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Daily Newsletter, Sunday, 12/12/2004

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The Option Investor Newsletter                   Sunday 12-12-2004
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: Fourteen Days and Counting
Futures Wrap: See Note
Index Trader Wrap: SIDEWAYS (TIME) CORRECTIONS
Editor's Plays:  Living Dangerously
Market Sentiment:  Rested & Ready 
Ask the Analyst: Single Family Housing futures!
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 12-10        WE 12-03        WE 11-26        WE 11-19 
DOW    10543.22 - 48.99 10592.2 + 69.98 10522.2 + 65.32 - 82.10 
Nasdaq  2128.07 - 19.89 2147.96 + 45.99 2101.97 + 31.34 - 14.71 
S&P-100  565.50 -  1.58  567.08 +  4.43  562.65 +  2.96 -  6.53 
S&P-500 1188.00 -  3.17 1191.17 +  8.52 1182.65 + 12.31 - 13.83 
W5000  11691.98 - 43.29 11735.3 + 99.63 11635.6 +155.01 -129.04 
SOX      422.75 - 22.53  445.28 + 14.30  430.98 -  0.90 +  8.07 
RUT      632.24 -  9.97  642.21 + 11.05  631.16 + 17.71 -  8.54 
TRAN    3686.03 - 40.71 3726.74 + 78.75 3647.99 + 80.34 - 60.55 
VXO       13.20           13.61           13.35           14.60 
VXN       19.57           18.26           17.85           19.72
******************************************************************

Fourteen Days and Counting
by Jim Brown

While the -49 Dow points for the week, -20 Nasdaq, may not
look impressive on the surface we finished the week in much
better position than many expected. With fourteen trading
days left in 2004 the Dow covered nearly its entire range
from 10600 to 10400 this week and then regained 75% of 
that drop by Friday's close. The bulls escaped disaster 
and gained needed breathing room as we head into the year
end period where stocks typically move higher. A lot can 
happen in the next fourteen days and the outcome is far 
from certain. 

Dow Chart


Nasdaq Chart


SPX Chart



Economic data surprised everyone on Friday with the PPI 
jumping +0.5% and well over the consensus of +0.1%. The
component that had the most impact was of course energy
prices with the gain ex-energy at only +0.2%. Inflation
is rising rapidly at the producer level and eventually
this will be passed on to the consumer. Finished energy
goods rose +1.8% in November but was tame compared to the
+6.2% jump in October. The price of energy has moderated
significantly since this survey period and we can expect
a downtick in gains for December. Finished goods prices
have posted gains for the last four months so it appears
limited pricing power is returning to manufacturers and
that means higher prices ahead for consumers. 

Consumer Sentiment jumped to 95.7 from 92.8 in November
and this was a real surprise given the weakness in the 
various sentiment/confidence reports we have seen recently.
The expectations component jumped to 88.8 from 85.2 and 
present conditions rose to 106.8 to 104.7. Given the 
massive drop in oil prices over the last couple weeks
it should not be a surprise that consumers are breathing
easier. Fears of $60 oil have been temporarily replaced
by oil prices at $41 today. While this is only going to
be a brief pause in the long term uptrend the average
consumer is oblivious to the coming problems ahead. They
live by the price at the pump and the sound bites on the
10:00 news. 

Next week the main event is the FOMC meeting on Tuesday
and there is unanimous agreement that they will raise
rates by another 25 basis points. There is only a 10%
chance as indicated by the Fed Funds Futures that the
Fed would jump 50 basis points in reaction to the strong
PPI. The Fed knows the gains have been energy related
and will more than likely retain their measured pace
scenario. There is a 91% chance that the Fed will again
raise by 25 points in February and bring the rate back
to 2.50%. There is a growing consensus that the Fed will
pause after February and look for more signs the recovery
is still in progress before starting the next hike cycle.
Raising rates will create a stronger dollar and while
everybody claims they want a strong dollar the truth is
they are happy with the current slow decent. This helps
U.S. companies compete better globally and slows imports.
The only scenario where a falling dollar would be a
disaster is one where it falls rapidly and disrupts the 
global currency balance. Greenspan warned several weeks
ago that foreign banks would eventually discontinue
buying U.S. debt and the comments rippled through the
currency market with predictions of dire consequences
for several weeks. This weeks five year treasury auction
had a record 65% of the bids from foreigners. How quickly
people forget once last weeks newspaper is lining the 
bird cage. Yields had soared last week to four month
highs but the spike was very short lived. 

The Fed cannot afford to raise rates much higher and risk
knocking the stumbling economy off its path. Delphi reported
on Friday that they were cutting 8500 jobs in a cost saving
measure. The auto sector has cut -32,000 jobs this year in an
effort to remain profitable on slowing sales. The Challenger
layoff report last week was the third consecutive month
with more than 100,000 announced layoffs. The economy is
growing but it closely resembles the Wal-Mart economy. 
Manufacturers are putting heavy pressure on suppliers
to cut costs to enable them to produce goods even cheaper
and sell them cheaper just to remain competitive. Those 
that can't make the cuts are left on the roadside as the
cheaper supplier signs up for their 15 min of fame. 
Employees are still the number one way to cut big dollars
out of the equation and the signs are everywhere that 
employment is lagging. 

There were several news stories this week about the 
global economy and the slow down in various countries.
Some are nearing recession levels. That is far from true
in China despite an attempt to slow their explosive growth.
We need to be careful in what we wish for in hoping for
a cooling off period for China. They have been the largest
buyer of commodities for several years and supplying those
commodities keeps numerous sectors in the black. Over the
last year China consumed 1/2 the global supply of cement,
1/3 the worlds steel, 1/2 copper and 1/5th of the aluminum.
Auto sales are doubling annually in China. Given the pre
recession levels in some other countries a serious cutback
in China could lead to even further challenges in the 
global economy. I understand the reasons for wanting 
slower growth but until other countries pick up the 
slack any growth is beneficial. 

In stock news GE said they were so confident of returning
to double digit earnings growth in 2005 they were raising
their dividend +10% and announcing a $15 billion stock
buyback over the next three years. Very strong news from
the company which is a proxy for the U.S. economy. With
the dividend jump to 22 cents a quarter GE is now paying
55% of earnings in the form of a dividend based on 2004
earnings of $1.60 per share. For comparison HON pays out
45% and UTX 25%. GE has bought back $75 billion in stock
over the last ten years. 

Next week Merck is going to host its annual analyst 
meeting on Tuesday and it is expected to provide some 
guidance about the financial impact of the Vioxx recall.
Most brokers continue to rate MRK a hold because of its
strong dividend but eventually Merck has to start building
some reserves for payout to patients. There are several
estimates making the rounds with the high end numbers
between $38 billion and $55 billion for the potential
liability. This is a huge number and to date Merck has
not taken any charges for the expected resolution of the
claims. Granted we are years from any payout but those
numbers are so big it will take years to store up the
cash. With an annual dividend of $1.50 and 2.2 billion
shareholders that $3.3 billion annual payout will be on
the chopping block eventually. 

Fund flows for the week slowed to a trickle of only $500
million compared to a $2.5B weekly average for November.
I doubt fund managers are worried because the next seven
weeks should average over $4 billion a week in year end
retirement deposits. This is the power behind the typical
year end rally and we will be watching closely next week
to see if the expected cash surge begins. The 15th is
typically when the end of year cash begins to flow and
it continues through January. 

In anticipation of the year end surge or maybe in hopes
of guaranteeing it the week was full of bullish analyst
predictions. Ralph Acampora led the list with his Dow
13,264, Nasdaq 2796 prediction but he was not alone. 
Abby Joseph Cohen played cleanup hitter on Friday with
a strong economy speech. She said that in spite of rising
inflation and rising interest rates the economy should
continue to grow through 2006. Her buzzwords for the day
was "durability of profits" and she felt investors would
see continued profit growth ahead. Profit growth even at
a slower pace would still continue to provide attractive
returns for investors according to Abby. The profits for
the 4Q have yet to be determined but the deceleration
trend is firmly in place. However, we should not jump 
to negative conclusions based solely on the headline
numbers. Profits soared in Q1 at 37.38% and eased in Q2
to 27.88%. Q3 finally posted a quarter end bounce to 
finish at 18.95% and better than the 14% early reporters
had averaged. 

According to Thomson First Call the current estimates 
for Q4 are for growth of +15%. While this may seem weak
compared to the prior quarters there is potential for a
rare event. According to Thomson the current growth rate
for the all of FY-2004 is projected to be +19.1% for the
S&P-500. With only a small amount of upside surprises 
this could creep over 20% and it would be only the 8th 
time it will have happened since 1950. The last time was
in 1993. Also according to Thomson the growth rate for 
the S&P for Q4-2003 was 28.3% and the highest growth 
rate in ten years. If we do achieve a +15% improvement
over that rate in Q4-04 given the myriad of problems 
the economy has overcome it would be nothing short of 
spectacular. When you put everything in perspective 
the deceleration of earnings may not be as bad as most
analysts would have us think. It will take another 12 
months to see if Ralph and Abby are right but the stage
is set for a bullish close for 2004 and positive earnings
in January could go a long ways toward improving the 2005
outlook. 

Next week the markets not only have to move higher on
existing issues but there are 17 IPOs coming to market. 
This will suck a large quantity of investment cash out
of funds and blunt the year end activity. One of the
biggest will be the Sands Casino. Bankers have to get
those deals priced and trading to earn those big bonus
checks for 2004. 

In the truth is stranger than fiction department OPEC
met on Friday and decided to cut production on Jan-1st 
by one million barrels per day in order to push prices
higher. Crude oil immediately dropped -$1.82 to close at
$40.70 and a four-month low. No, that is not a misprint
but a stunning event in light of the news. OPEC pumped 
29.4 million bbls per day (mbpd) in November and the 
highest level in 25 years. 2.22 mbpd of that production
came from Iraq. The current production ceiling is 27mbpd
and the excess production came mostly from Iraq and Saudi
Arabia and not from all OPEC member states. In fact 
several of the OPEC members cannot even reach the output
levels assigned to them due to declining production. 

The one-mbpd production cut was planned to remove excess
oil from the pipeline before the heavy use winter period
passed causing a rapid buildup in supplies among user
nations. The International Energy Association (IEA) said
a fall in 14 mb of distillate (heating oil and other
products) had lowered the days in inventory to 52, the
same level as September. This is trending below last
years levels and at the bottom of their five year range.
Officials worried that several weeks of cold weather
could accelerate usage and create another shortage before
the winter is over. 

Crude Oil Chart


The bottom line is more speculation ahead and a guarantee
that oil prices will go higher either by shortage, cutbacks
in production or both. The OPEC officials clearly have
abandoned their prior $22-$28 price range and the current
intent is to hold oil at $40 or higher. If you had dreamed
this scenario a year ago it would have been a nightmare. 
Now $40 oil is the baseline and after a brief taste at 
$55 OPEC is already addicted. Given their declining 
production capability it is only a matter of time before
we see $75 and $100. Shock value? Definitely not! Just 
several months or research and I can't believe I am 
watching this play out so soon. The expectations for the
price escalation on declining production was thought to
be at least a year away. The problem is increasing world
demand and it is not going away. The IEA said Q4 demand 
for oil had gone up +8% in China alone. I know the majority
of everyone reading this article does not believe me but 
we are on the verge of a major problem. I explain exactly
what is happening and what every investor needs to do 
about it in my "Coming Oil Crisis" report in the end of
year special. You need to get it and make some serious 
investment decisions very soon. The link below is for 
the oil depletion chart I included in the market wrap on 
Thursday night for those who did not read that commentary.
The numbers next to the country are the year production 
peaked and began declining in that country. 

http://www.OptionInvestor.com/charts/1210200483142PM_64.asp
   
On Friday the markets traded sideways with only a very
slight upward bias for the entire day. With oil falling
to a four month low the best they could do was breakeven.
While that sounds negative I was actually encouraged. The
Dow managed to cling to 10550, the Nasdaq at 2127 and the
SPX just below 1190. Remember this was on negative economic
data and the worry that oil prices were going higher not
that they were higher on Friday. Also there is the fear
of the Fed coming back into the market with the Fed meeting
next Tuesday. So why am I so positive?

If you remember my commentary from earlier this week the
index leading us down was the Russell. The Russell had
fallen nearly -4% over a five day period beginning on
Monday. The Russell is the leading indicator for mutual
fund activity and while a lot of the weakness was due 
to the SOX there was definite fund selling. On Friday 
afternoon that selling disappeared and the Russell 
rallied back over 630 and continued its rebound that 
began at 622 on Thursday. The Russell was the only 
index to close in positive territory and gained +.5% 
for the day. This may not sound like much but as a 
leading indicator for the broader market it was very 
positive. It suggests funds are already beginning to
move back into small caps for the year end. There is
plenty of incentive for the funds to prefer the Russell
with profit growth for 2005 currently estimated at +27.5%
compared to only +8% for the S&P. 

Russell Chart


SOX Chart


I am not expecting any large gains on Monday with the Fed
meeting looming but from my perspective the markets closed
with a bullish outlook on Friday. All we have to do it
hold our current levels until after the Fed meeting and
wait for the end of year money to begin flowing. The
Russell is my leading indicator but the SPX is the real
yardstick. We rallied back to 1191 intraday and just
below strong resistance at 1195. My outlook is still 
positive and I am still recommending buying any dip 
above SPX 1175. Add to those positions above 1195. 

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


SIDEWAYS (TIME) CORRECTIONS
By Leigh Stevens
lstevens@OptionInvestor.com 

THE BOTTOM LINE – 
After the market runs up a lot, a correction inevitably sets in. 
However, corrections are of two types: 1.price – the indices 
pull back and retrace some percentage of the prior run up, 
anywhere from a quarter to a half typically.  

However, in an uptrend that is of above average strength, the 
market may just correct by going sideways and thereby 
consolidate its prior gains. Correction type 2 is a "time" 
correction as the index marks time and goes sideways instead of 
back down much. Markets correct by price and time and 
combinations of both.  Both type corrections have nearly the 
same effect of "throwing off" (correcting) an overbought 
condition. 

Time corrections are difficult for long option players, unless 
trading small price swings, as the sideways trend erodes the 
time premiums built into index options. Better to be out in 
trend-less periods and in when the market is running.  Our 
crystal balls can't tell us when we're in one these non-trending 
periods – but, after a sharp run up followed by a lack of heavy 
selling pressures, you pretty quickly know you're in one of 
these.       

It looks to me like there should be another up leg here before 
there is a more substantial PRICE correction in the S&P indices. 
I did get a Friday sentiment reading that flashed bearish 
however. Another up leg will only look to be underway if and 
when the S&P 500 (SPX) breaks out above recent highs in the 1195 
area, especially on a closing basis.  The S&P 100 (OEX) needs to 
pierce prior '04 peaks in the 574 area. 

To suggest another up leg the Nasdaq Composite (COMP) needs to 
close above its '04 high at 2153, which it has not done and 
might not – right now the chart presents a possible double top. 
The Nasdaq 100 (NDX) has climbed above its prior 12-month highs 
in the 1559-1560 area, so only needs to stay above this area to 
maintain a bullish chart.      

FRIDAY'S CLOSING NUMBERS – 

The S&P 500 Index (SPX) fell to 1188, down 1.2 points and was 
off 0.3% for the week as a whole. The Dow 30 Average was off 9.6 
points to 10,543.22 and dropped a half percent on the week. 
General Electric (GE) bucked the trend in the Average and rose 
nearly 2% after it raised its dividend 10% and said its board 
authorized a $15 billion stock buyback during the next three 
years

The Nasdaq Composite (COMP) Index was off a fraction of a point 
to close at 2,128, but lost near a full percent on the week.

FRIDAY'S TRADING  – 

The indexes ended a bit lower given some mixed signals on the 
economy and weakness in the dollar. Offsetting this was the fall 
in oil prices to a 4-month low.

The release on Friday of Producer Price Index (PPI), showed a 
larger than expected jump in November wholesale prices. The 
culprit was higher energy prices and it drove prices at the 
wholesale level up a 0.5% last month as reported by the Labor 
Department – expectations were for only a tenth of a percent 
increase.

So-called core producer prices, which excludes food and energy 
costs, were up 0.2%, in line with consensus estimates. The PPI 
has risen 5% in the past year, the biggest PPI rise in over a 
decade. Core producer prices are up 8% in the last year, the 
worst inflation rate at this level since the early-80's.

Pressures on the market stemming from the PPI release were 
offset somewhat later by a better than expected rise in the U. 
of M. consumer sentiment estimate. 

Their figures showed consumer sentiment improving in early-
December with the index rising to 95.7, from 92.8 in November. 
95.7 was well above a Street consensus for 93.2. The improvement 
seemed brought about by falling gas and rising stock prices. 
Hey, nothing like a rising 401k valuation for stocks to help 
make us feel more bouncy.  

Crude oil futures closed under $41 a barrel for the first time 
in 4 months which related to skepticism that OPEC would both cut 
production by a million barrels a day and that this level of cut 
would lead to any significant tightening in oil supplies and 
more price increases. 

The Oil cartel did leave their options open for a future 
adjustment to the quota by agreeing to meet again on Jan. 30, 
ahead of their regular meeting in mid-March. The benchmark crude 
January oil contract ended down $1.82, at $40.71, and fell 4.3% 
on the week. 

In the foreign exchange markets, the dollar actually rallied for 
a third day on Friday, due to the rise in U.S. wholesale prices. 
Such a rise only increases expectations for a hike in U.S. 
interest rates next week – and , over coming months.

The dollar was up 0.6% against the yen to 105.34. The dollar 
rallied against the euro as it dropped a half percent to $1.3193 
and well under the week's high above 1.33.  

Bond prices held onto minor gains even as the PPI suggested 
rising inflationary pressures, normally bearish for bonds – 
however, the bond market is mostly looking ahead to another rate 
increase by the Fed. The U.S. Federal Reserve is expected to 
raise interest rates one quarter of percent (to 2.25% for Fed 
Funds) at Fed Open Market Committee meeting this coming week.

The benchmark 10-year note ended up 5/32 at 100 26/32 to yield 
4.15%.  Hey if it gets up to 5, that's a real rate of return!


MY INDEX OUTLOOKS – 

S&P 500 Index (SPX) – Daily chart:

At this juncture the S&P 500 (SPX) needs to break out above or 
below its trading range of the past 3 weeks to resolve its chart 
pattern. After a strong move, give the benefit of the doubt to 
the trend - assume that the next move will be up and for a move 
that will clear the sideways rectangle (cyan level lines). Of 
course the reverse is true – a break of the low end of the 
recent range would be bearish.  

Based on the recent price range that SPX has been in, resistance 
looks to be around 1195 and support in the 1170-1172 area. 
Notice how the intraday low on Thursday took the Index under the 
21-day moving average, but the close was above it.  Closes 
maintained above this average keeps a bullish pattern also. 



Friday's trading action spiked my sentiment indicator back into 
bearish territory.  However, there have been these 1-day 
readings over November that have not precipitated or preceded 
any substantial fall.  In a market like this  – seemingly 
stronger than the actual current fundamental outlook – sentiment 
readings have to be taken in context.  The backdrop to this 
market is that money mangers with cash to spend are continuing 
to buy stocks and are typically bullish around the year 
end/early new year period.

S&P 100 Index (OEX) – Daily chart:

The S&P 100 (OEX) is maintaining a bullish pattern of higher 
rally highs and lows. Not by a lot but there is no rule that new 
highs have to be way above the prior or reaction lows the same. 

The 800 pound (well, maybe only 500 pounds!) gorilla for the OEX 
is the closeness of recent highs to the prior '04 peak at 573. 
Any yearly high is typically quite significant technically. 

Near resistance is at 570, then key resistance at 573 – above 
this level is only air and it will go as high as market forces 
propel it, but at 585 OEX would again be at overbought extreme. 
560 is near support, with a close under 557 a definite bearish 
development, especially if OEX continued to fall the day 
following this.  



M If I was holding Index calls, which I'm not, I would be 
somewhat unsettled by the bearish price/RSI divergence 
(highlighted in the chart above), as the RSI failed to follow 
along to a new high when the index did. 

This type divergence has been a reliable sell "signal" over the 
years, but no one indicator pattern is completely reliable – 
otherwise, everyone would get a free pass and a get-out-of-jail 
card every time this type divergence happens.  Market timing is 
too challenging to have patterns that "work" ALL the time. 

I spent last week's Trader's Corner writing about when 
indicators don't tell us the whole story. These musings are at – 
http://www.OptionInvestor.com/traderscorner/tc_120904_1.asp 

Dow 30 Average (INDU) - Hourly: 

The hourly chart presents an interesting look at recent weeks' 
price action.  There is a projected uptrend price channel 
highlighted by the blue dashed lines, with implied resistance in 
the 10655 area and support at 10433.  

There is also an approximate double top at this point and also a 
rounding top pattern shaping up, but this is negated on a move 
through (above) 10580.  



Technical considerations remain bullish until proven otherwise, 
but the Dow is lagging here as far as the S&P related indices.

Nasdaq Composite (COMP) Index  – Daily chart:
2150-2153 remains the key resistance area in the Nasdaq 
Composite (COMP). 2100 is near support, with more solid support 
expected around 2050.  The longer-term bullish up trend is 
maintained even on a pullback to, but not below, the 1977-1980 
area. A correction of this much would be a good new buying 
opportunity in Nasdaq calls. 

Any trader cannot overlook the possibility of a double top 
having formed.  I assume it IS a double top on the first failure 
to clear the prior high.  However, a pullback from an important 
high like this can be just a consolidation before buying 
pressures pick up again – stay tuned on this and watch that 
prior high. 

And, since the Nas 100 is in new high ground, COMP is going to 
the be the index that may present the best clues to a possible 
reversal and a deeper correction than seen to date. Or, 
conversely, the best clues that Nasdaq is in a new up leg.    



The long-term trend is definitely up now with the crossover of 
the shorter 50-day moving average to above the key 200-day 
average as seen above.  

Nasdaq 100 (NDX) Index  – Daily:

I peg "resistance" of sorts at around 1650 in the Nasdaq 100 
(NDX)- this area being a next possible target at my upper 
trading band; one where NDX would again be at an overbought 
extreme and vulnerable to a reversal. Risk to reward! - the 
longer the index climbs up along the upper moving average 
envelope line, the more risk to jumping into new call positions.

I peg near support at last week's low around 1580 – also at the 
21-day moving average.  Key technical support is at 1560 at the 
prior 12-month high.  A breakout move, such as is presented with 
NDX's move to new high, should find future support at that prior 
peak – resistance, once surpassed, "becomes" future support.

Major support is at 1485 in my estimation.  



NDX presents the same pattern as other indices where the new 
price peak was not accompanied by a similar new high in the RSI.  
This type divergence puts me on alert, as a backdrop bit of 
information, for the possibility of a top.  Acting on this  
indicator divergence is something else however, as price is the 
main determinant for staying in a position and so far all 
corrections have been shallow and the trend quite strongly up.

Nasdaq 100 tracking Stock (QQQ) Daily chart:

Thursday top touched resistance implied by the top end of the 
steep uptrend channel in QQQ – of course prices might just 
follow this trendline higher.  Usually, at a minimum, 
approaching the top end of an apparent channel means that the 
rate of ascent will slow.  This line of resistance continues up 
to 40 where I peg next key resistance in the Q's. T

Taking profits on the stock in the 39.75-40 area, even shorting 
it, is attractive based on what I see now – the price pattern,
 the overbought condition and falling On Balance Volume line 
suggesting that only limited new buying is coming in.  



Daily trading volume has not expanded in the same direction as
 the recent price trend.  Volume is a secondary indicator but 
volume trends should be a supporting, not diverging, pattern and 
this has not been the case over the past 8 trading sessions.

Good Trading Success!
 



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

Living Dangerously 

Turn off the TV and send the kids to another room. 
Clear your mind and let's have some fun this week. 
This is not your normal Editors Play strategy but 
one where we have no risk and the potential for
a nice profit. 

Yes, I said no risk. It will require a little more
capital than normal but I think it is worth the 
adventure. 

This is a directional stock play on a highly volatile
stock. The beauty of the play is based on coming 
events. 

The stock is RIMM. Currently RIMM is the maker of
the BlackBerry (CrackBerry in some circles) brand
of wireless devices. It is appealing a court decision
on a patent claim from NTP Inc. A lower court said
the BlackBerry device infringed on a patent held by
NTP and awarded NTP a judgment. RIMM appealed. As
part of the appeal process RIMM had to set aside a
small portion of any BlackBerry sales to pay NTP
if the higher court refused to reverse the decision.
That decision is due out any day now. 

While that seems negative on the surface the bottom
line is RIMM has already set the money aside. It 
will have no impact on the company other than a
possible royalty payment on future sales. Piper
Jaffray said last week that they expect RIMM to 
settle with NTP if the case goes against RIMM 
for a smaller one time payment than what was 
originally awarded. Piper Jaffray raised their
price target on RIMM this week to $106 and raised
earnings based on accelerating BlackBerry acceptance
in Europe. Merrill raised their target to $108 on
Wednesday. 

Secondly, RIMM has earnings on Dec-21st and they
expected RIMM to beat street estimates. 

RIMM is a highly volatile stock and the prospect
of the court case being resolved, awarded or just
denied on appeal has pressured RIMM back to $88 
from a high of $95 that has been reached twice in
the last two months.  

Should the verdict go in favor of RIMM an explosion
could occur with RIMM vaulting over $100 within a
day or two. Should the verdict go against them
they could drop sharply until a settlement is made. 

Sounds like a recipe for disaster. Fortunately the
high options premiums provide a nearly risk free
trade ahead of their Dec-21st earnings. It is 
possible they could announce a settlement with
those earnings but I would not count on it. 

Currently RIMM is $88.

Current option prices:

March $85 PUT RUP-OQ is $8.80
June $100 CALL RUP-FE is bid $9.10
January 2006 $100 CALL LEAP WLJ-AE is bid $15.10 
January 2006 $110 CALL LEAP WLJ-AB is bid $11.70
January 2006 $120 CALL LEAP WLJ-AD is bid $ 9.20


There are numerous ways to diagram this play. I am
going to show one and using the options above you
can modify it to fix your risk profile. 


Buy 100 shares RIMM stock @ $88.00
Buy 1 contract March $85 PUT RUP-OQ @ $8.80
Sell 1 covered call Jan 2006 $110 WLJ-AB @ $11.70

Cost 
RIMM stock $8800.00 ($4400 margin)

March PUT  $ 880.00
Jan $110 C $1170.00 credit
Net Total  $ 290.00 credit

The covered call you sold paid you $2.90 more than 
the put insurance you bought. 

This $2.90 credit covers the risk of the stock 
dropping from $88 to $85 where your put insurance
takes effect.

You have nearly ZERO risk from any drop in RIMM
other than commissions and spreads. In real money
it is a perfect breakeven deal. 

Assuming RIMM wins the court case. You own the stock
with no risk at $85 ($88 - $2.90 credit) and you 
have a covered call at $110. If RIMM moves over $110
by January 2006 you make $25 profit per share. That 
is a 28.4% profit with no risk. (57% is RIMM is 
bought on margin) If it does not move over $110 then
your profit is everything over $85.

Additionally I would set a stop at $95 on the put and
trail the stop down if RIMM continues to drop. If RIMM
wins the case the immediate spike would stop out the
put for possibly more than you paid for it thereby
giving you an additional profit opportunity. 

If RIMM loses the case and drops sharply then you have
100% protection from the put. Assuming RIMM fell to 
$50 or $60 before finding a bottom your put would
offset any loss in the stock price. Once a bottom
was found and the stock began climbing again, possibly
on a settlement, I would sell the put for a profit that
could be a lot of money and let the stock appreciate
risk free until Jan-2006 and hope to be called away.

Actually having a negative ruling could be much more
profitable because the appreciation in the put could
be very nice on a sharp drop. Remember you can sell
the put for a profit but you don't have to sell the
stock. Any gain in the stock price from where you
sell the put is pure profit to you. 

The catch:

The put is only a March put. A decision must be 
reached by March or the stock must appreciate over
$100 by March or you close the trade for a breakeven.
If the stock rose by March then the put would fall
and the covered call would rise. Still a breakeven.
If the stock fell the put would rise and the call
would fall. Still a breakeven. You have to make a
decision by expiration Friday in March. 

Obviously given the options I outlined above there
is several ways to play this event. Calculate the
different payouts using the prices above and your
own scenario. I think you will find there is very
little risk and a lot of reward. Personally I
would sell the $120 call for $9.20 and forego the
breakeven and risk $3 for the additional $10 on
the upside. Risk $3 to make $35 or risk nothing
to make $25. It is your choice. Based on the
popularity of the BlackBerry I envision no scenario
where RIMM does not move well over $100 by next
January. Just getting rid of the court cloud in a 
favorable manner could add $20-$30 to the stock in
a couple weeks. That is of course my personal opinion.

I will update this play about once a month with all
the available scenarios so it can be a teaching 
experience for everyone. 

RIMM Chart


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

DIA Calls $105.49   ** closed **

The DIA call position was stopped out on the Dow drop
on Thursday that duplicated the dip to 10418 the prior
week. The 10525 stop was hit at 1:PM on Tuesday when
the $3.3 billion sell program in S&P futures hit the
tape. 

The good news was we did not lose any money. This
table shows the prices on 11/22 and the prices at
1:PM on Tuesday when the Dow hit our stop at 10525.

Jan-$105 call DIA-AA (11/22) $1.90 1:PM $1.90 
Jan-$106 call DIA-AB (11/22) $1.40 1:PM $1.40
Jan-$107 call DIA-AC (11/22) $1.00 1:PM $0.95
Jan-$108 call DIA-AD (11/22) $0.70 1:PM $0.70

Sometimes the market just does not cooperate and this
was one of those times. 

DIA Chart


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

Google Puts $171.59 

Google is finally starting to act like the weight of 
another 25 million shares is weighing it down. Next
Thursday is the next release date and we are in a two
week down trend. Maybe our luck is finally changing!

After Thursday there are still 212 million more shares
to be released from lockup over the next 60 days. That
will be three times the current float AFTER the Thursday
release. 

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


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

Rested & Ready
- J. Brown

The upward momentum in the markets may have paused the last 
couple of weeks but that's exactly what they needed.  Now after 
some consolidation (or rest) they look ready for the traditional 
year-end push higher.  I agree with Jim in his wrap this weekend.  
With the FOMC meeting on Tuesday the market may just meander 
sideways until after the interest rate decision is announced.  Of 
course almost everyone believes that the Fed will raise rates by 
another 25 basis points.   

I would also keep an eye on oil next week.  While I don't expect 
crude prices to affect stocks over the next few days a breakdown 
under the 200-dma and the $40.00 a barrel mark would be bullish 
for equities.  

Historically next week begins the traditional Santa Claus rally, 
which is actually being fueled by an early January effect.  For 
those not familiar with the January effect it is an historical 
trend that was noticed year after year as the small caps out 
performed the market starting in January and through most of the 
first quarter.  In recent years that effect began to occur 
earlier and earlier so now it tends to begin around December 15th 
thus boosting the seasonal Santa Claus rally.  Obviously there is 
never a guarantee that such seasonal trends will show up but the 
odds seem to be in our favor this year.  

Many on Wall Street are expecting a big influx of money fueled by 
year-end retirement contributions and Christmas bonuses.  This 
should put another $12 billion or so in the hands of fund 
managers to be put to use in the markets.  Unfortunately, as Jim 
pointed out in the wrap, there are up to 17 IPOs just waiting to 
come to market in the next two weeks to take advantage of this 
tide of cash.  

According to the Stock Trader's Almanac this coming Monday and 
this coming option expiration Friday both tend to have strong 
historical trends for trading higher.  

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

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  9708
Current     : 10543

Moving Averages:
(Simple)

 10-dma: 10524
 50-dma: 10260 
200-dma: 10236 




S&P 500 ($SPX)

52-week High: 1197
52-week Low : 1053
Current     : 1188

Moving Averages:
(Simple)

 10-dma: 1185
 50-dma: 1150
200-dma: 1124




Nasdaq-100 ($NDX)

52-week High: 1631
52-week Low : 1301
Current     : 1605

Moving Averages:
(Simple)

 10-dma: 1601
 50-dma: 1516
200-dma: 1447




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

CBOE Market Volatility Index (VIX) = 12.76 -0.12
CBOE Mkt Volatility old VIX  (VXO) = 13.20 -0.03
Nasdaq Volatility Index (VXN)      = 19.57 -0.27 


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.63        742,599       464,246
Equity Only    0.47        611,554       288,555
OEX            1.33         22,854        30,507
QQQQ           6.45         10,279        66,383


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

Bullish Percent Data

           Current   Change   Status
NYSE          75.2    + 0.5   Bear Correction
NASDAQ-100    78.0    - 2     Bull Confirmed
Dow Indust.   70.0    + 3.4   Bull Confirmed
S&P 500       74.8    + 1.6   Bull Confirmed
S&P 100       76.0    + 1     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: 1.19
10-dma: 1.08 
21-dma: 1.02
55-dma: 1.07


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


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

Market Internals

            -NYSE-   -NASDAQ-
Advancers    1527      1627
Decliners    1260      1388

New Highs     164        81
New Lows       12         9

Up Volume    804M      835M
Down Vol.    943M      935M

Total Vol.  1779M     1796M
M = millions


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

Commitments Of Traders Report: 12/07/04


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

Commercial traders are growing a tad more bearish while small
traders have pushed to new bullish levels not seen in many weeks.

Commercials   Long      Short      Net     % Of OI
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%)
12/07/04      450,072   498,057   (47,985)   (5.0%)

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
11/16/04      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%
12/07/07      187,707   135,776    51,931    16.0%

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

There has been an interesting switch in the latest data.  
Commercial traders' bearish sentiment, while still strong, has
dropped significantly.  Meanwhile, small traders' bullish bias,
while still extreme, has fallen significantly.

Commercials   Long      Short      Net     % Of OI 
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%)
12/07/04      470,553   805,234   (334,681)  (26.2%)

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
11/16/04      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%
12/07/04      311,838     66,496   245,342    64.8%

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


NASDAQ-100

We a similar move in the NDX futures.  Commercials remain
bullish but their enthusiasm has waned a bit.  Small traders
remain very bearish but their sentiment has faded a bit too.

Commercials   Long      Short      Net     % of OI 
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%
12/07/04       57,621     34,313    23,308   25.4%

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
11/16/04       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%)
12/07/04       15,489    49,064   (33,575)  (52.0%)

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

Commercials traders pared back their bearish sentiment 
while small traders became more bearish on the Industrials.

Commercials   Long      Short      Net     % of OI
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%)
12/07/04       25,523    27,351   (1,828)     (3.4%)
 
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
11/16/04        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%)
12/07/04        5,274     9,507   (4,233)   (28.6%)

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

Single Family Housing futures!

I saw the same brief interview on CNBC that you mentioned in this 
evenings market monitor regarding the CME looking into the 
listing of housing futures.  It sounds like a great product, but 
I'm wondering what kind of trader/investor it will be suitable 
for?  Also, what do you think this new product might do for the 
CME's stock price?  Wouldn't it help increase the CME's trading 
volume and revenue/earnings?

Reply:

I sure thought it made sense to offer a security on the U.S. 
housing market.  I've said before that owning a single family was 
ownership in a rather illiquid investment, where unlike a stock 
or a bond, you couldn't just click your computer mouse button, 
sell it, and have the cash show up in your account.

But that might change in the not to distant future!

What I've been able to uncover through various news reports is 
that the Chicago Mercantile Exchange (CME), which is listed under 
the ticker symbol CME $222.14, is working with MACRO Securities 
Research, LLC, to explore the development of derivatives based on 
the Fiserv, CSW, family of Housing Price Indexes (HPI).  The 
derivatives (futures are derivatives) would create a market that 
ultimately will provide homeowners with tools to help protect the 
value of their largest asset.

I can think of several ways an investor like you and I could use 
such a derivative.  As long as we were educated on the RISKS 
associated with futures.

Just as a homeowner might take out a second mortgage on their 
home, I can see how a homeowner, that may not want to go through 
the process of a loan application, yet has some equity in their 
house, might turn to a derivative like housing futures, and 
actually "sell short" an asset, that may very well reflect the 
value of their single family home.  

My father and mother own their home, which they've lived in since 
1967, and my dad has often mentioned that he was thinking of a 
reverse mortgage to "unlock" the equity in his house, to further 
enjoy his retirement.  While the CME hasn't fully outlined in 
detail the design of these housing futures, I could see how a 
homeowner, that still wanted to live in their house, could 
perhaps unlock some of their equity in the housing futures 
market.

My question, as well as the trader's question is how a housing 
future could really be used as a hedge.  After all, the housing 
market in San Francisco, CA, is much different that the housing 
market in Liberal, KS.  You know where Liberal, KS is.  That's 
where Dorothy (Wizard of Oz) lived.

I would have to think that there would be some type of regional 
housing futures, to more accurately reflect average housing 
prices in various regions of the U.S.

Now, I do not currently own a home (I've been waiting for housing 
prices to fall for a couple of years now), but I recently 
participated (invested) in a real estate limited partnership, to 
try and get some exposure to the real estate sector, outside of 
stock ownership.  I can see how an investor like myself might be 
able to get immediate exposure to the single family housing 
market with a product like the CME is proposing.  In fact, a 
housing futures contract would be much more liquid that the 
limited partnership.

Can you imagine how useful it would be to investors and traders 
to be able to look at some charts of housing futures?  

Laughing to myself.... "Swing trade long alert for the Seattle 
June 2005 futures at $33.00" as they've just triggered a triple 
top buy signal on the point and figure chart!

"Swing trade short the Miami October 2004 futures at $25" as 
Hurricane Jane looks like its headed right at Miami!

Could such a product be a boon for the Chicago Mercantile?  It 
could be.  Futures trading has really become a high volume, 
and profitable business for the CME as investors around the world 
have turned to the futures market in force to hedge risk, and 
even speculate for profits on various futures contracts for 
interest rates, foreign exchange and commodities.  According to 
the US Census Bureau and the Mortgage Bankers Association, U.S. 
single family homes represents a $22.3 trillion market.  That's 
HUGE!

Think of the attention this futures market could get from 
insurers.  What about banks?  I can see how a bank might want to 
hedge against a regional downturn in single family home prices 
should a large corporate employer decide to relocate its 
operations to another region of the country.  

I can also imagine how an investor might speculate for profit in 
a housing futures contract, should they feel that housing prices 
in a highly industrialized part of the U.S. look to be set for 
recovery after an economic recession.

Before I forget, I'll share a tip with real estate investors that 
a realtor once shared with me.  He said he could always get a 
pretty good grasp on housing price movements in the Denver 
metropolitan area, if not the regional economy, just by taking a 
drive around town and looking at the UHAUL trailer lots.  If the 
trailer lot was full of trailers, then that most likely meant 
there were a lot of folks moving into the area.  If the lots were 
half full, or half empty, then people were leaving.

It sounded crazy at first, but it actually made sense.  A couple 
of years ago (during the trough of the recent recession) I 
couldn't find a moving van from UHAUL or Ryder that wasn't 
reserved.  I finally found a place, but they told me that I could 
only rent it for local use, as they had just one truck left at 
that store location, which hadn't been rented for an out of 
region location.

Is this economy humming or what?  

Amerco (NASDAQ:UHAL) $42.79 -0.25%.  Hey!  That's a triple top 
buy signal at $42.00 and bullish vertical count is building to 
$56.

Hmmm.... I might have to get in touch with the CME about creating 
a futures contract for rental trailers.  

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

PCSA  AirGate PCS Inc.    Mon, Dec 13  After the market     n/a
CKR   CKE Restaurants     Mon, Dec 13  After the market     0.17
FCEL  FuelCell Energy     Mon, Dec 13  After the market    -0.44
LAKE  Lakeland Industries Mon, Dec 13  After the market     0.29
ORCL  Oracle              Mon, Dec 13  Before the bell      0.13
PRSF  Portal Software     Mon, Dec 13  After the market    -0.38
COO   The Cooper Cos.     Mon, Dec 13  After the market     0.72

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

ABM   ABM Industries      Tue, Dec 14  After the market     0.29
STST  Argon St            Tue, Dec 14  Before the bell      0.26
EASI  Engineered Support  Tue, Dec 14  Before the bell      0.71
GLAD  Gladstone Capital   Tue, Dec 14  ----- n/a -----      0.35
PIR   Pier 1 Imports      Tue, Dec 14  ----- n/a -----      0.22

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

APOG  Apogee Enterprises  Wed, Dec 15  After the market     0.21
BBBY  Bed Bath & Beyond   Wed, Dec 15  After the market     0.39
BBY   Best Buy            Wed, Dec 15  Before the bell      0.44
BMET  Biomet              Wed, Dec 15  Before the bell      0.38
LEH   Lehman Brothers     Wed, Dec 15  Before the bell      1.70
LEN   Lennar Corp.        Wed, Dec 15  Before the bell      2.21
SCHL  Scholastic          Wed, Dec 15  After the market     1.77
VSNT  Versant             Wed, Dec 15  After the market     n/a
WGO   Winnebago           Wed, Dec 15  Before the bell      0.57

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

COMS  3Com Corp           Thr, Dec 16  After the market    -0.11
ADBE  Adobe Systems       Thr, Dec 16  After the market     0.42
APOL  Apollo Group        Thr, Dec 16  ----- n/a -----      0.57
CCL   Carnival Corp       Thr, Dec 16  During the market    0.31
CTAS  Cintas Corp         Thr, Dec 16  After the market     0.44
DRI   Darden Restaurants  Thr, Dec 16  After the market     0.23
ENTG  Entegris Inc.       Thr, Dec 16  Before the bell      0.07
FDX   Fedex               Thr, Dec 16  ----- n/a -----      1.26
GS    Goldman Sachs       Thr, Dec 16  Before the bell      2.32
KBH   KB Home             Thr, Dec 16  After the market     4.14
MEAD  Meade Instruments   Thr, Dec 16  Before the bell      0.04
NKE   Nike                Thr, Dec 16  After the market     0.86
PLMO  PalmOne             Thr, Dec 16  ----- n/a -----      0.53
ZQK   Quiksilver          Thr, Dec 16  After the market     0.40
RAD   Rite Aid Corp       Thr, Dec 16  ----- n/a -----      0.01
TTWO  Take-Two Inter.     Thr, Dec 16  After the market     1.55
TXI   Texas Industries    Thr, Dec 16  Before the bell      1.14
WOR   Worthington Ind.    Thr, Dec 16  Before the bell      0.48

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

KMX   CarMax Inc.         Fri, Dec 17  Before the bell      0.17
CC    Circuit City        Fri, Dec 17  Before the bell     -0.08
FDO   Family Dollar       Fri, Dec 17  Before the bell      0.33
SCS   Steelcase Inc.      Fri, Dec 17  Before the bell      0.04


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

Symbol  Company Name              Ratio    Payable     Executable

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
ADSK    Autodesk                  2:1      Dec 20th    Dec 21st
SKT   Tanger Factory Outlet       2:1      Dec 28th    Dec 29th
BEBE  bebe stores                 3:2      Dec 29th    Dec 30th
SVBI  Severn Bancorp              2:1      Dec 30th    Dec 31st
CLF   Cleveland Cliffs            2:1      Dec 31st    Jan  3rd
O     Realty Income               2:1      Dec 31st    Jan  3rd
BRC   Brady Corp                  2:1      Dec 31st    Jan  3rd
NX    Quanex Corp                 3:2      Dec 31st    Jan  3rd

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

The economic calender begins to pick up with Retail sales on
Monday, the FOMC meeting on Tuesday, the NY Empire index on
Wednesday, the Philly Fed and SEMI book-to-bill on Thursday
and the CPI on Friday.


==============================================================
                       -For-           
----------------
Monday, 12/13/04
----------------
Retail Sales for November     Last: +0.2%   Est: 0.0%
Business Inventories for October

-----------------
Tuesday, 12/14/04
-----------------
FOMC meeting on interest rates - est: 25 bps rise.
Trade Balance for October
Industrial Production for November
Capacity Utilizaton for November

-------------------
Wednesday, 12/15/04
-------------------
NY Empire state index for December

------------------
Thursday, 12/16/04
------------------
FOMC minutes from previous meeting.
SEMI Book-to-Bill report
Philly Fed for December
Weekly Initial Jobless Claims
Housing starts for November
Building Permits for November

----------------
Friday, 12/17/04
----------------
Consumer Price Index (CPI) for November   Last: +0.6% Est: +0.2%
Core CPI





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


In Section Two:

Watch List: Another big Radar Screen
Dropped Calls: LEH
Dropped Puts: None


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

TITLE:  Another big Radar Screen

___________________________________________________________________

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.
___________________________________________________________________


Cooper Cos - COO - close: 74.06 change: +3.67

WHAT TO WATCH: We strongly considered adding COO as a new call 
candidate on the play list this weekend.  The breakout over 
resistance at $72.50 and the new all-time high with the bullish 
technicals looks like a new entry point.  Unfortunately, earnings 
are due out on December 13th and Wall Street is looking for 72 
cents a share.  Wait to see how traders react following the 
report.  




---

Ryland Group - RYL - close: 54.50 change: +1.95

WHAT TO WATCH: The homebuilding sector is on fire.  The DJUSHB 
index added 4.8 percent on Friday following Thursday's big gain.  
Shares of RYL jumped 3.7 percent with strong volume pushing the 
stock through the top of its four-week trading range and hitting 
new highs.  This could be a new bullish entry point for momentum 
traders.  RYL's earnings are not til mid-January and its P&F 
chart points to $72.  See the RADAR screen below for more home 
builders to scan.




---

AutoZone - AZO - close: 88.74 change: +0.64 

WHAT TO WATCH: AZO recently reported earnings and beat estimates 
by 7 cents while coming in a little under expectations for 
revenues.  Traders responded positively with a huge rebound from 
support at the $84 level although this could merely be short 
covering.  We would watch for a move over resistance at $90.00 
before considering bullish positions. The P&F chart is very 
bullish with a $120 price target.




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

LEA $56.70 -1.15 - We hesitate to suggest bearish plays given 
that we're moving into a very bullish time of year.  However, LEA 
looks vulnerable to more selling here. 

STI $72.91 +0.75 - The bullish trend in STI has coiled into a 
pattern of higher lows against resistance in the $73.00-73.50 
region.  Watch for the breakout.  

IVGN $66.10 +0.60 - IVGN's breakout from its multi-week trading 
range is very bullish but shares are testing P&F resistance.  The 
stock has broken a very long-term trend of lower highs.

BEC $66.56 -0.10 - BEC is breaking out from its two-week trading 
range near $65.00.

PRU $51.89 +0.75 - PRU continues to look like a bullish candidate 
after its breakout over resistance at $50.00.

JP $51.61 +0.90 - Bulls can watch JP for a breakout over the $52 
level and target a run towards $56.

MMM $78.80 -0.17 - Dow-component MM is really showing some 
weakness the past few weeks.  A breakdown under $78 might be a 
bearish entry point.  



Homebuilders:

KBH - breaking out over the $100 level.

BZH - soaring to $140 on news of a 3-for-1 stock split.

PHM - trying to breakout over the $60 mark.

TOL - looking very extended after its earnings report.

DHI - Moving to new highs.

MTH - soaring to $108. 

SPF - breaking out over the $60 level.

LEN - breaking out over resistance near $49.






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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
^^^^^

Lehman Brothers - LEH - close: 85.86 change: +0.06 stop: 82.49

We only have a few days left before LEH is expected to report 
earnings on December 15th.  Regular readers know we do not like 
to hold over an earnings announcement.  There are too many 
unknowns that could affect shares negatively.  We try to hold to 
this trading rule even when we believe that the earnings results 
will be positive, as we do for LEH.  More aggressive traders can 
hold on to LEH.  We're going to exit here and rotate into a new 
play in the same sector with MWD.  

Picked on December 6 at $ 85.51
Change since picked:     + 0.35
Earnings Date          12/15/04 (confirmed)
Average Daily Volume =      2.0 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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**********

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

In Section Three:

Current Calls: UTX, OSK, IBM, FLR, EBAY, BIIB, ABK, ARLP
New Calls: COF, MWD, MDC
Current Puts: ADI
New Puts: None

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

Alliance Resource - ARLP - cls: 66.30 chg: +0.26 stop: 61.85

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 believe that investors will continue to chase after coal 
provider ARLP given that $40 a barrel crude is still expensive 
albeit down from its highs.  The stock has maintained rising 
support at its simple 50-dma and traders bought the dip to this 
technical level twice in the past two weeks.  Short-term 
technicals are improving but the P&F chart is still stuck in a 
sell signal.  We initially added ARLP as a speculative technical 
play as we bought the bounce from the 50-dma.  We'd still be 
willing to buy any bounce above this moving average but watch out 
for potential resistance near $70.

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= 84 current ask $4.30
BUY CALL JAN 70 AFV-AN OI= 76 current ask $1.85

BUY CALL MAR 65 AFV-CM OI=107 current ask $6.00
BUY CALL MAR 70 AFV-CN OI=118 current ask $3.50

Annotated Chart:



Picked on December 5 at $ 65.82
Change since picked:     + 0.48
Earnings Date          10/22/04 (confirmed)
Average Daily Volume =      101 thousand



---


Ambac Fincl Group - ABK - cls: 83.60 chg: +0.37 stop: 79.89*new*

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 really can't complain with the action in ABK.  The stock has 
been out performing the markets and its peers in the IUX 
insurance index.  We were unable to discern what caused the spike 
higher on Friday morning but we are encouraged that ABK managed 
to close at another all-time high.  We suspect that if the IUX 
index can breakout over resistance at its simple 200-dma then ABK 
will have more freedom to run higher.  Our mid-January target 
remains the $90 region.  ABK continues to look like a stock split 
candidate considering it last split 3:2 in December of 2000 near 
$81.  Plus, the bullish P&F chart points to a $101 target.  We 
are going to raise our stop loss to $79.89.

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=  22 current ask $9.20
BUY CALL JAN 80 ABK-AP OI= 313 current ask $4.80
BUY CALL JAN 85 ABK-AQ OI= 257 current ask $1.75
BUY CALL JAN 90 ABK-AR OI=1338 current ask $0.45

Annotated chart


Picked on December 01 at $82.26
Change since picked:     + 1.34
Earnings Date          10/20/04 (confirmed)
Average Daily Volume =      490 thousand



---

Biogen Idec - BIIB - close: 65.53 change: -0.59 stop: 60.99

Company Description:
Biogen Idec creates new standards of care in oncology and 
immunology. As a global leader in the development, manufacturing, 
and commercialization of novel therapies, Biogen Idec transforms 
scientific discoveries into advances in human healthcare.
(source: company press release)

Why We Like It:
Our new play in BIIB was triggered on Thursday when shares traded 
up and through round-number, psychological resistance at the 
$65.00 level.  Our entry point was $65.25.  The recent breakout 
is very bullish when you consider that BIIB has been stuck in a 
trading range since April.  The stock looks a little short-term 
overbought but we expect BIIB to hit new highs if the market can 
produce its traditional year-end ramp up.  If BIIB does see 
profit taking watch for a bounce in the $62-63 range.  The P&F 
chart now points to an $89 target.  Our short-term target is only 
$70.  

Suggested Options:
We are going to suggest the January and April calls.  Right
now our favorites would be the Aprils. 

BUY CALL JAN 60 IHD-AL OI=18311 current ask $6.60
BUY CALL JAN 65 IHD-AM OI=17057 current ask $2.90
BUY CALL JAN 70 IHD-AO OI=10889 current ask $0.95

BUY CALL APR 65 IHD-DM OI= 2792 current ask $5.20
BUY CALL APR 70 IHD-DN OI= 3541 current ask $2.85

Annotated chart


Picked on December 9 at $ 65.25
Change since picked:     + 0.28
Earnings Date          01/26/05 (unconfirmed)
Average Daily Volume =      3.5 million  




---

eBay Inc. - EBAY - close: 114.41 chg: -1.81 stop: 112.49

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:
EBAY has been a successful bullish play for us and we've been 
suggesting that more conservative traders do some profit taking 
the last few days.  We remain positive that EBAY will trade 
higher if the markets produce their traditional year-end ramp up.  
However, the stock is nearing a crucial test of short-term 
support.  Shares have slipped toward the bottom of its rising 
channel and considering how overbought the stock is a breakdown 
could be painful.  Currently we are expecting EBAY to bounce in 
the $113 region.  While we are not suggesting new bullish plays 
at this time more aggressive traders could use a rebound above 
$113 as a potential entry point.  Our year-end target remains the 
$120 level and we will exit if shares hit this target.  We 
believe that EBAY continues to be a stock split candidate.  The 
company last split its stock on August 29th, 2003 near $110.

Suggested Options:
We are not suggesting new positions at this time although more 
aggressive traders could use a bounce from $113 as a potential 
entry point.

Annotated chart


Picked on November 08 at $103.69 
Change since picked:      +10.72
Earnings Date           10/20/04 (confirmed)
Average Daily Volume =      10.4 million 



---

Fluor Corp - FLR - close: 53.47 change: -0.80 stop: 51.49

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:
FLR came so close to hitting our target on Wednesday.  Prior to 
Wednesday we had been expecting a breakout given its narrowing 
consolidation pattern.  Then on Wednesday shares exploded higher 
and hit an intraday high of $54.77 - not quite good enough for 
our target at $55.00.  However, we have not given up hope.  The 
stock lost 1.4 percent on Friday but bounced from new support 
above the $52.50 level.  This is good news considering that CSFB 
had downgraded the stock from neutral to under perform on Friday 
and cut its price target to $45.  Still it doesn't hurt to do 
some profit taking if you missed our suggestion on Wednesday.  We 
are not suggesting new bullish positions at this time.

Suggested Options:
We're not suggesting new bullish positions at current levels but
readers could watch for another bounce from $52.50 if it occurs.

Annotated chart:


Picked on November 22 at $48.51
Change since picked:     + 4.89
Earnings Date          10/27/04 (confirmed)
Average Daily Volume =      521 thousand   




---

Intl Business Mach. - IBM - close: 96.67 chg: -0.84 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:
It looks like IBM has traded one trading range for another.  This 
Dow-component has stair stepped its way from $94-96 to $96-98.  
The normal flood of news for and about IBM has been twice as 
strong since it announced plans to sell its PC unit to Lenovo, a 
Chinese computer maker.  Yet shares can't seem to capitalize on 
the news.  We remain bullish on IBM and if the market can produce 
it's normal year-end rally then we're confident IBM will hit our 
target in the $99-100 range.  We're not suggesting new bullish 
positions at this time but more aggressive traders might want to 
consider a bounce from the $96 level as a potential entry point.  

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:    + 6.67
Earnings Date         10/18/04 (confirmed)
Average Daily Volume =     4.7 million 



---

Oshkosh Truck - OSK - close: 64.21 change: -0.18 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:
Unfortunately there is little to report on for OSK.  The stock 
remains stuck in its slightly bullish trading range between $62 
and $65.  We call it bullish because there is a growing trend of 
higher lows.  Plus, the short-term stochastics are positive.  
Longer-term the P&F chart continues to point to an $83 target.  
Our target is a move into the $67.50 region.  Readers may want to 
consider a bounce from $63 as a new entry point.  We are going to 
make a change to our stop loss strategy.  OSK hasn't traded under 
$61.60 in over a month so we're going to raise our stop to 
$61.49. 

Suggested Options:
We're suggesting the January calls.

BUY CALL JAN 60 OSK-AL OI=2389 current ask $5.10
BUY CALL JAN 65 OSK-AM OI= 102 current ask $1.85

Annotated Chart:



Picked on November 07 at $ 62.16
Change since picked:      + 2.05
Earnings Date           10/28/04 (confirmed)
Average Daily Volume =       205 thousand   



---

United Tech. - UTX - close: 101.03 change: +1.58 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:
Dow-component UTX has been a big winner the latter half of last 
week.  Shares dipped toward support near $96 but never got there.  
Traders bought the dip on Wednesday and shares have been in rally 
mode ever since.  Friday's strength was boosted by UTX's Thursday 
evening analyst meeting.  They company may have only guided 
inline for fiscal year 2005 but the commentary was very positive.  
CEO George David said, "Exceptional organic revenue growth and 
good execution across our businesses have fueled double digit 
revenue and earnings increases.... We expect solid performance 
again in 2005."  He also said that his business was in its best 
shape in a long time.  That's exactly what investors like to hear 
and we expect UTX to be a leader as we move into the strongest 
part of December.  Our target remains the $110 region.

Suggested Options:
We like the January 2005 calls.  

BUY CALL JAN  95 UTX-AS OI=3176 current ask $7.00
BUY CALL JAN 100 UTX-AT OI=7474 current ask $3.10
BUY CALL JAN 105 UTX-AA OI=3102 current ask $1.05
BUY CALL JAN 110 UTX-AB OI= 815 current ask $0.25

Annotated chart



Picked on December 1 at $100.15
Change since picked:     + 0.88
Earnings Date          10/20/04 (confirmed)
Average Daily Volume =      1.8 million  








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

Capital One Financial - COF - cls: 81.12 chg: +1.93 stop: 76.99

Company Description:
Headquartered in McLean, Virginia, Capital One Financial 
Corporation (www.capitalone.com) is a holding company whose 
principal subsidiaries, Capital One Bank and Capital One, F.S.B., 
offer consumer lending products and Capital One Auto Finance, 
Inc., offers automobile and other motor vehicle financing 
products. Capital One's subsidiaries collectively had 47.2 
million accounts and $75.5 billion in managed loans outstanding 
as of September 30, 2004. Capital One, a Fortune 500 company, is 
one of the largest providers of MasterCard and Visa credit cards 
in the world. (source: company press release)

Why We Like It:
What's in your wallet?  Yes, COF is responsible for those corny 
television commercials but they appear to be working.  The stock 
has been a strong with shares up about 35 percent for the year.  
We have mentioned COF as a potential candidate on the watch list 
or in the MarketMonitor during its recent consolidation under 
resistance at the $80.00 mark.  Now the stock is breaking out 
from the four-week trading range and on big volume.  Friday's 
volume was more than double the average - that's always a bullish 
sign.  Short-term technicals are positive and its MACD is nearing 
a new buy signal.  We're going to suggest longs over $80 with an 
$88-90 six to eight week target.  

Suggested Options:
We are going to suggest the January and March calls.  Our 
favorites would be the March strikes.

BUY CALL JAN 75 COF-AO OI=3584 current ask $7.20
BUY CALL JAN 80 COF-AP OI=5870 current ask $3.30
BUY CALL JAN 85 COF-AQ OI=1669 current ask $1.00

BUY CALL MAR 80 COF-CP OI=1520 current ask $5.10
BUY CALL MAR 85 COF-CQ OI=1310 current ask $2.55
BUY CALL MAR 90 COF-CR OI=1956 current ask $1.10

Annotated Chart:


Picked on December 12 at $ 81.12
Change since picked:      + 0.00
Earnings Date           01/19/05 (unconfirmed)
Average Daily Volume =       1.4 million  



---

M D C Holdings - MDC - close: 81.01 change: +4.15 stop: 74.99

Company Description:
MDC, whose subsidiaries build homes under the name "Richmond 
American Homes," is one of the largest homebuilders in the United 
States. The Company also provides mortgage financing, primarily 
for MDC's homebuyers, through its wholly owned subsidiary 
HomeAmerican Mortgage Corporation. MDC is a major regional 
homebuilder with a significant presence in some of the country's 
best housing markets. The Company is the largest homebuilder in 
Colorado; among the top five homebuilders in Northern Virginia, 
suburban Maryland, Phoenix, Tucson, Las Vegas and Salt Lake City; 
and among the top ten homebuilders in Jacksonville, Northern 
California and Southern California. MDC also has established 
operating divisions in Dallas/Fort Worth, Houston, West Florida, 
Philadelphia/Delaware Valley and Chicago.
(source: company press release)

Why We Like It:
The homebuilding sector has come alive again.  The group has 
really been a leader this past week and for good reason.  Toll 
Brothers (TOL) reported some very strong earnings while Beazer 
Homes (BZH) just announced a 3-for-1 stock split.  We were 
attracted to MDC because we wanted a stock in the sector that was 
strong but didn't look too over extended already.  Now arguably 
chasing Friday's move puts MDC short-term overbought but this 
looks like the beginning of the next leg higher.  MDC has been 
churning sideways between $75 and $80 the past few weeks and 
Friday's rally not only breaks resistance at $80.00 but reverses 
the recent breakdown and sell signal when MDC closed under $75 
and its simple 50-dma three days ago.  Technicals are bullish and 
its MACD indicator has produced a new buy signal.  If you look 
over MDC's P&F chart you'll see the bear-trap reversal and the 
new buy signal with a $94 target.  Our short-term target is $85 
but we suspect that MDC can trade closer to $90 before its 
earnings report in mid-January.  If you have the patience wait to 
see if MDC trades sideways for a day or two and let the call 
premiums deflate a bit before initiating positions.  Also keep 
your eyes open for the Housing Starts and building permit data 
that comes out on December 16th.  These reports could impact the 
homebuilders.

Suggested Options:
We are going to suggest the January and March calls.  Keep in 
mind that we do not plan to hold over the January earnings report 
so March calls may be overkill.

BUY CALL JAN 75 MDC-AO OI= 17 current ask $10.00
BUY CALL JAN 80 MDC-AP OI= 49 current ask $ 6.80
BUY CALL JAN 85 MDC-AQ OI= 26 current ask $ 5.10
BUY CALL JAN 90 MDC-AR OI=  0 current ask $

BUY CALL MAR 80 MDC-CP OI=4136 current ask $9.10
BUY CALL MAR 85 MDC-CQ OI=  52 current ask $6.60
- MAR 90's are not available yet.

Annotated Chart:


Picked on December 12 at $ 81.01
Change since picked:      + 0.00
Earnings Date           01/11/05 (unconfirmed)
Average Daily Volume =       435 thousand




---

Morgan Stanley - MWD - close: 53.70 chg: +1.19 stop: 51.50

Company Description:
Morgan Stanley is a global financial services firm and a market 
leader in securities, investment management and credit services. 
With more than 600 offices in 27 countries, Morgan Stanley 
connects people, ideas and capital to help clients achieve their 
financial aspirations. (source: company press release)

Why We Like It:
Let's try this again.  We are bullish on the broker-dealer 
sector.  The XBD has shown incredible strength and pushed past 
resistance near 149 dating back to the first quarter of this 
year.  This has put the group at all-time highs.  A week ago we 
added LEH as a new call candidate.  Unfortunately, the stock, 
while breaking out from its trading range, is not moving fast 
enough for us before its earnings date, which is Dec. 15th.  
Instead we're closing LEH and rotating into MWD.  MWD has been 
lagging its peers a bit but looks ready to breakout over 
resistance at the $54 level.  We are going to use a TRIGGER at 
$54.11 to open the play.  Once triggered we'll target a move 
toward $59-60.  However, part of the risk here is our time frame.  
MWD is due to report earnings on December 21st.  If you prefer to 
play the sector but don't want the looming deadline or don't want 
to play something too extended (like GS and BSC) then consider 
MER as an alternative.  Fortunately, the P&F chart for MWD is 
bullish and points to a $66 target.

Suggested Options:
Given the time frame and our Dec. 20th exit date we're only
suggesting the January calls.

BUY CALL JAN 50 MWD-AJ OI=16869 current ask $4.40
BUY CALL JAN 55 MWD-AK OI=23500 current ask $1.25

Annotated Chart:


Picked on December xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           00/00/04 (confirmed)
Average Daily Volume =           million  





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

Analog Devices - ADI - close: 36.42 chg: +0.17 stop: 39.11

Company Description:
Analog Devices, Inc. is a leading manufacturer of high-
performance integrated circuits used in analog and digital signal 
processing applications. ADI is headquartered in Norwood, 
Massachusetts, and employs approximately 8,900 people worldwide. 
It has manufacturing facilities in Massachusetts, California, 
North Carolina, Ireland, and the Philippines.
(source: company press release)

Why We Like It:
Try as they might tech investors can't get semiconductor stocks 
to move higher.  The positive NSM news this past week was 
undermined by previous warnings from XLNX and ALTR.  Even the 
positive Intel guidance the week before failed to do much more 
than offer a one-day pop.  We would watch for a failed rally 
under $37 or a new low under $35.50 as a new bearish entry point.  
More conservative traders may want to tighten their stop.  We're 
eyeing the $38.15-38.50 level as a possible stop loss area.

Suggested Options:
We're going to suggest the January and March puts.  Our favorites
would be the March strikes.

BUY PUT JAN 40 ADI-MH OI=7416 current ask $4.30 
BUY PUT JAN 35 ADI-MG OI=8568 current ask $1.40 
BUY PUT JAN 30 ADI-MF OI=3171 current ask $0.35

BUY PUT MAR 40 ADI-OH OI=1293 current ask $5.00 
BUY PUT MAR 35 ADI-OG OI=1776 current ask $2.20 
BUY PUT MAR 30 ADI-OF OI=1869 current ask $0.75 

Annotated chart


Picked on December 8 at $ 36.14
Change since picked:     + 0.28
Earnings Date          11/23/04 (confirmed)
Average Daily Volume =      4.1 million  




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

None


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

In Section Four:

Leaps:    Portfolio Flush
Spreads and Straddles:  Things Of Which Trading Ranges Are Made

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*****
LEAPS
*****

Portfolio Flush

This was a bad week for stocks but not a bad week for
us. Last week I tightened up the stops on all the 
current plays given the weak market and the potential
for a questionable year end. 

Some stops may have been too close but exiting for a
profit is never a bad event. We lost six positions in
the portfolio and it is starting to look skinny again.
After two weeks of oil price drops and the crash in
the chip sector those stocks immune to profit taking
were very few. 

We lost EBAY, SYMC, ADBE, STM, SMH and MER. All were
profitable exits except for STM which was a new addition
just before the chip crash. 

We came very close to exits on the DIA leaps and the
QQQ leaps but escaped when both rebounded back to the
prior ranges. 

The intention was to take profits and skinny down the
portfolio before January ended but the back to back 
double dips to Dow 10418 and year end profit taking
was stronger than expected. 

I believe we are going higher from here but I am 
beginning to question how far and how fast. I am 
reluctant to add any new positions this week with 
uncertainty in the market. However, with crude oil
at $40 and the 200 day average I could not resist.

I am adding back in the XLE, COP and MRO. With OPEC
cutting production to support prices I have a hard
time believing we are going much lower. All they 
have to do is tighten those spigots and we are back
at the highs. 

I am going to add some insurance puts just to be
safe on the new oil plays. 

Typically the best time to buy leaps is during the
summer when prices are historically low and again
during the October dips. December and January are
historically strong months but after January we
typically see weakness into the summer. This will
give us the opportunity to buy some PUT leaps in
January as we close out any remaining positions if
they roll over in early 2005. 

I dropped Intel last Sunday at $23.91 for a profit
because I feared for their future. They dropped every
day last week to end up back at $22.50 and the low
for the week on Friday. Glad I made that decision!

I really need to hear your comments. I heard from 
several readers last week and I really appreciate
your feedback. 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
*******************   

XLE - $35.55 Energy Select SPDR

COP - $87.74 Conoco Phillips

MRO - $36.64 Marathon Oil


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

SMH  - Semiconductor Holders ** Stopped $33.25 **

ADBE - Adobe Systems   ** Stopped $61.00 **

SYMC - Symantec    ** Stopped $32.50 **

MER - Merrill Lynch   ** Profit Target $58.00 **

EBAY - EBAY      ** Stopped $113.00 **

STM - STMicroelectronics   ** Stopped $19.50 **


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

None


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

Position Summary Table

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

XLE - S&P Energy SPDR $35.55  ** No Stop **

The XLE failed to drop any further since our stop last
week at $35.50. Oil has fallen another -$3 but the XLE
continues to hold that $35.50 level. I believe the OPEC
production cuts will keep oil over $40 and as demand
continues to increase so will the energy SPDR. 

The XLE SPDR is composed of 27 energy stocks and represents
about 8% of the SPX. This is the 8% that helped push the 
SPX to the current levels with the rise in oil over the
last year. In fact the XLE has far exceeded the SPX in 
performance over the past year. 

I am not putting a stop loss on this play. I am suggesting
an insurance put to offset against any material drop. 
Because I believe oil is in a long term up trend I do
not want to get jerked out of this position. If we see
that oil is not moving higher by March I will reevaluate
the position. 


2006 $35 LEAP Call WHA-AI currently $3.60 
2007 $40 LEAP Call ORJ-AN currently $2.65
Drop insurance: March $34 Put XLE-OH currently $1.00 

Entry $35.55 on 12/12

Components of the XLE


XLE Chart



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

COP - Conoco Phillips $84.74    ** Stop 79.00 **

I really like COP and sure hated to see it go last week.
We rode it up from $73 to $91 and were stopped out for
a huge profit at $85.50. Despite the big drop in oil
COP, like the XLE, has failed to fall any further.    

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

Conoco has been on a permanent uptick since October 2002.
That up trend accelerated in December 2003 and topped out
at $80 this August. The stock took a dive in early August
when Conoco released earnings that almost doubled but 
said they were selling some assets to reduce $1.5B in 
debt. Investors decided to take profits and see what 
Conoco had for future plans. 

COP, along with AHC, MRO and OXY, is working with Libya
to get assets frozen in 1986. This would be a favorable
event but would require some updating to return to full
production. At least that production would not need to 
be bought or bid on as any new leases in Libya currently
on the auction block. 

I am recommending a stop for COP at $79 and just under
the 100 day average as well as an insurance put because
the leaps are so expensive. If stopped the put will 
reduce any loss on the leaps. 

Current position:
Jan-2006 $90 LEAP Call YRO-AR at $5.90 
Jan-2007 $90 LEAP Call OJP-AR at $9.10
Insurance Put: Feb $80 PUT COP-NP at $1.75

Entry $84.74 Dec-12th   


COP Chart


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

MRO - $36.64 Marathon Oil    ** No Stop **

MRO is engaged in the worldwide exploration and production
of crude oil and natural gas, the domestic refining, 
marketing, & transportation of petroleum products, and 
other energy related businesses. For the 9 months ended
9/30/04, revenues rose 18% to $35.6B.

Currently MRO is purchasing Ashland's 38% interest in the
Marathon Ashland Petroleum refining venture. Marathon is
trying to consolidate assets and acquire more. Banc of
America just initiated coverage with a Buy.   

Marathons chart shows strong support at the 200-day 
average which has been tested three times over the 
past year. It was tested the third time this week and
so far it has held at $36.50.

The potential for the next spike on MRO would be a price
target in the $45 range. 

BUY 2006 $40.00 LEAP Call WXM-AH currently $2.45
BUY 2007 $40.00 LEAP Call VXM-AH currently $3.80
Insurance Put: April $35 PUT MRO-PG currently $1.50 

MRO Chart


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


STM - STMicroelectronics $19.52  ** Stopped $19.50 **

STM collapsed on Thursday after the warnings from XLNX
and ALTR. We were stopped out by four cents at $19.50.
The loss on the play was -85 cents. 

2007 $22.50 LEAP Call OMB-AX @ $3.30 exit $2.45, -$0.85

Entry $20.11 (11/26) 

STM Chart


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

ETR - Entergy Corp. $65.20   ** Stop $63.00 **

ETR has recovered slightly after taking two of their 
nuclear plants offline for refueling over the last 
four weeks. 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. 

Current position:
2007 $70 LEAP Call ODF-AN @ $5.20

Entry (11/22) $65.51

ETR Chart


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


FDX - Federal Express $98.80  **Stop $95.00**
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)

Insurance Put: Jan $95.00 PUT FDX-MS $1.25

FDX Chart


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


TYC - Tyco Intl. $34.35  **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. 

Tyco traded down to 33.58 last week and missed our
stop by only eight cents. 

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 $28.13 **Stop $27.50**

Juniper broke over $30 on Tuesday on the positive comments
from Cisco but caved in later in the week on the Nasdaq
weakness. It is holding just above the stop at $27.50 and
this level has held before. 

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


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

EBAY - EBAY $114.40      ** Stopped $113.00 **

EBAY finally rolled over and triggered our stop at $113
by 49 cents. We were very profitable with the $90 leaps
showing a $17 profit and the $100 leaps a $15 profit. 
We missed the top by $4 but we definitely can't complain.  

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 exit $31.60 +$16.90
2006 $100 LEAP Call YRL-AT @ $10.40 exit $25.23 +$14.83

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

EBAY Chart


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

MER - Merrill Lynch $58.95  ** Profit Stop $58.00 **
               
Merrill hit our profit target at $58 on Friday and 
we officially exited the position.     

2006 $50 LEAP Call WZM-AJ cost $7.80 exit $10.80 +$3.00
2006 $55 LEAP Call WZM-AK cost $4.80 exit $ 7.80 +$3.00

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

MER Chart


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

SYMC - Symantec - $31.48   ** Stopped $32.50 **

SYMC hit the post split depression phase and promptly
lost over $2 as excitement cooled. I had raised the
stop to $32.50 last week in anticipation of the drop
and we captured some nice profits on the play. 

The 2:1 split gave us two contracts for each of the
original entries and that means the profits were 
doubled from the post split numbers shown below.   

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 exit $9.70 +$4.35 x 2
2006 $27 LEAP Call YAG-AY @ $4.00 exit $7.93 +$3.93 x 2
2006 $30 LEAP Call YAG-AF @ $2.85 exit $6.60 +$3.75 x 2

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

SYMC Chart



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

XMSR - XM Satellite Radio $38.61  ** Stop $35.00 **

XMSR is really starting to scare me but it just keeps 
edging higher. I believe in the long term outlook for
XMSR over SIRI and I hate to keep raising the stop until
we are hit. I could see this at $50 by February. 

We currently have a double in all the options and 
instead of raising the stop I want to put in an
insurance put. The Jan $37.50 put is $1.60 and should
protect us from any dip while allowing us to move 
higher. If I kept the stop at $36 we would lose 
about $1.25 on the $30 leap if stopped. 

I would rather lower the stop and buy the put and
hopefully let it run to a much higher level. I am 
lowering the stop to $35 and instituting the insurance
put. 
 
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 

Insurance put: Jan $37.50 PUT QSY-MS @ $1.60 (12/12)

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

XMSR Chart



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

ADBE $62.97 Adobe Systems   ** Stopped $61.00 **

ADBE finally rolled over and we were stopped out at
$61 on the drop. The rebound from $59 could be only
temporary as there is a lot of profit in the stock 
that funds may want to capture before year end.  

2007 $65 LEAP Call VAE-AM @ $8.90 exit $11.40 +$2.50
Sell APR $60 Put AEQ-PL @ $5.50 exit $3.70 +$1.80

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

ADBE Chart


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

LLL $73.90 L-3 Communications   ** Stop $71.00 **

On Dec-2nd L3 was added to the S&P-500 and the price
shot up as funds bought into the company. The price
cooled once the fund buying rush was over. $73 appears
to be support and a positive market next week could 
find more buyers. I am lowering the stop to $71 and
our entry point and putting on an insurance put in
place of the lowered stop. This position is too new
to risk any retracement and the put is cheap at 75 cents.

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

Insurance put: Jan $70 PUT LLL-MN $0.75 (12/12)

LLL Chart


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

HIG - Hartford Financial Services $65.70  ** 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
(No insurance put)

HIG Chart


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


DIA  $105.49 Dow Diamonds Trust **Stop 104.00**

Twice in two weeks we have come very close to being
stopped in the diamonds with the Dow coming within
18 points of 10400 twice. We are up strongly in the
diamonds and rather than raise the stop again and 
put us at risk I am going to institute an insurance
put. I am going to use the Dec-$105 at 55 cents. It
is close enough to the money that we should get at
least a $1 bump if we are stopped at $104 and if we
do move higher we can easily afford it. 

My market view is for potential market weakness through
Tuesday and the FOMC meeting. Once past Tuesday we should
be in the Santa Rally period and hopefully moving higher.

We just need to stay out of trouble until the next up
move appears. A break over 10600 could really power these
options ahead. We are currently up about 75% on all of 
them.

New Insurance put: Dec $150 PUT DIA-XA @ $0.55 (12/12)

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 ** Stopped $33.25 **

The chip implosion coming right on the heals of the 
Intel guidance knocked a lot of the profit out of
this position. It was going very well with the SMH
testing $35 but in two days it had given back -$3.  

2006 $30 LEAP Call YRH-AF @ 5.20 exit $6.50, +$1.30
2006 $35 LEAP Call YRH-AG @ 3.12 exit $3.80, +$0.68
Sell 2006 $55 LEAP Put YRH-MK @ 24.30 exit $21.60 +$2.70

Entry $30.50 (10/19)

SMH Chart


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

QQQQ  $39.90 Nasdaq 100   **Stop $39.00**

The QQQ/QQQQ traded down to $39.24 before rebounding
on Thursday. This was 24 cents away from our stop.  

I am not going to raise the stop but I am uncomfortable
with the lack of upward movement on Friday. If you want
to put on insurance the Dec $39 put is 15 cents, Jan $39
put is 65 cents and the Dec $40 put is 45 cents. There is
a very short fuse on the December puts but my market view
suggests any volatility will be before Friday. Your choice!
We are up over $2 on each strike so we can afford it but
let your conscience be your guide.  
 
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
****************************    

Nothing Left to Watch 

DHI exploded again this week on the monster earnings
by Toll Brothers Homes. It neared $40 on Friday and
well above the $33 target. I dropped it and I have
nothing to replace it with this late in the year.

There are plenty of stocks moving higher but with
only 4-6 weeks of potential bullishness remaining
before Q4 earnings I hesitate to add anything new
to the watch list. 

I was going to add WLP as a watch list candidate
this week after mentioning it in the newsletter
on Wednesday as a strong candidate for a LONG
play at $105. On Thursday it gapped down to $101 
on news them blasted off to close at $113 on Friday.
Needless to say the options are inflated today and
we will not be adding it to the watch list. 

These are some stocks you might be interested in
but they are suggested for short term plays only. 

AFFX
CELG
DGX ($95) 
KMI
WMB



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

DHI - out of range.


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

None 
   
 

*************************
Current Watch list
*************************    
   
DHI - DR Horton $39.28    ** dropped **

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!) 

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

DHI Chart





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

 


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

Things Of Which Trading Ranges Are Made
By Mike Parnos

Before I started trading, I thought "support" was what I paid to 
my ex-wife and "resistance" is what I encountered when looking 
for my next wife.  Well, I was surprised to learn there are other 
meanings for those words.  

Support
When prices are falling, support is a level at which buyers come 
into the market because, a) they believe the stock is a bargain, 
or b) short sellers are covering their short positions because 
they believe the stock will move up from that point.

Resistance
When prices are rising, resistance is a level at which sellers 
are, a) taking their profits, or b) selling because they bought 
the stock at this level before and they were just waiting for it 
to return to this level so they could break even. 

Actually, support and resistance levels are a mainstay for our 
type of trading.  At the CPTI, we determine our positions based, 
to a large extent, on what the charts tell us.  We try to place 
our bull put spreads well below the support levels and above 
obvious resistance levels.

They work a large percentage of the time because the rest of the 
trading world is looking at these same charts.  These support and 
resistance levels become important reference points and 
ultimately become self-fulfilling prophecies.   When a sufficient 
number of traders have identified these points, they place their 
trades accordingly.

What really happens when a stock/index reaches one of these 
levels?  There is a war between buyers and sellers.   Opinions 
are like rear ends -- everybody has one.  For everyone who 
believes something is a bargain, there is someone who believes it 
is overpriced.  Who will win?  Who knows?  That's why we play the 
games.

A rising market will only change direction if/when enough traders 
act upon their conviction.  They believe that the stock doesn't 
have sufficient potential for further upward movement.  That's 
the primary reason.  They might want to sell because they need 
the money for liposuction or another tattoo.  The point is, that 
the sellers outnumber the buyers and cause a reversal in the 
market.

The same is true for the opposite scenario -- a reversal from a 
downward market, bouncing off support and beginning a new upward 
movement. 

The most important element of these actions is that, when 
evaluating a chart, there is an indication of, at what point, the 
reversal.  It will then become significant in the mind of the 
traders.  These top and bottom levels may very well repeat 
themselves and, over a period of time, a trading range will have 
developed.

How predictable are these ranges?  They will continue to work 
until they don't.  Last month we experience a movement where 
resistance levels didn't mean a damn thing.  Maybe they'll mean 
something later.  Rumor has it that resistance levels turn into 
support levels on the way down.  What a tangled web we weave when 
we try to decide what to believe.

These levels do have value because we know that the market trades 
in a range over 80% of the time -- thank goodness.  That's the 
fuel that makes our brokerage accounts grow.  And, there's no 
fuel like an old fuel.
__________________________________________________________

Dec. Quickie #3 - OEX Siamese Condor - 565.50
Sell 10 Dec. OEX 565 calls
Sell 10 Dec. OEX 565 puts
Credit of about $6.80

Buy 10 Dec. OEX 550 puts
Buy 10 Dec. OEX 580 calls
Debit of about $.60

Total net credit of about $6.20.  Profit range of 558.80 to 
571.20.  The closer OEX finishes to 565, the more we will make.  
Our exit points are 558.80 and 571.20 -- the same as our profit 
range.  The maintenance requirement is $15,000 ($1,500 per 
contract).
_________________________________________________________

QUICKIES FROM THURSDAY'S COLUMN
December Quickie #1 - RUT Siamese Condor - 629.19
We sold 10 RUT Dec. 630 puts and sold 10 RUT Dec. 630 calls for a 
premium credit of about: $13.10 ($13,100).  Then we bought 10 RUT 
Dec. 610 puts and sold 10 RUT Dec. 650 calls at a cost of about: 
$1.45 ($1,450).  Our total net premium is about $11.65 ($11,650).  
A trading range and profit parameters of 618.35 on the bottom to 
641.65.  Exit points are the same as the profit parameters.

December Quickie #2 - SPX Iron Condor - 1189.24
We sold 10 Dec. SPX 1210 calls and bought 10 Dec. SPX 1220 calls 
for a credit of about: $.90 ($900).  Then we sold 10 Dec. SPX 
1170 puts and bought 10 Dec. SPX 1160 puts for a credit of about: 
$.90 ($900).  We now have a total net credit and profit potential 
of about $1.80 ($1,800).  Maintenance of $10,000 ($1,000 per 
contract).  Maximum profit range of 1170 to 2120.  There's pretty 
good resistance below 1200 and some support at about 1170.  

____________________________________________________________

DECEMBER CPTI POSITIONS
December Position #1 -- SPX Iron Condor (Part 1) - 1189.24
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 – 
1189.24

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) – 
1189.24
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) - 1189.24
We would 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 -- $40.05
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 - 566.37
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.



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

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


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


In Section Five:

Spreads and Straddles: Investors Wait Patiently For Santa... 
Premium-Selling Plays: Naked Puts and Calls


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

Investors Wait Patiently For Santa...
By Ray Cummins

Stocks traded in lackluster fashion Friday amid worries about 
inflation and interest rates.
 
Investors were troubled by data from the Producer Price Index
report, which suggested a trend to higher wholesale prices in
the near future.  Analysts also noted that rising energy costs,
when combined with the robust PPI numbers, would likely sway
the Federal Reserve to raise the benchmark interest rate at its
meeting on Tuesday.  The Dow Jones Industrial average slipped 9
points to 10,543, despite a rally in General Electric (NYSE:GE)
shares.  The NASDAQ Composite was unchanged at 2,128 as losses
in disk drive and semiconductor stocks limited upside activity
in the technology segment.  The S&P 500 index finished 1 point
lower at 1,188, even as homebuilding, financial, airline, and
utility issues enjoyed buying interest.  For the week, the Dow
slid 0.46%, the S&P fell 0.27% and the NASDAQ was down 0.93%.
Big Board volume was 1.4 billion, while the technology exchange
crossed 1.7 billion shares.  Advancers outpaced decliners by a
small margin on the Big Board and the NASDAQ.  In the treasury
market, prices drifted higher.  The 10-year note closed up 3/32,
while its yield dropped to 4.15%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 12/10/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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  30.41  DEC  35.0  36.6  0.23   36.40  (1.39) Closed
WLP   113.90 113.10  DEC 100.0 105.0  0.50  104.50   0.50   Open
CECO   35.00  40.85  DEC  25.0  30.0  0.60   29.40   0.60   Open
EYET   45.64  42.87  DEC  30.0  35.0  0.45   34.55   0.45   Open
XMSR   36.13  38.64  DEC  30.0  32.5  0.25   32.25   0.25   Open
OIH    84.45  81.08  DEC  75.0  80.0  0.60   79.40   0.60   Open
DWA    39.58  37.75  DEC  30.0  35.0  0.50   34.50   0.50   Open
DRIV   38.31  41.80  DEC  30.0  35.0  0.35   34.65   0.35   Open
NBR    52.72  49.57  DEC  47.5  50.0  0.40   49.60  (0.03) Closed
NUE    54.05  49.99  DEC  45.0  50.0  0.45   49.55   0.44  Closed
MRVL   31.53  33.61  JAN  25.0  27.5  0.40   27.10   0.40   Open
CFC    33.21  35.18  JAN  27.5  30.0  0.30   29.70   0.30   Open
EBAY  112.20 114.41  JAN  95.0 100.0  0.60   99.40   0.60   Open
CYMI   34.11  29.38  JAN  25.0  30.0  0.50   29.50  (0.12)  Open?
LEND   46.85  47.94  JAN  35.0  40.0  0.50   39.50   0.50   Open

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

Shares of Vimplecom (NYSE:VIP) plunged this week after the firm
said it could owe up to $157 million in back taxes and penalties,
based on preliminary conclusions of a review of its 2001 filing.
The abrupt decline left traders with little opportunity to make
effective adjustments, but the long (put) option in the spread
limited potential losses.  Nabors Industries (NYSE:NBR) and Nucor
(NYSE:NUE) should have been closed early by conservative traders.
Cymer (NASDAQ:CYMI) is a candidate for exit after the retreat in
semiconductor shares.  The position in Wellpoint (NYSE:WLP) is
expected to expire at maximum profit, however 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  48.97   DEC  55.0  50.0  1.00   51.00  1.00   Open?
TTWO   33.24  33.71   DEC  40.0  37.5  0.30   37.80  0.30   Open
GM     39.97  38.93   DEC  45.0  42.5  0.30   42.80  0.30   Open
BSX    34.70  34.26   DEC  40.0  37.5  0.30   37.80  0.30   Open
MXIM   42.50  42.10   DEC  50.0  45.0  0.70   45.70  0.70   Open
BIIB   58.31  65.53   DEC  70.0  65.0  0.50   65.50 (0.03) Closed
INSP   49.17  48.26   DEC  65.0  60.0  0.40   60.40  0.40   Open
AMZN   38.55  39.05   DEC  45.0  42.5  0.30   42.80  0.30   Open
OSIP   58.16  46.97   DEC  70.0  65.0  0.55   65.55  0.55   Open
LXK    84.82  88.19   DEC  95.0  90.0  0.45   90.45  0.45   Open
MBT   135.99 127.99   DEC 155.0 150.0  0.55  150.55  0.50   Open
TASR   23.50  27.03   DEC  28.8  27.5  0.15   27.65  0.15   Open?
SINA   37.93  35.71   JAN  50.0  45.0  0.60   45.60  0.60   Open
LLY    53.33  55.04   JAN  65.0  60.0  0.65   60.65  0.65   Open
NVLS   26.94  27.81   JAN  32.5  30.0  0.35   30.35  0.35   Open
CCU    33.15  33.30   JAN  40.0  35.0  0.50   35.50  0.50   Open
UVN    29.06  27.90   JAN  35.0  30.0  0.80   30.80  0.80   Open

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

The position in Biogen-Idec (NASDAQ:BIIB) became a candidate for
early exit after Thursday's rally.  Sepracor (NASDAQ:SEPR) and
Taser (NASDAQ:TASR) remain on the "watch" list.  Electronic Arts
(NASDAQ:ERTS) has previously been closed to limit losses.

 
DEBIT STRADDLES

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

DE      69.26  70.56   DEC   70.0   70.0    4.50   4.25     Open?
TK      54.45  45.24   DEC   55.0   55.0    3.75  10.25     Open?
BTU     79.17  76.09   DEC   80.0   80.0    5.50   6.95     Open?

The speculative position in Teekay Shipping (NYSE:TK) has offered
nearly a 200% gain in only two weeks.  Peabody Energy (NYSE:BTU)
provided a favorable "early-exit" opportunity during Wednesday's
session.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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.

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

LEN - Lennar  $50.11  *** Strong Sector! ***

Lennar (NYSE:LEN) operates as a homebuilder and a provider of
mortgage-related financial services in the United States.  Its
homebuilding operations include the sale and construction of
single-family attached and detached homes, as well as the
purchase, development and sale of residential land directly
and through unconsolidated partnerships.  The firm's financial
services subsidiaries offer mortgage financing, title insurance,
closing services and insurance agency services for both buyers
of Lennar's homes and other buyers.  These subsidiaries also
provide high-speed Internet access, cable television and alarm
installation and monitoring services to residents of communities
the company develops and other communities.  Earnings are due
on or about 12/15/04.

LEN - Lennar  $50.11

PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-42.50  LEN-MV  OI=1474  ASK=$0.45
SELL PUT  JAN-45.00  LEN-MI  OI=3169  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.30-$0.35
POTENTIAL PROFIT(max)=14% B/E=$44.70


__________________________________________________________________

PHM - Pulte Homes  $59.65  *** Rally Mode! ***

Pulte Homes (NYSE:PHM) is a holding company whose subsidiaries
engage in the homebuilding and financial services businesses.
The Homebuilding segment consists of two major business units:
Domestic Homebuilding and International Homebuilding.  Domestic
Homebuilding is engaged in the acquisition and development of
land principally for residential purposes within the continental
United States, and the construction of housing on such land
targeted for the first-time, first and second move-up and active
adult home buyers.  International Homebuilding is engaged in the
acquisition and development of land principally for residential
purposes, and the construction of housing on such land in Mexico,
Puerto Rico and Argentina.  Financial Services consists primarily
of mortgage banking and title operations conducted through Pulte
Mortgage LLC and other subsidiaries.

PHM - Pulte Homes  $59.65

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JAN-50.00  PHM-MJ  OI=7017  ASK=$0.50
SELL PUT  JAN-55.00  PHM-MK  OI=1838  BID=$1.20
INITIAL NET-CREDIT TARGET=$0.75-$0.80
POTENTIAL PROFIT(max)=18% B/E=$54.25



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

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.

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

ADI - Analog Devices  $36.42  *** Sector Slump! ***

Analog Devices (NYSE:ADI) designs, manufactures and markets
high-performance analog, mixed-signal and digital signal
processing integrated circuits used in signal processing for
industrial, communication, computer and consumer applications.
The company's products play a role in converting real-world
phenomena such as temperature, motion, pressure, light and
sound into electrical signals to be used in a wide array of
electronic equipment ranging from industrial process control,
factory automation systems equipment, smart munitions, base
stations, central office equipment, wireless telephones,
computers, automobiles, computer-aided tomography scanners,
digital cameras and DVD players.

ADI - Analog Devices  $36.42

PLAY (conservative - bearish/credit spread):

BUY  CALL  JAN-45.00  ADI-AI  OI=4189  ASK=$0.10
SELL CALL  JAN-40.00  ADI-AH  OI=6132  BID=$0.55
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$40.50


__________________________________________________________________

KOSP - KOS Pharmaceuticals  $35.13  *** Generic Competition! ***

KOS Pharmaceuticals (NASDAQ:KOSP) is a fully integrated specialty
pharmaceutical firm that develops and commercializes proprietary
prescription products for the treatment of chronic cardiovascular
and respiratory diseases.  The company manufactures and markets
Niaspan and Advicor through its own specialty sales force.  KOS'
products under development for cardiovascular disease consist of
controlled-release, once-a-day, oral dosage formulations.  The
company's respiratory products under development consist of
aerosolized inhalation formulations to be used primarily with
its proprietary inhalation devices.

KOSP - KOS Pharmaceuticals  $35.13

PLAY (conservative - bearish/credit spread):

BUY  CALL  JAN-45.00  KWQ-AI  OI=4003  ASK=$0.30
SELL CALL  JAN-40.00  KWQ-AH  OI=688   BID=$0.80
INITIAL NET-CREDIT TARGET=$0.55-$0.60
POTENTIAL PROFIT(max)=12% B/E=$40.55



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

GS - Goldman Sachs  $109.40  *** Earnings Speculation Only! ***

The Goldman Sachs Group (NYSE:GS) is an investment banking,
securities and investment management firm that provides a
range of services worldwide to a substantial and diversified
client base that includes corporations, financial institutions,
governments and high-net-worth individuals.  The company's
activities are divided into three segments: Investment Banking;
Trading and Principal Investments; and Asset Management and
Securities Services.  Earnings are due on or about 12/16/04.

GS - Goldman Sachs  $109.40

PLAY (very speculative - neutral/debit straddle):

BUY CALL  DEC-110.00  GS-LB  OI=8169  ASK=$1.35
BUY PUT   DEC-110.00  GS-XB  OI=1163  ASK=$1.80
INITIAL NET-DEBIT TARGET=$3.00-$3.10
INITIAL TARGET PROFIT=$1.15-$1.70





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*****************************************
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 12/10/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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   21.87    0.45   5.52%   2.64%
VTIV     DEC    17.50   17.05   20.00    0.45   5.46%   2.64%
IFLO     DEC    15.00   14.55   18.71    0.45   6.89%   3.09%
ADLR     DEC    12.50   12.10   14.44    0.40   6.88%   3.31%
UTHR     DEC    25.00   24.05   42.96    0.95   9.03%   3.95%
RIGL     DEC    20.00   19.70   24.74    0.30   4.02%   1.52%
NFLD     DEC    15.00   14.45   18.74    0.55   8.24%   3.81%
RMBS     DEC    17.50   16.75   26.45    0.75   9.88%   4.48%
AGIX     DEC    20.00   19.60   24.22    0.40   4.83%   2.04%
ATI      DEC    20.00   19.35   20.96    0.65   7.37%   3.36%
MRVL     DEC    25.00   24.60   33.61    0.40   5.17%   1.63%
ELN      DEC    22.50   22.15   27.87    0.35   4.93%   1.58%
TSRA     DEC    25.00   24.35   38.25    0.65   7.97%   2.67%
VTS      DEC    20.00   19.65   20.00    0.35   4.84%   1.78%
ERICY    DEC    30.00   29.60   31.81    0.40   3.44%   1.35%
RMBS     DEC    17.50   16.95   26.45    0.55  10.12%   3.24%
TSRA     DEC    30.00   29.65   38.25    0.35   4.12%   1.18%
NCRX     DEC    25.00   24.25   29.44    0.75   8.18%   3.09%
IFLO     DEC    17.50   17.00   18.71    0.50   7.38%   2.94%
NTGR     DEC    15.00   14.60   17.14    0.40   6.54%   2.74%
ENZ      DEC    17.50   17.05   19.23    0.45   6.32%   2.64%
CECO     DEC    30.00   29.30   40.85    0.70   7.67%   2.39%
CRA      DEC    12.50   12.20   13.65    0.30   6.11%   2.46%
DDS      DEC    22.50   22.25   25.83    0.25   4.06%   1.12%
SRNA     DEC    20.00   19.60   20.74    0.40   5.87%   2.04%
RAE      DEC     7.50    7.25    7.70    0.25  10.80%   3.45%
FXEN     DEC     7.50    7.05   10.05    0.45  17.57%   6.38%
NVDA     DEC    17.50   17.10   23.31    0.40   6.91%   2.34%
IDCC     DEC    17.50   16.85   20.65    0.65  11.05%   3.86%
MCIP     DEC    17.50   17.05   19.00    0.45   7.70%   2.64%
PLMO     DEC    30.00   29.60   39.56    0.40   5.49%   1.35%
TINY     DEC    12.50   12.15   13.12    0.35   9.97%   2.88%
IDCC     DEC    17.50   17.20   20.65    0.30   6.57%   1.74%
ADLR     DEC    12.50   12.25   14.44    0.25   6.86%   2.04%
NANO     DEC    15.00   14.70   15.31    0.30   6.80%   2.04%
ISRG     DEC    30.00   29.50   33.94    0.50   6.08%   1.69%
DHB      DEC    17.50   17.20   18.34    0.30   6.59%   1.74%
AMED     DEC    30.00   29.35   31.80    0.65   7.53%   2.21%
HNT      DEC    25.00   24.60   29.00    0.40   5.37%   1.63%
UTHR     DEC    40.00   39.60   42.96    0.40   4.64%   1.01%
ELAB     DEC    22.50   22.30   26.76    0.20   4.07%   0.90%
CTMI     DEC    12.50   12.25   13.37    0.25   8.20%   2.04%
DUSA     DEC    12.50   12.25   14.24    0.25   8.26%   2.04%
MCIP     DEC    17.50   17.25   19.00    0.25   6.11%   1.45%
RMBS     DEC    20.00   19.65   26.45    0.35   7.55%   1.78%
ZEUS     DEC    20.00   19.70   23.54    0.30   6.48%   1.52%
VISG     JAN     7.50    7.10    7.72    0.40   7.51%   5.63%
GIVN     DEC    30.00   29.65   34.39    0.35   5.71%   1.18%
RHAT     JAN    12.50   12.05   15.85    0.45   6.06%   3.73%
MSO      DEC    20.00   19.60   26.10    0.40  10.85%   2.04%
NKTR     DEC    17.50   17.15   18.75    0.35   8.90%   2.04%
NANO     DEC    15.00   14.75   15.31    0.25   7.69%   1.69%
ELAB     DEC    25.00   24.65   26.76    0.35   6.45%   1.42%
SHOP     DEC    25.00   24.70   24.62   (0.08)  0.00%   0.00%
NCRX     JAN    25.00   24.40   29.44    0.60   4.78%   2.46%
NTGR     JAN    15.00   14.65   17.14    0.35   4.58%   2.39%
RMBS     JAN    17.50   17.10   26.45    0.40   4.87%   2.34%
TLCV     JAN    10.00   9.65    10.42    0.35   6.91%   3.63%
WITS     JAN    15.00   14.55   16.40    0.45   5.38%   3.09%
IDCC     JAN    17.50   16.95   20.65    0.55   6.62%   3.24%
NVTL     JAN    17.50   17.20   22.18    0.30   3.95%   1.74%
MSO      JAN    17.50   17.05   26.10    0.45   5.62%   2.64%
  
Positions in Seachange International (NASDAQ:SEAC), which is
currently profitable, and Pan American Silver (NASDAQ:PAAS),
have previously been closed to limit potential losses.  Rae
Systems (NYSE:RAE), Shopping.com (NASDAQ:SHOP), Veritas DGC
(NYSE:VTS) and Nanometrics (NASDAQ:NANO) are candidates for
early exit.  Allegheny Technologies (NYSE:ATI), LM Ericsson
(NASDAQ:ERICY), Harris & Harris (NASDAQ:TINY) and TLC Vision
(NASDAQ:TLCV) are on the "watch" list.
   

NAKED CALLS

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

MNST     DEC    30.00   30.60   28.25    0.60   4.91%   1.96%
FOSL     DEC    30.00   30.50   25.00    0.50   4.16%   1.64%
SLAB     DEC    35.00   35.55   31.77    0.55   4.84%   1.55%
APPX     DEC    35.00   35.60   32.36    0.60   7.73%   1.69%
DIGE     DEC    25.00   25.30   24.21    0.30   6.05%   1.19%
MDCO     DEC    30.00   30.35   27.42    0.35   5.01%   1.15%
BOBJ     DEC    25.00   25.40   22.90    0.40   5.96%   1.57%
ENZN     DEC    20.00   20.55   14.84    0.55  14.84%   2.68%
TACT     DEC    25.00   25.40   21.29    0.40   8.50%   1.57%
AMLN     DEC    25.00   25.25   21.38    0.25   5.35%   0.99%
ATMI     DEC    25.00   25.40   23.78    0.40   5.74%   1.57%
CELG     DEC    30.00   30.45   28.84    0.45   6.31%   1.48%
JBLU     DEC    25.00   25.30   24.26    0.30   4.99%   1.19%
AGIX     DEC    30.00   30.35   24.22    0.35   8.24%   1.15%
JUPM     DEC    20.00   20.20   19.36    0.20   6.98%   0.99%
CYBX     DEC    22.50   22.85   18.54    0.35  11.25%   1.53%
SNIC     DEC    20.00   20.35   20.08    0.27   5.98%   1.72%
PLAB     DEC    20.00   20.30   16.53    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   23.30    0.50   9.20%   1.96%
MAY      DEC    30.00   30.30   28.68    0.30   5.24%   0.99%
TACT     DEC    25.00   25.30   21.29    0.30  10.43%   1.19%
APPX     DEC    32.50   32.95   32.36    0.45   9.99%   1.37%
OSIP     DEC    55.00   55.65   46.97    0.65  13.28%   1.17%

American Pharmaceutical Partners (NASDAQ:APPX) is a candidate
for early exit after Friday's sharp rally.  Sonic Solutions
(NASDAQ:SNIC), although currently profitable, has previously
been closed to limit potential losses.  AeroPostale (NYSE:ARO),
Digene (NASDAQ:DIGE), JetBlue Airways (NASDAQ:JBLU), and
JupiterMedia (NASDAQ:JUPM) remain 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

DHB    18.34  JAN 15.00  DHB-MC 0.65 1167 14.35  41   3.4%  10.4%
GTOP   15.00  JAN 12.50  GWY-MV 0.45   10 12.05  41   2.8%   8.5%
RMBS   26.45  JAN 20.00  BNQ-MD 0.65 6122 19.35  41   2.5%   8.1%
MOGN   27.52  JAN 25.00  QOG-ME 0.95  304 24.05  41   2.9%   7.5%
ACF    22.85  JAN 22.50  ACF-MX 0.85  129 21.65  41   2.9%   6.5%
USNA   31.47  JAN 30.00  UNX-MF 1.00  322 29.00  41   2.6%   6.1%
MSO    26.10  JAN 20.00  MSO-MD 0.40 2303 19.60  41   1.5%   5.3%
CMVT   24.11  JAN 22.50  CQV-MX 0.45  475 22.05  41   1.5%   3.9%

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.
_________________________________________________________________

DHB - DHB Industries  $18.34  *** Speculation Only! ***

DHB Industries (NYSE:DHB) is a holding company with two major
divisions: DHB Armor Group and DHB Sports Group.  The Armor
Group includes Point Blank Body Armor and Protective Apparel
Corporation of America and they manufacture various types of
body armor.  The Sports Group, which consists of NDL Products,
manufactures and distributes protective athletic apparel and
equipment, including elbow, breast, hip, groin, knee, shin and
ankle supports and braces, as well as a line of therapy products.

DHB - DHB Industries  $18.34

JAN 15.00 DHB-MC LB=0.65 OI=1167 CB=14.35 DE=41 TY=3.4% MY=10.4%


_________________________________________________________________

GTOP - Genitope  $15.00  *** Volatility = Premium! ***

Genitope (NASDAQ:GTOP) is a biotechnology company focused on
the research and development of novel immuno-therapies for the
treatment of cancer.  The company's lead product candidate,
MyVax personalized immunotherapy, is a patient-specific active
immunotherapy that is based on the genetic makeup of a patient's
tumor, and is designed to activate a patient's immune system to
identify and attack cancer cells.  MyVax is in a pivotal Phase
III clinical trial and additional Phase II clinical trials for
the treatment of B-cell non-Hodgkin's lymphoma (B-cell NHL).

GTOP - Genitope  $15.00

JAN 12.50 GWY-MV LB=0.45 OI=10 CB=12.05 DE=41 TY=2.8% MY=8.5%


_________________________________________________________________

RMBS - Rambus  $26.45  *** Pure Premium-Selling! ***

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  $26.45

JAN 20.00 BNQ-MD LB=0.65 OI=6122 CB=19.35 DE=41 TY=2.5% MY=8.1%


_________________________________________________________________

MOGN - MGI Pharma  $27.52  *** Consolidation Complete? ***

MGI Pharma (NASDAQ:MOGN) is an oncology-based biopharmaceutical
company that acquires, develops and commercializes proprietary
pharmaceutical products that meet cancer patient needs.  The
company's marketed products include Aloxi injection, Salagen
Tablets and Hexalen capsules.  Aloxi is used for the prevention
of chemotherapy-induced nausea and vomiting.  Salagen Tablets
are a treatment for the symptoms of radiation-induced dry mouth
in head and neck cancer patients and to rheumatologists as a
treatment for dry mouth associated with the autoimmune disease
Sjogren's syndrome.  Hexalen capsules are a chemotherapeutic
agent for treatment of refractory ovarian cancer patients.

MOGN - MGI Pharma  $27.52

JAN 25.00 QOG-ME LB=0.95 OI=304 CB=24.05 DE=41 TY=2.9% MY=7.5%


_________________________________________________________________

ACF - AmeriCredit  $22.85  *** Own This One! ***

AmeriCredit (NYSE:ACF) is a consumer finance firm specializing
in purchasing retail automobile installment sales contracts
originated by franchised and select independent dealers in
connection with the sale of used and new automobiles.  The
company generates revenue and cash flows primarily through the
purchase, retention, subsequent securitization and servicing
of finance receivables.  AmeriCredit received finance charge
income on the finance receivables and pays interest expense on
borrowings under its warehouse credit facilities.

ACF - AmeriCredit  $22.85

JAN 22.50 ACF-MX LB=0.85 OI=129 CB=21.65 DE=41 TY=2.9% MY=6.5%


_________________________________________________________________

USNA - USANA Health Sciences  $31.47  *** Next Leg Up? ***

USANA Health Sciences (NASDAQ:USNA) develops and manufactures
nutritional and personal care products.  The firm distributes
its products with a network marketing system using independent
distributors that it refers to as Associates.  The company also
sells products directly to Preferred Customers who purchase
products for personal use and are not permitted to resell or
distribute the products.  USANA's primary product lines consist
of USANA Nutritionals, a line of supplements and food products,
and Sense - beautiful science, its line of skin and personal
care products.

USNA - USANA Health Sciences  $31.47

JAN 30.00 UNX-MF LB=1.00 OI=322 CB=29.00 DE=41 TY=2.6% MY=6.1%


_________________________________________________________________

MSO - Martha Stewart  $26.10  *** Another 2004 High! ***

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  $26.10

JAN 20.00 MSO-MD LB=0.40 OI=2303 CB=19.60 DE=41 TY=1.5% MY=5.3%


_________________________________________________________________

CMVT - Comverse Technology  $24.11  *** Target An Entry Point ***

Comverse Technology (NASDAQ:CMVT) designs, develops, makes,
markets and supports software, systems and related services for
multimedia communication and information processing applications.
The company's products are used in a range of applications by
wireless and wireline telecommunications network operators and
service providers, call centers and other government, public
and commercial organizations worldwide.

CMVT - Comverse Technology  $24.11

JAN 22.50 CQV-MX LB=0.45 OI=475 CB=22.05 DE=41 TY=1.5% MY=3.9% TS



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

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.

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

PLAY - PortalPlayer  $26.63  *** Premium-Selling Only! ***

PortalPlayer (NASDAQ:PLAY) is a fabless semiconductor company
that designs, develops and markets comprehensive platform
solutions, including a system-on-chip, firmware and software
for manufacturers of feature-rich, hard disk drive (HDD)-based
personal media players.  The company's platform solutions are
designed to enable personal media players to manage thousands
of digital media files and allow its customers to construct
intuitive and customizable user interfaces.  Its customers use
the firm's platforms to produce high-performance, feature-rich,
differentiated personal media players in a cost-effective manner
with fast time to market.

PLAY - PortalPlayer  $26.63

"SPECULATIVE" PLAY (sell naked call):

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

SELL CALL  JAN 35    PQP-AG     61    1.05  36.05  12.2%   2.9%


_________________________________________________________________

SCSS - Select Comfort  $15.90  *** Sleepless Nights Ahead? ***

Select Comfort (NASDAQ:SCSS) is a developer, manufacturer and
marketer of adjustable-firmness beds that have the air-chamber
technology, which provides better support, reduced pressure
points and greater relief of back pain.  The company sells its
products through four distribution channels: retail, direct
marketing, e-commerce and wholesale.  The products are made to
order and sold directly to consumers through company-controlled
distribution channels.  The consumer-driven and service-oriented
business model enables the company to understand and respond
quickly to consumer trends and preferences.  Select Comfort
sells a proprietary line of beds under the Sleep Number brand
that features an adjustable air chamber mattress.

SCSS - Select Comfort  $15.90

PLAY (sell naked call):

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

SELL CALL  JAN 17.5  QSL-AW    2386   0.55  18.05   7.7%   3.0%


_________________________________________________________________

XLNX - Xilinx  $29.55  *** Mediocre Earnings Outlook ***

Xilinx (NASDAQ:XLNX) designs, develops and markets complete
programmable logic solutions, including advanced integrated
circuits, software design tools, predefined system functions
delivered as intellectual property cores, design services,
customer training, field engineering and technical support.
The programmable logic devices include field programmable
gate arrays and programmable logic devices.  These devices
are standard products that the company's customers program
to perform desired logic functions.  The products are designed
to provide integration and quick time-to-market for electronic
equipment manufacturers in the communications, storage, server,
consumer, industrial and other markets.

XLNX - Xilinx  $29.55

PLAY (sell naked call):

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

SELL CALL  JAN 32.5  XLQ-AZ   12988   0.50  33.00   4.0%   1.5% TS





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