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Daily Newsletter, Sunday, 12/05/2004

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The Option Investor Newsletter                   Sunday 12-05-2004
Copyright 2004, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

Entire newsletter best viewed in COURIER 10 font for alignment

In Section One:

Wrap:  Did Santa Come Early?
Futures Wrap: See Note
Index Trader Wrap:  Market keeps on rolling  
Editor's Plays:  Very Close But No Cigar
Market Sentiment: Looking for Santa
Ask the Analyst: Looking to play a split run?  TASR as an example
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 12-03        WE 11-26        WE 11-19        WE 11-12 
DOW    10592.21 + 69.98 10522.2 + 65.32 10456.9 - 82.10 +151.47 
Nasdaq  2147.96 + 45.99 2101.97 + 31.34 2070.63 - 14.71 + 46.40 
S&P-100  567.08 +  4.43  562.65 +  2.96  559.69 -  6.53 +  8.32 
S&P-500 1191.17 +  8.52 1182.65 + 12.31 1170.34 - 13.83 + 18.00 
W5000  11735.27 + 99.63 11635.6 +155.01 11480.6 -129.04 +200.13 
SOX      445.28 + 14.30  430.98 -  0.90  431.88 +  8.07 +  5.98 
RUT      642.21 + 11.05  631.16 + 17.71  613.44 -  8.54 + 17.69 
TRAN    3726.74 + 78.75 3647.99 + 80.34 3567.65 - 60.55 + 55.70 
VXO       13.61           13.35           14.60           14.05 
VXN       18.26           17.85           19.72           18.82
******************************************************************


Did Santa Come Early?
by Jim Brown

Many traders are beginning to wonder if Santa Claus 
came early to the market during the post election bounce.
Nearly everyone expected the Microsoft cash to provide 
a strong bounce to the market but so far the last two 
days have been less than exciting. The market is trying
to breakout to new highs intraday but can't hold the 
gains at the close. Volume has been very high for the 
last four days with an average volume of 4.7B shares. 
Only one of those days provided traders with decent gains.
The last two days only managed a +2 point net gain for 
the Dow after the +162 point gain on Wednesday. After 
two negative days early in the week of -46 and -47 the 
Dow only managed to gain +69 points for the week despite
the one triple digit day. High volume and no progress is
not a good sign that there are bullish days ahead. 

Dow Chart


Nasdaq Chart


It is far too soon to start ringing the alarm bells but
the last two days of market action have bears coming out
of hibernation. The two days of high volume and no gains
with an extra $25 billion in cash sloshing around in
trading accounts is forcing analysts to reevaluate their
outlook. I am definitely perplexed for multiple reasons.
November and December are historically the two best months
of the year but the last four weeks have been problematic
at best. The Dow jumped +350 points to 10400 in the first
five days of November. We have been moving sideways in a
200 point range ever since. 

Before anybody begins to panic we did close within nine
points of the high end of that range and we have set new
intraday highs on both of the last two days. While the 
bulls would liked to have seen a stronger move over the
last two days the conditions could still be seen as 
positive. 10600 is strong psychological resistance.

The Nasdaq is performing better but shares some of the
same characteristics as the Dow. It has traded in a 40
point range since Nov-12th and did not break above the
2100 level with conviction until Wednesday. It also 
posted gains on both Thr/Fri after Wednesday's +40 point
jump. The last two days the Nasdaq traded over its January
2004 high for the year at 2153 but could not close over
that level just like the Dow could not close over 10600.

The SPX has been much stronger than the Dow and Nasdaq
with a breakout to a new high for the year over 1160. 
That initial post election bounce then spent the rest
of the month trading in a narrow 1170-1190 range. The
Wednesday rally pushed us to the top of that range but
we have closed at 1190 now for three straight days. The
SPX could be the determining factor for our current 
malaise.

The SPX has rebounded +12% since the August lows and has
cleared all the normal resistance levels dating back to
late 2001. This has been a significant move higher and
once past 1200 the next bump in the road is 1225 then
1253. The problem appears to be 1200 as significant
selling appears on any move over 1190. A similar plateau
exists on the Russell-2000 which has stalled at 643 for
the last three days. Since that is less than two points
from an all time high just continuing to cling to the
high ground after a +25% rebound from the August lows
is remarkable. Unfortunately this is the very long term
uptrend resistance line from April 2002. A failure to 
breakout here could retard the overall market. 

SPX Chart


Russell Chart - Weekly


SOX Chart


Watching the last two days of strong volume and no real
movement puts the fear of the bear into almost everyone.
Depending on your viewpoint those paragraphs above could
be seen as a glass half empty or half full. I started
writing this analysis with a weakening bias and I was
questioning my assumptions for the last week. After 
getting to this point I am ready to reconfirm that bias.
Helping to rebuild my confidence is the SOX and the break
over 450 on Friday. We know that spike was Intel related
but it only capped a three day run to higher ground. SOX
450 is strong resistance but it is also confirmation of 
a strong breakout from the weakness of the last several
weeks. The next material resistance is not until 485 
and well over our current level. 

While I came into this article with a lot of questions
I believe it is too early to get out the fur coats. Just
because the market has not reacted as expected for two
whole days is no reason to throw out the assumptions as
invalid. I explained on Thursday night that some funds 
had hedged the Microsoft dividend bounce with futures
ahead of the event. Now that the money has hit their
accounts they have spent the last two days unwinding
those trades. The very high volume with no gains is
confirmation of this position change. Obviously only
a few funds took this route and we are seeing the 
results of that trade. For those funds that did not
hedge and simply waited for the cash to hit the account
were faced with either buying new multi year highs in
the case of the SPX or all time historic highs in the
case of the Russell. Most fund managers would rather 
not buy historic highs and would prefer at least a
minor pullback to enter. 

Those looking for a drop on Friday were faced with a
mixed message as the Dow and SPX barely dipped at the 
open on the bad Jobs report and tech stocks exploded 
out of the gate on the Intel news. If you were trying
to put a large amount of money to work on Friday your
safe options would have been limited. You might have 
been especially cautious given the questionable outlook 
from the Jobs report. 

The Jobs Report posted a gain of only +112,000 jobs and
well under the consensus of 200K and last months +337K.
Also the last month number was revised down to +303K and
September was revised down to +119K from +139K. Given the
downward revisions of -54,000 jobs and the weak headline
number for November the net job gain was only +58,000.
This is terrible news and while the spin masters tried 
to talk positively about the fifteen months of consecutive
gains and the monthly average of over +200K nobody was
buying the story. The hourly wage component rose only
a penny and the smallest gain since December 2003. The
average workweek fell back to 33.7 hours and only 0.1
above the post recession lows. Lower wages and lower 
hours means more job seekers than jobs and heavy 
competition for those available jobs. Employers are 
not having to pay up for qualified workers. 

It appears the job gains from last month were hurricane
skewed after all with only 11,000 construction jobs
created this month compared to +65,000 last month. The
manufacturing sector lost jobs for the third straight
month with a loss of -5,000 jobs in November. Despite
the beginning of the holiday retail season the retail
sector only showed a net gain of +9,000 jobs compared
to +17,000 in October. Retailers are still cautious
about hiring because of weak retail traffic and slow
sales.

The Jobs report on Friday and the weak retail sales on
Thursday prompted analysts to question the strength of
the economy and the likelihood of a strong holiday 
season. This causes traders to question earnings for
the 4Q and gave funds one more reason for not buying
the breakout highs on the SPX and Russell. 

Offsetting the negative economic news was another drop
in oil prices to touch $42 intraday and strong support.
More traders were calling $42 a bottom and a buying 
opportunity and comments from OPEC supported this view.
Just last week Saudi Arabia said they were going to 
increase output over the coming months by +14% to 13
million bbls per day to keep pressure on prices. On
Friday a senior OPEC delegate said the decline in oil
prices was troubling and if it continued OPEC would be
forced to slash output to maintain the higher prices.
At the same time the OPEC President said their fair 
price was still targeted at $28-$32 for an average
price of the various levels of crude. He also said that
OPEC would likely maintain production at current levels
for the first quarter of 2005. What was evident to most
was the OPEC lip service to $32 oil when OPEC delegates
were calling for production cuts to keep oil over $45.
This is equivalent to Treasury Secretary Snow giving
speech after speech in support of a strong dollar while
knowing that a weak dollar would be beneficial to the
trade deficit and to corporate America. This OPEC lip
service suggests that OPEC countries have already grown
accustomed to the higher prices and will not allow us
to move much lower. For this reason the slightly lower
oil on Friday did not help equities move higher. The
crash may be over and only higher prices ahead. 

Just as stocks began to rise in late morning trading
there was news from Madrid Spain that terrorists were
threatening to blow up multiple locations in Madrid.
Shortly thereafter there were multiple reports of 
explosions at different locations as those threats
were carried out. The markets turned lower on the news
as the terror threats became a news item again. About
an hour later there was a news alert that the U.S. Supreme
Court building was being evacuated after a possible threat.
The skittish market again weakened. The evacuation was
eventually blamed on a false alarm but the damage to the
markets was already in place. 

In stock news the highlight was IBM, which is trying to 
sell off its PC business to Lenovo Group, China's largest
PC maker. Toshiba said it had been contacted by IBM to
buy its PC division but had declined. Getting rid of the
PC business would be a positive move by IBM with profit
margins already getting squeezed to nearly nothing by
Dell and the rest of the pack. It would follow the
pattern by the current CEO of getting out of low margin
efforts and concentrating on the big money plays. IBM
rose +1.50 on the news to $97.50. It was also seen as
a positive for AMD who would likely be the preferred
supplier of processors for the IBM/Lenovo computers. 

IBM could be just about right on the timing as the
expiring tax cut for capital equipment has only four 
weeks left to live. According to several hardware 
analysts there is a last minute wave of buying in process
to capture the accelerated depreciation for equipment 
installed before year end. I must have heard/read at
least five different articles on Friday about the tax
orders and the lack of orders anticipated for Q1. This
is another reason funds may have been hesitant to buy
stocks. 

Like the terror threat, impending election and IRAQ war
put buyers on hold until the events passed the threat
of decelerating earnings for Q1 is already causing paralysis.
Depending on who you listen to the threat is either for a
general apathy to appear in late January or a 2-3 year
bear market to return. Very, very few analysts are calling
for a strong economy and another leg up for the current
rally. However, there has been no significant downturn in
guidance to support the negative view or significant upturn
to support the positive view. We are in a wait and see
environment. 

I had thought we were going to get through December before
these worries started paralyzing traders and putting them
in a defensive posture. I believed the Microsoft dividend
would provide enough liquidity to float all the boats for
the next two weeks. Logically it still should. TrimTabs
reported that $3.84B in new cash flowed into funds in the
week ended on Thursday. That is a nice chunk of change 
and a decent week. Assuming that cash flow continues we
should see another +$4B this week as well. This is the
normal support level for a bull market. Add in the MSFT
dividend at $25 billion and it is like getting an extra
six weeks of liquidity all in one week. It should float
the markets. To put it in better perspective funds have
received $88.5B in cash since Jan-1st 2004. The Microsoft
dividend expected to return to the market is $25B or 28%
of the annual cash flow seen by funds. Obviously having
a gift equivalent to 28% of your annual cash flow fall
into your lap on a single day SHOULD prompt a spending
spree of epic proportions. That spree was as absent as
the emperors clothes on Friday and harder to find than
weapons of mass destruction. 

Next week could be a different story. There are not any
material economic reports until Friday with the possible
exception of the Richmond Fed on Wednesday. There are no
holidays and no events likely to distract traders. If 
that money is still sloshing around in fund accounts it
should be put to work early next week. The key word is 
obviously "should". If it doesn't happen then get out 
the hammer and nails and start boarding up the windows
because storm clouds will not be far behind. We have 
all the positive factors I can imagine working for us
in terms of cash, calendar, fund performance and greed.
The only darkness ahead is not until the late January 
earnings guidance and it is far enough away the bulls
should ignore it. A market drop under these circumstances
would be very bearish and a signal the Santa Clause rally
could pass us by. 

There is still the conventional wisdom from the past
that has funds selling losers in early December but I
don't believe this is a factor today. They should have
sold them last week before the cash appeared so they
would be ready to party hardy over the next four weeks. 
The lack of an end of week rally continuation could be
attributed to many reasons. Until we see what next week
brings it will be difficult to say what really caused
our flat markets on Friday. Let's just hope it was a
hangover from too much celebration and backslapping 
when the Microsoft checks appeared. Fund managers 
anxious to close the books on an end of year bonus 
may have had their minds on other things. Let's hope
it is back to work as usual next week. 

One last thought. When managers do apply end of year cash
it normally gets applied to current winners to push them
even higher in a last minute tape painting binge to puff
up their end of year statements. If there are any losers
left to be sold you can bet that money will find its way
into the winner column as well. For us as traders it
suggests we should hitch our hopes on the rising stars
and not be bargain hunters over the next four weeks. The
guidance for long term investors is just the opposite. 
Look for those beaten down issues with real turnaround 
potential for your long term cash.

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

Futures wrap is not emailed due to the excessive number of charts.
It may be read on the website at this address.
http://www.OptionInvestor.com/indexes/futureswrap.asp


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

Market keeps on rolling  
By Leigh Stevens
lstevens@OptionInvestor.com 

THE BOTTOM LINE – 

The broader averages, the Nasdaq Composite (COMP) and the S&P 
500 rallied some more above the prior week's highs, suggestive 
of a new up leg.  Where the problem is to an all-bullish case 
is the relative weaker performances of the most actively 
traded index options, the S&P 100 (OEX) and Nasdaq 100 (NDX). 

On the bullish side you would say that participation has 
broadened out into the second and third tier stocks of these 
indices.  On the bearish side, too much to fast, given the 
still real threats out there.    

Given the long-term negatives of a falling dollar and the lack 
of sustained job creation, I can't get too long-term bullish 
yet.  However, the trend is up no doubt. 

FRIDAY'S CLOSING NUMBERS – 

The S&P 500 Index (SPX) was up a fraction of a point at the 
final bell at 1,191 and up 0.7% for the week. The Dow (INDU) 
was 7 points higher to 10,592.21, also up 0.7% weekly.

The Nasdaq Composite Index (COMP) managed to gain 4.39 points, 
closing at 2,147.9, up 2.2% on the week.  As widely noted, 
COMP hit a new intraday high for the year of 2,164, taking out 
the 2,153 high of late-January.

FRIDAY'S TRADING  – 

Stocks rallied early on an Intel (INTC) sales outlook release 
which forecasted continued strong revenue growth. The Philly 
Semiconductor stock index (SOX) crossed above its 440 
resistance and above its 200-day moving average. 

The market then fell back later on the implications contained 
in November's employment report - nonfarm payrolls increased 
only by 112,000 in November.  The unemployment rate dipped to 
5.4% per a Labor Department estimate. However, consensus 
estimates were for over 200,000.

Michael Metz, a voice I respect from Oppenheimer & Co. thought 
the figures "raise questions about how self-sustaining the 
economy is." He also noted Wednesday's personal income and 
spending data for October, showing spending running ahead of 
wage increases. "People are not saving anything and that's 
absolutely unsustainable and this figure indicates that unless 
we get more rapid job creation, the economy is just not going 
to maintain its momentum."  I tend to agree.

A sharp weekly drop in crude oil prices was a big bullish 
factor for stocks – the week just past saw February crude 
futures open at 49.40 and close at 42.54, a drop of 14% on the 
week! 

However, new lows for the dollar and a weaker-than-expected 
November employment report fueled concern about the outlook 
for the U.S. economy.

When the dollar decline was orderly, the market was not overly 
concerned – but aggressive selling of the greenback got more 
people thinking about its implications. It's getting more 
people selling stocks, including some big players.  

The dollar, initially weakened by the job report, accelerated 
its losses against the euro and the yen after a report in a 
German newspaper quoted a senior U.S. Treasury official as 
saying the United States won't enter the foreign-exchange 
market to defend the dollar unless it falls to at least $1.45 
per euro. A practical green light to keep selling!

The dollar fell 1.4% against the euro, to trade at an all-time 
low of $1.3460. Against the yen, the U.S. currency was down 
1.1 percent, to 102.06

What is sauce for the goose is goose for the gander – 
Or something like that! Bonds LOVED the low-growth employment 
report. The 10-year had a run up of over a point, finishing up 
1 and 5/32'nds higher to 99 28/32 to yield 4.27%. The report 
got bond mavens thinking that the Fed might slow its current 
pace of rate increases, although the market is still priced in 
another rate hike at its meeting in 11 days.

MY INDEX OUTLOOKS – 

S&P 500 Index (SPX) – Daily chart:

Week before last the chart picture was looking toppy, but has  
maintained a bullish pattern with last week's move above the 
top end of the recent trading range.  The broader averages 
like the S&P 500 (SPX) have outperformed the narrower 100's 
(in both the NYSE and Nasdaq markets).  This would suggest 
that buying as spread out to more sectors. 

SPX would not be severely overbought before reaching the 1120 
area.  If this was a valid breakout upside move, we can expect 
the prior resistance in the 1187 area will become support.  
1170 is the next level of lower technical support.   



As the market has continued higher my sentiment indicator has 
been steadily falling which shows a large level of disbelief 
in the staying power of this rally.            

S&P 100 Index (OEX) – Daily chart:

With the move in the S&P 100 (OEX) to above 564, the possible 
Head & Shoulder's top pattern shaping up on the hourly chart 
was invalidated.  Therefore we have to expect that the 
challenge is going be taking out the prior '04 high at 573.  
Stay tuned on that.  

OEX has not closed yet above its recent intraday high at 568, 
but did achieve a new daily closing high on Friday. It is a 
breakout move but not decisively, so this key index bears 
watching in the near term for a possible top.   

I suggested last time that a move above 564 would set up next 
higher resistance around 568-569, then at the aforementioned  
resistance at the January-February rally peaks at 573. Support 
is at 557-558.      



Meanwhile the Relative Strength index is declining, suggesting 
a market with (hey, you guessed it) less relative strength.   

Dow 30 Average (INDU) - Daily: 

10753 is the high to beat in the lagging Dow 30 (INDU). The 
Dow managed to clear 10570, at the prior top noted in the 
chart below.   

No change in my prior view that with INDU above the 10570-
10600 area, an obvious next upside objective or target becomes 
the 10750 area, at its 12-month peak. We can usually  
assume that when a market keeps marching back toward a yearly 
high, that this price area is one to watch. One more rally, 
maybe to the key resistance, then I would look for a pause and 
pullback.  The weakest rise the latest and fall the soonest.   



When I've seen this kind of pattern in the stochastic, another 
rally has usually developed before prices came down again in a 
move large enough to profit with using index puts.    

Nasdaq Composite (COMP) Index  – Daily chart:

Once resistance was taken out in the 2115 area, next 
resistance was at the prior high at 2153, which was not 
cleared on Friday. A move above the prior 12-month high is the 
acid test for whether there is going to be another up leg in 
this market.  

As I mentioned before, longer-term momentum turned up in the 
Nasdaq Composite (COMP) when the 50-day average trading 
crossed above the 200-day – the first occasion when the 
shorter average was above the long average since crossing 
below it last June.  

Key support still looks to be around 2050 at the prior 
reaction low.  




Nasdaq 100 (NDX) Index  – Hourly:

The ascent in the Nas 100 (NDX) has become very steep and 
therefore unsustainable for much longer, maybe to the 1650 
area.  The indexes will tend to come back to a mean.  

1550-1560 is key support. 1600 was an of put interest a week 
ago, but a move thirty points above this strike leads me to 
cover (exit) any such purchases on a dip back toward the 
strike early  in week.  

I mentioned a "mean" rate of ascent and NDX would fall back to 
it on a move back to the 1475-1477 area.  



I tend not to like, or I should say not to trust rallies that 
spike up from a lesser (14-day) RSI high.  They always look 
the ones (the rallies) that come down hard and sharp at some 
not far away point. 

Nasdaq 100 tracking Stock (QQQ) Daily chart:

As I've been saying, the recent highs are near the top end of 
its possible uptrend channel – on the bullish side is the 
longer time that goes by with the Q's above their prior yearly 
high at 39.  What was resistance should now be support.  Stay 
tuned on that!  

I'll take the guess that "resistance" can now be found in the 
40 area.  It's a guess.  Not a guess is that QQQ as it tracks 
the Nasdaq 100 (NDX), has had a well above average steep rise 
and these things becoming increasingly vulnerable to any 
negative market news.  



Upside momentum continues to wane and a bearish warning is 
given by the falling On Balance Volume (OBV) line. Volume will 
often "precede" price so to speak when volume falls first, 
prices later.  

Good Trading Success!
 



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

Very Close But No Cigar

The DIA call position is still only a half position 
and it appears we are not going to get a chance to
fill that missing half. 

The trigger to enter the second half was a Dow trade
at 10400 and Monday's drop to 10417 was not quite
enough to trigger the fill. 

I am going to cancel the second half today because
a return to 10400 now might be a bad omen. 

The lack of penetration over Dow 10600 has prevented
the option prices from adding any material gains. Of
the four options I listed in the initial play write-up
are all profitable but only barely. We really need the
Dow to break that 10600 barrier to start tacking on 
some points.  

Jan-$105 call DIA-AA (11/22) $1.90 currently $2.40 
Jan-$106 call DIA-AB (11/22) $1.40 currently $1.80
Jan-$107 call DIA-AC (11/22) $1.00 currently $1.35
Jan-$108 call DIA-AD (11/22) $0.70 currently $0.95

Unfortunately I am not confident we are going higher.
The Dow has stalled at 10600, the Nasdaq at 2150 and
the SPX at 1195. These are all solid resistance levels
and we are not seeing the cashflow into the market from
the Microsoft dividend as expected. It appears too
many funds hedged their bets against the bounce and 
the rally we saw on Wednesday could have been the event
in advance. 

Because the Dow and Nasdaq continue to press the upper
limits I am not going to close this play and let it run.
I am going to raise the stop to 10525 to insure we don't
take a loss. If the Dow breaks out we could still see a
strong run but I am far less confident today.  


Stop loss 10525

DIA Chart


************  
Open plays:
************  

Google Puts $180.47 

We are still long the Google puts that were triggered on
the drop back through $175 on Nov-16th. We had the rebound
on another round of analyst chatter during Thanksgiving
week but it appears the excitement is fading. 

The option premiums are shrinking without any material
movement by the stock and more than one reader remarked
about a $1 shrinkage on Friday. That is the market makers
taking into account the weekend. You get three days of
premium decay in one day. 

We are nearing another 25 million share release on Dec-16th
just eight short days away. With Google failing to take 
part in the Wednesday rally I think the odds are finally 
turning in our favor. 

As always it is up to the individual trader to decide
when to exit a play that is not performing the way we
like. Personally I am still a believer in the March
options because there is still 237 million shares to
hit the street between now and Feb-16th. That is nearly
five times the current number available for trading and
the insiders are filing almost daily to sell at these
levels. 

Should the market roll over here it could be particularly 
bad for GOOG. Those stocks with the highest profits always
go first. 

Current stop $185.00
Reentry if stopped $175.00


GOOG Chart



http://members.OptionInvestor.com/editorplays/edply_110704_1.asp
http://members.OptionInvestor.com/editorplays/edply_111404_1.asp

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

MRK Put $28.67   

The MRK put was stopped out on Monday when MRK hit $28. 

Jan-2006 $25 LEAP Put WMR-ME cost $1.70 exit $2.20

Initial recommendation:
http://members.OptionInvestor.com/editorplays/edply_101004_1.asp



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

Looking for Santa
- J. Brown

Welcome to December.  December is historically one of the most 
bullish months of the year for stocks.  Traditionally the holiday 
shopping season keeps business running on all cylinders and moods 
tend to be more cheerful.  In another week or so investors will 
be looking for a seasonal "Santa Claus" rally as stocks tend to 
march higher ahead of the holiday.  

Last week closed out November and launched the markets into 
December with a big gain on Wednesday.  Unfortunately, there 
hasn't been much follow through.  Currently the expectation is 
for stocks to trend higher this week as money managers and 
investors put their Microsoft dividend cash back to work in the 
market - at least that's the hope.  

Looking ahead this is somewhat of an empty week for Wall Street.  
Last week was the parade of economic data.  Two weeks from now 
will be the FOMC meeting.  Plus, bulls will be looking for early 
signs of the January effect on small cap stocks around the 15th.  
Without the MSFT money to lift stocks traders might be tempted to 
do some profit taking.  

Overall sentiment remains positive.  The fact that stocks held 
their ground on Friday in spite of a terrible jobs number, 
terrorist explosions in Madrid and a bomb threat on the Supreme 
Court building is pretty impressive.  


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

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  9585
Current     : 10592

Moving Averages:
(Simple)

 10-dma: 10515
 50-dma: 10215 
200-dma: 10238 



S&P 500 ($SPX)

52-week High: 1188
52-week Low : 1031
Current     : 1191

Moving Averages:
(Simple)

 10-dma: 1181
 50-dma: 1143
200-dma: 1122



Nasdaq-100 ($NDX)

52-week High: 1581
52-week Low : 1301
Current     : 1614

Moving Averages:
(Simple)

 10-dma: 1583
 50-dma: 1495
200-dma: 1444



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

CBOE Market Volatility Index (VIX) = 12.96 -0.02
CBOE Mkt Volatility old VIX  (VXO) = 13.61 -0.30
Nasdaq Volatility Index (VXN)      = 18.26 -0.38 


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.74        892,421       660,400
Equity Only    0.54        726,468       394,888
OEX            1.08         24,374        26,314
QQQQ           2.72         37,553       102,093


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

Bullish Percent Data

           Current   Change   Status
NYSE          75.7    + 0.1   Bear Correction
NASDAQ-100    78.0    + 2     Bull Confirmed
Dow Indust.   66.6    + 0     Bull Confirmed
S&P 500       74.2    + 0.4   Bull Confirmed
S&P 100       74.0    + 0     Bull Confirmed


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: 0.98
10-dma: 0.92 
21-dma: 0.94
55-dma: 1.08


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    1679      1410
Decliners    1135      1606

New Highs     197       114
New Lows        9         8

Up Volume   1040M     1625M
Down Vol.    889M      768M

Total Vol.  1962M     2416M
M = millions


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

Commitments Of Traders Report: 11/30/04


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

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

S&P 500
Commercials traders didn't budge from their slightly bearish
tone last week while small traders have increased their bullish
attitudes.

Commercials   Long      Short      Net     % Of OI
11/09/04      447,779   449,171   ( 1,392)   (0.1%)
11/16/04      452,149   468,048   (15,899)   (1.7%)
11/23/04      462,408   491,384   (28,976)   (3.0%)
11/30/04      462,394   491,813   (29,419)   (3.0%)

Most bearish reading of the year: (111,956) -  3/06/02
Most bullish reading of the year:   23,977  - 12/09/03

Small Traders Long      Short      Net     % of OI
11/09/04      148,415   136,325    12,090     4.2%
11/16/04      166,862   156,751    10,111     3.1%
11/23/04      171,192   150,606    20,586     6.4%
11/30/04      176,031   148,876    27,155     8.3%

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

Commercial traders added to both longs and shorts while 
small traders reduced some longs to lower their bullishness
by a few percentage points.

Commercials   Long      Short      Net     % Of OI 
11/09/04      337,164   672,903   (335,739)  (33.2%)
11/16/04      371,282   796,279   (424,997)  (36.4%)
11/23/04      412,724   849,091   (436,367)  (34.6%)
11/30/04      439,074   855,440   (416,366)  (32.2%)

Most bearish reading of the year: (436,367)  - 11/23/04
Most bullish reading of the year:  133,299   - 09/02/03

Small Traders Long      Short      Net     % of OI
11/09/04      392,253     58,999   333,254    73.8%
11/16/04      445,737     70,169   375,568    72.8%
11/23/04      400,995     62,080   338,915    73.1%
11/30/04      386,665     67,926   318,739    70.1%

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


NASDAQ-100

Sentiment is hitting new one-year extremes on the NDX.
Commercials are becoming more bullish while small traders
are becoming more bearish!

Commercials   Long      Short      Net     % of OI 
11/09/04       54,509     33,016    21,493   24.5%
11/16/04       55,737     33,683    22,054   24.6%
11/23/04       58,159     34,104    24,055   26.0%
11/30/04       56,629     30,571    26,058   29.8%

Most bearish reading of the year: (21,858)  - 08/26/03
Most bullish reading of the year:  26,058   - 11/30/04

Small Traders  Long     Short      Net     % of OI
11/09/04       10,213    38,251   (28,038)  (57.8%)
11/16/04       10,533    37,660   (27,127)  (56.2%)
11/23/04       11,153    39,712   (28,559)  (56.1%)
11/30/04        9,902    44,779   (34,877)  (63.7%)

Most bearish reading of the year: (34,877) - 11/30/04
Most bullish reading of the year:  19,088  - 01/21/02

DOW JONES INDUSTRIAL

Both the commercial traders and the small traders have
grown more bearish on the Industrials.

Commercials   Long      Short      Net     % of OI
11/09/04       22,863    22,463      400       0.8%
11/16/04       22,004    23,744   (1,740)     (3.8%)
11/23/04       22,527    25,537   (3,010)     (6.2%)
11/30/04       22,622    25,411   (2,789)     (5.8%)
 
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
11/09/04        6,165     6,483    ( 318)   ( 2.5%)
11/16/04        5,937     6,533    ( 596)   ( 4.7%)
11/23/04        5,833     8,299   (2,466)   (17.4%)
11/30/04        5,739     8,536   (2,797)   (19.6%)

Most bearish reading of the year: (12,106) -  3/09/04
Most bullish reading of the year:   8,523  -  8/26/03




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

Looking to play a split run?  TASR as an example

In this week's Market Monitor, one trader and some of his trading 
partners had questions regarding Taser Intl. (NASDAQ:TASR).  The 
questions were not only "where is the stock headed?", but also 
how to manage their call option positions.

One trader asked... (11/29/04).. "we are aware of the 2:1 stock 
split tonight and the stock has had a real fast move up the past 
two hours, would you be so kind and give us your latest 
analysis/comments on M/M today before Market close.... We are 
holding calls." 

With just minutes left before the closing bell, and having 
profiled bullish call trades in TASR in the months and weeks 
prior to the split, I (Jeff Bailey) thought the trader(s) should 
exit at least 1/2 of their calls prior to the close on this pop 
when the stock was trading $50.90. (I was assuming the trader(s) 
held December expiration, but I did not know what price they had 
previously purchased their calls at).

One of the MAIN REASONS for my thoughts to sell 1/2 position, was 
that the stock had ALREADY achieved its BULLISH vertical count of 
$60, which I had alerted traders to dating back to September.

Let me quickly share with you a LOSS that my clients and I 
partook in and what I LEARNED to look for in stock splits.  I've 
said before that I feel good traders and investors learn as much, 
if not more, from their mistakes as they do their successes.  

Always, and I mean ALWAYS look at a stock that is going to split 
its shares on a point and figure chart.  And CHANGE THE SCALE, or 
the BOX SIZE to reflect what the stock is GOING TO LOOK LIKE when 
the split occurs.  Study its supply/demand makeup.

I've told the story before that I had advised clients to SHORT 
shares of Amazon.com (back when Amazon.com was this little-known 
online book seller with extremely overprices valuations).  

My lesson, my clients and my own losses, were realized the day 
the stock split, and there we were, short a stock that had just 
unleashed a bullish triangle pattern.  I remember the stock was 
in the post-split $22 area, and on a post-split basis, I was 
suddenly looking at a supply/demand chart with a very bullish 
pattern, as well as a bullish vertical count to about $75 (if my 
memory serves me correct).  

Now, all clients, except for one (very fundamental based 
investor) closed out our bearish positions for about a 10% loss.  
Eventually, the other client closed out his bearish position at 
around $78.  After that, he started looking at, and learning the 
point and figure methodology of charting stocks.

Long story, but what I learned is to ALWAYS look at the point and 
figure chart on a post-split basis.  Perform your bullish, or 
bearish vertical counts, then begin assessing whether the stock 
is still suitable for trading based on bullish/bearish technicals.

Here's what I like to do.  

Let's quickly look at Taser's (TASR) point and figure chart as it 
looked PRIOR to the 2:1 stock split on Tuesday morning.

Taser Intl. (TASR) - $1 box (11/29/04 Close)



After testing BULLISH support trend back in August (blue 8) and 
finding support at $26, shares of TASR generated a double top buy 
signal at $30 in early September (blue 9) and demand (buyers 
overcoming sellers) built a bullish vertical count column from 
$27 to $37.  This bullish vertical count suggested a longer-term 
bullish price objective of $60.  $27 + ((11 * 3) * 1 = $60.

Let me say this.  ANYTIME a stock (XOM, IBM or TASR, it doesn't 
matter) achieves its bullish vertical count, then gives a sell 
signal (like TASR did at $55 when O fell below a prior column of 
O) I will be very CAUTIOUSLY bullish as long as the stock is 
above its bullish support trend, but I'm usually not very excited 
about being long a FULL position, and would MUCH prefer the stock 
generate a new point and figure buy signal (X above a prior 
column of X).  

Now.  You and I know that with TASR trading $50, or $51 on the 
above point and figure chart, when the stock splits, 2 for 1, 
then the post-split price will be $25 or $25.50.  Right?  

One nice thing about point and figure charts, is that a 
trader/investor can actually change the scale of the chart, and 
look at the supply (O) and demand (X) on a post-split basis.  The 
way you do this is to EXPAND your box size to double what the 
current box size is.  The above chart of TASR is charted on a 
conventional $1 box size, so you would simply change your box 
size to $2.

Now all you have to do is "pretend" that $50 is $25, or $60 is 
$30, or $48 is $24.  Pretty easy stuff.

Here's is where we look at TASR as if it was trading AFTER its 
2:1 split.  Is the chart BULLISH or BEARISH?  If you were holding 
a FULL position, what might you do?

Taser Intl (TASR) - $2 box



Just remember when you're looking at a chart where you've changed 
the box size by a factor of 2 (or double its conventional scale) 
that you need to then imagine the prices are actually 1/2 the 
displayed value.

See the bullish vertical count column I point to from $26 ($13) 
to $48 ($24)?  Here too we need to remember something about how 
point and figure charts are constructed.  From $10 to $20, the 
box size is $0.50 increments and from $20 to $100, the box size 
is $1 increments.  The reason for this is that a 50-cent move is 
rather meaningful for stocks priced from $10-$20, but not as 
meaningful when a stock moves its price into the $20 to $100 
range.  This must be understood when you are trying to calculate 
a bullish vertical count on a POST-SPLIT basis.

I came up with an "old" bullish vertical count of $37.  

To do this, you would take....the 8 Xs from $13 to $20, multiply 
by the constant factor of 3, then take that quantity and multiply 
it again by the box size of $0.50.  ((8 * 3) * 0.50) = $12.

Then take the remaining 4 Xs from $21 to $24, multiply by the 
constant factor of 3, then take that quantity and multiply it 
again by the box size of $1.  ((4 * 3) * 1) = $12.

Finally, you sum both $12 + $12 = $24, and ADD it to the base 
column of X, which is $13.  $24 + $13 = $37.

I still go through all of this, even thought the above POST-SPLIT 
chart does show TASR having given a double-bottom sell signal at 
$24, which does negate the bullish vertical count of $37.

But do you see how my clients, and myself could have gotten into 
the trouble we got into with AMZN?  What if on the above chart, 
TASR had never traded $48.00 on a PRE-SPLIT basis.  What if it 
had traded $50 on a PRE-SPLIT basis?  What is $50 on a POST-SPLIT 
BASIS?

Yes!  A trader that was ONLY looking at TASR's chart on a PRE-
SPLIT basis might believe he/she is SHORT a stock that has given 
a sell signal, but when the split takes place, they are short a 
stock that still has a BULLISH vertical count to $37, and they're 
short at $25.  That's EXACTLY what happened to my clients and I 
with Amazon.com.

Ok, but the above chart was the chart I looked at, when I told 
the trader(s) (asking today's question) what I (Jeff Bailey) 
would do with their trade.  

So why did I tell them to sell just 1/2 of the position?  

Let's look at how TASR actually looks NOW that it has split its 
stock 2:1.  Remember, TASR is a "wild stock."  They're growing 
their revenues very fast, and their earnings too.  They have very 
little competition in the stun gun market, and are the dominant 
player right now.  The stock trades very much on SPECULATION and 
UNCERTAINTY.  It isn't just BULLS that are speculative and 
uncertain either.  There's a lot of BEARS that have seen their 
accounts "stunned" by this stock's price action.

Taser Intl. (TASR) - $0.50 & $1 box



First point/lesson.  Even though we went to the added work of 
changing box scale on the TASR PRE-SPLIT chart, to make some 
observations of how the stock would look on a POST-SPLIT basis, 
when we're dealing with a stock that will then show prices below 
and above $20, then that $0.50 box size is going to be a little 
more difficult to truly reflect.  See how our "old" bullish 
vertical count would actually be calculated at $47.50, instead of 
the $37 we calculated when trying to make the stock look POST-
SPLIT (chart #2)?  That's a bit "shocking" differential.

It has also been my observation, as well as other subscribers 
that are using point and figure charts as a part of their 
analysis, that there have been quite a few (I've lost track of 
the number) stocks, where the stock has made a "big run," then 
gives a "sell signal," like TASR shows at $24.00, only to reverse 
back up to either resistance, or "catapult" itself further higher 
to then generate a new "buy signal."  This is a very common 
occurrence in a "raging bull" market.

Even as I look at TASR at $28.23 today, I would have no regrets 
in my thoughts to having traders sold 1/2 of their bullish 
positions at $50, or $25 post-split.

Now, this trader and his friends then sold their remaining 1/2 
positions the following morning as TASR gapped further higher on 
the 2:1 split.

What then sets in, as is common with most any trader is what I 
call "seller's remorse" as the stock continue to gain, and gain, 
and gain further.

But the trader, a long-time subscriber to OptionInvestor.com 
wrote me another e-mail (of several) that while he and his 
trading partners had sold all their positions, and the stock had 
continued to rise, they were going to forget the trade for awhile 
and move on to another trade.

Excellent idea!  Is my thinking.  How many times have I profiled 
bullish and bearish SWING trades in TASR the past two years?  I'd 
have to go back through my trade blotter, but I think at least 4, 
maybe 5 times.  For the most part, we've taken a nice chunk of 
profits (long/call and put/short) from TASR.  I'll go weeks 
without looking at TASR, check in on its chart from time to time, 
set an upside or downside alert on its chart, where I think bulls 
or bears might be in some near-term "trouble" and panic, where a 
trader might get a pretty good move (up or down) in the stock.  

Other than that, a stock like TASR is one that will have you 
pulling your hair out if you watch it every day.  As the company 
continues to split its stock, and insiders distribute some of 
their shares to the public float, it will trade less volatile.

All this garbage talk of "insider selling," is just that.  These 
insiders have made MILLIONS for their investors and their product 
DOMINATES the current marketplace.  If I were them, I'd be 
selling some stock and paying myself for the blood, sweat and 
tears it took to create the company and its products.  If you 
were in their shoes, I'd hope you would too.

It is a stock that makes the move pretty quick.  Then seems to 
flounder around until a bunch of bears have time to get overly 
short, then the stock catches fire again.

Well.... there's a recent example of looking at a stock that has 
announced a stock split, and a technique you can add to your 
arsenal of point and figure charting to perhaps see something 
that a bar chartist will never see, or be cognizant of.

If you see an upcoming split that interests you, send me an e-
mail and I'll take a quick look at it.  

Grinning.... but don't expect as full analysis as in this column 
if you send me the e-mail 20-minutes before the market closes on 
the day before the split!  

Some of the best split trading comes not long after the company 
actually ANNOUNCES that it will be splitting its stock.  What a 
trader is looking for, is the BULLISH implications of supply 
versus demand that may occur DUE to the split.

Remember, one of the MAIN reasons a company splits its stock is 
to lower the share price, so that it will attract more BUYERS.  
It is LARGELY psychological.  Trading and investing is very 
psychological.  Investors buy stock, or sell stock based on their 
PERCEPTION of the stock.  The buy/sell decision is often times 
the investors PERCEPTION of "value" or "lack of value" that the 
stock holds at any given price.  And those PERCEPTIONS can be 
swayed by what oil prices are doing, or terrorists are doing, or 
who is going to win an election, or what the broader market is 
doing.

If you can find the stock that splitting, with a "euphoric" POST-
SPLIT bullish vertical count, then all heck can break loose when 
the stock is suddenly 1/4, 1/2, or 2/3 the price it was trading 
at the day before.

There are investors/traders/analysts out there that still have 
the PERCEPTION that despite some of the major indices breaking to 
all-time highs, the stock market is still in a "cyclical bear 
market."  

Jeff Bailey



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

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

*This is not a complete list.  We only try and highlight the 
more significant earnings reports.


Symbol  Co               Date           Comment          EPS Est

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

CMGI  CMGI                Mon, Dec 06  After the market     n/a
JOSB  Jos A. Bank Cloth   Mon, Dec 06  Before the bell      0.24
NAV   Navistar Intl       Mon, Dec 06  Before the bell      1.80
VSTA  VistaCare Inc       Mon, Dec 06  After the market    -0.01

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

ALOY  Alloy               Tue, Dec 07  After the market    -0.03
CRMT  America's Car-Mart  Tue, Dec 07  Before the bell      0.53
ATLS  Atlas America       Tue, Dec 07  After the market     0.48
CASY  Casey's General St  Tue, Dec 07  After the market     0.31
CMTL  Comtech Telecom     Tue, Dec 07  Before the bell      0.32
GIII  G-III Apparel Grp   Tue, Dec 07  After the market     n/a
GRB   Gerber Scientific   Tue, Dec 07  Before the bell      n/a
HOV   Hovnanian Enterprs. Tue, Dec 07  After the market     2.08
NTOP  Net2Phone           Tue, Dec 07  After the market    -0.11
PLAB  Photronics          Tue, Dec 07  After the market     0.25
SAFM  Sanderson Farms     Tue, Dec 07  Before the bell      0.22
KR    Kroger Co.          Tue, Dec 07  ----- n/a -----      0.24
UTIW  UTI Worldwide       Tue, Dec 07  Before the bell      0.56

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

AZO   AutoZone Inc.       Wed, Dec 08  Before the bell      1.44
DAB   Dave & Buster's     Wed, Dec 08  Before the bell      0.01
DWA   Dream Works Anime   Wed, Dec 08  After the market     0.17
HITK  Hi-Tech Pharma      Wed, Dec 08  Before the bell      0.16
HURC  Hurco Companies     Wed, Dec 08  ----- n/a -----      n/a
IDT   IDT Corp            Wed, Dec 08  Before the bell      0.07
MOV   Movado              Wed, Dec 08  Before the bell      0.44
PRSF  Portal Software     Wed, Dec 08  After the market    -0.38
POWL  Powell Industries   Wed, Dec 08  Before the bell      0.05
TTC   Toro Co             Wed, Dec 08  Before the bell      0.21
ZILA  Zila                Wed, Dec 08  After the market    -0.04

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

ADIC  Adv Digital Info    Thr, Dec 09  After the market     0.02
BPUR  Biopure Corp        Thr, Dec 09  Before the bell      n/a
CAE   Cascade Corp        Thr, Dec 09  ----- n/a -----      0.48
CIEN  CIENA Corp          Thr, Dec 09  Before the bell     -0.07
COST  Costco Wholesale    Thr, Dec 09  Before the bell      0.40
ESL   Esterline Techn.    Thr, Dec 09  After the market     0.57
IPSU  Imperial Sugar      Thr, Dec 09  Before the bell      n/a
JJZ   Jacuzzi Brands, Inc Thr, Dec 09  ----- n/a -----      0.18
MATK  Martek Biosciences  Thr, Dec 09  After the market     0.30
NSM   Natl Semiconductor  Thr, Dec 09  ----- n/a -----      0.15
SHFL  Shuffle Master, Inc Thr, Dec 09  After the market     0.26
TOL   Toll Brothers       Thr, Dec 09  ----- n/a -----      1.97

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

HAYZ  Hayes Lemmerz Intl  Fri, Dec 10  Before the bell      0.07


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

Symbol  Company Name              Ratio    Payable     Executable

CAKE    Cheesecake Factory        3:2      Dec  8th    Dec  9th
GDW     Golden West Financial     2:1      Dec 10th    Dec 13th
BMI     Badger Meter Inc          2:1      Dec 10th    Dec 13th
BLUD    Immucor Inc               3:2      Dec 13th    Dec 13th
WIBC    Wilshire Bancorp          2:1      Dec 14th    Dec 15th
LCAV    LCA-Vision Inc            3:2      Dec 15th    Dec 16th
NBAN    North Bay Bancorp         3:2      Dec 16th    Dec 16th
CNC     Centene Corp              2:1      Dec 17th    Dec 20th
AIT     Applied Industrial Tech   3:2      Dec 17th    Dec 20th
SAVB    Savannah Bancorp          5:4      Dec 17th    Dec 17th

-----------------------------------
Economic Reports & Events This Week
-----------------------------------

With just three weeks left until Christmas the economic calendar
lightens up a bit.  Watch for the Q3 numbers on Tuesday and the PPI
and sentiment numbers on Friday.


==============================================================
                       -For-           
----------------
Monday, 12/06/04
----------------
.none..

-----------------
Tuesday, 12/07/04
-----------------
Q3 Productivity (revised)
Consumer Credit for October
CSCO's two-day analyst meeting begins.
TXN's mid-quarter update.

-------------------
Wednesday, 12/08/04
-------------------
.none..

------------------
Thursday, 12/09/04
------------------
Weekly Initial Jobless Claims
Import Prices for November
Export Prices for November
Wholesale Inventories

----------------
Friday, 12/10/04
----------------
Producer Price Index (PPI) for November   Last: +1.7% Est: +0.2%
Core PPI for November
Michigan Sentiment for December (preliminary)


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The Option Investor Newsletter                   Sunday 12-05-2004
Sunday                                                      2 of 5


In Section Two:

Watch List: Homes to Defense to Wall Street and more.
Dropped Calls: QCOM
Dropped Puts: None


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

Homes to Defense to Wall Street and more.

___________________________________________________________________

How to use this watch list:
  Readers can use the candidates below as a springboard for their
  own research.  Many are in the process of breaking support or 
  resistance or in the process of starting new trends or
  extending old ones.  With your own due diligence these could be
  strong potential plays.
___________________________________________________________________


Beazer Homes - BZH - close: 129.74 change: +4.93

WHAT TO WATCH: A high-volume gain for BZH almost pushed the stock 
through the top of its trading range and resistance at the $130 
level.  The stock has been churning between $122 and $130 for the 
last three weeks as it digests its impressive October to November 
gains.  Technicals are turning positive again.  This could be an 
entry point over $130.50. 




---

General Dynamics - GD - close: 109.83 change: +1.37

WHAT TO WATCH: The strength in the DFI defense index has been 
impressive.  Helping it along has been a new short-term rally in 
GD.  The stock is poised to breakout over resistance at the $110 
level.  Unfortunately, there is additional resistance near $111 
dating back to the summer of 2002.  We'll watch for a move over 
$111 instead. The P&F chart points to a $119 target.




---

Merrill Lynch - MER - close: 57.28 change: +0.53 

WHAT TO WATCH: If you liked the LEH play this weekend then check 
out MER.  The broker has been consolidating sideways between $56-
58 the last few weeks and but technicals are turning positive.  
MER looks ready to breakout soon.  If it does we would expect 
some resistance at $60 but we'd target a move to its 2004 highs 
near $65.  The P&F chart looks a lot more attractive with a $72 
target. 




---

Johnson & Johnson - JNJ - close: 61.91 change: +0.16

WHAT TO WATCH: The recent bounce from the $60.00 level looks like 
a bullish entry point.  This is especially true following the 
two-week consolidation pattern in mid-November.  Technicals have 
turned positive again and its P&F chart is bullish with a $65 
target.  We would probably target a move to $66, which is 
resistance dating back to early 2002. Consider a stop loss under 
$60.00.





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

BMET $48.87 -0.32 - Keep an eye on this medical supplies stock 
for a breakout over resistance at $50.00.

ITW $95.03 -0.04 - We are still watching ITW for a breakout over 
major resistance near $96.75.

GDW $120.29 -0.86 - GDW has rallied back to resistance at the 
$122.00 mark.  We would consider bullish positions on a breakout 
but be aware of its 2:1 split on Dec. 13th.

HDI $59.19 +1.00 - HDI has broken through its three-month trend 
of lower highs but it's still struggling under the $60.00 level.  
If you squint your eyes a bit when you look at the chart you can 
see that HDI has formed an inverse (bullish) H&S pattern.

CME $213.99 +4.31 - Breakout!  CME has done it again this time 
breaking out over resistance near $211.


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**************************
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
^^^^^

Qualcomm - QCOM - close: 43.50 change: -0.12 stop: 38.75     

Target achieved! QCOM hit an intraday high of $44.58 on Friday 
testing and surpassing resistance at $44.50 (the bottom edge of 
our target range) before slipping lower into the weekend.  Per 
our comments on Thursday we're choosing to exit now.  Both QCOM 
and the NASDAQ are near resistance and due for a pull back.  
We'll watch QCOM for a dip back towards $42.00 although we 
probably won't consider new positions until shares can breakout 
over the $45.00 level.  In the news Merrill Lynch reiterated 
their "buy" rating on QCOM and raised their price target from $45 
to $53. 

Picked on November 15 at $ 40.51
Change since picked:      + 3.01
Earnings Date           11/03/04 (confirmed)
Average Daily Volume =      13.9 million    



PUTS
^^^^

None


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


OI  = Open Interest - the number of open contracts outstanding.
Last Trade @ = Indicates where the option traded last.
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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**********

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The Option Investor Newsletter                   Sunday 12-05-2004
Sunday                                                      3 of 5

In Section Three:

Current Calls: UTX, OSK, ITT, IBM, FLR, FDX, EBAY, DHR, ABK
New Calls: LEH, ARLP
Current Puts: FRX
New Puts: None

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

Ambac Fincl Group - ABK - close: 81.61 chg: -0.40 stop: 77.99

Company Description:
Ambac Financial Group, Inc., headquartered in New York City, is a 
holding company whose affiliates provide financial guarantees and 
financial services to clients in both the public and private 
sectors around the world. Ambac's principal operating subsidiary, 
Ambac Assurance Corporation, a leading guarantor of public 
finance and structured finance obligations, has earned triple-A 
ratings, the highest ratings available from Moody's Investors 
Service, Inc., Standard & Poor's Ratings Services, Fitch, Inc. 
and Rating and Investment Information, Inc.
 (source: company press release)

Why We Like It:
We initially added ABK as a call play early last week with a 
trigger to go long at $82.26.  Wednesday's big rally sparked a 
new high in ABK as the stock broke through resistance at $82.00.  
Now shares have seen a little bit of profit taking but traders 
stepped in to buy the dip near $80.50 on Friday.  This looks like 
a bullish entry point and we would consider new longs at current 
levels.  Yet more conservative traders may want to wait and watch 
for ABK to trade back above the $82.25 level again before 
initiating positions.  The bullish P&F chart continues to point 
to a $101 target. 

Suggested Options:
We are going to suggest the January 2005 calls. Our favorites
would be the $80s or $85s.

BUY CALL JAN 75 ABK-AO OI=  20 current ask $7.60
BUY CALL JAN 80 ABK-AP OI= 313 current ask $3.50
BUY CALL JAN 85 ABK-AQ OI= 240 current ask $1.15
BUY CALL JAN 90 ABK-AR OI=1328 current ask $0.35

Annotated chart



Picked on December 01 at $82.26
Change since picked:     - 0.65
Earnings Date          10/20/04 (confirmed)
Average Daily Volume =      490 thousand



---

Danaher - DHR - close: 57.88 change: -0.06 stop: 56.75 *new*

Company Description:
Danaher, a leading industrial company, designs, manufactures and 
markets innovative products, services and technologies with 
strong brand names and significant market positions.
(source: company press release)

Why We Like It:
We are stuck in a waiting game with DHR.  The stock rallied from 
late October through the first half of November.  We then 
expected a pull back/consolidation that has failed to 
materialize.  Instead DHR has been churning sideways between $57 
and $59.  Our target has been the $59.50-60.00 range and DHR 
remains within striking distance of hitting our target.  Only now 
after several days of trading sideways the momentum is gone and 
its technicals are uninspiring.  We are not suggesting new 
bullish positions at this time and we have been suggesting that 
short-term traders take profits for the last couple of weeks.  We 
are growing more cautious and will therefore raise our stop loss 
to $56.75.  

Suggested Options:
We are not suggesting new bullish positions at this time.

Annotated chart:



Picked on October 27 at $54.99
Change since picked:    + 2.89
Earnings Date         10/21/04 (confirmed)
Average Daily Volume =     1.3 million 



---

eBay Inc. - EBAY - close: 116.41 chg: -0.57 stop: 109.00     

Company Description:
eBay is The World's Online Marketplace®. Founded in 1995, eBay 
created a powerful platform for the sale of goods and services by 
a passionate community of individuals and businesses. On any 
given day, there are millions of items across thousands of 
categories for sale on eBay. eBay enables trade on a local, 
national and international basis with customized sites in markets 
around the world. Through an array of services, such as its 
payment solution provider PayPal, eBay is enabling global e-
commerce for an ever- growing online community.
(source: company press release)


Why We Like It:
Investors remain positive on the holiday shopping season in spite 
of the recent lackluster retail sales data.  One holiday shopping 
location that doesn't suffer from same-store sales issues is 
EBAY.  The stock's momentum has not faltered with a steady stream 
of new all-time highs over the past couple of weeks.  The company 
offered some positive comments at a CSFB conference this past 
week and the stock responded positively.  The $110 level was our 
initial profit target and now EBAY is closing in on our year-end 
target at $120.  At this time we are not suggesting new bullish 
positions.  Instead we're suggesting that traders may want to 
seriously consider doing some profit taking.  More aggressive 
traders are who looking for a new entry point can watch for a dip 
back towards the $112-113 region.  We expect $110-111 to act as 
support. We will officially exit this play when EBAY hits the 
$120.00 mark.  

Suggested Options:
We are not suggesting new positions at this time.  Instead we
are suggesting that readers strongly consider some profit taking
of their own.  Look at the rise in option values since we picked
EBAY on Nov. 8th.

JAN 100's $8.80 to $17.80  DEC 100's $7.00 to $16.70
JAN 105's $6.00 to $13.60  DEC 105's $4.20 to $11.80
JAN 110's $4.00 to $9.70   DEC 110's $2.15 to $7.10
JAN 115's $2.50 to $6.60   DEC 115's $1.05 to $3.50
JAN 120's $1.50 to $4.10

Annotated chart

 
Picked on November 08 at $103.69 
Change since picked:      +12.72
Earnings Date           10/20/04 (confirmed)
Average Daily Volume =      10.4 million 



---

Fedex Corp - FDX - close: 96.70 change: -0.21 stop: 93.95     

Company Description:
FedEx Corp. provides customers and businesses worldwide with a 
broad portfolio of transportation, e-commerce and business 
services. With annual revenues of $26 billion, the company offers 
integrated business applications through operating companies 
competing collectively and managed collaboratively, under the 
respected FedEx brand. Consistently ranked among the world's most 
admired and trusted employers, FedEx inspires its more than 
240,000 employees and contractors to remain "absolutely, 
positively" focused on safety, the highest ethical and 
professional standards and the needs of their customers and 
communities. (source: company press release)

Why We Like It:
There is no denying the unbelievable strength in the Dow 
Transportation index, which surged higher on Wednesday's big 
rally to breakout over the 3700 level and hit new five-year 
highs.  The steep pull back in oil prices is definitely a 
positive catalyst for the group.  We're also impressed that the 
Transports have been able to hold its gains above the 3700 level 
the last two sessions.  Meanwhile FDX failed to respond much on 
Wednesday but is still creeping higher.  Shares hit new all-time 
highs on Thursday's breakout over the $96 level.  Friday's pull 
back toward $96 saw traders buy the dip right near the close.  
Hopefully this will be the springboard to launch FDX into our 
target range of $99-100.  Friday brought more good news for FDX.  
After the closing bell Moody's Investors Service raised their 
(credit) outlook on FDX from "negative" to "stable" due to the 
company's improved cash flow and growth.  

Suggested Options:
We are not suggesting new positions at this time.  Readers
can prepare to exit as FDX climbs toward our target.


Annotated Chart:


Picked on October 21 at $89.45 
Change since picked:    + 7.25
Earnings Date         09/22/04 (confirmed)
Average Daily Volume =     1.5 million 



---

Fluor Corp - FLR - close: 52.17 change: -0.09 stop: 49.95    

Company Description:
Fluor Corporation provides services on a global basis in the 
fields of engineering, procurement, construction, operations, 
maintenance and project management. Headquartered in Aliso Viejo, 
Calif., Fluor is a FORTUNE 500 company with revenues of nearly $9 
billion in 2003. (source: company press release)

Why We Like It:
We don't have much new to report on for FLR.  The stock continues 
to digest its late-November gains.  Although we will note that 
the consolidation appears to be narrowing.  That means we can 
expect a breakout one way or the other soon.  Obviously our bias 
is for the breakout to turn higher but traders will need to 
confirm their stop loss in case FLR turns south.  We do expect 
the $50 level to act as round-number support, which is why our 
stop loss is at $49.95. Our target remains the $55 region.  Don't 
forget - FLR said it would present at the First Albany conference
next Tuesday. 

Suggested Options:
We're not suggesting new bullish positions at current levels but
readers could watch for another bounce from $50.00 if it occurs.

Annotated chart:

 
Picked on November 22 at $48.51
Change since picked:     + 3.66
Earnings Date          10/27/04 (confirmed)
Average Daily Volume =      521 thousand   




---

Intl Business Mach. - IBM - close: 97.08 chg: +1.32 stop: 93.95     

Company Description:
IBM is the world's largest information technology company, with 
80 years of leadership in helping businesses innovate. Drawing on 
resources from across IBM and IBM Business partners, IBM offers a 
wide range of services, solutions and technologies that enable 
customers, large and small, to take full advantage of the new era 
of e-business. (source: company press release)

Why We Like It:
Investors applauded news that IBM is planning to move out of the 
PC business.  The company, who invented the PC, believes that the 
industry has matured into a low-margin commodity business.  Wall 
Street responded by pushing shares up 1.37 percent, which was 
enough for IBM to breakout over the top of its three-week trading 
range.  As bulls on the stock we're very encouraged.  This puts 
IBM within striking distance of our target in the $99-100 range.  
However, traders should note that this move also completes the 
$97 P&F target.  It's always a good time to consider some profit 
taking and we're suggesting readers give it some thought.  The 
trend is still up but short-term IBM could go either way.  
There's very minor resistance at $98 and support in the $96.00-
96.65 region.  

Suggested Options:
We are not suggesting bullish positions at this time.  Readers
may consider doing some profit taking 

Annotated chart:



Picked on October 27 at $90.00
Change since picked:    + 7.08
Earnings Date         10/18/04 (confirmed)
Average Daily Volume =     4.7 million 



---

ITT Industries - ITT - close: 84.33 change: -0.53 stop: 83.70

Company Description:
ITT Industries, Inc. (www.itt.com) supplies advanced technology 
products and services in key markets including: fluid and water 
management, including water treatment; defense communication, 
opto-electronics, information technology and services; electronic 
interconnects and switches; and other specialty products. 
Headquartered in White Plains, N.Y., the company generated $5.63 
billion in 2003 sales.  (source: company press release)

Why We Like It:
Okay, time's up.  Someone needs to tell ITT that the 
consolidation needs to end. Shares have been slipping for four 
days in a row and have fallen back to the bottom of its previous 
trading range.  Friday's intraday low came within 10 cents of our 
stop loss.  That's too close for comfort.  Given ITT's short-term 
weakness we are not suggesting new bullish positions.  Normally 
buying near the bottom of its trading range (support) can be a 
good idea but we'd prefer to see some signs of a bounce.  
Aggressive traders can watch for a bounce from $84.  We're going 
to suggest that readers wait for ITT to trade back above the 
$$86.35 level before considering new positions.  One idea to 
consider is that ITT may churn sideways until the company gives 
its full-year 2005 outlook on Tuesday, December 14th.

Suggested Options:
We are going to suggest the January 2005 calls.  Our favorites
are the 80s, 85s, 90s.  - Remember to watch for the move over
$86.

BUY CALL JAN 80 ITT-AP OI=2117 current ask $5.40
BUY CALL JAN 85 ITT-AQ OI=2069 current ask $2.05
BUY CALL JAN 90 ITT-AR OI= 543 current ask $0.65

Annotated chart


Picked on November 29 at $86.40 
Change since picked:     - 2.07
Earnings Date          10/21/04 (confirmed)
Average Daily Volume =      502 thousand 




---

Oshkosh Truck - OSK - close: 63.60 change: +0.04 stop: 59.00 

Company Description:
Oshkosh Truck Corporation is a leading manufacturer of specialty 
trucks and truck bodies for the defense, fire and emergency, 
concrete placement and refuse hauling markets. Oshkosh Truck is a 
Fortune 1000 company with products marketed under the Oshkosh®, 
Pierce®, McNeilus®, Medtec®, Geesink, Norba and Jerr-Dan® brand 
names. The company is headquartered in Oshkosh, Wis., and had 
annual sales of $2.3 billion in fiscal 2004. (source: company 
press release)

Why We Like It:
The test of patience continues for bulls in OSK.  The breakout 
over major resistance at $60.00 back in early November has been 
followed by a four-week consolidation as OSK churns sideways 
between $62 and $65.  We remain bullish on the stock but momentum 
has clearly faded.  Readers can watch for a bounce from $62 as an 
entry point or a move past resistance at $65.  Of course our 
initial target remains in the $67.50-70.00 range.  Only patient 
traders should consider this candidate. 

Suggested Options:
We're suggesting the January calls.

BUY CALL JAN 60 OSK-AL OI=2607 current ask $4.80
BUY CALL JAN 65 OSK-AM OI= 104 current ask $1.80

Annotated Chart:


Picked on November 07 at $ 62.16
Change since picked:      + 1.44
Earnings Date           10/28/04 (confirmed)
Average Daily Volume =       205 thousand   



---

United Tech. - UTX - close: 98.43 change: -0.70 stop: 95.99

Company Description:
United Technologies Corp., based in Hartford, Connecticut, is a 
diversified company that provides a broad range of high 
technology products and support services to the building systems 
and aerospace industries.  (source: company press release)

Why We Like It:
UTX has retraced back to the top of its trading range.  Shares 
broke out of its trading range three days ago on Wednesday's big 
rally.  Now the stock has faded back to test the $98 level but 
this time as support.  This looks like a new bullish entry point 
but we'd like to see signs of a bounce first.  More conservative 
traders can look for a move back over the $100 mark.  

Suggested Options:
We like the January 2005 calls.  

BUY CALL JAN  95 UTX-AS OI=3385 current ask $4.90
BUY CALL JAN 100 UTX-AT OI=7491 current ask $1.95
BUY CALL JAN 105 UTX-AA OI=3033 current ask $0.55
BUY CALL JAN 110 UTX-AB OI= 829 current ask $0.15

Annotated chart


Picked on December 1 at $100.15
Change since picked:     - 1.72
Earnings Date          10/20/04 (confirmed)
Average Daily Volume =      1.8 million  



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

Alliance Resource - ARLP - cls: 65.82 chg: +2.82 stop: 61.35

Company Description:
Alliance Resource Partners is the nation's only publicly traded 
master limited partnership involved in the production and 
marketing of coal. Alliance Resource Partners currently operates 
mining complexes in Illinois, Indiana, Kentucky and Maryland.
(source: company press release)

Why We Like It:
We would label this a speculative technical play.  It's 
speculative because we normally don't play stocks that have an 
average daily volume this low.  Plus, the option volumes are 
pretty low as well.  Technically the stock remains in its long-
term up trend but its P&F chart has rolled over into a new sell 
signal.  Yet technical analysts will note that ARLP has been 
consistently bouncing from its rising simple 50-dma for months.  
The recent pull back stopped dead at the 50-dma on Thursday and 
Friday traders bought the dip.  We believe that ARLP sold off 
earlier this past week only because investors were rotating out 
of oil stocks in a mild panic and anything energy related sold 
off with it.  ARLP isn't oil but coal so it could rebound more 
quickly.  We feel that this is also a slightly higher risk 
candidate because the risk reward isn't that great.  We're only 
targeting a move into the $70-72.50 region but we're going to 
keep our stop loss under the 50-dma. 

Suggested Options:
We're going to suggest the January calls but if you want more
open interest consider the March 70s.

BUY CALL JAN 65 AFV-AM OI= 70 current ask $4.20
BUY CALL JAN 70 AFV-AN OI= 55 current ask $2.10

Annotated Chart:


Picked on December 5 at $ 65.82
Change since picked:     + 0.00
Earnings Date          10/22/04 (confirmed)
Average Daily Volume =      101 thousand



---

Lehman Brothers - LEH - close: 85.00 change: +1.75 stop: 82.49

Company Description:
Lehman Brothers, an innovator in global finance, serves the 
financial needs of corporations, governments and municipalities, 
institutional clients, and high-net-worth individuals worldwide. 
Founded in 1850, Lehman Brothers maintains leadership positions 
in equity and fixed income sales, trading and research, 
investment banking, private equity and wealth and asset 
management services. The Firm is headquartered in New York, with 
regional headquarters in London and Tokyo and operates in a 
network of offices around the world.
(source: company press release)

Why We Like It:
If at first you don't succeed then try, try again.  Well, we're 
going to try again on LEH.  Actually, last time we played LEH it 
did hit our initial target at $85 but was unable to push higher.  
Now, after four weeks of consolidating under resistance, we think 
LEH is poised to breakout and make a run for the $90 level.  
Volume on Friday's gain was 50 percent above normal, which is 
pretty bullish.  Our strategy is simple.  First use a trigger at 
$85.51.  Only when LEH trades at $85.51 or higher will we go 
long/buy calls.  Our immediate target is $89.50-90.00.  If LEH 
can breakout over the $86 level it will produce a new triple-top 
breakout buy signal on its P&F chart.  It's very important that 
traders note LEH's upcoming earnings report on Wednesday, 
December 15th.  Even though we think the results will be positive 
we will not hold over the announcement.  That gives us a very 
short time table to make this play.  

Suggested Options:
We plan to be out of this play on Dec. 14th, which is three days
before December's option expiration.  Yet we're going to suggest
the January calls.  

BUY CALL JAN 80 LES-AP OI=9838 current ask $6.30
BUY CALL JAN 85 LES-AQ OI=4456 current ask $2.75
BUY CALL JAN 90 LES-AR OI=8245 current ask $0.85

Annotated Chart:


Picked on December x at $ xx.xx <-- see TRIGGER
Change since picked:     + 0.00
Earnings Date          12/15/04 (confirmed)
Average Daily Volume =      2.0 million  




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



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

Forest Labs - FRX - close: 40.07 change: -0.06 stop: 41.01 *new*

Company Description:
Forest has well-established franchises in therapeutic areas of 
the central nervous, cardiovascular and respiratory systems, and 
we are always exploring new product opportunities that address a 
range of health conditions. Our principal brands include 
Lexapro®(escitalopram oxalate), Namenda®(memantine HCl) and 
Benicar®(olmesartan medoxomil). (source: company press release)

Why We Like It:
We remain cautious on FRX.  The stock continues to be a long-term 
relative strength loser but the oversold bounce has pushed FRX 
back above the $40 level.  The recent rebound in the DRG drug 
index is partly responsible.  Fortunately, some of the short-term 
indicators suggest FRX is ready to roll over again.  Plus, the 
P&F chart remains bearish with a $35 target.  We are not 
suggesting new bearish positions until FRX trades back under the 
$39.00 level.  Only then would we consider buying puts.  Our 
short-term target will be $35.  We're going to lower our stop 
loss to $41.01. 

Suggested Options:
We are going to suggest the January puts.  

BUY PUT JAN 35 FRX-MG OI=3145 current ask $0.65
BUY PUT JAN 40 FRX-MH OI=5108 current ask $2.10
BUY PUT JAN 45 FRX-MI OI=7557 current ask $5.70

Annotated Chart:


Picked on November 22 at $39.07
Change since picked:     + 1.05
Earnings Date          10/18/04 (confirmed)
Average Daily Volume =      2.8 million 



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

None


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The Option Investor Newsletter                   Sunday 12-05-2004
Sunday                                                      4 of 5

In Section Four:

Leaps:    Good News and bad News
Spreads and Straddles:  Your Evolution As A Trader -- Darwin Was Right!

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*****
LEAPS
*****

Good News and bad News

The oil implosion managed to take COP and XLE from new
all time highs and drop them a few cents below our stop
in a matter of only three days. 

COP hit a new all time high at $91.22 on Wednesday and
it was stopped out at $85.50 and a three week low on
Thursday. One day, -$6 and we are done. 

The XLE dropped -10% over three days and blew two weeks
of profits by penetrating the stop at $35.50 by 14 cents.

Events like this will drive you to drink. In reality
having a stop loss is a necessity and a blessing in
disguise. Had oil continued to plunge we could have
lost a couple months of profits instead. 

This sales event was limited to oil but it impressed
on me the fragility of the current portfolio. I have
not been suggesting insurance puts on the long plays
because of the calendar (Nov/Dec are the strongest two
months of the year) and the recent market action. That
left us vulnerable to sudden changes in direction.

This event also got me to thinking harder about the
current season, rally or lack of rally and the potential
for a January disaster. 

Instead of adding any more stocks to the portfolio I
am going to begin trimming it. I am going to snug up
the stops on several of the big winners and get ready 
to take profits. My objective is to be down to only 
5-6 positions by January. If we have more it will be
because the market went vertical on us and we tagged
along for the ride. 

Once we get to the last week in December I am going to 
initiate insurance puts on any position we are keeping
and we will go defensive for 2005 until we see what
the market is going to give us. 

I dropped Intel today because I am uncomfortable with
current developments in the PC sector. I believe their
mid quarter upgrade was a gift and we should exit. The
IBM PC sale to the China company would shift the processor
sales to AMD according to a couple analysts who follow
those trends. Secondly, we are seeing no increase in
chip sales and with the accelerated depreciation tax
deduction going away in four weeks any further PC sales
could be very weak. 

I really need to hear your comments. If you like this
section or think it is worthless I need to know. We
are evaluating the various sections for readership 
for next year and trying to decide where to apply our
dollars. 

If you have any comments or suggestions about the
leaps section please email them to:

leaps @ OptionInvestor.com  


*******************   
New Plays
*******************   

None


*******************   
Dropped Plays
*******************   

COP - Conoco $96.51 Stopped at $85.50 on oil implosion

INTC - $23.91  taking profits after dodging a bullet.

XLE - S&P Energy SPDR $36.43  ** Stopped 35.50 **

******************************     
New Watch List Plays Triggered
******************************  


HIG - Hartford Financial Services $65.54


****************************     
Current Portfolio: 
****************************    

Position Summary Table

 
*******************   
New Plays
*******************   

None

****************************     
Play Updates 
****************************  


STM - STMicroelectronics $20.42  ** Stop $19.50 **

STM is a global independent semiconductor company that 
designs, develops, manufactures and markets a broad range
of semiconductor integrated circuits and discrete devices
used in a wide variety of microelectronic applications. 
For the 9 months ended 9/04, revenues rose 26% to $6.43B.
Net income totaled $414M, up from $109M, +279%. Results 
reflect higher sales of Discrete and Standard ICs & Memory
Products and lower restructuring and impairment charges.

STM has rebounded from three months of consolidation at
multiyear lows and was enjoying one of the strongest
upward moves in the semi sector last week. The dip to
$20 gave us our entry and I have placed the stop at $19.50.

2007 $22.50 LEAP Call OMB-AX @ $3.30

Entry $20.11 (11/26) 

STM Chart


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

ETR - Entergy Corp. $64.90   ** Stop $63.00 **

ETR took two of their nuclear plants offline for refueling
over the last four weeks and traders sold off the stock
on fears of an accident. The plants are on 18-24 month
refuel cycles so this was a long term event. Both plants
are already back up to near 100% power. 

Entergy Corporation is an integrated company engaged 
primarily in electric power production, retail 
distribution operations, energy marketing and trading
and gas transportation.

ETR also manages nuclear power plants and with the 
current and coming energy crisis they will be hired
to run/manage any new plants coming online. This is 
a long term play and one that could be a strong
performer. 

The LEAPs are very cheap. 

2007 $70 LEAP Call ODF-AN @ $5.20

Entry (11/22) $65.51

ETR Chart


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


FDX - Federal Express $96.68  **Stop $93.50**
Entry $91.93 (11/5)

Federal Express announced it was going to expand Kinkos
across Asia and said it could be worth $1.5 billion on
an annual basis. That is a huge shot in the arm for
FedEx and shows they are on the right track with their
acquisition. China shipping volume grew +52% last quarter
and the addition of the Kinkos stores could increase
that as well.  

FDX broke out over resistance at $96.00 on the falling
oil prices and the increase in online sales for the
holidays.  

2006 $ 95 LEAP Call WFX-AS @ $8.00
2007 $100 LEAP Call VFX-AT @ $10.60 
SELL 2005 Jan $95 Put FDX-MS @ $4.60
(selling the put offsets the price of the call)

FDX Chart


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

XLE - S&P Energy SPDR $36.00  ** Stopped 35.50 **

The XLE dropped from a high near $38 to stop out at
$35.50 by 14 cents. Highly frustrating but stops do
protect us from losses. 

2006 $32 LEAP Call WHA-AF @ $4.00 exit $5.20
2006 $35 LEAP Call WHA-AI @ $2.40 exit $3.80

Entry $33.92 on 9/20
http://members.OptionInvestor.com/leaps/Lp_091904_1.asp

XLE Chart


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


INTC - Intel Corp $23.91  ** DROPPED **

Intel failed at resistance at $25 and came very close to
stopping out at $22 last week. The mid quarter update
rescued us from the drop and I am going to take this 
opportunity to exit. Resistance held at $25 and I am
beginning to believe there are problems ahead for Intel.

Taking profits here. 

Current position:
2006 $22 LEAP Call WNL-AX @ $2.20 exit $3.70
2006 $25 LEAP Call WNL-AE @ $1.45 exit $2.50

Entry $20.00 Sept 3rd
http://members.OptionInvestor.com/leaps/Lp_071804_1.asp

Intel Chart


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


TYC - Tyco Intl. $34.47  **Stop $33.50**

Tyco stalled at $34.50 and traded sideways with the Dow.
TYC is very high beta with the Dow and any continued 
gains will benefit Tyco. Unfortunately any Dow losses
will also impact TYC. 

2005 $30 LEAP Call TYC-AF cost $2.15 
2006 $30 LEAP Call WPA-AF cost $4.00 
July $25 insurance put - expired - cost $.55

Entry 5/18 $28.32
http://members.OptionInvestor.com/leaps/Lp_051604_1.asp

Tyco Chart


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


JNPR - Juniper Networks $28.47 **Stop $27.50**

Juniper broke out to near $30 but failed to move higher
and I am beginning to fear resistance at $29 is going to
reassert itself. I raised the stop to $27.50 and we will
take profits if it rolls over. 

2006 $25 LEAP Call WBW-AE cost $3.50 
Insurance = Sept-$17.50 Put (expired) cost 50 cents.  

Entry $20.19 (8/16)
http://members.OptionInvestor.com/leaps/Lp_081504_1.asp

JNPR Chart


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


COP - Conoco Phillips $87.43    **Stopped 85.50**

I really hate this. COP dropped nearly -$6 from a new
all time high on Wednesday to stop out on Thursday.
The option fell from $19 to $15 before it was stoppe.

I really like COP and sure hate to see it go but I
am not confident enough today to reenter it at this
level. We should get another chance in the spring when
the demand for heating oil slows and prices move lower.   

COP remains in the top three recommended investments
in the energy sector and it is racing to acquire new
properties. 

Current position:
Jan-2006 $75 LEAP Call YRO-AO at $6.70 exit $15.00

Entry $73.30 August 30th   
http://members.OptionInvestor.com/leaps/Lp_082904_1.asp

COP Chart


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

EBAY - EBAY $116.34      ** Stop $113.00 **

EBAY pulled out of the slump and has gone nearly
vertical over the last week. It is above all resistance
and setting new highs almost daily. 

This is scary. We are up nearly +$20 in the $90 option
and +16 in the $100 option. We need to take some profits
here but EBAY just continues to power ahead. 

I raised the stop to $113 but that still gives us a
$4 drop before taking us out of the trade. That may
be far too much for you so exit when ready. 

We are well into stock split territory. Ebay last
announced a 2:1 split in July 2003 at $100.00 and
in April 2000 near $100.


2006 $ 90 LEAP Call YRL-AR @ $14.70
2006 $100 LEAP Call YRL-AT @ $10.40

Entry $90.00 on 9/22
http://members.OptionInvestor.com/leaps/Lp_072504_1.asp

EBAY Chart


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

MER - Merrill Lynch $57.30  * Stop $56.00 Profit $58.00 *
               
Merrill is nearing resistance at $58 once again and I
am going to exit with a touch of that resistance. We
are up nearly 50% and it is struggling to move higher.    

2006 $50 LEAP Call WZM-AJ 
2006 $55 LEAP Call WZM-AK 

Entry $51.00 on 9/20
http://members.OptionInvestor.com/leaps/Lp_071804_1.asp

MER Chart


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

SYMC - Symantec - $33.42   ** Stop $32.50 **

SYMC has accelerated its pace higher after the stock
split on Dec-1st. The 2:1 split also split the option
contracts giving us two each at 1/2 the original strike.
After the split we are up over +200% in the $27 and $30
strikes and +181% in the $25 strike. It does not get
much better than this.  

I am raising the stop to $32.50 to protect the gains.
This stock must cool soon and I want to capture as
much as possible. 

SYMC split 2:1 last December as well. 

Pre Split

2006 $50 LEAP Call YAG-AJ @ $10.70 
2006 $55 LEAP Call YAG-AK @ $8.00 
2006 $60 LEAP Call YAG-AL @ $5.70 

Post Split (2 each)

2006 $25 LEAP Call YAG-AE @ $5.35 
2006 $27 LEAP Call YAG-AY @ $4.00 
2006 $30 LEAP Call YAG-AF @ $2.85

Entry $26.50 on 9/27 (split adjusted)
http://members.OptionInvestor.com/leaps/Lp_080804_1.asp

SYMC Chart


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

XMSR - XM Satellite Radio $37.35  ** Stop $36.00 **

XMSR is starting to look choppy at the $38 resistance
level and SIRI is getting all the positive press. I
am raising the stop to $36 to take us out quickly
if it rolls over. 
 

Current position:
2006 JAN-$30 LEAP Call YLX-AF @ $6.60 
2006 JAN-$32 LEAP Call YLX-AZ @ $5.60
2006 JAN-$35 LEAP Call YLX-AG @ $4.60 

Entry $29.15 on 10/4
http://members.OptionInvestor.com/leaps/Lp_100304_1.asp

XMSR Chart


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

ADBE $62.97 Adobe Systems   ** Stop $61.00 **

ADBE is setting new 52-week highs almost daily and I
think it is about time to rest. We are up nearly +70% 
in just three weeks and I am raising the stop to $61
to take us out on any roll over.  

ADBE predicted +25% growth to continue and said 
better than expected sales growth in multiple
product lines was helping performance. 

2007 $65 LEAP Call VAE-AM @ $8.90
Sell APR $60 Put AEQ-PL @ $5.50 to offset
the price of the leap. 

Entry $57.00 (11/10)
http://members.OptionInvestor.com/leaps/Lp_110704_1.asp

ADBE Chart


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

LLL $74.57 L-3 Communications   ** Stop $72.00 **

On Thursday L3 was added to the S&P-500 and the price
shot up as funds bought into the company. L3 itself
is on an acquisition binge with four acquisitions in
just the last four weeks. 

There was a $185 million cash purchase of the propulsion
systems business unit of General Dynamics, a $90 million
purchase of the electron dynamic devices business of 
Boeing, a $42 million purchase of the commercial infrared
business of Raytheon, and a $225 million purchase of the
marine controls division of CAE.

LLL is a maker of bomb detection systems and has a
strong backlog of contracts for the airlines. They
have several product lines besides these systems 
but explosives detection has become a worldwide
market. The company is enjoying the strong demand 
for secure communications and intelligence, surveillance,
and reconnaissance (ISR) systems, aircraft modernization
and aviation products.

Entry $71 (11/24)
2007 $75 LEAP Call OOY-AO @9.50

LLL Chart


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

HIG - Hartford Financial Services $65.54  ** Stop $63.00 **

The Hartford Financial Services Group, Inc. is a diversified
insurance co. that provides property & casualty insurance 
and life insurance. For the 9 months ended 9/30/04, revenues
rose 19% to $16.59B. Net income totaled $1.52B.

Hartford took a serious hit when Elliott Spitzer started
attacking insurance companies but it has rebounded to 
resistance at $64 once again. This strength in the face
of several obstacles and the market suggests we could
see a breakout soon. 

That breakout occurred on Dec-1st and HIG is moving higher
with next resistance in the $69 range. 

Entry $65 (12/1)
2007 $70 LEAP Call OZJ-AN @ $6.20

HIG Chart


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


DIA  $105.71 Dow Diamonds Trust **Stop 104.00**

The Dow climbed to just over 10600 before retracing
twice this week. We are strongly profitable in the DIA 
calls and I moved the stop to 104.00 in hopes the Dow 
will recover and move higher. This is strictly a market
play and one of the bullish months of the year is ahead. 
We just need to stay out of trouble until that appears.  
A break over 10600 could really power these options
ahead. We are currently up about 75% on all of them.

2006 $100 LEAP Call YGF-AV @ $6.30
2006 $104 LEAP Call YGF-AZ @ $4.20
2006 $108 LEAP Call YGF-AD @ $2.90
2006 $112 LEAP Call YGF-AH @ $2.00

Entry 10/14 @ $99.00

DIA Chart


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

SMH  $34.31 Semiconductor Holders ** Stop $33.25 **

The Intel guidance has powered the chips back into breakout
mode but I am worried it may not stick. I have raised the
stop to $33.25 just in case we roll over. Targeting $38
by year end.  

2006 $30 LEAP Call YRH-AF @ 5.20
2006 $35 LEAP Call YRH-AG @ 3.12
Sell 2006 $55 LEAP Put YRH-MK @ 24.30 

Entry $30.50 (10/19)

SMH Chart


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

QQQQ  $40.14 Nasdaq 100   **Stop $39.00**

The QQQ changed to the QQQQ on Wednesday and moved to the
Nasdaq. The history in most quote systems is lacking but
I finally got a chart from Tradestation. 

I raised the stop to $39 to prevent a major loss should
we roll over. The Nasdaq is acting very strong and a
break over 2153 and close could attract a lot of buyers.   
 
Entry $36.50 (10/27)
2006 $35 LEAP Call YWZ-AI @ $5.10
2006 $37 LEAP Call YWZ-AD @ $3.90

QQQ Chart


****************************    
LEAPS Watch List
****************************    

New Plan 

With the Microsoft liquidity rally on life support and
the year end Santa Claus rally a possible no show I am
going to change the plan completely. 

We were triggered on two of the watch list plays over
the last two weeks and have a full portfolio of plays
that are doing great. 

Two of the plays I put on the watch list two weeks ago
had moved up so far they were already out of sight and
had no chance of being triggered. I removed EMN and NUE
because of their gains and because of the breakdown in
the oil/materials sectors. 

I am going to begin slimming down the current play list
and suggest you do the same. The market direction after
January is up for grabs and odds are good it could be 
flat to down. 

I only left DHI on the watch list at $37 because I
believe it is undervalued and a sleeper pick for the
homebuilder sector. If interest rates continue to rise
I will drop is also but a PE of eight is hard to resist. 



***********************   
Dropped Entries 
***********************   

EMN - Eastman Chemical $54.03 Up +$4 since targeted

NUE - Nucor Corp $51.84  Up +$5 since targeted


***********************   
New Watch List Entries 
***********************    

None 
   
 

*************************
Current Watch list
*************************    
   
DHI - DR Horton $36.25    ** Target Entry $33.00 **

DHI is a national homebuilder that constructs and sells
single-family homes in metropolitan areas of the Mid-
Atlantic, Midwest, Southeast, Southwest and West regions
of the U.S. DHI also provides title agency and mortgage 
brokerage services. For the FY ended 9/30/04, revenues 
rose 24% to $10.84B. Net income rose 56% to $975.1M. 
Revenues reflect an increase in prices. Higher income
also reflects improved gross margins.

In earnings for the 3Q Horton had net income of $349.6
million, or $1.47 a share, vs. $230.7 million, or 98 
cents a share, for the same quarter of fiscal 2003. 
Analysts were expecting $1.22, according to Thomson 
First Call. Revenue increased 23% to $3.5 billion. 
Horton's sales backlog of homes under contract was a 
year-end record $4.6 billion, or 17,184 homes, up 25%
from a year ago. Horton, which builds homes for the 
entry-level and first-time move-up markets, had strong
sales in all of its regions

DHI is selling for a PE of 8 (eight!) 

Target dip entry at $33.00

Buy 2007 $40 LEAP Call VEI-AH currently $5.20

DHI Chart



 


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*******************
SPREADS & STRADDLES
*******************

Your Evolution As A Trader -- Darwin Was Right!
By Mike Parnos 

One of the very few constants in life is change.  You’re not the 
same person today as you were six months ago.  Six months from 
now you won’t be the same person you are today.  We grow.  We 
evolve.  We contract.  We expand.  We are a perpetual work in 
progress.  If we stagnate, we die.

Did you ever wonder why most relationships don’t work?   Think 
about it.  Fred and Wilma meet, they get to know each other.  
They may share some common interests.  They do the wild thing a 
few times.  Alas, they’re in love.  They even meet each other’s 
parents (the acid test).  They’ve both seen “Sleepless In 
Seattle” four times and now they can’t live without each other.

Love is beautiful and all is right with the world -- until it 
isn't.   It's the same in trading.  Over the last few years, our 
Iron Condor strategy is just what the doctor ordered.  We took in 
premium month after month after month.  The market remained in a 
trading range and we were able to consistently generate a healthy 
cash flow relatively unscathed.

But, alas, the market's personality has changed -- and we have 
had to change with it.  Over the last month it has trended 
upward.  That's great news for directional players who guessed 
right long.  They threw the dice and they're rolling sevens.  
That's all well and good for them -- for the time being.  We'll 
see how much of their profit is left after the market turns back 
down.  Will they have the self-discipline to get out and lock in 
their profits?  Or, will they ride their positions all the way 
back down?  Will they buy puts to insure their positions?  Or 
will greed win out as they listen to that little voice inside 
that tells them to stay in the position just a little longer?  
Only time will tell.

Go With The Flow
Once the market's personality changed, so must we adjust our 
approach.  We don't have to change from being premium sellers.  
We just have to use some common sense as to where we place our 
positions.  Until the market cools off, we have limited our 
trading to placing bull put spreads well below the market.  

I've received numerous emails asking: when are we going to put on 
the other side of the Iron Condor?  Hey, what's the rush?  Would 
you lay down in front of an oncoming train and hope it stops 
before it reaches you?  Did you enjoy the feeling last month when 
we gave back profits it took months to accumulate?  I sure 
didn't.  Even if I wanted to put on bear call spreads, the SPX 
market makers aren't cooperating.  There aren't enough strike 
prices at the appropriate levels to make it even tempting.   


Why try and swim upstream against the current?  It just doesn't 
make sense.  Every time you enjoy a nice salmon dinner, think of 
it as being a trader who had no control, defied the odds, and 
lost his way -- and his money.  


So, we wait patiently.  We don't allow the greed factor to take 
control of our trading.  We may take in a little less profit for 
awhile, but that's OK.  We'll let the directional traders have 
their day in the sun, knowing full well the sun eventually goes 
down and a new day will begin.  We'll be ready.
____________________________________________________________

It's All About The Adjustments
Studies show that if a cat falls off the seventh floor of a 
building, it has about thirty percent less chance of surviving 
than a cat that falls off the twentieth floor. It supposedly 
takes about eight floors for the cat to realize what is 
occurring, relax and correct itself. 
____________________________________________________________

Thinking "Out of the Box"
Many hundreds of years ago in a small Italian town, a merchant 
had the misfortune of owing a large sum of money to the money-
lender. The money-lender, who was old and ugly, fancied the 
merchant's beautiful daughter so he proposed a bargain.  He said 
he would forgo the merchant's debt if he could marry the 
merchant's daughter. Both the merchant and his daughter were 
horrified by the proposal. The cunning money-lender suggested 
that they let providence decide the matter.

The moneylender told them that he would put a black pebble and a 
white pebble into an empty bag. The girl would then have to pick 
one pebble from the bag. If she picked the black pebble, she 
would become the money-lender's wife and her father's debt would 
be forgiven. If she picked the white pebble she need not marry 
him and her father's debt would still be forgiven. But if she 
refused to pick a pebble, her father would be thrown into jail.

They were standing on a pebble strewn path in the merchant's 
garden. As they talked, the moneylender bent over to pick up two 
pebbles. As he picked them up, the sharp-eyed girl noticed that 
he had picked up two black pebbles and put them into the bag. He 
then asked the girl to pick her pebble from the bag.

Now, imagine you were standing in the merchant's garden. What 
would you have done if you were the girl? If you had to advise 
her, what would you have told her? Careful analysis would produce 
three possibilities:

1. The girl should refuse to take a pebble.
2. The girl should show that there were two black pebbles in the 
bag and expose the moneylender as a cheat.
3. The girl should pick a black pebble and sacrifice herself in 
order to save her father from his debt and imprisonment.

Take a moment to ponder over the story. The above story is used 
with the hope that it will make us appreciate the difference 
between lateral and logical thinking. The girl's dilemma cannot 
be solved with traditional logical thinking.

Think of the consequences if she chooses the logical answers. 
What would you recommend the girl do?

The girl put her hand into the moneybag and drew out a pebble. 
Without looking at it, she fumbled and let it fall onto the 
pebble-strewn path where it immediately became lost among all the 
other pebbles.

"Oh, how clumsy of me," she said. "But never mind, if you look 
into the bag for the one that is left, you will be able to tell 
which pebble I picked."

Since the remaining pebble is black, it must be assumed that she 
had picked the white one. And since the moneylender dared not 
admit his dishonesty, the girl changed what seemed an impossible 
situation into an extremely advantageous one.

MORAL OF THE STORY: Most complex problems do have a solution,
sometimes we have to think about them in a different way.
________________________________________________________________

DECEMBER CPTI POSITIONS
December Position #1 -- SPX Iron Condor (Part 1) - 1191.17
This bull-put spread still gives us about a 45-point cushion on 
the downside with the short strike near a support level.  

We sold 20 December SPX 1125 puts and bought 20 December SPX 1120 
puts for a credit of $.50 ($1,000).   Maintenance: $10,000.  When 
you're looking for your new position, the concept of getting much 
your profit from negotiating the bid/ask spread still applies. 
(see the Thursday, Nov. 18 column).

This position is just the bull-put portion of a potential Iron 
Condor.  We're going to wait until the smoke clears a little 
before looking for bear-call spread possibilities.  When the time 
comes to put on the bear call spread, as long as we create a 5-
point spread, there will be no additional maintenance 
requirement.

December Position #2 -- SPX Sure Thing (Almost) Credit Spread - 1191.17

We sold two SPX December 1165 puts and bought two SPX December 
1140 puts for a $6.90 credit ($1,380).

Here we go again.  We saw an opportunity to sell the 1165 puts 
and buy the 1140 puts for a credit of $6.90.  We're still in a 
bullish trend and want to position ourselves to take advantage of 
it.  A quick reminder -- only do this strategy if you have a LOT 
of maintenance available.  You might need it.

December/January Position #3 -- SPX Iron Condor  (Part 1) - 1191.17
I've become very conservative -- even more so after our 
unpleasant experience in the November cycle.  I saw an 
opportunity to put some serious distance between a bull put 
spread and where the SPX was trading.   With the SPX at 1179, I 
noticed the January 1100/1090 bull put spread would yield about 
$.70.  Being still somewhat bullish for the next few months, I 
was willing to go out to January.  I like that almost 80-point 
cushion and I'm willing to wait the eight weeks.  When the 
opportunity presents itself, we can always add the other side of 
the condor.

We sold 15 SPX January 1100 puts and bought 15 SPX January 1090 
Puts for a credit of about $.70 ($1,050).  Maintenance: $15,000

December Position #4 - SPX Iron Condor (Part I) - 1191.17
We wold 20 SPX December 1135 puts and bought 20 SPX December 1130 
puts for a credit of about $.35 ($700).  Maintenance: $10,000.  
Compared to the profit we're used to making, this doesn't seem 
like a lot.  But, we're going to work our way back into the black 
a little at a time -- with a large degree of safety.  
___________________________________________________________
ONGOING POSITIONS
QQQ ITM Strangle - Ongoing Long Term -- $39.12
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 make 
money by selling near term puts and calls every month. Here's 
what we've done so far: Oct. $33 puts and Oct. $34 calls - credit 
of $1,900. Nov. $34 puts and calls - credit of $1,150. Dec. $34 
puts and calls - credit of $1,500. Jan. $34 puts and calls – 
credit of $850. Feb. $34 calls and $36 puts - credit of $750. 
Mar. $34 calls and $37 puts - credit of $1,150. Apr. $34 calls 
and $37 puts - credit of $750. May $34 calls and $37 puts – 
credit of $800. June $34 calls and $37 puts -- total net credit 
of $750. We rolled out to the July $34 calls ($.20 credit) and 
$37 puts ($.60 credit) and took in a credit of $.80 ($800). We 
rolled to the August $34 calls and $37 puts, taking in a credit 
of $900. We rolled to the Sept. $34 calls and $37 puts, yielding 
$.45 or $450 for the cycle. For October we took in $.45 ($450) 
rollout. We rolled to the November. $34 calls and $37 puts for 
$.70 ($700).  Last week we rolled in the December $34 calls and 
$37 puts for a total of $.50 ($500).  New total: $13,400.
Note: We haven't included the proceeds from this long term QQQ 
ITM Strangle in our profit calculations. It's a bonus! And it's a 
great conservative cash flow generating strategy. 

ZERO-PLUS Strategy. OEX - 557.47
In my Feb. 8th column, I outlined a strategy based on an initial 
investment of $100,000. $74,000 was spent on zero coupon bonds 
maturing in about seven years at a value of $100,000. The 
principal $100,000 investment is guaranteed. We're trading the 
remaining $26,000 to generate a "risk free" return on the 
original investment. We own 3 OEX December 2006 540 calls @ $81 
(x 300 = $24,300). Our cash position as of August expiration was 
$8,390. In September we added another $975 for a total of $9,365. 
In October we added $650 for a new total of $10,675. 

Zero-Plus Position For December
Prior to expiration, we bought back our Nov. 555 calls and rolled 
it to six contracts of the January 580 calls for a credit of 
about $100.  We also put on five contracts of a December 540/530 
bull-put spread for an $.80 credit ($400). 
 
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. 
Mike Parnos, Your Options Therapist and CPTI Master Strategist 
 
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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**********

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http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


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The Option Investor Newsletter                   Sunday 12-05-2004
Sunday                                                      5 of 5

In Section Five:

Covered Calls:  CONSERVATIVE STOCK OWNERSHIP: COVERED-CALLS
Spreads and Straddles:  Another Week Of Gains!
Premium-Selling Plays: Naked Puts and Calls


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

 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
CONSERVATIVE STOCK OWNERSHIP: COVERED-CALLS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Many investors find that writing "in-the-money" covered-calls
fits their criteria for a conservative, easy-to-manage options
strategy.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NEW COVERED-CALL CANDIDATES
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The following group of issues is a list of potential 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.

_________________________________________________________________

Editor's Note: One of our new readers asked for some low-cost
issues that would be suitable for starting a very conservative
portfolio of covered-call plays.  The following selection is
a group of "supplemental candidates" that meet that criteria,
based on potential return on investment and downside protection.

Sequenced by Target Yield (monthly basis/no margin)

Stock   Last   Option    Option Last Open Cost  Days Target
Symbol Price   Series    Symbol Bid  Int. Basis Exp. Yield

SFL    24.14  JAN 22.50  SFL-AX 2.55  139 21.59  48   2.7%
DUSA   13.39  JAN 12.50  FDU-AV 1.40  987 11.99  48   2.7%
NCRX   29.40  JAN 27.50  QNY-AY 3.00  174 26.40  48   2.6%
ISIS    5.95  JAN  5.00  QIS-AA 1.15 7513  4.80  48   2.6%
ADIC   10.85  JAN 10.00  QXG-AB 1.25  251  9.60  48   2.6%
NTMD   24.15  JAN 20.00  QNR-AD 4.90   10 19.25  48   2.5%
NWAC   11.24  JAN 10.00  NAQ-AB 1.60 13K+  9.64  48   2.4%
RDY    19.32  JAN 17.50  RDY-AW 2.45   50 16.87  48   2.4%
SIGM    9.44  JAN  7.50  MQN-AU 2.20 2450  7.24  48   2.3%
TLCV   11.90  JAN 10.00  TKU-AB 2.25 22K+  9.65  48   2.3%
XXIA   14.56  JAN 12.50  UJC-AV 2.50   65 12.06  48   2.3%
SWKS   10.82  JAN 10.00  GAK-AB 1.15  513  9.67  48   2.2%
ENER   22.62  JAN 20.00  EQI-AD 3.30   69 19.32  48   2.2%
FCS    16.50  JAN 15.00  FCS-AC 2.00 3003 14.50  48   2.2%
NTGR   17.51  JAN 15.00  TUD-AC 3.00 1552 14.51  48   2.1%
WITS   16.92  JAN 15.00  UPJ-AC 2.40   12 14.52  48   2.1%
VRTX   11.14  JAN 10.00  VQR-AB 1.45  487  9.69  48   2.0%





*******************
SPREADS & STRADDLES
*******************


Another Week Of Gains!
By Ray Cummins

The stock market closed higher for a second consecutive week as 
investors applauded lower oil prices and a bullish outlook from
technology bellwether Intel (NASDAQ:INTC).

Crude oil futures fell below $43-per-barrel for the first time
in over two months and the decline helped the market overcome a
mediocre employment report.  The Labor Department announced that
only 112,000 new jobs were created in November, far less than
consensus expectations.  However, the number was good enough to
appease investors and the major indices held on to recent gains.
The Dow Jones industrial average added 7 points to 10,592, with
International Business Machines (NYSE:IBM) among the bullish
issues after news report suggested the firm is considering the
sale of its personal computer business.  The NASDAQ Composite
climbed 4 points to 2,147, as Intel's (NASDAQ:INTC) optimistic
mid-quarter update boosted chip shares.  The S&P 500 index was
unchanged at 1,191.  Advancing issues outnumbered decliners by
nearly 3 to 2 on the New York Stock Exchange, where volume came
to 1.56 billion shares.  NASDAQ volume was 2.40 billion shares
with losers slightly ahead of winners.  Bond prices soared with
the 10-year note up 1 5/32, while its yield dropped to 4.26%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 12/03/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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.


PUT-CREDIT SPREADS

Stock  Pick   Last   Mon  L/P   S/P  Credit   CB     G/L   Status

VIP    40.50  38.82  DEC  35.0  36.7  0.23   36.43   0.23   Open
WLP   113.90 106.47  DEC 100.0 105.0  0.50  104.50   0.50   Open
CECO   35.00  39.06  DEC  25.0  30.0  0.60   29.40   0.60   Open
EYET   45.64  43.46  DEC  30.0  35.0  0.45   34.55   0.45   Open
XMSR   36.13  37.45  DEC  30.0  32.5  0.25   32.25   0.25   Open
OIH    84.45  82.05  DEC  75.0  80.0  0.60   79.40   0.60   Open
DWA    39.58  41.98  DEC  30.0  35.0  0.50   34.50   0.50   Open
DRIV   38.31  42.70  DEC  30.0  35.0  0.35   34.65   0.35   Open
NBR    52.72  50.30  DEC  47.5  50.0  0.40   49.60   0.40   Open?
NUE    54.05  51.84  DEC  45.0  50.0  0.45   49.55   0.45   Open?
MRVL   31.53  34.02  JAN  25.0  27.5  0.40   27.10   0.40   Open
CFC    33.21  34.09  JAN  27.5  30.0  0.30   29.70   0.30   Open
EBAY  112.20 116.41  JAN  95.0 100.0  0.60   99.40   0.60   Open

L/P = Long Put  S/P = Short Put  CB = Cost Basis  G/L = Gain/Loss

Although currently profitable, the position in Piper Jaffray Cos.
(NYSE:PJC) has previously been closed to limit potential losses.
Nabors Industries (NYSE:NBR) and Nucor (NYSE:NUE) are now on the
"watch" list and should be closed on further downside activity.
The position in Wellpoint (NYSE:WLP) is expected to expire at
maximum profit, but the summary has not been adjusted to reflect
the recent merger with Anthem (NYSE:ATH).


CALL-CREDIT SPREADS

Stock  Pick   Last    Mon  L/C   S/C  Credit   CB    G/L   Status

SEPR   45.44  48.16   DEC  55.0  50.0  1.00   51.00  1.00   Open?
TTWO   33.24  36.37   DEC  40.0  37.5  0.30   37.80  0.30   Open?
ERTS   46.97  52.80   DEC  55.0  50.0  0.65   50.65 (2.15) Closed
GM     39.97  38.57   DEC  45.0  42.5  0.30   42.80  0.30   Open
BSX    34.70  34.54   DEC  40.0  37.5  0.30   37.80  0.30   Open
MXIM   42.50  42.53   DEC  50.0  45.0  0.70   45.70  0.70   Open
BIIB   58.31  61.56   DEC  70.0  65.0  0.50   65.50  0.50   Open
INSP   49.17  47.27   DEC  65.0  60.0  0.40   60.40  0.40   Open
AMZN   38.55  40.09   DEC  45.0  42.5  0.30   42.80  0.30   Open
OSIP   58.16  47.00   DEC  70.0  65.0  0.55   65.55  0.55   Open
LXK    84.82  87.30   DEC  95.0  90.0  0.45   90.45  0.45   Open
MBT   135.99 133.70   DEC 155.0 150.0  0.55  150.55  0.55   Open
TASR   23.50  28.23   DEC  28.8  27.5  0.15   27.65 (0.58)  Open?
SINA   37.93  37.98   JAN  50.0  45.0  0.60   45.60  0.60   Open
LLY    53.33  54.50   JAN  65.0  60.0  0.65   60.65  0.65   Open
NVLS   26.94  29.40   JAN  32.5  30.0  0.35   30.35  0.35   Open?

L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss

The position in Electronic Arts (NASDAQ:ERTS) became a candidate
for early exit after Thursday's rally.  Novellus (NASDAQ:NVLS),
Sepracor (NASDAQ:SEPR), Take-Two Interactive (NASDAQ:TTWO), and
Taser (NASDAQ:TASR) are most prominent on the "watch" list.

 
DEBIT STRADDLES

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

DE      69.26  70.98   DEC   70.0   70.0    4.50   4.25     Open?
TK      54.45  50.00   DEC   55.0   55.0    3.75   7.50     Open?

The speculative position in Teekay Shipping (NYSE:TK) offered up
to a 100% gain in less than one week.


~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NEW POSITIONS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

BULLISH PLAYS - CREDIT SPREADS

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

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

CYMI - Cymer  $34.11  *** Target-Shoot An Entry! ***

Cymer (NASADQ:CYMI) is a supplier of excimer light sources, the
essential light source for deep ultraviolet photolithography
systems.  DUV lithography is a key technology that has allowed
the semiconductor industry to meet the exact specifications and
manufacturing requirements for volume production of advanced
semiconductor chips. The firm's light sources are incorporated
into step-and-repeat (steppers) and step-and-scan (scanners)
photolithography systems for use in the manufacture of various
semiconductors with critical feature sizes below 0.35 microns.
Cymer's products consist of photolithography light sources,
replacement parts and service. The firm maintains a worldwide
service organization that supports its installed base of light
sources.

CYMI - Cymer  $34.11

PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-25.00  CQG-ME  OI=891  ASK=$0.15
SELL PUT  JAN-30.00  CQG-MF  OI=878  BID=$0.55
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$29.50


__________________________________________________________________

LEND - Accredited Home Lenders  $46.85  *** Rally Mode! ***

Accredited Home Lenders Holdings (NASDAQ:LEND) is a nationwide
mortgage banking company that originates, finances, sells,
securitizes and services non-prime mortgage loans secured by
residential real estate.  Accredited focuses on borrowers who
may not meet conforming underwriting guidelines, because of
higher loan-to-value ratios, the nature or absence of income
documentation, limited credit histories, high levels of
consumer debt or past credit difficulties.

LEND - Accredited Home Lenders  $46.85

PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-35.00  QFW-MG  OI=1199  ASK=$0.25
SELL PUT  JAN-40.00  QFW-MH  OI=419   BID=$0.70
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$39.50



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

BEARISH PLAYS - CREDIT SPREADS

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

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

CCU - Clear Channel  $33.15  *** Downtrend Intact! ***

Clear Channel Communications (NYSE:CCU) is a diversified media
company with three primary business segments: radio broadcasting,
outdoor advertising and live entertainment.  The company owns a
large number of domestic radio stations and a radio network in
the United States.  In addition, it has equity interests in many
international radio broadcasting companies.  Clear Channel also
owns and operates domestic outdoor advertising display faces and
international outdoor advertising display faces.  The company is
a promoter, producer and venue operator for live entertainment
events.  Clear Channel also owns and programs television stations,
owns a media representation firm and represents professional
athletes.

CCU - Clear Channel  $33.15

PLAY (conservative - bearish/credit spread):

BUY  CALL  JAN-40.00  CCU-AH  OI=8361   ASK=$0.05
SELL CALL  JAN-35.00  CCU-AG  OI=12113  BID=$0.50
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$35.50


__________________________________________________________________

UVN - Univision Communications  $29.06  *** Next Leg Down? ***

Univision Communications (NYSE:UVN) is a Spanish-language media
company in the United States.  The company operates in four
business segments: television, radio, music and Internet.  The
company's principal business segment is television broadcasting,
which includes the Univision, TeleFutura and Galavision networks,
the Univision Television Group owned-and-operated broadcast
television stations and the TeleFutura Television Group owned
and operated broadcast television stations.  Univision Radio
operates Univision's radio business, which includes its radio
network and owned and operated radio stations.

UVN - Univision Communications  $29.06

PLAY (speculative - bearish/credit spread):

BUY  CALL  JAN-35.00  UVN-AG  OI=7164  ASK=$0.15
SELL CALL  JAN-30.00  UVN-AF  OI=1377  BID=$0.90
INITIAL NET-CREDIT TARGET=$0.80-$0.90
POTENTIAL PROFIT(max)=19% B/E=$30.80



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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.
_________________________________________________________________

BTU - Peabody Energy  $79.17  *** An "Energetic" Issue! ***

Peabody Energy (NYSE:BTU) is a private-sector coal company that
owns, through its subsidiaries, majority interests in 29 coal
operations located throughout the coal-producing regions in the
United States and in Australia.  Most of its production in the
western United States is low-sulfur coal from the Powder River
Basin.  The company also owns and operates mines in Arizona,
Colorado, New Mexico, Wyoming, Illinois, Indiana, Kentucky and
West Virginia.  In addition, it owns one mine in Australia.

BTU - Peabody Energy  $79.17

PLAY (very speculative - neutral/debit straddle):

BUY CALL  DEC-80.00  BTU-LP  OI=746  ASK=$2.55
BUY PUT   DEC-80.00  BTU-XP  OI=292  ASK=$3.20
INITIAL NET-DEBIT TARGET=$5.40-$5.60
INITIAL TARGET PROFIT=$2.40-$3.25




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*****************************************
PREMIUM-SELLING PLAYS: NAKED PUTS & CALLS
*****************************************

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
PREMIUM-SELLING PLAYS: NAKED PUTS & CALLS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 12/03/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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


MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE

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

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

MYGN     DEC    17.50   17.05   20.06    0.45   5.52%   2.64%
VTIV     DEC    17.50   17.05   19.74    0.45   5.46%   2.64%
IFLO     DEC    15.00   14.55   19.33    0.45   6.89%   3.09%
ADLR     DEC    12.50   12.10   14.01    0.40   6.88%   3.31%
UTHR     DEC    25.00   24.05   45.00    0.95   9.03%   3.95%
RIGL     DEC    20.00   19.70   24.85    0.30   4.02%   1.52%
NFLD     DEC    15.00   14.45   19.21    0.55   8.24%   3.81%
RMBS     DEC    17.50   16.75   24.04    0.75   9.88%   4.48%
AGIX     DEC    20.00   19.60   24.89    0.40   4.83%   2.04%
ATI      DEC    20.00   19.35   21.55    0.65   7.37%   3.36%
MRVL     DEC    25.00   24.60   34.02    0.40   5.17%   1.63%
ELN      DEC    22.50   22.15   26.90    0.35   4.93%   1.58%
TSRA     DEC    25.00   24.35   36.70    0.65   7.97%   2.67%
VTS      DEC    20.00   19.65   22.57    0.35   4.84%   1.78%
ERICY    DEC    30.00   29.60   33.83    0.40   3.44%   1.35%
RMBS     DEC    17.50   16.95   24.04    0.55  10.12%   3.24%
TSRA     DEC    30.00   29.65   36.70    0.35   4.12%   1.18%
NCRX     DEC    25.00   24.25   29.40    0.75   8.18%   3.09%
IFLO     DEC    17.50   17.00   19.33    0.50   7.38%   2.94%
NTGR     DEC    15.00   14.60   17.51    0.40   6.54%   2.74%
ENZ      DEC    17.50   17.05   19.66    0.45   6.32%   2.64%
CECO     DEC    30.00   29.30   39.06    0.70   7.67%   2.39%
CRA      DEC    12.50   12.20   14.19    0.30   6.11%   2.46%
DDS      DEC    22.50   22.25   26.20    0.25   4.06%   1.12%
SRNA     DEC    20.00   19.60   21.83    0.40   5.87%   2.04%
RAE      DEC     7.50    7.25    8.52    0.25  10.80%   3.45%
FXEN     DEC     7.50    7.05   10.03    0.45  17.57%   6.38%
NVDA     DEC    17.50   17.10   20.73    0.40   6.91%   2.34%
IDCC     DEC    17.50   16.85   21.31    0.65  11.05%   3.86%
MCIP     DEC    17.50   17.05   18.93    0.45   7.70%   2.64%
PLMO     DEC    30.00   29.60   38.15    0.40   5.49%   1.35%
TINY     DEC    12.50   12.15   13.96    0.35   9.97%   2.88%
IDCC     DEC    17.50   17.20   21.31    0.30   6.57%   1.74%
ADLR     DEC    12.50   12.25   14.01    0.25   6.86%   2.04%
NANO     DEC    15.00   14.70   17.15    0.30   6.80%   2.04%
ISRG     DEC    30.00   29.50   36.79    0.50   6.08%   1.69%
DHB      DEC    17.50   17.20   18.61    0.30   6.59%   1.74%
AMED     DEC    30.00   29.35   32.65    0.65   7.53%   2.21%
HNT      DEC    25.00   24.60   28.10    0.40   5.37%   1.63%
UTHR     DEC    40.00   39.60   45.00    0.40   4.64%   1.01%
PAAS     DEC    17.50   17.25   16.96   (0.29)  0.00%   0.00%
ELAB     DEC    22.50   22.30   27.53    0.20   4.07%   0.90%
CTMI     DEC    12.50   12.25   13.49    0.25   8.20%   2.04%
DUSA     DEC    12.50   12.25   13.39    0.25   8.26%   2.04%
MCIP     DEC    17.50   17.25   18.93    0.25   6.11%   1.45%
RMBS     DEC    20.00   19.65   24.04    0.35   7.55%   1.78%
ZEUS     DEC    20.00   19.70   25.20    0.30   6.48%   1.52%
VISG     JAN     7.50    7.10    7.98    0.40   7.51%   5.63%
GIVN     DEC    30.00   29.65   31.65    0.35   5.71%   1.18%
RHAT     JAN    12.50   12.05   15.19    0.45   6.06%   3.73%
MSO      DEC    20.00   19.60   23.13    0.40  10.85%   2.04%
NKTR     DEC    17.50   17.15   19.46    0.35   8.90%   2.04%
NANO     DEC    15.00   14.75   17.15    0.25   7.69%   1.69%
ELAB     DEC    25.00   24.65   27.53    0.35   6.45%   1.42%
SHOP     DEC    25.00   24.70   30.00    0.30   7.32%   1.21%
  
Pan American Silver (NASDAQ:PAAS) is a candidate for early exit
as the stock recently moved below the sold (put) strike price
on heavy volume.  Although currently profitable, the position
in Seachange International (NASDAQ:SEAC) has previously been
closed to limit potential losses.
   

NAKED CALLS

Stock   Strike  Strike  Break  Current   Gain    Max    Simple
Symbol  Month   Price   Even    Price   (Loss)  Yield   Yield

MNST     DEC    30.00   30.60   28.00    0.60   4.91%   1.96%
FOSL     DEC    30.00   30.50   26.22    0.50   4.16%   1.64%
SLAB     DEC    35.00   35.55   32.65    0.55   4.84%   1.55%
APPX     DEC    35.00   35.60   30.42    0.60   7.73%   1.69%
DIGE     DEC    25.00   25.30   24.76    0.30   6.05%   1.19%
MDCO     DEC    30.00   30.35   26.80    0.35   5.01%   1.15%
BOBJ     DEC    25.00   25.40   23.65    0.40   5.96%   1.57%
ENZN     DEC    20.00   20.55   14.03    0.55  14.84%   2.68%
TACT     DEC    25.00   25.40   22.45    0.40   8.50%   1.57%
AMLN     DEC    25.00   25.25   20.77    0.25   5.35%   0.99%
ATMI     DEC    25.00   25.40   24.90    0.40   5.74%   1.57%
CELG     DEC    30.00   30.45   28.60    0.45   6.31%   1.48%
JBLU     DEC    25.00   25.30   24.82    0.30   4.99%   1.19%
AGIX     DEC    30.00   30.35   24.89    0.35   8.24%   1.15%
JUPM     DEC    20.00   20.20   19.22    0.20   6.98%   0.99%
CYBX     DEC    22.50   22.85   20.11    0.35  11.25%   1.53%
SNIC     DEC    20.00   20.35   20.99   (0.64)  0.00%   0.00% *
PLAB     DEC    20.00   20.30   18.75    0.30   8.40%   1.48%
ARO      DEC    30.00   30.55   29.40    0.55   8.89%   1.80%
KYPH     DEC    25.00   25.50   23.70    0.50   9.20%   1.96%
MAY      DEC    30.00   30.30   28.46    0.30   5.24%   0.99%

Sonic Solutions (NASDAQ:SNIC) became an exit candidate after
Thursday's sharp rally.  Positions in Atmi Inc. (NASDAQ:ATMI),
AeroPostale (NYSE:ARO), Digene (NASDAQ:DIGE), JetBlue Airways
(NASDAQ:JBLU), and JupiterMedia (NASDAQ:JUPM) are now on the
"watch" list.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NEW POSITIONS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

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

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

NEW NAKED-PUT CANDIDATES

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

TLCV   11.90  JAN 10.00  TKU-MB 0.35  823  9.65  48   2.3%   6.9%
IDCC   21.31  JAN 17.50  DAQ-MW 0.55 7131 16.95  48   2.1%   6.6%
MSO    23.13  JAN 17.50  MSO-MW 0.45  249 17.05  48   1.7%   5.6%
WITS   16.92  JAN 15.00  UPJ-MC 0.45    0 14.55  48   2.0%   5.4%
RMBS   24.04  JAN 17.50  BNQ-MW 0.40 1997 17.10  48   1.5%   4.9%
NCRX   29.40  JAN 25.00  QNY-ME 0.60   97 24.40  48   1.6%   4.8%
NTGR   17.51  JAN 15.00  TUD-MC 0.35   10 14.65  48   1.5%   4.6%
NVTL   22.55  JAN 17.50  NVU-MW 0.30   22 17.20  48   1.1%   4.0%

Abbreviations:

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 with margin), TS-Target
Shoot.
_________________________________________________________________

TLCV - TLC Vision  $11.90  *** Speculation Only! ***

TLC Vision (NASDAQ:TLCV) is a healthcare service company focused
on working with eye doctors to help them provide quality patient
care in the eye care segment.  The majority of the firm revenues
come from refractive surgery, which involves using an excimer
laser to treat common refractive vision disorders such as myopia,
hyperopia and astigmatism.  In addition to refractive surgery,
the company has diversified into other eye care businesses.

JAN 10.00 TKU-MB LB=0.35 OI=823 CB=9.65 DE=48 TY=2.3% MY=6.9%

TLCV - TLC Vision  $11.90


_________________________________________________________________

IDCC - InterDigital Comm.  $21.31  *** New 9-Month High! ***

InterDigital Communications (NASDAQ:IDCC) designs, develops and
places into operation a range of advanced wireless technologies,
systems and products.  IDCC, through its involvement in the
standards bodies and incubation efforts, monitors emerging
technologies being developed to deliver voice and data in a
wireless environment.  It focuses on its technology and product
development on the air interface technology, referred as wideband
code division multiple access, is comprised of two duplexing
methods, frequency division duplex and time division duplexing.

IDCC - InterDigital Comm.  $21.31

JAN 17.50 DAQ-MW LB=0.55 OI=7131 CB=16.95 DE=48 TY=2.1% MY=6.6%


_________________________________________________________________

MSO - Martha Stewart  $23.13  *** Pure Premium-Selling! ***

Martha Stewart Living Omnimedia (NYSE:MSO) is an unique content
and commerce company that creates "how-to" content and domestic
merchandise for homemakers and other consumers.  The company's
products are generally sold under brand labels incorporating the
Martha Stewart brand name, which it leverages across a range of
media and retail outlets.  MSO primarily focuses on the domestic
arts, providing consumers with ideas, information, merchandise
and other resources.

MSO - Martha Stewart  $23.13

JAN 17.50 MSO-MW LB=0.45 OI=249 CB=17.05 DE=48 TY=1.7% MY=5.6%


_________________________________________________________________

WITS - Witness Systems  $16.92  *** Testing 2004 Highs! ***

Witness Systems (NASDAQ:WITS) provides an integrated performance
optimization software suite that enables businesses to capture
customer intelligence and optimize workforce performance.  Its
browser-based eQuality software, used in multimedia customer
interaction center, Internet protocol telephony and back office
environments, is comprised of compliance, high-volume and other
business-driven recording solutions, as well as performance
analysis and e-learning applications.  The closed-loop suite
enables companies to capture and retrieve, learn and train, and
report and analyze customer interactions and other transactions
to develop staff, increase revenue, reduce costs and achieve
greater customer retention and loyalty.

WITS - Witness Systems  $16.92

JAN 15.00 UPJ-MC LB=0.45 OI=0 CB=14.55 DE=48 TY=2.0% MY=5.4%


_________________________________________________________________

RMBS - Rambus  $24.04  *** Entry Point? ***

Rambus (NASDAQ:RMBS) creates a range of chip-to-chip interface
technologies that enhance the performance and cost-effectiveness
of its customers' semiconductor and system products.  The firm's
interface solutions can be grouped into two major categories,
memory interfaces and logic interfaces.  Memory interfaces
provide an interface between memory chips and logic chips.
Logic interface solutions provide an interface between two
logic chips.  These advanced chip-to-chip interface solutions
increase the data transfer rate between semiconductor chips,
improving performance and reducing systems costs.

RMBS - Rambus  $24.04

JAN 17.50 BNQ-MW LB=0.40 OI=1997 CB=17.10 DE=48 TY=1.5% MY=4.9%


_________________________________________________________________

NCRX - NeighborCare  $29.40  *** A Healthy Stock! ***

NeighborCare (NASDAQ:NCRX), formerly Genesis Health Ventures,
is a provider of institutional pharmacy services in the United
States.  The company provides pharmacy services for beds in
long-term care facilities in the U.S. and the District of
Columbia.  Its pharmacy operations consist of 62 institutional
pharmacies, 32 community-based professional retail pharmacies
and 20 on-site pharmacies, which are located in customers'
facilities and serve only customers of that facility.  In
addition, NeighborCare operates 16 home infusion, respiratory
and medical equipment distribution centers.

NCRX - NeighborCare  $29.40

JAN 25.00 QNY-ME LB=0.60 OI=97 CB=24.40 DE=48 TY=1.6% MY=4.8%


_________________________________________________________________

NTGR - Netgear  $17.51  *** Own This One!  ***

NetGear (NASDAQ:NTGR) designs, develops and markets branded
networking products that address the specific needs of small
business and home users.  The firm supplies products that
meet the ease-of-use, quality, reliability, performance and
affordability requirements of these users.  Its diverse suite
of approximately 100 products enables users to share Internet
access, peripherals, files, digital multimedia content and
applications among multiple personal computers and popular
Internet-enabled devices.

NTGR - Netgear  $17.51

JAN 15.00 TUD-MC LB=0.35 OI=10 CB=14.65 DE=48 TY=1.5% MY=4.6%


_________________________________________________________________

NVTL - Novatel Wireless  $22.55  *** Bracing For A Rally? ***

Novatel Wireless (NASDAQ:NVTL) is a provider of wireless
broadband access solutions for the mobile communications
market.  The company's range of products includes wireless
data modems and software for laptop personal computers,
embedded wireless modules for OEMs, and ruggedized wireless
data modems for public safety and telemetry applications.
Through the integration of hardware and software, Novatel's
products are designed to operate on most global wireless
networks, and provide mobile subscribers with secure access
to data, including corporate, public and personal information
through the Internet and enterprise networks.

NVTL - Novatel Wireless  $22.55

JAN 17.50 NVU-MW LB=0.30 OI=22 CB=17.20 DE=48 TY=1.1% MY=4.0%



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

BEARISH PLAYS - NAKED CALLS

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

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

The sale of uncovered calls entails considerable financial risk,
far more than the initial margin or collateral required to open
the position.  The maximum financial obligation for the sale of a
naked option is the strike price (of the underlying stock) that
is sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of options must have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  The simple fact is: stocks often experience large price
swings, exponentially increasing the margin maintenance and very
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock price moves in
a volatile manner.  Many professional traders suggest closing the
position when the underlying share value moves beyond the sold
strike, or using a "buy-to-close" stop order at a price that is
no more than twice the original premium received from the sold
option.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

APPX - American Pharma Partners  $30.42  *** Range-Bound? ***

American Pharmaceutical Partners (NASDAQ:APPX) is a specialty
drug company that develops, manufactures and markets injectable
pharmaceutical products, focusing on the oncology, anti-infective
and critical care markets.  The company is one of the largest
producers of injectables, with more than 130 generic products in
more than 350 dosages and formulations.

APPX - American Pharma Partners  $30.42

"SPECULATIVE" PLAY (sell naked call):

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

SELL CALL  DEC 32.5  AQO-LZ    2725   0.45  32.95  10.0%   1.4%


_________________________________________________________________

OSIP - OSI Pharmaceuticals  $47.00  *** Pure Premium-Selling! ***

OSI Pharma (NASDAQ:OSIP) is a biotechnology company focused on
the discovery, development and commercialization of oncology
products that both extend life and improve the quality of life
for cancer patients worldwide.  The company has established a
balanced pipeline of oncology drug candidates that includes both
next-generation cytotoxic chemotherapy agents and novel mechanism
based, gene-targeted therapies.

OSIP - OSI Pharmaceuticals  $47.00

"SPECULATIVE" PLAY (sell naked call):

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

SELL CALL  DEC 55    GHU-LK    6775   0.65  55.65  13.3%   1.2%


_________________________________________________________________

TACT - TransAct Technologies  $22.45  *** Sell The Rebound! ***

TransAct Technologies (NASDAQ:TACT) designs, develops, makes
and markets transaction-based printers under the Ithaca and
Magnetec brand names.  In addition, the firm markets related
consumables, spare parts and service.  Its printers are used
worldwide to provide transaction records, such as receipts,
tickets, coupons, register journals and other documents.  The
company focuses on two markets: point-of-sale and banking and
gaming and lottery.  TransAct offers an array of products
utilizing inkjet, thermal and impact printing technology for
applications requiring up to 60 character columns.

TACT - TransAct Technologies  $22.45

"SPECULATIVE" PLAY (sell naked call):

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

SELL CALL  DEC 25    TUF-LE    402    0.30  25.30  10.4%   1.2%




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