you can afford to lose. If we blow out the top
we may not get back to 10000 before the premium decays.
With the average January drop at -750 points a bounce
to 10500-10600 would nearly negate the play potential.
This is very unlikely considering the current over
extension but anything is possible. Heck they might
capture Osama.

If the Dow moves down from here and never rebounds we
will just be out of luck with no entries.

The exit target will be Dow 9700. Optimistic? Yes,
but well within range assuming Osama does not surrender.

I will update this play in the market monitor as it
progresses.

DJX Chart - Daily


DJX Chart - Weekly




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

Play Recaps

Priceline.com (PCLN) Put play $17.33

Despite the bullish week in the markets PCLN finished the
week right where it started and up only +30 cents for the
week. The holiday season is a peak travel and booking time
for PCLN and 4Q earnings will be critical. This is an April
Put with plenty of time to run.

http://members.OptionInvestor.com/editorplays/edply_121403_1.asp


Powerball

The profit taking in the Nasdaq continues to shrink our profits
with another decline across the board. With the last four days
of the year normally bullish for the Nasdaq I am hoping for
a rebound in some of the ITM positions. If you have these
positions I would make sure your stop losses are in place
and do not let this decline any further. We have already
seen the profit drop from $1175 three weeks ago to only
$370 this week. That is a serious decline and I hope most
of you have already taken profits.

It would have taken $1,255 to buy one contract of each on
January-2nd. Any bets on what this will be worth on 12/31/03

Powerball Chart



The profit high of $1175 was hit on Friday November 28th.

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

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

Good Luck

Jim Brown


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

Ho Ho Ho...Merry Markets!
- J. Brown

The Santa Claus rally has come early this year.  Traditionally
investors look for the markets to rise in the last two weeks of
the year and the first two weeks of the year.  The latter half of
this move is traditionally part of the January effect.

Contributing to this historical trend of a Santa Claus rally is
the fund industry's need to appease their current customers and
that means window dressing.  Money managers are going to be
dressing up their portfolios for the year-end statements.  That
means selling the losers and buying the winners.  Thus we can
probably expect current trends to merely extend their runs toward
December 31st.

Then of course we have the early January flush of cash for the
industry as investors dump what's left over from their Christmas
bonuses into their 401(k)s.  Overall this is the premium time to
be a bull within the best six months of the year.

However, astute traders might make a note in the sudden sentiment
change evidenced in the COT report (see below).  After weeks of
just churning sideways both commercial and small traders have
opened their wallets to open new positions.  There has been a
flush of new long and new shorts but the most striking
development is the flip flop in commercial trader's e-mini
positions, which have reversed from net long to net short.  This
could be indicative of the professional traders also expecting a
first quarter pull back of significant size.

We'll also note that small traders have suddenly turned very
bearish on the DJ futures.  Sounds like someone is trying to pick
a top.


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

Market Averages

DJIA ($INDU)

52-week High: 10293
52-week Low :  7416
Current     : 10278

Moving Averages:
(Simple)

 10-dma: 10068
 50-dma:  9823
200-dma:  9149



S&P 500 ($SPX)

52-week High: 1091
52-week Low :  788
Current     : 1088

Moving Averages:
(Simple)

 10-dma: 1073
 50-dma: 1053
200-dma:  983



Nasdaq-100 ($NDX)

52-week High: 1453
52-week Low :  795
Current     : 1426

Moving Averages:
(Simple)

 10-dma: 1408
 50-dma: 1411
200-dma: 1259



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

No change.  The volatility indices remain near multi-year lows,
which of course signals a market top being formed (eventually).

CBOE Market Volatility Index (VIX) =  16.42 +0.26
CBOE Mkt Volatility old VIX  (VXO) =  16.05 -0.20
Nasdaq Volatility Index (VXN)      =  24.89 +0.36


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.80        988,767       792,798
Equity Only    0.61        791,236       481,898
OEX            0.80         72,757        57,998
QQQ            2.51         42,937       107,891


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

Bullish Percent Data

           Current   Change   Status
NYSE          75.3    + 0     Bull Confirmed
NASDAQ-100    65.0    - 2     Bear Confirmed
Dow Indust.   80.0    + 0     Bull Correction
S&P 500       81.2    + 0     Bull Confirmed
S&P 100       81.0    + 1     Bull Correction


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-dma: 0.92
10-dma: 1.01
21-dma: 1.04
55-dma: 1.07


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


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

Market Internals

            -NYSE-   -NASDAQ-
Advancers    1424      1449
Decliners    1384      1640

New Highs     417       152
New Lows       14        17

Up Volume    943M      816M
Down Vol.    901M      992M

Total Vol.  1876M     1838M
M = millions


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

Commitments Of Traders Report: 12/16/03

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

Finally!  The commercials are finally putting some money to work
and we're seeing strong increases in both long and short positions.
New longs soared about 50K contracts while new shorts jumped about
40K contracts.  Overall, commercials remain net short.  Small
traders have also increased their net short positions but remain
net long.


Commercials   Long      Short      Net     % Of OI
11/18/03      393,893   414,442   (20,549)   (2.5%)
12/02/03      394,531   414,223   (19,692)   (2.4%)
12/09/03      396,882   420,859   (23,977)   (2.9%)
12/16/03      448,103   460,670   (12,567)   (1.4%)

Most bearish reading of the year: (111,956) -  3/06/02
Most bullish reading of the year:   18,486  -  6/17/03

Small Traders Long      Short      Net     % of OI
11/18/03      147,842    80,047    67,795    29.7%
12/02/03      154,788    85,776    69,012    28.7%
12/09/03      172,178    99,484    72,694    26.8%
12/16/03      172,947   113,704    59,243    20.7%

Most bearish reading of the year:  (1,657)- 5/27/03
Most bullish reading of the year: 114,510 - 3/26/02


E-MINI S&P 500

We are seeing the same surge of activity in the e-minis.
Commercial traders opened another 35K long contracts but opened
72K new short contracts, tipping the scales from long to short.
In contrast the retail traders reduced their shorts and opened
another 35K longs.


Commercials   Long      Short      Net     % Of OI
11/18/03      249,286   264,083    (14,797)   (2.9%)
12/02/03      283,199   268,833     14,366     2.6%
12/09/03      294,006   288,385      5,621     1.0%
12/16/03      330,273   361,316    (31,043)   (4.5%)

Most bearish reading of the year: (354,835)  - 06/17/03
Most bullish reading of the year:  133,299   - 09/02/03

Small Traders Long      Short      Net     % of OI
11/18/03       95,119    61,975    33,144    21.1%
12/02/03     119,555     77,609    41,946    21.3%
12/09/03     142,173     76,171    66,002    30.2%
12/16/03     177,193     73,694   103,499    41.3%

Most bearish reading of the year: (77,385)  - 09/02/03
Most bullish reading of the year: 449,310   - 06/10/03


NASDAQ-100

Again, we're seeing new money from the commercial traders.
NDX futures have seen a bump in net longs and net shorts from
both professionals and small traders.  Commercials remain
net short and small traders remain net long.


Commercials   Long      Short      Net     % of OI
11/18/03       35,608     49,689   (14,081) (16.5%)
12/02/03       35,569     48,552   (12,983) (15.4%)
12/09/03       39,612     51,443   (11,831) (13.0%)
12/16/03       61,343     73,153   (11,810) ( 8.8%

Most bearish reading of the year: (21,858)  - 08/26/03
Most bullish reading of the year:   9,068   - 06/11/02

Small Traders  Long     Short      Net     % of OI
11/18/03       32,034    10,356    21,678    51.3%
12/02/03       21,594     9,429    12,165    39.2%
12/09/03       25,842    10,228    15,614    43.3%
12/16/03       28,676    15,197    13,479    30.7%

Most bearish reading of the year: (10,769) - 06/11/02
Most bullish reading of the year:  19,088  - 01/21/02

DOW JONES INDUSTRIAL

Commercials are hedging their bets on the DJ futures.  Both
longs and shorts saw a bump of about 3K contracts each.
Meanwhile, small traders have turned decidedly bearish. The
surge of new shorts has produced the most bearish reading
in the DJ futures since 2001.


Commercials   Long      Short      Net     % of OI
11/18/03       20,746    11,080    9,666      30.4%
12/02/03       21,128    12,379    8,749      26.1%
12/09/03       20,378    11,934    8,444      26.1%
12/16/03       23,509    13,880    9,629      25.8%

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

Small Traders  Long      Short     Net     % of OI
11/18/03        5,655     8,607   (2,952)   (20.7%)
12/02/03        6,667     9,302   (2,635)   (16.5%)
12/09/03        6,858    12,006   (5,148)   (27.3%)
12/16/03        9,497    19,633  (10,136)   (34.8%)

Most bearish reading of the year: (10,136) - 12/16/03
Most bullish reading of the year:   8,523  -  8/26/03

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


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

Due to technical difficulties, the Ask the Analyst column will be
posted on Monday, December 22nd, 2003.


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

-----------------
Earnings Calendar
-----------------

Symbol  Co               Date           Comment      EPS Est

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

ARRO   Arrow International   Mon, Dec 22  -----N/A-----       N/A
CAG    ConAgra Foods, Inc.   Mon, Dec 22  Before the Bell    0.49
RIMM   Research In Mtn Lmtd  Mon, Dec 22  After the Bell     0.17
SVU    Supervalu Inc.        Mon, Dec 22  Before the Bell    0.42


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

AM     American Greetings    Tue, Dec 23  Before the Bell    0.70
MU     Micron Technology     Tue, Dec 23  After the Bell    -0.06


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

None


------------------------- THUSDAY -----------------------------

None


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

None


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

Symbol  Co Name              Ratio    Payable     Executable

SSYS    Stratasys Inc.            3:2      Dec  22nd   Dec  23rd
EDMC    Education Management Corp 2:1      Dec  22nd   Dec  23rd
DFG     Delphi Financial Grp, Inc 3:2      Dec  22nd   Dec  23rd
NEOG    Neogen Corporation        5:4      Dec  31st   Jan   2nd
KSWS    K-Swiss Inc               2:1      Dec  31st   Jan   2nd
ACET    Aceto Corporation         3:2      Jan   2nd   Jan   5th
AAP     Advance Auto Parts Inc    3:2      Jan   2nd   Jan   5th
JCI     Johnson Controls, Inc     2:1      Jan   2nd   Jan   5th
CLBK    Commercial Bankshares Inc 2:1      Jan   2nd   Jan   5th



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

Christmas week is here and the U.S. markets will close early on
both Wednesday and Friday.  Look for a flurry of economic reports
just before the holiday with personal income and spending, new
Michigan sentiment numbers, durable orders and new home sales.


==============================================================
                       -For-

----------------
Monday, 12/22/03
----------------
None


-----------------
Tuesday, 12/23/03
-----------------
Personal Income (BB)       Nov  Forecast:    0.4%  Previous:     0.4%
Personal Spending (BB)     Nov  Forecast:    0.7%  Previous:     0.0%
GDP-Final (BB)              Q3  Forecast:    8.2%  Previous:     8.2%
Chain Deflator-Final (BB)   Q3  Forecast:    1.7%  Previous:     1.7%
Mich Sentiment Rev (DM)    Dec  Forecast:    91.0  Previous:     89.6


-------------------
Wednesday, 12/24/03
-------------------
Durable Orders (BB)        Nov  Forecast:    0.6%  Previous:     3.3%
Initial Claims (BB)      12/20  Forecast:     N/A  Previous:     353%
New Home Sales (BB)        Nov  Forecast:   1110K  Previous:    1105K


------------------
Thursday, 12/25/03
------------------
None


----------------
Friday, 12/26/03
----------------
None


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


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Contact Support
The Option Investor Newsletter                   Sunday 12-21-2003
Sunday                                                      2 of 5


In Section Two:

Watch List: Gifts for Bulls and Bears
Call Play of the Day: GD
Dropped Calls: QLTI
Dropped Puts: FD


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

Gifts for Bulls and Bears

Amgen Inc - AMGN - close: 61.85 change: +0.26

WHAT TO WATCH:  Is this an entry point for aggressive bulls in
biotech giant AMGN?  The stock has broken out of its most recent
bearish trend of lower highs and lower lows.  However, while it
has climbed back above the $60 level, shares still have
resistance at 62.50 and the simple 200-dma just overhead.

Chart=


---

Quest Diagnostic - DGX - close: 69.00 change: -1.19

WHAT TO WATCH:  DGX failed twice at the $75 level in early
December and it's been a steady trend downward ever since.
Buyers mounted another rally mid-month but couldn't break back
above the $73 level.  Now DGX has broken support at $70 and looks
headed for the $65 mark.  Watch out for its 50-dma near $68.50

Chart=


---

Entergy Corp - ETR - close: 56.40 change: +0.48

WHAT TO WATCH:  ETR is an electric utility that's seen is stock
power higher after bottoming near $51 in mid-November above its
200-dma.  Now the stock has broken above very strong resistance
at $55.00 and pushed to what looks like new all time highs.  The
stock does have a dividend yield of 3.2% and could account for
investors' interest in the stock.

Chart=


---

Kohl's Corp - KSS - close: 45.06 change: -0.99

WHAT TO WATCH:  After two months of declines it looked like the
bearish trend was finally broken Wednesday-Thursday of last week.
Unfortunately for shareholders KSS rolled right back over at the
$46 level.  Bears might want to consider new short positions
again if KSS breaks $45.00.

Chart=


---

Wyeth - WYE - close: 41.00 change: +0.53

WHAT TO WATCH:  Drug stock WYE appears to be on the rebound.  The
last week and a half have produced a steady trend of higher lows
and it has broken its trend of lower highs.  WYE is approaching
its descending 50-dma as well as minor resistance near $42.
Traders should also watch for the 200-dma near 43.00.  There is
plenty of resistance above it but a breakout could send shorts
covering.

Chart=



----------------------------
RADAR SCREEN - more to watch
----------------------------

MRK $44.36 - Look for a breakout above $45 and its 50-dma.  Bears
might want to consider new shorts under $43.00.

INTC $30.57 - Despite the strength in the SOX recently, INTC
looks like a put play.  Watch for a breakdown under $30.00.

GDT $60.28 - There is plenty of strength here in medical device
maker GDT.  A bounce from the $58 level might be buyable.

HSY $76.05 - Shares of Hershey appear to be melting.  The rally
has slowly eroded and now HSY looks ready to test the 200-dma.

AAPL $19.70 - The break under the $20 mark is a definite
psychological blow to investors.  Watch for AAPL to break its
200-dma just below before initiating short positions.


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********************
THE PLAY OF THE DAY
********************

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

General Dynamics - GD - close: 88.78 chg: +0.20 stop: 83.00

See details in play list




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

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


CALLS
^^^^^

QLT Inc - QLTI - close: 18.59 chg: +0.06 stop: 17.67

QLTI did bounce like we were expecting it too but not enough.
We've been cautious on this play since it failed strongly at $20
a several days ago.  Since then we're seeing a trend of lower
highs develop.  We'd rather exit here and put our money to work
somewhere else.

Picked on December 07 at $18.86
Change since picked:     - 0.27
Earnings Date          10/23/03 (confirmed)
Average Daily Volume:      1.1  million
Chart =



PUTS
^^^^

Federated Dept. Stores - FD - cls: 45.90 chg: -0.43 stop: 47.51

We're feeling a little gun shy with FD.  The stock has not
stopped us out yet and shares did slip back under the $46 level
on Friday, which means it could be building a trend of lower
highs.  Our concern is that next week, the Christmas holiday
week, is normally a bullish one.  Retail investors will be
focused on Christmas shopping and retail stocks might get a
boost, whether they deserve it or not.  If you're still
interested in following FD, look for a drop back under the $45 or
$44 levels.

Picked on December 15 at $44.95
Change since picked:     + 0.95
Earnings Date          11/12/03 (confirmed)
Average Daily Volume:       1.7 million
Chart =



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

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

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

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


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

Please read our disclaimer at:
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Contact Support
The Option Investor Newsletter                   Sunday 12-21-2003
Sunday                                                      3 of 5


In Section Three:

Current Calls: ADI, HOV, QCOM
New Calls: GD, GILD
Current Put Plays: CTSH, NSM, XL
New Puts: None


! Holiday Schedule Notice !

Please note that the Option Investor Newsletter will not
be publishing any new option plays or updated option plays
on Thursday, December 25th through Sunday, December 28th.


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

Analog Devices - ADI - close: 44.35 change: -0.77 stop: 43.00

Company Description:
Analog Devices is a leading maker of analog (linear and mixed-
signal) and digital integrated circuits (ICs), including digital
signal processors.  The company's broad line of ICS incorporate
analog, mixed-signal and digital signal processing technologies
that translate real-world phenomena such as pressure,
temperature, and sound into digital signals.  ADI's products are
used in communications equipment (40% of sales), computers and
peripherals, and medical and scientific instruments.  Among ADI's
more notable customers are Motorola, Dell, Lucent, and Sony.

Why we like it:
The past two days' action in the Semiconductor sector (SOX.X)
appears to have been strongly influenced by options expiration.
Thursday's sharp rally took ADI back over the $45 level, but that
move was quickly reversed on Friday, with the stock trading below
$44 on an intraday basis before bouncing a bit at the close.  The
stock still managed to hold inside the rising channel, but
Friday's action was disappointing.  This is why we initiated
coverage with a $45.75 trigger.  If Thursday's bounce was a
fluke, then the stock would have a hard time satisfying that
trigger, just as we saw on Friday.  ADI could still pull off the
rally that we're expecting, so we'll follow the same plan of
action.  Wait for the trigger to be hit and then take momentum
entries on the initial breakout or wait for a subsequent pullback
near $44 to provide entry.  The reason we want to wait for the
pullback is that we want to force the stock to prove that it has
the strength to move higher.  Keep stops set at $43.

Suggested Options:
Shorter Term: The January 45 Call will offer short-term traders
the best return on an immediate move, as it is currently at the
money.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the March 50 Call.  This
option is currently out of the money, but should provide
sufficient time for the stock to move higher without time decay
becoming a dominant factor over the short run.  More conservative
long-term traders looking for more insulation from time decay
will want to use the March 45 Call.  Our preferred option is the
January $45 strike.

BUY CALL JAN-45*ADI-AI OI=5251 at $1.75 SL=0.80
BUY CALL JAN-50 ADI-AJ OI=2906 at $0.40 SL=0.00
BUY CALL MAR-45 ADI-CI OI=1353 at $3.40 SL=1.75
BUY CALL MAR-50 ADI-CJ OI=1472 at $1.55 SL=0.75

Annotated Chart of ADI:



Picked on December 18th at   $45.12
Change since picked:          -0.77
Earnings Date               2/17/04 (unconfirmed)
Average Daily Volume =     3.30 mln


---

Hovnanian - HOV - close: 88.25 change: -0.15 stop: 82.50

Company Description:
Hovnanian Enterprises, Inc. was founded in 1959 by Kevork S.
Hovnanian, Chairman, and is headquartered in Red Bank, New
Jersey. The Company is one of the nation's largest homebuilders
with operations in Arizona, California, Maryland, New Jersey, New
York, North Carolina, Ohio, Pennsylvania, South Carolina, Texas,
Virginia and West Virginia. The Company's homes are marketed and
sold under the trade names K. Hovnanian, Washington Homes,
Goodman Homes, Matzel & Mumford, Diamond Homes, Westminster
Homes, Fortis Homes, Forecast Homes, Parkside Homes, Brighton
Homes, Parkwood Builders, Summit Homes and Great Western Homes.
As the developer of K. Hovnanian's Four Seasons communities, the
Company is also one of the nation's largest builders of active
adult homes. (source: company press release)

Why We Like It:
Homebuilders have been big winners for investors in 2003 and
expectations are for a strong performance in 2004 as well.
Investors have been constantly willing to buy the dips.
Fortunately, with the leaders in the group still trading with
P/E's in the 10 to 13 range there is room for more price
appreciation.

We like HOV not only for its strong trend (and earnings to back
up that trend) but they've also announced a 2-for-1 split
recently.  The split should take place in March.  We are a tad
bit disappointed that HOV didn't display more strength this week
with the DJIA and S&P 500 hitting new highs but the DJUSHB index
remains perched just under resistance at 600.  Likewise, HOV is
just under resistance at 90.  More conservative traders might do
best waiting for HOV to trade above the $90 mark before opening
any positions.  More aggressive traders can look for another
bounce from is rising 50-dma.

Suggested Options:
Bullish traders should probably consider the January and February
calls.  Our time frame is short-term, just 2-3 weeks, so our
choice is the January 90's.

BUY CALL JAN 85 HOV-AQ OI= 896 at $5.90 SL=3.25
BUY CALL JAN 90*HOV-AR OI=1347 at $3.20 SL=1.60
BUY CALL JAN 95 HOV-AS OI= 968 at $1.45 SL=0.75

Annotated Chart:



Picked on December 16 at $87.49
Change since picked:     + 0.76
Earnings Date          12/08/03 (unconfirmed)
Average Daily Volume:      827  thousand
Chart =


---

Qualcomm, Inc. - QCOM - cls: 51.03 chng: -0.45 stop: 48.00

Company Description:
Based on its proprietary CDMA technology, QCOM is engaged in
developing and delivering digital wireless communications
services.  The company's business areas include integrated CDMA
chipsets and system software and technology licensing.  QCOM owns
patents that are essential to all of the CDMA wireless
telecommunications standards that have been adopted or proposed
for adoption by the worldwide standards-setting bodies.
Currently, QCOM has licensed its CDMA patent portfolio to more
than 80 telecommunications equipment manufacturers around the
world.

Why we like it:
Helped along by the broad market rally on Thursday, shares of
QCOM came roaring back from the sharp drop on Monday, using the
10-dma ($49.78) as the springboard for that advance.  That rally
brought the stock right back to the top of its rising channel and
with options expiration clouding the picture on Friday, QCOM
stalled at the upper channel line.  Volume is likely to be light
next week, but with the bulls feeling frisky, the stock just
might be able to give us an early Christmas present of a breakout
through that resistance.  Momentum traders can consider new
positions on a breakout over $52, while those looking for a
better entry can target a dip and rebound from the $49-50 area,
which should now be solid support.  With the possibility that
price action will be muted during the holiday-shortened week,
we'll keep our stop set at $48.

Suggested Options:
Shorter Term: The January 50 Call will offer short-term traders
the best return on an immediate move, as it is currently at the
money.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the April 55 Call.  This
option is currently out of the money, but should provide
sufficient time for the stock to move higher without time decay
becoming a dominant factor over the short run.  More conservative
long-term traders will want to use the April 50 Call.  Our
preferred option is the January $50 strike.

BUY CALL JAN-50*AAO-AJ OI=18804 at $2.80 SL=1.40
BUY CALL JAN-55 AAO-AK OI=10137 at $0.65 SL=0.30
BUY CALL APR-50*AAO-DJ OI= 7875 at $4.90 SL=3.00
BUY CALL APR-55 AAO-DK OI=14783 at $2.65 SL=1.25

Annotated Chart of QCOM:



Picked on December 11th at   $50.14
Change since picked:          +0.89
Earnings Date               2/04/04 (unconfirmed)
Average Daily Volume =     9.23 mln



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

General Dynamics - GD - close: 88.78 chg: +0.20 stop: 83.00

Company Description:
General Dynamics, headquartered in Falls Church, Va., employs
approximately 66,900 people worldwide and anticipates 2003
revenues of $16.1 billion. The company has leading market
positions in mission-critical information systems and
technologies, land and amphibious combat systems, shipbuilding
and marine systems, and business aviation.
(source: company press release)

Why We Like It:
The recent headlines about renewed fears regarding potential
terrorist attacks over the holiday season might be drawing some
investor attention back to the military/defense sector.  GD
should grab their eye with a low P/E near 14 and a string of
positive announcements regarding new deals over the last couple
of months.  The stock is also getting some positive analyst
attention.  In early December Bank of America upgraded GD to a
"buy" from "neutral" and raised their price target to $95.  The
analyst at BAC was encouraged by recent improvements in GD's used
business jet and strong potential revenue upside for its
military-related divisions.

We also like the strong price action as GD has broken out above
resistance in the $87.75-88.00 region.  Meanwhile, GD's point-
and-figure chart is showing a fresh triple-top breakout and a
price objective near $118.  We see the next resistance is the $96
to $100 range.  We like the stock at current levels but traders
have various strategies they can employ.  The easiest is to wait
for GD to trade over the $90 level.  An alternative, should there
be any profit taking, would be to buy a dip in the $87-88 range.
We're going to start the play with a stop loss at 83.00 and raise
it as GD moves higher.

Suggested Options:
We like the January and February strikes.  Our favorite would be
the January 85 calls.

BUY CALL JAN 85 GD-AQ OI=3964 at $4.70 SL=2.50
BUY CALL JAN 90 GD-AR OI=3055 at $1.60 SL=0.80
BUY CALL FEB 85 GD-BQ OI=1025 at $5.60 SL=3.00
BUY CALL FEB 90 GD-BR OI= 680 at $2.60 SL=1.30

Annotated Chart:



Picked on December 21 at $88.78
Change since picked:     + 0.00
Earnings Date          01/21/04 (unconfirmed)
Average Daily Volume:      1.0  million
Chart =


---

Gilead Sciences - GILD - close: 59.40 change: +0.65 stop: 55.00

Company Description:
Gilead Sciences, Inc. is a biopharmaceutical company that
discovers, develops and commercializes therapeutics to advance
the care of patients suffering from life-threatening diseases
worldwide.  The company has seven commercially available
products. Its research and clinical programs are focused on anti-
infectives, including anti-virals and anti-fungals.  GILD
endeavors to grow its existing portfolio of products through
proprietary clinical development programs, internal discovery
programs and an active product acquisition and in-licensing
strategy.  Products include Viread, Emtriva, AmBisome, Hepsera,
Tamiflu, DaunoXome and Vistide.

Why we like it:
Beginning with a JP Morgan downgrade in the middle of September,
GILD gapped sharply lower and then spent the next 2 months
working its way lower.  The 200-dma ($54.99) finally provided
some solid support near $50 in late October, and then again in
early November near $52 before the stock actually staged a decent
rally up to the $60 area.  At that point, it was still a bit too
early for the stock to reverse directions, but here at the end of
the year, the picture has changed significantly.  Since the end
of September, we can see on the chart below that there is a
classic Head & Shoulders pattern at work and on Friday, GILD
closed right at the descending trendline from the 9/19 high.
Then there's the ascending trendline connecting the lows from the
late October, early November and the past week and we have a nice
neutral triangle that looks ready to pop to the upside.  But it
gets better.  The late November rally generated a PnF Buy signal
with a bullish price target of $80.

If this pattern resolves to the upside (as we expect) then GILD
ought to have easy upside to the $65-66 area, with solid
potential to continue up to the $69-70 area where the stock
stalled out last summer.  Normally, we'd use a trigger above $60
to get us into the play, but the potential for a better entry on
a pullback before the breakout is too good to pass up.  The
breakout entry can still work for momentum traders, but we're
also going to recommend entering the play on a pullback and
bounce in the vicinity of $57-58.  Note the convergence of moving
averages (10-dma at $56.95, 20-dma at $57.81, 50-dma at $56.83)
which ought to work together to provide strong support.  One
thing working against momentum entries is resistance near $61.50,
which coincides nicely with the bearish resistance line on the
PnF chart at $62.  We'll probably see GILD struggle a bit getting
through that level, and it will be easier to ride out the
volatility if we've managed an entry at a significantly lower
level.  On the PnF chart, it would take a print at $55 to create
a new Sell signal, providing nice confirmation of the 200-dma as
critical support.  Set stops at $55.

Suggested Options:
Shorter Term: The January 60 Call will offer short-term traders
the best return on an immediate move, as it is currently at the
money.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the February 65 Call.  This
option is currently out of the money, but should provide
sufficient time for the stock to move higher without time decay
becoming a dominant factor over the short run.  More conservative
long-term traders looking for more insulation from time decay
will want to use the March 60 Call.  Our preferred option is the
January $60 strike.

BUY CALL JAN-60*GDQ-AL OI=7608 at $2.10 SL=1.00
BUY CALL JAN-65 GDQ-AM OI=4635 at $0.70 SL=0.35
BUY CALL FEB-60 GDQ-BL OI=7410 at $3.30 SL=1.75
BUY CALL FEB-65 GDQ-BM OI=1212 at $1.50 SL=0.75

Annotated Chart of GILD:



Picked on December 21st at   $59.40
Change since picked:          +0.00
Earnings Date               1/27/04 (unconfirmed)
Average Daily Volume =     4.23 mln



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Cognizant Tech. - CTSH - cls: 42.40 chng: -1.13 stop: 46.50*new*

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.

Why we like it:
Volatility was the name of the game for CTSH last week, as the
stock kicked off the week with a sharp plunge below support near
$44.  That drop found buyers near the $41 level and by early
Friday, the stock was back to testing $44 again, this time as new
resistance.  That resistance held (reinforced by the 10-dma) and
CTSH fell to close near its low of the day, giving up more than
2.5% on Friday.  Even if the bulls can push through that
resistance next week, they'll have to deal with the 50-dma
($44.75) and then  the 20-dma ($45.41).  So a failed bounce in
the $44-45 area looks like an attractive entry proposition ahead
of more anticipated weakness.  Entering on a breakdown under last
week's lows does not appear to be an advisable strategy, with
near-term support likely to be found at the 100-dma ($39.87).
Lower stops to $46.50.

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 in the money.

BUY PUT JAN-45*UPU-MI OI=1912 at $3.90 SL=2.50
BUY PUT JAN-40 UPU-MH OI=1080 at $1.55 SL=0.75

Annotated Chart of CTSH:



Picked on December 16th at    $42.70
Change since picked:           -0.30
Earnings Date                1/20/04 (unconfirmed)
Average Daily Volume =         997 K


---

National Semiconductor - NSM - cls: 38.76 chng: -0.62 stop: 41.40

Company Description:
National Semiconductor Corporation designs, develops,
manufactures and markets an array of semiconductor products,
including a line of analog, mixed-signal and other integrated
circuits (ICs).  These products address a variety of markets and
applications, including amplifiers, personal computers, power
management, local and wide area networks (LANs and WANs), flat
panel and cathode ray tube displays and imaging and wireless
communications.  The Company's operations are organized in five
groups: the Analog Group, the Displays Group, the Information
Appliance and Wireless Group, the Wired Communications Group and
the Custom Solutions Group.

Why we like it:
Between the action on Monday and Thursday, the Semiconductor
index (SOX.X) was really the leader of the weakness and then
strength in the overall Technology market.  By early Tuesday, the
SOX had broken below the $475 support and the bears were
drooling.  But just like so many times in the past several
months, the bulls bought enough to provide support and then
charged forward on Thursday, bowling the bears over as the SOX
ran right up to the 50-dma.  What's interesting this time around
is that the 50-dma ($497.56) acted as resistance for the past two
days.  This is the first time we've seen bullish price action
held back by the 50-dma since early March.  Mimicking the action
in the SOX, NSM plunged on Monday, hit a new recent low near $36
and then rebounded into the end of the week.  The difference is
that price action didn't get anywhere near the 50-dma, which is
up at $40.56.  Instead, price action stalled at the 10-dma
($39.30) and price action is looking weak despite the fact that
daily oscillators have started to turn up.  Another failed bounce
below the 50-dma can be used for fresh entries.  Look for
confirmation of weakness with the SOX rolling below its own 50-
dma.  Maintain stops at $41.40.

Suggested Options:
Aggressive short-term traders can use the January 35 Put, while
those with a more conservative approach will want to use the
January 40 put.  Our preferred option is the January 40 strike,
as it is already in the money.

BUY PUT JAN-40*NSM-MH OI=2936 at $2.85 SL=1.25
BUY PUT JAN-35 NSM-MG OI=1668 at $0.85 SL=0.40

Annotated Chart of NSM:



Picked on December 9th at     $38.70
Change since picked:           +0.06
Earnings Date                3/04/04 (unconfirmed)
Average Daily Volume =      3.87 mln


----

XL Capital - XL - close: 74.52 change: +0.46 stop: 75.51

Company Description:
XL Capital Ltd, through its operating subsidiaries, is a leading
provider of insurance and reinsurance coverages and financial
products to industrial, commercial and professional service
firms, insurance companies, and other enterprises on a worldwide
basis. As of September 30, 2003, XL Capital Ltd had consolidated
assets of approximately $39.6 billion and consolidated
shareholders' equity of approximately $7.4 billion.  (source:
company press release)

Why We Like It:
It has been a rough couple of quarters for XL.  Shares have been
stuck in a downtrend since June.  Shares were hammered even
harder in mid-October when the company issued an earnings
warning.  The stock did manage to rebound back to the $75 level
and tried to fill the gap but was turned back by its simple 200-
dma.  The very next day XL warned again.  Estimates for 2004 had
been $9.28 a share.  Now those estimates are 9.05 to 9.25.

We've been harping on XL's relative weakness in relation to the
markets and its peers in the IUX insurance index.  Over the last
several days the IUX has continued to push to new highs, much
like the Industrials.  XL has only managed to return to overhead
resistance.

We've been suggesting that more aggressive traders use a failed
rally at the $75.00 mark as a potential entry point for bearish
positions.  It looks like we just got it.  XL traded up to 74.92
and started to roll over on Friday afternoon.  Investors might
want to wait for XL to trade under $74 to confirm the move.
We're still suggesting more conservative traders wait for XL to
move back under the $72 level.

The recent trading action is starting to look like a head-and-
shoulders pattern, with Friday's top being the right shoulder.
Should this be the case, then the H&S pattern would be projecting
a price target of $67 (once the neckline is broken).  This just
happens to coincide with our exit range from $65-67.

Suggested Options
We like the January puts.  Our favorite is the January 75s.

BUY PUT JAN 75*XL-MO OI=1876 at $2.10 SL=1.10
BUY PUT JAN 70 XL-MN OI=4130 at $0.55 SL= --

Annotated Chart:



Picked on December 09 at $72.60
Change since picked:     + 1.92
Earnings Date          01/28/04 (unconfirmed)
Average Daily Volume:       1.2 million
Chart =



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

None


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The Option Investor Newsletter                   Sunday 12-21-2003
Sunday                                                      4 of 5


In Section Four:

Leaps: Winding Down
Traders Corner: Ho-Ho-Ho!  More Money For Our Christmas Stocking


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*****
LEAPS
*****

Winding Down
By Mark Phillips
mphillips@OptionInvestor.com

Was I surprised to see that big move upwards in the DOW last week?
Yes and no.  While I've had it in mind that a rally to the 10,300
area was possible, I really didn't expect to see it happen so
quickly.  At the same time, the SPX charged to new highs for the
year, hitting 1091 on Friday.  In both indices, we haven't been
here since May of 2002 and we're now starting to come into strong
levels of resistance.  Of course the bulls have impressed me in
recent weeks, with numerous solid resistance levels already
scaled.

For me, the cornerstone of my market view has changed
substantially over the past few weeks, as I have put a lot of
effort into looking at the progress of the different indices in
terms of currencies other than the dollar.  No matter how I look
at it, I come away with the same conclusion -- since June, all the
gains in the market have been a result of currency action, not
from investors giving a higher valuation to the market.  Of
course, that doesn't mean the trend won't continue with the dollar
continuing to weaken and the stock market continuing to rise.  But
I have the distinct impression that the dollar is due for an
oversold bounce up to maybe the $91-92 area, gold is due to
correct down near the $390 area and at the same time I think we'll
see a topping of this rally.

A reader sent me a note last week, complimenting me on the series
of articles on the DOW vs. different currencies and noting that
similar commentary came from James Dines (the Dines Letter) this
spring.  Basically Mr. Dines was predicting the relationship that
I've been able to identify after the fact.  So while it is
encouraging to hear that I'm in good company and apparently on the
right track, it looks like I've got a fair amount of work yet to
do before I can claim to have a functional crystal ball.

After the Saddam rally evaporated on Monday, last week was all
about options expiration and I have to say I'm impressed with the
strength shown on Thursday and the lack of weakness on Friday.
Next week will essentially be about unwinding any remaining
positions from December's expiration and then squaring up any
remaining positions to head into the holiday flat or hedged.
We're likely to see an upward bias, but I doubt we'll be able to
push through any substantial resistance levels with volume
expected to be light.  On the other hand, there's unlikely to be
much weakness either, once again due to the light volume.

As I've been saying for the past couple weeks, beginning with
Monday's trading, it is time to start turning our focus on other
issues for the remainder of the year.  Light volume always makes
for more difficult trading due to the fact that the market can be
moved more easily on a Buy or Sell program of any decent size.  If
you must focus on the market over the next two weeks, then my
suggestion is to focus your energy on avenues that are the most
productive.  Among these are reflecting on trading performance
from 2003 and making decisions about what to continue doing in
2004 and what to change.  Another great use of the time would be
in looking more at the big picture and thinking about where things
appear to be headed for the year ahead.  Along those lines, I'll
leave you with the following chart, which I've shared on several
occasions in the past, updating it as necessary.

Monthly Chart of the S&P 500



This bearish divergence on the SPX is just getting wound tighter
and tighter with the monthly Stochastics getting pushed deeper
into overbought territory.  We see much the same picture with the
DOW as well.  The key will be to see how much upside is in store
next year.  If the SPX can take out the 1175 resistance level,
then the bearish divergence will be nullified.  Similarly, if the
DOW can push through 10,700, the bearish divergence will be
eliminated as a factor.  While both scenarios are certainly
possible, I do not give them a high degree of likelihood, at least
not until we see a substantial pullback -- something we have not
seen since March.  With the VIX pushing to new multi-year lows
every week, it is hard to see how sentiment can get much more
bullish.

I'll spend some time looking at the big picture for our visit next
weekend, but for now I think we need to wrap this up and get to
the plays.  There's a lot of territory to cover there this week
and I better get to it.

Portfolio:

WMT - In terms of price action, I couldn't be happier with our WMT
play, as we entered near the top of the large neutral wedge
pattern and the stock obliged by breaking down hard.  The late
November bounce rolled over just below the 20-dma (currently
$53.41) and it looks like we're getting another rollover below
that average right now.  Since the sharp drop in early December,
WMT hasn't been able to move above $54, so it seems sensible to
lower our stop to that level.  In a couple more days, we'll have
the 30-dma ($54.38) below that level, reinforcing resistance in
our favor.  Last week's sharp plunge below the $51 level had me
hoping for a break below the ascending trendline (now right at
$50), but it wasn't to be.  If WMT can hold below our stop on this
upward correction (that already seems to be running out of steam),
then we'll look for a favorable exit in the $48-50 area on the
next downward cycle.  As I've noted on several occasions, WMT has
been a big disappointment to me in terms of the price performance
of the LEAPS.  With more than a $5 move in our favor and our
chosen LEAPS now in the money, all I can conclude is that the
price on those LEAPS was artificially high when we initiated our
position.

SBUX - Can you say boring?  SBUX certainly isn't setting any speed
records, but the stock is holding up fairly well, as the 50-dma is
drawing near to give us another bump upwards.  Steady as she goes
is the way to play this one.  Dips near the $31 level can still be
used for entry.  Note that we're raising our stop to $27.50 this
weekend.  That's a bit above both the 200-dma and the bottom of
the channel, but both of those measures of support should catch up
long before any price action could threaten them.

QQQ - This is precisely why I didn't want an entry on a breakdown.
After last week's drop that gave us our entry, the QQQ managed to
pull itself together and is once again lurking just below strong
resistance at $36.  There's definitely an upside bias into the end
of the year and all we can do is hope that resistance holds until
the bears come out of hibernation in January.  The first clear
sign of weakness will come from the QQQ breaking its rising
trendline connecting the lows of the past 3 months, which is
currently at $34.50.  Isn't it interesting how the "breakdown"
that gave us our entry saw a bounce the next day right on that
trendline?  Next up after that violation will be the 100-dma,
which is currently just under $34.  If you're still looking for an
entry, I would feel good about an entry on a failure to push above
$36 over the next couple weeks.

DJX - To say I'm chagrined over my DJX play would be a bit of an
understatement.  No sooner do we get into the play than it
explodes upwards.  Are the "big boys" reading my column and taking
advantage of me?  GRIN  In all seriousness, I'm looking at the
rally last week as a real gift.  I'm personally in the process of
building a substantial DJX put position in my own accounts,
looking for a substantial decline following the first full week of
January.  Part of my expectations come from the historical pattern
of January weakness for the broad markets and part comes from an
expectation of a bounce in the dollar.  If you've read my recent
musings on the DOW rally, I feel it is primarily a currency-driven
rally.  Unwind the currency weakness and you unwind the rally,
right?  I don't expect any strong rebound in the dollar, just
enough to work to our benefit, as the $91-92 area for the DX00Y
should be rock-solid resistance.  So my recommendation is to take
advantage of the current strength in the DJX to initiate new
bearish positions into the end of the year - all the way up to
$103.50 if necessary.  For those of you that have followed Jim's
ladder plays on the DJX in the past, I strongly suspect he'll be
setting another one up in the Editor's Play column this weekend.
This is one of those rare times when I think that strategy could
work very well in a LEAPS play as well, as the historical
resistance in the $102.50-103.50 should be very strong.  I'll
maintain a stop at $104 and abide by it if hit.  But my
inclination following that unfortunate (and surprising) event will
be to look for an even better entry in the $105-106 area.

Watch List:

SMH - The sharp move upwards out of the gate last Monday almost
gave us an entry into our bearish SMH play.  In all honestly, I'm
glad it didn't push a little higher before the melt-down, as the
SMH came back strong on Thursday and with the daily Stochastics
looking strong, I think we'll get another run at resistance, which
should start to get strong in the $42.50 area.  We're looking to
target an entry in the $42-43 area, so provided the rally
continues into the holiday but without any real strength, odds are
good that we'll get our entry point before the year is out.  After
entry, initial stops will be placed at $46, which is far enough
over the recent highs that it should be out of reach unless the
Semiconductor stocks have another major upward leg in store for
early in 2004.

NEM - After the initial dip back near $45, NEM consolidated
throughout the week right up until Friday.  While there wasn't
much weakness in the price of gold heading into the weekend (the
February contract is holding just below $410), NEM shed a healthy
2.72%, right in line with the 2.67% slide in the XAU index.
Remember that gold stocks have been outperforming the metal in
recent months, so it is entirely sensible for the gold stocks to
see more weakness than the actual metal -- this is entirely normal
in terms of profit taking and we wouldn't even get concerned about
the health of the trend until we saw both the XAU and NEM violate
their 200-dmas.  For the XAU, that would be down at $84 (versus
Friday's $102.49 close), while NEM would have to break below
$35.44 to call its trend into question.  In the meantime, we'll
keep our eye out for more weakness between now and mid-January to
drop NEM into our desired target zone, the top of which is at $40.
Take note of the fact that weekly Stochastics are just starting to
decline from overbought territory.  They may not make it to
oversold, but while they are pointing down, it is a safe bet that
we've got the right focus by looking to buy in on a dip and bounce
from support.

QCOM - There's just too much strength in shares of QCOM for us to
get a chance at an entry yet.  Even last week's dip found strong
support above the midline of the rising channel.  Oscillators are
looking extended and with the 200 week moving average looming just
overhead at $53.67, chasing to the upside would not be prudent.
I'm still willing to play the upside, but only if we can get a
pullback to the bottom of the channel near $46.  Otherwise we'll
just have to let it go without us.  Note that we're unlikely to
get a solid pullback between now and the first full week in
January.  But a profit-taking drop after that point in time could
be just what we need to get that entry point.  After entry, we'll
place our stop at $43, as that is the level that would have to be
traded to generate a PnF Sell signal.

Radar Screen:

GENZ - With another rebound off the 200-dma and a move through the
50-dma, GENZ looks like it could make a solid run at that $52
resistance, right at the bottom of the channel that was broken to
the downside back in late October.  More important than the actual
price action - which currently looks bullish - is the picture on
the weekly chart, where both the Stochastics and MACD have turned
bullish.  I still want to see how the stock performs as it
approaches that $52 resistance level, but for right now, I'm
cooling on the idea of playing it to the downside.

Closing Thoughts:

With the exception of the possibility for a continued upward drift
into the end of the year, I think we can safely say that 2003 is
in the bag.  I've got 2 more days in my personal trading calender.
After 12/23, I won't be opening a broker applet again until the
date ends with 2004.  I think the best trade suggestion I can
offer for the next 2 weeks for those that really want to play is
to take advantage of any continued broad market strength to build
a DJX put position.  Beyond that, I hope you are all planning on
stepping completely away from the screens for a few days during
the holidays.  Volume will be light and action is likely to be a
bit artificial.  Besides that, no amount of profit can replace the
opportunities we lose by not giving our loved ones the time and
attention they deserve.  That is the most important thing any of
us can do over the next couple weeks.  At least in my never-to-be-
humble opinion.

Those of you that know me, know that I practice what I preach.
After I finish writing on Wednesday, I'll be offline until Monday,
December 29th.  That means that I'll be writing next week's LEAPS
column on Wednesday.  In order to meet the publishing schedule, it
will be a bit on the light side.  That's a big part of why I went
so hog wild with new Watch List plays this weekend.  None of the
plays listed should be actionable before next year rolls around,
but I wanted you to have plenty of time to chew on them before we
need to take action.

I frequently opine the frustration of finding good LEAPS plays,
due to the fact that so many of the really exciting growth stories
in the current market do not offer LEAPS.  So I don't mind telling
you that putting together a more varied list for the End-of-Year
Renewal project was refreshing.  I can't speak for the other
writers, but I actually found some stocks that look really
attractive to me, each on their own merits.  I'm sure each of the
other contributors managed to find a nice selection of winners as
well.  Those of you that have been with me for awhile will be
astounded to note that of my 10 selections, there isn't a short
play in there!  That ought to knock more than a couple of you back
on your heels.  At any rate, if you haven't signed up for the
annual renewal package, let me encourage you to do so this
weekend.  I think it will be the best Christmas present you can
give yourself for 2004.

Merry Christmas To All!

Mark


LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
SBUX  11/24/03  '05 $ 30  ZOS-AF  $ 4.30  $ 5.00  +16.28%  $27.50
                '06 $ 30  WSP-AF  $ 6.40  $ 6.90  + 7.81%  $27.50


Puts:
WMT   10/03/03  '05 $ 55  ZWT-MK  $ 5.10  $ 6.10  +19.61%  $ 54.00
                '06 $ 55  WWT-MK  $ 7.20  $ 7.70    6.94%  $ 54.00
DJX   12/09/03  '04 $ 96  YDK-XR  $ 5.70  $ 4.20  -26.32%  $104.00
                '05 $ 96  ZDK-RR  $ 7.10  $ 5.60  -21.13%  $104.00
QQQ   12/09/03  '05 $ 32  ZWQ-MF  $ 2.65  $ 2.15  -18.87%  $ 38.00
                '06 $ 32  WD -MF  $ 3.70  $ 3.30  -10.81%  $ 38.00


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
NEM    10/05/03   $40          JAN-2005 $ 40  ZIE-AH
                            CC JAN-2005 $ 35  ZIE-AG
                               JAN-2006 $ 40  WIE-AH
                            CC JAN-2006 $ 35  WIE-AG
QCOM   11/16/03   $45          JAN-2005 $ 45  ZLU-AI
                            CC JAN-2005 $ 40  ZLU-AH
                               JAN-2006 $ 45  WLU-AI
                            CC JAN-2006 $ 40  WLU-AH
SNDK   12/21/03   $50-51       JAN-2005 $ 45  XWS-AK
                            CC JAN-2005 $ 40  XWS-AJ
                               JAN-2006 $ 45  YSD-AK
                            CC JAN-2006 $ 40  YSD-AJ



PUTS:
SMH    08/24/03  $42-43        JAN-2005 $ 40  ZTO-MH
                               JAN-2006 $ 40  YRH-MH
EK     12/21/03  $27           JAN-2005 $ 25  ZEK-ME
                               JAN-2006 $ 25  WEK-ME
HD     12/21/03  $37-38        JAN-2005 $ 35  ZHD-MG
                               JAN-2006 $ 35  WHD-MG


New Portfolio Plays

None

New Watchlist Plays

EK - Eastman Kodak Company $24.56  **Put Play**

It is hard to find a clearer example of a company that squandered
its industry dominance over the past several years than EK.
Losing major battles on 2 critical fronts, the company is quite
simply fighting for its survival.  Grossly underestimating the
potential of digital photography to cut into their bread and
butter business, the company failed to devote the necessary
resources to carve out their own niche in this industry that is
now growing at a rapid pace.  EK is now desperately trying to play
catchup, but they are several steps behind the competition and now
needing to establish a market-leading presence.  It will be a
steep uphill battle, with entrenched goliaths like Sony, Panasonic
and Canon already sitting pretty.  The other major front that has
created problems for EK is in its battle to be the dominant
provider of print film.  Their primary competition has come from
Fuji and in terms of market share and quality of product, Fuji has
not been an easy mark.  If anything, we can say that EK has lost
significant ground and is desperately trying not to lose any more.
For a steadily growing enterprise, I'd say EK's P/E of 19.6 is
reasonable, but EK is not a growth story - it is stagnant to
shrinking.  Looking at the price chart, we can see the stock has
been in a persistent downtrend since late 1998, with each rally
being turned back at the descending trendline, now just below $31.
For nearly 2 years, the stock found steady support in the $26-27
area, so September's sharp break below that level was a serious
blow.  We can now look for that former support to now be strong
resistance, which also coincides with the top of the late-
September gap at $27.  For the past several weeks, EK has been
trading in gently sloping downtrend and it had the look of a bull
flag.  Sure enough, that flag broke to the upside on Friday on
strong volume.  My hope is that this bullish move will have enough
follow-through to get up to our desired entry target at $27.  If
we can get it, that entry should provide a nice ride down to at
least $20 by the end of 2004.  It won't be a quick move and it
won't be without the volatile bullish moves to undo the severe
near-term oversold conditions.  But we've certainly got a good
technical and fundamental basis for playing the downside here.
After entry, we'll use a fairly wide initial stop at $31 and trail
it just above that descending trendline until the stock breaks
back under $23, at which point we can start to get more aggressive
with the stop.

BUY LEAP JAN-2005 $25 ZEK-ME
BUY LEAP JAN-2006 $25 WEK-ME

HD - Home Depot, Inc. $35.50  **Put Play**

Amazing as it may seem in light of the astounding rally in Housing
stocks over the past year, shares of HD have been in a broadly
descending trend since early 2000.  That's right, on the weekly
chart, HD has yet to come anywhere near breaking the pattern of
lower highs and lower lows, as it continues to move within its
descending channel.  The upper edge of that channel is just
dropping below $39 and is fast approaching the November highs near
$38.  Pulling out the retracement brackets, we can see that the
62% retracement of the decline from February-2002 to January 2003
comes in at $40.19.  The 38% retracement of the decline from the
January 2000 high comes in at $39.07.  So with all those levels of
potential resistance converging in the $38-40 area, and weekly
Stochastics (10,5,3) already into bearish decline along with
bearish divergence (higher price highs and lower price highs),
this looks like an excellent place to stake a claim on a bearish
position.  That said, it won't be an easy downward path, as there
is some solid support near $34 and then stronger support in the
$30-31 area, with the 200-dma now rising to just below $32.  But
this is one that I think has the potential to really move big in
our favor for two reasons.  Consumers are going to have to come to
terms with declining disposable income next year and there will be
no new wave of refinancing at new low interest rates to fuel
liquidity.  That will put downward pressure on all home-
improvement related expenditures.  But the other factor is that HD
is no longer what we would call a growth story - that role has
been taken over by Lowe's.  HD is barely managing to keep growth
in double digits, while Lowe's is running at close to 25% growth
year-over-year.  If things slow down, I expect HD to get hit the
hardest.  We'll target entry in the $37-38 area and set stops at
$41.  While I'd like to target a decline to the midline of the
descending channel (currently $26), I think that may be a bit too
aggressive, so we'll take our cues from the retracements of the
2003 rally.  The 50% retrace is at $29 and the 62% retrace is at
$26.90.  So let's set our target at $28-29, as $28 seems to be a
strong level of support as well.  This is another play that has
the potential to deliver nicely in the year ahead, but we're
likely to have to endure a fair amount of volatility on the way
down.

BUY LEAP JAN-2005 $35 ZHD-MG
BUY LEAP JAN-2006 $35 WHD-MG

SNDK - Sandisk Corporation $60.99  **Call Play**

To say this is an aggressive bottom-fishing play would be a gross
understatement.  There, now that I've gotten that out of the way,
let's talk about the merits of this play.  SNDK was one of the
leading stocks throughout 2003, rising more than five-fold from
the $15 area to the mid $80s in an amazing near-vertical channel.
That channel broke to the downside in late November and then
really got moving to the downside in early December.  Let's look
at some background -- SNDK is in a firm leadership role in the
rapidly growing flash memory market and with the rapid adoption of
all kinds of consumer electronics devices (PDAs, digital cameras,
MP3 players, etc.) that require flash memory cards, SNDK rode that
wave higher throughout the year.  It appears that much of the
catalyst for the severe profit taking was due to some negative
comments from INTC on their flash memory business (which I
consider to be irrelevant) and talk of slowing demand and
increased price competition in this arena.  That sent the stock
tumbling on huge volume down to the $53 area.  Call me crazy, but
I still think we are in the early stages of the adoption of
digital devices that will require the flash memory SNDK provides.
With revenue growth running at close to 100% year-over-year, SNDK
appears to have lots of upside potential and I think we'll easily
see $100/share in 2004 and once that century mark is reached, I
think we can look for a split announcement.  In strong growth
stocks like SNDK, we hope and pray for major downside corrections
like we've seen in the past month, as they give us entry points
with manageable risk.  Believe it or not, I don't think the
downside has completely run its course, but we're close.  Looking
at the daily chart, we can see that the 200-dma is looming just
below $50, and the 50% retracement of the April-November rally is
at $51.84.  The stock staged an impressive rebound last week, but
clearly the trend is still down.  Note that the weekly Stochastics
are still headed straight down and there ought to be at least one
more leg to the decline before the stock manages to put in a
bottom for the next upward leg.  I'm looking for an entry off of a
bounce in the $50-51 area, but only after the weekly Stochastics
(10,5,3) enter oversold territory and at least begin to slow their
descent.  If price falls through our target before the Stochastics
bottom, then we'll simply look for a lower entry point.  We're
playing for a major gain next year, so we're going to start out
with a wide stop at $43.50, just under the 62% retracement of this
year's rally.  That's a much wider stop than I normally advocate,
but given the potential for a home run, I think the risk is
warranted.  I told you it was going to be an aggressive play!

BUY LEAP JAN-2005 $55 XWS-AK
BUY LEAP JAN-2005 $50 XWS-AJ **Covered Call**
BUY LEAP JAN-2006 $55 YSD-AK
BUY LEAP JAN-2006 $50 YSD-AJ **Covered Call**


Drops

AIG - $64.57 That was quick!  It was only a couple short weeks ago
that I rotated AIG onto the Watch List for a bearish play.
Fortunately, we never got the entry signal I was looking for
because the stock blasted higher just over a week ago, moving
through its long-term descending trendline.  I didn't drop the
play last week on the thought that perhaps this would be a bull-
trap move, ending with a quick reversal back under the trendline.
Clearly that didn't happen, as the bulls propelled the entire
market higher and AIG is now right on the verge of taking out
another important resistance level at $65.  With weekly
Stochastics now launching higher due to the strong price rise of
the past couple weeks, bearish positions at this point would
clearly be fool-hardy.  We'll drop the play this weekend and keep
our eye out for a more favorable spot to play next year.


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Ho-Ho-Ho!  More Money For Our Christmas Stocking
By Mike Parnos, Investing With Attitude

They say money can't buy love, but it comes in a close second.
So, until Halle Berry shows up on my doorstep wearing only a
smile, I'm very happy with another month of CPTI profits.
Besides, unless Cupid plans to fling arrows in my direction, the
only reason to have a relationship is to be able to drive in the
carpool lane.

Countin' The Cash
The December option cycle was the second cycle in the second year
of tracking our Couch Potato Trading Institute portfolio.  This
month we get to add $1,740 to last month's $4,690 for a two month
total of $6,430.  Not bad considering we've been fighting a
trending market with neutral positions.

We took a few losses this month (QQQ & BBH), but we exercised some
patience and discipline and kept the losses small.  It's not easy
to wait for your profits.  Plus, it's even tougher to pull the
trigger and take the losses.  Good money management skills go a
long way to becoming a successful well-rounded trader.  Keep in
mind that delayed gratification is the definition of maturity.

Was I kidding about Halle Berry?  Not in the least, but I like to
keep an open mind.  Julie Bowen or Kelly Ripa would also make my
heart (among other things) go pitty-pat.  There's plenty of room
on my couch for two (or three if Cupid feels generous). Ho-Ho-Ho!
_________________________________________________________________

The Index of Indexes
Since our CPTI trades focus largely on indexes, I've put together
a list of Indexes, their symbols, their settlement style and
dates, etc.  These are the indexes that we trade most often and
would be a good reference sheet for CPTI students to keep handy.
It's in the form of a MS Word file and will answer a lot of
questions.  If you'd like one, send me a note at
mparnos@OptionInvestor.com.
______________________________________________________________

Closed December Position Summary:
NDX Iron Condor -- $1,620 Profit
BBH Baby Condor -- $200 Loss
SPX Iron Condor -- $420 Profit
QQQ Put Calendar Spread - $100 Loss
Total Profit: $1,740
______________________________________________________________

DECEMBER CPTI PORTFOLIO POSITION SUMMARY
SPX Iron Condor – 1088.66
We sold 7 contracts of December 1085 SPX calls and bought 7
contracts of December 1100.  Then, we sold 7 contracts of December
1005 SPX puts and bought 7 contracts of December 990 puts.  Total
credit $2,205.  Maximum Max profit potential of $2,205.  Position
was closed on Thursday when 1085 was violated.  Profit: $420.

BBH -- Baby Iron Condor - $134.36
We sold 10 contracts of the Dec. BBH $130 calls and bought 10 of
the Dec. $140 calls for a credit of about $2.00.  Then, we sold 10
contracts of the Dec. BBH $125 puts and bought the $115 puts for a
credit of about $1.85.  Total credit of $3.85.  Closed Thursday
for $200 loss.

NDX Iron Condor – 1426.17
We sold six December NDX 1325 puts and buy the December NDX 1300
puts, taking in about $1.70.  Then, we sold six December NDX 1525
calls and buy the December 1550 calls for a credit of about $1.00.
Total credit: $2.70.   Closed within range for a profit of $1,620.
_____________________________________________________________

ONGOING POSITION
QQQ ITM Strangle – Ongoing Long Term -- $35.42
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:
October: Oct. $33 puts and Oct. $34 calls – credit of $1,900.
November: Nov. $34 puts and calls – credit of $1,150.
December: Dec. $34 puts and calls – credit of $1,500.
January: Jan. $34 puts and calls – credit of $850.

Note:  We haven't included any of the proceeds from this long term
QQQ ITM Strangle in our profit calculations.  It's a bonus!  And
it's a great cash flow generating strategy.

OEX Credit Spread Boogie – 540.26
We sold 2 December OEX 520 calls @ $9.00 and bought 2 December OEX
545 calls @ $1.55.  Total credit of $7.45 ($1,490).  Exposure
$17.55 ($3,510).  Rolled out to five contracts of the January
535/505 bull put spread.  In the process we took in an additional
$280.
__________________________________________________________

JANUARY CPTI POSITIONS
Position #1 - NDX – (NASDAQ 100 Index) – Iron Condor – 1426.17
Sell 5 NDX January 1500 calls
Buy 5 NDX January 1525 calls
Credit:  $3.70 (x 5 = $1,850)
Sell 5 NDX January 1325 puts
Buy 5 NDX January 1300 puts
Credit:  $2.40 (x 5 = $1,200)
Total credit of about: $6.10.  Maximum profit range: 1325 – 1500.
Potential profit: $3,050.

Position #2 – SOX (Semiconductor Index) – Iron Condor – 489.84
Sell 10 SOX January 530 calls
Buy 10 SOX January 540 calls
Credit:  $1.40 (x 10 = $1,400)
Sell 7 SOX January 440 puts
Buy 7 SOX January 425 puts
Credit:  $1.35 (x 7 = $945)
Total credit of about:  $2,345.  Maximum profit range: 440 – 530.
Potential profit: $2,345.

Position #3 – XAU (Gold/Silver Index) – Iron Condor – $102.49
According to the chart, gold seems to be taking a breather in its
bull run.  Our exposure
Sell 10 XAU January $95 puts
Buy 10 XAU January $90 puts
Credit:  $.60 ($600)
Sell 10 XAU January $110 calls
Buy 10 XAU January $115 calls
Credit:  $.60 (600)
Total credit: $1.20 ($1,200).  Maximum profit range: $95 – 110.
Potential profit: $1,200.

Position #4 -- QQQ Diagonal Calendar Spread -- $35.42
I'm a glutton for punishment, but there's a little voice telling
me that we should be positioned to take advantage of a pullback in
the market.  We tried this in November – January and we ended up
losing a dime.  Sooner or later we're going to be right.  So,
let's give it another try.  We're going to start out risking a
buck and we have two additional months to sell against the March
long puts to reduce our cost basis while we wait.  It's a cheap
speculation. We'll consider this an ongoing position.
Buy 10 QQQ March $34 puts for $1.20
Sell 10 QQQ January $33 puts for $.20
Total debit: $1.00 ($1,000)

Position $5 – Stay Tuned
When the SPX opens some more strike prices in the 1100s, we may
venture in with another Iron Condor.
_________________________________________________________________

Viagra For Mr. Softee
CPTI students who like our QQQ in-the-money strangle cash flow
strategy should take a look at the Microsoft chart.  For whatever
reasons, it's been trading between $22 and $32 since March 2002.
Currently MSFT is at $27.36 – a perfect spot for an ITM Strangle.

If you were to buy the MSFT 2005 $32.50 puts and the MSFT 2005
$22.50 calls, it would cost about $12.10.  You could then sell the
January $27.50 puts and calls and take in about $1.25.  If MSFT
continues to languish in that range, you can continue to sell
against the long 2005 puts and calls and generate a nice monthly
cash flow.

How does this compare to our QQQ ITM Strangle?  The positive is
that MSFT seems destined to stay in the trading range
indefinitely.  The negatives are that MSFT offers strike prices in
$2.50 increments and is a single stock.  The QQQ $1 strike price
increments offer a little more flexibility when it's time for the
monthly rollout.  Also, the QQQs provide the diversity of 100
stocks – which supposedly reduces volatility.

This isn't an official CPTI portfolio position – just food for
thought.  Perhaps a little infusion of Viagra for Mr. Softee might
solidify its performance for you.
_________________________________________________________________

Those Friendly Reminders
December is a standard four-week option cycle.  The premiums
quoted on the above educational trades are based on Friday's
closing bid/ask prices.  On Monday the premiums may be different
due to market movement and/or the additional two days of time
erosion.  In a few instances, when the bid/ask spread is wide, we
figure you may be able to shave off a nickel here and there.  Be
careful.  If a stock gaps up or down on Monday, it may change the
entire dynamic of the trade.  Don't skydive without a parachute.
Just because you have a pulse and evidence of brain activity
doesn't mean you a trader.  Plus, make sure you know the
intricacies of any strategy before you trade.
______________________________________________________________

New To The CPTI?
Are you a new Couch Potato Trading Institute student?  Do you have
questions about our educational plays or our strategies?  To find
past CPTI (Mike Parnos) articles, look under "Education" on the OI
home page and click on "Traders Corner."  They're waiting for you
24/7.
____________________________________________________________

Get Yours Today!
For those investors who prefer longer-term strategies, many OI
writers have put together a comprehensive list of 50 stocks they
believe will outperform in 2004.  All this wisdom has been
squeezed onto a single CD.  It's a plethora of valuable
information.  New subscribers and renewal subscriptions will get
one – so don't hesitate, take advantage of OI's renewal offer and
get yours.  It's a bargain!
______________________________________________________________

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.


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The Option Investor Newsletter                   Sunday 12-21-2003
Sunday                                                      5 of 5


In Section Five:

Covered Calls: Achieving Success With The OIN's Covered-Calls
Naked Puts: Trading The Plan For Profits
Spreads/Straddles/Combos: Christmas Arrives Early For "Blue-Chip" Investors
Market Posture: Holiday Traveling Underway


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

Trading Basics: Achieving Success With The OIN's Covered-Calls
By Mark Wnetrzak

One of the most common concerns among new readers is the lack of
specific trading recommendations for positions in this section.

The recent rally in equities has brought a number of new readers
to the newsletter and because of its familiarity and conservative
outlook, many of them focus initially on the strategy of writing
covered calls.  The type of trading one pursues in the market is
a matter of personal philosophy, but our "in-the-money" approach
seems to appeal to those investors looking to earn a relatively
consistent (moderate) return on investment while maintaining an
acceptable margin with regard to preservation of capital.  That,
in a nutshell, is the goal of this section and we try to fulfill
that objective by providing a list of favorable candidates to
supplement each reader's search for potential covered-call plays.
However, as an information service, the newsletter staff can NOT
provide specific instructions or trading advice and I can't make
"buy" or "sell" recommendations as I am not a registered broker
or certified financial advisor.  In the weekly summary narrative,
my (often much-delayed) comments are simply a service to help new
traders understand when positions might be opened and closed, due
to changes in technical character.  In most cases, actions taken
based on my commentary would be far too late to be effective,
thus it is in no way intended to be a substitute for personal
portfolio management.  In addition, the weekly summary is really
nothing more than a static representation of the plays previously
offered in the section, thus the primary technique we use when
closing a play is to simply buy back the call and sell the stock.
This is important because new trader's often assume there is no
other (better) way to deal with a declining stock in a covered
call position.  Of course, that is not the case.

If an investor is defensive and desires to lower the cost basis
in their covered-call position, they can roll down to a lower
strike and/or move forward in time with the sold options.  If
this is done before expiration, the investor will need to buy
back the current "sold" calls, which should be relatively cheap.
An investor who remains bullish in the long-term will do this to
protect for short-term weakness but ultimately, he expects the
stock price to recover.  An investor who rolls forward, selling
longer-term calls as an adjustment technique, will usually have
to move several months into the future (or use LEAPs) in order
to obtain a credit in the new position.  Occasionally, even the
best adjustment will only "lock-in" a loss (until expiration),
but that outcome should still be less damaging than the current
loss -- if the stock price doesn't drop further.

As for timing an exit or adjustment, many professionals will use
a strict percentage of one’s overall portfolio value, or a fixed
dollar amount, or a technical violation of a key support area
(moving average or trend-line), etc.  Many stocks will climb too
fast and then falter, however their primary technical trend will
remain bullish.  The questions you should ask are:

[1] Is the stock still above its 30-, 50-, or 150-day MA?

[2] Is the stock simply testing support or has the support area
    failed and the stock is now in a free fall?

[3] Did negative news or events impact the company's future
    earnings outlook or significantly change its fundamentals?

[4] What is the overall trend of the underlying sector/industry
    group and the major equity averages?  How will this trend
    impact your stock in the near-term? And the long-term?

These are the types of questions an investor must answer before
making an exit or adjustment trade with a covered-call position.
Each individual trader must evaluate the risk-reward scenarios
for a specific situation and make a decision that is consistent
with their trading plan and fits their personal outlook for the
underlying equity and stock market.  At times, it can be a very
difficult process but Larry McMillan's book, "Options: As A
Strategic Investment," is an excellent resource for new traders
and in Chapter 2, he explains the many strategies and possible
adjustments involved in writing covered-calls.  In addition,
Stan Weinstein's book, "Secrets for Profiting in Bull and Bear
Markets," provides a simple, easy-to-use (layman's) approach to
technical analysis.

Trade Wisely!


SUMMARY OF PREVIOUS CANDIDATES
*****

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of 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.

Note:  Margin not used in calculations.

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

ARIA     7.70    7.50  DEC  7.50  0.80    0.60    7.6%
GSS      5.90    6.50  DEC  5.00  1.25    0.35*   6.5%
PAAS    12.57   12.51  DEC 12.50  0.70    0.63*   5.8%
ISSI    16.33   15.41  DEC 15.00  1.90    0.57*   4.3%
MMR     16.30   19.00  DEC 15.00  2.00    0.70*   4.3%
CLHB     6.12    8.00  DEC  5.00  1.35    0.23*   4.2%
INSP    24.39   23.69  DEC 22.50  2.70    0.81*   4.1%
ESPR    22.21   22.70  DEC 20.00  2.90    0.69*   3.9%
CANI    14.05   13.77  DEC 12.50  1.95    0.40*   3.6%
IM      15.06   16.00  DEC 15.00  0.30    0.24*   3.5%
TLAB     8.08    7.81  DEC  7.50  0.80    0.22*   3.3%
NTPA    15.30   14.28  DEC 15.00  1.30    0.28    2.9%
NEOL    18.32   16.61  DEC 17.50  1.40   -0.31    0.0%
IMMU     5.35    4.25  DEC  5.00  0.60   -0.50    0.0%
SLNK    20.61   18.14  DEC 20.00  1.25   -1.22    0.0%
IBIS    16.12   10.88  DEC 15.00  1.45   -3.79    0.0%

WIND     7.48    8.04  JAN  7.50  0.50    0.52*   6.5%
CE      13.50   13.97  JAN 12.50  1.80    0.80*   5.9%
TKTX    15.35   15.05  JAN 15.00  1.25    0.90*   5.5%
NTIQ    12.53   12.87  JAN 12.50  0.85    0.82*   5.1%
VTS     10.05   10.71  JAN 10.00  0.55    0.50*   4.6%
CNH     15.27   17.02  JAN 15.00  0.95    0.68*   4.1%
EMBT    15.98   15.64  JAN 15.00  1.65    0.67*   4.1%
MYGN    12.76   12.31  JAN 12.50  0.95    0.50    3.1%
MYGN    12.75   12.31  JAN 12.50  0.85    0.41    3.0%
XING    10.66    8.94  JAN 10.00  1.35   -0.37    0.0%

*   Stock price is above the sold striking price.

Comments:

The reversal in the NASDAQ on Monday after Saddam's capture
was a bit worrisome though the DJ-30 and SP-500 managed to
lead the market higher as the week wore on.  Did Santa come
early this year?  Only time will tell.  As for the covered
call portfolio, Ibis Technology (NASDAQ:IBIS) was this month's
party-pooper as the stock dropped sharply Monday on concerns
that ongoing patent negotiations with International Business
Machines (NYSE:IBM) will hurt its year-end sales projections.
The stock acted horridly before it was halted shortly before
Monday's close, and anyone using a violation of the 30- or
50-day MA would have avoided the loss listed in the summary.
Spectralink (NASDAQ:SLNK) is another stock that suffered from
Monday's worrisome reversal, though it has remained above its
150-DMA.  Definitely time to re-evaluate any positions you may
own as well as the market in general, and act accordingly.  As
for January, hopefully the Ibis warning isn't an omen of the
future.

Positions Previously Closed:  Brocade (NASDAQ:BRCD), Kmart
(NASDAQ:KMRT), Ixia (NASDAQ:XXIA), Avi Biopharma (NASDAQ:AVII),
Mobility Electronics (NASDAQ:MOBE) and TiVo (NASDAQ:TIVO).


NEW CANDIDATES
*********

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

SANM   12.56  JAN 12.50  SQN AT  0.70  8558   11.86  28   5.9%
PCS     5.06  JAN  5.00  PCS AA  0.30  39386   4.76  28   5.5%
SKX     7.54  JAN  7.50  SKX AU  0.40  359     7.14  28   5.5%
UTHR   23.20  JAN 22.50  FUH AX  1.75  50     21.45  28   5.3%
UAIR    6.20  JAN  5.00  UWS AA  1.40  165     4.80  28   4.5%
CHTT   18.06  JAN 17.50  HQT AW  1.20  19     16.86  28   4.1%
RHAT   17.49  JAN 15.00  RCV AC  3.00  1273   14.49  28   3.8%


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).

*****
SANM - Sanmina-SCI  $12.56  *** Favorable Outlook! ***

Sanmina-SCI Corporation (NASDAQ:SANM) is an independent global
provider of customized, integrated electronics manufacturing
services.  The company provides these comprehensive services
primarily to original equipment manufacturers in the defense
and aerospace, communications, computing, multimedia, medical
and automotive, and industrial controls industries.  The firm's
end-to-end services, in combination with its global expertise
in supply chain management, enable it to manage its customers'
products throughout their life cycles.  These services include
product design and engineering, including initial development,
detailed design and pre-production services; manufacturing of
complete systems, components and subassemblies; final system
assembly and test; direct order fulfillment, and after-market
product service and support.  Raymond James upgraded SANM this
week and the stock price reacted by hitting a new 2003 high.
Investors who like the outlook for the company can establish
a conservative cost basis in the issue with this position.

JAN-12.50 SQN AT LB=0.70 OI=8558 CB=11.86 DE=28 TY=5.9%


*****
PCS - Sprint PCS Group  $5.06  *** Technical Break-Out! ***

Sprint PCS Group (NYSE:PCS) includes Sprint's wireless operations.
As of December 31, 2002, the PCS Group, together with third-party
affiliates, operated PCS systems in over 300 metropolitan markets.
The PCS Group has licenses to serve the entire U.S. population,
including Puerto Rico and the U.S. Virgin Islands.  The PCS Group
supplements its own network through affiliation arrangements with
other companies that use CDMA.  The PCS Group also provides PCS
services to companies that resell PCS services to their customers
on a retail basis under their own brand.  Shares of PCS broke out
of a recent slump Friday after the company announced expanded its
relationship with the Blue Cross and Blue Shield through a new,
multi-million dollar agreement for Cisco Systems customer premise
equipment and maintenance.  The agreement basically allows Sprint
to provide "one-stop" shopping for equipment as well as voice and
data solutions to the BCBSA group and investors appear happy with
the news.  Reader who agree with a positive outlook for PCS can
establish a low-risk cost basis in the issue with this position.

JAN-5.00 PCS AA LB=0.30 OI=39386 CB=4.76 DE=28 TY=5.5%


*****
SKX - Skechers  $7.54  *** Bottom-Fishing! ***

Skechers U.S.A. (NYSE:SKX) designs and markets a collection of
branded contemporary footwear for men, women and children, as
well as a designer line for women branded separately.  Their
product line consists of over 1,500 styles that are organized
in 11 distinct collections.  Skechers pursues its retail store
strategy through 3 integrated retail formats, the concept store,
the factory outlet store and the warehouse outlet store.  The
Warehouse Outlet Stores enable the company to liquidate excess
merchandise, discontinued lines and odd-size inventory.  As of
December 31, 2002, Skechers operated 34 concept stores, 34
factory outlet stores and 23 warehouse outlet stores in the
United States.  Shares of SKX closed at a near-term high Friday
and the heavy-volume buying pressure suggests a possible change
in (technical) character for the range-bound issue.  Traders can
speculate conservatively on continued upside activity with this
position.

JAN-7.50 SKX AU LB=0.40 OI=359 CB=7.14 DE=28 TY=5.5%


*****
UTHR - United Therapeutics  $23.20  *** Rally Mode! ***

United Therapeutics (NASDAQ:UTHR) is a biotechnology company
focused on the development and commercialization of therapeutics
to treat chronic and life-threatening diseases in 3 therapeutic
areas: cardiovascular medicine, infectious disease and oncology.
It has 5 therapeutic platforms: Prostacyclin analogs are stable
synthetic forms of a molecule that has effects on blood-vessel
health and function; Remodulin has been approved in the United
States for the treatment of pulmonary arterial hypertension in
patients with New York Heart Association Class II-IV symptoms;
Immunotherapeutic monoclonal antibodies are antibodies that
activate patients' immune systems to treat cancer; Glycobiology
anti-viral agents are a class of small molecules that may be
effective as an oral therapy for hepatitis C and other infections,
and Telemedicine involves portable digital devices that enable
physicians to remotely monitor patients' bodily measurements.
UTHR rallied on Wednesday after some positive news from both
Switzerland's drug regulatory agency and Australia's Drug
Evaluation Committee.  The volume-supported move is bullish and
investors with an optimistic outlook for UTHR can "target-shoot"
an entry point in the issue with this position.

JAN-22.50 FUH AX LB=1.75 OI=50 CB=21.45 DE=28 TY=5.3%


*****
UAIR - US Airways  $6.20  *** Pure Speculation! ***

US Airways Group (NASDAQ:UAIR) owns a group of air carrier and
airline service subsidiaries.  The company owns US Airways,
Allegheny Airlines, Piedmont Airlines, PSA Airlines, MidAtlantic
Airways, US Airways Leasing and Sales, Material Services Company,
and Airways Assurance Limited.  In connection with the agreement
between US Airways and its pilots, UAIR expects to structure
MidAtlantic as a division of US Airways rather than as a separate
subsidiary.  In August 2002, the company filed a petition for
protection under Chapter 11 of the United States Bankruptcy Code.
In March 2003, the company emerged from Chapter 11 protection.
US Airways has been forging a Stage I base and speculators who
want to "bottom-fish" in the airline sector should consider this
position.

JAN-5.00 UWS AA LB=1.40 OI=165 CB=4.80 DE=28 TY=4.5%


*****
CHTT - Chattem  $18.06  *** Lawsuit Settlement ***

Chattem (NASDAQ:CHTT) is a marketer and manufacturer of a broad
portfolio of branded OTC healthcare products, toiletries and
dietary supplements in such categories as topical analgesics,
skin care products, appetite suppressants, medicated dandruff
shampoos, dietary supplements, internal analgesics and seasonal
and other products.  The company's product portfolio includes
brands such as Icy Hot, Aspercreme and Flexall topical analgesics;
Gold Bond medicated skin care powder, cream, lotion and spray
products; Phisoderm medicated acne treatment products and skin
cleansers; Dexatrim appetite suppressants, and Selsun Blue
medicated dandruff shampoos.  The company's customers consist
of mass merchandisers, drug and food retailers in the United
States, including Wal-Mart Stores, Walgreen Co. and Kroger.
Chattem announced this week that the company agreed to settle
lawsuits over its Dexatrim diet drug and sees related charges of
$12.8 million to $16.5 million in fiscal 2004.  The stock soared
on the announcement and now appears to be completing a year-long
consolidation.  This position offers reasonable speculation at
the "risk" of owning CHTT near technical support.

JAN-17.50 HQT AW LB=1.20 OI=19 CB=16.86 DE=28 TY=4.1%


*****
RHAT - Red Hat  $17.49  *** Earnings Rally! ***

Red Hat (NASDAQ:RHAT) provides an enterprise-operating platform
based on open source technology for the IT infrastructure of the
Global 2000.  The company applies its technology to create its
enterprise operating platform, Red Hat Enterprise Linux, and
related layered infrastructure technology solutions, based on
open source technology.  Red Hat's enterprise solutions meet
the functionality requirements and performance demands of the
large enterprise and the third-party computer hardware and
software applications that are critical to enterprises.  The
company also creates additional products, including Red Hat
Linux and related tools, and open source software applications.
Red Hat's professional services offerings, principally directed
toward its large enterprise customers and strategic partners,
include technical support and maintenance, custom development,
consulting, training and education and hardware certification.
Investors were obviously pleased with Red Hat's earnings as the
stock rallied on heavy volume to a 52-week high.  This position
offers a reasonable entry point for investors who agree with a
bullish outlook for RHAT.

JAN-15.00 RCV AC LB=3.00 OI=1273 CB=14.49 DE=28 TY=3.8%


*****

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

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

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

LTXX   15.13  JAN 15.00  UXT AC  1.05  61     14.08  28   7.1%
TKTX   15.05  JAN 15.00  UFT AC  0.95  392    14.10  28   6.9%
PAAS   12.51  JAN 12.50  USP AV  0.75  2675   11.76  28   6.8%
ELNK   10.08  JAN 10.00  MQD AB  0.65  6453    9.43  28   6.6%
STEL   10.32  JAN 10.00  URU AB  0.80  30      9.52  28   5.5%
DNDN    8.00  JAN  7.50  UKO AU  0.85  730     7.15  28   5.3%
SGMO    5.09  JAN  5.00  USJ AA  0.30  20      4.79  28   4.8%
ASPT   15.70  JAN 15.00  SQR AC  1.30  127    14.40  28   4.5%
MMR    19.00  JAN 17.50  MMR AW  2.20  111    16.80  28   4.5%
MESA   12.90  JAN 12.50  EAQ AV  0.90  40     12.00  28   4.5%
SOV    23.59  JAN 22.50  SOV AX  1.95  9030   21.64  28   4.3%
ADCT    2.71  JAN  2.50  TLQ AZ  0.30  36405   2.41  28   4.1%
GNSS   16.59  JAN 15.00  QFE AC  2.10  97     14.49  28   3.8%
IPXL   13.93  JAN 12.50  UPR AV  1.85  8      12.08  28   3.8%
MERX   24.45  JAN 22.50  KXQ AX  2.70  55     21.75  28   3.7%



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

Options 101: Trading The Plan For Profits
By Ray Cummins

One of the most important requirements for new participants in
the options market is the need to develop a trading plan.

There are two main goals in a trading plan.  The first objective
is to outline a strategy that has profit potential in a specific
situation.  The second purpose is to establish a format that will
help you execute the strategy correctly, and in a timely manner.
A trading plan will also help you remain focused on the principal
factors that affect a portfolio position and avoid a number of
common pitfalls in the financial markets.  If you are a beginning
trader, developing a trading plan should be one of the first tasks
you undertake and the following guidelines will provide a basis
for this process:

1)  Determine the maximum potential exposure of your portfolio.
    A conservative trader should risk only a small proportion of
    their total capital, perhaps 5%-10%, in any one position and
    those who participate in speculative strategies should only
    use money they are prepared to lose.  In addition, remember
    that uncovered short positions require collateral or initial
    margin and additional funds may be required if the underlying
    issue moves adversely.  For this reason, some experts suggest
    that you have a reserve capital balance of at least twice the
    initial margin requirement for any uncovered short position.

2)  Establish a basis for trading decisions, whether fundamental
    or technical.  Fundamental analysis is the process where one
    attempts to predict the future share value of a company by
    evaluating their future earnings, which are based on market
    share, product revenues, pricing structure, and operating
    margins, as well as various other financial components of the
    company's business.  Technical analysis, which is the study
    of historical share values, directional trends and patterns
    in price charts, has nothing to do with the profitability of
    the company.  Rather, it is a technique used to forecast the
    future direction and magnitude of a stock’s movement based on
    its past price activity.  Although each style is often viewed
    as less than adequate by the opposing group, there is value
    in both methods and in many cases, each approach can produce
    favorable results.

3)  Study and become completely familiar with the form of analysis
    you favor most, until you can consistently identify potentially
    profitable trading opportunities.  Technical analysis is more
    suitable to short-term trading, since it offers a very accurate
    method for establishing entry and exit points.  Fundamental
    analysis can often provide a more precise picture of the long
    range outlook, but it is woefully inefficient for predicting
    the near-term movement of stock prices.  However, analyzing
    the value of a company can help to forecast potential profits
    or losses and since earnings significantly affect share values
    at least once every three months (quarterly reports), it is
    important to have complete and accurate knowledge of a company's
    financial condition when ever you trade its stock or options.

4)  Trade with the trend or character of the market and if in doubt,
    stay out!  If the primary market trend is poorly defined and
    prices are fluctuating within a small range, it is probably not
    a good time to initiate a directional trade.  At the same time,
    a strongly biased market would not favor delta-neutral positions
    such as debit straddles or credit strangles.  The simplest way
    to profit in the financial markets is to identify the current
    trend and establish positions with the appropriate (technical or
    fundamental) outlook, in a timely manner.  If this process can't
    be completed successfully under the current conditions, wait
    until a more favorable opportunity exists before trading.

5)  Identify the actions to take when a specific profit (or loss)
    occurs, as well as any potential adjustments that will be made
    to reduce losses or increase gains in a position.  The options
    market can move very quickly and profits can be lost or large
    draw-downs can occur in a short period, due to the combination
    of option leverage and the volatility of stocks.  One of the
    attributes of successful traders is the ability to limit losses
    in unsuccessful positions and this task is best accomplished
    through the use of trading stops.  The most important objective
    of the stop is to preserve capital if the play goes badly and
    yet provide every opportunity for the position to achieve its
    potential.  Most traders use major trend-lines, minor lows and
    current support/resistance areas to help identify the correct
    stop-order placement.  Although "slippage" will occur in some
    transactions, the stop order will limit a position's downside
    in all but the most volatile (gapping) situations.

6)  Above all, stick to the plan!  A successful trader will be to
    recognize early on when they have made an incorrect forecast
    but the key to success is learning to close-out the position
    before it deteriorates further.  In contrast, positions with
    large upside potential (speculative calls or puts) should be
    allowed to run their "full course" before profits are taken.
    Experienced traders know it is necessary to maximize gains on
    profitable plays to offset the losses that inevitably occur in
    losing positions.  The biggest hurdle to overcome in trading
    is making emotional decisions.  Greed, hope, and fear affect
    your thinking process and acting on these emotions reduces the
    probability of a profitable outcome.  Remember, the enemy is
    not the market, it is YOU, and that one of the primary reasons
    why a trading plan is so essential to long-term success.

A trading plan is essential for new market participants, as it can
provide a system for position management that will increase profits
and minimize losses.  In addition, it will improve the level of
discipline and curb emotional reactions during periods of volatile
market activity.  Regardless of the style of trading you favor, a
methodical approach is highly recommended in any financial market
and the best way to accomplish this task is through the use of a
trading plan.

Good Luck!


SUMMARY OF PREVIOUS CANDIDATES
*****

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of 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.

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

RMBS    29.30   26.37  DEC 25.00  0.40    0.40*   3.5%  11.1%
RMBS    30.00   26.37  DEC 25.00  0.55    0.55*   3.3%  10.6%
MMR     18.95   19.00  DEC 17.50  0.30    0.30*   3.8%  10.1%
RDWR    26.84   27.15  DEC 25.00  0.60    0.60*   3.6%   9.2%
RDWR    23.46   27.15  DEC 20.00  0.65    0.65*   2.9%   8.6%
QLTI    18.86   18.59  DEC 17.50  0.25    0.25*   3.1%   8.4%
USNA    34.39   31.40  DEC 30.00  0.35    0.35*   2.6%   7.8%
SANM    11.11   12.56  DEC 10.00  0.25    0.25*   2.8%   7.6%
APPX    32.62   33.75  DEC 25.00  0.45    0.45*   2.0%   7.0%
APPX    32.29   33.75  DEC 25.00  0.55    0.55*   2.0%   6.8%
AEIS    26.30   25.15  DEC 22.50  0.45    0.45*   2.2%   6.8%
NTE     36.99   30.62  DEC 22.50  0.35    0.35*   2.3%   6.5%
ONXX    27.63   27.66  DEC 25.00  0.25    0.25*   2.2%   6.3%
DIGE    38.50   38.10  DEC 35.00  0.35    0.35*   2.2%   6.2%
MEDI    27.04   25.75  DEC 25.00  0.25    0.25*   2.2%   6.0%
FFIV    25.07   24.36  DEC 22.50  0.55    0.55*   2.2%   6.0%
XMSR    22.10   22.80  DEC 17.50  0.25    0.25*   1.6%   5.8%
APPX    36.04   33.75  DEC 30.00  0.35    0.35*   1.7%   5.8%
PDII    25.97   25.61  DEC 22.50  0.45    0.45*   1.8%   5.3%
ALTR    23.93   22.41  DEC 22.50  0.50    0.41    2.0%   5.2%
MGAM    42.90   41.67  DEC 35.00  0.45    0.45*   1.4%   5.0%
NPSP    29.26   30.32  DEC 25.00  0.35    0.35*   1.5%   4.9%

SOV     23.70   23.59  JAN 22.50  0.90    0.90*   3.6%   8.5%
SLXP    21.50   21.10  JAN 20.00  0.60    0.60*   2.7%   6.8%
NPSP    32.64   30.32  JAN 30.00  0.80    0.80*   2.4%   6.2%
BLTI    14.01   14.45  JAN 12.50  0.30    0.30*   2.1%   5.9%
RMBS    30.66   26.37  JAN 20.00  0.40    0.40*   1.8%   5.3%
AAII    25.01   24.53  JAN 22.50  0.45    0.45*   1.8%   4.9%
EMMS    27.17   27.37  JAN 25.00  0.50    0.50*   1.8%   4.7%

*  Stock price is above the sold striking price.

Comments:

The "Santa Claus Rally" continued this week with all of the
major equity averages enjoying gains.  In addition, Friday
ended the fourth straight "up" week for both the Dow and the
S&P 500, and the second week of gains for the NASDAQ, so the
holiday season has definitely been a "merry" one.  The only
issue on the "watch" list is NPS Pharmaceuticals (NASDAQ:NPSP),
however we will also monitor Rambus (NASDAQ:RMBS) on a daily
basis, in light of the recent volatile activity.

Previously Closed Positions: Flextronics (NASDAQ:FLEX) and
Sierra Wireless (NASDAQ:SWIR), both of which are profitable,
and ADE Corp. (NASDAQ:ADEX) and eCollege.com (NASDAQ:ECLG).


WARNING: THE RISK IN SELLING NAKED 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.


MARGIN REQUIREMENTS

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:

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


MONTHLY YIELD: MAXIMUM & SIMPLE

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


NEW CANDIDATES
*********

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

PDLI   16.65  JAN 15.00  PQI MC 0.45 536  14.55  28   3.4%   9.0%
PLMD   26.45  JAN 22.50   PM MX 0.50 565  22.00  28   2.5%   7.6%
MERX   24.45  JAN 20.00  KXQ MD 0.40 110  19.60  28   2.2%   7.6%
IPG    15.45  JAN 15.00  IPG MC 0.40 4380 14.60  28   3.0%   7.1%
JNS    15.91  JAN 15.00  JNS MC 0.35 193  14.65  28   2.6%   6.6%
WEBX   20.18  JAN 17.50  UWB MW 0.30 101  17.20  28   1.9%   5.7%
PENN   25.20  JAN 22.50  UQN MX 0.35 1496 22.15  28   1.7%   4.9%


Company Descriptions

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

*****
PDLI - Protein Design Labs  $16.65  *** Biotech Speculation! ***

Protein Design Labs (NASDAQ:PDLI) is engaged in the discovery and
development of humanized monoclonal antibodies for the treatment
of various diseases.  The firm's areas of disease focus include
oncology and inflammatory and autoimmune diseases and the company
has several humanized antibodies in clinical development for
inflammatory bowel disease, psoriasis and asthma.  PDLI is fully
integrated from research through clinical development and it
conducts many activities in support of the clinical development
program, including pre-clinical studies, process development and
antibody manufacturing.  The company also has significant research
activities aimed at the discovery of new antibodies that may be
useful for the treatment of certain cancers and autoimmune and
inflammatory diseases.  PDLI recently settled a patent dispute
with Genentech (NYSE:DNA) related to a licensing master agreement
signed between the two firms in 1998 and the current stock price
reflects the renewed optimism among investors since that event.
Traders who think the upside activity will continue for the next
few weeks can profit from that outcome with this position.

JAN-15.00 PQI MC LB=0.45 OI=536 CB=14.55 DE=28 TY=3.4% MY=9.0%


*****
PLMD - PolyMedica  $26.45  *** Medicare Optimism! ***

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 firm
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 who
are 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 shares rebounded
last week amid speculation that recently enacted changes to the U.S.
Medicare program could have a positive effect on its diabetes test
kit business by providing reimbursement for earlier diagnosis of
diabetes.  PLMD is certainly volatile but this position offers a
reasonable risk/reward outlook for traders who like "premium-selling"
plays.

JAN-22.50 PM MX LB=0.50 OI=565 CB=22.00 DE=28 TY=2.5% MY=7.6%


*****
MERX - Merix  $24.45  *** Multi-Year High! ***

Merix Corporation (NASDAQ:MERX) is a manufacturer of electronic
interconnect solutions for use in sophisticated equipment.  The
company's main products are complex multi-layer printed circuit
boards, which are platforms used to interconnect microprocessors,
integrated circuits and other components that are essential to
the operation of electronic products and systems.  Merix focuses
on providing its solutions to manufacturers of technologically
advanced electronic products within selected high-growth markets
in the electronics industry, including communications, high-end
computing and test and measurement.  It provides its customers
with an integrated interconnect manufacturing solution including
quick-turn prototypes, pre-production and volume production of
printed circuit boards and backplanes.  The company also renders
design assistance and engineering services in the early stages of
product development.  MERX shares soared last week after the firm
posted a surprise quarterly profit, reversing a loss from the year
before, on robust product demand and increasing profit margins.
Investors who like the outlook for the stock should "target-shoot"
a slightly higher premium in the position to improve its potential
profit.

JAN-20.00 KXQ MD LB=0.40 OI=110 CB=19.60 DE=28 TY=2.2% MY=7.6%


*****
IPG - Interpublic Group  $15.45  *** Break-Out Coming? ***

Interpublic Group of Companies (NYSE:IPG) is a collection of
advertising and specialized marketing and communication services
companies.  The company provides its clients with communications
expertise in four areas: Advertising, which includes advertising
and media management; Marketing Communications, which includes
direct marketing and customer relationship management, public
relations, sales promotion, event marketing, online marketing,
corporate and brand identity and healthcare marketing; Marketing
Intelligence, which includes market research, brand consultancy
and database management, and Marketing Services, which includes
sports and entertainment marketing, corporate meetings and events,
retail marketing and other marketing and business services.  This
stock has been trading comfortably in a range between $13 to $15
for almost a year but the recent buying pressure suggests it may
be destined for higher prices.

JAN-15.00 IPG MC LB=0.40 OI=4380 CB=14.60 DE=28 TY=3.0% MY=7.1%


*****
JNS - Janus Capital Group  $15.91  *** Recovery Underway! ***

Janus Capital Group (NYSE:JNS) sponsors, markets and provides
investment advisory, distribution and administrative services,
primarily to mutual funds, in both domestic and international
markets.  The company manages assets across multiple investment
disciplines through subsidiaries and equity investees such as
Janus Capital Management, Bay Isle Financial, Enhanced Investment
Technologies, Berger Financial Group and DST Systems.  The firm
offers three distinct mutual fund families: Janus Investment Fund,
Janus Adviser Series and Janus Aspen Series.  Mutual funds have
taken a beating in recent months but here's one that seems to be
emerging from the ashes.  Investors who want to speculate on the
future recovery of this past industry leader should consider this
position.

JAN-15.00 JNS MC LB=0.35 OI=193 CB=14.65 DE=28 TY=2.6% MY=6.6%


*****
WEBX - WebEx Communications  $20.18  *** Bottom-Fishing Only! ***

WebEx (NASDAQ:WEBX) develops and markets services that allow users
to conduct meetings and share software applications, documents,
presentations and other content on the Internet using a standard
Web browser.  Integrated telephony and Web-based audio and video
services are also available using telephones, computer Web-cameras
and microphones.  The company's activities have been focused on
continuing to enhance and market its WebEx Interactive Services
and its WebEx Multimedia Switching Platform, developing and
deploying new services, expanding its sales and marketing
organizations and deploying its global WebEx Media Tone Network.
The company sells WebEx Meeting Center, WebEx Meeting Center Pro,
WebEx Training Center, WebEx Support Center, WebEx OnStage and
WebEx Enterprise Edition.  It also provides a service called
WebEx Business Exchange to existing customers.  WEBX emerged from
a search of "bottom-fishing" candidates and investors who believe
the worst is over for this popular provider of video-meeting and
web-conferencing services can speculate on that outcome with this
position.

JAN-17.50 UWB MW LB=0.30 OI=101 CB=17.20 DE=28 TY=1.9% MY=5.7%


*****
PENN - Penn National Gaming  $25.20  *** A Christmas Bonus! ***

Penn National Gaming (NASDAQ:PENN) is a multi-jurisdictional owner
and operator of gaming properties, as well as horse racetracks and
associated off-track wagering facilities.  Penn National owns or
operates gaming properties located in Canada, Colorado, Louisiana,
Mississippi and West Virginia that are focused primarily on serving
customers within driving distance of the properties.  The company
also owns two racetracks and 11 OTWs in Pennsylvania, and operates
a racetrack in New Jersey through a joint venture.  PENN received a
Christmas bonus Thursday when the company was awarded a $4 million
payment to settle a business-interruption claim regarding a tornado
that delayed the opening of its Hollywood Casino Shreveport in 2000.
The firm's legal counsel also received $750,000 to cover litigation
fees, so investors certainly had a reason to drive the share value
up over 10% during the week.  Traders who wouldn't mind owning the
issue can establish a conservative cost basis in the stock with
this position.

JAN-22.50 UQN MX LB=0.35 OI=1496 CB=22.15 DE=28 TY=1.7% MY=4.9%


*****


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

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

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

GPRO   32.31  JAN 30.00  PSU MF 1.20 32   28.80  28   4.5%  11.0%
FWHT   18.53  JAN 17.50  HFQ MW 0.70 98   16.80  28   4.5%  10.7%
GTI    13.01  JAN 12.50  GTI MV 0.45 17   12.05  28   4.1%   9.5%
RDWR   27.15  JAN 25.00  AUD ME 0.65 120  24.35  28   2.9%   7.5%
ATVI   18.44  JAN 17.50  AQV MW 0.45 113  17.05  28   2.9%   7.1%
VRTY   15.99  JAN 15.00  YQV MC 0.35 1331 14.65  28   2.6%   6.6%
TEK    31.05  JAN 30.00  TEK MF 0.70 0    29.30  28   2.6%   6.3%
STAR   22.54  JAN 22.50  OUE MX 0.55 45   21.95  28   2.7%   6.3%
JOYG   25.76  JAN 25.00  JQY ME 0.55 0    24.45  28   2.4%   5.9%
UTHR   23.20  JAN 20.00  FUH MD 0.30 78   19.70  28   1.7%   5.1%


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


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

Christmas Arrives Early For "Blue-Chip" Investors
By Ray Cummins

The Dow Jones Industrial Average finished Friday's session up 30
points at 10,278, its highest level in almost 2 years, on strength
in "old-economy" issues.  The best performing Dow components were
Eastman Kodak (NYSE:EK) and Alcoa (NYSE:AA).  In the technology
segment, the NASDAQ Composite Index slumped 5 points to 1,951,
despite strength in Internet-related shares.  The S&P 500 Index
closed relatively unchanged as gains in aluminum, lodging, steel,
and consumer finance stocks offset losses in airline, restaurant,
and gold issues.  Losing stocks outpaced winning stocks by a small
margin on both the Big Board and the technology exchange.  Volume
was 1.6 billion on the NYSE and 1.9 billion on the NASDAQ.  In the
U.S. bond market, the yield on the 10-year note closed at 4.13%.

Happy Holidays!

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

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of 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 or 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.


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

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

MGAM    41.45   41.67   DEC   30  35   0.45  34.55   0.45  Closed
ANPI    48.77   45.35   DEC   35  40   0.45  39.55   0.45  Closed
PFE     34.08   34.27   DEC   30  32   0.25  32.25   0.25  Closed
PHS     58.10   66.67   DEC   47  50   0.30  49.70   0.30  Closed
SII     39.07   41.40   DEC   35  37   0.45  37.05   0.45  Closed
IVGN    64.85   64.39   DEC   55  60   0.50  59.50   0.50  Closed
NTLI    58.96   67.01   DEC   45  50   0.45  49.55   0.45  Closed
NVLS    42.54   40.32   DEC   35  37   0.25  37.25   0.25  Closed
HOV     92.25   88.25   DEC   80  85   0.55  84.45   0.55  Closed
IMCL    39.29   40.76   DEC   30  35   0.55  34.45   0.55  Closed
MATK    60.74   62.25   DEC   50  55   0.45  54.55   0.45  Closed
CME     70.63   71.97   JAN   60  65   0.50  64.50   0.50   Open
NCEN    39.62   38.45   JAN   30  32   0.45  32.93   0.45   Open
SII     40.22   41.40   JAN   35  37   0.25  37.25   0.25   Open
CYBX    32.70   31.78   JAN   25  30   0.50  29.50   0.50   Open
INTU    52.16   51.27   JAN   45  47   0.25  47.25   0.25   Open
TRN     31.36   31.75   JAN   25  30   0.75  29.25   0.75   Open

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

Microstrategy (NASDAQ:MSTR), although profitable at expiration,
was previously closed to preserve capital.


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

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

CCMP    54.16   48.98   DEC   65  60   0.50  60.50   0.50  Closed
KKD     41.85   37.50   DEC   50  45   0.60  45.60   0.60  Closed
MRVL    38.90   36.75   DEC   45  43   0.30  42.80   0.30  Closed
MHK     72.08   70.15   DEC   80  75   0.45  75.45   0.45  Closed
TTWO    33.10   28.31   DEC   37  35   0.25  35.25   0.25  Closed
CECO    38.45   36.78   DEC   50  45   0.40  45.40   0.40  Closed
S       48.96   44.84   DEC   55  50   0.50  50.50   0.50  Closed
SNDK    64.35   60.99   DEC   75  70   0.60  70.60   0.60  Closed
CERN    39.22   40.39   JAN   50  45   0.55  45.55   0.55   Open
MDC     64.06   65.10   JAN   70  65   0.60  65.60   0.50   Open

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

Both spreads in Synopsis (NASDAQ:SNPS) ended the December period
profitable, however that was not the case with previously closed
positions in AIG Int'l Group (NYSE:AIG), Qualcomm (NASDAQ:QCOM),
BJ Services (NYSE:BJS) and Intermune (NASDAQ:ITMN).


CALL DEBIT SPREADS
******************

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

VLO     44.00  46.80   DEC   37  40   2.20   39.70  0.30  Closed
ADRX    21.66  23.39   DEC   17  20   2.15   19.65  0.35  Closed
ELAB    48.17  54.45   DEC   40  45   4.50   44.50  0.50  Closed
ANPI    49.32  45.35   DEC   40  45   4.50   44.50  0.50  Closed
OSX     89.45  93.93   JAN   80  85   4.40   84.40  0.60   Open
ACDO    31.77  31.16   JAN   25  30   4.40   29.40  0.60   Open
DRIV    25.01  22.73   JAN   20  22   2.15   22.25  0.35   Open?

LC = Long Call  SC = Short Call  B/E = Break-Even  G/L = Gain/Loss


PUT DEBIT SPREADS
*****************

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

CTMI    16.08  16,03  DEC   20  17   2.25   17.75  0.25  Closed
SYMC    32.42  33.59  JAN   37  35   2.15   35.35  0.35   Open

The bearish spread in Apria Healthcare (NYSE:AHG) has previously
been closed for a small loss.


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

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

IDCC    19.00  19.58   JAN     25     15     0.20    0.45  Closed
ELX     29.50  25.80   APR     35     25     0.10    0.00  Closed
NE      36.09  36.40   JAN     37     35     0.10    0.50   Open?
PTEN    31.34  33.11   JAN     32     30    (0.10)   0.90   Open?
CE      13.50  13.97   JAN     14     12     0.00    0.00  No Play
SHFL    32.93  35.55   JAN     35     30     0.00    0.00  No Play

A resolution concerning the merger involving Concord EFS (NYSE:CE)
was announced on Monday before the opening bell, thus there was no
position available in the issue.  Shufflemaster (NASDAQ:SHFL) also
gapped higher on Monday morning, preventing a viable entry in the
bullish play.  Patterson-UTI Energy (NASDAQ:PTEN) has reached the
exit target and Noble (NYSE:NE) achieved a favorable "early-exit"
profit in less than one week.


SYNTHETIC (BEARISH)
*******************

No Open Positions


CALENDAR & DIAGONAL SPREADS
***************************

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

SCRI    20.52  27.05   FEB-22C   DEC-25C   1.40    2.10   Closed
OIH     58.73  62.05   JAN-60C   DEC-60C   0.80    1.20   Closed
EBAY    57.68  61.37   JAN-60C   DEC-60C   1.20    1.75   Closed
CEPH    46.34  46.92   FEB-50C   JAN-50C   0.70    1.00    Open

The bullish positions in eBay (NASDAQ:EBAY) and the Oil Service
Holders (AMEX:OIH) both offered favorable short-term profits for
speculative traders.  Cephalon (NASDAQ:CEPH) has been "rolled" to
January options in the short (JAN-$50C) portion of the spread.


DEBIT STRADDLES
***************

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

FCEL    12.56  12.05   DEC    12    12     0.85    1.50   Closed
MACR    20.22  18.00   DEC    20    20     2.20    3.00   Closed
ATN     17.93  18.89   JAN    17    17     2.40    2.75    Open
MYL     25.32  25.42   JAN    25    25     2.25    2.10    Open

Fuelcell Energy (NASDAQ:FCEL) was our "big winner" this month,
offering a gain of almost 100% in only three days.  Macromedia
(NASDAQ:MACR) achieved the initial profit target ($0.70) in
two weeks.


CREDIT STRANGLES
****************

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 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.

**************
CREDIT SPREADS
**************

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

*****
AA - Alcoa  $37.30  *** Leading The Blue-Chip Rally! ***

Alcoa (NYSE:AA) is a producer of primary aluminum, fabricated
aluminum and alumina and is also active in technology, mining,
refining, smelting, fabricating and recycling.  Aluminum and
alumina represent approximately two-thirds of the company's
revenues.  Its non-aluminum products include precision castings,
industrial fasteners, vinyl siding and various consumer products,
foodservice and flexible packaging products, plastic closures,
fiber-optic cables and electrical distribution systems for cars
and trucks.  North America is Alcoa's largest regional market,
with 67% of its revenues.  Europe is also a significant market,
with 21% of its revenues.  Alcoa has a variety of investments
and activities in Asia and Latin America, which presents many
opportunities for growth, particularly in Brazil, China and
Korea.

AA - Alcoa  $37.30

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JAN-32.50  AA-MZ  OI=2674   ASK=$0.20
SELL PUT  JAN-35.00  AA-MG  OI=11900  BID=$0.50
INITIAL NET-CREDIT TARGET=$0.30-$0.40
POTENTIAL PROFIT(max)=14% B/E=$34.70


*****
MTH - Meritage  $65.37  *** Near "All-Time" Highs! ***

Meritage (NYSE:MTH) is a designer and builder of single-family
homes in the Sunbelt states of Texas, Arizona, California and
Nevada.  The firm operates in Texas as Legacy Homes, Monterey
Homes and Hammonds Homes; in Arizona as Monterey Homes, Meritage
Homes and Hancock Communities; in Northern California as Meritage
Homes, and in Nevada as Perma-Bilt Homes.  The company is actively
selling homes in over 120 communities, with base prices ranging
from $92,000 to $910,000.  The company is the general contractor
for projects and typically hires subcontractors to complete the
construction at a fixed price.  The company usually enters into
agreements with subcontractors and materials suppliers after
receiving competitive bids on an individual basis.

MTH - Meritage  $65.37

PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-55.00  MTH-MK  OI=20  ASK=$0.45
SELL PUT  JAN-60.00  MTH-ML  OI=50  BID=$0.90
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$59.50


*****
NFLX - Netflix  $51.07  *** Next Leg Up? ***

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  $51.07

PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-40.00  QNQ-MH  OI=1055  ASK=$0.45
SELL PUT  JAN-42.50  QNQ-MT  OI=2413  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.25-$0.35
POTENTIAL PROFIT(max)=11% B/E=$42.25


*****
SCHN - Schnitzer Steel  $59.28  *** Steel Sector Leader! ***

Schnitzer Steel Industries (NASDAQ:SCHN) collects, processes and
recycles metals by operating a metals recycling business in the
United States.  The company also owns a chain of self-service
auto parts stores in the United States, operating under the name
of Pick-N-Pull, and is also a maker of finished steel products at
its technologically advanced steel mini-mill.  As a result of its
vertically integrated business, Schnitzer is able to transform
obsolete or wrecked auto bodies and other unprocessed metals into
finished steel products.  In addition, it is a partner in joint
ventures that are either in the metals recycling business or are
suppliers of unprocessed metals.  The company owns interests in
five joint ventures that are engaged in buying, processing and
selling primarily ferrous metal.  Another joint venture is an
industrial plant demolition contractor that dismantles industrial
plants, performs environmental remediation and sells recovered
metals and machinery.

SCHN - Schnitzer Steel  $59.28

PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-45.00  SQQ-MI  OI=341  ASK=$0.45
SELL PUT  JAN-50.00  SQQ-MJ  OI=358  BID=$0.90
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$49.50


*****
CL - Colgate-Palmolive  $49.19  *** Earnings Warning ***

Colgate-Palmolive (NYSE:CL) is a consumer products firm whose
products are marketed in over 200 countries and territories
worldwide.  The firm manufactures and markets a variety of
products in the United States and worldwide in two business
segments: oral, personal, household surface and fabric care
and pet nutrition, which are manufactured and marketed by a
subsidiary, Hill's Pet Nutrition.

CL - Colgate-Palmolive  $49.19

PLAY (speculative - bearish/credit spread):

BUY  CALL  JAN-55.00  CL-AK  OI=3578  ASK=$0.10
SELL CALL  JAN-50.00  CL-AJ  OI=2551  BID=$0.75
INITIAL NET-CREDIT TARGET=$0.65-$0.70
POTENTIAL PROFIT(max)=15% B/E=$50.65


*****
KLAC - KLA Tencor  $55.55  *** Revenge Play! ***

KLA-Tencor (NASDAQ:KLAC) is a supplier of process control and
yield management solutions for the semiconductor and related
microelectronics industries.  The company's large portfolio
of products, software, analysis, services and expertise is
designed to help integrated circuit manufacturers manage yield
throughout the entire wafer fabrication process, from research
and development to final mass production yield analysis.  The
company offers a broad spectrum of products and services that
are used by every major semiconductor manufacturer in the world.
These customers turn to the company for in-line wafer defect
monitoring; reticle and photomask defect inspection; CD SEM
metrology; wafer overlay; film and surface measurement; and
overall yield and fab-wide data analysis.

KLAC - KLA Tencor  $55.55

PLAY (conservative - bearish/credit spread):

BUY  CALL  JAN-65.00  KCQ-AM  OI=2731   ASK=$0.20
SELL CALL  JAN-60.00  KCQ-AL  OI=12978  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.55-$0.65
POTENTIAL PROFIT(max)=12% B/E=$60.55


*************
RIMM - Research In Motion  $44.77  *** Pure Premium-Selling! ***

Research In Motion Limited (NASDAQ:RIMM) is a designer, builder,
and marketer of wireless solutions for the mobile communications
market.  Through development and integration of hardware, software
and services, the firm provides solutions for seamless access to
time-sensitive information and communications, including e-mail,
telephone, messaging and Internet- and intranet-based applications.
The company's technology also enables a broad array of third-party
developers and manufacturers around the world to enhance their own
products and services with wireless connectivity.  RIM's portfolio
of products includes a family of wireless handhelds, the BlackBerry
wireless e-mail solution, embedded radio modems and a suite of
software development tools.

RIMM - Research In Motion  $44.77

PLAY (less conservative - bearish/credit spread):

BUY  CALL  JAN-55.00  RUL-AK  OI=1242  ASK=$0.40
SELL CALL  JAN-50.00  RUL-AJ  OI=3653  BID=$0.95
INITIAL NET-CREDIT TARGET=$0.60-$0.70
POTENTIAL PROFIT(max)=14% B/E=$50.60


*************
DEBIT SPREADS
*************

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

*****
IMCL - ImClone  $40.76  *** Consolidation Complete? ***

ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company whose
mission is to advance oncology care by developing a portfolio of
targeted biologic treatments designed to address the medical needs
of patients with a variety of cancers. The company's lead product,
Erbitux, is a therapeutic antibody that inhibits stimulation of
epidermal growth factor receptor upon which certain solid tumors
depend in order to grow. In addition to the development of its
lead product candidates, the company conducts research in a number
of areas related to its core focus of growth factor blockers, as
well as cancer vaccines and angiogenesis inhibitors. IMCL has also
developed diagnostic products and vaccines for certain infectious
diseases.

IMCL - ImClone  $40.76

PLAY (less conservative - bullish/debit spread):

BUY  CALL  JAN-30.00  QCI-AF  OI=2452  ASK=$11.30
SELL CALL  JAN-35.00  QCI-AG  OI=2651  BID=$6.70
INITIAL NET-DEBIT TARGET=$4.45-$4.50
POTENTIAL PROFIT(max)=11% B/E=$34.50


*****
MCHP - Microchip Technology  $32.90  *** Uptrend Intact! ***

Microchip Technology (NASDAQ:MCHP) develops and manufactures
specialized semiconductor products used by its customers for a
wide variety of embedded control applications.  The company's
product portfolio comprises field-programmable RISC-based
microcontrollers that serve 8- and 16-bit embedded control
applications, and a broad spectrum of high-performance linear
and mixed-signal, power and thermal management devices.  The
company also offers complementary microperipheral products,
including interface devices, serial EEPROMS, and its patented
KEELOQ security devices.  The firm markets its products to the
automotive, communications, computing, consumer and industrial
control markets.

MCHP - Microchip Technology  $32.90

BUY  CALL  JAN-25.00  QMT-AE  OI=1652   ASK=$7.80
SELL CALL  JAN-30.00  QMT-AF  OI=10386  BID=$3.40
INITIAL NET-DEBIT TARGET=$4.30-$4.40
POTENTIAL PROFIT(max)=14% B/E=$29.40


*******************
SYNTHETIC POSITIONS
*******************

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

*****
UTHR - United Therapeutics  $23.20  *** Drug Speculation! ***

United Therapeutics (NASDAQ:UTHR) is a biotechnology company
focused on the development and commercialization of therapeutics
to treat chronic and life-threatening diseases in 3 therapeutic
areas: cardiovascular medicine, infectious disease and oncology.
It has 5 therapeutic platforms: Prostacyclin analogs are stable
synthetic forms of a molecule that has effects on blood-vessel
health and function; Remodulin has been approved in the United
States for the treatment of pulmonary arterial hypertension in
patients with New York Heart Association Class II-IV symptoms;
Immunotherapeutic monoclonal antibodies are antibodies that
activate patients' immune systems to treat cancer; Glycobiology
anti-viral agents are a class of small molecules that may be
effective as an oral therapy for hepatitis C and other infections,
and Telemedicine involves portable digital devices that enable
physicians to remotely monitor patients' bodily measurements.

UTHR - United Therapeutics  $23.20

PLAY (less conservative - bullish/synthetic position):

BUY  CALL  MAY-30.00  FUH-EF  OI=10   ASK=$0.95
SELL PUT   MAY-17.50  FUH-QW  OI=250  BID=$0.70
INITIAL NET-DEBIT TARGET=$0.10-$0.15
INITIAL TARGET PROFIT=$0.90-$1.30

Note: Using options, this position is similar to being long the
stock.  The minimum initial margin/collateral requirement for
the sold option is approximately $550 per contract.  However,
do not open this position if you can not afford to purchase the
stock at the sold put strike price ($17.50).


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

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.
The positions in this section are speculative (out-of-the-money)
spreads with low initial cost and large potential profit.

*****
FISV - Fiserv  $38.28  *** Cheap Speculation! ***

Fiserv (NASDAQ:FISV) is a provider of integrated data processing
and information management systems to the financial industry.
The company's operations have been classified into two business
segments.  The financial institution outsourcing, systems and
services business segment provides a wide variety of account and
transaction processing solutions and services to institutions and
other financial intermediaries.  The securities processing and
trust services business segment provides securities processing
solutions and retirement plan administration for brokerage firms,
investment advisers and financial institutions.  The company also
provides plastic card issuance, design, personalization and other
services such as mailing and document solutions.

FISV - Fiserv  $38.28

PLAY (very speculative - bearish/calendar spread):

BUY  PUT  MAR-35.00  FQV-OG  OI=489  ASK=$1.00
SELL PUT  JAN-35.00  FQV-MG  OI=75   BID=$0.25
INITIAL NET DEBIT TARGET=$0.65-$0.70
INITIAL TARGET PROFIT=$0.35-$0.70


***********************
STRADDLES AND STRANGLES
***********************

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

*****
ACL - Alcon  $59.19  *** Probability Play! ***

Alcon (NYSE:ACL) is a research and development-driven, global
medical specialty company focused on eye care.  The company
conducts its global business through two business segments:
Alcon United States and Alcon International and each business
segment markets and sells products principally in three major
product categories of the ophthalmic market: pharmaceutical
(prescription ophthalmic drugs), surgical equipment and devices
(cataract, vitreoretinal and refractive) and contact lens care
(disinfecting and cleaning solutions), and other vision care
products (artificial tears).  Alcon markets its products to eye
care professionals, as well as to the direct purchasers of its
products, such as hospitals, managed care organizations, and
government agencies/entities.

ACL - Alcon  $59.19

PLAY (very speculative - neutral/debit straddle):

BUY CALL  JAN-60.00  ACL-AL  OI=110  ASK=$1.20
BUY PUT   JAN-60.00  ACL-ML  OI=40   ASK=$2.00
INITIAL NET-DEBIT TARGET=$2.90-$3.00
INITIAL TARGET PROFIT=$0.85-$1.40


*****


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

Holiday Traveling Underway
by - Nich Sheldon

While the INDU was able to tack on 30 points and closed at a new
52-week high, only a handful of indices were able to move more
than a half a percentage point, in either direction.  In fact
today's quadruple-witching expiration (stock options, index
options, futures, and index futures) made it extremely difficult
for the indexes to get moving.  We suspect that today's volume, or
lack thereof, was mostly due to traders preparing for their
holiday traveling.

The biggest loss, and the only index to move more than one percent
on Friday was seen in the XAU Gold and Silver Index, which dropped
-2.67 percent.  The index has been in a tight descending
regression channel since the beginning of December, and has
produced lower lows and lower highs consistently for the past five
trading sessions.  Fortunately, for gold bugs this looks more like
short-term profit taking.  The longer-term bullish trend is still
very much intact.  Optimistic metal investors might expect a
bounce from the 50-dma near the 100 level.

The biggest gainer on the day (if you could call a gain of +0.89
percent a big gain!) was seen in the DDX Disk Drive Index.  Today
marked the third consecutive day of gains for the index and a
crossover into bullish territory has begun to formulate on the
MACD indicator.

There were 17 indexes in the red today, and only ten in the green.


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

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